<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 APRIL 30, 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)
DELAWARE 22-3032948
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 HARMON DRIVE, GLEN OAKS INDUSTRIAL PARK, GLENDORA, NEW JERSEY 08012
- --------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(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 June 1, 1998, there were 7,761,544 shares of the registrant's common stock
outstanding.
================================================================================
<PAGE> 2
U.S. VISION, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
April 30, 1998 (Unaudited) and January 31, 1998...................................1
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended April 30, 1998 and 1997........................................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended April 30, 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 ....................................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................10
SIGNATURES ..................................................................................11
</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)
<TABLE>
<CAPTION>
(Unaudited)
ASSETS April 30, January 31,
1998 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash ....................................................... $ 3,978 $ 365
Accounts receivable ........................................ 11,798 11,730
Inventory .................................................. 18,331 18,155
Prepaid expenses and other ................................. 286 349
------------ ------------
Total current assets ............................................ 34,393 30,599
Property, plant and equipment, net .............................. 26,706 26,003
Goodwill, net of accumulated amortization of $423 and
$402, respectively .......................................... 2,896 2,917
Other ........................................................... 572 610
------------ ------------
$ 64,567 $ 60,129
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade ..................................... $ 8,902 $ 6,000
Accrued expenses ........................................... 6,569 5,581
Current portion of obligation under capital lease .......... 802 809
Current portion of long-term debt .......................... 241 242
------------ ------------
Total current liabilities ....................................... 16,514 12,632
Obligations under capital lease ................................. 2,004 2,199
Long-term debt, less current portion ............................ 4,130 6,097
Other long-term liabilities ..................................... 379 383
Stockholders' equity:
Common stock, $0.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 7,761,544 at
April 30, 1998, and January 31, 1998 .................... 78 78
Additional paid-in capital ................................. 115,489 115,583
Accumulated deficit ........................................ (74,027) (76,843)
------------ ------------
Total stockholders' equity ...................................... 41,450 38,818
------------ ------------
$ 64,567 $ 60,129
============ ============
</TABLE>
See accompanying notes to condensed consolidated
financial statements (unaudited).
1
<PAGE> 4
U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales .................................................. $ 34,666 $ 31,239
Cost of sales .............................................. 10,642 9,642
------------ ------------
Gross profit ............................................... 24,024 21,597
Operating expenses:
Selling, general and administrative expenses .......... 19,957 18,284
Depreciation and amortization ......................... 1,132 943
------------ ------------
21,089 19,227
------------ ------------
Operating income ...................................... 2,935 2,370
Interest expense, net ................................. 118 590
------------ ------------
Net income ................................................. $ 2,817 $ 1,780
============ ============
Net income per share - basic ............................... $ .36 $ .34
============ ============
Net income per share - assuming dilution ................... $ .35 $ .33
============ ============
</TABLE>
See accompanying notes to condensed consolidated
financial statements (unaudited).
2
<PAGE> 5
U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 2,817 $ 1,780
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .............................. 1,132 943
Changes in operating assets and liabilities:
Accounts receivable ................................... (68) (1,023)
Inventory ............................................. (176) (1,081)
Other ................................................. 98 (179)
Accounts payable-trade ................................ 2,902 1,637
Accrued expenses ...................................... 984 (161)
------------ ------------
Net cash provided by operating activities........................ 7,689 1,916
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net ................ (1,812) (1,302)
------------ ------------
Net cash used in investing activities .......................... (1,812) (1,302)
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial public offering costs .................................. (94) --
Proceeds from borrowings:
Revolving line of credit .................................... 25,801 28,393
Repayments of borrowings:
Revolving line of credit ................................... (27,708) (28,425)
Term loans ................................................. (51) (336)
Other ...................................................... (212) (184)
------------ ------------
Net cash used in financing activities ...................... (2,264) (552)
------------ ------------
Net increase in cash ............................................ 3,613 62
Cash at beginning of period ..................................... 365 374
------------ ------------
Cash at end of period ........................................... $ 3,978 $ 436
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid ................................................... $ 126 $ 1,043
============ ============
Capital lease obligations incurred .............................. $ -- $ 37
============ ============
</TABLE>
See accompanying notes to condensed consolidated
financial statements (unaudited).
3
<PAGE> 6
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. INVENTORY
Inventory is as follows (In thousands):
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
------------ ------------
<S> <C> <C>
Finished goods .................... $ 14,901 $ 14,695
Work-in-process ................... 963 1,043
Raw materials ..................... 2,467 2,417
------------ ------------
$ 18,331 $ 18,155
============ ============
</TABLE>
4. 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 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.
4
<PAGE> 7
U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. 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.
<TABLE>
<CAPTION>
For the Quarter Ended April 30, 1998
--------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------------------------------
<S> <C> <C> <C>
Net income per share - basic:
Income available to common stockholders 2,817,000 7,761,544 $ 0.36
=======
Effect of Dilutive Securities:
Options 221,994
---------
Net income per share - assuming dilution:
Income available to common stockholders
Plus assumed conversions 2,817,000 7,983,538 $ 0.35
========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended April 30, 1997
-------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------------------------------------------------------
<S> <C> <C> <C>
Net income per share - basic:
Income available to common stockholders 1,780,000 5,261,544 $ 0.34
=======
Effect of Dilutive Securities:
Options 107,157
----------
Net income per share - assuming dilution:
Income available to common stockholders
Plus assumed conversions 1,780,000 5,368,701 $ 0.33
========= ========== =======
</TABLE>
Pro forma net income per share - basic and pro forma net income per
share - assuming dilution for the three months ended April 30, 1997 was $0.30.
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 ($549,000) 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 number of shares outstanding during the period plus the dilutive effect
of stock options (107,157). (See Note 6 below).
6. 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 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
5
<PAGE> 8
U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
6
<PAGE> 9
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:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales ........................................ 100.0% 100.0%
Cost of sales .................................... 30.7 30.9
-------- --------
Gross profit ................................. 69.3 69.1
Operating expenses:
Selling, general and administrative ......... 57.5 58.5
Depreciation and amortization ............... 3.3 3.0
-------- --------
Operating income ................................. 8.5 7.6
Interest expense, net ............................ .4 1.9
-------- --------
Net income ....................................... 8.1% 5.7%
======== ========
</TABLE>
THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO THREE MONTHS ENDED APRIL 30, 1997
Net sales increased $3.4 million, or 11.0%, from $31.2 million for the
three months ended April 30, 1997 to $34.7 million for the three months ended
April 30, 1998. A 10.7% increase in comparable store sales accounted for $3.2
million of the increase in net sales and new store openings accounted for the
remaining $0.2 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 $1.0 million, or 10.4%, from $9.6 million for
the three months ended April 30, 1997 to $10.6 million for the three months
ended April 30, 1998. The increase was due principally to the $3.4 million
increase in net sales. As a percentage of net sales, cost of sales remained
relatively constant, decreasing slightly from 30.9% for the three months ended
April 30, 1997 to 30.7% for the three months ended April 30, 1998.
Selling, general and administrative expenses increased by $1.7 million,
or 9.2%, from $18.3 million for the three months ended April 30, 1997 to $20.0
million for the three months ended April 30, 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 decreased from 58.5% for the three
months ended April 30, 1997 to 57.5% for the three months ended April 30, 1998,
as revenue increases enabled the Company to leverage its fixed expenses and take
advantage of operating efficiencies.
7
<PAGE> 10
U.S. VISION, INC.
Depreciation and amortization increased by $0.2 million, or 20.0%, from
$0.9 million for the three months ended April 30, 1997 to $1.1 million for the
three months ended April 30, 1998 due to the increase in capital expenditures
associated with the implementation of new management information systems.
Interest expense, net decreased by $0.5 million, or 80.0%, from $0.6
million for the three months ended April 30, 1997 to $0.1 million for the three
months ended April 30, 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 6 to Notes to Condensed Consolidated Financial Statements (Unaudited).
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash source for the first quarter of fiscal 1998 was
from operations. The Company used excess cash flow to pay the entire
outstanding balance on its line of credit. At April 30, 1998 the Company had
available cash and cash equivalents of $4.0 million compared to $365,000 at
January 31, 1998.
For the quarter ended April 30, 1998, cash provided by operating
activities was $7.7 million compared to $1.9 million for the quarter ended April
30, 1997. The $5.8 million increase in cash provided by operating activities
resulted from an increase in net income and favorable increases in accrued
expenses and accounts payable due to purchases of materials and advertising to
support first quarter revenues.
Cash used in investing activities included net capital additions of
$1.8 million for the quarter ended April 30, 1998. The majority of the capital
additions were for store fixtures and leasehold improvements for new retail
stores and the remodeling of existing stores, machinery and equipment in the
manufacturing facility, and development costs of the new management information
systems.
The Company's principal external source of liquidity is its $7.0
million revolving line of credit with Commerce Bank, N.A. The revolving line of
credit facility carries a floating interest rate of 0.5% above the prime rate,
which was 8.5% on April 30, 1998, is due December 1999 and renews automatically
for a one-year period, subject to either party's right to terminate by notice of
non-renewal. As of April 30, 1998, the Company had no outstanding balance under
its revolving line of credit and $7.0 million of availability. The loan
agreement prohibits the payment of dividends to common stockholders and contains
customary covenants. The Company must also 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 and
management does not believe that the financial covenants set forth in its
revolving line of credit will have an adverse impact on its operations or future
plans.
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 is owed to Commerce Bank, N.A., carries a floating rate of 1.0%
above the prime rate, which was 8.5% on April 30, 1998. The term loan is secured
by substantially all the assets of the Company. The balance of the term loan, as
of April 30, 1998, was $214,000.
In June 1998, the Company received a commitment from Commerce Bank,
N.A. for a new $20,000,000 revolving line of credit facility which will bear
interest at the lower of prime rate or thirty (30) day United States Treasury
Bills plus 250 basis points and will mature two years after its commencement
date. This facility will replace the Company's existing revolving credit
facility. The Company also received
8
<PAGE> 11
U.S. VISION, INC.
a commitment from Commerce BankLease, a unit of Commerce Bank, N.A., for a
$1,000,000 five-year equipment lease financing facility. Both the new revolving
credit facility and the lease financing facility are 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.
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.
9
<PAGE> 12
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 part of this report:
EXHIBIT
NO. DESCRIPTION
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
No reports on Form 8-K have been filed by the Registrant during the
three (3) months ended April 30, 1998.
10
<PAGE> 13
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)
June 12, 1998 /s/ Kathy G. Cullen
-------------------------------------------
Kathy G. Cullen, Chief Financial Officer
(Principal Financial Officer)
11
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT APRIL 30, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL
30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 3,978,000
<SECURITIES> 0
<RECEIVABLES> 11,798,000
<ALLOWANCES> 0
<INVENTORY> 18,331,000
<CURRENT-ASSETS> 34,393,000
<PP&E> 57,147,000
<DEPRECIATION> 30,441,000
<TOTAL-ASSETS> 64,567,000
<CURRENT-LIABILITIES> 16,514,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 41,462,000
<TOTAL-LIABILITY-AND-EQUITY> 64,567,000
<SALES> 34,666,000
<TOTAL-REVENUES> 34,666,000
<CGS> 10,642,000
<TOTAL-COSTS> 21,089,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,000
<INCOME-PRETAX> 2,817,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,817,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,817,000
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
