<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________________ to ________________.
Commission File Number: 0-23397
U.S. VISION, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
DELAWARE 22-3032948
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1 HARMON DRIVE, GLEN OAKS INDUSTRIAL PARK, GLENDORA, NEW JERSEY 08012
(Address of principal executive offices) (Zip Code)
</TABLE>
(609) 228-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of December 1, 1998, there were 7,791,579 shares of the registrant's common
stock outstanding.
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U.S. VISION, INC.
TABLE OF CONTENTS
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Page
Number
------
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
October 31, 1998 (Unaudited) and January 31, 1998.................................1
Condensed Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended October 31, 1998 and 1997..............................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended October 31, 1998 and 1997........................................3
Notes to Condensed Consolidated Financial Statements (Unaudited)...................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .....................................8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................12
SIGNATURES...........................................................................................13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
U.S. VISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data and per share amounts)
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<CAPTION>
(Unaudited)
ASSETS October 31, January 31,
1998 1998
---- ----
<S> <C> <C>
Current assets:
Cash ................................................. $ 865 $ 365
Accounts receivable .................................. 12,001 11,730
Inventory ............................................ 23,365 18,155
Prepaid expenses and other ........................... 902 349
--------- ---------
Total current assets ...................................... 37,133 30,599
Property, plant and equipment, net ........................ 29,749 26,003
Goodwill, net of accumulated amortization of $483 and
$402, respectively .................................... 5,652 2,917
Other ..................................................... 516 610
--------- ---------
$ 73,050 $ 60,129
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade ............................... $ 9,323 $ 6,000
Accrued expenses ..................................... 4,178 5,581
Current portion of obligation under capital lease .... 722 809
Current portion of long-term debt .................... 431 242
--------- ---------
Total current liabilities ................................. 14,654 12,632
Obligations under capital lease ........................... 1,674 2,199
Long-term debt, less current portion ...................... 10,511 6,097
Other long-term liabilities ............................... 364 383
Stockholders' equity:
Common stock, $0.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 7,791,579 at
October 31, 1998, and 7,761,544 at January 31, 1998 78 78
Additional paid-in capital ........................... 115,744 115,583
Accumulated deficit .................................. (69,975) (76,843)
--------- ---------
Total stockholders' equity ................................ 45,847 38,818
--------- ---------
$ 73,050 $ 60,129
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial
statements (unaudited).
1
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U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
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<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------ -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................ $ 34,090 $ 31,509 $ 100,509 $ 93,563
Cost of sales............................................ 10,387 9,799 30,676 29,238
----------- ----------- --------- ---------
Gross profit............................................. 23,703 21,710 69,833 64,325
Operating expenses:
Selling, general and administrative expenses........ 20,495 19,001 59,364 55,613
Depreciation and amortization....................... 818 895 2,891 2,750
----------- ----------- --------- ---------
21,313 19,896 62,255 58,363
----------- ----------- --------- ---------
Operating income......................................... 2,390 1,814 7,578 5,962
Interest expense, net.................................... 148 649 355 1,864
----------- ----------- --------- ---------
Income before income tax provision....................... 2,242 1,165 7,223 4,098
Income tax provision..................................... 285 0 355 0
----------- ----------- --------- ---------
Net income............................................... $ 1,957 $ 1,165 $ 6,868 $ 4,098
=========== =========== ========= =========
Net income per share - basic............................. $ .25 $ . 22 $ .88 $ .78
=========== =========== ========= =========
Net income per share - assuming dilution................. $ .25 $ .22 $ .86 $ .76
=========== =========== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial
statements (unaudited).
2
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U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
Nine Months Ended
October 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 6,868 $ 4,098
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................... 2,891 2,750
Changes in operating assets and liabilities:
Accounts receivable ........................................ (28) (2,412)
Inventory .................................................. (4,822) (913)
Other ...................................................... (467) (609)
Accounts payable-trade ..................................... 3,147 1,209
Accrued expenses ........................................... (1,442) (3,457)
-------- --------
Net cash provided by operating activities ............................ 6,147 666
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net ..................... (6,110) (4,140)
Disposal of Dallas facility ......................................... -- 1,000
Acquisition of businesses ........................................... (1,892) --
-------- --------
Net cash used in investing activities ............................... (8,002) (3,140)
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial public offering costs ....................................... (174) --
Proceeds from borrowings:
Revolving line of credit ......................................... 19,073 90,607
Other ............................................................ 125 --
Repayments of borrowings:
Revolving line of credit ........................................ (15,590) (86,514)
Term loans ...................................................... (410) (1,008)
Other ........................................................... (669) (620)
-------- --------
Net cash provided by financing activities ....................... 2,355 2,465
-------- --------
Net increase (decrease) in cash ...................................... 500 (9)
Cash at beginning of period .......................................... 365 374
-------- --------
Cash at end of period ................................................ $ 865 $ 365
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ............................................................. $ 369 $ 2,151
======== ========
Income taxes ......................................................... $ 136 $ --
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations ............................................ $ -- $ 696
======== ========
Note payable incurred in connection with acquisitions ................ $ 1,206 $ --
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial
statements (unaudited).
3
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U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements,
which include the accounts of U.S. Vision, Inc. and its wholly owned
subsidiaries (the "Company"), have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. All significant
intercompany transactions and accounts have been eliminated in consolidation. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim period are not necessarily indicative of
results that may be expected for the fiscal year ending January 31, 1999. These
statements should be read in conjunction with the Company's financial statements
and footnotes which are included in the annual report on Form 10-K for the
fiscal year ended January 31, 1998.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACQUISITION
On July 7, 1998, the Company acquired nine licensed optical retail
stores located within Sears full line stores and two medical center locations.
On October 4, 1998, the Company acquired all of the assets and inventory of
sixteen licensed optical departments from the Department Store Division of
Dayton Hudson. Both acquisitions were accounted for under the purchase method of
accounting. The operating results of these acquisitions are included in the
consolidated financial statements since the date of the acquisitions.
4. INVENTORY
Inventory is as follows (In thousands):
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October 31, January 31,
1998 1998
---- ----
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Finished goods................................................ $19,111 $14,695
Work-in-process............................................... 1,385 1,043
Raw materials................................................. 2,869 2,417
------- -------
$23,365 $18,155
======= =======
</TABLE>
5. INCOME TAXES
As of January 31, 1998, the Company had net operating loss carry
forwards of approximately $23,000,000 which will begin to expire in the year
2006. Approximately $12,500,000 of these carry forwards
4
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U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
are available to offset future taxable income without limitation and
approximately $10,500,000 of these carry forwards (the "Restricted NOLs") are
significantly limited due to ownership changes experienced by the Company. As a
result of these limitations, approximately $780,000 of the Restricted NOLs will
become available for use each year through the year 2008. The remaining
Restricted NOLs are expected to expire unutilized. A valuation allowance has
been established to fully reserve the future benefit of all the net operating
loss carry forwards.
6. NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
Statement 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. The Company has adopted this
method effective January 31, 1998, and has restated, where necessary, all prior
periods presented to conform to the Statement 128 requirements.
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For the Quarter Ended October 31, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net income per share-basic:
Income available to common stockholders 1,957,000 7,791,579 $ 0.25
========
Effect of Dilutive Securities:
Options 97,217
--------
Net income per share-assuming dilution:
Income available to common stockholders
Plus assumed conversions 1,957,000 7,888,796 $ 0.25
========= ========= ========
</TABLE>
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<CAPTION>
For the Quarter Ended October 31, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net income per share-basic:
Income available to common stockholders 1,165,000 5,261,544 $ 0.22
========
Effect of Dilutive Securities:
Options 107,157
---------
Net income per share-assuming dilution:
Income available to common stockholders
Plus assumed conversions 1,165,000 5,368,701 $ 0.22
========= ========= ========
</TABLE>
5
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U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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<CAPTION>
For the Nine Months Ended October 31, 1998
-----------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------------------------
<S> <C> <C> <C>
Net income per share-basic:
Income available to common stockholders 6,868,000 7,775,567 $0.88
====
Effect of Dilutive Securities:
Options 202,105
----------
Net income per share-assuming dilution:
Income available to common stockholders
Plus assumed conversions 6,868,000 7,977,672 $0.86
========== ========= ====
</TABLE>
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<CAPTION>
For the Nine Months Ended October 31, 1997
-----------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------------------------
<S> <C> <C> <C>
Net income per share-basic:
Income available to common stockholders 4,098,000 5,261,544 $0.78
====
Effect of Dilutive Securities:
Options 107,157
----------
Net income per share-assuming dilution:
Income available to common stockholders
Plus assumed conversions 4,098,000 5,368,701 $0.76
========== ========= ====
</TABLE>
Pro forma net income per share-basic and pro forma net income per
share-assuming dilution for the quarter and nine months ended October 31, 1997
was $0.22 and $0.74, respectively. Pro forma net income gives effect to the
initial public offering and the related pay down of the debt as of the beginning
of fiscal 1997. Pro forma net income per share-basic is calculated by dividing
net income after adjustment for applicable interest expense, net of tax
($579,000 and $1,676,000) by the adjusted number of weighted average shares
outstanding (7,761,544) after giving effect to the 2,500,000 shares sold to
repay $20,375,000 of debt. Pro forma net income per share-assuming dilution is
calculated by dividing net income after adjustment for applicable interest
expense, net of tax by the adjusted number of weighted average shares
outstanding during the period plus the dilutive effect of stock options
(107,157). (See Note 7 below).
7. RECAPITALIZATION AND IMPACT OF INITIAL PUBLIC OFFERING
On December 5, 1997, the Company completed an offering of 2,500,000
shares of common stock at an initial public offering price of $9.00 per share.
The net proceeds to the Company were used to: (i) repay the $8,837,000
outstanding balance (including any accrued interest thereon) of its 12%
subordinated
6
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U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
debentures; (ii) repay $6,600,000 of the term loan owed to Commerce Bank, N.A.;
and (iii) paydown $4,938,000 of the Company's revolving line of credit. In
conjunction with the sale of common stock in the offering, the Company
recapitalized its common stock by authorizing the declaration and payment of a
64-for-1 stock dividend. Also in conjunction with the public offering, the
holders of the Series A preferred stock and Series C preferred stock converted
all outstanding shares of the Series A preferred stock and Series C preferred
stock into common stock at the initial public offering price. The redemption
values of the Series A preferred stock and the Series C preferred stock plus
accumulated dividends as of the date of the conversion (October 31, 1997) were
approximately $16,853,000 and $7,969,000, respectively, resulting in the
issuance of 1,872,592 and 885,412 shares of common stock, respectively. All
references to per share data in the financial statements have been restated to
give effect to the stock dividend and conversion of the preferred stock.
7
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U.S. VISION, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data
expressed as a percentage of net sales for the periods indicated:
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Three Months Ended Nine Months Ended
October 31, October 31,
------------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 30.5 31.1 30.5 31.2
------- -------- ------- -------
Gross profit............................. 69.5 68.9 69.5 68.8
Operating expenses:
Selling, general and administrative..... 60.1 60.3 59.1 59.4
Depreciation and amortization........... 2.4 2.8 2.9 3.0
------- -------- -------- --------
Operating income............................. 7.0 5.8 7.5 6.4
Interest expense, net ....................... 0.4 2.1 0.3 2.0
------ -------- -------- --------
Income before tax provision ................. 6.6 3.7 7.2 4.4
Income tax provision ........................ 0.8 0.0 0.4 0.0
------ -------- -------- --------
Net income................................... 5.8% 3.7% 6.8% 4.4%
====== ======== ======== ========
</TABLE>
THREE MONTHS ENDED OCTOBER 31, 1998 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1997
Net sales increased $2.6 million, or 8.2%, from $31.5 million for the
three months ended October 31, 1997 to $34.1 million for the three months ended
October 31, 1998. A 3.8% increase in comparable store sales accounted for $1.2
million of the increase in net sales. New store openings, net of store
closings, accounted for the remaining $1.4 million of the increase. The increase
in comparable store sales was the result of an increase in the number of
eyeglasses sold, as well as an increase in sales of value added eyewear features
such as anti-reflective coating and accessory kits.
Cost of sales increased by $0.6 million, or 6.0%, from $9.8 million for
the three months ended October 31, 1997 to $10.4 million for the three months
ended October 31, 1998. As a percentage of net sales, cost of sales decreased
from 31.1% for the three months ended October 31, 1997 to 30.5% for the three
months ended October 31, 1998. The decrease was due to sales of higher margin
merchandise, controlling price discounts in the retail stores and the benefit of
additional discounts on inventory bulk purchases.
Selling, general and administrative expenses increased by $1.5 million,
or 7.9%, from $19.0 million for the three months ended October 31, 1997 to $20.5
million for the three months ended October 31, 1998. The dollar increase was
principally due to an increase in compensation and greater department store
rents which are tied directly to sales volume. As a percentage of net sales,
selling, general and administrative expenses remained relatively constant for
the three months ended October 31, 1997 and October 31, 1998 as the Company
continued to leverage its fixed expenses over a larger number of stores.
8
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U.S. VISION, INC.
Interest expense, net decreased by $0.5 million, or 77.2%, from $0.6
million for the three months ended October 31, 1997 to $0.1 million for the
three months ended October 31, 1998. The decrease was due to the repayment of
debt in connection with the completion of the initial public offering in
December 1997. See Note 7 to Notes to Condensed Consolidated Financial
Statements (Unaudited).
NINE MONTHS ENDED OCTOBER 31, 1998 COMPARED TO NINE MONTHS ENDED OCTOBER 31,
1997
Net sales increased $6.9 million, or 7.4%, from $93.6 million for the
nine months ended October 31, 1997 to $100.5 million for the nine months ended
October 31, 1998. A 5.8% increase in comparable store sales accounted for $5.2
million of the increase in net sales. New store openings, net of store
closings, accounted for the remaining $1.7 million of the increase. The increase
in comparable store sales was the result of an increase in the number of
eyeglasses sold, as well as an increase in sales of value added eyewear features
such as anti-reflective coating and accessory kits.
Cost of sales increased by $1.4 million, or 4.9%, from $29.2 million
for the nine months ended October 31, 1997 to $30.7 million for the nine months
ended October 31, 1998. The increase was due principally to the $6.9 million
increase in net sales. As a percentage of net sales, cost of sales decreased
from 31.2% for the nine months ended October 31, 1997 to 30.5% for the nine
months ended October 31, 1998. The decrease was due principally to sales of
higher margin merchandise, controlling price discounts in the retail stores and
the benefit of additional discounts on inventory bulk purchases.
Selling, general and administrative expenses increased by $3.8 million,
or 6.7%, from $55.6 million for the nine months ended October 31, 1997 to $59.4
million for the nine months ended October 31, 1998. The dollar increase was
principally due to an increase in compensation and greater department store
rents which are tied directly to sales volume. As a percentage of net sales,
selling, general and administrative expenses remained relatively constant for
the nine months ended October 31, 1997 and October 31, 1998, as revenue
increases enabled the Company to leverage its fixed expenses and take advantage
of operating efficiencies.
Depreciation and amortization increased by $0.1 million, or 5.1%, from
$2.8 million for the nine months ended October 31, 1997 to $2.9 million for the
nine months ended October 31, 1998 due principally to the increase in capital
expenditures associated with new store openings.
Interest expense, net decreased by $1.5 million, or 81.0%, from $1.9
million for the nine months ended October 31, 1997 to $0.4 million for the nine
months ended October 31, 1998. The decrease was due to the repayment of debt in
connection with the completion of the initial public offering in December 1997.
See Note 7 to Notes to Condensed Consolidated Financial Statements (Unaudited).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash source for the first nine months of fiscal
1998 was from operations. In the second quarter of 1998, the Company used excess
cash flow to pay the entire outstanding balance on its line of credit and an
outstanding term loan. At October 31, 1998 the Company had available cash and
cash equivalents of $865,000 compared to $365,000 at January 31, 1998.
For the nine months ended October 31, 1998, cash provided by operating
activities was $6.1 million compared to cash provided by operating activities of
$0.7 million for the nine months ended October 31, 1997. The $5.5 million
increase in cash provided by operating activities resulted from an increase in
net
9
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U.S. VISION, INC.
income and favorable changes in: (i) the collection of accounts receivable,
principally the result of one of the Company's host department stores
centralizing its accounts payable department; (ii) a decrease in accrued
interest expense due to the repayment of outstanding debt from proceeds of the
December 1997 initial public offering; (iii) timing of payments for compensation
and benefits; and (iv) the reduction of lease termination liabilities in fiscal
1997 as a result of the settlement of leases on freestanding stores closed in
fiscal 1995. These favorable increases in cash provided by operating activities
were offset by an increase in inventory as a result of $2.5 million in bulk
purchases during the third quarter, as well as acquisitions of businesses in the
second and third quarter of this year.
Cash used in investing activities was $8.0 million for the nine months
ended October 31, 1998 compared to $3.1 million for the nine months ended
October 31, 1997. The $4.9 million increase was a result of capital additions
for machinery and equipment in the manufacturing facility, professional
equipment for new store openings, sale of the Dallas lab during the third
quarter of fiscal 1997 and the acquisition of twenty-five licensed optical
retail stores and two medical center locations. See Note 3 to Notes to Condensed
Consolidated Financial Statements (Unaudited).
The Company's principal external source of liquidity is its revolving
line of credit with Commerce Bank, N.A. During the second quarter, the Company
entered into a new $20,000,000 revolving line of credit facility which bears
interest at the lower of the prime rate as published in The Wall Street Journal
or the thirty (30) day rate for United States Treasury Bills plus 250 basis
points, which was 6.79% as of October 31, 1998, and will mature two years after
its commencement date. As of October 31, 1998, the Company had $5.6 million
outstanding under its revolving line of credit and $14.4 million of
availability. The Company must maintain certain financial ratios pertaining to
its net worth, current ratio, and ratio of cash to fixed charges. The Company is
currently in compliance with all financial covenants under its revolving line of
credit.
Regarding other financing activities engaged in by the Company, in
December 1996, the Company borrowed $8,000,000 through the placement of a term
loan which carried a floating rate of 1.0% above the prime rate and was owed to
Commerce Bank, N.A. On July 31, 1998, the term loan was paid in full.
The Company received a commitment from Commerce BankLease, a unit of
Commerce Bank, N.A., for a $1,000,000 five-year equipment lease financing
facility. The lease financing facility is subject to the completion of all
required documentation.
Based upon its current operating and new store opening plans, the
Company believes that it can fund its working capital and capital expenditure
needs for the foreseeable future through borrowings under the revolving line of
credit and cash generated from operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statements of
Financial Accounting Standards No. 130, "Comprehensive Income: Financial
Statement Presentation" and No. 131, "Segment Disclosures and Related
Information," which are both effective for financial statements issued with
fiscal years beginning after December 15, 1997. The disclosure standards of FAS
130 and FAS 131 will have no impact on the Company's financial position or
results of operation.
YEAR 2000 COMPLIANCE
The Company's management recognizes the need to ensure that its
operations and relationships with host stores and other third parties will not
be adversely impacted by the Year 2000 issue. The Year 2000 problem is a result
of computer programs being written using two digits rather than four to define
10
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U.S. VISION, INC.
the applicable year. Any of the Company's programs that recognize a date using
"00" as the year 1900 rather than the Year 2000 could result in system failures
or miscalculations.
During the third quarter of fiscal 1998, the Company completed the
assessment of its internal critical and non-critical hardware and software.
Included in the Company's assessment was the identification of all critical and
non-critical computer programs and hardware, including environmental systems
that are dependent on embedded microchips, such as security systems and HVAC
systems. Based on its assessment, the Company determined a portion of its
software and certain hardware will require modification or replacement so that
those systems will properly utilize dates beyond December 31, 1999. The
Company's assessment indicated that its significant information technology
systems would not be affected. In addition, the Company is currently
implementing a Year 2000 point of sale and order entry system in its retail
locations and therefore does not anticipate having any Year 2000 compliance
issues with respect to the information technology systems to be utilized by its
retail stores.
The Company also depends on the systems of its suppliers and host
stores. Consequently, the Company is in the process of receiving adequate
assurances from its host stores that those systems on which the Company relies
are or will be Year 2000 compliant before the end of 1999.
To the extent possible, the Company will develop and implement
contingency plans designed to allow continued operations in the event of failure
of the Company's or third party systems to be Year 2000 compliant. These
contingency plans have not yet been developed, but are expected to be developed
and implemented by the end of 1999.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. Further,
the failure of the Company or third parties upon which the Company relies, to
identify Year 2000 issues and successfully and timely resolve them could have a
material adverse impact on the operations of the Company.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The Company occasionally makes forward-looking statements concerning
its plans, goals, product and service offerings, store openings and closings and
anticipated financial performance. These forward-looking statements may
generally be identified by introductions such as "outlook" for an upcoming
period of time, or words and phrases such as "should", "expect", "hope",
"plans", "projected", "believes", "forward-looking" (or variants of those words
and phrases) or similar language indicating the expression of an opinion or view
concerning the future.
These forward-looking statements are subject to risks and uncertainties
based on a number of factors and actual results or events may differ materially
from those anticipated by such forward-looking statements. These factors
include, but are not limited to: the Company's ability to maintain its
relationship with its host stores such as J.C. Penney and Sears, as well as with
Cole National Corporation, a competitor of the Company and the owner of the
Vision One managed vision care plan in which the Company participates; the
growth rate of the Company's revenue and market share; and the quality of the
Company's plans and strategies, and the ability of the Company to execute such
plans and strategies.
In addition, forward-looking statements concerning the Company's
expected revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the Company has no control, such as the performance of its host stores.
The Company does not plan to generally publicly update prior forward-looking
statements for unanticipated events or otherwise and, accordingly, prior
forward-looking statements should not be considered to be "fresh" simply because
the Company has not made additional comments on those forward-looking
statements.
11
<PAGE> 14
U.S. VISION, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS.
The following exhibits are filed as a part of this report:
Exhibit
Number Exhibit
------- -------
3.1* Restated Certificate of Incorporation of the Company
3.2* Bylaws of the Company
10.1+ Amended and Restated Loan and Security Agreement with Commerce
Bank, N.A.
10.2* Stock Option Plan, including form of Stock Option Agreement
10.3** J.C. Penney License Agreement
10.4** Vision Care Agreement
10.5+ Employment Agreement for William A. Schwartz, Jr.
10.6** Employment Agreement for Reid V. Eikner
10.7** Employment Agreement for George T. Gorman
10.8** Employment Agreement for Gayle E. Schmidt
10.9** Employment Agreement for George E. McHenry, Jr.
10.10** Form of Non-Statutory Option Agreement
10.11** Form of Indemnification Agreement
10.12** Stockholders' Agreement
10.13** Form of Sears Lease
10.14** DRPA Loan Documentation
21*** Subsidiaries of the Company
27.1++ Financial Data Schedule
27.2++ Restated Financial Data Schedule
27.3++ Restated Financial Data Schedule
* Previously filed as an exhibit to the Form S-1 (Reg. No.
333-35819) filed with the Commission on September 17, 1997.
** Previously filed as an exhibit to Amendment No. 1 to the Form
S-1 (Reg. No. 333-35819) filed with the Commission on October
29, 1997.
*** Previously filed as an exhibit to the Company's 10-K for the
period ended January 31, 1998 filed with the Commission on
April 30, 1998.
+ Previously filed as an exhibit to the Company's 10-Q for the
period ended July 31, 1998 filed with the Commission on
September 12, 1998.
++ Filed herewith.
B. REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Registrant during the
three (3) months ended October 31, 1998.
12
<PAGE> 15
U.S. VISION, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. VISION, INC.
-------------------
(Registrant)
December 14, 1998 /s/ Kathy G. Cullen
-------------------
Kathy G. Cullen, Chief Financial Officer
(Principal Financial Officer)
13
<PAGE> 16
U.S. VISION, INC.
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------- -------
3.1* Restated Certificate of Incorporation of the Company
3.2* Bylaws of the Company
10.1+ Amended and Restated Loan and Security Agreement with Commerce
Bank, N.A.
10.2* Stock Option Plan, including form of Stock Option Agreement
10.3** J.C. Penney License Agreement
10.4** Vision Care Agreement
10.5+ Employment Agreement for William A. Schwartz, Jr.
10.6** Employment Agreement for Reid V. Eikner
10.7** Employment Agreement for George T. Gorman
10.8** Employment Agreement for Gayle E. Schmidt
10.9** Employment Agreement for George E. McHenry, Jr.
10.10** Form of Non-Statutory Option Agreement
10.11** Form of Indemnification Agreement
10.12** Stockholders' Agreement
10.13** Form of Sears Lease
10.14** DRPA Loan Documentation
21*** Subsidiaries of the Company
27.1++ Financial Data Schedule
27.2++ Restated Financial Data Schedule
27.3++ Restated Financial Data Schedule
* Previously filed as an exhibit to the Form S-1 (Reg. No.
333-35819) filed with the Commission on September 17, 1997.
** Previously filed as an exhibit to Amendment No. 1 to the Form
S-1 (Reg. No. 333-35819) filed with the Commission on October
29, 1997.
*** Previously filed as an exhibit to the Company's 10-K for the
period ended January 31, 1998 filed with the Commission on
April 30, 1998.
+ Previously filed as an exhibit to the Company's 10-Q for the
period ended July 31, 1998 filed with the Commission on
September 12, 1998.
++ Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at October 31, 1998 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Nine Months Ended October
31, 1998 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 865,000
<SECURITIES> 0
<RECEIVABLES> 12,001,000
<ALLOWANCES> 0
<INVENTORY> 23,365,000
<CURRENT-ASSETS> 37,133,000
<PP&E> 61,872,000
<DEPRECIATION> (32,123,000)
<TOTAL-ASSETS> 73,050,000
<CURRENT-LIABILITIES> 14,654,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 45,769,000
<TOTAL-LIABILITY-AND-EQUITY> 73,050,000
<SALES> 100,509,000
<TOTAL-REVENUES> 100,509,000
<CGS> 30,676,000
<TOTAL-COSTS> 62,255,000<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,000
<INCOME-PRETAX> 7,223,000
<INCOME-TAX> 355,000
<INCOME-CONTINUING> 6,868,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,868,000
<EPS-PRIMARY> .88
<EPS-DILUTED> .86
<FN>
<F1>Provision for doubtful accounts and inventory provision included in total
costs.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at October 31, 1997 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Nine Months Ended October
31, 1997 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 365,000
<SECURITIES> 0
<RECEIVABLES> 11,118,000
<ALLOWANCES> 0
<INVENTORY> 19,038,000
<CURRENT-ASSETS> 30,927,000
<PP&E> 52,793,000
<DEPRECIATION> (28,562,000)
<TOTAL-ASSETS> 59,114,000
<CURRENT-LIABILITIES> 22,985,000
<BONDS> 0
0
24,822,000
<COMMON> 25,000
<OTHER-SE> (6,939,000)
<TOTAL-LIABILITY-AND-EQUITY> 59,114,000
<SALES> 93,563,000
<TOTAL-REVENUES> 93,563,000
<CGS> 29,238,000
<TOTAL-COSTS> 58,363,000<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,864,000
<INCOME-PRETAX> 4,098,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,098,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,098,000
<EPS-PRIMARY> .78
<EPS-DILUTED> .76
<FN>
<F1>Provision for doubtful accounts and inventory provision included in total
costs.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at July 31, 1998 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Six Months Ended July 31,
1998 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JUL-31-1998
<CASH> 579,000
<SECURITIES> 0
<RECEIVABLES> 11,466,000
<ALLOWANCES> 0
<INVENTORY> 19,952,000
<CURRENT-ASSETS> 32,549,000
<PP&E> 59,205,000
<DEPRECIATION> (31,359,000)
<TOTAL-ASSETS> 66,099,000
<CURRENT-LIABILITIES> 14,139,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 43,812,000
<TOTAL-LIABILITY-AND-EQUITY> 66,099,000
<SALES> 66,419,000
<TOTAL-REVENUES> 66,419,000
<CGS> 20,289,000
<TOTAL-COSTS> 40,942,000<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,000
<INCOME-PRETAX> 4,981,000
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 4,911,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,911,000
<EPS-PRIMARY> .63
<EPS-DILUTED> .61
<FN>
<F1>Provision for doubtful accounts and inventory provision included in total
costs.
</FN>
</TABLE>
