The following discussion and analysis presents our consolidated financial condition at December 31, 2008 and 2007 and the results of operations for the years ended December 31, 2008, 2007 and 2006. You should read the following discussion together with the "Selected Financial Data," our consolidated financial statements and the related notes and other financial data contained elsewhere in this annual report. In addition to the historical information provided below, we have made certain estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated or implied by these estimates and forward-looking statements as a result of certain factors, including those discussed in the section captioned "Risk Factors," the introductory paragraph to Part I, and elsewhere in this Form 10-K.

Overview

We consider our core business to be the ownership and operation of ambulatory surgery centers (ASCs). As of December 31, 2008, we owned and operated 37 ASCs of which 35 were jointly owned with physician-partners. We also own a 25% equity interest in an ASC that we plan to divest. We also own other businesses including an optical laboratory, an optical products purchasing organization, and marketing products and services businesses and provide management services to two eye care practices.

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º Consolidated net revenue increased by 9.8% to $141.2 million. Surgical facilities net revenue increased by 10.1% to $116.4 million (same-facility surgical net revenue increased by 2.1% to $102.2 million).

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º Operating income increased by 13.9% to $35.9 million.

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º We invested $47.4 million to acquire majority interests in three ASCs and $2.0 million to acquire a 100% interest in a call center and marketing solutions business.

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º Operating cash flow of $25.1 million.

ASC Strategy. We measure the success of our ASC strategy based on our ability to achieve or exceed the following key objectives:

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º Acquire and develop new ASCs. We consider the acquisition and development of new ASCs a key element of our long-term growth strategy. We currently have a development staff dedicated to identifying and analyzing acquisition and development opportunities.

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º Strengthen and build relationships with existing and new physician-partners. Our physician-partners play a significant role in the success of our ASCs. We share a common goal with our physician-partners which is to operate efficient, productive and profitable ASCs. Our objective is to own more than 50% of each ASC but less than 100%; however, in certain instances we may consider owning a minority interest.

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º Continue to increase revenue and improve operating margins in our existing ASCs. The primary source of revenue at our ASCs is derived from surgical procedures performed. Profitable growth within our existing ASCs is determined by our ability to maximize efficiency and utilization, expand into medical procedures beyond eye care, and provide quality service to our physicians and their patients.

In addition to the above key ASC objectives, our overall strategy also includes maintaining a strong balance sheet, continuing to grow the other segments of our business, and attracting and retaining employees to help us achieve our growth objectives.

The current economic conditions in the United States, including the disruption in the financial markets that has severely reduced liquidity and credit availability, may adversely affect our results of operations, our financial condition and our ability to pursue our growth strategy.

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º The current economic recession and resulting unemployment could result in fewer procedures being performed at our ASCs because patients may delay or cancel treatments. Further increases in unemployment if the economic recession continues could also result in fewer individuals being covered by employer-sponsored health plans and more individuals being covered by lower paying government-sponsored programs such as Medicare and Medicaid. Adverse economic conditions may also increase pressure on federal and state governments to contain or reduce reimbursements from Medicare, Medicaid and other programs. To the extent that commercial payors are adversely affected by the economy, we may experience declines in commercial rates, a slow down in collections and a reduction in the amounts we expect to collect.

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º If the current turmoil in the credit markets continues, we may face difficulty renewing our credit facility, which currently expires in February 2010. We have $57.6 million outstanding under our credit facility as of March 4, 2009. Even if we are successful in renewing our credit facility, we will likely experience less favorable terms than the terms we are currently enjoying. These revised terms will likely result in more limited borrowing availability and higher variable interest rates, which may limit our future acquisition and development activity and make it more expensive. The current uncertainty around the refinancing of our credit facility will likely limit our ability to pursue acquisition and development activity in 2009 until we secure an extension with our lenders. Curtailing or eliminating our acquisition and development activities could adversely affect our financial results.

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º Intangible assets, primarily in the form of goodwill, represent a significant portion of our total assets. At December 31, 2008, intangible assets represented approximately 79% of total assets and 274% of stockholders' equity. The intangible asset value represents the excess of cost over the fair value of the separately identifiable net assets acquired in connection with our acquisitions and affiliations. The value of these assets may not be realized. We regularly, and at least annually, evaluate whether events and circumstances have occurred that indicate all or a portion of the carrying amount of the asset may exceed its fair value, in which case an impairment charge to earnings may become necessary. During 2008, our estimate of the fair value of the asset declined. While it was not necessary to record an impairment charge in 2008, a continued decline in the fair value of this asset could lead us to determine that our intangible assets have suffered an impairment that requires us to write off a portion of the asset. Such a write-off could significantly reduce our total assets, result in a substantial charge to earnings, and cause us to be in default under one or more covenants in our credit facility.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We annually review our financial reporting and disclosure practices and accounting policies to ensure that our financial reporting and disclosures provide accurate and transparent information relative to the current economic and business environment. We believe that of our significant accounting policies (see

Note 2 in the Notes to Consolidated Financial Statements), the following
policies involve a higher degree of judgment and/or complexity.

Revenue Recognition and Accounts Receivable, Net of Allowances. Revenue from surgical procedures performed at our surgical facilities and patient visits to our eye care practices, net of contractual allowances and a provision for doubtful accounts, is recognized at the time the service is performed. The contractual allowance is the difference between the fee we charge and the amount we expect to be paid by the patient or the applicable third-party payor, which includes Medicare and private insurance. We base our estimates for the contractual allowance on the Medicare reimbursement rates when Medicare is the payor, our contracted rate with other third party payors or our historical experience when we do not have a specific Medicare or contracted rate. We base our estimate for doubtful accounts on the aging category and our historical collection experience. While we believe that our contractual allowances are appropriate, if our actual contractual adjustments or bad debts differ from our estimates, our results of operations may be affected. During the years ended December 31, 2008, 2007 and 2006, we had no significant adjustments to contractual allowances related to prior periods. Our optical products purchasing organization negotiates buying discounts with optical product manufacturers. The buying discounts and any handling charges billed to the members of the purchasing organization represent the revenue recognized. Product sales revenue from our optical laboratories and marketing products and services businesses, net of an allowance for returns and discounts, is recognized when the product is shipped or service is provided to the customer. We base our estimates for sales returns and discounts on historical experience and have not experienced significant fluctuations between estimated and actual return activity and discounts given.

Accounts receivable have been reduced by the reserves for estimated contractual allowances and doubtful accounts noted above.

Asset impairment. In assessing the recoverability of our fixed assets, goodwill and other noncurrent assets, we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors. If these estimates or their related assumptions change in the future, we may be required to record impairment charges.

Our reported goodwill represents a significant portion of our total assets. We test goodwill for impairment in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, annually and/or when factors indicating impairment are present. In conducting our impairment analysis, we utilize a market comparable and discounted cash flow approach. Differences in assumptions used under this approach could have a significant impact on the determination of the fair value of our reporting units. We currently believe we have adequate support for the carrying value of our goodwill based on assumptions used in our impairment analysis. However, the analysis requires significant judgments and estimates to be made by management. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill. We will continue to perform a goodwill impairment test on an annual basis and on an interim basis if indicators of impairment exist. As additional information becomes known, we may change our estimates.

Income taxes. We record a valuation allowance to reduce our deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. While we have considered future taxable income and ongoing feasible tax strategies in assessing the need for the valuation allowance, if these estimates and assumptions change in the future, we may be required to adjust our valuation allowance. This could result in a charge to, or an increase in, income in the period such determination is made.

Stock-based Compensation. On January 1, 2006, we adopted Statement of Financial Accounting Standards ("SFAS") No. 123(R), Share-Based Payment, which requires us to measure and recognize compensation expense for all share-based payment awards based on estimated fair values at the date of grant. Determining the fair value of share- based awards requires judgment in developing assumptions,

which involve a number of variables. We calculate fair value by using the Black-Scholes option-pricing model, which requires estimates for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. We also estimate the expected service period over which our stock-based awards will vest. Each of these assumptions, while reasonable, requires a certain degree of judgment and the fair value estimates could vary if actual results are materially different than those initially applied.

Results of Operations

The following table summarizes our operating results as a percentage of net revenue for the years indicated.

                                                             2008      2007       2006
Net revenue:
  Surgical facilities                                          82.5 %    82.2 %     77.8 %
  Product sales and other                                      17.5      17.8       22.2

  Total net revenue                                           100.0     100.0      100.0

Operating expenses:
  Salaries, wages and benefits                                 30.2      31.0       32.8
  Cost of sales and medical supplies                           23.1      23.4       24.4
  Selling, general and administrative                          18.2      18.3       18.2
  Depreciation and amortization                                 3.1       2.8        2.6

  Total operating expenses                                     74.6      75.5       78.0

  Operating income                                             25.4      24.5       22.0

Other (income) expense:
  Interest expense                                              3.0       3.8        2.9
  Interest income                                                 -      (0.1 )     (0.1 )
  Minority interests in earnings of consolidated entities      11.6      11.9       11.0
  Gain on sale of minority interests                              -      (0.1 )     (0.1 )
  Non-consolidated impairment charge                              -       0.8          -
  Other                                                           -         -       (0.3 )

  Total other (income) expense                                 14.6      16.3       13.4

Income before income taxes                                     10.8       8.2        8.6
Income tax provision                                            4.2       3.6        3.4

Income from continuing operations                               6.6       4.6        5.2
Income (loss) from discontinued operations                        -      (0.2 )      0.2
Net gain (loss) on disposal of discontinued operations          0.2      (8.7 )        -

Net income (loss)                                               6.8 %    (4.3 )%     5.4 %

Net Revenue

Consolidated. Total net revenue increased by 9.8% from $128.6 million to $141.2 million. Net revenue by segment is discussed below.

Surgical Facilities. The table below summarizes surgical facilities net revenue and procedures performed for 2008 and 2007. Net revenues generated from surgical facilities are derived from the fees charged for the procedures performed in our ASCs and through our laser services agreements. Our procedure volume is directly impacted by the number of ASCs we operate, the number of excimer lasers in service, and their respective utilization rates. Surgical facilities net revenue increased by 10.1% from $105.8 million to $116.4 million. This increase was primarily the result of a $8.8 million increase from ASCs we acquired or developed after January 1, 2007 ("new ASCs") and a $2.1 million, or 2.1%, increase from ASCs that we owned for the entire comparable reporting periods ("same-facility"). The increase in same-facility net revenue was the result of a 3.5% increase in the net revenue per procedure primarily due to a change in procedure mix offset by a 1.4% decrease in the number of same-facility procedures performed.

                                                                        Increase
                                                2008        2007       (Decrease)
                                                     (dollars in thousands)
       Surgical Facilities:
          Same-facility:
               Net revenue                    $ 102,238   $ 100,151    $     2,087
               # of procedures                  121,354     123,082         (1,728 )
          New ASCs:
               Net revenue                    $  14,209   $   5,364    $     8,845
               # of procedures                   20,175       5,683         14,492
          ASC Closure/Laser Terminations:
               Net revenue                    $       -   $     237    $      (237 )
               # of procedures                        -         622           (622 )

On October 30, 2008, the Centers for Medicare and Medicaid Services (CMS) published their final 2009 rates for ASCs. The final rates include a decrease in the cataract rate in 2009. As with previous rate changes, the cataract rate change tends to determine the overall impact to us as the changes in the other procedure rates generally net each other out. Our preliminary estimate is that the final 2009 rates, based on our current procedure volumes and mix, will negatively impact annual surgical facilities net revenue by approximately $0.6 million. This does not include any potential wage-index changes. This revenue reduction approximates a $0.01 impact on earnings per share.

The success of our business depends on our relationship with, and the success and efforts of, the physicians who perform surgical procedures at our ASCs. Our revenue and profitability would decline if our relationship with key physicians deteriorated or those physicians reduced or eliminated their use of our ASCs.

Product Sales and Other. The table below summarizes product sales and other net revenue by significant business component. Product sales and other net revenue increased by 8.3% from $22.9 million to $24.8 million. Net revenue at our optical products purchasing organization increased by $2.6 million due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007 and an increase in existing customer orders. Net revenue from our marketing products and services businesses decreased by $0.1 million primarily due to a reduction in sales of marketing products to medical device manufacturers to promote their refractive intraocular lens technology offset by an increase due to the acquisition of a call center and marketing solutions business during the third quarter of 2008. Net revenue

at our optical laboratory business decreased by $0.4 million due to a decrease in existing customer orders. Net revenue from our ophthalmology practice decreased by $0.2 million primarily due to a decrease in the number of patient visits.

                                                                          Increase
                                                    2008       2007      (Decrease)
                                                        (dollars in thousands)
     Product Sales:
       Optical laboratories                       $  5,810   $  6,245    $      (435 )
       Optical products purchasing organization      5,672      3,073          2,599
       Marketing products and services               4,011      4,079            (68 )
       Optometric practice/retail store              1,934      1,936             (2 )

                                                    17,427     15,333          2,094

     Other:
       Ophthalmology practice                        7,346      7,510           (164 )
       Other                                             -         26            (26 )

                                                     7,346      7,536           (190 )

     Total Net Product Sales and Other Revenue    $ 24,773   $ 22,869    $     1,904

Salaries, Wages and Benefits

Consolidated. Salaries, wages and benefits expense increased by 7.1% from $39.8 million to $42.7 million. As a percentage of net revenue, salaries, wages and benefits expense decreased from 31.0% to 30.2% primarily due to minimal corporate infrastructure expenses added to service new ASCs. Salaries, wages and benefits expense by segment is discussed below.

Surgical Facilities. Salaries, wages and benefits expense in our surgical facilities segment increased by 10.4% from $22.6 million to $24.9 million. The increase was the result of staff costs at ASCs acquired during 2007 and 2008 and staffing required at some of our same-facility ASCs.

Product Sales and Other. Salaries, wages and benefits expense in our product sales and other segments increased by 9.6% from $8.2 million to $9.0 million primarily due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007 and the acquisition of a call center and marketing solutions business during the third quarter of 2008.

Corporate. Salaries, wages and benefits expense decreased by 3.4% from $9.1 million to $8.8 million. The decrease was primarily due to $0.4 million of reduced stock-based compensation expense and $0.3 million of reduced severance expense recorded in 2008. This decrease was partially offset by annual salary and incentive accrual increases.

Cost of Sales and Medical Supplies

Consolidated. Cost of sales and medical supplies expense increased by 8.1% from $30.2 million to $32.6 million. As a percentage of net revenue, cost of sales and medical supplies expense decreased from 23.4% to 23.1%. Cost of sales and supplies expense by segment is discussed below.

Surgical Facilities. Cost of sales and medical supplies expense in our surgical facilities segment increased by 11.3% from $24.1 million to $26.9 million. As a percentage of net revenue, cost of sales and medical supplies expense increased marginally from 22.8% to 23.1%. The expense increase was the result of costs associated with our new ASCs and increased supply costs at some of our same-facility ASCs.

Selling, General and Administrative

Consolidated. Selling, general and administrative expense increased by 9.7% from $23.5 million to $25.8 million. As a percentage of net revenue, selling, general and administrative expense decreased from 18.3% to 18.2%. Selling, general and administrative expense by segment is discussed below.

Surgical Facilities. Selling, general and administrative expense in our surgical facilities segment increased by 11.5% from $20.5 million to $22.8 million. The increase was due to costs associated with our new ASCs and an increase of $0.7 million in management and billing/collections fees charged to the ASCs for services rendered by our corporate personnel.

Product Sales and Other. Selling, general and administrative expense in our product sales and other segments increased by 20.0% from $3.5 million to $4.2 million primarily due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007 and the acquisition of a call center and marketing solutions business during the third quarter of 2008.

Corporate. Corporate selling, general and administrative expense decreased by $0.8 million due to an increase of $0.7 million in management and billing/collections fees charged to the operating segments for services rendered by certain corporate personnel. Excluding the management and billing/collections fees, corporate selling, general and administrative expense decreased by $0.1 million.

Depreciation and Amortization. Depreciation and amortization expense increased 18.6% from $3.6 million to $4.3 million primarily due to increases in depreciation associated with our new ASCs and amortization of intangible assets acquired in conjunction with our acquisition of an optical products purchasing organization during the fourth quarter of 2007.

Minority Interests. Minority interests in the earnings of our ASCs were $16.4 million in 2008 as compared to $15.3 million in 2007. All of this increase was attributable to new ASCs.

Interest (Income) Expense, net. Interest (income) expense, net decreased from $4.8 million to $4.2 million due to a lower effective interest rate on borrowings primarily due to our convertible note offering during the second quarter of 2007.

Loss on Investment in Nonconsolidated Affiliate. During the fourth quarter of 2007, we recorded a $1.0 million impairment charge relating to our 25% interest in an ASC located in Ft. Lauderdale, Florida.

Other (Income) Expense. Other income was $0.0 million in 2008 as compared to $0.1 million in 2007.

Provision for Income Taxes. Our effective tax rate in 2008 was 39.0% compared to 43.8% in 2007. The decrease was the result of recording a 100% valuation allowance against the tax benefit relating to the loss on investment in our non-consolidated affiliate and 0.9% related to an increase in our blended state partnership tax rate in 2007. Our effective tax rate was affected by expenses that are deducted from operations in arriving at pre-tax income that are not allowed as a deduction on our federal income tax return.

Discontinued Operations. We incurred costs associated with our Laredo, Texas ASC during 2008. On August 7, 2008, our Laredo, Texas ASC, of which we own a 96% interest, sold substantially all of its assets for $0.2 million. As a result, we adjusted our previously recorded loss on the sale of the ASC and recorded a pre-tax gain of $0.2 million in the third quarter of 2008. As part of our discontinued operations plan announced in the fourth quarter of 2007, we completed the sale of our 70% interest in our Thibodaux, Louisiana ASC in February 2008. We received proceeds of $0.2 million. As a result, we adjusted our

previously recorded loss on the sale of the ASC and recorded a pre-tax gain of $0.1 million in the first quarter of 2008.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Net Revenue

Consolidated. Total net revenue increased by 23.4% from $104.3 million to $128.6 million. Net revenue by segment is discussed below.

Surgical Facilities. The table below summarizes surgical facilities net revenue and procedures performed for 2007 and 2006. Net revenues generated from surgical facilities are derived from the fees charged for the procedures performed in our ASCs and through our laser services agreements. Our procedure volume is directly impacted by the number of ASCs we operate, the number of excimer lasers in service, and their respective utilization rates. Surgical facilities net revenue increased by 30.4% from $81.1 million to $105.8 million. This increase was primarily the result of a $21.4 million increase from ASCs we acquired or developed after January 1, 2006 ("new ASCs") and a $5.0 million, or 7.4%, increase from ASCs that we owned for the entire comparable reporting . . .