Use these links to rapidly review the documentUNITED SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX

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

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FORM 10-Q

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2002

or

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

For the transition period from  to

Commission file number 000-32837

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

Delaware(State or other jurisdiction of incorporation or organization)

75-2749762(IRS Employer Identification Number)15305 Dallas Parkway, Suite 1600
Addison, Texas(Address of principal executive offices)

75001(Zip Code)


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

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

At
May 9, 2002 there were 24,318,178 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                                                                                                 
|          |  |                       |  | Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001                                   
|          |  |                       |  | Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2002 and 2001                 
|          |  |                       |  | Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended March 31, 2002 and 2001
|          |  |                       |  | Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2002 and 2001                 
|          |  |                       |  | Notes to Consolidated Financial Statements (unaudited)                                                               
|          |  | Item 2.               |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                
|          |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                           
|PART II.  |  | Other Information     |  |                                                                                                                      
|          |  | Item 1.               |  | Legal Proceedings                                                                                                    
|          |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                                     
|Signature |  | 24                   

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

2

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PART I. FINANCIAL INFORMATION

ITEM 1.Financial Statements

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

|                                                                                              |                           | March 31, 2002 |         | December 31, 2001
|--------------------------------------------------------------------------------------------- | ------------------------- | -------------- | ------- | -----------------
|
|Assets                                                                                        |                           |                |         |                  
|Cash and cash equivalents                                                                     |                           | $              | 25,338  |                  
|Patient receivables, net of allowance for doubtful accounts of $4,381 and $4,726 respectively |                           |                | 32,400  |                  
|Other receivables                                                                             |                           |                | 30,993  |                  
|Inventories of supplies                                                                       |                           |                | 5,856   |                  
|Deferred tax asset, net                                                                       |                           |                | 6,571   |                  
|Prepaids and other current assets                                                             |                           |                | 5,297   |                  
|                                                                                              |                           |                |         |                  
|                                                                                              | Total current assets      |                | $       | 106,455          
|Property and equipment, net                                                                   |                           |                | 222,015 |                  
|Investments in affiliates                                                                     |                           |                | 14,573  |                  
|Intangible assets, net                                                                        |                           |                | 229,028 |                  
|Other assets                                                                                  |                           |                | 9,070   |                  
|                                                                                              |                           |                |         |                  
|                                                                                              | Total assets              |                | $       | 581,141          
|                                                                                              |                           |                |         |                  
|Liabilities and Stockholders' Equity                                                          |                           |                |         |                  
|Accounts payable                                                                              |                           | $              | 21,955  |                  
|Accrued salaries and benefits                                                                 |                           |                | 13,966  |                  
|Due to affiliates                                                                             |                           |                | 7,445   |                  
|Accrued interest                                                                              |                           |                | 5,127   |                  
|Current portion of long-term debt                                                             |                           |                | 9,958   |                  
|Other accrued expenses                                                                        |                           |                | 20,397  |                  
|Deferred tax liability, net                                                                   |                           |                | 776     |                  
|                                                                                              |                           |                |         |                  
|                                                                                              | Total current liabilities |                | $       | 79,624           
|Long-term debt, less current portion                                                          |                           |                | 238,824 |                  
|Other long-term liabilities                                                                   |                           |                | 3,187   |                  
|Deferred tax liability, net                                                                   |                           |                | 12,347  |                  
|                                                                                              |                           |                |         |                  
|                                                                                              | Total liabilities         |                | $       | 333,982          
|Minority interests                                                                            |                           |                | 17,012  |                  

3

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|                      |                                                                                                   | March 31, 2002                                                                                                                           |  | December 31, 2001 |        
|--------------------- | ------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------
|
|Stockholders' equity: |                                                                                                   |                                                                                                                                          |  |                   |        
|                      | Common stock:                                                                                     |                                                                                                                                          |  |                   |        
|                      |                                                                                                   | Other, $0.01 par value; 200,000 shares authorized; 24,513 and 24,436 shares issued at March 31, 2002 and December 31, 2000, respectively |  |                   | 245    
|                      | Additional paid-in capital                                                                        |                                                                                                                                          |  | 267,106           |        
|                      | Treasury stock, at cost, 335 and 334 shares at March 31, 2002 and December 31, 2001, respectively |                                                                                                                                          |  | (5,922            | )      
|                      | Deferred compensation                                                                             |                                                                                                                                          |  | (1,396            | )      
|                      | Receivables from sales of common stock                                                            |                                                                                                                                          |  | (563              | )      
|                      | Accumulated other comprehensive loss, net of tax                                                  |                                                                                                                                          |  | (17,544           | )      
|                      | Accumulated deficit                                                                               |                                                                                                                                          |  | (11,779           | )      
|                      |                                                                                                   |                                                                                                                                          |  |                   |        
|                      |                                                                                                   | Total stockholders' equity                                                                                                               |  |                   | 230,147
|                      |                                                                                                   |                                                                                                                                          |  |                   |        
|                      |                                                                                                   | Total liabilities and stockholders' equity                                                                                               |  | $                 | 581,141
|                      |                                                                                                   |                                                                                                                                          |  |                   |        

See
accompanying notes to consolidated financial statements.

4

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

|                                                                |                                                       | Three months ended March 31, |       
|--------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------- | ------
|
|Net patient service revenue                                     |                                                       | $                            | 65,028
|Management and administrative services revenue                  |                                                       |                              | 7,323 
|Equity in earnings of unconsolidated affiliates                 |                                                       |                              | 2,096 
|Other income                                                    |                                                       |                              | 631   
|                                                                |                                                       |                              |       
|                                                                | Total revenues                                        |                              |       
|Salaries, benefits, and other employee costs                    |                                                       |                              | 19,116
|Medical services and supplies                                   |                                                       |                              | 14,396
|Other operating expenses                                        |                                                       |                              | 13,701
|General and administrative expenses                             |                                                       |                              | 5,896 
|Provision for doubtful accounts                                 |                                                       |                              | 1,129 
|Depreciation and amortization                                   |                                                       |                              | 5,656 
|                                                                |                                                       |                              |       
|                                                                | Total operating expenses                              |                              |       
|                                                                |                                                       |                              |       
|                                                                | Operating income                                      |                              |       
|Interest income                                                 |                                                       |                              | 308   
|Interest expense                                                |                                                       |                              | (5,928
|Other                                                           |                                                       |                              | (47   
|                                                                |                                                       |                              |       
|                                                                | Total other expense, net                              |                              |       
|                                                                | Income before minority interest                       |                              |       
|Minority interest in income of consolidated subsidiaries        |                                                       |                              | (2,688
|                                                                |                                                       |                              |       
|                                                                | Income before income taxes                            |                              |       
|Income tax expense                                              |                                                       |                              | (2,126
|                                                                |                                                       |                              |       
|                                                                | Net income                                            |                              |       
|Preferred stock dividends                                       |                                                       |                              |      
|                                                                |                                                       |                              |       
|                                                                | Net income (loss) attributable to common stockholders |                              | $     
|                                                                |                                                       |                              |       
|Net income (loss) 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 (Loss)        (Unauditedin thousands)

|                                        |                                                        | Three months ended
March 31, |      
|--------------------------------------- | ------------------------------------------------------ | ---------------------------- | -----
|
|Net income                              |                                                        | $                            | 4,703
|Other comprehensive loss, before taxes: |                                                        |                              |      
|                                        | Foreign currency translation adjustments               |                              |      
|                                        | Income tax benefit related to other comprehensive loss |                              |      
|                                        |                                                        |                              |      
|                                        | Other comprehensive loss                               |                              |      
|                                        |                                                        |                              |      
|                                        | Comprehensive income (loss)                            |                              | $    
|                                        |                                                        |                              |      

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 interest in income of consolidated subsidiaries                                                                         |                                                           
|                                                     |                                                                                   | Amortization of deferred compensation                                                                                            |                                                           
|                                                     |                                                                                   | Increases (decreases) in cash from changes in operating assets and liabilities, net of effects from purchases of new businesses: |                                                           
|                                                     |                                                                                   |                                                                                                                                  | Patient receivables                                       
|                                                     |                                                                                   |                                                                                                                                  | Other receivables                                         
|                                                     |                                                                                   |                                                                                                                                  | Inventories of supplies, prepaids and other current assets
|                                                     |                                                                                   |                                                                                                                                  | Accounts payable and accrued expenses                     
|                                                     |                                                                                   |                                                                                                                                  | Other long-term liabilities                               
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Cash flows from investing activities:                |                                                                                   |                                                                                                                                  |                                                           
|                                                     | Purchases of new businesses, net of cash received                                 |                                                                                                                                  |                                                           
|                                                     | Purchases of property and equipment                                               |                                                                                                                                  |                                                           
|                                                     | Sales of property                                                                 |                                                                                                                                  |                                                           
|                                                     | Increase in deposits and notes receivable                                         |                                                                                                                                  |                                                           
|                                                     | Cash released from escrow                                                         |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Cash flows from financing activities:                |                                                                                   |                                                                                                                                  |                                                           
|                                                     | Proceeds from long-term debt                                                      |                                                                                                                                  |                                                           
|                                                     | Payments on long-term debt                                                        |                                                                                                                                  |                                                           
|                                                     | Proceeds from issuances of common stock                                           |                                                                                                                                  |                                                           
|                                                     | Distributions on investments in affiliates                                        |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Effect of exchange rate changes on cash              |                                                                                   |                                                                                                                                  | (63                                                       
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                                                                                  | (8,543                                                    
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                                                                                  | 33,881                                                    
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                                                                                | 25,338                                                    
|                                                     |                                                                                   |                                                                                                                                  |                                                           
|Supplemental information:                            |                                                                                   |                                                                                                                                  |                                                           
|                                                     | Interest paid                                                                     |                                                                                                                                  | $                                                         
|                                                     | Non-cash transactions:                                                            |                                                                                                                                  |                                                           
|                                                     |                                                                                   | Sale of common stock for notes receivable from employees, net                                                                    |                                                           
|                                                     |                                                                                   | Common stock issued for purchases of new businesses                                                                              |                                                           
|                                                     |                                                                                   | Accrued dividends on preferred stock                                                                                             |                                                           
|                                                     |                                                                                   | Assets acquired under capital lease obligations                                                                                  |                                                           

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

United Surgical Partners International, Inc. and subsidiaries (USPI or the Company), a Delaware company, was formed in February 1998 for the primary purpose of
ownership and operation of surgery centers, private surgical hospitals and related businesses in the United States and Europe. At March 31, 2002, USPI, headquartered in Dallas, Texas, operated
forty-three surgical facilities in the United States. Of these forty-three facilities, USPI consolidates the results of twenty, owns a minority or otherwise noncontrolling equity interest in
twenty-one, which are accounted for under the equity method, and holds no ownership interest in the remaining two centers, which are operated by USPI under management contracts. In addition, United
Surgical Partners Europe, S.L. (USPE), a company incorporated in Spain and wholly-owned by USPI, managed and owned a majority interest in seven private surgical hospitals, two surgery centers, and one
diagnostic facility in Spain at March 31, 2002. Global Healthcare Partners Limited (Global), a company incorporated in England and majority-owned by USPI, managed two wholly-owned private surgical
hospitals in the United Kingdom at March 31, 2002.

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

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

(2) Acquisitions

Effective February 1, 2002, the Company acquired 100% of a surgical hospital in Murcia, Spain, for total consideration of approximately $8.2 million in cash (of
which $7.5 million was paid prior to March 31, 2002 and $0.7 million will be paid on the first anniversary following consummation of the acquisition) and approximately $12.6 million in assumed capital
lease obligations.

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

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Following
are the unaudited pro forma results for the three months ended March 31, 2002 and 2001 as if the acquisitions discussed above had occurred on January 1, 2001 (in thousands,
except per share amounts):

Three months ended March 31,2002

2001Net revenues

$
75,673

$
55,989Net income


3,911


292Net income (loss) attributable to common stockholders


3,911


(621
)Basic earnings (loss) per share


0.16


(0.06
)Diluted earnings (loss) per share


0.16


(0.06
)


(3) Earnings Per Share

Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis
of the weighted average number of common shares outstanding plus the effect of convertible preferred stock, convertible debt, and outstanding options and warrants, except where such effect would be
antidilutive. Net income or loss attributable to common stockholders and net income or loss per common share include preferred stock dividends for purposes of this computation for the three months
ended March 31, 2001. No dividends are included in this computation for the three months ended March 31, 2002 as all preferred shares were retired prior to January 1, 2002. The following table sets
forth the computation of basic and diluted earnings per share for the three months ended March 31, 2002 and 2001 (in thousands, except per share amounts):

Three months ended March 31,2002

2001Net income (loss) attributable to common shareholders

$
4,703

$
(392
)Weighted average common shares outstanding


24,107


10,130Effect of dilutive securities:Stock options


732


(A
)Warrants


285


(A
)Convertible subordinated debt


(B
)

(A
)Series C convertible preferred stock


(B
)

(A
)Shares used for diluted earnings (loss) per share


25,124


10,130Basic earnings (loss) per share

$
0.20

$
(0.04
)Diluted earnings (loss) per share

$
0.19

$
(0.04
)


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

(4) Segment Disclosure

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

|                              |  |   |         | Western Europe |   |         |  
|----------------------------- |  | - | ------- | -------------- | - | ------- | -
|
|Net patient service revenue   |  | $ | 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    | )
|Total assets                  |  |   | 357,850 |                |   | 138,240 |  
|Capital expenditures          |  |   | 2,217   |                |   | 854     |  
|
|Net patient service revenue   |  | $ | 18,675  |                | $ | 18,745  |  
|Other revenue                 |  |   | 5,684   |                |   | 484     |  
|                              |  |   |         |                |   |         |  
|Total revenues                |  | $ | 24,359  |                | $ | 19,229  |  
|                              |  |   |         |                |   |         |  
|Depreciation and amortization |  | $ | 2,830   |                | $ | 1,931   |  
|Operating income              |  |   | 3,697   |                |   | 1,397   |  
|Net interest expense          |  |   | (2,937  | )              |   | (691    | )
|Total assets                  |  |   | 244,233 |                |   | 116,548 |  
|Capital expenditures          |  |   | 3,097   |                |   | 981     |  

(5) New Accounting Pronouncements

On July 20, 2001 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141,Business
Combinations(SFAS 141), and No. 142,Accounting for Goodwill and Other Intangible Assets(SFAS 142). Under SFAS 141, all
business combinations initiated after June

10

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30, 2001 will be accounted for using the purchase method of accounting; the use of the pooling-of-interests method of accounting will be prohibited. The adoption of this standard is not expected to
have a material effect on the Company's financial position or future results of operations.

SFAS
142 eliminates the amortization of goodwill. Under SFAS 142, the carrying amount of goodwill should be tested for impairment at least annually at the reporting unit level, as
defined, and will be reduced only if it is found to be impaired or is associated with assets sold or otherwise disposed of. SFAS 142 is effective for fiscal years beginning after December 15, 2001
except that SFAS 142 requires the cessation of goodwill amortization resulting from acquisitions consummated subsequent to June 30, 2001. The Company is currently evaluating the impact of the
transitional goodwill impairment requirements of this standard on its results of operations and financial position. The table below shows the Company's net income (loss) for the three months ended
March 31, 2002 and 2001 on a pro forma basis as if the cessation of goodwill amortization required by the new standard had occurred January 1, 2001 (in thousands, except per share amounts):

Three months ended March 31,2002

2001Net income (loss) attributable to common shareholders, as reported

$
4,703

$
(392
)Amortization of goodwill and infinite-lived intangible assets, net of applicable income tax benefits





1,471Adjusted net income attributable to common shareholders

$
4,703

$
1,079Diluted earnings (loss) per share, as reported

$
0.19

$
(0.04
)Amortization of goodwill and infinite-lived intangible assets, net of applicable income tax benefits





0.13Pro forma diluted earnings per share

$
0.19

$
0.09


(6) Condensed Consolidating Financial Statements

The following information is presented as required by regulations of the Securities and Exchange Commission in connection with the Company's publicly traded
Senior Subordinated Notes. This information is not routinely prepared for use by management. The operating and investing activities of the separate legal entities included in the consolidated
financial statements are fully interdependent and integrated. Accordingly, the operating results of the separate legal entities are not representative of what the operating results would be on a
stand-alone basis. Revenues and operating expenses of the separate legal entities include intercompany charges for management and other services.

The
$150 million 10% Senior Subordinated Notes due 2011 were issued in a private offering on December 19, 2001 and subsequently registered as publicly traded securities through a Form
S-4 effective January 15, 2002 by USPI's wholly-owned finance subsidiary, United Surgical Partners Holdings, Inc. (USPH), which was created in 2001. The notes are guaranteed by USPI, which does not
have independent assets or operations, and USPI's wholly-owned subsidiaries domiciled in the United States. USPI's investees in Spain and the United Kingdom are not guarantors of the obligation.
USPI's

11

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investees in the United States in which USPI owns less than 100% are not guarantors of the obligation. The financial positions and results of operations (below, in thousands) of the respective
guarantors are based upon the guarantor relationship at the end of the period.

Condensed Consolidating Balance Sheets:

|As of March 31, 2002                 |                                            | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total
|------------------------------------ | ------------------------------------------ | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------
|Assets:                              |                                            |                                         |         |                             |   |                           |         |                   
|Current assets:                      |                                            |                                         |         |                             |   |                           |         |                   
|Cash and cash equivalents            |                                            | $                                       | 13,236  |                             | $ | 12,102                    |         | $                 
|Accounts receivable, net             |                                            |                                         | 132     |                             |   | 32,678                    |         |                   
|Other receivables                    |                                            |                                         | 46,428  |                             |   | (9,631                    | )       |                   
|Inventories of supplies              |                                            |                                         | 187     |                             |   | 5,669                     |         |                   
|Other                                |                                            |                                         | 9,786   |                             |   | 2,082                     |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current assets                       |                                         |         | 69,769                      |   |                           | 42,900  |                   
|Property and equipment, net          |                                            |                                         | 41,354  |                             |   | 181,272                   |         |                   
|Investments in affiliates            |                                            |                                         | 173,847 |                             |   | 115                       |         |                   
|Intangible assets, net               |                                            |                                         | 126,941 |                             |   | 103,224                   |         |                   
|Other                                |                                            |                                         | 200,365 |                             |   | 42,090                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total assets                               |                                         | $       | 612,276                     |   | $                         | 369,601 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|Liabilities and Stockholders' Equity |                                            |                                         |         |                             |   |                           |         |                   
|Current liabilities:                 |                                            |                                         |         |                             |   |                           |         |                   
|Accounts payable                     |                                            | $                                       | 2,337   |                             | $ | 19,618                    |         | $                 
|Accrued expenses                     |                                            |                                         | 31,664  |                             |   | 15,354                    |         |                   
|Current portion of long-term debt    |                                            |                                         | 2,647   |                             |   | 8,271                     |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total current liabilities                  |                                         |         | 36,648                      |   |                           | 43,243  |                   
|Long-term debt                       |                                            |                                         | 263,768 |                             |   | 209,140                   |         |                   
|Other liabilities                    |                                            |                                         | 1,937   |                             |   | 13,597                    |         |                   
|Minority interests                   |                                            |                                         |        |                             |   | 6,035                     |         |                   
|Redeemable preferred stock           |                                            |                                         |        |                             |   |                          |         |                   
|Stockholders' equity                 |                                            |                                         | 309,923 |                             |   | 97,586                    |         |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   
|                                     | Total liabilities and stockholders' equity |                                         | $       | 612,276                     |   | $                         | 369,601 |                   
|                                     |                                            |                                         |         |                             |   |                           |         |                   

12

---

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

13

---

Condensed Consolidating Statements of Operations:

|Three months ended March 31, 2002                           |  | USPI and
Wholly-owned
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 (loss)                                     |  |                                    | 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
|                                                            |  |                                    |        |                             |   |                           |   |                    |       

|Three months ended March 31, 2001                           |  | USPI and
Wholly-owned
Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |   | Consolidated
Total |       
|----------------------------------------------------------- |  | ---------------------------------- | ------ | --------------------------- | - | ------------------------- | - | ------------------ | ------
|Revenues                                                    |  | $                                  | 9,149  |                             | $ | 46,883                    |   | $                  | (2,194
|Operating expenses, excluding depreciation and amortization |  |                                    | 6,545  |                             |   | 35,643                    |   |                    | (1,204
|Depreciation and amortization                               |  |                                    | 1,832  |                             |   | 3,770                     |   |                    | (12   
|                                                            |  |                                    |        |                             |   |                           |   |                    |       
|Operating income (loss)                                     |  |                                    | 772    |                             |   | 7,470                     |   |                    | (978  
|Interest expense, net                                       |  |                                    | (1,831 | )                           |   | (2,700                    | ) |                    |      
|Other expense                                               |  |                                    | 65     |                             |   | (21                       | ) |                    | (60   
|                                                            |  |                                    |        |                             |   |                           |   |                    |       
|Income (loss) before minority interests                     |  |                                    | (994   | )                           |   | 4,749                     |   |                    | (1,038
|Minority interests in income of consolidated subsidiaries   |  |                                    |       |                             |   | (783                      | ) |                    | (652  
|Income (loss) before income taxes                           |  |                                    | (994   | )                           |   | 3,966                     |   |                    | (1,690
|Income tax expense                                          |  |                                    | (81    | )                           |   | (680                      | ) |                    |      
|                                                            |  |                                    |        |                             |   |                           |   |                    |       
|Net income (loss)                                           |  | $                                  | (1,075 | )                           | $ | 3,286                     |   | $                  | (1,690
|                                                            |  |                                    |        |                             |   |                           |   |                    |       

14

---

Condensed Consolidating Statements of Cash Flows:

|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                    |        | $                  |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |        |                    |       

15

---

|Three months ended March 31, 2001                                                                            |                                           | USPI and
Wholly-owned
U.S. Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |       | Consolidated
Total |       
|------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | --------------------------------------- | ------ | --------------------------- | - | ------------------------- | ----- | ------------------ | ------
|Cash flows from operating activities:                                                                        |                                           |                                         |        |                             |   |                           |       |                    |       
|Net income (loss)                                                                                            |                                           | $                                       | (1,073 | )                           | $ | 3,285                     |       | $                  | (1,691
|Changes in operating and intercompany assets and liabilities and noncash items included in net income (loss) |                                           |                                         | 8,380  |                             |   | (1,552                    | )     |                    | 1,691 
|                                                                                                             |                                           |                                         |        |                             |   |                           |       |                    |       
|                                                                                                             | Net cash provided by operating activities |                                         |        | 7,307                       |   |                           | 1,733 |                    |       
|Cash flows from investing activities:                                                                        |                                           |                                         |        |                             |   |                           |       |                    |       
|Purchases of property and equipment, net                                                                     |                                           |                                         | (5,628 | )                           |   | (306                      | )     |                    |      
|Purchases of new businesses                                                                                  |                                           |                                         | (3,386 | )                           |   |                          |       |                    |      
|Other items                                                                                                  |                                           |                                         | 1,664  |                             |   |                          |       |                    |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |       |                    |       
|                                                                                                             | Net cash used in investing activities     |                                         |        | (7,350                      | ) |                           | (306  | )                  |       
|Cash flows from financing activities:                                                                        |                                           |                                         |        |                             |   |                           |       |                    |       
|Long-term borrowings, net                                                                                    |                                           |                                         | 5,741  |                             |   | 726                       |       |                    |      
|Proceeds from issuance of common stock                                                                       |                                           |                                         | 120    |                             |   |                          |       |                    |      
|Other items                                                                                                  |                                           |                                         | (429   | )                           |   |                          |       |                    |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |       |                    |       
|                                                                                                             | Net cash provided by financing activities |                                         |        | 5,432                       |   |                           | 726   |                    |       
|Effect of exchange rate changes on cash                                                                      |                                           |                                         |       |                             |   | (41                       | )     |                    |      
|Net increase in cash                                                                                         |                                           |                                         | 5,389  |                             |   | 2,112                     |       |                    |      
|Cash at the beginning of the period                                                                          |                                           |                                         | 765    |                             |   | 2,686                     |       |                    |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |       |                    |       
|Cash at the end of the period                                                                                |                                           | $                                       | 6,154  |                             | $ | 4,798                     |       | $                  |      
|                                                                                                             |                                           |                                         |        |                             |   |                           |       |                    |       

(7) Subsequent Events

The Company acquired a minority ownership interest in a surgery center in April 2002 and a majority ownership interest in a surgery center in May 2002. Both
facilities are in the United States. In addition, the Company has entered into letters of intent with various entities regarding possible joint venture, development, or acquisition projects. These
projects are in various stages of negotiation.

16

---



ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

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

Forward-Looking Statements

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

Overview

The Company operates surgery centers and private surgical hospitals in the United States and Western Europe. As of March 31, 2002, the Company operated 54
surgical facilities, consisting of 43 in the United States, nine in Spain, and two in the United Kingdom. Of the 43 U.S. facilities, the Company operates 22 through strategic relationships with ten
major not-for-profit healthcare system partners. Overall, the Company holds ownership in 52 of the facilities and operates the remaining two facilities, both in the United States, under management
contracts.

Critical Accounting Policies

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

17

---

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

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

Beginning
January 1, 2002, we also consider our accounting policy regarding intangible assets to be a critical accounting policy given the significance of intangible assets as compared
to the total assets of the Company and the recent changes in accounting for intangible assets required under Statement of Financial Accounting Standards No. 142,Accounting for
Goodwill and Other Intangible Assets(SFAS 142), which was issued by the Financial Accounting Standards Board on July 20, 2001 and was adopted by the Company as of January 1,
2002. SFAS 142 requires the cessation of amortization of goodwill and
identifiable intangible assets which do not have finite lives and requires that all intangible assets be tested for impairment at least annually.

Acquisitions, Equity Investments and Development Projects

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

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

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

Sources of Revenue

Revenues primarily include:



18

---



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

Three months ended March 31,2002

2001Net patient service revenue

86
%
89
%Management and administrative services revenue

10

8Equity in earnings of unconsolidated affiliates

3

2Other income

1

1Total revenue

100
%
100
%


The
percentage of our total revenue that was derived from net patient service revenue decreased from 89% for the three months ended March 31, 2001 to 86% for the three months ended March
31, 2002, with a corresponding increase in the percentage of our total revenue that was derived from management and administrative services revenue, primarily as a result of our acquisition of
OrthoLink Physicians Corporation (OrthoLink) on February 12, 2001. As a result of this acquisition, our consolidated results include OrthoLink's administrative service income for a full three months
in 2002 as compared to approximately one and one-half months in the prior year period.

For
the three months ended March 31, 2002 and 2001, approximately 57% and 45% of our revenues were generated from operations in the United States and 43% and 55% 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 our development and acquisition activities
being primarily in the United States during the second half of 2001. We continue to evaluate acquisition and development opportunities in all three countries in which we currently operate as well as
in other selected nations in Western Europe.

Results of Operations

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

For the three months ended March 31,2002

2001Total revenues

100.0
%
100.0
%Operating expenses, excluding depreciation and amortization

72.2

76.1EBITDA

27.8

23.9Minority interests in income of consolidated entities

3.6

2.7EBITDA less minority interest

24.2

21.2Depreciation and amortization

7.5

10.4Interest and other expense, net

7.6

8.4Income before income taxes

9.1

2.4Income tax expense

(2.8
)
(1.4
)Net income

6.3

1.0


19

---

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

Revenues increased by $21.3 million, or 40% to $75.1 million for the three months ended March 31, 2002 from $53.8 million for the three months ended March 31,
2001. Of this increase in revenues, $8.4 million was contributed by facilities acquired since March 31, 2001. An additional $5.6 million of the increase is attributed to including a full three months
of operations of OrthoLink , which merged with USPI on February 12, 2001 and therefore was only included for approximately one and one-half of the three months ended March 31, 2001. The exchange rate
of the European currencies to the U.S. dollar was lower in the three months ended March 31, 2002 as compared to the same period in the prior year, resulting in a negative impact of $1.3 million on
year over year revenues for the facilities in Western Europe that were owned in both 2002 and 2001 ("same store" facilities). Absent this foreign exchange impact, same store facilities in Western
Europe contributed $2.7 million more to consolidated revenue in the three months ended March 31, 2002 as compared to the same period in 2001. The remaining increase in revenues was contributed by same
store U.S. facilities, which performed approximately 16.5% more cases in the three months ended March 31, 2002 as compared to the three months ended March 31, 2001.

Operating
expenses, excluding depreciation and amortization, increased by $13.2 million, or 32%, to $54.2 million for the three months ended March 31, 2002 from $41.0 million for the
three months ended March 31, 2001. Operating expenses, excluding depreciation and amortization, as a percentage of revenues, decreased to 72.2% for the three months ended March 31, 2002 from 76.1% for
the three months ended March 31, 2001, primarily as a result of operating efficiencies at our U.S. facilities and improved economies of scale as we expanded.

EBITDA
less minority interest increased $6.7 million, or 59%, to $18.1 million for the three months ended March 31, 2002 from $11.4 million for the three months ended March 31, 2001. Of
this increase in EBITDA less minority interest, $2.5 million was contributed by facilities acquired since March 31, 2001 and an additional $2.6 million was attributed to OrthoLink being included for a
full three months in 2002. EBITDA less minority interest, as a percentage of revenues, increased to 24.2% for the three months ended March 31, 2002 from 21.2% for the three months ended March 31,
2001, primarily as a result of improved operating margins at our facilities operated in joint ventures with healthcare systems and the leveraging of our corporate overhead expenses over the increased
revenue.

Depreciation
and amortization increased $0.1 million, or 1%, to $5.7 million for the three months ended March 31, 2002 from $5.6 million for the three months ended March 31, 2001. This
amount remained virtually constant in spite of the acquisitions completed since March 31, 2001 because of the cessation of goodwill amortization required under SFAS 142. Depreciation and amortization,
as a
percentage of revenues, decreased to 7.5% for the three months ended March 31, 2002 from 10.4% for the three months ended March 31, 2001.

Interest
expense, net of interest income, increased 24% to $5.6 million for the three months ended March 31, 2002 from $4.5 million for the three months ended March 31, 2001 primarily as
a result of the debt outstanding during the first three months of 2002 having a higher average interest rate than in the prior year period. The higher average interest rate primarily relates to the
$150 million of Senior Subordinated Notes outstanding in 2002, for which the 10.13% effective interest rate is higher than the average rates of the subordinated debt and borrowings under the Company's
credit agreements which were outstanding in the prior year period.

Provision
for income taxes and our overall effective tax rates were $2.1 million and 31% for the three months ended March 31, 2002, compared to $0.8 million and 59% for the three months
ended March 31, 2001, respectively. The decrease in our overall tax rate primarily resulted from our ability in 2002 to use the net losses of certain of our Spanish subsidiaries to offset the net
income of other Spanish subsidiaries, as a result of meeting certain statutory requirements for ownership levels in 2002.

20

---

Net
income was $4.7 million for the three months ended March 31, 2002 compared to $0.5 million for the three months ended March 31, 2001. This $4.2 million improvement primarily results
from the increased revenues and improved operating efficiencies and economies of scale related to expenses discussed above.

Liquidity and Capital Resources

During the three months ended March 31, 2002, the Company generated $14.0 million of cash flows from operations as compared to $9.0 million during the three
months ended March 31, 2001.

During
the three months ended March 31, 2002, the Company's net cash required for investing activities was $19.9 million, consisting primarily of $14.5 million for the purchase of
businesses and $4.5 million for the purchase of property and equipment. The $14.5 million primarily represents purchases of new businesses, net of cash acquired, and incremental investments in
unconsolidated affiliates. Most of these transactions are individually insignificant; the most significant amounts are the $7.5 million paid for the surgical hospital in Murcia, Spain, and the $5.3
million paid to acquire Surgicoe. Approximately $1.0 million of the property and equipment purchases related to ongoing development projects. The $19.9 million of cash required for investing
activities was funded primarily with the cash flows from operations noted above. Net cash used during the three months ended March 31, 2002 in financing activities totaled $2.6 million. Cash and cash
equivalents were $25.3 million at March 31, 2002
as compared to $33.9 million at December 31, 2001, and net working capital was $26.8 million at March 31, 2002 as compared to $40.3 million at December 31, 2001.

In
December 2001, we entered into an amended and restated credit facility with a group of commercial lenders providing us with the ability to borrow up to $85.0 million for acquisitions
and general corporate purposes in the United States and Spain or for any new subsidiary that becomes a guarantor of the facility. A total of $10 million of borrowings under the facility may be used by
subsidiaries that are not guarantors, including subsidiaries in the United Kingdom. Borrowings under our amended and restated credit facility mature on December 19, 2004. As of March 31, 2002, no
amounts were outstanding under this facility and approximately $38.3 million was available for borrowing based on actual reported consolidated financial results. Availability under the facility is
based upon pro forma EBITDA including EBITDA from acquired entities. Assuming historical purchase multiples of annual EBITDA of potential acquisition targets, the entire $85.0 million would be
available for borrowing to finance acquisitions as of March 31, 2002. The indenture governing our Senior Subordinated Notes and our amended and restated credit facility contain various restrictive
covenants including covenants that limit our ability and the ability of certain of our subsidiaries to borrow money or guarantee other indebtedness, grant liens on our assets, make investments, used
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 $59.9 million as of March 31, 2002) under three separate facilities. At March 31, 2002, total outstanding borrowings under this term facility were approximately $35.2 million and
approximately $16.8 million was available for borrowings. The credit agreement specifies that of this available amount, $10.0 million be used by September 30, 2003 to retire demand notes payable to
the former owners of the Company's two hospitals in the United Kingdom. Borrowings under this agreement bear interest at rates of 1.50% to 2.00% over LIBOR and mature in April 2010. The Company
pledged the capital stock of its U.K. subsidiaries to secure borrowings under this agreement. The Company was in compliance with all debt covenants as of March 31, 2002.

Our
acquisition and development program will require substantial capital resources, which we estimate to range from $40.0 million to $50.0 million per year over the next three years,
including

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amounts associated with five facilities currently under development in the United States and an estimated $2.2 million related to additional consideration to the sellers of acquired facilities based
upon those facilities achieving certain financial targets. In addition, the operations of our existing surgical facilities will require ongoing capital expenditures. We believe that existing funds,
cash flows from operations and borrowings under our credit facilities will provide sufficient liquidity for the next twelve months. Thereafter, it is likely that we will require additional debt or
equity financing for our acquisitions and development projects. There are no assurances that the needed capital will be available on acceptable terms, if at all. If we are unable to obtain funds when
needed or on acceptable terms, we will be required to curtail our acquisition and development program.

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

We have exposure to interest rate risk related to our financing, investing, and cash management activities. Historically, we have not held or issued derivative
financial instruments other than the use of variable-to-fixed interest rate swaps for portions of our borrowings under credit facilities with commercial lenders as required by the credit agreements.
We do not use derivative instruments for speculative purposes. Our financing arrangements with commercial lenders are based on the spread over Prime, LIBOR or Euribor. At March 31, 2002, $148.9
million of our total outstanding debt was the Senior Subordinated Notes, which were issued in December 2001 at a 0.8% discount and bear interest at a fixed rate of 10%, $5.6 was in other fixed rate
instruments and the remaining $47.0 million was in variable rate instruments. Accordingly, a hypothetical 100 basis point increase in market interest rates would result in additional annual expense of
$0.5 million. The Senior Subordinated Notes, which represent 96% of our total fixed rate debt at March 31, 2002, are considered to have a fair value, based upon recent trading, of $153 million, which
is approximately $4.1 million higher than the carrying value at March 31, 2002.

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



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

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

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PART IIOTHER INFORMATION

ITEM 1.Legal Proceedings

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

ITEM 6.Exhibits and Reports on Form 8-K



| |  | 2.1   |  | Agreement and Plan of Reorganization, dated March 26, 2002, by and among United Surgical Partners International, Inc., USP Acquisition Corporation, SURGICOE Corporation, and each of the shareholders of SURGICOE
named in the agreement (previously filed as an exhibit to the Company's Current Report on Form 8-K filed with the Commission April 16, 2002 and incorporated herein by reference)
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 3.1   |  | Second Amended and Restated Certificate of Incorporation (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                                                                                                                                                                  
| |  | 3.2   |  | Amended and Restated Bylaws (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                                                                                                                                                                                               
| |  | 4.1   |  | Form of Common Stock Certificate (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                                                                                                                                                                                          
| |  | 10.1* |  | Deferred Compensation Plan, dated as of February 12, 2002                                                                                                                                                                                                                                                                                                                                           

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*
Filed herewith.





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SIGNATURE

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

| |  | United Surgical Partners International, Inc.
| |  | --------------------------------------------
| |  | By:                                         
| |  | By:                                         

Date:
May 14, 2002

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