<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 1999.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333 - 56551
EYE CARE CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2337775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
11103 WEST AVENUE
SAN ANTONIO, TEXAS 78213
(Address of principal executive offices, including zip code)
(210) 340-3531
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant has (1) 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[ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding at May 3, 1999
----- --------------------------
<S> <C>
Common Stock, $.01 par value 7,412,619 shares
</TABLE>
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EYE CARE CENTERS OF AMERICA, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at January 2, 1999
and April 3, 1999 (Unaudited)...........................................................2
Condensed Consolidated Statements of Income for the
Thirteen Weeks Ended April 4, 1998 (Unaudited)
and April 3, 1999 (Unaudited)...........................................................3
Condensed Consolidated Statements of Cash Flows for the
Thirteen Weeks Ended April 4, 1998 (Unaudited)
and April 3, 1999 (Unaudited)...........................................................4
Notes to Condensed Consolidated Financial Statements............................................5-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................................................10-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................................17
Item 6. Exhibits and Reports on Form 8-K.................................................................18
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, APRIL 3,
1999 1999
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 5,127 $ 7,674
Accounts and notes receivable, net .............................. 6,453 7,999
Inventory ....................................................... 26,977 24,267
Prepaid expenses and other ...................................... 2,286 4,153
Deferred income taxes ........................................... 391 391
--------- ---------
Total current assets .................................................. 41,234 44,484
PROPERTY & EQUIPMENT, net ............................................. 68,118 68,168
INTANGIBLE ASSETS, net ................................................ 102,459 101,827
OTHER ASSETS .......................................................... 11,096 11,618
--------- ---------
Total assets .......................................................... $ 222,907 $ 226,097
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES:
Accounts payable ................................................ $ 20,921 $ 16,945
Deferred revenue ................................................ 5,331 5,584
Current maturities of long-term debt ............................ 3,578 4,578
Accrued payroll expense ......................................... 2,788 3,641
Accrued interest ................................................ 3,347 6,853
Other accrued expenses .......................................... 8,186 8,904
--------- ---------
Total current liabilities ............................................. 44,151 46,505
LONG-TERM DEBT, less current maturities ............................... 242,945 241,816
DEFERRED INCOME TAXES ................................................. 391 391
DEFERRED RENT ......................................................... 3,246 3,352
DEFERRED GAIN ......................................................... 2,175 2,135
--------- ---------
Total liabilities ..................................................... 292,908 294,199
--------- ---------
SHAREHOLDERS' EQUITY/(DEFICIT):
Common stock .................................................... 75 74
Preferred stock ................................................. 32,793 33,858
Additional paid-in capital ...................................... 60,958 59,469
Accumulated deficit ............................................. (163,827) (161,503)
--------- ---------
Total shareholders' equity/(deficit) .................................. (70,001) (68,102)
--------- ---------
$ 222,907 $ 226,097
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 4
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
------------------------
APRIL 4, APRIL 3,
1998 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET REVENUES:
Optical sales ........................................................ $61,358 $74,364
Management fee ....................................................... 661 710
------- -------
Total net revenues ......................................................... 62,019 75,074
OPERATING COSTS AND EXPENSES:
Cost of goods sold ................................................... 20,499 24,878
Selling, general and administrative expenses ........................ 33,263 40,133
Amortization of intangibles .......................................... 914 1,175
------- -------
Total operating costs and expenses ......................................... 54,676 66,186
------- -------
INCOME FROM OPERATIONS ..................................................... 7,343 8,888
INTEREST EXPENSE, NET ...................................................... 3,394 5,998
INCOME TAX EXPENSE ......................................................... 67 75
------- -------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ...... 3,882 2,815
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE......................... -- 491
------- -------
NET INCOME ................................................................. $ 3,882 $ 2,324
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE> 5
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 4, APRIL 3,
1998 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 3,882 $ 2,324
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................... 3,745 4,729
Other amortization ...................................... 250 381
Cumulative effect of change in accounting principle ..... -- 491
Deferred liabilities and other .......................... 160 293
(Gain)/loss on disposition of property and equipment .... 55 (22)
Increase/(decrease) in operating assets and liabilities .... 3,723 (333)
-------- --------
Net cash provided by operating activities ....................... 11,815 7,863
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ...................... (5,503) (4,434)
Proceeds from sale of property and equipment ............... 763 16
Purchase of retail outlet .................................. -- (375)
Payments received on notes receivable ...................... 43 23
-------- --------
Net cash used for investing activities ........................... (4,697) (4,770)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt and capital leases ........................ (10,138) (146)
Repurchase of common stock ................................. -- (400)
-------- --------
Net cash used for financing activities ........................... (10,138) (546)
-------- --------
NET INCREASE/(DECREASE) IN CASH .................................. (3,020) 2,547
CASH AND CASH EQUIVALENTS, beginning of period ................... 7,172 5,127
-------- --------
CASH AND CASH EQUIVALENTS, end of period ......................... $ 4,152 $ 7,674
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 6
EYE CARE CENTERS OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Eye Care
Centers of America, Inc. and its wholly owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 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. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and are of a
normal, recurring nature. Operating results for the thirteen week period ended
April 3, 1999 are not necessarily indicative of the results that may be expected
for the fiscal year ended January 1, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Eye Care
Centers of America, Inc.'s annual report on Form 10-K for the year ended January
2, 1999.
2. RELATED PARTY TRANSACTIONS
Prior to the Recapitalization (defined herein) of the Company, the
Company was party to an agreement with Desai Capital Management, Inc. ("DCMI"),
a majority shareholder, whereby the Company paid DCMI $144,000 per year as an
advisory fee for consulting and strategic advice and $56,000 per year for the
consulting services of certain Board of Directors members who are also employees
and/or officers of DCMI. For the thirteen week period ended April 4, 1998, the
Company incurred $50,000 related to these agreements. As a result of the
Recapitalization, the agreement with DCMI has been canceled, and DCMI is no
longer a majority shareholder of the Company.
The Company and Thomas H. Lee Company ("THL Co.") entered into a
management agreement as of the closing date of the Company's Recapitalization
(the "Management Agreement"), pursuant to which THL Co. received a financial
advisory fee of $6.0 million in connection with structuring, negotiating and
arranging the Recapitalization of the Company and related debt financing. In
addition, pursuant to the Management Agreement, THL Co. will initially receive
$500,000 per year plus expenses for management and other consulting services
provided to the Company. After a term of ten years from the closing date, the
Management Agreement is automatically renewable on an annual basis unless either
party serves notice of termination at least ninety days prior to the renewal
date. For the thirteen week period ended April 3, 1999, the Company incurred
$125,000 related to the agreement.
3. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company currently has a net deferred
tax asset related to its temporary differences. Based upon the weight of
available evidence allowed under the criteria set forth under FAS Statement No.
109, including the lack of carryback potential, uncertainties exist as to the
future realization of the deferred tax asset. These uncertainties include lack
of carryback
5
<PAGE> 7
potential as the Company has incurred taxable losses in past years. The Company
has established a full valuation allowance for its deferred tax assets.
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 4, APRIL 3,
1998 1999
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash paid for interest ................................................... $5,745 $2,107
Dividends accrued on redeemable preferred stock .......................... $ 220 $1,065
</TABLE>
5. INTEREST RATE SWAPS
The Company does not hold or issue financial instruments for trading
purposes nor is it a party to leveraged derivatives. The Company uses interest
rate swaps that are "vanilla" and involve little complexity as hedge instruments
to manage interest rate risk.
The counter parties to the Company's derivatives consist of major
international financial institutions. Because of the number of these
institutions and their high credit ratings, management believes these
derivatives do not present significant credit risk to the Company.
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Notional Amounts Maturity Fixed Pay Floating Receive
April 3, 1999 Date Rate Rate
---------------- -------- --------- ----------------
<S> <C> <C> <C>
$ 33.3 million 1999 5.9% 5.0%
$ 33.3 million 2000 5.9% 5.0%
$ 33.3 million 2001 5.9% 5.0%
</TABLE>
Interest rate swap agreements effectively convert floating rates on
long-term debt to fixed rates. The Company's intent is to reduce overall
interest expense while maintaining an acceptable level of risk to interest rate
fluctuations. The swap agreements specifically hedge $50.0 million aggregate
principle amount of the Company's Floating Interest Rate Subordinated Term
Securities due 2008 and $50.0 million of the Company's Credit Facility which
consists of (i) the $55.0 million term loan facility; (ii) the $35.0 million
revolving credit facility; and (iii) the $100.0 million acquisition facility.
As market interest rates fluctuate, the unrealized gain or loss on the swap
portfolio moves in relationship to the fair value of the underlying debt. The
Company had an unrealized loss on the interest rate swap portfolio of $1.0
million as of April 3, 1999. The change in the market value of these interest
rate swaps is not recorded in the financial position or operations of the
Company. Interest to be paid or received is accrued as an adjustment to
interest expense. Upon termination of interest rate swaps, the fair value of
the swaps is recorded through operations. If the hedged item is repaid early,
the Company will evaluate if the swap agreement is to be redesignated or
exited.
6
<PAGE> 8
6. NEW ACCOUNTING PRONOUNCEMENTS
Pension Plans. On January 3, 1999, the Company adopted the Financial
Account Standards Board's SFAS No. 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits. As the Company has no pension plans or
postretirement benefits, the adoption of this statement did not have an effect
on earnings or the financial position of the Company.
Derivatives. In June 1998, the Financial Account Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which is required to be adopted in years beginning after June 15, 1999. The
statement permits early adoption as of the beginning of any fiscal quarter after
its issuance. The statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what the effect of
SFAS No. 133 will be on the earnings and financial position of the Company.
Preopening Costs. On January 3, 1999, the Company adopted the AICPA'S
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5"). SOP 98-5 requires that start-up costs, including organizational costs,
be expensed as incurred. The SOP broadly defines start-up activities as those
one-time activities related to opening a new facility, introducing a new product
or services, conducting business in a new territory, conducting business with a
new class of customer or beneficiary, initiating a new process in an existing
facility, or commencing some new operation. The effect of the adoption of the
SOP on the Company's result of operations was a write-off of previously
capitalized pre-opening and organization costs of $491,000, which is reflected
as a cumulative effect of change in accounting principle during the first
quarter of fiscal 1999. Additionally, the Company expects annual charges to
earnings of approximately $400,000 related to store opening costs.
7. CONDENSED CONSOLIDATING INFORMATION
The $100,000,000 in principal amount of 9 1/8% Senior Subordinated
Notes due 2008 and $50,000,000 in principal amount of Floating Interest Rate
Subordinated Term Securities due 2008 were issued by Eye Care Centers of
America, Inc. ("ECCA") and are guaranteed by Enclave Advancement Group, Inc.
("EAGI"), ECCA Managed Vision Care, Inc. ("MVC"), Visionworks Holdings, Inc.
("VHI") and Eye Care Holdings, Inc. ("Holdings") but are not guaranteed by
certain private optometrists ("OD"). The guarantor subsidiaries are wholly-owned
by the Company and the guarantees are full, unconditional and joint and several.
The following condensed consolidating financial information presents the
financial position, results of operations and cash flows of (i) ECCA, as parent,
as if it accounted for its subsidiaries on the equity method, (ii) EAGI, MVC,
VHI and Holdings (the "Guarantor Subsidiaries"), and (iii) OD. There were no
transactions between the Guarantor Subsidiaries during any of the periods
presented. Separate financial statements of the Guarantor Subsidiaries are not
presented herein as management does not believe that such statements would be
material to investors. Previous fiscal years are not presented herein as the
non-guarantor OD was consolidated starting in the fourth quarter of fiscal 1998
and prior to this date all subsidiaries were guarantors.
7
<PAGE> 9
CONSOLIDATING BALANCE SHEET
APRIL 3, 1999
<TABLE>
<CAPTION>
Guarantor Consolidated
ASSETS Parent Subsidiaries OD Eliminations Company
---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 601 $ 7,073 $ -- $ -- $ 7,674
Accounts and notes receivable 81,711 19,921 803 (94,436) 7,999
Inventory 15,057 9,210 -- -- 24,267
Prepaid expenses and other 2,999 1,154 -- -- 4,153
Deferred income taxes 391 -- -- -- 391
---------- ---------- ---------- ---------- ----------
Total current assets 100,759 37,358 803 (94,436) 44,484
Property and equipment 39,644 28,524 -- -- 68,168
Intangibles 19,617 82,112 98 -- 101,827
Other assets 11,180 438 -- -- 11,618
Investment in subsidiaries 15,797 -- -- (15,797) --
---------- ---------- ---------- ---------- ----------
$ 186,997 $ 148,432 $ 901 $ (110,233) $ 226,097
========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 28,052 $ 83,329 $ -- $ (94,436) $ 16,945
Current maturities of long-term debt 4,000 578 -- -- 4,578
Deferred revenue 3,750 1,834 -- -- 5,584
Accrued payroll expense 2,065 1,576 -- -- 3,641
Accrued interest 6,486 367 -- -- 6,853
Other accrued expenses 6,441 2,463 -- -- 8,904
---------- ---------- ---------- ---------- ----------
Total current liabilities 50,794 90,147 -- (94,436) 46,505
Deferred income taxes 391 -- -- -- 391
Long-term debt, less current maturities 200,556 41,160 100 -- 241,816
Deferred rent 2,312 1,040 -- -- 3,352
Deferred gain 2,135 -- -- -- 2,135
---------- ---------- ---------- ---------- ----------
Total liabilities 256,188 132,347 100 (94,436) 294,199
---------- ---------- ---------- ---------- ----------
Shareholders' equity/(deficit):
Common stock 74 -- -- -- 74
Preferred stock 33,858 -- -- -- 33,858
Additional paid-in capital 58,380 1,089 -- -- 59,469
Accumulated deficit (161,503) 14,996 801 (15,797) (161,503)
---------- ---------- ---------- ---------- ----------
Total shareholders' equity/(deficit) (69,191) 16,085 801 (15,797) (68,102)
---------- ---------- ---------- ---------- ----------
$ 186,997 $ 148,432 $ 901 $ (110,233) $ 226,097
========== ========== ========== ========== ==========
</TABLE>
CONSOLIDATING INCOME STATEMENT
FOR THE THIRTEEN WEEKS ENDED APRIL 3, 1999
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries OD Eliminations Company
---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Optical sales $ 42,092 $ 22,036 $ 10,236 $- $ 74,364
Management fees 2,009 710 -- (2,009) 710
Investment earnings in subsidiaries 2,487 -- -- (2,487)
---------- ---------- ---------- ---------- ----------
Net revenues 46,588 22,746 10,236 (4,496) 75,074
Operating costs and expenses:
Cost of goods sold 13,724 8,364 2,790 -- 24,878
Selling, general and administrative expenses 24,735 10,702 6,705 (2,009) 40,133
Amortization of intangibles 248 926 1 -- 1,175
---------- ---------- ---------- ---------- ----------
Total operating costs and expenses 38,707 19,992 9,496 (2,009) 66,186
---------- ---------- ---------- ---------- ----------
Income (loss) from operations 7,881 2,754 740 (2,487) 8,888
Interest expense, net 5,117 879 2 -- 5,998
Income tax expense 75 -- -- -- 75
---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item 2,689 1,875 738 (2,487) 2,815
Cumulative effect of change in accounting 365 126 -- -- 491
principle
========== ========== ========== ========== ==========
Net income (loss) $ 2,324 $ 1,749 $ 738 $ (2,487) $ 2,324
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 10
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED APRIL 3, 1999
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries OD Eliminations Company
---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,324 $ 1,749 $ 738 $ (2,487) $ 2,324
Adjustments to reconcile net income (loss)
to net
Cash provided by operating activities:
Depreciation and amortization 2,724 2,004 1 -- 4,729
Other amortization 381 -- -- -- 381
Cumulative effect of change in 365 126 -- -- 491
accounting principle
Deferred liabilities and other 293 -- -- -- 293
(Gain) loss on disposition of property
and equipment (22) -- -- -- (22)
Increase/(decrease) in operating assets
and liabilities (1,525) 1,931 (739) -- (333)
---------- ------------ ---------- ------------ ------------
Net cash provided by (used in) operating activities 4,540 5,810 -- (2,487) 7,863
---------- ------------ ---------- ------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (3,835) (599) -- -- (4,434)
Proceeds from sale of property and 16 -- -- -- 16
equipment
Purchase of retail outlet (375) -- -- -- (375)
Payment received on notes receivable 23 -- -- -- 23
Investment in Subsidiaries (2,487) -- -- 2,487 --
---------- ------------ ---------- ------------ ------------
Net cash provided by (used in) investing activities (6,658) (599) -- 2,487 (4,770)
---------- ------------ ---------- ------------ ------------
Cash flows from financing activities:
Payments on debt and capital leases -- (146) -- -- (146)
Repurchase of common stock (400) -- -- -- (400)
---------- ------------ ---------- ------------ ------------
Net cash provided by (used in) financing activities (400) (146) -- -- (546)
---------- ------------ ---------- ------------ ------------
Net decrease in cash and cash equivalents (2,518) 5,065 -- -- 2,547
Cash and cash equivalents at beginning of period 3,119 2,008 -- -- 5,127
---------- ------------ ---------- ------------ ------------
Cash and cash equivalents at end of period $ 601 $ 7,073 $ -- $ -- $ 7,674
========== ============ ========== ============ ============
</TABLE>
8. SUBSEQUENT EVENT
In April 1999, the Company paid approximately $8.7 million of the
outstanding $10.0 million capital lease obligation to Eckerd Corporation. The
remaining $1.3 million obligation is expected to be settled during the second
quarter of 1999, pending resolution of certain closing matters. Subsequent to
the repayment, the Company sold the related properties at approximately book
value and entered into leases with the new owners. The Company will recognize an
immaterial deferred gain over the life of the leases.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Eye Care Centers of America, Inc. is the fourth largest retail optical
chain in the United States as measured by net revenues, operating 272 stores,
245 of which are optical superstores. The Company operates predominately under
the trade name "EyeMasters," and in certain geographical regions under the trade
names "Binyon's," "Visionworks", "Hour Eyes", "Dr. Bizer's VisionWorld", "Dr.
Bizer's ValuVision" and "Doctor's ValuVision". The Company operates in the $5.0
billion retail optical chain sector of the $15.4 billion optical retail market.
Management believes that key drivers of growth for retail optical chains include
(i) the aging of the United States population, (ii) the increased role of
managed vision care, (iii) the consolidation of the industry, (iv) new product
innovations.
The industry is highly fragmented and is undergoing significant
consolidation. Since 1996, the Company has acquired and integrated three
acquisitions. In September 1996, the Company acquired all of the outstanding
shares of the capital stock of Visionworks Holdings, Inc. and its subsidiaries
(collectively, "Visionworks") for $61.5 million (the "Visionworks Acquisition").
At the time of the Visionworks Acquisition, Visionworks was a sixty store
optical retailer located along the Atlantic Coast from Florida to Washington, D.
C. with forty-nine superstores and eleven optical stores located near Eckerd
Corporation stores. In September 1997, the Company acquired The Samit Group,
Inc. ("TSGI"), a ten store optical retailer located in the Washington, D.C. area
and certain assets related to twelve additional stores in Virginia for $22.3
million less acquisition date liabilities. Simultaneously with the acquisition
of TSGI, the Company entered into long-term business management agreements with
Hour Eyes Doctors of Optometry, P.C. ("PC"), a Virginia professional
corporation, to manage the additional twelve Hour Eyes optical stores in
Virginia (collectively, the "Hour Eyes Acquisition"). As a result of the
long-term business management agreements with PC, the Company records a
management fee but does not include the results of operations from the twelve
Virginia stores in the Company's consolidated results of operations. In
September 1998, the Company acquired certain assets of Dr. Bizer's VisionWorld,
PLLC and related entities (the "Bizer Entities"), a nineteen store optical
retailer located primarily in Kentucky and Tennessee, and simultaneously entered
into long-term management agreements with a private optometrist to manage such
nineteen stores (collectively, the "VisionWorld Acquisition"). The results of
operations from the date of acquisition from these nineteen stores are included
in the Company's consolidated results of operations.
On March 6, 1998, ECCA Merger Corp. ("Merger Corp."), a Delaware
corporation formed by Thomas H. Lee Company ("THL Co."), and the Company entered
into a recapitalization agreement (the "Recapitalization Agreement") providing
for, among other things, the merger of such corporation with and into the
Company (the "Merger" and, together with the financing of the recapitalization
and related transactions described below, the "Recapitalization"). Upon
consummation of the Recapitalization on April 24, 1998, Thomas H. Lee Equity
Fund IV, L.P. ("THL Fund IV") and other affiliates of THL Co. (collectively with
THL Fund IV and THL Co., "THL") owned approximately 89.7% of the issued and
outstanding shares of common stock of the Company ("Common Stock"), existing
shareholders (including management) of the Company retained approximately 7.3%
of the issued and outstanding Common Stock and management purchased additional
shares representing approximately 3.0% of the issued and outstanding Common
Stock. The total transaction value of the Recapitalization was approximately
$323.8 million, including related fees and expenses, and the implied total
equity value of the Company following the Recapitalization is approximately
$107.3 million.
8
<PAGE> 12
Certain of the funds needed to consummate the Recapitalization were
obtained through the sale, pursuant to Rule 144A promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), of $100,000,000 in
principal amount of 9 1/8% Senior Subordinated Notes due 2008 (the "Fixed Rate
Notes") and $50,000,000 in principal amount of Floating Interest Rate
Subordinated Term Securities due 2008 (the "Floating Rate Notes" and, together
with the Fixed Rate Notes, the "Initial Notes"). The Initial Notes were issued
by the Company and guaranteed by the Company's subsidiaries (the"Subsidiary
Guarantors"). Under that certain Indenture, dated April 24, 1998 (the
"Indenture"), by and among the Company, the Subsidiary Guarantors, and the
United States Trust Company of New York as Trustee governing the Initial Notes,
the Company and the Subsidiary Guarantors are jointly and severally liable for
payment of the Initial Notes. The Company filed a registration statement with
the Securities and Exchange Commission with respect to an offer to exchange the
Initial Notes for notes which have terms substantially identical in all material
respects to the Initial Notes, except such notes are freely transferable by the
holders thereof and are issued without any covenant regarding registration (the
"Exchange Notes"). The registration statement was declared effective on January
28, 1999. The exchange period ended March 4, 1999. The Exchange Notes are the
only notes of the Company which are currently outstanding. In addition to the
net proceeds from the sale of the Exchange Notes, the Recapitalization was
financed with (a) approximately $55.0 million of borrowings under the Credit
Facility (defined herein) and (b) approximately $99.4 million from the sale of
capital stock to THL, Bernard W. Andrews and other members of management (the
"Equity Contribution") consisting of (i) approximately $71.6 million from the
sale of Common Stock and (ii) approximately $27.8 million from the sale of
shares of a newly created series of preferred stock of the Company ("New
Preferred Stock"). The Company used the proceeds from such bank borrowings, the
sale of the Exchange Notes, and the Equity Contribution principally to finance
the conversion into cash of the shares of Common Stock which were not retained
by existing stockholders, to refinance certain existing indebtedness of the
Company, to redeem certain outstanding preferred stock of the Company and to pay
related fees and expenses of the Recapitalization. In connection with the
Recapitalization, the Company in-substance defeased its previously issued 12%
Senior Notes due 2003 (the "Senior Notes") by depositing with the trustee for
the Senior Notes (i) an irrevocable notice of redemption of the Senior Notes on
October 1, 1998 and (ii) United States government securities in an amount
necessary to yield on October 1, 1998, $78.4 million, which constituted the
principal amount, premium and interest payable on the Senior Notes on the
October 1, 1998 redemption date. The Senior Notes were defeased as scheduled on
October 1, 1998.
9
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain statement of
income data as a percentage of net revenues.
<TABLE>
<CAPTION>
THIRTEEN
WEEKS ENDED
-----------------
APRIL 4, APRIL 3,
1998 1999
------- -------
<S> <C> <C>
STATEMENT OF INCOME DATA:
NET REVENUES:
Optical sales .............................. 98.9 % 99.1 %
Management fee ............................. 1.1 0.9
------ ------
Total net revenues ............................... 100.0 100.0
OPERATING COSTS AND EXPENSES:
Cost of goods sold ......................... 33.4 * 33.5 *
Selling, general and administrative expenses 54.2 * 54.0 *
Amortization of intangibles ................ 1.5 1.6
------ ------
Total operating costs and expenses ............... 88.2 88.2
------ ------
INCOME FROM OPERATIONS ........................... 11.8 11.8
INTEREST EXPENSE, NET ............................ 5.4 8.0
INCOME TAX EXPENSE ............................... 0.1 0.1
------ ------
NET INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE . 6.3 3.7
CHANGE IN ACCOUNTING PRINCIPLE ................... -- 0.6
------ ------
NET INCOME ....................................... 6.3 % 3.1 %
====== ======
</TABLE>
* Percentages based on optical sales only
THE THIRTEEN WEEKS ENDED APRIL 3, 1999 COMPARED TO THE THIRTEEN WEEKS ENDED
APRIL 4, 1998.
Net Revenues. The increase in net revenues to $75.1 million for the thirteen
weeks ended April 3, 1999 from $62.0 million for the thirteen weeks ended April
4, 1998 was largely the result of the VisionWorld Acquisition and an increase in
comparable store sales of 1.8%. The VisionWorld Acquisition resulted in an
increase in net revenues of $10.2 million during the first thirteen weeks of
fiscal 1999.
Gross Profit. Gross profit increased to $50.2 million for the thirteen weeks
ended April 3, 1999 from $41.5 million for the thirteen weeks ended April 4,
1998. Gross profit as a percentage of optical sales decreased to 66.5% for the
thirteen weeks ended April 3, 1999 as compared to 66.6% for the thirteen weeks
ended April 4, 1998. This percentage decrease was primarily due to increased
promotional activity. This activity was partially offset by increased
productivity within the store labs.
10
<PAGE> 14
Selling General & Administrative Expenses (SG&A). SG&A increased to $40.1
million for the thirteen weeks ended April 3, 1999 from $33.3 million for the
thirteen weeks ended April 4, 1998. SG&A as a percentage of optical sales
decreased to 54.0% for the thirteen weeks ended April 3,1999 from 54.2% for the
thirteen weeks ended April 4, 1998. This percentage decrease was primarily due
to the leveraging of occupancy expenses and a decrease of advertising dollars in
the first quarter. These savings were partially offset by the inclusion of
doctor payroll expenses for the stores acquired through the VisionWorld
Acquisition, which were not included in the first quarter of 1998 results.
Amortization Expense. Amortization expense (excluding the amortization of store
pre-opening costs) increased to $1.2 million for the thirteen weeks ended April
3, 1999 from $0.9 million for the thirteen weeks ended April 4, 1998. This
increase was due to amortization of the goodwill related to the VisionWorld
Acquisition, which was recorded during the fourth quarter of 1998, and
amortization of the debt issuance costs related to the Recapitalization.
Net Interest Expense. Net interest expense increased to $6.0 million for the
thirteen weeks ended April 3, 1999 from $3.4 million for the thirteen weeks
ended April 4, 1998. This increase was due to the increased borrowings related
to the Recapitalization.
Change in Accounting Principle. A charge of $0.5 million due to the write-off of
store preopening costs and organization costs related to the adoption of SOP
98-5 was recorded during the thirteen weeks ended April 3, 1999.
Net Income. Net income decreased to $2.3 million for the thirteen weeks ended
April 3, 1999 from net income of $3.9 million for the thirteen weeks ended April
4, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities have provided net cash of $7.9
million for the thirteen weeks ended April 3, 1999 as compared to $11.8 million
for the thirteen weeks ended April 4, 1998. As of April 3, 1999, the Company had
$7.7 million of cash available to meet the Company's obligations.
Capital expenditures are related to the construction of new stores,
repositioning of existing stores in some markets, new computer systems for the
stores and maintenance of existing facilities. Capital expenditures for the
thirteen weeks ended April 3, 1999 were $4.4 million. Capital expenditures for
1999 are anticipated to be approximately $18.0 million. Of the 1999 capital
expenditures, approximately $10.0 million are expected to be related to new
stores, approximately $4.0 million are expected to be for maintenance of
existing facilities and the remaining approximately $4.0 million represents the
funds necessary to complete the Company's point-of-sale and equipment upgrade
programs, which management believes are non-recurring in nature.
In connection with the Recapitalization, the Company entered into a
credit agreement (the "Credit Facility") which consists of (i) the $55.0 million
term loan facility (the "Term Loan Facility"); (ii) the $35.0 million revolving
credit facility (the "Revolving Credit Facility"); and (iii) the $100.0 million
acquisition facility (the "Acquisition Facility") of which $50.0 million was
committed at April 24, 1998. At April 3, 1999, the Company had $55.0 million in
term loans outstanding under this facility and $30.1 million outstanding under
the Acquisition Facility which funded the VisionWorld Acquisition. Borrowings
made under the Credit Facility bear interest at a rate equal to, at the
Company's option, LIBOR plus 2.25% or the Base Rate (as defined in the Credit
Facility) plus 1.25%. The Term Loan Facility matures five years from the closing
date of the Credit Facility and will amortize quarterly in aggregate annual
principal amounts of approximately $0.0 million, $4.0 million, $12.0 million,
$18.0 million, and $21.0 million, respectively, for years one through five after
the closing of the Credit Facility.
11
<PAGE> 15
In connection with the Recapitalization, the Company completed a debt
offering of the Initial Notes. Interest on the Initial Notes will be payable
semiannually on each May 1 and November 1, commencing on November 1, 1998.
Interest on the Fixed Rate Notes accrues at the rate of 9 1/8% per annum. The
Floating Rate Notes bear interest at a rate per annum, reset semiannually, and
equal to LIBOR (as defined) plus 3.98%. The Notes will not be entitled to the
benefit of any mandatory sinking fund. On April 24, 1998, the Company entered
into an interest rate swap agreement which converts a portion of the Floating
Rate Notes to a fixed rate.
During 1996, the Company issued 110,000 shares of Series A Cumulative
Mandatorily Redeemable Exchangeable Pay-in-Kind Preferred Stock ("Preferred
Stock"). In conjunction with the Recapitalization, the Company repurchased the
Preferred Stock, canceled it and issued 300,000 shares of a new series of
preferred stock (the "New Preferred Stock"), par value $ .01 per share.
Dividends on shares of New Preferred Stock are cumulative from the date of issue
(whether or not declared) and will be payable when and as may be declared from
time to time by the Board of Directors of the Company. Such dividends accrue on
a daily basis from the original date of issue at an annual rate per share equal
to 13% of the original purchase price per share, with such amount to be
compounded quarterly. The New Preferred Stock will be redeemable at the option
of the Company, in whole or in part, at $100 per share plus (i) the per share
dividend rate and (ii) all accumulated and unpaid dividends, if any, to the date
of redemption, upon occurrence of an offering of equity securities, a change of
control or certain sales of assets.
Based upon current operations, anticipated cost savings and future
growth, the Company believes that its cash flow from operations, together with
available borrowings under the Revolving Credit Facility, will be adequate to
meet its anticipated requirements for working capital, capital expenditures and
scheduled principal and interest payments. However, the Company believes that
its ability to repay the Notes and amounts outstanding under the Revolving
Credit Facility and the Acquisition Facility at maturity may require additional
financing. The ability of the Company to meet its debt service obligations and
reduce its debt will be dependent on the future performance of the Company,
which in turn, will be subject to general economic conditions and to financial,
business, and other factors, including factors beyond the Company's control. A
portion of the Company's debt bears interest at floating rates; therefore, its
financial condition is and will continue to be affected by changes in prevailing
interest rates.
SYSTEMS CONVERSION; YEAR 2000 ISSUE
The Company is aware of the potential for industry wide business
disruption which could occur due to problems related to the "Year 2000" issue.
It is the belief of the Company's management that it has a prudent plan in place
to address these issues within the Company and with its suppliers. The
components of the Company's plan include: an assessment of internal systems for
modification and/or replacement; communication with external vendors to
determine their state of readiness to maintain an uninterrupted supply of goods
and services to the Company; an evaluation of the Company's production equipment
as to its ability to function properly after the turn of the century; an
evaluation of facility-related issues; the retention of technical and advisory
expertise to ensure that the Company is taking prudent action steps; and the
development of a contingency plan.
12
<PAGE> 16
State of Readiness
The Company has developed a comprehensive plan to reduce the
probability of operational difficulties due to Year 2000 related failures. While
there is still a significant amount of work to do, the Company believes that it
is on track towards a timely completion in the fall of 1999. Overall the Company
estimates that it has completed approximately 80% of the Year 2000 issue
identification process, approximately 50% of the process of remediating Year
2000 issues that have been identified to date.
Internal Systems (Information Technology)
To date, the Company has fully completed its assessment of all
information technology systems that could be significantly affected by the Year
2000 issue. The completed assessment indicated that certain systems are already
Year 2000 compliant while others are still in the process of being remediated.
Compliant systems include the Company's general ledger system and the managed
vision care system. Systems that are in the process of being remediated are the
payroll/human resources system, the merchandising system, and the point-of-sale
system all of which should be compliant by the summer of 1999.
Suppliers
The Company is in the process of communicating with its external
vendors to gain an understanding of their state of readiness to maintain an
uninterrupted supply of goods and services to the Company. Although the Company
believes that its products may be purchased from a number of vendors on
comparable terms and that therefore it is not dependent on any vendors or any
other single vendor for frames or lenses, the Company has identified vendors
that may otherwise be viewed as critical to its business. The Company is
defining a critical vendor as one whose inability to continue to provide goods
and services would have a serious adverse impact on the Company's ability to
produce, deliver, and collect payment for eyewear and/or services. To date the
Company is not aware of any supplier with a Year 2000 issue that would
materially impact the results of operations, liquidity or capital resources.
However, the Company has no means of ensuring that suppliers will be Year 2000
ready. The inability of suppliers to complete their Year 2000 resolution process
in a timely fashion could materially impact the Company.
Production Equipment
The Company has completed an inventory of production equipment
currently used at the Company. The Company has determined the Year 2000
readiness of this equipment through communication with the equipment
manufacturers and testing where appropriate. The Company is not aware of any
production equipment that is affected by the Year 2000 issue.
Facility Related Issues
The Company is in the process of evaluating facilities-related
equipment with the potential for Year 2000 related failures. The Company will
determine the Year 2000 readiness of this equipment through communication with
the equipment manufacturers and testing where appropriate. It is the Company's
intention to repair or replace non-compliant equipment prior to operating
difficulties. The Company, as in most companies, remains aware of the potential
for imbedded logic within microchips to cause equipment failure. The Company
believes that it has a prudent approach towards evaluating facilities equipment,
however, it may be impracticable or impossible to test certain items of
equipment for Year 2000 readiness. To the extent such untested equipment is not
Year 2000 ready, it may fail to operate
13
<PAGE> 17
on or after January 1, 2000, resulting in possible interruptions of security,
heating, elevator, telephone and other services.
Technical and Advisory Expertise
The Company has engaged outside consultants to assist it in project
planning, testing methodologies, and evaluating our Year 2000 remediation
activities.
Costs
The Company is evaluating the total cost of Year 2000 compliance. At
this time, the Company estimates the total cost of Year 2000 related activities
to be approximately $650,000, with $300,000 of that amount yet to be incurred.
This amount is incremental spending and has been budgeted within the normal
magnitude of Information Technology spending. This amount includes the
replacement of hardware and applications that are outdated and were due for
replacement regardless of Year 2000 issues.
Contingency Plan
Although the Company believes that it is taking prudent action related
to the identification and resolution of issues related to the Year 2000, its
assessment is still in progress. The Company may never be able to know with
certainty whether certain key vendors are compliant. Failure of key vendors to
make their computer systems Year 2000 compliant could result in delayed
deliveries of products to the Company. If such delays are extended they could
have a material adverse effect on the Company's business, financial condition,
and results of operations. There are also technical vagaries to logic imbedded
within microchips, which may prove impracticable or impossible to test. To the
extent such microchips are not Year 2000 compliant, this could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Company's efforts related to the Year 2000 issue are
expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its critical vendors. The Company believes that, with the
implementation of new business systems and completion of the plans set in place
related to the Year 2000 issue, the possibility of significant interruptions of
normal operations should be reduced.
INFLATION
The impact of inflation on the Company's operations has not been
significant to date. While the Company does not believe its business is highly
sensitive to inflation, there can be no assurance that a high rate of inflation
would not have an adverse impact on the Company's operations.
14
<PAGE> 18
SEASONALITY AND QUARTERLY RESULTS
The Company's sales fluctuate seasonally. Historically, the Company's
highest sales and earnings occur in the first and third fiscal quarters;
however, the opening of new stores, the Visionworks Acquisition, the Hour Eyes
Acquisition and VisionWorld Acquisition may affect seasonal fluctuations. Hence,
quarterly results are not necessarily indicative of results for the entire year.
FORWARD LOOKING STATEMENTS
The foregoing Form 10-Q contains various "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectations or belief concerning future
events, including the following: any statements regarding future sales and gross
profit percentages, any statements regarding the continuation of historical
trends, and any statements regarding the sufficiency of the Company's cash
balances and cash generated from operating and financing activities for the
Company's future liquidity and capital resource needs. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. The Company
cautions that these statements are further qualified by important economic and
competitive factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, risks of
the eye care industry, including a highly competitive industry with many
well-established competitors with greater financial and other resources than the
Company, and the impact of changes in consumer tastes, local, regional and
national economic conditions, demographic trends, traffic patterns, employee
availability and cost increases. In addition, the Company's ability to expand is
dependent upon various factors, such as the availability of attractive sites for
new stores, the ability to negotiate suitable lease terms, the ability to
generate or borrow funds to develop new stores and obtain various government
permits and licenses and the recruitment and training of skilled management and
employees. Accordingly, such forward-looking statements do not purport to be
predictions of future events or circumstances and may not be realized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks. Market risk is the
potential loss arising from adverse changes in market prices and rates. The
Company does not enter into derivative or other financial instruments for
trading or speculative purposes. There have been no material changes in the
Company's market risk during the first quarter of fiscal 1999. For further
discussion, refer to the Eye Care Centers of America, Inc.'s annual report on
Form 10-K for the year ended January 2, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to routine litigation in the ordinary course of
its business. There have been no such pending matters, individually or in the
aggregate, that are deemed to be material to the business or financial condition
of the Company that have arise during the first quarter of fiscal 1999. For
further discussion, refer to the Eye Care Centers of America, Inc's annual
report on Form 10-K for the year ended January 2, 1999.
15
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement dated August 15, 1996 by and between Eye Care
Centers of America, Inc., Visionworks Holdings, Inc. and the Sellers
listed therein. (a)
2.2 Stock Purchase Agreement, dated September 30, 1997, by and among Eye Care
Centers of America, Inc., a Texas corporation, Robert A. Samit, O. D. and
Michael Davidson, O. D. (a)
2.3 Recapitalization Agreement dated as of March 6, 1998 among ECCA Merger
Corp., Eye Care Centers of America, Inc. and the sellers Listed
therein. (a)
2.4 Amendment No. 1 to the Recapitalization Agreement dated as of April 23,
1998 among ECCA Merger Corp., Eye Care Centers of America, Inc., and the
sellers listed therein. (a)
2.5 Amendment No. 2 to the Recapitalization Agreement dated as of April 24,
1998 among ECCA Merger Corp., Eye Care Centers of America, Inc. and the
sellers listed therein. (a)
2.6 Articles of Merger of ECCA Merger Corp. with and into Eye Care Centers
of America, Inc. dated April 24, 1998. (a)
2.7 Master Asset Purchase Agreement, dated as of August 22, 1998, by and
among Eye Care Centers of America, Inc., Mark E. Lynn, Dr. Mark Lynn &
Associates, PLLC; Dr. Bizer's Vision World, PLLC and its affiliates. (a)
2.8 Letter Agreement, dated October 1, 1998, amending and modifying that certain
Master Asset Purchase Agreement, dated as of August 22, 1998, by and among Eye
Care Centers of America, Inc.; Mark E. Lynn; Dr. Mark Lynn & Associates, PLLC;
Dr. Bizer's VisionWorld, PLLC and its affiliates. (a)
3.1 Restated Articles of Incorporation of Eye Care Centers of America Inc. (a)
3.2 Statement of Resolution of the Board of Directors of Eye Care Centers
of America, Inc. designating a series of Preferred Stock. (a)
3.3 Amended and Restated By-laws of Eye Care Centers of America, Inc. (a)
4.1 Indenture dated as of April 24, 1998 among Eye Care Centers of America, Inc.,
the Guarantors named therein and United States Trust Company of New York, as
Trustee for the 9 1/8% Senior Subordinated Notes Due 2008 and Floating Interest
Rate Subordinated Term Securities. (a)
4.2 Form of Fixed Rate Exchange Note (included in Exhibit 4.1 Hereto). (a)
4.3 Form of Floating Rate Exchange Note (included in Exhibit 4.1 Hereto). (a)
4.4 Form of Guarantee (included in Exhibit 4.1 hereto). (a)
4.5 Registration Rights Agreement dated April 24, 1998 between Eye Care Centers
of America, Inc., the subsidiaries of the Company named as guarantors therein,
BT Alex. Brown Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. (a)
27.1 Financial Data Schedule. (c)
</TABLE>
- ----------
+ Portions of this Exhibit have been omitted pursuant
to an application for an order declaring confidential
treatment filed with the Securities and Exchange
Commission.
(a) Incorporated by reference from the Registration
Statement on Form S-4 (File No. 333 - 56551).
(b) Incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended January 2,
1999.
(c) Filed herewith.
(b) The Company filed no current reports on Form 8-K with the Securities and
Exchange Commission during the thirteen weeks ended April 3, 1999.
16
<PAGE> 20
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.
EYE CARE CENTERS OF AMERICA, INC.
May 14, 1999 /s/ Alan E. Wiley
- --------------------------- ------------------------------------
Dated Alan E. Wiley
Executive Vice President and
Chief Financial Officer
<PAGE> 21
EXHIBIT INDEX
-------------
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement dated August 15, 1996 by and between Eye Care
Centers of America, Inc., Visionworks Holdings, Inc. and the Sellers
listed therein. (a)
2.2 Stock Purchase Agreement, dated September 30, 1997, by and among Eye Care
Centers of America, Inc., a Texas corporation, Robert A. Samit, O. D. and
Michael Davidson, O. D. (a)
2.3 Recapitalization Agreement dated as of March 6, 1998 among ECCA Merger
Corp., Eye Care Centers of America, Inc. and the sellers Listed
therein. (a)
2.4 Amendment No. 1 to the Recapitalization Agreement dated as of April 23,
1998 among ECCA Merger Corp., Eye Care Centers of America, Inc., and the
sellers listed therein. (a)
2.5 Amendment No. 2 to the Recapitalization Agreement dated as of April 24,
1998 among ECCA Merger Corp., Eye Care Centers of America, Inc. and the
sellers listed therein. (a)
2.6 Articles of Merger of ECCA Merger Corp. with and into Eye Care Centers
of America, Inc. dated April 24, 1998. (a)
2.7 Master Asset Purchase Agreement, dated as of August 22, 1998, by and
among Eye Care Centers of America, Inc., Mark E. Lynn, Dr. Mark Lynn &
Associates, PLLC; Dr. Bizer's Vision World, PLLC and its affiliates. (a)
2.8 Letter Agreement, dated October 1, 1998, amending and modifying that certain
Master Asset Purchase Agreement, dated as of August 22, 1998, by and among Eye
Care Centers of America, Inc.; Mark E. Lynn; Dr. Mark Lynn & Associates, PLLC;
Dr. Bizer's VisionWorld, PLLC and its affiliates. (a)
3.1 Restated Articles of Incorporation of Eye Care Centers of America Inc. (a)
3.2 Statement of Resolution of the Board of Directors of Eye Care Centers
of America, Inc. designating a series of Preferred Stock. (a)
3.3 Amended and Restated By-laws of Eye Care Centers of America, Inc. (a)
4.1 Indenture dated as of April 24, 1998 among Eye Care Centers of America, Inc.,
the Guarantors named therein and United States Trust Company of New York, as
Trustee for the 9 1/8% Senior Subordinated Notes Due 2008 and Floating Interest
Rate Subordinated Term Securities. (a)
4.2 Form of Fixed Rate Exchange Note (included in Exhibit 4.1 Hereto). (a)
4.3 Form of Floating Rate Exchange Note (included in Exhibit 4.1 Hereto). (a)
4.4 Form of Guarantee (included in Exhibit 4.1 hereto). (a)
4.5 Registration Rights Agreement dated April 24, 1998 between Eye Care Centers
of America, Inc., the subsidiaries of the Company named as guarantors therein,
BT Alex. Brown Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. (a)
27.1 Financial Data Schedule. (c)
</TABLE>
- ----------
+ Portions of this Exhibit have been omitted pursuant
to an application for an order declaring confidential
treatment filed with the Securities and Exchange
Commission.
(a) Incorporated by reference from the Registration
Statement on Form S-4 (File No. 333 - 56551).
(b) Incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended January 2,
1999.
(c) Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 7,674
<SECURITIES> 0
<RECEIVABLES> 8,558
<ALLOWANCES> 559
<INVENTORY> 26,008
<CURRENT-ASSETS> 44,484
<PP&E> 129,633
<DEPRECIATION> 61,465
<TOTAL-ASSETS> 226,097
<CURRENT-LIABILITIES> 46,505
<BONDS> 241,816
0
33,858
<COMMON> 74
<OTHER-SE> (102,034)
<TOTAL-LIABILITY-AND-EQUITY> 226,097
<SALES> 74,364
<TOTAL-REVENUES> 75,074
<CGS> 24,878
<TOTAL-COSTS> 66,188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,998
<INCOME-PRETAX> 2,890
<INCOME-TAX> 75
<INCOME-CONTINUING> 2,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 491
<NET-INCOME> 2,324
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
