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STAAR Surgical Reports Second Quarter Results; Revises Guidance for 2002

  • 2002-07-25
  • Press release
MONROVIA, Calif., Jul 25, 2002 /PRNewswire-FirstCall via COMTEX/ --

U.S. Sales lower than expected as Company meets or exceeds other benchmarks

STAAR Surgical Company (Nasdaq: STAA) today reported results for its second quarter ended June 28, 2002. Revenues were $12.1 million, which compare to revenues of $12.9 million for the second quarter of 2001 and $11.7 million for the first quarter of 2002.

The Company reported a net loss for the second quarter of 2002 of $3.9 million or $0.23 per share, including non-recurring charges of $1.2 million. In the second quarter of 2001, the Company had a net loss of $4.2 million or $0.25 per share, including a $2.0 million charge for excess and obsolete inventory and a $3.6 million charge for failed products.

The non-recurring charges taken during the quarter of $1.2 million were the result of subsidiary closures and were primarily related to the recognition of deferred losses resulting from the translation of foreign currency statements into U.S. dollars (previously included in equity in the balance sheet in accordance with Financial Accounting Standard-52). Since the charges had been included in equity their subsequent recognition, while impacting retained earnings, had no impact on total stockholders' equity.

For the six months ended June 28, 2002, revenues were $23.8 million, compared to revenues of $25.9 million for the six months of 2001. The Company reported net losses of $4.9 million or $0.29 per share for the first half of 2002 and $4.4 million or $0.26 for the first half of 2001.

Revenues for the quarter decreased over prior year by $802,000 or 6.2%. The decrease in revenues is primarily the result of decreased unit volume and ASP declines of Intraocular Lenses (IOLs) in North America and planned changes in European distribution which improved profitability partially offset by increased sales of Implantable Contact Lenses (ICLs), Aquaflow Glaucoma Devices, STAARVisc viscoelastic, and the Sonic WAVE(TM) phacoemulsification system.

David Bailey, STAAR Surgical CEO and President said that slower than anticipated sales in the U.S. market is the primary reason for the lower than expected revenues, which had an adverse impact on the quarter's bottom line. "Management has been working on this issue for sometime and has recruited an experienced sales and marketing manager for the U.S. and Canada," Bailey said. "Nick Curtis has a strong background in the cataract and refractive surgery market needed to turn our U.S. sales around. He will join our team in August and oversee the launch of the new products."

In the international markets, sales of the ICL in the first half increased 55 percent and increased 33 percent over the second half of 2001. "We are seeing strong interest and growing sales of this flagship product," Bailey said. "We expect this trend to continue fueled by new approvals in Asia."

Clinical trials of the ICL in Japan will begin this quarter. CanonSTAAR Co. Inc., the Company's joint venture partner, has already submitted a file for the approval of Collamer material in Japan. "The technology transfer to our joint venture partner remains well ahead of schedule," Bailey said.

Cost of sales for the second quarter increased to more than 50 percent of revenues because of higher unit costs of inventory manufactured last year during a period of lower manufacturing volumes. The Company has sold most of this high cost inventory and expects to see significant improvement in gross profit over the rest of the year.

Operating expenses for the second quarter of 2002 increased over the second quarter last year by $120,000 or 1.4% and decreased during the six months 2002 over last year by $567,000 or 3.3%. This improvement in operating expenses for the six months was achieved despite a $1.2 million non- cash charge taken during the quarter and described above related to closures of two international subsidiaries. Absent the impact of the $1.2 million charge, operating expenses decreased over the three and six months of 2001 by $1.1 million or 12.4% and $1.8 million or 10.5%, respectively.

The improvement in operating expenses (excluding non-recurring charges) was primarily in the area of sales and marketing. Sales and marketing expenses decreased over the quarter and year of 2001 by $1.1 million or 19.5% and $2.2 million or 20.4%, respectively. The improvement is due to the cost savings the Company has realized as a result of subsidiary closures in the previous year and cost containment measures taken which have reduced overall spending in the U.S.

During the quarter, STAAR Surgical completed the sale of its South African affiliate to an established distributor. This will reduce operating expenses and allow us to retain the expertise of the employees who have transitioned to the acquiring company. By selling the business we were able to limit our exposure to the recognition of deferred losses previously mentioned. The Company also completed the closure of its Swedish affiliate with minimal non- cash impact and expects to close its Canadian affiliate in fourth quarter without a material financial impact. "These steps will complete the geographic contraction announced as part of our strategic plan in July of 2001," Bailey said.

Other expense for the quarter and year to date increased approximately $524,000 over the same periods of 2001 as a result of exchange losses on Swiss Franc denominated debt and decreased interest income.

Due to the Company's near term inability to realize its deferred tax assets, the Company has adopted a more prudent accounting policy as previously disclosed and recorded no income tax benefits in 2002 on current U.S. losses. The Company did record a tax benefit in the first quarter this year associated with a change in U.S. tax law. The change enabled the Company to carryback portions of its 2000 and 2001 losses to offset tax liability for earnings in 1996, 1997, and 1998. The refund claim for approximately $959,000 was filed in the second quarter and the refund is expected in the third quarter of this year. Income tax benefits were approximately $3.0 million or $0.18 per share in the second quarter of 2001.

Cash decreased during the six months ended June 28, 2002 by approximately $238,000. This decrease was primarily due to a decision to pay an insurance policy in full rather than finance it and due to payments made to the Company's domestic lender in consideration for renewal of its line of credit. These one-time payments totaled $519,000 during the quarter.

During the quarter ended June 28, 2002, the Company was not in compliance with certain restrictive covenants of it loan agreement with its domestic lender resulting in a renegotiation of the agreement. The new agreement provides for a release of restricted cash of $2.0 million to pay down the note and reduces the loan amount from $7.0 million to $4.5 million. The agreement also provides for additional loan reductions of $1.0 million through February 2003. There was no change in term, collateral or pricing; however, certain restrictive covenants were eliminated or relaxed. The balance outstanding under the note at June 28, 2002 was approximately $4.8 million. The Company has reviewed its cash requirements over the next nine months. It anticipates that the credit available will be sufficient to meet its needs while it seeks additional or new financing.

Due to the lower than expected revenues in the first half of 2002, the Company is revising its revenues and earnings guidance. The Company currently expects 2002 to approximate its 2001 revenues, and a net loss less than half its net loss in 2001.

"We have hit or surpassed many of our other benchmarks particularly with regards to the ICL," Bailey commented. "We have resumed the manufacture of our 3-piece Collamer(TM) IOL one month ahead of schedule and have accelerated the rollout of our new lens cartridge. The new R+D and manufacturing teams have done a tremendous job to roll out these critical products ahead of schedule. In addition, the first two phases of our ICL submission have been reviewed by the FDA and are considered closed, a new head of U.S. and Canadian sales has been appointed and new products will strengthen our foldable IOL position in the U.S. and give us significant upside potential."

Bailey concluded, "We are using up our high priced IOL inventory as expected and will see rising margins in this segment over the second half of 2002. June alone saw margins increase by a clear seven points versus the rolling five month average for 2002. This combined with sales increases in the higher margin AquaFlow and ICL product lines should allow us to exit the year with significantly higher gross margins."

Founded in 1982, STAAR Surgical Company develops, manufactures and globally distributes medical devices for use in refractive, cataract and glaucoma surgery. The Company's five product lines include silicone and Collamer(TM) foldable intraocular lenses and the Sonic WAVE(TM) phacoemulsification system, all of which are used during cataract surgery, the ICL(TM) (implantable contact lens) which is a refractive lens for the treatment of near- and far-sightedness and the AquaFlow(TM) Collagen Glaucoma Drainage Device. Regulatory approvals vary from market to market with all products except the Toric ICL(TM) available in Europe and all except the ICL(TM) in the United States.

For additional information about STAAR Surgical, visit the Company's web site at or . You may wish to contact David Bailey, President, STAAR Surgical, or John Bily, Chief Financial Officer, STAAR Surgical, at (626) 303-7902. To contact Bill Roberts, President, CTC, Inc., or Wayne Buckhout, CTC Inc., please call (937) 434-2700

This press release contains forward-looking statements that involve risks, uncertainties and assumptions that if they never materialize or prove incorrect, could cause STAAR Surgical Company's results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenue, or other financial items, any statements of the plans, strategies, and objectives of management for future operations, any statements concerning proposed new products, services or developments, any statements regarding future economic conditions or performance, statements of belief and any statements of assumptions underlying any of the foregoing. These statements are based on expectations as of the date of this press release. Actual results may differ materially from those projected because of a number of risks and uncertainties, including those detailed from time to time in STAAR Surgical Company's reports filed with the Securities and Exchange Commission. STAAR Surgical Company assumes no obligation and does not intend to update these forward-looking statements.

    STAAR Surgical Company
    Condensed Consolidated Statements of Income
    (In 000's except for per share data)
                                         Three Months Ended Six Months Ended

                                          June 28, June 29, June 28, June 29,
                                            2002     2001     2002     2001

      Sales                               $12,008  $12,780  $23,639  $25,684
      Royalties                                80      110      180      208
         Total revenues                    12,088   12,890   23,819   25,892

         Total cost of goods sold           6,064   11,025   12,083   16,205

    Gross profit                            6,024    1,865   11,736    9,687

      General and administrative            2,298    2,355    4,699    4,614
      Marketing and selling                 4,500    5,587    8,502   10,679
      Research and development                977      937    2,054    1,754
      Restructuring, impairment, and non-
       recurring charges                    1,225        0    1,225        0

         Total selling, general and
          administrative expenses:          9,000    8,879   16,480   17,047

    Operating loss                         (2,976)  (7,014)  (4,744)  (7,360)

    Total other expense                      (575)     (53)    (694)    (158)

    Loss before income taxes               (3,551)  (7,067)  (5,438)  (7,518)

    Income tax provision (benefit)            304   (2,915)    (627)  (3,181)

    Minority interest                          54       25       95       69

    Net loss                              ($3,909) ($4,177) ($4,906) ($4,406)

    Net loss per share                     ($0.23)  ($0.25)  ($0.29)  ($0.26)

    Weighted average shares outstanding    17,163   16,954   17,161   16,953

    STAAR Surgical Company
    Condensed Consolidated Balance Sheet
    (in 000's)

                                                   June 28,       December 28,
                                                     2002             2001

    Current assets                                 $33,153           $35,441
    Total assets                                    62,436            65,805

    Current liabilities                             18,345            18,661
    Total liabilities                               18,648            18,977
    Stockholders' equity - net                      43,412            46,446
    Total liabilities and equity                   $62,436           $65,805

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SOURCE STAAR Surgical Company

CONTACT:          David Bailey, President, or John Bily, Chief Financial Officer
                  of STAAR Surgical, +1-626-303-7902; or Bill Roberts, President, or Wayne
                  Buckhout of CTC Inc., +1-937-434-2700

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