-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KrssRTZKgqOao+6/VoALDe8zkveEUiZsq63GGbl8ESa3oEqcC49/9h/VC7zpHJ3m 3c+kAq/F66PXRtCUPxUuPg== 0001005477-02-000885.txt : 20020414 0001005477-02-000885.hdr.sgml : 20020414 ACCESSION NUMBER: 0001005477-02-000885 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010831 FILED AS OF DATE: 20020226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TLC LASER CENTER INC CENTRAL INDEX KEY: 0001010610 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 980151150 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-29302 FILM NUMBER: 02557830 BUSINESS ADDRESS: STREET 1: 5600 EXPLORER DRIVE STREET 2: SUITE 301 CITY: MISSISSAUGA ONTARIO STATE: A6 ZIP: 00000 BUSINESS PHONE: 3015712020 MAIL ADDRESS: STREET 1: 6701 DEMOCRACY BLVD STREET 2: SUITE 200, LEGAL DEPT. CITY: BETHESDA STATE: MA ZIP: 20817 10-Q/A 1 d02-35802.txt AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q/A Amendment No. 1 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2001 COMMISSION FILE NUMBER: 0-29302 TLC LASER EYE CENTERS INC. -------------------------- (Exact name of registrant as specified in its charter) Ontario, Canada 980151150 (State or jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5280 Solar Drive, Suite 300 L4W 5M8 Mississauga, Ontario (Zip Code) (Address of principal executive offices) Registrant's telephone, including area code (905) 602-2020 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No As of October 1, 2001, there were 38,065,058 of the registrant's Common Shares outstanding. 1 This Quarterly Report on Form 10-Q (herein, together with all amendments, exhibits and schedules hereto, referred to as the "Form 10-Q") contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which statements can be identified by the use of forward looking terminology, such as "may", "will", "expect", "anticipate", "estimate", "plans", "intends" or "continue" or the negative thereof or other variations thereon or comparable terminology. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth elsewhere in this Form 10-Q in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the Company's Annual Report on Form 10-K for the year ended May 31, 2001. Unless the context indicates or requires otherwise, references in this Form 10-Q to the "Company" or "TLC" shall mean TLC Laser Eye Centers Inc. and its subsidiaries. The Company's fiscal year ends on May 31. Therefore, references in this Form 10-Q to "fiscal 2001" shall mean the 12 months ended on May 31, 2001 and "fiscal 2002" shall mean to 12 months ending on May 31, 2002. References to "$" or "dollars" shall mean U.S. dollars unless otherwise indicated. References to "C$" shall mean Canadian dollars. References to the "Commission" shall mean the U.S. Securities and Exchange Commission. INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Statements of Income for the Three Months ended August 31, 2001 and August 31, 2000. Consolidated Balance Sheets at August 31, 2001 and May 31, 2001 Consolidated Statements of Cashflows for the Three Months ended August 31, 2001 and August 31, 2000 Consolidated Statements of Stockholders' Equity Notes to Interim Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II. OTHER INFORMATION Item 6. Exhibits and Reports on 8-K 2 PART I. FINANCIAL INFORMATION TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31, ------------------------------- (U.S. dollars, in thousands except per share amounts) 2001 2000 ========================================================================= ============= Revenues Refractive Owned centers $ 13,442 $ 22,679 Management, facility and access fees $ 17,935 $ 22,943 Other 3,647 2,323 - ------------------------------------------------------------------------- ------------- Total revenues 35,024 47,945 - ------------------------------------------------------------------------- ------------- Expenses Cost of revenues Refractive Owned centers 9,731 14,357 Management, facility and access fees 11,394 11,288 Other 1,922 3,022 - ------------------------------------------------------------------------- ------------- Total cost of revenues 23,047 28,667 - ------------------------------------------------------------------------- ------------- Gross margin 11,977 19,278 - ------------------------------------------------------------------------- ------------- Selling, general and administrative 14,614 21,309 Interest and other (24) (966) Depreciation of capital assets and assets under lease 547 535 Amortization of intangibles 2,564 3,158 - ------------------------------------------------------------------------- ------------- 17,701 24,036 - ------------------------------------------------------------------------- ------------- INCOME (LOSS) BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST (5,724) (4,758) Income taxes (466) (174) Non-controlling interest (372) (240) - ------------------------------------------------------------------------- ------------- NET INCOME (LOSS) FOR THE PERIOD $ (6,562) $ (5,172) ============= ============= BASIC INCOME (LOSS) PER SHARE $ (0.17) $ (0.14) Weighted average number of Common Shares Outstanding 38,039,639 37,203,625 Fully Diluted Income (Loss) per share $ (0.17) $ (0.14)
Prepared in accordance with U.S. Generally Accepted Accounting Principles 3 TLC LASER EYE CENTERS INC. CONSOLIDATED BALANCE SHEETS Aug. 31 May 31 (U.S. dollars, in thousands) 2001 2001 ================================================================================ ASSETS Current assets Cash and cash equivalents $ 47,203 $ 47,987 Marketable securities -- 6,063 Accounts receivable 8,525 9,950 Prepaids and sundry assets 5,000 4,501 - -------------------------------------------------------------------------------- Total current assets 60,728 68,501 Restricted cash 1,620 1,619 Investments and other assets 17,096 23,171 Intangibles 90,249 92,802 Capital assets 43,500 44,963 Assets under capital lease 6,933 7,382 - -------------------------------------------------------------------------------- Total assets $ 220,126 $ 238,438 ================================================================================ LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 13,910 $ 15,028 Accrued legal settlements 2,100 2,100 Accrued purchase obligations 3,000 3,000 Accrued restructuring costs 403 718 Accrued wage costs 2,316 3,652 Current portion of long term debt 3,812 3,826 Current portion of obligations under capital lease 2,724 2,943 Income taxes payable 460 397 - -------------------------------------------------------------------------------- Total current liabilities 28,725 31,664 Long term debt 6,589 7,032 Obligations under capital lease 773 1,281 Deferred rent and compensation 566 617 - -------------------------------------------------------------------------------- Total liabilities 36,653 40,594 - -------------------------------------------------------------------------------- Non-controlling interest 9,994 10,738 - -------------------------------------------------------------------------------- Commitments SHAREHOLDERS' EQUITY Capital stock 276,368 276,277 Warrants 532 532 Deficit (86,723) (80,161) Accumulated other comprehensive income (loss) (16,698) (9,542) - -------------------------------------------------------------------------------- Total shareholders' equity 173,479 187,106 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 220,126 $ 238,438 ================================================================================ Prepared in accordance with U.S. Generally Accepted Accounting Principles 4 TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF CASHFLOWS
Three months ended August 31, (U.S. dollars, in thousands) 2001 2000 ======================================================================================== Operating activities Net income for the period $ (6,562) $ (5,172) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5,522 6,891 (Gain)/loss on sale of fixed assets and assets under lease (6) 479 Non-controlling interest 372 240 Other (23) -- Changes in non-cash operating items Accounts receivable 1,425 3,195 Prepaids and sundry assets (499) 1,098 Accounts payable and accrued liabilities (2,768) (2,827) Income taxes payable (net) 199 3,765 Deferred rent and compensation (51) 204 - ---------------------------------------------------------------------------------------- Cash provided by (used for) operating activities (2,391) 7,873 - ---------------------------------------------------------------------------------------- Financing activities Restricted cash (1) (5) Principal payments of debt financing (458) (599) Principal payments of obligations under capital lease (727) (1,195) Payments of accrued purchase obligations -- (3,000) Contributions from non-controlling interests -- 18 Distributions to non-controlling interests (1,248) (1,470) Payments related to the purchase and cancellation of capital stock -- (96) Proceeds from the issuance of capital stock 91 172 - ---------------------------------------------------------------------------------------- Cash used for financing activities (2,343) (6,175) - ---------------------------------------------------------------------------------------- Investing activities Purchase of capital assets and assets under lease (1,052) (3,715) Proceeds from sale of fixed assets and assets under lease 11 1,320 Proceeds from the sale of investments 137 760 Acquisitions and investments (1,207) (5,900) Marketable securities 6,063 -- Other (2) 129 - ---------------------------------------------------------------------------------------- Cash provided by (used for) investing activities 3,950 (7,406) - ---------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (785) (5,708) Cash and cash equivalents, beginning of year 47,987 78,531 - ---------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 47,203 $ 72,823 ========================================================================================
Prepared in accordance with U.S. Generally Accepted Accounting Principles 5 TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (U.S. dollars, in thousands)
Common stock Warrants ------------ -------- Other Accumulated Number Number Comprehensive of Shares Amount of Warrants Amount Deficit Income Total (000's) $ (000's) $ $ $ $ - -------------------------------------------------------------------------------------------------------------------------------- Balance, May 31, 1999 37,362 269,454 -- -- (31,267) 5,936 244,123 Warrants issued 100 532 532 Shares issued for acquisition 302 728 728 Value determined for shares issued contingent on meeting earnings criteria -- 1,397 1,397 Shares purchased for cancellation (710) (5,162) (5,203) (10,365) Exercise of stock options 87 1,314 1,314 Shares issued as remuneration 44 387 387 Shares issued as part of the employee share purchase plan 65 1,696 1,696 Reversal of IPO costs, over accrual -- 139 139 Comprehensive income (loss) Net income (loss) (5,918) Other comprehensive income (loss) Unrealized gains/losses on available-for-sale securities (10,387) Total comprehensive income (loss) (16,305) - -------------------------------------------------------------------------------------------------------------------------------- Balance May 31, 2000 37,150 269,953 100 532 (42,388) (4,451) 223,646 Shares issued for acquisition 832 6,059 6,059 Shares purchased for cancellation (108) (481) (481) Exercise of stock options 40 125 125 Shares issued as remuneration 5 35 35 Shares issued as part of the employee share purchase plan 112 586 586 Comprehensive income (loss) Net income (loss) (37,773) Other comprehensive income (loss) Unrealized gains/losses on available for-sale securities (5,091) Total comprehensive income (loss) (42,864) - -------------------------------------------------------------------------------------------------------------------------------- Balance May 31, 2001 38,031 276,277 100 532 (80,161) (9,542) 187,106 Shares issued as part of the employee share purchase plan 18 91 91 Comprehensive income (loss) Net income (loss) (6,562) Other comprehensive income (loss) Unrealized gains (losses) on available-for-sale securities (7,156) Comprehensive income (loss) (13,718) - -------------------------------------------------------------------------------------------------------------------------------- Balance August 31, 2001 38,049 276,368 100 532 (86,723) (16,698) 173,479 ================================================================================================================================
Prepared in accordance with U.S. Generally Accepted Accounting Principles 6 TLC LASER EYE CENTERS INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS August 31, 2001 (Unaudited) 1. Basis of Presentation The information contained in the interim consolidated financial statements and footnotes is condensed from that which would appear in the annual consolidated financial statements. Accordingly, the interim consolidated financial statements included herein should be read in conjunction with the May 31, 2001 Annual Report on Form 10-K ("Form 10-K") filed by TLC Laser Eye Centers Inc. (the "Company") with the Commission. The unaudited interim consolidated financial statements as of August 31, 2001 and August 31, 2000 include all normal recurring adjustments which management considers necessary for a fair presentation. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the entire fiscal year. The interim unaudited consolidated financial statements include the accounts and transactions of the Company and its majority owned subsidiaries, partnerships and other entities in which the Company has more than a 50% ownership interest and exercises control. The ownership interests of other parties in less than wholly owned consolidated subsidiaries, partnerships and other entities are presented as non-controlling interests. The August 31, 2000 three month consolidation includes certain reclassifications to conform with classifications for the three month period ended August 31, 2001. For Company owned laser centers, revenue represents the amount charged to patients at a standard rate for a laser vision correction procedure, net of discounts, contractual adjustments and amounts collected as an agent of co-managing doctors. Revenue is recognized when the procedure is performed. Contractual adjustments arise due to the terms of certain reimbursement and managed care contracts. Such adjustments represent the difference between the charges at established rates and estimated recoverable amounts and are recognized in the period services are rendered. Any differences between estimated contractual adjustments and actual final settlements under reimbursement contracts are recognized as contractual adjustments in the year final settlements are determined. For Company managed laser centers, revenue represents a management fee charged to professional corporations ("PC") that provide laser vision correction procedures and are responsible for billing the patient directly. Under the terms of the practice management agreements, the Company provides management, marketing and administrative services to the PC in return for a per procedure management fee. Although TLC is entitled to receive the full per procedure management fee, the Company has made it a business practice to reduce the management fee for a portion of any discount or contractual allowance related to the underlying procedure. Revenue is recognized when the PC performs the procedure. The revenue from the Company's Other segment includes management fee revenue from secondary care practices, network marketing and management, asset management, professional healthcare facility management and revenue from hair removal procedures. Revenue is recognized as the service or treatment is provided. The Company accumulates costs associated with the provision of laser correction services and reports them as cost of revenues. Included in this grouping are the laser fees payable to laser manufacturers for royalties, use and maintenance of the lasers, variable expenses for consumables, financing costs and facility fees as well as center costs associated with personnel, facilities and amortization of center assets. In Company owned centers, the Company is responsible for engaging and paying the surgeons who provide laser vision correction services and the amounts paid to the surgeons are reported as a cost of revenue as well. The unaudited interim consolidated financial statements for the three month period ended August 31, 2000 include certain reclassifications to conform with classifications for the three months ended August 31, 2001. 7 The net income (loss) per share was computed using the weighted average number of common shares outstanding during each period. 2. Intangible Assets Effective June 1, 2001, the Company early adopted SFAS No. 142, Goodwill and Intangible Assets. Under SFAS No.142, goodwill and intangible assets of indefinite life are no longer amortized but are subject to an annual impairment review (or more frequently if deemed appropriate). On adoption, the Company determined that it has no intangible assets of indefinite life. Within six months (by November 30, 2001) of adoption of SFAS No.142, the Company will have completed step one of the transitional impairment test to identify if there is an impairment to the goodwill as at June 1, 2001, using a fair value methodology, which differs from the undiscounted cash flow methodology that continues to be used for intangible assets with an identifiable life. Step two of the transitional impairment test will be completed by the end of the fiscal 2002 year (May 31, 2002) and any resulting impairment loss will be recorded as a cumulative effect of a change in accounting principle . Subsequent impairment losses will be reflected in operating income in the income statement. As required by SFAS No. 142, the results for the prior year's quarter have not been restated. A reconciliation of net income as if SFAS No. 142 has been adopted is presented below for the three months ended August 31, 2000. ----------------------------- Three months ended August 31, ----------------------------- - -------------------------------------------------------------------------------- 2001 2000 - -------------------------------------------------------------------------------- Reported net income $(6,562) $(5,172) - -------------------------------------------------------------------------------- Add back goodwill amortization -- 1,361 - -------------------------------------------------------------------------------- Adjusted net income $(6,562) $(3,811) - -------------------------------------------------------------------------------- Basic earnings per share: - -------------------------------------------------------------------------------- Reported net income $ (0.17) $ (0.14) - -------------------------------------------------------------------------------- Goodwill amortization -- 0.04 - -------------------------------------------------------------------------------- Adjusted net income $ (0.17) $ (0.10) - -------------------------------------------------------------------------------- Diluted earnings per share: - -------------------------------------------------------------------------------- Reported net income $ (0.17) $ (0.14) - -------------------------------------------------------------------------------- Goodwill amortization -- 0.04 - -------------------------------------------------------------------------------- Adjusted net income $ (0.17) $ (0.10) - -------------------------------------------------------------------------------- 3. Comprehensive Income (Loss) Total comprehensive income (loss) includes net income (loss) plus other comprehensive income (loss), which, primarily comprises net unrealized gains or losses on securities which are available-for-sale. Total comprehensive income (loss) was $(13.7) million for the three months ended August 31, 2001 and $(6.7) million for the three months ended August 31, 2000. Other comprehensive (loss) was $(7.2) million and $(1.5) million for the three months ended August 31, 2001 and 2000, respectively. 8 4. Acquisition Related Activities Laser Vision Centers, Inc. On August 27, 2001, the Company announced that it had entered into an Agreement and Plan of Merger with Laser Vision Centers, Inc. ("Laser Vision"). Laser Vision provides access to excimer lasers, microkeratomes, other equipment and value added support services to eye surgeons for laser vision correction and the treatment of cataracts. The merger will be effected as an all-stock combination at a fixed exchange rate of 0.95 of a common share of the Company for each share of Laser Vision common stock which is expected to result in the issuance of approximately 26.5 million shares of the Company's common stock. In addition, the Company will assume and convert existing outstanding options or warrants to acquire stock of Laser Vision based on the 0.95 exchange rate and expects to issue approximately 7.7 million options or warrants to acquire common shares of the Company. The merger will be accounted for under the purchase method. Completion of the transaction, expected to occur in the third quarter of fiscal 2002, is subject to shareholder and regulatory approval and other conditions usual and customary in such transactions. The Company has incurred $2.0 million in costs related to the merger, $1.2 million of which was incurred in the current quarter. These costs have been categorized as non-current assets in the current quarter and will be included in the purchase accounting upon completion of the transaction. Once the transaction has been closed, the Company will review its operations, strategic investments and assets, which may result in restructuring provisions or write-offs. Additionally, as contemplated by the Merger Agreement (see Item 6a on MD&A), immediately prior to the effective time of the merger, Laser Vision will reduce the exercise price of approximately 2.1 million outstanding stock options and warrants of Laser Vision which would have an exercise price greater than $8.688 per share of TLC stock after the merger to a price equivalent to $8.688 per share of TLC common stock. In addition, subject to shareholder and regulatory approval, TLC will allow the holders of outstanding TLC stock options with an exercise price greater than $8.688 to elect to reduce the exercise price of their options to $8.688 by surrendering a number of the shares subject to each repriced option as follows: for every option with an exercise price of at least $40, the holder will surrender 75% of the shares subject to such option; for every option with an exercise price of at least $30 but less than $40, the holder will surrender approximately 66.6% of the shares subject to such option; for every option with an exercise price of at least $20 but less than $30, the holder will surrender 50% of the shares subject to such option; and for every option with an exercise price of at least $8.688 but less than $20, the holder will not surrender any of the shares subject to such option. 5. Divestitures and Restructuring Charges In the second quarter of fiscal 2001, accrued liabilities for restructuring provisions were recorded as a result of the decision to exit from an e-commerce enterprise eyeVantage.com Inc., the potential for losses in an equity investment in a secondary care operation and estimated costs associated with the Company's initiative to eliminate centers which have been targeted under current restructuring initiatives. At the end of fiscal 2001, the Company reflected outstanding accrued liabilities for restructuring activities of $718,000 and in the current quarter the Company has utilized $315,000 of these provisions. 6. Segmented Information The Company has two reportable segments: refractive and other. The refractive segment is the core focus of the Company which reflects the provision of laser vision correction. The other segment includes an accumulation of non-core business activities including the management of secondary care centers which provide advanced levels of eye care, activities involving the development of eyeVantage.com as an internet based company and managed care (applicable only in 1999 and prior). In 1999, activity in secondary care reflected a larger portion of the business activity and was presented as a separate segment. The disposal of the management of certain secondary care sites during 1999 has reduced the magnitude of activities from secondary care such that a separate segment for secondary care is no longer meaningful. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operational components including paid procedures, net revenue after doctors' fees, fixed costs and income (loss) before income taxes. 9 Doctors' Compensation as presented in the financial statements represents the cost to the Company of arranging for experienced and knowledgeable ophthalmic professionals to perform laser vision correction services at the Company's owned laser centers. Where the Company manages laser centers due to certain state requirements(1), it is the responsibility of the professional corporations or physicians to whom the Company furnishes management services to provide the required professional services and engage ophthalmic professionals. As such, the costs associated with arranging for these professionals to furnish professional services is reported as a cost of the professional corporation and not of the Company. Intersegment sales and transfers are minimal and are measured as if the sales or transfers were to third parties. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the business units were acquired or developed as a unit and management at the time of acquisition was retained. The following tables set forth information by segments:
- ---------------------------------------------------------------------------------------------------------------------- Three months ended August 31st 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- (U.S. dollars, in thousands) Refractive Other Total Refractive Other Total - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- NET REVENUES $ 31,377 $ 3,647 $ 35,024 $ 45,622 $ 2,323 $ 47,945 - ---------------------------------------------------------------------------------------------------------------------- EXPENSES - ---------------------------------------------------------------------------------------------------------------------- Doctor compensation 2,676 -- 2,676 4,850 -- 4,850 - ---------------------------------------------------------------------------------------------------------------------- Operating expenses 30,056 2,518 32,574 37,030 4,898 41,928 - ---------------------------------------------------------------------------------------------------------------------- Interest and other (17) (7) (24) (1,101) 135 (966) - ---------------------------------------------------------------------------------------------------------------------- Depreciation of capital assets and 2,808 150 2,958 3,496 237 3,733 assets under lease - ---------------------------------------------------------------------------------------------------------------------- Amortization of intangibles 2,452 112 2,564 2,398 760 3,158 - ---------------------------------------------------------------------------------------------------------------------- 37,975 2,773 40,748 46,673 6,030 52,703 - ---------------------------------------------------------------------------------------------------------------------- Income (loss) from operations (6,598) 874 (5,724) (1,051) (3,707) (4,758) - ---------------------------------------------------------------------------------------------------------------------- Income taxes (89) (377) (466) (188) 14 (174) - ---------------------------------------------------------------------------------------------------------------------- Non-controlling interest (325) (47) (372) (193) (47) (240) - ---------------------------------------------------------------------------------------------------------------------- Net Income (loss) $ (7,012) $ 450 $ (6,562) $ (1,432) $ (3,740) $ (5,172) - ----------------------------------------------------------------------------------------------------------------------
Prepared in accordance with U.S. Generally Accepted Accounting Principles 7. Supplemental Cash Flow Information Non-cash transactions: Three months ended August 31, 2001 2000 ----- ------- Accrued purchase obligations -- (4,199) Capital stock issued for acquisitions -- 6,059 - ---------- (1) Certain States restrict the Company from directly engaging medical doctors or optometrists pursuant to the corporate practice of medicine/optometry doctrine. Accordingly, in these States, the Company arranges for laser vision correction services for patients through medical doctors and/or professional corporations that TLC has entered into practice management agreements with. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related notes thereto, which are included in Item 8 of the Company's annual report on Form 10-K. The following discussion is based upon the Company's results under United States GAAP. Unless otherwise specified, all dollar amounts are U.S. dollars. Overview TLC is one of the largest providers of laser vision correction services in North America. TLC owns and manages eye care centers which, together with TLC's network of over 12,500 eye care doctors, provide laser vision correction of common refractive disorders such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. Laser vision correction is an outpatient procedure which is designed to change the curvature of the cornea to reduce or eliminate a patient's reliance on eyeglasses or contact lenses. TLC, which commenced operations in September 1993, currently has 59 eye care centers in 26 states and provinces throughout the United States and Canada. Surgeons performed over 122,800 procedures at the Company's centers during fiscal 2001 and over 24,100 procedures in the first quarter of fiscal 2002. The Company recognizes revenues at the time services are rendered. Net revenues include only those revenues pertaining to owned laser centers and management fees from managing refractive and secondary care practices. Under the terms of the practice management agreements, the Company provides management, marketing and administrative services to refractive and secondary care practices in return for management fees. Management services revenue is equal to the net revenue of the physician practice, less amounts retained by the physician groups. Management services revenue under the terms of the practice management agreements for laser vision correction procedures are recognized when the services are performed. Net revenue of the physician's practice represents amounts charged to patients for laser vision correction services net of the impact of applicable patient discounts and related contractual adjustments. Amounts retained by physician groups may include costs for uncollectible amounts from patients, professional contractual costs and miscellaneous administrative charges. Uncollectible amounts from patients are reviewed and provided for on a regular monthly basis for those amounts due from physicians or patients for which there is a permanent reduced likelihood of collection in whole or in part. Procedure volumes represent the number of laser vision correction procedures completed for which the amount that the patient has been invoiced for the procedure exceeds a pre-defined company wide per procedure revenue threshold. Procedures may be invoiced under the threshold amounts primarily for promotional or marketing purposes and are not included in the procedure volume numbers reported. By not counting these promotional procedures the net revenue after doctor's compensation per procedure ratio is higher than if these procedures had been included in the procedure volumes. Doctors' Compensation as presented in the financial statements represents the cost to the Company of engaging ophthalmic professionals to perform laser vision correction services at the Company's owned laser centers. Where the Company manages laser centers it is the responsibility of the professional corporations or physicians to whom the Company furnishes management services to provide the required professional services and engage ophthalmic professionals. As such, the costs associated with arranging for these professionals to furnish professional services is reported as a cost of the professional corporation and not of the Company. Included in cost of revenues is the laser fees payable to laser manufacturers for royalties, use and maintenance of the lasers, variable expenses for consumables, financing costs and facility fees as well as center costs associated with personnel, facilities and amortization of center assets. In Company owned centers, the Company engages the doctors who provide laser vision correction services and the amounts paid to these doctors are reported as a cost of revenue as well. 11 Selling, general and administrative expenses represent fixed costs that are not directly variable to procedure volume. In the quarter ended August 31, 2001, the Company's procedure volume decreased 17% from the previous quarter ended May 31, 2001 and decreased by 28% from the previous year quarter ended August 31, 2000. The Company believes that these decreases are indicative of the condition in the laser vision correction industry, which has experienced uncertainty resulting from a wide range in consumer prices for laser vision correction procedures, the recent bankruptcies of a number of deep discount laser vision correction companies as well as the ongoing safety and effectiveness concerns arising from the lack of long-term follow up data and negative news stories focusing on patients with unfavourable outcomes from procedures performed at centers competing with TLC centers. In addition, being an elective procedure, laser vision correction volumes may have been further depressed by economic conditions currently being experienced in North America. Despite the pricing pressures in the industry, the Company's net revenue after doctor compensation per procedure has only declined marginally in the first quarter of fiscal 2002 (4% versus the first quarter of fiscal 2001 and 1% versus the fourth quarter of fiscal 2001). The Company has developed and launched a pilot test of a new revenue model, the TLC Affiliate Center program. Under the program, the Company provides varying levels of resources, support and expertise to established eye care professionals ("ECP") in secondary markets in an effort to grow and develop their current laser vision correction practices. The services provided by TLC can vary from the Company providing support only in building the ECP's network of affiliated optometrists to the Company providing facilities, medical equipment, professional staffing, marketing and administrative support. Revenues from TLC affiliate centers vary based on the level of services provided by the Company. The TLC Affiliate Center program is expected to enable the Company to expand its presence in secondary markets while significantly reducing the operational and capital funding normally required to support a typical corporate laser center. Laser Vision Centers, Inc. On August 27, 2001, the Company announced that it had entered into an Agreement and Plan of Merger with Laser Vision Centers, Inc. ("Laser Vision"). Laser Vision provides access to excimer lasers, microkeratomes, other equipment and value added support services to eye surgeons for laser vision correction and the treatment of cataracts. The merger will be effected as an all-stock combination at a fixed exchange rate of 0.95 of a common share of the Company for each share of Laser Vision common stock which is expected to result in the issuance of approximately 26.5 million shares of the Company's common stock. In addition, the Company will assume and convert existing outstanding options or warrants to acquire stock of Laser Vision based on the 0.95 exchange rate and expects to be issuing approximately 7.7 million options or warrants to acquire common shares of the Company. The merger will be accounted for under the purchase method. Completion of the transaction, expected to occur in the third quarter of fiscal 2002, is subject to shareholder and regulatory approval and other conditions usual and customary in such transactions. The Company has incurred $2.0 million in costs related to the merger, $1.2 million of which was incurred in the current quarter. These costs have been categorized as non-current assets in the current quarter and will be included in the purchase accounting upon completion of the transaction. Once the transaction has been closed, the Company will review its operations, strategic investments and assets, which may result in restructuring provisions or write-offs. Additionally, as contemplated by the Merger Agreement, immediately prior to the effective time of the merger, Laser Vision will reduce the exercise price of approximately 2.1 million outstanding stock options and warrants of Laser Vision which would have an exercise price greater than $8.688 per share of TLC stock after the merger to a price equivalent to $8.688 per share of TLC common stock. In addition, subject to shareholder and regulatory approval, TLC will allow the holders of outstanding TLC stock options with an exercise price greater than $8.688 to elect to reduce the exercise price of their options to $8.688 by surrendering a number of the shares subject to each repriced option as follows: for every option with an exercise price of at least $40, the holder will surrender 75% of the shares subject to such option: for every option with an exercise price of at least $30 but less than $40, the holder will surrender approximately 66.6% of the shares subject to such option; for every option with an exercise price of at least $20 but less than $30, the holder will surrender 50% of the shares subject to such option; and for every option 12 with an exercise price of at least $8.688 but less than $20, the holder will not surrender any of the shares subject to such option. TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31, ------------------------------- (U.S. dollars, in thousands except per share amounts) 2001 2000 ========================================================================= ============= Revenues Refractive Owned centers $ 13,442 $ 22,679 Management, facility and access fees $ 17,935 $ 22,943 Other 3,647 2,323 - ------------------------------------------------------------------------- ------------- Total revenues 35,024 47,945 - ------------------------------------------------------------------------- ------------- Expenses Cost of revenues Refractive Owned centers 9,731 14,357 Management, facility and access fees 11,394 11,288 Other 1,922 3,022 - ------------------------------------------------------------------------- ------------- Total cost of revenues 23,047 28,667 - ------------------------------------------------------------------------- ------------- Gross margin 11,977 19,278 - ------------------------------------------------------------------------- ------------- Selling, general and administrative 14,614 21,309 Interest and other (24) (966) Depreciation of capital assets and assets under lease 547 535 Amortization of intangibles 2,564 3,158 - ------------------------------------------------------------------------- ------------- 17,701 24,036 - ------------------------------------------------------------------------- ------------- LOSS BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST (5,724) (4,758) Income taxes (466) (174) Non-controlling interest (372) (240) - ------------------------------------------------------------------------- ------------- INCOME LOSS FOR THE PERIOD $ (6,562) $ (5,172) ============= ============= BASIC LOSS PER SHARE $ (0.17) $ (0.14) Weighted average number of Common Shares Outstanding 38,039,639 37,203,625 Fully Diluted Loss per share $ (0.17) $ (0.14)
Prepared in accordance with U.S. Generally Accepted Accounting Principles 13 Results of Operations Quarter ended August 31, 2001 compared to Quarter ended August 31, 2000 Revenues for the first quarter of fiscal 2002 were $35.0 million, which is a 26.9% decrease over net revenues in the first quarter of fiscal 2001 of $47.9 million. Approximately 90% of total net revenues were derived from refractive services as compared to 95% in the first quarter of fiscal 2001. Revenues from refractive activities in the first quarter of fiscal 2002 year were $31.4 million, which is 31.2% lower than net revenues from refractive activities in the first quarter of fiscal 2001 of $45.6 million. Approximately 24,100 procedures were performed in the first quarter of fiscal 2002 compared to approximately 33,400 procedures in the first quarter of fiscal 2001. The decrease in procedure volume and the associated reduction of revenue is indicative of the condition of the laser vision correction industry which has experienced uncertainty resulting from a wide range in consumer prices for laser vision correction procedures, the recent bankruptcies of a number of deep discount laser vision correction companies as well as the ongoing safety and effectiveness concerns arising from the lack of long-term follow-up data and negative news stories focusing on patients with unfavourable outcomes from procedures performed at centers competing with TLC centers. The Company maintains its vision to be a premium provider of laser vision correction services in an industry that has faced significant pricing pressures. In spite of pricing pressures in the industry, the Company's net revenue after doctor compensation, per procedure, for the first quarter of fiscal 2002 declined by only 4% in comparison to the first quarter of fiscal 2001. In the final quarter of fiscal 2000 and during fiscal 2001, the Company completed practice management agreements with a number of surgeons resulting in an increase in intangible assets to reflect the value assigned to these agreements. These intangible assets are being amortized over the term of the applicable agreements. These agreements have resulted either directly or indirectly in lower per procedure fees being paid to the applicable surgeons and a corresponding reduction in doctor compensation to offset the increased amortization costs. These changes have resulted in an increase in the ratio of net revenue after doctor compensation per procedure. The cost of refractive revenues from eye care centers for the first quarter of fiscal 2002 were $21.1 million, which is 17.6% lower than the first quarter of fiscal 2001. Cost of refractive revenues were $25.6 million which reflects reduced doctors compensation resulting from lower procedure volumes, a reduction in royalty fees on laser usage and reduced personnel costs. Selling, general and administrative expenses decreased to $14.6 million in the first quarter of fiscal 2002 from $21.3 million in the first quarter of fiscal 2001. This reflects decreased marketing costs, decreased infrastructure costs and reductions associated with Corporate Advantage and Third Party Payor programs all identified in conjunction with the Company's cost reduction initiatives. Revenues from non-refractive (Other) activities were $3.6 million in the first quarter of fiscal 2002, an increase of over 56% in comparison to $2.3 million in the first quarter of fiscal 2001. The increase in revenues reflects revenue growth in the network marketing and management and professional healthcare facility management subsidiaries, while revenues in the secondary care management, hair removal and asset management subsidiaries reflected little or moderate growth. Net income from non-refractive activities was $0.5 million in the first quarter of fiscal 2002, in comparison to a net loss of $3.7 million in the first quarter of fiscal 2001. The loss in the first quarter of fiscal 2001 included the activities of the Company's e-commerce subsidiary eyeVantage.com, Inc., which generated losses of $2.9 million. The first quarter of fiscal 2002 does not reflect the activities of eyeVantage.com, Inc. due to the decision by the Company in fiscal 2001 to cease materially funding this e-commerce subsidiary and its subsequent decision to shut down its activities. The profit from non-refractive activities in the first quarter of fiscal 2002 of $0.5 million reflects an increase from the loss of $0.8 million in the first quarter of fiscal 2001 (excluding eyeVantage.com, Inc.). The improved profitability in the first quarter of fiscal 2002 is due primarily to increased revenues. 14 Interest (revenue)/expense and other expenses reflect interest revenue from the Company's cash position. The addition in the fourth quarter of fiscal 2001 to long term debt as a result of the acquisition of a Maryland professional corporation has resulted in increasing interest costs on debt. Reduced cash and cash equivalent balances during fiscal 2001 and the first quarter of fiscal 2002 combined with lower interest yields have resulted in lower interest revenues. The decrease in depreciation and amortization expense is largely a result of the reduction in the development of new centers and the reduction in depreciation and amortization associated with the Company's decision to cease materially funding eyeVantage.com, Inc. during fiscal 2001. Also the Company has elected to adopt SFAS No. 142 effective June 1, 2001. The adoption of SFAS No. 142 eliminates the requirement for the Company to amortize goodwill. The adoption of SFAS No. 142 by the Company for fiscal 2002, has resulted in a decrease in amortization of approximately $708,000 ($0.02 per share) in the first quarter of fiscal 2002. Intangibles whose useful lives are not indefinite are amortized on a straight-line basis over the term of the applicable agreement to a maximum of fifteen years. Current amortization periods range from five to fifteen years. In establishing these long term contractual relationships with TLC, key surgeons in many cases have agreed to receive reduced fees for laser vision correction procedures performed. The reduction in doctors' compensation offsets in part the increased amortization of the intangible practice management agreements. In the first three months of fiscal 2002, amortization of intangibles has decreased by approximately $0.6 million reflecting the elimination of goodwill amortization of $0.5 million relating to the Company's exit from eyeVantage.com, Inc., and the elimination of goodwill amortization of $0.9 million resulting from the Company's early adoption of SFAS 142, offset by an increase in amortization of Practice Management Agreements of $0.8 million resulting from practices purchased during fiscal 2001. Income tax expense increased to $0.5 million in the first quarter of fiscal 2002 from $0.2 million in the first quarter of fiscal 2001. This increase reflects the impact of the tax liabilities associated with the Company's partners in profitable subsidiaries and the requirement to reflect minimum tax liabilities relevant in Canada, United States and certain other jurisdictions. The loss for the first quarter of fiscal 2002 was $6.6 million or $0.17 per share, compared to a loss of $5.2 million or $0.14 cents per share for the first quarter of fiscal 2001. This increased loss primarily reflects the impact of reduced refractive revenues offset partially by reduced costs and decreased depreciation and amortization. The Company is assessing patient, optometric and ophthalmic industry trends and developing strategies to improve laser vision correction procedure and revenue volumes. Cost reduction initiatives continue to target the effective use of funds and a growth initiative is focusing on the future development opportunities for the Company, in the laser vision correction industry, which reduces the requirement for capital funding. 15 Results of Operations TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF INCOME
Three months ended - ---------------------------------------------------------- August 31, May 31, (U.S. dollars, in thousands except per share amounts) 2001 2001 ========================================================================= ============= Revenues Refractive Owned centers $ 13,442 $ 16,020 Management, facility and access fees $ 17,935 $ 20,366 Other 3,647 3,677 - ------------------------------------------------------------------------- ------------- Total revenues 35,024 40,063 - ------------------------------------------------------------------------- ------------- Expenses Cost of revenues Refractive Owned centers 9,731 11,115 Management, facility and access fees 11,394 11,288 Other 1,922 2,302 - ------------------------------------------------------------------------- ------------- Total cost of revenues 23,047 24,705 - ------------------------------------------------------------------------- ------------- Gross margin 11,977 15,358 - ------------------------------------------------------------------------- ------------- Selling, general and administrative 14,614 12,977 Interest and other (24) (261) Depreciation of capital assets and assets under lease 547 630 Amortization of intangibles 2,564 3,248 Start-up and development expenses -- -- Restructuring and other charges -- 3,126 - ------------------------------------------------------------------------- ------------- 17,701 19,720 - ------------------------------------------------------------------------- ------------- LOSS BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST (5,724) (4,362) Income taxes (466) (567) Non-controlling interest (372) (71) - ------------------------------------------------------------------------- ------------- NET LOSS FOR THE PERIOD $ (6,562) $ (5,000) ============ ============ BASIC LOSS PER SHARE $ (0.17) $ (0.13) Weighted average number of Common Shares Outstanding 38,039,639 38,026,305 Fully Diluted Loss per share $ (0.17) $ (0.13)
Prepared in accordance with U.S. Generally Accepted Accounting Principles 16 Quarter ended August 31, 2001 compared to Quarter ended May 31, 2001 Revenues for the first quarter of fiscal 2002 were $35.0 million, which is a 13% decrease over revenues in the fourth quarter of fiscal 2001 of $40.1 million. Approximately 90% of total revenues were derived from refractive services as compared to 91% in fourth quarter of fiscal 2001. Revenues from refractive activities for the first quarter of fiscal 2002 were $31.4 million, which is 14% lower than the fourth quarter of fiscal 2001 of $36.4 million. Approximately 24,100 procedures were performed in the first quarter of fiscal 2002 compared to approximately 28,900 procedures in the fourth quarter of fiscal 2001. The decrease in procedure volume and the associated reduction of revenue is indicative of the condition of the laser vision correction industry which has experienced uncertainty resulting from a wide range in consumer prices for laser vision correction procedures, the recent bankruptcies of a number of deep discount laser vision correction companies as well as the ongoing safety and effectiveness concerns arising from the lack of long-term follow-up data and negative news stories focusing on patients with unfavourable outcomes from procedures performed at centers competing with TLC centers. The Company maintains its stated objective of being a premium provider of laser vision correction services in an industry that has faced significant pricing pressures. In spite of the pricing pressures in the industry, the Company's net revenue after doctor compensation per procedure for the first quarter of fiscal 2002 declined by only 1% in comparison to the fourth quarter of fiscal 2001. In the final quarter of fiscal 2000 and during fiscal 2001, the Company completed practice management agreements with a number of surgeons resulting in an increase in intangible assets to reflect the value assigned to these agreements. These intangible assets are being amortized over the term of the applicable agreements. These agreements have resulted either directly or indirectly in lower per procedure fees being paid to the applicable surgeons and a corresponding reduction in doctor compensation to offset the increased amortization costs. These changes have resulted in an increase in the ratio of net revenue after doctor compensation per procedure. The cost of refractive revenues from eye care centers for the first quarter of fiscal 2002 were $21.1 million, which is 5.8% lower than the fourth quarter of fiscal 2001. Cost of refractive revenues was $22.4 million which reflects reduced doctors' compensation, royalty fees on laser usage and personnel costs resulting from lower procedure volumes. The reduction of cost of refractive revenues was offset by contractual obligations for facilities and lasers which were not impacted by reduced volume levels. Selling, general and administrative expenses increased to $14.6 million in the first quarter of fiscal 2002 from $13.0 million in the fourth quarter of fiscal 2001. This reflects increased infrastructure costs resulting from contractual obligations and increased insurance premiums in line with industry experience offset by reduced marketing costs reflecting the ongoing commitment to controlling costs. Revenues from non-refractive activities were $3.6 million in the first quarter of fiscal 2002 minimally changed in comparison to $3.7 million in the fourth quarter of fiscal 2001. The maintenance of revenues reflect the sustained growth in this segment, maintaining the growth experienced throughout fiscal 2001. Net income from non-refractive activities excluding restructuring and other charges was $0.5 million in the first quarter of fiscal 2002, an increase in comparison to a net loss excluding restructuring and other charges of $0.2 million in the fourth quarter of fiscal 2001. The improved performance in secondary care operations has been sustained into the first quarter of fiscal 2002 and is forecasted to remain self sufficient and is not expected to require funding by the Company for ongoing operations. Interest (revenue)/expense and other expenses reflected interest revenue from the Company's cash position. Interest revenue has decreased in the first quarter of fiscal 2002 as a result of reduced cash balances, reduced investment rates resulting from ongoing federal interest rate reductions and lower investment yields on bonds invested at year end to minimize capital tax liabilities. 17 The decrease in depreciation and amortization expense is largely a result of the impact of the Company's use of the declining balance depreciation policy for laser equipment, medical equipment and furniture and fixtures. Also the Company has elected to adopt SFAS No.142 effective June 1, 2001. The adoption of this SFAS No. 142 eliminates the requirement for the Company to amortize goodwill. The adoption of SFAS No. 142 by the Company for fiscal 2002 has resulted in a decrease in amortization of approximately $708,000 ($0.02 per share) in the first quarter of fiscal 2002. Intangibles whose useful lives are not indefinite are amortized on a straight-line basis over the term of the applicable agreement to a maximum of fifteen years. Current amortization periods range from five to fifteen years. In establishing the long term contractual relationships with TLC, key surgeons in many cases have agreed to receive reduced fees for laser vision correction procedures performed. The reduction in doctors' compensation offsets in part the increased amortization of the intangible practice management agreements. Amortization of intangibles have decreased by approximately $0.7 million primarily reflecting the elimination of goodwill amortization resulting from the Company's early adoption of SFAS 142. Income tax expense remained relatively unchanged at $0.5 million in the first quarter of fiscal 2002 from $0.6 million in the fourth quarter of fiscal 2001. The liability for taxes reflect minimum tax requirements and the impact of the tax liabilities associated with the Company's partners in profitable subsidiaries. The loss for the first quarter of fiscal 2002 was $6.6 million or $0.17 per share, compared to a loss of $5.0 million or $0.14 cents per share for the fourth quarter of fiscal 2001. Liquidity and Capital Resources During the first quarter of fiscal 2002 the Company continued to focus its activities on increasing procedure volumes and reducing costs. Cash, cash equivalents, short-term investments and restricted cash were $48.8 million at August 31, 2001 as compared to $55.7 million at May 31, 2001. Net current assets at August 31, 2001 reflected a decrease to $32.0 million from $36.8 million at May 31, 2001. This decrease reflects primarily the reduction in cash and cash equivalents during the first quarter of fiscal 2002. The Company's principal cash requirements included normal operating expenses, debt repayment, distributions to minority partners, capital expenditures and funding costs of the proposed merger with Laser Vision. Normal operating expenses include doctor compensation, procedure royalty fees, procedure medical supply expenses, travel and entertainment, professional fees, insurance, rent, equipment maintenance, wages, utilities and marketing. During the quarter the Company invested $1.1 in capital assets. The Company has forecasted its capital expenditure requirements for fiscal 2002 will not exceed $5.0 million. The new corporate headquarters which the Company has agreed to sell as part of a sale/leaseback transaction is expected to generate $5.0 million for the Company in the second quarter of fiscal 2002. During the quarter the Company incurred costs of $1.2 million relating to the announced merger with Laser Vision. This merger is anticipated to be completed by March 31, 2002. During the quarter, the Company incurred cash costs of $0.3 million for restructuring charges primarily for lease costs and closure costs. The Company accrued a liability of $2.1 million resulting from an arbitration award against the Company in the fourth quarter of fiscal 2001. The Company has deferred payment of this liability until exploration of all legal alternatives have been completed. Payment of this liability, if necessary, is not anticipated until the latter half of fiscal 2002. The Company has access to vendor financing for laser purchases from a laser vendor at favourable rates. In addition, it has completed an agreement with a competing laser vendor which provides for payment on a per procedure fee basis for the laser, associated medical equipment and supplies, royalty fees and maintenance. The Company expects to continue to have access to these financing options for at least the next 18 months. 18 The Company estimates that existing cash balances, together with funds expected to be generated from operations and available credit facilities, will be sufficient to fund the Company's anticipated level of operations, acquisition and expansion plans for the next 12 to 18 months. Cash Used for Operating Activities Net cash provided by (used for) operating activities decreased by $10.3 million to $(2.4) million in the first quarter of fiscal 2002 from $7.9 million in the first quarter of fiscal 2001. Net cash used for operating activities in the first quarter of fiscal 2002 primarily represents cash earnings (defined as net loss adding back amortization and depreciation, gain or loss on the sale of fixed assets, non-cash restructuring costs, income tax provision and minority interest included as part of net income) of $(0.2) million (2001 - $2.6 million), a reduction in accounts receivable of $1.4 million (2001 - $3.2), reduction in accounts payable of $2.8 million (2001 - decrease of $2.8 million ), net payments of tax of $0.3 million (2001 - net refunds of $3.6 million) and an increase of prepaid expenses and other assets net of liabilities of $0.5 million (2001 - decrease of $1.3 million). Cash Used for Financing Activities Net cash used for financing activities decreased by $3.8 million in the first quarter of fiscal 2002 to $2.3 million from $6.2 million in the first quarter of fiscal 2001. Net cash used for financing activities in the first quarter of fiscal 2002 primarily represents payments of debt financing and obligations under capital leases of $1.2 million (2001 - $1.8 million) payments of accrued purchase obligations of $0.0 million (2001 - $3.0 million), distributions to non-controlling interests of $1.2 million (2001 - $1.5 million), payments related to the purchase and cancellation of capital stock of $0.0 million (2001 - - $0.1 million) offset by proceeds from the issuance of common stock of $0.1 million (2001 - $0.2 million). Cash Provided by Investing Activities Net cash provided by (used in) investing activities increased by $11.4 million in the first quarter of fiscal 2002 to $4.0 million from $(7.4) million in fiscal 2001. Net cash provided by (used in) investing activities in the first quarter of fiscal 2002 primarily represents the purchase of fixed assets of $1.1 million (2001 - $3.7 million) and cash costs of acquisitions and investments of $1.2 million (2001 - $5.9 million) offset by the sale of short term investments of $6.1 million (2001 - $0.0) and proceeds from the sale of fixed assets, assets under capital lease and investments of $0.2 million (2001 - $2.2 million). Other Business Segments TLC made the decision during the second quarter of fiscal 2001 to cease materially funding the activities of its e-commerce subsidiary eyeVantage.com, Inc. and sustained significant write-offs and cash costs as a result of eyeVantage.com's decision to shut down. As a result, the first quarter of fiscal 2002 does not include losses from operations similar to the $2.9 million of losses reported in the first quarter of fiscal 2001 from eyeVantage.com, Inc. The Company's other investments in non-core activities are currently largely self-sustaining with minimal requirement for funding support. This segment includes activities in secondary care practice management, network management and marketing, asset management, healthcare facility management and hair removal facilities. The Company continues its efforts to maximize the value of its investments in non-core businesses. New Accounting Pronouncements Under SEC Staff Accounting Bulletin 74, the Company is required to disclose certain information related to new accounting standards, which have not yet been adopted due to delayed effective dates. While it is not necessary to discuss standards which have been adopted in the current period, the Company has decided to provide the following: The Financial Accounting Standards Board issued Statement No. 141, "Business Combinations", which requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method of accounting. The Financial Accounting Standards Board also issued Statement No. 142, "Goodwill and Other Intangible Assets", 19 which eliminates the amortization of goodwill and indefinite life intangible assets and requires these assets to be tested annually for impairment. For goodwill and other intangible assets existing at June 30, 2001, the new Statement must be applied for fiscal years beginning after December 15, 2001, with earlier adoption permitted. For goodwill and other intangible assets resulting from business combinations completed after June 30, 2001, the Statement must be adopted immediately. The Company has decided to adopt SFAS Nos.141 and 142 for the fiscal 2002 year which began on June 1, 2001. The adoption has resulted in the elimination in the first quarter of fiscal 2002 of approximately $0.7 million ($0.02 per share) of goodwill amortization that would have been charged to earnings had the Company not early adopted these new accounting policies (in the first quarter of fiscal 2001, $1.3 million ($0.04 per share) of goodwill amortization was reported). The Company is undertaking a transitional impairment test to identify if there is potential impairment to the goodwill as at June 1, 2001, to be completed by November 30, 2001. Step one of the transitional impairment test uses a fair value methodology, which differs from the undiscounted cash flow methodology that continues to be used for intangible assets with an identifiable life. If step one identifies any of the Company's reporting units, for which the carrying value exceeds the fair value as at June 30, 2001, it will be necessary to complete step two of the transitional impairment test and any resulting impairment loss will be recorded as a cumulative effect of a change in accounting principle. Such subsequent impairment losses, if any, will be reflected in operating income in the income statement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the ordinary course of business, the Company is exposed to interest rate risks and foreign currency risks, which the Company does not currently consider to be material. These exposures primarily relate to having short-term investments earning short-term interest rates and to having fixed rate debt. The Company views its investment in foreign subsidiaries as a long-term commitments, and does not hedge any translation exposure.. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON 8-K a. Exhibits: Exhibit 2. Agreement and Plan of Merger between Laser Vision Centers, Inc., the Company and TLC Acquisition II Corp. dated August 25, 2001 (the "Merger Agreement") filed as exhibit number 2.1 to the Company's Registration Statement on Form S-4, filed with the Commission on October 12, 2001 and incorporated by reference herein. 20 b. Reports on 8-K On September 7, 2001, the Company filed with the Commission a current report on Form 8-K reporting under Item 5 (Other Events) the entering into of the Merger Agreement SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TLC LASER EYE CENTERS INC. By: /s/ Elias Vamvakas ------------------------------------- Elias Vamvakas Chief Executive Officer February 25, 2002 By: /s/ Brian Park ------------------------------------- Brian Park Interim Chief Financial Officer February 25, 2002 21 -----END PRIVACY-ENHANCED MESSAGE-----