##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended September 30, 2007.
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT.
 For the transition period from  to
 Commission file number 0-27610
 LCA-Vision Inc.
  Delaware
    
    11-2882328(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)
 7840 Montgomery Road, Cincinnati, Ohio 45236
 (513) 792-9292
  þ o
  þ o o
 o þ




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##### 



Part I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2007
and December 31, 2006
    
    
    3Condensed Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22Part II. Other InformationItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 4. Submission of Matters to Vote of Security Holders
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 LCA-Vision Inc.
Condensed Consolidated Balance Sheets (Unaudited)
 September 30, 2007
    
    
    December 31, 2006AssetsCurrent assetsCash and cash equivalents
    
    $
    7,042
    
    
    $
    24,431Short-term investments
    
    
    68,828
    
    
    
    70,801Patient accounts receivable, net of allowance for doubtful accounts of $2,487
and $2,310 at September 30, 2007 and December 31, 2006
    
    
    13,826
    
    
    
    11,269Other accounts receivable
    
    
    9,955
    
    
    
    7,021Prepaid professional fees
    
    
    2,178
    
    
    
    2,223Prepaid income taxes
    
    
    7,721
    
    
    
    1,667Deferred tax assets
    
    
    
    
    
    
    11,155Prepaid expenses and other
    
    
    5,014
    
    
    
    6,414Total current assets
    
    
    114,564
    
    
    
    134,981Property and equipment
    
    
    95,064
    
    
    
    77,323Accumulated depreciation and amortization
    
    
    (54,467
    )
    
    
    (46,399
    )Property and equipment, net
    
    
    40,597
    
    
    
    30,924Patient accounts receivable, net of allowance for doubtful accounts of $1,385 and $532
    
    
    4,851
    
    
    
    2,174Deferred tax assets
    
    
    13,763
    
    
    
    12,141Other assets
    
    
    11,181
    
    
    
    9,250Total assets
    
    $
    184,956
    
    
    $
    189,470Liabilities and Stockholders InvestmentCurrent liabilitiesAccounts payable
    
    $
    3,951
    
    
    $
    5,264Accrued liabilities and other
    
    
    12,178
    
    
    
    9,111Deferred taxes
    
    
    510
    
    
    
    Deferred revenue
    
    
    21,786
    
    
    
    22,234Capital lease obligations maturing in one year
    
    
    3,724
    
    
    
    3,360Total current liabilities
    
    
    42,149
    
    
    
    39,969Capital lease obligations
    
    
    2,623
    
    
    
    2,431Insurance reserve
    
    
    7,847
    
    
    
    6,163Deferred revenue
    
    
    26,879
    
    
    
    27,608Other
    
    
    5,483
    
    
    
    4,183Stockholders InvestmentCommon stock ($0.001 par value; 25,105,662 and 24,814,542 shares issued and
19,062,484 and 19,821,348 shares outstanding as of September 30, 2007 and
December 31, 2006, respectively)
    
    
    25
    
    
    
    25Contributed capital
    
    
    170,460
    
    
    
    162,245Common stock in treasury, at cost (6,043,178 and 4,993,194 shares outstanding
at September 30, 2007 and December 31, 2006)
    
    
    (104,430
    )
    
    
    (69,487
    )Retained earnings
    
    
    33,777
    
    
    
    16,320Accumulated other comprehensive income
    
    
    143
    
    
    
    13Total stockholders investment
    
    
    99,975
    
    
    
    109,116Total liabilities and stockholders investment
    
    $
    184,956
    
    
    $
    189,470
  3




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##### Table of Contents



LCA-Vision Inc.
Condensed Consolidated Statements of Income (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)Revenues    Laser refractive surgery
    
    $
    74,584
    
    
    $
    55,841
    
    
    $
    222,933
    
    
    $
    182,888Operating costs and expensesMedical professional and license fees
    
    
    12,344
    
    
    
    9,680
    
    
    
    37,738
    
    
    
    33,392Direct costs of services
    
    
    23,304
    
    
    
    18,840
    
    
    
    72,399
    
    
    
    58,014General and administrative expenses
    
    
    4,637
    
    
    
    5,457
    
    
    
    15,225
    
    
    
    15,698Marketing and advertising
    
    
    17,208
    
    
    
    12,896
    
    
    
    50,100
    
    
    
    35,663Depreciation
    
    
    2,961
    
    
    
    2,150
    
    
    
    7,758
    
    
    
    6,193Operating income
    
    
    14,130
    
    
    
    6,818
    
    
    
    39,713
    
    
    
    33,928Equity in earnings from unconsolidated businesses
    
    
    244
    
    
    
    181
    
    
    
    598
    
    
    
    504Investment income
    
    
    1,639
    
    
    
    1,603
    
    
    
    5,271
    
    
    
    4,585Other expense, net
    
    
    (165
    )
    
    
    (84
    )
    
    
    (402
    )
    
    
    (225
    )Income before taxes on income
    
    
    15,848
    
    
    
    8,518
    
    
    
    45,180
    
    
    
    38,792Income tax expense
    
    
    5,830
    
    
    
    3,181
    
    
    
    16,822
    
    
    
    15,995Net income
    
    $
    10,018
    
    
    $
    5,337
    
    
    $
    28,358
    
    
    $
    22,797Income per common shareBasic
    
    $
    0.51
    
    
    $
    0.26
    
    
    $
    1.43
    
    
    $
    1.10Diluted
    
    $
    0.51
    
    
    $
    0.25
    
    
    $
    1.41
    
    
    $
    1.06Dividends declared per share
    
    $
    0.18
    
    
    $
    0.12
    
    
    $
    0.54
    
    
    $
    0.36Weighted average shares outstandingBasic
    
    
    19,521
    
    
    
    20,827
    
    
    
    19,834
    
    
    
    20,805Diluted
    
    
    19,754
    
    
    
    21,279
    
    
    
    20,147
    
    
    
    21,405
  4




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##### Table of Contents



Condensed Consolidated Statements of Cash Flow (Unaudited)
 Nine Months Ended September 30,2007
    
    
    2006(Restated)Cash flow from operating activities:Net income
    
    $
    28,358
    
    
    $
    22,797Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    7,758
    
    
    
    6,193Provision for loss on doubtful accounts
    
    
    4,383
    
    
    
    1,499Deferred income taxes
    
    
    9,927
    
    
    
    (5,108
    )Stock-based compensation
    
    
    3,623
    
    
    
    4,383Deferred compensation
    
    
    1,287
    
    
    
    1,032Insurance reserve
    
    
    1,684
    
    
    
    2,180Equity in earnings of unconsolidated affiliates
    
    
    (598
    )
    
    
    (504
    )Changes in operating assets and liabilitiesPatient accounts receivable
    
    
    (9,617
    )
    
    
    (3,374
    )Other accounts receivable
    
    
    (2,934
    )
    
    
    (2,218
    )Prepaid expenses and other
    
    
    1,400
    
    
    
    (885
    )Prepaid income taxes
    
    
    (6,054
    )
    
    
    703Accounts payable
    
    
    (1,313
    )
    
    
    467Deferred revenue, net of professional fees
    
    
    (1,059
    )
    
    
    13,738Accrued liablities and other
    
    
    3,245
    
    
    
    1,828Net cash provided by operations
    
    $
    40,090
    
    
    $
    42,731Cash flow from investing activities:Purchases of property and equipment
    
    
    (13,012
    )
    
    
    (6,449
    )Purchases of investment securities
    
    
    (258,415
    )
    
    
    (215,235
    )Proceeds from sale of investment securities
    
    
    260,328
    
    
    
    138,868Deferred compensation plan
    
    
    (1,338
    )
    
    
    (920
    )Other, net
    
    
    (77
    )
    
    
    6Net cash used in investing activities
    
    $
    (12,514
    )
    
    $
    (83,730
    )Cash flow from financing activities:Principal payments of capital lease obligations
    
    
    (3,873
    )
    
    
    (2,187
    )Shares repurchased for treasury stock
    
    
    (34,943
    )
    
    
    (16,823
    )Tax benefits related to stock-based compensation
    
    
    1,107
    
    
    
    3,994Exercise of stock options
    
    
    3,402
    
    
    
    5,073Dividends paid to minority equity investees
    
    
    
    
    
    
    (19
    )Dividends paid to stockholders
    
    
    (10,658
    )
    
    
    (7,484
    )Net cash used in financing activities
    
    
    (44,965
    )
    
    
    (17,446
    )Decrease in cash and cash equivalents
    
    
    (17,389
    )
    
    
    (58,445
    )Cash and cash equivalents at beginning of period
    
    
    24,431
    
    
    
    108,061Cash and cash equivalents at end of period
    
    $
    7,042
    
    
    $
    49,616Supplemental disclosures of cash flow:Taxes paid
    
    $
    12,275
    
    
    $
    16,050
  5




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##### Table of Contents



About Our Company
 Plus
 Plus
 Summary of Significant Accounting Policies
  Restatement of Financial Information
 Accounting for Separately Priced
Extended Warranty and Product Maintenance Contracts
 6




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2006
    
    
    2006Previously
    
    
    
    
    
    
    PreviouslyReported
    
    
    Restated
    
    
    Reported
    
    
    RestatedRevenues  Laser refractive surgery
    
    $
    59,302
    
    
    $
    55,841
    
    
    $
    198,152
    
    
    $
    182,888Operating costs and expensesMedical professional and license fees
    
    
    10,026
    
    
    
    9,680
    
    
    
    34,916
    
    
    
    33,392Direct costs of services
    
    
    18,840
    
    
    
    18,840
    
    
    
    58,014
    
    
    
    58,014General and administrative expenses
    
    
    5,457
    
    
    
    5,457
    
    
    
    15,698
    
    
    
    15,698Marketing and advertising
    
    
    12,896
    
    
    
    12,896
    
    
    
    35,663
    
    
    
    35,663Depreciation
    
    
    2,150
    
    
    
    2,150
    
    
    
    6,193
    
    
    
    6,193Operating income
    
    
    9,933
    
    
    
    6,818
    
    
    
    47,668
    
    
    
    33,928Equity in earnings from unconsolidated businesses
    
    
    181
    
    
    
    181
    
    
    
    504
    
    
    
    504Investment income
    
    
    1,603
    
    
    
    1,603
    
    
    
    4,585
    
    
    
    4,585Other expense, net
    
    
    (84
    )
    
    
    (84
    )
    
    
    (225
    )
    
    
    (225
    )Income before taxes on income
    
    
    11,633
    
    
    
    8,518
    
    
    
    52,532
    
    
    
    38,792Income tax expense
    
    
    4,388
    
    
    
    3,181
    
    
    
    21,318
    
    
    
    15,995Net income
    
    $
    7,245
    
    
    $
    5,337
    
    
    $
    31,214
    
    
    $
    22,797Income per common shareBasic
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    1.50
    
    
    $
    1.10Diluted
    
    $
    0.34
    
    
    $
    0.25
    
    
    $
    1.46
    
    
    $
    1.06Dividends declared per share
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.36
    
    
    $
    0.36Weighted average shares outstandingBasic
    
    
    20,827
    
    
    
    20,827
    
    
    
    20,805
    
    
    
    20,805Diluted
    
    
    21,279
    
    
    
    20,279
    
    
    
    21,405
    
    
    
    21,405
 7




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##### Table of Contents



Nine Months Ended September 30,2006PreviouslyReported
    
    
    RestatedCash flow from operating activities:Net income
    
    $
    31,214
    
    
    $
    22,797Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    6,193
    
    
    
    6,193Provision for loss on doubtful accounts
    
    
    1,499
    
    
    
    1,499Deferred income taxes
    
    
    213
    
    
    
    (5,108
    )Stock-based compensation
    
    
    4,383
    
    
    
    4,383Deferred compensation
    
    
    1,032
    
    
    
    1,032Insurance reserve
    
    
    2,180
    
    
    
    2,180Equity in earnings of unconsolidated affiliates
    
    
    (504
    )
    
    
    (504
    )Changes in operating assets and liabilities:Patient accounts receivable
    
    
    (3,374
    )
    
    
    (3,374
    )Other accounts receivable
    
    
    (2,218
    )
    
    
    (2,218
    )Prepaid expenses, inventory and other
    
    
    (885
    )
    
    
    (885
    )Prepaid income taxes
    
    
    703
    
    
    
    703Accounts payable
    
    
    467
    
    
    
    467Deferred revenue, net of professional fees
    
    
    
    
    
    
    13,738Accrued liabilities and other
    
    
    1,828
    
    
    
    1,828Net cash provided by operations
    
    $
    42,731
    
    
    $
    42,731Cash flow from investing activities:Purchases of property and equipment
    
    
    (6,449
    )
    
    
    (6,449
    )Purchases of investment securities
    
    
    (215,235
    )
    
    
    (215,235
    )Proceed from sale of investment securities
    
    
    138,868
    
    
    
    138,868Deferred compensation plan
    
    
    (920
    )
    
    
    (920
    )Other, net
    
    
    6
    
    
    
    6Net cash used in investing activities
    
    $
    (83,730
    )
    
    $
    (83,730
    )Cash flow from financing activities:Principal payments of long-term notes, debt and capital lease obligations
    
    
    (2,187
    )
    
    
    (2,187
    )Shares repurchased for treasury stock
    
    
    (16,823
    )
    
    
    (16,823
    )Tax benefit related to stock-based compensation
    
    
    3,994
    
    
    
    3,994Exercise of stock options
    
    
    5,073
    
    
    
    5,073Distribution paid to minority equity investees
    
    
    (19
    )
    
    
    (19
    )Dividends paid to stockholders
    
    
    (7,484
    )
    
    
    (7,484
    )Net cash used in financing activities
    
    $
    (17,446
    )
    
    $
    (17,446
    )Decrease in cash and cash equivalents
    
    
    (58,445
    )
    
    
    (58,445
    )Cash and cash equivalents at beginning of period
    
    
    108,061
    
    
    
    108,061Cash and cash equivalents at end of period
    
    $
    49,616
    
    
    $
    49,616
 8




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Consolidation and Basis of Presentation
 Application of FASB Statement 94
and APB Opinion No. 16 to Physician Management Entities and Certain Other Entities with Contractual
Management Agreements
 Use of Estimates
  Reclassification
  Short-Term Investments
   Gross
    
    
    Gross
    
    
    Estimated FairUnrealized
    
    
    Unrealized
    
    
    Value (NetAmortized Cost
    
    
    Gains
    
    
    Loss
    
    
    Carrying Value)Corporate bonds
    
    $
    14,811
    
    
    $
    
    
    
    $
    
    
    
    $
    14,811U.S. Government securities
    
    
    9,468
    
    
    
    12
    
    
    
    
    
    
    
    9,480Municipal bonds
    
    
    41,450
    
    
    
    45
    
    
    
    (1
    )
    
    
    41,494Equities
    
    
    2,877
    
    
    
    166
    
    
    
    
    
    
    
    3,043Total short-term investments
    
    $
    68,606
    
    
    $
    223
    
    
    $
    (1
    )
    
    $
    68,828
  9




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##### Table of Contents



Estimated Fair(dollars in thousands)
    
    Amortized Cost
    
    
    ValueDue in one year or less
    
    $
    24,216
    
    
    $
    24,231Due after one year through three years
    
    
    16,227
    
    
    
    16,249Due after three years
    
    
    25,286
    
    
    
    25,304Equities
    
    
    2,877
    
    
    
    3,044Total short-term investments
    
    $
    68,606
    
    
    $
    68,828
  Allowance for Doubtful Accounts
  Accrued Enhancement Expense
  Deferred Revenues
   10




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##### Table of Contents



Captive Insurance Company
  Income Taxes
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)Federal income taxes
    
    $
    5,455
    
    
    $
    3,018
    
    
    $
    14,681
    
    
    $
    13,112State income taxes, net
of federal benefit
    
    
    375
    
    
    
    163
    
    
    
    2,141
    
    
    
    2,883Income tax provision
    
    $
    5,830
    
    
    $
    3,181
    
    
    $
    16,822
    
    
    $
    15,995Effective income tax rate
    
    
    36.8
    %
    
    
    37.3
    %
    
    
    37.2
    %
    
    
    41.2
    %
 11




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##### Table of Contents



Accounting for Uncertainty in
Income Taxes
      Per Share Data
  12




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Basic Earnings per Share:Net Income
    
    $
    10,018
    
    
    $
    5,337
    
    
    $
    28,358
    
    
    $
    22,797Weighted average shares outstanding  basic
    
    
    19,521
    
    
    
    20,827
    
    
    
    19,834
    
    
    
    20,805Basic earnings per share
    
    $
    0.51
    
    
    $
    0.26
    
    
    $
    1.43
    
    
    $
    1.10Diluted Earnings per Share:Net income
    
    $
    10,018
    
    
    $
    5,337
    
    
    $
    28,358
    
    
    $
    22,797Weighted average shares outstanding  basic
    
    
    19,521
    
    
    
    20,827
    
    
    
    19,834
    
    
    
    20,805Effect of dilutive securitiesStock options
    
    
    211
    
    
    
    431
    
    
    
    277
    
    
    
    584Restricted stock
    
    
    22
    
    
    
    21
    
    
    
    36
    
    
    
    16Weighted average common shares and potential
dilutive shares
    
    
    19,754
    
    
    
    21,279
    
    
    
    20,147
    
    
    
    21,405Diluted earnings per share
    
    $
    0.51
    
    
    $
    0.25
    
    
    $
    1.41
    
    
    $
    1.06
 Treasury Stock
   Revenue Recognition
  Stock-Based Compensation
 Share Based Payment
  13




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Commitments and Contingencies
      14




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New Accounting Pronouncement
 Fair Value Measurements
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
    Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2006
    
    
    September 30, 2006Previously reported
    
    $
    7,245
    
    
    $
    31,214Pretax adjustments:Deferred revenues
    
    
    (3,461
    )
    
    
    (15,264
    )Deferred professional fees
    
    
    346
    
    
    
    1,524Total pre-tax adjustments
    
    
    (3,115
    )
    
    
    (13,740
    )Related tax effect
    
    
    1,207
    
    
    
    5,323Net after-tax adjustments
    
    
    (1,908
    )
    
    
    (8,417
    )Restated
    
    $
    5,337
    
    
    $
    22,797
 15




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Overview
 Plus
   
    
    Our ability to generate customers through our arrangements with managed care companies,
direct-to-consumer advertising and word-of-mouth referrals
    
    Our mix of procedures among the different types of laser technology
    
    New vision center openings and our ability to increase procedure volume at existing
vision centers
    
    The availability of patient financing
    
    General economic conditions and consumer confidence levels
    
    The continued growth and increased acceptance of laser vision correction
    
    The effect of competition and discounting practices in our industry
    
    Pricing of our services
  
    
    Medical professional and license fees, including per procedure fees for the
ophthalmologists performing laser vision correction and license fees per procedure paid to
certain equipment suppliers of our excimer lasers
    
    Direct costs of services, including center rent and utilities, equipment lease and
maintenance costs, surgical supplies, center staff expense, financing charges and costs
related to other revenues
    
    General and administrative costs, including headquarters staff expense and other
overhead costs
    
    Marketing and advertising costs
    
    Depreciation of equipment
  2007
    
    2006Procedures
    
    ProceduresQ1
    
    
    59,101
    
    
    
    53,372Q2
    
    
    48,668
    
    
    
    47,308Q3
    
    
    44,547
    
    
    
    42,539Q4
    
    
    
    
    
    
    42,049Year
    
    
    
    
    
    
    185,268
 16




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##### Table of Contents



Lifetime if Base
    
    Lifetime if Base
    
    One-Year if BasePrice Includes the
    
    Price Does Not
    
    Price Does NotOne-Year Acuity
    
    Include an Acuity
    
    Include an AcuityPlan
    
    Plan
    
    Plan
    
    TotalBalance at September 30, 2007
    
    $
    38,303
    
    
    $
    9,966
    
    
    $
    396
    
    
    $
    48,665Estimated amortization:2007 Q4
    
    $
    3,683
    
    
    $
    2,890
    
    
    $
    263
    
    
    $
    6,8362008 Q1
    
    
    3,881
    
    
    
    1,607
    
    
    
    111
    
    
    
    5,5992008 Q2
    
    
    4,026
    
    
    
    898
    
    
    
    22
    
    
    
    4,9462008 Q3
    
    
    3,766
    
    
    
    639
    
    
    
    
    
    
    
    4,4052008 Q4
    
    
    3,225
    
    
    
    543
    
    
    
    
    
    
    
    3,7682009 Q1
    
    
    2,618
    
    
    
    441
    
    
    
    
    
    
    
    3,0592009 Q2
    
    
    1,972
    
    
    
    322
    
    
    
    
    
    
    
    2,2942009 Q3
    
    
    1,659
    
    
    
    267
    
    
    
    
    
    
    
    1,9262009 Q4
    
    
    1,572
    
    
    
    255
    
    
    
    
    
    
    
    1,8272010
    
    
    5,266
    
    
    
    885
    
    
    
    
    
    
    
    6,1512011
    
    
    3,713
    
    
    
    663
    
    
    
    
    
    
    
    4,3762012
    
    
    2,119
    
    
    
    397
    
    
    
    
    
    
    
    2,5162013
    
    
    727
    
    
    
    144
    
    
    
    
    
    
    
    8712014
    
    
    76
    
    
    
    15
    
    
    
    
    
    
    
    91
  Results of Operations for the Three Months Ended September 30, 2007 and 2006
 Revenues
  Revenue from higher procedure volume
    
    $
    2,808Impact from average selling price, before revenue deferral
    
    
    4,769Change in deferred revenue
    
    
    11,166Increase in revenues
    
    $
    18,743
  17




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##### Table of Contents



Change in deferred revenue
  Increase in2007
    
    
    2006
    
    
    RevenuesRevenues deferred
    
    $
    
    
    
    $
    (9,080
    )
    
    $
    9,080Amortization of prior
deferred revenues
    
    
    7,706
    
    
    
    5,620
    
    
    
    2,086Net increase in revenues
    
    
    
    
    
    
    
    
    
    $
    11,166
 Medical professional and license fees
  Direct costs of services
   General and administrative
  Marketing and advertising expenses
  Depreciation expense
  Non-operating income and expenses
  18




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##### Table of Contents



Income taxes
  September 30,
    
    
    September 30,2007
    
    
    2006(Restated)Federal income taxes
    
    $
    5,455
    
    
    $
    3,018State income taxes, net of federal benefit
    
    
    375
    
    
    
    163Income tax provision
    
    $
    5,830
    
    
    $
    3,181
  Results of Operations for the Nine Months Ended September 30, 2007 and 2006
 Revenues
  Revenue from higher procedure volume
    
    $
    12,596Impact from average selling price, before revenue deferral
    
    
    11,010Change in deferred revenue
    
    
    16,439Increase in revenues
    
    $
    40,045
  Change in deferred revenues
  Increase in2007
    
    
    2006
    
    
    RevenuesRevenues deferred
    
    $
    (20,054
    )
    
    $
    (29,632
    )
    
    $
    9,578Amortization of prior deferred revenues
    
    
    21,231
    
    
    
    14,370
    
    
    
    6,861Net increase in revenues
    
    
    
    
    
    
    
    
    
    $
    16,439
 Medical professional and license fees
  19




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##### Table of Contents



Direct costs of services
   General and administrative
  Marketing and advertising expenses
  Depreciation expense
  Non-operating income and expenses
  Income taxes
  September 30,
    
    
    September 30,2007
    
    
    2006(Restated)Federal incomes taxes
    
    $
    14,681
    
    
    $
    13,112State income taxes, net of federal benefit
    
    
    2,141
    
    
    
    2,883Income tax provision
    
    $
    16,822
    
    
    $
    15,995
  20




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##### Table of Contents



Liquidity and Capital Resources
           21




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##### Table of Contents



Critical Accounting Estimates
  
 Item 3. Quantitative and Qualitative Disclosure About Market Risk.
    
 Item 4. Controls and Procedures.
 (a)
    
    Evaluation of Disclosure Controls and ProceduresUnder the supervision of and with the participation of our management, including the
companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO), an evaluation of
the effectiveness of the companys disclosure controls and procedures was performed as of
September 30, 2007. Based on this evaluation, the CEO and CFO concluded that the companys
disclosure controls and procedures are effective to ensure that material information is (1)
accumulated and communicated to our management as appropriate to allow timely decisions
regarding disclosure and (2) recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange Commission.(b)
    
    Changes in Internal Control over Financial ReportingUnder the supervision of and with the participation of our management, including the CEO and
CFO, an evaluation of the companys internal control over financial reporting was performed
as of September 30, 2007. Based on this evaluation, management concluded that there were no
changes in the companys internal control over financial reporting that occurred during the
quarter ended September 30, 2007 that have materially affected, or are reasonably likely to
materially affect, the companys internal control over financial reporting.
 22




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##### Table of Contents



PART II. OTHER INFORMATION.
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
 Plus
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity Securities
 Total Number of
    
    Maximum Number ofShares Purchased as
    
    Shares that May YetPart of Publicly
    
    be Purchased UnderTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Shares Purchased
    
    per Share
    
    Programs
    
    Program07/01/07  07/31/07
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    34,488,00008/01/07  08/31/07
    
    
    1,039,230
    
    
    $
    33.19
    
    
    
    1,039,230
    
    
    $
    -0-09/01/07  09/30/07
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    -0-Total
    
    
    1,039,230
    
    
    $
    33.19
    
    
    
    1,039,230
    
    
    $
    -0-
 23




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##### Table of Contents



Item 4. Submission of Matters to Vote of Security Holders.
   Shares
    
    
    AuthorityVoted For
    
    
    WithheldWilliam F. Bahl
    
    
    17,127,540
    
    
    
    367,989Thomas G. Cody
    
    
    17,126,834
    
    
    
    368,695John H. Gutfreund
    
    
    17,381,072
    
    
    
    114,457John C. Hassan
    
    
    17,067,040
    
    
    
    428,489Steven C. Straus
    
    
    17,407,994
    
    
    
    87,534E. Anthony Woods
    
    
    17,126,624
    
    
    
    368,904
  Shares Voted For
    
    Shares Voted Against
    
    Shares Abstaining17,415,589
    
    74,697
    
    5,242
 
 Item 6. Exhibits
  Number
    
    Description31.1
    
    CEO Certification under Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    CFO Certification under Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 24




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##### Table of Contents



Signatures
  LCA-VISION INC.Date: October 30, 2007
    /s/ Steven C. StrausSteven C. StrausChief Executive OfficerDate: October 30, 2007
    /s/ Alan H. BuckeyAlan BuckeyChief Financial Officer 25