<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, 1999.
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)
<TABLE>
<S> <C>
DELAWARE 22-3032948
-------- ----------
(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 June 1, 1999, there were 7,793,807 shares of the registrant's common stock
outstanding.
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U.S. VISION, INC.
TABLE OF CONTENTS
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<CAPTION>
Page
Number
------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
April 30, 1999 and January 31, 1999 ...............................................1
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended April 30, 1999 and 1998.........................................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended April 30, 1999 and 1998.........................................3
Notes to Condensed Consolidated Financial Statements (Unaudited)...................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................6
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 per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 731 $ 693
Accounts receivable 14,843 13,520
Inventory 23,969 22,818
Prepaid expenses and other 1,048 847
---------------------------
Total current assets 40,591 37,878
Property, plant, and equipment, net 33,351 31,634
Goodwill, net of accumulated amortization of $637 and $570,
respectively 5,498 5,565
Other 476 517
---------------------------
$ 79,916 $ 75,594
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade $ 9,998 $ 7,894
Accrued expenses 4,471 5,238
Current portion of obligations under capital lease 595 660
Current portion of long-term debt 847 934
---------------------------
Total current liabilities 15,911 14,726
Obligations under capital lease 1,417 1,542
Long-term debt, less current portion 13,519 12,527
Other long-term liabilities 329 329
Stockholders' equity:
Common stock, $0.01 par value:
Authorized shares--15,000,000, issued and outstanding
shares--7,793,807, at April 30, 1999 and
January 31, 1999 78 78
Additional paid-in capital 115,766 115,766
Accumulated deficit (67,104) (69,374)
---------------------------
Total stockholders' equity 48,740 46,470
---------------------------
$ 79,916 $ 75,594
===========================
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
1
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U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
Net sales $37,841 $34,666
Cost of sales 11,661 10,642
-------------------------
Gross profit 26,180 24,024
Operating expenses:
Selling, general, and administrative
expenses 21,901 19,957
Depreciation and amortization 1,348 1,132
-------------------------
23,249 21,089
-------------------------
Operating income 2,931 2,935
Interest expense, net 97 118
-------------------------
Income before income tax provision 2,834 2,817
Income tax provision 564 --
-------------------------
Net income $ 2,270 $ 2,817
=========================
Net income per share $ 0.29 $ 0.36
=========================
Net income per share - assuming dilution $ 0.29 $ 0.35
=========================
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
2
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U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1999 1998
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,270 $ 2,817
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,348 1,132
Changes in operating assets and liabilities:
Accounts receivable (1,323) (68)
Inventory (1,151) (176)
Other (164) 100
Accounts payable - trade 2,104 2,902
Accrued expenses (767) 983
----------------------------
Net cash provided by operating activities 2,317 7,690
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment, net (2,994) (1,812)
----------------------------
Net cash used in investing activities (2,994) (1,812)
CASH FLOWS FROM FINANCING ACTIVITIES:
1997 initial public offering costs -- (94)
Proceeds from borrowings:
Revolving line of credit 16,281 3,881
Other 48 --
Repayments of borrowings:
Revolving line of credit (15,175) (5,788)
Term loans (71) (51)
Other (368) (213)
----------------------------
Net cash provided by (used in) financing activities 715 (2,265)
----------------------------
Net increase in cash 38 3,613
Cash at beginning of period 693 365
----------------------------
Cash at end of period $ 731 $ 3,978
============================
</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
of U.S. Vision, Inc. and its wholly owned subsidiaries have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting. Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the company's audited
consolidated financial statements and notes which are included in the company's
annual report on Form 10-K for the fiscal year ended January 31, 1999. All
significant intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation of
the interim financial information 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, 2000.
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,
1999 1999
-----------------------------
<S> <C> <C>
Finished goods $19,918 $18,782
Work-in-process 1,132 1,230
Raw materials 2,919 2,806
-----------------------------
$23,969 $22,818
=============================
</TABLE>
4. INCOME TAXES
As of January 31, 1999, the company had net operating loss carry
forwards of approximately $16,000,000, which will begin to expire in the year
2006. Approximately $6,300,000 of these carry forwards are available to offset
future taxable income without limitation and approximately $9,700,000 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
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U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. NET INCOME PER SHARE
The following table (in thousands except per share data) presents the
calculation of earnings per share for the periods indicated.
<TABLE>
<CAPTION>
Quarter ended April 30,
1999 1998
----------------------
<S> <C> <C>
Net income $2,270 $2,817
======================
Basic average common shares outstanding 7,794 7,762
Effect of dilutive securities:
Options -- 222
----------------------
Diluted average common shares outstanding 7,794 7,984
----------------------
Net income per share $ 0.29 $ 0.36
Net income per share - assuming dilution $ 0.29 $ 0.35
</TABLE>
Options to purchase additional shares of common stock have no impact on
earnings per share for the quarter ended April 30, 1999 as their effect was
antidilutive.
5
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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:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1999 1998
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<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 30.8 30.7
------- -------
Gross profit 69.2 69.3
Operating expenses:
Selling, general and administrative 57.9 57.5
Depreciation and amortization 3.6 3.3
------- -------
Operating income 7.7 8.5
Interest expense, net 0.2 0.4
------- -------
Income before income tax provision 7.5 8.1
Income tax provision 1.5 0.0
------- -------
Net income 6.0% 8.1%
======= =======
</TABLE>
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THREE MONTHS ENDED APRIL 30, 1998
Net sales increased $3.1 million, or 8.9%, from $34.7 million for the
three months ended April 30, 1998 to $37.8 million for the three months ended
April 30, 1999. The increase in net sales was primarily attributable to sales
generated by the sixty new stores opened by the company during the past twelve
months, twenty of which were in Canada. Comparable store sales increased by 0.2%
during the three months ended April 30, 1999 compared to the same period last
year.
Cost of sales as a percentage of net sales remained relatively constant
at 30.8%.
Selling, general and administrative expenses increased by $1.9 million,
or 9.5%, from $20.0 million for the three months ended April 30, 1998 to $21.9
million for the three months ended April 30, 1999. This increase was principally
due to 34 new store openings in this quarter compared to 3 store openings in the
first quarter of fiscal 1998. In addition to normal operating expenses, all new
store pre-opening costs are expensed as incurred.
Depreciation and amortization increased by $0.2 million, or 18.2%, from
$1.1 million for the three months ended April 30, 1998 to $1.3 million for the
three months ended April 30, 1999. This was due to increased amortization of
goodwill as a result of the acquisition of businesses during the second and
third quarter of fiscal 1998. In addition, depreciation expense increased due to
capital expenditures associated with store openings and the purchase of
additional coating machinery for the manufacturing facility.
6
<PAGE> 9
U.S. VISION, INC.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary sources of cash for the first three months of
fiscal 1999 were from operations and the company's revolving line of credit.
Cash and working capital at April 30, 1999 were $731,000 and $24.7 million,
respectively, compared to $693,000 and $23.2 million, respectively, at January
31, 1999.
For the three months ended April 30, 1999, cash provided by operating
activities was $2.3 million compared to cash provided by operating activities of
$7.7 million for the three months ended April 30, 1998. The $5.4 million
decrease resulted from a decrease in net income and increases in: (a) accounts
receivable, principally the result of the increase in net sales; (b) higher
inventory as a result of more store openings as well as the introduction of
higher priced branded product; and (c) the timing of payments for compensation
and benefits.
Cash used in investing activities in the first three months of fiscal
1999 was $3.0 million compared to $1.8 million in the first three months of
fiscal 1998. Capital expenditures during the first three months of fiscal 1999
of $3.0 million were primarily for new store openings, new laboratory equipment
and development work on the company's integrated management information system.
The company's principal external source of liquidity is its $20.0
million revolving line of credit with Commerce Bank, N.A. The revolving line of
credit facility 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 6.96% as of April 30, 1999, matures in
June 2000 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, 1999, the
company had $9.4 million outstanding under its revolving line of credit and
$10.6 million of availability. The loan agreement prohibits the payment of
dividends to 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.
In July 1998, 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.
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
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
7
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U.S. VISION, INC.
environmental systems that are dependent on embedded microchips, such as
security systems and VAC systems. Based on its assessment, the company
determined that its significant information technology systems would not be
affected, but a portion of its non-critical programs and certain hardware would
require modification or replacement. The company has made the necessary
modifications to the non-critical programs and hardware so that these systems
can properly utilize dates beyond December 31, 1999. The total cost of the
modifications was less than $100,000. In addition, the company is currently
developing a Year 2000 compliant 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.
The company has developed and will 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.
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; the company's ability to
effectively manage its business functions while growing the company's business
in a rapidly changing environment; 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
8
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U.S. VISION, INC.
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
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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:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
3.1* Restated Certificate of Incorporation of the Company
3.2* Bylaws of the Company
10.1* Loan and Security Agreement between the Company and Commerce Bank, as amended
10.2* Stock Option Plan, including form of Stock Option Agreement
10.3** Subordinated Note Purchase Agreement
10.4** Amendment to Subordinated Note Purchase Agreement
10.5** J.C. Penney License Agreement
10.6** Vision Care Agreement
10.7*** Employment Agreement for William A. Schwartz, Jr.
10.8*** Form of Employment Severance Agreement
10.9** Form of Non-Statutory Option Agreement
10.10** Form of Indemnification Agreement
10.11** Stockholders' Agreement
10.12** Form of Sears Lease
10.13** Commerce Bank Mortgages and Schedules
10.14** DRPA Loan Documentation
27+ Financial Data Schedule
-----------------------------------------------------------------------------------------------
* Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819) filed with the
SEC 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 SEC on October 29, 1997.
*** Previously filed as an exhibit to the company's report on Form 10-K for the fiscal
year ended January 31, 1999, filed with the SEC on April 30, 1999.
+ Filed herewith.
</TABLE>
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the company during the
three (3) months ended April 30, 1999.
10
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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 11, 1999 /s/Kathy G. Cullen
--------------------------------------------
Kathy G. Cullen, Chief Financial Officer
(Principal Financial and Accounting Officer)
11
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U.S. VISION, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
3.1* Restated Certificate of Incorporation of the Company
3.2* Bylaws of the Company
10.1* Loan and Security Agreement between the Company and Commerce Bank, as amended
10.2* Stock Option Plan, including form of Stock Option Agreement
10.3** Subordinated Note Purchase Agreement
10.4** Amendment to Subordinated Note Purchase Agreement
10.5** J.C. Penney License Agreement
10.6** Vision Care Agreement
10.7*** Employment Agreement for William A. Schwartz, Jr.
10.8*** Form of Employment Severance Agreement
10.9** Form of Non-Statutory Option Agreement
10.10** Form of Indemnification Agreement
10.11** Stockholders' Agreement
10.12** Form of Sears Lease
10.13** Commerce Bank Mortgages and Schedules
10.14** DRPA Loan Documentation
27+ Financial Data Schedule
-----------------------------------------------------------------------------------------------
* Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819) filed with the
SEC 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 SEC on October 29, 1997.
*** Previously filed as an exhibit to the company's report on Form 10-K for the fiscal
year ended January 31, 1999, filed with the SEC on April 30, 1999.
+ Filed herewith.
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at April 30, 1999 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Three Months Ended April
30, 1999 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 731,000
<SECURITIES> 0
<RECEIVABLES> 14,843,000
<ALLOWANCES> 0
<INVENTORY> 23,969,000
<CURRENT-ASSETS> 40,591,000
<PP&E> 66,937,000
<DEPRECIATION> 33,586,000
<TOTAL-ASSETS> 79,916,000
<CURRENT-LIABILITIES> 15,911,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 48,662,000
<TOTAL-LIABILITY-AND-EQUITY> 79,916,000
<SALES> 37,841,000
<TOTAL-REVENUES> 37,841,00
<CGS> 11,661,000
<TOTAL-COSTS> 23,249,000<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,000
<INCOME-PRETAX> 2,834,000
<INCOME-TAX> 564,000
<INCOME-CONTINUING> 2,270,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,270,000
<EPS-BASIC> .29
<EPS-DILUTED> .29
<FN>
<F1>Provision for doubtful accounts and inventory provision included in total
costs.
</FN>
</TABLE>
