DRAPER, Utah, March 6 /PRNewswire-FirstCall/ -- 1-800 CONTACTS, INC.
(Nasdaq: CTAC) ("the Company"), today reported results for its fourth
quarter and fiscal year ended December 30, 2006.
(Logo: http://www.newscom.com/cgi-bin/prnh/20040107/LACONTACTSLOGO)
Fourth Quarter and Fiscal Year Results
Consolidated net sales for the fourth quarter ended December 30, 2006
were $57.7 million, compared to $55.4 million for the comparable quarter of
the prior year. For the fourth quarter of fiscal 2006, the Company reported
a consolidated net loss of $(20.1) million, or $(1.50) per diluted common
share, compared to a consolidated net loss of $(2.3) million, or $(0.17)
per diluted common share, for the fourth quarter of fiscal 2005.
The results for the fourth quarter of fiscal 2006 include non-cash
impairment charges of $18.5 million relating to ClearLab, the Company's
international contact lens manufacturing business. Of the total impairment
charges, $14.9 million relates to the impairment of goodwill from the
Company's 2002 purchase of ClearLab's Singapore operation and the balance
relates to assets impaired due to the decision to close ClearLab's United
Kingdom manufacturing operations and consolidate these operations in
Singapore. The results also include $1.0 million of additional expenses
(primarily severance costs) related to this decision to close the United
Kingdom manufacturing operations.
For the fiscal year ended December 30, 2006, consolidated net sales
were $248.7 million, compared to $238.0 million for the prior year. The
Company reported a consolidated net loss of $(22.5) million, or $(1.68) per
diluted common share, for fiscal 2006, compared to a consolidated net loss
of $(2.6) million, or $(0.20) per diluted common share, for fiscal 2005.
Excluding the $18.5 million impairment and $1.0 million restructuring
charges related to ClearLab, the Company would have realized a consolidated
net loss for the fourth quarter of fiscal 2006 of $(0.5) million, or
$(0.04) per diluted common share, and a consolidated net loss of $(2.9)
million, or $(0.22) per diluted common share, for fiscal 2006.
U.S. Retail
Net sales and operating income for the Company's U.S. retail business
for the fourth quarter of fiscal 2006 were $51.8 million and $4.0 million,
respectively, compared to net sales of $50.6 million and operating income
of $3.2 million for the fourth quarter of fiscal 2005. For fiscal year
2006, net sales and operating income for the Company's US retail business
were $227.9 million and $21.9 million, respectively, compared to net sales
of $219.6 million and operating income of $15.4 million for fiscal 2005.
Gross margin for the Company's U.S. retail business decreased to 37.8%
for the fourth quarter of fiscal 2006 from 38.4% for the fourth quarter of
fiscal 2005 and to 39.0% for fiscal 2006 from 39.4% for fiscal 2005.
Advertising expense for the fourth quarter of fiscal 2006 was $2.7
million less than the fourth quarter of fiscal 2005 and was $11.3 million
less for fiscal 2006 than for fiscal 2005.
During the fourth quarter of fiscal 2006, other selling, general and
administrative expenses as a percentage of net sales for the U.S. retail
business increased to 24.1% from 21.0% in the fourth quarter of fiscal
2005. For fiscal 2006, other selling, general and administrative expenses
as a percentage of net sales increased to 21.7% from 19.4% in fiscal 2005.
ClearLab
Net sales and operating loss for ClearLab, the Company's international
contact lens manufacturing business, for the fourth quarter of fiscal 2006
were $5.9 million and $(23.4) million, respectively, compared to net sales
of $4.7 million and an operating loss of $(4.1) million for the fourth
quarter of fiscal 2005. The results for the fourth quarter of fiscal 2006
include non-cash impairment charges of $18.5 million as discussed earlier.
ClearLab's net sales for the fourth quarters of fiscal 2006 and 2005
include $1.0 million in license fees from the Company's Japanese license
agreement.
For fiscal 2006, net sales and operating loss for ClearLab were $20.8
million and $(36.4) million, respectively, compared to net sales of $19.6
million and an operating loss of $(9.4) million for fiscal 2005. ClearLab's
net sales for fiscal 2006 and 2005 include $5.1 million and $4.0 million,
respectively, in license fees from the Company's Japanese license
agreement. In addition, ClearLab's net sales for fiscal 2005 include $1.2
million of intercompany sales to the Company's U.S. retail business.
For fiscal 2006, ClearLab's operating results include a $2.9 million
increase in research and development expense and a $5.0 million increase in
other selling, general and administrative expenses, including $1.0 million
(primarily severance costs) related to the decision to close the United
Kingdom manufacturing operations.
The change in consolidated other income (expense) for fiscal 2006 was
principally due to unrealized foreign exchange transaction gains related
primarily to intercompany loans to ClearLab.
Strategic Review
Jonathan Coon, Chief Executive Officer, remarked, "We previously stated
that we expected to announce the terms of a ClearLab separation by the end
of March 2007. We now believe it is in the best interest of our
shareholders to allow this process to continue beyond the end of the first
quarter. There are three potential sources of value for 1-800 CONTACTS
shareholders through transactions for ClearLab - the Singapore operation,
the flat pack technology and other intellectual property, and a potential
tax benefit."
Brian Bethers, President, added, "Although additional future value may
be produced from the contemplated transactions, we anticipate realizing
less than our cumulative investment in ClearLab. As a result, we recorded
the $14.9 million non-cash impairment charge as noted above in our 2006
fourth quarter, reflecting the complete write off of goodwill from our 2002
acquisition of the ClearLab operations in Singapore."
Mr. Coon continued, "We have received offers for the flat pack IP and
ClearLab's Singapore operation; however, we have not received offers for
both of these assets from the same party. As a result, a separation of
ClearLab is likely to be accomplished in two separate transactions -- one
for the flat pack technology and IP and one for ClearLab's Singapore
operation.
"There can be no assurance that any of these transactions can be
completed. However, if completed, we believe the combination of
transactions could provide sufficient cash at closing to allow us to retire
our outstanding indebtedness, including our line of credit and long term
debt totaling approximately $37 million at year end 2006. We believe these
transactions, if executed, could also provide a tax benefit. In addition,
ongoing future consideration could add significant future value if these
transactions are completed.
"We are currently considering another alternative which would still
include a separation of ClearLab's Singapore operation. Rather than sell
the current Japanese license agreement and exclusive rights to the flat
pack technology worldwide, we might instead pursue a strategy of selling
ClearLab's Singapore operation and retaining the current Japanese license
agreement and the flat pack technology.
"Our current Japanese license agreement for the flat pack technology
covers only the territory of Japan and provides for minimum payments to
1-800 CONTACTS of at least $5 million per year for 15 years. We expect
these payments to begin by 2011. We have received interest from multiple
manufacturers in the flat pack technology. Although an outright sale of the
Japanese license agreement and exclusive global rights to the flat pack
technology might provide more upfront cash to our shareholders, we are
currently evaluating whether more value could be created by pursuing a
strategy of non-exclusive licenses with multiple manufacturers."
The Company's strategic review to determine how to maximize value for
the Company's shareholders through a ClearLab transaction has been
broadened to include a strategic review of the U.S. retail business.
Sonenshine Partners will continue to act as the Company's lead advisor;
however, the Company has also retained Goldman, Sachs & Co. to assist with
the review of its retail business.
2007 Outlook
For fiscal year 2007, the Company expects U.S. retail net sales of
approximately $240 million to $250 million with advertising spending of
approximately $18 million. The Company expects operating income of $23
million to $26 million in fiscal 2007 for its U.S. retail business.
For the first quarter of fiscal 2007, the Company expects U.S. retail
net sales of approximately $60 million and operating income of
approximately $4.0 million. The Company expects advertising spending in the
first quarter of fiscal 2007 of approximately $5.0 million -- an increase
of $1.1 million from the first quarter of fiscal 2006. These expected
results reflect the impact of the industry supply disruption of a top
selling lens previously announced on January 31st. The affected lens
represents approximately 4% of our revenue. This manufacturer continues to
experience difficulties providing these and other lenses and cannot
guarantee when these production issues will be resolved. The Company
estimates that lost net sales and operating income for the affected lenses
will total approximately $2.0 million and $0.5 million, respectively, in
the first quarter of fiscal 2007.
Mr. Coon stated, "As we announced at the end of January, we can now
purchase directly, as an authorized account every lens marketed by the four
largest manufacturers for the first time in the Company's history. This is
a milestone event for us and we are excited about the opportunity to
refocus the Company's resources and management's time on serving customers
and growing our business in 2007. However, as we begin rebuilding our
business with customers whom we have not been able to serve for years, it
is disappointing that a temporary supply disruption leaves us unable to
serve so many customers whose lenses we have historically been able to
purchase directly.
"In addition, our forecasted results account for the fact that we are
coming off a year in which we cut advertising almost in half while we
pursued a resolution of our long term supply issue. We have talked
previously about the flywheel effect advertising has on our business. Our
revenue and operating income benefited from this flywheel effect going into
2006 when we cut advertising. We will see the reverse of this effect as we
increase advertising in the first half of 2007 and expect a relatively slow
start to 2007."
Regarding the short term outlook for ClearLab's Singapore operation,
Mr. Bethers commented, "Our decision to close ClearLab's United Kingdom
manufacturing operations and consolidate in Singapore was a result of an
extensive review of ClearLab's operations. ClearLab's results for 2007 will
reflect costs relating to the closure of the United Kingdom manufacturing
operations and the consolidation in Singapore. The total costs relating to
this consolidation are estimated between $7.0 million to $8.6 million of
which $4.6 million is included in the 2006 results.
"We expect to complete the UK site closure, except for ongoing lease
commitments and disposal of surplus equipment, in the first fiscal quarter
of 2007, and anticipate that all ongoing obligations relating to the UK
operations including lease commitments and disposal of surplus equipment
will cease no later than the end of 2007. All manufacturing activity should
be consolidated in Singapore by the end of the third fiscal quarter of
2007. Excluding the anticipated $3.4 to $5.0 million of additional cash
costs related to the UK closure, we estimate cash funding requirements for
ClearLab operations and R&D from 1-800 CONTACTS to be approximately $3.5
million for the first quarter of 2007 and $2.5 million for the second
quarter of 2007."
About 1-800 CONTACTS, INC.
1-800 CONTACTS offers consumers an attractive alternative for obtaining
replacement contact lenses in terms of convenience, price, and speed of
delivery. Through its easy-to-remember, toll-free telephone number, "1-800
CONTACTS" (1-800-266-8228), and its Internet web site,
http://www.1800contacts.com, the Company sells all of the popular brands of
contact lenses. 1-800 CONTACTS offers products at competitive prices, while
delivering a high level of customer service.
ClearLab develops and manufactures a wide range of disposable contact
lens products and distributes these lenses in markets outside of the United
States. More information about ClearLab can be found at its website,
http://www.clearlab.com.
About Sonenshine Partners LLC
Sonenshine Partners LLC is a New York-based investment bank that
provides integrated strategic and financial advisory services for a variety
of large cap and middle market companies. The firm was founded in 2000 by
Marshall Sonenshine, who had previously been a partner at investment bank
Wolfensohn & Co. Since its inception, Sonenshine Partners has completed
major merger and acquisition, restructuring and corporate finance
assignments involving a broad range of Fortune 500 and middle market
companies worldwide. More information regarding Sonenshine Partners can be
found on http://www.sonenshinepartners.com.
Forward-looking Statements
This news release contains a number of statements about the Company's
future business prospects which are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include all statements which are not purely
historical and include, but are not necessarily limited to, any potential
sources of value, anticipated values, tax benefits, or structure arising
from or related to any potential ClearLab transactions; the Company's
belief that the potential ClearLab transactions could provide sufficient
cash at closing to allow the Company to retire its outstanding indebtedness
or could otherwise add significant future value; the possibility of selling
ClearLab's Singapore operation while retaining the Japanese license
agreement and the flat pack technology; any statements relating to the
Japanese license agreement for the flat pack technology, including the
timing and amount of any payments to be made pursuant to that agreement;
statements relating to the strategic review of the U.S. retail business;
expected U.S. retail net sales and operating income for the first quarter
of and for fiscal year 2007; anticipated advertising spending in the first
quarter and full year of 2007; anticipated lost sales and operating income
due to the supply disruptions; the anticipated impact of advertising
spending on revenue and operating income; estimated costs of the closure of
the United Kingdom manufacturing operations and the consolidation of such
operations in Singapore; the timing of the consolidation; and ongoing cash
funding requirements for ClearLab. All such forward-looking statements are
based upon information available to the Company as of the date hereof, and
the Company disclaims any intention or obligation to update any such
forward-looking statements. Actual results could differ materially from
current expectations. Factors that could cause or contribute to such
differences include, among others: general economic conditions; the health
and size of the contact lens industry; consumer acceptance of the Company's
and ClearLab's products; product health benefits; the outcome of the
strategic review of ClearLab and the U.S. retail business; supply risks;
inventory acquisition and management; manufacturing operations;
governmental regulations; exchange rate fluctuations; unanticipated costs
and expected benefits associated with the Japanese license agreement and
the Company's supply agreements and related arrangements; research and
development initiatives; prescription verification requirements of The
Fairness to Contact Lens Consumers Act; other regulatory considerations;
and the other risks and uncertainties identified in the reports filed from
time to time by the Company with the U.S. Securities and Exchange
Commission, including the Company's most recent Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q. Information on the Company's websites,
other than the information specifically referenced in this press release,
shall not be deemed to be part of this press release.
1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
(in thousands, except per share amounts)
(unaudited)
Quarter Ended Year Ended
December December December December
31, 30, 31, 30,
2005 2006 2005 2006
NET SALES $55,444 $57,701 $237,950 $248,676
COST OF GOODS SOLD 36,088 37,271 149,266 157,234
Gross profit 19,356 20,430 88,684 91,442
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES:
Advertising 4,715 1,982 24,979 13,645
Legal and professional 1,341 1,742 4,741 5,297
Research and development 877 1,704 3,169 6,057
Impairment of goodwill &
long-lived assets -- 18,540 -- 18,540
Other selling, general &
administrative 12,702 15,856 50,061 62,114
Total selling, general &
administrative expenses 19,635 39,824 82,950 105,653
INCOME (LOSS) FROM OPERATIONS (279) (19,394) 5,734 (14,211)
OTHER INCOME (EXPENSE), net (549) 1,098 (3,111) 1,708
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (828) (18,296) 2,623 (12,503)
PROVISION FOR INCOME TAXES (1,427) (1,771) (5,228) (9,956)
NET LOSS $(2,255) $(20,067) $(2,605) $(22,459)
PER SHARE INFORMATION:
Basic and diluted net loss
per common share $(0.17) $(1.50) $(0.20) $(1.68)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING:
Basic and diluted 13,340 13,382 13,321 13,363
OTHER DATA:
Depreciation $1,335 $1,995 $4,740 $6,677
Amortization 1,013 901 4,180 3,794
Total depreciation and
amortization $2,348 $2,896 $8,920 $10,471
Depreciation and amortization
included in the following
captions:
Cost of goods sold $720 $1,055 $2,920 $3,612
Research and development 55 223 140 458
Other selling, general &
administrative 1,573 1,618 5,860 6,401
Total depreciation and
amortization $2,348 $2,896 $8,920 $10,471
SEGMENT INFORMATION:
Quarter Ended
December 31, 2005
Inter- Elimi-
U.S. national nations Total
Net sales $50,635 $4,712 $97 $55,444
Gross profit (loss) 19,466 (651) 541 19,356
Research and development 103 774 -- 877
Impairment of goodwill &
long-lived assets -- -- -- --
Other selling, general &
administrative 10,624 2,078 -- 12,702
Income (loss) from operations 3,230 (4,050) 541 (279)
Depreciation and amortization $1,358 $990 $-- $2,348
Quarter Ended
December 30, 2006
Inter- Elimi-
U.S. national nations Total
Net sales $51,772 $5,929 $-- $57,701
Gross profit (loss) 19,562 846 22 20,430
Research and development -- 1,704 -- 1,704
Impairment of goodwill &
long-lived assets -- 18,540 -- 18,540
Other selling, general &
administrative 12,464 3,392 -- 15,856
Income (loss) from operations 4,017 (23,433) 22 (19,394)
Depreciation and amortization $1,378 $1,518 $-- $2,896
Year Ended
December 31, 2005
Inter- Elimi-
U.S. national nations Total
Net sales $219,559 $19,585 $(1,194) $237,950
Gross profit 86,438 2,496 (250) 88,684
Research and development 103 3,066 -- 3,169
Impairment of goodwill &
long-lived assets -- -- -- --
Other selling, general &
administrative 42,494 7,567 -- 50,061
Income (loss) from operations 15,389 (9,405) (250) 5,734
Depreciation and amortization $4,988 $3,932 $-- $8,920
Year Ended
December 30, 2006
Inter- Elimi-
U.S. national nations Total
Net sales $227,868 $20,808 $-- $248,676
Gross profit 88,928 2,239 275 91,442
Research and development 10 6,047 -- 6,057
Impairment of goodwill &
long-lived assets -- 18,540 -- 18,540
Other selling, general &
administrative 49,508 12,606 -- 62,114
Income (loss) from operations 21,903 (36,389) 275 (14,211)
Depreciation and amortization $5,472 $4,999 $-- $10,471
1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
(in thousands)
(unaudited)
ASSETS
December 31, December 30,
2005 2006
CURRENT ASSETS:
Cash $1,481 $2,737
Accounts receivable, net 3,451 3,577
Inventories, net 21,458 24,325
Deferred income taxes 1,624 1,886
Other current assets 5,530 4,641
Total current assets 33,544 37,166
PROPERTY, PLANT AND EQUIPMENT, net 29,705 27,555
DEFERRED INCOME TAXES 1,087 898
GOODWILL 35,405 22,304
DEFINITE-LIVED INTANGIBLE ASSETS, net 13,847 11,500
OTHER ASSETS 1,357 1,102
Total assets $114,945 $100,525
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 1,633 2,633
Current portion of capital lease
obligations 58 57
Accounts payable and accrued liabilities 24,126 24,904
Total current liabilities 25,817 27,594
LONG-TERM LIABILITIES:
Line of credit 23,746 29,970
Long-term debt, net of current portion 6,440 4,404
Capital lease obligations, net of
current portion 83 35
Other long-term liabilities 1,642 844
Total long-term liabilities 31,911 35,253
STOCKHOLDERS' EQUITY 57,217 37,678
Total liabilities and
stockholders' equity $114,945 $100,525
SOURCE 1-800 CONTACTS, INC.
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Related links:
http://www.1800contacts.com
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CONTACT:
Brian W. Bethers, President, or Robert G.
Hunter, CFO, both of 1-800 CONTACTS, INC., +1-801-316-5000,
investors@contacts.com
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