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Proc-Type: 2001,MIC-CLEAR
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U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (Mark One) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2002. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT. For the transition period from __________ to __________ Commission file number 0-27610 LCA-Vision Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
Delaware
11-2882328
7840 Montgomery Road, Cincinnati, Ohio 45236
(Address of principal executive offices)
(513) 792-9292
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: April 30, 2002 shares as of 42,964,762.
LCA-Vision Inc.
INDEX
Facing Sheet | 1 | ||||||||||||
Index | 2 | ||||||||||||
Part I. | Financial Information | ||||||||||||
Item 1. Financial Statements | |||||||||||||
Condensed Consolidated Balance Sheets as of March 31, 2002
and December 31, 2001 |
3 | ||||||||||||
Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 2002 and 2001 |
4 | ||||||||||||
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2002 and 2001 |
5 | ||||||||||||
Notes to Condensed Consolidated Financial Statements | 6 | ||||||||||||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 8 | ||||||||||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 10 | ||||||||||||
Part II. | Other Information | 11 | |||||||||||
Item 1. Legal Proceedings | |||||||||||||
Item 2. Changes in Securities and Use of Proceeds | |||||||||||||
Item 3. Defaults Upon Senior Securities | |||||||||||||
Item 4. Submission of Matters to a Vote of Security Holders | |||||||||||||
Item 5. Other Information | |||||||||||||
Item 6. Exhibits and Reports on Form 8-K | 11 | ||||||||||||
Signatures | 12 |
Condensed Consolidated Balance Sheet | |||
(Dollars in thousands except per share data) | |||
Assets | March 31, 2002 (1) | December 31, 2001 | |
Current Assets | |||
Cash and cash equivalents | $ 16,708 | $ 16,609 | |
Accounts receivable, net | 1,115 | 517 | |
Receivable from vendors | 494 | 234 | |
Prepaid expenses, inventory and other | 1,342 | 1,959 | |
Total current assets | 19,659 | 19,319 | |
Property and Equipment | 36,713 | 36,411 | |
Accumulated depreciation and amortization | (15,210) | (13,753) | |
Property and equipment, net | 21,503 | 22,658 | |
Goodwill, net | 275 | 275 | |
Investment in unconsolidated businesses | 374 | 290 | |
Other assets, net | 721 | 646 | |
Total assets | $ 42,532
============= |
$ 43,188
============= | |
Liabilities and Shareholders' Investment | |||
Current liabilities | |||
Accounts payable | $ 2,874 | $ 2,645 | |
Accrued liabilities and other | 2,525 | 2,270 | |
Debt maturing in one year | 22 | 26 | |
Total current liabilities | 5,421 | 4,941 | |
Long-term debt | - | 4 | |
Minority equity interest | 109 | 41 | |
Shareholders' investment | |||
Preferred stock | |||
Common stock ($0.001 par value; 52,338,554 and 52,248,554 shares and | |||
42,869,762 and 46,045,525 shares issued and outstanding, respectively) | 52 | 52 | |
Contributed capital | 91,201 | 91,080 | |
Warrants | 2,105 | 2,105 | |
Notes receivable from shareholders | (1,500) | (1,488) | |
Common stock in treasury, at cost (9,468,792 shares and 6,203,029 shares) | (15,473) | (13,013) | |
Accumulated deficit | (39,361) | (40,512) | |
Accumulated other comprehensive loss | (22) | (22) | |
Total shareholders' investment | 37,002 | 38,202 | |
Total liabilities and shareholders' investment | $ 42,532
============= |
$ 43,188
============= | |
(1) Unaudited | |||
The notes to the Condensed Consolidated Financial Statements are an integral part of this statement. |
LCA-Vision Inc. | ||||
Condensed Consolidated Statements of Income | ||||
(Dollars in thousands except per share data) | ||||
Three months ended March 31, | ||||
2002 (1) | 2001 (1) | |||
Revenues | ||||
Laser refractive surgery | $ 18,763 | $ 22,445 | ||
Other | 45 | 45 | ||
Total revenues | 18,808 | 22,490 | ||
Operating costs and expenses | ||||
Medical professional and license fees | 3,778 | 4,497 | ||
Direct costs of services | 7,514 | 9,301 | ||
General and administrative expenses | 2,162 | 2,175 | ||
Marketing and advertising | 3,104 | 3,411 | ||
Depreciation | 1,458 | 1,386 | ||
Special charge reversal | (174) | 0 | ||
Operating income | 966 | 1,720 | ||
Equity in earnings from unconsolidated businesses | 117 | 77 | ||
Minority equity interest | (67) | (4) | ||
Interest (expense) | (2) | (4) | ||
Interest income | 137 | 301 | ||
Other income | - | 5 | ||
Income before taxes on income | 1,151 | 2,095 | ||
Income tax expense | - | 796 | ||
Net income | $ 1,151
============== |
$ 1,299
=============== |
||
Income per common share | ||||
Basic | $ 0.03 | $ 0.03 | ||
Diluted | $ 0.03 | $ 0.03 | ||
Weighted average shares outstanding | ||||
Basic | 43,828 | 47,045 | ||
Diluted | 43,859 | 47,607 | ||
(1) Unaudited | ||||
The notes to the Condensed Consolidated Financial Statements are an integral part of this statement. |
LCA-Vision Inc. | |||
Condensed Consolidated Statements of Cash Flow | |||
(Dollars in thousands except per share data) | |||
Three Months Ended March 31, | |||
2002 (1) | 2001 (1) | ||
Cash flow from operating activities: | |||
Net income | $ 1,151 | $ 1,299 | |
Adjustments to reconcile net income to net cash provided by operating activities | |||
Depreciation | 1,458 | 1,386 | |
Warrant amortization | 175 | 175 | |
Deferred income taxes | - | 796 | |
Equity in earnings of unconsolidated affiliates | (117) | (77) | |
Special charge reversal | (174) | ||
Changes in working capital: | |||
Accounts receivable | (598) | 920 | |
Receivable from vendor | (260) | 1,568 | |
Prepaid expenses, inventory and other | 617 | (165) | |
Accounts payable | 229 | (3,978) | |
Accrued liabilities and other | 427 | 795 | |
Net cash provided by operations | 2,908 | 2,719 | |
Cash flow from investing activities: | |||
Purchase of property and equipment | (302) | (727) | |
Purchase of short-term investments | - | (4,378) | |
Maturity of short-term investments | - | 8,626 | |
Loans to shareholders | (12) | (421) | |
Other, net | (181) | (228) | |
Net cash used in investing activities | (495) | 2,872 | |
Cash flows from financing activities: | |||
Principal payments of long-term notes, debt and capital lease obligations | (8) | (97) | |
Shares repurchased for treasury stock | (2,460) | (1,066) | |
Exercise of stock options | 121 | 53 | |
Distribution of minority equity investees | 33 | - | |
Net cash used by financing activities | (2,314) | (1,110) | |
Increase in cash and cash equivalents | 99 | 4,481 | |
Cash and cash equivalents at beginning of period | 16,609 | 19,692 | |
Cash and cash equivalents at end of period | $ 16,708
========= |
$ 24,173
======== | |
(1) Unaudited | |||
The notes to the Consolidated Condensed Financial Statements are an integral part of this statement. |
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements
for the Three Months Ended March 31, 2002 and 2001
1. Summary of Significant Accounting Policies
This filing includes condensed consolidated Balance Sheets as of December 31, 2001 and March 31, 2002; condensed consolidated Statements of Income for the three months ended March 31, 2002 and 2001; and condensed consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001. In the opinion of management, these unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim period reported. We suggest that these financial statements be read together with the financial statements and notes included in our annual report in Form 10-K.
Business
We are a leading developer and operator of free-standing laser refractive surgery centers. Our laser refractive surgery centers provide the staff, facilities, equipment and support services for performing laser vision correction that employ state-of-the-art laser technologies to correct nearsightedness, farsightedness and astigmatism. The Company currently utilizes two primary excimer lasers: the Bausch & Lomb Technolas 217 and the VISX Star S2 laser. Substantially all of the revenues from our laser vision correction procedures are derived from our North American Centers.
Operating costs and expenses consist of:
- Medical professional and license fees, including per-procedure fees for the ophthalmologist performing laser vision correction and the license fee of $110 per procedure paid to VISX and Bausch & Lomb,
- Direct costs of services, including center rent and utilities, equipment lease and maintenance costs, surgical supplies, center staff expense, costs related to other revenue, and all other costs associated with providing services in our centers,
- General and administrative associated with corporate overhead costs,
- Marketing and advertising costs, and
- Depreciation and amortization of equipment and intangible assets recorded in the balance sheet.
Consolidation Policy
We use two different methods to report our investments in our subsidiaries and other companies: consolidation and the equity method.
Consolidation
We use consolidation when we own a majority of the voting stock of the subsidiary. This means the accounts of our subsidiaries are combined with our accounts. We eliminate intercompany balances and transactions when we consolidate these accounts. Our condensed consolidated financial statements include the accounts of:
- LCA-Vision Inc.,
- LCA-Vision (Canada) Inc. and Subsidiaries, and
- The Baltimore Laser Sight Center, Ltd
Equity Method
We use the equity method to report investments in businesses where we hold 20% to 50% voting interest, giving us the ability to exercise significant influence, but not control, over operating and financial policies. Under the equity method we report:
- our interest in the entity as an investment in our Condensed Consolidated Balance Sheets, and
- our percentage share of the earnings (losses) in our Condensed Consolidated Statements of Operations.
We own 43% of Silmalaseri Oy and 50% of both Cole LCA Vision LLC and Eyemed LCA Vision LLC and report our investments under the equity method.
Goodwill and Other Intangible Assets
Goodwill is the excess of the acquisition cost of the businesses over the fair value of the identifiable net assets acquired. Through December 31, 2001, we amortized goodwill using the straight-line method over the estimated useful life. The Company adopted Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" effective January 1, 2002. SFAS 142 discontinued the amortization of goodwill and requires companies to perform annual impairment test of goodwill. Application of the non-amortization provisions of the SFAS No. 142 resulted in a decrease in annual operating expenses of $76,000. During January 2002, the Company completed the first of the required impairment tests of goodwill as of January 1, 2002, which indicated that the Company currently has no goodwill impairment.
Use of Estimates
Management makes estimates and assumptions when preparing financial statements under generally accepted accounting principles. These estimates and assumptions affect various matters including:
- our reported amounts of assets and liabilities in our Condensed Consolidated Balance Sheets at the dates of the financial statements,
- our disclosure of contingent liabilities at the dates of the financial statements, and
- our reported amounts of revenues and expenses in our Condensed Consolidated Statements of Income during the reporting periods.
Actual amounts could differ from those estimates.
Per Share Data
Basic per share data is income applicable to common shareholders divided by the weighted average common shares outstanding. Diluted per share data is income applicable to common shareholders divided by the weighted average common shares outstanding plus the potential issuance of common shares if stock options or warrants were exercised.
Following is a reconciliation of basic and diluted earnings per share for the three months ended March 31, 2002 and 2001 (in thousands, except per share amounts):
Three Months Ended | ||
March 31, | ||
2002 | 2001 | |
Basic earnings per share | ||
Net income | $1,151 | $1,299 |
Weighted average shares outstanding | 43,828 | 47,045 |
Basic earnings per share | $0.03 | $0.03 |
Diluted earnings per share | ||
Net income | $1,151 | $1,299 |
Weighted average shares outstanding | 43,828 | 47,045 |
Effect of dilutive securities | ||
Stock options | 31 | 539 |
Warrants | -- | 23 |
Weighted average common shares and potential dilutive shares | 43,859 | 47,607 |
Diluted earnings per share | $0.03 | $0.03 |
Special Charges
During the third quarter of 2001, management implemented a restructuring plan to close unprofitable locations and to reduce operating expenses. The cost of the plan is $1,375,000 which is comprised of a $535,000 restructuring charge and an $840,000 asset impairment charge for leasehold improvements, equipment and goodwill associated with the locations to be closed. The restructuring charges included $384,000 in lease termination costs and $151,000 in severance payments for 71 employees.
During the first quarter of 2002, $88,000 was expended to buyout the remainder of a facility lease. With the restructuring plan fully implemented, $174,000 remaining restructuring reserve was reversed in the first quarter.
Shareholders' Investment
Common Stock
During the three months ended March 31, 2002, 90,000 shares of common stock were issued as a result of exercised stock options. The average exercise price was $1.36 per share.
Segment Information
We operate in one segment - laser refractive surgery.
Commitments and Contingencies
None.
Item 2. Management's Discussion and Analysis of Financial Condition Results of Operations.
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of important factors that could affect our results, refer to the Overview and financial statement line item discussions set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").
"MD&A" is an analysis of our operating results for the three months ended March 31, 2002 and 2001 and our financial condition as of March 31, 2002. It explains why our revenues and costs changed, our overall financial condition, and other matters.
Results of Operations - Revenues
Laser refractive surgery
Laser refractive surgery revenue generally includes three components: facility fee, royalty fee, and medical professional fees. Certain states prohibit us from practicing medicine, employing physicians to practice medicine on our behalf or employing optometrists to render optometry services on our behalf. Revenues and direct costs from centers in such states do not include the medical professionals fee component. The contribution from laser refractive surgery procedures for the three months ended March 31, 2002 and 2001 were (dollars in thousands):
Three Months Ended | |||
March 31, | |||
2002 | 2001 | ||
Revenue | $18,763 | $22,445 | |
Less: | |||
Medical professional and license fees | 3,778 | 4,497 | |
Contribution | $14,985 | $17,948 |
The following table illustrates the growth of laser vision correction procedures performed at our centers.
2002 | 2001 | ||
Q1 | 17,594 | 25,061 | |
Q2 | 22,940 | ||
Q3 | 13,347 | ||
Q4 | 10,684 | ||
Year | 72,032 |
Medical professional and license fees
Medical professional expenses decreased by $381,000 from the first quarter of 2001 due to lower procedure revenues. License fees were lower from first quarter 2001 by $351,000 as a result of lower procedure volume.
Direct costs of services
Direct costs of services include the salary component of physician compensation, staffing, equipment, medical supplies, and facility costs to operate laser vision correction centers. These direct costs decreased in the first quarter of 2002 by $1,787,000 compared to the first quarter of 2001, largely because of a decrease in salaries and fringe benefits as a result of cost reduction efforts in prior year and a decrease in laser rent due to purchase of lasers in 2001. Medical supplies decreased by $228,000 in the first quarter of 2002 from the first quarter of 2001 due to lower procedure volume. Exclusive of medical supplies, the average direct cost per center per month increased to $67,100 in the first quarter of 2002 from $65,600 in the fourth quarter of 2001. This increase is primarily due to increases in insurance expense and financing fees resulting from higher volume.
General and administrative
General and administrative expenses decreased by $4,000 in the first quarter of 2002 from the first quarter of 2001. Overall, most expenses compared to 2001 first quarter had decreased, in particular salaries and travel. This was offset by increases in insurance and state and local taxes.
Marketing and advertising expenses
Marketing and advertising expenses decreased by $307,000 in the first quarter of 2002 from the first quarter of 2001. Compared to the fourth quarter of 2001, marketing and advertising expenditures decreased by $7,000.
Depreciation and amortization
Depreciation and amortization expense increased by $73,000 in the first quarter of 2002 from the first quarter of 2001 primarily by the result of purchase of lasers and other equipment that had been leased in the past.
Non-operating income and expenses
Equity earnings in unconsolidated businesses increased by $40,000 in the first three months of 2002 as compared with the first three months of 2001. A growth in the managed care business generated the increase in equity earnings.
Income Taxes
The Company utilized federal and state net operating loss carryforwards in the first quarter of 2002. Therefore, no income tax expense was recorded for the quarter.
Special Charges
During the third quarter of 2001, management implemented a restructuring plan to close unprofitable locations and to reduce operating expenses. The cost of the plan is $1,375,000 which is comprised of a $535,000 restructuring charge and an $840,000 asset impairment charge for leasehold improvements, equipment and goodwill associated with the locations to be closed. The restructuring charges included $384,000 in lease termination costs and $151,000 in severance payments for 71 employees.
During the first quarter of 2002, $88,000 was expended to buy out the remainder of a facility lease. With the restructuring plan fully implemented, $174,000 remaining restructuring reserve was reversed in the first quarter.
Liquidity and Capital Resources
Net cash provided by operating activities in the first three months of 2002 was $2,908,000 which, when combined with beginning of year cash and short-term investment balances, was used to purchase property and equipment to fund the Company's treasury stock purchases.
As of March 31, 2002, we have cash and cash equivalents of $16,708,000.
During the second quarter of 2000, the directors initiated a program to encourage additional direct stock ownership by senior management of the company. The Company offered loans to nine key managers and directors for the purpose of purchasing shares in the open market. Each loan is a personal obligation of the borrower, and is evidenced by a promissory note. The interest rate on the notes is prime less one and one-half percent. The notes have a maximum term of three years, and contain provisions for early repayment. A total of $1,500,000 has been loaned under this program.
As of March 31, 2002 we maintained a $10,000,000 revolving credit facility with The Provident Bank. In addition to the $10,000,000 of unused credit under this facility, the Company has a $10,000,000 line of credit for the purpose of funding acquisitions which is subject to the full and absolute discretion of Provident Bank. Both of these credit arrangements expire June 30, 2002. It is our intent to renew this credit facility for another 12 months on comparable terms.
Factors That May Affect Future Results and Market Price of Stock
For a detailed discussion that may affect future results, please refer to the Company's last 10-K. No material new risks have developed since the filing of these reports.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The carrying values of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments.
We have historically had very low exposure to changes in foreign currency exchange rates, and as such, have not used derivative financial instruments to manage foreign currency fluctuation risk.
Part II. Other Information | ||
Item 1 Legal Proceedings | ||
None | ||
Item 2. Changes in Securities and Use of Proceeds. | ||
None | ||
Item 3. Defaults upon Senior Securities. | ||
None | ||
Item 4. Submission of Matters to a Vote of Security Holders | ||
None | ||
Item 5. Other Information. | ||
None | ||
Item 6. Exhibits and Reports on Form 8-K. | ||
(a) Exhibits | ||
None | ||
(b) Reports on Form 8-K | ||
1) Form 8-K dated March 18, 2002, containing a press release announcing documented two-year clinical outcomes at the Company's wholly owned LasikPlus centers using the Bausch & Lomb Technolas 217 laser. | ||
2) Form 8-K dated April 4, 2002, containing a press release reporting that 17,954 procedures were performed for the three months ended March 31, 2002, compared with 10,684 procedures in the fourth quarter of 2001. | ||
3) Form 8-K dated April 9, 2002 containing a press release announcing the 10th anniversary of its entry into the fast-growing eyecare sector. |
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
LCA-VISION INC.
Date: 5/8/02 | /s/ Stephen N. Joffe | |||||||
Stephen N. Joffe | ||||||||
Chairman and CEO | ||||||||
Date: 5/8/02 | /s/ Alan Buckey | |||||||
Alan Buckey | ||||||||
Chief Financial Officer |