<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 JULY 31, 2000.
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)
(856) 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 September 1, 2000 there were 7,793,807 shares of the registrant's common
stock outstanding.
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U.S. VISION, INC.
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
July 31, 2000 and January 31, 2000 ............................1
Condensed Consolidated Statements of Income (Unaudited)
Three and Six Months Ended July 31, 2000 and 1999..............2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended July 31, 2000 and 1999........................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 4. Submission of Matters to a Vote of Security Holders............9
Item 6. Exhibits and Reports on Form 8-K..............................10
SIGNATURES ..............................................................11
<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>
July 31, January 31,
2000 2000
----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 251 $ 454
Accounts receivable 10,828 12,006
Inventory 22,633 23,785
Prepaid expenses and other 931 542
----------------------
Total current assets 34,643 36,787
Property, plant, and equipment, net 39,466 37,890
Goodwill, net of accumulated amortization of $1,042 and $868,
respectively 6,531 6,705
Other 1,368 1,651
----------------------
$ 82,008 $ 83,033
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade $ 9,217 $ 10,094
Accrued expenses 5,363 5,834
Current portion of obligations under capital lease 718 646
Current portion of long-term debt 720 1,087
----------------------
Total current liabilities 16,018 17,661
Obligations under capital lease, less current portion 1,931 1,759
Long-term debt, less current portion 16,069 18,962
Stockholders' equity:
Common stock, $0.01 par value:
Authorized shares--15,000,000, issued and outstanding
shares--7,793,807 78 78
Additional paid-in capital 115,766 115,766
Accumulated deficit (67,854) (71,193)
----------------------
Total stockholders' equity 47,990 44,651
----------------------
$ 82,008 $ 83,033
======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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 Six Months Ended
July 31, July 31,
-------------------------------------------
2000 1999 2000 1999
-------------------------------------------
<S> <C> <C> <C> <C>
Net sales $36,771 $35,601 $78,665 $73,442
Cost of sales 11,161 10,820 24,015 22,481
-------------------------------------------
Gross profit 25,610 24,781 54,650 50,961
Operating expenses:
Selling, general, and administrative
expenses 23,326 21,947 48,389 43,848
Depreciation and amortization 1,135 1,399 2,493 2,747
-------------------------------------------
24,461 23,346 50,882 46,595
-------------------------------------------
Operating income 1,149 1,435 3,768 4,366
Interest expense, net 98 91 247 188
-------------------------------------------
Income before income tax provision 1,051 1,344 3,521 4,178
Income tax provision 57 164 182 728
-------------------------------------------
Net income $ 994 $ 1,180 $ 3,339 $ 3,450
===========================================
Net income per share $ 0.13 $ 0.15 $ 0.43 $ 0.44
===========================================
Net income per share - assuming dilution $ 0.13 $ 0.15 $ 0.43 $ 0.44
===========================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
2000 1999
----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,339 $ 3,450
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,493 2,747
Changes in operating assets and liabilities:
Accounts receivable 1,178 (2,061)
Inventory 1,152 (2,519)
Other (116) (351)
Accounts payable - trade (877) 2,626
Accrued expenses (471) (747)
----------------------
Net cash provided by operating activities 6,698 3,145
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment, net (3,400) (5,573)
----------------------
Net cash used in investing activities (3,400) (5,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings:
Revolving line of credit 36,091 31,697
Other 300 106
Repayments of borrowings:
Revolving line of credit (38,846) (28,350)
Term loans (203) (165)
Other (843) (712)
----------------------
Net cash provided by (used in) financing activities (3,501) 2,576
----------------------
Net increase (decrease) in cash (203) 148
Cash at beginning of period 454 693
----------------------
Cash at end of period $ 251 $ 841
======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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
of U.S. Vision, Inc. and its wholly owned subsidiaries have been prepared in
accordance with accounting principles generally accepted in the United States
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, 2000. 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, 2001.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. INVENTORY
Inventory is as follows (in thousands):
July 31, January 31,
2000 2000
-------------------
Finished goods $22,633 $22,915
Work-in-process 0 870
-------------------
$22,633 $23,785
====================
4. INCOME TAXES
As of January 31, 2000, the Company had net operating loss carry
forwards of approximately $15,400,000 which will begin to expire in the year
2006. Approximately $5,700,000 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. Approximately $780,000 of the Restricted NOLs will become
available for use each year through the year 2008. Approximately $3,400,000 of
the Restricted NOLs are expected to expire unutilized.
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>
Three Months Ended Six Months Ended
July 31, July 31,
----------------- -----------------
2000 1999 2000 1999
----------------- -----------------
<S> <C> <C> <C> <C>
Net income $ 994 $1,180 $3,339 $3,450
================= =================
Basic average common shares outstanding 7,794 7,794 7,794 7,794
Effect of dilutive securities:
Options -- -- -- --
----------------- -----------------
Diluted average common shares outstanding 7,794 7,794 7,794 7,794
----------------- -----------------
Net income per share $ 0.13 $ 0.15 $ 0.43 $ 0.44
Net income per share - assuming dilution $ 0.13 $ 0.15 $ 0.43 $ 0.44
</TABLE>
Options to purchase additional shares of common stock have no impact on
earnings per share for the three months and six months ended July 31, 2000 and
1999 as their effect was antidilutive.
6. CLOSURE OF FRAME MANUFACTURING FACILITY
In fiscal 1999 the company's board of directors approved a plan to
close its plastic frame manufacturing facility, located in Florida. The company
has relocated the importing and distribution of frames, previously manufactured
or imported in Florida, to its Glendora, NJ distribution facility. In connection
with this plan, the company recorded a charge of $2,835,000 in the fourth
quarter of fiscal 1999, which was comprised of $2,224,000 in write-offs of
inventory used solely in the manufacturing process, $161,000 in machinery and
equipment, $250,000 in buildings and $200,000 for uncollectible receivables. The
write-offs associated with the buildings, machinery and equipment were intended
to reduce their carrying costs to their estimated net realizable value. The
company also incurred approximately $210,000 in additional payroll costs between
February 1 and July 31, 2000, which was expensed when paid.
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 Six Months Ended
July 31, July 31,
---------------- ----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 30.4 30.4 30.5 30.6
----- ----- ----- -----
Gross profit 69.6 69.6 69.5 69.4
Operating expenses:
Selling, general and administrative 63.4 61.7 61.5 59.7
Depreciation and amortization 3.1 3.9 3.2 3.7
----- ----- ----- -----
Operating income 3.1 4.0 4.8 6.0
Interest expense, net 0.2 0.2 0.3 0.3
----- ----- ----- -----
Income before income tax provision 2.9 3.8 4.5 5.7
Income tax provision 0.2 0.5 0.2 1.0
----- ----- ----- -----
Net income 2.7% 3.3% 4.3% 4.7%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
Net sales increased $1.2 million, or 3.3%, from $35.6 million for the
three months ended July 31, 1999 to $36.8 million for the three months ended
July 31, 2000. A 2.2% increase in comparable-store sales accounted for $0.8
million of the increase in net sales. New store openings, net of store closings,
accounted for the remaining $0.4 million of the increase. The increase in
comparable store sales was primarily the result of an increase in the number of
eyeglasses sold, which was driven by promotional and discounting activity.
Cost of sales, as a percentage of net sales, remained constant at 30.4%
for the three months ended July 31, 2000.
Selling, general and administrative expenses, as a percentage of net
sales, increased by 1.7% from 61.7% for the three months ended July 31, 1999 to
63.4% for the three months ended July 31, 2000. The increase was principally due
to greater expenses associated with the large number of new store openings since
July 1999, as new stores have a lower average sales volume than mature stores.
The increase was also attributable to an overall increase in base salary rates
as a result of the competitive labor market due to low unemployment.
SIX MONTHS ENDED JULY 31, 2000 COMPARED TO SIX MONTHS ENDED JULY 31, 1999
Net sales increased $5.3 million, or 7.1%, from $73.4 million for the
six months ended July 31, 1999 to $78.7 million for the six months ended July
31, 2000. The increase in net sales was attributable to a 4.0% increase in
comparable-store sales during the six months ended July 31, 2000 compared to the
6
<PAGE> 9
U.S. VISION, INC.
same period last year. The increase was also a result of additional sales
generated by the 78 new stores opened by the company during the past twelve
months.
Cost of sales, as a percentage of net sales, remained relatively
constant at 30.5% for the six months ended July 31, 2000, which is a 0.1%
decrease from the six months ended July 31, 1999.
Selling, general and administrative expenses, as a percentage of net
sales, increased by 1.8% from 59.7% for the six months ended July 31, 1999 to
61.5% for the six months ended July 31, 2000. The increase was principally due
to greater expenses associated with the large number of new store openings since
July 1999, as new stores have a lower average sales volume than mature stores.
The increase was also attributable to an overall increase in base salary rates
as a result of the competitive labor market due to low unemployment.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary source of cash for the first six months of fiscal
2000 was from operations. Cash and working capital at July 31, 2000 were
$251,000 and $18.6 million, respectively, compared to $454,000 and $19.1
million, respectively, at January 31, 2000.
For the six months ended July 31, 2000, cash provided by operating
activities was $6.7 million compared to $3.1 million for the six months ended
July 31, 1999. The $3.6 million increase resulted from favorable changes in the
collection of accounts receivable and reducing and controlling inventory levels,
offset by a decrease in accounts payable.
Due to the company's strategic plan to reduce store expansion, cash
used in investing activities in the first six months of fiscal 2000 was $3.4
million compared to $5.6 million in the first six months of fiscal 1999. Capital
expenditures during the first six months of fiscal 2000 of $3.4 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 7.92% as of July 31, 2000, and matures in
December 2001. As of July 31, 2000, the company had $11.5 million outstanding
under its revolving line of credit and $8.5 million of availability. The loan
agreement prohibits the payment of dividends to stockholders and the company
must maintain certain financial ratios including a specified net worth level,
current ratio, and a fixed charge ratio. As of January 31, 2000, the company was
not in compliance with the fixed charge ratio, but received a waiver on this
covenant violation until January 31, 2001. We do not believe that the financial
covenants set forth in our revolving line of credit will have an adverse impact
on our operations or future plans.
We have commitments from Commerce BankLease, a unit of Commerce Bank,
N.A., for a $2,000,000 five-year equipment lease financing facility. During
fiscal 1999, we executed the agreement and leased approximately $922,000 of
laboratory equipment, which will be paid for over a period of 60 months. The
leased laboratory equipment has been recorded as a capital lease on the
consolidated balance sheet.
7
<PAGE> 10
U.S. VISION, INC.
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
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.
8
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U.S. VISION, INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As contemplated in the company's Proxy Statement which was mailed to
stockholders beginning on May 19, 2000, the company's stockholders elected
William A. Schwartz, Jr., Dennis J. Shaughnessy, J. Roger Sullivan, Jr., Richard
K. McDonald, G. Kenneth Macrae and Peter M. Troup as directors of the company,
each to serve until the annual meeting of stockholders to be held in 2001. The
company's stockholders also considered proposals to (a) adopt the 2000 Director
Compensation Plan, (b) increase the number of authorized shares under the
Employee Stock Option Plan, and (c) ratify the selection of Ernst & Young LLP as
the independent auditor of the company for the fiscal year ending January 31,
2001.
Each of the foregoing proposals were approved at the company's annual
meeting of stockholders on June 22, 2000. Each Board nominee received the number
of votes indicated below.
No. of Votes Cast No. of Votes Cast
Nominee For Election Against or Withheld
------- ----------------- -------------------
William A. Schwartz, Jr. 5,674,889 399,816
Dennis J. Shaughnessy 5,675,089 399,616
J. Roger Sullivan, Jr. 5,675,089 399,616
Richard K. McDonald 5,675,089 399,616
G. Kenneth Macrae 5,674,689 400,016
Peter M. Troup 5,674,689 400,016
With respect to the adoption of the company's 2000 Director
Compensation Plan, the votes cast for, against or withheld were as follows:
Votes For 4,205,188
Votes Against or Withheld 546,570
With respect to the approval of the proposal to amend the company's
Stock Option Plan, the votes cast for, against or withheld were as follows:
Votes For 4,237,597
Votes Against or Withheld 514,181
With respect to the approval of the proposal to ratify the selection of
Ernst & Young LLP, the votes cast for, against or withheld were as follows:
Votes For 6,031,280
Votes Against or Withheld 43,425
9
<PAGE> 12
U.S. VISION, INC.
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* 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
10.15+ Form of Warrant
27+ 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 Form
10-K for the fiscal year ended January 31, 1998,
which was filed with the Securities and Exchange
Commission on April 30, 1999.
+ Filed herewith.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the company during the three (3)
months ended July 31, 2000.
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)
September 13, 2000 /s/ Kathy G. Cullen
-----------------------------------------
Kathy G. Cullen, Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<PAGE> 14
U.S. VISION, INC.
EXHIBIT INDEX
Exhibit
Number Exhibit
------- -------
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
10.15+ Form of Warrant
27+ 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
Form 10-K for the fiscal year ended January 31,
1998, which was filed with the Securities and
Exchange Commission on April 30, 1999.
+ Filed herewith.
