<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended SEPTEMBER 30, 1999
---------------------------------------------
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT
For the transition period from to
------------------------------------
Commission File Number: 0-19283
------------------
VISIONAMERICA INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of issuer as specified in its charter)
Delaware 13-3220466
- ----------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5350 Poplar Avenue, Suite 900, Memphis, Tennessee 38119
- --------------------------------------------------------------------------------
(Address of principal executive offices)
901-683-7868
- --------------------------------------------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the 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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at October 31, 1999
- --------------------------------------------------------------------------------
Common Stock, $0.06 par value 9,189,274
<PAGE> 2
VISIONAMERICA INCORPORATED AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Index to Financial Information: Page
--------
<S> <C> <C>
Item 1:
Condensed Consolidated Balance Sheets
as of September 30, 1999 and December 31,
1998 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
September 30, 1999 and 1998 4
Condensed Consolidated Statements of
Operations for the Nine Months Ended
September 30, 1999 and 1998 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Item 3:
Quantitative and Qualitative Disclosures about 14
Market Risks
</TABLE>
2
<PAGE> 3
VISIONAMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(unaudited)
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Current Assets:
Cash $ 2,307,658 $ 2,014,677
Accounts receivable, net of allowances
for contractual adjustments and
doubtful accounts 14,146,551 11,257,466
Prepaid expenses and other assets 2,471,879 1,354,903
------------ ------------
TOTAL CURRENT ASSETS 18,926,088 14,627,046
Equipment, furniture and fixtures 25,179,646 20,844,435
Accumulated depreciation (10,090,969) (8,403,452)
------------ ------------
NET EQUIPMENT, FURNITURE AND FIXTURES 15,088,677 12,440,983
Intangible assets from acquisition, net of amortization
of $3,060,182 and $2,077,736 in 1999
and 1998 respectively 30,437,468 30,743,461
Deferred tax asset 2,008,532 1,923,000
Net investment in discontinued operations 6,994,225 6,541,591
Other assets 2,156,292 1,535,212
------------ ------------
TOTAL ASSETS $ 75,611,282 $ 67,811,293
============ ============
LABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 8,551,965 $ 4,215,810
Current installments of long-term debt 7,365,276 1,067,788
------------ ------------
TOTAL CURRENT LIABILITIES 15,917,241 5,283,598
Obligations under capital leases, excluding
Current installments 4,338,480 1,544,042
Long-term debt, excluding current
Installments 25,960,416 29,585,761
------------ ------------
TOTAL LIABILITIES 46,216,137 36,413,401
Minority interest 53,235 573,278
Stockholders' equity:
Common stock 546,915 540,178
Treasury stock (138,346) (138,346)
Additional paid-in capital 33,998,399 33,885,353
Accumulated deficit (5,065,058) (3,462,571)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 29,341,910 30,824,614
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75,611,282 $ 67,811,293
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
VISIONAMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues $ 16,440,989 $ 14,152,046
Operating costs 12,762,162 10,158,898
Provision for doubtful accounts 283,364 502,335
Depreciation and amortization 1,106,278 726,756
Selling, general, administrative and
development expenses 1,554,096 1,120,753
Unusual items 2,113,804 0
------------ ------------
EARNING (LOSS) FROM OPERATIONS (1,378,715) 1,643,304
Non-operating revenue (expenses):
Interest and other income 12,096 5,234
Interest expense (807,649) (629,849)
------------ ------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (2,174,268) 1,018,689
BEFORE MINORITY INTEREST
Minority interest in income of partnerships (159,581) (165,462)
------------ ------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (2,333,849) 853,227
BEFORE INCOME TAXES
Income tax benefit (expense) 662,517 (341,000)
------------ ------------
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS (1,671,332) 512,227
Discontinued operations
Loss on disposal, net of tax (1,125,000) 0
Operations, net of tax (92,083) 53,106
------------ ------------
NET EARNINGS (LOSS) $ (2,888,415) $ 565,333
============ ============
Earnings (loss) from continuing operations per
common share:
Basic ($0.19) $ 0.06
============ ============
Diluted ($0.19) $ 0.06
============ ============
Earnings (loss) from discontinued operations
per common share, net of tax:
Basic ($0.14) $ 0.01
============ ============
Diluted ($0.14) $ 0.01
============ ============
Earnings (loss) per common share:
Basic ($0.32) $ 0.06
============ ============
Diluted ($0.32) $ 0.06
============ ============
Weighted average number of common shares:
Basic 9,008,764 8,885,529
============ ============
Diluted 9,008,764 8,959,094
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
VISIONAMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues $ 46,380,709 $ 40,053,492
Operating costs 34,654,845 28,877,668
Provision for doubtful accounts 1,623,133 1,164,603
Depreciation and amortization 2,774,952 2,128,250
Selling, general, administrative and
development expenses 4,225,520 3,562,217
Unusual items 2,113,804 0
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 988,455 4,320,754
Non-operating revenue (expenses):
Interest and other income 833,925 15,576
Interest expense (2,203,008) (1,719,213)
------------ ------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (380,628) 2,617,117
BEFORE MINORITY INTEREST
Minority interest in income of partnerships (455,330) (464,050)
------------ ------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (835,958) 2,153,067
BEFORE INCOME TAXES
Income tax benefit (expense) 214,000 (838,743)
------------ ------------
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS (621,958) 1,314,324
Discontinued operations
Loss on disposal, net of tax (1,125,000) --
Operations, net of tax 144,471 324,455
------------ ------------
NET EARNINGS (LOSS) $ (1,602,487) $ 1,638,779
============ ============
Earnings (loss) from continuing operations
per common share:
Basic ($0.07) $ 0.15
============ ============
Diluted ($0.07) $ 0.15
============ ============
Earnings (loss) from discontinued operations
per common share, net of tax:
Basic ($0.11) $ 0.04
============ ============
Diluted ($0.11) $ 0.04
============ ============
Earnings (loss) per common share:
Basic ($0.18) $ 0.19
============ ============
Diluted ($0.18) $ 0.18
============ ============
Weighted average number of common shares:
Basic 8,997,301 8,772,738
============ ============
Diluted 8,997,301 8,916,006
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
VISIONAMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ($1,602,487) $1,638,779
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,774,952 2,128,250
Deferred taxes (85,532) 834,000
Provision for doubtful accounts 1,623,133 1,164,603
Minority interest in partnerships 455,330 464,050
Gain on sale of investment (724,242) --
Increase in:
Receivables (4,512,218) (4,502,967)
Prepaids and other assets (1,834,605) (241,396)
Increase in:
Accounts payable and accrued expenses 4,438,838 286,695
----------- ----------
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES 533,169 1,772,014
DISCONTINUED OPERATIONS, NET (452,634) (1,626,047)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 80,535 145,967
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,258,006) (647,061)
Proceeds from sale of investment 1,234,023 --
Acquisition of assets of physician practices (585,668) (5,562,715)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (609,651) (6,209,776)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,512,328 7,005,243
Principal payments on long-term debt (232,739) (238,703)
Principal payments on capital lease obligations (499,219) (545,203)
Distributions to minority interest (975,373) (408,564)
Proceeds from stock issuance 17,100 --
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 822,097 5,812,773
----------- ----------
NET INCREASE (DECREASE) IN CASH 292,981 (251,036)
CASH AT BEGINNING OF PERIOD 2,014,677 2,742,444
----------- ----------
CASH AT END OF PERIOD $ 2,307,658 $2,491,408
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
VISIONAMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OVERVIEW
VisionAmerica is an eye care company that provides facilities and services to
ophthalmologists and optometrists to assist in the integration of primary,
medical and surgical eye care.
In early 1999, the Company announced plans to focus its resources on its core
business of operating eye care and surgery centers including a major new
initiative to expand its laser vision correction capabilities. In connection
with this new initiative, the Company has acquired 12 VISX STAR S2(TM) Excimer
Laser Systems from VISX(TM), Inc. VISX, Inc. is the U.S. market leader among
manufacturers of excimer lasers for ophthalmic use.
In addition, as part of the new strategic focus on center operations and the
laser vision correction initiative, the Company has adopted plans to discontinue
certain non-core operations, including its managed eye care subsidiary, the Eye
Health Network (EHN) , its ophthalmic buying group, the Primary Eyecare Network,
Inc. (PEN), and its optical laboratory and related business. Effective July 1,
1999, the Company completed the sale of certain assets of EHN and plans to
discontinue its remaining operations in the near future. The Company has entered
into a letter of intent to sell PEN to another large ophthalmic buying group.
This transaction is expected to close in the fourth quarter. The Company also
anticipates selling the optical laboratory in the near future. As a result of
these plans, all these operations have been classified as discontinued
operations in the Company's financial statements.
On August 11, 1999, the Company's shareholders approved an amendment to its
Articles of Incorporation changing the Company's name from Omega Health Systems,
Inc. to VisionAmerica Incorporated, effective August 16, 1999.
2. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the accounting policies in effect as of December 31,
1998, as set forth in the annual consolidated financial statements of
VisionAmerica Incorporated. Certain prior year interim balances have been
reclassified to conform to the 1999 presentation. In the opinion of management,
all adjustments necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations for the nine month
period ended September 30, 1999 are not necessarily indicative of the results to
be expected for the full year.
3. EARNINGS (LOSS) PER SHARE
Basic earnings per common share for 1999 and 1998 were computed by dividing the
earnings (loss) by the weighted average number of common shares outstanding
during the quarter (9,008,764 and 8,885,529, respectively) and the nine month
period (8,997,301 and 8,772,738, respectively). Diluted earnings per common
share for 1999 and 1998 were computed by dividing the earnings (loss) by the
weighted average number of common shares and common equivalent shares
outstanding during the quarter (9,008,764 and 8,959,094, respectively) and the
nine month period (8,997,301 and 8,916,006, respectively). The dilutive effect
of options was not included in the earnings per share calculation because it is
antidilutive.
4. UNUSUAL ITEMS
The company recorded the following unusual charges in the quarter ended
September 30, 1999:
<TABLE>
<S> <C>
Write-off of capitalized costs in connection with the
Company's change in strategic focus, principally
costs capitalized in connection with pending acquisitions $ 685,677
Costs associated with restructuring relationships with
certain physician groups 1,428,127
----------
$2,113,804
==========
</TABLE>
7
<PAGE> 8
As a result of its strategic focus on center operations and laser vision
correction, the Company made a determination in the third quarter to
de-emphasize acquisitions of practice assets, except in specific limited
circumstances which strengthen existing center operations or have an
extraordinary opportunity associated with laser vision correction. Combined,
these decisions represented a significant change in direction for the Company.
As a result, previously capitalized costs of $685,677, principally in connection
with pending acquisitions which will not be actively pursued, have been charged
to expense. The Company previously capitalized direct external costs incurred in
connection with pending acquisitions, including legal, accounting, consulting
and appraisal costs. Such costs were treated as part of the cost of an
acquisition when an acquisition was completed or charged to expense when a
project was abandoned. The Company has determined that because it has changed
its focus and curtailed its acquisition program, these costs are not recoverable
and should be charged to expense.
The Company is also in the process of restructuring its relationships with
certain physician groups and has accrued costs totaling $1,428,127 in connection
with the restructuring. These restructurings include physician relationships in
three different markets. The physician agreements in these markets are being
revised to align the interests of the Company and the physician. The estimated
up-front incremental cost to the Company associated with restructuring these
agreements has been charged to expense.
5. ACQUISITIONS
On January 31, 1999, the Company completed the acquisition of the assets of the
ophthalmology practice of George M. Kopf, M.D. of Zanesville, Ohio in exchange
for $430,000 in cash financed under the Company's revolving credit facility.
On October 1, 1999, the Company completed the acquisition of the assets of the
ophthalmology practice of Khalid L. Khan, M.D. of Talladega, Alabama.
Simultaneously with the acquisition, the Company entered into a long-term
management agreement to manage the practice. In connection with the acquisition,
the Company issued 61,050 shares of the Company's common stock and $462,000 in
cash. The cash portion of the transaction was financed under the Company's
revolving credit facility.
6. SALE OF INVESTMENT
In June 1999, the Company sold an equity investment resulting in a gain of
$724,000, which is included in interest and other income in the condensed
consolidated statements of Operations for the nine months ended September 30,
1999.
7. REVOLVING CREDIT AGREEMENT
In February 1997, the Company entered into a $15,000,000 Credit Facility with
Banc of America Commercial Finance Corporation (formerly NationsCredit
Commercial Corporation), an affiliate of Bank of America, for the purpose of
refinancing certain existing debt, providing working capital and financing
acquisitions. The Credit Facility was initially a $15 million committed
facility, comprised of a $13 million acquisition facility (the "Acquisition
Facility") and a $2 million working capital facility (the "Working Capital
Facility"). Interest only is due monthly until January 2000, at which time the
borrowings will be due in installments over a four-year period. The Credit
Facility bears interest at a variable rate equal to the 30-day commercial paper
rate quoted in The Wall Street Journal plus 4.25%. In December 1997, the Credit
Facility was amended and restated, increasing the availability to $30,000,000
and in December 1998 increasing it again to $50,000,000.
As a result of the unusual charges recorded in the third quarter involving the
discontinuance of its acquisition program and restructuring center physician
agreements, the Company is in technical noncompliance with certain financial
convenants of its revolving credit agreement. The Company is working diligently
with its bank group to waive the matters of noncompliance and amend the credit
agreement and anticipates resolution of this matter in the near future.
8. SEGMENT INFORMATION
The Company's operations are classified as one business segment, center
operations. Center operations segment includes all activity related to managing
the ophthalmology practices and ambulatory surgical centers. The other category
includes amounts which do not meet the quantitative thresholds of SFAS No. 131.
These amounts are attributable to the operations of VisionAmerica Surgical
Services, Inc., which provides mobile surgical and other supplies and services
to eye care providers. The corporate category includes general and
administrative expenses associated with the operation of the Company's corporate
office.
The accounting policies of the segment are the same as those described in the
summary of significant accounting policies. Operating income by business segment
excludes interest income, interest expense, and corporate expenses.
The $685,000 in unusual charges related to the write off of acquisition costs is
included in the calculation of Corporate earnings. The $1,428,000 in unusual
charges related to restructuring physician relationships is included in the
calculation of Center operations earnings.
8
<PAGE> 9
Summarized financial information by business segment for the three months and
nine months ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Center operations $ 15,612,218 $13,309,145 $ 43,263,457 $37,854,302
Other 828,771 842,901 3,117,252 2,199,190
------------ ----------- ------------ -----------
Total revenues $ 16,440,989 $14,152,046 $ 46,380,709 $40,053,492
============ =========== ============ ===========
Earnings:
Center operations $ 586,923 2,510,804 $ 5,193,199 7,336,525
Other 86,921 44,749 286,893 120,785
------------ ----------- ------------ -----------
Total Segment 673,844 2,555,553 5,480,092 7,457,310
Corporate (2,040,463) (907,015) (3,657,712) (3,120,980)
Interest expense (807,649) (629,849) (2,203,008) (1,719,213)
Minority interest (159,581) (165,462) (455,330) (464,050)
Income tax benefit (expense) 662,517 (341,000) 214,000 (838,743)
------------ ----------- ------------ -----------
Total earnings from continuing
operations $ (1,671,332) $ 512,227 $ (621,958) $ 1,314,324
============ =========== ============ ===========
</TABLE>
9. CONTINGENCIES
The Company is engaged in the business of providing support and management
services to the eye care profession, which subjects it to intense federal and
state regulation. Both state and federal laws prohibit fee splitting and other
forms of compensation based on patient referral. These regulations may, in the
future, be amended or interpreted in such a fashion as to adversely affect the
business of the Company.
The Company maintains professional liability coverage on a claims made basis for
its centers, employees, and independent contractors, including center directors,
with minimum requirements of $3,000,000 per occurrence and $3,000,000 annually.
The Company also maintains general liability coverage. Additionally, the
physicians associated with the Company maintain professional liability coverage.
Providing support associated with health care services may give rise to claims
from patients or others for damages. The Company has been named in certain
professional liability claims. The Company believes that the ultimate resolution
of these matters will not have a significant effect on the Company's financial
position or results of operations. To the extent that any claims-made coverage
is not renewed or replaced with equivalent insurance, claims based on
occurrences during the term of such coverage, but reported subsequently, would
be uninsured. Management anticipates that the claims-made coverage currently in
place will be renewed or replaced with equivalent insurance as the term of such
coverage expires.
10. LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS
Included in loss on disposal of discontinued operations is $1,125,000 ($832,000
after tax) associated with the disposition of EHN. This adjustment to the
previously recorded loss on disposition of EHN is due to a reduction in the
purchase price and incremental operating costs incurred due to delays in
transferring certain managed care contracts.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
VisionAmerica is an eye care company that provides facilities and services to
ophthalmologists and optometrists to assist in the integration of primary,
medical and surgical eye care.
In early 1999, the Company announced plans to focus its resources on its core
business of operating eye care and surgery centers including a major new
initiative to expand its laser vision correction capabilities. In connection
with this new initiative, the Company has acquired 12 VISX STAR S2(TM) Excimer
Laser Systems from VISX(TM), Inc. VISX, Inc. is the U.S. market leader among
manufacturers of excimer lasers for ophthalmic use.
During the third quarter, the Company made significant advances in transforming
itself to a company focused on its co management center operations. This
narrowing of its business strategy was significantly advanced through a variety
of activities included but not limited to the following:
- Changing the Company's name to VisionAmerica Incorporated.
- The planned disposition of its non-core business units.
- The accelerated development of its refractive surgery program.
- The advancement of its information-technology infrastructure in the
areas of accounting and practice management.
- The decision to de-emphasize acquisitions in new markets.
- The restructuring of physician agreements in several centers.
Evidence of the progress of these changes included a record volume quarter for
both cataract and LASIK procedures, record same stores revenue growth during
the quarter and record revenues from operations for the quarter.
With regard to the planned disposition of its non-core business units, effective
July 1, 1999, the Company completed the sale of certain assets of EHN and plans
to discontinue its remaining operations in the near future. The Company has
entered into a letter of intent to sell PEN to another large ophthalmic buying
group. This transaction is expected to close in the fourth quarter. The Company
also anticipates selling the optical laboratory in the near future. As a result
of these plans, all these operations have been classified as discontinued
operations in the Company's financial statements.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended September 30
------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Operating costs 77.6 71.8 74.7 72.1
Provision for doubtful accounts 1.7 3.6 3.5 2.9
Depreciation and amortization 6.7 5.1 6.0 5.3
Selling, general, administrative
and development expenses 9.5 7.9 9.1 8.9
Unusual items 12.9 4.6
Earnings (loss) from operations (8.4%) 11.6% 2.1% 10.8%
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Total Revenues. Total revenues increased from $14,152,000 for the three
months ended September 30, 1998 to $16,441,000 for the three months ended
September 30, 1999, an increase of $2,289,000 or 16.2%. Same stores growth from
center operations was 19% in the third quarter. These increases reflect volume
increases in the Company's eye care and surgery centers, particularly in laser
vision correction.
Operating Costs. Operating costs increased from $10,159,000 for the
three months ended September 30, 1998 to $12.762,000 for the three months ended
September 30, 1999, an increase of $2,603,000 or 25.6%. This increase reflects
the costs associated with initiating the laser vision correction program in the
Company's centers. Each center has also added marketing and technical personnel
to support the initiation of the laser vision correction program. Each center
has a specific laser vision correction marketing program which is coordinated
with national marketing plans. These additional costs have, in many cases, been
incurred in advance of substantial revenues being realized as a result of these
incremental costs. The Company is engaged in a project to upgrade its
information technology infrastructure at each center location. This project had
the effect of increasing operating costs in the short-term. As a percentage of
revenues, operating costs increased from 71.8% in the 1998 period to 77.6% in
the 1999 period.
10
<PAGE> 11
Provision for Doubtful Accounts. Provision for doubtful accounts
decreased from $502,000 for the three months ended September 30, 1998 to
$283,000 for the three months ended September 30, 1999, a decrease of $219,000,
or 43.6% based on management's assessment of the required allowances. The
Company regularly monitors the quality of its portfolio of receivables, paying
particular attention to payor mix and the aging of receivables. As a result of
the emphasis on and growth in laser vision correction, Medicare receivables
represent a decreasing portion of the entire portfolio. One of the major
benefits to the Company of the upgrade in its information technology
infrastructure is better and more timely information on the quality of its
accounts receivable. As the information technology upgrade is completed, the
Company expects to continue to refine its methodology for evaluating accounts
receivable. As a percentage of total revenues, provision for doubtful accounts
decreased from 3.6% in the 1998 period to 1.7% in the 1999 period.
Depreciation and Amortization. Depreciation and amortization increased
from $727,000 for the three months ended September 30, 1998 to $1,106,000 for
the three months ended September 30, 1999. This increase resulted from
acquisitions made in the second half of 1998 and from the addition of twelve
excimer laser systems and related equipment in the second and third quarters of
1999. Each center has incurred substantial costs to build-out and equip laser
facilities, generally located within or adjacent to existing facilities.
Selling, General, Administrative and Development Expenses. Selling,
general, administrative and development expenses increased from $1,121,000 for
the three months ended September 30, 1998 to $1,554,000 for the three months
ended September 30, 1999, an increase of $433,000, or 38.7%. As a percentage of
total revenues, selling, general, administrative and development expenses
increased from 7.9% in the 1998 period to 9.5% in the 1999 period as a result of
costs associated with developing the Company's laser program and enhancing the
Company's information systems infrastructure.
Unusual Items. As a result of its strategic focus on center operations
and laser vision correction, the Company made a determination in the third
quarter to de-emphasize acquisitions of practice assets, except in specific
limited circumstances which strengthen existing center operations or have an
extraordinary opportunity associated with laser vision correction. Combined,
these decisions represented a significant change in direction for the Company.
As a result, previously capitalized costs of $685,677, principally in connection
with pending acquisitions which will not be actively pursued, have been charged
to expense.
The Company is also in the process of restructuring its relationships with
certain physician groups and has accrued costs totaling $1,428,127 in connection
with the restructuring.
Non-operating Revenue (Expenses). Interest expense increased from
$630,000 for the three months ended September 30, 1998 to $808,000 for the
three months ended September 30, 1999. The increase reflects higher levels of
borrowing and higher interest rates on floating rate borrowings.
Earnings (Loss) from Continuing Operations Before Income Taxes. The
Company reported a loss from continuing operations before income taxes of
$2,334,000 for the three months ended September 30, 1999 compared to earnings
from continuing operations before income taxes of $853,000 for the three months
ended September 30, 1999. This change results from the unusual items recorded in
the third quarter of 1999 as well as the costs associated with initiating the
Company's laser vision correction program.
Income Tax Benefit (Expense). The Company reported an income tax
benefit of $663,000 for the three months ended September 30, 1999 compared to
income tax expense of $341,000 for the three months ended September 30, 1998.
The effective tax rate for the three months ended September 30, 1999
was 26% compared to 39% in the same period of 1998. The decrease in the
effective rate is due to the net loss from continuing operations and the
establishment of a valuation allowance relating to deferred tax assets.
Net Earnings (Loss) from Continuing Operations. The Company reported a
net loss from continuing operations of $1,671,000 for the three months ended
September 30, 1999 compared to net earnings from continuing operations of
$512,000 for the three months ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Total Revenues. Total revenues increased from $40,053,000 for the nine
months ended September 30, 1998 to $46,381,000 for the nine months ended
September 30, 1999, an increase of $6,327,000 or 15.8%. Same stores growth from
center operations was 11% for the nine months ending September 30, 1999. These
increases reflect volume increases in the Company's eye care and surgery
centers, particularly in laser vision correction.
11
<PAGE> 12
Operating Costs. Operating costs increased from $28,878,000 for the
nine months ended September 30, 1998 to $34,655,000 for the nine months ended
September 30, 1999, an increase of $5,777,000 or 20.0%. This increase reflects
the costs associated with initiating the laser vision correction program in the
Company's centers. Each center has incurred substantial costs to build-out and
equip laser facilities, generally located within or adjacent to existing
facilities. Each center has also added marketing and technical personnel to
support the initiation of the laser vision correction program. Each center has a
specific laser vision correction marketing program which is coordinated with
national marketing plans. These additional costs have, in many cases, been
incurred in advance of substantial revenues being realized as a result of these
incremental costs. The Company is engaged in a project to upgrade its
information technology infrastructure at each center location. This project had
the effect of increasing operating costs in the short-term. . As a percentage of
revenues, operating costs increased from 72.1% in the 1998 period to 74.7% in
the 1999 period.
Provision for Doubtful Accounts. Provision for doubtful accounts
increased from $1,165,000 for the nine months ended September 30, 1998 to
$1,623,000 for the nine months ended September 30, 1999, an increase of
$459,000 or 43.6% based on management's assessment of the required allowances.
The Company regularly monitors the quality of its portfolio of receivables,
paying particular attention to payor mix and the aging of receivables. As a
result of the emphasis on and growth in laser vision correction, Medicare
receivables represent a decreasing portion of the entire portfolio. One of the
major benefits to the Company of the upgrade in its information technology
infrastructure is better and more timely information on the quality of its
accounts receivable. As the information technology upgrade is completed, the
Company expects to continue to refine its methodology for evaluating accounts
receivable. As a percentage of total revenues, provision for doubtful accounts
increased from 2.9% in the 1998 period to 3.5% in the 1999 period.
Depreciation and Amortization. Depreciation and amortization increased
from $2,128,000 for nine months ended September 30, 1998 to $2,775,000 for the
nine months ended September 30, 1999. This increase resulted from acquisitions
made in the second half of 1998 and from the addition of twelve excimer laser
systems and related equipment in the second and third quarters of 1999. Each
center has incurred substantial costs to build and equip laser facilities,
generally located within or adjacent to existing facilities.
Selling, General, Administrative and Development Expenses. Selling,
general, administrative and development expenses increased from $3,562,000 for
the nine months ended September 30, 1998 to $4,226,000 for the nine months ended
September 30, 1999, an increase of $663,000, or 38.7%. As a percentage of total
revenues, selling, general, administrative and development expenses increased
from 8.9% in the 1998 period to 9.1% in the 1999 period as a result of costs
associated with developing the Company's laser program and enhancing the
Company's information systems infrastructure.
Unusual Items. As a result of its strategic focus on center operations
and laser vision correction, the Company made a determination in the third
quarter to de-emphasize acquisitions of practice assets, except in specific
limited circumstances which strengthen existing center operations or have an
extraordinary opportunity associated with laser vision correction. Combined,
these decisions represented a significant change in direction for the Company.
As a result, previously capitalized costs of $685,677, principally in connection
with pending acquisitions which will not be actively pursued, have been charged
to expense.
The Company is also in the process of restructuring its relationships with
certain physician groups and has accrued costs totaling $1,428,127 in connection
with the restructuring.
Non-operating Revenue (Expense). Interest expense increased from
$1,719,000 for the nine months ended September 30, 1998 to $2,203,000 for the
nine months ended September 30, 1999. The increase reflects higher levels of
borrowing and somewhat interest rates on floating rate borrowings. In June, 1999
the Company sold an equity investment resulting in a gain of $724,000.
Earnings (Loss) from Continuing Operations Before Income Taxes. The
Company reported a loss from continuing operations before income taxes of
$836,000 for the nine months ended September 30, 1999 compared to earnings from
continuing operations before income taxes of $2,153,000 for the nine months
ended September 30, 1998. This change results from the unusual items recorded in
the third quarter of 1999 as well as the costs associated with initiating the
Company's laser vision correction program.
12
<PAGE> 13
Income Tax Benefit (Expense). The Company reported an income tax
benefit of $214,000 for the nine months ended September 30, 1999 compared to
income tax expense of $839,000 for the nine months ended September 30, 1998.
The effective tax rate for the nine months ended September 30, 1999 was
28% compared to 40% in the same period of 1998. The decrease in effective rate
is due to the net loss from continuing operations and the establishment of a
valuation allowance relating to deferred tax assets.
Net Earnings (Loss) from Continuing Operations. The Company reported a
net loss from continuing operations of $622,000 for the nine months ended
September 30, 1999 compared to net earnings from continuing operations of
$1,314,000 for the nine months ended September 30, 1998.
ACQUISITIONS
On January 31, 1999, the Company completed the acquisition of the assets of the
ophthalmology practice of George M. Kopf, M.D. of Zanesville, Ohio in exchange
for $430,000 in cash financed under the Company's revolving credit facility.
On October 1, 1999, the Company completed the acquisition of the assets of the
ophthalmology practice of Khalid L. Khan, M.D. of Talladega, Alabama.
Simultaneously with the acquisition, the Company entered into a long-term
management agreement to manage the practice. In connection with the acquisition,
the Company issued 61,050 shares of the Company's common stock and $462,000 in
cash. The cash portion of the transaction was financed under the Company's
revolving credit facility.
IMPACT OF CHANGING PRICES
The Company derives a significant portion of its revenues from laser vision
correction services. Although the Company has not experienced any significant
price decreases to date, the Company does anticipate that the overall level of
pricing will decrease over time.
The Company also anticipates that at least a portion of the impact of
decreasing prices will be offset by volume increases.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, the Company generated $533,000 of
cash from continuing operating activities and used $453,000 in discontinued
operating activities, which reflects the wind-down of the Company's managed care
activities and the reclassification of PEN and the optical laboratory to
discontinued operations. The Company used $610,000 in investing activities and
generated $822,000 in financing activities.
Cash flows from operations included significant adjustments for depreciation and
amortization ($2,775,000) as well as provision for doubtful accounts
($1,623,000). Investing activities during the period included $1,258,000 in
capital expenditures for equipment as well as acquisitions of the assets of
ophthalmic practices in Ohio and Alabama, which represent extensions of current
market territories. In addition, the Company received $1,234,000 in proceeds
from the sale of an investment. Financing activities included an increase in
debt and distributions to minority interest. In addition, the Company financed
its acquisition of excimer lasers and related equipment with capitalized leases
totalling approximately $4 million.
As of September 30, 1999, the Company has approximately $17 million available on
its $50 million revolving credit facility. As a result of the unusual charges
recorded in the third quarter involving the discontinuance of its acquisition
program and restructuring center physician agreements, the Company is in
technical noncompliance with certain financial covenants of its revolving credit
agreement. The Company is working diligently with its bank group to waive the
matters of noncompliance and amend the credit agreement and anticipates
resolution of this matter in the near future.
The Company believes that the eye care services industry is entering a period of
consolidation and that it may be desirable to become larger in order to continue
to be competitive in its operations, especially with its focus on laser vision
correction. The Company is evaluating its strategic options, which may include
raising additional capital or merging with another company.
YEAR 2000
The year 2000 computer issue is caused by computer programs being
written using two digits to identify the applicable year rather than four. Since
most application software only contains the two digits, many systems will
identify January 1, 2000 as January 1, 1900, which could result in malfunctions
involving dates. There can be no guarantee that the systems of other companies
on which the Company relies will be in compliance.
To address the year 2000 issue, the Company has established a task
force including representatives of top management, management information
systems representatives, equipment purchasing and maintenance personnel and the
accounting department. The task force has been assigned responsibility for
developing and implementing the Company's year 2000 activities. The Company's
audit and compliance committee monitors the task force's activities.
The Company is continuing its efforts to address operational concerns
raised by the year 2000 issue. The principal areas of concern include ensuring
that the systems used in practice management and accounting are year
13
<PAGE> 14
2000 compliant, addressing issues related to "imbedded systems" in equipment,
including medical equipment, and assessing and addressing the potential impact
of year 2000 problems with other entities with which the Company has business
relationships.
The Company is in the process of upgrading all of its internal systems,
including practice management and accounting. This is a complex project with
many aspects, but addressing the year 2000 issue is a part of the project. The
overall cost of this systems project will be in excess of $1 million, but a
relatively small part is exclusively related to the Year 2000 issue. The Company
believes its systems are substantially compliant as of September 30, 1999.
The Company has inventoried equipment which has imbedded systems which
may be affected by the year 2000 issue and contacted the appropriate vendors to
ascertain risks and solutions. This project is substantially complete as of
September 30, 1999. As a result of these efforts, a small amount of equipment
has been replaced and certain other equipment has been upgraded to ensure
compliance. The cost of this project has not been and is not expected to be
material to the Company's financial statements.
The Company has corresponded with other entities with which it has
business relationships to assess their progress in addressing the year 2000
issue for the purpose of assessing the risks to the Company which may result
from this problem. This project is complete as of September 30, 1999, but the
Company is continuing to monitor the status of its business partners' efforts
in achieving compliance.
Based on the Company's progress to date and the status of its upgrade
activities, the Company believes that its greatest risk related to the year 2000
problem lies in its outside relationships, especially third party payors on
which the Company relies for much of its Center revenues. The Company is
continuing to monitor the progress of these payors, especially the Health Care
Financing Administration and Medicare fiscal intermediaries, in developing year
2000 compliance. A significant failure of these groups in maintaining payments
would have a material adverse impact on the Company.
Although the cost to bring systems and equipment into compliance has
not been and is not expected to be material to the Company's consolidated
financial statements, failure to comply and/or failure of other entities with
which the Company transacts business to comply could have a material adverse
effect on the Company's business and financial results.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There were no material changes during the quarter in the information
about market risks included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on August 11, 1999.
At the meeting, Donald H. Beisner, M.D., David M. Dillman, M.D. and
Randall N. Reichle, O.D. were elected to three-year terms on the board
of directors, each with a vote of 6,771,289 shares for, 3,267 shares
against and 17,507 shares abstaining.
At the meeting, shareholders also approved an amendment to the
Company's articles of incorporation changing the Company's name to
VisionAmerica Incorporated by a vote of 6,757,150 shares for, 7,682
shares against and 27,231 shares abstaining. The shareholders approved
an amendment to the 1991 Employee Stock Purchase Plan by a vote of
6,677,604 shares for, 51,162 shares against and 63,297 shares
abstaining. Shareholders also ratified the authorization of the audit
committee of the board of directors to select the Company's independent
auditors for 1999 by votes of 6,767,249 in favor, 5,600 against and
19,214 abstaining.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
None.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VISIONAMERICA INCORPORATED
---------------------------------
Registrant
November 22, 1999 By \s\ Ronald L. Edmonds
---------------------------------
Ronald L. Edmonds
Executive Vice President and
Chief Financial Officer
16
<PAGE> 1
EXHIBIT 11
VISIONAMERICA INCORPORATE AND SUBSIDIARIES
Computation of Earnings (Loss) Per Common Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Basic:
Net earnings (loss) from continuing operations ($1,671,332) $ 512,227 ($621,958) $1,314,324
Shares:
Weighted average number of shares outstanding 9,008,764 8,885,529 8,997,301 8,772,738
----------- ---------- ----------- ----------
Basic earnings (loss) per common share: ($0.19) $ 0.06 ($0.07) $ 0.15
=========== ========== =========== ==========
Diluted:
Net earnings (loss) from continuing operations ($1,671,332) 512,227 ($621,958) 1,314,324
Shares:
Weighted average number of shares outstanding 9,008,764 8,885,529 8,997,301 8,772,738
Assuming exercise of warrants and options, net
of number of shares which could have been
purchased with the exercise of such options
(using average market price),
except when antidilutive -- 73,565 -- 143,268
----------- ---------- ----------- ----------
Weighted average number of shares, adjusted 9,008,764 8,959,094 8,997,301 8,916,006
----------- ---------- ----------- ----------
Diluted earnings (loss) per common share
and common equivalent share: ($0.19) $ 0.06 ($0.07) $ 0.15
=========== ========== =========== ==========
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,308
<SECURITIES> 0
<RECEIVABLES> 14,147
<ALLOWANCES> 3,715
<INVENTORY> 0
<CURRENT-ASSETS> 21,075
<PP&E> 25,180
<DEPRECIATION> 10,091
<TOTAL-ASSETS> 77,760
<CURRENT-LIABILITIES> 18,066
<BONDS> 0
0
0
<COMMON> 547
<OTHER-SE> 28,795
<TOTAL-LIABILITY-AND-EQUITY> 77,760
<SALES> 46,381
<TOTAL-REVENUES> 46,381
<CGS> 0
<TOTAL-COSTS> 45,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,623
<INTEREST-EXPENSE> 834
<INCOME-PRETAX> (836)
<INCOME-TAX> (214)
<INCOME-CONTINUING> (622)
<DISCONTINUED> (980)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,602)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
