##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 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: 333-132641
 SPHERIS INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    62-1805254(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 9009 Carothers Pkwy., Suite. C-3, Franklin, TN 37067  (Address of principal executive offices, including zip code)
 (615) 261-1500  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act
 Securities registered pursuant to Section 12(g) of the Act
 o þ
 þ o
 o þ
  þ
  Large accelerated filer
o
    
    Accelerated filer o
    
    Non-accelerated filer  
þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



SPHERIS INC.
 TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
 PagePART IItem 1. Business
    
    
    3Organization and History
    
    
    3Company Overview
    
    
    3Services Provided
    
    
    4Our Customers
    
    
    5Sales and Marketing
    
    
    6Technological Capabilities
    
    
    6Spheris Clinical Documentation Platforms
    
    
    7Intellectual Property
    
    
    7Competition
    
    
    8Employees
    
    
    8Regulatory Matters
    
    
    8Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    15Item 2. Properties
    
    
    15Item 3. Legal Proceedings
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    15PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    16Item 6. Selected Financial Data
    
    
    16Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Overview
    
    
    17Critical Accounting Policies and Estimates
    
    
    17Results of Operations
    
    
    19Liquidity and Capital Resources
    
    
    22Contractual Obligations
    
    
    23Off-Balance Sheet Arrangements
    
    
    23Recent Accounting Pronouncements
    
    
    24Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 8. Financial Statements and Supplementary Data.
    
    
    25Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    25Item 9A(T). Controls and Procedures
    
    
    25Item 9B. Other Information
    
    
    26PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    26Item 11. Executive Compensation
    
    
    29Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    41Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    43Item 14. Principal Accountant Fees and Services
    
    
    45PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    46SIGNATURES
    
    
    49EX-10.13 Lease Deed, dated as of July 5, 2007, by and between VITP Private Limited and Spheris, India Private Limited.EX-10.14 Executive and Director Compensation.EX-10.18 Services Agreement, effective January 1, 2005, by and between Spheris Operations Inc. and Health Scibe (India) Private LimitedEX-10.19 Services Agreement, effective June 1, 2005, by and between Spheris Operations Inc. and HealthScribe (India) Private LimitedEX-10.20 Services Agreement, effective January 1, 2008, by and between Spheris Operations LLC and Spheris India Private LimitedEX-21 Subsidiaries of Spheris Inc.EX-31.1 Section 302 Certification of the CEOEX-31.2 Section 302 Certification of the CFOEX-32 Section 906 Certification of the CEO and CFO
  
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FORWARD LOOKING STATEMENTS
    2




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PART I
 
 Item 1. Business
 
 Organization and History
  
 Company Overview
   

    the growing and aging populations need for more medical tests, treatments and
procedures that require documentation;

    the migration of record-keeping from paper to electronic format;

    the need for accurate documentation necessary to comply with increasingly stringent
regulations and reimbursement requirements;

    the desire of healthcare providers to maximize the amount of time spent on patient care,
while minimizing the physicians administrative duties; and

    the need for healthcare providers to have timely and accurate documentation in order to
improve receivables collection, manage costs and provide high quality care.
  3




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Spheris Clinical Documentation Process FlowData Capture
    
    Data Center
    

Documentation
    
    Data AccessPhysicians dictate data
using leading hand-held
or phone-based
technology that
is collected onto
a voice server.
    
    Physician dictated data
and patient
demographics are
directly linked, via
HL7-ready interface,
to a data center where
they are consolidated
for
access by MLS.
    
    MLS access data
through virtual
private network or
other
secure means and
convert voice data
to text directly onto
our platform.
    
    The medical center
can directly and
securely access
transcribed
reports via fax,
print-out, and/or
secure internet portal.
   
 Services Provided
    Domestic operations
   4




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Global operations
    
 Our Customers
   5




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Sales and Marketing
     
 Technological Capabilities
 ®
  6




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Spheris Clinical Documentation Platforms
  
    
    an ability to view, edit and electronically sign and print medical records from any computer with a Web browser;
    
    secure private frame relay connections and virtual private network access;
    
    password-protected transactions audit logged for compliance;
    
    an ability to view a range of management and business intelligence reports;
    
    system functionality provided for query, viewing, editing, printing, faxing, storage and uploading to the
healthcare facilitys electronic medical records system;
    
    an ability to integrate with the customers HIM and dictation systems to ensure smooth implementations and
transitions, with uninterrupted workflow;
    
    an ability to assume responsibility for the servers, networks, software, secure lines and other critical
components behind the customers clinical documentation needs, including assuming the burden of purchasing,
maintaining and upgrading technology; and
    
    all voice and text files are secured at one of our enterprise level national data centers, which are supported
by emergency power and backup systems.
 
 Intellectual Property
    7




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##### Table of Contents



Competition
    
 Employees
  
 Regulatory Matters
   
    
    electronic transactions involving health information;
    
    privacy of individually identifiable health information; and
    
    security of individually identifiable health information and electronic signatures.
  8




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Item 1A. Risk Factors
  Risks Related to Our Indebtedness
 Our substantial indebtedness could adversely affect our ability to raise
additional capital to fund our business, harm our ability to react to changes
in the economy or our business and prevent us from fulfilling our obligations
under our indebtedness, including our senior secured credit facility and the
indenture relating to our senior subordinated notes.
   
    
    increase our vulnerability to general economic downturns and adverse competitive and industry conditions;
    
    require us to dedicate all or a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures,
research and development efforts, acquisitions and other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
    
    place us at a competitive disadvantage compared to competitors that have less debt;
    
    limit our ability to raise additional financing for working capital, capital expenditures, research and
development, acquisitions and general corporate purposes on satisfactory terms or at all; and
    
    make it more difficult for us to satisfy our financial obligations.
 Our variable rate indebtedness subjects us to interest rate risk, which could
cause our debt service obligations to increase significantly.
  9




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The terms of our senior secured credit facility and the indenture relating to
our senior subordinated notes may restrict our current and future operations,
particularly our ability to respond to changes or to take certain actions that
may be in our long-term best interests.
  
    
    incur, assume or permit to exist additional indebtedness or guarantees;
    
    incur liens and engage in sale-leaseback transactions;
    
    make loans and investments;
    
    declare dividends, make payments on or redeem, repurchase or issue capital stock;
    
    engage in mergers, acquisitions and other business combinations;
    
    prepay, redeem, purchase or modify certain indebtedness;
    
    amend or otherwise alter terms of our material indebtedness and other material agreements;
    
    engage in transactions with affiliates;
    
    alter the business that we conduct (and, in the case of our direct parent, Spheris
Holding II, Inc. (Spheris Holding II), engage in any business activities other than
those incidental to its ownership of us or incur any additional liabilities);
    
    permit restrictions on the ability of our subsidiaries to pay dividends on their capital
stock, make loans or advances or to repay indebtedness, or transfer property to us or our
other subsidiaries; and
    
    sell or otherwise dispose of assets, including capital stock of subsidiaries.
   We may not be able to fulfill our repurchase obligations in the event of a
change of control which would result in a default under our senior secured
credit facility and the indenture governing the senior subordinated notes.
  10




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Risks Related to Our Business
 We have a history of losses and accumulated deficit and expect to incur losses in the future.
  Our ability to grow and service our customers depends on our ability to
effectively manage our global production capacity, including our ability to
recruit, train and retain qualified MLS and maintain high standards of quality
service in our operations, which we may not be able to do.
  Our success will depend on our ability to adapt and integrate new technology
into our clinical documentation platforms to improve our production
capabilities and expand the breadth of our technology and service offerings, as
well as our ability to address any potential unanticipated problems with our
information technology systems, which we may not be able to do quickly, or at
all.
  11




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We compete with many others in the market for clinical documentation technology
and services which may result in lower prices for our technology and services,
reduced operating margins and an inability to increase our market share and
expand our technology and service offerings.
   Potential customers may be reluctant to outsource or change the providers of
their clinical documentation technology and services as a result of the cost
and potential for disruption in services since clinical documentation is a
critical element of their operations.
  Our global operations expose us to financial and operational risk.
  
    
    the possibility of currency controls;
    
    currency fluctuations and devaluations;
    
    political, economic and social instability;
    
    potential restrictions on investments;
    
    hyper-inflation;
    
    changes of laws and regulations, including withholding and other tax laws and regulations; and
    
    the potential for expropriation or nationalization of enterprises.
  12




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Our inability to attract, hire or retain necessary technical and managerial
personnel could negatively impact our ability to develop and implement
technology and services to our customers.
  We may pursue future acquisitions which could require us to incur additional
debt and assume contingent liabilities and expenses, and we may not be able to
effectively integrate newly acquired operations.
   If our intellectual property is not adequately protected or if we are unable to
renew our intellectual property licenses, we may lose our market share to our
competitors and be unable to operate our business profitably.
  13




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If we fail to comply with extensive laws and government regulations applicable
to us and our customers and our contractual obligations, including those
relating to HIPAA and industry scrutiny of billing practices relating to the
counting of transcription lines, we could suffer material penalties and
liabilities or be negatively impacted as a result of our customers being
subject to material penalties and liabilities.
   Legislative changes and possible negative publicity may impede our ability to utilize our global service capabilities.
  Warburg Pincus controls us, and its interests may conflict with the interests of our security holders.
  14




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
   
 Item 4. Submission of Matters to a Vote of Security Holders
  15




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
   
 Item 6. Selected Financial Data
   Combined

    
    
    
    
    
    
    PredecessorNovember

    
    
    January 1,6, 2004
    
    
    2004Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    through
    
    
    through
    
    
    Year EndedDecember
    
    
    December
    
    
    December
    
    
    December
    
    
    December
    
    
    November 5,
    
    
    December 31,31,
2007
    
    
    31, 2006



31, 2005

    
    
    31, 2004
    
    
    31, 2004
    
    
    2004
    
    
    31, 2003(Amounts in Millions)Statement of Operations:Net revenues
    
    $
    200.4
    
    
    $
    207.1
    
    
    $
    209.0
    
    
    $
    152.7
    
    
    $
    23.9
    
    
    $
    128.8
    
    
    $
    90.0Direct costs of revenues
(exclusive of
depreciation and
amortization below)
    
    
    144.1
    
    
    
    152.1
    
    
    
    154.3
    
    
    
    113.8
    
    
    
    18.0
    
    
    
    95.8
    
    
    
    66.7Gross profit
    
    
    56.3
    
    
    
    55.0
    
    
    
    54.7
    
    
    
    38.9
    
    
    
    5.9
    
    
    
    33.0
    
    
    
    23.3Selling, general and
administrative expenses
    
    
    24.7
    
    
    
    24.4
    
    
    
    23.6
    
    
    
    18.8
    
    
    
    2.7
    
    
    
    16.1
    
    
    
    13.4Depreciation and
amortization
    
    
    24.3
    
    
    
    26.6
    
    
    
    26.6
    
    
    
    14.2
    
    
    
    3.4
    
    
    
    10.8
    
    
    
    9.0Operating income (loss)
    
    
    7.3
    
    
    
    4.1
    
    
    
    4.5
    
    
    
    5.8
    
    
    
    (0.2
    )
    
    
    6.1
    
    
    
    0.9Loss on refinance of debt
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    4.6
    
    
    
    0.3
    
    
    
    4.3
    
    
    
    Interest expense, net
    
    
    21.2
    
    
    
    21.1
    
    
    
    20.3
    
    
    
    4.6
    
    
    
    1.5
    
    
    
    3.1
    
    
    
    2.6Other (income) loss
    
    
    1.6
    
    
    
    (0.4
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss before income
taxes
    
    
    (17.3
    )
    
    
    (16.6
    )
    
    
    (15.4
    )
    
    
    (3.3
    )
    
    
    (2.0
    )
    
    
    (1.3
    )
    
    
    (1.7
    )Income taxes
    
    
    (5.9
    )
    
    
    (4.5
    )
    
    
    (5.1
    )
    
    
    (0.3
    )
    
    
    (0.8
    )
    
    
    0.5
    
    
    
    Net loss
    
    $
    (11.4
    )
    
    $
    (12.2
    )
    
    $
    (10.2
    )
    
    $
    (3.0
    )
    
    $
    (1.3
    )
    
    $
    (1.8
    )
    
    $
    (1.7
    )Balance Sheet
Data (end of period):Unrestricted cash and cash
equivalents
    
    $
    7.2
    
    
    $
    6.3
    
    
    $
    7.3
    
    
    $
    6.1
    
    
    
    
    
    
    
    
    
    
    $
    5.9Total assets
    
    
    300.1
    
    
    
    315.7
    
    
    
    320.3
    
    
    
    342.1
    
    
    
    
    
    
    
    
    
    
    
    78.7Total debt and capital
lease obligations
    
    
    195.0
    
    
    
    198.6
    
    
    
    199.6
    
    
    
    201.5
    
    
    
    
    
    
    
    
    
    
    
    49.8Total stockholders equity
    
    
    76.7
    
    
    
    86.6
    
    
    
    90.7
    
    
    
    100.6
    
    
    
    
    
    
    
    
    
    
    
    16.7
 16




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
 OVERVIEW
   
    
    the growing and aging populations need for more medical tests, treatments and
procedures that require documentation;
    
    the migration of record-keeping from paper to electronic format;
    
    the need for accurate documentation necessary to comply with increasingly stringent
regulations and reimbursement requirements;
    
    the desire of healthcare providers to maximize the amount of time spent on patient care,
while minimizing the physicians administrative duties; and
    
    the need for healthcare providers to have timely and accurate documentation in order to
improve receivables collection, manage costs and provide high quality care.
   
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  17




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Revenue Recognition
  Accounts Receivable and Allowance for Doubtful Accounts
  Goodwill, Intangibles and Other Long-Lived Assets
   Income Taxes
  18




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Stock-Based Compensation
   Self-Insurance
  
 RESULTS OF OPERATIONS
 Net Revenues and Expense Components
  Net Revenues.
 Direct Costs of Revenues.
 19




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Selling, General and Administrative Expenses.
 Depreciation and Amortization.
 Interest Expense.
 Executive Summary
    The Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
 Net Revenues.
 Direct Costs of Revenues.
 Selling, General and Administrative Expenses.
 20




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Depreciation and Amortization.
 Loss on Refinance of Debt.
 Interest Expense.
 Income Taxes.
 The Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005
 Net Revenues.
 Direct Costs of Revenues.
 Selling, General and Administrative Expenses.
 Depreciation and Amortization.
 Interest Expense.
 21




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Income Taxes.
 
 LIQUIDITY AND CAPITAL RESOUCES
       22




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CONTRACTUAL OBLIGATIONS
  Payments due by period(Amounts in Thousands)2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    TotalLong-term debt
obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    195,000
    
    
    $
    
    
    
    $
    195,000Capital lease obligations
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Operating leases
    
    
    2,755
    
    
    
    2,661
    
    
    
    2,719
    
    
    
    2,542
    
    
    
    2,635
    
    
    
    9,312
    
    
    
    22,624Purchase obligations
    
    
    2,806
    
    
    
    2,170
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,876Total
    
    $
    5,597
    
    
    $
    4,831
    
    
    $
    4,619
    
    
    $
    2,542
    
    
    $
    197,635
    
    
    $
    9,312
    
    
    $
    224,536
  
 OFF-BALANCE SHEET ARRANGEMENTS
  23




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RECENT ACCOUNTING PRONOUNCEMENTS
 SFAS No. 157 Measurements
 SFAS No. 159.
 SFAS No. 141(R).
 SFAS No. 160.
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
   24




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Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  
 Item 9A(T). Controls and Procedures
 Disclosure Controls.
 Managements Annual Report on Internal Control Over Financial Reporting
   Changes in Control Over Financial Reporting.
 Limitations on the Effectiveness of Controls
 25




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Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Name
    
    Age
    
    PositionSimpson, Steven E.
    
    
    48
    
    
    President and Chief Executive Officer; DirectorCallahan, Brian P.
    
    
    46
    
    
    Chief Financial OfficerJames, Anthony D.
    
    
    41
    
    
    Chief Operating OfficerStevens, Gregory T.
    
    
    43
    
    
    Chief Administrative Officer, General Counsel
and SecretaryWhorton, J. Alan
    
    
    49
    
    
    Senior Vice President, Sales and MarketingAckerman, Joel
    
    
    42
    
    
    Director (Independent), Compensation Committee
memberBilzin, Jonathan
    
    
    35
    
    
    Director (Independent), Audit and Compensation
Committee memberHensley, Robert Z.
    
    
    50
    
    
    Director (Independent), Audit Committee Chair
and Compensation Committee memberKane, John A.
    
    
    55
    
    
    Director (Independent), Audit and Nominating
and Corporate Governance Committee memberKing, Michael J.
    
    
    69
    
    
    Director (Independent as of January
2008), Nominating and
Corporate Governance Committee ChairMoszkowski, Neal
    
    
    42
    
    
    Director (Independent), Nominating and
Corporate Governance Committee memberSmith, Wayne T.
    
    
    62
    
    
    Director (Independent), Compensation Committee
Chair and Audit Committee memberTsai, Tenno
    
    
    33
    
    
    Director (Independent), Audit and Nominating
and Corporate Governance Committee member
 Steven E. Simpson
 Brian P. Callahan
 26




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Anthony D. James
 Gregory T. Stevens
 J. Alan Whorton
 Joel Ackerman
 Jonathan Bilzin
 Robert Z. Hensley
 John A. Kane
 Michael J. King
 27




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Neal Moszkowski
 Wayne T. Smith
 Tenno Tsai
 Audit Committee Financial Expert
  Code of Ethics
  Compensation Committee Matters
  28




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Item 11. Executive Compensation
 Compensation Discussion and Analysis
 Overview of Compensation Process .
   Compensation Philosophy.
 
    
    Performance-based: A significant component of compensation should be determined based on
whether or not the Company meets performance criteria that in the view of the Board of
Directors are indicative of the Companys success.
    
    Stockholder-aligned: Equity incentives should be used to align the interests of our
executive officers with those of our stockholders.
    
    Fair: Compensation should take into account compensation among similarly situated
companies, our success relative to peer companies and our overall Company pay scale.
  29




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Compensation
Programs for 2007 .
  Base Salary
 2007 Base
    
    2006 Base
    
    IncreaseName
    
    Title
    
    Salary
    
    Salary
    
    (%)Steven E. Simpson
    
    President and Chief Executive Officer
    
    $
    336,700
    
    
    $
    336,700
    
    
    
    0.00
    %Brian P. Callahan
    
    Chief Financial Officer
    
    $
    215,000
    
    
    $
    215,000
    
    
    
    0.00
    %Anthony D. James
    
    Chief Operating Officer
    
    $
    220,000
    
    
    $
    220,000
    
    
    
    0.00
    %Gregory T. Stevens
    
    Chief Administrative Officer, General
Counsel and Secretary
    
    $
    197,600
    
    
    $
    197,600
    
    
    
    0.00
    %J. Alan Whorton
    
    Senior Vice President, Sales and Marketing
    
    $
    175,000
    
    
    $
    175,000
    
    
    
    0.00
    %
 Performance-Based Cash Incentive Awards
  30




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Long-Term Stock-Based Incentive Compensation
  th
 Compensation of President and Chief Executive Officer
 31




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Compensation Programs for 2008 .
 Retirement Plans . .
 Severance and Change of Control Benefits .
 Severance Benefits.
  32




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Change in Control Benefits.
  Non-competition, Non-solicitation and Confidentiality Agreements.
 Perquisites and Other Benefits
 Accounting for Stock-Based Compensation.
 Compensation Committee Report
   COMPENSATION COMMITTEE
 
 33




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Summary Compensation Table
  Change inPension ValueandNon-Equity
    
    NonqualifiedStock
    
    Option
    
    Incentive Plan
    
    Deferred
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    CompensationPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    Earnings ($)
    
    ($)
    
    Total ($)(a)
    
    (b)
    
    (c)
    
    (d)(1)
    
    (e)(2)
    
    (f)(2)
    
    (g)
    
    (h)
    
    (i)(3)
    
    (j)Steven E. Simpson,
    
    
    2007
    
    
    $
    336,700
    
    
    $
    303,030
    
    
    $
    25,142
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,500
    
    
    $
    669,372President
and Chief Executive Officer
    
    
    2006
    
    
    
    334,450
    
    
    
    101,296
    
    
    
    21,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,200
    
    
    
    461,155Brian P. Callahan,
    
    
    2007
    
    
    $
    215,000
    
    
    $
    154,251
    
    
    $
    15,881
    
    
    $
    73,518
    
    
    
    
    
    
    
    
    
    
    $
    4,500
    
    
    $
    463,150Chief
Financial Officer
    
    
    2006
    
    
    
    136,442
    
    
    
    29,373
    
    
    
    
    
    
    
    49,012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    214,827Anthony D. James,
    
    
    2007
    
    
    $
    220,000
    
    
    $
    110,000
    
    
    $
    10,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,571
    
    
    $
    342,964Chief
Operating Officer
    
    
    2006
    
    
    
    220,000
    
    
    
    50,169
    
    
    
    8,729
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,192
    
    
    
    283,090Gregory T. Stevens,
    
    
    2007
    
    
    $
    197,600
    
    
    $
    98,800
    
    
    $
    9,659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,500
    
    
    $
    310,559Chief Administrative
Officer, General
Counsel and
Secretary
    
    
    2006
    
    
    
    196,139
    
    
    
    46,469
    
    
    
    7,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,169
    
    
    
    254,774J. Alan Whorton,
    
    
    2007
    
    
    $
    175,000
    
    
    $
    20,000
    
    
    $
    799
    
    
    $
    9,353
    
    
    
    
    
    
    
    
    
    
    $
    2,223
    
    
    $
    207,375Senior Vice President, Sales
and Marketing
    
    
    2006
    
    
    
    171,688
    
    
    
    41,018
    
    
    
    630
    
    
    
    4,396
    
    
    
    
    
    
    
    
    
    
    
    2,081
    
    
    
    219,813
 
 (1)
    
    Includes amounts executives earned in 2007 and 2006, respectively, under the executive cash
incentive programs, as well as amounts paid to all employees, including the Named Executive
Officers, receiving stock grants to assist such employees in satisfying their federal income
tax withholding requirements. Amounts earned under the 2007 and 2006 executive cash incentive
programs, respectively, were as follows: Steven E. Simpson ($303,030; $75,758); Brian P.
Callahan ($107,500; $29,373); Anthony D. James ($110,000; $37,400); Gregory T. Stevens
($98,800; $33,700); and J. Alan Whorton ($20,000; $39,375). Payments for tax withholdings in
connection with the restricted stock grant in fiscal 2007 were as follows: Brian P. Callahan
($46,751). Payments for tax withholdings in connection with restricted stock grants in fiscal
2006 were as follows: Steven E. Simpson ($25,538); Anthony D. James ($12,769); Gregory T.
Stevens ($12,769); and J. Alan Whorton ($1,643).(2)
    
    The amounts in the columns captioned Stock Awards and Option Awards reflect the dollar
amount recognized for financial statement reporting purposes for the fiscal years ended
December 31, 2007 and 2006, respectively, in accordance with SFAS No. 123(R) of awards granted
pursuant to the Stock Incentive Plan, and therefore may include amounts from awards granted in
prior years. All Stock Awards and Option Awards represent Spheris Holding III equity
issuances. For a description of the assumptions used by the Company in valuing these awards
for fiscal 2007 and 2006, see Note 1 to the Companys consolidated financial statements
included elsewhere in this Report. 34




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##### Table of Contents



(3)
    
    Amounts are comprised of the following: Company ContributionCompany Contribution
    
    to the DeferredName
    
    Year
    
    to 401(k) Plan ($)
    
    Compensation Plan ($)
    
    Total ($)Steven E. Simpson
    
    
    2007
    
    
    $
    2,182
    
    
    $
    2,318
    
    
    $
    4,5002006
    
    
    
    2,063
    
    
    
    2,137
    
    
    
    4,200Brian P. Callahan
    
    
    2007
    
    
    $
    4,500
    
    
    
    
    
    
    $
    4,5002006
    
    
    
    
    
    
    
    
    
    
    
    Anthony D. James
    
    
    2007
    
    
    $
    2,197
    
    
    $
    374
    
    
    $
    2,5712006
    
    
    
    2,094
    
    
    
    2,098
    
    
    
    4,192Gregory T. Stevens
    
    
    2007
    
    
    $
    4,500
    
    
    
    
    
    
    $
    4,5002006
    
    
    
    4,169
    
    
    
    
    
    
    
    4,169J. Alan Whorton
    
    
    2007
    
    
    $
    2,223
    
    
    
    
    
    
    $
    2,2232006
    
    
    
    2,081
    
    
    
    
    
    
    
    2,081
 Grants of Plan-Based Awards
  All OtherEstimated Future
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    All OtherPayouts Under Non-
    
    Estimated Future Payouts
    
    Awards:
    
    OptionEquity Incentive Plan
    
    Under Equity Incentive
    
    Number
    
    Awards:
    
    Exercise
    
    Grant DateAwards
    
    Plan Awards
    
    of Shares
    
    Number of
    
    or Base
    
    Fair ValueThresh-
    
    
    
    
    
    Maxi-
    
    Thresh-
    
    
    
    
    
    Maxi-
    
    of Stock
    
    Securities
    
    Price of Option
    
    of Stockold
    
    Target
    
    mum
    
    old
    
    Target
    
    mum
    
    or Units
    
    Underlying
    
    Awards
    
    and OptionName
    
    Grant Date
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    (#)
    
    (#)
    
    (#)
    
    Options (#)
    
    ($/Sh)
    
    Awards ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)(1)
    
    (j)
    
    (k)
    
    (l)(2)Steven E. Simpson,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President and Chief
Executive OfficerBrian P. Callahan,
    
    
    June 14, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    $
    130,000Chief Financial
OfficerAnthony D. James,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Operating
OfficerGregory T. Stevens,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief
Administrative
Officer, General
Counsel and
SecretaryJ. Alan Whorton,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Senior Vice
President, Sales
and Marketing
 
 (1)
    
    Represents shares of restricted stock of Spheris Holding III granted under the Stock
Incentive Plan. The restrictions on these shares lapse in one-fourth increments annually
beginning on the first anniversary of the date of grant.(2)
    
    The grant was valued at fair market value on the date of grant using third-party valuations,
computed in accordance with SFAS
No. 123(R). 
 35




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##### Table of Contents



Outstanding Equity Awards at Fiscal Year-End
  Option Awards
    
    Stock AwardsEquityIncentiveEquity
    
    PlanIncentive
    
    Awards:Plan
    
    Market orAwards:
    
    PayoutEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    Value ofIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    UnearnedNumber of
    
    Number of
    
    Plan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Shares,
    
    Shares,Securities
    
    Securities
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    Value of
    
    Units or
    
    Units orUnderlying
    
    Underlying
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Shares or
    
    Other
    
    OtherUnexercised
    
    Unexercised
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Units of
    
    Rights
    
    RightsOptions
    
    Options
    
    Unexercised
    
    Option
    
    Option
    
    Stock That
    
    Stock That
    
    That Have
    
    That HaveExercisable
    
    Unexercisable
    
    Unearned
    
    Exercise
    
    Expiration
    
    Have Not
    
    Have Not
    
    Not Vested
    
    Not VestedName
    
    (#)
    
    (#)
    
    Options (#)
    
    Price ($)
    
    Date
    
    Vested (#)
    
    Vested ($)
    
    (#)
    
    ($)(a)
    
    (b)
    
    (c)(1)
    
    (d)
    
    (e)
    
    (f)
    
    (g)(2)
    
    (h)(3)
    
    (i)
    
    (j)Steven E. Simpson,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,378,452
    
    
    $
    730,580
    
    
    
    
    
    
    
    President and Chief
Executive OfficerBrian P. Callahan,
    
    
    217,500
    
    
    
    652,500
    
    
    
    
    
    
    $
    0.36
    
    
    July 2, 2016
    
    
    250,000
    
    
    $
    132,500
    
    
    
    
    
    
    
    Chief Financial
OfficerAnthony D. James,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    451,860
    
    
    $
    239,486
    
    
    
    
    
    
    
    Chief Operating
OfficerGregory T. Stevens,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    372,738
    
    
    $
    197,551
    
    
    
    
    
    
    
    Chief
Administrative
Officer, General
Counsel and
SecretaryJ. Alan Whorton,
    
    
    75,000
    
    
    
    225,000
    
    
    
    
    
    
    $
    0.36
    
    
    July 2, 2016
    
    
    30,625
    
    
    $
    16,231
    
    
    
    
    
    
    
    Senior Vice
President, Sales
and Marketing
 
 (1)
    
    The options vest in one-fourth increments annually beginning on the first anniversary of the
date of grant.(2)
    
    Of the share amounts indicated, restricted stock grants for Mr. Simpson (1,265,952 shares),
Mr. James (395,600 shares) and Mr. Stevens (316,488 shares) vest monthly over a four-year
period. The remainder of the restricted stock grants indicated vest in one-fourth increments
annually beginning on the first anniversary of the date of grant.(3)
    
    These restricted stock grants were valued at fair market
value as of December 31, 2007 using
third-party valuations. 
 36




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##### Table of Contents



Option Exercises and Stock Vested
  Option Awards
    
    Stock AwardsNumber of
    
    
    
    
    
    Number ofShares
    
    
    
    
    
    Shares
    
    Value RealizedAcquired
    
    Value Realized
    
    Acquired
    
    on Vesting aton Exercise
    
    on Exercise
    
    on Vesting
    
    December 31,Name
    
    (#)
    
    ($)
    
    (#)
    
    2007 ($)(a)
    
    (b)
    
    (c)
    
    (d)(1)
    
    (e)(2)Steven E. Simpson,
    
    
    
    
    
    
    
    
    
    
    1,206,072
    
    
    $
    639,218President and Chief
Executive OfficerBrian P. Callahan,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Financial
OfficerAnthony D. James,
    
    
    
    
    
    
    
    
    
    
    383,929
    
    
    $
    203,482Chief Operating
OfficerGregory T. Stevens,
    
    
    
    
    
    
    
    
    
    
    310,893
    
    
    $
    164,773Chief
Administrative
Officer,
General
Counsel and
SecretaryJ. Alan Whorton,
    
    
    
    
    
    
    
    
    
    
    14,375
    
    
    $
    7,619Senior Vice
President, Sales
and Marketing
 
 (1)
    
    Represents shares of common stock of Spheris Holding III.(2)
    
    Reflects the dollar amount recognized for financial statement reporting purposes for
the fiscal year ended December 31, 2007, in accordance with SFAS No. 123(R). 
 37




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##### Table of Contents



Nonqualified Deferred Compensation
  Executive
    
    Registrant
    
    Aggregate
    
    Aggregate
    
    Aggregate BalanceContributions in
    
    Contributions in
    
    Earnings in
    
    Withdrawals/
    
    at December 31,2007
    
    2007 (1)
    
    2007
    
    Distributions
    
    2007Name
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)Steven E. Simpson,

President and Chief
Executive Officer
    
    $
    16,835
    
    
    $
    2,318
    
    
    $
    4,647
    
    
    
    
    
    
    $
    78,321Brian P. Callahan, 

Chief Financial
Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Anthony D. James, 
Chief Operating
Officer
    
    $
    748
    
    
    $
    374
    
    
    $
    394
    
    
    
    
    
    
    $
    19,454Gregory T. Stevens, 

Chief
Administrative
Officer, 
General
Counsel and
Secretary
    
    $
    9,880
    
    
    
    
    
    
    $
    3,108
    
    
    
    
    
    
    $
    42,691J. Alan Whorton, 

Senior Vice
President, Sales
and Marketing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    All amounts reported are also reported as compensation to such Named Executive Officer in the
Summary Compensation Table. 38




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##### Table of Contents



Potential Payments Upon Termination or Change In Control
  By Employee
    
    Disability orInvoluntary
    
    Change In
    
    for Good
    
    DeathExecutive Benefits and
    
    Voluntary
    
    Not for Cause
    
    Control on
    
    Reason on
    
    onPayments upon
    
    Termination on
    
    Termination on
    
    December 31,
    
    December 31,
    
    DecemberSeparation (1)
    
    December 31, 2007
    
    December 31, 007
    
    2007
    
    2007
    
    31, 2007Compensation:Steven E. Simpson,
    
    
    
    
    
    $
    526,094
    
    
    
    
    
    
    $
    526,094
    
    
    $
    189,394President and Chief
Executive OfficerBrian P. Callahan,
    
    
    
    
    
    $
    322,500
    
    
    
    
    
    
    $
    322,500
    
    
    $
    107,500Chief Financial
OfficerAnthony D. James,
    
    
    
    
    
    $
    293,700
    
    
    
    
    
    
    $
    293,700
    
    
    $
    73,700Chief Operating
OfficerGregory T. Stevens,
    
    
    
    
    
    $
    263,850
    
    
    
    
    
    
    $
    263,850
    
    
    $
    66,250Chief Administrative
Officer, 
General
Counsel and SecretaryJ. Alan Whorton,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Senior Vice
President, Sales and
MarketingBenefits &
Perquisites:Steven E. Simpson,
    
    
    
    
    
    $
    12,925
    (2)
    
    $
    730,580
    (3)
    
    $
    12,925
    (2)
    
    
    President and Chief
Executive OfficerBrian P. Callahan,
    
    
    
    
    
    $
    12,925
    (2)
    
    $
    132,500
    (3)
    
    $
    12,925
    (2)
    
    
    Chief Financial
OfficerAnthony D. James,
    
    
    
    
    
    $
    12,925
    (2)
    
    $
    239,486
    (3)
    
    $
    12,925
    (2)
    
    
    Chief Operating
OfficerGregory T. Stevens,
    
    
    
    
    
    $
    13,057
    (2)
    
    $
    197,551
    (3)
    
    $
    13,057
    (2)
    
    
    Chief Administrative
Officer, 
General Counsel and SecretaryJ. Alan Whorton,
    
    
    
    
    
    
    
    
    
    $
    16,231
    (3)
    
    
    
    
    
    
    Senior Vice
President, Sales and
Marketing
 
 (1)
    
    Does not include accrued obligations, including any unpaid annual bonus earned.(2)
    
    Represents reimbursement amount of COBRA premiums in excess of cost of health insurance
coverage for active employees for one year following the date of termination.(3)
    
    Represents the value of restricted stock grants that would vest upon a change in
control.  39




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##### Table of Contents



Director Compensation
  Annual Retainer.
 Meeting Fees.
 Committee Chairmen.
 Equity Incentives.
 Election. st
  Change inPensionValue andFees
    
    
    
    
    
    
    
    
    
    
    
    
    
    NonqualifiedEarned or
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    DeferredPaid in
    
    Stock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherCash
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)(a)
    
    (b)
    
    (c)(2)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)Steven E. Simpson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Joel Ackerman
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jonathan Bilzin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Robert Z. Hensley
    
    $
    51,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    51,000John A. Kane
    
    $
    34,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    34,500Michael J. King
    
    $
    33,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    33,500Neal Moszkowski
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Wayne T. Smith
    
    
    (1)    
    
    
    $
    60,915
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    60,915David J. Wenstrup
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Mr. Smith elected to receive 46,500 shares of Series A Convertible Stock of Spheris
Holding III in lieu of receiving the retainers and fees set forth above under the
compensation program for our outside directors.(2)
    
    The stock grant to Mr. Smith was valued at fair market value on the date of grant computed in accordance with SFAS No. 123(R). Due to an
administrative error, the annual grant to each of 40




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 Securities Authorized for Issuance Under Equity Compensation Plans
  Number of SecuritiesRemaining Availablefor Future IssuanceNumber of
    
    
    
    
    
    
    Under EquitySecurities to be
    
    
    
    
    
    
    Compensation PlansIssued Upon
    
    
    Weighted-average
    
    
    (excluding securitiesExercise of
    
    
    Exercise Price of
    
    
    reflected in columnOutstanding Options
    
    
    Outstanding Options
    
    
    (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    2,205,500
    
    
    $
    0.34
    
    
    
    1,033,291Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,205,000
    
    
    $
    0.34
    
    
    
    1,033,291
 Security Ownership of Certain Beneficial Owners and Management
    41




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##### Table of Contents



Common StockBeneficially Owned(On an as-Converted Basis)Name (1)
    
    Shares
    
    
    PercentageWarburg Pincus Private Equity VIII, L.P.(2)(3)
    
    
    163,976,909
    
    
    
    59.7
    %Spheris Investment LLC(4)
    
    
    163,451,344
    
    
    
    59.5
    %TowerBrook Investors L.P.(5)
    
    
    81,988,455
    
    
    
    29.8
    %Steven E. Simpson(6)
    
    
    12,283,077
    
    
    
    4.5
    %Brian P. Callahan(7)
    
    
    685,000
    
    
    
    *Anthony D. James(8)
    
    
    3,342,715
    
    
    
    1.2
    %Gregory T. Stevens(9)
    
    
    2,730,473
    
    
    
    1.0
    %J. Alan Whorton(10)
    
    
    132,500
    
    
    
    *Joel Ackerman(2)(11)
    
    
    163,976,909
    
    
    
    59.7
    %Jonathan Bilzin(5)(12)
    
    
    81,988,455
    
    
    
    29.8
    %Robert Z. Hensley(13)
    
    
    30,000
    
    
    
    *John A. Kane(14)
    
    
    30,000
    
    
    
    *Michael J. King(15)
    
    
    60,000
    
    
    
    *Neal Moszkowski(5)(12)
    
    
    81,988,455
    
    
    
    29.8
    %Wayne T. Smith(16)
    
    
    702,658
    
    
    
    *Tenno Tsai (2)(11)
    
    
    163,976,909
    
    
    
    59.7
    %All directors and executive officers as a group (13 persons)(17)
    
    
    265,961,787
    
    
    
    96.8
    %
 
 *
    
    Less than one percent.(1)
    
    Unless otherwise indicated, the address of each listed person is c/o Spheris Holding
III, Inc., 9009 Carothers Pkwy., Suite C-3, Franklin, TN 37067.(2)
    
    Address is 466 Lexington Avenue, New York, NY 10017-3147.(3)
    
    The holdings of Warburg Pincus Private Equity VIII, L.P. include the holdings of
Warburg Pincus Netherlands Private Equity VIII C.V.I and WP-WP VIII Investors L.P., which,
together, are referred to as (WP VIII). These holdings include approximately 163,976,909
shares of common stock issuable upon conversion of 69,360,660 shares of Series A
Convertible Preferred Stock, plus 10 shares of common stock held directly by WP VIII.
Warburg Pincus Partners LLC (WPP LLC) is the sole general partner of WP VIII, which holds
the securities of record, and Warburg Pincus LLC (WP LLC) manages each of WPP LLC and WP
VIII. Warburg Pincus & Co. (WP & Co.) is the sole managing member of WPP LLC. Charles R.
Kaye and Joseph P. Landy are each Managing General Partners of WP & Co. and Co-Presidents
and Managing Members of WP LLC. Each of WP & Co., WPP LLC, WP LLC, Mr. Kaye and Mr. Landy
disclaims beneficial ownership of the shares of common stock reported herein as
beneficially owned by WP VIII.(4)
    
    Includes approximately 163,451,344 shares of common stock issuable upon conversion of
69,141,455 shares of Series A Convertible Preferred Stock held by Spheris Investment LLC,
an entity formed by Warburg Pincus in connection with the November 2004 Recapitalization
(Spheris Investment). WP VIII is the managing member of Spheris Investment and, as such,
has voting and investment power over certain shares of Spheris Investment not directly
attributable to WP VIII. As a result, WP VIII, WP & Co., WPP LLC, WP LLC, Charles R. Kaye
and Joseph P. Landy may be deemed to be the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of all of the common stock of Spheris Holding III owned by
Spheris Investment, including the shares of common stock of Spheris Holding III not
directly attributable to WP VIII. Each of WP VIII, WP & Co., WPP LLC, WP LLC, Charles R.
Kaye and Joseph P. Landy disclaims beneficial ownership of all shares of common stock of
Spheris Holding III reported herein as beneficially owned by Spheris Investment which are
not directly attributable to WP VIII.(5)
    
    Includes 81,988,455 shares of common stock which are issuable upon conversion of
34,680,330 shares of Series A Convertible Preferred Stock. Address is 430 Park Avenue, New
York, NY 10022. TowerBrook Investors L.P. is a Delaware limited partnership. Its general
partner is TCP General Partner L.P., a Delaware limited partnership (TCP GP). An
investment committee of TCP GP exercises exclusive decision making authority with regard to
the acquisition and disposition of, and voting power with respect to, investments by
TowerBrook Investors L.P. TCP GPs general partner is TowerBrook Capital Partners LLC, a
Delaware limited liability company, whose controlling members are Neal Moszkowski and Ramez
Sousou, who in such capacity may be deemed to have shared voting and dispositive power over
securities held for the account of TowerBrook Investors L.P. Mr. Bilzin is a Senior
Managing Director of TowerBrook Capital Partners L.P. Each of Mr. Moszkowski, Mr. Sousou
and Mr. Bilzin disclaims beneficial ownership of such securities except to the extent of
any pecuniary interest therein. 42




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##### Table of Contents



(6)
    
    Includes 1,048,810 shares of restricted common stock for which the restrictions have
not lapsed. Mr. Simpson also holds 3,145,667 Class A Units of Spheris Investment,
representing an economic interest in approximately 7,458,791 shares of common stock
issuable upon conversion of the shares of Series A Convertible Preferred Stock held by
Spheris Investment.(7)
    
    Includes 250,000 shares of restricted common stock for which the restrictions have not
lapsed and 435,000 shares of common stock issuable upon the exercise of stock options that
are exercisable within 60 days of March 13, 2008.(8)
    
    Includes 341,815 shares of restricted common stock for which the restrictions have not
lapsed. Mr. James also holds 760,331 Class A Units of Spheris Investment, representing an
economic interest in approximately 1,807,001 shares of common stock issuable upon
conversion of the shares of Series A Convertible Preferred Stock held by Spheris
Investment.(9)
    
    Includes 280,952 shares of restricted common stock for which the restrictions have not
lapsed. Mr. Stevens also holds 625,643 Class A Units of Spheris Investment, representing an
economic interest in approximately 1,486,902 shares of common stock issuable upon
conversion of the shares of Series A Convertible Preferred Stock held by Spheris
Investment.(10)
    
    Includes 30,625 shares of restricted common stock for which the restrictions have not
lapsed and 75,000 shares of common stock issuable upon the exercise of stock options that
are exercisable within 60 days of March 13, 2008.(11)
    
    Represents shares that may be deemed to be beneficially owned by WP & Co. and WP LLC.
Mr. Ackerman is a general partner of WP & Co. and a managing director and member of WP LLC.
Mr. Tsai is a principal for the healthcare services portfolio of WP & Co. All shares
indicated as beneficially owned by Mr. Ackerman and Mr. Tsai are included because of their
affiliation with WP & Co. and WP LLC. Mr. Ackerman and Mr. Tsai disclaim beneficial
ownership of all shares which may be deemed to be beneficially owned by WP & Co. and WP
LLC.(12)
    
    Represents shares held by TowerBrook Investors L.P., as described in note (5).(13)
    
    Includes 22,500 shares of restricted common stock for which the restrictions have not
lapsed.(14)
    
    Includes 22,500 shares of restricted common stock for which the restrictions have not
lapsed.(15)
    
    Includes 12,500 shares of restricted common stock for which the restrictions have not
lapsed.(16)
    
    Includes 12,500 shares of restricted common stock for which the restrictions have not
lapsed. Mr. Smith also holds 200,000 Class A Units of Spheris Investment, representing an
economic interest in approximately 454,751 shares of common stock issuable upon conversion
of the shares of Series A Convertible Preferred Stock held by Spheris Investment. Also
includes 187,907 shares of common stock issuable upon conversion of 91,000 restricted
shares of Series A Convertible Preferred Stock.(17)
    
    Includes all shares which may be deemed to be beneficially owned (within the meaning of
Rule 13d-3 under the Exchange Act) by directors and executive officers. Also includes (i)
163,976,909 shares which Mr. Ackerman and Mr. Tsai may be deemed to beneficially own by
virtue of their affiliation with WP & Co. and WP LLC, and (ii) 81,988,455 shares which Mr.
Bilzin and Mr. Moszkowski may be deemed to beneficially own by virtue of their affiliation
with TowerBrook Investors L.P. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Tax Sharing Agreement
  43




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##### Table of Contents



Operating Agreement
    Stockholders Agreement
    44




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##### Table of Contents



Stockholders Registration Rights Agreement
  Director Independence
  Related Party Transactions
   
 Item 14. Principal Accountant Fees and Services
 Audit and Audit Related Fees
  2007
    
    
    2006Audit fees (1)
    
    $
    369,400
    
    
    $
    644,100Audit related fees (2)
    
    
    54,500
    
    
    
    59,800Tax fees (3)
    
    
    145,600
    
    
    
    137,300All other fees
    
    
    
    
    
    
    Total fees
    
    $
    569,500
    
    
    $
    841,200
 45




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##### Table of Contents



(1)
    
    Audit fees consisted of fees for professional services provided in connection
with the audit of our consolidated financial statements and review of our quarterly
financial statements and audit services provided in connection with other statutory or
regulatory filings, including our Registration Statement on Form S-4 filed during 2006.
Audit fees include some amounts in foreign currencies that have been translated to
U.S. dollars as of the date such fees were approved.(2)
    
    Audit related fees consisted principally of fees for certain due diligence
services and consultation on accounting matters.(3)
    
    Tax fees consisted of fees for tax consultation and tax compliance services. Pre-Approval of Audit and Non-Audit Fees
   
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
    PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    F-3Consolidated Statements of Operations for each of the three years in the period ended
December 31, 2007
    
    
    F-4Consolidated Statements of Stockholders Equity for each of the three years in the period ended
December 31, 2007
    
    
    F-5Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2007
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
   46




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##### Table of Contents



Exhibit 
       Number
    
    Description of Exhibits2.1
    
    Stock Purchase and Sale Agreement, dated as of April 10, 2003, as amended, by
and between IDX Systems Corporation and Spheris Inc. (formerly known as Total eMed,
Inc.).*2.2
    
    Securities Purchase Agreement, dated as of October 12, 2004, by and among
Spheris Holdings LLC and Spheris Holding, Inc.*2.3
    
    Agreement and Plan of Merger, dated as of September 20, 2004, by and among
HealthScribe, Inc., HSI Merger Sub, Inc. and Spheris Inc. (as successor in interest to
MTS Group Holdings, Inc.).*2.4
    
    Agreement and Plan of Merger, dated as of December 13, 2005, as amended, by and
among Spheris Holding III, Inc., Spheris Operations Inc., Spheris MergerSub, Inc.,
Vianeta Communications and the Principal Shareholders listed on the signatures pages
thereto.*3.1
    
    Certificate of Incorporation of Spheris Inc., as amended.*3.2
    
    Bylaws of Spheris Inc., as amended.*3.3
    
    Articles of Organization of Spheris Operations LLC, incorporated by reference
to the Companys Annual Report on Form 10-K for the year ended December 31, 2006.3.4
    
    Charter of Spheris Canada Inc., as amended.*3.5
    
    Bylaws of Spheris Canada Inc., as amended.*3.6
    
    Articles of Organization of Spheris Leasing LLC, as amended.*3.7
    
    Articles of Incorporation of Vianeta Communications, as amended.*3.8
    
    Bylaws of Vianeta Communications, as amended.*4.1
    
    Indenture dated as of December 22, 2004 by and among Spheris Inc., the
guarantors (as defined therein) and the Bank of New York as trustee, with form of 11%
Senior Subordinated Notes due 2012 attached.*4.2
    
    First Supplemental Indenture dated as of November 13, 2007, among Vianeta
Communications, Spheris Inc. and The Bank of New York, as trustee, incorporated by
reference to the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007.4.3
    
    Registration Rights Agreement, dated as of December 22, 2004, by and among
Spheris Inc., the guarantors listed in Schedule 1 thereto and J.P. Morgan Securities
Inc. and UBS Securities LLC.*4.4
    
    Financing Agreement, dated as of July 17, 2007, by and among Spheris Holding
II, Inc., Spheris Inc., Spheris Operations LLC, the guarantors (as defined therein),
the lenders (as defined therein), Ableco Finance LLC, as collateral agent, and Cratos
Capital Management, LLC, as administrative agent, incorporated by reference to the
Companys Current Report on Form 8-K filed on July 23, 2007.4.5
    
    Spheris, India Private Limited Line of Credit, dated October 7, 2005.*10.1
    
    Amended and Restated Spheris Holding III, Inc. Stock Incentive Plan,
incorporated by reference to the Companys Current Report on Form 8-K filed on June 27,
2007.^10.2
    
    Stockholders Agreement, dated as of November 5, 2004, as amended, by and among
Spheris Holding III, Inc. and the Warburg Investors (as defined therein), the
Towerbrook Investors (as defined therein) and Spheris Investment LLC.*^10.3
    
    Registration Rights Agreement, dated as of November 5, 2004, among the
investors listed on Schedule 1 thereto and Spheris Holding III, Inc.*^10.4
    
    Employment Agreement, dated as of October 12, 2004, by and between Spheris
Operations Inc. (as successor in interest to Spheris Holdings, Inc.) and Steven E.
Simpson.*^10.5
    
    Amended and Restated Employment Agreement, dated as of November 5, 2004, by and
between Spheris Operations Inc. and Anthony D. James.*^10.6
    
    Amended and Restated Employment Agreement, dated as of November 5, 2004, by and
between Spheris Operations Inc. and Gregory T. Stevens.*^10.7
    
    Employment Agreement, dated as of May 1, 2006, by and between Spheris
Operations Inc. and Brian Callahan.*^
 47




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##### Table of Contents



Exhibit 
       Number
    
    Description of Exhibits10.8
    
    Office Lease, dated as of June 13, 2006, by and between Ford Motor Land
Development Corporation and Spheris Operations Inc, incorporated by reference to the
Companys Current Report on Form 8-K filed on June 16, 2006.10.9
    
    Lease Agreement, dated as of March 22, 2004, as amended, by and between Duke
Realty Limited Partnership and Spheris Operations Inc.*10.10
    
    Lease Deed, dated as of May 6, 2005, by and between Ramananda Adigalar
Foundation and Spheris, India Private Limited.*10.11
    
    Deed of Lease, dated as of October 16, 2002, by and among Reddy Komala,
Akkauamma, Muniyamma, Rathnamma and Spheris, India Private Limited.*10.12
    
    Deed of Lease, dated as of April 27, 2003, by and between Willowbrook
Holdings, Inc. and Spheris Operations Inc. (as successor in interest to HealthScribe,
Inc.).*10.13
    
    Lease Deed, dated as of July 5, 2007, by and between VITP Private Limited and
Spheris, India Private Limited.10.14
    
    Executive and Director Compensation.^10.15
    
    Spheris Operations Amended and Restated Deferred Compensation Plan.*^10.16
    
    Spheris Operations 401(k) Plan, as amended.*^10.17
    
    Tax Sharing Agreement dated November 5, 2004, by and among Spheris Holding
III, Inc., Spheris Holding II, Inc., Spheris Inc., and direct and indirect subsidiaries
of Spheris Holding III, Inc. set forth on a schedule.*10.18
    
    Services Agreement, effective January 1, 2005, by and between Spheris
Operations Inc. (predecessor of Spheris Operations LLC) and HealthScribe (India) Private Limited (predecessor of Spheris, India
Private Limited).10.19
    
    Services Agreement, effective June 1, 2005, by and between Spheris Operations
Inc. (predecessor of Spheris Operations LLC) and HealthScribe (India) Private Limited (predecessor of Spheris, India Private
Limited).10.20
    
    Services Agreement, effective
January 1, 2008, by and between Spheris Operations LLC and Spheris,
India Private Limited.10.21
    
    Form of Indemnification Agreement for Directors and Executive Officers,
incorporated by reference to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006.^10.22
    
    Form of Restricted Stock Agreement under Spheris Holding III, Inc. Stock
Incentive Plan, incorporated by reference to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2006.^10.23
    
    Form of Non-Qualified Stock Option Agreement under Spheris Holding III, Inc.
Stock Incentive Plan, incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2006.^21
    
    Subsidiaries of Spheris Inc.31.1
    
    Certification of the Companys Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Companys Chief Financial Officer pursuant to Securities
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certification of the Companys Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference to the Companys Registration Statement on Form S-4, as amended
(File No. 333-132641).^
    
    Management contract or compensatory plan arrangement. 48




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##### Table of Contents



SIGNATURES
  SPHERIS INC.Date: March 31, 2008
    By:
    /s/ Steven E. SimpsonSteven E. SimpsonPresident and Chief Executive OfficerBy:
    /s/ Brian P. CallahanBrian P. CallahanChief Financial Officer  Signature
    
    Title
    
    Date/s/ STEVEN E. SIMPSON

Steven E. Simpson
    
    President and Chief Executive Officer; Director

  (Principal Executive Officer)
    
    March 31, 2008/s/ BRIAN P. CALLAHAN

Brian P. Callahan
    
    Chief Financial Officer (Principal Financial and 

  Accounting Officer)
    
    March 31, 2008/s/ JOEL ACKERMAN

Joel Ackerman
    
    Director
    
    March 31, 2008/s/ JONATHAN BILZIN

Jonathan Bilzin
    
    Director
    
    March 31, 2008/s/ ROBERT Z. HENSLEY

Robert Z. Hensley
    
    Director
    
    March 31, 2008/s/ JOHN A. KANE

John A. Kane
    
    Director
    
    March 31, 2008/s/ MICHAEL J. KING

Michael J. King
    
    Director
    
    March 31, 2008/s/ NEAL MOSZKOWSKI

Neal Moszkowski
    
    Director
    
    March 31, 2008/s/ WAYNE T. SMITH

Wayne T. Smith
    
    Director
    
    March 31, 2008/s/ TENNO TSAI

Tenno Tsai
    
    Director
    
    March 31, 2008
 49




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##### Table of Contents



SPHERIS INC.
 FINANCIAL INFORMATION
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport
of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated
Balance Sheets as of December 31, 2007 and 2006
    
    
    F-3Consolidated Statements of Operations for each of the three years in the period ended December 31, 2007
    
    
    F-4Consolidated Statements of Stockholders Equity for each of the three years in the period ended December 31, 2007
    
    
    F-5Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2007
    
    
    F-6Notes
to Consolidated Financial Statements
    
    
    F-7
 F-1




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Report of Independent Registered Public Accounting Firm
 
     
 F-2




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##### Table of Contents



Spheris Inc.
 
 Consolidated Balance Sheets
 December 31,2007
    
    
    2006(Amounts in Thousands, Except Share Amounts)AssetsCurrent assetsUnrestricted cash and cash equivalents
    
    $
    7,195
    
    
    $
    6,323Restricted cash
    
    
    309
    
    
    
    529Accounts receivable, net of allowance of $1,569 and $1,191,
respectively
    
    
    33,595
    
    
    
    33,576Deferred taxes
    
    
    3,386
    
    
    
    2,775Prepaid expenses and other current assets
    
    
    4,460
    
    
    
    3,463Total current assets
    
    
    48,945
    
    
    
    46,666Property and equipment, net
    
    
    12,747
    
    
    
    12,435Internal-use software, net
    
    
    1,932
    
    
    
    3,679Customer contracts, net
    
    
    13,968
    
    
    
    29,943Goodwill
    
    
    218,841
    
    
    
    219,311Other noncurrent assets
    
    
    3,689
    
    
    
    3,714Total assets
    
    $
    300,122
    
    
    $
    315,748Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    4,237
    
    
    $
    2,520Accrued wages and benefits
    
    
    18,130
    
    
    
    17,066Current portion of long-term debt and capital lease obligations
    
    
    35
    
    
    
    809Other current liabilities
    
    
    4,324
    
    
    
    5,838Total current liabilities
    
    
    26,726
    
    
    
    26,233Long-term debt and capital lease obligations, net of current
portion
    
    
    191,761
    
    
    
    193,942Deferred tax liabilities
    
    
    92
    
    
    
    6,180Other long-term liabilities
    
    
    4,857
    
    
    
    2,755Total liabilities
    
    
    223,436
    
    
    
    229,110Commitments and contingenciesCommon stock, $0.01 par value, 100 shares authorized, 10 shares
issued and outstanding
    
    
    
    
    
    
    Other comprehensive income (loss)
    
    
    564
    
    
    
    (474
    )Contributed capital
    
    
    111,158
    
    
    
    110,787Accumulated deficit
    
    
    (35,036
    )
    
    
    (23,675
    )Total stockholders equity
    
    
    76,686
    
    
    
    86,638Total liabilities and stockholders equity
    
    $
    300,122
    
    
    $
    315,748
  F-3




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Spheris Inc.
 
 Consolidated Statements of Operations
 Year ended December 31,2007
    
    2006
    
    2005(Amounts in Thousands)Net revenues
    
    $
    200,392
    
    
    $
    207,141
    
    
    $
    209,032Direct costs of revenues
(exclusive of depreciation and
amortization below)
    
    
    144,094
    
    
    
    152,120
    
    
    
    154,274Marketing and selling expenses
    
    
    4,781
    
    
    
    5,392
    
    
    
    5,265General and administrative expenses
    
    
    19,892
    
    
    
    18,974
    
    
    
    18,337Depreciation and amortization
    
    
    24,273
    
    
    
    26,553
    
    
    
    26,642Total operating costs
    
    
    193,040
    
    
    
    203,039
    
    
    
    204,518Operating income
    
    
    7,352
    
    
    
    4,102
    
    
    
    4,514Loss on refinance of debt
    
    
    1,828
    
    
    
    
    
    
    
    Interest expense, net
    
    
    21,171
    
    
    
    21,136
    
    
    
    20,307Foreign currency loss (gain)
    
    
    559
    
    
    
    (213
    )
    
    
    (287
    )Other expense (income)
    
    
    1,011
    
    
    
    (188
    )
    
    
    (140
    )Net loss before income taxes
    
    
    (17,217
    )
    
    
    (16,633
    )
    
    
    (15,366
    )Benefit from income taxes
    
    
    (5,856
    )
    
    
    (4,483
    )
    
    
    (5,126
    )Net loss
    
    $
    (11,361
    )
    
    $
    (12,150
    )
    
    $
    (10,240
    )
  F-4




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##### Table of Contents



Spheris Inc.
 
 Consolidated Statements of Stockholders Equity
 Other
    
    
    
    
    
    TotalCommon Stock
    
    Contributed
    
    Comprehensive
    
    Accumulated
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Income (Loss)
    
    Deficit
    
    Equity(Amounts in Thousands, Except Share Amounts)Balance, December 31, 2004
    
    
    10
    
    
    $
    
    
    
    $
    101,885
    
    
    $
    22
    
    
    $
    (1,285
    )
    
    $
    100,622Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,240
    )
    
    
    (10,240
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    (111
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    (10,240
    )
    
    
    (10,351
    )Non-cash equity compensation
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Capital contributions
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    350Balance, December 31, 2005
    
    
    10
    
    
    $
    
    
    
    $
    102,301
    
    
    $
    (89
    )
    
    $
    (11,525
    )
    
    $
    90,687Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,150
    )
    
    
    (12,150
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (385
    )
    
    
    
    
    
    
    (385
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (385
    )
    
    
    (12,150
    )
    
    
    (12,535
    )Non-cash equity compensation
    
    
    
    
    
    
    
    
    
    
    291
    
    
    
    
    
    
    
    
    
    
    
    291Capital contributions from
parent investors
    
    
    
    
    
    
    
    
    
    
    8,195
    
    
    
    
    
    
    
    
    
    
    
    8,195Balance, December 31, 2006
    
    
    10
    
    
    $
    
    
    
    $
    110,787
    
    
    $
    (474
    )
    
    $
    (23,675
    )
    
    $
    86,638Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,361
    )
    
    
    (11,361
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,038
    
    
    
    
    
    
    
    1,038Total comprehensive income
(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,038
    
    
    
    (11,361
    )
    
    
    (10,323
    )Non-cash equity compensation
    
    
    
    
    
    
    
    
    
    
    371
    
    
    
    
    
    
    
    
    
    
    
    371Balance, December 31, 2007
    
    
    10
    
    
    $
    
    
    
    $
    111,158
    
    
    $
    564
    
    
    $
    (35,036
    )
    
    $
    76,686
  F-5




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##### Table of Contents



Spheris Inc.
 
 Consolidated Statements of Cash Flows
 Year Ended December 31,2007
    
    2006
    
    2005(Amounts in Thousands)Cash flows from operating activities:Net loss
    
    $
    (11,361
    )
    
    $
    (12,150
    )
    
    $
    (10,240
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    24,273
    
    
    
    26,553
    
    
    
    26,642Write-off and amortization of acquired technology
    
    
    648
    
    
    
    736
    
    
    
    Deferred taxes
    
    
    (6,435
    )
    
    
    (5,489
    )
    
    
    (5,633
    )Change in fair value of derivative financial instruments
    
    
    1,112
    
    
    
    (202
    )
    
    
    (4
    )Loss on sale or disposal of assets
    
    
    37
    
    
    
    23
    
    
    
    25Non-cash equity compensation
    
    
    371
    
    
    
    291
    
    
    
    66Amortization of debt discounts and issuance costs
    
    
    833
    
    
    
    756
    
    
    
    721Loss on debt refinancing
    
    
    1,828
    
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of
acquisitions:Accounts receivable
    
    
    (19
    )
    
    
    (1,951
    )
    
    
    (1,107
    )Prepaid expenses and other current assets
    
    
    (476
    )
    
    
    (264
    )
    
    
    (633
    )Accounts payable
    
    
    1,717
    
    
    
    (678
    )
    
    
    324Accrued wages and benefits
    
    
    1,556
    
    
    
    2,908
    
    
    
    1,418Other current liabilities
    
    
    (57
    )
    
    
    (1,323
    )
    
    
    (2,811
    )Other noncurrent assets and liabilities
    
    
    (417
    )
    
    
    (1,434
    )
    
    
    573Net cash provided by operating activities
    
    
    13,610
    
    
    
    7,776
    
    
    
    9,341Cash flows from investing activities:Purchases of property and equipment
    
    
    (5,699
    )
    
    
    (5,876
    )
    
    
    (5,038
    )Purchase and development of internal-use software
    
    
    (1,201
    )
    
    
    (1,309
    )
    
    
    (1,071
    )Purchase of Vianeta, net of cash acquired
    
    
    (1,547
    )
    
    
    (7,788
    )
    
    
    Net cash used in investing activities
    
    
    (8,447
    )
    
    
    (14,973
    )
    
    
    (6,109
    )Cash flows from financing activities:Proceeds from the 2007 Senior Credit Facility
    
    
    71,320
    
    
    
    
    
    
    
    Payments on the 2007 Senior Credit Facility
    
    
    (2,507
    )
    
    
    
    
    
    
    Payments on the 2004 Senior Facility
    
    
    (73,500
    )
    
    
    (750
    )
    
    
    (750
    )Payments on capital leases
    
    
    (59
    )
    
    
    (232
    )
    
    
    (212
    )Payments on other debt
    
    
    
    
    
    
    
    
    
    
    (884
    )Debt issuance costs
    
    
    (583
    )
    
    
    (452
    )
    
    
    (337
    )Capital contributions from Parent Investors
    
    
    
    
    
    
    8,000
    
    
    
    350Net cash (used in) provided by financing activities
    
    
    (5,329
    )
    
    
    6,566
    
    
    
    (1,833
    )Effect of exchange rate change on cash and cash equivalents
    
    
    1,038
    
    
    
    (385
    )
    
    
    (111
    )Net increase (decrease) in unrestricted cash and cash equivalents
    
    
    872
    
    
    
    (1,016
    )
    
    
    1,288Unrestricted cash and cash equivalents, at beginning of period
    
    
    6,323
    
    
    
    7,339
    
    
    
    6,051Unrestricted cash and cash equivalents, at end of period
    
    $
    7,195
    
    
    $
    6,323
    
    
    $
    7,339Supplemental cash flow information:Cash paid for interest
    
    $
    20,432
    
    
    $
    22,301
    
    
    $
    18,473Cash paid for taxes
    
    $
    1,312
    
    
    $
    654
    
    
    $
    619Supplemental schedule of non-cash transactions:Non-cash capital contributions
    
    $
    
    
    
    $
    195
    
    
    $
    Leasehold improvements and equipment funded through tenant incentive
allowances
    
    $
    
    
    
    $
    2,106
    
    
    $
    Vianeta post-acquisition contingencies
    
    $
    
    
    
    $
    1,911
    
    
    $
    
  F-6




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##### Table of Contents



Spheris Inc.
 
 Notes to Consolidated Financial Statements
December 31, 2007
 1. Description of Business and Summary of Significant Accounting Policies
 Organization and Operations
   Reporting Unit and Principles of Consolidation
  Revenue Recognition
  Cash and Cash Equivalents
  F-7




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 Restricted Cash
  Accounts Receivable and Allowance for Doubtful Accounts
   Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    1,191
    
    
    $
    929
    
    
    $
    1,356Additions charged to costs and expense
    
    
    476
    
    
    
    410
    
    
    
    725Additions resulting from acquisitions
    
    
    
    
    
    
    150
    
    
    
    Write-offs and adjustments, net of recoveries
    
    
    (98
    )
    
    
    (298
    )
    
    
    (1,152
    )Balance at end of period
    
    $
    1,569
    
    
    $
    1,191
    
    
    $
    929
 Concentration of Credit Risk
  Property and Equipment
  Software Costs
   F-8




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
  Goodwill, Intangibles and Other Long-lived Assets
   Income Taxes
   Advertising Costs
  Fair Value of Financial Instruments
  F-9




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 Stock-Based Compensation
   Self-Insurance
  Comprehensive Income and Foreign Currency Translation
   Derivatives and Financial Instruments
   F-10




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
   Use of Estimates
  Recent Accounting Pronouncements
 SFAS No. 157.
 SFAS No. 159.
 SFAS No. 141(R).
 F-11




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
  SFAS No. 160.
 2. Vianeta Acquisition
     3. Prepaid expenses and other current assets
  2007
    
    
    2006Prepaid expenses
    
    $
    1,437
    
    
    $
    1,702Income taxes receivable
    
    
    781
    
    
    
    127Due from affiliate
    
    
    251
    
    
    
    114Receivable from HealthScribe escrow fund
    
    
    1,090
    
    
    
    Other
    
    
    901
    
    
    
    1,520Total prepaid expenses and other current assets
    
    $
    4,460
    
    
    $
    3,463
 F-12




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 4. Property and Equipment, Net
  2007
    
    
    2006Furniture and equipment
    
    $
    2,030
    
    
    $
    1,522Leasehold improvements
    
    
    4,846
    
    
    
    4,576Computer equipment and software
    
    
    22,066
    
    
    
    17,52628,942
    
    
    
    23,624Less accumulated depreciation and amortization
    
    
    (16,195
    )
    
    
    (11,189
    )Property and equipment,
net
    
    $
    12,747
    
    
    $
    12,435
   5. Internal-Use Software, Net of Amortization
  2007
    
    
    2006Software under development
    
    $
    690
    
    
    $
    621Software placed in service
    
    
    15,573
    
    
    
    14,44116,263
    
    
    
    15,062Less accumulated amortization
    
    
    (14,331
    )
    
    
    (11,383
    )Internal-use software, net
    
    $
    1,932
    
    
    $
    3,679
   F-13




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 6. Customer Contracts
   December 31, 2007
    
    December 31, 2006Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationCustomer contracts
    
    $
    63,864
    
    
    $
    (49,896
    )
    
    $
    63,864
    
    
    $
    (33,921
    )
  7. Other Noncurrent Assets
  2007
    
    
    2006Debt issuance costs
    
    $
    2,660
    
    
    $
    2,607Less: accumulated amortization
    
    
    (696
    )
    
    
    (392
    )Debt issuance costs, net
    
    
    1,964
    
    
    
    2,215Cash surrender value of key man life insurance policies
    
    
    546
    
    
    
    557Security deposits
    
    
    900
    
    
    
    578Other
    
    
    279
    
    
    
    364Total other noncurrent assets
    
    $
    3,689
    
    
    $
    3,714
  8. Other Current Liabilities
  2007
    
    
    2006Accrued Vianeta acquisition liabilities
    
    $
    234
    
    
    $
    1,954Income taxes payable
    
    
    
    
    
    
    635Accrued interest
    
    
    799
    
    
    
    611Short-term deferred revenue
    
    
    221
    
    
    
    480Accrued fees for professional services
    
    
    381
    
    
    
    435Accrued group purchasing organization fees
    
    
    468
    
    
    
    400Reserve for sales adjustments
    
    
    1,173
    
    
    
    394Other
    
    
    1,048
    
    
    
    929Total other current liabilities
    
    $
    4,324
    
    
    $
    5,838
 F-14




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 9. Debt
  December 31, 2007
    
    
    December 31, 20062007 Senior Credit
Facility, net of
discount, with principal
due at maturity on July
17, 2012; interest
payable periodically at
variable rates. The
weighted average interest
rate was 8.2% at
December 31, 2007
    
    $
    68,883
    
    
    $
    2004 Senior Facility, net
of discount, with fixed
quarterly principal
payments and unpaid
balance due November
2010; interest payable
periodically at variable
rates. The interest rate
was 9.9% at December 31,
2006
    
    
    
    
    
    
    72,07311.0% Senior Subordinated
Notes, net of discount,
with principal due at
maturity in December
2012; interest payable
semi-annually in June and
December
    
    
    122,878
    
    
    
    122,584Capital lease obligations
    
    
    35
    
    
    
    94191,796
    
    
    
    194,751Less: Current portion of
long-term debt and
capital
lease obligations
    
    
    (35
    )
    
    
    (809
    )Long-term
debt and capital lease
obligations, net of
current portion
    
    $
    191,761
    
    
    $
    193,942
 2007 Senior Credit Facility
    F-15




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
  2004 Senior Facility
   Senior Subordinated Notes
      2012
    
    $
    195,000Total
    
    $
    195,000
 F-16




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 10. Contractual Obligations
  Operating
    
    
    
    
    
    
    PurchaseLeases
    
    
    Capital Leases
    
    
    Obligations2008
    
    $
    2,755
    
    
    $
    36
    
    
    $
    2,8062009
    
    
    2,661
    
    
    
    
    
    
    
    2,1702010
    
    
    2,719
    
    
    
    
    
    
    
    1,9002011
    
    
    2,542
    
    
    
    
    
    
    
    2012
    
    
    2,635
    
    
    
    
    
    
    
    Thereafter
    
    
    9,312
    
    
    
    
    
    
    
    Total minimum lease payments
    
    $
    22,624
    
    
    $
    36
    
    
    $
    6,876
    11. Stockholders Equity
  F-17




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 12. Income Taxes
  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    17
    
    
    $
    93
    
    
    $
    23State
    
    
    226
    
    
    
    512
    
    
    
    498Foreign
    
    
    59
    
    
    
    403
    
    
    
    Total current provision
    
    
    302
    
    
    
    1,008
    
    
    
    521Deferred:Federal
    
    
    (6,680
    )
    
    
    (4,256
    )
    
    
    (5,303
    )State
    
    
    384
    
    
    
    (971
    )
    
    
    (312
    )Foreign
    
    
    138
    
    
    
    (264
    )
    
    
    (32
    )Total deferred benefit
    
    
    (6,158
    )
    
    
    (5,491
    )
    
    
    (5,647
    )Total benefit for income taxes
    
    $
    (5,856
    )
    
    $
    (4,483
    )
    
    $
    (5,126
    )
  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Federal tax at statutory rate
    
    $
    (5,854
    )
    
    $
    (5,674
    )
    
    $
    (5,224
    )State income taxes
    
    
    (90
    )
    
    
    (641
    )
    
    
    (608
    )Permanent differences
    
    
    285
    
    
    
    82
    
    
    
    763Foreign tax / tax holiday
    
    
    (18
    )
    
    
    349
    
    
    
    (685
    )Increase in valuation allowance
    
    
    47
    
    
    
    1,424
    
    
    
    662Tax credits
    
    
    (219
    )
    
    
    (93
    )
    
    
    Other
    
    
    (7
    )
    
    
    70
    
    
    
    (34
    )Total benefit for income taxes
    
    $
    (5,856
    )
    
    $
    (4,483
    )
    
    $
    (5,126
    )
 F-18




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
  2007
    
    
    2006Deferred tax assets:Allowance for doubtful accounts
    
    $
    599
    
    
    $
    455Accrued liabilities
    
    
    3,008
    
    
    
    2,660Depreciation
    
    
    625
    
    
    
    868Net operating losses  federal
    
    
    33,875
    
    
    
    33,890Net operating losses  state
    
    
    2,781
    
    
    
    3,357Net operating losses  foreign
    
    
    
    
    
    
    410Tax credits
    
    
    599
    
    
    
    380Amortization expense  goodwill and start-up costs
    
    
    539
    
    
    
    939Other
    
    
    1,239
    
    
    
    574Total deferred tax assets
    
    
    43,265
    
    
    
    43,533Valuation allowance
    
    
    (34,212
    )
    
    
    (34,706
    )Net deferred tax assets
    
    
    9,053
    
    
    
    8,827Deferred tax liabilities:Amortization expense -customer list and technology
    
    
    (4,468
    )
    
    
    (11,330
    )Other
    
    
    (1,291
    )
    
    
    (902
    )Total deferred tax liabilities
    
    
    (5,759
    )
    
    
    (12,232
    )Net deferred tax liabilities
    
    $
    3,294
    
    
    $
    (3,405
    )
  2007
    
    
    2006Deferred taxes (current assets)
    
    $
    3,386
    
    
    $
    2,775Deferred tax liabilities (long-term liabilities)
    
    
    (92
    )
    
    
    (6,180
    )Net deferred tax liabilities
    
    $
    3,294
    
    
    $
    (3,405
    )
    F-19




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
     13. Employee Benefit Plans
   F-20




---



##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 14. Commitments and Contingencies
 Litigation
   Employment Agreements
  Tax Assessment
    F-21




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##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 15. Information Concerning Guarantor and Non-Guarantor Subsidiaries
   Consolidating Balance Sheet
(Amounts in Thousands)
 December 31, 2007Issuer
    
    
    
    
    
    
    Non-(Spheris)
    
    
    Guarantors
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assetsUnrestricted cash and cash equivalents
    
    $
    5
    
    
    $
    4,967
    
    
    $
    2,223
    
    
    $
    
    
    
    $
    7,195Restricted cash
    
    
    
    
    
    
    309
    
    
    
    
    
    
    
    
    
    
    
    309Accounts receivable, net of allowance
    
    
    
    
    
    
    33,595
    
    
    
    
    
    
    
    
    
    
    
    33,595Intercompany receivables
    
    
    66,500
    
    
    
    119,394
    
    
    
    7,303
    
    
    
    (193,197
    )
    
    
    Deferred taxes
    
    
    
    
    
    
    3,386
    
    
    
    
    
    
    
    
    
    
    
    3,386Prepaid expenses and other current assets
    
    
    
    
    
    
    2,467
    
    
    
    1,993
    
    
    
    
    
    
    
    4,460Total current assets
    
    
    66,505
    
    
    
    164,118
    
    
    
    11,519
    
    
    
    (193,197
    )
    
    
    48,945Property and equipment, net
    
    
    
    
    
    
    10,536
    
    
    
    2,211
    
    
    
    
    
    
    
    12,747Internal-use software, net
    
    
    
    
    
    
    1,932
    
    
    
    
    
    
    
    
    
    
    
    1,932Customer contracts, net
    
    
    
    
    
    
    13,968
    
    
    
    
    
    
    
    
    
    
    
    13,968Goodwill
    
    
    
    
    
    
    218,841
    
    
    
    
    
    
    
    
    
    
    
    218,841Investment in subsidiaries
    
    
    305,285
    
    
    
    
    
    
    
    
    
    
    
    (305,285
    )
    
    
    Other noncurrent assets
    
    
    1,412
    
    
    
    1,528
    
    
    
    749
    
    
    
    
    
    
    
    3,689Total assets
    
    $
    373,202
    
    
    $
    410,923
    
    
    $
    14,479
    
    
    $
    (498,482
    )
    
    $
    300,122Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    
    
    
    $
    3,858
    
    
    $
    379
    
    
    $
    
    
    
    $
    4,237Accrued wages and benefits
    
    
    
    
    
    
    14,082
    
    
    
    4,048
    
    
    
    
    
    
    
    18,130Intercompany payables
    
    
    119,394
    
    
    
    73,803
    
    
    
    
    
    
    
    (193,197
    )
    
    
    Current portion of long-term debt and capital lease
obligations
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Other current liabilities
    
    
    573
    
    
    
    3,614
    
    
    
    137
    
    
    
    
    
    
    
    4,324Total current liabilities
    
    
    119,967
    
    
    
    95,392
    
    
    
    4,564
    
    
    
    (193,197
    )
    
    
    26,726Long-term debt and capital lease obligations, net of
current portion
    
    
    122,878
    
    
    
    68,883
    
    
    
    
    
    
    
    
    
    
    
    191,761Deferred tax liabilities
    
    
    
    
    
    
    678
    
    
    
    (586
    )
    
    
    
    
    
    
    92Other long-term liabilities
    
    
    
    
    
    
    4,801
    
    
    
    56
    
    
    
    
    
    
    
    4,857Total liabilities
    
    
    242,845
    
    
    
    169,754
    
    
    
    4,034
    
    
    
    (193,197
    )
    
    
    223,436Stockholders equity
    
    
    130,357
    
    
    
    241,169
    
    
    
    10,445
    
    
    
    (305,285
    )
    
    
    76,686Total stockholders equity
    
    
    130,357
    
    
    
    241,169
    
    
    
    10,445
    
    
    
    (305,285
    )
    
    
    76,686Total liabilities and stockholders equity
    
    $
    373,202
    
    
    $
    410,923
    
    
    $
    14,479
    
    
    $
    (498,482
    )
    
    $
    300,122
 F-22




---



##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 Consolidating Balance Sheet
 (Amounts in Thousands)
 December 31, 2006Issuer
    
    
    
    
    
    
    Non-(Spheris)
    
    
    Guarantors
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assetsUnrestricted cash and cash equivalents
    
    $
    4
    
    
    $
    4,918
    
    
    $
    1,401
    
    
    $
    
    
    
    $
    6,323Restricted cash
    
    
    
    
    
    
    529
    
    
    
    
    
    
    
    
    
    
    
    529Accounts receivable, net of allowance
    
    
    
    
    
    
    33,576
    
    
    
    
    
    
    
    
    
    
    
    33,576Intercompany receivables
    
    
    72,371
    
    
    
    45,079
    
    
    
    6,968
    
    
    
    (124,418
    )
    
    
    Deferred taxes
    
    
    
    
    
    
    2,775
    
    
    
    
    
    
    
    
    
    
    
    2,775Prepaid expenses and other current assets
    
    
    125
    
    
    
    3,015
    
    
    
    323
    
    
    
    
    
    
    
    3,463Total current assets
    
    
    72,500
    
    
    
    89,892
    
    
    
    8,692
    
    
    
    (124,418
    )
    
    
    46,666Property and equipment, net
    
    
    
    
    
    
    10,039
    
    
    
    2,396
    
    
    
    
    
    
    
    12,435Internal-use software, net
    
    
    
    
    
    
    3,679
    
    
    
    
    
    
    
    
    
    
    
    3,679Customer contracts, net
    
    
    
    
    
    
    29,943
    
    
    
    
    
    
    
    
    
    
    
    29,943Goodwill
    
    
    
    
    
    
    219,311
    
    
    
    
    
    
    
    
    
    
    
    219,311Investment in subsidiaries
    
    
    305,285
    
    
    
    
    
    
    
    
    
    
    
    (305,285
    )
    
    
    Other noncurrent assets
    
    
    2,215
    
    
    
    1,183
    
    
    
    316
    
    
    
    
    
    
    
    3,714Total assets
    
    $
    380,000
    
    
    $
    354,047
    
    
    $
    11,404
    
    
    $
    (429,703
    )
    
    $
    315,748Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    
    
    
    $
    2,071
    
    
    $
    449
    
    
    $
    
    
    
    $
    2,520Accrued wages and benefits
    
    
    
    
    
    
    14,329
    
    
    
    2,737
    
    
    
    
    
    
    
    17,066Intercompany payables
    
    
    45,079
    
    
    
    79,339
    
    
    
    
    
    
    
    (124,418
    )
    
    
    Current portion of long-term debt and capital lease
obligations
    
    
    750
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    809Other current liabilities
    
    
    610
    
    
    
    5,058
    
    
    
    170
    
    
    
    
    
    
    
    5,838Total current liabilities
    
    
    46,439
    
    
    
    100,856
    
    
    
    3,356
    
    
    
    (124,418
    )
    
    
    26,233Long-term debt and capital lease obligations, net of
current portion
    
    
    193,907
    
    
    
    35
    
    
    
    
    
    
    


    
    
    
    193,942Deferred tax liabilities
    
    
    
    
    
    
    6,624
    
    
    
    (444
    )
    
    
    
    
    
    
    6,180Other long-term liabilities
    
    
    
    
    
    
    2,755
    
    
    
    
    
    
    
    
    
    
    
    2,755Total liabilities
    
    
    240,346
    
    
    
    110,270
    
    
    
    2,912
    
    
    
    (124,418
    )
    
    
    229,110Stockholders equity
    
    
    139,654
    
    
    
    243,777
    
    
    
    8,492
    
    
    
    (305,285
    )
    
    
    86,638Total stockholders equity
    
    
    139,654
    
    
    
    243,777
    
    
    
    8,492
    
    
    
    (305,285
    )
    
    
    86,638Total liabilities and stockholders equity
    
    $
    380,000
    
    
    $
    354,047
    
    
    $
    11,404
    
    
    $
    (429,703
    )
    
    $
    315,748
 F-23




---



##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 Consolidating Statement of Operations
 (Amounts in Thousands)
 For the Year Ended December 31, 2007Issuer
    
    
    
    
    
    
    Non-(Spheris)
    
    
    Guarantors
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    
    
    
    $
    200,392
    
    
    $
    22,237
    
    
    $
    (22,237
    )
    
    $
    200,392Operating expenses:Direct costs of revenues (exclusive of
depreciation and amortization below)
    
    
    
    
    
    
    147,122
    
    
    
    19,209
    
    
    
    (22,237
    )
    
    
    144,094Marketing and selling expenses
    
    
    
    
    
    
    4,781
    
    
    
    
    
    
    
    
    
    
    
    4,781General and administrative expenses
    
    
    57
    
    
    
    19,446
    
    
    
    389
    
    
    
    
    
    
    
    19,892Depreciation and amortization
    
    
    
    
    
    
    23,203
    
    
    
    1,070
    
    
    
    
    
    
    
    24,273Total operating costs
    
    
    57
    
    
    
    194,552
    
    
    
    20,668
    
    
    
    (22,237
    )
    
    
    193,040Operating income (loss)
    
    
    (57
    )
    
    
    5,840
    
    
    
    1,569
    
    
    
    
    
    
    
    7,352Loss on refinance of debt
    
    
    1,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,828Interest expense, net
    
    
    18,540
    
    
    
    2,645
    
    
    
    (14
    )
    
    
    
    
    
    
    21,171Other (income) expense
    
    
    (5,500
    )
    
    
    6,512
    
    
    
    558
    
    
    
    
    
    
    
    1,570Net income (loss) before income taxes
    
    
    (14,925
    )
    
    
    (3,317
    )
    
    
    1,025
    
    
    
    
    
    
    
    (17,217
    )Provision for (benefit from) income taxes
    
    
    (5,628
    )
    
    
    (338
    )
    
    
    110
    
    
    
    
    
    
    
    (5,856
    )Net income (loss)
    
    $
    (9,297
    )
    
    $
    (2,979
    )
    
    $
    915
    
    
    $
    
    
    
    $
    (11,361
    )
 Consolidating Statement of Operations
(Amounts in Thousands)
 For the Year Ended December 31, 2006Issuer
    
    
    
    
    
    
    Non(Spheris)
    
    
    Guarantors
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    
    
    
    $
    207,141
    
    
    $
    17,313
    
    
    $
    (17,313
    )
    
    $
    207,141Operating expenses:Direct costs of revenues (exclusive of
depreciation and amortization below)
    
    
    
    
    
    
    154,179
    
    
    
    15,254
    
    
    
    (17,313
    )
    
    
    152,120Marketing and selling expenses
    
    
    
    
    
    
    5,392
    
    
    
    
    
    
    
    
    
    
    
    5,392General and administrative expenses
    
    
    116
    
    
    
    18,858
    
    
    
    
    
    
    
    
    
    
    
    18,974Depreciation and amortization
    
    
    
    
    
    
    25,706
    
    
    
    847
    
    
    
    
    
    
    
    26,553Total operating costs
    
    
    116
    
    
    
    204,135
    
    
    
    16,101
    
    
    
    (17,313
    )
    
    
    203,039Operating income (loss)
    
    
    (116
    )
    
    
    3,006
    
    
    
    1,212
    
    
    
    
    
    
    
    4,102Interest expense, net
    
    
    16,015
    
    
    
    5,132
    
    
    
    (11
    )
    
    
    
    
    
    
    21,136Other income
    
    
    
    
    
    
    (186
    )
    
    
    (215
    )
    
    
    
    
    
    
    (401
    )Net income (loss) before income taxes
    
    
    (16,131
    )
    
    
    (1,940
    )
    
    
    1,438
    
    
    
    
    
    
    
    (16,633
    )Provision for (benefit from) income taxes
    
    
    (6,245
    )
    
    
    1,577
    
    
    
    185
    
    
    
    
    
    
    
    (4,483
    )Net income (loss)
    
    $
    (9,886
    )
    
    $
    (3,517
    )
    
    $
    1,253
    
    
    $
    
    
    
    $
    (12,150
    )
 F-24




---



##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 Consolidating Statement of Cash Flows
(Amounts in Thousands)
 For the Year Ended December 31, 2007Issuer
    
    
    
    
    
    
    Non-(Spheris)
    
    
    Guarantors
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net cash provided by (used in) operating activities
    
    $
    73,501
    
    
    $
    (60,563
    )
    
    $
    672
    
    
    $
    
    
    
    $
    13,610Net cash provided by (used in) operating activities
    
    
    73,501
    
    
    
    (60,563
    )
    
    
    672
    
    
    
    
    
    
    
    13,610Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (6,012
    )
    
    
    (888
    )
    
    
    
    
    
    
    (6,900
    )Purchase of Vianeta, net of cash acquired
    
    
    
    
    
    
    (1,547
    )
    
    
    
    
    
    
    
    
    
    
    (1,547
    )Net cash used in investing activities
    
    
    
    
    
    
    (7,559
    )
    
    
    (888
    )
    
    
    
    
    
    
    (8,447
    )Cash flows from financing activities:Proceeds from debt
    
    
    
    
    
    
    71,320
    
    
    
    
    
    
    
    
    
    
    
    71,320Payments on debt and capital leases
    
    
    (73,500
    )
    
    
    (2,566
    )
    
    
    
    
    
    
    
    
    
    
    (76,066
    )Debt issuance costs
    
    
    
    
    
    
    (583
    )
    
    
    
    
    
    
    
    
    
    
    (583
    )Net cash provided by (used in) financing activities
    
    
    (73,500
    )
    
    
    68,171
    
    
    
    
    
    
    
    
    
    
    
    (5,329
    )Effect of exchange rate change on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    1,038
    
    
    
    
    
    
    
    1,038Net increase in unrestricted cash and
cash equivalents
    
    
    1
    
    
    
    49
    
    
    
    822
    
    
    
    
    
    
    
    872Unrestricted cash and cash equivalents, at beginning of
period
    
    
    4
    
    
    
    4,918
    
    
    
    1,401
    
    
    
    
    
    
    
    6,323Unrestricted cash and cash equivalents, at end of period
    
    $
    5
    
    
    $
    4,967
    
    
    $
    2,223
    
    
    $
    
    
    
    $
    7,195
 Consolidating Statement of Cash Flows
(Amounts in Thousands)
 For the Year Ended December 31, 2006Issuer
    
    
    
    
    
    
    Non(Spheris)
    
    
    Guarantors
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net cash provided by operating activities
    
    $
    1,205
    
    
    $
    4,438
    
    
    $
    2,133
    
    
    $
    
    
    
    $
    7,776Net cash provided by operating activities
    
    
    1,205
    
    
    
    4,438
    
    
    
    2,133
    
    
    
    
    
    
    
    7,776Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (6,320
    )
    
    
    (865
    )
    
    
    
    
    
    
    (7,185
    )Investment in affiliates
    
    
    (8,000
    )
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    Purchase of Vianeta, net of cash acquired
    
    
    
    
    
    
    (7,788
    )
    
    
    
    
    
    
    
    
    
    
    (7,788
    )Net cash used in investing activities
    
    
    (8,000
    )
    
    
    (14,108
    )
    
    
    (865
    )
    
    
    8,000
    
    
    
    (14,973
    )Cash flows from financing activities:Payments on debt and capital leases
    
    
    (750
    )
    
    
    (232
    )
    
    
    
    
    
    
    
    
    
    
    (982
    )Debt issuance costs
    
    
    (452
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (452
    )Capital contributions from Parent Investors
    
    
    8,000
    
    
    
    8,000
    
    
    
    
    
    
    
    (8,000
    )
    
    
    8,000Net cash provided by financing activities
    
    
    6,798
    
    
    
    7,768
    
    
    
    
    
    
    
    (8,000
    )
    
    
    6,566Effect of exchange rate change on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (385
    )
    
    
    
    
    
    
    (385
    )Net increase (decrease) in unrestricted cash and cash
equivalents
    
    
    3
    
    
    
    (1,902
    )
    
    
    883
    
    
    
    
    
    
    
    (1,016
    )Unrestricted cash and cash equivalents, at beginning of
period
    
    
    1
    
    
    
    6,820
    
    
    
    518
    
    
    
    
    
    
    
    7,339Unrestricted cash and cash equivalents, at end of period
    
    $
    4
    
    
    $
    4,918
    
    
    $
    1,401
    
    
    $
    
    
    
    $
    6,323
 F-25




---



##### Table of Contents



Spheris Inc.
Notes to Consolidated Financial Statements
December 31, 2007
 16. Selected Quarterly Financial Information (Unaudited)
  March 31,
    
    June 30,
    
    September 30,
    
    December 31,2007
    
    2007
    
    2007
    
    2007Net revenues
    
    $
    52,347
    
    
    $
    50,505
    
    
    $
    48,943
    
    
    $
    48,597Depreciation and amortization
    
    
    6,111
    
    
    
    6,022
    
    
    
    6,039
    
    
    
    6,101Operating income
    
    
    2,126
    
    
    
    2,453
    
    
    
    1,546
    
    
    
    1,227Interest expense, net
    
    
    5,434
    
    
    
    5,419
    
    
    
    5,280
    
    
    
    5,038Benefit from income taxes
    
    
    (1,184
    )
    
    
    (1,582
    )
    
    
    (1,872
    )
    
    
    (1,218
    )Net loss
    
    
    (2,149
    )
    
    
    (1,838
    )
    
    
    (3,541
    )
    
    
    (3,833
    )
 March 31,
    
    June 30,
    
    September 30,
    
    December 31,2006
    
    2006
    
    2006
    
    2006Net revenues
    
    $
    51,973
    
    
    $
    52,335
    
    
    $
    51,458
    
    
    $
    51,375Depreciation and amortization
    
    
    6,557
    
    
    
    6,566
    
    
    
    6,590
    
    
    
    6,840Operating income
    
    
    1,146
    
    
    
    1,061
    
    
    
    638
    
    
    
    1,257Interest expense, net
    
    
    5,140
    
    
    
    5,156
    
    
    
    5,353
    
    
    
    5,487Benefit from income taxes
    
    
    (1,147
    )
    
    
    (1,303
    )
    
    
    (1,446
    )
    
    
    (587
    )Net loss
    
    
    (2,914
    )
    
    
    (2,787
    )
    
    
    (3,067
    )
    
    
    (3,382
    )
 F-26