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 AUGUST 31, 2000
COMMISSION FILE NUMBER: 0-29302
TLC LASER EYE CENTERS INC.
--------------------------
(Exact name of registrant as specified in its charter)
Ontario, Canada 980151150
(State or jurisdiction of (I.R.S. Employer 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 August 31, 2000, there were 37,746,196 of the registrant's Common
Shares outstanding.
<PAGE>
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, 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 "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 August 31, 2000 and August 31, 1999
Consolidated Balance Sheet at August 31, 2000 and May 31, 2000
Consolidated Statement of Cashflows for the Three
Months ended August 31, 2000 and August 31, 1999
Consolidated Statements of Stockholders' Equity
Notes to Interim Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I. FINANCIAL INFORMATION
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
three months ended August 31,
(U.S. dollars, in thousands except per share amounts) 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues
Refractive $ 45,622 $ 50,044
Other 2,323 1,999
Net revenues 47,945 52,043
Expenses
Doctor Compensation
Refractive 4,850 4,627
Operating 41,928 34,207
Interest and other (966) (1,102)
Depreciation of capital assets and assets under lease 3,733 3,043
Amortization of intangibles 3,158 1,033
52,703 41,808
INCOME (LOSS) BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (4,758) 10,235
Income taxes (174) (3,672)
Non-controlling interest (240) (764)
NET INCOME (LOSS) FOR THE PERIOD $ (5,172) $ 5,799
============================
BASIC INCOME (LOSS) PER SHARE $ (0.14) $ 0.16
Weighted average number of
Common Shares Outstanding 37,203,625 37,403,397
Fully Diluted Income (Loss) per share $ (0.14) $ 0.15
</TABLE>
3
<PAGE>
TLC LASER EYE CENTERS INC.
SEGMENTED INFORMATION
<TABLE>
<CAPTION>
three months ended
August 31,
2000 1999
(U.S. dollars, in thousands) Refractive Other Total Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and physician costs:
Net revenues $ 45,622 $ 2,323 $ 47,945 $ 52,043
Doctor compensation 4,850 -- 4,850 4,627
Net revenue after doctor compensation 40,772 2,323 43,095 47,416
Expenses
Operating 37,030 4,898 41,928 34,207
Interest and other (1,101) 135 (966) (1,102)
Depreciation of capital assets and assets under lease 3,496 237 3,733 3,043
Amortization of intangibles 2,398 760 3,158 1,033
Start-up and development expenses -- -- -- --
Restructuring charges -- -- -- --
41,823 6,030 47,853 37,181
Income (loss) from operations (1,051) (3,707) (4,758) 10,235
Income taxes (188) 14 (174) (3,672)
Non-controlling interest (193) (47) (240) (764)
Net Income $ (1,432) $ (3,740) $ (5,172) $ 5,799
============================================
</TABLE>
4
<PAGE>
TLC LASER EYE CENTERS INC.
CONSOLIDATED BALANCE SHEET
August 31, May 31,
(U.S. dollars, in thousands) 2000 2000
--------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 72,823 $ 78,531
Accounts receivable 12,332 15,527
Income taxes recoverable 978 4,734
Prepaids and sundry assets 5,324 5,922
Total current assets 91,457 104,714
Restricted cash 1,727 1,722
Investments and other assets 28,605 29,478
Intangibles 93,219 89,297
Capital assets 52,415 53,431
Assets under capital lease 9,950 10,722
Total assets $ 277,373 $ 289,364
======================
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 17,267 $ 21,467
Accrued purchase obligations 6,000 13,200
Accrued wage costs 4,448 2,974
Current portion of long term debt 1,913 2,332
Current portion of obligations under capital lease 4,845 5,260
Total current liabilities 34,473 45,233
Long term debt 2,758 2,922
Obligations under capital lease 3,030 3,806
Deferred rent and compensation 1,119 915
Total liabilities 41,380 52,876
Non-controlling interest 12,897 12,842
Commitments
Shareholders' equity
Capital stock 276,088 269,953
Warrants 532 532
Deficit (47,560) (42,388)
Accumulated other comprehensive income (loss) (5,964) (4,451)
Total shareholders' equity 223,096 223,646
Total liabilities and shareholders' equity $ 277,373 $ 289,364
======================
5
<PAGE>
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENT OF CASHFLOWS
<TABLE>
<CAPTION>
three months ended
August 31, August 31,
(U.S. dollars, in thousands) 2000 1999
--------------------------------------------------------------------------------------------
Operating activities
<S> <C> <C>
Net income for the year $ (5,172) $ 5,799
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 6,891 4,076
Goodwill written off in the period -- --
(Gain)/loss on sale of fixed assets and assets under lease 479 279
Non-cash restructuring costs -- --
Non-controlling interest 240 530
Other -- (205)
Changes in non-cash operating items
Accounts receivable 3,195 (2,132)
Prepaids and sundry assets 1,098 (1,221)
Accounts payable and accrued liabilities (2,827) 1,474
Income taxes payable (net) 3,765 2,964
Deferred rent and compensation 204 (20)
Cash provided by (used for) operating activities 7,873 11,544
Financing activities
Restricted cash (5) 124
Proceeds from debt financing -- 111
Principal payments of debt financing (599) (306)
Principal payments of obligations under capital lease (1,195) (1,246)
Payments of accrued purchase obligations (3,000) --
Contributions from non-controlling interests 18 1,057
Distributions to non-controlling interests (1,470) (487)
Payments related to the purchase and cancellation of capital stock (96) --
Proceeds from the issuance of capital stock 172 321
Cash provided by (used for) financing activities (6,175) (426)
Investing activities
Purchase of capital assets and assets under lease (3,715) (3,155)
Proceeds from sale of fixed assets and assets under lease 1,320 --
Proceeds from the sale of investments 760 227
Acquisitions and investments (5,900) (11,547)
Marketable securities -- 14,555
Other 129 37
Cash provided by (used for) investing activities (7,406) 117
Increase (decrease) in cash and cash equivalents (5,708) 11,235
Cash and cash equivalents, beginning of year 78,531 125,598
Cash and cash equivalents, end of year $ 72,823 $ 136,833
============================================================================================
</TABLE>
6
<PAGE>
TLC Laser Eye Centers Inc.
Consolidated Statements of Stockholders' Equity
(U.S. dollars, in thousands)
<TABLE>
<CAPTION>
Common stock Warrants
------------ --------
Number Number Comprehensive
of Shares Amount of Warrants Amount Income (Loss) Deficit
(000's) $ (000's) $ $ $
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1998 33,668 143,554 -- -- -- (22,421)
Shares issued for acquisitions 50 837
Shares issued to acquire other assets 50 728
Shares purchased for cancellation (256) (1,095) (4,290)
Exercise of stock options 773 3,073
Shares issued as remuneration 40 600
Shares issued as part of the
employee share purchase plan 47 750
Public offering, net of issue costs 2,990 121,007
Comprehensive income
Net income (4,556) (4,556)
Other comprehensive income
Unrealized gains/losses on available-
for-sale securities 5,529
--------
Comprehensive income 973
---------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 37,362 269,454 -- -- (31,267)
Warrants issued 100 532
Shares issued for acquisition 302 728
Value determined for shares
issued contingent on meeting
earnings criteria -- 1,397
Shares purchased for cancellation (710) (5,162) (5,203)
Exercise of stock options 87 1,314
Shares issued as remuneration 44 387
Shares issued as part of the employee
share purchase plan 65 1,696
Reversal of IPO costs, over accrual -- 139
Comprehensive income
Net income (5,918) (5,918)
Other comprehensive income
Unrealized gains/losses on available-
for-sale securities (10,387)
--------
Comprehensive income (16,305)
---------------------------------------------------------------------------------------------------------------------
Balance May 31, 2000 37,150 269,953 100 532 (42,388)
=====================================================================================================================
Shares issued for acquisition 817 6,019
Shares purchased for cancellation (17) (96)
Exercise of stock options 5 24
Shares issued as part of the employee
share purchase plan 25 188
Comprehensive income
Net income (5,172) (5,172)
Other comprehensive income
Unrealized gains/losses on available-
for-sale securities (1,513)
--------
Comprehensive income (6,685)
---------------------------------------------------------------------------------------------------------------------
Balance August 31, 2000 37,980 276,088 100 532 (47,560)
=====================================================================================================================
<CAPTION>
Other
Accumulated
Comprehensive
Income Total
$ $
---------------------------------------------------------------------
<S> <C> <C>
Balance, May 31, 1998 407 121,540
Shares issued for acquisitions 837
Shares issued to acquire other assets 728
Shares purchased for cancellation (5,385)
Exercise of stock options 3,073
Shares issued as remuneration 600
Shares issued as part of the
employee share purchase plan 750
Public offering, net of issue costs 121,007
Comprehensive income
Net income (4,556)
Other comprehensive income
Unrealized gains/losses on available-
for-sale securities 5,529 5,529
Comprehensive income
---------------------------------------------------------------------
Balance, May 31, 1999 5,936 244,123
Warrants issued 532
Shares issued for acquisition 728
Value determined for shares
issued contingent on meeting
earnings criteria 1,397
Shares purchased for cancellation (10,365)
Exercise of stock options 1,314
Shares issued as remuneration 387
Shares issued as part of the employee
share purchase plan 1,696
Reversal of IPO costs, over accrual 139
Comprehensive income
Net income (5,918)
Other comprehensive income
Unrealized gains/losses on available-
for-sale securities (10,387) (10,387)
Comprehensive income
---------------------------------------------------------------------
Balance May 31, 2000 (4,451) 223,646
=====================================================================
Shares issued for acquisition 6,019
Shares purchased for cancellation (96)
Exercise of stock options 24
Shares issued as part of the employee
share purchase plan 188
Comprehensive income
Net income (5,172)
Other comprehensive income
Unrealized gains/losses on available-
for-sale securities (1,513) (1,513)
Comprehensive income
---------------------------------------------------------------------
Balance August 31, 2000 (5,964) 223,096
=====================================================================
</TABLE>
7
<PAGE>
TLC LASER EYE CENTERS INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
(Unaudited)
1. Basis of Presentation
The information contained in the interim consolidated financial statements
and footnotes is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the interim consolidated
financial statements included herein should be read in conjunction with
the May 31, 2000 Annual Report on Form 10-K filed by TLC Laser Eye Centers
Inc. (formerly TLC The Laser Center Inc.) (the "Company") with the
Commission. The unaudited interim consolidated financial statements as of
August 31, 2000 and August 31, 1999 include all normal recurring
adjustments which management considers necessary for a fair presentation.
The results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the entire fiscal year.
The interim consolidated financial statements include the accounts and
transactions of the Company and its majority owned subsidiaries,
partnerships and other entities in which the Company has more than a 50%
ownership interest and exercises control. The ownership interests of other
parties in less than wholly owned consolidated subsidiaries, partnerships
and other entities are presented as non-controlling interests. The August
31, 1999 three month consolidation includes certain reclassifications to
conform with classifications for the three month period ended August 31,
2000.
The net income (loss) per share was computed using the weighted average
number of common shares outstanding during each period.
2. Comprehensive Income
Total comprehensive income includes net income plus other comprehensive
income, which, primarily comprises net unrealized gains or losses on
securities which are available-for-sale. Total comprehensive income/(loss)
was $(6.7) million for the quarter ended August 31, 2000 and $3.7 million
for the quarter ended August 31, 1999. Other comprehensive loss was $1.5
million and $2.1 million for the quarters ended August 31, 2000 and 1999,
respectively.
3. Acquisition Related Activities
Eye Care Management Associates, LLC
On August 21, 2000, the Company purchased 100% of the membership interests
in Eye Care Management Associates, LLC in exchange for $4,000,000 in cash,
295,165 common shares of the Company with a value of $1,860,000 and
amounts contingent upon future events. Contingent amounts are determined
based on fees received by the Company pursuant to the Membership Purchase
Agreement.
The Vision Source, Inc.
During the quarter ended August 31, 2000, an additional 536,764 common
shares of the Company, valued at $4,056,000, were issued to the sellers of
The Vision Source, Inc. to reflect the final calculation of contingent
amounts as determined by the earn-out formula. On December 31, 1999, the
earn-out period relating to the 1997 acquisition of 100% of The Vision
Source, Inc. was completed. As a result, in fiscal 2000, 210,902 common
shares of the Company with a value of $1,397,000, as determined by the
acquisition agreement, were released from escrow to the sellers of The
Vision Source, Inc.
Optical Options, Inc.
During the quarter ended August 31, 2000, eyeVantage.com, Inc., a 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
favour of the sellers for $3,000,000 each, the first of which was
8
<PAGE>
satisfied in the fiscal quarter ended August 31, 2000 and the second note,
which carries an interest rate of 8%, is payable in eight equal quarterly
installments, the first of which was due on August 1, 2000. The August 1st
payment has not been made and future installments are currently under
dispute.
Eye Care Consultants, Inc.
During the quarter ended August 31, 2000, eyeVantage.com, Inc., a 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 1st payment was not made and future
installments are currently under dispute.
4. Supplemental Cash Flow Information
Non-cash transactions:
<TABLE>
<CAPTION>
Three months ended August 31,
2000 1999
---- ----
<S> <C> <C>
Capital stock issued for acquisitions 6,059 --
Goodwill/Non-controlling interest arising from dilution calculation 1,267 --
Capital lease obligations relating to equipment purchases -- 639
</TABLE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, which are included in Item 8
of the Company's Form 10-K. The following discussion is based upon the Company's
results under United States GAAP. The Company is reporting in U.S. dollars.
Unless otherwise specified, all dollar amounts are U.S. dollars. See Note 1 to
the Audited Consolidated Financial Statements of the Company.
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 62 refractive centers in 29
states and provinces throughout the United States and Canada. Surgeons performed
over 134,000 procedures at the Company's centers during fiscal 2000 and have
performed over 33,400 procedures in the first quarter of fiscal 2001.
The Company recognizes revenues at the time services are rendered. Net
revenues include only those revenues pertaining to owned laser centers and
management fees from managing refractive and secondary care practices. Under the
terms of the practice management agreements, the Company provides management and
administrative services to refractive and secondary care practices in return for
management fees.
Operating expenses include all fixed and variable expenses relating to the
operation of the Company's businesses. The principal components of operating
expenses are marketing costs, wages, surgeon's fees, laser royalty fees and
facility leasing costs.
9
<PAGE>
The Company intends to continue to pursue a long-term growth strategy in
its core refractive laser surgery business, which accounts for more than 95% of
net revenues. 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 August 31, 2000, the Company's procedure volume
decreased by 7% from the previous quarter ended May 31, 2000 as a result of
competition and pricing pressures. There are no assurances that this trend will
not continue in the following quarters and the Company's current focus is on
reversing this trend. The price of laser vision correction is a factor in the
decision process amongst potential laser vision correction candidates as they
determine whether, when and where to have the procedure done. 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.
Results of Operations
Quarter ended August 31, 2000 compared to Quarter ended August 31, 1999
SUPPLEMENTARY SEGMENTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Three months ended August 31, 2000
(U.S. dollars, in thousands) Refractive Other Total
-----------------------------------
<S> <C> <C> <C>
Revenues and physician costs:
Net revenues $ 45,622 $ 2,323 $ 47,945
Doctor compensation 4,850 -- 4,850
-----------------------------------
Net revenue after doctor compensation 40,772 2,323 43,095
-----------------------------------
Expenses
Operating 37,030 4,898 41,928
Interest and other (1,101) 135 (966)
Depreciation of capital assets and assets under lease 3,496 237 3,733
Amortization of intangibles 2,398 760 3,158
-----------------------------------
41,823 6,030 47,853
-----------------------------------
Income (loss) from operations (1,051) (3,707) (4,758)
Income taxes (188) 14 (174)
Non-controlling interest (193) (47) (240)
-----------------------------------
Net income (loss) $ (1,432) $ (3,740) $ (5,172)
===================================
Total assets $ 255,483 $ 21,890 $ 277,373
===================================
Total capital and intangible expenditures $ 10,834 $ 18 $ 10,853
===================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Three months ended August 31, 1999
(U.S. dollars, in thousands) Refractive Other 1999 Total
-----------------------------------
<S> <C> <C> <C>
Revenues and physician costs:
Net revenues $ 50,044 $ 1,999 $ 52,043
Doctor compensation 4,627 -- 4,627
-----------------------------------
Net revenue after doctor compensation 45,417 1,999 47,416
===================================
Expenses
Operating 32,332 1,875 34,207
Interest and other (1,070) (32) (1,102)
Depreciation of capital assets and assets under lease 2,805 238 3,043
Amortization of intangibles 827 206 1,033
-----------------------------------
34,894 2,287 37,181
-----------------------------------
Income (loss) from operations 10,523 (288) 10,235
Income taxes (3,597) (75) (3,672)
Non-controlling interest (649) (115) (764)
-----------------------------------
Net income (loss) $ 6,277 $ (478) $ 5,799
===================================
Total assets $ 286,231 $ 20,095 $ 306,326
===================================
Total capital and intangible expenditures $ 21,384 $ 237 $ 21,621
===================================
</TABLE>
Quarter ended August 31, 2000 compared to Quarter ended August 31, 1999
Total net revenues for the first quarter of fiscal 2001 decreased from
$52.0 million the previous year to $47.9 million, which reflects reduced net
revenues from refractive centers. More than 95% of the Company's total net
revenues were derived from refractive surgery.
Net revenues from refractive centers for the first quarter of fiscal 2001
decreased to $45.6 million, from $50.0 million in the previous year's first
quarter. More than 33,400 procedures were performed in the first quarter of
fiscal 2001 compared to 33,200 procedures in the first quarter of fiscal 2000.
The nominal increase in the number of procedures reflects the ongoing acceptance
of the procedure in the marketplace, however, the decreased net revenues reflect
increased competition which has resulted in pricing pressures. 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 $2.3 million in the first
quarter of fiscal 2001 in comparison to $2.0 million in the first quarter of
fiscal 2000.
Operating expenses and doctor compensation increased to $46.8 million in
the first quarter of fiscal 2001 from $38.8 million in the first quarter of
fiscal 2000. This increase is a result of: (i) higher marketing costs, (ii)
costs associated with the Corporate Advantage Program and third party payor
programs, (iii) increased corporate costs which support the Company's growth
strategy, (iv) costs of developing eyeVantage.com, Inc, and (v) increased fixed
and variable costs from the addition of new refractive centers. Operating
expenses and doctor compensation as a percentage of net revenues were 98% in the
first quarter of fiscal 2001 as compared to 75% of net revenues in the first
quarter of fiscal 2000. This increase primarily reflects the impact of the
Company's marketing programs, which are aimed at enhancing the Company's
reputation and brand recognition. However, the increased marketing costs have
not been fully offset by a higher number of procedures being performed at TLC
centers. In addition, other infrastructure costs increased (for example,
information systems and human resources) to support the continued growth
strategy of the Company.
Interest (revenue)/expense and other expenses reflect interest revenue
from a strong cash position resulting from positive cashflow from operations and
the result of a successful public offering in the fourth quarter of fiscal 1999.
Ongoing debt repayment has resulted in decreased interest expense on long-term
debt and capital leases on equipment from the first quarter of fiscal 2001 in
comparison to the first quarter of fiscal 2000.
11
<PAGE>
The increase in depreciation and amortization expense is largely a result
of new centers and the additional depreciation and amortization associated with
the Company's acquisitions during the first quarter of fiscal 2001 and fiscal
2000. Goodwill and intangibles are amortized on a straight-line basis over the
term of the applicable agreement to a maximum of fifteen years.
Income tax expense decreased to $0.2 million in the first quarter of
fiscal 2001 from $3.7 million in the first quarter of fiscal 2000. This decrease
is a result of the Company having incurred operating losses. The small liability
presented is associated with the minimum taxes payable at both the state and
federal levels.
The loss for the first quarter of fiscal 2001 was $5.2 million or $0.14
per share, compared to a gain of $5.8 million or $0.16 cents per share for the
first quarter of fiscal 2000. This loss reflects the Company's continued
investment in marketing, information systems, human resources and development of
new centers, which was not fully offset by increased procedure volumes. The
improved performance in secondary care operations was offset by losses in
eyeVantage.com, Inc.
Quarter ended August 31, 2000 compared to Quarter ended May 31, 2000
Total net revenues for the first quarter of fiscal 2001 decreased from
$51.8 million in the fourth quarter of fiscal 2000 to $47.9 million.
Net revenues from refractive centers for the first quarter of fiscal 2001
decreased to $45.6 million, from $48.1 million in the previous year's fourth
quarter. More than 33,400 procedures were performed in the first quarter of
fiscal 2001 compared to 35,800 procedures in the fourth quarter of fiscal 2000.
The decrease in procedures and revenues reflects the continuing pressures faced
by the Company in the laser vision correction services marketplace including the
impact of reduced pricing and competition. The Company maintains its vision 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 $46.8 million in
the first quarter of fiscal 2001 from $56.0 million in the fourth quarter of
fiscal 2000. This decrease is a result of: (i) reduced variable expenses
resulting from reduced laser royalty fees as well as the reduction in
consumables resulting from a concerted effort from the clinical group to
maintain the quality of the products used and negotiate better pricing for these
products, (ii) reduction of costs associated with the Corporate Advantage
Program, (iii) streamlining of corporate costs to effectively support the
Company's needs, and (iv) close monitoring of the costs of developing
eyeVantage.com, Inc. These savings have been partially offset by: (i) increased
fixed costs associated with laser maintenance, and (ii) increased costs from the
addition of new refractive centers. Operating expenses and doctor compensation
as a percentage of net revenues were 98% of net revenues in the first quarter of
fiscal 2001 as compared to 108% of net revenues in the fourth quarter of fiscal
2000. This decrease reflects the Company's ongoing initiatives to control costs.
The loss for the first quarter of fiscal 2001 was $5.2 million or $0.14
per share compared to a loss of $9.7 million or $0.26 cents per share for the
fourth quarter of fiscal 2000. The improvement, quarter on quarter, reflects the
Company's initiatives to control costs. The Company will continue to review its
investment in marketing, information systems, human resources and development of
new centers.
eyeVantage.com
$2.9 million of the loss in the first quarter of fiscal 2001 relates to
eyeVantage.com, Inc. The Company is continuing to explore strategic
opportunities with respect to eyeVantage.com. The Company is focusing all of its
efforts on the core business and expects to come to a final decision about
either the sale, merger, or discontinuation of operations of this subsidiary by
an internally imposed deadline of October 15, 2000.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments were $72.8 million at
August 31, 2000 as compared to $78.5 million at May 31, 2000.
12
<PAGE>
Cash provided from operating activities was $7.9 million for the first
quarter of fiscal 2001 as compared to $11.5 million for the first quarter of
fiscal 2000 primarily as a result of reduced earnings. The non-cash increase in
depreciation and amortization charges are a result of the opening of new centers
and the acquisition of the business assets of certain doctors' practices.
The Company has increased its investment in capital assets by $3.7 million
of which $1.9 million relate to facility costs. In addition, the Company made
investments of $4.5 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. An investment of $1.4
million was made in companies involved in the refractive surgery field.
During the first quarter 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. The Company continues to
invest in assets to develop and expand its refractive procedure capacity in
anticipation of continued long-term growth, through the development of new
centers and acquisition of refractive practices. At the current time TLC has
approximately eight centers under development.
The Company used cash to make scheduled debt repayments of $1.8 million
and distributed $1.5 million in profits to its business partners. The Company
paid $3.0 million that had been outstanding from business acquisitions in fiscal
2000 by eyeVantage.com, Inc., its e-commerce, internet subsidiary. During the
course of the quarter, under the terms of its announced normal course issuer
bid, the Company repurchased outstanding shares for $0.1 million. The terms of
the bid allow the Company to buy up to 5% of its outstanding shares during the
12 month period which will be completed in November 2000. Since commencing the
issuer bid the Company has paid $10.9 million to repurchase 803,000 common
shares.
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 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 quarterly report.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
13
<PAGE>
ITEM 2. CHANGES IN SECURITIES
Eye Care Management Associates, LLC
On August 21, 2000, the Company purchased 100% of the membership
interests in Eye Care Management Associates, LLC in exchange for
$4,000,000 in cash, 295,165 common shares of the Company with a value
of $1,860,000 and amounts contingent upon future events. Contingent
amounts are determined based on fees received by the Company pursuant
to the Membership Purchase Agreement. The issuance of the shares was
exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2) as a transaction not involving a public offering. See Note
2 to the Financial Statements above.
The Vision Source, Inc.
During the quarter ended August 31, 2000, an additional 536,764 common
shares of the Company, valued at $4,056,000, were issued to the sellers
of The Vision Source, Inc. to reflect the final calculation of
contingent amounts as determined by the earn-out formula. On December
31, 1999, the earn-out period relating to the 1997 acquisition of 100%
of The Vision Source, Inc. was completed. As a result, in fiscal 2000,
210,902 common shares of the Company with a value of $1,397,000, as
determined by the acquisition agreement, were released from escrow to
the sellers of The Vision Source, Inc. The issuance of the shares was
exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2) as a transaction not involving a public offering. See Note
2 to the Financial Statements above.
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
a. Exhibits
Exhibit 10. Employment Agreement between the Company and Thomas O'Hare
dated July 31, 2000.*
Exhibit 27. Financial Data Schedules.
b. Reports on 8-K
None.
* Filed with the Company's Annual Report on Form 10-K, filed with the
Commission on August 30, 2000, and incorporated by reference herein.
14
<PAGE>
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
October 13, 2000
By: /s/ Peter Kastelic
-------------------------------------
Peter Kastelic
Chief Financial Officer
October 13, 2000
15
