SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________
FORM
10-Q
x
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
|
For
the quarterly period ended June 30, 2006
|
|
OR
|
|
o
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the transition period from to
COMMISSION
FILE NUMBER: 0-26625
NOVAMED,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
36-4116193
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
980
North Michigan Avenue, Suite 1620, Chicago, Illinois 60611
(Address
of principal executive offices)
Registrant's
telephone, including area code:
(312) 664-4100
___________________
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨ Accelerated
filer x Non-accelerated
filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
As
of
August 02, 2006, there were outstanding 23,589,714 shares of the registrant's
common stock, par value $.01 per share.
NOVAMED,
INC.
FORM
10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 2006
INDEX
|
PART
OR ITEM
|
PAGE
|
Part
I.
|
FINANCIAL
STATEMENTS
|
3
|
Item
1.
|
Interim
Condensed Consolidated Financial Statements (unaudited)
|
|
|
Condensed
Consolidated Balance Sheets -June 30, 2006 and December 31,
2005
|
3
|
|
Condensed
Consolidated Statements of Operations - Three and six months ended
June
30, 2006 and 2005
|
4
|
|
Condensed
Consolidated Statement of Stockholders’ Equity - Six months ended June 30,
2006
|
5
|
|
Condensed
Consolidated Statements of Cash Flows - Six months ended June
30, 2006 and 2005
|
6
|
|
Notes
to the Interim Condensed Consolidated Financial Statements
|
7
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
|
|
|
Item
4.
|
Controls
and Procedures
|
23
|
|
|
|
Part
II.
|
OTHER
INFORMATION
|
24
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
24
|
|
|
|
Item
6.
|
Exhibits
|
24
|
|
Signatures
|
25
|
Part
I. FINANCIAL
INFORMATION
Item
1.
Interim Condensed Consolidated Financial Statements (unaudited)
NOVAMED,
INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Dollars
in thousands, except per share
data)
|
|
|
|
June
30,
|
|
|
December 31,
|
|
ASSETS
|
|
|
2006
|
|
|
2005
|
|
Current
assets: |
|
|
(unaudited)
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,714
|
|
$
|
1,690
|
|
Accounts
receivable, net of allowances of $17,521
and
$13,941, respectively
|
|
|
15,197
|
|
|
11,933
|
|
Notes
and amounts due from related parties
|
|
|
505
|
|
|
541
|
|
Inventory
|
|
|
2,221
|
|
|
2,012
|
|
Other
current assets
|
|
|
1,826
|
|
|
1,310
|
|
Total
current assets
|
|
|
21,463
|
|
|
17,486
|
|
Property
and equipment, net
|
|
|
12,234
|
|
|
9,940
|
|
Intangible
assets, net
|
|
|
86,633
|
|
|
68,299
|
|
Noncurrent
deferred tax assets, net
|
|
|
1,320
|
|
|
470
|
|
Other
assets, net
|
|
|
1,050
|
|
|
967
|
|
Total
assets
|
|
$
|
122,700
|
|
$
|
97,162
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
6,916
|
|
$
|
5,529
|
|
Accrued
expenses and income taxes payable
|
|
|
4,758
|
|
|
4,897
|
|
Current
maturities of long-term debt
|
|
|
672
|
|
|
302
|
|
Current
liabilities of discontinued operations
|
|
|
77
|
|
|
89
|
|
Total
current liabilities
|
|
|
12,423
|
|
|
10,817
|
|
Long-term
debt, net of current maturities
|
|
|
32,857
|
|
|
17,404
|
|
Minority
interests
|
|
|
11,664
|
|
|
10,266
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Series
E Junior Participating Preferred Stock, $0.01 par value,
1,912,000 shares authorized, none outstanding at June
30, 2006 and December 31, 2005, respectively
|
|
|
—
|
|
|
—
|
|
Common
stock, $0.01 par value, 81,761,465 shares authorized,
28,258,256 and 26,783,396 shares issued at
June 30, 2006 and December 31, 2005, respectively
|
|
|
282
|
|
|
268
|
|
Additional
paid-in-capital
|
|
|
89,677
|
|
|
84,830
|
|
Deferred
compensation
|
|
|
—
|
|
|
(1,572
|
)
|
Accumulated
deficit
|
|
|
(14,373
|
)
|
|
(17,393
|
)
|
Treasury
stock, at cost, 4,702,632 and 4,386,641 shares at
June 30, 2006 and December 31, 2005, respectively
|
|
|
(9,830
|
)
|
|
(7,458
|
)
|
Total
stockholders’ equity
|
|
|
65,756
|
|
|
58,675
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
122,700
|
|
$
|
97,162
|
|
The
notes
to the interim condensed consolidated financial statements
are
an
integral part of these statements.
NOVAMED,
INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Amounts
in thousands, except per share data;
unaudited)
|
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
revenue:
|
|
|
|
|
|
|
|
|
|
Surgical
facilities
|
|
$
|
21,105
|
|
$
|
15,061
|
|
$
|
38,970
|
|
$
|
28,484
|
|
Product
sales and other
|
|
|
5,937
|
|
|
5,350
|
|
|
11,988
|
|
|
10,213
|
|
Total
net revenue
|
|
|
27,042
|
|
|
20,411
|
|
|
50,958
|
|
|
38,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and benefits
|
|
|
8,572
|
|
|
6,099
|
|
|
16,617
|
|
|
12,111
|
|
Cost
of sales and medical supplies
|
|
|
6,661
|
|
|
4,963
|
|
|
12,553
|
|
|
9,408
|
|
Selling,
general and administrative
|
|
|
4,983
|
|
|
4,653
|
|
|
9,486
|
|
|
8,451
|
|
Depreciation
and amortization
|
|
|
749
|
|
|
551
|
|
|
1,468
|
|
|
1,127
|
|
Total
operating expenses
|
|
|
20,965
|
|
|
16,266
|
|
|
40,124
|
|
|
31,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
6,077
|
|
|
4,145
|
|
|
10,834
|
|
|
7,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interests in earnings of consolidated entities
|
|
|
2,825
|
|
|
1,891
|
|
|
5,042
|
|
|
3,413
|
|
Other
(income) expense, net
|
|
|
497
|
|
|
20
|
|
|
758
|
|
|
(56
|
)
|
Income
before income taxes
|
|
|
2,755
|
|
|
2,234
|
|
|
5,034
|
|
|
4,243
|
|
Income
tax provision
|
|
|
1,102
|
|
|
893
|
|
|
2,014
|
|
|
1,697
|
|
Net
income from continuing operations
|
|
|
1,653
|
|
|
1,341
|
|
|
3,020
|
|
|
2,546
|
|
Net
income from discontinued operations
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
187
|
|
Net
income
|
|
$
|
1,653
|
|
$
|
1,379
|
|
$
|
3,020
|
|
$
|
2,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
0.07
|
|
$
|
0.06
|
|
$
|
0.13
|
|
$
|
0.12
|
|
Income
from discontinued operations
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.01
|
|
Net
income
|
|
$
|
0.07
|
|
$
|
0.06
|
|
$
|
0.13
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
0.07
|
|
$
|
0.06
|
|
$
|
0.12
|
|
$
|
0.11
|
|
Income
from discontinued operations
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.01
|
|
Net
income
|
|
$
|
0.07
|
|
$
|
0.06
|
|
$
|
0.12
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
23,241
|
|
|
21,545
|
|
|
23,035
|
|
|
21,514
|
|
Dilutive
effect of employee stock options and restricted
stock
|
|
|
1,534
|
|
|
1,991
|
|
|
1,659
|
|
|
2,136
|
|
Diluted
weighted average common shares outstanding
|
|
|
24,775
|
|
|
23,536
|
|
|
24,694
|
|
|
23,650
|
|
The
notes
to the interim condensed consolidated financial statements are an integral
part
of these statements.
NOVAMED,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Dollars
and shares in thousands, unaudited)
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
Additional
Paid-In
Capital
|
|
|
Deferred
Compensation
Restricted Stock
|
|
|
Retained
Earnings
(Accumulated)
(Deficit)
|
|
|
Shares
|
|
|
At
Cost
|
|
|
Total
Stockholders’
Equity
|
|
Balance,
December 31, 2005
|
|
|
26,783
|
|
$
|
268
|
|
$
|
84,830
|
|
$
|
(1,572
|
)
|
$
|
(17,393
|
)
|
|
(4,387
|
)
|
$
|
(7,458
|
)
|
$
|
58,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options exercised
|
|
|
1,411
|
|
|
14
|
|
|
5,530
|
|
|
—
|
|
|
—
|
|
|
(305
|
)
|
|
(2,296
|
)
|
|
3,248
|
|
Shares
issued - employee stock purchase plan
|
|
|
9
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55
|
|
Restricted
stock grants
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock
compensation expense
|
|
|
—
|
|
|
|
|
|
834
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
(76
|
)
|
|
758
|
|
Reclass
deferred compensation
|
|
|
—
|
|
|
—
|
|
|
(1,572
|
)
|
|
1,572
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,020
|
|
|
—
|
|
|
—
|
|
|
3,020
|
|
Balance,
June 30, 2006
|
|
|
28,258
|
|
$
|
282
|
|
$
|
89,677
|
|
$ |
—
|
|
$
|
(14,373
|
)
|
|
(4,703
|
)
|
$
|
(9,830
|
)
|
$
|
65,756
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NOVAMED,
INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Dollars
in thousands; unaudited)
|
|
|
|
Six
months ended
June
30,
|
|
|
|
|
2006
|
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,020
|
|
$
|
2,733
|
|
Adjustments
to reconcile net income to net cash provided by continuing
operations, net of effects of purchase transactions—
|
|
|
|
|
|
|
|
Net
earnings of discontinued operations
|
|
|
—
|
|
|
(187
|
)
|
Depreciation
and amortization
|
|
|
1,468
|
|
|
1,127
|
|
Current
and deferred taxes
|
|
|
2,014
|
|
|
1,697
|
|
Stock-based
compensation
|
|
|
822
|
|
|
—
|
|
Earnings
of non-consolidated affiliate
|
|
|
(31
|
)
|
|
(100
|
)
|
Gain
on sale of minority interests
|
|
|
(9
|
)
|
|
(36
|
)
|
Minority
interests
|
|
|
5,042
|
|
|
3,413
|
|
Distributions
to minority partners
|
|
|
(4,194
|
)
|
|
(3,423
|
)
|
Changes
in operating assets and liabilities—
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,490
|
)
|
|
(1,573
|
)
|
Inventory
|
|
|
(17
|
)
|
|
(143
|
)
|
Other
current assets
|
|
|
(233
|
)
|
|
(87
|
)
|
Accounts
payable and accrued expenses
|
|
|
898
|
|
|
920
|
|
Other
noncurrent assets
|
|
|
39
|
|
|
52
|
|
Net
cash provided by operating activities
|
|
|
6,329
|
|
|
4,393
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Payments
for acquisitions, net
|
|
|
(19,891
|
)
|
|
(6,339
|
)
|
Purchase
of written option
|
|
|
—
|
|
|
(3,600
|
)
|
Proceeds
from sale of minority interests
|
|
|
60
|
|
|
749
|
|
Purchases
of property and equipment
|
|
|
(1,379
|
)
|
|
(1,446
|
)
|
Other
|
|
|
33
|
|
|
62
|
|
Net
cash used in investing activities
|
|
|
(21,177
|
)
|
|
(10,574
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Borrowings
under revolving line of credit
|
|
|
34,900
|
|
|
21,000
|
|
Payments
under revolving line of credit
|
|
|
(19,600
|
)
|
|
(13,000
|
)
|
Proceeds
from the issuance of common stock
|
|
|
232
|
|
|
343
|
|
Payments
of other debt, debt issuance fees and capital lease
obligations
|
|
|
(648
|
)
|
|
(240
|
)
|
Net
cash provided by financing activities
|
|
|
14,884
|
|
|
8,103
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
(12
|
)
|
|
16
|
|
Investing
activities
|
|
|
—
|
|
|
67
|
|
Net
cash (used in) provided by discontinued operations
|
|
|
(12
|
)
|
|
83
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
24
|
|
|
2,005
|
|
Cash
and cash equivalents, beginning of period
|
|
|
1,690
|
|
|
500
|
|
Cash
and cash equivalents, end of period
|
|
$
|
1,714
|
|
$
|
2,505
|
|
The
notes
to the interim condensed consolidated financial statements
are
an
integral part of these statements.
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
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, 2005, filed by NovaMed,
Inc. with the Securities and Exchange Commission on Form 10-K. The unaudited
interim condensed consolidated financial statements as of June 30, 2006 and
for
the three and six months ended June 30, 2006 and 2005, 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.
2.
|
STATEMENT
OF CASH FLOWS - SUPPLEMENTAL
|
Supplemental
cash information:
|
|
|
Six
months ended June 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
Interest
paid
|
|
$
|
820
|
|
$
|
227
|
|
Income
taxes paid
|
|
|
115
|
|
|
270
|
|
Income
tax refunds received
|
|
|
(38
|
)
|
|
(21
|
)
|
Non
cash investing and financing activities:
On
February 1, 2006, the estate of Stephen J. Winjum exercised all remaining stock
options held by the estate to acquire 1,330,730 shares of common stock. Per
the
terms of the stock option agreements and the Company’s stock incentive plans,
the estate tendered to the Company 305,254 shares of the Company’s common stock
that the estate owned to fund the $2,295 aggregate exercise price. The Company
added these tendered shares into treasury. As a result of this transaction,
the
Company recorded additional paid-in-capital of $5,213, which includes a deferred
tax asset of $2,930.
During
the first quarter of 2005, the Company received 31,200 shares of its common
stock from a former affiliated physician as final settlement of a lawsuit.
Treasury shares were recorded at $197 and this amount was reported as income
from discontinued operations. The Company also received 17,518 shares of its
common stock to repay $104 of outstanding notes receivable from one of its
divestiture transactions.
During
the first six months of 2006 and 2005, the Company obtained medical equipment
by
entering into capital leases for $263 and $302, respectively.
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
Inventory
consists primarily of optical products such as eyeglass frames, optical lenses
and contact lenses, as well as surgical supplies used in connection with the
operation of the Company's ambulatory surgery centers (ASCs).
|
|
|
June
30,
|
|
|
December
31,
|
|
Balances
as of: |
|
|
2006
|
|
|
2005
|
|
Optical
products
|
|
$
|
895
|
|
$
|
824
|
|
Surgical
supplies
|
|
|
1,135
|
|
|
967
|
|
Other
|
|
|
191
|
|
|
221
|
|
Total
inventory
|
|
$
|
2,221
|
|
$
|
2,012
|
|
Goodwill
balances by reportable segment are summarized in the table below:
|
|
Unamortized
Goodwill
|
|
|
|
|
|
|
|
Surgical
Facilities
|
|
Product
Sales
|
|
Other
|
|
Total
|
|
Other
Intangibles
|
|
Balance
December 31, 2005
|
|
|
|
$
|
61,805
|
|
$
|
5,475
|
|
$
|
941
|
|
$
|
68,221
|
|
$
|
78
|
|
Acquisitions
|
|
|
|
|
18,349
|
|
|
—
|
|
|
—
|
|
|
18,349
|
|
|
—
|
|
Amortization
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
Balance
June 30, 2006
|
|
|
|
$
|
80,154
|
|
$
|
5,475
|
|
$
|
941
|
|
$
|
86,570
|
|
$
|
63
|
|
The
Company generally acquires majority equity interests in ASCs through the
purchase method of accounting. The results of operations are included in the
consolidated financial statements of the Company from the date of acquisition.
During the first half of 2006 the Company made the following acquisitions,
none
of which was significant enough to require pro forma disclosure.
Effective
January 31, 2006, the Company acquired an additional 15% interest in its Pain
Management Center located in New Albany, Indiana. The Company purchased 7.5%
from each of its existing partners, increasing
the
Company’s ownership in this ASC to 51%. Prior to this additional purchase, the
Company consolidated this ASC because it maintained effective control over
the
ASCs assets and operations. The Company continues to consolidate this
ASC.
Effective
January 31, 2006,
the
Company’s ASC
located
in Berkley, Michigan redeemed its retiring partner’s entire interest in this
ASC, issuing a promissory note payable
in eight quarterly installments through
November
1, 2007.
This
physician’s 24% interest was allocated proportionately among the remaining
partners. This increased the Company’s interest in this ASC to 67% from its
previous 51% ownership interest.
On
February 21, 2006, the Company acquired a 65% interest in the Preston Plaza
Surgery Center, a multi-specialty ASC located in Dallas, Texas, for $12,450,
of
which the Company allocated $10,859 to goodwill. The acquisition was funded
from
the Company’s credit facility.
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
On
April
13, 2006, the Company acquired a 55% interest in the American Surgery Centers
of
South Texas, an ophthalmology ASC located in San Antonio, Texas for $2,070,
of
which the Company allocated $1,948 to goodwill. The acquisition was funded
from
the Company’s credit facility.
On
May 2,
2006, the Company acquired a 51% interest in the Eye Surgery Center of Arkansas,
an ophthalmology ASC located in Jonesboro, Arkansas for $5,200, of which the
Company allocated $5,119 to goodwill. The acquisition was funded from the
Company’s credit facility.
6.
|
DISCONTINUED
OPERATIONS
|
Effective
November 1, 2005, the Company sold its 80% interest in an ASC located in St.
Joseph, Missouri to its physician- partners
resulting
in net gain on sale of $71. The Company sold its interest due to state licensure
issues unique to this ASC as well as its limited growth potential. The operating
results of this ASC prior to November 1, 2005 are reported as discontinued
operations.
During
the first quarter of 2005 the Company received into treasury 31,200 shares
of
its common stock as settlement of a dispute related to liquidating damages
due
the Company from a former affiliated physician. The value of these shares as
of
the settlement date is reported as income from discontinued
operations.
The
discontinued operations reserve balance was $77 and $89 at June 30, 2006 and
December 31, 2005, respectively. The reserve is for remaining costs from exiting
the physician practice management business completed in 2003. The operating
results of discontinued operations are summarized below.
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
Net
revenue
|
|
$
|
—
|
|
$
|
453
|
|
Operating
expenses
|
|
|
—
|
|
|
320
|
|
Litigation
settlement
|
|
|
—
|
|
|
(197
|
)
|
Minority
interests
|
|
|
—
|
|
|
25
|
|
Income
before income taxes
|
|
|
—
|
|
|
305
|
|
Income
tax provision
|
|
|
—
|
|
|
118
|
|
Net
income per statement of operations
|
|
$
|
—
|
|
$
|
187
|
|
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
7.
|
OTHER
(INCOME) EXPENSE
|
|
|
|
Three
months ended
June
30,
|
|
|
Six
months ended
June
30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
Interest
expense
|
|
$
|
595
|
|
$
|
197
|
|
$
|
988
|
|
$
|
312
|
|
Interest
income
|
|
|
(21
|
)
|
|
(4
|
)
|
|
(38
|
)
|
|
(16
|
)
|
Earnings
of non-consolidated affiliate
|
|
|
(11
|
)
|
|
(39
|
)
|
|
(31
|
)
|
|
(100
|
)
|
(Gain)
loss on sale of minority interests
|
|
|
—
|
|
|
(36
|
)
|
|
(9
|
)
|
|
(36
|
)
|
Other,
net
|
|
|
(66
|
)
|
|
(98
|
)
|
|
(152
|
)
|
|
(216
|
)
|
Other
(income) expense, net
|
|
$
|
497
|
|
$
|
20
|
|
$
|
758
|
|
$
|
(56
|
)
|
During
the first quarter of 2006 the Company sold a 3% minority interest in its
Maryville, Illinois ASC to a physician thereby increasing minority ownership
in
this ASC to 23%. This transaction resulted in a net gain on the sale of minority
interest of $9 in the first quarter of 2006.
During
the second quarter of 2005 the Company sold a 26% minority interest in its
Columbus, Georgia ASC to eleven physicians and sold a 29% minority interest
in
its Richmond, Virginia ASC to two physicians, increasing the minority ownership
in this ASC to 49%.
8.
|
REVOLVING
CREDIT FACILITY
|
Effective
June 29, 2006 the Company entered into a Fifth Amended and Restated Credit
Agreement with its lenders, increasing the maximum commitment available under
the facility to $80,000 and extending the expiration date to June 29, 2009.
The
amended facility includes an option to increase the maximum commitment available
to $100,000 under certain conditions. The maximum commitment available under
the
facility is the lesser of $80,000 or the maximum allowed under the calculated
ratio limitations. Maximum borrowing availability and applicable interest rates
under the facility are calculated based on a ratio of total indebtedness to
earnings before interest, taxes, depreciation and amortization. Interest on
borrowings under the facility is payable at an annual rate equal to the
Company’s lender’s published base rate plus the applicable borrowing margin
ranging from 0% to .5% or LIBOR plus a range from 1.25% to 2.25%, varying
depending upon the Company’s ratios and ability to meet other financial
covenants. The credit agreement contains covenants that include limitations
on
indebtedness, liens, capital expenditures, acquisitions, investments and share
repurchases, as well as restrictions on the payment of dividends. At June 30,
2006, the Company had $32,300 of borrowings outstanding under its revolving
credit facility and was in compliance with all of its credit agreement
covenants. The weighted average interest rate on credit line borrowings during
the three and six months ended June 30, 2006 was 6.66% and 6.44%, respectively.
In addition, the Company paid a fee ranging from .175% to .2% on the unused
portion of the commitment. The weighted average interest rate on credit line
borrowings at June 30, 2006 was 6.96%.
During
the second quarter of 2006, the Company entered into two interest rate swap
agreements. The interest rate swaps protect the Company against certain interest
rate fluctuations of the LIBOR rate on $24,000 of the Company’s variable rate
debt under the credit facility. The date of the first interest rate swap was
April 12, 2006, and it expires on April 19, 2009. This interest rate swap
effectively fixes the Company’s LIBOR interest rate on $12,000 of variable rate
debt at a rate of 5.34%. The date of the second interest rate swap was June
28,
2006 and it expires on September 30, 2008. This interest rate swap effectively
fixes the Company’s LIBOR interest rate on $12,000 of variable rate debt at a
rate of 5.75%. The Company has determined that the fair value of the interest
rate swaps was insignificant at June 30, 2006.
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
The
Company has two outstanding letters of credit issued to two of its optical
products buying group vendors in the amounts of $220 and $110 that expire on
March 31, 2007 and December 31, 2006, respectively. The outstanding letters
of
credit reduce the amount available under the credit facility.
9.
|
STOCK
BASED COMPENSATION
|
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share Based Payment” (SFAS 123(R)), applying the
modified prospective method. Prior to the adoption of SFAS 123(R), the Company
applied the provisions of APB Opinion No. 25, “Accounting for Stock Issued to
Employees,” in accounting for its stock-based awards, and accordingly,
recognized no compensation cost for its stock plans other than for its
restricted stock awards. Under
the
modified prospective method, SFAS 123(R) applies to new awards and to awards
that were outstanding as of December 31, 2005 that are subsequently vested,
modified, repurchased or cancelled. Compensation expense recognized during
the
first half of 2006 includes the portion vesting during the period for (1) all
share-based payments granted prior to, but not yet vested as of December 31,
2005, based on the grant date fair value estimated in accordance with the
original provisions of Statement of Financial Accounting Standards No. 123,
“Accounting for Stock-Based Compensation” (SFAS 123) and (2) all share-based
payments granted subsequent to December 31, 2005, based on the grant-date fair
value estimated using the Black-Scholes option-pricing model. During the second
quarter of 2006, the Company granted its directors and employees options to
purchase 295,600 shares with an exercise price of $6.87 per share and options
to
purchase 100,000 shares with an exercise price of $7.10 per share. Stock
compensation expense of $313 and $617 was recognized on existing stock options
during the three and six months ended June 30, 2006, respectively. As a result
of the Company’s decision to adopt the modified prospective method, prior period
results have not been restated.
The
following table illustrates the effect on net income and earnings per share
if
the Company had applied the fair value recognition provisions of SFAS 123 for
the three and six months ended June 30, 2005:
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
|
June
30, 2005
|
|
Net
income - as reported
|
|
$
|
1,379
|
|
$
|
2,733
|
|
Deduct:
Total stock based compensation expense, net of related tax
effects
|
|
|
(100
|
)
|
|
(281
|
)
|
Pro
forma net income
|
|
$
|
1,279
|
|
$
|
2,452
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
— as reported
|
|
$
|
0.06
|
|
$
|
0.13
|
|
Basic
— pro forma
|
|
$
|
0.06
|
|
$
|
0.11
|
|
Diluted
— as reported
|
|
$
|
0.06
|
|
$
|
0.12
|
|
Diluted
— pro forma
|
|
$
|
0.05
|
|
$
|
0.10
|
|
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
The
fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for stock options granted during the three and six months ended
June
30, 2006 and 2005:
|
|
2006
|
|
2005
|
|
|
|
Three
months
|
|
Six
months
|
|
Three
months
|
|
Six
months
|
|
Expected
option life in years
|
|
|
6
|
|
|
6
|
|
|
4
|
|
|
4
|
|
Risk-free
interest rate
|
|
|
4.73
|
%
|
|
4.73
|
%
|
|
3.90
|
%
|
|
3.87
|
%
|
Dividend
yield
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expected
volatility
|
|
|
51.3
|
%
|
|
51.3
|
%
|
|
70.8
|
%
|
|
70.8
|
%
|
Per
share fair value
|
|
$
|
3.77
|
|
$
|
3.77
|
|
$
|
3.25
|
|
$
|
3.28
|
|
The
expected option life used for 2006 grants is the average of the vesting term
assuming options are exercised as vested and the original contractual term
of
the option. The prior years’ expected life was the vesting term of the option.
The risk free interest rate is based on the yield curve for U.S. Treasury
zero-coupon issues with an equivalent remaining term. The dividend yield is
based on the Company’s current dividend yield as the best estimate of projected
dividend yield for periods within the expected life of the options. The expected
volatility in 2006 is based on the historical volatility of the Company’s stock
price for the period beginning January 1, 2003 through the option grant date.
The prior years’ expected volatility was based on the historical volatility of
the Company’s stock price.
A
summary
of stock based compensation activity within the Company’s stock-based
compensation plans for the six months ended June 30, 2006 is as
follows:
|
|
Number
of Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Term (Years)
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
5,932,796
|
|
$
|
3.40
|
|
|
|
|
|
|
|
Granted
|
|
|
395,600
|
|
$
|
6.93
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,410,408
|
)
|
$
|
1.75
|
|
|
|
|
|
|
|
Canceled
|
|
|
(146,167
|
)
|
$
|
11.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2006
|
|
|
4,771,821
|
|
$
|
3.95
|
|
|
6.1
|
|
$
|
13,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2006
|
|
|
3,387,648
|
|
$
|
3.19
|
|
|
4.9
|
|
$
|
12,063
|
|
The
aggregate intrinsic value for stock options outstanding and exercisable is
defined as the difference between the market value of the Company’s stock as of
the end of the period and the exercise price of the stock options. The total
intrinsic value of stock options exercised during the first half of 2006 was
$7,052. As a result of the stock options exercised, the Company recorded
additional paid-in-capital of $5,530, which includes $3,083 of tax benefits
recognized. During the first half of 2006, cash received from stock options
exercised was $166.
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
On
February 1, 2006, the estate of Stephen J. Winjum exercised all remaining stock
options held by the estate to acquire 1,330,730 shares of common stock. Per
the
terms of the stock option agreements and the Company’s stock incentive plans,
the estate tendered to the Company 305,254 shares of the Company’s common stock
that the estate owned to fund the $2,295 aggregate exercise price. The Company
added these tendered shares into treasury resulting in an increase in treasury
stock of $2,295.
The
following is a summary of nonvested stock option activity:
|
|
Number
of Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
|
|
|
|
|
Nonvested
at December 31, 2005
|
|
|
1,284,805
|
|
$
|
2.64
|
|
Granted
|
|
|
395,600
|
|
$
|
3.77
|
|
Vested
|
|
|
(286,543
|
)
|
$
|
2.00
|
|
Canceled
|
|
|
(9,689
|
)
|
$
|
2.92
|
|
|
|
|
|
|
|
|
|
Nonvested
at June 30, 2006
|
|
|
1,384,173
|
|
$
|
3.08
|
|
At
June
30, 2006, there was $4,262 of total unrecognized compensation cost related
to
nonvested stock options. This cost will be recognized over 4 years.
The
Company also grants restricted stock awards to certain employees. Restricted
stock awards are valued at the closing market value of the Company’s common
stock on the day prior to the grant, and the total value of the award is
recognized as expense ratably over the vesting period of the employees receiving
the grants. The Company granted 55,000 restricted stock awards during the second
quarter of 2006. As of June 30, 2006, the total amount of unrecognized
compensation expense related to nonvested restricted stock awards was
approximately $1,744, which is expected to be recognized over a weighted-average
period of approximately 3.5 years. The Company recognized compensation expense
of $101 and $205 on existing restricted stock awards during the three and six
months ended June 30, 2006, respectively.
The
Company has an employee stock purchase plan (“ESPP”) for all eligible employees.
Under the plan, shares of the Company’s common stock may be purchased at
six-month intervals at 85% of the lower of the fair market value on the first
or
the last day of each six-month period. Approximately 9,000 and 10,000 shares
were purchased under this plan during the six months ended June 30, 2006 and
2005, respectively. Under the provisions of SFAS 123(R), the Company recognized
compensation expense of $12 during the first half of 2006. At June 30, 2006,
101,500 shares were reserved for future issuance under the ESPP.
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
The
table
below presents information about operating data and segment assets as of and
for
the three and six months ended June 30, 2006 and 2005:
|
|
Surgical
Facilities
|
|
Product
Sales
|
|
Other
|
|
Corporate
|
|
Total
|
|
Three
months ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
21,105
|
|
$
|
4,152
|
|
$
|
1,771
|
|
$
|
14
|
|
$
|
27,042
|
|
Earnings
(loss) before taxes
|
|
|
3,732
|
|
|
1,180
|
|
|
69
|
|
|
(2,226
|
)
|
|
2,755
|
|
Depreciation
and amortization
|
|
|
627
|
|
|
56
|
|
|
18
|
|
|
48
|
|
|
749
|
|
Interest
income
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
21
|
|
Interest
expense
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
573
|
|
|
595
|
|
Capital
expenditures
|
|
|
825
|
|
|
41
|
|
|
1
|
|
|
38
|
|
|
905
|
|
Accounts
receivable
|
|
|
8,851
|
|
|
5,769
|
|
|
492
|
|
|
85
|
|
|
15,197
|
|
Identifiable
assets
|
|
|
102,979
|
|
|
12,938
|
|
|
1,660
|
|
|
5,123
|
|
|
122,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
15,061
|
|
$
|
3,500
|
|
$
|
1,848
|
|
$
|
2
|
|
$
|
20,411
|
|
Earnings
(loss) before taxes
|
|
|
2,756
|
|
|
758
|
|
|
168
|
|
|
(1,448
|
)
|
|
2,234
|
|
Depreciation
and amortization
|
|
|
408
|
|
|
47
|
|
|
28
|
|
|
68
|
|
|
551
|
|
Interest
income
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
4
|
|
Interest
expense
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
189
|
|
|
197
|
|
Capital
expenditures
|
|
|
578
|
|
|
113
|
|
|
1
|
|
|
6
|
|
|
698
|
|
Accounts
receivable
|
|
|
6,340
|
|
|
5,217
|
|
|
589
|
|
|
146
|
|
|
12,292
|
|
Identifiable
assets
|
|
|
67,497
|
|
|
12,197
|
|
|
1,775
|
|
|
5,315
|
|
|
86,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
38,970
|
|
$
|
8,136
|
|
$
|
3,816
|
|
$
|
36
|
|
$
|
50,958
|
|
Earnings
(loss) before taxes
|
|
|
6,607
|
|
|
2,164
|
|
|
353
|
|
|
(4,090
|
)
|
|
5,034
|
|
Depreciation
and amortization
|
|
|
1,209
|
|
|
110
|
|
|
39
|
|
|
110
|
|
|
1,468
|
|
Interest
income
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
38
|
|
Interest
expense
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
953
|
|
|
988
|
|
Capital
expenditures
|
|
|
1,119
|
|
|
132
|
|
|
19
|
|
|
109
|
|
|
1,379
|
|
Accounts
receivable
|
|
|
8,851
|
|
|
5,769
|
|
|
492
|
|
|
85
|
|
|
15,197
|
|
Identifiable
assets
|
|
|
102,979
|
|
|
12,938
|
|
|
1,660
|
|
|
5,123
|
|
|
122,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
28,484
|
|
$
|
6,521
|
|
$
|
3,690
|
|
$
|
2
|
|
$
|
38,697
|
|
Earnings
(loss) before taxes
|
|
|
5,289
|
|
|
1,350
|
|
|
329
|
|
|
(2,725
|
)
|
|
4,243
|
|
Depreciation
and amortization
|
|
|
848
|
|
|
89
|
|
|
53
|
|
|
137
|
|
|
1,127
|
|
Interest
income
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
16
|
|
Interest
expense
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
299
|
|
|
312
|
|
Capital
expenditures
|
|
|
1,169
|
|
|
178
|
|
|
59
|
|
|
40
|
|
|
1,446
|
|
Accounts
receivable
|
|
|
6,340
|
|
|
5,217
|
|
|
589
|
|
|
146
|
|
|
12,292
|
|
Identifiable
assets
|
|
|
67,497
|
|
|
12,197
|
|
|
1,775
|
|
|
5,315
|
|
|
86,784
|
|
NOVAMED,
INC. AND SUBSIDIARIES
NOTES
TO THE INTERIM
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
June
30, 2006
(Dollars
in thousands, except per share data; unaudited)
On
July
19, 2006, the Company acquired a 61% interest in the Clearview Surgical
Institute, a multi-specialty ambulatory surgery center located in Laredo,
Texas.
On
August
2, 2006, NovaMed Eye Surgery Center of New Albany, LLC, of which the Company
owns a 67.5% interest, acquired substantially all of the assets of the John
Kenyon Center for Eye Surgery, an ophthalmic ambulatory surgery center located
in Jeffersonville, Indiana.
ITEM
2.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis presents our consolidated financial condition
at June 30, 2006 and the results of operations for the three and six months
ended June 30, 2006 and 2005. You should read the following discussion together
with our consolidated financial statements and the related notes contained
elsewhere in this quarterly report. In addition to the historical information
provided below, we have made certain estimates and forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated or implied by these estimates and forward-looking
statements as a result of certain factors, including those discussed in the
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS on page 23 of this
quarterly report.
Overview
We
consider our core business to be the ownership and operation of ambulatory
surgery centers (ASCs). As of June 30, 2006, we owned and operated 31 ASCs,
of
which 28 were jointly owned with physician-partners. We also own other
businesses including an optical laboratory, an optical products purchasing
organization, and a marketing products and services company. In addition, we
provide management services to two eye care practices.
Year-to-Date Financial
Highlights:
|
·
|
Consolidated
net revenue increased 31.7% to $51.0 million. Surgical facilities
net
revenue increased 36.8% to $39.0 million (same-facility surgical
net
revenue increased 7.3% to $28.9
million).
|
|
·
|
Operating
income increased 42.6% to $10.8
million.
|
|
·
|
Acquired
majority interests in three ASCs for $19.7
million
|
|
·
|
Increased
the available commitment under our credit facility to $80,000.
|
Results
of Operations
The
following table summarizes our operating results as a percentage of net
revenue:
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
Revenue:
|
|
|
|
|
|
|
|
|
|
Surgical
facilities
|
|
|
78.0
|
%
|
|
73.8
|
%
|
|
76.5
|
%
|
|
73.6
|
%
|
Product
sales and other
|
|
|
22.0
|
|
|
26.2
|
|
|
23.5
|
|
|
26.4
|
|
Total
net revenue
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and benefits
|
|
|
31.7
|
|
|
29.9
|
|
|
32.6
|
|
|
31.3
|
|
Cost
of sales and medical supplies
|
|
|
24.6
|
|
|
24.3
|
|
|
24.6
|
|
|
24.3
|
|
Selling,
general and administrative
|
|
|
18.4
|
|
|
22.8
|
|
|
18.6
|
|
|
21.8
|
|
Depreciation
and amortization
|
|
|
2.8
|
|
|
2.7
|
|
|
2.9
|
|
|
2.9
|
|
Total
operating expenses
|
|
|
77.5
|
|
|
79.7
|
|
|
78.7
|
|
|
80.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
22.5
|
|
|
20.3
|
|
|
21.3
|
|
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interests in earnings of consolidated entities
|
|
|
10.5
|
|
|
9.3
|
|
|
9.9
|
|
|
8.8
|
|
Other
(income) expense
|
|
|
1.8
|
|
|
0.1
|
|
|
1.5
|
|
|
(0.1
|
)
|
Income
before income taxes
|
|
|
10.2
|
|
|
10.9
|
|
|
9.9
|
|
|
11.0
|
|
Income
tax provision
|
|
|
4.1
|
|
|
4.3
|
|
|
4.0
|
|
|
4.4
|
|
Net
income from continuing operations
|
|
|
6.1
|
|
|
6.6
|
|
|
5.9
|
|
|
6.6
|
|
Net
income from discontinued operations
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.5
|
|
Net
income
|
|
|
6.1
|
%
|
|
6.8
|
%
|
|
5.9
|
%
|
|
7.1
|
%
|
Three
Months Ended June 30, 2006 Compared to the Three Months Ended June 30,
2005
Net
Revenue
Consolidated.
Total
net revenue increased 32.5% from $20.4 million to $27.0 million. Net revenue
by
segment is discussed below.
Surgical
Facilities.
The
table below summarizes surgical facilities net revenue and procedures performed
for the second quarter of 2006 and 2005. Revenues generated from surgical
facilities are derived from the fees charged for the procedures performed in
our
ASCs and through our laser services agreements. Our procedure volume is directly
impacted by the number of ASCs we operate, the number of excimer lasers in
service, and their respective utilization rates. Net surgical facilities revenue
increased 40.1% from $15.1 million to $21.1 million. This increase was primarily
the result of $4.6 million of net revenue from ASCs acquired or developed after
April 1, 2005 (“new ASCs”) and a $1.6 million increase from ASCs that we owned
for the entire comparable reporting periods (“same-facility”). The increase in
same-facility revenue was primarily the result of a 7.6% increase in the number
of same-facility procedures performed and a 3.2% increase in the net revenue
per
procedure due to a change in procedure mix and the higher fees charged for
refractive intraocular lenses.
|
|
|
Three
Months Ended June 30,
|
|
|
Increase
|
|
Dollars
in thousands |
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
Surgical
Facilities:
|
|
|
|
|
|
|
|
|
|
|
Same-facility:
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
16,219
|
|
$
|
14,643
|
|
$
|
1,576
|
|
#
of procedures
|
|
|
19,387
|
|
|
18,019
|
|
|
1,368
|
|
|
|
|
|
|
|
|
|
|
|
|
New
ASCs:
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
4,865
|
|
$
|
241
|
|
$
|
4,624
|
|
#
of procedures
|
|
|
6,138
|
|
|
277
|
|
|
5,861
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
laser services agreement
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
21
|
|
$
|
177
|
|
$
|
(156
|
)
|
#
of procedures
|
|
|
56
|
|
|
426
|
|
|
(370
|
)
|
Product
Sales and Other.
The
table below summarizes net product sales and other revenue by significant
business component. Product sales and other revenue increased 11.0% from $5.4
million to $5.9 million. Net revenue at our marketing products and services
business increased $0.4 million. This is due to increased services provided
to
medical device manufacturers. Other net revenue decreased $0.1 million due
to
the expiration of a management consulting contract at the end of the first
quarter of 2006.
|
|
Three
Months Ended June 30,
|
|
Increase
|
|
Dollars
in thousands
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
Product
Sales:
|
|
|
|
|
|
|
|
Optical
laboratories
|
|
$
|
1,537
|
|
$
|
1,371
|
|
$
|
166
|
|
Optical
products purchasing organization
|
|
|
681
|
|
|
579
|
|
|
102
|
|
Marketing
products and services
|
|
|
1,427
|
|
|
1,067
|
|
|
360
|
|
Optometric
practice/retail store
|
|
|
507
|
|
|
483
|
|
|
24
|
|
|
|
|
4,152
|
|
|
3,500
|
|
|
652
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
Ophthalmology
practice
|
|
|
1,771
|
|
|
1,740
|
|
|
31
|
|
Other
|
|
|
14
|
|
|
110
|
|
|
(96
|
)
|
|
|
|
1,785
|
|
|
1,850
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Product Sales and Other Revenue
|
|
$
|
5,937
|
|
$
|
5,350
|
|
$
|
587
|
|
Salaries,
Wages and Benefits
Consolidated.
Salaries, wages and benefits expense increased 40.5% from $6.1 million to $8.6
million. As a percentage of net revenue, salaries, wages and benefits expense
increased from 29.9% to 31.7% primarily due $0.4 million of stock-based
compensation expense recorded in the second quarter of 2006. Salaries, wages
and
benefits expense by segment is discussed below.
Surgical
Facilities.
Salaries, wages and benefits expense in our surgical facilities segment
increased 43.3% from $3.1 million to $4.5 million. The increase was the result
of staff costs associated with new ASCs and staffing required at same-facility
ASCs due to increased procedure volume.
Product
Sales and Other.
Salaries, wages and benefits expense in our product sales and other segments
increased 7.5% from $1.9 million to $2.1 million. The increase is primarily
due
to the addition of new marketing consulting services within our marketing
products and services business.
Corporate. Salaries,
wages and benefits expense increased 95.2% from $1.0 million to $2.0 million.
The increase was primarily due to $0.4 million of stock-based compensation
expense recorded in the second quarter of 2006, additional employees required
to
service the new ASCs and annual salary increases. Salaries, wages and benefits
expense during the second quarter of 2005 was unusually low due to the vacancy
of the CEO position and related incentive accrual reductions.
Cost
of Sales and Medical Supplies
Consolidated.
Cost of
sales and medical supplies expense increased 34.2% from $5.0 million to $6.7
million. As a percentage of net revenue, cost of sales and medical supplies
expense increased from 24.3% to 24.6%. Cost of sales and medical supplies
expense by segment is discussed below.
Surgical
Facilities.
Cost of
sales and medical supplies expense in our surgical facilities segment increased
46.8% from $3.4 million to $5.0 million. The expense increase was primarily
the
result of costs associated with our new ASCs, increased procedure volumes at
some of our same-facility ASCs and the higher cost of refractive intraocular
lenses.
Product
Sales and Other.
Cost of
sales and medical supplies expense in our product sales and other segments
increased 6.0% from $1.5 million to $1.6 million primarily due to costs
associated with increased orders for products within our optical laboratories
business.
Selling,
General and Administrative
Consolidated.
Selling,
general and administrative expense increased 7.1% from $4.7 million to $5.0
million. As a percentage of net revenue, selling, general and administrative
expense decreased from 22.8% to 18.4%. The percentage decrease is primarily
due
to minimal increases in corporate overhead expenses necessary to service the
new
ASCs. Selling, general and administrative expense by segment is discussed
below.
Surgical
Facilities.
Selling,
general and administrative expense in our surgical facilities segment increased
19.9% from $3.4 million to $4.1 million. The increase is due to costs associated
with our new ASCs and an increase of $0.2 million of management and
billing/collections fees charged to the ASCs for services rendered by our
corporate personnel.
Product
Sales and Other.
Selling,
general and administrative expense in our product sales and other segments
remained flat at $0.9 million.
Corporate.
Corporate selling, general and administrative expense decreased 91.9% from
$390,000 to $32,000. This decrease was primarily due to an increase in
management and billing/collections fees charged to the operating segments for
services rendered by certain corporate personnel of $0.2 million. The second
quarter of 2005 also included incremental costs associated with the CEO search
including additional board and presiding director expenses and increased costs
to comply with section 404 of the Sarbanes-Oxley Act. We expect to continue
to
incur costs associated with being a public company throughout 2006 and in future
years.
Depreciation
and Amortization.
Depreciation and amortization expense increased 35.9% from $0.5 million to
$0.7
million due to increases in depreciation associated with our new ASCs and
capital expenditures in our surgical facilities segment.
Minority
Interests and Other (Income) Expense.
Minority interests in the earnings of our ASCs were $2.8 million in 2006 as
compared to $1.9 million in 2005. Of this increase, 88.3% is attributable to
new
ASCs.
Provision
for Income Taxes.
Our
effective tax rate was unchanged at 40.0%. Our effective tax rate is affected
by
expenses that are deducted from operations in arriving at pre-tax income that
are not allowed as a deduction on our federal income tax return.
Six
Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005
Net
Revenue
Consolidated.
Total
net revenue increased 31.7% from $38.7 million to $51.0 million. Net revenue
by
segment is discussed below.
Surgical
Facilities.
The
table below summarizes surgical facilities net revenue and procedures performed
for the first six months of 2006 and 2005. Revenues generated from surgical
facilities are derived from the fees charged for the procedures performed in
our
ASCs and through our laser services agreements. Our procedure volume is directly
impacted by the number of ASCs we operate, the number of excimer lasers in
service, and their respective utilization rates. Net surgical facilities revenue
increased 36.8% from $28.5 million to $39.0 million. This increase was primarily
the result of $8.7 million of net revenue from ASCs acquired or developed after
January 1, 2005 (“new ASCs”) and a $1.9 million increase from ASCs that we owned
for the entire comparable reporting periods (“same-facility”). The increase in
same-facility revenue was primarily the result of a 3.1% increase in the number
of same-facility procedures performed and a 4.2% increase in the net revenue
per
procedure due to a change in procedure mix and the higher fees charged for
refractive intraocular lenses.
|
|
|
Six
Months Ended June 30,
|
|
|
Increase
|
|
Dollars
in thousands
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
Surgical
Facilities:
|
|
|
|
|
|
|
|
|
|
|
Same-facility:
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
28,891
|
|
$
|
26,927
|
|
$
|
1,964
|
|
#
of procedures
|
|
|
34,846
|
|
|
33,784
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
New
ASCs:
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
9,861
|
|
$
|
1,186
|
|
$
|
8,675
|
|
#
of procedures
|
|
|
12,524
|
|
|
1,301
|
|
|
11,223
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
laser services agreement
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
218
|
|
$
|
371
|
|
$
|
(153
|
)
|
#
of procedures
|
|
|
586
|
|
|
950
|
|
|
(364
|
)
|
Product
Sales and Other.
The
table below summarizes net product sales and other revenue by significant
business component. Product sales and other revenue increased 17.4% from $10.2
million to $12.0 million. Net revenue at our marketing products and services
business increased $1.0 million. This is due to increased services provided
to
medical device manufacturers.
|
|
|
Six
Months Ended June 30,
|
|
|
Increase
|
|
Dollars
in thousands |
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Sales: |
|
|
|
|
|
|
|
|
|
|
Optical
laboratories
|
|
$
|
3,130
|
|
$
|
2,657
|
|
$
|
473
|
|
Optical
products purchasing organization
|
|
|
1,367
|
|
|
1,173
|
|
|
194
|
|
Marketing
products and services
|
|
|
2,687
|
|
|
1,716
|
|
|
971
|
|
Optometric
practice/retail store
|
|
|
952
|
|
|
975
|
|
|
(23
|
)
|
|
|
|
8,136
|
|
|
6,521
|
|
|
1,615
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
Ophthalmology
practice
|
|
|
3,744
|
|
|
3,475
|
|
|
269
|
|
Other
|
|
|
108
|
|
|
217
|
|
|
(109
|
)
|
|
|
|
3,852
|
|
|
3,692
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Product Sales and Other Revenue
|
|
$
|
11,988
|
|
$
|
10,213
|
|
$
|
1,775
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
Wages and Benefits
Consolidated.
Salaries, wages and benefits expense increased 37.2% from $12.1 million to
$16.6
million. As a percentage of net revenue, salaries, wages and benefits expense
increased from 31.3% to 32.6% primarily due to $0.8 million of stock-based
compensation expense recorded during the first half of 2006. Salaries, wages
and
benefits expense by segment is discussed below.
Surgical
Facilities.
Salaries, wages and benefits expense in our surgical facilities segment
increased 44.0% from $6.0 million to $8.6 million. The increase was the result
of staff costs associated with new ASCs and staffing required at same-facility
ASCs that experienced increased procedure volume.
Product
Sales and Other.
Salaries, wages and benefits expense in our product sales and other segments
increased 9.5% from $3.9 million to $4.2 million. The increase is primarily
due
to additional staff required to service increased volume within our marketing
products and services business, optical laboratory business and ophthalmology
practice.
Corporate. Salaries,
wages and benefits expense increased 65.9% from $2.3 million to $3.9 million.
The increase was primarily due to $0.8 million of stock based compensation
expense recorded in the first half of 2006, additional employees required to
service the new ASCs and annual salary increases. Salaries, wages and benefits
expense during the first half of 2005 was unusually low due to the vacancy
of
the CEO position and related incentive accrual reductions.
Cost
of Sales and Medical Supplies
Consolidated.
Cost of
sales and medical supplies expense increased 33.4% from $9.4 million to $12.6
million. As a percentage of net revenue, cost of sales and medical supplies
expense increased from 24.3% to 24.6%. Cost of sales and medical supplies
expense by segment is discussed below.
Surgical
Facilities.
Cost of
sales and medical supplies expense in our surgical facilities segment increased
40.5% from $6.6 million to $9.3 million. The expense increase was primarily
the
result of costs associated with our new ASCs, increased procedure
volumes at
some
of our same-facility ASCs and the higher cost of refractive intraocular lenses.
Product
Sales and Other.
Cost of
sales and medical supplies expense in our product sales and other segments
increased 16.6% from $2.8 million to $3.3 million primarily due to costs
associated with increased orders for products within our marketing products
and
services business and optical laboratory business.
Selling,
General and Administrative
Consolidated.
Selling,
general and administrative expense increased 12.2% from $8.5 million to $9.5
million. As a percentage of net revenue, selling, general and administrative
expense decreased from 21.8% to 18.6%. The percentage decrease is primarily
due
to minimal increases in corporate overhead expenses necessary to service the
new
ASCs. Selling, general and administrative expense by segment is discussed
below.
Surgical
Facilities.
Selling,
general and administrative expense in our surgical facilities segment increased
22.3% from $6.3 million to $7.7 million. The increase is due to costs associated
with our new ASCs and an increase of $0.4 million in management and
billing/collections fees charged to the ASCs for services rendered by corporate
personnel.
Product
Sales and Other.
Selling,
general and administrative expense in our product sales and other segments
increased 2.6% from $1.7 million to $1.8 million.
Corporate.
Corporate selling, general and administrative expense decreased 91.9% from
$441,000 to $36,000. This decrease was primarily due to an increase in
management and billing/collections fees charged to the operating segments for
services rendered by certain corporate personnel of $0.4 million. The 2005
period also included incremental costs associated with the CEO search including
additional board and presiding director expenses and increased costs to comply
with section 404 of the Sarbanes-Oxley Act. The decrease was partially offset
by
costs associated with the restatement of our previously filed financial
statements (See Note 2 of the Notes to Consolidated Financial Statements
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2005).
Depreciation
and Amortization.
Depreciation and amortization expense increased 30.3% from $1.1 million to
$1.5
million due to increases in depreciation associated with our new ASCs and
capital expenditures in our surgical facilities segment.
Minority
Interests and Other (Income) Expense.
Minority interests in the earnings of our ASCs were $5.0 million in 2006 as
compared to $3.4 million in 2005. Of this increase, 90.5% is attributable to
new
ASCs.
Provision
for Income Taxes.
Our
effective tax rate was unchanged at 40.0%. Our effective tax rate is affected
by
expenses that are deducted from operations in arriving at pre-tax income that
are not allowed as a deduction on our federal income tax return.
Liquidity
and Capital Resources
Operating
activities during the first six months of 2006 generated $6.3 million in cash
flow from continuing operations compared to $4.4 million in the comparable
2005
period. The increase in operating cash flow from continuing operations resulted
primarily from an increase in operating income after adding back $0.8 million
non-cash impact of stock compensation expense recorded during the first six
months of 2006. This increase was partially offset by an increase in minority
interest expense and accounts receivable due to the acquisition of new
ASCs.
Investing
activities during the first six months of 2006 resulted in negative cash flow
of
$21.2 million. Investing activities during the first six months of 2006 included
the acquisition of three ASCs for $19.7 million, and the purchase of property
and equipment for $1.4 million. Investing activities during the first six months
of 2005 resulted in negative cash flow of $10.6 million which included the
acquisition of two ASCs for $6.2 million, the buy-out of the Overland Park
call
option for $3.6 million and the purchase of property and equipment for $1.4
million.
Cash
flows from financing activities during the first six months of 2006 included
$15.3 million of net borrowings under our credit facility and $0.2 million
from
the exercise of stock options and issuance of stock to employees as part of
our
employee stock purchase plan, offset by $0.6 million of capital lease obligation
payments. Cash flows from financing activities during the first six months
of
2005 included $8.0 million of net borrowings under our credit facility and
$0.3
million from the exercise of stock options and issuance of stock to employees
as
part of our employee stock purchase plan, offset by $0.2 million of capital
lease obligation payments. Effective June 29, 2006 we entered into an amended
credit agreement with our lenders, increasing the maximum commitment available
under the facility to $80,000 and extending the expiration date to June 29,
2009. The amended facility includes an option to increase the maximum commitment
available to $100,000 under certain conditions. The maximum commitment available
under the facility is the lesser of $80,000 or the maximum allowed under the
calculated ratio limitations. Maximum borrowing availability and applicable
interest rates under the facility are calculated based on a ratio of total
indebtedness to earnings before interest, taxes, depreciation and amortization.
Interest on borrowings under the facility is payable at an annual rate equal
to
our lender’s published base rate plus the applicable borrowing margin ranging
from 0% to .5% or LIBOR plus a range from 1.25% to 2.25%, varying depending
upon
our ratios and ability to meet other financial covenants. The credit agreement
contains covenants that include limitations on indebtedness, liens, capital
expenditures, acquisitions, investments and share repurchases, as well as
restrictions on the payment of dividends. At June 30, 2006, we had $32,300
of
borrowings outstanding under our revolving credit facility and were in
compliance with all of our credit agreement covenants. As disclosed in Note
8 to
the Interim Condensed Consolidated Financial Statements, during the second
quarter of 2006, the Company entered into two interest rate swap agreements.
The
interest rate swaps protect the Company against certain interest rate
fluctuations of the LIBOR rate on $24,000 of the Company’s variable rate debt
under the credit facility.
As
of
June 30, 2006, we had cash and cash equivalents of $1.7 million and working
capital of $9.0 million.
We
expect
our cash flow from operations and funds available under our existing credit
facility to 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 and expansion
activities, capital requirements associated with our surgical facilities, and
the future cost of surgical equipment.
We
are a
party to option agreements with three physicians pursuant to which the
physicians have the right to purchase or sell equity interests in two of our
ASCs. These are summarized as follows:
|
·
|
Two
of our existing physician-partners who each own a 14.5% interest
in our
Richmond, Virginia ASC have the right to sell us back their equity
interests for the initial price paid at any time;
and
|
|
·
|
We
have an option to purchase
an
additional 26%
equity
interest from our physician-partner in our Ft. Lauderdale, Florida
ASC to
enable us to increase our interest in the ASC to a majority equity
interest.
The purchase price of this 26% interest is based on a multiple of
the
ASC’s twelve-month trailing EBITDA. If
we elect not to exercise this option by July 2007, we have the option
to
sell our minority interest to our physician-partner for the original
purchase price paid. If
we elect not to exercise that
option by September
2007, our physician-partner has the option to purchase our minority
interest
at
the original purchase price paid.
|
We
have a
nonexclusive supply agreement with Alcon Laboratories, Inc. pursuant to which
we
can procure and utilize excimer lasers and other equipment manufactured by
Alcon. Through the termination date of December 31, 2006, we will pay Alcon
monthly based on the number of procedures performed on each of our LADARVision
Systems. We are required to pay for a minimum number of annual procedures on
each LADARVision System during the remaining term, whether or not these
procedures are performed. Assuming we do not procure additional LADARVision
Systems under the agreement, the annual minimum commitment for 2006 would be
approximately $0.8 million.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS. This Form 10-Q contains certain
"forward-looking statements" that reflect our current expectations regarding
our
future results of operations, performance and achievements. These
forward-looking statements are made pursuant to the safe harbor provisions
of
the Private Securities Litigation Reform Act of 1995. We have tried, wherever
possible, to identify these forward-looking statements by using words such
as
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions. These statements reflect our current beliefs and are based
on information currently available to us. Accordingly, these statements are
subject to certain risks, uncertainties and contingencies that could cause
our
actual results, performance or achievements in 2006
and
beyond to differ materially from those expressed in, or implied by, such
statements. These risks and uncertainties include:
:
our
ability to acquire, develop or manage a sufficient number of profitable surgical
facilities, including facilities that are not exclusively dedicated to
eye-related procedures; reduced prices and reimbursement rates for surgical
procedures; our ability to maintain successful relationships with the physicians
who use our surgical facilities; the application of existing or proposed
government regulations, or the adoption of new laws and regulations, that could
limit our business operations, require us to incur significant expenditures
or
limit our ability to relocate our facilities if necessary; and demand for
elective surgical procedures. 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, 2005 for further discussion.
You should
not place undue reliance on any forward-looking statements. 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.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Our
exposure to interest rate risk relates primarily to our debt obligations and
temporary cash investments. Historically, we have not held or issued derivative
financial instruments other than the use of a variable-to-fixed interest rate
swap for a portion of our credit facility. We do not use derivative financial
instruments for speculative purposes. Interest rate risk is managed through
variable rate and term borrowings under our credit facility. On June 30,
2006,
we had
$32.3
million outstanding under our credit facility. Our revolving line of credit
bears interest at an annual rate equal to our lender’s published base rate
plus
applicable borrowing margin ranging from 0%
to
0.50%
or
LIBOR
plus a range from 1.25% to 2.25%,
varying upon our ability to meet financial covenants.
At
June
30, 2006, $32.3 million of our long-term debt was subject to variable rates
of
interest. Excluding the impact of our previously disclosed swap agreements,
a
hypothetical 100 basis point increase in market interest rates would result
in
additional annual interest expense of $0.3 million. The fair value of our
long-term debt approximated its carrying value at June 30, 2006.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain a system of disclosure controls and procedures, as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed
to ensure that information required to be disclosed by us in the reports that
we
file under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our
President and Chief Executive Officer and Executive Vice President and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.
We
have
carried out an evaluation under the supervision and with the participation
of
the Company’s management, including the Company’s President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer (its principal
executive officer and principal financial officer), of the effectiveness of
the
design and operation of our disclosure controls and procedures as of the end
of
the period covered by this report. Based on their evaluation, the President
and
Chief Executive Officer and Executive Vice President and Chief Financial Officer
concluded that such disclosure controls and procedures were effective as of
the
end of the period covered by this report to ensure that required information
will be disclosed on a timely basis in our reports filed under the Exchange
Act.
In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply their judgment
in evaluating the cost-benefit relationship of possible controls and procedures.
We believe our disclosure controls and procedures provide such reasonable
assurance.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting (as
such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred
during the quarterly period ended June 30, 2006 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
PART
II.
OTHER INFORMATION
Item
4. Submission of Matters to a Vote of Security Holders
We
held
our 2006 Annual Meeting of Stockholders on June 20, 2006 at which the
stockholders voted to elect two Class I Directors for a term of three years
expiring at our 2009 Annual Meeting of Stockholders and to approve the Company’s
executive incentive compensation plan. Results of the voting were as
follows:
Directors
|
|
For
|
|
Authority
Withheld
|
|
|
|
|
|
Thomas
S. Hall
|
|
16,528,848
|
|
3,841,877
|
R.
Judd Jessup
|
|
17,974,937
|
|
2,395,788
|
The
remaining directors, Robert J. Kelly, Scott H. Kirk, MD, Steven V. Napolitano
and C.A. Lance Piccolo all continued their terms of office as directors of
the
Company after the 2006 Annual Meeting of Stockholders.
Executive
Incentive Compensation Plan
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
11,338,602
|
|
975,951
|
|
30,883
|
|
8,024,280
|
Item
6. Exhibits
|
10.47
|
Employment
Agreement dated as of April 3, 2006 with Jack M.
Clark
|
|
21
|
Subsidiaries
of the Registrant
|
|
31.1
|
Certification
by the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
Certification
by the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32
|
Certification
of Principal Executive Officer and Chief Financial Officer 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.
NOVAMED,
INC.
/s/ Scott T. Macomber
Scott
T. Macomber
Executive
Vice President and
Chief
Financial Officer
(on
behalf of Registrant and as principal financial officer)
|
August 9, 2006
Date
|
/s/ John P. Hart
John P. Hart
Vice President, Corporate Controller
(as principal accounting officer)
|
August 9, 2006
Date
|