-----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, UybMPRdIcfkifF32sNwocqVIavm5BL2Yr49taxrOGiwqkjESjUMPhCkWGAqIkAIV 9g00jxiV7Vo9InW2CNZ10g== 0001005477-01-002751.txt : 20010417 0001005477-01-002751.hdr.sgml : 20010417 ACCESSION NUMBER: 0001005477-01-002751 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010416 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: 1603538 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 0001.txt 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 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 ==================================================
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 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 -----END PRIVACY-ENHANCED MESSAGE-----