<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 October 3, 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 October 19, 1998 was 21,157,612.
The Exhibit Index is located at page 23
1<PAGE>
<PAGE>
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 October 3, 1998 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 27, 1997 and October 3, 1998,
and Nine Months Ended September 27, 1997 and October 3, 1998 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 27, 1997 and October 3, 1998 6
Notes to Condensed Consolidated Financial Statements - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
2<PAGE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
January 3, 1998 and October 3, 1998
(000's except share information)
January 3, October 3,
1998 1998
---------- -----------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,559 $ 2,408
Accounts receivable (net of allowance: 1997-$762; 1998-$1,139) 6,066 8,583
Inventories 23,271 28,248
Other current assets 759 2,347
-------- --------
Total current assets 32,655 41,586
-------- --------
PROPERTY AND EQUIPMENT:
Equipment 44,070 52,291
Furniture and fixtures 20,366 23,168
Leasehold improvements 15,005 16,500
Construction in progress 893 2,032
-------- --------
80,334 93,991
Less accumulated depreciation (36,692) (45,800)
-------- --------
Net property and equipment 43,642 48,191
-------- --------
OTHER ASSETS AND DEFERRED COSTS (net of accumulated amortization:
1997-$846; 1998-$1,008) 1,015 6,032
ASSIGNMENT AGREEMENT AND INTANGIBLE ASSETS (net of accumulated
amortization: 1997-$733; 1998-$1,665) 5,938 41,756
-------- --------
$ 83,250 $137,565
======== ========
3
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,252 $ 11,624
Accrued expenses and other current liabilities 12,754 17,354
Current portion long-term debt 478 892
-------- -------
Total current liabilities 20,484 29,870
-------- -------
REVOLVING CREDIT FACILITY - LONG TERM 19,500 52,000
LONG-TERM NOTES PAYABLE, LESS CURRENT PORTION 4,225 6,687
DEFERRED INCOME TAX LIABILITIES 2,673 2,595
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 21,157,612 shares issued and outstanding as
of January 3, 1998 and October 3, 1998, respectively 208 212
Additional paid-in capital 43,053 46,634
Retained Earnings (deficit) (2,820) 3,640
Cumulative foreign currency exchange rate translation (4,073) (4,073)
-------- -------
Total shareholders' equityM 36,368 46,413
-------- -------
$83,250 $137,565
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(000's except per share information)
(Unaudited)
Three Months Ended Nine Months Ended
------------------------ ------------------
September 27, October 3, September 27, October 3,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $45,862 $67,654 $134,736 $173,099
COST OF GOODS SOLD 20,926 30,757 61,723 79,112
------ ------- -------- -------
GROSS PROFIT 24,936 36,897 73,013 93,987
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 21,559 32,995 63,323 81,838
------ ------- -------- -------
OPERATING INCOME 3,377 3,902 9,690 12,149
OTHER EXPENSE, NET 314 736 1,193 1,248
------ ------- -------- -------
INCOME BEFORE PROVISION
FOR INCOME TAXES 3,063 3,166 8,497 10,901
INCOME TAXES 1,204 1,314 3,365 4,454
------ ------- -------- -------
NET INCOME $ 1,859 $ 1,852 $ 5,132 $ 6,447
====== ====== ======= ======
BASIC EARNINGS PER
COMMON SHARE $ 0.09 $ 0.09 $ 0.25 $ 0.31
====== ====== ======= ======
DILUTED EARNINGS PER
COMMON SHARE $ 0.09 $ 0.09 $ 0.25 $ 0.30
====== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's)
Nine Months Ended
September 27 October 3,
1997 1998
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,132 $ 6,447
-------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,876 9,227
Provision for deferred income tax expense 1,218 3,710
Other (610) (400)
Changes in assets and liabilities,
Net of effects of acquisitions:
Receivables (2,056) (2,142)
Inventories 1,063 836
Other current assets 285 (1,267)
Accounts payable, accrued expenses and other
current liabilities 3,675 (6,002)
-------- --------
Total adjustments 11,451 3,962
Net cash provided by operating activities 16,583 10,409
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,029) (7,198)
Payment for non-competition agreement (484) -
Purchase of Assignment Agreement (500) -
Purchase of Frame-n-Lens; net of cash acquired (30,429)
--------- ---------
Net cash provided by (used in) investing activities (7,013) (37,627)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on revolving credit facility 1,500 38,500
Repayments on revolving credit facility (10,000) (6,000)
Proceeds from issuance of common stock 38 290
Debt Issue Costs (4,861)
Repayment on long-term debt and
capital expenses (862)
-------- --------
Net cash provided by (used in) financing activities (8,462) 27,067
Effect of foreign currency exchange rate changes
- -
NET INCREASE (DECREASE) IN CASH 1,108 (151)
CASH AND CASH EQUIVALENTS, beginning period 1,110 2,559
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 2,218 $ 2,408
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 3, 1998
(Unaudited; Dollars in Thousands Unless Otherwise Indicated)
(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 have been made for the interim periods presented. 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 September 27, 1997 condensed consolidated financial statements
have been reclassified to conform to the October 3, 1998 presentation.
(2) RECENT ACQUISITION OF FRAME-N-LENS
In July 1998, the Company acquired all of the outstanding capital stock
of Frame-n-Lens Optical, Inc. ("Frame-n-Lens") for an aggregate
consideration of approximately $32.3 million (including the assumption of
certain indebtedness). At the time of the acquisition, Frame-n-Lens
operated 286 vision centers, a majority of which are in the western United
States, including 156 free-standing vision centers primarily in California,
123 host vision centers in Sam's Club stores, and seven host vision centers
in Wal-Mart stores. Frame-n-Lens, which is based in Fullerton, California,
had sales for the year ended December 28, 1997 of $78.4 million.
The acquisition of Frame-n-Lens is being accounted for as a purchase,
with the excess of the purchase price over the fair value of the net assets
acquired to be allocated to goodwill. Goodwill approximates $27.1 million
and will be amortized over 30 years. A summary of the purchase price and
the related purchase allocation follows:
AGGREGATE PURCHASE PRICE
Cash paid at closing $22,505
Deferred amounts 3,420
Cash paid to existing creditors 6,376
Aggregate consideration $32,301
Financial, accounting, legal and other
direct acquisition costs 2,317
-------
Aggregate Purchase Price $34,618
=======
7
<PAGE>
Of the deferred purchase amounts, $2,920 represents a deferred purchase price
obligation that is payable to the extent that the Company does not identify any
unrecorded liabilities or contingency losses. If no amounts are identified,
$3,664 will be payable to the existing shareholders in equal quarterly
installments over six years. The discount of $744 is being amortized to
interest expense over six years using the effective interest method.
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Aggregate purchase price: $34,618
Less net book value of assets acquired (6,625)
--------
Excess of cost over the net book value of assets acquired $27,993
Adjustments to record assets and liabilities at fair market value:
Accounts receivable, inventory and other assets 455
Fixed assets 1,178
Other 325
Accrued expenses and other accrued liabilities (2,894)
-------
Total adjustments (936)
-------
Goodwill $27,057
=======
The adjustments to record assets and liabilities at fair market value are
subject to change. The Company is continuing its review of assets and
liabilities to finalize the appropriate fair market values. Any changes in
valuation will be reflected as a purchase price adjustment in future
periods.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the acquired Frame-n-
Lens business as if the acquisition had occurred the beginning of each
respective period.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
January 3, 1998 October 3, 1998
--------------- -----------------
<S> <C> <C>
Net Sales $264,725 $218,333
Net Income 2,796 3,372
Basic Earnings per Common Share 0.14 0.16
Diluted Earnings per Common Share 0.13 0.16
</TABLE>
The unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense,
as a result of goodwill and other intangible assets and increased interest
expense on acquisition debt. The above pro forma results do not include any
cost savings resulting from the combination of the two companies.
Additionally, the above pro forma results do not purport to be indicative of
the results of operations which actually would have resulted had the
combination been in effect at the beginning of the respective periods, or of
future results of operations of the consolidated entities.
(3) PROVISION FOR INCOME TAXES
The effective income tax rate on consolidated pre-tax income in the
third quarter of 1998 is 41.5%. Due to the Company's current tax net
operating loss carryforward position, current year earnings will not be
8<PAGE>
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.
(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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -----------------
September 27, October 3, September 27, October 3,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $1,859 $ 1,852 $ 5,132 $ 6,447
Weighted Shares Outstanding 20,649 21,034 20,649 20,909
Basic Earnings per Share $ 0.09 $ 0.09 $ 0.25 $ 0.31
Net Options issued to
Employees .101 172 118 321
------- ------- ------- --------
Aggregate Shares Outstanding 20,750 21,206 20,767 21,230
Diluted Earnings per Share $ 0.09 0.09 $ 0.25 0.30
</TABLE>
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.
(5) RELATED-PARTY TRANSACTIONS
During the three months ended September 27, 1997 and October 3, 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 third quarter 1997 and 1998 were approximately $31,000
and $6,000, respectively.
(6) 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.
9<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities". The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the SFAS 133 as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS 133 cannot be applied retroactively. SFAS 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997.
The Company has not yet quantified the impacts of adopting SFAS 133
on its financial statements and has not determined the timing of or method of
its adoption of SFAS 133. Management does not anticipate a material
impact on earnings once the statement is adopted.
(7) SUPPLEMENTAL DISCLOSURE INFORMATION
For each quarter in fiscal 1997 and fiscal 1998, Earnings Before
Interest, Income Taxes, Depreciation and Amortization ("EBITDA") of the
Company may be summarized as follows:
1997 1998
---- ----
Quarter 1 $5,814 $7,309
Quarter 2 $5,696 $6,748
Quarter 3 $6,056 $7,319
Quarter 4 $4,304
EBITDA represents the sum of operating income plus depreciation and
amortization. EBITDA is presented because it is a widely accepted
financial indication of a company's ability to service or incur
indebtedness. However, EBITDA does not represent cash flow from
operations as defined by GAAP, is not necessarily indicative of cash
available to fund all cash flow needs, should not be considered an
alternative to net income, or to cash flows from operations as determined
in accordance with GAAP and should not be considered as an indication of
the Company's operating performance or as a measure of liquidity. EBITDA
is not necessarily comparable to similarly titled measures for other
companies.
10
<PAGE>
Inventory balances, by classification, may be summarized as follows:
January 3, October 3,
1998 1998
---- ----
Raw Material $15,646 $22,687
Finished Goods 7,003 4,518
Supplies 622 1,043
------ ------
$23,271 $28,248
====== ======
The components of other expense, net, may be summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ---------------------------
September 27, October 3, September 27, October 3,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest expense on debt
and capital leases $ 398 $ 868 $1,402 $1,653
Purchase discounts on invoice
payments $ (136) $ (137) $ (355) $ (435)
Fees, amortization of hedge and
swap agreements, and other $ 52 $ 5 $ 146 $ 30
------ ------ ------ ------
$ 314 $ 736 $1,193 $1,248
</TABLE>
(8) SUBSEQUENT EVENTS
(i) Recent Acquisition of New West Eyeworks
On July 14, 1998, the Company announced the signing of a Merger
Agreement to acquire all of the outstanding stock of New West
Eyeworks, Inc. ("New West") (NASDAQ: NEWI) FOR $13.00 per share of
common stock. On October 5, 1998, the parties amended the Merger
Agreement to reduce the acquisition price to $11.50 per share of
common stock, or approximately $68.3 million in the aggregate
(including the assumption of approximately $2.5 million of
indebtedness. New West, which is headquartered in Tempe, Arizona,
operates 178 retail optical locations throughout 13 states, including
52 vision centers located in Fred Meyer stores. For the year ended
December 27, 1997 New West had sales of $49.2 million. The
transaction is expected to close on October 23, 1998.
11
<PAGE>
The New West Acquisition will be accounted for as a purchase, with the
excess purchase price over the fair value of the net assets acquired
to be allocated to goodwill. Goodwill approximates $60.7 million and
will be amortized over 30 years. A summary of the purchase price and
the related purchase allocation follows:
<TABLE>
<CAPTION>
AGGREGATE PURCHASE PRICE
<S> <C>
Cash paid at closing $65,778
Cash paid to extinguish line of credit 2,483
-------
Aggregate consideration $68,261
Financial, accounting, legal and other direct acquisition costs 3,745
-------
Aggregate purchase price $72,006
=======
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Aggregate purchase price: $ 72,006
Less net book value of assets acquired (12,356)
---------
Excess of cost over the net book value of assets acquired 59,650
Adjustments to record assets and liabilities at fair market value:
Accounts receivable 450
Inventory 550
--------
Total adjustments 1,000
--------
Goodwill $ 60,650
========
</TABLE>
The adjustments to record assets and liabilities at fair market value are
tentative. The Company is continuing its review of assets and liabilities
to finalize the appropriate fair market values. Any changes in valuation
will be reflected as a purchase price adjustment in future periods.
(ii) Debt Financing
On October 5, the Company issued its $125 million 12 3/4% Senior Notes
due 2005 (the "Notes") pursuant to Rule 144A of the Securities Act. The
Notes, which were sold at a discount for an aggregate price of $123.6
million, require semiannual payments commencing on April 15, 1999. The
Notes were issued pursuant to an indenture containing customary provisions
including, without limitation, limitations on incurrance of additional
indebtedness, limitations of restricted payments; limitations on asset
sales; payment restrictions affecting subsidiaries; limitations on liens;
limitations on transactions with affiliates; and other customary terms. In
the event of a Change of Control (as defined), the Company will be required
to offer to repurchase the Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest. The Notes are
guaranteed by a majority of the Company's subsidiaries and are redeemable
12<PAGE>
at the option of the Company, in whole or in part, at 105% of their
principal amount beginning October 15, 2003 and at 100% on or after October
2004. In addition, the Company may, at its option, redeem up to 35% of the
Notes, plus accrued interest, with the net cash proceeds of one or more
equity offerings at a redemption price equal to 112.75% of the principal
amount.
A portion of the proceeds from the Notes was utilized to extinguish
outstanding indebtedness on the Company's existing credit facility (such
credit facility was terminated simultaneously with the repayment), with the
remainder to be utilized to complete the acquisition of New West and pay
for miscellaneous expenses related to the acquisitions of Frame-n-Lens and
New West.
In anticipation of the Notes offering, the Company entered into three
anticipatory hedging transactions with a notional amount of $100 million.
The interest rates on these instruments were tied to U.S. Treasury
securities and ranged from 5.43% to 5.62%. The Company settled these
transactions for approximately $4.6 million. The settlement costs will be
treated as deferred financing costs amortized over the life of the Notes.
(iii) New Credit Facility
On October 8, the Company entered into a new $25.0 million revolving credit
facility (the "New Credit Facility"). The availability under the New
Credit Facility is limited to certain percentages of accounts receivable,
inventory and twelve-month trailing EBITDA. All obligations of the Company
under the New Credit Facility are guaranteed by a majority of the Company's
subsidiaries. Borrowings under the New Credit Facility will be secured by
substantially all assets of the Company and its subsidiaries.
The New Credit Facility will bear interest at rates per annum equal to, at
the option of the Company, either (i) the applicable Reference Rate plus
the applicable margin or (ii) the LIBOR rate plus the applicable margin.
The applicable margin will be a maximum of 2.00% for the Reference Rate and
3.25% for the LIBOR rate, which may be reduced depending on the Company's
ratio of total debt to EBITDA. The Company will pay a fee of 0.50% per
annum on the unused portion of the New Credit Facility, which may be
reduced depending on the Company's ratio of total debt to EBITDA.
The New Credit Facility contains customary covenants, including, among
others, covenants restricting the incurrance of indebtedness, the creation
of liens, the guarantee of other indebtedness, certain investments, the
declaration or payment of dividends, the repurchase or redemption of debt
and equity securities of the Company, affiliate transactions and certain
corporate transactions, such as sale and purchase of assets, mergers, or
consolidations. The New Credit Facility also contains certain financial
covenants relating to minimum EBITDA requirements, minimum fixed charge
ratios, minimum interest and rent coverage ratios, maximum leverage ratios,
and limitations on capital expenditures. The New Credit Facility also
contains customary default provisions, including a material adverse change
clause.
13<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General.
The Company's results of operations in any period are significantly
affected by the number and mix of vision centers opened and operating in
such period. In July 1998, the Company completed its acquisition of Frame-
n-Lens Optical, Inc. ("Frame-n-Lens"), a retail optical chain which
currently operates 283 vision centers, a majority of which are in the
western United States, including 155 free-standing vision centers primarily
in California, 121 host vision centers in Sam's Club stores, and seven host
vision centers in Wal-Mart stores. Frame-n-Lens is based in Fullerton,
California. In July 1998, the Company also announced the execution of a
definitive merger agreement for the Company to acquire New West Eyeworks,
Inc. ("New West"), a retail optical chain which currently operates 178
vision centers, including 52 vision centers located in Fred Meyer stores.
The New West acquisition is expected to close on October 23, 1998. At
October 3, 1998, the Company operated 737 vision centers, versus 378 vision
centers at September 27, 1997.
The Company expects the acquisitions of Frame-n-Lens and New West to have a
significant impact on financial results in the fourth quarter of 1998.
More specifically, the increase in interest costs incurred to complete the
acquisition of Frame-n-Lens had a $0.02 dilutive effect on third quarter
earnings. The Company expects that in the fourth quarter, both
acquisitions will jointly dilute earnings between $0.13 and $0.14 per
share. The dilutive effect in the fourth quarter is driven primarily by
incremental goodwill and interest expense incurred as a result of the
acquisitions.
THREE MONTHS ENDED OCTOBER 3, 1998 (the "Current Period") COMPARED TO
THREE MONTHS ENDED SEPTEMBER 27, 1997 (the "Prior Period")
CONSOLIDATED RESULTS
NET SALES. Net sales during the Current Period increased to $67.7
million from $45.9 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 $9,800 in the Prior Period to $7,800 in the
Current Period. The decrease is due primarily to the averaging the effect
of Midwest Vision and Frame-n-Lens stores, both of which have a lower average
weekly net sales per store than the domestic host store business.
Additionally, the impact of new store openings had a marginal effect on the
reduction in average weekly net sales.
The domestic host store business achieved a comparable store sales increase
of 3.5% in the third quarter. These results are due to several factors.
First, the Company experienced a downward trend in spectacle comparable
store sales in the first quarter of 1998; a refocus on spectacle sales
units coupled with improved merchandising support toward spectacle unit
sales reversed this trend in the second and third quarters. The Company
14<PAGE>
anticipates continued success with this program, which should favorably
impact comparable store sales the remainder of the year and carry over into
1999. Second, severe price competition in the disposable contact lens
market has negatively affected comparable store sales growth; management
expects this trend to continue through the remainder of 1998 and the first
quarter of 1999. The Company continues to reposition its contact lens
offering to be competitive with the market. Lastly, sales under managed
care programs increased from the Prior Period. Management intends to focus
on managed care sales as an avenue of future revenue growth.
Net sales from international operations decreased to $868,000 in the three-
month period ended August 31, 1998 from $1.0 million in the comparable
period a year ago. The decrease is due primarily to the disposition of the
Czech vision centers at the end of the first quarter 1998.
GROSS PROFIT. In the Current Period, gross profit increased to
$36.9 million from $24.9 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 54.5% from 54.3% in the Prior Period
largely due to improvements in lab operations coupled with incremental
promotion monies obtained through vendor programs. The price repositioning
on the contact lens disposable business has not had a significant impact on
gross profit margins because the Company has obtained price reductions from
vendors to accommodate the effect of the price reductions.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES ("SG&A expense").
SG&A expense (which includes both store operating expenses and home
officeoverhead) increased to $33.0 million in the Current Period from
$21.6 million for the Prior Period, reflecting operating expenses of
the additional vision centers. As a percentage of net sales, SG&A
expense was 48.8% in the Current Period, compared to 47.0% for the
Prior Period. The percentage increase was due primarily to the
Frame-n-Lens operation, which has a higher SG&A burden than the
domestic host store business.
OPERATING INCOME. Operating income for the Current
Period increased to $3.9 million from $3.4 million in the
Prior Period. The Company's international operations (26
vision centers as of August 31, 1998) generated an operating
profit of $15,000 in the three months ended August 31, 1998,
as opposed to an operating profit of $4,000 in the comparable
period a year ago. The international operating results do not
include allocated corporate overhead, interest, and taxes.
OTHER EXPENSE. The increase in other expense to
$736,000, compared to $314,000 in the Prior Period, is due to
higher interest expense. The increase in interest expense
results from an increase in average borrowings by the Company
under its credit facility as a result of debt incurred to
finance the acquisition of Frame-n-Lens. Interest expense is
expected to increase dramatically as the result of the
issuance of the Notes as well as the incurrance of any debt
under the New Credit Facility. (See Liquidity and Capital
Resources).
15
<PAGE>
PROVISION FOR INCOME TAXES. The effective income tax rate on
consolidated pre-tax income in the Current Period is 41.5%. 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 $1.9 million, or $0.09 basic earnings
per common share, as compared to net income of $1.9 million, or $0.09
basic earnings per common share, in the Prior Period.
Nine Months Ended October 3, 1998 (the "Current Period") Compared to
Nine Months Ended September 27, 1997 (the "Prior Period")
CONSOLIDATED RESULTS
NET SALES. Net sales during the Current Period increased to
$173.1 million from $134.7 million for the Prior Period. Average
weekly net sales per vision center decreased from $9,800 during
the Prior Period to $8,500 during the Current Period. The decrease
is due primarily to averaging the effect of Midwest Vision and
Frame-n-Lens stores, which have a lower average weekly net sales per
store. The domestic host store business achieved a comparable store
sales increase of 3.5% during the Current Period. In addition, sales
under managed care programs increased from the Prior Period.
Net sales from international operations declined slightly in the
nine-month period ended August 31, 1998 at $2.9 million, due in part
to the disposition of the Czech operations at the end of the first
quarter 1998.
GROSS PROFIT. For the Current Period, gross profit increased
to $94.0 million from $73.0 million in the Prior Period. This
increase was primarily due to the increased net sales described
above. Gross profit as a percentage of sales was 54.3% in the
Current Period slightly up from 54.2% in the Prior Period. The
Company has achieved cost reductions for its contact lens
disposable products; consequently, the price repositioning on the
contact lens disposable business has not had a significant impact
on gross profit margins.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES ("SG&A expense").
SG&A expense (which includes both store operating expenses and
home office overhead) increased to $81.8 million in the Current
Period from $63.3 million for the Prior Period, reflecting
operating expenses of the additional vision centers. As a
percentage of net sales, SG&A expense was 47.3% in the Current
Period, compared to 47.0% for the Prior Period. The percentage
increase was due primarily to the averaging effect of the Frame-n-Lens
acquisition, with SG&A expense as a percent of sales slightly higher
than the domestic host business.
16
<PAGE>
OPERATING INCOME. Operating income for the Current Period
increased to $12.1 million, a 25.4% increase over $9.7 million in the
Prior Period. International operations generated an operating loss
(which excludes allocated corporate overhead, interest, and taxes)
of $51,000 for the nine months ended August 31, 1998 as opposed to
an operating profit of $37,000 in the comparable period a year ago.
OTHER EXPENSE. Interest expense was $1.2 million in each of
the Current Period and the Prior Period.
PROVISION FOR INCOME TAXES. The effective income tax rate on
consolidated pre-tax income in the Current Period is 40.9%. 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 $6.4 million, or $0.31 basic earnings
per common share, as compared to net income of $5.1 million, or $0.25
basic earnings per common share, in the Prior Period.
Frame-n-Lens And New West Acquisitions.
The Company acquired Frame-n-Lens in July 1998. As of October 3,
1998, Frame-n-Lens operates 283 vision centers, including 155
free-standing vision centers (primarily in California) and 128 host
vision centers (primarily in Sam's Club stores). Average annual sales
for free-standing stores approximate $290,000, whereas the average
annual sales in the host vision centers approximate $230,000. In the
first half of 1999, the Company expects to complete the installation
of eye examination facilities in approximately 100 to 120 of the
free-standing stores. The cost for each such installation, consisting
of store improvements and equipment, is between $30,000 and $35,000.
Management expects that the addition of optometrists will have a
positive effect on retail sales. In addition, the employment of
optometrists at the free-standing vision centers will increase
revenues through generation of examination fee revenue. The
Frame-n-Lens locations have experienced significant negative sales
trends. Management believes that the addition of optometrists can
reverse these trends, although no assurances can be given in this
regard. The inability of the Company to reverse these trends could
have a material adverse impact on the Company's profitability and
liquidity.
The Company expects to complete the New West acquisition on
October 23, 1998. New West operates 178 vision centers, including 126
free-standing vision centers and 52 host vision centers located in
Fred Meyer stores. Free-standing stores consist of mall based stores
and conventional shopping centers. Average annual sales for
free-standing vision centers approximate $330,000, with the average
slightly higher for mall based vision centers. Average annual sales
for the Fred Meyer vision centers approximate $275,000 per year.
17<PAGE>
The Company' store count history, may be summarized as follows:
<TABLE>
<CAPTION>
1998
------------------------------ October 23,
1996 1997 QI QII QIII 1998
---- ---- -- --- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Host Store 341 393 395 403 532 584
Free-standing 50 50 50 205 331
--- --- --- --- ---
Total 341 443 445 453 737 915
Host Store 100% 89% 89% 89% 72% 64%
Free-standing ---- 11% 11% 11% 28% 36%
---- --- --- --- --- ---
Total 100% 100% 100% 100% 100% 100%
</TABLE>
In 1999, the Company anticipates opening between 15 and 20 host vision
centers and between 25 and 30 free-standing vision centers.
The Company's results of operations, expressed as a percent of sales, may
be summarized as follows:
<TABLE>
<CAPTION>
Nine Months
1996 1997 ended 10/3/98
---- ---- -------------
<S> <S> <C> <C>
Net Sales 100% 100% 100%
Cost of Good Sold 48% 46% 46%
--- --- ---
Gross Profit 52% 54% 54%
SG&A 48% 48% 47%
--- --- ---
Operating Income 4% 6% 7%
</TABLE>
18<PAGE>
The Company expects that the acquisitions of Frame-n-Lens and New West
will provide opportunities to achieve significant cost savings through
increases in purchasing power with vendors and by consolidating the
optical laboratories of the consolidated entities. Consequently,
management expects Gross Profit as a percent of sales to improve in
1999 versus the historical results. Additionally, the Company expects
that the two acquisitions will create economies of scale relative to
store support and home office support, such that the Company will be
able to reduce SG&A expense as a percentage of sales. Such savings
will, however, be partially offset by annual goodwill amortization of
approximately $3.3 million arising out of these transactions. Given
the net effect of the above, the Company anticipates operating income
as a percentage of sales in 1999 to exceed margins achieved in prior
years. No assurances can be given that such increases will be
attained.
Liquidity and Capital Resources.
The Company's historical capital requirements have been primarily for
working capital expenditures, and acquisitions. The Company's primary
sources of capital to finance such needs have been cash flow from
operations and borrowing under bank credit facilities. In July 1997,
the Company entered into a two-year $45.0 million revolving credit
facility (the "Existing Credit Facility"). At October 3, 1998, the
Company had borrowed $52 million under the Existing Credit Facility
versus outstanding borrowings of $18.0 million as of September 27,
1997. In July 1998, the Existing Credit Facility was expanded to
$60.0 million and the Company borrowed $28.9 million to fund the
acquisition of Frame-n-Lens.
As of October 3, 1998, the Company planned to open between 15 and 20
domestic and Wal-Mart Mexico host vision centers during the next 15
months. Consistent with prior years, the number of ultimate openings
is dependent on the construction schedules of the host store. In
addition, the Company plans to open between 25 and 30 free-standing
vision centers during the next 15 months. Average costs for opening
domestic host vision centers have approximated $140,000 for fixed
assets and $25,000 for inventory, whereas the costs for opening
free-standing vision centers range from $80,000 to $120,000 for fixed
assets and $20,000 for inventory. The Company incurs approximately
$20,000 for pre-opening expenses for each opening of a domestic vision
center. Prior to 1998, such costs were capitalized and amortized over
12 months. Effective in 1998, such costs will be expensed as incurred
in accordance with proposed AICPA Statement of position, "Reporting on
Costs of Start-Up Activities." Capital for leasehold improvements and
other fixed assets in Mexican vision centers is budgeted at $75,000
per vision center.
19<PAGE>
On July 14, 1998, the Company announced that it had agreed to acquire
New West. The closing of the New West acquisition was conditioned
upon the Company's obtaining financing. To obtain such financing, the
Company issued its $125 million Senior Notes due 2005 (the "Notes") on
October 5, 1998 (Note 8 to consolidated financial statements). The
Company also entered into a new $25.0 revolving debt facility (the
"New Credit Facility"). The Company utilized proceeds from the sale
of the Notes to repay amounts outstanding under the Existing Credit
Facility. The Company intends to utilize proceeds from the New Credit
Facility and the balance of proceeds from the Notes to consummate the
acquisition of New West and to pay certain expenses associated with
the acquisitions of Frame-n-Lens and New West and the New Credit
Facility.
The Notes, bear annual interest of 12 3/4%, with interest payments due
(on April 15 and October 15 of each year. The Notes were sold at a
discount for an aggregate price of $123.6 million. The Notes are
issued pursuant to an indenture which contains customary provisions,
including, without limitation, limitations on incurrance of additional
indebtedness, limitations of restricted payments; limitations on asset
sales; payment restrictions affecting subsidiaries; limitations on
liens; limitations on transactions with affiliates; and other
customary terms and provisions. In the event of a Change of Control
(as defined), the Company will be required to offer to repurchase the
Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest.
The Notes are guaranteed by a majority of the Company's subsidiaries
and are redeemable at the option of the Company, in whole or in part,
at 105% of their principal amount beginning October 15, 2003 and at
100% on or after October 2004. In addition, the Company may, at its
option, redeem up to 35% of the Notes, plus accrued interest, with the
net cash proceeds of one or more equity offerings at a redemption
price equal to 112.75% of the principal amount.
In anticipation of the Notes offering, the Company entered into three
anticipatory hedging transactions with a notional amount of $100
million. The interest rates on these instruments were tied to U.S.
Treasury securities and ranged from 5.43% to 5.62%. The Company
settled these transactions for approximately $4.6 million. The
settlement costs will be treated as deferred financing costs amortized
over the life of the Notes.
On October 8, the Company entered into a new $25.0 million revolving
credit facility (the "New Credit Facility"). The availability under
the New Credit Facility is limited to certain percentages of accounts
receivable, inventory and twelve-month trailing EBITDA (as defined).
All obligations of the Company under the New Credit Facility are
guaranteed by a majority of the Company's subsidiaries. Borrowings
under the New Credit Facility will be secured by substantially all
assets of the Company and its subsidiaries.
20<PAGE>
The New Credit Facility will bear interest at rates per annum equal
to, at the option of the Company, either (i) the applicable Reference
Rate plus the applicable margin or (ii) the LIBOR rate plus the
applicable margin. The applicable margin will be a maximum of 2.00%
for the Reference Rate and 3.25% for the LIBOR rate, which may be
reduced depending on the Company's ratio of total debt to EBITDA. The
Company will pay a fee of 0.50% per annum on the unused portion of the
New Credit Facility, which may be reduced depending on the Company's
ratio of total debt to EBITDA.
The New Credit Facility contains customary covenants, including, among
others, covenants restricting the incurrance of indebtedness, the
creation of liens, the guarantee of other indebtedness, certain
investments, the declaration or payment of dividends, the repurchase
or redemption of debt and equity securities of the Company, affiliate
transactions and certain corporate transactions, such as sale and
purchase of assets, mergers, or consolidations. The New Credit
Facility also contains certain financial covenants relating to minimum
EBITDA requirements, minimum fixed charge ratios, minimum interest and
rent coverage ratios, maximum leverage ratios, and limitations on
capital expenditures. The New Credit Facility also contains customary
default provisions, including a material adverse change clause.
The Company anticipates that internally generated funds, as well as
funds available under the New Credit Facility, will be sufficient to
fund ongoing operating costs associated with its current vision
centers and vision centers currently scheduled to be opened during
1998 and 1999.
Year 2000 Compliance.
The majority of the Company's internal information systems are
currently Year 2000 compliant or in the process of being replaced with
new fully-compliant systems. the Company has identified approximately
300 point of sale systems that require hardware upgrades to be Year
2000 compliant, of which 250 have been replaced as of August 31, 1998.
The total cost of software changes, hardware changes, and
implementation for Year 2000 compliance projects is estimated to be
approximately $1 million. Costs related to hardware and new software
purchases will be capitalized as incurred and amortized over three
years. These new system modifications have been initiated and are
expected to be completed by the end of the third quarter of 1999.
The Company is in the process of developing an enhanced point of sale
software system which is scheduled to be in the retail stores by the
fourth quarter of 1999. The primary purpose of the system is to
upgrade data processing, broaden in-store capabilities, and improve
the accuracy of processing managed care sales transactions. In
addition to the above improvements, the system will be designed to be
Year 2000 Compliant.
Some of the Company's vendors, financial institutions, and managed
care organizations utilize equipment to capture and transmit
transactions. The Company is in the process of coordinating its Year
2000 compliance efforts with those of such organizations. The future
cost of this transition is estimated by the Company to be minimal. No
assurance can be given that such organizations will make their systems
Year 2000 compliant. The failure of such organizations, particularly
any managed care payor organizations, to become Year 2000 compliant
could have a material adverse affect on the Company.
21<PAGE>
The Company will utilize both internal and external resources to
reprogra, or replace, and test software for Year 2000 compliance. The
costs of Year 2000 project and the date on which the Company plans to
complete Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources,
third party modification plans and other factors. However, there can
be no guarantee that these estimates will be realized and actual
results could differ materially from those plans.
Derivative Financial Instruments.
Market Risk.
Market risk is the potential change in an instrument's value caused
by, for example, fluctuations in interest and currency exchange rates.
The Company's primary market risk exposures are interest rate risk and
the risk of unfavorable movements in exchange rates between the U.S.
dollar and the Mexican peso.
Monitoring and managing these risks is a continual process carried out
be senior management, which reviews and approves the Company's risk
management policies. Market risk is managed based on an ongoing
assessment of trends in interest rates, foreign exchange rates, and
economic developments, giving consideration to possible effects on
both total return and reported earnings. The Company's financial
advisors, both internal and external, provide ongoing advice regarding
trends that affect management assessment.
Interest Rate Risk.
The Company borrows long-term debt at variable interest rates indexed
to LIBOR which exposes it to the risk of increased interest costs if
interest rates rise. To reduce the risk related to unfavorable
interest rate movements, the Company enters into interest rate swap
contracts to pay a fixed rate.
In anticipation of the issuance of the Notes, the Company entered into
three anticipatory hedging transactions with a notional amount of $100
million. The interest rates on these instruments were tied to the
U.S. Treasury securities and ranged from 5.43% to 5.63%. The Company
settled these transactions for approximately $4.6 million. The
settlement costs are being treated as deferred financing costs to be
amortized over the life of the Notes.
22<PAGE>
Foreign Exchange Rate Risk.
The Securities and Exchange Commission has qualified Mexico as a
highly inflationary economy under the provisions of SFAS No.
52-Foreign Currency Translation. Consequently, in 1997, the financial
statements of the Mexico operation were remeasured with the U.S.
dollar as the functional currency. During 1997, an immaterial loss
resulted from changes in foreign currency rates between the peso and
the U.S. dollar, as calculated in the remeasurement process, and was
recorded in the Company's statement of operations. Continued
increases in the conversion for the peso will generate further loses
in future years.
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: emphasis on managed care sales; the installation of
eye examination facilities in the Company's vision centers; expected
increases in revenues as the result of additions of optometrists to
Frame-n-Lens locations; expected creation of cost savings and
economies of scale; expected increases in operating income as a
percentage of revenue; planned opening of vision centers; and the
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 for the first quarter of 1998, could materially
affect the Company's actual results.
PART II
OTHER INFORMATION
ITEM 5. EXHIBITS AND REPORTS ON FORM 10-Q
(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***
Agreement and Plan of Merger dated as of July 13,
1998 among the Company, New West Eyeworks, Inc. and
NW Acquisition Corp. 10.57****
Statement Regarding Computation of Per Share Earnings 11*****
Financial Data Schedule 27*****
</TABLE>
*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.
****Incorporated by reference to the Company's Schedule 14D-1 filed
with the Commission on July 20, 1998.
*****Filed with this Form 10-Q.
(b) Reports on Form 8-K.
The registrant filed a Report on Form 8-K on August 12, 1998.
22
<PAGE>
<PAGE>
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
October 23, 1998
EXHIBIT 11
NATIONAL VISION ASSOCIATES, LTD.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(000's except per common share information)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 27, October 3, September 27 October 3,
1997 1998 1997 1998
------- ------- -------- ---------
<S> <C> <C> <C> <C>
NET INCOME $ 1,859 $1,852 $ 5,132 $ 6,447
======= ====== ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 20,649 $21,034 $20,649 $20,909
BASIC INCOME PER COMMON SHARE $ 0.09 $ 0.09 0.25 $ 0.31
WEIGHTED SHARES OUTSTANDING 20,649 21,034 20,649 20,909
Net options issued to employees 101 172 118 321
------ ------- ------- ------
AGGREGATE COMMON SHARES OUTSTANDING 20,750 21,206 20,767 21,230
====== ====== ======= ======
DILUTED INCOME PER COMMON SHARE $ 0.09 $ 0.09 $ 0.25 $ 0.30
======= ======= ======= =======
</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 OCTOBER 3, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
OCTOBER 3, 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> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> OCT-03-1998
<CASH> 2,408
<SECURITIES> 0
<RECEIVABLES> 9,722
<ALLOWANCES> 1,139
<INVENTORY> 28,248
<CURRENT-ASSETS> 41,586
<PP&E> 93,991
<DEPRECIATION> 45,800
<TOTAL-ASSETS> 137,565
<CURRENT-LIABILITIES> 29,870
<BONDS> 0
0
0
<COMMON> 212
<OTHER-SE> 46,201
<TOTAL-LIABILITY-AND-EQUITY> 137,565
<SALES> 67,564
<TOTAL-REVENUES> 67,564
<CGS> 30,757
<TOTAL-COSTS> 30,757
<OTHER-EXPENSES> 32,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 736
<INCOME-PRETAX> 3,166
<INCOME-TAX> 1,314
<INCOME-CONTINUING> 1,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,852
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
