10-Q 1 w55671e10-q.txt 10-Q FOR 10/31/2001 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 OCTOBER 31, 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 incorporation or organization) (I.R.S. Employer 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 December 1, 2001 there were 7,802,942 shares of the registrant's common stock outstanding. U.S. VISION, INC. TABLE OF CONTENTS

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

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

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

See accompanying notes to condensed consolidated financial statements. 3 U.S. VISION, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated condensed financial statements of U.S. Vision, Inc. and its wholly owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for the presentation of financial position, results of operations, and cash flows required by generally accepted accounting principles for complete financial statements. The information furnished reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim period presented. The financial statements should be read in conjunction with the financial statements and notes thereto filed with the Company's Form 10-K, as amended, for the fiscal year ended January 31, 2001. The results of operations for the three months and nine months ended October 31, 2001 are not necessarily indicative of the results to be expected for the full year. 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 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 (loss) per share for the periods indicated.

5. PENDING ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) approved the issuance of Statements of Financial Accounting Standards No. 141, "Business Combinations" (Statement 141), and No. 142, "Goodwill and Other Intangible Assets" (Statement 142). These Statements change the accounting for business combinations, goodwill, and intangible assets. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to an annual impairment test. Other intangible assets will continue to be amortized over their useful lives. The Company is required to adopt the new rules effective February 1, 2002, except that the new rules are effective for any business combination that is completed after June 30, 2001. The Company has not yet determined what the effect of these statements will be on the earnings and financial position of the Company. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations" for a disposal of a segment of a business. (Statement 144) is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company has not determined the effect, if any, the adoption of (Statement 144) will have on the Company's financial position and results of operations. 5 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 OCTOBER 31, 2001 COMPARED TO THREE MONTHS ENDED OCTOBER 31, 2000 Net sales decreased $3.2 million, or 8.5%, from $37.4 million for the three months ended October 31, 2000 to $34.2 million for the three months ended October 31, 2001. The closure of 84 unproductive stores, net of 21 new store openings, accounted for $2.3 million of the decrease in net sales. The remaining decrease in net sales was attributable to a 2.7% decrease in comparable-store sales. Cost of sales, as a percentage of net sales, remained relatively constant, increasing only by 0.3%, from 29.8% for the three months ended October 31, 2000, to 30.1% for the three months ended October 31, 2001. Selling, general and administrative expenses ("SG&A"), as a percentage of net sales, increased by 4.5% from 63.2% for the three months ended October 31, 2000 to 67.7% for the three months ended October 31, 2001 due to lower sales volume. SG&A expenses decreased $479,000 from $23.6 million for the three months ended October 31, 2000 to $23.2 million for the three months ended October 31, 2001. The reduction in SG&A expenses was principally due to lower rent expenses based on our lower sales volume and a decrease in operating expenses from the closing of unproductive stores. As of February 1, 2001, the Company completed the development stage of its point of sale system. Prior to that date, the Company capitalized all costs (including interest and salaries) incurred in connection with the development of the point of sale system. During the three months ended October 31, 2001, no costs were capitalized related to the point of sale system. Excluding the impact of those additional expenses, as well 6 U.S. VISION, INC. as expenses incurred in connection with the proposed merger of the Company with the NOROB Group, Inc., SG&A expenses for the three months ended October 31, 2001 would have decreased $789,000, compared to the same period last year. The Company announced on November 26, 2001, that the proposed merger with the NOROB Group had been terminated. Interest expense increased $133,000 from $91,000 for the three months ended October 31, 2000 to $224,000 for the three months ended October 31, 2001. The increase in interest expense is primarily due to the effect of capitalizing interest expense incurred in connection with the development of the point of sale system during the three months ended October 31, 2000. During the three months ended October 31, 2001, no interest was capitalized. The increase in interest expense was partially offset by the impact of a lower outstanding balance and a lower rate of interest on the Company's revolving line of credit. As a result of the events of September 11, 2001 and the slowdown in the economy, management has taken a number of actions to reduce costs and improve profitability. Such actions include price increases, closing unprofitable stores, staff reductions, pay freezes, unpaid leaves, department consolidations, and reductions in travel and advertising. Due to the timing of these actions, the benefits are not expected to begin to be realized until the first quarter of fiscal 2002. NINE MONTHS ENDED OCTOBER 31, 2001 COMPARED TO NINE MONTHS ENDED OCTOBER 31, 2000 Net sales decreased $11.6 million, or 10.0%, from $116.1 million for the nine months ended October 31, 2000 to $104.5 million for the nine months ended October 31, 2001. The closure of 110 unproductive stores, net of 44 new store openings, accounted for $7.5 million of the decrease in net sales. The remaining decrease in net sales was attributable to a 3.1% decrease in comparable-store sales. Cost of sales, as a percentage of net sales, decreased by 0.2% from 30.3% for the nine months ended October 31, 2000 to 30.1% for the nine months ended October 31, 2001. Lower labor costs due to the closure of our frame manufacturing facility in July 2000, partially offset by a decrease in the average selling price of our retail optical products, led to the increase in the gross profit percentage. SG&A as a percentage of net sales, increased by 2.7%, from 62.1% for the nine months ended October 31, 2000 to 64.8% for the nine months ended October 31, 2001 due to lower sales volume. SG&A expenses decreased $4.3 million from $72.0 million for the nine months ended October 31, 2000 to $67.8 million for the nine months ended October 31, 2001. The reduction in SG&A expense was principally due to lower rent expenses based on the lower sales volume and an overall decrease in operating expenses from the closing of unproductive stores. As of February 1, 2001, the Company completed the development stage of its point of sale system. Prior to that date, the Company capitalized all costs (including interest and salaries) incurred in connection with the development of the point of sale system. During the nine months ended October 31, 2001, no costs were capitalized related to the point of sale system. Excluding the impact of those additional expenses, as well as expenses incurred in connection with the proposed merger of the Company with the NOROB Group, Inc., SG&A expenses for the nine months ended October 31, 2001 would have decreased $5.2 million compared to the same period last year. Interest expense increased $462,000 from $338,000 for the nine months ended October 31, 2000 to $800,000 for the nine months ended October 31, 2001. The increase in interest expense is primarily due 7 U.S. VISION, INC. to the effect of capitalizing interest expense incurred in connection with the development of the point of sale system during the nine months ended October 31, 2000. During the nine months ended October 31, 2001, no interest was capitalized. The increase in interest expense was partially offset by the impact of a lower outstanding balance and a lower rate of interest on the Company's revolving line of credit. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of cash for the first nine months of fiscal 2001 was from operations. Cash and working capital at October 31, 2001 were $537,000 and $21.0 million, respectively, compared to $240,000 and $20.5 million, respectively, at January 31, 2001. For the nine months ended October 31, 2001, cash provided by operating activities was $3.7 million compared to $7.5 million for the nine months ended October 31, 2000. The $3.8 million decrease resulted principally from a decrease in net income. Cash used in investing activities in the first nine months of fiscal 2001 was $1.1 million compared to $5.0 million in the first nine months of fiscal 2000. Capital expenditures during the first nine months of fiscal 2001 of $2.5 million were primarily for new store openings and the initial roll-out of a new point of sale system in selected U. S. Vision stores. 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 ninety (90) day rate for United States Treasury Bills plus 250 basis points, which was 4.70% as of October 31, 2001, and matures in December 2002. As of October 31, 2001, the Company had $10.9 million outstanding under its revolving line of credit and $9.1 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 October 31, 2001, the Company was in compliance with all the financial covenants. The Company has commitments from Commerce Bank, N.A., for a $2,000,000 five-year equipment lease financing facility. During fiscal 2000 and 1999, the Company 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. PENDING ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) approved the issuance of Statements of Financial Accounting Standards No. 141, "Business Combinations" (Statement 141), and No. 142, "Goodwill and Other Intangible Assets" (Statement 142). These Statements change the accounting for business combinations, goodwill, and intangible assets. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company is required to adopt the new rules effective February 1, 2002, except that the new rules are effective for any business combination that is completed after June 30, 2001. The Company has 8 U.S. VISION, INC. not yet determined what the effect of these statements will be on the earnings and financial position of the Company. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations" for a disposal of a segment of a business. Statement 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company has not determined the effect, if any, the adoption of Statement 144 will have on the Company's financial position and results of operations. 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. 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. 9 U.S. VISION, INC. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our earnings are affected by changes in interest rates due to the impact those changes have on the interest expense payable by us under our revolving line of credit, the outstanding balance of which was $10.9 million as of October 31, 2001. A 1% change in the underlying prime rate or the 90 day rate for United States Treasury Bills, as the case may be, would result in a $109,000 change in the annual amount of interest paid by the Company based on the impact the hypothetical change in interest rates would have on our revolving line of credit outstanding as of October 31, 2001. We currently do not hold any derivative instruments and do not earn income denominated in foreign currencies. All of our revenue is recognized in U.S. dollars. Because less than 10% of our revenues currently are derived from sales of optical products outside of the U.S., we do not believe we have any significant foreign currency exchange risk and, as a result, do not hedge against foreign currency exchange rate changes. To the extent that changes in interest rates and currency exchange rates affect general economic conditions, we would be affected by such change. 10 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:

B. REPORTS ON FORM 8-K On November 29, 2001, U. S. Vision furnished information under Item 5 of Form 8-K regarding its earnings for the third quarter ended October 31, 2001, and the termination by the Norcross Roberts Group of the previously announced merger agreement pursuant to which the Norcross Roberts Group would have acquired U. S. Vision at a price of $4.25 per share. 11 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) December 11, 2001 /s/Carmen J. Nepa, III ------------------------------------------------ Carmen J. Nepa, III Chief Financial Officer (Principal Financial and Accounting Officer) 12

U S VISION INC 10-Q