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
http://www.newscom.com/cgi-bin/prnh/20040107/LACONTACTSLOGO
http://photoarchive.ap.org/ DATASOURCE: 1-800 CONTACTS, INC.
CONTACT: Brian W. Bethers, President, or Robert G. Hunter, CFO,
both of 1-800 CONTACTS, INC., +1-801-316-5000, Web site:
http://www.1800contacts.com/
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