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.
<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 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
<PAGE>
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
<PAGE>
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
3 months ended November 30th 6 months ended November 30th
------------------------------ -------------------------------
(U.S. dollars, in thousands except per share amounts) 1999 1998 1999 1998
============================================================================================================================
<S> <C> <C> <C> <C>
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
</TABLE>
4
<PAGE>
TLC LASER EYE CENTERS INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
SIX MONTHS ENDED NOVEMBER 30
<TABLE>
<CAPTION>
(U.S. dollars, in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
=========================================================================================================================
</TABLE>
5
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, 1999 November 30, 1999
----------------------------------------
<S> <C> <C>
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
========================================
</TABLE>
(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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
Three months ended November 30, 1999
(U.S. dollars, in thousands) Refractive Other Total
==================================================================================
<S> <C> <C> <C>
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
-----------------------------------------
<CAPTION>
Six months ended November 30, 1999
(U.S. dollars, in thousands) Refractive Other Total
==================================================================================
<S> <C> <C> <C>
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
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Three months ended November 30, 1998
(U.S. dollars, in thousands) Refractive Other Total
==================================================================================
<S> <C> <C> <C>
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
-----------------------------------------
<CAPTION>
Six months ended November 30, 1998
(U.S. dollars, in thousands) Refractive Other Total
==================================================================================
<S> <C> <C> <C>
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
-----------------------------------------
</TABLE>
10
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<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
January 14, 2000
By: /s/ Peter Kastelic
-----------------------------
Peter Kastelic
Chief Financial Officer
January 14, 2000
15
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