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

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 March 31, 2003                
|or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number 000-32837

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

|Delaware(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

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

At
May 12, 2003 there were 27,179,558 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 (unaudited)                                                                  
|                          |  |                       |  | Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                            
|                          |  |                       |  | Consolidated Statements of Income for the three months ended March 31, 2003 and 2002              
|                          |  |                       |  | Consolidated Statements of Comprehensive Income for the three months ended March 31, 2003 and 2002
|                          |  |                       |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002          
|                          |  |                       |  | Notes to Consolidated Financial Statements                                                        
|                          |  | Item 2.               |  | Management's Discussion and Analysis of Financial Condition and Results of Operations             
|                          |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                        
|                          |  | Item 4.               |  | Controls and Procedures                                                                           
|PART II.                  |  | Other Information     |  |                                                                                                   
|                          |  | Item 1.               |  | Legal Proceedings                                                                                 
|                          |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                  
|Signatures                |  | 28                   
|Management Certifications |  | 29                   

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

(Unauditedin thousands, except per share amounts)

|                                                                                               |  | March 31, 2003            |         | December 31, 2002 |        
|---------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | ----------------- | -------
|Assets                                                                                         | 
|Cash and cash equivalents                                                                      |  | $                         | 44,390  |                   | $      
|Patient receivables, net of allowance for doubtful accounts of $7,393 and $7,154, respectively |  |                           | 45,222  |                   |        
|Other receivables                                                                              |  |                           | 33,716  |                   |        
|Inventories of supplies                                                                        |  |                           | 7,613   |                   |        
|Deferred tax asset, net                                                                        |  |                           | 5,657   |                   |        
|Prepaids and other current assets                                                              |  |                           | 8,541   |                   |        
|                                                                                               |  |                           |         |                   |        
|                                                                                               |  | Total current assets      |         |                   | 145,139
|Property and equipment, net                                                                    |  |                           | 290,414 |                   |        
|Investments in affiliates                                                                      |  |                           | 19,776  |                   |        
|Intangible assets, net                                                                         |  |                           | 288,596 |                   |        
|Other assets                                                                                   |  |                           | 14,678  |                   |        
|                                                                                               |  |                           |         |                   |        
|                                                                                               |  | Total assets              |         | $                 | 758,603
|                                                                                               |  |                           |         |                   |        
|Liabilities and Stockholders' Equity                                                           | 
|Accounts payable                                                                               |  | $                         | 26,701  |                   | $      
|Accrued salaries and benefits                                                                  |  |                           | 20,756  |                   |        
|Due to affiliates                                                                              |  |                           | 7,161   |                   |        
|Accrued interest                                                                               |  |                           | 5,356   |                   |        
|Current portion of long-term debt                                                              |  |                           | 13,592  |                   |        
|Other accrued expenses                                                                         |  |                           | 26,524  |                   |        
|                                                                                               |  |                           |         |                   |        
|                                                                                               |  | Total current liabilities |         |                   | 100,090
|Long-term debt, less current portion                                                           |  |                           | 269,274 |                   |        
|Other long-term liabilities                                                                    |  |                           | 8,074   |                   |        
|Deferred tax liability, net                                                                    |  |                           | 19,950  |                   |        
|                                                                                               |  |                           |         |                   |        
|                                                                                               |  | Total liabilities         |         |                   | 397,388
|Minority interests                                                                             |  |                           | 29,047  |                   |        
|                                                                                               |  |                           |         |                   |        

3

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|Stockholders' equity: |                                                                                                   |                                                                                                                                          |  |         |         |  |        
|--------------------- | ------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- |  | -------
|                      | Common stock:                                                                                     |                                                                                                                                          |  |         |         |  |        
|                      |                                                                                                   | Other, $0.01 par value; 200,000 shares authorized; 27,365 and 27,306 shares issued at March 31, 2003 and December 31, 2002, respectively |  |         | 274     |  |        
|                      | Additional paid-in capital                                                                        |                                                                                                                                          |  | 321,707 |         |  | 320,750
|                      | Treasury stock, at cost, 199 and 202 shares at March 31, 2003 and December 31, 2002, respectively |                                                                                                                                          |  | (3,670  | )       |  | (3,733 
|                      | Deferred compensation                                                                             |                                                                                                                                          |  | (2,016  | )       |  | (1,226 
|                      | Receivables from sales of common stock                                                            |                                                                                                                                          |  | (78     | )       |  | (191   
|                      | Accumulated other comprehensive income, net of tax                                                |                                                                                                                                          |  | 5,731   |         |  | 3,290  
|                      | Retained earnings                                                                                 |                                                                                                                                          |  | 10,220  |         |  | 3,098  
|                      |                                                                                                   |                                                                                                                                          |  |         |        
|                      |                                                                                                   | Total stockholders' equity                                                                                                               |  |         | 332,168 |  |        
|                      |                                                                                                   |                                                                                                                                          |  |         |        
|                      |                                                                                                   | Total liabilities and stockholders' equity                                                                                               |  | $       | 758,603 |  | $      
|                      |                                                                                                   |                                                                                                                                          |  |         |        

See
accompanying notes to consolidated financial statements.

4

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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
March 31,     |       
|--------------------------------------------------------- | ------- | -------------------------------- | ------
|
|Net patient service revenue                               |         | $                                | 90,471
|Management and administrative services revenue            |         |                                  | 8,037 
|Equity in earnings of unconsolidated affiliates           |         |                                  | 2,541 
|Other income                                              |         |                                  | 1,010 
|                                                          |         |                                  |       
|                                                          |         | Total revenues                   |       
|Salaries, benefits, and other employee costs              |         |                                  | 25,496
|Medical services and supplies                             |         |                                  | 19,903
|Other operating expenses                                  |         |                                  | 18,016
|General and administrative expenses                       |         |                                  | 6,714 
|Provision for doubtful accounts                           |         |                                  | 1,548 
|Depreciation and amortization                             |         |                                  | 7,437 
|                                                          |         |                                  |       
|                                                          |         | Total operating expenses         |       
|                                                          |         |                                  |       
|                                                          |         | Operating income                 |       
|Interest income                                           |         |                                  | 316   
|Interest expense                                          |         |                                  | (6,874
|Other                                                     |         |                                  | 7     
|                                                          |         |                                  |       
|                                                          |         | Total other expense, net         |       
|                                                          |         | Income before minority interests |       
|Minority interests in income of consolidated subsidiaries |         |                                  | (5,011
|                                                          |         |                                  |       
|                                                          |         | Income before income taxes       |       
|Income tax expense                                        |         |                                  | (4,261
|                                                          |         |                                  |       
|                                                          |         | Net income                       |       
|                                                          |         |                                  |       
|Net income per share attributable to common stockholders  |         |                                  |       
|                                                          | Basic   |                                  | $     
|                                                          | Diluted |                                  | $     
|Weighted average number of common shares                  |         |                                  |       
|                                                          | Basic   |                                  |       
|                                                          | Diluted |                                  |       

See
accompanying notes to consolidated financial statements.

5

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

|                                                 |                                          | March 31, |      
|------------------------------------------------ | ---------------------------------------- | --------- | -----
|
|Net income                                       |                                          | $         | 7,122
|Other comprehensive income (loss), net of taxes: |                                          |           |      
|                                                 | Foreign currency translation adjustments |           |      
|                                                 | Net unrealized losses on securities      |           |      
|                                                 |                                          |           |      
|                                                 | Other comprehensive income (loss)        |           |      
|                                                 |                                          |           |      
|                                                 | Comprehensive income                     |           | $    
|                                                 |                                          |           |      

See
accompanying notes to consolidated financial statements.

6

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

|                                                 |                                                                                   | Three months ended
March 31,                                                                                                     |                                                           
|------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------
|
|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 interests 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                                                                 |                                                                                                                                  |                                                           
|                                                 | Increase in deposits and notes receivable                                         |                                                                                                                                  |                                                           
|                                                 | Cash placed in escrow                                                             |                                                                                                                                  |                                                           
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|Cash flows from financing activities:            |                                                                                   |                                                                                                                                  |                                                           
|                                                 | Proceeds from long-term debt                                                      |                                                                                                                                  |                                                           
|                                                 | Payments on long-term debt                                                        |                                                                                                                                  |                                                           
|                                                 | Proceeds from issuances of common stock                                           |                                                                                                                                  |                                                           
|                                                 | Distributions on investments in affiliates                                        |                                                                                                                                  |                                                           
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|Effect of exchange rate changes on cash          |                                                                                   |                                                                                                                                  | (299                                                      
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|Net decrease in cash and cash equivalents        |                                                                                   |                                                                                                                                  | (3,181                                                    
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                                                                                  | 47,571                                                    
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|Cash and cash equivalents at end of period       |                                                                                   | $                                                                                                                                | 44,390                                                    
|                                                 |                                                                                   |                                                                                                                                  |                                                           
|Supplemental information:                        |                                                                                   |                                                                                                                                  |                                                           
|                                                 | Interest paid                                                                     |                                                                                                                                  | $                                                         
|                                                 | Income taxes paid                                                                 |                                                                                                                                  |                                                           
|                                                 | Non-cash transactions:                                                            |                                                                                                                                  |                                                           
|                                                 |                                                                                   | Assets acquired under capital lease obligations                                                                                  |                                                           
|                                                 |                                                                                   | Issuance of common stock for service contracts                                                                                   |                                                           
|                                                 |                                                                                   | Issuance of restricted stock awards                                                                                              |                                                           

See
accompanying notes to consolidated financial statements

7

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

(1)   Basis of Presentation







8

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Three months ended March 31,2003

2002Net income attributable to common stockholdersAs reported

$
7,122

$
4,703Add: Total stock-based employee compensation expense included in reported net income, net of taxes


308


103Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes


(1,310
)

(744
)Pro forma

$
6,120

$
4,062Basic earnings per shareAs reported


0.26


0.20Pro forma


0.23


0.17Diluted earnings per shareAs reported


0.26


0.19Pro forma


0.22


0.16


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

(2)   Acquisitions



Three months ended March 31,2003

2002Net revenues

$
102,880

$
76,070Net income


7,098


4,968Basic earnings per share


0.26


0.21Diluted earnings per share


0.26


0.20




9

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(3)   Earnings Per Share



Three months ended
March 31,2003

2002Net income attributable to common shareholders

$
7,122

$
4,703Weighted average common shares outstanding


27,047


24,107Effect of dilutive securities:Stock options


431


732Warrants and restricted stock


279


285Shares used for diluted earnings per share


27,757


25,124Basic earnings per share

$
0.26

$
0.20Diluted earnings per share

$
0.26

$
0.19


(4)   Segment Disclosures



10

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|                              |  |   |         | Western Europe |   |         |  
|----------------------------- |  | - | ------- | -------------- | - | ------- | -
|
|Net patient service revenue   |  | $ | 49,006  |                | $ | 27,615  |  
|Other revenue                 |  |   | 10,887  |                |   | 701     |  
|                              |  |   |         |                |   |         |  
|Total revenues                |  | $ | 59,893  |                | $ | 28,316  |  
|                              |  |   |         |                |   |         |  
|Depreciation and amortization |  | $ | 4,239   |                | $ | 2,158   |  
|Operating income              |  |   | 16,348  |                |   | 3,332   |  
|Net interest expense          |  |   | (5,148  | )              |   | (781    | )
|Income tax expense            |  |   | (3,078  | )              |   | (504    | )
|Total assets                  |  |   | 424,848 |                |   | 197,044 |  
|Capital expenditures          |  |   | 4,016   |                |   | 2,692   |  
|
|Net patient service revenue   |  | $ | 33,638  |                | $ | 19,764  |  
|Other revenue                 |  |   | 9,508   |                |   | 542     |  
|                              |  |   |         |                |   |         |  
|Total revenues                |  | $ | 43,146  |                | $ | 20,306  |  
|                              |  |   |         |                |   |         |  
|Depreciation and amortization |  | $ | 3,227   |                | $ | 1,678   |  
|Operating income              |  |   | 10,633  |                |   | 1,968   |  
|Net interest expense          |  |   | (4,805  | )              |   | (237    | )
|Income tax expense            |  |   | (1,570  | )              |   | 39      |  
|Total assets                  |  |   | 357,850 |                |   | 138,240 |  
|Capital expenditures          |  |   | 2,217   |                |   | 854     |  

(5)   Condensed Consolidating Financial Statements



11

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Condensed Consolidating Balance Sheets:

|As of March 31, 2003                 |                                            | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total
|------------------------------------ | ------------------------------------------ | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------
|Assets:                              |                                            |                                         |         |                             |   |                           |         |                   
|Current assets:                      |                                            |                                         |         |                             |   |                           |         |                   
|Cash and cash equivalents            |                                            | $                                       | 8,638   |                             | $ | 35,752                    |         | $                 
|Accounts receivable, net             |                                            |                                         | 332     |                             |   | 44,640                    |         |                   
|Other receivables                    |                                            |                                         | 42,569  |                             |   | 12,610                    |         |                   
|Inventories of supplies              |                                            |                                         | 236     |                             |   | 7,377                     |         |                   
|Other                                |                                            |                                         | 10,885  |                             |   | 3,313                     |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current assets                       |                                         |         | 62,660                      |   |                           | 103,692 |                   
|Property and equipment, net          |                                            |                                         | 39,260  |                             |   | 251,742                   |         |                   
|Investments in affiliates            |                                            |                                         | 171,351 |                             |   | 48                        |         |                   
|Intangible assets, net               |                                            |                                         | 165,688 |                             |   | 124,045                   |         |                   
|Other                                |                                            |                                         | 123,433 |                             |   | 10,980                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total assets                               |                                         | $       | 562,392                     |   | $                         | 490,507 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|Liabilities and Stockholders' Equity |                                            |                                         |         |                             |   |                           |         |                   
|Current liabilities:                 |                                            |                                         |         |                             |   |                           |         |                   
|Accounts payable                     |                                            | $                                       | 1,263   |                             | $ | 25,425                    |         | $                 
|Accrued expenses                     |                                            |                                         | 32,976  |                             |   | 27,002                    |         |                   
|Current portion of long-term debt    |                                            |                                         | 2,472   |                             |   | 12,364                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current liabilities                  |                                         |         | 36,711                      |   |                           | 64,791  |                   
|Long-term debt                       |                                            |                                         | 158,723 |                             |   | 246,119                   |         |                   
|Other liabilities                    |                                            |                                         | 8,999   |                             |   | 19,025                    |         |                   
|Minority interests                   |                                            |                                         |        |                             |   | 7,764                     |         |                   
|Stockholders' equity                 |                                            |                                         | 357,960 |                             |   | 152,807                   |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total liabilities and stockholders' equity |                                         | $       | 562,393                     |   | $                         | 490,506 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   

12

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|As of December 31, 2002              |                                            | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total
|------------------------------------ | ------------------------------------------ | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------
|Assets:                              |                                            |                                         |         |                             |   |                           |         |                   
|Current assets:                      |                                            |                                         |         |                             |   |                           |         |                   
|Cash and cash equivalents            |                                            | $                                       | 24,712  |                             | $ | 22,859                    |         | $                 
|Accounts receivable, net             |                                            |                                         | 90      |                             |   | 39,086                    |         |                   
|Other receivables                    |                                            |                                         | 46,983  |                             |   | 9,281                     |         |                   
|Inventories of supplies              |                                            |                                         | 280     |                             |   | 7,476                     |         |                   
|Other                                |                                            |                                         | 10,235  |                             |   | 2,423                     |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current assets                       |                                         |         | 82,300                      |   |                           | 81,125  |                   
|Property and equipment, net          |                                            |                                         | 39,236  |                             |   | 231,743                   |         |                   
|Investments in affiliates            |                                            |                                         | 172,050 |                             |   | 375                       |         |                   
|Intangible assets, net               |                                            |                                         | 166,036 |                             |   | 122,685                   |         |                   
|Other                                |                                            |                                         | 98,647  |                             |   | 5,204                     |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total assets                               |                                         | $       | 558,269                     |   | $                         | 441,132 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|Liabilities and Stockholders' Equity |                                            |                                         |         |                             |   |                           |         |                   
|Current liabilities:                 |                                            |                                         |         |                             |   |                           |         |                   
|Accounts payable                     |                                            | $                                       | 1,357   |                             | $ | 24,619                    |         | $                 
|Accrued expenses                     |                                            |                                         | 28,543  |                             |   | 22,769                    |         |                   
|Current portion of long-term debt    |                                            |                                         | 2,453   |                             |   | 11,937                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current liabilities                  |                                         |         | 32,353                      |   |                           | 59,325  |                   
|Long-term debt                       |                                            |                                         | 158,199 |                             |   | 216,621                   |         |                   
|Other liabilities                    |                                            |                                         | 7,936   |                             |   | 16,173                    |         |                   
|Minority interests                   |                                            |                                         |        |                             |   | 7,387                     |         |                   
|Stockholders' equity                 |                                            |                                         | 359,781 |                             |   | 141,626                   |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total liabilities and stockholders' equity |                                         | $       | 558,269                     |   | $                         | 441,132 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   

13

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Condensed Consolidating Statements of Income:

|Three months ended March 31, 2003                           |  | USPI and
Wholly-owned
U.S. Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |   | Consolidated
Total |       
|----------------------------------------------------------- |  | --------------------------------------- | ------ | --------------------------- | - | ------------------------- | - | ------------------ | ------
|Revenues                                                    |  | $                                       | 18,293 |                             | $ | 86,770                    |   | $                  | (3,004
|Operating expenses, excluding depreciation and amortization |  |                                         | 12,320 |                             |   | 62,689                    |   |                    | (3,332
|Depreciation and amortization                               |  |                                         | 2,413  |                             |   | 5,028                     |   |                    | (4    
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Operating income                                            |  |                                         | 3,560  |                             |   | 19,053                    |   |                    | 332   
|Interest expense, net                                       |  |                                         | (2,869 | )                           |   | (3,689                    | ) |                    |      
|Other expense                                               |  |                                         | 78     |                             |   | 7                         |   |                    | (78   
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Income before minority interests                            |  |                                         | 769    |                             |   | 15,371                    |   |                    | 254   
|Minority interests in income of consolidated subsidiaries   |  |                                         |       |                             |   | (2,352                    | ) |                    | (2,659
|Income (loss) before income taxes                           |  |                                         | 769    |                             |   | 13,019                    |   |                    | (2,405
|Income tax expense                                          |  |                                         | (2,994 | )                           |   | (1,267                    | ) |                    |      
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Net income (loss)                                           |  | $                                       | (2,225 | )                           | $ | 11,752                    |   | $                  | (2,405
|                                                            |  |                                         |        |                             |   |                           |   |                    |       

|Three months ended March 31, 2002                           |  | USPI and
Wholly-owned
U.S. Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |   | Consolidated
Total |       
|----------------------------------------------------------- |  | --------------------------------------- | ------ | --------------------------- | - | ------------------------- | - | ------------------ | ------
|Revenues                                                    |  | $                                       | 15,433 |                             | $ | 61,184                    |   | $                  | (1,539
|Operating expenses, excluding depreciation and amortization |  |                                         | 10,095 |                             |   | 45,550                    |   |                    | (1,407
|Depreciation and amortization                               |  |                                         | 2,103  |                             |   | 3,557                     |   |                    | (4    
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Operating income                                            |  |                                         | 3,235  |                             |   | 12,077                    |   |                    | (128  
|Interest expense, net                                       |  |                                         | (3,105 | )                           |   | (2,515                    | ) |                    |      
|Other expense                                               |  |                                         | 68     |                             |   | (47                       | ) |                    | (68   
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Income (loss) before minority interests                     |  |                                         | 198    |                             |   | 9,515                     |   |                    | (196  
|Minority interests in income of consolidated subsidiaries   |  |                                         |       |                             |   | (1,364                    | ) |                    | (1,324
|Income (loss) before income taxes                           |  |                                         | 198    |                             |   | 8,151                     |   |                    | (1,520
|Income tax expense                                          |  |                                         | (1,552 | )                           |   | (574                      | ) |                    |      
|                                                            |  |                                         |        |                             |   |                           |   |                    |       
|Net income (loss)                                           |  | $                                       | (1,354 | )                           | $ | 7,577                     |   | $                  | (1,520
|                                                            |  |                                         |        |                             |   |                           |   |                    |       

14

---

Condensed Consolidating Statements of Cash Flows:

|Three months ended March 31, 2003                                                                            |                                                     | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total |        
|------------------------------------------------------------------------------------------------------------ | --------------------------------------------------- | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------ | -------
|Cash flows from operating activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |        
|Net income (loss)                                                                                            |                                                     | $                                       | (2,224  | )                           | $ | 11,752                    |         | $                  | (2,406 
|Changes in operating and intercompany assets and liabilities and noncash items included in net income (loss) |                                                     |                                         | (9,888  | )                           |   | (5,732                    | )       |                    | 27,013 
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        
|                                                                                                             | Net cash provided by (used in) operating activities |                                         |         | (12,112                     | ) |                           | 6,020   |                    |        
|Cash flows from investing activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |        
|Purchases of property and equipment, net                                                                     |                                                     |                                         | (1,838  | )                           |   | (7,638                    | )       |                    |       
|Purchases of new businesses                                                                                  |                                                     |                                         | (294    | )                           |   | (9,010                    | )       |                    |       
|Other items                                                                                                  |                                                     |                                         | (4      | )                           |   | (3,144                    | )       |                    |       
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        
|                                                                                                             | Net cash used in investing activities               |                                         |         | (2,136                      | ) |                           | (19,792 | )                  |        
|Cash flows from financing activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |        
|Long-term borrowings, net                                                                                    |                                                     |                                         | (515    | )                           |   | 26,962                    |         |                    | (24,607
|Proceeds from issuance of common stock                                                                       |                                                     |                                         | 159     |                             |   |                          |         |                    |       
|Other items                                                                                                  |                                                     |                                         | (1,468  | )                           |   |                          |         |                    |       
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        
|                                                                                                             | Net cash provided by (used in) financing activities |                                         |         | (1,824                      | ) |                           | 26,962  |                    |        
|Effect of exchange rate changes on cash                                                                      |                                                     |                                         |        |                             |   | (299                      | )       |                    |       
|Net increase (decrease) in cash                                                                              |                                                     |                                         | (16,072 | )                           |   | 12,891                    |         |                    |       
|Cash at the beginning of the period                                                                          |                                                     |                                         | 24,712  |                             |   | 22,859                    |         |                    |       
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        
|Cash at the end of the period                                                                                |                                                     | $                                       | 8,640   |                             | $ | 35,750                    |         | $                  |       
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        

15

---

|Three months ended March 31, 2002                                                                            |                                           | USPI and
Wholly-owned
U.S. Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |        | Consolidated
Total |       
|------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | --------------------------------------- | ------ | --------------------------- | - | ------------------------- | ------ | ------------------ | ------
|Cash flows from operating activities:                                                                        |                                           |                                         |        |                             |   |                           |        |                    |       
|Net income (loss)                                                                                            |                                           | $                                       | (1,355 | )                           | $ | 7,578                     |        | $                  | (1,520
|Changes in operating and intercompany assets and liabilities and noncash items included in net income (loss) |                                           |                                         | 6,453  |                             |   | 1,286                     |        |                    | 1,520 
|                                                                                                             |                                           |                                         |        |                             |   |                           |        |                    |       
|                                                                                                             | Net cash provided by operating activities |                                         |        | 5,098                       |   |                           | 8,864  |                    |       
|Cash flows from investing activities:                                                                        |                                           |                                         |        |                             |   |                           |        |                    |       
|Purchases of property and equipment, net                                                                     |                                           |                                         | (878   | )                           |   | (3,630                    | )      |                    |      
|Purchases of new businesses                                                                                  |                                           |                                         | (6,904 | )                           |   | (7,580                    | )      |                    |      
|Other items                                                                                                  |                                           |                                         | (2,314 | )                           |   | 1,447                     |        |                    |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |        |                    |       
|                                                                                                             | Net cash used in investing activities     |                                         |        | (10,096                     | ) |                           | (9,763 | )                  |       
|Cash flows from financing activities:                                                                        |                                           |                                         |        |                             |   |                           |        |                    |       
|Long-term borrowings, net                                                                                    |                                           |                                         | (2,637 | )                           |   | (418                      | )      |                    |      
|Proceeds from issuance of common stock                                                                       |                                           |                                         | 792    |                             |   |                          |        |                    |      
|Other items                                                                                                  |                                           |                                         | (320   | )                           |   |                          |        |                    |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |        |                    |       
|                                                                                                             | Net cash used in financing activities     |                                         |        | (2,165                      | ) |                           | (418   | )                  |       
|Effect of exchange rate changes on cash                                                                      |                                           |                                         |       |                             |   | (63                       | )      |                    |      
|Net decrease in cash                                                                                         |                                           |                                         | (7,163 | )                           |   | (1,380                    | )      |                    |      
|Cash at the beginning of the period                                                                          |                                           |                                         | 20,396 |                             |   | 13,485                    |        |                    |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |        |                    |       
|Cash at the end of the period                                                                                |                                           | $                                       | 13,233 |                             | $ | 12,105                    |        | $                  |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |        |                    |       

(6)   Commitments and Contingencies





16

---





(7)   Subsequent Events



17

---

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; foreign currency fluctuations; 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. 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 March 31, 2003, the Company operated 65
surgical facilities, consisting of 54 in the United States, nine in Spain, and two in the United Kingdom. Of the 54 U.S. facilities, the Company jointly operates 26 with eleven major
not-for-profit healthcare systems. Overall, the Company holds ownership in 62 of the facilities and operates the remaining three facilities, which are in the United States,
under management contracts.

Critical Accounting Policies

Our management 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.

18

---

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

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

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

Acquisitions, Equity Investments and Development Projects

In March 2003, we acquired a surgical hospital in Marbella, Spain, for approximately 8.4 million euros ($9.0 million) in cash. In addition,
we agreed to pay up to an additional total of 4.3 million euros ($4.6 million), depending on the resolution of certain contingencies over the next four years.

We
also engage in investing transactions that are not business combinations, consisting primarily of purchases and sales of noncontrolling equity interests in surgical facilities and the
investment of additional cash in surgical facilities under development. During the three months ended March 31, 2003, these transactions resulted in net cash outflows of $0.3 million.

During
April 2003, we acquired a private surgical hospital in London, England for approximately 8.4 million pounds ($13.4 million), of which the payment of
approximately 0.5 million pounds ($0.7 million) has initially been deferred pending the resolution of certain contingencies.

Sources of Revenue

Revenues primarily include:



19

---



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

Three months
ended
March 31,2003

2002Net patient service revenue

89
%
86
%Management and administrative services revenue

8

10Equity in earnings of unconsolidated affiliates

2

3Other income

1

1Total revenues

100
%
100
%


The
percentage of our total revenues that was earned from net patient service revenue increased from 86% for the three months ended March 31, 2002 to 89% for the three months
ended March 31, 2003
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
eight surgical facilities since December 31, 2001. Our management and administrative services revenues are earned from the following types of activities (dollars in thousands):

Three months ended
March 31,2003

2002Management of surgical facilities

$
3,115

$
1,860Consulting and other services provided to physicians and related entities


4,922


5,463Total management and administrative service revenues

$
8,037

$
7,323


20

---

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
March 31,2003

2002Total revenues

$
46,537

$
28,700Depreciation and amortization


2,487


1,238Operating income


13,152


8,830Interest expense, net


1,677


562Net income


11,056


8,115Long-term debt


80,315


28,705USPI's equity in earnings of unconsolidated affiliates

$
2,541

$
2,096USPI's implied weighted average ownership percentage based on affiliates' net income(1)


23.0
%

25.8
%USPI's implied weighted average ownership percentage based on affiliates' debt(2)


24.2
%

26.4
%Unconsolidated facilities operated at period end


26


21


---

For
the three months ended March 31, 2003 and 2002, approximately 59% and 57% of our revenues were generated from operations in the United States and 41% and 43% 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 the period from April 1, 2002 to March 31, 2003.

21

---

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
March 312003

2002Total revenues

100.0
%
100.0
%Operating expenses, excluding depreciation and amortization

70.2

72.2Depreciation and amortization

7.3

7.5Operating income

22.5

20.3Minority interests in income of consolidated entities

4.9

3.6Interest and other expense, net

6.4

7.6Income before income taxes

11.2

9.1Income tax expense

(4.2
)
(2.8
)Net income

7.0

6.3EBITDA less minority interests(a)

24.9

24.2


---

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

Three months ended March 31,2003

2002Operating income

$
22,945

$
15,184Depreciation and amortization


7,437


5,656Minority interests in income of consolidated subsidiaries


(5,011
)

(2,688
)EBITDA less minority interests

$
25,371

$
18,152Minority interest expense


5,011


2,688Provision for doubtful accounts


1,548


1,129Amortization of debt issue costs, discount, and deferred compensation


579


422Interest and other nonoperating expense


(6,551
)

(5,667
)Income tax expense


(4,261
)

(2,126
)Equity in earnings of unconsolidated affiliates


(2,541
)

(2,096
)Increases (decreases) in cash from changes in operating assets and liabilities, net of effects from purchases of new businesses


(641
)

1,460Net cash provided by operating activities

$
18,515

$
13,962


22

---

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Revenues increased by $27.0 million, or 36%, to $102.1 million for the three months ended March 31, 2003 from $75.1 million for the
three months ended March 31, 2002. Of this increase in revenues, $12.6 million was contributed by facilities acquired or opened since December 31, 2001. The U.S. dollar was weaker
relative to the Eurodollar and the British pound during the three months ended March 31, 2003 as compared to the same period in the prior year, resulting in a positive impact of
$6.5 million on year over year revenues for the facilities in Western Europe that were owned in both 2003 and 2002 ("same store" facilities). Absent this foreign exchange impact, same store
facilities in Western Europe contributed $2.6 million more to consolidated revenues in the three months ended March 31, 2003 as compared to the same period in 2002. The remaining
increase in revenues was contributed by same store U.S. facilities, which performed approximately 11.0% more cases in the three months ended March 31, 2003 as compared to the three months ended
March 31, 2002.

Operating
expenses, excluding depreciation and amortization, increased by $17.5 million, or 32%, to $71.7 million for the three months ended March 31, 2003 from
$54.2 million for the three months ended March 31, 2002. Operating expenses, excluding depreciation and amortization, as a percentage of revenues, decreased to 70.2% for the three months
ended March 31, 2003 from 72.2% for the three months ended March 31, 2002, primarily as a result of operating efficiencies at our facilities and improved economies of scale as we
expanded.

EBITDA
less minority interests increased $7.2 million, or 40%, to $25.4 million for the three months ended March 31, 2003 from $18.2 million for the three
months ended March 31, 2002. Of this increase in EBITDA less minority interests, $2.7 million was contributed by facilities acquired or opened since March 31, 2002. EBITDA less
minority interests, as a percentage of revenues, increased to 24.9% for the three months ended March 31, 2003 from 24.2% for the three months ended March 31, 2002, primarily as a result
of improved operating margins at our facilities and the leveraging of our corporate overhead expenses over the increased revenue.

Depreciation
and amortization increased $1.7 million, or 31%, to $7.4 million for the three months ended March 31, 2003 from $5.7 million for the three months
ended March 31, 2002, primarily as a result of additional depreciation on tangible assets added through acquisitions. Depreciation and amortization, as a percentage of revenues, decreased to
7.3% for the three months ended March 31, 2003 from 7.5% for the three months ended March 31, 2002.

Operating
income increased $7.7 million, or 51%, to $22.9 million for the three months ended March 31, 2003 from $15.2 million for the three months ended
March 31, 2002, primarily as a result of the impact of acquisitions and improved operating margins at our facilities, as discussed above. Operating income, as a percentage of revenues,
increased to 22.5% for the three months ended March 31, 2003 from 20.2% for the three months ended March 31, 2002, primarily as a result of improved operating margins at our facilities
and the leveraging of our corporate overhead expenses over the increased revenue.

Interest
expense, net of interest income, increased 16% to $6.6 million for the three months ended March 31, 2003 from $5.7 million for the three months ended
March 31, 2002 primarily as a result of interest expense on debt of facilities acquired since December 31, 2001.

Provision
for income taxes and our overall effective tax rates were $4.3 million and 37% for the three months ended March 31, 2003, compared to $2.1 million and 31%
for the three months ended March 31, 2002, respectively. The increase in our actual provision for income taxes and in our overall effective tax rate primarily results from our accruing no net
income tax expense in Spain prior to January 1, 2003, at which time we began accruing taxes at rates approximating statutory rates. We utilized net operating loss carryforwards (NOLs) to offset
current taxable income as our Spain operations achieved profitability for the first time during 2002, and during the fourth quarter of 2002

23

---

we
recognized the benefit of a portion of our Spain NOLs generated during our initial years of operations as the realization of a portion of our Spain NOLs was deemed "more likely than not."

Net
income was $7.1 million for the three months ended March 31, 2003 compared to $4.7 million for the three months ended March 31, 2002. This
$2.4 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 three months ended March 31, 2003, the Company generated $18.5 million of cash flows from operations as compared to $14.0 million
during the three months ended March 31, 2002.

During
the three months ended March 31, 2003, the Company's net cash required for investing activities was $21.9 million, consisting primarily of $9.3 million for
the purchase of businesses and equity interests, net of cash received, and $9.5 million for the purchase of property and equipment. The $9.3 million primarily consists of the
$9.0 million paid for the acquisition of a private surgical hospital in Marbella, Spain and net incremental investments in unconsolidated affiliates of $0.3 million. Approximately $2.8
million of the property and equipment purchases related to ongoing development projects and the remaining $6.7 million represents purchases of equipment at existing facilities. The
$21.9 million of cash used in investing activities was funded primarily with cash flows from operations and additionally through borrowings by individual facilities. Net cash provided by
financing activities during the three months ended March 31, 2003 was $0.5 million. Cash and cash equivalents were $44.3 million at March 31, 2003 as compared to
$47.6 million at December 31, 2002, and net working capital was $45.0 million at March 31, 2003 as compared to $51.4 million at December 31, 2002.

In
November 2002, we entered into a second amended and restated revolving credit facility with a group of commercial lenders providing us with the ability to borrow up to
$115.0 million for acquisitions and general corporate purposes in the United States and Spain or for any new subsidiary that becomes a guarantor of the facility. A total of $15.0 million
of borrowings under the facility may be used by subsidiaries that are not guarantors, including subsidiaries in the United Kingdom. Borrowings under our second amended and restated credit facility
mature on November 7, 2005. As of March 31, 2003, no
amounts were outstanding under this facility and $46.5 million was available for borrowing based on actual reported consolidated financial results. Maximum availability under the facility is
based upon pro forma EBITDA including EBITDA from acquired entities. Assuming historical purchase multiples of annual EBITDA of potential acquisition targets, approximately $77.4 million would
be available for borrowing to finance acquisitions as of March 31, 2003, of which none was drawn at March 31, 2003. Our second amended and restated credit facility agreement and the
indenture governing our Senior Subordinated Notes contain various restrictive covenants including covenants that limit our ability and the ability of certain of our subsidiaries to borrow money or
guarantee other indebtedness, grant liens on our assets, make investments, use assets as security in other transactions, pay dividends on stock, enter into sale and leaseback transactions or sell
assets or capital stock.

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 $66.3 million as of March 31, 2003) under three separate facilities. At March 31, 2003, total outstanding borrowings under this credit agreement were approximately
$54.1 million, which represents total borrowings net of scheduled repayments of $10.6 million that have been made under the agreement, and approximately $1.6 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. We pledged the capital stock of our U.K.

24

---

subsidiaries
to secure borrowings under this agreement. We were in compliance with all debt covenants as of March 31, 2003.

|                                   |                                          | Payments Due by Period (In Thousands)
|---------------------------------- | ---------------------------------------- | -------------------------------------
|
|Long term debt                     |                                          |                                      
|                                   | Senior Subordinated Notes                |                                      
|                                   | U.S. Credit Facility                     |                                      
|                                   | U.K. Credit Facility                     |                                      
|                                   | Loans from former owners of subsidiaries |                                      
|                                   | Other debt at operating subsidiaries     |                                      
|Capitalized lease obligations:     |                                          |                                      
|                                   | U.S. operating subsidiaries              |                                      
|                                   | Western Europe operating Subsidiaries    |                                      
|Operating lease obligations:       |                                          |                                      
|                                   | U.S. operating subsidiaries              |                                      
|                                   | Western Europe operating Subsidiaries    |                                      
|Total contractual cash obligations |                                          | $                                    

Our
operating subsidiaries, many of which have minority owners who share in the cash flow of these entities, have debt consisting primarily of capitalized lease obligations. This debt is
generally non-recourse to USPI, the parent company, and is generally secured by the assets of those operating entities. The total amount of these obligations, which was
$79.3 million at March 31, 2003, 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 84.1% at March 31, 2003.
Additionally, our unconsolidated affiliates that we account for under the equity method have debt and capitalized lease obligations that are generally non-recourse to USPI and are not
included in our consolidated financial statements. At March 31, 2003, the total obligations of these unconsolidated affiliates under debt and capital lease obligations was approximately
$80.3 million. Our average percentage ownership, weighted based on the individual affiliate's amount of debt and capitalized lease obligations, of these unconsolidated affiliates was 24.2% at
March 31, 2003. USPI or one of its wholly owned subsidiaries had collectively guaranteed $10.1 million in total debt and capital lease obligations of our unconsolidated affiliates as of
March 31, 2003.

These
unconsolidated affiliates are limited partnerships, limited liability partnerships or limited liability companies that own operational surgical facilities or surgical facilities
that are under development. None of these affiliates provide financing, liquidity, or market or credit risk support for us. They also do not engage in leasing, hedging, research and development
services with us. Moreover, we do not believe that they expose us to any of their liabilities that are not otherwise reflected in our consolidated financial statements. We are not obligated to fund
losses or otherwise provide additional funding to these affiliates other than as we determine to be economically required in order to successfully implement our development plans.

Our
acquisition and development program will require substantial capital resources, which we estimate to range from $40.0 million to $60.0 million per year over the next
three years, including an estimated $2.7 million related to additional consideration to the sellers of acquired facilities based upon those facilities achieving certain financial targets and
potentially an additional $4.6 million related to the resolution of certain contingencies related to the Marbella acquisition, of which $3.1 million has been placed in escrow and is
reported in other assets in our consolidated balance sheet. In addition, the operations of our existing surgical facilities will require ongoing capital expenditures. We believe

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that
existing funds, cash flows from operations and borrowings under our credit facilities will provide sufficient liquidity for at least the next twelve months.

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
March 31, 2003, $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 interest at a fixed
rate of 10%, $5.4 million was in other fixed rate instruments and the remaining $62.6 million was in variable rate instruments. Accordingly, a hypothetical 100 basis point increase in
market interest rates would result in additional annual expense of $0.6 million. The Senior Subordinated Notes, which represent 97% of our total fixed rate debt at March 31, 2003, are
considered to have a fair value, based upon recent trading, of $160.9 million, which is approximately $12.0 million higher than the carrying value at March 31, 2003.

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 has been utilized within each of those countries to finance
development and acquisition activity as well as for repayment of debt denominated in local currency. Accordingly, we have not utilized financial instruments to hedge our foreign currency exchange
risk.

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

ITEM 4.Controls and Procedures

The Chairman and Chief Executive Officer and Chief Financial Officer of the Company (its principal executive officer and principal financial officer,
respectively) have evaluated the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within
90 days of the filing date of this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that
the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic SEC filings. There were no significant
changes in the Company's internal controls, or in other factors that could significantly affect these controls, subsequent to the date of such evaluation.

PART IIOTHER INFORMATION

ITEM 1.Legal Proceedings

We have been named as a defendant in a lawsuit filed by former shareholders of Surgicoe Corporation, which we aquired in March 2002. The suit alleges that
we failed to discharge certain post-closing obligations under the acquisition agreement. We believe that the suit is wholly without

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

ITEM 6.Exhibits and Reports on Form 8-K

(a)   Exhibits:

99.1*

Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 135099.2*

Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350


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(b)   Reports
on Form 8-K:



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SIGNATURES

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

|                   |  | United Surgical Partners International, Inc.
|------------------ |  | --------------------------------------------
|Date: May 14, 2003 |  | By:                                         
|                   |  | By:                                         

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CERTIFICATION

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

Date:
May 14, 2003

/s/
Donald E. Steen
Donald E. Steen
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)

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CERTIFICATION

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

Date:
May 14, 2003

/s/
Mark A. Kopser
Mark A. Kopser
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

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Exhibit Index

99.1*

Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 135099.2*

Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350


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