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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 FOR THE YEAR ENDED DECEMBER 31, 2006
 COMMISSION FILE NUMBER: 0-29302
 
 TLC VISION CORPORATION
  NEW BRUNSWICK, CANADA
(State or jurisdiction of 
incorporation or organization)
    
    980151150
(I.R.S. Employer Identification No.)5280 SOLAR DRIVE, SUITE 300
    
    L4W 5M8MISSISSAUGA, ONTARIO
    
    (Zip Code)(Address of principal executive offices)
       
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Yes þ No
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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANTPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESPART IIITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER            MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEXHIBIT INDEXList of Company's SubsidiariesConsent of Independent Registered Public Accounting FirmConsent of Independent Registered Public Accounting FirmCEO's CertificationCFO's CertificationSection 1350 CEO's CertificationSection 1350 CFO's Certification    Table of Contents  Vision
 
  
   Vision
     
    
    Myopia (nearsightedness) means the eye is longer than normal resulting in
difficulty seeing distant objects as clearly as near objects.
    
    Hyperopia (farsightedness) means the eye is shorter than normal resulting in
difficulty seeing near objects as clearly as distant objects.
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
    
    Astigmatism means the cornea is oval-shaped resulting in blurred vision.
    
    Presbyopia is the loss of lens and eye muscle flexibility due to the natural
aging process, causing difficulty in focusing on near objects and usually corrected by
reading glasses. Because vision correction surgery cannot reverse the aging process,
presbyopia cannot be corrected surgically. However, there are surgical and non-surgical
techniques available that can effectively manage presbyopia.
  Eyeglasses.
 Contact Lenses.
 Surgical Procedures. Vision
 
    
    LASIK (Laser In Situ Keratomileusis). LASIK corrects nearsightedness,
farsightedness and astigmatism by using an excimer laser to reshape the cornea. Because
LASIK creates a corneal flap to reshape the cornea and does not disrupt the front surface
of the cornea, it generally is less painful, has a quicker recovery period and shorter
post-operative need for steroid eye drops than other surgical procedures. LASIK is
currently the most common vision correction surgery and may be the treatment of choice for
patients desiring a more rapid visual recovery.
    
    CustomLASIK. Widely introduced in 2003, CustomLASIK is a technologically
supported advancement to LASIK. CustomLASIK involves increased pre-operative diagnostic
capabilities that measure the eye from front to back using wavefront technology to create
a three dimensional corneal map. The information from that map guides the laser in
customizing the laser ablation to an individuals visual irregularities, beyond myopia,
hyperopia and astimgatism. CustomLASIK using wavefront technology has the potential to
improve not only how much a person can see, in terms of visual acuity measured by the
standard 20/20 eye chart, but also how well an individual can see in terms of contrast
sensitivity and fine detail. This translates to a reduced occurrence of night vision
disturbances post-LASIK.
    
    PRK (Photorefractive Keratectomy). PRK corrects nearsightedness,
farsightedness and astigmatism by using an excimer laser to reshape the cornea without
making a flap. PRK removes the protective surface layer of the cornea to reshape the
cornea. The risk of pain, infection and corneal scarring is higher with PRK than with
LASIK; however, the intra-operative risks are lessened with PRK because no corneal flap is
created.
    
    LASEK (Laser Assisted Sub-Epithelial Keratectomy). LASEK corrects
nearsightedness, farsightedness and astigmatism by using an excimer laser to reshape the
cornea. Unlike LASIK that creates a corneal flap, LASEK loosens and folds the protective
outer layer of the cornea (the epithelium) during the procedure and, as a result, combines
the advantages of LASIK with the safety of PRK. The risk of pain, infection and corneal
scarring is higher with LASEK than with LASIK; however, the intra-operative risks are
lessened with LASEK because the flap which is created is only in the epithelium. The United
States Food and Drug Administration (FDA) has not yet approved use of the excimer laser
for LASEK.
    
    AK (Astigmatic Keratotomy). AK corrects astigmatism by making microscopic
incisions in the cornea to relax and change the shape of the cornea.
    
    INTACS. INTACS corrects very low levels of nearsightedness (1.00 diopters to
3.00 diopters) by implanting rings in the cornea to reshape it rather than surgically
altering the cornea. INTACS may also be used to correct irregularities in the shape of the
cornea.
    
    CK (Conductive Keratoplasty). For patients age 40 and older, CK is designed
for the temporary reduction of farsightedness (+.75 to +3.25 diopters) and uses radio
frequency instead of a laser to reshape the cornea.
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
    
    PTK (Phototherapeutic Keratectomy). PTK treats abrasions, scars or other
abnormalities of the cornea caused by injury or surgery. PTK uses an excimer laser to
remove superficial opacities and irregularities of the cornea to improve vision or reduce
symptoms of pain or discomfort due to an underlying eye condition.
    
    Refractive IOL Procedures. Intraocular lenses (IOLs) are permanent or
semi-permanent, artificial lenses that are implanted to replace or supplement the eyes
natural crystalline lens. While not a common procedure for correcting refractive errors,
the placement of a refractive IOL can help patients who are not candidates for LASIK.
IOLs have been used in the United States since the late 1960s to restore visual function
to cataract patients, and more recently are being used in refractive surgery procedures.
There are several types of refractive IOLs: phakic IOLs, multi-focal IOLs and
accommodating IOLs. Patient suitability and quality of visual outcome for each of these
lens options varies.
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Vision
    Vision
  Vision
   
    
    combining the successful optometric co-management philosophy of the current centers
model with more aggressive direct-to-consumer advertising;
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
    
    re-branding LASIK Select centers to the established TLC Laser Eye Centers brand;
    
    establishing a value-oriented pricing strategy that includes an attractive entry-level
price point and logical upgrades based on technology;
    
    additional marketing to health plans and health plan members for increased penetration
in the managed care market;
    
    continued commitment to a co-management model, which allows primary care doctors to
provide the best clinical outcomes for their patients while retaining them in their
practice;
    
    continuing clinical education to ophthalmologists and optometrists;
    
    quality patient outcomes support through the TLCVisionquality assurance and improvement system;
    
    practice development education and tools focused on educating the staff of the ophthalmologists and optometrists;
    
    cooperative marketing/advertising programs to build awareness for the procedure;
    
    access to emerging technologies; and
    
    selected expansion into new and existing markets.
   
    
    continuing to expand the Companys existing refractive laser access business and
expand those services where warranted;
    
    continuing to grow its cataract access business, MSS, through focused growth
strategies, acquisitions of complementary businesses, and expansion of its service
offering to include diagnostic equipment and services;
    
    continuing to develop the Companys optometric practice franchising organization,
Vision Source, through increasing the number of affiliated practice franchises and
related services; and
    
    continuing to develop or acquire ophthalmic ambulatory surgery centers.
  Vision
    Vision
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Vision Vision
 Vision Vision Vision Vision Vision (www.tlcvision.com) Vision
 Vision Vision
  Vision Vision Vision
   Vision Vision
 Vision
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Vision
  Vision
   Vision Vision-
  Vision Vision Vision Vision
   Vision
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Vision Vision Vision
 Vision Vision
 Vision
 
    
    avoid a large capital investment;
    
    reduce the risks associated with buying high technology equipment that may become obsolete;
    
    obtain technical support provided by the Companys laser engineers and microkeratome technicians;
    
    use the equipment without responsibility for maintenance or repair;
    
    cost-effectively serve small to medium-sized markets and remote locations; and
    
    serve satellite locations even in large markets.
  Vision
 Vision
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Vision
 Vision
  Vision
 
    
    Technical Support and Equipment Maintenance  As of December 31, 2006, the Company
employed 37 certified laser engineers and 23 microkeratome technicians. The laser
engineers perform most required laser maintenance and help ensure rapid response to most
laser repair or maintenance needs.
    
    Staff Training and Development  Through both field and corporate-based practice
development support, TLCVisionprovides its access eye surgeon customers with a
comprehensive menu of options to enhance patient education, staff knowledge, and patient
recruitment. Start-up services include centralized refractive coordinator training
programs and access to patient financing programs. These centralized training programs
and field-based support provide eye surgeon staff an opportunity to learn best practices
with respect to patient conversion, patient flow and marketing programs. Extended
services, such as corporate programs, database management and networking techniques,
enable eye surgeon customers to experience continued growth in their practice.
    
    Building Relationships  TLCVisionworks to form relationships between access eye
surgeons and optometrists. These optometric networks are valuable in referring patients
to eye surgeons who use the Companys equipment and services. The Company helps to form
these referral networks by training optometrists, who are then able to provide
pre-operative screenings as well as post-surgical follow-up to their patients. TLCVision
also provides access eye surgeon customers with marketing advice designed to foster these
referrals and generate new patients.
    
    Clinical Advisors  TLCVisionmaintains a Clinical Advisory Group which conducts
regular conference calls with access eye surgeon customers. Our clinical advisors, who
are refractive surgeons and optometrists with extensive clinical experience, chair these
conference calls. In addition, TLCVisionconducts clinical advisory meetings at major
industry conferences each year. The clinical advisors also make themselves available to
consult with eye surgeon customers in addition to regularly scheduled conference calls
and meetings.
    
    Practice Satelliting  TLCVisionassists access eye surgeons with high-volume
practices who desire to serve smaller markets through satellite surgical locations. This
program allows eye surgeon customers to leverage their time performing eye surgery.
  Vision
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Vision Vision
 Vision Vision
 Vision Vision Vision
  Vision
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TM TM
 TM
  Vision
     Vision www.tlcvision.com www.lasik.com Vision www.tlcv.com
 Vision Vision www.sec.gov
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Vision
 Vision
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Vision
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Vision
 Federal Law.
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
    
    Privacy Regulations designed to protect and enhance the rights of patients by providing
patient access to their PHI and controlling the use of their PHI;
    
    Security Regulations designed to protect electronic health information by mandating
certain physical, technical and administrative safeguards;
    
    Electronic Transactions and Code Sets Regulations designed to standardize electronic data
interchange in the health care industry;
    
    Standard Unique Employer Identifier Regulations designed to standardize employer
identification numbers used in certain electronic transactions; and
    
    Standard Unique Health Identifier for Health Care Providers Regulations designed to
standardize the identification of health care providers used in electronic transactions.
  State Law.
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Vision
 Vision
 Vision Vision
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Vision
      
     
    
    demand for our services;
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
    
    market acceptance of our value oriented pricing strategy;
    
    our ability to control costs;
    
    our ability to execute our business strategy and effectively integrate acquired businesses and assets;
    
    our ability to obtain adequate insurance against malpractice claims and reduce the number of claims;
    
    economic conditions in the markets in which we compete, including the availability of discretionary income;
    
    concerns about the safety and effectiveness of laser vision correction;
    
    competitive factors;
    
    regulatory developments;
    
    our ability to retain and attract qualified personnel; and
    
    doctors ability to obtain adequate insurance against malpractice claims at reasonable rates.
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
    
    its cost, particularly since laser vision correction typically is not covered by government or private insurers;
    
    general resistance to surgery;
    
    the fact that effective and less expensive alternative methods of correcting
refractive vision disorders are widely available;
    
    the lack of long-term follow-up data;
    
    the possibility of unknown side effects; and
    
    reported adverse events or other unfavorable publicity involving patient outcomes from laser vision correction.
    
    
    foreign body sensation,
    
    pain or discomfort,
    
    sensitivity to bright lights,
    
    blurred vision,
    
    dryness or tearing,
    
    fluctuation in vision,
    
    night glare,
    
    poor or reduced visual quality,
    
    overcorrection or under-correction,
    
    regression, and
    
    corneal flap or corneal healing complications.
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
    
    our ability to effectively penetrate the laser vision correction market;
    
    success of our value-oriented pricing strategies;
    
    the impact of OccuLogix on results of operations;
    
    perception of the potential for rheopheresis for dry age-related macular degeneration;
    
    our ability to execute our business strategy;
    
    new technological innovations and products;
    
    changes in government regulations;
    
    adverse regulatory action;
    
    public concerns about the safety and effectiveness of laser vision correction;
    
    loss of key management;
    
    announcements of non-routine events such as acquisitions or litigation;
    
    variations in our financial results;
    
    fluctuations in competitors stock prices;
    
    the issuance of new or changed stock market analyst reports and recommendations
concerning our common shares or competitors stock;
    
    changes in earnings estimates by securities analysts;
    
    our ability to meet analysts projections;
    
    changes in the market for medical services; or
    
    general economic, political and market conditions.
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
    
    cost-effectively generate procedures through advertising programs;
    
    develop consumer advertising as a core competency in the Company; and
    
    maintain a reliable contact management center, including call center operations and lead follow-up programs.
    
    
    the integration of operations and technologies into existing platforms;
    
    hiring and training personnel to staff the center;
    
    developing and implementing effective marketing programs to attract potential patients to the center; and
    
    managing the losses incurred during the development and ramp-up period.
  
    
    Identifying unanticipated liabilities and contingencies;
    
    diversion of management attention; and
    
    possible adverse effects on operating results resulting from:
 
    
    possible future goodwill impairment;
    
    increased interest costs;
    
    the issuance of additional securities; and
    
    increased costs resulting from difficulties related to the integration of the acquired businesses.
  
    
    the availability of attractive acquisition opportunities;
    
    the availability of capital to complete acquisitions;
    
    the availability of working capital to fund the operations of acquired businesses; and
    
    the effect of existing and emerging competition on operations.
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
    
    implement upgraded operations, information technologies and financial systems, procedures and controls;
    
    hire and train new staff and managerial personnel;
    
    adapt or amend our business structure to comply with present or future legal
requirements affecting our arrangements with doctors, including state prohibitions on
fee-splitting, corporate practice of optometry and medicine and referrals to facilities
in which doctors have a financial interest;
    
    obtain regulatory approvals, where necessary, and comply with licensing requirements
applicable to doctors and facilities operated, and services offered, by doctors; and
    
    successfully integrate acquisitions into our existing business model;
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Treatment Group
    
    Placebo Group(n=69)
    
    (n=46)Vision improvement greater or equal to:1 line
    
    
    47
    %
    
    
    18
    %2 lines
    
    
    28
    %
    
    
    9
    %3 lines
    
    
    9
    %
    
    
    2
    %Vision loss greater or equal to:1 line
    
    
    10
    %
    
    
    24
    %2 lines
    
    
    6
    %
    
    
    7
    %3 lines
    
    
    3
    %
    
    
    2
    %
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Vision Vision Vision
  
    
   
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THETORONTO
    
    NASDAQSTOCK
    
    GLOBALEXCHANGE
    
    MARKETHIGH
    
    LOW
    
    HIGH
    
    LOW2005First Quarter March 31, 2005
    
    
    Cdn$12.54
    
    
    
    Cdn$10.60
    
    
    $
    10.26
    
    
    $
    8.87Second Quarter June 30, 2005
    
    
    11.46
    
    
    
    9.80
    
    
    
    9.42
    
    
    
    8.16Third Quarter September 30, 2005
    
    
    12.14
    
    
    
    7.85
    
    
    
    9.86
    
    
    
    6.77Fourth Quarter December 31, 2005
    
    
    7.99
    
    
    
    6.90
    
    
    
    6.87
    
    
    
    5.892006First Quarter March 31, 2006
    
    
    Cdn$  9.13
    
    
    
    Cdn$  6.33
    
    
    $
    7.93
    
    
    $
    5.57Second Quarter June 30, 2006
    
    
    7.50
    
    
    
    4.82
    
    
    
    6.63
    
    
    
    4.33Third Quarter September 30, 2006
    
    
    6.27
    
    
    
    4.62
    
    
    
    5.70
    
    
    
    4.12Fourth Quarter December 31, 2006
    
    
    6.32
    
    
    
    4.41
    
    
    
    5.43
    
    
    
    3.93
    The information contained in this Performance Graph section shall not be deemed to be
soliciting material or filed or incorporated by reference in future filings with the SEC, or
subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into a document filed under the Securities Act of 1933,
as amended, or the Exchange Act.
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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $ 100 invested on 5/31/02 in stock or index-including reinvestment of dividends. 5/31/02
    
    
    12/31/02
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06TLC Vision Corporation
    
    
    $
    100.00
    
    
    
    $
    33.79
    
    
    
    $
    213.18
    
    
    
    $
    335.05
    
    
    
    $
    207.40
    
    
    
    $
    168.17S&P/TSX Composite Index
    
    
    $
    100.00
    
    
    
    $
    87.41
    
    
    
    $
    110.77
    
    
    
    $
    126.81
    
    
    
    $
    157.40
    
    
    
    $
    184.57NASDAQ Health Services
Stocks Index
    
    
    $
    100.00
    
    
    
    $
    81.19
    
    
    
    $
    112.74
    
    
    
    $
    141.76
    
    
    
    $
    156.48
    
    
    
    $
    156.54
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Vision
 TWELVESEVEN-MONTH
    
    MONTHSYEAR ENDED
    
    PERIOD ENDED
    
    ENDED
    
    YEAR ENDED(U.S. dollars, in thousands except per share
    
    May 31,
    
    DECEMBER 31,
    
    DECEMBER 31,
    
    DECEMBER 31,amounts and operating data)
    
    2002(3)
    
    2002(4)
    
    2002(5)
    
    2003(6)
    
    2004(7)
    
    2005(8)
    
    2006(9)UNAUDITEDSTATEMENT OF OPERATIONS DATANet revenues
    
    $
    134,751
    
    
    $
    100,154
    
    
    $
    164,605
    
    
    $
    200,918
    
    
    $
    247,247
    
    
    $
    260,025
    
    
    $
    281,826Cost of revenues
    
    
    97,789
    
    
    
    80,825
    
    
    
    125,163
    
    
    
    148,543
    
    
    
    170,738
    
    
    
    180,725
    
    
    
    195,049Gross profit
    
    
    36,962
    
    
    
    19,329
    
    
    
    39,442
    
    
    
    52,375
    
    
    
    76,509
    
    
    
    79,300
    
    
    
    86,777General and administrative
    
    
    36,382
    
    
    
    25,567
    
    
    
    38,158
    
    
    
    27,001
    
    
    
    26,866
    
    
    
    36,497
    
    
    
    34,621Income (loss) before cumulative effect of
accounting change
    
    
    (146,675
    )
    
    
    (43,343
    )
    
    
    (144,731
    )
    
    
    (9,399
    )
    
    
    42,474
    
    
    
    8,119
    
    
    
    11,519Income (loss) per share before cumulative
effect of accounting change, diluted
    
    $
    (3.74
    )
    
    $
    (0.68
    )
    
    $
    (2.68
    )
    
    $
    (0.15
    )
    
    $
    0.60
    
    
    $
    0.11
    
    
    $
    0.17Weighted average number of Common
Shares outstanding, diluted
    
    
    39,215
    
    
    
    63,407
    
    
    
    54,077
    
    
    
    64,413
    
    
    
    71,088
    
    
    
    71,380
    
    
    
    69,580
 TWELVESEVEN-MONTH
    
    MONTHSYEAR ENDED
    
    PERIOD ENDED
    
    ENDED
    
    YEAR ENDEDMay 31,
    
    DECEMBER 31,
    
    DECEMBER 31,
    
    DECEMBER 31,2002(3)
    
    2002(4)
    
    2002(5)
    
    2003(6)
    
    2004(7)
    
    2005(8)
    
    2006(9)UNAUDITEDOPERATING DATA (unaudited)Number of majority owned eye care
centers
at end of period (10)
    
    
    80
    
    
    
    84
    
    
    
    84
    
    
    
    76
    
    
    
    65
    
    
    
    73
    
    
    
    67Number of minority owned eye care
centers
at end of period (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8
    
    
    
    11Number of TLCVision branded eye care
centers at end of period
    
    
    80
    
    
    
    84
    
    
    
    84
    
    
    
    76
    
    
    
    73
    
    
    
    81
    
    
    
    78Number of access service sites (1)Refractive
    
    
    336
    
    
    
    304
    
    
    
    304
    
    
    
    270
    
    
    
    327
    
    
    
    316
    
    
    
    325Mobile Cataract
    
    
    280
    
    
    
    274
    
    
    
    274
    
    
    
    359
    
    
    
    371
    
    
    
    563
    
    
    
    689Number of laser vision correction
procedures:Majority owned centers
    
    
    95,000
    
    
    
    49,700
    
    
    
    95,000
    
    
    
    100,500
    
    
    
    99,000
    
    
    
    101,000
    
    
    
    101,400Minority owned centers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,700
    
    
    
    18,100
    
    
    
    18,700Total TLCVision branded center
procedures
    
    
    95,000
    
    
    
    49,700
    
    
    
    95,000
    
    
    
    100,500
    
    
    
    115,700
    
    
    
    119,100
    
    
    
    120,100Access
    
    
    
    
    
    
    43,200
    
    
    
    47,000
    
    
    
    75,600
    
    
    
    80,700
    
    
    
    71,800
    
    
    
    67,200Total TLCVision branded refractive
procedures
    
    
    95,000
    
    
    
    92,900
    
    
    
    142,000
    
    
    
    176,100
    
    
    
    196,400
    
    
    
    190,900
    
    
    
    187,300Mobile Cataract
    
    
    
    
    
    
    23,300
    
    
    
    24,800
    
    
    
    40,700
    
    
    
    43,700
    
    
    
    49,000
    
    
    
    55,700
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MAY 31,
    
    DECEMBER 31,2002(3)
    
    2002(4)
    
    2003(6)
    
    2004(7)
    
    2005(8)
    
    2006(9)BALANCE SHEET DATACash and cash equivalents
    
    $
    45,074
    
    
    $
    34,231
    
    
    $
    21,580
    
    
    $
    33,435
    
    
    $
    31,729
    
    
    $
    28,917Working capital
    
    
    23,378
    
    
    
    12,523
    
    
    
    10,868
    
    
    
    131,195
    
    
    
    66,896
    
    
    
    40,015Total assets
    
    
    245,515
    
    
    
    196,056
    
    
    
    190,748
    
    
    
    304,007
    
    
    
    301,043
    
    
    
    294,302Long-term debt, excluding current portion
    
    
    14,643
    
    
    
    15,760
    
    
    
    19,242
    
    
    
    9,991
    
    
    
    12,665
    
    
    
    15,122STOCKHOLDERS EQUITYCommon stock
    
    
    387,701
    
    
    
    388,769
    
    
    
    397,878
    
    
    
    458,959
    
    
    
    450,703
    
    
    
    450,133Option and warrant equity
    
    
    11,755
    
    
    
    11,035
    
    
    
    8,143
    
    
    
    2,872
    
    
    
    1,861
    
    
    
    1,806Accumulated deficit
    
    
    (242,010
    )
    
    
    (285,353
    )
    
    
    (294,752
    )
    
    
    (252,278
    )
    
    
    (244,159
    )
    
    
    (232,640
    )Total stockholders equity
    
    
    155,014
    
    
    
    111,828
    
    
    
    111,269
    
    
    
    209,553
    
    
    
    208,405
    
    
    
    219,299
 
 (1)
    
    An access service site has provided services in the preceding 90 days.(2)
    
    Minority owned centers primarily represent the Companys 30% interest in LECC centers. Prior to January
1, 2004, these centers were majority owned.(3)
    
    In fiscal 2002, the selected financial data of the Company included: (a)
    
    a charge of $81.7 million for impairment of intangibles;(b)
    
    a write down of $26.1 million in the fair value of investments and long-term receivables;(c)
    
    a restructuring charge of $8.8 million; and(d)
    
    a reduction of $2.6 million in the carrying value of fixed assets.
 (4)
    
    In the seven months ended December 31, 2002, the selected financial data of the Company
included:
 (a)
    
    a charge of $22.1 million for impairment of intangibles;(b)
    
    a write down of $2.1 million in the fair value of investments and long-term receivables;(c)
    
    other income of $6.8 million for settlement of a class action lawsuit with laser
manufacturers;(d)
    
    a restructuring charge of $4.7 million; and(e)
    
    a reduction of $1.0 million in the carrying value of fixed assets.
 (5)
    
    In the twelve-month period ended December 31, 2002, the selected financial data of the
Company included:
 (a)
    
    a charge of $103.9 million for impairment of intangibles;(b)
    
    a write down of $7.1 million in the fair value of investments and long-term receivables;(c)
    
    other income of $6.8 million for settlement of a class action lawsuit with laser
manufacturers;(d)
    
    a restructuring charge of $11.2 million; and(e)
    
    a reduction of $1.5 million in the carrying value of fixed assets.
 (6)
    
    In fiscal 2003, the selected financial data of the Company included an adjustment to the fair
value of long-term receivables of $0.2 million.(7)
    
    In fiscal 2004, the selected financial data of the Company included:
 (a)
    
    an adjustment to the fair value of long-term receivables of $1.2 million;(b)
    
    other income of $25.8 million from the gain on sale of OccuLogix stock; and(c)
    
    an executive severance charge of $2.6 million.
 (8)
    
    In fiscal 2005, the selected financial data of the Company included:
 (a)
    
    a write-down of $1.1 million in the fair value of intangibles and an adjustment to the fair
value of long-term liabilities of $0.2 million; and(b)
    
    OccuLogix inventory and accounts receivable write-downs of $1.6 million after minority
interests.
 (9)
    
    In fiscal 2006, the selected financial data of the Company included:
 (a)
    
    an impairment of goodwill of $4.1 million;(b)
    
    gain on sales and issuances of subsidiary stock of $1.8 million;(c)
    
    severance charges totaling $1.0 million ($0.6 million net of minority interests);(d)
    
    net write-downs of assets and liabilities of $1.9 million ($1.1 million net of minority interests)(e)
    
    income tax benefit of $5.3 million related to a partial reversal of the deferred tax
asset valuation allowance;
 33




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(f)
    
    income tax benefit of $0.9 million related to IRC Section 382 and $1.5 million related to deductible interest
expense adjustments; and(g)
    
    consolidated results of OccuLogix for the three months ended March 31, 2006 before
deconsolidation effective April 1, 2006.
  
    Vision
 Vision
     34




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PAYMENTS DUE BY PERIODLESS
    
    
    
    
    
    
    MORETHAN 1
    
    
    1 TO 3
    
    
    THAN 3CONTRACTUAL OBLIGATIONS
    
    TOTAL
    
    
    YEAR
    
    
    YEARS
    
    
    YEARSLong-term debt
    
    $
    23,433
    
    
    $
    8,311
    
    
    $
    8,153
    
    
    $
    6,969Operating leases
    
    
    28,342
    
    
    
    7,338
    
    
    
    10,674
    
    
    
    10,330Inventory purchases
    
    
    16,300
    
    
    
    3,600
    
    
    
    12,700
    
    
    
    Marketing contracts
    
    
    4,000
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    Total
    
    $
    72,075
    
    
    $
    21,249
    
    
    $
    33,527
    
    
    $
    17,299
        41




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Vision
     
   
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St. Louis, Missouri
    
    /s/ ERNST & YOUNG LLPMarch 5, 2007
 43




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##### Table of Contents



YEAR ENDED DECEMBER 31,2006
    
    
    2005
    
    
    2004Revenues:Refractive:Centers
    
    $
    161,514
    
    
    $
    150,168
    
    
    $
    141,782Access
    
    
    37,186
    
    
    
    36,453
    
    
    
    40,659Other healthcare services
    
    
    83,126
    
    
    
    73,404
    
    
    
    64,806Total revenues
    
    
    281,826
    
    
    
    260,025
    
    
    
    247,247Cost of revenues (excluding amortization expense shown below):Refractive:Centers
    
    
    114,575
    
    
    
    106,476
    
    
    
    101,440Access
    
    
    27,949
    
    
    
    26,974
    
    
    
    28,863Other healthcare services
    
    
    52,525
    
    
    
    47,275
    
    
    
    40,435Total cost of revenues (excluding amortization expense shown below)
    
    
    195,049
    
    
    
    180,725
    
    
    
    170,738Gross profit
    
    
    86,777
    
    
    
    79,300
    
    
    
    76,509General and administrative
    
    
    34,621
    
    
    
    36,497
    
    
    
    26,866Marketing and sales
    
    
    27,792
    
    
    
    21,714
    
    
    
    18,705Research and development, clinical and regulatory
    
    
    1,475
    
    
    
    5,250
    
    
    
    1,825Amortization of intangibles
    
    
    3,484
    
    
    
    4,039
    
    
    
    4,098Impairment of goodwill
    
    
    4,087
    
    
    
    
    
    
    
    Other expenses, net
    
    
    874
    
    
    
    769
    
    
    
    94072,333
    
    
    
    68,269
    
    
    
    52,434Operating income
    
    
    14,444
    
    
    
    11,031
    
    
    
    24,075Gain on sale of OccuLogix, Inc. stock
    
    
    1,450
    
    
    
    
    
    
    
    25,792Interest income
    
    
    2,330
    
    
    
    4,280
    
    
    
    1,954Interest expense
    
    
    (1,455
    )
    
    
    (1,737
    )
    
    
    (2,617
    )Minority interests
    
    
    (7,022
    )
    
    
    (1,343
    )
    
    
    (6,953
    )Earnings (losses) from equity investments
    
    
    (2,636
    )
    
    
    2,545
    
    
    
    2,057Income before income taxes
    
    
    7,111
    
    
    
    14,776
    
    
    
    44,308Income tax benefit (expense)
    
    
    4,408
    
    
    
    (6,657
    )
    
    
    (1,834
    )Net income
    
    $
    11,519
    
    
    $
    8,119
    
    
    $
    42,474Earnings per share  basic
    
    $
    0.17
    
    
    $
    0.12
    
    
    $
    0.62Earnings per share  diluted
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.60Weighted-average number of common shares outstanding  basic
    
    
    68,907
    
    
    
    69,721
    
    
    
    68,490Weighted-average number of common shares outstanding  diluted
    
    
    69,580
    
    
    
    71,380
    
    
    
    71,088
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DECEMBER 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,917
    
    
    $
    31,729Short-term investments
    
    
    11,575
    
    
    
    38,213Accounts receivable, net
    
    
    19,315
    
    
    
    20,583Deferred tax asset
    
    
    7,153
    
    
    
    Prepaid expenses, inventory and other
    
    
    13,911
    
    
    
    17,123Total current assets
    
    
    80,871
    
    
    
    107,648Restricted cash
    
    
    1,035
    
    
    
    975Investments and other assets, net
    
    
    38,857
    
    
    
    19,838Goodwill
    
    
    96,148
    
    
    
    99,402Other intangible assets, net
    
    
    20,503
    
    
    
    24,021Fixed assets, net
    
    
    56,888
    
    
    
    49,159Total assets
    
    $
    294,302
    
    
    $
    301,043LIABILITIESCurrent liabilities:Accounts payable
    
    $
    12,314
    
    
    $
    11,031Accrued liabilities
    
    
    20,231
    
    
    
    24,453Current maturities of long-term debt
    
    
    8,311
    
    
    
    5,268Total current liabilities
    
    
    40,856
    
    
    
    40,752Other long-term liabilities
    
    
    4,442
    
    
    
    3,427Long-term debt, less current maturities
    
    
    15,122
    
    
    
    12,665Minority interests
    
    
    14,583
    
    
    
    35,794Total liabilities
    
    
    75,003
    
    
    
    92,638STOCKHOLDERS EQUITYCommon stock, no par value; unlimited number authorized
    
    
    450,133
    
    
    
    450,703Option and warrant equity
    
    
    1,806
    
    
    
    1,861Accumulated deficit
    
    
    (232,640
    )
    
    
    (244,159
    )Total stockholders equity
    
    
    219,299
    
    
    
    208,405Total liabilities and stockholders equity
    
    $
    294,302
    
    
    $
    301,043
   /s/ JAMES C. WACHTMAN
    
    /s/ WARREN S. RUSTANDJames C. Wachtman, Director
    
    Warren S. Rustand, Director
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YEAR ENDED DECEMBER 31,2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    11,519
    
    
    $
    8,119
    
    
    $
    42,474Adjustments to reconcile net income to net cash from operating
activities:Depreciation and amortization
    
    
    16,392
    
    
    
    16,353
    
    
    
    17,681Write-offs (reimbursements) of investments in research and development arrangements
    
    
    (300
    )
    
    
    (300
    )
    
    
    849Deferred taxes
    
    
    (5,241
    )
    
    
    5,067
    
    
    
    1,234Minority interests
    
    
    7,022
    
    
    
    1,343
    
    
    
    6,953Gain on sales and issuances of subsidiary stock
    
    
    (1,799
    )
    
    
    
    
    
    
    (25,792
    )Gain on sales of subsidiaries
    
    
    
    
    
    
    (319
    )
    
    
    (1,143
    )Losses (earnings) from equity investments
    
    
    2,636
    
    
    
    (2,545
    )
    
    
    (2,057
    )Loss (gain) on sales and disposals of fixed assets
    
    
    140
    
    
    
    (92
    )
    
    
    839Non-cash compensation expense
    
    
    1,444
    
    
    
    1,438
    
    
    
    484Write-down of OccuLogix inventory
    
    
    1,625
    
    
    
    1,982
    
    
    
    Adjustments to the fair values of long-lived assets and liabilities
    
    
    294
    
    
    
    888
    
    
    
    (1,206
    )Impairment of goodwill
    
    
    4,087
    
    
    
    
    
    
    
    Other
    
    
    84
    
    
    
    182
    
    
    
    Changes in operating assets and liabilities, net of acquisitions and dispositions:Accounts receivable
    
    
    632
    
    
    
    (2,956
    )
    
    
    (1,449
    )Prepaid expenses, inventory and other current assets
    
    
    (3,165
    )
    
    
    (3,873
    )
    
    
    (1,801
    )Accounts payable and accrued liabilities
    
    
    (1,882
    )
    
    
    (2,761
    )
    
    
    (1,706
    )Cash from operating activities
    
    
    33,488
    
    
    
    22,526
    
    
    
    35,360INVESTING ACTIVITIESPurchases of fixed assets
    
    
    (11,493
    )
    
    
    (8,321
    )
    
    
    (5,191
    )Proceeds from sales of fixed assets
    
    
    681
    
    
    
    1,779
    
    
    
    1,565Proceeds from divestitures of investments and subsidiaries, net
    
    
    
    
    
    
    3,430
    
    
    
    729Proceeds from sale of subsidiary stock, net
    
    
    2,456
    
    
    
    
    
    
    
    25,792Distributions and loan payments received from equity investments
    
    
    3,613
    
    
    
    3,039
    
    
    
    2,518Reimbursements from (investments in) research and development arrangements
    
    
    300
    
    
    
    300
    
    
    
    (849
    )Acquisitions and equity investments
    
    
    (7,839
    )
    
    
    (67,573
    )
    
    
    (10,067
    )OccuLogix, Inc. cash balance at time of deconsolidation
    
    
    (14,814
    )
    
    
    
    
    
    
    Proceeds from sales of short-term investments
    
    
    10,325
    
    
    
    129,750
    
    
    
    8,353Purchases of short-term investments
    
    
    (5,425
    )
    
    
    (57,095
    )
    
    
    (111,055
    )Other
    
    
    (12
    )
    
    
    13
    
    
    
    60Cash from investing activities
    
    
    (22,208
    )
    
    
    5,322
    
    
    
    (88,145
    )FINANCING ACTIVITIESRestricted cash movement
    
    
    (60
    )
    
    
    (43
    )
    
    
    444Proceeds from debt financing
    
    
    441
    
    
    
    1,992
    
    
    
    Principal payments of debt financing and capital leases
    
    
    (6,479
    )
    
    
    (9,504
    )
    
    
    (13,669
    )Distributions to minority interests
    
    
    (9,197
    )
    
    
    (8,440
    )
    
    
    (7,216
    )Purchases of treasury stock
    
    
    
    
    
    
    (15,868
    )
    
    
    Proceeds from issuances of OccuLogix, Inc. stock, net and cash acquired upon consolidation
    
    
    233
    
    
    
    329
    
    
    
    59,850Proceeds from issuances of common stock
    
    
    970
    
    
    
    1,980
    
    
    
    25,231Cash from financing activities
    
    
    (14,092
    )
    
    
    (29,554
    )
    
    
    64,640Net increase (decrease) in cash and cash equivalents during the period
    
    
    (2,812
    )
    
    
    (1,706
    )
    
    
    11,855Cash and cash equivalents, beginning of period
    
    
    31,729
    
    
    
    33,435
    
    
    
    21,580Cash and cash equivalents, end of period
    
    $
    28,917
    
    
    $
    31,729
    
    
    $
    33,435
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COMMON STOCK
    
    
    
    
    
    
    TREASURY STOCKOPTIONAND`WARRANT
    
    
    
    
    
    
    
    
    
    
    ACCUMULATEDSHARES
    
    
    AMOUNT
    
    
    EQUITY
    
    
    SHARES
    
    
    AMOUNT
    
    
    DEFICIT
    
    
    TOTALBalance December 31, 2003
    
    
    65,756
    
    
    $
    397,878
    
    
    $
    8,143
    
    
    
    
    
    
    $
    
    
    
    $
    (294,752
    )
    
    $
    111,269Shares issued as part of the employee share purchase plan and 401(k) plan
    
    
    131
    
    
    
    532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532Exercise of stock options
    
    
    4,199
    
    
    
    29,496
    
    
    
    (4,797
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,699Options expired or forfeited
    
    
    
    
    
    
    582
    
    
    
    (582
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable stock option expense
    
    
    
    
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108Value of shares issued upon meeting certain earnings criteria
    
    
    
    
    
    
    389
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389Issuance of subsidiary stock
    
    
    
    
    
    
    30,082
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,082Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,474
    
    
    
    42,474Balance December 31, 2004
    
    
    70,086
    
    
    $
    458,959
    
    
    $
    2,872
    
    
    
    
    
    
    $
    
    
    
    $
    (252,278
    )
    
    $
    209,553Shares issued as part of the employee share purchase plan and 401(k) plan
    
    
    63
    
    
    
    486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    486Exercise of stock options
    
    
    709
    
    
    
    2,935
    
    
    
    (1,003
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,932Options expired or forfeited
    
    
    
    
    
    
    8
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Escrow shares returned to the Company
    
    
    (171
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,000
    )
    
    
    (15,868
    )
    
    
    
    
    
    
    (15,868
    )Retirement of treasury stock
    
    
    (2,000
    )
    
    
    (15,868
    )
    
    
    
    
    
    
    2,000
    
    
    
    15,868
    
    
    
    
    
    
    
    Value of shares issued upon meeting certain earnings criteria
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181Shares issued as part of acquisition
    
    
    4
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Reversal of deferred tax asset valuation allowance for excess
stock-based compensation tax deductions
    
    
    
    
    
    
    3,116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,116Stock based compensation
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Changes in subsidiaries stockholders equity
    
    
    
    
    
    
    262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    262Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,119
    
    
    
    8,119Balance December 31, 2005
    
    
    68,691
    
    
    $
    450,703
    
    
    $
    1,861
    
    
    
    
    
    
    $
    
    
    
    $
    (244,159
    )
    
    $
    208,405Shares issued as part of the employee share purchase plan and 401(k) plan
    
    
    142
    
    
    
    740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    740Exercise of stock options
    
    
    258
    
    
    
    647
    
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597Options expired or forfeited
    
    
    
    
    
    
    5
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment of utilized net operating loss carryforwards
    
    
    
    
    
    
    (3,116
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,116
    )Stock based compensation
    
    
    
    
    
    
    983
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    983Changes in subsidiaries stockholders equity
    
    
    
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,519
    
    
    
    11,519Balance December 31, 2006
    
    
    69,091
    
    
    $
    450,133
    
    
    $
    1,806
    
    
    
    
    
    
    $
    
    
    
    $
    (232,640
    )
    
    $
    219,299
  47




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Vision Vision
 Vision
 Vision
        48




---



##### Table of Contents



Buildings
    
    - 40 yearsComputer equipment and software
    
    - three to four yearsFurniture, fixtures and equipment
    
    - seven yearsLaser and medical equipment
    
    - five to seven yearsLeasehold improvements
    
    - shorter of useful life or initial term of the leaseVehicles and other
    
    - five years
        49




---



##### Table of Contents



50




---



##### Table of Contents



51




---



##### Table of Contents



Vision
 Vision
  YEAR ENDED DECEMBER 31,2005
    
    
    2004Net income, as reported
    
    $
    8,119
    
    
    $
    42,474Add stock-based employee compensation cost included in reported net income
    
    
    
    
    
    
    108Add OccuLogixs stock-based employee compensation cost included in
reported net income, net of minority interests
    
    
    29
    
    
    
    Less stock-based employee compensation cost determined under fair value
based method for all awards, net of related tax effects
    
    
    (3,140
    )
    
    
    (1,245
    )Less OccuLogixs stock-based employee compensation cost determined under
fair value based method for all awards, net of minority interests
    
    
    (3,348
    )
    
    
    Pro forma net income
    
    $
    1,660
    
    
    $
    41,337Pro forma earnings per share  basic
    
    $
    0.02
    
    
    $
    0.60Pro forma earnings per share  diluted
    
    $
    0.02
    
    
    $
    0.58
       52




---



##### Table of Contents



Current assets
    
    $
    1,030Investments and other assets
    
    
    20Goodwill
    
    
    13,051Other intangible assets
    
    
    3,370Fixed assets
    
    
    1,046Total assets acquired
    
    $
    18,517Current liabilities
    
    
    727Long-term liabilities
    
    
    9Total liabilities assumed
    
    
    736Net assets acquired
    
    $
    17,781
     Current assets
    
    $
    978Investments and other assets
    
    
    54Goodwill
    
    
    24,639Other intangible assets
    
    
    5,060Fixed assets
    
    
    1,343Total assets acquired
    
    $
    32,074Current liabilities
    
    
    828Long-term liabilities
    
    
    405Total liabilities assumed
    
    
    1,233Net assets acquired
    
    $
    30,841
  53




---



##### Table of Contents



Current assets
    
    $
    40Goodwill
    
    
    5,721Other intangible assets
    
    
    710Fixed assets
    
    
    445Total assets acquired
    
    $
    6,916Current liabilities
    
    
    846Net assets acquired
    
    $
    6,070
  Vision Vision
 YEAR ENDED DECEMBER 31,2006
    
    
    2005ACTUAL
    
    
    PRO FORMATotal revenues
    
    $
    281,826
    
    
    $
    277,772Net income
    
    $
    11,519
    
    
    $
    10,496Earnings per share  basic
    
    $
    0.17
    
    
    $
    0.15Earnings per share  diluted
    
    $
    0.17
    
    
    $
    0.15
      54




---



##### Table of Contents



DECEMBER 31,2006
    
    
    2005Refractive
    
    $
    8,272
    
    
    $
    9,597Other healthcare services
    
    
    11,043
    
    
    
    10,986$
    19,315
    
    
    $
    20,583
     DECEMBER 31,2006
    
    
    2005Prepaid expenses
    
    $
    4,601
    
    
    $
    4,744Inventory
    
    
    6,916
    
    
    
    10,286Other
    
    
    2,394
    
    
    
    2,093$
    13,911
    
    
    $
    17,123
   DECEMBER 31,2006
    
    
    2005Equity method investments
    
    $
    29,944
    
    
    $
    15,321Cost method investments
    
    
    3,625
    
    
    
    1,575Long-term receivables
    
    
    4,085
    
    
    
    1,895Other
    
    
    1,203
    
    
    
    1,047$
    38,857
    
    
    $
    19,838
  55




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##### Table of Contents



NINE MONTHSENDEDDECEMBER 31,2006Net sales
    
    $
    206Gross profit (loss)
    
    $
    (1,692
    )Net loss
    
    $
    (76,440
    )
 DECEMBER 31,2006Current assets
    
    $
    19,178Non-current assets
    
    $
    71,226Current liabilities
    
    $
    5,639Non-current liabilities
    
    $
    22,360Minority interest liability
    
    $
    1,185
    56




---



##### Table of Contents



MOBILE
    
    
    OPTOMETRICREFRACTIVE
    
    
    CATARACT
    
    
    FRANCHISING
    
    
    OTHER
    
    
    TOTALDecember 31, 2004
    
    $
    22,709
    
    
    $
    4,459
    
    
    $
    6,105
    
    
    $
    19,267
    
    
    $
    52,540Sale of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,471
    )
    
    
    (2,471
    )Reversal of deferred tax asset valuation allowance
    
    
    (2,179
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,179
    )Acquired during the period
    
    
    45,250
    
    
    
    5,348
    
    
    
    
    
    
    
    914
    
    
    
    51,512December 31, 2005
    
    
    65,780
    
    
    
    9,807
    
    
    
    6,105
    
    
    
    17,710
    
    
    
    99,402Impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,087
    )
    
    
    (4,087
    )Reversal of deferred tax asset valuation allowance
    
    
    (4,929
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,929
    )Acquired during the period
    
    
    4,091
    
    
    
    999
    
    
    
    
    
    
    
    672
    
    
    
    5,762December 31, 2006
    
    $
    64,942
    
    
    $
    10,806
    
    
    $
    6,105
    
    
    $
    14,295
    
    
    $
    96,148
      2006
    
    
    2005GROSS CARRYING
    
    
    ACCUMULATED
    
    
    GROSS CARRYING
    
    
    ACCUMULATEDAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMORTIZATIONPractice management agreements
    
    $
    23,015
    
    
    $
    16,614
    
    
    $
    23,015
    
    
    $
    14,861Deferred contract rights
    
    
    11,081
    
    
    
    6,996
    
    
    
    11,081
    
    
    
    6,243Tradenames
    
    
    5,870
    
    
    
    504
    
    
    
    5,870
    
    
    
    210Other
    
    
    5,698
    
    
    
    1,047
    
    
    
    5,733
    
    
    
    364Total
    
    $
    45,664
    
    
    $
    25,161
    
    
    $
    45,699
    
    
    $
    21,678
  2007
    
    $
    3,4002008
    
    
    3,1002009
    
    
    2,7002010
    
    
    2,7002011
    
    
    2,000
 57




---



##### Table of Contents



DECEMBER 31,2006
    
    
    2005Land and buildings
    
    $
    12,195
    
    
    $
    12,014Computer equipment and software
    
    
    15,522
    
    
    
    13,402Furniture, fixtures and equipment
    
    
    8,327
    
    
    
    7,406Laser and medical equipment
    
    
    87,401
    
    
    
    77,866Leasehold improvements
    
    
    23,659
    
    
    
    21,143Vehicles and other
    
    
    3,730
    
    
    
    2,996150,834
    
    
    
    134,827Less accumulated depreciation
    
    
    93,946
    
    
    
    85,668Net book value
    
    $
    56,888
    
    
    $
    49,159
       DECEMBER 31,2006
    
    
    2005Interest imputed at 6.25%, due through October 2016, collateralized by building
(Cdn$7.9 million at December 31, 2006)
    
    $
    5,706
    
    
    $
    6,056Interest at various rates, due through 2035, collateralized by real estate and equipment
    
    
    3,665
    
    
    
    4,061Capital lease obligations, payable through 2011, interest at various rates
    
    
    13,945
    
    
    
    7,644Other
    
    
    117
    
    
    
    17223,433
    
    
    
    17,933Less current portion
    
    
    8,311
    
    
    
    5,268$
    15,122
    
    
    $
    12,665
  2007
    
    $
    8,3112008
    
    
    4,2442009
    
    
    3,9092010
    
    
    1,7312011
    
    
    658Thereafter
    
    
    4,580Total
    
    $
    23,433
 58




---



##### Table of Contents



2007
    
    $
    6,2902008
    
    
    4,5652009
    
    
    3,2922010
    
    
    1,0712011
    
    
    6Thereafter
    
    
    Total
    
    
    15,224Less interest portion
    
    
    1,279$
    13,945
      2007
    
    Cdn$
    1,0502008
    
    
    1,0502009
    
    
    1,0502010
    
    
    1,0502011
    
    
    1,060Cdn$
    5,260
 59




---



##### Table of Contents



YEAR ENDED DECEMBER 31,2006
    
    
    2005
    
    
    2004Other expenses (income):Loss (gain) on sales and disposals of fixed assets
    
    $
    140
    
    
    $
    (92
    )
    
    $
    839Adjustments to the fair values of long-lived assets and liabilities
    
    
    294
    
    
    
    888
    
    
    
    (1,206
    )Center closing costs
    
    
    234
    
    
    
    1,012
    
    
    
    868Gain on sales of subsidiaries
    
    
    
    
    
    
    (319
    )
    
    
    (1,143
    )Gain on sales and issuances of subsidiary stock
    
    
    (349
    )
    
    
    
    
    
    
    Reimbursements from previous research and development arrangements
    
    
    (300
    )
    
    
    (300
    )
    
    
    (400
    )Severance accruals for employees under terms of employment contracts
    
    
    229
    
    
    
    
    
    
    
    2,557OccuLogix severance accruals
    
    
    820
    
    
    
    
    
    
    
    Miscellaneous income
    
    
    (194
    )
    
    
    (420
    )
    
    
    (575
    )$
    874
    
    
    $
    769
    
    
    $
    940
    YEAR ENDED DECEMBER 31,2006
    
    
    2005
    
    
    2004Net income
    
    $
    11,519
    
    
    $
    8,119
    
    
    $
    42,474Weighted-average shares outstanding  basic
    
    
    68,907
    
    
    
    69,721
    
    
    
    68,490Stock options
    
    
    673
    
    
    
    1,659
    
    
    
    2,598Weighted-average shares outstanding  diluted
    
    
    69,580
    
    
    
    71,380
    
    
    
    71,088Earnings per share  diluted
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.60
     60




---



##### Table of Contents



OUTSTANDING
    
    
    EXERCISABLEWEIGHTEDAVERAGE
    
    WEIGHTED
    
    
    
    
    
    
    WEIGHTEDREMAINING
    
    AVERAGE
    
    
    
    
    
    
    AVERAGEPRICE RANGE
    
    
    NUMBER OF
    
    
    CONTRACTUAL
    
    EXERCISE
    
    
    NUMBER OF
    
    
    EXERCISE(CDN $)
    
    
    OPTIONS
    
    
    LIFE
    
    PRICE
    
    
    OPTIONS
    
    
    PRICE$
    1.43
    
    
    -
    
    $
    3.87
    
    
    
    283
    
    
    0.4 years
    
    Cdn$
    3.13
    
    
    
    249
    
    
    Cdn$
    3.31$
    4.75
    
    
    -
    
    $
    6.67
    
    
    
    53
    
    
    6.6 years
    
    
    5.36
    
    
    
    3
    
    
    
    5.95$
    7.51
    
    
    -
    
    $
    9.80
    
    
    
    104
    
    
    3.2 years
    
    
    7.71
    
    
    
    44
    
    
    
    7.85$
    11.02
    
    
    -
    
    $
    15.49
    
    
    
    64
    
    
    2.9 years
    
    
    12.71
    
    
    
    64
    
    
    
    12.71504
    
    
    1.9 years
    
    Cdn$
    5.53
    
    
    
    360
    
    
    Cdn$
    5.56
  OUTSTANDING
    
    
    EXERCISABLEWEIGHTEDAVERAGE
    
    WEIGHTED
    
    
    
    
    
    
    WEIGHTEDREMAINING
    
    AVERAGE
    
    
    
    
    
    
    AVERAGEPRICE RANGE
    
    
    NUMBER OF
    
    
    CONTRACTUAL
    
    EXERCISE
    
    
    NUMBER OF
    
    
    EXERCISE(U.S.$)
    
    
    OPTIONS
    
    
    LIFE
    
    PRICE
    
    
    OPTIONS
    
    
    PRICE$
    0.90
    
    
    -
    
    $
    2.62
    
    
    
    718
    
    
    1.0 years
    
    $
    1.32
    
    
    
    543
    
    
    $
    1.37$
    3.02
    
    
    -
    
    $
    4.94
    
    
    
    1,638
    
    
    4.7 years
    
    
    4.45
    
    
    
    689
    
    
    
    4.17$
    6.03
    
    
    -
    
    $
    6.81
    
    
    
    1,358
    
    
    3.4 years
    
    
    6.35
    
    
    
    398
    
    
    
    6.19$
    8.19
    
    
    -
    
    $
    11.64
    
    
    
    872
    
    
    2.9 years
    
    
    10.40
    
    
    
    866
    
    
    
    10.424,586
    
    
    3.4 years
    
    $
    5.66
    
    
    
    2,496
    
    
    $
    6.05
  WEIGHTEDAVERAGE
    
    
    WEIGHTED
    
    
    AGGREGATE
    
    
    AGGREGATEEXERCISE
    
    
    AVERAGE
    
    
    INTRINSIC
    
    
    INTRINSICPRICE
    
    
    EXERCISE PRICE
    
    
    VALUE
    
    
    VALUEOPTIONS
    
    
    PER SHARE
    
    
    PER SHARE
    
    
    CDN OPTIONS
    
    
    US OPTIONSDecember 31, 2003
    
    
    7,543
    
    
    Cdn$
    4.90
    
    
    US$
    4.90Granted
    
    
    1,018
    
    
    
    12.73
    
    
    
    10.38Exercised
    
    
    (4,198
    )
    
    
    7.49
    
    
    
    5.90Forfeited
    
    
    (100
    )
    
    
    3.89
    
    
    
    6.16Expired
    
    
    (60
    )
    
    
    16.35
    
    
    
    10.84December 31, 2004
    
    
    4,203
    
    
    Cdn$
    5.04
    
    
    US$
    5.08Granted
    
    
    176
    
    
    
    8.53
    
    
    
    7.52Exercised
    
    
    (709
    )
    
    
    3.89
    
    
    
    2.71Forfeited
    
    
    (112
    )
    
    
    11.32
    
    
    
    9.69Expired
    
    
    (22
    )
    
    
    9.39
    
    
    
    6.20December 31, 2005
    
    
    3,536
    
    
    Cdn$
    5.26
    
    
    US$
    5.53Granted
    
    
    1,902
    
    
    
    6.39
    
    
    
    5.51Exercised
    
    
    (258
    )
    
    
    3.97
    
    
    
    1.91Forfeited
    
    
    (51
    )
    
    
    4.80
    
    
    
    4.92Expired
    
    
    (39
    )
    
    
    11.28
    
    
    
    8.63December 31, 2006
    
    
    5,090
    
    
    Cdn$
    5.53
    
    
    US$
    5.66
    
    
    Cdn$
    884
    
    
    US$
    4,084Exercisable at December 31, 2006
    
    
    2,856
    
    
    Cdn$
    5.56
    
    
    US$
    6.05
    
    
    Cdn$
    698
    
    
    US$
    2,829
    61




---



##### Table of Contents



Vision Vision
         DECEMBER 31,2006
    
    
    2005Deferred tax asset:Net operating loss carryforwards
    
    $
    84,467
    
    
    $
    37,264Fixed assets
    
    
    1,427
    
    
    
    1,685Intangibles
    
    
    10,939
    
    
    
    11,934Investments
    
    
    11,831
    
    
    
    11,715Accruals and other reserves
    
    
    4,272
    
    
    
    5,572Stock options
    
    
    
    
    
    
    4,192Tax credits
    
    
    357
    
    
    
    228Other
    
    
    3,859
    
    
    
    3,017Total
    
    
    117,152
    
    
    
    75,607Valuation allowance
    
    
    (109,999
    )
    
    
    (75,607
    )$
    7,153
    
    
    $
    
 62




---



##### Table of Contents



YEAR ENDED DECEMBER 31,2006
    
    
    2005
    
    
    2004Income tax expense at the Canadian statutory rate of 36.12%
    
    $
    5,165
    
    
    $
    5,338
    
    
    $
    16,006Change in valuation allowance
    
    
    (5,875
    )
    
    
    (267
    )
    
    
    (15,103
    )Expenses not deductible for income tax purposes
    
    
    224
    
    
    
    285
    
    
    
    300Change in Canadian tax rates
    
    
    
    
    
    
    
    
    
    
    31State taxes
    
    
    633
    
    
    
    506
    
    
    
    450Canadian income tax
    
    
    180
    
    
    
    350
    
    
    
    150IRC Section 382 adjustments
    
    
    (3,415
    )
    
    
    
    
    
    
    Deductible interest expense adjustments
    
    
    (1,464
    )
    
    
    
    
    
    
    Rate differential on United States operations
    
    
    144
    
    
    
    445
    
    
    
    $
    (4,408
    )
    
    $
    6,657
    
    
    $
    1,834
  YEAR ENDED DECEMBER 31,2006
    
    
    2005
    
    
    2004Current:Canada
    
    $
    180
    
    
    $
    350
    
    
    $
    150United States  federal
    
    
    129
    
    
    
    228
    
    
    
    United States  state
    
    
    524
    
    
    
    475
    
    
    
    450Other
    
    
    
    
    
    
    537
    
    
    
    $
    833
    
    
    $
    1,590
    
    
    $
    600Deferred:United States  federal
    
    $
    (4,864
    )
    
    $
    4,320
    
    
    $
    1,234United States  state
    
    
    (377
    )
    
    
    747
    
    
    
    $
    (5,241
    )
    
    $
    5,067
    
    
    $
    1,234Total income tax expense (benefit)
    
    $
    (4,408
    )
    
    $
    6,657
    
    
    $
    1,834
  63




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##### Table of Contents



2007
    
    $
    7,3382008
    
    
    5,9402009
    
    
    4,7342010
    
    
    3,7372011
    
    
    1,910Thereafter
    
    
    4,683$
    28,342
  TM TM
    Vision Vision Vision Vision
   64




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##### Table of Contents



MOBILE
    
    
    OPTOMETRICYEAR ENDED DECEMBER 31, 2006
    
    REFRACTIVE
    
    
    CATARACT
    
    
    FRANCHISING
    
    
    AMD
    
    
    OTHER
    
    
    TOTALRevenues
    
    $
    198,700
    
    
    $
    35,058
    
    
    $
    20,636
    
    
    $
    
    
    
    $
    27,432
    
    
    $
    281,826Cost of revenues
    
    
    142,524
    
    
    
    24,631
    
    
    
    8,207
    
    
    
    1,659
    
    
    
    18,028
    
    
    
    195,049Gross profit (loss)
    
    
    56,176
    
    
    
    10,427
    
    
    
    12,429
    
    
    
    (1,659
    )
    
    
    9,404
    
    
    
    86,777Segment expenses:Marketing
    
    
    20,052
    
    
    
    3,012
    
    
    
    3,751
    
    
    
    169
    
    
    
    808
    
    
    
    27,792G&A, R&D, amortization and other
    
    
    11,886
    
    
    
    4,034
    
    
    
    (17
    )
    
    
    4,083
    
    
    
    6,205
    
    
    
    26,191Gain on sale of OccuLogix, Inc. stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,450
    )
    
    
    
    
    
    
    (1,450
    )Minority interests
    
    
    2,428
    
    
    
    
    
    
    
    4,080
    
    
    
    (2,715
    )
    
    
    3,229
    
    
    
    7,022Losses (earnings) from equity investments
    
    
    (1,356
    )
    
    
    
    
    
    
    
    
    
    
    5,809
    
    
    
    (1,817
    )
    
    
    2,636Segment profit (loss)
    
    $
    23,166
    
    
    $
    3,381
    
    
    $
    4,615
    
    
    $
    (7,555
    )
    
    $
    979
    
    
    $
    24,586Corporate operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,350
    )Interest income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    875Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,408Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,519Total assets
    
    $
    218,635
    
    
    $
    23,806
    
    
    $
    13,497
    
    
    $
    14,362
    
    
    $
    24,002
    
    
    $
    294,302Additions to fixed assets and intangibles
    
    $
    22,965
    
    
    $
    4,143
    
    
    $
    58
    
    
    $
    71
    
    
    $
    1,196
    
    
    $
    28,433Depreciation and amortization
    
    $
    12,163
    
    
    $
    2,683
    
    
    $
    58
    
    
    $
    34
    
    
    $
    1,454
    
    
    $
    16,392
 MOBILE
    
    
    OPTOMETRICYEAR ENDED DECEMBER 31, 2005
    
    REFRACTIVE
    
    
    CATARACT
    
    
    FRANCHISING
    
    
    AMD
    
    
    OTHER
    
    
    TOTALRevenues
    
    $
    186,620
    
    
    $
    31,716
    
    
    $
    17,471
    
    
    $
    1,841
    
    
    $
    22,377
    
    
    $
    260,025Cost of revenues
    
    
    133,450
    
    
    
    22,134
    
    
    
    7,657
    
    
    
    3,738
    
    
    
    13,746
    
    
    
    180,725Gross profit (loss)
    
    
    53,170
    
    
    
    9,582
    
    
    
    9,814
    
    
    
    (1,897
    )
    
    
    8,631
    
    
    
    79,300Segment expenses:Marketing
    
    
    14,457
    
    
    
    2,617
    
    
    
    3,413
    
    
    
    659
    
    
    
    568
    
    
    
    21,714G&A, R&D, amortization and other
    
    
    10,351
    
    
    
    3,692
    
    
    
    6
    
    
    
    13,934
    
    
    
    2,280
    
    
    
    30,263Minority interests
    
    
    2,371
    
    
    
    
    
    
    
    2,914
    
    
    
    (7,058
    )
    
    
    3,116
    
    
    
    1,343Losses (earnings) from equity investments
    
    
    (1,473
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,072
    )
    
    
    (2,545
    )Segment profit (loss)
    
    $
    27,464
    
    
    $
    3,273
    
    
    $
    3,481
    
    
    $
    (9,432
    )
    
    $
    3,739
    
    
    $
    28,525Corporate operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,292
    )Interest income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,543Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,657
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,119Total assets
    
    $
    197,216
    
    
    $
    19,890
    
    
    $
    11,921
    
    
    $
    46,271
    
    
    $
    25,745
    
    
    $
    301,043Additions to fixed assets and intangibles
    
    $
    67,091
    
    
    $
    9,734
    
    
    $
    66
    
    
    $
    218
    
    
    $
    2,932
    
    
    $
    80,041Depreciation and amortization
    
    $
    12,112
    
    
    $
    2,649
    
    
    $
    44
    
    
    $
    120
    
    
    $
    1,428
    
    
    $
    16,353
 65




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##### Table of Contents



MOBILE
    
    
    OPTOMETRICYEAR ENDED DECEMBER 31, 2004
    
    REFRACTIVE
    
    
    CATARACT
    
    
    FRANCHISING
    
    
    AMD
    
    
    OTHER
    
    
    TOTALRevenues
    
    $
    182,441
    
    
    $
    27,040
    
    
    $
    14,145
    
    
    $
    837
    
    
    $
    22,784
    
    
    $
    247,247Cost of revenues
    
    
    130,303
    
    
    
    19,325
    
    
    
    5,898
    
    
    
    1,046
    
    
    
    14,166
    
    
    
    170,738Gross profit (loss)
    
    
    52,138
    
    
    
    7,715
    
    
    
    8,247
    
    
    
    (209
    )
    
    
    8,618
    
    
    
    76,509Segment expenses:Marketing
    
    
    12,445
    
    
    
    2,595
    
    
    
    2,989
    
    
    
    164
    
    
    
    512
    
    
    
    18,705G&A, R&D, amortization and other
    
    
    10,698
    
    
    
    3,019
    
    
    
    22
    
    
    
    2,681
    
    
    
    1,473
    
    
    
    17,893Gain on sale of OccuLogix, Inc. stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,792
    )
    
    
    
    
    
    
    (25,792
    )Minority interests
    
    
    1,863
    
    
    
    
    
    
    
    2,323
    
    
    
    (411
    )
    
    
    3,178
    
    
    
    6,953Losses (earnings) from equity investments
    
    
    (1,575
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (482
    )
    
    
    (2,057
    )Segment profit
    
    $
    28,707
    
    
    $
    2,101
    
    
    $
    2,913
    
    
    $
    23,149
    
    
    $
    3,937
    
    
    $
    60,807Corporate operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,836
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (663
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,834
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,474Total assets
    
    $
    190,500
    
    
    $
    15,716
    
    
    $
    12,049
    
    
    $
    61,440
    
    
    $
    24,302
    
    
    $
    304,007Additions to fixed assets and intangibles
    
    $
    4,071
    
    
    $
    1,497
    
    
    $
    79
    
    
    $
    227
    
    
    $
    7,307
    
    
    $
    13,181Depreciation and amortization
    
    $
    13,695
    
    
    $
    2,614
    
    
    $
    41
    
    
    $
    104
    
    
    $
    1,227
    
    
    $
    17,681
  YEAR ENDED DECEMBER 31, 2006
    
    CANADA
    
    
    UNITED STATES
    
    
    TOTALRevenues
    
    $
    14,395
    
    
    $
    267,431
    
    
    $
    281,826Total fixed assets and intangibles
    
    $
    7,938
    
    
    $
    165,601
    
    
    $
    173,539
 YEAR ENDED DECEMBER 31, 2005
    
    CANADA
    
    
    UNITED STATES
    
    
    TOTALRevenues
    
    $
    12,937
    
    
    $
    247,088
    
    
    $
    260,025Total fixed assets and intangibles
    
    $
    8,457
    
    
    $
    164,125
    
    
    $
    172,582
 YEAR ENDED DECEMBER 31, 2004
    
    CANADA
    
    
    UNITED STATES
    
    
    TOTALRevenues
    
    $
    12,596
    
    
    $
    234,651
    
    
    $
    247,247Total fixed assets and intangibles
    
    $
    9,825
    
    
    $
    107,054
    
    
    $
    116,879
      66




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##### Table of Contents



YEAR ENDED DECEMBER 31,2006
    
    2005
    
    2004Capital lease obligations relating to equipment purchases
    
    $
    11,129
    
    
    $
    5,667
    
    
    $
    2,579Inventory contributed to OccuLogix
    
    
    25
    
    
    
    183
    
    
    
    Option and warrant reduction
    
    
    55
    
    
    
    1,011
    
    
    
    5,379Value of shares issued upon meeting certain earnings criteria
    
    
    
    
    
    
    181
    
    
    
    389Retirement of treasury stock
    
    
    
    
    
    
    15,868
    
    
    
    Value of shares issued for acquisitions
    
    
    
    
    
    
    24
    
    
    
    
  YEAR ENDED DECEMBER 31,2006
    
    
    2005
    
    
    2004Interest
    
    $
    1,453
    
    
    $
    1,426
    
    
    $
    2,133Income taxes
    
    $
    1,814
    
    
    $
    1,187
    
    
    $
    835
  Vision Vision
 Vision
     67




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##### Table of Contents



THREE MONTHS
    
    THREE MONTHS
    
    THREE MONTHS
    
    THREE MONTHSENDED MARCH 31,
    
    ENDED JUNE 30,
    
    ENDED SEPTEMBER 30,
    
    ENDED DECEMBER 31,2006 (1)
    
    2006 (2)
    
    2006 (3)
    
    2006 (4)Revenues
    
    $
    77,581
    
    
    $
    76,215
    
    
    $
    64,489
    
    
    $
    63,541Gross profit
    
    
    25,192
    
    
    
    25,201
    
    
    
    18,957
    
    
    
    17,427Net income (loss)
    
    
    2,712
    
    
    
    10,867
    
    
    
    301
    
    
    
    (2,361
    )Basic income (loss) per share
    
    
    0.04
    
    
    
    0.16
    
    
    
    0.00
    
    
    
    (0.03
    )Diluted income (loss) per share
    
    
    0.04
    
    
    
    0.16
    
    
    
    0.00
    
    
    
    (0.03
    )
 THREE MONTHS
    
    THREE MONTHS
    
    THREE MONTHS
    
    THREE MONTHSENDED MARCH 31,
    
    ENDED JUNE 30,
    
    ENDED SEPTEMBER 30,
    
    ENDED DECEMBER 31,2005
    
    2005
    
    2005
    
    2005 (5)Revenues
    
    $
    71,049
    
    
    $
    66,820
    
    
    $
    61,639
    
    
    $
    60,517Gross profit
    
    
    24,959
    
    
    
    22,492
    
    
    
    17,521
    
    
    
    14,328Net income (loss)
    
    
    6,727
    
    
    
    3,635
    
    
    
    779
    
    
    
    (3,022
    )Basic income (loss) per share
    
    
    0.10
    
    
    
    0.05
    
    
    
    0.01
    
    
    
    (0.04
    )Diluted income (loss) per share
    
    
    0.09
    
    
    
    0.05
    
    
    
    0.01
    
    
    
    (0.04
    )
 (1)
    
    In the three months ended March 31, 2006, net income includes:
 (a)
    
    severance charges totaling $0.8 million ($0.4 million net of minority interests); and(b)
    
    a net write-down of inventory of $1.6 million ($0.8 million net of minority interests).
 (2)
    
    In the three months ended June 30, 2006, net income includes:
 (a)
    
    a gain on sale of subsidiary stock of $1.4 million; and(b)
    
    a $3.4 million decrease to income tax expense, $0.9 million related to prior years and
$2.5 million related to the three months ended March 31, 2006.
 (3)
    
    In the three months ended September 30, 2006, net income includes a gain on sale of
subsidiary stock of $0.2 million ($0.1 million net of minority interests).
 (4)
    
    In the three months ended December 31, 2006, the net loss includes:
 (a)
    
    an impairment of goodwill of $4.1 million;(b)
    
    a gain on sales and issuances of subsidiary stock of $0.2 million ($0.1 million net of
minority interests);(c)
    
    severance charges totaling $0.2 million;(d)
    
    net write-downs of assets and liabilities of $0.3 million;(e)
    
    income tax benefit of $5.3 million related to a partial reversal of the deferred tax
asset valuation allowance; and(f)
    
    income tax benefit of $1.5 million related to  deductible interest
expense adjustments.
 (5)
    
    In the three months ended December 31, 2005, the net loss includes:
 (a)
    
    a charge of $1.6 million related to OccuLogixs preliminary analysis of the data from its
clinical trial ($0.8 million net of minority interests); and(b)
    
    a net write down of $0.9 million in the fair value of intangibles and long-term
receivables.
 68




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##### Table of Contents



Internal
Control Integrated Framework.
  69




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##### Table of Contents



.
  St. Louis Missouri
    
    /s/ ERNST & YOUNG LLPMarch 5, 2007
 70




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##### Table of Contents



Vision
 Number of securitiesremaining available forNumber of securities
    
    
    Weighted-average
    
    
    future issuances underto be issued upon
    
    
    exercise price of
    
    
    equity compensationexercise of
    
    
    outstanding
    
    
    plans (excludingoutstanding options,
    
    
    options, warrants
    
    
    securities reflected inwarrants and rights
    
    
    and rights
    
    
    column (a))Plan category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    5,090
    
    
    $
    5.66
    (1)
    
    
    1,216Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5,090
    
    
    $
    5.66
    (1)
    
    
    1,216
 
 (1)
    
    Represents the weighted-average exercise price of outstanding options, warrants and rights
denominated in U.S. dollars. The weighted-average exercise price of outstanding options, warrants
and rights denominated in Canadian dollars was Cdn$5.53.  71




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##### Table of Contents



(a)
    
    The following documents are filed as part of the report:(1) Financial statements:Report of Independent Registered Public Accounting Firm.Consolidated Statements of Operations  Years Ended December 31, 2006, 2005 and 2004.Consolidated Balance Sheets as of December 31, 2006 and 2005.Consolidated Statements of Cash Flows  Years Ended December 31, 2006, 2005 and 2004.Consolidated Statements of Stockholders Equity  Years Ended December 31, 2006, 2005 and 2004.Notes to Consolidated Financial Statements(2) Financial statement schedules required to be filed by Item 8 and Item 15(d) of Form 10-K.Schedule II  Valuation and Qualifying Accounts and ReservesExcept as provided below, all schedules for which provision is made in the applicable accounting
regulations of the Commission either have been included in the consolidated financial statements
or are not required under the related instructions, or are inapplicable and therefore have been
omitted.(3) Exhibits required by Item 601 of Regulation S-K and by Item 14(c).See Exhibit Index.(b)
    
    Exhibits required by Item 601 of Regulation S-K.See Exhibit Index.
 72




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##### Table of Contents



TLC VISION CORPORATIONBy
    /s/ JAMES C. WACHTMANJames C. Wachtman, Chief Executive Officer   SIGNATURE
    
    TITLE
    
    DATED/s/ JAMES C WACHTMAN

James C. Wachtman
    
    Chief Executive Officer and Director
    
    March 9, 2007/s/ STEVEN P. RASCHE

Steven P. Rasche
    
    Chief Financial Officer and Treasurer
    
    March 9, 2007/s/ WARREN S. RUSTAND

Warren S. Rustand
    
    Chairman of the Board of Directors and Director
    
    March 9, 2007/s/ THOMAS N. DAVIDSON

Thomas N. Davidson
    
    Director
    
    March 9, 2007/s/ ELIAS VAMVAKAS

Elias Vamvakas
    
    Director
    
    March 9, 2007/s/ RICHARD L. LINDSTROM, M.D.

Richard L. Lindstrom, M.D.
    
    Director
    
    March 9, 2007/s/ TOBY S. WILT

Toby S. Wilt
    
    Director
    
    March 9, 2007/s/ MICHAEL D. DEPAOLIS, O.D.

Michael D. DePaolis, O.D.
    
    Director
    
    March 9, 2007
 73




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BALANCE AT
    
    
    
    
    
    
    
    
    
    DEDUCTIONS-
    
    BALANCE ATBEGINNING
    
    
    
    
    
    
    
    
    
    UNCOLLECTABLE
    
    ENDOF PERIOD
    
    PROVISION
    
    OTHER(1)
    
    AMOUNTS
    
    OF PERIOD(in thousands)2004Provision for contractual allowances
and doubtful accounts receivable
    
    $
    2,583
    
    
    $
    124
    
    
    $
    
    
    
    $
    (380
    )
    
    $
    2,327Provision against investments and other
assets
    
    
    3,518
    
    
    
    
    
    
    
    (1,206
    )
    
    
    
    
    
    
    2,312Deferred tax asset valuation allowance
    
    
    122,831
    
    
    
    (15,103
    )
    
    
    (29,097
    )
    
    
    
    
    
    
    78,6312005Provision for contractual allowances
and doubtful accounts receivable
    
    $
    2,327
    
    
    $
    1,648
    
    
    $
    530
    
    
    $
    (276
    )
    
    $
    4,229Provision against investments and other
assets
    
    
    2,312
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2,314Deferred tax asset valuation allowance
    
    
    78,631
    
    
    
    (267
    )
    
    
    (2,757
    )
    
    
    
    
    
    
    75,6072006Provision for contractual allowances
and doubtful accounts receivable
    
    $
    4,229
    
    
    $
    (339
    )
    
    $
    (1,048
    )
    
    $
    (471
    )
    
    $
    2,371Provision against investments and other
assets
    
    
    2,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,314Deferred tax asset valuation allowance
    
    
    75,607
    
    
    
    (5,875
    )
    
    
    40,267
    
    
    
    
    
    
    
    109,999
  74




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##### Table of Contents



EXHIBITNO.
    
    DESCRIPTION3.1
    
    Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Companys
10-K filed with the Commission on August 28, 1998)3.2
    
    Articles of Amendment (incorporated by reference to Exhibit 3.2 to the Companys 10-K
filed with the Commission on August 29, 2000)3.3
    
    Articles of Continuance (incorporated by reference to Exhibit 3.6 to the Companys
Registration Statement on Form S-4/A filed with the Commission on March 1, 2002 (file
no. 333-71532))3.4
    
    Articles of Amendment (incorporated by reference to Exhibit 4.2 to the Companys Post
Effective Amendment No. 1 on Form S-8 to the Companys Registration Statement on Form
S-4 filed with the Commission on May 14, 2002 (file no. 333-71532))3.5
    
    By-Laws of the Company (incorporated by reference to Exhibit 3.6 to the Companys
Registration Statement on Form S-4/A filed with the Commission on March 1, 2002 (file
no. 333-71532))4.1
    
    Shareholder Rights Plan Agreement dated March 4, 2005, as amended as of June 16, 2005, between the Company and CIBC
Mellon Trust Company (incorporated by reference to Exhibit 99.2 to the Companys
8-K filed with the Commission on June 20, 2005 (file
no. 000-29302))10.1*
    
    TLC Vision Corporation Amended and Restated Share Option Plan (incorporated by
reference to Exhibit 4.2 to the Companys Registration Statement on Form S-8 filed
with the Commission on June 23, 2004 (file no. 333-116769))10.2*
    
    TLC Corporation 2004 Employee Share Purchase Plan (incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on Form S-8 filed with the
Commission on June 23, 2004 (file no. 333-116769))10.3*
    
    Employment Agreement with Elias Vamvakas (incorporated by reference to Exhibit
10.1(e) to the Companys 10-K filed with the Commission on August 28, 1998)10.4
    
    Escrow Agreement with Elias Vamvakas and Jeffery J. Machat (incorporated by reference
to Exhibit 10.1(f) to the Companys 10-K filed with the Commission on August 28,
1998)10.5
    
    Consulting Agreement with Excimer Management Corporation (incorporated by reference
to Exhibit 10.1(g) to the Companys 10-K filed with the Commission on August 28,
1998)10.6
    
    Shareholder Agreement for Vision Corporation (incorporated by reference to Exhibit
10.1(l) to the Companys 10-K filed with the Commission on August 28, 1998)10.7*
    
    Employment Agreement with William Leonard (incorporated by reference to Exhibit
10.1(n) to the Companys 10-K filed with the Commission on August 29, 2000)10.8*
    
    Consulting Agreement with Warren Rustand (incorporated by Reference to Exhibit 10.10
to the Companys Amendment No. 2 registration Statement on Form S-4/A filed with the
Commission on January 18, 2002 (file no. 333-71532))10.9*
    
    Employment Agreement with Paul Frederick (incorporated by reference to Exhibit 10.10
to the Companys 10-K for the year ended May 31, 2002)10.10*
    
    Employment Agreement with James C. Wachtman dated May 15, 2002 (incorporated by
reference to Exhibit 10.13 to the Companys 10-K for the year ended May 31, 2002)10.11*
    
    Employment Agreement with Robert W. May dated May 15, 2002 (incorporated by reference
to Exhibit 10.14 to the Companys 10-K for the year ended May 31, 2002)10.12*
    
    Amendment to Employment Agreement with Robert W. May dated September 30, 2003
(incorporated by reference to Exhibit 10.12 to the Companys 10-K for the year ended
December 31, 2003)10.13*
    
    Employment Agreement with B. Charles Bono dated May 15, 2002 (incorporated by
reference to Exhibit 10.15 to the Companys 10-K for the year ended May 31, 2002)10.14*
    
    Amendment to Employment Agreement with B. Charles Bono dated September 30, 2003
(incorporated by reference to Exhibit 10.14 to the Companys 10-K for the year ended
December 31, 2003)10.15*
    
    Supplemental Employment Agreement with John J. Klobnak dated May 15, 2002
(incorporated by reference to Exhibit 10.16 to the Companys 10-K for the year ended
May 31, 2002)10.16*
    
    Severance Agreement with Elias Vamvakas dated October 25, 2004 (incorporated by
reference to Exhibit 10.16 to the Companys 10-K for the year ended December 31,
2004)
 75




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##### Table of Contents



EXHIBITNO.
    
    DESCRIPTION10.17*
    
    Employment Agreement with Steve Rasche dated July 1, 2004 (incorporated by reference
to Exhibit 10.17 to the Companys 10-K for the year ended December 31, 2004)10.18*
    
    Employment Agreement with Brian Andrew dated December 31, 2004 (incorporated by
reference to Exhibit 10.18 to the Companys 10-K for the year ended December 31,
2004)10.19
    
    Asset Purchase Agreement By and Among TLC Vision (USA) Corporation, Eyes of the
Future, P.C., and Frederic B. Kremer, M.D., dated as of July 11, 2005 (incorporated
by reference to Exhibit 2.1 to the Companys 10-Q for the three and nine months ended
September 30, 2005)10.20
    
    Asset Purchase Agreement By and Among TLC Vision (USA) Corporation, Frederic B.
Kremer, M.D., P.C., and Frederic B. Kremer, M.D., dated as of July 11, 2005
(incorporated by reference to Exhibit 2.2 to the Companys 10-Q for the three and
nine months ended September 30, 2005)10.21
    
    Agreement and Plan of Merger By and Among Truvision, Inc. and TLC Wildcard Corp. and
TLC Vision Corporation and TLC Vision (USA) Corporation and Lindsay T. Atwood dated
as of October 27, 2005 (incorporated by reference to Exhibit 2.3 to the Companys
10-Q for the three and nine months ended September 30, 2005)21
    
    List of the Companys Subsidiaries23.1
    
    Consent of Independent Registered Public Accounting Firm23.2
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    CEOs Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934.31.2
    
    CFOs Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934.32.1
    
    CEOs Certification of periodic financial report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, U.S.C. Section 135032.2
    
    CFOs Certification of periodic financial report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, U.S.C. Section 1350
 
 *
    
    Management contract or compensatory plan arrangement. 76