U.S. Vision, Inc.

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U.S. Vision, Inc.

One Harmon Drive, Glen Oaks Industrial Park
Glendora, New Jersey 08029
U.S.A.
Telephone: (856) 228-1000
Fax: (856) 228-3339
Web site: http://www.usvision.com

Private Company
Incorporated: 1990 as Royal International Optical Inc.
Employees: 2,350
Sales: $134.8 million
NAIC: 446130 Optical Goods Stores

U.S. Vision, Inc., based in Glendora, New Jersey, operates some 600 company-owned retail optical departments in national and regional department stores in the United States and Canada, as well as a handful of freestanding locations. Approximately 400 of the units are located in JC Penney stores, about 65 in Sears locations, and another 85 in regional department stores. The company derives about one-third of its revenues from managed vision care programs. U.S. Vision outlets offer a full range of designer brand and private label prescription eyewear, contact lenses, sunglasses, and accessories. Independent doctors of optometry are available on the premises to provide eye examinations and write prescriptions for eyeglasses and contact lenses. Eschewing the trend of offering eyewear within an hour, U.S. Vision fills customers' orders at its optical laboratory, where lenses are prepared and fitted to frames, then shipped to the retail store within a few working days for customer pickup. If requested by the customer, an order can be completed overnight. The company is owned by a group of investors, including Chairman, President, and Chief Executive Officer William A. Schwartz, Jr.

Mid-1960s Origins

U.S. Vision dates its foundation to 1967 when William A. Schwartz and William A. Schwartz, Jr., bought Wall & Ochs Inc., a one-store Philadelphia optical company started in 1885. The elder Schwartz had been Wall & Ochs's president. With backing from area venture capital firms—Keystone Venture Capital Management Inc., the Philadelphia Industrial Development Corporation's Penn Venture Fund, and Fidelcor Capital Corporation—the company, renamed U.S. Vision, launched an expansion program, establishing operations in department stores under the Wall & Ochs and 20/20 Vision Center names. After 20 years, the company owned more than 200 stores in 24 states, all located east of the Mississippi River.

In the mid-1980s, the eyewear industry enjoyed tremendous growth, due in large part to the increasing optical needs of the aging Baby Boom generation and relaxed rules on advertising. Nevertheless, in order to keep U.S. Vision competitive, the younger Schwartz, who was now in charge, decided that the company had to become a national player. In 1990, the company found a way to achieve that goal by acquiring Dallas-based Royal International Optical Inc., whose main attraction was its connection to another Dallas company, JC Penney. Royalty was the department store chain's primary domestic optical licensee.

Royal Optical was one of the fastest growing retailers of eyeglasses and contact lenses. From 1982 to 1985, the company increased in size from 198 stores to nearly 400, and by the end of the decade Royal owned and operated 658 stores—400 free-standing and 258 in host department stores—making it the second-largest eyewear retailer in America, trailing only Pearle Vision. Royal's strong growth caught the attention of an investor group led by Edward Buchanan, which in 1988 and 1989 attempted to engineer a takeover and eventually accumulated 20 percent of the company's stock. Royal instituted some takeover defenses and finally settled with Buchanan by naming him to the board. Later in 1989, however, at a time when the effects of a recession were beginning to be felt and optical sales started to tail off, Buchanan and the board agreed to sell Royal to U.S. Vision, which offered $12 a share for 80 percent of the company, or $68 million. At the 11th hour, the bid was topped by Ipco Corp., a White Plains, New York company operating 240 Sterling Optical and Ipco Optical stores, offering $12.25 a share for all of the Royal stock, for a total of $87 million. On January 10, 1990, The Royal board rejected the Ipco offer, clearing the way for the sale to U.S. Vision. Westinghouse Credit Corp. provided the financing—$70 million in senior and subordinated debt.

A New Name in 1990

At the time of the acquisition, U.S. Vision had annual revenues in the $30 million range, while Royal's sales topped $100 million. The two now combined to create the largest publicly held optical retailer in the country. In addition to 658 retail outlets, U.S. Vision received Royal's main prescription laboratory, four regional laboratories, and subsidiary Styl-Rite, which manufactured and imported frames and sunglasses for sale in Royal stores as well as third-part retailers. Schwartz remained chairman and chief executive officer of the company, while a Royal executive vice-president, Donald Gross, was appointed president. Later in 1990, U.S. Vision reincorporated the business and for the next several years assumed the Royal International Optical Inc. name. Operations were split between New Jersey and Texas, but Dallas became the company's official headquarters. The company's strategy was to further develop the department store niche, in particular taking advantage of the JC Penney license.

Soon after the merger, the entire optical retail sector felt the full effects of the recession that arrived in the wake of the Persian Gulf War. Also saddled with large interest payments on the debt it took on, the company lost more than $2 million in both fiscal 1990 and fiscal 1991, forcing management to close 57 underperforming stores. Sales then dropped from $145.5 million in fiscal 1991 to $136.8 million in fiscal 1992, resulting in a $6.5 million net loss for the year. Another 148 freestanding stores were closed by the end of fiscal 1992. In his letter to shareholders in the 1992 annual report, Schwartz wrote that the previous two years had been a humbling experience: "I for one have bought a smaller hat." Royal was now the fourth-largest optical retailer, lagging behind in annual sales to Lens-Crafters with $660 million, Pearle Vision with $634 million, and Cole Vision with $210 million. The damage to the company also extended beyond the balance sheet. In an August 1993 Consumer Reports survey, Royal was last among America's largest 18 optical chains in terms of customer satisfaction.

In August 1993, Westinghouse gained control of Royal as part of a financial reorganization that lowered the company's debt to $20 million. In return, Westinghouse took a 72 percent interest, while Schwartz retained a 10 percent stake. However, Westinghouse, with no expertise in the optical field, had no intention of holding onto the company. Its goal was simply to help Royal improve profitability in preparation for a sale. From fiscal 1993 through fiscal 1995, Royal took a number of steps to reposition itself. It shut down another 151 unprofitable free-standing stores, unloaded its Montgomery Wards licensed departments, severed its unprofitable relationship with Kmart, and closed five of its prescription laboratories, consolidating all operations into two facilities.

In December 1994, Grotech Capital Group, a Baltimore venture firm, bought the Westinghouse position, paying $20 million. Now that Royal was free of a heavy debt load, it was hoped that cash flow could now be directed towards expansion, especially in the department store sector. Also in December 1994, Schwartz was able to secure three low-interest loans totaling $4.7 million from the Delaware River Port Authority. The money was used to expand and renovate Royal's New Jersey eyewear factory and consolidate its administrative offices. As a result, in 1995 the company's headquarter was moved from Dallas to Glendora, New Jersey.

By the start of 1996, Royal had completed its repositioning plan and looked to future growth. The relationship with JC Penney was strengthened and its license agreement extended through 2003. Royal also extended its agreement with Vision One, an insurance plan for which it provided managed vision care on a national basis. The company began to place more emphasis on designer frames and made a conscious decision to avoid competing in the one-hour-service business. Schwartz told the Star Ledger, "Only about 11 percent of customers want their glasses in one hour. So we got very humble and decided to chase the other 89 percent." In addition, Royal's manufacturing operations were consolidated into one facility, and a new computer infrastructure was incorporated into the chain of outlets and corporate headquarters. Royal's balance sheet was also cleaned up, as the company took write-downs on closed stores, laboratories, and the former Dallas headquarters. As a result of these efforts, by the end of fiscal 1997 (ending July 31, 1997) Royal operated 558 locations in 48 states, of which 368 were located in host JC Penney stores and only 63 were freestanding. The company had also enjoyed six straight quarters of growth in existing stores.

Going Public in the Late 1990s

In March 1997, the company was reincorporated in Delaware, and the name changed back to U.S. Vision in preparation for taking the company public once again. The subsequent initial public offering (IPO), managed by Salomon Smith Barney and Janney Montgomery Scott Inc., was completed in December 1997. The company hoped to sell 4 million shares at $11 to $13 a share, but because of limited interest, the number of shares was scaled back to 2.5 million and the share price fell to $9, resulting in a gross sale of $22.5 million. U.S. Vision used the proceeds to pay down debt of $19 million and provide some working capital.

Company Perspectives:

U.S. Vision, Inc. is a retailer of optical products and services through retail optical departments licensed to operate within national and regional department stores and through a limited number of freestanding retail locations.

U.S. Vision now entered a period of expansion, adding a number of stores through acquisition. In July 1997, it acquired 11 units from Ben Israel Optical located in Alabama, Arkansas, and Missouri, including nine Sears centers and two stores in medical office buildings. Then, in September 1998, U.S. Vision bought 16 optical departments from Dayton Hudson's department store division, six of the units located in Minnesota and the other ten in Michigan. U.S. Vision also pursued internal growth. In November 1998, it opened a unit in a Danbury, Connecticut, JC Penney store, which brought the total number of units to 600. Expansion continued into 1999, highlighted by the October 1999 acquisition of 24 optical departments from the Reading, Pennsylvania-based regional Boscov's department store chain. U.S. Vision also agreed to open new stores in two other Boscov's stores. Altogether, the company added more than 50 stores in 1998 and 1999, but expansion would quickly come to an end as U.S. Vision, whose stock languished at less than half its IPO price of $9, faced new challenges.

In August 2000, U.S. Vision received an unsolicited bid to buy the company for $4 a share, or $31 million. The suitor was Norcross Investment Group, which was led by George Norcross III, chairman of Commerce National Insurance Services and former South New Jersey Democratic party leader; Norcross's brother Phillip, an attorney; and New Jersey Democratic Assemblyman Joseph Roberts, who was also a nightclub owner. U.S. Vision rejected the offer, then promptly hired Philadelphia's Janney Montgomery Scott to explore its strategic options. Norcross continued its overtures through the fall of 2000 while buying up shares, so that by December it owned 24 percent of the outstanding shares. Norcross increased its offer to $4.50 a share and U.S. Vision accepted, but the deal was far from over and would prove a distraction for nearly two more years. U.S. Vision began to struggle, as did the economy in general, leading to the closing of some 100 unprofitable stores, the freezing of wages, and staff cuts. The Norcross offer was reduced to $4.25 and then fell through in November 2001. Almost another year would pass before the men involved in Norcross along with Schwartz arranged a leveraged buyout to take U.S. Vision private once more.

George Norcross put up 70 percent of the $33 million purchase price, and Assemblyman Roberts contributed 17 percent of the money. Both men maintained that a major reason for buying the company was to make sure in remained in South Jersey. But according to the Asbury Park Press, "The new board of directors resembles a Democratic clubhouse," leaving U.S. Vision open to scrutiny on a number of issues. Roberts, for instance, sponsored state legislation that would allow optometrists to perform corrective laser surgery, which was limited by law to ophthalmologists. Because of his relationship to U.S. Vision, Roberts turned over sponsorship of the bill to another assemblyman. Schwartz ridiculed the insinuations that U.S. Vision stood to benefit from the proposed change, maintaining by way of e-mail that the company had no intention of becoming involved in laser surgery, adding, "Who is going to get eye surgery in a department store?"

A far more serious matter associated with U.S. Vision emerged in the spring of 2003 when the U.S. Securities and Exchange Commission began to investigate the sale of U.S. vision to the Norcross group, which had been brokered by Commerce Bancorp Inc., on whose board both George Norcross and Schwartz sat. Moreover, it was revealed that U.S. Vision owed money to Commerce, some $8.5 million through a $20 million credit line extended in 1996 and that the law firm that helped a Commerce subsidiary to determine whether the offer was fair or not was headed by Phillip Norcross. Soon the New Jersey Attorney General's office became involved, launching an investigation to look into the circumstances of the 1994 Delaware River Port Authority development loans that brought the U.S. Vision headquarters back to New Jersey. Again, Schwartz was dismissive of the implication that the company was the unworthy beneficiary of political influence, asserting in a prepared statement, "If not for the public and private support for U.S. Vision, the company's headquarters and 400 South Jersey jobs would be located in Dallas. This is exactly the way the public and private sector should work together to spur economic development and create jobs. If not for this successful cooperation, I would be in Texas wearing cowboy boots and a 10-gallon hat."

In truth, U.S. Vision was a minor player in a larger controversy that surrounded the significant political influence of Commerce Bancorp's chairman, Vernon W. Hill II. According to the Philadelphia Inquirer, Schwartz and Hill had been partners since the late 1970s in a venture called Optical Equities, and both had been on the board from 1991 through 1994. The newspaper further revealed that $1 million of the 1994 development loans was used to buy property U.S. Vision was leasing from Optical Equities, Hill and Schwartz's partnership. They had purchased the property in 1977 for $305,000, then leased the property to U.S. Vision for more than 15 years at an average annual rent of $105,000. In addition, Hill earned about $280,000 in fees for providing financial advice to U.S. Vision in the early 1990s. The two men also leased other property and equipment to the company at an average annual rent of $236,000. According to the Philadelphia Inquirer, "Schwartz also separately owned property with other U.S. Vision board members, including Harvey Johnson, a prominent member of the Black People's Unity Movement Impact Corp., a Camden-based nonprofit group with powerful political ties. That partnership rented office and retail space in Philadelphia to U.S. Vision for an annual average of about $110,000 between 1991 and 1993, records show. Together, Hill, Schwartz and Johnson also owned almost three-quarters of U.S. Vision's stock in early 1990."

A year later, nothing had come of these investigations other than a good deal of unwelcome attention drawn to the way business and politics were sometimes conducted in South Jersey. The affairs of the now private U.S. Vision were difficult to judge as it endeavored to recover from a period of difficult economic conditions.

Principal Subsidiaries

Styl-Rite Optical Manufacturing Company.

Key Dates:

1967:: The company is founded by William A. Schwartz, Jr., and his father in Philadelphia, Pennsylvania.
1990:: The company acquires Royal Optical International, assumes the Royal name, and move its headquarters to Dallas.
1997:: The company is taken public as U.S. Vision.
2002:: U.S. Vision is taken private.