Refac (AMEX:REF)
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Refac Optical Group (AMEX: REF) today announced results
for the fiscal second quarter and six months ended July 31, 2006.
The Company reported a net loss for the three months ended July
31, 2006, of $846,000, or $0.05 per diluted share, compared with a net
loss of $324,000, or $0.02 per diluted share, for the prior year
period. The net loss from continuing operations was $1.06 million, or
$0.06 per diluted share, for the second quarter of fiscal 2006,
compared with a net loss from continuing operations of $443,000, or
$0.03 per diluted share, for the prior year period.
To provide a better understanding of core retail optical results
and trends, the Company also reported adjusted financial results,
which are non-GAAP financial measures. The adjusted operating loss
from continuing operations was $773,000 for the second quarter of
2006, compared with $358,000 for the prior year period. The $415,000
increase is primarily the result of an increase in selling, general
and administrative expenses due to new store openings, increased
advertising to offset decreased vision care sales and higher variable
costs partially offset by an increase in gross profit due to higher
sales. A reconciliation of non-GAAP financial measures to results
reported in accordance with GAAP is attached to this release.
Total revenues for the three months ended July 31, 2006, increased
to $44.5 million from $43.2 million for the prior year. This increase
was principally attributable to a $1.3 million increase in retail
product sales and a $539,000 increase in services offset by a $577,000
decrease in intellectual property licensing-related revenues and other
non-recurring income.
Commenting on the fiscal second quarter results, J. David Pierson,
president and chief executive officer of Refac Optical Group, said,
"We are pleased that we were able to increase revenues despite a $1.0
million decline in sales attributable to our managed vision care
plans. In an effort to remedy this situation going forward, we reached
an agreement in principle during the second quarter with EyeMed Vision
Care, a leading managed vision care company, pursuant to which our
U.S. Vision subsidiary will become a participating provider in the
EyeMed Access and Select plans. We are very excited about this
relationship and its considerable potential to drive sales growth and
profitability for the Company and to support U.S. Vision's expansion
initiatives."
During the fiscal second quarter, the Company announced that it
had completed its previously announced sale of its managed vision
business to a wholly owned subsidiary of Centene Corporation (NYSE:
CNC) for $8.9 million subject to certain additional post-closing
adjustments. The Company recorded a gain on disposal of $85,000,
including income tax expense of approximately $393,000.
Six Months Ended July 31, 2006
The Company reported net income for the six months ended July 31,
2006, of $663,000, or $0.04 per diluted share, compared with $3.0
million, or $0.18 per diluted share, for the prior year period. Net
income from continuing operations was $85,000, or $0.01 per diluted
share, for the first half of fiscal 2006, compared with net income
from continuing operations of $2.5 million, or $0.15 per diluted
share, for the prior year period.
For the six months ended July 31, 2006, adjusted operating income
from continuing operations was $1.6 million for the first half of
2006, compared to $1.2 million for the prior year period. The $400,000
improvement is primarily the result of increases in optical related
revenues.
Total revenues for the six months ended July 31, 2006, increased
to $92.3 million from $89.8 million for the prior year. This increase
was principally attributable to a $3.9 million increase in retail
product sales and a $1.2 million increase in services offset by a $2.6
million decrease in intellectual property licensing-related revenues
and other non-recurring income and was achieved despite a $2.7 million
decline in sales attributable to its managed vision care plans.
Pierson continued, "After a 25 year relationship, JCPenney is not
only our most important brand but also represents our most promising
expansion opportunity. We are encouraged by JCPenney's recent
announcement that it plans to open about 50 new stores per year
beginning in 2007, primarily off-mall, and that on a long-term basis
it has identified up to 400 opportunities for new stores, relocations
or expansions.
"We are continuing to develop and improve our new Macy's fashion
optical departments and plan on opening two new locations in October.
These new optical departments will relocate to higher traffic
locations within Macy's and will incorporate a new modern fashion look
and feel. We opened our first fashion optical department a year ago
and, including these two new additions, we will now have 12 such
departments, all of which are operating under the Macy's brand,
thereby establishing us a leader in this emerging category."
In conclusion, Pierson stated, "We are pleased with the continued
progress in integrating our two core businesses, U.S. Vision and
OptiCare. While we are hard at work managing costs and introducing
operational enhancements, we are also actively seeking acquisitions
that will complement our existing business and provide the Company
with a more diversified portfolio of retail stores."
After the end of the fiscal second quarter, the Company announced
an extension in the expiration date for the exercise of the
non-transferable payment right granted to qualifying stockholders in
connection with its February 28, 2003, merger with a wholly owned
subsidiary of Palisade Concentrated Equity Partnership, L.P. The
expiration date has been extended for one year from September 30, 2006
to September 30, 2007.
In addition, on September 8, 2006, the Company's Board of
Directors appointed Carmen J. Nepa, III to serve as the Company's
chief accounting officer and principal accounting officer. Mr. Nepa,
age 40, has served as the Company's corporate controller since May 10,
2006. In addition, he has served as the chief financial officer of
U.S. Vision since he joined U.S. Vision in October 2001 and as U.S.
Vision's executive vice president since October 31, 2002. From
December 1987 to October 2001, Mr. Nepa was a senior manager with
Ernst & Young, LLP, U.S. Vision's independent registered accounting
firm prior to March 2006 and the Company's independent registered
accounting firm since May 2006. He is a Certified Public Accountant.
Reconciliation of Non-GAAP Financial Measures
This news release and the attached table include non-GAAP
financial measures as defined in the Securities and Exchange
Commission's Regulation G. Where noted, financial information is
presented on an adjusted basis to exclude the effect of certain items
as described herein. By presenting adjusted results, management
intends to provide investors with a better understanding of the core
results and underlying trends from which to consider past performance
and prospects for the future.
Users of this financial information should consider the types of
events and transactions for which adjustments have been made. The
adjusted information should not be considered in isolation or viewed
as a substitute for or superior to net income or other data prepared
in accordance with GAAP as measures of the Company's operating
performance or liquidity. In addition, the adjusted information is not
necessarily comparable to similarly titled measures provided by other
companies.
Pursuant to the requirements of Regulation G, a table follows that
reconciles non-GAAP financial measures, including those presented in
this release, to the most directly comparable GAAP measures.
About Refac Optical Group
Refac Optical Group, a leader in the retail optical industry and
the sixth largest retail optical chain in the United States, operates
533 retail locations in 47 states and Canada, consisting of 510
licensed departments, five freestanding stores, 18 eye health centers
and professional optometric practices, two surgery centers, one of
which is a laser correction center, and two manufacturing
laboratories. Of the 510 licensed departments, 349 are located at
JCPenney stores, 63 at Sears, 29 at Macy's and Marshall Field's
department stores, 26 at Boscov's department stores, and 30 at The
Bay. These licensed departments are full-service retail vision care
stores that offer an extensive selection of designer brands and
private label prescription eyewear, contact lenses, sunglasses,
ready-made readers and accessories.
On March 6, 2006, the Company completed its acquisitions of U.S.
Vision, Inc. and OptiCare Health Systems, Inc., and on May 10, 2006,
the Company's Board of Directors approved a change in the Company's
fiscal year-end from December 31 to January 31. The quarter ended
April 30, 2006 was the first quarter in which Refac Optical Group,
U.S. Vision and OptiCare reported as a combined company. The financial
results reported herein include consolidated financial results for all
three companies for all periods presented with the quarterly results
for the fiscal year ended January 31, 2006, reflecting the prior 2005
fiscal periods for the Company and OptiCare.
Cautionary Statement Regarding Forward-Looking Statements
This news release includes certain statements of the Company that
may constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, and which are made
pursuant to the Private Securities Litigation Reform Act of 1995.
These forward-looking statements and other information relating to the
Company are based upon the beliefs of management and assumptions made
by and information currently available to the Company. Forward-looking
statements include statements concerning plans, objectives, goals,
strategies, future events, or performance, as well as underlying
assumptions and statements that are other than statements of
historical fact. When used in this document, the words "expects,"
"anticipates," "estimates," "plans," "intends," "projects,"
"predicts," "believes," "may" or "should," and similar expressions,
are intended to identify forward-looking statements. These statements
reflect the current view of the Company's management with respect to
future events. Many factors could cause the actual results,
performance or achievements of the Company to be materially different
from any future results, performance, or achievements that may be
expressed or implied by such forward-looking statements. Investors are
cautioned that all forward-looking statements involve those risks and
uncertainties detailed in the Company's filings with the Securities
and Exchange Commission, including its Annual Report on Form 10-K for
the fiscal year ended December 31, 2005. Forward-looking statements
speak only as of the date they are made and the Company undertakes no
duty or obligation to update any forward-looking statements in light
of new information or future events.
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REFAC OPTICAL GROUP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
For the Three Months For the Six Months
Ended July 31, Ended July 31,
------------------ ------------------
2006 2005 2006 2005
-------- ------- -------- --------
Net revenues:
Product sales $38,764 $37,447 $81,182 $77,238
Services 5,630 5,091 10,945 9,771
Licensing related activities 50 173 105 1,968
Other 45 499 75 861
-------- -------- -------- --------
Total revenues 44,489 43,210 92,307 89,838
Operating expenses:
Cost of product sales 12,933 12,246 25,593 24,240
Cost of services 2,179 1,957 4,181 3,703
Selling, general
and administrative 28,478 27,135 57,591 54,713
Merger expense 40 249 587 251
Loss on early
extinguishment of debt 157 -- 301 --
Depreciation and amortization 1,663 1,693 3,344 3,310
-------- -------- -------- --------
Total operating expenses 45,450 43,280 91,597 86,217
-------- -------- -------- --------
Operating income (loss) (961) (70) 710 3,621
Other income (expense):
Dividends and interest income 369 260 679 452
Interest expense (464) (592) (945) (1,213)
-------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes and minority interest (1,056) (402) 444 2,860
Minority interest expense -- 43 245 279
Provision (benefit) for
income taxes -- (2) 114 34
-------- -------- -------- --------
Income (loss) from
continuing operations (1,056) (443) 85 2,547
Income from discontinued
operations, net of taxes
and minority interest 210 119 578 405
-------- -------- -------- --------
Net income (loss) $(846) $(324) $663 $2,952
======== ======== ======== ========
Earnings (loss) per share:
Basic:
Continuing operations $(0.06) $(0.03) $0.01 $0.15
Discontinued operations 0.01 0.01 0.03 0.03
-------- -------- -------- --------
Net income (loss) $(0.05) $(0.02) $0.04 $0.18
======== ======== ======== ========
Diluted:
Continuing operations $(0.06) $(0.03) $0.01 $0.15
Discontinued operations 0.01 0.01 0.03 0.03
-------- -------- -------- --------
Net income (loss) $(0.05) $(0.02) $0.04 $0.18
======== ======== ======== ========
Weighted average
shares outstanding:
Basic 18,015 16,494 17,770 16,493
Diluted 18,015 16,494 18,096 16,507
REFAC OPTICAL GROUP
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
July 31, Jan. 31,
2006 2006
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $5,210 $10,129
Accounts receivable, net of allowances for
doubtful accounts of $304 and $220 at
July 31, 2006 and January 31, 2006, respectively 9,553 10,676
Investments being held to maturity 30,286 24,229
Inventories 19,321 20,205
Prepaid expenses and other current assets 1,348 1,262
Assets held for sale -- 2,092
-------- --------
Total current assets 65,718 68,593
Property and equipment, net 32,407 34,544
Restricted cash and investments
being held to maturity 5,158 4,849
Licensed optical department agreements 17,367 14,856
Goodwill 6,136 4,746
Other intangibles, net 280 300
Assets held for sale, non-current -- 5,384
Other assets 798 1,247
-------- --------
Total assets $127,864 $134,519
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $7,489 $8,627
Accrued expenses 6,628 8,958
Accrued salaries and related expenses 1,291 1,783
Customer deposits 3,423 3,358
Deferred revenue 3,240 3,174
Current portion of capital lease obligations 679 724
Current portion of long-term debt 1,506 4,926
Liabilities of business held for sale -- 3,991
Other current liabilities 894 940
-------- --------
Total current liabilities 25,150 36,481
Capital lease obligations, net of current portion 1,058 1,372
Long-term debt, net of current portion 2,792 3,378
Revolving line of credit 13,809 14,983
Subordinated debt 9,000 10,000
Other long-term liabilities 314 389
Minority interest -- 3,943
Temporary equity 4,158 4,849
Stockholders' equity:
Common stock, $0.001 par value; 25,000,000
shares authorized; 17,848,472 and 16,484,335
shares outstanding at July 31, 2006 and
January 31, 2006, respectively 18 16
Additional paid-in capital 97,526 85,002
Treasury stock, at cost; 171,525 and 88,223
shares at July 31, 2006 and January 31, 2006,
respectively (1,430) (738)
Unearned compensation -- (89)
Accumulated deficit (24,223) (24,759)
Receivable from issuance of common stock (308) (308)
-------- --------
Total stockholders' equity 71,583 59,124
-------- --------
Total liabilities and stockholders' equity $127,864 $134,519
======== ========
REFAC OPTICAL GROUP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
For the Six Months
Ended July 31,
------------------
2006 2005
-------- --------
Cash flows from operating activities:
Net income $663 $2,952
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,401 3,531
Stock-based compensation 219 9
Gain on sale of managed vision business (85) --
Loss on disposal of fixed assets 178 17
Minority interest 278 351
Amortization of debt issue costs 221 70
Amortization of discount on securities (574) (416)
Other -- (71)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable 1,299 272
Inventories 909 (950)
Prepaid expenses and other assets (353) 129
Accounts payable and accrued expenses (3,690) (2,968)
Deferred revenue and customer deposits 159 870
Assets and liabilities of business
held for sale -- (42)
Other current liabilities (466) (185)
-------- --------
Net cash provided by operating activities 2,159 3,569
Cash flows from investing activities:
Purchase of investments being held
to maturity, net (2,177) (353)
Payments received on notes receivable 359 102
Expenditures for property and equipment (1,386) (1,824)
Investments in acquisitions,
net of cash acquired (20) (150)
Proceeds from sale of businesses,
net of cash sold 6,306 3,451
Purchase of restricted certificates of deposit -- (204)
-------- --------
Net cash provided by investing activities 3,082 1,022
Cash flows from financing activities:
Net payments on revolving line of credit (1,502) (5,839)
Principal payments on long-term debt
and capital leases (2,506) (2,358)
Principal payments on subordinated debt (1,000) (171)
Purchase of treasury stock (681) --
Proceeds from issuance of preferred stock -- 4,445
Proceeds from issuance of common stock -- 528
Other (29) 142
-------- --------
Net cash used in financing activities (5,718) (3,253)
-------- --------
Net increase (decrease) in cash
and cash equivalents (477) 1,338
Cash and cash equivalents
at beginning of period 5,687 4,298
Cash and cash equivalents
included in assets held for sale -- (933)
-------- --------
Cash and cash equivalents at end of period $5,210 $4,703
======== ========
Supplemental disclosures:
Cash paid for interest $946 $1,196
======== --------
Cash paid for income taxes $187 $76
======== ========
Non-cash transactions:
Property and equipment financed through
capital leases and other indebtedness $63 $352
======== ========
Issuance of common stock in exchange
for minority interest $11,804 $--
======== ========
REFAC OPTICAL GROUP
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Amounts in thousands)
(Unaudited)
For the Three Months For the Six Months
Ended July 31, Ended July 31,
------------------ ------------------
2006 2005 2006 2005
-------- -------- -------- --------
Operating income
(loss) - GAAP basis $(961) $(70) $710 $3,621
Adjustments:
Merger transaction expenses 40 249 587 251
Loss on early extinguishment
of debt 157 -- 301 --
Non-recurring intellectual
property licensing-related
revenues -- (118) -- (1,857)
Non-recurring health services
settlement revenues,
net of expenses (9) (455) (15) (773)
Non-recurring related party
consulting services -- (16) -- (60)
Asset management
search expenses -- 52 -- 52
-------- -------- -------- --------
Adjusted operating income $(773) $(358) $1,583 $1,234
======== ======== ======== ========
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