Attached files
file | filename |
---|---|
EX-23 - EX-23 - TLC VISION CORP | c56237exv23.htm |
EX-21 - EX-21 - TLC VISION CORP | c56237exv21.htm |
EX-31.2 - EX-31.2 - TLC VISION CORP | c56237exv31w2.htm |
EX-31.3 - EX-31.3 - TLC VISION CORP | c56237exv31w3.htm |
EX-32.3 - EX-32.3 - TLC VISION CORP | c56237exv32w3.htm |
EX-31.1 - EX-31.1 - TLC VISION CORP | c56237exv31w1.htm |
EX-32.1 - EX-32.1 - TLC VISION CORP | c56237exv32w1.htm |
EX-10.17 - EX-10.17 - TLC VISION CORP | c56237exv10w17.htm |
EX-10.20 - EX-10.20 - TLC VISION CORP | c56237exv10w20.htm |
EX-32.2 - EX-32.2 - TLC VISION CORP | c56237exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2009
COMMISSION FILE NUMBER: 0-29302
TLC VISION CORPORATION
(Exact name of registrant as specified in its charter)
(Debtor-In-Possession as of December 21, 2009)
NEW BRUNSWICK, CANADA | 980151150 | |
(State or jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
16305 SWINGLEY RIDGE ROAD, SUITE 300 | 63017 | |
CHESTERFIELD, MO | (Zip Code) | |
(Address of principal executive offices) |
Registrants telephone, including area code: (636)-534-2300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Shares, No Par Value, with common share purchase rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
NAME OF EACH EXCHANGE ON WHICH REGISTERED:
None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o Yes þ No
Indicate by check mark whether the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Exchange Act.
o Yes þ No
o Yes þ No
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 Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
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.
o Large accelerated filer | o Accelerated filer | o Non-accelerated filer (Do not check if a smaller reporting company) |
þ Smaller Reporting Company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b(2) of
the Exchange Act). o Yes þ No
As of June 30, 2009, the aggregate market value of the registrants Common Shares held by
non-affiliates of the registrant was approximately $12.6 million.
As of March 30, 2010, there were 50,565,219 shares of the registrants Common Shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement for the Companys 2010 Annual Shareholders Meeting (incorporated in
Part III to the extent provided in Items 10, 11, 12, 13 and 14).
TABLE OF CONTENTS
3 | ||||||||
20 | ||||||||
30 | ||||||||
30 | ||||||||
30 | ||||||||
31 | ||||||||
31 | ||||||||
31 | ||||||||
42 | ||||||||
42 | ||||||||
75 | ||||||||
75 | ||||||||
76 | ||||||||
76 | ||||||||
78 | ||||||||
78 | ||||||||
79 | ||||||||
79 | ||||||||
79 | ||||||||
80 | ||||||||
EX-10.17 | ||||||||
EX-10.20 | ||||||||
EX-21 | ||||||||
EX-23 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-31.3 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-32.3 |
2
Table of Contents
This Annual Report on Form 10-K (herein, together with all amendments, exhibits and schedules
hereto, referred to as the Form 10-K) 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 (Exchange Act), which statements may be identified by the use of forward looking
terminology, such as may, will, expect, anticipate, estimate, plans or continue or
the negative thereof or other variations thereon or comparable terminology referring to future
events or results. The Companys actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those set forth
elsewhere in this Form 10-K. See Part I, Item 1A, Risk Factors, for cautionary statements
identifying important factors with respect to such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to differ materially from results referred
to in forward-looking statements. The Company operates in a continually changing business
environment and new factors emerge from time to time. The Company cannot predict such factors nor
can it assess the impact, if any, of such factors on its financial position or results of
operations. Accordingly, forward-looking statements should not be relied upon as a predictor of
actual results. The Company disclaims any responsibility to update any forward-looking statement
provided in the Form 10-K except as required by law. Unless the context indicates or requires
otherwise, references in this Form 10-K to we, our, us, the Company or TLCVision shall
mean TLC Vision Corporation and its subsidiaries. References to $ or dollars shall mean U.S.
dollars unless otherwise indicated. References to Cdn$ shall mean Canadian dollars. References to
the Commission shall mean the U.S. Securities and Exchange Commission (SEC).
PART I
ITEM 1. | BUSINESS |
General
TLC Vision Corporation is an eye care services company dedicated to improving lives through
improving 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 71 centers that provide corrective
laser surgery, of which 63 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 currently provides franchise opportunities to independent optometrists under its Vision
Source® brand.
Bankruptcy Proceedings
Chapter 11 Bankruptcy Filings
On December 21, 2009 (Petitions Date), the Company and two of its wholly owned subsidiaries,
TLC Vision (USA) Corporation and TLC Management Services, Inc., (Debtor Entities) filed voluntary
petitions (Chapter 11 Petitions) under Chapter 11 of Title 11 of the U.S. Code (Bankruptcy Code) in
the United States Bankruptcy Court for the District of Delaware (U.S. Court). The Chapter 11 cases
are being jointly administered under the caption In re TLC Vision (USA) Corporation, et al., Case
No. 09-14473. On the same day, the Company also filed ancillary proceedings in Canada (Canadian
Petition) under the Canadian Companies Creditors Arrangement Act (CCAA) in the Ontario Superior
Court of Justice (the Canadian Court). On December 23, 2009, the Canadian Court recognized the
Companys Chapter 11 case as a foreign main proceeding and granted the Company certain other
relief. No other operations of the Company, its affiliates or subsidiaries were involved in the
filings.
The filing of the Chapter 11 Petitions constituted an event of default under certain of the
Companys debt obligations, and those debt obligations became automatically and immediately due and
payable, although any actions to enforce such payment obligations were stayed as a result
of the filing of the Chapter 11 Petitions and the Canadian Petition.
The December 21, 2009 petitions were submitted to expedite the Companys financial
restructuring through a pre-arranged plan of reorganization. On January 6, 2010, the Debtor
Entities filed a joint plan of reorganization (Plan of Reorganization) with the U.S. Court. The
Plan of Reorganization provided for, among other things, a conversion of certain indebtedness to
100% of the new equity of TLC Vision (USA) Corporation, which would emerge as a privately held
Company owned by certain pre-petition senior secured creditors. There was no assurance of any
distribution of funds to the stockholders of the Company under the Plan of Reorganization.
On February 3, 2010, the Debtor Entities filed the first amended joint plan of reorganization
(First Amended Plan). The First Amended Plan was backed by affiliates of a fund managed by
Charlesbank Capital Partners LLC (Charlesbank). In connection with
3
Table of Contents
the First Amended Plan, Charlesbank provided a written commitment to fund up to $134.4 million
to or for the benefit of the Company and its subsidiaries subject to the Chapter 11 proceedings.
The written funding commitment was subject to the satisfaction of all conditions to the plan
sponsors obligations set out in the plan sponsor agreement. The First Amended Plan provided for,
among other things, the following: the payment in full of all amounts owed to the Companys senior
secured lenders; the acquisition by Charlesbank of substantially all of the assets of the Company,
including 100% of the equity of TLC Vision (USA) Corporation and the Companys six refractive
centers in Canada; payments to employees and critical vendors in the ordinary course of business;
and distributions to certain secured and unsecured creditors. There was no assurance of any
distribution of funds to the stockholders of the Company under the First Amended Plan.
On February 12, 2010, the Debtor Entities filed the second amended joint plan of
reorganization (Second Amended Plan). The Second Amended Plan was backed by affiliates of
Charlesbank and H.I.G. Capital, LLC (H.I.G.), which joined as a co-investor in the acquisition of
the Companys assets. In addition to the previously announced terms under the First Amended Plan,
the Second Amended Plan also provided for consideration in the amount of up to $9.0 million in cash
and a new promissory note of up to $3.0 million to be paid to the Companys unsecured creditors.
The Debtor Entities filed the third and fourth amendments to the Plan of Reorganization on
March 17, 2010 and March 24, 2010, respectively. The third and fourth amendments did not
significantly alter the Second Amended Plan other than for the inclusion of an additional impaired
class consisting of pending medical malpractice litigation claims.
There is no assurance of any distribution of funds to the stockholders of the Company under
the Plan of Reorganization, as amended, and completion of this plan is subject to customary closing
conditions, including final confirmation by the U.S. Court, Canadian Court and regulatory
approvals.
The Debtor Entities are currently operating as debtors-in-possession under the jurisdiction
of the U.S. Court and Canadian Court (collectively, the Bankruptcy Courts) and in accordance with
applicable provisions of the Bankruptcy Code and the CCAA. In general, the Company and its
subsidiaries are authorized to continue to operate as ongoing businesses, but may not engage in
transactions outside the ordinary course of business without the approval of the Bankruptcy Courts.
Debtor-In-Possession (DIP) Financing
In connection with filing the Chapter 11 Petitions and the Canadian Petition, on December 21,
2009, the Debtor Entities filed motions with the Bankruptcy Courts seeking approval to enter into a
post-petition credit agreement. On December 22, 2009, the U.S. Court issued an interim order
approving the Companys motion to obtain a senior secured super priority debtor-in-possession
credit agreement (Senior DIP Credit Agreement). On December 23, 2009, the Canadian Court granted a
recognition order relating to the orders received by the Company from the U.S. Court. The Senior
DIP Credit Agreement, dated December 23, 2009, was among the Debtors, various lenders and Cantor
Fitzgerald Securities as collateral and administrative agent.
The Senior DIP Credit Agreement provided for financing of a senior secured super priority term
loan facility in a principal amount up to $15.0 million. On December 24, 2009, the Company borrowed
$7.5 million under the Senior DIP Credit Agreement, all of which remained outstanding as of
December 31, 2009. For additional information regarding the terms of the Senior DIP Credit
Agreement refer to Note 14, Debt, to the consolidated financial statements in Part II, Item 8,
Financial Statements and Supplementary Data.
In connection with the First Amended Plan, the Company filed motions seeking approval from the
Bankruptcy Courts for a junior secured super priority debtor-in-possession credit agreement (Junior
DIP Credit Agreement). The Junior DIP Credit Agreement, approved by the U.S. Court via an interim
order on February 12, 2010, which was recognized by the Canadian Court on February 18, 2010, dated
February 3, 2010, is among the Debtors, various lenders and Charlesbank Equity Fund VII, Limited
Partnership as collateral and administrative agent. The U.S. Court made a final order on March 9,
2010 approving the Junior DIP Credit Agreement and that order was recognized by the Canadian Court
on March 16, 2010.
The Junior DIP Credit Agreement provides for financing of a junior secured super priority term
loan facility in a principal amount of up to $25 million. On February 25, 2010, the Company
borrowed $10.0 million under the Junior DIP Credit Agreement and used the funds, among other
things, to pay in full the outstanding principal balance of $7.5 million under the Senior DIP
Credit Agreement. For additional information regarding the terms of the Junior DIP Credit Agreement
refer to Note 27, Subsequent Events, to the consolidated financial statements in Part II, Item 8,
Financial Statements and Supplementary Data.
4
Table of Contents
Reorganization Process
The Company is operating its business as a debtor-in-possession under the Bankruptcy Courts
protection from creditors and claimants. The Bankruptcy Courts have approved payment of certain
pre-petition obligations, including employee wages, salaries and benefits, and the payment of
vendors and other providers in the ordinary course for goods and services received after the filing
of the Chapter 11 Petitions and Canadian Petition and other business-related payments necessary to
maintain the operation of the Companys business. The Company has retained legal and financial
professionals to advise on the bankruptcy proceedings. From time to time, the Company may seek the
U.S. Courts approval for the retention of additional professionals.
Immediately after filing the Chapter 11 Petition and Canadian Petition, the Company notified
all known current or potential creditors of the bankruptcy filings. Subject to certain exceptions
under the Bankruptcy Code and the CCAA, the bankruptcy filings stayed the continuation of any
judicial or administrative proceedings or other actions against the Company or its property to
recover, collect or secure a claim arising prior to the filing of the Chapter 11 Petition and
Canadian Petition.
As required by the Bankruptcy Code, the United States Trustee for the District of Delaware
appointed an official committee of unsecured creditors (the Creditors Committee). The Creditors
Committee and its legal representatives have a right to be heard on all matters that come before
the U.S. Court with respect to the Company. An information officer has been appointed by the
Canadian Court with respect to the proceedings before the Canadian Court.
Under Section 365 and other relevant sections of the Bankruptcy Code, the Company may assume,
assume and assign, or reject certain executory contracts and unexpired leases, including leases of
real property and equipment, subject to the approval of the U.S. Court and certain other
conditions. Any description of an executory contract or unexpired lease in this report, including,
where applicable, the Companys express termination rights or a quantification of obligations, must
be read in conjunction with, and is qualified by, any overriding rejection rights the Company has
under Section 365 of the Bankruptcy Code.
The Company is reviewing all of its executory contracts and unexpired leases to determine
which contracts and leases it may attempt to reject under Section 365 and other relevant sections
of the Bankruptcy Code. The Company expects that additional liabilities subject to compromise will
arise due to rejection of executory contracts, including leases, and from the determination of the
U.S. Court (or agreement by parties in interest) of allowed claims for contingencies and other
disputed amounts. The Company also expects that the assumption of additional executory contracts
and unexpired leases will convert certain of the liabilities shown on the accompanying consolidated
balance sheet as liabilities subject to compromise to liabilities not subject to compromise. Due to
the uncertain nature of many of the potential claims, the Company cannot project the magnitude of
such claims with certainty.
The U.S. Court entered an order establishing March 22, 2010, as the general bar date for
potential creditors to file claims. The general bar date is the date by which certain claims
against the Company must be filed if the claimants wish to receive any distribution in the
bankruptcy cases. Proof of claim forms received after the bar date are typically not eligible for
consideration of recovery as part of the Companys bankruptcy cases. Creditors were notified of the
bar date and the requirement to file a proof of claim. Differences between liability amounts
estimated by the Company and claims filed by creditors are being investigated and, if necessary,
the U.S. Court will make a final determination of the allowable claim. The determination of how
liabilities will ultimately be treated cannot be made until the U.S. Court approves a plan of
reorganization, and such confirmation is recognized by the Canadian Court. Accordingly, the
ultimate amount or treatment of such liabilities is not determinable at this time.
In order to successfully exit Chapter 11, the Company will need to obtain confirmation by the
U.S. Court of the Plan of Reorganization, as amended, as well as recognition by the Canadian Court
of the U.S. Courts plan confirmation. A confirmed plan of reorganization would resolve the
Companys pre-petition obligations, set forth the revised capital structure of the newly
reorganized entity, provide for corporate governance subsequent to the Companys exit from
bankruptcy and potentially convert the Company to a privately held entity.
The confirmation hearing on the Plan of Reorganization, as amended, is scheduled for May 5,
2010. The confirmation hearing may be adjourned from time to time by the U.S. Court without further
notice except for an announcement of the adjourned date made at the confirmation hearing or any
subsequent adjourned confirmation hearing. There can be no assurance at this time that the Plan of
Reorganization, as amended, will be confirmed by the U.S. Court, and such confirmation recognized
by the Canadian Court, or that any such plan will be implemented successfully.
The Company has the exclusive right for 120 days after the filing of the Chapter 11 Petitions
to file a plan of reorganization. The Company may file one or more motions to request extensions of
this exclusivity period. If the exclusivity period expires, any party in interest would be able to
file a plan of reorganization. In addition to being voted on by holders of impaired claims and
equity interests, a plan of reorganization must satisfy certain requirements of the Bankruptcy Code
and must be approved, or confirmed, by the U.S.
5
Table of Contents
Court, and such confirmation recognized by the Canadian Court, in order to become effective.
There can be no assurance at this time that a plan of reorganization submitted by the Company will
be confirmed by the U.S. Court, or such confirmation recognized by the Canadian Court, or that any
such plan will be implemented successfully.
Under the priority scheme established by the Bankruptcy Code and the CCAA, unless creditors
agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full
before stockholders are entitled to receive any distribution or retain any property under a plan of
reorganization. The ultimate recovery to creditors and/or stockholders, if any, will not be
determined until confirmation of a plan or plans of reorganization. No assurance can be given as to
what values, if any, will be ascribed to each of these constituencies or what types or amounts of
distributions, if any, they would receive. A plan of reorganization could result in holders of our
liabilities and/or securities, including our common shares, receiving no distribution on account of
their interests and cancellation of their holdings. Because of such possibilities, the value of our
liabilities and securities, including our common shares, is highly speculative. Appropriate caution
should be exercised with respect to existing and future investments in any of our liabilities
and/or securities. At this time there is no assurance the Company will be able to restructure as a
going concern or successfully implement a plan of reorganization.
For periods subsequent to the Chapter 11 bankruptcy filings, the Company will apply Accounting
Standards Codification (ASC) 852, Reorganizations, in preparing the consolidated financial
statements. ASC 852 requires that the financial statements distinguish transactions and events that
are directly associated with the reorganization from the ongoing operations of the business.
Accordingly, certain revenues, expenses (including professional fees), realized gains and losses
and provision for losses that are realized or incurred in the bankruptcy proceedings will be
recorded in reorganization items, net, on the consolidated statements of operations. In addition,
pre-petition obligations that may be impacted by the bankruptcy reorganization process will be
classified on the consolidated balance sheet in liabilities subject to compromise. These
liabilities are reported at the amounts expected to be allowed by the Courts, even if they may be
settled for lesser amounts.
Upon the filing of the Chapter 11 petitions, certain of the Companys debt obligations became
automatically and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of applicable
bankruptcy law. As a result of the bankruptcy petitions and due to various debt obligations being
undersecured or unsecured, $106.7 million of the Companys pre-petition net debt is included in
liabilities subject to compromise on the consolidated balance sheet at December 31, 2009. The
Company classifies pre-petition liabilities subject to compromise as a long-term liability because
management does not believe the Company will use existing current assets or create additional
current liabilities to fund these obligations.
On March 1, 2010, certain equity holders filed a motion with the Bankruptcy Courts for the
appointment of an equity committee. On March 23, 2010, the Bankruptcy Courts entered an order
denying the motion for an order appointing an official committee of equity security holders.
Going Concern Matters
The consolidated financial statements and related notes have been prepared assuming that the
Company will continue as a going concern although the Chapter 11 bankruptcy filings raise
substantial doubt about the Companys ability to continue as a going concern. The Companys ability
to continue as a going concern is dependent on restructuring its obligations in a manner that
allows it to obtain confirmation of a plan of reorganization by the Bankruptcy Courts. The
consolidated financial statements do not include any adjustments related to the recoverability and
classification of recorded assets or to the amounts and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as a going concern.
Stock Market Compliance
As of December 31, 2009, the Companys common shares were suspended from trading on both the
NASDAQ Stock Market (NASDAQ) and the Toronto Stock Exchange (TSX). The Companys common shares were
delisted from the NASDAQ and the TSX effective January 18, 2010 and January 21, 2010, respectively.
The Companys common shares currently trade on the Over-The-Counter Bulletin Board under the ticker
symbol TLCVQ.
Refractive Disorders
The eye is a complex organ composed of many parts, and normal vision requires these parts to
work well together. When a person looks at an object, light rays are reflected from the object to
the cornea. In response, the cornea and lens refract and focus the light rays directly on the
retina. At the retina, the light rays are converted to electrical impulses that are transmitted
through the optic nerve to the brain, where the image is translated and perceived.
6
Table of Contents
Any deviation from normal vision is called a refractive error. Myopia, hyperopia, astigmatism
and presbyopia are different types of refractive errors.
| Myopia (nearsightedness) means the eye is longer than normal resulting in difficulty seeing distant objects as clearly as near objects. |
| Hyperopia (farsightedness) means the eye is shorter than normal resulting in difficulty seeing near objects as clearly as distant objects. |
| Astigmatism means the cornea is oval-shaped resulting in blurred vision. |
| Presbyopia is the loss of lens and eye muscle flexibility due to the natural aging process, causing difficulty in focusing on near objects and usually corrected by reading glasses. Because vision correction surgery cannot reverse the aging process, presbyopia cannot be corrected surgically. However, there are surgical and non-surgical techniques available that can effectively manage presbyopia. |
Treatment for Refractive Disorders
Eyeglasses. Eyeglasses remain the most common method of correcting refractive errors because
they are safe and relatively inexpensive. Eyeglasses correct nearsightedness and farsightedness by
using appropriate lenses to diverge or converge light rays and focus them directly on the retina.
The drawbacks of eyeglasses are possible dissatisfaction with personal appearance, inability to
participate in certain sports or work activities and possible distortion in visual images when
eyeglasses are used to correct large refractive errors.
Contact Lenses. Contact lenses correct nearsightedness, farsightedness and astigmatism
similarly to eyeglasses. If fitted and used as directed, contact lenses are an effective and safe
way to correct refractive errors. However, daily use of contact lenses can result in the increased
risk of corneal infections, hypersensitivity reactions and other problems.
Surgical Procedures. Vision correction surgery is an elective procedure available that alters
the way light rays are focused directly on the retina, thus eliminating or dramatically reducing
the need for eyeglasses or contact lenses. Several types of vision correction surgery are
available, and prospective patients are encouraged to carefully consider the alternatives, the
associated benefits and risks of each procedure, and seek the advice of their eye care
professional. Vision correction surgeries available at TLCVision include:
| LASIK (Laser In Situ Keratomileusis). LASIK corrects nearsightedness, farsightedness and astigmatism by using an excimer laser to reshape the cornea. Because LASIK creates a corneal flap to reshape the cornea and does not disrupt the front surface of the cornea, it generally is less painful, has a quicker recovery period and shorter post-operative need for steroid eye drops than other surgical procedures. LASIK is currently the most common laser refractive procedure and may be the treatment of choice for patients desiring a more rapid visual recovery. |
| CustomLASIK. Widely introduced in 2003, CustomLASIK is a technologically supported advancement to LASIK. CustomLASIK involves increased pre-operative diagnostic capabilities that measure the eye from front to back using wavefront technology to create a three dimensional corneal map. The information from that map guides the laser in customizing the laser ablation to an individuals visual irregularities, beyond myopia and hyperopia. CustomLASIK using wavefront technology has the potential to improve not only how much a person can see, in terms of visual acuity measured by the standard 20/20 eye chart, but also how well an individual can see in terms of contrast sensitivity and fine detail. This translates to a reduced occurrence of night vision disturbances post-LASIK. |
| PRK (Photorefractive Keratectomy). PRK corrects nearsightedness, farsightedness and astigmatism by using an excimer laser to reshape the cornea without making a flap. During PRK, the protective surface layer of the cornea (the epithelium) is removed prior to the laser refractive treatment to reshape the cornea. This protective layer regenerates during the first week after surgery. The risk of pain, infection and corneal scarring is higher with PRK than with LASIK; however, the intra-operative risks are lessened with PRK because no corneal flap is created. |
| LASEK (Laser Assisted Sub-Epithelial Keratectomy). LASEK corrects nearsightedness, farsightedness and astigmatism by using an excimer laser to reshape the cornea. Unlike LASIK that creates a corneal flap, LASEK loosens and folds the protective outer layer of the cornea (the epithelium) to the side prior to the laser refractive treatment. At the completion of the laser refractive treatment the epithelium is put back in its original position. This combines the advantages of LASIK with the safety of PRK. The risk of pain, infection and corneal scarring is higher with LASEK than with LASIK; however, the intra-operative risks are lessened with LASEK because the flap which is created is only in the epithelium. The United States Food and Drug Administration (FDA) has not yet approved use of the excimer laser for LASEK. |
7
Table of Contents
| AK (Astigmatic Keratotomy). AK corrects astigmatism by making microscopic incisions in the cornea to relax and change the shape of the cornea. |
| INTACS. INTACS corrects very low levels of nearsightedness (1.00 diopters to 3.00 diopters) by implanting rings in the cornea to reshape it rather than surgically altering the cornea. INTACS may also be used to correct irregularities in the shape of the cornea caused by some corneal dystrophies. |
| CK (Conductive Keratoplasty). For patients age 40 and older, CK is designed for the temporary reduction of farsightedness (+.75 to +3.25 diopters) or to treat presbyopia. CK uses radio frequency instead of a laser to reshape the cornea. |
| PTK (Phototherapeutic Keratectomy). PTK treats abrasions, scars or other abnormalities of the cornea caused by injury, disease or previous surgery. PTK uses an excimer laser to remove superficial opacities and irregularities of the cornea to improve vision or reduce symptoms of pain or discomfort due to an underlying eye condition. |
| Refractive IOL Procedures. Intraocular lenses (IOLs) are permanent or semi-permanent artificial lenses that are implanted to replace or supplement the eyes natural crystalline lens. While not a common procedure for correcting refractive errors, the placement of a refractive IOL can help patients who are not candidates for laser refractive surgery. IOLs have been used in the United States since the late 1960s to restore visual function to cataract patients, and more recently are being used in refractive surgery procedures. There are several types of refractive IOLs: phakic IOLs, multi-focal IOLs and accommodating IOLs. Patient suitability and quality of visual outcome for each of these lens options varies. |
Laser Correction Procedures
Excimer laser technology was developed by International Business Machines Corporation in 1976
and has been used in the computer industry for many years to etch sophisticated computer chips.
Excimer lasers have the desirable qualities of producing very precise ablation (removal of tissue)
without affecting the area outside of the target zone. In 1981, it was shown that the excimer
laser could ablate corneal tissue. Each pulse of the excimer laser can remove 0.25 microns of
tissue in 12 billionths of a second. The first laser experiment on human eyes was performed in
1985 and the first human eye was treated with the excimer laser in the United States in 1988.
Excimer laser procedures are designed to reshape the outer layers of the cornea to treat
vision disorders by changing the curvature of the cornea. Prior to the procedure being performed,
the doctor develops a treatment plan taking into consideration the exact correction required
utilizing the results of each individual patients eye examination and diagnostic tests performed,
such as topography and wavefront analysis. The treatment plan is entered into the laser and the
software of the excimer laser then calculates the optimal number of pulses needed to achieve the
intended corneal correction using a specially developed algorithm. These procedures are performed
on an outpatient basis using only topical anesthetic eye drops that promote patient comfort during
the procedure. Patients are reclined in a chair, an eyelid holder is inserted to prevent blinking,
and the surgeon positions the patient in direct alignment with the fixation target of the excimer
laser. The stromal layer of the cornea is exposed either by removing the epithelium (PRK or LASEK)
or creating a thin flap of the outermost layer of the cornea using either a femtosecond laser or a
microkeratome blade. The surgeon uses a foot switch to apply the excimer beam that emits a rapid
succession of excimer laser pulses, and once complete, the flap is returned to its original
position. The typical procedure takes 10 to 15 minutes from set-up to completion, with the length
of time of the actual excimer laser treatment lasting between 15 to 90 seconds, depending on the
amount of correction required.
In order to market an excimer laser for commercial sale in the United States, the manufacturer
must obtain pre-market approval from the FDA. An FDA pre-market approval is specific for each
laser manufacturer and model and sets out a range of approved indications. However, the FDA is not
authorized to regulate the practice of medicine. Therefore, in the same way that doctors often
prescribe drugs for off-label uses (i.e., uses for which the FDA did not originally approve the
drug), a doctor may use a device such as the excimer laser for a procedure or an indication not
specifically approved by the FDA, if that doctor determines that it is in the best interest of the
patient. The initial FDA pre-market approval for the sale of an excimer laser for refractive
procedures was granted in 1995 for the laser of Summit Technologies, Inc. (now Alcon Laboratories,
Inc., a division of Nestle, S.A.). That first approval was for the treatment of myopia. To date,
the FDA has approved for sale excimer lasers from approximately seven different manufacturers for
LASIK and from approximately eight different manufacturers for PRK, including VISX, Inc., a
subsidiary of Abbott Medical Optics (formerly Advanced Medical Optics), which is the market leader
and the provider of most of the Companys excimer lasers. In Canada and Europe, the use of excimer
lasers to perform refractive surgery is not currently subject to regulatory approval, and excimer
lasers have been used to treat myopia since 1990 and to treat hyperopia since 1996. The Therapeutic
Products Directorate of Health Canada regulates the sale of devices, including excimer lasers used
to perform procedures at the Companys Canadian eye care centers.
8
Table of Contents
The Refractive Market
While estimates of market size should not be taken as projections of revenues or of the
Companys ability to penetrate that market, Market Scopes November 2009 Comprehensive Report on
the Refractive Market estimates that the 2010 U.S. refractive market potential is 128 million eyes.
To date, based on Market Scopes estimate of the number of people who have had procedures, only an
estimated 11% of this target population has had laser vision correction.
Estimates by Market Scope indicate that 1.4 million laser vision correction procedures were
performed in the United States in each of 2005, 2006 and 2007, 1.0 million were performed in 2008
and 0.8 million in 2009. As of February 2010, Market Scope estimates that 0.9 million laser vision
correction procedures will be performed in 2010.
Laser vision correction procedures are not covered by traditional health care plans and
therefore procedure growth remains more a function of consumer discretionary spending. LASIK
industry analysts rely on consumer spending patterns, which correlate directly to consumer
sentiment, in order to predict industry growth trends. The U.S. Consumer Confidence Index (CCI) is
an indicator designed to measure consumer confidence, which is defined as the degree of optimism on
the state of the economy that consumers are expressing through their activities of savings and
spending. The CCI fell to an all-time low in December 2008 and remained at levels well below
historical average during 2009.
There can be no assurance that laser vision correction will be more widely accepted by eye
care doctors or the general population as an alternative to existing methods of treating refractive
disorders. The acceptance of laser vision correction may be affected adversely by its cost
(particularly since laser vision correction is typically not covered fully or at all by government
insurers or other third party payors and, therefore, must be paid for primarily by the individual
receiving treatment), concerns relating to its safety and effectiveness, general resistance to
surgery, the effectiveness of alternative methods of correcting refractive vision disorders, the
lack of long-term follow-up data and the possibility of unknown side effects. There can be no
assurance that long-term follow-up data will not reveal complications that may have a material
adverse effect on the acceptance of laser vision correction. Many consumers may choose not to have
laser vision correction due to the availability and promotion of effective and less expensive
non-surgical methods for vision correction. Any future reported adverse events or other unfavorable
publicity involving patient outcomes from laser vision correction procedures also could adversely
affect its acceptance whether or not the procedures are performed at TLCVision eye care centers.
Market acceptance also could be affected by regulatory developments. The failure of laser vision
correction to achieve continued increased market acceptance would have a material adverse effect on
the Companys business, financial condition and results of operations.
Market for Cataract Surgery
According to Prevent Blindness America, cataracts are a leading cause of blindness among older
adults in the United States. More than 20 million Americans age 40 and older have cataracts. The
National Eye Institute (NEI) states that cataracts are the leading cause of low vision among all
Americans, responsible for about 50 percent of all cases. The NEI estimates that the number of
adults 40 years and older in the U.S. with cataracts will increase by approximately 47 percent to
30 million in 2020. Cataract surgery is the most frequently performed surgery in the United States,
with more than 3 million Americans undergoing cataract surgery each year. By age 80, more than half
of all Americans either have a cataract or have had cataract surgery.
TLC Vision Corporation
TLCVision was originally incorporated by articles of incorporation under the Business
Corporations Act (Ontario) on May 28, 1993. By articles of amendment dated October 1, 1993, the
name of the Company was changed to TLC The Laser Center Inc., and by articles of amendment dated
March 22, 1995, certain changes were effected in the issued and authorized capital of the Company
with the effect that the authorized capital of the Company became an unlimited number of common
shares. On September 1, 1998, TLC The Laser Center Inc. amalgamated under the laws of Ontario with
certain wholly owned subsidiaries. By articles of amendment filed November 5, 1999, the Company
changed its name to TLC Laser Eye Centers Inc. On May 13, 2002, the Company filed articles of
continuance with the province of New Brunswick and changed its name to TLC Vision Corporation. On
May 15, 2002, the Company completed its business combination with Laser Vision Centers, Inc., a
leading U.S. provider of access to excimer lasers, microkeratomes, cataract equipment and related
support services.
Business Strategy
The Company operates with three distinct businesses as a diversified eye care services
organization. In its refractive centers business, TLCVision has managed significant cost reductions
to maintain profitability in the face of declining volumes due to the economic recession. The focus
as the Company transitions to possible emergence from bankruptcy will be:
9
Table of Contents
| continued cost containment as LASIK volumes rebound under better economic conditions; |
| additional emphasis on our optometric co-management model, proven to be a sustainable competitive advantage for TLCVision; and |
| exploration of additional eye care service offerings through our national footprint of 63 majority-owned and 8 minority-owned centers. |
In the doctor services business, we have refined our strategy through divestiture of a
majority of the Companys free-standing ambulatory surgery centers and the divestiture of the
Foresee PHP® distribution agreement. The Company will focus on its three core business lines within
doctor services: refractive access, mobile cataract and integrated practice partnerships.
Vision Source®, operating within the Companys eye care business, intends to continue growing
its business through increasing the number of optometric practice franchises, increasing revenue
per franchise by offering a broader array of products at attractive prices and by exploring other
medical specialties that apply the same successful franchise model.
Description of Refractive Centers Business
The Company currently owns and manages refractive laser centers in the United States and
Canada. Each center typically has one excimer laser with a select portion of the centers having two
or more lasers. The majority of the Companys excimer lasers are manufactured by VISX, a division
of Abbott Medical Optics. The Company does not have an exclusive manufacturing agreement with VISX
as the VISX laser technologies are available on a non-exclusive basis to all LASIK providers.
The Companys centers currently draw upon a variety of patient acquisition strategies that
include its co-management referral relationships, health plan programs and direct-to-consumer
advertising. Pricing within the centers is generally standardized, with some variation based upon
geography, and includes an attractive entry-level price point with logical increases based on
technology upgrades. Pricing for most procedures includes pre- and post-operative care and the TLC
Lifetime Commitment®.
A typical TLCVision refractive center has between 3,000 and 5,000 square feet of space and is
located in a high-end retail, medical or general office building. Although the legal and payment
structures can vary from state to state depending upon state and provincial law and market
conditions, the Company generally receives revenues in the form of (1) amounts charged to patients
for procedures performed at laser centers, (2) management and facility fees paid by doctors who use
the TLCVision center to perform laser vision correction procedures and (3) administrative fees for
billing and collection services from doctors who co-manage patients treated at the centers. Most
TLCVision centers have a clinical director who is an optometrist and oversees the clinical aspects
of the center and builds and supports the network of affiliated eye care doctors. Most centers also
have a center manager and one or more surgical consultants and patient assistants. The number of
staff depends on the activity level of the center. One senior staff person, who is designated as
the center manager, assists in the preparation of the centers annual business plan and supervises
the day-to-day operations of the center.
TLCVision has developed proprietary management and administrative software designed to assist
eye care professionals in providing high levels of patient care. The software permits TLCVision
centers to provide a potential candidate with current information on affiliated doctors throughout
North America, to help them locate the closest TLCVision center, to permit tracking of calls and
procedures, to coordinate patient and doctor scheduling, and to produce financial and surgical
outcome reporting and analysis. The software has been installed in substantially all TLCVision
centers. TLCVision also has an online consumer consultation site on its websites (www.tlcvision.com
and www.lasik.com). This consumer consultation site allows consumers to book their consultation
with the Company online. TLCVision also maintains a customer contact management center
(1-888-TLC-2020), which is staffed six days a week.
The TLC Lifetime Commitment® program, established in 1997 and offered through TLCVision
centers, entitles patients within a certain range of vision correction to have certain enhancement
procedures for further correction at no cost at any time during their lifetime, if necessary. To
remain eligible for the program patients must have an annual eye exam, at the patients expense,
with a TLCVision affiliated doctor. The purpose of the program is to respond to the infrequent
occasion where the patients sight might regress over time, requiring an enhancement procedure. In
addition, the program responds to the doctors concern that patients may not return for their
annual eye examination once their eyes are treated. The Company believes that this program has been
well received by both patients and doctors.
10
Table of Contents
Pricing
In TLCVision centers, the Company typically charges a per-eye fee that starts as low as $895
for conventional LASIK using a microkeratome and then escalates to as much as $2,695 for custom
ablation using the IntraLase femtosecond laser for flap creation (bladeless LASIK). Most patients
typically pay an average of approximately $1,900 per eye, but this can vary significantly by
geographic location or the type of procedure selected. If the patient receives pre- and
post-operative care from a primary care eye doctor, that doctor will typically charge approximately
15% to 20% of the patient fee ($200 to $400 depending on the procedure selected and level of
services performed); in most cases, the total procedure costs to the patients are often included in
a single invoice. Although competitors in certain markets may charge less for these procedures, the
Company believes that important factors affecting competition in the laser vision correction
market, other than price, are quality of service, reputation and skill of surgeon, customer service
reputation, and relationships with affiliated doctors.
The cost of laser vision correction procedures is not covered by provincial health care plans
in Canada or reimbursable under Medicare or Medicaid in the United States. However, the Company
believes it has positioned itself well in the private insurance and employer market through its
Corporate Advantage program and its TruVision offering, which offers discounts to selected
corporations or health plan members and is now available to more than 100 million individuals.
Co-management Model
The Company has developed and implemented a medical co-management model under which it not
only establishes, manages and operates TLCVision centers and provides an array of related support
services, but also coordinates the activities of primary care doctors (usually optometrists), who
co-manage refractive surgery patients, and refractive surgeons (ophthalmologists), who perform
laser vision correction procedures in affiliation with the local center. The primary care doctors
assess whether patients are candidates for laser vision correction and provide pre- and
post-operative care, including an initial eye examination and follow-up visits. The co-management
model permits the surgeon to focus on providing superior laser vision correction surgery while
allowing the patients primary eye care doctor to continue providing care after the patients
surgery is completed. In addition, most TLCVision centers have a Clinical Director on site who
works to support and expand the local network of affiliated doctors. The Clinical Director provides
a range of clinical training and consultation services to affiliated primary care doctors to
support these doctors individual practices and to assist them in providing quality patient care.
See Part I, Item 1, Business Government Regulation Regulation of Optometrists and
Ophthalmologists.
TLCVision believes that its strong relationships with its affiliated eye care doctors, though
non-exclusive, represent an important competitive advantage for its centers.
The Company believes that primary care doctors relationships with TLCVision and the doctors
acceptance of laser vision correction enhances the doctors practices. The affiliated eye doctors
(usually optometrists) charge fees to assess candidates for laser vision correction and provide
pre- and post-operative care, including an initial eye examination and follow-up visits. The
primary care doctors potential revenue loss from sales of contact lenses and eyeglasses may be
offset by professional fees earned from both laser vision correction pre- and post-operative care
and examinations required under the TLC Lifetime Commitment® program.
Sales and Marketing
While TLCVision believes that many individuals with myopia or hyperopia are potential
candidates for laser vision correction, these procedures must compete with corrective eyewear as
well as other surgical and non-surgical treatments for these conditions. The decision to have laser
vision correction largely represents a choice dictated by an individuals desire to reduce or
eliminate their reliance on eyeglasses or contact lenses. The Company therefore seeks to increase
its refractive procedure volume and its market penetration through other innovative marketing
programs targeted to doctors, to the public directly, and to corporations and health plans.
In support of its strong relationships with its affiliated eye care doctors, a portion of the
Companys marketing resources are devoted to joint marketing programs. The Company provides doctors
with brochures, videos, posters and other materials that help them educate their patients about
laser vision correction. Those doctors who wish to market directly to their patients or the public
may receive support from the Company in the development of marketing programs. The Company believes
the most effective way to market to doctors is to be perceived as a leader in the eye care
industry. To this end, the Company strives to be affiliated with clinical leaders, educate doctors
on laser vision and refractive correction, and remain current with new procedures, technology and
techniques. The Company also promotes its services to doctors in Canada and the United States
through conferences, advertisements in journals, direct marketing, its web sites, newsletters and
its support of ophthalmologic and optometric professional associations.
11
Table of Contents
In addition, the Company markets directly to potential patients through a variety of methods
including radio, television, print advertising, internet sites, direct mail, alumni and local
market sponsorships. Tiger Woods, world-class golfer, and Elaine Larsen, jet car driver are both
TLCVision patients and are featured in the Companys marketing efforts. The Company uses a variety
of traditionally accepted advertising, direct marketing and digital marketing efforts to reach
potential patients. The Company utilizes a comprehensive internet strategy with the goal of having
a leading refractive presence through TLCVision owned websites and partnerships.
Contracts with Eye Doctors
The Company works with a network of eye care doctors (mostly optometrists) in each market in
which it operates who perform the pre-operative screening and post-operative care for patients who
have had laser vision correction. Those doctors then co-manage their patients with affiliated
surgeons, who perform the laser vision correction procedure themselves. In most states and
provinces, co-management doctors have the option of charging the patient directly for their
services or having the Company collect the fees on their behalf.
Most surgeons performing laser vision correction procedures through a TLCVision center owned,
managed or operated by the Company do so under one of three types of standard agreements (as
modified for use in the various U.S. states as required by state law). Each agreement typically
prohibits surgeons from disclosing confidential information relating to the center, soliciting
patients or employees of the center, or participating in any other eye care center within a
specified area. However, there can be no assurance that such agreements will be enforceable.
Surgeons must meet the credential requirements of the state or province in which they practice
and must receive training approved by the manufacturer of the equipment on which they perform
procedures. Surgeons are responsible for maintaining appropriate malpractice insurance and most
agree to indemnify the Company and its affiliates for any losses incurred as a result of the
surgeons negligence or malpractice.
Most states prohibit the Company from practicing medicine, employing physicians to practice
medicine on the Companys behalf or employing optometrists to render optometric services on the
Companys behalf. Because the Company does not practice medicine or optometry, its activities are
limited to owning and managing eye care centers and affiliating with other health care providers.
Affiliated doctors provide a significant source of patients for laser vision correction at the
Companys centers. Accordingly, the success of the Companys operations depends upon its ability to
enter into agreements on acceptable terms with a sufficient number of health care providers,
including institutions and eye care doctors, to render surgical and other professional services at
facilities owned or managed by the Company. There can be no assurance that the Company will be able
to enter into or maintain agreements with doctors or other health care providers on satisfactory
terms or that such agreements will be profitable to the Company. Failure to enter into or maintain
such agreements with a sufficient number of qualified doctors will have a material adverse effect
on the Companys business, financial condition and results of operations.
Description of Doctor Services Business
TLCVisions doctor services business provides 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.
Description of Mobile Cataract Segment
Through its Sightpath Medical (Sightpath) subsidiary, formerly known as Midwest Surgical
Services (MSS), TLCVision provides mobile and fixed site cataract equipment and related services in
approximately 41 states. As of December 31, 2009, Sightpath employed 53 mobile cataract equipment
technicians and operated 53 mobile cataract systems. A Sightpath certified surgical technician
transports the mobile equipment from one surgery location to the next and prepares the equipment at
each stop so that the operating room is ready for cataract surgery. Technicians are also certified
to scrub for cataract cases as requested by the surgeon and facility. A typical service offering
will include cataract equipment, IOLs, surgical instruments and supplies. Related services
including yttrium-aluminum-garnet (YAG) capsulotomy and selective laser trabeculoplasty (SLT) laser
treatment are also available.
Cataract patients, the majority of whom are elderly, typically prefer to receive treatment
near their homes. Sightpath focuses on developing relationships among local hospitals, referring
optometrists and eye surgeons in small to medium-sized markets where Sightpaths shared-access
approach and mobile systems make it economically feasible for optometrists and surgeons to provide
cataract surgical services that are close to home.
12
Table of Contents
The Sightpath sales staff focuses on identifying small to medium-sized markets, which usually
do not have convenient access to the services of a cataract eye surgeon. After identifying such a
market, Sightpaths sales staff will contact the local hospital and local optometrists to develop
interest in close to home cataract surgery services. When there is sufficient interest, the sales
staff brings the hospital and optometrists in contact with an eye surgeon who is willing to provide
services to that local market. By bringing these various parties into contact, Sightpath seeks to
increase demand for its mobile cataract services and increase convenience for cataract patients.
Sightpath was the exclusive United States distributor of the Foresee PHP®, a preferential
hyperacuity perimeter that monitors the progression of Age-Related Macular Degeneration (AMD), the
leading cause of vision loss for people over age 50 in the United States. According to the Macular
Degeneration Partnership, there are as many as 15 million Americans affected with the disease. The
Foresee PHP® is an FDA cleared, clinically validated device that detects conversion from
intermediate dry AMD to the vision-threatening wet form known as Choroidal Neovascularization.
Sightpath distributed the Foresee PHP® out of its Minneapolis, Minnesota location.
Effective December 10, 2009, the Company terminated its exclusive distribution agreement of
the Foresee PHP® with the devices developer and manufacturer Notal Vision®. For additional
information regarding the agreement termination refer to Note 9, Investments and Other Long-Term
Assets, to the consolidated financial statements in Part II, Item 8, Financial Statements and
Supplementary Data.
Description of Refractive Access Segment
TLCVisions refractive access (or mobile refractive) business provides eye surgeons access to
excimer femtosecond laser platforms, microkeratomes, other equipment and value-added support
services such as training, technical support and equipment maintenance. TLCVisions access delivery
system, located primarily in the United States, utilizes both mobile equipment and fixed-site
locations. The Company believes that this flexible delivery system enlarges the pool of potential
locations, eye surgeons and patients that it can serve, and allows it to effectively respond to
changing market demands.
TLCVisions mobile access systems are typically used by eye surgeons who perform fewer than 30
procedures per month or are in markets where they are able to offer consolidated surgery days to
patients. A certified laser technician accompanies each excimer laser from location to location. If
an eye surgeon uses the microkeratome service, the Company generally supplies one microkeratome,
one accessory kit and a second Company employee, who is certified by the microkeratome manufacturer
and acts as a surgical technician.
Mobile laser equipment is provided by means of a proprietary Roll-On/Roll-Off laser system.
The Roll-On/Roll-Off laser system, elements of which have been patented, consists of an excimer
laser mounted on a motorized air suspension platform. The Roll-On/Roll-Off laser system is
transported between locations in a specifically modified truck and allows an excimer laser to be
easily moved upon reaching its destination. Due to the design of the Roll-On/Roll-Off system, the
laser usually requires only minor adjustments and minimal set-up time at each destination. As of
December 31, 2009, TLCVision had 24 Roll-On/Roll-Off systems in operation, all of which were
located in the United States. In addition to the standard excimer laser, the Company also offers 11
mobile Intralase units in the United States.
TLCVisions fixed site lasers are dedicated to single locations where eye surgeons typically
perform more than 40 cases per month over several surgery days to maintain a competitive offering
for patients. As of December 31, 2009, the Company had approximately 35 U.S. fixed sites. Some
fixed sites exclusively serve single practice groups and others are located in ambulatory surgery
centers where they can be used by a qualified eye surgeon.
The Company also provides a broad range of support services to the eye surgeons who use its
equipment, including arranging for training of physicians and staff, technical support and
equipment maintenance, industry updates and marketing advice, clinical advisory support, patient
financing and partnership opportunities.
Eye surgeons pay TLCVision a fee for each procedure the surgeon performs using the Companys
equipment and services. The Company typically provides each piece of equipment to many different
eye surgeons, which allows it to more efficiently use the equipment and to offer it at an
affordable price. TLCVision refers to its practice of providing equipment to multiple eye surgeons
as shared access. This service is generally governed under one of three types of agreements:
| Under standard refractive mobile access agreements with surgeons, TLCVision provides some or all of the following: laser platform and microkeratome equipment, certain related supplies for the equipment (such as laser gases, per procedure cards and microkeratome blades), laser operator, microkeratome technicians, maintenance and certain technology upgrades. In addition, the Company may provide marketing assistance, coordination of surgeon training and other support services. This |
13
Table of Contents
access is provided on agreed upon dates at either the surgeons offices or a third partys facility. In return, the surgeons pay a per procedure fee for access services and generally agree to exclusively use TLCVisions equipment for refractive surgery. The Company does not provide medical services to the patients or any administrative services to the access surgeon customer. |
| Under standard refractive fixed access agreements with surgeons, TLCVision generally provides the following: a fixed-base laser platform and microkeratome equipment, certain related supplies for the equipment (such as laser gases, per procedure cards and microkeratome blades), periodic maintenance and certain technology upgrades. In return, the surgeons pay either a per procedure fee and guarantee a minimum number of procedures per month, or a flat monthly fee plus the cost of per procedure cards and blades. In addition, the surgeons generally agree to use exclusively TLCVisions equipment for refractive surgery. The Company does not provide a laser operator, microkeratome technician, medical services or any administrative services to the access surgeon customer. |
| Under joint venture arrangements, TLCVision directly or indirectly provides either mobile or fixed-base laser access and the following: microkeratome equipment, certain related supplies for the equipment (such as laser gases, per procedure cards and microkeratome blades), laser operator, microkeratome technician, maintenance and certain technology upgrades, the laser facility, management services which include administrative services such as billing and collections, staffing for the refractive practice, marketing assistance and funds and other support services. TLCVision receives an access fee and management services fees in addition to being reimbursed for the direct costs paid by the Company for the laser facility operations. In return, the surgeons generally agree to exclusively use the Companys equipment for refractive surgery and/or not to compete with the Company within a certain area. Neither TLCVision nor the joint ventures provide medical services to the patients. |
Description of Surgical and Secondary Care Center Segment
The Companys other segment in the doctor services business primarily consists of both
integrated and free-standing ambulatory surgical centers. As of December 31, 2009, TLCVision had a
majority ownership in two integrated surgical operations in the state of Michigan and the
Philadelphia/western New Jersey metropolitan areas that include ambulatory surgical centers. The
Company has ownership interests in an additional two free-standing, actively-operating ambulatory
surgical centers. Ambulatory surgery centers provide outpatient surgery services in a less
institutional, more productive and cost-efficient setting than traditional hospitals. The two
primary procedures performed are cataract extraction with IOL implantation and YAG capsulotomies.
However, the ambulatory surgical centers have the capability to accommodate additional ophthalmic
surgical procedures as well as additional procedures such as podiatry and pain control, in certain
instances.
During the year ended December 31, 2009, the Company divested one majority-owned and two
minority-owned free-standing ambulatory surgical centers for a combined net sale price of
approximately $2.2 million, resulting in a net loss on divestiture of $1.6 million. The Company
continues to review potential opportunities to sell the remaining free-standing ambulatory surgical
center investments during 2010.
Description of Eye Care Business
The Companys eye care business is currently comprised of one reportable segment, which is the
optometric franchising segment. The Companys optometric franchising segment primarily consists of
Vision Source®, a majority-owned subsidiary that provides marketing, practice development and
purchasing power to independently-owned and operated optometric practices in the United States and
Canada. As of December 31, 2009 and 2008, Vision Source® had approximately 2,100 and 1,900
franchisees, respectively, under franchise agreements across North America. In exchange for
providing services to its franchisees, Vision Source® received franchise fees equal to a
predetermined percentage of gross practice billings. This segment supports the development of
independent practices and complements the Companys co-management model.
Website and Available Information
TLCVision has linked its branded eye care centers, network doctors and potential patients
through its websites, www.tlcvision.com and www.lasik.com, which provide a directory of affiliated
eye care providers and contain questions and answers about laser vision correction. TLCVisions
corporate website www.tlcv.com contains information for stockholders and investors.
TLCVision makes available free of charge on or through its website (www.tlcv.com) its Proxy
Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934. The material is made available through the Companys
14
Table of Contents
website as soon as reasonably practicable after the material is electronically filed with or
furnished to the Commission. All of TLCVisions filings may be read or copied at the SECs Public
Reference Room at 100 F Street, NE, Washington D.C. 20549. Information on the operation of the
Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet website (www.sec.gov) that contains reports, proxy and information statements regarding
issuers that file electronically.
The Company has adopted a Code of Conduct that applies to its principal executive officer,
principal financial officer and principal accounting officer, as well as all other employees and
Board of Directors. This Code of Conduct and the Companys corporate governance policies are posted
on the Companys website www.tlcv.com/about/ethics/. The Company intends to satisfy its disclosure
requirements regarding amendments to or waivers from its Code of Conduct by posting such
information on this website. The charters of the committees of the Companys Board of Directors are
available on the Companys website and are also available in print free of charge.
Equipment and Capital Financing
The Company primarily utilizes VISX excimer lasers for refractive surgery. See Part I, Item 1,
Business Laser Correction Procedures, for further details regarding VISX. The Company does not
have an exclusive manufacturing agreement with VISX as the VISX laser technologies are available on
a non-exclusive basis to all LASIK providers. Based on the availability of cash and financing, the
Company expects to upgrade the capabilities of its lasers as technology improves. Although there
can be no assurance, the Company believes that, based on the number of existing excimer laser
manufacturers, the current inventory levels of those manufacturers is more than adequate for the
Companys future operations.
Competition
Consumer Market for Vision Correction
Within the consumer market, excimer laser procedures performed at the Companys refractive
center and access locations compete with other surgical and non-surgical treatments for refractive
disorders, including eyeglasses, contact lenses and other types of refractive surgery and
technologies currently available and under development such as corneal rings, intraocular lenses
and surgery with different types of lasers. Although the Company believes that eyeglasses and
contact lens use will continue to be the most popular form of vision correction in the foreseeable
future, as market acceptance for laser vision correction continues to increase, competition within
this market will grow. There can be no assurance that the Companys management, operations and
marketing plans are or will be successful in meeting this competition. Further, there can be no
assurance that the Companys competitors access to capital, financing or other resources or their
market presence will not give these competitors an advantage against the Company. In addition,
other surgical and non-surgical techniques to treat vision disorders are currently in use and under
development and may prove to be more attractive to consumers than laser vision correction.
Within the consumer market for laser vision correction, the Company continues to face
increasing competition from other service providers. As market acceptance for laser vision
correction continues to increase, competition within this market may grow. Laser vision correction
providers are divided into three major segments: corporate-owned centers; independent surgeon-owned
centers; and institution-owned centers. According to Market Scope information for 2009, independent
surgeon-owned centers accounted for the largest percentage of total procedure volume in the
industry with an approximate 61% market share. Corporate-owned centers accounted for 32% of total
procedures performed, which is a decrease over the prior year of 1 percentage point. The remaining
7% of laser vision correction procedures were performed at institution-owned centers, such as
hospitals or universities.
The Company believes the important factors affecting competition in the laser vision
correction market are quality of service, surgeon skill and reputation, awareness through
advertising, price and available managed care or corporate discount offerings. The Company believes
that its competitiveness is enhanced by a strong network of affiliated doctors. Suppliers of
conventional vision correction (eyeglasses and contact lenses), such as optometric chains, also
compete with the Company either by marketing alternatives to laser vision correction or by
purchasing excimer lasers and offering refractive surgery to their customers. These service
providers may have greater marketing and financial resources and experience than the Company and
may be able to offer laser vision correction at lower rates. Competition has also increased in part
due to the greater availability and lower costs of excimer lasers.
As an elective procedure, overall laser vision correction surgery volumes are constrained by
economic conditions in North America, which impact consumer confidence and may leave potential
consumers with less disposable income. In addition, it is evident that the market has segmented
into two distinct groups of patients who have laser vision correction: (1) value-priced segment and
(2) premium-priced segment. Industry trends and research indicate that the value-priced segment
(under reasonable economic conditions) is larger and growing faster than the premium-priced
segment. However, in a period of economic weakness, these potential customers
15
Table of Contents
can be more adversely impacted by unemployment, restricted access to financing and available
discretionary funds. The Companys approach to patient acquisition balances its appeal to both the
premium and the value-priced segment through its combined consumer-focused approach and optometric
co-management philosophy.
TLCVision competes in fragmented geographic markets. The Companys principal corporate
competitors include LCA-Vision, Inc. and Lasik Vision Institute, Inc.
Government Regulation
Excimer Laser Regulation
United States
Medical devices, such as the excimer lasers used in the Companys U.S. centers, are subject to
stringent regulation by the FDA and cannot be marketed for commercial use in the United States
until the FDA grants pre-market approval for the device. To obtain a pre-market approval for a
medical device, excimer laser manufacturers must file a pre-market approval application that
includes clinical data and the results of pre-clinical and other testing sufficient to show that
there is a reasonable assurance of safety and effectiveness of their excimer lasers. Human clinical
trials must be conducted pursuant to Investigational Device Exemptions issued by the FDA in order
to generate data necessary to support a pre-market approval. See Part I, Item 1, Business Laser
Correction Procedures.
The FDA is not authorized to regulate the practice of medicine, and ophthalmologists,
including those affiliated with TLCVision eye care centers, may perform the LASIK procedure using
lasers with a pre-market approval for PRK only (off-label use) in an exercise of professional
judgment in connection with the practice of medicine.
The use of an excimer laser to treat both eyes on the same day (bilateral treatment) has been
neither approved nor prohibited by the FDA. The FDA has stated that it considers the use of the
excimer laser for bilateral treatment to be a practice of medicine decision, which the FDA is not
authorized to regulate. Ophthalmologists, including those affiliated with the Companys branded eye
care centers, widely perform bilateral treatment in an exercise of professional judgment in
connection with the practice of medicine. The FDA could seek to challenge this practice in the
future.
Any excimer laser manufacturer that obtains pre-market approval for use of its excimer lasers
will continue to be subject to regulation by the FDA. Although the FDA does not specifically
regulate surgeons use of excimer lasers, the FDA actively enforces regulations prohibiting
marketing of products for non-approved uses and conducts periodic inspections of manufacturers.
During 2009, the FDA performed on-site inspections of a number of LASIK centers and issued 17
warning letters, including letters to several TLC locations, regarding inadequate adverse event
reporting systems. TLC has responded to all warning letters any of its managed centers received.
The inspections did not identify problems with the use of the LASIK devices at any of these
facilities.
Failure to comply with applicable FDA requirements could subject the Company, its affiliated
doctors or laser manufacturers to enforcement action, including product seizure, recalls,
withdrawal of approvals and civil and criminal penalties, any one or more of which could have a
material adverse effect on the Companys business, financial condition and operations. Further,
failure to comply with regulatory requirements or any adverse regulatory action, including a
reversal of the FDAs current position that the off-label use of excimer lasers by doctors
outside the FDA-approved guidelines is a practice of medicine decision (which the FDA is not
authorized to regulate), could result in a limitation on or prohibition of the Companys use of
excimer lasers, which in turn could have a material adverse effect on the Companys business,
financial condition and operations.
The marketing and promotion of laser vision correction in the United States are subject to
regulation by the FDA and the Federal Trade Commission (FTC). The FDA and FTC have released a joint
communiqué on the requirements for marketing laser vision correction in compliance with the laws
administered by both agencies. The FTC staff also issued more detailed staff guidance on the
marketing and promotion of laser vision correction and has been monitoring marketing activities in
this area through a non-public inquiry to identify areas that may require further FTC attention.
During 2009, the FDA issued a letter to eye care professionals providing them with information
about the advertising and promotion of FDA-approved lasers for LASIK. On October 15, 2009, the FDA
announced a collaborative study with the National Eye Institute and the Department of Defense to
examine the potential impact on quality of life from LASIK.
16
Table of Contents
Canada
The use of excimer lasers in Canada to perform refractive surgery is not subject to regulatory
approval, and excimer lasers have been used to treat myopia since 1990 and hyperopia since 1996.
The Therapeutic Products Directorate of Health Canada (TPD) regulates the sale of devices,
including excimer lasers used to perform procedures at the Companys Canadian eye care centers.
Pursuant to the regulations prescribed under the Canadian Food and Drugs Act, the TPD may permit
manufacturers or importers to sell a certain number of devices to perform procedures provided the
devices are used in compliance with specified requirements for investigational testing. Permission
to sell the device may be suspended or cancelled where the TPD determines its use endangers the
health of patients or users or where the regulations have been violated. Devices may also be sold
for use on a non-investigational basis where evidence available in Canada to the manufacturer or
importer substantiates the benefits and performance characteristics claimed for the device. The
Company believes that the sale of the excimer lasers to its eye care centers, as well as their use
at the centers, complies with TPD requirements. Canadian regulatory authorities could impose
restrictions on the sale or use of excimer lasers, which could have a material adverse effect on
the Companys business, financial condition and operations.
Regulation of Optometrists and Ophthalmologists
United States
The health care industry in the United States is highly regulated. The Company and its
operations are subject to extensive federal, state and local laws, rules and regulations, including
those prohibiting corporations from practicing medicine and optometry, prohibiting unlawful rebates
and division of fees, anti-kickback laws, fee-splitting laws, self-referral laws, laws limiting the
manner in which prospective patients may be solicited and professional licensing rules.
Approximately 42 states in which the Company currently does business limit or prohibit corporations
from practicing medicine and employing or engaging physicians to practice medicine.
The Company has reviewed these laws and regulations with its health care counsel, and although
there can be no assurance, the Company believes that its operations currently comply with
applicable laws in all material respects. Also, the Company expects that doctors affiliated with
TLCVision will comply with such laws in all material respects, although it cannot ensure such
compliance by its affiliated doctors.
Federal Law. A federal law known as the anti-kickback statute prohibits the offer,
solicitation, payment or receipt of any remuneration that directly or indirectly is intended to
induce or is in return for the referral of patients for or the ordering of items or services
reimbursable by Medicare or any other federally financed health care program. This statute also
prohibits remuneration intended to induce the purchasing of or arranging for or recommending the
purchase or order of any item, good, facility or service for which payment may be made under
federal health care programs. This statute has been applied to otherwise legitimate investment
interests if even one purpose of the offer to invest is to induce referrals from the investor. Safe
harbor regulations provide absolute protection from prosecution for certain categories of
relationships that meet all elements of an applicable safe harbor. However, relationships that do
not meet all elements of a safe harbor are not illegal per se, but must be reviewed on an
individual basis to determine the risk of fraud and abuse to any federal or state funded health
care system.
Subject to certain exceptions, federal law also prohibits referrals for the provision of
Medicare or Medicaid-covered designated health services from a doctor to another entity with
which the doctor (or an immediate family member) has a financial relationship (which includes
ownership and compensation arrangements). This law, known as the Stark Law, applies only to
referrals made by a doctor and does not apply outside of the Medicare and Medicaid programs or to
items or services that are not one of the 11 designated health services.
Laser vision correction is not reimbursable by Medicare, Medicaid or other federal programs.
As a result, neither the anti-kickback statute nor the Stark Law applies to the Companys laser
vision correction business. However, the Company may be subject to similar state laws that apply
regardless of the type of service or the manner of payment.
Doctors affiliated with the Companys cataract access and surgical and secondary care center
segments provide services that are reimbursable under Medicare and Medicaid. Further,
ophthalmologists and optometrists co-manage Medicare and Medicaid patients who receive services at
the Companys secondary care centers. The co-management model is based, in part, upon the referral
by an optometrist for surgical services performed by an ophthalmologist and the provision of pre-
and post-operative services by the referring optometrist. The Office of the Inspector General (OIG)
for the Department of Health and Human Services, the government agency responsible for enforcing
the anti-kickback statute, has stated publicly that to the extent there is an agreement between
optometrists and ophthalmologists to refer back to each other, such an agreement could constitute a
violation of the anti-kickback statute. The Company believes, however, that its co-management
program does not violate the anti-kickback statute, as patients are given the choice whether to
return to the referring optometrist or to stay with the ophthalmologist for post-operative care.
17
Table of Contents
Nevertheless, there can be no guarantee that the OIG will agree with the Companys analysis of
the law. If the Companys co-management program were challenged as violating the anti-kickback
statute and the Company were unsuccessful in defending against such a challenge, then civil or
criminal fines and penalties, including exclusion of the Company, the ophthalmologists and the
optometrists from the Medicare and Medicaid programs, may be imposed on the Company. The Company
could also be required to revise the structure of its co-management program or curtail its
activities, any of which could have a material adverse effect upon the Companys business,
financial condition and results of operations.
The provision of services covered by the Medicare and Medicaid programs in the Companys
ambulatory surgery business, mobile cataract business and secondary care centers also triggers
potential application of the Stark Law. The co-management model could establish a financial
relationship, as defined in the Stark Law, between the ophthalmologist and the optometrist.
Similarly, to the extent that the Company provides any designated health services as defined in the
statute, the Stark Law could be triggered as a result of any of the several financial relationships
between the Company and ophthalmologists. Based on its current interpretation of the Stark Law as
set forth in the interim final rule published in 2004, the Company believes that the referrals from
ophthalmologists and optometrists either will be for services that are not designated health care
services as defined in the statute or will be covered by an exception to the Stark Law. The
government may disagree with the Companys position and there may be changes in the governments
interpretation of the Stark Law, including an expansion of the services that constitute designated
health services. In such case, the Company may be subject to civil penalties as well as
administrative exclusion and would likely be required to revise the structure of its legal
arrangements or curtail its activities, any of which could have a material adverse effect on the
Companys business, financial condition and results of operations.
The Administrative Simplification provisions of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) were enacted to (a) improve the efficiency and effectiveness of
the healthcare system by standardizing the exchange of electronic information for certain
administrative and financial transactions and (b) protect the confidentiality and security of
health information. HIPAA directed the Department of Health and Human Services to promulgate a set
of interlocking regulations to implement the goals of HIPAA. The regulations apply to covered
entities that include health plans, healthcare clearinghouses and healthcare providers who
transmit protected health information (PHI) in electronic form in connection with certain
administrative and billing transactions. These regulations can be divided into the following:
| Privacy Regulations designed to protect and enhance the rights of patients by providing patient access to their PHI and controlling the use of their PHI; |
| Security Regulations designed to protect electronic health information by mandating certain physical, technical and administrative safeguards; |
| Electronic Transactions and Code Sets Regulations designed to standardize electronic data interchange in the health care industry; |
| Standard Unique Employer Identifier Regulations designed to standardize employer identification numbers used in certain electronic transactions; and |
| Standard Unique Health Identifier for Health Care Providers Regulations designed to standardize the identification of health care providers used in electronic transactions. |
The Company has instituted policies and procedures throughout the Company designed to comply
with the Privacy Regulations and other HIPAA regulations. Further, the Company is self-insured and
meets the definition of small health plan and the Companys plan sponsor has taken steps to
institute policies and procedures to comply with the Privacy Regulations. The Company has
implemented employee training programs explaining how the regulations apply to their job role.
State Law. In addition to the requirements described above, the regulatory requirements that
the Company must satisfy to conduct its business will vary from state to state, and accordingly,
the manner of operation by the Company and the degree of control over the delivery of refractive
surgery by the Company may differ among the states.
A number of states have enacted laws that prohibit what is known as the corporate practice of
medicine. These laws are designed to prevent interference in the medical decision-making process by
anyone who is not a licensed physician. Many states have similar restrictions in connection with
the practice of optometry. Application of the corporate practice of medicine prohibition varies
from state to state. Therefore, while some states may allow a business corporation to exercise
significant management responsibilities over the day-to-day operation of a medical or optometric
practice, other states may restrict or prohibit such activities. The Company
18
Table of Contents
believes that it has structured its relationship with eye care doctors in connection with the
operation of eye care centers as well as in connection with its secondary care centers so that they
conform to applicable corporate practice of medicine restrictions in all material respects.
Nevertheless, if challenged, those relationships may be found to violate a particular state
corporate practice of medicine prohibition. Such a finding may require the Company to revise the
structure of its legal arrangements or curtail its activities, and this could have a material
adverse effect on the Companys business, financial condition and operations.
Many states prohibit a physician from sharing or splitting fees with persons or entities not
authorized to practice medicine. The Companys co-management model for refractive procedures
presumes that a patient will make a single global payment to the laser center, which is a
management entity acting on behalf of the ophthalmologist and optometrist to collect fees on their
behalf. In turn, the ophthalmologist and optometrist pay facility and management fees to the laser
center out of the patient fees collected. While the Company believes that these arrangements do not
violate any of the prohibitions in any material respects, one or more states may interpret this
structure as non-compliant with the state fee-splitting prohibition, thereby requiring the Company
to change its procedures in connection with billing and collecting for services. Violation of state
fee-splitting prohibitions may subject the ophthalmologists and optometrists to sanctions, and may
result in the Company incurring legal fees, as well as being subjected to fines or other costs, and
this could have a material adverse effect on the Companys business, financial condition and
operations.
Just as in the case of the federal anti-kickback statute, while the Company believes that it
is conforming to applicable state anti-kickback statutes in all material respects, there can be no
assurance that each state will agree with the Companys position and not challenge the Company. If
the Company were unsuccessful in defending against such a challenge, the result may be civil or
criminal fines or penalties for the Company as well as the ophthalmologists and optometrists. Such
a result would require the Company to revise the structure of its legal arrangements or curtail its
activities, and this could have a material adverse effect on the Companys business, financial
condition and operations.
Similarly, just as in the case of the federal Stark Law, while the Company believes that it is
operating in compliance with applicable state anti-self-referral laws in all material respects,
each state may not agree with the Companys position and there may be a change in the states
interpretation or enforcement of its own law. In such case, the Company may be subject to fines and
penalties as well as other administrative sanctions and would likely be required to revise the
structure of its legal arrangements or curtail its activities. This could have a material adverse
effect on the Companys business, financial condition and operations.
Canada
Conflict of interest regulations in certain Canadian provinces prohibit optometrists,
ophthalmologists or corporations owned or controlled by them from receiving benefits from suppliers
of medical goods or services to whom the optometrist or ophthalmologist refers his or her patients.
In certain circumstances, these regulations deem it a conflict of interest for an ophthalmologist
to order a diagnostic or therapeutic service to be performed by a facility in which the
ophthalmologist has any proprietary interest. This does not include a proprietary interest in a
publicly traded company not owned or controlled by the ophthalmologist or a member of his/her
family. Certain of the Companys eye care centers in Canada are owned and managed by a subsidiary
in which affiliated doctors own a minority interest. The Company expects that ophthalmologists and
optometrists affiliated with TLCVision will comply with the applicable regulations, although it
cannot ensure such compliance by doctors.
The laws of certain Canadian provinces prohibit health care professionals from splitting fees
with non-health care professionals and prohibit non-licensed entities (such as the Company) from
practicing medicine or optometry and, in certain circumstances, from employing physicians or
optometrists directly. The Company believes that its operations comply with such laws in all
material respects, and expects that doctors affiliated with TLCVision centers will comply with such
laws, although it cannot ensure such compliance by doctors.
Optometrists and ophthalmologists are subject to varying degrees and types of provincial
regulation governing professional misconduct, including restrictions relating to advertising, and
in the case of optometrists, a prohibition against exceeding the lawful scope of practice. In
Canada, laser vision correction is not within the permitted scope of practice of optometrists.
Accordingly, TLCVision does not allow optometrists to perform the procedure at TLCVision centers in
Canada.
Facility Licensure and Certificate of Need
The Company believes that it has all licenses necessary to operate its business. The Company
may be required to obtain licenses from a department of health, or a division thereof, in the
various states in which it opens eye care centers. There can be no assurance that the Company will
be able to obtain facility licenses in all states that may require facility licensure.
19
Table of Contents
Some states require the permission of their department of health, or a division thereof, such
as a health planning commission, in the form of a Certificate of Need (CON) prior to the
construction or modification of an ambulatory care facility, such as a laser center, or the
purchase of certain medical equipment in excess of an amount set by the state. There can be no
assurance that the Company will be able to acquire a CON in all states where a CON is required.
The Company is not aware of any Canadian health regulations that impose facility-licensing
requirements on the operation of eye care centers.
Risk of Non-Compliance
Many of these laws and regulations governing the health care industry are ambiguous in nature
and have not been definitively interpreted by courts and regulatory authorities. Moreover, state
and local laws vary from jurisdiction to jurisdiction. Accordingly, the Company may not always be
able to predict clearly how such laws and regulations will be interpreted or applied by courts and
regulatory authorities and some of the Companys activities could be challenged. In addition, the
regulatory environment in which the Company operates could change significantly in the future. The
Company has reviewed existing laws and regulations with its health care counsel, and although there
can be no assurance, the Company believes that its operations currently comply with applicable laws
in all material respects. Also, TLCVision expects that affiliated doctors will comply with such
laws in all material respects, although it cannot assure such compliance by doctors. The Company
could be required to revise the structure of its legal arrangements or the structure of its fees,
incur substantial legal fees, fines or other costs, or curtail certain of its business activities,
reducing the potential profit to the Company of some of its legal arrangements, any of which may
have a material adverse effect on the Companys business, financial condition and operations.
Intellectual Property
The Company and its subsidiaries own over 30 trademarks and service marks that are subjects of
U.S. federal and/or Canadian registrations or pending applications for registration. In addition,
the Company owns a U.S. patent directed to certain aspects of the Laser Vision Centers
Roll-On/Roll-Off system, which will expire in November 2016. The Companys service marks, patents
and other intellectual property may offer the Company a competitive advantage in the marketplace
and could be important to the success of the Company. One or all of the patents, trademarks,
service marks or registrations therefore may be challenged, invalidated or circumvented in the
future. The Companys pending patent applications are subject to examination by the U.S. Patent
and Trademark Office and may not result in an issued patent.
The medical device industry, including the ophthalmic laser sector, has been characterized by
substantial litigation in the United States and Canada regarding patents and proprietary rights.
There are a number of patents concerning methods and apparatus for performing corneal procedures
with excimer lasers. Although the Company currently leases or purchases excimer lasers and other
technology from the manufacturers, in the event that the use of an excimer laser or other procedure
performed at any of the Companys refractive or secondary care centers is deemed to infringe a
patent or other proprietary right, the Company may be prohibited from using the equipment or
performing the procedure that is the subject of the patent dispute or may be required to obtain a
royalty-bearing license, which may not be available on favorable terms, if at all. The costs
associated with any such licensing arrangements may be substantial and could include ongoing
royalty payments. In the event that a license is not available, the Company may be required to seek
the use of products that do not infringe the patent.
Employees
Including part-time employees, the Company had approximately 800 and 1,000 employees as of
December 31, 2009 and 2008, respectively. The Companys future growth will be highly dependent upon
the skills of its key technical and management personnel both in its corporate offices and in its
eye care centers, some of whom would be difficult to replace. There can be no assurance that the
Company can retain such personnel or that it can attract or retain other highly qualified personnel
in the future. No employee of the Company is represented by a collective bargaining agreement, nor
has the Company experienced a work stoppage. The Company considers its relations with its employees
to be good. See Part I, Item 1A, Risk Factors The Company depends on key personnel whose loss
could adversely affect its business.
ITEM 1A. | RISK FACTORS |
The following are certain risk factors that could affect the Companys business, financial
results and results of operations. These risk factors should be considered in connection with
evaluating the forward-looking statements contained in this Annual Report on Form 10-K because
these factors could cause the actual results and conditions to differ materially from those
projected in forward-looking statements. The risks that are highlighted here are not the only ones
that the Company faces. If any of the risks actually occur,
20
Table of Contents
the Companys business, financial condition or results of operations could be negatively
affected. In that case, the trading price of the Companys securities could decline, and
TLCVisions securityholders may lose all or part of their investment.
Bankruptcy Related Risk Factors
The Company filed for protection under Chapter 11 of the Bankruptcy Code and the CCAA on December
21, 2009.
During the Companys bankruptcy proceedings, TLCVisions operations and ability to execute a
business plan are subject to the risks and uncertainties associated with bankruptcy. Risks and
uncertainties associated with the Companys bankruptcy proceedings include the Companys ability
to:
| obtain court approval with respect to motions filed in the bankruptcy proceedings; |
| obtain confirmation of and consummate a plan of reorganization with respect to the bankruptcy proceedings; |
| obtain and maintain commercially reasonable terms with vendors and service providers; |
| renew contracts that are critical to our operations; and |
| retain management and other key individuals. |
These risks and uncertainties could affect the Companys business and operations in various
ways. Negative events or publicity associated with the bankruptcy proceedings could adversely
affect the Companys sales and relationships with customers, physicians, vendors and employees,
which in turn could adversely affect the Companys operations and financial condition. In addition,
transactions outside the ordinary course of business are subject to the prior approval of the
Bankruptcy Courts, which may limit the Companys ability to respond in a timely manner to certain
events or take advantage of certain opportunities.
As a result of the bankruptcy proceedings, the Companys outstanding common shares are
expected to have no value and would be canceled under the existing amended Plan of Reorganization
and, therefore, the Company believes that the value of its various pre-petition liabilities and
other securities is highly speculative. Accordingly, caution should be exercised with respect to
existing and future investments in any of these liabilities or securities.
Our ability to independently manage our business is restricted during the bankruptcy proceedings,
and steps or actions in connection therewith may require the approval of the U.S. Court, the
Canadian Court and our creditors.
Pursuant to the various U.S. Court orders, and ancillary proceedings in Canada, during the
bankruptcy proceedings, some or all of the decisions with respect to our business may require
consultation with, review by or ultimate approval of the U.S Court, the Canadian Court, our general
unsecured creditors committee and our secured creditors. We can not assure that these third
parties will support our positions on matters presented during the bankruptcy proceedings,
including the Plan of Reorganization, as amended. Disagreements between us and these various third
parties could protract the Chapter 11 cases, negatively impact our ability to operate and delay our
emergence from the Chapter 11 proceedings.
Inability to obtain confirmation of the Companys Plan of Reorganization, as amended, in a timely
manner may significantly disrupt operations.
The impact a continuation of the bankruptcy proceedings may have on our operations and
businesses cannot be accurately predicted or quantified. The continuation of the bankruptcy
proceedings, particularly if the Plan of Reorganization, as amended, is not approved or confirmed
in a timely manner, could adversely affect our operations and relationships with our customers,
vendors, suppliers and employees. If confirmation of the Plan of Reorganization, as amended, does
not occur expeditiously, the bankruptcy proceedings could result in, among other things, increases
in costs, professional fees and similar expenses. In addition, prolonged bankruptcy proceedings may
make it more difficult to retain and attract management and other key personnel, and would require
senior management to spend a significant amount of time and effort dealing with our financial
reorganization instead of focusing on the operations of our business.
While the bankruptcy cases are pending, our financial results may be volatile and may not reflect
historical trends.
While the bankruptcy proceedings are pending, we expect our financial results to continue to
be volatile as asset impairments, asset dispositions, restructuring activities, contract
termination and rejections and claims assessments may significantly impact our consolidated
financial statements. As a result, our historical financial performance is likely not indicative of
our financial performance following the filling of the Chapter 11 Petitions. Further, we may sell
or otherwise dispose of assets and liquidate or settle liabilities, with court approval, for
amounts other than those reflected in our historical financial statements. Any such sale or
21
Table of Contents
disposition and the Plan of Reorganization, as amended, could materially change the amounts
and classifications reported in our historical consolidated financial statements, which do not give
effect to any adjustments to the carrying value of assets or amounts of liabilities that might be
necessary as a consequence of the Plan of Reorganization, as amended.
Failure to obtain confirmation of the Companys Plan of Reorganization, as amended, may result in
liquidation or an alternative plan on less favorable terms.
Although the Company believes that the proposed Plan of Reorganization, as amended, will
satisfy requirements for confirmation under the Bankruptcy Code and recognition under the CCAA,
there can be no assurance that the Bankruptcy Courts will reach the same conclusion. In addition,
confirmation of the Plan of Reorganization, as amended, is subject to certain conditions. Failure
to meet any of these conditions could result in the propose amended Plan of Reorganization not
being confirmed. If the plan is not confirmed there can be no assurance that the Chapter 11
Petitions will continue rather than be converted into Chapter 7 liquidation cases or that any
alternative plan or plans of reorganization would be on terms as favorable to the holders of
claims. If a liquidation or protracted reorganization of the Companys business or operations were
to occur, there is a substantial risk that the Companys going concern value would be substantially
eroded to the detriment of all stakeholders.
The Companys common shares are no longer listed on the NASDAQ or TSX.
As of December 31, 2009, the Companys common shares were suspended from trading on both the
NASDAQ and the TSX. The Companys common shares were delisted from the NASDAQ and the TSX effective
January 18, 2010 and January 21, 2010, respectively. The Companys common shares currently trade on
the Over-The-Counter Bulletin Board under the ticker symbol TLCVQ.
As a result of the Companys common shares no longer being listed on the NASDAQ or TSX, it
will likely be more difficult for stockholders and investors to sell our common shares or to obtain
accurate quotations of the price of our common shares. In connection with the delisting of the
Companys common shares, there may also be other negative implications, including the potential
loss of confidence in our Company by suppliers, customers, physicians and employees and the loss of
institutional investor interest in our common shares.
Transfers or issuance of our equity, or a debt restructuring, may impair or reduce our ability to
utilize our net operating loss carry-forwards and certain other tax attributes in the future.
Pursuant to U.S. tax rules, a corporation is generally permitted to deduct from taxable income
in any year net operating losses (NOLs) carried forward from prior years. We have NOL carryforwards
in the United States of approximately $100.8 million as of December 31, 2009. Our ability to
utilize these NOL carryforwards could be subject to a significant limitation if we were to undergo
an ownership change for purposes of Section 382 of the Internal Revenue Code of 1986, as amended,
during or as a result of the bankruptcy proceedings.
A restructuring of our debt pursuant to the bankruptcy proceedings may give rise to
cancellation of indebtedness or debt forgiveness (COD), which if it occurs would generally be
non-taxable. If the COD is non-taxable, we will be required to reduce our NOL carryforwards and
other attributes such as capital loss carryforwards and tax basis in assets, by an amount equal to
the non-recognized COD. Therefore, it is possible that, as a result of the successful completion of
a plan of reorganization, we will have a reduction of NOL carryforwards and/or other tax attributes
in an amount that cannot be determined at this time and that could have a material adverse effect
on our financial future.
The Company may be unable to continue as a going concern.
The consolidated financial statements and related notes have been prepared assuming that the
Company will continue as a going concern although the Chapter 11 bankruptcy filings raise
substantial doubt about the Companys ability to continue as a going concern. The Companys ability
to continue as a going concern is dependent on restructuring its obligations in a manner that
allows it to obtain confirmation of a plan of reorganization by the Bankruptcy Courts. The
consolidated financial statements do not include any adjustments related to the recoverability and
classification of recorded assets or to the amounts and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as a going concern.
22
Table of Contents
Other Risk Factors
Economic conditions cause fluctuations in the Companys revenues and profitability.
During 2009 and 2008, the United States experienced sharp declines in key economic indicators,
including the CCI. The CCI, as reported by the Conference Board, a non-profit business group that
is highly regarded by investors and the Federal Reserve, fell from 87.3 at January 2008 to 38.6 at
December 2008. The CCI fell to a record low of 25.3 at February 2009 and gradually improved to 53.6
at December 2009, well below an index that was at or above 100 for a significant portion of the
decade.
Laser vision correction is generally not reimbursed by health care insurance companies or
other third-party payors and is therefore impacted by consumer discretionary spending patterns. As
a result, overall U.S. industry-wide demand for laser vision correction declined by approximately
27% and 26% in 2009 and 2008, respectively, and may continue to decline into 2010. Accordingly, the
Companys future operating results may vary based upon the impact of changes in economic conditions
and the resulting impact on discretionary spending habits of consumers interested in laser vision
correction. If consumer discretionary spend does not rebound, further declines in procedure levels
and revenue may result.
Weakened economic conditions, including the distressed credit market, may also result in an
increase in the number of our customers who experience financial distress and therefore do not
qualify for patient financing or declare bankruptcy. A renewed decline in the economy could have a
material impact on the Companys financial condition and operating results.
The Company has reported accumulated deficits; its profitability is uncertain.
For the year ended December 31, 2009, TLCVision reported an annual net loss attributable to TLC Vision Corporation of $36.7 million
and an accumulated deficit balance of $410.4 million. Management is uncertain as to the
profitability level of the Company going forward. The Companys profitability will depend on a
number of factors, including:
| the outcome of the current bankruptcy proceedings; |
| macroeconomic conditions in the United States and Canada, including the availability of discretionary income; |
| general demand for eye-care services; |
| the Companys public image in the marketplace; |
| market acceptance of TLCVisions value-oriented pricing strategy; |
| the Companys ability to control costs; |
| the Companys ability to execute its business strategy; |
| the Companys ability to obtain adequate insurance against malpractice claims and reduce the number of claims; |
| concerns about the safety and effectiveness of laser vision correction; |
| competitive factors; |
| regulatory developments; |
| the Companys ability to retain and attract qualified personnel; and |
| doctors ability to obtain adequate insurance against malpractice claims at reasonable rates. |
The market for laser vision correction is intensely competitive and competition may increase.
Some of the Companys current or future competitors may have greater financial, technical,
managerial, marketing and/or other resources and experience than TLCVision. The availability of
such resources may allow current and future competitors to operate and compete more effectively
than the Company. TLCVision competes with hospitals, individual ophthalmologists, other corporate
laser centers and manufacturers of excimer laser equipment in offering laser vision correction
services and/or access to excimer lasers. The Companys principal corporate competitors include
LCA-Vision, Inc. and Lasik Vision Institute, Inc.
Competition in the market for laser vision correction could increase as excimer laser surgery
becomes more commonplace. In addition, competition would increase if state or provincial laws were
amended to permit optometrists, in addition to ophthalmologists, to perform laser vision
correction. The Company will compete on the basis of quality of service, surgeon skill, reputation
and price. If more providers offer laser vision correction in a given geographic market, the price
charged for such procedures may decrease. Competitors have offered laser vision correction at
prices considerably lower than TLCVisions prices. The laser vision correction industry has been
significantly affected by reductions in the price for laser vision correction. Market conditions
may compel the Company to lower prices in its centers to remain competitive and any reduction in
its prices may not be offset by an increase in the Companys procedure volume or decreases in
costs. A decrease in either the fees or procedures performed at TLCVisions eye care centers or in
the number of procedures performed at centers could cause revenues to decline, and business and
financial condition to weaken.
23
Table of Contents
Laser vision correction competes with other surgical and non-surgical means of correcting
refractive disorders, including eyeglasses, contact lenses, other types of refractive surgery and
other technologies currently available and under development, such as intraocular lenses and
surgery with different types of lasers. The Companys management, operations and marketing plans
may not be successful in meeting this competition. Certain competitive optometry chains and other
suppliers of eyeglasses and contact lenses may have substantially greater financial, technical,
managerial, marketing and other resources and experience than TLCVision and may promote
alternatives to laser vision correction or purchase laser systems and offer laser vision correction
to their customers.
If the price of excimer laser systems decreases, additional competition could develop. The
price for excimer laser systems could decrease for a number of reasons, including technological
innovation and increased competition among laser manufacturers. Further reductions in the price of
excimer lasers could reduce demand for the Companys laser access services by making it
economically more attractive for eye surgeons to buy excimer lasers rather than utilize our
services.
Most affiliated surgeons performing laser vision correction at the Companys centers and
significant employees have agreed to restrictions on competing with TLCVision, or soliciting
patients or employees associated with their facilities; however, these non-competition agreements
may not be enforceable.
The market acceptance of laser vision correction is uncertain.
The Company believes that the profitability and growth of TLCVision will depend upon broad
acceptance of laser vision correction in the United States and, to a lesser extent, Canada. The
Company may have difficulty generating revenue and growing its business if laser vision correction
does not become more widely accepted by the general population as an alternative to existing
methods of treating refractive vision disorders. Laser vision correction may not become more widely
accepted due to a number of factors, including:
| its cost, particularly since laser vision correction typically is not covered by government or private insurers; |
| general resistance to surgery; |
| the fact that effective and less expensive alternative methods of correcting refractive vision disorders are widely available; |
| the lack of long-term follow-up data; |
| the possibility of unknown side effects; and |
| reported adverse events or other unfavorable publicity involving patient outcomes from laser vision correction. |
Concerns about potential side effects and long-term results of laser vision correction may
negatively impact market acceptance of laser vision correction and prevent the Company from growing
its business.
Concerns have been raised with respect to the predictability and stability of results and
potential complications or side effects of laser vision correction. Any complications or side
effects of laser vision correction may call into question the safety and effectiveness of laser
vision correction, which in turn may damage the likelihood of market acceptance of laser vision
correction. Complications or side effects of laser vision correction could lead to product
liability, malpractice or other claims against the Company. Also, complications or side effects
could jeopardize the approval by the FDA of the excimer laser for sale for laser vision correction.
Although results of studies show that the majority of patients experienced no serious side effects
numerous years after laser vision correction using PRK, complications may be identified in further
long-term follow-up studies of PRK. There are no long-term studies on the side effects of LASIK,
the procedure more often performed in recent years. However, studies of patients multiple years
after LASIK reported the majority of patients had a high overall satisfaction with the procedure.
There is no independent industry source for data on side effects or complications from laser
vision correction. In addition, the Company does not track side effects. Some of the possible side
effects of laser vision correction are:
| foreign body sensation; |
| pain or discomfort; |
| sensitivity to bright lights; |
| blurred vision; |
| dryness or tearing; |
| fluctuation in vision; |
| night glare; |
| poor or reduced visual quality; |
| overcorrection or under-correction; |
24
Table of Contents
| regression; and |
| corneal flap or corneal healing complications. |
The Company believes that the percentage of patients who experience serious side effects as a
result of laser vision correction at its centers is likely less than 1%. However, there is no
study to support this belief.
Laser vision correction may also involve the removal of Bowmans membrane, an intermediate
layer between the outer corneal layer and the middle corneal layer of the eye. Although several
studies have demonstrated no significant adverse reactions to excimer laser removal of Bowmans
membrane, the long-term effect of the removal of Bowmans membrane on patients is unclear.
The Company may be unable to enter into or maintain agreements with doctors or other health care
providers on satisfactory terms.
TLCVision will have difficulty generating revenue if the Company is unable to enter into or
maintain agreements on satisfactory terms with doctors or other health care providers. Most states
prohibit the Company from practicing medicine, employing doctors to practice medicine on the
Companys behalf, or employing optometrists to render optometric services on the Companys behalf.
In most states TLCVision may only own and manage centers and enter into affiliations with doctors
and other health care providers. Also, affiliated doctors have provided a significant source of
patients for the Companys refractive centers and that is expected to continue. Accordingly, the
success of the Companys business depends upon its ability to enter into agreements on acceptable
terms with a sufficient number of health care providers, including institutions and eye care
doctors to render or arrange surgical and other professional services at facilities TLCVision owns
or manages.
Quarterly fluctuations in operating results make financial forecasting difficult.
The Company experienced significant fluctuations in quarterly loss during 2009, ranging from a
first quarter net loss attributable to TLC Vision Corporation of $1.3 million to a fourth quarter
net loss attributable to TLC Vision Corporation of $18.5 million. TLCVision may experience future
quarterly losses, which may exceed prior quarterly losses. The Companys expense levels will be
based, in part, on our expectations as to future revenues. Historically, quarterly results of
operations have varied, and future results may continue to fluctuate significantly from quarter to
quarter. Accordingly, quarter-to-quarter comparisons of our operating results may not be meaningful
and should not be relied upon as indications of our future performance or annual operating results.
Quarterly results will depend on numerous factors, including the Companys bankruptcy proceedings,
economic conditions in our geographic markets, market acceptance of our services, seasonal factors,
availability of capital under our credit and DIP facilities, and other factors described in this
Annual Report on Form 10-K.
The Company may make investments that may not be profitable.
The Company makes investments that are intended to support its business strategy, generally
targeted to companies in the laser vision correction or doctor services businesses. In addition,
the Company evaluates the strategic fit of current operations and investments, and has sought to
divest those that we do not believe fit our strategy or enhance stockholder value. If the Company
is unable to successfully manage its current and future investments, if those investments are not
profitable or do not generate the expected returns, or if TLCVision is not successful in completing
divestitures or achieving its targeted exit valuation, then future operating results may be
adversely impacted.
Technological changes could occur rendering our equipment or services obsolete, requiring the
Company to make significant capital expenditures or modify its business model, which could cause
revenues or profitability to decline.
Industry, competitive or clinical factors, among others, may require the Company to introduce
alternate ophthalmic laser technology or other surgical or non-surgical methods for correcting
refractive vision disorders than those that we currently use in our laser vision correction
centers. Such alternative technologies could include various intraocular lens technologies or
other new technologies. Introducing such technology could require significant capital investment
or force us to modify our business model in such a way as to make our revenues or profits
decline. An increase in costs could reduce our ability to maintain our profit margin. An increase
in prices could adversely affect our ability to attract new patients.
25
Table of Contents
The Companys refractive centers strategy partially depends on the Companys ability to
successfully execute direct to consumer advertising programs.
The success of TLCVisions refractive centers strategy is partially dependent on increasing
the number of procedures at TLC Laser Eye Centers through the Companys consumer advertising
programs. The success of this direct to consumer advertising is dependent upon several factors,
including the Companys ability to:
| cost-effectively generate procedures through advertising programs; |
| allocate the funds necessary to support consumer advertising programs; |
| develop consumer advertising as a competency in the Company; and |
| maintain a reliable contact management center, including call center operations and lead follow-up programs. |
The Company also features athletes who are TLCVision patients in its marketing efforts.
Actions taken by athletes who are featured in our marketing efforts that harm the reputation of
those athletes could also harm our brand image with prospective patients and, as a result, could
have an adverse effect on our revenues and financial condition.
The Companys long-term success will depend, in part, on its ability to open new centers, make
acquisitions, or enter into affiliate arrangements.
To an extent, the general growth of the Company will be dependent on increasing the number of
eye care centers through internal development or acquisitions and entering into affiliate
arrangements with local eye care professionals.
Opening new centers involves many challenges, including:
| the integration of operations and technologies into existing platforms; |
| hiring and training personnel to staff the center; |
| developing and implementing effective marketing programs to attract potential patients to the center; and |
| managing the losses incurred during the development and ramp-up period. |
Acquiring an existing center presents these same operational challenges, and additional
special risks, including:
| identifying unanticipated liabilities and contingencies; | ||
| diversion of management attention; and | ||
| possible adverse effects on operating results resulting from: |
| possible future goodwill impairment; | ||
| increased interest costs; | ||
| the issuance of additional securities; and | ||
| increased costs resulting from difficulties related to the integration of the acquired businesses. |
The Companys ability to achieve growth through acquisitions will depend on a number of factors, including:
| the availability of attractive acquisition opportunities; | ||
| the availability of capital to complete acquisitions; | ||
| the availability of working capital to fund the operations of acquired businesses; and | ||
| the effect of existing and emerging competition on operations. |
TLCVision may not be able to successfully identify suitable acquisition candidates, complete
acquisitions on acceptable terms, if at all, or successfully integrate acquired businesses into its
operations. The Companys past and possible future acquisitions may not achieve adequate levels of
revenue, profitability or productivity, or may not otherwise perform as expected.
The Company must successfully balance demand for refractive surgery with its operating costs,
particularly in its refractive centers and refractive access segments.
The demand for refractive surgery declined approximately 27% and 26% in 2009 and 2008,
respectively. Both the Companys refractive centers and refractive access segments have been
adversely impacted by this slowing of demand. In response, the Company has reduced costs through a
variety of initiatives including reductions in headcount, freezing or reducing salaries and
benefits,
decreases in discretionary spending including direct to consumer marketing, reductions in
overhead costs, and the closure of
26
Table of Contents
underperforming refractive centers/mobile refractive routes.
There is no guarantee that these cost reduction initiatives will achieve their intended savings
targets or that these reductions will be sufficient to maintain earnings or positive cash flow.
Additionally, reductions in direct to consumer marketing may impact the level of demand in our
refractive centers segment.
The Company depends on key personnel whose loss could adversely affect its business.
TLCVisions success and growth depends in part on the active participation of key medical and
management personnel. The Company maintains key person insurance for several key ophthalmologists.
Despite having this insurance in place, the loss of any one of these key individuals could
adversely affect the quality, profitability and growth prospects of business operations.
The Company has employment or similar agreements with the key personnel. The terms of these
agreements include, in some cases, entitlements to severance payments in the event of termination
of employment by either TLCVision or the employee.
The Company may be subject to malpractice and other similar claims and may be unable to obtain or
maintain adequate insurance against these claims.
The provision of medical services at the Companys centers entails an inherent risk of
potential malpractice and other similar claims. All of the Companys U.S. professional malpractice
insurance has a $250,000 deductible per claim for claims filed prior to May 1, 2009 and $50,000 per
claim for those filed subsequent to May 1, 2009. Patients at the Companys centers execute informed
consent statements prior to any procedure performed by doctors, but these consents may not provide
adequate liability protection. Although TLCVision does not engage in the practice of medicine or
have responsibility for compliance with regulatory and other requirements directly applicable to
doctors and doctor groups, claims, suits or complaints relating to services provided at the
Companys centers may be asserted against TLCVision in the future, and the assertion or outcome of
these claims could result in higher administrative and legal expenses, including settlement costs
or litigation damages.
The Company currently maintains malpractice insurance coverage and accruals that it believes
are adequate both as to risks and amounts covered. In addition, TLCVision requires the doctors who
provide medical services to maintain comprehensive professional liability insurance. Further, most
of these doctors have agreed to indemnify the Company against certain malpractice and other claims.
TLCVisions insurance coverage, however, may not be adequate to satisfy claims, insurance
maintained by the doctors may not protect the Company, and such indemnification may not be
enforceable or, if enforced, may not be sufficient. The Companys inability to obtain adequate
insurance or an increase in the future cost of insurance to TLCVision and the doctors who provide
medical services at the centers may have a material adverse effect on the Companys business and
financial results.
The excimer laser system uses hazardous gases which if not properly contained could result in
injury. The Company may not have adequate insurance for liabilities arising from injuries caused by
the excimer laser system or hazardous gases. While the Company believes that any claims alleging
defects in its excimer laser systems would usually be covered by the manufacturers product
liability insurance, the manufacturers of the Companys excimer laser systems may not continue to
carry adequate product liability insurance.
The Company may face claims for federal, state and local taxes.
TLCVision operates in 48 states and three Canadian provinces and is subject to various
federal, state, provincial and local income, payroll, unemployment, property, franchise, capital,
sales and use tax on operations, payroll, assets and services. The Company endeavors to comply with
all such applicable tax regulations, many of which are subject to different interpretations, and
has hired outside tax advisors who assist in the process. Many states and other taxing authorities
have been interpreting laws and regulations more aggressively to the detriment of taxpayers. The
Company believes that it has adequate provisions and accruals in the financial statements for tax
liabilities, although TLCVision cannot predict the outcome of future tax assessments.
Compliance with industry regulations in the U.S. is costly and burdensome.
TLCVisions operations are subject to extensive federal, state and local laws, rules and
regulations. The Companys efforts to comply with these laws, rules and regulations may impose
significant costs, and failure to comply with these laws, rules and regulations may result in fines
or other charges being imposed. The Company has incurred significant costs, and expects to incur
future costs in connection with compliance with the provisions of the Sarbanes-Oxley Act of 2002.
The Companys failure to comply with the provisions of the Sarbanes-Oxley Act, including provisions
relating to internal financial controls, could have a material adverse effect on TLCVision.
Many state laws limit or prohibit corporations from practicing medicine and optometry, and
many federal and state laws extensively regulate the solicitation of prospective patients, the
structure of fees and contractual arrangements with hospitals, surgery
27
Table of Contents
centers, ophthalmologists
and optometrists, among others. Some states also impose licensing requirements. Although the
Company attempts to structure its business and contractual relationships in compliance with these
laws in all material respects, if any aspect of its operations was found to violate applicable
laws, the Company could be subject to significant fines or other penalties, be required to cease
operations in a particular jurisdiction, be prevented from commencing operations in a particular
state or otherwise be required to revise the structure of its business or legal arrangements. Many
of these laws and regulations are ambiguous, have not been definitively interpreted by courts or
regulatory authorities, and vary from jurisdiction to jurisdiction. Accordingly, the Company may
not be able to predict how these laws and regulations will be interpreted or applied by courts and
regulatory authorities, and some of the Companys activities could be challenged.
Reform to the U.S. health care system has been enacted in various federal and state
legislatures over the past several years and may continue to change in the future. To respond to
any such changes, the Company could be required to revise the structure of its legal arrangements
or its fee structure, incur substantial legal fees, fines or other costs, or curtail some of the
Companys business activities, reducing the potential profit of some of its arrangements.
State medical boards and state boards of optometry generally set limits on the activities of
ophthalmologists and optometrists. In some instances, issues have been raised as to whether
participation in a co-management program violates some of these limits. If a state authority were
to find that the Companys co-management program did not comply with state licensing laws,
TLCVision would be required to revise the structure of its legal arrangements or curtail
operations, and affiliated doctors might terminate their relationships with the Company.
Federal and state civil and criminal statutes impose penalties, including substantial civil
and criminal fines and imprisonment, on health care providers and persons who provide services to
health care providers, including management businesses such as TLCVision, for fraudulently or
wrongfully billing government or other insurers. In addition, the federal law prohibiting false
Medicare/Medicaid billings allows a private person to bring a civil action in the name of the U.S.
government for violations of its provisions and obtain a portion of the damages if the action is
successful. The Company believes that it is in material compliance with these billing laws, but the
business could be adversely affected if governmental authorities were to scrutinize or challenge
the Companys activities or private parties were to assert a false claim or action against
TLCVision in the name of the U.S. government.
Although the Company believes that it has obtained the necessary licenses or certificates of
need in states where such licenses are required and that the Company is not required to obtain any
licenses in other states, some of the state regulations governing the need for such licenses are
unclear, and there is no applicable precedent or regulatory guidance to help resolve these issues.
A state regulatory authority could determine that TLCVision is operating a center inappropriately
without a required license or certificate of need, which could subject the Company to significant
fines or other penalties, result in TLCVision being required to cease operations in a state or
otherwise jeopardize business and financial results. If the Company expands to a new geographic
market, it may be unable to obtain any new license required in that jurisdiction.
Compliance with additional health care regulations in Canada is costly and burdensome.
Some Canadian provinces have adopted conflict of interest regulations that prohibit
optometrists, ophthalmologists or corporations they own or control from receiving benefits from
suppliers of medical goods or services to whom they refer patients. The laws of some Canadian
provinces also prohibit health care professionals from splitting fees with non-health care
professionals and prohibit non-licensed entities such as TLCVision from practicing medicine or
optometry and from directly employing physicians or optometrists. The Company believes that it is
in material compliance with these requirements, but a review of the Companys operations by
Canadian regulators or changes in the interpretation or enforcement of existing Canadian legal
requirements or the adoption of new requirements could require significant costs to comply with
laws and regulations in the future or require the Company to change the structure of our
arrangements with doctors.
Compliance with U.S. Food and Drug Administration regulations regarding the use of excimer laser
systems for laser correction is costly and burdensome.
To date, the FDA has approved excimer laser systems manufactured by some manufacturers for
sale for the treatment of nearsightedness, farsightedness and astigmatism up to stated levels of
correction. Failure to comply with applicable FDA requirements with respect to the use of the
excimer laser could subject the Company, its affiliated doctors or laser manufacturers to
enforcement action, including product seizure, recalls, withdrawal of approvals and civil and
criminal penalties.
The FDA has adopted guidelines in connection with the approval of excimer laser systems for
laser vision correction. The FDA, however, has also stated that decisions by doctors and patients
to proceed outside the FDA-approved guidelines are a practice of medicine decision, which the FDA
is not authorized to regulate. Failure to comply with FDA requirements or any adverse FDA action,
28
Table of Contents
including a reversal of its interpretation with respect to the practice of medicine, could result
in a limitation on or prohibition of the Companys use of excimer lasers.
Discovery of problems, violations of current laws or future legislative or administrative
action in the United States or elsewhere may adversely affect the laser manufacturers ability to
obtain regulatory approval of laser equipment. Furthermore, the failure of other excimer laser
manufacturers to comply with applicable federal, state or foreign regulatory requirements, or any
adverse action against or involving such manufacturers, could limit the supply of excimer lasers,
substantially increase the cost of excimer lasers, limit the number of patients that can be treated
at the Companys centers and limit TLCVisions ability to use excimer lasers.
Most of the Companys eye care centers and access sites in the United States use VISX excimer
lasers. If VISX, or other excimer laser manufacturers, fail to comply with applicable federal,
state or foreign regulatory requirements, or if any adverse regulatory action is taken against or
involves such manufacturers, the supply of lasers could be limited and the cost of excimer lasers
could increase.
The Roll-On/Roll-Off laser system consists of an excimer laser mounted on a motorized, air
suspension platform and transported in a specially modified truck. The Company believes that use of
this transport system does not require FDA approval; the FDA has taken no position in regard to
such approval. The FDA could, however, take the position that excimer lasers are not approved for
use in this transport system. Such a view by the FDA could lead to an enforcement action against
the Company, which could impede TLCVisions ability to maintain or increase its volume of excimer
laser surgeries. This could have a material adverse effect on the Companys business and financial
results. Similarly, the Company believes that FDA approval is not required for TLCVisions mobile
use of microkeratomes or the cataract equipment transported by the Companys mobile cataract
operations. The FDA, however, could take a contrary position that could result in an enforcement
action.
Healthcare reform may impact the Companys business.
Healthcare reform enacted in the United States may bring significant changes in the financing
and regulation of the healthcare industry. Depending on the nature of such changes, they could have
a material adverse effect on TLCVisions business, financial condition and results of operations.
Disputes with respect to intellectual property could adversely affect TLCVisions business.
There has been substantial litigation in the United States and Canada regarding the patents on
ophthalmic lasers. Although TLCVision currently leases or purchases excimer lasers and other
technology from the manufacturers, if the use of an excimer laser or other procedure performed at
any of the Companys centers is deemed to infringe a patent or other proprietary right, the Company
may be prohibited from using the equipment or performing the procedure that is the subject of the
patent dispute or may be required to obtain a royalty-bearing license, which may involve
substantial costs, including ongoing royalty payments. If a license is not available on acceptable
terms, the Company may be required to seek the use of products which do not infringe the patent.
TLCVision has also secured patents for portions of the equipment it uses to transport mobile
lasers. TLCVision patents and other proprietary technology are important to the Companys success.
These patents could be challenged, invalidated or circumvented in the future. Litigation regarding
intellectual property is common and the Companys patents may not adequately protect its
intellectual property. Defending and prosecuting intellectual property proceedings is costly and
involves substantial commitments of management time. Failure to successfully defend the Companys
rights with respect to TLCVisions intellectual property may require the payment of damages and/or
ceasing the use of equipment to transport mobile lasers, which may have a material adverse effect
on business.
The ability of our shareholders to effect changes in control of the Company is limited.
TLCVision has a shareholder rights plan enabling the Board of Directors to delay a change in
control of the Company, which could discourage a third party from attempting to acquire control of
the Company, even if an attempt would be beneficial to the interests of the shareholders. In
addition, since TLCVision is a Canadian corporation, investments in the Company may be subject to
the provisions of the Investment Canada Act. In general, this act provides a system for the
notification to the Investment Canada agency of acquisitions of Canadian businesses by non-Canadian
investors and for the review by the Investment Canada agency of acquisitions that meet thresholds
specified in the act. To the extent that a non-Canadian person or company attempted to acquire 33%
or more of TLCVisions outstanding common shares, the threshold for a presumption of control, the
transaction could be reviewable
by the Investment Canada agency. The Investment Canada Act also applies to a change of control
effected by a sale of all or substantially all of the assets of the Company.
29
Table of Contents
The Company has entered into a plan sponsor agreement dated February 3, 2010, as amended (the
Plan Sponsor Agreement), backed by affiliates of Charlesbank and H.I.G. Pursuant to the Plan
Sponsor Agreement, the Company and its directors, officers and other representatives are prohibited
from soliciting other proposals to acquire 50% or more of the outstanding equity of the Company or
other acquisition or capital restructuring transactions involving the Company or its subsidiaries.
In addition, the Companys Board of Directors may only accept or recommend unsolicited proposals
that meet the definition of Superior Proposal contained in the Plan Sponsor Agreement. In such a
circumstance, as well as other circumstances set forth in the Plan Sponsor Agreement, the Company
would be obligated to pay a $5.0 million termination fee and Charlesbanks expenses up to a maximum
of $2.0 million.
These factors and others could have the effect of delaying, deferring or preventing a change
of control of the Company supported by shareholders but opposed by our Board of Directors.
We have significant tax net operating loss carryovers that may not be utilized.
As of December 31, 2009, the Company has net operating losses available for carry forward for
income tax purposes of approximately $100.8 million, which may be available to reduce taxable
income in future years. There is no guarantee that all, if any, of the Companys net operating
losses will be utilized in future periods. See Note 17, Income Taxes, to the consolidated financial
statements in Part II, Item 8, Financial Statements and Supplementary Data.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
The Companys refractive centers are located in leased premises throughout the United States
and Canada. The leases are negotiated on market terms and typically have terms of five to ten
years. TLCVisions U.S. Corporate Office is located in approximately 29,000 square feet of leased
office space in St. Louis, Missouri under a lease that will expire in 2016. TLCVision also
maintains approximately 19,000 square feet of office/warehouse space in Bloomington, Minnesota
primarily for its doctor services operations. The Bloomington facility lease expires in 2016.
TLCVisions International Corporate Office was located in leased office space at 5280 Solar
Drive, Mississauga, Ontario, Canada under a lease with Canada Mortgage and Housing Corporation
expiring in 2016. Effective December 21, 2009, the Company was no longer utilizing the
International Corporate Office and is temporarily leasing alternate space in Mississauga, Canada.
On December 21, 2009, in conjunction with the Companys bankruptcy proceedings, a first day
motion was filed in the U.S. Court requesting entry of an order authorizing the Company to reject
the unexpired lease with Canada Mortgage and Housing Corporation under authority of sections 105(a)
and 365(a) of the Bankruptcy Code. On January 21, 2010, an order was entered authorizing the
Company to reject the lease as of the Petitions Date. For additional information regarding this
lease rejection, refer to Note 14, Debt, to the consolidated financial statements in Part II, Item
8, Financial Statements and Supplementary Data.
The terms of the Companys leases provide for total aggregate monthly lease obligations of
approximately $0.7 million in 2010. However, such obligations may be impacted by the ongoing
bankruptcy proceedings.
ITEM 3. | LEGAL PROCEEDINGS |
On December 21, 2009, the Company and two of its wholly owned subsidiaries, TLC Vision (USA)
Corporation and TLC Management Services, Inc., filed the Chapter 11 Petitions in the U.S. Court.
The Chapter 11 cases are being jointly administered under the caption In re TLC Vision (USA)
Corporation, et al., Case No. 09-14473. On the same day, the Company also filed the Canadian
Petition under the CCAA in the Canadian Court. On December 23, 2009, the Canadian Court recognized
the Companys Chapter 11 case as a foreign main proceeding and granted the Company certain other
relief. No other operations of the Company, its affiliates or subsidiaries were involved in the
filings. See Part I, Item 1, Business Bankruptcy Proceedings, for additional information.
Except for bankruptcy proceedings noted above, at December 31, 2009 there were no material
pending legal proceedings, other than ordinary routine litigation incidental to the business, to
which the Company or any of its subsidiaries is a party or of which any of their property is the
subject.
The Company is subject to various claims and legal actions in the ordinary course of its
business, which may or may not be covered by insurance. These matters include, without limitation,
professional liability, employee-related matters and inquiries and
30
Table of Contents
investigations by governmental agencies. While the ultimate results of such matters
cannot be predicted with certainty, the Company believes that the resolution of these matters will
not have a material adverse effect, individually or in the aggregate, on its consolidated financial
position or results of operations.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
As of December 31, 2009, the Companys common shares were suspended from trading on both the
NASDAQ and TSX. The Companys common shares were delisted from the NASDAQ and the TSX effective
January 18, 2010 and January 21, 2010, respectively. The Companys common shares currently trade
on the Over-The-Counter Bulletin Board under the ticker symbol TLCVQ.
The following table sets forth, for the periods indicated, the high and low closing prices per
share of our common shares on the NASDAQ Global Market:
NASDAQ | ||||||||
GLOBAL | ||||||||
MARKET | ||||||||
HIGH | LOW | |||||||
2008 |
||||||||
First Quarter March 31, 2008 |
$ | 3.17 | $ | 0.96 | ||||
Second Quarter June 30, 2008 |
1.58 | 0.99 | ||||||
Third Quarter September 30, 2008 |
1.37 | 0.74 | ||||||
Fourth Quarter December 31, 2008 |
0.74 | 0.14 | ||||||
2009 |
||||||||
First Quarter March 31, 2009 |
$ | 0.20 | $ | 0.09 | ||||
Second Quarter June 30, 2009 |
0.43 | 0.11 | ||||||
Third Quarter September 30, 2009 |
0.40 | 0.18 | ||||||
Fourth Quarter December 31, 2009 |
0.30 | 0.04 |
As of March 9, 2010, there were approximately 700 shareholders of record of the common shares.
The Company has never declared or paid cash dividends on the common shares. The Companys
ability to pay dividends is currently restricted, among other reasons, pursuant to the Companys
bankruptcy proceedings.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated financial statements and the related
notes thereto, which are included in Item 8 of this Form 10-K. The following discussion is based
upon the Companys results under U.S. generally accepted accounting principles. Unless otherwise
specified, all dollar amounts are U.S. dollars.
Overview
TLC Vision Corporation is an eye care services company dedicated to improving lives through
improving vision by providing high-quality care directly to patients and as a partner with their
doctors and facilities. The majority 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. In its doctor services
business, the Company furnishes doctors
31
Table of Contents
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 currently
provides franchise opportunities to independent optometrists under its Vision Source® brand.
Except as described in the following paragraphs, the Company recognizes revenues at the time
procedures are performed or services are rendered. Revenues primarily include amounts charged to
patients for procedures performed at laser centers, amounts charged to physicians for laser access
and service fees, and management fees from managing refractive and secondary care practices.
Follow-up consultations, which help ensure general patient satisfaction and safety, are free of
separate charge to patients, very short in nature and are therefore considered inconsequential for
revenue deferral, though the Company does accrue at the point of procedure for the minimal
anticipated costs of the follow-up consultations.
The Company offers a portion of its patients extended lifetime warranties, i.e., the TLC
Lifetime Commitment®. Participation in the TLC Lifetime Commitment® program is included in the
surgical price for a specific type of procedure selected by a portion of its patients. Under this
pricing model, the Company accounts for the TLC Lifetime Commitment® program as a warranty
obligation under the provisions of ASC 450, Contingencies. Accordingly, the costs expected to be
incurred to satisfy the obligation are accrued as a liability at the point of sale given the
Companys ability to reasonably estimate such costs based on historical trends and the satisfaction
of all other revenue recognition criteria.
The Company offers an extended TLC Lifetime Commitment® warranty at a separately-priced fee to
customers selecting a lower level base surgical procedure. Under applicable accounting rules, 100%
of revenues and related costs from the sale of the separately priced lifetime warranty are to be
deferred and recognized over the life of the contract on a straight-line basis unless sufficient
experience exists to indicate that the costs to provide the service will be incurred other than on
a straight-line basis. Revenues generated under this program are initially deferred and recognized
over a period of five years based on managements future estimates of re-treatment volume, which
are based on historical warranty claim activity. The Company believes it has sufficient experience
to support recognition on other than a straight-line basis. Accordingly, the Company has deferred
these revenues and are recognizing them over the period in which the future costs of performing the
enhancement procedure are expected to be incurred.
In addition to the deferral of revenues related to the separately-priced TLC Lifetime
Commitment®, the Company has deferred a portion of its costs of service related to professional
fees paid to the attending surgeon when an initial procedure is performed. The physician receives
no incremental fee for an enhancement procedure under the TLC Lifetime Commitment®. Accordingly, a
portion of the professional fee paid at the time of the initial procedure to the attending surgeon
relates to the future enhancement procedures to be performed under the separately-priced TLC
Lifetime Commitment® and qualifies for deferral as a direct and incremental cost. The Company uses
the same historical experience to amortize deferred professional fees that it uses to amortize
deferred revenue. Other costs expected to be incurred if a complication were to occur are accrued
at the point of procedure as part of the Companys general enhancement accrual based on historical
trend estimates.
Under the terms of management service agreements, the Company provides non-clinical services,
which include facilities, staffing, equipment lease and maintenance, marketing and administrative
services to refractive and secondary care practices in return for management fees. For third-party
payor programs and corporations with arrangements with TLCVision, the Companys management fee and
the fee charged by the surgeon are both discounted in proportion to the discount afforded to these
organizations. While the Company does not direct the manner in which the surgeons practice
medicine, the Company does direct the day-to-day non-clinical operations of the centers. The
management service agreements typically are for an extended period of time, ranging from five to 15
years. Management fees are equal to the net revenue of the physician practice, less amounts
retained by the physician groups.
Included in costs of revenue are the laser fees payable to laser manufacturers for royalties,
doctors compensation, use and maintenance of the lasers, variable expenses for consumables and
facility fees, as well as center costs associated with personnel, facilities and depreciation of
center assets.
Marketing and sales and general and administrative expenses include expenses that are not
directly related to the provision of laser correction services or cataract services.
The Company serves surgeons who performed approximately 193,300 procedures, including
refractive and cataract procedures, at the Companys centers or using the Companys equipment
during the year ended December 31, 2009. During the year ended December 31, 2009, the Companys
refractive center and access procedure volume, including minority owned centers, decreased to
112,600 from 149,200 in the year ended December 31, 2008, a decrease of 36,600 procedures (25%).
Being an elective procedure, laser vision correction volumes fluctuate due to changes in economic
and stock market conditions, unemployment rates, consumer confidence and political uncertainty,
which management believes were the primary causes for the significant year over year decline.
Demand for laser vision correction also is affected by perceived safety and effectiveness concerns
given the lack of long-term follow-up data.
32
Table of Contents
Below is a summary of selected operating data, including center locations and procedure
volume, over the trailing five year period:
YEAR ENDED | ||||||||||||||||||||
DECEMBER 31, | ||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||
OPERATING DATA (unaudited) |
||||||||||||||||||||
Number of majority owned eye care
centers
at end of period |
64 | 67 | 66 | 66 | 63 | |||||||||||||||
Number of minority owned eye care
centers
at end of period |
9 | 9 | 14 | 9 | 8 | |||||||||||||||
Number of TLCVision branded eye care
centers at end of period |
73 | 76 | 80 | 75 | 71 | |||||||||||||||
Number of service sites
|
||||||||||||||||||||
Refractive access |
318 | 327 | 327 | 320 | 293 | |||||||||||||||
Mobile cataract |
563 | 689 | 444 | 367 | 367 | |||||||||||||||
Number of laser vision correction
procedures: |
||||||||||||||||||||
Majority owned centers |
101,000 | 101,000 | 105,700 | 88,300 | 63,600 | |||||||||||||||
Minority owned centers |
20,000 | 20,300 | 21,400 | 16,800 | 13,800 | |||||||||||||||
Total TLCVision branded center
procedures |
121,000 | 121,300 | 127,100 | 105,100 | 77,400 | |||||||||||||||
Refractive access procedures |
69,900 | 65,900 | 59,500 | 44,100 | 35,200 | |||||||||||||||
Total TLCVision branded refractive
Procedures |
190,900 | 187,200 | 186,600 | 149,200 | 112,600 | |||||||||||||||
Mobile cataract procedures
(including cataract and
YAG) |
49,000 | 55,700 | 56,900 | 59,500 | 61,900 |
Developments During 2009
Bankruptcy and Reorganization
On December 21, 2009, the Company and two of its wholly owned subsidiaries, TLC Vision (USA)
Corporation and TLC Management Services, Inc., filed the Chapter 11 Petitions in the U.S. Court.
The Chapter 11 cases are being jointly administered under the caption In re TLC Vision (USA)
Corporation, et al., Case No. 09-14473. On the same day, the Company also filed the Canadian
Petition under the CCAA in the Canadian Court. On December 23, 2009, the Canadian Court recognized
the Companys Chapter 11 case as a foreign main proceeding and granted the Company certain other
relief. No other operations of the Company, its affiliates or subsidiaries were involved in the
filings. See Part I, Item 1, Business Bankruptcy Proceedings, for additional information.
Restructuring Activities
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 year ended December 31, 2009 resulted in the closure of three
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 pre-petition financial and legal advisor fees associated with
Credit Facility negotiations.
As a result, the Company incurred pre-petition restructuring charges included in other
expenses totaling $25.9 million for the year ended December 31, 2009, which primarily included
$15.6 million of financial and legal advisor costs, $2.6 million for employee severance and
benefits, $4.5 million for the write-off of investments in and a receivable due from Notal Vision®,
$0.8 million of center restructuring and closing costs, and $1.6 million of losses on the
divestitures of various ambulatory surgical center investments. See Note 4, Restructuring, to the consolidated financial statements in Part II, Item 8, Financial Statements and
Supplementary Data.
All restructuring costs incurred subsequent to the December 21, 2009 bankruptcy filings that
are specifically associated with the Companys post-petition bankruptcy proceedings have been
separately classified as reorganization items, net, on the consolidated statement of operations.
33
Table of Contents
Stock Market Compliance
As of December 31, 2009, the Companys common shares were suspended from trading on both the
NASDAQ and the TSX. The Companys common shares were delisted from the NASDAQ and the TSX effective
January 18, 2010 and January 21, 2010, respectively. The Companys common shares currently trade on
the Over-The-Counter Bulletin Board under the ticker symbol TLCVQ.
Notal Vision® Settlement Agreement
During the year ended December 31, 2009, management explored terminating the Foresee PHP®
system distribution rights between the Company and Notal Vision®, an entity in which the Company
held a minority investment. The distribution rights allowed the Company to sell the Foresee PHP®,
manufactured by Notal Vision®, as a component of the Companys cataract access reporting segment.
Effective December 10, 2009, the Company reached a Settlement Agreement with Notal Vision®.
The Settlement Agreement terminated the exclusive Foresee PHP® distribution agreement in exchange
for the Company surrendering a $2.3 million note receivable due from Notal Vision® and the
forfeiture by the Company of all remaining investments in Notal Vision®. The Settlement Agreement
also eliminated the Companys future contractual purchase obligations of the Foresee PHP®.
As a result of the Settlement Agreement, the Company recorded a $4.5 million charge included
in other expense in the Companys consolidated statement of operations. The charge includes the
$2.3 million note receivable write-down, the elimination of $0.4 million of unpaid interest
included in other long-term assets and the write-down of $1.7 million of Notal Vision® cost method
investments.
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 December 31,
2009, the Company had not paid the $1.6 million Settlement Amount; as such the amount is included in
liabilities subject to compromise in the consolidated balance sheet. See Note 15, Interest Rate
Swap Agreements, to the consolidated financial statements in Part II, Item 8, Financial Statements
and Supplementary Data, for additional information.
TruVision Acquisition Liability
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 was to 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 December 31, 2009, liabilities subject to compromise include $4.4
million, representing the balance owed net of imputed interest, under the restructured TruVision
Agreement and Plan of Merger. As of March 31, 2010, the Company was unable to make a $0.3 million
scheduled payment due October 5, 2009 and a $0.3 million scheduled payment due January 5, 2010 as
part of the restructured TruVision Agreement and Plan of Merger. The remaining liability is
subject to the Companys bankruptcy proceedings further described in Part I, Item 1, Business
Bankruptcy Proceedings.
Acquisitions and Investments
The Companys strategy has historically included acquisitions of, or investments in, entities
that operate within its chosen markets. During the year ended December 31, 2009, the Company made
payments of $5.2 million to invest in multiple entities, none of which was individually material.
Included in acquisition and equity investments are cash payments of approximately $4.0 million
related to the Companys 2005 TruVision acquisition, which were included in the purchase price
allocation.
During 2005, the Company acquired a substantial portion of the assets of Kremer Laser Eye
(Kremer). As of December 31, 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
34
Table of Contents
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 TLCVision 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 year ended December 31, 2009.
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 March
31, 2010, such right has not been exercised and is subject to the Companys bankruptcy proceedings. The $1.9
million has been classified as a liability subject to compromise as of December 31, 2009.
Divestitures
During the year ended December 31, 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.
Critical Accounting Policies
Going Concern
The consolidated financial statements and related notes have been prepared assuming the
Company will continue as a going concern, although the bankruptcy filings raise substantial doubt
about the Companys ability to continue as a going concern. The Companys ability to continue as a
going concern is dependent on restructuring its obligations in a manner that allows it to obtain
confirmation of a plan of reorganization by the Bankruptcy Courts. The consolidated financial
statements do not include any adjustments related to the recoverability and classification of
recorded assets or to the amounts and classification of liabilities or any other adjustments that
might be necessary should the Company be unable to continue as a going concern.
Impairment of Goodwill
The Company accounts for its goodwill in accordance with ASC 350, Intangibles Goodwill and
Other, which requires the Company to test goodwill for impairment annually and whenever events
occur or circumstances change that would more likely than not reduce the fair value of the
reporting unit below its carrying value. ASC 350 requires the Company to determine the fair value
of its reporting units. Because quoted market prices do not exist for the Companys reporting
units, the Company uses a combination of present values of expected future cash flows (i.e. the
income approach) and multiples of earnings (i.e. the market approach) to estimate fair value.
Management must make significant estimates and assumptions about future conditions to estimate
future cash flows and appropriate multiples. If these estimates or related assumptions change in
the future, including general economic and competitive conditions, the Company may be required to
record additional impairment charges related to these assets. During the year ended December 31,
2009, the Company recorded no goodwill impairment charges. During the year ended December 31, 2008,
the Company recorded a $73.4 million impairment charge against goodwill, which is further discussed
in Note 3, Impairment, to the consolidated financial statements in Part II, Item 8, Financial
Statements and Supplementary Data.
Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC 360, Property, Plant and
Equipment, which requires the Company to assess the recoverability of these assets when events or
changes in circumstances indicate that the carrying amount of the long-lived asset (group) might
not be recoverable. If impairment indicators exist, the Company determines whether the projected
35
Table of Contents
undiscounted cash flows will be sufficient to cover the carrying value of such assets. This
requires the Company to make significant judgments about the expected future cash flows of the
asset group. The future cash flows are dependent on many factors including general and economic
conditions and are subject to change. A change in these assumptions could result in material
charges to income.
Recoverability of Deferred Tax Assets
The Company has generated deferred tax assets and liabilities due to temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
income tax bases of such assets and liabilities. Valuation allowances are recorded to reduce
deferred tax assets to the amount expected to be realized. In assessing the adequacy of the
valuation allowances, the Company considers the scheduled reversal of deferred tax liabilities,
future taxable income and prudent and feasible tax planning strategies. At December 31, 2009, the
Company had valuation allowances of $147.2 million to fully
offset deferred tax assets of $147.2
million. The valuation allowance was based on the uncertainty of the realizability of certain
deferred tax assets. In the event the Company determines it is more likely than not it will be able
to use a deferred tax asset in the future in excess of its net carrying value, the valuation
allowance would be reduced, thereby increasing net income, reducing goodwill or increasing equity
in the period such determination is made.
Accrual of Medical Malpractice Claims
The nature of the Companys business is such that it is subject to medical malpractice
lawsuits. To mitigate a portion of this risk, the Company maintains insurance in the United States
for individual malpractice claims with a deductible of $250,000 per claim for claims filed prior to
May 1, 2009 and $50,000 per claim for those filed subsequent to May 1, 2009. Management and the
Companys insurance carrier review malpractice lawsuits for purposes of establishing ultimate loss
estimates. The Company has recorded reserves to cover the estimated costs of the deductible for
both reported and unreported medical malpractice claims incurred. The estimates are based on the
average monthly claims expense and the estimated average time lag between the performance of a
procedure and notification of a claim. If the number of claims or the cost of settled claims is
higher than the Companys historical experience or if the actual time lag varies from the estimated
time lag, the Company may need to record significant additional expense.
The
Companys medical malpractice liability, which is immaterial
for quantitative disclosure at December 31, 2009 and 2008, is included in liabilities subject
to compromise, accrued liabilities and other long-term liabilities.
Accrued Enhancement
The Company offers a portion of its patients extended lifetime warranties, i.e., the TLC
Lifetime Commitment®. Participation in the TLC Lifetime Commitment® program is included in the
surgical price for a specific type of procedure selected by a portion of the Companys patients.
Under this pricing model, the Company accounts for the TLC Lifetime Commitment® program as a
warranty obligation under the provisions of ASC 450, Contingencies. Accordingly, the costs expected
to be incurred to satisfy the obligation are accrued as a liability at the point of sale given our
ability to reasonably estimate such costs based on historical trends and the satisfaction of all
other revenue recognition criteria.
Deferred Revenues
The Company offers an extended TLC Lifetime Commitment® warranty at a separately-priced fee to
customers selecting a lower level base surgical procedure. Under applicable accounting rules, 100%
of revenues and related costs from the sale of the separately priced lifetime warranty are to be
deferred and recognized over the life of the contract on a straight-line basis unless sufficient
experience exists to indicate that the costs to provide the service will be incurred other than on
a straight-line basis. Revenues generated under this program are initially deferred and recognized
over a period of five years based on managements future estimates of re-treatment volume, which
are based on historical warranty claim activity. The Company believes it has sufficient experience
to support recognition on other than a straight-line basis. Accordingly, the Company has deferred
these revenues and is recognizing them over the period in which the future costs of performing the
enhancement procedure are expected to be incurred.
In addition to the deferral of revenues related to the separately-priced TLC Lifetime
Commitment®, the Company has deferred a portion of its costs of service related to professional
fees paid to the attending surgeon when an initial procedure is performed. The physician receives
no incremental fee for an enhancement procedure under the TLC Lifetime Commitment®. Accordingly, a
portion of the professional fee paid at the time of the initial procedure to the attending surgeon
relates to the future enhancement procedures to be performed under the separately-priced TLC
Lifetime Commitment® and qualifies for deferral as a direct and incremental cost. The Company uses
the same historical experience to amortize deferred professional fees that it uses to amortize
deferred revenue. Other
36
Table of Contents
costs expected to be incurred if a complication were to occur are accrued at the point of
procedure as part of the Companys general enhancement accrual based on historical trend estimates.
The deferred revenue balances related to the TLC Lifetime Commitment® at December 31, 2009 and
2008 totaled $0.8 million and $1.1 million, respectively.
Liabilities Subject to Compromise
Liabilities subject to compromise represent unsecured obligations that will be accounted for
under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of
pre-Chapter 11 or CCAA liabilities are stayed. Pre-petition liabilities that are subject to
compromise are reported at the amounts expected to be allowed, even if they may be settled for
lesser amounts. These liabilities represent the amounts expected to be allowed on known or
potential claims to be resolved through the Chapter 11 and CCAA process, and remain subject to
future adjustments arising from negotiated settlements, actions of the Bankruptcy Courts, rejection
of executory contracts and unexpired leases, the determination as to the value of collateral
securing the claims, proofs of claim, or other events. Liabilities subject to compromise also
include certain items that may be assumed under the current proposed plan of reorganization, and as
such, may be subsequently reclassified to liabilities not subject to compromise. Differences
between liability amounts estimated and claims filed by creditors are being investigated and, if
necessary, the Bankruptcy Courts will make a final determination of the allowable claim. The
determination of how liabilities will ultimately be treated cannot be made until the Bankruptcy
Courts approve a plan of reorganization. Accordingly, the ultimate amount or treatment of such
liabilities is not determinable at this time.
Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
Total revenues for the year ended December 31, 2009 were $230.2 million, a decrease of $45.5
million (17%) from revenues of $275.7 million for the year ended December 31, 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 year ended December 31, 2009 were $107.3 million,
a decrease of $44.1 million (29%) from revenues of $151.4 million for the year ended December
31, 2008. The decrease in revenues from refractive centers resulted primarily from lower center
procedure volume, which accounted for a decrease in revenues of approximately $39.9 million. The
remaining revenue decline of $4.2 million was the result of decreased revenue per procedure. For
the year ended December 31, 2009, majority-owned center procedures were approximately 63,600, a
decrease of 24,700 (28%) from 88,300 procedures for the year ended December 31, 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 year ended December 31, 2009 were $91.9 million, a
decrease of $3.7 million (4%) from revenues of $95.6 million for the year ended December 31,
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.
| Revenues from the refractive access services segment for the year ended December 31, 2009 were $24.0 million, a decrease of $5.2 million (18%) from revenues of $29.2 million for the year ended December 31, 2008. For the year ended December 31, 2009, excimer procedures declined by 9,000 (20%) from the prior year period on lower customer demand, which accounted for a decrease in revenues of approximately $5.9 million. This decrease was partially offset by higher average pricing and mobile Intralase revenues, which together increased revenues by approximately $0.7 million. | ||
| Revenues from the Companys mobile cataract segment for the year ended December 31, 2009 were $41.8 million, an increase of $0.9 million (2%) from revenues of $40.9 million for the year ended December 31, 2008. The increase in mobile cataract revenue was due to increased surgical procedure volume of 4% and higher surgical average sales price of 3%, partially offset by a $1.4 million (50%) decline in Foresee PHP® revenue on a 49% unit volume reduction on weakened consumer spending and the 4th quarter 2009 termination of the Foresee PHP® distribution agreement. | ||
| Revenues from the Companys businesses that manage cataract and secondary care centers for the year ended December 31, 2009 were $26.1 million, an increase of $0.6 million (2%) from revenues of $25.5 million for the year ended December 31, 2008. The revenue increase was primarily due to an increase in procedure volume and higher priced |
37
Table of Contents
product mix at the Companys remaining ambulatory surgical centers, partially offset by the early third quarter 2009 disposal of a majority-owned ambulatory surgical center, which contributed 1,900 procedures during the year ended December 31, 2009 compared to 3,200 procedures during the year ended December 31, 2008. |
Revenues from eye care for the year ended December 31, 2009 were $31.0 million, an increase
of $2.4 million (8%) from revenues of $28.6 million for the year ended December 31, 2008. This
increase was primarily due to a 10% increase in the total number of franchisees.
Total cost of revenues (excluding amortization expense for all segments) for the year ended
December 31, 2009 was $167.0 million, a decrease of $27.9 million (14%) from the cost of revenues
of $194.9 million for the year ended December 31, 2008.
The cost of revenues from refractive centers for the year ended December 31, 2009 was $83.8
million, a decrease of $27.0 million (24%) from cost of revenues of $110.8 million for the year
ended December 31, 2008. This decrease was attributable to a $13.7 million cost of revenue
decline related to lower procedure volume, $12.7 million in fixed cost reductions and $0.6
million in decreased variable costs per procedure. Gross margin for centers was 21.9% during the
year ended December 31, 2009, down from prior year gross margin of 26.8% 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 year ended December 31, 2009 was $68.3
million, a decrease of $2.8 million (4%) from cost of revenues of $71.1 million for the year
ended December 31, 2008. Gross margins increased to 25.7% during the year ended December 31,
2009 from 25.6% in the prior year period. The decrease in cost of revenues was due to the
following:
| The cost of revenues from refractive access segment for the year ended December 31, 2009 was $19.2 million, a decrease of $4.4 million (19%) from cost of revenues of $23.6 million for the year ended December 31, 2008. This decrease was primarily attributable to $4.8 million of lower costs associated with decreased excimer procedures, partially offset by an increase in cost of revenues of $0.4 million primarily associated with higher cost procedures and the mobile Intralase offering. | ||
| The cost of revenues from the Companys mobile cataract segment for the year ended December 31, 2009 was $31.3 million, an increase of $1.0 million (3%) from cost of revenues of $30.3 million for the year ended December 31, 2008. This increase was primarily due to higher surgical procedure volume of 4%, higher lens supply costs and a $0.8 million PHP Foresee® inventory write-down, partially offset by lower costs associated with a 49% decline in PHP Foresee® unit volume. | ||
| The cost of revenues from the Companys businesses that manage cataract and secondary care centers for the year ended December 31, 2009 was $17.8 million, an increase of $0.6 million (4%) from cost of revenues of $17.2 million for the year ended December 31, 2008. The increase in cost of revenues was caused primarily by an increase in procedure volume and higher per procedure cataract lens cost at the Companys remaining ambulatory surgical centers, partially offset by a cost of revenues decline on lower procedure volume associated with the majority-owned ambulatory surgical center sold during 2009. |
The cost of revenues from eye care for the year ended December 31, 2009 was $14.9 million,
an increase of $1.9 million (15%) from cost of revenues of $13.0 million for the year ended
December 31, 2008. The increase was due to a 10% increase in franchisee locations and increased
professional fees of $0.7 million. Gross margins fell to 51.8% during the year ended December
31, 2009 from 54.5% in the prior year period, primarily due to the increase in professional
fees.
General and administrative expenses of $24.1 million for the year ended December 31, 2009
decreased $3.9 million from $28.0 million for the year ended December 31, 2008. The decrease was
primarily related to a decrease of $2.8 million (19%) in employee related expenses, a $1.1 million
(21%) decline in non-restructuring professional fees and lower overall discretionary spending,
partially offset by an unfavorable change of $2.3 million in foreign exchange expense related to
the Companys Canadian operations.
Marketing expenses decreased to $21.9 million for the year ended December 31, 2009 from $42.7
million for the year ended December 31, 2008. The $20.8 million (49%) decrease was primarily due to
a reduction in refractive center marketing spend, down $18.9 million (61%) in order to reduce costs
during the economic downturn. Also contributing to the marketing decline was mobile cataract
marketing spend, down $1.4 million (21%) on lower advertising and marketing costs related to the
Foresee PHP®.
38
Table of Contents
Amortization of intangibles decreased to $2.3 million for the year ended December 31, 2009
from $3.2 million for the year ended December 31, 2008. The $0.9 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 year ended December 31, 2009, the Company recorded $1.0 million in impairment
charges primarily comprised of a $0.5 million impairment of a trade name intangible, a $0.3 million
impairment of a cost method investment, and a $0.2 million write-off of a leasehold improvement at
a refractive center.
During the year ended December 31, 2008, the Company recorded an impairment loss of $85.0
million. The impairment loss was primarily the result of the Companys annual impairment analysis
required under ASC 350, Intangibles Goodwill and Other, which resulted in an impairment loss
reducing the carrying amounts of goodwill by $73.4 million, primarily in the refractive centers
segment. In addition, the Company recorded impairment charges for definite-lived intangible assets,
other long-term assets and fixed assets within various segments. The impairment loss was generally
the result of the overall refractive market decline experienced by the Company, which led to an
overall decline in fair value of various reporting units of the Company.
Other operating expenses increased to $25.8 million for the year ended December 31, 2009 from
other operating income of $0.3 million for the year ended December 31, 2008. The $26.1 million
unfavorable change was primarily related to center restructuring and closing costs of $0.8 million,
employee severance expense of $2.6 million, $15.6 million of pre-petition financial and legal
advisor expenses, a $4.5 million loss on the write-off of receivables due from and investments in
Notal Vision®, and a $1.6 million loss incurred on the divestiture of three ambulatory surgical
center investments.
Interest income decreased to $0.2 million for the year ended December 31, 2009 from $0.7
million for the year ended December 31, 2008. This $0.5 million decrease was primarily due to lower
interest earnings related to lower average cash and short-term investment balances over the prior
year.
Interest expense increased to $12.6 million for the year ended December 31, 2009 from $10.1
million for the year ended December 31, 2008. This $2.5 million increase was primarily due the
termination of the Companys interest rate swap, which was reclassified to interest expense from
other comprehensive loss during 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 year ended December 31, 2009 and 2008 was approximately 9.8% 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 $1.3 million for the year ended December 31, 2009
compared to losses of $0.6 million for the year ended December 31, 2008. The $1.9 million favorable
change primarily resulted from the Company no longer recognizing losses generated by the Companys
investment in Laser Eye Centers of California (LECC) as the investment balance in LECC was reduced
to zero during 2008 due to the cumulative effect of historical losses incurred.
Reorganization items, net, of $3.2 million for the year ended December 31, 2009 include a $2.6
million loss on the post-petition rejection of an unexpired lease and $0.6 million in professional
fees directly related to post-petition fees associated with advisors to the Debtor and certain
secured creditors.
Net loss attributable to TLC Vision Corporation for the year ended December 31, 2009 was
($36.7) million, or ($0.73) per basic and diluted share, compared to ($98.3) million, or ($1.95)
per basic and diluted share, for the year ended December 31, 2008.
Liquidity and Capital Resources
Since the bankruptcy Petitions Date, as further described in Part I, Item 1, Business -
Bankruptcy Proceedings, our liquidity position has improved. At December 31, 2009, we had
unrestricted cash and cash equivalents of $14.6 million compared to $4.5 million at December 31,
2008. The improvement in liquidity primarily resulted from $17.4 million of additional net
borrowings under the revolving portion of the Companys pre-petition Credit Facility, advances of
$7.5 million under the Senior DIP Credit Agreement and general savings on various cost reduction
initiatives implemented during 2009, partially offset by restructuring and reorganization costs.
39
Table of Contents
The following table presents a summary of our cash flows for the years ended December 31:
2009 | 2008 | |||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | 4,768 | $ | 15,823 | ||||
Investing activities |
(2,306 | ) | (8,076 | ) | ||||
Financing activities |
7,669 | (16,180 | ) | |||||
Net increase (decrease) in cash |
$ | 10,131 | $ | (8,433 | ) | |||
Cash Provided By Operating Activities
Net cash provided by operating activities was $4.8 million for the year ended December 31,
2009. The cash flows provided by operating activities during the year ended December 31, 2009 were
primarily comprised of the ($27.3) million net loss plus non-cash items including depreciation and
amortization of $15.9 million, a $2.6 million loss on a post-petition rejection of an unexpired
lease, a write-off of Notal Vision® related assets of $4.5 million, intangible impairment charges
of $1.0 million, loss on business divestitures of $1.6 million, non-cash compensation charges of
$0.9 million, an inventory write-down of $0.8 million and a $5.5 million change in working capital,
partially offset by earnings from equity investments of $1.3 million. Our 2009 cash flow from
operating activities was favorably impacted by the say of payment of liabilities subject to
compromise, including accounts payable and interest payable, resulting from the bankruptcy filings.
Cash Used In Investing Activities
Net cash used in investing activities was $2.3 million for the year ended December 31, 2009.
The cash used in investing activities included capital expenditures of $2.0 million and
acquisitions and investments of $5.2 million. These cash outflows were partially offset by $1.8
million of distributions and loan payments received from equity investments, proceeds from the
sales of fixed assets of $0.9 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 $7.7 million for the year ended December 31,
2009. Net cash provided during this period was primarily related to proceeds from
debtor-in-possession financing of $7.5 million and other debt, primarily Credit Facility related,
financing of $18.4 million. Partially offsetting the cash provided by financing activities were
cash outflows due to principal payments of debt of $6.1 million, distributions to noncontrolling
interests of $10.3 million and an increase to the Companys restricted cash balance of $1.0
million.
Debtor-in-Possession Financing
In connection with filing the Chapter 11 Petitions and the Canadian Petition, on December 21,
2009, the Debtor Entities filed motions with the Bankruptcy Courts seeking approval to enter into a
post-petition credit agreement. On December 22, 2009, the U.S. Court issued an interim order
approving the Companys motion to obtain a Senior DIP Credit Agreement. On December 23, 2009, the
Canadian Court granted a recognition order relating to the orders received by the Company from the
U.S. Court. The Senior DIP Credit Agreement, dated December 23, 2009 was among the Company, various
lenders and Cantor Fitzgerald Securities as collateral and administrative agent.
The Senior DIP Credit Agreement provided for financing of a senior secured super priority term
loan facility in a principal amount up to $15.0 million among the Company and various prepetition
lenders of the Companys Credit Facility. The Company may withdraw a maximum of two term loan
advances and only if the amount of the Companys controlled cash, as defined in the Senior DIP
Credit Agreement, is less than $3.0 million.
The maximum maturity date of the borrowings under the Senior DIP Credit Agreement is the
earlier of (a) 150 days after December 21, 2009, (b) the effective date of a plan of
reorganization, (c) the date on which a sale or sales of all or substantially all of the Companys
assets is consummated under Section 363 of the Bankruptcy Code, (d) the date of conversion of any
of the bankruptcy cases to a case under Chapter 7 of the Bankruptcy Code or any equivalent
proceeding in the Canadian Case, (e) a proposal or liquidation of any or all of the assets of the
Company under the Bankruptcy and Insolvency Act (Canada), (f) the dismissal of any of the
bankruptcy cases, or (g) approval by the Bankruptcy Courts of any other debtor-in-possession
financing for the Company.
Borrowings under the term loans accrue interest at a rate per annum equal to the sum of the
London Interbank Offered Rate (LIBOR) plus 10.0% per annum, payable in cash in arrears on the last
day of any interest period and the date any term loan is paid in
40
Table of Contents
full. In the event of default, as defined under the Senior DIP Credit Agreement, the principal
amount of all term loans and all other due and unpaid obligations bear interest at an additional
default rate of 2.00%.
Prepayments are permitted provided that each partial prepayment is in an aggregate principal
amount of $0.5 million or integral multiples thereof. Upon payment in full of the Senior DIP Credit
Agreement, an exit fee equal to 2.00% of the aggregate principal amount outstanding under the
Senior DIP Credit Agreement is due to the lenders.
On December 24, 2009, the Company borrowed $7.5 million under the Senior DIP Credit Agreement,
accruing interest at a rate of 13.0%. As of December 31, 2009, all advances remained outstanding
and are classified as liabilities not subject to compromise in the consolidated financial
statements.
In conjunction with the borrowings, the Company capitalized in other current assets $0.7
million of DIP financing costs, which are being amortized over a period of 150 days.
The Senior DIP Credit Agreement contained various affirmative, negative, reporting and
financial covenants. The covenants, among other things, placed restrictions on the Companys
ability to acquire and sell assets, incur additional debt and required the Company to maintain
minimum liquidity levels. A breach of any covenant would constitute an event of default as further
defined in the Senior DIP Credit Agreement.
Subsequent to December 31, 2009, the Company entered into a junior secured super priority
debtor-in-possession credit agreement (Junior DIP Credit Agreement). The Junior DIP Credit
Agreement provides for financing of a junior secured super priority term loan facility in a
principal amount of up to $25 million. On February 25, 2010, the Company borrowed $10.0 million
under the Junior DIP Credit Agreement and used the funds, among other things, to pay in full the
outstanding principal balance of $7.5 million under the Senior DIP Credit Agreement. The payment
resulted in the termination of the Senior DIP Credit Agreement and triggered an exit fee of $0.2
million paid on February 25, 2010. For additional information regarding the terms of the Junior DIP
Credit Agreement refer to Note 27, Subsequent Events, of the consolidated financial statements for
additional information.
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:
| 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 December 31, 2009, $76.7 million was outstanding on this portion of the facility which is classified as liabilities subject to compromise as the liability is undersecured. | ||
| A revolving credit facility, totaling $25.0 million with a five-year term. As of December 31, 2009, the Company had $23.4 million outstanding under this portion of the facility which is classified as liabilities subject to compromise as the liability is undersecured. |
Upon the filing of the Chapter 11 petitions, certain of the Companys Credit Facility
obligations became automatically and immediately due and payable, subject to an automatic stay of
any action to collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result of the bankruptcy petitions and due to the Credit Facility
obligations being undersecured by the net assets of the Company, $100.1 million of the Companys
pre-petition Credit Facility debt is included in liabilities subject to compromise on the
consolidated balance sheet at December 31, 2009. The Company classifies pre-petition liabilities
subject to compromise as a long-term liability because management does not believe the Company will
use existing current assets or create additional current liabilities to fund these obligations.
Interest on the facility is calculated based on either prime rate or the 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 December 31, 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.
41
Table of Contents
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 and into 2009, the Company
was unable to satisfy various financial covenants. As a result, the Company received from its
lenders numerous waivers, consents and amendments to the Credit Agreement during the year ended
December 31, 2009. All waivers, consents and amendments to the Credit Agreement are filed with the
SEC. The filing of the bankruptcy petitions also constituted an event of default under the Credit
Facility. As of December 31, 2009, the Company was operating without a waiver of default resulting
in all obligations under the Credit Facility being automatically and immediately due and payable,
subject to the automatic stay of any action to collect, assert, or recover a claim against the
Company and the application of applicable bankruptcy law.
Immediately prior to the time of filing the Chapter 11 Petitions, the Company had failed to
make various mandatory contractual payments under its Credit Facility, as amended. Such payments
included interest on the term and revolving credit advances of $5.0 million, principal payments on
term advances of $0.4 million and $1.4 million of other mandatory payments.
New Accounting Pronouncements
For a discussion on prospective accounting pronouncements, see Note 2, Summary of Significant
Accounting Policies, in the accompanying audited consolidated financial statements and notes
thereto set forth in Part II, Item 8 of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Responsibility for Financial Statements
The accompanying consolidated financial statements of TLC Vision Corporation have been
prepared by management in conformity with accounting principles generally accepted in the United
States. The significant accounting policies have been set out in the consolidated financial
statements. These statements are presented on the accrual basis of accounting. Accordingly, a
precise determination of many assets and liabilities is dependent upon future events. Therefore,
estimates and approximations have been made using careful judgment. Recognizing that the Company is
responsible for both the integrity and objectivity of the financial statements, management is
satisfied that these financial statements have been prepared within reasonable limits of
materiality under United States generally accepted accounting principles.
During the year ended December 31, 2009, the Board of Directors had an Audit Committee
consisting of four non-management directors. The committee met with management and the auditors to
review any significant accounting, internal control and auditing matters and to review and finalize
the annual financial statements of the Company along with the report of independent registered
public accounting firm prior to the submission of the financial statements to the Board of
Directors for final approval.
The financial information throughout the text of this Annual Report is consistent with the
information presented in the financial statements.
The Companys accounting procedures and related systems of internal control are designed to
provide reasonable assurance that its assets are safeguarded and its financial records are
reliable.
42
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
TLC Vision Corporation
TLC Vision Corporation
We have audited the accompanying consolidated balance sheets of TLC Vision Corporation (the
Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations,
stockholders equity (deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal control over
financial reporting. Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of TLC Vision Corporation at December 31, 2009 and
2008, and the consolidated results of its operations and its cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that TLC Vision
Corporation will continue as a going concern. As more fully described in Note 1, the Company filed
a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code and
Companies Creditors Arrangement Act in Canada on December 21, 2009, which raises substantial doubt
about the Companys ability to continue as a going concern. Managements plans in regard to this
matter are also described in Note 1. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the outcome of this
uncertainty.
As discussed in Note 2 to the consolidated financial statements, on January 1, 2009, the
Company changed its method for accounting for noncontrolling interests.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 31, 2010
March 31, 2010
43
Table of Contents
TLC VISION CORPORATION
(DEBTOR-IN-POSSESION)
(DEBTOR-IN-POSSESION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
YEAR ENDED | ||||||||
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Revenues: |
||||||||
Refractive centers |
$ | 107,326 | $ | 151,442 | ||||
Doctor services |
91,895 | 95,615 | ||||||
Eye care |
30,969 | 28,611 | ||||||
Total revenues |
230,190 | 275,668 | ||||||
Cost of revenues (excluding amortization expense shown below): |
||||||||
Refractive centers |
83,812 | 110,824 | ||||||
Doctor services |
68,278 | 71,104 | ||||||
Eye care |
14,916 | 13,010 | ||||||
Total cost of revenues (excluding amortization expense shown below) |
167,006 | 194,938 | ||||||
Gross profit |
63,184 | 80,730 | ||||||
General and administrative |
24,052 | 28,016 | ||||||
Marketing and sales |
21,935 | 42,725 | ||||||
Amortization of intangibles |
2,321 | 3,233 | ||||||
Impairment of goodwill, intangibles and other assets |
1,018 | 85,047 | ||||||
Other expense (income), net (See Note 18) |
25,826 | (339 | ) | |||||
75,152 | 158,682 | |||||||
Operating loss |
(11,968 | ) | (77,952 | ) | ||||
Interest income |
167 | 734 | ||||||
Interest expense |
(12,585 | ) | (10,072 | ) | ||||
Earnings (losses) from equity investments |
1,307 | (560 | ) | |||||
Loss before reorganization items and income taxes |
(23,079 | ) | (87,850 | ) | ||||
Reorganization items, net |
(3,229 | ) | | |||||
Loss before income tax expense |
(26,308 | ) | (87,850 | ) | ||||
Income tax expense |
(948 | ) | (874 | ) | ||||
Net loss |
(27,256 | ) | (88,724 | ) | ||||
Less: Net income attributable to noncontrolling interest |
9,468 | 9,530 | ||||||
Net loss attributable to TLC Vision Corporation |
$ | (36,724 | ) | $ | (98,254 | ) | ||
Net loss per share attributable to TLC Vision Corporation: |
||||||||
Basic |
$ | (0.73 | ) | $ | (1.95 | ) | ||
Diluted |
$ | (0.73 | ) | $ | (1.95 | ) | ||
Weighted average number of common shares outstanding: |
||||||||
Basic |
50,554 | 50,319 | ||||||
Diluted |
50,554 | 50,319 |
See notes to consolidated financial statements.
44
Table of Contents
TLC VISION CORPORATION
(DEBTOR-IN-POSSESSION)
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(In thousands)
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 14,623 | $ | 4,492 | ||||
Accounts receivable, net |
16,824 | 16,870 | ||||||
Prepaid expenses, inventory and other |
10,829 | 14,214 | ||||||
Total current assets |
42,276 | 35,576 | ||||||
Restricted cash |
1,033 | | ||||||
Investments and other assets, net |
2,875 | 11,694 | ||||||
Goodwill |
26,755 | 28,570 | ||||||
Other intangible assets, net |
7,680 | 10,628 | ||||||
Fixed assets, net |
34,297 | 50,514 | ||||||
Total assets |
$ | 114,916 | $ | 136,982 | ||||
LIABILITIES |
||||||||
Liabilities not subject to compromise |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 8,636 | $ | 17,897 | ||||
Accrued liabilities |
12,175 | 28,076 | ||||||
Current maturities of long-term debt |
10,049 | 89,081 | ||||||
Total current liabilities |
30,860 | 135,054 | ||||||
Other long-term liabilities |
2,208 | 5,444 | ||||||
Long-term debt, less current maturities |
4,800 | 16,500 | ||||||
Total liabilities not subject to compromise |
37,868 | 156,998 | ||||||
Liabilities subject to compromise |
134,444 | | ||||||
Total liabilities |
172,312 | 156,998 | ||||||
STOCKHOLDERS DEFICIT |
||||||||
Common stock, no par value; unlimited number authorized |
340,059 | 339,112 | ||||||
Option and warrant equity |
745 | 745 | ||||||
Accumulated other comprehensive loss |
| (1,545 | ) | |||||
Accumulated deficit |
(410,382 | ) | (373,658 | ) | ||||
Total TLC Vision Corporation stockholders deficit |
(69,578 | ) | (35,346 | ) | ||||
Noncontrolling interest |
12,182 | 15,330 | ||||||
Total stockholders deficit |
(57,396 | ) | (20,016 | ) | ||||
Total liabilities and stockholders deficit |
$ | 114,916 | $ | 136,982 | ||||
See notes to consolidated financial statements.
Approved on behalf of the Board:
/s/ WARREN S. RUSTAND | ||||
Warren S. Rustand, Chairman of the Board |
45
Table of Contents
TLC VISION CORPORATION
(DEBTOR-IN-POSSESSION)
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
OPERATING ACTIVITIES |
||||||||
Net loss |
$ | (27,256 | ) | $ | (88,724 | ) | ||
Adjustments to reconcile net income to net cash from operating |
||||||||
activities: |
||||||||
Depreciation and amortization |
15,908 | 19,670 | ||||||
Impairment of goodwill, intangibles and other assets |
1,018 | 85,047 | ||||||
(Earnings) loss from equity investments |
(1,307 | ) | 560 | |||||
Gain on sales and disposals of fixed assets |
(338 | ) | (269 | ) | ||||
Loss (gain) on business divestitures |
1,594 | (139 | ) | |||||
Non-cash compensation expense |
925 | 1,391 | ||||||
Write-down of Foresee PHP® inventory |
803 | | ||||||
Write-off of receivables due from and investments in Notal Vision® |
4,458 | | ||||||
Loss on building abandonment, net |
2,588 | | ||||||
Other |
838 | 561 | ||||||
Changes in operating assets and liabilities, net of acquisitions and dispositions: |
||||||||
Accounts receivable |
(423 | ) | (626 | ) | ||||
Prepaid expenses, inventory and other current assets |
2,706 | 704 | ||||||
Accounts payable and accrued liabilities |
3,254 | (2,352 | ) | |||||
Cash provided by operating activities |
4,768 | 15,823 | ||||||
INVESTING ACTIVITIES |
||||||||
Purchases of fixed assets |
(1,967 | ) | (3,534 | ) | ||||
Proceeds from sales of fixed assets |
889 | 1,259 | ||||||
Distributions and loan payments received from equity investments |
1,838 | 2,107 | ||||||
Acquisitions and equity investments |
(5,183 | ) | (8,862 | ) | ||||
Proceeds from divestitures of businesses and other investments |
2,181 | 1,281 | ||||||
Other |
(64 | ) | (327 | ) | ||||
Cash used in investing activities |
(2,306 | ) | (8,076 | ) | ||||
FINANCING ACTIVITIES |
||||||||
(Increase) decrease in restricted cash |
(1,033 | ) | 1,101 | |||||
Proceeds from debtor-in-possession financing |
7,500 | | ||||||
Proceeds from Credit Facility and other debt financing |
18,417 | 25,392 | ||||||
Principal payments of debt financing and capital leases |
(6,088 | ) | (33,070 | ) | ||||
Deferred Credit Facility debt issuance costs |
(78 | ) | (534 | ) | ||||
Debtor-in-possession debt issuance costs |
(750 | ) | | |||||
Distributions to noncontrolling interests |
(10,321 | ) | (9,424 | ) | ||||
Proceeds from issuances of common stock |
22 | 355 | ||||||
Cash provided by (used in) financing activities |
7,669 | (16,180 | ) | |||||
Net increase (decrease) in cash and cash equivalents during the period |
10,131 | (8,433 | ) | |||||
Cash and cash equivalents, beginning of period |
4,492 | 12,925 | ||||||
Cash and cash equivalents, end of period |
$ | 14,623 | $ | 4,492 | ||||
See notes to consolidated financial statements.
46
Table of Contents
TLC VISION CORPORATION
(DEBTOR-IN-POSSESSION)
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(In thousands)
OPTION | TOTAL TLC VISION | |||||||||||||||||||||||||||||||
AND` | CORPORATION | |||||||||||||||||||||||||||||||
COMMON STOCK | WARRANT | ACCUMULATED OTHER | STOCKHOLDERS | NONCONTROLLING | ||||||||||||||||||||||||||||
SHARES | AMOUNT | EQUITY | COMPREHENSIVE LOSS | ACCUMULATED DEFICIT | EQUITY (DEFICIT) | INTEREST | TOTAL | |||||||||||||||||||||||||
Balance December 31, 2007 |
50,140 | $ | 337,473 | $ | 837 | $ | (784 | ) | $ | (275,404 | ) | $ | 62,122 | $ | 15,224 | $ | 77,346 | |||||||||||||||
Shares issued as part of the
employee share purchase plan
and 401(k) plan |
180 | 185 | 185 | 185 | ||||||||||||||||||||||||||||
Exercise of stock options |
86 | 259 | (89 | ) | 170 | 170 | ||||||||||||||||||||||||||
Options expired or forfeited |
3 | (3 | ) | | | |||||||||||||||||||||||||||
Stock based compensation |
1,391 | 1,391 | 1,391 | |||||||||||||||||||||||||||||
Changes in subsidiaries
stockholders equity |
(199 | ) | (199 | ) | (199 | ) | ||||||||||||||||||||||||||
Distributions to
noncontrolling interests |
| (9,424 | ) | (9,424 | ) | |||||||||||||||||||||||||||
Comprehensive loss Deferred hedge activity |
(761 | ) | (761 | ) | (761 | ) | ||||||||||||||||||||||||||
Net (loss) income |
(98,254 | ) | (98,254 | ) | 9,530 | (88,724 | ) | |||||||||||||||||||||||||
Balance December 31, 2008 |
50,406 | $ | 339,112 | $ | 745 | $ | (1,545 | ) | $ | (373,658 | ) | $ | (35,346 | ) | $ | 15,330 | $ | (20,016 | ) | |||||||||||||
Shares issued as part of the
employee share purchase plan
and 401(k) plan |
159 | 22 | 22 | 22 | ||||||||||||||||||||||||||||
Stock based compensation |
925 | 925 | 925 | |||||||||||||||||||||||||||||
Distributions to
noncontrolling interests |
| (10,321 | ) | (10,321 | ) | |||||||||||||||||||||||||||
Divestitures and other
noncontrolling interest
activity |
| (2,295 | ) | (2,295 | ) | |||||||||||||||||||||||||||
Comprehensive loss Deferred hedge activity |
1,545 | 1,545 | 1,545 | |||||||||||||||||||||||||||||
Net (loss) income |
(36,724 | ) | (36,724 | ) | 9,468 | (27,256 | ) | |||||||||||||||||||||||||
Balance December 31, 2009 |
50,565 | $ | 340,059 | $ | 745 | $ | | $ | (410,382 | ) | $ | (69,578 | ) | $ | 12,182 | $ | (57,396 | ) | ||||||||||||||
See notes to consolidated financial statements.
47
Table of Contents
TLC VISION CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands, except per share amounts)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands, except per share amounts)
1. Bankruptcy Proceedings
Chapter 11 Bankruptcy Filings
On December 21, 2009 (the Petitions Date), the Company and two of its wholly owned
subsidiaries, TLC Vision (USA) Corporation and TLC Management Services, Inc., (Debtor Entities)
filed voluntary petitions (Chapter 11 Petitions) under Chapter 11 of Title 11 of the U.S. Code
(Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (U.S. Court).
The Chapter 11 cases are being jointly administered under the caption In re TLC Vision (USA)
Corporation, et al., Case No. 09-14473. On the same day, the Company also filed ancillary
proceedings in Canada (Canadian Petition) under the Canadian Companies Creditors Arrangement Act
(CCAA) in the Ontario Superior Court of Justice (the Canadian Court). On December 23, 2009, the
Canadian Court recognized the Companys Chapter 11 case as a foreign main proceeding and granted
the Company certain other relief. No other operations of the Company, its affiliates or
subsidiaries were involved in the filings.
The filing of the Chapter 11 Petitions constituted an event of default under certain of the
Companys debt obligations, and those debt obligations became automatically and immediately due and
payable, although any actions to enforce such payment obligations were stayed as a result of the
filing of the Chapter 11 Petitions and the Canadian Petition.
The December 21, 2009 petitions were submitted to expedite the Companys financial
restructuring through a pre-arranged plan of reorganization. On January 6, 2010, the Debtor
Entities filed a joint plan of reorganization (Plan of Reorganization) with the U.S. Court. The
Plan of Reorganization provided for, among other things, a conversion of certain indebtedness to
100% of the new equity of TLC Vision (USA) Corporation, which would emerge as a privately held
Company owned by certain pre-petition senior secured creditors. There was no assurance of any
distribution of funds to the stockholders of the Company under the Plan of Reorganization.
On February 3, 2010, the Debtor Entities filed the first amended joint plan of reorganization
(First Amended Plan). The First Amended Plan was backed by affiliates of a fund managed by
Charlesbank Capital Partners LLC (Charlesbank). In connection with the First Amended Plan,
Charlesbank provided a written commitment to fund up to $134.4 million to or for the benefit of the
Company and its subsidiaries subject to the Chapter 11 proceedings. The written funding commitment
was subject to the satisfaction of all conditions to the plan sponsors obligations set out in the
plan sponsor agreement. The First Amended Plan provided for, among other things, the following: the
payment in full of all amounts owed to the Companys senior secured lenders; the acquisition by
Charlesbank of substantially all of the assets of the Company (Debtor and non-debtor entities),
including 100% of the equity of TLC Vision (USA) Corporation and the Companys six refractive
centers in Canada; payments to employees and critical vendors in the ordinary course of business;
and distributions to certain secured and unsecured creditors. There was no assurance of any
distribution of funds to the stockholders of the Company under the First Amended Plan.
On February 12, 2010, the Debtor Entities filed the second amended joint plan of
reorganization (Second Amended Plan). The Second Amended Plan was backed by affiliates of
Charlesbank and H.I.G. Capital, LLC (H.I.G.), which joined as a co-investor in the acquisition of
the Companys assets. In addition to the previously announced terms under the First Amended Plan,
the Second Amended Plan also provided for consideration in the amount of up to $9.0 million in cash
and a new promissory note of up to $3.0 million to be paid to the Companys unsecured creditors.
The Debtor Entities filed the third and fourth amendments to the joint plan of reorganization
on March 17, 2010 and March 24, 2010, respectively. The third and fourth amendments did not
significantly alter the Second Amended Plan other than for the inclusion of an additional impaired
class consisting of pending medical malpractice litigation claims.
There is no assurance of any distribution of funds to the stockholders of the Company under
the Plan of Reorganization, as amended, and completion of this plan is subject to customary closing
conditions, including final confirmation by the U.S. Court, Canadian Court and regulatory
approvals.
The Debtor Entities are currently operating as debtors-in-possession under the jurisdiction
of the U.S. Court and Canadian Court (collectively, the Bankruptcy Courts) and in accordance with
applicable provisions of the Bankruptcy Code and the CCAA. In general, the Company and its
subsidiaries are authorized to continue to operate as ongoing businesses, but may not engage in
transactions outside the ordinary course of business without the approval of the Bankruptcy Courts.
48
Table of Contents
Debtor-In-Possession (DIP) Financing
In connection with filing the Chapter 11 Petitions and the Canadian Petition, on December 21,
2009, the Debtor Entities filed motions with the Bankruptcy Courts seeking approval to enter into a
post-petition credit agreement. On December 22, 2009, the U.S. Court issued an interim order
approving the Companys motion to obtain a senior secured super priority debtor-in-possession
credit agreement (Senior DIP Credit Agreement). On December 23, 2009, the Canadian Court granted a
recognition order relating to the orders received by the Company from the U.S. Court. The Senior
DIP Credit Agreement, dated December 23, 2009, was among the Debtors, various lenders and Cantor
Fitzgerald Securities as collateral and administrative agent.
The Senior DIP Credit Agreement provided for financing of a senior secured super priority term
loan facility in a principal amount up to $15.0 million. On December 24, 2009, the Company borrowed
$7.5 million under the Senior DIP Credit Agreement, all of which remained outstanding as of
December 31, 2009. For additional information regarding the terms of the Senior DIP Credit
Agreement refer to Note 14, Debt.
In connection with the First Amended Plan, the Company filed motions seeking approval from the
Bankruptcy Courts for a junior secured super priority debtor-in-possession credit agreement (Junior
DIP Credit Agreement). The Junior DIP Credit Agreement, approved by the U.S. Court via an interim
order on February 12, 2010, which was recognized by the Canadian Court on February 18, 2010, dated
February 3, 2010 is among the Debtors, various lenders and Charlesbank Equity Fund VII, Limited
Partnership as collateral and administrative agent. The U.S. Court made a final order on March 9,
2010 approving the Junior DIP Credit Agreement and that order was recognized by the Canadian Court
on March 16, 2010.
The Junior DIP Credit Agreement provides for financing of a junior secured super priority term
loan facility in a principal amount of up to $25 million. On February 25, 2010, the Company
borrowed $10.0 million under the Junior DIP Credit Agreement and used the funds, among other
things, to pay in full the outstanding principal balance of $7.5 million under the Senior DIP
Credit Agreement. For additional information regarding the terms of the Junior DIP Credit Agreement
refer Note 27, Subsequent Events.
Reorganization Process
The Company is operating its business as a debtor-in-possession under the Bankruptcy Courts
protection from creditors and claimants. The Bankruptcy Courts have approved payment of certain
pre-petition obligations, including employee wages, salaries and benefits, and the payment of
vendors and other providers in the ordinary course for goods and services received after the filing
of the Chapter 11 Petitions and Canadian Petition and other business-related payments necessary to
maintain the operation of the Companys business. The Company has retained legal and financial
professionals to advise on the bankruptcy proceedings. From time to time, the Company may seek the
U.S. Courts approval for the retention of additional professionals.
Immediately after filing the Chapter 11 Petition and Canadian Petition, the Company notified
all known current or potential creditors of the bankruptcy filings. Subject to certain exceptions
under the Bankruptcy Code and the CCAA, the bankruptcy filings stayed the continuation of any
judicial or administrative proceedings or other actions against the Company or its property to
recover, collect or secure a claim arising prior to the filing of the Chapter 11 Petition and
Canadian Petition.
As required by the Bankruptcy Code, the United States Trustee for the District of Delaware
appointed an official committee of unsecured creditors (the Creditors Committee). The Creditors
Committee and its legal representatives have a right to be heard on all matters that come before
the U.S. Court with respect to the Company. An information officer has been appointed by the
Canadian Court with respect to proceedings before the Canadian Court.
Under Section 365 and other relevant sections of the Bankruptcy Code, the Company may assume,
assume and assign, or reject certain executory contracts and unexpired leases, including leases of
real property and equipment, subject to the approval of the U.S. Court and certain other
conditions. Any description of an executory contract or unexpired lease in this report, including,
where applicable, the Companys express termination rights or a quantification of obligations, must
be read in conjunction with, and is qualified by, any overriding rejection rights the Company has
under Section 365 of the Bankruptcy Code.
The Company is reviewing all of its executory contracts and unexpired leases to determine
which contracts and leases it may attempt to reject under Section 365 and other relevant sections
of the Bankruptcy Code. The Company expects that additional liabilities subject to compromise will
arise due to rejection of executory contracts, including leases, and from the determination of the
U.S. Court (or agreement by parties in interest) of allowed claims for contingencies and other
disputed amounts. The Company also expects that the assumption of additional executory contracts
and unexpired leases will convert certain of the liabilities shown on the accompanying consolidated
balance sheet as liabilities subject to compromise to liabilities not subject to compromise. Due to
the uncertain nature of many of the potential claims, the Company cannot project the magnitude of
such claims with certainty.
49
Table of Contents
The U.S. Court entered an order establishing March 22, 2010, as the general bar date for
potential creditors to file claims. The general bar date is the date by which certain claims
against the Company must be filed if the claimants wish to receive any distribution in the
bankruptcy cases. Proof of claim forms received after the bar date are typically not eligible for
consideration of recovery as part of the Companys bankruptcy cases. Creditors were notified of the
bar date and the requirement to file a proof of claim with the U.S. Court. Differences between
liability amounts estimated by the Company and claims filed by creditors are being investigated
and, if necessary, the U.S. Court will make a final determination of the allowable claim. The
determination of how liabilities will ultimately be treated cannot be made until the U.S. Court
approves a plan of reorganization, and such confirmation is recognized by the Canadian Court.
Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time.
In order to successfully exit Chapter 11, the Company will need to obtain confirmation by the
U.S. Court of the Plan of Reorganization, as amended, as well as recognition by the Canadian Court
of the U.S. Courts plan confirmation. A confirmed plan of reorganization would resolve the
Companys pre-petition obligations, set forth the revised capital structure of the newly
reorganized entity, provide for corporate governance subsequent to the Companys exit from
bankruptcy and potentially convert the Company to a privately held entity.
The confirmation hearing on the Plan of Reorganization, as amended, is scheduled for May 5,
2010. The confirmation hearing may be adjourned from time to time by the U.S. Court without further
notice except for an announcement of the adjourned date made at the confirmation hearing or any
subsequent adjourned confirmation hearing. There can be no assurance at this time that the Plan of
Reorganization, as amended, will be confirmed by the U.S. Court, and
such confirmation is recognized
by the Canadian Court, or that any such plan will be implemented successfully.
The Company has the exclusive right for 120 days after the filing of the Chapter 11 Petitions
and the Canadian Petition to file a plan of reorganization. The Company may file one or more
motions to request extensions of this exclusivity period. If the exclusivity period expires, any
party in interest would be able to file a plan of reorganization. In addition to being voted on by
holders of impaired claims and equity interests, a plan of reorganization must satisfy certain
requirements of the Bankruptcy Code and the CCAA and must be approved, or confirmed, by the U.S.
Court, and such confirmation is recognized by the Canadian Court, in order to become effective. There
can be no assurance at this time that a plan of reorganization submitted by the Company will be
confirmed by the U.S. Court, or such confirmation is recognized by the Canadian Court, or that any
such plan will be implemented successfully.
Under the priority scheme established by the Bankruptcy Code and the CCAA, unless creditors
agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full
before stockholders are entitled to receive any distribution or retain any property under a plan of
reorganization. The ultimate recovery to creditors and/or stockholders, if any, will not be
determined until confirmation of a plan or plans of reorganization. No assurance can be given as to
what values, if any, will be ascribed to each of these constituencies or what types or amounts of
distributions, if any, they would receive. A plan of reorganization could result in holders of our
liabilities and/or securities, including our common shares, receiving no distribution on account of
their interests and cancellation of their holdings. Because of such possibilities, the value of our
liabilities and securities, including our common shares, is highly speculative. Appropriate caution
should be exercised with respect to existing and future investments in any of our liabilities
and/or securities. At this time there is no assurance the Company will be able to restructure as a
going concern or successfully implement a plan of reorganization.
On March 1, 2010, certain equity holders filed a motion with the Bankruptcy Courts for the
appointment of an equity committee. On March 23, 2010, the Bankruptcy Courts entered an order
denying the motion for an order appointing an official committee of equity security holders.
Going Concern Matters
The consolidated financial statements and related notes have been prepared assuming that the
Company will continue as a going concern although the Chapter 11 bankruptcy filings raise
substantial doubt about the Companys ability to continue as a going concern. The Companys ability
to continue as a going concern is dependent on restructuring its obligations in a manner that
allows it to obtain confirmation of a plan of reorganization by the Bankruptcy Courts. The
consolidated financial statements do not include any adjustments related to the recoverability and
classification of recorded assets or to the amounts and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as a going concern.
Financial Reporting Considerations
For periods subsequent to the Chapter 11 bankruptcy filings, the Company will apply Accounting
Standards Codification (ASC) 852, Reorganizations, in preparing the consolidated financial
statements. ASC 852 requires that the financial statements, for periods
50
Table of Contents
subsequent to the Chapter 11 filings, distinguish transactions and events that are directly
associated with the reorganization from the ongoing operations of the business. Accordingly,
certain expense (including professional fees), realized gains and losses and provisions for losses
that are realized or incurred in the bankruptcy proceedings are recorded in reorganization items,
net, on the accompanying consolidated statements of operations. In addition, pre-petition
obligations that may be impacted by the bankruptcy reorganization process have been classified on
the consolidated balance sheet at December 31, 2009, in liabilities subject to compromise. These
liabilities are reported at the amounts expected to be allowed by the Bankruptcy Courts, even if
they may be settled for lesser amounts.
The Debtors reorganization items directly related to the process of reorganizing the Company
under Chapter 11 and the CCAA for 2009 consisted of the following:
2009 | ||||
Professional fees directly related to reorganization (a) |
$ | 606 | ||
Senior DIP Credit Agreement related fees (b) |
35 | |||
Net loss on Sale-Leaseback Transaction (c) |
2,588 | |||
Reorganization items, net |
3,229 |
(a) | Professional fees directly related to reorganization include post-petition fees associated with advisors to the Debtors and certain secured creditors. Professional fees are estimated by the Debtors and will be reconciled to actual invoices when received. | |
(b) | DIP Credit Agreement related fees includes the amortization of certain capitalized costs include closing, facility, backstop and agency fees. | |
(c) | Net loss on Sale-Leaseback Transaction relates to the Bankruptcy Courts rejection, effective December 21, 2009, of the Companys unexpired lease with Canada Mortgage and Housing Association further described in Note 14, Debt Sale-Leaseback Transaction. |
Reorganization items exclude employee severance and other restructuring charges recorded
during 2009.
Liabilities subject to compromise consist of the following:
DECEMBER 31, | ||||
2009 | ||||
Accounts payable |
$ | 8,554 | ||
Accrued expenses |
13,132 | |||
Secured debt |
100,060 | |||
Unsecured debt |
8,075 | |||
Capitalized Credit Facility debt issuance costs |
(1,403 | ) | ||
Other
long-term liabilities |
4,135 | |||
Kremer
option (see Note 5) |
1,891 | |||
Liabilities subject to compromise |
134,444 |
Liabilities subject to compromise refers to both secured and unsecured obligations that will
be accounted for under a plan of reorganization. Generally, actions to enforce or otherwise effect
payment of pre-petition liabilities are stayed. ASC 852 requires pre-petition liabilities that are
subject to compromise to be reported at the amounts expected to be allowed, even if they may be
settled for lesser or greater amounts. These liabilities represent the estimated amount expected to
be allowed on known or potential claims to be resolved through the Chapter 11 and CCAA process, and
remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy
Court, rejection of executory contracts and unexpired leases, the determination as to the value of
collateral securing the claims, proofs of claim, or other events. Liabilities subject to compromise
also include certain items that may be assumed under the Plan of Reorganization, as amended, and as
such, may be subsequently reclassified to liabilities not subject to compromise. As some
uncertainty will continue to exist until the Bankruptcy Courts confirm a plan of reorganization,
the Company has included its secured and unsecured debt in liabilities subject to compromise. At
hearings held in January 2010, final approval was granted of many of the Debtors first day
motions covering, among other things, human capital obligations, supplier relations, cash
management, utilities, case management and retention of professionals. Obligations associated with
these matters are not classified as liabilities subject to compromise.
Upon the filing of the Chapter 11 petitions, certain of the Companys debt obligations became
automatically and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of applicable
bankruptcy law. As a result of the bankruptcy petitions and due to various debt obligations being
undersecured or unsecured, $106.7 million of the Companys
pre-petition net debt is included in
liabilities subject to compromise on the consolidated balance sheet at December 31, 2009. The
Company classifies pre-petition liabilities subject to compromise as a long-term liability
51
Table of Contents
because management does not believe the Company will use existing current assets or create
additional current liabilities to fund these obligations.
Prior to December 21, 2009, the Companys fixed asset balance included the Companys
International Corporate Office located in Mississauga, Ontario, Canada. The Company accounted for
this fixed asset under the sale-leaseback provision of ASC 840, Leases. Effective December 21,
2009, in conjunction with the Companys bankruptcy proceedings, the Company abandoned the property
and received an order from the U.S. Court rejecting the capital lease associated with the
International Headquarters. As a result, the Company recorded a $2.6 million loss included in
reorganization items, net, related to the abandonment of the International Headquarters as the
abandonment was prompted by the Companys ability to exit the existing building and reject the
lease under bankruptcy protection. As of December 31, 2009, a $1.3 million liability is included in
liabilities subject to compromise as an estimate of the probable allowed claim against the Company
for the unexpired lease. Refer to Note 14, Debt Sale Leaseback Transaction, for additional
information regarding this transaction.
On August 10, 2009, the Company entered into Amendment No. 2 (2nd Amendment) to the
2005 TruVision Agreement and Plan of Merger. The 2nd Amendment restructured the
Companys final $4.0 million purchase installment, which was due to the former TruVision owners
during August 2009. The 2nd Amendment resulted in the final purchase installment being
increased to an unsecured $5.4 million payable, inclusive of interest and penalties, which was to
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 December 31, 2009, liabilities
subject to compromise includes $4.4 million, representing the balance owed, net of imputed
interest, under the restructured TruVision Agreement and Plan of Merger. As of March 31, 2010, the
Company was unable to make a $0.3 million scheduled payment due October 5, 2009 and a $0.3 million
scheduled payment due January 5, 2010 as part of the restructured TruVision Agreement and Plan of
Merger. The remaining liability is subject to the Companys bankruptcy proceedings.
While operating as debtors-in-possession under Chapter 11 of the Bankruptcy Code, the Debtors
may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval
of the Bankruptcy Courts or otherwise as permitted in the ordinary course of business, in amounts
other than those reflected in the consolidated financial statements. Moreover, a plan of
reorganization could materially change the amounts and classifications in the historical
consolidated financial statements.
Condensed Combined Financial Information of Debtors
The following unaudited condensed combined financial information is presented for the Debtors
as of December 31, 2009 or for the year then ended:
Balance Sheet Information : |
||||
Cash and cash equivalents |
$ | 7,851 | ||
Accounts receivable, net |
601 | |||
Prepaid expenses, inventory and other short-term assets |
2,162 | |||
Restricted cash |
1,033 | |||
Investments and other long-term assets, net |
61 | |||
Fixed assets, net |
2,506 | |||
Total assets |
$ | 14,214 | ||
Current liabilities |
$ | 13,858 | ||
Long-term liabilities |
302 | |||
Liabilities not subject to compromise |
14,160 | |||
Liabilities subject to compromise |
134,444 | |||
Total liabilities |
148,604 | |||
Stockholders deficit |
(134,390 | ) | ||
Total liabilities and stockholders deficit |
$ | 14,214 | ||
Statement of Operations Information |
||||
Net sales |
$ | 8,976 | ||
Gross profit |
2,703 | |||
Operating loss |
(48,136 | ) | ||
Reorganization items, net |
(3,229 | ) | ||
Net loss attributable to TLC Vision Corporation |
(55,265 | ) | ||
Statement of Cash Flows Information |
||||
Cash used in operating activities |
(41,864 | ) | ||
Cash used in investing activities |
(3,269 | ) | ||
Cash provided by financing activities |
51,470 |
The unaudited condensed combined financial
information of Debtors does not separately disclose intercompany
and investment balances as those balances represent components of the Debtors equity in
the non-debtor entities, and have therefore been included within Stockholders
deficit. The Debtor financial statements include the assets, liabilities, revenues and expenses that are directly and
contractually related to such Debtor entities. However, certain liabilities at the debtor entities relate to
assets and operations that contractually relate to non-debtor entities, and thus such assets and
related operations are not included in the condensed unaudited combined financial information above.
52
Table of Contents
Stock Market Compliance
As of December 31, 2009, the Companys common shares were suspended from trading on both the
NASDAQ and the TSX. The Companys common shares were delisted from the NASDAQ and the TSX effective
January 18, 2010 and January 21, 2010, respectively. The Companys common shares currently trade on
the Over-The-Counter Bulletin Board under the ticker symbol TLCVQ.
2. Summary of Significant Accounting Policies
Nature of Operations
TLC Vision Corporation is an eye care services company dedicated to improving lives through
improving 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. 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 Companys primary business provides franchise opportunities to
independent optometrists under its Vision Source® brand.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its majority-owned
subsidiaries and all variable interest entities that the Company is the primary beneficiary. All
significant intercompany transactions and balances have been eliminated in consolidation.
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
During the year ended December 31, 2009, the Company adopted Statement of Financial Accounting
Standards No. 168, The FASB Accounting Standards Codification and The Hierarchy of Generally
Accepted Accounting Principles. The Codification became the source of authoritative generally
accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing
non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification is non-authoritative. GAAP is not intended to be
changed as a result of this statement, but will change the way the guidance is organized and
presented. The Company has implemented the Codification in the consolidated financial statements by
providing references to ASC topics.
Variable Interest Entities
The Company consolidates physician practices that are managed but not owned by the Company
because the Company is the primary beneficiary. The consolidation of the physician practices
results in an increase in revenues and cost of revenues for refractive centers, however it has no
material impact on total assets, gross profit or operating income and no impact on net income.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid short-term investments with original
maturities of 90 days or less.
Inventories
Inventories are stated at the lower of cost or market with cost determined on a first-in,
first-out basis. The Companys inventory balances primarily consist of supplies used in its various
eye treatments.
53
Table of Contents
Investments
The Company has certain investments in equity securities. Investments are accounted for using
the equity method if the Company has significant influence, but not control, over an investee. All
other equity investments in which the Company does not have the ability to exercise significant
influence are accounted for under the cost method. Under the cost method of accounting, investments
that do not have a quoted market price (non-marketable equity securities) are carried at cost and
are adjusted only for other than temporary declines in fair value and additional investment
activity.
Fixed Assets
Fixed assets are recorded at cost or the present value of future minimum lease payments for
assets accounted for as a capital lease. The costs of additions, improvements and major
replacements are capitalized, while maintenance and repairs are expensed as incurred. Depreciation
is provided on the straight-line basis and at rates intended to represent the assets productive
lives as follows:
Buildings
|
- 40 years | |||
Computer equipment and software
|
- three to four years | |||
Furniture, fixtures and equipment
|
- seven years | |||
Laser and medical equipment
|
- five to seven years | |||
Leasehold improvements
|
- shorter of useful life or initial term of the lease | |||
Vehicles and other
|
- five years |
Goodwill and Other Intangible Assets
The Company tests for impairment at least annually, on November 30, and more frequently if
changes in circumstances or events indicate that it is more likely than not that impairment has
occurred. The Company recorded a goodwill impairment charge of $73.4 million during the year ended
December 31, 2008. No goodwill impairment charge was recorded during the year ended December 31,
2009. See Note 3, Impairment, for additional details.
Other intangible assets consist primarily of practice management agreements (PMAs), deferred
contract rights, and trade names. PMAs represent the cost of obtaining the exclusive right to
manage eye care centers and secondary care centers in affiliation with the related physician group
during the term of the respective agreements. Deferred contract rights represent the value of
contracts with affiliated doctors to provide basic access and service. Trade names represent the
value associated with the name of an entity that was acquired by the Company. All identifiable
intangibles with a finite life are amortized using the straight-line method over the respective
estimated useful lives.
Goodwill and indefinite-lived intangible assets are tested for impairment annually and
whenever events or circumstances (such as a significant adverse change in business climate or the
decision to sell a business) indicate that more likely than not an impairment may have occurred. If
the carrying value of goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized. The evaluation of impairment involves comparing the current fair
value of each of the Companys reporting units to their recorded value, including goodwill. The
Company uses a combination of the income and market approaches to determine the current fair value
of each of its reporting units. A number of significant assumptions and estimates are involved in
the application of the income and market approaches, including forecasted operating cash flows,
discount rates, market multiples, bona fide third party offers, etc. The Company considers
historical experience and all available information at the time the fair values of its reporting
units are estimated. However, fair values that could be realized in an actual transaction may
differ from those used to evaluate the impairment of intangible assets.
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or circumstances indicate
that the carrying amount of the asset group may not be recoverable.
Medical Malpractice Accruals
To mitigate a portion of the risk associated with medical malpractice lawsuits, the Company
maintains insurance for individual malpractice claims with a deductible of $250,000 per claim for
claims filed prior to May 1, 2009 and $50,000 per claim for those filed subsequent to May 1, 2009.
The Company and its insurance carrier review malpractice lawsuits for purposes of establishing
ultimate loss estimates. The Company records reserves to cover the estimated costs of the
deductible for both reported and unreported medical malpractice claims incurred. The estimates are
based on the average monthly claims expense and the estimated average time lag
54
Table of Contents
between the performance of a procedure and notification of a claim. If the number of claims or
the cost of settled claims is higher than the Companys historical experience or if the actual time
lag varies from the estimated time lag, the Company may need to record significant additional
expense.
The
Companys medical malpractice liability, which is immaterial for quantitative disclosure
as of December 31, 2009 and 2008, is included in liabilities subject to compromise, accrued liabilities and other
long-term liabilities.
Revenue Recognition
The Companys refractive centers currently employ different pricing and patient acquisition
strategies depending upon the market. All are based upon the same pricing methodology, which begins
with an entry level price and has logical, technology based upgrades. Pricing is generally
inclusive of all follow-up visits.
Except as described in the following paragraphs, the Company recognizes revenues at the time
procedures are performed or services are rendered. Revenues primarily include amounts charged to
patients for procedures performed at laser centers, net of discounts, contractual adjustments in
certain regions and amounts collected as an agent of co-managing doctors. Follow-up consultations,
which help ensure general patient satisfaction and safety, are free of separate charge to patients,
very short in nature and are therefore considered inconsequential for revenue deferral, though the
Company does accrue at the point of procedure for the minimal anticipated costs of the follow-up
consultations.
The Company offers a portion of its patients extended lifetime warranties, i.e., the TLC
Lifetime Commitment®. Participation in the TLC Lifetime Commitment® program is included in the
surgical price for a specific type of procedure selected by a portion of its patients. Under this
pricing model, the Company accounts for the TLC Lifetime Commitment® program as a warranty
obligation under the provisions of ASC 450, Contingencies. Accordingly, the costs expected to be
incurred to satisfy the obligation are accrued as a liability at the point of sale given the
Companys ability to reasonably estimate such costs based on historical trends and the satisfaction
of all other revenue recognition criteria.
The Company offers an extended TLC Lifetime Commitment® warranty at a separately-priced fee to
customers selecting a lower level base surgical procedure. Under applicable accounting rules, 100%
of revenues and related costs from the sale of the separately priced lifetime warranty are to be
deferred and recognized over the life of the contract on a straight-line basis unless sufficient
experience exists to indicate that the costs to provide the service will be incurred other than on
a straight-line basis. Revenues generated under this program are initially deferred and recognized
over a period of five years based on managements future estimates of re-treatment volume, which
are based on historical warranty claim activity. The Company believes it has sufficient experience
to support recognition on other than a straight-line basis. Accordingly, the Company has deferred
these revenues and is recognizing them over the period in which the future costs of performing the
enhancement procedure are expected to be incurred.
In addition to the deferral of revenues related to the separately-priced TLC Lifetime
Commitment®, the Company has deferred a portion of its costs of service related to professional
fees paid to the attending surgeon when an initial procedure is performed. The physician receives
no incremental fee for an enhancement procedure under the TLC Lifetime Commitment®. Accordingly, a
portion of the professional fee paid at the time of the initial procedure to the attending surgeon
relates to the future enhancement procedures to be performed under the separately-priced TLC
Lifetime Commitment® and qualifies for deferral as a direct and incremental cost. The Company uses
the same historical experience to amortize deferred professional fees that it uses to amortize
deferred revenue. Other costs expected to be incurred if a complication were to occur are accrued
at the point of procedure as part of the Companys general enhancement accrual based on historical
trend estimates.
The deferred revenue balances related to the TLC Lifetime Commitment® at December 31, 2009 and
2008 totaled $0.8 million and $1.1 million, respectively.
Under the terms of management service agreements, the Company provides non-clinical services,
which include facilities, staffing, equipment lease and maintenance, marketing and administrative
services to refractive and secondary care practices in return for management fees. For third-party
payor programs and corporations with arrangements with TLCVision, the Companys management fee and
the fee charged by the surgeon are both discounted in proportion to the discount afforded to these
organizations. While the Company does not direct the manner in which the surgeons practice
medicine, the Company does direct the day-to-day non-clinical operations of the centers. The
management service agreements typically are for an extended period of time, ranging from five to 15
years. Management fees are equal to the net revenue of the physician practice, less amounts
retained by the physician groups.
55
Table of Contents
Revenue from doctor services represents the amount charged to the customer/surgeon for access
to equipment and technical support based on use, as well as management fees from cataract and
secondary care practices.
The Companys eye care business revenue principally includes optometric franchising services.
Revenues from these services are recognized as the service is rendered or when the procedure is
performed.
Cost of Revenues
Included in cost of revenues are the laser fees payable to laser manufacturers for royalties,
use and maintenance of the lasers, variable expenses for consumables, financing costs, facility
fees as well as center costs associated with personnel and facilities depreciation.
Marketing
Marketing costs are expensed as incurred. Included in marketing costs are advertising expenses
of $10.4 million and $26.7 million for the years ended December 31, 2009 and 2008, respectively.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax
assets and liabilities are recorded based on the difference between the income tax basis of assets
and liabilities and their carrying amounts for financial reporting purposes at the applicable
enacted statutory tax rates. Deferred tax assets are reduced by a valuation allowance if, based on
the weight of available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Foreign Currency Exchange
The functional currency of the Companys Canadian operations is the U.S. dollar. The assets
and liabilities of the Companys Canadian operations are maintained in Canadian dollars and
remeasured into U.S. dollars at exchange rates prevailing at the consolidated balance sheet date
for monetary items and at exchange rates prevailing at the transaction dates for nonmonetary items.
Revenues and expenses are remeasured into U.S. dollars at average exchange rates prevailing during
the year with the exception of depreciation and amortization, which are translated at historical
exchange rates. Exchange gains and losses are included in net loss/income. Included in other
expense is a foreign exchange loss of $0.8 million and a foreign exchange gain of $1.4 million for
the years ended December 31, 2009 and 2008, respectively.
Loss Per Share
Basic loss per share is determined by dividing net loss attributable to TLC Vision Corporation
by the weighted average number of common shares outstanding during the period. Diluted loss per
share reflects the potential dilution that could occur if options to purchase common shares were
exercised. In periods in which the inclusion of such instruments is anti-dilutive, the effect of
such securities is not given consideration.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates. These estimates are reviewed
periodically, and as adjustments become necessary, they are reported in income in the period in
which they become known.
Reclassifications
Certain reclassifications of prior years presentations have been made to conform to the 2009
presentation.
Recently Adopted Accounting Pronouncements
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
56
Table of Contents
(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.
During the year ended December 31, 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 Company has evaluated subsequent
events through the issuance of these financial statements, which occurred on March 31, 2010.
Accounting Pronouncements Issued but Not Yet Adopted
In June 2009, the FASB issued amendments to ASC 860, Transfers and Servicing, effective for
fiscal years beginning after November 15, 2009. The amendments remove the concept of a qualifying
special-purpose entity and the related impact on consolidation, thereby potentially requiring
consolidation of such special-purpose entities previously excluded from the consolidated financial
statements. The Company does not expect these amendments to have a material impact on the
consolidated financial statements.
In June 2009, the FASB issued amendments to ASC 810, Consolidations, which requires a company
to perform a qualitative analysis to determine whether it has a controlling financial interest in a
variable interest entity. In addition, a company is required to assess whether it has the power to
direct the activities of the variable interest entity that most significantly impact the entitys
economic performance. This guidance is effective for fiscal years beginning after November 15,
2009. We are currently evaluating the potential impact of this guidance on our operating results,
cash flows and financial condition.
3. Impairment
2009 Impairment
During the year ended December 31, 2009, the Company recorded $1.0 million of impairment,
consisting primarily of a $0.5 million intangible impairment in its refractive centers segment to
eliminate a trade name. The Company ceased use of the trade name and does not intend to use it in
future operations. The Company also recorded a $0.3 million other long-term asset impairment in its
corporate overhead segment to eliminate a cost method investment and a $0.2 million fixed asset
impairment in its refractive centers segment to write-down the value of certain leasehold
improvements.
2008 Impairment
During 2008, the Company determined that the carrying amounts of goodwill and definite-lived
intangible assets within various segments were impaired $79.6 million. Management determined the
implied fair value of goodwill associated with the reporting units within these segments by
subtracting the estimated fair value of tangible assets and intangible assets subject to
amortization associated with each reporting unit from the estimated fair value of each reporting
unit. The impairment charges were generally the result of the overall refractive market decline
experienced by the Company as well as equity market conditions, which led to an overall decline in
fair value of various reporting units of the Company.
During 2008, the Company recognized a $4.8 million impairment of multiple cost and equity
method investments due to the decline in their estimated fair value. The decline in fair values
were deemed to be other than temporary based on the investees inability to generate or sustain an
earnings capacity that would justify the carrying amount of the investment. In addition, the
Company recognized a $0.6 million impairment of fixed assets of an ambulatory surgical center given
the entitys inability to generate an earnings capacity that would justify carrying values.
A summary of impairment charges recorded by reporting segment during the year ended December
31, 2008 follows:
FISCAL 2008 IMPAIRMENT CHARGES | ||||||||||||||||||||
Investments and | Definite-Lived | |||||||||||||||||||
Other Long-Term Assets | Fixed Assets | Goodwill | Intangible Assets | Total | ||||||||||||||||
Refractive centers |
$ | | $ | | $ | 66,843 | $ | 4,658 | $ | 71,501 | ||||||||||
Refractive access |
| | 4,993 | 1,500 | 6,493 | |||||||||||||||
Other doctor services |
2,478 | 639 | 1,555 | 17 | 4,689 | |||||||||||||||
Corporate |
2,364 | | | | 2,364 | |||||||||||||||
Total |
$ | 4,842 | $ | 639 | $ | 73,391 | $ | 6,175 | $ | 85,047 | ||||||||||
57
Table of Contents
4. Restructuring
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 year ended December 31, 2009 resulted in the closure of three
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.
As a result, the Company incurred pre-petition restructuring charges included in other
expenses totaling $25.9 million for the year ended December 31, 2009, which primarily included
$15.6 million of financial and legal advisor costs, $2.6 million for employee severance and
benefits, $4.5 million for the write-off of investments in and a receivable due from Notal Vision®,
$0.8 million of center restructuring and closing costs, and $1.6 million of losses on the
divestitures of various ambulatory surgical center investments.
The following table summarizes various restructuring efforts:
EMPLOYEE SEVERANCE | CENTER | |||||||||||
& BENEFITS | RESTRUCTURING COSTS | TOTAL | ||||||||||
Restructuring charges |
2,624 | 776 | 3,400 | |||||||||
Non-cash write-downs |
(40 | ) | (346 | ) | (386 | ) | ||||||
Cash payments |
(1,370 | ) | (220 | ) | (1,590 | ) | ||||||
Restructuring reserve balance
as of December 31, 2009 |
$ | 1,214 | $ | 210 | $ | 1,424 |
As
of December 31, 2009, restructuring reserves of
$0.2 million of center restructuring costs were included in accrued
liabilities and $1.2 million of employee
severance and benefits were included in liabilities subject to compromise
in the consolidated balance sheet.
As of December 31, 2009, the Company currently estimates that its restructuring efforts will
likely continue into the quarter ending June 30, 2010. Such estimate may change and is dependent on
the outcome of various cost reduction efforts and the outcome of the Companys bankruptcy
proceedings.
Charges incurred after December 21, 2009 and specifically associated with the bankruptcy
proceedings are recorded as reorganization items, net, on the consolidated statement of operations.
For additional information see Note 1, Bankruptcy Proceedings.
5. Acquisitions
2009 Activity
The Companys strategy has historically included periodic acquisitions of, or investments in,
entities that operate within its chosen markets. During the year ended December 31, 2009, the
Company made payments of $5.2 million to invest in multiple entities, none of which was
individually material. Included in acquisition and equity investments are cash payments of
approximately $4.0 million related to the Companys 2005 TruVision acquisition, which were
included in the purchase price allocation.
During 2005, the Company acquired a substantial portion of the assets of Kremer Laser Eye
(Kremer). As of December 31, 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 TLCVision in exchange for approximately $1.9
million payable August 2009. Failure to make such payment would cause all remaining options to
become immediately 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
58
Table of Contents
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 year ended December 31, 2009.
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 March
31, 2010, such right has not been exercised and is subject to the Companys bankruptcy proceedings.
The $1.9 million has been classified as a liability subject to compromise as of December 31, 2009.
2008 Activity
During the year ended December 31, 2008, the Company made acquisition and equity investments
of $8.9 million to acquire or invest in various entities. Included in acquisition and equity
investments are cash payments during 2008 of approximately $6.6 million related to the Companys
2005 TruVision acquisition, which have been included in the purchase price allocation.
6. Divestitures
During the year ended December 31, 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. 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.
During the year ended December 31, 2008, the Company received approximately $1.3 million in
cash proceeds resulting from various immaterial divestitures.
7. Accounts Receivable
Accounts receivable, net of allowances, consist of the following:
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Refractive centers |
$ | 697 | $ | 673 | ||||
Doctor services |
||||||||
Refractive access |
3,184 | 2,802 | ||||||
Mobile cataract |
5,084 | 4,427 | ||||||
Other |
2,048 | 2,882 | ||||||
Eye care |
||||||||
Optometric franchising |
5,262 | 5,243 | ||||||
16,275 | 16,027 | |||||||
Other corporate receivables |
549 | 843 | ||||||
$ | 16,824 | $ | 16,870 | |||||
The Company is exposed to credit risk on accounts receivable from its various customers:
| Refractive centers accounts receivable are due principally from open-access surgeons who utilize the Companys facilities and staff on a per-use basis (pursuant to their contractual agreement). While the Company offers consumer financing options for LASIK surgery, the credit risk is borne by the Companys third-party providers who perform an independent credit evaluation on each potential patient before extending credit. | ||
| Doctor services accounts receivable are generally due from surgeon and medical facility partners who contract with the Company to use its mobile technology platform. | ||
| Eye care accounts receivable represent fees due from franchisees pursuant to their franchise agreements. |
In order to reduce its credit risk, the Company has adopted credit policies, which include the
review of credit limits, and maintains an active collections process. As of December 31, 2009 and
2008, the Company had reserves for doubtful accounts and contractual allowances of $3.7 million and
$3.5 million, respectively. The Company does not have a significant exposure to any individual
customer.
59
Table of Contents
8. Prepaid Expenses, Inventory and Other Current Assets
Prepaid expenses, inventory and other current assets consist of the following:
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Prepaid expenses |
$ | 2,607 | $ | 3,341 | ||||
Inventory |
6,838 | 9,371 | ||||||
Other current assets. |
1,384 | 1,502 | ||||||
$ | 10,829 | $ | 14,214 | |||||
The Companys inventory decline of $2.5 million (27%) during the year ended December 31, 2009
was due to lower refractive center and access procedure volume resulting in lower inventory
requirements. The Company operated under a lower inventory balance during 2009 as it continued to
focus on cash preservation activities in response to deteriorated economic conditions. In addition,
the Company terminated its Foresee PHP® distribution activities as discussed further in Note 9,
Investments and Other Long-Term Assets. The terminated distribution activities resulted in the
write-down of $0.8 million in inventory during 2009.
9. Investments and Other Long-Term Assets
Investments and other long-term assets, net of allowances, consist of the following:
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Equity method investments |
$ | 2,116 | $ | 4,059 | ||||
Cost method investments |
| 2,010 | ||||||
Long-term receivables |
192 | 2,771 | ||||||
Capitalized debt costs |
| 1,755 | ||||||
Other |
567 | 1,099 | ||||||
$ | 2,875 | $ | 11,694 | |||||
2009 Activity
During the year ended December 31, 2009, the Company divested one majority-owned and two
minority-owned ambulatory surgical centers for a combined sale price of $2.2 million. The two
minority-owned ambulatory surgical centers were accounted for under the equity method of accounting
through the disposition date. The divestiture of the two minority-owned ambulatory surgical centers
resulted in a write-down of approximately $2.1 million of equity method investments during the year
ended December 31, 2009.
During the year ended December 31, 2009, management explored terminating the Foresee PHP®
system distribution rights between the Company and Notal Vision®, an entity in which the Company
held a minority investment. The distribution rights allowed the Company to sell the Foresee PHP®,
manufactured by Notal Vision®, as a component of the Companys mobile cataract reporting segment.
Effective December 10, 2009, the Company reached a Settlement Agreement with Notal Vision®.
The Settlement Agreement terminated the exclusive Foresee PHP® distribution agreement in exchange
for the Company surrendering a $2.3 million note receivable due from Notal Vision® and the
forfeiture by the Company of all remaining investments in Notal Vision®. The Settlement Agreement
also eliminated the Companys future contractual purchase obligations of the Foresee PHP®.
As a result of the Settlement Agreement, the Company recorded a $4.5 million charge included
in other expense in the Companys consolidated statements of operations. The charge includes the
$2.3 million note receivable write-down, the elimination of $0.4 million of unpaid interest
included in other long-term assets and the write-down of $1.7 million of Notal Vision® cost method
investments.
As of December 31, 2009, capitalized debt costs associated with the Companys pre-petition
Credit Facility were included in liabilities subject to compromise to adjust the carrying amount of
the outstanding obligation in accordance with ASC 852.
60
Table of Contents
2008 Activity
During the year ended December 31, 2008, the Company recorded a $4.8 million impairment charge
against its investments and other long-term assets due to the decline in estimated fair values. The
impairment charge reduced the carrying value of the Companys equity method investments by $2.5
million and the Companys cost method investments by $2.3 million. The impairment charge is
discussed in further detail in Note 3, Impairment.
Equity Method Investments
Equity method investments as of December 31, 2009 and 2008 primarily include the following:
INVESTMENT % AT | ||||||||
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Laser Eye Centers of California |
30 | % | 30 | % | ||||
Liberty Eye Surgery Center LLC* |
| 49 | % | |||||
Eastern Oregon Regional Surgery Center, LLC |
49 | % | 49 | % | ||||
Summit Ambulatory Surgical Center LLP* |
| 24 | % | |||||
TLC Oklahoma Doctors LLC |
25 | % | 25 | % | ||||
TLC Northwest Ohio LLC |
25 | % | 25 | % |
* | Divested during the year ended December 31, 2009. |
10. Goodwill
The Companys goodwill amount by reporting segment is as follows:
DOCTOR SERVICES | EYE CARE | |||||||||||||||||||||||
REFRACTIVE | REFRACTIVE | MOBILE | OPTOMETRIC | |||||||||||||||||||||
CENTERS | ACCESS | CATARACT | OTHER | FRANCHISING | TOTAL | |||||||||||||||||||
December 31, 2007 |
$ | 62,075 | $ | 11,195 | $ | 11,051 | $ | 3,920 | $ | 6,105 | $ | 94,346 | ||||||||||||
Impairment |
(66,843 | ) | (4,993 | ) | | (1,555 | ) | | (73,391 | ) | ||||||||||||||
Acquired during the period |
7,729 | | | | | 7,729 | ||||||||||||||||||
Disposals and other during the period |
(114 | ) | | | | | (114 | ) | ||||||||||||||||
December 31, 2008 |
$ | 2,847 | $ | 6,202 | $ | 11,051 | $ | 2,365 | $ | 6,105 | $ | 28,570 | ||||||||||||
Impairment |
| | | | | | ||||||||||||||||||
Acquired during the period |
| | | | | | ||||||||||||||||||
Disposals and other during the period |
| | | (1,815 | ) | | (1,815 | ) | ||||||||||||||||
December 31, 2009 |
$ | 2,847 | $ | 6,202 | $ | 11,051 | $ | 550 | $ | 6,105 | $ | 26,755 | ||||||||||||
During the year ended December 31, 2009, the Company wrote-off $1.8 million of goodwill
as the result of a majority-owned ambulatory surgical center disposition. During the year ended
December 31, 2008, the Company recorded impairment charges of $73.4 million against goodwill. Refer
to Note 3, Impairment, for additional information regarding the 2008 charges.
The $7.7 million of acquired goodwill during the year ended December 31, 2008 primarily
related to the 2005 acquisition of TruVision. As noted above, a significant portion of this
acquired goodwill was subsequently impaired during the year ended December 31, 2008. See Note 3,
Impairment, and Note 5, Acquisitions, for additional information.
11. Definite-Lived Intangible Assets
The Companys definite-lived intangible assets consist of practice management agreements,
deferred contract rights, trade names and other intangibles. The Company has no indefinite-lived
intangible assets. Amortization expense was $2.3 million and $3.2 million for the years ended
December 31, 2009 and 2008, respectively.
During the year ended December 31, 2009, the Company recorded a $0.5 million impairment charge
in its refractive centers segment to eliminate its remaining trade name intangible. The Company
ceased use of the trade name and does not intend to use it in future operations.
During year ended December 31, 2008, the Company recorded a $6.2 million impairment loss
against definite-lived intangible assets due to the carrying amounts of such assets exceeding their
respective fair values, which were estimated by calculating the
61
Table of Contents
present value of future cash flows attributable to such assets. Refer to Note 3, Impairment,
for additional information regarding the impairment loss.
The remaining weighted average amortization period for practice management agreements is 3.8
years, for deferred contract rights is 3.0 years and for other intangibles is 6.75 years as of
December 31, 2009.
Intangible assets subject to amortization consist of the following at December 31:
2009 | 2008 | |||||||||||||||
GROSS CARRYING | ACCUMULATED | GROSS CARRYING | ACCUMULATED | |||||||||||||
AMOUNT | AMORTIZATION | AMOUNT | AMORTIZATION | |||||||||||||
Practice management agreements |
$ | 25,215 | $ | 21,399 | $ | 25,215 | $ | 19,924 | ||||||||
Deferred contract rights |
3,870 | 2,787 | 3,870 | 2,422 | ||||||||||||
Trade names |
| | 630 | 110 | ||||||||||||
Other |
4,804 | 2,023 | 4,936 | 1,567 | ||||||||||||
Total |
$ | 33,889 | $ | 26,209 | $ | 34,651 | $ | 24,023 | ||||||||
The estimated amortization expense for the next five years and thereafter as of December 31,
2009 is as follows:
2010 |
$ | 2,264 | ||
2011 |
1,616 | |||
2012 |
1,485 | |||
2013 |
769 | |||
2014 |
645 | |||
Thereafter |
901 |
12. Fixed Assets
Fixed assets, including capital leased assets, consist of the following:
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Land and buildings |
$ | 4,967 | $ | 12,286 | ||||
Computer equipment and software |
14,558 | 14,363 | ||||||
Furniture, fixtures and equipment |
7,839 | 7,943 | ||||||
Laser and medical equipment |
94,817 | 93,905 | ||||||
Leasehold improvements |
22,882 | 24,947 | ||||||
Vehicles and other |
6,007 | 5,938 | ||||||
151,070 | 159,382 | |||||||
Less accumulated depreciation |
116,773 | 108,868 | ||||||
Net book value |
$ | 34,297 | $ | 50,514 | ||||
For the years ended December 31, 2009 and 2008, depreciation expense was $13.6 million and
$16.4 million, respectively. Depreciation expense includes depreciation of assets reported under
capital leases.
During the year ended December 31, 2009, the Company recorded a $0.2 million impairment charge
against fixed assets to reduce the carrying value of leasehold improvements at a refractive center.
During the year ended December 31, 2008, the Company recorded a $0.6 million impairment charge
against fixed assets. Refer to Note 3, Impairment, for additional information regarding the 2008
impairment charge.
Certain fixed assets are pledged as collateral for certain debt and capital lease obligations.
13. Accrued Liabilities and Other Long-Term Liabilities
TruVision Liability
As of December 31, 2008, accrued liabilities included $7.8 million due to the former owners of
TruVision under Amendment No. 1 to the 2005 TruVision Agreement and Plan of Merger, by which the
Company acquired TruVision, Inc. Approximately $4.0 million of this liability was paid during
January 2009. The remaining liability is subject to the Companys bankruptcy proceedings further
described in Note 1, Bankruptcy Proceedings.
62
Table of Contents
Other Accrued Liabilities
Accrued
liabilities include $3.4 million and $3.7 million of accrued wages and related
expenses as of December 31, 2009 and 2008, respectively.
14. Debt
The Companys debt consists of:
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Secured Debt |
||||||||
Debtor-in-possession financing, weighted average interest rate of 13.0% |
$ | 7,500 | $ | | ||||
Senior term loan; weighted average interest rate of 9.25% and 8.76% at
December 31, 2009 and 2008, respectively |
76,660 | 76,667 | ||||||
Revolving
credit facility, weighted average interest rate of 8.24% and
6.60% at December 31, 2009 and 2008, respectively |
23,400 | 6,000 | ||||||
107,560 | 82,667 | |||||||
Unsecured Debt |
||||||||
Capital lease obligations, payable through 2013, interest at various rates |
11,003 | 14,176 | ||||||
Sale-leaseback debt interest imputed at 6.25%, due through October 2016 |
1,284 | 5,453 | ||||||
Other |
3,137 | 3,285 | ||||||
15,424 | 22,914 | |||||||
Less: Capitalized Credit Facility debt issuance costs |
1,403 | | ||||||
Total debt |
121,581 | 105,581 | ||||||
Less liabilities subject to compromise |
106,732 | | ||||||
Less current portion |
10,049 | 89,081 | ||||||
Total long-term debt |
$ | 4,800 | $ | 16,500 | ||||
Contractual
maturities of the Companys current and long-term debt balances
of $14.8 million are $10.0 million in 2010, $1.6 million in 2011,
$1.3 million in 2012, $0.9 million in 2013 and $1.0 million in 2014.
Debtor-in-Possession Financing
In connection with filing the Chapter 11 Petitions and the Canadian Petition, on December 21,
2009, the Debtor Entities filed motions with the Bankruptcy Courts seeking approval to enter into a
post-petition credit agreement. On December 22, 2009, the U.S. Court issued an interim order
approving the Companys motion to obtain a senior secured super priority debtor-in-possession
credit agreement (Senior DIP Credit Agreement). On December 23, 2009, the Canadian Court granted a
recognition order relating to the orders received by the Company from the U.S. Court. The Senior
DIP Credit Agreement, dated December 23, 2009, is among the Company, various lenders and Cantor
Fitzgerald Securities as collateral and administrative agent.
The Senior DIP Credit Agreement provided for financing of a senior secured super priority term
loan facility in a principal amount up to $15.0 million among the Company and various prepetition
lenders of the Companys Credit Facility. The Company may withdraw a maximum of two term loan
advances and only if the amount of the Companys controlled cash, as defined in the Senior DIP
Credit Agreement, is less than $3.0 million.
The maximum maturity date of the borrowings under the Senior DIP Credit Agreement is the
earlier of (a) 150 days after December 21, 2009, (b) the effective date of a plan of
reorganization, (c) the date on which a sale or sales of all or substantially all of the Companys
assets is consummated under Section 363 of the Bankruptcy Code, (d) the date of conversion of any
of the bankruptcy cases to a case under Chapter 7 of the Bankruptcy Code or any equivalent
proceeding in the Canadian Case, (e) a proposal or liquidation of any or all of the assets of the
Company under the Bankruptcy and Insolvency Act (Canada), (f) the dismissal of any of the
bankruptcy cases, or (g) approval by the Bankruptcy Courts of any other debtor-in-possession
financing for the Company.
Borrowings under the term loans accrue interest at a rate per annum equal to the sum of the
London Interbank Offered Rate (LIBOR) plus 10.0% per annum, payable in cash in arrears on the last
day of any interest period and the date any term loan is paid in full. In the event of default, as
defined under the Senior DIP Credit Agreement, the principal amount of all term loans and all other
due and unpaid obligations bear interest at an additional default rate of 2.00%.
63
Table of Contents
Prepayments are permitted provided that each partial prepayment is in an aggregate principal
amount of $0.5 million or integral multiples thereof. Upon payment in full of the Senior DIP Credit
Agreement, an exit fee equal to 2.00% of the aggregate principal amount outstanding under the
Senior DIP Credit Agreement is due to the lenders.
On December 24, 2009, the Company borrowed $7.5 million under the Senior DIP Credit Agreement,
accruing interest at a rate of 13.0%. As of December 31, 2009, all advances remained outstanding
and are classified as liabilities not subject to compromise in the consolidated financial
statements.
In conjunction with the borrowings, the Company capitalized in other current assets $0.7
million of DIP financing costs, which are being amortized over a period of 150 days.
The Senior DIP Credit Agreement contained various affirmative, negative, reporting and
financial covenants. The covenants, among other things, placed restrictions on the Companys
ability to acquire and sell assets, incur additional debt and required the Company to maintain
minimum liquidity levels. A breach of any covenant would constitute an event of default as further
defined in the Senior DIP Credit Agreement.
Subsequent to December 31, 2009, the Company entered into a junior secured super priority
debtor-in-possession credit agreement (Junior DIP Credit Agreement). The Junior DIP Credit
Agreement provides for financing of a junior secured super priority term loan facility in a
principal amount of up to $25 million. On February 25, 2010, the Company borrowed $10.0 million
under the Junior DIP Credit Agreement and used the funds, among other things, to pay in full the
outstanding principal balance of $7.5 million under the Senior DIP Credit Agreement. The payment
resulted in the termination of the Senior DIP Credit Agreement and triggered an exit fee of $0.2
million paid on February 25, 2010. For additional information regarding the terms of the Junior DIP
Credit Agreement refer to Note 27, Subsequent Events.
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:
| 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 December 31, 2009, $76.7 million was outstanding on this portion of the facility which is classified as liabilities subject to compromise as the liability is undersecured. | ||
| A revolving credit facility, totaling $25.0 million with a five-year term. As of December 31, 2009, the Company had $23.4 million outstanding under this portion of the facility which is classified as liabilities subject to compromise as the liability is undersecured. |
Upon the filing of the Chapter 11 petitions, certain of the Companys Credit Facility
obligations became automatically and immediately due and payable, subject to an automatic stay of
any action to collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result of the bankruptcy petitions and due to the Credit Facility
obligations being undersecured by the net assets of the Company, $100.1 million of the Companys
pre-petition Credit Facility debt is included in liabilities subject to compromise on the
consolidated balance sheet at December 31, 2009. The Company classifies pre-petition liabilities
subject to compromise as a long-term liability because management does not believe the Company will
use existing current assets or create additional current liabilities to fund these obligations.
Interest on the facility is calculated based on either prime rate or the 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 December 31, 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 and into 2009, the Company
was unable to satisfy various financial covenants. As a result, the
64
Table of Contents
Company received from its lenders numerous waivers, consents and amendments to the Credit
Agreement during the year ended December 31, 2009. All waivers, consents and amendments to the
Credit Agreement are filed with the SEC. The filing of the bankruptcy petitions also constituted an
event of default under the Credit Facility. As of December 31, 2009, the Company was operating
without a waiver of default resulting in all obligations under the Credit Facility being
automatically and immediately due and payable, subject to the automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of applicable
bankruptcy law.
Immediately prior to the time of filing the Chapter 11 Petitions, the Company had failed to
make various mandatory contractual payments under its Credit Facility, as amended. Such payments
included interest on the term and revolving credit advances of $5.0 million, principal payments on
term advances of $0.4 million and $1.4 million of other mandatory payments.
As of December 31, 2009, capitalized debt costs of $1.4 million associated with the Companys
pre-petition Credit Facility were included in liabilities subject to
compromise to adjust the
carrying amount of the outstanding obligation in accordance with ASC 852.
Capital Lease Obligations
The Company has entered into various capital leases, primarily to purchase equipment. As of
December 31, 2009, approximately $11.0 million of capital lease debt was outstanding. Approximately
$6.7 million of the balance is among the Debtors and is
classified as liabilities subject to
compromise in the consolidated financial statements at December 31, 2009. Contractual payments,
subject to potential future adjustments pursuant to the bankruptcy proceedings, for capital lease obligations for
each of the next five years and thereafter as of December 31, 2009 are as follows:
2010 |
$ | 4,558 | ||
2011 |
3,687 | |||
2012 |
2,474 | |||
2013 |
1,157 | |||
2014 |
241 | |||
Thereafter |
| |||
Total |
12,117 | |||
Less interest portion |
1,114 | |||
$ | 11,003 | |||
Sale-Leaseback Transaction
During the year ended May 31, 2002, the Company completed a sale-leaseback transaction of the
Companys International Corporate Office located in Mississauga, Ontario, Canada, between the
Company and Canada Mortgage and Housing Corporation. Total consideration received for the sale of
the building and related land was Cdn$10.1 million, which was comprised of Cdn$8.6 million in cash
and a Cdn$1.5 million 8.0% note receivable (Note Receivable). The Note Receivable had a seven-year
term with a final payment of Cdn$1.1 million received during the year ended December 31, 2008.
The Company accounted for this transaction in accordance with ASC 840, Leases. ASC 840
prohibits sale recognition on a sale-leaseback transaction when the sublease is considered to be
other than minor and the Companys only recourse to any future amounts owing from the other party
is other than the leased asset. A sublease is considered to be minor when the present value of the
sublease rent is less than 10% of the total fair market value. The Company accounted for the
transaction as a financing transaction which requires sale proceeds to be recorded as a liability
(Sale-Leaseback Liability) and for the Note Receivable to not be recognized. Lease payments,
exclusive of an interest portion, decrease the Sale-Leaseback Liability recorded. In addition,
since the sale recognition is not accounted for, the carrying value of the asset is not adjusted
for and the asset continues to be depreciated over the original depreciation period of 40 years.
On December 21, 2009, in conjunction with the Companys bankruptcy proceedings, a first day
motion was filed in the U.S. Court requesting entry of an order authorizing the Company to reject
the unexpired lease with Canada Mortgage and Housing Corporation under authority of sections 105(a)
and 365(a) of the Bankruptcy Code. On January 21, 2010, an order was entered authorizing the
Company to reject the lease effective December 21, 2009.
On December 21, 2009, and in accordance with ASC 852, the Company recorded a $4.5 million gain
to reduce the carrying value of the Sale-Leaseback Liability to $1.3 million, which is an estimate
of the probable allowed claim against the Company for the unexpired lease and has been classified
as liabilities subject to compromise on the consolidated financial statements. As the
65
Table of Contents
bankruptcy proceeds, the probable amount of the allowed claim may change as more information
regarding the ultimate settlement amount of the individual claim becomes available.
In addition to reducing the carrying value of the Sale-Leaseback Liability, on December 21,
2009, the Company wrote-off the related fixed asset balance of
$5.9 million and eliminated $0.1 million of other related capitalized costs as the
Company no longer is utilizing the International Corporate Office and does not intend to do so on a
going forward basis.
Below is a summary of the reorganization loss, net, recorded during the year ended December
21, 2009, as a result of the abandonment of the International Corporate Office and the rejection of
the related unexpired Sale-Leaseback Liability:
Gain on write-down of Sale-Leaseback Liability |
$ | 4,469 | ||
Loss on abandonment of sale-leaseback asset |
(5,943 | ) | ||
Other (a) |
(1,114 | ) | ||
Total reorganization loss, net |
$ | (2,588 | ) | |
(a) | Other primarily includes a $1.0 million increase to a restricted cash reserve included in liabilities subject to compromise. As a result of the Companys abandonment of the International Corporate Office, approximately $1.0 million of the Companys restricted cash balance was immediately due to a subleasee of the building. |
15. 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 December 31,
2009, the Company had not paid the $1.6 million Settlement Amount; as such the amount is included
in liabilities subject to compromise in the consolidated balance sheet.
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 were no longer probable, the interest rate swap was no longer deemed an
effective hedge, which resulted in the Company reclassifying the entire other comprehensive loss
balance to interest expense during the year ended December 31, 2009.
16. Stock-Based Compensation
As of December 31, 2009, the Company has issued stock options to employees, directors and
certain other individuals. Options granted have terms ranging from five to ten years. Vesting
provisions on options granted to date primarily include options that vest immediately and options
that vest in equal amounts annually, typically over a four-year period.
Total stock-based compensation for the years ended December 31, 2009 and 2008, was $0.9
million and $1.4 million, respectively. Total stock-based compensation includes expense for
TLCVision stock options and its Employee Share Purchase Plan.
As of December 31, 2009, the issued and outstanding options denominated in U.S. dollars were
at the following prices and terms:
OUTSTANDING | EXERCISABLE | |||||||||||||||||
WEIGHTED | ||||||||||||||||||
AVERAGE | WEIGHTED | WEIGHTED | ||||||||||||||||
REMAINING | AVERAGE | AVERAGE | ||||||||||||||||
PRICE RANGE | NUMBER OF | CONTRACTUAL | EXERCISE | NUMBER OF | EXERCISE | |||||||||||||
(U.S.$) | OPTIONS * | LIFE | PRICE | OPTIONS * | PRICE | |||||||||||||
$0.20 $1.88. |
1,392 | 5.4 years | $ | 0.48 | 586 | $ | 0.57 | |||||||||||
$2.44 $4.83 |
1,684 | 3.8 years | 3.61 | 1,215 | 3.66 | |||||||||||||
$5.95 $6.81 |
666 | 0.9 years | 6.36 | 566 | 6.37 | |||||||||||||
$8.19 $11.47 |
370 | 0.3 years | 10.39 | 371 | 10.39 | |||||||||||||
4,112 | 3.5 years | $ | 3.61 | 2,738 | $ | 4.47 | ||||||||||||
* | Values in thousands. |
66
Table of Contents
As of December 31, 2009, the issued and outstanding options denominated in Canadian
dollars were at the following prices and terms:
OUTSTANDING | EXERCISABLE | |||||||||||||||||
WEIGHTED | ||||||||||||||||||
AVERAGE | WEIGHTED | WEIGHTED | ||||||||||||||||
REMAINING | AVERAGE | AVERAGE | ||||||||||||||||
PRICE RANGE | NUMBER OF | CONTRACTUAL | EXERCISE | NUMBER OF | EXERCISE | |||||||||||||
(CDN $) | OPTIONS * | LIFE | PRICE | OPTIONS * | PRICE | |||||||||||||
$0.25 $1.82 |
127 | 4.9 years | Cdn $0.71 | 47 | Cdn $1.07 | |||||||||||||
$2.98 $5.31 |
116 | 4.6 years | 3.80 | 68 | 4.03 | |||||||||||||
$7.51 $7.95 |
48 | 0.8 years | 7.60 | 39 | 7.62 | |||||||||||||
$12.60 $12.68 |
23 | 0.1 years | 12.67 | 23 | 12.67 | |||||||||||||
314 | 3.8 years | Cdn $3.79 | 177 | Cdn$5.15 | ||||||||||||||
* | Values in thousands. |
Approximately 0.6 million and 0.1 million options were authorized for issuance but were
not granted as of December 31, 2009 and 2008, respectively. A summary of option activity during the
last two years follows:
WEIGHTED | WEIGHTED | AGGREGATE | AGGREGATE | |||||||||||||||||
AVERAGE | AVERAGE | INTRINSIC | INTRINSIC | |||||||||||||||||
EXERCISE PRICE | EXERCISE PRICE | VALUE | VALUE | |||||||||||||||||
OPTIONS * | PER SHARE | PER SHARE | US OPTIONS | CDN OPTIONS | ||||||||||||||||
December 31, 2007 |
4,625 | US$ | 5.43 | Cdn$6.03 | ||||||||||||||||
Granted |
1,227 | 0.50 | 0.64 | |||||||||||||||||
Exercised |
(86 | ) | 1.86 | 1.82 | ||||||||||||||||
Forfeited |
(189 | ) | 4.50 | 7.97 | ||||||||||||||||
Expired |
(562 | ) | 6.85 | 9.02 | ||||||||||||||||
December 31, 2008 |
5,015 | US$ | 4.14 | Cdn$4.79 | ||||||||||||||||
Granted |
363 | 0.20 | 0.25 | |||||||||||||||||
Exercised |
| | | |||||||||||||||||
Forfeited |
(512 | ) | 2.60 | 2.37 | ||||||||||||||||
Expired |
(440 | ) | 8.25 | 10.10 | ||||||||||||||||
December 31, 2009 |
4,426 | US$ | 3.61 | Cdn$3.79 | US$ | 0 | Cdn$0 | |||||||||||||
Exercisable at
December 31, 2009 |
2,915 | US$ | 4.47 | Cdn$5.15 | US$ | 0 | Cdn$0 | |||||||||||||
* | Values in thousands. |
The weighted average remaining contractual lives of U.S. and Canadian exercisable options
as of December 31, 2009 were 2.7 years and 2.8 years, respectively.
During the years ended December 31, 2009 and 2008, the total intrinsic value of options
exercised, defined as the excess fair value of the underlying stock over the exercise price of the
options, was approximately zero and $0.1 million, respectively.
The Company granted 0.4 million and 1.2 million options during the years ended December 31,
2009 and 2008, respectively. The options granted had a fair value of $0.1 million and $0.3 million
for the years ended December 31, 2009 and 2008, respectively.
The fair values of TLCVisions options granted were estimated at the date of grant for
employee options and at the measurement date for non-employee options using the Black-Scholes
option pricing model. The following table shows the Companys assumptions used to compute stock
based compensation expense:
2009 | 2008 | |||||||
Weighted-average risk free rate of interest |
2.45 | % | 2.19 | % | ||||
Expected volatility |
103 | % | 64 | % | ||||
Weighted-average expected award life |
3.8 years | 4.9 years | ||||||
Dividend yield |
0.00 | % | 0.00 | % |
67
Table of Contents
Expected volatility was based on historical volatility on the Companys common shares. The
risk-free interest rate was based on U.S. Treasury security yields at the time of grant. The
dividend yield on the Companys common shares is assumed to be zero since the Company has not paid
dividends and has no current plans to do so in the future due to restrictions contained within the
Companys existing Credit Facility. The expected life was primarily based on historical exercise
patterns of option holders, which the Company believes are representative of future behavior.
As of December 31, 2009, the total unrecognized compensation expense related to TLCVision
non-vested employee awards was approximately $1.2 million. The unrecognized compensation expense
will be recognized over the remaining vesting period, which expires December 2012 for certain
options. The weighted-average expense period for non-vested employee awards is 1.8 years.
17. Income Taxes
Significant components of the Companys deferred tax assets and liabilities are as follows:
DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Deferred tax asset: |
||||||||
Net operating loss carry forwards |
$ | 100,783 | $ | 91,156 | ||||
Fixed assets |
953 | 243 | ||||||
Intangibles |
12,230 | 14.263 | ||||||
Investments |
15,050 | 15,989 | ||||||
Accruals and other reserves |
6,925 | 5,163 | ||||||
Tax credits |
166 | 166 | ||||||
Other |
11,132 | 13,780 | ||||||
Total deferred tax asset |
147,239 | 140,760 | ||||||
Valuation allowance |
(147,239 | ) | (140,760 | ) | ||||
Total deferred tax asset, net of
valuation allowance |
$ | | $ | | ||||
The Company determined in both fiscal 2009 and 2008 that sufficient evidence did not exist to
support recognition of a deferred tax asset. This determination was based on many factors including
the current year loss, the lack of taxable income forecasted in future periods, and other relevant
factors.
As of December 31, 2009, the Company had total net operating losses (NOLs) available for carry
forward for income tax purposes of approximately $264.6 million, which may be available to reduce
taxable income in future years. The U.S. carry forward losses of
$224.7 million expire between 2010
and 2029. Canadian carry forward losses of $40.0 million can only be utilized by the source company
and expire between 2009 and 2028. During the year ended December 31, 2009, approximately $8.4
million of U.S. and $6.6 million of Canadian NOLs expired.
Of the total valuation allowance, separate amounts of approximately $11.0 million will be
recorded directly to equity and as a reduction to goodwill, if and when those portions of the
deferred tax assets are realized and the associated valuation allowance is reversed.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes significant annual
limitations on the utilization of 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.
Our ability to utilize the remaining NOL carryforwards could be subject to a significant
limitation if we were to undergo an ownership change for purposes of Section 382, as amended,
during or as a result of the bankruptcy proceedings.
A restructuring of our debt pursuant to the bankruptcy proceedings may give rise to
cancellation of indebtedness or debt forgiveness (COD), which if it occurs would generally be
non-taxable. If the COD is non-taxable, we will be required to reduce our NOL carryforwards and
other attributes such as capital loss carryforwards and the tax basis in assets, by an amount equal
to the non-recognized COD. Therefore, it is possible that, as a result of the successful completion
of a plan of reorganization, we will have a
68
Table of Contents
reduction of NOL carryforwards and/or other tax attributes in an amount that cannot be
determined at this time and that could have a material adverse effect on our financial future.
The differences between the provision for income taxes and the amount computed by applying the
statutory Canadian income tax rate to income before income taxes were as follows:
YEAR ENDED DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Income tax (benefit) expense at the Canadian statutory rate of 36.12% |
$ | (13,265 | ) | $ | (35,174 | ) | ||
Change in valuation allowance |
13,171 | 23,052 | ||||||
Expenses not deductible for income tax purposes |
116 | 12,136 | ||||||
State taxes |
796 | 605 | ||||||
Canadian income tax |
152 | 269 | ||||||
Rate differential on United States operations |
(22 | ) | (14 | ) | ||||
Income tax expense |
$ | 948 | $ | 874 | ||||
The provision for income taxes is as follows:
YEAR ENDED DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Current: |
||||||||
Canada |
$ | 152 | $ | 269 | ||||
United States federal |
| | ||||||
United States state |
796 | 605 | ||||||
Other |
| | ||||||
$ | 948 | $ | 874 | |||||
Deferred: |
||||||||
United States federal |
$ | | $ | | ||||
United States state |
| | ||||||
$ | | $ | | |||||
Income tax expense |
$ | 948 | $ | 874 | ||||
The Company has established accruals for certain tax contingencies for exposures associated
with tax deductions and return filing positions which may be challenged. The tax contingency
accruals are adjusted quarterly in light of changing facts and circumstances, such as the progress
of tax audits, case law and statute of limitations. A number of years may elapse before a
particular matter is resolved. The Company believes its tax contingency accruals are adequate to
address known tax contingencies. Tax contingency accruals of $0.3 million are
recorded in accrued liabilities in the consolidated balance sheets at December 31, 2009 and 2008,
respectively.
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.
18. Other Expense (Income), Net
Other expense (income), net includes the following operating items:
YEAR ENDED DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Other expense (income): |
||||||||
(Gain) loss on sales and disposals of fixed assets |
$ | (338 | ) | $ | (269 | ) | ||
Center restructuring and closing costs |
776 | | ||||||
Loss (gain) on business divestitures |
1,594 | (139 | ) | |||||
Employee severance expense |
2,624 | | ||||||
Financial and legal advisor costs |
15,570 | | ||||||
Write-off of receivables due from and investments in
Notal Vision® |
4,458 | | ||||||
Miscellaneous expense (income) |
1,142 | 69 | ||||||
$ | 25,826 | $ | (339 | ) | ||||
69
Table of Contents
19. Net Loss Per Share
Basic loss per share was $0.73 and $1.95 for the years ended December 31, 2009 and 2008,
respectively. The per share amounts have been computed on the basis of the weighted average number
of shares outstanding.
Below is a reconciliation of basic and diluted per share detail to net loss and income: |
YEAR ENDED | ||||||||
DECEMBER 31, | ||||||||
(in thousands, except per share amounts) | 2009 | 2008 | ||||||
Numerator: |
||||||||
Net loss attributable to TLC Vision Corporation |
$ | (36,724 | ) | $ | (98,254 | ) | ||
Denominator: |
||||||||
Weighted-average shares outstanding basic |
50,554 | 50,319 | ||||||
Effect of dilutive stock options * |
| | ||||||
Weighted-average shares outstanding diluted |
50,554 | 50,319 | ||||||
Net loss attributable to TLC Vision Corporation
per common share: |
||||||||
Basic |
$ | (0.73 | ) | $ | (1.95 | ) | ||
Diluted |
$ | (0.73 | ) | $ | (1.95 | ) |
* | The effects of including the incremental shares associated with options and warrants are anti-dilutive for years ended December 31, 2009 and 2008 and are not included in weighted-average shares outstanding-diluted. The total weighted-average number of options with exercise prices less than the average closing price of the Companys common shares was zero and 0.2 million for the years ended December 31, 2009 and 2008, respectively. |
20. Commitments and Contingencies
Commitments
The Company leases certain center facilities under operating leases with terms generally of
five to ten years. Certain leases contain rent escalation clauses and rent-free periods that are
charged to rent expense on a straight-line basis. The leases usually contain renewal clauses at the
Companys option at fair market value. For the years ended December 31, 2009 and 2008, total rent
expense, including minimum and contingent payments, was $9.0 million and $9.2 million,
respectively. As of December 31, 2009, the Company has commitments relating to non-cancellable
operating leases for rental of office space and equipment requiring future minimum payments
aggregating approximately $27.0 million.
Future minimum payments over the next five years and thereafter are as follows:
2010 |
$ | 8,044 | ||
2011 |
6,276 | |||
2012 |
4,915 | |||
2013 |
3,452 | |||
2014 |
1,821 | |||
Thereafter |
2,515 | |||
$ | 27,023 | |||
As of December 31, 2009, the Company had commitments related to long-term marketing contracts
which require payments totaling $6.0 million through 2011. Future contractual minimum payments over
the next two years are as follows:
2010
|
3,000 | |||
2011
|
3,000 | |||
$ | 6,000 | |||
Certain of the Companys lease and marketing commitments are subject to the Companys
bankruptcy proceedings. However, the commitments disclosed above do not adjust for the potential
rejection and/or reduction of any lease or marketing commitment in the due course of the bankruptcy
proceedings.
70
Table of Contents
Legal Contingencies
Except for bankruptcy proceedings described in Note 1, Bankruptcy Proceedings, at December 31,
2009 there were no material pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Company or any of its subsidiaries is a party or of which
any of their property is the subject.
The Company is subject to various claims and legal actions in the ordinary course of its
business, which may or may not be covered by insurance. These matters include, without limitation,
professional liability, employee-related matters and inquiries and investigations by governmental
agencies. While the ultimate results of such matters cannot be predicted with certainty, the
Company believes that the resolution of these matters will not have a material adverse effect,
individually or in the aggregate, on its consolidated financial position or results of operations.
Regulatory Tax Contingencies
TLCVision operates in 48 states and three Canadian provinces and is subject to various
federal, state, provincial and local income, payroll, unemployment, property, franchise, capital,
sales and use tax on its operations, payroll, assets and services. TLCVision endeavors to comply
with all such applicable tax regulations, many of which are subject to different interpretations,
and has hired outside tax advisors who assist in the process. Many states and other taxing
authorities have been interpreting laws and regulations more aggressively to the detriment of
taxpayers such as TLCVision and its customers. TLCVision believes that it has adequate provisions
and accruals in its financial statements for such liabilities, although it cannot predict the
outcome of future tax assessments.
21. 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 $1.4 million and $2.3 million for the year ended
December 31, 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.
Assets of the Companys corporate operations, including corporate headquarters, have not been
allocated among the various segments. The amounts are included in the refractive centers segment.
71
Table of Contents
The Companys reportable segments are as follows:
DOCTOR SERVICES | EYE CARE | |||||||||||||||||||||||
YEAR ENDED DECEMBER 31, 2009 | REFRACTIVE | REFRACTIVE | MOBILE | OPTOMETRIC | ||||||||||||||||||||
(IN THOUSANDS) | CENTERS | ACCESS | CATARACT | OTHER | FRANCHISING | TOTAL | ||||||||||||||||||
Revenues |
$ | 107,326 | $ | 23,966 | $ | 41,799 | $ | 26,130 | $ | 30,969 | $ | 230,190 | ||||||||||||
Cost of revenues (excluding amortization) |
83,812 | 19,221 | 31,265 | 17,792 | 14,916 | 167,006 | ||||||||||||||||||
Gross profit |
23,514 | 4,745 | 10,534 | 8,338 | 16,053 | 63,184 | ||||||||||||||||||
Segment expenses: |
||||||||||||||||||||||||
Marketing and sales |
12,318 | 77 | 5,181 | 425 | 3,934 | 21,935 | ||||||||||||||||||
G&A, amortization and other |
6,086 | 9 | 3,521 | 2,767 | 15 | 12,398 | ||||||||||||||||||
Impairment * |
1,018 | | | | | 1,018 | ||||||||||||||||||
Earnings from equity investments |
(334 | ) | | | (973 | ) | | (1,307 | ) | |||||||||||||||
Segment profit |
$ | 4,426 | $ | 4,659 | $ | 1,832 | $ | 6,119 | $ | 12,104 | $ | 29,140 | ||||||||||||
Noncontrolling interest |
580 | 32 | | 3,219 | 5,637 | 9,468 | ||||||||||||||||||
Segment profit attributable to TLC Vision Corp |
$ | 3,846 | $ | 4,627 | $ | 1,832 | $ | 2,900 | $ | 6,467 | $ | 19,672 | ||||||||||||
Corporate operating expenses |
(39,801 | ) | ||||||||||||||||||||||
Reorganization items, net |
(3,229 | ) | ||||||||||||||||||||||
Interest expense, net |
(12,418 | ) | ||||||||||||||||||||||
Income tax expense |
(948 | ) | ||||||||||||||||||||||
Net loss attributable to TLC Vision Corporation |
(36,724 | ) | ||||||||||||||||||||||
Depreciation and amortization |
$ | 9,506 | $ | 2,133 | $ | 2,871 | $ | 1,350 | $ | 48 | $ | 15,908 | ||||||||||||
Total assets |
$ | 43,780 | $ | 16,444 | $ | 28,210 | $ | 12,297 | $ | 14,185 | $ | 114,916 |
* | Note: Refractive Centers impairment charge of $1.0 million includes approximately $0.3 million of allocated corporate related impairment charges. |
DOCTOR SERVICES | EYE CARE | |||||||||||||||||||||||
YEAR ENDED DECEMBER 31, 2008 | REFRACTIVE | REFRACTIVE | MOBILE | OPTOMETRIC | ||||||||||||||||||||
(IN THOUSANDS) | CENTERS | ACCESS | CATARACT | OTHER | FRANCHISING | TOTAL | ||||||||||||||||||
Revenues |
$ | 151,442 | $ | 29,176 | $ | 40,916 | $ | 25,523 | $ | 28,611 | $ | 275,668 | ||||||||||||
Cost of revenues (excluding amortization) |
110,824 | 23,623 | 30,294 | 17,187 | 13,010 | 194,938 | ||||||||||||||||||
Gross profit |
40,618 | 5,553 | 10,622 | 8,336 | 15,601 | 80,730 | ||||||||||||||||||
Segment expenses: |
||||||||||||||||||||||||
Marketing and sales |
31,235 | 140 | 6,533 | 484 | 4,333 | 42,725 | ||||||||||||||||||
G&A, amortization and other |
7,765 | (299 | ) | 3,931 | 1,591 | 51 | 13,039 | |||||||||||||||||
Impairment ** |
73,865 | 6,493 | | 4,689 | | 85,047 | ||||||||||||||||||
Loss (earnings) from equity investments |
1,820 | | | (1,260 | ) | | 560 | |||||||||||||||||
Segment profit |
$ | (74,067 | ) | $ | (781 | ) | $ | 158 | $ | 2,832 | $ | 11,217 | $ | (60,641 | ) | |||||||||
Noncontrolling interest |
912 | 56 | | 3,383 | 5,179 | 9,530 | ||||||||||||||||||
Segment profit attributable to TLC Vision Corp |
$ | (74,979 | ) | $ | (837 | ) | $ | 158 | $ | (551 | ) | $ | 6,038 | $ | (70,171 | ) | ||||||||
Corporate operating expenses |
(17,871 | ) | ||||||||||||||||||||||
Interest expense, net |
(9,338 | ) | ||||||||||||||||||||||
Income tax expense |
(874 | ) | ||||||||||||||||||||||
Net loss attributable to TLC Vision Corporation |
(98,254 | ) | ||||||||||||||||||||||
Depreciation and amortization |
$ | 12,423 | $ | 2,939 | $ | 2,742 | $ | 1,516 | $ | 50 | $ | 19,670 | ||||||||||||
Total assets |
$ | 61,599 | $ | 16,910 | $ | 25,531 | $ | 17,848 | $ | 15,094 | $ | 136,982 |
** | Note: Refractive Centers impairment charge of $73.9 million includes approximately $2.3 million of allocated corporate related impairment charges. |
72
Table of Contents
The Companys geographic segments are as follows:
YEAR ENDED DECEMBER 31, 2009 | CANADA | UNITED STATES | TOTAL | |||||||||
Revenues |
$ | 11,826 | $ | 218,364 | $ | 230,190 | ||||||
Total fixed assets and intangibles |
$ | 2,311 | $ | 66,421 | $ | 68,732 | ||||||
YEAR ENDED DECEMBER 31, 2008 | CANADA | UNITED STATES | TOTAL | |||||||||
Revenues |
$ | 15,199 | $ | 260,469 | $ | 275,668 | ||||||
Total fixed assets and intangibles |
$ | 6,510 | $ | 83,202 | $ | 89,712 | ||||||
22. Fair Value Measurements
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 Company uses fair value
measurements when it periodically revaluates the recoverability of goodwill and other intangible
assets. The Companys adoption of the additional fair value guidance in fiscal 2009 did not have a
material impact on the financial statements.
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 $14.6 million at December 31, 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 December 31, 2009, the carrying value and approximate fair value of the Companys
pre-petition Credit Facility advances and debtor-in-possession borrowings was $107.6 million and
$105.6 million, respectively. 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.
The carrying value of the Companys cost method investments was zero and $2.0 million as of
December 31, 2009 and 2008. During the years ended December 31, 2009 and 2008, the Company recorded
impairment charges of $0.3 million and $2.3 million, respectively, to reduce the carrying value of
its cost method investments to estimated market values (Level 3).
23. Supplemental Cash Flow Information
Significant non-cash transactions: |
YEAR ENDED DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Capital lease obligations relating to equipment purchases |
$ | 2,042 | $ | 3,110 | ||||
Option and warrant reduction |
| 92 | ||||||
Other comprehensive (income) loss on hedge |
(1,545 | ) | 761 |
73
Table of Contents
Cash paid for the following:
YEAR ENDED DECEMBER 31, | ||||||||
2009 | 2008 | |||||||
Interest |
$ | 6,938 | $ | 8,637 | ||||
Income taxes |
$ | 858 | $ | 1,246 | ||||
24. 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 reports to the
Board of Directors and is comprised of: the Chairman, Warren Rustand; the President and Chief
Operating Officer, James B.Tiffany; and the 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 were: Steven P. Rasche, Chief Financial Officer; Brian L. Andrew, General Counsel and
Secretary; and Larry D. Hohl, President of Refractive Centers. 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.
25. Related Party Transactions
As noted in Note 24, 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 bankruptcy proceedings and restructuring efforts, which
include cost saving initiatives and Credit Facility negotiations. During the year ended December
31, 2009, the Company incurred approximately $2.2 million in professional fees from CDG.
The Company has an agreement with Minnesota Eye Consultants to provide laser access. Dr.
Richard Lindstrom, a director of TLCVision, is founder, partner and attending surgeon of Minnesota
Eye Consultants. The Company received revenue of $0.7 million and $0.8 million as a result of the
agreement for the years ended December 31, 2009 and 2008, respectively. Dr. Lindstrom also receives
annual compensation from the Company in his capacity as medical director of TLCVision and as a
consultant to Sightpath Medical.
26. Defined Contribution and Employee Stock Purchase Plans
Defined Contribution Plan
The Company sponsors a defined contribution plan, which extends participation eligibility to
substantially all U.S. employees. Amounts charged to expenses during the years ended December 31,
2009 and 2008 were $0.1 million and $0.5 million, respectively, under the defined contribution
plan. Effective April 2009, the Company suspended its 25% match of participants before-tax
contributions up to 8% of eligible compensation.
Employee Stock Purchase Plan
Under our Employee Stock Purchase Plan (ESPP) participants may contribute up to 10% of their
annual compensation to purchase common shares of the Company. The purchase price of the shares is
equal to 85% of the closing price of TLCVision on the first day or the last day of each quarterly
offering period, whichever is less.
During the year ended December 31, 2009, the number of shares available for issuance under the
ESPP reached zero, as a result no additional shares will be issued unless the number of shares
available under the ESPP is increased by a vote of common
74
Table of Contents
shareholders. For the years ended December 31, 2009 and 2008, there were approximately 159,000 and 180,000 shares issued under
the Employee Stock Purchase Plan.
27. Subsequent Events
In connection with the First Amended Plan, further described in Note 1, Bankruptcy
Proceedings, the Company filed a motion seeking approval from the Bankruptcy Courts for a junior
secured super priority debtor-in-possession credit agreement (Junior DIP Credit Agreement). The
Junior DIP Credit Agreement, approved by the U.S. Court via an interim order on February 12, 2010
and the Canadian Court on February 18, 2010, is dated February 3, 2010 among the Debtors, various
lenders and Charlesbank Equity Fund VII, Limited Partnership as collateral and administrative
agent.
The Junior DIP Credit Agreement provided for financing of a junior secured super priority term
loan facility in a principal amount up to $25.0 million. On February 25, 2010, the Company borrowed
$10.0 million under the Junior DIP Credit Agreement and used the funds, among other things, to pay
down the previously existing $7.5 million outstanding principal balance under the Senior DIP Credit
Agreement.
The maximum maturity date of the borrowings under the Junior DIP Credit Agreement is the
earlier of (a) May 20, 2010, (b) the effective date of a plan of reorganization, (c) the date on
which a sale or sales of all or substantially all of the Companys assets is consummated under
Section 363 of the Bankruptcy Code, (d) the date of conversion of any of the bankruptcy cases to a
case under Chapter 7 of the Bankruptcy Code or any equivalent proceeding in the Canadian Case, (e)
a proposal or liquidation of any or all of the assets of the Company under the Bankruptcy and
Insolvency Act (Canada), (f) the dismissal of any of the bankruptcy cases, or (g) approval by the
Bankruptcy Courts of any other debtor-in-possession financing for the Company.
Borrowings accrue interest at a rate per annum equal to the sum of LIBOR plus 10.0% per annum,
payable in cash in arrears on the last day of any interest period and the date any term loan is
paid in full. In the event of default, as defined under the Junior DIP Credit Agreement, the
principal amount of all term loans and all other due and unpaid obligations bear interest at an
additional default rate of 2.00%.
The Junior DIP Credit Agreement contains various affirmative, negative, reporting and
financial covenants. The covenants, among other things, place restrictions on the Companys ability
to acquire and sell assets, incur additional debt and require the Company to maintain minimum
liquidity levels. A breach of any covenant constitutes an event of default as further defined in
the Junior DIP Credit Agreement.
Prepayments are permitted provided that each partial prepayment is in an aggregate principal
amount of $0.5 million or integral multiples thereof. Upon payment in full of the Junior DIP Credit
Agreement, an exit fee equal to 4.00% of the aggregate principal amount outstanding under the
Junior DIP Credit Agreement is due to the lenders.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | 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-K, 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
75
Table of Contents
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.
Managements Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal
control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934. The Companys internal control over financial reporting is designed to provide reasonable
assurance to the Companys management and board of directors regarding the preparation and fair
presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2009. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Based on our assessment, we believe that, as of December 31, 2009,
the Companys internal control over financial reporting is effective based on those criteria.
This Annual Report on Form 10-K does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial reporting. Managements
report was not subject to attestation by the Companys registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit the Company to provide
only managements report in this Annual Report on Form 10-K.
ITEM 9B. | OTHER INFORMATION |
Not applicable.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS OF AND CORPORATE GOVERNANCE |
The following are brief summaries of the business experience of each of the Companys
executive officers:
| James B. Tiffany, age 53, became the Companys President and Chief Operating Officer in April 2009. Prior to that, Mr. Tiffany served as President of Sightpath Medical, Inc., a subsidiary of the Company, from August 2003 to April 2009. He served as General Manager of MSS, Inc. from July 2000 to August 2003, and as Vice President of Sales and Marketing of LaserVision from January 1999 to July 2000. Mr. Tiffany received his undergraduate degree from Arizona State University and a Master of Business Administration Degree from Washington University in St. Louis, Missouri. | ||
| Michael Gries, age 55, was appointed Chief Restructuring Officer in April 2009 and is a principal and co-founder of Conway Del Genio Gries & Co., LLC (CDG), a financial advisor firm. Mr. Gries is a nationally recognized leader in the restructuring profession with more than 25 years experience advising companies and creditors on complex corporate reorganizations. Since 1984, Mr. Gries has specialized in providing business and financial advice to Boards of Directors, management, investors and other parties in interest in distressed and turnaround situations. Prior to co-founding CDG, Mr. Gries was a Partner and Director of the Northeast Restructuring and Reorganization practice of Ernst & Young LLP, which was at the time one of the largest restructuring practices in the country. Mr. Gries has a Bachelor of Science in Business Administration degree, with specializations in Accounting and Finance, from Northeastern University. He is a Certified Public Accountant (CPA) and a Certified Restructuring and Reorganization Accountant. |
76
Table of Contents
| William McManus, age 54, was appointed interim Chief Financial Officer in April 2009 and is a managing director of CDG. Mr. McManus has more than 20 years of senior financial, operational, and consulting experience in turnaround/restructuring environments. He has served in senior management positions in a variety of industries, such as: Automotive, Media & Publishing, Home Furnishing, Consumer Goods, Packaging, Forest Products, Capital Equipment, and Healthcare. Prior to joining CDG in February 2009, Mr. McManus worked at Horizon Management from 2001 to 2009 as a Managing Director specializing in crisis / interim management. Mr. McManus graduated from Notre Dame where he received a Bachelor of Science in Business Administration degree, with a specialization in Finance. | ||
| Charles H. Judy, age 40, was appointed Senior Vice President, Shared Services and Secretary in April 2009. Mr. Judy joined the Company in 2007 as Vice President, Human Resources. Prior to joining TLCVision, Mr. Judy was a National Human Resources Director at Deloitte, one of the worlds largest professional services firms with over 120,000 employees. During his thirteen years with the organization, Mr. Judy provided senior human resources and recruiting leadership to a number of large and diverse practices throughout the world. Mr. Judy was also the Vice President, Human Resources for Maverick Technologies LLC, North Americas largest independent control systems integrator and industrial automation consultancy. He is a graduate of Tulane Universitys A.B. Freeman School of Business with a Bachelor of Science in Management degree. Mr. Judy is also a CPA (non-practicing) and a certified Senior Professional of Human Resources. | ||
| James J. Hyland, age 57, joined TLCVision as Vice President, Investor Relations in 2007. Prior to joining TLCVision, Mr. Hyland was VP Investor Relations and Corporate Communications for USF Corp, a $2.4 billion Chicago based transportation holding company. In addition, Mr. Hyland was Senior Vice President Investor Relations for Comdisco, a Rosemont, Illinois based Fortune 500 financial and technology services firm. Mr. Hyland is a graduate of the University of Illinois with a Bachelor of Science in Business Administration degree, with a specialization in Finance. | ||
| Henry Lynn, age 59, became Chief Information Officer (CIO) of TLCVision in March 1998. Mr. Lynn has executive management responsibilities regarding the various information systems utilized throughout the Company. Prior to joining TLCVision, he was employed as the CIO for Beacon Eye, Inc., a laser vision correction company. He holds a Data Processing degree from Glasgow College of Technology, Scotland. | ||
| Ellen-Jo E. Plass, age 40, became the Companys Senior Vice President, Center Operations in June 2009. Prior to that, Mrs. Plass served as Vice President of Center Support Services for TLC Laser Eye Centers from January 2006 to June 2009. Through her career within TLCVision shes served in a number of roles within the organization from National Director, Center Support Services, from 2002 to 2006, to International Director, Training and Development, from 1999 to 2002. Her first role within the Company was in 1995 at a flagship TLC center in Windsor, Ontario, Canada where she was that centers Executive Director. Mrs. Plass received her Bachelor of Arts, Psychology in 1991 from the University of Windsor and her Post Graduate in 1992 specializing in Gerontology from Algonquin College. | ||
| Jim Feinstein, age 39, became TLCVisions Senior Vice President of Sales in April 2009. Prior to that, Mr. Feinstein served as the Companys Vice President, Western Zone, from 2008 to 2009 and Vice President, North Central Region, from 2004 to 2007. In 2007, he was recognized by the Midwest Organ and Donor Board as one of 30 influential people in ophthalmology. Mr. Feinstein is a graduate of the University of Iowa with a Bachelor of Arts in English. | ||
| Dan Robins, age 39, joined the Company in December of 1998 first as a Laser Engineer with LaserVision and later holding the positions of Senior Engineer; North East Operations Manager; Manager of Recruitment, Staff Development and Research; Director of Senior Engineering and Research; and National Director of Operations. He moved into his current position as Vice President of Operations in January 2006 where he is responsible for all day-to-day operations of the mobile refractive segment. Mr. Robins began his career in operations and logistics while serving in the United States Army as an Avenger Missile System Technician from 1989 to 1997. He holds an Associate of Applied Science degree in Laser Electro-Optics and is finishing his Bachelor of Arts in Business Management degree at Rasmussen College. | ||
| Patricia S. Larson, age 49, joined the Company in July 2003 as Associate General Counsel. Prior to that, Ms. Larson was the General Counsel and Executive Vice President - General Manager from 1993 to 2002 of Husky Corporation, a privately held company that designs, manufactures and distributes equipment for the petroleum dispensing industry. Prior thereto, Ms. Larson was in the private practice of law in the St. Louis office of Polsinelli Shugart, PC and with Paule, Camazine, Bluementhal, PC. Prior to joining these law firms, Ms. Larson served as a Senior Tax Consultant with Ernst & Young. Ms. Larson received her Juris Doctor from the University of Missouri Kansas City and a Bachelor of Science in Accountancy degree from the University of Missouri Columbia. |
77
Table of Contents
| Jonathan Compton, age 38, joined the Company in July 2002 as Director of Taxation. Mr. Compton was appointed as an officer of the Company in December 2002. Prior to that, Mr. Compton was the Corporate Tax Manager and Assistant Treasurer at BioMaerieux, Inc., from 1998 2002. Mr. Compton is a graduate of the University of Missouri with a Bachelor of Science in Business Administration degree, with a specialization in Accounting. Mr. Compton is also a CPA (non-practicing). |
The information required by Item 401 of Regulation S-K regarding directors is hereby
incorporated by reference to the Companys definitive proxy statement to be filed within 120 days
after the end of the Companys fiscal year ended December 31, 2009. The information required by
Item 405 of Regulation S-K is hereby incorporated by reference to the Companys definitive proxy
statement to be filed within 120 days after the end of the Companys fiscal year ended December 31,
2009. The information required by Items 407(c)(3), (d)(4), and (d)(5) of Regulation S-K is hereby
incorporated by reference to the Companys definitive proxy statement to be filed within 120 days
after the end of the Companys fiscal year ended December 31, 2009.
Formal, written policies and procedures have been adopted, consistent with legal requirements,
including a Code of Ethics applicable to the Companys principal executive officers, principal
financial officer, and principal accounting officer or controller. The Companys Corporate
Governance Guidelines, its charters for each of its Audit, Compensation, Nominating and Corporate
Governance Committees and its Code of Ethics covering all employees are available on the Companys
website, www.tlcv.com, and a copy will be mailed upon request to Investor Relations, TLC Vision
Corporation, 16305 Swingley Ridge Rd., Ste. 300, Chesterfield, MO 63017.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Item 11 is hereby incorporated by reference to the Companys
definitive proxy statement to be filed within 120 days after the end of the Companys fiscal year
ended December 31, 2009.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Equity Compensation Plan Information
The following table provides information as of December 31, 2009, regarding compensation plans
under which equity securities of TLCVision are authorized for issuance (shares in thousands).
Number of | ||||||||||||
securities | ||||||||||||
remaining available | ||||||||||||
Number of | for future | |||||||||||
securities to be | issuances under | |||||||||||
issued upon | Weighted-average | equity compensation | ||||||||||
exercise of | exercise price of | plans (excluding | ||||||||||
outstanding | outstanding | securities | ||||||||||
options, warrants | options, warrants | reflected in column | ||||||||||
and rights | and rights | (a)) | ||||||||||
Plan category | (a) | (b) | (c) | |||||||||
Equity compensation
plans approved by
security holders |
4,426 | $ | 3.61 | (1) | 649 | |||||||
Equity compensation
plans not approved
by security holders |
| | | |||||||||
Total |
4,426 | $ | 3.61 | (1) | 649 | |||||||
(1) | Represents the weighted-average exercise price of outstanding options, warrants and rights denominated in U.S. dollars. The weighted-average exercise price of outstanding options, warrants and rights denominated in Canadian dollars was Cdn$3.79. |
See Note 16, Stock-Based Compensation, to the audited consolidated financial statements for more
information regarding the material features of the Companys outstanding options, warrants and
rights.
78
Table of Contents
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this Item 13 is hereby incorporated by reference to the Companys
definitive proxy statement to be filed within 120 days after the end of the Companys fiscal year
ended December 31, 2009.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Item 14 is hereby incorporated by reference to the Companys
definitive proxy statement to be filed within 120 days after the end of the Companys fiscal year
ended December 31, 2009.
PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of the report:
(1) Financial statements:
Report of Independent Registered Public Accounting Firm.
Consolidated Statements of Operations Years Ended December 31, 2009 and 2008.
Consolidated Balance Sheets as of December 31, 2009 and 2008.
Consolidated Statements of Cash Flows Years Ended December 31, 2009 and 2008.
Consolidated Statements of Stockholders (Deficit) Equity Years Ended December 31, 2009 and
2008.
Notes to Consolidated Financial Statements
(2) Exhibits required by Item 601 of Regulation S-K and by Item 14(c).
See Exhibit Index.
(b) Exhibits required by Item 601 of Regulation S-K.
See Exhibit Index.
79
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TLC VISION CORPORATION |
|||||
By | /s/ JAMES B. TIFFANY | ||||
James B. Tiffany, Chief Operating Officer | |||||
March 31, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
date indicated.
SIGNATURE | TITLE | DATED | ||
/s/ JAMES B. TIFFANY
|
Chief Operating Officer | March 31, 2010 | ||
James. B. Tiffany |
||||
/s/ MICHAEL F. GRIES
|
Chief Restructuring Officer | March 31, 2010 | ||
Michael F. Gries |
||||
/s/ WILLIAM J. MCMANUS
|
Interim Chief Financial Officer | March 31, 2010 | ||
William J. McManus |
||||
/s/ WARREN S. RUSTAND
|
Chairman of the Board of Directors and Director | March 31, 2010 | ||
Warren S. Rustand |
||||
/s/ RICHARD L. LINDSTROM, M.D.
|
Director | March 31, 2010 | ||
Richard L. Lindstrom, M.D. |
||||
/s/ TOBY S. WILT
|
Director | March 31, 2010 | ||
Toby S. Wilt |
||||
/s/ MICHAEL D. DEPAOLIS, O.D.
|
Director | March 31, 2010 | ||
Michael D. DePaolis, O.D. |
||||
/s/ JAY T. HOLMES
|
Director | March 31, 2010 | ||
Jay T. Holmes |
||||
/s/ OLDEN C. LEE
|
Director | March 31, 2010 | ||
Olden C. Lee |
||||
/s/ GARY F. JONAS
|
Director | March 31, 2010 | ||
Gary F. Jonas |
80
Table of Contents
EXHIBIT INDEX
EXHIBIT | ||||
NO. | DESCRIPTION | |||
3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Companys 10-K filed with the
Commission on August 28, 1998) |
|||
3.2 | Articles of Amendment (incorporated by reference to Exhibit 3.2 to the Companys 10-K filed with the
Commission on August 29, 2000) |
|||
3.3 | Articles of Continuance (incorporated by reference to Exhibit 3.6 to the Companys Registration Statement
on Form S-4/A filed with the Commission on March 1, 2002 (file no. 333-71532)) |
|||
3.4 | Articles of Amendment (incorporated by reference to Exhibit 4.2 to the Companys Post Effective Amendment
No. 1 on Form S-8 to the Companys Registration Statement on Form S-4 filed with the Commission on May
14, 2002 (file no. 333-71532)) |
|||
3.5 | By-Laws of the Company (incorporated by reference to Exhibit 3.6 to the Companys Registration Statement
on Form S-4/A filed with the Commission on March 1, 2002 (file no. 333-71532)) |
|||
4.1 | Shareholder Rights Plan Agreement dated March 4, 2005, as amended as of June 16, 2005, between the
Company and CIBC Mellon Trust Company (incorporated by reference to Exhibit 99.2 to the Companys 8-K
filed with the Commission on June 20, 2005 (file no. 000-29302)) |
|||
10.1* | TLC Vision Corporation Amended and Restated Share Option Plan (incorporated by reference to Exhibit 4.2
to the Companys Registration Statement on Form S-8 filed with the Commission on June 23, 2004 (file no.
333-116769)) |
|||
10.2* | TLC Corporation 2004 Employee Share Purchase Plan (incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form S-8 filed with the Commission on June 23, 2004 (file no.
333-116769)) |
|||
10.3 | Amended and Restated Master Capital Lease Agreement with Advanced Medical Optics (IntraLase Corp),
portions of which omitted pursuant to a request for confidential treatment filed separately with the
Commission, dated December 18, 2007 (incorporated by reference to Exhibit 10.1 to the Companys 10-Q for
the three and nine months ended September 30, 2008) |
|||
10.4* | Consulting Agreement with Richard L. Lindstrom, M.D. dated July 1, 2008 (incorporated by reference to
Exhibit 10.2 to the Companys 10-Q for the three and nine months ended September 30, 2008) |
|||
10.5 | Agreement and Plan of Merger By and Among TruVision, Inc. and TLC Wildcard Corp. and TLC Vision
Corporation and TLC Vision (USA) Corporation and Lindsay T. Atwood dated as of October 27, 2005
(incorporated by reference to Exhibit 2.3 to the Companys 10-Q for the three and nine months ended
September 30, 2005). |
|||
10.6 | Amended and Restated Credit Agreement By and Among TLC Vision Corporation, TLC Vision (USA) Corporation,
CIT Capital Securities, LLC, CIT Healthcare, LLC and Lenders dated as of June 21, 2007 (incorporated by
reference to Exhibit 12.(B) to the Companys Schedule TO-I/A filed June 22, 2007) |
|||
10.7 | Amendment No. 1 to the Amended and Restated Credit Agreement dated as of June 21, 2007 (incorporated by
reference to Exhibit 10.23 to the Companys 10-K for the year ended December 31, 2007) |
|||
10.8 | Limited Waiver and Amendment No. 2 to Credit Agreement dated as of March 31, 2009 (incorporated by
reference from TLC Vision Corporations Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 3, 2009). |
|||
10.9 | Limited Waiver, Consent and Amendment No. 3 to Credit Agreement dated as of June 5, 2009 (incorporated by
reference from TLC Vision Corporations Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 9, 2009). |
|||
10.10 | Limited Waiver, Consent 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). |
|||
10.11 | 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.) |
|||
10.12 | 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.) |
Table of Contents
EXHIBIT | ||||
NO. | DESCRIPTION | |||
10.13 | Amendment No. 2, entered August 10, 2009, to Agreement and Plan of Merger, dated as of October 27, 2005,
by and among TruVision, Inc., TLC Wildcard Corp., TLC Vision Corporation, TLC Vision (USA) Corporation
and Lindsay T. Atwood (incorporated by reference to Exhibit 10.4 to the Companys 10-Q for the three and
six months ended June 30, 2009). |
|||
10.14 | 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 (incorporated by reference to Exhibit 10.1 to the Companys 10-Q for the three and nine
months ended September 30, 2009). |
|||
10.15* | Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC Vision Corporation, dated as of February
16, 2009 (incorporated by reference to Exhibit 10.2 to the Companys 10-Q for the three and nine months
ended September 30, 2009). |
|||
10.16* | Addendum to the Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC Vision Corporation, dated
April 23, 2009 (incorporated by reference to Exhibit 10.3 to the Companys 10-Q for the three and nine
months ended September 30, 2009). |
|||
10.17 | Senior Secured Super Priority Debtor-In-Possession Credit Agreement dated as of December 23, 2009 among
TLC Vision (USA) Corporation, TLC Vision Corporation, TLC Management Services Inc., Cantor Fitzgerald
Securities and lenders. |
|||
10.18 | Plan Sponsor Agreement dated February 3, 2010 by and among TLC Vision Corporation, TLC Vision (USA)
Corporation, TLC Management Services, Inc., Thriller Acquisition Corp. and Thriller Canada Acquisition
Corp (incorporated by reference from TLC Vision Corporations Current Report on Form 8-K filed with the
Securities Exchange Commission on February 2, 2010). |
|||
10.19 | Amendment to the Plan Sponsor Agreement dated February 3, 2010 by and among TLC Vision Corporation, TLC
Vision (USA) Corporation, TLC Management Services, Inc., Thriller Acquisition Corp. and Thriller Canada
Acquisition Corp (incorporated by reference from TLC Vision Corporations Current Report on Form 8-K
filed with the Securities Exchange Commission on February 12, 2010). |
|||
10.20 | Fourth Amended Joint Chapter 11 Plan of Reorganization dated as of March 24, 2010. |
|||
21 | List of the Companys Subsidiaries |
|||
23 | Consent of Independent Registered Public Accounting Firm |
|||
31.1 | Chief Operating Officers Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934. |
|||
31.2 | Chief Restructuring Officers Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934. |
|||
31.3 | Interim Chief Executive Officers Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934. |
|||
32.1 | Chief Operating Officers Certification of periodic financial report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, U.S.C. Section 1350 |
|||
32.2 | Chief Restructuring Officers Certification of periodic financial report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, U.S.C. Section 1350 |
|||
32.3 |
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 |
* | Management contract or compensatory plan or arrangement. |