SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q/A Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2001
COMMISSION FILE NUMBER: 0-29302
TLC LASER EYE CENTERS INC.
--------------------------
(Exact name of registrant as specified in its charter)
Ontario, 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
As of October 1, 2001, there were 38,065,058 of the registrant's Common
Shares outstanding.
1
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 for
the year ended May 31, 2001. Unless the context indicates or requires otherwise,
references in this Form 10-Q to the "Company" or "TLC" shall mean TLC Laser Eye
Centers Inc. and its subsidiaries. The Company's fiscal year ends on May 31.
Therefore, references in this Form 10-Q to "fiscal 2001" shall mean the 12
months ended on May 31, 2001 and "fiscal 2002" shall mean to 12 months ending on
May 31, 2002. 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.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Income for the Three Months ended
August 31, 2001 and August 31, 2000.
Consolidated Balance Sheets at August 31, 2001 and May 31,
2001
Consolidated Statements of Cashflows for the Three Months
ended August 31, 2001 and August 31, 2000
Consolidated Statements of Stockholders' Equity
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
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on 8-K
2
PART I. FINANCIAL INFORMATION
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31,
-------------------------------
(U.S. dollars, in thousands except per share amounts) 2001 2000
========================================================================= =============
Revenues
Refractive
Owned centers $ 13,442 $ 22,679
Management, facility and access fees $ 17,935 $ 22,943
Other 3,647 2,323
- ------------------------------------------------------------------------- -------------
Total revenues 35,024 47,945
- ------------------------------------------------------------------------- -------------
Expenses
Cost of revenues
Refractive
Owned centers 9,731 14,357
Management, facility and access fees 11,394 11,288
Other 1,922 3,022
- ------------------------------------------------------------------------- -------------
Total cost of revenues 23,047 28,667
- ------------------------------------------------------------------------- -------------
Gross margin 11,977 19,278
- ------------------------------------------------------------------------- -------------
Selling, general and administrative 14,614 21,309
Interest and other (24) (966)
Depreciation of capital assets and assets under lease 547 535
Amortization of intangibles 2,564 3,158
- ------------------------------------------------------------------------- -------------
17,701 24,036
- ------------------------------------------------------------------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (5,724) (4,758)
Income taxes (466) (174)
Non-controlling interest (372) (240)
- ------------------------------------------------------------------------- -------------
NET INCOME (LOSS) FOR THE PERIOD $ (6,562) $ (5,172)
============= =============
BASIC INCOME (LOSS) PER SHARE $ (0.17) $ (0.14)
Weighted average number of
Common Shares Outstanding 38,039,639 37,203,625
Fully Diluted Income (Loss) per share $ (0.17) $ (0.14)
Prepared in accordance with U.S. Generally Accepted Accounting Principles
3
TLC LASER EYE CENTERS INC.
CONSOLIDATED BALANCE SHEETS
Aug. 31 May 31
(U.S. dollars, in thousands) 2001 2001
================================================================================
ASSETS
Current assets
Cash and cash equivalents $ 47,203 $ 47,987
Marketable securities -- 6,063
Accounts receivable 8,525 9,950
Prepaids and sundry assets 5,000 4,501
- --------------------------------------------------------------------------------
Total current assets 60,728 68,501
Restricted cash 1,620 1,619
Investments and other assets 17,096 23,171
Intangibles 90,249 92,802
Capital assets 43,500 44,963
Assets under capital lease 6,933 7,382
- --------------------------------------------------------------------------------
Total assets $ 220,126 $ 238,438
================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 13,910 $ 15,028
Accrued legal settlements 2,100 2,100
Accrued purchase obligations 3,000 3,000
Accrued restructuring costs 403 718
Accrued wage costs 2,316 3,652
Current portion of long term debt 3,812 3,826
Current portion of obligations under capital lease 2,724 2,943
Income taxes payable 460 397
- --------------------------------------------------------------------------------
Total current liabilities 28,725 31,664
Long term debt 6,589 7,032
Obligations under capital lease 773 1,281
Deferred rent and compensation 566 617
- --------------------------------------------------------------------------------
Total liabilities 36,653 40,594
- --------------------------------------------------------------------------------
Non-controlling interest 9,994 10,738
- --------------------------------------------------------------------------------
Commitments
SHAREHOLDERS' EQUITY
Capital stock 276,368 276,277
Warrants 532 532
Deficit (86,723) (80,161)
Accumulated other comprehensive income (loss) (16,698) (9,542)
- --------------------------------------------------------------------------------
Total shareholders' equity 173,479 187,106
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 220,126 $ 238,438
================================================================================
Prepared in accordance with U.S. Generally Accepted Accounting Principles
4
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
Three months ended August 31,
(U.S. dollars, in thousands) 2001 2000
========================================================================================
Operating activities
Net income for the period $ (6,562) $ (5,172)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 5,522 6,891
(Gain)/loss on sale of fixed assets and assets under lease (6) 479
Non-controlling interest 372 240
Other (23) --
Changes in non-cash operating items
Accounts receivable 1,425 3,195
Prepaids and sundry assets (499) 1,098
Accounts payable and accrued liabilities (2,768) (2,827)
Income taxes payable (net) 199 3,765
Deferred rent and compensation (51) 204
- ----------------------------------------------------------------------------------------
Cash provided by (used for) operating activities (2,391) 7,873
- ----------------------------------------------------------------------------------------
Financing activities
Restricted cash (1) (5)
Principal payments of debt financing (458) (599)
Principal payments of obligations under capital lease (727) (1,195)
Payments of accrued purchase obligations -- (3,000)
Contributions from non-controlling interests -- 18
Distributions to non-controlling interests (1,248) (1,470)
Payments related to the purchase and cancellation of capital stock -- (96)
Proceeds from the issuance of capital stock 91 172
- ----------------------------------------------------------------------------------------
Cash used for financing activities (2,343) (6,175)
- ----------------------------------------------------------------------------------------
Investing activities
Purchase of capital assets and assets under lease (1,052) (3,715)
Proceeds from sale of fixed assets and assets under lease 11 1,320
Proceeds from the sale of investments 137 760
Acquisitions and investments (1,207) (5,900)
Marketable securities 6,063 --
Other (2) 129
- ----------------------------------------------------------------------------------------
Cash provided by (used for) investing activities 3,950 (7,406)
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (785) (5,708)
Cash and cash equivalents, beginning of year 47,987 78,531
- ----------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 47,203 $ 72,823
========================================================================================
Prepared in accordance with U.S. Generally Accepted Accounting Principles
5
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(U.S. dollars, in thousands)
Common stock Warrants
------------ -------- Other
Accumulated
Number Number Comprehensive
of Shares Amount of Warrants Amount Deficit Income Total
(000's) $ (000's) $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 37,362 269,454 -- -- (31,267) 5,936 244,123
Warrants issued 100 532 532
Shares issued for acquisition 302 728 728
Value determined for shares issued
contingent on meeting earnings
criteria -- 1,397 1,397
Shares purchased for cancellation (710) (5,162) (5,203) (10,365)
Exercise of stock options 87 1,314 1,314
Shares issued as remuneration 44 387 387
Shares issued as part of the employee
share purchase plan 65 1,696 1,696
Reversal of IPO costs, over accrual -- 139 139
Comprehensive income (loss)
Net income (loss) (5,918)
Other comprehensive income (loss)
Unrealized gains/losses on
available-for-sale securities (10,387)
Total comprehensive income (loss) (16,305)
- --------------------------------------------------------------------------------------------------------------------------------
Balance May 31, 2000 37,150 269,953 100 532 (42,388) (4,451) 223,646
Shares issued for acquisition 832 6,059 6,059
Shares purchased for cancellation (108) (481) (481)
Exercise of stock options 40 125 125
Shares issued as remuneration 5 35 35
Shares issued as part of the employee
share purchase plan 112 586 586
Comprehensive income (loss)
Net income (loss) (37,773)
Other comprehensive income (loss)
Unrealized gains/losses on
available for-sale securities (5,091)
Total comprehensive income (loss) (42,864)
- --------------------------------------------------------------------------------------------------------------------------------
Balance May 31, 2001 38,031 276,277 100 532 (80,161) (9,542) 187,106
Shares issued as part of the
employee share purchase plan 18 91 91
Comprehensive income (loss)
Net income (loss) (6,562)
Other comprehensive income (loss)
Unrealized gains (losses) on
available-for-sale securities (7,156)
Comprehensive income (loss) (13,718)
- --------------------------------------------------------------------------------------------------------------------------------
Balance August 31, 2001 38,049 276,368 100 532 (86,723) (16,698) 173,479
================================================================================================================================
Prepared in accordance with U.S. Generally Accepted Accounting Principles
6
TLC LASER EYE CENTERS INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2001
(Unaudited)
1. Basis of Presentation
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 May 31, 2001 Annual Report on Form 10-K ("Form 10-K") filed by TLC
Laser Eye Centers Inc. (the "Company") with the Commission. The unaudited
interim consolidated financial statements as of August 31, 2001 and August
31, 2000 include all normal recurring adjustments which management
considers necessary for a fair presentation. The results of operations for
the interim period are not necessarily indicative of the results that may
be expected for the entire fiscal year. The interim unaudited consolidated
financial statements include the accounts and transactions of the Company
and its majority owned subsidiaries, partnerships and other entities in
which the Company has more than a 50% ownership interest and exercises
control. The ownership interests of other parties in less than wholly
owned consolidated subsidiaries, partnerships and other entities are
presented as non-controlling interests. The August 31, 2000 three month
consolidation includes certain reclassifications to conform with
classifications for the three month period ended August 31, 2001.
For Company owned laser centers, revenue represents the amount charged to
patients at a standard rate for a laser vision correction procedure, net
of discounts, contractual adjustments and amounts collected as an agent of
co-managing doctors. Revenue is recognized when the procedure is
performed.
Contractual adjustments arise due to the terms of certain reimbursement
and managed care contracts. Such adjustments represent the difference
between the charges at established rates and estimated recoverable amounts
and are recognized in the period services are rendered. Any differences
between estimated contractual adjustments and actual final settlements
under reimbursement contracts are recognized as contractual adjustments in
the year final settlements are determined.
For Company managed laser centers, revenue represents a management fee
charged to professional corporations ("PC") that provide laser vision
correction procedures and are responsible for billing the patient
directly. Under the terms of the practice management agreements, the
Company provides management, marketing and administrative services to the
PC in return for a per procedure management fee. Although TLC is entitled
to receive the full per procedure management fee, the Company has made it
a business practice to reduce the management fee for a portion of any
discount or contractual allowance related to the underlying procedure.
Revenue is recognized when the PC performs the procedure.
The revenue from the Company's Other segment includes management fee
revenue from secondary care practices, network marketing and management,
asset management, professional healthcare facility management and revenue
from hair removal procedures. Revenue is recognized as the service or
treatment is provided.
The Company accumulates costs associated with the provision of laser
correction services and reports them as cost of revenues. Included in this
grouping are the laser fees payable to laser manufacturers for royalties,
use and maintenance of the lasers, variable expenses for consumables,
financing costs and facility fees as well as center costs associated with
personnel, facilities and amortization of center assets.
In Company owned centers, the Company is responsible for engaging and
paying the surgeons who provide laser vision correction services and the
amounts paid to the surgeons are reported as a cost of revenue as well.
The unaudited interim consolidated financial statements for the three
month period ended August 31, 2000 include certain reclassifications to
conform with classifications for the three months ended August 31, 2001.
7
The net income (loss) per share was computed using the weighted average
number of common shares outstanding during each period.
2. Intangible Assets
Effective June 1, 2001, the Company early adopted SFAS No. 142, Goodwill
and Intangible Assets. Under SFAS No.142, goodwill and intangible assets
of indefinite life are no longer amortized but are subject to an annual
impairment review (or more frequently if deemed appropriate). On adoption,
the Company determined that it has no intangible assets of indefinite
life. Within six months (by November 30, 2001) of adoption of SFAS No.142,
the Company will have completed step one of the transitional impairment
test to identify if there is an impairment to the goodwill as at June 1,
2001, using a fair value methodology, which differs from the undiscounted
cash flow methodology that continues to be used for intangible assets with
an identifiable life. Step two of the transitional impairment test will be
completed by the end of the fiscal 2002 year (May 31, 2002) and any
resulting impairment loss will be recorded as a cumulative effect of a
change in accounting principle . Subsequent impairment losses will be
reflected in operating income in the income statement.
As required by SFAS No. 142, the results for the prior year's quarter have
not been restated. A reconciliation of net income as if SFAS No. 142 has
been adopted is presented below for the three months ended August 31,
2000.
-----------------------------
Three months ended August 31,
-----------------------------
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Reported net income $(6,562) $(5,172)
- --------------------------------------------------------------------------------
Add back goodwill amortization -- 1,361
- --------------------------------------------------------------------------------
Adjusted net income $(6,562) $(3,811)
- --------------------------------------------------------------------------------
Basic earnings per share:
- --------------------------------------------------------------------------------
Reported net income $ (0.17) $ (0.14)
- --------------------------------------------------------------------------------
Goodwill amortization -- 0.04
- --------------------------------------------------------------------------------
Adjusted net income $ (0.17) $ (0.10)
- --------------------------------------------------------------------------------
Diluted earnings per share:
- --------------------------------------------------------------------------------
Reported net income $ (0.17) $ (0.14)
- --------------------------------------------------------------------------------
Goodwill amortization -- 0.04
- --------------------------------------------------------------------------------
Adjusted net income $ (0.17) $ (0.10)
- --------------------------------------------------------------------------------
3. Comprehensive Income (Loss)
Total comprehensive income (loss) includes net income (loss) plus other
comprehensive income (loss), which, primarily comprises net unrealized
gains or losses on securities which are available-for-sale. Total
comprehensive income (loss) was $(13.7) million for the three months ended
August 31, 2001 and $(6.7) million for the three months ended August 31,
2000. Other comprehensive (loss) was $(7.2) million and $(1.5) million for
the three months ended August 31, 2001 and 2000, respectively.
8
4. Acquisition Related Activities
Laser Vision Centers, Inc.
On August 27, 2001, the Company announced that it had entered into an
Agreement and Plan of Merger with Laser Vision Centers, Inc. ("Laser
Vision"). Laser Vision provides access to excimer lasers, microkeratomes,
other equipment and value added support services to eye surgeons for laser
vision correction and the treatment of cataracts. The merger will be
effected as an all-stock combination at a fixed exchange rate of 0.95 of a
common share of the Company for each share of Laser Vision common stock
which is expected to result in the issuance of approximately 26.5 million
shares of the Company's common stock. In addition, the Company will assume
and convert existing outstanding options or warrants to acquire stock of
Laser Vision based on the 0.95 exchange rate and expects to issue
approximately 7.7 million options or warrants to acquire common shares of
the Company. The merger will be accounted for under the purchase method.
Completion of the transaction, expected to occur in the third quarter of
fiscal 2002, is subject to shareholder and regulatory approval and other
conditions usual and customary in such transactions. The Company has
incurred $2.0 million in costs related to the merger, $1.2 million of
which was incurred in the current quarter. These costs have been
categorized as non-current assets in the current quarter and will be
included in the purchase accounting upon completion of the transaction.
Once the transaction has been closed, the Company will review its
operations, strategic investments and assets, which may result in
restructuring provisions or write-offs.
Additionally, as contemplated by the Merger Agreement (see Item 6a on
MD&A), immediately prior to the effective time of the merger, Laser Vision
will reduce the exercise price of approximately 2.1 million outstanding
stock options and warrants of Laser Vision which would have an exercise
price greater than $8.688 per share of TLC stock after the merger to a
price equivalent to $8.688 per share of TLC common stock. In addition,
subject to shareholder and regulatory approval, TLC will allow the holders
of outstanding TLC stock options with an exercise price greater than
$8.688 to elect to reduce the exercise price of their options to $8.688 by
surrendering a number of the shares subject to each repriced option as
follows: for every option with an exercise price of at least $40, the
holder will surrender 75% of the shares subject to such option; for every
option with an exercise price of at least $30 but less than $40, the
holder will surrender approximately 66.6% of the shares subject to such
option; for every option with an exercise price of at least $20 but less
than $30, the holder will surrender 50% of the shares subject to such
option; and for every option with an exercise price of at least $8.688 but
less than $20, the holder will not surrender any of the shares subject to
such option.
5. Divestitures and Restructuring Charges
In the second quarter of fiscal 2001, accrued liabilities for
restructuring provisions were recorded as a result of the decision to exit
from an e-commerce enterprise eyeVantage.com Inc., the potential for
losses in an equity investment in a secondary care operation and estimated
costs associated with the Company's initiative to eliminate centers which
have been targeted under current restructuring initiatives. At the end of
fiscal 2001, the Company reflected outstanding accrued liabilities for
restructuring activities of $718,000 and in the current quarter the
Company has utilized $315,000 of these provisions.
6. Segmented Information
The Company has two reportable segments: refractive and other. The
refractive segment is the core focus of the Company which reflects the
provision of laser vision correction. The other segment includes an
accumulation of non-core business activities including the management of
secondary care centers which provide advanced levels of eye care,
activities involving the development of eyeVantage.com as an internet
based company and managed care (applicable only in 1999 and prior). In
1999, activity in secondary care reflected a larger portion of the
business activity and was presented as a separate segment. The disposal of
the management of certain secondary care sites during 1999 has reduced the
magnitude of activities from secondary care such that a separate segment
for secondary care is no longer meaningful.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operational components including paid procedures, net
revenue after doctors' fees, fixed costs and income (loss) before income
taxes.
9
Doctors' Compensation as presented in the financial statements represents
the cost to the Company of arranging for experienced and knowledgeable
ophthalmic professionals to perform laser vision correction services at
the Company's owned laser centers. Where the Company manages laser centers
due to certain state requirements(1), it is the responsibility of the
professional corporations or physicians to whom the Company furnishes
management services to provide the required professional services and
engage ophthalmic professionals. As such, the costs associated with
arranging for these professionals to furnish professional services is
reported as a cost of the professional corporation and not of the Company.
Intersegment sales and transfers are minimal and are measured as if the
sales or transfers were to third parties.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Most of
the business units were acquired or developed as a unit and management at
the time of acquisition was retained.
The following tables set forth information by segments:
- ----------------------------------------------------------------------------------------------------------------------
Three months ended August 31st 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
(U.S. dollars, in thousands) Refractive Other Total Refractive Other Total
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
NET REVENUES $ 31,377 $ 3,647 $ 35,024 $ 45,622 $ 2,323 $ 47,945
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------------------------------------
Doctor compensation 2,676 -- 2,676 4,850 -- 4,850
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses 30,056 2,518 32,574 37,030 4,898 41,928
- ----------------------------------------------------------------------------------------------------------------------
Interest and other (17) (7) (24) (1,101) 135 (966)
- ----------------------------------------------------------------------------------------------------------------------
Depreciation of capital assets and 2,808 150 2,958 3,496 237 3,733
assets under lease
- ----------------------------------------------------------------------------------------------------------------------
Amortization of intangibles 2,452 112 2,564 2,398 760 3,158
- ----------------------------------------------------------------------------------------------------------------------
37,975 2,773 40,748 46,673 6,030 52,703
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (6,598) 874 (5,724) (1,051) (3,707) (4,758)
- ----------------------------------------------------------------------------------------------------------------------
Income taxes (89) (377) (466) (188) 14 (174)
- ----------------------------------------------------------------------------------------------------------------------
Non-controlling interest (325) (47) (372) (193) (47) (240)
- ----------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (7,012) $ 450 $ (6,562) $ (1,432) $ (3,740) $ (5,172)
- ----------------------------------------------------------------------------------------------------------------------
Prepared in accordance with U.S. Generally Accepted Accounting Principles
7. Supplemental Cash Flow Information
Non-cash transactions:
Three months ended August 31,
2001 2000
----- -------
Accrued purchase obligations -- (4,199)
Capital stock issued for acquisitions -- 6,059
- ----------
(1) Certain States restrict the Company from directly engaging medical doctors
or optometrists pursuant to the corporate practice of medicine/optometry
doctrine. Accordingly, in these States, the Company arranges for laser vision
correction services for patients through medical doctors and/or professional
corporations that TLC has entered into practice management agreements with.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, which are included in Item 8
of the Company's annual report on Form 10-K. The following discussion is
based upon the Company's results under United States GAAP. Unless otherwise
specified, all dollar amounts are U.S. dollars.
Overview
TLC is one of the largest providers of laser vision correction services in North
America. TLC owns and manages eye care centers which, together with TLC's
network of over 12,500 eye care doctors, provide laser vision correction of
common refractive disorders such as myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism. Laser vision correction is an outpatient
procedure which is designed to change the curvature of the cornea to reduce or
eliminate a patient's reliance on eyeglasses or contact lenses. TLC, which
commenced operations in September 1993, currently has 59 eye care centers in 26
states and provinces throughout the United States and Canada. Surgeons performed
over 122,800 procedures at the Company's centers during fiscal 2001 and over
24,100 procedures in the first quarter of fiscal 2002.
The Company recognizes revenues at the time services are rendered. Net revenues
include only those revenues pertaining to owned laser centers and management
fees from managing refractive and secondary care practices. Under the terms of
the practice management agreements, the Company provides management, marketing
and administrative services to refractive and secondary care practices in return
for management fees. Management services revenue is equal to the net revenue of
the physician practice, less amounts retained by the physician groups.
Management services revenue under the terms of the practice management
agreements for laser vision correction procedures are recognized when the
services are performed.
Net revenue of the physician's practice represents amounts charged to patients
for laser vision correction services net of the impact of applicable patient
discounts and related contractual adjustments. Amounts retained by physician
groups may include costs for uncollectible amounts from patients, professional
contractual costs and miscellaneous administrative charges.
Uncollectible amounts from patients are reviewed and provided for on a regular
monthly basis for those amounts due from physicians or patients for which there
is a permanent reduced likelihood of collection in whole or in part.
Procedure volumes represent the number of laser vision correction procedures
completed for which the amount that the patient has been invoiced for the
procedure exceeds a pre-defined company wide per procedure revenue threshold.
Procedures may be invoiced under the threshold amounts primarily for promotional
or marketing purposes and are not included in the procedure volume numbers
reported. By not counting these promotional procedures the net revenue after
doctor's compensation per procedure ratio is higher than if these procedures had
been included in the procedure volumes.
Doctors' Compensation as presented in the financial statements represents the
cost to the Company of engaging ophthalmic professionals to perform laser vision
correction services at the Company's owned laser centers. Where the Company
manages laser centers it is the responsibility of the professional corporations
or physicians to whom the Company furnishes management services to provide the
required professional services and engage ophthalmic professionals. As such, the
costs associated with arranging for these professionals to furnish professional
services is reported as a cost of the professional corporation and not of the
Company.
Included in cost of revenues is the laser fees payable to laser manufacturers
for royalties, use and maintenance of the lasers, variable expenses for
consumables, financing costs and facility fees as well as center costs
associated with personnel, facilities and amortization of center assets.
In Company owned centers, the Company engages the doctors who provide laser
vision correction services and the amounts paid to these doctors are reported as
a cost of revenue as well.
11
Selling, general and administrative expenses represent fixed costs that are not
directly variable to procedure volume.
In the quarter ended August 31, 2001, the Company's procedure volume decreased
17% from the previous quarter ended May 31, 2001 and decreased by 28% from the
previous year quarter ended August 31, 2000. The Company believes that these
decreases are indicative of the condition in the laser vision correction
industry, which has experienced uncertainty resulting from a wide range in
consumer prices for laser vision correction procedures, the recent bankruptcies
of a number of deep discount laser vision correction companies as well as the
ongoing safety and effectiveness concerns arising from the lack of long-term
follow up data and negative news stories focusing on patients with unfavourable
outcomes from procedures performed at centers competing with TLC centers. In
addition, being an elective procedure, laser vision correction volumes may have
been further depressed by economic conditions currently being experienced in
North America.
Despite the pricing pressures in the industry, the Company's net revenue after
doctor compensation per procedure has only declined marginally in the first
quarter of fiscal 2002 (4% versus the first quarter of fiscal 2001 and 1% versus
the fourth quarter of fiscal 2001).
The Company has developed and launched a pilot test of a new revenue model, the
TLC Affiliate Center program. Under the program, the Company provides varying
levels of resources, support and expertise to established eye care professionals
("ECP") in secondary markets in an effort to grow and develop their current
laser vision correction practices. The services provided by TLC can vary from
the Company providing support only in building the ECP's network of affiliated
optometrists to the Company providing facilities, medical equipment,
professional staffing, marketing and administrative support. Revenues from TLC
affiliate centers vary based on the level of services provided by the Company.
The TLC Affiliate Center program is expected to enable the Company to expand its
presence in secondary markets while significantly reducing the operational and
capital funding normally required to support a typical corporate laser center.
Laser Vision Centers, Inc.
On August 27, 2001, the Company announced that it had entered into an Agreement
and Plan of Merger with Laser Vision Centers, Inc. ("Laser Vision"). Laser
Vision provides access to excimer lasers, microkeratomes, other equipment and
value added support services to eye surgeons for laser vision correction and the
treatment of cataracts. The merger will be effected as an all-stock combination
at a fixed exchange rate of 0.95 of a common share of the Company for each share
of Laser Vision common stock which is expected to result in the issuance of
approximately 26.5 million shares of the Company's common stock. In addition,
the Company will assume and convert existing outstanding options or warrants to
acquire stock of Laser Vision based on the 0.95 exchange rate and expects to be
issuing approximately 7.7 million options or warrants to acquire common shares
of the Company. The merger will be accounted for under the purchase method.
Completion of the transaction, expected to occur in the third quarter of fiscal
2002, is subject to shareholder and regulatory approval and other conditions
usual and customary in such transactions. The Company has incurred $2.0 million
in costs related to the merger, $1.2 million of which was incurred in the
current quarter. These costs have been categorized as non-current assets in the
current quarter and will be included in the purchase accounting upon completion
of the transaction. Once the transaction has been closed, the Company will
review its operations, strategic investments and assets, which may result in
restructuring provisions or write-offs.
Additionally, as contemplated by the Merger Agreement, immediately prior to the
effective time of the merger, Laser Vision will reduce the exercise price of
approximately 2.1 million outstanding stock options and warrants of Laser Vision
which would have an exercise price greater than $8.688 per share of TLC stock
after the merger to a price equivalent to $8.688 per share of TLC common stock.
In addition, subject to shareholder and regulatory approval, TLC will allow the
holders of outstanding TLC stock options with an exercise price greater than
$8.688 to elect to reduce the exercise price of their options to $8.688 by
surrendering a number of the shares subject to each repriced option as follows:
for every option with an exercise price of at least $40, the holder will
surrender 75% of the shares subject to such option: for every option with an
exercise price of at least $30 but less than $40, the holder will surrender
approximately 66.6% of the shares subject to such option; for every option with
an exercise price of at least $20 but less than $30, the holder will surrender
50% of the shares subject to such option; and for every option
12
with an exercise price of at least $8.688 but less than $20, the holder will not
surrender any of the shares subject to such option.
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31,
-------------------------------
(U.S. dollars, in thousands except per share amounts) 2001 2000
========================================================================= =============
Revenues
Refractive
Owned centers $ 13,442 $ 22,679
Management, facility and access fees $ 17,935 $ 22,943
Other 3,647 2,323
- ------------------------------------------------------------------------- -------------
Total revenues 35,024 47,945
- ------------------------------------------------------------------------- -------------
Expenses
Cost of revenues
Refractive
Owned centers 9,731 14,357
Management, facility and access fees 11,394 11,288
Other 1,922 3,022
- ------------------------------------------------------------------------- -------------
Total cost of revenues 23,047 28,667
- ------------------------------------------------------------------------- -------------
Gross margin 11,977 19,278
- ------------------------------------------------------------------------- -------------
Selling, general and administrative 14,614 21,309
Interest and other (24) (966)
Depreciation of capital assets and assets under lease 547 535
Amortization of intangibles 2,564 3,158
- ------------------------------------------------------------------------- -------------
17,701 24,036
- ------------------------------------------------------------------------- -------------
LOSS BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (5,724) (4,758)
Income taxes (466) (174)
Non-controlling interest (372) (240)
- ------------------------------------------------------------------------- -------------
INCOME LOSS FOR THE PERIOD $ (6,562) $ (5,172)
============= =============
BASIC LOSS PER SHARE $ (0.17) $ (0.14)
Weighted average number of
Common Shares Outstanding 38,039,639 37,203,625
Fully Diluted Loss per share $ (0.17) $ (0.14)
Prepared in accordance with U.S. Generally Accepted Accounting Principles
13
Results of Operations
Quarter ended August 31, 2001 compared to Quarter ended August 31, 2000
Revenues for the first quarter of fiscal 2002 were $35.0 million, which is a
26.9% decrease over net revenues in the first quarter of fiscal 2001 of $47.9
million. Approximately 90% of total net revenues were derived from refractive
services as compared to 95% in the first quarter of fiscal 2001.
Revenues from refractive activities in the first quarter of fiscal 2002 year
were $31.4 million, which is 31.2% lower than net revenues from refractive
activities in the first quarter of fiscal 2001 of $45.6 million. Approximately
24,100 procedures were performed in the first quarter of fiscal 2002 compared to
approximately 33,400 procedures in the first quarter of fiscal 2001. The
decrease in procedure volume and the associated reduction of revenue is
indicative of the condition of the laser vision correction industry which has
experienced uncertainty resulting from a wide range in consumer prices for laser
vision correction procedures, the recent bankruptcies of a number of deep
discount laser vision correction companies as well as the ongoing safety and
effectiveness concerns arising from the lack of long-term follow-up data and
negative news stories focusing on patients with unfavourable outcomes from
procedures performed at centers competing with TLC centers. The Company
maintains its vision to be a premium provider of laser vision correction
services in an industry that has faced significant pricing pressures. In spite
of pricing pressures in the industry, the Company's net revenue after doctor
compensation, per procedure, for the first quarter of fiscal 2002 declined by
only 4% in comparison to the first quarter of fiscal 2001.
In the final quarter of fiscal 2000 and during fiscal 2001, the Company
completed practice management agreements with a number of surgeons resulting in
an increase in intangible assets to reflect the value assigned to these
agreements. These intangible assets are being amortized over the term of the
applicable agreements. These agreements have resulted either directly or
indirectly in lower per procedure fees being paid to the applicable surgeons and
a corresponding reduction in doctor compensation to offset the increased
amortization costs. These changes have resulted in an increase in the ratio of
net revenue after doctor compensation per procedure.
The cost of refractive revenues from eye care centers for the first quarter of
fiscal 2002 were $21.1 million, which is 17.6% lower than the first quarter of
fiscal 2001. Cost of refractive revenues were $25.6 million which reflects
reduced doctors compensation resulting from lower procedure volumes, a reduction
in royalty fees on laser usage and reduced personnel costs.
Selling, general and administrative expenses decreased to $14.6 million in the
first quarter of fiscal 2002 from $21.3 million in the first quarter of fiscal
2001. This reflects decreased marketing costs, decreased infrastructure costs
and reductions associated with Corporate Advantage and Third Party Payor
programs all identified in conjunction with the Company's cost reduction
initiatives.
Revenues from non-refractive (Other) activities were $3.6 million in the first
quarter of fiscal 2002, an increase of over 56% in comparison to $2.3 million in
the first quarter of fiscal 2001. The increase in revenues reflects revenue
growth in the network marketing and management and professional healthcare
facility management subsidiaries, while revenues in the secondary care
management, hair removal and asset management subsidiaries reflected little or
moderate growth.
Net income from non-refractive activities was $0.5 million in the first quarter
of fiscal 2002, in comparison to a net loss of $3.7 million in the first quarter
of fiscal 2001. The loss in the first quarter of fiscal 2001 included the
activities of the Company's e-commerce subsidiary eyeVantage.com, Inc., which
generated losses of $2.9 million. The first quarter of fiscal 2002 does not
reflect the activities of eyeVantage.com, Inc. due to the decision by the
Company in fiscal 2001 to cease materially funding this e-commerce subsidiary
and its subsequent decision to shut down its activities. The profit from
non-refractive activities in the first quarter of fiscal 2002 of $0.5 million
reflects an increase from the loss of $0.8 million in the first quarter of
fiscal 2001 (excluding eyeVantage.com, Inc.). The improved profitability in the
first quarter of fiscal 2002 is due primarily to increased revenues.
14
Interest (revenue)/expense and other expenses reflect interest revenue from the
Company's cash position. The addition in the fourth quarter of fiscal 2001 to
long term debt as a result of the acquisition of a Maryland professional
corporation has resulted in increasing interest costs on debt. Reduced cash and
cash equivalent balances during fiscal 2001 and the first quarter of fiscal 2002
combined with lower interest yields have resulted in lower interest revenues.
The decrease in depreciation and amortization expense is largely a result of the
reduction in the development of new centers and the reduction in depreciation
and amortization associated with the Company's decision to cease materially
funding eyeVantage.com, Inc. during fiscal 2001. Also the Company has elected to
adopt SFAS No. 142 effective June 1, 2001. The adoption of SFAS No. 142
eliminates the requirement for the Company to amortize goodwill. The adoption of
SFAS No. 142 by the Company for fiscal 2002, has resulted in a decrease in
amortization of approximately $708,000 ($0.02 per share) in the first quarter of
fiscal 2002. Intangibles whose useful lives are not indefinite are amortized on
a straight-line basis over the term of the applicable agreement to a maximum of
fifteen years. Current amortization periods range from five to fifteen years. In
establishing these long term contractual relationships with TLC, key surgeons in
many cases have agreed to receive reduced fees for laser vision correction
procedures performed. The reduction in doctors' compensation offsets in part the
increased amortization of the intangible practice management agreements.
In the first three months of fiscal 2002, amortization of intangibles has
decreased by approximately $0.6 million reflecting the elimination of goodwill
amortization of $0.5 million relating to the Company's exit from eyeVantage.com,
Inc., and the elimination of goodwill amortization of $0.9 million resulting
from the Company's early adoption of SFAS 142, offset by an increase in
amortization of Practice Management Agreements of $0.8 million resulting from
practices purchased during fiscal 2001.
Income tax expense increased to $0.5 million in the first quarter of fiscal 2002
from $0.2 million in the first quarter of fiscal 2001. This increase reflects
the impact of the tax liabilities associated with the Company's partners in
profitable subsidiaries and the requirement to reflect minimum tax liabilities
relevant in Canada, United States and certain other jurisdictions.
The loss for the first quarter of fiscal 2002 was $6.6 million or $0.17 per
share, compared to a loss of $5.2 million or $0.14 cents per share for the first
quarter of fiscal 2001. This increased loss primarily reflects the impact of
reduced refractive revenues offset partially by reduced costs and decreased
depreciation and amortization. The Company is assessing patient, optometric and
ophthalmic industry trends and developing strategies to improve laser vision
correction procedure and revenue volumes. Cost reduction initiatives continue to
target the effective use of funds and a growth initiative is focusing on the
future development opportunities for the Company, in the laser vision correction
industry, which reduces the requirement for capital funding.
15
Results of Operations
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended
- ---------------------------------------------------------- August 31, May 31,
(U.S. dollars, in thousands except per share amounts) 2001 2001
========================================================================= =============
Revenues
Refractive
Owned centers $ 13,442 $ 16,020
Management, facility and access fees $ 17,935 $ 20,366
Other 3,647 3,677
- ------------------------------------------------------------------------- -------------
Total revenues 35,024 40,063
- ------------------------------------------------------------------------- -------------
Expenses
Cost of revenues
Refractive
Owned centers 9,731 11,115
Management, facility and access fees 11,394 11,288
Other 1,922 2,302
- ------------------------------------------------------------------------- -------------
Total cost of revenues 23,047 24,705
- ------------------------------------------------------------------------- -------------
Gross margin 11,977 15,358
- ------------------------------------------------------------------------- -------------
Selling, general and administrative 14,614 12,977
Interest and other (24) (261)
Depreciation of capital assets and assets under lease 547 630
Amortization of intangibles 2,564 3,248
Start-up and development expenses -- --
Restructuring and other charges -- 3,126
- ------------------------------------------------------------------------- -------------
17,701 19,720
- ------------------------------------------------------------------------- -------------
LOSS BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (5,724) (4,362)
Income taxes (466) (567)
Non-controlling interest (372) (71)
- ------------------------------------------------------------------------- -------------
NET LOSS FOR THE PERIOD $ (6,562) $ (5,000)
============ ============
BASIC LOSS PER SHARE $ (0.17) $ (0.13)
Weighted average number of
Common Shares Outstanding 38,039,639 38,026,305
Fully Diluted Loss per share $ (0.17) $ (0.13)
Prepared in accordance with U.S. Generally Accepted Accounting Principles
16
Quarter ended August 31, 2001 compared to Quarter ended May 31, 2001
Revenues for the first quarter of fiscal 2002 were $35.0 million, which is a 13%
decrease over revenues in the fourth quarter of fiscal 2001 of $40.1 million.
Approximately 90% of total revenues were derived from refractive services as
compared to 91% in fourth quarter of fiscal 2001.
Revenues from refractive activities for the first quarter of fiscal 2002 were
$31.4 million, which is 14% lower than the fourth quarter of fiscal 2001 of
$36.4 million. Approximately 24,100 procedures were performed in the first
quarter of fiscal 2002 compared to approximately 28,900 procedures in the fourth
quarter of fiscal 2001. The decrease in procedure volume and the associated
reduction of revenue is indicative of the condition of the laser vision
correction industry which has experienced uncertainty resulting from a wide
range in consumer prices for laser vision correction procedures, the recent
bankruptcies of a number of deep discount laser vision correction companies as
well as the ongoing safety and effectiveness concerns arising from the lack of
long-term follow-up data and negative news stories focusing on patients with
unfavourable outcomes from procedures performed at centers competing with TLC
centers. The Company maintains its stated objective of being a premium provider
of laser vision correction services in an industry that has faced significant
pricing pressures. In spite of the pricing pressures in the industry, the
Company's net revenue after doctor compensation per procedure for the first
quarter of fiscal 2002 declined by only 1% in comparison to the fourth quarter
of fiscal 2001.
In the final quarter of fiscal 2000 and during fiscal 2001, the Company
completed practice management agreements with a number of surgeons resulting in
an increase in intangible assets to reflect the value assigned to these
agreements. These intangible assets are being amortized over the term of the
applicable agreements. These agreements have resulted either directly or
indirectly in lower per procedure fees being paid to the applicable surgeons and
a corresponding reduction in doctor compensation to offset the increased
amortization costs. These changes have resulted in an increase in the ratio of
net revenue after doctor compensation per procedure.
The cost of refractive revenues from eye care centers for the first quarter of
fiscal 2002 were $21.1 million, which is 5.8% lower than the fourth quarter of
fiscal 2001. Cost of refractive revenues was $22.4 million which reflects
reduced doctors' compensation, royalty fees on laser usage and personnel costs
resulting from lower procedure volumes. The reduction of cost of refractive
revenues was offset by contractual obligations for facilities and lasers which
were not impacted by reduced volume levels.
Selling, general and administrative expenses increased to $14.6 million in the
first quarter of fiscal 2002 from $13.0 million in the fourth quarter of fiscal
2001. This reflects increased infrastructure costs resulting from contractual
obligations and increased insurance premiums in line with industry experience
offset by reduced marketing costs reflecting the ongoing commitment to
controlling costs.
Revenues from non-refractive activities were $3.6 million in the first quarter
of fiscal 2002 minimally changed in comparison to $3.7 million in the fourth
quarter of fiscal 2001. The maintenance of revenues reflect the sustained growth
in this segment, maintaining the growth experienced throughout fiscal 2001.
Net income from non-refractive activities excluding restructuring and other
charges was $0.5 million in the first quarter of fiscal 2002, an increase in
comparison to a net loss excluding restructuring and other charges of $0.2
million in the fourth quarter of fiscal 2001. The improved performance in
secondary care operations has been sustained into the first quarter of fiscal
2002 and is forecasted to remain self sufficient and is not expected to require
funding by the Company for ongoing operations.
Interest (revenue)/expense and other expenses reflected interest revenue from
the Company's cash position. Interest revenue has decreased in the first quarter
of fiscal 2002 as a result of reduced cash balances, reduced investment rates
resulting from ongoing federal interest rate reductions and lower investment
yields on bonds invested at year end to minimize capital tax liabilities.
17
The decrease in depreciation and amortization expense is largely a result of the
impact of the Company's use of the declining balance depreciation policy for
laser equipment, medical equipment and furniture and fixtures. Also the Company
has elected to adopt SFAS No.142 effective June 1, 2001. The adoption of this
SFAS No. 142 eliminates the requirement for the Company to amortize goodwill.
The adoption of SFAS No. 142 by the Company for fiscal 2002 has resulted in a
decrease in amortization of approximately $708,000 ($0.02 per share) in the
first quarter of fiscal 2002. Intangibles whose useful lives are not indefinite
are amortized on a straight-line basis over the term of the applicable agreement
to a maximum of fifteen years. Current amortization periods range from five to
fifteen years. In establishing the long term contractual relationships with TLC,
key surgeons in many cases have agreed to receive reduced fees for laser vision
correction procedures performed. The reduction in doctors' compensation offsets
in part the increased amortization of the intangible practice management
agreements.
Amortization of intangibles have decreased by approximately $0.7 million
primarily reflecting the elimination of goodwill amortization resulting from the
Company's early adoption of SFAS 142.
Income tax expense remained relatively unchanged at $0.5 million in the first
quarter of fiscal 2002 from $0.6 million in the fourth quarter of fiscal 2001.
The liability for taxes reflect minimum tax requirements and the impact of the
tax liabilities associated with the Company's partners in profitable
subsidiaries.
The loss for the first quarter of fiscal 2002 was $6.6 million or $0.17 per
share, compared to a loss of $5.0 million or $0.14 cents per share for the
fourth quarter of fiscal 2001.
Liquidity and Capital Resources
During the first quarter of fiscal 2002 the Company continued to focus its
activities on increasing procedure volumes and reducing costs. Cash, cash
equivalents, short-term investments and restricted cash were $48.8 million at
August 31, 2001 as compared to $55.7 million at May 31, 2001. Net current assets
at August 31, 2001 reflected a decrease to $32.0 million from $36.8 million at
May 31, 2001. This decrease reflects primarily the reduction in cash and cash
equivalents during the first quarter of fiscal 2002.
The Company's principal cash requirements included normal operating expenses,
debt repayment, distributions to minority partners, capital expenditures and
funding costs of the proposed merger with Laser Vision. Normal operating
expenses include doctor compensation, procedure royalty fees, procedure medical
supply expenses, travel and entertainment, professional fees, insurance, rent,
equipment maintenance, wages, utilities and marketing.
During the quarter the Company invested $1.1 in capital assets. The Company has
forecasted its capital expenditure requirements for fiscal 2002 will not exceed
$5.0 million. The new corporate headquarters which the Company has agreed to
sell as part of a sale/leaseback transaction is expected to generate $5.0
million for the Company in the second quarter of fiscal 2002.
During the quarter the Company incurred costs of $1.2 million relating to the
announced merger with Laser Vision. This merger is anticipated to be completed
by March 31, 2002.
During the quarter, the Company incurred cash costs of $0.3 million for
restructuring charges primarily for lease costs and closure costs.
The Company accrued a liability of $2.1 million resulting from an arbitration
award against the Company in the fourth quarter of fiscal 2001. The Company has
deferred payment of this liability until exploration of all legal alternatives
have been completed. Payment of this liability, if necessary, is not anticipated
until the latter half of fiscal 2002.
The Company has access to vendor financing for laser purchases from a laser
vendor at favourable rates. In addition, it has completed an agreement with a
competing laser vendor which provides for payment on a per procedure fee basis
for the laser, associated medical equipment and supplies, royalty fees and
maintenance. The Company expects to continue to have access to these financing
options for at least the next 18 months.
18
The Company estimates that existing cash balances, together with funds expected
to be generated from operations and available credit facilities, will be
sufficient to fund the Company's anticipated level of operations, acquisition
and expansion plans for the next 12 to 18 months.
Cash Used for Operating Activities
Net cash provided by (used for) operating activities decreased by $10.3 million
to $(2.4) million in the first quarter of fiscal 2002 from $7.9 million in the
first quarter of fiscal 2001. Net cash used for operating activities in the
first quarter of fiscal 2002 primarily represents cash earnings (defined as net
loss adding back amortization and depreciation, gain or loss on the sale of
fixed assets, non-cash restructuring costs, income tax provision and minority
interest included as part of net income) of $(0.2) million (2001 - $2.6
million), a reduction in accounts receivable of $1.4 million (2001 - $3.2),
reduction in accounts payable of $2.8 million (2001 - decrease of $2.8 million
), net payments of tax of $0.3 million (2001 - net refunds of $3.6 million) and
an increase of prepaid expenses and other assets net of liabilities of $0.5
million (2001 - decrease of $1.3 million).
Cash Used for Financing Activities
Net cash used for financing activities decreased by $3.8 million in the first
quarter of fiscal 2002 to $2.3 million from $6.2 million in the first quarter of
fiscal 2001. Net cash used for financing activities in the first quarter of
fiscal 2002 primarily represents payments of debt financing and obligations
under capital leases of $1.2 million (2001 - $1.8 million) payments of accrued
purchase obligations of $0.0 million (2001 - $3.0 million), distributions to
non-controlling interests of $1.2 million (2001 - $1.5 million), payments
related to the purchase and cancellation of capital stock of $0.0 million (2001
- - $0.1 million) offset by proceeds from the issuance of common stock of $0.1
million (2001 - $0.2 million).
Cash Provided by Investing Activities
Net cash provided by (used in) investing activities increased by $11.4 million
in the first quarter of fiscal 2002 to $4.0 million from $(7.4) million in
fiscal 2001. Net cash provided by (used in) investing activities in the first
quarter of fiscal 2002 primarily represents the purchase of fixed assets of $1.1
million (2001 - $3.7 million) and cash costs of acquisitions and investments of
$1.2 million (2001 - $5.9 million) offset by the sale of short term investments
of $6.1 million (2001 - $0.0) and proceeds from the sale of fixed assets, assets
under capital lease and investments of $0.2 million (2001 - $2.2 million).
Other Business Segments
TLC made the decision during the second quarter of fiscal 2001 to cease
materially funding the activities of its e-commerce subsidiary eyeVantage.com,
Inc. and sustained significant write-offs and cash costs as a result of
eyeVantage.com's decision to shut down. As a result, the first quarter of fiscal
2002 does not include losses from operations similar to the $2.9 million of
losses reported in the first quarter of fiscal 2001 from eyeVantage.com, Inc.
The Company's other investments in non-core activities are currently largely
self-sustaining with minimal requirement for funding support. This segment
includes activities in secondary care practice management, network management
and marketing, asset management, healthcare facility management and hair removal
facilities. The Company continues its efforts to maximize the value of its
investments in non-core businesses.
New Accounting Pronouncements
Under SEC Staff Accounting Bulletin 74, the Company is required to disclose
certain information related to new accounting standards, which have not yet been
adopted due to delayed effective dates. While it is not necessary to discuss
standards which have been adopted in the current period, the Company has decided
to provide the following:
The Financial Accounting Standards Board issued Statement No. 141, "Business
Combinations", which requires that all business combinations initiated after
June 30, 2001 be accounted for using the purchase method of accounting. The
Financial Accounting Standards Board also issued Statement No. 142, "Goodwill
and Other Intangible Assets",
19
which eliminates the amortization of goodwill and indefinite life intangible
assets and requires these assets to be tested annually for impairment. For
goodwill and other intangible assets existing at June 30, 2001, the new
Statement must be applied for fiscal years beginning after December 15, 2001,
with earlier adoption permitted. For goodwill and other intangible assets
resulting from business combinations completed after June 30, 2001, the
Statement must be adopted immediately. The Company has decided to adopt SFAS
Nos.141 and 142 for the fiscal 2002 year which began on June 1, 2001. The
adoption has resulted in the elimination in the first quarter of fiscal 2002 of
approximately $0.7 million ($0.02 per share) of goodwill amortization that would
have been charged to earnings had the Company not early adopted these new
accounting policies (in the first quarter of fiscal 2001, $1.3 million ($0.04
per share) of goodwill amortization was reported). The Company is undertaking a
transitional impairment test to identify if there is potential impairment to the
goodwill as at June 1, 2001, to be completed by November 30, 2001. Step one of
the transitional impairment test uses a fair value methodology, which differs
from the undiscounted cash flow methodology that continues to be used for
intangible assets with an identifiable life. If step one identifies any of the
Company's reporting units, for which the carrying value exceeds the fair value
as at June 30, 2001, it will be necessary to complete step two of the
transitional impairment test and any resulting impairment loss will be recorded
as a cumulative effect of a change in accounting principle. Such subsequent
impairment losses, if any, will be reflected in operating income in the income
statement.
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 commitments, and does not hedge any
translation exposure..
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
a. Exhibits:
Exhibit 2. Agreement and Plan of Merger between Laser Vision Centers,
Inc., the Company and TLC Acquisition II Corp. dated August 25, 2001 (the
"Merger Agreement") filed as exhibit number 2.1 to the Company's
Registration Statement on Form S-4, filed with the Commission on October
12, 2001 and incorporated by reference herein.
20
b. Reports on 8-K
On September 7, 2001, the Company filed with the Commission a
current report on Form 8-K reporting under Item 5 (Other Events) the
entering into of the Merger Agreement
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 LASER EYE CENTERS INC.
By: /s/ Elias Vamvakas
-------------------------------------
Elias Vamvakas
Chief Executive Officer
February 25, 2002
By: /s/ Brian Park
-------------------------------------
Brian Park
Interim Chief Financial Officer
February 25, 2002
21