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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

NATIONAL VISION, INC.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:      (770) 822-3600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES   þ      NO   ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  YES  ¨      NO    þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  YES   þ      NO   ¨

The number of shares of Common Stock of the registrant outstanding as of May 27, 2003, was 5,084,400, including shares that are part of the disputed claims reserve in the registrant’s Chapter 11 Case. 

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FORM 10-Q INDEX

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PART I

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

NATIONAL VISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 29, 2003 and December 28, 2002
(In thousands except share information)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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NATIONAL VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share information)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NATIONAL VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NATIONAL VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 2003
(Unaudited)

(1)  BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by National Vision, Inc. (“National Vision” or the “Company” f.k.a. Vista Eyecare, Inc.) pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  Although management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company’s most recent audited consolidated financial statements and notes thereto.  In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods presented have been made.  Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending January 3, 2004. 

(2)  DISCONTINUED OPERATIONS

During the first quarter of 2003, fifteen of the Company’s vision center leases expired, resulting in the closure of 13 Wal*Mart vision centers and two vision centers on military bases.  Revenues for these vision centers totaled $0.5 million and $2.2 million in the first quarters of 2003 and 2002, respectively.  The net loss on disposal of these operations totaled $46,000, which included severance and closing costs of $82,000 and gains recorded from the sale of certain assets.   Operating results for these closed vision centers have been presented separately as discontinued operations in the Condensed Consolidated Statement of Operations for the first quarters of 2003 and 2002.

(3)  CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

The Company adopted Emerging Issues Task Force Issue No. 02-16, "Accounting by a Customer for Certain Consideration Received from a Vendor" ("EITF  02-16") at the beginning of the first quarter of 2003.  This issue addresses the method by which retailers account for vendor allowances.  Historically, the Company received vendor allowances through co-op advertising agreements, which were classified in the income statement as a reduction in advertising expense.  As a result of the adoption of EITF 02-16, certain vendor allowances, which formerly were treated as a reduction in advertising costs, are presented as a reduction of inventory cost and subsequently as a component of cost of goods sold.   On the first day of fiscal 2003, the Company recorded additional expense of $564,000 as the cumulative effect for this change in accounting principle.  This amount reflects the portion of vendor allowances that would have reduced inventory costs had this new accounting pronouncement been in effect in 2002.

(4)  SENIOR SUBORDINATED NOTES AND REVOLVING LINE OF CREDIT

The indenture governing the Company’s Senior Subordinated Notes provides for semi-annual payments of interest (on March 30 and September 30 of each year, to holders of record on March 15 and September 15, respectively).  The indenture also provides for semi-annual redemptions of notes (on February 28 and August 31 of each year, to holders of record on February 13 and August 15, respectively) in the amount of the "Excess Cash Flow" (if any) generated by the Company in the fiscal six-month period ending on the last day of December and June (for the February and the August redemptions, respectively).  Excess Cash Flow is defined as EBITDA (as defined in the indenture) plus or minus working capital changes less the sum of capital expenditures, cash interest payments and cash tax payments, and is limited to the extent that the Company must maintain a minimum cash balance of $3 million as of the measurement date.

On March 28, 2003 the Company made a semi-annual interest payment in the amount of $6.4 million.  On February 28, 2003, the Company made a principal redemption in the amount of $2.9 million, plus accrued interest of approximately $150,000.

At March 29, 2003, the Company has borrowed $1.0 million on its existing Revolving Credit Facility.  This amount is presented as a current liability because of management's intent to repay this borrowing during the second quarter of 2003.  The Company's remaining availability under the Revolving Credit Facility, as determined by the borrowing base calculation at March 29, 2003, was approximately $2.3 million.

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(5)  EARNINGS PER COMMON SHARE

The computation for basic and diluted earnings per share may be summarized as follows (amounts in thousands except per share information):

At March 29, 2003 and March 30, 2002, the Company had approximately 616,000 and 347,000 stock options and restricted shares outstanding, respectively, which have been excluded from the computation of diluted earnings per share since they are anti-dilutive.

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NATIONAL VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 2003
(Unaudited)

No outstanding options were included in the above calculation as their impact would be anti-dilutive. 

(6)  STOCK COMPENSATION

The Company applies the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."  Stock Option awards continue to be accounted for in accordance with APB Opinion No. 25.  In October 2001, the Company granted stock options to eligible employees.  Because the number of shares to be issued and the per share strike price are not subject to uncertainty, this stock option plan qualifies for fixed accounting treatment.  As a result, the Company does not record compensation expense in connection with the granting of these stock options.

Had compensation cost for the Plan been determined based on the fair value at the grant date for awards in the first quarter of 2003 and 2002, consistent with the provisions of SFAS No. 123, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below (amounts in thousands except per share information):

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(7)  SUPPLEMENTAL DISCLOSURE INFORMATION

Inventory balances, by classification, may be summarized as follows (amounts in thousands):

Significant components of accrued expenses and other current liabilities may be summarized as follows (amounts in thousands):

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NATIONAL VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 2003
(Unaudited)

The components of interest expense, net, may be summarized as follows (amounts in thousands):

(8)  COMPREHENSIVE INCOME

Comprehensive income / (loss), which consists of net income and foreign currency translation adjustments, was a loss of approximately $2.1 million and $1.4 million respectively for the three months ended March 29, 2003 and March 30, 2002. 

(9)  RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an Interpretation of APB No. 50," ("FIN 46").  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  The adoption of FIN 46 did not have an impact on the Company's consolidated financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation ("FIN") No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others."  FIN 45 requires footnote disclosures of the guarantees or indemnification agreements a company issues.  With certain exceptions, these agreements will also require a company to prospectively recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee.  The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.  The adoption of FIN No. 45 on December 29, 2002 did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."  This statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred.  Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred.  As vision centers are identified for closure, any costs associated with the closure or disposal will be recorded at fair value when the liability is incurred.  The Company adopted this statement on December 29, 2002.  As a result, the Company has reflected closing costs associated with store closings at their fair values when incurred.

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In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4, 44 and 64, Amendment to FASB Statement 13, and Technical Corrections."  One of the major changes of this statement is to change the accounting for the classification of gains and losses arising from the extinguishment of debt.  Upon adoption of SFAS No. 145, the Company will follow APB 30, in determining whether such extinguishment of debt may be classified as extraordinary.  The Company adopted SFAS No. 145 on December 29, 2002, which will result in future gains or losses on extinguishment of debt being presented as a component of income from continuing operations instead of as an extraordinary item.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company’s results of operations in any period are significantly affected by the number and mix of vision centers opened and operating during such period.  The following table sets forth information about the number of vision centers owned and operated by the Company as of  March 29, 2003, December 28, 2002 and March 30, 2002.

THREE MONTHS ENDED MARCH 29, 2003 (THE “CURRENT THREE MONTHS”) COMPARED TO THREE MONTHS ENDED MARCH 30, 2002 (THE “PRIOR THREE MONTHS”)

CONSOLIDATED RESULTS

Condensed operating results for the first quarter of 2003 and 2002 are presented as follows (amounts in thousands):

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Net Sales.  The Company recorded net sales of $62.6 million in the Current Three Months, a 4.9% increase from sales of $59.7 million in the Prior Three Months.  The sales increase was partially due to premium revenue from a managed care insurance product that the Company began selling in the Wal*Mart California vision centers during the second quarter of 2002.  Revenue from this product contributed approximately $1.4 million of the sales increase for the Current Three Months.  The remaining increase came from a domestic comparable store sales increase of 2.5% and new store openings.

In July 2002, the Company changed its in-store presentation strategy by "unbundling" the package price so that pricing for frames and lenses are separately presented.  The new presentation is intended to be more clear, concise and customer-friendly and is similar to product and price presentation at a majority of our competitors’ stores.  In addition, during the first quarter of 2003, we rolled out a new frame collection to our Wal*Mart stores and our Fred Meyer stores.  Through this process, we substantially reduced the number of frame vendors, consolidated certain price points and enhanced the presentation of the frames on the frame boards.  As a result of these changes, we expect to achieve an increase in gross profit margin as a percent of sales and an increase in average transaction value on frame sales.  We expect this improvement to occur through the course of 2003.  We can provide no assurances that we will in fact achieve such margin improvement or an increase in average transaction value in the future.

During the first quarter of 2003, the Company achieved growth in its managed care retail sales in excess of 20%.  We attribute this success to our ongoing focus to grow this component of our retail operations.  Managed care retail sales were slightly higher than 10% of total retail sales in 2002.  Because the Company’s current share of this segment is well below the average for the optical industry, we believe managed care is an opportunity for future sales growth within our existing retail store operations.  We can provide no assurances that we will in fact achieve such sales growth in the future.

Gross Profit.  In the Current Three Months, gross profit dollars increased by 2% over gross profit dollars in the Prior Three Months.  The retail and insurance components of sales and gross profit for the Current and Prior Three Months are detailed below:  (in thousands)

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Retail gross profit as a percent of sales decreased from 56.4% in the Prior Three Months to 56.2% in the Current Three Months.  The decline represents the net effect of several changes.  We realized an increase in eyeglass margins as a result of the unbundling process and the new frame collection rollout discussed under "Net Sales."  Offsetting the effect of the eyeglass margin increase are the following items:

Insurance gross profit represents premium revenue less claims expense for a managed care insurance product that the Company began selling in the Wal*Mart California vision centers in the second quarter of 2002.  We do not expect a significant change in insurance gross profit as a percent of premium revenue in future periods.  The addition of the lower-margin managed care insurance product increases total revenues and gross profit dollars, but decreases total gross profit as a percent of total net sales.

Selling, General, And Administrative Expense (“SG&A expense”).  SG&A expense (which includes both store operating expenses and home office overhead) increased to $32.5 million in the Current Three Months from $31.9 million for the Prior Three Months.   The increase in SG&A dollars was primarily attributable to 1)  an increase in payroll resulting from improvements in coverage at certain vision centers, 2) an increase in payroll rates in certain markets where growing competition resulted in upward pressure on rates for optical personnel, 3) an increase in health and medical benefit costs, and 4) costs for the Company's national sales meeting.  Some of the increase in SG&A expense was offset by decreases in advertising expenditures and lower receivable write-offs related to managed care sales. 

Operating Income.  Operating income for the Current Three Months increased to $1.9 million from the Prior Three Months at $1.7 million.   Operating income as a percentage of sales was 3.1% in the Current Three Months, up from 2.8% in the Prior Three Months.

Interest Expense.  Interest expense was $3.3 million compared to $3.6 million in the Prior Three Months.  The decrease was primarily the result of a weighted-average outstanding debt balance of $108.8 million in the Current Three Months versus $119.5 million in the Prior Three Months.  Our Senior Subordinated debt has a fixed interest rate of 12%.

Benefit For Income Taxes.  The Company incurred tax operating losses in the Current Three Months.  Resulting tax benefits have been offset by a valuation allowance as realization is considered unlikely.

Loss from Discontinued Operations.  During the first quarter of 2003, fifteen of the Company’s vision center leases expired, resulting in the closure of 13 Wal*Mart vision centers and two vision centers on military bases.  Revenues for these vision centers totaled $0.5 million and $2.2 million in the first quarters of 2003 and 2002, respectively.  The net loss on disposal of these operations totaled $46,000, which included severance and closing costs of $82,000 and gains recorded from the sale of certain assets.   Operating results for these closed vision centers have been presented separately as discontinued operations in the Condensed Consolidated Statement of Operations for the first quarters of 2003 and 2002.

Cumulative Effect of a Change in Accounting Principle.  The Company adopted Emerging Issues Task Force Issue No. 02-16, "Accounting by a Customer for Certain Consideration Received from a Vendor" ("EITF  02-16") at the beginning of the first quarter of 2003.  This issue addresses the method by which retailers account for vendor allowances.  Historically, the Company received vendor allowances through co-op advertising agreements, which were classified in the income statement as a reduction in advertising expense.  As a result of the adoption of EITF 02-16, certain vendor allowances, which formerly were treated as a reduction in advertising costs, are presented as a reduction of inventory cost and subsequently as a component of cost of goods sold.   On the first day of fiscal 2003, the Company recorded additional expense of $564,000 as the cumulative effect for this change in accounting principle.  This amount reflects the portion of vendor allowances that would have reduced inventory costs had this new accounting pronouncement been in effect in 2002.

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Net Income.  The Company incurred a net loss of $2.0 million versus a net loss of $1.4 million in the Prior Three Months.  

EBITDA.  EBITDA is calculated as net earnings before interest, taxes, depreciation and amortization, extraordinary items, cumulative effect of a change in accounting principle and reorganization items.  (See "Use of non-GAAP financial measures.")  EBITDA declined from $7.1 million in the Prior Three Months to $5.9 million in the Current Three Months.  Half of this decline is attributable to the profitability change in the discontinued operations from income of $465,000 in 2002 versus a loss of $121,000 in 2003.

Use of non-GAAP Financial Measures:  We frequently refer to EBITDA in this document.  EBITDA is calculated as net earnings before interest, taxes, depreciation and amortization, extraordinary items, cumulative effect of a change in accounting principle, and reorganization items as defined in the terms of our Senior Subordinated Debt agreement.  We refer to EBITDA because:

• it is the basis for the calculation of the excess cash flow principal repayment under our senior notes; and

• it is a widely accepted financial indicator of a company’s ability to service or incur indebtedness.

EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles, is not necessarily indicative of cash available to fund all cash flow needs, should not be considered an alternative to net income or to cash flow from operations (as determined in accordance with GAAP) and should not be considered an indication of our operating performance or as a measure of liquidity.  EBITDA is not necessarily comparable to similarly titled measures for other companies.

The following is a reconciliation of net earnings to EBITDA:

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SUMMARY OF MASTER LEASE AGREEMENTS

We have agreements governing our operations in host environments, such as Wal*Mart.  Typically, each agreement is for a base term, followed by an option to renew for a specified length of time.  The agreements provide for payments of minimum and percentage rent, and also contain customary provisions for leased department operations.

Wal*Mart Vision Centers

Our agreement with Wal*Mart gives us the right to open 400 vision centers, the last of which opened in 2001.  Our agreement with Wal*Mart also provides that, if Wal*Mart converts its own store to a supercenter (a store which contains a grocery department in addition to the traditional Wal*Mart store offering) and relocates our vision center as part of the conversion, the term of our lease begins again.  During 2002, 14 locations were relocated, effectively renewing these leases.  We expect between 14 and 17 leases to relocate to supercenters in 2003.  As of March 29, 2003, we have 161 vision centers located in Wal*Mart supercenters.  We believe that Wal*Mart may in the future convert many of its stores and thereby cause many of our leases to start again.  We have received no assurances from Wal*Mart as to how many of their locations will ultimately be converted.

Liquidity And Capital Resources

Our capital needs have been for operating expenses, capital expenditures, the repayment of principal on the Senior Subordinated Notes and the payment of interest expense.  Our sources of capital have been cash flow from operations and borrowings under the Company’s credit facility.

It is the Company’s intent to use excess cash for its ongoing operations, repayment of principal and payment of interest on the Company’s outstanding debt and for the repurchase of Notes.  During the first quarter of 2003, the Company made a principal redemption payment on the Senior Subordinated Notes of approximately $2.9 million on February 28, 2003.  In addition, the Company made an interest payment of approximately $6.4 million on March 28, 2003.  The principal redemption was based on the requirements of the indenture and was made at 100% of par.  Pursuant to the terms of the indenture, each principal redemption payment is based on the results for the six-month period ending in June or December, respectively.  We also made our fiscal 2002 rent reconciliation payment to Wal*Mart in February 2003, which approximated $3.9 million, and made incentive payments based on 2002 results to store and management personnel in March 2003.  The Company borrowed $1.0 million under its credit facility in the week preceding the interest payment date in order to provide liquidity for the Company’s daily cash flow requirements.  The Company repaid the borrowings during April 2003.

As of June 17, 2003, the Company’s remaining unused availability under its credit facility with Fleet, after being reduced for letter of credit requirements, has increased slightly to approximately $2.8 million from $1.7 million at December 28, 2002.  At June 17, 2003, the Company had no borrowings under its credit facility, and had letters of credit of $4.4 million outstanding.  The Company believes that cash generated from operations and funds available under the credit facility will be sufficient to satisfy its cash requirements through 2003.  Cash and cash equivalents totaled $3.1 million on March 29, 2003 after making the first quarter interest payments and the first quarter principal redemption payments.

In the first quarter, we made the following changes to our inventory:

• We rolled out a new eyeglass frames collection and changed approximately 50% of the frames we display at retail; and

• We rolled out a new offering of contact lenses and sunglasses.

As a result of these changes, we increased our inventory of eyeglass frames approximately $1.5 million versus December 28, 2002 and our inventory of contact lenses and sunglasses by $2.5 million versus December 28, 2002.  We obtained extended payment terms for the initial product purchases, which resulted in comparable increases in accounts payable as of the end of the first quarter.  We expect that the inventory and accounts payable balances will decline from these levels during the second quarter.  We anticipate that our frame inventory level will decline in the second quarter of 2003 to a level consistent with the comparable period in 2002.  We anticipate inventory levels of contact lenses and sunglasses to decline in the second quarter of 2003; however, such levels will remain higher than the comparable period in 2002.

In November 2002, the Board of Directors revised its prior resolution and authorized the Company to continue to repurchase Notes in private transactions (without any annual limit), subject only to any limitations on repurchases contained in the Company’s credit facility.  The Company is discussing amendments to its credit facility with its lender to permit the Company to continue to repurchase the Notes, but subject to limitations required by the lender.

Prior to 2002, we opened 400 domestic Wal*Mart vision centers, as provided for in our Master Lease Agreement.  The Company opened one vision center on a military base during the first quarter of 2003.  We expect to open between 5 and 7 vision centers in 2003 in host environments other than domestic Wal*Mart vision centers.  These store openings are subject to change depending upon liquidity, construction schedules and other constraints.  For each of our new vision centers, we typically spend between $100,000 and $140,000 for fixed assets and approximately $25,000 for inventory.

Through March 29, 2003, we have converted 3 Wal*Mart vision centers to supercenters this year.  In all of 2003, we expect to convert between 14 and 17 of our existing Wal*Mart vision centers to supercenters.  Each supercenter conversion requires expenditures of approximately $60,000 to $80,000 and effectively “re-starts” that location’s lease term. 

Recently Issued Accounting Pronouncements 

In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an Interpretation of APB No. 50," ("FIN 46").  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  The adoption of FIN 46 did not have an impact on the Company's consolidated financial position, results of operations or cash flows.

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In November 2002, the FASB issued Interpretation ("FIN") No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others."  FIN 45 requires footnote disclosures of the guarantees or indemnification agreements a company issues.  With certain exceptions, these agreements will also require a company to prospectively recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee.  The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.  The adoption of FIN No. 45 on December 29, 2002 did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."  This statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred.  Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred.  As vision centers are identified for closure, any costs associated with the closure or disposal will be recorded at fair value when the liability is incurred.  The Company adopted this statement on December 29, 2002.  As a result, the Company has reflected closing costs associated with store closings at their fair values when incurred.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4, 44 and 64, Amendment to FASB Statement 13, and Technical Corrections."  One of the major changes of this statement is to change the accounting for the classification of gains and losses arising from the extinguishment of debt.  Upon adoption of SFAS No. 145, the Company will follow APB 30, in determining whether such extinguishment of debt may be classified as extraordinary.  The Company adopted SFAS No. 145 on December 29, 2002, which will result in future gains or losses on extinguishment of debt being presented as a component of income from continuing operations instead of as an extraordinary item.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations presents the consolidated financial statements of National Vision, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant areas that require management’s judgment and the use of estimates include:  reserves for loss, obsolescence and discontinuance of inventory, reserves for uncollectible managed care receivables, accruals for self-insured group medical insurance claims and workers’ compensation claims, accruals for remake and warranty costs and  estimates for the deferral of revenue for product not delivered at the end of the reporting period.

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RISK FACTORS.  Any expectations, beliefs and other non-historical statements contained in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements represent the Company’s expectations or belief concerning future events, including the following:  any statements regarding future sales levels, any statements regarding the continuation of historical trends, any statements regarding the Company’s liquidity and any statements regarding tax losses.  Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements.  With respect to such forward-looking statements and others that may be made by, or on behalf of, the Company, the factors described as “Risk Factors” in the Company’s Report on Form 10-K, filed on June 4, 2003, could materially affect the Company’s actual results.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

Market risk is the potential change in an instrument’s value caused by, for example, fluctuations in interest and currency exchange rates.  The Company’s primary market risk exposures are interest rate risk and the risk of unfavorable movements in exchange rates between the U.S. dollar and the Mexican peso.  Monitoring and managing these risks is a continual process carried out by senior management, which reviews and approves the Company’s risk management policies.  We manage market risk on the basis of an ongoing assessment of trends in interest rates, foreign exchange rates, and economic developments, giving consideration to possible effects on both total return and reported earnings.  The Company’s financial advisors, both internal and external, provide ongoing advice regarding trends that affect management’s assessment.  The Company's operations are not considered to give rise to significant market risk.

INTEREST RATE RISK

The Company borrows under its credit facility at variable interest rates.  We therefore incur the risk of increased interest costs if interest rates rise.  At March 29, 2003, the Company had approximately $1.0 million outstanding borrowing under its credit facility. The Company's interest cost under its Senior Notes is fixed at 12% through the expiration date in 2009.

FOREIGN CURRENCY RISK

The Company's division in Mexico operates in a functional currency other than the U.S. dollar.  The net assets of this division are exposed to foreign currency translation gains and losses, which are included as a component of accumulated other comprehensive loss in shareholders' equity.  Such translation resulted in unrealized losses of $73,000 in the first quarter of 2003.  Historically, the Company has not attempted to hedge this equity risk.

ITEM 4.  CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, with the exception of certain deficiencies described below, the Company’s disclosure controls and procedures are effective as of the date of such evaluation.   Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

The Company has been advised by its independent auditors that they had identified certain deficiencies in the Company's controls and procedures over accounting for vendor allowances and discounts and, accordingly, the independent auditors have made recommendations to improve controls in this area.  Management is in the process of implementing specific controls with the intention of remedying these deficiencies.  There were no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation date. 

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PART II

OTHER INFORMATION

                          The following reports on Form 8-K have been filed during the quarter for which this report is filed:

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SIGNATURES

Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

June 18, 2003

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I, Reade Fahs, certify that:

Date:  June 18, 2003

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I, Angus C. Morrison, certify that:

Date:  June 18, 2003

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