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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2002.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 33 - 70572
EYE CARE CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2337775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
11103 WEST AVENUE
SAN ANTONIO, TEXAS 78213
(Address of principal executive offices, including zip code)
(210) 340-3531
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant has (1) 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class Outstanding at August 3, 2002
----- -----------------------------
Common Stock, $.01 par value 7,407,289 shares
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EYE CARE CENTERS OF AMERICA, INC.
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 29, 2001
and June 29, 2002 (Unaudited) 2
Condensed Consolidated Statements of Operations for the
Thirteen Weeks and Twenty-Six Weeks Ended June 30, 2001
(Unaudited) and June 29, 2002 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended June 30, 2001 (Unaudited)
and June 29, 2002 (Unaudited) 4
Notes to Condensed Consolidated Financial Statements 5-11
Item 2. ManagementDiscussion and Analysis of Financial Condition
and Results of Operations 12-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 19-20
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
DECEMBER 29, JUNE 29,
2001 2002
------------------- ---------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . $ 3,372 $ 1,942
Accounts and notes receivable, net . 10,275 11,035
Inventory. . . . . . . . . . . . . . 24,665 25,011
Prepaid expenses and other . . . . . 3,389 2,520
Deferred income taxes. . . . . . . . 1,337 1,337
------------------- ---------------
Total current assets. . . . . . . . . . 43,038 41,845
PROPERTY & EQUIPMENT, net . . . . . . . 64,518 61,641
INTANGIBLE ASSETS, net. . . . . . . . . 109,453 107,770
OTHER ASSETS. . . . . . . . . . . . . . 8,004 7,076
------------------- ---------------
Total assets. . . . . . . . . . . . . . $ 225,013 $ 218,332
=================== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . $ 21,749 $ 22,961
Current maturities of long-term debt 13,786 24,648
Deferred revenue . . . . . . . . . . 6,557 6,787
Accrued payroll expense. . . . . . . 5,733 6,640
Accrued interest 3,284 2,576
Other accrued expenses . . . . . . . 8,500 8,373
------------------- ---------------
Total current liabilities . . . . . . . 59,609 71,985
DEFERRED INCOME TAXES . . . . . . . . . 1,337 1,337
LONG-TERM DEBT, less current maturities 260,777 229,998
DEFERRED RENT . . . . . . . . . . . . . 3,790 3,872
DEFERRED GAIN . . . . . . . . . . . . . 1,999 1,883
------------------- ---------------
Total liabilities . . . . . . . . . . . 327,512 309,075
------------------- ---------------
SHAREHOLDERS' DEFICIT:
Common stock . . . . . . . . . . . . 74 74
Preferred stock. . . . . . . . . . . 48,134 51,314
Additional paid-in capital . . . . . 43,474 39,838
Accumulated deficit. . . . . . . . . (194,181) (181,969)
------------------- ---------------
Total shareholders' deficit . . . . . . . (102,499) (90,743)
------------------- ---------------
$ 225,013 $ 218,332
=================== ===============
See Notes to Condensed Consolidated Financial Statements
2
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
THIRTEEN WEEKS TWENTY-SIX WEEKS
ENDED ENDED
---------------- -----------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
2001 2002 2001 2002
---------------- ------------ ------------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Optical sales. . . . . . . . . . . . . . . . . $ 80,641 $ 88,767 $ 173,292 $ 191,455
Management fees. . . . . . . . . . . . . . . . 927 797 1,840 1,786
---------------- ------------ ------------------ ------------
Net revenues. . . . . . . . . . . . . . . . . . . 81,568 89,564 175,132 193,241
OPERATING COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . . . . . . . 25,763 27,598 54,227 59,666
Selling, general and administrative expenses. 50,133 53,111 103,913 108,552
Amortization of intangibles:
Goodwill . . . . . . . . . . . . . . . . . . 1,220 - 2,606 -
Noncompete and other intangibles 903 841 1,765 1,682
---------------- ------------ ------------------ ------------
Total operating costs and expenses. . . . . . . . 78,019 81,550 162,511 169,900
---------------- ------------ ------------------ ------------
INCOME FROM OPERATIONS. . . . . . . . . . . . . . 3,549 8,014 12,621 23,341
INTEREST EXPENSE, NET . . . . . . . . . . . . . . 6,830 5,565 14,359 10,635
INCOME TAX EXPENSE. . . . . . . . . . . . . . . . 209 283 354 494
---------------- ------------ ------------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ (3,490) $ 2,166 $ (2,092) $ 12,212
================ ============ ================== ============
See Notes to Condensed Consolidated Financial Statements
3
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
TWENTY-SIX
WEEKS ENDED
----------------------------
JUNE 30, JUNE 29,
2001 2002
--------------- ---------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss). . . . . . . . . . . . . . . . . . . . . . $ (2,092) $ 12,212
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization. 14,917 11,134
Loan cost amortization. . . . . . . . . . . . . . . . . 913 836
Deferred liabilities and other. . . . . . . . . . . . . 458 312
Loss on disposition of property and equipment . . . . . 145 63
Increase (decrease) in operating assets and liabilities. . . (2,637) 1,001
--------------- ---------------
Net cash provided by operating activities. 11,704 25,558
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment . . . . . . . . . (3,385) (6,191)
Payments received on notes receivable . . . . . . . . . 3 -
--------------- ---------------
Net cash used in investing activities. . . . . . . . . . . . . . . . (3,382) (6,191)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt and capital leases . . . . . . . . . . (11,361) (20,387)
Payments related to debt issuance . . . . . . . . . . . 680 -
Distribution to affiliated OD . . . . . . . . . . . . . (533) (410)
--------------- ---------------
Net cash used in financing activities. . . . . . . . . . . . . . . . (11,214) (20,797)
--------------- ---------------
NET DECREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . (2,892) (1,430)
CASH AND CASH EQUIVALENTS, beginning of period 3,971 3,372
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . . . . $ 1,079 $ 1,942
=============== ===============
See Notes to Condensed Consolidated Financial Statements
4
EYE CARE CENTERS OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Eye
Care Centers of America, Inc., its wholly owned subsidiaries and certain private
optometrists for whom the Company performs management services (the "ODs").
All significant intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the prior period
statements to conform to the current period presentation. Unless the context
otherwise requires, the term "Company" shall refer to Eye Care Centers of
America, Inc. and its subsidiaries, collectively.
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and are of a normal,
recurring nature. Operating results for the thirteen week and twenty-six week
periods ended June 29, 2002 are not necessarily indicative of the results that
may be expected for the fiscal year ended December 28, 2002 ("fiscal 2002").
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Eye Care Centers of America, Inc.'s annual
report on Form 10-K for the year ended December 29, 2001 ("fiscal 2001").
2. CRITICAL ACCOUNTING POLICIES
Accounting policies considered particularly critical to the Company's
financial results include the allowance for accounts receivable, inventory and
goodwill. Management considers these to be critical accounting policies because
the estimation of fair values involves a high degree of judgment and
subjectivity in the assumptions utilized.
- - Accounts receivable are primarily from third party payors related to the
sale of eyewear and include receivables from insurance reimbursements, non-OD
management fees, credit card companies, merchandise, rent and license fee
receivables. The Company's allowance for doubtful accounts primarily consists
of amounts owed to the Company by third party insurance payors. This estimate
is based on the historical ratio of collections to billings.
- - Inventory consists principally of eyeglass frames, ophthalmic lenses and
contact lenses and is stated at the lower of cost or market. Cost is determined
using the weighted average method which approximates the first-in, first-out
(FIFO) method. The Company's inventory reserves are an estimate based on
product with low turnover or deemed by management to be unsaleable.
- - Goodwill consists of the amounts of excess purchase price over the market
value of acquired net assets, management agreements, noncompete agreements, and
a strategic alliance agreement. Goodwill must be tested for impairment at least
annually using a "two-step" approach that involves the identification of
reporting units and the estimation of fair values.
5
3. RELATED PARTY TRANSACTIONS
The Company and Thomas H. Lee Company ("THL Co.") entered into a management
agreement as of April 24, 1998 (as amended, the "Management Agreement"). The
management agreement provides for fees of $250,000 or $500,000 annually based on
the Company maintaining certain leverage ratios defined in the Company's credit
agreement. After a term of ten years from the closing date, the Management
Agreement is automatically renewable on an annual basis unless either party
serves notice of termination at least ninety days prior to the renewal date. For
the twenty-six week periods ended June 30, 2001 and June 29, 2002, the Company
incurred $125,000 and $250,000 related to the agreement, respectively.
4. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. The Company currently has a net
deferred tax asset related to its temporary differences. Based upon the weight
of available evidence allowed under the criteria set forth under FAS Statement
No. 109, including the lack of carryback potential, uncertainties exist as to
the future realization of the deferred tax asset. These uncertainties include
lack of carryback potential as the Company has incurred taxable losses in past
years. The Company has established a full valuation allowance for its deferred
tax assets.
5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (DOLLARS IN THOUSANDS)
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 30, JUNE 29,
2001 2002
------------- -------------
(UNAUDITED) (UNAUDITED)
Cash paid for interest $ 13,957 $ 8,835
Dividends accrued on preferred stock $ 2,798 $ 3,180
6. NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and other related accounting
guidance. The Company adopted SFAS No. 144 in the first quarter of fiscal 2002.
The Company has evaluated the impact of SFAS No. 144 on its consolidated
financial statements and, based upon its analysis, the Company believes that no
impairment of long-lived assets exists. In July 2001, the FASB issued SFAS
No.'s 141 and 142, "Business Combinations" and "Goodwill and Other Intangibles."
FASB 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under FASB 142, goodwill is no longer
subject to amortization over its estimated useful life. Rather, goodwill is
subject to at least an annual assessment for impairment applying a fair-value
based test. Additionally, an acquired intangible asset should be separately
recognized if the benefit of the intangible asset is obtained through
contractual or other legal
6
rights, or if the intangible asset can be sold, transferred, licensed, rented,
or exchanged, regardless of the acquirer's intent to do so. Any impairment
resulting from the initial application of the statements is to be recorded as a
cumulative effect of accounting changes as of December 2001. The Company adopted
both statements on December 30, 2001. The Company has performed the required
impairment tests of goodwill and, based upon its analysis, the Company believes
that no impairment of goodwill exists. The Company's pro forma net income with
goodwill amortization excluded was $0.5 million for the twenty-six weeks ended
June 30, 2001.
7. CONDENSED CONSOLIDATING INFORMATION
The $100.0 million in principal amount of 9 1/8% Senior Subordinated Notes
due 2008 and $50.0 million in principal amount of Floating Interest Rate
Subordinated Term Securities due 2008 (collectively, the "Notes") were issued by
the Company and are guaranteed by its subsidiaries (the "Guarantor
Subsidiaries") but are not guaranteed by any of the ODs. The Guarantor
Subsidiaries are wholly owned by the Company and the guarantees are full,
unconditional, joint and several. The following condensed consolidating
financial information presents the financial position, results of operations and
cash flows of (i) Eye Care Centers of America, Inc., as parent, as if it
accounted for its subsidiaries on the equity method, (ii) the Guarantor
Subsidiaries, and (iii) the ODs. There were no transactions between the
Guarantor Subsidiaries during any of the periods presented. Separate financial
statements of the Guarantor Subsidiaries are not presented herein as management
does not believe that such statements would be material to investors.
7
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 29, 2001
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
---------- -------------- -------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 755 $ 2,209 $ 408 $ - $ 3,372
Accounts and notes receivable, net 121,675 35,434 2,434 (149,268) 10,275
Inventory 15,371 7,747 1,547 - 24,665
Prepaid expenses and other 2,152 1,191 46 - 3,389
Deferred income taxes 1,337 - - - 1,337
---------- -------------- -------- -------------- --------------
Total current assets 141,290 46,581 4,435 (149,268) 43,038
Property and equipment, net 37,568 26,950 - - 64,518
Intangibles, net 16,693 92,673 87 - 109,453
Other assets 7,298 706 - - 8,004
Investment in subsidiaries (25,830) - - 25,830 -
---------- -------------- -------- -------------- --------------
Total assets $ 177,019 $ 166,910 $ 4,522 $ (123,438) $ 225,013
========== ============== ======== ============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 17,551 $ 145,646 $ 7,820 $ (149,268) $ 21,749
Current maturities of long-term debt 13,431 355 - - 13,786
Deferred revenue 3,620 2,937 - - 6,557
Accrued payroll expense 2,940 2,789 4 - 5,733
Accrued interest 2,989 295 - - 3,284
Other accrued expenses 4,894 2,708 898 - 8,500
---------- -------------- -------- -------------- --------------
Total current liabilities 45,425 154,730 8,722 (149,268) 59,609
Deferred income taxes 1,337 - - - 1,337
Long-term debt, less current maturities 228,537 32,140 100 - 260,777
Deferred rent 2,482 1,308 - - 3,790
Deferred gain 1,530 469 - - 1,999
---------- -------------- -------- -------------- --------------
Total liabilities 279,311 188,647 8,822 (149,268) 327,512
---------- -------------- -------- -------------- --------------
Shareholders' deficit:
Common stock 74 - - - 74
Preferred stock 48,134 - - - 48,134
Additional paid-in capital 43,681 1,092 (1,299) - 43,474
Accumulated deficit (194,181) (22,829) (3,001) 25,830 (194,181)
---------- -------------- -------- -------------- --------------
Total shareholders' deficit (102,292) (21,737) (4,300) 25,830 (102,499)
---------- -------------- -------- -------------- --------------
$ 177,019 $ 166,910 $ 4,522 $ (123,438) $ 225,013
========== ============== ======== ============== ==============
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 2001
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
-------- ------------- -------- -------------- --------------
Revenues:
Optical sales $86,060 $ 57,096 $30,136 $ - $ 173,292
Management fees 528 11,528 - (10,216) 1,840
Investment earnings in subsidiaries 7,652 - - (7,652) -
-------- ------------- -------- -------------- --------------
Net revenues 94,240 68,624 30,136 (17,868) 175,132
Operating costs and expenses:
Cost of goods sold 28,303 19,884 6,040 - 54,227
Selling, general and administrative expenses 54,791 34,636 24,702 (10,216) 103,913
Amortization of intangibles:
Goodwill 528 2,076 2 - 2,606
Noncompete and other intangibles - 1,765 - - 1,765
-------- ------------- -------- -------------- --------------
Total operating costs and expenses 83,622 58,361 30,744 (10,216) 162,511
-------- ------------- -------- -------------- --------------
Income from operations 10,618 10,263 (608) (7,652) 12,621
Interest expense, net 12,602 1,753 4 - 14,359
Income tax expense 108 246 - - 354
-------- ------------- -------- -------------- --------------
Net income $(2,092) $ 8,264 $ (612) $ (7,652) $ (2,092)
======== ============= ======== ============== ==============
8
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED JUNE 30, 2001
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
-------- ------------- -------- -------------- --------------
Revenues:
Optical sales $40,316 $ 26,593 $13,732 $ - $ 80,641
Management fees 258 5,300 - (4,631) 927
Investment earnings in subsidiaries 2,436 - - (2,436) -
-------- ------------- -------- -------------- --------------
Net revenues 43,010 31,893 13,732 (7,067) 81,568
Operating costs and expenses:
Cost of goods sold 13,577 9,296 2,890 - 25,763
Selling, general and administrative expenses 26,627 16,462 11,675 (4,631) 50,133
Amortization of intangibles:
Goodwill 264 955 1 - 1,220
Noncompete and other intangibles - 903 - - 903
-------- ------------- -------- -------------- --------------
Total operating costs and expenses 40,468 27,616 14,566 (4,631) 78,019
-------- ------------- -------- -------------- --------------
Income from operations 2,542 4,277 (834) (2,436) 3,549
Interest expense, net 5,945 883 2 - 6,830
Income tax expense 87 122 - - 209
-------- ------------- -------- -------------- --------------
Net income $(3,490) $ 3,272 $ (836) $ (2,436) $ (3,490)
======== ============= ======== ============== ==============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 2001
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
--------- -------------- ------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ (2,092) $ 8,264 $ (612) $ (7,652) $ (2,092)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 7,047 7,868 2 - 14,917
Loan cost amortization (41) 954 - - 913
Deferred liabilities and other (16) 500 (26) - 458
Loss on disposition of property and equipment 67 78 - - 145
Increase/(decrease) in operating assets and liabilities 13,845 (17,482) 1,000 - (2,637)
--------- -------------- ------- -------------- --------------
Net cash provided by operating activities 18,810 182 364 (7,652) 11,704
--------- -------------- ------- -------------- --------------
Cash flows from investing activities:
Acquisition of property and equipment (2,215) (1,170) - - (3,385)
Payments received on notes receivable - 3 - - 3
Investment in Subsidiaries (7,652) - - 7,652 -
--------- -------------- ------- -------------- --------------
Net cash used in investing activities (9,867) (1,167) - 7,652 (3,382)
--------- -------------- ------- -------------- --------------
Cash flows from financing activities:
Payments on debt and capital leases (20,671) (256) - - (20,927)
Proceeds from issuance of debt 9,500 66 - - 9,566
Payments related to debt issuance - 680 - - 680
Distribution to affiliated OD - - (533) - (533)
--------- -------------- ------- -------------- --------------
Net cash provided by (used in) financing activities (11,171) 490 (533) - (11,214)
--------- -------------- ------- -------------- --------------
Net decrease in cash and cash equivalents (2,228) (495) (169) - (2,892)
Cash and cash equivalents at beginning of period 2,215 1,187 569 - 3,971
--------- -------------- ------- -------------- --------------
Cash and cash equivalents at end of period $ (13) $ 692 $ 400 $ - $ 1,079
========= ============== ======= ============== ==============
9
CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 29, 2002
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
---------- -------------- -------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ (408) $ 2,041 $ 309 $ - $ 1,942
Accounts and notes receivable, net 100,397 36,382 7,202 (132,946) 11,035
Inventory 15,354 7,902 1,755 - 25,011
Prepaid expenses and other 1,605 867 48 - 2,520
Deferred income taxes 1,337 - - - 1,337
---------- -------------- -------- -------------- --------------
Total current assets 118,285 47,192 9,314 (132,946) 41,845
Property and equipment, net 37,165 24,476 - - 61,641
Intangibles, net 16,693 90,990 87 - 107,770
Other assets 6,469 607 - - 7,076
Investment in subsidiaries (10,665) - - 10,665 -
---------- -------------- -------- -------------- --------------
Total assets $ 167,947 $ 163,265 $ 9,401 $ (122,281) $ 218,332
========== ============== ======== ============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 18,673 $ 125,091 $12,143 $ (132,946) $ 22,961
Current maturities of long-term debt 24,556 92 - - 24,648
Deferred revenue 3,785 2,888 114 - 6,787
Accrued payroll expense 3,677 2,935 28 - 6,640
Accrued interest 2,308 268 - - 2,576
Other accrued expenses 2,044 5,427 902 - 8,373
---------- -------------- -------- -------------- --------------
Total current liabilities 55,043 136,701 13,187 (132,946) 71,985
Deferred income taxes 1,337 - - - 1,337
Long-term debt, less current maturities 197,800 32,098 100 - 229,998
Deferred rent 2,441 1,431 - - 3,872
Deferred gain 1,452 431 - - 1,883
---------- -------------- -------- -------------- --------------
Total liabilities 258,073 170,661 13,287 (132,946) 309,075
---------- -------------- -------- -------------- --------------
Shareholders' deficit:
Common stock 74 - - - 74
Preferred stock 51,314 - - - 51,314
Additional paid-in capital 40,455 1,092 (1,709) - 39,838
Accumulated deficit (181,969) (8,488) (2,177) 10,665 (181,969)
---------- -------------- -------- -------------- --------------
Total shareholders' deficit (90,126) (7,396) (3,886) 10,665 (90,743)
---------- -------------- -------- -------------- --------------
$ 167,947 $ 163,265 $ 9,401 $ (122,281) $ 218,332
========== ============== ======== ============== ==============
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 29, 2002
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
-------- ------------- ------- -------------- -------------
Revenues:
Optical sales $ 93,979 $ 61,138 $36,338 $ - $ 191,455
Management fees 341 12,825 - (11,380) 1,786
Investment earnings in subsidiaries 15,164 - - (15,164) -
-------- ------------- ------- -------------- -------------
Net revenues 109,484 73,963 36,338 (26,544) 193,241
Operating costs and expenses:
Cost of goods sold 31,073 21,299 7,294 - 59,666
Selling, general and administrative expenses 56,788 34,927 28,217 (11,380) 108,552
Amortization of intangibles:
Noncompete and other intangibles - 1,682 - - 1,682
-------- ------------- ------- -------------- -------------
Total operating costs and expenses 87,861 57,908 35,511 (11,380) 169,900
-------- ------------- ------- -------------- -------------
Income from operations 21,623 16,055 827 (15,164) 23,341
Interest expense, net 9,349 1,282 4 - 10,635
Income tax expense 62 432 - - 494
-------- ------------- ------- -------------- -------------
Net income $ 12,212 $ 14,341 $ 823 $ (15,164) $ 12,212
======== ============= ======= ============== =============
10
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED JUNE 29, 2002
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
-------- ------------- -------- -------------- -------------
Revenues:
Optical sales $43,600 $ 29,029 $16,138 $ - $ 88,767
Management fees 156 5,767 - (5,126) 797
Investment earnings in subsidiaries 5,774 - - (5,774) -
-------- ------------- -------- -------------- -------------
Net revenues 49,530 34,796 16,138 (10,900) 89,564
Operating costs and expenses:
Cost of goods sold 14,503 9,849 3,246 - 27,598
Selling, general and administrative expenses 27,995 16,963 13,279 (5,126) 53,111
Amortization of intangibles:
Noncompete and other intangibles - 841 - - 841
-------- ------------- -------- -------------- -------------
Total operating costs and expenses 42,498 27,653 16,525 (5,126) 81,550
-------- ------------- -------- -------------- -------------
Income from operations 7,032 7,143 (387) (5,774) 8,014
Interest expense, net 4,890 673 2 - 5,565
Income tax expense (24) 307 - - 283
-------- ------------- -------- -------------- -------------
Net income $ 2,166 $ 6,163 $ (389) $ (5,774) $ 2,166
======== ============= ======== ============== =============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 29, 2002
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
--------- -------------- ------ -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 12,212 $ 14,342 $ 823 $ (15,165) $ 12,212
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,737 5,397 - - 11,134
Loan cost amortization 775 61 - - 836
Deferred liabilities and other 124 74 114 - 312
Loss on disposition of property and equipment 31 32 - - 63
Increase/(decrease) in operating assets and liabilities 14,348 (12,721) (626) - 1,001
--------- -------------- ------ -------------- --------------
Net cash provided by operating activities 33,227 7,185 311 (15,165) 25,558
--------- -------------- ------ -------------- --------------
Cash flows from investing activities:
Acquisition of property and equipment (4,919) (1,272) - - (6,191)
Investment in Subsidiaries (9,390) (5,775) - 15,165 -
--------- -------------- ------ -------------- --------------
Net cash used in investing activities (14,309) (7,047) - 15,165 (6,191)
--------- -------------- ------ -------------- --------------
Cash flows from financing activities:
Payments on debt and capital leases (20,081) (306) - - (20,387)
Distribution to affiliated OD - - (410) - (410)
--------- -------------- ------ -------------- --------------
Net cash provided by (used in) financing activities (20,081) (306) (410) - (20,797)
--------- -------------- ------ -------------- --------------
Net decrease in cash and cash equivalents (1,163) (168) (99) - (1,430)
Cash and cash equivalents at beginning of period 755 2,209 408 - 3,372
--------- -------------- ------ -------------- --------------
Cash and cash equivalents at end of period $ (408) $ 2,041 $ 309 $ - $ 1,942
========= ============== ====== ============== ==============
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is the third largest retail optical chain in the United States
as measured by net revenues, operating 360 stores, 293 of which are optical
superstores. The Company operates predominately under the trade name
"EyeMasters" and in certain geographical regions under the trade names
"Binyon's," "Visionworks," "Hour Eyes," "Dr. Bizer's VisionWorld," "Dr. Bizer's
ValuVision," "Doctor's VisionWorld," "Doctor's ValuVision," "Stein Optical,"
"Vision World," "Doctor's VisionWorks" and "Eye DRx." The Company operates in
the $5.4 billion optical retail chain sector of the $15.9 billion optical retail
market. Management believes that key drivers of growth for retail optical chains
include (i) the aging of the United States population, (ii) the increased role
of managed vision care, (iii) the consolidation of the industry resulting from
the continuing shift in the optical retail industry of market share from
independent practitioners to larger optical retail chains and (iv) new product
innovations. Unless otherwise indicated, all dollar amounts are in thousands.
The industry is highly fragmented and has undergone significant
consolidation. Since September 1996, the Company has consummated and integrated
four acquisitions.
- - In September 1996, the Company acquired Visionworks Holdings, Inc. and its
subsidiaries, a sixty store optical retailer located along the Atlantic Coast
from Florida to Washington, D.C.
- - In September 1997, the Company acquired The Samit Group, Inc. and its
subsidiaries with ten Hour Eyes stores in Maryland and Washington, D.C., and
certain of the assets of Hour Eyes Doctors of Optometry, P.C., a Virginia
professional corporation formerly known as Dr. Samit's Hour Eyes Optometrist,
P.C. (the "PC"), and simultaneously entered into long-term management agreements
with the PC to manage the PC's twelve stores in Virginia.
- - In September 1998, the Company acquired (the "Bizer Acquisition") certain
of the assets of Dr. Bizer's VisionWorld, PLLC and related entities, a nineteen
store optical retailer located primarily in Kentucky and Tennessee, and
simultaneously entered into long-term management agreements with a private
optometrist to manage such optometrist's nineteen stores.
- - In August 1999, the Company acquired from Vision Twenty-One, Inc. ("Vision
Twenty-One") substantially all of the assets used to operate an aggregate of
seventy-six retail eyewear outlets (the "VTO Retail Acquisition"), of which
thirty-seven were located in Minnesota, North Dakota, Iowa, South Dakota and
Wisconsin operating under the trade name "Vision World," sixteen were located in
Wisconsin operating under the trade name "Stein Optical," and twenty-three were
located in New Jersey operating under the trade name "Eye DRx." Simultaneously,
the Company assumed the rights and obligations under a management agreement with
a private optometrist to manage the nineteen Eye DRx stores.
Management believes that optical retail sales through managed vision care
programs will continue to increase over the next several years. As a result,
management has made a strategic decision to pursue managed vision care contracts
aggressively in order to help the Company's retail business grow and has devoted
significant management resources to the development of its managed vision care
business. While the average ticket price on products purchased under managed
vision care reimbursement plans is typically lower than non-managed vision care
purchases, managed vision care transactions generally earn comparable operating
profit margins, as they require less promotional spending and advertising
support. The Company believes that the increased volume resulting from managed
vision care contracts compensates for the lower average ticket price. During the
twenty-six weeks ended June 29, 2002,
12
approximately 35.3% of the Company's total revenues were derived from managed
vision care programs, compared to 37.7% for the twenty-six weeks ended June 30,
2001. Managed vision care sales decreased as a percent of the Company's total
revenues due to a large increase in non-managed vision care sales. Despite its
decrease in the penetration of the Company's total revenues, managed vision care
sales increased 2.4% compared to the first two quarters of fiscal 2001.
Management believes that the increasing role of managed vision care will
continue to benefit the Company and other large retail optical chains with
strong local market share, broad geographic coverage and sophisticated
information management and billing systems.
13
Results of Operations
The following table sets forth for the periods indicated certain statement of income data as a percentage of
net revenues:
THIRTEEN TWENTY-SIX
WEEKS ENDED WEEKS ENDED
------------------------ -------------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
2001 2002 2001 2002
------------------------- -------------------------
STATEMENT OF INCOME DATA:
NET REVENUES:
Optical sales 99.0 % 99.2 % 99.0 % 99.1 %
Management fee 1.0 0.8 1.0 0.9
------------ --------- ------------ ---------
Total net revenues 100.0 100.0 100.0 100.0
OPERATING COSTS AND EXPENSES:
Cost of goods sold 31.9 * 31.1 * 31.3 * 31.2 *
Selling, general and administrative expenses 62.2 * 59.8 * 60.0 * 56.7 *
Amortization of intangibles:
Goodwill 1.5 - 1.5 -
Noncompete and other intangibles 1.1 0.9 1.0 0.9
------------ --------- ------------ ---------
Total operating costs and expenses 95.6 91.1 92.8 87.9
------------ --------- ------------ ---------
INCOME FROM OPERATIONS 4.4 8.9 7.2 12.1
INTEREST EXPENSE, NET 8.4 6.2 8.2 5.5
INCOME TAX EXPENSE 0.3 0.3 0.2 0.3
------------ --------- ------------ ---------
NET INCOME (4.3) % 2.4 % (1.2) % 6.3 %
============ ========= ============ =========
* Percentages based on optical sales only
THE THIRTEEN WEEKS ENDED JUNE 29, 2002 COMPARED TO THE THIRTEEN WEEKS ENDED JUNE
30, 2001.
Net Revenues. The increase in net revenues to $89.6 million for the thirteen
weeks ended June 29, 2002 from $81.6 million for the thirteen weeks ended June
30, 2001 was largely the result of increased comparable store sales of 9.1%
primarily due to the continuation of a new promotion started in the fourth
quarter of 2001. Additionally, the introduction of new product, improved
in-stock positions and overall optical market improvement contributed to the
increase in sales. The number of transactions increased by 17.3% compared to
the second quarter of fiscal 2001, which was offset by a decrease in average
ticket prices of 6.5% compared to the second quarter of fiscal 2001. The
Company opened four stores and closed two stores in the second quarter of 2002.
Gross Profit. Gross profit increased to $61.2 million for the thirteen weeks
ended June 29, 2002 from $54.9 million for the thirteen weeks ended June 30,
2001. Gross profit as a percentage of optical sales increased to 68.9% for the
thirteen weeks ended June 29, 2002 as compared to 68.1% for the thirteen
14
weeks ended June 30, 2001. This percentage increase was largely due to a
continuation of improved buying efficiencies and efficiencies gained in lab
operations.
Selling General & Administrative Expenses (SG&A). SG&A increased to $53.1
million for the thirteen weeks ended June 29, 2002 from $50.1 million for the
thirteen weeks ended June 30, 2001. SG&A as a percentage of optical sales
decreased to 59.8% for the thirteen weeks ended June 29, 2002 from 62.2% for the
thirteen weeks ended June 30, 2001. This percentage decrease was largely the
result of the recognition of economies of scale in occupancy and depreciation.
Advertising expenditures remained consistent with the prior year while net
revenues increased by 9.8%.
Amortization Expense. Amortization expense decreased to $0.8 million for the
thirteen weeks ended June 29, 2002 from $2.1 million for the thirteen weeks
ended June 30, 2001. This decrease was due to the adoption of FASB 142, which
disallows the amortization of goodwill over its useful life and instead requires
an annual assessment for impairment.
Net Interest Expense. Net interest expense decreased to $5.6 million for the
thirteen weeks ended June 29, 2002 from $6.8 million for the thirteen weeks
ended June 30, 2001. This decrease was due to the decrease in outstanding debt
and the decrease in applicable interest rates.
Net Income (Loss). Net income increased to $2.2 million for the thirteen weeks
ended June 29, 2002 from a net loss of $(3.5) million for the thirteen weeks
ended June 30, 2001.
THE TWENTY-SIX WEEKS ENDED JUNE 29, 2002 COMPARED TO THE TWENTY-SIX WEEKS ENDED
JUNE 30, 2001.
Net Revenues. Net Revenues. The increase in net revenues to $193.2 million for
the twenty-six weeks ended June 29, 2001 from $175.1 million for the twenty-six
weeks ended June 30, 2001 was largely the result of increased comparable store
sales of 9.9% primarily due to the continuation of the new promotion started in
the fourth quarter of 2001. Additionally, the introduction of new product,
improved in-stock positions and overall optical market improvement contributed
to the increase in sales. The number of transactions increased by 19.5%
compared to the twenty-six weeks ended June 30, 2001, which was offset by a
decrease in average ticket prices of 7.7% compared to the twenty-six weeks ended
June 30, 2001. In addition, managed vision care sales increased 2.4% for the
twenty-six weeks ended June 29, 2002 as compared to the twenty-six weeks ended
June 30, 2001. The Company opened five stores and closed four stores during the
twenty-six weeks ended June 29, 2002.
Gross Profit. Gross profit increased to $131.8 million for the twenty-six weeks
ended June 29, 2002 from $119.1 million for the twenty-six weeks ended June 30,
2001. Gross profit as a percentage of optical sales increased to 68.8% for the
twenty-six weeks ended June 29, 2002 as compared to 68.7% for the twenty-six
weeks ended June 30, 2001. This percentage increase was largely due to a
continuation of improved buying efficiencies and efficiencies gained in lab
operations.
Selling General & Administrative Expenses (SG&A). SG&A increased to $108.6
million for the twenty-six weeks ended June 29, 2002 from $103.9 million for the
twenty-six weeks ended June 30, 2001. SG&A as a percentage of optical sales
decreased to 56.7% for the twenty-six weeks ended June 29, 2002 from 60.0% for
the twenty-six weeks ended June 30, 2001. This percentage decrease was largely
the result of the recognition of economies of scale in occupancy, depreciation,
advertising and overhead expenditures.
Amortization Expense. Amortization expense decreased to $1.7 million for the
twenty-six weeks ended June 29, 2002 from $4.4 million for the twenty-six weeks
ended June 30, 2001. This decrease was due to the adoption of FASB 142, which
disallows the amortization of goodwill over its useful life and instead requires
an annual assessment for impairment.
15
Net Interest Expense. Net interest expense decreased to $10.6 million for the
twenty-six weeks ended June 29, 2002 from $14.4 million for the twenty-six weeks
ended June 30, 2001. This decrease was due to the decrease in outstanding debt
and the decrease in applicable interest rates.
Net Income (Loss). Net income increased to $12.2 million for the twenty-six
weeks ended June 29, 2002 from a net loss of $2.1 million for the twenty-six
weeks ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities have provided net cash of $25.6
million for the twenty-six weeks ended June 29, 2002 as compared to $11.7
million for the twenty-six weeks ended June 30, 2001. As of June 29, 2002, the
Company had $1.9 million of cash and cash equivalents available to meet the
Company's obligations.
Capital expenditures are related to the construction of new stores,
repositioning of existing stores in some markets, new computer systems for
stores and maintenance of existing facilities. Capital expenditures for the
twenty-six weeks ended June 29, 2002 were $6.2 million. The aggregate capital
expenditures for 2002 are anticipated to be approximately $9.5 million, of which
approximately $3.3 million are related to commitments to new stores and
approximately $6.2 million are expected to be for systems and improvements to
existing facilities.
On April 24, 1998, the Company entered into a credit agreement (as amended,
the "Credit Facility") which consists of (i) the $55.0 million term loan
facility (the "Term Loan Facility"); (ii) the $35.0 million revolving credit
facility (the "Revolving Credit Facility"); and (iii) the $100.0 million
acquisition facility (the "Acquisition Facility"). The proceeds of the Credit
Facility were used to pay long-term debt outstanding under the previous credit
facility. At June 29, 2002, the Company had $23.5 million outstanding under the
Term Loan Facility, $11.5 million outstanding under the Revolving Credit
Facility, $67.3 million outstanding under the Acquisition Facility which funded
the Bizer Acquisition and the VTO Retail Acquisition, $149.7 million in notes
payable outstanding evidenced by the Notes and $2.6 million in capital lease and
equipment obligations. On December 27, 2000, the Company amended the Credit
Facility. As a result of the amendment to the Credit Facility, interest on
borrowings was increased by 100 basis points from the original interest rates
under the amended Credit Facility and various financial covenants and scheduled
principal payments were revised. Borrowings made under the Credit Facility (as
amended) bear interest at a rate equal to, at the Company's option, LIBOR plus
2.25% to 3.25% or the Base Rate (as defined in the Credit Facility) plus 1.25%
to 2.25%. At June 29, 2002, the Company's Credit Facility bore interest at LIBOR
plus 3.25% and the Base Rate plus 2.25%. Under the Credit Facility (as amended),
the Term Loan Facility matures on November 15, 2003, the $23.5 million
outstanding balance will amortize in annual principal amounts of approximately
$3.3 million and $20.2 million, respectively, during fiscal years 2002 and 2003
and the Acquisition Facility will amortize in annual principal amounts of
approximately $0.3 million and $67.0 million, respectively, during fiscal years
2002 and 2003.
16
Future principal maturities for long-term debt and capital lease obligations
as of June 29, 2002 are as follows:
2002 $ 3,921
2003 98,921
2004 148
2005 233
2006 308
Beyond 2006 151,115
--------
Total future principal payments on debt $254,646
========
Based upon current operations, anticipated cost savings and future growth,
the Company believes that its cash flow from operations, together with
borrowings currently available under the Revolving Credit Facility, are adequate
to meet its anticipated requirements for working capital, capital expenditures
and scheduled principal and interest payments through the next twelve (12)
months. The ability of the Company to satisfy its financial covenants within
its Credit Facility (as amended), meet its debt service obligations and reduce
its debt will be dependent on the future performance of the Company, which in
turn, will be subject to general economic conditions and to financial, business,
and other factors, including factors beyond the Company's control. In the event
the Company does not satisfy its financial covenants within the Credit Facility,
the Company may attempt to renegotiate the terms of its Credit Facility with its
lender for further amendments to, or waivers of, the financial covenants of the
Credit Facility. The Company believes that its ability to repay the Notes and
amounts outstanding under the Revolving Credit Facility and the Acquisition
Facility at maturity will likely require additional financing. The Company has
entered into discussions with Bank of America Securities, LLC and Fleet National
Bank, Inc. to refinance the Credit Facility. There are no assurances that the
Company will be successful in refinancing the Credit Facility or obtaining any
other additional financing necessary to repay the notes or the amounts
outstanding under the Credit Facility. A portion of the Company's debt bears
interest at floating rates; therefore, its financial condition is and will
continue to be affected by changes in prevailing interest rates.
INFLATION
The impact of inflation on the Company's operations has not been
significant to date. While the Company does not believe its business is highly
sensitive to inflation, there can be no assurance that a high rate of inflation
would not have an adverse impact on the Company's operations.
SEASONALITY AND QUARTERLY RESULTS
The Company's sales fluctuate seasonally. Historically, the Company's
highest sales and earnings occur in the first and third fiscal quarters;
however, the opening of new stores may affect seasonal fluctuations. Hence,
quarterly results are not necessarily indicative of results for the entire year.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this report regarding the
Company's financial position, business strategy, budgets and plans and
objectives of management for future operations are forward-looking statements.
Although the management of the
17
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from those contemplated or projected, forecasted, estimated
or budgeted in or expressed or implied by such forward-looking statements. Such
factors include, among others, the risk and other factors set forth under "Risk
Factors" in the Company's Registration Statement on Form S-4 filed with the
Commission and under the heading "Government Regulation" in the Company's Annual
Report on Form 10-K for 2000 as well as the following: general economic and
business conditions; industry trends; the loss of major customers, suppliers or
managed vision care contracts; cost and availability of raw materials; changes
in business strategy or development plans; availability and quality of
management; and availability, terms and deployment of capital. SPECIAL ATTENTION
SHOULD BE PAID TO THE FACT THAT CERTAIN STATEMENTS CONTAINED HEREIN ARE
FORWARD-LOOKING INCLUDING, BUT NOT LIMITED TO, STATEMENTS RELATING TO (I) THE
COMPANY'S ABILITY TO EXECUTE ITS BUSINESS STRATEGY (INCLUDING, WITHOUT
LIMITATION, WITH RESPECT TO NEW STORE OPENINGS AND INCREASING THE COMPANY'S
PARTICIPATION IN MANAGED VISION CARE PROGRAMS), (II) THE COMPANY'S ABILITY TO
OBTAIN SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND CAPITAL
EXPENDITURE NEEDS AND PROVIDE FOR ITS OBLIGATIONS; (III) THE CONTINUING SHIFT IN
THE OPTICAL RETAIL INDUSTRY OF MARKET SHARE FROM INDEPENDENT PRACTITIONERS AND
SMALL REGIONAL CHAINS TO LARGER OPTICAL RETAIL CHAINS; (IV) INDUSTRY SALES
GROWTH AND CONSOLIDATION; (V) IMPACT OF REFRACTIVE SURGERY AND OTHER CORRECTIVE
VISION TECHNIQUES; (VI) DEMOGRAPHIC TRENDS; (VII) THE COMPANY'S MANAGEMENT
ARRANGEMENTS WITH PROFESSIONAL CORPORATIONS; (VIII) THE ABILITY OF THE COMPANY
TO MAKE AND INTEGRATE ACQUISITIONS; AND (IX) THE COMPANY'S ABILITY TO OBTAIN
ADDITIONAL FINANCING TO REPAY THE CREDIT FACILITY OR NOTES AT MATURITY AND (X)
THE CONTINUED MEDICAL INDUSTRY EFFORTS TO REDUCE MEDICAL COSTS AND THIRD PARTY
REIMBURSEMENTS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks. Market risk is the
potential loss arising from adverse changes in market prices and rates. The
Company does not enter into derivative or other financial instruments for
trading or speculative purposes. There have been no material changes in the
Company's market risk during the second quarter of fiscal 2002. For further
discussion, refer to the Eye Care Centers of America, Inc.'s annual report on
Form 10-K for the year ended December 29, 2001.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to routine litigation in the ordinary course of its
business. There have been no such pending matters, individually or in the
aggregate, that the management of the Company has deemed to be material to the
business or financial condition of the Company that have arisen during the
second quarter of fiscal 2002. For further discussion, refer to the Company's
annual report on Form 10-K for the year ended December 29, 2001.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
2.1 Stock Purchase Agreement, dated August 15, 1996, by and between Eye Care
Centers of America, Inc., Visionworks Holdings, Inc. and the Sellers listed
therein. (a)
2.2 Stock Purchase Agreement, dated September 30 1997, by and among Eye
Care Centers of America, Inc., a Texas corporation, Robert A. Samit, O. D.
and Michael Davidson, O. D. (a)
2.3 Recapitalization Agreement dated, as of March 6, 1998, among ECCA
Merger Corp., Eye Care Centers of America, Inc. and the sellers Listed
therein. (a)
2.4 Amendment No. 1 to the Recapitalization Agreement dated as of April 23,
1998 among ECCA Merger Corp., Eye Care Centers of America, Inc, and
the sellers listed therein. (a)
2.5 Amendment No. 2 to the Recapitalization Agreement, dated as of April 24,
1998, among ECCA Merger Corp., Eye Care Centers of America, Inc. and
the sellers listed therein. (a)
2.6 Articles of Merger of ECCA Merger Corp. with and into Eye Care Centers
of America, Inc., dated April 24, 1998. (a)
2.7 Master Asset Purchase Agreement, dated as of August 22, 1998,
by and among Eye Care Centers of America, Inc., Mark E. Lynn, Dr. Mark
Lynn & Associates, PLLC, Dr. Bizer's Vision World, PLLC and its affiliates. (a)
2.8 Letter Agreement, dated October 1, 1998, amending and modifying that
certain Master Asset Purchase Agreement, dated as of August 22, 1998, by
and among Eye Care Centers of America, Inc.; Mark E. Lynn; Dr. Mark
Lynn & Associates, PLLC, Dr. Bizer's VisionWorld, PLLC and its affiliates. (a)
2.9 Asset Purchase Agreement, dated July 7, 1999, by and among Eye Care
Centers of America, Inc., Vision Twenty-One, Inc., and The Complete
Optical Laboratory, Ltd., Corp. * (b)
2.10 Letter Agreement, dated August 31, 1999, amending and modifying that
certain Asset Purchase Agreement, dated July 7, 1999 by and among Eye
Care Centers of America, Inc., Vision Twenty-One, Inc., and The Complete
Optical Laboratory, Inc., Corp. (c)
19
3.1 Restated Articles of Incorporation of Eye Care Centers of America Inc. (a)
3.2 Statement of Resolution of the Board of Directors of Eye Care Centers of
America, Inc. designating a series of Preferred Stock. (a)
3.3 Amended and Restated By-laws of Eye Care Centers of America, Inc. (a)
4.1 Indenture, dated as of April 24, 1998, among Eye Care Centers of America, Inc.,
the Guarantors named therein and United States Trust Company of
New York, as Trustee for the 9 1/8% Senior Subordinated Notes Due 2008
and Floating Interest Rate Subordinated Term Securities. (a)
4.2 Form of Fixed Rate Exchange Note. (d)
4.3 Form of Floating Rate Exchange Note. (d)
4.4 Form of Guarantee. (d)
4.5 Registration Rights Agreement, dated April 24, 1998, between Eye Care
Centers of America, Inc., the subsidiaries of the Company named as
guarantors therein, BT Alex. Brown Incorporated and Merrill Lynch,
Pierce, Fenner & Smith Incorporated. (a)
10.1 Credit Agreement, dated as of April 23, 1998, among Eye Care Centers of
America, Inc., Various Lenders, Bankers Trust Company, as Administrative
Agent, and Merrill Lynch Capital Corporation, as Syndication Agent. (a)
10.2 First Amendment to Credit Agreement, dated as of December 27, 2000,
among Eye Care Centers of America, Inc., Various Lenders, Bankers Trust
Company, as Administrative Agent, and Merrill Lynch Capital Corporation,
as Syndication Agent. (i)
10.3 Termination Agreement, dated as of July 1, 2002 among Eye Care Centers of
America, Inc. and Bernard W. Andrews. (e)
99.1 Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
__________
* Portions of this Exhibit have been omitted pursuant to an application for
an order declaring confidential treatment filed with the Securities and
Exchange Commission.
(a) Incorporated by reference from the Registration Statement on Form S-4 (File
No. 333 - 56551).
(b) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999.
(c) Previously provided with, and incorporated by reference from, the Company's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1999.
(d) Previously provided with, and incorporated by reference from, the Company's
Quarterly Report on Form 10-Q for the quarter ended September 29, 2001.
(e) Filed herewith.
(B) The Company filed a report on Form 8-K dated August 1, 2002 under Item 5.
Other Events that reported the Company has entered into discussions with
Bank of America, LLC and Fleet National Bank, Inc. to refinance its
existing senior credit facilities.
20
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.
EYE CARE CENTERS OF AMERICA, INC.
August 09, 2002 /s/ Alan E. Wiley
- --------------- ------------------
Dated Alan E. Wiley
Executive Vice President and
Chief Financial Officer
Secretary and Treasurer