2012 Q2 Form 10Q

10-Q 1 a2012q2form10q.htm 10-Q 2012 Q2 Form 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________

Form 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2012

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

None of the registrant’s common stock is held by non-affiliates.

As of August 10, 2012, there were 1,000 shares of the registrant’s common stock outstanding.

SYMBION, INC.

FORM 10-Q

TABLE OF CONTENTS



Part I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets (unaudited)	3

	Consolidated Statements of Operations (unaudited)	4

	Consolidated Statements of Comprehensive Income (unaudited)	5

	Consolidated Statements of Stockholders' Equity (unaudited)	6

	Consolidated Statements of Cash Flows (unaudited)	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	44

Part II - OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 6.	Exhibits	44

Signatures		45

Item 1. Financial Statements

SYMBION, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and per share amounts)



	June 30, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	64,559		$	68,441
Accounts receivable, less allowance for doubtful accounts of $11,180 and $10,137, respectively	71,298			66,408
Inventories	14,328			12,575
Prepaid expenses and other current assets	9,652			8,322
Current assets of discontinued operations	2,087			4,113
Total current assets	161,924			159,859
Land	5,713			5,713
Buildings and improvements	102,961			100,342
Furniture and equipment	77,277			68,811
Computers and software	5,276			4,802
	191,227			179,668
Less accumulated depreciation	(59,587		)	(50,013		)
Property and equipment, net	131,640			129,655
Intangible assets	24,656			25,580
Goodwill	657,523			630,144
Investments in and advances to affiliates	14,867			14,628
Other assets	13,739			15,078
Long-term assets of discontinued operations	2,189			3,150
Total assets	$	1,006,538		$	978,094

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	17,709		$	14,581
Accrued payroll and benefits	13,798			9,942
Other accrued expenses	27,738			31,012
Current maturities of long-term debt	16,391			13,582
Current liabilities of discontinued operations	1,285			1,723
Total current liabilities	76,921			70,840
Long-term debt, less current maturities	552,034			544,694
Deferred income tax payable	62,715			61,056
Other liabilities	62,318			60,673
Long-term liabilities of discontinued operations	1,376			2,394

Noncontrolling interests - redeemable	34,381			33,863

Stockholders' equity:
Common stock, 1,000 shares, $0.01 par value, authorized, issued and outstanding at June 30, 2012 and at December 31, 2011	—			—
Additional paid-in-capital	241,263			239,935
Retained deficit	(89,608		)	(81,806		)
Total Symbion, Inc. stockholders' equity	151,655			158,129
Noncontrolling interests - non-redeemable	65,138			46,445
Total equity	216,793			204,574
Total liabilities and stockholders' equity	$	1,006,538		$	978,094

See notes to unaudited consolidated financial statements.

SYMBION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues	$	122,926		$	107,835		$	244,153		$	213,861
Operating expenses:
Salaries and benefits	33,324			30,477			65,990			60,238
Supplies	30,539			26,191			59,994			50,169
Professional and medical fees	8,250			8,462			17,259			16,145
Rent and lease expense	6,253			5,989			12,259			11,675
Other operating expenses	8,197			7,650			16,332			15,343
Cost of revenues	86,563			78,769			171,834			153,570
General and administrative expense	6,285			5,543			14,286			11,412
Depreciation and amortization	5,423			5,040			10,760			10,047
Provision for doubtful accounts	2,687			1,489			4,801			3,006
Income on equity investments	(1,214		)	(387		)	(1,678		)	(656		)
(Gain) loss on disposal of investments and long-lived assets, net	(594		)	107			(621		)	29
Proceeds from litigation settlements	(215		)	—			(232		)	—
Loss on debt extinguishment	—			4,751			—			4,751
Total operating expenses	98,935			95,312			199,150			182,159
Operating income	23,991			12,523			45,003			31,702
Interest expense, net	(14,346		)	(13,431		)	(28,672		)	(25,407		)
Income (loss) before income taxes and discontinued operations	9,645			(908		)	16,331			6,295
Provision for income taxes	1,479			1,333			2,833			2,951
Income (loss) from continuing operations	8,166			(2,241		)	13,498			3,344
(Loss) income from discontinued operations, net of taxes	(479		)	214			(662		)	373
Net income (loss)	7,687			(2,027		)	12,836			3,717
Less: Net income attributable to noncontrolling interests	(10,548		)	(6,646		)	(20,638		)	(14,809		)
Net loss attributable to Symbion, Inc.	$	(2,861	)	$	(8,673	)	$	(7,802	)	$	(11,092	)

See notes to unaudited consolidated financial statements.

SYMBION, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)



	Six Months Ended June 30,
	2012			2011
Net Income	$	12,836		$	3,717
Other comprehensive income, net of income taxes:
Recognition of interest rate swap liability to earnings	—			314
Comprehensive income	12,836			4,031
Less: Comprehensive income attributable to noncontrolling interests	(20,638		)	(14,809		)
Comprehensive loss attributable to Symbion, Inc.	$	(7,802	)	$	(10,778	)

See notes to unaudited consolidated financial statements.

SYMBION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, in thousands)



	Symbion, Inc. Common Stock			Additional Paid-in Capital			Retained Deficit			Noncontrolling Interests Non-redeemable			Total
	Shares	Amount		Additional Paid-in Capital			Retained Deficit			Noncontrolling Interests Non-redeemable			Total
Balance at December 31, 2010	1,000	$	—	$	240,959		$	(55,219	)	$	42,244		$	227,984
Net (loss) income	—	—		—			(11,092		)	6,702			(4,390		)
Amortized compensation expense related to stock options	—	—		668			—			—			668
Distributions to noncontrolling interests	—	—		—			—			(7,718		)	(7,718		)
Acquisition and disposal of shares of noncontrolling interests	—	—		(657		)	—			(781		)	(1,438		)
Balance at June 30, 2011	1,000	$	—	$	240,970		$	(66,311	)	$	40,447		$	215,106

Balance at December 31, 2011	1,000	$	—	$	239,935		$	(81,806	)	$	46,445		$	204,574
Net (loss) income	—	—		—			(7,802		)	10,634			2,832
Amortized compensation expense related to stock options	—	—		1,767			—			—			1,767
Distributions to noncontrolling interest partners	—	—		—			—			(8,346		)	(8,346		)
Acquisition and disposal of shares of noncontrolling interests	—	—		(439		)	—			16,405			15,966
Balance at June 30, 2012	1,000	$	—	$	241,263		$	(89,608	)	$	65,138		$	216,793

See notes to unaudited consolidated financial statements.

SYMBION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net income	$	12,836		$	3,717
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (income) from discontinued operations	662			(373		)
Depreciation and amortization	10,760			10,047
Amortization of deferred financing costs and debt issuance discount	1,889			861
Non-cash payment-in-kind interest option	4,057			13,366
Non-cash stock option compensation expense	1,767			668
Non-cash recognition of other comprehensive loss into earnings	—			665
(Gain) loss on disposal of investments and long-lived assets, net	(621		)	29
Loss on debt extinguishment	—			4,751
Deferred income taxes	2,550			2,724
Equity in earnings of unconsolidated affiliates, net of distributions received	(854		)	401
Provision for doubtful accounts	4,801			3,006
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable	(2,561		)	(2,290		)
Other assets and liabilities	(2,187		)	1,116
Net cash provided by operating activities - continuing operations	33,099			38,688
Net cash provided by operating activities - discontinued operations	929			1,008
Net cash provided by operating activities	34,028			39,696

Cash flows from investing activities:
Purchases of property and equipment, net	(4,861		)	(3,936		)
Payments and proceeds from acquisitions and divestitures, net of cash acquired	(18,188		)	—
Change in other assets	(51		)	101
Net cash used in investing activities - continuing operations	(23,100		)	(3,835		)
Net cash provided by (used in) investing activities - discontinued operations	1,965			(73		)
Net cash used in investing activities	(21,135		)	(3,908		)

Cash flows from financing activities:
Principal payments on long-term debt	(4,248		)	(352,293		)
Proceeds from debt issuances	5,750			344,749
Payment of debt issuance costs	—			(10,130		)
Distributions to noncontrolling interest partners	(17,402		)	(17,180		)
Payments for unit activity	(309		)	(1,643		)
Other financing activities	(25		)	57
Net cash used in financing activities - continuing operations	(16,234		)	(36,440		)
Net cash used in financing activities - discontinued operations	(541		)	(271		)
Net cash used in financing activities	(16,775		)	(36,711		)
Net decrease in cash and cash equivalents	(3,882		)	(923		)
Cash and cash equivalents at beginning of period	68,441			72,485
Cash and cash equivalents at end of period	$	64,559		$	71,562

See notes to unaudited consolidated financial statements.

SYMBION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

1. Organization

Symbion, Inc. (the “Company”), through its wholly owned subsidiaries, owns interests in partnerships and limited liability companies that own and operate a national network of short stay surgical facilities in joint ownership with physicians and physician groups, hospitals and hospital systems. As of June 30, 2012, the Company owned and operated 55 surgical facilities, including 48 ambulatory surgery centers ("ASCs") and seven surgical hospitals. The Company also managed nine additional ambulatory surgery centers and one physician clinic in a market in which it operates an ASC and a surgical hospital. The Company owns a majority ownership interest in 34 of the 55 surgical facilities and consolidates 50 surgical facilities for financial reporting purposes. The Company reports two of the 55 surgical facilities as discontinued operations.

On August 23, 2007, the Company was acquired by an investment group led by an affiliate of Crestview Partners, L.P. (“Crestview”). As a result of this merger (the “Merger”), the Company no longer has publicly traded equity securities. The Company is a wholly owned subsidiary of Symbion Holdings Corporation (“Holdings”), which is owned by an investor group that includes affiliates of Crestview, members of the Company's management and other investors.

2. Significant Accounting Policies and Practices

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, ("GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and accompanying footnotes. Examples include, but are not limited to, estimates of accounts receivable allowances, professional and general liabilities and the estimate of deferred tax assets or liabilities. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All adjustments are of a normal, recurring nature. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as interests in partnerships and limited liability companies controlled by the Company through ownership of a majority voting interest or other rights granted to the Company by contract to manage and control the affiliate's business. The physician limited partners and physician minority members of the entities that the Company controls are responsible for the supervision and delivery of medical services. The governance rights of limited partners and minority members are restricted to those that protect their financial interests. Under certain partnership and operating agreements governing these partnerships and limited liability companies, the Company could be removed as the sole general partner or managing member for certain events such as material breach of the partnership or operating agreement, gross negligence or bankruptcy. These protective rights do not preclude consolidation of the respective partnerships and limited liability companies. The consolidated financial statements include the accounts of variable interest entities in which the Company is the primary beneficiary, under the provisions of Accounting Standards Codification ("ASC") Topic 810, Consolidation. The variable interest entities are surgical facilities located in the states of Florida and New York. With regard to the New York facility, the Company is the primary beneficiary due to the power to direct the activities of the facility and the level of variability within the management service agreement as well as the obligation and likelihood of absorbing the majority of expected gains and losses. Regarding the Florida facility, the Company has the power to direct the activities of the facility and has fully guaranteed the facility's debt obligations. The debt obligations are subordinated to such a level that the Company absorbs the majority of the expected gains and losses. The accompanying consolidated balance sheets at June 30, 2012 and December 31, 2011 include assets of $13.9 million and $14.2 million, respectively, and liabilities of $4.0 million and $3.9 million, respectively, related to the variable interest entities. All significant intercompany balances and transactions are eliminated in consolidation.

Recent Accounting Pronouncements

ASU 2011-08, Intangibles - Goodwill and Other

In September 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-08. Previously, entities were required to test goodwill for impairment, on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount, including the carrying value of the goodwill. If the resulting fair value of a reporting unit was less than its carrying amount, then the second step of the test would be performed to measure the amount of the impairment loss, if any. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step goodwill impairment test is unnecessary.

In accordance with ASU 2011-08, the Company has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. Additionally, ASU 2011-08 permits the

Company to resume performing the qualitative assessment in any subsequent period. The Company adopted the provisions of ASU 2011-08 during the first quarter of 2012.

ASU 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities

In July 2011, the FASB issued ASU 2011-07. ASU 2011-07 requires healthcare entities that recognize significant amounts of patient service revenues at the time services are rendered, to present the provision for doubtful accounts related to patient service revenues as a deduction from patient service revenues (net of contractual allowances and discounts) on their statement of operations if they do not assess the patient's ability to pay. The Company has evaluated ASU 2011-07 and has determined that the requirements of this ASU are not applicable to the Company as the ultimate collection of patient service revenues is generally determinable at the time of service. This ASU had no impact on the Company's consolidated financial position, results of operations or cash flows.

ASU 2011-05, Presentation of Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, which eliminated the Company's ability to present components of other comprehensive income as part of the statement of changes in stockholders' equity. Instead, ASU 2011-05 requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted the provisions of ASU 2011-05 during the first quarter of 2012 and retrospectively for all periods presented with the inclusion of a separate, consecutive consolidated statement of comprehensive income. Through June 30, 2012, the Company's only component of other comprehensive income related to changes in the fair value of its interest rate swap derivative instrument. During the second quarter of 2011, the Company discontinued hedge accounting treatment as a result of the Company's extinguishment of the underlying senior secured credit facility. The adoption of ASU 2011-05 did not impact the Company's financial position, results of operations or cash flows.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on quoted prices in active markets for identical assets or liabilities (Level 1), or inputs other than quoted prices in active markets that are either directly or indirectly observable (Level 2), or unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions (Level 3), depending on the nature of the item being valued.

The carrying amounts reported in the accompanying consolidated balance sheets for cash, accounts receivable and accounts payable approximate fair value because of their short-term nature.

The carrying amount and fair value of the Company's long term debt obligations as of June 30, 2012 and December 31, 2011 were as follows (in thousands):



	Carrying Amount				Fair Value
	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
Senior Secured Notes, net of note issuance discount of $4,343	$	336,657	$	336,201	$	333,710	$	310,566
PIK Exchangeable Notes	105,469		101,413		105,469		101,413
Toggle Notes	94,724		94,724		92,830		94,487

The fair value of the Senior Secured Notes and Toggle Notes (as defined in Note 5) was based on a Level 1 computation using quoted prices at June 30, 2012 and December 31, 2011, as applicable. The fair value of the PIK Exchangeable Notes (as defined in Note 5) was based on a Level 3 computation, using a Company-specific discounted cash flow analysis. The Company's long-term debt instruments are discussed further in Note 5.

Revenue Recognition and Accounts Receivable

The Company recognizes revenues in the period in which the services are performed. Patient service revenues and receivables from third-party payors are recorded net of estimated contractual adjustments and allowances from third-party payors, which the Company estimates based on the historical trend of its surgical facilities’ cash collections and contractual write-offs, accounts receivable agings, established fee schedules, relationships with payors and procedure statistics.

Accounts receivable consist of receivables from federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, employers and patients. The Company recognizes that revenues and receivables from government agencies are significant to its operations, but it does not believe that there is significant credit risk associated with these government agencies. Concentration of credit risk with respect to other payors is limited because of the large number of such payors. Accounts receivable are recorded net of contractual adjustments and allowances for doubtful accounts to reflect accounts receivable at net realizable value. Also, the Company has recorded third-party settlements of $9.7 million and $13.9 million as of June 30, 2012 and

December 31, 2011, respectively. As of June 30, 2012 and December 31, 2011, $4.8 million and $10.0 million related to the settlements are recorded in other accrued expenses, respectively, and $4.9 million and $3.9 million are recorded in other long-term liabilities, respectively. The Company does not require collateral for private pay patients.

The following table sets forth the revenues by type of payor and approximate percentage of revenues for the Company's consolidated surgical facilities for the three and six months ended June 30, 2012 and 2011:



	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
	Amount		%		Amount		%		Amount		%		Amount		%
Private insurance	$	76,133	62	%	$	71,269	66	%	$	152,556	62	%	$	139,858	65	%
Government	36,246		29		26,729		25		68,994		28		53,712		25
Self-pay	3,634		3		2,889		3		7,529		3		5,725		3
Other	4,951		4		4,143		4		11,368		5		9,038		4
Total patient services revenues	120,964		98		105,030		98		240,447		98		208,333		97
Physician services revenues	—		—		1,485		1		—		—		2,930		2
Other services revenues	1,962		2		1,320		1		3,706		2		2,598		1
Revenues	$	122,926	100	%	$	107,835	100	%	$	244,153	100	%	$	213,861	100	%

The Company's policy is to review the standard aging schedule, by surgical facility, to determine the appropriate allowance for doubtful accounts. Patient account balances are reviewed for delinquency based on contractual terms. This review is supported by an analysis of the actual revenues, contractual adjustments and cash collections received. If the Company's internal collection efforts are unsuccessful, the Company manually reviews the patient accounts. An account is written off only after the Company has pursued collection with legal or collection agency assistance or otherwise deemed an account to be uncollectible.

The following table sets forth the Company's activity in the allowance for doubtful accounts for the six months ended June 30, 2012 (in thousands):



Balance at December 31, 2011	$	10,137
Expense recognized during the six months ended June 30, 2012	4,801
Accounts written off, net of recoveries	(3,758		)
Balance at June 30, 2012	$	11,180

Inventories

Inventories, which consist primarily of medical and drug supplies, are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.

Prepaid and Other Current Assets

A summary of prepaid and other current assets is as follows (in thousands):



	June 30, 2012		December 31, 2011
Prepaid expenses	$	5,818	$	5,325
Other current assets	3,834		2,997
Total	$	9,652	$	8,322

Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill are as follows (in thousands):



Balance at December 31, 2011	$	630,144
Acquisitions	28,808
Disposals	(1,429		)
Balance at June 30, 2012	$	657,523

The Company has other intangible assets of $18.1 million related to the certificates of need for certain of its facilities. These indefinite-lived assets are not amortized, but are assessed for possible impairment under the Company's impairment policy. The Company

also has intangible assets related to various non-compete agreements and a management rights agreement, which are amortized over the service life of the agreements.

Changes in the carrying amount of other intangible assets are as follows (in thousands)



	Management Rights			Non-Compete Assets			Certificates of Need		Total Intangible Assets
Balance at December 31, 2011	$	2,236		$	5,204		$	18,140	$	25,580
Acquisitions	—			—			—		—
Amortization	(77		)	(847		)	—		(924		)
Balance at June 30, 2012	$	2,159		$	4,357		$	18,140	$	24,656

Other Accrued Expenses

A summary of other accrued expenses is as follows (in thousands):



	June 30, 2012		December 31, 2011
Interest payable	$	5,372	$	5,384
Current taxes payable	7,137		6,541
Insurance liabilities	1,983		1,803
Third-party settlements	4,766		9,967
Other accrued expenses	8,480		7,317
Total	$	27,738	$	31,012

Other Liabilities

Other liabilities at June 30, 2012 and December 31, 2011 included an obligation which was assumed in connection with the acquisition of our surgical hospital located in Idaho Falls, Idaho. This obligation is payable to the hospital facility lessor for the land, building and improvements at the facility in Idaho Falls, Idaho. As of both June 30, 2012 and December 31, 2011, the balance on the obligation was $48.5 million. Additionally, included in other liabilities as of June 30, 2012 and December 31, 2011 are third-party settlements of $4.9 million and $3.9 million, respectively.

Noncontrolling Interests — Non-redeemable

The consolidated financial statements include all assets, liabilities, revenues and expenses of surgical facilities in which the Company has sufficient ownership and rights to allow the Company to consolidate the surgical facilities. Similar to its investments in unconsolidated affiliates, the Company regularly engages in the purchase and sale of equity interests with respect to its consolidated subsidiaries that do not result in a change of control. These transactions are accounted for as equity transactions, as they are undertaken among the Company, its consolidated subsidiaries, and noncontrolling interests, and their cash flow effect is classified within financing activities.

Noncontrolling Interests — Redeemable

Each of the partnerships and limited liability companies through which the Company owns and operates its surgical facilities is governed by a partnership or operating agreement. In certain circumstances, the partnership and operating agreements for the Company's surgical facilities provide that the facilities will purchase all of the physicians’ ownership if certain adverse regulatory events occur, such as it becoming illegal for the physicians to own an interest in a surgical facility, refer patients to a surgical facility or receive cash distributions from a surgical facility. This redeemable noncontrolling interest is reported outside of stockholders' equity. The following table sets forth the activity of the noncontrolling interests—redeemable as of June 30, 2012 and as of June 30, 2011:



	Noncontrolling Interests—Redeemable
Balance at December 31, 2010	$	34,213
Net income attributable to noncontrolling interests—redeemable	8,111
Distributions to noncontrolling interest holders	(9,462		)
Acquisitions and disposal of shares of noncontrolling interests	728
Balance at June 30, 2011	$	33,590


Balance at December 31, 2011	$	33,863
Net income attributable to noncontrolling interests—redeemable	10,004
Distributions to noncontrolling interest holders	(9,055		)
Acquisitions and disposal of shares of noncontrolling interests	(431		)
Balance at June 30, 2012	$	34,381

Stock Options

Effective January 23, 2012, the Company amended its 2007 Equity Incentive Plan. The amendment increased the shares authorized for future grant under the plan by 2,400,000 shares. Additionally, the exercise price of certain options originally issued on and after August 31, 2007 was reduced to $3.00 per share, and the expiration date of such options was extended to January 23, 2022. As a result of this stock option plan modification, the Company recorded a non-cash charge of $1.7 million during the first quarter of 2012, of which $1.6 million is recorded in general and administrative expense and $83,000 is recorded in salaries and benefits.

Reclassifications

Certain reclassifications have been made to the comparative period's financial statements to conform to the 2012 presentation. The reclassifications primarily related to the presentation of discontinued operations and noncontrolling interests and had no impact on the Company's financial position or results of operations.

3. Acquisitions and Divestitures

Effective June 20, 2012, the Company acquired a 58.3% ownership interest in a surgical hospital located in Lubbock, Texas. The purchase price of the acquisition was approximately $10.3 million, which was paid in cash. As part of the acquisition, we assumed debt of approximately $1.3 million. The Company consolidates the facility for financial reporting purposes.

Effective June 1, 2012, the Company acquired a 60.0% ownership interest in a surgical facility located in St. Louis, Missouri. The purchase price of the acquisition was approximately $7.6 million, which was paid in cash. As part of the acquisition, we assumed debt of approximately $419,000. The Company consolidates the facility for financial reporting purposes. Both the Lubbock, Texas and St. Louis, Missouri acquisitions were financed with cash from operations.

The Company has accounted for these acquisitions under the purchase method of accounting. Under the purchase method of accounting, the total purchase price is allocated to the net tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values. The preliminary allocation of the purchase price was based upon management's preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, and such valuation is subject to change.

The Lubbock, Texas and St. Louis, Missouri facilities results of operations, subsequent to the acquisition dates, are included in the consolidated results of the Company. Included in the Company's operating results for the three and six months ended June 30, 2012 are net revenues of $2.1 million, net income of $320,000 and net income attributable to Symbion of $207,000.

Following are the results for the three and six months ended June 30, 2012 and the three and six months ended June 30, 2011 as if the acquisitions had occurred on January 1, of the respective periods (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues	$	137,066		$	124,515		$	274,550		$	247,021
Net (loss) income	8,699			241			15,066			7,786
Net loss attributable to Symbion, Inc	$	(2,181	)	$	(7,226	)	$	(6,302	)	$	(8,477	)

Effective April 30, 2012, the Company divested its interest in a surgical facility located in Nashville, Tennessee for net proceeds of $1.3 million. This facility was previously accounted for as an equity method investment for financial reporting purposes. The Company recorded a gain on the disposal of approximately $688,000 during the second quarter of 2012.

Effective April 1, 2012, the Company entered into a management agreement with a surgical facility located in Jackson, Tennessee. The management agreement has a term of fifteen years, with two optional five-year renewal terms. The Company also received an option to purchase up to a 20% ownership interest in the facility. The option is exercisable after April 1, 2013 and is effective for a six-month period.

Effective February 29, 2012, the Company divested its interest in a surgical facility located in Fort Worth, Texas for net proceeds of $3.0 million. The Company recorded a gain, net of income attributable to noncontrolling interests, of $78,000 which is included in the loss from discontinued operations. Included in this gain is an allocated disposal of goodwill of $1.3 million.

Effective February 8, 2012, the Company completed the acquisition of four separate urgent care and family practice facilities located in Idaho Falls, Idaho. The purchase price of the acquisition was approximately $5.8 million, consisting of $3.1 million of cash, approximately $1.1 million in the form of equity ownership in our facility located in Idaho Falls, Idaho, $470,000 of contingent consideration and the assumption of debt of approximately $1.1 million. The facilities are operated by the Company's existing facility located in Idaho Falls, Idaho and are consolidated with its Idaho Falls, Idaho facility for financial reporting purposes.

4. Discontinued Operations

From time to time, the Company evaluates its portfolio of surgical facilities to ensure the facilities are performing as expected. During the fourth quarter of 2011 and the first quarter of 2012, the Company committed to plans to divest its interest in three surgical facilities which are consolidated for financial reporting purposes. For the three and six months ended June 30, 2012 and 2011, the results of discontinued operations include operating activity of these three facilities for the period in which we owned such facilities. Effective February 29, 2012, the Company divested its interest in one of these surgical facilities located in Fort Worth, Texas. The Company recorded a gain, net of income attributable to noncontrolling interests, of $78,000 which is included in the loss from discontinued operations. As of June 30, 2012, the Company has two facilities with current operating activities included in discontinued operations.

Revenues, (loss) income from operations, before taxes, income tax provision, loss (gain) on sale, net of taxes, and (loss) income from discontinued operations, net of taxes, for the periods indicated, were as follows (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Revenues	$	1,402		$	3,697	$	4,006		$	7,004
(Loss) income from operations, before taxes	$	(350	)	$	302	$	(1,252	)	$	480
Income tax provision	$	21		$	17	$	37		$	19
Loss (gain) on sale, net of taxes	$	108		$	71	$	(627	)	$	88
(Loss) income from discontinued operations, net of taxes	$	(479	)	$	214	$	(662	)	$	373

5. Long-Term Debt

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



	June 30, 2012			December 31, 2011
Credit Facility	$	—		$	—
Senior Secured Notes, net of debt issuance discount of $4,343 and $4,799, respectively	336,657			336,201
Toggle Notes	94,724			94,724
PIK Exchangeable Notes	105,469			101,413
Notes Payable and Secured Loans	27,078			21,627
Capital lease obligations	4,497			4,311
	568,425			558,276
Less current maturities	(16,391		)	(13,582		)
Total	$	552,034		$	544,694

As described in the following sections, the Company modified its long-term debt structure during the second quarter of 2011. On June 14, 2011, the Company completed a private offering (the "Offering") of $350.0 million aggregate principal amount of 8.00% senior secured notes due 2016 (the "Senior Secured Notes"). The proceeds of the Offering were used to retire the Company's then existing senior secured credit facility and a portion of the Company's 11.00%/11.75% senior PIK toggle notes due 2015 (the "Toggle Notes"). In connection with the Offering, the Company entered into a new senior secured super-priority revolving credit facility (the "Credit Facility") as well as exchanged outstanding Toggle Notes having an aggregate principal amount of $85.4 million, at par plus accrued and unpaid interest, for $88.5 million initial aggregate principal amount of 8.00% senior PIK exchangeable notes due 2017 (the "PIK Exchangeable Notes"). As a result of the debt restructuring, the Company recorded a loss on debt extinguishment of $4.8 million. This loss is comprised primarily of capitalized debt issuance costs written off in connection with the Company's termination of debt instruments as part of the restructuring.

On September 9, 2011, the Company cancelled $9.0 million aggregate principal amount of outstanding Senior Secured Notes held by certain holders, plus accrued and unpaid interest, in exchange for the issuance to such holders of $9.2 million aggregate principal amount of PIK Exchangeable Notes which resulted in no significant gain or loss to the Company.

Credit Facility

The Credit Facility provides the ability to borrow under revolving credit loans and swingline loans. Letters of credit may also be issued under the Credit Facility. The Credit Facility matures on December 15, 2015. The Credit Facility is subject to a potential, although uncommitted, increase of up to $25.0 million at the Company's request at any time prior to maturity of the facility, subject to certain conditions, including compliance with a maximum net senior secured leverage ratio and a minimum cash interest coverage ratio. The increase is only available if one or more financial institutions agree to provide it. As of June 30, 2012, $50.0 million was available under the Credit Facility.

Loans under the Credit Facility bear interest, at the Company's option, at the reserve adjusted LIBOR rate plus 4.50% or at the alternate base rate plus 3.50%. The Company is required to pay a commitment fee at a rate equal to 0.50% per annum on the undrawn portion of commitments in respect of the Credit Facility. This fee is payable quarterly in arrears and on the date of termination or expiration of the commitments.

The Credit Facility contains financial covenants requiring the Company not to exceed a maximum net senior secured leverage ratio or fall below a minimum cash interest coverage ratio, in each case tested quarterly. Borrowings under the Credit Facility are subject to significant conditions, including the absence of any material adverse change. At June 30, 2012, the Company was in compliance with all material covenants contained in the Credit Facility.

Senior Secured Notes

On June 14, 2011, the Company completed the private offering of $350.0 million aggregate principal amount of its Senior Secured Notes. The Senior Secured Notes were issued at a 1.51% discount, yielding proceeds of approximately $344.7 million. Interest on the Senior Secured Notes is due June 15 and December 15 of each year and will accrue at the rate of 8.00% per annum. The Senior Secured Notes will mature on June 15, 2016.

The Senior Secured Notes are guaranteed by substantially all of the Company's existing and future material wholly-owned domestic restricted subsidiaries. The Senior Secured Notes and the guarantees are the Company's and the guarantors' senior secured obligations and rank equal in right of payment with any of the Company's or the guarantors' existing and future senior indebtedness and pari passu with the Company's and the guarantors' first priority liens, except to the extent that the property and assets securing the notes also secure the obligations under the Credit Facility, which is entitled to proceeds of the collateral prior to the Senior Secured Notes, in the event of a foreclosure or any insolvency proceedings.

The Company may redeem all or any portion of the Senior Secured Notes on or after June 15, 2014 at the redemption price set forth in the indenture governing the Senior Secured Notes, plus accrued interest. Prior to June 15, 2014, in each of 2011, 2012 and 2013, the Company may redeem up to 10% of the original aggregate principal amount of the Senior Secured Notes at a price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest. The Company may also redeem all or any portion of the Senior Secured Notes at any time prior to June 15, 2014 at a price equal to 100% of the aggregate principal amount thereof plus a make-whole premium and accrued and unpaid interest. In addition, the Company may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes with proceeds of certain equity offerings at any time prior to June 15, 2014. At June 30, 2012, the Company had not redeemed any of its Senior Secured Notes.

Effective September 9, 2011, the Company cancelled $9.0 million aggregate principal amount of its Senior Secured Notes held by certain holders, plus accrued and unpaid interest, in exchange for the Company's issuance to such parties of $9.2 million aggregate principal amount of its PIK Exchangeable Notes. As a result of that exchange, the Company currently has $341.0 million aggregate principal amount of Senior Secured Notes outstanding.

At June 30, 2012, the Company was in compliance with all material covenants contained in the indenture governing the Senior Secured Notes.

Scheduled amortization of the discount recorded in connection with the Senior Secured Notes is as follows (in thousands):



	Discount attributable to Senior Secured Notes
July 1, 2012 through December 31, 2012	$	471
January 1, 2013 through December 31, 2013	1,006
January 1, 2014 through December 31, 2014	1,092
January 1, 2015 through December 31, 2015	1,186
January 1, 2016 through June 15, 2016	588
Total	$	4,343

Toggle Notes

On June 3, 2008, the Company completed the private offering of $179.9 million aggregate principal amount of its Toggle Notes. Interest on the Toggle Notes is due February 23 and August 23 of each year. The Toggle Notes will mature on August 23, 2015. For any interest period through August 23, 2011, the Company was able to 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 accrues at the rate of 11.0% per annum.

Between August 23, 2008 and August 23, 2011, the Company elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for various interest periods. As a result, the principal due on the Toggle Notes increased by $71.0 million from the issuance of the Toggle Notes to June 30, 2012. Beginning with the February 2012 interest payment, all interest under the Company's Toggle Notes is required to be paid in cash. The Company has accrued $3.7 million in interest on the Toggle Notes in other accrued expenses as of June 30, 2012.

In connection with the Offering, the Company repurchased $70.8 million aggregate principal amount of Toggle Notes, at par plus accrued and unpaid interest of $2.6 million, and exchanged $85.4 million aggregate principal amount of Toggle Notes, at par plus accrued interest of $3.1 million, for $88.5 million aggregate principal amount of PIK Exchangeable Notes.

The Toggle Notes are unsecured senior obligations and rank equally with other existing and future senior indebtedness, senior to all future subordinated indebtedness and effectively junior to all secured indebtedness to the extent of the value of the collateral securing such indebtedness. Certain of the Company's subsidiaries have guaranteed the Toggle Notes on a senior basis, as required by the indenture governing the Toggle Notes. The indenture also requires that certain of the Company's 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 the Company's 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. At June 30, 2012, the Company was in compliance with all material covenants contained in the indenture governing the Toggle Notes.

PIK Exchangeable Notes

Concurrent with the Offering, the Company exchanged with certain holders of the Company's outstanding Toggle Notes, Toggle Notes having an aggregate principal amount of $85.4 million, at par plus accrued and unpaid interest, for $88.5 million initial aggregate principal amount of the Company's PIK Exchangeable Notes. Effective September 9, 2011, the Company cancelled $9.0 million aggregate principal amount of its Senior Secured Notes held by certain holders of such notes, plus accrued and unpaid interest, in exchange for the Company's issuance to such parties of $9.2 million aggregate principal amount of its PIK Exchangeable Notes.

The PIK Exchangeable Notes will mature on June 15, 2017. Interest accrues on the PIK Exchangeable Notes at a rate of 8.00% per year, compounding semi-annually on each June 15 and December 15 of each year, commencing on December 15, 2011. The Company will not pay interest in cash on the PIK Exchangeable Notes. Instead, the Company will pay interest on the PIK Exchangeable Notes in kind by increasing the principal amount of the PIK Exchangeable Notes on each interest accrual date by an amount equal to the entire amount of the accrued interest. The Company has accrued $376,000 in interest on the PIK Exchangeable Notes in other accrued expenses as of June 30, 2012. The Company records this accrued interest in other current liabilities until the interest payment date. On June 15 and December 15 of each year, the Company reclassifies the accrued interest to long-term debt. Due to the required payment-in-kind, the Company increased the principal amount of the PIK Exchangeable Notes by $3.8 million during 2011 and $4.1 million during the six months ended June 30, 2012.

The PIK Exchangeable Notes are exchangeable into shares of common stock of Holdings at any time prior to the close of business on the business day immediately preceding the maturity date of the PIK Exchangeable Notes at a per share exchange price of $3.50. Upon exchange, holders of the PIK Exchangeable Notes will receive a number of shares of common stock of Holdings equal to (i) the accreted principal amount of the PIK Exchangeable Notes to be exchanged, plus accrued and non-capitalized interest, divided by (ii) the exchange price. The exchange price in effect at any time will be subject to customary adjustments.

The PIK Exchangeable Notes are unsecured senior obligations and rank equally with other existing and future senior indebtedness, senior to all future subordinated indebtedness and effectively junior to all secured indebtedness to the extent of the value of the collateral securing such indebtedness. Holdings and substantially all of the Company's material wholly owned domestic subsidiaries have guaranteed the PIK Exchangeable Notes on a senior basis, as required by the indenture governing the PIK Exchangeable Notes. 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 Company may not redeem the PIK Exchangeable Notes prior to June 15, 2014. On or after June 15, 2014, the Company may redeem some or all of the PIK Exchangeable Notes for cash at a redemption price equal to a specified percentage of the accreted principal amount of the PIK Exchangeable Notes to be redeemed, plus accrued and non-capitalized interest. The specific percentage for such redemptions will be 104% for redemptions during the year commencing on June 15, 2014, 102% for redemptions during the year commencing on June 15, 2015, and 100% for redemptions during the year commencing on June 15, 2016.

The Company recorded the PIK Exchangeable Notes in accordance with ASC Topic 470, Debt. In the exchange, the new PIK Exchangeable Notes were recorded at fair value. At June 30, 2012, the Company was in compliance with all material covenants contained in the indenture governing the PIK Exchangeable Notes.

Notes Payable to Banks

Certain subsidiaries of the Company have outstanding bank indebtedness 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

The Company is liable to various vendors for several equipment leases. The carrying value of the leased assets was $5.7 million and $5.2 million as of June 30, 2012 and December 31, 2011, respectively.

6. Commitments and Contingencies

Debt and Lease Guaranty on Non-consolidated Entities

The Company has guaranteed $1.5 million of operating lease payments of certain non-consolidating surgical facilities. These operating leases typically have 10-year terms, with optional renewal periods. As of June 30, 2012, the Company has also guaranteed $493,000 of debt of two non-consolidating surgical facilities. In the event that the Company meets certain financial and debt service benchmarks, the guarantees at these surgical facilities will expire between 2012 and 2017.

Professional, General and Workers' Compensation Liability Risks

The Company is subject to claims and legal actions in the ordinary course of business, including claims relating to patient treatment, employment practices and personal injuries. To cover these claims, the Company maintains general liability and professional liability insurance in excess of self-insured retentions through a third party commercial insurance carrier in amounts that management

believes is sufficient for the Company's operations, although, potentially, some claims may exceed the scope of coverage in effect. This insurance coverage is on a claims-made basis. Plaintiffs in these matters may request punitive or other damages that may not be covered by insurance. The Company is not aware of any such proceedings that would have a material adverse effect on the Company's business, financial condition or results of operations. The Company expenses the costs under the self-insured retention exposure for general and professional liability claims which relate to (i) deductibles on claims made during the policy period, and (ii) an estimate of claims incurred but not yet reported that are expected to be reported after the policy period expires. Reserves and provisions for professional liability are based upon actuarially determined estimates. The reserves are estimated using individual case-basis valuations and actuarial analysis. Based on historical results and data currently available, management does not believe a change in one or more of the underlying assumptions will have a material impact on the Company's consolidated financial position or results of operations.

Laws and Regulations

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare, Medicaid and other federal health care programs. From time to time, governmental regulatory agencies will conduct inquiries of the Company's practices. It is the Company's current practice and future intent to cooperate fully with such inquiries. The Company is not aware of any such inquiry that would have a material adverse effect on the Company's consolidated financial position or results of operations.

Acquired Facilities

The Company, through its wholly owned subsidiaries or controlled partnerships and limited liability companies, has acquired and will continue to acquire surgical facilities with prior operating histories. Such facilities may have unknown or contingent liabilities, including liabilities for failure to comply with health care laws and regulations, such as billing and reimbursement, fraud and abuse and similar anti-referral laws. Although the Company attempts to assure itself that no such liabilities exist and obtains indemnification from prospective sellers covering such matters and institutes policies designed to conform centers to its standards following completion of acquisitions, there can be no assurance that the Company will not become liable for past activities that may later be asserted to be improper by private plaintiffs or government agencies. There can be no assurance that any such matter will be covered by indemnification or, if covered, that the liability sustained will not exceed contractual limits or the financial capacity of the indemnifying party.

The Company cannot predict whether federal or state statutory or regulatory provisions will be enacted that would prohibit or otherwise regulate relationships which the Company has established or may establish with other health care providers or have materially adverse effects on its business or revenues arising from such future actions. The Company believes, however, that it will be able to adjust its operations so as to be in compliance with any regulatory or statutory provision as may be applicable.

Potential Physician Investor Liability

A majority of the physician investors in the partnerships and limited liability companies which operate the Company's surgical facilities carry general and professional liability insurance on a claims-made basis. Each investee may, however, be liable for damages to persons or property arising from occurrences at the surgical facilities. Although the various physician investors and other surgeons generally are required to obtain general and professional liability insurance with tail coverage, such individuals may not be able to obtain coverage in amounts sufficient to cover all potential liability. Since most insurance policies contain exclusions, the physician investors will not be insured against all possible occurrences. In the event of an uninsured or underinsured loss, the value of an investment in the partnership interests or limited liability company membership units and the amount of distributions could be adversely affected.

7. Related Party Transactions

On August 23, 2007, the Company entered into a 10-year advisory services and management agreement with Crestview Advisors, L.L.C. The annual management fee is $1.0 million and is payable on August 23 of each year. The Company has prepaid this annual management fee and, as of June 30, 2012, had an asset of $173,000 that is included in prepaid expenses and other current assets.

Concurrent with the Offering, the Company exchanged with affiliates of Crestview, affiliates of The Northwestern Mutual Insurance Company and certain other holders of the Company's outstanding Toggle Notes, Toggle Notes having an aggregate principal amount of $85.4 million, at par plus accrued and unpaid interest of $3.1 million, for $88.5 million initial aggregate principal amount of the Company's PIK Exchangeable Notes. Effective September 9, 2011, the Company cancelled $9.0 million aggregate principal amount of its Senior Secured Notes held by affiliates of The Northwestern Mutual Insurance Company, plus accrued and unpaid interest, in exchange for the Company's issuance to such parties of $9.2 million aggregate principal amount of its PIK Exchangeable Notes. The Company currently has $105.5 million aggregate principal amount of PIK Exchangeable Notes outstanding. As of June 30, 2012, the Company has accrued $376,000 in interest on the PIK Exchangeable Notes in other accrued expenses. See Note 5 for further discussion of the PIK Exchangeable Notes.

8. Financial Information for the Company and Its Subsidiaries

The Company conducts substantially all of its business through its subsidiaries. Presented below is consolidating financial information for the Company and its subsidiaries as required by regulations of the Securities and Exchange Commission (“SEC”) in

connection with the Company's Senior Secured Notes and Toggle Notes that have been registered with the SEC. The information segregates the parent company issuer, the combined wholly-owned subsidiary guarantors, the combined non-guarantors, and consolidating adjustments. The operating and investing activities of the separate legal entities are fully interdependent and integrated. Accordingly, the results of the separate legal entities are not representative of what the operating results would be on a stand-alone basis. All of the subsidiary guarantees are both full and unconditional and joint and several.

SYMBION, INC.

CONSOLIDATING BALANCE SHEET

June 30, 2012

(Unaudited, in thousands)



	Parent Issuer		Guarantor Subsidiaries			Combined Non-Guarantors		Eliminations			Total Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	4,964	$	16,653		$	42,942	$	—		$	64,559
Accounts receivable, net	—		—			71,298		—			71,298
Inventories	—		204			14,124		—			14,328
Prepaid expenses and other current assets	863		13			8,776		—			9,652
Due from related parties	2,303		42,411			—		(44,714		)	—
Current assets of discontinued operations	—		—			2,087		—			2,087
Total current assets	8,130		59,281			139,227		(44,714		)	161,924
Property and equipment, net	466		2,114			129,060		—			131,640
Goodwill and intangible assets	659,682		—			22,497		—			682,179
Investments in and advances to affiliates	84,929		23,143			—		(93,205		)	14,867
Other assets	11,504		—			2,235		—			13,739
Long-term assets of discontinued operations	—		—			2,189		—			2,189
Total assets	$	764,711	$	84,538		$	295,208	$	(137,919	)	$	1,006,538

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	9	$	5		$	17,695	$	—		$	17,709
Accrued payroll and benefits	2,359		50			11,389		—			13,798
Due to related parties	—		—			44,714		(44,714		)	—
Other accrued expenses	12,493		85			15,160		—			27,738
Current maturities of long-term debt	29		15			16,347		—			16,391
Current liabilities of discontinued operations	—		—			1,285		—			1,285
Total current liabilities	14,890		155			106,590		(44,714		)	76,921
Long-term debt, less current maturities	535,095		—			16,939		—			552,034
Deferred income tax payable	62,715		—			—		—			62,715
Other liabilities	356		(546		)	62,508		—			62,318
Long-term liabilities of discontinued operations	—		—			1,376		—			1,376
Noncontrolling interests - redeemable	—		—			34,381		—			34,381
Total Symbion, Inc. stockholders' equity	151,655		84,929			8,276		(93,205		)	151,655
Noncontrolling interests - non-redeemable	—		—			65,138		—			65,138
Total equity	151,655		84,929			73,414		(93,205		)	216,793
Total liabilities and stockholders' equity	$	764,711	$	84,538		$	295,208	$	(137,919	)	$	1,006,538

SYMBION, INC.

CONSOLIDATING BALANCE SHEET

December 31, 2011



	Parent Issuer			Guarantor Subsidiaries		Combined Non-Guarantors		Eliminations			Total Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	5,509		$	27,617	$	35,315	$	—		$	68,441
Accounts receivable, net	—			—		66,408		—			66,408
Inventories	—			—		12,575		—			12,575
Prepaid expenses and other current assets	1,159			227		6,936		—			8,322
Due from related parties	2,163			45,288		—		(47,451		)	—
Current assets of discontinued operations	—			—		4,113		—			4,113
Total current assets	8,831			73,132		125,347		(47,451		)	159,859
Property and equipment, net	502			2,108		127,045		—			129,655
Goodwill and intangible assets	632,381			—		23,343		—			655,724
Investments in and advances to affiliates	108,898			34,258		—		(128,528		)	14,628
Other assets	12,878			—		2,200		—			15,078
Long-term assets of discontinued operations	—			—		3,150		—			3,150
Total assets	$	763,490		$	109,498	$	281,085	$	(175,979	)	$	978,094
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5		$	8	$	14,568	$	—		$	14,581
Accrued payroll and benefits	763			233		8,946		—			9,942
Due to related parties	—			—		47,451		(47,451		)	—
Other accrued expenses	11,911			15		19,086		—			31,012
Current maturities of long-term debt	57			—		13,525		—			13,582
Current liabilities of discontinued operations	—			—		1,723		—			1,723
Total current liabilities	12,736			256		105,299		(47,451		)	70,840
Long-term debt, less current maturities	532,337			—		12,357		—			544,694
Deferred income tax payable	61,056			—		—		—			61,056
Other liabilities	(768		)	344		61,097		—			60,673
Long-term liabilities of discontinued operations	—			—		2,394		—			2,394
Noncontrolling interest - redeemable	—			—		33,863		—			33,863
Total Symbion, Inc. stockholders’ equity	158,129			108,898		19,630		(128,528		)	158,129
Noncontrolling interests - nonredeemable	—			—		46,445		—			46,445
Total equity	158,129			108,898		66,075		(128,528		)	204,574
Total liabilities and stockholders’ equity	$	763,490		$	109,498	$	281,085	$	(175,979	)	$	978,094

SYMBION, INC.

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2012

(Unaudited, in thousands)



	Parent Issuer			Guarantor Subsidiaries			Combined Non-Guarantors			Eliminations			Total Consolidated
Revenues	$	9,100		$	428		$	117,280		$	(3,882	)	$	122,926
Operating expenses:
Salaries and benefits	—			344			32,980			—			33,324
Supplies	—			7			30,532			—			30,539
Professional and medical fees	—			14			8,236			—			8,250
Rent and lease expense	—			34			6,219			—			6,253
Other operating expenses	—			17			8,180			—			8,197
Cost of revenues	—			416			86,147			—			86,563
General and administrative expense	6,285			—			—			—			6,285
Depreciation and amortization	98			22			5,303			—			5,423
Provision for doubtful accounts	—			—			2,687			—			2,687
Income on equity investments	—			(1,214		)	—			—			(1,214		)
Gains on disposal of investments and long-lived assets, net	—			(594		)	—			—			(594		)
Proceeds from litigation settlements	(45		)	—			(170		)	—			(215		)
Management fees	—			—			3,882			(3,882		)	—
Equity in earnings of affiliates	(9,202		)	(7,404		)	—			16,606			—
Total operating expenses	(2,864		)	(8,774		)	97,849			12,724			98,935
Operating income	11,964			9,202			19,431			(16,606		)	23,991
Interest expense, net	(13,398		)	—			(948		)	—			(14,346		)
(Loss) income before taxes and discontinued operations	(1,434		)	9,202			18,483			(16,606		)	9,645
Provision for income taxes	1,427			—			52			—			1,479
(Loss) income from continuing operations	(2,861		)	9,202			18,431			(16,606		)	8,166
Loss from discontinued operations, net of taxes	—			—			(479		)	—			(479		)
Net (loss) income	(2,861		)	9,202			17,952			(16,606		)	7,687
Net income attributable to noncontrolling interests	—			—			(10,548		)	—			(10,548		)
Net (loss) income attributable to Symbion, Inc.	$	(2,861	)	$	9,202		$	7,404		$	(16,606	)	$	(2,861	)

SYMBION, INC.

CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2012

(Unaudited, in thousands)



	Parent Issuer			Guarantor Subsidiaries			Combined Non-Guarantors			Eliminations			Total Consolidated
Revenues	$	18,175		$	853		$	232,944		$	(7,819	)	$	244,153
Operating expenses:
Salaries and benefits	—			654			65,336			—			65,990
Supplies	—			15			59,979			—			59,994
Professional and medical fees	—			30			17,229			—			17,259
Rent and lease expense	—			63			12,196			—			12,259
Other operating expenses	—			34			16,298			—			16,332
Cost of revenues	—			796			171,038			—			171,834
General and administrative expense	14,286			—			—			—			14,286
Depreciation and amortization	196			43			10,521			—			10,760
Provision for doubtful accounts	—			—			4,801			—			4,801
Income on equity investments	—			(1,678		)	—			—			(1,678		)
Gains on disposal of investments and long-lived assets, net	(504		)	(117		)	—			—			(621		)
Proceeds from litigation settlements	(45		)	—			(187		)	—			(232		)
Management fees	—			—			7,819			(7,819		)	—
Equity in earnings of affiliates	(16,815		)	(15,006		)	—			31,821			—
Total operating expenses	(2,882		)	(15,962		)	193,992			24,002			199,150
Operating income	21,057			16,815			38,952			(31,821		)	45,003
Interest expense, net	(26,149		)	—			(2,523		)	—			(28,672		)
(Loss) income before taxes and discontinued operations	(5,092		)	16,815			36,429			(31,821		)	16,331
Provision for income taxes	2,710			—			123			—			2,833
(Loss) income from continuing operations	(7,802		)	16,815			36,306			(31,821		)	13,498
Loss from discontinued operations, net of taxes	—			—			(662		)	—			(662		)
Net (loss) income	(7,802		)	16,815			35,644			(31,821		)	12,836
Net income attributable to noncontrolling interests	—			—			(20,638		)	—			(20,638		)
Net (loss) income attributable to Symbion, Inc.	$	(7,802	)	$	16,815		$	15,006		$	(31,821	)	$	(7,802	)

SYMBION, INC.

CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2011

(Unaudited, in thousands)



	Parent Issuer			Guarantor Subsidiaries			Combined Non-Guarantors			Eliminations			Total Consolidated
Revenues	$	8,397		$	2,430		$	100,817		$	(3,809	)	$	107,835
Operating expenses:
Salaries and benefits	—			1,149			29,328			—			30,477
Supplies	—			245			25,946			—			26,191
Professional and medical fees	—			229			8,233			—			8,462
Rent and lease expense	—			182			5,807			—			5,989
Other operating expenses	—			100			7,550			—			7,650
Cost of revenues	—			1,905			76,864			—			78,769
General and administrative expense	5,543			—			—			—			5,543
Depreciation and amortization	171			66			4,803			—			5,040
Provision for doubtful accounts	—			34			1,455			—			1,489
Income on equity investments	—			(387		)	—			—			(387		)
(Gain) loss on disposal of investments and long-lived assets, net	4,858			—			—			—			4,858
Management fees	—			—			3,809			(3,809		)	—
Equity in earnings of affiliates	(6,217		)	(5,405		)	—			11,622			—
Total operating expenses	4,355			(3,787		)	86,931			7,813			95,312
Operating income (loss)	4,042			6,217			13,886			(11,622		)	12,523
Interest expense, net	(11,810		)	—			(1,621		)	—			(13,431		)
(Loss) income before taxes and discontinued operations	(7,768		)	6,217			12,265			(11,622		)	(908		)
Provision (benefit) for income taxes	905			—			428			—			1,333
(Loss) income from continuing operations	(8,673		)	6,217			11,837			(11,622		)	(2,241		)
Income from discontinued operations, net of taxes	—			—			214			—			214
Net (loss) income	(8,673		)	6,217			12,051			(11,622		)	(2,027		)
Net income attributable to noncontrolling interests	—			—			(6,646		)	—			(6,646		)
Net (loss) income attributable to Symbion, Inc.	$	(8,673	)	$	6,217		$	5,405		$	(11,622	)	$	(8,673	)

SYMBION, INC.

CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2011

(Unaudited, in thousands)



	Parent Issuer			Guarantor Subsidiaries			Combined Non-Guarantors			Eliminations			Total Consolidated
Revenues	$	16,748		$	4,788		$	199,922		$	(7,597	)	$	213,861
Operating expenses:
Salaries and benefits	—			2,264			57,974			—			60,238
Supplies	—			449			49,720			—			50,169
Professional and medical fees	—			460			15,685			—			16,145
Rent and lease expense	—			378			11,297			—			11,675
Other operating expenses	—			196			15,147			—			15,343
Cost of revenues	—			3,747			149,823			—			153,570
General and administrative expense	11,412			—			—			—			11,412
Depreciation and amortization	343			127			9,577			—			10,047
Provision for doubtful accounts	—			70			2,936			—			3,006
Income on equity investments	—			(656		)	—			—			(656		)
(Gain) loss on disposal of long-lived assets, net	4,780			—			—			—			4,780
Management fees	—			—			7,597			(7,597		)	—
Equity in earnings of affiliates	(13,640		)	(12,140		)	—			25,780			—
Total operating expenses	2,895			(8,852		)	169,933			18,183			182,159
Operating income (loss)	13,853			13,640			29,989			(25,780		)	31,702
Interest expense, net	(22,400		)	—			(3,007		)	—			(25,407		)
(Loss) income before taxes and discontinued operations	(8,547		)	13,640			26,982			(25,780		)	6,295
Provision (benefit) for income taxes	2,545			—			406			—			2,951
(Loss) income from continuing operations	(11,092		)	13,640			26,576			(25,780		)	3,344
Income from discontinued operations, net of taxes	—			—			373			—			373
Net (loss) income	(11,092		)	13,640			26,949			(25,780		)	3,717
Net income attributable to noncontrolling interests	—			—			(14,809		)	—			(14,809		)
Net (loss) income attributable to Symbion, Inc.	$	(11,092	)	$	13,640		$	12,140		$	(25,780	)	$	(11,092	)

SYMBION, INC.

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2012

(Unaudited, in thousands)



	Parent Issuer			Guarantor Subsidiaries		Combined Non-Guarantors			Eliminations			Total Consolidated
Net Income	$	(7,802	)	$	16,815	$	35,644		$	(31,821	)	$	12,836
Other comprehensive income, net of income taxes:
Recognition of interest rate swap liability to earnings	—			—		—			—			—
Comprehensive income	(7,802		)	16,815		35,644			(31,821		)	12,836
Less: Comprehensive income attributable to noncontrolling interests	—			—		(20,638		)	—			(20,638		)
Comprehensive loss attributable to Symbion, Inc.	$	(7,802	)	$	16,815	$	15,006		$	(31,821	)	$	(7,802	)

SYMBION, INC.

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2011

(Unaudited, in thousands)



	Parent Issuer			Guarantor Subsidiaries		Combined Non-Guarantors			Eliminations			Total Consolidated
Net Income	$	(11,092	)	$	13,640	$	26,949		$	(25,780	)	$	3,717
Other comprehensive income, net of income taxes:
Recognition of interest rate swap liability to earnings	314			—		—			—			314
Comprehensive income	(10,778		)	13,640		26,949			(25,780		)	4,031
Less: Comprehensive income attributable to noncontrolling interests	—			—		(14,809		)	—			(14,809		)
Comprehensive loss attributable to Symbion, Inc.	$	(10,778	)	$	13,640	$	12,140		$	(25,780	)	$	(10,778	)

SYMBION, INC.

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2012

(Unaudited, in thousands)



	Parent Issuer			Guarantor Subsidiaries			Combined Non-Guarantors			Eliminations			Total Consolidated
Cash flows from operating activities:
Net (loss) income	$	(7,802	)	$	16,815		$	35,644		$	(31,821	)	$	12,836
Adjustments to reconcile net (loss) income to net cash from operating activities:
Loss from discontinued operations	—			—			662			—			662
Depreciation and amortization	196			43			10,521			—			10,760
Amortization of deferred financing costs and debt issuance discount	1,889			—			—			—			1,889
Non-cash payment-in-kind interest option	4,057			—			—			—			4,057
Non-cash stock option compensation expense	1,767			—			—			—			1,767
Non-cash gains on disposal of investments and long-lived assets, net	(504		)	(117		)	—			—			(621		)
Deferred income taxes	2,550			—			—			—			2,550
Equity in earnings of affiliates	(16,815		)	(15,006		)	—			31,821			—
Equity in earnings of unconsolidated affiliates, net of distributions received	—			(854		)	—			—			(854		)
Provision for doubtful accounts	—			—			4,801			—			4,801
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Accounts receivable	—			—			(2,561		)	—			(2,561		)
Other assets and liabilities	14,587			6,343			(23,117		)	—			(2,187		)
Net cash (used in) provided by operating activities - continuing operations	(75		)	7,224			25,950			—			33,099
Net cash provided by operating activities - discontinued operations	—			—			929			—			929
Net cash (used in) provided by operating activities	(75		)	7,224			26,879			—			34,028
Cash flows from investing activities:
Purchases of property and equipment, net	(161		)	—			(4,700		)	—			(4,861		)
Payments and proceeds from acquisitions and divestitures, net of cash acquired	—			(18,188		)	—			—			(18,188		)
Change in other assets	—			—			(51		)	—			(51		)
Net cash used in investing activities - continuing operations	(161		)	(18,188		)	(4,751		)	—			(23,100		)
Net cash provided by investing activities - discontinued operations	—			—			1,965			—			1,965
Net cash used in investing activities	(161		)	(18,188		)	(2,786		)	—			(21,135		)
Cash flows from financing activities:
Principal payments on long-term debt	—			—			(4,248		)	—			(4,248		)
Proceeds from debt issuances	—			—			5,750			—			5,750
Distributions to noncontrolling interest partners	—			—			(17,402		)	—			(17,402		)
Payments for unit activities	(309		)	—			—			—			(309		)
Other financing activities	—			—			(25		)	—			(25		)
Net cash used in financing activities - continuing operations	(309		)	—			(15,925		)	—			(16,234		)
Net cash used in financing activities - discontinued operations	—			—			(541		)	—			(541		)
Net cash used in financing activities	(309		)	—			(16,466		)	—			(16,775		)
Net (decrease) increase in cash and cash equivalents	(545		)	(10,964		)	7,627			—			(3,882		)
Cash and cash equivalents at beginning of period	5,509			27,617			35,315			—			68,441
Cash and cash equivalents at end of period	$	4,964		$	16,653		$	42,942		$	—		$	64,559

SYMBION, INC.

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2011

(Unaudited, in thousands)



	Parent Issuer			Guarantor Subsidiaries			Combined Non-Guarantors			Eliminations			Total Consolidated
Cash flows from operating activities:
Net (loss) income	$	(11,092	)	$	13,640		$	26,949		$	(25,780	)	$	3,717
Adjustments to reconcile net (loss) income to net cash from operating activities:
Income from discontinued operations	—			—			(373		)	—			(373		)
Depreciation and amortization	343			127			9,577			—			10,047
Amortization of deferred financing costs	861			—			—			—			861
Non-cash payment-in-kind interest option	13,366			—			—			—			13,366
Non-cash stock option compensation expense	668			—			—			—			668
Non-cash recognition of other comprehensive income into earnings	665			—			—			—			665
Non-cash losses on disposal of investments and long-lived assets, net	29			—			—			—			29
Loss on debt extinguishment	4,751			—			—			—			4,751
Deferred income taxes	2,724			—			—			—			2,724
Equity in earnings of affiliates	(13,640		)	(12,140		)	—			25,780			—
Equity in earnings of unconsolidated affiliates, net of distributions received	—			401			—			—			401
Provision for doubtful accounts	—			70			2,936			—			3,006
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Accounts receivable	—			—			(2,290		)	—			(2,290		)
Other assets and liabilities	20,013			(9,613		)	(9,284		)	—			1,116
Net cash provided by (used in) operating activities - continuing operations	18,688			(7,515		)	27,515			—			38,688
Net cash provided by operating activities - discontinued operations	—			—			1,008			—			1,008
Net cash provided by (used in) operating activities	18,688			(7,515		)	28,523			—			39,696
Cash flows from investing activities:
Purchases of property and equipment, net	(54		)	—			(3,882		)	—			(3,936		)
Change in other assets	—			—			101			—			101
Net cash used in investing activities - continuing operations	(54		)	—			(3,781		)	—			(3,835		)
Net cash used in investing activities - discontinued operations	—			—			(73		)	—			(73		)
Net cash used in investing activities	(54		)	—			(3,854		)	—			(3,908		)
Cash flows from financing activities:
Principal payments on long-term debt	(351,845		)	—			(448		)	—			(352,293		)
Proceeds from debt issuances	344,750			—			(1		)	—			344,749
Distributions to noncontrolling interest partners	—			—			(17,180		)	—			(17,180		)
Payment for debt issuance costs	(10,130		)	—			—			—			(10,130		)
Payments for unit activities	(1,643		)	—			—			—			(1,643		)
Other financing activities	—			—			57			—			57
Net cash used in financing activities - continuing operations	(18,868		)	—			(17,572		)	—			(36,440		)
Net cash used in financing activities - discontinued operations	—			—			(271		)	—			(271		)
Net cash used in financing activities	(18,868		)	—			(17,843		)	—			(36,711		)
Net (decrease) increase in cash and cash equivalents	(234		)	(7,515		)	6,826			—			(923		)
Cash and cash equivalents at beginning of period	14,849			27,700			29,936			—			72,485
Cash and cash equivalents at end of period	$	14,615		$	20,185		$	36,762		$	—		$	71,562

9. Subsequent Events

Effective July 1, 2012, the Company divested its interest in a surgical facility located in Austin, Texas for net proceeds of $5.3 million. This facility was consolidated for financial reporting purposes. The Company expects to record a gain on the disposal of approximately $1.1 million during the third quarter of 2012. The operating results of this facility are included in discontinued operations.

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 accompanying unaudited consolidated financial statements and related notes.

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. These factors include, without limitation:


•	our substantial leverage and its impact on our ability to raise additional capital, react to changes in the economy and our industry and meet our obligations under our debt instruments;


•	uncertainty associated with the implementation of legislative and regulatory initiatives relating to health care reform and healthcare spending;


•	the risk that payments from third-party payors, including government health care programs, decrease or remain constant and our costs increase;


•	the status of the federal economy and its impact on the health care sector;


•	our dependence upon payments from third-party payors, including governmental health care programs and managed care organizations;


•	our ability to acquire and develop additional surgical facilities on favorable terms and to integrate their business operations successfully;


•	our ability to enter into strategic alliances with health care systems that are leaders in their markets;


•	efforts to regulate the construction, acquisition or expansion of health care facilities;


•	our ability to attract and maintain good relationships with physicians who use our facilities;


•	our ability to enhance operating efficiencies at our surgical facilities and to control costs as the volume of cases performed at our facilities changes;


•	our ability to comply with applicable laws and regulations regulating the operation of our surgical facilities, including physician self-referral laws and laws relating to illegal remuneration under the Medicare, Medicaid or other governmental programs;


•	our ability to comply with applicable corporate governance and financial reporting standards;


•	legislative changes restricting physician ownership of hospitals;


•	the risk of changes to laws governing the corporate practice of medicine that may require us to restructure some of our relationships, which could result in a significant loss of revenues, require us to purchase some or all of the noncontrolling interests in our facilities, and divert resources to restructure or repurchase these interests;


•	risks related to the nature of our corporate structure, including the level of control exercised by Crestview;


•	our legal responsibility to the holders of ownership interests in the entities through which we own surgical facilities, which may conflict with the interests of our noteholders and prevent us from acting solely in our own bests interests or the interests of our noteholders;


•	our ability to obtain the capital required to operate our business and fund acquisitions and developments on favorable terms;


•	the intense competition for physicians, strategic relationships, acquisitions and managed care contracts, which may result in a decline in our revenues, profitability and market share;


•	the geographic concentration of our operations in certain states, which makes us particularly sensitive to regulatory, economic and other conditions in those states;


•	our dependence on our senior management; and


•	other risks and uncertainties described in this report or detailed from time to time in our filings with the SEC.

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 28 states, in joint ownership with physicians and physician groups, hospitals and hospital systems. 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. Our surgical facilities, which include ambulatory surgery centers ("ASCs") and surgical hospitals, primarily provide non-emergency surgical procedures across many specialties, including, among others, orthopedics, pain management, gastroenterology and ophthalmology. Some of our hospitals also provide acute care services such as diagnostic imaging, pharmacy, laboratory, obstetrics, physical therapy and wound care.

As of August 10, 2012, we owned and operated 54 surgical facilities, including 47 ASCs and seven surgical hospitals. We also managed nine additional ASCs. We owned a majority interest in 34 of the 54 surgical facilities and consolidated 49 facilities for financial reporting purposes. We are reporting one of the 54 facilities as discontinued operations. In addition to our surgical facilities, we also manage one physician clinic in a market in which we operate an ASC and a surgical hospital.

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 improving the performance of our same store facilities and acquiring facilities on a selective basis that we believe have favorable growth potential. Effective June 20, 2012, we acquired a 58.3% ownership interest in a surgical hospital located in Lubbock, Texas for approximately $10.3 million. Effective June 1, 2012, we acquired a 60.0% ownership interest in a surgical facility located in St. Louis, Missouri for approximately $7.6 million. We consolidate both the Lubbock, Texas surgical hospital and the St. Louis surgical facility for financial reporting purposes.

Revenues

Our revenues consist of patient service revenues, physician service revenues and other service revenues. Our patient service revenues relate to fees charged for surgical or diagnostic procedures and other services performed at surgical facilities that we consolidate for financial reporting purposes. Physician service revenues are revenues from the physician network we divested as of September 30, 2011 and consist of reimbursed expenses, plus participation in the excess of revenues over expenses of the physician network, as provided for in our former service agreement with the physician network. Other service revenues consist 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 clinics for which we are not required to provide capital or additional assets.

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Patient service revenues	98	%	98	%	98	%	97	%
Physician service revenues	—		1		—		2
Other service revenues	2		1		2		1
Total	100	%	100	%	100	%	100	%

Payor Mix

The following table sets forth by type of payor the percentage of our patient service revenues generated in the periods indicated:



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Private insurance	63	%	68	%	63	%	67	%
Government	30		25		29		26
Self-pay	3		3		3		3
Other	4		4		5		4
Total	100	%	100	%	100	%	100	%

Case Mix

We primarily operate multi-specialty facilities where physicians perform a variety of procedures in various 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 which we consolidate for financial reporting purposes for the periods indicated:



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Ear, nose and throat	5.9	%	6.5	%	5.9	%	6.3	%
Gastrointestinal	30.2		30.4		29.9		30.5
General surgery	3.3		3.7		3.4		3.7
Obstetrics/gynecology	2.9		2.8		2.9		2.8
Ophthalmology	16.4		16.0		16.2		15.7
Orthopedic	16.5		16.7		17.0		17.2
Pain management	14.1		14.0		14.0		13.9
Plastic surgery	2.7		2.8		2.7		2.8
Other	8.0		7.1		8.0		7.1
Total	100	%	100	%	100	%	100	%

Case Growth

Same Store Information

We define same store facilities as those facilities that were operating throughout both the three or six months ended June 30, 2012 and 2011. The following same store facility table includes information about both consolidated surgical facilities included in continuing operations whose revenue is included in our revenue and non-consolidated surgical facilities whose revenue is 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 June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Cases	62,373			61,701		124,030			122,132
Case growth	1.1		%	N/A		1.6		%	N/A
Net patient service revenue per case	$	2,118		$	1,890	$	2,117		$	1,901
Net patient service revenue per case growth	12.0		%	N/A		11.4		%	N/A
Number of same store surgical facilities	49			N/A		49			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, 2011.



	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Cases	58,971			57,277		117,428			113,469
Case growth	3.0		%	N/A		3.5		%	N/A
Net patient service revenue per case	$	2,051		$	1,834	$	2,048		$	1,836
Net patient service revenue per case growth	11.9		%	N/A		11.5		%	N/A
Number of consolidated surgical facilities	47			N/A		47			N/A

Sources of Revenue and Recent Regulatory Developments

We are dependent upon private and government third-party sources of payment for the services we provide. The amounts that our surgical facilities 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 and federal regulations and the cost containment and utilization decisions and reduced reimbursement schedules of third-party payors. The disclosure in this section is meant to supplement, and should be read in connection with, the disclosures set forth under the headings "Sources of Revenue" and "Governmental Regulation" in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2011.

Medicare Reimbursement-Ambulatory Surgery Centers

Payments under the Medicare program to ASCs are made under a system whereby the Secretary of the Department of Health and

Human Services (the “Secretary”) determines payment amounts prospectively for various categories of medical services performed in ASCs. Beginning in 2008, CMS transitioned Medicare payments to ASCs to a system based upon the hospital outpatient prospective payment system ("OPPS"). On July 6, 2012, CMS issued a proposed rule to update the Medicare program's payment policies and rates for ASCs for CY 2013, which provides for a 1.3% increase to the ASC payment rate.

Medicare Reimbursement-Hospital Outpatient Services

Most outpatient services provided by hospitals are reimbursed by Medicare under the OPPS, whereby hospital outpatient services are classified into groups called ambulatory payment classifications (“APCs”). CMS establishes a payment rate for each APC by multiplying the scaled relative weight for the APC by a conversion factor. The payment rate is further adjusted to reflect geographic wage differences. On July 6, 2012, CMS issued the final OPPS rates for CY 2012. Under the final rule, the market basket update for CY 2012 for hospitals under the OPPS is a 2.1% increase. Hospitals that submit quality data in accordance with the Hospital Outpatient Quality Data Reporting Program will receive the full 2.1% market basket update, while those that do not submit quality data will receive only a 0.1% increase in reimbursement.

Healthcare Reform

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) has been subject to a number of challenges to its constitutionality; however, on June 28, 2012, the United States Supreme Court upheld most of the Affordable Care Act, including the “individual mandate” provision, which generally requires all individuals to purchase healthcare insurance or pay a penalty. The only provision of the Affordable Care Act that the Court struck down as unconstitutional was the provision that would have allowed the federal government to revoke all federal Medicaid funding to any state that did not expand its Medicaid program. In response to the ruling, a number of states have already indicated that they will not expand their Medicaid programs, which would result in the Affordable Care Act not providing coverage to some low-income persons in those states. In addition, several bills have been and will likely continue to be introduced in Congress to repeal or amend all or significant provisions of the Affordable Care Act. It is difficult to predict the impact the Affordable Care Act will have on our operations given the delay in implementing regulations and possible amendment or repeal of elements of the Affordable Care Act. However, depending on how the Affordable Care Act is ultimately interpreted, amended and implemented, it could have an adverse effect on our business, financial condition and results of operations.

Recovery Audit Contractors

Several years ago, CMS implemented a Recovery Audit Contractor (“RAC”) program. RACs are private contractors contracting with CMS to identify overpayments and underpayments for services through post-payment reviews of claims submitted by Medicare and Medicaid providers. Our facilities continue to receive letters from RAC auditors requesting repayment of alleged overpayments for services and incur expenses associated with responding to and appealing these RAC requests, as well as the costs of repaying any overpayments. Although the repayments requested to date as a result of RAC audits have not been material to the Company, we are unable to quantify the financial impact of the RAC audits on our facilities given the pending appeals and uncertainty about the extent of future RAC audits.

Operating Margins

Our operating income margin for the three months ended June 30, 2012, increased to 19.5% from 11.6% for the three months ended June 30, 2011. During the 2012 period, we recorded an additional $948,000 of incentive compensation compared to the 2011 period. Excluding the additional incentive compensation, as well as the loss on debt extinguishment recorded in the 2011 period, our operating income margin increased to 20.3% for the three months ended June 30, 2012 from 16.1% for the three months ended June 30, 2011. This increase is attributable to a combination of overall case growth and an increase in net patient revenue per case due to an increase in higher acuity cases and ancillary services performed at our surgical hospitals.

Acquisitions

Effective June 20, 2012, we acquired a 58.3% ownership interest in a surgical hospital located in Lubbock, Texas. The purchase price of the acquisition was approximately $10.3 million, which was paid in cash. As part of the acquisition, we assumed debt of approximately $1.3 million. We consolidate the facility for financial reporting purposes.

Effective June 1, 2012, we acquired a 60.0% ownership interest in a surgical facility located in St. Louis, Missouri. The purchase price of the acquisition was approximately $7.6 million, which was paid in cash. As part of the acquisition, we assumed debt of approximately $419,000. We consolidate the facility for financial reporting purposes.

Effective April 1, 2012, we entered into a management agreement with a surgical facility located in Jackson, Tennessee. The management agreement has a term of fifteen years, with two optional five-year renewal terms. We also received an option to purchase up to a 20% ownership interest in the facility. The option is exercisable after April 1, 2013 and is effective for a six-month period.

Effective February 8, 2012, we completed the acquisition of four separate urgent care and family practice facilities located in Idaho Falls, Idaho. The purchase price of the acquisition was approximately $5.8 million, consisting of $3.1 million of cash, approximately $1.1 million in the form of equity ownership in our facility located in Idaho Falls, Idaho, $470,000 of contingent consideration and the assumption of debt of approximately $1.1 million. The facilities are operated by our existing facility located in Idaho Falls, Idaho and are consolidated with our Idaho Falls, Idaho facility for financial reporting purposes.

Discontinued Operations and Divestitures

From time to time, we evaluate our portfolio of surgical facilities to ensure the facilities are performing as expected. During the fourth quarter of 2011 and the first quarter of 2012, we committed to plans to divest our interests in three surgical facilities which are consolidated for financial reporting purposes. For the three and six months ended June 30, 2012 and 2011, the results of discontinued operations include operating activity of these three facilities for the period in which we owned such facilities.

Effective February 29, 2012, we divested our interest in one of these surgical facilities located in Fort Worth, Texas that we classified as discontinued operations. We recorded a gain on the disposal, net of noncontrolling interest expense, of $78,000 which is included in the loss from discontinued operations. As of June 30, 2012, we have two facilities with current operating activities included in discontinued operations.



	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Revenues	$	1,402		$	3,697	$	4,006		$	7,004
(Loss) income from operations, before taxes	$	(350	)	$	302	$	(1,252	)	$	480
Income tax provision	$	21		$	17	$	37		$	19
Loss (gain) on sale, net of taxes	$	108		$	71	$	(627	)	$	88
(Loss) income from discontinued operations, net of taxes	$	(479	)	$	214	$	(662	)	$	373

Effective April 30, 2012, we divested our interest in a surgical facility located in Nashville, Tennessee for net proceeds of $1.3 million. This facility was previously accounted for as an equity method investment for financial reporting purposes. We recorded a gain on the disposal of approximately $688,000 during the second quarter of 2012.

Results of Operations

The following table summarizes certain statements of operations items for each of the three and six months ended June 30, 2012 and 2011. The table also shows the percentage relationship to revenues for the periods indicated:



	Three Months Ended June 30,
	2012					2011
	Amount			% of Revenues		Amount			% of Revenues
	(in thousands)
Revenues	122,926			100	%	$	107,835		100	%
Cost of revenues	86,563			70.4		78,769			73.0
General and administrative expense	6,285			5.1		5,543			5.1
Depreciation and amortization	5,423			4.4		5,040			4.7
Provision for doubtful accounts	2,687			2.2		1,489			1.4
Income on equity investments	(1,214		)	(1.0	)	(387		)	(0.4	)
(Gain) loss on disposal of investments and long-lived assets, net	(594		)	(0.5	)	107			0.1
Proceeds from litigation settlements	(215		)	(0.1	)	—			—
Loss on debt extinguishment	—			—		4,751			4.5
Total operating expenses	98,935			80.5		95,312			88.4
Operating income	23,991			19.5		12,523			11.6
Interest expense, net	(14,346		)	(11.7	)	(13,431		)	(12.5	)
Income (loss) before income taxes and discontinued operations	9,645			7.8		(908		)	(0.9	)
Provision for income taxes	1,479			1.2		1,333			1.2
Income (loss) from continuing operations	8,166			6.6		(2,241		)	(2.1	)
(Loss) gain on discontinued operations, net of taxes	(479		)	(0.4	)	214			0.2
Net income (loss)	7,687			6.2		(2,027		)	(1.9	)
Less: Net income attributable to noncontrolling interests	(10,548		)	(8.5	)	(6,646		)	(6.1	)
Net loss attributable to Symbion, Inc.	$	(2,861	)	(2.3	)%	$	(8,673	)	(8.0	)%



	Six Months Ended June 30,
	2012					2011
	Amount			% of Revenues		Amount			% of Revenues
	(in thousands)
Revenues	244,153			100	%	$	213,861		100	%
Cost of revenues	171,834			70.4		153,570			71.8
General and administrative expense	14,286			5.9		11,412			5.3
Depreciation and amortization	10,760			4.4		10,047			4.7
Provision for doubtful accounts	4,801			2.0		3,006			1.4
Income on equity investments	(1,678		)	(0.7	)	(656		)	(0.3	)
(Gain) loss on disposal of investments and long-lived assets, net	(621		)	(0.3	)	29			0.1
Proceeds from litigation settlements	(232		)	(0.1	)	—			—
Loss on debt extinguishment	—			—		4,751			2.2
Total operating expenses	199,150			81.6		182,159			85.2
Operating income	45,003			18.4		31,702			14.8
Interest expense, net	(28,672		)	(11.7	)	(25,407		)	(11.9	)
Income before income taxes and discontinued operations	16,331			6.7		6,295			2.9
Provision for income taxes	2,833			1.2		2,951			1.4
Income from continuing operations	13,498			5.5		3,344			1.5
(Loss) gain on discontinued operations, net of taxes	(662		)	(0.2	)	373			0.2
Net income	12,836			5.3		3,717			1.7
Less: Net income attributable to noncontrolling interests	(20,638		)	(8.5	)	(14,809		)	(6.9	)
Net loss attributable to Symbion, Inc.	$	(7,802	)	(3.2	)%	$	(11,092	)	(5.2	)%

Three Months Ended June 30, 2012 Compared To Three Months Ended June 30, 2011

Overview. During the three months ended June 30, 2012, our revenues increased 14.0% to $122.9 million from $107.8 million for the three months ended June 30, 2011. We incurred a net loss attributable to Symbion, Inc. for the 2012 period of $2.9 million, compared to a loss of $8.7 million for the 2011 period. Our financial results for the three months ended June 30, 2012, compared to the three months ended June 30, 2011 reflect the net addition of two surgical facilities which we consolidate for financial reporting purposes.

Revenues. Revenues for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 were as follows (in thousands):



	2012		2011		Dollar Variance			Percent Variance
Patient service revenues	$	120,964	$	105,030	$	15,934		15.2	%
Physician service revenues	—		1,485		(1,485		)	(100.0	)
Other service revenues	1,962		1,320		642			48.6
Revenues	$	122,926	$	107,835	$	15,091		14.0	%

Patient service revenues increased 15.2% to $121.0 million for the three months ended June 30, 2012 compared to $105.0 million for the three months ended June 30, 2011. This increase is primarily attributable to case growth of 3.0% and an increase in net patient service revenue per case of 11.9% due to an increase in higher acuity cases and ancillary services performed at our surgical hospitals. This increase in case growth is attributable to growth at our existing surgical facilities, as well as surgical facilities acquired since July 1, 2011.

Cost of Revenues. Cost of revenues for the three months ended June 30, 2012 was $86.6 million compared to $78.8 million for the three months ended June 30, 2011. This increase is attributable to overall case growth and an increase in higher acuity cases and ancillary services performed at our surgical hospitals, as well as surgical facilities acquired since July 1, 2011. As a percentage of revenues, cost of revenues decreased to 70.4% for the 2012 period compared to 73.0% for the 2011 period.

General and Administrative Expense. General and administrative expense increased to $6.3 million for the three months ended June 30, 2012 compared to $5.5 million for the three months ended June 30, 2011. Included in the expense for the 2012 period is an $948,000 increase in incentive compensation expense. As a percentage of revenues, excluding the incentive compensation expense, our general and administrative expense decreased to 4.3% for the 2012 period compared to 5.1% for the 2011 period. This decrease is primarily attributable to our leveraging of corporate overhead costs while continuing to increase revenue at our existing facilities and through recent acquisitions.

Depreciation and Amortization. Depreciation and amortization expense increased to $5.4 million for the three months ended June 30, 2012 compared to $5.0 million for the three months ended June 30, 2011. As a percentage of revenues, depreciation and amortization expense decreased to 4.4% for the 2012 period compared to 4.7% for the 2011 period.

Provision for Doubtful Accounts. The provision for doubtful accounts increased to $2.7 million for the 2012 period compared to $1.5 million for the 2011 period. As a percentage of revenues, the provision for doubtful accounts increased to 2.2% for the 2012 period from 1.4% for the 2011 period.

Gains on disposal of investments and long-lived assets, net. During the second quarter of 2012, we disposed of our ownership interest in a surgical facility located in Nashville, Tennessee. We recorded a gain on the disposal of $688,000. This facility was recorded as an equity method investment for financial reporting purposes.

Operating Income. Our operating income increased to $24.0 million for the three months ended June 30, 2012 compared to $17.3 million for the three months ended June 30, 2011, excluding our loss on debt extinguishment of $4.8 million in the 2011 period. This increase is primarily attributable to a combination of overall case growth and an increase in net patient revenue per case due to an increase in higher acuity cases and ancillary services performed at our surgical hospitals, as well as surgical facilities acquired since July 1, 2011.

Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased to $14.3 million for the three months ended June 30, 2012 compared to $13.4 million for the three months ended June 30, 2011. This increase is primarily attributable to the increase in long-term debt due to our PIK elections and a higher interest rate on our Senior Secured Notes compared to our previous variable rate senior secured credit facility.

Provision for Income Taxes. The provision for income taxes increased to $1.5 million for the three months ended June 30, 2012 compared to $1.3 million for the three months ended June 30, 2011. Tax expense in both periods is primarily due to the recording of non-cash deferred income tax expense related to our joint venture investments.

Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests increased to $10.5 million for the three months ended June 30, 2012 compared to $6.6 million for the three months ended June 30, 2011. As a percentage of revenues, net income attributable to noncontrolling interests increased to 8.5% for the 2012 period compared to 6.1% for the 2011 period. This increase is primarily attributable to an increase in operating income at one of our surgical hospitals in which we do not hold a majority ownership but

consolidate for financial reporting purposes.

Six Months Ended June 30, 2012 Compared To Six Months Ended June 30, 2011

Overview. During the six months ended June 30, 2012, our revenues increased 14.2% to $244.2 million from $213.9 million for the six months ended June 30, 2011. We incurred a net loss attributable to Symbion, Inc. for the 2012 period of $6.1 million, excluding our $1.7 million stock option plan modification charge taken during the first quarter of 2012, compared to $6.3 million for the 2011 period, excluding our $4.8 million loss on debt extinguishment. Our financial results for the six months ended June 30, 2012, compared to the six months ended June 30, 2011 reflect the net addition of two surgical facilities which we consolidate for financial reporting purposes and one additional managed facility.

Revenues. Revenues for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 were as follows (in thousands):



	2012		2011		Dollar Variance			Percent Variance
Patient service revenues	$	240,447	$	208,333	$	32,114		15.4	%
Physician service revenues	—		2,930		(2,930		)	(100.0	)
Other service revenues	3,706		2,598		1,108			42.6
Revenues	$	244,153	$	213,861	$	30,292		14.2	%

Patient service revenues increased 15.4% to $240.4 million for the six months ended June 30, 2012 compared to $208.3 million for the six months ended June 30, 2011. This increase is attributable to case growth of 3.5% and an increase in net patient revenue per case of 11.5% due to an increase in higher acuity cases and ancillary services performed at our surgical hospitals. This increase in case growth is attributable to growth at our existing surgical facilities, as well as surgical facilities acquired since January 1, 2011.

Cost of Revenues. Cost of revenues for the six months ended June 30, 2012 was $171.8 million compared to $153.6 million for the six months ended June 30, 2011. This increase is attributable to overall case growth and an increase in higher acuity cases and ancillary services performed at our surgical hospitals, as well as surgical facilities acquired since January 1, 2011. As a percentage of revenues, cost of revenues decreased to 70.4% for the 2012 period compared to 71.8% for the 2011 period.

General and Administrative Expense. General and administrative expense increased to $14.3 million for the six months ended June 30, 2012 compared to $11.4 million for the six months ended June 30, 2011. Included in the expense for the 2012 period is a $1.6 million stock option plan modification charge and a $1.5 million increase in incentive compensation expense. As a percentage of revenues, excluding the stock option plan modification charge and the increase in incentive compensation expense, our general and administrative expense decreased to 4.6% for the 2012 period compared to 5.3% for the 2011 period. This decrease is primarily attributable to our leveraging of corporate overhead costs while continuing to increase revenue at our existing facilities and through recent acquisitions.

Depreciation and Amortization. Depreciation and amortization expense increased to $10.8 million for the six months ended June 30, 2012 compared to $10.0 million for the six months ended June 30, 2011. As a percentage of revenues, depreciation and amortization expense decreased to 4.4% for the 2012 period compared to 4.7% for the 2011 period.

Provision for Doubtful Accounts. The provision for doubtful accounts increased to $4.8 million for the 2012 period compared to $3.0 million for the 2011 period. As a percentage of revenues, the provision for doubtful accounts increased to 2.0% for the 2012 period from 1.4% for the 2011 period.

Operating Income. Our operating income, excluding our stock option plan modification charge of $1.7 million, increased to $46.7 million for the six months ended June 30, 2012 compared to $36.5 million for the six months ended June 30, 2011, excluding our loss on debt extinguishment. This increase is primarily attributable to a combination of overall case growth and an increase in net patient revenue per case due to an increase in higher acuity cases and ancillary services performed at our surgical hospitals, as well as surgical facilities acquired since January 1, 2011.

Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased to $28.7 million for the six months ended June 30, 2012 compared to $25.4 million for the six months ended June 30, 2011. This increase is primarily attributable to the increase in long-term debt due to our PIK elections and a higher interest rate on our Senior Secured Notes compared to our previous variable rate senior secured credit facility.

Provision for Income Taxes. The provision for income taxes decreased to $2.8 million for the six months ended June 30, 2012 compared to $3.0 million for the six months ended June 30, 2011. Tax expense in both periods is primarily due to the recording of non-cash deferred income tax expense related to our joint venture investments.

Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests increased to $20.6 million for the six months ended June 30, 2012 compared to $14.8 million for the six months ended June 30, 2011. As a percentage of revenues, net income attributable to noncontrolling interests increased to 8.5% for the 2012 period compared to 6.9% for the 2011 period. This increase is primarily attributable to an increase in operating income at one of our surgical hospitals in which we do not hold a majority ownership but consolidate for financial reporting purposes.

Liquidity and Capital Resources

Operating Activities

During the six months ended June 30, 2012, we generated operating cash flow from continuing operations of $33.1 million compared to $38.7 million for the six months ended June 30, 2011. This decrease is primarily attributable to the $5.2 million cash interest payment on our Toggle Notes. At June 30, 2012, we had working capital of $85.0 million compared to $89.0 million at December 31, 2011.

Investing Activities

Net cash used in investing activities from continuing operations during the six months ended June 30, 2012 was $23.1 million which included $18.2 million of payments and proceeds from acquisitions and divestitures, net of cash acquired of $1.9 million. Our acquisition activity was funded with cash from continuing operations. Additionally, the 2012 period included $4.9 million related to purchases of property and equipment which was funded with cash from continuing operations. Included in cash provided by investing activities from discontinued operations is $2.0 million of proceeds, net of noncontrolling interest, as a result of the disposal of our facility located in Fort Worth, Texas. Additionally, we recorded a gain of $688,000 as a result of divesting our interest in a surgical facility located in Nashville, Tennessee during the first quarter of 2012.

Net cash used in investing activities from continuing operations during the six months ended June 30, 2011 was $3.8 million, which included $3.9 million related to purchases of property and equipment. Cash used in investing activities in the 2011 period was funded primarily with cash from continuing operations.

Financing Activities

Net cash used in financing activities from continuing operations during the six months ended June 30, 2012 was $16.2 million. We distributed $17.4 million in cash to noncontrolling interest partners. We also made scheduled payments on our long-term debt of $4.3 million. We incurred additional facility level financing of $4.3 million during the six months ended June 30, 2012 which was used to re-pay intercompany borrowings.

Net cash used in financing activities from continuing operations during the six months ended June 30, 2011 was $36.4 million. We distributed $17.2 million in cash to noncontrolling interest partners.

Long-Term Debt

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



	June 30, 2012			December 31, 2011
Credit Facility	$	—		$	—
Senior Secured Notes, net of debt issuance discount of $4,343 and $4,799, respectively	336,657			336,201
Toggle Notes	94,724			94,724
PIK Exchangeable Notes	105,469			101,413
Notes Payable and Secured Loans	27,078			21,627
Capital lease obligations	4,497			4,311
	568,425			558,276
Less current maturities	(16,391		)	(13,582		)
Total	$	552,034		$	544,694

As described in the following sections, we modified our long-term debt structure during the second quarter of 2011. On June 14, 2011, we completed a private offering (the "Offering") of $350.0 million aggregate principal amount of 8.00% senior secured notes due 2016 (the "Senior Secured Notes"). The proceeds of the Offering were used to retire our then existing senior secured credit facility and a portion of our 11.00%/11.75% senior PIK toggle notes due 2015 (the "Toggle Notes"). In connection with the Offering, the Company entered into a new senior secured super-priority revolving credit facility (the "Credit Facility") as well as exchanged outstanding Toggle Notes having an aggregate principal amount of $85.4 million, at par plus accrued and unpaid interest, for $88.5 million initial aggregate principal amount of 8.00% senior PIK exchangeable notes due 2017 (the "PIK Exchangeable Notes"). As a result of the debt restructuring, we recorded a loss on debt extinguishment of $4.8 million. This loss is comprised primarily of capitalized

debt issuance costs written off in connection with our termination of debt instruments as part of the restructuring.

On September 9, 2011, we cancelled $9.0 million aggregate principal amount of outstanding Senior Secured Notes held by certain holders, plus accrued and unpaid interest, in exchange for the issuance to such holders of $9.2 million aggregate principal amount of PIK Exchangeable Notes which resulted in no significant gain or loss to the Company.

Credit Facility

The Credit Facility provides the ability to borrow under revolving credit loans and swingline loans. Letters of credit may also be issued under the Credit Facility. The Credit Facility matures on December 15, 2015. The Credit Facility is subject to a potential, although uncommitted, increase of up to $25.0 million at our request at any time prior to maturity of the facility, subject to certain conditions, including compliance with a maximum net senior secured leverage ratio and a minimum cash interest coverage ratio. The increase is only available if one or more financial institutions agree to provide it.

Loans under the Credit Facility bear interest, at our option, at the reserve adjusted LIBOR rate plus 4.50% or at the alternate base rate plus 3.50%. We are required to pay a commitment fee at a rate equal to 0.50% per annum on the undrawn portion of commitments in respect of the Credit Facility. This fee is payable quarterly in arrears and on the date of termination or expiration of the commitments.

The Credit Facility contains financial covenants requiring us not to exceed a maximum net senior secured leverage ratio or fall below a minimum cash interest coverage ratio, in each case tested quarterly. Borrowings under the Credit Facility are subject to significant conditions, including the absence of any material adverse change. At June 30, 2012, we were in compliance with all material covenants contained in the Credit Facility.

Senior Secured Notes

On June 14, 2011, we completed the private offering of $350.0 million aggregate principal amount of our Senior Secured Notes. The Senior Secured Notes were issued at a 1.51% discount, yielding proceeds of approximately $344.7 million. Interest on the Senior Secured Notes is due June 15 and December 15 of each year and will accrue at the rate of 8.00% per annum. The Senior Secured Notes will mature on June 15, 2016.

The Senior Secured Notes are guaranteed by substantially all of our existing and future material wholly-owned domestic restricted subsidiaries. The Senior Secured Notes and the guarantees are the Company's and the guarantors' senior secured obligations and rank equal in right of payment with any of the Company's or the guarantors' existing and future senior indebtedness and pari passu with the Company's and the guarantors' first priority liens, except to the extent that the property and assets securing the notes also secure the obligations under the Credit Facility, which is entitled to proceeds of the collateral prior to the Senior Secured Notes, in the event of a foreclosure or any insolvency proceedings.

We may redeem all or any portion of the Senior Secured Notes on or after June 15, 2014 at the redemption price set forth in the indenture governing the Senior Secured Notes, plus accrued interest. Prior to June 15, 2014, in each of 2011, 2012 and 2013, we may redeem up to 10% of the original aggregate principal amount of the Senior Secured Notes at a price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest. We may also redeem all or any portion of the Senior Secured Notes at any time prior to June 15, 2014 at a price equal to 100% of the aggregate principal amount thereof plus a make-whole premium and accrued and unpaid interest. In addition, we may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes with proceeds of certain equity offerings at any time prior to June 15, 2014. At June 30, 2012, we had not redeemed any of our Senior Secured Notes.

Effective September 9, 2011, we cancelled $9.0 million aggregate principal amount of our Senior Secured Notes held by certain holders, plus accrued and unpaid interest, in exchange for our issuance to such parties of $9.2 million aggregate principal amount of our PIK Exchangeable Notes. As a result of that exchange, we currently have $341.0 million aggregate principal amount of Senior Secured Notes outstanding.

At June 30, 2012, we were in compliance with all material covenants contained in the indenture governing the Senior Secured Notes.

Scheduled amortization of the discount recorded in connection with the Senior Secured Notes is as follows (in thousands):



	Discount attributable to Senior Secured Notes
July 1, 2012 through December 31, 2012	$	471
January 1, 2013 through December 31, 2013	1,006
January 1, 2014 through December 31, 2014	1,092
January 1, 2015 through December 31, 2015	1,186
January 1, 2016 through June 15, 2016	588
Total	$	4,343

Toggle Notes

On June 3, 2008, we completed the private offering of $179.9 million aggregate principal amount of our Toggle Notes. Interest on the Toggle Notes is due February 23 and August 23 of each year. The Toggle Notes will mature on August 23, 2015. For any interest period through August 23, 2011, we were able to 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 accrues at the rate of 11.0% per annum. PIK interest on the Toggle Notes accrued at the rate of 11.75% per annum.

Between August 23, 2008 and August 23, 2011, we elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for various interest periods. As a result, the principal due on the Toggle Notes increased by $71.0 million from the issuance of the Toggle Notes to June 30, 2012. Beginning with our February 2012 interest payment, all interest under our Toggle Notes is required to be paid in cash. We have accrued $3.7 million in interest on the Toggle Notes in other accrued expenses as of June 30, 2012.

In connection with the Offering, we repurchased $70.8 million aggregate principal amount of the Toggle Notes, at par plus accrued and unpaid interest of $2.6 million, and exchanged $85.4 million aggregate principal amount of Toggle Notes, at par plus accrued interest of $3.1 million, for $88.5 million aggregate principal amount of PIK Exchangeable Notes.

The Toggle Notes are unsecured senior obligations and rank equally with other existing and future senior indebtedness, senior to all future subordinated indebtedness and effectively junior to all secured indebtedness to the extent of the value of the collateral securing such indebtedness. Certain of our subsidiaries have guaranteed the Toggle Notes on a senior basis, as required by the indenture governing the Toggle Notes. 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 our subsidiaries to borrow money or guarantee other indebtedness, grant liens, make investments, sell assets, pay dividends or engage in transactions with affiliates. At June 30, 2012, we were in compliance with all material covenants contained in the indenture governing the Toggle Notes.

PIK Exchangeable Notes

Concurrent with the Offering, we exchanged with certain holders of our outstanding Toggle Notes, Toggle Notes having an aggregate principal amount of $85.4 million, at par plus accrued and unpaid interest, for $88.5 million initial aggregate principal amount of our PIK Exchangeable Notes. Effective September 9, 2011, we cancelled $9.0 million aggregate principal amount of our Senior Secured Notes held by certain holders, plus accrued and unpaid interest, in exchange for our issuance to such parties of $9.2 million aggregate principal amount of our PIK Exchangeable Notes.

The PIK Exchangeable Notes will mature on June 15, 2017. Interest accrues on the PIK Exchangeable Notes at a rate of 8.00% per year, compounding semi-annually on each June 15 and December 15 of each year, commencing on December 15, 2011. We will not pay interest in cash on the PIK Exchangeable Notes. Instead, we will pay interest on the PIK Exchangeable Notes in kind by increasing the principal amount of the PIK Exchangeable Notes on each interest accrual date by an amount equal to the entire amount of the accrued interest. We have accrued $376,000 in interest on the PIK Exchangeable Notes in other accrued expenses as of June 30, 2012. We record this accrued interest in other current liabilities until the interest payment date. On June 15 and December 15 of each year, we reclassify the accrued interest to long-term debt. Due to the required payment-in-kind, we increased the principal amount of the PIK Exchangeable Notes by $3.9 million during 2011 and $4.1 million during the six months ended June 30, 2012.

the accreted principal amount of the PIK Exchangeable Notes to be exchanged, plus accrued and non-capitalized interest, divided by (ii) the exchange price. The exchange price in effect at any time will be subject to customary adjustments.

The PIK Exchangeable Notes are unsecured senior obligations and rank equally with other existing and future senior indebtedness, senior to all future subordinated indebtedness and effectively junior to all secured indebtedness to the extent of the value of the collateral securing such indebtedness. Holdings and substantially all of our material wholly owned domestic subsidiaries have guaranteed the PIK Exchangeable Notes on a senior basis, as required by the indenture governing the PIK Exchangeable Notes. 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.

We may not redeem the PIK Exchangeable Notes prior to June 15, 2014. On or after June 15, 2014, we may redeem some or all of the PIK Exchangeable Notes for cash at a redemption price equal to a specified percentage of the accreted principal amount of the PIK Exchangeable Notes to be redeemed, plus accrued and non-capitalized interest. The specific percentage for such redemptions will be 104% for redemptions during the year commencing on June 15, 2014, 102% for redemptions during the year commencing on June 15, 2015, and 100% for redemptions during the year commencing on June 15, 2016.

We recorded the PIK Exchangeable Notes in accordance with ASC Topic 470, Debt. In the exchange, the new PIK Exchangeable Notes were recorded at fair value. At June 30, 2012, we were in compliance with all material covenants contained in the indenture governing the PIK Exchangeable Notes.

Notes Payable to Banks

Certain of our subsidiaries have outstanding bank indebtedness, 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 carrying value of the leased assets was $5.7 million and $5.2 million as of June 30, 2012 and December 31, 2011, respectively.

Inflation

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

Recent Accounting Pronouncements

ASU 2011-08, Intangibles - Goodwill and Other

In September 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-08. Previously, entities were required to test goodwill for impairment, on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount, including the carrying amount of goodwill. If the resulting fair value of a reporting unit was less than its carrying amount, then the second step of the test would be performed to measure the amount of the impairment loss, if any. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step goodwill impairment test is unnecessary.

In accordance with ASU 2011-08, we have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. Additionally, ASU 2011-08 permits us to resume performing the qualitative assessment in any subsequent period. We adopted the provisions of ASU 2011-08 during the first quarter of 2012.

ASU 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities

In July 2011, the FASB issued ASU 2011-07. ASU 2011-07 requires healthcare entities that recognize significant amounts of patient service revenues at the time services are rendered, to present the provision for doubtful accounts related to patient service revenues as a deduction from patient service revenues (net of contractual allowances and discounts) on their statement of operations if they do not assess the patient's ability to pay. We evaluated ASU 2011-07 and determined that the requirements of this ASU are not applicable to the Company as the ultimate collection of patient service revenues is generally determinable at the time of service, and therefore, this ASU had no impact on our consolidated financial position, results of operations or cash flows.

ASU 2011-05, Presentation of Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, which eliminated our ability to present components of other comprehensive income as part of the statement of changes in stockholders' equity. Instead, ASU 2011-05 requires that all non-owner changes in stockholders' equity

be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We adopted the provisions of ASU 2011-05 during the first quarter of 2012 and retrospectively for all periods presented with the inclusion of a separate, consecutive consolidated statement of comprehensive income. Through June 30, 2012, our only component of other comprehensive income related to changes in the fair value of its interest rate swap derivative instrument. During the second quarter of 2011, we discontinued hedge accounting treatment as a result of our extinguishment of the underlying senior secured credit facility. The adoption of ASU 2011-05 did not impact our financial position, results of operations or cash flows.

EBITDA and Consolidated Adjusted EBITDA

When we use the term “EBITDA,” we are referring to net income (loss) plus (a) loss (income) from discontinued operations, net of taxes, (b) income tax expense, (c) interest expense, net, (d) depreciation and amortization, (e) non-cash (gains) losses, including our loss from debt extinguishment, and (f) non-cash stock option compensation expense, and less (g) net income attributable to noncontrolling interests. Noncontrolling interest represents the interests of third parties, such as physicians and in some cases, healthcare 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 $36.3 million for the six months ended June 30, 2012 from $32.4 million for the six months ended June 30, 2011. This increase is attributable to an increase in operating income, offset by a $1.5 million increase in incentive compensation expense over the prior year. Excluding the increase in incentive compensation expense, our EBITDA margin was 15.5% in the 2012 period compared to 15.2% in the 2011 period.

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 use "Consolidated Adjusted EBITDA" to determine compliance with some of the covenants under the Credit Facility, as well as to determine the interest rate and commitment fee payable under our Credit Facility. When we use the term "Consolidated Adjusted EBITDA", we are referring to EBITDA, as defined above, adjusted for cash payments on our Idaho Falls facility lease, intercompany notes and pro forma acquisition and other non-cash adjustments.

EBITDA and Consolidated Adjusted EBITDA are not measurements of financial performance or liquidity under generally accepted accounting principles. They 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 and Consolidated Adjusted 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 our EBITDA measure is consistent with the measure of EBITDA less income attributable to noncontrolling interests previously reported. Our calculation of EBITDA and Consolidated Adjusted 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 - continuing operations (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
EBITDA	$	18,322		$	16,109		$	36,271		$	32,388
Depreciation and amortization	(5,423		)	(5,040		)	(10,760		)	(10,047		)
Non-cash (losses) gains	594			(4,858		)	621			(4,780		)
Non-cash stock option compensation expense	(50		)	(334		)	(1,767		)	(668		)
Interest expense, net	(14,346		)	(13,431		)	(28,672		)	(25,407		)
Provision for income taxes	(1,479		)	(1,333		)	(2,833		)	(2,951		)
Net income attributable to noncontrolling interests	10,548			6,646			20,638			14,809
Income (loss) on discontinued operations, net of taxes	(479		)	214			(662		)	373
Net income	7,687			(2,027		)	12,836			3,717
Loss (income) from discontinued operations	479			(214		)	662			(373		)
Depreciation and amortization	5,423			5,040			10,760			10,047
Amortization of deferred financing costs	945			360			1,889			861
Non-cash payment-in-kind interest option	2,029			6,382			4,057			13,366
Non-cash stock option compensation expense	50			334			1,767			668
Non-cash recognition of other comprehensive income into earnings	—			665			—			665
Non-cash (gains) and losses, net	(594		)	107			(621		)	29
Loss on debt extinguishment	—			4,751			—			4,751
Deferred income taxes	1,421			1,190			2,550			2,724
Equity in earnings of unconsolidated affiliates, net of distributions received	(715		)	60			(854		)	401
Provision for doubtful accounts	2,687			1,489			4,801			3,006
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable	970			(1,666		)	(2,561		)	(2,290		)
Other assets and liabilities	(3,194		)	406			(2,187		)	1,116
Net cash provided by operating activities - continuing operations	$	17,188		$	16,877		$	33,099		$	38,688
Other Data:
Number of surgical facilities included in continuing operations, as of the end of period⁽¹⁾	57			54			57			54


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



	The following table reconciles Consolidated Adjusted EBITDA to EBITDA and EBITDA to net cash provided by operating activities—continuing operations:

		Twelve Months Ended June 30, 2012
		(dollars in thousands)
	Consolidated Adjusted EBITDA (1)	$	83,906
	Cash payment on Idaho Falls lease (2)	5,353
	Intercompany notes adjustment (3)	(9,445		)
	Pro forma acquisition and other non-cash adjustments (4)	(8,293		)
	EBITDA	71,521
	Depreciation and amortization	(20,902		)
	Non-cash losses, net of noncontrolling interests	(4,155		)
	Non-cash stock option compensation expense	(2,452		)
	Interest expense, net	(57,594		)
	Provision for income taxes	(9,254		)
	Net income attributable to noncontrolling interests	39,272
	Loss from discontinued operations, net of taxes	(461		)
	Net income	15,976
	Income from discontinued operations	461
	Depreciation and amortization	20,902
	Amortization of deferred financing costs and debt issuance discount	3,914
	Non-cash payment-in-kind interest option	13,059
	Non-cash stock option compensation expense	2,452
	Non-cash losses	3,490
	Deferred income taxes	8,797
	Equity in earnings of unconsolidated affiliates, net of distributions received	(1,149		)
	Provision for doubtful accounts	8,626
	Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
	Accounts receivable	(11,422		)
	Other assets and liabilities	(2,478		)
	Net cash provided by operating activities - continuing operations	$	62,628


(1) When we use the term Consolidated Adjusted EBITDA, we are referring to EBITDA as reported adjusted for covenant related items per our Credit Facility.

(2) Represents the cash lease payment adjustment for our facility located in Idaho Falls, ID as contemplated by our Credit Facility.

(3) Adjustments related to outstanding balances on intercompany notes issued by our restricted subsidiaries as contemplated by our Credit Facility.

(4) Includes the pro forma effect of acquisitions and other non-cash adjustments as contemplated by our Credit Facility.

Summary

We believe that existing funds, cash flows from operations and available borrowings under our Credit Facility will provide sufficient liquidity for the next 12 to 18 months. Our 2011 debt restructuring extended the maturities of our long-term debt and revised our financial covenants to make them less restrictive. However, our ability to meet our funding needs could be adversely affected if we suffer adverse results from our operations. In addition, based on our expected liquidity and capital resource needs, we may consider various alternatives to improve our capital structure, including reducing debt, extending maturities or relaxing financial covenants. These alternatives may include new equity or debt financings or exchange offers with our existing security holders (including exchanges of debt for debt or equity) and other transactions involving our outstanding securities, given their secondary market trading prices. We cannot assure you, if we pursue any of these transactions, that we will be successful in completing a transaction on attractive terms, or at all.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Historically, we have not held or issued derivative financial instruments other than the use of a variable-to-fixed interest rate swap for a portion of our former senior credit facility. We do not use derivative instruments for speculative purposes. Our outstanding debt to commercial lenders is generally based on a predetermined percentage above LIBOR or the lenders’ prime rate. At June 30, 2012, none of our long-term debt was subject to variable rates of interest. However, future borrowings under our Credit Facility would subject us to LIBOR fluctuations. At June 30, 2012, the fair value of our total long-term debt, based on quoted market prices as of June 30, 2012, was approximately $563.6 million.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us (including our consolidated subsidiaries) in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported in a timely manner.

Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the second quarter of 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are, from time to time, subject to claims and suits arising in the ordinary course of business, including claims for damages for personal injuries, breach of management contracts and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages, that may not be covered by insurance.

Item 6. Exhibits



No.			Description
3.1			Amended Certificate of Incorporation of Symbion, Inc. ^(a)
3.2			Amended and Restated Bylaws of Symbion, Inc. ^(a)
31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document ^(b)
101.SCH			XBRL Taxonomy Extension Schema Document ^(b)
101.CAL			XBRL Taxonomy Calculation Linkbase Document^(b)
101.DEF			XBRL Taxonomy Definition Linkbase Document ^(b)
101.LAB			XBRL Taxonomy Label Linkbase Document ^(b)
101.PRE			XBRL Taxonomy Presentation Linkbase Document ^(b)


^(a)	Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-4 (Registration No. 333-153678)

^(b)

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

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



		SYMBION, INC.
		By:	/s/ TERESA F. SPARKS Teresa F. Sparks Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

Date: August 10, 2012

EXHIBIT INDEX



No.		Description
3.1		Amended Certificate of Incorporation of Symbion, Inc. ^(a)
3.2		Amended and Restated Bylaws of Symbion, Inc. ^(a)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document ^(b)
101.SCH		XBRL Taxonomy Extension Schema Document ^(b)
101.CAL		XBRL Taxonomy Calculation Linkbase Document ^(b)
101.DEF		XBRL Taxonomy Definition Linkbase Document ^(b)
101.LAB		XBRL Taxonomy Label Linkbase Document ^(b)
101.PRE		XBRL Taxonomy Presentation Linkbase Document ^(b)


^(a)	Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-4 (Registration No. 333-153678)

^(b)