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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                                        |                                                                                         
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30, 2002
|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

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United Surgical Partners International, Inc.(Exact name of registrant as specified in its charter)

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

(972) 713-3500(Registrant's telephone number, including area code)

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

At
November 4, 2002 there were 27,038,911 shares of Common Stock outstanding.

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UNITED SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX



|PART I.    |  | Financial Information                                                                                                                     |  |   
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | --
|Item 1.    |  | Financial Statements                                                                                                                      |  | 3 
|           |  | Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001                                                    |  | 3 
|           |  | Consolidated Statements of Income (unaudited) for the three months and nine months ended September 30, 2002 and 2001                      |  | 4 
|           |  | Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months and nine months ended September 30, 2002 and 2001 |  | 5 
|           |  | Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2002 and 2001                                   |  | 6 
|           |  | Notes to Consolidated Financial Statements (unaudited)                                                                                    |  | 7 
|Item 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                     |  | 21
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                |  | 29
|Item 4.    |  | Controls and Procedures                                                                                                                   |  | 30
|PART II.   |  | Other Information                                                                                                                         |  | 30
|Item 1.    |  | Legal Proceedings                                                                                                                         |  | 30
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                                          |  | 31
|Signatures |  | 32                                                                                                                                       

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

2

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PART I. FINANCIAL INFORMATION

ITEM 1.Financial Statements

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.  AND SUBSIDIARIES  Consolidated Balance Sheets  (in thousands, except per share amounts)

|                                                                                              |                                                                                                       | September 30, 2002                                                                                                                           |         | December 31, 2001 |        
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ----------------- | -------
|
|Assets                                                                                        |                                                                                                       |                                                                                                                                              |         |                  
|Cash and cash equivalents                                                                     |                                                                                                       | $                                                                                                                                            | 32,135  |                   | $      
|Patient receivables, net of allowance for doubtful accounts of $5,172 and $4,726 respectively |                                                                                                       |                                                                                                                                              | 34,408  |                   |        
|Other receivables                                                                             |                                                                                                       |                                                                                                                                              | 32,611  |                   |        
|Inventories of supplies                                                                       |                                                                                                       |                                                                                                                                              | 6,924   |                   |        
|Deferred tax asset, net                                                                       |                                                                                                       |                                                                                                                                              | 7,453   |                   |        
|Prepaids and other current assets                                                             |                                                                                                       |                                                                                                                                              | 5,309   |                   |        
|                                                                                              |                                                                                                       |                                                                                                                                              |         |                   |        
|                                                                                              |                                                                                                       | Total current assets                                                                                                                         |         | $                 | 118,840
|Property and equipment, net                                                                   |                                                                                                       |                                                                                                                                              | 256,222 |                   |        
|Investments in affiliates                                                                     |                                                                                                       |                                                                                                                                              | 17,182  |                   |        
|Intangible assets, net                                                                        |                                                                                                       |                                                                                                                                              | 260,028 |                   |        
|Other assets                                                                                  |                                                                                                       |                                                                                                                                              | 8,231   |                   |        
|                                                                                              |                                                                                                       |                                                                                                                                              |         |                   |        
|                                                                                              |                                                                                                       | Total assets                                                                                                                                 |         | $                 | 660,503
|                                                                                              |                                                                                                       |                                                                                                                                              |         |                   |        
|Liabilities and Stockholders' Equity                                                          |                                                                                                       |                                                                                                                                              |         |                  
|Accounts payable                                                                              |                                                                                                       | $                                                                                                                                            | 21,198  |                   | $      
|Accrued salaries and benefits                                                                 |                                                                                                       |                                                                                                                                              | 17,964  |                   |        
|Due to affiliates                                                                             |                                                                                                       |                                                                                                                                              | 6,865   |                   |        
|Accrued interest                                                                              |                                                                                                       |                                                                                                                                              | 5,278   |                   |        
|Current portion of long-term debt                                                             |                                                                                                       |                                                                                                                                              | 11,013  |                   |        
|Other accrued expenses                                                                        |                                                                                                       |                                                                                                                                              | 21,354  |                   |        
|Deferred tax liability                                                                        |                                                                                                       |                                                                                                                                              | 893     |                   |        
|                                                                                              |                                                                                                       |                                                                                                                                              |         |                   |        
|                                                                                              |                                                                                                       | Total current liabilities                                                                                                                    |         | $                 | 84,565 
|Long-term debt, less current portion                                                          |                                                                                                       |                                                                                                                                              | 270,738 |                   |        
|Other long-term liabilities                                                                   |                                                                                                       |                                                                                                                                              | 3,527   |                   |        
|Deferred tax liability, net                                                                   |                                                                                                       |                                                                                                                                              | 19,433  |                   |        
|                                                                                              |                                                                                                       |                                                                                                                                              |         |                   |        
|                                                                                              |                                                                                                       | Total liabilities                                                                                                                            |         | $                 | 378,263
|Minority interests                                                                            |                                                                                                       |                                                                                                                                              | 23,539  |                   |        
|Stockholders' equity:                                                                         |                                                                                                       |                                                                                                                                              |         |                   |        
|                                                                                              | Common stock:                                                                                         |                                                                                                                                              |         |                   |        
|                                                                                              |                                                                                                       | Other, $0.01 par value; 200,000 shares authorized; 24,834 and 24,436 shares issued at September 30, 2002 and December 31, 2001, respectively |         |                   | 248    
|                                                                                              | Additional paid-in capital                                                                            |                                                                                                                                              |         | 269,981           |        
|                                                                                              | Treasury stock, at cost, 272 and 334 shares at September 30, 2002 and December 31, 2001, respectively |                                                                                                                                              |         | (5,050            | )      
|                                                                                              | Deferred compensation                                                                                 |                                                                                                                                              |         | (1,319            | )      
|                                                                                              | Receivables from sales of common stock                                                                |                                                                                                                                              |         | (146              | )      
|                                                                                              | Accumulated other comprehensive loss, net of tax                                                      |                                                                                                                                              |         | (2,369            | )      
|                                                                                              | Accumulated deficit                                                                                   |                                                                                                                                              |         | (2,644            | )      
|                                                                                              |                                                                                                       |                                                                                                                                              |         |                   |        
|                                                                                              |                                                                                                       | Total stockholders' equity                                                                                                                   |         |                   | 258,701
|                                                                                              |                                                                                                       |                                                                                                                                              |         |                   |        
|                                                                                              |                                                                                                       | Total liabilities and stockholders' equity                                                                                                   |         | $                 | 660,503
|                                                                                              |                                                                                                       |                                                                                                                                              |         |                   |        

See accompanying notes to consolidated financial statements.

3

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UNITED SURGICAL PARTNERS INTERNATIONAL, INC.  AND SUBSIDIARIES  Consolidated Statements of Income  (Unauditedin thousands, except per share amounts)

|                                                         |         | Three months ended
September 30,               |        | Nine months ended
September 30, |       
|-------------------------------------------------------- | ------- | ---------------------------------------------- | ------ | ------------------------------- | ------
|
|Net patient service revenue                              |         | $                                              | 75,234 |                                 | $     
|Management and administrative services revenue           |         |                                                | 7,765  |                                 |       
|Equity in earnings of unconsolidated affiliates          |         |                                                | 2,100  |                                 |       
|Other income                                             |         |                                                | 732    |                                 |       
|                                                         |         |                                                |        |                                 |       
|                                                         |         | Total revenues                                 |        |                                 | 85,831
|Salaries, benefits, and other employee costs             |         |                                                | 23,216 |                                 |       
|Medical services and supplies                            |         |                                                | 16,324 |                                 |       
|Other operating expenses                                 |         |                                                | 16,139 |                                 |       
|General and administrative expenses                      |         |                                                | 5,889  |                                 |       
|Provision for doubtful accounts                          |         |                                                | 1,502  |                                 |       
|Depreciation and amortization                            |         |                                                | 6,942  |                                 |       
|                                                         |         |                                                |        |                                 |       
|                                                         |         | Total operating expenses                       |        |                                 | 70,012
|                                                         |         |                                                |        |                                 |       
|                                                         |         | Operating income                               |        |                                 | 15,819
|Interest income                                          |         |                                                | 256    |                                 |       
|Interest expense                                         |         |                                                | (6,734 | )                               |       
|Other                                                    |         |                                                |       |                                 |       
|                                                         |         |                                                |        |                                 |       
|                                                         |         | Total other expense, net                       |        |                                 | (6,478
|                                                         |         | Income before minority interest                |        |                                 | 9,341 
|Minority interest in income of consolidated subsidiaries |         |                                                | (4,066 | )                               |       
|                                                         |         |                                                |        |                                 |       
|                                                         |         | Income before income taxes                     |        |                                 | 5,275 
|Income tax expense                                       |         |                                                | (2,235 | )                               |       
|                                                         |         |                                                |        |                                 |       
|                                                         |         | Net income                                     |        |                                 | 3,040 
|Preferred stock dividends                                |         |                                                |       |                                 |       
|                                                         |         |                                                |        |                                 |       
|                                                         |         | Net income attributable to common stockholders |        | $                               | 3,040 
|                                                         |         |                                                |        |                                 |       
|Net income per share attributable to common stockholders |         |                                                |        |                                 |       
|                                                         | Basic   |                                                | $      | 0.12                            |       
|                                                         | Diluted |                                                | $      | 0.12                            |       
|Weighted average number of common shares                 |         |                                                |        |                                 |       
|                                                         | Basic   |                                                |        | 24,472                          |       
|                                                         | Diluted |                                                |        | 25,762                          |       

See
accompanying notes to consolidated financial statements.

4

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UNITED SURGICAL PARTNERS INTERNATIONAL, INC.  AND SUBSIDIARIES  Consolidated Statements of Comprehensive Income (Loss)  (Unauditedin thousands)

|                                                 |                                                                           | Three months ended
September 30, |       | Nine months ended
September 30, |  
|------------------------------------------------ | ------------------------------------------------------------------------- | -------------------------------- | ----- | ------------------------------- | -
|
|Net income                                       |                                                                           | $                                | 3,040 |                                 | $
|Other comprehensive income (loss), before taxes: |                                                                           |                                  |       |                                 |  
|                                                 | Foreign currency translation adjustments                                  |                                  |       | 2,614                           |  
|                                                 | Income tax (expense) benefit related to other comprehensive income (loss) |                                  |       | (915                            | )
|                                                 |                                                                           |                                  |       |                                 |  
|                                                 | Other comprehensive income (loss)                                         |                                  |       | 1,699                           |  
|                                                 |                                                                           |                                  |       |                                 |  
|                                                 | Comprehensive income                                                      |                                  | $     | 4,739                           |  
|                                                 |                                                                           |                                  |       |                                 |  

See
accompanying notes to consolidated financial statements.

5

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UNITED SURGICAL PARTNERS INTERNATIONAL, INC.  AND SUBSIDIARIES  Consolidated Statements of Cash Flows  (Unauditedin thousands)

|                                                     |                                                                                   | Nine months ended
September 30,                                                                                                  |                                                           
|---------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------
|
|Cash flows from operating activities:                |                                                                                   |                                                                                                                                  |                                                           
|                                                     | Net income                                                                        |                                                                                                                                  | $                                                         
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                                                                  |                                                           
|                                                     |                                                                                   | Provision for doubtful accounts                                                                                                  |                                                           
|                                                     |                                                                                   | Depreciation and amortization                                                                                                    |                                                           
|                                                     |                                                                                   | Amortization of debt issue costs and discount                                                                                    |                                                           
|                                                     |                                                                                   | Equity in earnings of unconsolidated affiliates                                                                                  |                                                           
|                                                     |                                                                                   | Minority interest in income of consolidated subsidiaries                                                                         |                                                           
|                                                     |                                                                                   | Amortization of deferred compensation                                                                                            |                                                           
|                                                     |                                                                                   | Increases (decreases) in cash from changes in operating assets and liabilities, net of effects from purchases of new businesses: |                                                           
|                                                     |                                                                                   |                                                                                                                                  | Patient receivables                                       
|                                                     |                                                                                   |                                                                                                                                  | Other receivables                                         
|                                                     |                                                                                   |                                                                                                                                  | Inventories of supplies, prepaids and other current assets
|                                                     |                                                                                   |                                                                                                                                  | Accounts payable and accrued expenses                     
|                                                     |                                                                                   |                                                                                                                                  | Other long-term liabilities                               
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Cash flows from investing activities:                |                                                                                   |                                                                                                                                  |                                                           
|                                                     | Purchases of new businesses and equity interests, net of cash received            |                                                                                                                                  |                                                           
|                                                     | Purchases of property and equipment                                               |                                                                                                                                  |                                                           
|                                                     | Sales of property                                                                 |                                                                                                                                  |                                                           
|                                                     | Decrease (increase) in deposits and notes receivable                              |                                                                                                                                  |                                                           
|                                                     | Cash released from escrow                                                         |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Cash flows from financing activities:                |                                                                                   |                                                                                                                                  |                                                           
|                                                     | Proceeds from long-term debt                                                      |                                                                                                                                  |                                                           
|                                                     | Payments on long-term debt                                                        |                                                                                                                                  |                                                           
|                                                     | Proceeds from issuances of common stock                                           |                                                                                                                                  |                                                           
|                                                     | Payments to repurchase common stock                                               |                                                                                                                                  |                                                           
|                                                     | Payments for the redemption and dividends of preferred stock                      |                                                                                                                                  |                                                           
|                                                     | Distributions on investments in affiliates                                        |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Effect of exchange rate changes on cash              |                                                                                   |                                                                                                                                  | 120                                                       
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                                                                                  | (1,746                                                    
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                                                                                  | 33,881                                                    
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                                                                                | 32,135                                                    
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Supplemental information:                            |                                                                                   |                                                                                                                                  |                                                           
|                                                     | Interest paid                                                                     |                                                                                                                                  | $                                                         
|                                                     | Income taxes paid                                                                 |                                                                                                                                  |                                                           
|                                                     | Non-cash transactions:                                                            |                                                                                                                                  |                                                           
|                                                     |                                                                                   | Sale of common stock for notes receivable from employees, net                                                                    |                                                           
|                                                     |                                                                                   | Common stock issued for purchases of new businesses and equity interests                                                         |                                                           
|                                                     |                                                                                   | Conversion of Series C convertible preferred stock to common stock                                                               |                                                           
|                                                     |                                                                                   | Accrued dividends on preferred stock                                                                                             |                                                           
|                                                     |                                                                                   | Assets acquired under capital lease obligations                                                                                  |                                                           
|                                                     |                                                                                   | Conversion of subordinated notes to Series D preferred stock                                                                     |                                                           
|                                                     |                                                                                   | Conversion of subordinated debt to common stock                                                                                  |                                                           
|                                                     |                                                                                   | Issuance of common stock for service contracts                                                                                   |                                                           

See accompanying notes to consolidated financial statements

6

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

(1) Basis of Presentation

United Surgical Partners International, Inc. and subsidiaries (USPI or the Company), a Delaware 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 Western Europe. At September 30, 2002, USPI, headquartered in
Dallas, Texas, operated 51 surgical facilities in the United States. Of these 51 facilities, USPI consolidates the results of 23, owns a minority or otherwise noncontrolling equity interest in 25,
which are accounted for under the equity method, and holds no ownership interest in the remaining three centers, which are operated by USPI under management contracts. In addition, United Surgical
Partners Europe, S.L. (USPE), a company incorporated in Spain and wholly-owned by USPI, managed and owned a majority interest in seven private surgical hospitals, one surgery center, and one
diagnostic facility in Spain at September 30, 2002. Global Healthcare Partners Limited (Global), a company incorporated in England and majority-owned by USPI, managed two wholly-owned private
surgical hospitals in the United Kingdom at September 30, 2002.

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.

(2) Acquisitions

Effective February 1, 2002, the Company acquired 100% of a surgical hospital in Murcia, Spain, for total consideration of approximately $8.2 million
in cash (of which $7.5 million was paid at the time of acquisition and $0.7 million will be paid on the first anniversary following consummation of the acquisition) and approximately
$12.6 million in assumed capital lease obligations.

The
Company acquired, through a merger on March 27, 2002, Surgicoe Corporation, which owns, manages, and develops surgical facilities in Georgia, Oklahoma, and Texas. The Company
paid the shareholders of Surgicoe approximately $5.3 million in cash. The terms of the agreement provide for the Company to make additional payments in the future should certain facilities,
including some that are operational and some that are currently under development, meet specified performance targets.

Effective
May 1, 2002, the Company acquired a 67% interest in an ambulatory surgery center in Corpus Christi, Texas for $10.8 million in cash. Effective June 1,
2002, the Company acquired a 57% interest in an ambulatory surgery center in Middleburg Heights, Ohio, a suburb of Cleveland, for $2.1 million in cash.

Effective
July 1, 2002, the Company acquired an additional 35% interest in a surgery center in Arlington, Texas (Arlington) for total consideration of $8.0 million,
consisting of $6.9 million of cash

7

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and $1.1 million of the Company's common stock, bringing the Company's total ownership interest in the center to 45%.

Prior
to the transaction, the Company accounted for its investment in Arlington under the equity method. Effective with this July 1, 2002 transaction, the Company consolidates the
results of Arlington's operations because the Company owns a majority of a subsidiary that owns a majority of the surgery center and maintains effective control through this ownership interest and
through its operation of the center pursuant to a management contract.

Following
are the unaudited pro forma results for the nine months ended September 30, 2002 and 2001 as if the acquisitions discussed above had occurred on January 1, 2001
(in thousands, except per share amounts):

Nine months ended
September 30,2002

2001Net revenues

$
256,696

$
194,456Net income


13,920


3,380Net income attributable to common stockholders


13,920


1,129Basic earnings per share


0.57


0.07Diluted earnings per share


0.54


0.06


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 nine months ended September 30, 2002, these resulted in net cash outflows from
USPI in an aggregate net amount of $7.2 million.

(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 convertible preferred stock, convertible debt, and outstanding options, warrants and restricted stock, except where such
effect would be antidilutive. Net income attributable to common stockholders and net income per common share include preferred stock dividends for purposes of this computation for the three months and
nine months ended September 30, 2001. No preferred stock dividends are included in this computation for the three months and nine
months ended September 30, 2002 as all convertible preferred stock was redeemed prior to January 1, 2002. The following table sets forth the computation of basic and diluted earnings

8

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per share for the three months and nine months ended September 30, 2002 and 2001 (in thousands, except per share amounts):

|                                               |                                      | Three months ended
September 30, |        | Nine months ended
September 30, |  
|---------------------------------------------- | ------------------------------------ | -------------------------------- | ------ | ------------------------------- | -
|
|Net income attributable to common shareholders |                                      | $                                | 3,040  |                                 | $
|Weighted average common shares outstanding     |                                      |                                  | 24,472 |                                 |  
|Effect of dilutive securities:                 |                                      |                                  |        |                                 |  
|                                               | Stock options                        |                                  |        | 997                             |  
|                                               | Warrants and restricted stock        |                                  |        | 293                             |  
|                                               | Convertible subordinated debt        |                                  |        | (B                              | )
|                                               | Series C convertible preferred stock |                                  |        | (B                              | )
|                                               |                                      |                                  |        |                                 |  
|Shares used for diluted earnings per share     |                                      |                                  | 25,762 |                                 |  
|                                               |                                      |                                  |        |                                 |  
|Basic earnings per share                       |                                      | $                                | 0.12   |                                 | $
|Diluted earnings per share                     |                                      | $                                | 0.12   |                                 | $

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The
convertible subordinated debt and Series C convertible preferred stock, which were excluded from the computation of 2001 earnings per share because their effect would be
antidilutive, were converted to common stock during 2001 and therefore will not affect earnings per share in the future.

(4) Segment Disclosure

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 surgery centers and private surgical hospitals for assessing performance and allocating resources both

9

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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.

|                              |  |   |         | Western Europe |   |         |  
|----------------------------- |  | - | ------- | -------------- | - | ------- | -
|
|Net patient service revenue   |  | $ | 43,906  |                | $ | 19,270  |  
|Other revenue                 |  |   | 9,975   |                |   | 622     |  
|                              |  |   |         |                |   |         |  
|Total revenues                |  | $ | 53,881  |                | $ | 19,892  |  
|                              |  |   |         |                |   |         |  
|Depreciation and amortization |  | $ | 4,052   |                | $ | 1,969   |  
|Operating income              |  |   | 14,161  |                |   | (496    | )
|Net interest expense          |  |   | (5,281  | )              |   | (562    | )
|Total assets                  |  |   | 404,599 |                |   | 155,452 |  
|Capital expenditures          |  |   | 2,217   |                |   | 2,524   |  
|
|Net patient service revenue   |  | $ | 27,440  |                | $ | 14,799  |  
|Other revenue                 |  |   | 8,498   |                |   | 456     |  
|                              |  |   |         |                |   |         |  
|Total revenues                |  | $ | 35,938  |                | $ | 15,255  |  
|                              |  |   |         |                |   |         |  
|Depreciation and amortization |  | $ | 4,088   |                | $ | 2,228   |  
|Operating income              |  |   | 7,691   |                |   | (1,965  | )
|Net interest income (expense) |  |   | (1,811  | )              |   | (681    | )
|Total assets                  |  |   | 294,493 |                |   | 117,142 |  
|Capital expenditures          |  |   | 2,894   |                |   | 417     |  
|
|Net patient service revenue   |  | $ | 116,913 |                | $ | 62,387  |  
|Other revenue                 |  |   | 30,246  |                |   | 1,849   |  
|                              |  |   |         |                |   |         |  
|Total revenues                |  | $ | 147,159 |                | $ | 64,236  |  
|                              |  |   |         |                |   |         |  
|Depreciation and amortization |  | $ | 11,159  |                | $ | 5,278   |  
|Operating income              |  |   | 37,974  |                |   | 4,557   |  
|Net interest expense          |  |   | (15,270 | )              |   | (1,237  | )
|Total assets                  |  |   | 404,599 |                |   | 155,452 |  
|Capital expenditures          |  |   | 6,505   |                |   | 4,720   |  
|
|Net patient service revenue   |  | $ | 69,817  |                | $ | 51,479  |  
|Other revenue                 |  |   | 23,055  |                |   | 1,347   |  
|                              |  |   |         |                |   |         |  
|Total revenues                |  | $ | 92,872  |                | $ | 52,826  |  
|                              |  |   |         |                |   |         |  
|Depreciation and amortization |  | $ | 10,536  |                | $ | 6,046   |  
|Operating income              |  |   | 17,962  |                |   | 651     |  
|Net interest expense          |  |   | (8,441  | )              |   | (2,191  | )
|Total assets                  |  |   | 294,493 |                |   | 117,142 |  
|Capital expenditures          |  |   | 8,353   |                |   | 2,015   |  

10

---

(5) Goodwill and Intangible Assets

On July 20, 2001 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 142, Accounting for Goodwill and Other
Intangible Assets(SFAS 142). SFAS No. 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized but instead tested for impairment at least annually at the reporting unit level (defined as an operating segment or one level below an operating segment). SFAS
No. 142 also requires that intangible assets with definite useful lives be amortized over their respective useful lives to their estimated residual values. The Company fully adopted the
provisions of SFAS No. 142 effective January 1, 2002.

Under
SFAS No. 142, the Company is required to perform transitional impairment tests by identified reporting unit for its goodwill and certain other intangible assets as of the
date of adoption. The Company has determined that its reporting units are at the operating segment (country) level. The Company completed the required transitional impairment tests during the six
months ended June 30, 2002. No impairment losses were identified in any reporting unit as a result of these tests.

The
table below shows the Company's net income and earnings per share for the three month and nine month periods ended September 30, 2002 and 2001 on a pro forma basis as if the
cessation of amortization of goodwill and indefinite-lived intangible assets had occurred January 1, 2001 (in thousands, except per share amounts):

|                                                                                                       |  | Three months ended
September 30, |       | Nine months ended
September 30,
|------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ----- | -------------------------------
|
|Net income attributable to common shareholders, as reported                                            |  | $                                | 3,040 |                                
|Amortization of goodwill and indefinite-lived intangible assets, net of applicable income tax benefits |  |                                  |      |                                
|                                                                                                       |  |                                  |       |                                
|Net income attributable to common shareholders, as reported                                            |  | $                                | 3,040 |                                
|                                                                                                       |  |                                  |       |                                
|Diluted earnings per share, as reported                                                                |  | $                                | 0.12  |                                
|Amortization of goodwill and indefinite-lived intangible assets, net of applicable income tax benefits |  |                                  |      |                                
|                                                                                                       |  |                                  |       |                                
|Pro forma diluted earnings per share                                                                   |  | $                                | 0.12  |                                
|                                                                                                       |  |                                  |       |                                

Intangible
assets, net of accumulated amortization, consisted of the following:

September 30,
2002

December 31,
2001Goodwill

$
189,616

$
151,804Other intangible assets


70,412


64,005Total

$
260,028

$
215,809


11

---

The
following is a summary of changes in the carrying amount of goodwill by operating segment and reporting unit for the nine months ended September 30, 2002 (in thousands):

|                              |  |   |         | Western Europe
|----------------------------- |  | - | ------- | --------------
|
|Balance at December 31, 2001  |  | $ | 106,579 |               
|Additions                     |  |   | 25,619  |               
|Other                         |  |   |        |               
|                              |  |   |         |               
|Balance at September 30, 2002 |  | $ | 132,198 |               
|                              |  |   |         |               

Goodwill
additions during the nine months ended September 30, 2002 resulted primarily from business combinations completed during 2002. Other changes to the carrying amount of
goodwill were primarily due to foreign currency translation adjustments.

Intangible
assets with definite useful lives are amortized over their respective estimated useful lives to their estimated residual values. The majority of the Company's management
contracts have evergreen renewal provisions and consequently have indefinite useful lives. Effective January 1, 2002, intangible assets with indefinite useful lives are not amortized but
instead tested for impairment at least

12

---

annually. The following is a summary of intangible assets at December 31, 2001 and September 30, 2002 (in thousands):

December 31, 2001Gross
Carrying
Amount

Accumulated
Amortization

TotalDefinite Useful LivesManagement Contracts

$
23,174

$
(3,746
)
$
19,427Other


7,831


(717
)

7,114Total

$
31,005

$
(4,464
)
$
26,541Indefinite Useful LivesManagement Contracts







$
37,362Other








102Total







$
37,464Total intangible assets







$
64,005


September 30, 2002Gross
Carrying
Amount

Accumulated
Amortization

TotalDefinite Useful LivesManagement Contracts

$
26,068

$
(5,532
)
$
20,536Other


10,001


(1,984
)

8,017Total

$
36,069

$
(7,516
)
$
28,553Indefinite Useful LivesManagement Contracts







$
41,719Other








140Total







$
41,859Total intangible assets







$
70,412


Amortization
expense related to intangible assets with definite useful lives was $0.8 million and $0.5 million for the three months ended September 30, 2002 and
2001, respectively, and $1.9 million and $1.1 million for the nine months ended September 30, 2002 and September 30, 2001, respectively.

13

---

The following table provides estimated amortization expense related to intangible assets with definite useful lives for each of the years in the five year period ending December 31, 2006:

Remainder of 2002

$
6812003


2,1632004


1,6362005


1,4992006 and thereafter


14,621$
20,600


(6) 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.

14

---

Condensed Consolidating Balance Sheets:

|As of September 30, 2002             |                                            | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total
|------------------------------------ | ------------------------------------------ | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------
|Assets:                              |                                            |                                         |         |                             |   |                           |         |                   
|Current assets:                      |                                            |                                         |         |                             |   |                           |         |                   
|Cash and cash equivalents            |                                            | $                                       | 10,226  |                             | $ | 21,909                    |         | $                 
|Accounts receivable, net             |                                            |                                         | 190     |                             |   | 34,628                    |         |                   
|Other receivables                    |                                            |                                         | 49,498  |                             |   | (8,888                    | )       |                   
|Inventories of supplies              |                                            |                                         | 251     |                             |   | 6,673                     |         |                   
|Other                                |                                            |                                         | 9,917   |                             |   | 2,845                     |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current assets                       |                                         |         | 70,082                      |   |                           | 57,167  |                   
|Property and equipment, net          |                                            |                                         | 39,414  |                             |   | 217,406                   |         |                   
|Investments in affiliates            |                                            |                                         | 174,541 |                             |   | 112                       |         |                   
|Intangible assets, net               |                                            |                                         | 143,586 |                             |   | 117,579                   |         |                   
|Other                                |                                            |                                         | 92,234  |                             |   | 42,876                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total assets                               |                                         | $       | 519,857                     |   | $                         | 435,140 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|Liabilities and stockholders' equity |                                            |                                         |         |                             |   |                           |         |                   
|Current liabilities:                 |                                            |                                         |         |                             |   |                           |         |                   
|Accounts payable                     |                                            | $                                       | 939     |                             | $ | 20,246                    |         | $                 
|Accrued expenses                     |                                            |                                         | 30,971  |                             |   | 20,941                    |         |                   
|Current portion of long-term debt    |                                            |                                         | 1,589   |                             |   | 10,326                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current liabilities                  |                                         |         | 33,499                      |   |                           | 51,513  |                   
|Long-term debt                       |                                            |                                         | 169,999 |                             |   | 231,190                   |         |                   
|Other liabilities                    |                                            |                                         | 8,378   |                             |   | 14,582                    |         |                   
|Minority interests                   |                                            |                                         |        |                             |   | 7,427                     |         |                   
|Redeemable preferred stock           |                                            |                                         |        |                             |   |                          |         |                   
|Stockholders' equity                 |                                            |                                         | 307,981 |                             |   | 130,428                   |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total liabilities and stockholders' equity |                                         | $       | 519,857                     |   | $                         | 435,140 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   

15

---

|As of December 31, 2001              |                                            | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total
|------------------------------------ | ------------------------------------------ | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------
|Assets:                              |                                            |                                         |         |                             |   |                           |         |                   
|Current assets:                      |                                            |                                         |         |                             |   |                           |         |                   
|Cash and cash equivalents            |                                            | $                                       | 20,396  |                             | $ | 13,485                    |         | $                 
|Accounts receivable, net             |                                            |                                         | 418     |                             |   | 27,538                    |         |                   
|Other receivables                    |                                            |                                         | 47,087  |                             |   | (11,174                   | )       |                   
|Inventories of supplies              |                                            |                                         | 223     |                             |   | 5,462                     |         |                   
|Other                                |                                            |                                         | 9,298   |                             |   | 3,464                     |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current assets                       |                                         |         | 77,422                      |   |                           | 38,775  |                   
|Property and equipment, net          |                                            |                                         | 41,767  |                             |   | 170,449                   |         |                   
|Investments in affiliates            |                                            |                                         | 165,437 |                             |   | 170                       |         |                   
|Intangible assets, net               |                                            |                                         | 119,596 |                             |   | 97,350                    |         |                   
|Other                                |                                            |                                         | 88,148  |                             |   | 33,777                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total assets                               |                                         | $       | 492,370                     |   | $                         | 340,521 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|Liabilities and stockholders' equity |                                            |                                         |         |                             |   |                           |         |                   
|Current liabilities:                 |                                            |                                         |         |                             |   |                           |         |                   
|Accounts payable                     |                                            | $                                       | 2,121   |                             | $ | 18,512                    |         | $                 
|Accrued expenses                     |                                            |                                         | 24,758  |                             |   | 13,733                    |         |                   
|Current portion of long-term debt    |                                            |                                         | 2,433   |                             |   | 8,841                     |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current liabilities                  |                                         |         | 29,312                      |   |                           | 41,086  |                   
|Long-term debt                       |                                            |                                         | 158,170 |                             |   | 186,093                   |         |                   
|Other liabilities                    |                                            |                                         | 1,936   |                             |   | 14,110                    |         |                   
|Minority interests                   |                                            |                                         |        |                             |   | 5,958                     |         |                   
|Redeemable preferred stock           |                                            |                                         |        |                             |   |                          |         |                   
|Stockholders' equity                 |                                            |                                         | 302,952 |                             |   | 93,274                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total liabilities and stockholders' equity |                                         | $       | 492,370                     |   | $                         | 340,521 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   

16

---

Condensed Consolidating Statements of Income:

|Nine months ended September 30, 2002                        |  | USPI and
Wholly-owned
U.S. Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |   | Consolidated
Total |       
|----------------------------------------------------------- |  | --------------------------------------- | ------ | --------------------------- | - | ------------------------- | - | ------------------ | ------
|Revenues                                                    |  | $                                       | 51,676 |                             | $ | 203,431                   |   | $                  | (8,357
|Operating expenses, excluding depreciation and amortization |  |                                         | 34,885 |                             |   | 151,770                   |   |                    | (8,465
|Depreciation and amortization                               |  |                                         | 7,175  |                             |   | 11,763                    |   |                    | (18   
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Operating income                                            |  |                                         | 9,616  |                             |   | 39,898                    |   |                    | 126   
|Interest expense, net                                       |  |                                         | (9,436 | )                           |   | (8,864                    | ) |                    |      
|Other expense                                               |  |                                         | 203    |                             |   | (74                       | ) |                    | (203  
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Income (loss) before minority interests                     |  |                                         | 383    |                             |   | 30,960                    |   |                    | (77   
|Minority interests in income of consolidated subsidiaries   |  |                                         |       |                             |   | (4,785                    | ) |                    | (5,387
|Income (loss) before income taxes                           |  |                                         | 383    |                             |   | 26,175                    |   |                    | (5,464
|Income tax expense                                          |  |                                         | (5,739 | )                           |   | (1,499                    | ) |                    |      
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Net income (loss)                                           |  | $                                       | (5,356 | )                           | $ | 24,676                    |   | $                  | (5,464
|                                                            |  |                                         |        |                             |   |                           |   |                    |       

|Nine months ended September 30, 2001                        |  | USPI and
Wholly-owned
U.S. Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |   | Consolidated
Total |       
|----------------------------------------------------------- |  | --------------------------------------- | ------ | --------------------------- | - | ------------------------- | - | ------------------ | ------
|Revenues                                                    |  | $                                       | 37,325 |                             | $ | 141,658                   |   | $                  | (4,468
|Operating expenses, excluding depreciation and amortization |  |                                         | 27,657 |                             |   | 108,587                   |   |                    | (4,415
|Depreciation and amortization                               |  |                                         | 7,146  |                             |   | 12,283                    |   |                    | (239  
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Operating income                                            |  |                                         | 2,522  |                             |   | 20,788                    |   |                    | 186   
|Interest expense, net                                       |  |                                         | (5,048 | )                           |   | (7,988                    | ) |                    | (2    
|Other expense                                               |  |                                         | 195    |                             |   | (64                       | ) |                    | (180  
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Income (loss) before minority interests                     |  |                                         | (2,331 | )                           |   | 12,736                    |   |                    | 4     
|Minority interests in income of consolidated subsidiaries   |  |                                         |       |                             |   | (2,617                    | ) |                    | (2,558
|Income (loss) before income taxes                           |  |                                         | (2,331 | )                           |   | 10,119                    |   |                    | (2,554
|Income tax expense                                          |  |                                         | (386   | )                           |   | (852                      | ) |                    |      
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Net income (loss)                                           |  | $                                       | (2,717 | )                           | $ | 9,267                     |   | $                  | (2,554
|                                                            |  |                                         |        |                             |   |                           |   |                    |       

17

---

Condensed Consolidating Statements of Cash Flows:

|Nine months ended September 30, 2002                                                                         |                                                     | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total |       
|------------------------------------------------------------------------------------------------------------ | --------------------------------------------------- | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------ | ------
|Cash flows from operating activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |       
|Net income (loss)                                                                                            |                                                     | $                                       | (5,354  | )                           | $ | 24,678                    |         | $                  | (5,468
|Changes in operating and intercompany assets and liabilities and noncash items included in net income (loss) |                                                     |                                         | 20,916  |                             |   | 4,963                     |         |                    | 5,418 
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       
|                                                                                                             | Net cash provided by (used in) operating activities |                                         |         | 15,562                      |   |                           | 29,641  |                    |       
|Cash flows from investing activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |       
|Purchases of property and equipment, net                                                                     |                                                     |                                         | (3,016  | )                           |   | (15,893                   | )       |                    |      
|Purchases of new businesses                                                                                  |                                                     |                                         | (32,277 | )                           |   | (7,580                    | )       |                    | 77    
|Other items                                                                                                  |                                                     |                                         | (518    | )                           |   | 1,522                     |         |                    |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       
|                                                                                                             | Net cash provided by (used in) investing activities |                                         |         | (35,811                     | ) |                           | (21,951 | )                  |       
|Cash flows from financing activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |       
|Long-term borrowings, net                                                                                    |                                                     |                                         | 8,954   |                             |   | 586                       |         |                    |      
|Proceeds from issuance of common stock                                                                       |                                                     |                                         | 2,879   |                             |   | 77                        |         |                    | (77   
|Other items                                                                                                  |                                                     |                                         | (1,753  | )                           |   |                          |         |                    |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       
|                                                                                                             | Net cash provided by (used in) financing activities |                                         |         | 10,080                      |   |                           | 663     |                    |       
|Effect of exchange rate changes on cash                                                                      |                                                     |                                         |        |                             |   | 70                        |         |                    | 50    
|Net increase (decrease) in cash                                                                              |                                                     |                                         | (10,169 | )                           |   | 8,423                     |         |                    |      
|Cash at the beginning of the period                                                                          |                                                     |                                         | 20,396  |                             |   | 13,485                    |         |                    |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       
|Cash at the end of the period                                                                                |                                                     | $                                       | 10,227  |                             | $ | 21,908                    |         | $                  |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       

18

---

|Nine months ended September 30, 2001                                                                         |                                                     | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |        | Consolidated
Total |       
|------------------------------------------------------------------------------------------------------------ | --------------------------------------------------- | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------ | ------------------ | ------
|Cash flows from operating activities:                                                                        |                                                     |                                         |         |                             |   |                           |        |                    |       
|Net income (loss)                                                                                            |                                                     | $                                       | (2,717  | )                           | $ | 9,267                     |        | $                  | (2,554
|Changes in operating and intercompany assets and liabilities and noncash items included in net income (loss) |                                                     |                                         | 1,335   |                             |   | 14,525                    |        |                    | 2,667 
|                                                                                                             |                                                     |                                         |         |                             |   |                           |        |                    |       
|                                                                                                             | Net cash provided by (used in) operating activities |                                         |         | (1,382                      | ) |                           | 23,792 |                    |       
|Cash flows from investing activities:                                                                        |                                                     |                                         |         |                             |   |                           |        |                    |       
|Purchases of property and equipment, net                                                                     |                                                     |                                         | (7,163  | )                           |   | (8,543                    | )      |                    |      
|Purchases of new businesses                                                                                  |                                                     |                                         | (26,258 | )                           |   |                          |        |                    | 126   
|Other items                                                                                                  |                                                     |                                         | 1,664   |                             |   | (826                      | )      |                    |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |        |                    |       
|                                                                                                             | Net cash provided by (used in) investing activities |                                         |         | (31,757                     | ) |                           | (9,369 | )                  |       
|Cash flows from financing activities:                                                                        |                                                     |                                         |         |                             |   |                           |        |                    |       
|Long-term borrowings, net                                                                                    |                                                     |                                         | (57,482 | )                           |   | (9,411                    | )      |                    |      
|Proceeds from issuance of common stock                                                                       |                                                     |                                         | 131,465 |                             |   | 239                       |        |                    | (239  
|Other items                                                                                                  |                                                     |                                         | (33,988 | )                           |   |                          |        |                    |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |        |                    |       
|                                                                                                             | Net cash provided by (used in) financing activities |                                         |         | 39,995                      |   |                           | (9,172 | )                  |       
|Effect of exchange rate changes on cash                                                                      |                                                     |                                         |        |                             |   | 14                        |        |                    |      
|Net increase in cash                                                                                         |                                                     |                                         | 6,856   |                             |   | 5,265                     |        |                    |      
|Cash at the beginning of the period                                                                          |                                                     |                                         | 765     |                             |   | 2,686                     |        |                    |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |        |                    |       
|Cash at the end of the period                                                                                |                                                     | $                                       | 7,621   |                             | $ | 7,951                     |        | $                  |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |        |                    |       

19

---

(7) Subsequent Events

In October 2002, the Company received, after offering costs of approximately $4.0 million, net proceeds of approximately $49.1 million from
an offering of 2.415 million shares of its common stock, which included 315,000 shares attributable to the underwriters' exercise of their over-allotment option. Net proceeds were
used as follows:



During
October 2002 Texas Health Ventures Group (THVG), in which the Company owns a 50% interest through a joint venture with Baylor Health Services, acquired a 44% interest, with
an option for an additional 7%, in Bellaire Surgery Center, an ambulatory surgery center in Fort Worth, Texas, for $1.6 million in cash, which was funded from THVG's operations.

During
November 2002 the Company entered into a second amended and restated credit agreement with a group of commercial lenders expanding its borrowing capacity from
$85.0 million to $115.0 million and extending its maturity date from December 19, 2004 to November 7, 2005.

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

20

---



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; 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; liability and other claims asserted against us; the highly competitive
nature of healthcare; changes in business strategy or development plans of healthcare systems with which we partner; the ability to attract and retain qualified personnel, including physicians, nurses
and other health care professionals; our significant indebtedness; the availability of suitable acquisition opportunities and the length of time it takes to accomplish acquisitions; 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 and the documents incorporated herein by reference. 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

The Company operates surgery centers and private surgical hospitals in the United States and Western Europe. As of September 30, 2002, the Company operated
61 surgical facilities, consisting of 51 in the United States, eight in Spain, and two in the United Kingdom. Of the 51 U.S. facilities, the Company jointly operates 25 with ten major
not-for-profit healthcare systems. Overall, the Company holds ownership in 58 of the facilities and operates the remaining three facilities, which are in the United States,
under management contracts.

Critical Accounting Policies

Management of the company is required to make certain estimates and assumptions during the preparation of our consolidated financial statements in accordance with
generally accepted accounting principles. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of
the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Certain of our accounting policies have
a more significant impact on our financial statements than others due to the size of the underlying financial statement elements.

21

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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.

Beginning
January 1, 2002, 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 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. SFAS 142 requires the cessation of amortization of goodwill and
identifiable intangible assets which do not have finite lives and requires that all intangible assets be tested for impairment at least annually.

Acquisitions, Equity Investments and Development Projects

In February 2002, we acquired a surgical hospital in Murcia, Spain for total consideration of approximately $8.2 million in cash (of which
$7.5 million was paid prior to March 31, 2002 and $0.7 million will be paid on the first anniversary following consummation of the acquisition) and approximately
$12.6 million in assumed capital lease obligations.

During
February and March 2002, two surgery centers developed by the Company in the United States opened and began performing cases.

In
March 2002, we acquired Surgicoe Corporation, which owns, manages, and develops surgical facilities in Georgia, Oklahoma, and Texas. The Company paid the shareholders of
Surgicoe approximately $5.3 million in cash. The terms of the agreement provide for the Company to make additional payments in the future should certain facilities, including some that are
operational and some that are currently under development, meet specified performance targets.

In
May 2002, we acquired a 67% interest in an ambulatory surgery center in Corpus Christi, Texas for $10.8 million in cash. In June 2002, we acquired a 57% interest
in an ambulatory surgery center in Middleburg Heights, Ohio, a suburb of Cleveland, for $2.1 million in cash.

In
August 2002, with an effective date of July 1, 2002, we acquired an additional 35% interest in a surgery center in Arlington, Texas (Arlington) for total consideration
of $8.0 million, consisting of $6.9 million of cash and $1.1 million of our common stock, bringing our total ownership interest in the center to 45%. Because we own a majority of
a subsidiary that owns a majority of the surgery center and maintains effective control through this ownership interest and through our operation of the center pursuant to a management contract, we
consolidate the results of Arlington's operations in our financial statements.

During
September 2002, a surgery center and surgical hospital developed by the Company in the United States opened and began performing cases.

In
October 2002, we acquired an 80% interest in a surgery center in Lyndhurst, Ohio, for $9.7 million in cash and an additional 25% interest in a surgery center in Atlanta,
Georgia, in which we already held a 15% interest, for $4.0 million in cash. In October 2002, we also acquired a 22% interest,

22

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through one of our two joint ventures with Baylor Health Services, in a surgery center in Fort Worth, Texas, for which the purchase price of $1.6 million was funded from operations of the
joint venture.

We
also engage in investing transactions that are not business combinations, consisting of purchases and sales of noncontrolling equity interests in surgical facilities and the
investment of additional cash in surgical facilities under development. During the nine months ended September 30, 2002, these transactions resulted in net cash outflows of $7.2 million.
The most notable transactions were as follows: our acquisition of a noncontrolling interest in a surgery center in Austintown, Ohio; our acquisition, through a newly formed joint venture with Robert
Wood Johnson University Hospital, of a noncontrolling interest in a surgery center in East Brunswick, New Jersey; and our acquisition of a noncontrolling interest in a surgery center in Destin,
Florida.

Sources of Revenue

Revenues primarily include the following:



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

|                                                |                | Three months ended
September 30, |        | Nine months ended
September 30, |     
|----------------------------------------------- | -------------- | -------------------------------- | ------ | ------------------------------- | ----
|
|Net patient service revenues                    |                | $                                | 75,234 |                                 | 87.7
|Management and administrative services revenues |                |                                  | 7,765  |                                 | 9.0 
|Equity in earnings of unconsolidated affiliates |                |                                  | 2,100  |                                 | 2.4 
|Other income                                    |                |                                  | 732    |                                 | 0.9 
|                                                |                |                                  |        |                                 |     
|                                                | Total revenues |                                  | $      | 85,831                          |     

The percentage of our total revenue that was earned from net patient service revenue increased from 85.3% and 86.0% for the three months and nine
months ended September 30, 2001, respectively, to 87.7% and 87.0% for the three months and nine months ended September 30, 2002, respectively, with a
corresponding decrease in the percentage of our total revenue that was earned from management and administrative services revenue, primarily as a result of our acquiring majority interests in six
surgery centers and one private hospital since September 30, 2001. Our management

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and administrative services revenues are earned from the following types of activities (dollars in thousands):

|                                                                          |                                                      | Three months ended
September 30, |       | Nine months ended
September 30,
|------------------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------- | ----- | -------------------------------
|
|Management of surgical facilities                                         |                                                      | $                                | 2,412 |                                
|Consulting and other services provided to physicians and related entities |                                                      |                                  | 5,353 |                                
|                                                                          |                                                      |                                  |       |                                
|                                                                          | Total management and administrative service revenues |                                  | $     | 7,765                          

The majority of our management and administrative service revenues earned from providing services to physicians and related entities resulted from
our acquisition of OrthoLink Physicians Corporation (OrthoLink) February 12, 2001. Our results for the nine months ended September 30, 2001 include only seven and one-half
months of OrthoLink operations.

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
September 30, |        | Nine months ended
September 30,
|------------------------------------------------------ |  | -------------------------------- | ------ | -------------------------------
|
|Total revenues                                         |  | $                                | 34,977 |                                
|Depreciation and amortization                          |  |                                  | 1,795  |                                
|Operating income                                       |  |                                  | 9,607  |                                
|Interest expense, net                                  |  |                                  | 906    |                                
|Net income                                             |  |                                  | 8,580  |                                
|USPI's equity in earnings of unconsolidated affiliates |  | $                                | 2,100  |                                
|Unconsolidated facilities operated at period end       |  |                                  | 25     |                                

For the three months ended September 30, 2002 and 2001, approximately 63% and 59% of our revenues were generated from operations in the
United States and 37% and 41% from Western Europe, respectively. For the nine months ended September 30, 2002 and 2001, approximately 60% and 53% of our revenues were generated from operations
in the United States and 40% and 47% from Western Europe, respectively. The increase in the percentage of our revenues generated in the United States and corresponding decrease in Western Europe
resulted from focusing our development and acquisition activities primarily in the United States during 2001 and the nine months ended September 30, 2002.

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Results of Operations

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

|                                                            |  | Three months ended
September 30, |   | Nine months ended
September 30, |  
|----------------------------------------------------------- |  | -------------------------------- | - | ------------------------------- | -
|
|Total revenues                                              |  | 100.0                            | % | 100.0                           | %
|Operating expenses, excluding depreciation and amortization |  | 73.5                             |   | 76.4                            |  
|                                                            |  |                                  |   |                                 |  
|EBITDA (a)                                                  |  | 26.5                             |   | 23.6                            |  
|Minority interests in income of consolidated entities       |  | 4.7                              |   | 3.2                             |  
|                                                            |  |                                  |   |                                 |  
|EBITDA less minority interest                               |  | 21.8                             |   | 20.4                            |  
|Depreciation and amortization                               |  | 8.1                              |   | 11.9                            |  
|Interest and other expense, net                             |  | 7.6                              |   | 5.3                             |  
|                                                            |  |                                  |   |                                 |  
|Income before income taxes                                  |  | 6.1                              |   | 3.2                             |  
|Income tax expense                                          |  | (2.6                             | ) | (0.3                            | )
|                                                            |  |                                  |   |                                 |  
|Net income                                                  |  | 3.5                              |   | 2.9                             |  
|                                                            |  |                                  |   |                                 |  

---

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

Revenues increased by $25.0 million, or 41%, to $85.8 million for the three months ended September 30, 2002 from $60.8 million for the
three months ended September 30, 2001. Of this increase in revenues, $13.3 million was contributed by facilities acquired or opened since September 30, 2001. The U.S. dollar was
weaker relative to the Eurodollar and the British pound during the three months ended September 30, 2002 as compared to the same period in the prior year, resulting in a positive impact of
$2.6 million on year over year revenues for the facilities in Western Europe that were owned in both 2002 and 2001 ("same store" facilities). Absent this foreign exchange impact, same store
facilities in Western Europe contributed $2.5 million more to consolidated revenue in the three months ended September 30, 2002 as compared to the same period in 2001. The remaining
increase in revenues was contributed by same store U.S. facilities, which performed approximately 18.4% more cases in the three months ended September 30, 2002 as compared to the three months
ended September 30, 2001.

Operating
expenses, excluding depreciation and amortization, increased by $16.7 million, or 36%, to $63.1 million for the three months ended September 30, 2002 from
$46.4 million for the three months ended September 30, 2001. Operating expenses, excluding depreciation and amortization, as a percentage of revenues, decreased to 73.5% for the three
months ended September 30, 2002 from 76.4% for the three months ended September 30, 2001, primarily as a result of operating efficiencies at our facilities and improved economies of
scale as we expanded.

EBITDA
less minority interest increased $6.3 million, or 51%, to $18.7 million for the three months ended September 30, 2002 from $12.4 million for the three
months ended September 30, 2001. Of this increase in EBITDA less minority interest, $4.3 million was contributed by facilities acquired or opened
since September 30, 2001. EBITDA less minority interest, as a percentage of revenues, increased to 21.8% for the three months ended September 30, 2002 from 20.4% for the three months
ended September 30, 2001, primarily as a result of improved operating margins at our facilities and the leveraging of our corporate overhead expenses over the increased revenue.

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Depreciation
and amortization decreased $0.3 million, or 4%, to $6.9 million for the three months ended September 30, 2002 from $7.2 million for the three
months ended September 30, 2001. This amount remained virtually constant because the reduction in expense resulting from the cessation of goodwill amortization required under SFAS 142
largely offset the additional depreciation on tangible assets added through acquisitions. Depreciation and amortization, as a percentage of revenues, decreased to 8.1% for the three months ended
September 30, 2002 from 11.9% for the three months ended September 30, 2001.

Interest
expense, net of interest income, increased 104% to $6.5 million for the three months ended September 30, 2002 from $3.2 million for the three months ended
September 30, 2001 primarily as a result of higher levels of outstanding debt during the three months ended September 30, 2002 than during the prior year period. We used a portion of the
proceeds of our initial public offering of common stock to repay senior and subordinated indebtedness in June 2001 and have incurred debt to fund a portion of our acquisition and development
program since that time.

Provision
for income taxes and our overall effective tax rates were $2.2 million and 42% for the three months ended September 30, 2002, compared to $0.2 million and
11% for the three months ended September 30, 2001, respectively. The increase in our actual provision for income taxes and in our overall effective tax rate primarily results from our accruing
no net federal tax expense related to U.S. operations prior to January 1, 2002, at which time we began accruing taxes at rates approximating statutory rates. We utilized net operating loss
carryforwards (NOLs) to offset current period income as our U.S. operations achieved profitability for the first time during 2001, and during the fourth quarter of 2001 we fully recognized the benefit
of all U.S. NOLs generated during our initial years of operations. The overall effective tax rate for the three months ended September 30, 2002 is higher than statutory rates because our
Spanish operations generated a net loss, due to the normal seasonal slowdown, and we did not recognize a tax benefit related to the NOLs generated during the quarter as the realization of this benefit
was not deemed to be "more likely than not".

Net
income was $3.0 million for the three months ended September 30, 2002 compared to $1.7 million for the three months ended September 30, 2001. This
$1.3 million improvement primarily results from the increased revenues and improved operating efficiencies and economies of scale related to expenses discussed above.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

Revenues increased by $72.3 million, or 41%, to $246.8 million for the nine months ended September 30, 2002 from $174.5 million for
the nine months ended September 30, 2001. Of this increase in revenues, $39.2 million was contributed by facilities acquired or opened since December 31, 2000. The U.S. dollar was
weaker relative to the Eurodollar and the British pound during the nine months ended September 30, 2002 as compared to the same period in the prior year, resulting in a positive impact of
$2.7 million on year over year revenues for the facilities in Western Europe that were owned in both 2002 and 2001 ("same store" facilities). Absent this foreign exchange impact, same store
facilities in Western Europe contributed $9.4 million more to consolidated revenue in the nine months ended September 30, 2002 as compared to the same period in 2001. The remaining
increase in revenues was contributed by same store U.S. facilities, which performed approximately 17.9% more cases in the nine months ended September 30, 2002 as compared to the nine months
ended September 30, 2001.

Operating
expenses, excluding depreciation and amortization, increased by $46.4 million, or 35%, to $178.2 million for the nine months ended September 30, 2002 from
$131.8 million for the nine months ended September 30, 2001. Operating expenses, excluding depreciation and amortization, as a percentage of revenues, decreased to 72.2% for the nine
months ended September 30, 2002 from

26

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75.5% for the nine months ended September 30, 2001, primarily as a result of operating efficiencies at our facilities and improved economies of scale as we expanded.

EBITDA
less minority interest increased $20.9 million, or 56%, to $58.4 million for the nine months ended September 30, 2002 from $37.5 million for the nine
months ended September 30, 2001. Of this increase in EBITDA less minority interest, $13.9 million was contributed by facilities acquired or opened since December 31, 2000. EBITDA
less minority interest, as a percentage of revenues, increased to 23.7% for the nine months ended September 30, 2002 from 21.5% for the nine months ended September 30, 2001, 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 decreased $0.3 million, or 1%, to $18.9 million for the nine months ended September 30, 2002 from $19.2 million for the nine
months ended September 30, 2001. This amount remained virtually constant because the reduction in expense resulting from the cessation of goodwill amortization required under SFAS 142
largely offset the additional depreciation on tangible assets acquired through acquisitions. Depreciation and amortization, as a percentage of revenues, decreased to 7.7% for the nine months ended
September 30, 2002 from 11.0% for the nine months ended September 30, 2001.

Interest
expense, net of interest income, increased 40% to $18.3 million for the nine months ended September 30, 2002 from $13.0 million for the nine months ended
September 30, 2001 primarily as a result of higher levels of outstanding debt during the nine months ended September 30, 2002 than
during the prior year period. We used a portion of the proceeds of our initial public offering of common stock to repay senior and subordinated indebtedness in June 2001 and have incurred debt
to fund a portion of our acquisition and development program since that time.

Provision
for income taxes and our overall effective tax rates were $7.2 million and 34% for the nine months ended September 30, 2002, compared to $1.2 million and
24% for the nine months ended September 30, 2001, respectively. The increase in our actual provision for income taxes and in our overall effective tax rate primarily results from our accruing
no net federal tax expense related to U.S. operations prior to January 1, 2002, at which time we began accruing taxes at rates approximating statutory rates. We utilized net operating loss
carryforwards (NOLs) to offset current period income as our U.S. operations achieved profitability for the first time during 2001, and during the fourth quarter of 2001 we fully recognized the benefit
of all U.S. NOLs generated during our initial years of operations. The overall effective tax rate for the nine months ended September 30, 2002 remains slightly lower than statutory rates
because our Spanish operations, which generated net income during the nine months ended September 30, 2002, continue to utilize net operating loss carryforwards, whose benefit has not been
previously recognized, to offset current period income.

Net
income was $13.9 million for the nine months ended September 30, 2002 compared to $4.0 million for the nine months ended September 30, 2001. This
$9.9 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 nine months ended September 30, 2002, the Company generated $45.2 million of cash flows from operations as compared to
$22.5 million during the nine months ended September 30, 2001.

During
the nine months ended September 30, 2002, the Company's net cash required for investing activities was $57.7 million, consisting primarily of $39.8 million
for the purchase of businesses and $18.9 million for the purchase of property and equipment. The $39.8 million primarily represents purchases of new businesses, net of cash acquired, and
incremental investments in unconsolidated affiliates. Most of these transactions are individually insignificant; the most significant amounts are the

27

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$10.8 million paid for the surgery center in Corpus Christi, Texas, the $7.5 million paid for the surgical hospital in Murcia, Spain, the $6.9 million paid to acquire the
additional interest in the surgery center in Arlington, Texas, and the $5.3 million paid to acquire Surgicoe. Approximately $7.3 million of the property and equipment purchases related
to ongoing development projects. The $57.7 million of cash required for investing activities was funded primarily with cash flows from operations and additionally with borrowings and a
reduction of cash on hand. Net cash provided by financing activities during the nine months ended September 30, 2002 totaled $10.7 million. Cash and cash equivalents were
$32.1 million at September 30, 2002 as compared to $33.9 million at December 31, 2001, and net working
capital excluding cash and cash equivalents was $2.1 million at September 30, 2002 as compared to $6.4 million at December 31, 2001.

In
December 2001, we entered into an amended and restated credit facility with a group of commercial lenders providing us with the ability to borrow up to $85.0 million for
acquisitions and general corporate purposes in the United States and Spain or for any new subsidiary that becomes a guarantor of the facility. A total of $10.0 million of borrowings under the
facility may be used by subsidiaries that are not guarantors, including subsidiaries in the United Kingdom. Borrowings under our amended and restated credit facility mature on December 19,
2004. As of September 30, 2002, $13.6 million was outstanding under this facility and $68.7 million of the remaining $71.4 million was available for borrowing based on
actual reported consolidated financial results. 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, the entire $85.0 million would be available for borrowing to finance acquisitions as of September 30, 2002, of which $13.6 million was
drawn at September 30, 2002. The indenture governing our Senior Subordinated Notes and our amended and restated credit facility 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. During November 2002 we entered into a second amended and restated credit
agreement expanding our borrowing capacity from $85.0 million to $115.0 million and extending the maturity date from December 19, 2004 to November 7, 2005.

In
October 2002, we received, after offering costs of approximately $4.0 million, net proceeds of approximately $49.1 million from an offering of
2.415 million shares of our common stock, which included 315,000 shares attributable to the underwriters' exercise of their over-allotment option. Net proceeds were used to repay
the $14.2 million balance then outstanding under our amended and restated credit facility and to complete the acquisitions in Lyndhurst, Ohio and Atlanta, Georgia. The remaining net proceeds
will be used for other acquisitions, development of new facilities, and general corporate purposes.

Additionally,
one of our U.K. subsidiaries has a credit agreement with a commercial lender in the United Kingdom that provides for total borrowings of £42.0 million
(approximately $65.9 million as of September 30, 2002) under three separate facilities. At September 30, 2002, total outstanding borrowings under this term facility were
approximately $52.9 million and approximately $3.6 million was available for borrowings. Borrowings under this agreement bear interest at rates of 1.50% to 2.00% over LIBOR and mature in
April 2010. The Company pledged the capital stock of its U.K. subsidiaries

28

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to secure borrowings under this agreement. The Company was in compliance with all debt covenants as of September 30, 2002.

TotalLong-term debt:Senior Subordinated Notes

$
148,891U.S. credit facility


13,600U.K. credit facility


52,890Loans from former owners of subsidiaries


1,259Other debt at operating subsidiaries


7,962Capitalized lease obligations:U.S. operating subsidiaries


24,866Western Europe operating subsidiaries


32,283Total long-term debt, including current portion

$
281,751


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
non-recourse to USPI, the parent company, and is secured by the assets of those operating entities. The total amount of these obligations, which was $66.4 million at
September 30, 2002, 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 82.9% at September 30, 2002. Additionally, our
unconsolidated affiliates that we account for under the equity method have non-recourse debt and capitalized lease obligations that are not included in our consolidated financial
statements. At September 30, 2002, the total obligations of these unconsolidated affiliates under debt and capital lease obligations was approximately $48.0 million. Our average
percentage ownership, weighted based on the individual affiliate's amount of debt and capitalized lease obligations, of these unconsolidated affiliates was 28.8% at September 30, 2002.

Our
acquisition and development program will require substantial capital resources, which we estimate to range from $70.0 million to $90.0 million per year over the next
three years, although this range could be exceeded if attractive multi-facility opportunities are identified. We also estimate that by the end of 2003 we will be required to pay approximately
$2.0 million as additional consideration to the sellers of acquired facilities based upon those facilities achieving certain financial targets. In addition, the operations of our existing
surgical facilities will require ongoing capital expenditures. We believe that existing funds, cash flows from operations and borrowings under our credit facilities will provide sufficient liquidity
for the next twenty-four months. Thereafter, it is likely that we will require additional debt or equity financing for our acquisitions and development projects. There are no assurances
that the needed capital will be available on acceptable terms, if at all. If we are unable to obtain funds
when needed or on acceptable terms, we will be required to curtail our acquisition and development program.

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 September 30, 2002,
$148.9 million of our total outstanding debt was the Senior Subordinated Notes, which were issued in December 2001 at a 0.8% discount and bear

29

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interest at a fixed rate of 10%, $6.0 million was in other fixed rate instruments and the remaining $69.1 million was in variable rate instruments. Accordingly, a hypothetical 100 basis
point increase in market interest rates would result in additional annual expense of $0.7 million. The Senior Subordinated Notes, which represent 96% of our total fixed rate debt at
September 30, 2002, are considered to have a fair value, based upon recent trading, of $152.3 million, which is approximately $3.4 million higher than the carrying value at
September 30, 2002.

Our
international revenues are a significant portion of our total revenues. We are exposed to risks associated with operating internationally, including:



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 are currently denominated in local currency. Historically, the cash generated from our operations in Spain and the United Kingdom have 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

Our
Chairman of the Board and Chief Executive Officer and our Senior Vice President and Chief Financial Officer (our principal executive officer and principal financial officer,
respectively) have concluded, based on their evaluation as of a date within 90 days prior to the date of the filing of this report on Form 10-Q, that our disclosure controls
and procedures are effective to ensure that information required to be disclosed by us in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by
us in such reports is accumulated and communicated to our management, including our Chairman of the Board and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. There were no significant changes in our internal controls or in other factors that could significantly affect these internal
controls subsequent to the date of such evaluation.

PART IIOTHER INFORMATION

ITEM 1.Legal Proceedings

From
time to time, the Company is involved in litigation incidental to its business. In the Company's opinion, no litigation to which the Company is currently a party is likely to have a
material adverse effect on the Company's results of operations, cash flows or financial condition.

30

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ITEM 6.Exhibits and Reports on Form 8-K



*
Filed herewith.





31

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SIGNATURE

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.

|Date: November 7, 2002 |  | United Surgical Partners International, Inc.
|---------------------- |  | --------------------------------------------
|                       |  | By:                                         
|                       |  |                                             
|                       |  | By:                                         

32

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CERTIFICATION

I,
Donald E. Steen, Chairman of the Board and Chief Executive Officer of United Surgical Partners International, Inc., certify that:









|Date: November 7, 2002                                                             
|-----------------------------------------------------------------------------------
|/s/DONALD E. STEENDonald E. Steen
Chairman of the Board and Chief Executive Officer

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CERTIFICATION

I,
Mark A. Kopser, Senior Vice President and Chief Financial Officer of United Surgical Partners International, Inc., certify that:









|Date: November 7, 2002                                                           
|---------------------------------------------------------------------------------
|/s/MARK A. KOPSERMark A. Kopser
Senior Vice President and Chief Financial Officer

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