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U.S. SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(Mark One) | ||
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF | |
THE SECURITIES EXCHANGE ACT OF 1934. | ||
For the quarterly period ended March 31, 2005. | ||
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF | |
THE SECURITIES EXCHANGE ACT. | ||
For the transition period from ___to ___ |
Commission file number0-27610
LCA-Vision Inc.
Delaware | 11-2882328 | |
(State or other jurisdiction of | (IRS Employer | |
incorporation or organization) | Identification No.) |
7840 Montgomery Road, Cincinnati, Ohio 45236
(513) 792-9292
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.
Yesþ Noo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yesþ Noo
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,345,706 shares as of April 28, 2005.
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Part I.Financial Information
Item 1.Financial Statements
LCA-Vision Inc.
March 31, 2005 | December 31, 2004 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 100,140 | $ | 86,588 | ||||
Accounts receivable, net of allowance for doubtful accounts of $2,473 and $2,260 | 9,257 | 8,662 | ||||||
Receivables from vendors | 1,520 | 1,077 | ||||||
Prepaid expenses and other | 1,601 | 2,420 | ||||||
Deferred tax assets | 2,524 | 6,015 | ||||||
Total current assets | 115,042 | 104,762 | ||||||
Property and equipment | 51,921 | 50,374 | ||||||
Accumulated depreciation and amortization | (33,480 | ) | (31,743 | ) | ||||
Property and equipment, net | 18,441 | 18,631 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $710 and $605 | 1,393 | 1,171 | ||||||
Goodwill | 275 | 275 | ||||||
Deferred compensation plan assets | 1,347 | 1,187 | ||||||
Investment in unconsolidated businesses | 96 | 168 | ||||||
Deferred tax assets | 2,371 | 2,593 | ||||||
Other assets | 770 | 790 | ||||||
Total Assets | $ | 139,735 | $ | 129,577 | ||||
Liabilities and Stockholders’ Investment | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 2,412 | $ | 4,964 | ||||
Accrued liabilities and other | 10,714 | 7,574 | ||||||
Debt maturing in one year | 714 | 542 | ||||||
Total current liabilities | 13,840 | 13,080 | ||||||
Capital lease obligations | 321 | 376 | ||||||
Deferred compensation liability | 1,478 | 1,215 | ||||||
Insurance reserve | 3,262 | 2,568 | ||||||
Minority equity interest | 674 | 501 | ||||||
Stockholders’ investment | ||||||||
Common stock ($0.001 par value; 23,843,228 and 23,767,353 shares and 20,292,434 and 20,216,559 shares issued and outstanding, respectively) | 24 | 24 | ||||||
Contributed capital | 135,371 | 134,708 | ||||||
Common stock in treasury, at cost (3,550,794 shares and 3,550,794 shares) | (15,462 | ) | (15,462 | ) | ||||
Accumulated deficit | (42 | ) | (7,732 | ) | ||||
Accumulated other comprehensive income | 269 | 299 | ||||||
Total stockholders’ investment | 120,160 | 111,837 | ||||||
Total Liabilities and Stockholders’ Investment | $ | 139,735 | $ | 129,577 | ||||
The notes to the Condensed Consolidated Financial Statements are an integral part of this statement.
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LCA-Vision Inc.
Three months ended March 31, | ||||||||
2005 | 2004 | |||||||
Revenues — Laser refractive surgery | $ | 50,190 | $ | 31,650 | ||||
Operating costs and expenses | ||||||||
Medical professional and license fees | 9,520 | 6,465 | ||||||
Direct costs of services | 13,347 | 9,630 | ||||||
General and administrative expenses | 3,453 | 2,289 | ||||||
Marketing and advertising | 6,772 | 4,789 | ||||||
Depreciation | 1,750 | 1,716 | ||||||
Operating income | 15,348 | 6,761 | ||||||
Equity in earnings from unconsolidated businesses | 24 | 72 | ||||||
Minority equity interest | (173 | ) | (124 | ) | ||||
Interest expense | (13 | ) | — | |||||
Interest and dividend income | 530 | 367 | ||||||
Income before taxes on income | 15,716 | 7,076 | ||||||
Income tax expense (benefit) | 6,405 | (5,653 | ) | |||||
Net income | $ | 9,311 | $ | 12,729 | ||||
Income per common share | ||||||||
Basic | $ | 0.46 | $ | 0.64 | ||||
Diluted | $ | 0.44 | $ | 0.62 | ||||
Dividends declared per share | $ | 0.08 | $ | — | ||||
Weighted average shares outstanding | ||||||||
Basic | 20,236 | 19,980 | ||||||
Diluted | 21,200 | 20,627 |
The notes to the Condensed Consolidated Financial Statements are an integral part of this statement.
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LCA-Vision Inc.
Three Months Ended March 31, | ||||||||
2005 | 2004 | |||||||
Cash flow from operating activities: | ||||||||
Net income | $ | 9,311 | $ | 12,729 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 1,750 | 1,716 | ||||||
Provision for loss on doubtful accounts | 318 | 288 | ||||||
Deferred income taxes | 3,713 | (5,900 | ) | |||||
Deferred compensation | 264 | 140 | ||||||
Insurance reserve | 694 | 279 | ||||||
Equity in earnings of unconsolidated affiliates | (24 | ) | (72 | ) | ||||
Changes in working capital: | ||||||||
Accounts receivable | (1,135 | ) | (2,098 | ) | ||||
Receivables from vendors | (443 | ) | 89 | |||||
Prepaid expenses and other | 819 | (432 | ) | |||||
Accounts payable | (2,552 | ) | (1,124 | ) | ||||
Accrued liabilities and other | 3,139 | 1,312 | ||||||
Net cash provided by operations | 15,854 | 6,927 | ||||||
Cash flow from investing activities: | ||||||||
Purchase of property and equipment | (1,354 | ) | (646 | ) | ||||
Deferred compensation plan | (161 | ) | (137 | ) | ||||
Other, net | 176 | 118 | ||||||
Net cash used in investing activities | (1,339 | ) | (665 | ) | ||||
Cash flow from financing activities: | ||||||||
Principal payments of long-term notes, debt and capital lease obligations | (100 | ) | — | |||||
Dividends paid to Stockholders | (1,621 | ) | — | |||||
Exercise of stock options | 663 | 836 | ||||||
Distribution from minority equity investees | 95 | 50 | ||||||
Net cash (used) provided by financing activities | (963 | ) | 886 | |||||
Increase in cash and cash equivalents | 13,552 | 7,148 | ||||||
Cash and cash equivalents at beginning of period | 86,588 | 64,908 | ||||||
Cash and cash equivalents at end of period | $ | 100,140 | $ | 72,056 | ||||
The notes to the Consolidated Condensed Financial Statements are an integral part of this statement.
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LCA-Vision Inc.
Summary of Significant Accounting Policies
This filing includes condensed consolidated Balance Sheets as of March 31, 2005 and December 31, 2004; condensed consolidated Statements of Income for the three months ended March 31, 2005 and 2004; and condensed consolidated Statements of Cash Flow for the three months ended March 31, 2005 and 2004. In the opinion of management, these condensed consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. We suggest that these financial statements be read together with the financial statements and notes in our 2004 annual report on Form 10-K.
About Our Company
We are a leading provider of fixed-site laser vision correction services at our LasikPlusvision centers. Our vision centers provide the staff, facilities, equipment and support services for performing laser vision correction that employs advanced laser technologies to help correct nearsightedness, farsightedness and astigmatism. We currently utilize fixed-site excimer lasers, and our vision centers are supported primarily by credentialed board-certified ophthalmologists, optometrists and other health care professionals. The ophthalmologists perform the laser vision correction procedures in our vision centers, and either ophthalmologists or optometrists generally carry out the pre-procedure evaluations and post-procedure follow-ups in-center. We have performed over 450,000 laser vision correction procedures in our vision centers in the United States and Canada since 1991.
We currently operate 44 laser vision correction centers, including 41 wholly-owned vision centers located in large metropolitan markets throughout the United States, and three centers in a joint venture in Canada.
Internet
The Company’s websites arewww.lca-vision.comandwww.lasikplus.com. We make available free of charge through a link provided at our websites our Forms 10-K, 10-Q and 8-K, as well as any amendments thereto. These reports are available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission. To obtain a copy of Form 10-K by mail, please send a request to Investor Relations at LCA-Vision Inc., 7840 Montgomery Road, Cincinnati, Ohio 45236.
Consolidation Policy
We use the consolidation method to report our investment in our subsidiaries and other companies when we own a majority of the voting stock of the subsidiary. In addition, we consolidate the results of operations of professional corporations with which we contract to provide the services of ophthalmologists or optometrists at our vision centers, in accordance with EITF 97-2,Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Management Entities and Certain Other Entities with Contractual Management Agreements, and FASB FIN 46Consolidation of Variable Interest Entities, An Interpretation of ARB No. 51.
Use of Estimates
Management makes estimates and assumptions when preparing financial statements under generally accepted accounting principles. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may differ significantly from management’s expectations. These estimates and assumptions affect various matters including:
• | Allowance for doubtful accounts – patient financing | |||
• | Loss reserves – insurance captive |
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Allowance for Doubtful Accounts
We provide patient financing to some of our customers, including those who could not otherwise obtain third-party financing. The terms of the financing require the patient to pay an up-front fee which is intended to cover some or all of our variable costs, with the remainder due from the patient over a period of 12 to 36 months. We began our patient financing program in May 2002. Based upon our own experience with patient financing and based upon our knowledge of the credit experience of others who provide financing to customers similar to ours, we have established bad debt reserves as of March 31, 2005 of $3,183,000.
Captive Insurance Company Reserves
Effective as of December 18, 2002, we established a captive insurance company to provide professional liability insurance coverage for claims brought against us after December 17, 2002. In addition, our captive insurance company’s charter allows it to provide professional liability insurance for our doctors, some of whom are currently insured by the captive. Our captive insurance company is managed by an independent insurance consulting and management firm and is capitalized and funded by us based on actuarial studies performed by an affiliate of the consulting and management firm. A number of claims are now pending with our captive insurance company. The payment of significant claims by our captive insurance company could negatively affect our profitability and our financial condition.
Income Tax Benefit
The Company recorded an income tax benefit of approximately $8,587,000 for the three months ended March 31, 2004, as a result of a partial reversal of our deferred tax asset valuation allowance of $5,900,000 and a reduction of the deferred tax valuation allowance of $2,687,000 relating to the usage of net operating loss carryforwards in the first quarter of 2004. The reversal of the valuation allowance on deferred tax assets was made because of continued profitability in 2004 and expected future profitability. The computation of our deferred tax asset and valuation allowance is based on taxable income we expect to earn over future periods, which will include the utilization of previously accumulated net operating tax losses.
Per Share Data
Basic per share data is income applicable to common shares divided by the weighted average common shares outstanding. Diluted per share data is income applicable to common shares divided by the weighted average common shares outstanding plus the potential issuance of common shares if in-the-money stock options are exercised.
Following is a reconciliation of basic and diluted earnings per share for the months ended March 31, 2005 and 2004 (in thousands, except per share amounts):
Three Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Basic earnings: | ||||||||
Net income | $ | 9,311 | $ | 12,729 | ||||
Weighted average shares outstanding | 20,236 | 19,980 | ||||||
Basic earnings per share | $ | 0.46 | $ | 0.64 | ||||
Diluted earnings: | ||||||||
Net income | $ | 9,311 | $ | 12,729 | ||||
Weighted average shares outstanding | 20,236 | 19,980 | ||||||
Effect of dilutive securities | ||||||||
Stock options | 964 | 647 | ||||||
Weighted average common shares and potential dilutive shares | 21,200 | 20,627 | ||||||
Diluted earnings per share | $ | 0.44 | $ | 0.62 |
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Stock-Based Compensation
In December 2002, SFAS No. 148,Accounting for Stock-Based Compensation — Transition and Disclosure, which amends SFAS No. 123,Accounting for Stock-Based Compensation, was issued. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires more prominent and more frequent disclosures in the financial statements of the effects of stock-based compensation. The provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002.
We apply APB No. 25 and related interpretations utilizing the intrinsic value method in accounting for our stock option plans. We have adopted the disclosure-only provisions of SFAS No. 123. We recognize no compensation expense for our stock options granted to employees or directors. If we had elected to recognize compensation expense based on the fair value at the grant dates consistent with the provisions of SFAS No. 123, net income and net income per share would have been changed to the pro forma amounts indicated below (dollars in thousands, except per share amounts):
Three Months Ended | ||||||||||
March 31, | ||||||||||
2005 | 2004 | |||||||||
Net income | As reported | $ | 9,311 | $ | 12,729 | |||||
Pro forma | 8,816 | 12,242 | ||||||||
Basic per share income | As reported | $ | 0.46 | $ | 0.64 | |||||
Pro forma | 0.44 | 0.61 | ||||||||
Diluted per share income | As reported | $ | 0.44 | $ | 0.62 | |||||
Pro forma | 0.42 | 0.59 |
On December 16, 2004, the Financial Accounting Standards Board (“FASB) issued SFAS No. 123®,Share-Based Payment, which is a revision of SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123® requires all share-based payments to employees, including grants of employee stock options, to be valued at fair value on the date of grant, and to be expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-based payments is no longer an alternative. SFAS No. 123® is effective for all stock-based awards granted on or after January 1, 2006. In addition, companies must recognize compensation expense related to any awards that are not fully vested as of the effective date. Compensation expense for the unvested awards will be measured based on the fair value of the awards previously calculated in developing the pro forma disclosures in accordance with the provisions of SFAS No. 123. We are currently assessing the impact of adopting SFAS No. 123® on our consolidated results of operations.
Segment Information
We operate in one segment: laser refractive surgery.
Commitments and Contingencies
In the opinion of management, there are currently no commitments or contingencies that will have a material adverse effect on our financial position or results of operations.
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Item 2.Management’s Discussion and Analysis of Financial Condition and 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. Forward-looking statements contained herein, including statements regarding our belief that revenues and earnings will exhibit healthy year-over-year growth for fiscal 2005, among others, are based on information available to us as of the date hereof. Actual results could differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with our business, including, without limitation, those concerning global and local economic, political and sociological conditions; market acceptance of our services; the successful execution of marketing strategies; competition in the laser vision correction industry; an inability to attract new patients; the possibility of long-term side effects and adverse publicity regarding laser vision correction; adverse financial consequences in connection with the expensing of stock options or other equity-based compensation; regulatory action against us or others in the laser vision correction industry; and the relatively high fixed cost structure of our business. Except to the extent required under the federal securities laws and the rules and regulations promulgated by the Securities and Exchange Commission, we assume no obligation to update the information included herein, whether as a result of new information, future events, or circumstances, or otherwise. In addition to the information given herein, please refer to “Item 1. Business — Risk Factors” in our 2004 annual report on Form 10-K for a discussion of important factors that could affect our results.
Overview
We are a leading provider of fixed-site laser vision correction services at our LasikPlusvision centers. Our vision centers provide the facilities, equipment and support services for performing laser vision correction that employs advanced laser technologies to help correct nearsightedness, farsightedness and astigmatism.
Substantially all of our revenues currently are derived from laser vision correction procedures performed in our U.S. vision centers. During the first three months of 2005, we opened one vision center in Sacramento, California.
Our operating costs and expenses include:
• | Medical professional and license fees, including per procedure fees for the ophthalmologists performing laser vision correction and license fees per procedure paid to certain suppliers of our excimer lasers | |||
• | Direct costs of services, including center rent and utilities, equipment lease and maintenance costs, surgical supplies, center staff expense and costs related to other revenues | |||
• | General and administrative costs, including headquarters staff expense and other overhead costs | |||
• | Marketing and advertising costs | |||
• | Depreciation of equipment |
Our vision centers have a relatively high degree of operating leverage due to the fact that many of our costs are fixed in nature. As a result, our level of procedure volume can have a significant impact on our level of profitability. | ||||
We derive substantially all of our revenues from the delivery of laser vision correction services. Our revenues in any period are primarily a function of the number of laser vision correction procedures performed and the pricing for those services. | ||||
Our revenues are impacted by a number of factors, including the following: |
• | Our ability to generate customers through our arrangements with managed care companies, direct- to-consumer advertising and word-of-mouth referrals | |||
• | Our mix of procedures among the different types of laser technology that we use | |||
• | New vision center openings and our ability to increase procedure volume at existing vision centers | |||
• | The availability of patient financing | |||
• | General economic conditions and consumer confidence levels |
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• | The continued growth and increased acceptance of laser vision correction | |||
• | The effect of competition and discounting practices in our industry |
The following table details the number of laser vision correction procedures performed at our consolidated vision centers.
2005 | 2004 | |||||||
Procedures | Procedures | |||||||
Q1 | 37,578 | 24,270 | ||||||
Q2 | 24,093 | |||||||
Q3 | 23,248 | |||||||
Q4 | 24,224 | |||||||
Year | 37,578 | 95,835 |
Our strongest quarter in terms of procedures performed historically has been the first quarter of the year. We believe this seasonality is caused primarily because of the use of employer sponsored medical flexible spending programs which commonly use the calendar year as the plan year.
Results of Operations for the Three Months Ended March 31, 2005 and 2004
In the first quarter of 2005, revenues increased to $50,190,000, up 58.6% from $31,650,000 in the first quarter of 2004, primarily as a result of higher procedure volume and increased pricing per procedure. For vision centers open at least 12 months, revenues increased by 47% in the first quarter of 2005 compared to the first quarter of 2004. Procedure volume of 37,578 increased 55% from 24,270 in the first quarter of 2004. Revenue per procedure of $1,336 increased about 2% from $1,304 in the first quarter of 2004.
We believe that continued improvement in marketing and advertising effectiveness and continued growth and increased acceptance of laser vision correction, together with patient financing options, among other factors, helped to grow procedure volume in the first quarter of 2005 over the first quarter of 2004.
Medical professional and license fees
Medical professional expenses increased by $2,127,000, or 57.3%, in the first quarter of 2005 from the first quarter of 2004. This increase was due to costs and fees associated with higher revenues. License fees increased by $928,000, up 33.7%, from the first quarter of 2004, primarily as a result of higher procedure volume.
Direct costs of services
Direct costs of services include the staffing, equipment, medical supplies, and facility costs of operating laser vision correction centers. These direct costs increased in the first quarter of 2005 by $3,717,000, or 38.6%, over the first quarter of 2004, primarily as a result of increased salaries, employee incentives, fringe benefits, rent and utilities, financing fees, laser maintenance and surgical supplies in connection with an increase in the number of vision centers and our higher procedure volumes.
General and administrative
General and administrative expenses increased by $1,164,000, or 50.8%, in the first quarter of 2005 from the first quarter of 2004, primarily due to increases in salaries, employee incentives, equipment expense and professional services.
Marketing and advertising expenses
Marketing and advertising expenses increased by $1,983,000, or 41.4%, in the first quarter of 2005 from the first quarter of 2004, primarily as a result of our efforts to support new markets and help grow volume in existing markets.
Depreciation and amortization
Depreciation and amortization increased by $34,000 in the first quarter of 2005 from the first quarter of 2004.
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Non-operating income and expenses
Interest income in the first quarter of 2005 increased $163,000 due both to income on patient financing and to higher levels of invested cash.
Income Taxes
The following table summarizes the components of income tax provision for 2005 and income tax benefit for 2004:
Q1 2005 | Q1 2004 | |||||||
Federal income taxes | $ | 5,374 | $ | 2,383 | ||||
State income taxes, net of federal benefit | 820 | 403 | ||||||
Foreign income taxes | 211 | 148 | ||||||
Change in valuation allowance | — | (8,587 | ) | |||||
Income tax provision (benefit) | $ | 6,405 | $ | (5,653 | ) | |||
Included in the first quarter of 2004 was an income tax benefit of approximately $5,900,000 to reverse a portion of the valuation allowance on the Company’s deferred tax assets.
Liquidity and Capital Resources
Net cash provided by operating activities in the first three months of 2005 was $15,854,000, of which $3,713,000 resulted from the utilization of a portion of the Company’s deferred tax assets. Proceeds from the exercise of stock options totaled $663,000. Cash provided by operations more than offset the combined cash used in investing and financing activities. This caused an increase in cash and cash equivalents to $100,140,000 as of March 31, 2005, an increase of 16% from $86,588,000 as of December 31, 2004.
In the first quarter of 2005, the board of directors declared a dividend to common stock of $0.08 per share, which resulted in a cash payment of $1,621,000.
As of March 31, 2005, we had approximately $10,650,000 in accounts receivable, net of allowance for doubtful accounts, which was an increase of approximately $817,000 since December 31, 2004.
Our consolidated cash and cash equivalents includes $500,000 of cash maintained by our consolidated captive insurance company pursuant to statutory requirements as of March 31, 2005. These funds are not available for general corporate purposes.
Our costs associated with the opening of a new vision center primarily consist of capital expenditures, including the purchase or lease of lasers, diagnostic equipment, office equipment, leases and leasehold improvements. In addition, we typically incur other startup expenses and pre-opening advertising expenses. Generally, we estimate the costs associated with opening a new vision center to be between $1,000,000 and $1,500,000. Actual costs will vary from vision center to vision center based upon the market, the number of lasers purchased or leased for the vision center, the site of the vision center and the level of leasehold improvements required, among other variables. Our capital expenditures consist primarily of investments incurred in connection with the opening of new vision centers and equipment purchases or upgrades at existing facilities.
Year-to-date, we have opened one new vision center in Sacramento, California. Capital expenditures year-to-date in 2005 are $1,354,000. We currently have additional facilities under development.
The ability to fund our marketing and advertising program, planned capital expenditures and new vision center rollouts depends on our future performance, which, to a certain extent, is subject to general economic, competitive, legislative, regulatory and other factors, some of which are beyond our control. Based upon our current level of operations and anticipated revenue growth, we currently believe that cash flow from operations and available cash and short-term investments should provide sufficient cash reserves and liquidity to fund our working capital needs and our capital expenditures.
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Critical Accounting Estimates
Significant accounting policies are disclosed in the Notes to Condensed Consolidated Financial Statements. Critical accounting estimates are discussed in the following paragraphs.
Accounts Receivable and Allowance for Doubtful Accounts
We provide patient financing to some of our customers, including those who could not otherwise obtain third-party financing. The terms of the financing require the patient to pay an up-front fee which is intended to cover some or all of our variable costs, with the remainder due from the patient over a period of 12 to 36 months. We began our patient financing program in May 2002. Accounts receivable for patients that we finance for a period of 12 months or less are recorded at the undiscounted total expected payments less an estimated allowance for doubtful accounts. For patients we finance with an initial term over 12 months, we record the present value of expected payments discounted at a rate of 17.5% per year. The discount rate assumption is based upon current market rates charged by some other providers of unsecured credit to similar customers. Interest income is recorded over the term of the payment program. As of March 31, 2005, the discount in receivables with an initial term over 12 months was $445,000.
Based upon our own experience with patient financing and based upon the credit experience of some others who provide financing to customers similar to ours, we have established bad debt reserves as of March 31, 2005 of $3,183,000 against accounts receivable of $13,833,000. To the extent that our actual bad debt write-offs are greater than our estimated bad debt reserve, it would adversely impact our results of operations and cash flows. To the extent that our actual bad debt write-offs are less than our estimated bad debt reserve, it would favorably impact our results of operations and cash flows.
Captive Insurance Company Reserves
Effective December 18, 2002, we established a captive insurance company to provide professional liability insurance coverage for claims brought against us after December 17, 2002. In addition, our captive insurance company’s charter allows it to provide professional liability insurance for our doctors, some of whom are currently insured by the captive. Our captive insurance company is managed by an independent insurance consulting and management firm, and it is capitalized and funded by us based on actuarial studies performed by an affiliate of the consulting and management firm.
The financial statements of the captive insurance company are consolidated with our financial statements since it is a wholly-owned enterprise. As of March 31, 2005, we recorded an insurance reserve amount of $3,262,000, which represents an estimate of costs to settle claims. To the extent that our actual claim experience is greater than our estimated insurance reserve, it would adversely impact our results of operations and cash flows. To the extent that our actual claim experience is less than our estimated insurance reserve, it would favorably impact our results of operations and cash flows.
Income Taxes
The Company recorded an income tax benefit of approximately $8,587,000 for the three months ended March 31, 2004, as a result of a partial reversal of our deferred tax asset valuation allowance of $5,900,000 and a reduction of the deferred tax valuation allowance of $2,687,000 relating to the usage of net operating loss carryforwards in the first quarter of 2004. The reversal of the valuation allowance on deferred tax assets was made because of continued profitability in 2004 and expected future profitability. The computation of our deferred tax asset and valuation allowance is based on taxable income we expect to earn over future periods, which will include the utilization of previously accumulated net operating tax losses.
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 low exposure to changes in foreign currency exchange rates and, as such, have not used derivative financial instruments to manage foreign currency fluctuation risk.
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Item 4. Controls and Procedures.
(a) | Evaluation Of Disclosure Controls And Procedures | |||
Under the supervision of and with the participation of the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), an evaluation of the effectiveness of the Company’s disclosure controls and procedures was performed as of March 31, 2005. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder. | ||||
(b) | Changes In Internal Control Over Financial Reporting | |||
There were no changes in the Company’s internal control over financial reporting that occurred during the last quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. |
Part II. Other Information.
Item 6. Exhibits
Exhibits | ||
Number | Description | |
31.1 | CEO 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 |
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: May 9, 2005 | /s/ Stephen N. Joffe | |||
Stephen N. Joffe Chairman and Chief Executive Officer | ||||
Date: May 9, 2005 | /s/ Alan Buckey | |||
Alan Buckey | ||||
Chief Financial Officer |
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