<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission File
ended April 4, 1998 Number 0-20001
NATIONAL VISION ASSOCIATES, LTD.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1910859
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
296 Grayson Highway 30045
Lawrenceville, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 822-3600
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
----- -----
The number of shares of Common Stock of the registrant outstanding as
of April 17, 1998 was 20,896,813.
The Exhibit Index is located at page 11.
Page 1 of 12
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NATIONAL VISION ASSOCIATES, LTD.
FORM 10-Q INDEX
Page of
Form 10-Q
---------
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
January 3, 1998 and April 4, 1998 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 29, 1997 and April 4, 1998 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 29, 1997 and April 4, 1998 5
Notes to Condensed Consolidated Financial Statements - 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
Page 2 of 12<PAGE>
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PART I
FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
January 3, 1998 and April 4, 1998
(000's except share information)
<TABLE>
<CAPTION>
January 3, April 4,
1998 1998
------------ ---------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,559 $ 1,933
Accounts receivable (net of allowance: 1997-$762; 1998-$826) 6,066 8,079
Inventories 23,271 23,629
Other current assets 759 986
------- -------
Total current assets 32,655 34,627
------- -------
PROPERTY AND EQUIPMENT:
Equipment 44,070 45,399
Furniture and fixtures 20,366 20,910
Leasehold improvements 15,005 15,568
Construction in progress 893 1,358
------- -------
80,334 83,235
Less accumulated depreciation (36,692) (39,271)
------- -------
Net property and equipment 43,642 43,964
------- -------
OTHER ASSETS AND DEFERRED COSTS (net of accumulated amortization:
1997-$846; 1998-$899) 1,015 938
ASSIGNMENT AGREEMENT AND INTANGIBLE ASSETS (net of accumulated
amortization: 1997-$733; 1998-$954) 5,938 5,718
------- -------
$83,250 $85,247
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,252 $10,265
Accrued expenses and other current liabilities 12,754 9,780
Current portion long-term debt 478 480
------- -------
Total current liabilities 20,484 20,525
------- -------
REVOLVING CREDIT FACILITY - LONG TERM 19,500 17,500
LONG-TERM NOTES PAYABLE, LESS CURRENT PORTION 4,225 4,011
DEFERRED INCOME TAX LIABILITIES 2,673 891
<PAGE>
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value; 5,000,000 shares authorized, none issued -- --
Common stock, $.01 par value; 100,000,000 shares authorized,
20,819,955 and 20,881,563 shares issued and outstanding as
of January 3, 1998 and April 4, 1998, respectively 208 210
Additional paid-in capital 43,053 46,537
Retained deficit (2,820) (354)
Cumulative foreign currency exchange rate translation (4,073) (4,073)
------- -------
Total shareholders' equity 36,368 42,320
------- -------
$83,250 $85,247
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 3 of 12<PAGE>
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<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(000's except per share information)
(Unaudited)
Three Months Ended
------------------------
March 29, April 4,
1997 1998
---- ----
<S> <C> <C>
NET SALES $44,362 $54,408
COST OF GOODS SOLD 20,143 24,465
------- -------
GROSS PROFIT 24,219 29,943
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 20,971 25,557
------- -------
OPERATING INCOME 3,248 4,386
OTHER EXPENSE, NET 488 277
------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,760 4,109
PROVISION FOR INCOME TAXES 1,107 1,657
------- -------
NET INCOME $ 1,653 $ 2,452
======= =======
BASIC EARNINGS PER COMMON SHARE $ .08 $ .12
======= =======
DILUTED EARNINGS PER COMMON SHARE $ .08 $ .12
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 4 of 12<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's)
Three Months Ended
-----------------------
March 29, April 4,
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,653 $ 2,452
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,566 2,923
Provision for deferred income tax expense 594 1,513
Other 112 38
Changes in operating assets and liabilities,
net of effects of acquisitions:
Receivables (834) (2,013)
Inventories 1,413 (358)
Other current assets (26) (298)
Accounts payable, accrued expenses and other current liabilities 2,554 40
------- -------
Total adjustments 6,379 1,845
------- -------
Net cash provided by operating activities 8,032 4,297
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,782) (2,900)
Payment for non-competition agreement (484)
Purchase of Assignment Agreement (500)
------- -------
Net cash used in investing activities (2,766) (2,900)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on revolving credit facility (3,500) (2,000)
Repayments on notes payable and capital leases (214)
Proceeds from issuance of common stock 2 191
------- -------
Net cash used in financing activities (3,498) (2,023)
------- -------
NET INCREASE (DECREASE) IN CASH 1,768 (626)
CASH, beginning of period 1,110 2,559
------- -------
CASH, end of period $ 2,878 $ 1,933
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 5 of 12<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 4, 1998
(Unaudited)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by National Vision Associates, Ltd. (the "Company")
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. Although management believes that the disclosures are
adequate to make the information presented not misleading, it is suggested
that these interim condensed consolidated financial statements be read in
conjunction with the Company's most recent audited consolidated financial
statements and notes thereto. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented have been made. Operating results
for the interim periods presented are not necessarily indicative of the
results that may be expected for the year ending January 2, 1999. Certain
amounts in the March 29, 1997 condensed consolidated financial statements
have been reclassified to conform to the April 4, 1998 presentation.
(2) PRINCIPAL SHAREHOLDER TRANSACTIONS
In the first quarter of 1998, the Company and the Internal Revenue
Service executed a definitive settlement agreement to settle litigation in
the U.S. Tax Court arising out of the grant and exercise of certain stock
options and a tax deduction claimed by the Company in connection therewith.
The settlement provides that the Company will receive substantially
all of the deduction it has claimed. As a result of the settlement, the
Company has reassessed the realizability of related net operating loss
carryforwards and, accordingly, reduced the related valuation allowance in
the first quarter. An after-tax benefit of $3.3 million has been recorded
as a contribution to capital and will have no impact on earnings for
financial reporting purposes.
(3) PROVISION FOR INCOME TAXES
The effective income tax rate on consolidated pre-tax income in the
first quarter of 1998 is 40.5%, which represents a tax provision of 40% on
domestic earnings. Due to the Company's current tax net operating loss
carryforward position, current year earnings will not be subject to regular
Federal Income Tax. However, the Company will be subject to Federal
Alternative Minimum Tax and state income tax, which will result in the
Company making cash payments approximating 30% of consolidated pre-tax
earnings.
Page 6 of 12<PAGE>
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(4) EARNINGS PER COMMON SHARE
Basic earnings per common share were computed by dividing net income
by the weighted average number of common shares outstanding during the year.
Diluted earnings per common share were computed as basic earnings per
common share, adjusted for outstanding stock options that are dilutive. The
computation for basic and diluted earnings per share may be summarized as
follows (amounts in 000's except per share information):
Three Months Ended
--------------------------
March 29, April 4,
1997 1998
---- ----
Net Income $1,653 $2,452
Weighted Shares Outstanding 20,648 20,771
Basic Earnings per Share $ 0.08 $ 0.12
Weighted Shares Outstanding 20,648 20,771
Net Options Issued to Employees 130 244
Aggregate Shares Outstanding 20,778 21,015
Diluted Earnings per Share $ 0.08 $ 0.12
Outstanding options with an exercise price below the average price
of the Company's common stock have been included in the computation of
diluted earnings per common share, using the treasury stock method, as of
the date of the grant.
(5) RESTRICTED STOCK AWARDS
On February 17, 1998, the Compensation Committee of the Board of
Directors approved the issuance of 60,000 restricted shares of the
Company's common stock to selected employees, including the executive
officers of the Company. The 60,000 restricted shares represent an
increase in shareholders' equity and, as such, are reflected on
the balance sheet at $600 in common stock ($.01 par value) and $318,000
in additional paid-in capital based on the $5.31 market value on the date
of grant. Pursuant to the terms of the awards, each participant is entitled
to the shares if such participant is employed with the Company at the
conclusion of a 10-year vesting period. In addition, the vesting of shares
will be accelerated to five years from the grant date depending on whether
and to the extent that the Company meets certain return on equity improvement
goals, as measured against results obtained by a peer group of companies.
As the awards are not vested, the full value of $318,600 represents
deferred compensation and is reflected as a reduction to additional
paid-in capital. This deferred compensation will be amortized to expense
over the ten-year vesting period. If early vesting appears probable, the
Company will accelerate the amortization period.
Page 7 of 12<PAGE>
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(6) RELATED-PARTY TRANSACTIONS
During the three months ended March 29, 1997 and April 4, 1998, the
Company purchased its business and casualty insurance policies through an
insurance agency in which a shareholder/director has a substantial ownership
interest. Total premiums paid for policies acquired through the insurance
company during the first quarter 1997 and 1998 were approximately $244,000
and $455,000, respectively.
In 1996, Edward G. Weiner, the Company's then Vice Chairman, was
employed at an annual salary of $165,000 pursuant to an employment agreement
with the Company with a term ending March 1, 2000. In connection with
Mr. Weiner's resignation from the Board of Directors in February 1997,
the employment agreement was terminated, and the Company, in exchange for
a non-competition agreement through March 2000, paid Mr. Weiner an amount
equal to a discounted present value of the payments which would have been
made under the employment agreement. The payment amount was capitalized
as other deferred costs and will be amortized over the term of the
non-compete agreement.
(7) RECENT ACCOUNTING PRONOUNCEMENTS
Effective in 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". The objective of SFAS 130 is to report a measure of all
changes in "Shareholders' Equity" that result from transactions and other
economic events other than transactions with owners. During 1997 and 1998,
there were no transactions or other economic events involving the Company
that would affect nonowner changes in equity.
(8) SUPPLEMENTAL DISCLOSURE INFORMATION
Inventory balances, by classification, may be summarized as follows:
January 3, April 4,
1998 1998
---- ----
Raw Material $15,646 $15,434
Finished Goods 7,003 7,570
Supplies 622 625
------ ------
$23,271 $23,629
====== ======
The components of other expense, net, may be summarized as follows:
March 29, April 4,
1997 1998
---- ----
Interest expense on debt
and capital leases $ 542 $ 410
Purchase discounts on invoice
payments (100) (145)
Finance fees and amortization of
hedge and swap agreements 57 30
Interest income (7) (15)
Other (4) (3)
----- -----
$ 488 $ 277
===== =====
Page 8 of 12<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's results of operations in any period are significantly
affected by the number and mix of vision centers opened and operating during
such period. At April 4, 1998, the Company operated 445 vision centers,
versus 352 vision centers at March 29, 1997.
THREE MONTHS ENDED APRIL 4, 1998 (THE "CURRENT PERIOD") COMPARED TO
THREE MONTHS ENDED MARCH 29, 1997 (THE "PRIOR PERIOD")
CONSOLIDATED RESULTS
NET SALES. Net sales during the Current Period increased to $54.4
million from $44.4 million for the Prior Period due in part to the increase
in the number of operating vision centers. Average weekly net sales per
vision center decreased from $9,940 in the Prior Period to $9,380 in the
Current Period. The decrease is due primarily to averaging the effect of
Midwest Vision stores, which have a lower average weekly net sales per store.
The average weekly net sales for the domestic host store business increased,
as the result of a 5.5% increase in comparable store sales. Continued success
of "life style" selling programs, improved merchandising and product
presentation, as well as continued focus on customer service, contributed
to the sales improvement. In addition, sales under managed care programs
increased from the Prior Period. Net sales from international operations
increased to $1.1 million in the three-month period ended February 28, 1998
from $935,000 in the comparable period a year ago. The increase is due
primarily to the opening of new vision centers in the Mexican operation.
GROSS PROFIT. In the Current Period, gross profit increased to
$29.9 million from $24.2 million in the Prior Period. This increase was
primarily due to the increased net sales described above. Gross profit as
a percent of sales increased to 55.0% from 54.6% in the Prior Period. Such
increase was due primarily to a favorable shift in sales mix toward higher
margin items.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES ("SG&A expense").
SG&A expense (which includes both store operating expenses and home office
overhead) increased to $25.6 million in the Current Period from $21.0 million
for the Prior Period, reflecting operating expenses of the additional vision
centers. As a percentage of net sales, SG&A expense was 47.0% in the Current
Period, compared to 47.3% for the Prior Period. The percentage decrease was
due primarily to improved efficiencies at store level.
OPERATING INCOME. Operating income for the Current Period increased
to $4.4 million from $3.2 million in the Prior Period. The Company's
international operations (26 vision centers as of February 28, 1998)
generated an operating loss of $17,000 in the three months ended
February 28, 1998, as opposed to an operating profit of $25,000 in the
comparable period a year ago. The change in results was due primarily
to the Czech operation, which was disposed of in February 1998, and to a
reduction in profits from the Mexico operation. The international
operating results do not include allocated corporate overhead, interest,
and taxes.
Page 9 of 12<PAGE>
<PAGE>
OTHER EXPENSE. The decrease in other expense to $277,000, compared
to $488,000 in the Prior Period, is due to lower interest costs. The
decrease in interest costs results from a decrease in average borrowings
by the Company under its credit facility, offset in part by increased debt
related to the Company's acquisition of Midwest Vision, Inc. in the fourth
quarter 1997. The effective interest rate on the credit facility was flat
versus the Prior Period.
PROVISION FOR INCOME TAXES. The effective income tax rate on
consolidated pre-tax income in the Current Period is 40.3%, which represents
a tax provision of 40% on domestic earnings. Due to the Company's current
tax net operating loss carryforward position, current year earnings will
not be subject to regular Federal Income Tax. However, the Company will
be subject to Federal Alternative Minimum Tax and state income tax, which
will result in the Company making cash payments approximating 30% of
consolidated pre-tax earnings.
NET INCOME. Net income was $2.5 million, or $0.12 per share, as
compared to net income of $1.7 million, or $0.08 per share, in the Prior
Period.
LIQUIDITY AND CAPITAL RESOURCES
As of April 4, 1998, the Company plans to open (exclusive of any vision
centers obtained through acquisitions) approximately 25 vision centers in
the domestic host environment and approximately 3 Mexican vision centers
during the last three quarters of 1998. Consistent with prior years, the
actual number of openings is dependent on the construction schedules of the
host store. Average costs for opening domestic vision centers have
approximated $140,000 for fixed assets and $35,000 for inventory. Capital
for leasehold improvements and other fixed assets in Mexican vision centers
is expected to approximate $75,000 per vision center.
At April 4, 1998, the Company had borrowed $17.5 million under its
credit facility versus outstanding borrowings of $19.5 million as of
January 3, 1998. The Company anticipates that internally generated funds,
as well as funds available under the Company's revolving credit facility,
will be sufficient to fund ongoing operating costs associated with its
current vision centers, vision centers currently scheduled to be opened
during 1998, and any vision centers which may be acquired by the Company
during 1998. Depending, however, on the size, structure, and number of
any acquisitions made by the Company, the amount and nature of the Company's
long-term indebtedness may change significantly.
The Company is continuing to evaluate acquisition opportunities in
connection with its efforts to continue its expansion outside of its
domestic host business. No assurances can be given as to whether or when
the Company will consummate any transactions.
RISK FACTORS
Any expectations, beliefs, and other non-historical statements contained
in this 10-Q are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements made in
this Form 10-Q concern the following matters: planned opening of vision
centers and funding of expansion through internal cash flow. With respect
to such forward-looking statements and others which may be made by, or on
behalf of, the Company, the factors listed in the Company's Report on Form
10-K for 1997 could materially affect the Company's actual results.
Page 10 of 12<PAGE>
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed herewith or incorporated by reference:
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
Amended and Restated By-Laws of the Company 3.2*
Form of Common Stock Certificate 4.1**
Amended and Restated Articles of Incorporation of the Company 4.2***
Statement Regarding Computation of Per Share Earnings 11****
Financial Data Schedule 27****
*Incorporated by reference to the Company's Registration Statement on Form S-1,
registration number 33-46645, filed with the Commission on March 25, 1992, and
amendments thereto.
**Incorporated by reference to the Company's Registration Statement on Form 8-A
filed with the Commission on January 17, 1997.
***Incorporated by reference to the Company's Form 8-K filed with the Commission
on January 17, 1997.
****Filed with this Form 10-Q.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the three months ended
April 4, 1998.
</TABLE>
Page 11 of 12<PAGE>
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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.
NATIONAL VISION ASSOCIATES, LTD.
By: /s/ Angus C. Morrison
Angus C. Morrison
Senior Vice President
Chief Financial Officer
April 21, 1998
Page 12 of 12
<TABLE>
<CAPTION>
EXHIBIT 11
NATIONAL VISION ASSOCIATES, LTD.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(000's except per common share information)
Three Months Ended
-----------------------------
March 29, April 4,
1997 1998
---- ----
<S> <C> <C>
NET INCOME $ 1,653 $ 2,452
======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 20,648 20,771
BASIC INCOME PER COMMON SHARE $ 0.08 $ 0.12
WEIGHTED SHARES OUTSTANDING 20,648 20,771
Net options issued to employees 130 244
------- -------
AGGREGATE COMMON SHARES OUTSTANDING 20,778 21,015
======= =======
DILUTED INCOME PER COMMON SHARE $ 0.08 $ 0.12
======= =======
</TABLE>
In 1997, the Company adopted SFAS No. 128 "Earnings Per Share". Basic
earnings per common share were computed by dividing net income by the weighted
average number of common shares outstanding during the year. Diluted earnings
per common share were computed as basic earnings per common share, adjusted
for outstanding stock options that are dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT APRIL 4, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
APRIL 4, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000868263
<NAME> NATIONAL VISION ASSOCIATES, LTD.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<CASH> 1,933
<SECURITIES> 0
<RECEIVABLES> 8,905
<ALLOWANCES> 826
<INVENTORY> 23,629
<CURRENT-ASSETS> 34,627
<PP&E> 83,235
<DEPRECIATION> 39,271
<TOTAL-ASSETS> 85,247
<CURRENT-LIABILITIES> 20,525
<BONDS> 0
0
0
<COMMON> 210
<OTHER-SE> 42,110
<TOTAL-LIABILITY-AND-EQUITY> 85,247
<SALES> 54,408
<TOTAL-REVENUES> 54,408
<CGS> 24,465
<TOTAL-COSTS> 24,465
<OTHER-EXPENSES> 25,557
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 277
<INCOME-PRETAX> 4,109
<INCOME-TAX> 1,657
<INCOME-CONTINUING> 2,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,452
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
