EYETable CARE CENTERS OF AMERICA, INC. INDEX PAGE NUMBER ------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets at December 27, 2003 and June 26, 2004 (Unaudited) . . . . . . . . . . . 2 Condensed Consolidated Statements of Operations for the Thirteen Weeks and Twenty-Six Weeks Ended June 28, 2003 (Unaudited) and June 26, 2004 (Unaudited). . . 3 Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended June 28, 2003 (Unaudited) and June 26, 2004 (Unaudited) . . . . . . . . . . . 4 Notes to Condensed Consolidated Financial Statements . . . . . 5-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . 13-20 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . 21 Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . 21 PART II - OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 22Contents

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~~PART~~UNITED I.STATES FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EYE CARE CENTERS OF AMERICA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) DECEMBER 27, JUNE 26, 2003 2004 -------------- ---------- ASSETS. . . . . . . . . . . . . . . . . (Unaudited) CURRENT ASSETS: Cash and cash equivalents. . . . . . $ 3,809 $ 5,551 Accounts and notes receivable, net . 11,117 12,319 Inventory. . . . . . . . . . . . . . 25,120 28,117 Deferred income taxes, net . . . . . 570 570 Prepaid expenses and other . . . . . 3,696 2,605 -------------- ---------- Total current assets. . . . . . . . . . 44,312 49,162 PROPERTY & EQUIPMENT, net . . . . . . . 51,715 49,739 INTANGIBLE ASSETS . . . . . . . . . . . 107,423 107,423 OTHER ASSETS. . . . . . . . . . . . . . 8,631 7,217 DEFERRED INCOME TAXES, net. . . . . . . 13,445 13,488 -------------- ---------- Total assets. . . . . . . . . . . . . . $ 225,526 $ 227,029 ============== ========== LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable . . . . . . . . . . $ 21,360 $ 24,222 Current maturities of long-term debt 18,980 20,281 Deferred revenue . . . . . . . . . . 5,743 5,634 Accrued payroll expense. . . . . . . 5,429 5,218 Accrued interest . . . . . . . . . . 3,213 2,741 Other accrued expenses . . . . . . . 8,334 11,409 -------------- ---------- Total current liabilities . . . . . . . 63,059 69,505 LONG TERM DEBT, less current maturities 219,845 204,574 DEFERRED RENT . . . . . . . . . . . . . 4,719 4,626 DEFERRED GAIN . . . . . . . . . . . . . 1,532 1,415 -------------- ---------- Total liabilities . . . . . . . . . . . 289,155 280,120 -------------- ---------- SHAREHOLDERS' DEFICIT: Common stock . . . . . . . . . . . . 74 74 Preferred stock. . . . . . . . . . . 62,169 66,276 Additional paid-in capital . . . . . 28,259 23,387 Accumulated deficit. . . . . . . . . (154,131) (142,828) -------------- ---------- Total shareholders' deficit . . . . . . . (63,629) (53,091) -------------- ---------- $ 225,526 $ 227,029 ============== ==========

~~EYE~~SECURITIES CARE CENTERS OF AMERICA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands) THIRTEEN WEEKS TWENTY-SIX WEEKS ENDED ENDED ------------------------------ ----------------------------- JUNE 28, JUNE 26, JUNE 28, JUNE 26, 2003 2004 2003 2004 ---------------- ------------------ ------------ --------- . . . . . . . . . . . . . . . . . . (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUES: Optical sales . . . . . . . . . . . . . . . . $ 88,857 $ 93,297 $ 190,172 $ 204,438 Management fees . . . . . . . . . . . . . . . 804 798 1,830 1,760 ---------------- ------------------ ------------ --------- Net revenues . . . . . . . . . . . . . . . . . . 89,661 94,095 192,002 206,198 OPERATING COSTS AND ~~EXPENSES:~~EXCHANGE ~~Cost~~COMMISSION of goods sold. . . . . . . . . . . . . . 28,045 30,351 58,304 63,419 Selling, general and administrative expenses. 53,614 56,667 109,526 116,243 Amortization of intangibles . . . . . . . . . 55 - 110 - ---------------- ------------------ ------------ --------- Total operating costs and expenses . . . . . . . 81,714 87,018 167,940 179,662 ---------------- ------------------ ------------ --------- INCOME FROM OPERATIONS . . . . . . . . . . . . . 7,947 7,077 24,062 26,536 INTEREST EXPENSE, NET. . . . . . . . . . . . . . 4,919 4,837 10,240 9,702 INCOME TAX EXPENSE . . . . . . . . . . . . . . . 2,123 508 2,557 5,531 ---------------- ------------------ ------------ --------- NET INCOME . . . . . . . . . . . . . . . . . . . $ 905 $ 1,732 $ 11,265 $ 11,303 ================ ================== ============ =========

~~EYE CARE CENTERS OF AMERICA~~WASHINGTON, ~~INC~~D. ~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) TWENTY-SIX WEEKS ENDED ------------------------------ JUNE 28, JUNE 26, 2003 2004 ---------- ----------~~ C. .20549 . . . . . . . . . . . . . . . . . . . . . . . . . . (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,265 $ 11,303 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . 8,739 7,960 Amortization of debt issue costs. . . . . . . . . . . . 996 1,004 Deferred liabilities and other. . . . . . . . . . . . . (1,265) (397) Increase in operating assets and liabilities . . . . . . . . (6,237) 3,034 ------------------ ---------- Net cash provided by operating activities. . . . . . . . . . . . . . 13,498 22,850 ------------------ ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment, net. . . . . . . . . (6,034) (5,949) ------------------ ---------- Net cash used in investing activities. . . . . . . . . . . . . . . . (6,034) (5,949) ------------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on debt and capital leases. . . . . . . . . . . . . (5,143) (13,995) Distribution to affiliated OD. . . . . . . . . . . . . . . . - (720) Payments to affect IPO . . . . . . . . . . . . . . . . . . . - (498) ------------------ ---------- Net cash used in financing activities. . . . . . . . . . . . . . . . (5,143) (15,213) ------------------ ---------- NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . 2,321 1,742 CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . . . . 3,450 3,809 ------------------ ---------- CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . . . . $ 5,771 $ 5,551 ================== ==========

~~THIRTEEN~~Form ~~WEEKS ENDED~~ 10-~~-----------------------~~Q JUNE 28, JUNE 26, 2003 2004 ------------- --------- . . . . . . . . . . . . (UNAUDITED) (UNAUDITED) Net income. . . . . . . . . . . . . . . . . . $ 905 $ 1,732 Fair value based method compensation expense. 38 56 ------------- --------- Pro forma net income. . . . . . . . . . . . . $ 867 $ 1,676 ============= =========

~~TWENTY-SIX WEEKS ENDED ------------------------ JUNE 28, JUNE 26, 2003 2004 ------------- --------- . . . . . . . . . . . .~~ (~~UNAUDITED)~~Mark ~~(UNAUDITED~~One) Net income. . . . . . . . . . . . . . . . . . $ 11,265 $ 11,303 Fair value based method compensation expense. 75 96 ------------- --------- Pro forma net income. . . . . . . . . . . . . $ 11,190 $ 11,207 ============= =========

~~TWENTY-SIX~~x ~~WEEKS~~QUARTERLY ~~ENDED~~REPORT ~~------------------------~~PURSUANT ~~JUNE~~TO ~~28,~~SECTION ~~JUNE~~13 ~~26,~~OR ~~2003 2004 ------------- --------- . . . . . . . . . . . .~~ 15(~~UNAUDITED~~d) ~~(UNAUDITED)~~OF ~~Cash~~THE ~~paid~~SECURITIES ~~for~~EXCHANGE ~~interest.~~ACT .OF ~~. . . . . . $ 7,637 $ 9,290 Dividends accrued on preferred stock. $ 2,201 $ 4,107 Cash paid for taxes . . . . . . . . . $ 1,422 $ 757~~1934

~~CONSOLIDATING~~For ~~BALANCE~~the ~~SHEET~~quarterly ~~DECEMBER~~period ~~27,~~ended 2003 Guarantor Consolidated Parent Subsidiaries ODs Eliminations Company ----------- -------------- -------- -------------- ---------- ASSETS Current assets: Cash and cash equivalents. . . . . . $ 67 $ 3,501 $ 241 $ - $ 3,809 Accounts and notes receivable. . . . 166,924 48,875 2,847 (207,529) 11,117 Inventory. . . . . . . . . . . . . . - 22,941 2,179 - 25,120 Deferred income taxes, net . . . . . 570 - - - 570 Prepaid expenses and other . . . . . - 3,648 48 - 3,696 ----------- -------------- -------- -------------- ---------- Total current assets. . . . . . . . . . 167,561 78,965 5,315 (207,529) 44,312 Property and equipment. . . . . . . . . - 51,715 - - 51,715 Intangibles . . . . . . . . . . . . . . 166 107,195 87 (25) 107,423 Other assets. . . . . . . . . . . . . . 6,414 2,217 - - 8,631 Deferred income taxes, net. . . . . . . 13,445 - - - 13,445 Investment in subsidiaries. . . . . . . (6,952) - - 6,952 - ----------- -------------- -------- -------------- ---------- Total Assets. . . . . . . . . . . . . . $ 180,634 $ 240,092 $ 5,402 $ (200,602) $ 225,526 =========== ============== ======== ============== ========== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable . . . . . . . . . . $ 341 $ 221,829 $ 6,719 $ (207,529) $ 21,360 Current portion of long-term debt. . 18,750 230 - - 18,980 Deferred revenue . . . . . . . . . . 512 April 4,~~785~~ ~~446~~2009 - 5,743 Accrued payroll expense. . . . . . . - 5,027 402 - 5,429 Accrued interest . . . . . . . . . . 3,213 - - - 3,213 Other accrued expenses . . . . . . . 246 6,889 1,199 - 8,334 ----------- -------------- -------- -------------- ---------- Total current liabilities . . . . . . . 23,062 238,760 8,766 (207,529) 63,059 Long-term debt, less current maturities 217,789 2,056 - - 219,845 Deferred rent . . . . . . . . . . . . . - 4,570 149 - 4,719 Deferred gain . . . . . . . . . . . . . 1,213 319 - - 1,532 ----------- -------------- -------- -------------- ---------- Total liabilities . . . . . . . . . . . 242,064 245,705 8,915 (207,529) 289,155 ----------- -------------- -------- -------------- ---------- Shareholders' deficit: Common stock . . . . . . . . . . . . 74 - - - 74 Preferred stock. . . . . . . . . . . 62,169 - - - 62,169 Additional paid-in capital . . . . . 30,458 25 (2,199) (25) 28,259 Accumulated deficit. . . . . . . . . (154,131) (5,638) (1,314) 6,952 (154,131) ----------- -------------- -------- -------------- ---------- Total shareholders' deficit . . . . . . . (61,430) (5,613) (3,513) 6,927 (63,629) ----------- -------------- -------- -------------- ---------- $ 180,634 $ 240,092 $ 5,402 $ (200,602) $ 225,526 =========== ============== ======== ============== ==========

~~CONDENSED~~OR CONSOLIDATING STATEMENT OF OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 2003 Guarantor Consolidated Parent Subsidiaries ODs Eliminations Company ---------- -------------- ------- -------------- -------- Revenues: Optical sales . . . . . . . . . . . . . . . . $ 62,185 $ 89,510 $38,477 $ - $190,172 Management fees . . . . . . . . . . . . . . . 330 12,569 - (11,069) 1,830 Equity earnings in subsidiaries . . . . . . . 17,292 - - (17,292) - ---------- -------------- ------- -------------- -------- Total net revenues . . . . . . . . . . . . . . . 79,807 102,079 38,477 (28,361) 192,002 Operating costs and expenses: Cost of goods sold. . . . . . . . . . . . . . 20,482 30,155 7,667 - 58,304 Selling, general and administrative expenses. 38,230 53,717 28,648 (11,069) 109,526 Amortization of intangibles. . . . . . . - 110 - - 110 ---------- -------------- ------- -------------- -------- Total operating costs and expenses . . . . . . . 58,712 83,982 36,315 (11,069) 167,940 ---------- -------------- ------- -------------- -------- Income from operations . . . . . . . . . . . . . 21,095 18,097 2,162 (17,292) 24,062 Interest expense, net. . . . . . . . . . . . . . 8,119 2,117 4 - 10,240 Income tax expense/(benefit) . . . . . . . . . . 1,711 (70) 916 - 2,557 ---------- -------------- ------- -------------- -------- Net income . . . . . . . . . . . . . . . . . . . $ 11,265 $ 16,050 $ 1,242 $ (17,292) $ 11,265 ========== ============== ======= ============== ========

~~CONDENSED~~¨ ~~CONSOLIDATING~~TRANSITION ~~STATEMENT~~REPORT OFPURSUANT ~~OPERATIONS~~TO ~~FOR~~SECTION THE THIRTEEN WEEKS ENDED JUNE 28, 2003 Guarantor Consolidated Parent Subsidiaries ODs Eliminations Company ---------- ------------- ------- -------------- -------- Revenues: Optical sales. . . . . . . . . . . . . . . . $ 12,948 $ 58,133 $17,776 $ - $ 88,857 Management fees. . . . . . . . . . . . . . . 113 5,641 - (4,950) 804 Equity earnings in subsidiaries. . . . . . . 5,459 - - (5,459) - ---------- ------------- ------- -------------- -------- Total net revenues. . . . . . . . . . . . . . . 18,520 63,774 17,776 (10,409) 89,661 Operating costs and expenses: Cost of goods sold . . . . . . . . . . . . . 4,839 19,735 3,471 - 28,045 Selling, general and administrative expenses 8,535 36,437 13~~,592~~ ~~(4,950)~~OR ~~53,614 Noncompete and other intangibles . . . . . . - 55 - - 55 ---------- ------------- ------- -------------- -------- Total operating costs and expenses. . . . . . . 13,374 56,227 17,063~~ 15(~~4,950~~d) ~~81,714~~OF ~~----------~~THE ~~-------------~~SECURITIES ~~-------~~EXCHANGE ~~--------------~~ACT ~~--------~~OF Income from operations. . . . . . . . . . . . . 5,146 7,547 713 (5,459) 7,947 Interest expense, net . . . . . . . . . . . . . 2,964 1,953 2 - 4,919 Income tax expense. . . . . . . . . . . . . . . 1,277 509 337 - 2,123 ---------- ------------- ------- -------------- -------- Net income. . . . . . . . . . . . . . . . . . . $ 905 $ 5,085 $ 374 $ (5,459) $ 905 ========== ============= ======= ============== ========1934

~~CONDENSED~~For ~~CONSOLIDATING~~the ~~STATEMENT~~transition OFperiod ~~CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 2003 Guarantor Consolidated Parent Subsidiaries ODs Eliminations Company ----------- -------------- -------- -------------- --------- Cash flows~~ from ~~operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 11,265 $ 16,050 $ 1,242 $ (17,292) $ 11,265 Adjustments~~ to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . 3,485 5,254 - - 8,739 Amortization of debt issue costs. . . . . . . . . . . . 663 333 - - 996 Deferred liabilities and other. . . . . . . . . . . . . (4,874) 3,912 (303) - (1,265) Equity earnings in subsidiaries . . . . . . . . . . . . (17,689) 397 - 17,292 - Increase/(decrease) in operating assets and liabilities 13,465 (18,448) (1,254) - (6,237) ----------- -------------- -------- -------------- --------- Net cash provided by (used in) operating activities. . . . 6,315 7,498 (315) - 13,498 ----------- -------------- -------- -------------- --------- Cash flows from investing activities: Acquisition of property and equipment . . . . . . . . . (3,046) (2,988) - - (6,034) ----------- -------------- -------- -------------- --------- Net cash used in investing activities. . . . . . . . . . . (3,046) (2,988) - - (6,034) ----------- -------------- -------- -------------- --------- Cash flows from financing activities: Payments on debt and capital leases . . . . . . . . . . (5,081) (62) - - (5,143) Net cash used in financing activities. . . . . . . . . . . (5,081) (62) - - (5,143) ----------- -------------- -------- -------------- --------- Net Increase/(decrease) in cash and cash equivalents . . . (1,812) 4,448 (315) - 2,321 Cash and cash equivalents at beginning of period . . . . . 554 2,532 364 - 3,450 ----------- -------------- -------- -------------- --------- Cash and cash equivalents at end of period . . . . . . . . $ (1,258) $ 6,980 $ 49 $ - $ 5,771 =========== ============== ======== ============== =========

~~CONDENSED~~Commission ~~CONSOLIDATING~~File ~~BALANCE~~Number ~~SHEET~~33 ~~JUNE 26, 2004 Guarantor Consolidated Parent Subsidiaries ODs Eliminations Company~~ -~~----------~~ ~~--------------~~70572 -------- -------------- ---------- ASSETS Current assets: Cash and cash equivalents . . . . . . . . . $ 24 $ 5,251 $ 276 $ - $ 5,551 Accounts and notes receivable . . . . . . . 143,446 52,717 4,163 (188,007) 12,319 Inventory . . . . . . . . . . . . . . . . . - 26,025 2,092 - 28,117 Deferred income taxes . . . . . . . . . . . 570 - - - 570 Prepaid expenses and other. . . . . . . . . - 2,557 48 - 2,605 ----------- -------------- -------- -------------- ---------- Total current assets . . . . . . . . . . . . . 144,040 86,550 6,579 (188,007) 49,162 Property and equipment . . . . . . . . . . . . - 49,673 66 - 49,739 Intangibles. . . . . . . . . . . . . . . . . . 166 107,195 87 (25) 107,423 Other assets . . . . . . . . . . . . . . . . . 6,493 724 - - 7,217 Deferred income taxes. . . . . . . . . . . . . 13,033 455 - - 13,488 Investment in subsidiaries . . . . . . . . . . 14,060 (14,060) - ----------- -------------- -------- -------------- ---------- Total assets . . . . . . . . . . . . . . . . . $ 177,792 $ 244,597 $ 6,732 $ (202,092) $ 227,029 =========== ============== ======== ============== ========== LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) Current liabilities: Accounts payable. . . . . . . . . . . . . . $ 148 $ 204,072 $ 8,009 $ (188,007) $ 24,222 Current portion of long-term debt . . . . . 20,000 281 - - 20,281 Deferred revenue. . . . . . . . . . . . . . - 5,179 455 - 5,634 Accrued payroll expense . . . . . . . . . . - 4,926 292 - 5,218 Accrued interest. . . . . . . . . . . . . . 2,743 (2) - - 2,741 Other accrued expenses. . . . . . . . . . . (26) 10,637 798 - 11,409 ----------- -------------- -------- -------------- ---------- Total current liabilities. . . . . . . . . . . 22,865 225,093 9,554 (188,007) 69,505 Long-term debt, less current maturities. . . . 202,597 1,977 - - 204,574 Deferred rent. . . . . . . . . . . . . . . . . - 4,465 161 - 4,626 Deferred gain. . . . . . . . . . . . . . . . . 1,213 202 - - 1,415 ----------- -------------- -------- -------------- ---------- Total liabilities. . . . . . . . . . . . . . . 226,675 231,737 9,715 (188,007) 280,120 Shareholders' equity/(deficit) Common stock. . . . . . . . . . . . . . . . 74 - - - 74 Preferred stock . . . . . . . . . . . . . . 66,276 - - - 66,276 Additional paid-in capital. . . . . . . . . 27,595 (1,039) (3,144) (25) 23,387 Accumulated equity/(deficit) . . . . . . . . (142,828) 13,899 161 (14,060) (142,828) ----------- -------------- -------- -------------- ---------- Total shareholders' equity/(deficit) . . . . . . (48,883) 12,860 (2,983) (14,085) (53,091) ----------- -------------- -------- -------------- ---------- $ 177,792 $ 244,597 $ 6,732 $ (202,092) $ 227,029 =========== ============== ======== ============== ==========

~~CONDENSED~~EYE ~~CONSOLIDATING~~CARE ~~STATEMENT~~CENTERS OF ~~OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED JUNE 26~~AMERICA, ~~2004 Guarantor Consolidated Parent Subsidiaries ODs Eliminations Company ----------- ------------- --------- -------------- -------- Revenues: Optical sales~~INC. . . . . . . . . . . . . . . . $ (960) $ 163,661 $ 41,737 $ - $204,438 Management fees. . . . . . . . . . . . . . . 125 13,637 - (12,002) 1,760 Equity earnings in subsidiaries. . . . . . . 21,013 - (21,013) - ----------- ------------- --------- -------------- --------- Total net revenues. . . . . . . . . . . . . . . 20,178 177,298 41,737 (33,015) 206,198 Operating costs and expenses: Cost of goods sold . . . . . . . . . . . . . 1,932 53,133 8,354 - 63,419 Selling, general and administrative expenses (1,837) 98,195 31,887 (12,002) 116,243 ----------- ------------- --------- -------------- -------- Total operating costs and expenses. . . . . . . 95 151,328 40,241 (12,002) 179,662 ----------- ------------- --------- -------------- -------- Income from operations. . . . . . . . . . . . . 20,083 25,970 1,496 (21,013) 26,536 Interest expense, net . . . . . . . . . . . . . 8,385 1,313 4 - 9,702 Income tax expense. . . . . . . . . . . . . . . 395 5,119 17 - 5,531 ----------- ------------- --------- -------------- -------- Net income. . . . . . . . . . . . . . . . . . . $ 11,303 $ 19,538 $ 1,475 $ (21,013) $ 11,303 =========== ============= ========= ============== ========

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED JUNE 26, 2004 Guarantor Consolidated Parent Subsidiaries ODs Eliminations Company ----------- ------------- -------- -------------- -------- Revenues: Optical sales . . . . . . . . . . . . . . . . $ (~~746)~~Exact $name ~~75,355~~of ~~$18,688~~registrant $as -specified ~~$ 93,297 Management fees . . . . . . . . . . . . . . . 50 5,996 - (5,248) 798 Equity earnings~~ in its ~~subsidiaries . . . . . . . 6,716 - - (6,716~~charter) - ----------- ------------- -------- -------------- -------- Total net revenues . . . . . . . . . . . . . . . 6,020 81,351 18,688 (11,964) 94,095 Operating costs and expenses: Cost of goods sold. . . . . . . . . . . . . . 915 25,453 3,983 - 30,351 Selling, general and administrative expenses. (767) 48,309 14,373 (5,248) 56,667 ----------- ------------- -------- -------------- -------- Total operating costs and expenses . . . . . . . 148 73,762 18,356 (5,248) 87,018 ----------- ------------- -------- -------------- -------- Income from operations . . . . . . . . . . . . . 5,872 7,589 332 (6,716) 7,077 Interest expense, net. . . . . . . . . . . . . . 4,142 693 2 - 4,837 Income tax expense/(benefit) . . . . . . . . . . (2) 1,257 (747) - 508 ----------- ------------- -------- -------------- -------- Net income . . . . . . . . . . . . . . . . . . . $ 1,732 $ 5,639 $ 1,077 $ (6,716) $ 1,732 =========== ============= ======== ============== ========

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED JUNE 26, 2004 Guarantor Consolidated Parent Subsidiaries ODs Eliminations Company ----------- -------------- ------- ------------- --------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 11,303 $ 19,538 $1,475 $ - $ 32,316 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . - 7,960 - - 7,960 Amortization of debt issue costs. . . . . . . . . . . . 25 979 - - 1,004 Deferred liabilities and other. . . . . . . . . . . . . (100) (372) 21 - (451) Equity earnings in subsidiaries . . . . . . . . . . . . (21,013) - - - (21,013) Increase/(decrease) in operating assets and liabilities 23,708 (19,933) (741) - 3,034 ----------- -------------- ------- ------------- --------- Net cash provided by operating activities. . . . . . . . . 13,923 8,172 755 - 22,850 ----------- -------------- ------- ------------- --------- Cash flows from investing activities: Acquisition of property and equipment . . . . . . . . . - (5,895) - - (5,895) ----------- -------------- ------- ------------- --------- Net cash used in investing activities. . . . . . . . . . . - (5,895) - - (5,895) ----------- -------------- ------- ------------- --------- Cash flows from financing activities: Payments on debt and capital leases . . . . . . . . . . (13,966) (29) - - (13,995) Distributions to affiliated OD. . . . . . . . . . . . . - - (720) - (720) Payments to affect IPO. . . . . . . . . . . . . . . . . - (498) - - (498) ----------- -------------- ------- ------------- --------- Net cash used in financing activities. . . . . . . . . . . (13,966) (527) (720) - (15,213) ----------- -------------- ------- ------------- --------- Net increase in cash and cash equivalents. . . . . . . . . (43) 1,750 35 - 1,742 Cash and cash equivalents at beginning of period . . . . . 67 3,501 241 - 3,809 ----------- -------------- ------- ------------- --------- Cash and cash equivalents at end of period . . . . . . . . $ 24 $ 5,251 $ 276 $ - $ 5,551 =========== ============== ======= ============= =========

TEXAS

74-2337775

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

~~The~~11103 ~~following~~WEST table sets forth the percentage relationship to net revenues of certain income statement data. The period-to-period comparison of financial results is not necessarily indicative of future results. THIRTEEN TWENTY-SIX WEEKS ENDED WEEKS ENDED ------------------------ ------------------------- JUNE 28AVENUE, ~~JUNE~~SAN 26ANTONIO, ~~JUNE~~TEXAS ~~28,~~78213 JUNE 26, 2003 2004 2003 2004 ------------------------- ------------------------- STATEMENT OF INCOME DATA: NET REVENUES: Optical sales 99.1 % 99.2 % 99.0 % 99.1 % Management fee 0.9 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 31.6 * 32.5 * 30.7 * 31.0 * Selling, general and administrative expenses 60.3 * 60.7 * 57.6 * 56.9 * Amortization of intangibles 0.1 0.0 0.1 0.0 ------------ --------- ------------ --------- Total operating costs and expenses 91.1 92.5 87.5 87.1 ------------ --------- ------------ --------- INCOME FROM OPERATIONS 8.9 7.5 12.5 12.9 INTEREST EXPENSE, NET 5.5 5.2 5.3 4.7 INCOME TAX EXPENSE 2.4 0.5 1.3 2.7 ------------ --------- ------------ --------- NET INCOME 1.0 % 1.8 % 5.9 % 5.5 % ============ ========= ============ ========= * Percentages based on optical sales only

~~FACILITY~~(Address .of ~~BASE~~principal ~~RATE~~executive ~~MARGIN~~offices, ~~LIBOR~~including ~~MARGIN~~zip ~~-----------~~code) ----------------- ------------- Term Loan A 3.25% 4.25% ----------- ----------------- ------------- Term Loan B 3.75% 4.75% ----------- ----------------- ------------- Revolver. . 3.50% 4.50% ----------- ----------------- -------------

~~YEAR.~~(210) ~~. . . . . . . REDEMPTION PRICE~~ 340-~~------------------~~3531 ~~----------------- 2004. . . . . . . . 103.042% 2005. . . . . . . . 101.521% 2006 and thereafter 100.000%~~

~~Payments due by period~~ (~~dollars~~Registrant’s intelephone ~~thousands) ------------------------------------------------- Total Less than 1 to 3 to More than 1 yr. 3 yrs 5 yrs 5 yrs Long Term Debt. . . . . . . . . $ 222~~number,~~597~~ ~~$20,000~~including ~~$28,951~~area $code) 173,646 $ - Capital Lease Obligations . . . 2,258 281 630 1,039 308 Operating Leases. . . . . . . . 154,009 31,937 52,942 39,353 29,777 Purchase Obligations. . . . . . - - - - - ----------------------- ------- ------- ---------- ------- Total future principal payments on contractual obligations . $ 378,864 $52,218 $82,523 $ 214,038 $30,085 ======================= ======= ======= ========== =======

~~(a)~~Indicate ~~The~~by ~~following~~check ~~documents~~mark ~~are~~whether ~~filed as part of this report. 3.1 Restated Articles of Incorporation of Eye Care Centers of America, Inc. (a) 3.2 Statement of Resolution of~~ the ~~Board~~registrant ofhas ~~Directors of Eye Care Centers of America, Inc. designating a series of Preferred Stock.~~ (a1) filed ~~3.3~~all ~~Amended~~reports ~~and~~required ~~Restated~~to ~~By-laws~~be offiled ~~Eye~~by ~~Care~~Section 13 ~~Centers~~or ~~of America, Inc.~~ 15(ad) ~~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. ~~(c) 4.2 Form of Fixed Rate~~ Exchange ~~Note.~~Act ~~(b) 4.3 Form~~ of ~~Floating~~1934 ~~Rate~~during ~~Exchange~~the ~~Note.~~preceding ~~(b)~~12 ~~4.4~~months ~~Form of Guarantee.~~ (b)or ~~4.5~~for ~~Registration~~such ~~Rights~~shorter period ~~Agreement,~~that ~~dated April24, 1998, between Eye Care Centers of America, Inc.,~~ the ~~subsidiaries~~registrant ofwas ~~the~~required ~~Company~~to ~~named~~file assuch ~~guarantors therein~~reports), ~~BT Alex. Brown Incorporated~~ and ~~Merrill Lynch, Pierce, Fenner & Smith Incorporated.~~ (~~a) 31.1 Certification of Chief Executive Officer (d) 31.~~2 ~~Certification of Chief Financial Officer (d~~) has ~~32.1~~been ~~Certification~~subject ~~pursuant~~ to 18such ~~U.S.C.~~filing ~~Section~~requirements ~~1350,~~for ~~as adopted pursuant to section 906 of~~ the ~~Sarbanes-Oxley~~past ~~Act~~90 ofdays: Yes x No ¨ ~~2002 (d)~~

~~SIGNATURE~~Indicate ~~EYE~~by ~~CARE~~check ~~CENTERS~~mark OFwhether ~~AMERICA,~~the ~~INC.~~registrant ~~Pursuant~~has submitted toelectronically ~~the~~and ~~requirements~~posted ofon ~~the~~its ~~Securities~~corporate ~~Exchange~~Web ~~Act~~site, ofif ~~1934~~any, ~~the~~every ~~registrant~~Interactive ~~has~~Data ~~duly~~File ~~caused~~required ~~this report~~ to be ~~signed~~submitted onand ~~its~~posted ~~behalf~~pursuant byto ~~the~~Rule ~~undersigned~~405 ~~thereunto~~of ~~duly~~Regulation ~~authorized~~S-T (232.405 ~~Date:~~of ~~August~~this ~~10,~~chapter) ~~2004~~during ~~/s/~~the ~~Alan~~preceding E.12 ~~Wiley~~months ~~----------------------------------------------------~~(or ~~Alan~~for E.such shorter ~~Wiley~~period ~~Executive~~that ~~Vice~~the ~~President~~registrant was required to submit and ~~Chief~~post ~~Financial~~such ~~Officer~~files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

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 May 15, 2009
Common Stock, $.01 par value		10,000 shares

EYE CARE CENTERS OF AMERICA, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

April 4, 2009

INDEX


		Page Number
Part I - Financial Information

Item 1. Financial Statements

	Condensed Consolidated Balance Sheets at January 3, 2009 and April 4, 2009 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended March 29, 2008 (Unaudited) and the Thirteen Weeks Ended April 4, 2009 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended March 29, 2008 (Unaudited) and the Thirteen Weeks Ended April 4, 2009 (Unaudited)	5

	Notes to Condensed Consolidated Financial Statements	6-14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15-25

Item 3. Quantitative and Qualitative Disclosures About Market Risk		25

Item 4T. Controls and Procedures		25

Part II - Other Information

Item 1. Legal Proceedings		26
Item 1A. Risk Factors		26
Item 6. Exhibits		27

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

EYE CARE CENTERS OF AMERICA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)


	January 3, 2009		April 4, 2009
			(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	13,460	$	29,806
Accounts receivable, net		13,851		14,432
Inventory, net		33,884		34,820
Deferred income taxes, net		5,833		9,530
Prepaid expenses and other		9,509		10,039

Total current assets		76,537		98,627

PROPERTY & EQUIPMENT, net		76,520		80,932
GOODWILL		523,377		517,340
OTHER ASSETS		7,862		7,712
DEFERRED INCOME TAXES, net		13,469		13,469

Total assets	$	697,765	$	718,080


LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	28,652	$	29,410
Current maturities of long-term debt		1,957		1,807
Deferred revenue		3,919		3,902
Accrued taxes		12,200		18,333
Accrued payroll expense		9,600		10,104
Accrued interest		6,657		2,358
Other accrued expenses		7,318		7,683

Total current liabilities		70,303		73,597
LONG TERM DEBT, less current maturities		234,219		233,825
OTHER LONG-TERM LIABILITIES		8,809		9,210

Total liabilities		313,331		316,632


SHAREHOLDER’S EQUITY:
Common stock		—		—
Additional paid-in capital		322,152		322,152
Retained earnings		62,282		79,296

Total shareholder’s equity		384,434		401,448

	$	697,765	$	718,080

See Notes to Consolidated Financial Statements

EYE CARE CENTERS OF AMERICA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)


	Thirteen Weeks Ended
	March 29, 2008		April 4, 2009
	(Unaudited)		(Unaudited)
NET REVENUES:
Optical sales	$	146,023	$	159,686
Management fee		928		777

Total net revenues		146,951		160,463

OPERATING COSTS AND EXPENSES:
Cost of goods sold		47,601		54,405
Selling, general and administrative expenses		69,016		73,036

Total operating costs and expenses		116,617		127,441


INCOME FROM OPERATIONS		30,334		33,022

INTEREST EXPENSE, NET		5,418		5,003


INCOME BEFORE INCOME TAXES		24,916		28,019

INCOME TAX EXPENSE		10,341		11,005


NET INCOME	$	14,575	$	17,014

See Notes to Consolidated Financial Statements

EYE CARE CENTERS OF AMERICA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)


	Thirteen Weeks Ended
	March 29, 2008			April 4, 2009
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,575		$	17,014
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,573			4,912
Amortization of debt issue costs		81			110
Deferred liabilities and other		858			384
Increase in operating assets and liabilities		4,578			3,796

Net cash provided by operating activities		24,665			26,216

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net		(7,641	)		(9,269	)

Net cash used in investing activities		(7,641	)		(9,269	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt		(546	)		(601	)

Net cash used in financing activities		(546	)		(601	)

NET INCREASE IN CASH		16,478			16,346
CASH AND CASH EQUIVALENTS, beginning of period		5,637			13,460

CASH AND CASH EQUIVALENTS, end of period	$	22,115		$	29,806

See Notes to Consolidated Financial Statements

EYE CARE CENTERS OF AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The Unaudited Condensed Consolidated Financial Statements of Eye Care Centers of America, Inc. which is referred to as the “Company,” “we,” “our” and “us” herein, include all of our accounts, our wholly owned subsidiaries’ accounts and the accounts of certain private optometrists’ for whom we perform management services (the “ODs”). All significant intercompany accounts and transactions have been eliminated in consolidation. The fiscal year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information reflects all normal and recurring adjustments which in the opinion of the Company’s management are necessary for a fair presentation of the financial position of the Company and its results of operations for the interim periods set forth herein.

Operating results for the thirteen week periods ended March 29, 2008 and April 4, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2010 (“fiscal 2009”). 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 January 3, 2009 (“fiscal 2008”).

2. Critical Accounting Policies

Critical accounting policies are those that require us to make assumptions that are difficult or complex about matters that are uncertain and may change in subsequent periods, resulting in changes to reported results.

The majority of our accounting policies do not require us to make difficult, subjective or complex judgments or estimates or the variability of the estimates is not material. However, the following policies could be deemed critical. We have discussed these critical accounting policies with the Audit Committee of the Board of Directors of the Company.

•

Accounts receivable are primarily from third party payors related to the sale of eyewear and include receivables from insurance reimbursements, optometrist management fees, credit card companies, merchandise, rent and license fee receivables. Our allowance for doubtful accounts requires significant estimation and primarily consists of amounts owed to us by third party insurance payors. This estimate is based on the historical ratio of collections to billings. Our allowance for doubtful accounts was $2.4 million at January 3, 2009 and $2.5 million at April 4, 2009, respectively.

•

Inventory consists principally of eyeglass frames, ophthalmic lenses and contact lenses and is stated at the lower of cost or market value. Cost is determined using the weighted average method which approximates the first-in, first-out (“FIFO”) method. Our inventory reserves require significant estimation and are based on historical losses, product with low turnover or deemed by us to be unsaleable. Our inventory reserve was $2.4 million at January 3, 2009 and $2.9 million at April 4, 2009.

•

Goodwill represents approximately 72% of our assets and consists of the amount by which the purchase price exceeds the market value of acquired net assets. 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. This fair value estimation requires significant judgment by us. Our annual test is performed in the fourth quarter each year unless there is an impairment indicator before that time.

•

Valuation allowances for deferred tax assets reduce deferred tax assets when it is deemed more likely than not that some portion or all of the deferred tax assets will expire before realization of the benefit or that future deductibility is not probable due to taxable losses. Although realization is not assured due to historical taxable income and the probability of future taxable income, we believe it is more likely than not that all of the deferred tax asset will be realized.

•

We maintain our own self-insurance group health plan through our parent company, HVHC, Inc. The plan provides medical benefits for participating employees. We have an employers’ stop loss insurance policy to cover individual claims in excess of $250,000 per employee. The amount charged to health insurance expense is based on estimates obtained from actuaries with our ultimate parent organization, Highmark Inc. (“Highmark”). We believe the accrued liability of approximately $1.1 million and $2.4 million, which is included in other accrued expenses as of January 3, 2009 and April 4, 2009, respectively, is adequate to cover future benefit payments for claims that occurred prior to the period end.

3. Related Party Transactions

On August 1, 2006, ECCA Holdings Corporation (“ECCA Holdings”) was merged with a wholly-owned subsidiary of HVHC Inc. (“HVHC”), a subsidiary of Highmark Inc. (“Highmark”), with ECCA Holdings being the surviving corporation and becoming a wholly-owned subsidiary of HVHC (the “Highmark Acquisition”). Eye Care Centers of America, Inc. is owned by ECCA Holdings and as a result of the merger became an indirect wholly-owned subsidiary of Highmark. In June 2007, we began contracting the administration of the Company’s self-insured employees’ health insurance through Highmark. We paid Highmark and its affiliates $1.0 million and $0.2 million for management fees during the thirteen weeks ended March 29, 2008 and April 4, 2009, respectively, and the Company incurred $2.5 million and $1.3 million in employee health claims during the thirteen weeks ended March 29, 2008 and April 4, 2009, respectively, that were administered and paid for by Highmark. In addition we paid $0.2 million and $0.5 million for administrative and other expenses during the thirteen weeks ended March 29, 2008 and April 4, 2009, respectively.

HVHC also owns Davis Vision, Inc. (together with its subsidiaries, “Davis”), a national vision managed care and optical retail company, and Viva Optique, Inc. (together with its subsidiaries, “Viva”), an international designer and distributor of eyewear and sunwear. In January 2009, HVHC began contracting the administration of all the self-insured employees’ health insurance for the Company, Davis and Viva through Highmark. We paid $4.5 million in claims and administrative fees to HVHC during the thirteen weeks ended April 4, 2009. We paid Highmark and its affiliates $2.7 million for insurance claims and administrative expenses during the thirteen weeks ended March 29, 2008

We recorded revenue of $4.9 million and $6.5 million, during the thirteen weeks ended March 29, 2008 and April 4, 2009, respectively, related to managed care reimbursements due from Davis and

have a receivable of $1.4 million and $2.7 million, related to these revenues for the periods ended January 3, 2009 and April 4, 2009, respectively. In addition, in January 2009, we began contracting the administration of the Company’s self-insured employees’ vision plan through Davis. We paid $0.2 million in claims and administrative fees to Davis during the thirteen weeks ended April 4, 2009.

We purchased $2.7 million and $4.0 million of frame product from Viva during the thirteen weeks ended March 29, 2008 and April 4, 2009, respectively. We recorded cost of goods sold related to products purchased from Viva that were sold to our customers of $2.8 million and $2.2 million, during the thirteen weeks ended March 29, 2008 and April 4, 2009, respectively. We had a related payable to Viva of $1.7 million and $2.1 million as of January 3, 2009 and April 4, 2009, respectively.

4. Income Taxes

We record income taxes under SFAS No. 109, “Accounting for Income Taxes” (issued by the Financial Accounting Standards Board (“FASB”)) using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Income tax expense increased to $11.0 million for the thirteen weeks ended April 4, 2009 from $10.3 million for the thirteen weeks ended March 29, 2008. This increase is mainly due to the increase in income before taxes.

In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, which is based on our expected annual income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. This includes recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected to be in effect in the years in which the temporary differences are expected to reverse. Items qualifying or discrete are separately recognized in the quarter in which they occur.

The Company adopted the provisions of FASB Interpretation 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”) on December 31, 2006. At January 3, 2009 and April 4, 2009, the Company had approximately $3.9 million of gross liabilities related to unrecognized tax benefits which would affect our effective tax rate if recognized. The Company does not expect that there will be any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

An IRS audit of the fifty-nine day period ended March 1, 2005 was completed in fiscal 2006 with no material impact on income taxes. With the exception of this audit, the tax years 2003 through 2008 remain open to examination by the Internal Revenue Service. Additionally, the Company operates in multiple taxing jurisdictions and is subject to various state income tax examinations for the 2003 through 2008 calendar tax years. The Company is not currently under any state income tax examinations.

At the time of the Highmark Acquisition in August 2006, the Company had approximately $15.1 million of unamortized deferred financing costs related to its previously issued debt. The Company appropriately recorded the fair value of debt at the acquisition date; however, did not recognize the long term deferred tax asset related to the continuing amortization expense that was deductible for income tax purposes. The Company has adjusted Goodwill by $6 million to reflect the unamortized balance of this tax asset at April 4, 2009. The adjustment does not affect net income for any period.

5. Accounting Standards and Disclosures

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. For financial assets and liabilities, this statement is effective for fiscal periods beginning after November 15, 2007 and does not require any new fair value measurements. In February 2008, FASB Staff Positions No. 157-1 and No. 157-2 were issued, delaying the effective date of FASB Statement No. 157 to fiscal years ending after November 15, 2008 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted SFAS No. 157 on December 30, 2007 and there was no material effect on the consolidated financial statements. The Company adopted SFAS No. 157-2 on January 4, 2009 and there was no material effect on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also requires consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. The Company adopted SFAS No. 160 on January 4, 2009 and there was no effect on the consolidated financial statements as we hold controlling interest in all our subsidiaries.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. In general, the statement: 1) broadens the guidance of SFAS No. 141, extending its applicability to all events where one entity obtains control over one or more other businesses; 2) broadens the use of fair value measurements used to recognize the assets acquired and liabilities assumed; 3) changes the accounting for acquisition related fees and restructuring costs incurred in connection with an acquisition; and 4) increases required disclosures. The Company adopted SFAS No. 141(R) on January 4, 2009 and there was no material effect on the consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of: 1) how and why an entity uses derivative instruments; 2) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and 3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted SFAS No. 161 on January 4, 2009 and there was no effect on the consolidated financial statements as we have no derivatives or hedging activity.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” and APB No. 28, “Interim Financial Reporting” and requires the Company to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. This statement is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company will apply the provisions of this statement for periods ending after June 15, 2009 and does not expect this statement to have a material effect on its consolidated financial statements.

6. Subsequent Event

On April 8, 2009, Highmark agreed to acquire $65.4 million of ECCA’s 10 ³/4% Senior Subordinated Notes due 2015 (the “Notes”) from certain funds and/or accounts managed and/or advised by DDJ Capital Management, LLC for a purchase price equal to the principal amount thereof, plus accrued interest to the purchase date. The transaction was consummated on April 14, 2009.

7. Condensed Consolidating Information

On February 4, 2005, we issued $152.0 million aggregate principal amount of our 10 ³/4% Senior Subordinated Notes (the “Initial Notes”) due 2015. The Company filed a registration statement with the Securities and Exchange Commission with respect to an offer to exchange the Initial Notes for notes which have terms substantially identical in all material respects to the Initial Notes, except such exchanged notes are freely transferable by the holders thereof and are issued without any covenant regarding registration (the “Notes”). The registration statement was declared effective on September 26, 2005. The exchange period ended October 31, 2005. The Notes are the only notes of the Company which are currently outstanding.

The Notes were issued by us and are guaranteed by all of our subsidiaries (the “Guarantor Subsidiaries”), but are not guaranteed by the ODs. The Guarantor Subsidiaries are wholly owned by us and the guarantees are full, unconditional and joint and several.

Presented on the following pages are condensed consolidating financial statements for the Company (the issuer of the Notes), the Guarantor Subsidiaries and the non-guarantor subsidiaries as of and for the thirteen weeks ended April 4, 2009. The equity method has been used with respect to the Company’s investments in its subsidiaries.

As of April 4, 2009, the Guarantor Subsidiaries include Enclave Advancement Group, Inc., ECCA Managed Vision Care, Inc., Visionworks, Inc., Visionary Retail Management, Inc., Visionary Properties, Inc., Vision World, Inc., Stein Optical, Inc., Eye DRx Retail Management, Inc., Visionary Lab Services, Ltd., EyeMasters of Texas, Ltd., EyeMasters, Inc., ECCA Management Services, Ltd., ECCA Distribution Services, Ltd., ECCA Enterprises, Inc., ECCA Management Investments, Inc., ECCA Management, Inc., EyeMasters of Texas Investments, Inc., EyeMasters of Texas Management, Inc., ECCA Distribution Investments, Inc., ECCA Distribution Management, Inc., Visionary Lab Investments, Inc., Visionary Lab Management, Inc., Visionworks Holdings, Inc., Metropolitan Vision Services, Inc., Hour Eyes, Inc., and Eye Care Holdings, Inc.

The following condensed consolidating financial information presents: (i) our financial position, results of operations and cash flows, as parent, as if we accounted for our subsidiaries using the equity method; (ii) the Guarantor Subsidiaries; and (iii) the ODs. There were no transactions between the subsidiaries during any of the periods presented. Separate financial statements of the subsidiaries are not presented herein as we do not believe that such statements would be material to investors.

Condensed Consolidating Balance Sheet

For the Year Ended January 3, 2009

(in thousands)

(unaudited)


	Parent		Guarantor Subsidiaries			ODs			Eliminations			Consolidated Company
*ASSETS*
Current assets:
Cash and cash equivalents	$	782	$	11,868		$	810		$	—		$	13,460
Accounts and notes receivable		66,648		9,978			(218	)		(62,557	)		13,851
Inventory		—		31,718			2,166			—			33,884
Deferred income taxes, net		5,833		—			—			—			5,833
Prepaid expenses and other		—		9,461			48			—			9,509


Total current assets		73,263		63,025			2,806			(62,557	)		76,537

Property and equipment		—		76,520			—			—			76,520
Intangibles		416,095		107,195			87			—			523,377
Other assets		7,572		291			(1	)		—			7,862
Deferred income taxes, net		13,469		—			—			—			13,469
Investment in subsidiaries		177,370		—			—			(177,370	)		—


Total Assets	$	687,769	$	247,031		$	2,892		$	(239,927	)	$	697,765

*LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)*
Current liabilities:
Accounts payable	$	45,240	$	43,668		$	2,301		$	(62,557	)	$	28,652
Current portion of long-term debt		1,650		307			—			—			1,957
Deferred revenue		—		2,852			1,067			—			3,919
Accrued taxes		—		11,079			1,121			—			12,200
Accrued payroll expense		13,814		(4,918	)		704			—			9,600
Accrued interest		5,911		746			—			—			6,657
Other accrued expenses		379		6,569			370			—			7,318


Total current liabilities		66,994		60,303			5,563			(62,557	)		70,303
Long-term debt, less current maturities		234,168		51			—						234,219
Other long-term liabilities		2,173		6,585			51						8,809

Total liabilities		303,335		66,939			5,614			(62,557	)		313,331


Shareholders’ equity (deficit):
Common stock		—		—			—						—
Additional paid-in capital		322,152		—			—			—			322,152
Accumulated equity (deficit)		62,282		180,092			(2,722	)		(177,370	)		62,282

Total shareholders’ equity (deficit)		384,434		180,092			(2,722	)		(177,370	)		384,434

	$	687,769	$	247,031		$	2,892		$	(239,927	)	$	697,765

Condensed Consolidating Statement of Operations

For the Thirteen Weeks Ended March 29, 2008

(in thousands)

(unaudited)


	Parent			Guarantor Subsidiaries			ODs		Eliminations			Consolidated Company
Revenues:
Optical sales	$	—		$	115,985		$	30,038				$	146,023
Management fees		—			11,433					(10,505	)		928

Total net revenues		—			127,418			30,038		(10,505	)		146,951
Operating costs and expenses:
Cost of goods sold		—			36,840			10,761					47,601
Selling, general and administrative expenses		1,434			59,131			18,956		(10,505	)		69,016

Total operating costs and expenses		1,434			95,971			29,717		(10,505	)		116,617

Income from operations		(1,434	)		31,447			321		—			30,334
Interest expense, net		5,449			(31	)		—		—			5,418
Income tax expense		10,341			—			—		—			10,341
Equity earnings in subsidiaries		31,799								(31,799	)		—

Net income	$	14,575		$	31,478		$	321	$	(31,799	)	$	14,575

Condensed Consolidating Statements of Cash Flows

For the Thirteen Weeks Ended March 29, 2008

(in thousands)

(unaudited)


	Parent			Guarantor Subsidiaries			ODs			Eliminations			Consolidated Company
Cash flows from operating activities:

Net income	$	14,575		$	31,478		$	321		$	(31,799	)	$	14,575
Adjustments to reconcile net income to net
Cash provided by (used in) operating activities:
Depreciation and amortization		77			4,496			—			—			4,573
Amortization of debt issue costs		81			—			—			—			81
Deferred liabilities and other		—			787			71			—			858
Equity earnings in subsidiaries		(31,799	)		—			—			31,799			—
Increase/(decrease) in operating assets and liabilities		17,461			(12,312	)		(571	)					4,578

Net cash provided by (used in) operating activities		395			24,449			(179	)		—			24,665

Cash flows from investing activities:
Acquisition of property and equipment		—			(7,641	)		—			—			(7,641	)

Net cash used in investing activities		—			(7,641	)		—			—			(7,641	)

Cash flows from financing activities:
Payments on debt and capital leases		(413	)		(133	)		—			—			(546	)

Net cash used in financing activities		(413	)		(133	)		—			—			(546	)

Net increase (decrease) in cash and cash equivalents		(18	)		16,675			(179	)		—			16,478
Cash and cash equivalents at beginning of period		(53	)		5,211			479			—			5,637

Cash and cash equivalents at end of period	$	(71	)	$	21,886		$	300		$	—		$	22,115

Condensed Consolidating Balance Sheet

April 4, 2009

(in thousands)

(unaudited)


	Parent			Guarantor Subsidiaries			ODs			Eliminations			Consolidated Company
*ASSETS*
Current assets:
Cash and cash equivalents	$	568		$	28,460		$	778		$	—		$	29,806
Accounts and notes receivable		56,609			16,654			483			(59,314	)		14,432
Inventory		—			32,494			2,326			—			34,820
Deferred income taxes		9,530			—			—			—			9,530
Prepaid expenses and other		17			9,973			49			—			10,039

Total current assets		66,724			87,581			3,636			(59,314	)		98,627

Property and equipment		—			80,914			18			—			80,932
Goodwill		410,058			107,195			87			—			517,340
Other assets		7,419			294			(1	)		—			7,712
Deferred income taxes		13,469			—			—			—			13,469
Investment in subsidiaries		212,005			—			—			(212,005	)		—


Total assets	$	709,675		$	275,984		$	3,740		$	(271,319	)	$	718,080

*LIABILITIES AND SHAREHOLDER’S EQUITY (DEFICIT)*
Current liabilities:
Accounts payable	$	46,208		$	40,008		$	2,508		$	(59,314	)	$	29,410
Current portion of long-term debt		1,650			157			—			—			1,807
Deferred revenue		(1	)		2,792			1,111			—			3,902
Accrued taxes		22,480			(4,519	)		372			—			18,333
Accrued payroll expense		—			9,009			1,095			—			10,104
Accrued interest		1,618			740			—			—			2,358
Other accrued expenses		288			7,039			356			—			7,683


Total current liabilities		72,243			55,226			5,442			(59,314	)		73,597
Long-term debt, less current maturities		233,812			13			—			—			233,825
Other long-term liabilities		2,172			6,982			56			—			9,210

Total liabilities		308,227			62,221			5,498			(59,314	)		316,632
Shareholder’s equity (deficit)
Common stock		—			—			—			—			—
Additional paid-in capital		322,152			—			—			—			322,152
Retained earnings		79,296			213,763			(1,758	)		(212,005	)		79,296

Total shareholders’ equity (deficit)		401,448			213,763			(1,758	)		(212,005	)		401,448

	$	709,675		$	275,984		$	3,740		$	(271,319	)	$	718,080

Condensed Consolidating Statement of Operations

For the Thirteen Weeks Ended April 4, 2009

(in thousands)

(unaudited)


	Parent			Guarantor Subsidiaries		ODs		Eliminations			Consolidated Company
Revenues:
Optical sales	$	—		$	126,356	$	33,330	$	—		$	159,686
Management fees		—			11,486		—		(10,709	)		777

Total net revenues		—			137,842		33,330		(10,709	)		160,463
Operating costs and expenses:
Cost of goods sold		—			40,450		13,955		—			54,405
Selling, general and administrative expenses		1,613			63,724		18,408		(10,709	)		73,036

Total operating costs and expenses		1,613			104,174		32,363		(10,709	)		127,441

Income from operations		(1,613	)		33,668		967		—			33,022
Interest expense, net		5,002			1		—		—			5,003
Income tax expense		11,005			—		—		—			11,005
Equity earnings in subsidiaries		34,634					—		(34,634	)		—

Net income	$	17,014		$	33,667	$	967	$	(34,634	)	$	17,014

Condensed Consolidating Statements of Cash Flows

For the Thirteen Weeks Ended April 4, 2009

(in thousands)

(unaudited)


	Parent			Guarantor Subsidiaries			ODs			Eliminations			Consolidated Company
Cash flows from operating activities:
Net income	$	17,014		$	33,667		$	967		$	(34,634	)		17,014
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Depreciation and amortization		100			4,835			(23	)		—			4,912
Amortization of debt issue costs		110			—			—			—			110
Deferred liabilities and other		—			335			49			—			384
Equity earnings in subsidiaries		(34,634	)		—			—			34,634			—
Increase/(decrease) in operating assets and liabilities		17,609			(12,788	)		(1,025	)		—			3,796

Net cash provided by (used in) operating activities		199			26,049			(32	)		—			26,216

Cash flows from investing activities:
Acquisition of property and equipment		—			(9,269	)		—			—			(9,269	)

Net cash used in investing activities		—			(9,269	)		—			—			(9,269	)

Cash flows from financing activities:
Payments on debt and capital leases		(413	)		(188	)		—			—			(601	)

Net cash used in financing activities		(413	)		(188	)		—			—			(601	)

Net increase (decrease) in cash and cash equivalents		(214	)		16,592			(32	)		—			16,346
Cash and cash equivalents at beginning of period		782			11,868			810			—			13,460

Cash and cash equivalents at end of period	$	568		$	28,460		$	778		$	—		$	29,806

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Some statements in this quarterly report are forward-looking statements. Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this filing that are not historical facts. Many statements under the captions “Summary,” “Risk factors,” “Management’s discussion and analysis of financial condition and results of operations,” “Business,” and elsewhere in this filing are forward-looking statements. These forward-looking statements may relate to, among other things, our future performance generally, business development activities, strategy, projected synergies, future capital expenditures, financing sources and availability and the effects of regulation and competition. When used in this filing, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “may,” “will” or “should” or, in each case, their negative and similar expressions are generally intended to identify forward-looking statements although not all forward-looking statements contain such identifying words.

You should not place undue reliance on these forward-looking statements, which reflect our management’s view and various assumptions only as of the date of this report. Because these forward-looking statements involve risks and uncertainties, many of which are beyond our control, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our assumptions, plans, objectives, expectations and intentions with respect to the following:

•

Our competitive environment;

•

The cost and effect of legal, tax or regulatory proceedings;

•

Changes in general economic conditions;

•

Changes to our regulatory environment;

•

Our ability to maintain our relationships with optometrists;

•

The adequacy and perception of our customer service;

•

The ability to hire, train, energize and retain qualified sales associates, managerial and other employees;

•

The ability to secure and protect trademarks and other intellectual property rights;

•

Exposure to the risks associated with terrorist activities and natural disasters;

•

Franchise claims by optometrists;

•

Reduction of third-party reimbursement;

•

Technological advances in vision care;

•

Conflicts of interest between our controlling shareholders and noteholders;

•

Failure to realize anticipated cost savings;

•

Changes in the costs of manufacturing, labor and advertising;

•

The ability of our suppliers to timely produce and deliver frames, lenses and contact lenses;

•

The risks and uncertainties associated with reliance on foreign vendors, including the impact of work stoppages, transportation delays and other interruptions, political or civil instability, imposition of and changes in tariffs and import and export controls such as quotas, changes in governmental policies in or towards foreign countries, currency exchange rates and other similar factors;

•

Exposure to liability claims if we are unable to obtain adequate insurance;

•

Changes in general industry and market conditions and growth rates;

•

The extent of financial difficulties that may be experienced by our customers;

•

Loss of key management personnel;

•

Changes in accounting policies applicable to our business;

•

The impact of unusual items resulting from the implementation of new business strategies, acquisitions and divestitures or future restructuring activities;

•

Our substantial indebtedness;

•

Restrictions imposed on our business by the terms of our indebtedness;

•

Our ability to fund our capital requirements;

•

Long-term impact of laser surgery on the optical industry;

•

The performance, implementation and integration of management information systems;

•

Our ability to open new stores and the financial impact derived from those openings; and

•

Our ability to implement and maintain our merchandising and marketing business strategy.

In light of these risks, uncertainties and assumptions, the forward-looking statements and events discussed in this report might not occur. You should assume the information appearing in this report is accurate only as of the date on the front cover of this report, as our business, financial condition, results of operations and prospects may have changed since that date. Unless required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Some of these risks, uncertainties, assumptions and other factors can be found in our filings with the Securities and Exchange Commission, including the factors discussed under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended January 3, 2009 (“2008 Form 10-K”) and any update thereto in our Forms 10-Q.

Introduction

The following management’s discussion and analysis (“MD&A”) section is intended to help the reader better understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes thereto contained elsewhere in this report and our MD&A section, financial statements and accompanying notes to financial statements in our 2008 Form 10-K.

We are the third largest operator of optical retail stores in the United States as measured by revenue. We currently operate 432 stores in 36 states, including 363 directly-owned stores and 69 stores owned by a professional corporation or other entity owned by an optometrist (an “OD PC”), which we manage under long-term management agreements. Our consolidated financial information includes the results of our 363 directly-owned stores, as well as the results of 56 of the 69 stores operated by an OD PC. The remaining 13 stores operated by an OD PC are not consolidated and we recognize as management fee revenue only the cash flows we earn pursuant to the terms of management agreements for those 13 OD PC-operated stores.

Our net revenues are comprised of optical sales, net of discounts and promotions, from our 419 consolidated stores as well as management fee from the 13 stores owned by OD PCs that are not consolidated in our results. Optical sales include sales of frames, lenses (including lens treatments), contact lenses and eyeglass warranties at all of our 419 consolidated stores, as well as the professional fees of the optometrists at 220 of the stores. These 220 stores include 114 stores where the optometrist is our employee or an independent contractor, the 56 stores operated by an OD PC that are consolidated in our results and the 50 stores with independent optometrists for whom we provide management services. The management fee from the 13 unconsolidated OD PC-operated stores are based on the performance of the stores.

Our operating costs and expenses are comprised of costs of goods sold and selling, general and administrative expenses. Cost of goods sold primarily includes the cost of eyeglass frames, ophthalmic lenses, contact lenses, lab manufacturing costs and buying, warehousing, distribution, shipping and delivery costs and doctor payroll and expenses. Selling, general and administrative expenses primarily include retail payroll, occupancy, overhead, advertising and depreciation. Occupancy, overhead and depreciation are less variable relative to sales levels than other components of selling, general and administrative expenses.

In this MD&A section we use the terms “gross profit,” “gross margin,” “comparable store sales,” “comparable transaction volume” and “average ticket price” to compare our period-over-period performance. Gross profit is defined as optical sales less cost of goods sold in a period. Gross margin is defined as gross profit as a percentage of optical sales in a period. Comparable store sales is calculated by comparing net revenues for a period to net revenues of the equivalent prior period for all stores open at least twelve months during such prior period. Comparable transaction volume is based on the number of comparable store sales in a period. Average ticket price is calculated by dividing comparable net revenues by comparable transaction volume in a period.

We believe that the key driver of our performance is our ability to grow revenue without increasing costs at the same rate by: (i) increasing comparable transaction volume by offering value and convenience; (ii) actively managing our store base in targeted markets; and (iii) pursuing fee-for-service funded managed vision care relationships. Our performance is also affected by general economic conditions and consumer confidence.

We primarily grow optical sales by offering value and convenience to our customers. Since the fiscal year ended December 29, 2001, we have focused on our value strategy, which includes a promotion of two complete pairs of single vision eyewear for $99. We believe our value strategy results in increased comparable transaction volume and also believe it encourages customers to purchase higher margin lenses, lens treatments and accessories, which increases average ticket price.

We also grow optical sales and leverage costs through selective store base expansion by opening new stores in targeted markets. Until a new store matures, its operating costs as a percentage of optical sales are generally higher than that of an established store. Accordingly, the expense related to opening new stores adversely affects our results in that period. Over the longer term, opening a new store in an existing market allows us to leverage existing advertising, field management and overhead to mitigate margin pressure. When entering a new market, we seek to achieve sufficient market penetration to generate brand awareness and economies of scale in advertising, field management and overhead. Consistent with our strategic objectives, we opened 9 new stores during the thirteen weeks ended April 4, 2009 and we believe the opportunity exists to open approximately 11 additional new stores in fiscal 2009 in existing markets. We opened 22 new stores in fiscal 2008, 8 of those locations opening during the thirteen weeks ended March 29, 2008. We also manage costs by closing stores that do not meet our performance expectations. Store openings and store closures affect period over period comparisons.

We have made a strategic decision to pursue participation in fee-for-service funded managed vision care plans. Fee-for-service funded managed vision care plans consist of insurance relationships where we receive set fees for services provided to participants of a plan as opposed to capitated funded managed vision care plans where we receive a set fee per plan participant to provide any and all services requested by participants of such plan. Under a fee-for-service funded managed vision care plan we benefit from participants’ utilization of the plan, whereas under a capitated funded managed vision care plan we bear risk related to the level at which participants utilize such plan. Substantially all of our current funded managed vision care plan participation is in fee-for-service funded managed vision care plans. Our participation in managed vision care plans also includes discount managed vision care plans where participants receive a set discount on eye care products. We believe that participation in managed vision care plans will continue to benefit us and other large optical retail chains with strong local market shares, broad geographic coverage and sophisticated management information and billing systems. We expect that optical revenues derived from managed vision care plans will continue to account for approximately 30% of our net revenues, but that the percentage attributable to fee-for-service funded managed vision care plans will increase as revenues from discount managed vision care plans decline. While the average ticket price on products purchased under managed vision care plans is typically slightly lower than a non-managed vision care sale, managed vision care plan transactions generally earn comparable operating profit margins as they require less promotional spending and advertising support. We believe that the increased volume resulting from managed vision care plans also compensates for the lower average ticket price.

Results of Operations

The following table sets forth the percentage relationship to net revenues of certain income statement data. The period-to-period comparison of financial results is not necessarily indicative of future results.


	Thirteen Weeks Ended
	March 29, 2008		April 4, 2009
Statement of Income Data:
NET REVENUES:
Optical sales	99.4	%	99.5	%
Management fee	0.6		0.5

Total net revenues	100.0		100.0

OPERATING COSTS AND EXPENSES:
Cost of goods sold	32.6	*	34.1	*
Selling, general and administrative expenses	47.3	*	45.7	*

Total operating costs and expenses	79.4		79.4


INCOME FROM OPERATIONS	20.6		20.6

INTEREST EXPENSE, NET	3.7		3.1

INCOME TAX EXPENSE	7.0		6.9


NET INCOME	9.9	%	10.6	%

Percentages based on optical sales only

The Thirteen Weeks Ended April 4, 2009 Compared to the Thirteen Weeks Ended March 29, 2008.

Net Revenues. Net revenues increased to $160.5 million for the thirteen weeks ended April 4, 2009 from $147.0 million for the thirteen weeks ended March 29, 2008. The increase in revenues compared to the first quarter of fiscal 2008 was primarily driven by a 5.5% increase in comparable store sales and new store openings. Net revenues attributable to new stores in the first quarter of fiscal 2009 were $0.6 million. The increase in net revenues attributable to the effect of new stores opened in fiscal 2008 being open in the first quarter of fiscal 2009 was $6.1 million. Comparable transactions increased by 0.2% and average ticket price increased by 5.3% compared to the first quarter of fiscal 2008. The increase in average ticket price was primarily driven by the continued increase in the sale of premium lenses and lens treatments. Total managed vision care sales increased by 9.8%, or $5.8 million. In addition, we opened 9 new stores in the first quarter of fiscal 2009 compared to 8 new stores in the first quarter of fiscal 2008.

Gross Profit. Gross profit increased to $105.3 million for the thirteen weeks ended April 4, 2009 from $98.4 million for the thirteen weeks ended March 29, 2008. Gross profit as a percentage of optical sales decreased to 65.9% for the thirteen weeks ended April 4, 2009 from 67.4% for the thirteen weeks ended March 29, 2008. The decrease in gross profit as a percentage of optical sales was largely the result of the increase in the sale of lower margin specialty lenses and the increase in doctor payroll expenses.

Selling General & Administrative Expenses (SG&A). SG&A increased to $73.0 million for the thirteen weeks ended April 4, 2009 from $69.0 million for the thirteen weeks ended March 29, 2008. SG&A, as a percentage of optical sales decreased to 45.7% for the thirteen weeks ended April 4, 2009 from 47.3% for the thirteen weeks ended March 29, 2008. This percentage decrease was largely due to the Company’s leveraging of overhead and occupancy costs associated with our favorable comparable store sales increase as well as from expense control initiatives including salaries, wages and advertising.

Net Interest Expense. Net interest expense decreased to $5.0 million for the thirteen weeks ended April 4, 2009 from $5.4 million for the thirteen weeks ended March 29, 2008. This decrease was primarily due to lower interest rates on the portion of our debt that has variable interest rates.

Income Tax Expense. Income tax expense increased to $11.0 million for the thirteen weeks ended April 4, 2009 from $10.3 million for the thirteen weeks ended March 29, 2008, primarily due to a $3.1 million increase in income before taxes. Our effective tax rate was 39.3% for the thirteen weeks ended April 4, 2009 and 41.5% for the thirteen weeks ended March 29, 2008.

Net Income. Net income increased to $17.0 million for the thirteen weeks ended April 4, 2009 compared to $14.6 million for the thirteen weeks ended March 29, 2008.

Liquidity and Capital Resources

Our capital requirements are driven principally by our obligations to service debt and to fund the following costs:

•

Construction of new stores;

•

Repositioning of existing stores;

•

New lab and distribution facilities; and

•

Purchasing inventory and equipment

The amount of capital available to us will affect our ability to service our debt obligations and to continue to grow our business through expanding the number of stores and increasing comparable store sales.

Sources of Capital

Our short-term and long-term liquidity needs arise primarily from: (i) interest payments primarily related to our Credit Facility (as defined below) and the Notes; (ii) capital expenditures, including those for opening new stores; and (iii) working capital requirements as may be needed to support our business. We intend to fund our operations, interest payments, capital expenditures and working capital requirements principally from cash from operations and HVHC capital contributions. We are a holding company with no direct operations. Our principal assets are the equity interests we hold in our subsidiaries. As a result, we are dependent upon dividends and other payments from our subsidiaries to generate the cash necessary to fund our operations, interest payments, capital expenditures and working capital requirements. There are currently no restrictions on the ability of our subsidiaries to transfer funds to us.

Cash flows from operating activities provided net cash of $26.2 million for the thirteen weeks ended April 4, 2009 and $24.7 million for the thirteen weeks ended March 29, 2008. Our other sources of working capital are cash on hand and funding from the revolving portion of our Credit Facility (as defined below). As of April 4, 2009, we had $29.8 million of cash available to meet our obligations. We had $25.0 million of borrowings available under the $25.0 million Revolver (as defined below) revolving portion of our Credit Facility, excluding $2.6 million letters of credit outstanding.

Payment on debt has been our principal financing activity. Cash flows used in financing activities were $0.6 million for the thirteen weeks ended April 4, 2009 and $0.5 million for the thirteen weeks ended March 29, 2008, and related solely to the payment of debt.

Our working capital primarily consists of cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued expenses and was $25.0 million as of April 4, 2009. Our working capital was $6.2 million as of January 3, 2009. The increase in working capital is primarily due to accumulation of cash as we have made no voluntary prepayments of our Credit Facility during the first quarter of fiscal 2009.

Capital expenditures were $9.3 million for the thirteen weeks ended April 4, 2009 compared to $7.6 million for the thirteen weeks ended March 29, 2008. Capital expenditures for all of fiscal 2009 are projected to be approximately $25.6 million. Of the planned fiscal 2009 capital expenditures, approximately $9.3 million is related to commitments for new stores and approximately $16.3 million is expected to be for improvement of existing facilities and systems including the completion of our central lab facility relocation.

Based upon current operations, we believe that our cash flows from operations, together with borrowings that are available under the $25.0 million Revolver (as defined below) of our Credit Facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures and scheduled principal and interest payments through the next twelve months with the exception of capital contributions from HVHC. Any such future contributions will be used for capital expenditures. Our ability to satisfy our financial covenants under our Credit Facility, meet our debt service obligations and

reduce our debt will be dependent on our future performance, which, in turn, will be subject to general economic conditions and to financial, business, and other factors, including factors beyond our control. We believe that our ability to repay amounts outstanding under our Credit Facility and the Notes at maturity will likely require additional financing, which may not be available to us in the future on acceptable terms, if at all. A portion of our debt bears interest at floating rates; therefore, our financial condition is and will continue to be affected by changes in prevailing interest rates.

Long-Term Debt

Credit Facility

In March 2005, the Company entered into a credit agreement which provided for $165.0 million in term loans (the “Term Loan Facility”) and $25.0 million in revolving credit facilities (the “Revolver” and together with the Term Loan Facility, the “Credit Facility”). The borrowings under the Credit Facility together with the net proceeds from the offering of the Initial Notes and the equity investment of Moulin Global Eyecare Holdings Limited and Golden Gate Capital were used to: (i) pay a cash portion of the purchase price for the equity interests held by Thomas H. Lee Partners in us and sold to ECCA Holdings Corporation in March 2005, (ii) repay debt outstanding under a previous credit facility, (iii) retire old notes, (iv) pay the related tender premium and accrued interest and (v) pay the related transaction fees and expenses. The remainder of the Credit Facility is available to finance working capital requirements and general corporate purposes.

On December 21, 2006, we obtained an amendment and consent to our Credit Facility (the “2006 Amendment”). The 2006 Amendment primarily reduced the interest rate on the Credit Facility and changed several covenants. A prepayment of $25.0 million in principal was made in conjunction with the lenders’ approval of the 2006 Amendment and a prepayment of $9.0 million in principal was made in conjunction with the filing of the 2006 10-K in March, 2007, as required under the 2006 Amendment. Additional voluntary prepayments totaling $20.0 million were made throughout fiscal 2007.

On October 3, 2008, we entered into a Third Amendment and Consent to our Credit Facility (the “2008 Amendment”). The 2008 Amendment provides for an increase in the annual capital expenditures limit under the Credit Facility from $22 million to $28 million in consideration for (i) a $20 million prepayment of principal due under the loan terms made under the Credit Facility and (ii) an amendment fee of 10 basis points. The 2008 Amendment further provides that all capital contributions made to us by HVHC or its affiliates for the purposes of funding capital expenditures shall be excluded from the annual capital expenditure limit set forth in the Credit Facility. The prepayment of $20.0 million in principal was made on October 3, 2008. On October 9, 2008, HVHC provided us with a $5.0 million capital contribution to be utilized to fund improvements to our lab equipment and infrastructure.

Amortization payments. Prior to the maturity date, funds borrowed under the Revolver may be borrowed, repaid and re-borrowed, without premium or penalty. The Term Loan Facility began amortizing in the third quarter of fiscal year ended December 31, 2005 and continues through the date of maturity in fiscal 2012 according to the following schedule:


Year	(in millions)
2009		1.24
2010		1.65
2011		1.65
2012		80.28

	$	84.82

Interest. Our borrowings under the Credit Facility bear interest at a floating rate, which can either be, at our option, a base rate or a Eurodollar rate, in each case plus an applicable margin. The base rate is defined as the higher of (i) the JPMorgan Chase Bank prime rate or (ii) the federal funds effective rate, plus one half percent (0.5%) per annum. The Eurodollar rate is defined as the rate for Eurodollar deposits for a period of one, two, three, six, nine or twelve months (as selected by us). The applicable margins are:


Facility	Base Rate Margin		Eurodollar Margin
Term Loan Facility	1.50	%	2.50	%

Revolver	1.75	%	2.75	%

In addition to paying interest on outstanding principal under the Credit Facility, we are required to pay a commitment fee to the lenders under the Revolver in respect of the unutilized commitments thereunder at a rate equal to 0.50%. We will also pay customary letter of credit fees.

Security and guarantees. The Credit Facility is secured by a valid first-priority perfected lien or pledge on: (i) 100% of the capital stock of each of our present and future direct and indirect domestic subsidiaries; (ii) 65% of the capital stock of each of our future first-tier foreign subsidiaries; (iii) 100% of the capital stock of Eye Care Centers of America, Inc.; and (iv) substantially all our present and future property and assets and those of each guarantor, subject to certain exceptions. Our obligations under the Credit Facility are guaranteed by each of our existing and future direct and indirect domestic subsidiaries and ECCA Holdings.

Covenants. The Credit Facility documentation contains customary affirmative and negative covenants and financial covenants. During the term of the Credit Facility, the negative covenants restrict our ability to do certain things, including but not limited to:

•

incur additional indebtedness, including guarantees;

•

create, incur, assume or permit to exist liens on property and assets;

•

make loans and investments and enter into acquisitions and joint ventures;

•

engage in sales, transfers and other dispositions of our property or assets;

•

prepay, redeem or repurchase our debt (including the Notes), or amend or modify the terms of certain material debt (including the Notes) or certain other agreements;

•

declare or pay dividends to, make distributions to, or make redemptions and repurchases from, equity holders; and

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agree to restrictions on the ability of our subsidiaries to pay dividends and make distributions.

The following financial covenants are included:

•

maximum consolidated leverage ratio;

•

maximum capital expenditures; and

•

minimum rent-adjusted interest coverage ratio.

As of April 4, 2009 we were in compliance with all of our financial covenants.

Mandatory prepayment. We are required to make a mandatory annual prepayment of the Term Loan Facility based on our excess cash flows which is determined by our leverage ratio as defined in the New Credit Facility. In Fiscal 2007, we made voluntary prepayments of $21.3 million and an additional prepayment of $9.0 million related to the 2006 Amendment. Due to this $30.2 million prepayment, no excess cash flow payment was necessary for our Fiscal 2007 results. In Fiscal 2008, we made a prepayment of $20.0 million in principal related to the 2008 Amendment. Due to this $20.0 million prepayment, no excess cash flow payment was necessary for our Fiscal 2008 results. In addition, we are required to make a mandatory prepayment of the Term Loan Facility with:

•

100% of the net cash proceeds of any property or asset sale or casualty, subject to certain exceptions and reinvestment rights;

•

100% of the net cash proceeds of certain debt issuances, subject to certain exceptions; and

•

50% of the net cash proceeds from the issuance of additional equity interests, subject to certain exceptions.

Mandatory prepayments will be applied to the Term Loan Facility, first to the scheduled installments of the Term Loan Facility occurring within the next 12 months in direct order of maturity, and second, ratably to the remaining installments of the Term Loan Facility. We may voluntarily repay outstanding loans under the Credit Facility at any time without premium or penalty, other than customary “breakage” costs (as defined in the Credit Facility) with respect to Eurodollar loans.

Notes

On February 4, 2005, we issued $152.0 million aggregate principal amount of our 10 ³/4% Senior Subordinated Notes (the “Initial Notes”) due 2015. The Company filed a registration statement with the Securities and Exchange Commission with respect to an offer to exchange the Initial Notes for notes which have terms substantially identical in all material respects to the Initial Notes, except such notes are freely transferable by the holders thereof and are issued without any covenant regarding registration (the “Notes”). The registration statement was declared effective on September 26, 2005. The exchange period ended October 31, 2005. The Notes are the only notes of the Company which are currently outstanding.

The Notes:

•

are general unsecured, senior subordinated obligations of the Company;

•

mature on February 15, 2015;

•

are subordinated in right of payment to all existing and future Senior Indebtedness (as defined in that certain Indenture between the Company and the Bank of New York as Trustee, dated February 4, 2005 (the “Indenture)) of the Company, including the Credit Facility;

•

rank equally in right of payment to any future Senior Subordinated Indebtedness (as defined in the Indenture) of the Company;

•

are unconditionally guaranteed on a senior subordinated basis by each existing Subsidiary (as defined in the Indenture) of the Company and any future Restricted Subsidiary (as defined in the Indenture) of the Company that is not a Foreign Subsidiary (as defined in the Indenture);

•

are effectively subordinated to any future Indebtedness (as defined in the Indenture) and other liabilities of Subsidiaries (as defined in the Indenture) of the Company that are not guaranteeing the notes; and

•

may default in the event there is a failure to make an interest or principal payment under the Credit Facility.

Interest. Interest on the Notes compounds semi-annually and:

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accrues at the rate of 10.75% per annum;

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is payable in cash semi-annually in arrears on February 15 and August 15;

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is payable to the holders of record on the February 1 and August 1 immediately preceding the related interest payment dates; and

•

is computed on the basis of a 360-day year comprised of twelve 30-day months.

Optional redemption. At any time prior to February 15, 2010, the Company may redeem all or part of the Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) the Applicable Premium (as defined in the Indenture) as of the date of redemption, plus (iii) accrued and unpaid interest on the Notes, if any, to the date of redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

On and after February 15, 2010, the Company may redeem all or, from time to time, a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount) plus accrued and unpaid interest on the Notes, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period beginning on February 15 of the years indicated below:


YEAR	REDEMPTION PRICE
2010	105.375	%
2011	103.583	%
2012	101.792	%
2013 and thereafter	100.000	%

Covenants. The Notes contain customary negative covenants including but not limited to:

•

limitation on indebtedness;

•

limitation on restricted payments;

•

limitation on liens;

•

initial and future subsidiary guarantors; and

•

change of control.

Off-balance sheet arrangements. As of April 4, 2009, our only off-balance sheet arrangements were letters of credit, in the amount of $2.6 million, issued under our old credit facility primarily to insurance companies and remain outstanding under our New Credit Facility. These letters of credit are held by our insurance carriers in lieu of actual cash deposits and can be called to cover our claims payments if we fail to directly pay the carriers. By maintaining these letters of credit we are able to utilize the cash for operating purposes and pay minimal fees under the New Credit Facility.

Future Capital Resources. Based upon current operations, anticipated cost savings and future growth, we believe that our cash flow from operations, together with borrowings currently available under the Revolver, are adequate to meet our anticipated requirements for working capital, capital expenditures and scheduled principal and interest payments through the next 12 months. Our ability to satisfy our financial covenants under the Credit Facility to meet our debt service obligations and to reduce our debt will depend on our future performance, which in turn, will be subject to general economic conditions and to financial, business, and other factors, including factors beyond our control. In the event we do not satisfy our financial covenants set forth in the Credit Facility, we may attempt to renegotiate the terms of the Credit Facility with our lenders for further amendments to, or waivers of, the financial covenants of the Credit Facility. We believe that our ability to repay the Credit Facility at maturity will likely require additional financing. We cannot assume that additional financing will be available to us. A portion of our debt bears interest at floating rates; therefore, our financial condition is and will continue to be affected by changes in prevailing interest rates.

Seasonality and Quarterly Results

Our sales fluctuate seasonally. Historically, our highest sales and earnings occur in the first and third fiscal quarters; therefore, quarterly results are not necessarily indicative of results for the entire year, and the opening of new stores may affect seasonal fluctuations.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks. Market risk is the potential risk of loss arising from adverse changes in market prices and rates. We do not enter into derivative or other financial instruments for trading or speculative purposes. There has been no material change in our market risk during the thirteen weeks ended April 4, 2009. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended January 3, 2009 (“2008 Form 10-K”).

Our primary market risk exposure is interest rate risk. As of April 4, 2009, approximately $84.8 million of our long-term debt bore interest at variable rates. Accordingly, our net income is affected by changes in interest rates. For every one hundred basis point change in the average interest rate under our $84.8 million in long-term borrowings, our annual interest expense would change by approximately $0.8 million.

In the event of an adverse change in interest rates, we could take actions to mitigate our exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, this analysis assumes no such actions.

ITEM 4T.

CONTROLS AND PROCEDURES

Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon such evaluation, such officers have concluded that our disclosure controls and procedures are effective as of the end of such period.

There has been no change in our internal controls over financial reporting that occurred during the thirteen weeks ended April 4, 2009 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are a party to routine litigation in the ordinary course of our business. There are no such pending matters, individually or in the aggregate that we believe to be material to our business or our financial condition that have arisen during the thirteen weeks ended April 4, 2009. For further discussion, please refer to our 2008 Form 10-K.

ITEM 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors,” in our 2008 Form 10-K, filed with the Securities and Exchange Commission on March 24, 2009. The risks described in our 2008 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results. In our judgment, there were no material changes in the risk factors as previously disclosed in Part I, “Item 1A. Risk Factors.”

ITEM 6.

EXHIBITS

(a) The following documents are filed as part of this report.


31.1		Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

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.

Date:		May 15, 2009

by:		/s/ Jennifer L. Taylor
		Jennifer L. Taylor
		Executive Vice President and Chief Financial Officer

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