Table of
Contents
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, 2010
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.)
|
333 W. Wacker, Suite 1010, Chicago, Illinois 60606
(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 has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
o
No
o
.
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
|
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of August 3, 2010, there were outstanding
7,958,170 shares of the registrant’s common stock, par value $.01 per share.
Table of Contents
NOVAMED, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 2010
INDEX
2
Table of
Contents
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,
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
(unaudited)
|
|
(adjusted, Note 1)
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents, including $1,988 and
$2,562 of restricted cash, respectively
|
|
$
|
4,449
|
|
$
|
3,884
|
|
|
Accounts receivable, net of allowances of $20,260
and $26,421, respectively
|
|
20,081
|
|
18,673
|
|
|
Notes and amounts due from related parties
|
|
474
|
|
473
|
|
|
Inventory
|
|
2,558
|
|
2,479
|
|
|
Prepaid expenses and deposits
|
|
1,529
|
|
1,644
|
|
|
Current tax assets
|
|
2,991
|
|
2,725
|
|
|
Current assets of discontinued operations
|
|
—
|
|
522
|
|
|
Total current assets
|
|
32,082
|
|
30,400
|
|
|
Property and equipment, net
|
|
16,418
|
|
18,140
|
|
|
Goodwill
|
|
193,268
|
|
193,268
|
|
|
Other intangible assets, net
|
|
2,334
|
|
2,465
|
|
|
Other assets, net
|
|
1,072
|
|
1,397
|
|
|
Noncurrent assets of discontinued operations
|
|
—
|
|
2,297
|
|
|
Total assets
|
|
$
|
245,174
|
|
$
|
247,967
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,770
|
|
$
|
9,488
|
|
|
Accrued expenses
|
|
5,015
|
|
5,110
|
|
|
Current maturities of long-term debt
|
|
8,043
|
|
8,217
|
|
|
Current liabilities of discontinued operations
|
|
146
|
|
439
|
|
|
Total current liabilities
|
|
23,974
|
|
23,254
|
|
|
Long-term debt, net of current maturities
|
|
32,373
|
|
42,713
|
|
|
Convertible subordinated debt, net of unamortized
debt discount of $10,931 and $13,431 respectively
|
|
64,069
|
|
61,569
|
|
|
Other long-term liabilities
|
|
271
|
|
301
|
|
|
Deferred income taxes
|
|
15,574
|
|
14,118
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
NovaMed, Inc. stockholders’ equity:
|
|
|
|
|
|
|
Series E Junior Participating Preferred Stock
|
|
—
|
|
—
|
|
|
Common stock, $0.01 par value, 27,253,000 shares
authorized, 10,358,196 and 10,111,172 shares issued at June 30, 2010 and
December 31, 2009, respectively *
|
|
100
|
|
100
|
|
|
Additional paid-in-capital
|
|
115,279
|
|
113,561
|
|
|
Accumulated deficit
|
|
(2,240
|
)
|
(3,650
|
)
|
|
Accumulated other comprehensive loss
|
|
(20
|
)
|
(40
|
)
|
|
Treasury stock, at cost, 2,400,026 and 2,395,414
shares at June 30, 2010 and December 31, 2009, respectively *
|
|
(18,993
|
)
|
(18,943
|
)
|
|
Total NovaMed, Inc. stockholders’ equity
|
|
94,126
|
|
91,028
|
|
|
Noncontrolling interests
|
|
14,787
|
|
14,984
|
|
|
Total stockholders’ equity
|
|
108,913
|
|
106,012
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
245,174
|
|
$
|
247,967
|
|
*
Adjusted for 1-for-3 reverse stock split effective June 1, 2010 (Note 1)
The notes to the interim condensed consolidated financial statements
are an integral part of these statements.
3
Table of
Contents
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,
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
Surgical facilities
|
|
$
|
32,581
|
|
$
|
33,025
|
|
$
|
63,134
|
|
$
|
64,915
|
|
|
Product sales and other
|
|
5,583
|
|
5,854
|
|
11,475
|
|
11,669
|
|
|
Total net revenue
|
|
38,164
|
|
38,879
|
|
74,609
|
|
76,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
11,108
|
|
11,289
|
|
22,443
|
|
22,772
|
|
|
Cost of sales and medical supplies
|
|
9,156
|
|
8,873
|
|
17,630
|
|
17,409
|
|
|
Selling, general and administrative
|
|
6,959
|
|
6,904
|
|
13,854
|
|
13,601
|
|
|
Depreciation and amortization
|
|
1,282
|
|
1,441
|
|
2,614
|
|
2,820
|
|
|
Total operating expenses
|
|
28,505
|
|
28,507
|
|
56,541
|
|
56,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
9,659
|
|
10,372
|
|
18,068
|
|
19,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
|
2,253
|
|
2,082
|
|
4,532
|
|
4,266
|
|
|
Other (income) expense, net
|
|
44
|
|
(11
|
)
|
64
|
|
1
|
|
|
Income before income taxes
|
|
7,362
|
|
8,301
|
|
13,472
|
|
15,715
|
|
|
Income tax provision
|
|
1,178
|
|
1,464
|
|
2,166
|
|
2,678
|
|
|
Income from continuing operations
|
|
6,184
|
|
6,837
|
|
11,306
|
|
13,037
|
|
|
Loss from discontinued operations
|
|
(158
|
)
|
(168
|
)
|
(335
|
)
|
(337
|
)
|
|
Loss on disposal of discontinued operations
|
|
(1,574
|
)
|
—
|
|
(1,574
|
)
|
—
|
|
|
Net income
|
|
4,452
|
|
6,669
|
|
9,397
|
|
12,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling
interests
|
|
4,379
|
|
4,547
|
|
7,987
|
|
8,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to NovaMed, Inc.
|
|
$
|
73
|
|
$
|
2,122
|
|
$
|
1,410
|
|
$
|
3,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to NovaMed, Inc.:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1,805
|
|
$
|
2,290
|
|
$
|
3,319
|
|
$
|
4,188
|
|
|
Loss from discontinued operations
|
|
(1,732
|
)
|
(168
|
)
|
(1,909
|
)
|
(337
|
)
|
|
Net income attributable to NovaMed, Inc.
|
|
$
|
73
|
|
$
|
2,122
|
|
$
|
1,410
|
|
$
|
3,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to
NovaMed, Inc.:*
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.23
|
|
$
|
0.30
|
|
$
|
0.43
|
|
$
|
0.56
|
|
|
Loss from discontinued operations
|
|
(0.22
|
)
|
(0.02
|
)
|
(0.25
|
)
|
(0.04
|
)
|
|
Net income
|
|
$
|
0.01
|
|
$
|
0.28
|
|
$
|
0.18
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to
NovaMed, Inc.: *
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.23
|
|
$
|
0.30
|
|
$
|
0.42
|
|
$
|
0.54
|
|
|
Loss from discontinued operations
|
|
(0.22
|
)
|
(0.02
|
)
|
(0.24
|
)
|
(0.04
|
)
|
|
Net income
|
|
$
|
0.01
|
|
$
|
0.28
|
|
$
|
0.18
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding *
|
|
7,706
|
|
7,536
|
|
7,667
|
|
7,528
|
|
|
Dilutive effect of stock options and restricted
stock *
|
|
150
|
|
217
|
|
178
|
|
186
|
|
|
Diluted weighted average common shares outstanding
*
|
|
7,856
|
|
7,753
|
|
7,845
|
|
7,714
|
|
*
Adjusted for 1-for-3 reverse stock split effective June 1, 2010 (Note 1)
The notes to the interim
condensed consolidated financial statements are an integral part of these
statements
4
Table of
Contents
NOVAMED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS’ EQUITY
(Dollars
in thousands, unaudited)
|
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Treasury
Stock
|
|
Total NovaMed,
Inc.
Stockholders’
Equity
|
|
Noncontrolling
Interests
|
|
|
Balance
, December 31, 2009 *
|
|
$
|
100
|
|
$
|
113,561
|
|
$
|
(3,650
|
)
|
$
|
(40
|
)
|
$
|
(18,943
|
)
|
$
|
91,028
|
|
$
|
14,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
—
|
|
1,410
|
|
—
|
|
—
|
|
1,410
|
|
7,987
|
|
|
Unrealized gain on interest rate swaps
|
|
—
|
|
—
|
|
—
|
|
20
|
|
—
|
|
20
|
|
10
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
1,430
|
|
7,997
|
|
|
Shares issued - employee
stock purchase plan
|
|
—
|
|
47
|
|
—
|
|
—
|
|
—
|
|
47
|
|
—
|
|
|
Stock options exercised, net
|
|
—
|
|
200
|
|
—
|
|
—
|
|
—
|
|
200
|
|
—
|
|
|
Restricted stock activity
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(50
|
)
|
(50
|
)
|
—
|
|
|
Stock compensation expense
|
|
—
|
|
903
|
|
—
|
|
—
|
|
—
|
|
903
|
|
—
|
|
|
Distributions to noncontrolling interests
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(8,071
|
)
|
|
Other changes to noncontrolling interests
|
|
—
|
|
568
|
|
—
|
|
—
|
|
—
|
|
568
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
,
June 30, 2010
|
|
$
|
100
|
|
$
|
115,279
|
|
$
|
(2,240
|
)
|
$
|
(20
|
)
|
$
|
(18,993
|
)
|
$
|
94,126
|
|
$
|
14,787
|
|
*
Adjusted for 1-for-3 reverse stock split effective June 1, 2010 (Note 1)
The notes to the interim condensed consolidated financial statements are
an integral part of these statements.
5
Table of Contents
NOVAMED, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands; unaudited)
|
|
|
Six months ended
June 30,
|
|
|
|
|
2010
|
|
2009
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
9,397
|
|
$
|
12,700
|
|
|
Adjustments to reconcile net
income to net cash provided by operations
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
2,741
|
|
2,924
|
|
|
Deferred income taxes
|
|
968
|
|
2,292
|
|
|
Stock-based compensation
|
|
903
|
|
1,112
|
|
|
Amortization of subordinated
debt fees
|
|
321
|
|
321
|
|
|
Non-cash subordinated debt
interest
|
|
2,238
|
|
2,049
|
|
|
Non-cash loss on sale of
business
|
|
2,285
|
|
—
|
|
|
Changes in operating assets
and liabilities—
|
|
|
|
|
|
|
Accounts receivable
|
|
(1,313
|
)
|
(639
|
)
|
|
Inventory
|
|
(79
|
)
|
(8
|
)
|
|
Other current assets
|
|
167
|
|
303
|
|
|
Accounts payable and accrued
expenses
|
|
1,021
|
|
576
|
|
|
Other noncurrent assets
|
|
413
|
|
110
|
|
|
Net cash provided by
operating activities
|
|
19,062
|
|
21,740
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
Payments for acquisitions,
net
|
|
—
|
|
(12
|
)
|
|
Net proceeds from
noncontrolling interest transactions
|
|
654
|
|
290
|
|
|
Purchases of property and
equipment
|
|
(687
|
)
|
(2,560
|
)
|
|
Other
|
|
—
|
|
16
|
|
|
Net cash used in investing
activities
|
|
(33
|
)
|
(2,266
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
Borrowings under revolving
line of credit
|
|
19,600
|
|
27,500
|
|
|
Payments under revolving
line of credit
|
|
(28,300
|
)
|
(36,600
|
)
|
|
Other long-term borrowings
|
|
425
|
|
130
|
|
|
Repurchase of common stock
|
|
—
|
|
(1,126
|
)
|
|
Proceeds from the issuance
of common stock
|
|
346
|
|
95
|
|
|
Distributions to
noncontrolling interests
|
|
(8,071
|
)
|
(9,648
|
)
|
|
Payments of other debt, debt
issuance fees and capital lease obligations
|
|
(2,464
|
)
|
(1,704
|
)
|
|
Net cash used in financing
activities
|
|
(18,464
|
)
|
(21,353
|
)
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash and cash equivalents
|
|
565
|
|
(1,879
|
)
|
|
Cash and cash equivalents,
beginning of period
|
|
3,884
|
|
4,875
|
|
|
Cash and cash equivalents,
end of period
|
|
$
|
4,449
|
|
$
|
2,996
|
|
The notes to the interim condensed consolidated financial statements
are an integral part of these statements.
6
Table of
Contents
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Dollars in thousands, except per share data; unaudited)
1.
GENERAL
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, 2009, 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, 2010 and for the three and six months
ended June 30, 2010 and 2009, include all normal recurring adjustments
which management considers necessary for a fair presentation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. The results
of operations for the interim periods are not necessarily indicative of the
results that may be expected for the entire fiscal year.
On May 19, 2010, the
Company’s Board of Directors and stockholders approved a 1-for-3 reverse stock
split with an effective date of June 1, 2010. The Company has recast the presentation of
share and per share data in the prior year financial statements to reflect the
reverse stock split. The Company has
also recast all share and per share data in the accompanying footnotes to the
financial statements.
Recently Adopted Accounting Pronouncements:
In January 2010, the
FASB issued Accounting Standards Update (“ASU”) No. 2010-06,
Fair Value Measurements and Disclosures
(Topic 820), “Improving
Disclosures about Fair Value Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 requires new disclosures
about significant transfers in and out of Level 1 and Level 2 fair value
measurements and the reasons for such transfers and in the reconciliation for
Level 3 fair value measurements disclose separately information about
purchases, sales, issuances and settlements.
The Company adopted the provisions of ASU No. 2010-06 on January 1,
2010, except for disclosures about purchases, sales, issuances and settlements
in the reconciliation for Level 3 fair value measurements. Those disclosures will be effective for
financial statements issued for fiscal years beginning after December 15,
2010. The adoption of this standard did
not impact the Company’s consolidated financial statements.
2.
STATEMENT OF CASH FLOWS —
SUPPLEMENTAL
Supplemental cash information:
|
|
|
Six months ended June 30,
|
|
|
|
|
2010
|
|
2009
|
|
|
Interest paid
|
|
$
|
1,687
|
|
$
|
2,044
|
|
|
Income taxes paid
|
|
383
|
|
460
|
|
|
|
|
|
|
|
|
|
|
Non cash investing and financing activities
:
During the first six months of 2010, the Company
obtained equipment by entering into capital leases for $210.
3.
INVENTORY
Inventory consists primarily of surgical supplies
used in connection with the operation of the Company’s ambulatory surgery
centers (ASCs) and optical products such as eyeglass frames, optical lenses and
contact lenses. Inventory is valued at
the lower of cost or market, with cost determined using the first-in, first-out
(FIFO) method. The Company routinely
reviews its inventory for obsolete, slow moving or otherwise impaired inventory
and records a related expense in the period if such impairment is known and
quantifiable.
7
Table of Contents
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Dollars in thousands, except per share data; unaudited)
|
Balances
as of:
|
|
June 30,
2010
|
|
December 31,
2009
|
|
|
Surgical supplies
|
|
$
|
1,710
|
|
$
|
1,782
|
|
|
Optical products
|
|
740
|
|
645
|
|
|
Other
|
|
108
|
|
52
|
|
|
Total inventory
|
|
$
|
2,558
|
|
$
|
2,479
|
|
4.
INTANGIBLE ASSETS
Goodwill
balances by reportable segment are summarized in the table below:
|
|
|
Goodwill
|
|
|
|
|
|
|
Surgical
Facilities
|
|
Product
Sales
|
|
Other
|
|
Total
|
|
Other
Intangibles
|
|
|
Balance December 31, 2009
|
|
$
|
182,930
|
|
$
|
9,397
|
|
$
|
941
|
|
$
|
193,268
|
|
$
|
2,465
|
|
|
Acquisitions
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Other
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(19
|
)
|
|
Amortization
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(112
|
)
|
|
Balance June 30, 2010
|
|
$
|
182,930
|
|
$
|
9,397
|
|
$
|
941
|
|
$
|
193,268
|
|
$
|
2,334
|
|
5.
ACQUISITIONS AND
DIVESTITURES
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 six
months of 2010 and 2009, the Company did not make any acquisitions.
On June 18, 2010, one of the Company’s wholly
owned subsidiaries sold substantially all of the assets of its MDnetSolutions
business. In the second quarter of 2010,
the Company recorded an after tax loss on the sale of this business of
$1,574. For purposes of the loss
calculation, future potential earn-out payments to the Company from the buyers
of up to $1,000 are not considered due to the uncertainty of collection. All future earn-out payments received by the
Company, if any, will be recorded as income from discontinued operations in the
period received by the Company. In
addition to recording the net loss on disposal of this business, the Company
reported the results of operations of this business within discontinued
operations for all periods presented within the Consolidated Results of
Operations. The results of operations of
this business during the second quarter of 2010 and 2009 included revenue of
$475 and $693, respectively, and pretax losses of $260 and $277,
respectively. The results of operations
of this business during the first six months of 2010 and 2009 included revenue
of $1,085 and $1,282, respectively, and pretax losses of $553 and $553,
respectively. Prior to the disposal of
this business, its results of operations were included in the Company’s Product
Sales segment.
During the second quarter of 2010, the Company’s
Surgery Center of Kalamazoo, LLC sold a 5% equity interest to a local
healthcare group. As a result of the
transaction, the Company received proceeds of $746 in exchange for a 2% equity
ownership and the Company now owns 60.5% of the ASC.
6.
CONVERTIBLE SENIOR
SUBORDINATED NOTES AND REVOLVING CREDIT FACILITY
Convertible Senior Subordinated Notes
In June 2007, the
Company issued $75,000 aggregate principal amount of 1.0% convertible senior
subordinated notes due June 15, 2012 (the “Convertible Notes”). At June 30, 2010, the Company had
$64,069 in convertible subordinated debt outstanding, net of debt
discount. As of June 30, 2010, the
fair value of the $75,000 Convertible Notes was approximately $62,640, based on
the level 2 valuation hierarchy under ASC 820.
For further discussion about the Convertible Notes, see Note 11 in the
Notes to Consolidated Financial Statements in the Company’s Annual Report filed
on Form 10-K on March 16, 2010.
8
Table of Contents
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Dollars in thousands, except per share data; unaudited)
Revolving Credit Facility
Effective August 31,
2009, the Company amended its credit facility, decreasing the maximum
commitment available under the facility from $125,000 to $80,000, consisting of
a $50,000 revolving credit facility and a $30,000 term loan facility. The expiration date of the credit facility
was extended to December 15, 2011, however, if the Company has repaid or
refinanced its Convertible Notes prior to this date, the expiration date will
be extended to August 31, 2012. The
maximum commitment available under the revolving credit facility is $50,000 or
the maximum allowed under the calculated ratio limitations. The $30,000 term loan facility requires
quarterly repayments of $1,000, increasing to $1,250 and $1,500 commencing December 31,
2010 and December 31, 2011, respectively.
The amended credit agreement also includes an option allowing the
Company to increase the maximum commitment available under the revolving credit
facility to $95,000 under certain conditions.
At June 30, 2010, the Company had approximately $44,700 of
potential borrowing availability under its revolving credit facility. 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 0.75% to 3.00% or LIBOR plus
a range from 2.75% to 5.00%, varying depending upon the calculated ratios and
the Company’s ability to meet other financial covenants. In addition, a fee ranging from 0.25% to
0.50% is charged on the unused portion of the revolver commitment. The maximum borrowing availability and
applicable interest rates under the credit facility are calculated based on a
ratio of total indebtedness to earnings before interest, taxes, depreciation
and amortization, all as more fully defined in the Company’s credit
agreement. The credit agreement contains
customary covenants that include limitations on indebtedness, liens, capital
expenditures, acquisitions, investments and share repurchases, as well as
restrictions on the payment of dividends.
Under the terms of the credit agreement, the Company is subject to a
maximum total leverage ratio of 5.00 times initially, which will decrease to
4.75 times for the quarter ending December 31, 2009 and will further
decrease to 4.25 times for the quarter ending December 31, 2010 and 4.00
times for the quarter ending December 31, 2011 and thereafter. The Company is also subject to a maximum
senior leverage ratio of 2.50 times initially, which will decrease to 2.25
times for the quarter ending December 31, 2010 and thereafter. The Company is required to obtain the consent
of its lenders for any acquisition exceeding $25,000 individually and $40,000
for all acquisitions consummated during the term of the credit agreement. The credit facility is collateralized by
certain assets of the Company.
At June 30, 2010, the
Company had $4,500 of borrowings outstanding under its revolving credit
facility and $27,000 of borrowings outstanding under its term loan facility
with a weighted average interest rate of 5.0% and was in compliance with all of
its covenants. The weighted average
interest rate on credit line borrowings during the three and six months ended June 30,
2010 was 4.9% and 4.9%, respectively. In
addition, the Company paid a fee ranging from 0.25% to 0.50% on the unused
portion of the revolver commitment.
During 2008, the Company’s Orlando (formerly
Altamonte Springs), Florida ASC, of which it owns a 70% interest, entered into
a $3,300 installment note which matures on December 31, 2015. Interest is payable on the outstanding
principal balance at the lender’s one month LIBOR rate, designated or published
on the first day of each month, plus 2.5%.
This note financed the cost of relocating this ASC from Altamonte
Springs, Florida to Orlando, Florida, which was completed in January 2009. As of June 30, 2010, there was $2,593
outstanding under this note.
Effective August 1, 2006, NovaMed Eye Surgery
Center of New Albany, LLC, of which the Company owns a 67.5% majority interest,
entered into a $4,000 installment note which matures on August 1,
2013. Interest is payable at the lender’s
one month LIBOR rate, designated or published on the first of each month, plus
2.0%. As of June 30, 2010, there
was $2,005 outstanding under this note.
The ASC entered into a five-year interest rate swap agreement that
effectively fixes the LIBOR rate on this debt at 5.51%. The ASC has recognized the fair value of this
interest rate swap as a long-term liability of approximately $30 at June 30,
2010.
The Company has two outstanding letters of credit
issued to two of its optical products buying group vendors. One letter of credit in the amount of $203
expires on September 30, 2010 and one letter of credit in the amount of
$630 expires on March 31, 2011. The
outstanding letters of credit reduce the amount available under the credit
facility.
7.
OTHER COMPREHENSIVE INCOME
The Company reports other
comprehensive income as a measure of changes in stockholders’ equity that
resulted from recognized transactions and other economic events of the period
from non-owner sources. Other
comprehensive income of
9
Table of Contents
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Dollars in thousands, except per share data; unaudited)
the Company results from adjustments due to the
fluctuation of the value of the Company’s interest rate swaps accounted for
under ASC 815,
Derivatives and Hedging
. One of the Company’s 67.5% owned subsidiaries
entered into an interest rate swap during the second quarter of 2006. The Company’s share of the negative value of
the interest rate swaps was $20 at June 30, 2010 and is recorded as
accumulated other comprehensive loss in the accompanying unaudited consolidated
balance sheet. See Note 6 for further
discussion of the interest rate swaps.
The total comprehensive income attributable to NovaMed, Inc. for
the three and six months ended June 30, 2010 was $84 and $1,430,
respectively. The total comprehensive
income attributable to NovaMed, Inc. for the three and six months ended June 30,
2009 was $2,164 and $4,006, respectively.
8.
STOCK BASED COMPENSATION
The Company accounts for
stock based compensation applying the provisions of ASC 718,
Compensation-Stock Compensation
. ASC 718 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 three and six months of
2010 and 2009 includes the portion vesting during the period for 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.
The Company is authorized to
issue shares of its common stock, par value $.01 per share, under various stock
plans. Under these plans, the Company
has granted restricted stock and non-qualified options to purchase shares of
common stock to employees and outside directors. Restricted stock awards vest over a four-year
period with 1/8
th
of the total award vesting six months from the
date of grant and 1/16
th
of the total award vesting every three months
thereafter. The fair value of restricted
stock is determined based on the closing market value of the Company’s common
stock on the day prior to the grant.
Options are granted at
market value on the date of the grant.
Options become exercisable over a four-year period with 1/8
th
of the total options
granted becoming exercisable six months from the date of the grant and 1/48
th
of the total options granted becoming
exercisable each month thereafter.
Options generally have a term of ten years from the date of grant. During the first six months of 2010, the
Company did not grant any options.
Other information pertaining
to share-based activity during the three and six months ended June 30,
2010 and 2009 was as follows:
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
Shared-based compensation expense
|
|
$
|
473
|
|
$
|
570
|
|
$
|
892
|
|
$
|
1,097
|
|
|
Fair value of shares vested
|
|
361
|
|
482
|
|
722
|
|
977
|
|
|
Cash received from option exercises
|
|
311
|
|
83
|
|
349
|
|
83
|
|
|
Tax benefit from option exercises
|
|
123
|
|
100
|
|
148
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of nonvested restricted
share activity for the six months ended June 30, 2010:
|
|
|
Number of
Shares*
|
|
Weighted
Average
Grant-Date
Fair Value*
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
93,408
|
|
$
|
9.30
|
|
|
Granted
|
|
170,575
|
|
$
|
11.46
|
|
|
Vested
|
|
(17,008
|
)
|
$
|
11.17
|
|
|
Canceled
|
|
—
|
|
$
|
—
|
|
|
Nonvested at June 30, 2010
|
|
246,975
|
|
$
|
10.66
|
|
*
Adjusted for 1-for-3 reverse stock split
effective June 1, 2010 (Note 1).
10
Table of Contents
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Dollars in thousands, except per share data; unaudited)
At June 30, 2010, there
was $2,415 of total unrecognized compensation cost related to nonvested stock
options. This cost will be recognized
over a weighted average period of 3.3 years.
A summary of stock based
compensation activity within the Company’s stock-based compensation plans for
the six months ended June 30, 2010 is as follows:
|
|
|
Number of
Shares*
|
|
Weighted
Average
Exercise
Price*
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
1,292,749
|
|
$
|
13.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
—
|
|
$
|
—
|
|
|
|
|
|
|
Exercised
|
|
(70,941
|
)
|
$
|
4.92
|
|
|
|
|
|
|
Terminated
|
|
(64,090
|
)
|
$
|
28.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010
|
|
1,157,718
|
|
$
|
13.16
|
|
5.1
|
|
$
|
1,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010
|
|
977,621
|
|
$
|
13.57
|
|
4.5
|
|
$
|
1,237
|
|
*
Adjusted for 1-for-3 reverse stock split effective June 1, 2010 (Note 1).
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 in-the-money stock options. The total intrinsic value of stock options
exercised during the first six months of 2010 was $390. At June 30, 2010, there was $934 of
unrecognized compensation expense related to non-vested stock options which is
expected to be recognized over a weighted average period of 1.8 years.
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, 2010 and
2009:
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
Expected option life in years
|
|
—
|
|
—
|
|
—
|
|
6
|
|
|
Risk-free interest rate
|
|
—
|
|
—
|
|
—
|
|
3.53
|
%
|
|
Dividend yield
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Expected volatility
|
|
—
|
|
—
|
|
—
|
|
43.3
|
%
|
|
Per share fair value
|
|
—
|
|
—
|
|
—
|
|
$
|
3.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected option life
used for 2009 grants was the weighted average of the vesting term assuming
options are exercised as vested and the original contractual 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 2009
was based on the historical volatility of the Company’s stock.
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. Under this plan 5,513 and 8,818 shares were
purchased during the six months ended
11
Table of Contents
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Dollars in thousands, except per share data; unaudited)
June 30, 2010 and 2009, respectively. Under the provisions of ASC 718, the Company
recognized compensation expense of $11 and $15 during the first six months of
2010 and 2009, respectively. At June 30,
2010, 49,644 shares were reserved for future issuance under the ESPP.
9.
FAIR VALUE OF FINANCIAL
INSTRUMENTS
On January 1, 2009, the
Company adopted a new accounting standard included in ASC 820, formerly SFAS
No. 157,
Fair Value Measurements
, which
establishes a framework for reporting fair value and expands disclosures
required for fair value measurements for measuring the fair value of its
financial assets and liabilities. Although
the adoption of this accounting standard did not materially impact its
financial condition, results of operations or cash flow, the Company is now
required to provide additional disclosures as part of its financial statements.
ASC 820 defines fair value
as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). ASC
820 establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1, defined
as observable inputs such as quoted prices in active markets; Level 2, defined
as inputs other than quoted prices in active markets that are either directly
or indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its
own assumptions.
As of June 30, 2010,
the Company had an interest rate swap agreement that is required to be measured
at fair value on a recurring basis. The Company’s interest rate swap
agreement had a fair value of $20 based on Level 2 inputs and is recorded as a
liability as of June 30, 2010.
12
Table of Contents
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Dollars in thousands, except per share data; unaudited)
10.
OPERATING SEGMENTS
The table below presents
information about operating data and segment assets as of and for the three and
six months ended June 30, 2010 and 2009:
|
|
|
Surgical
Facilities
|
|
Product
Sales
|
|
Other
|
|
Corporate
|
|
Total
|
|
|
Three months ended
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
32,581
|
|
$
|
3,924
|
|
$
|
1,659
|
|
$
|
—
|
|
$
|
38,164
|
|
|
Earnings (loss) before taxes
|
|
9,205
|
|
1,020
|
|
(71
|
)
|
(2,792
|
)
|
7,362
|
|
|
Depreciation and amortization
|
|
1,064
|
|
117
|
|
31
|
|
70
|
|
1,282
|
|
|
Interest income
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
|
Interest expense
|
|
135
|
|
6
|
|
—
|
|
2,113
|
|
2,254
|
|
|
Capital expenditures
|
|
338
|
|
42
|
|
39
|
|
33
|
|
452
|
|
|
Accounts receivable
|
|
11,435
|
|
8,069
|
|
530
|
|
47
|
|
20,081
|
|
|
Identifiable assets
|
|
211,308
|
|
21,604
|
|
2,130
|
|
10,132
|
|
245,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
33,025
|
|
$
|
3,706
|
|
$
|
2,148
|
|
$
|
—
|
|
$
|
38,879
|
|
|
Earnings (loss) before taxes
|
|
9,519
|
|
940
|
|
277
|
|
(2,435
|
)
|
8,301
|
|
|
Depreciation and amortization
|
|
1,201
|
|
124
|
|
29
|
|
87
|
|
1,441
|
|
|
Interest income
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
|
Interest expense
|
|
182
|
|
6
|
|
—
|
|
1,895
|
|
2,083
|
|
|
Capital expenditures
|
|
600
|
|
271
|
|
1
|
|
204
|
|
1,076
|
|
|
Accounts receivable
|
|
12,303
|
|
8,227
|
|
563
|
|
47
|
|
21,140
|
|
|
Identifiable assets
|
|
215,207
|
|
25,125
|
|
2,174
|
|
7,674
|
|
250,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
63,134
|
|
$
|
7,867
|
|
$
|
3,608
|
|
$
|
—
|
|
$
|
74,609
|
|
|
Earnings (loss) before taxes
|
|
16,791
|
|
2,108
|
|
202
|
|
(5,629
|
)
|
13,472
|
|
|
Depreciation and amortization
|
|
2,170
|
|
237
|
|
61
|
|
146
|
|
2,614
|
|
|
Interest income
|
|
2
|
|
—
|
|
—
|
|
—
|
|
2
|
|
|
Interest expense
|
|
280
|
|
12
|
|
—
|
|
4,242
|
|
4,534
|
|
|
Capital expenditures
|
|
471
|
|
57
|
|
102
|
|
57
|
|
687
|
|
|
Accounts receivable
|
|
11,435
|
|
8,069
|
|
530
|
|
47
|
|
20,081
|
|
|
Identifiable assets
|
|
211,308
|
|
21,604
|
|
2,130
|
|
10,132
|
|
245,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
64,915
|
|
$
|
7,512
|
|
$
|
4,157
|
|
$
|
—
|
|
$
|
76,584
|
|
|
Earnings (loss) before taxes
|
|
18,295
|
|
1,941
|
|
454
|
|
(4,975
|
)
|
15,715
|
|
|
Depreciation and amortization
|
|
2,363
|
|
249
|
|
57
|
|
151
|
|
2,820
|
|
|
Interest income
|
|
2
|
|
—
|
|
—
|
|
—
|
|
2
|
|
|
Interest expense
|
|
376
|
|
13
|
|
—
|
|
3,879
|
|
4,268
|
|
|
Capital expenditures
|
|
1,757
|
|
332
|
|
1
|
|
470
|
|
2,560
|
|
|
Accounts receivable
|
|
12,303
|
|
8,227
|
|
563
|
|
47
|
|
21,140
|
|
|
Identifiable assets
|
|
215,207
|
|
25,125
|
|
2,174
|
|
7,674
|
|
250,180
|
|
13
Table of
Contents
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, 2010 and the results of
operations for the three and six months ended June 30, 2010 and 2009. 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 22
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, 2010, we owned and
operated 37 ASCs, of which 35 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 business. In
addition, we provide management services to two eye care practices.
Uncertainties in 2010
The continuing challenges
presented by the economy may adversely affect our results of operations and our
financial condition.
·
The current state of the
economy, including higher unemployment levels, could result in fewer procedures
being performed at our ASCs because patients may delay or cancel treatments.
Further increases in unemployment could also result in fewer individuals being
covered by employer-sponsored health plans and more individuals being covered
by lower paying government-sponsored programs such as Medicare and Medicaid.
Adverse economic conditions may also increase pressure on federal and state
governments to contain or reduce reimbursements from Medicare, Medicaid and
other programs. To the extent that commercial payors are adversely affected by
the economy, we may experience declines in commercial rates, a slow down in
collections and a reduction in the amounts we expect to collect.
·
Goodwill
represents a significant portion of our total assets. At June 30, 2010,
goodwill represented approximately 79% of total assets and 205% of
NovaMed, Inc. stockholders’ equity. Goodwill represents the excess of cost
over the fair value of the separately identifiable net assets acquired in connection
with our acquisitions and affiliations. The value of this asset may not be
realized. We regularly, and at least annually, evaluate whether events and
circumstances have occurred that indicate all or a portion of the carrying
amount of the assets of each of our reporting units may exceed fair value, in
which case an impairment charge to earnings may become necessary. During 2009,
our estimate of the fair value of the assets of some of our reporting units
declined. This was due to a combination of operating performance as well as a
decline in market multiples. While it was not necessary to record an impairment
charge in 2009, a further decline in operating performance and/or market
multiples could negatively impact the fair value of our goodwill. This could
lead us to determine that our goodwill has suffered an impairment that requires
us to write off a portion of the asset. Such a write-off could significantly
reduce our total assets, result in a substantial non-cash charge to earnings,
and cause us to be in default under one or more covenants in our credit
facility.
14
Table of Contents
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,
|
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
Surgical facilities
|
|
85.4
|
%
|
84.9
|
%
|
84.6
|
%
|
84.8
|
%
|
|
Product sales and other
|
|
14.6
|
|
15.1
|
|
15.4
|
|
15.2
|
|
|
Total net revenue
|
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
29.1
|
|
29.0
|
|
30.1
|
|
29.7
|
|
|
Cost of sales and medical supplies
|
|
24.0
|
|
22.8
|
|
23.6
|
|
22.7
|
|
|
Selling, general and administrative
|
|
18.2
|
|
17.8
|
|
18.6
|
|
17.8
|
|
|
Depreciation and amortization
|
|
3.4
|
|
3.7
|
|
3.5
|
|
3.7
|
|
|
Total operating expenses
|
|
74.7
|
|
73.3
|
|
75.8
|
|
73.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
25.3
|
|
26.7
|
|
24.2
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net
|
|
5.9
|
|
5.4
|
|
6.0
|
|
5.6
|
|
|
Other (income) expense, net
|
|
0.1
|
|
—
|
|
0.1
|
|
—
|
|
|
Income before income taxes
|
|
19.3
|
|
21.3
|
|
18.1
|
|
20.5
|
|
|
Income tax provision
|
|
3.1
|
|
3.8
|
|
2.9
|
|
3.5
|
|
|
Income from continuing operations
|
|
16.2
|
|
17.5
|
|
15.2
|
|
17.0
|
|
|
Loss from discontinued operations
|
|
(4.5
|
)
|
(0.4
|
)
|
(2.6
|
)
|
(0.4
|
)
|
|
Net income
|
|
11.7
|
|
17.1
|
|
12.6
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling
interests
|
|
11.5
|
|
11.7
|
|
10.7
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to NovaMed, Inc.
|
|
0.2
|
%
|
5.4
|
%
|
1.9
|
%
|
5.0
|
%
|
Three Months Ended June 30, 2010 Compared to the Three Months
Ended June 30, 2009
Net Revenue
Consolidated.
Total net revenue decreased 1.8% from $38.9
million to $38.2 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 2010
and 2009. 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 and their respective utilization rates. Net surgical facilities revenue decreased
1.3% from $33.0 million to $32.6 million.
The decrease in net revenue was primarily the result of a 4.9% decrease
in the number of procedures performed offset by a 3.6% increase in the net
revenue per procedure due to a change in procedure and payor mix.
In June 2010, the Centers for Medicare and
Medicaid Services (CMS) published their proposed 2011 rates for ASCs. Our preliminary estimate is that the proposed
2011 rates, based on our current procedure volumes and mix, will negatively
impact annual surgical facilities net revenue by approximately $0.5
million. This does not include any
potential wage-index changes. This
revenue reduction approximates a $0.02 impact on earnings per share.
15
Table of
Contents
|
|
|
Three Months Ended
June 30,
|
|
Increase
|
|
|
Dollars in thousands
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Surgical Facilities:
|
|
|
|
|
|
|
|
|
Same-facility:
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
32,581
|
|
$
|
33,025
|
|
$
|
(444
|
)
|
|
# of procedures
|
|
38,643
|
|
40,611
|
|
(1,968
|
)
|
|
|
|
|
|
|
|
|
|
|
New ASCs:
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
# of procedures
|
|
—
|
|
—
|
|
—
|
|
Product Sales and Other.
The table below summarizes net product sales
and other revenue by significant business component. Product sales and other revenue for the
second quarter of 2010 decreased 4.6% from $5.9 million to $5.6 million. Net revenue from our marketing products and
services business increased by $0.1 million primarily due to new products and
services offered during the second quarter of 2010. Net revenue at our optical laboratory
business increased by $0.2 million due to an increase in existing customer
orders and the addition of new customers.
Net revenue at our ophthalmology practice decreased by $0.5 million due
to a decrease in patient visits primarily due to the departure of a physician
early in the second quarter of 2010.
|
|
|
Three Months Ended
June 30,
|
|
Increase
|
|
|
Dollars in thousands
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Product Sales:
|
|
|
|
|
|
|
|
|
Optical laboratories
|
|
$
|
1,499
|
|
$
|
1,349
|
|
$
|
150
|
|
|
Optical products purchasing organization
|
|
1,299
|
|
1,353
|
|
(54
|
)
|
|
Marketing products and services
|
|
666
|
|
565
|
|
101
|
|
|
Optometric practice/retail store
|
|
460
|
|
439
|
|
21
|
|
|
|
|
3,924
|
|
3,706
|
|
218
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Ophthalmology practice
|
|
1,659
|
|
2,148
|
|
(489
|
)
|
|
|
|
|
|
|
|
|
|
|
Total Net Product Sales and Other
Revenue
|
|
$
|
5,583
|
|
$
|
5,854
|
|
$
|
(271
|
)
|
Salaries, Wages and Benefits
Consolidated.
Salaries, wages and benefits expense
decreased 1.6% from $11.3 million to $11.1 million. As a percentage of net revenue, salaries,
wages and benefits expense increased from 29.0% to 29.1%. Salaries, wages and benefits expense by
segment is discussed below.
Surgical Facilities.
Salaries, wages and benefits expense in our
surgical facilities segment decreased 1.5% from $7.1 million to $7.0
million. The decrease was the result of
a decrease in procedures at our ASCs and staff reductions.
Product Sales and Other.
Salaries, wages and benefits expense in our
product sales and other segments decreased 6.3% from $2.2 million to $2.0
million primarily due to a decrease in patient visits at our ophthalmology
practice.
Corporate.
Salaries, wages and benefits expense
increased 3.2% from $2.0 million to $2.1 million due to an increase in health
benefit costs and annual salary increases.
16
Table of
Contents
Cost of Sales and Medical Supplies
Consolidated.
Cost of sales and medical supplies expense
increased 3.2% from $8.9 million to $9.2
million. As a percentage of net revenue,
cost of sales and medical supplies expense increased from 22.8% to 24.0%. 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 4.6% from $7.5 million to $7.8
million. As a percentage of net revenue,
cost of sales and medical supplies expense increased from 22.6% to 24.0%. The expense and percentage increase was
primarily the result of some of our ASCs performing an increased number of high
revenue/high cost procedures such as pain management implants and stimulators.
Product Sales and Other.
Cost of sales and medical supplies expense in
our product sales and other segments decreased 4.4% from $1.4 million to $1.3
million primarily due to decreased patient visits at our ophthalmology
practice.
Selling, General and Administrative
Consolidated.
Selling, general and administrative expense
for the second quarter of 2010 increased 0.8% from $6.9 to $7.0 million. As a percentage of net revenue, selling,
general and administrative expense increased from 17.8% to 18.2%. Selling, general and administrative expense
by segment is discussed below.
Surgical Facilities.
Selling, general and administrative expense
in our surgical facilities segment decreased 1.4% from $6.4 million to $6.3
million due to a decrease of $0.1 million in 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 increased 20.8% from $0.9 million to
$1.1 million primarily due to higher legal expenses relating to an internal
compliance review.
Corporate.
Corporate selling, general and administrative
expense decreased by $0.1 million due to lower consulting, rent and insurance
costs.
Depreciation and Amortization
.
Depreciation and amortization
expense decreased 11.0% from $1.4 million to $1.3 million due to certain assets
being fully depreciated at some of our ASCs.
Interest (Income) Expense, net.
Interest (income) expense, net increased by
$0.2 million. On January 1, 2009,
we adopted a new accounting standard included in Accounting Standards
Codification (“ASC”) 470-20,
Debt with Conversion and
Other Options.
As a result of the adoption of the new accounting
standard, we recorded non-cash interest expense during the first quarter of
2010 and 2009 of $1.1 million and $1.0 million, respectively. Interest (income) expense also increased as a
result of the amendment to our credit agreement in August 2009.
Provision for Income Taxes
.
Our effective tax rate increased 0.5% from 39.0% to 39.5% due to
recent changes in various state income taxes. 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.
Discontinued Operations.
On June 18, 2010, one of our wholly
owned subsidiaries sold substantially all of the assets of our MDnetSolutions
business. In the second quarter of 2010,
we recorded an after tax loss on the sale of this business of $1.6 million. For purposes of the loss calculation, future
potential earn-out payments to us from the buyers of up to $1.0 million are not
considered due to the uncertainty of collection. All future earn-out payments received by us,
if any, will be recorded as income from discontinued operations in the period
received. In addition to recording the
net loss on disposal of this business, we reported the results of operations of
this business within discontinued operations for all periods presented within
the Consolidated Results of Operations.
Net Income Attributable to Noncontrolling Interests
.
Noncontrolling interests in the
earnings of our ASCs were $4.4 million in the second quarter of 2010 as
compared to $4.5 million in 2009.
17
Table of
Contents
Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30,
2009
Net Revenue
Consolidated.
Total net revenue decreased 2.6% from $76.6
million to $74.6 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
2010 and 2009. Net surgical facilities
revenue decreased 2.7% from $64.9 million to $63.1 million. The decrease in same-facility net revenue was
primarily the result of a 5.1% decrease in the number of same-facility
procedures performed offset by a 2.4% increase in the net revenue per procedure
due to a change in procedure and payor mix.
|
|
|
Six Months Ended
June 30,
|
|
Increase
|
|
|
Dollars in thousands
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Surgical Facilities:
|
|
|
|
|
|
|
|
|
Same-facility:
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
63,134
|
|
$
|
64,915
|
|
$
|
(1,781
|
)
|
|
# of procedures
|
|
75,462
|
|
79,555
|
|
(4,093
|
)
|
|
|
|
|
|
|
|
|
|
|
New ASCs:
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
# of procedures
|
|
—
|
|
—
|
|
—
|
|
Product Sales and Other.
The table below summarizes net product sales
and other revenue by significant business component. Net revenue at our optical products purchasing
organization decreased by $0.1 million due to a decrease in existing customer
orders. Net revenue from our marketing
products and services business increased by $0.2 million primarily due new
products and services offered during the second quarter of 2010. Net revenue at our optical laboratory
business increased by $0.3 million due to an increase in existing customer
orders and the addition of new customers.
Net revenue at our ophthalmology practice decreased by $0.5 million due
to a decrease in patient visits primarily due to the departure of a physician
early in the second quarter of 2010.
|
|
|
Six Months Ended June 30,
|
|
Increase
|
|
|
Dollars in thousands
|
|
2010
|
|
2009
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Product Sales:
|
|
|
|
|
|
|
|
|
Optical laboratories
|
|
$
|
2,982
|
|
$
|
2,716
|
|
$
|
266
|
|
|
Optical products purchasing organization
|
|
2,603
|
|
2,743
|
|
(140
|
)
|
|
Marketing products and services
|
|
1,321
|
|
1,126
|
|
195
|
|
|
Optometric practice/retail store
|
|
961
|
|
928
|
|
33
|
|
|
|
|
7,867
|
|
7,513
|
|
354
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Ophthalmology practice
|
|
3,608
|
|
4,156
|
|
(548
|
)
|
|
|
|
|
|
|
|
|
|
|
Total Net Product Sales and Other
Revenue
|
|
$
|
11,475
|
|
$
|
11,669
|
|
$
|
(194
|
)
|
Salaries, Wages and Benefits
Consolidated.
Salaries, wages and benefits expense
decreased 1.4% from $22.8 million to $22.4 million. As a percentage of net revenue, salaries,
wages and benefits expense increased from 29.7% to 30.1%. Salaries, wages and benefits expense by
segment is discussed below.
18
Table of
Contents
Surgical Facilities.
Salaries, wages and benefits expense in our
surgical facilities segment decreased 0.4% from $14.3 million to $14.2
million. The decrease was primarily the
result of a decrease in procedures at our ASCs and staff reductions.
Product Sales and Other.
Salaries, wages and benefits expense in our
product sales and other segments decreased 4.6% from $4.3 million to $4.1
million primarily due to a decrease in patient visits at our ophthalmology
practice.
Corporate.
Salaries, wages and benefits expense
decreased 1.8% from $4.2 million to $4.1 million. The decrease was primarily due to lower
stock-based compensation expense and incentive bonus accruals. This decrease was partially offset by
increased health benefit costs and annual salary increases.
Cost of Sales and Medical Supplies
Consolidated.
Cost of sales and medical supplies expense
increased 1.3% from $17.4 million to $17.6 million. As a percentage of net revenue, cost of sales
and medical supplies expense increased from 22.7% to 23.6%. 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 2.6% from $14.6 million to $15.0
million. As a percentage of net revenue,
cost of sales and medical supplies expense increased from 22.5% to 23.7%. The expense and percentage increase was
primarily the result of some of our ASCs performing an increased number of high
revenue/high cost procedures such as pain management implants and stimulators.
Product Sales and Other.
Cost of sales and medical supplies expense in
our product sales and other segments decreased 5.5% from $2.8 million to $2.7
million primarily due to decreased patient visits at our ophthalmology
practice.
Selling, General and Administrative
Consolidated.
Selling, general and administrative expense
increased 1.9% from $13.6 million to $13.9 million. As a percentage of net revenue, selling,
general and administrative expense increased from 17.8% to 18.6%. Selling, general and administrative expense
by segment is discussed below.
Surgical Facilities.
Selling, general and administrative expense
in our surgical facilities segment remained flat at $12.7 million.
Product Sales and Other.
Selling, general and administrative expense
in our product sales and other segments increased 13.5% from $1.8 million to
$2.1 million primarily due to higher legal expenses relating to an internal
compliance review.
Corporate.
Corporate selling, general and administrative
expense remained flat compared to the first six months of 2009.
Depreciation and Amortization
.
Depreciation and
amortization expense decreased 7.3% from $2.8 million to $2.6 million due to
certain assets being fully depreciated at some of our ASCs.
Interest (Income) Expense, net.
Interest (income) expense, net increased by
$0.3 million due to our adoption of a new accounting standard included in ASC
470-20. As a result of the adoption of
the new accounting standard, we recorded additional non-cash interest expense
during the first six months of 2010 and 2009 of $2.2 million and $2.0 million,
respectively. Interest (income) expense
also increased as a result of the amendment to our credit agreement in August 2009.
Provision for Income Taxes
.
Our effective tax rate increased 0.5% from 39.0% to 39.5% due to
recent changes in various state income taxes. 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.
Discontinued Operations.
On June 18, 2010, one of our wholly
owned subsidiaries sold substantially all of the assets of our MDnetSolutions
business. In the second quarter of 2010,
we recorded an after tax loss on the sale of this business of $1.6
million. For purposes of the loss
calculation, future potential earn-out payments to us from the buyers of up to
$1.0 million are not considered due to the uncertainty of collection. All future earn-out payments received by us,
if any, will be recorded as income from discontinued operations in the period
received. In addition to recording the
net loss on disposal of this
19
Table of
Contents
business,
we reported the results of operations of this business within discontinued
operations for all periods presented within the Consolidated Results of
Operations.
Net Income Attributable to Noncontrolling Interests
.
Noncontrolling interests in the
earnings of our ASCs were $8.0 million in 2010 as compared to $8.8 million in
2009.
Liquidity and Capital Resources
Operating activities during the first six months of
2010 generated $19.1 million in cash flow compared to $21.7 million in the
comparable 2009 period. Cash flow from
operating activities decreased by $2.5 million due to lower net income after
adding back the following non-cash items: depreciation and amortization,
amortization of subordinated debt fees, stock-based compensation expense,
deferred income taxes, non-cash subordinated debt interest and the non-cash
loss on the sale of our MDnetSolutions business. The contribution from changes in operating
assets and liabilities decreased $0.1 million.
Changes in accounts receivable resulted in additional cash outflow of
$0.7 million during the first six months of 2010 as compared to 2009 due to
higher collections in the first half of 2009 from acquired ASCs. Changes in accounts payable and accrued
expenses resulted in additional cash flow of $0.4 million during the first six
months of 2010 as compared to 2009 primarily due the timing of vendor payments.
Cash flows used in investing activities netted to
zero during the first six months of 2010 compared to $2.3 million during the
first six months of 2009. Investing
activities during the first six months of 2010 included the purchase of
property and equipment for $0.7 million and net proceeds from noncontrolling
interest transactions of $0.7 million.
Investing activities during the first six months of 2009 included the
purchase of property and equipment for $2.6 million and proceeds of $0.3
million relating to the sale of noncontrolling interests in one of our ASCs.
Cash flows used in financing activities were $18.5
million during the first six months of 2010 compared to $21.4 million during
the first six months of 2009. Cash flows
used in financing activities during the first six months of 2010 included net
payments of $8.7 million under our credit facility, distributions to
noncontrolling interests of $8.1 million, $2.5 million of capital lease and
other debt obligation payments, proceeds of $0.3 million from the exercise of
stock options and issuance of stock to employees as part of our employee stock
purchase plan and proceeds of $0.4 million relating to a note entered into by
one of our ASCs. Cash flows used in
financing activities during the first six months of 2009 included net payments
of $9.1 million under our credit facility, distributions to noncontrolling
interests of $9.6 million, payments of $1.1 million relating to the repurchase
of our common stock and $1.7 million of capital lease and other debt obligation
payments.
In June 2007, we issued
$75.0 million aggregate principal amount of 1.0% convertible senior
subordinated notes due June 15, 2012 (the “Convertible Notes”). Proceeds
from the Convertible Notes were used to pay down $62.4 million of
outstanding indebtedness on our revolving credit facility and to fund the $10.0 million
net cost of the convertible note hedge and warrant transactions described
below. Interest on the Convertible Notes is payable semi-annually in arrears on
June 15 and December 15 of each year, commencing December 15,
2007. The Convertible Notes rank subordinate to our senior debt and rank pari
passu or senior to all of our other subordinated indebtedness. The Convertible
Notes are convertible into shares of our common stock at an initial conversion
price of $19.113 per share, or approximately 52.3204 shares per $1,000
principal amount of Convertible Notes. At June 30, 2010, we had
$64.1 million in convertible subordinated debt outstanding, net of debt
discount. As of June 30, 2010, the fair value of the $75.0 million
Convertible Notes was approximately $62.6 million, based on the
level 2 valuation hierarchy under ASC 820 (formerly SFAS No. 157).
Effective January 1, 2009, we adopted a new accounting standard included
in ASC 470-20 (formerly FSP APB 14-1). ASC 470-20 applies to convertible
debt instruments that may be settled in cash upon conversion, including partial
cash settlement, when the conversion option does not need to be bifurcated and
accounted for separately as a derivative instrument in accordance with ASC 815
(formerly FAS 133). ASC 470-20 requires that issuers of convertible debt
instruments that, upon conversion, may be settled fully or partially in cash,
must separately account for the liability and equity components in a manner
that will reflect the entity’s nonconvertible debt borrowing rate when interest
cost is recognized in subsequent periods. Additionally, debt issuance costs are
required to be allocated in proportion to the allocation of the liability and
equity components and accounted for as debt issuance costs and equity issuance
costs, respectively. ASC 470-20 requires retrospective application and,
accordingly, the prior periods’ financial statements included herein have been
adjusted. In accordance with the provisions of ASC 470-20, we determined that
the fair value of our Convertible Notes at issuance in 2007 was approximately
$52.1 million, and we designated the residual value of approximately
$22.9 million as the equity component. Additionally, we allocated
approximately $1.8 million of the $2.6 million original Convertible
Notes issuance cost as debt issuance cost and the remaining $0.8 million
as equity issuance cost. The adoption of ASC 470-20 added approximately
$2.2 million and $2.0 million of non-cash interest expense to our first
six months of 2010 and 2009 results of operations, respectively. This
20
Table
of Contents
resulted in a reduction to net income of approximately
$1.4 million ($0.18 per diluted share) and $1.2 million ($0.16 per
diluted share) in the first six months of 2010 and 2009, respectively. The
adoption of ASC 470-20 does not have an impact on our cash flows.
The Convertible Notes
include a net-share settlement feature that requires us to settle conversion of
the notes in cash up to the notes’ principal amount and settle any excess of
the Convertible Notes’ conversion value above their principal amount by
delivering shares of our common stock, cash, or a combination of cash and
common stock, at our option. The conversion value of the Convertible Notes is
equal to the market price of our common stock multiplied by the conversion rate
of approximately 52.3204 shares per $1,000 principal amount of Convertible
Notes. A market price that exceeds the conversion price of $19.113 at the time
of settlement results in excess conversion value above the original principal
amount of $1,000. As a result of the net-share settlement feature, we will be
able to substantially reduce the number of shares of common stock issuable in
the event of the conversion of the Convertible Notes by repaying principal in
cash instead of issuing shares of common stock for that amount. Additionally,
we will not be required to include the underlying shares of common stock in the
calculation of our diluted weighted average shares outstanding for earnings per
share until our common stock price exceeds $19.113. For further discussion
about the Convertible Notes, see Note 11 in the Notes to Consolidated Financial
Statements in our Annual Report filed on Form 10-K on March 16, 2010.
Concurrent with the sale of
the Convertible Notes, we entered into a convertible note hedge transaction
with respect to our common stock (the “purchased call options”) with Deutsche
Bank AG London (the “counterparty”), an affiliate of the underwriter. The
purchased call options cover an aggregate of approximately 3.9 million
shares of our common stock at a strike price of $19.113 per share. The cost of
the call options totaled $24.0 million. In connection with the cost of the
call options, we recorded a deferred tax asset of $8.2 million to
additional paid in capital to reflect the future cash benefit of the deduction
over the term of the Convertible Notes. We also sold warrants to the
counterparty to purchase from us an aggregate of approximately 3.9 million
shares of our common stock at an exercise price of $24.93 per share and
received proceeds of $14.0 million. Taken together, the call option and
warrant agreements have the effect of increasing the effective conversion price
of the Convertible Notes to $24.93 per share.
Effective August 31,
2009, we amended our credit facility, decreasing the maximum commitment
available under the facility from $125 million to $80 million,
consisting of a $50 million revolving credit facility and a
$30 million term loan facility. The expiration date of the credit facility
was extended to December 15, 2011, however, if we repay or refinance our
Convertible Notes prior to this date, the expiration date will be extended to
August 31, 2012. The maximum commitment available under the revolving credit
facility is $50 million or the maximum allowed under the calculated ratio
limitations. The $30 million term loan facility requires quarterly
repayments of $1 million commencing December 31, 2009, increasing to
$1.25 million and $1.5 million commencing December 31, 2010 and
December 31, 2011, respectively. The amended credit agreement also
includes an option allowing us to increase the maximum commitment available
under the revolving credit facility to $95 million under certain
conditions. At June 30, 2010, we had approximately $44.7 million of
potential borrowing availability under our revolving credit facility. 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
0.75% to 3.00% or LIBOR plus a range from 2.75% to 5.00%, varying depending
upon the calculated ratios and our ability to meet other financial covenants.
In addition, a fee ranging from 0.25% to 0.50% is charged on the unused portion
of the revolver commitment. The maximum borrowing availability and applicable
interest rates under the credit facility are calculated based on a ratio of
total indebtedness to earnings before interest, taxes, depreciation and
amortization, all as more fully defined in our credit agreement. The credit
agreement contains customary covenants that include limitations on
indebtedness, liens, capital expenditures, acquisitions, investments and share
repurchases, as well as restrictions on the payment of dividends. Under the
terms of the credit agreement, we were subject to a maximum total leverage
ratio of 5.00 times initially, which decreased to 4.75 times for the quarter
ending December 31, 2009 and will decrease to 4.25 times for the quarter
ending December 31, 2010 and 4.00 times for the quarter ending
December 31, 2011 and thereafter. We are also subject to a maximum senior
leverage ratio of 2.50 times initially, which will decrease to 2.25 times for
the quarter ending December 31, 2010 and thereafter. We are required to
obtain the consent of our lenders for any acquisition exceeding
$25 million individually and $40 million for all acquisitions
consummated during the term of the credit agreement.
At June 30, 2010, we
had $4.5 million of borrowings outstanding under our revolving credit
facility and $27.0 million of borrowings outstanding under our term loan
facility with a weighted average interest rate of 5.0% and were in compliance
with all of our covenants. The weighted average interest rate on credit line
borrowings during the first three and six months of 2010 was 4.9% and 4.9%,
respectively. In addition, we paid a fee ranging from 0.25% to 0.50% on the
unused portion of the revolver commitment.
21
Table of
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Effective August 1,
2006, NovaMed Eye Surgery Center of New Albany, LLC (“New Albany ASC”), of
which we own a 67.5% majority interest, entered into a $4 million
installment note which matures on August 1, 2013. Interest is payable at
the lender’s one month LIBOR rate, designated or published on the first of each
month, plus 2.0%. As of June 30, 2010, there was $2.0 million outstanding
under this note. The New Albany ASC entered
into a five-year interest rate swap agreement that effectively fixes the LIBOR
rate on this debt at 5.51%.
As of June 30, 2010, we
had cash and cash equivalents of $4.4 million of which $2.0 million
was restricted pursuant to agreements with six of our ASCs. As of June 30,
2010, we had working capital of $8.1 million.
We expect our cash flow from
operations 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 size and timing of future acquisition and
expansion activities, capital requirements associated with our businesses, and
the future cost of equipment.
During 2008, our Orlando
(formerly Altamonte Springs), Florida ASC, of which we own a 70% interest,
entered into a $3.3 million installment note which matures on
December 31, 2015. Interest is payable on the outstanding principal
balance at the lender’s one month LIBOR rate, designated or published on the
first day of each month, plus 2.5%. The note financed the cost of relocating
the ASC from Altamonte Springs, Florida to Orlando, Florida, which was
completed in January 2009. As of June 30, 2010, there was
$2.6 million outstanding under this note.
Two partners in our Richmond,
Virginia ASC who each own a 14.5% equity interest have the option to sell us
back their interest at the same price they paid to acquire their interest which
is $0.3 million.
Recently Issued Accounting Pronouncements
In January 2010, the FASB
issued Accounting Standards Update (“ASU”) No. 2010-06,
Fair Value
Measurements and Disclosures
(Topic 820), “Improving Disclosures
about Fair Value Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 requires
new disclosures about significant transfers in and out of Level 1 and Level 2
fair value measurements and the reasons for such transfers and in the
reconciliation for Level 3 fair value measurements disclose separately
information about purchases, sales, issuances and settlements. We adopted the
provisions of ASU No. 2010-06 on January 1, 2010, except for disclosures about
purchases, sales, issuances and settlements in the reconciliation for Level 3
fair value measurements. Those disclosures will be effective for financial
statements issued for fiscal years beginning after December 15, 2010. The
adoption of this standard did not impact our consolidated financial statements.
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 to differ materially from those expressed
in, or implied by, such statements. These
risks and uncertainties relate to our business, our industry and our common
stock and include: the current economic recession and disruption in the
financial markets; our current and future debt levels; our ability to access
capital on a cost-effective basis to continue to successfully implement our
growth strategy; reduced prices and reimbursement rates for surgical
procedures; our ability to acquire, develop or manage a sufficient number of
profitable surgical facilities; our ability to maintain successful
relationships with the physicians who use our surgical facilities; our ability
to grow and manage effectively our increasing number of surgical facilities;
competition from other companies in the acquisition, development and operation
of surgical facilities; and 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. These factors and others are more fully set
forth in our Annual Report on Form 10-K under “Item 1A-Risk Factors”. 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
to reflect the occurrence of unanticipated events.
22
Table of
Contents
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
There have been no material changes in our
quantitative and qualitative disclosures about market risk as provided in our
2009 Annual Report on Form 10-K.
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 Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to
provide reasonable assurance 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 Chairman 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 Chairman 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
Chairman and Chief Executive Officer and Executive Vice President and Chief
Financial Officer concluded that such disclosure controls and procedures were
effective at the reasonable assurance level as of the end of the period covered
by this report.
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,
2010 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
23
Table of
Contents
PART II.
OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
C. Issuer Repurchases of Equity Securities
The following table
contains information regarding repurchases by the Company of shares of its outstanding
equity securities during the quarter ended June 30, 2010:
|
Period
|
|
Total
Number of
Shares
Purchased (1)
|
|
Average
Price Paid
per Share
|
|
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
|
|
Approximate
Dollar Value
of Shares
That May Yet
Be Purchased
Under the
Plan or
Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/01/2010 — 04/30/2010
|
|
—
|
|
$
|
—
|
|
None
|
|
None
|
|
|
05/01/2010 — 05/31/2010
|
|
1,926
|
|
$
|
10.02
|
|
None
|
|
None
|
|
|
06/01/2010 — 06/30/2010
|
|
187
|
|
$
|
8.77
|
|
None
|
|
None
|
|
(1)
Represents an aggregate of 2,113
shares of restricted stock delivered by employees to the Company, upon vesting,
to satisfy tax withholding requirements.
Item 6. Exhibits
|
3.1(A)
|
|
Amended and Restated Certificate of Incorporation of the Registrant
|
|
|
|
|
|
3.2(B)
|
|
Certificate of Ownership and Merger
|
|
|
|
|
|
3.3(C)
|
|
Certificate of Amendment of Certificate of Incorporation 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
|
|
|
|
|
|
(A)
|
|
Incorporated by reference to the Registrant’s Form 10-K filed
with the Securities and Exchange Commission on March 16, 2010.
|
|
|
|
|
|
(B)
|
|
Incorporated by reference to the Registrant’s Form 10-K filed
with the Securities and Exchange Commission on March 29, 2004.
|
|
|
|
|
|
(C)
|
|
Incorporated by reference to Appendix A to the Registrant’s Schedule
14A filed with the Securities and Exchange Commission on April 14, 2010.
|
24
Table of
Contents
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
|
|
August
9, 2010
|
|
Scott
T. Macomber
|
|
Date
|
|
Executive
Vice President and
|
|
|
|
Chief
Financial Officer
|
|
|
|
(on
behalf of Registrant and as principal financial officer)
|
|
|
|
|
|
|
|
/s/
John P. Hart
|
|
August 9,
2010
|
|
John
P. Hart
|
|
Date
|
|
Vice
President, Corporate Controller
|
|
|
|
(as
principal accounting officer)
|
|
|
25
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