EXHIBIT 99
RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
TLC Vision Corporation (the "Company") prepares its consolidated financial
statements in accordance with United States (U.S.) Generally Accepted Accounting
Principles ("GAAP"), which differ in certain respects from Canadian GAAP. This
reconciliation between Canadian and U.S. GAAP should be read in conjunction with
the consolidated financial statements as of December 31, 2004 and 2003 and for
the years ended December 31, 2004 and 2003, seven month period ended December
31, 2002 and year ended May 31, 2002 and related management's discussion and
analysis prepared in accordance with U.S. GAAP and filed with the Securities
Exchange Commission and the Ontario Securities Commission.
a) Reconciliation from U.S. GAAP to Canadian GAAP
Following is a reconciliation of net income from U.S. GAAP to Canadian GAAP:
SEVEN-
MONTH
YEAR ENDED PERIOD YEAR
DECEMBER 31, ENDED ENDED
------------------ DECEMBER 31, MAY 31,
2004 2003 2002 2002
------- -------- ------------ ---------
Net income (loss) per U.S. GAAP ............................ $43,708 $ (9,399) $(43,343) $(161,849)
Amortization of Practice Management Agreements (1) ......... (1,512) (1,512) (882) --
Depreciation of fixed assets (2) ........................... (280) (280) (257) (161)
Interest income on note receivable related to the
sale-leaseback of building (3) .......................... 78 78 44 44
Other ...................................................... -- -- -- (193)
Adjustment for the sale-leaseback of building (2) .......... -- -- -- (829)
Restructuring and other charges (5) ........................ -- -- -- 222
Impairment of intangible assets (1) ........................ -- -- -- 6,334
Cumulative effect of accounting change (1) ................. -- -- -- 15,174
Variable accounting for stock options (4) .................. 108 -- -- --
Fair value accounting of stock options (4) ................. (1,245) -- -- --
------- -------- -------- ---------
Net income (loss) per Canadian GAAP ........................ $40,857 $(11,113) $(44,438) $(141,258)
======= ======== ======== =========
Net income (loss) per share for Canadian GAAP - basic ...... $ 0.60 $ (0.17) $ (0.70) $ (3.60)
======= ======== ======== =========
Net income (loss) per share for Canadian GAAP - diluted .... $ 0.57 $ (0.17) $ (0.70) $ (3.60)
======= ======== ======== =========
The most significant balance sheet differences between U.S. GAAP and
Canadian GAAP are as follows:
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Investments and Other Assets
Balance per U.S. GAAP .................................... $10,482 $ 3,102
Note receivable related to the sale-leaseback
of building (2) ....................................... 913 976
------- -------
Balance per Canadian GAAP ................................ $11,395 $ 4,078
======= =======
Intangibles, Net
Balance per U.S. GAAP .................................... $18,140 $22,959
Difference in impairment write-off of intangibles (1) .... 6,334 6,334
Amortization of Practice Management Agreements (1) ....... (3,906) (2,394)
------- -------
Balance per Canadian GAAP ................................ $20,568 $26,899
======= =======
Fixed Assets, Net
Balance per U.S. GAAP .................................... $46,199 $56,891
Adjustment for the sale-leaseback of building (2) ........ (829) (829)
Depreciation of fixed assets (2) ......................... (978) (698)
------- -------
Balance per Canadian GAAP ................................ $44,392 $55,364
======= =======
110
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Long-Term Debt, Less Current Maturities
Balance per U.S. GAAP ........................................ $ 9,991 $ 19,242
Adjustment for note payable related to the sale-leaseback
of building (2) ........................................... 850 913
Cumulative interest payments received on note receivable
related to the sale-leaseback of building (3) ............. (224) --
--------- ---------
Balance per Canadian GAAP .................................... $ 10,617 $ 20,155
========= =========
Contributed Surplus
Balance per U.S. GAAP ........................................ $ -- $ --
Adjustment for change in accounting policy related to the
fair value accounting of stock options (4) ................ 13,607 --
Adjustment for fair value accounting of stock options (4) .... 1,245 --
--------- ---------
Balance per Canadian GAAP .................................... $ 14,852 $ --
========= =========
Option and Warrant Equity
Balance per U.S. GAAP ........................................ $ 2,872 $ 8,143
Adjustment to compensation expense for warrants and stock
options (4) ............................................... (330) (222)
--------- ---------
Balance per Canadian GAAP .................................... $ 2,542 $ 7,921
========= =========
Accumulated Deficit
Balance per U.S. GAAP ........................................ $(251,044) $(294,752)
Adjustment to the value of intangible Practice Management
Agreements (1) ............................................ 2,428 3,940
Adjustment for the sale-leaseback of building (2) ............ (1,807) (1,527)
Cumulative interest on note receivable related to the
sale-leaseback of building (3) ............................ 244 166
Adjustment to compensation expense for warrants and
stock options (4) ......................................... (915) 222
Adjustment for change in accounting policy related to the
fair value of stock options (4) ........................... (13,607) --
--------- ---------
Balance per Canadian GAAP .................................... $(264,701) $(291,951)
========= =========
(1) During the year ended May 31, 2002, the Company reviewed its Practice
Management Agreements ("PMA's") for impairment based on budgets prepared
for future periods. The refractive industry had experienced reduced
procedure volumes over the prior two years as a result of increased
competition, customer confusion and a weakening North American economy.
This reduction in procedures had occurred at practices the Company had
purchased, and as a result revenues were lower than anticipated when
initial purchase prices and resulting intangible values were determined.
For U.S. GAAP purposes, the Company accounts for its intangible assets
subject to amortization in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 142 requires the impairment analysis first
consider undiscounted cash flows in determining if an impairment exists. If
an impairment is evident, a second calculation using a discounted cash flow
method is utilized to determine the actual amount of the impairment. For
U.S. GAAP purposes, the Company recorded an impairment charge of $31.0
million for the year ended May 31, 2002 related to its PMA's.
111
For Canadian GAAP purposes, the Company measured the initial impairment
charge in accordance with the Canadian Institute of Chartered Accountant's
("CICA") Handbook Section 3060, "Capital Assets", the Canadian GAAP rules
in existence during the year ended May 31, 2002 ("CICA 3060"). CICA 3060
required an impairment charge to be recognized when the expected future
undiscounted cash flows do not exceed the carrying value of such assets.
As at May 31, 2002, this resulted in a $6.3 million difference in the
write-down of the PMA's between U.S. and Canadian GAAP ($24.7 million).
This difference in the initial measurement of the impairment further
resulted in a difference to the amortization expense in subsequent periods,
resulting in an additional $3.9 million of amortization expense for
Canadian GAAP compared to U.S. GAAP.
During 2003, the CICA issued CICA 3061, Property, Plant and Equipment which
is consistent with U.S. GAAP, however retroactive adoption of this change
was not required.
(2) During the year ended May 31, 2002, the Company completed a sale-leaseback
transaction. Total consideration received for the sale of the building and
related land was $6.4 million, which was comprised of $5.4 million in cash
and a $1.0 million 8.0% note receivable ("Note"). The Note has a seven-year
term with the first of four annual payments of $63,000 starting on the
third anniversary of the sale and a final payment of $0.7 million due on
the seventh anniversary of the sale.
For U.S. GAAP purposes, this transaction was accounted for in accordance
with SFAS 98, "Accounting for Leases" ("SFAS 98"). SFAS 98 prohibits sale
recognition on a sale-leaseback transaction when the sublease is considered
to be minor and the only recourse to any future amounts owing from the
other party is the leased asset. A sublease is considered to be minor when
the present value of the sublease rent is less than 10% of the total fair
market value. The Company accounted for the transaction as a financing
transaction which requires sale proceeds to be recorded as a liability and
for the Note to not be recognized. In addition, since the sale recognition
is not accounted for, the carrying value of the asset is not adjusted for
and the asset continues to be depreciated over the original depreciation
period of 40 years. Lease payments, exclusive of an interest portion,
decrease the liability while payments received on the Note increase the
liability.
For Canadian GAAP purposes, the sale-leaseback transaction was accounted
for in accordance with Emerging Issues Committee No. 25, "Accounting for
Sales with Leasebacks", which resulted in the Company recognizing a loss on
the sale with a corresponding lease asset and lease obligation. The terms
of the lease are considered capital in nature and accordingly the land and
building are reflected as assets under capital lease with the discounted
value of the lease payments recorded as an obligation under capital lease.
The fair value of the assets under capital lease was less than its previous
carrying value and accordingly a write down of approximately $0.8 million
was reflected in the consolidated statement of operations for the year
ended May 31, 2002.
For U.S. GAAP purposes, depreciation expense reflects the higher net book
value of the building depreciated over a 40-year expected life. For
Canadian GAAP purposes, the building is depreciated over the 15-year life
of the lease and the Note ($0.9 million as of December 31, 2004) is
included in investments and other assets.
As of December 31, 2004, as a result of the difference in the initial
accounting treatment of the sale-leaseback transaction and subsequent
differences in depreciation expense recorded, the net book value of the
building is $1.8 million higher for U.S. GAAP. Investments and other assets
is $0.9 million higher and notes payable is $0.7 million higher (of which
$0.6 million is classified as long-term) for Canadian GAAP. For the years
ended December 31, 2004 and 2003, the seven-month period ended December 31,
2002 and the year ended May 31, 2002, depreciation expense is higher for
U.S. GAAP by $280,000, $280,000, $257,000 and $161,000, respectively.
(3) For the years ended December 31, 2004 and 2003, the seven-month period
ended December 31, 2002 and the year ended May 31, 2002, the Company
reported $78,000, $78,000, $44,000 and $44,000, respectively, of interest
income related to the Note on the sale-leaseback of the building as
described above.
As of December 31, 2004, $20,000 of interest income was not yet received,
and the associated interest receivable was included in prepaids and other
current assts for Canadian GAAP purposes. In the above U.S. GAAP to
Canadian GAAP reconciliation, cumulative interest payments received of
$224,000 are recorded as reductions to long-term debt in order to adjust
the U.S. GAAP treatment of the payments, which increases the debt upon
their receipt.
112
(4) For U.S. GAAP purposes, the Company has adopted the disclosure requirements
of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123") and
as permitted under SFAS 123, applies Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its stock option plans. SFAS 123 requires
disclosure of pro forma amounts to reflect the impact if the Company had
elected to adopt the optional recognition provisions of SFAS 123 for its
stock option plans and employee stock purchase plans.
For Canadian GAAP purposes, the Company accounts for its stock options in
accordance with the provisions of CICA Section 3870, Stock-Based
Compensation and Other Stock-Based Payments, ("CICA 3870").
CICA 3870, issued in December 2001, established standards for the
recognition, measurement and disclosure of stock-based compensation, and
other stock-based payments. Under the provisions of CICA 3870, prior to
January 1, 2004, companies could either measure the compensation cost of
equity instruments issued under employee compensation plans using a fair
value-based method or could recognize compensation cost using another
method, such as the intrinsic value-based method. However, if another
method was applied, pro forma disclosure of net income or loss and earnings
or loss per share was required in the financial statements as if the fair
value-based method had been applied. Effective January 1, 2004, CICA 3870
requires that all stock-based compensation be measured and expensed using a
fair value-based methodology.
Prior to January 1, 2004, the Company recognized employee stock-based
compensation under the intrinsic value-based method and provided pro forma
disclosure of net income or loss and earnings or loss per share as if the
fair value-based method had been applied. Effective January 1, 2004, the
Company adopted the fair value-based method for recognizing employee
stock-based compensation on a retroactive basis to January 1, 1996, without
restatement of prior periods. At January 1, 2004, the cumulative effect of
the change in accounting policy on prior periods resulted in a charge to
accumulated deficit of $13.6 million which represents the sum of the
previously disclosed pro forma fair value adjustments with a corresponding
increase to contributed surplus.
For the year ended December 31, 2004, the Company recorded stock-based
compensation expense of $1.2 million, which is included in general and
administrative expenses. The fair value of the options granted in 2004 was
estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions: risk free interest rate of
2.84%; dividend rate of 0%; volatility factor of 0.75; and expected life of
2.5 years.
The Company issued 1.0 million stock options during the year ended December
31, 2004.
No compensation expense determined under fair value-based method for stock
options was included in the determination of net loss for the year ended
December 31, 2003, seven-month period ended December 31, 2002 and year
ended May 31, 2002. For the year ended December 31, 2003, seven-month
period ended December 31, 2002 and year ended May 31, 2002, the following
table presents the Company's pro forma net loss and net loss per share as
if the fair value-based method of CICA 3870 had been applied for all stock
options granted:
SEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED
2003 2002 MAY 31, 2002
------------ ------------ ------------
Net loss per Canadian GAAP ..................... $(11,113) $(44,438) $(141,258)
Total pro forma stock-based compensation expense
determined under fair value-based method .... (1,121) (628) (1,564)
-------- -------- ---------
Pro forma net loss ............................. $(12,234) $(45,066) $(142,822)
======== ======== =========
BASIC AND DILUTED NET LOSS PER SHARE
As reported .................................... $ (0.17) $ (0.70) $ (3.60)
Pro forma ...................................... $ (0.19) $ (0.71) $ (3.64)
The fair value of the options granted was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions: risk free interest rate of 2.35% for 2003, 2.5% for
the transitional period 2002 and 4.25% for fiscal 2002; dividend rate of
0%; volatility factor of 0.75 for 2003, 0.70 for the transitional period
2002 and 0.88 for fiscal 2002; and expected life of 2.5 years for 2003 and
the transitional period 2002 and 4.0 years for fiscal 2002.
113
During the year ended May 31, 2002, the Company allowed the holders of
outstanding TLC Vision Corporation stock options with an exercise price
greater than $8.688 (C$13.69) to elect to reduce the exercise price of
their options to $8.688 (C$13.69), in some cases by surrendering existing
options for a greater number of shares than the number of shares issuable
on exercise of each repriced option. For U.S. GAAP purposes, such
modification which results in a change in the exercise price of the
underlying stock options is subject to APB 25's variable method of
accounting for stock options. Variable accounting requires that differences
between the price of the Company's common shares at the end of each
reporting period and the modified exercise price be charged to income as
compensation expense over the remaining vesting period of the outstanding
options. For the year ended December 31, 2004, the Company recognized, for
U.S. GAAP purposes, additional stock compensation expense of $108,000
related to the modified stock options.
CICA 3870 does not require the application of variable method of accounting
for stock options.
(5) During fiscal 2002, the Company implemented a restructuring program to
reduce employee costs in line with current revenue levels, close certain
underperforming centers and eliminate duplicate functions caused by the
merger with LaserVision. For Canadian GAAP purposes, this program resulted
in total cost for severance and office closures of $8.5 million, or $0.2
million less than the total cost for U.S. GAAP purposes.
(6) The Company changed its fiscal year-end from May 31 to December 31
effective June 1, 2002. Accordingly, the accompanying financial statements
include the results of operations and cash flows for the seven-month period
ended December 31, 2002. The following Canadian GAAP unaudited financial
information for the twelve-month period ended December 31, 2002 and the
seven-month period ended December 31, 2001 is presented for comparative
purposes only:
TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars except per share amounts)
TWELVE-MONTH PERIOD ENDED SEVEN-MONTH PERIOD ENDED
DECEMBER 31, DECEMBER 31,
------------------------- ------------------------
2003 2002 2002 2001
-------- ----------- -------- -----------
(UNAUDITED) (UNAUDITED)
Revenues:
Refractive:
Centers ........................................ $110,052 $ 105,520 $ 54,793 $ 61,305
Access ......................................... 36,140 25,371 21,495 --
Other healthcare services ......................... 49,488 33,714 23,866 8,995
-------- --------- -------- --------
Total revenues ....................................... 195,680 164,605 100,154 70,300
-------- --------- -------- --------
Cost of revenues:
Refractive:
Centers ........................................ 86,045 82,605 49,224 47,609
Access ......................................... 25,424 18,103 15,356 --
Impairment of fixed assets ..................... -- 1,487 -- 1,066
Other healthcare services ......................... 31,836 22,968 16,245 4,776
-------- --------- -------- --------
Total cost of revenues ............................... 143,305 125,163 80,825 53,451
-------- --------- -------- --------
Gross margin ...................................... 52,375 39,442 19,329 16,849
-------- --------- -------- --------
General and administrative ........................... 31,968 37,555 24,824 23,664
Marketing ............................................ 14,094 14,445 8,321 9,319
Amortization of intangibles .......................... 8,197 9,233 4,956 5,950
Research and development ............................. 1,598 4,000 2,000 --
Impairment of goodwill and other intangible assets ... -- 97,524 22,138 --
Adjustment to the fair value of investments
and long-term receivables ......................... (206) 7,098 2,095 21,079
Restructuring, severance and other charges ........... 2,040 10,879 4,227 1,759
-------- --------- -------- --------
57,691 180,734 68,561 61,771
-------- --------- -------- --------
Operating loss ....................................... (5,316) (141,292) (49,232) (43,922)
Other income and (expense):
Other income, net ................................. 669 6,996 6,996 --
Interest expense, net ............................. (1,286) (676) (199) (240)
Minority interests ................................ (4,672) (1,710) (1,152) (586)
-------- --------- -------- --------
Loss before income taxes ............................. (10,605) (136,682) (43,587) (45,748)
Income tax expense ................................... (508) (1,622) (851) (504)
-------- --------- -------- --------
Net loss ............................................. $(11,113) $(138,304) $(44,438) $(46,252)
======== ========= ======== ========
Net loss per share - basic and diluted ............... $ (0.17) $ (2.56) $ (0.70) $ (1.21)
======== ========= ======== ========
Weighted average number of common shares
outstanding - basic and diluted ................... 64,413 54,077 63,407 38,064
======== ========= ======== ========
114
b) Management's Discussion and Analysis - Canadian Supplement
Management's Discussion and Analysis - Canadian Supplement ("Canadian
Supplement") in this document is based on consolidated financial statements
of TLC Vision Corporation prepared in accordance with U.S. GAAP. The
Canadian Supplement has been prepared by management to provide an analysis
of the impact of material differences that differ from U.S. GAAP on net
income and trending analysis of the consolidated statements of operations.
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
Net income for the twelve months ended December 31, 2004 was $40.9 million
or $0.57 per share compared to a net loss of $11.1 million or $0.17 per
share for the twelve months ended December 31, 2003. The significant
improvement in net income primarily resulted from significant growth in
both the refractive and other healthcare services businesses and a gain on
the sale of OccuLogix, Inc.'s common stock.
Amortization expense decreased to $5.6 million for the twelve months ended
December 31, 2004 from $8.2 million for the twelve months ended December
31, 2003. The decrease was largely due to the reduction in Practice
Management Agreements resulting from the deconsolidation of LECC.
Net cash provided by operating activities was $35.4 million for the year
ended December 31, 2004. The cash flows provided by operating activities
during the year ended December 31, 2004 were primarily due to net income of
$40.9 million plus non-cash items including depreciation and amortization
of $19.5 million, minority interest expense of $7.0 million, the write-off
of investments related to research and development arrangements of $0.8
million, compensation expense of $1.6 million and the loss on sale of fixed
assets of $0.8 million. These cash flows were offset by an increase in net
operating assets of $5.0 million, a gain on sale of subsidiary stock of
$25.8 million, earnings from equity investments of $2.1 million, an
adjustment to the fair value of investments and long-term receivables of
$1.2 million and a gain on sale of interest in subsidiary of $1.1 million.
The increase in net operating assets consisted of a $1.5 million increase
in accounts receivable due primarily to higher revenues, a $1.8 million
increase in prepaid expenses and a $1.7 million decrease in accounts
payable and accrued liabilities.
TWELVE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO THE TWELVE MONTHS
DECEMBER 31, 2002
Net loss for the twelve months ended December 31, 2003 was $11.1 million or
$0.17 per share compared to a net loss of $138.3 million or $2.56 per share
for the twelve months ended December 31, 2002. The significant improvement
in net loss resulted from the contribution of the full year of the
LaserVision business in 2003, growth in both the refractive and other
healthcare services businesses, a significant reduction in general and
administrative charges and a $106.4 million reduction in impairment of
intangible assets and restructuring charges in fiscal 2003 from the prior
year period.
Amortization expense decreased to $8.2 million for the twelve months ended
December 31, 2003 from $9.2 million for the twelve months ended December
31, 2002. The decrease was largely a result of the significant impairment
charges in 2002 that reduced the fair value of practice management
agreements and the related ongoing amortization.
115
Net cash provided by operating activities was $4.3 million for the year
ended December 31, 2003. The cash flows provided by operating activities
during the year ended December 31, 2003 were primarily due to net loss of
$11.1 million plus non-cash items including depreciation and amortization
of $24.4 million, minority interest expense of $4.7 million and the
write-off of investments related to research and development arrangements
of $1.6 million. These cash flows were offset by an increase in net
operating assets of $15.3 million, which consisted of a $0.5 million
increase in accounts receivable due primarily to higher revenues, a $1.0
million increase in prepaid expenses and a $13.8 million decrease in
accounts payable and accrued liabilities. The decrease in accounts payable
and accrued liabilities was primarily due to the Company paying its
remaining obligation of $5.1 million related to the LaserVision merger,
reducing its contingent liability by settling two lawsuits for $4.9
million, paying amounts to multiple state agencies to resolve sales tax
disputes for a total of $1.3 million and reducing its accounts payable
balances with vendors and other accruals by an aggregate of $2.0 million.
SEVEN MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE SEVEN MONTHS DECEMBER
31, 2001
Net loss for the seven months ended December 31, 2002 was $44.4 million or
$0.70 per share compared to a net loss of $46.3 million or $1.21 per share
for the seven months ended December 31, 2001. This decreased net loss
primarily reflected the positive impact of the antitrust settlement and
cost-cutting initiatives partially offset by the reduction in refractive
procedures and revenues. As a result of the LaserVision acquisition in May
2002, there were more common shares outstanding during the seven months
ended December 31, 2002.
Amortization expense decreased to $5.0 million for the seven months ended
December 31, 2002 from $6.0 million for the seven months ended December 31,
2001. The decrease was largely a result of the significant impairment
charge in May 2002, which reduced the fair value of practice management
agreements and the related ongoing amortization.
Net cash provided by operating activities was $8.8 million for the seven
months ended December 31, 2002. The cash flows provided by operating
activities during the seven months ended December 31, 2002 were primarily
due to net loss of $44.4 million plus non-cash items including depreciation
and amortization of $15.0 million, minority interest expense of $1.2
million, impairment of goodwill and other intangible assets of $22.1
million, loss on sale of fixed assets of $1.8 million, a decrease in net
operating assets of $6.4 million, an adjustment to the fair value of
investments and long-term receivables of $2.1 million, restructuring and
other costs of $2.3 million and the write-off of investments related to
research and development arrangements of $2.0 million. The decrease in net
operating assets consisted of a $3.8 million decrease in accounts
receivable and a $7.2 million decrease in prepaid expenses offset by a $4.6
million decrease in accounts payable and accrued liabilities.
c) For comparative purposes, the following tables illustrate previously filed
financial statements in accordance with both Canadian GAAP and U.S. GAAP as
of and for the year ended December 31, 2003, for the seven-month period
ended December 31, 2002 and for the year ended May 31, 2002. Differences
between Canadian GAAP and U.S. GAAP are described above.
116
TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars except per share amounts)
SEVEN-MONTH PERIOD
YEAR ENDED ENDED DECEMBER 31, YEAR ENDED MAY 31,
DECEMBER 31, 2003 2002 2002
-------------------- -------------------- ---------------------
CANADIAN CANADIAN CANADIAN
GAAP U.S. GAAP GAAP U.S. GAAP GAAP U.S. GAAP
-------- --------- -------- --------- --------- ---------
Revenues:
Refractive:
Centers .............................................. $110,052 $110,052 $ 54,793 $ 54,793 $ 112,909 $ 112,909
Access ............................................... 36,140 36,140 21,495 21,495 2,999 2,999
Other healthcare services ............................... 49,488 49,488 23,866 23,866 18,843 18,843
-------- -------- -------- -------- --------- ---------
Total revenues ............................................. 195,680 195,680 100,154 100,154 134,751 134,751
-------- -------- -------- -------- --------- ---------
Cost of revenues:
Refractive:
Centers .............................................. 86,045 86,045 49,224 49,224 81,911 81,911
Access ............................................... 25,424 25,424 15,356 15,356 1,826 1,826
Impairment of fixed assets ........................... -- -- -- -- 2,553 2,553
Other healthcare services ............................... 31,836 31,836 16,245 16,245 11,499 11,499
-------- -------- -------- -------- --------- ---------
Total cost of revenues ..................................... 143,305 143,305 80,825 80,825 97,789 97,789
-------- -------- -------- -------- --------- ---------
Gross margin ............................................ 52,375 52,375 19,329 19,329 36,962 36,962
-------- -------- -------- -------- --------- ---------
General and administrative ................................. 31,968 31,668 24,824 24,567 37,565 36,382
Marketing .................................................. 14,094 14,094 8,321 8,321 15,296 15,296
Research and development ................................... 1,598 1,598 2,000 2,000 2,000 2,000
Amortization of intangibles ................................ 8,197 6,685 4,956 4,074 10,227 10,227
Impairment of goodwill and other intangible assets ......... -- -- 22,138 22,138 75,386 81,720
Adjustment to the fair value of investments and long-term
receivables ............................................. (206) (206) 2,095 2,095 26,082 26,082
Restructuring, severance and other charges ................. 2,040 2,040 4,227 4,227 8,528 8,750
-------- -------- -------- -------- --------- ---------
57,691 55,899 68,561 67,422 75,084 180,457
-------- -------- -------- -------- --------- ---------
Operating loss ............................................. (5,316) (3,524) (49,232) (48,093) (138,122) (143,495)
Other income, net .......................................... 669 669 6,996 6,996 -- --
Interest expense, net ...................................... (1,286) (1,364) (199) (243) (717) (761)
Minority interests ......................................... (4,672) (4,672) (1,152) (1,152) (635) (635)
-------- -------- -------- -------- --------- ---------
Loss before income taxes and cumulative effect of
accounting change ....................................... (10,605) (8,891) (43,587) (42,492) (139,474) (144,891)
Income tax expense ......................................... (508) (508) (851) (851) (1,784) (1,784)
-------- -------- -------- -------- --------- ---------
Loss before cumulative effect of accounting change ......... $(11,113) $ (9,399) $(44,438) $(43,343) $(141,258) $(146,675)
======== ======== ======== ======== ========= =========
Cumulative effect of accounting change ..................... -- -- -- -- -- (15,174)
Net loss ................................................... $(11,113) $ (9,399) $(44,438) $(43,343) $(141,258) $(161,849)
======== ======== ======== ======== ========= =========
Net loss per share - basic and diluted ..................... $ (0.17) $ (0.15) $ (0.70) $ (0.68) $ (3.60) $ (4.13)
======== ======== ======== ======== ========= =========
Weighted average number of common shares outstanding -
basic and diluted ....................................... 64,413 64,413 63,407 63 407 39,215 39,215
118
TLC VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
DECEMBER 31, 2003
-------------------------
CANADIAN GAAP U.S. GAAP
------------- ---------
ASSETS
Current assets
Cash and cash equivalents................. $ 21,580 $ 21,580
Short-term investments ................... 8,748 8,748
Accounts receivable ...................... 15,617 15,617
Prepaids and other current assets ........ 11,812 11,646
--------- ---------
Total current assets .................. 57,757 57,591
Restricted cash ............................. 1,376 1,376
Investments and other assets ................ 4,078 3,102
Intangibles, net ............................ 26,899 22,959
Goodwill, net ............................... 48,829 48,829
Fixed assets, net ........................... 55,364 56,891
--------- ---------
Total assets................................. $ 194,303 $ 190,748
========= =========
LIABILITIES
Current liabilities
Accounts payable.......................... $ 10,627 $ 10,627
Accrued liabilities ...................... 25,811 25,811
Current portion of long-term debt ........ 10,348 10,285
--------- ---------
Total current liabilities ................... 46,786 46,723
Other long-term liabilities ................. 2,607 2,607
Long term-debt, less current maturities ..... 20,155 19,242
Minority interests .......................... 10,907 10,907
SHAREHOLDERS' EQUITY
Capital stock ............................... 397,878 397,878
Option and warrant equity ................... 7,921 8,143
Accumulated deficit ......................... (291,951) (294,752)
--------- ---------
Total shareholders' equity .................. 113,848 111,269
--------- ---------
Total liabilities and shareholders' equity... $ 194,303 $ 190,748
========= =========
119
TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands of U.S. dollars)
SEVEN-MONTH PERIOD
YEAR ENDED ENDED DECEMBER 31, YEAR ENDED MAY 31,
DECEMBER 31, 2003 2002 2002
-------------------- -------------------- ---------------------
CANADIAN CANADIAN CANADIAN
GAAP U.S. GAAP GAAP U.S. GAAP GAAP U.S. GAAP
-------- --------- -------- --------- --------- ---------
Net loss ..................................................... $(11,113) $ (9,399) $(44,438) $(43,343) $(141,258) $(161,849)
Adjustments to reconcile net loss to net cash from
operating activities: ..................................... 24,385 22,593 15,001 13,862 21,513 21,352
Depreciation and amortization
Write-off of investment in research and development
arrangement ......................................... 1,598 1,598 2,000 2,000 2,000 2,000
Minority interests ........................................ 4,672 4,672 1,152 1,152 107 107
Loss (gain) on sales and disposals of fixed assets ........ (484) (484) 1,770 1,770 1,965 1,136
Adjustment to the fair value of investments and long-
term receivables and impairment of fixed assets ........ (206) (206) 2,095 2,095 28,635 28,635
Impairment of goodwill and other intangible assets ........ -- -- 22,138 22,138 75,386 81,720
Non-cash compensation expense ............................. 125 125 445 445 866 866
Non-cash restructuring and other costs .................... 677 677 2,266 2,266 2,281 2,503
Changes in operating assets and liabilities:
Accounts receivable .................................... (489) (489) 3,836 3,836 1,592 1,592
Prepaid expenses and other current assets .............. (1,042) (964) 7,124 7,168 417 417
Accounts payable and accrued liabilities ............... (13,831) (13,831) (4,574) (4,574) 6,321 6,321
-------- -------- -------- -------- --------- ---------
Cash from operating activities ............................... 4,292 4,292 8,815 8,815 (219) (26)
-------- -------- -------- -------- --------- ---------
INVESTING ACTIVITIES
Purchases of fixed assets .................................... (4,433) (4,433) (3,668) (3,668) (2,297) (2,297)
Proceeds from sale of fixed assets ........................... 578 578 751 751 89 89
Proceeds from divestitures of investments and subsidiaries,
net of cash ............................................... 221 221 259 259 777 777
Investment in research and development arrangements .......... (1,598) (1,598) (2,000) (2,000) (2,000) (2,000)
Acquisitions and investments, net of cash acquired ........... (8,015) (8,015) (9,695) (9,695) (5,424) (5,424)
Cash acquired in Laser Vision Centers, Inc. acquisition ...... -- -- -- -- 7,319 7,319
Proceeds from short-term investments ......................... 15,709 15,709 556 556 6,058 6,058
Purchases of short-term investments .......................... (21,050) (21,050) (1,850) (1,850) -- --
Other ........................................................ (229) (229) (32) (32) 249 56
-------- -------- -------- -------- --------- ---------
Cash from investing activities ............................... (18,817) (18,817) (15,679) (15,679) 4,771 4,578
-------- -------- -------- -------- --------- ---------
FINANCING ACTIVITIES
Restricted cash movement ..................................... 2,599 2,599 1,013 1,013 (3,369) (3,369)
Principal payments of debt financing and capital leases ...... (8,018) (8,018) (5,140) (5,140) (7,098) (7,098)
Proceeds from debt financing ................................. 3,450 3,450 1,750 1,750 5,788 5,788
Distributions to minority interests .......................... (4,901) (4,901) (1,532) (1,532) (3,092) (3,092)
Purchase of treasury stock ................................... -- -- (191) (191) -- --
Proceeds from the issuance of common stock ................... 8,744 8,744 121 121 306 306
-------- -------- -------- -------- --------- ---------
Cash from financing activities ............................... 1,874 1,874 (3,979) (3,979) (7,465) (7,465)
-------- -------- -------- -------- --------- ---------
Net decrease in cash and cash equivalents during the period... (12,651) (12,651) (10,843) (10,843) (2,913) (2,913)
Cash and cash equivalents, beginning of period ............... 34,231 34,231 45,074 45,074 47,987 47,987
-------- -------- -------- -------- --------- ---------
Cash and cash equivalents, end of period ..................... $ 21,580 $ 21,580 $ 34,231 $ 34,231 $ 45,074 $ 45,074
======== ======== ======== ======== ========= =========
120