##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K/A
 (Amendment No. 1)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 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 0-27610
 LCA-Vision Inc.
 (Exact name of registrant as specified in charter)
 Delaware
    
    11-2882328(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification Number)7840 Montgomery Road, Cincinnati, OH
    
    45236(Address of principal executive offices)
    
    (Zip Code)
 
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $.001 par value
    
    The NASDAQ Stock Market
  o þ
 o þ
 þ o
 o
  þ o o
 o þ




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##### 



LCA-VISION INC.
 FISCAL YEAR 2006 FORM 10-K/A ANNUAL REPORT
 TABLE OF CONTENTS
 PagePart I.Item 1. Business
    
    
    5Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    171tem 4. Submission of Matters to a Vote of Security
Holders
    
    
    17Part II.Item 5. Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
    
    
    17Item 6. Selected Financial
Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
    
    
    27Item 8. Financial Statements and Supplementary Data
    
    
    27Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    55Item 9A. Controls and Procedures
    
    
    55Item 9B. Other Information
    
    
    56Part III.Item 10. Directors, Executive Officers and Corporate
Governance
    
    
    56Item 11. Executive Compensation
    
    
    58Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder
Matters
    
    
    69Item 13. Certain Relationships and Related Transactions, and
Director Independence
    
    
    72Item 14. Principal Accountant Fees and
Services
    
    
    72Part IV.Item 15. Exhibits and Financial Statement
Schedules
    
    
    73Signatures
    
    
    76EX-21EX-23EX-31.1EX-31.2EX-32
  2




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EXPLANATORY NOTE  RESTATEMENT OF FINANCIAL INFORMATION
  Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts
  Year after Initial
    
    AmortizationSurgery
    
    Rate3
    
    
    15
    %4
    
    
    13
    %5
    
    
    11
    %6
    
    
    7
    %7
    
    
    3
    %
   3




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RetainedDeficitAtNet Income/(Loss)
    
    December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Previously reported
    
    $
    38,296
    
    
    $
    31,653
    
    
    $
    32,029
    
    
    $
    7,269
    
    
    $
    (3,826
    )
    
    $
    (40,512
    )Pre-tax adjustments:Deferred revenues
    
    
    (18,002
    )
    
    
    (15,523
    )
    
    
    (6,758
    )
    
    
    (2,588
    )
    
    
    666
    
    
    
    (7,637
    )Deferred professional fees
    
    
    1,800
    
    
    
    1,552
    
    
    
    676
    
    
    
    259
    
    
    
    (67
    )
    
    
    764Total pre-tax adjustments
    
    
    (16,202
    )
    
    
    (13,971
    )
    
    
    (6,082
    )
    
    
    (2,329
    )
    
    
    599
    
    
    
    (6,873
    )Related tax effect  provision for / (benefit from)
    
    
    (6,276
    )
    
    
    (5,299
    )
    
    
    (5,924
    )
    
    
    
    
    
    
    
    
    
    
    Net after-tax adjustments
    
    
    (9,926
    )
    
    
    (8,672
    )
    
    
    (158
    )
    
    
    (2,329
    )
    
    
    599
    
    
    
    (6,873
    )Restated
    
    $
    28,370
    
    
    $
    22,981
    
    
    $
    31,871
    
    
    $
    4,940
    
    
    $
    (3,227
    )
    
    $
    (47,385
    )
      
 PART I
 SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
  4




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Item 1. Business.
 The information included in Item 1 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing or to reflect the passage of time since the
date of the Original Filing.
 Background and History of Company
 Plus
 Plus
  Laser Vision Correction Procedures
   PRK and Surface Ablation .
  LASIK .
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The Laser Vision Correction Market
  
    
    Myopia (nearsightedness)images are focused in front of the retina, resulting in the
blurred perception of distant objects
    
    Hyperopia (farsightedness)images are focused behind the retina, resulting in the
blurred perception of near objects
    
    Astigmatismimages are not focused on any point due to the varying curvature of the
eye along different axes.
 .
  
    
    Market acceptance  as the number of procedures performed increases, so does the
number of patients able to attest to the perceived benefits of laser vision correction,
    
    Technology  compared to earlier laser vision correction procedures, the LASIK
procedure typically results in less patient discomfort and a shorter recovery period,
and
    
    Applications  FDA approval for the excimer laser used in LASIK laser vision
correction procedures has been extended to the treatment of three of the most common
types of refractive vision disorders: nearsightedness, farsightedness and astigmatism.
 Estimated Number of Laser Vision Correction Procedures in North America per Year
 
 
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Our Business Strategy
   
    
    Recruiting and retaining independent, board certified ophthalmologists and credentialed optometrists
    
    Providing patients with a Continuum of Care
    
    Opening and operating new laser vision correction centers
    
    Providing attractive patient financing alternatives
    
    Establishing and nurturing relationships with leading managed care providers in the
United States to source additional patients
    
    Developing and implementing innovative marketing campaigns
 Recruiting and retaining independent, board certified ophthalmologists and credentialed
optometrists.
 Providing patients with a Continuum of Care.
 Opening and operating new laser vision correction centers.
 Providing attractive patient financing alternatives.
 Establishing and nurturing relationships with leading managed care providers in the United States
to source additional patients.
 Developing and implementing innovative direct marketing campaigns. Plus
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Competition
     Employees
  Trademarks
  Suppliers of Equipment and Financing Services
   Government Regulation
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Restrictions on medical devices
    
    
    Product seizures
    
    Recalls
    
    Withdrawal of approvals
    
    Civil and criminal penalties
    Federal and state laws on kickbacks and physician referrals
  9




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Advertising restrictions
  Fee-splitting
  Corporate practice of medicine and optometry
  
    
    Employing eye care professionals
    
    Controlling clinical decision making
    
    Engaging in other activities that are deemed to constitute the practice of optometry or ophthalmology
  Facility licensure and certificates of need
  10




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Healthcare reform
  Internet
 www.lasikplus.com www.lca-vision.com
 
 Item 1A. Risk Factors
 The risk factors included in the Original Filing have not been updated for information or events
occurring after the date of the Original Filing or to reflect the passage of time since the date
of the Original Filing.
 We have experienced operating losses in the past.
  
    
    Continued market acceptance for laser vision correction services
    
    Our ability to execute our planned business strategy
    
    Our ability to manage equipment and operating costs
 Our quarterly and annual operating results are subject to significant fluctuations.
  
    
    Market acceptance of laser vision correction services
    
    The number of laser vision correction procedures performed
    
    The timing of new advancements by our suppliers and the purchase of such advancements
or upgrades of equipment by us or our competitors
    
    The impact of competitors, including those who compete by deeply discounting the
price of laser vision correction services, in the geographic areas in which we operate
    
    Declining economic conditions in the geographic areas in which we operate, which can
result in decreased demand for our laser vision correction services
    
    The opening, closing or expansion of vision centers
    
    Regulatory matters
    
    Litigation
    
    Acquisitions and other transactions
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
    
    The availability to potential patients of funds under typical corporate medical
flexible spending plans
    
    Time constraints imposed by the holiday season and a desire by some individuals not
to schedule procedures at that time of year
  Changes in general economic conditions may cause fluctuations in our revenues and profitability.
  Our industry is highly correlated with consumer confidence.
  We derive all of our revenue from laser vision correction services and a decrease in the provision
of these services could result in a significant decrease in our revenues and profitability.
  If we are unable to attract and retain qualified independent ophthalmologists, our ability to open
new vision centers, to maintain operations at existing vision centers, or to attract patients could
be negatively affected.
  If technological changes occur which render our equipment or services obsolete, or increase our
cost structure, we may need to make significant capital expenditures or modify our business model,
which could cause our revenues or profitability to decline.
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If a better-financed or lower-cost provider of laser vision correction or a competing vision
treatment forces us to lower our laser surgery prices in a particular geographic area, our revenues
and profitability could decline.
    Our business has been adversely affected in the past by deeply-discounted pricing by some
competitors, and it is possible that such competitive practices may adversely affect our business
in the future.
  We have expanded the role and mix of financing as a percentage of our revenues. As a result, our
direct financing program has grown, increasing our credit risk.
  If laser vision correction does not gain broader market acceptance, our profitability and growth
will be severely limited.
   
    
    Concerns about the safety and effectiveness of laser vision correction procedures,
including procedures using new technologies
    
    General resistance to surgery of any type, and eye surgery in particular
    
    Cost, particularly since laser vision correction is not typically covered by government or private insurers
    
    The effectiveness of alternate methods of correcting refractive vision disorders,
including but not limited to various intraocular lens technologies
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
    
    Possible unknown side effects not yet revealed by long-term follow-up data
    
    Regulatory developments
    
    Reported adverse events or other unfavorable publicity involving patient outcomes from laser vision correction
 Concerns about potential side effects and long-term results may negatively impact market acceptance
of laser vision correction, result in potential liability for us and prevent us from growing our
business.
   
    
    Foreign body sensation
    
    Pain or discomfort
    
    Infection of the eye
    
    Sensitivity to bright lights
    
    Blurred vision or haze
    
    Dryness or tearing
    
    Fluctuation in vision
    
    Night glare and halos
    
    Poor or reduced visual quality
    
    Overcorrection or under correction
    
    Regression
    
    Decreased corneal integrity
    
    Corneal flap or corneal healing complications
    
    Loss of best corrected visual acuity
    
    Inflammation or infection
    
    Need for corrective lenses or reading glasses post-operatively
    
    Need for further treatment
  We depend on limited sources for the excimer lasers, diagnostic equipment, microkeratomes and
disposable blades we use and for the third-party financing made available to our patients, and
shortages of these items or services could hinder our ability to increase our procedure volume.
    14




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Our business may be impaired due to government regulations which could restrict our equipment,
services and relationships with ophthalmologists, optometrists and other healthcare providers.
  
    
    Federal restrictions on the approval, distribution and use of medical devices
    
    Anti-kickback statutes in some states
    
    Fee-splitting laws in some states
    
    Corporate practice of medicine restrictions in some states
    
    Physician self-referral laws in some states
    
    Anti-fraud provisions in some states
    
    Facility license requirements and certificates of need in some states
    
    Conflict of interest regulations in some states
    
    Rules and regulations regarding advertising and marketing practices in some states
     We are subject to lawsuits for patient injuries, which could subject us to significant judgments
and damage our reputation.
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We established a captive insurance company, and if significant claims are paid, it could affect our
profitability and our financial condition.
  Disputes with respect to intellectual property could result in a decrease in revenues and
profitability.
  Our business is very reliant upon direct-to-consumer marketing.
  Recent changes in management and dependence on a small number of senior managers
  
 Item 1B. Unresolved Staff Comments.
 The information in Item 1B included in the Original Filing has not been updated for information or
events occurring after the date of the Original or to reflect the passage of time since the date
of the Original Filing.
  
 Item 2. Properties.
 The information in Item 2 included in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing or to reflect the passage of time since the
date of the Original Filing.
  
 Item 3. Legal Proceedings.
 The information in Item 3 included in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing or to reflect the passage of time since the
date of the Original Filing.
  16




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Item 4. Submission of Matters to a Vote of Security Holders.
 The information in Item 4 included in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing or to reflect the passage of time since the date of
the Original Filing.
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 The information in Item 5 included in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing or to reflect the passage of time since the date of
the Original Filing.
 .
  2006
    
    2005High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    56.68
    
    
    $
    40.30
    
    
    $
    34.46
    
    
    $
    22.02Second Quarter
    
    
    58.25
    
    
    
    46.00
    
    
    
    49.89
    
    
    
    32.00Third Quarter
    
    
    54.57
    
    
    
    37.58
    
    
    
    51.24
    
    
    
    33.87Fourth Quarter
    
    
    37.43
    
    
    
    29.90
    
    
    
    50.29
    
    
    
    33.43
  2006
    
    2005First Quarter
    
    $
    0.12
    
    
    $
    0.08Second Quarter
    
    
    0.12
    
    
    
    0.08Third Quarter
    
    
    0.12
    
    
    
    0.08Fourth Quarter
    
    
    0.18
    
    
    
    0.12Total
    
    $
    0.54
    
    
    $
    0.36
  17




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Issuer Purchases of Equity Securities
 (c) Total Number ofShares Purchased as
    
    (d) Maximum Number of(a) Total Number
    
    (b) Average
    
    Part of Publicly
    
    Shares/Dollars that Mayof Shares
    
    Price Paid per
    
    Announced Plans or
    
    Yet be Purchased UnderPeriod
    
    Purchased
    
    Share
    
    Programs
    
    the Plans or Program10/1/06 - 10/31/06
    
    
    361,700
    
    
    $
    35.33
    
    
    
    361,700
    
    
    
    191,80011/1/06 - 11/30/06
    
    
    191,800
    
    
    $
    34.97
    
    
    
    191,800
    
    
    
    -0-12/1/06 - 12/31/06
    
    
    442,400
    
    
    $
    35.06
    
    
    
    442,400
    
    
    $
    34,488,000Total
    
    
    995,900
    
    
    $
    35.14
    
    
    
    995,900
    
    
    $
    34,488,000
  18




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Item 6. Selected Financial Data.
 We have not filed amended 10-K Reports for the years ended December 31, 2005, 2004, 2003 or 2002.
The information that has been previously filed or otherwise reported for these periods is
superseded by the information in this 2006 10-K/A Report. See Explanatory Note  Restatement of
Financial Information above for details of this restatement.
  RestatedYear Ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(amounts in thousands, except per share and operating data)Consolidated Statements of Operations Data:Revenues:Laser refractive surgery
    
    $
    238,925
    
    
    $
    176,874
    
    
    $
    120,364
    
    
    $
    78,835
    
    
    $
    62,504Operating costs and expenses:Medical professional and license fees
    
    
    42,954
    
    
    
    33,499
    
    
    
    23,599
    
    
    
    15,520
    
    
    
    12,337Direct costs of services
    
    
    77,612
    
    
    
    54,952
    
    
    
    40,842
    
    
    
    31,507
    
    
    
    28,796General and administrative expenses
    
    
    21,156
    
    
    
    14,021
    
    
    
    10,292
    
    
    
    8,043
    
    
    
    8,327Marketing and advertising
    
    
    47,971
    
    
    
    31,813
    
    
    
    20,468
    
    
    
    12,566
    
    
    
    12,823Depreciation and amortization
    
    
    8,453
    
    
    
    7,636
    
    
    
    7,045
    
    
    
    6,377
    
    
    
    5,997Special (benefit) charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174
    )Total expenses
    
    
    198,146
    
    
    
    141,921
    
    
    
    102,246
    
    
    
    74,013
    
    
    
    68,106Operating income (loss)
    
    
    40,779
    
    
    
    34,953
    
    
    
    18,118
    
    
    
    4,822
    
    
    
    (5,602
    )Equity in earnings from unconsolidated
businesses
    
    
    746
    
    
    
    328
    
    
    
    369
    
    
    
    317
    
    
    
    241Interest expense
    
    
    (302
    )
    
    
    (104
    )
    
    
    (24
    )
    
    
    (18
    )
    
    
    (4
    )Interest and dividend income
    
    
    6,484
    
    
    
    4,033
    
    
    
    2,161
    
    
    
    540
    
    
    
    225Litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,282Other (expense)
    
    
    (27
    )
    
    
    (397
    )
    
    
    (306
    )
    
    
    (130
    )
    
    
    (195
    )Income (loss) before taxes on income
    
    
    47,680
    
    
    
    38,813
    
    
    
    20,318
    
    
    
    5,531
    
    
    
    (3,053
    )Income tax expense (benefit)
    
    
    19,310
    
    
    
    15,832
    
    
    
    (11,553
    )
    
    
    591
    
    
    
    174Income (loss) available to common shareholders
    
    $
    28,370
    
    
    $
    22,981
    
    
    $
    31,871
    
    
    $
    4,940
    
    
    $
    (3,227
    )Income (loss) per common shareBasic
    
    $
    1.37
    
    
    $
    1.12
    
    
    $
    1.59
    
    
    $
    0.30
    
    
    $
    (0.20
    )Diluted
    
    
    1.34
    
    
    
    1.07
    
    
    
    1.53
    
    
    
    0.30
    
    
    
    (0.20
    )Cash dividends per common share
    
    $
    0.54
    
    
    $
    0.36
    
    
    $
    0.13
    
    
    
    
    
    
    
    Weighted average shares used in computationBasic
    
    
    20,694
    
    
    
    20,500
    
    
    
    20,099
    
    
    
    16,391
    
    
    
    16,191Diluted
    
    
    21,235
    
    
    
    21,492
    
    
    
    20,814
    
    
    
    16,616
    
    
    
    16,191Selected Operating DataLaser vision correction procedures
    
    
    185,268
    
    
    
    142,000
    
    
    
    95,835
    
    
    
    65,485
    
    
    
    57,104
 RestatedAt December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Balance Sheet DataCash and short-term investments
    
    $
    98,052
    
    
    $
    110,531
    
    
    $
    86,088
    
    
    $
    64,408
    
    
    $
    17,798Working capital
    
    
    95,012
    
    
    
    112,091
    
    
    
    86,954
    
    
    
    56,076
    
    
    
    8,670Total assets
    
    
    189,470
    
    
    
    181,259
    
    
    
    137,131
    
    
    
    90,993
    
    
    
    40,693Debt maturing in one year
    
    
    3,360
    
    
    
    2,122
    
    
    
    542
    
    
    
    
    
    
    
    10Total debt, excluding current portion
    
    
    2,431
    
    
    
    1,434
    
    
    
    376
    
    
    
    
    
    
    
    Retained earnings (deficit)
    
    
    16,320
    
    
    
    (919
    )
    
    
    (16,493
    )
    
    
    (45,672
    )
    
    
    (50,611
    )Total stockholders investment
    
    
    109,116
    
    
    
    126,703
    
    
    
    103,076
    
    
    
    70,200
    
    
    
    25,839
 19




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Report. The information below has been adjusted solely to
reflect the impact of the restatement on our financial results, which is more fully described in
Note 10 of the Notes to the Consolidated Financial Statements contained in this 2006 Form 10-K/A
Report and under Restatement of Previously Issued Consolidated Financial Statements below, and
does not reflect any subsequent information or events occurring after the date of the Original
Filing or update any disclosure herein to reflect the passage of time since the date of the
Original Filing.
  RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
  RetainedDeficitAtNet Income
    
    December 31,2006
    
    2005
    
    2004
    
    2003Previously Reported
    
    $
    38,296
    
    
    $
    31,653
    
    
    $
    32,029
    
    
    $
    (37,069
    )Pre-tax adjustments:Deferred revenues
    
    
    (18,002
    )
    
    
    (15,523
    )
    
    
    (6,758
    )
    
    
    (9,559
    )Deferred professional fees
    
    
    1,800
    
    
    
    1,552
    
    
    
    676
    
    
    
    956Total pre-tax adjustments
    
    
    (16,202
    )
    
    
    (13,971
    )
    
    
    (6,082
    )
    
    
    (8,603
    )Related tax effect  provision for / (benefit from)
    
    
    (6,276
    )
    
    
    (5,229
    )
    
    
    (5,924
    )
    
    
    Net after-tax adjustment
    
    
    (9,926
    )
    
    
    (8,672
    )
    
    
    (158
    )
    
    
    (8,603
    )Restated
    
    $
    28,370
    
    
    $
    22,981
    
    
    $
    31,871
    
    
    $
    (45,672
    )
 Overview
 Plus
   
    
    Medical professional and license fees, including per procedure fees for the
ophthalmologists performing laser vision correction and the license fees per procedure
paid to equipment suppliers Advanced Medical Optics, Bausch & Lomb and Alcon
    
    Direct costs of services, including vision 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
 20




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Results of Operations
 Revenues
   
    
    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
    2006
    
    2005
    
    2004First Quarter
    
    
    53,372
    
    
    
    37,578
    
    
    
    24,270Second Quarter
    
    
    47,308
    
    
    
    36,010
    
    
    
    24,093Third Quarter
    
    
    42,539
    
    
    
    34,187
    
    
    
    23,248Fourth Quarter
    
    
    42,049
    
    
    
    34,225
    
    
    
    24,224Year
    
    
    185,268
    
    
    
    142,000
    
    
    
    95,835
  Revenue from higher procedure volume
    
    $
    58,624,000Impact from average selling price, before revenue deferral
    
    $
    5,906,0002006 deferred revenue
    
    $
    (38,539,000
    )2006 benefit from amortization of prior deferred revenue
    
    $
    20,537,0002005 deferred revenue
    
    $
    26,135,0002005 benefit from amortization of prior deferred revenue
    
    $
    (10,612,000
    )
  21




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##### Table of Contents



Revenue from higher procedure volume
    
    $
    61,237,000Impact from average selling price, before revenue deferral
    
    $
    4,038,0002005 deferred revenue
    
    $
    (26,135,000
    )2005 benefit from amortization of prior deferred revenue
    
    $
    10,612,0002004 deferred revenue
    
    $
    12,430,0002004 benefit from amortization of prior deferred revenue
    
    $
    (5,672,000
    )
   Operating Costs and Expenses
   % of Revenue2006
    
    2005
    
    Increase
    
    2006
    
    2005Medical professional and license fees
    
    $
    42,954
    
    
    $
    33,499
    
    
    $
    9,455
    
    
    
    18.0
    %
    
    
    18.9
    %Direct costs of services
    
    
    77,612
    
    
    
    54,952
    
    
    
    22,660
    
    
    
    32.5
    
    
    
    31.1General and administrative expenses
    
    
    21,156
    
    
    
    14,021
    
    
    
    7,135
    
    
    
    8.9
    
    
    
    7.9Marketing and advertising
    
    
    47,971
    
    
    
    31,813
    
    
    
    16,158
    
    
    
    20.1
    
    
    
    18.0Depreciation and amortization
    
    
    8,453
    
    
    
    7,636
    
    
    
    817
    
    
    
    3.5
    
    
    
    4.3
       22




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##### Table of Contents



% of Revenue2005
    
    2004
    
    Increase
    
    2005
    
    2004Medical professional and license fees
    
    $
    33,499
    
    
    $
    23,599
    
    
    $
    9,900
    
    
    
    18.9
    %
    
    
    19.6
    %Direct costs of services
    
    
    54,952
    
    
    
    40,842
    
    
    
    14,110
    
    
    
    31.1
    
    
    
    33.9General and administrative expenses
    
    
    14,021
    
    
    
    10,292
    
    
    
    3,729
    
    
    
    7.9
    
    
    
    8.6Marketing and advertising
    
    
    31,813
    
    
    
    20,468
    
    
    
    11,345
    
    
    
    18.0
    
    
    
    17.0Depreciation and amortization
    
    
    7,636
    
    
    
    7,045
    
    
    
    591
    
    
    
    4.3
    
    
    
    5.9
       Income Taxes
  2006
    
    
    2005
    
    
    2004Federal income taxes
    
    $
    15,722
    
    
    $
    11,992
    
    
    $
    6,194State and local income taxes, net of federal benefit
    
    
    3,588
    
    
    
    3,344
    
    
    
    1,386Foreign income taxes
    
    
    
    
    
    
    496
    
    
    
    621Valuation allowance (decrease)
    
    
    
    
    
    
    
    
    
    
    (19,754
    )Income tax provision
    
    $
    19,310
    
    
    $
    15,832
    
    
    $
    (11,553
    )
  23




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Liquidity and Capital Resources
    Payments due by PeriodMore than 5Contractual Obligations
    
    Total
    
    Less than 1 year
    
    1 - 3 years
    
    3 - 5 years
    
    yearsCapital Leases
    
    $
    6,205,000
    
    
    $
    3,668,000
    
    
    $
    2,537,000
    
    
    $
    
    
    
    $
    Operating Lease Obligations
    
    
    24,913,000
    
    
    
    6,187,000
    
    
    
    10,502,000
    
    
    
    5,623,000
    
    
    
    2,601,000Deferred Compensation
    
    
    4,136,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,136,000Total
    
    $
    35,254,000
    
    
    $
    9,855,000
    
    
    $
    13,039,000
    
    
    $
    5,623,000
    
    
    $
    6,737,000
    2006
    
    2005Paramus, NJ
    
    Sacramento, CAGrand Rapids, MI
    
    Norfolk, VASeattle, WA
    
    Hartford, CTSugar Land, TX
    
    Milwaukee, WIDenver, CO
    
    Phoenix, AZNew Haven, CT
    
    Austin, TXDallas, TX
    
    Portland, OROakdale, MN
    
    Pittsburgh, PALexington, KY
    
    Albuquerque, NMLincoln Park, IL
    
    Birmingham, AL
     24




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##### Table of Contents



Critical Accounting Estimates
 Accounts Receivable
  Allowance for Doubtful Accounts
  Captive Insurance Company Reserves
  Income Taxes
   Accrued Enhancement Expense and Deferred Revenue
  25




---



##### Table of Contents



2007
    
    $
    22,234,0902008
    
    $
    12,452,7482009
    
    $
    6,014,0132010
    
    $
    4,444,6002011
    
    $
    2,910,5892012
    
    $
    1,427,2472013
    
    $
    358,963
  Consolidation
 Application of FASB Statement 94
and APB Opinion No. 16 to Physician Management Entities and Certain Other Entities with Contractual
Management Agreements
 Recent Accounting Pronouncements
 Share-Based Payment
 Accounting for Uncertainty in Income
Taxes
 Fair Value Measurements
 26




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 The information in Item 7A included in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing or to reflect the passage of time since the date of
the Original Filing.
    
 Item 8. Financial Statements and Supplementary Data.
 The information in Item 8 has been adjusted to reflect the impact of the restatement of our
financial results as more fully described in Note 10 of the Notes to the Consolidated Financial
Statements contained in this Item and does not reflect any other subsequent information or events
occurring after the date of the Original Filing or update any disclosure herein to reflect the
passage of time since the date of the Original Filing.
 27




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##### Table of Contents



Index to Financial Statements
 PageReport of Management on Internal Control over Financial Reporting
    
    
    29Report of Independent Registered Public Accounting Firm on Financial Statements
    
    
    30Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
    
    
    31Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    33Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004
    
    
    34Consolidated Statements of Cash Flows for the three years ended December 31, 2006, 2005 and 2004
    
    
    35Consolidated Statements of Stockholders Investment for the three years ended December 31, 2006, 2005 and 2004
    
    
    36Notes to Consolidated Financial Statements
    
    
    37
 28




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##### Table of Contents



REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING (as restated)
       /s/ Steven C. Straus

Steven C. Straus
    
    /s/ Alan H. Buckey

Alan H. BuckeyChief Executive Officer
(Principal Executive Officer)
    
    Executive Vice President/Finance, Chief Financial
Officer(Principal Financial and Accounting Officer)
 29




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
         
 30




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
         31




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##### Table of Contents



32




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##### Table of Contents



LCA-VISION INC.
 
 CONSOLIDATED BALANCE SHEETS
 RESTATED - SEE NOTE 10At December 31,2006
    
    
    2005(Dollars in thousands, except per share amounts)AssetsCurrent assetsCash and cash equivalents
    
    $
    27,251
    
    
    $
    110,531Short-term investments
    
    
    70,801
    
    
    
    Accounts receivable, net of allowance for doubtful accounts of $2,310 and $2,641
    
    
    12,160
    
    
    
    10,520Receivables from vendors
    
    
    3,310
    
    
    
    3,207Prepaid professional fees
    
    
    2,223
    
    
    
    1,454Prepaid expenses and other
    
    
    6,414
    
    
    
    4,031Prepaid income taxes
    
    
    1,667
    
    
    
    2,875Deferred tax assets
    
    
    11,155
    
    
    
    8,847Total current assets
    
    
    134,981
    
    
    
    141,465Property and equipment
    
    
    77,323
    
    
    
    63,026Accumulated depreciation and amortization
    
    
    (46,399
    )
    
    
    (38,342
    )Property and equipment, net
    
    
    30,924
    
    
    
    24,684Accounts receivable, net of allowance for doubtful accounts of $532 and $504
    
    
    2,174
    
    
    
    1,132Deferred compensation plan assets
    
    
    4,090
    
    
    
    2,569Investment in unconsolidated businesses
    
    
    904
    
    
    
    158Deferred tax assets
    
    
    12,141
    
    
    
    7,982Other assets
    
    
    4,256
    
    
    
    3,269Total assets
    
    $
    189,470
    
    
    $
    181,259Liabilities and stockholders investmentCurrent liabilitiesAccounts payable
    
    $
    5,264
    
    
    $
    3,800Accrued liabilities and other
    
    
    9,111
    
    
    
    8,910Deferred revenue
    
    
    22,234
    
    
    
    14,542Capital lease obligations maturing in one year
    
    
    3,360
    
    
    
    2,122Total current liabilities
    
    
    39,969
    
    
    
    29,374Capital lease obligations
    
    
    2,431
    
    
    
    1,434Deferred compensation liability
    
    
    4,136
    
    
    
    2,569Insurance reserve
    
    
    6,163
    
    
    
    3,840Deferred revenue
    
    
    27,608
    
    
    
    17,298Minority equity interest
    
    
    47
    
    
    
    41Stockholders investmentCommon stock
($.001 par value; 24,814,542 and 24,368,992 shares and
19,821,348 and 20,768,198 shares issued and outstanding, respectively)
    
    
    25
    
    
    
    24Contributed capital
    
    
    162,245
    
    
    
    145,262Common stock in treasury, at cost (4,993,194 shares and 3,600,794 shares)
    
    
    (69,487
    )
    
    
    (17,671
    )Retained earnings
    
    
    16,320
    
    
    
    (919
    )Accumulated other comprehensive income
    
    
    13
    
    
    
    7Total stockholders investment
    
    
    109,116
    
    
    
    126,703Total liabilities and stockholders investment
    
    $
    189,470
    
    
    $
    181,259
  33




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##### Table of Contents



LCA-VISION INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 RESTATED - SEE NOTE 10Years Ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Revenues  Laser refractive surgery
    
    $
    238,925
    
    
    $
    176,874
    
    
    $
    120,364Operating costs and expensesMedical professional and license fees
    
    
    42,954
    
    
    
    33,499
    
    
    
    23,599Direct costs of services
    
    
    77,612
    
    
    
    54,952
    
    
    
    40,842General and administrative expenses
    
    
    21,156
    
    
    
    14,021
    
    
    
    10,292Marketing and advertising
    
    
    47,971
    
    
    
    31,813
    
    
    
    20,468Depreciation
    
    
    8,453
    
    
    
    7,636
    
    
    
    7,045Operating income
    
    
    40,779
    
    
    
    34,953
    
    
    
    18,118Equity in earnings from unconsolidated businesses
    
    
    746
    
    
    
    328
    
    
    
    369Net investment income
    
    
    6,182
    
    
    
    3,929
    
    
    
    2,137Other income, net
    
    
    (27
    )
    
    
    (397
    )
    
    
    (306
    )Income before taxes on income
    
    
    47,680
    
    
    
    38,813
    
    
    
    20,318Income tax expense (benefit)
    
    
    19,310
    
    
    
    15,832
    
    
    
    (11,553
    )Net income
    
    $
    28,370
    
    
    $
    22,981
    
    
    $
    31,871Income per common shareBasic
    
    $
    1.37
    
    
    $
    1.12
    
    
    $
    1.59Diluted
    
    $
    1.34
    
    
    $
    1.07
    
    
    $
    1.53Weighted average shares outstandingBasic
    
    
    20,694
    
    
    
    20,500
    
    
    
    20,099Diluted
    
    
    21,235
    
    
    
    21,492
    
    
    
    20,814
  34




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##### Table of Contents



LCA-VISION INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 RESTATED - SEE NOTE 10Years Ended December 31,2006
    
    
    2005
    
    
    2004(dollars in thousands)Cash flow from operating activities:Net income
    
    $
    28,370
    
    
    $
    22,981
    
    
    $
    31,871Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    8,453
    
    
    
    7,636
    
    
    
    7,045Provision for loss on doubtful accounts
    
    
    1,855
    
    
    
    1,778
    
    
    
    1,344Deferred income taxes
    
    
    (6,436
    )
    
    
    (2,297
    )
    
    
    (14,532
    )Tax benefit on disqualified disposition of stock options
    
    
    
    
    
    
    5,670
    
    
    
    1,311Stock-based compensation
    
    
    5,665
    
    
    
    
    
    
    
    Deferred compensation
    
    
    1,567
    
    
    
    1,354
    
    
    
    758Insurance reserve
    
    
    2,323
    
    
    
    1,272
    
    
    
    1,605Equity in earnings from unconsolidated affiliates
    
    
    (746
    )
    
    
    (328
    )
    
    
    (369
    )Changes in
operating assets and liabilities:Accounts receivables
    
    
    (4,537
    )
    
    
    (3,829
    )
    
    
    (6,906
    )Receivables from vendors
    
    
    (103
    )
    
    
    (2,130
    )
    
    
    (275
    )Prepaid expenses and other
    
    
    (2,383
    )
    
    
    (1,544
    )
    
    
    (998
    )Prepaid income taxes
    
    
    1,208
    
    
    
    (2,608
    )
    
    
    (267
    )Accounts payable
    
    
    1,464
    
    
    
    (1,723
    )
    
    
    81Deferred revenue, net of professional fees
    
    
    16,202
    
    
    
    13,971
    
    
    
    6,082Income taxes payable
    
    
    
    
    
    
    (254
    )
    
    
    16Accrued liabilities and other
    
    
    630
    
    
    
    1,111
    
    
    
    3,041Net cash provided by operations
    
    
    53,532
    
    
    
    41,060
    
    
    
    29,807Cash flows from investing activities:Purchases of property and equipment
    
    
    (9,656
    )
    
    
    (10,748
    )
    
    
    (7,213
    )Purchases of investment securities
    
    
    (308,943
    )
    
    
    
    
    
    
    Proceeds from sale of investment securities
    
    
    238,013
    
    
    
    
    
    
    
    Distribution from minority equity investors
    
    
    
    
    
    
    1,215
    
    
    
    586Deferred compensation plan
    
    
    (1,521
    )
    
    
    (1,382
    )
    
    
    (726
    )Other, net
    
    
    119
    
    
    
    170
    
    
    
    (108
    )Net cash used in investing activities
    
    
    (81,988
    )
    
    
    (10,745
    )
    
    
    (7,461
    )Cash flows from financing activities:Principal payments of capital lease obligations
    
    
    (2,795
    )
    
    
    (1,140
    )
    
    
    (176
    )Shares repurchased for treasury stock
    
    
    (51,816
    )
    
    
    (2,209
    )
    
    
    Tax benefits related to stock-based compensation
    
    
    5,409
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    5,528
    
    
    
    4,884
    
    
    
    2,202Distribution paid to minority equity investors
    
    
    (19
    )
    
    
    
    
    
    
    Dividends paid to stockholders
    
    
    (11,131
    )
    
    
    (7,407
    )
    
    
    (2,692
    )Net cash used in financing activities
    
    
    (54,824
    )
    
    
    (5,872
    )
    
    
    (666
    )(Decrease) increase in cash and cash equivalents
    
    
    (83,280
    )
    
    
    24,443
    
    
    
    21,680Cash and cash equivalents at beginning of year
    
    
    110,531
    
    
    
    86,088
    
    
    
    64,408Cash and cash equivalents at end of year
    
    $
    27,251
    
    
    $
    110,531
    
    
    $
    86,088
  35




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##### Table of Contents



LCA-VISION INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS INVESTMENT
 RESTATED - SEE NOTE 10Years Ended December 31,2006
    
    
    2005
    
    
    2004Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount(dollars in thousands)
    
    
    
    
    
    
    (dollars in thousands)Common StockBalance at beginning of year
    
    
    24,368,992
    
    
    $
    24
    
    
    
    23,767,353
    
    
    $
    24
    
    
    
    23,465,342
    
    
    $
    16Employee plans
    
    
    445,550
    
    
    
    1
    
    
    
    601,639
    
    
    
    
    
    
    
    304,169
    
    
    
    Stock split  par value effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Partial shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,158
    )
    
    
    Balance at end of year
    
    
    24,814,542
    
    
    
    25
    
    
    
    24,368,992
    
    
    
    24
    
    
    
    23,767,353
    
    
    
    24Treasury StockBalance at beginning of year
    
    
    (3,600,794
    )
    
    
    (17,671
    )
    
    
    (3,550,794
    )
    
    
    (15,462
    )
    
    
    (3,550,794
    )
    
    
    (15,462
    )Shares repurchased
    
    
    (1,392,400
    )
    
    
    (51,816
    )
    
    
    (50,000
    )
    
    
    (2,209
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    (4,993,194
    )
    
    
    (69,487
    )
    
    
    (3,600,794
    )
    
    
    (17,671
    )
    
    
    (3,550,794
    )
    
    
    (15,462
    )Contributed CapitalBalance at beginning of year
    
    
    
    
    
    
    145,262
    
    
    
    
    
    
    
    134,708
    
    
    
    
    
    
    
    131,203Stock split  par value effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Employee plans
    
    
    
    
    
    
    5,527
    
    
    
    
    
    
    
    4,884
    
    
    
    
    
    
    
    2,250Stock split fractional shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )Stock based compensation
    
    
    
    
    
    
    5,665
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred tax benefit of disqualified stock options
    
    
    
    
    
    
    5,791
    
    
    
    
    
    
    
    5,670
    
    
    
    
    
    
    
    1,311Balance at end of year
    
    
    
    
    
    
    162,245
    
    
    
    
    
    
    
    145,262
    
    
    
    
    
    
    
    134,708Retained Earnings (deficit)Balance at beginning of year
    
    
    
    
    
    
    (919
    )
    
    
    
    
    
    
    (16,493
    )
    
    
    
    
    
    
    (45,672
    )Net income
    
    
    
    
    
    
    28,370
    
    
    
    
    
    
    
    22,981
    
    
    
    
    
    
    
    31,871Dividends paid
    
    
    
    
    
    
    (11,131
    )
    
    
    
    
    
    
    (7,407
    )
    
    
    
    
    
    
    (2,692
    )Balance at end of year
    
    
    
    
    
    
    16,320
    
    
    
    
    
    
    
    (919
    )
    
    
    
    
    
    
    (16,493
    )Accumulated Other Comprehensive Loss (Income)Balance at beginning of year
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    299
    
    
    
    
    
    
    
    114Translation adjustments
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (286
    )
    
    
    
    
    
    
    154Unrealized investment gain
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    31Balance at end of year
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    299Total Stockholders Investment
    
    
    
    
    
    $
    109,116
    
    
    
    
    
    
    $
    126,703
    
    
    
    
    
    
    $
    103,076
  36




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Restatement, Description Of Business And Summary Of Significant Accounting Policies
 Restatement
  Business
 Plus
 Plus
 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
  Cash and Cash Equivalents
  37




---



##### Table of Contents



Short-term Investments
   EstimatedGross
    
    
    Gross
    
    
    Fair ValueAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    (Net CarryingCost
    
    
    Gains
    
    
    Losses
    
    
    Value)Corporate bonds
    
    $
    6,795
    
    
    $
    
    
    
    $
    
    
    
    $
    6,795US Government securities
    
    
    11,468
    
    
    
    12
    
    
    
    (6
    )
    
    
    11,474Municipal bonds
    
    
    52,615
    
    
    
    10
    
    
    
    (93
    )
    
    
    52,532Total short term investments
    
    $
    70,878
    
    
    $
    22
    
    
    $
    (99
    )
    
    $
    70,801
    Amortized
    
    
    Estimated Fair(Dollars in thousands at December 31, 2006))
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    24,251
    
    
    $
    24,203Due after one year through three years
    
    
    15,479
    
    
    
    15,459Due after three years
    
    
    31,148
    
    
    
    31,139Total debt securities
    
    $
    70,878
    
    
    $
    70,801
 Accounts Receivable
  Allowance for Doubtful Accounts
  38




---



##### Table of Contents



Property and Equipment, and Depreciation and Amortization
 Property and Equipment
 Depreciation and Amortization
   Deferred Compensation Plan Assets
  Financial Instruments
 Concentration of Credit Risk
  Fair Values of Financial Instruments
  Accrued Enhancement Expense and Deferred Revenues
   39




---



##### Table of Contents



Captive Insurance Company Reserves
  Income Taxes
 Accounting for Income Taxes.
 Accounting for Contingencies. Accounting for
Uncertainty in Income Taxes
  Per Share Data
   2006
    
    
    2005
    
    
    2004Options
    
    
    957,242
    
    
    
    1,494,640
    
    
    
    1,773,465Restricted stock
    
    
    119,247
    
    
    
    
    
    
    
    
 40




---



##### Table of Contents



2006
    
    2005
    
    2004Basic EarningsNet income
    
    $
    28,370
    
    
    $
    22,981
    
    
    $
    31,871Weighted average shares outstanding
    
    
    20,694
    
    
    
    20,500
    
    
    
    20,099Basic earnings per share
    
    $
    1.37
    
    
    $
    1.12
    
    
    $
    1.59Diluted EarningsNet income
    
    $
    28,370
    
    
    $
    22,981
    
    
    $
    31,871Weighted average shares outstanding
    
    
    20,694
    
    
    
    20,500
    
    
    
    20,095Effect of dilutive securitiesStock options
    
    
    525
    
    
    
    992
    
    
    
    715Restricted stock
    
    
    16
    
    
    
    
    
    
    
    Weighted average common shares and potential dilutive shares
    
    
    21,235
    
    
    
    21,492
    
    
    
    20,814Diluted earnings per share
    
    $
    1.34
    
    
    $
    1.07
    
    
    $
    1.53
 Revenue Recognition
  Marketing and Advertising Expenditures
  Stock-Based Compensation
 Share Based Payment Accounting for Stock Issued to Employees
   41




---



##### Table of Contents



2006Decrease in income before income taxes
    
    $
    5,665Decrease in net income
    
    $
    4,511Decrease in earnings per shareBasic
    
    $
    0.22Diluted
    
    $
    0.21
  2005
    
    
    2004Net income, as reported
    
    $
    22,981
    
    
    $
    31,871Deduct: Total stock-based employee compensation
expense determined under fair value based method, net
of tax
    
    
    2,627
    
    
    
    1,320Pro forma net income
    
    $
    20,354
    
    
    $
    30,551Earnings per share:Basic  as reported
    
    $
    1.12
    
    
    $
    1.59Basic  pro forma
    
    
    0.99
    
    
    
    1.52Diluted  as reported
    
    $
    1.07
    
    
    $
    1.53Diluted  pro forma
    
    
    0.95
    
    
    
    1.47
 Other Recent Accounting Pronouncements
 Fair Value Measurements
 2. Stockholders Investment
   42




---



##### Table of Contents



3. Investment in Unconsolidated Businesses
    December 31,2006
    
    
    2005Financial Position:Current assets
    
    $
    4,308
    
    
    $
    3,170Total assets
    
    
    4,318
    
    
    
    3,170Current liabilities
    
    
    3,771
    
    
    
    1,568Total liabilities
    
    
    3,771
    
    
    
    1,568Members equity
    
    
    547
    
    
    
    1,602Operating Results:Revenue
    
    $
    26,956
    
    
    $
    16,632Net income
    
    
    5,435
    
    
    
    2,919
 4. Income Taxes
  2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    21,686
    
    
    $
    14,247
    
    
    $
    487State and local
    
    
    4,060
    
    
    
    3,386
    
    
    
    559Foreign
    
    
    
    
    
    
    496
    
    
    
    621Total
    
    
    25,746
    
    
    
    18,129
    
    
    
    1,667Deferred:Federal
    
    
    (5,964
    )
    
    
    (2,255
    )
    
    
    5,707State and local
    
    
    (472
    )
    
    
    (42
    )
    
    
    827Total
    
    
    (6,436
    )
    
    
    (2,297
    )
    
    
    6,534Income tax expense
    
    
    19,310
    
    
    
    15,832
    
    
    
    8,201Valuation allowance (decrease)
    
    
    
    
    
    
    
    
    
    
    (19,754
    )Net income tax expense (benefit)
    
    $
    19,310
    
    
    $
    15,832
    
    
    $
    (11,553
    )
   43




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Domestic
    
    $
    46,972
    
    
    $
    37,638
    
    
    $
    19,204Foreign
    
    
    708
    
    
    
    1,175
    
    
    
    1,114Total
    
    $
    47,680
    
    
    $
    38,813
    
    
    $
    20,318
  December 31,2006
    
    
    2005Current deferred tax assets:Deferred revenue
    
    $
    8,133
    
    
    $
    5,305Net operating loss carryforward
    
    
    684
    
    
    
    1,341Allowance for doubtful accounts
    
    
    1,135
    
    
    
    1,370Captive insurance reserves
    
    
    601
    
    
    
    462Accrued enhancement expense
    
    
    571
    
    
    
    360Other
    
    
    31
    
    
    
    9Total current deferred tax assets
    
    
    11,155
    
    
    
    8,847Long-term deferred tax assets:Deferred revenue
    
    
    9,366
    
    
    
    5,918Net operating loss carryforwards
    
    
    
    
    
    
    684Deferred compensation
    
    
    1,567
    
    
    
    956Share-based compensation
    
    
    978
    
    
    
    Property and equipment
    
    
    230
    
    
    
    424Total long-term deferred tax assets
    
    
    12,141
    
    
    
    7,982Net deferred tax assets
    
    $
    23,296
    
    
    $
    16,829
  2006
    
    
    2005
    
    
    2004Tax at statutory federal rate
    
    $
    16,689
    
    
    $
    13,585
    
    
    $
    6,908State and local income taxes, net of
federal benefit
    
    
    2,169
    
    
    
    2,084
    
    
    
    1,653Permanent differences
    
    
    702
    
    
    
    49
    
    
    
    22Foreign income tax
    
    
    
    
    
    
    107
    
    
    
    46Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    (19,754
    )Change in effective tax rate
    
    
    
    
    
    
    93
    
    
    
    (434
    )Other
    
    
    (250
    )
    
    
    (86
    )
    
    
    6Income tax provision (benefit)
    
    $
    19,310
    
    
    $
    15,832
    
    
    
    ($11,553
    )
  5. Leasing Arrangements
  44




---



##### Table of Contents



December 31, 2006Capital
    
    
    OperatingLeases
    
    
    LeasesYear2007
    
    $
    3,668
    
    
    $
    6,1872008
    
    
    1,952
    
    
    
    5,6212009
    
    
    585
    
    
    
    4,8812010
    
    
    
    
    
    
    3,5522011
    
    
    
    
    
    
    2,071Beyond 2011
    
    
    
    
    
    
    2,601Total minimum rental commitment
    
    
    6,205
    
    
    $
    24,913Less interest
    
    
    414Present value of minimum lease payments
    
    
    5,791Less current installments
    
    
    3,360Long-term obligations at December 31, 2006
    
    $
    2,431
   6. Employee Benefits
 Savings Plan
  Stock Incentive Plans
    2006Stock Options
    
    $
    4,080Restricted Stock
    
    
    1,585$
    5,665Income Tax Benefit
    
    $
    1,154
 45




---



##### Table of Contents



Stock Options
    2005
    
    
    2004Dividend yield
    
    
    1.0  1.2
    %
    
    
    1.2
    %Expected volatility
    
    
    77  93
    %
    
    
    52  91
    %Risk-free interest rate
    
    
    3.28  4.33
    %
    
    
    1.52  3.48
    %Expected lives (in years)
    
    
    2  5
    
    
    
    2  5
  Intrinsic Value of Options at December 31, 2006
 Options Outstanding
    
    $
    15,618,000Options Vested and Expected to Vest
    
    
    15,317,000Options Exercisable
    
    
    11,316,000
     46




---



##### Table of Contents



Weighted AverageStock Options
    
    
    Exercise PriceOutstanding at 12/31/03
    
    
    1,663,877
    
    
    $
    8.64Granted
    
    
    469,114
    
    
    
    16.57Exercised
    
    
    (304,169
    )
    
    
    7.40Cancelled/forfeited
    
    
    (55,357
    )
    
    
    11.71Outstanding at 12/31/04
    
    
    1,773,465
    
    
    
    10.83Granted
    
    
    403,398
    
    
    
    28.99Exercised
    
    
    (601,639
    )
    
    
    8.12Cancelled/forfeited
    
    
    (80,584
    )
    
    
    16.54Outstanding at 12/31/05
    
    
    1,494,640
    
    
    
    16.64Exercised
    
    
    (440,774
    )
    
    
    12.54Cancelled/forfeited
    
    
    (96,624
    )
    
    
    19.21Outstanding at 12/31/06
    
    
    957,242
    
    
    
    18.27Options exercisable, December 31, 2006
    
    
    566,503
    
    
    
    14.52Options expected to vest, December 31, 2006
    
    
    931,855
    
    
    
    18.14
  Stock Options Outstanding
    
    
    
    
    
    Stock Options ExercisableWeighted-average
    
    Weighted-
    
    
    
    
    
    Weighted-Range of exercise
    
    # outstanding
    
    remaining
    
    average exercise
    
    # Exercisable as
    
    average exerciseprices
    
    as of 12/31/06
    
    contractual life
    
    price
    
    of 12/31/06
    
    price$
    2.25-$5.92
    
    
    
    124,285
    
    
    
    6.03
    
    
    $
    4.34
    
    
    
    122,035
    
    
    $
    4.36$
    6.08-$11.84
    
    
    
    42,337
    
    
    
    5.73
    
    
    $
    10.87
    
    
    
    34,837
    
    
    $
    10.66$
    12.19-$12.19
    
    
    
    154,127
    
    
    
    6.88
    
    
    $
    12.19
    
    
    
    154,127
    
    
    $
    12.19$
    12.50-$16.57
    
    
    
    164,963
    
    
    
    5.77
    
    
    $
    15.01
    
    
    
    102,463
    
    
    $
    14.52$
    16.58-$17.27
    
    
    
    97,901
    
    
    
    7.69
    
    
    $
    16.65
    
    
    
    36,301
    
    
    $
    16.60$
    17.29-$22.81
    
    
    
    58,918
    
    
    
    7.83
    
    
    $
    21.09
    
    
    
    21,916
    
    
    $
    21.09$
    27.05-$27.05
    
    
    
    197,693
    
    
    
    8.14
    
    
    $
    27.05
    
    
    
    34,032
    
    
    $
    27.05$
    28.59-$38.69
    
    
    
    106,518
    
    
    
    4.02
    
    
    $
    32.15
    
    
    
    57,294
    
    
    $
    31.54$
    42.56-$44.60
    
    
    
    5,500
    
    
    
    8.57
    
    
    $
    44.41
    
    
    
    1,832
    
    
    $
    44.42$
    48.25-$48.25
    
    
    
    5,000
    
    
    
    8.50
    
    
    $
    48.25
    
    
    
    1,666
    
    
    $
    48.25$
    2.25-$48.25
    
    
    
    957,242
    
    
    
    6.63
    
    
    $
    18.27
    
    
    
    566,503
    
    
    $
    14.52
  Restricted Stock
   47




---



##### Table of Contents



Number of
    
    
    Weighted AverageShare Unit
    
    
    Grant DateAwards
    
    
    Fair ValueOutstanding at 1/1/06
    
    
    
    
    
    $
    Granted
    
    
    142,895
    
    
    
    42.40Released
    
    
    (4,776
    )
    
    
    41.57Forfeited
    
    
    (18,872
    )
    
    
    42.45Outstanding at 12/31/06
    
    
    119,247
    
    
    $
    42.43
 7. Commitments and Contingencies
    48




---



##### Table of Contents



8. Additional Financial Information
  Balance Sheet Information
 At December 31,2006
    
    
    2005Property and Equipment is comprised of the following:Land
    
    $
    354
    
    
    $
    354Building and improvements
    
    
    6,351
    
    
    
    6,106Leasehold improvements
    
    
    12,929
    
    
    
    8,353Furniture and fixtures
    
    
    4,804
    
    
    
    4,046Equipment
    
    
    40,913
    
    
    
    35,607Equipment under capital leases
    
    
    7,834
    
    
    
    3,87773,185
    
    
    
    58,343Accumulated depreciation
    
    
    (46,399
    )
    
    
    (38,342
    )Construction in progress
    
    
    4,138
    
    
    
    4,683$
    30,924
    
    
    $
    24,684Accrued Liabilities and Other is comprised of the following:Accrued payroll and related benefits
    
    $
    2,457
    
    
    $
    2,744Accrued financing fees
    
    
    1,257
    
    
    
    2,423Accrued enhancement expense
    
    
    1,314
    
    
    
    898Other accrued liabilities
    
    
    4,083
    
    
    
    2,845$
    9,111
    
    
    $
    8,910
  Cash Flow Information
 For the Year Ended December 31,2006
    
    2005
    
    2004Cash paid during the year for:Interest
    
    $
    302
    
    
    $
    104
    
    
    $
    24Income taxes
    
    
    18,961
    
    
    
    15,348
    
    
    
    1,907Non-cash investing activities:Capital leases
    
    $
    5,030
    
    
    $
    3,778
    
    
    $
    1,094Other Comprehensive Income (Loss) InformationComprehensive income (loss):Income applicable to common stock
    
    
    28,370
    
    
    $
    22,981
    
    
    $
    31,871Unrealized (loss) gain on investment, net of tax
    
    
    5
    
    
    
    (6
    )
    
    
    31Foreign currency translation adjustments
    
    
    1
    
    
    
    (286
    )
    
    
    154Total comprehensive income
    
    $
    28,376
    
    
    $
    22,689
    
    
    $
    32,056
 49




---



##### Table of Contents



9. Quarterly Financial Data (unaudited)
  PREVIOUSLY REPORTED:
 2006 Quarters
    
    2005 QuartersFirst
    
    Second
    
    Third
    
    Fourth
    
    First
    
    Second
    
    Third
    
    FourthRevenues
    
    $
    73,396
    
    
    $
    65,453
    
    
    $
    59,302
    
    
    $
    58,776
    
    
    $
    50,190
    
    
    $
    48,391
    
    
    $
    47,031
    
    
    $
    46,785Operating income
    
    
    20,692
    
    
    
    17,042
    
    
    
    9,933
    
    
    
    9,314
    
    
    
    15,348
    
    
    
    12,922
    
    
    
    12,028
    
    
    
    8,626Income before taxes
    
    
    22,264
    
    
    
    18,634
    
    
    
    11,633
    
    
    
    11,351
    
    
    
    15,716
    
    
    
    13,451
    
    
    
    13,340
    
    
    
    10,277Net Income
    
    
    13,092
    
    
    
    10,877
    
    
    
    7,245
    
    
    
    7,082
    
    
    
    9,311
    
    
    
    7,828
    
    
    
    7,946
    
    
    
    6,568Earnings per shareBasic
    
    
    0.63
    
    
    
    0.52
    
    
    
    0.35
    
    
    
    0.35
    
    
    
    0.46
    
    
    
    0.38
    
    
    
    0.39
    
    
    
    0.32Diluted
    
    
    0.61
    
    
    
    0.51
    
    
    
    0.34
    
    
    
    0.34
    
    
    
    0.44
    
    
    
    0.36
    
    
    
    0.37
    
    
    
    0.30
 RESTATED (see Note 10):
 2006 Quarters
    
    2005 QuartersFirst
    
    Second
    
    Third
    
    Fourth
    
    First
    
    Second
    
    Third
    
    FourthRevenues
    
    $
    66,750
    
    
    $
    60,297
    
    
    $
    55,841
    
    
    $
    56,037
    
    
    $
    46,247
    
    
    $
    44,665
    
    
    $
    43,164
    
    
    $
    42,798Operating income
    
    
    14,710
    
    
    
    12,400
    
    
    
    6,818
    
    
    
    6,851
    
    
    
    11,799
    
    
    
    9,568
    
    
    
    8,548
    
    
    
    5,038Income before taxes
    
    
    16,282
    
    
    
    13,992
    
    
    
    8,518
    
    
    
    8,888
    
    
    
    12,167
    
    
    
    10,097
    
    
    
    9,860
    
    
    
    6,689Net Income
    
    
    9,427
    
    
    
    8,033
    
    
    
    5,337
    
    
    
    5,573
    
    
    
    7,108
    
    
    
    5,746
    
    
    
    5,786
    
    
    
    4,341Earnings per shareBasic
    
    
    0.45
    
    
    
    0.39
    
    
    
    0.26
    
    
    
    0.27
    
    
    
    0.35
    
    
    
    0.28
    
    
    
    0.28
    
    
    
    0.21Diluted
    
    
    0.44
    
    
    
    0.37
    
    
    
    0.25
    
    
    
    0.27
    
    
    
    0.34
    
    
    
    0.27
    
    
    
    0.27
    
    
    
    0.20
 10. Restatement of the Financial Statements
 Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts
  50




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##### Table of Contents



Year after Initial
    
    AmortizationSurgery
    
    Rate3
    
    
    
    15
    %4
    
    
    
    13
    %5
    
    
    
    11
    %6
    
    
    
    7
    %7
    
    
    
    3
    %
   RetainedNet Income / (Loss)
    
    
    DeficitAtDecember 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Previously Reported
    
    $
    38,296
    
    
    $
    31,653
    
    
    $
    32,029
    
    
    $
    7,269
    
    
    $
    (3,826
    )
    
    $
    (40,512
    )Pre-tax adjustments:Deferred revenues
    
    
    (18,002
    )
    
    
    (15,523
    )
    
    
    (6,758
    )
    
    
    (2,588
    )
    
    
    666
    
    
    
    (7,637
    )Deferred professional fees
    
    
    1,800
    
    
    
    1,552
    
    
    
    676
    
    
    
    259
    
    
    
    (67
    )
    
    
    764Total pre-tax adjustments
    
    
    (16,202
    )
    
    
    (13,971
    )
    
    
    (6,082
    )
    
    
    (2,329
    )
    
    
    599
    
    
    
    (6,873
    )Related tax effect  provision for / (benefit from)
    
    
    (6,276
    )
    
    
    (5,299
    )
    
    
    (5,924
    )
    
    
    
    
    
    
    
    
    
    
    Net
after-tax adjustments
    
    
    (9,926
    )
    
    
    (8,672
    )
    
    
    (158
    )
    
    
    (2,328
    )
    
    
    599
    
    
    
    (6,873
    )Restated
    
    $
    28,370
    
    
    $
    22,981
    
    
    $
    31,871
    
    
    $
    4,940
    
    
    $
    (3,227
    )
    
    $
    (47,385
    )
   51




---



##### Table of Contents



For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Previously
    
    
    
    
    
    
    Previously
    
    
    
    
    
    
    PreviouslyReported
    
    
    Restated
    
    
    Reported
    
    
    Restated
    
    
    Reported
    
    
    RestatedRevenues  Laser refractive surgery
    
    $
    256,927
    
    
    $
    238,925
    
    
    $
    192,397
    
    
    $
    176,874
    
    
    $
    127,122
    
    
    $
    120,364Operating costs and expensesMedical professional and license fees
    
    
    44,754
    
    
    
    42,954
    
    
    
    35,051
    
    
    
    33,499
    
    
    
    24,275
    
    
    
    23,599Direct costs of services
    
    
    77,612
    
    
    
    77,612
    
    
    
    54,952
    
    
    
    54,952
    
    
    
    40,842
    
    
    
    40,842General and administrative expenses
    
    
    21,156
    
    
    
    21,156
    
    
    
    14,021
    
    
    
    14,021
    
    
    
    10,292
    
    
    
    10,292Marketing and advertising
    
    
    47,971
    
    
    
    47,971
    
    
    
    31,813
    
    
    
    31,813
    
    
    
    20,468
    
    
    
    20,468Depreciation and amortization
    
    
    8,453
    
    
    
    8,453
    
    
    
    7,636
    
    
    
    7,636
    
    
    
    7,045
    
    
    
    7,045Operating income
    
    
    56,981
    
    
    
    40,779
    
    
    
    48,924
    
    
    
    34,953
    
    
    
    24,200
    
    
    
    18,118Equity in earnings from unconsolidated businesses
    
    
    746
    
    
    
    746
    
    
    
    328
    
    
    
    328
    
    
    
    369
    
    
    
    369Net investment income
    
    
    6,182
    
    
    
    6,182
    
    
    
    3,929
    
    
    
    3,929
    
    
    
    2,137
    
    
    
    2,137Other income
    
    
    (27
    )
    
    
    (27
    )
    
    
    (397
    )
    
    
    (397
    )
    
    
    (306
    )
    
    
    (306
    )Income before taxes on income
    
    
    63,882
    
    
    
    47,680
    
    
    
    52,784
    
    
    
    38,813
    
    
    
    26,400
    
    
    
    20,318Income tax expense (benefit)
    
    
    25,586
    
    
    
    19,310
    
    
    
    21,131
    
    
    
    15,832
    
    
    
    (5,629
    )
    
    
    (11,553
    )Net income
    
    $
    38,296
    
    
    $
    28,370
    
    
    $
    31,653
    
    
    $
    22,981
    
    
    $
    32,029
    
    
    $
    31,871Income per common shareBasic
    
    $
    1.85
    
    
    $
    1.37
    
    
    $
    1.54
    
    
    $
    1.12
    
    
    $
    1.59
    
    
    $
    1.59Diluted
    
    $
    1.80
    
    
    $
    1.34
    
    
    $
    1.47
    
    
    $
    1.07
    
    
    $
    1.54
    
    
    $
    1.53Dividends declared per share
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    
    
    
    $
    Weighted average shares outstandingBasic
    
    
    20,694
    
    
    
    20,694
    
    
    
    20,500
    
    
    
    20,500
    
    
    
    20,099
    
    
    
    20,099Diluted
    
    
    21,235
    
    
    
    21,235
    
    
    
    21,492
    
    
    
    21,492
    
    
    
    20,814
    
    
    
    20,814
 52




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##### Table of Contents



At December 31,2006
    
    
    2005Previously
    
    
    
    
    
    
    PreviouslyReported
    
    
    Restated
    
    
    Reported
    
    
    RestatedAssetsCurrent assetsCash and cash equivalents
    
    $
    27,251
    
    
    $
    27,251
    
    
    $
    110,531
    
    
    $
    110,531Short-term investments
    
    
    70,801
    
    
    
    70,801
    
    
    
    
    
    
    
    Accounts receivable, net of allowance for doubtful accounts of $2,310 and $2,641
    
    
    12,160
    
    
    
    12,160
    
    
    
    10,520
    
    
    
    10,520Receivables from vendors
    
    
    3,310
    
    
    
    3,310
    
    
    
    3,207
    
    
    
    3,207Prepaid professional fees
    
    
    
    
    
    
    2,223
    
    
    
    
    
    
    
    1,454Prepaid expenses and other
    
    
    6,414
    
    
    
    6,414
    
    
    
    4,031
    
    
    
    4,031Prepaid income taxes
    
    
    1,667
    
    
    
    1,667
    
    
    
    2,875
    
    
    
    2,875Deferred tax assets
    
    
    3,022
    
    
    
    11,155
    
    
    
    3,542
    
    
    
    8,847Total current assets
    
    
    124,625
    
    
    
    134,981
    
    
    
    134,706
    
    
    
    141,465Property and equipment
    
    
    77,323
    
    
    
    77,323
    
    
    
    63,026
    
    
    
    63,026Accumulated depreciation and amortization
    
    
    (46,399
    )
    
    
    (46,399
    )
    
    
    (38,342
    )
    
    
    (38,342
    )Property and equipment, net
    
    
    30,924
    
    
    
    30,924
    
    
    
    24,684
    
    
    
    24,684Accounts receivable, net of allowance for doubtful accounts of $532 and $504
    
    
    2,174
    
    
    
    2,174
    
    
    
    1,132
    
    
    
    1,132Deferred compensation plan assets
    
    
    4,090
    
    
    
    4,090
    
    
    
    2,569
    
    
    
    2,569Investment in unconsolidated businesses
    
    
    904
    
    
    
    904
    
    
    
    158
    
    
    
    158Deferred tax assets
    
    
    2,775
    
    
    
    12,141
    
    
    
    2,064
    
    
    
    7,982Other assets
    
    
    1,495
    
    
    
    4,256
    
    
    
    1,539
    
    
    
    3,269Total assets
    
    $
    166,987
    
    
    $
    189,470
    
    
    $
    166,852
    
    
    $
    181,259Liabilities and stockholders investmentCurrent liabilitiesAccounts payable
    
    $
    5,264
    
    
    $
    5,264
    
    
    $
    3,800
    
    
    $
    3,800Accrued liabilities and other
    
    
    9,111
    
    
    
    9,111
    
    
    
    8,910
    
    
    
    8,910Deferred revenue
    
    
    
    
    
    
    22,234
    
    
    
    
    
    
    
    14,542Capital lease obligations maturing in one year
    
    
    3,360
    
    
    
    3,360
    
    
    
    2,122
    
    
    
    2,122Total current liabilities
    
    
    17,735
    
    
    
    39,969
    
    
    
    14,832
    
    
    
    29,374Capital lease obligations
    
    
    2,431
    
    
    
    2,431
    
    
    
    1,434
    
    
    
    1,434Deferred compensation liability
    
    
    4,136
    
    
    
    4,136
    
    
    
    2,569
    
    
    
    2,569Insurance reserve
    
    
    6,163
    
    
    
    6,163
    
    
    
    3,840
    
    
    
    3,840Deferred revenue
    
    
    
    
    
    
    27,608
    
    
    
    
    
    
    
    17,298Minority equity interest
    
    
    47
    
    
    
    47
    
    
    
    41
    
    
    
    41Stockholders investmentCommon stock ($.001 par value; 24,814,542 and 24,368,992 shares and
19,821,348 and 20,768,198 shares issued and outstanding, respectively)
    
    
    25
    
    
    
    25
    
    
    
    24
    
    
    
    24Contributed capital
    
    
    162,245
    
    
    
    162,245
    
    
    
    145,262
    
    
    
    145,262Common stock in treasury, at cost (4,993,194 shares and 3,600,794 shares)
    
    
    (69,487
    )
    
    
    (69,487
    )
    
    
    (17,671
    )
    
    
    (17,671
    )Retained earnings
    
    
    43,679
    
    
    
    16,320
    
    
    
    16,514
    
    
    
    (919
    )Accumulated other comprehensive income
    
    
    13
    
    
    
    13
    
    
    
    7
    
    
    
    7Total stockholders investment
    
    
    136,475
    
    
    
    109,116
    
    
    
    144,136
    
    
    
    126,703Total liabilities and stockholders investment
    
    $
    166,987
    
    
    $
    189,470
    
    
    $
    166,852
    
    
    $
    181,259
 53




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##### Table of Contents



Years Ended December 31,2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Previously
    
    
    
    
    
    
    Previously
    
    
    
    
    
    
    PreviouslyReported
    
    
    Restated
    
    
    Reported
    
    
    Restated
    
    
    Reported
    
    
    RestatedCash flow from operating activities:Net income
    
    $
    38,296
    
    
    $
    28,370
    
    
    $
    31,653
    
    
    $
    22,981
    
    
    $
    32,029
    
    
    $
    31,871Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    8,453
    
    
    
    8,453
    
    
    
    7,636
    
    
    
    7,636
    
    
    
    7,045
    
    
    
    7,045Provision for loss on doubtful accounts
    
    
    1,855
    
    
    
    1,855
    
    
    
    1,778
    
    
    
    1,778
    
    
    
    1,344
    
    
    
    1,344Deferred income taxes
    
    
    (160
    )
    
    
    (6,436
    )
    
    
    3,002
    
    
    
    (2,297
    )
    
    
    (8,608
    )
    
    
    (14,532
    )Tax benefit on disqualified disposition of stock options
    
    
    
    
    
    
    
    
    
    
    5,670
    
    
    
    5,670
    
    
    
    1,311
    
    
    
    1,311Stock-based compensation
    
    
    5,665
    
    
    
    5,665
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred compensation
    
    
    1,567
    
    
    
    1,567
    
    
    
    1,354
    
    
    
    1,354
    
    
    
    758
    
    
    
    758Insurance reserve
    
    
    2,323
    
    
    
    2,323
    
    
    
    1,272
    
    
    
    1,272
    
    
    
    1,605
    
    
    
    1,605Equity in earnings from unconsolidated affiliates
    
    
    (746
    )
    
    
    (746
    )
    
    
    (328
    )
    
    
    (328
    )
    
    
    (369
    )
    
    
    (369
    )Changes in
operating assets and liabilities:Accounts receivables
    
    
    (4,537
    )
    
    
    (4,537
    )
    
    
    (3,829
    )
    
    
    (3,829
    )
    
    
    (6,906
    )
    
    
    (6,906
    )Receivables from vendors
    
    
    (103
    )
    
    
    (103
    )
    
    
    (2,130
    )
    
    
    (2,130
    )
    
    
    (275
    )
    
    
    (275
    )Prepaid expenses and other
    
    
    (2,383
    )
    
    
    (2,383
    )
    
    
    (1,544
    )
    
    
    (1,544
    )
    
    
    (998
    )
    
    
    (998
    )Prepaid income taxes
    
    
    1,208
    
    
    
    1,208
    
    
    
    (2,608
    )
    
    
    (2,608
    )
    
    
    (267
    )
    
    
    (267
    )Accounts payable
    
    
    1,464
    
    
    
    1,464
    
    
    
    (1,723
    )
    
    
    (1,723
    )
    
    
    81
    
    
    
    81Deferred revenue, net of professional fees
    
    
    
    
    
    
    16,202
    
    
    
    
    
    
    
    13,971
    
    
    
    
    
    
    
    6,082Income taxes payable
    
    
    
    
    
    
    
    
    
    
    (254
    )
    
    
    (254
    )
    
    
    16
    
    
    
    16Accrued liabilities and other
    
    
    630
    
    
    
    630
    
    
    
    1,111
    
    
    
    1,111
    
    
    
    3,041
    
    
    
    3,041Net cash provided by operations
    
    
    53,532
    
    
    
    53,532
    
    
    
    41,060
    
    
    
    41,060
    
    
    
    29,807
    
    
    
    29,807Cash flows from investing activities:Purchases of property and equipment
    
    
    (9,656
    )
    
    
    (9,656
    )
    
    
    (10,748
    )
    
    
    (10,748
    )
    
    
    (7,213
    )
    
    
    (7,213
    )Purchases of investment securities
    
    
    (308,943
    )
    
    
    (308,943
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of investment securities
    
    
    238,013
    
    
    
    238,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Distribution from minority equity investors
    
    
    
    
    
    
    
    
    
    
    1,215
    
    
    
    1,215
    
    
    
    586
    
    
    
    586Deferred compensation plan
    
    
    (1,521
    )
    
    
    (1,521
    )
    
    
    (1,382
    )
    
    
    (1,382
    )
    
    
    (726
    )
    
    
    (726
    )Other, net
    
    
    119
    
    
    
    119
    
    
    
    170
    
    
    
    170
    
    
    
    (108
    )
    
    
    (108
    )Net cash used in investing activities
    
    
    (81,988
    )
    
    
    (81,988
    )
    
    
    (10,745
    )
    
    
    (10,745
    )
    
    
    (7,461
    )
    
    
    (7,461
    )Cash flows from financing activities:Principal payments of capital lease obligations
    
    
    (2,795
    )
    
    
    (2,795
    )
    
    
    (1,140
    )
    
    
    (1,140
    )
    
    
    (176
    )
    
    
    (176
    )Shares repurchased for treasury stock
    
    
    (51,816
    )
    
    
    (51,816
    )
    
    
    (2,209
    )
    
    
    (2,209
    )
    
    
    
    
    
    
    Tax benefits related to stock-based compensation
    
    
    5,409
    
    
    
    5,409
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    5,528
    
    
    
    5,528
    
    
    
    4,884
    
    
    
    4,884
    
    
    
    2,202
    
    
    
    2,202Distribution paid to minority equity investors
    
    
    (19
    )
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid to stockholders
    
    
    (11,131
    )
    
    
    (11,131
    )
    
    
    (7,407
    )
    
    
    (7,407
    )
    
    
    (2,692
    )
    
    
    (2,692
    )Net cash used in financing activities
    
    
    (54,824
    )
    
    
    (54,824
    )
    
    
    (5,872
    )
    
    
    (5,872
    )
    
    
    (666
    )
    
    
    (666
    )(Decrease) increase in cash and cash equivalents
    
    
    (83,280
    )
    
    
    (83,280
    )
    
    
    24,443
    
    
    
    24,443
    
    
    
    21,680
    
    
    
    21,680Cash and cash equivalents at beginning of year
    
    
    110,531
    
    
    
    110,531
    
    
    
    86,088
    
    
    
    86,088
    
    
    
    64,408
    
    
    
    64,408Cash and cash equivalents at end of year
    
    $
    27,251
    
    
    $
    27,251
    
    
    $
    110,531
    
    
    $
    110,531
    
    
    $
    86,088
    
    
    $
    86,088
 54




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 The information in Item 9 included in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and or to reflect the passage of time since
the date of the Original Filing.
  
 Item 9A. Controls and Procedures.
 Restatement of Financial Statements
  Disclosure controls and procedures
    Remediation of a Material Weakness in Internal Control over Financial Reporting
  
    
    The review of and deferral of revenues associated with all historical
sales of separately priced extended warranties consistent with the application of FTB
90-1, and the recording of accounting adjustments as appropriate; and
    
    Implementation of controls and processes to properly account for the
deferral of revenues associated with separately priced extended warranties going
forward. These controls and processes include new reconciliation and monitoring
controls.
 Changes in Internal Control Over Financial Reporting
  Managements report on internal control over financial reporting
  55




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##### Table of Contents



Item 9B. Other Information.
 The information in Item 9B in the Original Filing has not been updated for information or events
occurring after the date of the Original Filing or to reflect the passage of time since the date of
the Original Filing.
  
 PART III
 Except as otherwise indicated, the information in this Part III speaks as of the date of filing of
this 2006 Form 10-K/A Report.
 
 Item 10. Directors, Executive Officers and Corporate Governance.
 Directors
  William F. Bahl
 Thomas G. Cody
 John H. Gutfreund
 John C. Hassan
 Steven C. Straus
 56




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##### Table of Contents



David W. Whiting, M.D
 E. Anthony Woods
 Executive Officers
  Alan H. Buckey
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Business Conduct and Ethics
 www.lasikplus.com
 57




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##### Table of Contents



Audit Committee
  
 Item 11. Executive Compensation.
 Compensation Committee
   Compensation Committee Report On Executive Compensation
   
 58




---



##### Table of Contents



Compensation Discussion and Analysis
  
    
    Provide a direct link between executive officer compensation and the interests of the
Companys stockholders by making a significant portion of executive officer compensation
dependent upon the financial performance of the Company.
    
    Support the achievement of the Companys annual and long-term goals and objectives as
determined annually by the Committee or the Board.
    
    Provide opportunities for equity ownership based on competitive levels,
corporate/segment performance, share price performance and share dilution
considerations.
    
    Provide compensation plans and arrangements that encourage the retention of
better-performing executives.
  Components and Philosophy of Executive Compensation
   th
  Base Salaries
  59




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##### Table of Contents



Annual Incentive Bonuses (Non-Equity Incentive Compensation)
   Long-Term Equity Incentive Grants
       Basis for Chief Executive Compensation
   60




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##### Table of Contents




    
    Annualized salary of $350,000, subject to increase by the
Compensation Committee.
    
    Participation in the Companys Executive Cash Bonus Plan with a
cash bonus target equal to 100% of his annual base salary,
beginning January 1, 2007. The threshold bonus will be 75% of his
annual base salary and the maximum bonus will be 125% of his
annual base salary. The target, threshold and maximum bonus goals
were established by the Compensation Committee on February 28,
2007.
    
    Participation in the Companys 2006 Stock Incentive Plan. Mr.
Straus received time-based Restricted Share Units for 4,682 shares
based upon the fair market value on the date of his employment and
a Performance Share Award for 9,365 shares. Performance Shares
will be earned at threshold (67%), target (100%) and maximum
(133%) levels based on Company performance metrics for 2007
determined by the Compensation Committee in the same manner as
described above. Performance Shares earned for 2007 will be
issued in early 2008. Both Mr. Straus Restricted Share Units and
any Performance Shares earned for 2007 will vest on November 2,
2009, the third anniversary of his date of employment.
    
    Application of the Companys standard Confidentiality Agreement,
which provides that for a period of one year after termination of
his employment with the Company, he will not render services,
directly or indirectly, to any competing organization or solicit
employees of the Company to join any competing organization.
  Potential Post-Employment Payments
  Accounting and Tax Treatments of Executive Compensation
 Deductibility of Compensation
 Stock-Based Compensation Accounting
 61




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##### Table of Contents



Review of Past Awards
  Adjustment or Recovery of Awards
  Timing of Grants
   Stock Ownership Guidelines for Executive Officers
   
    
    Vested and unvested restricted stock;
    
    The value of exercisable in-the-money employee stock options (fair
market value less exercise price); and
    
    Any other shares of common stock beneficially held by the participant.
 62




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##### Table of Contents



Information Tables for Named Executives
  Summary Compensation Table
 Stock
    
    
    
    
    
    Non-Equity
    
    All OtherName and Principal
    
    
    
    
    
    
    
    
    
    Awards ($)(5)
    
    Option Awards
    
    Incentive Plan
    
    CompensationPosition
    
    Year
    
    Salary ($)
    
    (6)
    
    ($)(7)
    
    Compensation ($)
    
    ($)
    
    Total ($)Steven C.
Straus 
Principal Executive Officer
    
    
    2006
    
    
    $
    70,833
    (1)
    
    $
    8,612
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    79,445Alan H.
BuckeyPrincipal Financial Officer
    
    
    2006
    
    
    $
    270,000
    
    
    $
    102,096
    
    
    $
    216,727
    
    
    $
    115,627
    
    
    $
    1,000
    
    
    $
    705,450Craig P. R.
JoffeFormer Chief Operating Officer, 
General Counsel, and 
Secretary
    
    
    2006
    
    
    $
    300,000
    (2)
    
    $
    125,642
    
    
    $
    209,368
    
    
    $
    128,475
    
    
    $
    0
    
    
    $
    763,485Dr. Stephen
N. JoffeFormer Chairman and 
Chief Executive Officer
    
    
    2006
    
    
    $
    1,125,000
    (3)
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    1,000
    
    
    $
    1,126,000Kevin M.
HasseyFormer President
    
    
    2006
    
    
    $
    203,110
    (4)
    
    $
    0
    
    
    $
    118,901
    
    
    $
    0
    
    
    $
    0
    
    
    $
    322,011
 
 (1)
    
    Mr. Straus began employment with the Company on November 2, 2006.(2)
    
    Mr. Craig P.R. Joffe terminated his employment with the Company
effective March 30, 2007.(3)
    
    Dr. Stephen Joffe terminated his employment
with the Company effective March 15, 2006.(4)
    
    Mr. Hassey terminated his employment with the Company effective October 6, 2006.(5)
    
    Represents expense recognized in 2006 in accordance with FAS 123(R). No stock awards were
granted in prior years.The fair value of stock awards made in 2006 was determined by the
closing market value of the common stock on the date of grant.(6)
    
    The Long-Term Equity Incentive Grants section under Compensation Discussion and Analysis
describes the equity awards granted to the named executives in 2006.(7)
    
    Represents expense recognized in 2006 in accordance with FAS 123(R) for stock options issued
prior to January 1, 2006 but not vested by January 1, 2006. No stock options were granted in
2006. For the detail of outstanding stock options for the named executives, please
refer to the Outstanding Equity Awards at Fiscal 2006 Year End table. The fair value of each
stock option is estimated on the date of the grant using a Black-Scholes option pricing
model that uses assumptions noted in the following table. Expected volatility is based on a blend
of implied and historical volatility of our commen stock. We use historical data on
exercises of stock options and other factors to estimate the expected term of the share-based
payments granted. The risk-free rate is based on the U.S. Treasury yield curve in effect at the
date of grant. The expected life of the options is based on historical data and is not
necessarily indicative of exercise patterns that may occur.  2005
    
    
    2004
    
    
    2003Dividend yield
    
    
    1.0 - 1.2
    %
    
    
    1.2
    %
    
    
    0
    %Expected volatility
    
    
    77 - 93
    %
    
    
    52 - 91
    %
    
    
    89 - 97
    %Risk-free interest rate
    
    
    3.28 - 4.33
    %
    
    
    1.52 - 3.48
    %
    
    
    1.44 - 3.21
    %Expected lives (in years)
    
    
    2 - 5
    
    
    
    2 - 5
    
    
    
    2 - 5
 63




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##### Table of Contents



2006 Grants of Plan-Based Awards
 Grant DateAll Other Stock
    
    Fair Value ofEstimated Future Payouts Under Non-
    
    Estimated Future Payouts Under Equity
    
    Awards: Number
    
    Stock andEquity Incentive Plan Awards(2)
    
    Incentive Plan Awards(3)
    
    of Shares of Stock
    
    OptionName
    
    Grant Date
    
    Threshold ($)
    
    Target ($)
    
    Maximum ($)
    
    Threshold (#)
    
    Target (#)
    
    Maximum (#)
    
    or Units (#) (3)
    
    Awards ($)Steven C. Straus
    
    
    11/2/2006
    
    
    $
    262,500
    
    
    $
    350,000
    
    
    $
    437,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,682
    
    
    $
    160,00011/2/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,275
    
    
    
    9,365
    
    
    
    12,455
    
    
    
    
    
    
    $
    320,000Alan H. Buckey
    
    
    3/2/2006
    
    
    $
    54,000
    
    
    $
    108,000
    
    
    $
    162,000
    
    
    
    4,000
    
    
    
    8,000
    
    
    
    12,000
    
    
    
    
    
    
    $
    339,760Craig P.R. Joffe (1)
    
    
    3/2/2006
    
    
    $
    60,000
    
    
    $
    120,000
    
    
    $
    180,000
    
    
    
    4,000
    
    
    
    8,000
    
    
    
    12,000
    
    
    
    
    
    
    $
    339,7603/2/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    $
    84,940Dr. Stephen N. Joffe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kevin Hassey (1)
    
    
    3/2/2006
    
    
    $
    54,000
    
    
    $
    108,000
    
    
    $
    162,000
    
    
    
    4,000
    
    
    
    8,000
    
    
    
    12,000
    
    
    
    
    
    
    $
    339,760
 
 (1)
    
    Mr. Hasseys and Mr. Craig P.R. Joffes performance-based awards and two-thirds of Mr. Joffes
stock option award ultimately were forfeited due to their terminations of employment.(2)
    
    Awards under the Companys Executive Cash Bonus Plan. See Compensation Discussion and Analysis -
Annual Incentive Bonus (Non-Equity Incentive Compensation) for a discussion of this plan.
Mr. Straus award was established in his November 2, 2006 employment agreement but relates to
Company performance during 2007.(3)
    
    Awards under the Companys 2006 Stock Incentive Plan. See Compensation Discussion and
Analysis  Long-Term Equity Incentive Grants for a discussion of awards under this plan. 64




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##### Table of Contents



Outstanding Equity Awards at Fiscal 2006 Year-End
 Option Awards
    
    Stock AwardsEquityIncentive Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity Incentive
    
    Equity IncentiveAwards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan Awards:
    
    Plan Awards:Number of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    Market or PayoutSecurities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    Number of
    
    Market Value
    
    Unearned
    
    Value ofUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Shares or
    
    of Shares or
    
    Shares, Units or
    
    Unearned Shares,Unexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    Option
    
    Units of Stock
    
    Units of Stock
    
    Other Rights
    
    Units or OtherOptions (#)
    
    Options (#)
    
    Unearned
    
    Exercise Price
    
    Expiration
    
    that Have Not
    
    that Have Not
    
    that Have Not
    
    Rights that HaveName
    
    Exercisable
    
    Unexercisable
    
    Options (#)
    
    ($)
    
    Date
    
    Vested (#)
    
    Vested ($)
    
    Vested (#)
    
    Not Vested ($)Steven C. Straus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,682
    (1)
    
    $
    160,874
    
    
    
    9,365
    
    
    $
    321,781Alan H. Buckey
    
    
    7,650
    
    
    
    
    
    
    
    
    
    
    $
    5.92
    
    
    
    6/27/2013
    
    
    
    8,565
    (2)
    
    $
    294,293
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    $
    12.19
    
    
    
    12/9/201321,001
    
    
    
    31,500
    (3)
    
    
    
    
    
    $
    16.60
    
    
    
    9/10/201415,000
    
    
    
    22,500
    (4)
    
    
    
    
    
    $
    16.57
    
    
    
    9/10/201458,651
    
    
    
    54,000Craig P. R. Joffe
    
    
    37,500
    
    
    
    
    
    
    
    
    
    
    $
    2.25
    
    
    
    3/17/2013
    
    
    
    2,000
    (5)
    
    $
    68,720
    
    
    
    
    
    
    
    22,501
    
    
    
    
    
    
    
    
    
    
    $
    12.19
    
    
    
    12/9/2013
    
    
    
    8,565
    (6)
    
    $
    294,29315,000
    
    
    
    22,500
    (7)
    
    
    
    
    
    $
    16.60
    
    
    
    9/10/201415,000
    
    
    
    22,500
    (8)
    
    
    
    
    
    $
    16.57
    
    
    
    9/10/201490,001
    
    
    
    45,000Dr. Stephen N. Joffe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kevin M. Hassey
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vesting ScheduleSteven C. Straus
    
    
    (1)11/2/2009
    
    
    4,682Alan H. Buckey
    
    
    (2)
    
    
    
    (3)
    
    
    
    (4)9/10/2007
    
    
    
    
    
    
    10,500
    
    
    
    7,5009/10/2008
    
    
    
    
    
    
    10,500
    
    
    
    7,5003/2/2009
    
    
    8,5659/10/2009
    
    
    
    
    
    
    10,500
    
    
    
    7,5008,565
    
    
    
    31,500
    
    
    
    22,500Craig P. R. Joffe
    
    
    (5)
    
    
    
    (6)
    
    
    
    (7)
    
    
    
    (8)3/2/2007
    
    
    6679/10/2007
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    7,5003/2/2008
    
    
    6679/10/2008
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    7,5003/2/2009
    
    
    666
    
    
    
    8,5659/10/2009
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    7,5002,000
    
    
    
    8,565
    
    
    
    22,500
    
    
    
    22,500
 65




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##### Table of Contents



2006 Option Exercises and Stock Vested
 Option Awards
    
    Stock AwardsNumber ofShares
    
    
    
    
    
    Number ofAcquired
    
    Value
    
    Shares
    
    Valueon
    
    Realized
    
    Acquired
    
    RealizedExercise
    
    on Exercise
    
    on Vesting
    
    on VestingName
    
    (#)
    
    ($)
    
    (#)
    
    ($)Steven C. Straus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alan H. Buckey
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Craig P.R. Joffe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stephen N. Joffe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kevin M. Hassey
    
    
    73,500
    
    
    $
    2,139,480
    
    
    
    
    
    
    
    
  2006 Nonqualified Deferred Compensation
 Executive
    
    Registrant
    
    Aggregate
    
    Aggregate
    
    AggregateContributions
    
    Contributions
    
    Earnings in
    
    Withdrawals/
    
    Balancein Last FY
    
    in Last FY
    
    Last FY
    
    Distributions
    
    at Last FYEName
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Steven C. Straus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alan H. Buckey
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Craig P.R. Joffe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dr. Stephen N. Joffe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kevin M. Hassey
    
    
    
    
    
    
    
    
    
    $
    4,733
    
    
    
    
    
    
    $
    50,924
 66




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##### Table of Contents



Potential Post-Employment Payments
  Voluntary Termination
    
    
    Termination
    
    
    Involuntary TerminationUponDisability
    
    
    
    
    
    
    Without Cause/
    
    
    Change inGood Reason
    
    
    Other
    
    
    or Death
    
    
    For Cause
    
    
    Expiration (5)
    
    
    ControlExecutive Benefits and PaymentsUpon TerminationCompensationSeverance (1)
    
    $
    350,000
    
    
    
    
    
    
    $
    350,000
    
    
    
    
    
    
    $
    350,000
    
    
    
    Non-equity Incentive Plan Payments (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Time-Based Restricted Stock (3)
    
    $
    160,874
    
    
    
    
    
    
    $
    160,874
    
    
    
    
    
    
    $
    160,874
    
    
    $
    160,874Performance-Based Restricted Stock (4)
    
    $
    17,632
    
    
    
    
    
    
    $
    17,632
    
    
    
    
    
    
    $
    17,632
    
    
    $
    321,781Benefits and PerquisitesHealth and Welfare Benefits
    
    $
    8,617
    
    
    
    
    
    
    $
    8,617
    
    
    
    
    
    
    $
    8,617
    
    
    
    ContinuationTotal compensation
    
    $
    537,123
    
    
    
    
    
    
    $
    537,123
    
    
    
    
    
    
    $
    537,123
    
    
    $
    482,655
 
 (1)
    
    For purposes of this analysis, we used Mr. Straus base salary at December 31, 2006 of $350,000.(2)
    
    Mr. Straus did not have a non-equity incentive plan bonus opportunity for 2006.(3)
    
    As of December 31, 2006 Mr. Straus had 4,682 time-based restricted share units that had not yet vested.(4)
    
    As of December 31, 2006 Mr. Straus had 9,365 performance-based restricted share units at target level of performance that had not yet been earned or vested.(5)
    
    Expiration refers to termination of employment upon the expiration of any one-year term of Mr. Straus employment agreement as a
result of the Company notifying him of a non-renewal. Director Compensation
     67




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##### Table of Contents



2006 Director Compensation
 Fees Earned or Paid in
    
    Stock Awards
    
    Option Awards
    
    All OtherName
    
    Cash ($)(1)
    
    ($)(2) (4)
    
    ($)(3) (4)
    
    Compensation ($)
    
    Total ($)E. Anthony
Wood, Chairman of the Board
    
    $
    339,167
    
    
    $
    134,285
    
    
    $
    69,658
    
    
    
    
    
    
    $
    543,110William F. Bahl
    
    $
    22,750
    
    
    $
    35,722
    
    
    $
    259,814
    
    
    
    
    
    
    $
    318,286Thomas G. Cody
    
    $
    22,750
    
    
    $
    35,722
    
    
    $
    259,814
    
    
    
    
    
    
    $
    318,286John H. Gutfreund
    
    $
    20,000
    
    
    $
    35,722
    
    
    $
    59,754
    
    
    
    
    
    
    $
    115,476John C. Hassan
    
    $
    25,500
    
    
    $
    35,722
    
    
    $
    59,754
    
    
    
    
    
    
    $
    120,976David
Whiting, M.D. (5)
    
    
    
    
    
    $
    36,781
    
    
    $
    44,171
    
    
    $
    120,000
    (6)
    
    $
    200,952
 
 (1)
    
    Mr. Woods generally receives compensation of $100,000 in cash and $125,000 in shares for his
services as non-executive Chairman of the Board. As described above, he received an
additional payment of $240,000 for such services during the period from March 15 to December 15,
2006.(2)
    
    The equity compensation expense recorded in the 2006 financial statements in accordance with
FAS 123(R) for stock awards made to the Directors during 2006 is shown in this column. No
stock awards were granted in prior years.(3)
    
    The equity compensation expense recorded in the 2006 financial statements in accordance with
FAS 123(R) for stock options issued to Directors prior to January 1, 2006 that had not
vested by January 1, 2006 is shown in this column. No stock options were granted in 2006. The
fair value of each stock option is estimated on the date of the grant using a Black-Scholes
option pricing model that uses assumptions noted in the following table. Expected volatility is
based on a blend of implied and historical volatility of our common stock. We use historical
data on the exercises of stock options and other factors to estimate the expected term of
the share-based payments granted. The risk-free rate is based on the U.S. Treasury yield curve in
effect at the date of grant. The expected life of the option is based on historical data
and is not necessarily indicative of exercise patterns that may occur.  2005
    
    
    2004
    
    
    2003Dividend yield
    
    
    1.0 - 1.2
    %
    
    
    1.20
    %
    
    
    0
    %Expected volatility
    
    
    77 - 93
    %
    
    
    52 - 91
    %
    
    
    89 - 97
    %Risk-free interest rate
    
    
    3.28 - 4.33
    %
    
    
    1.52 - 3.48
    %
    
    
    1.44 - 3.21
    %Expected lives (in years)
    
    
    2 - 5
    
    
    
    2 - 5
    
    
    
    2 - 5
 
 (4)
    
    The grant date of fair value as measured by FAS 123(R) for awards made to directors in 2006 are
as follows: March 2, 2006
    
    
    June 12, 2006
    
    
    July 5, 2006
    
    
    July 12, 2006
    
    
    September 29, 2006
    
    
    December 29, 2006
    
    
    TotalE. Anthony Woods
    
    $
    
    
    
    $
    75,014
    
    
    $
    36,471
    
    
    $
    4,641
    
    
    $
    36,229
    
    
    $
    36,215
    
    
    $
    188,570William F. Bahl
    
    
    
    
    
    
    75,014
    
    
    
    5,012
    
    
    
    
    
    
    
    4,999
    
    
    
    4,982
    
    
    
    90,007Thomas G. Cody
    
    
    
    
    
    
    75,014
    
    
    
    5,012
    
    
    
    
    
    
    
    4,999
    
    
    
    4,982
    
    
    
    90,007John H. Gutfreund
    
    
    
    
    
    
    75,014
    
    
    
    5,012
    
    
    
    
    
    
    
    4,999
    
    
    
    4,982
    
    
    
    90,007John C. Hassan
    
    
    
    
    
    
    75,014
    
    
    
    5,012
    
    
    
    
    
    
    
    4,999
    
    
    
    4,982
    
    
    
    90,007David Whiting, M.D.
    
    
    42,445
    
    
    
    
    
    
    
    5,012
    
    
    
    
    
    
    
    9,997
    
    
    
    9,999
    
    
    
    67,453
  Stock Awards
    
    
    Options
    
    
    TotalE. Anthony Woods
    
    
    1,594
    
    
    
    33,713
    
    
    
    35,307William F. Bahl
    
    
    1,594
    
    
    
    28,857
    
    
    
    30,451Thomas G. Cody
    
    
    1,594
    
    
    
    28,857
    
    
    
    30,451John H. Gutfreund
    
    
    1,594
    
    
    
    2,344
    
    
    
    3,938John C. Hassan
    
    
    1,594
    
    
    
    9,376
    
    
    
    10,970David W. Whiting, M.D.
    
    
    1,000
    
    
    
    15,025
    
    
    
    16,025
 
 (5)
    
    Dr. Whiting also is paid by Columbus Eye Associates, P.C., an Ohio Professional Corporation, for professional services rendered.(6)
    
    Dr. Whiting is paid $10,000 monthly to serve as Medical Director for the Minnesota market. 68




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
   69




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##### Table of Contents



Amount and Nature ofName and Address of Beneficial Owner
    
    Ownership(1)
    
    
    Percent of ClassBarclays Global Investors, NA45 Fremont Street, 17th FloorSan Francisco, CA 94105
    
    
    2,047,724
    (2)
    
    
    10.3
    %Lord Abbett & Co., LLC90 Hudson Street, 11th FloorJersey City, NJ 07302
    
    
    1,706,467
    (3)
    
    
    8.6
    %Columbia Wanger Asset Management, L.P.227 West Monroe Street, Suite 3000Chicago, IL 60606
    
    
    1,602,000
    (4)
    
    
    8.1
    %Tremblant Capital Group767 Fifth AvenueNew York, NY 10153
    
    
    1,566,905
    (5)
    
    
    7.9
    %The Guardian Life Insurance Company of AmericaGuardian Investor Services, LLCRS Investment Management Co.RS Partners Fund
    
    
    1,510,731
    (6)
    
    
    7.6
    %HWP Capital Partners II L.P.300 Crescent Court, Suite 1700Dallas, TX 75201
    
    
    1,303,882
    (7)
    
    
    6.6
    %Ziff Asset Management L.P.283 Greenwich AvenueGreenwich, CT 06830
    
    
    1,252,930
    (8)
    
    
    6.3
    %E. Anthony Woods, Chairman of the Board
    
    
    48,422
    (9)
    
    
    *Steven C. Straus, Chief Executive Officer
    
    
    William F. Bahl, Director
    
    
    29,217
    (10)
    
    
    *Thomas G. Cody, Director
    
    
    29,217
    (11)
    
    
    *John H. Gutfreund, Director
    
    
    7,704
    (12)
    
    
    *John C. Hassan, Director
    
    
    17,205
    (13)
    
    
    *David W. Whiting, M.D., Director
    
    
    12,043
    (14)
    
    
    *Alan H. Buckey, Executive Vice President/Finance, CFO
    
    
    131,014
    (15)
    
    
    *All current directors and executive officers as a group
(8 persons)
    
    
    274,557
    (16)
    
    
    1.4
    %
 70




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##### Table of Contents



(1)
    
    Except as otherwise noted, the persons named in the table have sole voting and
dispositive powers with respect to all shares of common stock shown as beneficially owned
by them, subject to community property laws, where applicable.(2)
    
    This information is based on a Schedule 13G filed with the SEC on January 23, 2007,
in which Barclays Global Investors, NA reported having sole voting power over 1,383,275
shares and sole dispositive power over 1,445,515 shares, Barclays Global Fund Advisors
reported having sole voting and dispositive powers over 588,990 shares and Barclays Global
Investors, Ltd reported having sole voting and dispositive powers over 13,219 shares.
According to the filing, the reported shares are held in trust accounts for the economic
benefit of the beneficiaries of those accounts.(3)
    
    This information is based on a Schedule 13G/A filed with the SEC on February 14,
2007, in which Lord Abbett & Co. LLC reported having sole voting power over 1,436,866
shares and sole dispositive power over 1,706,467 shares.(4)
    
    This information is based on a Schedule 13G filed with the SEC on January 12, 2007.(5)
    
    This information is based on a Schedule 13G/A filed with the SEC on February 14,
2007.(6)
    
    This information is based on a Schedule 13G filed with the SEC on February 9, 2007,
in which The Guardian Life Insurance Company of America, Guardian Investor Services LLC
and RS Investment Management Co. LLC each reported having shared voting and dispositive
powers over 1,510,731 shares.(7)
    
    This information is based on a Schedule 13G filed with the SEC on December 22, 2006.(8)
    
    This information is based on a Schedule 13G/A filed with the SEC on February 12,
2007, in which the filers reported having shared voting and dispositive powers over the
shares.(9)
    
    Includes for Mr. Woods 31,369 shares issuable upon the exercise of certain
unexercised stock options.(10)
    
    Includes for Mr. Bahl 28,491 shares issuable upon the exercise of certain unexercised
stock options.(11)
    
    Includes for Mr. Cody 28,491 shares issuable upon the exercise of certain unexercised
stock options.(12)
    
    Of the shares owned by Mr. Gutfreund, 2,060 are held in a margin account.(13)
    
    Includes for Mr. Hassan 7,032 shares issuable upon the exercise of certain
unexercised stock options. Of the shares owned by Mr. Hassan, 7,829 are held in a margin
account.(14)
    
    Includes for Dr. Whiting 11,691 shares issuable upon the exercise of certain
unexercised stock options.(15)
    
    Includes for Mr. Buckey 58,651 shares issuable upon the exercise of certain
unexercised stock options.(16)
    
    Includes 165,725 shares issuable upon the exercise of certain unexercisable stock
options held by such persons. 71




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##### Table of Contents



Equity Compensation Plan Information
 Number of securitiesNumber of securities to
    
    
    Weighted-average
    
    
    remaining available for futurebe issued upon exercise
    
    
    exercise price of
    
    
    issuance under equityof outstanding awards,
    
    
    outstanding options,
    
    
    compensation plans (excludingoptions, warrants and
    
    
    warrants and rights
    
    
    securities reflected in column)Plan Category
    
    rightsEquity compensation
plans approved by
security holders
    
    
    1,076,489
    
    
    $
    18.27
    
    
    
    1,731,922Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,076,489
    
    
    $
    18.27
    
    
    
    1,731,922
 
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
    
 Item 14. Principal Accounting Fees and Services.
  Audit Fees .
 Tax Fees
 All Other Fees .
  72




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statements Schedules.
 (a)(1) List of Financial Statements
         (a)(2) List of Schedules
 Schedule II
  73




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##### Table of Contents



Schedule II Valuation and Qualifying Accounts and Reserves
 LCA-Vision Inc.
For the years ended December 31, 2006, 2005, and 2004
(in thousands)
 Balance at
    
    Charges to Cost and
    
    
    
    
    
    Balance at End ofDescription
    
    Beginning of Period
    
    Expenses
    
    Deductions
    
    PeriodYear ended December 31, 2006:Allowance for doubtful
accounts
    
    $
    3,145
    
    
    $
    1,855
    
    
    $
    2,158
    
    
    $
    2,842Insurance reserve
    
    
    3,840
    
    
    
    2,530
    
    
    
    207
    
    
    
    6,163Year ended December 31, 2005:Allowance for doubtful
accounts
    
    $
    2,865
    
    
    $
    1,778
    
    
    $
    1,498
    
    
    $
    3,145Insurance reserve
    
    
    2,568
    
    
    
    1,466
    
    
    
    194
    
    
    
    3,840Year ended December 31, 2004:Allowance for doubtful
accounts
    
    $
    1,896
    
    
    $
    1,344
    
    
    $
    375
    
    
    $
    2,865Insurance reserve
    
    
    963
    
    
    
    1,859
    
    
    
    254
    
    
    
    2,568
 74




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##### Table of Contents



(a)(3)List of Exhibits
 Exhibit #
    
    Description of Exhibit*3(a)
    
    Restated Certificate of Incorporation, as amended, of Registrant (Exhibit 3(a) to Annual Report on Form 10-K for
the year ended December 31, 2003)*3(b)
    
    Amended Bylaws of Registrant (Exhibit (b) to Annual Report on Form 10-K for the year ended December 31, 2004)*10(a)
    
    LCA-Vision Inc. 1995 Long-Term Stock Incentive Plan (Exhibit to Annual Report on Form 10-KSB for the year ended
December 31, 1995)*10(b)
    
    LCA-Vision Inc. 1998 Long-Term Stock Incentive Plan (Exhibit A to definitive Proxy Statement of LCA-Vision Inc. for
Special Meeting of Stockholders held October 16, 1998 on Schedule 14A filed on September 22, 1998)*10(c)
    
    LCA-Vision Inc. 2001 Long-Term Stock Incentive Plan (Exhibit B to definitive Proxy Statement of LCA-Vision Inc. for
Annual Meeting of Stockholders held May 7, 2001 on Schedule 14A filed on April 9, 2001)*10(d)
    
    Employment Agreement of Alan H. Buckey (Exhibit 10.2 to the Registration Statement No.333-109034 on Form S-3/A as
filed on September 23, 2003)*10(e)
    
    Executive Cash Bonus Plan (Exhibit 10.1 to Current Report on Form 8-K filed February 28, 2005)*10(f)
    
    Compensation Arrangements with named executive officers (Exhibit 10.2 to Current Report on Form 8-K filed February
28, 2005)*10(g)
    
    Executive Cash Bonus Plan (as amended February 21, 2006) (Exhibit 10.1 to Current Report on Form 8-K filed February
24, 2006)*10(h)
    
    Form of Restricted Stock Award Agreement with all employees, including named executive officers (Exhibit 10.2 to
Current Report on Form 8-K filed February 24, 2006)*10(i)
    
    Form of Stock Option Agreement with outside directors (Exhibit 10.3 to Current Report on Form 8-K filed February
24, 2006)*10(j)
    
    Form of Stock Option Agreement with all employees, including named executive officers (Exhibit 10.4 to Current
Report on Form 8-K filed February 24, 2006)*10(k)
    
    LCA-Vision Inc. 2006 Stock Incentive Plan (definitive Proxy Statement for 2006 Annual Meeting of Stockholders,
filed April 28, 2006)*10(l)
    
    Form of Notice of Grant of Award and Award Agreement for Restricted Stock Units (Exhibit 10.2 to Current Report on
Form 8-K filed June 16, 2006)*10(m)
    
    Employment Agreement of Steven C. Straus (Exhibit 99.1 to Current Report on Form 8-K filed November 6, 2006)*14
    
    Code of Business Conduct and Ethics (Exhibit 14 to Annual Report on Form 10-K for the year ended December 31, 2003)21
    
    Subsidiaries of the Registrant23
    
    Consent of Ernst & Young LLP31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certifications
 
 *
    
    Incorporated by reference. 75




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LCA-Vision Inc.Date: May 7, 2007
    By:
    /s/ Alan H. BuckeyAlan H. Buckey, Chief Financial Officer 76