<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 July 3, 1999 Number 0-20001
VISTA EYECARE, INC.
(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 August 11, 1999 was 21,179,103.
The Exhibit Index is located at page 17.
Page 1 of 19
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VISTA EYECARE, INC.
FORM 10-Q INDEX
Page of
Form 10-Q
---------
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
July 3, 1999 and January 2, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended July 3, 1999 and July 4, 1998
and Six Months Ended July 3, 1999 and July 4, 1998 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended July 3, 1999 and July 4, 1998 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
- ---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
Page 2 of 19
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PART I
FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
July 3, 1999 and January 2, 1999
(In thousands except share information)
<TABLE>
<CAPTION>
July 3, January 2,
1999 1999
------------ ---------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,710 $ 7,072
Accounts receivable (net of allowance: 1999-$1,631; 1998-$1,516) 13,671 10,135
Inventories 34,635 31,670
Other current assets 5,143 2,899
------- -------
Total current assets 57,159 51,776
------- -------
PROPERTY AND EQUIPMENT:
Equipment 55,328 54,396
Furniture and fixtures 25,804 23,124
Leasehold improvements 30,082 26,806
Construction in progress 2,225 2,022
------- -------
113,439 106,348
Less accumulated depreciation (55,364) (48,305)
------- -------
Net property and equipment 58,075 58,043
------- -------
OTHER ASSETS AND DEFERRED COSTS (net of accumulated amortization:
1999-$1,950; 1998-$1,292) 9,936 9,953
DEFERRED INCOME TAX ASSETS 211 385
GOODWILL AND OTHER INTANGIBLE ASSETS (net of accumulated
amortization: 1999-$4,439; 1998-$2,544) 107,131 108,940
------- -------
$232,512 $229,097
======= =======
Page 3 of 19
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 23,518 $ 18,925
Accrued expenses and other current liabilities 19,444 26,637
Current portion long-term debt and capital lease obligations 1,958 2,006
------- -------
Total current liabilities 44,920 47,568
------- -------
SENIOR NOTES (net of discount: 1999-$1,324; 1998-$1,391) 123,676 123,609
REVOLVING CREDIT FACILITY 12,500 6,000
OTHER LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 6,440 7,223
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,
21,179,103 and 21,166,612 shares issued and outstanding as
of July 3, 1999, and January 2, 1999 respectively 212 212
Additional paid-in capital 48,088 47,964
Retained earnings 749 594
Cumulative foreign currency translation (4,073) (4,073)
------- -------
Total shareholders' equity 44,976 44,697
------- -------
$ 232,512 $ 229,097
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 4 of 19
<PAGE>
<TABLE>
<CAPTION>
VISTA EYECARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share information)
(Unaudited)
Three Months Ended Six Months Ended
------------------------ -------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $82,531 $51,037 $ 169,166 $105,445
COST OF GOODS SOLD 36,745 23,890 73,833 48,355
------- ------- ------- -------
GROSS PROFIT 45,786 27,147 95,333 57,090
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSE 42,937 23,286 85,383 48,843
------- ------- ------- -------
OPERATING INCOME 2,849 3,861 9,950 8,247
INTEREST EXPENSE, NET 4,743 235 9,409 512
------- ------- ------- -------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (1,894) 3,626 541 7,735
PROVISION (BENEFIT) FOR INCOME TAXES (584) 1,483 386 3,140
------- ------- ------- -------
NET INCOME (LOSS) $(1,310) $ 2,143 $ 155 $ 4,595
======= ======= ======= =======
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (0.06) $ 0.10 $ 0.01 $ 0.22
======= ======= ======= =======
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (0.06) $ 0.10 $ 0.01 $ 0.22
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 5 of 19
<PAGE>
<TABLE>
<CAPTION>
VISTA EYECARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
-----------------------
July 3, July 4,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 155 $ 4,595
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,375 6,934
Provision for deferred income tax expense 174 2,711
Changes in operating assets and liabilities,
net of effects of acquisitions:
Receivables (3,536) (1,962)
Inventories (2,965) 201
Other current assets (2,244) (651)
Other assets (160) 29
Accounts payable 4,593 119
Accrued expenses and other current liabilities (7,193) (3,118)
------- -------
Total adjustments (1,956) 4,263
------- -------
Net cash (used in) provided by operating activities (1,801) 8,858
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,287) (5,968)
------- -------
Net cash used in investing activities (7,287) (5,968)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on revolving credit facility 14,000 1,000
Repayments on revolving credit facility (7,500) (4,000)
Repayments on notes payable (830) (331)
Proceeds from issuance of common stock 56 246
------- -------
Net cash provided by (used in) financing activities 5,726 (3,085)
------- -------
NET INCREASE (DECREASE) IN CASH (3,362) (195)
CASH, beginning of period 7,072 2,559
------- -------
CASH, end of period $ 3,710 $ 2,364
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 6 of 19
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VISTA EYECARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 3, 1999
(Unaudited)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Vista Eyecare, Inc., formerly known as 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 1, 2000. Certain amounts in the July 4, 1998 condensed
consolidated financial statements have been reclassified to conform to the July
3, 1999 presentation.
(2) PROVISION FOR INCOME TAXES
The effective income tax rate on the consolidated pre-tax loss in the
second quarter of 1999 is 31%. The Company anticipates a tax provision of
approximately 95% on pre-tax earnings for the remainder of 1999. This
anticipated tax provision is the result of (a) the expectation that the Company
will, for the second half of 1999, operate at close to a break-even level, and
(b) the amortization of approximately $1.7 million in non-deductible goodwill
during the same period. In 1999, the Company expects to make cash payments for
federal and state income taxes approximating 70% of consolidated pretax
earnings.
Page 7 of 19
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(3) EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share were computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
year. Diluted earnings (loss) 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 thousands except per share information):
<TABLE>
Three Months Ended Six Months Ended
-------------------------- --------------------------
<S> <C> <C> <C> <C>
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
Net Income (Loss) $(1,310) $2,143 $ 155 $4,595
Weighted Shares Outstanding 21,070 20,921 21,066 20,846
Basic Earnings per Share $ (0.06) $ 0.10 $ 0.01 $ 0.22
Weighted Shares Outstanding 21,070 20,921 21,066 20,846
Net Options Issued to Employees * 547 215 396
Aggregate Shares Outstanding 21,070 21,468 21,281 21,242
Diluted Earnings per Share $ (0.06) $ 0.10 $ 0.01 $ 0.22
*Net options issued to employees were not included in the diluted per share
calculation because the effect of inclusion would be anti-dilutive.
</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, as of the date of the grant.
(4) RELATED-PARTY TRANSACTIONS
During the three months ended July 3, 1999 and July 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 second quarter 1999 and 1998 were approximately $288,000 and $186,000,
respectively.
Page 8 of 19
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(5) SUPPLEMENTAL DISCLOSURE INFORMATION
Inventory balances, by classification, may be summarized as follows:
<TABLE>
<S> <C> <C>
July 3, January 2,
1999 1999
------ ------
Raw Material $24,346 $22,814
Finished Goods 9,190 7,634
Supplies 1,099 1,222
------ ------
$34,635 $31,670
====== ======
The components of interest expense, net, may be summarized as follows:
Three Months Ended Six Months Ended
------------------------------ ---------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
----- ----- ----- -----
Interest expense on debt
and capital leases $4,491 $ 357 $8,917 $ 767
Purchase discounts on invoice
payments (24) (153) (36) (298)
Finance fees and amortization of
hedge and swap agreements 298 42 569 72
Interest income (17) (8) (70) (23)
Other (5) (3) 29 (6)
------ ------ ------ ------
$4,743 $ 235 $9,409 $ 512
====== ====== ====== ======
</TABLE>
Page 9 of 19
<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 July 3, 1999, the Company operated 930 vision centers, versus
453 vision centers at July 4, 1998.
THREE MONTHS ENDED JULY 3, 1999 (THE "CURRENT THREE MONTHS") COMPARED TO
THREE MONTHS ENDED JULY 4, 1998 (THE "PRIOR THREE MONTHS")
CONSOLIDATED RESULTS
NET SALES. Net sales during the Current Three Months increased to $82.5
million from $51.0 million for the Prior Three Months due in substantial part to
the increase in the number of operating vision centers. Average weekly net sales
per vision center decreased from $8,780 in the Prior Three Months to $6,830 in
the Current Three Months, primarily as a result of lower average net sales per
store recorded in vision centers acquired in the Frame-n-Lens and New West
acquisitions (the "Acquired Vision Centers").
Net sales for the domestic host store business improved as a result of a 5%
increase in comparable store sales growth. The Acquired Vision Centers,
particularly those acquired from Frame-n-Lens, experienced significant negative
comparable store sales and had a substantial negative impact on results and
liquidity during the period. Management continues to concentrate on improving
the performance of the Acquired Vision Centers and has implemented various
measures including intensive training programs and increased in-store marketing
programs and special promotions for these vision centers. No assurances can be
given that net sales levels at the Acquired Vision Centers will improve. Failure
to improve such sales levels will have a substantial negative impact on earnings
and liquidity.
Net sales from international operations increased to $995,000 in the
three-month period ended May 31, 1999 from $859,000 in the comparable period a
year ago.
GROSS PROFIT. In the Current Three Months, gross profit increased to $45.8
million from $27.1 million in the Prior Three Months. This increase was
primarily due to the increased net sales described above. Gross profit as a
percent of sales increased to 55.5% from 53.2% in the Prior Three Months. Such
increase was due primarily to (a) lower manufacturing costs due to the
consolidation of manufacturing facilities and (b) lower material costs due to
increased purchasing leverage. These improvements were offset in part by lower
margins on disposable contact lenses as a result of price reductions taken in
certain geographic regions due to competitive price pressures. Management
expects continued pricing pressure in the disposable contact lens market.
Page 10 of 19
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE ("SG&A expense"). SG&A expense
(which includes both store operating expenses and home office overhead)
increased to $42.9 million in the Current Three Months from $23.3 million for
the Prior Three Months. The increase was due to the increase in the number of
vision centers. As a percentage of net sales, SG&A expense was 52.0% in the
Current Three Months, compared to 45.6% for the Prior Three Months. This
increase was due to higher payroll costs as a percentage of sales at the
Acquired Vision Centers; increased spending for advertising; costs associated
with placing doctors in the Acquired Vision Centers; and $872,000 of goodwill
amortization related to the 1998 acquisitions of Frame-n-Lens and New West.
OPERATING INCOME. Operating income for the Current Three Months decreased
to $2.8 million from $3.9 million in the Prior Three Months. Operating income as
a percentage of sales was 3.5% in the Current Three Months, compared to 7.6% in
the Prior Three Months. The Company's operations in Mexico (26 vision centers as
of May 31, 1999) generated an operating profit of $19,000 in the three months
ended May 31, 1999, as opposed to an operating loss of $63,000 in the comparable
period a year ago. The international operating results do not include allocated
corporate overhead, interest, and taxes.
INTEREST EXPENSE. The increase in interest expense to $4.7 million,
compared to $235,000 in the Prior Three Months, is due to increased interest
costs arising out of the issuance of the Company's senior notes in October 1998.
PROVISION FOR INCOME TAXES. The effective income tax rate on the
consolidated pre-tax loss in the second quarter of 1999 is 31%. The Company
anticipates a tax provision of approximately 95% on pre-tax earnings for the
remainder of 1999. This anticipated tax provision is the result of (a) the
expectation that the Company will, for the second half of 1999, operate at close
to a break-even level, and (b) the amortization of approximately $1.7 million in
non-deductible goodwill during the same period. In 1999, the Company expects to
make cash payments for federal and state income taxes approximating 70% of
consolidated pretax earnings.
NET INCOME. The Company posted a net loss of $1.3 million, or $0.06 per
share, versus net income of $2.1 million, or $0.10 per share, in the Prior Three
Months.
Page 11 of 19
<PAGE>
SIX MONTHS ENDED JULY 3, 1999 (THE "CURRENT SIX MONTHS") COMPARED TO
SIX MONTHS ENDED JULY 4, 1998 (THE "PRIOR SIX MONTHS")
NET SALES. Net sales during the Current Six Months increased to $169.2
million from $105.4 million for the Prior Six Months. Average weekly net sales
per vision center decreased from $9,080 during the Prior Six Months to $7,020
during the Current Six Months. The decrease is due primarily to the low average
weekly net sales from the Acquired Vision Centers. The average weekly net sales
for the domestic host store business increased by 4.0%.
Net sales from international operations in the six-month period ended May
31, 1998 decreased slightly to $1.9 million from $2 million recorded in the
comparable period ended May 31, 1998, due to the disposition of the Czech
operations at the end of the first quarter 1998.
GROSS PROFIT. For the Current Six Months, gross profit increased to $95.3
million from $57.1 million in the Prior Six Months. This increase was primarily
due to the increased net sales described above. Gross profit as a percentage of
sales increased from 54.1% in the Prior Six Months to 56.4% in the Current Six
Months. The increase was due primarily to lower manufacturing costs due to the
consolidation of manufacturing facilities and lower material costs due to
increased purchasing leverage.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE ("SG&A expense"). SG&A expense
(which includes both store operating expenses and home office overhead)
increased to $85.4 million in the Current Six Months from $48.8 million for the
Prior Six Months, reflecting operating expenses of the additional vision
centers. As a percentage of net sales, SG&A expense increased to 50.5% in the
Current Six Months, from 46.3% for the Prior Six Months. The percentage increase
was due primarily to low sales levels recorded at the Acquired Vision Centers.
OPERATING INCOME. Operating income for the Current Six Months increased to
$10.0 million, a 22% increase over $8.2 million in the Prior Six Months.
International operations generated an operating profit (which excludes allocated
corporate overhead, interest, and taxes) of $53,000 for the six months ended May
31, 1999 as opposed to an operating loss of $80,000 in the comparable period a
year ago.
INTEREST EXPENSE. The increase in interest expense to $9.4 million,
compared to $512,000 in the Prior Period, is due to increased interest costs
arising out of the issuance of the Company's senior notes in October 1998.
PROVISION FOR INCOME TAXES. The effective income tax rate on consolidated
pre-tax income in the Current Six Months is 71%. This rate represents a tax
provision of 113% on domestic earnings, offset by $225,000 related to a partial
reduction of the deferred tax liability associated with disposition activities
that occurred in 1993. The Company anticipates a tax provision of approximately
95% on pre-tax earnings for the remainder of 1999. This anticipated tax
provision is the result of (a) the expectation that the Company will, for the
second half of 1999, operate at close to a break-even level, and (b) the
amortization of approximately $1.7 million in non-deductible goodwill during the
same period.
NET INCOME. Net income was $155,000, or $0.01 per share, as compared to net
income of $4.6 million, or $0.22 per share, in the Prior Six Months.
Page 12 of 19
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LIQUIDITY AND CAPITAL RESOURCES
The Company opened four vision centers and closed four vision centers in
the second quarter of 1999. As of July 3, 1999, the Company plans to open an
additional ten vision centers in the remainder of 1999. The actual number of
openings is dependent on various factors, including, but not limited to
construction schedules, weather conditions, the Company's continued ability to
obtain suitable locations, and changes in economic conditions such as inflation
or recession. Average costs for opening domestic host vision centers have
approximated $140,000 for fixed assets and $35,000 for inventory, whereas the
costs for opening free-standing vision centers range from $120,000 to $155,000
for fixed assets and $20,000 for inventory. The Company incurs approximately
$20,000 for pre-opening expenses for each vision center opening. These costs are
expensed as incurred.
At July 3, 1999, the Company had borrowed $12.5 million under its credit
facility versus outstanding borrowings of $6.0 million as of January 2, 1999. At
the end of the second quarter, the Company has availability under its credit
facility of up to $25 million subject to borrowing base limitations. Semi-annual
interest payments are due on the Company's senior notes in April and October.
The Company paid $8.3 million on April 15th for the first semi-annual interest
payment. 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, including interest payments,
associated with its current vision centers and vision centers currently
scheduled to be opened during 1999. Due to seasonality, the Company typically
experiences reduced sales, margins and cashflow in the fourth quarter. Continued
negative sales trends from the Acquired Vision Centers would have a negative
impact on the Company's liquidity, particularly during the fourth quarter.
IMPACT OF THE YEAR 2000 ISSUE
The Company's State of Readiness
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's Year 2000 compliance plan includes (1) identifying all
hardware and equipment that require upgrading and (2) identifying all
application software that require upgrades or replacement to be Year 2000
compliant. The Company has utilized both internal and external resources to
reprogram, or replace, and test software for Year 2000 compliance. Among the
findings, the Company has identified approximately 300 point of sale systems
that require hardware upgrades to be Year 2000 compliant, of which 285 have been
replaced as of July 3, 1999. The remaining systems will be replaced in the
second half of 1999.
In November 1998, as part of its Year 2000 compliance efforts, the Company
engaged an independent consulting firm to perform a risk assessment of its Year
2000 compliance project. The consulting firm's evaluation included both hardware
infrastructure and software applications. Although the firm can make no
guarantees, its findings confirmed that the Company has a sound Year 2000
compliance plan and is proceeding in accordance with its plan.
Page 13 of 19
<PAGE>
The Company is in the process of completing the development and testing of
a new point of sale software system which is scheduled to be in the retail
stores by the end of 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. No
assurance can be given that the system will perform as planned or that it will
not cause disruptions at the retail or administrative levels of the
organization. Such disruptions could have a material, adverse impact on the
Company.
Costs to Address Year 2000 Issues
The total cost of software changes, hardware changes, testing, and
implementation for Year 2000 compliance projects is estimated to be
approximately $1.1 million. The Company has currently spent approximately $0.9
million for its Year 2000 project. The remaining planned expenditures of $0.2
million consist primarily of software application upgrades and remediation
costs. Costs related to hardware and new software purchases will be capitalized
as incurred and amortized over three to five years. These new system
modifications have been initiated and are expected to be completed by the end of
the third quarter of 1999.
The costs of the 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.
Risks of Third-Party Year 2000 Issues
The impact of Year 2000 non-compliance by outside parties with whom the
Company transacts business cannot be accurately gauged. 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 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 these organizations, particularly any third party
billing or managed care payor organizations, to become Year 2000 compliant could
have a material adverse affect on the Company.
The Company's Contingency Plans
The Company is developing contingency plans to address reasonably likely
worst case Year 2000 scenarios. These scenarios include: (1) an interruption in
the supply of goods and services from the Company's vendors; and (2) the failure
of point of sale systems in individual retail stores.
Page 14 of 19
<PAGE>
The Company has not yet completed its contingency planning with respect to
these and other scenarios. It is contacting key vendors regarding Year 2000
compliance and attempting to gain assurance of the vendors' compliance programs.
Should the Company believe that a key vendor will not be ready for the Year 2000
date change, the Company may purchase critical inventory from alternate
acceptable vendors or stockpile important product lines. The Company believes
that if the Company's point of sale systems fail, then the Company would be able
to utilize manual processes until appropriate repairs or upgrades can be made.
RISK FACTORS
Any expectations, beliefs, and other non-historical statements contained in
this Form 10-Q are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. 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 Company's liquidity. Without limiting the foregoing,
the words "believes," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. With respect to such
forward-looking statements and others which may be made by, or on behalf of, the
Company, the factors described as "Risk Factors" in the Company's Report on Form
10-K for 1998 could materially affect the Company's actual results.
Page 15 of 19
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the 1999 Annual Meeting of Shareholders (held on April 22, 1999), the
shareholders voted upon and elected management's nominees for directors. The
results of the voting are as follows:
<TABLE>
<CAPTION>
DIRECTORS VOTES FOR VOTES VOTES WITHHELD ABSTENTIONS BROKER
AGAINST NON-VOTES
<S> <C> <C> <C>
Barry J. Feld 17,957,806 77,741
David I. Fuente 17,933,706 101,841
Ronald J. Green 17,939,456 96,091
James E. Kanaley 17,929,171 106,376
Campbell B. Lanier, III 17,937,856 97,691
J. Smith Lanier, II 17,936,246 99,301
James W. Krause 17,895,806 139,741
</TABLE>
At same meeting, the shareholders approved an amendment to the Company's
Restated Stock Option and Incentive Award Plan, increasing the number of shares
authorized thereunder from 3,350,000 to 4,350,000 shares. A total of 17,447,913
shares were voted in favor of the amendment; 586,180 shares were voted against
the amendment; and votes representing 1,454 shares were withheld.
Page 16 of 19
<PAGE>
ITEM 5. OTHER INFORMATION
A. Listing of Company's Common Stock
On August 3, 1999, NASDAQ notified the Company that it did not meet the
requirements for continued listing of its Common Stock on the NASDAQ National
Market System. The Company is evaluating various alternatives, including the
possibility of listing its Common Stock on the NASDAQ SmallCap Market.
B. Change of Transfer Agent
On June 1, 1999, the Company appointed First Union National Bank,
Charlotte, North Carolina as its transfer agent.
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 Articles of Incorporation 3.1*
Amended and Restated Bylaws 3.2**
Form of Common Stock Certificate 4.1***
Financial Data Schedule 27****
*Incorporated by reference to the Company's Form 8-K filed with the
Commission on January 6, 1999.
**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.
****Filed with this Form 10-Q.
Page 17 of 19
<PAGE>
(b) Reports on Form 8-K.
The following current reports on Form 8-K and 8-K/A have been filed
during the three months ended July 3, 1999:
Financial
Date of Item Statements
Report Report Reported Description Filed
----------------------------------------------------------------------
8-K April 23, 1999 Item 5 Exception Under --
Rights Plan
8-K July 2, 1999 Item 5 Resignation of --
Officer
</TABLE>
Page 18 of 19
<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.
VISTA EYECARE, INC.
By: /s/ Timothy W. Ranney
---------------------
Timothy W. Ranney
Vice President and
Corporate Controller
Chief Accounting Officer
August 17, 1999
Page 19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JULY 3, 1999 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
JULY 3, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000868263
<NAME> VISTA EYECARE, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JUL-03-1999
<CASH> 3,710
<SECURITIES> 0
<RECEIVABLES> 15,302
<ALLOWANCES> 1,631
<INVENTORY> 34,635
<CURRENT-ASSETS> 57,159
<PP&E> 113,439
<DEPRECIATION> 55,364
<TOTAL-ASSETS> 232,512
<CURRENT-LIABILITIES> 44,920
<BONDS> 123,676
0
0
<COMMON> 212
<OTHER-SE> 44,764
<TOTAL-LIABILITY-AND-EQUITY> 232,512
<SALES> 82,531
<TOTAL-REVENUES> 82,531
<CGS> 36,745
<TOTAL-COSTS> 36,745
<OTHER-EXPENSES> 42,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,743
<INCOME-PRETAX> (1,894)
<INCOME-TAX> (584)
<INCOME-CONTINUING> (1,310)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,310)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
