10-Q 1 w50370e10-q.txt QUARTERLY REPORT FOR PERIOD ENDED APRIL 30, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2001. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ___________________ to ________________. Commission File Number: 0-23397 U.S. VISION, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-3032948 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 HARMON DRIVE, GLEN OAKS INDUSTRIAL PARK, GLENDORA, NEW JERSEY 08012 (Address of principal executive offices) (Zip Code) (856) 228-1000 (Registrant's telephone number, including area code) 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 [ ] As of June 1, 2001 there were 7,802,942 shares of the registrant's common stock outstanding. 2 U.S. VISION, INC. TABLE OF CONTENTS

Page Number ~~-------~~ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited) ~~October~~April 3130, ~~2000~~2001 and January 31, ~~2000~~2001 ..............................~~...............~~ 1 Condensed Consolidated Statements of Income (Unaudited) Three ~~and Nine~~ Months Ended ~~October~~April 3130, ~~2000~~2001 and ~~1999~~2000........................~~......~~ 2 Condensed Consolidated Statements of Cash Flow (Unaudited) ~~Nine~~Three Months Ended ~~October~~April 3130, ~~2000~~2001 and ~~1999~~2000........................~~................~~ 3 Notes to Condensed Consolidated Financial Statements (Unaudited)..~~.................~~ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................~~.................~~ 6 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K..................................~~.................~~ 9 SIGNATURES .................................................................~~..................~~ 10

3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS U.S. VISION, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited)

~~October~~April 3130, January 31, ~~2000~~2001 ~~2000~~2001 --------- ----------- ASSETS Current assets: Cash $ ~~464~~251 $ ~~454~~240 Accounts receivable 1110,~~433~~686 1210,~~006~~879 ~~Inventory--finished~~Finished goods 22inventory 20,~~091~~322 2320,~~785~~954 Prepaid expenses and other 1,~~147~~025 ~~542~~1,130 --------- --------- Total current assets 3532,~~135~~284 3633,~~787~~203 Property, plant, and equipment, net 4039,~~044~~545 3740,~~890~~524 Goodwill, net of accumulated amortization of $1,~~129~~304 and $~~868~~1,217, respectively 6,~~444~~269 6,~~705~~356 Other ~~1,064~~869 ~~1,651~~995 --------- --------- $ 8278,~~687~~967 $ 8381,~~033~~078 ========= ========= LIABILITIES AND ~~STOCKHOLDERS~~SHAREHOLDERS' EQUITY Current liabilities: Accounts payable -- trade $ 7,~~708~~896 $ 104,~~094~~865 Accrued expenses 54,~~198~~355 56,~~834~~483 Current portion of obligations under capital lease ~~731~~1,010 ~~646~~945 Current portion of long-term debt ~~553~~436 ~~1,087~~450 --------- --------- Total current liabilities 1413,~~190~~697 1712,~~661~~743 Obligations under capital lease, ~~less current portion 1~~2,~~777~~086 12,~~759~~272 Long-term debt, less current portion 1711,~~372~~759 1816,~~962~~112 ~~Stockholders~~Other long-term liabilities 505 505 Shareholders' equity: Common stock, $0.01 par value: Authorized shares -- 15,000,000, issued and outstanding shares -- 7,~~793~~802,~~807~~942 78 78 Additional paid-in capital 115,766 115,766 Accumulated deficit (6664,~~496~~924) (7166,~~193~~398) --------- --------- Total ~~stockholders~~shareholders' equity 4950,~~348~~920 4449,~~651~~446 --------- --------- Total liabilities and shareholders' equity $ 8278,~~687~~967 $ 8381,~~033~~078 ========= =========

See accompanying notes to condensed consolidated financial statements. 1 4 U.S. VISION, INC CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited)

Three Months Ended ~~Nine~~April ~~Months Ended October 31~~30, ~~October 31,~~ --------------------- ~~---------------------~~2001 2000 ~~1999 2000 1999~~ -------- -------- ~~-------- --------~~ Net sales $ ~~37,395 $~~ 36,~~223~~805 $~~116~~41,~~060~~894 ~~$109,665~~ Cost of sales 11,~~143~~148 1112,~~219~~854 ~~35,158 33,700~~ -------- -------- ~~-------- --------~~ Gross profit ~~26,252~~ 25,~~004~~657 8029,~~902~~040 ~~75,965~~ Operating expenses: Selling, general, and administrative expenses 2322,~~633~~529 2325,~~760~~063 ~~72,022 67,608~~ Depreciation and amortization 1,~~135~~325 1,~~074~~358 ~~3,628 3,821~~ -------- -------- ~~-------- -------- 24~~23,~~768~~854 2426,~~834~~421 ~~75,650 71,429~~ -------- -------- ~~-------- --------~~ Operating income 1,~~484~~803 ~~170 5~~2,~~252~~619 ~~4,536~~ Interest expense, net 91288 ~~111~~149 ~~338 299~~ -------- -------- ~~-------- --------~~ Income before income tax provision 1,~~393~~515 ~~59 4~~2,~~914~~470 ~~4,237~~ Income tax provision ~~(benefit)~~41 35125 ~~(429) 217 299~~ -------- -------- ~~-------- --------~~ Net income $ 1,~~358~~474 $ ~~488 $ 4~~2,~~697~~345 ~~$ 3,938~~ ======== ======== ~~======== ========~~ Net income per share $- ~~0.17~~basic $ 0.0619 $ 0.6030 ~~$ 0.51~~ ======== ======== ~~======== ========~~ Net income per share - assuming dilution $ 0.1719 $ 0.0630 ~~$ 0.60 $ 0.51~~ ======== =======~~= ======== ========~~

See accompanying notes to condensed consolidated financial statements. 2 5 U.S. VISION, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Dollars in thousands) (Unaudited)

~~Nine~~Three Months Ended ~~October~~April 3130, ~~2000~~-------------------- ~~1999~~2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 41,~~697~~474 $ 32,~~938~~345 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 31,~~628~~325 31,~~821~~358 Gain on sale of manufacturing facility (412) -- Changes in operating assets and liabilities: Accounts receivable ~~573~~621 40749 Inventory 632 1,~~694~~248 ~~(3,761)~~ Other ~~(32)~~225 (~~312~~200) Accounts payable - trade 3,031 (21,~~386~~606) ~~2,658~~ Accrued expenses (~~636~~2,465) (~~1,929~~338) -------- -------- Net cash provided by operating activities 74,~~538~~431 43,~~455~~556 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant, and equipment, net (~~4,976~~746) (81,~~020~~772) ~~Acquisition~~Proceeds from sale of ~~businesses~~manufacturing facility 899 -- ~~(795)~~ -------- -------- Net cash provided by (used in) investing activities ~~(4,976)~~153 (81,~~815~~772) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings: Revolving line of credit 5717,~~103~~666 5219,~~813~~944 Other -- 300 ~~976~~ Repayments of borrowings: Revolving line of credit (5821,~~447~~901) (4821,~~000~~325) Term loans (~~305~~96) (~~260~~101) Other (~~1,203~~242) (~~1,134~~432) -------- -------- Net cash ~~provided by (~~used in) financing activities (24,~~552~~573) 4(1,~~395~~614) -------- -------- Net increase in cash 1011 35170 Cash at beginning of period 240 454 ~~693~~ -------- -------- Cash at end of period $ ~~464~~251 $ ~~728~~624 ======== ========

See accompanying notes to condensed consolidated financial statements. 3 6 U.S. VISION, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed consolidated financial statements of U.S. Vision, Inc. and its wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the company's audited consolidated financial statements and notes which are included in the company's annual report on Form 10-K, as amended, for the fiscal year ended January 31, 2001. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. Operating results for the interim period are not necessarily indicative of results that may be expected for the fiscal year ending January 31, 2002. 2. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. INCOME TAXES As of January 31, 2001, the Company had net operating loss carry forwards of approximately $14,100,000 which will begin to expire in the year 2006. Approximately $5,900,000 of these carry forwards are available to offset future taxable income without limitation and approximately $8,200,000 of these carry forwards (the "Restricted NOLs") are significantly limited due to ownership changes. Approximately $780,000 of the Restricted NOLs will become available for use each year through the year 2008. Approximately $3,400,000 of the Restricted NOLs are expected to expire unutilized. 4 7 U.S. VISION, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. NET INCOME PER SHARE The following table (in thousands except per share data) presents the calculation of earnings per share for the periods indicated.

Three Months Ended ~~Nine~~April ~~Months Ended October 31~~30, ~~October 31,~~ ------------------ ~~------------------~~2001 2000 ~~1999 2000 1999~~ ------ ------ ~~------ ------~~ Net income $1,~~358~~474 $ ~~488 $4~~2,~~697~~345 ~~$3,938~~ ====== ====== ~~====== ======~~ Basic average common shares outstanding 7,~~794~~803 7,~~794~~803 ~~7,794 7,794~~ Effect of dilutive securities: Options 51149 -- 17 -- ------ ------ ~~------ ------~~ Diluted average common shares outstanding 7,~~845~~952 7,~~794~~803 ~~7,811~~====== ~~7,794~~====== ~~------ ------ ------ ------~~ Net income per share $- ~~0.17~~basic $ 0.0619 $ 0.6030 ~~$ 0.51~~ Net income per share - assuming dilution $ 0.1719 $ 0.~~06 $ 0.60 $ 0.51~~30

5 8 U.S. VISION, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth selected statement of operations data expressed as a percentage of net sales for the periods indicated:

Three Months Ended ~~Nine~~April ~~Months Ended October 31~~30, ~~October 31,~~ ------------------ --~~----------------~~ ~~2000~~2001 ~~1999~~ 2000 ~~1999~~ ------ -~~-----~~ ------ ~~------~~ Net sales 100.0% 100.0% ~~100.0% 100.0%~~ Cost of sales ~~29.8 31.0~~ 30.3 30.7 ------ -~~-----~~ ------ ~~------~~ Gross profit ~~70.2~~ 69.~~0 69.~~7 69.3 Operating expenses: Selling, general and administrative 6361.2 6559.58 ~~62.1 61.6~~ Depreciation and amortization 3.06 3.02 ~~3.1 3.5~~ ------ -~~-----~~ ------ ~~------~~ Operating income 4.09 06.53 ~~4.5 4.2~~ Interest expense, net 0.38 0.34 ~~0.3 0.3~~ ------ -~~-----~~ ------ ~~------~~ Income before income tax provision ~~3.7 0.2~~ 4.21 35.9 Income tax provision ~~(benefit)~~ 0.1 ~~(1.2)~~ 0.~~2 0.~~3 ------ -~~-----~~ ------ ~~------~~ Net income ~~3.6% 1.~~4~~% 4~~.0% 35.6% ====== =~~=====~~ ====== ~~======~~

THREE MONTHS ENDED APRIL 30, 2001 COMPARED TO THREE MONTHS ENDED APRIL 30, 2000 Net sales decreased $5.1 million, or 12.1%, from $41.9 million for the three months ended April 30, 2000 to $36.8 million for the three months ended April 30, 2001. The decrease was the result of a decrease in sales of $3.7 million caused by the closure of 88 unprofitable stores since May 2000 and a 3.7% decrease in comparable-store sales. Cost of sales, as a percentage of net sales, decreased by 0.4%, from 30.7% for the three months ended April 30, 2000 to 30.3% for the three months ended April 30, 2001. The decrease is a result of the savings in labor and material costs. Selling, general and administrative expenses, as a percentage of net sales, increased by 1.4% from 59.8% for the three months ended April 30, 2000 to 61.2% for the three months ended April 30, 2001 due to the lower sales volume. The expense decreased $2.5 million from $25.0 million for the three months ended April 30, 2000 to $22.5 million for the three months ended April 30, 2001. The reduction in expense is principally attributable to reduced salary expense as a result of store closings, lower rent expense due to the lower sales volume, and a $0.4 million gain from the cessation of operations in the company's Miami, Florida frame manufacturing facility. Interest expense increased $139,000 from $149,000 for the three months ended April 30, 2000 to $288,000 for the three months ended April 30, 2001. As of February 1, 2001, the company completed the development stage of its point of sale system and must now expense, instead of capitalize, all costs 6 9 U.S. VISION, INC. incurred in connection with the completion of the point of sale system. Additionally, interest expense was lower during the quarter due to a lower outstanding balance on the revolving line of credit. LIQUIDITY AND CAPITAL RESOURCES The company's primary source of cash for the first three months of fiscal 2001 was from operations. Cash and working capital at April 30, 2001 were $251,000 and $18.6 million, respectively, compared to $240,000 and $20.5 million, respectively, at January 31, 2001. For the three months ended April 30, 2001, cash provided by operating activities was $4.4 million compared to $3.5 million for the three months ended April 30, 2000. The $0.9 million increase resulted primarily from favorable changes in working capital, offset by a decrease in net income and accrued expenses. Cash provided by investing activities in the first three months of fiscal 2001 was $153,000 compared to cash used in investing activities of $1.8 million in the first three months of fiscal 2000. Capital expenditures during the first three months of fiscal 2001 of $746,000 were primarily for new store openings and new laboratory equipment. The company's principal external source of liquidity is its $20.0 million revolving line of credit with Commerce Bank, N.A. The revolving line of credit facility bears interest at the lower of the prime rate as published in the Wall Street Journal or the thirty (30) day rate for United States Treasury Bills plus 250 basis points, which was 7.20% as of April 30, 2001, and matures in December 2002. As of April 30, 2001, the company had $7.8 million outstanding under its revolving line of credit and $12.2 million of availability. The loan agreement prohibits the payment of dividends to stockholders and the company must maintain certain financial ratios including a specified net worth level, current ratio, and a fixed charge ratio. As of January 31, 2001, the company was in compliance with all the financial covenants. We do not believe that the financial covenants set forth in our revolving line of credit will have an adverse impact on our operations or future plans. We have commitments from Commerce BankLease, a unit of Commerce Bank, N.A., for a $2,000,000 five-year equipment lease financing facility. During fiscal 2000 and 1999, we executed the agreement and leased approximately $382,000 and $922,000, respectively of laboratory equipment and furniture and fixtures, which will be paid for over a period of 60 months. The leased laboratory equipment and furniture and fixtures have been recorded as a capital lease on the consolidated balance sheet. CAUTION REGARDING FORWARD-LOOKING STATEMENTS The company occasionally makes forward-looking statements concerning its plans, goals, product and service offerings, store openings and closings and anticipated financial performance. These forward-looking statements may generally be identified by introductions such as "outlook" for an upcoming period of time, or words and phrases such as "should", "expect", "hope" , "plans", "projected", "believes", "forward-looking" (or variants of those words and phrases) or similar language indicating the expression of an opinion or view concerning the future. 7 10 U.S. VISION, INC. These forward-looking statements are subject to risks and uncertainties based on a number of factors and actual results or events may differ materially from those anticipated by such forward-looking statements. These factors include, but are not limited to: the company's ability to maintain its relationship with its host stores such as J.C. Penney and Sears, as well as with Cole National Corporation, a competitor of the company and the owner of the Vision One managed vision care plan in which the company participates; the growth rate of the company's revenue and market share; the company's ability to effectively manage its business functions while growing the company's business in a rapidly changing environment; and the quality of the company's plans and strategies, and the ability of the company to execute such plans and strategies. In addition, forward-looking statements concerning the company's expected revenue or earnings levels are subject to many additional uncertainties applicable to competitors generally and to general economic conditions over which the company has no control, such as the performance of its host stores. The company does not plan to generally publicly update prior forward-looking statements for unanticipated events or otherwise and, accordingly, prior forward-looking statements should not be considered to be "fresh" simply because the company has not made additional comments on those forward-looking statements. 8 11 U.S. VISION, INC. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS The following exhibits are filed as a part of this report: Exhibit Number Exhibit ------- ------- 3.1* Restated Certificate of Incorporation of the Company 3.2* Bylaws of the Company 10.1* Loan and Security Agreement between the Company and Commerce Bank, as amended 10.2* Stock Option Plan, including form of Stock Option Agreement 10.3***** Amendment to Stock Option Plan 10.4** Subordinated Note Purchase Agreement 10.5** Amendment to Subordinated Note Purchase Agreement 10.6** J.C. Penney License Agreement 10.7** Vision Care Agreement 10.8*** Employment Agreement for William A. Schwartz, Jr. 10.9*** Form of Employment Severance Agreement 10.10** Form of Non-Statutory Option Agreement 10.11** Form of Indemnification Agreement 10.12** Stockholders' Agreement 10.13** Form of Sears Lease 10.14** Commerce Bank Mortgages and Schedules 10.15** DRPA Loan Documentation 10.16**** Form of Warrant ------------------ * Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819) filed with the Commission on September 17, 1997. ** Previously filed as an exhibit to Amendment No. 1 to the Form S-1 (Reg. No. 333-35819) filed with the Commission on October 29, 1997. *** Previously filed as an exhibit to the company's Form 10-K for the fiscal year ended January 31, 1998, which was filed with the Securities and Exchange Commission on April 30, 1999. **** Previously filed as an exhibit to the company's Form 10-Q for the quarter ended July 31, 2000, which was filed with the Securities and Exchange Commission on September 13, 2000. ***** Previously filed as an exhibit to the company's Form 10-K for the fiscal year ended January 31, 2001, which was filed with the Securities and Exchange Commission on April 30, 2001. B. REPORTS ON FORM 8-K On May 4, 2001, the company filed a report on Form 8-K in connection with its execution of an amended letter of intent covering the proposed acquisition of the company by the Norcross Roberts Group. 9 12 U.S. VISION, INC. 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. U.S. VISION, INC. --------------------------------------------- (Registrant) June 14, 2001 /s/George E. McHenry --------------------------------------------- George E. McHenry, Chief Financial Officer (Principal Financial and Accounting Officer) 10 13 U.S. VISION, INC. EXHIBIT INDEX

Exhibit Number Exhibit ------- ------- 3.1* Restated Certificate of Incorporation of the Company 3.2* Bylaws of the Company 10.1* Loan and Security Agreement between the Company and Commerce Bank, as amended 10.2* Stock Option Plan, including form of Stock Option Agreement 10.3***** Amendment to Stock Option Plan 10.4** Subordinated Note Purchase Agreement 10.45** Amendment to Subordinated Note Purchase Agreement 10.56** J.C. Penney License Agreement 10.67** Vision Care Agreement 10.78*** Employment Agreement for William A. Schwartz, Jr. 10.89*** Form of Employment Severance Agreement 10.910** Form of Non-Statutory Option Agreement 10.1011** Form of Indemnification Agreement 10.1112** Stockholders' Agreement 10.1213** Form of Sears Lease 10.1314** Commerce Bank Mortgages and Schedules 10.1415** DRPA Loan Documentation 10.1516**** Form of Warrant ~~27+ Financial Data Schedule~~

-------------------------- * Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819) filed with the Commission on September 17, 1997. ** Previously filed as an exhibit to Amendment No. 1 to the Form S-1 (Reg. No. 333-35819) filed with the Commission on October 29, 1997. *** Previously filed as an exhibit to the company's Form 10-K for the fiscal year ended January 31, 1998, which was filed with the Securities and Exchange Commission on April 30, 1999. **** Previously filed as an exhibit to the company's Form 10-Q for the quarter ended July 31, 2000, which was filed with the Securities and Exchange Commission on September 13, 2000. ***** Previously filed as an exhibit to the company's Form 10-K for the fiscal year ended January 31, 2001, which was filed with the Securities and Exchange Commission on April 30, 2001.

Exhibit Number Exhibit ------- ------- 3.1* Restated Certificate of Incorporation of the Company 3.2* Bylaws of the Company 10.1* Loan and Security Agreement between the Company and Commerce Bank, as amended 10.2* Stock Option Plan, including form of Stock Option Agreement 10.3** Subordinated Note Purchase Agreement 10.4** Amendment to Subordinated Note Purchase Agreement 10.5** J.C. Penney License Agreement 10.6** Vision Care Agreement 10.7*** Employment Agreement for William A. Schwartz, Jr. 10.8*** Form of Employment Severance Agreement 10.9** Form of Non-Statutory Option Agreement 10.10** Form of Indemnification Agreement 10.11** Stockholders' Agreement 10.12** Form of Sears Lease 10.13** Commerce Bank Mortgages and Schedules 10.14** DRPA Loan Documentation 10.15**** Form of Warrant 27+ Financial Data Schedule

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