UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
COMMISSION FILE NUMBER: 0-29302
TLC VISION CORPORATION
(Exact name of registrant as specified in its charter)
NEW BRUNSWICK, CANADA 980151150
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5280 SOLAR DRIVE, SUITE 300 L4W 5M8
MISSISSAUGA, ONTARIO (Zip Code)
(Address of principal executive offices)
Registrant's telephone, including area code: (905) 602-2020
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 and 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.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[X] Yes [ ] No
As of August 8, 2005 there were 70,479,721 of the registrant's Common
Shares outstanding.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Statements of Operations for the three and
six months ended June 30, 2005 and 2004
Consolidated Balance Sheets as of June 30, 2005 and
December 31, 2004
Consolidated Statements of Cash Flows for the six months
ended June 30, 2005 and 2004
Consolidated Statement of Stockholders' Equity for the six
months ended June 30, 2005 Notes to Interim Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED)
(In thousands except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues:
Refractive:
Centers ........................................ $ 38,010 $ 36,374 $ 81,775 $ 75,212
Access ......................................... 9,828 10,544 21,239 22,593
Other healthcare services ........................... 18,982 17,743 34,855 32,031
--------- --------- --------- ---------
Total revenues ........................................ 66,820 64,661 137,869 129,836
--------- --------- --------- ---------
Cost of revenues:
Refractive:
Centers ........................................ 25,921 24,645 54,450 50,797
Access ......................................... 7,200 7,135 14,610 15,307
Other healthcare services ........................... 11,207 10,574 21,358 19,712
--------- --------- --------- ---------
Total cost of revenues ................................ 44,328 42,354 90,418 85,816
--------- --------- --------- ---------
Gross profit ........................................ 22,492 22,307 47,451 44,020
--------- --------- --------- ---------
General and administrative ............................ 9,227 6,115 18,287 12,775
Marketing and sales ................................... 5,843 4,720 10,840 8,855
Research and development, clinical and
regulatory .......................................... 1,310 350 2,654 724
Amortization of intangibles ........................... 1,032 1,057 2,043 2,069
Other ................................................. (363) (1,184) (1,033) (1,732)
Restructuring, severance and other charges ............ - 2,755 - 2,755
--------- --------- --------- ---------
17,049 13,813 32,791 25,446
--------- --------- --------- ---------
Operating income ...................................... 5,443 8,494 14,660 18,574
Interest income ....................................... 1,219 473 2,291 951
Interest expense ...................................... (424) (745) (882) (1,626)
Minority interests .................................... (1,105) (2,454) (1,791) (4,328)
Earnings from equity investments ...................... 680 613 1,339 1,012
--------- --------- --------- ---------
Income before income taxes ............................ 5,813 6,381 15,617 14,583
Income tax expense .................................... (302) (142) (500) (292)
--------- --------- --------- ---------
Net income ............................................ $ 5,511 $ 6,239 $ 15,117 $ 14,291
--------- --------- --------- ---------
Earnings per share - basic ............................ $ 0.08 $ 0.09 $ 0.22 $ 0.21
========= ========= ========= =========
Earnings per share - diluted .......................... $ 0.08 $ 0.09 $ 0.21 $ 0.20
========= ========= ========= =========
Weighted average number of common shares
outstanding - basic ................................. 70,326 68,585 70,182 67,759
Weighted average number of common shares
outstanding - diluted ............................... 72,071 71,249 72,057 70,341
See the accompanying notes to unaudited interim consolidated financial
statements.
3
TLC VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2005 2004
----------- ------------
ASSETS
Current assets
Cash and cash equivalents ........................... $ 63,939 $ 33,435
Short-term investments .............................. 77,660 111,015
Accounts receivable ................................. 19,136 17,443
Prepaids and other current assets ................... 16,865 13,821
----------- ------------
Total current assets ............................... 177,600 175,714
Restricted cash ....................................... 907 932
Investments and other assets .......................... 12,197 10,482
Goodwill .............................................. 57,408 53,774
Intangibles, net ...................................... 17,758 18,140
Fixed assets, net ..................................... 46,184 46,199
----------- ------------
Total assets .......................................... $ 312,054 $ 305,241
=========== ============
LIABILITIES
Current liabilities
Accounts payable .................................... $ 9,139 $ 8,716
Accrued liabilities ................................. 21,837 27,139
Current portion of long-term debt ................... 4,395 8,664
----------- ------------
Total current liabilities ............................. 35,371 44,519
Other long-term liabilities ........................... 2,919 2,722
Long-term debt, less current maturities ............... 10,995 9,991
Minority interests .................................... 35,432 37,222
----------- ------------
Total liabilities ..................................... 84,717 94,454
STOCKHOLDERS' EQUITY
Capital stock ......................................... 461,184 458,959
Option and warrant equity ............................. 2,080 2,872
Accumulated deficit ................................... (235,927) (251,044)
----------- ------------
Total stockholders' equity ............................ 227,337 210,787
----------- ------------
Total liabilities and stockholders' equity ............ $ 312,054 $ 305,241
=========== ============
See the accompanying notes to unaudited interim consolidated financial
statements.
4
TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (In thousands)
SIX MONTHS
ENDED JUNE 30,
---------------------
2005 2004
-------- --------
OPERATING ACTIVITIES
Net income ....................................................................... $ 15,117 $ 14,291
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization .................................................. 7,988 9,018
Write-offs (reimbursements) of investments in research and development
arrangements ................................................................. (300) 724
Minority interests ............................................................. 1,791 4,328
Earnings from equity investments ............................................... (1,339) (1,012)
Loss (gain) on disposals of fixed assets ....................................... (96) 742
Gain on the sales of subsidiaries .............................................. (319) (1,143)
Non-cash compensation expense .................................................. 206 575
Adjustment to the fair value of investments and long-term receivables .......... - (1,206)
Other .......................................................................... 88 -
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable ............................................................ (2,213) (3,772)
Prepaid expenses and other current assets ...................................... (3,312) (1,469)
Accounts payable and accrued liabilities ....................................... (4,854) (1,696)
-------- --------
Cash from operating activities ................................................... 12,757 19,380
-------- --------
INVESTING ACTIVITIES
Purchases of fixed assets ........................................................ (5,177) (3,761)
Proceeds from sales of fixed assets .............................................. 724 467
Proceeds from divestitures of investments and subsidiaries, net .................. 3,430 (271)
Reimbursements from (investments in) research and development arrangements ....... 300 (724)
Distributions and loan payments received from equity investments ................. 1,387 680
Acquisitions and equity investments .............................................. (8,881) (4,570)
Proceeds from sales of short-term investments .................................... 66,397 1,865
Purchases of short-term investments .............................................. (33,093) (19,415)
Other ............................................................................ (7) 907
-------- --------
Cash from investing activities ................................................... 25,080 (24,822)
-------- --------
FINANCING ACTIVITIES
Restricted cash movement ......................................................... 25 24
Principal payments of debt financing and capital leases .......................... (6,131) (8,305)
Distributions to minority interests .............................................. (3,744) (3,715)
Proceeds from debt financing ..................................................... 1,321 -
Proceeds from issuance of common stock ........................................... 1,089 18,260
Proceeds from issuance of OccuLogix, Inc. common stock ........................... 107 -
-------- --------
Cash from financing activities ................................................... (7,333) 6,264
-------- --------
Net increase in cash and cash equivalents during the period ...................... 30,504 822
Cash and cash equivalents, beginning of period ................................... 33,435 21,580
-------- --------
Cash and cash equivalents, end of period ......................................... $ 63,939 $ 22,402
======== ========
See the accompanying notes to unaudited interim consolidated financial
statements.
5
TLC VISION CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED) (In thousands)
OPTION
COMMON STOCK AND
----------------- WARRANT ACCUMULATED
SHARES AMOUNT EQUITY DEFICIT TOTAL
------ --------- ------- ----------- ----------
Balance December 31, 2004................................ 70,086 $ 458,959 $ 2,872 $ (251,044) $ 210,787
Shares issued as part of the employee
share purchase plan and 401(k) plan................... 27 231 231
Exercises of stock options.............................. 410 1,879 (790) 1,089
Options expired or forfeited............................ 2 (2) -
Changes in OccuLogix, Inc.'s
stockholders' equity.................................. 113 113
Net income and comprehensive
income............................................... 15,117 15,117
------ --------- ------- ----------- ----------
Balance June 30, 2005................................... 70,523 $ 461,184 $ 2,080 $ (235,927) $ 227,337
====== ========= ======= =========== ==========
See the accompanying notes to unaudited interim consolidated financial
statements.
6
TLC VISION CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005 (Unaudited)
(Tabular amounts in thousands, except per share amounts)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The
unaudited interim consolidated financial statements included herein should
be read in conjunction with the Annual Report on Form 10-K for the year
ended December 31, 2004 filed by TLC Vision Corporation (the "Company" or
"TLCVision") with the Securities and Exchange Commission. In the opinion
of management, all normal recurring adjustments and estimates considered
necessary for a fair presentation have been included. The results of
operations for the interim periods are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 2005.
The consolidated financial statements as of December 31, 2004 and
unaudited interim consolidated financial statements for the three and six
months ended June 30, 2005 and 2004 include the accounts and transactions
of the Company and its majority-owned subsidiaries that are not considered
variable interest entities (VIEs) and all VIEs for which the Company is
the primary beneficiary. All significant intercompany accounts and
transactions have been eliminated.
The unaudited interim consolidated financial statements for the three and
six months ended June 30, 2004 include certain reclassifications to
conform with classifications for the three and six months ended June 30,
2005 including (a) reclassifying certain labor costs from "General and
administrative" to "Marketing and sales" as these costs relate to the
marketing and selling efforts of the Company; (b) reclassifying clinical
trial expenses incurred by OccuLogix, Inc. from "General and
administrative" to "Research and development, clinical and regulatory;"
and (c) reclassifying gains and losses from the sales and dispositions of
fixed assets as well as other miscellaneous income and expenses to "Other"
operating expenses (income).
2. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," and its related interpretations. Accordingly, the
Company records expense over the vesting period in an amount equal to the
intrinsic value of the award on the grant date. The Company recorded
variable stock option expense of $15,000 and $334,000 during the three and
six months ended June 30, 2004, respectively, for options repriced in
2002. The following table illustrates the pro forma net income and
earnings per share as if the fair value-based method as set forth under
SFAS No. 123 "Accounting for Stock Based Compensation," applied to all
awards:
7
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2005 2004 2005 2004
-------- -------- -------- --------
Net income as reported ............................................... $ 5,511 $ 6,239 $ 15,117 $ 14,291
Add stock-based employee compensation cost included in net
income ........................................................... - 15 - 334
Add OccuLogix, Inc.'s stock-based employee compensation
cost included in net income, net of
minority interests ............................................... 6 - 6 -
Less stock-based employee compensation cost determined
under fair value based method for all awards ..................... (770) (278) (1,550) (554)
Less OccuLogix, Inc.'s stock-based employee compensation
cost determined under fair value based method for all
awards, net of minority interests ................................ (591) - (818) -
-------- -------- -------- --------
Pro forma net income ................................................. $ 4,156 $ 5,976 $ 12,755 $ 14,071
======== ======== ======== ========
Pro forma earnings per share - basic ................................. $ 0.06 $ 0.09 $ 0.18 $ 0.21
======== ======== ======== ========
Pro forma earnings per share - diluted ............................... $ 0.06 $ 0.08 $ 0.18 $ 0.20
======== ======== ======== ========
For purposes of pro forma disclosures, the estimated fair value of
stock-based compensation cost is amortized using the attribution
method under FASB Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option Award Plans."
3. ACQUISITIONS AND DISPOSITIONS
On March 1, 2005, the Company sold its interest in Aspen Healthcare,
Inc. ("Aspen") to National Surgical Centers, Inc. and recorded a
gain of $0.3 million, which is included in other operating expenses
(income).
The Company's strategy includes periodic acquisitions of or
investments in entities that operate in the refractive, cataract or
eye care markets.
4. EARNINGS PER SHARE
The following table sets forth the computation of diluted earnings
per share:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2005 2004 2005 2004
--------- --------- --------- --------
Net income............................................... $ 5,511 $ 6,239 $ 15,117 $ 14,291
========= ========= ========= ========
Weighted-average shares outstanding - basic.............. 70,326 68,585 70,182 67,759
Dilutive effect of stock options and warrants............ 1,745 2,664 1,875 2,582
--------- --------- --------- --------
Weighted-average shares outstanding - diluted............ 72,071 71,249 72,057 70,341
========= ========= ========= ========
Earnings per share - diluted............................. $ 0.08 $ 0.09 $ 0.21 $ 0.20
========= ========= ========= ========
5. SEGMENT INFORMATION
The Company has three reportable segments: refractive, mobile
cataract and age-related macular degeneration ("AMD"). The
refractive segment provides the majority of the Company's revenue
and consists of providing corrective laser surgery specifically
related to refractive disorders, such as myopia (nearsightedness),
hyperopia (farsightedness) and astigmatism. This segment is
comprised of laser centers and the fixed and mobile access business.
The mobile cataract segment provides surgery specifically for the
treatment of cataracts. The AMD segment includes the Company's
majority interest in OccuLogix, Inc. (formerly Vascular Sciences
Corporation), OccuLogix, LP and RHEO Clinic, Inc. and consists of
pursuing commercial applications of treatments of dry age-related
macular degeneration. Other includes an accumulation of other
healthcare business activities including the management of cataract
and secondary care centers that provide advanced levels of eye care,
network marketing and management to optometrists, and professional
healthcare facility management.
8
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different management and marketing strategies.
The following tables set forth information by segments:
THREE MONTHS ENDED JUNE 30, 2005 MOBILE
(IN THOUSANDS) REFRACTIVE CATARACT AMD OTHER TOTAL
- ------------------------------------------------- ---------- -------- ------- --------- --------
Revenues......................................... $ 47,838 $ 8,158 $ 568 $ 10,256 $ 66,820
Expenses:
Doctors' compensation.......................... 8,141 - 35 2 8,178
Operating...................................... 32,511 6,401 2,644 6,362 47,918
Research and development, clinical and
regulatory................................... - - 1,310 - 1,310
Depreciation expense........................... 2,126 572 13 228 2,939
Amortization of intangibles.................... 788 136 - 108 1,032
---------- -------- ------- --------- --------
43,566 7,109 4,002 6,700 61,377
---------- -------- ------- --------- --------
Income (loss) from operations.................... 4,272 1,049 (3,434) 3,556 5,443
Interest income (expense), net................... 804 (28) 421 (402) 795
Minority interests............................... (681) - 1,411 (1,835) (1,105)
Earnings from equity
investments.................................... 454 - - 226 680
Income taxes..................................... (280) - - (22) (302)
---------- -------- ------- --------- --------
Net income (loss)................................ $ 4,569 $ 1,021 $(1,602) $ 1,523 $ 5,511
========== ======== ======= ========= ========
THREE MONTHS ENDED JUNE 30, 2004 MOBILE
(IN THOUSANDS) REFRACTIVE CATARACT AMD OTHER TOTAL
- ------------------------------------------------- ---------- -------- ------- --------- --------
Revenues......................................... $ 46,918 $ 6,988 $ 62 $ 10,693 $ 64,661
Expenses:
Doctors' compensation.......................... 7,370 - 21 6 7,397
Operating...................................... 29,959 5,555 189 6,707 42,410
Research and development, clinical and
regulatory................................... - - 350 - 350
Depreciation................................... 2,639 550 27 188 3,404
Amortization of intangibles.................... 842 104 - 111 1,057
Adjustment to the fair value of investments
and long-term receivables.................... (1,206) - - - (1,206)
Restructuring, severance and other charges..... 2,755 - - - 2,755
---------- -------- ------- --------- --------
42,359 6,209 587 7,012 56,167
---------- -------- ------- --------- --------
Income from operations........................... 4,559 779 (525) 3,681 8,494
Interest income (expense), net................... 167 (28) - (411) (272)
Minority interests............................... (624) - - (1,830) (2,454)
Earnings from equity
investments.................................... 491 - - 122 613
Income taxes..................................... (41) - - (101) (142)
---------- -------- ------- --------- --------
Net income....................................... $ 4,552 $ 751 $ (525) $ 1,461 $ 6,239
========== ======== ======= ========= ========
9
SIX MONTHS ENDED JUNE 30, 2005 MOBILE
(IN THOUSANDS) REFRACTIVE CATARACT AMD OTHER TOTAL
- ------------------------------------------------- ---------- -------- ------- --------- ---------
Revenues......................................... $ 103,014 $ 14,896 $ 1,000 $ 18,959 $137,869
Expenses:
Doctors' compensation.......................... 17,833 - 81 2 17,916
Operating...................................... 65,108 12,065 5,138 12,340 94,651
Research and development, clinical and
regulatory................................... - - 2,654 - 2,654
Depreciation................................... 4,330 1,106 59 450 5,945
Amortization of intangibles.................... 1,590 237 - 216 2,043
---------- -------- ------- --------- --------
88,861 13,408 7,932 13,008 123,209
---------- -------- --------- --------- --------
Income (loss) from operations.................... 14,153 1,488 (6,932) 5,951 14,660
Interest income (expense), net................... 1,501 (55) 776 (813) 1,409
Minority interests............................... (1,687) - 2,910 (3,014) (1,791)
Earnings from equity investments................. 849 - - 490 1,339
Income taxes..................................... (659) (1) - 160 (500)
---------- -------- ------- --------- --------
Net income (loss)................................ $ 14,157 $ 1,432 $(3,246) $ 2,774 $ 15,117
========== ======== ======= ========= ========
SIX MONTHS ENDED JUNE 30, 2004 MOBILE
(IN THOUSANDS) REFRACTIVE CATARACT AMD OTHER TOTAL
- ------------------------------------------------- ---------- -------- ------- --------- --------
Revenues......................................... $ 97,813 $ 12,980 $ 271 $ 18,772 $129,836
Expenses:
Doctors' compensation.......................... 15,058 - 39 6 15,103
Operating...................................... 61,726 10,642 502 11,998 84,868
Research and development, clinical and
regulatory................................... - - 724 - 724
Depreciation................................... 5,406 1,137 38 368 6,949
Amortization of intangibles.................... 1,640 209 - 220 2,069
Adjustment to the fair value of investments
and long-term receivables.................... (1,206) - - - (1,206)
Restructuring, severance and other charges..... 2,755 - - - 2,755
---------- -------- ------- --------- --------
85,379 11,988 1,303 12,592 111,262
---------- -------- ------- --------- --------
Income from operations........................... 12,434 992 (1,032) 6,180 18,574
Interest income (expense), net................... 9 (51) - (633) (675)
Minority interests............................... (1,370) - - (2,958) (4,328)
Earnings from equity
investments.................................... 890 - - 122 1,012
Income taxes..................................... (114) (1) - (177) (292)
----------- -------- ------- --------- --------
Net income....................................... $ 11,849 $ 940 $(1,032) $ 2,534 $ 14,291
========== ======== ======= ========= ========
6. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash transactions:
SIX MONTHS ENDED JUNE 30,
-------------------------
2005 2004
-------- -------
Capital lease obligations relating to
equipment purchases...................... $ 1,169 $ 959
Option and warrant reduction................ 792 3,600
Shares issued as part of the employee share
purchase plan and 401(k) plan............ 231 357
Cash paid for the following:
SIX MONTHS ENDED JUNE 30,
-------------------------
2005 2004
-------- --------
Interest.................................... $ 1,051 $ 1,364
Income taxes................................ 415 181
10
7. INVESTMENTS AND OTHER ASSETS
As of December 31, 2003, the Company maintained a $1.2 million reserve
against a $2.3 million long-term note receivable from a secondary care
service provider of which the Company owns approximately 25% of the
outstanding common shares. The Company had determined that the ability of
this secondary care service provider to repay this note was in doubt due
to the deteriorating financial condition of the investee. Through the
first six months of 2004, this secondary care provider continued to
improve its profitability and financial position and made all of its
payments to the Company when due. As a result, the Company reevaluated the
collectibility of the note as of June 30, 2004 and recorded an adjustment
to reverse the remaining reserve of $1.2 million, which is included in
other operating expense (income).
8. RESTRUCTURING, SEVERANCE AND OTHER CHARGES
During the three and six months ended June 30, 2004, the Company recorded
a $2.6 million charge for severance payments to two officers under the
terms of employment contracts and a $0.2 million charge related to ongoing
lease payment obligations at previously closed centers. The severance
payments have been substantially paid as of June 30, 2005, while the lease
costs will be paid out over the remaining terms of the leases.
9. RECENTLY ISSUED ACCOUNTING STANDARD
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), "Share-Based Payment"
("Statement 123(R)"), which is a revision of FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("Statement 123"). Statement
123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and amends FASB Statement No. 95, "Statement of Cash Flows."
Generally, the approach in Statement 123(R) is similar to the approach
described in Statement 123. However, Statement 123(R) requires all
share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair
values. Under Statement 123(R), pro forma disclosure is no longer
permitted.
On April 14, 2005, the Securities and Exchange Commission (SEC) announced
that the effective date of Statement 123(R) will be suspended until
January 1, 2006, for calendar year companies. Statement 123(R) permits
companies to adopt its requirements using either a "modified prospective"
method, or a "modified retrospective" method. Under the "modified
prospective" method, compensation cost is recognized in the financial
statements beginning with the effective date, based on the requirements of
Statement 123(R) for all share-based payments granted after that date, and
based on the requirements of Statement 123 for all unvested awards granted
prior to the effective date of Statement 123(R). Under the "modified
retrospective" method, the requirements are the same as under the
"modified prospective" method, but also permits entities to restate
financial statements of previous periods based on pro forma disclosures
made in accordance with Statement 123.
The Company currently utilizes the Black-Scholes option pricing model to
measure the fair value of stock options granted to employees. While
Statement 123(R) permits entities to continue to use such a model, the
standard also permits the use of a "lattice" model. The Company has not
yet determined which model it will use to measure the fair value of
employee stock options upon the adoption of Statement 123(R).
The Company currently expects to adopt Statement 123(R) effective January
1, 2006, however, the Company has not yet determined which of the
aforementioned adoption methods it will use. In addition, the Company has
not yet determined the financial statement impact of adopting Statement
123(R) for 2006.
10. SUBSEQUENT EVENTS
On July 11, 2005, the Company acquired an 82% interest in the assets of
Kremer Laser Eye ("Kremer") for $24.3 million in cash plus the assumption
of certain liabilities. Kremer includes three refractive centers and one
ambulatory surgery center all of which are located in the northeastern
part of the United States.
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q (herein, together with all amendments,
exhibits and schedules hereto, referred to as the "Form 10-Q") contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which
statements can be identified by the use of forward looking terminology, such as
"may," "will," "expect," "anticipate," "estimate," "plans," "intends" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including but not limited to those set forth elsewhere in this Form 10-Q in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in the Company's Annual Report on Form 10-K, as
amended, for the period ended December 31, 2004. Unless the context indicates or
requires otherwise, references in this Form 10-Q to the "Company" or "TLCVision"
shall mean TLC Vision Corporation and its subsidiaries. References to "$" or
"dollars" shall mean U.S. dollars unless otherwise indicated. References to "C$"
shall mean Canadian dollars. References to the "Commission" shall mean the U.S.
Securities and Exchange Commission.
OVERVIEW
TLC Vision Corporation is a diversified eye care services company
dedicated to improving lives through better vision by providing eye doctors with
the tools and technologies they need to deliver high quality patient care. The
majority of the Company's revenues comes from refractive surgery, which involves
using an excimer laser to treat common refractive vision disorders such as
myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. The
Company's business models include arrangements ranging from owning and operating
fixed site centers to providing access to lasers through fixed site and mobile
service relationships. In addition to refractive surgery, the Company is
diversified into other eye care businesses. Through its Midwest Surgical
Services, Inc. ("MSS") subsidiary, the Company furnishes hospitals and
independent surgeons with mobile or fixed site access to cataract surgery
equipment and services. Through its OR Partners and Michigan subsidiaries,
TLCVision develops, manages and has equity participation in single-specialty eye
care ambulatory surgery centers and multi-specialty ambulatory surgery centers.
The Company also owns a 51% majority interest in Vision Source, an optometric
franchise network for independent optometrists. The Company is also a 51%
majority owner of OccuLogix, Inc., which focuses on the treatment of a specific
eye disease known as dry age-related macular degeneration, via rheopheresis, a
process for filtering blood. OccuLogix, Inc. is also a registered filer with the
Commission.
The Company serves surgeons who performed over 147,000 procedures,
including refractive and cataract procedures at the Company's centers or using
the Company's equipment during the six months ended June 30, 2005.
The Company continually assesses patient, optometric and ophthalmic
industry trends and developing strategies to improve laser vision correction
revenues and procedure volumes. Additionally, it is pursuing growth initiatives
and investment opportunities in the refractive market and within its other
healthcare services.
RECENT DEVELOPMENTS
On March 1, 2005, the Company sold its interest in Aspen Healthcare, Inc.
("Aspen") to National Surgical Centers, Inc. and recorded a gain of $0.3
million, which is included in other operating expenses (income).
The Company's strategy includes periodic acquisitions of or investments in
entities that operate in the refractive, cataract or eye care markets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2004
Total revenues for the three months ended June 30, 2005 were $66.8
million, an increase of $2.1 million, or 3% over revenues of $64.7 million for
the three months ended June 30, 2004. This increase was due to a 2% increase in
refractive
12
revenues and a 7% increase in other healthcare services revenues. Approximately
72% of total revenues for the three months ended June 30, 2005 were derived from
refractive services compared to 73% during the three months ended June 30, 2004.
Revenues from the refractive segment for the three months ended June 30,
2005 were $47.8 million, an increase of $0.9 million or 2% from revenues of
$46.9 million for the three months ended June 30, 2004. Refractive revenues
increased as a result of an increased mix of higher priced procedures, primarily
Custom LASIK, Wavelight and Intralase. The increase in refractive revenues was
partially offset by a decrease in refractive procedures. Refractive procedures
for the three months ended June 30, 2005 were approximately 49,900, a decrease
of 1,700 or 3% from refractive procedures of 51,600 for the three months ended
June 30, 2004. Procedures for Laser Eye Care of California ("LECC") were
included in both periods and account for 4,600 procedures for the three months
ended June 30, 2005, an increase of 600 procedures over the prior year period.
The Company owns a 30% interest in LECC.
Revenues from centers for the three months ended June 30, 2005 were $38.0
million, an increase of $1.6 million, or 4% from revenues of $36.4 million for
the three months ended June 30, 2004. The increase in revenues from centers was
due to an increase in centers procedures and an increased mix of higher priced
procedures. For the three months ended June 30, 2005, centers procedures were
approximately 30,600, an increase of 300 or 1% over centers procedures of 30,300
for the three months ended June 30, 2004. Included in this increase were 200 or
1% more procedures at centers open during both the three months ended June 30,
2005 and 2004.
Revenues from access services for the three months ended June 30, 2005
were $9.8 million, a decrease of $0.7 million or 7% from revenues of $10.5
million for the three months ended June 30, 2004. The decline in access revenues
was primarily due to 2,000 or 9% fewer procedures partially offset by higher
average pricing due to an increase in Custom LASIK procedures.
The cost of refractive revenues for the three months ended June 30, 2005
was $33.1 million, an increase of $1.3 million, or 4% over the cost of
refractive revenues of $31.8 million for the three months ended June 30, 2004.
This increase was primarily attributable to higher costs associated with higher
priced procedures. Primarily as a result of lower access procedure volumes,
gross margins for the refractive business as a whole decreased to 31% during the
three months ended June 30, 2005 from 32% in the prior year period.
The cost of revenues from centers for the three months ended June 30, 2005
was $25.9 million, an increase of $1.3 million, or 5% from the cost of revenues
of $24.6 million for the three months ended June 30, 2004. This increase was
primarily attributable to increased procedure volume and higher costs associated
with higher priced procedures. Gross margins from centers remained constant at
32% for the three months ended June 30, 2005 and 2004.
The cost of revenues from access services for the three months ended June
30, 2005 was $7.2 million, an increase of $0.1 million or 1% from the cost of
revenues of $7.1 million during the three months ended June 30, 2004. This
increase was primarily attributable to higher average costs due to an increase
in Custom LASIK procedures partially offset by a decrease in procedures. Gross
margins decreased to 27% from 32% primarily due to a decrease in procedures and
lower margins on Custom LASIK procedures.
Revenues from other healthcare services for the three months ended June
30, 2005, were $19.0 million, an increase of $1.3 million or 7% from revenues of
$17.7 million for the three months ended June 30, 2004. Approximately 28% of
total revenues for the three months ended June 30, 2005 were derived from other
healthcare services compared to 27% for the three months ended June 30, 2004.
The increase in other healthcare services revenue resulted from internal growth
of existing businesses and contributions from businesses acquired within the
past year.
The cost of revenues from other healthcare services for the three months
ended June 30, 2005 was $11.2 million, an increase of $0.6 million or 6% from
cost of revenues of $10.6 million for the three months ended June 30, 2004. The
increase in cost of revenues primarily related to incremental costs incurred to
generate the increased revenue of the other healthcare service business. For the
three months ended June 30, 2005, gross margins increased to 41% from 40% for
the prior year period due to volume growth and a higher percentage of total
revenue generated from Vision Source, which has relatively higher gross margins.
General and administrative expenses increased to $9.2 million for the
three months ended June 30, 2005 from $6.1 million for the three months ended
June 30, 2004. The $3.1 million or 51% increase included a $1.9 million increase
from
13
the AMD segment as OccuLogix, Inc. incurs costs to prepare for the
commercialization of the RHEO(TM) System in the United States. The remaining
$1.2 million increase was primarily due to additional staffing costs, corporate
taxes and other operating expenses.
Marketing and sales expenses increased to $5.8 million for the three
months ended June 30, 2005 from $4.7 million for the three months ended June 30,
2004. The $1.1 million or 24% increase included a $0.1 million increase from the
AMD segment, and a $1.0 million increase in the refractive business.
Research and development, clinical and regulatory expenses increased to
$1.3 million for the three months ended June 30, 2005 from $0.4 million for the
three months ended June 30, 2004. Research and development, clinical and
regulatory expenses are incurred by OccuLogix, Inc. as it conducts clinical
trials related to its rheopheresis application to the United States Food and
Drug Administration ("FDA").
Other operating income of $0.4 million for the three months ended June 30,
2005 resulted from a $0.3 million reimbursement from a previous research and
development investment and $0.1 million of miscellaneous operating income. As of
June 30, 2004, the Company fully reversed a reserve by $1.2 million related to a
long-term note receivable due to a consistent payment history and continually
improving financial strength of the debtor.
During the three months ended June 30, 2004, the Company recorded a $2.6
million charge for severance payments to two officers under the terms of
employment contracts and a $0.2 million charge for ongoing lease payment
obligations at previously closed centers.
Interest income increased to $1.2 million for the three months ended June
30, 2005 from $0.5 million for the three months ended June 30, 2004. This $0.7
million increase is due to an increase in the Company's cash and cash
equivalents and short-term investments balances as well as higher rates of
return.
Interest expense decreased to $0.4 million for the three months ended June
30, 2005 from $0.7 million for the three months ended June 30, 2004. This $0.3
million decrease is due to declining debt and lease obligations.
Minority interest expense decreased to $1.1 million for the three months
ended June 30, 2005 from $2.5 million for the three months ended June 30, 2004.
This $1.4 million decrease was from the AMD segment.
Earnings from equity investments increased to $0.7 million for the three
months ended June 30, 2005 from $0.6 million for the three months ended June 30,
2004. This $0.1 million increase is primarily due to earnings from an ASC in
which the Company acquired a minority ownership in December 2004.
Net income for the three months ended June 30, 2005 decreased to $5.5
million or $0.08 per share from $6.2 million or $0.09 per share for the three
months ended June 30, 2004. This $0.7 million decrease included a $1.1 million
decrease from the AMD segment. Excluding the impact of the AMD segment, net
income increased to $7.1 million or $0.10 per share for the three months ended
June 30, 2005 from $6.8 million or $0.09 per share for the prior year period.
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2004
Total revenues for the six months ended June 30, 2005 were $137.9 million,
an increase of $8.1 million, or 6% over revenues of $129.8 million for the six
months ended June 30, 2004. This increase was due to a 5% increase in refractive
revenues and a 9% increase in other healthcare services revenues. Approximately
75% of total revenues were derived from refractive services for the six months
ended June 30, 2005 and 2004.
Revenues from the refractive segment for the six months ended June 30,
2005 were $103.0 million, an increase of $5.2 million or 5% from revenues of
$97.8 million for the six months ended June 30, 2004. The increase in refractive
revenues was due to an increase in centers procedures and an increased mix of
higher priced procedures partially offset by a decrease in access revenues.
Refractive procedures for the six months ended June 30, 2005 were approximately
108,600, an increase of 100 over refractive procedures of 108,500 for the six
months ended June 30, 2004. Procedures for LECC were included in both periods
and account for 9,400 procedures for the six months ended June 30, 2005, an
increase of 1,400 procedures over the prior year period. The Company owns a 30%
interest in LECC.
14
Revenues from centers for the six months ended June 30, 2005 were $81.8
million, an increase of $6.6 million, or 9% from revenues of $75.2 million for
the six months ended June 30, 2004. The increase in revenues from centers was
due to an increase in centers procedures and an increased mix of higher priced
procedures. For the six months ended June 30, 2005, centers procedures were
approximately 66,000, an increase of 3,000 or 5% over centers procedures of
63,000 for the six months ended June 30, 2004. This increase was primarily due
to 3,000 or 5% more procedures at centers open during both the six months ended
June 30, 2005 and 2004.
Revenues from access services for the six months ended June 30, 2005 were
$21.2 million, a decrease of $1.4 million or 6% from revenues of $22.6 million
for the six months ended June 30, 2004. The decline in access revenues was
primarily due to 2,800 or 6% fewer procedures.
The cost of refractive revenues for the six months ended June 30, 2005 was
$69.1 million, an increase of $3.0 million, or 4% over the cost of refractive
revenues of $66.1 million for the six months ended June 30, 2004. This increase
was primarily attributable to increased procedure volume and higher costs
associated with higher priced procedures. Primarily as a result of higher
procedure volumes at centers, gross margins for the refractive business as a
whole increased to 33% during the six months ended June 30, 2005 from 32% in the
prior year period.
The cost of revenues from centers for the six months ended June 30, 2005
was $54.5 million, an increase of $3.7 million, or 7% from the cost of revenues
of $50.8 million from the six months ended June 30, 2004. This increase was
primarily attributable to increased procedure volume and higher costs associated
with higher priced procedures. Gross margins from centers increased to 33% for
the six months ended June 30, 2005 from 32% during the prior year period as
increased procedure volumes led to incremental variable margin gains at many of
the Company's centers.
The cost of revenues from access services for the six months ended June
30, 2005 was $14.6 million, a decrease of $0.7 million or 5% from the cost of
revenues of $15.3 million during the six months ended June 30, 2004. This
decrease primarily resulted from lower procedure volume. Gross margins decreased
to 31% from 32% primarily due to a decrease in procedures.
Revenues from other healthcare services for the six months ended June 30,
2005, were $34.9 million, an increase of $2.9 million or 9% from revenues of
$32.0 million for the six months ended June 30, 2004. Approximately 25% of total
revenues were derived from other healthcare services for the six months ended
June 30, 2005 and 2004.
The cost of revenues from other healthcare services for the six months
ended June 30, 2005 was $21.4 million, an increase of $1.7 million or 8% from
cost of revenues of $19.7 million for the six months ended June 30, 2004. The
increase in cost of revenues primarily related to incremental costs incurred to
generate the increased revenue of the other healthcare service business. For the
six months ended June 30, 2005, gross margins increased to 39% from 38% for the
prior year period due to volume growth and a higher percentage of total revenue
generated from Vision Source, which has relatively higher gross margins.
General and administrative expenses increased to $18.3 million for the six
months ended June 30, 2005 from $12.8 million for the six months ended June 30,
2004. The $5.5 million or 43% increase included a $3.7 million increase from the
AMD segment as OccuLogix, Inc. incurs costs to prepare for the commercialization
of the RHEO(TM) System in the United States. The remaining $1.8 million increase
was primarily due to additional staffing costs, professional fees, corporate
taxes and costs related to businesses acquired within the last year.
Marketing and sales expenses increased to $10.8 million for the six months
ended June 30, 2005 from $8.9 million for the six months ended June 30, 2004.
The $1.9 million or 22% increase included a $0.3 million increase from the AMD
segment, and a $1.6 million increase in the refractive business.
Research and development, clinical and regulatory expenses increased to
$2.7 million for the six months ended June 30, 2005 from $0.7 million for the
six months ended June 30, 2004. Research and development, clinical and
regulatory expenses are incurred by OccuLogix, Inc. as it conducts clinical
trials related to its rheopheresis application to the United States FDA.
Other operating income of $1.0 million for the six months ended June 30,
2005 resulted from a $0.3 million gain on the sale of Aspen, a $0.3 million
reimbursement from a previous research and development investment, $0.1 million
of net gains from the sales and disposals of fixed assets and $0.3 million of
miscellaneous operating income. For the six months ended
15
June 30, 2004, other operating income of $1.7 million resulted from a $1.1
million gain on the sale of a controlling interest in LECC, a $1.2 million
reversal of a reserve related to a long-term note receivable and $0.1 million of
miscellaneous operating income offset by $0.7 million of net losses related to
the sales and disposals of fixed assets.
During the six months ended June 30, 2004, the Company recorded a $2.6
million charge for severance payments to two officers under the terms of
employment contracts and a $0.2 million charge for ongoing lease payment
obligations at previously closed centers.
Interest income increased to $2.3 million for the six months ended June
30, 2005 from $1.0 million for the six months ended June 30, 2004. This $1.3
million increase is due to an increase in the Company's cash and cash
equivalents and short-term investments balances as well as higher rates of
return.
Interest expense decreased to $0.9 million for the six months ended June
30, 2005 from $1.6 million for the six months ended June 30, 2004. This $0.7
million decrease is due to declining debt and lease obligations.
Minority interest expense decreased to $1.8 million for the six months
ended June 30, 2005 from $4.3 million for the six months ended June 30, 2004.
This $2.5 million decrease included a $2.9 million decrease from the AMD segment
offset by a $0.4 million or 9% increase from the Company's other business
segments.
Earnings from equity investments increased to $1.3 million for the six
months ended June 30, 2005 from $1.0 million for the six months ended June 30,
2004. This $0.3 million increase is primarily due to earnings from an ASC in
which the Company acquired a minority ownership in December 2004.
Net income for the six months ended June 30, 2005 increased to $15.1
million or $0.21 per share from $14.3 million or $0.20 per share for the six
months ended June 30, 2004. This $0.8 million increase included a $2.2 million
decrease from the AMD segment. Excluding the impact of the AMD segment, net
income increased to $18.4 million or $0.25 per share for the six months ended
June 30, 2005 from $15.3 million or $0.22 per share for the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2005, the Company continued to focus
its activities primarily on expanding its refractive centers and other
healthcare businesses through internal growth and acquisitions. Cash and cash
equivalents, short-term investments and restricted cash were $142.5 million at
June 30, 2005 compared to $145.4 million at December 31, 2004. Working capital
at June 30, 2005 was $142.2 million, an increase of $11.0 million from $131.2
million at December 31, 2004.
The Company's principal cash requirements have included normal operating
expenses, debt repayment, distributions to minority partners, capital
expenditures, acquisitions and investments.
During the six months ended June 30, 2005, the Company invested $5.2
million in fixed assets and received vendor financing for $1.2 million of fixed
assets.
As new technologies emerge in the refractive market, the Company may need
to upgrade its equipment, including excimer lasers and flap-making technology.
The Company has access to vendor financing at fixed interest rates or on a per
procedure fee basis and expects to continue to have access to these financing
options for at least the next 12 months.
The Company estimates that existing cash balances and short-term
investments, together with funds expected to be generated from operations and
credit facilities, will be sufficient to fund the Company's anticipated level of
operations and expansion plans for at least the next 12 to 18 months.
At December 31, 2004 the Company reported $2.8 million of exit liabilities
primarily related to severance costs for two former officers under the terms of
employment contracts and ongoing lease obligations at closed centers. During the
six months ended June 30, 2005, the Company made cash payments of $2.1 million
in respect of these exit liabilities, resulting in a $0.7 million exit liability
at June 30, 2005.
16
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $12.8 million for the six
months ended June 30, 2005. The cash flows provided by operating activities
during the six months ended June 30, 2005 were primarily due to net income of
$15.1 million plus non-cash items including depreciation and amortization of
$8.0 million and minority interest expense of $1.8 million, offset by an
increase in net operating assets of $10.4 million, earnings from equity
investments of $1.3 million and a gain on the sale of a subsidiary of $0.3
million. The increase in net operating assets consisted of a $2.2 million
increase in accounts receivable due primarily to higher revenues during the
seasonably strong first and second quarters, a $3.3 million increase in prepaid
expenses and other current assets and a $4.9 million decrease in accounts
payable and accrued liabilities. Excluding the impact of the AMD segment, net
cash provided by operating activities would have been $23.3 million for the six
months ended June 30, 2005.
CASH FROM INVESTING ACTIVITIES
Net cash provided by investing activities was $25.1 million for the six
months ended June 30, 2005. The cash flows provided by investing activities
during the six months ended June 30, 2005 primarily included net proceeds from
the sales of short-term investments of $33.3 million, proceeds from the sale of
a subsidiary of $3.4 million, distributions and loan payments received from
equity investments of $1.4 million, proceeds from the sales of fixed assets of
$0.7 million and a $0.3 million reimbursement from a previous research and
development investment. These cash flows were offset by capital expenditures of
$5.2 million and acquisitions and equity investments of $8.9 million. Excluding
the impact of the AMD segment, net cash provided by investing activities would
have been $20.5 million for the six months ended June 30, 2005.
CASH FROM FINANCING ACTIVITIES
Net cash used in financing activities was $7.3 million for the six months
ended June 30, 2005. Net cash used in financing activities during the six months
ended June 30, 2005 primarily related to the repayment of certain notes payable
and capitalized lease obligations of $6.1 million and distributions to minority
interests of $3.7 million, offset by proceeds from debt financing of $1.3
million, proceeds from the exercise of stock options of $1.1 million and
proceeds from the issuance of OccuLogix, Inc. common stock of $0.1 million.
Excluding the impact of the AMD segment, net cash used in investing activities
would have been $7.4 million for the six months ended June 30, 2005.
SUBSEQUENT EVENTS
On July 11, 2005, the Company acquired an 82% interest in the assets of
Kremer Laser Eye ("Kremer") for $24.3 million in cash plus the assumption of
certain liabilities. Kremer includes three refractive centers and one ambulatory
surgery center all of which are located in the northeastern part of the United
States.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, the Company is exposed to interest
rate risks and foreign currency risks, which the Company does not currently
consider to be material. These exposures primarily relate to having short-term
investments earning short-term interest rates and to having fixed rate debt. The
Company views its investment in foreign subsidiaries as a long-term commitment,
and does not hedge any translation exposure.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
17
As of the end of the period covered by the report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Exchange Act). Based on that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective, in all material respects, to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.
There have been no significant changes in the Company's internal controls
over financial reporting that have materially affected, or are reasonably likely
to materially affect the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in legal proceedings from that
reported in the Company's Annual Report on Form 10-K for the year ended December
31, 2004.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on June 23, 2005. At
the annual meeting, shareholders of the Company voted on the following
proposals: (a) to elect seven directors for the ensuing year; (b) to appoint
Ernst & Young LLP as auditors of the Company for the ensuing year and to
authorize the directors to fix the remuneration to be paid to the auditors; (c)
to confirm an amendment to the Company's by-laws; and (d) to approve the
Company's Shareholder Rights Plan. Each of the proposals, including the election
of directors, was approved at the annual meeting.
With respect to the election of directors, the following votes were cast:
Votes in Favor Votes Withheld
-------------- --------------
Elias Vamvakas 36,985,318 939,813
Thomas N. Davidson 36,985,318 939,813
Richard L. Lindstrom, M.D. 36,985,318 939,813
Warren S. Rustand 36,985,318 939,813
James C. Wachtman 36,985,318 939,813
Toby S. Wilt 36,985,318 939,813
Michael D. DePaolis, O.D. 36,985,318 939,813
With respect to the appointment of Ernst & Young LLP as auditors of the
Company for the ensuing year and to authorize the directors to fix the
remuneration to be paid to the auditors, the following votes were cast:
Votes in Favor Votes Withheld
- -------------- --------------
37,754,610 67,875
With respect to the confirmation of an amendment to the Company's by-laws,
the following votes were cast:
Votes in Favor Votes Against Votes Withheld
- -------------- ------------- --------------
37,155,909 725,529 43,693
18
With respect to the approval of the Company's Shareholder Rights Plan, the
following votes were cast:
Votes in Favor Votes Against Votes Withheld
- -------------- ------------- --------------
15,915,476 1,259,601 608,275
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
31.1 CEO's Certification required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended
31.2 CFO's Certification required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended
32.1 CEO's Certification of periodic financial report pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
32.2 CFO's Certification of periodic financial report pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350
99 Reconciliation between Canadian and United States Generally Accepted
Accounting Principles
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TLC VISION CORPORATION
By: /s/ James C. Wachtman
------------------------------
James C. Wachtman
Chief Executive Officer
August 8, 2005
By: /s/ Steven P. Rasche
------------------------------
Steven P. Rasche
Chief Financial Officer
August 8, 2005
20
EXHIBIT INDEX
NO. DESCRIPTION
- ---- --------------------------------------------------------------------------------------------------
31.1 CEO's Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
31.2 CFO's Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
32.1 CEO's Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, U.S.C. Section 1350.
32.2 CFO's Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, U.S.C. Section 1350
99 Reconciliation between Canadian and United States Generally Accepted Accounting Principles
21