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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2002
COMMISSION FILE NUMBER: 0-26625
NOVAMED EYECARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4116193
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Michigan Avenue, Suite 1620, Chicago, Illinois 60611
(Address of principal executive offices)
Registrant's telephone, including area code: (312) 664-4100
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and 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 [_]
As of May 13, 2002, there were outstanding 24,877,548 shares of the
registrant's common stock, par value $.01 per share.
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NOVAMED EYECARE, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED MARCH 31, 2002
INDEX
PART OR ITEM PAGE
Part I. FINANCIAL STATEMENTS 3
Item 1. Interim Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets - March 31, 2002 and
December 31, 2001 3
Condensed Consolidated Statements of Operations - Three months ended
March 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows - Three months ended
March 31, 2002 and 2001 5
Notes to the Interim Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Part II. OTHER INFORMATION 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
Part I
Item 1.
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, December 31,
ASSETS 2002 2001
--------------- --------------
Current assets: (unaudited)
Cash and cash equivalents $ 787 $ 967
Accounts receivable, net 7,829 7,023
Notes and amounts due from affiliated providers 1,752 1,654
Inventory 1,199 1,162
Current tax assets, net 4,360 5,921
Other current assets 728 1,004
Current assets of discontinued operations 9,810 15,790
--------------- --------------
Total current assets 26,465 33,521
Property and equipment, net 7,326 7,984
Intangible assets, net 21,832 24,751
Noncurrent deferred tax assets, net 11,916 11,285
Other assets, net 1,716 748
Noncurrent assets of discontinued operations, net 9,547 12,689
--------------- --------------
Total assets $ 78,802 $ 90,978
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,429 $ 2,808
Accrued expenses 2,203 2,229
Restructuring reserves 2,535 5,023
Current maturities of long-term debt 54 404
Current liabilities of discontinued operations 8,507 9,085
--------------- --------------
Total current liabilities 16,728 19,549
--------------- --------------
Long-term debt, net of current maturities 12,419 20,708
--------------- --------------
Minority interest 180 142
--------------- --------------
Commitments and contingencies
Stockholders' equity:
Series E Junior Participating Preferred Stock, $0.01 par
value, 1,912,000 shares authorized, none outstanding at
March 31, 2002 and December 31, 2001, respectively -- --
Common stock, $0.01 par value, 81,761,465 shares
authorized, 24,877,548 and 24,835,108 shares issued
and outstanding at March 31, 2002 and
December 31, 2001, respectively 249 248
Additional paid-in-capital 77,699 77,673
Retained earnings (deficit) (28,439) (27,342)
Treasury stock (34) --
--------------- --------------
Total stockholders' equity 49,475 50,579
--------------- --------------
Total liabilities and stockholders' equity $ 78,802 $ 90,978
=============== ==============
The notes to the interim condensed consolidated financial statements are an
integral part of these statements.
3
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data; unaudited)
Three months ended
March 31,
----------------------------------
2002 2001
------------- -------------
Net revenue:
Surgical facilities $ 8,244 $ 9,707
Product sales and other 8,649 7,447
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Total net revenue 16,893 17,154
------------- -------------
Operating expenses:
Salaries, wages and benefits 3,392 4,459
Cost of sales and medical supplies 9,022 7,917
Selling, general and administrative 2,288 2,434
Depreciation and amortization 607 1,128
------------- -------------
Total operating expenses 15,309 15,938
------------- -------------
Income from continuing operations 1,584 1,216
Other expense, net 77 410
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Income from continuing operations
before income taxes 1,507 806
Income tax provision 603 342
------------- -------------
Net income from continuing operations before cumulative
effect of change in accounting principle 904 464
Net income (loss) from discontinued operations (208) 714
Cumulative effect of change in accounting principle, net of tax (1,803) --
------------- -------------
Net income (loss) $ (1,107) $ 1,178
============= =============
Basic earnings per common share:
Income from continuing operations before cumulative $ 0.04 $ 0.02
effect of change in accounting principle
Income (loss) from discontinued operations (0.01) 0.03
Cumulative effect of change in accounting principle (0.07) --
------------- -------------
Net income (loss) $ (0.04) $ 0.05
============= =============
Diluted earnings per common share:
Income from continuing operations before cumulative $ 0.04 $ 0.02
effect of change in accounting principle
Income (loss) from discontinued operations (0.01) 0.03
Cumulative effect of change in accounting principle (0.07) --
------------- -------------
Net income (loss) $ (0.04) $ 0.05
============= =============
Weighted average common shares outstanding 24,837 24,693
Dilutive effect of employee stock options -- 472
------------- -------------
Diluted weighted average common shares outstanding 24,837 25,165
============= =============
The notes to the interim condensed consolidated financial statements are an
integral part of these statements.
4
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands; unaudited)
Three months ended
March 31,
-----------------------
2002 2001
----------- ----------
Cash flows from operating activities:
Net income (loss) $ (1,107) $ 1,178
Adjustments to reconcile net income to net cash provided by continuing
operations, net of effects of purchase transactions--
Net (earnings) loss of discontinued operations 208 (714)
Cumulative effect of change in accounting principle, net 1,803 --
Depreciation and amortization 607 1,128
Minority interest 38 --
Deferred taxes 603 --
Changes in working capital items--
Accounts receivable (501) (211)
Inventory (37) 459
Other current assets 1,828 (126)
Accounts payable and accrued expenses 443 (90)
Other noncurrent assets (45) (500)
----------- ----------
Net cash provided by operating activities 3,840 1,124
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (299) (100)
Issuance of notes receivable to affiliated providers (12) (35)
----------- ----------
Net cash used by investing activities (311) (135)
----------- ----------
Cash flows from financing activities:
Borrowings under revolving line of credit 6,850 12,405
Payments under revolving line of credit (15,145) (12,625)
Proceeds from the issuance of common stock 27 191
Payments of other debt, debt issuance fees and capital lease obligations (344) (3)
----------- ----------
Net cash used by financing activities (8,612) (32)
----------- ----------
Cash flows from discontinued operations:
Operating activities 1,915 800
Investing activities 3,000 (496)
Financing activities (12) (11)
----------- ----------
Net cash provided by discontinued operation 4,903 293
----------- ----------
Net increase (decrease) in cash and cash equivalents (180) 1,250
Cash and cash equivalents, beginning of period 967 785
----------- ----------
Cash and cash equivalents, end of period $ 787 $ 2,035
=========== ==========
The notes to the interim condensed consolidated financial statements are an
integral part of these statements.
5
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Dollars in thousands, except per share data; unaudited)
1. BASIS OF PRESENTATION
The information contained in the interim consolidated financial statements
and notes is condensed from that which would appear in the annual consolidated
financial statements. Accordingly, the interim condensed consolidated financial
statements included herein should be read in conjunction with the consolidated
financial statements as of and for the year ended December 31, 2001, filed by
NovaMed Eyecare, Inc. with the Securities and Exchange Commission on Form 10-K.
The unaudited interim condensed consolidated financial statements as of March
31, 2002 and for the three months ended March 31, 2002 and 2001, include all
normal recurring adjustments which management considers necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
Prior year amounts have been reclassified to conform to current year
presentation as further discussed in Note 3 below.
2. GOODWILL AND OTHER INTANGIBLE ASSETS -- CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
Effective January 1, 2002 we adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142). Under the
new rules, we are no longer required to amortize goodwill and other intangible
assets with indefinite lives. We will be required to subject these assets to
periodic testing for impairment. Impairment losses for goodwill and
indefinite-lived intangible assets that arise due to the initial application of
FAS 142 are required to be reported as resulting in a change in accounting
principle.
We performed an evaluation of all our existing goodwill as of January 1,
2002 and determined that the goodwill associated with one of our ancillary
businesses was impaired. This business sells marketing products to the laser
vision correction market, which has lately shown a downturn in demand. This
downturn has negatively impacted the prospects for this business. We are in the
process of developing new products at this business to diversify its revenue
base. The business was evaluated using an expected cash flow valuation method
which indicated that the carrying value of the business had been impaired by
approximately $2.9 million. We recorded a net of tax charge of $1.8 million to
write-off a portion of acquired goodwill in our first quarter financial
statements as a change in accounting principle. All intangible assets are
reported in our Corporate segment.
The intangible assets that are continuing to be amortized over 25 years are
related to the Management Services Agreements at our remaining optical
dispensaries.
Unamortized Amortized
Intangible Intangible
Assets Assets
---------------- ----------------
Balance as of December 31, 2001 $ 24,099 $ 652
Initial impairment upon adoption of FAS 142 (2,911) --
Amortization expense -- (8)
---------------- ----------------
Balance as of March 31, 2002 $ 21,188 $ 644
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6
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2002
(Dollars in thousands, except per share data; unaudited)
The following tables summarize the results of continuing operations and earnings
per share had FAS 142 been adopted at the beginning of 2001:
Three Months
ended
March 31, 2001
------------------
Reported income from continuing operations $ 464
Add back: Goodwill amortization 253
Less: Related tax effect (64)
------------------
Adjusted income from continuing operations $ 653
==================
Basic Diluted
Earnings Earnings
Three months ended March 31, 2001 Per Share Per Share
--------------------------------- ------------------ -----------------
Reported net income from continuing operations $ 0.02 $ 0.02
Goodwill amortization 0.01 0.01
------------------ -----------------
Adjusted net income from continuing operations $ 0.03 $ 0.03
================== =================
3. DISCONTINUED OPERATIONS
As required, effective January 1, 2002 we adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets" ("FAS 144") under which we will report as discontinued
operations certain entities that have been disposed of or are classified as held
for sale. Under FAS 144 projected operating results and the estimated gain or
loss on sale is no longer accrued for when the decision to sell is made. Rather,
the earnings or losses of discontinued operations continue to be reported, and
any gain or loss is recognized at the time of sale. In the first quarter of
2002, we sold an ambulatory surgery center and an optical dispensary business,
both of which are reported as discontinued operations under the provisions of
FAS 144. Prior period financial statements have been restated to reflect these
entities as discontinued.
During 2001, we implemented a Plan of Discontinued Operations and
Restructuring (the "Plan"). This involves the divestiture of the management
services segment or physician practice management ("PPM") business. The results
of these discontinued operations are accounted for under APB Opinion No. 30
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB 30"). Under APB 30, the projected operating
results and the estimated gain or loss on disposal was accrued for at the date
the plan was adopted. We reported a charge of $27.2 million, net of tax in our
third quarter 2001 financial statements. To date, we have completed five of
eighteen planned divestiture transactions. We received total proceeds of $5.1
million, consisting of $4.0 million in cash and $1.1 million in promissory notes
with multi-year terms.
Net interest expense allocated to discontinued operations was $93,000 and
$309,000 for the three months ended March 31, 2002 and 2001, respectively.
Interest was allocated to discontinued operations accounted for under APB 30,
based on the proportion of net assets of discontinued operations to consolidated
net assets plus consolidated debt as prescribed by EITF 87-24 -- Allocation of
Interest to Discontinued Operations.
7
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2002
(Dollars in thousands, except per share data; unaudited)
The operating results of all discontinued operations are summarized below.
Three months ended
March 31,
---------------------------
2002 2001
------------ -------------
Net revenue $ 15,338 $ 19,724
Operating expenses 14,860 18,174
Interest and other expense, net 73 305
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Income from operations before income taxes 405 1,245
Income tax provision 162 531
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Net income from operations 243 714
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Loss on sale of discontinued operations (310) --
Income tax benefit 118 --
----------- ------------
Net loss on sale of discontinued operations (192) --
----------- ------------
Net income from discontinued operations $ 51 $ 714
=========== ============
During the first quarter of 2002, $259,000 of the net income was credited
to the discontinued operations reserves, which resulted in a reported net loss
of $208,000 for the period.
The balance sheet components of discontinued operations are summarized as
follows:
March 31, December 31,
2002 2001
----------- ------------
Accounts and notes receivable $ 8,630 $ 13,869
Inventories 598 1,203
Other current assets 582 718
----------- -----------
Current assets of discontinued operations $ 9,810 $ 15,790
=========== ===========
Net property and equipment $ 4,772 $ 5,455
Intangible assets 4,775 7,234
----------- -----------
Noncurrent assets of discontinued operations $ 9,547 $ 12,689
=========== ===========
Accounts payable $ 1,140 $ 1,174
Accrued expenses 1,980 2,591
Notes payable and capitalized lease obligations 29 78
Discontinued operations reserves 5,358 5,242
----------- -----------
Current liabilities of discontinued operations $ 8,507 $ 9,085
=========== ===========
Included in the balance sheet caption "Discontinued operations reserves" at
March 31, 2002 are reserves of $2.1 million for projected operating results and
estimated gain or loss on disposal and $3.3 million for costs to exit the PPM
business.
8
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2002
(Dollars in thousands, except per share data; unaudited)
4. RESTRUCTURING RESERVES
During the first quarter of 2002, we terminated a contract to purchase an
ASC and negotiated the sublease of one closed LVC center.
Reserve at Reserve at
December 31, Charges March 31,
2001 Utilized 2002
----------------- ----------------- ------------
Facility closures--
Asset impairments $ 905 $ (212) $ 693
Lease commitments 1,717 (543) 1,174
Contract termination 1,836 (1,702) 134
Reorganization of IT--
Asset impairments 12 -- 12
Lease commitments 456 -- 456
Other 97 (31) 66
--------- ----------- ----------
Total reserve balance $ 5,023 $ (2,488) $ 2,535
========= =========== ==========
5. REVOLVING CREDIT FACILITY
At March 31, 2002, we had $12.4 million outstanding under our revolving
credit facility that expires on June 30, 2003. The maximum commitment available
under the facility was $40.0 million at April 1, 2002 and will be reduced by
$2.5 million per quarter, resulting in a maximum commitment of $35.0 million as
of October 1, 2002.
Under the facility, interest on borrowings under the credit agreement is
payable at an annual rate equal to the lender's published base rate plus the
applicable borrowing margin ranging from 0% to 1.0% or LIBOR plus a range from
1.5% to 3.0%, varying upon our ability to meet financial covenants. The weighted
average interest rate on credit line borrowings was 4.7% for three months ended
March 31, 2002 and 4.2% at March 31, 2002. The credit agreement contains
covenants that include limitations on indebtedness, liens, capital expenditures,
acquisitions and affiliations and ratios that define borrowing availability and
restrictions on the payment of dividends. We are required to use 100% of the
proceeds from our divestiture transactions to pay down outstanding debt.
We amended our credit agreement on February 5, 2002 to include additional
covenants. We will be in default if our cash expenditures incurred in connection
with the Plan (including, without limitation, the costs of structuring and
negotiating the divestiture transactions, terminating employees and closing
facilities), exceeds by $10 million the sum of EBITDA from the discontinued
management services operations plus the cash proceeds from these transactions.
As of March 31, 2002, we were in compliance with all our credit agreement
covenants.
9
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2002
(Dollars in thousands, except per share data; unaudited)
6. OPERATING SEGMENTS
The table below presents information about operating data and segment
assets as of and for the three months ended March 31, 2002 and 2001 (in
thousands):
Surgical Product Sales
Facilities and Other Corporate Total
-------------- -------------- ------------- ------------
Three months ended March 31, 2002
---------------------------------
Net revenue $ 8,244 $ 8,649 $ -- $ 16,893
Earnings (loss) before tax 2,632 523 (1,648) 1,507
Depreciation and amortization 469 69 69 607
Interest income 1 -- 26 27
Interest expense 1 -- 134 135
Identifiable assets 9,454 5,695 63,653 78,802
============== ============== ============= ============
Three months ended March 31, 2001
---------------------------------
Net revenue $ 9,707 $ 7,447 $ -- $ 17,154
Earnings (loss) before tax 3,382 745 (3,321) 806
Depreciation and amortization 475 60 593 1,128
Interest income -- 2 23 25
Interest expense -- -- 308 308
Identifiable assets 13,815 6,118 103,047 122,980
============== ============== ============= ============
10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion below contains forward-looking statements (as such term is
defined in Section 21E of the Securities Exchange Act of 1934) that are based on
the beliefs of our management, as well as assumptions made by, and information
currently available to, our management. Our results, performance and
achievements in 2002 and beyond could differ materially from those expressed in,
or implied by, any such forward looking statements. See "Cautionary note
regarding forward-looking statements" on page 14.
Outlook
We provide a comprehensive range of eye care services, focused primarily
around our surgical facilities, including our ownership and operation of 15
ambulatory surgery centers (ASCs), and our operation of 13 laser vision
correction centers and fixed-site laser services agreements. Eye care
professionals perform laser vision correction, cataract and other eye-related
surgical procedures in the surgical facilities we own and/or operate.
The discussion set forth below analyzes certain factors and trends related
to the financial results of continuing operations for each of the three months
ended March 31, 2002 and 2001. This discussion should be read in conjunction
with the condensed consolidated financial statements and notes to the condensed
consolidated financial statements above.
Results of Operations
Three Months Ended March 31, 2002 Compared to the Three Months Ended March
31, 2001
Net Revenue. Net revenue decreased 1.7% from $17.2 million to $16.9
million. Surgical facilities net revenue decreased 15.5% from $9.7 million to
$8.2 million primarily due to the decrease in surgical procedures performed as
well as the change in surgical procedure mix. During the first quarter of 2002,
total surgical procedures performed in our surgical facilities decreased 18.7%
to 10,013. LVC procedures decreased 42.8%, cataract procedures increased 4.6%
and other procedures decreased 6.0%, compared to 2001. Management believes that
the demand for elective LVC surgery continues to be negatively impacted by the
general economic conditions. The majority of the increase in cataract procedures
came from our Thibodaux, LA ASC, which we acquired in November of 2001.
Product sales and other net revenue increased 16.2% from $7.4 million to
$8.6 million, primarily as a result of a 27.1% net revenue increase at our
optical products purchasing organization coupled with an 8.3% increase in net
revenue at our optical laboratories. The increase was offset by a 35.0% decrease
in net revenue at our optical dispensaries and a 24.6% decrease in net revenue
at our marketing products business. The increase in net revenue at our optical
products purchasing organization and optical laboratories was primarily due to
the addition of new customers and increased sales to existing customers.
Approximately 70% of the decrease in net revenue from our optical dispensaries
was due to the closing of optical dispensaries in 2001. We experienced a 14.2%
decline in sales at our remaining optical dispensaries. Our marketing products
business has sold products primarily to the laser vision correction market. The
downturn in this market was the cause of the decline in net revenue and led us
to take a $1.8 million net charge to write off a portion of the carrying value
of goodwill created when we acquired the company in 2000. This charge is
reported as a change in accounting principle.
Salaries, Wages and Benefits. Salaries, wages and benefits expense
decreased 24.4% from $4.5 million to $3.4 million. As a percentage of net
revenue, salaries, wages and benefits expense decreased from 26.0% to 20.1%. The
decrease in salaries, wages and benefits expense is a result of staff reductions
at some surgical facilities in response to the reduction in LVC procedures as
well as corporate staff reductions. Approximately 2.8% of the reduction is the
result of closing several LVC centers and optical dispensaries in the fourth
quarter of 2001. In addition, certain corporate salaries were charged to the
discontinued operations reserves during the first quarter of 2002.
11
Cost of Sales and Medical Supplies. Cost of sales and medical supplies
expense increased 13.9% from $7.9 million to $9.0 million. As a percentage of
net revenue, cost of sales and medical supplies expense increased from 46.2% to
53.4%. The absolute increase in cost of sales and medical supplies expense is
primarily a result of higher sales volumes at our optical products purchasing
organization. The increase in cost of sales and medical supplies as a percentage
of net revenue is due to our product sales and other segment net revenue
increasing to 51.2% of total net revenue in the first quarter of 2002, up from
43.4% in 2001. This segment has a much higher cost of sales and medical supplies
expense relative to net revenue than our surgical facilities segment.
Selling, General and Administrative. Selling, general and administrative
expense ("SG&A") decreased 4.2% from $2.4 million to $2.3 million. As a
percentage of net revenue, SG&A expense decreased from 14.2% to 13.5%. The
absolute decrease in selling, general and administrative expense is the result
of closing several LVC centers and optical dispensaries in the fourth quarter of
2001. Excluding those closures, SG&A was flat compared to the prior year
quarter.
Depreciation and Amortization. Depreciation and amortization expense
decreased 45.5% from $1.1 million to $607,000. The cessation of goodwill
amortization as of January 1, 2002 contributed $253,000 of this decrease as
compared to the same quarter of 2001. The remainder of the decrease is due to
the write-off of assets at the end of our 2001 third quarter in our
restructuring plan.
Other Expense. Other expense decreased from $410,000 to $77,000. The
decrease in other expense was primarily related to a decrease in interest
expense as a result of lower average interest rates during the first quarter of
2002 (4.7%) as compared to the 2001 period (7.9%) as well as lower average
borrowings of $18.8 million during the first quarter of 2002 as compared to
$28.5 million during the first quarter of 2001. In addition, the first quarter
of 2001 included $129,000 of losses from a nonconsolidated affiliate. Our
investment in that entity was reduced to zero within our restructuring plan.
Provision for Income Taxes. The adoption of FAS 142 reduced our effective
tax rate to 40.0% from 42.4% in the first quarter of 2001. Under the new
accounting pronouncement we no longer amortize most of our goodwill which
substantially reduces the amount of permanent differences in our tax
calculation.
Liquidity and Capital Resources
Net cash provided by continuing operating activities was $3.8 million and
$1.1 million for the three months ended March 31, 2002 and 2001, respectively.
This included a $1.5 million refund of 2001 estimated federal tax payments. We
used $311,000 of cash for investing activities during the first three months of
2002, primarily for the purchase of equipment. During the first three months of
2002, our net borrowings under our revolving credit line decreased $8.3 million
from the December 31, 2001 level, using cash generated by operations and
proceeds from divestiture transactions. At March 31, 2002, we had working
capital of $ 11.0 million (excluding restructuring and discontinued operations
reserves).
During the first quarter of 2002, we completed four planned divestiture
transactions. We received total proceeds of $4.0 million, consisting of $3.2
million in cash and a $750,000 promissory note with a multi-year term. The cash
proceeds were used to reduce debt as required under our revolving credit
facility.
On May 6, 2002 we announced that we had entered into a definitive agreement
to acquire a majority interest in an ambulatory surgery center in Colorado
Springs, Colorado. We expect to close on this acquisition in late May following
state licensure approvals.
At March 31, 2002, we had $12.4 million outstanding under our revolving
credit facility that expires on June 30, 2003. The maximum commitment available
under the facility was $40.0 million at April 1, 2002 and will be reduced by
$2.5 million per quarter, resulting in a maximum commitment of $35.0 million as
of October 1, 2002.
Under the facility, interest on borrowings under the credit agreement is
payable at an annual rate equal to the lender's published base rate plus the
applicable borrowing margin ranging from 0% to 1.0% or LIBOR plus a range from
1.5% to 3.0%, varying upon our ability to meet financial covenants. The weighted
average interest rate
12
on credit line borrowings was 4.7% for three months ended March 31, 2002 and
4.2% at March 31, 2002. The credit agreement contains covenants that include
limitations on indebtedness, liens, capital expenditures, acquisitions and
affiliations and ratios that define borrowing availability and restrictions on
the payment of dividends. We are required to use 100% of the proceeds from our
divestiture transactions to pay down outstanding debt.
We amended our credit agreement on February 5, 2002 to include additional
covenants. We will be in default if our cash expenditures incurred in connection
with the Plan (including, without limitation, the costs of structuring and
negotiating the divestiture transactions, terminating employees and closing
facilities), exceeds by $10 million the sum of EBITDA from the discontinued
management services operations plus the cash proceeds from these transactions.
As of March 31, 2002, we were in compliance with all our credit agreement
covenants.
We believe that our cash flow from operations and funds available under our
existing revolving credit facility will be sufficient to fund our operations for
at least 12 months. Our future capital requirements and the adequacy of our
available funds will depend on many factors, including the timing of our
acquisition activities, capital requirements associated with our surgical
facilities, expansion and the future cost of surgical equipment, and cost of
completing our discontinued operations plan. We also expect the cash proceeds
from divestitures to supplement our cash flow.
One of our former affiliated eye care professionals has the option,
exercisable beginning January 1, 2001 through January 1, 2006, to acquire up to
a 30% interest in one of our ASCs. We have also entered into an agreement,
subject to state licensure approvals, to sell a 20% interest in one of our ASCs
to two former affiliated eye care professionals. One of our partners in an ASC
in which we own a majority interest has the right to sell us up to a 10%
interest in the ASC in November 2004 and up to an additional 10% interest in
November 2006.
On June 15, 2000, we entered into an agreement to acquire two ASCs,
contingent upon the resolution of certain requirements associated with the
seller. Certain of these contingencies were satisfied in 2000 with respect to
one of the ASCs, which we acquired in December 2000. Effective January 2002, we
have terminated our agreement to acquire the second ASC, and have sold back to
the seller the ASC acquired in December 2000.
13
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS. This Form 10-Q contains
certain forward-looking statements that reflect our current expectations about
our future results of operations, performance and achievements. When used in the
Form 10-Q, the words "anticipates," "believes," "estimates," "plans," "intends,"
and similar expressions, as they relate to us or our management, are intended to
identify such forward-looking statements. These forward-looking statements
reflect our current beliefs and are based on information currently available to
us. Accordingly, these statements are subject to certain risks and uncertainties
which could cause our actual results, performance or achievements in 2002 and
beyond to differ materially from those expressed in, or implied by, such
statements. These risks and uncertainties include: our ability to grow or manage
our growth; our ability to acquire, develop or manage a sufficient number of
profitable surgical facilities; reduced prices and reimbursement rates for
surgical procedures; the continued acceptance of laser vision correction and
other refractive surgical procedures; demand for elective surgical procedures
generally and in response to a protracted economic downturn; our ability to
successfully implement our discontinued operations plan on acceptable terms
consistent with our credit facility; and the application of existing or proposed
government regulations. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2001 for further discussion. We
undertake no obligation to update or revise any such forward-looking statements
that may be made to reflect events or circumstances after the date of this Form
10-Q or to reflect the occurrence of unanticipated events.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.29*-- First Amendment to Second Amended and Restated Credit
Agreement
B. Reports on Form 8-K
We did not file any reports on Form 8-K during the first quarter of
2002.
* Portions of this Exhibit have been omitted based upon a request for
confidential treatment of this document; omitted portions have been separately
filed with the Commission.
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SIGNATURE
Pursuant to the requirement 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.
NOVAMED EYECARE, INC.
/s/ Scott T. Macomber May 14, 2002
--------------------- ------------
Scott T. Macomber Date
Executive Vice President and
Chief Financial Officer
(on behalf of Registrant and as principal financial officer)
/s/ Robert L. Hiatt May 14, 2002
------------------- ------------
Robert L. Hiatt Date
Vice President Finance
(principal accounting officer)
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