-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ntz2C2V9l0/hcCFvCoKY/cqpHADlKh4lH+pGIULbz5JfqMtkDYJrANqeZUUvIE07 7CNe38FsTiibYSGQ0bThNQ== 0001005477-00-000166.txt : 20000202 0001005477-00-000166.hdr.sgml : 20000202 ACCESSION NUMBER: 0001005477-00-000166 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TLC LASER CENTER INC CENTRAL INDEX KEY: 0001010610 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 980151150 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29302 FILM NUMBER: 507503 BUSINESS ADDRESS: STREET 1: 5600 EXPLORER DRIVE STREET 2: SUITE 301 CITY: MISSISSAUGA ONTARIO STATE: A6 ZIP: 00000 BUSINESS PHONE: 3015712020 MAIL ADDRESS: STREET 1: 6701 DEMOCRACY BLVD STREET 2: SUITE 200, LEGAL DEPT. CITY: BETHESDA STATE: MA ZIP: 20817 10-Q 1 FORM 10-Q 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, 1999 COMMISSION FILE NUMBER: 0-29302 TLC LASER EYE CENTERS INC. -------------------------- (Exact name of registrant as specified in its charter) Ontario, Canada 980151150 (State or jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5600 Explorer Drive, Suite 301 L4W 4Y2 Mississauga, Ontario (Zip Code) (Address of principal executive offices) Registrant's telephone, including area code (905) 602-2020 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No As of November 30, 1999, there were 37,415,114 of the registrant's Common Shares outstanding. 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 U.S. Securities and 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, 1999. 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 a particular fiscal year "fiscal 1999" shall mean the 12 months ended on May 31, 1999 and "fiscal 2000" shall mean to the 12 months ending on May 31, 2000. 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 Balance Sheets as of November 30, 1999 and May 31, 1999 Consolidated Statement of Income for the Three Months Ended November 30, 1999 and November 30, 1998 and the Six Months Ended November 30, 1999 and November 30, 1998 Consolidated Statement of Cashflows for the Six Months Ended November 30, 1999 and November 30, 1998 Notes to Interim Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 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 BALANCE SHEET November 30 May 31 (U.S. dollars, in thousands) 1999 1999 - -------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 63,723 $ 125,598 Marketable securities 64,102 26,212 Accounts receivable 21,371 15,359 Income taxes recoverable 1,399 -- Prepaids and sundry assets 9,356 6,602 - -------------------------------------------------------------------------------- Total current assets 159,951 173,771 Restricted cash 1,617 1,730 Investments and other assets 20,962 14,359 Intangibles 56,733 47,441 Capital assets 43,567 38,993 Assets under capital lease 11,969 10,556 - -------------------------------------------------------------------------------- Total assets $ 294,799 $ 286,850 ================================================================================ LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 19,158 $ 19,512 Current portion of long term debt 2,093 2,181 Current portion of obligations under capital lease 5,319 4,717 Income taxes payable -- 477 - -------------------------------------------------------------------------------- Total current liabilities 26,570 26,887 Long term debt 3,269 4,620 Obligations under capital lease 5,713 6,410 Deferred rent and compensation 870 959 - -------------------------------------------------------------------------------- Total liabilities 36,422 38,876 - -------------------------------------------------------------------------------- Non-controlling interest 11,094 8,151 - -------------------------------------------------------------------------------- Commitments SHAREHOLDERS' EQUITY Capital stock 270,452 269,454 Deficit (23,169) (29,631) - -------------------------------------------------------------------------------- Total shareholders' equity 247,283 239,823 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 294,799 $ 286,850 ================================================================================ 3 TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENT OF INCOME
3 months ended November 30th 6 months ended November 30th ------------------------------ ------------------------------- (U.S. dollars, in thousands except per share amounts) 1999 1998 1999 1998 ============================================================================================================================ Net revenues Refractive $ 45,427 $ 26,836 $ 95,471 $ 53,220 Other 2,642 3,234 4,641 5,813 - ---------------------------------------------------------------------------------------------------------------------------- Net revenues 48,069 30,070 100,112 59,033 - ---------------------------------------------------------------------------------------------------------------------------- Expenses Doctor Compensation Refractive 3,772 2,645 8,399 5,240 Operating 37,250 22,078 71,473 41,785 Interest and other (1,441) 129 (2,543) 840 Depreciation and amortization 5,196 3,545 9,272 7,160 Start-up and development expenses -- 1,137 -- 2,132 - ---------------------------------------------------------------------------------------------------------------------------- 44,777 29,534 86,601 57,157 - ---------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST 3,292 536 13,511 1,876 - ---------------------------------------------------------------------------------------------------------------------------- Income taxes Current 994 -- 3,918 619 - ---------------------------------------------------------------------------------------------------------------------------- 994 -- 3,918 619 - ---------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST 2,298 536 9,593 1,257 Non-controlling interest (1,122) 123 (2,151) (195) - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) FOR THE PERIOD $ 1,176 $ 659 $ 7,442 $ 1,062 ============================================================================================================================ BASIC INCOME (LOSS) PER SHARE $ 0.03 $ 0.02 $ 0.2 $ 0.03 Weighted average number of Common Shares Outstanding 37,444,713 33,840,597 37,422,167 33,769,226 Fully Diluted Income (Loss) per share 0.03 0.02 0.19 0.03
4 TLC LASER EYE CENTERS INC. CONSOLIDATED STATEMENTS OF CASHFLOWS SIX MONTHS ENDED NOVEMBER 30
(U.S. dollars, in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Operating activities Net income for the year $ 7,442 $ 1,062 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 9,272 7,160 Non-controlling interest 2,151 195 Other 152 416 Changes in non-cash operating items -- Accounts receivable (6,007) (291) Prepaids and sundry assets (2,754) (866) Accounts payable and accrued liabilities (607) (209) Income taxes payable (net) (1,333) (335) Deferred rent and compensation (89) 12 - ------------------------------------------------------------------------------------------------------------------------- Cash provided by (used for) operating activities 8,227 7,144 - ------------------------------------------------------------------------------------------------------------------------- Financing activities Restricted cash 113 64 Long term debt (1,040) (1,233) Obligations under capital lease (2,593) (1,740) Non-controlling interest (111) (41) Capital stock issued (purchased for cancellation) (526) (887) - ------------------------------------------------------------------------------------------------------------------------- Cash provided by (used for) financing activities (4,157) (3,837) - ------------------------------------------------------------------------------------------------------------------------- Investing activities Capital assets (8,521) (8,227) Assets under capital lease (1,115) (46) Acquisitions and investments (18,425) (12,897) Marketable securities (37,890) -- Other 6 (35) - ------------------------------------------------------------------------------------------------------------------------- Cash provided by (used for) investing activities (65,945) (21,205) - ------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (61,875) (17,898) Cash and cash equivalents , beginning of year 125,598 55,198 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 63,723 $ 37,300 =========================================================================================================================
5 TLC LASER EYE CENTERS INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS November 30, 1999 (Unaudited) 1. 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, 1999 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, 1999 and November 30, 1998, 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, 1998 three month consolidation includes certain reclassifications to conform with classifications for the three month period ended November 30, 1999. The net income (loss) per share was computed using the weighted average number of common shares outstanding during each period. 2. On April 7, 1999, the Company entered into an agreement with a subsidiary of Kaiser Permanente, providing for a strategic alliance, with the intention to initially own and operate three refractive centers in California and to eventually develop additional centers in markets in the United States where Kaiser Permanente has a significant presence. The agreement also grants the Kaiser Permanente subsidiary the opportunity to negotiate an ownership interest in existing and future TLC refractive centers. On June 30, 1999 the Company made a capital contribution of US$1,002,000 representing a 50.1% interest in TLC USA, LLC, the operating company, for activities of this strategic alliance. On July 8,1999 the Company acquired 50.1% of the operating assets and liabilities of Laser Eye Care of California, LLC for cash consideration, certain operating assets and liabilities of the Company's two California refractive centers and additional amounts contingent upon achieving certain levels of profits. No value will be assigned to these contingent amounts until completion of the earn out period and the outcome of the contingency is known. 3. Difference Between Canadian and United States Generally Accepted Accounting Principles These consolidated financial statements are prepared in accordance with accounting principles generally accepted ("GAAP") in Canada. The most significant differences between Canadian and United States GAAP, insofar as they affect the Company's consolidated financial statements, are described below. The following table reconciles results as reported under Canadian GAAP with those that would have been reported under U.S. GAAP for the period ended November 30, 1999: 6
Three months ended Six months ended November 30, 1999 November 30, 1999 ---------------------------------------- Net Income for the period -- Canadian GAAP $ 1,176 $ 7,442 Deferred foreign exchange gains (losses) (1) (52) (36) Income tax expense adjustment under the liability method (2) (113) (596) ---------------------------------------- Net Income for the year -- U.S. GAAP $ 1,011 $ 6,810 ======================================== Income per share -- U.S. GAAP (3) $ 0.03 $ 0.17 ======================================== Net income based on US GAAP 1,011 6,810 Unrealized gains on securities available for sale 188 (1,943) ---------------------------------------- Comprehensive income 1,199 4,867 ========================================
(1) The gain or loss on translation of foreign currency denominated long-term monetary items is deferred and amortized over the remaining life of the item under Canadian GAAP. Under U.S. GAAP, the gain or loss on translation is included in income when it arises. (2) Under U.S GAAP, deferred taxes are recorded based on the difference between the values assigned for accounting purposes and the tax values of individual assets acquired in business combinations, except for nondeductible goodwill. The only such significant differences with respect to the Company are the practice management agreement assets acquired in prior periods. Under U.S. GAAP, this deferred tax liability is matched by an equal increase in the value assigned to the practice management agreement assets. In the statement of income, the resulting increased annual asset amortization is offset by an equal deferred tax recovery with no effect on the net income (loss). In addition, the recognition of operating loss carry-forwards which existed at the acquisition date is recorded as a reduction of goodwill related to the acquisition and an increase in the tax provision under U.S. GAAP. (3) SFAS No. 128, "Earnings Per Share", is effective for fiscal periods ending after December 15, 1997 As a result of the above differences, as at November 30, 1999 under U.S. GAAP, long-term assets would increase by $6,404,000 , deferred income tax liabilities would increase by $4,704,000 and total shareholders' equity would increase by $1,700,000. In addition, other comprehensive income would increase to $3,813,000. Additional disclosures required related to the reconciliation of the consolidated financial statements from Canadian to U.S. GAAP are as follows: 7 Income Taxes Deferred income taxes under U.S. GAAP consist of the following temporary differences: November 30, 1999 ----------------- Tax benefit of loss carry forwards Pre-acquisition $ 11,354 Post-acquisition 4,097 Start-up costs 1,175 Other 1,489 Valuation allowance (18,115) ----------------- $ -- ----------------- Liabilities: Practice management agreements 1,706 Capital assets 2,226 Other -- ----------------- $ 3,932 ================= 8 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Quarter Ended November 30, 1999 Compared to Quarter Ended November 30, 1998 TLC LASER EYE CENTERS INC. SUPPLEMENTARY SEGMENTED FINANCIAL INFORMATION
Three months ended November 30, 1999 (U.S. dollars, in thousands) Refractive Other Total ================================================================================== 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 - ---------------------------------------------------------------------------------- Operating Expenses 34,822 2,428 37,250 Interest and other (1,420) (21) (1,441) Depreciation and amortization 4,783 413 5,196 Start-up and development expenses -- -- -- ----------------------------------------- $ 38,185 $ 2,820 $ 41,005 ----------------------------------------- Income (loss) from operations $ 3,470 $ (178) $ 3,292 ----------------------------------------- Six months ended November 30, 1999 (U.S. dollars, in thousands) Refractive Other Total ================================================================================== 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 - ---------------------------------------------------------------------------------- Operating Expenses 67,170 4,303 71,473 Interest and other (2,490) (53) (2,543) Depreciation and amortization 8,415 857 9,272 Start-up and development expenses -- -- -- $ 73,095 $ 5,107 $ 78,202 Income (loss) from operations $ 13,977 $ (466) $ 13,511
9
Three months ended November 30, 1998 (U.S. dollars, in thousands) Refractive Other Total ================================================================================== Net revenues $ 26,836 $ 3,234 $ 30,070 Doctor compensation 2,645 -- 2,645 - ---------------------------------------------------------------------------------- Net revenue after doctor compensation 24,191 3,234 27,425 - ---------------------------------------------------------------------------------- Operating Expenses 19,515 2,563 22,078 Interest and other 144 (15) 129 Depreciation and amortization 2,881 664 3,545 Start-up and development expenses -- 1,137 1,137 ----------------------------------------- $ 22,540 $ 4,349 $ 26,889 ----------------------------------------- Income (loss) from operations $ 1,651 $ (1,115) $ 536 ----------------------------------------- Six months ended November 30, 1998 (U.S. dollars, in thousands) Refractive Other Total ================================================================================== Net revenues $ 53,220 $ 5,813 $ 59,033 Doctor compensation 5,240 -- 5,240 - ---------------------------------------------------------------------------------- Net revenue after doctor compensation 47,980 5,813 53,793 - ---------------------------------------------------------------------------------- Operating Expenses 36,780 5,005 41,785 Interest and other 912 (72) 840 Depreciation and amortization 5,922 1,238 7,160 Start-up and development expenses -- 2,132 2,132 ----------------------------------------- $ 43,614 $ 8,303 $ 51,917 ----------------------------------------- Income (loss) from operations $ 4,366 $ (2,490) $ 1,876 -----------------------------------------
10 Total net revenues in the second quarter of the fiscal 2000 increased 60% from $30.1 million in the second quarter of fiscal 1999 to $48.1 million in the second quarter of fiscal 2000. Total net revenues for the six month period increased 70% from $59.0 million in fiscal 1999 to $100.1 million in fiscal 2000. Net revenues from refractive centers made up 95% of the total net revenue during the second quarter of fiscal 2000 as compared to 89% during the same period last year. For the six month period net revenues from refractive centers also made up 95% of the total net revenues during fiscal 2000 as compared to 90% during the first six months of fiscal 1999. This trend continues to emphasize the significance of the Company's core business and the impact of the divestiture of a significant portion of its secondary care operations in the final quarter of fiscal 1999. Net revenues from refractive centers for the second quarter of fiscal 2000 were $45.4 million, which is 69% higher than the $26.8 million net revenues recorded in the previous year's second quarter. For the six month period in fiscal 2000 net revenues from refractive centers were $95.5 million which is 80% higher than the $53.2 million net revenues recorded in the first six months of fiscal 1999. More than 31,600 procedures were performed in the second quarter of fiscal 2000, an increase of 75%, as compared to 18,017 procedures performed during the same period last year. During the first 6 months of fiscal 2000, procedures increased 81% from 35,800 in the previous year to more than 64,900 this year. The increasing revenues reflect strong growth in the number of procedures at existing sites due to the increasing acceptance of the procedure in the marketplace, as well as the development of new centers and the acquisition of centers. Net revenues from other activities decreased from $3.2 million in the second quarter of fiscal 1999 to $2.6 million in the same period this year. Net revenues decreased from $5.8 million in the first six months of fiscal 1999 to $4.6 million for the same period this year. Net revenues from this business segment will continue to decline as a percentage of total revenues reflecting the divestiture of certain secondary care practices in the fourth quarter of fiscal 1999. Operating expenses and doctor compensation increased in the second quarter of fiscal 2000 from $24.7 million in fiscal 1999 to $41.0 million in fiscal 2000. For the six month period in fiscal 2000 operating expenses and doctor compensation increased 70% from $47.0 million in fiscal 1999 to $79.9 million in fiscal 2000. This increase is a result of (i) increased variable expenses associated with the increase in the number of laser vision correction procedures performed at existing refractive centers, (ii) increased fixed and variable costs from the addition of new refractive centers, and (iii) higher corporate costs which are necessary to support the higher level of business activity. Operating expenses and doctor compensation as a percentage of net revenues were 85.3% of net revenues in the second quarter of fiscal 2000 (80% in the 6 month period) as compared to 82.2% of net revenues during the same period in fiscal 1999 (80% in the 6 month period). This increase reflects the impact of marketing programs aimed at raising consumer awareness of TLC which has not been fully offset by the higher average number of procedures being performed at TLC centers. Interest (revenue)/expense and other expenses reflect interest revenue from a strong cash position resulting from ongoing positive cashflow from operations and the result of a public offering in the fourth quarter of fiscal 1999. Interest expense on long term debt and capital leases on equipment have decreased from that of prior quarters and reflect improved financing terms. 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 fiscal 1999 as well as the amortization from the goodwill resulting from investments in California in the first quarter of fiscal 2000. Goodwill is amortized on a straight-line basis over the term of the agreement to a maximum of fifteen years. Start-up and development costs in the six months of fiscal 1999 were incurred by Partner Provider Health for the development of a managed care business specializing in eye care. TLC sold PPH in May of 1999. The Company does not expect to incur these costs in the future. 11 Income tax expense increased from $0.6 million for the first six months of fiscal 1999 to $3.9 million for the same period in 2000. This increase is a result of the Company having utilized most of its tax losses from prior periods. The Company expects to incur tax liabilities for its earnings in fiscal 2000. The net income for the second quarter of fiscal 2000 was $1.2 million or $0.03 per share, compared to net income of $0.7 million or $0.02 cents a share for the same quarter last year. This net income is a result of higher procedure volume in the refractive business as well as the reduction of losses in secondary care operations and the disposal of managed health care business offset in part by increased operating expenses. For the six months ended November 30, 1999 net income increased $6.3 million, or 572% from $1.1 million or $0.03 per share in fiscal 1999 to $7.4 million or $0.19 per share. Liquidity and Capital Resources Cash from operating activities was $8.2 million for the first six months of fiscal 2000 as compared to $7.1 million the first six months of fiscal 1999. This is primarily a result of the Company's increase in net income for the first six months. Working capital decreased from $146.9 million at May 31, 1999 to $133.4 million at November 30, 1999. Cash, cash equivalents and marketable securities were $127.8 million at November 30, 1999 as compared to $151.8 million at May 31, 1999. The Company continues to develop or acquire new refractive centers which has resulted in the increase of $8.5 million its investment in capital assets. In addition, the Company made strategic investments of $11 million in the California market. The Company estimates that the net proceeds of its public offering in the fourth quarter in fiscal 1999, together with existing cash balances, funds expected to be generated from operations and available credit facilities, will be sufficient to fund the Company's anticipated level of operations and its current acquisition and expansion plans for the next 18 months. The Company continues to invest in assets to develop and expand its refractive procedure capacity in anticipation of continued growth, through the development of new centers and acquisition of refractive practices. TLC has more than 15 centers under various stages of development. In addition, the Company is actively pursuing other strategic acquisition opportunities that will enhance its position as North America's leading provider of laser eye surgery services. Year 2000 Compliance The Company is aware of the issues associated with the programming code in existing computer systems as the Year 2000 approaches. The "Year 2000 problem" is pervasive and complex. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company completed a comprehensive study of the possible affects of the Year 2000 issue on its systems and results of operations and a detailed plan of action including projected costs and contingency plans. The Company's systems constitute primarily desktop computers most of which are linked by a local area network server at individual site locations. In August of 1999, the Company completed a total company-wide upgrade of their financial, operational systems and relevant hardware as relating to its core business. This upgrade provided significant additional systems functionality and integration as well as enhanced internal communication tools to the whole organization. As a result of these upgrades the Company believes that it has prepared its computer systems and related applications to accommodate date-sensitive information relating to the Year 2000. Any upgrades still to be done, mostly replacing some older desktop computers and relevant operating software, will not be material to the financial condition or results of operations of the Company. The Company has tested and determined that its software applications for all essential functions, such as all financial applications, scheduling, center management and communications, are Year 2000 compliant. The Company is currently successfully scheduling future appointments in the 2000 calendar year. The Company has contingency plans in 12 place for failure of "mission critical" systems will be used. Other than providing additional support resources over year end, no specific changes to the contingency plans have been made for the failure of systems as a result of year 2000. Such costs will be expensed as incurred. The Company is continuing to monitor the Y2K compliance of its suppliers. To date, no significant concerns have been identified. However, there is still some risk that the providers of good and services could have Year 2000 issues which could have a material adverse affect on the financial condition or the results of operations of the Company. The Company's core business is operating refractive laser surgery centers that are equipped with a computer-controlled excimer laser as the primary essential piece of equipment. VISX Incorporated ("VISX") manufactures approximately 85% of the excimer lasers owned by the Company. Representatives from VISX have informed the Company that it has tested its lasers for Year 2000 compliance and that the lasers will function without any affect on safety or efficacy upon a change of date to the Year 2000. However, without any upgrade, some VISX lasers might print out patient reports with an incorrect date on them. VISX developed a software upgrade to correct this problem and has completed the installation of the upgrade in all of the Company's VISX lasers at no cost to the Company. The Company's refractive centers are equipped with other computer-controlled ophthalmic equipment, but none are essential to the laser vision correction procedure. The Company does not expect that the cost of any replacements or upgrades required for other ophthalmic equipment in its laser centers for the Year 2000 will be material to the financial condition or results of operations of the Company. Laser vision correction is an elective procedure, which is not covered by Medicare, Medicaid or other governmental reimbursement programs. Some private insurance companies, however, provide partial or full coverage for the procedure, which the Company estimates accounts for approximately 8% of its revenues for the period from September 1, 1999 to November 30, 1999. If private insurance companies that cover the laser vision procedure have difficulty processing and paying claims because of Year 2000 issues, this could cause accounts receivable for refractive procedures performed at the Company's refractive centers to increase, or the patient volume in the refractive centers operated by the Company to decrease, which could have a material adverse effect on the financial condition or results of operations of the Company until such Year 2000 problems are corrected. To date the Company has not experienced any problems with the private insurance companies processing and paying claims as a result of Year 2000 disruptions. Most secondary care procedures are covered by governmental reimbursement programs, such as Medicare or Medicaid, and by private insurance companies. If third party payors have difficulty processing and paying claims because of Year 2000 issues, this could cause delays in such payments and an increase in accounts receivable for procedures performed in secondary care centers in which the Company has an investment. To date the Company has not experienced any problems in receipt of payment from these payors resulting from Year 2000 disruptions. The Company has completed all necessary changes and procedures to be in compliance with Year 2000 systems. The Company can not predict the impact that the Year 2000 issue will have on its potential patients or the economy but as to date, the Company has recognized no adverse effects on the Company as a result of the Year 2000. The Company will continue to monitor the systems over the next few months. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13 Not applicable. ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held on November 4, 1999 at the Toronto Stock Exchange Conference Center, 2 First Canadian Place, 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. Riegert, Mr. Connacher, Mr. Gourwitz, Dr. Sullins, Mr. Vamvakas, Mr. Rustand and Dr. Machat 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: Mr. Riegert - 21,360,020 votes in favor of election and 10,960 votes withheld. Mr. Connacher - 21,360,020 votes in favor of election and 10,960 votes withheld. Mr. Gourwitz - 21,360,020 votes in favor of election and 10,960 votes withheld. Dr. Sullins - 21,360,020 votes in favor of election and 10,960 votes withheld. Mr. Vamvakas - 21,360,020 votes in favor of election and 10,960 votes withheld. Mr. Rustand - 21,360,020 votes in favor of election and 10,960 votes withheld. Dr. Machat - 21,360,020 votes in favor of election and 10,960 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: 21,310,648 votes in favor, 0 votes against and 56,443 votes withheld. 3. Amendment of Articles. The Shareholders authorized the amendment of the Articles of Incorporation in order to amend the corporate name from TLC The Laser Center Inc. to TLC Laser Eye Centers Inc. The voting tabulation was as follows: 21,332,361 votes in favor, 20,939 votes against and 0 votes withheld. 4. Amendment of By-Law. The Shareholders authorized the amendment of By-Law #3. The voting tabulation was as follows: 21,121, 889 votes in favor, 219,437 votes against and 1,069 votes withheld. 5. Approval of Shareholder Rights Plan. The Shareholders authorized the proposed TLC Shareholder Rights Plan. The voting tabulation was as follows: 17,082,759 votes in favor, 1,921,370 votes against and 900 votes withheld. 6. Issuing of Additional Compensatory Shares. The Shareholders authorized the issuing of up to 500,000 compensatory shares. The voting tabulation was as follows: 18,758,413 votes in favor, 2,569,492 votes against and 28,395 votes withheld. 14 ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON 8-K a. Exhibit 27 Financial Data Schedules b. Reports on 8-K None. 14 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 14, 2000 By: /s/ Peter Kastelic ----------------------------- Peter Kastelic Chief Financial Officer January 14, 2000 15 EX-27.1 2 FDS
5 6-MOS MAY-31-2000 JUN-01-1999 NOV-30-1999 63,723,000 64,102,000 21,371,000 2,474,000 0 159,951,000 89,655,000 (34,119,000) 294,799,000 26,570,000 0 0 0 270,452,000 (23,169,000) 294,799,000 0 100,112,000 0 (79,872,000) (9,272,000) 0 2,543,000 13,511,000 (3,918,000) 0 0 (2,151,000) 0 7,442,000 0.20 0.19
EX-27.2 3 FDS
5 3-MOS MAY-31-2000 SEP-01-1999 NOV-30-1999 63,723,000 64,102,000 21,371,000 2,474,000 0 159,951,000 89,655,000 (34,119,000) 294,799,000 26,570,000 0 0 0 270,452,000 (23,169,000) 294,799,000 0 48,069,000 0 (41,022,000) (5,196,000) 0 1,441,000 3,292,000 (994,000) 0 0 (1,122,000) 0 1,176,000 0.03 0.03
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