##### 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 1934 
|          
|           |  | For the quarterly period ended June 30,
    2004                                            
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number 000-32837

United Surgical Partners International,
Inc.

(Exact name of registrant as specified in its
charter)


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

(972) 713-3500

(Registrants telephone number, including
area code)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes þ          No o

At July 26, 2004 there were
28,327,800 shares of Common Stock outstanding.



---






---










UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES

INDEX

|                                                                 |  |                                                                                                                           |  |   
|---------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I. Financial
    Information                               
|                                                                
|                                                                
|                                                                
|                                                                
|Item 1.                                                          |  | Financial Statements
    (unaudited)                                                                                      |  | 2 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |  | Consolidated Balance Sheets
    as of June 30, 2004 and December 31, 2003.                                                |  | 2 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |  | Consolidated Statements of
    Income for the three months and six months ended June 30,
    2004 and 2003.               |  | 3 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |  | Consolidated Statements of
    Comprehensive Income for the three months and six months ended
    June 30, 2004 and 2003. |  | 4 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |  | Consolidated Statements of
    Cash Flows for the six months ended June 30, 2004 and
    2003                             |  | 5 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |  | Notes to Consolidated
    Financial Statements                                                                            |  | 6 
|                                                                
|                                                                
|                                                                
|                                                                
|Item 2.                                                          |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                                 |  | 17
|                                                                
|                                                                
|                                                                
|                                                                
|Item 3.                                                          |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                            |  | 27
|                                                                
|                                                                
|                                                                
|                                                                
|Item 4.                                                          |  | Controls and Procedures                                                                                                   |  | 28
|                                                                 |  |                                                                                                                           |  |   
|                                                                
|                                                                
|                                                                
|                                                                
|PART II. Other Information                                      
|                                                                
|                                                                
|                                                                
|                                                                
|Item 1.                                                          |  | Legal Proceedings                                                                                                         |  | 28
|                                                                
|                                                                
|                                                                
|                                                                
|Item 4.                                                          |  | Submission of Matters to a
    Vote of Security Holders                                                                   |  | 29
|                                                                
|                                                                
|                                                                
|                                                                
|Item 6.                                                          |  | Exhibits and Reports on
    Form 8-K                                                                                      |  | 29
|                                                                 |  |                                                                                                                           |  |   
|                                                                
|                                                                
|                                                                
|                                                                
|Signatures                                                       |  | 31                                                                                                                       
|Certification of Chief Executive Officer Pursuant to Section 302
|Certification of Chief Financial Officer Pursuant to Section 302
|Certification of Chief Executive Officer Pursuant to Section 906
|Certification of Chief Financial Officer Pursuant to Section 906





|      |                                                                              
|----- | -----------------------------------------------------------------------------
|Note: | Items 2, 3, and 5 of Part II are
    omitted because they are not applicable.

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


(Unaudited  in thousands, except
per share amounts)


|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |         |         | 
|-------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | 
|                                                                                                   |                                                                                                                                                            | June 30,                                   |         | December 31,
|                                                                                                   |                                                                                                                                                            | 2004                                       |         | 2003        
|                                                                                                   |                                                                                                                                                            |                                            |         |             
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|ASSETS                                                                                            
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Cash and cash equivalents                                                                          |                                                                                                                                                            | $                                          | 43,162  |              |         | $ | 28,519  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Patient receivables, net of allowance for
    doubtful accounts of $9,830 and $8,838, respectively |                                                                                                                                                            |                                            | 64,783  |              |         |   | 56,591  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Other receivables                                                                                  |                                                                                                                                                            |                                            | 21,995  |              |         |   | 20,168  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Inventories of supplies                                                                            |                                                                                                                                                            |                                            | 9,433   |              |         |   | 9,024   |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Deferred tax asset, net                                                                            |                                                                                                                                                            |                                            | 8,036   |              |         |   | 6,747   |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Prepaids and other current assets                                                                  |                                                                                                                                                            |                                            | 14,838  |              |         |   | 12,548  |        
|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |        
|                                                                                                   |                                                                                                                                                            | Total current assets                       |         |              | 162,247 |   |         |         | 133,597 | 
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Property and equipment, net                                                                        |                                                                                                                                                            |                                            | 372,412 |              |         |   | 348,063 |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Investments in affiliates                                                                          |                                                                                                                                                            |                                            | 37,492  |              |         |   | 32,104  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Intangible assets, net                                                                             |                                                                                                                                                            |                                            | 338,963 |              |         |   | 326,645 |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Other assets                                                                                       |                                                                                                                                                            |                                            | 19,215  |              |         |   | 30,100  |        
|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |        
|                                                                                                   |                                                                                                                                                            | Total assets                               |         | $            | 930,329 |   |         | $       | 870,509 | 
|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                          
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Accounts payable                                                                                   |                                                                                                                                                            | $                                          | 34,662  |              |         | $ | 36,453  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Accrued salaries and benefits                                                                      |                                                                                                                                                            |                                            | 23,605  |              |         |   | 19,609  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Due to affiliates                                                                                  |                                                                                                                                                            |                                            | 5,335   |              |         |   | 5,490   |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Accrued interest                                                                                   |                                                                                                                                                            |                                            | 2,011   |              |         |   | 1,739   |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Current portion of long-term debt                                                                  |                                                                                                                                                            |                                            | 22,519  |              |         |   | 16,794  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Other accrued expenses                                                                             |                                                                                                                                                            |                                            | 29,398  |              |         |   | 23,555  |        
|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |        
|                                                                                                   |                                                                                                                                                            | Total current liabilities                  |         |              | 117,530 |   |         |         | 103,640 | 
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Long-term debt, less current portion                                                               |                                                                                                                                                            |                                            | 305,644 |              |         |   | 287,950 |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Other long-term liabilities                                                                        |                                                                                                                                                            |                                            | 6,697   |              |         |   | 8,327   |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Deferred tax liability, net                                                                        |                                                                                                                                                            |                                            | 35,106  |              |         |   | 33,979  |        
|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |        
|                                                                                                   |                                                                                                                                                            | Total liabilities                          |         |              | 464,977 |   |         |         | 433,896 | 
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Minority interests                                                                                 |                                                                                                                                                            |                                            | 49,749  |              |         |   | 45,958  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Stockholders equity:                                                                              |                                                                                                                                                            |                                            |         |              |         |   |         |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Common stock, $0.01 par value;
    200,000 shares authorized; 28,331 and 27,705 shares
    issued at June 30, 2004 and December 31, 2003,
    respectively |                                            |         | 283          |         |   |         | 277     |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Additional paid-in capital                                                                                                                                 |                                            |         | 339,652      |         |   |         | 330,519 |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Treasury stock, at cost, 29 and 52 shares at
    June 30, 2004 and December 31, 2003, respectively                                                         |                                            |         | (611         | )       |   |         | (986    | )      
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Deferred compensation                                                                                                                                      |                                            |         | (6,499       | )       |   |         | (4,548  | )      
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Receivables from sales of stock                                                                                                                            |                                            |         |             |         |   |         | (1      | )      
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Accumulated other comprehensive income, net of tax                                                                                                         |                                            |         | 29,720       |         |   |         | 32,852  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Retained earnings                                                                                                                                          |                                            |         | 53,058       |         |   |         | 32,542  |        
|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |        
|                                                                                                   |                                                                                                                                                            | Total stockholders equity                 |         |              | 415,603 |   |         |         | 390,655 | 
|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |        
|                                                                                                   |                                                                                                                                                            | Total liabilities and stockholders equity |         | $            | 930,329 |   |         | $       | 870,509 | 
|                                                                                                   |                                                                                                                                                            |                                            |         |              |         |   |         |        

See accompanying notes to consolidated financial
statements.

2



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.

AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME

(Unaudited  in thousands, except
per share amounts)


|                                                              |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |         |  
|------------------------------------------------------------- | -------------------------------- | ------------------ | ------- | ---------------- | - | ---- | ------ | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                              |                                  |                    |         |                 
|                                                              |                                  | Three Months Ended |         | Six Months Ended
|                                                              |                                  | June 30,           |         | June 30,        
|                                                              |                                  |                    |         |                 
|                                                              |                                  | 2004               |         | 2003             |   | 2004 |        | 2003   
|                                                              |                                  |                    |         |                  |   |      |        |        
|Net patient service revenue                                   |                                  | $                  | 120,248 |                  |   | $    | 98,094 |         |   | $ | 238,180 |         |   | $ | 188,564 |        
|                                                             
|                                                             
|                                                             
|                                                             
|Management and administrative services revenue                |                                  |                    | 9,703   |                  |   |      | 9,161  |         |   |   | 19,207  |         |   |   | 17,198  |        
|                                                             
|                                                             
|                                                             
|                                                             
|Equity in earnings of unconsolidated affiliates               |                                  |                    | 5,149   |                  |   |      | 3,265  |         |   |   | 10,459  |         |   |   | 5,806   |        
|                                                             
|                                                             
|                                                             
|                                                             
|Other income                                                  |                                  |                    | 966     |                  |   |      | 1,024  |         |   |   | 1,942   |         |   |   | 2,035   |        
|                                                              |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|                                                              | Total revenue                    |                    |         | 136,066          |   |      |        | 111,544 |   |   |         | 269,788 |   |   |         | 213,603 |  
|                                                             
|                                                             
|                                                             
|                                                             
|Salaries, benefits, and other employee costs                  |                                  |                    | 35,465  |                  |   |      | 27,407 |         |   |   | 69,577  |         |   |   | 52,903  |        
|                                                             
|                                                             
|                                                             
|                                                             
|Medical services and supplies                                 |                                  |                    | 26,348  |                  |   |      | 21,129 |         |   |   | 52,407  |         |   |   | 41,032  |        
|                                                             
|                                                             
|                                                             
|                                                             
|Other operating expenses                                      |                                  |                    | 23,475  |                  |   |      | 19,955 |         |   |   | 46,450  |         |   |   | 37,971  |        
|                                                             
|                                                             
|                                                             
|                                                             
|General and administrative expenses                           |                                  |                    | 8,347   |                  |   |      | 7,373  |         |   |   | 16,340  |         |   |   | 14,087  |        
|                                                             
|                                                             
|                                                             
|                                                             
|Provision for doubtful accounts                               |                                  |                    | 1,895   |                  |   |      | 1,994  |         |   |   | 4,190   |         |   |   | 3,542   |        
|                                                             
|                                                             
|                                                             
|                                                             
|Depreciation and amortization                                 |                                  |                    | 9,219   |                  |   |      | 7,870  |         |   |   | 18,098  |         |   |   | 15,307  |        
|                                                              |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|                                                              | Total operating expenses         |                    |         | 104,749          |   |      |        | 85,728  |   |   |         | 207,062 |   |   |         | 164,842 |  
|                                                              |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|                                                              | Operating income                 |                    |         | 31,317           |   |      |        | 25,816  |   |   |         | 62,726  |   |   |         | 48,761  |  
|                                                             
|                                                             
|                                                             
|                                                             
|Interest income                                               |                                  |                    | 219     |                  |   |      | 194    |         |   |   | 389     |         |   |   | 511     |        
|                                                             
|                                                             
|                                                             
|                                                             
|Interest expense                                              |                                  |                    | (7,919  | )                |   |      | (6,860 | )       |   |   | (15,443 | )       |   |   | (13,734 | )      
|                                                             
|                                                             
|                                                             
|                                                             
|Other                                                         |                                  |                    | 23      |                  |   |      | 103    |         |   |   | 30      |         |   |   | 109     |        
|                                                              |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|                                                              | Total other expense, net         |                    |         | (7,677           | ) |      |        | (6,563  | ) |   |         | (15,024 | ) |   |         | (13,114 | )
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Income before minority interests |                    |         | 23,640           |   |      |        | 19,253  |   |   |         | 47,702  |   |   |         | 35,647  |  
|                                                             
|                                                             
|                                                             
|                                                             
|Minority interests in income of consolidated
    subsidiaries |                                  |                    | (7,336  | )                |   |      | (6,178 | )       |   |   | (15,486 | )       |   |   | (11,188 | )      
|                                                              |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|                                                              | Income before income taxes       |                    |         | 16,304           |   |      |        | 13,075  |   |   |         | 32,216  |   |   |         | 24,459  |  
|                                                             
|                                                             
|                                                             
|                                                             
|Income tax expense                                            |                                  |                    | (5,793  | )                |   |      | (4,902 | )       |   |   | (11,702 | )       |   |   | (9,164  | )      
|                                                              |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|                                                              | Net income                       |                    | $       | 10,511           |   |      | $      | 8,173   |   |   | $       | 20,514  |   |   | $       | 15,295  |  
|                                                              |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|Net income per share attributable to common
    stockholders  |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Basic                            |                    | $       | 0.38             |   |      | $      | 0.30    |   |   | $       | 0.74    |   |   | $       | 0.57    |  
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Diluted                          |                    | $       | 0.36             |   |      | $      | 0.29    |   |   | $       | 0.70    |   |   | $       | 0.55    |  
|Weighted average number of common shares                      |                                  |                    |         |                  |   |      |        |         |   |   |         |         |   |   |         |        
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Basic                            |                    |         | 27,865           |   |      |        | 27,064  |   |   |         | 27,793  |   |   |         | 27,055  |  
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Diluted                          |                    |         | 29,247           |   |      |        | 27,950  |   |   |         | 29,214  |   |   |         | 27,854  |  

See accompanying notes to consolidated financial
statements.

3



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.

AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME


(Unaudited  in thousands)


|                                                 |                                          |                    |        |                  |   |      |       |        |  |   |        |        |   |   |        |        | 
|------------------------------------------------ | ---------------------------------------- | ------------------ | ------ | ---------------- | - | ---- | ----- | ------ |  | - | ------ | ------ | - | - | ------ | ------ | 
|                                                 |                                          |                    |        |                 
|                                                 |                                          | Three Months Ended |        | Six Months Ended
|                                                 |                                          | June 30,           |        | June 30,        
|                                                 |                                          |                    |        |                 
|                                                 |                                          | 2004               |        | 2003             |   | 2004 |       | 2003  
|                                                 |                                          |                    |        |                  |   |      |       |       
|Net income                                       |                                          | $                  | 10,511 |                  |   | $    | 8,173 |        |  | $ | 20,514 |        |   | $ | 15,295 |       
|                                                
|                                                
|                                                
|                                                
|Other comprehensive income (loss), net of taxes: |                                          |                    |        |                  |   |      |       |        |  |   |        |        |   |   |        |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Foreign currency translation adjustments |                    |        | (2,419           | ) |      |       | 9,149  |  |   |        | (3,175 | ) |   |        | 11,713 | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Net unrealized gains on securities       |                    |        | 10               |   |      |       | 138    |  |   |        | 43     |   |   |        | 15     | 
|                                                 |                                          |                    |        |                  |   |      |       |        |  |   |        |        |   |   |        |       
|                                                 | Other comprehensive income (loss)        |                    |        | (2,409           | ) |      |       | 9,287  |  |   |        | (3,132 | ) |   |        | 11,728 | 
|                                                 |                                          |                    |        |                  |   |      |       |        |  |   |        |        |   |   |        |       
|                                                 | Comprehensive income                     |                    | $      | 8,102            |   |      | $     | 17,460 |  |   | $      | 17,382 |   |   | $      | 27,023 | 
|                                                 |                                          |                    |        |                  |   |      |       |        |  |   |        |        |   |   |        |       

See accompanying notes to consolidated financial
statements.

4



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.

AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Unaudited  in thousands)


|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |         |        |         |         |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ----------------------------------------- | ------- | ------- | ------- | ------- | ------ | ------- | ------- | -
|                                                         |                                                                                       |                                                                                                                                         
|                                                         |                                                                                       | Six Months Ended                                                                                                                        
|                                                         |                                                                                       | June 30,                                                                                                                                
|                                                         |                                                                                       |                                                                                                                                         
|                                                         |                                                                                       | 2004                                                                                                                                     |                                                                | 2003                                     
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                          
|Cash flows from operating activities:                    |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Net income                                                                            |                                                                                                                                          | $                                                              | 20,514                                    |         |         | $       | 15,295  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                                                                          |                                                                |                                           |         |         |         |         |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Provision for doubtful accounts                                                                                                          |                                                                |                                           | 4,190   |         |         |         | 3,542  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Depreciation and amortization                                                                                                            |                                                                |                                           | 18,098  |         |         |         | 15,307 |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Amortization of debt issue costs and discount                                                                                            |                                                                |                                           | 1,079   |         |         |         | 905    |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Deferred income tax expense                                                                                                              |                                                                |                                           | 624     |         |         |         | 6,575  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Equity in earnings of unconsolidated affiliates                                                                                          |                                                                |                                           | (10,459 | )       |         |         | (5,806 | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Minority interests in income of consolidated
    subsidiaries                                                                            |                                                                |                                           | 15,486  |         |         |         | 11,188 |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Equity-based compensation                                                                                                                |                                                                |                                           | 1,692   |         |         |         | 279    |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Increases (decreases) in cash from changes
    in operating assets and liabilities, net of effects from
    purchases of new businesses: |                                                                |                                           |         |         |         |         |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       |                                                                                                                                          | Patient receivables                                            |                                           |         | (11,465 | )       |         |        | (11,261 | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       |                                                                                                                                          | Other receivables                                              |                                           |         | (1,862  | )       |         |        | 9,919   |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       |                                                                                                                                          | Inventories of supplies, prepaids and other
    current assets |                                           |         | (1,414  | )       |         |        | (2,279  | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       |                                                                                                                                          | Accounts payable and other current liabilities                 |                                           |         | 6,486   |         |         |        | 2,979   |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       |                                                                                                                                          | Long-term liabilities                                          |                                           |         | 911     |         |         |        | (1,687  | )      
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|                                                         |                                                                                       |                                                                                                                                          |                                                                | Net cash provided by operating activities |         |         | 43,880  |         |        |         | 44,956  |  
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|Cash flows from investing activities:                    |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Purchases of new businesses and equity interests,
    net of cash received            |                                                                                                                                          |                                                                | (8,061                                    | )       |         |         | (35,307 | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Purchases of property and equipment                                                   |                                                                                                                                          |                                                                | (20,329                                   | )       |         |         | (20,720 | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Increase in deposits and notes receivable                                             |                                                                                                                                          |                                                                | (2,273                                    | )       |         |         | (4,256  | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Cash placed in escrow                                                                 |                                                                                                                                          |                                                                |                                          |         |         |         | (3,145  | )     
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|                                                         |                                                                                       |                                                                                                                                          |                                                                | Net cash used in investing activities     |         |         | (30,663 | )       |        |         | (63,428 | )
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|Cash flows from financing activities:                    |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from long-term debt                                                          |                                                                                                                                          |                                                                | 9,480                                     |         |         |         | 37,341  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Payments on long-term debt                                                            |                                                                                                                                          |                                                                | (8,314                                    | )       |         |         | (29,006 | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from issuances of common stock                                               |                                                                                                                                          |                                                                | 5,256                                     |         |         |         | 965     |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Distributions on investments in affiliates                                            |                                                                                                                                          |                                                                | (4,972                                    | )       |         |         | (3,766  | )     
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|                                                         |                                                                                       |                                                                                                                                          |                                                                | Net cash provided by financing activities |         |         | 1,450   |         |        |         | 5,534   |  
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|Effect of exchange rate changes on cash                  |                                                                                       |                                                                                                                                          | (24                                                            | )                                         |         |         | (189    | )      
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|Net increase (decrease) in cash and cash
    equivalents |                                                                                       |                                                                                                                                          | 14,643                                                         |                                           |         |         | (13,127 | )      
|                                                        
|                                                        
|                                                        
|                                                        
|Cash and cash equivalents at beginning of period         |                                                                                       |                                                                                                                                          | 28,519                                                         |                                           |         |         | 47,571  |        
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|Cash and cash equivalents at end of period               |                                                                                       | $                                                                                                                                        | 43,162                                                         |                                           |         | $       | 34,444  |        
|                                                         |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|Supplemental information:                                |                                                                                       |                                                                                                                                          |                                                                |                                           |         |         |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Interest paid                                                                         |                                                                                                                                          | $                                                              | 13,905                                    |         |         | $       | 13,092  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Income taxes paid                                                                     |                                                                                                                                          |                                                                | 6,463                                     |         |         |         | 1,814   |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Non-cash transactions:                                                                |                                                                                                                                          |                                                                |                                           |         |         |         |         |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Assets acquired under capital lease obligations                                                                                          |                                                                | $                                         | 20,169  |         |         | $       | 1,669  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Issuance of common stock for service contracts                                                                                           |                                                                |                                           |        |         |         |         | 254    |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Issuance of common stock to employees                                                                                                    |                                                                |                                           | 2,832   |         |         |         | 1,103  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                       | Repurchases of common stock using noncash assets                                                                                         |                                                                |                                           | 207     |         |         |         |       |        

See accompanying notes to consolidated financial
statements

5



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.

AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



|    |                      
|--- | ---------------------
|(1) | Basis of Presentation



|    |                        
|--- | -----------------------
|(a) | Description of Business

United Surgical Partners International, Inc., a
Delaware Corporation, and subsidiaries (USPI or the Company) was
formed in February 1998 for the primary purpose of ownership and
operation of surgery centers, private surgical hospitals and
related businesses in the United States and Europe. At
June 30, 2004, USPI, headquartered in Dallas, Texas,
operated 77 short-stay surgical facilities. Of these
77 facilities, USPI consolidates the results of 43,
accounts for 33 under the equity method, and holds no ownership
in the remaining facility, which is operated by USPI under a
management contract. USPI operates in three countries, with 65
of its 77 facilities located in the United States of
America. Most of the Companys U.S. facilities are
jointly owned with local physicians and a not-for-profit
healthcare system that has other healthcare businesses in the
region. At June 30, 2004, the Company had agreements with
20 not-for-profit healthcare systems providing for joint
ownership of 38 of the Companys
65 U.S. facilities and also providing a framework for
the planning and construction of additional facilities in the
future. All of the Companys U.S. facilities include
physician owners.

The Company operates 12 facilities in Spain
and the United Kingdom. USPIs majority-owned subsidiary,
United Surgical Partners Europe, S.L. (USPE), a Spanish
corporation, managed and owned a majority interest in eight
private surgical hospitals and one ambulatory surgery center at
June 30, 2004. Global Healthcare Partners Limited (Global),
incorporated in England and majority-owned by USPI, managed and
wholly owned three private surgical hospitals in the greater
London area at June 30, 2004.

USPI is subject to changes in government
legislation that could impact Medicare, Medicaid, and foreign
government reimbursement levels and is also subject to increased
levels of managed care penetration and changes in payor patterns
that may impact the level and timing of payments for services
rendered.

USPI maintains its books and records on the
accrual basis of accounting, and the consolidated financial
statements are prepared in accordance with accounting principles
generally accepted in the United States of America. The
accompanying consolidated financial statements and notes should
be read in conjunction with the Companys Form 10-K.
It is managements opinion that the accompanying
consolidated financial statements reflect all adjustments (which
are normal recurring adjustments) necessary for a fair
presentation of the results for the interim period and the
comparable period presented. The results of operations for any
interim period are not necessarily indicative of results for the
full year.



|    |                          
|--- | -------------------------
|(b) | Equity-Based Compensation

USPI applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its stock option
grants to employees. Accordingly, USPI generally does not record
compensation expense related to stock option grants because USPI
generally issues options for which the option exercise price
equals the current market price of the underlying stock on the
date of grant. SFAS No. 123, Accounting for
Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure,
established accounting and disclosure requirements using a fair
value based method of accounting for stock-based employee
compensation plans. As permitted under SFAS No. 123,
the Company has elected to continue to apply the intrinsic value
based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123 and
SFAS No. 148. Had USPI determined compensation cost

6



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)

based on the fair value at the grant date for its
stock options under SFAS No. 123, USPIs net
income would have been the pro forma amounts indicated below (in
thousands, except per share data):

|                                               |                                                                                                                                     |                    |   |                  |   |      |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------ | - | ---------------- | - | ---- | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                               |                                                                                                                                     |                    |   |                 
|                                               |                                                                                                                                     | Three Months Ended |   | Six Months Ended
|                                               |                                                                                                                                     | June 30,           |   | June 30,        
|                                               |                                                                                                                                     |                    |   |                 
|                                               |                                                                                                                                     | 2004               |   | 2003             |   | 2004 |   | 2003  
|                                               |                                                                                                                                     |                    |   |                  |   |      |   |       
|Net income attributable to common stockholders |                                                                                                                                     |                    |   |                  |   |      |   |        |   |  |   |        |   |  |   |       
|                                              
|                                              
|                                              
|                                              
|                                               | As reported                                                                                                                         |                    | $ | 10,511           |   |      | $ | 8,173  |   |  | $ | 20,514 |   |  | $ | 15,295 |  
|                                              
|                                              
|                                              
|                                              
|                                               | Add: Total stock-based employee compensation
    expense included in reported net income, net of taxes                              |                    |   | 626              |   |      |   | 451    |   |  |   | 1,100  |   |  |   | 759    |  
|                                              
|                                              
|                                              
|                                              
|                                               | Less: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of taxes |                    |   | (1,742           | ) |      |   | (1,520 | ) |  |   | (3,297 | ) |  |   | (2,830 | )
|                                               |                                                                                                                                     |                    |   |                  |   |      |   |        |   |  |   |        |   |  |   |       
|                                               | Pro forma                                                                                                                           |                    | $ | 9,395            |   |      | $ | 7,104  |   |  | $ | 18,317 |   |  | $ | 13,224 |  
|                                               |                                                                                                                                     |                    |   |                  |   |      |   |        |   |  |   |        |   |  |   |       
|Basic earnings per share                       |                                                                                                                                     |                    |   |                  |   |      |   |        |   |  |   |        |   |  |   |       
|                                              
|                                              
|                                              
|                                              
|                                               | As reported                                                                                                                         |                    | $ | 0.38             |   |      | $ | 0.30   |   |  | $ | 0.74   |   |  | $ | 0.57   |  
|                                              
|                                              
|                                              
|                                              
|                                               | Pro forma                                                                                                                           |                    |   | 0.34             |   |      |   | 0.26   |   |  |   | 0.66   |   |  |   | 0.49   |  
|Diluted earnings per share                     |                                                                                                                                     |                    |   |                  |   |      |   |        |   |  |   |        |   |  |   |       
|                                              
|                                              
|                                              
|                                              
|                                               | As reported                                                                                                                         |                    | $ | 0.36             |   |      | $ | 0.29   |   |  | $ | 0.70   |   |  | $ | 0.55   |  
|                                              
|                                              
|                                              
|                                              
|                                               | Pro forma                                                                                                                           |                    |   | 0.32             |   |      |   | 0.25   |   |  |   | 0.63   |   |  |   | 0.47   |  

The fair values in the table above were estimated
at the date of grant using the Black-Scholes valuation model
with the following assumptions: risk-free interest rates ranging
from 2.1% to 6.3%, expected dividend yield of zero, expected
volatility of the market price of the Companys common
stock of 40%, and an expected life of the option ranging from
three to five years.

Total stock-based employee compensation expense
included in net income, as reported, primarily consists of
expense related to grants to employees of the Companys
common stock and a December 2000 grant of stock options at a
price lower than the current market price at the date of grant.
The compensation amounts related to these grants are being
amortized into expense over the estimated service periods.

The Company accounts for equity instruments
issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Task Force (EITF) Issue
No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services.



|    |                                               
|--- | ----------------------------------------------
|(2) | Acquisitions and Equity Method
    Investments

Effective January 1, 2004, the Company
acquired a controlling interest in an ambulatory surgery center
in Torrance, California in which the Company had previously
owned a noncontrolling interest. The $9.8 million cost was
paid in cash in December 2003.

Effective May 1, 2004, the Company acquired
a controlling interest in an ambulatory surgery center in
Austintown, Ohio, in which the Company had previously owned a
noncontrolling interest, for $6.4 million in cash.

7



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)

Following are the unaudited pro forma results for
the three months and six months ended June 30, 2004 and
2003 as if the acquisitions discussed above had occurred on
January 1 of each year (in thousands, except per share amounts):

|                           |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|-------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                           |  |                    |         |                 
|                           |  | Three Months Ended |         | Six Months Ended
|                           |  | June 30,           |         | June 30,        
|                           |  |                    |         |                 
|                           |  | 2004               |         | 2003             |  | 2004 |         | 2003
|                           |  |                    |         |                  |  |      |         |     
|Net revenues               |  | $                  | 136,543 |                  |  | $    | 114,411 |      |  | $ | 271,676 |  |  | $ | 219,254 | 
|                          
|                          
|                          
|                          
|Net income                 |  |                    | 10,528  |                  |  |      | 8,542   |      |  |   | 20,664  |  |  |   | 16,086  | 
|                          
|                          
|                          
|                          
|Diluted earnings per share |  | $                  | 0.36    |                  |  | $    | 0.31    |      |  | $ | 0.71    |  |  | $ | 0.58    | 

The Company also engages in investing
transactions that are not business combinations. These
transactions primarily consist of acquisitions and sales of
noncontrolling equity interests in surgical facilities and the
investment of additional cash in surgical facilities under
development. During the six months ended June 30, 2004,
these transactions resulted in a net cash outflow of
$1.7 million.

The Company controls a significant number of its
investees and therefore consolidates their results.
Additionally, the Company invests in a significant number of
facilities in which the Company has significant influence but
does not have control; the Company uses the equity method to
account for these investments. The majority of these investees
are partnerships or limited liability companies, which require
the associated tax benefit or expense to be recorded by the
partners or members. Summarized financial information for the
Companys equity method investees on a combined basis was
as follows (income statement amounts are in thousands and
reflect 100% of the investees results on an aggregated
basis):

|                                                 |                  |                    |    |                  |  |      |    |        |  |  |    |         |  |  |    |         | 
|------------------------------------------------ | ---------------- | ------------------ | -- | ---------------- |  | ---- | -- | ------ |  |  | -- | ------- |  |  | -- | ------- | 
|                                                 |                  |                    |    |                 
|                                                 |                  | Three Months Ended |    | Six Months Ended
|                                                 |                  | June 30,           |    | June 30,        
|                                                 |                  |                    |    |                 
|                                                 |                  | 2004               |    | 2003             |  | 2004 |    | 2003  
|                                                 |                  |                    |    |                  |  |      |    |       
|Unconsolidated facilities operated at period end |                  |                    | 33 |                  |  |      | 29 |        |  |  | 33 |         |  |  | 29 |        
|Income statement information                     |                  |                    |    |                  |  |      |    |        |  |  |    |         |  |  |    |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Revenues         |                    | $  | 82,154           |  |      | $  | 56,051 |  |  | $  | 161,031 |  |  | $  | 102,588 | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Operating income |                    |    | 27,524           |  |      |    | 16,657 |  |  |    | 55,557  |  |  |    | 29,809  | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income       |                    |    | 25,162           |  |      |    | 14,725 |  |  |    | 50,902  |  |  |    | 25,781  | 

8



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)



|    |                   
|--- | ------------------
|(3) | Earnings Per Share

Basic earnings per share is computed on the basis
of the weighted average number of common shares outstanding.
Diluted earnings per share is computed on the basis of the
weighted average number of common shares outstanding plus the
effect of outstanding options, warrants and restricted stock,
except where such effect would be antidilutive. The following
table sets forth the computation of basic and diluted earnings
per share for the three months and six months ended
June 30, 2004 and 2003 (in thousands, except per share
amounts):

|                                               |                               |                    |        |                  |  |      |        |      |  |   |        |       |  |   |        |     | 
|---------------------------------------------- | ----------------------------- | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ | ----- |  | - | ------ | --- | 
|                                               |                               |                    |        |                 
|                                               |                               | Three Months Ended |        | Six Months Ended
|                                               |                               | June 30,           |        | June 30,        
|                                               |                               |                    |        |                 
|                                               |                               | 2004               |        | 2003             |  | 2004 |        | 2003
|                                               |                               |                    |        |                  |  |      |        |     
|Net income attributable to common shareholders |                               | $                  | 10,511 |                  |  | $    | 8,173  |      |  | $ | 20,514 |       |  | $ | 15,295 |    
|                                              
|                                              
|                                              
|                                              
|Weighted average common shares outstanding     |                               |                    | 27,865 |                  |  |      | 27,064 |      |  |   | 27,793 |       |  |   | 27,055 |    
|                                              
|                                              
|                                              
|                                              
|Effect of dilutive securities:                 |                               |                    |        |                  |  |      |        |      |  |   |        |       |  |   |        |    
|                                              
|                                              
|                                              
|                                              
|                                               | Stock options                 |                    |        | 1,270            |  |      |        | 589  |  |   |        | 1,300 |  |   |        | 512 | 
|                                              
|                                              
|                                              
|                                              
|                                               | Warrants and restricted stock |                    |        | 112              |  |      |        | 297  |  |   |        | 121   |  |   |        | 287 | 
|                                               |                               |                    |        |                  |  |      |        |      |  |   |        |       |  |   |        |    
|Shares used for diluted earnings per share     |                               |                    | 29,247 |                  |  |      | 27,950 |      |  |   | 29,214 |       |  |   | 27,854 |    
|                                               |                               |                    |        |                  |  |      |        |      |  |   |        |       |  |   |        |    
|Basic earnings per share                       |                               | $                  | 0.38   |                  |  | $    | 0.30   |      |  | $ | 0.74   |       |  | $ | 0.57   |    
|                                              
|                                              
|                                              
|                                              
|Diluted earnings per share                     |                               | $                  | 0.36   |                  |  | $    | 0.29   |      |  | $ | 0.70   |       |  | $ | 0.55   |    

9



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)



|    |                    
|--- | -------------------
|(4) | Segment Disclosures

Statement of Financial Accounting Standards
No. 131, Disclosures About Segments of an Enterprise and
Related Information,establishes standards for reporting
information about operating segments in financial statements.
USPIs business is the operation of surgery centers,
private surgical hospitals and related businesses in the United
States and Western Europe. USPIs chief operating decision
maker, as that term is defined in the accounting standard,
regularly reviews financial information about its surgical
facilities for assessing performance and allocating resources
both domestically and abroad. Accordingly, USPIs
reportable segments consist of (1) U.S. based
facilities and (2) Western Europe based facilities,
including those in Spain and the United Kingdom (amounts below
are in thousands).

|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|----------------------------- |  | ---- | ------- | -------------- |  | ------- | ------- | ------ |  | ----- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                              |  |      |         |                |  |        
|                              |  |      |         | Western Europe |  |        
|                              |  |      |         |                |  |        
|                              |  |      |         |                |  | Western |         |       
|Three Months Ended            |  |      |         |                |  | United  |         | Europe |  |      
|June 30, 2004 (unaudited)     |  | U.S. |         | Spain          |  | Kingdom |         | Total  |  | Total
|                              |  |      |         |                |  |         |         |        |  |      
|Net patient service revenue   |  | $    | 63,554  |                |  | $       | 36,147  |        |  | $     | 20,547  |   |  | $ | 56,694  |   |  | $ | 120,248 |  
|                             
|                             
|                             
|                             
|Other revenue                 |  |      | 15,016  |                |  |         | 802     |        |  |       |        |   |  |   | 802     |   |  |   | 15,818  |  
|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|Total revenues                |  | $    | 78,570  |                |  | $       | 36,949  |        |  | $     | 20,547  |   |  | $ | 57,496  |   |  | $ | 136,066 |  
|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|Depreciation and amortization |  | $    | 4,917   |                |  | $       | 2,670   |        |  | $     | 1,632   |   |  | $ | 4,302   |   |  | $ | 9,219   |  
|                             
|                             
|                             
|                             
|Operating income              |  |      | 23,648  |                |  |         | 4,283   |        |  |       | 3,386   |   |  |   | 7,669   |   |  |   | 31,317  |  
|                             
|                             
|                             
|                             
|Net interest expense          |  |      | (5,561  | )              |  |         | (1,083  | )      |  |       | (1,056  | ) |  |   | (2,139  | ) |  |   | (7,700  | )
|                             
|                             
|                             
|                             
|Income tax expense            |  |      | (4,763  | )              |  |         | (644    | )      |  |       | (389    | ) |  |   | (1,030  | ) |  |   | (5,793  | )
|                             
|                             
|                             
|                             
|Total assets                  |  |      | 518,701 |                |  |         | 240,027 |        |  |       | 171,601 |   |  |   | 411,628 |   |  |   | 930,329 |  
|                             
|                             
|                             
|                             
|Capital expenditures          |  |      | 23,810  |                |  |         | 4,127   |        |  |       | 3,468   |   |  |   | 7,595   |   |  |   | 31,405  |  

|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|----------------------------- |  | ---- | ------- | -------------- |  | ------- | ------- | ------ |  | ----- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                              |  |      |         |                |  |        
|                              |  |      |         | Western Europe |  |        
|                              |  |      |         |                |  |        
|                              |  |      |         |                |  | Western |         |       
|Three Months Ended            |  |      |         |                |  | United  |         | Europe |  |      
|June 30, 2003 (unaudited)     |  | U.S. |         | Spain          |  | Kingdom |         | Total  |  | Total
|                              |  |      |         |                |  |         |         |        |  |      
|Net patient service revenue   |  | $    | 53,493  |                |  | $       | 30,398  |        |  | $     | 14,203  |   |  | $ | 44,601  |   |  | $ | 98,094  |  
|                             
|                             
|                             
|                             
|Other revenue                 |  |      | 12,764  |                |  |         | 686     |        |  |       |        |   |  |   | 686     |   |  |   | 13,450  |  
|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|Total revenues                |  | $    | 66,257  |                |  | $       | 31,084  |        |  | $     | 14,203  |   |  | $ | 45,287  |   |  | $ | 111,544 |  
|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|Depreciation and amortization |  | $    | 4,411   |                |  | $       | 2,369   |        |  | $     | 1,090   |   |  | $ | 3,459   |   |  | $ | 7,870   |  
|                             
|                             
|                             
|                             
|Operating income              |  |      | 20,155  |                |  |         | 3,759   |        |  |       | 1,902   |   |  |   | 5,661   |   |  |   | 25,816  |  
|                             
|                             
|                             
|                             
|Net interest expense          |  |      | (4,090  | )              |  |         | (2,095  | )      |  |       | (481    | ) |  |   | (2,576  | ) |  |   | (6,666  | )
|                             
|                             
|                             
|                             
|Income tax expense            |  |      | (4,004  | )              |  |         | (617    | )      |  |       | (281    | ) |  |   | (898    | ) |  |   | (4,902  | )
|                             
|                             
|                             
|                             
|Total assets                  |  |      | 441,221 |                |  |         | 211,279 |        |  |       | 147,165 |   |  |   | 358,444 |   |  |   | 799,665 |  
|                             
|                             
|                             
|                             
|Capital expenditures          |  |      | 3,024   |                |  |         | 3,470   |        |  |       | 4,963   |   |  |   | 8,433   |   |  |   | 11,457  |  

10



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)

|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|----------------------------- |  | ---- | ------- | -------------- |  | ------- | ------- | ------ |  | ----- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                              |  |      |         |                |  |        
|                              |  |      |         | Western Europe |  |        
|                              |  |      |         |                |  |        
|                              |  |      |         |                |  | Western |         |       
|Six Months Ended              |  |      |         |                |  | United  |         | Europe |  |      
|June 30, 2004 (unaudited)     |  | U.S. |         | Spain          |  | Kingdom |         | Total  |  | Total
|                              |  |      |         |                |  |         |         |        |  |      
|Net patient service revenue   |  | $    | 123,122 |                |  | $       | 73,426  |        |  | $     | 41,632  |   |  | $ | 115,058 |   |  | $ | 238,180 |  
|                             
|                             
|                             
|                             
|Other revenue                 |  |      | 30,043  |                |  |         | 1,565   |        |  |       |        |   |  |   | 1,565   |   |  |   | 31,608  |  
|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|Total revenues                |  | $    | 153,165 |                |  | $       | 74,991  |        |  | $     | 41,632  |   |  | $ | 116,623 |   |  | $ | 269,788 |  
|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|Depreciation and amortization |  | $    | 9,603   |                |  | $       | 5,200   |        |  | $     | 3,295   |   |  | $ | 8,495   |   |  | $ | 18,098  |  
|                             
|                             
|                             
|                             
|Operating income              |  |      | 46,439  |                |  |         | 8,960   |        |  |       | 7,327   |   |  |   | 16,287  |   |  |   | 62,726  |  
|                             
|                             
|                             
|                             
|Net interest expense          |  |      | (10,759 | )              |  |         | (2,197  | )      |  |       | (2,098  | ) |  |   | (4,295  | ) |  |   | (15,054 | )
|                             
|                             
|                             
|                             
|Income tax expense            |  |      | (9,097  | )              |  |         | (1,408  | )      |  |       | (1,197  | ) |  |   | (2,605  | ) |  |   | (11,702 | )
|                             
|                             
|                             
|                             
|Total assets                  |  |      | 518,701 |                |  |         | 240,027 |        |  |       | 171,601 |   |  |   | 411,628 |   |  |   | 930,329 |  
|                             
|                             
|                             
|                             
|Capital expenditures          |  |      | 27,050  |                |  |         | 7,934   |        |  |       | 5,514   |   |  |   | 13,448  |   |  |   | 40,498  |  

|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|----------------------------- |  | ---- | ------- | -------------- |  | ------- | ------- | ------ |  | ----- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                              |  |      |         |                |  |        
|                              |  |      |         | Western Europe |  |        
|                              |  |      |         |                |  |        
|                              |  |      |         |                |  | Western |         |       
|Six Months Ended              |  |      |         |                |  | United  |         | Europe |  |      
|June 30, 2003 (unaudited)     |  | U.S. |         | Spain          |  | Kingdom |         | Total  |  | Total
|                              |  |      |         |                |  |         |         |        |  |      
|Net patient service revenue   |  | $    | 102,498 |                |  | $       | 58,013  |        |  | $     | 28,053  |   |  | $ | 86,066  |   |  | $ | 188,564 |  
|                             
|                             
|                             
|                             
|Other revenue                 |  |      | 23,652  |                |  |         | 1,387   |        |  |       |        |   |  |   | 1,387   |   |  |   | 25,039  |  
|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|Total revenues                |  | $    | 126,150 |                |  | $       | 59,400  |        |  | $     | 28,053  |   |  | $ | 87,453  |   |  | $ | 213,603 |  
|                              |  |      |         |                |  |         |         |        |  |       |         |   |  |   |         |   |  |   |         |  
|Depreciation and amortization |  | $    | 8,649   |                |  | $       | 4,528   |        |  | $     | 2,130   |   |  | $ | 6,658   |   |  | $ | 15,307  |  
|                             
|                             
|                             
|                             
|Operating income              |  |      | 36,503  |                |  |         | 7,092   |        |  |       | 5,166   |   |  |   | 12,258  |   |  |   | 48,761  |  
|                             
|                             
|                             
|                             
|Net interest expense          |  |      | (8,169  | )              |  |         | (3,944  | )      |  |       | (1,110  | ) |  |   | (5,054  | ) |  |   | (13,223 | )
|                             
|                             
|                             
|                             
|Income tax expense            |  |      | (7,081  | )              |  |         | (1,122  | )      |  |       | (961    | ) |  |   | (2,083  | ) |  |   | (9,164  | )
|                             
|                             
|                             
|                             
|Total assets                  |  |      | 441,221 |                |  |         | 211,279 |        |  |       | 147,165 |   |  |   | 358,444 |   |  |   | 799,665 |  
|                             
|                             
|                             
|                             
|Capital expenditures          |  |      | 7,040   |                |  |         | 6,162   |        |  |       | 9,187   |   |  |   | 15,349  |   |  |   | 22,389  |  

11



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)



|    |                                                 
|--- | ------------------------------------------------
|(5) | Condensed Consolidating Financial
    Statements

The following information is presented as
required by regulations of the Securities and Exchange
Commission in connection with the Companys publicly traded
Senior Subordinated Notes. This information is not routinely
prepared for use by management. The operating and investing
activities of the separate legal entities included in the
consolidated financial statements are fully interdependent and
integrated. Accordingly, the operating results of the separate
legal entities are not representative of what the operating
results would be on a stand-alone basis. Revenues and operating
expenses of the separate legal entities include intercompany
charges for management and other services. The $150 million
10% Senior Subordinated Notes due 2011 were issued in a
private offering on December 19, 2001 and subsequently
registered as publicly traded securities through a Form S-4
effective January 15, 2002 by USPIs wholly owned
finance subsidiary, United Surgical Partners Holdings, Inc.
(USPH), which was formed in 2001. The notes are guaranteed by
USPI, which does not have independent assets or operations, and
USPIs wholly owned subsidiaries domiciled in the United
States. USPIs investees in Spain and the United Kingdom
are not guarantors of the obligation. USPIs investees in
the United States in which USPI owns less than 100% are not
guarantors of the obligation. The financial positions and
results of operations (below, in thousands) of the respective
guarantors are based upon the guarantor relationship at the end
of the period presented.

Condensed Consolidating Balance
Sheets:

|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |        |         | 
|----------------------------------------- | --------------------------------- | ------------------------------------------ | ------- | ----------------- | ------- | ------------- | ------- | ------------ | ------- |  | -------- | ------ | -------- | - | ------- | ------ | ------- | 
|                                          |                                   |                                            |         | Non-Participating |         | Consolidation |         | Consolidated
|As of June 30, 2004                       |                                   | Guarantors                                 |         | Investees         |         | Adjustments   |         | Total       
|                                          |                                   |                                            |         |                   |         |               |         |             
|Assets:                                   |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                         
|                                         
|                                         
|                                         
|Current assets:                           |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                         
|                                         
|                                         
|                                         
|                                          | Cash and cash equivalents         |                                            | $       | 27,233            |         |               | $       | 15,929       |         |  | $        |       |          |   | $       | 43,162 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Patient receivables, net          |                                            |         | 178               |         |               |         | 64,605       |         |  |          |       |          |   |         | 64,783 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Other receivables                 |                                            |         | 9,094             |         |               |         | 18,763       |         |  |          | (5,862 | )        |   |         | 21,995 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Inventories of supplies           |                                            |         | 220               |         |               |         | 9,213        |         |  |          |       |          |   |         | 9,433  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Other                             |                                            |         | 12,161            |         |               |         | 10,713       |         |  |          |       |          |   |         | 22,874 |        
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                          |                                   | Total current assets                       |         |                   | 48,886  |               |         |              | 119,223 |  |          |        | (5,862   | ) |         |        | 162,247 | 
|                                         
|                                         
|                                         
|                                         
|Property and equipment, net               |                                   |                                            | 32,966  |                   |         |               | 339,446 |              |         |  |         |        |          |   | 372,412 |       
|                                         
|                                         
|                                         
|                                         
|Investments in affiliates                 |                                   |                                            | 201,710 |                   |         |               | 2,444   |              |         |  | (166,662 | )      |          |   | 37,492  |       
|                                         
|                                         
|                                         
|                                         
|Intangible assets, net                    |                                   |                                            | 197,500 |                   |         |               | 156,372 |              |         |  | (14,909  | )      |          |   | 338,963 |       
|                                         
|                                         
|                                         
|                                         
|Other                                     |                                   |                                            | 113,362 |                   |         |               | 12,052  |              |         |  | (106,199 | )      |          |   | 19,215  |       
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                          |                                   | Total assets                               |         | $                 | 594,424 |               |         | $            | 629,537 |  |          | $      | (293,632 | ) |         | $      | 930,329 | 
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                         
|Liabilities and Stockholders
    Equity: |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                         
|                                         
|                                         
|                                         
|Current liabilities:                      |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts payable                  |                                            | $       | 939               |         |               | $       | 33,716       |         |  | $        | 7      |          |   | $       | 34,662 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Accrued expenses                  |                                            |         | 28,445            |         |               |         | 31,031       |         |  |          | 873    |          |   |         | 60,349 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Current portion of long-term debt |                                            |         | 2,186             |         |               |         | 21,789       |         |  |          | (1,456 | )        |   |         | 22,519 |        
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                          |                                   | Total current liabilities                  |         |                   | 31,570  |               |         |              | 86,536  |  |          |        | (576     | ) |         |        | 117,530 | 
|                                         
|                                         
|                                         
|                                         
|Long-term debt                            |                                   |                                            | 155,268 |                   |         |               | 257,556 |              |         |  | (107,180 | )      |          |   | 305,644 |       
|                                         
|                                         
|                                         
|                                         
|Other liabilities                         |                                   |                                            | 20,705  |                   |         |               | 21,098  |              |         |  |         |        |          |   | 41,803  |       
|                                         
|                                         
|                                         
|                                         
|Minority interests                        |                                   |                                            |        |                   |         |               | 17,290  |              |         |  | 32,459   |        |          |   | 49,749  |       
|                                         
|                                         
|                                         
|                                         
|Stockholders equity                      |                                   |                                            | 386,881 |                   |         |               | 247,057 |              |         |  | (218,335 | )      |          |   | 415,603 |       
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       
|                                          |                                   | Total liabilities and stockholders equity |         | $                 | 594,424 |               |         | $            | 629,537 |  |          | $      | (293,632 | ) |         | $      | 930,329 | 
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |        |          |   |         |       

12



---



##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)

|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |        |         | 
|----------------------------------------- | --------------------------------- | ------------------------------------------ | ------- | ----------------- | ------- | ------------- | ------- | ------------ | ------- |  | -------- | ------- | -------- | - | ------- | ------ | ------- | 
|                                          |                                   |                                            |         | Non-Participating |         | Consolidation |         | Consolidated
|As of December 31, 2003                   |                                   | Guarantors                                 |         | Investees         |         | Adjustments   |         | Total       
|                                          |                                   |                                            |         |                   |         |               |         |             
|Assets:                                   |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                         
|                                         
|                                         
|                                         
|Current assets:                           |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                         
|                                         
|                                         
|                                         
|                                          | Cash and cash equivalents         |                                            | $       | 15,147            |         |               | $       | 13,372       |         |  | $        |        |          |   | $       | 28,519 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Patient receivables, net          |                                            |         | 127               |         |               |         | 56,464       |         |  |          |        |          |   |         | 56,591 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Other receivables                 |                                            |         | 37,980            |         |               |         | 21,183       |         |  |          | (38,995 | )        |   |         | 20,168 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Inventories of supplies           |                                            |         | 279               |         |               |         | 8,745        |         |  |          |        |          |   |         | 9,024  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Other                             |                                            |         | 11,781            |         |               |         | 7,514        |         |  |          |        |          |   |         | 19,295 |        
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                          |                                   | Total current assets                       |         |                   | 65,314  |               |         |              | 107,278 |  |          |         | (38,995  | ) |         |        | 133,597 | 
|                                         
|                                         
|                                         
|                                         
|Property and equipment, net               |                                   |                                            | 36,044  |                   |         |               | 312,587 |              |         |  | (568     | )       |          |   | 348,063 |       
|                                         
|                                         
|                                         
|                                         
|Investments in affiliates                 |                                   |                                            | 175,504 |                   |         |               | 14,344  |              |         |  | (157,744 | )       |          |   | 32,104  |       
|                                         
|                                         
|                                         
|                                         
|Intangible assets, net                    |                                   |                                            | 184,314 |                   |         |               | 158,378 |              |         |  | (16,047  | )       |          |   | 326,645 |       
|                                         
|                                         
|                                         
|                                         
|Other                                     |                                   |                                            | 120,142 |                   |         |               | 11,521  |              |         |  | (101,563 | )       |          |   | 30,100  |       
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                          |                                   | Total assets                               |         | $                 | 581,318 |               |         | $            | 604,108 |  |          | $       | (314,917 | ) |         | $      | 870,509 | 
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                         
|Liabilities and Stockholders
    Equity: |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                         
|                                         
|                                         
|                                         
|Current liabilities:                      |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts payable                  |                                            | $       | 1,396             |         |               | $       | 35,994       |         |  | $        | (937    | )        |   | $       | 36,453 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Accrued expenses                  |                                            |         | 27,138            |         |               |         | 24,500       |         |  |          | (1,245  | )        |   |         | 50,393 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Current portion of long-term debt |                                            |         | 1,763             |         |               |         | 16,146       |         |  |          | (1,115  | )        |   |         | 16,794 |        
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                          |                                   | Total current liabilities                  |         |                   | 30,297  |               |         |              | 76,640  |  |          |         | (3,297   | ) |         |        | 103,640 | 
|                                         
|                                         
|                                         
|                                         
|Long-term debt                            |                                   |                                            | 156,963 |                   |         |               | 264,020 |              |         |  | (133,033 | )       |          |   | 287,950 |       
|                                         
|                                         
|                                         
|                                         
|Other liabilities                         |                                   |                                            | 18,998  |                   |         |               | 23,308  |              |         |  |         |         |          |   | 42,306  |       
|                                         
|                                         
|                                         
|                                         
|Minority interests                        |                                   |                                            |        |                   |         |               | 11,403  |              |         |  | 34,555   |         |          |   | 45,958  |       
|                                         
|                                         
|                                         
|                                         
|Stockholders equity                      |                                   |                                            | 375,060 |                   |         |               | 228,737 |              |         |  | (213,142 | )       |          |   | 390,655 |       
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       
|                                          |                                   | Total liabilities and stockholders equity |         | $                 | 581,318 |               |         | $            | 604,108 |  |          | $       | (314,917 | ) |         | $      | 870,509 | 
|                                          |                                   |                                            |         |                   |         |               |         |              |         |  |          |         |          |   |         |       

13



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)

Condensed Consolidating Statements of
Income:

|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|--------------------------------------------------------------- |  | ---------- | ------ | ----------------- |  | ------------- | ------- | ------------ |  | - | ------ | - |  | - | ------- | -
|                                                                |  |            |        | Non-Participating |  | Consolidation |         | Consolidated
|Six Months Ended June 30, 2004                                  |  | Guarantors |        | Investees         |  | Adjustments   |         | Total       
|                                                                |  |            |        |                   |  |               |         |             
|Revenues                                                        |  | $          | 46,301 |                   |  | $             | 232,818 |              |  | $ | (9,331 | ) |  | $ | 269,788 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Operating expenses, excluding depreciation and
    amortization |  |            | 28,398 |                   |  |               | 169,966 |              |  |   | (9,400 | ) |  |   | 188,964 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Depreciation and amortization                                   |  |            | 5,331  |                   |  |               | 12,767  |              |  |   |       |   |  |   | 18,098  |  
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|Operating income                                                |  |            | 12,572 |                   |  |               | 50,085  |              |  |   | 69     |   |  |   | 62,726  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Interest expense, net                                           |  |            | (5,753 | )                 |  |               | (9,301  | )            |  |   |       |   |  |   | (15,054 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Other income (expense)                                          |  |            | 174    |                   |  |               | 11      |              |  |   | (155   | ) |  |   | 30      |  
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|Income (loss) before minority interests                         |  |            | 6,993  |                   |  |               | 40,795  |              |  |   | (86    | ) |  |   | 47,702  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Minority interests in income of consolidated
    subsidiaries   |  |            |       |                   |  |               | (7,025  | )            |  |   | (8,461 | ) |  |   | (15,486 | )
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|Income (loss) before income taxes                               |  |            | 6,993  |                   |  |               | 33,770  |              |  |   | (8,547 | ) |  |   | 32,216  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Income tax expense                                              |  |            | (8,987 | )                 |  |               | (2,715  | )            |  |   |       |   |  |   | (11,702 | )
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|Net income (loss)                                               |  | $          | (1,994 | )                 |  | $             | 31,055  |              |  | $ | (8,547 | ) |  | $ | 20,514  |  
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  

|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|--------------------------------------------------------------- |  | ---------- | ------ | ----------------- |  | ------------- | ------- | ------------ |  | - | ------ | - |  | - | ------- | -
|                                                                |  |            |        | Non-Participating |  | Consolidation |         | Consolidated
|Six Months Ended June 30, 2003                                  |  | Guarantors |        | Investees         |  | Adjustments   |         | Total       
|                                                                |  |            |        |                   |  |               |         |             
|Revenues                                                        |  | $          | 38,612 |                   |  | $             | 181,159 |              |  | $ | (6,168 | ) |  | $ | 213,603 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Operating expenses, excluding depreciation and
    amortization |  |            | 25,662 |                   |  |               | 130,746 |              |  |   | (6,873 | ) |  |   | 149,535 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Depreciation and amortization                                   |  |            | 4,980  |                   |  |               | 10,331  |              |  |   | (4     | ) |  |   | 15,307  |  
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|Operating income                                                |  |            | 7,970  |                   |  |               | 40,082  |              |  |   | 709    |   |  |   | 48,761  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Interest expense, net                                           |  |            | (5,822 | )                 |  |               | (7,402  | )            |  |   |       |   |  |   | (13,223 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Other expense                                                   |  |            | 157    |                   |  |               | 107     |              |  |   | (155   | ) |  |   | 109     |  
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|Income before minority interests                                |  |            | 2,305  |                   |  |               | 32,788  |              |  |   | 554    |   |  |   | 35,647  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Minority interests in income of consolidated
    subsidiaries   |  |            |       |                   |  |               | (5,225  | )            |  |   | (5,963 | ) |  |   | (11,188 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Income (loss) before income taxes                               |  |            | 2,305  |                   |  |               | 27,563  |              |  |   | (5,409 | ) |  |   | 24,459  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Income tax expense                                              |  |            | (6,912 | )                 |  |               | (2,252  | )            |  |   |       |   |  |   | (9,164  | )
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  
|Net income (loss)                                               |  | $          | (4,607 | )                 |  | $             | 25,311  |              |  | $ | (5,409 | ) |  | $ | 15,295  |  
|                                                                |  |            |        |                   |  |               |         |              |  |   |        |   |  |   |         |  

14



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)

Condensed Consolidating Statements of Cash
Flows:

|                                                                                                                |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |         |  
|--------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---------- | ------ | ----------------- | - | ------------- | ------- | ------------ | - | - | ------ | ------ | - | - | ------- | ------- | -
|                                                                                                                |                                                         |            |        | Non-Participating |   | Consolidation |         | Consolidated
|Six Months Ended June 30, 2004                                                                                  |                                                         | Guarantors |        | Investees         |   | Adjustments   |         | Total       
|                                                                                                                |                                                         |            |        |                   |   |               |         |             
|Cash flows from operating activities:                                                                           |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |        
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Net income (loss)                                                                                               |                                                         | $          | (1,994 | )                 |   | $             | 31,056  |              |   | $ | (8,548 | )      |   | $ | 20,514  |        
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Changes in operating and intercompany assets and
    liabilities and noncash items included in net income(loss) |                                                         |            | 32,430 |                   |   |               | (20,159 | )            |   |   | 11,095 |        |   |   | 23,366  |        
|                                                                                                                |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |        
|                                                                                                                | Net cash provided by operating activities               |            |        | 30,436            |   |               |         | 10,897       |   |   |        | 2,547  |   |   |         | 43,880  |  
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Cash flows from investing activities:                                                                           |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |        
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Purchases of property and equipment, net                                                                        |                                                         |            | (2,549 | )                 |   |               | (17,780 | )            |   |   |       |        |   |   | (20,329 | )      
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Purchases of new businesses                                                                                     |                                                         |            | (7,946 | )                 |   |               | (115    | )            |   |   |       |        |   |   | (8,061  | )      
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Other items                                                                                                     |                                                         |            | (2,276 | )                 |   |               | 3       |              |   |   |       |        |   |   | (2,273  | )      
|                                                                                                                |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |        
|                                                                                                                | Net cash used in investing activities                   |            |        | (12,771           | ) |               |         | (17,892      | ) |   |        |       |   |   |         | (30,663 | )
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Cash flows from financing activities:                                                                           |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |        
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Long-term borrowings, net                                                                                       |                                                         |            | (5,864 | )                 |   |               | 7,030   |              |   |   |       |        |   |   | 1,166   |        
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Proceeds from issuance of common stock                                                                          |                                                         |            | 5,256  |                   |   |               |        |              |   |   |       |        |   |   | 5,256   |        
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Other items                                                                                                     |                                                         |            | (4,972 | )                 |   |               | 2,547   |              |   |   | (2,547 | )      |   |   | (4,972  | )      
|                                                                                                                |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |        
|                                                                                                                | Net cash provided by (used in) financing
    activities |            |        | (5,580            | ) |               |         | 9,577        |   |   |        | (2,547 | ) |   |         | 1,450   |  
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Effect of exchange rate changes on cash                                                                         |                                                         |            |       |                   |   |               | (24     | )            |   |   |       |        |   |   | (24     | )      
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Net increase in cash                                                                                            |                                                         |            | 12,085 |                   |   |               | 2,558   |              |   |   |       |        |   |   | 14,643  |        
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Cash at the beginning of the period                                                                             |                                                         |            | 15,147 |                   |   |               | 13,372  |              |   |   |       |        |   |   | 28,519  |        
|                                                                                                                |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |        
|Cash at the end of the period                                                                                   |                                                         | $          | 27,232 |                   |   | $             | 15,930  |              |   | $ |       |        |   | $ | 43,162  |        
|                                                                                                                |                                                         |            |        |                   |   |               |         |              |   |   |        |        |   |   |         |        

|                                                                                                                 |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |         |  
|---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---------- | ------- | ----------------- | - | ------------- | ------- | ------------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                 |                                                         |            |         | Non-Participating |   | Consolidation |         | Consolidated
|Six Months Ended June 30, 2003                                                                                   |                                                         | Guarantors |         | Investees         |   | Adjustments   |         | Total       
|                                                                                                                 |                                                         |            |         |                   |   |               |         |             
|Cash flows from operating activities:                                                                            |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |        
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Net income (loss)                                                                                                |                                                         | $          | (4,605  | )                 |   | $             | 25,309  |              |   | $ | (5,409  | )       |   | $ | 15,295  |        
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Changes in operating and intercompany assets and
    liabilities and noncash items included in net income (loss) |                                                         |            | 10,174  |                   |   |               | (12,513 | )            |   |   | 32,000  |         |   |   | 29,661  |        
|                                                                                                                 |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |        
|                                                                                                                 | Net cash provided by operating activities               |            |         | 5,569             |   |               |         | 12,796       |   |   |         | 26,591  |   |   |         | 44,956  |  
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Cash flows from investing activities:                                                                            |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |        
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Purchases of property and equipment, net                                                                         |                                                         |            | (3,281  | )                 |   |               | (17,439 | )            |   |   |        |         |   |   | (20,720 | )      
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Purchases of new businesses                                                                                      |                                                         |            | (13,549 | )                 |   |               | (21,758 | )            |   |   |        |         |   |   | (35,307 | )      
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Other items                                                                                                      |                                                         |            | (4,257  | )                 |   |               | (3,144  | )            |   |   |        |         |   |   | (7,401  | )      
|                                                                                                                 |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |        
|                                                                                                                 | Net cash used in investing activities                   |            |         | (21,087           | ) |               |         | (42,341      | ) |   |         |        |   |   |         | (63,428 | )
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Cash flows from financing activities:                                                                            |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |        
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Long-term borrowings, net                                                                                        |                                                         |            | 4,413   |                   |   |               | 30,513  |              |   |   | (26,591 | )       |   |   | 8,335   |        
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Proceeds from issuance of common stock                                                                           |                                                         |            | 965     |                   |   |               |        |              |   |   |        |         |   |   | 965     |        
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Other items                                                                                                      |                                                         |            | (3,766  | )                 |   |               |        |              |   |   |        |         |   |   | (3,766  | )      
|                                                                                                                 |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |        
|                                                                                                                 | Net cash provided by (used in) financing
    activities |            |         | 1,612             |   |               |         | 30,513       |   |   |         | (26,591 | ) |   |         | 5,534   |  
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Effect of exchange rate changes on cash                                                                          |                                                         |            |        |                   |   |               | (189    | )            |   |   |        |         |   |   | (189    | )      
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Net increase (decrease) in cash                                                                                  |                                                         |            | (13,906 | )                 |   |               | 779     |              |   |   |        |         |   |   | (13,127 | )      
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Cash at the beginning of the period                                                                              |                                                         |            | 24,712  |                   |   |               | 22,859  |              |   |   |        |         |   |   | 47,571  |        
|                                                                                                                 |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |        
|Cash at the end of the period                                                                                    |                                                         | $          | 10,806  |                   |   | $             | 23,638  |              |   | $ |        |         |   | $ | 34,444  |        
|                                                                                                                 |                                                         |            |         |                   |   |               |         |              |   |   |         |         |   |   |         |        

15



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##### Table of Contents



UNITED SURGICAL PARTNERS INTERNATIONAL,
INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)  (Continued)



|    |                              
|--- | -----------------------------
|(6) | Commitments and Contingencies

As of June 30, 2004, the Company had issued
guarantees of the indebtedness of its investees to third parties
which could potentially require the Company to make maximum
aggregate payments totaling approximately $29.2 million. Of
the total, $14.8 million relates to the debt of
consolidated subsidiaries, whose debt is included in the
Companys consolidated balance sheet, and the remaining
$14.4 million relates to the debt of unconsolidated
affiliated companies, whose debt is not included in the
Companys consolidated balance sheet. In accordance with
Financial Accounting Standards Board Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others, the Company has recorded long-term liabilities
totaling approximately $0.1 million related to the
guarantees the Company has issued to unconsolidated affiliates
after December 31, 2002, and has not recorded any
liabilities related to guarantees issued prior to
January 1, 2003. Generally, these arrangements
(a) consist of guarantees of real estate and equipment
financing, (b) are secured by the related property and
equipment, (c) require payments by the Company, when the
collateral is insufficient, in the event of a default by the
investee primarily obligated under the financing,
(d) expire as the underlying debt matures at various dates
through 2022, and (e) provide no recourse for the Company
to recover any amounts from third parties.



|    |                  
|--- | -----------------
|(7) | Subsequent Events

On July 1, 2004, the Company acquired a
controlling interest in an ambulatory surgery center in Reading,
Pennsylvania, for approximately $14.6 million in cash. The
Company also has entered into a definitive agreement to acquire
a company that owns controlling interests in five ambulatory
surgery centers in greater Chicago, Illinois. Completion of the
Chicago acquisition is pending receipt of regulatory approval,
which is expected during the third quarter of 2004.

In addition, the Company has entered into letters
of intent with various entities regarding possible joint
venture, development, or other transactions. These possible
joint ventures, developments, or other transactions are in
various stages of negotiation.

16



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with the Companys unaudited Consolidated
Financial Statements and the notes thereto included in
Item 1 of this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Certain statements contained or incorporated by
reference in this Quarterly Report on Form 10-Q, including
without limitation statements containing the words
believes, anticipates,
expects, continues, will,
may, should, estimates,
intends, plans, and similar expressions,
and statements regarding the Companys business strategy
and plans, constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
managements current expectations and involve known and
unknown risks, uncertainties and other factors, many of which
the Company is unable to predict or control, that may cause the
Companys actual results, performance or achievements to be
materially different from those expressed or implied by such
forward-looking statements. Such factors include, among others,
the following: general economic and business conditions, both
nationally and regionally; foreign currency fluctuations;
demographic changes; changes in, or the failure to comply with,
laws and governmental regulations; the ability to enter into
managed care provider arrangements on acceptable terms; changes
in Medicare, Medicaid and other government funded payments or
reimbursement in the United States and Western Europe; liability
and other claims asserted against us; the highly competitive
nature of the healthcare industry; changes in business strategy
or development plans of healthcare systems with which we
partner; the ability to attract and retain qualified personnel,
including physicians, nurses and other health care
professionals; our significant indebtedness; the availability of
suitable acquisition and development opportunities and the
length of time it takes to accomplish acquisitions and
developments; our ability to integrate new businesses with our
existing operations; the availability and terms of capital to
fund the expansion of our business, including the acquisition
and development of additional facilities and certain additional
factors, risks, and uncertainties discussed in this Quarterly
Report on Form 10-Q. Given these uncertainties, investors
and prospective investors are cautioned not to rely on such
forward-looking statements. We disclaim any obligation and make
no promise to update any such factors or forward-looking
statements or to publicly announce the results of any revisions
to any such factors or forward-looking statements, whether as a
result of changes in underlying factors, to reflect new
information as a result of the occurrence of events or
developments or otherwise.

Overview

We operate ambulatory surgery centers and private
surgical hospitals in the United States and Western Europe. As
of June 30, 2004, we operated 77 facilities,
consisting of 65 in the United States, nine in Spain, and three
in the United Kingdom. Most of our U.S. facilities are
jointly owned with local physicians and a not-for-profit
healthcare system that has other healthcare businesses in the
region. At June 30, 2004, we had agreements with 20
not-for-profit healthcare systems providing for the joint
ownership of 38 of our 65 U.S. facilities and also
providing a framework for the planning and construction of
additional facilities in the future. All of our
U.S. facilities include physician owners.

Our U.S. facilities, consisting of
ambulatory surgery centers and private surgical hospitals (each
are generally referred to herein as short-stay surgical
facilities), specialize in non-emergency surgical cases,
the volume of which has steadily increased over the past two
decades due in part to advancements in medical technology. These
facilities earn a fee from patients, insurance companies, or
other payors in exchange for providing the facility and related
services a surgeon requires in order to perform a surgical case.
In addition, we in turn earn a monthly fee from each facility we
operate in exchange for managing its operations. Approximately
84% of our facilities are located in the U.S., where we have
focused increasingly on adding facilities with not-for-profit
healthcare system partners (hospital partners). From
December 31, 2001 to June 30, 2004, 93% of the
increase in the number of facilities we operate has occurred in
the United States. The number of facilities we own jointly with
not-for-profit healthcare systems doubled during this period,
increasing from 19 to 38.

17



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##### Table of Contents



In Spain and the United Kingdom we operate
private hospitals which supplement the services provided by the
government-sponsored healthcare systems in each country. Our
patients choose our facilities primarily because of waiting
lists to receive diagnostic procedures or elective surgery at
government-sponsored facilities and pay us either from personal
funds or through private insurance, offered by an increasing
number of employers as a benefit to their employees. We have
expanded selectively in these two countries.

Critical Accounting Policies and
Estimates

Our discussion and analysis of our financial
condition, results of operations and liquidity and capital
resources are based on our consolidated financial statements
which have been prepared in accordance with accounting
principles generally accepted in the United States of America
(GAAP). The preparation of consolidated financial statements
under GAAP requires our management to make certain estimates and
assumptions which impact the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities
as of the date of the consolidated financial statements. These
estimates and assumptions also impact the reported amount of net
earnings during any period. Estimates are based on information
available as of the date financial statements are prepared.
Accordingly, actual results could differ from those estimates.
Critical accounting policies and estimates are defined as those
that are both most important to the portrayal of our financial
condition and operating results and that require
managements most subjective judgments. Our critical
accounting policies and estimates include our policies and
estimates regarding consolidation, revenue recognition, income
taxes, and intangible assets.

Our determination of whether to consolidate an
entity in which we hold an investment, account for it under the
equity method, or carry it at cost has a significant impact on
our financial statements because of the typical business model
under which we operate, particularly in the United States, where
the majority of the facilities we operate are partially owned by
not-for-profit hospital systems, physicians, and other parties.
These quarterly financial statements have been prepared using
the same consolidation policy as was used in the Companys
latest audited financial statements.

Our revenue recognition policy and method of
accounting for income taxes involve significant judgments and
estimates. There have been no significant changes in
assumptions, estimates, and judgments in the preparation of
these quarterly financial statements from the assumptions,
estimates, and judgments used in the preparation of the
Companys latest audited financial statements.

We also consider our accounting policy regarding
intangible assets to be a critical accounting policy given the
significance of intangible assets as compared to the total
assets of the Company and the recent changes in accounting for
intangible assets required under Statement of Financial
Accounting Standards No. 142, Accounting for Goodwill
and other Intangible Assets(SFAS No. 142), which
was issued by the Financial Accounting Standards Board on
July 20, 2001 and was adopted by the Company as of
January 1, 2002. There have been no significant changes in
the application of SFAS No. 142 since the preparation
of the Companys latest audited financial statements.

Acquisitions, Equity Investments and
Development Projects

Effective January 1, 2004, we acquired a
controlling interest in an ambulatory surgery center in
Torrance, California in which we had previously owned a
noncontrolling interest. The $9.8 million cost was paid in
cash in December 2003.

Effective May 1, 2004, we acquired a
controlling interest in an ambulatory surgery center in
Austintown, Ohio, in which we had previously owned a
noncontrolling interest, for $6.4 million in cash.

We also engage in purchases and sales of
noncontrolling interests in facilities we already operate and
invest additional cash in surgical facilities under development.
These transactions resulted in a net cash outflow of
$1.7 million during the six months ended June 30, 2004.

On July 1, 2004, we acquired a controlling
interest in an ambulatory surgery center in Reading,
Pennsylvania, for approximately $14.6 million in cash. We
also have entered into a definitive agreement to acquire a
company that owns controlling interests in five ambulatory
surgery centers in greater Chicago,

18



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##### Table of Contents



Illinois. Completion of the Chicago acquisition
is pending receipt of regulatory approval, which is expected
during the third quarter of 2004.


Sources of Revenue

Revenues primarily include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                      
|
| |  | our share of the net income or loss of the
    unconsolidated facilities that we account for under the equity
    method of accounting. These amounts are included in revenues as
    these operations are central to our business strategy. Through
    our contracts to manage these facilities, we have an active role
    in their operations. The level of our corporate resources
    devoted to fulfilling these responsibilities is significant and
    generally equal to that devoted to the operations of the
    facilities we consolidate for financial reporting purposes.

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

|                                                |                |                |    |                |   |      |    |      |   |  |    |     |   |  |    |     |  
|----------------------------------------------- | -------------- | -------------- | -- | -------------- | - | ---- | -- | ---- | - |  | -- | --- | - |  | -- | --- | -
|                                                |                |                |    |               
|                                                |                | Three Months   |    | Six Months    
|                                                |                | Ended June 30, |    | Ended June 30,
|                                                |                |                |    |               
|                                                |                | 2004           |    | 2003           |   | 2004 |    | 2003
|                                                |                |                |    |                |   |      |    |     
|Net patient service revenue                     |                |                | 88 | %              |   |      | 88 | %    |   |  | 88 | %   |   |  | 88 | %  
|                                               
|                                               
|                                               
|                                               
|Management and administrative services revenue  |                |                | 7  |                |   |      | 8  |      |   |  | 7  |     |   |  | 8  |    
|                                               
|                                               
|                                               
|                                               
|Equity in earnings of unconsolidated affiliates |                |                | 4  |                |   |      | 3  |      |   |  | 4  |     |   |  | 3  |    
|                                               
|                                               
|                                               
|                                               
|Other income                                    |                |                | 1  |                |   |      | 1  |      |   |  | 1  |     |   |  | 1  |    
|                                                |                |                |    |                |   |      |    |      |   |  |    |     |   |  |    |    
|                                                | Total revenues |                |    | 100            | % |      |    | 100  | % |  |    | 100 | % |  |    | 100 | %
|                                                |                |                |    |                |   |      |    |      |   |  |    |     |   |  |    |    

Equity in earnings of unconsolidated affiliates,
which is our share of the net income of the facilities we do not
consolidate for financial reporting purposes, increased as a
percentage of our total revenues in the three months and six
months ended June 30, 2004, as compared to the prior year
periods. This increase reflects the overall improved
profitability of these 33 facilities, 25 of which are
operated jointly with not-for-profit healthcare systems. Our
profit margins in these joint ventures have been better than in
facilities without a hospital partner. Additionally, the
majority of our newly constructed facilities, whose growth rates
are faster than for more established facilities, are accounted
for under the equity method. Our management and administrative
services revenues are earned from the following types of
activities (dollars in thousands):

|                                                                              |                                                          |                |       |                  |  |      |       |       |  |   |        |        |  |   |        |        | 
|----------------------------------------------------------------------------- | -------------------------------------------------------- | -------------- | ----- | ---------------- |  | ---- | ----- | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                              |                                                          |                |       |                 
|                                                                              |                                                          | Three Months   |       | Six Months Ended
|                                                                              |                                                          | Ended June 30, |       | June 30,        
|                                                                              |                                                          |                |       |                 
|                                                                              |                                                          | 2004           |       | 2003             |  | 2004 |       | 2003 
|                                                                              |                                                          |                |       |                  |  |      |       |      
|Management of surgical facilities                                             |                                                          | $              | 4,485 |                  |  | $    | 3,836 |       |  | $ | 9,187  |        |  | $ | 6,951  |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Consulting and other services provided to
    physicians and related entities |                                                          |                | 5,218 |                  |  |      | 5,325 |       |  |   | 10,020 |        |  |   | 10,247 |       
|                                                                              |                                                          |                |       |                  |  |      |       |       |  |   |        |        |  |   |        |       
|                                                                              | Total management and administrative service
    revenues |                | $     | 9,703            |  |      | $     | 9,161 |  |   | $      | 19,207 |  |   | $      | 17,198 | 
|                                                                              |                                                          |                |       |                  |  |      |       |       |  |   |        |        |  |   |        |       

19



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##### Table of Contents



The following table reflects the summarized
results of the unconsolidated facilities that we account for
under the equity method of accounting (dollars in thousands):

|                                                                                            |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                            |  |                    |        |                 
|                                                                                            |  | Three Months Ended |        | Six Months Ended
|                                                                                            |  | June 30,           |        | June 30,        
|                                                                                            |  |                    |        |                 
|                                                                                            |  | 2004               |        | 2003             |  | 2004 |        | 2003
|                                                                                            |  |                    |        |                  |  |      |        |     
|Total revenues                                                                              |  | $                  | 82,154 |                  |  | $    | 56,051 |      |  | $ | 161,031 |   |  | $ | 102,588 |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Depreciation and amortization                                                               |  |                    | 3,629  |                  |  |      | 2,761  |      |  |   | 6,933   |   |  |   | 5,248   |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Operating income                                                                            |  |                    | 27,524 |                  |  |      | 16,657 |      |  |   | 55,557  |   |  |   | 29,809  |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Interest expense, net                                                                       |  |                    | 1,984  |                  |  |      | 1,744  |      |  |   | 3,950   |   |  |   | 3,421   |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Net income                                                                                  |  |                    | 25,162 |                  |  |      | 14,725 |      |  |   | 50,902  |   |  |   | 25,781  |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Long-term debt                                                                              |  |                    | 89,656 |                  |  |      | 82,079 |      |  |   | 89,656  |   |  |   | 82,079  |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|USPIs equity in earnings of unconsolidated
    affiliates                                  |  |                    | 5,149  |                  |  |      | 3,265  |      |  |   | 10,459  |   |  |   | 5,806   |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|USPIs imputed weighted average ownership
    percentage based on affiliates net income(1) |  |                    | 20.5   | %                |  |      | 22.2   | %    |  |   | 20.5    | % |  |   | 22.5    | %
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|USPIs imputed weighted average ownership
    percentage based on affiliates debt(2)       |  |                    | 23.5   | %                |  |      | 23.5   | %    |  |   | 23.5    | % |  |   | 23.5    | %
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Unconsolidated facilities operated at period end                                            |  |                    | 33     |                  |  |      | 29     |      |  |   | 33      |   |  |   | 29      |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

The following table summarizes our revenues by
operating segment:

|               |       |              |    |            |   |      |    |      |   |  |    |     |   |  |    |     |  
|-------------- | ----- | ------------ | -- | ---------- | - | ---- | -- | ---- | - |  | -- | --- | - |  | -- | --- | -
|               |       |              |    |           
|               |       | Three Months |    | Six Months
|               |       | Ended        |    | Ended     
|               |       | June 30,     |    | June 30,  
|               |       |              |    |           
|               |       | 2004         |    | 2003       |   | 2004 |    | 2003
|               |       |              |    |            |   |      |    |     
|United States  |       |              | 58 | %          |   |      | 59 | %    |   |  | 57 | %   |   |  | 59 | %  
|              
|              
|              
|              
|Western Europe |       |              | 42 |            |   |      | 41 |      |   |  | 43 |     |   |  | 41 |    
|               |       |              |    |            |   |      |    |      |   |  |    |     |   |  |    |    
|               | Total |              |    | 100        | % |      |    | 100  | % |  |    | 100 | % |  |    | 100 | %
|               |       |              |    |            |   |      |    |      |   |  |    |     |   |  |    |    

The proportion of our revenues earned in Western
Europe was higher during the three months and six months ended
June 30, 2004 than in the prior year period because we
consolidate both of the overseas facilities we have acquired
since December 31, 2002, whereas our U.S. acquisition
and development activity, while involving more facilities, has
more predominantly involved equity method facilities, for which
our revenues are only impacted by our share of the underlying
facilities net income and the management fees we earn from
these facilities. Additionally, the dollar was weaker against
the eurodollar and British pound in 2004 than in 2003, which had
a favorable impact on our revenues in 2004.

20



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##### Table of Contents



Results of Operations

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

|                                                                |  |              |      |            |  |      |      |      |  |  |      |   |  |  |      |  
|--------------------------------------------------------------- |  | ------------ | ---- | ---------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                |  |              |      |           
|                                                                |  | Three Months |      | Six Months
|                                                                |  | Ended        |      | Ended     
|                                                                |  | June 30,     |      | June 30,  
|                                                                |  |              |      |           
|                                                                |  | 2004         |      | 2003       |  | 2004 |      | 2003
|                                                                |  |              |      |            |  |      |      |     
|Total revenues                                                  |  |              | 100  | %          |  |      | 100  | %    |  |  | 100  | % |  |  | 100  | %
|                                                               
|                                                               
|                                                               
|                                                               
|Operating expenses, excluding depreciation and
    amortization |  |              | 70.2 |            |  |      | 69.8 |      |  |  | 70.0 |   |  |  | 70.0 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Depreciation and amortization                                   |  |              | 6.8  |            |  |      | 7.1  |      |  |  | 6.7  |   |  |  | 7.2  |  
|                                                                |  |              |      |            |  |      |      |      |  |  |      |   |  |  |      |  
|Operating income                                                |  |              | 23.0 |            |  |      | 23.1 |      |  |  | 23.3 |   |  |  | 22.8 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Minority interests in income of consolidated
    entities       |  |              | 5.4  |            |  |      | 5.5  |      |  |  | 5.7  |   |  |  | 5.2  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Interest and other expense, net                                 |  |              | 5.6  |            |  |      | 5.9  |      |  |  | 5.7  |   |  |  | 6.1  |  
|                                                                |  |              |      |            |  |      |      |      |  |  |      |   |  |  |      |  
|Income before income taxes                                      |  |              | 12.0 |            |  |      | 11.7 |      |  |  | 11.9 |   |  |  | 11.5 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Income tax expense                                              |  |              | (4.3 | )          |  |      | (4.4 | )    |  |  | (4.3 | ) |  |  | (4.3 | )
|                                                                |  |              |      |            |  |      |      |      |  |  |      |   |  |  |      |  
|Net income                                                      |  |              | 7.7  |            |  |      | 7.3  |      |  |  | 7.6  |   |  |  | 7.2  |  
|                                                                |  |              |      |            |  |      |      |      |  |  |      |   |  |  |      |  
|EBITDA less minority interests(a)                               |  |              | 24.4 |            |  |      | 24.7 |      |  |  | 24.2 |   |  |  | 24.8 |  



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | EBITDA is calculated as operating income plus
    depreciation and amortization. We use EBITDA and EBITDA less
    minority interests as analytical indicators for purposes of
    allocating resources and assessing performance. EBITDA is
    commonly used as an analytical indicator within the health care
    industry and also serves as a measure of leverage capacity and
    debt service ability. EBITDA should not be considered as a
    measure of financial performance under generally accepted
    accounting principles, and the items excluded from EBITDA are
    significant components in understanding and assessing financial
    performance. Because EBITDA is not a measurement determined in
    accordance with generally accepted accounting principles and is
    thus susceptible to varying calculation methods, EBITDA as
    presented by United Surgical Partners International may not be
    comparable to similarly titled measures of other companies.

21



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##### Table of Contents



The following table reconciles EBITDA and EBITDA
less minority interests to net income and to net cash provided
by operating activities:

|                                          |                                                                                                                                         |                    |        |                  |   |      |        |        |   |   |        |         |   |   |        |         |  
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------ | ---------------- | - | ---- | ------ | ------ | - | - | ------ | ------- | - | - | ------ | ------- | -
|                                          |                                                                                                                                         |                    |        |                 
|                                          |                                                                                                                                         | Three Months Ended |        | Six Months Ended
|                                          |                                                                                                                                         | June 30,           |        | June 30,        
|                                          |                                                                                                                                         |                    |        |                 
|                                          |                                                                                                                                         | 2004               |        | 2003             |   | 2004 |        | 2003  
|                                          |                                                                                                                                         |                    |        |                  |   |      |        |       
|Net income                                |                                                                                                                                         | $                  | 10,511 |                  |   | $    | 8,173  |        |   | $ | 20,514 |         |   | $ | 15,295 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Income tax expense                                                                                                                      |                    |        | 5,793            |   |      |        | 4,902  |   |   |        | 11,702  |   |   |        | 9,164   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Interest and other nonoperating expense                                                                                                 |                    |        | 7,677            |   |      |        | 6,563  |   |   |        | 15,024  |   |   |        | 13,114  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Depreciation and amortization                                                                                                           |                    |        | 9,219            |   |      |        | 7,870  |   |   |        | 18,098  |   |   |        | 15,307  |  
|                                          |                                                                                                                                         |                    |        |                  |   |      |        |        |   |   |        |         |   |   |        |        
|EBITDA less minority interests            |                                                                                                                                         |                    | 33,200 |                  |   |      | 27,508 |        |   |   | 65,338 |         |   |   | 52,880 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Minority interests in income of consolidated
    subsidiaries                                                                           |                    |        | 7,336            |   |      |        | 6,178  |   |   |        | 15,486  |   |   |        | 11,188  |  
|                                          |                                                                                                                                         |                    |        |                  |   |      |        |        |   |   |        |         |   |   |        |        
|EBITDA                                    |                                                                                                                                         |                    | 40,536 |                  |   |      | 33,686 |        |   |   | 80,824 |         |   |   | 64,068 |        
|                                         
|                                         
|                                         
|                                         
|                                          | Provision for doubtful accounts                                                                                                         |                    |        | 1,895            |   |      |        | 1,994  |   |   |        | 4,190   |   |   |        | 3,542   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Amortization of debt issue costs, discount, and
    deferred compensation                                                               |                    |        | 1,501            |   |      |        | 605    |   |   |        | 2,771   |   |   |        | 1,184   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Interest and other nonoperating expense                                                                                                 |                    |        | (7,677           | ) |      |        | (6,563 | ) |   |        | (15,024 | ) |   |        | (13,114 | )
|                                         
|                                         
|                                         
|                                         
|                                          | Income tax expense                                                                                                                      |                    |        | (5,793           | ) |      |        | (4,902 | ) |   |        | (11,702 | ) |   |        | (9,164  | )
|                                         
|                                         
|                                         
|                                         
|                                          | Equity in earnings of unconsolidated affiliates                                                                                         |                    |        | (5,149           | ) |      |        | (3,265 | ) |   |        | (10,459 | ) |   |        | (5,806  | )
|                                         
|                                         
|                                         
|                                         
|                                          | Increases (decreases) in cash from changes
    in operating assets and liabilities, net of effects from
    purchases of new businesses |                    |        | (13,462          | ) |      |        | 4,886  |   |   |        | (6,720  | ) |   |        | 4,246   |  
|                                          |                                                                                                                                         |                    |        |                  |   |      |        |        |   |   |        |         |   |   |        |        
|Net cash provided by operating activities |                                                                                                                                         | $                  | 11,851 |                  |   | $    | 26,441 |        |   | $ | 43,880 |         |   | $ | 44,956 |        
|                                          |                                                                                                                                         |                    |        |                  |   |      |        |        |   |   |        |         |   |   |        |        

The key trends in our results of operations for
the three months and six months ended June 30, 2004
continued to be increases in revenue, operating margins and
overall profitability. The increases in revenue are driven most
significantly by growth in our existing facilities. Facilities
that we owned during both the three month and six month periods
ended June 30, 2004 and the three month and six month
periods ended June 30, 2003 (same store
facilities) continued the trend from earlier years of
performing more surgical cases than in the prior year, and our
facilities also received higher rates of reimbursement per case,
on average, than in the prior year. As in 2003, these increases
in revenues outpaced increases in operating expenses, resulting
in improved operating margins at the majority of our facilities.
During the second quarter of 2004, the personnel and facility
costs of recently opened or expanded facilities, which in their
initial months of operations have little revenue to offset
personnel and facility costs, were significant enough to cause
our overall operating margins to decline slightly compared to
the prior year period.

22



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##### Table of Contents



Increases in the volume of surgical cases in the
U.S. and of patient admissions for our hospitals in Western
Europe continue to drive increases in our revenues, as does an
increase in the average reimbursement for the surgeries (in all
countries) and other services (in Western Europe) that we
provide. The growth of our same store facilities, summarized in
the following table, continues to be the most significant
component of our overall increase in revenues.

|                           |                                              |                         |  |            |    |   |  |    |    |  
|-------------------------- | -------------------------------------------- | ----------------------- |  | ---------- | -- | - |  | -- | -- | -
|                           |                                              | Three Months            |  | Six Months
|                           |                                              | Ended                   |  | Ended     
|                           |                                              | June 30,                |  | June 30,  
|                           |                                              | 2004(1)                 |  | 2004(1)   
|                           |                                              |                         |  |           
|United States facilities:  |                                              |                         |  |            |    |   |  |   
|                          
|                          
|                          
|                          
|                           | Net revenue                                  |                         |  | 20         | %  |   |  | 24 | % 
|                          
|                          
|                          
|                          
|                           |                                              | Surgical cases          |  |            | 8  | % |  |    | 9  | %
|                          
|                          
|                          
|                          
|                           |                                              | Net revenue per case(2) |  |            | 11 | % |  |    | 15 | %
|                          
|                          
|                          
|                          
|Western Europe facilities: |                                              |                         |  |            |    |   |  |   
|                          
|                          
|                          
|                          
|                           | Net revenue using actual exchange rates      |                         |  | 22         | %  |   |  | 26 | % 
|                          
|                          
|                          
|                          
|                           | Net revenue using constant exchange rates(3) |                         |  | 14         | %  |   |  | 13 | % 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Growth in same store facilities, compared to
    three and six months ended June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                    
|   
|(2) | Net revenue per case of our ambulatory surgery
    centers grew at a rate of 5% and 9% for the three months and six
    months ended June 30, 2004, respectively, as compared to
    the corresponding prior year periods. Adding our six same store
    surgical hospitals, which on average perform more complex cases
    than ambulatory surgery centers, increases the growth to 11% and
    15% for the three month and six month periods, respectively.
|   
|(3) | Measures current year using prior year exchange
    rates.                                                                                                                                                                                                                                                                                                                                                                                                    

The addition of new facilities continues to be
more heavily weighted to U.S. surgical facilities with a
hospital partner, both as we initiate joint venture agreements
with new systems and as we add facilities to our existing
arrangements. Facilities have been added to hospital joint
ventures both through construction of new facilities (de
novos) and through our contribution of our equity
interests in existing facilities into a hospital joint venture
structure, effectively creating three-way joint ventures by
sharing our ownership in these facilities with a hospital
partner while leaving the existing physician ownership intact.
We also have selectively added facilities in Western Europe
through acquisition and construction. The following table
summarizes our facilities as of June 30, 2004 and 2003:

|                             |                             |          |    |      |   |  |    |    |  | 
|---------------------------- | --------------------------- | -------- | -- | ---- | - |  | -- | -- |  | 
|                             |                             |         
|                             |                             | June 30,
|                             |                             |         
|                             |                             | 2004     |    | 2003
|                             |                             |          |    |     
|Hospital partners            |                             |          | 20 |      |   |  | 12 |   
|                             |                             |          |    |      |   |  |    |   
|United States facilities(1): |                             |          |    |      |   |  |    |   
|                            
|                            
|                            
|                            
|                             | With a hospital partner     |          |    | 38   |   |  |    | 28 | 
|                            
|                            
|                            
|                            
|                             | Without a hospital partner  |          |    | 27   |   |  |    | 28 | 
|                             |                             |          |    |      |   |  |    |   
|Total U.S. facilities        |                             |          | 65 |      |   |  | 56 |   
|                            
|                            
|                            
|                            
|Western Europe facilities    |                             |          | 12 |      |   |  | 12 |   
|                             |                             |          |    |      |   |  |    |   
|Total facilities operated    |                             |          | 77 |      |   |  | 68 |   
|                             |                             |          |    |      |   |  |    |   
|Change from June 30, 2003:   |                             |          |    |      |   |  |    |   
|                            
|                            
|                            
|                            
|                             | De novo (newly constructed) |          |    | 8    |   |  |    |    | 
|                            
|                            
|                            
|                            
|                             | Acquisition                 |          |    | 1    |   |  |    |    | 
|                            
|                            
|                            
|                            
|                             |                             | Total    |    |      | 9 |  |    |    |  | 



---



|    |                                                                           
|--- | --------------------------------------------------------------------------
|(1) | At June 30, 2004, physicians own a portion
    of all of these facilities.

23



---



##### Table of Contents



Operating expenses have increased at lower rates
than revenue, resulting in improved operating margins at most of
our facilities. This relationship results from the double digit
percentage growth in the same store revenues exceeding the
volume-driven and inflation-driven increases in most operating
expenses, including the costs of personnel, supplies, and
facility costs, and also, we believe, from our implementing
USPIs EDGE in newly acquired facilities, which we believe
improves operating efficiencies. The following table summarizes
changes in our same store EBITDA margins (1), comparing the
three and six months ended June 30, 2004 to the three and
six months ended June 30, 2003:

|                             |                            |              |      |            |     |  |      |      |    
|---------------------------- | -------------------------- | ------------ | ---- | ---------- | --- |  | ---- | ---- | ---
|                             |                            | Three Months |      | Six Months
|                             |                            | Ended        |      | Ended     
|                             |                            | June 30,     |      | June 30,  
|                             |                            | 2004(1)      |      | 2004(1)   
|                             |                            |              |      |           
|United States facilities:    |                            |              |      |            |     |  |      |     
|                            
|                            
|                            
|                            
|                             | With a hospital partner    |              |      | 530        | bps |  |      | 740  | bps
|                            
|                            
|                            
|                            
|                             | Without a hospital partner |              |      | (50        | )   |  |      | 60   |    
|                            
|                            
|                            
|                            
|Total U.S. facilities        |                            |              | 380  |            |     |  | 560  |     
|                            
|                            
|                            
|                            
|Western Europe facilities(2) |                            |              | (110 | )bps       |     |  | (270 | )bps



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | EBITDA margin is calculated as EBITDA 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 Western Europe 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.
|   
|(2) | Uses 2003 exchange rates for both years. The
    decrease was a result of three expansion projects in Western
    Europe which generated lower margins during their construction
    and initial operations than our overall business in Western
    Europe.                                                                                                                                                                                                     

Three Months Ended June 30, 2004 Compared
to Three Months Ended June 30, 2003

Revenues increased by $24.5 million, or
22.0%, to $136.1 million for the three months ended
June 30, 2004 from $111.6 million for the three months
ended June 30, 2003. Of this increase in revenues,
$16.0 million was contributed by same store facilities,
$4.3 million was contributed by newly constructed or
acquired facilities, and $4.2 million was due to exchange
rate fluctuations. The same store increase was primarily driven
by a $9.0 million increase in revenue earned at or from
U.S. facilities, which performed approximately 8% more
surgical cases and received an average of approximately 11% more
per case during the three months ended June 30, 2004 than
in the corresponding prior year period. The revenues of same
store Western Europe facilities, when measured using 2003
exchange rates for both periods, were $7.0 million higher
during the three months ended June 30, 2004 than in the
corresponding prior year period. Facilities acquired since
December 31, 2002, and thus not owned for the same number
of months in the first quarters of 2004 and 2003, contributed
net additional revenues in the three months ended June 30,
2004 of $4.3 million. The U.S. dollar being weaker
relative to the eurodollar and British pound in 2004 resulted in
an $4.2 million increase in revenues.

Operating expenses, excluding depreciation and
amortization, increased by $17.7 million, or 22.7%, to
$95.5 million for the three months ended June 30, 2004
from $77.9 million for the three months ended June 30,
2003. While same store margins improved from the prior year, our
overall operating expenses, excluding depreciation and
amortization, as a percentage of revenues, increased to 70.2%
for the three months ended June 30, 2004 from 69.8% for the
three months ended June 30, 2003, primarily as a
consequence of our opening eight de novo facilities and
significantly expanding other facilities in the twelve month
period ending June 30, 2004. These new and newly expanded
facilities hire staff and become fully equipped for a relatively
high number of surgical cases in their initial months of
operations, but the case volumes are not high enough initially
to result in operating margins that are as favorable as those
generated by our more mature facilities.

Operating income increased $5.5 million, or
21.3%, to $31.3 million for the three months ended
June 30, 2004 from $25.8 million for the three months
ended June 30, 2003. Operating income, as a percentage of
revenues, decreased slightly to 23.0% for the three months ended
June 30, 2004 from 23.1% for the three

24



---



##### Table of Contents



months ended June 30, 2003, primarily as a
result of improved operating margins at our same store
facilities being offset by the lower margins generated at our
recently opened facilities.


Depreciation and amortization increased
$1.3 million, or 17.1%, to $9.2 million for the three
months ended June 30, 2004 from $7.9 million for the
three months ended June 30, 2003, primarily as a result of
additional depreciation on tangible assets added through
expansions of our facilities. Depreciation and amortization, as
a percentage of revenues, decreased to 6.8% for the three months
ended June 30, 2004 from 7.1% for the three months ended
June 30, 2003 due to our increased revenue.

Interest expense, net of interest income,
increased 15.5% to $7.7 million for the three months ended
June 30, 2004 from $6.7 million for the three months
ended June 30, 2003 primarily as a result of our borrowing
a portion of the costs of acquiring, developing, and expanding
facilities.

Net income was $10.5 million for the three
months ended June 30, 2004 compared to $8.2 million
for the three months ended June 30, 2003. This
$2.3 million improvement primarily results from the
increased revenues discussed above.

Six Months Ended June 30, 2004 Compared
to Six Months Ended June 30, 2003

Revenues increased by $56.2 million, or
26.3%, to $269.8 million for the six months ended
June 30, 2004 from $213.6 million for the six months
ended June 30, 2003. Of this increase in revenues,
$32.3 million was contributed by same store facilities,
$11.6 million was contributed by newly constructed or
acquired facilities, and $12.3 million was due to exchange
rate fluctuations. The same store increase was primarily driven
by a $19.6 million increase in revenue earned at or from
U.S. facilities, which performed approximately 9% more
surgical cases and received an average of approximately 15% more
per case during the six months ended June 30, 2004 than in
the corresponding prior year period. The revenues of same store
Western Europe facilities, when measured using 2003 exchange
rates for both periods, were $12.7 million higher during
the six months ended June 30, 2004 than in the
corresponding prior year period. Facilities acquired since
December 31, 2002, and thus not owned for the same number
of months in the first quarters of 2004 and 2003, contributed
net additional revenues in the six months ended June 30,
2004 of $11.6 million. The U.S. dollar being weaker
relative to the eurodollar and British pound in 2004 resulted in
an $12.3 million increase in revenues.

Operating expenses, excluding depreciation and
amortization, increased by $39.4 million, or 26.4%, to
$189.0 million for the six months ended June 30, 2004
from $149.5 million for the six months ended June 30,
2003. While same store margins improved from the prior year, our
overall operating expenses, excluding depreciation and
amortization, remained flat as a percentage of revenues. The
improvement in the margins of our same store facilities was
offset by the lower margins earned at facilities we recently
opened or expanded.

Operating income increased $14.0 million, or
28.6%, to $62.7 million for the six months ended
June 30, 2004 from $48.8 million for the six months
ended June 30, 2003. Operating income, as a percentage of
revenues, increased to 23.3% for the six months ended
June 30, 2004 from 22.8% for the six months ended
June 30, 2003, primarily as a result of improved operating
margins at our facilities and the leveraging of our corporate
overhead expenses over the increased revenue.

Depreciation and amortization increased
$2.8 million, or 18.2%, to $18.1 million for the six
months ended June 30, 2004 from $15.3 million for the
six months ended June 30, 2003, primarily as a result of
additional depreciation on tangible assets added through
acquisitions and expansions of our facilities. Depreciation and
amortization, as a percentage of revenues, decreased to 6.7% for
the six months ended June 30, 2004 from 7.2% for the six
months ended June 30, 2003 due to our increased revenue.

Interest expense, net of interest income,
increased 13.8% to $15.1 million for the six months ended
June 30, 2004 from $13.2 million for the six months
ended June 30, 2003 primarily as a result of our borrowing
a portion of the costs of acquiring, developing, and expanding
facilities.

25



---



##### Table of Contents



Net income was $20.5 million for the six
months ended June 30, 2004 compared to $15.3 million
for the six months ended June 30, 2003. This
$5.2 million improvement primarily results from the
increased revenues and improved operating efficiencies and
economies of scale related to expenses discussed above.

Liquidity and Capital Resources

During the six months ended June 30, 2004,
the Company generated $43.9 million of cash flows from
operating activities as compared to $45.0 million during
the six months ended June 30, 2003. The prior year period
included the collection of $7.0 million of receivables
advances as a result of the Company modifying its relationships
with the OrthoLink physicians. Excluding this amount, cash flows
from operating activities increased $5.9 million, or 16%,
from the prior year period.

During the six months ended June 30, 2004,
the Companys net cash required for investing activities
was $30.7 million, consisting primarily of
$20.3 million for the purchase of property and equipment,
$6.4 million to acquire a majority interest in a surgery
center in Austintown, Ohio and $1.7 million for the
purchase of equity interests. The $1.7 million primarily
consists of the investment of cash in unconsolidated affiliates
that are constructing new surgical facilities. Approximately
$8.3 million of the property and equipment purchases
related to ongoing development and expansion projects and the
remaining $12.0 million represents purchases of equipment
at existing facilities. The $30.7 million of cash required
for investing activities was funded primarily with cash flows
from operations and additionally through borrowings by
individual facilities. Net cash used in financing activities
during the six months ended June 30, 2004 totaled
$1.5 million. Cash and cash equivalents were
$43.2 million at June 30, 2004 as compared to
$28.5 million at December 31, 2003, and net working
capital was $44.7 million at June 30, 2004 as compared
to $30.0 million at December 31, 2003.

In November 2002, we entered into a revolving
credit facility with a group of commercial lenders providing us
with the ability to borrow up to $115.0 million for
acquisitions and general corporate purposes in the United States
and Spain or for the funding of any new subsidiary that becomes
a guarantor of the facility. Under the terms of the facility, we
may invest up to a total of $25.0 million in subsidiaries
that are not guarantors, including subsidiaries in the United
Kingdom. Borrowings under our credit facility mature on
November 7, 2005. As of June 30, 2004, no amounts were
outstanding under this facility and $50.1 million was
available for borrowing based on actual reported consolidated
financial results. Maximum availability under the facility is
based upon pro forma EBITDA including EBITDA from acquired
entities. Assuming historical purchase multiples of annual
EBITDA of potential acquisition targets, approximately
$69.5 million would be available for borrowing to finance
acquisitions as of June 30, 2004, of which none was drawn
at June 30, 2004. Our credit facility agreement and the
indenture governing our Senior Subordinated Notes contain
various restrictive covenants, including covenants that limit
our ability and the ability of certain of our subsidiaries to
borrow money or guarantee other indebtedness, grant liens on our
assets, make investments, use assets as security in other
transactions, pay dividends on stock, enter into sale and
leaseback transactions or sell assets or capital stock.

Our credit agreement in the United Kingdom
provides for total borrowings of £52.0 million
(approximately $94.3 million as of June 30, 2004)
under four separate facilities. At June 30, 2004, total
outstanding borrowings under this credit agreement were
approximately $64.6 million which represents total
borrowings net of scheduled repayments of $17.5 million
that have been made under the agreement, and approximately
$12.2 million was available for borrowing, primarily for
capital projects specified in the agreement. Borrowings under
the United Kingdom credit facility bear interest at rates of
1.50% to 2.00% over LIBOR and mature in April 2010. We pledged
the capital stock of our U.K. subsidiaries to secure borrowings
under the United Kingdom credit facility. We were in compliance
with all covenants under our credit agreements as of
June 30, 2004.

26



---



##### Table of Contents



Our contractual cash obligations as of
June 30, 2004 may be summarized as follows:

|                                                             |                                          |                                       |         |         |  |        |        |        |  |         |         |        |  |   |        |        |  |   |         |         | 
|------------------------------------------------------------ | ---------------------------------------- | ------------------------------------- | ------- | ------- |  | ------ | ------ | ------ |  | ------- | ------- | ------ |  | - | ------ | ------ |  | - | ------- | ------- | 
|                                                             |                                          |                                      
|                                                             |                                          | Payments Due by Period (In Thousands)
|                                                             |                                          |                                      
|                                                             |                                          |                                       |         | Within  |  | 1 to 3 |        | 4 to 5 |  | Beyond 
|Contractual Cash Obligations                                 |                                          | Total                                 |         | 1 Year  |  | Years  |        | Years  |  | 5 Years
|                                                             |                                          |                                       |         |         |  |        |        |        |  |        
|Long term debt obligations (principal plus
    interest)(1): |                                          |                                       |         |         |  |        |        |        |  |         |         |        |  |   |        |        |  |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Senior Subordinated Notes                |                                       | $       | 262,500 |  |        | $      | 15,000 |  |         | $       | 30,000 |  |   | $      | 30,000 |  |   | $       | 187,500 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | U.S. credit facility(2)                  |                                       |         | 775     |  |        |        | 572    |  |         |         | 203    |  |   |        |       |  |   |         |        | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | U.K. credit facility                     |                                       |         | 80,331  |  |        |        | 7,788  |  |         |         | 20,123 |  |   |        | 22,748 |  |   |         | 29,672  | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Loans from former owners of subsidiaries |                                       |         | 439     |  |        |        | 278    |  |         |         | 161    |  |   |        |       |  |   |         |        | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other debt at operating subsidiaries     |                                       |         | 38,773  |  |        |        | 10,542 |  |         |         | 11,473 |  |   |        | 5,960  |  |   |         | 10,798  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Capitalized lease obligations:                               |                                          |                                       |         |         |  |        |        |        |  |         |         |        |  |   |        |        |  |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | U.S. operating subsidiaries              |                                       |         | 84,424  |  |        |        | 10,017 |  |         |         | 11,567 |  |   |        | 8,100  |  |   |         | 54,740  | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Western Europe operating subsidiaries    |                                       |         | 93,103  |  |        |        | 4,664  |  |         |         | 8,659  |  |   |        | 8,511  |  |   |         | 71,269  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Operating lease obligations:                                 |                                          |                                       |         |         |  |        |        |        |  |         |         |        |  |   |        |        |  |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | U.S. operating subsidiaries              |                                       |         | 55,640  |  |        |        | 8,331  |  |         |         | 15,089 |  |   |        | 12,462 |  |   |         | 19,758  | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Western Europe operating subsidiaries    |                                       |         | 11,631  |  |        |        | 1,823  |  |         |         | 3,005  |  |   |        | 2,232  |  |   |         | 4,571   | 
|                                                             |                                          |                                       |         |         |  |        |        |        |  |         |         |        |  |   |        |        |  |   |         |        
|Total contractual cash obligations                           |                                          | $                                     | 627,616 |         |  | $      | 59,015 |        |  | $       | 100,280 |        |  | $ | 90,013 |        |  | $ | 378,308 |        
|                                                             |                                          |                                       |         |         |  |        |        |        |  |         |         |        |  |   |        |        |  |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2004 rates applicable to each debt instrument.                                                          
|   
|(2) | The amounts shown for the U.S. credit
    facility are the commitment fees assuming no amounts are drawn
    under the agreement. If we draw amounts under this agreement,
    the commitment fees would be less but we would incur cash
    obligations related to interest and principal repayments.

Our operating subsidiaries, many of which have
minority owners who share in the cash flow of these entities,
have debt consisting primarily of capitalized lease obligations.
This debt is generally non-recourse to USPI, the parent company,
and is generally secured by the assets of those operating
entities. The total amount of these obligations, which was
$114.6 million at June 30, 2004, is included in our
consolidated balance sheet because the borrower or obligated
entity meets the requirements for consolidated financial
reporting. Our average percentage ownership, weighted based on
the individual subsidiarys amount of debt and capitalized
leased obligations, of these consolidated subsidiaries was 77.0%
at June 30, 2004. Additionally, our unconsolidated
affiliates that we account for under the equity method have debt
and capitalized lease obligations that are generally
non-recourse to USPI and are not included in our consolidated
financial statements. At June 30, 2004, the total
obligations of these unconsolidated affiliates under debt and
capital lease obligations was approximately $82.9 million.
Our average percentage ownership, weighted based on the
individual affiliates amount of debt and capitalized lease
obligations, of these unconsolidated affiliates was 23.5% at
June 30, 2004. USPI or one of its wholly owned subsidiaries
had collectively guaranteed $14.4 million in total debt and
capital lease obligations of our unconsolidated affiliates as of
June 30, 2004.






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

We have exposure to interest rate risk related to
our financing, investing, and cash management activities.
Historically, we have not held or issued derivative financial
instruments other than the use of variable-to-fixed interest
rate swaps for portions of our borrowings under credit
facilities with commercial lenders as required by the credit
agreements. We do not use derivative instruments for speculative
purposes. Our financing arrangements with commercial lenders are
based on the spread over Prime, LIBOR or Euribor. At
June 30,

27



---



##### Table of Contents



2004, $149.0 million of our total
outstanding notes payable was the Senior Subordinated Notes,
which were issued in December 2001 at a 0.8% discount and bear
interest at a fixed rate of 10%, $7.1 million was in other
fixed rate instruments and the remaining $90.8 million was
in variable rate instruments. Accordingly, a hypothetical
100 basis point increase in market interest rates would
result in additional annual expense of $0.9 million. The
Senior Subordinated Notes, which represent 95% of our total
fixed rate debt at June 30, 2004, are considered to have a
fair value, based upon recent trading, of $168.9 million,
which is approximately $19.9 million higher than the
carrying value at June 30, 2004.


Our international revenues are a significant
portion of our total revenues. We are exposed to risks
associated with operating internationally, including foreign
currency exchange risk and taxes and regulatory changes.

Our international operations operate in a natural
hedge to a large extent because both expenses and revenues are
denominated in local currency. Additionally, our borrowings in
the United Kingdom and our capital lease obligations in the
United Kingdom and Spain are currently denominated in local
currency. Historically, the cash generated from our operations
in Spain and the United Kingdom has been utilized within each of
those countries to finance development and acquisition activity
as well as for repayment of debt denominated in local currency.
Accordingly, we have not utilized financial instruments to hedge
our foreign currency exchange risk.

Inflation and changing prices have not
significantly affected our operating results or the markets in
which we perform services.






|        |                        
|------- | -----------------------
|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.
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 June 30, 2004 that have materially
affected or are reasonably likely to materially affect the
Companys internal controls over financial reporting.




PART II  OTHER
INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

From time to time, we may be named as a party to
legal claims and proceedings in the ordinary course of business.
We are not aware of any claims or proceedings against us or our
subsidiaries that might have a material adverse impact on us.

28



---



##### Table of Contents








|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

At the Annual Meeting of Stockholders held on
April 28, 2004, the following proposals were submitted to
stockholders with the following results:

1. Election of Class III directors of
the Company to hold office until the Annual Meeting of
Stockholders of the Company in 2007 and until their respective
successors are elected and qualified or until their earlier
death, resignation, or removal from office, as follows:

|                  |  |                  |            |          |  |  |         | 
|----------------- |  | ---------------- | ---------- | -------- |  |  | ------- | 
|                  |  |                 
|                  |  | Number of Shares
|                  |  |                 
|                  |  | For              |            | Withheld
|                  |  |                  |            |         
|Donald E. Steen   |  |                  | 23,375,386 |          |  |  | 229,046 | 
|                 
|                 
|                 
|                 
|Thomas L. Mills   |  |                  | 23,224,549 |          |  |  | 379,883 | 
|                 
|                 
|                 
|                 
|Boone Powell, Jr. |  |                  | 23,449,060 |          |  |  | 155,372 | 
|                 
|                 
|                 
|                 
|Paul B. Queally   |  |                  | 23,341,740 |          |  |  | 262,692 | 

2. Ratification of the selection of KPMG LLP
as the independent accountants of the Company for the fiscal
year ending December 31, 2004:

|        |  |                  |            | 
|------- |  | ---------------- | ---------- | 
|        |  | Number of Shares
|        |  |                 
|For     |  |                  | 23,187,890 | 
|       
|       
|       
|       
|Against |  |                  | 411,031    | 
|       
|       
|       
|       
|Abstain |  |                  | 5,511      | 






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) 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).
| | 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.

(b) Reports on Form 8-K:

The Company furnished a report on Form 8-K
dated April 5, 2004, pursuant to Regulation FD,
containing a copy of materials dated April 2004 and prepared
with respect to presentations to investors and others that may
be made by senior officers of the Company.

The Company furnished a report on Form 8-K
dated April 6, 2004, pursuant to Regulation FD,
containing a news release announcing the formation of a joint
venture between the Company and McLaren Health Care Corporation.

29



---



##### Table of Contents



The Company furnished a report on Form 8-K
dated April 15, 2004, pursuant to Regulation FD,
containing a news release describing the expansion of the
Companys relationships with not-for-profit hospital
systems.

The Company furnished a report on Form 8-K
dated April 23, 2004, pursuant to Regulation FD,
containing a news release announcing the formation of a joint
venture between the Company and Adventist Health System.

The Company filed a report on Form 8-K dated
April 28, 2004, pursuant to Item 12 of Form 8-K,
containing a news release announcing the Companys results
of operations for the quarter ended March 31, 2004.

30



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.



| |                                             
| | --------------------------------------------
| | UNITED SURGICAL PARTNERS INTERNATIONAL, INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ MARK A. KOPSER

| |                                                      
| | -----------------------------------------------------
| |                                                      
| | Mark A. Kopser                                       
| | Senior Vice President and Chief Financial
    Officer
| | (Principal Financial Officer and duly
    authorized 
| | to sign this report on behalf of the
    Registrant) 



| |     |                   
| | --- | ------------------
| | By: | /s/ JOHN J. WELLIK

| |                                  
| | ---------------------------------
| |                                  
| | John J. Wellik                   
| | Senior Vice President, Accounting
| | and Administration, and Secretary
| | (Principal Accounting Officer)   

Date: July 28, 2004

31



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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).
| | 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
    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.