Leasing vs. Borrowing (Part 3)

A company must look at its circumstances to decide whether to use bank debt, capital lease or operating lease financing when making a large purchase. If your company has good income, a strong cash position, and comfortable borrowing capacity, a bank loan would be a good choice. With a bank loan you will most likely need to make a down payment, but you can use accelerated depreciation under the tax code to offset current earnings. Generally interest rates for the bank loan will be lower and reduce the overall cost of the financing.

A company with less of an ability to make a down payment can benefit from the same acceleration of depreciation through a capital lease, which allows capitalization of the lease on the balance sheet just as with a bank loan. The imputed interest rate for the capital lease will most likely be higher and therefore cost the lessee more than using bank financing. Additionally, the leasing company will normally be willing to finance the entire amount without a down payment from the lessee. Since the lease is capitalized, the lease liability would be recorded as long-term debt on the balance sheet and the company should review the transaction to make sure that it does not run contrary to restrictive covenants on outstanding bank debt.

Lastly, an operating lease may be the right choice if the company does not have a strong cash position, available borrowing capacity, or need to offset earnings through accelerated depreciation. An operating lease is not capitalized, but rather the rental payments are recorded on the income statement as a rental expense throughout the life of the lease. Also, an operating lease may be the right choice if the item leased has a risk of becoming obsolete by the end of the lease. With a capital lease or bank debt, the company would end up owning the obsolescence.—Jason A. Meyer, Managing Director, HPC Puckett & Company.

Based in San Diego, Calif., HPC Puckett & Company specializes in mergers and acquisitions of wholesale optical laboratories. You can send comments or questions about this article or any other Dollars & Sense articles to Jason A. Meyer at jam@hpcpuckett.com.

Click here to read Leasing vs. Borrowing (Part 1)

Click here to read Leasing vs. Borrowing (Part 2)

EOA and Nikon Acquire U.S. Labs

Essilor of America (EOA) acquired the assets of Custom Optical in Georgia ($2.5 million in revenue). EOA also acquired a majority stake in Gulf States, a prescription laboratory based in Louisiana that generates $3 million in revenue, and a stake in Epic Labs in Minnesota ($3 million in revenue). Nikon Optical U.S., a Nikon-Essilor subsidiary, acquired a majority interest in Colorado-based Pasch, which generates $3.9 million in revenue.

VSP Optics Group Acquires Capitol Optical Laboratory

VSP Optics Group, as part of VSP Global, acquired Capitol Optical, a full-service optical laboratory located in Olympia, Wash.

Robertson Optical Introduces Cozē

Robertson Optical Laboratories is introducing Cozē, its own brand of moderately priced, customized free-form progressive lenses. With Customized Optical Zone Enhancement (Cozē) technology from Robertson Optical, these progressive lenses are up to 30 percent wider in all viewing zones than traditional premium progressives, Robertson said.

Robertson produces Cozē lenses at its Loganville, Ga., facility using new, in-house digital surfacing technology. John Westbrooks, surfacing manager of Robertson Optical Laboratories of Atlanta, is shown here producing a pair of the lenses.

Precision San Diego Launches Web Presence

Precision San Diego has launched a website, www.popsandiego.com. According to Precision’s president, Mark Becker, the site is designed to attract consumer readers by offering information on eyecare products as well as highlighting key San Diego attractions. Shoppers can then find eye care practitioners and optical shops listed by their area.

P.O.G Network Expands

Precision Optical Group, (P.O.G.) recently secured a minority interest in CRX Laboratories located in Greenville, S.C. and Athens, Tenn. CRX Laboratories specializes in industrial safety and government contract business.

Going Digital: Rite-Style Optical

In 2006, Rite-Style Optical became the first independent lab in the country to “go digital” when it integrated its Lab Management System (LMS) with a Robotic High Production HSC Master and CCP Polishers it purchased from Schneider Optical Machines. Within a short period of time, the lab found it necessary to invest in more digital equipment due to increased demand, according to general manager Mike Sutton.

“The software systems we employ did not adversely change how we operate because of the advent of digital production,” Sutton recalled recently. “What did change was the coordination necessary between Rite-Style, the lens manufacturers, the equipment manufacturers and the LMS.” Sutton noted that the installation of a conveyance system was paramount to the efficiency of the robotic processing equipment.

Changes in inventory management became apparent only in the last year or so, Sutton said. “The amount of single vision blanks specific to free-form processing has certainly displaced the amount of conventional progressives that are inventoried,” he observed. “So this has been a priority to adequately monitor and adjust these inventories.”

Although the amount of labor needed to maintain the digital/robotic systems is considerably less than conventional processing, Sutton said increased demand has allowed Rite-Style to maintain its production staff without any layoffs due to the new technology. However, the qualifications that are necessary for employees have changed with the digital technology.

“Computer-savvy technicians with a mechanical background replaced machine operators who processed lenses,” Sutton pointed out. “Maintenance and calibration is paramount to successful free-form digital production,” he added.

Pictured, L to R are Mike Sutton, George Lee and Ray Stavneak in the Rite-Style digital surfacing department. Click here to read more about Rite-Style Optical and other labs that are “going digital” in Vision Monday’s Special Report: Digital Immersion.

LabTalk Spotlight   September 2010

What Health Care Reform Means for Your Small Business, Part 1
By Phillip M Perry

The most comprehensive health insurance reform since Medicare is now the law of the land. The Patient Protection and Affordable Care Act (PPACA) touches every aspect of health care in the United States.

How does the law affect you? Here’s one thing to get out of the way first, though: No employer will be required to provide health insurance. However, some employers, as you will see, will pay penalties if they do not provide insurance and their employees decide to buy insurance from the new state-wide insurance pools.

Here’s some good news: The PPACA contains some benefits geared specifically to the needs of small employers. Right out of the gate the bill provides a tax break. Consider the following questions: Do you have 25 or fewer full time employees? Are their average annual wages less than $50,000? And do you contribute more than 50 percent of your employee’s total premium costs?

If your answers to those three questions are “yeses,” then you may well receive some assistance with your premiums, thanks to a tax credit of up to 35 percent of your contribution toward your employee’s health insurance, for this tax year through 2013.

To find out more on how health care reform may affect your business, log onto www.labtalkonline.com and go to the Features section where you will find this complete article.