SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2000
COMMISSION FILE NUMBER: 0-29302
TLC LASER EYE CENTERS INC.
--------------------------
(Exact name of registrant as specified in its charter)
Ontario, Canada 980151150
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5280 Solar Drive, Suite 300
Mississauga, Ontario L4W 5M8
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code (905) 602-2020
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes No |_|
As of November 30, 2000, there were 37,979,154 of the registrant's Common
Shares outstanding.
1
This Quarterly Report on Form 10-Q (herein, together with all amendments,
exhibits and schedules hereto, referred to as the "Form 10-Q") contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which
statements can be identified by the use of forward looking terminology, such as
"may", "will", "expect", "anticipate", "estimate", "plans", "intends" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including but not limited to those set forth elsewhere in this Form 10-Q in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in the Company's Annual Report on Form 10-K for
the year ended May 31, 2000. Unless the context indicates or requires otherwise,
references in this Form 10-Q to the "Company" or "TLC" shall mean TLC Laser Eye
Centers Inc. and its subsidiaries. The Company's fiscal year ends on May 31.
Therefore, references in this Form 10-Q to "fiscal 2000" shall mean the 12
months ended on May 31, 2000 and "fiscal 2001" shall mean to 12 months ending on
May 31, 2001. References to "$" or "dollars" shall mean U.S. dollars unless
otherwise indicated. References to "C$" shall mean Canadian dollars. References
to the "Commission" shall mean the U.S. Securities and Exchange Commission.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statement of Income for the Three Months
ended November 30, 2000 and November 30, 1999 and the
Six Months ended November 30, 2000 and November 30,
1999.
Consolidated Balance Sheet at November 30, 2000 and
May 31, 2000
Consolidated Statement of Cashflows for the Six
Months ended November 30, 2000 and November 30, 1999
Consolidated Statements of Stockholders' Equity
Notes to Interim Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 4. Submission of Matter to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
2
PART I. FINANCIAL INFORMATION
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENT OF INCOME
3 months ended Nov.30 6 months ended Nov.30
------------------------------------------------------------------
(U.S. dollars, in thousands except per share amounts) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net revenues
Refractive $ 35,578 $ 45,427 $ 81,200 $ 95,471
Other 2,832 2,642 5,155 4,641
- ---------------------------------------------------------------------------------------------------------------------------------
Net revenues 38,410 48,069 86,355 100,112
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses
Doctor Compensation
Refractive 3,681 3,772 8,531 8,399
Operating 41,274 37,302 83,202 71,509
Interest and other (651) (1,441) (1,617) (2,543)
Depreciation of capital assets and assets under lease 3,796 3,329 7,529 6,372
Amortization of intangibles 3,301 1,867 6,459 2,900
Restructuring charges 14,635 -- 14,635 --
- ---------------------------------------------------------------------------------------------------------------------------------
66,036 44,829 118,739 86,637
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (27,626) 3,240 (32,384) 13,475
Income taxes (666) (1,373) (840) (5,045)
Non-controlling interest 263 (856) 23 (1,620)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE PERIOD $ (28,029) $ 1,011 $ (33,201) $ 6,810
==================================================================
BASIC INCOME (LOSS) PER SHARE $ (0.74) $ 0.03 $ (0.88) $ 0.18
Weighted average number of
Common Shares Outstanding 37,932,216 37,444,713 37,564,602 37,422,167
Diluted Income (Loss) per share $ (0.74) $ 0.03 $ (0.88) $ 0.17
Prepared in accordance with US GAAP
3
TLC LASER EYE CENTERS INC.
SEGMENTED INFORMATION
Comparative
Three months ended November 30th, 2000 1999
(U.S. dollars, in thousands) Refractive Other Total Total
===========================================================================================================
Net revenues $ 35,578 $ 2,832 $ 38,410 $ 48,069
Doctor compensation 3,681 -- 3,681 3,772
- -----------------------------------------------------------------------------------------------------------
Net revenue after doctor compensation 31,897 2,832 34,729 44,297
- -----------------------------------------------------------------------------------------------------------
Expenses
Operating 37,745 3,529 41,274 37,302
Interest and other (615) (36) (651) (1,441)
Depreciation of capital assets and assets under lease 3,611 185 3,796 3,329
Amortization of intangibles 2,729 572 3,301 1,867
Restructuring charges 985 13,650 14,635 --
- -----------------------------------------------------------------------------------------------------------
44,455 17,900 62,355 41,057
- -----------------------------------------------------------------------------------------------------------
Income (loss) from operations
(12,558) (15,068) (27,626) 3,240
Income taxes (590) (76) (666) (1,373)
Non-controlling interest 383 (120) 263 (856)
- -----------------------------------------------------------------------------------------------------------
Net Income (Loss) $(12,765) $(15,264) $(28,029) $ 1,011
=================================================
Comparative
Six months ended November 30th 2000 1999
(U.S. dollars, in thousands) Refractive Other Total Total
===========================================================================================================
Net revenues $ 81,200 $ 5,155 $ 86,355 $100,112
Doctor compensation 8,531 -- 8,531 8,399
- -----------------------------------------------------------------------------------------------------------
Net revenue after doctor compensation 72,669 5,155 77,824 91,713
- -----------------------------------------------------------------------------------------------------------
Expenses
Operating 74,775 8,427 83,202 71,509
Interest and other (1,716) 99 (1,617) (2,543)
Depreciation of capital assets and assets under lease 7,107 422 7,529 6,372
Amortization of intangibles 5,127 1,332 6,459 2,900
Restructuring charges 985 13,650 14,635 --
-------------------------------------------------
86,278 23,930 110,208 78,238
-------------------------------------------------
Income (loss) from operations (13,609) (18,775) (32,384) 13,475
Income taxes (778) (62) (840) (5,045)
Non-controlling interest 190 (167) 23 (1,620)
-------------------------------------------------
Net Income (Loss) $(14,197) $(19,004) $(33,201) $ 6,810
=================================================
Prepared in accordance with US GAAP
4
TLC LASER EYE CENTERS INC.
CONSOLIDATED BALANCE SHEET
30-Nov 31-May
(U.S. dollars, in thousands) 2000 2000
================================================================================
ASSETS
Current assets
Cash and cash equivalents $ 61,479 $ 78,531
Marketable securities -- --
Accounts receivable 9,038 15,527
Income taxes recoverable 515 4,734
Prepaids and sundry assets 4,447 5,922
- --------------------------------------------------------------------------------
Total current assets 75,479 104,714
Restricted cash 1,690 1,722
Investments and other assets 21,078 29,478
Intangibles 81,262 89,297
Capital assets 50,665 53,431
Assets under capital lease 9,027 110,722
- --------------------------------------------------------------------------------
Total assets $239,201 $289,364
================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 18,129 $ 21,467
Accrued purchase obligations 3,750 13,200
Accrued restructuring costs 2,348 --
Accrued wage costs 3,357 2,974
Current portion of long term debt 1,852 2,332
Current portion of obligations under capital lease 4,528 5,260
Income taxes payable -- --
- --------------------------------------------------------------------------------
Total current liabilities 33,964 45,233
Long term debt 2,076 2,922
Obligations under capital lease 2,060 3,806
Term bank loan -- --
Deferred rent and compensation 751 915
- --------------------------------------------------------------------------------
Total liabilities 38,851 52,876
- --------------------------------------------------------------------------------
Non-controlling interest 11,251 12,842
- --------------------------------------------------------------------------------
Commitments
SHAREHOLDERS' EQUITY
Capital stock 275,900 269,953
Warrants 532 532
Deficit (75,589) (42,388)
Accumulated other comprehensive income (loss) (11,744) (4,451)
- --------------------------------------------------------------------------------
Total shareholders' equity 189,099 223,646
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $239,201 $289,364
================================================================================
Prepared in accordance with US GAAP
5
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENT OF CASHFLOWS
Period Period
30-Nov 30-Nov
(U.S. dollars, in thousands) 2000 1999
- --------------------------------------------------------------------------------
Operating activities
Net income for the year $(33,201) $ 6,810
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 13,988 9,272
Goodwill written off in the period 216 --
(Gain)/loss on sale of fixed assets and assets under
lease 1,173 3,063
Non-cash restructuring costs 14,319 --
Non-controlling interest (23) 1,620
Other 21 152
Changes in non-cash operating items
Accounts receivable 6,136 (6,007)
Prepaids and sundry assets 1,907 (2,754)
Accounts payable and accrued liabilities (3,056) (607)
Income taxes payable (net) 4,421 (206)
Deferred rent and compensation (164) (89)
- --------------------------------------------------------------------------------
Cash provided by operating activities 5,737 11,254
- --------------------------------------------------------------------------------
Financing activities
Restricted cash 32 113
Proceeds from debt financing 43 132
Principal payments of debt financing (1,350) (1,172)
Principal payments of obligations under capital lease (2,475) (2,593)
Payments of accrued purchase obligations (3,000) --
Contributions from non-controlling interests 30 1,080
Distributions to non-controlling interests (3,172) (1,191)
Payments related to the purchase and cancellation of
capital stock (485) (1,483)
Proceeds from the issuance of capital stock 373 957
- --------------------------------------------------------------------------------
Cash used for financing activities (10,004) (4,157)
- --------------------------------------------------------------------------------
Investing activities
Purchase of capital assets and assets under lease (9,070) (12,699)
Proceeds from sale of fixed assets and assets under
lease 1,088 --
Proceeds from the sale of investments 1,104 227
Acquisitions and investments (5,816) (18,652)
Marketable securities -- (37,890)
Other (91) 42
- --------------------------------------------------------------------------------
Cash used for investing activities (12,785) (68,972)
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (17,052) (61,875)
Cash and cash equivalents, beginning of period 78,531 125,598
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 61,479 $ 63,723
================================================================================
Prepared in accordance with US GAAP
6
TLC Laser Eye Centers Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(U.S. dollars, in thousands)
Common stock Warrants
------------ --------
Other
Accumulated
Number Number Comprehensive
of Shares Amount of Warrants Amount Deficit Income Total
(000's) $ (000's) $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1998 33,668 143,554 -- -- (22,421) 407 121,540
Shares issued for acquisitions 50 837 837
Shares issued to acquire other assets 50 728 728
Shares purchased for cancellation (256) (1,095) (4,290) (5,385)
Exercise of stock options 773 3,073 3,073
Shares issued as remuneration 40 600 600
Shares issued as part of the employee
share purchase plan 47 750 750
Public offering, net of issue costs 2,990 121,007 121,007
Comprehensive income
Net income (4,556) (4,556)
Other comprehensive income
Unrealized gains/losses on available -
for-sale securities 5,529 5,529
Comprehensive income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 37,362 269,454 -- (31,267) 5,936 244,123
Warrants issued 100 532 532
Shares issued for acquisition 302 728 728
Value determined for shares
Issued contingent on meeting
Earnings criteria -- 1,397 1,397
Shares purchased for cancellation (710) (5,162) (5,203) (10,365)
Exercise of stock options 87 1,314 1,314
Shares issued as remuneration 44 387 387
Shares issued as part of the employee
share purchase plan 65 1,696 1,696
Reversal of IPO costs, over accrual -- 139 139
Comprehensive income
Net income (5,918) (5,918)
Other comprehensive income
Unrealized gains/losses on available
for-sale securities (10,387) (10,387)
Comprehensive income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance May 31, 2000 37,150 269,953 100 532 (42,388) (4,451) 223,646
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued for acquisition 817 6,059 6,059
Shares purchased for cancellation (93) (485) (485)
Exercise of stock options 5 24 24
Shares issued as part of the employee
share purchase plan 55 349 349
Comprehensive income
Net income (33,201) (33,201)
Other comprehensive income
Unrealized gains/losses on available
for-sale securities (7,293) (7,293)
Comprehensive income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance November 30, 2000 37,934 275,900 100 532 (75,589) (11,744) 189,099
=================================================================================================================================
7
TLC LASER EYE CENTERS INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2000
(Unaudited)
1. Basis of Presentation
The information contained in the interim consolidated financial statements
and footnotes is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the interim consolidated
financial statements included herein should be read in conjunction with
the May 31, 2000 Annual Report on Form 10-K filed by TLC Laser Eye Centers
Inc. (formerly TLC The Laser Center Inc.) (the "Company") with the
Commission. The unaudited interim consolidated financial statements as of
November 30, 2000 and November 30, 1999 include all normal recurring
adjustments which management considers necessary for a fair presentation.
The results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the entire fiscal year.
The interim consolidated financial statements include the accounts and
transactions of the Company and its majority owned subsidiaries,
partnerships and other entities in which the Company has more than a 50%
ownership interest and exercises control. The ownership interests of other
parties in less than wholly owned consolidated subsidiaries, partnerships
and other entities are presented as non-controlling interests. The
November 30, 1999 six month consolidation includes certain
reclassifications to conform with classifications for the six month period
ended November 30, 2000.
The net income (loss) per share was computed using the weighted average
number of common shares outstanding during each period.
2. Comprehensive Income (Loss)
Total comprehensive income (loss) includes net income (loss) plus other
comprehensive income (loss), which, primarily comprises net unrealized
gains or losses on securities which are available for sale. Total
comprehensive income (loss) was $(40.5) million for the six months ended
November 30, 2000 and $10.6 million for the six months ended November 30,
1999. Other comprehensive (loss) was $(7.3) million and $(1.9) million for
the six months ended November 30, 2000 and 1999, respectively.
3. Acquisition Related Activities
Eye Care Management Associates, LLC
On August 21, 2000, the Company purchased 100% of the membership interests
in Eye Care Management Associates, LLC in exchange for $4,000,000 in cash,
295,165 common shares of the Company with a value of $1,860,000 and
amounts contingent upon future events. Contingent amounts are determined
based on fees received by the Company pursuant to the Membership Purchase
Agreement.
The Vision Source, Inc.
During the first quarter of fiscal 2001, an additional 536,764 common
shares of the Company, valued at $4,056,000, were issued to the sellers of
The Vision Source, Inc. to reflect the final calculation of contingent
amounts as determined by the earn-out formula. On December 31, 1999, the
earn-out period relating to the 1997 acquisition of 100% of The Vision
Source, Inc. was completed. As a result, in fiscal 2000, 210,902 common
shares of the Company with a value of $1,397,000, as determined by the
acquisition agreement, were released from escrow to the sellers of The
Vision Source, Inc.
Optical Options, Inc.
During the first quarter of fiscal 2001, eyeVantage.com, Inc., an 83%
subsidiary of the Company, paid $3,000,000 to fully satisfy an outstanding
note payable which arose from the fiscal 2000 transaction in which
eyeVantage.com, Inc. acquired the operating assets and liabilities of
Optical Options, Inc., in exchange for shares of eyeVantage.com, Inc.,
with a value of $6,000,000, which were to be issued in connection with a
proposed public offering of eyeVantage.com, Inc. shares. Since the public
offering was not completed, the Company was required to issue two notes in
favor of the sellers for $3,000,000 each, the first of which was
satisfied in the current fiscal quarter and the second note, which carries
an interest rate of 8%, is payable in eight equal quarterly installments,
the first of which was due on August 1, 2000. The August 1st payment has
8
not been made and the payment of this and future installments are
currently under dispute. There is currently a proposal from the seller
that would reduce the purchase obligation to $595,000.
Eye Care Consultants, Inc.
During the first quarter of fiscal 2001, eyeVantage.com, Inc., an 83%
subsidiary of the Company, did not make the initial installment on a
$3,000,000 obligation which arose from the fiscal 2000 transaction in
which eyeVantage.com, Inc. acquired the operating assets and liabilities
of Eye Care Consultants, Inc., in exchange for shares of eyeVantage.com,
Inc. with a value of $3,000,000 which were to be issued in connection with
a proposed public offering of eyeVantage.com, Inc. shares. Since the
public offering was not completed, the Company was required to make eight
equal quarterly installments equaling $3,000,000, the first of which was
due on June 30, 2000. The June 30th payment was not made and future
installments are currently under dispute.
4. Divestitures and Restructuring Charges
In the second quarter of fiscal 2001, the following decisions were made:
(i) to exit from e-commerce enterprise eyeVantage.com, Inc., (ii) to
reflect the potential for losses in an equity investment in a secondary
care operation, and (iii) to identify the estimated costs associated with
the Company's initiative to eliminate centers which have been targeted
under the current restructuring initiatives. The following charges were
reported in connection with these divestitures and restructuring:
(a) The decision to close activities at eyeVantage.com, Inc. resulted in
a restructuring charge of $12.4 million which reflects the estimated
impact of the write down of intangibles of $8.7 million, loss/write
down of fixed assets of $2.9 million, employee termination costs of
$1.7 million, accounts receivable losses of $0.4 million and $0.9
million of costs incurred in the closing process which includes
legal costs, administrative costs and accrued ongoing obligations.
These losses are offset by a gain of $2.2 million resulting from the
reduction in the purchase obligation associated with the Optical
Options, Inc. acquisition.
(b) The Company has provided $1.3 million for potential losses in
amounts outstanding from an equity investment in a secondary care
activity.
(c) The Company has undertaken to close 3 refractive centers and has
estimated losses of $0.9 million resulting from these closures. The
Company continues to review the viability of poor performing centers
and may close additional centers in the coming months.
5. Supplemental Cash Flow Information
Non-cash transactions:
Six months ended November 30,
2000 1999
---- ----
Capital stock issued for acquisitions 6,059 --
Goodwill/Non-controlling interest arising from dilution calculation 1,314 --
Capital lease obligations relating to equipment purchases -- 594
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, which are included in Item 8
of the Company's Form 10-K. The following discussion is based upon the Company's
results under United States GAAP. The Company is reporting in U.S. dollars.
Unless otherwise specified, all dollar amounts are U.S. dollars. See Note 1 to
the Audited Consolidated Financial Statements of the Company.
9
Overview
TLC is one of the largest provider of laser vision correction services in
the world. TLC owns and manages refractive centers which, together with TLC's
network of over 12,500 optometrists and ophthamologists, provide laser vision
correction of common refractive disorders such as myopia (nearsightedness),
hyperopia (farsightedness) and astigmatism. Laser vision correction is an
outpatient procedure which is designed to change the curvature of the cornea to
reduce or eliminate a patient's reliance on eyeglasses or contact lenses. TLC,
which commenced operations in 1993, currently has 60 refractive centers in 28
states and provinces throughout the United States and Canada. Surgeons performed
over 134,000 procedures at the Company's centers during fiscal 2000 and
performed 60,497 procedures in the first half of fiscal 2001.
The Company recognizes revenues at the time services are rendered. Net
revenues include only those revenues pertaining to owned laser centers and
management fees from managing refractive and secondary care practices. Under the
terms of the practice management agreements, the Company provides management and
administrative services to refractive and secondary care practices in return for
management fees.
Operating expenses include all fixed and variable expenses relating to the
operation of the Company's businesses. The principal components of operating
expenses are marketing costs, wages, surgeon's fees, laser royalty fees and
facility leasing costs.
The Company intends to continue to pursue a long-term growth strategy in
its core refractive laser surgery business, which accounts for more than 94% of
net revenues. However, the Company's short term strategy is to restrict
acquisitions pending a comprehensive review of the Company's strategy. The
Company's growth and future profitability are affected by the extent to which
laser vision correction becomes more widely accepted in North American markets
as well as the extent of competition for providing these services and the prices
for these services.
In the quarter ended November 30, 2000, the Company's procedure volume
decreased by 19% from the previous quarter ended August 31, 2000 and decreased
14% from previous year quarter ended November 30, 1999 as a result of
competition and pricing pressures. While there are no assurances that this trend
will not continue in the following quarters, the Company's current focus is on
the reversing of this trend. The price of laser vision correction is a factor in
the decision process amongst potential laser vision correction candidates as
they determine whether, when and where to have the procedure done. While the
Company maintains its vision to be a premium provider of laser vision correction
services, if the Company is required to reduce its current price structures,
then there will be a negative impact on the net revenues of the Company if
reduced prices do not generate sufficient additional procedures to offset the
decreased prices. The Company is currently utilizing the services of McKinsey
Consultants to examine current market conditions and current price/cost
structures of the Company. Several initiatives have been identified and adopted
by the Company to reduce operational costs and increase procedure volumes.
Pricing models are being reviewed against current and projected market
conditions and may change in accordance with these market forces. In addition,
the Company is reviewing current and projected operating results of each center
and the Company intends to close centers that are not expected to contribute to
the future growth and potential of the Company. In the second quarter, one
center was closed, the decision was made to sell or close two more centers and
the development of one center was put on hold.
In the second quarter of fiscal 2001, the Company made the decision to
exit from its eye care e-commerce enterprise, eyeVantage.com, Inc. The
continuing strategy of the Company is to focus on its core business of providing
laser vision correction surgical services. Closure of eyeVantage.com, Inc. is
expected to cost $12.4 million of which approximately $8.7 million is attributed
to goodwill, $3.3 million to asset write offs, $1.7 million to employee
severances, and $0.9 million in other closing costs. This was offset by a $2.2
million recovery of a purchase acquisition obligation. As at January 1, 2001,
the eyeVantage.com, Inc. corporate premises were vacated and virtually all
employment relationships were severed.
10
Results of Operations
TLC LASER EYE CENTERS INC.
SUPPLEMENTARY SEGMENTED FINANCIAL INFORMATION
Three months ended November 30, 2000
(U.S. dollars, in thousands) Refractive Other Total
-------------------------------------------------
Revenues and physician costs:
Net revenues 35,578 2,832 38,410
Doctor compensation 3,681 -- 3,681
-------------------------------------------------
Net revenue after doctor compensation 31,897 2,832 34,729
-------------------------------------------------
Expenses
Operating 37,745 3,529 41,274
Interest and other (615) (36) (651)
Depreciation of capital assets and assets under lease 3,611 185 3,796
Amortization of intangibles 2,729 572 3,301
Restructuring charges 985 13,650 14,635
-------------------------------------------------
44,455 17,900 62,355
-------------------------------------------------
Income (loss) from operations (12,558) (15,068) (27,626)
Income taxes (590) (76) (666)
Non-controlling interest 383 (120) 263
-------------------------------------------------
Net income (loss) $(12,765) $(15,264) $(28,029)
=================================================
Total assets $233,174 $ 6,027 $239,201
=================================================
Total capital and intangible expenditures $ 4,499 $ 1,031 $ 5,530
=================================================
Three months ended November 30, 1999
(U.S. dollars, in thousands) Refractive Other 1999 Total
-------------------------------------------------
Revenues and physician costs:
Net revenues $ 45,427 $ 2,642 $ 48,069
Doctor compensation 3,772 -- 3,772
-------------------------------------------------
Net revenue after doctor compensation 41,655 2,642 44,297
=================================================
Expenses
Operating 34,874 2,428 37,302
Interest and other (1,420) (21) (1,441)
Depreciation of capital assets and assets under lease 3,033 296 3,329
Amortization of intangibles 1,749 118 1,867
Restructuring charges -- -- --
-------------------------------------------------
38,236 2,821 41,057
-------------------------------------------------
Income (loss) from operations 3,419 (179) 3,240
Income taxes (1,287) (86) (1,373)
Non-controlling interest (806) (50) (856)
-------------------------------------------------
Net income (loss) $ 1,326 $ (315) $ 1,011
=================================================
Total assets $282,371 $20,802 $303,173
=================================================
Total capital and intangible expenditures $ 6,795 $ 80 $ 6,875
=================================================
11
Six months ended November 30, 2000
(U.S. dollars, in thousands) Refractive Other Total
-----------------------------------------------
Revenues and physician costs:
Net revenues 81,200 5,155 86,355
Doctor compensation 8,531 -- 8,531
-----------------------------------------------
Net revenue after doctor compensation 72,669 5,155 77,824
-----------------------------------------------
Expenses
Operating 74,775 8,427 83,202
Interest and other (1,716) 99 (1,617)
Depreciation of capital assets and assets under lease 7,107 422 7,529
Amortization of intangibles 5,127 1,332 6,459
Restructuring charges 985 13,650 14,635
-----------------------------------------------
86,278 23,930 110,208
-----------------------------------------------
Income (loss) from operations (13,609) (18,775) (32,384)
Income taxes (778) (62) (840)
Non-controlling interest 190 (167) 23
-----------------------------------------------
Net income (loss) $ (14,197) $ (19,004) $ (33,201)
===============================================
Total assets $ 233,174 $ 6,027 $ 239,201
===============================================
Total capital and intangible expenditures $ 15,333 $ 1,049 $ 16,382
===============================================
Six months ended November 30, 1999
(U.S. dollars, in thousands) Refractive Other 1999 Total
-----------------------------------------------
Revenues and physician costs:
Net revenues $ 95,471 $ 4,641 $ 100,112
Doctor compensation 8,399 -- 8,399
-----------------------------------------------
Net revenue after doctor compensation 87,072 4,641 91,713
===============================================
Expenses
Operating 67,206 4,303 71,509
Interest and other (2,490) (53) (2,543)
Depreciation of capital assets and assets under lease 5,838 534 6,372
Amortization of intangibles 2,576 324 2,900
Restructuring charges -- -- --
-----------------------------------------------
73,130 5,108 78,238
-----------------------------------------------
Income (loss) from operations 13,942 (467) 13,475
Income taxes (4,884) (161) (5,045)
Non-controlling interest (1,455) (165) (1,620)
-----------------------------------------------
Net income (loss) $ 7,603 $ (793) $ 6,810
===============================================
Total assets $ 282,371 $ 20,802 $ 303,173
===============================================
Total capital and intangible expenditures $ 28,179 $ 317 $ 28,496
===============================================
12
Period ended November 30, 2000 compared to Period ended November 30, 1999
Total net revenues for the second quarter of the fiscal year decreased
from $48.1 million in fiscal 2000 to $38.4 million in fiscal 2001, which
reflects reduced net revenues from refractive centers. For the first two
quarters of the fiscal year, total net revenues decreased from $100.1 million in
fiscal 2000 to $86.4 million in fiscal 2001. More than 94% of the Company's
total net revenues were derived from refractive centers.
Net revenues from refractive centers for the second quarter of the fiscal
year decreased from $45.4 million in the second quarter of fiscal 2000 to $35.6
million in the second quarter of fiscal 2001. For the first two quarters in the
fiscal year, net revenue from refractive centers decreased from $95.4 million in
fiscal 2000 to $81.2 million in 2001. More than 27,110 procedures were
performed in the second quarter of fiscal 2001 compared to 31,687 procedures in
the second quarter of fiscal 2000. This decrease of some 14% in procedures is a
reflection of current competition in the marketplace. For the first two
quarters, procedure volume decreased from 64,927 in fiscal 2000 to 60,497 in
fiscal 2001, representing a 7% reduction in volumes.
Net revenues from non-refractive activities were $2.6 million in the
second quarter of fiscal 2000 in comparison to $2.8 million in the second
quarter of fiscal 2001. For the first two quarters of the fiscal year, net
revenue from non-refractive activities increased from $4.6 million in fiscal
2000 to $5.2 million in fiscal 2001.
Operating expenses and doctor compensation increased to $45.0 million in
the second quarter of fiscal 2001 from $41.1 million in the second quarter of
fiscal 2000. This increase is primarily a result of: (i) higher marketing costs,
(ii) increased corporate consulting costs for development of the Company's
strategic growth plans, (iii) an increased number of centers, and (iv)
operational support of eyeVantage.com, Inc. through to October 25, 2000. For the
first two quarters of the fiscal year, operating costs, including doctor
compensation, increased 10% from $75.6 million in fiscal 2000 to $83.3 million
in fiscal 2001.
Restructuring charges were reported in the second quarter of fiscal 2001
in both refractive and non-refractive activities. Three operating centers were
identified for closure representing the $1.0 million refractive restructuring
charge. The non-refractive restructuring charge for the second quarter of fiscal
2001 was $13.7 million which was comprised of eyeVantage.com, Inc.'s
restructuring charge of $12.4 million and a restructuring charge of $1.3 million
against an equity investment in a secondary care operation.
The increase in depreciation and amortization expense is largely a result
of new centers and the additional depreciation and amortization associated with
the Company's acquisitions during the first quarter of fiscal 2001 and during
fiscal 2000. Goodwill and intangibles are amortized on a straight-line basis
over the term of the applicable agreement to a maximum of fifteen years.
Income tax expense decreased from $1.4 million in the second quarter of
fiscal 2000 in comparison to $0.7 million in the second quarter of fiscal 2001.
This decrease is a result of the Company having incurred operating losses. The
cost incurred is associated with the minimum taxes payable at both the state and
federal levels.
The loss for the second quarter of fiscal 2001 was $28.0 million or $0.74
per share, compared to a gain of $1.0 million or $0.03 cents per share for the
second quarter of fiscal 2000. The loss before restructuring charges for the
second quarter of fiscal 2001 was $13.3 million. This loss reflects the
reduction in procedure volumes. The Company is currently reviewing all costs in
order to bring them in line with the lower level of sales.
13
Three months ended November 30, 2000
(U.S. dollars, in thousands) Refractive Other Total
-----------------------------------------------
Revenues and physician costs:
Net revenues 35,578 2,832 38,410
Doctor compensation 3,681 -- 3,681
-----------------------------------------------
Net revenue after doctor compensation 31,897 2,832 34,729
-----------------------------------------------
Expenses
Operating 37,745 3,529 41,274
Interest and other (615) (36) (651)
Depreciation of capital assets and assets under lease 3,611 185 3,796
Amortization of intangibles 2,729 572 3,301
Restructuring charges 985 13,650 14,635
-----------------------------------------------
44,455 17,900 62,355
-----------------------------------------------
Income (loss) from operations (12,558) (15,068) (27,626)
Income taxes (590) (76) (666)
Non-controlling interest 383 (120) 263
-----------------------------------------------
Net income (loss) $ (12,765) $ (15,264) $ (28,029)
===============================================
Total assets $ 233,174 $ 6,027 $ 239,201
===============================================
Total capital and intangible expenditures $ 4,499 $ 1,031 $ 5,530
===============================================
Three months ended August 31, 2000
(U.S. dollars, in thousands) Refractive Other Total
-----------------------------------------------
Revenues and physician costs:
Net revenues 45,622 2,323 47,945
Doctor compensation 4,850 -- 4,850
-----------------------------------------------
Net revenue after doctor compensation 40,772 2,323 43,095
-----------------------------------------------
Expenses
Operating 37,030 4,898 41,928
Interest and other (1,101) 135 (966)
Depreciation of capital assets and assets under lease 3,496 237 3,733
Amortization of intangibles 2,398 760 3,158
-----------------------------------------------
41,823 6,030 47,853
-----------------------------------------------
Income (loss) from operations (1,051) (3,707) (4,758)
Income taxes (188) 14 (174)
Non-controlling interest (193) (47) (240)
-----------------------------------------------
Net income (loss) $ (1,432) $ (3,740) $ (5,172)
===============================================
Total assets $ 255,483 $ 21,890 $ 277,373
===============================================
Total capital and intangible expenditures $ 10,834 $ 18 $ 10,853
===============================================
Quarter ended November 30, 2000 compared to Quarter ended August 31, 2000
Total net revenues for the second quarter of fiscal 2001 decreased from
$47.9 million in the first quarter of fiscal 2001 to $38.4 million in the second
quarter of fiscal 2001.
Net revenues from refractive centers decreased from $45.6 million in the
first quarter of fiscal 2000 to $35.6 million in the second quarter of fiscal
2001. Procedure volume in the first quarter of fiscal 2001 were 33,387 compared
to 27,110 in the second quarter of fiscal 2001. The decrease in procedures and
revenues reflects the continuing pressures faced by the Company in the laser
vision correction services marketplace including the impact of reduced pricing
and greater competition.
14
Operating expenses and doctor compensation decreased from $46.8 million in
the first quarter of fiscal 2000 to $45.0 million in the second quarter of
fiscal 2001. This decrease is a result of: (i) reduced variable expenses as a
result of lower volume, (ii) reduced marketing costs, (iii) reduced costs
associated with eyeVantage.com, Inc., and (iv) employee reductions. These
savings have been partially offset by increased consulting costs.
The loss for the second quarter of fiscal 2001 was $28.0 million or $0.74
per share compared to a loss of $5.2 million or $0.14 per share for the first
quarter of fiscal 2001. The higher loss, quarter on quarter, includes
restructuring charges of $14.6 million as part of the Company's initiative to
concentrate on core business activities and reduced procedure volumes. The
Company intends to continue to reduce its costs and to further develop
strategies to improve procedure volumes.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments were $61.5 million at
November 30, 2000, $72.8 million at August 31, 2000 and $78.5 million at May 31,
2000.
Cash provided from operating activities was $11.3 million for the first
two quarters of fiscal 2000 as compared to $5.7 million for the first two
quarters of fiscal 2001, a decrease resulting primarily from reduced earnings.
The non-cash increase in depreciation and amortization charges are a result of
the opening of new centers and the acquisition of the business assets of certain
doctors' practices. Non-cash restructuring charges are primarily a result of the
write off of eyeVantage.com, Inc.'s assets. The reduction in accounts receivable
is a result of more aggressive collection efforts and a reduction of sales.
The Company used cash to make scheduled debt repayments of $3.8 million
and distributed $3.2 million in profits to minority shareholders in the second
quarter of fiscal 2001. The Company paid $3.0 million that had been outstanding
from business acquisitions in fiscal 2000 by eyeVantage.com, Inc., its
e-commerce, internet subsidiary. During the first two quarters of fiscal year
2001, under the terms of its announced normal course issuer bid, the Company
repurchased outstanding shares for $0.5 million. The terms of the bid allow the
Company to buy up to 5% of its outstanding shares during the 12 month period
which was completed in November 2000. Since commencing the issuer bid the
Company has paid $10.9 million to repurchase 803,000 common shares. The company
does not currently plan to repurchase additional stock.
The Company has invested $9.7 million in capital assets of which $5.4
million relate to facility costs and its corporate office. In addition, the
Company made investments of $5.8 million for the acquisition of business assets
of several doctors. The Company has made plans to divest itself of its corporate
office building, located in Mississauga, Ontario. The Company, however, plans to
continue to make other key strategic industry investments both on the new
technology and service side of the industry.
During the first six months of fiscal 2001, the Company continued its
expansion plan by acquiring the business assets located at doctors' practices in
order to solidify its presence in several key markets. While the Company's
expansion plans are being curtailed given the changing competitive environment,
it is expected that $10 million in cash will be used for the acquisition of
doctor practices for the balance of fiscal year 2001.
The Company estimates that existing cash balances, together with funds
expected to be generated from operations and available credit facilities, will
be sufficient to fund the Company's anticipated level of operations, acquisition
and expansion plans for at least the next 18 months.
Forward-Looking Information
This quarterly report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which statements can be identified by the use
of forward looking terminology, such as "may", "will", "expect", "anticipate",
"estimate", "predict", "plans" or "continue" or the negative thereof or other
variations thereon or comparable terminology referring to future events or
results. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of numerous factors,
including, pricing, competition, the acceptance of the procedure and the timing
of acquisitions and expansion opportunities, any of which could cause actual
results to vary materially from current results or TLC's anticipated future
results. See the Company's reports filed with the Toronto Stock Exchange and the
U.S. Securities and Exchange Commission from time to time for cautionary
statements identifying important factors with respect to such forward looking
statements, including certain risks and
15
uncertainties, that could cause actual results to differ materially from results
referred to in forward looking statements. TLC assumes no obligation to update
the information contained in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on October 26, 2000 at the
News Theater, 98 The Esplanade, Toronto, Ontario.
The shareholders voted on the following matters as set forth in the proxy
statement:
1. Election of Directors. The shareholders of the Company elected Mr.
Vamvakas, Dr. Machat, Mr. Riegert, Mr. Gourwitz, Dr. Sullins, Jr., Mr. Davidson,
and Mr. Rustand to hold office as directors on the Company's board of directors
until the next annual meeting or until successors are appointed.
The voting tabulation for each nominee was as follows:
Elias Vamvakas - 19,124,938 votes in favor of election and 175,861 votes
withheld.
Dr. Jeffery Machat - 19,124,938 votes in favor of election and 175,861
votes withheld.
John F. Riegert - 19,124,938 votes in favor of election and 175,861 votes
withheld.
Howard J. Gourwitz - 19,124,938 votes in favor of election and 175,861
votes withheld.
Dr. William David Sullins, Jr. - 19,124,938 votes in favor of election and
175,861 votes withheld.
Thomas N. Davidson - 19,124,938 votes in favor of election and 175,861
votes withheld.
Warren S. Rustand - 19,124,938 votes in favor of election and 175,861
votes withheld.
2. Appointment of Auditors. The shareholders authorized the selection of
Ernst & Young as the Company's auditors until the next annual meeting of
shareholders and authorized the board of directors to fix the remuneration of
the auditors. The voting tabulation was as follows: 19,190,251 votes in favor, 0
votes against and 84,842 votes withheld.
3. Amendment to the Amended and Restated Share Option Plan. The
Shareholders authorized the amendment of the Amended and Restated Share Option
Plan increasing the number of common shares of the Company which many be issued
under the Plan. The voting tabulation was as follows: 16,484,829 votes in favor
2,785,234 votes against and 0 votes withheld.
16
4. Grant of Options. The shareholders authorized the granting of options
to Thomas G. O'Hare. The voting tabulation was as follows: 18,275,461 votes in
favor 700,558 votes against and 0 votes withheld.
5. Amendment to the Amended and Restated Share Option Plan. The
shareholders authorized the amendment of the Amended and Restated Share Option
Plan allowing options to be granted under the Plan to persons who provide
ongoing marketing or promotional services to or endorsement for the Company. The
voting tabulation was as follows: 16,769,494 votes in favor 2,476,445 votes
against and 0 votes withheld.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
a. Exhibits
Exhibit 27. Financial Data Schedules.
b. Reports on 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TLC LASER EYE CENTERS INC.
By: /s/ Elias Vamvakas
-------------------------------
Elias Vamvakas
Chief Executive Officer
January 15, 2000
By: /s/ Peter Kastelic
-------------------------------
Peter Kastelic
Chief Financial Officer
January 15, 2000