UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

(Amendment No. 1)

(Mark One)

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

For the quarterly period ended September 30, 2008

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

For the transition period from to

Commission file number: 000-50574

Symbion, Inc.

(Exact name of registrant as specified in its charter)

Delaware		62-1625480
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

40 Burton Hills Boulevard, Suite 500

Nashville, Tennessee 37215

(Address of principal executive offices and zip code)

(615) 234-5900

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o
Non-accelerated filer x		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 10, 2008, 1,000 shares of registrant’s common stock were outstanding.

PART I – FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements presented in our Form 10-Q for the three months ended September 30, 2008 filed with the Securities and Exchange Commission on November 13, 2008.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which are based on our current expectations, estimates and assumptions about future events. All statements other than statements of current or historical fact contained in this report, including statements regarding our future financial position, business strategy, budgets, effective tax rate, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” and similar expressions are generally intended to identify forward-looking statements. These statements involve risks, uncertainties and other factors that may cause actual results to differ from the expectations expressed in the statements. Many of these factors are beyond our ability to control or predict. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this report.

These forward-looking statements speak only as of the date made. Other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Overview

We own and operate a national network of short stay surgical facilities in 26 states, which includes ambulatory surgery centers and surgical hospitals (collectively, “surgical facilities”). Our surgical facilities primarily provide non-emergency surgical procedures across many specialties, including, among others, orthopedics, pain management, gastroenterology and ophthalmology. We own our surgical facilities in partnership with physicians and in some cases health care systems in the markets and communities we serve. We apply a market-based approach in structuring our partnerships, with individual market dynamics driving the structure. We believe this approach aligns our interests with those of our partners. We believe that our national scale and our alignment with prominent physicians within our markets provide us with a strong competitive position. Through our surgical facilities, we offer high quality surgical services designed to meet the health care needs of our patients, physicians, and payors in an efficient, convenient and cost-effective manner. This value proposition positions us well to take advantage of the continued growth in outpatient surgeries going forward.

As of September 30, 2008, we owned and operated 58 surgical facilities, including 55 ambulatory surgery centers and three surgical hospitals. We also managed nine additional ambulatory surgery centers. We own a majority interest in 40 of the 58 surgical facilities and consolidate 49 of these facilities for financial reporting purposes. We are reporting two of the 58 surgical facilities as discontinued operations. In addition to our surgical facilities, we also manage two physician networks, including one physician network in a market in which we operate an ambulatory surgery center.

We have benefited from both the growth in overall outpatient surgery cases as well as the migration of surgical procedures from the hospital to the surgical facility setting. Advancements in medical technology, such as lasers, arthroscopy and enhanced endoscopic techniques, have reduced the trauma of surgery and the amount of recovery time required by patients following a surgical procedure. Improvements in anesthesia also have shortened the recovery time for many patients and have reduced post-operative side effects such as pain, nausea and drowsiness. These medical advancements have enabled more patients to undergo surgery in a surgical facility setting.

We continue to focus on increasing cases at our same store facilities and acquiring facilities that we believe have favorable growth potential. We are also focused on developing new facilities. We have an active development pipeline with two facilities currently under development. These facilities are scheduled to open in 2008 and early 2009. To execute our growth strategy, we intend to target one to three surgical facility acquisitions and one to three surgical facility developments annually. During the nine months ended September 30, 2008, we have also opened three of the five facilities that were under development as of December 31, 2007, and acquired five surgical facilities. One of the five facilities that we acquired in 2008 was a newly developed facility that opened in the fourth quarter of 2007. We expect to continue our development efforts through the acquisition and development of additional facilities.

The Exchange Offer

On June 3, 2008, we completed a private offering of $179.9 million aggregate principal amount of our Toggle Notes. We entered into a registration rights agreement with the initial purchasers in the private offering in which we agreed, among other things, to file a registration statement within 180 days of the issuance of the outstanding notes. On September 25, 2008, we filed a registration statement under the Securities Act of 1933 to register $184.6 million aggregate principal amount Toggle Notes as well as the guarantee of each wholly owned subsidiary of the Company. On November 12, 2008, the Company filed an amendment to the registration statement to, among other things, register an additional $75.4 million aggregate principal amount of Toggle Notes issuable if we elect to make payments of additional interest in kind by increasing the principal amount of the existing notes or issuing additional notes. Pursuant to the registration statement, we are offering to exchange our outstanding Toggle Notes for new 11.00%/11.75% Senior PIK Toggle Notes due 2015 with an aggregate principal amount of $184.6 million registered under the Securities Act of 1933, as amended. The exchange notes will represent the same debt as the outstanding notes and we will issue the exchange notes under the same indenture that governs the outstanding notes.

Merger with an Affiliate of Crestview Partners, L.P.

On August 23, 2007, we were acquired by an investment group led by an affiliate of Crestview Partners, L.P. (“Crestview”) through a merger (the “Merger”), As a result of the Merger we no longer have publically traded equity securities.

In order to consummate the Merger, Crestview formed Symbol Acquisition, L.L.C. (“Parent”) and Symbol Merger Sub, Inc., a wholly owned subsidiary of Parent. Symbol Merger Sub, Inc. merged with and into the Symbion, Inc. with Symbion, Inc. being the surviving corporation. Parent was converted into Symbion Holdings Corporation (“Holdings”), which became the parent holding company of Symbion, Inc. by virtue of the Merger.

Holdings was capitalized with a $245.0 million cash contribution by Crestview and its affiliated funds and co-investors. In addition, certain members of Symbion’s management made a rollover equity contribution of Symbion shares and options to purchase common stock valued at the predecessor basis of $2,000. The fair value of the rollover contribution was $8.4 million. These rollover shares were exchanged for shares and options to purchase shares of common stock of Holdings. Following the Merger, Crestview and its affiliated funds and co-investors owned 96.7% of Holdings and members of management owned 3.3% of Holdings.

We accounted for the Merger using the purchase method of accounting. As a result, we recorded goodwill of $509.8 million.

Revenues

Our revenues consist of patient service revenues, physician service revenues and other service revenues. Patient service revenues are revenues from surgical or diagnostic procedures performed in each of the facilities that we consolidate for financial reporting purposes. The fee charged for a procedure varies depending on the procedure, but usually includes all charges for usage of an operating room, a recovery room, special equipment, supplies, nursing staff and medications. Also, in a very limited number of surgical facilities, we charge for anesthesia services. The fee normally does not include professional fees charged by the patient’s surgeon, anesthesiologist or other attending physicians, which are billed directly by such physicians to the patient or third-party payor. Patient service revenues are recognized on the date of service, net of estimated contractual adjustments and discounts for third-party payors, including Medicare and Medicaid. Changes in estimated contractual adjustments and discounts are recorded in the period of change.

Physician service revenues are revenues from physician networks consisting of reimbursed expenses, plus participation in the excess of revenues over expenses of the physician networks, as provided for in our service

agreements with our physician networks. Reimbursed expenses include the costs of personnel, supplies and other expenses incurred to provide the management services to the physician networks. We recognize physician service revenues in the period in which reimbursable expenses are incurred and in the period in which we have the right to receive a percentage of the amount by which a physician network’s revenues exceed its expenses. Physician service revenues are based on net billings with any changes in estimated contractual adjustments reflected in service revenues in the subsequent period.

Other service revenues consists of management and administrative service fees derived from the non-consolidated facilities that we account for under the equity method, management of surgical facilities in which we do not own an interest and management services we provide to physician networks for which we are not required to provide capital or additional assets. The fees we derive from these management arrangements are based on a pre-determined percentage of the revenues of each surgical facility and physician network. We recognize other service revenues in the period in which services are rendered.

The following tables summarize our revenues by service type as a percentage of revenues and our payor mix as a percentage of revenues for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007

Patient service revenues	95	%	95	%	95	%	95	%
Physician service revenues	2		2		2		2
Other service revenues	3		3		3		3
Total	100	%	100	%	100	%	100	%

Payor Mix

Our revenues are comprised of patient service revenues, physician service revenues and other service revenues. Our patient service revenues relate to fees charged for surgical or diagnostic procedures performed at surgical facilities that we consolidate for financial reporting purposes. Approximately 95% of our revenues are patient service revenues. The following table sets forth by type of payor the percentage of our patient service revenues generated in the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007

Private insurance	72	%	71	%	72	%	73	%
Government	22		21		22		21
Self-pay	4		5		4		4
Other	2		3		2		2
Total	100	%	100	%	100	%	100	%

Case Mix

We primarily operate multi-specialty facilities where physicians perform a variety of procedures in specialties, including orthopedics, pain management, gastroenterology and ophthalmology, among others. We believe this diversification helps to protect us from any adverse pricing and utilization trends in any individual procedure type and results in greater consistency in our case volume.

The following table sets forth the percentage of cases in each specialty performed at surgical facilities that we consolidate for financial reporting purposes for the three and nine months ended September 30, 2008 and 2007:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007

Ear, nose and throat	5.7	%	6.2	%	6.7	%	7.6	%
Gastrointestinal	28.3		27.9		28.0		26.1
General surgery	4.1		5.3		4.1		5.1
Obstetrics/gynecology	3.0		3.6		3.1		3.7
Ophthalmology	15.2		14.1		14.9		13.8
Orthopedic	15.1		16.4		16.1		16.3
Pain management	15.5		15.4		15.4		15.4
Plastic surgery	3.2		3.1		3.0		3.3
Other	9.9		8.0		8.7		8.7
Total	100.0	%	100.0	%	100.0	%	100.0	%

Case Growth

Same Store Information

We define same store facilities as those facilities that were operating throughout the three and nine months ended September 30, 2008 and 2007. For the comparison of same store facilities provided below, we have also included the results of three recently opened surgical facilities within markets served by other surgical facilities in which we own an interest. Two of the recently opened surgical facilities are consolidated for financial reporting purposes, the other is accounted for using the equity method. Management believes that it is appropriate to include the results of these three recently opened facilities in the same store facility information below based on the following considerations: (1) the migration of cases from the existing surgical facilities to the new surgical facilities, (2) the waiver of the restriction on ownership applicable to the owners of the existing facilities that allows certain owners of the existing facilities to own an interest in the new facilities and (3) the resulting enhancement of our market position by leveraging management services and capacity.

The following same store facility table includes both consolidated surgical facilities from continuing operations that are included in revenue and non-consolidated surgical facilities that are not reported in our revenue as we account for these surgical facilities using the equity method. This same store facilities table is presented to allow comparability to other companies in our industry for the periods indicated:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
Cases	61,211			59,594		182,852			183,411
Case growth	2.7		%	N/A		(0.3		)%	N/A
Net patient service revenue per case	$	1,446		$	1,296	$	1,448		$	1,331
Net patient service revenue per case growth	11.6		%	N/A		8.8		%	N/A
Number of same store surgical facilities	48			N/A		48			N/A

The following same store facility table is presented for purposes of explaining changes in our consolidated financial results for the three and nine months ended September 30, 2008. The results below for the nine month periods presented include the consolidation of an existing surgical facility that was previously accounted for using the equity method. We acquired an incremental ownership in this facility during 2007 and began consolidating the facility for financial reporting purposes. As discussed above, management believes it is appropriate to present the results of this facility in the same store information as a result of enhancing our overall market position. Accordingly, the table below includes same store facility data for surgical facilities from continuing operations that we consolidate for financial reporting purposes for the periods indicated:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
Cases	55,899			54,836		166,992			164,649
Case growth	1.9		%	N/A		1.4		%	N/A
Net patient service revenue per case	$	1,333		$	1,256	$	1,341		$	1,304
Net patient service revenue per case growth	6.1		%	N/A		2.8		%	N/A
Number of same store surgical facilities	43			N/A		43			N/A

Consolidated Information

The following table sets forth information for all surgical facilities included in continuing operations that we consolidate for financial reporting purposes for the periods indicated. Accordingly, the table includes surgical facilities that we have acquired, developed or disposed of since January 1, 2007.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
Cases	59,489			55,501		175,594			165,741
Case growth	7.2		%	N/A		5.9		%	N/A
Net patient service revenue per case	$	1,335		$	1,250	$	1,338		$	1,301
Net patient service revenue per case growth	6.8		%	N/A		2.8		%	N/A
Number of surgical facilities operated as of end of the period (1)	65			55		65			57
Number of consolidated surgical facilities (2)	47			45		47			45

(1) Includes surgical facilities that we manage but in which we have no ownership.

(2) Surgical facilities included in continuing operations.

Operating Trends

We are dependent upon private and governmental third-party sources of payment for the services that we provide. The amount that our facilities and networks receive in payment for their services may be adversely affected by market and cost factors as well as other factors over which we have no control, including Medicare, Medicaid and state regulations and the cost containment and utilization decisions and reduced reimbursement schedules of third-party payors.

Beginning in 2008, the Center for Medicare and Medicaid Services (“CMS”) began basing Medicare payments to surgery centers on the hospital outpatient prospective payment system. For procedures performed during 2008, surgery centers are generally paid at approximately 65 percent of what hospitals are reimbursed for outpatient procedures. CMS recently announced that for procedures performed in calendar year 2009, surgery centers will be reimbursed at less than 63 percent of the corresponding amount that hospital outpatient departments receive. The percentage relationship between surgery center reimbursement and hospital outpatient payment rates will continue to fluctuate from year to year as CMS annually recalculates the conversion factors and makes adjustments for budget neutrality and inflation. In addition, CMS recently has added to the list of procedures covered by Medicare in a surgery center setting. The ultimate impact of the changes in Medicare reimbursement will depend on a number of factors, including the procedure mix at the centers and our ability to realize an increase in procedure volume.

Some of our payments come from third-party payors with which our surgical facilities do not have a written contract. In those situations, commonly known as “out-of-network” services, we generally charge the patients the same co-payment or other patient responsibility amounts that we would have charged had our surgical facility had a contract with the payor. We also submit a claim for the services to the payor along with full disclosure that our surgical facility has charged the patient an in-network patient responsibility amount. Historically, those third-party payors who do not have contracts with our surgical facilities have typically paid our claims at higher than comparable contracted rates. However, there is a growing trend for third-party payors to adopt out-of-network fee schedules that are more comparable to our contracted rates or to take other steps to discourage their enrollees from seeking treatment at out-of-network surgical facilities. In certain situations, we have seen an increase in the volume of cases in those instances where we transition from out-of-network to in-network billing, although we experience an overall decrease in revenues to the surgical facility. We can provide no assurance that we will see an increase in the volume of cases where we transition from out-of-network to in-network in amounts that compensate for a decrease in per case revenues.

Another recent trend is the consolidation of third-party payors. As a result of payor consolidation in certain markets, typically low volume payors with which our surgical facilities have a written contract have allowed recently acquired payors to access their network. As a result, payors with which we did not negotiate a written contract are now paying at contracted rates. The contracted rates are typically lower than rates paid for out-of-network services. Additionally, we have experienced difficulty from some payors in adjudicating claims properly and submitting timely payments as a result of integration issues certain payors have experienced through the consolidation with other payors. We have specifically experienced this trend at our California facilities.

During the fourth quarter of 2007, in an effort to address some of these payor issues, we cancelled contracts with certain third-party payors in California and Missouri, effective in the first quarter of 2008. As a result of cancelling contracts, we have received payments on claims at rates higher than previously contracted rates.

Our operating income margin for the three months ended September 30, 2008, increased to 17.1% from (4.8)% in 2007, or 16.2%, excluding merger transaction expenses and other merger related costs including the accelerated vesting of stock options, restricted stock, and related payroll expense. As previously mentioned, the cancellation of contracts with certain third-party payors in California and Missouri was effective in the first quarter of 2008. As a result, we have received payments on claims at rates higher than the previously contracted rates. This change in reimbursement has had a positive impact on our operating income margins. However, this positive impact was offset by the opening of three facilities during the first half of 2008, which we began developing in 2007. As of September 30, 2008, we had two facilities under development. The development of a surgical facility has a negative impact on operating income margins until the facility is opened and completes an initial ramp-up phase. Also during the third quarter, business was interrupted at three of our facilities located in Louisiana as a result of a hurricane.

Acquisitions and Developments

During the third quarter of 2008, we acquired an incremental ownership of 18.5% in our surgical facility located in Irvine, California for $5.1 million. Through this acquisition we obtained a controlling interest in this facility. The acquisition was treated as a business combination and we began consolidating the facility in the third quarter of 2008 for financial reporting purposes. The aggregate purchase price was financed with cash from operations.

During the second quarter of 2008, we opened one of the three surgical facilities that were under development as of March 31, 2008. We account for this facility as an investment under the equity method. Effective May 31, 2008, we acquired an incremental ownership in two of our existing surgical facilities located in California. We acquired an incremental ownership of 16.7% in our surgical facility located in Irvine, California for $3.1 million. We acquired an incremental ownership of 18.0% in our surgical facility located in Arcadia, California for $304,000. The aggregate purchase price was financed with cash from operations.

During the first quarter of 2008, we opened two of the five surgical facilities that were under development as of December 31, 2007. We consolidate one of these facilities for financial reporting purposes and account for one as an investment under the equity method.

Effective February 21, 2008, we acquired ownership in five surgical facilities specializing in spine, orthopedic and pain management procedures located in Boulder, Colorado; Honolulu, Hawaii; Bristol and Nashville, Tennessee; and Seattle, Washington for an aggregate of $5.8 million plus the assumption of $4.7 million of debt and contingent consideration of up to $3.0 million subject to earn out provisions based on EBITDA for the year ended December 31, 2008. We will record the contingency if and when it becomes distributable, or determinable beyond a reasonable doubt. We acquired an ownership ranging from 20.0% to 50.0% in these surgical facilities. Three of these facilities are consolidated for financial reporting purposes. The aggregate purchase price was financed with cash from operations. We also entered into management agreements with each of these surgical facilities.

Effective January 1, 2008, we acquired an incremental ownership in three of our existing surgical facilities located in California. We acquired an incremental ownership of 10.7% in our two surgical facilities located in Beverly Hills, California for an aggregate of $2.5 million and a 6.4% additional ownership in our surgical facility located in Encino, California for $2.0 million. Prior to the acquisition, we owned 55.1% and 57.0% of the two Beverly Hills, California surgical facilities and 55.5% of the Encino, California surgical facility. The aggregate purchase price was financed with cash from operations.

Discontinued Operations and Divestitures

From time to time, we evaluate our portfolio of surgical facilities to ensure the facilities are performing as we expect. We have previously identified three underperforming ambulatory surgery centers that we consolidate for financial reporting purposes. We committed to a plan to divest our interest in these facilities. During the second quarter of 2008, we sold our interest in one ambulatory surgery center located in Savannah, Georgia. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” these facilities’ assets, liabilities, revenues and expenses and cash flows have been reclassified as discontinued operations for all periods presented.

Revenues, the loss on operations before income taxes and the total loss from discontinued operations, net of taxes, for the three and nine months ended September 30, 2008 and 2007 were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007

Net Revenue	$	1,752		$	2,039		$	5,695		$	7,909
Loss on operations, before tax	$	(458	)	$	(277	)	$	(1,286	)	$	(1,161	)
Income tax provision (benefit)	$	10		$	(107	)	$	(390	)	$	(361	)
(Loss) gain on sale, net of tax	$	—		$	—		$	(1,394	)	$	256
Loss from discontinued operations, net of tax	$	(468	)	$	(170	)	$	(2,290	)	$	(544	)

Effective September 30, 2008, we sold substantially all of the assets of our ambulatory surgery center in Deland, Florida for $1.7 million. This facility was not one of the facilities held for sale. We recorded a loss on the sale of approximately $538,000. Due to the migration of cases from this facility to our Orange City, Florida facility, the results of operations and the loss on the sale of assets are reflected in our results from continuing operations.

Results of Operations

The following tables summarize certain statements of operations items for each of the three and nine months ended September 30, 2008 and 2007. The tables also show the percentage relationship to revenues for the periods indicated:

		Three Months Ended September 30,
		2008					2007
		Amount			% of Revenues		Amount				% of Revenues
Revenues		$	83,570		100.0	%	$	73,074			100.0	%
Cost of revenues		57,539			68.9		52,133				71.3
General and administrative expense		6,175			7.4		13,679				18.7
Depreciation and amortization		3,947			4.7		3,277				4.5
Provision for doubtful accounts		1,403			1.7		715				1.0
(Income) loss on equity investments		(450		)	(0.5	)	278				0.4
Impairment and loss on disposal of long-lived assets		675			0.8		94				0.1
Gain on sale of long-lived assets		(42		)	(0.1	)	(90			)	(0.1	)
Merger transaction expenses		—			—		6,499				8.9
Total operating expenses		69,247			82.9		76,585				104.8
Operating income (loss)		14,323			17.1		(3,511			)	(4.8	)
Minority interests in income of consolidated subsidiaries		(5,444		)	(6.5	)	(4,490			)	(6.1	)
Interest expense, net		(11,293		)	(13.5	)	(5,964			)	(8.2	)
Income before income taxes and discontinued operations		(2,414		)	(2.9	)	(13,965			)	(19.1	)
Benefit for income taxes		(1,053		)	(1.3	)	(2,478			)	(3.4	)
Loss from continuing operations		(1,361		)	(1.6	)	(11,487			)	(15.7	)
Loss from discontinued operations		(468		)	(0.6	)	(170			)	(0.2	)
Net loss		$	(1,829	)	(2.2	)%	$	(11,657		)	(15.9	)%

	Nine Months Ended September 30,
	2008						2007
	Amount				% of Revenues		Amount				% of Revenues
Revenues	$		247,184		100.0	%	$		226,964		100.0	%
Cost of revenues	167,929				67.9		154,087				67.9
General and administrative expense	18,816				7.6		26,329				11.6
Depreciation and amortization	11,169				4.5		9,279				4.1
Provision for doubtful accounts	2,579				1.0		2,910				1.3
(Income) loss on equity investments	(1,152			)	(0.5	)	78				—
Impairment and loss on disposal of long-lived assets	1,147				0.5		339				0.1
Gain on sale of long-lived assets	(710			)	(0.3	)	(596			)	(0.2	)
Merger transaction expenses	—				—		7,522				3.3
Proceeds from insurance settlement, net	—				—		(161			)	(0.1	)
Total operating expenses	199,778				80.8		199,787				88.0
Operating income	47,406				19.2		27,177				12.0
Minority interests in income of consolidated subsidiaries	(18,243			)	(7.4	)	(17,243			)	(7.6	)
Interest expense, net	(32,497			)	(13.1	)	(9,890			)	(4.4	)
(Loss) income before income taxes and discontinued operations	(3,334			)	(1.3	)	44				—
(Benefit) provision for income taxes	(705			)	(0.3	)	3,184				1.4
Loss from continuing operations	(2,629			)	(1.1	)	(3,140			)	(1.4	)
Loss from discontinued operations	(2,290			)	(0.9	)	(544			)	(0.2	)
Net loss	$		(4,919	)	(2.0	)%	$		(3,684	)	(1.6	)%

Three Months Ended September 30, 2008 Compared To Three Months Ended September 30, 2007

Overview. During the three months ended September 30, 2008, our revenues increased 14.4% to $83.6 million from $73.1 million for the three months ended September 30, 2007. We incurred a net loss for the three months ended September 30, 2008 of $1.8 million compared to a net loss of $11.7 million for the three months ended September 30, 2007. Included in the net loss for 2007 is $12.6 million, net of tax, of merger transaction expenses, including various legal fees and other merger related costs, including the accelerated vesting of stock options, restricted stock, and related payroll expense. Included in the net loss for 2008 is an additional $1.7 million, net of tax, of interest expense and amortized deferred financing costs as a result of our new capital structure. Our financial results for the three months ended September 30, 2008 compared to September 30, 2007 reflect the addition of six surgical facilities that we consolidate for financial reporting purposes and four surgical facilities that we do not consolidate for financial reporting purposes.

For purposes of this management’s discussion of our consolidated financial results, we consider same store facilities as those surgical facilities that we consolidate for financial reporting purposes for both the three months ended September 30, 2008 and 2007.

Revenues. Revenues for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 were as follows (dollars in thousands):

	Three Months Ended September 30,				Dollar		Percent
	2008		2007		Variance		Variance
Patient service revenues:
Same store revenues	$	74,525	$	68,890	$	5,635	8.2	%
Revenues from other surgical facilities	4,876		483		4,393		—
Total patient service revenues	79,401		69,373		10,028		14.5
Physician service revenues	1,625		1,378		247		17.9
Other service revenues	2,544		2,323		221		9.5
Total revenues	$	83,570	$	73,074	$	10,496	14.4	%

Patient service revenues at same store facilities increased 8.2% for the three months ended September 30, 2008 compared to the three months ended September 30, 2007, primarily as a result of an increase in cases of 1.9% combined with an increase in net revenue per case of 6.1%. Our same store volume increased as a result of our continued focus on physician recruitment for both existing and new specialties. In addition, case volume increased as a result of our efforts to develop and acquire surgical facilities within markets served by other surgical facilities in which we own an interest, thereby enhancing our overall market position. However, the increase in case volume was partially offset as a result of a hurricane which interrupted business at three of our facilities located in Louisiana.

The increase in net revenue per case is related to normal inflationary adjustments from payors with contracted rates and the cancellation of certain payor contracts in California and Missouri. In addition, the initial phase of Medicare reimbursement increases became effective January 1, 2008 for specific cases performed in ambulatory surgery centers. The remaining increase in total revenues is related to surgical facilities acquired or developed since July 1, 2007, partially offset by surgical facilities divested in 2007.

Cost of Revenues. Cost of revenues for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 were as follows (dollars in thousands):

	Three Months Ended September 30,				Dollar		Percent
	2008		2007		Variance		Variance
Same store cost of revenues	$	54,030	$	51,642	$	2,388	4.6	%
Cost of revenues from other surgical facilities	3,509		491		3,018		—
Total cost of revenues	$	57,539	$	52,133	$	5,406	10.4	%

As a percentage of same store patient services revenues, same store cost of revenues decreased to 72.5% for the three months ended September 30, 2008 from 75.0% for the three months ended September 30, 2007. This decrease is a result of higher net revenues per case primarily due to the cancellation of certain payor contracts in California and Missouri. On a per case basis, same store cost of revenues increased 2.7% to $967 in 2008 from $942 in 2007 primarily as a result of inflationary adjustments and the impact of facilities under development. Cost of revenues from other surgical facilities increased by $3.0 million. This increase is primarily attributable to surgical facilities acquired or developed since July 1, 2007, partially offset by surgical facilities divested in 2007. As a percentage of revenues, total cost of revenues decreased to 68.9% for 2008 from 71.3% for 2007.

General and Administrative Expense. General and administrative expense was $6.2 million for the three months ended September 30, 2008 compared to $13.7 million for the three months ended September 30, 2007. Included in 2007 is $8.0 million of expenses related primarily to the accelerated vesting of stock options, restricted stock, and related payroll expense, as a result of the Merger. We recorded stock compensation expense of $323,000 in 2008. As a percentage of revenues, general and administrative expenses decreased to 7.4% for 2008, from 7.7% for 2007, exclusive of expenses related primarily to the accelerated vesting of stock options, restricted stock, and related payroll expense, as a result of the Merger.

Depreciation and Amortization. Depreciation and amortization expense for the three months ended September 30, 2008 was $3.9 million compared to $3.3 million for the three months ended September 30, 2007. This increase is primarily attributable to depreciation expense at facilities acquired or developed since July 1, 2007. As a percentage of revenues, depreciation and amortization expense increased to 4.7% for 2008 from 4.5% for 2007. Also included in 2008 is $206,000 of additional depreciation expense as a result of the finalized purchase accounting as a result of the Merger. Same store depreciation and amortization expense remained consistent at $3.3 million for 2008 and 2007.

Provision for Doubtful Accounts. Provision for doubtful accounts increased to $1.4 million for the three months ended September 30, 2008 from $715,000 for the three months ended September 30, 2007. As a percentage of revenues, the provision for doubtful accounts increased to 1.7% for 2008 from 1.0% for 2007. On a same store basis, the provision for doubtful accounts increased to 1.8% of revenue for 2008 from 1.1% for 2007.

(Income) loss on Equity Investments. (Income) loss on equity investments represents the net (income) loss of certain investments we have in surgical facilities. These surgical facilities are not consolidated for financial reporting purposes. Income on equity investments increased to $450,000 for the three months ended September 30, 2008 from a loss of $278,000 for the three months ended September 30, 2007. The increase in income on equity investments for 2008 compared to 2007 is primarily attributable to developed facilities recently opened.

Impairment and Loss on Disposal of Long-Lived Assets. Impairment and loss on disposal of long-lived assets for the three months ended September 30, 2008 of $675,000 includes a $538,000 loss on the sale of assets at the Deland, Florida facility. The remaining loss for the three months ended September 30, 2008 and September 30, 2007 primarily represents the loss we recognized on the sale of a portion of our ownership in certain surgical facilities to physician investors.

Gain on Sale of Long-Lived Assets. Gain on sale of long-lived assets for the three months ended September 30, 2008 of $42,000 and for the three months ended September 30, 2007 of $90,000 primarily represents the gain we recognized on the sale of a portion of our ownership in certain surgical facilities to physician investors.

Merger Transaction Expenses. During the three months ended September 30, 2007, we incurred $6.5 million of costs directly attributable to the Merger. These costs were primarily legal fees that were expensed in the period incurred.

Operating Income. Operating income increased to $14.3 million for the three months ended September 30, 2008 from a loss of $3.5 million, or income of $11.9 million, exclusive of Merger transaction expenses for the three months ended September 30, 2007. As a percentage of revenues, operating income increased to 17.1% for 2008 from (4.8%) for 2007, or 16.2%, excluding Merger transaction expenses. Operating income margins on same store facilities increased to 17.7% for 2008 from 15.8% for 2007, excluding Merger transaction expenses.

Minority Interests in Income of Consolidated Subsidiaries. Minority interests in income of consolidated subsidiaries increased 20.0% to $5.4 million for the three months ended September 30, 2008 from $4.5 million for the three months ended September 30, 2007. As a percentage of revenues, minority interests in income from

consolidated subsidiaries increased to 6.5% for 2008 from 6.1% for 2007. This increase is attributable to an operating income margin increase from same store facilities during the three months ended September 30, 2008.

Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased to $11.3 million for the three months ended September 30, 2008 from $6.0 million for the three months ended September 30, 2007. Included in interest expense is an incremental $2.9 million of interest and amortization expense as a result of our new capital structure. The increase in interest expense in 2008 was primarily due to our new capital structure following the Merger.

Benefit for Income Taxes. The benefit for income taxes decreased to $1.1 million for the three months ended September 30, 2008 from $2.5 million for the three months ended September 30, 2007. This decrease in the benefit for income taxes was due to the decrease in the loss before income taxes for the period. The effective tax rate for 2008 was (43.6%) compared to an effective tax rate of (17.7%) for 2007. The effective tax rate for the three months ended September 30, 2007 included a $2.9 million tax effect of transaction costs that were determined to be nondeductible for tax purposes.

Loss from Continuing Operations. Loss from continuing operations was $1.4 million for the three months ended September 30, 2008 compared to $11.5 million for the three months ended September 30, 2007, or income of $1.1 million, excluding merger transaction expenses. Income from continuing operations, excluding merger transaction expenses, decreased primarily as a result of additional interest expense and amortization of deferred financing costs of approximately $2.2 million, net of tax, offset by improved operating income margins during the period.

Nine Months Ended September 30, 2008 Compared To Nine Months Ended September 30, 2007

Overview. During the nine months ended September 30, 2008, our revenues increased 8.9% to $247.2 million from $227.0 million for the nine months ended September 30, 2007. We incurred a net loss for 2008 of $4.9 million compared to $3.7 million for 2007. Included in the net loss for 2008 is an additional $9.1 million, net of tax, of interest expense, primarily due to our new capital structure following the Merger. Included in interest expense is an additional $1.1 million, net of tax, of amortization expense, which includes $552,000 of deferred finance costs expensed in conjunction with the repayment of our bridge facility. Our financial results for the nine months ended September 30, 2008 compared to September 30, 2007 reflect the addition of three surgical facilities that we consolidate for financial reporting purposes and three surgical facilities that we do not consolidate for financial reporting purposes.

For purposes of this management’s discussion of our consolidated financial results, we consider both same store facilities as those surgical facilities that we consolidate for financial reporting purposes for the nine months ended September 30, 2008 and 2007.

Revenues. Revenues for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 were as follows (dollars in thousands):

	Nine Months Ended September 30,				Dollar		Percent
	2008		2007		Variance		Variance
Patient service revenues:
Same store revenues	$	223,885	$	214,648	$	9,237	4.3	%
Revenues from other surgical facilities	11,039		968		10,071		—
Total patient service revenues	234,924		215,616		19,308		9.0
Physician service revenues	4,851		4,023		828		20.1
Other service revenues	7,409		7,325		84		1.1
Total revenues	$	247,184	$	226,964	$	20,220	8.9	%

Patient service revenues at same store facilities increased 4.3% for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, primarily as a result of our 1.4% increase in cases combined with a 2.8% increase in net revenue per case. Our same store volume increased as a result of our continued focus on physician recruitment for both existing and new specialties. In addition, case volume increased as a result of our efforts to develop and acquire surgical facilities within markets served by other surgical facilities in which we own an interest, thereby enhancing our overall market position. At one of these facilities, we acquired an

incremental ownership in a center which was previously accounted for using the equity method during 2007, and began consolidating the facility for financial reporting purposes. However, we have experienced weaker volumes at two of our surgical hospitals, and at certain facilities located in the southeast. Additionally, we experienced a decrease in case volume as a result of a hurricane which interrupted business at three of our facilities located in Louisiana.

The increase in net revenue per case is related to normal inflationary adjustments from payors with contracted rates and the cancellation of certain payor contracts in California and Missouri. In addition, the initial phase of Medicare reimbursement increases became effective January 1, 2008 for specific cases performed in ambulatory surgery centers. The remaining increase in total revenues is related to surgical facilities acquired or developed since January 1, 2007, partially offset by surgical facilities divested in 2007.

Cost of Revenues. Cost of revenues for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 were as follows (dollars in thousands):

	Nine Months Ended September 30,				Dollar		Percent
	2008		2007		Variance		Variance
Same store cost of revenues	$	159,734	$	153,047	$	6,687	4.4	%
Cost of revenues from other surgical facilities	8,195		1,040		7,155		—
Total cost of revenues	$	167,929	$	154,087	$	13,842	9.0	%

As a percentage of same store patient services revenues, same store cost of revenues remained consistent at 71.3% for the nine months ended September 30, 2008 and September 30, 2007. On a per case basis, same store cost of revenues increased 2.9% to $957 in 2008 from $930 in 2007, primarily as a result of inflationary adjustments and the impact of facilities under development. As previously mentioned, the 2.8% increase in net revenue per case was impacted during the first quarter of 2008 by out-of-network trends experienced in certain markets. During the second and third quarters, as a result of cancelling certain contracts, we have experienced positive net revenue per case trends at these facilities. Cost of revenues from other surgical facilities increased by $7.2 million. This increase is primarily attributable to surgical facilities acquired or developed since January 1, 2007, partially offset by surgical facilities divested in 2007. As a percentage of revenues, total cost of revenues remained consistent at 67.9% for 2008 and 2007.

General and Administrative Expense. General and administrative expense increased 7.4% to $18.8 million for the nine months ended September 30, 2008 from $17.6 million for the nine months ended September 30, 2007, excluding expenses related primarily to the accelerated vesting of stock options, restricted stock, and related payroll expense, as a result of the Merger. As a percentage of revenues, general and administrative expenses were 7.6% for 2008 and 11.7% for 2007, or 7.8% excluding expenses related primarily to the accelerated vesting of stock options, restricted stock, and related payroll expense, as a result of the Merger.

Depreciation and Amortization. Depreciation and amortization expense for the nine months ended September 30, 2008 was $11.2 million compared to $9.3 million for the nine months ended September 30, 2007. This increase is primarily attributable to depreciation expense at facilities acquired or developed since January 1, 2007. As a percentage of revenues, depreciation and amortization expense increased to 4.5% for 2008 from 4.1% for 2007. Same store depreciation and amortization expense increased to $10.0 million for 2008 from $9.2 million in 2007, primarily as a result of asset additions at certain facilities.

Provision for Doubtful Accounts. Provision for doubtful accounts decreased to $2.6 million for the nine months ended September 30, 2008 from $2.9 million for the nine months ended September 30, 2007. As a percentage of revenues, the provision for doubtful accounts decreased to 1.0% for 2008 from 1.3% for 2007. This decrease is primarily attributed to improved collection efforts at several of our larger facilities. On a same store basis, the provision for doubtful accounts decreased to 1.1% of revenue for 2008 compared to 1.4% for 2007.

(Income) loss on Equity Investments. (Income) loss on equity investments represents the net income of certain investments we have in surgical facilities. These surgical facilities are not consolidated for financial reporting purposes. Income on equity investments increased to $1.2 million for the nine months ended September 30, 2008

from a loss of $78,000 for the nine months ended September 30, 2007. The increase in income on equity investments for 2008 compared to 2007 is primarily attributable to developed facilities recently opened.

Impairment and Loss on Disposal of Long-Lived Assets. Impairment and loss on disposal of long-lived assets for the nine months ended September 30, 2008 of $1.1 million and for the nine months ended September 30, 2007 of $339,000 primarily represents the loss related to the sale of a portion of our ownership interest in certain surgical facilities to physician investors and a health care system. Included in 2008 is a loss of $538,000 related to the sale of assets at the Deland, Florida facility.

Gain on Sale of Long-Lived Assets. Gain on sale of long-lived assets for the nine months ended September 30, 2008 of $710,000 and for the nine months ended September 30, 2007 of $757,000 primarily represents the gain we recognized on the sale of a portion of our ownership in certain surgical facilities to physician investors.

Merger Transaction Expenses. During the nine months ended September 30, 2007, we incurred $7.5 million of costs directly attributable to the Merger. These costs were primarily legal fees that were expensed in the period incurred.

Proceeds from Insurance Settlement. During the nine months ended September 30, 2007, we received the remaining insurance proceeds of $161,000 related to the hurricanes that temporarily closed our affected surgical facilities and interrupted the surgical facilities’ business during the third and fourth quarters of 2005. We recorded these proceeds net of related costs.

Operating Income. Operating income increased 74.3% to $47.4 million for the nine months ended September 30, 2008 from $27.2 million for the nine months ended September 30, 2007. As a percentage of revenues, operating income increased to 19.2% for 2008 from 12.0% for 2007. Excluding Merger transaction expenses, operating income increased to 19.3% of revenues for 2008 from 19.2% for 2007. Operating income margins on same store facilities increased to 19.6% for 2008 from 16.1% for 2007.

Minority Interests in Income of Consolidated Subsidiaries. Minority interests in income of consolidated subsidiaries increased to $18.2 million for the nine months ended September 30, 2008 from $17.2 million for the nine months ended September 30, 2007. As a percentage of revenues, minority interests in income from consolidated subsidiaries decreased to 7.4% for 2008 from 7.6% for 2007.

Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased to $32.5 million for the nine months ended September 30, 2008 from $9.9 million for the nine months ended September 30, 2007. Included in interest expense is an incremental increase of $15.0 million as a result of our new capital structure, including $1.8 million of amortization expense, which includes $912,000 of deferred finance costs expensed in conjunction with the repayment of our bridge facility. The increase in interest expense in 2008 was primarily due to our new capital structure following the Merger.

(Benefit) Provision for Income Taxes. The benefit for income taxes was $705,000 for the nine months ended September 30, 2008 as compared to a provision for income taxes of $3.2 million for the nine months ended September 30, 2007. Income taxes decreased as a result of the decrease in income before income taxes, as well as $2.9 million of merger transaction costs recorded in the period ended September 30, 2007 that were determined to be nondeductible for tax purposes.

Loss from Continuing Operations. Loss from continuing operations was $2.6 million for the nine months ended September 30, 2008 compared to $3.1 million for the nine months ended September 30, 2007. The loss from continuing operations in 2008 was primarily a result of additional interest expense and amortization of deferred financing costs totaling approximately $9.1 million, net of tax.

Liquidity and Capital Resources

Balance Sheet Information

Comparability of our consolidated balance sheets is affected by our acquisitions, developments and divestitures. The assets and liabilities, as well as the borrowings under our senior credit facility for the acquisitions, are recorded at the date of acquisition.

During the nine months ended September 30, 2008, we acquired a 35.2% incremental ownership in our surgical facility located in Irvine, California for $8.2 million, 10.7% in our two surgical facilities located in Beverly Hills, California for an aggregate of $2.5 million, a 6.4% incremental ownership in our surgical facility located in Encino, California for $2.0 million, and an 18.0% incremental ownership in our surgical facility located in Arcadia, California for $304,000. Prior to the acquisition, we owned 55.1% and 57.0% of the two Beverly Hills, California surgical facilities, 55.5% of the Encino, California surgical facility, 15.3% of the Irvine, California surgical facility and 19.2% of the Arcadia, California surgical facility. We obtained a controlling interest in the Irvine, California surgical facility in the third quarter and began consolidating this facility for financial reporting purposes.

Also during 2008, we acquired ownership in five surgical facilities specializing in spine, orthopedic and pain management procedures located in Boulder, Colorado; Honolulu, Hawaii; Bristol and Nashville, Tennessee; and Seattle, Washington for an aggregate of $5.8 million plus the assumption of $4.7 million of debt and contingent consideration of up to $3.0 million. We acquired an ownership ranging from 20.0% to 50.0% in these surgical facilities. Three of these facilities are included in our consolidated financial results. The aggregate purchase price was financed through a combination of borrowing proceeds as a result of the Merger and cash from operations.

During the nine months ended September 30, 2008, we opened three surgical facilities that were under development as of December 31, 2007, one of which is consolidated for financial reporting purposes as of September 30, 2008 and two of which are recorded as investments under the equity method. The total cost of developing these three surgical facilities was $17.8 million, which was financed with $13.7 million of third-party debt, of which we have guaranteed $4.8 million. The remaining cost was financed with our equity investment of $576,000 and facility level equity contributions of $2.7 million. As of September 30, 2008, we had two surgical facilities under development.

Development of a typical ambulatory surgery center cost between $4.0 million and $6.0 million, excluding costs of real estate. Development costs include estimated construction costs of $1.5 million to $2.0 million, typically for improving existing space, equipment and other furnishing costs of $1.5 million to $2.5 million and working capital of approximately $1.0 million to $1.5 million that is generally required to sustain operations for the initial six to 12 months of operations. These costs vary depending on the range of specialties that will be provided at the surgical facility and the number of operating and treatment rooms. Development of a surgical hospital with the same operating capacity as a typical ambulatory surgery center would require additional capital to build and equip additional features, such as inpatient hospital rooms, and to provide other ancillary services, if required.

Approximately 80.0% of the development costs of a new surgical facility are financed with facility-level indebtedness and cash from operations, and the remainder with equity contributed by us and the other owners of the surgical facility. The other owners are typically local physicians, physician groups or, less frequently, hospitals. For our consolidated facilities, the facility-level indebtedness typically consists of intercompany loans that we provide, and for our non-consolidated facilities, the facility-level indebtedness consists of third-party debt for which we typically provide a guarantee for our pro rata share. We expect that our acquisition and development program will require substantial capital resources, which we estimate to range from $25.0 million to $35.0 million per year over the next two to three years. In addition, the operations of our existing facilities will require ongoing maintenance capital expenditures that have historically averaged less than 3.5% of net revenue. We expect that our capital needs will be financed through a combination of cash flow from operations and corporate borrowings.

While we intend to finance acquisitions and development projects with cash flow from operations and borrowings under our existing senior secured credit facility, we may require sources of capital in addition to those presently available to us. With the existing uncertainty in the capital and credit markets, our access to capital may not be available on terms acceptable to us or at all, which may limit our ability to successfully pursue our growth strategy.

Cash Flow Statement Information

During the nine months ended September 30, 2008, we generated operating cash flow from continuing operations of $27.5 million compared to $19.3 million for the nine months ended September 30, 2007. The $27.5 million includes distributions to minority interest holders of $16.5 million compared to $18.2 million for the nine months ended September 30, 2007. During 2008, we elected to exercise the payment-in-kind (the “PIK”) option by increasing the principal amount of the bridge facility in lieu of making scheduled interest payments. In 2007, we elected to pay interest on the bridge facility of $5.6 million in cash. Also during 2008, we received income tax refunds of $2.6 million, representing overpayments made during 2006 and 2007.

Net cash used in investing activities from continuing operations during the nine months ended September 30, 2008 was $27.8 million, including $15.8 million of payments related to acquisitions and $12.4 million related to purchases of property and equipment. The $12.4 million of property and equipment purchases includes $7.4 million for expansion and development related projects.

Our net cash used in financing activities from continuing operations during the nine months ended September 30, 2008 was $7.9 million compared to $41.3 million provided by financing activities during the nine months ended September 30, 2007. In 2008, we made scheduled principal payments on our senior secured credit facility totaling $1.9 million and unscheduled principal payments of $11.0 million. During 2008, we elected to exercise the PIK option in lieu of making scheduled interest payments. The $41.3 million provided by financing activities during the nine months ended September 30, 2007 is attributable to the new capital structure as a result of the Merger.

Long-Term Debt

The Company’s long-term debt is summarized as follows (in thousands):

	September 30, 2008			December 31, 2007
Senior secured credit facility	$	236,500		$	249,375
Senior PIK toggle notes	184,635			—
Bridge facility	—			175,000
Notes payable to banks	20,133			8,817
Secured term loans	3,423			504
Capital lease obligations	4,230			3,258
	448,921			436,954
Less current maturities	(12,059		)	(8,029		)
	$	436,862		$	428,925

Senior Secured Credit Facility

On August 23, 2007, in conjunction with the Merger, we entered into a new $350.0 million senior secured credit facility with a syndicate of banks. The senior secured credit facility extends credit in the form of two term loans of $125.0 million each (the first, the Tranche A Term Loan and the second, the Tranche B Term Loan) and a $100.0 million revolving, swingline and letter of credit facility (the “Revolving Facility”). The swingline facility is limited to $10.0 million, and the swingline loans are available on a same-day basis. The letter of credit facility is limited to $10.0 million. We are the borrower under the senior secured credit facility, and all of our wholly owned subsidiaries are guarantors. Under the terms of the senior secured credit facility, entities that become wholly owned subsidiaries must also guarantee the debt.

The Tranche A Term Loan matures on August 23, 2013, the Tranche B Term Loan matures on August 23, 2014 and the Revolving Facility matures on August 23, 2013. The Tranche A Term Loan requires quarterly principal payments of $312,500 through September 30, 2009, quarterly payments of $1.6 million from December 31, 2009 through September 30, 2010, quarterly payments of $4.7 million from December 31, 2010 through September 30, 2011, quarterly payments of $6.3 million from December 31, 2011 through September 30, 2012, quarterly payments of $18.1 million from December 31, 2012 through June 30, 2013 and a balloon payment of $12.6 million on August 23, 2013. The Tranche B Term Loan requires quarterly principal payments of $312,500 through June 30, 2014 and a balloon payment of $111.1 million on August 23, 2014.

At our option, the term loans bear interest at the lender’s alternate base rate in effect on the applicable borrowing date plus an applicable alternate base rate margin, or Eurodollar rate in effect on the applicable borrowing date, plus an applicable Eurodollar rate margin. Both the applicable alternate base rate margin and applicable Eurodollar rate margin will vary depending upon the ratio of our total indebtedness to consolidated EBITDA.

The senior secured credit facility permits us to declare and pay dividends only in additional shares of its stock except for the following exceptions. Restricted subsidiaries, as defined in the credit agreement, may declare and pay dividends ratably with respect to their capital stock. We may declare and pay cash dividends or make other distributions to Holdings provided the proceeds are used by Holdings to (i) purchase or redeem equity interest of Holdings acquired by former or current employees, consultants or directors of Holdings, the Company or any restricted subsidiary or (ii) pay principal or interest on promissory notes that were issued in lieu of cash payments for the repurchase or redemption of such equity instruments, provided that the aggregate amount of such dividends

or other distributions shall not exceed $3.0 million in any fiscal year. Any unused amounts that are permitted to be paid under this provision are available to be carried over to subsequent fiscal years provided that certain conditions are met. We may also make payments to Holdings to pay franchise taxes and other fees required to maintain its corporate existence provided such payments do not exceed $3.0 million in any calendar year and also make payments in the amount necessary to enable Holdings to pay income taxes directly attributable to the operations of the Company and to make $1.0 million in annual advisory and management agreement payments. We may also make additional payments to Holdings in the aggregate amount of $5.0 million throughout the term of the senior secured credit facility.

In October 2007, we entered into an interest rate swap agreement to protect against certain interest rate fluctuations of the LIBOR rate on $150.0 million of our variable rate debt under the senior secured credit facility. The effective date of the interest rate swap was October 31, 2007, and it is scheduled to expire on October 31, 2010. The interest rate swap effectively fixes our LIBOR interest rate on the $150.0 million of variable debt at a rate of 4.7% and is being accounted for as a cash flow hedge. We have recognized the fair value of the interest rate swap as a long-term liability of approximately $4.5 million at September 30, 2008. If we materially modify our interest rate swap agreement or the senior secured credit facility, we could be required to record the fair value of the interest rate swap into our statement of operations. However, at this time, we do not intend to materially modify the interest rate swap or senior secured credit facility.

As of September 30, 2008, the amount outstanding under the senior secured credit facility was $236.5 million with an interest rate on the borrowings ranging from 5.95% to 7.95%. The $100.0 million revolving facility includes a non-use fee of 0.5% of the portion of the facility not used. We pay this fee quarterly. As of September 30, 2008, the amount available under the Revolving Facility was $100.0 million. In addition, we made voluntary principal payments of $11.0 million under our senior credit facility during the first nine months of 2008.

Bridge Facility

We entered into an interim $175.0 million bridge loan credit agreement on August 23, 2007. The loan was to mature on August 23, 2008 and bear interest at the bank’s base rate plus a margin of 3.0% or the Eurodollar rate plus an initial margin of 4.0%. The margin increased by 0.5% per annum at the end of the interest period ending February 23, 2008. All of our wholly owned subsidiaries were guarantors of the bridge facility. During 2008, prior to the retirement of the bridge facility, we elected to increase the principal amount of the bridge facility in lieu of making scheduled interest payments of $4.9 million. As a result of this election, the interest rate increased by 75 basis points for those interest periods. On June 3, 2008, we repaid the $179.9 million bridge facility with proceeds from the sale of the Toggle Notes.

Senior PIK Toggle Notes

On June 3, 2008, we completed a private offering of $179.9 million aggregate principal amount of our 11.00%/11.75% Senior PIK Toggle Notes due 2015. Interest on the Toggle Notes is due February 23 and August 23 of each year, beginning August 23, 2008. The Toggle Notes will mature on August 23, 2015. For any interest period through August 23, 2011, we may elect to pay interest on the Toggle Notes (i) in cash, (ii) in kind, by increasing the principal amount of the notes or issuing new notes (referred to as “PIK interest”) for the entire amount of the interest payment or (iii) by paying interest on 50% of the principal amount of the Toggle Notes in cash and 50% in PIK interest. Cash interest on the Toggle Notes will accrue at the rate of 11.0% per annum. PIK interest on the Toggle Notes will accrue at the rate of 11.75% per annum. The proceeds from the issuance of the Toggle Notes were used exclusively to repay the bridge facility. During the third quarter of 2008, we elected the PIK option for the initial interest payment of $4.7 million on the Toggle Notes, due August 23, 2008.

The Toggle Notes are unsecured senior obligations and rank equally with our existing and future senior indebtedness, senior to all of our future subordinated indebtedness and effectively junior to our secured indebtedness to the extent of the value of the collateral securing such indebtedness. Certain of our existing subsidiaries have guaranteed the Toggle Notes on a senior basis, as required by the indenture. The indenture also requires that certain of our future subsidiaries guarantee the Toggle Notes on a senior basis. Each guarantee is unsecured and ranks equally with senior indebtedness of the guarantor, senior to all of the guarantor’s subordinated indebtedness and effectively junior to its secured indebtedness to the extent of the value of the collateral securing such indebtedness.

The indenture governing the Toggle Notes contains various restrictive covenants, including financial covenants that limit our ability and the ability of the subsidiaries to borrow money or guarantee other indebtedness, grant liens, make investments, sell assets, pay dividends or engage in transactions with affiliates.

As part of the private offering, we entered into a registration rights agreement with the initial purchasers in the private offering in which we agreed, among other things, to file the registration statement within 180 days of the issuance of the outstanding notes. On September 25, 2008, we filed a registration statement under the Securities Act of 1933, as amended, to register $184.6 million aggregate principal amount of Toggle Notes as well as the guarantee of each wholly owned subsidiary of the Company. On November 12, 2008, the Company filed an amendment to the registration statement to, among other things, register an additional $75.4 million aggregate principal amount of Toggle Notes issuable if we elect to make payments of additional interest in kind by increasing the principal amount of the existing notes or issuing additional notes. Pursuant to the registration statement, we are offering to exchange our outstanding Toggle Notes for new 11.00%/11.75% Senior PIK Toggle Notes due 2015 with an aggregate principal amount of $184.6 million registered under the Securities Act of 1933, as amended. The exchange notes will represent the same debt as the outstanding notes and we will issue the exchange notes under the same indenture that governs the outstanding notes.

At September 30, 2008, we were in compliance with all material covenants required by each long-term debt agreement.

Notes Payable to Banks

Certain of our subsidiaries have outstanding bank indebtedness of $20.1 million, which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made. The various bank indebtedness agreements contain covenants to maintain certain financial ratios and also restrict encumbrance of assets, creation of indebtedness, investing activities and payment of distributions.

Capital Lease Obligations

We are liable to various vendors for several equipment leases. The outstanding balance related to these capital leases at September 30, 2008 and December 31, 2007 was $4.2 million and $3.3 million, respectively. The leases have interest rates ranging from 3% to 17% per annum.

Inflation

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

Earnings Before Interest, Taxes, Depreciation and Amortization

When we use the term “EBITDA,” we are referring to net income plus (a) gain (loss) on discontinued operations, (b) income tax expense, (c) interest expense, net and (d) depreciation and amortization. Minority interest expense represents the interests of third parties, such as physicians and, in some cases, health care systems that own an interest in surgical facilities that we consolidate for financial reporting purposes. Our operating strategy is to apply a market-based approach in structuring our partnerships, with individual market dynamics driving the structure. We believe that it is helpful to investors to present EBITDA as defined above because it excludes the portion of net income attributable to these third-party interests and clarifies for investors our portion of EBITDA generated by our surgical facilities and other operations.

EBITDA increased to $12.8 million for the three months ended September 30, 2008 compared to $(4.7) million for the three months ended September 30, 2007. A significant component of this increase is a $15.4 million decrease in Merger transaction expenses attributable to the legal fees and the accelerated vesting of stock options, restricted stock, and related payroll expense incurred in 2007.

EBITDA increased to $40.3 million for the nine months ended September 30, 2008 compared to $19.2 million for the nine months ended September 30, 2007. A significant component of this increase is a $16.4 million decrease in expenses related to the Merger incurred in 2007. The remaining increase in EBITDA is primarily attributable to facilities acquired or developed since January 1, 2007.

We use EBITDA as a measure of liquidity. We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures. We also use EBITDA, with some variation in the calculation, to determine compliance with some of the covenants under the senior secured credit facility, as well as to determine the interest rate and commitment fee payable under the senior secured credit facility.

EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from EBITDA are significant components in understanding and evaluating financial performance and liquidity. Our calculation of EBITDA is not comparable to the EBITDA measure we have used in certain prior periods but is consistent with the measure EBITDA less minority interests previously reported. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.

The following table reconciles EBITDA to net cash provided by operating activities (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
EBITDA	$	12,826		$	(4,724	)	$	40,332		$	19,213
Depreciation and amortization	(3,947		)	(3,277		)	(11,169		)	(9,279		)
Interest expense, net	(11,293		)	(5,964		)	(32,497		)	(9,890		)
Benefit (provision) for income taxes	1,053			2,478			705			(3,184		)
Loss on discontinued operations, net of taxes	(468		)	(170		)	(2,290		)	(544		)
Net loss	(1,829		)	(11,657		)	(4,919		)	(3,684		)
Depreciation and amortization	3,947			3,277			11,169			9,279
Non-cash stock option compensation expense	323			8,734			1,790			10,462
Non-cash payment-in-kind interest option	4,816			—			9,753			—
Amortization of deferred financing costs	813			630			3,985			880
Non-cash losses and (gains)	696			5			25			(284		)
Minority interest in income of consolidated subsidiaries	5,444			4,490			18,243			17,243
Deferred income taxes	(542		)	6,718			(2,870		)	13,666
Distributions to minority partners	(5,877		)	(5,608		)	(16,457		)	(18,208		)
Equity in earnings of unconsolidated affiliates, net of distributions received	(12		)	278			237			78
Provision for doubtful accounts	1,403			715			2,579			2,910
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable	(167		)	6,477			(2,495		)	1,028
Income tax receivable	(656		)	(11,349		)	2,216			(11,349		)
Other assets and liabilities	(2,320		)	987			4,223			(5,705		)
Net cash provided by operating activities – continuing operations	$	6,039		$	3,697		$	27,479		$	16,316

Summary

We believe that existing funds, cash flows from operations and borrowings under our senior secured credit facility will provide sufficient liquidity for the next 12 to 18 months. However, we may need to incur additional debt or issue additional equity or debt securities in the future. We cannot be assured that capital will be available on acceptable terms, if at all. Our ability to meet our funding needs could be adversely affected if we suffer adverse results from our operations, or if we violate the covenants and restrictions to which we are subject under our senior secured credit facility or indenture governing the Toggle Notes.

Exhibit Number		Description
31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	SYMBION, INC.


	By:	/s/ TERESA F. SPARKS
		Teresa F. Sparks
		Senior Vice President of Financial and Chief Financial Officer
		(Principal Financial and Accounting Officer)
Date: November 19, 2008