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 FEBRUARY 28, 2001
COMMISSION FILE NUMBER: 0-29302
TLC LASER EYE CENTERS INC.
--------------------------
(Exact name of registrant as specified in its charter)
Ontario, Canada
(State or jurisdiction of 980151150
incorporation or organization) (I.R.S. Employer Identification No.)
5280 Solar Drive, Suite 300
Mississauga, Ontario L4W 5M8
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code (905) 602-2020
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes No |_|
As of February 28, 2001, there were 38,012,019 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 February 28, 2001 and February 29, 2000 and the
Nine Months ended February 28, 2001 and February 29,
2000.
Segmented Information at Three Months ended February 28,
2001 and February 29, 2000 and the Nine Months ended
February 28, 2001 and February 29, 2000.
Consolidated Balance Sheet at February 28, 2001 and May
31, 2000
Consolidated Statement of Cashflows for the Nine Months
ended February 28, 2001 and February 29, 2000
Consolidated Statements of Stockholders' Equity
Notes to Interim Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
2
PART I. FINANCIAL INFORMATION
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENT OF INCOME
3 months ended 9 months ended
---------------------------- ----------------------------
February 28 February 29 February 28 February 29
(U.S. dollars, in thousands except per share amounts) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Net revenues
Refractive $ 43,632 $ 46,709 $ 124,832 $ 142,180
Other 3,956 2,639 9,111 7,280
- ------------------------------------------------------------------------------------------------------------------------
Net revenues 47,588 49,348 133,943 149,460
- ------------------------------------------------------------------------------------------------------------------------
Expenses
Doctor Compensation
Refractive 4,691 4,326 13,222 12,725
Operating 34,407 43,204 117,009 114,713
Interest and other (665) (1,305) (2,282) (3,848)
Depreciation of capital assets and assets under lease 4,008 3,740 11,537 10,112
Amortization of intangibles 2,836 1,831 9,295 4,731
Restructuring and other charges 714 -- 15,949 --
- ------------------------------------------------------------------------------------------------------------------------
45,991 51,796 164,730 138,433
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST 1,597 (2,448) (30,787) 11,027
Income taxes (832) 269 (1,672) (4,776)
Non-controlling interest (337) (894) (314) (2,514)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE PERIOD $ 428 $ (3,073) $ (32,773) $ 3,737
============================================================
BASIC INCOME (LOSS) PER SHARE $ 0.01 $ (0.08) $ (0.87) $ 0.10
Weighted average number of
Common Shares Outstanding 37,961,960 36,864,614 37,695,599 37,243,352
Diluted Income (Loss) per share $ 0.01 $ (0.08) $ (0.87) $ 0.10
Prepared in accordance with US Generally Accepted Accounting Principles
3
TLC LASER EYE CENTERS INC.
SEGMENTED INFORMATION
Comparative
Three months ended February 28th, 2001 2000
(U.S. dollars, in thousands) Refractive Other Total Total
===============================================================================================================
Net revenues $ 43,632 $ 3,956 47,588 $ 49,348
Doctor compensation 4,691 -- 4,691 4,326
- ---------------------------------------------------------------------------------------------------------------
Net revenue after doctor compensation 38,941 3,956 42,897 45,022
- ---------------------------------------------------------------------------------------------------------------
Expenses
Operating 31,122 3,285 34,407 43,204
Interest and other (585) (80) (665) (1,305)
Depreciation of capital assets and assets under lease 3,324 684 4,008 3,740
Amortization of intangibles 2,615 221 2,836 1,831
Restructuring and other charges 697 17 714 --
- ---------------------------------------------------------------------------------------------------------------
37,173 4,127 41,300 47,470
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes & non-controlling interest 1,768 (171) 1,597 (2,448)
Income taxes (777) (55) (832) 269
Non-controlling interest (442) 105 (337) (894)
- ---------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 549 $ (121) 428 $ (3,073)
=================================================
Comparative
Nine months ended February 28th 2001 2000
(U.S. dollars, in thousands) Refractive Other Total Total
===============================================================================================================
Net revenues $ 124,832 $ 9,111 133,943 $ 149,460
Doctor compensation 13,222 -- 13,222 12,725
- ---------------------------------------------------------------------------------------------------------------
Net revenue after doctor compensation 111,610 9,111 120,721 136,735
- ---------------------------------------------------------------------------------------------------------------
Expenses
Operating 104,997 12,012 117,009 114,713
Interest and other (2,301) 19 (2,282) (3,848)
Depreciation of capital assets and assets under lease 10,431 1,106 11,537 10,112
Amortization of intangibles 7,742 1,553 9,295 4,731
Restructuring and other charges 2,582 13,367 15,949 --
- ---------------------------------------------------------------------------------------------------------------
123,451 28,057 151,508 125,708
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes & non-controlling interest (11,841) (18,946) (30,787) 11,027
Income taxes (1,555) (117) (1,672) (4,776)
Non-controlling interest (252) (62) (314) (2,514)
- ---------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (13,648) $ (19,125) $ (32,773) $ 3,737
=================================================
Prepared in accordance with US Generally Accepted Accounting Principles
4
TLC LASER EYE CENTERS INC.
CONSOLIDATED BALANCE SHEET
February 28 May 31
(U.S. dollars, in thousands) 2001 2000
======================================================================================
ASSETS
Current assets
Cash and cash equivalents $ 65,018 $ 78,531
Accounts receivable 10,486 15,527
Income taxes recoverable 243 4,734
Prepaids and sundry assets 4,672 5,922
- --------------------------------------------------------------------------------------
Total current assets 80,419 104,714
Restricted cash 1,695 1,722
Investments and other assets 21,437 29,478
Intangibles 78,364 89,297
Capital assets 48,144 53,431
Assets under capital lease 8,044 10,722
- --------------------------------------------------------------------------------------
Total assets $ 238,103 $ 289,364
======================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 16,963 $ 21,467
Accrued purchase obligations 3,620 13,200
Accrued restructuring costs 1,630 --
Accrued wage costs 4,792 2,974
Current portion of long term debt 1,826 2,332
Current portion of obligations under capital lease 3,166 5,260
- --------------------------------------------------------------------------------------
Total current liabilities 31,997 45,233
Long term debt 1,809 2,922
Obligations under capital lease 1,959 3,806
Deferred rent 678 915
- --------------------------------------------------------------------------------------
Total liabilities 36,443 52,876
- --------------------------------------------------------------------------------------
Non-controlling interest 11,548 12,842
- --------------------------------------------------------------------------------------
Commitments
SHAREHOLDERS' EQUITY
Capital stock 276,100 269,953
Warrants 532 532
Deficit (75,161) (42,388)
Accumulated other comprehensive income (loss) (11,359) (4,451)
- --------------------------------------------------------------------------------------
Total shareholders' equity 190,112 223,646
- --------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 238,103 $ 289,364
======================================================================================
Prepared in accordance with US Generally Accepted Accounting Principles
5
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENT OF CASHFLOWS
Nine Months ended Nine Months ended
February 28 February 29
(U.S. dollars, in thousands) 2001 2000
==========================================================================================================
Operating activities
Net income for the period $ (32,773) $ 3,737
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 20,832 14,843
Goodwill written off in the period 217 --
(Gain)/loss on sale of fixed assets and assets under lease 1,444 614
Non-cash restructuring costs 13,750 --
Non-controlling interest 314 2,514
Other 25 (477)
Changes in non-cash operating items
Accounts receivable 4,725 (1,600)
Prepaids and sundry assets 1,682 (5,174)
Accounts payable and accrued liabilities (2,687) 1,295
Income taxes payable recoverable (net) 5,055 (863)
Deferred rent and compensation (237) (100)
- ------------------------------------------------------------------------------------------------------
Cash provided by operating activities 12,347 14,789
- ------------------------------------------------------------------------------------------------------
Financing activities
Restricted cash 27 102
Proceeds from debt financing 136 132
Principal payments of debt financing (1,744) (1,655)
Principal payments of obligations under capital lease (3,940) (3,794)
Payments of accrued purchase obligations (3,000) --
Contributions from non-controlling interests 37 1,057
Distributions to non-controlling interests (3,531) (1,423)
Payments related to the purchase and cancellation of capital stock (485) (9,960)
Proceeds from the issuance of capital stock 573 1,783
- ------------------------------------------------------------------------------------------------------
Cash used for financing activities (11,927) (13,758)
- ------------------------------------------------------------------------------------------------------
Investing activities
Purchase of capital assets and assets under lease (10,779) (17,243)
Proceeds from sale of fixed assets and assets under lease 2,082 88
Proceeds from the sale of investments 1,099 227
Acquisitions and investments (6,246) (40,110)
Marketable securities -- 26,212
Other (89) (13)
- ------------------------------------------------------------------------------------------------------
Cash used for investing activities (13,933) (30,839)
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (13,513) (29,808)
Cash and cash equivalents , beginning of year 78,531 125,598
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 65,018 $ 95,790
======================================================================================================
Prepared in accordance with US Generally Accepted Accounting Principles
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
- ----------------------------------------------------------------------------------------------------------------------------
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)
- ----------------------------------------------------------------------------------------------------------------------------
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 45 115 115
Shares issued as part of the employee
share purchase plan 93 458 458
Comprehensive income
Net income (32,773) (32,773)
Other comprehensive income
Unrealized gains/losses on available-
for-sale securities (6,908) (6,908)
- ----------------------------------------------------------------------------------------------------------------------------
Balance February 28, 2001 38,012 276,100 100 532 (75,161) (11,359) 190,112
============================================================================================================================
7
TLC LASER EYE CENTERS INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2001
(Unaudited)
1. Basis of Presentation
The information contained in the interim consolidated financial statements
and footnotes is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the interim consolidated
financial statements included herein should be read in conjunction with
the May 31, 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
February 28, 2001 and February 29, 2000 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
February 29, 2000 nine month consolidation includes certain
reclassifications to conform with classifications for the nine month
period ended February 28, 2001.
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 $(39.7) million for the nine months ended
February 28, 2001 and $(0.3) million for the nine months ended February
29, 2000. Other comprehensive (loss) was $(6.9) million and $(3.4) million
for the nine months ended February 28, 2001 and 2000, respectively.
3. Acquisition Related Activities
a) 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.
b) 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 payment of contingent
consideration which was determined to be payable during fiscal 2000 and
which had been accrued for at May 31, 2000. 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.
c) 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 second 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 was not
made and the payment of this and future installments were under dispute.
In the third quarter of fiscal 2001, the Company has accepted a proposal
from the seller that would reduce the purchase obligation from $3,000,000
to $595,000.
8
d) 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. Restructuring and Other Charges
In 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 $1.0 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 under-performing
centers and may close additional centers in the coming months.
(d) The Company has undertaken an extensive review of internal
structures, its marketplace, its resources and its strategies for
the future. This review is resulting in the restructuring of the
company's goals and structures to meet its future needs. The Company
has utilized the services of a national consulting firm to
facilitate this internal restructuring process. Its participation in
this assignment was completed in the three months ended February 28,
2001. The costs of these consultants were $1.6 million year-to-date
($0.7 million in the three months ended February 28, 2001).
In the nine months ended February 28, 2001, the Company provided
$15.9 million for losses from restructuring and other charges. This
consisted of cash payments of $2.1 million primarily in severance
and lease costs and $13.8 million in non-cash costs. Non-cash costs
are primarily made up of write-offs of goodwill and capital assets
resulting from the decision to exit from its e-commerce enterprise,
EyeVantage.com Inc. and also include the remaining accruals for
restructuring and other charges of $1.6 million.
5. Supplemental Cash Flow Information
Non-cash transactions:
Nine months ended February 28, 2001 and February 29, 2000
2001 2000
------------- -----------
Capital stock issued for acquisitions 6,059 728
Goodwill/Non-controlling interest arising from dilution calculation 1,314 --
Capital lease obligations relating to equipment purchases -- 594
9
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 Annual Report on Form 10-K. The following discussion is based
upon the Company's results presented in accordance with United States GAAP.
Unless otherwise specified, all dollar amounts are U.S. dollars. See Note 1 to
the Company's Audited Consolidated Financial Statements of the Company for the
fiscal year ended May 31, 2000.
Overview
TLC is 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 opthamologists, 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 58 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 93,897 procedures in the first three quarters of fiscal 2001,
including over 800 paid procedures in the third quarter generated by its new
"TLC Affiliate Centers" program.
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 93% of
net revenues, however, the Company's short term strategy is to restrict
acquisitions to a select few opportunities. 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 February 28, 2001, the Company's procedure volume was
up by 23% from the previous quarter ended November 30, 2000 and unchanged from
previous year quarter ended February 29, 2000 in spite of increased competition
and pricing pressures. 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. The Company
maintains its vision to be a premium provider of laser vision correction
services in an industry that faces significant pricing pressures. 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 the reduced prices do not
generate sufficient additional procedures to offset the decreased prices.
Aggressive price discounting is being seen in the laser vision correction
marketplace and has begun to adversely affect some competitors.
The Company has engaged the services of a national consulting firm to
examine current market conditions and current price/cost structures of the
Company as part of an extensive review of the Company, its marketplace, its
resources and its strategic direction for the future. 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 where required will close under-performing centers.
During the 2001 fiscal year, the Company reflected losses from
restructuring and other charges of $15.9 million. These losses have resulted in
cash payments of $2.1 million and non-cash costs of $13.8 million primarily made
up of write-offs of goodwill and capital assets resulting from the decision to
exit from its e-commerce enterprise, eyeVantage.com Inc. and also include the
remaining accruals for restructuring and other charges of $1.6 million.
10
Results of Operations
Three months ended February 28, 2001
(U.S. dollars, in thousands) Refractive Other Total
------------------------------------------------
Revenues and physician costs:
Net revenues 43,632 3,956 47,588
Doctor compensation 4,691 -- 4,691
------------------------------------------------
Net revenue after doctor compensation 38,491 3,956 42,897
================================================
Expenses
Operating 31,122 3,285 34,407
Interest and other (585) (80) (665)
Depreciation of capital assets and assets under lease 3,324 684 4,008
Amortization of intangibles 2,615 221 2,836
Restructuring and other charges 697 17 714
------------------------------------------------
37,173 4,127 41,300
------------------------------------------------
Income (loss) from operations 1,768 (171) 1,597
Income taxes (777) (55) (832)
Non-controlling interest (442) 105 (337)
------------------------------------------------
Net income (loss) 549 (121) 428
================================================
Total assets 233,612 4,491 238,103
================================================
Total capital and intangible expenditures 1,523 227 1,750
================================================
Three months ended February 29, 2000
(U.S. dollars, in thousands) Refractive Other Total
------------------------------------------------
Revenues and physician costs:
Net revenues 46,709 2,639 49,348
Doctor compensation 4,326 -- 4,326
------------------------------------------------
Net revenue after doctor compensation 42,383 2,639 45,022
================================================
Expenses
Operating 40,112 3,092 43,204
Interest and other (1,321) 16 (1,305)
Depreciation of capital assets and assets under lease 3,473 267 3,740
Amortization of intangibles 1,656 175 1,831
Restructuring and other charges -- -- --
------------------------------------------------
43,920 3,551 47,470
------------------------------------------------
Income (loss) from operations (1,537) (912) (2,448)
Income taxes 314 (45) 269
Non-controlling interest (768) (126) (894)
------------------------------------------------
Net income (loss) (1,991) (1,083) (3,073)
================================================
Total assets 268,754 21,388 290,142
================================================
Total capital and intangible expenditures 16,664 494 17,158
================================================
11
Nine months ended February 28, 2001
(U.S. dollars, in thousands) Refractive Other Total
------------------------------------------------
Revenues and physician costs:
Net revenues 124,832 9,111 133,943
Doctor compensation 13,222 -- 13,222
------------------------------------------------
Net revenue after doctor compensation 111,610 9,111 120,721
------------------------------------------------
Expenses
Operating 104,997 12,012 117,009
Interest and other (2,301) 19 (2,282)
Depreciation of capital assets and assets under lease 10,431 1,106 11,537
Amortization of intangibles 7,742 1,553 9,295
Restructuring and other charges 2,582 13,367 15,949
------------------------------------------------
123,451 28,057 151,508
------------------------------------------------
Income (loss) from operations (11,841) (18,946) (30,787)
Income taxes (1,555) (117) (1,672)
Non-controlling interest (252) (62) (314)
------------------------------------------------
Net income (loss) (13,648) (19,125) (32,773)
================================================
Total assets 233,612 4,491 238,103
================================================
Total capital and intangible expenditures 16,856 1,276 18,132
================================================
Nine months ended February 28, 2000
(U.S. dollars, in thousands) Refractive Other Total
------------------------------------------------
Revenues and physician costs:
Net revenues 142,180 7,280 149,460
Doctor compensation 12,725 -- 12,725
------------------------------------------------
Net revenue after doctor compensation 129,455 7,280 136,735
================================================
Expenses
Operating 107,318 7,395 114,713
Interest and other (3,811) (37) (3,848)
Depreciation of capital assets and assets under lease 9,311 801 10,112
Amortization of intangibles 4,232 499 4,731
Restructuring and other charges -- -- --
------------------------------------------------
117,050 8,658 125,708
------------------------------------------------
Income (loss) from operations 12,405 (1,378) 11,027
Income taxes (4,570) (206) (4,776)
Non-controlling interest (2,223) (291) (2,514)
------------------------------------------------
Net income (loss) 5,612 (1,875) 3,737
================================================
Total assets 268,754 21,388 290,142
================================================
Total capital and intangible expenditures 44,843 811 45,654
================================================
Quarter ended February 28, 2001 compared to Quarter ended February 29, 2000
Total net revenues for the third quarter of fiscal 2001 decreased to $47.6
million from $49.3 million the previous year, which primarily reflects reduced
net revenues from refractive centers. More than 93% of the Company's total net
revenues were derived from refractive surgery. For the nine-month period, total
net revenues decreased to $133.9 million in fiscal 2001 from $149.5 million in
fiscal 2000.
Net revenues from refractive centers for the third quarter of fiscal 2001
decreased to $43.6 million, from $46.7 million in the previous year's third
quarter. For the nine-month period net revenue from refractive centers decreased
to $124.8 million in fiscal 2001 from $142.2 million in fiscal 2000. More than
33,400 procedures were performed in the third quarter fiscal 2001 compared to
33,300 procedures in the third quarter fiscal 2000. The
12
Company was able to maintain the procedure level in spite of current competition
in the marketplace. On a nine-month basis, procedure volume decreased to 93,897
in fiscal 2001 from 98,330 in fiscal 2000 representing a 4.5% reduction in
volumes. The Company maintains its vision to be a premium provider of laser
vision correction services in an industry that faces significant pricing
pressures.
Net revenues from non-refractive activities were $4.0 million in the third
quarter of fiscal 2001 in comparison to $2.6 million in the third quarter fiscal
2000. On a nine-month basis, net revenue from non-refractive activities was $9.1
million in fiscal 2001 from $7.3 million in fiscal 2000.
Operating expenses and doctor compensation decreased to $39.1 million in
the third quarter fiscal 2001 from $47.5 million in the third quarter fiscal
2000. This decrease is primarily a result of: (i) reduced marketing costs, (ii)
consolidation of costs associated with the Corporate Advantage Program and third
party payor programs, and (iii) reductions in staffing levels at corporate and
program levels. Based on nine months, operating costs including doctor
compensation has increased 2% from $127.4 million in fiscal 2000 to $130.2
million in fiscal 2001.
Residual other charges were applied in the third quarter in refractive
activities. These charges relate to consulting costs relating to the services
provided by the national consulting firm.
Total depreciation and amortization costs were $6.8 million in the third
quarter of fiscal 2001 in comparison to $5.6 million in the third quarter fiscal
2000. On a nine-month basis, total depreciation and amortization was $20.8
million in fiscal 2001 up from $14.8 million in fiscal 2000. 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 fiscal of 2001 and 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 increased to $0.8 million in the third quarter of
fiscal 2001 from $(0.3) million in the third quarter of fiscal 2000. This
increase is a result of the Company and its partners having generated operating
profits in the third quarter of fiscal 2001.
The profit for the third quarter of fiscal 2001 was $0.4 million or $0.01
per share, compared to a loss of $3.1 million or $0.08 cents per share for the
third quarter of fiscal 2000. Profit before restructuring and other charges for
the quarter was $1.1 million. This profit reflects the Company's renewed focus
on cost containment and resource rationalization, along with increasing
stability in pricing in the marketplace.
Three months ended February 28, 2001
(U.S. dollars, in thousands) Refractive Other Total
--------------------------------------------------
Revenues and physician costs:
Net revenues 43,632 3,956 47,588
Doctor compensation 4,691 -- 4,691
--------------------------------------------------
Net revenue after doctor compensation 38,491 3,956 42,897
==================================================
Expenses
Operating 31,122 3,285 34,407
Interest and other (585) (80) (665)
Depreciation of capital assets and assets under lease 3,324 684 4,008
Amortization of intangibles 2,615 221 2,836
Restructuring and other charges 697 17 714
--------------------------------------------------
37,173 4,127 41,300
--------------------------------------------------
Income (loss) from operations 1,768 (171) 1,597
Income taxes (777) (55) (832)
Non-controlling interest (442) 105 (337)
--------------------------------------------------
Net income (loss) 549 (121) 428
==================================================
Total assets 233,612 4,491 238,103
==================================================
Total capital and intangible expenditures 1,523 227 1,750
==================================================
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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 36,845 3,529 40,374
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 and other charges 1,885 13,650 15,535
--------------------------------------------------
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
==================================================
Quarter ended February 28, 2001 compared to Quarter ended November 30, 2000
Total net revenues for the third quarter fiscal 2001 increased to $47.6
million from $38.4 million in the second quarter of fiscal 2001.
Net revenues from refractive centers for the third quarter of fiscal 2001
increased to $43.6 million, from $35.6 million in the previous quarter. More
than 33,400 procedures were performed in the third quarter fiscal 2001,
including over 800 paid procedures in the third quarter generated by the new
"TLC Affiliate Centers" program, compared to 27,100 procedures in the second
quarter fiscal 2001. The increase in procedures and revenues reflects a renewed
appreciation for the Company as a premium provider of laser vision correction
services, in addition to the normal calendar year-end surge of business. The
Company continues to be a premium provider of laser vision correction services
in an industry that faces significant pricing pressures.
Operating expenses and doctor compensation decreased to $39.1 million in
the third quarter fiscal of 2001 from $44.1 million in the second quarter of
fiscal 2001. This decrease is a result of: (i) reduced marketing costs, (ii)
streamlining and reduction of corporate costs to effectively support the
Company's needs, and (iii) close monitoring of program development costs.
Operating expenses and doctor compensation as a percentage of net revenues were
82% of net revenues in the third quarter of fiscal 2001 as compared to 115% of
net revenues in the second quarter fiscal 2001. This decrease reflects the
Company's ongoing initiatives to control costs.
The profit for the third quarter of fiscal 2001 was $0.4 million or $0.01
per share compared to a loss of $28.0 million or $0.74 cents per share for the
second quarter of fiscal 2001. The improvement, quarter on quarter, reflects the
$15.5 million in restructuring and other charges taken in the second quarter,
the improvement in the number of paid procedures performed as well as the
results of the Company's initiatives to control costs.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments were $65.0 million at
February 28, 2001 as compared to $61.5 million at November 30, $72.8 million at
August 31, and $78.5 million at May 31, 2000
Cash provided from operating activities was $12.3 million for the first
three-quarters of fiscal 2001 as compared to $14.8 million for the first
three-quarters of fiscal 2000; a decrease resulting primarily from reduced
earnings. The non-cash increases 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.
14
The Company has invested $10.8 in capital assets while selling $2.1
million of assets as part of the restructuring and rationalization process. In
addition, the Company made investments of $6.2 million for the acquisition of
business assets of several doctors. The Company continued to make other
strategic industry investments both on the new technology and service side of
the industry. The Company is currently in the process of negotiating the sale of
its corporate office building, located in Mississauga, Ontario.
During the first nine 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. Following the end of the
third quarter of fiscal 2001, the Company acquired the non-medical assets that
related to the refractive practice of a certain physician and that physician's
P.C. for $10,000,000 plus an additional $10,000,000 to be paid over the next
four years.
The Company used cash to make scheduled debt repayments of $5.7 million
and distributed $3.5 million in profits to minority shareholders in the first
three-quarters 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. 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 twelve (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 stock.
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 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 annual report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 9, 2001 Joseph Dello Russo, M.D. filed a lawsuit, against the
Company and certain physicians associated with the Company, in the United States
District Court, Eastern District of New York alleging false description, false
advertising and deceptive trade practices based upon certain advertisements of a
doctor with substantially the same name as the plaintiff. The complaint alleges
compensatory damages to be no less than $30,000,000 plus punitive damages. This
lawsuit is in the early stages and the Company intends to vigorously defend this
matter. Although there can be no assurance, the Company does not expect this
suit to have a material adverse effect on its business, financial condition or
results of operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
Not applicable.
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
April 16, 2001
By: /s/ Brian Park
------------------------------------
Brian Park
Interim Chief Financial Officer
April 16, 2001
16