UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
COMMISSION FILE NUMBER: 0-29302
TLC VISION CORPORATION
(Exact name of registrant as specified in its charter)
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NEW BRUNSWICK, CANADA
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980151150
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(State or jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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5280 SOLAR DRIVE, SUITE 300
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L4W 5M8
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MISSISSAUGA, ONTARIO
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(Zip Code)
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(Address of principal executive offices)
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Registrants telephone number, 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 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.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
o
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b(2) of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b(2)
of the Exchange Act).
o
Yes
þ
No
As of November 13, 2009 there were 50,565,219 of the registrants Common Shares outstanding.
PART I. FINANCIAL INFORMATION
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ITEM 1.
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (In thousands except per share amounts)
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THREE MONTHS ENDED
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NINE MONTHS ENDED
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SEPTEMBER 30,
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SEPTEMBER 30,
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2009
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2008
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2009
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2008
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Revenues:
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Refractive centers
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$
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22,197
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$
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28,516
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$
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85,145
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$
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126,540
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Doctor services
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22,216
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22,634
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70,264
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73,225
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Eye care
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7,212
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6,384
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24,097
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22,221
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Total revenues
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51,625
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57,534
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179,506
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221,986
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Cost of revenues (excluding amortization expense shown below):
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Refractive centers
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17,510
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22,245
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65,140
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89,011
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Doctor services
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16,371
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16,618
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52,462
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53,439
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Eye care
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3,491
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2,596
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11,413
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10,109
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Total cost of revenues (excluding amortization expense shown
below)
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37,372
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41,459
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129,015
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152,559
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Gross profit
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14,253
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16,075
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50,491
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69,427
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General and administrative
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5,679
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6,848
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18,007
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22,201
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Marketing and sales
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4,948
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9,448
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17,285
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31,308
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Amortization of intangibles
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583
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799
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1,748
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2,432
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Impairment of goodwill, intangibles and other long-term assets
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496
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1,500
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496
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1,500
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Other expense (income), net
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6,471
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(147
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)
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14,617
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(703
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)
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18,177
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18,448
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52,153
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56,738
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Operating (loss) income
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(3,924
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)
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(2,373
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)
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(1,662
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)
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12,689
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Interest income
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122
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168
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548
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Interest expense
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(4,118
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)
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(2,577
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)
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(9,681
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)
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(7,467
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)
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Earnings from equity investments
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230
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467
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1,022
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365
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(Loss) income before income taxes
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(7,812
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)
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(4,361
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)
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(10,153
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)
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6,135
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Income tax expense
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(176
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)
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(218
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)
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(660
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)
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(950
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)
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Net (loss) income
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(7,988
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)
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(4,579
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)
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(10,813
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)
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5,185
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Less: Net income attributable to noncontrolling interest
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2,057
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2,132
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7,415
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8,024
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Net loss attributable to TLC Vision Corporation
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$
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(10,045
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)
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$
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(6,711
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)
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$
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(18,228
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)
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$
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(2,839
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)
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Net loss per share attributable to TLC Vision Corporation:
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Basic
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$
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(0.20
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)
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$
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(0.13
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)
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$
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(0.36
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)
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$
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(0.06
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)
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Diluted
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$
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(0.20
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)
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$
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(0.13
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)
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$
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(0.36
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)
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$
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(0.06
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)
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Weighted average number of common shares outstanding:
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Basic
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50,565
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50,345
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50,550
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50,292
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Diluted
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50,565
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50,345
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50,550
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50,292
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See the accompanying notes to unaudited interim consolidated financial statements.
3
TLC VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
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(UNAUDITED)
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SEPTEMBER 30,
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DECEMBER 31,
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2009
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2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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13,153
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$
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4,492
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Accounts receivable, net
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16,517
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16,870
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Prepaid expenses, inventory and other
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11,889
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14,214
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Total current assets
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41,559
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35,576
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Restricted cash
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1,000
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Investments and other assets, net
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9,279
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11,694
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Goodwill
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26,755
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28,570
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Other intangible assets, net
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8,252
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10,628
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Fixed assets, net
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43,227
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50,514
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Total assets
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$
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130,072
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$
|
136,982
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LIABILITIES
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Current liabilities:
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Accounts payable
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$
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14,094
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$
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17,897
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Accrued liabilities
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24,444
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28,076
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Current maturities of long-term debt (including debt
in default of $100.1 million and $82.7 million at
September 30, 2009 and December 31, 2008,
respectively)
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106,644
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89,081
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Total current liabilities
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145,182
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135,054
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Long-term debt, less current maturities
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14,891
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16,500
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Other long-term liabilities
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|
6,772
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|
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5,444
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|
|
|
|
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Total liabilities
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|
166,845
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|
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|
156,998
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STOCKHOLDERS DEFICIT
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TLC Vision Corporation stockholders deficit:
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Common shares, no par value; unlimited number
authorized
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339,809
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|
339,112
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Option and warrant equity
|
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|
745
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|
|
|
745
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Accumulated other comprehensive loss
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(1,545
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)
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Accumulated deficit
|
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|
(391,886
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)
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(373,658
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)
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Total TLC Vision Corporation stockholders deficit
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(51,332
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)
|
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(35,346
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)
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Noncontrolling interest
|
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|
14,559
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15,330
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Total stockholders deficit
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|
(36,773
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)
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|
|
(20,016
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)
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Total liabilities and stockholders deficit
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$
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130,072
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$
|
136,982
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|
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See the accompanying notes to unaudited interim consolidated financial statements.
4
TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (In thousands)
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NINE MONTHS
|
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ENDED SEPTEMBER 30,
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|
2009
|
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|
2008
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
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(10,813
|
)
|
|
$
|
5,185
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|
Adjustments to reconcile net (loss) income to net cash from operating
activities:
|
|
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Depreciation and amortization
|
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11,955
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|
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14,845
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|
Impairment of goodwill, intangibles and other long-term assets
|
|
|
496
|
|
|
|
1,500
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|
Earnings from equity investments
|
|
|
(1,022
|
)
|
|
|
(365
|
)
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Net gain on sales and disposals of fixed assets
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|
|
(303
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)
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|
|
(397
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)
|
Loss (gain) on business divestitures
|
|
|
1,594
|
|
|
|
(139
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)
|
Non-cash compensation expense
|
|
|
675
|
|
|
|
1,101
|
|
Write-down of inventory
|
|
|
720
|
|
|
|
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|
Other
|
|
|
595
|
|
|
|
459
|
|
Changes in operating assets and liabilities, net of acquisitions
and dispositions:
|
|
|
|
|
|
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|
|
Accounts receivable
|
|
|
(117
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)
|
|
|
(1,016
|
)
|
Prepaid expenses, inventory and other current assets
|
|
|
1,164
|
|
|
|
(963
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)
|
Accounts payable and accrued liabilities
|
|
|
659
|
|
|
|
1,847
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
5,603
|
|
|
|
22,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
|
(1,259
|
)
|
|
|
(2,785
|
)
|
Proceeds from sales of fixed assets
|
|
|
534
|
|
|
|
774
|
|
Distributions and loan payments received from equity investments
|
|
|
1,564
|
|
|
|
1,682
|
|
Acquisitions and equity investments
|
|
|
(5,038
|
)
|
|
|
(8,332
|
)
|
Divestitures of businesses and other investments
|
|
|
2,181
|
|
|
|
1,128
|
|
Other
|
|
|
(61
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(2,079
|
)
|
|
|
(7,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Restricted cash (increase) decrease
|
|
|
(1,000
|
)
|
|
|
1,101
|
|
Principal payments of debt financing and capital leases
|
|
|
(4,024
|
)
|
|
|
(25,818
|
)
|
Proceeds from debt financing
|
|
|
17,971
|
|
|
|
13,784
|
|
Capitalized debt costs
|
|
|
(78
|
)
|
|
|
(534
|
)
|
Distributions to noncontrolling interests
|
|
|
(7,754
|
)
|
|
|
(7,724
|
)
|
Proceeds from issuances of common stock
|
|
|
22
|
|
|
|
309
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
5,137
|
|
|
|
(18,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents during the period
|
|
|
8,661
|
|
|
|
(4,430
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
4,492
|
|
|
|
12,925
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
13,153
|
|
|
$
|
8,495
|
|
|
|
|
|
|
|
|
See the accompanying notes to unaudited interim consolidated financial statements.
5
TLC VISION CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 (Unaudited)
(Tabular amounts in thousands, except per share amounts)
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted in the United States
(GAAP) for complete financial statements. The unaudited interim consolidated financial statements
included herein should be read in conjunction with the Annual Report on Form 10-K for the year
ended December 31, 2008 filed by TLC Vision Corporation (Company or TLC
Vision
) with the United
States Securities and Exchange Commission (SEC). In the opinion of management, all normal
recurring adjustments and estimates considered necessary for a fair presentation have been
included. The results of operations for the interim periods are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 2009. The consolidated
financial statements as of December 31, 2008 and unaudited interim consolidated financial
statements for the three and nine months ended September 30, 2009 and 2008 include the accounts and
transactions of the Company and its majority-owned subsidiaries that are not considered variable
interest entities (VIEs) and all VIEs for which the Company is the primary beneficiary. All
significant intercompany accounts and transactions have been eliminated.
A significant portion of the Companys revenues come from owning and operating refractive
centers that employ laser technologies to treat common refractive vision disorders such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. Refractive centers, which is a
reportable segment, includes the Companys 70 centers that provide corrective laser surgery, of
which 62 are majority owned and 8 centers are minority owned. In its doctor services business, the
Company furnishes doctors and medical facilities with mobile or fixed site access to refractive
and cataract surgery equipment, supplies, technicians and diagnostic products, as well as owns and
manages single-specialty ambulatory surgery centers. In its eye care business, the Company
primarily provides franchise opportunities to independent optometrists under its Vision Source
®
brand.
In the third quarter of 2009, the Company adopted changes issued by the Financial Accounting
Standards Board (FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB
Accounting Standards Codification (Codification or ASC) as the source of authoritative
accounting principles recognized by the FASB to be applied in the preparation of financial
statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative GAAP. The FASB will no longer issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts;
instead the FASB will issue Accounting Standards Updates. These changes and the Codification itself
do not change GAAP other than the manner in which new accounting guidance is referenced. The
adoption of these changes had no impact on the Companys financial statements.
Effective January 1, 2009, the Company adopted the FASBs guidance (ASC 810) regarding
presentation of noncontrolling interests, previously referred to as minority interest, which has
been changed on the Consolidated Balance Sheets to be reflected as a component of total
stockholders deficit and on the Consolidated Statements of Operations to be a specific allocation
of net income (loss). Amounts reported or included in prior periods remain unchanged, but have been
revised to conform with the current period presentation. Loss per share continues to be based on
losses attributable to TLC Vision Corporation.
Effective January 1, 2009, the Company adopted the FASBs guidance (ASC 815) intended to
improve transparency in financial reporting by requiring enhanced disclosures of an entitys
derivative instruments and hedging activities and their effects on the entitys financial position,
financial performance, and cash flows. The guidance encourages, but does not require, comparative
disclosures for periods prior to its initial adoption. The Companys adoption of the guidance did
not have a material impact on the financial statements.
6
During the second fiscal quarter of 2009, the Company adopted the FASBs guidance (ASC 855)
establishing general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. The adoption of the FASBs guidance
did not have a material impact on the Companys consolidated financial position, results of
operations, or cash flows. The Company performed an evaluation of subsequent events through
November 16, 2009, the date which the financial statements were issued, and has made disclosures of
all material subsequent events in the Notes to the Unaudited Interim Consolidated Financial
Statements.
2. LIQUIDITY
The Company relies on the following sources of liquidity to continue to operate as a going
concern: (i) cash and cash equivalents on hand; (ii) cash generated from operations; (iii)
borrowings under the Companys revolving credit facility; (iv) net proceeds from asset sales; and
(v) access to the capital markets. The Companys principal uses of cash are to provide working
capital to fund its operation and to service its debt and other contractual obligations. The
changes in financial markets during 2008 limited the ability of companies such as TLC
Vision
to
access the capital markets. The economic recession in the United States continues to impact the
Companys operations, resulting in a decline in the demand for refractive surgery and financial
performance. The Company incurred losses attributable to TLC Vision Corporation of $18.2 million
for the nine months ended September 30, 2009 compared to $2.8 million for the nine months ended
September 30, 2008. As a result, the Companys liquidity continued to be significantly constrained
during 2009.
Beginning in early 2008, in response to the deteriorating economic environment, the Company
implemented a series of initiatives to reduce its costs of operation to levels commensurate with
the new lower level of refractive procedures anticipated in fiscal 2008 and 2009. The Company
continues to evaluate and implement cost reduction and cash generation initiatives, including the
sale of surplus assets and the closure of underperforming refractive centers/mobile refractive
routes. During the nine months ended September 30, 2009, the Company closed four majority-owned
refractive centers, which performed approximately 400 and 1,000 refractive procedures during the
nine months ended September 30, 2009 and 2008, respectively. During the quarter ended September 30,
2009, the Company divested one majority-owned and two minority-owned ambulatory surgical centers
for a combined net sale price of $2.2 million. The divested ambulatory surgical centers performed
5,500 and 7,500 surgical procedures during the nine months ended September 30, 2009 and 2008,
respectively.
Due to the decline in customer demand during the trailing twelve month period, and the
resulting decline in sales, the Companys deteriorating financial performance resulted in the
Companys inability to comply with its primary financial covenants under its Credit Facility as of
December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009. Furthermore, the Company
ceased making principal and interest payments under the Credit Facility subsequent to June 30,
2009.
As a result of the inability to comply with the primary financial covenants, the Company has
received from its lenders numerous waivers, consents and amendments to the Credit Agreement during
the nine months ended September 30, 2009. All waivers, consents and amendments to the Credit
Agreement are filed with the SEC as exhibits to Current Reports on Form 8-K. The following were
dated during the quarter ended September 30, 2009:
|
|
|
On September 10, 2009, the Company announced that it obtained from its lenders a Limited
Waiver and Amendment No. 5 to the Credit Agreement, dated as of September 8, 2009, which
among other things, provided a limited waiver through September 30, 2009 of specified
defaults and provided that the lenders would, until October 1, 2009, forbear from
exercising their rights arising out of the non-payment of certain principal, interest and
other payments previously due.
|
|
|
|
|
On October 1, 2009, the Company announced that it had secured from its lenders an
extension to October 13, 2009 of the previously announced Limited Waiver and Amendment No.
5 with respect to its Credit Facility that expired on September 30, 2009, along with a
forbearance with respect to certain payment obligations under the Credit Agreement. The
extension and forbearance agreement is contained in a limited waiver, dated as of September
30, 2009, which among other things, provided a limited waiver through
October 13, 2009 of specified defaults, extended the time for payment of certain principal,
interest and
|
7
|
|
|
other payments previously due and provided that the lenders holding a majority
amount of the Credit Agreement could, in their sole discretion, extend the waiver period to
October 30, 2009.
|
Refer to Note 24,
Subsequent Events
, for additional information regarding waivers, amendments
and consents dated subsequent to September 30, 2009.
As of September 30, 2009, the Company failed to make various mandatory payments under its
Credit Agreement and related amendments. Such payments included interest on the term and revolving
credit advances of $2.8 million, principal payments on term advances of $0.4 million and $1.4
million of other mandatory payments.
Given the aforementioned payment defaults, and that it is unlikely that the Company will be in
compliance with the covenants currently in the Credit Facility for the balance of 2009 beyond the
current waiver period unless amended, all term borrowings aggregating $76.7 million under the
Credit Facility have been recorded as current liabilities as of September 30, 2009 and December 31,
2008. Accordingly, at September 30, 2009 and December 31, 2008, the Company has working capital
deficiencies of approximately $103.6 million and $99.5 million, respectively.
The Company borrowed an additional $17.4 million under the revolving portion of its Credit
Facility during the nine months ended September 30, 2009, which reduced the open availability under
the Credit Facility to approximately $0.6 million at September 30, 2009. The outstanding balance of
$23.4 million under the revolving portion of the Credit Facility is also recorded as a current
liability as of September 30, 2009.
The Company will likely continue to incur operating losses in 2009 and its liquidity will
likely remain constrained such that it may not be sufficient to meet the Companys cash operating
needs in this period of economic uncertainty. The Company is in active discussions with its lenders
to ensure that it has sufficient liquidity in excess of what is available under its Credit
Facility, although there is no assurance that the Company can obtain additional liquidity on
commercially reasonable terms, if at all. If the Company is unable to obtain or sustain the
liquidity required to operate its business the Company may need to seek to modify the terms of its
debts and/or to reorganize its capital structure. There can be no assurances that the lenders will
grant such restructuring, waivers or amendments on commercially reasonable terms, if at all.
If the Company is unable to obtain or sustain the liquidity required to operate its business,
the Company may need to seek to modify the terms of its debts through court reorganization
proceedings to allow it, among other things, to reorganize its capital structure.
The Companys independent registered public accounting firms report issued in the December
31, 2008 Annual Report on Form 10-K included an explanatory paragraph describing the existence of
conditions that raise substantial doubt about the Companys ability to continue as a going concern,
including significant losses, limited access to additional liquidity and compliance with certain
financial covenants. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and classification of
liabilities that may result should the Company be unable to continue as a going concern.
3. NASDAQ STOCK MARKET COMPLIANCE
On September 16, 2009, the Company received letters from the NASDAQ Stock Market indicating
that, for the last 30 consecutive business days, the Companys common stock did not maintain a
minimum value requirement of publicly held shares of $15 million (MVPHS Rule) and the bid price
of the Companys common stock closed below the minimum $1.00 per share requirement (Minimum Bid
Price Rule) for continued inclusion on the NASDAQ Stock Market. The Company will be provided until
December 15, 2009 to obtain compliance with the MVPHS Rule and until March 15, 2010 to regain
compliance with the Minimum Bid Price Rule.
The NASDAQ letters state that if, at any time before December 15, 2009, the minimum value of
publicly held shares of the Companys common stock is $15 million or more for a minimum of 10
consecutive business days, NASDAQ staff will provide written notification that the Company has
achieved compliance with the MVPHS Rule and if, at any time before March 15, 2010, the bid price of
the Companys common stock closes at $1.00 per share or more for a minimum of 10 consecutive
business days, NASDAQ staff will provide written notification that the Company has achieved
compliance with the Minimum Bid Price Rule.
8
The NASDAQ letters also state that, if the Company does not regain compliance with the MVPHS
Rule by December 15, 2009, or the Minimum Bid Price Rule by March 15, 2010, NASDAQ staff will
provide written notification that the Companys securities will be delisted. At that time, the
NASDAQ Marketplace Rules would permit the Company to appeal the NASDAQ staffs determination to
delist its securities to a NASDAQ Listing Qualifications Panel.
The NASDAQ letters of September 16, 2009 have no effect on the listing of the Companys common
stock at September 30, 2009.
4. ACQUISITIONS AND INVESTMENTS
The Companys strategy includes periodic acquisitions of, or investments in, entities that
operate within its chosen markets. During the nine months ended September 30, 2009 and 2008, the
Company made investments of $5.0 million and $8.3 million, respectively, to acquire or invest in
multiple entities, none of which was individually material. Included in acquisition and equity
investments are cash payments during 2009 and 2008 of approximately $4.0 million and $6.6 million,
respectively, related to the Companys 2005 TruVision acquisition, which were included in the
initial purchase price allocation.
During 2005, the Company acquired a substantial portion of the assets of Kremer Laser Eye
(Kremer). As of September 30, 2009, Kremer operates three refractive centers, which the Company
has an approximate 84% ownership interest, and one ambulatory surgery center, which the Company
has a 70% ownership interest. As part of a transfer rights agreement entered on the acquisition
date between the Company and the minority holders of Kremer, the minority holders retain options
that could require the Company to purchase the remaining noncontrolling interest. The first option
was exercisable during July 2009 with all remaining options being exercisable during July 2010 and
2012.
During July 2009, the Company received formal notification from the minority holders of Kremer
of their intent to exercise the first option. The option, if exercised, would transfer a portion of
the remaining noncontrolling interest of Kremer to TLC
Vision
in exchange for approximately $1.9
million payable August 2009. If the Company failed to make such payment all remaining options could
become exercisable on an accelerated basis.
During August 2009, the Company and the minority holders of Kremer executed a limited
forbearance and third amendment to the transfer rights agreement (Amendment and Forbearance). The
Amendment and Forbearance, among other things, granted the Company temporary forbearance of the
$1.9 million payable, waived the minority holders ability during the forbearance period to force
acceleration of the remaining options, required the Company to make an immediate payment to the
minority holders of $0.3 million and accelerated the third option date from July 2012 to July 2011.
The payment of $0.3 million was recorded as other expense during the three months ended September
30, 2009 in the Companys Unaudited Interim Consolidated Statement of Operations.
Effective October 13, 2009, the forbearance period expired allowing the minority holders of
Kremer the right to exercise all options under the amended transfer rights agreement. As of
November 16, 2009, such right has not been exercised.
5. DIVESTITURES
During the quarter ended September 30, 2009, the Company divested one majority-owned and two
minority-owned ambulatory surgical centers for a combined net sale price of $2.2 million, resulting
in a net loss on divestiture of $1.6 million included in other expenses on the Companys
Consolidated Statements of Operations. The historical results of operations for these ambulatory
surgical centers are included in the other segment of the Companys doctor services business. The
net loss on divestiture includes a $1.8 million non-cash write-off of goodwill existing at the time
of disposal.
6. INVENTORY AND OTHER ASSETS
During the quarter ended September 30, 2009, management explored terminating the Foresee
Preferential Hyperacuity Perimeter (Foresee PHP
®
) system distribution rights between the Company
and Notal Vision
®
, an entity in which the Company holds a minority investment. The distribution
rights allow the Company to sell the
9
Foresee PHP
®
system, manufactured by Notal Vision
®
, as a component of the Companys cataract
access reporting segment. During the nine months ended September 30, 2009, revenues generated from
sales of the Foresee PHP
®
system were $1.4 million, a decline of $0.6 million compared to the nine
months ended September 30, 2008.
Given the recent decline in revenues and profits generated from sales of the Foresee PHP
®
system, the Company and Notal Vision
®
mutually agreed to transfer the distribution rights to a
third party subsequent to September 30, 2009. As a result, the Company determined at September 30,
2009 that approximately $0.7 million of remaining nontransferable Foresee PHP
®
inventory was
impaired and thus recorded a charge for this amount in costs of revenue during the three months
ended September 30, 2009 in the Companys Unaudited Interim Consolidated Statement of Operations.
7. RESTRICTED CASH
As of September 30, 2009, the Company had $1.0 million of restricted cash to guarantee
outstanding bank letters of credit for leases. As of December 31, 2008, the Company had no
restricted cash.
8. INTANGIBLE ASSETS
During the quarter ended September 30, 2009, the Company recorded a $0.5 million impairment
charge in its refractive centers segment to eliminate a trade name intangible, which had a fair
value of zero dollars. The Company ceased use of the trade name and does not intend to use it in
future operations.
9. ACCRUED AND OTHER LONG-TERM LIABILITIES
TruVision Liability
As of June 30, 2009, accrued liabilities included $4.0 million due to the former owners of
TruVision as part of the amended 2005 merger agreement. On August 10, 2009, the Company entered
into Amendment No. 2 (Amendment) to the 2005 TruVision Agreement and Plan of Merger. The
Amendment restructured the Companys final $4.0 million purchase installment, which was due to the
former TruVision owners during August 2009.
The Amendment resulted in the final purchase installment being increased to an unsecured $5.4
million payable, inclusive of interest and penalties, which will be made through quarterly payments
of approximately $0.3 million beginning on August 10, 2009 and extending through April 5, 2014. The
amount owed is not represented by a promissory note, is not secured and will not accrue interest on
a going forward basis. As of September 30, 2009, accrued and other long-term liabilities include
$0.9 million and $3.3 million, respectively, representing the balances owed, net of imputed
interest, under the restructured TruVision Agreement and Plan of Merger.
As of November 16, 2009, the Company was unable to make a $0.3 million scheduled payment due
October 5, 2009 as part of the restructured TruVision Agreement and Plan of Merger.
10. DEFERRED REVENUES
The Company offers an extended lifetime warranty, i.e. the TLC Lifetime Commitment, at a
separately priced fee to customers selecting a certain lower base priced surgical procedure.
Revenues generated under this program are initially deferred and recognized over a period of five
years based on managements future estimates of retreatment volume, which are based on historical
warranty claim activity. The Companys deferred revenue balance was $0.8 million and $1.1 million
at September 30, 2009 and December 31, 2008, respectively.
10
11. DEBT
Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER 30,
|
|
|
DECEMBER 31,
|
|
|
|
2009
|
|
|
2008
|
|
Senior term loan; weighted average interest rate of 9.25% and 8.76%
at September 30, 2009 and December 31, 2008, respectively
|
|
$
|
76,660
|
|
|
$
|
76,667
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility, weighted average interest rate of 9.25% and
6.60% at September 30, 2009 and December 31, 2008, respectively
|
|
|
23,400
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, payable through 2013, interest at various rates
|
|
|
12,457
|
|
|
|
14,176
|
|
|
|
|
|
|
|
|
|
|
Sale-leaseback debt interest imputed at 6.25%, due through October
2016, collateralized by building (Cdn $6.2 million and Cdn $6.7 million
at September 30, 2009 and December 31, 2008, respectively)
|
|
|
5,712
|
|
|
|
5,453
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3,306
|
|
|
|
3,285
|
|
|
|
|
|
|
|
|
|
|
|
121,535
|
|
|
|
105,581
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
106,644
|
|
|
|
89,081
|
|
|
|
|
|
|
|
|
|
|
$
|
14,891
|
|
|
$
|
16,500
|
|
|
|
|
|
|
|
|
The Company obtained a $110.0 million credit facility (Credit Facility) during June 2007,
which is secured by substantially all of the assets of the Company and consisting of both senior
term debt and a revolver as follows:
|
|
|
Senior term debt, totaling $85.0 million, with a six-year term and required amortization
payments of 1% per annum plus a percentage of excess cash flow (as defined in the
agreement) and sales of assets or borrowings outside of the normal course of business. As
of September 30, 2009, $76.7 million was outstanding on this portion of the facility.
|
|
|
|
|
A revolving credit facility, totaling $25.0 million with a five-year term. As of
September 30, 2009, the Company had $23.4 million outstanding under this portion of the
facility and outstanding letters of credit totaling approximately $1.0 million.
Accordingly, availability under the revolving credit facility is $0.6 million at September
30, 2009.
|
Interest on the facility is calculated based on either prime rate or the London Interbank
Offered Rate (LIBOR) plus a margin. As a result of certain events of default and the June 30, 2009
expiration of the Limited Waiver, Consent and Amendment No. 3 to Credit Agreement, the LIBOR
advances with interest periods ending on or after June 30, 2009 automatically converted to prime
rate advances at the end of such interest period. Effective June 30, 2009, the Company began
incurring 2% default interest resulting from the provisions of the Limited Waiver and Amendment No.
4 to Credit Agreement.
As of September 30, 2009, the borrowing rate was 3.25% for prime rate borrowings, plus an
applicable margin of 4.00% and default interest of 2.00%. In addition, the Company pays an annual
commitment fee equal to 0.35% on the undrawn portion of the revolving credit facility.
The Credit Facility also requires the Company to maintain various financial and non-financial
covenants as defined in the Credit Agreement. As of December 31, 2008, March 31, 2009, June 30,
2009 and September 30, 2009, the Company was unable to satisfy various financial covenants.
Furthermore, the Company has failed to make various required payments under the Credit Facility.
Refer to Note 2,
Liquidity
, for additional information.
As a result of the inability to comply with the primary financial covenants, the Company has
received from its lenders numerous waivers, consents and amendments to the Credit Agreement during
the nine months ended September 30, 2009. All waivers, consents and amendments to the Credit
Agreement are filed with SEC as exhibits to Current Reports on Form 8-K. Refer to Note 2,
Liquidity
, for additional information regarding waivers, amendments or consents dated during the
three months ended September 30, 2009, and Note 24,
Subsequent Events
, for additional information
regarding waivers, amendments or consents dated subsequent to September 30, 2009.
11
As of September 30, 2009, the Company failed to make various mandatory payments under its
Credit Agreement and related amendments. Such payments included interest on the term and revolving
credit advances of $2.8 million, principal payments on term advances of $0.4 million and $1.4
million of other mandatory payments.
12. INTEREST RATE SWAP AGREEMENTS
The Company does not enter into financial instruments for trading or speculative purposes. As
required under the Companys Credit Facility, during August and December 2007 the Company entered
into interest rate swap agreements to eliminate the variability of cash required for interest
payments for a majority of the total variable rate debt.
Effective July 9, 2009, Citibank and the Company agreed to the early termination of the
interest rate swap agreements entered August and December 2007. In consideration for Citibanks
agreement to terminate the interest rate swaps, the Company agreed that the amount due to Citibank
as of July 9, 2009 (Settlement Date) was $1.6 million (Settlement Amount). The Company further
agreed that interest on the Settlement Amount will accrue at a default rate from and including the
Settlement Date until such date that the Settlement Amount is paid in full. As of September 30,
2009, the Company had not paid the $1.6 million Settlement Amount.
Prior to termination, the Companys interest rate swaps qualified as cash flow hedges. The
Company historically recorded the unrealized gain or loss resulting from changes in fair value as a
component of other comprehensive income/(loss). Since future cash payments relating to the
outstanding Credit Facility are no longer probable, the interest rate swap is no longer deemed an
effective hedge, which resulted in the Company reclassifying the entire other comprehensive loss
balance to interest expense during the three months ended September 30, 2009.
13. STOCK-BASED COMPENSATION
Total stock-based compensation for the three months ended September 30, 2009 was $0.3 million
and was related to the TLC
Vision
Stock Option Plan. Total stock-based compensation for the three
months ended September 30, 2008 was $0.4 million and was related to the TLC
Vision
Stock Option Plan
and the Companys Employee Share Purchase Plan. Effective January 1, 2009, the Company suspended
future employee contributions to the Companys Employee Share Purchase Plan due to the limited
availability of Company shares under such Plan. Total stock-based compensation was $0.7 million and
$1.1 million for the nine months ended September 30, 2009 and 2008, respectively.
As of September 30, 2009, the total unrecognized compensation expense related to TLC
Vision
non-vested awards was approximately $1.5 million. The unrecognized compensation expense will be
recognized over the remaining vesting periods, the last of which expires during December 2012 for
certain options.
On December 10, 2008, the Company granted conditional options for shares. During June 2009,
the condition for these options was satisfied resulting in 362,500 options for shares being
granted. The Company began recognizing compensation expense related to these conditional options
during the quarter ended June 30, 2009 and will continue recognizing such expense through vesting.
The Company granted no other options during the three or nine months ended September 30, 2009. The
Company granted options for 387,000 and 423,000 shares during the three and nine months ended
September 30, 2008, respectively.
The fair value of stock options granted to employees is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average assumptions for 2009 and
2008, respectively: risk-free interest rate of 2.5% and 3.1%; expected dividend yield of 0%;
expected life of 3.8 years and 4.8 years; and expected volatility of 103% and 55%.
12
14. OTHER EXPENSE (INCOME), NET
Other expense (income), net, includes the following operating items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
NINE MONTHS ENDED
|
|
|
|
SEPTEMBER 30,
|
|
|
SEPTEMBER 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Gain on sales and disposals of fixed assets
|
|
$
|
(26
|
)
|
|
$
|
(108
|
)
|
|
$
|
(303
|
)
|
|
$
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center closing costs
|
|
|
(15
|
)
|
|
|
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on business divestitures
|
|
|
1,594
|
|
|
|
6
|
|
|
|
1,594
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance expense
|
|
|
101
|
|
|
|
|
|
|
|
2,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial and legal advisor costs
|
|
|
4,036
|
|
|
|
|
|
|
|
9,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous expense (income) and other charges
|
|
|
781
|
|
|
|
(45
|
)
|
|
|
946
|
|
|
|
(167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,471
|
|
|
$
|
(147
|
)
|
|
$
|
14,617
|
|
|
$
|
(703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. RESTRUCTURING OF OPERATIONS
During 2009, the Company accelerated its cost savings initiatives that focused on employee
reductions, closures of refractive centers and the reduction in refractive access routes. The
restructuring efforts during the nine months ended September 30, 2009 resulted in the closure of
four majority-owned refractive centers and an approximate 15% reduction of the Companys workforce
through involuntary employee separations. In addition to the cost savings initiatives, the
restructuring efforts also included financial and legal advisor fees associated with the ongoing
Credit Facility negotiations.
As a result, the Company incurred restructuring charges included in other expenses totaling
$14.8 million for the nine months ended September 30, 2009, which primarily included $9.1 million
of financial and legal advisor costs, $2.6 million for employee severance and benefits, $0.7
million of center closing costs, and $1.6 million of losses on the divestitures of various
ambulatory surgical center investments.
The restructuring charges for the three months ended September 30, 2009 were $6.5 million,
which included $4.1 million of financial and legal advisor costs, $0.1 million for employee
severance and benefits, and $1.6 million of losses on the divestitures of various ambulatory
surgical center investments.
As
of September 30, 2009, the Companys restructuring reserves
were $1.7 million and were
included in accrued liabilities in the consolidated balance sheet.
The following table summarizes various restructuring efforts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMPLOYEE
|
|
|
|
|
|
|
|
|
|
SEVERANCE
|
|
|
CENTER
|
|
|
|
|
|
|
& BENEFITS
|
|
|
CLOSING COSTS
|
|
|
TOTAL
|
|
Restructuring charges
|
|
$
|
259
|
|
|
$
|
280
|
|
|
$
|
539
|
|
Non-cash write-downs
|
|
|
|
|
|
|
(125
|
)
|
|
|
(125
|
)
|
Cash payments
|
|
|
(192
|
)
|
|
|
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
Accrual balance as of March 31, 2009
|
|
|
67
|
|
|
|
155
|
|
|
|
222
|
|
Restructuring charges
|
|
|
2,254
|
|
|
|
436
|
|
|
|
2,690
|
|
Non-cash write-downs
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(588
|
)
|
|
|
(84
|
)
|
|
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
|
Accrual balance as of June 30, 2009
|
|
$
|
1,733
|
|
|
$
|
507
|
|
|
$
|
2,240
|
|
Restructuring charges
|
|
|
101
|
|
|
|
(15
|
)
|
|
|
86
|
Non-cash write-downs
|
|
|
(34
|
)
|
|
|
(136
|
)
|
|
|
(170
|
)
|
Cash payments
|
|
|
(388
|
)
|
|
|
(89
|
)
|
|
|
(477
|
)
|
|
|
|
|
|
|
|
|
|
|
Accrual balance as of September 30, 2009
|
|
$
|
1,412
|
|
|
$
|
267
|
|
|
$
|
1,679
|
|
13
As of September 30, 2009, the Company currently estimates that its restructuring efforts
will likely continue through the quarter ending December 31, 2009. Such estimate may change and is
dependent on the outcome of various cost reduction and Credit Facility negotiation efforts.
16. TAXES
The Companys tax provision for interim periods is determined using an estimate of its annual
tax expense based on the forecasted taxable income for the full year. The Company believes there is
the potential for volatility in its 2009 effective tax rate due to several factors, primarily from
the impact of any changes to the forecasted earnings.
As of September 30, 2009, the Company continues to believe that there is insufficient evidence
to recognize certain deferred tax assets. Accordingly, the Company continues to carry a full
valuation allowance to offset its deferred tax assets. The determination of the appropriate amount
of deferred tax asset to recognize is regularly evaluated and is primarily based on expected
taxable income in future years, trends of historical taxable income, and other relevant factors.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes significant annual
limitations on the utilization of net operating losses (NOLs). Such NOL limitations result upon the
occurrence of certain events, including an ownership change as defined by Section 382.
Under Section 382, when an ownership change occurs, the calculation of the annual NOL
limitation is affected by several factors, including the number of shares outstanding and the
trading price before the ownership change occurred. As a result of shareholder activity, the
Company concluded that an ownership change occurred in early 2008 limiting future utilization of
NOLs. The Company currently estimates that this annual limit will result in $67.7 million of NOLs
expiring before becoming available.
The Company, including its domestic and foreign subsidiaries, is subject to U.S. federal
income tax as well as income tax of multiple state and other jurisdictions. Tax years 1997 through
present are not yet closed for U.S. federal and state income tax purposes due to net operating
losses carried forward from that time.
As of September 30, 2009, the Companys 2005 and 2006 tax years are under review by the
Internal Revenue Service (IRS) regarding the Companys employee and independent contractor
classifications and the impact of such classifications on required employer tax withholdings.
17. NET LOSS PER SHARE
The following table represents the calculation of net loss attributable to TLC Vision
Corporation per common share :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
NINE MONTHS ENDED
|
|
|
|
SEPTEMBER
|
|
|
SEPTEMBER
|
|
(in thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to TLC Vision Corporation
|
|
$
|
(10,045
|
)
|
|
$
|
(6,711
|
)
|
|
$
|
(18,228
|
)
|
|
$
|
(2,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic
|
|
|
50,565
|
|
|
|
50,345
|
|
|
|
50,550
|
|
|
|
50,292
|
|
Effect of dilutive stock options *
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted
|
|
|
50,565
|
|
|
|
50,345
|
|
|
|
50,550
|
|
|
|
50,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to TLC Vision Corporation
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.20
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.06
|
)
|
14
|
|
|
*
|
|
The effects of including the incremental shares associated with options and
warrants are anti-dilutive for the three and nine months ended September 30, 2009 and
2008, and are not included in weighted-average shares outstanding diluted. The total
weighted-average number of options with an exercise price less than the average closing
price of the Companys common stock was 1.1 million and 0.8 million for the three and
nine months ended September 30, 2009, respectively. The total weighted-average number
of options with an exercise price less than the average closing price of the Companys
common stock was 0.1 million and 0.2 million for the three and nine months ended
September 30, 2008, respectively.
|
18. STOCKHOLDERS (DEFICIT) EQUITY
The following table reflects the changes in stockholders (deficit) equity attributable to
both TLC Vision Corporation and the noncontrolling interests of the subsidiaries in which the
Company has a majority, but not total, ownership interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE
|
|
|
|
|
|
|
ATTRIBUTABLE
|
|
|
TO
|
|
|
|
|
|
|
TO TLC VISION
|
|
|
NONCONTROLLING
|
|
|
|
|
|
|
CORPORATION
|
|
|
INTEREST
|
|
|
TOTAL
|
|
Stockholders (deficit) equity at December 31, 2008
|
|
$
|
(35,346
|
)
|
|
$
|
15,330
|
|
|
$
|
(20,016
|
)
|
Shares issued as part of the employee share purchase plan
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Stock based compensation
|
|
|
675
|
|
|
|
|
|
|
|
675
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
(7,754
|
)
|
|
|
(7,754
|
)
|
Divestitures and other noncontrolling interest activity
|
|
|
|
|
|
|
(432
|
)
|
|
|
(432
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred hedge
|
|
|
1,545
|
|
|
|
|
|
|
|
1,545
|
|
Net (loss) income
|
|
|
(18,228
|
)
|
|
|
7,415
|
|
|
|
(10,813
|
)
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity at September 30, 2009
|
|
$
|
(51,332
|
)
|
|
$
|
14,559
|
|
|
$
|
(36,773
|
)
|
19. SEGMENT INFORMATION
The Companys reportable segments are strategic business units that offer different products
and services. They are managed and evaluated separately by the chief operating decision maker
because each business requires different management and marketing strategies. The Company has three
lines of business and five reportable segments including Other as follows:
|
|
|
Refractive Centers:
The refractive centers business provides a significant
portion of the Companys revenue and is in the business of providing corrective laser
surgery (principally LASIK) in fixed sites typically branded under the TLC name.
|
|
|
|
|
Doctor Services:
The doctor services business provides a variety of services and
products directly to doctors and the facilities in which they perform surgery. It consists
of the following segments:
|
|
|
|
Mobile Cataract: The mobile cataract segment provides technology and diagnostic
equipment and services to doctors and hospitals to support cataract surgery as well
as treatment of other eye diseases.
|
|
|
|
|
Refractive Access: The refractive access segment assists surgeons in providing
corrective laser surgery in their own practice location by providing refractive
technology, technicians, service and practice development support at the surgeons
office.
|
|
|
|
|
Other: The Company has ownership interests in businesses that manage surgical and
secondary care centers. None of these businesses meets the quantitative criteria to
be disclosed separately as a reportable segment and they are included in Other for
segment disclosure purposes.
|
|
|
|
Eye Care:
The eye care business consists of the optometric franchising business
segment. The optometric franchising segment provides marketing, practice development and
purchasing power to independently-owned and operated optometric practices in the United
States and Canada.
|
Corporate depreciation and amortization of $0.4 million and $0.6 million for the three months
ended September 30, 2009 and 2008, respectively, is included in corporate operating expenses.
Corporate depreciation and amortization of $1.1 million and $1.8 million for the nine months ended
September 30, 2009 and 2008, respectively, is included in corporate operating expenses. For
purposes of the depreciation and amortization disclosures shown below, these amounts are included
in the refractive centers reporting segment.
15
The Companys reportable segments are as follows:
THREE MONTHS ENDED SEPTEMBER 30, 2009
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCTOR SERVICES
|
|
|
EYE CARE
|
|
|
|
|
|
|
REFRACTIVE
|
|
|
REFRACTIVE
|
|
|
MOBILE
|
|
|
|
|
|
|
OPTOMETRIC
|
|
|
|
|
|
|
CENTERS
|
|
|
ACCESS
|
|
|
CATARACT
|
|
|
OTHER
|
|
|
FRANCHISING
|
|
|
TOTAL
|
|
Revenues
|
|
$
|
22,197
|
|
|
$
|
5,477
|
|
|
$
|
10,787
|
|
|
$
|
5,952
|
|
|
$
|
7,212
|
|
|
$
|
51,625
|
|
Cost of revenues (excluding amortization)
|
|
|
17,510
|
|
|
|
3,916
|
|
|
|
8,445
|
|
|
|
4,010
|
|
|
|
3,491
|
|
|
|
37,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,687
|
|
|
|
1,561
|
|
|
|
2,342
|
|
|
|
1,942
|
|
|
|
3,721
|
|
|
|
14,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
|
2,458
|
|
|
|
20
|
|
|
|
1,238
|
|
|
|
93
|
|
|
|
1,139
|
|
|
|
4,948
|
|
G&A, amortization and other
|
|
|
1,136
|
|
|
|
33
|
|
|
|
818
|
|
|
|
1,839
|
|
|
|
1
|
|
|
|
3,827
|
|
Impairment
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496
|
|
Earnings from equity investments
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
(197
|
)
|
|
|
|
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$
|
630
|
|
|
$
|
1,508
|
|
|
$
|
286
|
|
|
$
|
207
|
|
|
$
|
2,581
|
|
|
$
|
5,212
|
|
Noncontrolling interest
|
|
|
40
|
|
|
|
13
|
|
|
|
|
|
|
|
870
|
|
|
|
1,134
|
|
|
|
2,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss) attributable to TLC Vision Corp.
|
|
$
|
590
|
|
|
$
|
1,495
|
|
|
$
|
286
|
|
|
$
|
(663
|
)
|
|
$
|
1,447
|
|
|
$
|
3,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,906
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,118
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to TLC Vision Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,354
|
|
|
$
|
535
|
|
|
$
|
715
|
|
|
$
|
330
|
|
|
$
|
12
|
|
|
$
|
3,946
|
|
THREE MONTHS ENDED SEPTEMBER 30, 2008
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCTOR SERVICES
|
|
|
EYE CARE
|
|
|
|
|
|
|
REFRACTIVE
|
|
|
REFRACTIVE
|
|
|
MOBILE
|
|
|
|
|
|
|
OPTOMETRIC
|
|
|
|
|
|
|
CENTERS
|
|
|
ACCESS
|
|
|
CATARACT
|
|
|
OTHER
|
|
|
FRANCHISING
|
|
|
TOTAL
|
|
Revenues
|
|
$
|
28,516
|
|
|
$
|
5,861
|
|
|
$
|
10,177
|
|
|
$
|
6,596
|
|
|
$
|
6,384
|
|
|
$
|
57,534
|
|
Cost of revenues (excluding amortization)
|
|
|
22,245
|
|
|
|
4,766
|
|
|
|
7,635
|
|
|
|
4,217
|
|
|
|
2,596
|
|
|
|
41,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,271
|
|
|
|
1,095
|
|
|
|
2,542
|
|
|
|
2,379
|
|
|
|
3,788
|
|
|
|
16,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
|
6,651
|
|
|
|
36
|
|
|
|
1,470
|
|
|
|
120
|
|
|
|
1,171
|
|
|
|
9,448
|
|
G&A, amortization and other
|
|
|
1,628
|
|
|
|
(115
|
)
|
|
|
942
|
|
|
|
455
|
|
|
|
2
|
|
|
|
2,912
|
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
Earnings from equity investments
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
(353
|
)
|
|
|
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss) profit
|
|
$
|
(1,894
|
)
|
|
$
|
1,174
|
|
|
$
|
130
|
|
|
$
|
657
|
|
|
$
|
2,615
|
|
|
$
|
2,682
|
|
Noncontrolling interest
|
|
|
(53
|
)
|
|
|
10
|
|
|
|
|
|
|
|
952
|
|
|
|
1,223
|
|
|
|
2,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
(loss) profit attributable to TLC Vision Corp.
|
|
$
|
(1,841
|
)
|
|
$
|
1,164
|
|
|
$
|
130
|
|
|
$
|
(295
|
)
|
|
$
|
1,392
|
|
|
$
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,588
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,455
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to TLC Vision Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
3,158
|
|
|
$
|
737
|
|
|
$
|
681
|
|
|
$
|
380
|
|
|
$
|
12
|
|
|
$
|
4,968
|
|
16
NINE MONTHS ENDED SEPTEMBER 30, 2009
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCTOR SERVICES
|
|
|
EYE CARE
|
|
|
|
|
|
|
REFRACTIVE
|
|
|
REFRACTIVE
|
|
|
MOBILE
|
|
|
|
|
|
|
OPTOMETRIC
|
|
|
|
|
|
|
CENTERS
|
|
|
ACCESS
|
|
|
CATARACT
|
|
|
OTHER
|
|
|
FRANCHISING
|
|
|
TOTAL
|
|
Revenues
|
|
$
|
85,145
|
|
|
$
|
18,946
|
|
|
$
|
31,630
|
|
|
$
|
19,688
|
|
|
$
|
24,097
|
|
|
$
|
179,506
|
|
Cost of revenues (excluding amortization)
|
|
|
65,140
|
|
|
|
15,093
|
|
|
|
23,798
|
|
|
|
13,571
|
|
|
|
11,413
|
|
|
|
129,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,005
|
|
|
|
3,853
|
|
|
|
7,832
|
|
|
|
6,117
|
|
|
|
12,684
|
|
|
|
50,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
|
9,459
|
|
|
|
65
|
|
|
|
4,208
|
|
|
|
300
|
|
|
|
3,253
|
|
|
|
17,285
|
|
G&A, amortization and other
|
|
|
4,881
|
|
|
|
34
|
|
|
|
2,656
|
|
|
|
2,517
|
|
|
|
21
|
|
|
|
10,109
|
|
Impairment
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496
|
|
Earnings from equity investments
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
(749
|
)
|
|
|
|
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$
|
5,442
|
|
|
$
|
3,754
|
|
|
$
|
968
|
|
|
$
|
4,049
|
|
|
$
|
9,410
|
|
|
$
|
23,623
|
|
Noncontrolling interest
|
|
|
560
|
|
|
|
21
|
|
|
|
|
|
|
|
2,444
|
|
|
|
4,390
|
|
|
|
7,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit attributable to TLC Vision Corp.
|
|
$
|
4,882
|
|
|
$
|
3,733
|
|
|
$
|
968
|
|
|
$
|
1,605
|
|
|
$
|
5,020
|
|
|
$
|
16,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,263
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,513
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to TLC Vision Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
7,169
|
|
|
$
|
1,593
|
|
|
$
|
2,161
|
|
|
$
|
996
|
|
|
$
|
36
|
|
|
$
|
11,955
|
|
NINE MONTHS ENDED SEPTEMBER 30, 2008
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCTOR SERVICES
|
|
|
EYE CARE
|
|
|
|
|
|
|
REFRACTIVE
|
|
|
REFRACTIVE
|
|
|
MOBILE
|
|
|
|
|
|
|
OPTOMETRIC
|
|
|
|
|
|
|
CENTERS
|
|
|
ACCESS
|
|
|
CATARACT
|
|
|
OTHER
|
|
|
FRANCHISING
|
|
|
TOTAL
|
|
Revenues
|
|
$
|
126,540
|
|
|
$
|
23,831
|
|
|
$
|
30,527
|
|
|
$
|
18,867
|
|
|
$
|
22,221
|
|
|
$
|
221,986
|
|
Cost of revenues (excluding amortization)
|
|
|
89,011
|
|
|
|
18,500
|
|
|
|
22,526
|
|
|
|
12,413
|
|
|
|
10,109
|
|
|
|
152,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
37,529
|
|
|
|
5,331
|
|
|
|
8,001
|
|
|
|
6,454
|
|
|
|
12,112
|
|
|
|
69,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
|
22,794
|
|
|
|
112
|
|
|
|
4,895
|
|
|
|
349
|
|
|
|
3,158
|
|
|
|
31,308
|
|
G&A, amortization and other
|
|
|
5,672
|
|
|
|
(321
|
)
|
|
|
3,078
|
|
|
|
1,200
|
|
|
|
49
|
|
|
|
9,678
|
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
Loss (earnings) from equity investments
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
(909
|
)
|
|
|
|
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$
|
8,519
|
|
|
$
|
5,540
|
|
|
$
|
28
|
|
|
$
|
4,314
|
|
|
$
|
8,905
|
|
|
$
|
27,306
|
|
Noncontrolling interest
|
|
|
1,189
|
|
|
|
77
|
|
|
|
|
|
|
|
2,704
|
|
|
|
4,054
|
|
|
|
8,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit attributable to TLC Vision Corp.
|
|
$
|
7,330
|
|
|
$
|
5,463
|
|
|
$
|
28
|
|
|
$
|
1,610
|
|
|
$
|
4,851
|
|
|
$
|
19,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,252
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,919
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to TLC Vision Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,839
|
)
|
Depreciation and amortization
|
|
$
|
9,499
|
|
|
$
|
2,122
|
|
|
$
|
2,055
|
|
|
$
|
1,131
|
|
|
$
|
38
|
|
|
$
|
14,845
|
|
17
20. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
2009
|
|
2008
|
Capital lease obligations relating
to equipment purchases
|
|
$
|
2,006
|
|
|
$
|
2,961
|
|
Other comprehensive (income) loss on hedge
|
|
|
(1,545
|
)
|
|
|
276
|
|
Option and warrant reduction
|
|
|
|
|
|
|
92
|
|
Cash paid for the following:
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
2009
|
|
2008
|
Interest
|
|
$
|
7,266
|
|
|
$
|
7,197
|
|
Income taxes
|
|
|
858
|
|
|
|
1,172
|
|
21. FAIR VALUE MEASUREMENT
In September 2006, the FASB issued guidance (ASC 820), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements. The
provisions of this guidance were effective for the Company as of January 1, 2008. However, the FASB
deferred the effective date of the provision until the beginning of the Companys 2009 fiscal year
as it relates to fair value measurement requirements for nonfinancial assets, such as goodwill, and
liabilities that are not remeasured at fair value on a recurring basis. The Companys adoption of
the fair value guidance did not have a material impact on the financial statements.
During the nine months ended September 30, 2009, the Company implemented FASB issued guidance
(ASC 825) to require disclosures about the fair value of financial instruments in interim as well
as in annual financial statements. The adoption of this guidance did not impact the Companys
financial position or results of operations.
The fair value framework requires the categorization of assets and liabilities into three
levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1
provides the most reliable measure of fair value, whereas Level 3 generally requires significant
management judgment. The three levels are defined as follows:
|
|
|
Level 1:
Unadjusted quoted prices in active markets for identical assets and
liabilities.
|
|
|
|
|
Level 2:
Observable inputs other than those included in Level 1. For example, quoted
prices for similar assets or liabilities in active markets or quoted prices for identical
assets or liabilities in inactive markets.
|
|
|
|
|
Level 3:
Unobservable inputs reflecting managements own assumptions about the inputs
used in pricing the asset or liability.
|
Cash and cash equivalents of $13.2 million at September 30, 2009 are primarily comprised of
either bank deposits or amounts invested in money market funds, the fair value of which is based on
unadjusted quoted prices in active markets for identical assets (Level 1).
As of September 30, 2009, the carrying value and approximate fair value was $100.1 million and
$95.6 million, respectively, relating to the Companys combined term and revolving advances under
the Credit Facility. The fair value was estimated by discounting the amount of estimated future
cash flows associated with the respective debt instruments using the Companys current incremental
rate of borrowing for similar debt instruments (Level 3). The calculation of fair value assumes no
acceleration of payments that may be required under default provisions included in the Companys
Credit Facility.
18
22. EXECUTIVE OFFICERS
On April 23, 2009, the Company announced that James C. Wachtman resigned as Chief Executive
Officer and as a member of the Board of Directors of the Company, effective immediately. The
Company also announced that James B. Tiffany was named President and Chief Operating Officer,
effective immediately.
On April 23, 2009, the Company also announced that it created the position of Chief
Restructuring Officer and formed an Office of the Chairman. Michael Gries, a principal of Conway,
Del Genio, Gries & Co. LLC (CDG), a financial advisory firm based in New York, NY, accepted the
position of Chief Restructuring Officer. The new three-person Office of the Chairman will report to
the Board of Directors and is comprised of: Chairman Warren Rustand; President and Chief Operating
Officer, James B.Tiffany; and Chief Restructuring Officer, Michael Gries.
On May 15, 2009, the Company announced that as part of its efforts to reduce costs, it
terminated the employment of three executive officers, effective immediately. The three executive
officers impacted were: Steven P. Rasche, Chief Financial Officer; Brian L. Andrew, General Counsel
and Secretary; and Larry D. Hohl, President of Refractive Centers.
On May 15, 2009, the Company also announced that William J. McManus, a managing director of
CDG, was appointed to the position of Interim Chief Financial Officer. Mr. Andrews non-legal
responsibilities as well as Mr. Hohls responsibilities have been assumed by James B. Tiffany. Mr.
Andrews legal responsibilities have been assumed on an interim basis by Company attorneys and
external counsel.
23. RELATED PARTY TRANSACTIONS
As noted in Note 22,
Executive Officers
, the Companys Interim Chief Financial Officer and
Chief Restructuring Officer are employed by CDG. The Company has retained CDG to provide consulting
services relating to the Companys ongoing restructuring efforts, which include cost saving
initiatives and Credit Facility negotiations. During the three and nine months ended September 30,
2009, the Company paid CDG approximately $0.6 million and $1.6 million, respectively.
24. SUBSEQUENT EVENTS
On October 22, 2009, the Company announced that it had secured from its lenders an extension
to November 15, 2009 of the previously announced limited waiver with respect to the Credit
Agreement that expired on October 13, 2009, and of the forbearance with respect to certain payment
obligations under the Credit Agreement. The amendment to the limited waiver, dated October 13,
2009, among other things, provides an extension of the limited waiver through November 15, 2009 of
specified defaults and provides that the lenders will, until November 15, 2009, forbear from
exercising their rights arising out of the non-payment of certain principal, interest and other
payments previously due.
As of November 16, 2009, the filing date of this quarterly report, the Company was operating
without a current waiver of defaults under its Credit Facility.
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q (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, believes, could, might, anticipate, estimate, plans, intends or
continue or the negative thereof or other variations thereon or comparable terminology. The
Companys 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 Managements Discussion and Analysis of Financial
Condition and Results of Operations and in the Companys Annual Report on Form 10-K for the year
ended December 31, 2008. Unless the context indicates or
19
requires otherwise, references in this Form 10-Q to the Company or TLC
Vision
shall mean TLC
Vision Corporation and its subsidiaries. References to $ or dollars shall mean U.S. dollars
unless otherwise indicated. References to C$ shall mean Canadian dollars. References to the
Commission shall mean the U.S. Securities and Exchange Commission.
OVERVIEW
TLC Vision Corporation is an eye care services company dedicated to improving lives through
improved vision by providing high-quality care directly to patients and as a partner with their
doctors and facilities. A significant portion of the Companys revenues come from owning and
operating refractive centers that employ laser technologies to treat common refractive vision
disorders such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. Refractive
centers, which is a reportable segment, includes the Companys 70 centers that provide corrective
laser surgery, of which 62 are majority owned and 8 centers are minority owned. In its doctor
services businesses, the Company furnishes doctors and medical facilities with mobile or fixed
site access to refractive and cataract surgery equipment, supplies, technicians and diagnostic
products, as well as owns and manages single-specialty ambulatory surgery centers. In its eye care
business, the Company primarily provides franchise opportunities to independent optometrists under
its Vision Source
®
brand.
The Company serves surgeons who performed approximately 151,000 and 186,000 procedures,
including refractive and cataract procedures, at the Companys centers or using the Companys
equipment during each of the nine months ended September 30, 2009 and 2008, respectively. Being an
elective procedure, laser vision correction volumes fluctuate due to changes in economic
conditions, unemployment rates, consumer confidence and political uncertainty. Demand for laser
vision correction also is affected by perceived safety and effectiveness concerns given the lack of
long-term follow-up data. For additional information regarding the Companys decline in procedure
volume and the direct impact of such decline on the Companys liquidity, refer to the section
Recent Developments
below.
RECENT DEVELOPMENTS
Amendments, Waivers and Consents to the Credit Facility
As a result of the Companys inability to comply with the primary financial covenants under
its Credit Facility, the Company has received from its lenders numerous waivers, consents and
amendments to the Credit Agreement during the nine months ended September 30, 2009. All waivers,
consents and amendments to the Credit Agreement are filed with the SEC as exhibits to Current
Reports on Form 8-K. Refer to Notes of the Unaudited Interim Consolidated Financials Statements, in
particular Note 2,
Liquidity
, and Note 24,
Subsequent Events
, for additional details.
NASDAQ Compliance
On September 16, 2009, the Company received letters from the NASDAQ Stock Market indicating
that, for the last 30 consecutive business days, the Companys common stock did not maintain a
minimum value requirement of publicly held shares of $15 million (MVPHS Rule) and the bid price
of the Companys common stock closed below the minimum $1.00 per share requirement (Minimum Bid
Price Rule) for continued inclusion on the NASDAQ Stock Market. The Company will be provided until
December 15, 2009 to obtain compliance with the MVPHS Rule and until March 15, 2010 to regain
compliance with the Minimum Bid Price Rule or may have its securities delisted. Refer to Note 3,
NASDAQ Stock Market Compliance,
to the Unaudited Interim Consolidated Financial Statements for
additional details.
Foresee PHP
®
System
During the quarter ended September 30, 2009, management explored terminating the Foresee
Preferential Hyperacuity Perimeter (Foresee PHP
®
) system distribution rights between the Company
and Notal Vision
®
. The distribution rights allow the Company to sell the Foresee PHP
®
system,
manufactured by Notal Vision
®
, as a component of the Companys cataract access reporting segment.
During the nine months ended September 30, 2009, revenues generated from sales of the Foresee PHP
®
system were $1.4 million, a decline of $0.6 million compared to the nine months ended September 30,
2008.
20
Given the recent decline in revenues and profits generated from sales of the Foresee PHP
®
system, the Company and Notal Vision
®
mutually agreed to transfer the distribution rights to a
third party subsequent to the quarter ended September 30, 2009. As a result, the Company determined
at September 30, 2009 that approximately $0.7 million of remaining nontransferable Foresee PHP
®
inventory was impaired.
Refer to Note 6,
Inventory and Other Assets
, to the Unaudited Interim Consolidated Financial
Statements for additional details.
Kremer Put Options
During August 2009, the Company and the minority holders of Kremer executed a limited
forbearance and amendment (Amendment and Forbearance) to the 2005 transfer rights agreement, as
previously amended. The Amendment and Forbearance, among other things, granted the Company
temporary forbearance of a $1.9 million payable due to the minority holders, waived the minority
holders ability during the forbearance period to force acceleration of the remaining put options
and required the Company to make an immediate payment to the minority holders of $0.3 million.
Refer to Note 4,
Acquisitions and Investments
, to the Unaudited Interim Consolidated Financial
Statements for additional details.
Interest Rate Swap Agreements
Effective July 9, 2009, Citibank and the Company agreed to the early termination of the
interest rate swap agreements entered August and December 2007. In consideration for Citibanks
agreement to terminate the interest rate swaps, the Company agreed that the amount due to Citibank
as of July 9, 2009 (Settlement Date) was $1.6 million (Settlement Amount). The Company further
agreed that interest on the Settlement Amount will accrue at a default rate from and including the
Settlement Date until such date that the Settlement Amount is paid in full. As of September 30,
2009, the Company had not paid the $1.6 million Settlement Amount. See Note 12,
Interest Rate Swap
Agreements
, to the Unaudited Interim Consolidated Financial Statements for additional details
regarding the interest rate swap agreements.
Ambulatory Surgical Center Disposals
During the quarter ended September 30, 2009, the Company divested one majority-owned and two
minority-owned ambulatory surgical center investments for a combined net sale price of $2.2
million, resulting in a net loss on divestiture of $1.6 million included in other expense in the
Consolidated Statements of Operations. The historical results of operations for these ambulatory
surgical centers are included in the other segment of the Companys doctor services business.
Center Closures
During the nine months ended September 30, 2009 the Company closed four majority-owned centers
as part of the Companys ongoing efforts to improve overall operating performance. The
majority-owned centers had procedure volume of approximately 400 and 1,000 during the nine months
ended September 30, 2009 and 2008, respectively. While the Company does not have immediate plans to
close additional centers, management continues to review refractive center operating performance
and may chose to close additional centers in future periods as necessary.
Amendment No. 2 to the TruVision Agreement and Plan of Merger
On August 10, 2009, the Company entered into Amendment No. 2 (Amendment) to the 2005 TruVision
Agreement and Plan of Merger. The Amendment resulted in the Companys final $4.0 million purchase
installment, which was due to the former TruVision owners during August 2009, being increased to an
unsecured $5.4 million payable. Refer to Note 9,
Accrued and Other Long-Term Liabilities,
to the
Unaudited Interim Consolidated Financial Statements for additional details.
21
RESULTS OF OPERATIONS
The following table sets forth certain center and procedure operating data for the periods
presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
NINE MONTHS ENDED
|
|
|
SEPTEMBER 30,
|
|
SEPTEMBER 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
OPERATING DATA (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of majority-owned eye care centers at end of period
|
|
|
62
|
|
|
|
68
|
|
|
|
62
|
|
|
|
68
|
|
Number of minority-owned eye care centers at end of period
|
|
|
8
|
|
|
|
10
|
|
|
|
8
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of TLC
Vision
branded eye care centers at end of period
|
|
|
70
|
|
|
|
78
|
|
|
|
70
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of laser vision correction procedures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Majority-owned centers
|
|
|
13,100
|
|
|
|
16,300
|
|
|
|
50,500
|
|
|
|
73,600
|
|
Minority-owned centers
|
|
|
3,200
|
|
|
|
3,500
|
|
|
|
10,900
|
|
|
|
13,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TLC
Vision
branded center procedures
|
|
|
16,300
|
|
|
|
19,800
|
|
|
|
61,400
|
|
|
|
87,500
|
|
Total access procedures
|
|
|
8,200
|
|
|
|
8,500
|
|
|
|
28,000
|
|
|
|
36,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total laser vision correction procedures
|
|
|
24,500
|
|
|
|
28,300
|
|
|
|
89,400
|
|
|
|
123,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2008
Total revenues for the three months ended September 30, 2009 were $51.6 million, a decrease of
$5.9 million (10%) from revenues of $57.5 million for the three months ended September 30, 2008.
The decrease in revenue was primarily attributable to the decline in refractive centers procedures,
partially offset by higher cataract volume.
Revenues from refractive centers for the three months ended September 30, 2009 were $22.2
million, a decrease of $6.3 million (22%) from revenues of $28.5 million for the three months
ended September 30, 2008. The decrease in revenues from centers resulted primarily from lower
center procedure volume, which accounted for a decrease in revenues of approximately $5.0
million. The remaining revenue decline of $1.3 million was the result of decreased revenue per
procedure. For the three months ended September 30, 2009, majority-owned center procedures were
approximately 13,100, a decrease of 3,200 from 16,300 procedures for the three months ended
September 30, 2008. The procedure decline was attributable to the weakened U.S. economy, which
has negatively impacted consumer discretionary spending.
Revenues from doctor services for the three months ended September 30, 2009 were $22.2
million, a decrease of $0.4 million (2%) from revenues of $22.6 million for the three months
ended September 30, 2008. The revenue decrease from doctor services was due principally to
procedure shortfalls in refractive access and the disposal of a majority-owned ambulatory
surgical center, partially offset by an increase in the mobile cataract segment.
|
|
|
Revenues from the refractive access services segment for the three months ended
September 30, 2009 were $5.5 million, a decrease of $0.4 million (7%) from revenues of
$5.9 million for the three months ended September 30, 2008. For the three months ended
September 30, 2009, excimer procedures declined by approximately 300 (4%) from the
prior year period on lower customer demand and lower average sales price of 3%. The
procedure decline accounted for a decrease in revenues of approximately $0.2 million
and lower average sales price decreased revenues by approximately $0.2 million.
|
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|
Revenues from the Companys mobile cataract segment for the three months ended
September 30, 2009 were $10.8 million, an increase of $0.6 million (6%) from revenues
of $10.2 million for the three months ended September 30, 2008. The increase in mobile
cataract revenues was due to increased surgical procedure volume of 5% and a higher
surgical average sales price of 3%.
|
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|
Revenues from the Companys businesses that manage cataract and secondary care
centers for the three months ended September 30, 2009 were $6.0 million, a decrease of
$0.6 million (10%) from revenues of $6.6 million for the three months ended September
30, 2008. The decrease was primarily
|
22
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|
driven by the sale of a majority-owned ambulatory surgical center, which contributed no
revenue during the quarter ended September 30, 2009 compared to $0.9 million during the
comparable prior year period.
|
Revenues from eye care for the three months ended September 30, 2009 were $7.2 million, an
increase of $0.8 million (13%) from revenues of $6.4 million for the three months ended
September 30, 2008. This increase in revenues is attributable to a 10% year-over-year increase
in franchisee locations. As of September 30, 2009 the Company had 2,058 total franchisees.
Total cost of revenues (excluding amortization expense for all segments) for the three months
ended September 30, 2009 was $37.4 million, a decrease of $4.1 million (10%) from the cost of
revenues of $41.5 million for the three months ended September 30, 2008.
The cost of revenues from refractive centers for the three months ended September 30, 2009
was $17.5 million, a decrease of $4.7 million (21%) from cost of revenues of $22.2 million for
the three months ended September 30, 2008. This decrease was attributable to a $1.5 million cost
of revenue decline related to lower procedure volume, $2.7 million in fixed cost reductions and
$0.5 million in decreased variable costs per procedure. Gross margin for centers was 21.1%
during the three months ended September 30, 2009, down from prior year gross margin of 22.0% as
the Companys cost saving initiatives nearly outweighed the revenue decline caused by the
refractive center procedure decline.
The cost of revenues from doctor services for the three months ended September 30, 2009 was
$16.4 million, a decrease of $0.2 million (1%) from cost of revenues of $16.6 million for the
three months ended September 30, 2008. Gross margin increased to 26.3% during the three months
ended September 30, 2009 from 26.6% in the prior year period. The decrease in cost of revenues
was due to the following:
|
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|
The cost of revenues from the refractive access segment for the three months ended
September 30, 2009 was $3.9 million, a decrease of $0.9 million (18%) from cost of
revenues of $4.8 million for the three months ended September 30, 2008. This decrease
was primarily attributable to $0.2 million of lower costs associated with decreased
excimer procedures and lower cost of revenues of $0.7 million primarily associated with
lower costs per procedure on fixed cost reductions.
|
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|
The cost of revenues from the Companys mobile cataract segment for the three months
ended September 30, 2009 was $8.4 million, an increase of $0.8 million (11%) from cost
of revenues of $7.6 million for the three months ended September 30, 2008. This
increase was primarily due to higher variable costs of 20% on increased surgical
procedure volume, higher lens cost and a one-time inventory write-down of $0.7 million,
which were almost entirely offset with fixed cost reductions of 11% as the Company
continues to operate under a leaner fixed cost structure in the current economic
environment.
|
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|
|
The cost of revenues from the Companys businesses that manage cataract and
secondary care centers for the three months ended September 30, 2009 was $4.0 million,
a decrease of $0.2 million (5%) from cost of revenues of $4.2 million for the three
months ended September 30, 2008. The decrease was caused by the third quarter 2009 sale
of the majority-owned ambulatory surgical center, which contributed no cost of revenue
during the current quarter but $0.6 million during the three months ended September 30,
2008.
|
The cost of revenues from eye care for the three months ended September 30, 2009 was $3.5
million, an increase of $0.9 million (34%) from cost of revenues of $2.6 million for the three
months ended September 30, 2008. This increase was due to additional costs incurred as a result
of a 10% increase in total franchisee locations, which required additional operating costs to
manage. Gross margins decreased to 51.6% during the three months ended September 30, 2009 from
59.3% in the prior year period on higher professional fees.
General and administrative expenses of $5.7 million for the three months ended September 30,
2009 decreased $1.1 million from $6.8 million for the three months ended September 30, 2008. The
decrease was primarily related to lower employee related expenses in refractive centers and lower
non-restructuring related professional fees in corporate overhead.
23
Marketing expenses decreased to $4.9 million for the three months ended September 30, 2009
from $9.4 million for the three months ended September 30, 2008. The $4.5 million decrease was due
to a $4.2 million (63%) reduction in refractive center marketing spend, specifically related to
external advertising and direct to consumer marketing, in order to reduce costs during the economic
downturn.
During the three months ended September 30, 2009, the Company recorded a $0.5 million
impairment charge in refractive centers on a trade name intangible as the trade name was no longer
being utilized by the Company. During the three months ended September 30, 2008, the Company
recorded $1.5 million of impairment charges in doctor services against goodwill and other long-term
assets to adjust the carrying values of various ambulatory surgical centers to fair value.
Other operating expenses increased to $6.5 million for the three months ended September 30,
2009 from other operating income of $0.1 million for the three months ended September 30, 2008. The
$6.6 million unfavorable change was primarily related to $4.1 million of financial and legal
advisor expenses and a $1.6 million loss incurred on the divestiture of three ambulatory surgical
center investments, each incurred during the three months ended September 30, 2009.
Interest expense increased to $4.1 million for the three months ended September 30, 2009 from
$2.6 million for the three months ended September 30, 2008. This $1.5 million increase was
primarily due the termination of the Companys interest rate swap, which was reclassified to
interest expense from other comprehensive loss during the quarter ended September 30, 2009. Also
contributing to the higher interest expense are higher borrowings under the Credit Facility and the
incremental default interest rate of 2.0% that began during the quarter. The average interest rate
for the three months ended September 30, 2009 and 2008 was approximately 13.4% and 9.9%,
respectively, which includes the impact of deferred loan costs, the Companys interest rate swap
and other fees.
For the three months ended September 30, 2009, the Company recognized income tax expense of
$0.2 million, which was determined using an estimate of the Companys 2009 total annual tax expense
based on the forecasted taxable income for the full year. For the three months ended September 30,
2008, the Company also recognized income tax expense of $0.2 million.
Net loss attributable to TLC Vision Corporation for the three months ended September 30, 2009
was ($10.0) million, or ($0.20) per basic and diluted share, compared to ($6.7) million, or ($0.13)
per basic and diluted share, for the three months ended September 30, 2008.
NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2008
Total revenues for the nine months ended September 30, 2009 were $179.5 million, a decrease of
$42.5 million (19%) from revenues of $222.0 million for the nine months ended September 30, 2008.
The decrease in revenue was primarily attributable to the decline in refractive centers and
refractive access procedures, partially offset by higher cataract volume and growth in eye care.
Revenues from refractive centers for the nine months ended September 30, 2009 were $85.1
million, a decrease of $41.4 million (33%) from revenues of $126.5 million for the nine months
ended September 30, 2008. The decrease in revenues from refractive centers resulted primarily
from lower center procedure volume, which accounted for a decrease in revenues of approximately
$37.7 million. The remaining revenue decline of $3.7 million was the result of decreased revenue
per procedure. For the nine months ended September 30, 2009, majority-owned center procedures
were approximately 50,500, a decrease of 23,100 from 73,600 procedures for the nine months ended
September 30, 2008. The procedure decline was attributable to the weakened U.S. economy, which
has negatively impacted consumer discretionary spending.
Revenues from doctor services for the nine months ended September 30, 2009 were $70.3
million, a decrease of $2.9 million (4%) from revenues of $73.2 million for the nine months
ended September 30, 2008. The revenue decrease from doctor services was due principally to
procedure shortfalls in refractive access, partially offset by increases in the Companys mobile
cataract and other segments.
24
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|
|
Revenues from the refractive access services segment for the nine months ended
September 30, 2009 were $18.9 million, a decrease of $4.9 million (20%) from revenues
of $23.8 million for the nine months ended September 30, 2008. For the nine months
ended September 30, 2009, excimer procedures declined by approximately 8,400 (23%) from
the prior year period on lower customer demand, which accounted for a decrease in
revenues of approximately $5.5 million. This decrease was partially offset by a higher
average sales price of 4%, which increased revenues by approximately $0.6 million,
primarily caused by a 6% Intralase revenue increase.
|
|
|
|
|
Revenues from the Companys mobile cataract segment for the nine months ended
September 30, 2009 were $31.6 million, an increase of $1.1 million (4%) from revenues
of $30.5 million for the nine months ended September 30, 2008. The increase in mobile
cataract revenues was due to increased surgical procedure volume of 4% and a slightly
higher surgical average sales price of 4%, partially offset by a $0.7 million or 32%
decline in PHP Foresee
®
revenue on a 33% unit volume reduction as the weakened U.S.
economy continues to limit consumer spending.
|
|
|
|
|
Revenues from the Companys businesses that manage cataract and secondary care
centers for the nine months ended September 30, 2009 were $19.7 million, an increase of
$0.8 million (4%) from revenues of $18.9 million for the nine months ended September
30, 2008. The increase was primarily driven by a 2% increase in majority-owned
procedures primarily led by cataract growth. Year-to-date 2009 cataract growth was
partially limited due to the early third quarter disposal of a majority-owned
ambulatory surgical center, which contributed 1,900 procedures during the nine months
ended September 30, 2009 compared to 2,400 procedures during the nine months ended
September 30, 2008.
|
Revenues from eye care for the nine months ended September 30, 2009 were $24.1 million, an
increase of $1.9 million (8%) from revenues of $22.2 million for the nine months ended September
30, 2008. This increase was due to a 10% year-over-year increase in total franchisee locations.
Total cost of revenues (excluding amortization expense for all segments) for the nine months
ended September 30, 2009 was $129.0 million, a decrease of $23.6 million (15%) from the cost of
revenues of $152.6 million for the nine months ended September 30, 2008.
The cost of revenues from refractive centers for the nine months ended September 30, 2009
was $65.1 million, a decrease of $23.9 million (27%) from cost of revenues of $89.0 million for
the nine months ended September 30, 2008. This decrease was attributable to a $12.9 million cost
of revenue decline related to lower procedure volume, $10.7 million in fixed cost reductions and
$0.3 million in decreased variable costs per procedure. Gross margin for centers was 23.5%
during the nine months ended September 30, 2009, down from prior year gross margin of 29.7% as
the Companys cost saving initiatives could not outweigh the revenue decline caused by the
refractive center procedure decline.
The cost of revenues from doctor services for the nine months ended September 30, 2009 was
$52.5 million, a decrease of $0.9 million (2%) from cost of revenues of $53.4 million for the
nine months ended September 30, 2008. Gross margin decreased to 25.3% during the nine months
ended September 30, 2009 from 27.0% in the prior year period. The decrease in cost of revenues
was due to the following:
|
|
|
The cost of revenues from the refractive access segment for the nine months
ended September 30, 2009 was $15.1 million, a decrease of $3.4 million (18%) from cost
of revenues of $18.5 million for the nine months ended September 30, 2008. This
decrease was primarily attributable to $4.3 million of lower costs associated with
decreased excimer procedures, partially offset by an increase in cost of revenues of
$0.9 million primarily associated with higher cost procedures and additional mobile
Intralase procedures, which on a procedure basis is up 11% year-over-year.
|
|
|
|
|
The cost of revenues from the Companys mobile cataract segment for the nine months
ended September 30, 2009 was $23.8 million, an increase of $1.3 million (6%) from cost
of revenues of $22.5 million for the nine months ended September 30, 2008. This
increase was primarily due to higher surgical procedure volume of 4%, higher lens
supply costs and a third quarter 2009 $0.7 million PHP Foresee
®
inventory write-down,
partially offset by lower costs associated with a 33% decline in PHP Foresee
®
unit
volume.
|
25
|
|
|
The cost of revenues from the Companys businesses that manage cataract and
secondary care centers for the nine months ended September 30, 2009 was $13.6 million,
an increase of $1.2 million (9%) from cost of revenues of $12.4 million for the nine
months ended September 30, 2008. The increase was caused primarily by the increase in
surgical procedures and higher per procedure cataract lens cost.
|
Cost of revenues from eye care for the nine months ended September 30, 2009 were $11.4
million, an increase of $1.3 million (13%) from cost of revenues of $10.1 million for the nine
months ended September 30, 2008. This increase was primarily due to the 10% year-over-year
increase in total franchisee locations requiring additional cost to support.
General and administrative expenses of $18.0 million for the nine months ended September 30,
2009 decreased $4.2 million from $22.2 million for the nine months ended September 30, 2008. The
decrease was primarily related to lower employee related expenses, non-restructuring professional
fees and discretionary spending, partially offset by an unfavorable change in foreign exchange
expense related to the Companys Canadian operations.
Marketing expenses decreased to $17.3 million for the nine months ended September 30, 2009
from $31.3 million for the nine months ended September 30, 2008. The $14.0 million decrease was due
to a $13.3 million (59%) reduction in refractive center marketing spend, specifically related to
external advertising and direct to consumer marketing, in order to reduce costs during the economic
downturn.
Amortization of intangibles decreased to $1.7 million for the nine months ended September 30,
2009 from $2.4 million for the nine months ended September 30, 2008. The $0.7 million decrease was
due to a lower average intangible balance during 2009 compared to 2008 due to the impairment of
multiple intangible assets during the quarter ended December 31, 2008.
During the nine months ended September 30, 2009, the Company recorded a $0.5 million
impairment charge in refractive centers on a trade name intangible as the trade name was no longer
being utilized by the Company. During the nine months ended September 30, 2008, the Company
recorded $1.5 million of impairment charges in doctor services against goodwill and other long-term
assets to adjust the carrying values of various ambulatory surgical centers to fair value.
Other operating expenses increased to $14.6 million for the nine months ended September 30,
2009 from other operating income of $0.7 million for the nine months ended September 30, 2008. The
$15.3 million unfavorable change was primarily related to center closing costs of $0.7 million,
employee severance expense of $2.6 million, $9.1 million of financial and legal advisor expenses
and a $1.6 million loss incurred on the divestiture of three ambulatory surgical center
investments, all incurred during the nine months ended September 30, 2009.
Interest expense increased to $9.7 million for the nine months ended September 30, 2009 from
$7.5 million for the nine months ended September 30, 2008. This $2.2 million increase was primarily
due the termination of the Companys interest rate swap, which was reclassified to interest expense
from other comprehensive loss during the nine months ended September 30, 2009. Also contributing to
the higher interest expense was higher average borrowings under the Credit Facility and the
additional default interest rate of 2%. The average interest rate for the nine months ended
September 30, 2009 and 2008 was approximately 10.5% and 9.4%, respectively, which includes the
impact of deferred loan costs, the Companys interest rate swap and other fees.
Earnings from equity investments were $1.0 million for the nine months ended September 30,
2009 compared to $0.4 million for the nine months ended September 30, 2008. The lower equity
earnings during the nine months ended September 30, 2008 were primarily caused by equity losses
generated in the Companys Laser Eye Centers of California (LECC) investment. Under the equity
method of accounting, such losses did not recur during the nine months ended September 30, 2009 as
the investment balance in LECC was reduced to zero due to the cumulative effect of historical
losses incurred.
For the nine months ended September 30, 2009, the Company recognized income tax expense of
$0.7 million, which was determined using an estimate of the Companys 2009 total annual tax expense
based on the forecasted taxable income for the full year. For the nine months ended September 30,
2008, the Company recognized income tax expense of $1.0 million.
26
Net income attributable to noncontrolling interest decreased to $7.4 million for the nine
months ended September 30, 2009 from $8.0 million for the nine months ended September 30, 2008
primarily due to lower profits in non-wholly owned refractive centers.
Net loss attributable to TLC Vision Corporation for the nine months ended September 30, 2009
was ($18.2) million, or ($0.36) per basic and diluted share, compared to ($2.8) million, or ($0.06)
per basic and diluted share, for the nine months ended September 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company relies on the following sources of liquidity to continue to operate as a going
concern: (i) cash and cash equivalents on hand; (ii) cash generated from operations; (iii)
borrowings under the Companys revolving credit facility; (iv) net proceeds from asset sales; and
(v) access to the capital markets. The Companys principal uses of cash are to provide working
capital to fund its operation and to service its debt and other contractual obligations. The
changes in financial markets during 2008 limited the ability of companies such as TLC
Vision
to
access the capital markets. The economic recession in the United States continues to impact the
Companys operations, resulting in a decline in the demand for refractive surgery and financial
performance. The Company incurred losses attributable to TLC Vision Corporation of $18.2 million
for the nine months ended September 30, 2009 compared to $2.8 million for the nine months ended
September 30, 2008. As a result, the Companys liquidity continued to be significantly constrained
during 2009.
Beginning in early 2008, in response to the deteriorating economic environment, the Company
implemented a series of initiatives to reduce its costs of operation to levels commensurate with
the new lower level of refractive procedures anticipated in fiscal 2008 and 2009. The Company
continues to evaluate and implement cost reduction and cash generation initiatives, including the
sale of surplus assets and the closure of underperforming refractive centers/mobile refractive
routes. During the nine months ended September 30, 2009, the Company closed four majority-owned
refractive centers, which performed approximately 400 and 1,000 refractive procedures during the
nine months ended September 30, 2009 and 2008, respectively. During the quarter ended September 30,
2009, the Company divested one majority-owned and two minority-owned ambulatory surgical centers
for a combined net sale price of $2.2 million. The divested ambulatory surgical centers performed
5,500 and 7,500 surgical procedures during the nine months ended September 30, 2009 and 2008,
respectively.
Due to the decline in customer demand during the trailing twelve month period, and the
resulting decline in sales, the Companys deteriorating financial performance resulted in the
Companys inability to comply with its primary financial covenants under its Credit Facility as of
December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009. Furthermore, the Company
ceased making principal and interest payments under the Credit Facility subsequent to June 30,
2009.
As a result of the inability to comply with the primary financial covenants, the Company has
received from its lenders numerous waivers, consents and amendments to the Credit Agreement during
the nine months ended September 30, 2009. All waivers, consents and amendments to the Credit
Agreement are filed with the SEC as exhibits to Current Reports on Form 8-K. The following were
dated during the quarter ended September 30, 2009:
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On September 10, 2009, the Company announced that it obtained from its lenders a Limited
Waiver and Amendment No. 5 to the Credit Agreement, dated as of September 8, 2009, which
among other things, provided a limited waiver through September 30, 2009 of specified
defaults and provided that the lenders would, until October 1, 2009, forbear from
exercising their rights arising out of the non-payment of certain principal, interest and
other payments previously due.
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On October 1, 2009, the Company announced that it had secured from its lenders an
extension to October 13, 2009 of the previously announced Limited Waiver and Amendment No.
5 with respect to its Credit Facility that expired on September 30, 2009, along with a
forbearance with respect to certain payment obligations under the Credit Agreement. The
extension and forbearance agreement is contained in a limited
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27
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waiver, dated as of September 30, 2009, which among other things, provided a limited waiver
through October 13, 2009 of specified defaults, extended the time for payment of certain
principal, interest and other payments previously due and provided that the lenders holding
a majority amount of the Credit Agreement could, in their sole discretion, extend the waiver
period to October 30, 2009.
|
Refer to Note 24,
Subsequent Events
, of the Interim Unaudited Consolidated Financial
Statements for additional information regarding waivers, amendments and consents dated subsequent
to September 30, 2009.
As of September 30, 2009, the Company failed to make various mandatory payments under its
Credit Agreement and related amendments. Such payments included interest on the term and revolving
credit advances of $2.8 million, principal payments on term advances of $0.4 million and $1.4
million of other mandatory payments.
Given the aforementioned payment defaults, and that it is unlikely that the Company will be in
compliance with the covenants currently in the Credit Facility for the balance of 2009 beyond the
current waiver period unless amended, all term borrowings aggregating $76.7 million under the
Credit Facility have been recorded as current liabilities as of September 30, 2009 and December 31,
2008. Accordingly, at September 30, 2009 and December 31, 2008, the Company has working capital
deficiencies of approximately $103.6 million and $99.5 million, respectively.
The Company borrowed an additional $17.4 million under the revolving portion of its Credit
Facility during the nine months ended September 30, 2009, which reduced the open availability under
the Credit Facility to approximately $0.6 million at September 30, 2009. The outstanding balance of
$23.4 million under the revolving portion of the Credit Facility is also recorded as a current
liability as of September 30, 2009.
The Company will likely continue to incur operating losses in 2009 and its liquidity will
likely remain constrained such that it may not be sufficient to meet the Companys cash operating
needs in this period of economic uncertainty. The Company is in active discussions with its lenders
to ensure that it has sufficient liquidity in excess of what is available under its Credit
Facility, although there is no assurance that the Company can obtain additional liquidity on
commercially reasonable terms, if at all. If the Company is unable to obtain or sustain the
liquidity required to operate its business the Company may need to seek to modify the terms of its
debts and/or to reorganize its capital structure. There can be no assurances that the lenders will
grant such restructuring, waivers or amendments on commercially reasonable terms, if at all. If the
Company is unable to obtain or sustain the liquidity required to operate its business, the Company
may need to seek to modify the terms of its debts through court reorganization proceedings to allow
it, among other things, to reorganize its capital structure.
The Companys independent registered public accounting firms report issued in the December
31, 2008 Annual Report on Form 10-K included an explanatory paragraph describing the existence of
conditions that raise substantial doubt about the Companys ability to continue as a going concern,
including significant losses, limited access to additional liquidity and compliance with certain
financial covenants. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and classification of
liabilities that may result should the Company be unable to continue as a going concern.
Credit Facility
The Company obtained a $110.0 million credit facility (Credit Facility) during June 2007,
which is secured by substantially all of the assets of the Company and consisting of both senior
term debt and a revolver as follows:
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Senior term debt, totaling $85.0 million, with a six-year term and required amortization
payments of 1% per annum plus a percentage of excess cash flow (as defined in the
agreement) and sales of assets or borrowings outside of the normal course of business. As
of September 30, 2009, $76.7 million was outstanding on this portion of the facility.
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A revolving credit facility, totaling $25.0 million with a five-year term. As of
September 30, 2009, the Company had $23.4 million outstanding under this portion of the
facility and outstanding letters of credit totaling approximately $1.0 million.
Accordingly, availability under the revolving credit facility is $0.6 million at September
30, 2009.
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28
Interest on the facility is calculated based on either prime rate or the London Interbank
Offered Rate (LIBOR) plus a margin. As a result of certain events of default and the June 30, 2009
expiration of the Limited Waiver, Consent and Amendment No. 3 to Credit Agreement, the LIBOR
advances with interest periods ending on or after June 30, 2009 automatically converted to prime
rate advances at the end of such interest period. Effective June 30, 2009, the Company began
incurring 2% default interest resulting from the provisions of the Limited Waiver and Amendment No.
4 to Credit Agreement.
As of September 30, 2009, the borrowing rate was 3.25% for prime rate borrowings, plus an
applicable margin of 4.00% and default interest of 2.00%. In addition, the Company pays an annual
commitment fee equal to 0.35% on the undrawn portion of the revolving credit facility.
The Credit Facility also requires the Company to maintain various financial and non-financial
covenants as defined in the Credit Agreement. As of December 31, 2008, March 31, 2009, June 30,
2009 and September 30, 2009, the Company was unable to satisfy various financial covenants.
Furthermore, the Company has failed to make various required payments under the Credit Facility.
Refer to Note 2,
Liquidity
, of the Unaudited Interim Consolidated Financial Statements for
additional information.
As a result of the inability to comply with the primary financial covenants, the Company has
received from its lenders numerous waivers, consents and amendments to the Credit Agreement during
the nine months ended September 30, 2009. All waivers, consents and amendments to the Credit
Agreement are filed with SEC as exhibits to Current Reports on Form 8-K. Refer to Note 2,
Liquidity
, of the Unaudited Interim Consolidated Financial Statements for additional information
regarding waivers, amendment or consents dated during the three months ended September 30, 2009,
and Note 24,
Subsequent Events
, of the Unaudited Interim Consolidated Financial Statements for
additional information regarding waivers, amendments or consents dated subsequent to September 30,
2009.
As of September 30, 2009, the Company failed to make various mandatory payments under its
Credit Agreement and related amendments. Such payments included interest on the term and revolving
credit advances of $2.8 million, principal payments on term advances of $0.4 million and $1.4
million of other mandatory payments.
CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities was $5.6 million for the nine months ended September
30, 2009. The cash flows provided by operating activities during the nine months ended September
30, 2009 were primarily comprised of the ($10.8) million net loss plus non-cash items including
depreciation and amortization of $12.0 million, intangible impairment charges of $0.5 million, loss
on business divestitures of $1.6 million, non-cash compensation charges of $0.7 million, an
inventory write-down of $0.7 million and a $1.7 million change in working capital, partially offset
by earnings from equity investments of $1.0 million.
CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities was $2.1 million for the nine months ended September 30,
2009. The cash used in investing activities included capital expenditures of $1.3 million and
acquisitions and investments of $5.0 million. These cash outflows were partially offset by $1.6
million of distributions and loan payments received from equity investments, proceeds from the
sales of fixed assets of $0.5 million and $2.2 million received on the divestiture of businesses
and other investments.
CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities was $5.1 million for the nine months ended September
30, 2009. Net cash provided during this period was primarily related to proceeds from debt
financing of $18.0 million, principally due to Company borrowing against its revolving credit
facility. Partially offsetting the cash provided by financing activities were cash outflows due to
restricted cash movement of $1.0 million, principal payments of debt of $4.0 million and
distributions to noncontrolling interests of $7.8 million.
29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investments
The Company has invested in various companies, some of which are in development stages. The
investments in development stage companies are inherently risky because the markets for the
technologies or products these companies are developing are typically in the early stages and may
never materialize. The Company could lose its various investments in development stage companies.
As of September 30, 2009 and December 31, 2008, the Company had investments and other long-term
assets of $4.3 million in development stage companies.
Interest Rate Risk
As of September 30, 2009 the Company had $121.5 million in debt, which is significantly
exposed to variable interest rates. As of September 30, 2009, the Company did not have any interest
rate hedging instruments to hedge the variable interest rate exposure.
Foreign Currency Risk
The Companys net assets, net earnings and cash flows from its Canadian subsidiaries are based
on the U.S. dollar equivalent of such amounts measured in the Canadian dollar functional currency.
Assets and liabilities of the Canadian operations are translated to U.S. dollars using the
applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow are
translated using the average exchange rate during the reporting period.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys reports under the Securities Exchange Act of
1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to the Companys management, including its Principal
Executive Officers and Principal Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management
necessarily is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation,
under the supervision and with the participation of the Companys management, including the
Companys Principal Executive Officers and Principal Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, the Companys Principal
Executive Officers and Principal Financial Officer concluded that the Companys disclosure controls
and procedures were effective, in all material respects, to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
There have been no significant changes in the Companys internal control over financial
reporting during the period that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in legal proceedings from that reported in the Companys
Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 1A. RISK FACTORS
There are no material changes to the risk factors as disclosed in the Companys Annual Report
on Form 10-K for fiscal year 2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
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10.1
|
|
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Limited Forbearance and Third Amendment to Transfer Rights Agreement, entered August
20, 2009, by and among Michael Aronsky, M.D., Carol Hoffman, M.D., George Pronesti, M.D.,
and Anthony Zacchei, M.D. (collectively Kremer Minority Holders), TLC Vision (USA)
Corporation, DelVal ASC, LLC, and TLC Management, LLC.
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10.2
|
|
|
Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC Vision Corporation,
dated as of February 16, 2009.
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|
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|
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|
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10.3
|
|
|
Addendum to the Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC Vision
Corporation, dated April 23, 2009.
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|
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10.4
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|
Limited Waiver and Amendment No. 4 to Credit Agreement dated as of June 30, 2009
(incorporated by reference from TLC Vision Corporations Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 5, 2009.)
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|
|
|
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10.5
|
|
|
Amendment to Limited Waiver and Amendment No. 4 to Credit Agreement and Amendment No. 5
to Credit Agreement dated September 8, 2009 (incorporated by reference from TLC Vision
Corporations Current Report on Form 8-K filed with the Securities and Exchange Commission
on September 14, 2009.)
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10.6
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|
|
Limited Waiver dated September 30, 2009 (incorporated by reference from TLC Vision
Corporations Current Report on Form 8-K filed with the Securities and Exchange Commission
on October 5, 2009.)
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|
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10.7
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|
Amendment No. 2 to Agreement and Plan of Merger, dated as of August 10, 2009, by and
among TruVision, Inc., TLC Vision Corporation, TLC Vision (USA) Corporation and Lindsay T.
Atwood (incorporated by reference from TLC Vision Corporations Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on August 14, 2009.)
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31
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31.1
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|
Chairman of the Boards Certification required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
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31.2
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Chief Operating Officers Certification required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
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31.3
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Chief Restructuring Officers Certification required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended.
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31.4
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|
Interim Chief Financial Officers Certification required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended
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32.1
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|
Chairman of the Boards Certification of periodic financial report pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
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32.2
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Chief Operating Officers Certification of periodic financial report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
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32.3
|
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Chief Restructuring Officers Certification of periodic financial report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
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32.4
|
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Interim Chief Financial Officers Certification of periodic financial report pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
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32
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.
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TLC VISION CORPORATION
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By:
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/s/ Warren S. Rustand
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Warren S. Rustand
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Chairman of the Board
November 16, 2009
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By:
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/s/ James B. Tiffany
|
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James B. Tiffany
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Chief Operating Officer
November 16, 2009
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By:
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/s/ Michael F. Gries
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Michael F. Gries
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Chief Restructuring Officer
November 16, 2009
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By:
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/s/ William J. McManus
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William J. McManus
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Interim Chief Financial Officer
November 16, 2009
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33
EXHIBIT INDEX
|
|
|
No.
|
|
Description
|
|
10.1
|
|
Limited Forbearance and Third Amendment to Transfer Rights Agreement,
entered August 20, 2009, by and among Michael Aronsky, M.D., Carol
Hoffman, M.D., George Pronesti, M.D., and Anthony Zacchei, M.D.
(collectively Kremer Minority Holders), TLC Vision (USA)
Corporation, DelVal ASC, LLC, and TLC Management, LLC.
|
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|
|
10.2
|
|
Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC
Vision Corporation, dated as of February 16, 2009.
|
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|
10.3
|
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Addendum to the Engagement Letter of Conway, Del Genio, Gries & Co.,
LLC by TLC Vision Corporation, dated April 23, 2009.
|
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10.4
|
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Limited Waiver and Amendment No. 4 to Credit Agreement dated as of
June 30, 2009 (incorporated by reference from TLC Vision
Corporations Current Report on Form 8-K filed with the Securities
and Exchange Commission on August 5, 2009.)
|
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10.5
|
|
Amendment to Limited Waiver and Amendment No. 4 to Credit Agreement
and Amendment No. 5 to Credit Agreement dated September 8, 2009
(incorporated by reference from TLC Vision Corporations Current
Report on Form 8-K filed with the Securities and Exchange Commission
on September 14, 2009.)
|
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10.6
|
|
Limited Waiver dated September 30, 2009 (incorporated by reference
from TLC Vision Corporations Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 5, 2009.)
|
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10.7
|
|
Amendment No. 2 to Agreement and Plan of Merger, dated as of August
10, 2009, by and among TruVision, Inc., TLC Vision Corporation, TLC
Vision (USA) Corporation and Lindsay T. Atwood (incorporated by
reference from TLC Vision Corporations Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14,
2009.)
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31.1
|
|
Chairman of the Boards Certification required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended.
|
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31.2
|
|
Chief Operating Officers Certification required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended.
|
|
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31.3
|
|
Chief Restructuring Officers Certification required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
|
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31.4
|
|
Interim Chief Financial Officers Certification required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
|
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32.1
|
|
Chairman of the Boards Certification of periodic financial report
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C.
Section 1350.
|
|
|
|
32.2
|
|
Chief Operating Officers Certification of periodic financial report
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C.
Section 1350
|
|
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|
32.3
|
|
Chief Restructuring Officers Certification of periodic financial
report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
U.S.C. Section 1350
|
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32.4
|
|
Interim Chief Financial Officers Certification of periodic financial
report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
U.S.C. Section 1350
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34
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