DRAPER, Utah, July 30 /PRNewswire-FirstCall/ --
1-800 CONTACTS, INC. (Nasdaq: CTAC), today reported results for the second
quarter ended June 29, 2002 and announced the acquisition of IGEL Visioncare,
a manufacturer of contact lenses.
(Photo: http://www.newscom.com/cgi-bin/prnh/19990917/1800CONTACTS )
Net sales for the second quarter ended June 29, 2002 were $42.2 million,
compared to $44.2 million for the same period last year. Net income for the
second quarter of 2002 was $1.0 million, or $.09 per diluted share, versus
$3.3 million, or $.28 per diluted share, in the second quarter of 2001.
During the second quarter of 2002, repeat sales increased 11 percent over
the same period in the prior year to $34.2 million, which represented
81 percent of total net sales. Internet sales were $16.5 million, or
39 percent of total net sales for the second quarter of 2002, compared to
$17.1 million, or 39 percent of total net sales, during the prior year period.
For the two quarters ended June 29, 2002, net sales were $83.8 million,
compared to $87.0 million for the two quarters ended June 30, 2001. Net
income for the first two quarters of 2002 was $2.9 million, or $.25 per
diluted share, compared to $5.7 million, or $.48 per diluted share, for the
first two quarters of last year.
Scott Tanner, Chief Operating Officer, commented, "Sales continue to be
affected by reduced advertising, which has been part of our ongoing effort to
manage demand for Johnson & Johnson products as a result of their continued
refusal to sell to us. We spent about 60% less on national advertising this
quarter compared to the second quarter of 2001. While this has primarily
impacted new sales, repeat sales continue to be very strong, increasing more
than $3 million from the prior year quarter -- a testament to our strong
business model and loyal customer base. Efforts to overcome the
anticompetitive barriers in the industry cost the Company approximately
$2.5 million during the quarter.
"Beginning in December, we began offering higher wholesale prices for J&J
products in an effort to obtain more inventory. During the second quarter, we
saw the wholesale market's reaction to this offer. Although we did have to
pass a portion of this price increase through to our customers and operated
during the quarter at near breakeven on J&J products, these higher wholesale
prices did have the desired effect of increasing supply and allowed us to
continue to fill nearly every order we received. We took advantage of this
additional supply and increased our J&J inventory to over $30 million today.
We expect this inventory to decline as we have reduced the volume we are
buying and recently dropped the wholesale prices we are offering.
Acquisition of Contact Lens Manufacturer
On July 24, 2002, 1-800 CONTACTS acquired IGEL, a contract manufacturer of
contact lenses based in Singapore. The transaction was accomplished as an
asset purchase and included the acquisition of the key assets -- principally a
long-term leasehold interest in the manufacturing facility, equipment,
inventories, and certain intellectual property rights, including patents key
to the operation. The consideration paid includes approximately $5 million in
cash, $9 million in assumed building and business loans to be paid over the
next 7 years, a $2 million note to be paid over the next 5 years,
700,000 shares of restricted Company stock, and 270,000 stock options in three
tranches of 90,000 each with exercise prices of $15, $25 and
$35, respectively. The 700,000 shares of stock are held in escrow, subject to
a performance guarantee, and vest over a two year schedule with no shares
released from escrow for a minimum of one year. 1-800 CONTACTS financed this
asset purchase by obtaining a $10 million, five-year term loan from its
current lender.
Jonathan Coon, Chief Executive Officer, stated, "We have been working on
this transaction for quite some time and are excited about the opportunities
it will provide. We met with contact lens manufacturers and industry experts
in Japan, Korea, Taiwan, Singapore, Germany, and the UK -- and reviewed
numerous possibilities before making this decision. Our goal was to find a
manufacturer that makes FDA approved lenses, produces lenses preferred to the
leading brands of two-week disposables, has enough capacity to serve our
needs, and has the ability to create innovative new products in the future.
"IGEL is an innovative manufacturer of high quality, FDA-approved contact
lenses with the capacity to produce 30 to 40 million lenses annually -- enough
to service nearly one million two week disposable contact lens wearers.
IGEL's Singapore-based facility has historically done contract manufacturing
for contact lens companies and retailers around the world. IGEL currently
produces two week disposable lenses for a major global manufacturer to its
exacting specifications and quality standards. Clinical trials publicized by
this manufacturer show that IGEL's lenses are preferred to the top two brands
of two-week disposable contacts for visual clarity, comfort, handling, and
overall preference. This result is due in large part to the proprietary
technology developed by IGEL's chief scientist and CEO, Stephen D. Newman.
"We are excited to add the talented and committed individuals from IGEL to
our team -- especially Steve Newman. With more than 20 years of experience
designing and producing contact lenses, Mr. Newman has received various awards
and patents for both contact lens design and manufacturing. Mr. Newman began
his career at Hydron (now part of Ocular Sciences) where he rose through all
levels of production and management to become National Research and
Development Director. Mr. Newman joined IGEL in 1997 and is largely
responsible for upgrading the company's systems to FDA standards and
automating the company's production lines.
"Last year we learned that we can play a much more active role in helping
customers avoid doctor-exclusive brands and the doctors who prescribe them by
offering these customers a choice of eye care providers and alternative
products. Combining both the retail and wholesale gross margin through
vertical integration with IGEL gives us the flexibility to make a variety of
offers to our customers and control of production and inventory.
"After our switching program last year, the court in Jacksonville granted
J&J a preliminary injunction that restricted our ability to make certain
statements about Johnson and Johnson products and its practices. Just
yesterday, this injunction was completely dissolved by the U.S. 11th circuit
court of appeals. The appellate court found that the statements we made were
not false and that Johnson and Johnson had failed to offer any proof that
consumers were mislead. The appellate court further determined that the
district court's grant of the preliminary injunction was in error.
"During the next two quarters, we will be testing new lens and packaging
designs and putting marketing programs and a referral network in place. We
expect to complete these projects before year end and to begin national
marketing of lenses made by our new manufacturing subsidiary by the first
quarter of next year.
"Our first preference is to sell the customer the lens she is already
wearing. In cases where manufacturers or optometrists stand in the way of the
customer's choice to purchase from us, we will offer the customer the
opportunity to try an alternative eye care provider and an alternative
product. We will continue to invest in efforts to address the anti-consumer
practices endorsed by some participants in our industry. At the same time, we
believe that being vertically integrated will ensure that we are always able
to provide a high quality, cost effective product to our customers."
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.contacts.com , the Company sells all of the popular brands of contact
lenses. High volume, cost-efficient operations enable 1-800 CONTACTS to offer
products at competitive prices while delivering a high level of customer
service.
This news release contains forward-looking statements about the Company's
future business prospects. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
set forth in or implied by such forward-looking statements. Factors that may
cause future results to differ materially from the Company's current
expectations include, among others: general economic conditions, the health of
the contact lens industry, inventory acquisition and management, manufacturing
issues, integration of IGEL, exchange rate fluctuations, advertising spending
and effectiveness, and regulatory considerations.
Company News On Call: http://www.prnewswire.com/comp/109239.html or fax
800-758-5804, ext. 109239
1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
Quarter Ended Two Quarters Ended
June 30, June 29, June 30, June 29,
2001 2002 2001 2002
NET SALES $44,197 $42,233 $87,014 $83,814
COST OF GOODS SOLD 26,242 29,803 51,776 58,697
Gross profit 17,955 12,430 35,238 25,117
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Advertising expense 7,267 3,890 15,531 6,609
Legal and professional fees 483 1,140 909 2,400
Other selling, general and
administrative expenses 4,833 5,523 9,375 10,914
Total selling, general
and administrative
expenses 12,583 10,553 25,815 19,923
INCOME FROM OPERATIONS 5,372 1,877 9,423 5,194
OTHER INCOME (EXPENSE), net 33 (193) (171) (323)
INCOME BEFORE PROVISION
FOR INCOME TAXES 5,405 1,684 9,252 4,871
PROVISION FOR INCOME TAXES (2,082) (681) (3,599) (1,928)
NET INCOME $3,323 $1,003 $5,653 $2,943
PER SHARE INFORMATION:
Basic net income
per common share $0.29 $0.09 $0.49 $0.26
Diluted net income
per common share $0.28 $0.09 $0.48 $0.25
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES:
Basic 11,575 11,382 11,576 11,451
Diluted 11,782 11,506 11,792 11,564
1-800 CONTACTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
ASSETS
December 29, June 29,
2001 2002
CURRENT ASSETS:
Cash and cash equivalents $36 $26
Inventories 43,000 49,450
Deferred income taxes 985 1,056
Prepaid income taxes -- 699
Other current assets 1,019 1,038
Total current assets 45,040 52,269
PROPERTY AND EQUIPMENT, net 3,309 3,595
DEFERRED INCOME TAXES 439 541
INTANGIBLE ASSETS, net 1,544 1,320
OTHER ASSETS 73 1,165
Total assets $50,405 $58,890
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $12,526 $19,067
Income taxes payable 141 --
Accounts payable and accrued liabilities 13,985 15,290
Total current liabilities 26,652 34,357
STOCKHOLDERS' EQUITY 23,753 24,533
Total liabilities and stockholders' equity $50,405 $58,890
SOURCE 1-800 CONTACTS, INC.
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Related links:
http://www.1800contacts.com
Company News On-Call:
http://www.prnewswire.com/comp/109239.html
Photo Notes:
NewsCom: http://www.newscom.com/cgi-bin/prnh/19990917/1800CONTACTS
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, +1-888-776-6555 or +1-212-782-2840
CONTACT:
Jonathan C. Coon, Chief Executive Officer,
+1-801-924-9800, or Scott S. Tanner, Chief Operating Officer,
+1-801-924-9802, investors@contacts.com, both of 1-800 CONTACTS,
INC.
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