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
JANUARY 31, 2002
Commission file number 1-10629
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LASER VISION CENTERS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1530063
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification 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 March 2, 2002 - 27,891,234 shares
LASER VISION CENTERS, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED JANUARY 31, 2002
INDEX
PART OR ITEM PAGE
- ------------ ------
Part I. FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet - January 31, 2002 and April 30, 2001............ 3-4
Consolidated Statement of Operations - Three months and
nine months ended January 31, 2002 and 2001................................. 5
Consolidated Statement of Cash Flow - Nine months
ended January 31, 2002 and 2001............................................. 6-7
Consolidated Statement of Changes in Stockholders' Equity -
Nine months ended January 31, 2002.......................................... 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
Signatures........................................................................... 22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JANUARY 31, April 30,
2002 2001
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 15,331,000 $ 15,726,000
Short-term investments 2,103,000 9,037,000
Accounts receivable, net 10,402,000 11,038,000
Inventory 3,564,000 3,276,000
Deferred tax asset 2,376,000 3,250,000
Prepaid expenses and
other current assets 1,668,000 1,614,000
------------- -------------
Total Current Assets 35,444,000 43,941,000
EQUIPMENT
Laser equipment 46,368,000 42,737,000
Medical equipment 12,176,000 9,589,000
Mobile equipment 14,943,000 13,126,000
Furniture and fixtures 5,101,000 4,272,000
Accumulated depreciation (40,919,000) (32,689,000)
------------- -------------
Total Equipment, Net 37,669,000 37,035,000
OTHER ASSETS
Deferred tax asset 9,315,000 6,960,000
Goodwill, net 37,526,000 21,433,000
Receivable from minority interests, net -- 319,000
Deferred contract rights and other, net 11,964,000 12,266,000
Rent deposits and other, net 524,000 438,000
------------- -------------
Total Other Assets 59,329,000 41,416,000
------------- -------------
Total Assets $ 132,442,000 $ 122,392,000
============= =============
See notes to interim consolidated financial statements.
3
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JANUARY 31, April 30,
2002 2001
------------- -------------
CURRENT LIABILITIES
Current portion of notes payable $ 7,590,000 $ 5,537,000
Current portion of capitalized
lease obligations 1,883,000 1,582,000
Accounts payable 6,879,000 5,407,000
Accrued compensation 1,223,000 1,652,000
Other accrued liabilities 7,468,000 3,867,000
------------- -------------
Total Current Liabilities 25,043,000 18,045,000
NON-CURRENT LIABILITIES
Line of credit 5,503,000 4,031,000
Notes payable 1,078,000 2,670,000
Capitalized lease obligations 2,693,000 3,662,000
------------- -------------
Total Non-Current Liabilities 9,274,000 10,363,000
MINORITY INTERESTS 1,128,000 1,030,000
COMMITMENTS AND CONTINGENCIES (NOTE 6, 8 AND 9)
STOCKHOLDERS' EQUITY
Common stock, par value of $.01 per share, 50,000,000 shares
authorized; 28,019,450 and 25,890,365 shares issued
and outstanding, 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 (249,000) (355,000)
Accumulated deficit (21,724,000) (18,993,000)
------------- -------------
Total Stockholders' Equity 96,997,000 92,954,000
------------- -------------
Total Liabilities and Stockholders' Equity $ 132,442,000 $ 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 Nine Month Period
Ended January 31, Ended January 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
REVENUES $ 25,207,000 $ 25,323,000 $ 72,928,000 $ 69,217,000
COST OF REVENUES
Royalty fees and professional
medical services 5,649,000 6,004,000 15,309,000 16,725,000
Depreciation and amortization 3,740,000 3,915,000 11,028,000 10,903,000
Cost of revenues, other 8,190,000 7,066,000 24,787,000 20,156,000
Fixed asset impairment charges (Note 7) -- -- 1,168,000 --
------------ ------------ ------------ ------------
GROSS PROFIT 7,628,000 8,338,000 20,636,000 21,433,000
Selling, general and administrative expenses 7,766,000 9,541,000 23,358,000 21,005,000
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (138,000) (1,203,000) (2,722,000) 428,000
Other income (expenses)
Minority interests in net income (loss), net (394,000) (94,000) (607,000) (574,000)
Pending merger costs (Note 2) (148,000) -- (561,000) --
Interest and other income 151,000 467,000 595,000 1,861,000
Gain on sale of equity investment -- -- -- 595,000
Interest and other expense (208,000) (256,000) (644,000) (814,000)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES (737,000) (1,086,000) (3,939,000) 1,496,000
Income tax benefit (expense) 190,000 33,000 1,184,000 (945,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) (547,000) (1,053,000) (2,755,000) 551,000
Deemed preferred dividends -- (50,000) -- (159,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (547,000) $ (1,103,000) $ (2,755,000) $ 392,000
============ ============ ============ ============
Net Income (Loss) per Share - Basic $ (0.02) $ (0.05) $ (0.10) $ 0.02
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - DILUTED $ (0.02) $ (0.05) $ (0.10) $ 0.02
============ ============ ============ ============
Weighted average number of
common shares outstanding - basic 27,124,000 23,484,000 26,437,000 23,870,000
============ ============ ============ ============
Weighted average number of
common shares outstanding - diluted 27,124,000 23,484,000 26,437,000 24,049,000
============ ============ ============ ============
See notes to interim consolidated financial statements.
5
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
Nine Month Period
Ended January 31,
-------------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (2,755,000) $ 551,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 11,582,000 12,130,000
Fixed asset impairment 1,168,000
Deferred income taxes (1,481,000) 841,000
Compensation paid in common stock,
options or warrants 185,000 227,000
Minority interest in net income of subsidiary 607,000 574,000
Changes in assets and liabilities, net of effect
of ClearVision acquisition:
Decrease (increase) in accounts receivable 762,000 (666,000)
Increase in inventory (34,000) (717,000)
Decrease (increase) in prepaid expenses
and other current assets 175,000 (966,000)
(Decrease) increase in accounts payable (1,775,000) 1,533,000
Decrease in accrued liabilities (1,315,000) (3,656,000)
------------ ------------
Net cash provided by operating activities 7,119,000 9,851,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (1,000,000) (58,683,000)
Sale of short-term investments 7,934,000 80,444,000
Sale of investment in common equity securities -- 2,494,000
Acquisition of equipment (2,797,000) (11,900,000)
Contributions from minority interests 179,000 40,000
Acquisition of deferred contract rights (1,785,000) --
Business acquisitions and partnership investments,
net of cash acquired, and other (5,942,000) (19,018,000)
------------ ------------
Net cash used in investing activities (3,411,000) (6,623,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock -- (2,994,000)
Proceeds from employee stock purchase plan 130,000 203,000
Principal payments under capitalized
lease obligations and notes payable (5,336,000) (5,861,000)
Proceeds from line of credit 1,472,000 2,000,000
Proceeds paid to minority shareholders (369,000) (859,000)
------------ ------------
Net cash used in financing activities (4,103,000) (7,511,000)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (395,000) (4,283,000)
Cash and cash equivalents at beginning of period 15,726,000 17,702,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,331,000 $ 13,419,000
============ ============
See notes to interim consolidated financial statements.
6
LASER VISION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
Nine Month Period
Ended January 31,
--------------------------
2002 2001
---------- ----------
Non-cash investing and financing:
Capital lease obligations and notes payable
related to laser and equipment purchases $3,772,000 $4,195,000
Accrued earnout related to cataract segment $1,872,000
Conversion of preferred stock and
deemed preferred dividends to common stock -- 1,710,000
Deemed preferred dividends -- 159,000
On August 31, 2001, LaserVision acquired certain assets and liabilities of
ClearVision Laser Centers, Inc. ("ClearVision") 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
============
See notes to interim consolidated financial statements.
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 106,000 24,000 130,000
Net loss for the
nine month period
ended January 31, 2002 (2,755,000) (2,755,000)
---------- ----------- ------------ ---------- ---------- ------------ -----------
Balance-January 31, 2002 28,019,450 $ 280,000 $117,546,000 $ (249,000) $1,144,000 $(21,724,000) $96,997,000
========== =========== ============ ========== ========== ============ ===========
See notes to interim consolidated financial statements.
8
LASER VISION CENTERS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
(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 January 31, 2002, and for the three and nine month periods
ended January 31, 2002 and 2001, 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 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 April
30, 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 $561,000 of legal, accounting and
investment banking costs related to the TLC transaction and incurred
through January 31, 2002 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 nine-month periods ended January 31, 2002 excludes the effects
of outstanding warrants and options
9
because they are anti-dilutive. As of February 1, 2002, warrants and
options to purchase 7.7 million shares were outstanding with an average
exercise price of approximately $7.65 each, including warrants and options
to purchase 1.3 million shares with exercise prices below $3.00 per share
and an average exercise price of approximately $1.94 each. Diluted per
share calculations follow:
Three Month Period Nine Month Period
Ended January 31, Ended January 31,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net income (loss) $ (547,000) $ (1,053,000) $ (2,755,000) $ 551,000
Deemed preferred dividends -- (50,000) -- (159,000)
------------ ------------ ------------ ------------
Net income (loss) applicable to
common stockholders $ (547,000) $ (1,103,000) $ (2,755,000) $ 392,000
Average number of common
shares outstanding 27,874,000 23,484,000 26,854,000 23,870,000
Less average number of escrowed
common shares outstanding (750,000) -- (417,000) --
------------ ------------ ------------ ------------
Weighted average number of
common shares outstanding-basic 27,124,000 23,484,000 26,437,000 23,870,000
Dilutive securities
Warrants and options -- -- -- 179,000
------------ ------------ ------------ ------------
Weighted average number of
common shares outstanding-diluted 27,124,000 23,484,000 26,437,000 24,049,000
Net income (loss) per share - diluted $ (0.02) $ (0.05) $ (0.10) $ 0.02
4. The table below presents information about net income (loss) and segment
assets used by the chief operating decision maker of LaserVision for the
periods ended January 31, 2002 and 2001:
North American Other
Refractive Refractive Cataract Reconciling TOTAL
-------------- ----------- ----------- ----------- ------------
THREE MONTHS ENDED JANUARY 31, 2002
REVENUE $ 19,659,000 $ 810,000 $ 4,738,000 $ -- $ 25,207,000
Interest and other income 151,000 151,000
Interest and other expense (208,000) (208,000)
Income tax benefit 190,000 190,000
NET INCOME (LOSS) 667,000 46,000 477,000 (1,737,000) (547,000)
10
North American Other
Refractive Refractive Cataract Reconciling TOTAL
-------------- ----------- ----------- ----------- ------------
Three months ended January 31, 2001
Revenue 20,787,000 $ 643,000 $ 3,893,000 -- 25,323,000
Interest and other income 467,000 467,000
Interest and other expense (256,000) (256,000)
Income tax benefit 33,000 33,000
Net income (loss) 1,721,000 22,000 118,000 (2,914,000) (1,053,000)
NINE MONTHS ENDED JANUARY 31, 2002
REVENUE 54,842,000 2,749,000 15,337,000 -- 72,928,000
Interest and other income 595,000 595,000
Interest and other expense (644,000) (644,000)
Income tax benefit 1,184,000 1,184,000
NET INCOME (LOSS) $ (591,000) $ 351,000 $ 2,280,000 $(4,795,000) $ (2,755,000)
Nine months ended January 31, 2001
Revenue 56,174,000 2,312,000 10,731,000 -- 69,217,000
Interest and other income 1,861,000 1,861,000
Interest and other expense (814,000) (814,000)
Income tax expense (945,000) (945,000)
Net income $ 3,488,000 $ 233,000 $ 890,000 $(4,060,000) $ 551,000
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
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.
11
LaserVision did not amortize goodwill during the nine months ended January
31, 2002. A reconciliation of reported net income (loss) to adjusted net
income (loss) and earnings (loss) per share reflecting retroactive adoption
of SFAS 142 in the three and nine month periods ended January 31, 2001 is
provided below.
Three months ended Nine months ended
January 31, January 31,
------------------------- --------------------------
2002 2001 2002 2001
--------- ----------- ----------- ----------
Reported net income (loss) applicable
to common stockholders $(547,000) $(1,103,000) $(2,755,000) $ 392,000
Add back goodwill amortization,
net of taxes -- 291,000 -- 756,000
--------- ----------- ----------- ----------
Adjusted net income (loss) $(547,000) $ (812,000) $(2,755,000) $1,148,000
========= =========== =========== ==========
Basic earnings (loss) per share:
Reported earnings (loss) per share $ (0.02) $ (0.05) $ (0.10) $ 0.02
Earnings per share -
goodwill amortization -- 0.02 -- 0.03
--------- ----------- ----------- ----------
Adjusted earnings (loss) per share $ (0.02) $ (0.03) $ (0.10) $ 0.05
========= =========== =========== ==========
Diluted earnings per share:
Reported earnings (loss) per share $ (0.02) $ (0.05) $ (0.10) $ 0.02
Earnings per share -
goodwill amortization -- 0.02 -- 0.03
--------- ----------- ----------- ----------
Adjusted earnings (loss) per share $ (0.02) $ (0.03) $ (0.10) $ 0.05
========= =========== =========== ==========
6. On August 31, 2001, LaserVision acquired certain assets and liabilities of
ClearVision, a privately held company in the refractive laser access
business based in Lakewood, Colorado. 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 adjustment provisions with respect to the
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 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
12
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:
Nine months ended
January 31, 2002
-----------------
Revenue $ 79,168,000
Net loss (3,302,000)
Loss per share -
basic and diluted $(0.12)
Pro forma revenue and net loss for the nine month period ended January 31,
2002 includes the activity of ClearVision for the four month period ended
August 31, 2001. Pro forma adjustments were made to depreciation, interest
and tax expense totaling $1,362,000 for the nine month period ended January
31, 2002 were made.
7. In accordance with 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 January 31,
2002, and are recorded at an estimated fair market value of $143,000.
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 date
of receipt are both determinable. We expect to record these payments during
the first half of calendar 2002.
9. LaserVision provides access to excimer lasers and related services to eye
doctors and provides a variety of other services to eye doctors in
connection with eye surgery procedures. Under LaserVision's laser access
contracts with individual eye doctors, LaserVision may provide eye surgeons
with the services of a laser operator/technician, laser maintenance and
other value-
13
added services. The laws of various states in which LaserVision operates
typically exempt from sales and use taxation activities which constitute a
service. LaserVision has historically taken the position that, among other
things, services which we provide to the eye doctor are integral to the
surgical procedures provided by the eye doctor and, therefore, constitute a
service exempt from sales and use taxation.
Of the 48 states in which LaserVision conducts operations, LaserVision is
aware of a total of six states which have asserted that its laser access
arrangements with eye doctors do not constitute a service exempt from sales
and use taxation. Tax authorities in these states have indicated that they
consider the substance of the transaction between the eye doctor and
LaserVision to be the eye doctor's access to the laser, not the other
services provided by LaserVision. As such, they have indicated that they
consider the arrangement to be a taxable lease or rental of equipment
rather than an exempt service. One of these states performed an initial
review and determined that no further action or assertion of tax was
necessary. Three other states have assessed sales and use taxes on
LaserVision's customers, but have not assessed any taxes on LaserVision.
Tax authorities in the remaining two states have contacted LaserVision and
issued proposed adjustments for the period from 1995 through 2000 in the
aggregate amount of approximately $1.3 million. LaserVision has objected to
the proposed assessments and is engaged in discussions with the respective
state tax authorities. In addition to the six states listed above, tax
authorities in one other state have contacted LaserVision and have
scheduled a sales and use tax audit during the quarter ended April 30,
2002. LaserVision cannot yet predict the outcome of these assessments or
similar actions, if any, which may be undertaken by other state tax
authorities.
14
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 the
various risks and uncertainties disclosed herein and in LaserVision's Annual
Report on Form 10-K for the year ended April 30, 2001 and in its definitive
proxy statement with respect LaserVision's proposed merger with TLC Laser Eye
Centers, Inc., 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 nine-month periods ended January 31,
2002 and 2001. This discussion should be read in conjunction with the related
consolidated financial statements and notes to the consolidated financial
statements.
(A) LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended January 31, 2002, cash and cash equivalents
decreased 3%, or $0.4 million, to $15.3 million at January 31, 2002 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 January 31, 2002 from $9.0 million at
April 30, 2001. The ratio of current assets to current liabilities at January
31, 2001 was 1.42 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 $7.1
million for the nine months ended January 31, 2002 from $9.9 million for the
nine months ended January 31, 2001. The $2.8 million decrease in cash provided
by operating activities is primarily related to reduced North American
refractive profitability. The cash flows provided by operating activities during
the nine months ended January 31, 2002 primarily represented the net loss in
this period, offset by depreciation and amortization, the non-cash fixed asset
impairment, and a decrease in accounts receivable, less increases in deferred
taxes and decreases in current liabilities. The cash flows provided by operating
activities during the nine months ended January 31, 2001 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 and
the increase in accounts payable, less the decrease in accrued liabilities, the
increase in prepaid expenses and other current assets, the increase in accounts
receivable and the increase in inventory.
Cash Flows from Investing Activities
Net cash used for investing activities decreased by $3.2 million to $3.4 million
for the nine months ended January 31, 2002 from $6.6 million for the nine months
ended January 31, 2001. Cash used for investing during the nine months ended
January 31, 2002 was used to acquire ClearVision, acquire
15
deferred contract rights and acquire equipment partially offset by the net sale
of short-term investments. Cash used for investing during the nine months ended
January 31, 2001 was used to acquire Southeast Medical, OR Providers, Valley
Laser Eye Center, 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 $3.4 million to $4.1 million
for the nine months ended January 31, 2002 from $7.5 million for the nine months
ended January 31, 2001. Cash used in financing activities during the nine months
ended January 31, 2002 was primarily used to make principal payments under
capitalized lease obligations and notes payable offset by proceeds from the line
of credit. Cash used in financing activities during the nine months ended
January 31, 2001 was primarily used to purchase 1,157,443 shares of treasury
stock, make principal payments under capitalized lease obligations and notes
payable and to pay proceeds to minority shareholders, partially offset by
proceeds from the line of credit.
Income Taxes
During the fourth quarter of fiscal 1999 LaserVision began recognizing deferred
tax assets related to net operating loss carryforwards. Based on expected future
operating plans, at January 31, 2002, 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.
Merger and Acquisition
On August 27, 2001, LaserVision announced that it had entered into an Agreement
and Plan of Merger with TLC which, subject to stockholder 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 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 during April 2002. TLC is a Toronto-based operator of refractive
laser centers in the U.S. and Canada and owns other smaller medical businesses.
16
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, its 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
operating results as a percentage of revenue.
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------------ -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ -----------
REVENUE
North American refractive $ 19,659,000 $ 20,787,000 $ 54,842,000 $56,174,000
Other refractive 810,000 643,000 2,749,000 2,312,000
Cataract 4,738,000 3,893,000 15,337,000 10,731,000
------------ ------------ ------------ -----------
TOTAL REVENUE 25,207,000 25,323,000 72,928,000 69,217,000
Gross profit 7,628,000 8,338,000 20,636,000 21,433,000
% of total revenue 30% 33% 28% 31%
Income (loss) from operations (138,000) (1,203,000) (2,722,000) 428,000
% of total revenue (1%) (5%) (4%) 1%
Net income (loss) before taxes (737,000) (1,086,000) (3,939,000) 1,496,000
% of total revenue (3%) (4%) (5%) 2%
Refractive and cataract revenue represents the income received for access to
LaserVision's refractive
17
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 JANUARY 31, 2002 COMPARED TO QUARTER ENDED JANUARY 31, 2001
LaserVision provided excimer laser access to approximately 350 sites throughout
the U.S. during the quarter ended January 31, 2002. We are focused on
establishing long-term relationships with our customers and providing
value-added services through our affiliated practices models.
Revenues
Total revenue decreased by less than 1%, or $0.1 million, to $25.2 million for
the three months ended January 31, 2002 from $25.3 million for the three months
ended January 31, 2001. Total refractive procedures decreased by 4% to 35,504
for the three months ended January 31, 2002 from 37,031 for the three months
ended January 31, 2001.
The decrease in revenue was attributable to a $1.1 million decrease in North
American refractive revenue, partially offset by a $0.8 million increase in
cataract revenue and a $0.2 increase in other 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 the acquisitions which occurred during the prior
year that were not completed for the entire quarter ended January 31, 2001 and
an increase in procedure volume.
Cost of Revenues/Gross Profit
Cost of revenues increased by 3%, or $0.6 million, to $17.6 million for the
three months ended January 31, 2002 from $17.0 million for the three months
ended Janaury 31, 2001. This was primarily due to an increase of $0.6 million in
field operations salaries and an increase of $0.7 million of costs related to
the cataract business offset by a $0.4 million decrease in field operations
travel expenses and a decrease of $0.3 in royalty fees.
Total gross profit decreased by 9%, or $0.7 million, to $7.6 million for the
three months ended January 31, 2002 from $8.3 million for the three months ended
January 31, 2001. The variable gross profit, excluding depreciation, decreased
by 7%, or $0.9 million, to $11.4 million for the three months ended January 31,
2002 from $12.3 million for the three months ended January 31, 2001. As a
percentage of total revenue, total gross profit decreased to 30% from 33% for
the three months ended January 31, 2002
18
and 2001, respectively, due to decreased refractive procedure volume.
Operating Expenses
Selling, general and administrative expenses decreased by 19%, or $1.7 million,
to $7.8 million for the three months ended January 31, 2002 from $9.5 million
for the three months ended January 31, 2001. This was attributable to $1.95
million of expenses related to a previously reported settlement with the FDA
recorded during the quarter ended January 31, 2001, decreases in selling and
marketing expenses of $0.4 million, decreases in salaries and related expenses
of $0.1 million, and decreases in depreciation and amortization of $0.2 million,
offset by increases in general and administrative expenses of $1.0 million. 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 loss from operations decreased by $1.1 million to $0.1 million for the three
months ended January 31, 2002 from $1.2 million for the three months ended
January 31, 2001. Excluding the FDA settlement, the income (loss) from
operations changed from income of $0.7 million for the three months ended
January 31, 2001 to a loss from operations of $0.1 million. This was primarily
due to decreased North American profitability on lower procedure volumes.
Other Income (Expenses)
Lower interest income, higher minority interests in net income (loss), net, and
costs of the pending merger with TLC primarily caused a $716,000 decrease in
other income (expense) to a net $599,000 of expense during the three months
ended January 31, 2002 from a net $117,000 of income during the three months
ended January 31, 2001.
Taxes
Income tax benefit increased from $33,000 for the three months ended January 31,
2001 to $190,000 for the three months ended January 31, 2002 as a result of the
taxable loss for the three months ended January 31, 2002.
NINE MONTHS ENDED JANUARY 31, 2002 COMPARED TO NINE MONTHS ENDED JANUARY 31,
2001
Revenues
Total revenue increased by 5%, or $3.7 million, to $72.9 million for the nine
months ended January 31, 2002 from $69.2 million for the nine months ended
January 31, 2001. Total refractive procedures decreased by 2% to 97,708 for the
nine months ended January 31, 2002 from 99,790 for the nine months ended January
31, 2001.
The increase in revenue was attributable to a $4.6 million increase in cataract
revenue and a $0.4 million
19
increase in other refractive revenue partially offset by a $1.3 million decrease
in North American refractive revenue. The increase in cataract revenue is due to
acquisitions in the prior year and an increase in procedure volume. The decrease
in North American refractive revenue was due to a decrease in refractive
procedure volume.
Cost of Revenues/Gross Profit
Cost of revenues increased by 9%, or $4.5 million, to $52.3 million for the nine
months ended January 31, 2002 from $47.8 million for the nine months ended
January 31, 2001. This was primarily due to an increase of $1.8 million in field
operations salaries, an increase of $3.0 million of costs related to the
cataract business, an increase of $0.6 million in miscellaneous costs of
revenue, and the $1.2 million fixed asset impairment, offset by a $1.3 million
decrease in field operations travel and a $1.4 million decrease in royalty fees
paid to laser manufacturers. The increase in field operations salaries is due to
the ClearVision acquisition, the increase in costs related to cataract business
is due to the increased cataract procedures, and the decreased royalty expense
is due to the decreased refractive procedures, and laser lease arrangements
which do not include a separate royalty fee.
Total gross profit decreased by 4%, or $0.8 million to $20.6 million for the
nine months ended January 31, 2002 from $21.4 million for the nine months ended
January 31, 2001. The variable gross profit, excluding depreciation, increased
by 2%, or $0.5 million, to $32.8 million for the nine months ended January 31,
2002 from $32.3 million for the nine months ended January 31, 2001. As a
percentage of total revenue, total gross profit decreased to 28% from 31% for
the nine months ended January 31, 2002 and 2001, respectively, due to decreased
refractive procedure volume.
Operating Expenses
Selling, general and administrative expenses increased by 11%, or $2.4 million,
to $23.4 million for the nine months ended January 31, 2002 from $21.0 million
for the nine months ended January 31, 2001. The increase was attributed to
increased salaries and related expenses of $1.3 million, increased selling and
marketing expenses of $0.2 million, increased general and administrative
expenses of $3.5 million offset by the $2.1 million of expenses related to a
previously reported settlement with the FDA recorded during the nine months
ended January 31, 2001 and decreased depreciation and amortization of $0.7
million. The $3.5 million increase in general and administrative expenses was
due to a $0.6 million increase in professional fees, a $0.8 million increase in
taxes and insurance and a $1.2 million increase in office expenses. The increase
in salaries and related expenses is due to increased employees as a result of
the ClearVision acquisition. 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 decreased by $3.1 million to a $2.7 million
loss from operations for the nine months ended January 31, 2002 from income from
operations of $0.4 million for the nine months ended January 31, 2001. This was
primarily related to decreased North American Refractive profitability.
20
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 nine months ended January
31, 2001. Excluding this one-time event, costs of the pending merger and lower
interest income primarily caused a $1.7 million decrease in other income to a
net $1.2 million of expense during the nine months ended January 31, 2002 from a
net $0.5 million of income during the nine months ended January 31, 2001.
Taxes
Income tax (expense) benefit changed from a tax expense of $945,000 for the nine
months ended January 31, 2001 to tax benefit of $1.2 million for the nine months
ended January 31, 2002 as a result of the taxable loss for the nine months ended
January 31, 2002.
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 October 31, 2002, 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 December 27, 2001, the Registrant filed a report on Form 8-K regarding
the extension of the termination date for the merger with TLC Laser Eye Centers
from December 31, 2001 to March 31, 2002.
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 March 18, 2002
- ---------------------------- -------------------
John J. Klobnak Date
Chairman of the Board and
Chief Executive Officer
/s/ B. Charles Bono, III March 18, 2002
- ---------------------------- -------------------
B. Charles Bono Date
Chief Financial Officer and
Principal Accounting Officer
22