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 NOVEMBER 30, 2001
COMMISSION FILE NUMBER: 0-29302
TLC LASER EYE CENTERS INC.
--------------------------
(Exact name of registrant as specified in its charter)
Ontario, Canada
(State or jurisdiction of 980151150
incorporation or organization) (I.R.S. Employer Identification No.)
5280 Solar Drive, Suite 300
Mississauga, Ontario L4W 5M8
(Address of principal executive offices) (Zip Code)
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 December 31, 2001, there were 38,089,898 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, as amended. 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 the 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 (unaudited)
Consolidated Statements of Income for the Three Months
ended November 30, 2001 and November 30, 2000 and the
Six Months ended November 30, 2001 and November 30, 2000
Consolidated Balance Sheets at November 30, 2001 and
May 31, 2001
Consolidated Statements of Cashflows for the Six
Months ended November 30, 2001 and November 30, 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
ITEM 1. FINANCIAL STATEMENTS
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended November 30 Six months ended November 30
(U.S. dollars, in thousands except share and per share amounts) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues
Refractive
Owned $ 9,505 $ 18,946 $ 22,947 $ 41,625
Managed, facility and access fees 13,214 16,632 31,149 39,575
Other 3,939 2,832 7,586 5,155
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Total revenues 26,658 38,410 61,682 86,355
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Expenses
Cost of revenues
Refractive
Owned 8,699 15,308 18,430 29,665
Managed, facility and access fees 10,647 10,768 22,041 22,056
Reduction in carrying value of capital assets 1,066 -- 1,066 --
Other 2,118 2,376 4,040 5,398
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Total cost of revenues 22,530 28,452 45,577 57,119
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Gross margin 4,128 9,958 16,105 29,236
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Selling, general and administrative 12,743 19,729 27,357 41,038
Interest and other 178 (651) 154 (1,617)
Depreciation of capital assets and assets under
lease 603 570 1,150 1,105
Amortization of intangibles 2,536 3,301 5,100 6,459
Write down of investments 20,031 -- 20,031 --
Restructuring and other charges 934 14,635 934 14,635
- ---------------------------------------------------------------------------------------------------------------------------------
37,025 37,584 54,726 61,620
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LOSS BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (32,897) (27,626) (38,621) (32,384)
Income taxes (96) (666) (562) (840)
Non-controlling interest (375) 263 (747) 23
- ---------------------------------------------------------------------------------------------------------------------------------
LOSS FOR THE PERIOD $ (33,368) $ (28,029) $ (39,930) $ (33,201)
==================================================================
BASIC LOSS PER SHARE $ (0.88) $ (0.74) $ (1.05) $ (0.88)
Weighted average number of
Common Shares Outstanding 38,064,879 37,932,216 38,052,190 37,564,602
Fully Diluted Loss per share $ (0.88) $ (0.74) $ (1.05) $ (0.88)
Prepared in accordance with U.S. Generally Accepted Accounting Principles
See the accompanying notes to unaudited interim consolidated financial
statements.
3
TLC LASER EYE CENTERS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
November 30 May 31
(U.S. dollars, in thousands) 2001 2001
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ASSETS
Current assets
Cash and cash equivalents $ 43,686 $ 47,987
Marketable securities -- 6,063
Accounts receivable 7,975 9,950
Prepaids and sundry assets 4,162 4,501
- ------------------------------------------------------------------------------------
Total current assets 55,823 68,501
Restricted cash 4,889 1,619
Investments and other assets 14,089 23,171
Intangibles 54,973 60,050
Goodwill 32,740 32,752
Capital assets 40,048 44,963
Assets under capital lease 6,599 7,382
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Total assets $ 209,161 $ 238,438
====================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 14,991 $ 15,028
Accrued legal settlements 2,100 2,100
Accrued purchase obligations 3,000 3,000
Accrued restructuring costs 892 718
Accrued wage costs 3,254 3,652
Current portion of long term debt 3,818 3,826
Current portion of obligations under capital lease 2,226 2,943
Income taxes payable 565 397
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Total current liabilities 30,846 31,664
Long term debt 11,521 7,032
Obligations under capital lease 499 1,281
Deferred rent and compensation 515 617
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Total liabilities 43,381 40,594
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Non-controlling interest 8,905 10,738
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SHAREHOLDERS' EQUITY
Capital stock 276,434 276,277
Warrants 532 532
Deficit (120,091) (80,161)
Accumulated other comprehensive loss -- (9,542)
- ------------------------------------------------------------------------------------
Total shareholders' equity 156,875 187,106
- ------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 209,161 $ 238,438
====================================================================================
Prepared in accordance with U.S. Generally Accepted Accounting Principles
See the accompanying notes to unaudited interim consolidated financial
statements.
4
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
(unaudited)
Six months ended November 30, 2001
(U.S. dollars, in thousands) 2001 2000
- -------------------------------------------------------------------------------------------------------------
Operating activities
Net loss for the period $(39,930) $(33,201)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 11,028 13,988
Goodwill written off in the period -- 216
(Gain)/loss on sale of capital assets and assets under lease 81 1,173
Non-cash reduction in carrying values of capital assets and
write down of investments 21,097 --
Non-cash restructuring and other costs 570 14,319
Non-controlling interest 747 (23)
Other 205 21
Changes in non-cash operating items
Accounts receivable 1,975 6,136
Prepaids and sundry assets 339 1,907
Accounts payable and accrued liabilities (1,203) (3,056)
Income taxes payable (net) 376 4,421
Deferred rent and compensation 270 (164)
- -------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities (4,445) 5,737
- -------------------------------------------------------------------------------------------------------------
Financing activities
Restricted cash movement from financing activities (270) 32
Proceeds from debt financing 5,412 43
Principal payments of debt financing (928) (1,350)
Principal payments of obligations under capital lease (1,516) (2,475)
Payments of accrued purchase obligations -- (3,000)
Contributions from non-controlling interests -- 30
Distributions to non-controlling interests (2,707) (3,172)
Payments related to the purchase and cancellation of capital stock -- (485)
Proceeds from the issuance of capital stock 157 373
- -------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 148 (10,004)
- -------------------------------------------------------------------------------------------------------------
Investing activities
Restricted cash movement from investing activities (3,000) --
Purchase of capital assets and assets under lease (1,463) (9,070)
Proceeds from sale of capital assets and assets under lease 23 1,088
Proceeds from the sale of investments 150 1,104
Acquisitions and investments and other assets (1,762) (5,816)
Proceeds from sale of marketable securities 6,063 --
Other (15) (91)
- -------------------------------------------------------------------------------------------------------------
Cash used for investing activities (4) (12,785)
- -------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (17,052) (4,301)
Cash and cash equivalents, beginning of year 47,987 78,531
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 43,686 $ 61,479
=============================================================================================================
Prepared in accordance with U.S. Generally Accepted Accounting Principles
See the accompanying notes to unaudited interim consolidated financial
statements.
5
TLC Laser Eye Centers Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(U.S. dollars, in thousands)
(unaudited)
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 loss
Net loss (5,918)
Other comprehensive loss
Unrealized losses on available-for-sale
securities (10,387)
Total comprehensive 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 loss
Net loss (37,773)
Other comprehensive loss
Unrealized losses on available- for-sale
securities (5,091)
Total comprehensive 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 34 157 157
Comprehensive income (loss)
Net loss (39,930)
Other comprehensive income (loss)
Unrealized gains/losses on available-
for-sale securities 9,542
Total comprehensive income (loss) (30,388)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance November 30, 2001 38,065 276,434 100 532 (120,091) -- 156,875
=================================================================================================================================
Prepared in accordance with U.S. Generally Accepted Accounting Principles
See the accompanying notes to unaudited interim consolidated financial
statements.
6
TLC LASER EYE CENTERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2001
(Unaudited)
1. Basis of Presentation and Accounting Policies
The information contained in the unaudited interim consolidated financial
statements and footnotes is condensed from what would appear in the annual
consolidated financial statements. Accordingly, the unaudited interim
consolidated financial statements included herein should be read in
conjunction with the May 31, 2001, Annual Report on Form 10-K, as amended
("Form 10-K") filed by TLC Laser Eye Centers Inc. (the "Company" or "TLC")
with the Securities and Exchange Commission. The unaudited interim
consolidated financial statements as of November 30, 2001 and for the six
months then ended include all normal recurring adjustments and estimates
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 unaudited
interim 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.
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. Net 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 (PCs) 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. Net
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.
7
In Company owned centers, the Company is responsible for arranging for and
reimbursing the surgeons who provide laser vision correction services and
the amounts paid to the surgeons is reported as a cost of revenue as well.
The unaudited interim consolidated financial statements for the three
month and six month period ended November 30, 2000 include certain
reclassifications to conform with classifications for the three month and
six month period ended November 30, 2001.
The net 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 ("SFAS No. 142"). 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. The Company has completed a
transitional impairment test to identify if there is potential impairment
to the goodwill as at June 1, 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. Based on the results of step
one of the transitional impairment test, the Company has identified
certain reporting units for which the carrying value exceeded the fair
value as at June 1, 2001, indicating a potential impairment of goodwill in
those reporting units. Step two of the transitional impairment test, to
determine the magnitude of any goodwill impairment, 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. Initial quantification of the impairment test, which
may vary from the final quantification, indicates a write down of
approximately $7 million to $15 million. As the Company has decided to
select a date other than June 1 as the date it will perform its annual
impairment test, the Company will be performing another impairment test
prior to May 31, 2002. In addition to the annual impairment test, the
Company will perform an impairment test if an event occurs or
circumstances change that would more likely than not to reduce the fair
value of a reporting unit below its carrying amount. Such subsequent
impairment losses, if any, will be reflected in operating income in the
income statement. The Company has $32.7 million of goodwill on its balance
sheet as at November 30, 2001 and expects to record material goodwill in
connection with its acquisition of Laser Vision Centers, Inc. (see note
4). The calculation of any impairment is performed at the level of
reporting units and requires a comprehensive analysis, which has not yet
been completed. However, the difference between the book value of a
company and its market value may indicate that an impairment in the
company's goodwill exists. Based on the recent trading price of the
Company's common shares, the book value of the Company exceeds its market
capitalization. This is an indication that the impairment analysis to be
conducted by the Company may result in some portion or all of the
Company's goodwill and any additional goodwill resulting from the
acquisition of Laser Vision Centers, Inc. being impaired and written off
in the period in which the test occurs, the quarter ended May 31, 2002.
Because the determination of whether there is an impairment of the
Company's goodwill will be completed at a future date and will involve
many aspects of analyses which have not yet been undertaken, the amount of
any writedown cannot be reliably predicted at this time. On a fiscal year
basis, with the adoption of SFAS No. 142, the Company anticipates
approximately $2.8 million in goodwill amortization will not be charged to
income.
As required by SFAS No. 142, the results for the prior year's quarters
have not been restated. A reconciliation of net income as if SFAS No. 142
has been adopted is presented below for the periods ended November 30,
2000.
-------------------------------------------------------------------
Three months ended November 30 Six months ended November 30
-------------------------------------------------------------------
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2001 2000 2001 2000
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Reported net loss for the period $ (33,368) $ (28,029) $ (39,930) $ (33,201)
------------------------------------------------------------------------------------------------------
Add back goodwill amortization -- 1,069 -- 2,430
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Adjusted net loss for the period $ (33,368) $ (26,960) $ (39,930) $ (30,771)
------------------------------------------------------------------------------------------------------
Basic loss per share:
------------------------------------------------------------------------------------------------------
Reported net loss for the period $ (0.88) $ (0.74) $ (1.05) $ (0.88)
------------------------------------------------------------------------------------------------------
Goodwill amortization -- 0.03 -- 0.06
------------------------------------------------------------------------------------------------------
Adjusted net loss for the period $ (0.88) $ (0.71) $ (1.05) $ (0.82)
------------------------------------------------------------------------------------------------------
Fully diluted loss per share:
------------------------------------------------------------------------------------------------------
Reported net loss for the period $ (0.88) $ (0.74) $ (1.05) $ (0.88)
------------------------------------------------------------------------------------------------------
Goodwill amortization -- 0.03 -- 0.06
------------------------------------------------------------------------------------------------------
Adjusted net loss for the period $ (0.88) $ (0.71) $ (1.05) $ (0.82)
------------------------------------------------------------------------------------------------------
3. Comprehensive Loss and Write down of Investments
-----------------------------------------------------------------
Three months ended November 30 Six months ended November 30
-----------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------
Reported net loss for the period $ (33,368) $ (28,029) $ (39,930) $ (33,201)
-----------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 16,698 (5,780) 9,542 (7,293)
-----------------------------------------------------------------------------------------------------
Total comprehensive loss $ (16,670) $ (33,809) $ (30,388) $ (40,494)
-----------------------------------------------------------------------------------------------------
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.
For the quarter ended November 30, 2001, the Company reported a charge to
net loss for the reduction in fair value of available-for-sale investments
for which the decline is considered other than temporary. The charge
8
was comprised of the Company's investment in LaserSight Incorporated
(LaserSight) ($17.5 million) and Laser Vision Centers Inc. (Laser Vision)
($1.5 million).
In addition to the write down of the Company's investments in LaserSight
for $17.5 million and Laser Vision for $1.5 million, the Company also
wrote down another investment which totaled $1.0 million. The $20.0
million total of these write downs is presented as write down of
investments in the consolidated statement of income.
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 ("Merger Agreement") with 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
7.9 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 second half of fiscal 2002, is
subject to shareholder and regulatory approval and other conditions usual
and customary in such transactions. The Company has incurred $2.2 million
in costs related to the merger, $1.4 million of which was incurred in the
six months ended November 30, 2001 ($0.2 million - three months ended
November 30, 2001). These costs have been categorized as non-current
assets in the current quarter and will be included in the purchase price
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 and/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
share 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. Capital Assets
The Company has recorded a reduction of the carrying value of capital
assets of $1.1 million reflecting a write down of certain of the Company's
lasers produced by LaserSight to a value of $75,000 each. These lasers do
not represent the most current technology available and the Company has
made the decision to write the lasers down to current market value and
will evaluate the best option for utilization or upgrade of these lasers.
In the second quarter of fiscal 2002, the Company completed a
sale-leaseback transaction for its corporate headquarters. Total
consideration received for the sale was Cdn. $10.1 million of which, Cdn.
$8.6 million was cash and Cdn. $1.5 million 8.0% note receivable (Note).
The Note has a seven-year term with the first of four annual payments of
Cdn. $100,000 due on the third anniversary of the sale and a final payment
of Cdn. $1.1 million due on the seventh anniversary of the sale. The lease
term related to the leaseback covers a period of 15 years. For accounting
purposes, due to ongoing responsibility for tenant management and
administration as well as receiving the Note as part of the consideration
for the sale, no sale has been reported. For purpose of financial
reporting, the cash proceeds of Cdn. $8.6 million has been presented as
additional debt. Subsequent
9
receipt of the Note will result in additional debt while lease payments
will result in decreasing the debt and interest expense. Until the Company
meets the accounting qualifications for recognizing the sale, the building
associated with the sale-leaseback will continue to be depreciated over
its initial term of 40 years.
6. Divestitures and Restructuring Charges
In the second quarter of fiscal 2002, the Company implemented a
restructuring program to reduce employee costs in line with current
revenue levels. This program resulted in the identification, notification
and elimination of 49 full time equivalent positions and resulted in a
severance provision of $934,000 being reported of which $364,000 was paid
in the second quarter of fiscal 2002.
In the second quarter of fiscal 2001, accrued liabilities for
restructuring provisions were recorded as a result of the decision to
cease material funding of the Company's e-commerce subsidiary
eyeVantage.com, Inc. and the resulting decision by eyeVantage.com, Inc. to
cease operations, 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 three months and six months ended November 30, 2001
the Company paid $81,000 and $396,000 of these provisions, respectively.
7. 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, and
activities involving the development of eyeVantage.com as an e-commerce
enterprise.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the Form 10-K. The
Company evaluates performance based on operational components including
paid procedures, net revenue after doctors' fees, fixed costs and income
(loss) before income taxes.
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.
- ----------
(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 with whom TLC has entered into practice management agreements.
10
The following tables set forth information by segments:
- -----------------------------------------------------------------------------------------------------------------------------
Three months ended November 30th 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
(U.S. dollars, in thousands) Refractive Other Total Refractive Other Total
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET REVENUES $ 22,719 $ 3,939 $ 26,658 $ 35,578 $ 2,832 $ 38,410
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------
Doctor compensation 1,778 -- 1,778 3,681 -- 3,681
- -----------------------------------------------------------------------------------------------------------------------------
Operating expenses 27,318 2,745 30,063 37,745 3,529 41,274
- -----------------------------------------------------------------------------------------------------------------------------
Interest and other 34 144 178 (615) (36) (651)
- -----------------------------------------------------------------------------------------------------------------------------
Depreciation of capital assets and
assets under lease 2,822 147 2,969 3,611 185 3,796
- -----------------------------------------------------------------------------------------------------------------------------
Amortization of intangibles 2,429 107 2,536 2,729 572 3,301
- -----------------------------------------------------------------------------------------------------------------------------
Reduction in fair value of capital assets 1,066 -- 1,066 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Write down of investments 20,031 -- 20,031 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Restructuring and other charges 934 -- 934 985 13,650 14,635
- -----------------------------------------------------------------------------------------------------------------------------
56,412 3,143 59,555 48,136 17,900 66,036
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (33,693) 796 (32,897) (12,558) (15,068) (27,626)
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes 187 (283) (96) (590) (76) (666)
- -----------------------------------------------------------------------------------------------------------------------------
Non-controlling interest (175) (200) (375) 383 (120) 263
- -----------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $(33,681) $ 313 $(33,368) $(12,765) $(15,264) $(28,029)
- -----------------------------------------------------------------------------------------------------------------------------
Prepared in accordance with U.S. Generally Accepted Accounting Principles
- -----------------------------------------------------------------------------------------------------------------------------
Six months ended November 30th 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
(U.S. dollars, in thousands) Refractive Other Total Refractive Other Total
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET REVENUES $ 54,096 $ 7,586 $ 61,682 $ 81,200 $ 5,155 $ 86,355
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------
Doctor compensation 4,454 -- 4,454 8,531 -- 8,531
- -----------------------------------------------------------------------------------------------------------------------------
Operating expenses 57,374 5,263 62,637 74,775 8,427 83,202
- -----------------------------------------------------------------------------------------------------------------------------
Interest and other 17 137 154 (1,716) 99 (1,617)
- -----------------------------------------------------------------------------------------------------------------------------
Depreciation of capital assets and
assets under lease 5,630 297 5,927 7,107 422 7,529
- -----------------------------------------------------------------------------------------------------------------------------
Amortization of intangibles 4,881 219 5,100 5,127 1,332 6,459
- -----------------------------------------------------------------------------------------------------------------------------
Reduction in fair value of capital assets 1,066 -- 1,066 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Write down of investments 20,031 -- 20,031 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Restructuring and other charges 934 -- 934 985 13,650 14,635
- -----------------------------------------------------------------------------------------------------------------------------
94,387 5,916 100,303 94,809 23,930 118,739
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (40,291) 1,670 (38,621) (13,609) (18,775) (32,384)
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes 98 (660) (562) (778) (62) (840)
- -----------------------------------------------------------------------------------------------------------------------------
Non-controlling interest (500) (247) (747) 190 (167) 23
- -----------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $(40,693) $ 763 $(39,930) $ (14,197) $(19,004) $ (33,201)
- -----------------------------------------------------------------------------------------------------------------------------
Prepared in accordance with U.S. Generally Accepted Accounting Principles
11
8. Supplemental Cash Flow Information
Non-cash transactions:
Six months ended November 31,
2001 2000
------- -------
Accrued purchase obligations -- (4,199)
Capital stock issued for acquisitions -- 6,059
Cash paid for the following:
Six months ended November 31,
2001 2000
------- -------
Interest 1,086 946
Income taxes 379 541
During the second quarter of fiscal 2002, as a condition of an award
issued against the Company in the fourth quarter of fiscal 2001 from an
arbitration hearing involving TLC Network Services Inc., the Company was
required to set aside $3.0 million while the Company explored all legal
alternatives. The $3.0 million is being reported as restricted cash.
9. Subsequent Events
Subsequent to November 30, 2001, the Company signed a restricted stock
incentive plan and related agreements which will allow the management of
The Vision Source, Inc. to be awarded up to 49% of the common shares of
The Vision Source, Inc. provided certain performance requirements are
achieved by May 31, 2005.
Subsequent to November 30, 2001, the Company advanced $1.0 million to a
third party to support the development of laser scanning technology. This
advance will be expensed over the next six to nine months as the cash is
expended by the entity in its research and development.
12
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Managements 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 the Form 10-K. The following discussion is
based upon the Company's results under U.S. GAAP. Unless otherwise specified,
all dollar amounts are U.S. dollars.
Overview
TLC Laser Eye Centers Inc. (the "Company" or "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 60 eye care centers in 28 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 41,900 procedures in the first two
quarters of fiscal 2002.
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.
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 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(2), 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.
- ----------
(2) 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 with whom TLC has entered into practice management agreements.
13
Included in cost of revenues 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 is reported as a cost of revenue as well.
Selling, general and administrative expenses include expenses which are not
directly related to the provision of laser vision correction services.
In the six months ended November 30, 2001, the Company's procedure volume
decreased by 31% from the first six months of fiscal 2001. In the quarter ended
November 30, 2001, the Company's procedure volume decreased 27% from the
previous quarter ended August 31, 2001 and decreased by 35% from the previous
year quarter ended November 30, 2000. The Company, believes that the procedural
volume decreases are indicative of the conditions in the laser vision correction
industry, which has experienced uncertainty resulting from a number of issues,
including but not limited to, a wide range in consumer prices for laser vision
correction procedures, the recent bankruptcies of a number of deep discount
laser vision correction companies, the ongoing safety and effectiveness concerns
arising from the lack of long-term follow up data and negative news stories
focusing on patients with unfavorable outcomes from procedures performed at
centers competing with the Company. 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 (defined by the Company as net revenue less doctors
compensation) per procedure has only declined marginally (1%) in the first six
months of fiscal 2002 compared to the first six months of fiscal 2001 and the
second quarter of fiscal 2002 compared to the first quarter of fiscal 2002.
The Company has developed and launched a pilot test of a new revenue model, the
Company's Affiliate Center program. Under the Company's Affiliate Center
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 the Company can vary from 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 the Company's Affiliate Centers program
vary based on the level of services provided by the Company. The Company's
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.
Effective June 1, 2001, the Company early adopted SFAS No. 142, Goodwill and
Intangible Assets ("SFAS No. 142"). 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. The
Company has completed a transitional impairment test to identify if there is
potential impairment to the goodwill as at June 1, 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. Based on the results of step one of the
transitional impairment test, the Company has identified certain reporting units
for which the carrying value exceeded the fair value as at June 1, 2001,
indicating a potential impairment of goodwill in those reporting units. Step two
of the transitional impairment test, to determine the magnitude of any goodwill
impairment, 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. Initial quantification of the impairment test,
which may vary from the final quantification, indicates a write down of
approximately $7 million to $15 million. As the Company has decided to select a
date other than June 1 as the date it will perform its annual impairment test,
the Company will be performing another impairment test prior to May 31, 2002. In
addition to the annual impairment test, the Company will perform an impairment
test if an event occurs or circumstances change that would more likely than not
to reduce the fair value of a reporting unit below its carrying amount. Such
subsequent impairment losses, if any, will be reflected in operating income in
the income statement. The Company has $32.7 million of goodwill on its balance
sheet as at November 30, 2001 and expects to record material goodwill in
connection with its acquisition of Laser Vision Centers, Inc. (see note 4). The
calculation of any impairment is performed at the level of reporting units and
requires a comprehensive analysis, which has not yet been completed. However,
the difference between the book value of a company and its market value may
indicate that an impairment in the company's goodwill exists. Based on the
recent trading price of the Company's common shares, the book value of the
Company exceeds its market capitalization. This is an indication that the
impairment analysis to be conducted by the Company may result in some portion or
all of the Company's goodwill and any additional goodwill resulting from the
acquisition of Laser Vision Centers, Inc. being impaired and written off in the
period in which the test occurs, the quarter ended May 31, 2002. Because the
determination of whether there is an impairment of the Company's goodwill will
be completed at a future date and will involve many aspects of analyses which
have not yet been undertaken, the amount of any writedown cannot be reliably
predicted at this time. On a fiscal year basis, with the adoption of SFAS No.
142, the Company anticipates approximately $2.8 million in goodwill amortization
will not be charged to income.
14
During the second quarter of fiscal 2002, the Company reported a charge to net
income (loss) for the reduction in fair value of available-for-sale investments
for which the decline is considered other than temporary. The change was
comprised of the Company's investment in LaserSight Incorporated ("LaserSight")
($17.5 million) and Laser Vision Centers Inc. ("Laser Vision") ($1.5 million).
In the second quarter of fiscal 2002, the Company reported a reduction in the
carrying value of capital assets of $1.1 million reflecting a reduction of the
Company's investment in LaserSight lasers to $75,000 each. These lasers do not
represent the most current technology available and the Company has made the
decision to write the lasers down to current market value and will evaluate the
best option for utilization or upgrade of these lasers.
During the second quarter of fiscal 2002, the Company implemented a
restructuring program to reduce employee costs in line with current revenue
levels. This program resulted in the identification, notification and
elimination of 49 full-time equivalent positions and resulted in a severance
provision of $934,000 being reported of which $364,000 was paid in the quarter.
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 options or warrants to acquire approximately 7.9 million common shares
of the Company. The merger will be accounted for under the purchase method.
Completion of the transaction, expected to occur in the second half of fiscal
2002, is subject to shareholder and regulatory approval and other conditions
usual and customary in such transactions. The Company has incurred $2.2 million
in costs related to the merger, $1.4 million of which was incurred in fiscal
2002. These costs have been categorized as non-current assets in the current
year 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
shares, 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.
Subsequent to November 30, 2001, the Company signed a restricted stock incentive
plan and related agreements which will allow the management of The Vision
Source, Inc. to be awarded up to 49% of the common shares of The Vision Source,
Inc. provided certain performance requirements are achieved by May 31, 2005.
Subsequent to November 30, 2001, the Company advanced $1.0 million to a third
party to support its laser scanning technology. This advance will be expensed
over the next six to nine months as the cash is expended by the entity in its
research and development.
15
Results of Operations
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended November 30 Six months ended November 30th
(U.S. dollars, in thousands except per share amounts) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues
Refractive
Owned $ 9,505 $ 18,946 $ 22,947 $ 41,625
Managed, facility and access fees 13,214 16,632 31,149 39,575
Other 3,939 2,832 7,586 5,155
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues 26,658 38,410 61,682 86,355
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses
Cost of revenues
Refractive
Owned 8,699 15,308 18,430 29,665
Managed, facility and access fees 10,647 10,768 22,041 22,056
Reduction in fair carrying of capital assets 1,066 -- 1,066 --
Other 2,118 2,376 4,040 5,398
- ---------------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 22,530 28,452 45,577 57,119
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Margin 4,128 9,958 16,105 29,236
- ---------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative 12,743 19,729 27,357 41,038
Interest and other 178 (651) 154 (1,617)
Depreciation of capital assets and assets under lease 603 570 1,150 1,105
Amortization of intangibles 2,536 3,301 5,100 6,459
Write-down investments 20,031 -- 20,031 --
Restructuring and other charges 934 14,635 934 14,635
- ---------------------------------------------------------------------------------------------------------------------------------
37,025 37,584 54,726 61,620
- ---------------------------------------------------------------------------------------------------------------------------------
Loss Before Income Taxes and
Non-Controlling Interest (32,897) (27,626) (38,621) (32,384)
Income taxes (96) (666) (562) (840)
Non-controlling interest (375) 263 (747) 23
- ---------------------------------------------------------------------------------------------------------------------------------
LOSS FOR THE PERIOD $ (33,368) $ (28,029) $ (39,930) $ (33,201)
==================================================================
BASIC LOSS PER SHARE $ (0.88) $ (0.74) $ (1.05) $ (0.88)
Weighted average number of
Common Shares Outstanding 38,064,879 37,932,216 38,052,190 37,564,602
Fully Diluted Loss per share $ (0.88) $ (0.74) $ (1.05) $ (0.88)
Prepared in accordance with U.S. Generally Accepted Accounting Principles
16
Results of Operations
Revenues for the second quarter of fiscal 2002 were $26.7 million, a 30.6%
decrease over revenues of $38.4 million in the second quarter of fiscal 2001.
Approximately 85% of total revenues in the second quarter of fiscal 2002 were
derived from refractive services as compared to 93% in the second quarter fiscal
2001. Revenues for the first two quarters of fiscal 2002 were $61.7 million, a
28.6% decrease from revenues of $86.4 million in the first two quarters of
fiscal 2001. Approximately 88% of total revenues were derived from refractive
services as compared to 94% in the first two quarters of fiscal 2001.
Revenues from refractive activities in the second quarter of fiscal 2002 year
were $22.7 million, 36.2% less than revenues of $35.6 million from refractive
activities in the second quarter of fiscal 2001. Approximately 17,700 procedures
were performed in the second quarter of fiscal 2002 compared to approximately
27,100 procedures in the second quarter of fiscal 2001. Revenues from refractive
activities in the first two quarters of fiscal 2002 year were $54.1 million,
which is 33.4% lower than revenues from refractive activities in the first two
quarters of fiscal 2001 of $81.2 million. Approximately 41,900 procedures were
performed in the first two quarters of fiscal 2002 compared to approximately
60,500 procedures in the first two quarters 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, the ongoing safety and effectiveness concerns
arising from the lack of long-term follow-up data and negative news stories
focusing on patients with unfavorable outcomes from procedures performed at
centers competing with TLC centers. In addition, being an elective procedure,
laser vision correction volumes have been further depressed by economic
conditions currently being experienced in North America. 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 pricing pressures in the industry, the Company's net revenue after doctor
compensation per procedure, for the first two quarters of fiscal 2002 declined
by only 1% in comparison to the first two quarters of fiscal 2001.
The Company experienced an increase in managed centers and a decrease in owned
centers in the comparison of fiscal 2002 versus 2001. In conjunction with the
lower revenues period over period of 36.2% the result is that revenue of owned
centers has decreased by 50% for the three months ended November 30, 2001, as
compared to the three months ended November 30, 2000 (45% for six months ended
November 30, 2001, as compared to the six months ended November 30, 2000) while
revenue from managed centers has only decreased by 21% for the three months
ended November 30, 2001, as compared to the three months ended November 30, 2000
(21% for six months ended November 30, 2001, as compared to the six months ended
November 30, 2000.
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 collected by the applicable
surgeons and a corresponding reduction in doctor compensation which
substantially 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 second quarter of
fiscal 2002 was $20.4 million, 21.7% less than cost of refractive revenues of
$26.1 million in the second quarter of fiscal 2001. The cost of refractive
revenues from eye care centers for the first two quarters of fiscal 2002 was
$41.5 million, 19.7% less than cost of refractive revenues of $51.7 million in
the first two quarters of fiscal 2001. These reductions are in-line with reduced
doctors compensation resulting from lower procedure volumes, reductions in
royalty fees on laser usage and reduced personnel costs. These reductions were
offset by a reduction in the carrying value of capital assets of $1.1 million
reflecting a reduction of the Company's investment in certain lasers to $75,000
each. These lasers do not represent the most current technology available and
the Company has made the decision to write the lasers down to current market
value and will evaluate the best option for utilization or upgrade of these
lasers. The cost of revenues for refractive centers include a fixed cost
component for infrastructure of personnel, facilities and minimum equipment
usage fees which has resulted in cost of revenues decreasing at a lesser rate
(26% for the three months ended November 30, 2001, and 22% for the six months
ended November 30, 2001, as compared to the same periods in fiscal 2001) then
the decrease in the associated revenues. Cost of revenues of owned centers
include the cost of doctor compensation which does vary in relation to revenues
which when combined with the conversion in a number of owned centers to managed
centers results in the cost of revenues of owned centers reflecting a much
larger variance in the decrease in the costs of revenues in comparison to
managed centers.
17
Selling, general and administrative expenses decreased to $12.7 million in the
second quarter of fiscal 2002 from $19.7 million in the second quarter of fiscal
2001. Selling, general and administrative expenses decreased to $27.4 million in
the first two quarters of fiscal 2002 from $41.0 million in the first two
quarters of fiscal 2001. This reflected decreased marketing costs, decreased
infrastructure costs and reductions associated with Corporate Advantage and
Third Party Payor programs, each identified in conjunction with the Company's
cost reduction initiatives.
In the second quarter, the Company reported a write-down of available-for-sale
investments for which the decline is considered other than temporary. The change
was comprised of the Company's investment in LaserSight Incorporated
("LaserSight") ($17.5 million) and Laser Vision Centers Inc. ("Laser Vision")
($1.5 million).
Revenues from non-refractive (other) activities were $3.9 million in the second
quarter of fiscal 2002, an increase of 39% in comparison to $2.8 million in the
second quarter of fiscal 2001. Revenues from non-refractive (other) activities
were $7.6 million in the first two quarters of fiscal 2002, an increase of over
47% in comparison to $5.2 million in the first quarter of fiscal 2001. The
increase in revenues reflected revenue growth in the network marketing and
management and the 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 $0.3 million in the second quarter
of fiscal 2002, in comparison to a net loss of $1.6 million before restructuring
in the second quarter of fiscal 2001. The loss in the second quarter of fiscal
2001 included the activities of the Company's e-commerce subsidiary,
eyeVantage.com, Inc., which generated a loss of $1.8 million before
restructuring charges. Net income from non-refractive activities was $0.8
million in the first two quarters of fiscal 2002, in comparison to a net loss of
$5.4 million in the first two quarters of fiscal 2001. The loss in the first two
quarters of fiscal 2001 included the activities of eyeVantage.com, Inc., which
generated losses of $4.7 million. Net income for the first two quarters of
fiscal 2002 does not reflect the activities of eyeVantage.com, Inc. due to the
decision by the Company in fiscal 2001 to cease material funding of this
subsidiary and the resulting decision by eyeVantage.com, Inc. to abandon its
e-commerce enterprise. The profit from non-refractive activities in the first
two quarters of fiscal 2002 of $0.8 million reflects an increase from the loss
of $0.7 million in the first two quarters of fiscal 2001 (excluding
eyeVantage.com, Inc.). The improved profitability in the first two quarters of
fiscal 2002 was due primarily to increased revenues.
Interest (revenue)/expense and other expenses reflect interest revenue from the
Company's cash position offset by debt from debt and lease obligations. The
addition of 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. Similarly, an increase to debt in the second
quarter of fiscal 2002 from the corporate headquarters sale-leaseback
arrangement resulted in additional increases to interest costs which in
conjunction with reduced cash and cash equivalent balances during fiscal 2001
and the first two quarters of fiscal 2002, combined with lower interest yields
have resulted in lower interest revenues.
The decrease in depreciation and amortization expense was 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
material funding of eyeVantage.com, Inc. during fiscal 2001. Also the Company
has elected to early 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
second quarter of fiscal 2002 and approximately $1,416,000 ($0.04 per share) for
the six months ended November 30, 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 15 years. Current amortization periods
range from 5 to 15 years. In establishing these long-term contractual
relationships with the Company, 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.
18
In the first six months of fiscal 2002 amortization of intangibles decreased by
approximately $1.4 million (of which $0.8 million related to the second quarter
of fiscal 2002) reflecting the elimination of goodwill amortization of $0.8
million (of which $0.3 million related to the second quarter of fiscal 2002)
relating to the Company's exit from eye.Vantage.com, Inc. in the second quarter
of fiscal 2001 and the elimination of goodwill amortization of $1.6 million (of
which $0.8 million related to the second quarter of fiscal 2002) resulting from
the early adoption of SFAS No. 142 offset by an increase in amortization of $1.0
million of Practice Management Agreements (of which $0.3 million related to the
second quarter 2002) resulting from practices purchased during fiscal 2001.
During the second quarter of fiscal 2002, the Company implemented a
restructuring program to reduce employee costs in line with current revenue
levels. This program resulted in the identification, notification and
elimination of 49 full time equivalent positions and resulted in a severance
provision of $934,000 being reported of which $364,000 was paid in the second
quarter of fiscal 2002.
In the second quarter of fiscal 2001, the Company recorded restructuring
provisions of:
i) $12.4 million relating to the Company's decision to cease materially
funding eye.Vantage.com, Inc. $8.7 million attributed to goodwill, $3.3
million to asset write-offs, $1.7 million to employee services and $0.9
million in other closing costs. This was offset by a $2.2 million recovery
of a purchase acquisition obligation. As of January 1, 2001, the
eye.Vantage.com, Inc. corporate premises were vacated and virtually all
employment relationships were severed.
ii) $1.0 million to close three eye care centers. During the first six months
of fiscal 2001, the Company had undertaken to restructure its operations
to eliminate those centers which were identified as not capable of being
profitable.
iii) $1.3 million to reflect potential losses from an equity investment in
secondary care activities.
Income tax expense decreased to $0.6 million in the first two quarters of fiscal
2002 from $0.8 million in the first two quarters of fiscal 2001. This decrease
reflected the reduction of tax liabilities associated with the Company's
partners in profitable subsidiaries from decreased profitability in fiscal 2002
and minimal fluctuation in the requirement to reflect minimum tax liabilities
relevant in Canada, United States and certain other jurisdictions.
The loss for the second quarter of fiscal 2002 was $33.4 million or $0.88 per
share ($39.9 million or $1.05 per share for the first two quarters of fiscal
2002) compared to a loss of $28.0 million or $0.74 per share for the second
quarter of fiscal 2001 ($33.2 and $0.88 per share for the first two quarters of
fiscal 2001). This increased loss primarily reflected the impact of reduced
refractive revenues offset partially by reduced costs and decreased depreciation
and amortization.
19
Results of Operations
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENT OF INCOME
Three months ended
- ----------------------------------------------------- November 30, August 31,
(U.S. dollars, in thousands except per share amounts) 2001 2001
- --------------------------------------------------------------------------- ------------
Revenues
Refractive
Owned centers $ 9,505 $ 13,442
Management, facility and access fees $ 13,214 $ 17,935
Other 3,939 3,647
- --------------------------------------------------------------------------- ------------
Total revenues 26,658 35,024
- --------------------------------------------------------------------------- ------------
Expenses
Cost of revenues
Refractive
Owned centers 8,699 9,731
Management, facility and access fees 10,647 11,394
Reduction in fair carrying of capital assets 1,066 --
Other 2,118 1,922
- --------------------------------------------------------------------------- ------------
Total cost of revenues 22,530 23,047
- --------------------------------------------------------------------------- ------------
Gross margin 4,128 11,977
- --------------------------------------------------------------------------- ------------
Selling, general and administrative 12,743 14,614
Interest and other 178 (24)
Depreciation of capital assets and assets under lease 603 547
Amortization of intangibles 2,536 2,564
Write-down investments 20,031 --
Restructuring and other charges 934 --
- --------------------------------------------------------------------------- ------------
37,025 17,701
- --------------------------------------------------------------------------- ------------
LOSS BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (32,897) (5,724)
Income taxes (96) (466)
Non-controlling interest (375) (372)
- --------------------------------------------------------------------------- ------------
NET LOSS FOR THE PERIOD $ (33,368) $ (6,562)
============ ============
BASIC LOSS PER SHARE $ (0.88) $ (0.17)
Weighted average number of Common Shares Outstanding 38,064,879 38,039,639
Fully Diluted loss per share $ (0.88) $ (0.17)
Prepared in accordance with U.S. Generally Accepted Accounting Principles
20
Quarter ended November 30, 2001 compared to Quarter ended August 31, 2001
Revenues for the second quarter of fiscal 2002 were $26.7 million, which is a
23.9% decrease over net revenues in the first quarter of fiscal 2002 of $35.0
million. Approximately 85% of total net revenues were derived from refractive
services as compared to 90% in first quarter of fiscal 2002.
Revenues from refractive activities for the second quarter of fiscal 2002 were
$22.7 million, which is 27.6% lower than the first quarter of fiscal 2002 of
$31.4 million. Approximately 17,700 procedures were performed in the second
quarter of fiscal 2002 compared to approximately 24,100 procedures in the first
quarter of fiscal 2002.
The cost of refractive revenues from eye care centers for the second quarter of
fiscal 2002 were $20.4 million, which is 3.4% lower than the cost of refractive
revenues of $21.1 million in the first quarter of fiscal 2002 which reflects
reduced doctors compensation, royalty fees on laser usage and personnel costs
resulting from lower procedure volumes. Selling, general and administrative
expenses decreased to $12.7 million in the second quarter of fiscal 2002 from
$14.6 million in the first quarter of fiscal 2002. This reduction in costs
reflects reduced travel, consulting and employee costs associated with the
Company's efforts to reduce costs in line with reduced revenues.
Selling, general and administrative expenses decreased to $12.7 million in the
second quarter of fiscal 2002 from $14.6 million in the first quarter of fiscal
2002. This reduction in costs reflects reduced travel, consulting and employee
costs associated with the Company's efforts to reduce costs in line with reduced
revenues.
The loss for the second quarter of fiscal 2002 was $33.4 million or $0.88 per
share, compared to a loss of $6.6 million or $0.17 cents per share for the first
quarter of fiscal 2002.
Liquidity and Capital Resources
During the first two quarters 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 $48.6 million at
November 30, 2001 compared to $55.7 million at May 31, 2001. Net current assets
at November 30, 2001, reflected a decrease to $25.0 million from $36.8 million
at May 31, 2001. This decrease reflected primarily the reduction in cash and
cash equivalents during the first two quarters 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 first two quarters of fiscal 2002, the Company invested $1.5 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 agreed to sell as part of a sale/leaseback transaction,
generated $5.4 million for the Company in the second quarter of fiscal 2002. Due
to ongoing responsibility for tenant management and administration as well as
restrictions in receipt of a portion of the proceeds, no sale has been reported
under US GAAP. The net present value of the Company's net lease payments for the
fifteen year term of the leaseback agreement have been reported as additional
debt ($5.4 million).
During the first two quarters of fiscal 2002, the Company incurred costs of $1.4
million, which has been deferred, relating to the announced merger with Laser
Vision. This merger is anticipated to be completed in the second half of fiscal
2002.
During the first two quarters of fiscal 2002, the Company incurred cash costs of
$0.3 million for restructuring relating to the decision by the Company to cease
material funding of eye.Vantage.com, Inc., representing primarily lease costs
and closure costs. In the second quarter of fiscal 2002, the Company implemented
a restructuring program to reduce employee costs in line with current revenue
levels. This program resulted in the identification, notification and
elimination of 49 full time equivalent positions and resulted in a severance
provision of $934,000 being reported of which $364,000 of cash expenditures
occurred in the quarter.
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. Under the terms of the arbitration
settlement the Company was required to put $3.0 million in escrow until the
legal review process is completed.
The Company has access to vendor financing for laser purchases from a laser
vendor at favorable 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.
In July 2001, two excimer laser manufacturers reported settling class action
anti-trust case. It is anticipated that a portion of this settlement will be
paid to the Company and as such the Company has filed its settlement claims with
the court. While the amount to be received has not yet been determined, it is
estimated that the Company will receive less than $5.5 million, which will be
recorded as income when the amount and timing of receipt are known. It is
expected that these payments will be received in the first half of calendar
2002.
21
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 provided by (used for) Operating Activities
Net cash provided by (used for) operating activities decreased by $10.1 million
to $(4.4) million of cash used for operating activities in the first two
quarters of fiscal 2002 from $5.7 million of cash provided by operating
activities in the first two quarters of fiscal 2001. Net cash used for operating
activities of $(4.4) million in the first two quarters of fiscal 2002 primarily
represents cash used for 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 $(5.8) million in the first two quarters of
fiscal 2002 as compared to $(2.7) million in the first two quarters of fiscal
2001. Cash provided by a reduction in accounts receivable of $2.0 million in the
first two quarters of fiscal 2002 as compared to a reduction of $6.1 million in
the first two quarters of fiscal 2001, cash used for a reduction in accounts
payable of $(1.2) million in the first two quarters of fiscal 2002 as compared
to a reduction of $(3.1) million in the first two quarters of fiscal 2001. Cash
used for net payments of tax of $(0.2) million in the first two quarters of
fiscal 2002 as compared to cash provided by net refunds of tax of $3.6 million
in the first two quarters of fiscal 2001 and cash provided by a decrease of
prepaid expenses and other assets net of liabilities of $0.8 million in the
first two quarters of fiscal 2002 as compared to a decrease of $1.8 million in
the first two quarters of fiscal 2001.
Cash provided by (used for) Financing Activities
Net cash provided by (used for) financing activities changed by $10.2 million in
the first two quarters of fiscal 2002 to cash provided by financing activities
of $0.2 million from cash used for operating activities of $(10.0) million in
the first two quarters of fiscal 2001. Net cash provided by financing activities
in the first two quarters of fiscal 2002 primarily represents cash used for
payments of debt financing and obligations under capital leases of $(2.4)
million in the first two quarters of fiscal 2002 as compared to $(3.8) million
in the first two quarters of fiscal 2001. Cash used for payments of accrued
purchase obligations of $0.0 million in the first two quarters of fiscal 2002 as
compared to payments of $(3.0) million in the first two quarters of fiscal 2001.
Cash used for distributions to non-controlling interests of $(2.7) million in
the first two quarters of fiscal 2002 as compared to $(3.2) million in the first
two quarters of fiscal 2001. Cash used for an increase in the required amount of
restricted cash of $(0.3) million in the first two quarters of fiscal 2002 as
compared to $0.0 million in the first two quarters of fiscal 2001. Cash used for
payments related to the purchase and cancellation of capital stock of $0.0
million in the first two quarters of fiscal 2002 as compared to $(0.5) million
in the first two quarters of fiscal 2001. Cash use offset by cash provided by
proceeds from debt financing of $5.4 million in the first two quarters of fiscal
2002 resulting from the sales-leaseback arrangement regarding the corporate
headquarters as described below, compared to $0.0 million in the first two
quarters of fiscal 2001, and cash provided by the issuance of common stock of
$0.1 million in the first two quarters of fiscal 2002 as compared to $0.3
million in the first two quarters of fiscal 2001.
Total consideration received for the sale-leaseback was Cdn. $10.1 million, Cdn.
$8.6 million cash and Cdn. $1.5 million 8.0% note receivable. The term of the
note is seven-years with the first of four payments of Cdn. $100,000 due on the
third anniversary of the sale and a final payment of Cdn. $1.1 million due on
the seventh anniversary of the sale. The lease term related to the leaseback
covers a period of 15 years. For accounting purposes, due to ongoing
responsibility for tenant management and administration as well as taking back
the note as part of the consideration for the sale, no sale has been reported.
For purpose of financial reporting the cash proceeds of Cdn. $8.6 million has
been presented as additional debt. Subsequent receipt of the note will result in
additional debt while lease payments will result in decreasing the debt and
interest expense. Until the Company meets the accounting qualifications of
recognizing the sale, the building associated with the sale-leaseback will
continue to be depreciated over its initial term of 40 years.
22
Cash Provided by (Used for) Investing Activities
Net cash used for investing activities decreased by $12.8 million in the first
two quarters of fiscal 2002 to $(0.0) million from $(12.8) million in the first
two quarters of fiscal 2001. Net cash provided by (used in) investing activities
in the first two quarters of fiscal 2002 primarily represents cash used for a
required increase of restricted cash of $(3.0) million in the first two quarters
of fiscal 2002 resulting from an arbitration award requirement to put the cash
in escrow awaiting completion of the exploration of all legal alternatives
compared to $0.0 million in the first two quarters of fiscal 2001. Cash used for
the purchase of fixed assets of $(1.5) million in the first two quarters of
fiscal 2002 as compared to $(9.1) million in the first two quarters of fiscal
2001. Cash used for costs of acquisitions and investments and other assets of
$(1.8) million in the first two quarters of fiscal 2002 as compared to $(5.8)
million in the first two quarters of fiscal 2001, offset by cash provided by the
sale of short term investments of $6.1 million in the first two quarters of
fiscal 2002 as compared to $0.0 million in the first two quarters of fiscal
2001. Cash provided by proceeds from the sale of fixed assets, assets under
capital lease and investments of $0.2 million in the first two quarters of 2002
as compared to $2.1 million in the first two quarters of fiscal 2001.
Other Business Segments
TLC made the decision during the second quarter of fiscal 2001 to shut down the
activities of its e-commerce subsidiary eyeVantage.com, Inc. and sustained
significant write-offs and cash costs as a result. As a result, the first
quarter of fiscal 2002 does not include losses from operations similar to the
$2.9 million 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", 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 two quarters of fiscal
2002 of approximately $1.4 million ($0.04 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, $2.4 million
($0.06 per share) of goodwill amortization was reported). The Company has
completed a transitional impairment test to identify if there is potential
impairment to the goodwill as at June 1, 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. Based on the results of step one of the
transitional impairment test, the Company has identified certain reporting
units, for which the carrying value exceeds the fair value as at June 30, 2001.
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. Initial
quantification of the impairment test, which may vary from the final
quantification, indicates a write down of approximately $7 million to $15
million. As the Company has decided to select a date other than June 1 as the
date it will perform its annual impairment test, the Company will be performing
another impairment test prior to May 31, 2002. In addition to the annual
impairment test, the Company would also be required to perform an impairment
test if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. Such
subsequent impairment losses, if any will be reflected in operating income in
the income statement.
23
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.
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. Reports on 8-K:
On December 10, 2001, the Company filed with the Commission a current
report on Form 8-K reporting under Item 5 (Other Events), the Company
announced its review of the carrying value of its long-term investment in
LaserSight, Inc. under current accounting guidelines.
On December 27, 2001, the Company filed with the Commission a current
report on Form 8-K reporting under Item 5 (Other Events), the Company
announced the extension of the deadline of the Merger Agreement from
December 31, 2001, to March 31, 2002.
24
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 27, 2002
By: /s/ Brian Park
-----------------------------------
Brian Park
Interim Chief Financial Officer
February 27, 2002
25