<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 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
April 22, 1999 was 21,179,103.
The Exhibit Index is located at page 11.
Page 1 of 12
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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 -
April 3, 1999 and January 2, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended April 3, 1999 and April 4, 1998 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended April 3, 1999 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
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PART I
FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
April 3, 1999 and January 2, 1999
(In thousands except share information)
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
------------ ---------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,838 $ 7,072
Accounts receivable (net of allowance: 1999-$1,514; 1998-$1,516) 11,912 10,135
Inventories 33,100 31,670
Other current assets 3,076 2,899
------- -------
Total current assets 53,926 51,776
------- -------
PROPERTY AND EQUIPMENT:
Equipment 56,502 54,396
Furniture and fixtures 24,849 23,124
Leasehold improvements 27,397 26,806
Construction in progress 1,842 2,022
------- -------
110,590 106,348
Less accumulated depreciation (52,720) (48,305)
------- -------
Net property and equipment 57,870 58,043
------- -------
OTHER ASSETS AND DEFERRED COSTS (net of accumulated amortization:
1999-$1,622; 1998-$1,292) 9,982 9,953
DEFERRED INCOME TAX ASSETS -- 385
GOODWILL AND OTHER INTANGIBLE ASSETS (net of accumulated
amortization: 1999-$3,466; 1998-$2,544) 107,856 108,940
------- -------
$229,634 $229,097
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,038 $ 18,925
Accrued expenses and other current liabilities 24,135 26,637
Current portion long-term debt and capital lease obligations 2,032 2,006
------- -------
Total current liabilities 48,205 47,568
------- -------
SENIOR NOTES (net of discount: 1999-$1,358; 1998-$1,391) 123,642 123,609
REVOLVING CREDIT FACILITY 4,500 6,000
OTHER LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 6,701 7,223
DEFERRED INCOME TAX LIABILITIES 372 --
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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,
21,168,728 and 21,166,612 shares issued and outstanding as
of April 3, 1999 and January 2, 1999, respectively 212 212
Additional paid-in capital 48,016 47,964
Retained earnings 2,059 594
Cumulative foreign currency translation (4,073) (4,073)
------- -------
Total shareholders' equity 46,214 44,697
------- -------
$ 229,634 $ 229,097
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3 of 12
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<TABLE>
<CAPTION>
VISTA EYECARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share information)
(Unaudited)
Three Months Ended
------------------------
April 3, April 4,
1999 1998
---- ----
<S> <C> <C>
NET SALES $86,634 $54,408
COST OF GOODS SOLD 37,088 24,465
------- -------
GROSS PROFIT 49,546 29,943
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSE 42,446 25,557
------- -------
OPERATING INCOME 7,100 4,386
OTHER EXPENSE, NET 4,665 277
------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,435 4,109
PROVISION FOR INCOME TAXES 970 1,657
------- -------
NET INCOME $ 1,465 $ 2,452
======= =======
BASIC EARNINGS PER COMMON SHARE $ 0.07 $ 0.12
======= =======
DILUTED EARNINGS PER COMMON SHARE $ 0.07 $ 0.12
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4 of 12
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<TABLE>
<CAPTION>
VISTA EYECARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
-----------------------
April 3, April 4,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,465 $ 2,452
------- -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,733 2,923
Provision for deferred income tax expense 757 1,513
Changes in operating assets and liabilities:
Receivables (1,777) (2,013)
Inventories (1,430) (358)
Other current assets (177) (298)
Other assets 8 38
Accounts payable 3,113 3,014
Accrued expenses and other current liabilities (2,502) (2,974)
------- -------
Total adjustments 2,725 1,845
------- -------
Net cash provided by operating activities 4,190 4,297
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,447) (2,900)
------- -------
Net cash used in investing activities (3,447) (2,900)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on revolving credit facility (5,500) (2,000)
Advances on revolving credit facility 4,000 --
Repayments on notes payable and capital leases (495) (214)
Proceeds from issuance of common stock 18 191
------- -------
Net cash used in financing activities (1,977) (2,023)
------- -------
NET INCREASE (DECREASE) IN CASH (1,234) (626)
CASH, beginning of period 7,072 2,559
------- -------
CASH, end of period $ 5,838 $ 1,933
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5 of 12
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VISTA EYECARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 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 April 4, 1998 condensed
consolidated financial statements have been reclassified to conform to the April
3, 1999 presentation.
(2) PROVISION FOR INCOME TAXES
The effective income tax rate on consolidated pre-tax income in the first
quarter of 1999 is 39.8%. This rate represents a tax provision of 50% 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 50% on pre-tax
earnings for the remainder of 1999. In 1999, the Company expects to make cash
payments for federal and state income taxes approximating 30% of consolidated
pretax earnings primarily due to the utilization of alternative minimum tax
credit carryforwards.
Page 6 of 12
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(3) 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
--------------------------
April 3, April 4,
1999 1998
---- ----
Net Income $1,465 $2,452
Weighted Shares Outstanding 21,063 20,771
Basic Earnings per Share $ 0.07 $ 0.12
Weighted Shares Outstanding 21,063 20,771
Net Options Issued to Employees 224 244
Aggregate Shares Outstanding 21,287 21,015
Diluted Earnings per Share $ 0.07 $ 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.
(4) RELATED-PARTY TRANSACTIONS
During the three months ended April 3, 1999 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 1999 and 1998 were approximately $129,000 and $455,000,
respectively.
Page 7 of 12
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(5) SUPPLEMENTAL DISCLOSURE INFORMATION
Inventory balances, by classification, may be summarized as follows:
April 3, January 2,
1999 1999
------ ------
Raw Material $23,657 $22,814
Finished Goods 8,224 7,634
Supplies 1,219 1,222
------ ------
$33,100 $31,670
====== ======
The components of other expense, net, may be summarized as follows:
April 3, April 4,
1999 1998
----- -----
Interest expense on debt
and capital leases $4,426 $ 410
Purchase discounts on invoice
payments (12) (145)
Finance fees and amortization of
hedge and swap agreements 271 30
Interest income (53) (15)
Other 33 (3)
------ ------
$4,665 $ 277
====== ======
Page 8 of 12
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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 3, 1999, the Company operated 930 vision centers, versus
445 vision centers at April 3, 1998.
THREE MONTHS ENDED APRIL 3, 1999 (THE "CURRENT PERIOD") COMPARED TO
THREE MONTHS ENDED APRIL 4, 1998 (THE "PRIOR PERIOD")
CONSOLIDATED RESULTS
NET SALES. Net sales during the Current Period increased to $86.6 million
from $54.4 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 $9,426 in the Prior Period to $7,208 in the Current Period,
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.
Net sales for the domestic host store business improved as a result of an
increase in comparable store sales growth. During the Current Period, net sales
growth for the acquired companies did not meet management expectations, due
primarily to declines in comparable store sales in the vision centers acquired
from Frame-n-Lens. As of April 3, 1999, the Company had converted substantially
all free-standing stores in California, as well as the former Midwest Vision
Stores, to the Vista Optical signage, merchandising, and sales format.
Additionally, a substantial number of California free-standing locations
implemented optometric coverage, and the Vista advertising campaign was
initiated in full in March 1999.
Net sales from international operations decreased to $877,000 in the
three-month period ended February 28, 1999 from $1.1 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 $49.5
million from $29.9 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 57.2% from 55.0% in the Prior Period. Such increase was due
primarily to lower manufacturing costs due to the lab consolidation,
renegotiated vendor arrangements, and vendor promotional monies. 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.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE ("SG&A expense"). SG&A expense
(which includes both store operating expenses and home office overhead)
increased to $42.4 million in the Current Period from $25.6 million for the
Prior Period. As a percentage of net sales, SG&A expense was 49.0% in the
Current Period, compared to 47.0% for the Prior Period. This increase was due to
1) higher payroll costs as a percent of sales at the acquired Frame-n-Lens and
New West stores, 2) an increase in advertising spending, 3) costs associated
with placing doctors in the acquired stores, and 4) $872,000 of goodwill
amortization related to the 1998 acquisitions of Frame-n-Lens and New West.
These cost trends as a percent of sales are expected to continue.
OPERATING INCOME. Operating income for the Current Period increased to $7.1
million from $4.4 million in the Prior Period. Operating income as a percent of
sales was 8.2% in the Current Period, compared to 8.1% in the Prior Period. The
Company's operations in Mexico (26 vision centers as of February 28, 1999)
generated an operating profit of $34,000 in the three months ended February 28,
1999, as opposed to an operating profit of $6,000 in the comparable period a
year ago. The international operating results do not include allocated corporate
overhead, interest, and taxes.
Page 9 of 12
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OTHER EXPENSE. The increase in other expense to $4.7 million, compared to
$277,000 in the Prior Period, is due to increased interest costs arising out of
the issuance of the Company's senior notes in October 1998. (See Note 5 to
Condensed Consolidated Financial Statements.)
PROVISION FOR INCOME TAXES. The effective income tax rate on consolidated
pre-tax income in the first quarter of 1999 is 39.8%. This rate represents a tax
provision of 50% 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
50% on pre-tax earnings for the remainder of 1999. In 1999, the Company expects
to make cash payments for federal and state income taxes approximating 30% of
consolidated pretax earnings primarily due to the utilization of alternative
minimum tax credit carryforwards.
NET INCOME. Net income was $1.5 million, or $0.07 per share, as compared to
net income of $2.5 million, or $0.12 per share, in the Prior Period.
LIQUIDITY AND CAPITAL RESOURCES
The Company opened 15 vision centers in the first quarter of 1999. As of
April 3, 1999, the Company plans to open an additional 15 vision centers in the
remainder of 1999. Consistent with prior years, 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 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 $100,000 to $140,000 for fixed
assets and $20,000 for inventory. The Company incurs approximately $20,000 for
pre-opening expenses for each vision center opening. Pre-opening costs are
expensed as incurred.
At April 3, 1999, the Company had borrowed $4.5 million under its credit
facility versus outstanding borrowings of $6.0 million as of January 2, 1999. At
the end of the Current Period, the Company has availability under its credit
facility of up to $23 million. 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.
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 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 1998 could
materially affect the Company's actual results.
Page 10 of 12
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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 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.
(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 April 3, 1999:
Financial
Date of Item Statements
Report Report Reported Description Filed
-------------------------------------------------------------------
8-K January 6, 1999 Item 5 Name Change --
8-K/A January 8, 1999 Item 2 New West New West
Acquisition Financial
Statements
</TABLE>
Page 11 of 12
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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.
VISTA EYECARE, INC.
By: _______________________
Angus C. Morrison
Angus C. Morrison
Senior Vice President
Chief Financial Officer
By: _______________________
Timothy W. Ranney
Chief Accounting Officer
May 12, 1999
Page 12 of 12
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT APRIL 3, 1999 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
APRIL 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> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> APR-03-1999
<CASH> 5,838
<SECURITIES> 0
<RECEIVABLES> 13,426
<ALLOWANCES> 1,514
<INVENTORY> 33,100
<CURRENT-ASSETS> 53,926
<PP&E> 110,590
<DEPRECIATION> 52,720
<TOTAL-ASSETS> 229,634
<CURRENT-LIABILITIES> 48,205
<BONDS> 123,642
0
0
<COMMON> 212
<OTHER-SE> 46,002
<TOTAL-LIABILITY-AND-EQUITY> 229,634
<SALES> 86,634
<TOTAL-REVENUES> 86,634
<CGS> 37,088
<TOTAL-COSTS> 42,446
<OTHER-EXPENSES> 4,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,435
<INCOME-TAX> 970
<INCOME-CONTINUING> 1,465
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,465
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
