Gentlemen/Ladies,
We have
reviewed the February 24, 2009 letter from LCA-Vision, Inc. (“LCAV or the
“Company”) to you regarding alleged inaccuracies in our presentation
materials. Unfortunately, the Company’s letter again distorts the facts
and misleads you and LCAV stockholders as to the very real and very dire
situation at the Company.
Their
calculation of 2008 Adjusted EBITDA as ($1.3 million), compared to our
calculation of ($7.1 million) is not in accord with customary
methodology.
Our
method of calculation looks to determine the actual loss before interest, taxes,
depreciation and amortization. Accordingly, we start with the reported
operating loss of ($8.234 million), which does not include interest and taxes,
and then add back in the reported depreciation expense of $17.972 million and
subtract the amortization of prior deferred revenue. In the
Company’s most recent press release regarding financial results, the Company
states the following:
“LCA-Vision
is providing both adjusted revenue and operating income as a means of measuring
performance that adjusts for the non-cash impact of accounting for separately
priced extended warranties. A reconciliation of revenue and operating income
(loss) as reported in accordance with U.S. Generally Accepted Accounting
Principles (GAAP) is provided at the end of this news release. Management
believes the adjusted information better reflects operating performance and,
therefore, is more meaningful to investors.”
In
contrast, LCAV’s calculation starts from Pretax Loss ($9,258 million), and then
adds back several questionable items, including $1,878,000 in stock-based
compensation expense and $2,923,000 in restructuring charges. In our
opinion, these add-backs are inappropriate because they do not represent
depreciation or amortization and are an attempt to argue that the nature of
these items are proper add-backs.
Similarly,
the alleged “error” in our calculation of market share demonstrates that
management is “cherry-picking” market share. Our market share data is
based on all procedures performed in the United States, plus procedures
performed in Canada on American residents traveling there for the procedure.
These Canadian procedures represent potential U.S. patients that could be
treated at an LCAV facility and ought to be included in order to determine the
effectiveness of the Company’s marketing efforts. Relevant here is the
fact that throughout the Company’s entire reporting history, including but not
limited to while we were managing LCAV, the Company always chose to be
conservative in defining the U.S. market to include Americans traveling to
Canada for purposes of calculating market share. Consequently, our
calculation of market share prior to Steve Straus, which is already
substantially higher with fewer vision centers in operation than under current
management, would be even greater using management’s smaller overall
market. We find the fact that the Company is now, yet again, trying to
compare apples and oranges extremely misleading and disturbingly consistent with
their current practices.
Similarly,
LCAV claims they have stabilized market share and improved it in the fourth
quarter 2008. LCAV, however, fails to tell stockholders that such
supposed stabilization and improvement was bought at a horrendous price for the
stockholders. The fourth quarter of 2008 was the worst in the Company’s
entire history, with a loss of $13 million. And the Company's market share
yet again declined compared to the fourth quarter of 2007.
We
estimate the value of a 1% market share gain or loss to be approximately $10
million in pretax income. At an average selling price of $1,550 per
procedure and a contribution margin of 78% of revenue, the contribution margin
per procedure is just under $1,200. If the market size is approximately
one million procedures as it was in 2008, the value of one market share point is
worth approximately $12 million. Even if the market declines by 20% in
2009, the value of one market share point would still be approximately $9.6
million. Management estimates the value of one market share point to be
only $4.4 million in cash flow, "fuzzy math" we feel is
unrealistic.
We stand
by our statement that management has failed to respond to business and patient
care issues. Our regular discussions with LCAV physicians, 40 of whom
wrote to the Board that they had no confidence in CEO Steve Straus, amply
demonstrate that they do not think management and the Board have taken their
concerns seriously. After more than 2 years of empty words and broken
promises, physicians are demanding change at LCAV. As we have relayed
to you, we are fully prepared and qualified to make the changes at LCAV that are
required to restore physician confidence and to restore stockholder value for
the benefit of all LCAV stockholders.
Finally,
we believe management's response to some of the financial analysis we included
in our presentation clearly reflects their efforts to mislead stockholders, as
well as demonstrates their ignorance of business realities. Management
attacks our analysis by basing their 2009 forecasts on 2007 results rather than
2008 numbers, when LCAV's business under CEO Steve Straus's leadership really
hit the proverbial wall. Their “correction” of our analysis only serves to
demonstrate that the current Board and management are neither prepared to be
candid or transparent with their stockholders, nor to face up to the realities
caused in large part by their own mistakes and failures.
Very
truly yours,
/s/
Stephen N. Joffe
Dr.
Stephen N. Joffe
On behalf
of the LCA-Vision Full Value Committee
CERTAIN
INFORMATION CONCERNING PARTICIPANTS
On
February 6, 2009, The LCA-Vision Full Value Committee made a definitive filing
with the Securities and Exchange Commission (“SEC”) of a consent solicitation
statement relating to the solicitation of written
consents from
stockholders of the Company in connection with seeking to remove and replace the
current members of the Board of Directors of the Company.
THE LCA-VISION FULL VALUE
COMMITTEE ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE CONSENT
SOLICI
TATION STATEMENT AND ANY OTHER SOLICITATION MATERIALS AS THEY
BECOME AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION. SUCH SOLICITATION
MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC’S WEB SITE AT
HTTP://WWW.SEC.GOV
. IN ADDITION, THE
PARTICIPANTS IN THIS SOLICITATION WILL PROVIDE COPIES
OF THE CONSENT
SOLICITATION STATEMENT WITHOUT CHARGE UPON REQUEST. REQUESTS FOR COPIES SHOULD
BE DIRECTED TO THE PARTICIPANTS’ SOLICITOR BY CALLING, TOLL-FREE,
(888)750-5834.
The
participants in the consent solicitation are Dr. Stephen N. Joffe, Craig P.R.
Joffe, Alan H. Buckey, Jason T. Mogel, Robert Probst, Robert H. Weisman and
Edward J. VonderBrink.
As of the
date of this filing, Dr. Joffe directly beneficially owns 1,171,952 shares of
Common Stock of the Company, Craig P.R. Joffe directly beneficially owns 865,468
shares of Common Stock of the Company, and Alan H. Buckey directly beneficially
owns 77,900 shares of Common Stock of the Company.
For the
purposes of Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as amended,
each of the participants in this solicitation is deemed to beneficially own the
shares of Common Stock of the Company beneficially owned in the aggregate by the
other participants. Each of the participants in this proxy solicitation
disclaims beneficial ownership of such shares of Common Stock except to the
extent of his or its pecuniary interest therein.
Contact:
For The
LCA-Vision Full Value Committee and Stephen N. Joffe
Lisa
Blaker, 513-600-1867