SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X-QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
-- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
OCTOBER 31, 2001
Commission file number 1-10629
LASER VISION CENTERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1530063
-------- ----------
State or other jurisdiction of incorporation (I.R.S. Employer identification
or organization) number)
540 Maryville Centre Dr., Suite 200, St. Louis, Missouri 63141
---------------------------------------------------------------
(Address of principal executive offices)
(314)434-6900
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock outstanding as of December 1, 2001 -- 27,865,911 shares
LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED OCTOBER 31, 2001
INDEX
PART OR ITEM PAGE
- ------------ ----
Part I. FINANCIAL STATEMENTS
Item 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet -- October 31, 2001 and April 30, 2001.......................... 3-4
Consolidated Statement of Operations -- Three months and six months ended
October 31, 2001 and 2000................................................................ 5
Consolidated Statement of Cash Flow -- Six months ended October 31, 2001 and 2000.......... 6-7
Consolidated Statement of Changes in Stockholders' Equity --Six months
ended October 31, 2001................................................................... 8
Notes to Interim Consolidated Financial Statements......................................... 9-14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources............................................................ 15-17
Results of Operations...................................................................... 17-21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................... 22
Item 6. Exhibits and Reports on Form 8-K........................................................... 22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
OCTOBER 31, April 30,
2001 2001
------------ ------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 13,569,000 $ 15,726,000
Short-term investments 2,106,000 9,037,000
Accounts receivable, net 9,280,000 11,038,000
Inventory 3,908,000 3,276,000
Deferred tax asset 1,966,000 3,250,000
Prepaid expenses and
other current assets 2,047,000 1,614,000
------------ ------------
Total Current Assets 32,876,000 43,941,000
EQUIPMENT
Laser equipment 47,243,000 42,737,000
Medical equipment 11,882,000 9,589,000
Mobile equipment 14,790,000 13,126,000
Furniture and fixtures 4,958,000 4,272,000
-Accumulated depreciation (38,365,000) (32,689,000)
------------ ------------
Total Equipment, Net 40,508,000 37,035,000
OTHER ASSETS
Deferred tax asset 9,365,000 6,960,000
Goodwill and other, net 35,654,000 21,433,000
Receivable from minority interests, net 290,000 319,000
Deferred contract rights, net 11,927,000 12,266,000
Rent deposits and other, net 498,000 438,000
------------ ------------
Total Other Assets 57,734,000 41,416,000
------------ ------------
Total Assets $131,118,000 $122,392,000
============ ============
See notes to interim consolidated financial statements.
3
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
OCTOBER 31, April 30,
2001 2001
------------ ------------
(UNAUDITED)
CURRENT LIABILITIES
Current portion of notes payable $ 7,040,000 $ 5,537,000
Current portion of capitalized
lease obligations 1,919,000 1,582,000
Accounts payable 6,359,000 5,407,000
Accrued compensation 1,155,000 1,652,000
Other accrued liabilities 6,523,000 3,867,000
----------- ------------
Total Current Liabilities 22,996,000 18,045,000
NON-CURRENT LIABILITIES
Line of credit 4,506,000 4,031,000
Notes payable 2,134,000 2,670,000
Capitalized lease obligations 2,974,000 3,662,000
----------- ------------
Total Non-Current Liabilities 9,614,000 10,363,000
MINORITY INTERESTS 1,008,000 1,030,000
COMMITMENTS AND CONTINGENCIES (NOTES 2, 6, AND 8)
STOCKHOLDERS' EQUITY
Common stock, par value of $.01 per share,
50,000,000 shares authorized; 28,019,450 and
25,890,365 shares issued, respectively 280,000 259,000
Warrants and options 1,144,000 1,119,000
Paid-in capital 117,546,000 110,924,000
Treasury stock at cost (291,000) (355,000)
Accumulated deficit (21,179,000) (18,993,000)
------------ ------------
Total Stockholders' Equity 97,500,000 92,954,000
------------ ------------
Total Liabilities and Stockholders' Equity $131,118,000 $122,392,000
============ ============
See notes to interim consolidated financial statements.
4
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Month Period Six Month Period
Ended October 31, Ended October 31,
--------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES $22,410,000 $21,657,000 $47,721,000 $43,894,000
COST OF REVENUES
Royalty fees and professional
medical services 4,126,000 5,183,000 9,660,000 10,721,000
Depreciation and amortization 3,665,000 3,737,000 7,288,000 6,988,000
Cost of revenues, other 8,711,000 6,680,000 16,597,000 13,090,000
Fixed asset impairment charges (Note 7) 1,168,000 -- 1,168,000 --
----------- ----------- ----------- -----------
GROSS PROFIT 4,740,000 6,057,000 13,008,000 13,095,000
Selling, general and
administrative expenses 7,799,000 5,592,000 15,592,000 11,464,000
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (3,059,000) 465,000 (2,584,000) 1,631,000
OTHER INCOME (EXPENSES)
Minority interests in net income (129,000) (88,000) (213,000) (480,000)
Pending merger costs (Note 2) (413,000) -- (413,000) --
Interest and other income 192,000 625,000 444,000 1,394,000
Gain on sale of equity investment 595,000
Interest and other expense (202,000) (283,000) (436,000) (558,000)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES (3,611,000) 719,000 (3,202,000) 2,582,000
Income tax (expense) benefit 1,150,000 (270,000) 994,000 (978,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) (2,461,000) 449,000 (2,208,000) 1,604,000
Deemed preferred dividends -- (55,000) -- (109,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $(2,461,000) $ 394,000 $(2,208,000) $ 1,495,000
=========== =========== =========== ===========
Net Income (Loss) per Share -- Basic $(0.09) $0.02 $(0.08) $0.06
====== ===== ====== =====
NET INCOME (LOSS) PER SHARE -- DILUTED $(0.09) $0.02 $(0.08) $0.06
====== ===== ====== =====
Weighted average number of
common shares outstanding -- basic 26,638,000 23,866,000 26,170,000 23,893,000
========== ========== ========== ===========
Weighted average number of
common shares outstanding -- diluted 26,638,000 24,133,000 26,170,000 24,321,000
========== ========== ========== ==========
See notes to interim consolidated financial statements.
5
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
Six Month Period
Ended October 31,
--------------------------
2001 2000
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(2,208,000) $ 1,640,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,647,000 7,777,000
Fixed asset impairment 1,168,000
Deferred income taxes (1,121,000) 870,000
Compensation paid in common stock,
options or warrants 124,000 156,000
Minority interest in net income of subsidiary 213,000 480,000
Changes in assets and liabilities, net of effect of ClearVision
acquisition:
Decrease in accounts receivable 1,884,000 2,365,000
Increase in inventory (378,000) (341,000)
Increase in prepaid expenses
and other current assets (204,000) (376,000)
(Decrease) increase in accounts payable (2,295,000) 523,000
Decrease in accrued liabilities (456,000) (5,872,000)
----------- ------------
Net cash provided by operating activities 4,374,000 7,186,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (1,000,000) (49,072,000)
Sale of short-term investments 7,931,000 62,585,000
Sale of investment in common equity securities 2,494,000
Acquisition of equipment (2,480,000) (9,396,000)
Contributions from minority interests 97,000 40,000
Acquisition of deferred contract rights (1,015,000)
Business acquisitions and partnership investments,
net of cash acquired, and other (5,910,000) (12,158,000)
----------- ------------
Net cash used in investing activities (2,377,000) (5,507,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock -- (1,534,000)
Proceeds from employee stock purchase plan 86,000 162,000
Principal payments under capitalized
lease obligations and notes payable (4,412,000) (3,425,000)
Proceeds from line of credit 475,000
Proceeds paid to minority shareholders (303,000) (673,000)
----------- ------------
Net cash used in financing activities (4,154,000) (5,470,000)
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,157,000) (3,791,000)
Cash and cash equivalents at beginning of period 15,726,000 17,702,000
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,569,000 $ 13,911,000
=========== ============
See notes to interim consolidated financial statements.
6
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)(CONTINUED)
Six Month Period
Ended October 31,
--------------------------
2001 2000
----------- ------------
Non-cash investing and financing:
Capital lease obligations and notes payable related
to laser and equipment purchases $ 3,671,000 $ 2,155,000
Deemed preferred dividends -- 109,000
On August 31, 2001, LaserVision acquired certain assets and liabilities of
ClearVision Laser Centers, Inc. for an aggregate of $4,882,000 in cash and
issued 2,129,085 shares of restricted stock of which 750,000 shares are being
held by an escrow agent pending resolution of contractual purchase price
adjustments with respect to the acquired net liabilities and the retention of
ClearVision doctors through November 30, 2001. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $18,872,000
Cash and stock paid (11,525,000)
----------
Liabilities assumed $7,347,000
==========
7
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
Common Stock
$.01 Par Value Warrants Total
--------------------- Paid-in Treasury and Accumulated Shareholders'
Shares Amount Capital Stock Options Deficit Equity
---------- -------- ------------ --------- ---------- ------------ ------------
Balance --
April 30, 2001 25,890,365 $259,000 $110,924,000 $(355,000) $1,119,000 $(18,993,000) $92,954,000
Shares issued for ClearVision 2,129,085 21,000 6,622,000 6,643,000
Warrants and options issued 25,000 25,000
Shares issued to employee
benefit plan 64,000 22,000 86,000
Net loss for the
six month period
ended October 31, 2001 (2,208,000) (2,208,000)
---------- -------- ------------ --------- ---------- ------------ -----------
Balance --
October 31, 2001 28,019,450 $280,000 $117,546,000 $(291,000) $1,144,000 $(21,179,000) $97,500,000
========== ======== ============ ========= ========== ============ ===========
See notes to interim consolidated financial statements.
8
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001
(Unaudited)
1. The information contained in the interim consolidated financial statements
and footnotes is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the interim consolidated
financial statements included herein should be read in conjunction with the
consolidated financial statements and related notes thereto contained in
the Annual Report on Form 10-K for the fiscal year ended April 30, 2001
filed by Laser Vision Centers, Inc. ("LaserVision") with the Securities and
Exchange Commission. The unaudited interim consolidated financial
statements as of October 31, 2001, and for the three and six month periods
ended October 31, 2001 and 2000, are unaudited, but include all normal
recurring adjustments which management considers necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results which may be expected for the entire
fiscal year ending April 30, 2002. The interim consolidated financial
statements include the accounts and transactions of LaserVision and its
subsidiaries. All significant intercompany transactions and accounts have
been eliminated.
2. On August 27, 2001, LaserVision announced that it had entered into an
Agreement and Plan of Merger with TLC Laser Eye Centers, Inc. ("TLC")
which, subject to stockholder and regulatory approval, will result in each
share of LaserVision's common stock being converted into the right to
receive 0.95 shares of TLC common stock. In addition, the number of shares
receivable upon exercise of each outstanding stock option and warrant to
purchase shares of LaserVision common stock will be proportionately
adjusted on the basis of the 0.95-to-1 ratio and become exercisable for
shares of TLC common stock on the same material terms and conditions of the
LaserVision option or warrant, subject to the adjusting of the respective
exercise price described below. Additionally, immediately prior to the
effective time of the merger, LaserVision will change the exercise price of
approximately 2,109,825 outstanding stock options and warrants of
LaserVision which would have an exercise price greater than $8.688 per
share of TLC common stock after the merger to a price equivalent to $8.688
per share of TLC common stock. As the acquiring company, TLC expects to use
the purchase method of accounting and to complete the transaction by March
31, 2002. TLC is a Toronto-based operator of refractive laser centers in
the U.S. and Canada and owns other smaller medical businesses. On the
accompanying Statement of Operations, the $413,000 of legal, accounting and
investment banking costs related to the TLC transaction and incurred
through October 31, 2001 are reported as "Pending merger costs."
3. The net income (loss) per share was computed as described below using the
"Weighted average number of common shares outstanding - basic" during each
period. The 750,000 outstanding shares of common stock which were issued
during the quarter ended October 31, 2001 and are being held by an escrow
agent in connection with the ClearVision acquisition have been excluded.
"Weighted average number of common shares outstanding - diluted" for the
three- and six- month periods ended October 31, 2001 excludes the effects
of outstanding warrants and options
9
because they are anti-dilutive. As of October 31, 2001, warrants and
options to purchase 7.8 million shares were outstanding with an average
exercise price of approximately $7.60 each, including warrants and options
to purchase 1.3 million shares with an average exercise price of
approximately $1.90 each. Diluted per share calculations follow:
Three Month Period Six Month Period
Ended October 31, Ended October 31,
------------------------- -----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income (loss) (2,461,000) 449,000 (2,208,000) 1,604,000
Deemed preferred dividends -- (55,000) -- (109,000)
---------- ---------- ---------- ----------
Net income (loss) applicable to
common stockholders (2,461,000) 394,000 (2,208,000) 1,495,000
Average number of common
shares outstanding 27,135,000 23,866,000 26,419,000 23,893,000
Less average number of escrowed
Common shares outstanding (497,000) -- (249,000) --
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding-basic 26,638,000 23,866,000 26,170,000 23,893,000
Dilutive securities
Warrants and options -- 267,000 -- 428,000
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding -- diluted 26,638,000 24,133,000 26,170,000 24,321,000
Net Income (Loss) per share -- diluted $(0.09) $0.02 $(0.08) $0.06
4. The table below presents information about net income of segments used
by the chief operating decision maker of LaserVision as of and for the
periods ended October 31, 2001 and 2000. Amounts for net income listed as
"reconciling" represent corporate expenses including executive management,
legal, accounting, information systems and other costs of the corporate
headquarters including occupancy costs, certain insurance and property
taxes.
10
North American Other
Refractive Refractive Cataract Reconciling Total
-------------- ---------- ----------- ----------- -----------
THREE MONTHS ENDED OCTOBER 31, 2001
REVENUE $15,839,000 $1,019,000 $ 5,552,000 $ -- $22,410,000
Interest and other income 192,000 192,000
Interest and other expense (202,000) (202,000)
Income tax benefit 1,150,000 1,150,000
NET INCOME (LOSS) (2,560,000) 181,000 962,000 (1,044,000) (2,461,000)
Three months ended October 31, 2000
Revenue 17,249,000 788,000 3,620,000 -- 21,657,000
Interest and other income 625,000 625,000
Interest and other expense (283,000) (283,000)
Income tax expense (270,000) (270,000)
Net income 286,000 102,000 409,000 (348,000) 449,000
SIX MONTHS ENDED OCTOBER 31, 2001
REVENUE 35,183,000 1,939,000 10,599,000 -- 47,721,000
Interest and other income 444,000 444,000
Interest and other expense (436,000) (436,000)
Income tax benefit 994,000 994,000
NET INCOME (LOSS) (1,258,000) 305,000 1,803,000 (3,058,000) (2,208,000)
Six months ended October 31, 2000
Revenue 35,387,000 1,669,000 6,838,000 -- 43,894,000
Interest and other income 1,394,000 1,394,000
Interest and other expense (558,000) (558,000)
Income tax expense (978,000) (978,000)
Net income $ 1,767,000 $ 211,000 $ 772,000 $(1,146,000) $ 1,604,000
5. During the quarter ended July 31, 2001, LaserVision adopted the provisions
of Statement on Financial Accounting Standards No. 141, "Business
Combinations" (SFAS 141) and Statement on Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141
provides standards on accounting for business combinations, eliminates the
pooling of interests method of accounting for business combinations and
provides separate recognition criteria for intangible assets. Based upon
its review of the provisions of the standard, LaserVision believes that it
will not have a significant impact on its financial position, results of
11
operations or on its financial reporting. Under the provisions of SFAS 142,
if an intangible asset is determined to have an indefinite useful life, it
will not be amortized until its useful life is determined to be no longer
indefinite. An intangible asset that is not subject to amortization shall
be tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset might be impaired. Goodwill is not
amortized but is tested for impairment on an annual basis and between
annual tests in certain circumstances at a level of reporting referred to
as a reporting unit. For purposes of this impairment testing LaserVision
will consider the reporting units to be North American refractive, other
refractive and cataract. We have completed the first step of the
transitional goodwill impairment test and have preliminarily determined
that the fair value of the net assets of each reporting unit exceed the
carrying value of the net assets of each reporting unit.
LaserVision did not amortize goodwill during the six months ended October
31, 2001. A reconciliation of reported net income to adjusted net income
and earnings per share reflecting retroactive adoption of SFAS 142 in the
three and six month periods ended October 31, 2000 is provided below.
Three months ended Six months ended
October 31, October 31,
------------------------- -----------------------------
2001 2000 2001 2000
----------- -------- ----------- ----------
Reported net income (loss) applicable
to common stockholders $(2,461,000) $394,000 $(2,208,000) $1,495,000
Add back goodwill amortization,
net of taxes -- 255,000 -- 476,000
----------- -------- ----------- ----------
Adjusted net income (loss) $(2,461,000) $649,000 $(2,208,000) $1,971,000
=========== ======== =========== ==========
Basic earnings (loss) per share:
Reported earnings per share $(0.09) $0.02 $(0.08) $0.06
Earnings per share --
goodwill amortization -- $0.01 -- 0.02
------ ----- ------ -----
Adjusted earnings per share $(0.09) $0.03 $(0.08) $0.08
====== ===== ====== =====
Diluted earnings per share:
Reported earnings per share $(0.09) $0.02 $(0.08) $0.06
Earnings per share --
goodwill amortization -- 0.01 -- 0.02
------ ----- ------ -----
Adjusted earnings per share $(0.09) $0.03 $(0.08) $0.08
====== ===== ====== =====
6. On August 31, 2001, LaserVision acquired certain assets and liabilities of
ClearVision Laser Centers, Inc., a privately held company in the refractive
laser access business based in Lakewood, Colorado ("ClearVision").
LaserVision paid an aggregate of $4,882,000 in cash and issued 2,129,085
shares of restricted common stock (of which 750,000 shares are being held
by an escrow agent pending resolution of contractual adjusting provisions
with respect to the acquired net liabilities and the retention of
ClearVision doctors through November 30, 2001) for
12
the net liabilities of ClearVision. The acquisition resulted in $13.1
million of goodwill, which includes $2.3 million of goodwill related to
shares of LaserVision common stock held in escrow pending the resolution of
contractual purchase price adjustments. ClearVision's results of operations
are included with the LaserVision's results of operations for periods
subsequent to August 31, 2001. During the quarter ended October 31, 2001,
LaserVision paid approximately $3.2 million to ClearVision vendors to pay
the accounts payable liabilities assumed in the transaction. The purchase
price has been allocated as follows:
Current assets $641,000
Equipment 4,898,000
Goodwill 13,126,000
Other 104,000
Accounts payable (3,247,000)
Accrued liabilities (2,640,000)
Notes and lease liabilities (1,357,000)
-----------
Total $11,525,000
===========
The unaudited pro forma LaserVision results from operations assuming the
ClearVision acquisition were consummated as of May 1, 2001 are as follows:
Three months ended Six months ended
October 31, 2001 October 31, 2001
------------------ ----------------
Revenue 23,688,000 53,961,000
Net loss (2,664,000) (2,755,000)
Loss per share --
basic and diluted (0.10) (0.10)
Pro forma revenue and net loss for the three and six month periods ended
October 31, 2001 include the activity of ClearVision for the one and four
month periods ended August 31, 2001, respectively. Pro forma adjustments to
depreciation, interest and tax expense resulting in net benefits of
$155,000 and $615,000 for the three and six month periods ended October 31,
2001, respectively, were made.
7. In accordance with the LaserVision's stated policy on impairments of
long-lived assets, during the quarter ended October 31, 2001, we recorded a
$1,168,000 non-cash charge to cost of revenues related to an impairment in
the net carrying value of certain unused and underutilized lasers. The
lasers are essentially being held for sale, trade-in or other disposal at
October 31, 2001, and are recorded at an estimated fair market value of
$153,000.
8. In July 2001, two excimer laser manufacturers reported settling class
action anti-trust cases for a total of $62.8 million. We expect that a
portion of this settlement will be paid to LaserVision. As part of the
ClearVision acquisition, we acquired ClearVision's rights to payments made
under this settlement. LaserVision's and ClearVision's settlement claims
have now been filed with the court. The amount to be received has not yet
been determined, but is estimated to be less than $5 million for
LaserVision and less than $2.5 million for ClearVision. Amounts received
from the settlement by LaserVision will be recorded in the Statement of
Operations when the amount and date of receipt are both determinable.
Amounts received from the settlement with respect to ClearVision will be
recorded by LaserVision as a reduction in goodwill when the amount and
13
date of receipt are both determinable. We expect to record these payments
during the first half of calendar 2002.
14
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, statements relating to LaserVision's
plan, objectives and future performance are forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations. Because of various
risks and uncertainties, actual strategies and results in future periods may
differ materially from those currently expected.
The discussion set forth below analyzes certain factors and trends related
to the financial results for the three and six month periods ended October 31,
2001 and 2000. This discussion should be read in conjunction with the related
consolidated financial statements and notes to the consolidated financial
statements.
ITEM 2.
(A) LIQUIDITY AND CAPITAL RESOURCES
During the six months ended October 31, 2001, cash and cash equivalents
decreased 14% or $2.2 million to $13.6 million at October 31, 2001 from $15.7
million at April 30, 2001. Short-term investments maturing in less than one year
decreased $6.9 million to $2.1 million at October 31, 2001 from $9.0 million at
April 30, 2001. The ratio of current assets to current liabilities at October
31, 2001 was 1.43 to one, compared to 2.44 to one at April 30, 2001.
Cash Flows from Operating Activities
Net cash provided by operating activities decreased by $2.8 million to $4.4
million for the six months ended October 31, 2001 from $7.2 million for the six
months ended October 31, 2000. The cash flows provided by operating activities
during the six months ended October 31, 2001 primarily represented the net loss
in this period offset by depreciation and amortization, the non-cash fixed asset
impairment charge and the decrease in accounts receivable, less increases in
inventory, prepaid expenses and other current assets and deferred taxes and
decreases in accounts payable and accrued liabilities. The cash flows provided
by operating activities during the six months ended October 31, 2000 primarily
represent the net income in that period plus depreciation and amortization, the
decrease in deferred income taxes, the minority interest in the income of
subsidiaries, the decrease in accounts receivable and the increase in accounts
payable less the decrease in accrued liabilities. Accounts receivable decreased
during the six months ended October 31, 2001 due to lower revenue during
September and October, 2001 compared to March and April, 2001 due to the
decrease in the procedures performed during those months due primarily to the
slow economy. The decrease in accounts payable is due to payment of $3.2 million
of accounts payable assumed in the ClearVision acquisition. The significant
decrease in current liabilities during the six months ended October 31, 2000 was
due to payment of the contingent consideration to the former owners of Midwest
Surgical Services, Inc.
15
Cash Flows from Investing Activities
Net cash used for investing activities decreased by $3.1 million to $2.4 million
for the six months ended October 31, 2001 from $5.5 million for the six months
ended October 31, 2000. Cash used for investing during the six months ended
October 31, 2001 was used to acquire ClearVision, acquire equipment, and acquire
deferred contract rights, partially offset by the net sale of short-term
investments. Cash used for investing during the six months ended October 31,
2000 was used to acquire Southeast Medical, enter a long-term agreement with
Minnesota Eye Consultants, enter into partnership agreements and to acquire
equipment, partially offset by the net proceeds from the sale of short-term and
common equity investments.
Cash Flows from Financing Activities
Net cash used for financing activities decreased by $1.3 million to $4.2 million
for the six months ended October 31, 2001 from $5.5 million for the six months
ended October 31, 2000. Cash used in financing activities during the six months
ended October 31, 2001 was primarily used to make principal payments under
capitalized lease obligations and notes payable and to pay down the line of
credit. Cash used in financing activities during the six months ended October
31, 2000 was primarily used to purchase 289,800 shares of treasury stock, make
principal payments under capitalized lease obligations and notes payable and to
pay proceeds to minority shareholders.
Income Taxes
During the fourth quarter of fiscal 1999 LaserVision began recognizing deferred
tax assets related to net operating loss (NOL) carryforwards. Based on expected
future operating plans, at October 31, 2001, management has determined that the
net deferred tax assets generated by operations will more likely than not be
utilized to offset future taxes. For tax purposes, the tax benefit related to
certain equity transactions that did not impact operating results, such as those
arising from the exercise of non-qualified stock options and warrants, will be
credited to shareholders' equity and serve to reduce the future taxes paid by
LaserVision. In the future, LaserVision anticipates income tax expense to be
approximately 38% of income before taxes. With the impact of the equity-related
tax loss carryforwards, LaserVision expects its cash income tax rate to be about
6%.
Acquisitions
On August 27, 2001, LaserVision announced that it had entered into an Agreement
and Plan of Merger with TLC Laser Eye Centers, Inc. ("TLC") which, subject to
stockholder and regulatory approval, will result in each share of LaserVision's
common stock being converted into the right to receive 0.95 shares of TLC common
stock. In addition, the number of shares receivable upon exercise of each
outstanding stock option and warrant to purchase shares of LaserVision common
stock will be proportionately adjusted on the basis of the 0.95-to-1 ratio and
become exercisable for shares of TLC common stock on the same material terms and
conditions of the LaserVision option or warrant subject to exercise price
adjustments described below. Additionally, immediately prior to the effective
time of the merger, LaserVision will change the exercise price of outstanding
stock options and warrants to purchase 2,109,825 shares of LaserVision common
stock which would have an exercise price greater than $8.688
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per share of TLC common stock after the merger to a price equivalent to $8.688
per share of TLC common stock. As the acquiring company, TLC expects to use the
purchase method of accounting and to complete the transaction within the first
calendar quarter of 2002. TLC is a Toronto-based operator of refractive laser
centers in the U.S. and Canada and owns other smaller medical businesses.
On August 31, 2001, LaserVision acquired certain assets and liabilities of
ClearVision Laser Centers, Inc., a privately held company in the refractive
laser access business based in Lakewood, Colorado ("ClearVision"). LaserVision
paid an aggregate of $4,882,000 in cash and issued 2,129,085 shares of
restricted common stock (of which 750,000 shares are being held by an escrow
agent pending resolution of the contractual purchase price adjustment provisions
relating to acquired net liabilities and the retention of ClearVision doctors
through November 30, 2001) for the net liabilities of ClearVision. The
acquisition resulted in $13.1 million of goodwill, which includes $2.3 million
of goodwill related to shares held in escrow pending the resolution of
contingencies. ClearVision's results of operations are included with the
LaserVision's results of operations for periods subsequent to August 31, 2001.
During the quarter ended October 31, 2001, LaserVision paid approximately $3.2
million to ClearVision vendors to pay the accounts payable liabilities assumed
in the transaction.
Overview
LaserVision expects to continue to fund future operations from cash generated by
operations, vendor financing, the line of credit with LaSalle Bank, the proceeds
from the exercise of options and warrants, and the remaining proceeds from the
public stock offering completed in May 1999. We believe this will be sufficient
to fund our expected cash needs as described below for the next twelve months,
exclusive of any acquisitions.
LaserVision is in compliance with all debt covenants related to its line of
credit with LaSalle Bank.
(B) RESULTS OF OPERATIONS
The following table breaks out revenue by source and includes certain
profitability amounts as a percentage of revenue.
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUE
North American refractive $15,839,000 $17,249,000 $35,183,000 $35,387,000
Other refractive 1,019,000 788,000 1,939,000 1,669,000
Cataract 5,552,000 3,620,000 10,599,000 6,838,000
----------- ----------- ----------- -----------
TOTAL REVENUE 22,410,000 21,657,000 47,721,000 43,894,000
Gross profit 4,740,000 6,057,000 13,008,000 13,095,000
% of total revenue 21% 28% 27% 30%
Income (loss) from operations (3,059,000) 465,000 (2,584,000) 1,631,000
% of total revenue (14%) 2% (5%) 4%
Net income (loss) before taxes (3,611,000) 719,000 (3,202,000) 2,582,000
% of total revenue (16%) 3% (7%) 6%
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Refractive and cataract revenue represents the income received for access to
LaserVision's refractive lasers and cataract equipment and company-owned
facilities. In most refractive locations where LaserVision provides laser
access, the patient pays LaserVision's customer, usually an ophthalmologist or
ophthalmic practice, directly and LaserVision's customer provides the facility
and pays LaserVision a laser access fee. In five to seven refractive centers
which are company-owned fixed site centers, LaserVision typically collects the
entire fee, including the surgical fees, directly from the patient, provides the
laser and the facility, and pays the surgeon who performs the surgery. For these
locations, LaserVision's revenue and cost of revenues include the amounts
LaserVision pays to surgeons for their professional medical services. In all
locations where LaserVision provides cataract services, LaserVision's customer,
usually a local hospital, pays LaserVision and collects from the patient or a
third party insurer. Thus, for cataract services, there are no amounts for
professional medical services in revenues or cost of revenues.
QUARTER ENDED OCTOBER 31, 2001 COMPARED TO QUARTER ENDED OCTOBER 31, 2000
LaserVision provided excimer laser access to approximately 366 sites throughout
the U.S. during the quarter ended October 31, 2001. We are focused on
establishing long-term relationships with our customers and providing
value-added services through our affiliated practices model.
Revenues
Total revenue increased by 3%, or $0.7 million, to $22.4 million for the three
months ended October 31, 2001 from $21.7 million for the three months ended
October 31, 2000. Revenues for ClearVision for the two months ended October 31,
2001 totaled $1.9 million. In the future, as the operations of ClearVision and
LaserVision are more fully integrated, it will not be practicable to provide
segregated financial information. Total refractive procedures decreased by 8% to
28,115 for the three months ended October 31, 2001 from 30,516 for the three
months ended October 31, 2000.
The increase in revenue was attributable to a $1.9 million increase in cataract
revenue and a $0.2 million increase in other refractive revenue offset by a $1.4
million decrease in North American refractive revenue. The decrease in North
American revenue was attributable to a decrease in the number of procedures
performed by our eye surgeon customers in the U.S. The increase in cataract
revenue was due to acquisitions and an increase in procedure volume.
Cost of Revenues/Gross Profit
Cost of revenues increased by 13%, or $2.1 million, to $17.7 million for the
three months ended October 31, 2001 from $15.6 million for the three months
ended October 31, 2000. This was primarily due to non-cash fixed asset
impairment charges of $1.2 million, increased cataract expenses of $1.2 million,
and increased salaries of $0.7 million, offset by decreased royalty fees of $0.7
million and decreased travel expense of $0.4 million. The fixed asset impairment
charges related to an impairment in the net carrying value of certain unused and
underutilized lasers. The increase in cataract expenses was a result of
increased procedures. The decrease in royalties and travel services was
primarily due to decreased
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refractive procedure volume.
Total gross profit decreased by 22%, or $1.4 million, to $4.7 million for the
three months ended October 31, 2001 from $6.1 million for the three months ended
October 31, 2000. The variable gross profit, excluding depreciation and fixed
asset impairment charges, decreased by 2%, or $0.2 million, to $9.6 million for
the three months ended October 31, 2001 from $9.8 million for the three months
ended October 31, 2000. As a percentage of total revenue, total gross profit
decreased to 21% from 28% for the three months ended October 31, 2001 and 2000,
respectively. Excluding the fixed asset impairment charges, as a percentage of
total revenue, total gross profit decreased to 26% from 28% for the three months
ended October 31, 2001 and 2000, respectively. This decline was primarily due to
a decline in the refractive procedure volume.
Operating Expenses
Selling, general and administrative expenses increased by 39%, or $2.2 million,
to $7.8 million for the three months ended October 31, 2001 from $5.6 million
for the three months ended October 31, 2000. This change was attributable to
increases in general and administrative expenses of $1.7 million and increases
in salaries and related expenses of $0.8 million, partially offset by decreases
in depreciation and amortization of $0.2 million and decreases in selling and
marketing expense of $0.1 million. The $1.7 million increase in general and
administrative expenses was due to an increase in office expenses primarily
related to the ClearVision acquisition and an increase in professional fees.
Also, included in the general and administrative expenses for the quarter ended
October 31, 2000 was a gain of $0.6 million on the sale of a non-current asset.
The decrease in depreciation and amortization expenses was due to the early
adoption of SFAS 142 effective May 1, 2001 which eliminated the requirement to
amortize goodwill but instead requires goodwill to be expensed when impaired.
Income (loss) from Operations
The income (loss) from operations was a loss of $3.1 million for the three
months ended October 31, 2001 compared to income of $0.5 million for the three
months ended October 31, 2000. This was primarily related to decreased North
American refractive profitability as a result of the decline in procedure
volume.
Other Income (Expenses)
Lower interest income and costs of the pending merger with TLC primarily caused
a decrease in other income (expense) to a net $552,000 of expense during the
three months ended October 31, 2001 from a net $254,000 of income during the
three months ended October 31, 2000.
Taxes
Income tax (expense) benefit changed from a tax expense of $270,000 for the
three months ended October 31, 2000 to tax benefit of $1,150,000 for the three
months ended October 31, 2001 reflecting the reduced profitability during the
period.
19
SIX MONTHS ENDED OCTOBER 31, 2001 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 2000
Revenues
Total revenue increased by 9%, or $3.8 million, to $47.7 million for the six
months ended October 31, 2001 from $43.9 million for the six months ended
October 31, 2000. Revenues for ClearVision for the two months ended October 31,
2001 totaled $1.9 million. In the future, as the operations of ClearVision and
LaserVision are more fully integrated, it will not be practicable to provide
segregated financial information. Total refractive procedures decreased by 1% to
62,200 for the six months ended October 31, 2001 from 62,760 for the six months
ended October 31, 2000.
The increase in revenue was attributable to a $3.8 million increase in cataract
revenue and a $0.3 million increase in other refractive revenue, offset by a
$0.2 million decrease in North American refractive revenue. The increase in
cataract revenue was due to acquisitions and an increase in procedure volume.
Cost of Revenues/Gross Profit
Cost of revenues increased by 13%, or $3.9 million, to $34.7 million for the six
months ended October 31, 2001 from $30.8 million for the six months ended
October 31, 2000. This was primarily due to non-cash fixed asset impairment
charges of $1.2 million, an increase of $2.3 million in cataract expenses, and
an increase of $1.2 million in salaries, partially offset by a $1.2 million
decrease in royalty fees paid to laser manufacturers and a decrease of $0.9
million in travel expenses. The fixed asset impairment charges related to an
impairment in the net carrying value of certain unused and underutilized lasers.
The increase in cataract expenses was a result of increased procedures. The
decrease in royalties and travel services was primarily due to decreased
refractive procedure volume.
Total gross profit decreased by 1%, or $0.1 million, to $13.0 million for the
six months ended October 31, 2001 from $13.1 million for the six months ended
October 31, 2000. The variable gross profit, excluding depreciation and fixed
asset impairment charges, increased by 1%, or $0.2 million, to $20.3 million for
the three months ended October 31, 2001 from $20.1 million for the three months
ended October 31, 2000. As a percentage of total revenue, total gross profit
decreased to 27% from 30% for the three months ended October 31, 2001 and 2000,
respectively. This decline was primarily due to a decline in the refractive
procedure volume and a decline in the procedures per laser.
Operating Expenses
Selling, general and administrative expenses increased by 36%, or $4.1 million,
to $15.6 million for the six months ended October 31, 2001 from $11.5 million
for the six months ended October 31, 2000. The increase was attributable to
increased general and administrative expenses of $2.5 million, salaries and
related expenses of $1.5 million, increased selling and marketing expenses of
$0.6 million and decreased depreciation and amortization of $0.4 million. The
$2.5 million increase in general and administrative expenses was due to a $0.4
million increase in professional fees and a $0.7 million increase in office
expenses. Also, included in general and administrative expenses for the six
months ended October 31, 2000 was a gain of $0.6 million on the sale of a
non-current asset. The decrease in depreciation and amortization expenses was
due to the early adoption of SFAS 142 effective May 1, 2001 which
20
eliminated the requirement to amortize goodwill but instead requires goodwill to
be expensed when impaired.
Income from Operations
The income (loss) from operations decreased by $4.2 million to a loss of $2.6
million for the six months ended October 31, 2001 from income of $1.6 million
for the six months ended October 31, 2000. This was primarily related to
decreased North American refractive profitability.
Other Income (Expenses)
A one-time gain of $595,000 relative to the sale of an investment in common
equity securities increased other income during the six months ended October 31,
2000. Excluding this one-time event, lower interest income and the costs of the
pending merger primarily caused a $974,000 decrease in other income (expense) to
a net $618,000 of expense during the six months ended October 31, 2001 from a
net $356,000 of income during the six months ended October 31, 2000.
Taxes
Income tax (expense) benefit changed from a tax expense of $978,000 for the six
months ended October 31, 2000 to tax benefit of $994,000 for the six months
ended October 31, 2001 reflecting the reduced profitability during the period.
21
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material change in the status of any litigation from that
reported in the Form 10-Q for the period ended July 31, 2001, nor has any other
material litigation been initiated.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K during the period covered by this report:
On August 16, 2001 LaserVision filed a Form 8-K announcing the planned
acquisition of certain assets and liabilities of ClearVision Laser Centers, Inc.
On August 31, 2001 LaserVision filed a Form 8-K announcing the planned
merger with TLC Laser Eye Centers, Inc.
On September 7, 2001 LaserVision filed a Form 8-K announcing that the
acquisition of certain assets and liabilities of ClearVision Laser Centers, Inc.
was completed.
On October 11, 2001 LaserVision filed an amendment on Form 8-K/A including
additional financial information with respect to the acquisition of ClearVision
Laser Centers, Inc.
22
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASER VISION CENTERS, INC.
\s\John J. Klobnak December 17, 2001
- ------------------------------------- -----------------------
John J. Klobnak Date
Chairman of the Board and Chief Executive Officer
\s\B. Charles Bono, III December 17, 2001
- ------------------------------------- -----------------------
B. Charles Bono Date
Chief Financial Officer and
Principal Accounting Officer
23