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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-50574
 
 Symbion, Inc.
  Delaware
    
    62-1625480(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)40 Burton Hills Boulevard, Suite 500
    
    37215Nashville, Tennessee
    
    (Zip Code)(Address Of Principal Executive Offices)
 (615) 234-5900
 None
  Common Stock, $.01 par value
    
    Preferred Stock Purchase Rights(Title of Class)
    
    (Title of Class)
 o þ
 o þ
 þ o
 þ
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesSIGNATURESEXHIBIT INDEXEx-10.22  Third Amendment to Symbion Employee Stock Purchase PlanEx-10.27 2005 Bonus PlanEx-10.28  Summary of Director CompensationEx-21.1   Subsidiaries of RegistrantEx-23.1 Consent of Ernst & Young LLPEx-23.2  Consent of Casualty Actuarial Consultants, Inc. (2005 report)Ex-31.1  Section 302 Certification of the CEOEx-31.2  Section 302 Certification of the CFOEx-32.1  Section 906 Certification of the CEOEx-32.2  Section 906 Certification of the CFO    Table of Contents  Cautionary Note Regarding Forward-Looking Statements
  
    
    our ability to attract and maintain good relationships with physicians who use our
facilities;
    
    our ability to acquire and develop additional facilities on favorable terms and to
integrate their business operations;
    
    our ability to enter into strategic alliances with health care systems and other health
care providers that are leaders in their markets;
    
    our ability to negotiate favorable contracts on behalf of our facilities with managed
care organizations or other third-party payors; and
    
    our ability to enhance operating efficiencies.
    
 PART I
 
 Item 1. Business
 Overview
  1




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Surgery Center Industry
   
    
    Physician and Patient Preference for Surgery Centers.Physicians often prefer to
operate in surgery centers, as compared to acute care hospitals, because of the efficiency
and convenience that surgery centers afford. Procedures performed at surgery centers are
typically non-emergency, so physicians can schedule their time more efficiently and
increase the number of procedures that they can perform in a given period. Surgery centers
also provide physicians with greater scheduling flexibility, more consistent nurse staffing
and faster turnaround time between cases, as compared to acute care hospitals. In addition,
we believe patients prefer the comfort of a less institutional setting and the more
convenient process for scheduling and registration available in surgery centers, as
compared to acute care hospitals.
    
    Lower Cost Alternative.Based upon our managements experience in the health care
industry, we believe that surgeries performed in surgery centers are generally less
expensive than those performed in acute care hospitals because of lower facility
development costs, the focus on non-emergency procedures and more efficient staffing and
work flow processes. We believe that cost-conscious payors are attracted to the lower costs
afforded by surgery centers, as compared to acute care hospitals.
    
    Advanced Technology and Improved Anesthesia.Advancements in medical technology such
as lasers, arthroscopy, fiber optics 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 without an
overnight stay and reduced the need for hospitalization following surgery.
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Our Strategy
  
    
    Identify, recruit and retain leading surgeons and other physicians for our surgery
centers.We believe that establishing and maintaining strong relationships with surgeons
and other physicians is a key factor to our success in acquiring, developing and operating
surgery centers. We identify and partner with surgeons and other physicians that we believe
have established reputations for clinical excellence in their communities. We believe that
we have had success in recruiting and retaining physicians because of the ownership
structure of our surgery centers and our staffing, scheduling and clinical systems that are
designed to increase physician productivity, promote physicians professional success and
enhance the quality of patient care. We also believe that forming relationships with health
care systems and other health care providers can enhance our ability to recruit physicians.
We currently have strategic relationships with six health care systems.
    
    Capitalize on our experienced management team to pursue multiple growth opportunities
in the surgery center market.We believe that the experience and capabilities of our
senior management team provide a strategic advantage in improving the operations of our
surgery centers, attracting physicians and identifying new development and acquisition
opportunities. Four of our executive officers have an average of over 25 years of
experience in the health care industry, including senior management positions at public and
private health care companies. The remaining six members of our senior management team
have an average of over 20 years of experience in the health care industry. Our
managements broad industry experience has allowed it to establish strong relationships
with participants throughout the health care industry. These relationships are helpful in
forming leads for acquisitions, and in making decisions about expanding into new markets
and services. The experience and capabilities of our management team also enable us to
pursue multiple growth strategies in the surgery center market, including acquisitions of
established surgery centers, de novo developments in attractive markets, strategic
relationships with prominent hospitals and other health care providers and turnaround
opportunities in connection with underperforming facilities. We have successfully executed
each of these growth strategies, and intend to pursue each of them in the future.
    
    Pursue a disciplined strategy of acquiring and developing surgery centers.Since
January 1999, we have acquired 41 surgery centers and developed 16 surgery centers,
including five surgery centers that we subsequently divested. We anticipate acquiring about
three to four centers and developing three to four centers annually during the next three
to five years. We seek to acquire and develop both single and multi-specialty surgery
centers that meet our criteria, including prominence and quality of physician partners,
specialty mix, opportunities for growth, level of competition in the local market, level of
managed care penetration and our ability to access managed care organization contracts.
Our acquisition and development team conducts extensive due diligence and applies a
financial model that targets a threshold return on invested capital over a period of five
years. Once we acquire a surgery center, our team establishes a strategic plan to improve
the centers operating systems, physician recruitment, facilities, and capitalize on the
centers competitive strengths. We have historically targeted majority ownership in our
facilities and currently hold majority ownership interests in 67% of the surgery centers in
which we own an interest. Majority ownership allows us to make and execute managerial
decisions which we believe provides greater opportunity for growth and higher returns. We
also believe that by starting with majority ownership of a center, we can benefit by
capturing a greater share of the value we create in managing and improving the center. We
intend to continue to target majority ownership in our facilities. However, when attractive
opportunities arise, we may acquire minority interests in surgery centers. When
appropriate, we also may reduce our interest in majority owned surgery centers.
    
    Increase revenues and profitability of existing surgery centers through operational
focus.We seek to increase revenues, profitability and return on our invested capital at
all of our centers by focusing on operations. We have a dedicated team that is responsible
for implementing best practices, cost controls and overall efficiencies at each of our
surgery centers. Our centers benefit from our network of facilities by
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sharing best practices and participating in group purchasing agreements designed to reduce
the cost of supplies and equipment. We intend to continue to recruit additional physicians
and expand the range of services offered at our surgery centers to increase the number and
types of surgeries performed in our centers. We are committed to enhancing programs and
services for our physicians and patients by providing advanced technology, quality care,
cost-effective service and convenience.
 Operations
 Surgery Center Operations
    Surgery Center Ownership Structure
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Surgery Centers
  Number of
    
    
    
    SymbionOperating
    
    Number of
    
    PercentageFacility
    
    City
    
    Rooms
    
    Treatment Rooms
    
    OwnershipAlabamaBirmingham Endoscopy Center
    
    Birmingham
    
    3
    
    3
    
    
    80
    %(1)North River Surgical Center
    
    Tuscaloosa
    
    2
    
    2 procedure rooms
    
    
    80
    %(1)CaliforniaSpecialty Surgical Center of Beverly
Hills/Brighton Way
    
    Beverly Hills
    
    3
    
    1 minor procedure room
    
    
    55
    %(1)Specialty Surgical Center of Beverly
Hills/Wilshire Boulevard
    
    Beverly Hills
    
    4
    
    2 minor procedure rooms
    
    
    55
    %(1)Specialty Surgical Center of Encino
    
    Encino
    
    4
    
    2 minor procedure rooms
    
    
    54
    %(1)Specialty Surgical Center of Irvine
    
    Irvine
    
    4
    
    1 minor procedure room
    
    
    21
    %Specialty Surgical Center of Arcadia
    
    Arcadia
    
    3
    
    1 minor procedure room
    
    
    19
    %ColoradoDry Creek Surgery Center
    
    Denver
    
    6
    
    2
    
    
    51
    %(1)FloridaDeland Surgery Center
    
    Deland
    
    3
    
    2
    
    
    79
    %(1)West Bay Surgery Center
    
    Largo
    
    4
    
    4
    
    
    51
    %(1)Jacksonville Beach Surgery Center
    
    Jacksonville
    
    4
    
    1
    
    
    81
    %(1)Cape Coral Ambulatory Surgery Center
    
    Cape Coral
    
    5
    
    2
    
    
    10
    %Lee Island Coast Surgery Center
    
    Fort Myers
    
    5
    
    3
    
    
    50
    %(1)Orlando Surgery Center
    
    Orlando
    
    5
    
    1 minor procedure room
    
    
    66
    %(1)Tampa Bay Regional Surgery Center
    
    Largo
    
    1
    
    2
    
    
    51
    %(1)The Surgery Center of Ocala
    
    Ocala
    
    4
    
    2
    
    
    51
    %(1)GeorgiaPremier Surgery Center
    
    Brunswick
    
    3
    
    1
    
    
    58
    %(1)Atlanta Center for Reconstructive Foot and
Ankle Surgery Center
    
    Sandy Springs
    
    2
    
    
    
    
    53
    %(1)Roswell Center for Foot and Ankle Surgery
Center
    
    Roswell
    
    2
    
    
    
    
    23
    %Savannah Outpatient Foot and Ankle
Surgery Center
    
    Savannah
    
    2
    
    
    
    
    80
    %(1)The Surgery Center
    
    Columbus
    
    4
    
    2
    
    
    68
    %(1)IllinoisValley Ambulatory Surgery Center
    
    St. Charles
    
    6
    
    1 minor procedure room
    
    
    40
    %(1)IndianaVincennes Surgery Center
    
    Vincennes
    
    3
    
    1 minor procedure room
    
    
    51
    %(1)New Albany Outpatient Surgery
    
    New Albany
    
    3
    
    1
    
    
    70
    %(1)KansasHeartland Specialty Surgical Hospital(2)
    
    Kansas City
    
    7
    
    3
19 hospital rooms
    
    
    
    (3)Cypress Surgery Center
    
    Wichita
    
    6
    
    2 procedure rooms
    
    
    54
    %(1)KentuckyDuPont Surgery Center
    
    Louisville
    
    5
    
    
    
    
    61
    %(1)LouisianaGreater New Orleans Surgery Center
    
    Metairie
    
    2
    
    
    
    
    30
    %(1)Physicians Surgical Specialty Hospital(2)
    
    Houma
    
    5
    
    3
    
    
    57
    %(1)10 hospital rooms2 procedure roomsSurgery Center of Hammond
    
    Hammond
    
    4
    
    1 cysto room
    
    
    87
    %(1)MassachusettsWorcester Surgery Center
    
    Worcester
    
    4
    
    1 minor procedure room
    
    
    77
    %(1)Worcester ENT
    
    Worcester
    
    1
    
    
    
    
    51
    %(1)
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Number of
    
    
    
    SymbionOperating
    
    Number of
    
    PercentageFacility
    
    City
    
    Rooms
    
    Treatment Rooms
    
    OwnershipMissouriCentral Missouri Medical Park Surgical
Center
    
    Jefferson City
    
    4
    
    2
    
    
    40
    %(1)The Surgery Center of Kirkwood
    
    Kirkwood
    
    3
    
    1 minor procedure room
    
    
    50
    %(1)MississippiDesoto Surgery Center
    
    Desoto
    
    2
    
    1 procedure room
    
    
    
    (3)Physicians Outpatient Center
    
    Oxford
    
    4
    
    2
    
    
    
    (3)New YorkSouth Shore Ambulatory Surgery Center
    
    Lynbrook
    
    4
    
    1
    
    
    
    (4)North CarolinaOrthopaedic Surgery Center of Asheville
    
    Asheville
    
    3
    
    
    
    
    61
    %(1)Wilmington SurgCare
    
    Wilmington
    
    7
    
    3 minor procedure rooms
    
    
    87
    %(1)OhioPhysicians Ambulatory Surgery Center
    
    Circleville
    
    2
    
    
    
    
    61
    %(1)Valley Surgical Center
    
    Steubenville
    
    3
    
    1 minor procedure room
    
    
    59
    %(1)OklahomaLakeside Womens Hospital(2)
    
    Oklahoma City
    
    3
    
    16 hospital rooms
1 procedure room
    
    
    42
    %PennsylvaniaVillage SurgiCenter
    
    Erie
    
    5
    
    1
    
    
    73
    %(1)Rhode IslandBayside Endoscopy Center
    
    Providence
    
    
    
    6
    
    
    75
    %(1)TennesseeBaptist Germantown Surgery Center
    
    Memphis
    
    6
    
    1
    
    
    
    (3)3 overnight roomsMaury Regional Surgery Center
    
    Columbia
    
    2
    
    1
    
    
    35
    %Cool Springs Surgery Center
    
    Franklin
    
    5
    
    1
    
    
    35
    %1 overnight roomEast Memphis Surgery Center
    
    Memphis
    
    6
    
    1
    
    
    
    (3)4 overnight roomsMidtown Surgery Center
    
    Memphis
    
    4
    
    
    
    
    
    (3)Southwind GI
    
    Memphis
    
    1
    
    
    
    
    100
    %(1)Union City Center
    
    Union City
    
    2
    
    1
    
    
    
    (3)UroCenter
    
    Memphis
    
    3
    
    1
    
    
    
    (3)University Ambulatory Surgical Center
    
    Knoxville
    
    6
    
    1
    
    
    25
    %2 overnight roomsTexasCentral Park Surgery Center
    
    Austin
    
    5
    
    1
    
    
    43
    %(1)3 overnight roomsClear Fork Surgery Center
    
    Fort Worth
    
    3
    
    1
    
    
    33
    %(1)4 overnight roomsEast Houston Surgery Center
    
    Houston
    
    4
    
    2
    
    
    47
    %(1)1 overnight roomNortheast Baptist Surgery Center
    
    San Antonio
    
    4
    
    3
    
    
    49
    %(1)1 overnight roomNorthStar Surgical Center
    
    Lubbock
    
    6
    
    4
    
    
    46
    %(1)2 overnight roomsSurgery Center of Duncanville
    
    Duncanville
    
    4
    
    1
    
    
    41
    %(1)2 overnight roomsTexarkana Surgery Center
    
    Texarkana
    
    4
    
    3
    
    
    66
    %(1)2 overnight roomsWashingtonBellingham Surgery Center
    
    Bellingham
    
    4
    
    
    
    
    85
    %(1)
 
 (1)
    
    We consolidate these surgery centers for financial reporting purposes.(2)
    
    This facility is licensed as a hospital.(3)
    
    We manage these facilities, but do not have an ownership interest in them.(4)
    
    We hold a 57% ownership interest in the limited liability company which provides
administrative services to this surgery center. Due to regulatory restrictions in the State of
New York, we cannot directly own an interest in the facility. 7




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Case Mix
  Year Ended
    
    
    Year EndedDecember 31, 2005
    
    
    December 31, 2004SpecialtyEar, nose and throat
    
    
    7
    %
    
    
    8
    %Gastrointestinal
    
    
    24
    
    
    
    22General surgery
    
    
    5
    
    
    
    5Obstetrics/gynecology
    
    
    3
    
    
    
    3Ophthalmology
    
    
    12
    
    
    
    13Orthopedic
    
    
    15
    
    
    
    16Pain management
    
    
    15
    
    
    
    16Plastic surgery
    
    
    4
    
    
    
    4Other
    
    
    15
    
    
    
    13Total
    
    
    100
    %
    
    
    100
    %
 Case Growth
  Year Ended
    
    Year EndedDecember 31, 2005
    
    December 31, 2004Consolidated:Cases
    
    
    171,592
    
    
    
    166,886Cases growth
    
    
    2.8
    %
    
    
    N/ANet patient service revenue per case
    
    $
    1,169
    
    
    $
    1,141Net patient service revenue per case
growth
    
    
    2.5
    %
    
    
    N/ANumber of same store surgery centers
    
    
    31
    
    
    
    N/AConsolidated centers and non-consolidated centers:Cases
    
    
    196,239
    
    
    
    189,467Cases growth
    
    
    3.6
    %
    
    
    N/ANet patient service revenue per case
    
    $
    1,148
    
    
    $
    1,120Net patient service revenue per case
growth
    
    
    2.5
    %
    
    
    N/ANumber of same store surgery centers
    
    
    35
    
    
    
    N/A
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Year Ended
    
    Year EndedDecember 31, 2005
    
    December 31, 2004Cases
    
    
    209,429
    
    
    
    176,483Cases growth
    
    
    18.7
    %
    
    
    N/ANet patient service revenue per case
    
    $
    1,209
    
    
    $
    1,148Net patient service revenue per case
growth
    
    
    5.3
    %
    
    
    N/ANumber of surgery centers operated as of end of the
period (1)
    
    
    59
    
    
    
    54Number of consolidated surgery centers
    
    
    43
    
    
    
    40
 
 (1)
    
    Includes surgery centers that we manage but in which we do not have an ownership interest. Payor Mix
  Year Ended
    
    
    Year EndedDecember 31, 2005
    
    
    December 31, 2004PayorPrivate Insurance
    
    
    76
    %
    
    
    76
    %Government
    
    
    19
    
    
    
    20Self-pay
    
    
    4
    
    
    
    3Other
    
    
    1
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
 Strategic Relationships
  
    
    Vanderbilt Health Services, Inc., with which we own and operate a surgery center in Franklin, Tennessee;
    
    Vanguard Health Systems, Inc., with which we own and operate a surgery center in San Antonio, Texas;
    
    Baptist Memorial Health Services, Inc., for which we manage seven surgery centers in
Memphis, Tennessee and surrounding areas;
    
    University Health System, Inc., with which we own and operate a surgery center in Knoxville, Tennessee;
    
    Harris Methodist Ft. Worth, with which we own and operate a surgery center in Fort Worth, Texas; and
    
    Maury Regional Healthcare System, with which we own and operate a surgery center in
Columbia, Tennessee.
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Acquisition and Development of Surgery Centers
  Acquisition Program.
  Development Program.
  10




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Other Services
  Diagnostic Centers
   Physician Networks
  Information Systems and Controls
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Marketing
   Competition
   12




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Employees
  Environmental
  Insurance
  Reimbursement
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Governmental Regulation
 General
      15




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Licensure and Certificates of Need
     Medicare and Medicaid Participation
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Antitrust Laws
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Medicare Fraud and Abuse and Anti-Referral Laws
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Federal Anti-Referral Laws
  
    
    clinical laboratory services;
    
    physical therapy services;
    
    occupational therapy services;
    
    radiology services, including magnetic resonance imaging, computerized axial tomography
scan and ultrasound services;
    
    radiation therapy services and supplies;
    
    durable medical equipment and supplies;
    
    parenteral and enteral nutrients, equipment and supplies;
    
    prosthetics, orthotics and prosthetic devices and supplies;
    
    home health services;
    
    outpatient prescription drugs; and
    
    inpatient and outpatient hospital services.
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False and Other Improper Claims
   qui tam
  23




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Health Information Practices
        24




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Health Care Regulations Affecting Our New York Operations
  Available Information
 www.symbion.com
 25




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Item 1A. Risk Factors
  Risks Related to Our Business and Industry
 We depend on payments from third-party payors, including government health care programs and
managed care organizations. If these payments are reduced or eliminated, our revenues and
profitability could be adversely affected.
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If future government regulatory interpretations prohibit our centers from providing 23 hour
stay services, our revenues could decrease.
  If we are unable to negotiate contracts or maintain satisfactory relationships with private
third-party payors, our revenues and operating income will decrease.
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Our growth strategy depends in part on our ability to acquire and develop additional surgery
centers on favorable terms. If we are unable to do so, our future growth could be limited and our
operating results could be adversely affected.
  We may encounter numerous business risks in acquiring and developing additional surgery
centers, and may have difficulty operating and integrating those surgery centers.
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Efforts to regulate the construction, acquisition or expansion of health care facilities could
prevent us from acquiring additional surgery centers or other facilities, renovating our existing
facilities or expanding the breadth of services we offer.
  If we fail to maintain good relationships with the physicians who use our facilities, our
revenues and profitability could be adversely affected.
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We have a limited history operating many of our centers.
  If we fail to comply with legislative and regulatory rules relating to privacy and security of
patient health information and standards for electronic transactions, we may experience delays in
payment of claims and increased costs and be subject to substantial fines.
  If we fail to comply with laws and regulations relating to the operation of our facilities, we
could suffer penalties or be required to make significant changes to our operations.
  
    
    qualification of medical and support persons;
    
    pricing of services by health care providers;
    
    the adequacy of medical care, equipment, personnel, operating policies and procedures;
    
    maintenance and protection of records; and
    
    environmental protection, health and safety.
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Our facilities do not satisfy all of the requirements for any of the safe harbors under the
federal anti-kickback statute. If we fail to comply with the federal anti-kickback statute, we
could be subject to criminal and civil penalties, loss of licenses and exclusion from the Medicare
and Medicaid programs, which may result in a substantial loss of revenues.
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If a federal or state agency asserts a different position or enacts new laws or regulations
regarding illegal remuneration under the Medicare, Medicaid or other governmental programs, we may
be subject to civil and criminal penalties, experience a significant reduction in our revenues or
be excluded from participation in the Medicare, Medicaid or other governmental programs.
   If we fail to comply with physician self-referral laws as they are currently interpreted or
may be interpreted in the future, or if other legislative restrictions are issued, we could incur a
significant loss of reimbursement revenues.
   The Deficit Reduction Act of 2005, as well as new pending legislation, could restrict our
ability to operate new hospitals and could adversely impact our reimbursement revenues.
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We may be subject to actions for false and other improper claims.
    qui tam
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If laws governing the corporate practice of medicine change, we may be required to restructure
some of our relationships, which may result in a significant loss of revenues and divert other
resources.
  We are liable for debts and other obligations of the partnerships and limited liability
companies that own and operate some of our surgery centers.
  If our operations in New York are found not to be in compliance with New York law, we may be
unable to continue or expand our operations in New York.
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If regulations change, we may be obligated to purchase some or all of the ownership interests
of our physician partners or renegotiate some of our partnership and
operating agreements with our physician
partners and management agreements with surgery centers.
   
    
    make illegal the referral of Medicare or other patients to our surgery centers
by physician investors;
    
    create a substantial likelihood that cash distributions to physician investors
from the partnerships or limited liability companies through which we operate our
surgery centers would be illegal; or
    
    make illegal the ownership by the physician investors of interests in the
partnerships or limited liability companies through which we own and operate our
surgery centers.
  If we become subject to malpractice and related legal claims, we could be required to pay
significant damages, which may not be covered by insurance.
  Significant indebtedness could limit our ability to operate our business and pursue business
opportunities.
  
    
    we may be required to dedicate a substantial portion of our cash flows from
operations to the payment of principal and interest on our indebtedness, reducing the
funds available to fund working capital, capital expenditures and other general
corporate purposes;
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
    
    some of our borrowings are at variable rates of interest and we are vulnerable
to increases in interest rates;
    
    our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate may be limited;
    
    we may be at a disadvantage to our competitors who are less leveraged;
    
    we may be more vulnerable to a downturn in our business or the economy generally;
    
    our senior credit facility contains numerous financial and other restrictive
covenants, including restrictions on paying dividends, incurring additional
indebtedness and buying or selling assets; and
    
    our senior credit facility requires us to pledge the capital stock or other
equity interests of our subsidiaries to the bank group as collateral security.
 We face intense competition for physicians, strategic relationships, acquisitions and managed
care contracts, which may result in a decline in our revenues, profitability and market share.
  A large number of our surgery centers are located in Texas and Florida, which makes us
particularly sensitive to regulatory, economic and other conditions in those states. In addition,
four of our surgery centers account for a significant portion of our patient service revenues.
  We depend on our senior management and we may be adversely affected if we lose any member of
our senior management.
  36




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We face risks related to compliance with corporate governance laws and financial reporting
standards.
  If we are unable to integrate and manage our information systems effectively, our operations
could be disrupted.
  Risks Related to Our Corporate Structure
 We may have a special legal responsibility to the holders of ownership interests in the
entities through which we own our surgery centers, which may conflict with the interests of our
stockholders and prevent us from acting solely in our own best interests or the interests of our
stockholders.
  We are a holding company with no operations of our own.
  37




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##### Table of Contents



We do not have exclusive control over the distribution of cash from our operating entities and
may be unable to cause all or a portion of the cash of these entities to be distributed.
  Our stockholder rights plan, provisions of our certificate of incorporation and bylaws and
Delaware law could prevent or discourage a change in our management or a takeover you may consider
favorable.
   
    
    authorize the issuance of blank check preferred stock;
    
    provide for a classified board of directors with staggered, three-year terms;
    
    prohibit cumulative voting in the election of directors;
    
    prohibit our stockholders from acting by written consent without the approval of
our board of directors;
    
    limit the persons who may call special meetings of stockholders; and
    
    establish advance notice requirements for nominations for election to the board of
directors or for proposing matters to be approved at meetings of stockholders.
  Because our management and their affiliates together own a large percentage of our common
stock, they will be able to exert significant influence over all matters submitted to our
stockholders for approval, regardless of the preferences of our other stockholders.
  
    
    the election of our board of directors;
    
    our management and policies; and
 38




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##### Table of Contents




    
    the outcome of any corporate transaction or other matter submitted to our
stockholders for approval, including mergers, consolidations and the sale of all or
substantially all of our assets.
  Risks Related to Our Common Stock
 Because we have not paid dividends and do not anticipate paying dividends on our common stock
in the foreseeable future, you should not expect to receive dividends on shares of our common
stock.
  Our stock price is likely to be highly volatile.
  
    
    our failure or delay in meeting our development and acquisition plans;
    
    our revenues and operating results failing to meet the expectations of securities
analysts or investors in any quarter;
    
    changes in laws and regulations governing health care and the surgery center industry;
    
    proposed or enacted changes in reimbursement by governmental and other third-party payors;
    
    changes in securities analysts financial estimates or recommendations;
    
    investor perception of our industry or our prospects; and
    
    general economic trends and market conditions, including factors unrelated to our
operating performance.
  
 Item 1B. Unresolved Staff Comments
  39




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##### Table of Contents



Item 2. Properties
    
 Item 3. Legal Proceedings
   
 Item 4. Submission of Matters to a Vote of Security Holders
  40




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Market for Common Stock.
 High
    
    Low2005First Quarter
    
    $
    22.95
    
    
    $
    18.39Second Quarter
    
    
    23.97
    
    
    
    21.04Third Quarter
    
    
    27.72
    
    
    
    22.20Fourth Quarter
    
    
    26.79
    
    
    
    21.95
 High
    
    Low2004February 6, 2004 to March 31, 2004
    
    $
    20.66
    
    
    $
    16.98Second Quarter
    
    
    18.01
    
    
    
    15.85Third Quarter
    
    
    19.30
    
    
    
    15.83Fourth Quarter
    
    
    21.95
    
    
    
    15.43
  Dividends.
 Recent Sales of Unregistered Securities.
 
    
    On October 5, 2005, we issued 252 shares of our common stock to an individual who holds
an ownership interest in one of our surgery centers upon a cashless exercise of warrants.
 41




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##### Table of Contents



Item 6. Selected Financial Data
   Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(dollars in thousands, except per share amounts)Consolidated Statement Of
Operations Data:Revenues
    
    $
    265,744
    
    
    $
    216,325
    
    
    $
    176,269
    
    
    $
    144,688
    
    
    $
    104,704Cost of revenues
    
    
    166,610
    
    
    
    141,765
    
    
    
    117,305
    
    
    
    93,692
    
    
    
    75,783General and administrative expense
    
    
    21,993
    
    
    
    18,449
    
    
    
    15,874
    
    
    
    14,328
    
    
    
    12,407Depreciation and amortization
    
    
    13,277
    
    
    
    10,927
    
    
    
    9,295
    
    
    
    7,836
    
    
    
    7,743Provision for doubtful accounts
    
    
    4,215
    
    
    
    3,989
    
    
    
    2,748
    
    
    
    4,843
    
    
    
    1,055Loss (income) on equity investments
    
    
    (1,273
    )
    
    
    (1,272
    )
    
    
    (402
    )
    
    
    (541
    )
    
    
    192Impairment and loss on disposal of long-lived assets
    
    
    1,541
    
    
    
    271
    
    
    
    437
    
    
    
    492
    
    
    
    385Gain on sale of long-lived assets
    
    
    (1,785
    )
    
    
    (250
    )
    
    
    (571
    )
    
    
    (457
    )
    
    
    (2,346
    )Total operating expenses
    
    
    204,578
    
    
    
    173,879
    
    
    
    144,686
    
    
    
    120,193
    
    
    
    95,219Operating income
    
    
    61,166
    
    
    
    42,446
    
    
    
    31,583
    
    
    
    24,495
    
    
    
    9,485Minority interests in income of consolidated
subsidiaries
    
    
    (25,871
    )
    
    
    (15,549
    )
    
    
    (10,447
    )
    
    
    (7,353
    )
    
    
    (1,909
    )Interest expense, net
    
    
    (4,851
    )
    
    
    (4,862
    )
    
    
    (5,782
    )
    
    
    (4,625
    )
    
    
    (2,600
    )Income before income taxes
    
    
    30,444
    
    
    
    22,035
    
    
    
    15,354
    
    
    
    12,517
    
    
    
    4,976Provision (benefit) for income taxes
    
    
    11,389
    
    
    
    8,483
    
    
    
    (2,170
    )
    
    
    215
    
    
    
    287Net income
    
    $
    19,055
    
    
    $
    13,552
    
    
    $
    17,524
    
    
    $
    12,302
    
    
    $
    4,689Net income per share:Basic
    
    $
    0.90
    
    
    $
    0.69
    
    
    $
    1.66
    
    
    $
    1.19
    
    
    $
    0.47Diluted
    
    $
    0.86
    
    
    $
    0.67
    
    
    $
    1.38
    
    
    $
    1.01
    
    
    $
    0.45Shares used to compute net income per share:Basic
    
    
    21,285,211
    
    
    
    19,736,722
    
    
    
    10,536,745
    
    
    
    10,349,568
    
    
    
    9,908,447Diluted
    
    
    22,028,591
    
    
    
    20,347,385
    
    
    
    12,658,620
    
    
    
    12,144,140
    
    
    
    10,341,085Cash Flow Data:Net cash provided by operating activities
    
    $
    41,903
    
    
    $
    28,087
    
    
    $
    20,807
    
    
    $
    21,770
    
    
    $
    8,438Net cash used in investing activities
    
    
    (68,840
    )
    
    
    (104,852
    )
    
    
    (66,974
    )
    
    
    (21,592
    )
    
    
    (5,821
    )Net cash provided by (used in) financing activities
    
    
    32,095
    
    
    
    82,383
    
    
    
    43,177
    
    
    
    5,235
    
    
    
    (3,423
    )Other Data:EBITDA (1)
    
    $
    48,572
    
    
    $
    37,824
    
    
    $
    30,431
    
    
    $
    24,978
    
    
    $
    15,319EBITDA as a % of revenues
    
    
    18.3
    %
    
    
    17.5
    %
    
    
    17.3
    %
    
    
    17.3
    %
    
    
    14.6
    %Number of surgery centers operated as of the end of
period(2)
    
    
    59
    
    
    
    54
    
    
    
    44
    
    
    
    34
    
    
    
    24
 As of December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(in thousands)Consolidated Balance Sheet Data:Working capital
    
    $
    48,784
    
    
    $
    41,455
    
    
    $
    25,979
    
    
    $
    24,839
    
    
    $
    21,706Total assets
    
    
    436,378
    
    
    
    365,761
    
    
    
    252,784
    
    
    
    188,888
    
    
    
    100,799Total long-term debt, less current maturities
    
    
    101,969
    
    
    
    69,747
    
    
    
    101,037
    
    
    
    57,738
    
    
    
    39,983Total stockholders equity
    
    
    260,058
    
    
    
    237,998
    
    
    
    104,015
    
    
    
    86,677
    
    
    
    41,610
 42




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(1)
    
    When we use the term EBITDA, we are referring to net income plus (a) income tax expense
(provision), (b) interest expense, net and (c) depreciation and amortization. Minority
interest expense represents the interests of third parties, such as physicians, hospitals and
other health care providers, that own interests in surgery centers that we consolidate for
financial reporting purposes. We consolidate for financial reporting purposes the financial
results of 43 of the 50 surgery centers in which we owned an interest as of December 31, 2005.
Our operating strategy involves sharing ownership of our surgery centers with physicians,
physician groups and hospitals. These third parties own an interest in all but one of the
centers in which we own an interest. We believe that it is preferable to present EBITDA
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 surgery centers and other
operations.We use EBITDA as a measure of liquidity. We have included it because we believe that it provides
investors with additional information about our ability to incur and service debt and make
capital expenditures. We also use EBITDA, with some variation in the calculation, to determine
our compliance with some of the covenants under our senior credit facility, as well as to
determine the interest rate and commitment fee payable under the senior credit facility.EBITDA is not a measurement of financial performance or liquidity under generally accepted
accounting principles. It should not be considered in isolation or as a substitute for net
income, operating income, cash flows from operating, investing or financing activities, or any
other measure calculated in accordance with generally accepted accounting principles. The items
excluded from EBITDA are significant components in understanding and evaluating financial
performance and liquidity. Our calculation of EBITDA is not comparable to the EBITDA measure we
have used in prior reports but is consistent with the measure EBITDA less minority interests
that we previously reported. Our calculation of these measures may not be comparable to
similarly titled measures reported by other companies.The following table reconciles EBITDA to net cash provided by operating activities: Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(in thousands)(unaudited)EBITDA
    
    $
    48,572
    
    
    $
    37,824
    
    
    $
    30,431
    
    
    $
    24,978
    
    
    $
    15,319Depreciation and amortization
    
    
    (13,277
    )
    
    
    (10,927
    )
    
    
    (9,295
    )
    
    
    (7,836
    )
    
    
    (7,743
    )Interest expense, net
    
    
    (4,851
    )
    
    
    (4,862
    )
    
    
    (5,782
    )
    
    
    (4,625
    )
    
    
    (2,600
    )Income taxes
    
    
    (11,389
    )
    
    
    (8,483
    )
    
    
    2,170
    
    
    
    (215
    )
    
    
    (287
    )Net income
    
    
    19,055
    
    
    
    13,552
    
    
    
    17,524
    
    
    
    12,302
    
    
    
    4,689Depreciation and amortization
    
    
    13,277
    
    
    
    10,927
    
    
    
    9,295
    
    
    
    7,836
    
    
    
    7,743Impairment and loss on disposal of long-lived assets
    
    
    1,541
    
    
    
    271
    
    
    
    437
    
    
    
    492
    
    
    
    385Gain on sale of long-lived assets
    
    
    (1,785
    )
    
    
    (250
    )
    
    
    (571
    )
    
    
    (457
    )
    
    
    (2,346
    )Minority interests in income of consolidated subsidiaries
    
    
    25,871
    
    
    
    15,549
    
    
    
    10,447
    
    
    
    7,353
    
    
    
    1,909Distributions to minority partners
    
    
    (23,225
    )
    
    
    (14,420
    )
    
    
    (10,690
    )
    
    
    (6,177
    )
    
    
    (2,186
    )Loss (income) on equity investments
    
    
    (1,273
    )
    
    
    (1,272
    )
    
    
    (402
    )
    
    
    (541
    )
    
    
    192Provision for bad debts
    
    
    4,215
    
    
    
    3,989
    
    
    
    2,748
    
    
    
    4,843
    
    
    
    1,055Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:Accounts receivable
    
    
    (4,929
    )
    
    
    (5,274
    )
    
    
    (3,537
    )
    
    
    (5,694
    )
    
    
    (1,052
    )Other current assets
    
    
    414
    
    
    
    1,465
    
    
    
    (7,016
    )
    
    
    (3,080
    )
    
    
    (2,424
    )Other current liabilities
    
    
    8,742
    
    
    
    3,550
    
    
    
    2,572
    
    
    
    4,893
    
    
    
    473Net cash provided by operating activities
    
    $
    41,903
    
    
    $
    28,087
    
    
    $
    20,807
    
    
    $
    21,770
    
    
    $
    8,438
 
 (2)
    
    Includes surgery centers that we manage but in which we do not have an ownership interest. 43




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
 Our Company
    44




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##### Table of Contents



Revenues
     Year Ended December 31,2005
    
    
    2004
    
    
    2003Patient service revenues
    
    
    95
    %
    
    
    94
    %
    
    
    90
    %Physician service revenues
    
    
    2
    
    
    
    2
    
    
    
    2Other service revenues
    
    
    3
    
    
    
    4
    
    
    
    8Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Operating Trends
  Acquisitions, Developments and Divestitures
 Acquisitions and Developments
  45




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Divestitures
    Critical Accounting Policies
  46




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Consolidation and Control
    Revenue Recognition
    47




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Allowance for Contractual Adjustments and Doubtful Accounts
     As of December 31,2005
    
    2004
    
    2003Days sales outstanding
    
    
    43
    
    
    
    41
    
    
    
    45
   48




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##### Table of Contents



2005
    
    
    2004Amount
    
    
    % of Total
    
    
    
    Amount
    
    % of TotalCurrent
    
    $
    18,291
    
    
    
    35
    %
    
    $
    14,717
    
    
    35
    %31 to 60 days
    
    
    10,207
    
    
    
    20
    
    
    
    7,880
    
    
    1861 to 90 days
    
    
    5,506
    
    
    
    11
    
    
    
    4,004
    
    
    991 to 120 days
    
    
    3,433
    
    
    
    7
    
    
    
    2,660
    
    
    6121 to 150 days
    
    
    2,460
    
    
    
    5
    
    
    
    2,054
    
    
    5Over 150 days
    
    
    11,678
    
    
    
    22
    
    
    
    11,316
    
    
    27Total
    
    $
    51,575
    
    
    
    100
    %
    
    $
    42,631
    
    
    100
    %
  Income Taxes
  Long-lived Assets, Goodwill and Intangible Assets
   49




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Professional
and General Liability Risks
  Results of Operations
  Year Ended December 31,2005
    
    
    2004
    
    
    2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues(dollars in thousands)Revenues
    
    $
    265,744
    
    
    
    100.0
    %
    
    $
    216,325
    
    
    
    100.0
    %
    
    $
    176,269
    
    
    
    100.0
    %Cost of revenues
    
    
    166,610
    
    
    
    62.7
    
    
    
    141,765
    
    
    
    65.5
    
    
    
    117,305
    
    
    
    66.5General and administrative expense
    
    
    21,993
    
    
    
    8.3
    
    
    
    18,449
    
    
    
    8.5
    
    
    
    15,874
    
    
    
    9.0Depreciation and amortization
    
    
    13,277
    
    
    
    5.0
    
    
    
    10,927
    
    
    
    5.0
    
    
    
    9,295
    
    
    
    5.3Provision for doubtful accounts
    
    
    4,215
    
    
    
    1.6
    
    
    
    3,989
    
    
    
    1.8
    
    
    
    2,748
    
    
    
    1.6Income on equity investments
    
    
    (1,273
    )
    
    
    (0.5
    )
    
    
    (1,272
    )
    
    
    (0.5
    )
    
    
    (402
    )
    
    
    (0.2
    )Impairment and loss on disposal of
long-lived assets
    
    
    1,541
    
    
    
    0.6
    
    
    
    271
    
    
    
    0.1
    
    
    
    437
    
    
    
    0.2Gain on sale of long-lived assets
    
    
    (1,785
    )
    
    
    (0.7
    )
    
    
    (250
    )
    
    
    0.0
    
    
    
    (571
    )
    
    
    (0.3
    )Total operating expenses
    
    
    204,578
    
    
    
    77.0
    %
    
    
    173,879
    
    
    
    80.4
    %
    
    
    144,686
    
    
    
    82.1
    %Operating income
    
    
    61,166
    
    
    
    23.0
    
    
    
    42,446
    
    
    
    19.6
    
    
    
    31,583
    
    
    
    17.9Minority interests in income of
consolidated subsidiaries
    
    
    (25,871
    )
    
    
    (9.7
    )
    
    
    (15,549
    )
    
    
    (7.2
    )
    
    
    (10,447
    )
    
    
    (5.9
    )Interest expense, net
    
    
    (4,851
    )
    
    
    (1.8
    )
    
    
    (4,862
    )
    
    
    (2.2
    )
    
    
    (5,782
    )
    
    
    (3.3
    )Income before income taxes
    
    
    30,444
    
    
    
    11.5
    
    
    
    22,035
    
    
    
    10.2
    
    
    
    15,354
    
    
    
    8.7Provision (benefit) for income taxes
    
    
    11,389
    
    
    
    4.3
    
    
    
    8,483
    
    
    
    3.9
    
    
    
    (2,170
    )
    
    
    (1.2
    )Net income
    
    $
    19,055
    
    
    
    7.2
    %
    
    $
    13,552
    
    
    
    6.3
    %
    
    $
    17,524
    
    
    
    9.9
    %
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Overview.
 50




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Revenues
 Dollar
    
    
    Percent2005
    
    
    2004
    
    
    Variance
    
    
    VariancePatient service revenues:Same store revenues
    
    $
    200,573
    
    
    $
    190,483
    
    
    $
    10,090
    
    
    
    5.3
    %Revenue from surgery centers
acquired or developed
    
    
    52,607
    
    
    
    12,195
    
    
    
    40,412
    
    
    
    Total patient service revenues
    
    
    253,180
    
    
    
    202,678
    
    
    
    50,502
    
    
    
    24.9Physician service revenues
    
    
    4,325
    
    
    
    4,040
    
    
    
    285
    
    
    
    7.1Other service revenues
    
    
    8,239
    
    
    
    9,607
    
    
    
    (1,368
    )
    
    
    (14.2
    )Total revenues
    
    $
    265,744
    
    
    $
    216,325
    
    
    $
    49,419
    
    
    
    22.8
    %
  Cost of Revenues
 Dollar
    
    
    Percent2005
    
    
    2004
    
    
    Variance
    
    
    VarianceSame store cost of revenues
    
    $
    129,057
    
    
    $
    124,260
    
    
    $
    4,797
    
    
    
    3.9
    %Cost of revenues from
surgery centers acquired
or developed
    
    
    37,553
    
    
    
    17,505
    
    
    
    20,048
    
    
    
    Total cost of revenues
    
    $
    166,610
    
    
    $
    141,765
    
    
    $
    24,845
    
    
    
    17.5
    %
 Share-Based Payment,
 General and Administrative Expenses
 51




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Depreciation and Amortization
 Dollar
    
    
    Percent2005
    
    
    2004
    
    
    Variance
    
    
    VarianceSame store depreciation and
amortization
    
    $
    10,992
    
    
    $
    10,038
    
    
    $
    954
    
    
    
    9.5
    %Depreciation and amortization from
surgery centers acquired or
developed
    
    
    2,285
    
    
    
    889
    
    
    
    1,396
    
    
    
    Total depreciation and amortization
    
    $
    13,277
    
    
    $
    10,927
    
    
    $
    2,350
    
    
    
    21.5
    %
  Provision for Doubtful Accounts
 Income on Equity Investments.
 Loss on Disposal of Long-Lived Assets.
 Gain on Sale of Long-Lived Assets.
 Operating Income
 Minority Interests in Income of Consolidated Subsidiaries
 Dollar
    
    
    Percent2005
    
    
    2004
    
    
    Variance
    
    
    VarianceSame store minority interests
    
    $
    19,038
    
    
    $
    14,999
    
    
    $
    4,039
    
    
    
    26.9
    %Minority interests from
surgery centers acquired or
developed
    
    
    6,833
    
    
    
    550
    
    
    
    6,283
    
    
    
    Total minority interests
    
    $
    25,871
    
    
    $
    15,549
    
    
    $
    10,322
    
    
    
    66.4
    %
  Interest Expense, Net of Interest Income
 52




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##### Table of Contents



Provision for Income Taxes
 Net Income
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Overview.
 Revenues
 Dollar
    
    
    Percent2004
    
    
    2003
    
    
    Variance
    
    
    VariancePatient service revenues:Same store revenues
    
    $
    166,093
    
    
    $
    152,946
    
    
    $
    13,147
    
    
    
    8.5
    %Revenue from surgery centers
acquired or developed
    
    
    36,585
    
    
    
    5,175
    
    
    
    31,410
    
    
    
    Total patient service revenues
    
    
    202,678
    
    
    
    158,121
    
    
    
    44,557
    
    
    
    28.2Physician service revenues
    
    
    4,040
    
    
    
    3,796
    
    
    
    244
    
    
    
    6.4Other service revenues
    
    
    9,607
    
    
    
    14,352
    
    
    
    (4,745
    )
    
    
    (33.1
    )Total revenues
    
    $
    216,325
    
    
    $
    176,269
    
    
    $
    40,056
    
    
    
    22.7
    %
  53




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##### Table of Contents



Cost of Revenues
 Dollar
    
    
    Percent2004
    
    
    2003
    
    
    Variance
    
    
    VarianceSame store cost of revenues
    
    $
    119,212
    
    
    $
    114,303
    
    
    $
    4,909
    
    
    
    4.3
    %Cost of revenues from
surgery centers acquired
or developed
    
    
    22,553
    
    
    
    3,002
    
    
    
    19,551
    
    
    
    Total cost of revenues
    
    $
    141,765
    
    
    $
    117,305
    
    
    $
    24,460
    
    
    
    20.9
    %
  General and Administrative Expenses
 Depreciation and Amortization
 Dollar
    
    
    Percent2004
    
    
    2003
    
    
    Variance
    
    
    VarianceSame store depreciation and
amortization
    
    $
    9,410
    
    
    $
    9,051
    
    
    $
    359
    
    
    
    4.0
    %Depreciation and amortization from
surgery centers acquired or
developed
    
    
    1,517
    
    
    
    244
    
    
    
    1,273
    
    
    
    Total depreciation and amortization
    
    $
    10,927
    
    
    $
    9,295
    
    
    $
    1,632
    
    
    
    17.6
    %
  Provision for Doubtful Accounts
 Income on Equity Investments.
 Operating Income
 54




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##### Table of Contents



Minority Interests in Income of Consolidated Subsidiaries
 Dollar
    
    
    Percent2004
    
    
    2003
    
    
    Variance
    
    
    VarianceSame store minority interests
    
    $
    13,304
    
    
    $
    10,944
    
    
    $
    2,360
    
    
    
    21.6
    %Minority interests from
surgery centers acquired or
developed
    
    
    2,245
    
    
    
    (497
    )
    
    
    2,742
    
    
    
    Total minority interests
    
    $
    15,549
    
    
    $
    10,447
    
    
    $
    5,102
    
    
    
    48.8
    %
  Interest Expense, Net of Interest Income
 Provision (Benefit) for Income Taxes
 Net Income
 55




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##### Table of Contents



Quarterly Results of Operations
  2005First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(dollars in thousands)(unaudited)Consolidated Statement of Operations Data:Revenues
    
    $
    62,179
    
    
    $
    64,653
    
    
    $
    66,422
    
    
    $
    72,490Operating expenses:Salaries and benefits
    
    
    16,008
    
    
    
    15,851
    
    
    
    17,762
    
    
    
    18,132Supplies
    
    
    11,453
    
    
    
    11,802
    
    
    
    12,006
    
    
    
    13,408Professional and medical fees
    
    
    3,319
    
    
    
    3,487
    
    
    
    3,510
    
    
    
    3,564Rent and lease expense
    
    
    3,830
    
    
    
    4,077
    
    
    
    4,488
    
    
    
    4,817Other operating expenses
    
    
    4,588
    
    
    
    5,035
    
    
    
    4,515
    
    
    
    4,958Cost of revenues
    
    
    39,198
    
    
    
    40,252
    
    
    
    42,281
    
    
    
    44,879General and administrative expenses
    
    
    5,402
    
    
    
    5,904
    
    
    
    5,069
    
    
    
    5,616Depreciation and amortization
    
    
    3,146
    
    
    
    3,114
    
    
    
    3,359
    
    
    
    3,658Provision for doubtful accounts
    
    
    714
    
    
    
    1,068
    
    
    
    1,378
    
    
    
    1,055Income on equity investments
    
    
    (284
    )
    
    
    (325
    )
    
    
    (233
    )
    
    
    (431
    )Impairment and loss on disposal of long-lived assets
    
    
    109
    
    
    
    745
    
    
    
    664
    
    
    
    21Gain on sale of long-lived assets
    
    
    (241
    )
    
    
    (782
    )
    
    
    (758
    )
    
    
    Total operating expenses
    
    
    48,044
    
    
    
    49,976
    
    
    
    51,760
    
    
    
    54,798Operating income
    
    
    14,135
    
    
    
    14,677
    
    
    
    14,662
    
    
    
    17,692Minority interests in income of consolidated subsidiaries
    
    
    (5,969
    )
    
    
    (5,863
    )
    
    
    (6,453
    )
    
    
    (7,586
    )Interest expense, net
    
    
    (1,034
    )
    
    
    (880
    )
    
    
    (1,408
    )
    
    
    (1,529
    )Income before income taxes
    
    
    7,132
    
    
    
    7,934
    
    
    
    6,801
    
    
    
    8,577Provision for income taxes
    
    
    2,746
    
    
    
    3,054
    
    
    
    2,619
    
    
    
    2,970Net income
    
    $
    4,386
    
    
    $
    4,880
    
    
    $
    4,182
    
    
    $
    5,607Other Data:Number of surgery centers operated as of the end of period(1)
    
    
    56
    
    
    
    56
    
    
    
    59
    
    
    
    59
 56




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##### Table of Contents



2004First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(dollars in thousands)(unaudited)Consolidated Statement of Operations Data:Revenues
    
    $
    51,947
    
    
    $
    52,727
    
    
    $
    52,031
    
    
    $
    59,620Operating expenses:Salaries and benefits
    
    
    13,581
    
    
    
    13,738
    
    
    
    13,717
    
    
    
    15,359Supplies
    
    
    10,283
    
    
    
    10,563
    
    
    
    10,324
    
    
    
    11,586Professional and medical fees
    
    
    2,598
    
    
    
    2,708
    
    
    
    2,849
    
    
    
    3,338Rent and lease expense
    
    
    3,157
    
    
    
    3,282
    
    
    
    3,420
    
    
    
    3,808Other operating expenses
    
    
    4,370
    
    
    
    4,556
    
    
    
    4,378
    
    
    
    4,150Cost of revenues
    
    
    33,989
    
    
    
    34,847
    
    
    
    34,688
    
    
    
    38,241General and administrative expenses
    
    
    4,544
    
    
    
    4,633
    
    
    
    4,496
    
    
    
    4,776Depreciation and amortization
    
    
    2,712
    
    
    
    2,746
    
    
    
    2,846
    
    
    
    2,623Provision for doubtful accounts
    
    
    697
    
    
    
    832
    
    
    
    995
    
    
    
    1,465Income on equity investments
    
    
    (121
    )
    
    
    (366
    )
    
    
    (374
    )
    
    
    (411
    )Impairment and loss on disposal of long-lived assets
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    255Gain on sale of long-lived assets
    
    
    (80
    )
    
    
    (77
    )
    
    
    
    
    
    
    (93
    )Total operating expenses
    
    
    41,757
    
    
    
    42,615
    
    
    
    42,651
    
    
    
    46,856Operating income
    
    
    10,190
    
    
    
    10,112
    
    
    
    9,380
    
    
    
    12,764Minority interests in income of consolidated subsidiaries
    
    
    (3,420
    )
    
    
    (3,538
    )
    
    
    (3,246
    )
    
    
    (5,345
    )Interest expense, net
    
    
    (2,577
    )
    
    
    (696
    )
    
    
    (718
    )
    
    
    (871
    )Income before income taxes
    
    
    4,193
    
    
    
    5,878
    
    
    
    5,416
    
    
    
    6,548Provision for income taxes
    
    
    1,614
    
    
    
    2,263
    
    
    
    2,084
    
    
    
    2,522Net income
    
    $
    2,579
    
    
    $
    3,615
    
    
    $
    3,332
    
    
    $
    4,026Other Data:Number of surgery centers operated as of the end of period(1)
    
    
    44
    
    
    
    45
    
    
    
    51
    
    
    
    54
 
 (1)
    
    Includes surgery centers that we manage but in which we do not have an ownership interest. Liquidity and Capital Resources
 Overview
    57




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##### Table of Contents



Cash Flow Statement Information
   Long-Term Debt
  58




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligation
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    Years(in thousands)Long-term debt
    
    $
    102,006
    
    
    $
    823
    
    
    $
    1,804
    
    
    $
    99,379
    
    
    $
    Capital lease obligations
    
    
    1,310
    
    
    
    524
    
    
    
    697
    
    
    
    89
    
    
    
    Operating leases
    
    
    117,388
    
    
    
    14,687
    
    
    
    28,505
    
    
    
    24,941
    
    
    
    49,255Other long-term obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    220,704
    
    
    $
    16,034
    
    
    $
    31,006
    
    
    $
    124,409
    
    
    $
    49,255
  Amount of Commitment Expiration Per PeriodTotalOther Commercial Commitments
    
    Amounts
    
    Less than
    
    
    
    
    
    
    
    
    
    After 5Related to Unconsolidated Entities
    
    Committed
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    Years(in thousands)Operating lease guarantees
    
    $
    1,030
    
    
    $
    263
    
    
    $
    551
    
    
    $
    216
    
    
    $
    
 59




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##### Table of Contents



Inflation
  Recently Issued Accounting Pronouncements
 Exchange of Non-monetary Assets  an amendment
of APB Opinion No. 29 Accounting for Non-monetary
Transactions
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in
Interim Financial Statements
 Determining
Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights
 Share-Based Payment
  60




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Managements Report on Internal Control over Financial Reporting.
   61




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 The Board of Directors and Stockholders of Symbion, Inc.
      .
 62




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting.
 Limitations on the Effectiveness of Controls
  
 Item 9B. Other Information
  63




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##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant
 Directors and Executive Officers
  Code of Business Conduct and Ethics
 www.symbion.com
 Compliance with Section 16(a) of the Exchange Act
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  64




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a) Index to Consolidated Financial Statements, Financial Statement Schedules and Exhibits
 Consolidated Financial Statements
  Consolidated Financial Statement Schedules
  Exhibits
 No.
    
    
    
    Description2.1
    
    
    
    Agreement and Plan of Merger, dated as of March 7, 2002, among Symbion, Inc., Symbion
Acquisition Sub, Inc. and Physicians Surgical Care, Inc. (a)2.2
    
    
    
    Purchase Agreement, dated as of November 11, 2004, by and among the members of Surgery
Center Partners, L.L.C., Symbion Ambulatory Resource Centres, Inc. and SMBIMS Kirkwood,
Inc. (b)2.3
    
    
    
    Purchase Agreement, dated as of July 27, 2005, by and among Members of Specialty Surgical
Center, LLC, Specialty Surgical Center of Encino, LLC, Specialty Surgical Center of Irvine,
LLC, Specialty Surgical Center of Arcadia, LLC, Symbion Ambulatory Resource Centres, Inc.
and Affiliates of Symbion Ambulatory Resource Centres, Inc. (c)3.1
    
    
    
    Certificate of Incorporation (d)3.2
    
    
    
    Certificate of Amendment to Certificate of Incorporation (e)3.3
    
    
    
    Certificate of Retirement of Stock (f)3.4
    
    
    
    Certificate of Designation of Rights and Preferences of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock (d)3.5
    
    
    
    Certificate of Designation of Series A Junior Participating Preferred Stock (e)3.6
    
    
    
    Bylaws (d)4.1
    
    
    
    Form of Common Stock Certificate (d)4.2
    
    
    
    Amended and Restated Investors Rights Agreement, dated as of June 25, 1999, among Symbion,
Inc. and the security holders named therein (a)4.3
    
    
    
    Amendment No. 1 to Amended and Restated Investors Rights Agreement, dated as of August 11,
1999, among Symbion, Inc. and the security holders named therein (a)4.4
    
    
    
    Amendment No. 2 to Amended and Restated Investors Rights Agreement, dated as of April 1,
2002, among Symbion, Inc. and the security holders named therein (a)4.5
    
    
    
    Form of Warrant for the purchase of shares of Symbion, Inc. common stock (a)
 65




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##### Table of Contents



No.
    
    
    
    Description4.6
    
    
    
    Rights Agreement, dated as of February 6, 2004, between Symbion, Inc. and SunTrust Bank (g)10.1
    
    
    
    Amended and Restated Executive Employment Agreement, dated May 16, 2002, between Symbion,
Inc. and Richard E. Francis, Jr. (a) (n)10.2
    
    
    
    Amended and Restated Executive Employment Agreement, dated May 16, 2002, between Symbion,
Inc. and Clifford G. Adlerz (a) (n)10.3
    
    
    
    Amended and Restated Executive Employment Agreement, dated May 16, 2002, between Symbion,
Inc. and William V. B. Webb (a) (n)10.4
    
    
    
    Securities Purchase Agreement, dated as of July 18, 2003, among Symbion, Inc. and DLJ
Investment Partners II, L.P. and its affiliates (d)10.5
    
    
    
    Form of 143/4% Senior Subordinated Note due 2008 (d)10.6
    
    
    
    Credit Agreement, dated as of July 18, 2003, among Symbion, Inc., various lenders party
thereto, Bank of America, N.A., as Administrative Agent and as Issuing Bank, Credit Suisse
First Boston as Syndication Agent, Key Corporate Capital, Inc. as Documentation Agent, and
Banc of America Securities, LLC, as sole Lead Arranger and Sole Book Manager (d)10.7
    
    
    
    First Amendment to Credit Agreement, dated January 30, 2004, among Symbion, Inc., various
lenders party thereto and Bank of America, N.A., as Administrative Agent and as Issuing
Bank (d)10.8
    
    
    
    Amended and Restated Credit Agreement, dated as of March 21, 2005, among Symbion, Inc., the
subsidiaries of Symbion identified therein, Bank of America, N.A., as Administrative Agent,
Swing Line Lender and L/C Issuer, Credit Suisse First Boston, as Syndication Agent, KeyBank
National Association, as Documentation Agent and the other lenders party thereto (h)10.9
    
    
    
    Lease Agreement, dated June 26, 2001, between Burton Hills IV Partners and Symbion, Inc. (a)10.10
    
    
    
    First Amendment to Lease Agreement, dated February 9, 2004, between Burton Hills IV
Partners and Symbion, Inc. (f)10.11
    
    
    
    Amended and Restated Ambulatory Resource Centres, Inc. 1997 Stock Option Plan (a) (n)10.12
    
    
    
    Ambulatory Resource Centres, Inc. Nonqualified Initial Option Plan (a) (n)10.13
    
    
    
    Symbion Stock Incentive Plan (a) (n)10.14
    
    
    
    Form of Incentive Stock Option Agreement under the Stock Incentive Plan (i) (n)10.15
    
    
    
    Form of Nonqualified Stock Option Agreement under the Stock Incentive Plan (i) (n)10.16
    
    
    
    Form of Restricted Stock Agreement under the Stock Incentive Plan (j) (n)10.17
    
    
    
    Symbion Non-Employee Directors Stock Option Plan (a) (n)10.18
    
    
    
    Form of Nonqualified Stock Option Agreement under the Non-Employee Directors Stock Option
Plan (i) (n)10.19
    
    
    
    Symbion Employee Stock Purchase Plan (a) (n)
 66




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##### Table of Contents



No.
    
    
    
    Description10.20
    
    
    
    First Amendment to Symbion Employee Stock Purchase Plan (a) (n)10.21
    
    
    
    Second Amendment to Symbion Employee Stock Purchase Plan (k) (n)10.22
    
    
    
    Third Amendment to Symbion Employee Stock Purchase Plan (n)10.23
    
    
    
    Executive Change in Control Severance Plan, dated December 11, 1997 (a) (n)10.24
    
    
    
    Supplemental Executive Retirement Plan (l) (n)10.25
    
    
    
    Form of Deferred Stock Purchase Program Agreement (l) (n)10.26
    
    
    
    Management Rights Purchase Agreement, dated as of July 27, 2005, by and among Parthenon
Management Partners, LLC, Andrew A. Brooks, M.D., Randhir S. Tuli and SymbionARC Management
Services, Inc. (c)10.27
    
    
    
    2005 Bonus Plan (n)10.28
    
    
    
    Summary of Director Compensation (n)10.29
    
    
    
    Executive Officer Compensation and 2006 Bonus Plan (m) (n)21.1
    
    
    
    Subsidiaries of Registrant23.1
    
    
    
    Consent of Ernst & Young LLP23.2
    
    
    
    Consent of Casualty Actuarial Consultants, Inc. (2005 report)23.3
    
    
    
    Consent of Casualty Actuarial Consultants, Inc. (2004 report) (b)23.4
    
    
    
    Consent of Casualty Actuarial Consultants, Inc. (2003 report) (f)31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (a)
    
    Incorporated by reference to exhibits filed with the Registrants Registration Statement on
Form S-1 (Registration No. 333-89554).(b)
    
    Incorporated by reference to exhibits filed with the Registrants Annual Report on Form 10-K
for the year ended December 31, 2004 (File No. 000-50574).(c)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed August 2, 2005 (File No. 000-50574).(d)
    
    Incorporated by reference to exhibits filed with the Registrants Registration Statement on
Form S-1 (Registration No. 333-110555). 67




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##### Table of Contents



(e)
    
    Incorporated by reference to exhibits filed with the Registrants Registration Statement on
Form S-8 (Registration No. 333-113272).(f)
    
    Incorporated by reference to exhibits filed with the Registrants Annual Report on Form 10-K
for the year ended December 31, 2003 (File No. 000-50574).(g)
    
    Incorporated by reference to exhibits filed with the Registrants Registration Statement on
Form 8-A filed with the Securities and Exchange Commission on February 6, 2004 (Registration
No. 000-50574).(h)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed March 25, 2005 (File No. 000-50574).(i)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed December 14, 2004 (File No. 000-50574).(j)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed January 11, 2005 (File No. 000-50574).(k)
    
    Incorporated by reference to exhibits filed with the Registrants Quarterly Report on Form
10-Q for the quarter ended September 30, 2005 (File No. 000-50574).(l)
    
    Incorporated by reference to exhibits filed with the Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2005 (File No. 000-50574).(m)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed February 28, 2006 (File No. 000-50574).(n)
    
    Compensation plan or arrangement. 68




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    F-3Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
    
    
    F-4Consolidated Statements of Stockholders Equity for the years ended December 31, 2005, 2004 and 2003
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
      /s/ Ernst & Young LLPMarch 10, 2006
Nashville, Tennessee
 F-2




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##### Table of Contents



SYMBION, INC.
 CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
 December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,434
    
    
    $
    23,276Accounts receivable, less allowance for
doubtful accounts of $19,088 and
$13,738, respectively
    
    
    32,487
    
    
    
    28,893Inventories
    
    
    7,572
    
    
    
    6,068Prepaid expenses and other current assets
    
    
    8,002
    
    
    
    7,246Total current assets
    
    
    76,495
    
    
    
    65,483Property and equipment:Land
    
    
    1,625
    
    
    
    1,694Buildings and improvements
    
    
    46,322
    
    
    
    35,881Furniture and equipment
    
    
    68,579
    
    
    
    59,764Computers and software
    
    
    7,561
    
    
    
    7,041124,087
    
    
    
    104,380Less accumulated depreciation
    
    
    (50,677
    )
    
    
    (36,587
    )Property and equipment, net
    
    
    73,410
    
    
    
    67,793Goodwill
    
    
    268,312
    
    
    
    215,533Other intangible assets, net
    
    
    650
    
    
    
    950Investments in and advances to affiliates
    
    
    13,770
    
    
    
    12,927Other assets
    
    
    3,741
    
    
    
    3,075Total assets
    
    $
    436,378
    
    
    $
    365,761LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,727
    
    
    $
    5,237Accrued payroll and benefits
    
    
    8,680
    
    
    
    7,985Other accrued expenses
    
    
    10,957
    
    
    
    9,186Current maturities of long-term debt
    
    
    1,347
    
    
    
    1,620Total current liabilities
    
    
    27,711
    
    
    
    24,028Long-term debt, less current maturities
    
    
    101,969
    
    
    
    69,747Other liabilities
    
    
    17,845
    
    
    
    10,350Minority interests
    
    
    28,795
    
    
    
    23,638Stockholders equity:Common stock, 225,000,000 shares, $0.01
par value, authorized at December 31,
2005 and at December 31, 2004;
21,444,463 shares issued and outstanding
at December 31, 2005, 21,032,777 shares
issued and outstanding at December 31,
2004
    
    
    214
    
    
    
    210Additional paid-in-capital
    
    
    206,418
    
    
    
    203,797Stockholder notes receivable
    
    
    (228
    )
    
    
    (287
    )Accumulated other comprehensive income
    
    
    321
    
    
    
    Retained earnings
    
    
    53,333
    
    
    
    34,278Total stockholders equity
    
    
    260,058
    
    
    
    237,998Total liabilities and stockholders equity
    
    $
    436,378
    
    
    $
    365,761
  F-3




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##### Table of Contents



SYMBION, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Revenues
    
    $
    265,744
    
    
    $
    216,325
    
    
    $
    176,269Operating expenses:Salaries and benefits
    
    
    67,753
    
    
    
    56,395
    
    
    
    46,275Supplies
    
    
    48,669
    
    
    
    42,756
    
    
    
    35,099Professional and medical fees
    
    
    13,880
    
    
    
    11,493
    
    
    
    9,889Rent and lease expense
    
    
    17,212
    
    
    
    13,667
    
    
    
    10,891Other operating expenses
    
    
    19,096
    
    
    
    17,454
    
    
    
    15,151Cost of revenues
    
    
    166,610
    
    
    
    141,765
    
    
    
    117,305General and administrative expense
    
    
    21,993
    
    
    
    18,449
    
    
    
    15,874Depreciation and amortization
    
    
    13,277
    
    
    
    10,927
    
    
    
    9,295Provision for doubtful accounts
    
    
    4,215
    
    
    
    3,989
    
    
    
    2,748Income on equity investments
    
    
    (1,273
    )
    
    
    (1,272
    )
    
    
    (402
    )Impairment and loss on disposal of long-lived assets
    
    
    1,541
    
    
    
    271
    
    
    
    437Gain on sale of long-lived assets
    
    
    (1,785
    )
    
    
    (250
    )
    
    
    (571
    )Total operating expenses
    
    
    204,578
    
    
    
    173,879
    
    
    
    144,686Operating income
    
    
    61,166
    
    
    
    42,446
    
    
    
    31,583Minority interests in income of consolidated
subsidiaries
    
    
    (25,871
    )
    
    
    (15,549
    )
    
    
    (10,447
    )Interest expense, net
    
    
    (4,851
    )
    
    
    (4,862
    )
    
    
    (5,782
    )Income before income taxes
    
    
    30,444
    
    
    
    22,035
    
    
    
    15,354Provision (benefit) for income taxes
    
    
    11,389
    
    
    
    8,483
    
    
    
    (2,170
    )Net income
    
    $
    19,055
    
    
    $
    13,552
    
    
    $
    17,524Net income per share:Basic:
    
    $
    0.90
    
    
    $
    0.69
    
    
    $
    1.66Diluted:
    
    $
    0.86
    
    
    $
    0.67
    
    
    $
    1.38Weighted average number of common shares
outstanding and common equivalent shares:Basic:
    
    
    21,285,211
    
    
    
    19,736,722
    
    
    
    10,536,745Diluted:
    
    
    22,028,591
    
    
    
    20,347,385
    
    
    
    12,658,620
  F-4




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##### Table of Contents



SYMBION, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(dollars in thousands, except per share amounts)
 Symbion, Inc.Series A and Series B
    
    
    Symbion, Inc.
    
    
    Additional
    
    
    Stockholder
    
    
    Accumulated Other
    
    
    Retained
    
    
    TotalConvertible Preferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Notes
    
    
    Comprehensive
    
    
    Earnings
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Receivable
    
    
    Income
    
    
    (Deficit)
    
    
    EquityBalance at December 31, 2002
    
    
    6,946,316
    
    
    $
    21,742
    
    
    
    10,570,565
    
    
    $
    106
    
    
    $
    62,008
    
    
    $
    (381
    )
    
    $
    
    
    
    $
    3,202
    
    
    $
    86,677Issuance of warrants and common stock, net of repurchases,
and other
    
    
    
    
    
    
    
    
    
    
    42,122
    
    
    
    
    
    
    
    (262
    )
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    (186
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,524
    
    
    
    17,524Balance at December 31, 2003
    
    
    6,946,316
    
    
    $
    21,742
    
    
    
    10,612,687
    
    
    $
    106
    
    
    $
    61,746
    
    
    $
    (305
    )
    
    $
    
    
    
    $
    20,726
    
    
    $
    104,015Public offering of common stock
    
    
    
    
    
    
    
    
    
    
    8,280,000
    
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83Conversion of Preferred Stock at time of public offering
    
    
    (6,946,316
    )
    
    
    (21,742
    )
    
    
    1,789,341
    
    
    
    18
    
    
    
    24,795
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,071Other initial public offering activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,764Issuance of warrants and common stock, net of repurchases,
and other
    
    
    
    
    
    
    
    
    
    
    350,749
    
    
    
    3
    
    
    
    5,492
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    5,513Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,552
    
    
    
    13,552Balance at December 31, 2004
    
    
    
    
    
    $
    
    
    
    
    21,032,777
    
    
    $
    210
    
    
    $
    203,797
    
    
    $
    (287
    )
    
    $
    
    
    
    $
    34,278
    
    
    $
    237,998Issuance of warrants and common stock, net of repurchases,
and other
    
    
    
    
    
    
    
    
    
    
    411,686
    
    
    
    4
    
    
    
    2,558
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    2,621Amortized compensation expense related to restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Unrealized gain on interest rate swap, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    321
    
    
    
    
    
    
    
    321Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,055
    
    
    
    19,055Balance at December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    21,444,463
    
    
    $
    214
    
    
    $
    206,418
    
    
    $
    (228
    )
    
    $
    321
    
    
    $
    53,333
    
    
    $
    260,058
  F-5




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##### Table of Contents



SYMBION, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    19,055
    
    
    $
    13,552
    
    
    $
    17,524Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    13,277
    
    
    
    10,927
    
    
    
    9,295Impairment and loss on disposal of long-lived assets
    
    
    1,541
    
    
    
    271
    
    
    
    437Gain on sale of long-lived assets
    
    
    (1,785
    )
    
    
    (250
    )
    
    
    (571
    )Minority interests
    
    
    25,871
    
    
    
    15,549
    
    
    
    10,447Distributions to minority partners
    
    
    (23,225
    )
    
    
    (14,420
    )
    
    
    (10,690
    )Income on equity investments
    
    
    (1,273
    )
    
    
    (1,272
    )
    
    
    (402
    )Provision for doubtful accounts
    
    
    4,215
    
    
    
    3,989
    
    
    
    2,748Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:Accounts receivable
    
    
    (4,929
    )
    
    
    (5,274
    )
    
    
    (3,537
    )Other assets
    
    
    414
    
    
    
    1,465
    
    
    
    (7,016
    )Other liabilities
    
    
    8,742
    
    
    
    3,550
    
    
    
    2,572Net cash provided by operating activities
    
    
    41,903
    
    
    
    28,087
    
    
    
    20,807Cash flows from investing activities:Payments for acquisitions, net of cash acquired
    
    
    (55,479
    )
    
    
    (95,198
    )
    
    
    (48,940
    )Purchases of property and equipment, net
    
    
    (13,751
    )
    
    
    (11,086
    )
    
    
    (13,826
    )Change in other assets
    
    
    390
    
    
    
    1,432
    
    
    
    (4,208
    )Net cash used in investing activities
    
    
    (68,840
    )
    
    
    (104,852
    )
    
    
    (66,974
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (34,353
    )
    
    
    (118,820
    )
    
    
    (62,106
    )Proceeds from debt issuances
    
    
    61,938
    
    
    
    83,000
    
    
    
    100,419Proceeds from capital contributions by minority partners
    
    
    3,630
    
    
    
    1,364
    
    
    
    3,348Proceeds from initial public offering, net
    
    
    
    
    
    
    115,506
    
    
    
    Change in other long-term liabilities
    
    
    (1,570
    )
    
    
    432
    
    
    
    1,516Net proceeds from issuance of common stock
    
    
    2,450
    
    
    
    901
    
    
    
    Net cash provided by financing activities
    
    
    32,095
    
    
    
    82,383
    
    
    
    43,177Net increase (decrease) in cash and cash equivalents
    
    
    5,158
    
    
    
    5,618
    
    
    
    (2,990
    )Cash and cash equivalents at beginning of period
    
    
    23,276
    
    
    
    17,658
    
    
    
    20,648Cash and cash equivalents at end of period
    
    $
    28,434
    
    
    $
    23,276
    
    
    $
    17,658Supplemental cash flow information:Cash paid for interest
    
    $
    6,059
    
    
    $
    6,436
    
    
    $
    5,442
  F-6




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##### Table of Contents



SYMBION, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(dollars in thousands, except per share amounts)
 1. Organization
  2. Significant Accounting Policies and Practices
 Basis of Presentation and Use of Estimates
  Principles of Consolidation
  Fair Value of Financial Instruments
  F-7




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##### Table of Contents



Cash and Cash Equivalents
  Accounts Receivable
  2005
    
    
    2004Surgery centers
    
    $
    31,903
    
    
    $
    28,393Physician networks
    
    
    584
    
    
    
    500Total
    
    $
    32,487
    
    
    $
    28,893
  Payor
    
    2005
    
    2004Private insurance
    
    
    70
    %
    
    
    63
    %Government
    
    
    10
    
    
    
    14Self-pay
    
    
    14
    
    
    
    17Other
    
    
    6
    
    
    
    6Total
    
    
    100
    %
    
    
    100
    %
   Allowance for Doubtful Accounts
  F-8




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##### Table of Contents



Allowance
    
    
    Charged toBalance at
    
    
    Revenues,
    
    
    Charged to
    
    
    
    
    
    
    AllowanceBeginning of
    
    
    Costs and
    
    
    Other
    
    
    
    
    
    
    Balance atPeriod
    
    
    Expenses
    
    
    Accounts(1)
    
    
    Write-offs
    
    
    End of PeriodYear ended December 31:2003
    
    $
    11,632
    
    
    $
    2,748
    
    
    $
    1,362
    
    
    $
    3,210
    
    
    $
    12,5322004
    
    
    12,532
    
    
    
    3,989
    
    
    
    437
    
    
    
    3,220
    
    
    
    13,7382005
    
    
    13,738
    
    
    
    4,215
    
    
    
    5,002
    
    
    
    3,867
    
    
    
    19,088
 
 (1)
    
    Relates to allowances for doubtful accounts recorded under the purchase method of accounting
for acquired entities. Inventories
  Property and Equipment
   Goodwill and Indefinite Lived Intangible Assets
  Service Agreement Rights
  F-9




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##### Table of Contents



Minority Interests
  Investments in and Advances to Affiliates
  Other Assets
   Comprehensive Income
 Accounting for Derivative Instruments and Hedging
Activities
 Revenues
  2005
    
    
    2004
    
    
    2003Patient service revenues
    
    $
    253,180
    
    
    $
    202,678
    
    
    $
    158,121Physician service revenues
    
    
    4,325
    
    
    
    4,040
    
    
    
    3,796Other service revenues
    
    
    8,239
    
    
    
    9,607
    
    
    
    14,352Total revenues
    
    $
    265,744
    
    
    $
    216,325
    
    
    $
    176,269
 F-10




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##### Table of Contents



Patient Service Revenues
   Payor
    
    2005
    
    2004
    
    2003Private insurance
    
    
    76
    %
    
    
    76
    %
    
    
    76
    %Government
    
    
    19
    
    
    
    20
    
    
    
    19Self-pay
    
    
    4
    
    
    
    3
    
    
    
    3Other
    
    
    1
    
    
    
    1
    
    
    
    2Total
    
    
    100
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Physician Service Revenues
   2005
    
    
    2004
    
    
    2003Professional services revenues
    
    $
    12,619
    
    
    $
    11,028
    
    
    $
    10,028Contractual adjustments and bad debt expense
    
    
    (5,680
    )
    
    
    (4,924
    )
    
    
    (4,235
    )Clinic revenue
    
    
    6,939
    
    
    
    6,104
    
    
    
    5,793Medical group retainage
    
    
    (2,614
    )
    
    
    (2,064
    )
    
    
    (1,997
    )Physician service revenues
    
    $
    4,325
    
    
    $
    4,040
    
    
    $
    3,796
 F-11




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##### Table of Contents



Other Service Revenues
  Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Net income as reported
    
    $
    19,055
    
    
    $
    13,552
    
    
    $
    17,524Add: Total compensation expense for stock option
grants included
in net income, net of taxes
    
    
    40
    
    
    
    
    
    
    
    Pro forma compensation expense for stock option grants
    
    
    (2,385
    )
    
    
    (1,842
    )
    
    
    (2,122
    )Pro forma net income
    
    $
    16,710
    
    
    $
    11,710
    
    
    $
    15,402Basic earnings per share:As reported
    
    $
    0.90
    
    
    $
    0.69
    
    
    $
    1.66Pro forma
    
    
    0.79
    
    
    
    0.59
    
    
    
    1.46Diluted earnings per share:As reported
    
    $
    0.86
    
    
    $
    0.67
    
    
    $
    1.38Pro forma
    
    
    0.76
    
    
    
    0.58
    
    
    
    1.22
   Share-Based Payment
 F-12




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##### Table of Contents



Income Taxes
  Non-Cash Investing Activities
  Recently Issued Accounting Pronouncements
 Exchange of Non-monetary Assets  an amendment
of APB Opinion No. 29 Accounting for Non-monetary
Transactions
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in
Interim Financial Statements
 F-13




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##### Table of Contents



Determining
Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights
 Reclassifications
  3. Reverse Stock Split and Initial Public Offering
   4. Acquisitions and Developments
  2005
    
    
    2004
    
    
    2003Fair value of assets acquired
    
    $
    62,425
    
    
    $
    77,582
    
    
    $
    49,925Liabilities assumed
    
    
    (11,983
    )
    
    
    (11,271
    )
    
    
    (4,284
    )Common stock, preferred stock and warrants issued
    
    
    
    
    
    
    
    
    
    
    (49
    )Net cash used for acquisitions
    
    $
    50,442
    
    
    $
    66,311
    
    
    $
    45,592
    F-14




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##### Table of Contents



2005 Significant Acquisitions
 de novo
 de
novo de novo
  Year EndedDecember 31, 2005Revenues
    
    $
    284,357Income before income taxes
    
    
    32,346Earnings per share:Basic
    
    $
    0.95Diluted
    
    $
    0.92
  2004 Significant Acquisitions
   F-15




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##### Table of Contents



Year EndedDecember 31, 2004Revenues
    
    $
    248,397Income before income taxes
    
    
    24,150Earnings per share:Basic
    
    $
    0.75Diluted
    
    $
    0.73
 2003 Significant Acquisitions
  Working capital
    
    $
    3,253Property and equipment
    
    
    4,050Goodwill
    
    
    37,563Other long-term assets
    
    
    4,544Long-term debt
    
    
    (1,748
    )Minority interests
    
    
    (1,624
    )Total purchase price
    
    $
    46,038
   Developments and Other
 de novo
  F-16




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##### Table of Contents



5. Dispositions
     6. Goodwill and Intangible Assets
  Balance at December 31, 2003
    
    $
    116,654Purchase price allocations
    
    
    97,433Finalized purchase price allocations
    
    
    1,446Balance at December 31, 2004
    
    
    215,533Purchase price allocations
    
    
    49,366Finalized purchase price allocations
    
    
    3,233Balance at December 31, 2005
    
    $
    268,312
  F-17




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##### Table of Contents



Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationAmortized intangible assets:As of December 31, 2004Service agreement rights
    
    $
    1,370
    
    
    $
    (420
    )As of December 31, 2005Service agreement rights
    
    
    1,370
    
    
    
    (717
    )
  7. Operating Leases
   2006
    
    $
    14,6872007
    
    
    14,2302008
    
    
    14,2752009
    
    
    13,1222010
    
    
    11,819Thereafter
    
    
    49,255Total minimum lease payments
    
    $
    117,388
  8. Long-Term Debt
  December 31,2005
    
    
    2004Senior credit facility
    
    $
    96,000
    
    
    $
    64,000Notes payable to banks
    
    
    4,752
    
    
    
    5,055Secured term loans
    
    
    1,254
    
    
    
    788Capital lease obligations
    
    
    1,310
    
    
    
    1,524103,316
    
    
    
    71,367Less current maturities
    
    
    (1,347
    )
    
    
    (1,620
    )$
    101,969
    
    
    $
    69,747
 F-18




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##### Table of Contents



Senior Credit Facility
     Notes Payable to Banks
  Capital Lease Obligations
  F-19




---



##### Table of Contents



Other Long-Term Debt Information
  Capital LeaseLong-term Debt
    
    
    Obligations
    
    
    Total2006
    
    $
    823
    
    
    $
    556
    
    
    $
    1,3792007
    
    
    1,002
    
    
    
    635
    
    
    
    1,6372008
    
    
    802
    
    
    
    153
    
    
    
    9552009
    
    
    588
    
    
    
    109
    
    
    
    6972010
    
    
    98,791
    
    
    
    
    
    
    
    98,791Thereafter
    
    
    
    
    
    
    
    
    
    
    102,006
    
    
    
    1,453
    
    
    
    103,459Less current maturities
    
    
    (823
    )
    
    
    (524
    )
    
    
    (1,347
    )Amounts representing interest
    
    
    
    
    
    
    (143
    )
    
    
    (143
    )$
    101,183
    
    
    $
    786
    
    
    $
    101,969
 9. Stockholders Equity
 Capital
   Stock Options
   Year Ended December 31,2005
    
    
    2004
    
    
    2003Weighted average risk-free interest rate
    
    
    3.8
    %
    
    
    3.8
    %
    
    
    4.1
    %Expected volatility
    
    
    31.8
    %
    
    
    31.8
    %
    
    
    70
    %Expected life, in years
    
    
    6
    
    
    
    5
    
    
    
    7Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected forfeiture rate
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
 F-20




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##### Table of Contents



Weighted average risk-free interest rate
  Expected volatility
  Expected life, in years
  Expected dividend yield
  Expected forfeiture rate
   WeightedNumber of Shares
    
    
    Average Exercise PriceDecember 31, 2002
    
    
    1,434,383
    
    
    $
    10.06Granted
    
    
    476,322
    
    
    
    14.96Exercised
    
    
    (84,627
    )
    
    
    0.66Expired
    
    
    (107,603
    )
    
    
    10.35December 31, 2003
    
    
    1,718,475
    
    
    $
    11.87Granted
    
    
    305,000
    
    
    
    19.37Exercised
    
    
    (101,788
    )
    
    
    9.85Expired
    
    
    (59,137
    )
    
    
    12.82December 31, 2004
    
    
    1,862,550
    
    
    $
    13.17Granted
    
    
    463,950
    
    
    
    19.46Exercised
    
    
    (327,846
    )
    
    
    9.59Expired
    
    
    (45,438
    )
    
    
    15.95December 31, 2005
    
    
    1,953,216
    
    
    $
    15.19
  F-21




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted-Outstanding
    
    
    Average
    
    
    Weighted-
    
    
    Exercisable
    
    
    Weighted-as of
    
    
    Remaining
    
    
    Average
    
    
    as of
    
    
    AverageRange of
    
    December 31,
    
    
    Contractual
    
    
    Exercise
    
    
    December 31,
    
    
    ExerciseExercise Prices
    
    2005
    
    
    Life
    
    
    Price
    
    
    2005
    
    
    Price$  0.00  $  7.58
    
    
    135,419
    
    
    
    1.8
    
    
    $
    0.54
    
    
    
    134,081
    
    
    $
    0.54$  7.58  $10.10
    
    
    42,852
    
    
    
    4.2
    
    
    $
    7.79
    
    
    
    44,190
    
    
    $
    7.58$10.10  $12.63
    
    
    933
    
    
    
    0.5
    
    
    $
    10.69
    
    
    
    933
    
    
    $
    10.69$12.63  $15.15
    
    
    1,021,612
    
    
    
    7.9
    
    
    $
    14.32
    
    
    
    653,507
    
    
    $
    14.21$15.15  $19.70
    
    
    731,150
    
    
    
    9.5
    
    
    $
    19.31
    
    
    
    87,085
    
    
    $
    19.31$19.70  $23.68
    
    
    21,250
    
    
    
    9.5
    
    
    $
    23.64
    
    
    
    
    
    
    $
    1,953,216
    
    
    
    5.8
    
    
    $
    15.19
    
    
    
    919,796
    
    
    $
    12.38
  10. Earnings Per Share
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Numerator for basic and diluted income per share:Net income
    
    $
    19,055
    
    
    $
    13,552
    
    
    $
    17,524Denominator:Denominator for basic income per share
weighted-average shares outstanding
    
    
    21,285,211
    
    
    
    19,736,722
    
    
    
    10,536,745Effect of dilutive securities:Employee stock options
    
    
    698,382
    
    
    
    353,432
    
    
    
    301,903Warrants
    
    
    44,998
    
    
    
    109,514
    
    
    
    189,527Preferred stock
    
    
    
    
    
    
    140,712
    
    
    
    1,567,910Common stock held in escrow
    
    
    
    
    
    
    7,005
    
    
    
    62,535Denominator for diluted income per share 
adjusted weighted-average shares outstanding
    
    
    22,028,591
    
    
    
    20,347,385
    
    
    
    12,658,620Basic net income per share
    
    $
    0.90
    
    
    $
    0.69
    
    
    $
    1.66Diluted net income per share
    
    $
    0.86
    
    
    $
    0.67
    
    
    $
    1.38
  11. Income Taxes
  F-22




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##### Table of Contents



2005
    
    
    2004
    
    
    2003Current:Federal
    
    $
    6,609
    
    
    $
    337
    
    
    $
    272State
    
    
    1,121
    
    
    
    582
    
    
    
    666Deferred
    
    
    3,659
    
    
    
    7,564
    
    
    
    (3,108
    )Income tax expense (benefit)
    
    $
    11,389
    
    
    $
    8,483
    
    
    $
    (2,170
    )
  2005
    
    
    2004
    
    
    2003Tax at U.S. statutory rates
    
    $
    10,648
    
    
    $
    7,712
    
    
    $
    5,374State income taxes, net of federal tax benefit
    
    
    268
    
    
    
    225
    
    
    
    249Change in valuation allowance
    
    
    152
    
    
    
    261
    
    
    
    (8,207
    )Other
    
    
    321
    
    
    
    285
    
    
    
    414$
    11,389
    
    
    $
    8,483
    
    
    $
    (2,170
    )
  2005
    
    
    2004Deferred tax assets:Amortization
    
    $
    
    
    
    $
    5,264Accrued vacation
    
    
    195
    
    
    
    391Net operating loss carryforward
    
    
    3,767
    
    
    
    2,887Deferred project costs
    
    
    115
    
    
    
    194Other deferred assets
    
    
    3,336
    
    
    
    2,304Total gross deferred tax assets
    
    
    7,413
    
    
    
    11,040Less: Valuation allowance
    
    
    (3,728
    )
    
    
    (3,162
    )Total deferred tax assets
    
    
    3,685
    
    
    
    7,878Deferred tax liabilities:Depreciation on property and equipment
    
    
    (608
    )
    
    
    (5,951
    )Amortization on intangible assets
    
    
    (203
    )
    
    
    Basis differences of partnerships and joint ventures
    
    
    (10,953
    )
    
    
    (5,658
    )Other liabilities
    
    
    (36
    )
    
    
    (725
    )Total deferred tax liabilities
    
    
    (11,800
    )
    
    
    (12,334
    )Net deferred tax liability
    
    $
    (8,115
    )
    
    $
    (4,456
    )
  12. Employee Benefit Plans
 Symbion, Inc. 401(k) Plan
  F-23




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##### Table of Contents



Employee Stock Purchase Plan
  Supplemental Retirement Savings Plan
  13. Commitments and Contingencies
 Debt and Lease Guaranty on Unconsolidated Entities
  Professional
and General Liability Risks
  F-24




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##### Table of Contents



Current Operations
  Acquired Centers
   Potential Physician Investor Liability
  F-25




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##### Table of Contents



14. Selected Quarterly Financial Data (Unaudited)
  2005First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(unaudited)Revenues
    
    $
    62,179
    
    
    $
    64,653
    
    
    $
    66,422
    
    
    $
    72,490Cost of Revenues
    
    
    39,198
    
    
    
    40,252
    
    
    
    42,281
    
    
    
    44,879Net Income
    
    
    4,386
    
    
    
    4,880
    
    
    
    4,182
    
    
    
    5,607Net income per share:Basic
    
    
    0.21
    
    
    
    0.23
    
    
    
    0.20
    
    
    
    0.26Diluted
    
    
    0.20
    
    
    
    0.22
    
    
    
    0.19
    
    
    
    0.25
 2004First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(unaudited)Revenues
    
    $
    51,947
    
    
    $
    52,727
    
    
    $
    52,031
    
    
    $
    59,620Cost of Revenues
    
    
    33,989
    
    
    
    34,847
    
    
    
    34,688
    
    
    
    38,241Net Income
    
    
    2,579
    
    
    
    3,615
    
    
    
    3,332
    
    
    
    4,026Net income per share:Basic
    
    
    0.16
    
    
    
    0.17
    
    
    
    0.16
    
    
    
    0.19Diluted
    
    
    0.15
    
    
    
    0.17
    
    
    
    0.16
    
    
    
    0.19
 15. 2005 Subsequent Event
   F-26




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##### Table of Contents



SIGNATURES
  SYMBION, INC.By:
    
    /s/ Richard E. Francis, Jr.Richard E. Francis, Jr.Chairman and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ Richard E. Francis, Jr.

Richard E. Francis, Jr.
    
    Chairman of the Board, Chief Executive
Officer,
Director (principal executive officer)
    
    March 14, 2006/s/ Kenneth C. Mitchell

Kenneth C. Mitchell
    
    Chief Financial Officer, Senior Vice
President of Finance
(principal financial and accounting officer)
    
    March 14, 2006/s/ Clifford G. Adlerz
    
    President, Chief Operating Officer,
    
    March 14, 2006Clifford G. Adlerz
    
    Director/s/ William V. B. Webb
    
    Chief Development Officer,
    
    March 14, 2006William V. B. Webb
    
    Director/s/ Frederick L. Bryant
    
    Director
    
    March 14, 2006Frederick L. Bryant/s/ Donald W. Burton
    
    Director
    
    March 14, 2006Donald W. Burton/s/ Eve M. Kurtin
    
    Director
    
    March 14, 2006Eve M. Kurtin/s/ Jack Tyrrell
    
    Director
    
    March 14, 2006Jack Tyrrell/s/ David M. Wilds
    
    Director
    
    March 14, 2006David M. Wilds
 F-27




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##### Table of Contents



EXHIBIT INDEX
 No.
    
    
    
    Description2.1
    
    
    
    Agreement and Plan of Merger, dated as of March 7, 2002, among Symbion, Inc., Symbion
Acquisition Sub, Inc. and Physicians Surgical Care, Inc. (a)2.2
    
    
    
    Purchase Agreement, dated as of November 11, 2004, by and among the members of Surgery
Center Partners, L.L.C., Symbion Ambulatory Resource Centres, Inc. and SMBIMS Kirkwood,
Inc. (b)2.3
    
    
    
    Purchase Agreement, dated as of July 27, 2005, by and among Members of Specialty Surgical
Center, LLC, Specialty Surgical Center of Encino, LLC, Specialty Surgical Center of Irvine,
LLC, Specialty Surgical Center of Arcadia, LLC, Symbion Ambulatory Resource Centres, Inc.
and Affiliates of Symbion Ambulatory Resource Centres, Inc. (c)3.1
    
    
    
    Certificate of Incorporation (d)3.2
    
    
    
    Certificate of Amendment to Certificate of Incorporation (e)3.3
    
    
    
    Certificate of Retirement of Stock (f)3.4
    
    
    
    Certificate of Designation of Rights and Preferences of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock (d)3.5
    
    
    
    Certificate of Designation of Series A Junior Participating Preferred Stock (e)3.6
    
    
    
    Bylaws (d)4.1
    
    
    
    Form of Common Stock Certificate (d)4.2
    
    
    
    Amended and Restated Investors Rights Agreement, dated as of June 25, 1999, among Symbion,
Inc. and the security holders named therein (a)4.3
    
    
    
    Amendment No. 1 to Amended and Restated Investors Rights Agreement, dated as of August 11,
1999, among Symbion, Inc. and the security holders named therein (a)4.4
    
    
    
    Amendment No. 2 to Amended and Restated Investors Rights Agreement, dated as of April 1,
2002, among Symbion, Inc. and the security holders named therein (a)4.5
    
    
    
    Form of Warrant for the purchase of shares of Symbion, Inc. common stock (a)4.6
    
    
    
    Rights Agreement, dated as of February 6, 2004, between Symbion, Inc. and SunTrust Bank (g)10.1
    
    
    
    Amended and Restated Executive Employment Agreement, dated May 16, 2002, between Symbion,
Inc. and Richard E. Francis, Jr. (a) (n)10.2
    
    
    
    Amended and Restated Executive Employment Agreement, dated May 16, 2002, between Symbion,
Inc. and Clifford G. Adlerz (a) (n)10.3
    
    
    
    Amended and Restated Executive Employment Agreement, dated May 16, 2002, between Symbion,
Inc. and William V. B. Webb (a) (n)10.4
    
    
    
    Securities Purchase Agreement, dated as of July 18, 2003, among Symbion, Inc. and DLJ
Investment Partners II, L.P. and its affiliates (d)




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##### Table of Contents



No.
    
    
    
    Description10.5
    
    
    
    Form of 143/4% Senior Subordinated Note due 2008 (d)10.6
    
    
    
    Credit Agreement, dated as of July 18, 2003, among Symbion, Inc., various lenders party
thereto, Bank of America, N.A., as Administrative Agent and as Issuing Bank, Credit Suisse
First Boston as Syndication Agent, Key Corporate Capital, Inc. as Documentation Agent, and
Banc of America Securities, LLC, as sole Lead Arranger and Sole Book Manager (d)10.7
    
    
    
    First Amendment to Credit Agreement, dated January 30, 2004, among Symbion, Inc., various
lenders party thereto and Bank of America, N.A., as Administrative Agent and as Issuing
Bank (d)10.8
    
    
    
    Amended and Restated Credit Agreement, dated as of March 21, 2005, among Symbion, Inc., the
subsidiaries of Symbion identified therein, Bank of America, N.A., as Administrative Agent,
Swing Line Lender and L/C Issuer, Credit Suisse First Boston, as Syndication Agent, KeyBank
National Association, as Documentation Agent and the other lenders party thereto (h)10.9
    
    
    
    Lease Agreement, dated June 26, 2001, between Burton Hills IV Partners and Symbion, Inc. (a)10.10
    
    
    
    First Amendment to Lease Agreement, dated February 9, 2004, between Burton Hills IV
Partners and Symbion, Inc. (f)10.11
    
    
    
    Amended and Restated Ambulatory Resource Centres, Inc. 1997 Stock Option Plan (a) (n)10.12
    
    
    
    Ambulatory Resource Centres, Inc. Nonqualified Initial Option Plan (a) (n)10.13
    
    
    
    Symbion Stock Incentive Plan (a) (n)10.14
    
    
    
    Form of Incentive Stock Option Agreement under the Stock Incentive Plan (i) (n)10.15
    
    
    
    Form of Nonqualified Stock Option Agreement under the Stock Incentive Plan (i) (n)10.16
    
    
    
    Form of Restricted Stock Agreement under the Stock Incentive Plan (j) (n)10.17
    
    
    
    Symbion Non-Employee Directors Stock Option Plan (a) (n)10.18
    
    
    
    Form of Nonqualified Stock Option Agreement under the Non-Employee Directors Stock Option
Plan (i) (n)10.19
    
    
    
    Symbion Employee Stock Purchase Plan (a) (n)10.20
    
    
    
    First Amendment to Symbion Employee Stock Purchase Plan (a) (n)10.21
    
    
    
    Second Amendment to Symbion Employee Stock Purchase Plan (k) (n)10.22
    
    
    
    Third Amendment to Symbion Employee Stock Purchase Plan (n)10.23
    
    
    
    Executive Change in Control Severance Plan, dated December 11, 1997 (a) (n)10.24
    
    
    
    Supplemental Executive Retirement Plan (l) (n)10.25
    
    
    
    Form of Deferred Stock Purchase Program Agreement (l) (n)




---



##### Table of Contents



No.
    
    
    
    Description10.26
    
    
    
    Management Rights Purchase Agreement, dated as of July 27, 2005, by and among Parthenon
Management Partners, LLC, Andrew A. Brooks, M.D., Randhir S. Tuli and SymbionARC Management
Services, Inc. (c)10.27
    
    
    
    2005 Bonus Plan (n)10.28
    
    
    
    Summary of Director Compensation (n)10.29
    
    
    
    Executive Officer Compensation and 2006 Bonus Plan (m) (n)21.1
    
    
    
    Subsidiaries of Registrant23.1
    
    
    
    Consent of Ernst & Young LLP23.2
    
    
    
    Consent of Casualty Actuarial Consultants, Inc. (2005 report)23.3
    
    
    
    Consent of Casualty Actuarial Consultants, Inc. (2004 report) (b)23.4
    
    
    
    Consent of Casualty Actuarial Consultants, Inc. (2003 report) (f)31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (a)
    
    Incorporated by reference to exhibits filed with the Registrants Registration Statement on
Form S-1 (Registration No. 333-89554).(b)
    
    Incorporated by reference to exhibits filed with the Registrants Annual Report on Form 10-K
for the year ended December 31, 2004 (File No. 000-50574).(c)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed August 2, 2005 (File No. 000-50574).(d)
    
    Incorporated by reference to exhibits filed with the Registrants Registration Statement on
Form S-1 (Registration No. 333-110555).(e)
    
    Incorporated by reference to exhibits filed with the Registrants Registration Statement on
Form S-8 (Registration No. 333-113272).(f)
    
    Incorporated by reference to exhibits filed with the Registrants Annual Report on Form 10-K
for the year ended December 31, 2003 (File No. 000-50574).(g)
    
    Incorporated by reference to exhibits filed with the Registrants Registration Statement on
Form 8-A filed with the Securities and Exchange Commission on February 6, 2004 (Registration
No. 000-50574).(h)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed March 25, 2005 (File No. 000-50574).(i)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed December 14, 2004 (File No. 000-50574).(j)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed January 11, 2005 (File No. 000-50574).(k)
    
    Incorporated by reference to exhibits filed with the Registrants Quarterly Report on Form
10-Q for the quarter ended September 30, 2005 (File No. 000-50574).




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##### Table of Contents



(l)
    
    Incorporated by reference to exhibits filed with the Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2005 (File No. 000-50574).(m)
    
    Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K
filed February 28, 2006 (File No. 000-50574).(n)
    
    Compensation plan or arrangement.