U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended
September 30, 2011
September 30, 2011.
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT.
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For the transition period from
to
Commission file number 0-27610
LCA-Vision Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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11-2882328
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification No.)
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7840 Montgomery Road, Cincinnati, Ohio 45236
(Address of principal executive offices)
(513) 792-9292
(Registrants 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 was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one)
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨
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Smaller reporting company
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¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 18,849,527 shares as of October 20, 2011.
LCA-Vision Inc.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LCA-Vision Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
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September 30,
2011
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December 31,
2010
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Assets
|
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|
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|
|
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Current assets
|
|
|
|
|
|
|
|
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Cash and cash equivalents
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$
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19,545
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|
|
$
|
19,350
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|
Short-term investments
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|
26,616
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|
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|
31,947
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|
Patient receivables, net of allowances of $1,124 and $1,392, respectively
|
|
|
2,209
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|
|
|
2,256
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|
Other accounts receivable, net
|
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1,385
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|
|
|
1,867
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|
Prepaid expenses and other
|
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|
4,196
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|
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|
5,641
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|
|
|
|
|
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|
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Total current assets
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53,951
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61,061
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|
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|
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Property and equipment
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72,235
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|
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|
72,286
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|
Accumulated depreciation and amortization
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|
|
(60,754
|
)
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(57,322
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)
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|
|
|
|
|
|
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Property and equipment, net
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11,481
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|
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14,964
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Long-term investments
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933
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951
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Patient receivables, net of allowances of $595 and $330 respectively
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|
|
725
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|
413
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Other assets
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2,036
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3,092
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|
|
|
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|
|
|
|
|
|
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Total assets
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|
$
|
69,126
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$
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80,481
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|
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|
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|
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Liabilities and Stockholders' Investment
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Current liabilities
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Accounts payable
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$
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6,799
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|
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$
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8,110
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Accrued liabilities and other
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13,947
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12,266
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Deferred revenue
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|
2,981
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|
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4,376
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Debt obligations maturing within one year
|
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2,937
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3,039
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|
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Total current liabilities
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26,664
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27,791
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Long-term rent obligations and other
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2,685
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3,368
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Long-term debt obligations, less current portion
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1,784
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4,245
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Insurance reserves
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7,183
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|
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|
7,406
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Deferred license fee
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2,044
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3,065
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Deferred revenue
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1,433
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3,476
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Stockholders' investment
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Common stock ($.001 par value; 25,291,637 shares issued and 18,849,527 and 18,711,365 shares outstanding,
respectively)
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25
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25
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Contributed capital
|
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176,869
|
|
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175,610
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Common stock in treasury, at cost (6,442,110 shares and 6,580,272 shares, respectively)
|
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(112,974
|
)
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(114,033
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)
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Retained deficit
|
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(37,003
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)
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(31,134
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)
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Accumulated other comprehensive income
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416
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|
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|
662
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|
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Total stockholders' investment
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27,333
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|
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31,130
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|
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Total liabilities and stockholders' investment
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$
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69,126
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|
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$
|
80,481
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|
|
|
|
|
|
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|
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The notes to the Condensed Consolidated Financial Statements are an integral part of this statement.
3
LCA-Vision Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
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Three months ended September 30,
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Nine months ended September 30,
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2011
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2010
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2011
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2010
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Revenues
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$
|
21,790
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$
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20,263
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$
|
78,489
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$
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80,566
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Operating costs and expenses
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Medical professional and license fees
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5,181
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|
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4,966
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19,236
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19,406
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Direct costs of services
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10,461
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11,499
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31,931
|
|
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37,390
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General and administrative expenses
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3,586
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3,336
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10,577
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|
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10,768
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Marketing and advertising
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5,305
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|
5,100
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17,730
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|
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|
19,298
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|
Depreciation
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1,458
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|
|
|
2,379
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4,346
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|
|
7,375
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|
Impairment charges
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1,608
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1,694
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Restructuring charges
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145
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56
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|
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|
794
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|
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|
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|
|
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25,991
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29,033
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|
83,876
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|
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|
96,725
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|
Gain on sale of assets
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|
|
99
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|
|
|
266
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|
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|
498
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1,577
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Operating loss
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|
(4,102
|
)
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|
|
(8,504
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)
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|
(4,889
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)
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|
(14,582
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)
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|
|
|
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Net investment income and other
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|
334
|
|
|
|
103
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|
492
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1,424
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Loss before taxes on income
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(3,768
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)
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(8,401
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)
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(4,397
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)
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(13,158
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)
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|
|
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Income tax expense
|
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|
32
|
|
|
|
39
|
|
|
|
149
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|
|
|
134
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss
|
|
$
|
(3,800
|
)
|
|
$
|
(8,440
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)
|
|
$
|
(4,546
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)
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|
$
|
(13,292
|
)
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|
|
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|
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|
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|
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|
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|
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Loss per common share
|
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|
|
|
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|
|
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Basic
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$
|
(0.20
|
)
|
|
$
|
(0.45
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)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.71
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)
|
Diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.71
|
)
|
|
|
|
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|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
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|
|
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Basic
|
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|
18,838
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|
|
|
18,703
|
|
|
|
18,798
|
|
|
|
18,672
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Diluted
|
|
|
18,838
|
|
|
|
18,703
|
|
|
|
18,798
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|
|
|
18,672
|
|
The notes to the Condensed Consolidated Financial Statements are an integral part of this statement.
4
LCA-Vision Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
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|
|
|
|
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|
|
Nine months ended September 30,
|
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|
2011
|
|
|
2010
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,546
|
)
|
|
$
|
(13,292
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
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Depreciation
|
|
|
4,346
|
|
|
|
7,375
|
|
Provision for loss on doubtful accounts
|
|
|
554
|
|
|
|
1,333
|
|
Loss (gain) on sale of investments
|
|
|
9
|
|
|
|
(1,008
|
)
|
Impairment charges
|
|
|
|
|
|
|
1,694
|
|
Gain on sale of property and equipment
|
|
|
(498
|
)
|
|
|
(1,577
|
)
|
Deferred income taxes
|
|
|
|
|
|
|
377
|
|
Stock-based compensation
|
|
|
1,259
|
|
|
|
957
|
|
Insurance reserve
|
|
|
(223
|
)
|
|
|
(796
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Patient accounts receivable
|
|
|
(754
|
)
|
|
|
1,311
|
|
Other accounts receivable
|
|
|
138
|
|
|
|
237
|
|
Prepaid income taxes
|
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|
397
|
|
|
|
11,651
|
|
Prepaid expenses and other
|
|
|
499
|
|
|
|
1,385
|
|
Accounts payable
|
|
|
(1,311
|
)
|
|
|
543
|
|
Deferred revenue, net of professional fees
|
|
|
(3,094
|
)
|
|
|
(4,293
|
)
|
Accrued liabilities and other
|
|
|
777
|
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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Net cash (used in) provided by operations
|
|
|
(2,447
|
)
|
|
|
4,613
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
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Purchases of property and equipment
|
|
|
(869
|
)
|
|
|
(176
|
)
|
Proceeds from sale of assets
|
|
|
1,252
|
|
|
|
1,721
|
|
Purchases of investment securities
|
|
|
(137,480
|
)
|
|
|
(328,120
|
)
|
Proceeds from sale of investment securities
|
|
|
142,716
|
|
|
|
325,133
|
|
Other
|
|
|
(6
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
5,613
|
|
|
|
(1,476
|
)
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments of capital lease obligations and loan
|
|
|
(2,563
|
)
|
|
|
(4,089
|
)
|
Shares repurchased for treasury stock
|
|
|
(288
|
)
|
|
|
(192
|
)
|
Proceeds from exercise of stock options
|
|
|
23
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,828
|
)
|
|
|
(4,267
|
)
|
|
|
|
Net effect of exchange rate changes on cash and cash equivalents
|
|
|
(143
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
195
|
|
|
|
(1,048
|
)
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
19,350
|
|
|
|
24,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
19,545
|
|
|
$
|
23,481
|
|
|
|
|
|
|
|
|
|
|
The notes to the Condensed Consolidated Financial Statements are an integral part of this statement.
5
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business and Accounting Policies
Description of Business
We are a provider of fixed-site laser vision correction services at our
Lasik
Plus
®
vision centers. Our vision centers provide the staff, facilities, equipment and support
services for performing laser vision correction that employ advanced laser technologies to help correct nearsightedness, farsightedness and astigmatism. We currently use two suppliers for fixed-site excimer lasers: Abbott Medical Optics
(AMO) and Alcon, Inc. (Alcon). Our vision centers are supported by independent, board-certified ophthalmologists and credentialed optometrists, as well as other healthcare professionals. The ophthalmologists perform the laser
vision correction procedures in our vision centers, and ophthalmologists or optometrists conduct pre-procedure evaluations and post-operative follow-up care in-center. Most of our patients currently receive a procedure called LASIK, which we began
performing in the United States in 1996.
As of September 30, 2011, we operated 53 Lasik
Plus
®
fixed-site laser vision correction centers in the United States. Included in the 53 vision centers are two
vision centers licensed to ophthalmologists who use our trademarks. Due to the nature of our operations and organization, we operate in only one business segment.
Basis of Presentation
We have prepared our Condensed Consolidated Financial Statements
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) which, in the opinion of management, include all adjustments necessary for a fair presentation of our financial position, results of operations, and
cash flows for each period presented. The adjustments referred to above are of a normal and recurring nature unless otherwise disclosed herein. Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations.
We derived the Condensed Consolidated Balance Sheet as of December 31, 2010 from audited financial statements, but did not include all disclosures required by U.S. generally accepted accounting
principles (U.S. GAAP). These Condensed Consolidated Financial Statements should be read in conjunction with our 2010 Annual Report on Form 10-K. Operating results for the three and nine month periods ended September 30, 2011 are
not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2011.
Use of Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include investments, patient
financing receivables and reserves, insurance reserves, income taxes and enhancement accruals. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances,
actual results could differ significantly from the estimates under different assumptions or conditions.
Reclassifications
We have reclassified certain prior-period amounts in the Condensed Consolidated Balance Sheets, Statements of Operations and Statements of Cash Flows to
conform to current period presentation. The reclassifications were not material to the Condensed Consolidated Financial Statements.
6
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
2. Investments
Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Currently, we classify all securities as available-for-sale. We carry available-for-sale securities at fair value, with temporary unrealized gains and losses, net of tax, reported in accumulated other comprehensive income, a
component of stockholders investment. The amortized cost of debt securities in this category reflects amortization of premiums and accretion of discounts to maturity computed under the effective interest method. We include this amortization in
the caption Net investment income and other within the Condensed Consolidated Statement of Operations. We also include in Net investment income and other realized gains and losses on sales of securities and declines in value
of securities determined to be other-than-temporary. We base the cost of securities sold upon the specific identification method. We include interest and dividends on securities classified as available-for-sale in net investment income.
The following table summarizes unrealized gains and losses related to our investments designated as available-for-sale (in thousands):
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|
|
|
|
September 30, 2011
|
|
|
|
Adjusted
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Corporate obligations
|
|
$
|
10,139
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
10,137
|
|
U.S. Government notes
|
|
|
16,604
|
|
|
|
2
|
|
|
|
(127
|
)
|
|
|
16,479
|
|
Auction rate municipal securities
|
|
|
903
|
|
|
|
30
|
|
|
|
|
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
27,646
|
|
|
$
|
32
|
|
|
$
|
(129
|
)
|
|
$
|
27,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Adjusted
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Corporate obligations
|
|
$
|
18,492
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
18,492
|
|
U.S. Government notes
|
|
|
11,585
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
11,556
|
|
Municipal securities
|
|
|
1,006
|
|
|
|
2
|
|
|
|
|
|
|
|
1,008
|
|
Auction rate municipal securities
|
|
|
924
|
|
|
|
27
|
|
|
|
|
|
|
|
951
|
|
Auction rate preferred securities
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
32,898
|
|
|
$
|
30
|
|
|
$
|
(30
|
)
|
|
$
|
32,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents gross unrealized losses and fair values for those investments that were in
an unrealized loss position as of September 30, 2011 and December 31, 2010, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Less than 12 Months
|
|
|
Less than 12 Months
|
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
Corporate obligations
|
|
$
|
8,286
|
|
|
$
|
(2
|
)
|
|
$
|
6,624
|
|
|
$
|
(1
|
)
|
U.S. Government notes
|
|
|
15,554
|
|
|
|
(127
|
)
|
|
|
10,179
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,840
|
|
|
$
|
(129
|
)
|
|
$
|
16,803
|
|
|
$
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We realized gains of $8,000 and losses of $22,000, primarily on the sale of our debt securities for the three months
ended September 30, 2011, and realized gains of $35,000 and losses of $44,000 for the nine months ended September 30, 2011. We had realized gains of $27,000 and no losses on the sale of debt securities for the three months ended
September 30, 2010 and realized gains of $1.1 million and losses of $50,000 for the nine months ended September 30, 2010.
There
were no other-than-temporary impairments to our investment securities for the three and nine months ended September 30, 2011 and 2010. When evaluating investments for other-than-temporary impairment, we review factors such as the length of time
and extent to which fair value has been below cost basis, the financial condition of the issuer of the investment securities and any changes thereto, and our intent to sell, or whether it is more-likely-than-not we would be required to sell the
investment before recovery of the investments amortized cost basis.
The following table shows the net carrying value (amortized cost)
and estimated fair value of debt and equity securities at September 30, 2011 by contractual maturity (in thousands). Expected maturities may differ from contractual maturities because the issuers of the securities may have the right or
obligation to prepay obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
Due in one year or less
|
|
$
|
26,743
|
|
|
$
|
26,616
|
|
Due after one year through three years
|
|
|
|
|
|
|
|
|
Due after three years
|
|
|
903
|
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
27,646
|
|
|
$
|
27,549
|
|
|
|
|
|
|
|
|
|
|
Auction Rate Securities
At September 30, 2011 and December 31, 2010, we held $1.1 million and $2.2 million par value, respectively, of various auction rate securities. The assets underlying the auction rate instruments
are primarily municipal bonds and preferred closed end funds. Maturity dates for our auction rate securities range from 2030 to 2036. In the three months ended September 30, 2011, $25,000 of auction rate securities were called at par by the
issuer, resulting in a gain of $4,000. In the nine months ended September 30, 2011, we redeemed auction rate preferred securities with a par value of $1.1 million for $916,000.
8
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
As a result of failed auctions, our auction rate instruments are not currently liquid. Due to the
continuation of the unstable credit environment, we believe that the recovery period for most of our auction rate instruments will exceed 12 months. Accordingly, we have classified the fair value of the auction rate instruments that were not
redeemed prior to September 30, 2011 as long-term.
3. Fair Values of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset and liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation
methodologies in measuring fair value:
|
|
|
Level Input:
|
|
Input Definition:
|
Level 1
|
|
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
|
|
Level 2
|
|
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement
date.
|
|
|
Level 3
|
|
Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date.
|
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.
The following tables summarize fair value measurements by level at September 30, 2011 and
December 31, 2010 for assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of September 30, 2011 Using
|
|
Description
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,545
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,545
|
|
Investments
|
|
|
|
|
|
|
26,616
|
|
|
|
933
|
|
|
|
27,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,545
|
|
|
$
|
26,616
|
|
|
$
|
933
|
|
|
$
|
47,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2010 Using
|
|
Description
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level
1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,350
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,350
|
|
Investments
|
|
|
891
|
|
|
|
31,056
|
|
|
|
951
|
|
|
|
32,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,241
|
|
|
$
|
31,056
|
|
|
$
|
951
|
|
|
$
|
52,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents are comprised of either bank deposits or amounts invested in money market funds, the fair value
of which is based on quoted market prices. Our debt securities are classified at fair value utilizing Level 2 inputs. For these securities, fair value is measured using observable market data that includes dealer quotes, live trading levels, trade
execution data, credit information and the bonds terms and conditions. The fair values of our auction rate instruments are classified in Level 3 because they are valued using a trinomial discount model as there is insufficient observable
auction rate market information available to determine the fair value of these investments. The determination of the fair value of the auction rate instruments employs assumptions including financial standing of the issuer of the instruments, final
stated maturities, estimates of the probability of the issue being called prior to final maturity, estimates of the probability of defaults and recoveries, expected changes in interest rates paid on the securities, interest rates paid on similar
instruments, and an estimated illiquidity discount due to extended redemption periods.
The following table presents the changes in Level 3
instruments for the three and nine months ended September 30, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Balance at beginning of period
|
|
$
|
954
|
|
|
$
|
1,981
|
|
|
$
|
951
|
|
|
$
|
2,090
|
|
Assets sold
|
|
|
(21
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
(22
|
)
|
Transfers out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
Gains included in other comprehensive loss
|
|
|
|
|
|
|
8
|
|
|
|
3
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30
|
|
$
|
933
|
|
|
$
|
1,989
|
|
|
$
|
933
|
|
|
$
|
1,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Assets Held For Sale
We had assets held for sale of $53,000 and $462,000 at September 30, 2011 and December 31, 2010, respectively, comprised of
lasers and other equipment from closed vision centers. We include assets held for sale in the caption Prepaid expenses and other on the Condensed Consolidated Balance Sheets. During the nine months ended September 30, 2011, we were
able to sell some of our assets held for sale with a combined net book value of $409,000 for total cash proceeds of approximately $774,000 resulting in a gain of approximately $365,000, before tax. During the nine months ended September 30,
2010, we sold some of our assets held for sale with a combined net book value of $651,000 for total cash proceeds of approximately $1.2 million and notes receivable of $835,000, resulting in a gain of approximately $1.4 million, before tax.
10
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
5. Income Taxes
The following table presents the components of our income tax expense for the following periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
18
|
|
|
$
|
(323
|
)
|
State and local
|
|
|
25
|
|
|
|
24
|
|
|
|
131
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
32
|
|
|
|
30
|
|
|
|
149
|
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
330
|
|
State and local
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
32
|
|
|
$
|
39
|
|
|
$
|
149
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
0.9
|
%
|
|
|
0.5
|
%
|
|
|
3.4
|
%
|
|
|
1.0
|
%
|
Our effective tax rate for the three and nine month periods ended September 30, 2011 is impacted by a full valuation
allowance against all of our deferred tax assets, net of deferred tax liabilities.
As of September 30, 2011 and December 31, 2010,
deferred tax assets net of deferred tax liabilities totaled $24.2 million and $21.1 million, respectively, offset by full valuation allowances. We increased both the gross deferred tax asset and the associated valuation allowance by $3.1 million as
a result of the increase of net operating loss carryforward based on our loss in the first nine months of 2011. Because it is not more-likely-than-not that we will realize our deferred tax assets, we have not recorded tax benefits in the United
States and state jurisdictions during 2011. Income tax expense for the nine month periods ended September 30, 2011 and 2010 includes interest on unrecognized tax benefits and state taxes in certain jurisdictions.
During the three and nine month periods ended September 30, 2011, there was a $49,000 change to the liability for unrecognized tax benefits or
potential interest and penalties recorded as a component of income tax. The total amount of unrecognized tax benefits at each of September 30, 2011 and December 31, 2010 was approximately $588,000 and $539,000, respectively. It is
reasonably possible that the amount of the total unrecognized tax benefits may change in the next 12 months. However, we do not believe that any anticipated change will be material to the Condensed Consolidated Financial Statements. In January 2011,
the Internal Revenue Service initiated a review of our 2009 corporate income tax return. After an initial review, the Internal Revenue Service has recommended to the Joint Committee on Taxation that the return be accepted as filed.
11
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
6. Per Common Share Data
We calculate basic earnings per common share data using the weighted average number of common shares outstanding during the period.
Diluted per share data reflects the potential dilution that would occur if common stock equivalents were exercised or converted to common stock but only to the extent that they are considered dilutive to our earnings. The following table is a
reconciliation of basic and diluted per share data for the following periods (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Basic Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,800
|
)
|
|
$
|
(8,440
|
)
|
|
$
|
(4,546
|
)
|
|
$
|
(13,292
|
)
|
Weighted average shares outstanding
|
|
|
18,838
|
|
|
|
18,703
|
|
|
|
18,798
|
|
|
|
18,672
|
|
Basic loss per common share
|
|
$
|
(0.20
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.71
|
)
|
|
|
|
|
|
Diluted Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,800
|
)
|
|
$
|
(8,440
|
)
|
|
$
|
(4,546
|
)
|
|
$
|
(13,292
|
)
|
Weighted average shares outstanding
|
|
|
18,838
|
|
|
|
18,703
|
|
|
|
18,798
|
|
|
|
18,672
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and potential dilutive shares
|
|
|
18,838
|
|
|
|
18,703
|
|
|
|
18,798
|
|
|
|
18,672
|
|
Diluted loss per common share
|
|
$
|
(0.20
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.71
|
)
|
For the three and nine month periods ended September 30, 2011 and 2010, we excluded all outstanding stock options
and restricted stock awards from the computation of our diluted earnings per share because the effect of these share-based awards was antidilutive due to our net loss. For the three and nine months ended September 30, 2011, the total number of
outstanding options and restricted stock awards that were antidilutive was 705,487 and 447,841, respectively. For the three and nine months ended September 30, 2010, the total number of outstanding options and restricted stock awards that were
antidilutive was 541,643 and 635,463, respectively.
7. Stock-Based Compensation
We have stock incentive plans pursuant to which employees and directors have been or are granted stock-based compensation. We recognize
compensation expense for the grant date fair value of stock-based awards over the applicable vesting period. The components of our pre-tax stock-based compensation expense, net of forfeitures and associated income tax effect, were as follows for the
following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Stock options
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
53
|
|
|
$
|
29
|
|
Restricted stock
|
|
|
414
|
|
|
|
338
|
|
|
|
1,206
|
|
|
|
928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
432
|
|
|
|
356
|
|
|
|
1,259
|
|
|
|
957
|
|
Income tax effect
|
|
|
166
|
|
|
|
272
|
|
|
|
486
|
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
266
|
|
|
$
|
84
|
|
|
$
|
773
|
|
|
$
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
We estimate the fair value of stock options granted using the Black-Scholes option-pricing model. This
model requires several assumptions, which we have developed and update based on historical trends and current market observations. The accuracy of these assumptions is critical to the estimate of fair value for these equity instruments.
Our restricted stock unit awards include both time-based awards that vest ratably over three years and restricted stock units that are tied to the
achievement of certain financial targets and stock performance criteria and cliff-vest in three years. The financial targets include revenue and operating income measurements. Total stockholder return is considered a market condition and the fair
value of those awards was calculated using a Monte Carlo simulation valuation model.
8. Restructuring and Impairment Charges
For the nine months ended September 30, 2011, we incurred net restructuring charges of $56,000. The restructuring charges
consisted primarily of a change in estimate related to previously accrued lease termination costs and employee separation benefits. For the nine months ended September 30, 2010, we incurred a net restructuring charge of $794,000. The charges
were $328,000 for exit and disposal costs associated with the closing of vision centers and $466,000 for contract termination costs. Contract termination costs resulted primarily from the closure of one of our licensed operations and the termination
of the related license agreement. Other exit and disposal costs incurred in 2010 were primarily expenses related to the closures of facilities and the relocation of various medical equipment.
At September 30, 2011 and December 31 2010, we included short-term restructuring reserves of $1.4 million and $1.6 million, respectively, in Accrued liabilities and other in the
Condensed Consolidated Balance Sheets. Long-term restructuring reserves were $1.3 million and $2.1 million at September 30, 2011 and December 31, 2010, respectively, and were included in Long-term rent obligations and other.
Restructuring reserves declined due to payments during the nine month period. The fair value measurements in all periods utilized market prices of similar assets in determining fair value, which is a Level 2 input under U.S. GAAP.
The following table summarizes the restructuring reserve for the three and nine months ended September 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Separation
Costs
|
|
|
Contract
Termination
Costs
|
|
|
Total
|
|
Balance at December 31, 2010
|
|
$
|
107
|
|
|
$
|
3,641
|
|
|
$
|
3,748
|
|
Liabilities recognized
|
|
|
20
|
|
|
|
36
|
|
|
|
56
|
|
Utilized
|
|
|
(127
|
)
|
|
|
(427
|
)
|
|
|
(554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
|
|
|
|
|
3,250
|
|
|
|
3,250
|
|
Liabilities recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
|
|
|
(329
|
)
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2011
|
|
$
|
|
|
|
$
|
2,921
|
|
|
$
|
2,921
|
|
Liabilities recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
|
|
|
(270
|
)
|
|
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2011
|
|
$
|
|
|
|
$
|
2,651
|
|
|
$
|
2,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2011, we incurred no impairment charges. In the three and nine
months ended September 30, 2010, we recorded impairment charges to reduce the carrying amount of long-lived assets by $1.6 million and $1.7 million, respectively. The impairment charge recognized during the three months ended September 30,
2010 reflected primarily our decision to consolidate vision center operations in four markets and close vision centers in four additional underperforming markets in order to preserve cash. We also included in the impairment charge $164,000 related
to certain assets held for use in one vision center. We assess the impairment of property and equipment whenever events or circumstances indicate that the carrying value might not be recoverable. We write down to fair value, which is generally
determined from estimated discounted cash flows for assets held for use, recorded values of property and
13
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
equipment that we do not expect to recover through undiscounted future net cash flows. The use of discounted cash flows represents a Level 3 fair value input under U. S. GAAP.
9. Debt
Long-term debt obligations consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Bank loan
|
|
$
|
4,721
|
|
|
$
|
7,284
|
|
Debt obligations maturing within one year
|
|
|
(2,937
|
)
|
|
|
(3,039
|
)
|
|
|
|
|
|
|
|
|
|
Long-term obligations (less current portion)
|
|
$
|
1,784
|
|
|
$
|
4,245
|
|
|
|
|
|
|
|
|
|
|
In April 2008, we entered into a five-year bank loan agreement for $19.2 million to finance medical equipment. The loan
agreement provides for repayment in equal monthly installments over a five-year period at a fixed interest rate of 4.96%. Loan repayments totaling $2.6 million for the nine months ended September 30, 2011 reflect a decrease of approximately
$1.5 million, compared to the same period in 2010, due primarily to repayment of loans for excimer lasers that we sold in 2011 relating to vision centers that we closed in 2010.
The estimated fair value of our long-term portion of debt obligations is $1.8 million based on the present value of the underlying cash flows discounted at our incremental borrowing rate. Within the
hierarchy of fair value measurements, this is a Level 3 fair value measurement.
10. Comprehensive Income (Loss)
The components of accumulated other comprehensive income consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Unrealized investment loss
|
|
$
|
(97
|
)
|
|
$
|
|
|
Foreign currency translation adjustment
|
|
|
513
|
|
|
|
662
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
416
|
|
|
$
|
662
|
|
|
|
|
|
|
|
|
|
|
The components of comprehensive loss consisted of the following for the following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net loss
|
|
$
|
(3,800
|
)
|
|
$
|
(8,440
|
)
|
|
$
|
(4,546
|
)
|
|
$
|
(13,292
|
)
|
Unrealized investment loss
|
|
|
(54
|
)
|
|
|
(22
|
)
|
|
|
(97
|
)
|
|
|
(566
|
)
|
Foreign currency translation
|
|
|
(258
|
)
|
|
|
143
|
|
|
|
(149
|
)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(4,112
|
)
|
|
$
|
(8,319
|
)
|
|
$
|
(4,792
|
)
|
|
$
|
(13,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Commitments and Contingencies
Our business results in medical malpractice lawsuits. Effective in December 2002, we established a captive insurance company to provide
coverage for claims brought against us after December 17, 2002. We use the captive insurance company for both primary insurance and excess liability coverage. A number of claims are now pending with our captive insurance company. At
September 30, 2011 and December 31, 2010, our insurance reserves balance was $7.2 million and $7.4 million, respectively.
14
LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
In addition to these malpractice suits, we are periodically subject to various other claims and
lawsuits. We believe that none of these other claims or lawsuits to which we are currently subject, individually or in the aggregate, will have a material adverse effect on our business, financial position, results of operations, or cash flows.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Information included in this Quarterly Report on Form 10-Q contains forward-looking statements that involve potential risks
and uncertainties. Actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed herein and those discussed in our Annual Report on
Form 10-K for the year ended December 31, 2010. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date thereof.
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (SEC) under the Exchange Act. These reports and other information filed by
us may be read and copied at the Public Reference Room of the SEC, 100 F Street N.E., Washington, D.C. 20549. Information may be obtained about the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website
(www.sec.gov) that contains reports, proxy and information statements and other information about issuers that we file electronically with the SEC.
The financial results for the three and nine months ended September 30, 2011 and 2010 referred to in this discussion should be read in conjunction with our Condensed Consolidated Financial Statements
and the accompanying Notes in this Quarterly Report on Form 10-Q. Results of interim periods may not be indicative of the results for subsequent periods or the full year.
Overview
Key financial highlights for the three months ended September 30, 2011
include (all comparisons are with the same period of 2010):
|
|
|
Revenues increased 7.5% to $21.8 million compared with $20.3 million; adjusted revenues increased 10.5% to $20.8 million compared with $18.8 million.
|
|
|
|
Procedure volume was 12,444, compared with 11,497 procedures (60 vision centers) and 10,569 same-store procedures (53 vision centers), marking the
fourth consecutive quarter of year-over-year growth in same-store procedures.
|
|
|
|
Same-store revenues increased 15.6%; adjusted same-store revenues increased 19.5%.
|
|
|
|
Operating loss decreased to $4.1 million from $8.5 million; adjusted operating loss decreased to $5.0 million from $9.8 million. The improvement in
operating loss and adjusted operating loss reflects increased procedure volume and revenue, the closing of under-performing vision centers, and lower depreciation expense from assets that are now fully depreciated. The 2010 quarter included $1.8
million in impairment and restructuring charges. Marketing cost per eye was $426 compared with $444.
|
|
|
|
Net loss was $3.8 million, or $0.20 per share, compared with net loss of $8.4 million, or $0.45 per share.
|
15
Key financial highlights for the nine months ended September 30, 2011 include (all comparisons are with
the same period of 2010):
|
|
|
Revenues were $78.5 million compared with $80.6 million; adjusted revenues were $75.1 million compared with $75.8 million.
|
|
|
|
Procedure volume was 45,382, compared with 45,829 procedures and 41,920 same-store procedures.
|
|
|
|
Same-store revenues increased 5.4%; adjusted same-store revenues increased 7.7%.
|
|
|
|
Operating loss decreased to $4.9 million from $14.6 million; adjusted operating loss decreased to $8.0 million from $18.9 million. The improvement in
operating loss and adjusted operating loss reflects increased same-store procedure volume, the closing of under-performing vision centers, lower marketing and advertising expense and lower depreciation expense. The year-to-date results of 2011
included $498,000 of gain on sales of assets from closed visions centers and $56,000 in impairment and restructuring charges. The year-to-date results of 2010 included $1.6 million of gain on sale of assets and $2.5 million in impairment and
restructuring charges. Marketing cost per eye decreased to $391 from $421.
|
|
|
|
Net loss was $4.5 million, or $0.24 per share, compared with net loss of $13.3 million, or $0.71 per share.
|
|
|
|
Net cash used in operations was $2.4 million compared with net cash provided by operations of $4.6 million. The net cash provided by operations for
2010 included an $11.8 million tax refund. We are now in a net operating loss carryforward position and did not receive a tax refund in 2011.
|
|
|
|
Cash and investments totaled $47.1 million as of September 30, 2011, compared with $52.2 million as of December 31, 2010.
|
We derive substantially all of our revenues from the delivery of laser vision correction procedures performed in our U.S.
vision centers. Our revenues, therefore, depend on our volume of procedures, and are impacted by a number of factors, including the following:
|
|
|
General economic conditions and consumer confidence and discretionary spending levels,
|
|
|
|
Our ability to generate customers through our arrangements with managed care companies, direct-to-consumer advertising, and word-of-mouth referrals,
|
|
|
|
The availability of patient financing,
|
|
|
|
The level of consumer acceptance of laser vision correction, and
|
|
|
|
The effect of competition and discounting practices in our industry.
|
Other factors that impact our revenues include:
|
|
|
Deferred revenue from the sale, prior to June 15, 2007, of separately priced acuity programs, and
|
|
|
|
Our mix of procedures among the different types of laser technology.
|
Because our revenues are a function of the number of laser vision correction procedures performed and the pricing for these services, and many of our costs are fixed, our vision centers have a relatively
high degree of operating leverage. As a result, our level of procedure volume can have a significant impact on our level of profitability. The following table details the number of laser vision correction procedures performed at our consolidated
vision centers.
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
First quarter
|
|
|
18,857
|
|
|
|
19,066
|
|
Second quarter
|
|
|
14,081
|
|
|
|
15,266
|
|
Third quarter
|
|
|
12,444
|
|
|
|
11,497
|
|
Fourth quarter
|
|
|
|
|
|
|
10,891
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
45,382
|
|
|
|
56,720
|
|
|
|
|
|
|
|
|
|
|
Current economic conditions in the United States have resulted in a continued low consumer confidence level and cautious
high-end discretionary spending for many consumers. That has continued to impact our procedure volume and operating results. In response, we have reduced our workforce since 2009 so that our staffing levels would be appropriate for our anticipated
procedure volume. Since October 2008, we have closed 25 vision centers. We have no current plans to open new vision centers until the economy improves.
16
We have provided both adjusted revenues and operating losses as a means of measuring performance that
adjusts for the non-cash impact of accounting for separately priced extended warranties which we offered prior to June 15, 2007. We believe the adjusted information better reflects operating performance and therefore is more meaningful to
investors. A reconciliation of revenues and operating losses reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP) is provided below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported U.S. GAAP
|
|
$
|
21,790
|
|
|
$
|
20,263
|
|
|
$
|
78,489
|
|
|
$
|
80,566
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior deferred revenue
|
|
|
(1,031
|
)
|
|
|
(1,475
|
)
|
|
|
(3,437
|
)
|
|
|
(4,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted revenues
|
|
$
|
20,759
|
|
|
$
|
18,788
|
|
|
$
|
75,052
|
|
|
$
|
75,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported U.S. GAAP
|
|
$
|
(4,102
|
)
|
|
$
|
(8,504
|
)
|
|
$
|
(4,889
|
)
|
|
$
|
(14,582
|
)
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior deferred revenue
|
|
|
(1,031
|
)
|
|
|
(1,475
|
)
|
|
|
(3,437
|
)
|
|
|
(4,770
|
)
|
Amortization of prior professional fees
|
|
|
103
|
|
|
|
148
|
|
|
|
344
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating loss
|
|
$
|
(5,030
|
)
|
|
$
|
(9,831
|
)
|
|
$
|
(7,982
|
)
|
|
$
|
(18,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations for the Three Months Ended September 30, 2011 Compared to the Same Period in 2010
Revenues
In the third
quarter of 2011, revenues increased by $1.5 million, or 7.5%, to $21.8 million from $20.3 million in the third quarter of 2010. Procedure volume increased 8.2% to 12,444 in the third quarter of 2011 from 11,497 in the third quarter of 2010. The
adjusted average reported revenue per procedure, which excludes the impact of deferring revenue from separately priced extended warranties, increased to $1,668 in the third quarter of 2011 from $1,634 in the third quarter of 2010 and $1,653 in the
second quarter of 2011. The components of the revenue change include (in thousands):
|
|
|
|
|
Increase in revenue from same-store procedure growth
|
|
$
|
3,064
|
|
Decrease in revenue from closed vision centers
|
|
|
(1,517
|
)
|
Impact from increase in average selling price, adjusted for revenue deferral
|
|
|
424
|
|
Change in deferred revenue
|
|
|
(444
|
)
|
|
|
|
|
|
Increase in revenues
|
|
$
|
1,527
|
|
|
|
|
|
|
Operating costs and expenses
Our operating costs and expenses include:
|
|
|
Medical professional and license fees, including per procedure fees for the ophthalmologists performing laser vision correction, and per procedure
license fees paid to certain equipment suppliers of our excimer and femtosecond lasers,
|
|
|
|
Direct costs of services, including the salary component of physician compensation for certain physicians employed by us, staff, facility costs of
operating laser vision correction centers, equipment lease and maintenance costs, surgical supplies, financing charges for third-party patient financing, and other costs related to revenues,
|
|
|
|
General and administrative costs, including headquarters and call center staff expense, and other overhead costs,
|
|
|
|
Marketing and advertising costs, and
|
|
|
|
Depreciation of equipment and leasehold improvements.
|
17
Medical professional and license fees
Medical professional and license fees in the third quarter of 2011, totaling $5.2 million, increased by $215,000, or 4.3%, from the third quarter of 2010. The increase was due to higher license fees and
physician fees associated with increased procedure volume, offset by a decrease in our enhancement costs related to previously closed vision centers. The amortization of the deferred medical professional fees attributable to prior years was $103,000
in the third quarter of 2011 and $148,000 in the third quarter of 2010.
Direct costs of services
Direct costs of services decreased $1.0 million, or 9.0%, in the third quarter of 2011 to $10.5 million from $11.5 million in the third quarter of 2010.
Our decision to close underperforming laser vision centers and other cost reduction efforts drove lower direct costs of services primarily in the areas of salaries, incentives and fringe benefits and rent and utility costs compared to the same
period in 2010. In addition, favorable actuarial claim experience reduced our insurance costs by approximately $357,000 in the third quarter of 2011 compared to the same period in 2010.
General and administrative
General and administrative expenses increased in the third
quarter of 2011 by $250,000, or 7.5%, from the third quarter of 2010, due to increases in salary costs of $153,000, incentive costs of $225,000 attributable to changes in estimates of ultimate year-end payouts, and professional services of $507,000
for additional tax services and planned spending for growth initiatives. Offsetting these increases was a reduction in sales tax costs of $424,000 resulting from the resolution of an outstanding state sales tax audit from the years 2004 through 2006
and reduced telecommunications expense of $110,000.
Marketing and advertising
Marketing and advertising expenses in the third quarter of 2011 increased by $205,000, or 4.0%, from the third quarter of 2010. These expenses were 24.3% of revenues in the third quarter of 2011,
consistent with 25.2% of revenues in the third quarter of 2010. Marketing cost per eye decreased to $426 for the third quarter of 2011 from $444 in the same period of 2010. We adjust our marketing spend levels continuously in an attempt to align
spending levels with consumer demand. We are continuing to work to develop more efficient marketing techniques and expand local initiatives as a means to attract patients. Our future operating profitability will depend in large part on the success
of our efforts in this regard.
Depreciation
Depreciation expense decreased in the third quarter of 2011 by approximately $921,000, or 38.7%, to $1.5 million, from $2.4 million in the third quarter of 2010. Due to reduced capital expenditures
beginning in 2009 and impairment charges and disposals as a result of closed vision centers in 2009 and 2010, our depreciable base of assets has decreased.
Restructuring and impairment charges
There were no restructuring or impairment charges in
the third quarter of 2011, compared to restructuring and impairment charges of $145,000 and $1.6 million, respectively, in the third quarter of 2010. Charges for 2010 were due primarily to costs to close multiple vision centers.
Gain on sale of assets
We sold lasers
and other assets held for sale for a gain of approximately $99,000 in the three months ended September 30, 2011. Gain on sale of assets was $266,000 in the three months ended September 30, 2010.
Non-operating income and expenses
Net
investment income in the third quarter of 2011 increased by $231,000 to $334,000. Interest income increased by $67,000, due primarily to slightly higher yields on interest-bearing securities in 2011. Patient financing income remained flat quarter
over quarter. Interest expense was $162,000 lower in the third quarter of 2011 compared to the third quarter of 2010 due to a favorable state sales tax audit settlement and a lower debt balance in 2011. Net investment income also includes our final
distribution from our Canadian joint venture for $42,000.
18
Income taxes
Due to the lack of positive evidence that the deferred tax assets will be realized in future periods as required by U.S. GAAP, we did not record a tax benefit with respect to our losses in the United
States and state jurisdictions in the three months ended September 30, 2011. Income tax expense for the three months ended September 30, 2011 includes the interest on unrecognized tax benefits and state taxes in certain jurisdictions.
Results of Operations for the Nine Months Ended September 30, 2011 Compared to the Same Period in 2010
Revenues
In the nine months ended
September 30, 2011, revenues decreased by $2.1 million, or 2.6%, to $78.5 million, from $80.6 million in the nine months ended September 30, 2010. Total procedure volume decreased 1.0% to 45,382 in the first nine months of 2011 from 45,829
in the first nine months of 2010. For vision centers open at least 12 months, procedure volume increased by 8.3% in the nine months ended September 30, 2011 to 45,382, compared to 41,920 in the nine months ended September 30, 2010. The
adjusted average reported revenue per procedure, which excludes the impact of deferring revenue from separately priced extended warranties, was relatively unchanged at $1,654 for the nine months ended September 30, 2011 and 2010. The components
of the revenue change include (in thousands):
|
|
|
|
|
Increase in revenue from same-store procedure growth
|
|
$
|
5,726
|
|
Decrease in revenue from closed vision centers
|
|
|
(6,465
|
)
|
Impact from change in average selling price, adjusted for revenue deferral
|
|
|
(5
|
)
|
Change in deferred revenue
|
|
|
(1,333
|
)
|
|
|
|
|
|
Decrease in revenues
|
|
$
|
(2,077
|
)
|
|
|
|
|
|
Medical professional and license fees
Medical professional and license fees in the nine months ended September 30, 2011, totaling $19.2 million, decreased by $170,000, or 0.9%, from $19.4 million during the nine months ended
September 30, 2010. The decrease was due to decreased physician fees and license fees associated with decreased number of vision centers and procedure volumes as well as lower enhancement costs related to previously closed vision centers. The
amortization of the deferred medical professional fees attributable to prior years was $344,000 in the nine months ended September 30, 2011 and $477,000 in the same period of 2010.
Direct costs of services
Direct costs of services in the nine months ended
September 30, 2011 decreased $5.5 million, or 14.6%, to $31.9 million from $37.4 million in the same period of 2010. Salaries, fringe benefits, and incentives decreased by $1.6 million and rent and utilities decreased by $1.2 million primarily
as a result of our decision to close underperforming vision centers in 2010. The decrease in direct costs of services was also the result of lower bad debt expense of $779,000 due to improved collection performance, lower financing fees of
approximately $385,000 as a result of efforts to shift patients to financing programs with a lower cost, and lower insurance expense of $635,000 due to reductions in our premiums as a result of fewer vision centers and favorable actuarial claim
experience.
General and administrative
General and administrative expenses decreased in the nine months ended September 30, 2011 by $191,000, or 1.8%, from the same period in 2010. During the 2011 period we recorded a $424,000 favorable
adjustment to sales tax from the resolution of an outstanding state sales tax audit from the years 2004 through 2006. In addition, we reduced our telecommunications expense by $276,000 and contract services by $109,000. These savings were offset
partially by increases to salaries and incentives of $323,000, stock compensation expense of $180,000 and professional fees of $369,000.
Marketing and advertising
Marketing and
advertising expenses decreased in the nine months ended September 30, 2011 by $1.6 million, or 8.1%, from the nine months ended September 30, 2010. These expenses were 22.6% of revenues in the nine months ended September 30, 2011,
compared to 24.0% during the nine months ended September 30, 2010. Marketing cost per eye decreased to $391 in the nine months ended September 30, 2011 compared with $421 in the same period of 2010. We adjust our marketing spend levels
continuously to align spending levels with consumer demand. We are continuing to work to develop more efficient marketing techniques and expand local initiatives as a means to attract customers. Our future operating profitability will depend in
large part on the success of our efforts in this regard.
19
Depreciation
Depreciation expense decreased in the nine months ended September 30, 2011 by $3.0 million, or 41.1%, to $4.3 million from $7.4 million in the first nine months of 2010. Due to reduced capital
expenditures beginning in 2009 and impairment charges and disposals as a result of closed vision centers in 2009 and 2010, our depreciable base of assets has decreased.
Restructuring and impairment charges
The net restructuring charges in the nine months
ended September 30, 2011 were $56,000, comprised primarily of adjustments to previous estimates for laser contract termination costs for closed vision centers and additional severance costs. We incurred restructuring and impairment charges
totaling $794,000 and $1.7 million, respectively, for the nine months ended September 30, 2010, comprised primarily of contract termination and asset impairment costs associated with the closure of certain of our laser vision centers. Also
included in the charges were other exit and disposal costs incurred in 2010 related to vacating leased properties and relocating medical equipment.
Gain on sale of assets
We sold lasers and other assets held for sale for a gain of
approximately $498,000 in the nine months ended September 30, 2011. Gain on sale of assets was $1.6 million for the first nine months of 2010.
Non-operating income and expenses
Net investment income in the nine months ended
September 30, 2011 decreased $932,000, or 65.5%, due primarily to the gain on sale of equity investments of $993,000 that occurred in the third quarter of 2010. Patient financing interest income declined $152,000 on lower accounts receivable,
and interest expense declined by $193,000 due to a favorable state sales tax audit settlement and lower borrowing levels.
Income taxes
Due to the lack of positive evidence that the deferred tax assets will be realized as required by U.S. GAAP, we did not record a tax
benefit in the United States and state jurisdictions in the nine months ended September 30, 2011. Income tax expense for the nine months ended September 30, 2011 and 2010 includes the interest on unrecognized tax benefits and state taxes
in certain jurisdictions.
Liquidity and Capital Resources
At September 30, 2011, we held $46.2 million in cash and cash equivalents and short-term investments, a decrease of $5.1 million from $51.3 million at December 31, 2010. Our cash flows from
operating, investing, and financing activities, as reflected in the Condensed Consolidated Statements of Cash Flows, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ending
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(2,447
|
)
|
|
$
|
4,613
|
|
Investing activities
|
|
|
5,613
|
|
|
|
(1,476
|
)
|
Financing activities
|
|
|
(2,828
|
)
|
|
|
(4,267
|
)
|
Net effect of exchange rate changes on cash and cash equivalents
|
|
|
(143
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
195
|
|
|
$
|
(1,048
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities were $2.4 million for the nine months ended September 30, 2011 compared to
generated cash flows of $4.6 million for the same period in 2010. Cash from operations in the first nine months of 2010 included an $11.8 million tax refund. We did not receive a tax refund in 2011 because we are in a net operating loss
carryforward position. Cost control and cash conservation efforts have continued to provide significant reductions in our marketing spend, and laser maintenance, as well as many other discretionary areas. We continue to manage working capital
closely with particular focus on ensuring timely collection of outstanding patient receivables and the management of our trade payable obligations. At September 30, 2011, working capital (excluding debt due within one year) amounted to $30.2
million compared to $36.3 million at December 31, 2010. Liquid assets (cash and cash equivalents, short-term investments and accounts receivable) amounted to 186.6% of current liabilities at September 30, 2011, compared to 199.4% at
December 31, 2010.
20
We believe that cash flow from operations, available cash and short-term investments will provide sufficient
cash reserves and liquidity to fund our working capital needs, capital expenditures and debt and capital lease obligations for at least the next 12 months. We are balancing cash conservation in the current challenging economic environment against
our longer-term objective of managing to profitability and growth as the economy improves. As a result of our aggressive efforts to reduce costs, we estimate the average number of procedures required companywide to reach breakeven cash flow,
excluding any tax refunds and after capital expenditures and debt service, to be approximately 70,000 per year. There can be no assurance as to the number of procedures we will perform in 2011 or thereafter.
We continue to offer our own sponsored patient financing. As of September 30, 2011, we held $2.9 million in patient receivables, net of allowance
for doubtful accounts, which was an increase of $265,000, or 9.9% from December 31, 2010. Our internal patient financing rates have increased because of continued investment in our guaranteed financing advertising campaign. We
continually monitor the allowance for doubtful accounts and will adjust our lending criteria or require greater down payments if our experience indicates that is necessary. However, our ability to collect patient accounts depends, in part, on
overall economic conditions.
During the nine months ended September 30, 2011, we purchased $137.5 million of investment securities and
received proceeds from the sale of investment securities of $142.7 million. Our investment portfolio consists of high-grade commercial paper and government securities with maturities typically ranging from 30 to 90 days. The ongoing maturities and
reinvestment result in the high level of purchasing and selling activity reflected in the Condensed Consolidated Statements of Cash Flows.
We
had assets held for sale of $53,000 and $462,000 at September 30, 2011 and December 31, 2010, respectively, related to unused lasers and other equipment from our closed vision centers. During the nine months ended September 30, 2011,
we sold some of our assets held for sale with a combined net book value of $409,000 for total cash proceeds of approximately $774,000, resulting in a gain of approximately $365,000, before tax.
At September 30, 2011 and December 31, 2010, we held $1.1 million and $2.2 million, respectively, par value of various auction rate securities.
The assets underlying the auction rate instruments are primarily municipal bonds and preferred closed end funds. Our auction rate instruments are not currently liquid. Maturity dates for our auction rate securities range from 2030 to 2036. In the
nine months ended September 30, 2010, $125,000 of the related securities was called at par by their issuers. In the nine months ended September 30, 2011, we redeemed securities of $1.1 million for $916,000. See Note 2 to the Condensed
Consolidated Financial Statements for further information regarding our auction rate security investments.
We have not opened any new vision
centers in 2011 or 2010. Capital expenditures for the nine months ended September 30, 2011 and 2010 were $869,000 and $176,000, respectively. The increase in our capital expenditures is due, in large part, to renovations of existing vision
centers. In April 2011, we closed our Naperville, IL vision center.
Critical Accounting Estimates
There have been no material changes in the critical accounting policies described in Managements Discussion and Analysis in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2010.
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 record short-term investments
at fair value. Due to the short-term nature of the investments in corporate bonds, municipal and U.S. Government bonds, we believe there is little risk to the valuation of these debt securities.
Long-term investments are comprised of auction rate securities that are currently failing auction. We record these investments at fair value using a
trinomial discount model. We are divesting all auction rate securities as the market allows. There can be no assurance, however, that the issuers of the auction rate securities that we hold will redeem them in advance of their maturity or a
regularized auction market will be restored.
21
We have a low exposure to changes in foreign currency exchange rates and, as such, have not used derivative
financial instruments to manage foreign currency fluctuation risk.
In addition, because our secured indebtedness is at a fixed rate, we have
limited interest rate risk.
Item 4. Controls and Procedures.
(a)
|
Evaluation of Disclosure Controls and Procedures
|
Under the supervision of and with the participation of our management, including the companys Chief Operating Officer (COO) and Chief Financial Officer (CFO), an evaluation of the effectiveness of
our disclosure controls and procedures was performed as of September 30, 2011. Based on this evaluation, the COO and CFO concluded that our disclosure controls and procedures are effective to ensure that material information is
(1) accumulated and communicated to our management as appropriate to allow timely decisions regarding disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission.
(b)
|
Changes in Internal Control over Financial Reporting
|
Under the supervision of and with the participation of our management, including the COO and CFO, an evaluation of our internal control over financial reporting was performed as of September 30,
2011. Based on this evaluation, management concluded that there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
22
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
For a discussion of risk factors attributable to our business, refer to Part 1, Item 1A, Risk Factors, contained in our Annual Report on
Form 10-K for the year ended December 31, 2010. There have been no material changes to the risk factors disclosed in the Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. (Removed and Reserved).
Item 5. Other Information
Not applicable.
Item 6. Exhibits
|
|
|
Exhibits
Number
|
|
Description
|
31.1
|
|
COO Certification under Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
|
CFO Certification under Section 302 of the Sarbanes-Oxley Act of 2002
|
32
|
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
*101.INS
|
|
XBRL Instance Document
|
*101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
*101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
*101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
*101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
*
|
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
23
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
LCA-VISION INC.
|
|
|
|
Date: October 26, 2011
|
|
|
|
/s/ David L. Thomas
|
|
|
|
|
David L. Thomas
|
|
|
|
|
Chief Operating Officer
|
|
|
|
Date: October 26, 2011
|
|
|
|
/s/ Michael J. Celebrezze
|
|
|
|
|
Michael J. Celebrezze
|
|
|
|
|
Senior Vice President of Finance,
Chief Financial Officer and Treasurer
|
24
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