Use these links to rapidly review the documentUNITED SURGICAL PARTNERS INTERNATIONAL, INC. 2001 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS

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

FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2001

Commission file No. 000-32837

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.(Exact name of Registrant as specified in its charter)

Delaware

75-2749762(State of Incorporation)

(I.R.S. Employer
Identification No.)15305 Dallas Parkway, Suite 1600

75001Addison, Texas

(Zip Code)(Address of principal executive offices)


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

Securities
Registered Pursuant to Section 12(b) of the Act: None

Securities
Registered Pursuant to Section 12(g) of the Act:

Title of each class

Name of each exchange
on which registeredCommon Stock, par value $.01 per share

The Nasdaq Stock MarketRights to Purchase Series A Junior Participating Preferred Stock, par value $.01 per share

The Nasdaq Stock Market


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 /X/    No / /

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Parts I, II, III, and IV of this Form 10-K or any amendment to this
Form 10-K. /X/

|Aggregate market value of outstanding Common Stock held by non-affiliates of the Registrant, as of March 15, 2002 |  | $ | 305,104,306 |  |           
|----------------------------------------------------------------------------------------------------------------- |  | - | ----------- |  | ----------
|Number of shares of Common Stock outstanding as of March 15, 2002                                                 |  |   |             |  | 24,173,776

Documents Incorporated by Reference

Part IIIPortions of the registrant's definitive proxy statement to be filed pursuant to Regulation 14A for the Annual Meeting of
Stockholders to be held May 15, 2002.

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UNITED SURGICAL PARTNERS INTERNATIONAL, INC.        2001 ANNUAL REPORT ON FORM 10-K        TABLE OF CONTENTS



|PART I   |  |                                                                                                                                                                                                                                                                                                                                 |  |                                                                                      
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------
|         |  | Item 1.                                                                                                                                                                                                                                                                                                                         |  | Business                                                                             
|         |  | Item 2.                                                                                                                                                                                                                                                                                                                         |  | Properties                                                                           
|         |  | Item 3.                                                                                                                                                                                                                                                                                                                         |  | Legal Proceedings                                                                    
|         |  | Item 4.                                                                                                                                                                                                                                                                                                                         |  | Submission of Matters to a Vote of Security Holders                                  
|PART II  |  |                                                                                                                                                                                                                                                                                                                                 |  |                                                                                      
|         |  | Item 5.                                                                                                                                                                                                                                                                                                                         |  | Market for Registrant's Common Equity and Related Stockholder Matters                
|         |  | Item 6.                                                                                                                                                                                                                                                                                                                         |  | Selected Consolidated Financial Data                                                 
|         |  | Item 7.                                                                                                                                                                                                                                                                                                                         |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|         |  | Item 7A.                                                                                                                                                                                                                                                                                                                        |  | Quantitative and Qualitative Disclosures about Market Risk                           
|         |  | Item 8.                                                                                                                                                                                                                                                                                                                         |  | Financial Statements and Supplementary Data                                          
|         |  | Item 9.                                                                                                                                                                                                                                                                                                                         |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III |  |                                                                                                                                                                                                                                                                                                                                 |  |                                                                                      
|         |  | Item 10.                                                                                                                                                                                                                                                                                                                        |  | Directors and Executive Officers of the Registrant                                   
|         |  | Item 11.                                                                                                                                                                                                                                                                                                                        |  | Executive Compensation                                                               
|         |  | Item 12.                                                                                                                                                                                                                                                                                                                        |  | Security Ownership of Certain Beneficial Owners and Management                       
|         |  | Item 13.                                                                                                                                                                                                                                                                                                                        |  | Certain Relationships and Related Transactions                                       
|PART IV  |  |                                                                                                                                                                                                                                                                                                                                 |  |                                                                                      
|         |  | Item 14.                                                                                                                                                                                                                                                                                                                        |  | Exhibits, Financial Statements, Schedules and Reports on Form 8-K                    
|Note:    |  | The responses to Items 10 through 13 will be included in the Company's definitive proxy statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held May 15, 2002. The required information is
incorporated into this Form 10-K by reference to that document and is not repeated herein.

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FORWARD LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K, and the documents incorporated herein by reference, including, without
limitation, statements containing the words "believes", "anticipates", "expects", "continues", "will", "may", "should", "estimates", "intends", "plans" and similar expressions, and statements
regarding the Company's business strategy and plans, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements
are based on management's current expectations and involve known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the
Company's actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both nationally and regionally; demographic changes; changes in, or the failure to comply with, laws and governmental regulations; the ability to enter into
managed care provider arrangements on acceptable terms; changes in Medicare, Medicaid and other government funded payments or reimbursement; liability and other claims asserted against us; the highly
competitive nature of healthcare; changes in business strategy or development plans of healthcare systems with which we partner; the ability to attract and retain qualified personnel, including
physicians, nurses and other health care professionals; our significant indebtedness; the availability of suitable acquisition opportunities and the length of time it takes to accomplish acquisitions;
our ability to integrate new businesses with our existing operations; the availability and terms of capital to fund the expansion of our business, including the acquisition and development of
additional facilities and certain additional factors, risks and uncertainties discussed in this Annual Report on Form 10-K 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.

PART I

Item 1. Business

A. General

United Surgical Partners International, Inc. (together with its subsidiaries, "we", the "Company" or "USPI") owns and operates short stay surgical
facilities including surgery centers and private surgical hospitals in the United States, Spain and the United Kingdom. We focus on providing high quality surgical facilities that meet the needs of
patients, physicians and payors better than hospital-based and other outpatient surgical facilities. We believe that our facilities (1) enhance the quality of care and the healthcare experience
of patients, (2) offer significant administrative, clinical and economic benefits to physicians and (3) offer an efficient and low cost alternative to payors. We acquire and develop our
facilities through the formation of strategic relationships with physicians and healthcare systems to better access and serve the communities in our markets. Our operating model is efficient, scalable
and portable and we have adapted it to each of our national markets. We believe that our acquisition and development strategy and operating model enable us to continue to grow by taking advantage of
highly-fragmented markets and an increasing demand for short stay surgery.

Since
physicians provide and influence the direction of healthcare worldwide, we have developed our operating model to encourage physicians to affiliate with us and to use our
facilities. We operate our facilities, structure our strategic relationships and adopt staffing, scheduling and clinical systems and protocols with the goal of increasing physician productivity. We
believe that our focus on physician

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satisfaction, combined with providing high quality healthcare in a friendly and convenient environment for patients, will continue to increase the number of procedures performed at our facilities
each year.

Donald
E. Steen, our chairman and chief executive officer, and Welsh, Carson, Anderson & Stowe formed USPI in February 1998. At December 31, 2001, the Company owned
or operated 49 surgical facilitites in the United States, Spain and the United Kingdom. We have ownership interests in 35 surgery centers and one private surgical hospital and manage or operate
through consulting agreements three additional surgery centers in the United States. Also in the United States, we own interests in and will operate three surgery centers and one private surgical
hospital that are currently under construction. In Spain, we own and operate six private surgical hospitals, two surgery centers and a diagnostic facility. Subsequent to December 31, 2001, we
acquired an additional surgical hospital in Spain. In the United Kingdom, we own and operate two private surgical hospitals and are developing a cancer treatment center. Our revenues for 2001 were
$244.4 million, up 77% from $138.4 million for 2000.

Industry Background

We believe many physicians prefer surgery centers and private surgical hospitals to general acute care hospitals. We believe that this is due to the elective
nature of the procedures performed at our surgery centers and private surgical hospitals, which allows physicians to schedule their time more efficiently and therefore increase the number of surgeries
they can perform in a given amount of time. In addition, these facilities usually provide physicians with greater scheduling flexibility, more consistent nurse staffing and faster turnaround time
between cases. While surgery centers and private surgical hospitals generally perform scheduled surgeries, private acute care hospitals and national health service facilities generally provide a broad
range of services, including high priority and emergency procedures. Medical emergencies often demand the unplanned use of operating rooms and result in the postponement or delay of scheduled
surgeries, disrupting physicians' practices and inconveniencing patients. Surgery centers and private surgical hospitals in the United States, Spain and the United Kingdom are designed to improve
physician work environments and improve physician efficiency. In addition, many physicians choose to perform surgery in facilities like ours because their patients prefer the comfort of a less
institutional atmosphere and the convenience of simplified admissions and discharge procedures.



According to SMG Marketing Group Inc.'s Freestanding Outpatient Surgery Center Directory, the number of outpatient surgery cases performed in freestanding
surgery centers increased 191% from 2.3 million in 1990 to 6.7 million in 2000. Outpatient surgical procedures represented approximately 15% of all surgical procedures performed in the
United States in 1980 compared to approximately 70% in 2000. New surgical techniques and technology, as well as advances in anesthesia, have significantly expanded the types of surgical procedures
that are being performed in surgery centers and have helped drive the growth in outpatient surgery. Lasers, arthroscopy, enhanced endoscopic techniques and fiber optics have reduced the trauma and
recovery time associated with many surgical procedures. Improved anesthesia has shortened recovery time by minimizing post-operative side effects such as nausea and drowsiness, thereby
avoiding the need for overnight hospitalization in many cases. In addition, some states in the United States now permit surgery centers to keep a patient for up to 23 hours. This allows more
complex surgeries, previously only performed in an inpatient setting, to be performed in a surgery center.

In
addition to these technological and other clinical advancements, a changing payor environment has contributed to the rapid growth in outpatient surgery in recent years. Government
programs, private insurance companies, managed care organizations and self-insured employers have implemented cost containment measures to limit increases in healthcare expenditures,
including procedure

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reimbursement. These cost containment measures have greatly contributed to the significant shift in the delivery of healthcare services away from traditional inpatient hospitals to more
cost-effective alternate sites, including surgery centers. We believe that surgery performed at a surgery center is generally less expensive than hospital-based outpatient surgery because
of lower facility development costs, more
efficient staffing and space utilization and a specialized operating environment focused on cost containment.

Today,
large healthcare systems in the United States generally offer both inpatient and outpatient surgery on site. In addition, a number of not for profit healthcare systems have begun
to expand their portfolios of facilities and services by entering into strategic relationships with specialty operators of surgery centers. These strategic relationships enable not for profit
healthcare systems to offer patients, physicians and payors the cost advantages, convenience and other benefits of outpatient surgery in a freestanding facility. Further, these relationships allow the
not for profit healthcare systems to focus their attention and resources on their core business without the challenge of acquiring, developing and operating these facilities. According to SMG
Marketing Group, as of June 30, 2000, there were 3,191 freestanding surgery centers in the United States, of which 3% were owned by healthcare systems and 27% were owned by corporate entities.
The remaining 70% were independently owned, primarily by physicians.



Most countries in Western Europe provide their populations with some level of government funded healthcare. Despite the success of these public programs, the
practical limitations of these systems have resulted in delays or rationing of elective surgeries and certain other procedures. In many of these countries, funding and capacity constraints of public
healthcare systems have created an opportunity for private healthcare systems to develop.

While
Spain's national health service covers substantially all of the country's population, a private healthcare industry has emerged that currently serves the 17.2% of Spain's
population that maintains private insurance and another growing portion of the population that pays for elective procedures from personal funds. Total healthcare expenditures in Spain grew from 5.9%
of gross domestic product, or GDP, in 1997 to 7.6% in 1998. In addition, Spain's GDP and wages have experienced compound annual growth of 1.9% and 2.6%, respectively, from 1975 to 1998. We believe
that these increases support our view that the number of privately insured citizens, the amount of private healthcare expenditures and the resulting demand for private networks such as ours will
continue to grow. We also believe that the growth in Spain's private healthcare industry has been driven in large part by an increase in the number of employers offering private insurance as a benefit
to their employees. Like their U.S. counterparts, private insurance companies in Spain typically offer comprehensive health coverage. Since only 57 of the 347 private surgical hospitals in Spain are
owned by multi-facility systems, we believe an opportunity exists to build a private hospital network that will enable us to negotiate more effectively with the country's large health insurance
companies. Our facilities also supplement the national health service as public hospitals periodically refer overload cases to our facilities.

We
are able to accept or reject these cases based on the available capacity of our facilities and the profitability of the cases. As of December 31, 2001, we derived approximately
69% of our revenues in Spain from private insurance, approximately 23% from private pay and approximately 8% from government payors.

The
United Kingdom also provides government funded healthcare to all of its residents through a national health service. It, however, is also subject to funding and capacity limitations.
Since the demand for healthcare services exceeds the public system's capacity, U.K. residents may encounter waiting lists for elective surgery of up to 18 months as well as delays in obtaining
cancer biopsies and other diagnostic procedures. The World Health Organization reports that 25,000 people die

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unnecessarily of cancer in Britain each year due to underfinanced and poorly managed cancer programs. In response to these shortfalls, private healthcare networks and private insurance companies have
developed in the United Kingdom. Approximately 11% of the U.K. population has private insurance to cover elective surgical procedures, and another rapidly growing segment of the population pays for
elective procedures from personal funds. As of December 31, 2001, in the United Kingdom, we derived approximately 69% of our revenues from private insurance, approximately 23% from private pay
patients, approximately 6% from government payors and approximately 2% from other payors.

Our Business Strategy

Our goal is to steadily increase our revenues and cash flows by becoming a leading operator of surgery centers and private surgical hospitals in the United States
and selected nations in Western Europe. The key elements of our business strategy are to:



Since physicians provide and influence the direction of healthcare worldwide, we have developed our operating model to encourage physicians to affiliate with us
and to use our facilities. We believe we attract physicians because we design our facilities, structure our strategic relationships and adopt staffing, scheduling and clinical systems and protocols to
increase physician productivity and promote their professional and financial success. We believe this focus on physicians, combined with providing high quality healthcare in a friendly and convenient
environment for patients, will continue to increase case volumes at our facilities. In addition, in the United States, we generally offer physicians the opportunity to purchase equity interests in the
facilities they use. We believe this opportunity attracts quality physicians to our facilities and ownership increases the physicians' involvement in facility operations, enhancing quality of patient
care, increasing productivity and reducing costs. In addition, we believe our recent acquisition of OrthoLink Physicians Corporation (OrthoLink) will strengthen our ability to attract leading
physicians in the profitable field of orthopedics.



We intend to continue to enter targeted markets by acquiring and developing surgical facilities. In the United States, we expect to do this primarily in
conjunction with a local healthcare system or hospital. We typically target the acquisition or development of multi-specialty centers that perform high volume, non-emergency, lower risk
procedures requiring lower capital and operating costs than hospitals. In addition, we will also consider the acquisition of multi-facility companies.

In
determining whether to enter a new market, we examine numerous criteria, including:



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Upon
identifying a target facility, we conduct financial, legal, engineering, operational, technology and systems audits of the facility and conduct interviews with the facility's
management, affiliated physicians and staff. Once we acquire or develop a facility, we focus on upgrading systems and protocols, including implementing USPI's EDGE, proprietary defined processes and
information systems, to increase case volume and improve operating efficiencies.



Through strategic relationships with us, healthcare systems can benefit from our operating expertise and create a new cash flow opportunity with limited capital
expenditures. We believe that these relationships also allow not for profit healthcare systems in particular to attract and retain physicians and improve their hospital operations by focusing on their
core business. We also believe that strategic relationships with these healthcare systems help us to develop more quickly relationships with physicians, communities, suppliers and payors. Generally,
the healthcare systems with which we develop relationships have strong local market positions and excellent reputations that we use in branding our facilities. In addition, our relationships with
healthcare systems enhance our acquisition and development efforts by (1) providing opportunities to acquire facilities the systems may own, (2) providing access to physicians already
affiliated with the systems, (3) attracting additional physicians to affiliate with newly developed facilities, and (4) encouraging physicians who own facilities to consider a strategic
relationship with us. We have a goal to affiliate a majority of our facilities in the United States with strong not for profit healthcare systems.



We are well-positioned in Western Europe to take advantage of the demand for privately provided surgery and cancer treatment. To this end, we intend
to continue to acquire private surgical hospitals in existing markets and selected new countries. We own two private surgical hospitals in the United Kingdom and seven private surgical hospitals
(including one acquired in February 2002), two surgery centers and a diagnostic facility in Spain. We enter new national markets through the acquisition of anchor hospitals in or near major
cities. In accordance with this acquisition strategy, we established our presence in the United Kingdom and Spain through the acquisitions of Parkside Hospital outside London and Instituto
Universitario Dexeus in Barcelona. We intend to continue to execute our acquisition strategy in Western Europe by developing local networks of private healthcare facilities in major population centers
of the United Kingdom and Spain and by entering one or two additional national markets. As we enter a new country, we intend to establish a local management team with in-depth knowledge of
the culture and complexities of that country's delivery system. While our operating model is designed to be applied consistently in different countries, it is flexible enough to allow local management
to help us capitalize on country-specific opportunities, work more efficiently with local physicians, surgeons, patients and payors and adapt more effectively to local customs. We also seek to
establish a brand name in selected markets to heighten awareness of our facilities.

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Once we acquire a new facility, we integrate it into our existing network by implementing a specific action plan to support the local management team and
incorporate the new facility into our group purchasing contracts. We also implement our systems and protocols to improve operating efficiencies and contain costs. Our most important operational tool
is our management system "Every Day Giving Excellence," which we refer to as USPI's EDGE. This proprietary measurement system allows us to track our clinical, service and financial performance, best
practices and key indicators in each of our facilities. Our goal is to use USPI's EDGE to ensure that we provide each of the patients using our facilities with high quality healthcare, offer
physicians a superior work environment and eliminate inefficiencies. Using USPI's EDGE, we track and monitor our performance in clinical care areas such as (1) providing surgeons the equipment,
supplies and surgical support they need, (2) starting cases on time, (3) minimizing turnover time between cases, and (4) providing efficient schedules. USPI's EDGE compiles and
organizes the specified information on a daily basis and is easily accessed over the Internet by our facilities on a secure basis. The information provided by USPI's EDGE enables our employees,
facility administrators and management to analyze trends over time and share processes and best practices among our facilities. In addition, the information is used as an evaluative tool by our
administrators and a budgeting and planning tool by our management. USPI's EDGE is now deployed in a majority of our U.S. facilities. We have begun deployment of USPI's EDGE in the United Kingdom and
anticipate introducing it in Spain and our other domestic facilities in 2002.

Operations



Our operations in the United States consist primarily of our ownership and management of surgery centers. We have ownership interests in 35 surgery centers and
one private surgical hospital and manage or operate through consulting agreements three additional surgery centers. In addition, we have an ownership interest in a newly constructed surgery center
that opened in February 2002 and we own interests in and will operate two surgery centers and one private surgical hospital that are currently under construction. Over 2,000 physicians have
access privileges to use our facilities. Our surgery centers are licensed outpatient surgery centers and are generally equipped and staffed for multiple surgical specialties and located in
freestanding buildings or medical office buildings. Our average surgery center has approximately 15,000 square feet of space with four or five operating rooms, as well as ancillary areas for
preparation, recovery, reception and administration. Our surgery center facilities range from a 6,700 square foot, two operating room facility to a 17,000 square foot, six operating room facility. Our
surgery centers are normally open weekdays from 7:00 a.m. to approximately 5:00 p.m. or until the last patient is discharged. We estimate that a surgery center with four operating rooms
can accommodate up to 6,000 procedures per year.

Our
surgery center support staff typically consists of registered nurses, operating room technicians, an administrator who supervises the day-to-day activities of
the surgery center, a receptionist and a small number of office staff. Each center also has a medical director, who is typically an anesthesiologist and responsible for and supervises the quality of
medical care provided at the center. Use of our surgery centers is limited to licensed physicians, podiatrists and oral surgeons who are also on the medical staff of a local accredited hospital. Each
center maintains a peer review committee consisting of physicians who use our facilities and who review the professional credentials of physicians applying for surgical privileges.

All
of our surgery centers eligible for accreditation are accredited by the Joint Commission on Accreditation of Healthcare Organizations or by the Accreditation Association for
Ambulatory Healthcare. We believe that accreditation is the quality benchmark for managed care organizations. Many managed care organizations will not contract with a facility until it is accredited.
We believe that

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our historical performance in the accreditation process reflects our commitment to providing high quality care in our surgery centers.

All
of our surgery centers in which we have ownership interests are limited partnerships or limited liability companies in which ownership interests are also held by local physicians who
are on the
medical staff of the centers. Our ownership interests in the centers range from 10% to 100%. Our partnership and limited liability company agreements typically provide for the quarterly pro rata
distribution of net revenues from operations, less amounts held in reserve for expenses and working capital. We also have a management agreement with each of the centers under which we provide
day-to-day management services for a management fee that is typically a percentage of the net revenues of the center.

Our
partnership and limited liability company agreements typically provide that if various regulatory changes take place we will be obligated to purchase some or all of the ownership
interests of the physicians in the partnerships or limited liability companies that own and operate the applicable surgery centers. The regulatory changes that could trigger such an obligation include
changes that:



Typically,
our partnership and limited liability company agreements allow us to use shares of our common stock as consideration for the purchase of a physician's interest should we be
required to purchase these interests. In the event we are required to purchase these interests and our common stock does not maintain a sufficient valuation, we may be required to use cash for the
acquisition of a physician's interest. As a result, the triggering of these obligations and the possible termination of our affiliation with these physicians, which we do not believe is likely, could
have a material adverse effect on us.

Our
business depends upon the efforts and success of the physicians who provide medical services at our facilities and the strength of our relationships with these physicians. Our
business could be adversely affected by the loss of our relationship with, or a reduction in use of our facilities by, a key physician or group of physicians. The physicians that affiliate with us and
use our facilities are not our employees. However, we generally offer the physicians the opportunity to purchase equity interests in the facilities they use. The table below sets forth (1) each
of the five surgery centers which has a group of physicians that generates the majority of the cases performed at the surgery center for the year ended December 31, 2001, (2) the
percentage of revenues at that surgery center attributable to those groups of physicians for such period, (3) the percentage of our overall revenues attributable to those groups of physicians
for such period, and (4) the ownership interests of each of those groups of

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physicians in the partnerships or limited liability companies that own and operate the applicable surgery center.

|Surgery Center Name                                            |  | Percentage of
Revenues
Attributable to
Group of
Physicians |   | Percentage of
Revenues of
the Company |   | Ownership
Interest
of Group of
Physicians in
Surgery Center |  
|-------------------------------------------------------------- |  | ---------------------------------------------------------- | - | ------------------------------------- | - | ----------------------------------------------------------- | -
|Resurgens Surgery Center, Atlanta, Georgia                     |  | 100                                                        | % | *                                     |   | 85                                                          | %
|Mountain Empire Surgery Center, Johnson City, Tennessee        |  | 61                                                         |   | *                                     |   | 40                                                          |  
|Parkwest Surgery Center, Knoxville, Tennessee                  |  | 86                                                         |   | *                                     |   | 20                                                          |  
|Baptist Ambulatory Surgery Center, Nashville, Tennessee        |  | 79                                                         |   | *                                     |   | 24                                                          |  
|New Mexico Orthopaedic Surgery Center, Albuquerque, New Mexico |  | 100                                                        |   | 3                                     | % | 49                                                          |  

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We have entered into strategic relationships with five established healthcare systems and hospitals in the United States, two of which currently operate surgery
centers, one of which is awaiting approval from New York regulatory authorities, and two of which will operatesurgical facilities that are either currently operational and which we expect to
contribute to the joint venture or will be developed. Our largest joint venture is with the Baylor Health Care System in Dallas, Texas. The Baylor joint venture owns interests in limited liability
companies and limited partnerships which own and operate surgery centers. Our alliance agreement with Baylor does not have an expiration date but may be terminated with the mutual consent of both
parties, if the joint venture is determined to be illegal due to a change in laws or regulations or upon stated changes in control of our company. In addition, agreements governing the joint venture
have provisions governing management power, dissolution events and veto power. This joint venture owns an outpatient surgery network that serves the approximately four million persons located in the
Dallas/Fort Worth area. The Baylor joint venture currently has ownership interests, or management agreements with options to purchase an ownership interest, in eleven operational surgery centers. The
Baylor joint venture is developing a private surgical hospital and two surgery centers. We also have a joint venture with the Meridian Health System in Wall, New Jersey. This joint venture currently
operates one surgery center and is developing one additional surgery center. In August 2001 we entered into a joint venture with St. Thomas Health Services in Nashville, Tennessee. We expect to
contribute two of our surgery centers to this joint venture. In addition, we entered into a joint venture with the Memorial Hermann Healthcare System in March 2002 to develop a surgical
hospital in Houston, Texas. All of our joint ventures require both parties to afford the other party the opportunity to participate in any surgery center project within specified geographic regions
prior to the other party participating in the project.

A
key element of our business strategy is to pursue additional strategic relationships with healthcare providers in selected markets. To this end, we have signed an agreement for a
strategic relationship with Mt. Sinai Health System in New York City through which we would develop a surgery center in Manhattan. However, this transaction is subject to approval from New York
regulatory authorities and may not be consummated. We intend to structure our future joint ventures with service providers in a manner similar to our joint venture with Baylor.



We believe our operations in Spain comprise one of the largest private hospital networks in this highly fragmented market. We own and operate seven private
surgical hospitals (including one acquired in February 2002), two surgery centers and a diagnostic facility in Spain and over 700 physicians use

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our facilities. These facilities, located primarily in Barcelona, Madrid and Seville, range in size from 19 beds to 133 beds with an average of 92 beds. In this market, we focus primarily on five
specialties: obstetrics/gynecology; orthopedic surgery; general surgery; internal medicine; and plastic surgery.

In
addition, we are developing our brand name, "USPE," in all of our markets in Spain in an effort to attract top quality physicians and a greater number of patients. We are developing
this brand by leveraging the reputation of our more prominent physicians and facilities, particularly Instituto Universitario Dexeus in Barcelona. Dexeus is one of only two private teaching hospitals
in Spain. We believe Dexeus' affiliation with the University of Barcelona, which has nationally renowned physicians, makes it one of Spain's most respected private hospitals and greatly enhances the
USPE brand image. To this end, we also intend to develop our brand name through future acquisitions of private surgical hospitals.



We acquired Parkside Hospital in Wimbledon, a suburb southwest of London, and Holly House Hospital in a suburb northeast of London near Essex in April 2000
through our acquisition of 100% of the outstanding stock of Aspen Healthcare Holdings Limited (Aspen) for approximately $89.2 million in cash, approximately $54.0 million of which we
borrowed from a commercial lender. Parkside has 69 registered acute care beds, including four high dependency beds, on three floors. The hospital has four operating theatres, including a dedicated
endoscopy suite that opened in 1998. Parkside also has its own on-site pathology laboratory, pharmacy and diagnostic suite with an MRI scanner, two X-ray screening rooms and a
color Doppler ultrasound machine. Approximately 270 surgeons and physicians, all of whom hold or have held consulting positions in hospitals operated by the United Kingdom's national health service,
have admitting privileges to the hospital. Parkside has established practices including orthopedics, gynecology and general surgery, as well as neurosurgery and endoscopic procedures. Parkside also
intends to expand its outpatient department from 12 to 15 physicians' offices, which are referred to as consulting rooms.

Our
Parkside Hospital is in the process of developing a comprehensive cancer treatment center, the Parkside Clinic. Our development of Parkside Clinic has the support of a number of
oncologists at Parkside Hospital and the center has already contracted with the BUPA Group, Britain's largest insurance company. We anticipate that the center will provide superior inpatient and
outpatient services. We also anticipate that Parkside Clinic will be fully operational in 2003 and will provide radiotherapy, chemotherapy and nuclear medicine facilities on an outpatient basis with
inpatient cancer services being provided at Parkside Hospital. Parkside Clinic also will provide additional space for expansion of other specialties and programs at Parkside Hospital.

Holly
House Hospital has been an acute care hospital for 20 years and has 56 registered acute care beds on two floors, including three high dependency beds. The hospital has three
operating theatres built in 1988 and its own on-site pathology laboratory and pharmacy with cytotoxic reconstitution facilities to serve its expanding oncology program. A diagnostic suite
houses MRI and CT scanners and two X-ray screening rooms together with a color Doppler ultrasound machine. Over 100 surgeons and physicians have admitting privileges at the hospital. The
hospital has established orthopedic and general surgery practices and is developing oncology and plastic surgery programs.

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The following table sets forth the percentage of our revenues determined based on internally reported case volume from our U.S. facilities and internally reported
revenue from our Spain and U.K. facilities for the year ended December 31, 2001 from each of the following specialties:

Specialty

Total

U.S.

Spain

U.K.Orthopedic

25
%
29
%
19
%
23
%Pain management

13

24



Obstetrics/gynecology

11

4
(1)
22
(2)
11
(3)General surgery

9

5

10

20Ear, nose and throat

6

7

3

9Gastrointestinal

7

9

5

2Plastic surgery

5

4

6

7Ophthalmology

7

11

3

4Other

17

7

32

24Total

100
%
100
%
100
%
100
%


---



The following table sets forth the percentage of our revenues determined based on internally reported case volume from our U.S. facilities and internally reported
revenue from our Spain and U.K. facilities for the year ended December 31, 2001 from each of the following payors:

Payor

Total

U.S.

Spain

U.K.Private insurance

70
%
71
%
69
%
69
%Self-pay

12

3

23

23Government

15

21

8

6Other

3

5



2Total

100
%
100
%
100
%
100
%


12

---





The following table sets forth information relating to the surgery centers that we operate as of December 31, 2001:

|Facility                                                            |  | Date of
Acquisition
or
Affiliation |     | Number
of
Operating
Rooms |  | Percentage
Owned by
USPI |  
|------------------------------------------------------------------- |  | ---------------------------------- | --- | ------------------------- |  | ------------------------ | -
|United States                                                       |  |                                    |     |                           |  |                          |  
|Decatur Surgery Center, Decatur, Alabama(1)                         |  | 7/29/98                            |     | 2                         |  | 66                       | %
|Warner Park Surgery Center, Chandler, Arizona(1)                    |  | 7/1/99                             |     | 4                         |  | 78                       |  
|Coast Surgery Center of South Bay, Inc., Torrance, California       |  | 12/18/01                           |     | 3                         |  | 35                       |  
|San Gabriel Valley Surgical Center, West Covina, California         |  | 11/16/01                           |     | 4                         |  | 80                       |  
|University Surgical Center, Winter Park, Florida                    |  | 10/15/98                           |     | 3                         |  | 70                       |  
|Surgery Center of Sarasota, Sarasota, Florida                       |  | 10/12/01                           |     | 4                         |  | 66                       |  
|East West Surgery Center, Austell, Georgia                          |  | 9/1/00                             | (4) | 3                         |  | 90                       |  
|Northwest Georgia Orthopaedic Surgery Center, Marietta, Georgia     |  | 11/1/00                            | (4) | 2                         |  | 15                       |  
|Lawrenceville Surgical Center, Lawrenceville, Georgia               |  | 8/1/01                             |     | 2                         |  | 15                       |  
|Resurgens Surgery Center, Atlanta, Georgia                          |  | 10/1/98                            | (4) | 4                         |  | 15                       |  
|Roswell Surgery Center, Roswell, Georgia                            |  | 10/1/00                            | (4) | 2                         |  | 15                       |  
|Creekwood Surgery Center, Kansas City, Missouri(1)                  |  | 7/29/98                            |     | 3                         |  | 75                       |  
|Parkway Surgery Center, Henderson, Nevada                           |  | 8/3/98                             |     | 5                         |  | 50                       |  
|Shrewsbury Ambulatory Surgery Center, Shrewsbury, New Jersey        |  | 4/1/99                             |     | 4                         |  | 25                       |  
|New Mexico Orthopaedic Surgery Center, Albuquerque, New Mexico      |  | 2/29/00                            | (4) | 6                         |  | 51                       |  
|Las Cruces Surgery Center, Las Cruces, New Mexico(1)                |  | 2/1/01                             |     | 3                         |  | 50                       |  
|Day-Op Center of Long Island, Mineola, New York(2)                  |  | 12/4/98                            |     | 4                         |  | 0                        |  
|Eastside Surgery Center, Columbus, Ohio(3)                          |  | 3/20/00                            | (4) | 4                         |  | 0                        |  
|Riverside Outpatient Surgery Center, Columbus, Ohio(3)              |  | 3/20/00                            | (4) | 6                         |  | 0                        |  
|Mountain Empire Surgery Center, Johnson City, Tennessee             |  | 2/2/00                             | (4) | 4                         |  | 20                       |  
|Baptist Ambulatory Surgery Center, Nashville, Tennessee             |  | 3/1/98                             | (4) | 6                         |  | 20                       |  
|Middle Tennessee Ambulatory Surgery Center, Murfreesboro, Tennessee |  | 7/29/98                            |     | 4                         |  | 41                       |  
|Parkwest Surgery Center, Knoxville, Tennessee                       |  | 7/26/01                            |     | 5                         |  | 20                       |  
|Physicians Pavilion Surgery Center, Nashville, Tennessee(1)         |  | 7/29/98                            |     | 4                         |  | 75                       |  
|Arlington Surgery Center, Arlington, Texas(1)                       |  | 2/1/99                             |     | 3                         |  | 11                       |  
|Baylor Surgicare, Dallas, Texas(1)                                  |  | 6/1/99                             |     | 6                         |  | 26                       |  
|Denton Surgicare, Denton, Texas(1)                                  |  | 2/1/99                             |     | 4                         |  | 23                       |  
|Doctors Surgery Center (Houston), Pasadena, Texas(1)                |  | 9/1/99                             |     | 4                         |  | 91                       |  
|Medical Centre Surgicare, Fort Worth, Texas(1)                      |  | 12/18/98                           |     | 5                         |  | 49                       |  
|Metroplex Surgery Center, Bedford, Texas(1)                         |  | 12/18/98                           |     | 4                         |  | 50                       |  
|North Texas Surgery Center, Dallas, Texas(1)                        |  | 12/18/98                           |     | 4                         |  | 48                       |  
|Physicians Day Surgery Center, Dallas, Texas                        |  | 10/12/00                           |     | 4                         |  | 26                       |  
|Premier Ambulatory Surgery Center of Garland, Garland, Texas        |  | 2/1/99                             |     | 2                         |  | 51                       |  
|Texas Surgery Center, Dallas, Texas(1)                              |  | 6/1/99                             |     | 4                         |  | 26                       |  
|United Surgery CenterSoutheast, Houston, Texas(1)                  |  | 9/1/99                             |     | 3                         |  | 95                       |  
|Valley View Surgery Center, Dallas, Texas(1)                        |  | 12/18/98                           |     | 4                         |  | 65                       |  
|Surgi-Center of Central Virginia, Fredericksburg, Virginia          |  | 11/29/01                           |     | 4                         |  | 83                       |  
|Teton Outpatient Services, Jackson Hole, Wyoming                    |  | 8/1/98                             | (4) | 2                         |  | 56                       |  
|Spain                                                               |  |                                    |     |                           |  |                          |  
|Centro de Cirugia Ambulatario, Barcelona                            |  | 3/1/99                             |     | 3                         |  | 100                      |  
|USP Dermoéstetica, S.L. Madrid                                      |  | 5/1/99                             |     | 2                         |  | 70                       |  

---

13

---



Private Surgical Hospitals

The following table sets forth information relating to the private surgical hospitals that we operate as of December 31, 2001:

|Facility                                        |  | Date of
Acquisition
or
Affiliation |  | Number of
Operating
Rooms |  | Number of
Beds |  | Percentage
Owned by
USPI |  
|----------------------------------------------- |  | ---------------------------------- |  | ------------------------- |  | -------------- |  | ------------------------ | -
|United States                                   |  |                                    |  |                           |  |                |  |                          |  
|TOPS Specialty Hospital, Houston, Texas         |  | 7/1/99                             |  | 7                         |  | 20             |  | 55                       | %
|Spain                                           |  |                                    |  |                           |  |                |  |                          |  
|Instituto Universitario Dexeus, Barcelona       |  | 4/30/98                            |  | 12                        |  | 106            |  | 79                       |  
|Hospital Santa Teresa, La Coruña                |  | 11/5/98                            |  | 5                         |  | 133            |  | 96                       |  
|Hospital Sagrado Corazón, Seville               |  | 10/16/98                           |  | 9                         |  | 95             |  | 100                      |  
|Clinica Nuestra Señora de la Esperanza, Vitoria |  | 10/5/98                            |  | 3                         |  | 19             |  | 100                      |  
|Clinica San Camilo, Madrid                      |  | 3/15/00                            |  | 8                         |  | 130            |  | 93                       |  
|Clinica San Jose, Madrid                        |  | 11/1/00                            |  | 7                         |  | 72             |  | 100                      |  
|Juan XXIII, Madrid(1)                           |  | 2/1/00                             |  |                          |  |               |  | 100                      |  
|United Kingdom                                  |  |                                    |  |                           |  |                |  |                          |  
|Parkside Hospital, Wimbledon                    |  | 4/6/00                             |  | 4                         |  | 69             |  | 100                      |  
|Holly House Hospital, Essex                     |  | 4/6/00                             |  | 3                         |  | 59             |  | 100                      |  

---

We
own the buildings and property of three of our surgery centers and lease all other facilities where our various surgery centers and private surgical hospitals conduct their
operations. Our leases have initial terms ranging from one to twenty years and most of the leases contain options to extend the lease period for up to ten additional years.

Our
corporate headquarters are located in Dallas, Texas. We currently lease approximately 25,000 square feet of space at 15305 Dallas Parkway, Addison, Texas. This lease will expire in
2011.

Our
office in the United Kingdom is located in London. We currently lease 1,900 square feet. The lease expires in February 2004.

Our
Spanish offices are located in Madrid and Barcelona. We currently lease 2,600 square feet of space in Madrid. The lease expires in December 2002. Additionally, we lease 2,800
square feet of space in Barcelona. The lease expires in December 2002.

We
also lease 13,504 square feet of space in Brentwood, Tennessee, which was the former OrthoLink headquarters and currently serves as a regional office. The lease expires in
November 2002.



The following table sets forth information relating to facilities that are currently under construction:

|Facility                                          |  | Type              |  | Expected
Opening
Date |  | Number of Operating
Rooms/Beds
|------------------------------------------------- |  | ----------------- |  | --------------------- |  | ------------------------------
|Toms River Surgery Center, Toms River, New Jersey |  | Surgery Center    |  | 1Q 2002               |  | 4 ORs                         
|Frisco Surgical Hospital, Frisco, Texas           |  | Surgical Hospital |  | 3Q 2002               |  | 6 ORs/8 beds                  
|Lewisville Surgicare, Lewisville, Texas           |  | Surgery Center    |  | 4Q 2002               |  | 4 ORs                         

14

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We
opened a newly constructed surgery center in Grapevine, Texas in February 2002. We also intend to develop surgical hospitals in Houston, Texas and Chandler, Arizona which we
anticipate will open in the first half of 2003. In addition, we have identified Atlanta, Georgia, New York, New York and Nashville, Tennessee as markets for possible future acquisition and development
projects. We are in various stages of negotiation with various entities regarding possible joint venture, development or acquisition projects. In the United Kingdom, our Parkside Hospital is in the
process of developing a cancer treatment center. Any acquisition or development in these or other markets must meet our acquisition and development criteria. We cannot assure you that we will be
successful in developing or acquiring facilities in any of these markets.



In February 2001, we acquired OrthoLink. In total, we acquired ownership interests in seven surgery centers, six of which OrthoLink manages. OrthoLink also
manages two additional surgery centers in which it has no ownership interests and provides specialized management services for hospitals. Prior to the transaction, OrthoLink managed the practices of
207 physicians in eight markets working at 64 facilities in Colorado, Georgia, New Mexico, Ohio, Tennessee and Wyoming. We did not acquire all of OrthoLink's historical management services
obligations. As a condition to our completing the OrthoLink acquisition, we required that the affiliated physician groups assume from OrthoLink various employment obligations, office leases and other
agreements previously held by OrthoLink in connection with the performance of its management services. While we may enter into additional management services agreements with physician groups, we do
not intend to purchase the assets of any of these groups.

Marketing

Our sales and marketing efforts are directed primarily at physicians, which are principally responsible for referring patients to our facilities. We market our
facilities to physicians by emphasizing (1) the high level of patient satisfaction with our surgery centers, which is based on patient surveys we take concerning our facilities, (2) the
quality and responsiveness of our services, and (3) the practice efficiencies provided by our facilities. In those U.S. markets in which we have established a strategic alliance with a
healthcare system, we coordinate the marketing effort with the healthcare system and generally benefit from this managed care strategy. We also directly negotiate agreements with third-party payors,
which generally focus on the pricing, number of facilities in the market and affiliation with physician groups in a particular market. Maintaining access to physicians and patients through third-party
payor contracting is essential for the economic viability of most of our facilities.

Competition

In all of our markets, we compete with other providers, including major acute care hospitals. Hospitals have various competitive advantages over us, including
their established managed care contracts, community position, physician loyalty and geographical convenience for physicians' in-patient and out-patient practices. However, we
believe that, in comparison to hospitals with which we compete for managed care contracts, our surgery centers and private surgical hospitals compete favorably on the basis of cost, quality,
efficiency and responsiveness to physician needs in a more comfortable environment for the patient.

We
compete with other providers in each of our markets for patients and for contracts with insurers or managed care payors. Competition for managed care contracts with other providers is
focused on the pricing, number of facilities in the market and affiliation with key physician groups in a particular market. We also encounter competition with other companies for acquisition and
development of facilities and in the United States for strategic relationships with healthcare systems

15

---

and physicians. However, we believe that there are currently a limited number of competitors that have the experience to effectively pursue joint ventures with not for profit healthcare systems.

There
are several large, publicly-held companies, or divisions or subsidiaries of large publicly-held companies, that acquire and develop freestanding
multi-specialty surgery centers and private surgical hospitals. Some of these competitors have greater resources than we do. The principal competitive factors that affect our ability and the ability
of our competitors to acquire surgery centers and private surgical hospitals are price, experience and reputation and access to capital. Further, in the United States some physician groups develop
surgery centers without a corporate partner. It is generally difficult, however, for a single practice to create effectively the efficient operations and marketing programs necessary to compete with
other provider networks and companies. As a result, and also due to the financial investment necessary to develop surgery centers and private surgical hospitals, many healthcare systems and physician
groups are attracted to corporate partners such as us.

In
the United Kingdom, we face competition from both the national health service and other privately operated hospitals, including hospitals owned by the BUPA Group, the largest
insurance company in the United Kingdom. Across the United Kingdom, a large number of private hospitals are owned by the four largest hospital operators. In addition, the two largest payors account
for over half of the privately insured market. We believe our hospitals can effectively compete in this market due to location and specialty mix of our facilities. Our hospitals also have a higher
portion of self pay business than the overall market. Self pay business is not influenced by the private insurers.

In
Spain, we face competition from several privately held independent hospitals and a few networks of hospitals that are owned by insurance companies. Insurance companies that own
hospitals have the benefit of a captured market of their insured, including hospitals owned by Adesla, our primary competitor in Spain. These insurance companies compete with us in acquisitions of
strategically placed
hospitals in major cities. Other hospital networks are attempting to replicate our model and have begun to compete with us in the acquisition of hospitals. The acquisition of hospitals in Spain is
greatly affected by price. In our experience, sellers are typically the physicians that have built the hospitals, and most physicians prefer an independent position in a market rather than becoming a
provider for an insurance company. We focus our efforts on partnering with physicians and assisting them in growing their business and medical practices by encouraging group rather than individual
practices.

Our
hospitals compete with other providers in the Spanish market, including other private hospitals and hospitals operated by Spain's national health service. The national health
coverage makes the hospitals operated by Spain's national health service accessible to the entire Spanish population. In contrast, private hospitals such as ours must negotiate agreements with
third-party payors, which focus on services available to their members as well as pricing. We believe that the size of our operations in Spain will give us the ability to negotiate effectively with
insurance companies.

Employees

We employ approximately 2,600 persons, 2,250 of whom are full-time employees and 350 of whom are part-time employees. Of these employees,
we employ approximately 800 in the United States, 600 in the United Kingdom and 1,200 in Spain. The physicians that affiliate with us and use our facilities are not our employees. However, we
generally offer the physicians the opportunity to purchase equity interests in the facilities they use.

Professional and General Liability Insurance

In the United States, we maintain professional liability insurance that provides coverage on a claims made basis of $1.0 million per incident and
$3.0 million in annual aggregate amount per location. We also maintain general liability insurance coverage of $1.0 million per occurrence and

16

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$2.0 million in annual aggregate amount per location, as well as business interruption insurance and property damage insurance. In addition, we maintain umbrella liability insurance in the
aggregate amount of $10.0 million. In the United Kingdom, we maintain general public insurance in the amount of $5.0 million, malpractice insurance in the amount of $3.0 million
and property and business interruption insurance. In Spain, we maintain property damage insurance in the amount of $30.0 million and general liability insurance coverage of $550,000 per
accident and victim per year, per facility and $2.2 million at the group level. Our insurance policies are generally subject to annual renewals. Recent pressures within the insurance markets
and industry have resulted in significant increases in costs for certain types of insurance and certain policyholders. We believe that we will be able to renew current policies or otherwise obtain
comparable insurance coverage at reasonable rates. However, we have no control over the insurance markets and can provide no assurance that we will economically be able to maintain insurance similar
to our current policies. The governing documents of each of our surgery centers require physicians who conduct surgical procedures at our surgery centers to maintain stated amounts of insurance.

Government Regulation



The healthcare industry is subject to extensive regulation by federal, state and local governments. Government regulation affects our business by controlling
growth, requiring licensing or certification of facilities, regulating how facilities are used, and controlling payment for services provided. Further, the regulatory environment in which we operate
may change significantly in the future. While we believe we have structured our agreements and operations in material compliance with applicable law, there can be no assurance that we will be able to
successfully address changes in the regulatory environment.

Every
state imposes licensing and other requirements on healthcare facilities. In addition, many states require regulatory approval, including certificates of need, before establishing
or expanding various types of healthcare facilities, including surgery centers and private surgical hospitals, offering services or making capital expenditures in excess of statutory thresholds for
healthcare equipment, facilities or programs. We may become subject to additional burdensome regulations as we expand our existing operations and enter new markets.

In
addition to extensive existing government healthcare regulation, there have been numerous initiatives on the federal and state levels for comprehensive reforms affecting the payment
for and availability of healthcare services. We believe that these healthcare reform initiatives will continue during the foreseeable future. If adopted, some aspects of previously proposed reforms,
such as further reductions in Medicare or Medicaid payments, or additional prohibitions on physicians' financial relationships with facilities to which they refer patients, could adversely affect us.

We
believe that our business operations materially comply with applicable law. However, we have not received a legal opinion from counsel or from any federal or state judicial or
regulatory authority to this effect, and many aspects of our business operations have not been the subject of state or federal regulatory scrutiny or interpretation. Some of the laws applicable to us
are subject to limited or evolving interpretations; therefore, a review of our operations by a court or law enforcement or regulatory authority might result in a determination that could have a
material adverse effect on us. Furthermore, the laws applicable to us may be amended or interpreted in a manner that could have a material adverse effect on us. Our ability to conduct our business and
to operate profitably will depend in part upon obtaining and maintaining all necessary licenses, certificates of need and other approvals, and complying with applicable healthcare laws and
regulations.

17

---



Capital expenditures for the construction of new facilities, the addition of beds or the acquisition of existing facilities may be reviewed by state regulators
under statutory schemes that are sometimes referred to as certificate of need laws. States with certificate of need laws place limits on the construction and acquisition of healthcare facilities and
the expansion of existing facilities and services. In these states, approvals are required for capital expenditures exceeding certain specified amounts and that involve certain facilities or services,
including surgery centers and private surgical hospitals.

State
certificate of need laws generally provide that, prior to the addition of new beds, the construction of new facilities or the introduction of new services, a designated state
health planning agency must determine that a need exists for those beds, facilities or services. The certificate of need process is intended to promote comprehensive healthcare planning, assist in
providing high quality healthcare at the lowest possible cost and avoid unnecessary duplication by ensuring that only those healthcare facilities that are needed will be built.

Typically,
the provider of services submits an application to the appropriate agency with information concerning the area and population to be served, the anticipated demand for the
facility or service to be provided, the amount of capital expenditure, the estimated annual operating costs, the relationship of the proposed facility or service to the overall state health plan and
the cost per patient day for the type of care contemplated. The issuance of a certificate of need is based upon a finding of need by the agency in accordance with criteria set forth in certificate of
need laws and state and regional health facilities plans. If the proposed facility or service is found to be necessary and the applicant to be the appropriate provider, the agency will issue a
certificate of need containing a maximum amount of expenditure and a specific time period for the holder of the certificate of need to implement the approved project.

Our
healthcare facilities are also subject to state and local licensing regulations ranging from the adequacy of medical care to compliance with building codes and environmental
protection laws. To assure continued compliance with these regulations, governmental and other authorities periodically inspect our facilities. The failure to comply with these regulations could
result in the suspension or revocation of a healthcare facility's license.

Our
healthcare facilities receive accreditation from the Joint Commission on Accreditation of Healthcare Organizations or the Accreditation Association for Ambulatory Health
Care, Inc., nationwide commissions which establish standards relating to the physical plant, administration, quality of patient care and operation of medical staffs of various types of
healthcare facilities. Generally, our healthcare facilities must be in operation for at least six months before they are eligible for accreditation. As of December 31, 2001, all but our four
most recently opened healthcare facilities had
been accredited by either the Joint Commission on Accreditation of Healthcare Organizations or the Accreditation Association for Ambulatory Health Care, Inc. Many managed care companies and
third-party payors require our facilities to be accredited in order to be considered a participating provider under their health plans.



Medicare is a federally funded and administered health insurance program, primarily for individuals entitled to social security benefits who are 65 or older or
who are disabled. Medicaid is a health insurance program jointly funded by state and federal governments that provides medical assistance to qualifying low income persons. Each state Medicaid program
has the option to provide payment for surgery center services. All of the states in which we currently operate cover Medicaid surgery center services; however, these states may not continue to cover
surgery center services and states into which we expand our operations may not cover or continue to cover surgery center services.

18

---

Medicare
payments for procedures performed at surgery centers are not based on costs or reasonable charges. Instead, Medicare prospectively determines fixed payment amounts for
procedures performed at surgery centers. These amounts are adjusted for regional wage variations. The various state Medicaid programs also pay us a fixed payment for our services, which amount varies
from state to state. A portion of our revenues are attributable to payments received from the Medicare and Medicaid programs. For the years ended December 31, 1999, 2000 and 2001, 19%, 18% and
21%, respectively, of our domestic case volumes were attributable to Medicare and Medicaid payments.

To
participate in the Medicare program and receive Medicare payment, our facilities must comply with regulations promulgated by the Department of Health and Human Services. Among other
things, these regulations, known as "conditions of participation," relate to the type of facility, its equipment, its personnel and its standards of medical care, as well as compliance with state and
local laws and regulations. Our surgery centers must also satisfy the conditions of participation in order to be eligible to participate in the Medicaid program. All of our surgery centers and private
surgical hospitals in the United States are certified or awaiting certification to participate in the Medicare program. These facilities are subject to annual on-site surveys to maintain
their certification. Failure to comply with Medicare's conditions of participation may result in loss of program payment or other governmental sanctions. We have established ongoing quality assurance
activities to monitor and ensure our facilities' compliance with these conditions of participation.

As
with most government programs, the Medicare and Medicaid programs are subject to statutory and regulatory changes, possible retroactive and prospective rate adjustments,
administrative rulings, freezes and funding reductions, all of which may adversely affect the level of payments to our surgery centers. Reductions or changes in Medicare or Medicaid funding could
significantly affect our results of
operations. We cannot predict at this time whether additional healthcare reform initiatives will be implemented or whether there will be other changes in the administration of government healthcare
programs or the interpretation of government policies that would adversely affect our business.



State and federal laws regulate relationships among providers of healthcare services, including employment or service contracts and investment relationships.
These restrictions include a federal criminal law, referred to in this prospectus as the Anti-Kickback Statute, that prohibits offering, paying, soliciting, or receiving any form of
remuneration in return for:



A
violation of the Anti-Kickback Statute constitutes a felony. Potential sanctions include imprisonment of up to five years, criminal fines of up to $25,000, civil money
penalties of up to $50,000 per act plus three times the remuneration offered or three times the amount claimed and exclusion from all federally funded healthcare programs, including the Medicare and
Medicaid programs. The applicability of these provisions to many business transactions in the healthcare industry has not yet been subject to judicial or regulatory interpretation.

Pursuant
to the Anti-Kickback Statute, and in an effort to reduce potential fraud and abuse relating to federal healthcare programs, the federal government has announced a
policy of increased scrutiny of joint ventures and other transactions among healthcare providers. The Office of the Inspector General of the Department of Health and Human Services closely scrutinizes
healthcare joint ventures involving physicians and other referral sources. In 1989, the Office of the Inspector General

19

---

published a fraud alert that outlined questionable features of "suspect" joint ventures, and the Office of the Inspector General has continued to rely on fraud alerts in later pronouncements. The
Office of the Inspector General has also published regulations containing numerous "safe harbors" that exempt some practices from enforcement under the Anti-Kickback Statute. These safe
harbor regulations, if fully complied with, assure participants in particular types of arrangements that the Office of the Inspector General will not treat their participation as a violation of the
Anti-Kickback Statute. The safe harbor regulations do not expand the scope of activities that the Anti- Kickback Statute prohibits, nor do they provide that failure to satisfy
the terms of a safe harbor constitutes a violation of the
Anti-Kickback Statute. The Office of the Inspector General has, however, indicated that failure to satisfy the terms of a safe harbor may subject an arrangement to increased scrutiny.

Our
partnerships and limited liability companies that are providers of services under the Medicare and Medicaid programs, and their respective limited partners and members, are subject
to the Anti-Kickback Statute. A number of the relationships that we have established with physicians and other healthcare providers do not fit within any of the safe harbor regulations
issued by the Office of the Inspector General. Of our 38 surgical facilities in the United States, 35 are owned by partnerships or limited liability companies, which include as partners or members
physicians who perform surgical or other procedures at the facilities.

On
November 19, 1999, the Office of the Inspector General promulgated rules setting forth additional safe harbors under the Anti-Kickback Statute. The new safe harbors
include a safe harbor applicable to surgery centers, referred to as the "surgery center safe harbor." The surgery center safe harbor generally protects ownership or investment interests in a center by
physicians who are in a position to refer patients directly to the center and perform procedures at the center on referred patients, if certain conditions are met. More specifically, the surgery
center safe harbor protects any payment that is a return on an ownership or investment interest to an investor if certain standards are met in one of four categories of ambulatory surgery centers
(1) surgeon-owned surgery centers, (2) single-specialty surgery centers, (3) multi-specialty surgery centers, and (4) hospital/physician surgery centers.

For
multi-specialty ambulatory surgery centers, for example, the following standards, among others, apply:



Similar
standards apply to each of the remaining three categories of surgery centers set forth in the regulations. In particular, each of the four categories includes a requirement that
no ownership interests be held by a non-physician or non-hospital investor if that investor is employed by the center or another investor, is in a position to provide items or
services to the center or any of its other investors, or is in a position to make or influence referrals directly or indirectly to the center or any of its investors.

20

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Since
one of our subsidiaries is an investor in each partnership or limited liability company that owns one of our surgery centers, and since this subsidiary provides management and
other services to the surgery center, our arrangements with physician investors do not fit within the specific terms of the surgery center safe harbor or any other safe harbor.

In
addition, because we do not control the medical practices of our physician investors or control where they perform surgical procedures, it is possible that the quantitative tests
described above will not be met, or that other conditions of the surgery center safe harbor will not be met. Accordingly, while the surgery center safe harbor is helpful in establishing that a
physician's investment in a surgery center should be considered an extension of the physician's practice and not as a prohibited financial relationship, we can give you no assurances that these
ownership interests will not be challenged under the Anti-Kickback Statute. However, we believe that our arrangements involving physician ownership interests in our surgery centers should
not fall within the activities prohibited by the Anti-Kickback Statute.

While
several federal court decisions have aggressively applied the restrictions of the Anti-Kickback Statute, they provide little guidance regarding the application of the
Anti-Kickback Statute to our partnerships and limited liability companies. We believe that our operations do not violate the Anti-Kickback Statute. However, a federal agency
charged with enforcement of the Anti-Kickback Statute might assert a contrary position. Further, new federal laws, or new interpretations of existing laws, might adversely affect
relationships we have established with physicians or other healthcare providers or result in the imposition of penalties on us or some of our facilities. Even the assertion of a violation could have a
material adverse effect upon us.

Section 1877
of the Social Security Act, commonly known as the "Stark Law," prohibits physicians, subject to the exceptions described below, from referring Medicare or Medicaid
patients to any entity providing "designated health services" in which the physician or an immediate family member has an ownership or investment interest or with which the physician or an immediate
family member has entered into a compensation arrangement. These prohibitions, contained in the Omnibus Budget Reconciliation Act of 1993, commonly known as "Stark II," amended prior federal physician
self-referral legislation known as "Stark I" by expanding the list of designated health services to a total of eleven categories of health services. Persons who violate the Stark Law are
subject to potential civil money penalties of up to $15,000 for each bill or claim submitted in violation of the Stark Law and $100,000 for participation in a "circumvention scheme" and exclusion from
the Medicare and Medicaid
programs. In addition, the Stark Law requires the refund of any Medicare and Medicaid payments received for designated health services that resulted from a prohibited referral.

Ambulatory
surgery is not specifically enumerated as a health service subject to this prohibition; however, some of the eleven designated health services under the Stark Law are among
the specific services furnished by our surgery facilities. Final regulations interpreting Stark I, often referred to as the "Stark I regulations," were issued on August 14, 1995. On
January 4, 2001 the Department of Health and Human Services published "Phase I" of the final regulations interpreting Stark II and modifying the Stark I regulations. The Department of Health
and Human Services anticipates publishing "Phase II" of the regulations in the near future. The Phase I regulations, which in general took effect on January 4, 2002, address some of the
ownership and investment interest exceptions and compensation arrangement exceptions found in the Stark Law. Under the Stark I regulations, clinical laboratory services provided by a surgery center
are excepted from the Stark Law's self-referral prohibition, if these services are included in the surgery center's composite Medicare payment rate. The Phase I regulations take a
different approach and exclude from the definition of "designated health services" any designated health services provided by a surgery center, if the services are included in the surgery center's
composite Medicare payment rate. Therefore, under the Phase I regulations, the Stark Law's self-referral prohibition does not apply to designated health services provided by a surgery
center, unless the surgery center separately bills Medicare for the services. We believe that our

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operations do not violate the Stark Law, as currently interpreted. However, the Department of Health and Human Services has indicated that it will further address the exception relating to services
provided by a surgery center in Phase II of the regulations. Therefore, we cannot assure you that future regulatory changes will not result in us becoming subject to the Stark Law's
self-referral prohibition.



The federal government is authorized to impose criminal, civil and administrative penalties on any person or entity that files a false claim for payment from the
Medicare or Medicaid programs. Claims filed with private insurers can also lead to criminal and civil penalties, including, but not limited to, penalties relating to violations of federal mail and
wire fraud statutes. While the criminal statutes are generally reserved for instances of fraudulent intent, the government is applying its criminal, civil and administrative penalty statutes in an
ever-expanding range of circumstances. For example, the government has taken the position that a pattern of claiming reimbursement for unnecessary services violates these statutes if the
claimant merely should have known the services were unnecessary, even if the government cannot demonstrate actual knowledge. The government has also taken the position that claiming payment for
low-quality services is a violation of these statutes if the claimant should have known that the care was substandard.

Over
the past several years, the government has accused an increasing number of healthcare providers of violating the federal False Claims Act. The False Claims Act prohibits a person
from knowingly presenting, or causing to be presented, a false or fraudulent claim to the United States government. The statute defines "knowingly" to include not only actual knowledge of a claims
falsity, but also
reckless disregard for or intentional ignorance of the truth or falsity of a claim. Because our facilities perform hundreds of similar procedures a year for which they are paid by Medicare, and there
is a relatively long statute of limitations, a billing error or cost reporting error could result in significant civil or criminal penalties.

Under
the "qui tam," or whistleblower, provisions of the False Claims Act, private parties may bring actions on behalf of the federal government. Such private parties, often referred to
as relators, are entitled to share in any amounts recovered by the government through trial or settlement. Both direct enforcement activity by the government and whistleblower lawsuits have increased
significantly in recent years and have increased the risk that a healthcare company, like us, will have to defend a false claims action, pay fines or be excluded from the Medicare and Medicaid
programs as a result of an investigation resulting from a whistleblower case. Although we believe that our operations materially comply with both federal and state laws, they may nevertheless be the
subject of a whistleblower lawsuit, or may otherwise be challenged or scrutinized by governmental authorities. A determination that we have violated these laws could have a material adverse effect on
us.



Many states, including those in which we do or expect to do business, have laws that prohibit payment of kickbacks or other remuneration in return for the
referral of patients. Some of these laws apply only to services reimbursable under state Medicaid programs. However, a number of these laws apply to all healthcare services in the state, regardless of
the source of payment for the service. Based on court and administrative interpretations of the federal Anti-Kickback Statute, we believe that the Anti-Kickback Statute
prohibits payments only if they are intended to induce referrals. However, the laws in most states regarding kickbacks have been subjected to more limited judicial and regulatory interpretation than
federal law. Therefore, we can give you no assurances that our activities will be found to be in compliance with these laws. Noncompliance with these laws could subject us to penalties and sanctions
and have a material adverse effect upon us.

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A
number of states, including those in which we do or expect to do business, have enacted physician self-referral laws that are similar in purpose to the Stark Law but which
impose different restrictions. Some states, for example, only prohibit referrals when the physician's financial relationship with a healthcare provider is based upon an investment interest. Other
state laws apply only to a limited number of designated health services. Some states do not prohibit referrals, but require that a patient be informed of the financial relationship before the referral
is made. We believe that our operations are in material compliance with the physician self-referral laws of the states in which our facilities are located.



The Health Insurance Portability and Accountability Act of 1996 contains, among other measures, provisions that may require many organizations, including us, to
implement very significant and potentially expensive new computer systems and business procedures designed to protect each patient's individual healthcare information. The Health Insurance Portability
and Accountability Act of 1996 requires the Department of Health and Human Services to issue rules to define and implement patient privacy standards. Among the standards that the Department of Health
and Human Services will adopt pursuant to the Health Insurance Portability and Accountability Act of 1996 are standards for the following:



On
August 17, 2000, the Department of Health and Human Services finalized the new transaction standards. The recently enacted Administrative Simplification and Compliance Act
extends the date by which we must comply with the transaction standards to October 16, 2003, provided we submit a compliance plan to the Secretary of Health and Human Services by
October 16, 2002. The transaction standards will require us to use standard code sets established by the rule when transmitting health information in connection with some transactions,
including health claims and health payment and remittance advices.

On
August 12, 1998, the Department of Health and Human Services issued a proposed rule that establishes, in part, standards for the security of health information by health plans,
healthcare clearinghouses and healthcare providers that maintain or transmit any health information in electronic form, regardless of format. We would be an affected entity under the proposed rule.
These security standards require affected entities to establish and maintain reasonable and appropriate administrative, technical and physical safeguards to ensure integrity, confidentiality and the
availability of the information. The security standards were designed to protect the health information against reasonably anticipated threats or hazards to the security or integrity of the
information and to protect the
information against unauthorized use or disclosure. Although the security standards do not reference or advocate a specific technology, and affected entities have the flexibility to choose their own
technical solutions, we expect that the security standards will require us to implement significant systems.

On
December 28, 2000, the Department of Health and Human Services published a final rule establishing standards for the privacy of individually identifiable health information.
These privacy standards apply to all health plans, all healthcare clearinghouses and many healthcare providers, including healthcare providers that transmit health information in an electronic form in
connection with certain standard transactions. We are a covered entity under the final rule. The privacy standards apply

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to protect individually identifiable health information held or disclosed by a covered entity in any form, whether communicated electronically, on paper or orally. These standards not only require
our compliance with rules governing the use and disclosure of protected health information, but they also require us to impose those rules, by contract, on any business associate to whom such
information is disclosed. A violation of the privacy standards could result in civil money penalties of $100 per incident, up to a maximum of $25,000 per person per year per standard. The final rule
also provides for criminal penalties of up to $50,000 and one year in prison for knowingly and improperly obtaining or disclosing protected health information, up to $100,000 and five years in prison
for obtaining protected health information under false pretenses, and up to $250,000 and ten years in prison for obtaining or disclosing protected health information with the intent to sell, transfer
or use such information for commercial advantage, personal gain or malicious harm.

The
final rule establishing the privacy standards became effective on April 14, 2001, with compliance required by April 14, 2003. The security regulations under the Health
Insurance Portability and Accountability Act of 1996 are currently scheduled to be finalized by the Department of Health and Human Services in the near future. Once the security regulations are issued
in final form, we will have approximately two years to become fully compliant.

We
expect that compliance with these standards will require significant commitment and action by us. We have appointed members of our management team to direct our compliance with these
standards. Although we and other covered entities generally are not required to be in compliance with these standards until two years following the effective date of the final rules issued or to be
issued by the Department of Health and Human Services, implementation will require us to conduct extensive preparation and make significant expenditures. Because the security standards are proposed
regulations, we cannot predict the total financial impact of the regulations on our operations.



The European Commission's Directive on Data Privacy went into effect in October 1998 and prohibits the transfer of personal data to
non-European Union countries that do not meet the European "adequacy" standard for privacy protection. The European Union privacy legislation requires, among
other things, the creation of government data protection agencies, registration of databases with those agencies, and in some instances prior approval before personal data processing may begin.

The
U.S. Department of Commerce, in consultation with the European Commission, recently developed a "safe harbor" framework to protect data transferred in trans-Atlantic businesses like
ours. The safe harbor provides a way for us to avoid experiencing interruptions in our business dealings in the European Union. It also provides a way to avoid prosecution by European authorities
under European privacy laws. By certifying to the safe harbor, we will notify the European Union organizations that we provide "adequate" privacy protection, as defined by European privacy laws. To
certify to the safe harbor, we must adhere to seven principles. These principles relate to notice, choice, onward transfer or transfers to third parties, access, security, data integrity and
enforcement.

We
intend to formulate and execute programs that will satisfy the requirements of the safe harbor. Even if we are able to formulate programs that attempt to meet these objectives, we may
not be able to execute them successfully, which could have a material adverse effect on our revenues, profits or results of operations.



Under the Spanish General Health Act and related regulations, private hospitals must report periodically to the applicable health authorities. These reports,
which describe a hospital's activities, provide a method to identify and control epidemics. Private hospitals in Spain must obtain a number of

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licenses, permits and authorizations, including those required to begin operating the facility and to dispense drugs. In addition, private hospitals are subject to regular inspections by the health
and administrative authorities to ensure compliance with applicable regulations. Private hospitals must register their personal databases with the Data Protection Agency. The Law of Personal Data
Protection provides specific protection for the health information portion of this personal data. Private hospitals must adopt the necessary measures to ensure the safety of the personal data.
Violations of these regulations could subject the hospital to administrative fines and civil and criminal liability. Administrative fines range from 3,000 Euros (approximately $2,700) to 600,000 Euros
(approximately $535,000), or five times the value of the products and services that are the subject of the violation, depending on the seriousness of the violation. Health and administrative
authorities may also close a private hospital for up to five years for serious violations. A violation that endangers the public health is a criminal offense. We believe that our operations in Spain
are in material compliance with the laws referred to in this paragraph.



While there is no specific anti-kickback legislation in the United Kingdom that is unique to the medical profession, general criminal legislation
prohibits bribery and corruption. Our private surgical hospitals in the United Kingdom do not pay commissions to or share profits with referring physicians, who invoice patients or insurers directly
for fees relating to the provision of their services. Private surgical hospitals in the United Kingdom are required to register with the local Social Services Authority pursuant to the Registered
Homes Act 1984, which provides for regular inspections of the facility by the registering authority. The operation of a private surgical hospital without registration is a criminal offense. Under the
Misuse of Drugs Act 1971, the supply, possession or production of controlled drugs without a license from the Secretary of State is a criminal offense. The Data Protection Act 1998 requires private
surgical hospitals to register as "data controllers." The processing of personal data, such as patient information and medical records, without prior registration is a criminal offense. We believe
that our operations in the United Kingdom are in material compliance with the laws referred to in this paragraph.

Risk Factors

An investment in the Company involves certain risks. You should carefully read the risks and uncertainties described below and the other
information included in this report.

We depend on payments from third-party payors, including government healthcare programs. If these payments are reduced, our operating income will decrease.

We are dependent upon private and governmental third-party sources of payment for the services provided to patients in our surgery centers and private surgical
hospitals. The amount of payment a surgery center or private surgical hospital receives for its services may be adversely affected by market and cost factors as well as other factors over which we
have no control, including Medicare and Medicaid regulations and the cost containment and utilization decisions of third-party payors. In the United Kingdom and Spain, a significant portion of our
revenues result from referrals of patients to our hospitals by the national health system. We have no control over the number of patients that are referred to the private sector annually. Fixed fee
schedules, capitation payment arrangements, exclusion from participation in managed care programs or other factors affecting payments for healthcare services over which we have no control could cause
a reduction in our revenues in the future.

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If we are unable to acquire and develop additional surgery centers or private surgical hospitals on favorable terms, we may be unable to execute our acquisition and development
strategy, which could limit our future growth.

Our strategy is to increase our revenues and earnings by continuing to acquire surgical facility companies, groups of surgical facilities and individual surgical
facilities and to develop additional surgical facilities. Our efforts to execute our acquisition and development strategy may be affected by our ability to identify suitable candidates and negotiate
and close acquisition and development transactions. We are currently evaluating potential acquisitions and development projects and expect to continue to evaluate acquisitions and development projects
in the foreseeable future. The surgical facilities we develop typically incur losses during the first six to 12 months of operation and, unless and until their case loads grow, they generally
experience lower total revenues and operating margins than established surgical facilities. We expect that our development candidates will experience similar losses and lower revenues and operating
margins. Historically, each of our newly developed facilities has generated positive cash flow within the first 12 months of operations. We may not be successful in acquiring other companies or
additional surgical facilities, developing surgical facilities or achieving satisfactory operating results at acquired or newly developed facilities. Further, the companies or assets we acquire in the
future may not ultimately produce returns that justify our related investment. If we are not able to execute our acquisition and development strategy, our ability to increase revenues and earnings
through future growth would be impaired.

If we incur material liabilities as a result of acquiring companies or surgical facilities, our operating results could be adversely affected.

Although we seek indemnification from prospective sellers covering unknown or contingent liabilities, we may acquire companies and surgical facilities that have
material liabilities for failure to comply with healthcare laws and regulations or other past activities. Although we maintain professional and general liability insurance, we do not currently
maintain insurance specifically covering any unknown or contingent liabilities that may occur after the acquisition of companies and surgical facilities. If we incur these liabilities and are not
indemnified or insured for them, our operating results and financial condition could be adversely affected.

If we do not have sufficient capital resources for our acquisition and development strategy, our growth will be limited.

We will need capital to acquire other companies and to acquire, develop, integrate, operate and expand surgery centers and private surgical hospitals. We may
finance future acquisition and development projects through debt or equity financings and may use shares of our capital stock for all or a portion of the consideration to be paid in acquisitions. To
the extent that we undertake these financings or use capital stock as consideration, our stockholders may experience future ownership dilution. In the event that our common stock does not maintain a
sufficient valuation, or potential acquisition candidates are unwilling to accept our common stock as all or part of the consideration, we may be required to use more of our cash resources, if
available, or to rely solely on additional financing arrangements to pursue our acquisition and development strategy. However, we may not have sufficient capital resources
or be able to obtain financing on terms acceptable to us for our acquisition and development strategy, which would limit our growth.

If we are unable to manage growth, we may be unable to achieve our growth strategy.

We have acquired all of our surgery centers and private surgical hospitals since February 1998. We expect to continue to expand our operations in the future. As a
new company, our rapid growth has placed, and will continue to place, increased demands on our management, operational and financial information systems and other resources. Further expansion of our
operations will require substantial

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financial resources and management attention. To accommodate our past and anticipated future growth, and to compete effectively, we will need to continue to implement and improve our management,
operational and financial information systems and to expand, train, manage and motivate our workforce. Our personnel, systems, procedures or controls may not be adequate to support our operations in
the future. Further, focusing our financial resources and management attention on the expansion of our operations may negatively impact our financial results. Any failure to implement and improve our
management, operational and financial information systems, or to expand, train, manage or motivate our workforce, could reduce or prevent our growth.

We depend on our relationships with healthcare systems. If we are not able to maintain or renew our strategic alliances with these healthcare systems, or enter into new
alliances, we may be unable to implement our business strategies successfully.

Our domestic business depends in part upon the efforts and success of the healthcare systems with which we have strategic alliances and the strength of our
alliances with those healthcare systems. Our business could be adversely affected by any damage to those healthcare systems' reputations or to our alliances with them. We may not be able to maintain
or renew our existing alliance agreements on terms and conditions favorable to us or enter into alliances with additional healthcare systems. If we are unable to maintain and renew our existing
strategic alliances on terms favorable to us or enter into alliances with additional healthcare systems, we may be unable to implement our business strategies successfully.

We depend on our relationships with the physicians who use our facilities. Our ability to provide medical services at our facilities would be impaired and our revenues reduced
if we are not able to maintain these relationships.

Our business depends upon the efforts and success of the physicians who provide medical services at our facilities and the strength of our relationships with
these physicians. Our revenues would be reduced if we lost our relationship with a key physician or group of physicians or the physician or group reduces his or its use of our facilities. In addition,
any failure of these physicians to maintain the
quality of medical care provided or to otherwise adhere to professional guidelines at our surgical facilities or any damage to the reputation of a key physician or group of physicians could damage our
reputation, subject us to liability and significantly reduce our revenues.

Our European operations, which we plan to expand, are subject to unique risks. If any of these events actually occur, our financial results could be adversely affected.

Our international operations are located in Spain and the United Kingdom. We expect that revenue from our European operations will continue to account for a
significant percentage of our total revenue. We may pursue additional acquisitions in Spain, the United Kingdom and other countries in Western Europe. Expansion of our European operations will require
substantial financial resources and management attention. This focus of financial resources and management attention could have an adverse effect on our financial results. Our European operations are
subject, and as they continue to develop may become increasingly subject, to risks such as:



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These
or other factors could have a material adverse effect on our ability to successfully operate in Europe.

Our significant indebtedness could limit our flexibility.

We are substantially leveraged and will continue to have significant indebtedness in the future. Our acquisition and development program requires substantial
capital resources, estimated to range from $40.0 to $50.0 million per year over the next three years, and the operation of our existing surgical facilities requires ongoing capital
expenditures.

We
will need to incur additional indebtedness to fund future acquisitions, developments and capital expenditures. We currently have an $85.0 million revolving credit facility.
However, we may be unable to obtain sufficient financing on terms satisfactory to us, or at all. As a result, our acquisition and development activities would have to be curtailed or eliminated and
our financial results would be adversely affected.

The
degree to which we are leveraged could have other important consequences to you, including the following:



Our revenues may be reduced by pending changes in the system of paying for outpatient surgical procedures under the Medicare program.

Medicare's system of paying for covered procedures performed in a surgery center may change in the near future. On June 12, 1998, the Department of Health
and Human Services proposed major revisions to the surgery center payment methodology. The proposed rule would increase the number of surgical procedure payment groups from eight to 105 and the number
of procedures covered by the Medicare program from 2,280 to 2,499. All of the procedures that are paid at a particular rate would constitute a payment group. Therefore, each of the 2,499 procedures
would be paid at one of the 105 prospectively determined payment rates.

According
to the Centers for Medicare and Medicaid Services, the payment rate for virtually every covered procedure performed in a surgery center would change under the proposed
revisions to the payment methodology, with some procedures receiving a lower rate and others receiving a higher rate than they do currently. The Centers for Medicare and Medicaid Services has
estimated that the proposed payment rates would reduce Medicare payments to surgery centers, in the aggregate, by 2% from current spending levels. We do not know at this time when the proposed
revisions to this surgery

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payment methodology will be implemented. The changes discussed above could reduce our Medicare revenues, depending on the volume and type of procedures performed at a particular facility.

If we are unable to negotiate contracts and maintain satisfactory relationships with managed care organizations or other third-party payors, our revenues may decrease.

Our competitive position has been, and will continue to be, affected by initiatives undertaken during the past several years by major domestic purchasers of
healthcare services, including federal and state governments, insurance companies and employers, to revise payment methods and monitor healthcare expenditures in an effort to contain healthcare costs.
As a result of these initiatives, managed care companies such as health maintenance and preferred provider organizations, which offer prepaid and discounted medical service packages, represent a
growing segment of healthcare payors, the effect of which has been to reduce domestic healthcare facility revenue growth. Similarly, in the United Kingdom, most patients at private surgical hospitals
have private healthcare insurance, either paid for by the patient or received as part of their employment compensation. Our private surgical hospitals in the United Kingdom contract with healthcare
insurers on an annual basis to provide services to insured patients.

Our
private surgical hospitals in Spain contract with healthcare insurers on an annual basis to provide services to insured patients. In addition, our Spanish hospitals contract with the
Spanish public healthcare system, which awards contracts based on a hospital's satisfaction of specified criteria. The Spanish public healthcare system has the right to give priority to hospitals
owned by nonprofit entities if the efficiency, quality and cost conditions of these entities are comparable to those of for profit hospitals. Our contracts with the Spanish public healthcare system
typically have a term of less than
one year and are renewable at the sole discretion of the Spanish public healthcare system. As the majority of our revenues in Spain are derived from private insurance companies, the annual negotiation
of price increases is very important to the profitability of our hospitals. Any termination of an existing third-party contract could result in a significant loss of revenues and could have a material
adverse effect on us.

As
an increasing percentage of domestic patients become subject to healthcare coverage arrangements with managed care payors, we believe that our success will continue to depend upon our
ability to negotiate favorable contracts on behalf of our facilities with managed care organizations, employer groups and other private third-party payors. If we are unable to enter into these
arrangements on satisfactory terms in the future we could be adversely affected. Many of these payors already have existing provider structures in place and may not be able or willing to change their
provider networks. Similarly, if we fail to negotiate contracts with healthcare insurers in the United Kingdom and Spain on favorable terms, or if we fail to remain on insurers' networks of approved
hospitals, it could have a material adverse effect on us. We could experience a material adverse effect to our operating results and financial condition as a result of the termination of existing
third-party payor contracts.

Efforts to regulate the construction, acquisition or expansion of healthcare facilities could prevent us from acquiring additional surgery centers or private surgical
hospitals, renovating our existing facilities or expanding the breadth of services we offer.

Some states in the United States require prior approval for the construction, acquisition or expansion of healthcare facilities or expansion of the services they
offer. In giving approval, these states consider the need for additional or expanded healthcare facilities or services. In Alabama, Georgia, Tennessee and New York, we are required to obtain
certificates of need for capital expenditures exceeding a prescribed amount, changes in bed capacity or services offered and various other matters. Other states in which we now or may in the future
operate may adopt similar legislation. Our costs of obtaining a certificate of need have ranged up to $500,000. Spain also requires prior approval of the

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construction or expansion of healthcare facilities. In addition, private surgical hospitals in Spain must obtain a number of licenses, including a license to operate a pharmacy or to perform tests
using radioactive materials. Although we have not previously been denied a certificate of need, we may not be able to obtain the certificates of need or other required approvals for additional or
expanded facilities or services in the future. In addition, at the time we acquire a facility, we may agree to replace or expand the acquired facility. If we are unable to obtain required approvals,
we may not be able to acquire additional surgery centers or private surgical hospitals, expand healthcare services we provide at these facilities or replace or expand acquired facilities.

New federal and state legislative and regulatory initiatives relating to patient privacy could require us to expend substantial sums acquiring and implementing new information
systems, which could negatively impact our financial results.

There are currently numerous legislative and regulatory initiatives at the U.S. state and federal levels addressing patient privacy concerns. In particular, the
Health Insurance Portability and Accountability Act of 1996 contains provisions that may require us to acquire and implement expensive new computer systems and to adopt business procedures designed to
protect the privacy of each of our patient's individual health information. On December 28, 2000, the Department of Health and Human Services released the final health privacy regulations,
which generally require compliance by April 14, 2003. Proposed regulations addressing standards for the security of health information were issued by the Department of Health and Human Services
on August 12, 1998. These regulations are expected to have a financial impact on the healthcare industry because they impose extensive new requirements and restrictions on the use and
disclosure of identifiable patient information. We estimate the total cost of these systems and procedures to be $175,000. However, because of the proposed nature of the security regulations, we
cannot predict the total financial or other impact of these regulations on our business and compliance with these regulations could require us to spend substantial sums, which could negatively impact
our financial results. We believe that we are in material compliance with existing state and federal regulations relating to patient privacy. However, if we fail to comply with the newly released
regulations, we could suffer civil penalties up to $25,000 per calendar year for each violation and criminal penalties with fines up to $250,000.

If we fail to comply with applicable laws and regulations, we could suffer penalties or be required to make significant changes to our operations.

We are subject to many laws and regulations at the federal, state and local government levels in the domestic and European jurisdictions in which we operate.
These laws and regulations require that our healthcare facilities meet various licensing, certification and other requirements, including those relating to:



We
believe that we are in material compliance with applicable laws and regulations. However, if we fail or have failed to comply with applicable laws and regulations, we could suffer
civil or criminal penalties, including the loss of our licenses to operate and our ability to participate in Medicare, Medicaid and other government sponsored healthcare programs. A number of
initiatives have been proposed during the past several years to reform various aspects of the healthcare system, both domestically and in the European jurisdictions in which we operate. In the future,
different interpretations or enforcement of existing or new laws and regulations could subject our current

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practices to allegations of impropriety or illegality, or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses.
Current or future legislative initiatives or government regulation may have a material adverse effect on our operations or reduce the demand for our services.

In
pursuing our growth strategy, we may expand our presence into new geographic markets, including additional foreign countries. In entering a new geographic market, we will be required
to comply with laws and regulations of jurisdictions that may differ from those applicable to our current operations. If we are unable to comply with these legal requirements in a
cost-effective manner, we may be unable to enter new geographic markets.

If a federal or state agency asserts a different position or enacts new laws or regulations regarding illegal remuneration under the Medicare or Medicaid programs, we may be
subject to civil and criminal penalties, experience a significant reduction in our revenues or be excluded from participation in the Medicare and Medicaid programs.

The federal Anti-Kickback Statute prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring items or
services payable by Medicare, Medicaid, or any other federally funded healthcare program. Additionally, the Anti-Kickback Statute prohibits any form of remuneration in return for
purchasing, leasing, or ordering or arranging for or recommending the purchasing, leasing or ordering of items or services payable by Medicare, Medicaid or any other federally funded healthcare
program. The Anti-Kickback Statute is very broad in scope and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations. Violations of
the Anti-Kickback Statute may result in substantial civil or criminal penalties, including criminal fines of up to $25,000 and civil penalties of up to $50,000 for each violation, plus
three times the remuneration involved or the amount claimed and exclusion from participation in the Medicare and Medicaid programs. The exclusion, if applied to our surgery centers or private surgical
hospitals, could result in significant reductions in our revenues which could have a material adverse effect on our business.

In
July 1991, the Department of Health and Human Services issued final regulations defining various "safe harbors." Two of the safe harbors issued in 1991 apply to business
arrangements similar to those used in connection with our surgery centers and private surgical hospitals: the "investment interest" safe harbor and the "personal services and management contracts"
safe harbor. However, the structure of the limited partnerships and limited liability companies operating our surgery centers and private surgical hospitals, as well as our various business
arrangements involving physician group practices, do
not satisfy all of the requirements of either safe harbor. Therefore, our business arrangements with our surgery centers, private surgical hospitals and physician groups do not qualify for "safe
harbor" protection from government review or prosecution under the Anti-Kickback Statute. Since there is no legal requirement that transactions with referral sources fit within a safe
harbor, a business arrangement that does not substantially comply with the relevant safe harbor is not necessarily illegal under the Anti-Kickback Statute.

On
November 19, 1999, the Department of Health and Human Services promulgated final regulations creating additional safe harbor provisions, including a safe harbor that applies to
physician ownership of or investment interests in surgery centers. The surgery center safe harbor protects four types of investment arrangements: (1) surgeon-owned surgery centers;
(2) single-specialty surgery centers; (3) multi-specialty surgery centers; and (4) hospital/physician surgery centers. Each category has its own requirements with regard to what
type of physician may be an investor in the surgery center. In addition to the physician investor, the categories permit an "unrelated" investor, who is a person or entity that is not in a position to
provide items or services related to the surgery center or its investors. Our business arrangements with our surgery centers typically consist of one of our subsidiaries being an investor in each
limited partnership or limited liability company that owns the

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surgery center, in addition to providing management and other services to the surgery center. As a result, these business arrangements do not comply with all the requirements of the surgery center
safe harbor, and, therefore, are not immune from government review or prosecution.

Although
we believe that our business arrangements do not violate the Anti-Kickback Statute, a government agency or a private party may assert a contrary position.
Additionally, new domestic federal or state laws may be enacted that would cause our relationships with the physician investors to become illegal or result in the imposition of penalties against us or
our facilities. If any of our business arrangements with physician investors were deemed to violate the Anti-Kickback Statute or similar laws, or if new domestic federal or state laws were
enacted rendering these arrangements illegal, our business could be adversely affected.

If physician self-referral laws are interpreted differently or if other legislative restrictions are issued, we could incur a significant loss of reimbursement
revenues.

The U.S. federal physician self-referral law, commonly referred to as the Stark Law, prohibits a physician from making a referral for a designated
health service to an entity if the physician or a member of the physician's immediate family has a financial relationship with the entity. The original Stark Law, commonly known as Stark I,
only addressed referrals involving clinical laboratory services. However, in 1995 additional legislation, commonly known as Stark II, expanded the ban on self-referrals by adding the
following services to the definition of "designated health services": physical therapy services; occupational therapy services; radiology services; radiation therapy services and supplies; durable
medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription
drugs; and inpatient and outpatient hospital services.

The
Department of Health and Human Services issued a portion of the Stark II final rule, which it called "Phase I," on January 4, 2001. The Phase I
regulations, which generally took effect on January 4, 2002, address some of the ownership and investment interest exceptions and compensation arrangement exceptions found in the Stark Law.
Phase II of the final rule will address, among other things, any comments made in response to the Phase I final rule, the remaining ownership and investment interest exceptions and
compensation arrangement exceptions, the reporting requirements, sanctions and the Stark Law's application to the Medicaid program. Under current regulations interpreting Stark I and under the
Phase I regulations, services that would otherwise constitute designated health services, but that are paid by Medicare as part of the surgery center payment rate, are not designated health services
for purposes of the Stark Law.

In
addition, we believe that physician ownership of surgery centers is not prohibited by similar self-referral statutes enacted at the state level. However, the Stark Law and
similar state statutes are subject to different interpretations with respect to many important provisions. Violations of these self-referral laws may result in substantial civil or
criminal penalties, including large civil monetary penalties and exclusion from participation in the Medicare and Medicaid programs. Exclusion of our surgery centers or private surgical hospitals from
these programs through future judicial or agency interpretation of existing laws or additional legislative restrictions on physician ownership or investments in healthcare entities could result in
significant loss of reimbursement revenues.

In
Spain, there is legislation which prohibits physicians who have contracted with the Spanish public healthcare system on an exclusive basis from rendering services in a private
hospital. Spanish legislation also prohibits physicians rendering services within the Spanish public healthcare system on a non-exclusive basis from rendering services to Spanish public
healthcare system patients in private hospitals such as ours. Violations of these laws could result in administrative fines or termination of our alliance with the Spanish public healthcare system. If
the physicians who use our Spanish facilities violate these regulations and their or our contracts are terminated with the Spanish public healthcare

32

---

system, preventing them from continuing to use our facilities, we could experience a significant loss of revenues in Spain.

If laws governing the corporate practice of medicine change, we may be required to restructure some of our domestic relationships which may result in significant costs to us
and divert other resources.

The laws of various domestic jurisdictions in which we operate or may operate in the future do not permit business corporations to practice medicine, exercise
control over physicians who practice medicine or engage in various business practices, such as fee-splitting with physicians. The interpretation and enforcement of these laws vary
significantly from state to state. We are not required to obtain a license to practice medicine in any jurisdiction in which we own or operate a surgery center or private surgical hospital because our
facilities are not engaged in the practice of medicine. The physicians who utilize our facilities are individually licensed to practice medicine. In most instances, the physicians and physician group
practices performing medical services at our facilities do not have investment or
business relationships with us other than through the physicians' ownership interests in the partnerships or limited liability companies that own and operate our facilities and the service agreements
we have with some of those physicians.

As
a result of our acquisition of OrthoLink, we provide management services to a number of physicians and physician group practices affiliated with OrthoLink. Although we believe that
our arrangements with these and other physicians and physician group practices comply with applicable laws, a government agency charged with enforcement of these laws, or a private party, might assert
a contrary position. If our arrangements with these physicians and physician group practices were deemed to violate state corporate practice of medicine, fee-splitting or similar laws, or
if new laws are enacted rendering our arrangements illegal, we may be required to restructure these arrangements, which may result in significant costs to us and divert other resources.

If our designees for ownership at New York facilities are not approved or if our operations in New York are found to not be in compliance with New York law, we may be unable to
continue or expand our operations in New York.

New York law requires that corporations have natural persons as stockholders in order to be approved by the New York Department of Health as licensed healthcare
facilities. Accordingly, we are not able to own interests in a partnership or limited liability company that owns an interest in a New York healthcare facility and may only operate a facility in New
York if our designee for ownership of the facility is approved by the New York Department of Health. The New York Department of Health may determine that our relationship with our designee for
ownership of the Day-Op Center of Long Island is not in compliance with New York law. New York law also prohibits any unauthorized delegation of management authority by a licensed healthcare facility.
The law does permit a licensed facility to obtain various services from non-licensed entities; however, it is not clear what types of delegation constitute a violation. Further, New York
regulatory authorities may not approve our agreement for a strategic relationship with Mt. Sinai Health System. Although we believe that our operations and relationships in New York are in compliance
with these New York laws, if New York regulatory authorities or a third party asserts a contrary position, we may be unable to continue or expand our operations in New York.

If domestic regulations change, we may be obligated to purchase some or all of the ownership interests of the physicians affiliated with us.

Upon the occurrence of various fundamental regulatory changes, we will be obligated to purchase some or all of the ownership interests of the physicians
affiliated with us in the limited partnerships or

33

---

limited liability companies that own and operate our surgery centers and private surgical hospitals. The regulatory changes that could create this obligation include changes that:



At
this time, we are not aware of any regulatory amendments or proposed changes that would trigger this obligation. Some of our limited partnership and limited liability company agreements allow us to
use shares of our common stock as consideration for the purchase of a physician's ownership interest. The use of shares of our common stock for that purpose would dilute the ownership interests of our
common stockholders. In the event that we are required to purchase all of the physicians' ownership interests and our common stock does not maintain a sufficient valuation, we could be required to use
our cash resources for the acquisitions, the total cost of which we estimate to be up to $40 million. The creation of these obligations and the possible termination of our affiliation with
these physicians could have a material adverse effect on us.

If we become subject to significant legal actions, we could be subject to substantial uninsured liabilities.

In recent years, physicians, hospitals and other healthcare providers have become subject to an increasing number of legal actions alleging malpractice, product
liability or related legal theories. Many of these actions involve large monetary claims and significant defense costs. We do not employ any of the physicians who conduct surgical procedures at our
facilities and the governing documents of each of our surgery centers require physicians who conduct surgical procedures at our surgery centers to maintain stated amounts of insurance. Additionally,
to protect us from the cost of these claims, we maintain professional malpractice liability insurance and general liability insurance coverage in amounts and with deductibles that we believe to be
appropriate for our operations. Currently, in the United States, we maintain professional liability insurance that provides coverage on a claims made basis of $1.0 million per incident and
$3.0 million in annual aggregate amount per facility. We also maintain general liability insurance coverage of $1.0 million per occurrence and $2.0 million in annual aggregate
amount per facility, as well as business interruption insurance and property damage insurance. In addition, we maintain umbrella liability insurance in the aggregate amount of $10.0 million. In
the United Kingdom, we maintain general public insurance in the amount of $5.0 million, malpractice insurance in the amount of $3.0 million and property and business interruption
insurance. In Spain, we maintain property damage insurance in the amount of $30.0 million and general liability insurance coverage of $550,000 per accident and victim per year per facility and
$2.2 million at the group level. However, our insurance coverage may not cover all claims against us or continue to be available at a cost allowing us to maintain adequate levels of insurance.
If one or more successful claims against us were not covered by or exceeded the coverage of our insurance, we could be adversely affected.

If we are unable to effectively compete for physicians, strategic relationships, acquisitions and managed care contracts, our business could be adversely affected.

The healthcare business is highly competitive. We compete with other healthcare providers, primarily hospitals, in recruiting physicians and contracting with
managed care payors in each of our markets. In Spain and the United Kingdom, we also compete with these countries' national health systems in our recruitment of healthcare professionals. There are
major unaffiliated hospitals in each

34

---

market in which we operate. These hospitals have established relationships with physicians and payors. In addition, other companies either are currently in the same or similar business of developing,
acquiring and operating surgery centers and private surgical hospitals or may decide to enter our business. Many of these companies have greater financial, research, marketing and staff resources than
we do. We may also compete with some of these companies for entry into strategic relationships with healthcare systems and healthcare professionals. If we are unable to compete effectively with any of
these entities, we may be unable to implement our business strategies successfully and our business could be adversely affected.

Because we have a limited operating history and our senior management has been key to our growth, we may be adversely affected if we lose any member of our senior management.

We are highly dependent on our senior management, including Donald E. Steen, our chairman and chief executive officer, and William H. Wilcox, our president.
Although we have employment agreements with Mr. Steen and Mr. Wilcox, we do not maintain "key man" life insurance policies on any of our officers. Because our senior management has
contributed greatly to our growth since inception, the loss of key management personnel or our inability to attract, retain and motivate sufficient numbers of qualified management personnel could have
a material adverse effect on us.

We may have a special legal responsibility to the holders of ownership interests in the entities through which we own surgical facilities, and that responsibility may prevent
us from acting solely in our own best interests or the interests of our stockholders.

Our ownership interests in surgery centers and private surgical hospitals generally are held through limited partnerships or limited liability companies. We
typically maintain an interest in a limited partnership or limited liability company in which physicians or physician practice groups hold limited partnership or membership interests. As general
partner or manager of these entities, we may have a special responsibility, known as a fiduciary duty, to manage these entities in the best interests of the other interest holders. We also have a duty
to operate our business for the benefit of our stockholders. As a result, we may encounter conflicts between our responsibility to the other interest holders and our responsibility to our
stockholders. For example, we have entered into management agreements to provide management services to all but two of our domestic surgery centers in exchange for a fee.
Disputes may arise as to the nature of the services to be provided or the amount of the fee to be paid. In these cases, we are obligated to exercise reasonable, good faith judgment to resolve the
disputes and may not be free to act solely in our own best interests or the interests of our stockholders. Disputes may also arise between us and our affiliated physicians with respect to a particular
business decision or regarding the interpretation of the provisions of the applicable limited partnership agreement or limited liability company agreement. If we are unable to resolve a dispute on
terms favorable or satisfactory to us, our business may be adversely affected.

We do not have exclusive control over the distribution of revenues from some of our domestic operating entities and may be unable to cause all or a portion of the revenues of
these entities to be distributed.

All of the domestic surgery centers in which we have ownership interests are limited partnerships or limited liability companies in which we own, directly or
indirectly, general partnership or managing member interests. Our limited partnership and limited liability company agreements, which are typically with the physicians who perform procedures at our
surgery centers, usually provide for the quarterly distribution of net revenues from operations, less amounts used for expenses and working capital. We generally control the entities that function as
the general partner of the limited partnerships or the managing member of the limited liability companies through which we conduct operations. However, we do not have exclusive control in some
instances over the amount of net revenues distributed from

35

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some of our operating entities. If we are unable to cause sufficient revenues to be distributed from one or more of these entities, our relationships with the physicians who have an interest in these
entities may be damaged and we could be adversely affected. We may not be able to resolve favorably any dispute regarding revenue distribution or other matters with a healthcare system with which we
share control of one of these entities. Further, the failure to resolve a dispute with these healthcare systems could cause the entity we jointly control to be dissolved.

Because affiliated stockholders together own a large percentage of our common stock, they are able to exert significant influence over all matters submitted to our stockholders
for approval, regardless of the preferences of our other stockholders.

Our officers, directors and affiliated entities together beneficially own approximately 36% of our outstanding common stock. Accordingly, these stockholders are
able to exert significant influence over:



These
stockholders are also able to exert significant influence over a change in control of our company or an amendment to our certificate of incorporation or bylaws. Their interests may conflict with
the interests of other holders of common stock and they may take actions affecting us with which you disagree.

Provisions of our charter documents, Delaware law and our stockholder rights plan could discourage a takeover you may consider favorable or the removal of our current
management.

Some provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that you may consider favorable or the
removal of our current management. These provisions:



In
addition, our certificate of incorporation prohibits the amendment of many of these provisions in our certificate of incorporation by our stockholders unless the amendment is approved
by the holders of at least 80% of our shares of common stock.

Delaware
law may also discourage, delay or prevent someone from acquiring or merging with us. In addition, purchase rights distributed under our stockholder rights plan will cause
substantial dilution to any person or group attempting to acquire us without conditioning the offer on our redemption of the rights. As a result, our stock price may decrease and you might not receive
a change of control premium over the then-current market price of the common stock.

36

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Item 2. Properties

The response to this item is included in Item 1.

Item 3. Legal Proceedings

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

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

None.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Market for Common Stock.On June 8, 2001, our common stock commenced trading on the Nasdaq National Market under the
symbol "USPI." As of March 15, 2002, there were approximately[330]record holders of our common stock. The following
table sets forth for the periods indicated the high and low sales price per share of our common stock as reported on the Nasdaq National Market.

High

LowFourth Quarter 2001

$
22.10

$
14.87June 8, 2001 to September 30, 2001

$
25.30

$
15.00


We
have not declared or paid any dividends on our common stock and do not anticipate doing so in the foreseeable future. We currently intend to retain all future earnings
to fund the development and growth of our business. The payment of any future dividends will be at the discretion of our board of directors and will depend on:



Our
credit facilities and the indenture governing our Senior Subordinated Notes currently place restrictions on our ability to pay cash dividends on our common stock.

Recent Sales of Unregistered Securities.The following information relates to all securities issued of sold by us in 2001, as
adjusted to reflect our one for three reverse stock split completed on June 7, 2001, that were not registered under the Securities Act. Each of the transactions described below was conducted in
reliance upon the exemptions from registration provided in Rule 701 promulgated under Section 3(b) of the Securities Act and Section 4(2) of the Securities Act and the rules and
regulations promulgated thereunder, Each of the transactions described below was completed prior to the completion of our initial public offering on June 8, 2001.

On
January 31, 2001, we sold 27,615 shares of Class B Common Stock to HDT, S.C. in exchange for $45,306 in cash and a promissory note in the principal amount of $244,655.

Effective
as of February 1, 2001, we issued stock options to William H. Wilcox to purchase 66,666 shares of our common stock at an exercise price equal to the initial public
offering price of the common stock.

On
February 12, 2001, we issued 3,377,651 shares of our common stock to the shareholders of OrthoLink in connections with our acquisition of OrthoLink. In addition, effective as
of March 1, 2001, we assumed options to purchase shares of OrthoLink common stock that we converted into options to purchase 604,663 shares of our common stock with exercise prices ranging from
$2.55 to $25.44 per share.

37

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Item 6. Selected Consolidated Financial Data

The selected consolidated statement of operations data set forth below for the period from February 27, 1998 (inception) through December 31, 1998
and the years ended December 31, 1999, 2000 and 2001, and the consolidated balance sheet data at December 31, 1998, 1999, 2000 and 2001, are derived from our consolidated financial
statements, which have been audited by KPMG LLP, independent auditors.

The
historical results presented below are not necessarily indicative of results to be expected for any future period. The comparability of the financial and other data included in the
table is affected by our acquisition of OrthoLink on February 12, 2001 and of Aspen Healthcare Holdings Limited on April 6, 2000 as well as other acquisitions completed since our
inception. For a more detailed explanation of this financial data, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements
and related notes included elsewhere in this report.

|                                                                |                                    | Period from
February 27, 1998
(inception) through
December 31, 1998 |        | Year Ended December 31, |      
|--------------------------------------------------------------- | ---------------------------------- | ------------------------------------------------------------------- | ------ | ----------------------- | -----
|
|
|Consolidated Statement of Operations Data:                      |                                    |                                                                     |        |                         |      
|Total revenues                                                  |                                    | $                                                                   | 20,572 |                         | $    
|Operating expenses excluding depreciation and amortization      |                                    |                                                                     | 22,788 |                         |      
|Depreciation and amortization                                   |                                    |                                                                     | 2,015  |                         |      
|                                                                |                                    |                                                                     |        |                         |      
|Operating income (loss)                                         |                                    |                                                                     | (4,231 | )                       |      
|Other income (expense):                                         |                                    |                                                                     |        |                         |      
|                                                                | Interest income                    |                                                                     |        | 722                     |      
|                                                                | Interest expense                   |                                                                     |        | (497                    | )    
|                                                                | Other                              |                                                                     |        | (246                    | )    
|                                                                |                                    |                                                                     |        |                         |      
|Income (loss) before minority interest                          |                                    |                                                                     | (4,252 | )                       |      
|Minority interest in (income) loss of consolidated subsidiaries |                                    |                                                                     | 23     |                         |      
|Net income (loss) before extraordinary items                    |                                    |                                                                     | (3,928 | )                       |      
|Extraordinary items, net of taxes(b)                            |                                    |                                                                     |       |                         |      
|Net income (loss) attributable to common stockholders(a)        |                                    | $                                                                   | (4,356 | )                       | $    
|Share Data:                                                     |                                    |                                                                     |        |                         |      
|Net income (loss) attributable to common stockholders:          |                                    |                                                                     |        |                         |      
|                                                                | Basic earnings (loss) per share:   |                                                                     |        |                         |      
|                                                                |                                    | Net income (loss) before extraordinary items                        |        | $                       | (1.29
|                                                                |                                    | Extraordinary items                                                 |        |                         |     
|                                                                |                                    | Total                                                               |        | $                       | (1.29
|                                                                | Diluted earnings (loss) per share: |                                                                     |        |                         |      
|                                                                |                                    | Net income (loss) before extraordinary items                        |        | $                       | (1.29
|                                                                |                                    | Extraordinary items                                                 |        |                         |     
|                                                                |                                    | Total                                                               |        | $                       | (1.29
|Weighted average number of common shares:                       |                                    |                                                                     |        |                         |      
|                                                                | Basic                              |                                                                     |        | 3,366                   |      
|                                                                | Diluted                            |                                                                     |        | 3,366                   |      
|Other Data:                                                     |                                    |                                                                     |        |                         |      
|Number of facilities operated as of the end of period           |                                    |                                                                     | 16     |                         |      
|EBITDA(c)                                                       |                                    | $                                                                   | (2,216 | )                       | $    
|EBITDA less minority interests(c)                               |                                    |                                                                     | (2,193 | )                       |      

38

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|                                 |  | As of December 31,
|-------------------------------- |  | ------------------
|
|
|Consolidated Balance Sheet Data: |  |                   
|Working capital                  |  | $                 
|Cash and cash equivalents        |  |                   
|Total assets                     |  |                   
|Total debt                       |  |                   
|Redeemable preferred stock       |  |                   
|Total stockholders' equity       |  |                   

---

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our
consolidated financial statements and related notes included elsewhere in this report.

Overview

We were organized in February 1998 and we operate surgery centers and private surgical hospitals in the United States, Spain and the United Kingdom. We
began operations on February 27, 1998, and our first acquisition was of one hospital and a group of clinics located in Barcelona, Spain in April 1998. We have grown through the
acquisition of additional facilities in Spain, the United States and the United Kingdom as well as the development of new facilities in the United States. We have ownership interests in 35 surgery
centers and one private surgical hospital and manage or operate through consulting agreements three additional surgery centers in the United States. Also in the United States, we own interests in and
will operate three surgery centers and one private surgical hospital that are currently under construction. In Spain, we own and operate seven private surgical hospitals (including one that was
acquired subsequent to December 31, 2001), two surgery centers and a diagnostic facility. In the United Kingdom, we own and operate two private surgical hospitals and are developing a cancer
treatment center. For the year ended December 31, 1999, our first full year in operation, we generated $70.4 million of revenues, a $3.1 million operating loss and
$4.7 million of EBITDA less minority interest. For the year ended December 31, 2001, our revenues had grown to $244.4 million, we generated $33.8 million of operating
income and our EBITDA less minority interests had grown to $52.3 million.

39

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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 and estimates have a more significant impact on our financial statements than others, due to the size of the underlying financial
statement elements.

Consolidation

Our determination of the appropriate consolidation method to follow with respect to our investments in subsidiaries is based on the amount of control we have,
combined with our ownership level, in the underlying entity. Our consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and other subsidiaries over which
we have control. Our investments in subsidiaries in which we have the ability to exercise significant influence over operating and financial policies, but do not control (including subsidiaries where
we have less than 20% ownership) are accounted for on the equity method. All of our other investments are accounted for on the cost method.

Accounting
for an investment as either consolidated versus equity method generally has no impact on our net income or stockholders' equity in any accounting period, but does impact
individual income statement and balance sheet balances, as consolidation effectively grosses up our income statement and balance sheet. However, if control or influence aspects of an equity method
investment were different, it could result in us being required to account for an investment by consolidation or using the cost method. Under the cost method, the investor only records its share of
the underlying entity's earnings to the extent that it received dividends or distributions from the investee. Under the cost method, the investor does not record its share of income or losses of the
investee. Conversely, under either consolidation or equity method accounting, the investor effectively records its share of the underlying entity's net income or loss based on its ownership
percentage. At December 31, 2001, $0.2 million of the Company's total investment in unconsolidated affiliates of $12.3 million relates to investments that are accounted for using
the cost method and the remaining $12.1 million represents investments in unconsolidated affiliates accounted for using the equity method.

Revenue Recognition

We recognize revenue in accordance with Staff Accounting Bulletin No. 101,Revenue Recognition in Financial
Statements, which has four basic criteria that must be met before revenue is recognized:



Our
revenue recognition policies are consistent with these criteria. Our revenues that are subject to the most judgment are those patient service revenues that are not generated under contracted or
government mandated fee schedules or discount arrangements. Approximately 15% of our net revenues for the year ended December 31, 2001 were generated by noncontracted and nongovernment payors.
The allowances that we record for these revenues are based on our best estimates of expected actual reimbursement based primarily on historical collections for similar transactions.

40

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Management accounts for income taxes under the asset and liability method. In assessing the realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. If, in the opinion of management, it is more likely than not that some or all of the deferred tax assets may not be realized,
deferred tax assets are reduced by a valuation allowance.

Acquisitions, Equity Investments and Development Projects

In February 2002, we acquired a surgical hospital in Murcia, Spain for a total consideration of approximately $7.3 million in cash (of which
$6.6 million will be paid upon the consummation of the acquisition and $0.7 million will be paid on the first anniversary of the consummation of the acquisition), approximately
$0.3 million in assumed debt and approximately $12.4 million in assumed capital lease obligations.

During
the fourth quarter of 2001, we acquired ownership interests in four surgery centers through separate transactions, expanding to three additional markets in the U.S. In
October 2001, we acquired a 66% interest in a surgical facility in Sarasota, Florida for a total consideration of approximately $3.4 million in cash and approximately $1.3 million
in assumed debt. During November 2001, we completed two acquisitions:(1) an 80% interest in a surgical facility in West Covina, California (Los
Angeles area) for a total consideration of approximately $10.8 million in cash and approximately $1.2 million in assumed debtand (2) an 83% interest in a surgical facility in
Fredericksburg, Virginia for a total consideration of approximately $6.3 million in cash, a warrant to acquire 25,000 shares of our common stock at a price equal to approximately $16.45 per
share and approximately $700,000 in assumed debt. In December 2001, we expanded our presence in the Los Angeles area and acquired a 35% interest in a surgical facility in Torrance, California
for a total consideration of approximately $11.0 million.

During
July 2001, we acquired a controlling interest in a surgery center in Fort Worth, Texas for approximately $14.0 million in cash. We had previously operated this
surgery center under a management contract. In addition, in July and August 2001, we opened newly developed surgery centers in Knoxville, Tennessee and Lawrenceville, Georgia.

On
February 12, 2001, we completed a merger with OrthoLink. The transaction was funded through the issuance of 3,367,651 shares of our common stock to OrthoLink stockholders.
OrthoLink was incorporated in 1996 and, as of February 1, 2001, held a direct or indirect ownership interest in eight surgery centers. We also held an ownership interest in and managed one of
these centers. OrthoLink managed six of the eight surgery centers in which it held an ownership interest and managed two additional surgery centers in which it had no ownership interest. OrthoLink
also provides specialized management services for hospitals. In addition, OrthoLink has service agreements with 14 physician groups in six states. OrthoLink's physician practice management operations
are not, and are not expected to be in the future, a material part of our business.

In
April 2000, we acquired 100% of the outstanding common stock of Aspen Healthcare Holdings Limited that owns and operates two private surgical hospitals in England. We paid
approximately $89.2 million in cash for that acquisition, approximately $54.0 million of which we borrowed under a credit agreement denominated in British pounds with a commercial
lender. Additionally, during 2000, we acquired two hospitals and a radiology center in Madrid, Spain through three separate transactions. We paid approximately $32.2 million for these three
acquisitions, approximately $27.3 million of which we borrowed under a credit agreement denominated in Euros with a commercial lender. Also, during

41

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2000, we opened two newly developed surgery centers in the United States. We have management contracts with and a minority ownership interest in each of these two centers.

During
1999, we acquired interests in seven surgery centers in the United States and opened three additional newly developed surgery centers. We have management agreements with all of
these centers and have ownership interests in nine of the ten, ranging from 10% to 100%. Our total investment related to these centers was approximately $42.1 million, $3.3 million of
which we financed through convertible subordinated notes issued to a seller and the remaining $38.8 million of which we paid in cash. Additionally during 1999, we acquired a majority interest
in a surgery center in Spain for approximately $1.6 million in cash.

Sources of Revenue

Revenues primarily include:



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

Years Ended December 31,1999

2000

2001Net patient service revenue

91
%
96
%
86
%Management and administrative services revenue

7

2

11Equity in earnings of unconsolidated affiliates



1

2Other income

2

1

1Total revenue

100
%
100
%
100
%


The
percentage of our total revenues attributable to management and administrative service fees increased to 11% for the year ended December 31, 2001 from 2% for 2000 primarily as
a result of the additional revenues associated with managing non-consolidated facilities and the service agreements acquired with the OrthoLink acquisition in February 2001. This
percentage decreased to 2% for the year ended December 31, 2000 from 7% for 1999 primarily as a result of the additional patient service revenue from the four surgical hospitals that we
acquired in Western Europe during 2000 and that are consolidated for financial reporting purposes.

The
unconsolidated affiliates that we account for under the equity method are limited partnerships or limited liability companies that own operational surgical facilities or surgical
facilities that are under development. None of these unconsolidated affiliates provide financing to our other business operations. See "Liquidity and Capital Resources". All of these affiliates that
owned facilities that had been open for a year or more at December 31, 2001 generated positive income for the year ended December 31, 2001.

42

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For
the year ended December 31, 2001, approximately 55% of our revenues were generated from operations in the United States and 45% from Western Europe. For 2000 and 1999,
respectively, these percentages were 39% and 33% for the United States and 61% and 67% for Western Europe. The increase in the percentage of our revenues generated in the United States and
corresponding decrease in Western Europe as compared to the prior two years resulted from the concentration of our development and acquisition activities in the United States during 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:

Years Ended December 31,1999

2000

2001Total revenues

100.0
%
100.0
%
100.0
%Operating expenses, excluding depreciation and amortization

93.2

84.3

75.5EBITDA

6.8

15.7

24.5Minority interest in income of consolidated subsidiaries

0.2

1.7

3.1Depreciation and amortization

11.2

10.2

10.7Interest and other expense, net

4.5

9.0

7.0Income (loss) before income taxes

(9.1
)
(5.2
)
3.7Income tax expense

(0.6
)
(0.7
)
(0.6
)Income (loss) before extraordinary items

(9.7
)%
(5.9
)%
3.1
%


Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues increased by $106.0 million, or 77%, to $244.4 million for the year ended December 31, 2001 from $138.4 million for the year
ended December 31, 2000. Of this increase in revenues, $59.0 million
was contributed by facilities acquired since December 31, 2000, of which $48.1 million was contributed by OrthoLink. An additional $10.2 million was attributable to revenue
generated in the first quarter of fiscal 2001 by the two hospitals in the United Kingdom. These hospitals were acquired on April 6, 2000. The exchange rates of the European currencies to the
U.S. dollar were lower during the year ended December 31, 2001 as compared to the prior year, resulting in a negative impact of $2.5 million on year over year revenues for the facilities
in Western Europe that were owned in both 2001 and 2000 ("same store" facilities). Absent this foreign exchange impact, same store facilities in Western Europe contributed $9.3 million more to
consolidated revenue in the year ended December 31, 2001 as compared to 2000. The remaining increase in revenues was contributed by same store U.S. facilities, which performed approximately 18%
more cases in the year ended December 31, 2001 as compared to 2000.

Operating
expenses, excluding depreciation and amortization, increased by $67.9 million, or 58%, to $184.5 million for the year ended December 31, 2001 from
$116.6 million for 2000. Operating expenses, excluding depreciation and amortization, as a percentage of revenues, decreased to 75.5% for the year ended December 31, 2001 from 84.3% for
2000, primarily as a result of improved economies of scale as we expanded.

EBITDA
less minority interest increased $32.9 million, or 169%, to $52.3 million for the year ended December 31, 2001 from $19.5 million for 2000. Of this
increase in EBITDA less minority

43

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interest, $20.4 million was contributed by facilities acquired since December 31, 2000. EBITDA less minority interest, as a percentage of revenues, increased to 21.4% for the year ended
December 31, 2001 from 14.1% for 2000, primarily as a result of an improvement of 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 $12.0 million, or 85%, to $26.1 million for the year ended December 31, 2001 from $14.1 million for 2000 as a result
of amortization of the goodwill and other intangibles and depreciation of the additional property and equipment associated with the acquisitions completed during 2000 and 2001. Depreciation and
amortization, as a percentage of revenues, increased to 10.7% for the year ended December 31, 2001 from 10.2% for 2000, primarily as a result of the amortization of management contracts and
other intangibles associated with the OrthoLink acquisition. In accordance with a preadoption requirement of SFAS No. 142, we did not amortize goodwill resulting from acquisitions consumated
after June 30, 2001.

Interest
expense, net of interest income, increased 49% to $17.3 million for the year ended December 31, 2001 from $11.6 million for 2000, primarily as a result of
the debt assumed in connection with the OrthoLink acquisition and additional borrowings to finance other acquisitions during 2000 and 2001.

Provision
for income taxes was $1.4 million for the year ended December 31, 2001 and $1.1 million for 2000. Our tax provision for both years consists primarily of
taxes on income generated in the U.K., Spanish taxes on the income of entities that were not eligible for inclusion in the consolidated tax group in that country and state income taxes in the U.S. As
of December 31, 2001, the benefit of essentially all U.S. net operating losses that were not subject to significant change in control limitations have been recognized in our financial
statements and we expect our effective tax rate in future periods will more closely approximate statutory rates.

Net
income before extraordinary items was $7.7 million for the year December 31, 2001 as compared to a net loss of $8.2 million for 2000. This $15.9 million
improvement primarily results from the increased revenues and improved economies of scale related to expenses discussed above.

We
recorded an extraordinary charge of $4.9 million, net of tax benefits of $2.6 million, in 2001 as a result of the early termination of our credit facility in Spain and
the retirement of the Senior Subordinated Notes of USP Domestic Holdings, Inc., one of our wholly-owned subsidiaries, with the proceeds of our $150 million senior subordinated debt
offering. The items included in the extraordinary charge consisted primarily of unamortized debt issuance costs of the Spain credit facility and unamortized discount related to the Senior Subordinated
Notes.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenues increased by $68.0 million, or 97%, to $138.4 million for the year ended December 31, 2000 from $70.4 million for the year
ended December 31, 1999. Of this increase in revenues, $38.1 million was contributed by facilities we acquired during 2000, of which $26.2 million was generated by the two
hospitals we acquired in the United Kingdom in April 2000, $11.9 million was generated by two facilities we acquired in Spain in March 2000 and November 2000. The exchange
rate of the Euro to the U.S. dollar declined during 2000, resulting in a negative impact of $6.4 million on same store revenues for the facilities in Spain relative to 1999. Excluding this
foreign exchange impact, same store facilities in Spain contributed $46.7 million to consolidated revenues in 2000, an increase of $6.1 million over 1999. The remaining increase in
revenues was contributed by U.S. facilities.

Operating
expenses, excluding depreciation and amortization, increased by $51.0 million, or 78%, to $116.6 million for the year ended December 31, 2000 from
$65.6 million for the year ended December 31, 1999. Operating expenses as a percentage of revenues decreased to 84.3% for the year

44

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ended December 31, 2000 from 93.2% for the year ended December 31, 1999, primarily as a result of leveraging our corporate overhead expenses over the increased revenue contributed by
our facilities.

EBITDA
less minority interest increased $14.8 million, or 317%, to $19.5 million for the year ended December 31, 2000 from $4.7 million for the year ended
December 31, 1999. EBITDA less minority
interest, as a percentage of revenues, increased to 13.9% for the year ended December 31, 2000 from 6.6% for the year ended December 31, 1999, primarily as a result of leveraging our
corporate overhead expenses over the increased revenue contributed by our facilities.

Depreciation
and amortization increased to $14.1 million, or 80%, for the year ended December 31, 2000 from $7.9 million for the year ended December 31, 1999,
as a result of the amortization of goodwill and the depreciation of property and equipment we acquired during 1999 and 2000. Depreciation and amortization, as a percentage of revenues, decreased to
10.2% for the year ended December 31, 2000 from 11.2% for the year ended December 31, 1999.

Interest
expense, net of interest income, increased 313% to $11.6 million for the year ended December 31, 2000 from $2.8 million for the year ended
December 31, 1999. Of the $8.8 million increase, approximately $6.6 million related to borrowings to finance acquisitions in Spain and the United Kingdom and the remainder of the
increase was incurred in the U.S. as a result of the additional subordinated and commercial long-term debt incurred to finance acquisitions.

Provision
for income taxes increased 138% to $1.1 million for the year ended December 31, 2000 from $0.5 million for the year ended December 31, 1999. The
$0.6 million increase resulted from taxable income in certain of our subsidiaries. Income tax regulations in Spain do not allow pretax losses from one legal entity to offset pretax income in
other entities until common ownership at certain levels exists for a specified period of time. Additionally, in some instances, state income tax regulations in the U.S. prevent this type of offsetting
for state income tax purposes. Accordingly, we have incurred income tax expense in spite of our consolidated operating losses.

Net
loss increased by $1.3 million, or 19%, to $8.2 million for the year ended December 31, 2000 from $6.8 million for the year ended December 31, 1999
primarily as a result of the increases in depreciation and amortization and interest expense discussed above.

Liquidity and Capital Resources

In December 2001, our wholly-owned subsidiary, United Surgical Partners Holdings, Inc., issued $150 million of Senior Subordinated Notes and
received approximately $143.5 million in net proceeds, after deducting the initial purchasers' discount and the expenses of that offering. We used those proceeds to finance the repayment of the
outstanding indebtedness under our domestic credit facility and our credit facility in Spain, the redemption of the outstanding 10% senior subordinated notes of our subsidiary, USP Domestic
Holdings, Inc., and the redemption of the outstanding shares of our Series D redeemable preferred stock. The balance of the proceeds received are being used for general corporate
purposes, including acquisitions and the repayment of certain working capital lines of credit in Spain. Concurrently with the consummation of the offering of the notes, we entered into our amended and
restated credit facility with a group of commercial lenders providing us with the ability to borrow up to $85.0 million to be used for acquisitions and general corporate purposes in the United
States and Spain and by 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 in the United Kingdom. Borrowings under our amended and restated credit facility
mature on December 19, 2004. As of December 31, 2001, no borrowings were outstanding under this facility and approximately $31.2 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

45

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acquisition targets, the entire $85.0 would be available for borrowing to finance acquisitions as of December 31, 2001.

On
June 13, 2001, we received net proceeds of $130.7 million from an initial public offering of 10,350,000 shares of our common stock, which included 1,350,000 shares
attributable to the underwriters' exercise of their over-allotment option. Net proceeds of the offering were used to redeem $33.7 million of redeemable preferred stock and repay
$91.3 million of bank indebtedness. The remaining $5.7 million, together with borrowings under USP Domestic Holdings' domestic credit facility, were used to acquire a controlling
interest in a surgery center in Fort Worth, Texas.

During
the year ended December 31, 2001, we generated $40.6 million of cash flows from operations as compared to $11.0 million during 2000 and $4.2 million
during 1999. During the year ended December 31, 2001, our net cash required for investing activities was $82.6 million, consisting primarily of $57.4 million for the purchase of
businesses and $25.8 million for the purchase of property and equipment. The $57.4 million primarily represents purchases of new businesses, net of cash acquired, and incremental
investments in unconsolidated affiliates, including the acquisition of majority interests in five surgery centers during the second half of 2001 for a total of $36.5 million. Approximately
$4.6 million of the property and equipment purchases related to ongoing development projects. The $82.6 million of cash required for investing activities was funded with the cash flows
from operations noted above and borrowings under our credit facilities, which were subsequently repaid with the proceeds from our stock and debt offerings. Net cash provided during the year ended
December 31, 2001 by financing activities totaled $72.4 million and resulted primarily from proceeds of stock and debt offerings aggregating $304.6 million less debt repayments of
$277.7 million and payments of dividends and redemption of redeemable preferred stock of $54.9 million. Cash and cash equivalents were $33.9 million at December 31, 2001 as
compared to $3.5 million at December 31, 2000 and net working capital was $40.3 million at December 31, 2001 as compared to negative working capital of $58.2 million
in the prior year.

The
indenture governing the new notes and our amended and restated credit facility contain various restrictive covenants including covenants that limit our and certain of our
subsidiaries' ability to borrow money or guarantee other indebtedness, grant liens on our assets, make investments, use assets as security in other transactions, pay dividends on stock, enter into
sale and leaseback transactions or sell assets or capital stock.

The
credit agreement in the United Kingdom provides for total borrowings of £42.0 million (approximately $61.1 million as of December 31, 2001) under
three separate facilities. At December 31, 2001, total outstanding borrowings under the United Kingdom credit facility were approximately
$35.4 million and approximately $17.6 million was available for borrowings. The United Kingdom credit facility specifies that of this available amount, $10.2 million be used not
later than September 30, 2003 to retire demand notes payable we owe to the former owners of our two hospitals in the United Kingdom. Borrowings under the United Kingdom credit facility bear
interest at rates of 1.50% to 2.00% over LIBOR and mature in April 2010. We pledged the capital stock of our U.K. subsidiaries to secure borrowings under the United Kingdom credit facility. We
were in compliance with all covenants under our credit agreements as of December 31, 2001.

46

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Our
obligations under debt and lease contracts as of December 31, 2001 may be summarized as follows:

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

The
Other Debt at operating subsidiaries and the capitalized lease obligations of our operating subsidiaries, included in the preceding table, consists primarily of obligations of the
individual operating entities, many of which have minority owners who share in the cash flow of these entities, that is non-recourse to USPI, the parent company, and is secured by the
assets of those operating entities. The total amount of these obligations are included in our consolidated balance sheet because the borrower or obligated legal entity meets the requirements for
consolidated financial reporting. Additionally, our unconsolidated affiliates that we account for under the equity method have non-recourse debt and capitalized lease obligations that are not included
in our consolidated financial statements. At December 31, 2001, the total obligations of these unconsolidated affiliates under debt and capitalized lease obligations was approximately
$27.3 million. Our average percentage ownership, weighted based on the individual affiliate's amount of debt and capitalized lease obligations, of these unconsolidated affiliates was 23% at
December 31, 2001. USPI or one of our wholly-owned subsidiaries had collectively guaranteed $2.2 million of the $27.3 million in total debt and capitalized lease obligations of
our unconsolidated affiliates as of December 31, 2001.

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

Currently,
unconsolidated affiliates of USPI have two surgery centers and one private surgical hospital under construction and two additional surgical hospitals in the planning stage in
the United States. A typical surgery center costs from $5.0 to $6.0 million to develop, including construction, equipment and initial operating losses. These costs vary depending on the range
of specialties that will be undertaken at the facility. Our affiliates have budgeted an average of $5.3 million for development costs for each of the two surgery centers that we have under
construction and an average of

47

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$14.8 million for the surgical hospital projects. For the surgical facilities where construction has begun, equity contributions have been made, including those required of USPI, and external
financing has been put in place at the unconsolidated affiliate and no additional financing needs are anticipated. Development costs are typically funded with approximately 50% debt at the entity
level with the remainder provided as equity from the owners of the entity.

In
addition to the current development projects in the United States, our Parkside Hospital in London is developing a cancer treatment center. The remaining costs of this project are
estimated to be approximately £9.0 ($12.6 million), which we anticipate funding with borrowings under our credit facilities.

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 an estimated $4.8 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 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.

New Accounting Pronouncements

On January 1, 2002 we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments and Hedging Activities,"
as amended by SFAS 138. This standard requires us to
recognize all derivative financial instruments on our balance sheet at fair value with changes in fair value recorded to the statement of operations or comprehensive income, depending on the nature of
the investment. The adoption of the standard did not have a material effect on our consolidated financial statements.

On
July 20, 2001 the Financial Accounting Standards Board 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 30, 2001 have been accounted for using the purchase method of accounting. We adopted this standard on January 1, 2002, and
it did not have a material effect on our financial position or 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. However, the cessation of goodwill amortization related to acquisitions subsequent to June 30, 2001 is required currently under SFAS 142. We adopted this
standard on January 1, 2002 and are assessing its impact including the determination of reporting units and the methodology for testing intangible assets for impairment. Please see the notes to
our Consolidated Financial Statements for a presentation of our net income for the year ended December 30, 2001 and 2000 on a pro forma basis as if the cessation of goodwill amortization
required by the new standard had occurred January 1, 2000.

In
June 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations(SFAS 143). SFAS 143
applies to legal obligations associated with the retirement of tangible, long-lived assets. SFAS 143 requires that all entities recognize the estimated fair value of an asset
retirement obligation as a liability in the period in which it is incurred, if a reasonable estimate of fair value can be made. SFAS 143 also requires that all entities capitalize the
associated asset retirement costs as part

48

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of the carrying amount of the long-lived asset. We are required to adopt SFAS 143 as of January 1, 2003. We do not believe that this standard will have a material effect on
our future financial position or results of operations.

In
August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS 144). SFAS 144 replaces SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, and amends the accounting and reporting provisions of Accounting Principles Board Opinion No. 30,Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions. The
following highlights the major changes:



We
adopted SFAS 144 as of January 1, 2002. Our adoption of SFAS 144 did not have a material effect on our financial position or results of operations.

Item 7A. 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 portion of our borrowings under credit facilities with commercial lendors as required by
the credit agreements. We do not use derivative financial instruments for speculative purposes. Our financing arrangements with commercial lenders are based on a spread over LIBOR or Euribor. At
December 31, 2001, $151.9 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%, $3.1 million was in other fixed rate instruments and the remaining $48.5 million was in variable rate instruments. Accordingly, a hypothetical 100 basis point increase
in market interest rates would result in additional annual interest expense of $0.5 million. Based on the proximity of the issuance date of the Senior Subordinated Notes to December 31,
2001 and the fact that these notes represent 98% of our total fixed rate debt at December 31, 2001, we believe that the fair value of our debt approximates its carrying value at that date.

Our
international revenues are a growing 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 all operating expenses and revenues are denominated in local currency. Additionally, our borrowings in
the United Kingdom are currently denominated in local currency. Historically, the cash flow generated from our operations in Spain and the United Kingdom have been utilized within each of those
countries to

49

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

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

Item 8. Financial Statements and Supplementary Data

For the financial statements and supplementary data required by this Item 8, see the Index to Consolidated Financial Statements included elsewhere in this
Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

The response to this item will be included in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held in 2002 and is incorporated herein
by reference.

Item 11. Executive Compensation

The response to this item will be included in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held in 2002 and is incorporated herein
by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The response to this item will be included in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held in 2002 and is incorporated herein
by reference.

Item 13. Certain Relationships and Related Transactions

The response to this item will be included in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held in 2002 and is incorporated herein
by reference.

50

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PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

(a)    1.    Financial Statements

The following financial statements are filed as part of this Form 10-K:

|Independent Auditors' Report of KPMG LLP                                                             |  | F-1
|---------------------------------------------------------------------------------------------------- |  | ---
|Consolidated Balance Sheets as of December 31, 2001 and 2000                                         |  | F-2
|Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999           |  | F-4
|Consolidated Statements of Comprehensive Loss for the years ended December 31, 2001, 2000 and 1999   |  | F-5
|Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999 |  | F-6
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999           |  | F-7
|Notes to Consolidated Financial Statements                                                           |  | F-8

51

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Independent Auditors' Report

The Board of Directors
United Surgical Partners International, Inc.:

We
have audited the accompanying consolidated balance sheets of United Surgical Partners International, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 2001. These consolidated
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Surgical Partners International, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of America.



Dallas,
Texas
February 22, 2002

F-1

---



UNITED SURGICAL PARTNERS INTERNATIONAL, INC.  AND SUBSIDIARIES        Consolidated Balance Sheets        (in thousands, except per share amounts)    
December 31, 2001 and 2000

|                                                                                               |                                                                                                               | 2001 |                           | 2000
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ---- | ------------------------- | ----
|
|Cash and cash equivalents                                                                      |                                                                                                               | $    | 33,881                    |     
|Restricted cash (notes 3 and 16)                                                               |                                                                                                               |      |                          |     
|Patient receivables, net of allowance for doubtful accounts of $4,726 and $3,666, respectively |                                                                                                               |      | 27,546                    |     
|Other receivables (note 4)                                                                     |                                                                                                               |      | 30,579                    |     
|Inventories of supplies                                                                        |                                                                                                               |      | 5,685                     |     
|Deferred tax asset, net                                                                        |                                                                                                               |      | 6,571                     |     
|Prepaids and other current assets                                                              |                                                                                                               |      | 6,191                     |     
|                                                                                               |                                                                                                               |      |                           |     
|                                                                                               |                                                                                                               |      | Total current assets      |     
|                                                                                               |                                                                                                               |      |                           |     
|Property and equipment, net (note 5)                                                           |                                                                                                               |      | 211,601                   |     
|Investments in affiliates (note 3)                                                             |                                                                                                               |      | 12,328                    |     
|Intangible assets, net (note 6)                                                                |                                                                                                               |      | 215,809                   |     
|Other assets                                                                                   |                                                                                                               |      | 6,666                     |     
|                                                                                               |                                                                                                               |      |                           |     
|                                                                                               |                                                                                                               |      | Total assets              |     
|                                                                                               |                                                                                                               |      |                           |     
|
|Accounts payable                                                                               |                                                                                                               | $    | 20,633                    |     
|Accrued salaries and benefits                                                                  |                                                                                                               |      | 13,760                    |     
|Due to affiliates                                                                              |                                                                                                               |      | 5,513                     |     
|Accrued interest                                                                               |                                                                                                               |      | 1,822                     |     
|Current portion of long-term debt (note 7)                                                     |                                                                                                               |      | 10,640                    |     
|Other accrued expenses                                                                         |                                                                                                               |      | 17,007                    |     
|Deferred tax liability, net                                                                    |                                                                                                               |      | 793                       |     
|                                                                                               |                                                                                                               |      |                           |     
|                                                                                               |                                                                                                               |      | Total current liabilities |     
|                                                                                               |                                                                                                               |      |                           |     
|Long-term debt, less current portion (note 7)                                                  |                                                                                                               |      | 228,041                   |     
|Other long-term liabilities                                                                    |                                                                                                               |      | 3,130                     |     
|Deferred tax liability, net                                                                    |                                                                                                               |      | 12,916                    |     
|                                                                                               |                                                                                                               |      |                           |     
|                                                                                               |                                                                                                               |      | Total liabilities         |     
|Minority interests (note 3)                                                                    |                                                                                                               |      | 16,075                    |     
|Redeemable preferred stock (note 9):                                                           |                                                                                                               |      |                           |     
|                                                                                               | Series A, $0.01 par value per share; 31.2 shares authorized, issued and outstanding in 2000, redeemed in 2001 |      |                           |    
|Commitments and contingencies (notes 8 and 16)                                                 |                                                                                                               |      |                           |     

(Continued)

F-2

---

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.  AND SUBSIDIARIES        Consolidated Balance Sheets (continued)        (in thousands, except per share amounts)        December 31, 2001 and 2000

|                                       |                                                                                                                                                                                     | 2001                                                                                                                                                                      |  | 2000                                       |    
|-------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ---
|Stockholders' equity (notes 9 and 10): |                                                                                                                                                                                     |                                                                                                                                                                           |  |                                            |    
|                                       | Series C convertible preferred stock, $0.01 par value; 20 shares authorized; 18.75 shares issued and outstanding at December 31, 2000, 18.75 shares converted to common during 2001 |                                                                                                                                                                           |  |                                           |    
|                                       | Common stock                                                                                                                                                                        |                                                                                                                                                                           |  |                                            |    
|                                       |                                                                                                                                                                                     | Class A shares, $0.01 par value; 30,000 shares authorized; 7,840 shares issued at December 31, 2000, all shares converted to other common shares during 2001              |  |                                            |   
|                                       |                                                                                                                                                                                     | Class B shares, $0.01 par value; 3,000 shares authorized; 333 shares issued and outstanding at December 31, 2000, all shares converted to other common shares during 2001 |  |                                            |   
|                                       |                                                                                                                                                                                     | Other, $0.01 par value; 200,000 shares authorized; 24,436 and 170 shares issued at December 31, 2001 and 2000, respectively                                               |  |                                            | 244
|                                       | Additional paid-in capital                                                                                                                                                          |                                                                                                                                                                           |  | 265,809                                    |    
|                                       | Treasury stock, at cost, 334 and 54 shares at December 31, 2001 and 2000, respectively                                                                                              |                                                                                                                                                                           |  | (5,909                                     | )  
|                                       | Deferred compensation                                                                                                                                                               |                                                                                                                                                                           |  | (369                                       | )  
|                                       | Receivables from sales of common stock                                                                                                                                              |                                                                                                                                                                           |  | (1,174                                     | )  
|                                       | Accumulated other comprehensive loss, net of tax                                                                                                                                    |                                                                                                                                                                           |  | (15,592                                    | )  
|                                       | Accumulated deficit                                                                                                                                                                 |                                                                                                                                                                           |  | (16,482                                    | )  
|                                       |                                                                                                                                                                                     |                                                                                                                                                                           |  |                                            |    
|                                       |                                                                                                                                                                                     |                                                                                                                                                                           |  | Total stockholders' equity                 |    
|                                       |                                                                                                                                                                                     |                                                                                                                                                                           |  |                                            |    
|                                       |                                                                                                                                                                                     |                                                                                                                                                                           |  | Total liabilities and stockholders' equity |    
|                                       |                                                                                                                                                                                     |                                                                                                                                                                           |  |                                            |    

See
accompanying notes to consolidated financial statements.

F-3

---



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

|                                                                           |                                          | Years ended December 31,                              |        
|-------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------------------------- | -------
|
|Net patient service revenue                                                |                                          | $                                                     | 210,261
|Management and administrative services revenue                             |                                          |                                                       | 26,149 
|Equity in earnings (loss) of unconsolidated affiliates                     |                                          |                                                       | 5,879  
|Other income                                                               |                                          |                                                       | 2,079  
|                                                                           |                                          |                                                       |        
|                                                                           |                                          | Total revenues                                        |        
|                                                                           |                                          |                                                       |        
|Salaries, benefits and other employee costs                                |                                          |                                                       | 64,255 
|Medical services and supplies                                              |                                          |                                                       | 48,791 
|Other operating expenses                                                   |                                          |                                                       | 45,551 
|General and administrative expenses                                        |                                          |                                                       | 22,364 
|Provision for doubtful accounts                                            |                                          |                                                       | 3,517  
|Depreciation and amortization                                              |                                          |                                                       | 26,116 
|                                                                           |                                          |                                                       |        
|                                                                           |                                          | Total operating expenses                              |        
|                                                                           |                                          |                                                       |        
|                                                                           |                                          | Operating income (loss)                               |        
|Interest income                                                            |                                          |                                                       | 852    
|Interest expense                                                           |                                          |                                                       | (18,120
|Other                                                                      |                                          |                                                       | 146    
|                                                                           |                                          |                                                       |        
|                                                                           |                                          | Total other expense, net                              |        
|                                                                           |                                          | Income (loss) before minority interest                |        
|Minority interest in income of consolidated subsidiaries                   |                                          |                                                       | (7,558 
|                                                                           |                                          |                                                       |        
|                                                                           |                                          | Income (loss) before income taxes                     |        
|Income tax expense (note 12)                                               |                                          |                                                       | (1,431 
|                                                                           |                                          |                                                       |        
|                                                                           |                                          | Income (loss) before extraordinary items              |        
|Extraordinary items, net of tax benefit of $2,553 (note 7)                 |                                          |                                                       | (4,913 
|                                                                           |                                          |                                                       |        
|                                                                           |                                          | Net income (loss)                                     |        
|Preferred stock dividends                                                  |                                          |                                                       | (2,684 
|                                                                           |                                          |                                                       |        
|                                                                           |                                          | Net income (loss) attributable to common stockholders |        
|                                                                           |                                          |                                                       |        
|Net income (loss) per share attributable to common stockholders (note 14): |                                          |                                                       |        
|Basic earnings (loss) per share:                                           |                                          |                                                       |        
|                                                                           | Income (loss) before extraordinary items |                                                       | $      
|                                                                           | Extraordinary items, net of tax          |                                                       |        
|                                                                           |                                          |                                                       |        
|                                                                           | Total                                    |                                                       | $      
|Diluted earnings (loss) per share:                                         |                                          |                                                       |        
|                                                                           | Income (loss) before extraordinary items |                                                       | $      
|                                                                           | Extraordinary items, net of tax          |                                                       |        
|                                                                           |                                          |                                                       |        
|                                                                           | Total                                    |                                                       | $      
|Weighted average number of common shares                                   |                                          |                                                       |        
|                                                                           | Basic                                    |                                                       |        
|                                                                           | Diluted                                  |                                                       |        

See accompanying notes to consolidated financial statements.

F-4

---

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

|                                        |                                                        | Years ended December 31, |                         
|--------------------------------------- | ------------------------------------------------------ | ------------------------ | ------------------------
|
|Net income (loss)                       |                                                        | $                        | 2,750                   
|Other comprehensive loss, before taxes: |                                                        |                          |                         
|                                        | Foreign currency translation adjustments               |                          |                         
|                                        | Income tax benefit related to other comprehensive loss |                          |                         
|                                        |                                                        |                          |                         
|                                        |                                                        |                          | Other comprehensive loss
|                                        |                                                        |                          |                         
|                                        |                                                        |                          | Comprehensive loss      
|                                        |                                                        |                          |                         

See
accompanying notes to consolidated financial statements.

F-5

---

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2001, 2000 and 1999
(in thousands)

|                                                             |  | Series C
Preferred Stock |   |   |         |   |        |   |   |     |  |         |   |        |   |      |   |        |   |         |  
|------------------------------------------------------------ |  | ------------------------ | - | - | ------- | - | ------ | - | - | --- |  | ------- | - | ------ | - | ---- | - | ------ | - | ------- | -
|
|
|
|Balance, December 31, 1998                                   |  |                         |   | $ |        |   | 7,313  |   | $ | 73  |  | 57,113  |   |       |   |     |   | (1,050 | ) | (104    | )
|Issuance of common stock                                     |  |                         |   |   |        |   | 47     |   |   |     |  | 522     |   |       |   |     |   | (254   | ) |        |  
|Issuance of warrants                                         |  |                         |   |   |        |   |       |   |   |    |  | 45      |   |       |   |     |   |       |   |        |  
|Repurchases of common stock                                  |  |                         |   |   |        |   | (54    | ) |   |    |  |        |   | (344   | ) |     |   | 200    |   |        |  
|Accrued dividends on preferred stock                         |  |                         |   |   |        |   |       |   |   |    |  | (1,696  | ) |       |   |     |   |       |   |        |  
|Net loss                                                     |  |                         |   |   |        |   |       |   |   |    |  |        |   |       |   |     |   |       |   |        |  
|Foreign currency translation adjustments, net of taxes       |  |                         |   |   |        |   |       |   |   |    |  |        |   |       |   |     |   |       |   | (7,162  | )
|                                                             |  |                          |   |   |         |   |        |   |   |     |  |         |   |        |   |      |   |        |   |         |  
|Balance, December 31, 1999                                   |  |                         |   |   |        |   | 7,306  |   |   | 73  |  | 55,984  |   | (344   | ) |     |   | (1,104 | ) | (7,266  | )
|Issuance of common stock and exercise of stock options       |  |                         |   |   |        |   | 983    |   |   | 10  |  | 10,429  |   |       |   |     |   | (1,869 | ) |        |  
|Issuance of Series C preferred stock                         |  | 19                       |   |   | 15,950  |   |       |   |   |    |  | (7      | ) |       |   |     |   |       |   |        |  
|Issuance of warrants                                         |  |                         |   |   |        |   |       |   |   |    |  | 2,800   |   |       |   |     |   |       |   |        |  
|Issuance of stock options                                    |  |                         |   |   |        |   |       |   |   |    |  | 505     |   |       |   | (505 | ) |       |   |        |  
|Amortization of deferred compensation                        |  |                         |   |   |        |   |       |   |   |    |  |        |   |       |   | 10   |   |       |   |        |  
|Accrued dividends on preferred stock                         |  |                         |   |   | 3,797   |   |       |   |   |    |  | (5,971  | ) |       |   |     |   |       |   |        |  
|Net loss                                                     |  |                         |   |   |        |   |       |   |   |    |  |        |   |       |   |     |   |       |   |        |  
|Foreign currency translation adjustments, net of taxes       |  |                         |   |   |        |   |       |   |   |    |  |        |   |       |   |     |   |       |   | (4,760  | )
|                                                             |  |                          |   |   |         |   |        |   |   |     |  |         |   |        |   |      |   |        |   |         |  
|Balance, December 31, 2000                                   |  | 19                       |   |   | 19,747  |   | 8,289  |   |   | 83  |  | 63,740  |   | (344   | ) | (495 | ) | (2,973 | ) | (12,026 | )
|Issuance of common stock and exercise of stock options       |  |                         |   |   |        |   | 13,904 |   |   | 139 |  | 180,978 |   | 1,086  |   |     |   | 454    |   |        |  
|Accrued dividends on preferred stock                         |  |                         |   |   | 594     |   |       |   |   |    |  | (2,684  | ) |       |   |     |   |       |   |        |  
|Issuance of warrants                                         |  |                         |   |   |        |   |       |   |   |    |  | 169     |   |       |   |     |   |       |   |        |  
|Repurchases of common stock                                  |  |                         |   |   |        |   | (341   | ) |   |    |  |        |   | (6,651 | ) |     |   | 1,345  |   |        |  
|Conversion of Series C convertible preferred stock           |  | (19                      | ) |   | (20,341 | ) | 1,937  |   |   | 19  |  | 20,322  |   |       |   |     |   |       |   |        |  
|Conversion of convertible subordinated note                  |  |                         |   |   |        |   | 313    |   |   | 3   |  | 3,284   |   |       |   |     |   |       |   |        |  
|Amortization of deferred compensation                        |  |                         |   |   |        |   |       |   |   |    |  |        |   |       |   | 126  |   |       |   |        |  
|Net income                                                   |  |                         |   |   |        |   |       |   |   |    |  |        |   |       |   |     |   |       |   |        |  
|Foreign currency translation adjustments, net of taxes       |  |                         |   |   |        |   |       |   |   |    |  |        |   |       |   |     |   |       |   | (3,566  | )
|                                                             |  |                          |   |   |         |   |        |   |   |     |  |         |   |        |   |      |   |        |   |         |  
|Balance, December 31, 2001                                   |  |                         |   | $ |        |   | 24,102 |   | $ | 244 |  | 265,809 |   | (5,909 | ) | (369 | ) | (1,174 | ) | (15,592 | )
|                                                             |  |                          |   |   |         |   |        |   |   |     |  |         |   |        |   |      |   |        |   |         |  
|See accompanying notes to consolidated financial statements. |  |                          |  

F-6

---



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

|                                                     |                                                                                          | Years ended December 31,                                                                                                         |       
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------
|
|Cash flows from operating activities:                |                                                                                          |                                                                                                                                  |       
|                                                     | Net income (loss)                                                                        |                                                                                                                                  | $     
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                                                                                  |       
|                                                     |                                                                                          | Provision for doubtful accounts                                                                                                  |       
|                                                     |                                                                                          | Depreciation and amortization                                                                                                    |       
|                                                     |                                                                                          | Amortization of discount on debt                                                                                                 |       
|                                                     |                                                                                          | Deferred income taxes                                                                                                            |       
|                                                     |                                                                                          | Gain on equipment disposals                                                                                                      |       
|                                                     |                                                                                          | Extraordinary items, net of tax                                                                                                  |       
|                                                     |                                                                                          | Equity in (earnings) loss 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: |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|Cash flows from investing activities:                |                                                                                          |                                                                                                                                  |       
|                                                     | Purchases of new businesses, net of cash received                                        |                                                                                                                                  |       
|                                                     | Purchases of property and equipment                                                      |                                                                                                                                  |       
|                                                     | Sale of property                                                                         |                                                                                                                                  |       
|                                                     | Proceeds from sales of investments                                                       |                                                                                                                                  |       
|                                                     | Increase in deposits                                                                     |                                                                                                                                  |       
|                                                     | Cash released from escrow                                                                |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|Cash flows from financing activities:                |                                                                                          |                                                                                                                                  |       
|                                                     | Proceeds from long-term debt                                                             |                                                                                                                                  |       
|                                                     | Payments on long-term debt                                                               |                                                                                                                                  |       
|                                                     | Proceeds from issuance of common stock                                                   |                                                                                                                                  |       
|                                                     | Payments to repurchase common stock                                                      |                                                                                                                                  |       
|                                                     | Proceeds from issuance of preferred stock and warrants                                   |                                                                                                                                  |       
|                                                     | Payments for the redemption and dividends of preferred stock                             |                                                                                                                                  |       
|                                                     | Distributions on investments in affiliates                                               |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|                                                     |                                                                                          |                                                                                                                                  |       
|Effect of exchange rate changes on cash              |                                                                                          |                                                                                                                                  | (37   
|                                                     |                                                                                          |                                                                                                                                  |       
|Net increase (decrease) in cash and cash equivalents |                                                                                          |                                                                                                                                  | 30,430
|Cash and cash equivalents at beginning of year       |                                                                                          |                                                                                                                                  | 3,451 
|                                                     |                                                                                          |                                                                                                                                  |       
|Cash and cash equivalents at end of year             |                                                                                          | $                                                                                                                                | 33,881
|                                                     |                                                                                          |                                                                                                                                  |       
|Supplemental information:                            |                                                                                          |                                                                                                                                  |       
|                                                     | Interest paid                                                                            |                                                                                                                                  | $     
|                                                     | Non-cash transactions:                                                                   |                                                                                                                                  |       
|                                                     |                                                                                          | Debt issued for purchases of new business                                                                                        |       
|                                                     |                                                                                          | Subordinated debt issued for purchases of new business                                                                           |       
|                                                     |                                                                                          | Sale of common stock for notes receivable from employees, net                                                                    |       
|                                                     |                                                                                          | Repurchases of common stock using noncash assets                                                                                 |       
|                                                     |                                                                                          | Common stock, options, and warrants issued for purchases of new businesses                                                       |       
|                                                     |                                                                                          | Conversion of convertible preferred stock to common                                                                              |       
|                                                     |                                                                                          | Accrued dividends on preferred stock                                                                                             |       
|                                                     |                                                                                          | Warrants issued for noncompete agreement                                                                                         |       
|                                                     |                                                                                          | Assets acquired under capital lease obligations                                                                                  |       
|                                                     |                                                                                          | Conversion of subordinated debt to redeemable preferred stock                                                                    |       
|                                                     |                                                                                          | Conversion of subordinated debt to common stock                                                                                  |       

See accompanying notes to consolidated financial statements.

F-7

---



UNITED SURGICAL PARTNERS INTERNATIONAL, INC.  AND SUBSIDIARIES        Notes to Consolidated Financial Statements        December 31, 2001 and 2000









F-8

---









F-9

---













F-10

---







F-11

---



F-12

---



Goodwill

$
29,992Management contracts


4,891Total

$
34,883




F-13

---



Years ended December 31,
(unaudited)2001

2000

1999Net revenues

$
265,732

$
225,950

$
145,820Income (loss) before extraordinary items


8,337


(14,557
)

(7,142
)Net income (loss)


3,424


(14,557
)

(7,142
)Diluted earnings (loss) per share before extraordinary items


0.29


(2.62
)

(1.21
)Diluted earnings (loss) per share


0.04


(2.62
)

(1.21
)








Estimated
useful lives

2001

2000Land and land improvements



$
21,882

$
22,041Buildings and leasehold improvements

7-50 years


129,042


121,420Equipment

3-12 years


115,664


55,336Furniture and fixtures

4-20 years


11,793


10,880Construction in progress




12,717


6,725291,098


216,402Less accumulated depreciation




(79,497
)

(51,207
)Net property and equipment



$
211,601

$
165,195


F-14

---



2001

2000Land and buildings

$
22,722

$
20,791Equipment and furniture


33,791


9,67856,513


30,469Less accumulated amortization


(16,271
)

(6,670
)Net property and equipment under capital leases

$
40,242

$
23,799




Estimated
useful lives 2001

2001

2000Goodwill

25 years

$
159,631

$
114,633Management contracts

3-25 years


62,407


6,318Other

3-10 years


8,318


1,262230,356


122,213Less accumulated amortization




(14,547
)

(7,789
)Net intangible assets



$
215,809

$
114,424




2001

2000Lines of credit

$
35,734

$
90,149Senior subordinated notes


148,837


54,369Notes payable to financial institution


4,709


9,969Loans from former owners of subsidiaries


11,121


10,777Capital lease obligations


38,280


22,503Total long-term debt


238,681


187,767Less current portion


(10,640
)

(53,915
)Long-term debt, less current portion

$
228,041

$
133,852






F-15

---





F-16

---



Period

Redemption Price2006

105.000
%2007

103.333
%2008

101.667
%2009

100.000
%2010

100.000
%






F-17

---





Year ending
December 31,

Capital
leases

Operating
leases2002

$
9,074

$
5,0722003


8,372


4,4352004


7,545


4,3752005


5,179


3,9402006


2,570


3,814Thereafter


20,615


20,471Total minimum lease payments

$
53,355

$
42,107Amount representing interest


(15,075
)Present value of minimum lease payments

$
38,280






Series A Redeemable Preferred Stock, $0.01 par value

31,200Series B Convertible Redeemable Preferred Stock, $0.01 par value

2,716Series C Convertible Preferred Stock, $0.01 par value

20,000Series D Redeemable Preferred Stock, $0.01 par value

40,000Series A Junior Participating Preferred Stock, $0.01 par value

500,000Not designated

9,460,000Total authorized shares of Preferred Stock

10,053,916


F-18

---





F-19

---







F-20

---





2001

2000

1999Domestic

$
7,385

$
(4,960
)
$
(4,948
)Foreign


1,709


(2,133
)

(1,445
)$
9,094

$
(7,093
)
$
(6,393
)


F-21

---



Current

Deferred

TotalYear ended December 31, 2001:U.S. federal

$
20

$
(1,152
)
$
(1,132
)State and local


767





767Foreign


2,521


(725
)

1,796Net tax expense (benefit)

$
3,308

$
(1,877
)
$
1,431


Current

Deferred

TotalYear ended December 31, 2000:U.S. federal

$


$


$
State and local


248





248Foreign


1,659


(837
)

822Total tax expense

$
1,907

$
(837
)
$
1,070


Current

Deferred

TotalYear ended December 31, 1999:U.S. federal

$


$


$
State and local








Foreign


353


98


451Total tax expense

$
353

$
98

$
451




Years Ended December 31,2001

2000

1999Computed "expected" tax expense (benefit)

$
3,092

$
(2,412
)
$
(2,174
)Increase (reduction) in income taxes resulting from:Net operating loss carryforwards


904


2,661


Differences between US financial reporting and foreign statutory reporting


452


(949
)

664State tax expense


767


(250
)

Removal of tax rate differential between foreign and US


(160
)




(60
)Goodwill


1,193


240


(107
)Change in valuation allowance


(4,398
)

2,078


1,744Equity investment in foreign subsidiary





(195
)

306Other


(419
)

(103
)

78Total

$
1,431

$
1,070

$
451


F-22

---



Years Ended December 31,2001

2000Deferred tax assets:Net operating loss carryforwards

$
8,107

$
3,985Basis difference of property and equipment


1,556


1,484Basis difference in start-up costs


421


384Spanish tax credit


594


620Foreign withholding tax credit


491


Alternative minimum tax credit


866


AccrualsOrtholink acquisition


2,762


Other accruals


1,952


983Total deferred tax assets


16,749


7,456Less valuation allowance


(2,043
)

(4,398
)Net deferred tax assets

$
14,706

$
3,058Deferred tax liabilities:Basis difference of acquisitions

$
18,006

$
15,730Capital leases


35


55Accelerated depreciation


3,550


662Accrued pension obligation


250


196Other


3


71Total deferred tax liabilities

$
21,844

$
16,714




F-23

---



Years Ended December 31,2001

2000

1999Expected life in years

5.0

5.0

5.0Interest rate

4.6
%
5.0
%
6.3
%Dividend yield

0.0
%
0.0
%
0.0
%Volatility

40.0
%
40.0
%
0.0
%


F-24

---



Years Ended December 31,2001

2000

1999Net income (loss)As reported

$
2,750

$
(8,163
)
$
(6,844
)Pro forma


1,892


(8,644
)

(7,215
)Basic earnings (loss) per shareAs reported





(1.80
)

(1.17
)Pro forma


(0.04
)

(1.86
)

(1.22
)Diluted earnings (loss) per shareAs reported





(1.80
)

(1.17
)Pro forma


(0.04
)

(1.86
)

(1.22
)




Number
of shares

Weighted
average
exercise
priceBalance at December 31, 1998

761,100

$
8.40Granted

219,166


11.10Exercised




Forfeited

(123,333
)

9.75Expired




Balance at December 31, 1999

856,933


9.00Granted

506,000


12.90Exercised

(5,000
)

6.00Forfeited

(28,167
)

10.68Expired




Balance at December 31, 2000

1,329,766


10.47Granted

1,676,474


15.73Exercised

(114,205
)

5.57Forfeited

(33,071
)

14.04Expired




Balance at December 31, 2001

2,858,964

$
13.62Shares exercisable at December 31, 1999

236,273

$
7.95Shares exercisable at December 31, 2000

422,368

$
8.55Shares exercisable at December 31, 2001

942,369

$
9.33


F-25

---



Range of
exercise prices

Stock
options
outstanding

Weighted
average
exercise
price

Weighted
average
remaining
contractual
life$2.55-$12.00

1,088,101

$
7.92

6.68$13.50-$18.00

1,005,859

$
14.29

8.75$18.20-$25.44

765,004

$
20.84

9.352,858,964

$
13.62

8.12




Range of
exercise prices

Stock options
Exercisable

Weighted average
exercise price$2.55-$12.00

763,153

$
7.34$13.50-$18.00

114,544

$
13.50$18.20-$25.44

64,672

$
25.44942,369

$
9.33


Employee Stock Purchase Plan

USPI adopted an Employee Stock Purchase Plan on February 13, 2001. The plan provides for the grant of stock options to selected eligible employees. Any
eligible employee may elect to participate in the plan by authorizing USPI's options and compensation committee to make payroll deductions to pay the exercise price of an option at the time and in the
manner prescribed by USPI's options and compensation committee. This payroll deduction may be a specific amount or a designated percentage to be determined by the employee, but the specific amount may
not be less than an amount established by the Company and the designated percentage may not exceed an amount of eligible compensation established by the Company from which the deduction is made. The
Company has reserved 500,000 shares of common stock for this plan of which 61,377 were issued during 2001.



F-26

---



|                                                                                 |                                              | Years ended December 31, |       
|-------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------
|
|Net income (loss) attributable to common stockholders before extraordinary items |                                              | $                        | 4,979 
|Extraordinary items, net of tax                                                  |                                              |                          | (4,913
|                                                                                 |                                              |                          |       
|Total                                                                            |                                              | $                        | 66    
|Weighted average common shares outstanding                                       |                                              |                          | 18,380
|Effect of dilutive securities:                                                   |                                              |                          |       
|                                                                                 | Stock options                                |                          |       
|                                                                                 | Warrants                                     |                          |       
|                                                                                 | Convertible subordinated debt                |                          |       
|                                                                                 | Series C convertible preferred stock         |                          |       
|                                                                                 |                                              |                          |       
|Shares used for diluted earnings (loss) per share                                |                                              |                          | 19,291
|                                                                                 |                                              |                          |       
|Basic earnings (loss) per share                                                  |                                              |                          |       
|                                                                                 | Net income (loss) before extraordinary items |                          | $     
|                                                                                 | Extraordinary items, net of tax              |                          |       
|                                                                                 |                                              |                          |       
|                                                                                 |                                              | Total                    |       
|                                                                                 |                                              |                          |       
|Diluted earnings (loss) per share                                                |                                              |                          |       
|                                                                                 | Net income (loss) before extraordinary items |                          | $     
|                                                                                 | Extraordinary items, net of tax              |                          |       
|                                                                                 |                                              |                          |       
|                                                                                 |                                              | Total                    |       
|                                                                                 |                                              |                          |       





F-27

---



|                                  |  |   |         | Western Europe |   |         |  
|--------------------------------- |  | - | ------- | -------------- | - | ------- | -
|
|Net patient service revenue       |  | $ | 101,694 |                | $ | 69,583  |  
|Other revenue                     |  |   | 32,245  |                |   | 1,862   |  
|                                  |  |   |         |                |   |         |  
|Total revenues                    |  | $ | 133,939 |                | $ | 71,445  |  
|                                  |  |   |         |                |   |         |  
|Depreciation and amortization     |  |   | 14,598  |                |   | 7,976   |  
|Operating income                  |  |   | 25,634  |                |   | 2,021   |  
|Net interest income (expense)     |  |   | (10,993 | )              |   | (3,244  | )
|Extraordinary expense, net of tax |  |   | (3,395  | )              |   | (1,518  | )
|Total assets                      |  |   | 356,226 |                |   | 116,500 |  
|Capital expenditures              |  |   | 20,598  |                |   | 5,283   |  

|                              |                |   |         | Western Europe |   |         |       
|----------------------------- | -------------- | - | ------- | -------------- | - | ------- | ------
|
|Net patient service revenue   |                | $ | 50,143  |                | $ | 57,116  |       
|Other revenue                 |                |   | 3,366   |                |   | 1,554   |       
|                              |                |   |         |                |   |         |       
|                              | Total revenues |   | $       | 53,509         |   | $       | 58,670
|                              |                |   |         |                |   |         |       
|Depreciation and amortization |                | $ | 5,317   |                | $ | 6,335   |       
|Operating income              |                |   | 3,835   |                |   | 446     |       
|Net interest income (expense) |                |   | (7,335  | )              |   | (1,421  | )     
|Total assets                  |                |   | 111,549 |                |   | 121,728 |       
|Capital expenditures          |                |   | 5,614   |                |   | 27,720  |       

|1999 (in thousands)           |                | U.S. |         | Spain  |   | Total  |       
|----------------------------- | -------------- | ---- | ------- | ------ | - | ------ | ------
|Net patient service revenue   |                | $    | 18,051  |        | $ | 45,719 |       
|Other revenue                 |                |      | 5,323   |        |   | 1,320  |       
|                              |                |      |         |        |   |        |       
|                              | Total revenues |      | $       | 23,374 |   | $      | 47,039
|                              |                |      |         |        |   |        |       
|Depreciation and amortization |                | $    | 2,701   |        | $ | 5,174  |       
|Operating income (loss)       |                |      | (3,545  | )      |   | 448    |       
|Net interest income (expense) |                |      | (607    | )      |   | (2,209 | )     
|Total assets                  |                |      | 100,268 |        |   | 76,435 |       
|Capital expenditures          |                |      | 2,914   |        |   | 9,892  |       



F-28

---









F-29

---







F-30

---

Condensed Consolidating Balance Sheets:

As of December 31, 2001

USPI and
Wholly-owned
U.S. Subsidiaries

Non-participating
Investees

Consolidation
Adjustments

Consolidated
TotalAssets:Current assets:Cash and cash equivalents

$
20,396

$
13,485

$


$
33,881Accounts receivable, net


418


27,538


(410
)

27,546Other receivables


47,087


(11,174
)

(5,334
)

30,579Inventories


223


5,462





5,685Other


9,298


3,464





12,762Total current assets


77,422


38,775


(5,744
)

110,453Property and equipment, net


41,767


170,449


(615
)

211,601Investments in affiliates


165,437


170


(153,279
)

12,328Intangible assets, net


119,596


97,350


(1,137
)

215,809Other


88,148


33,777


(115,259
)

6,666Total assets

$
492,370

$
340,521

$
(276,034
)
$
556,857Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
2,121

$
18,512

$


$
20,633Accrued expenses


24,758


13,733


404


38,895Current portion of long-term debt


2,433


8,841


(634
)

10,640Total current liabilities


29,312


41,086


(230
)

70,168Long-term debt


158,170


186,093


(116,222
)

228,041Other liabilities


1,936


14,110





16,046Minority interests





5,958


10,117


16,075Redeemable preferred stock











Stockholders' equity


302,952


93,274


(169,699
)

226,527Total liabilities and stockholders' equity

$
492,370

$
340,521

$
(276,034
)
$
556,857


F-31

---

As of December 31, 2000

USPI and
Wholly-owned
U.S. Subsidiaries

Non-participating
Investees

Consolidation
Adjustments

Consolidated
TotalAssets:Current assets:Cash and cash equivalents

$
765

$
2,686

$


$
3,451Restricted cash


1,731








1,731Patient receivables, net





20,955


(160
)

20,795Other receivables


14,710


1,087


(12,623
)

3,174Inventories of supplies


209


4,459





4,668Prepaids and other current assets


713


2,368





3,081Total current assets


18,128


31,555


(12,783
)

36,900Property and equipment, net


7,609


158,225


(639
)

165,195Investments in affiliates


86,880


29


(79,631
)

7,278Intangible assets, net


36,306


79,302


(1,184
)

114,424Other assets


48,099


6,364


(47,864
)

6,599Total assets

$
197,022

$
275,475

$
(142,101
)
$
330,396Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
402

$
25,454

$
(9,505
)
$
16,351Accrued expenses


8,728


15,978


141


24,847Current portion of long-term debt


53


11,797


42,065


53,915Total current liabilities


9,183


53,229


32,701


95,113Long-term debt


79,369


147,739


(93,256
)

133,852Other liabilities


457


10,766


(182
)

11,041Minority interests





4,947


3,827


8,774Redeemable preferred stock


32,819








32,819Stockholders' equity


75,194


58,794


(85,191
)

48,797Total liabilities and stockholders' equity

$
197,022

$
275,475

$
(142,101
)
$
330,396


F-32

---

Condensed Consolidating Statements of Operations:

|Year ended December 31, 2001                                |  | USPI and
Wholly-owned
Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |   | Consolidated
Total |       
|----------------------------------------------------------- |  | ---------------------------------- | ------ | --------------------------- | - | ------------------------- | - | ------------------ | ------
|Revenues                                                    |  | $                                  | 55,537 |                             | $ | 194,611                   |   | $                  | (5,780
|Operating expenses, excluding depreciation and amortization |  |                                    | 39,478 |                             |   | 150,814                   |   |                    | (5,814
|Depreciation and amortization                               |  |                                    | 9,782  |                             |   | 16,592                    |   |                    | (258  
|                                                            |  |                                    |        |                             |   |                           |   |                    |       
|Operating income (loss)                                     |  |                                    | 6,277  |                             |   | 27,205                    |   |                    | 292   
|Interest income (expense), net                              |  |                                    | (6,353 | )                           |   | (10,928                   | ) |                    | 13    
|Other expense                                               |  |                                    | 267    |                             |   | 119                       |   |                    | (240  
|                                                            |  |                                    |        |                             |   |                           |   |                    |       
|Income (loss) before minority interests                     |  |                                    | 191    |                             |   | 16,396                    |   |                    | 65    
|Minority interests in income of consolidated subsidiaries   |  |                                    |       |                             |   | (4,058                    | ) |                    | (3,500
|Income (loss) before income taxes                           |  |                                    | 191    |                             |   | 12,338                    |   |                    | (3,435
|Income tax (expense) benefit                                |  |                                    | 285    |                             |   | (1,716                    | ) |                    |      
|                                                            |  |                                    |        |                             |   |                           |   |                    |       
|Net income (loss) before extraordinary items                |  | $                                  | 476    |                             | $ | 10,622                    |   | $                  | (3,435
|                                                            |  |                                    |        |                             |   |                           |   |                    |       

|Year ended December 31, 2000                                |  | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |   | Consolidated
Total |       
|----------------------------------------------------------- |  | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | - | ------------------ | ------
|Revenues                                                    |  | $                                       | 5,590   |                             | $ | 136,394                   |   | $                  | (3,576
|Operating expenses, excluding depreciation and amortization |  |                                         | 11,406  |                             |   | 109,059                   |   |                    | (3,844
|Depreciation and amortization                               |  |                                         | 2,043   |                             |   | 12,135                    |   |                    | (40   
|                                                            |  |                                         |         |                             |   |                           |   |                    |       
|Operating income (loss)                                     |  |                                         | (7,859  | )                           |   | 15,200                    |   |                    | 308   
|Interest income (expense), net                              |  |                                         | (3,127  | )                           |   | (8,517                    | ) |                    | 16    
|Other income (expense)                                      |  |                                         | 499     |                             |   | (3,251                    | ) |                    | 1,970 
|                                                            |  |                                         |         |                             |   |                           |   |                    |       
|Income (loss) before minority interests                     |  |                                         | (10,487 | )                           |   | 3,432                     |   |                    | 2,294 
|Minority interests in income of consolidated subsidiaries   |  |                                         |        |                             |   | (1,358                    | ) |                    | (974  
|Income (loss) before income taxes                           |  |                                         | (10,487 | )                           |   | 2,074                     |   |                    | 1,320 
|Income tax (expense) benefit                                |  |                                         | (223    | )                           |   | (847                      | ) |                    |      
|                                                            |  |                                         |         |                             |   |                           |   |                    |       
|Net income (loss)                                           |  | $                                       | (10,710 | )                           | $ | 1,227                     |   | $                  | 1,320 
|                                                            |  |                                         |         |                             |   |                           |   |                    |       

|Year ended December 31, 1999                                     |  | USPI and
Wholly-owned
U.S. Subsidiaries |        | Non-participating
Investees |   | Consolidation
Adjustments |   | Consolidated
Total |      
|---------------------------------------------------------------- |  | --------------------------------------- | ------ | --------------------------- | - | ------------------------- | - | ------------------ | -----
|Revenues                                                         |  | $                                       | 5,551  |                             | $ | 65,603                    |   | $                  | (741 
|Operating expenses, excluding depreciation and amortization      |  |                                         | 10,976 |                             |   | 55,558                    |   |                    | (899 
|Depreciation and amortization                                    |  |                                         | 1,557  |                             |   | 6,293                     |   |                    | 25   
|                                                                 |  |                                         |        |                             |   |                           |   |                    |      
|Operating income (loss)                                          |  |                                         | (6,982 | )                           |   | 3,752                     |   |                    | 133  
|Interest income (expense), net                                   |  |                                         | 45     |                             |   | (2,865                    | ) |                    | 4    
|Other income (expense)                                           |  |                                         | (83    | )                           |   | (4,033                    | ) |                    | 3,754
|                                                                 |  |                                         |        |                             |   |                           |   |                    |      
|Income (loss) before minority interests                          |  |                                         | (7,020 | )                           |   | (3,146                    | ) |                    | 3,891
|Minority interests in (income) loss of consolidated subsidiaries |  |                                         |       |                             |   | (187                      | ) |                    | 69   
|Income (loss) before income taxes                                |  |                                         | (7,020 | )                           |   | (3,333                    | ) |                    | 3,960
|Income tax (expense) benefit                                     |  |                                         | 10     |                             |   | (454                      | ) |                    | (7   
|                                                                 |  |                                         |        |                             |   |                           |   |                    |      
|Net income (loss)                                                |  | $                                       | (7,010 | )                           | $ | (3,787                    | ) | $                  | 3,953
|                                                                 |  |                                         |        |                             |   |                           |   |                    |      

F-33

---

Condensed Consolidating Statements of Cash Flows:

|Year ended December 31, 2001                                                                        |                                                     | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total |        
|--------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------ | -------
|Cash flows from operating activities:                                                               |                                                     |                                         |         |                             |   |                           |         |                    |        
|Net loss                                                                                            |                                                     | $                                       | (2,919  | )                           | $ | 9,121                     |         | $                  | (3,452 
|Changes in operating and intercompany assets and liabilities and noncash items included in net loss |                                                     |                                         | 2,636   |                             |   | 31,906                    |         |                    | 3,565  
|                                                                                                    |                                                     |                                         |         |                             |   |                           |         |                    |        
|Net cash provided by (used in) operating activities                                                 |                                                     |                                         | (283    | )                           |   | 41,027                    |         |                    | 113    
|Cash flows from investing activities:                                                               |                                                     |                                         |         |                             |   |                           |         |                    |        
|Purchases of property and equipment, net                                                            |                                                     |                                         | (7,130  | )                           |   | (18,647                   | )       |                    |       
|Purchases of new businesses                                                                         |                                                     |                                         | (57,099 | )                           |   | (415                      | )       |                    | 126    
|Other items                                                                                         |                                                     |                                         | (27,953 | )                           |   | (852                      | )       |                    | 29,409 
|                                                                                                    |                                                     |                                         |         |                             |   |                           |         |                    |        
|                                                                                                    | Net cash provided by (used in) investing activities |                                         |         | (92,182                     | ) |                           | (19,914 | )                  |        
|Cash flows from financing activities:                                                               |                                                     |                                         |         |                             |   |                           |         |                    |        
|Long-term borrowings, net                                                                           |                                                     |                                         | 34,842  |                             |   | (10,516                   | )       |                    | (29,409
|Proceeds from issuance of common stock                                                              |                                                     |                                         | 132,818 |                             |   | 239                       |         |                    | (239   
|Other items                                                                                         |                                                     |                                         | (55,564 | )                           |   |                          |         |                    |       
|                                                                                                    |                                                     |                                         |         |                             |   |                           |         |                    |        
|                                                                                                    | Net cash provided by (used in) financing activities |                                         |         | 112,096                     |   |                           | (10,277 | )                  |        
|Effect of exchange rate changes on cash                                                             |                                                     |                                         |        |                             |   | (37                       | )       |                    |       
|Net increase (decrease) in cash                                                                     |                                                     |                                         | 19,631  |                             |   | 10,799                    |         |                    |       
|Cash at inception                                                                                   |                                                     |                                         | 765     |                             |   | 2,686                     |         |                    |       
|                                                                                                    |                                                     |                                         |         |                             |   |                           |         |                    |        
|Cash at the end of the year                                                                         |                                                     | $                                       | 20,396  |                             | $ | 13,485                    |         | $                  |       
|                                                                                                    |                                                     |                                         |         |                             |   |                           |         |                    |        

|Year ended December 31, 2000                                                                                 |                                                     | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total |        
|------------------------------------------------------------------------------------------------------------ | --------------------------------------------------- | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------ | -------
|Cash flows from operating activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |        
|Net income (loss)                                                                                            |                                                     | $                                       | (10,710 | )                           | $ | 1,226                     |         | $                  | 1,321  
|Changes in operating and intercompany assets and liabilities and noncash items included in net income (loss) |                                                     |                                         | (634    | )                           |   | 21,104                    |         |                    | (1,304 
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        
|Net cash provided by (used in) operating activities                                                          |                                                     |                                         | (11,344 | )                           |   | 22,330                    |         |                    | 17     
|Cash flows from investing activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |        
|Sales (purchases) of property and equipment, net                                                             |                                                     |                                         | (4,233  | )                           |   | 4,719                     |         |                    |       
|Purchases of new businesses                                                                                  |                                                     |                                         | (42,942 | )                           |   | (65,581                   | )       |                    | 25,239 
|Other items                                                                                                  |                                                     |                                         | 4,100   |                             |   | (3,703                    | )       |                    | 7,336  
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        
|                                                                                                             | Net cash provided by (used in) investing activities |                                         |         | (43,075                     | ) |                           | (64,565 | )                  |        
|Cash flows from financing activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |        
|Long-term borrowings, net                                                                                    |                                                     |                                         | 33,750  |                             |   | 17,358                    |         |                    | (7,336 
|Proceeds from issuance of common stock                                                                       |                                                     |                                         | 5,069   |                             |   | 25,239                    |         |                    | (25,239
|Other items                                                                                                  |                                                     |                                         | 15,895  |                             |   | (1,545                    | )       |                    |       
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        
|                                                                                                             | Net cash provided by (used in) financing activities |                                         |         | 54,714                      |   |                           | 41,052  |                    |        
|Effect of exchange rate changes on cash                                                                      |                                                     |                                         |        |                             |   | 623                       |         |                    | (17    
|Net increase (decrease) in cash                                                                              |                                                     |                                         | 295     |                             |   | (560                      | )       |                    |       
|Cash at the beginning of the year                                                                            |                                                     |                                         | 470     |                             |   | 3,246                     |         |                    |       
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        
|Cash at the end of the year                                                                                  |                                                     | $                                       | 765     |                             | $ | 2,686                     |         | $                  |       
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |        

F-34

---

|Year ended December 31, 1999                                                                                 |                                                     | USPI and
Wholly-owned
U.S. Subsidiaries |         | Non-participating
Investees |   | Consolidation
Adjustments |         | Consolidated
Total |       
|------------------------------------------------------------------------------------------------------------ | --------------------------------------------------- | --------------------------------------- | ------- | --------------------------- | - | ------------------------- | ------- | ------------------ | ------
|Cash flows from operating activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |       
|Net income (loss)                                                                                            |                                                     | $                                       | (7,011  | )                           | $ | (3,787                    | )       | $                  | 3,954 
|Changes in operating and intercompany assets and liabilities and noncash items included in net income (loss) |                                                     |                                         | 9,622   |                             |   | 5,490                     |         |                    | (3,954
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       
|Net cash provided by (used in) operating activities                                                          |                                                     |                                         | 2,611   |                             |   | 1,703                     |         |                    |      
|Cash flows from investing activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |       
|Purchases of property and equipment, net                                                                     |                                                     |                                         | (2,868  | )                           |   | (9,940                    | )       |                    |      
|Purchases of new businesses                                                                                  |                                                     |                                         | (36,960 | )                           |   | (2,427                    | )       |                    | 3,525 
|Other items                                                                                                  |                                                     |                                         | (6,472  | )                           |   | 1,157                     |         |                    | 6,472 
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       
|                                                                                                             | Net cash provided by (used in) investing activities |                                         |         | (46,300                     | ) |                           | (11,210 | )                  |       
|Cash flows from financing activities:                                                                        |                                                     |                                         |         |                             |   |                           |         |                    |       
|Long-term borrowings, net                                                                                    |                                                     |                                         | 40,627  |                             |   | 7,492                     |         |                    | (6,472
|Proceeds from issuance of common stock                                                                       |                                                     |                                         |        |                             |   | 3,525                     |         |                    | (3,525
|Other items                                                                                                  |                                                     |                                         | 506     |                             |   |                          |         |                    |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       
|                                                                                                             | Net cash provided by (used in) financing activities |                                         |         | 41,133                      |   |                           | 11,017  |                    |       
|Effect of exchange rate changes on cash                                                                      |                                                     |                                         |        |                             |   | (203                      | )       |                    |      
|Net increase (decrease) in cash                                                                              |                                                     |                                         | (2,556  | )                           |   | 1,307                     |         |                    |      
|Cash at the beginning of the year                                                                            |                                                     |                                         | 3,026   |                             |   | 1,939                     |         |                    |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       
|Cash at the end of the year                                                                                  |                                                     | $                                       | 470     |                             | $ | 3,246                     |         | $                  |      
|                                                                                                             |                                                     |                                         |         |                             |   |                           |         |                    |       



F-35

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|                                                                                              |  | Years ended
December 31, |      
|--------------------------------------------------------------------------------------------- |  | ------------------------ | -----
|
|Net income (loss) before extraordinary items attributable to common shareholders, as reported |  | $                        | 4,979
|Goodwill amortization, net of applicable income tax benefits                                  |  |                          | 4,184
|                                                                                              |  |                          |      
|Pro forma net income (loss) before extraordinary items attributable to common shareholders    |  | $                        | 9,163
|                                                                                              |  |                          |      
|Diluted earnings (loss) per share before extraordinary items, as reported                     |  | $                        | 0.26 
|Goodwill amortization, net of applicable income tax benefits                                  |  |                          | 0.22 
|                                                                                              |  |                          |      
|Pro forma diluted earnings (loss) per share before extraordinary items                        |  | $                        | 0.48 
|                                                                                              |  |                          |      



F-36

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|                                         |                                          | 2000 Quarters |        | 2001 Quarters |      
|---------------------------------------- | ---------------------------------------- | ------------- | ------ | ------------- | -----
|
|
|Net revenues                             |                                          | $             | 25,043 |               | $    
|Income (loss) before extraordinary items |                                          |               | (1,031 | )             |      
|Extraordinary items, net of tax          |                                          |               |       |               |      
|Net income (loss)                        |                                          |               | (1,031 | )             |      
|Basic earnings (loss) per share          |                                          |               |        |               |      
|                                         | Income (loss) before extraordinary items |               | $      | (0.58         | )    
|                                         | Extraordinary items, net of taxes        |               |        |              |      
|                                         |                                          |               |        |               |      
|                                         |                                          | Total         |        | $             | (0.58
|                                         |                                          |               |        |               |      
|Diluted earnings (loss) per share        |                                          |               |        |               |      
|                                         | Income (loss) before extraordinary items |               | $      | (0.58         | )    
|                                         | Extraordinary items, net of taxes        |               |        |              |      
|                                         |                                          |               |        |               |      
|                                         |                                          | Total         |        | $             | (0.58
|                                         |                                          |               |        |               |      



F-37

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2.    Financial Statement Schedules

The following financial statement schedule is filed as part of this Form 10-K:

Schedule IIValuation and Qualifying Accounts

S-1


SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS        FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001        (in thousands)

Allowance for Doubtful Accounts

|     |  |   |       | Additions Charged to: |       |  |   |  |        |  
|---- |  | - | ----- | --------------------- | ----- |  | - |  | ------ | -
|
|1999 |  | $ | 1,431 |                       | 1,231 |  |  |  | (902   | )
|2000 |  |   | 2,742 |                       | 2,467 |  |  |  | (2,072 | )
|2001 |  |   | 3,666 |                       | 3,517 |  |  |  | (3,445 | )

---

All
other schedules are omitted because they are not applicable or not required or because the required information is included in the financial statements or notes thereto.

S-1

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3.    Exhibits

|Exhibit
Number |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                     
|-------------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  |  |  | Agreement and Plan of Merger, dated as of December 6, 2000, among the Company, OPC Acquisition Corporation and OrthoLink Physicians Corporation (previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                                       
|2.2            |  |  |  | Agreement for the Sale and Purchase of Shares and Loan Notes in Aspen Healthcare Holdings Limited, dated April 6, 2000, between Electra Private Equity Partners 1995 and others and Global Healthcare Partners Limited (previously filed as an
exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) 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)                                                                                                                                                                                      
|4.2*           |  |  |  | Indenture, dated as of December 19, 2001, among United Surgical Partners Holdings, Inc., the guarantor parties thereto and U.S. Trust Company of Texas, N.A.                                                                                                                                                                                                    
|4.3*           |  |  |  | Global Security, dated as of December 19, 2001, governing United Surgical Partners Holdings, Inc.'s outstanding 10% Senior Subordinated Notes due 2011                                                                                                                                                                                                          
|4.4            |  |  |  | Third Amended and Restated Stockholders' Agreement, dated March 27, 2000, by and among the Company and the security holders named therein (previously filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 333-55442) and incorporated herein by reference)                                                                             
|4.5.1          |  |  |  | Amended and Restated Registration Rights Agreement, dated April 30, 1998, by and among the Company and the security holders named therein (the "Registration Rights Agreement") (previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                       
|4.5.2          |  |  |  | Amendment No. 1 to the Registration Rights Agreement, dated as of June 26, 1998, by and among the Company and the security holders named therein (previously filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 333-55442) and incorporated herein by reference)                                                                      
|4.5.3          |  |  |  | Amendment No. 2 to the Registration Rights Agreement, dated as of July 31, 1998, by and among the Company and the security holders named therein (previously filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 333-55442) and incorporated herein by reference)                                                                      
|4.5.4          |  |  |  | Amendment No. 3 to the Registration Rights Agreement, dated as of October 26, 1998, by and among the Company and the security holders named therein (previously filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 333-55442) and incorporated herein by reference)                                                                   
|               |  |   |  |                                                                                                                                                                                                                                                                                                                                                                 

II-1

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|4.5.5 |  |  |  | Amendment No. 4 to the Registration Rights Agreement, dated as of December 22, 1998, by and among the Company and the security holders named therein (previously filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 333-55442) and incorporated herein by reference)                                   
|----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5.6 |  |  |  | Amendment No. 5 to the Registration Rights Agreement, dated as of June 1, 1999, by and among the Company and the security holders named therein (previously filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 333-55442) and incorporated herein by reference)                                        
|4.5.7 |  |  |  | Amendment No. 6 to the Registration Rights Agreement, dated as of March 27, 2000, by and among the Company and the security holders named therein (previously filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 333-55442) and incorporated herein by reference)                                      
|4.5.8 |  |  |  | Amendment No. 7 to the Registration Rights Agreement, dated as of February 12, 2001, by and among the Company and the security holders named therein (previously filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 333-55442) and incorporated herein by reference)                                   
|4.6   |  |  |  | Form of Rights Agreement between the Company and Rights Agent (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  |  |  |  | Credit Agreement, dated April 6, 2000, by and among Global Healthcare Partners Limited and the Governor and Company of the Bank of Scotland (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442)
and incorporated herein by reference)                                            
|10.2* |  |  |  | Amended and Restated Credit Agreement, dated as of December 19, 2001, among USP Domestic Holdings, Inc., USPE Holdings Limited, various financial institutions from time to time parties thereto as the lenders and Credit Suisse First Boston, as
Administrative Agent                                                          
|10.3  |  |  |  | Contribution and Purchase Agreement, dated as of May 11, 1999, by and among USP North Texas, Inc., Baylor Health Services, Texas Health Ventures Group LLC and THVG/Health First L.L.C. (previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)
|10.4  |  |  |  | Warrant Agreement, dated as of June 18, 1999, among the Company and Welsh, Carson, Anderson & Stowe VII, L.P. (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by
reference)                                                                          
|10.5  |  |  |  | Common Stock Purchase Warrant, dated June 1, 1999 (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                                                                                                      
|10.6  |  |  |  | Stock Purchase Warrant, dated March 27, 2000 (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                                                                                                           
|10.7  |  |  |  | Employment Agreement, dated as of November 1, 2000, by and between the Company and Donald E. Steen (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by
reference)                                                                                     
|      |  |   |  |                                                                                                                                                                                                                                                                                                                                  

II-2

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|10.8   |  |  |  | Employment Agreement, dated as of March 1, 1999, by and between the Company and William H. Wilcox (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)
|------ |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9   |  |  |  | Stock Option and Restricted Stock Purchase Plan (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                  
|10.10  |  |  |  | 2001 Equity-Based Compensation Plan (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                              
|10.11  |  |  |  | Employee Stock Purchase Plan (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)                                                                     
|10.12  |  |  |  | Form of Indemnification Agreement between the Company and its directors and officers (previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-55442) and incorporated herein by reference)             
|21.1*  |  |  |  | Subsidiaries of the Company                                                                                                                                                                                                                
|23.1*  |  |  |  | Consent of KPMG LLP                                                                                                                                                                                                                        
|24.1*  |  |  |  | Power of Attorney for Donald E. Steen                                                                                                                                                                                                      
|24.2*  |  |  |  | Power of Attorney for William H. Wilcox                                                                                                                                                                                                    
|24.3*  |  |  |  | Power of Attorney for Mark A. Kopser                                                                                                                                                                                                       
|24.4*  |  |  |  | Power of Attorney for John J. Wellik                                                                                                                                                                                                       
|24.5*  |  |  |  | Power of Attorney for James C. Crews                                                                                                                                                                                                       
|24.6*  |  |  |  | Power of Attorney for D. Scott Mackesy                                                                                                                                                                                                     
|24.7*  |  |  |  | Power of Attorney for Dave A. Alexander, Jr., M.D.                                                                                                                                                                                         
|24.8*  |  |  |  | Power of Attorney for Thomas L. Mills                                                                                                                                                                                                      
|24.9*  |  |  |  | Power of Attorney for Boone Powell, Jr.                                                                                                                                                                                                    
|24.10* |  |  |  | Power of Attorney for Paul B. Queally                                                                                                                                                                                                      
|24.11* |  |  |  | Power of Attorney for David P. Zarin, M.D.                                                                                                                                                                                                 
|24.12* |  |  |  | Power of Attorney for John C. Garrett, M.D.                                                                                                                                                                                                
|24.13* |  |  |  | Power of Attorney for Joel T. Allison                                                                                                                                                                                                      

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(b)    Reports on Form 8-K

The Company filed a Current Report on Form 8-K, dated October 17, 2001, to report the acquisition by the Company of a majority interest in a
freestanding ambulatory surgery center in Sarasota, Florida.

II-3

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The
Company filed a Current Report on Form 8-K, dated November 15, 2001, to furnish, pursuant to Regulation FD, a copy of materials dated November 15, 2001 and
prepared with respect to presentations to investors and others that may be made by senior officers of the Company.

The
Company filed a Current Report on Form 8-K, dated December 3, 2001, to report the intention of United Surgical Partners Holdings, Inc., a wholly-owned subsidiary of the
Company, to offer $150 million in senior subordinated notes due 2011 and the anticipated use of the proceeds therefrom.

The
Company filed a Current Report on Form 8-K, dated December 4, 2001, to report the Company's entry into (i) binding agreements to acquire, in separate
transactions, majority interests in a surgical facility in West Covina, California and a surgical facility in Fredericksburg, Virginia, (ii) a non-binding letter of intent to acquire a minority
interest in a surgical facility in Torrance, California, and (iii) a definitive agreement, subject to due diligence, to acquire a surgical hospital in Madrid, Spain.

II-4

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                     |  | UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
|-------------------- |  | --------------------------------------------
|Date: March 21, 2002 |  | By:                                         

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the
dates indicated.

|Signature                         |  | Title                                                                                       |  | Date          
|--------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------
|                                  |  |                                                                                             |  |               
|/s/DONALD E. STEENDonald E. Steen |  | Chairman of the Board and Chief Executive Officer (Principal Executive Officer)             |  | March 21, 2002
|*William H. Wilcox                |  | President and Director                                                                      |  | March 21, 2002
|/s/MARK A. KOPSERMark A. Kopser   |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer)             |  | March 21, 2002
|/s/JOHN J. WELLIKJohn J. Wellik   |  | Vice President, Controller, Compliance Officer and Secretary (Principal Accounting Officer) |  | March 21, 2002
|*James C. Crews                   |  | Director                                                                                    |  | March 21, 2002
|*D. Scott Mackesy                 |  | Director                                                                                    |  | March 21, 2002
|*Dave A. Alexander, Jr. M.D.      |  | Director                                                                                    |  | March 21, 2002
|                                  |  |                                                                                             |  |               

II-5

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|*Thomas L. Mills       |  | Director |  | March 21, 2002
|---------------------- |  | -------- |  | --------------
|*Boone Powell, Jr.     |  | Director |  | March 21, 2002
|*Paul B. Queally       |  | Director |  | March 21, 2002
|*David P. Zarin, M.D.  |  | Director |  | March 21, 2002
|*John C. Garrett, M.D. |  | Director |  | March 21, 2002
|*Joel T. Allison       |  | Director |  | March 21, 2002

John
J. Wellik, by signing his name hereto, does hereby sign this Annual Report on Form 10-K on behalf of each of the above-named directors and officers of the Company on the date
indicated below, pursuant to powers of attorney executed by each of such directors and officers and contemporaneously filed herewith with the Commission.

|By: |  | /s/JOHN J. WELLIKJohn J. Wellik Attorney-in-fact |  | March 21, 2002
|--- |  | ------------------------------------------------ |  | --------------

II-6

---