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STAAR Surgical Reports Third Quarter Results; Revises Guidance for 2002

  • 2002-10-31
  • Press release
MONROVIA, Calif., Oct 31, 2002 /PRNewswire-FirstCall via COMTEX/ --

Despite lower sales, cash positive quarter provides evidence that fundamentals are gaining strength

STAAR Surgical Company (Nasdaq: STAA) today reported results for its third quarter ended September 27, 2002. Revenues were $11.2 million, which compare to revenues of $12.2 million for the third quarter of 2001 and $12.1 million for the second quarter of 2002.

The Company reported a net loss for the third quarter of $2.1 million, or $0.12 per share. In the third quarter of 2001, the Company reported a net loss of $2.0 million or $0.12 per share, including a reserve of $2.1 million for notes held by STAAR that had been issued to former directors. In the second quarter of 2002 the Company had a net loss of $3.9 million, or $0.23 per share, including charges of $1.2 million for subsidiary closures and recognition of deferred losses from foreign currency translations.

For the nine months ended September 27, 2002, revenues were $35.0 million, compared to revenues of $38.0 million for the first nine months of 2001. The Company reported net losses of $7.1 or $0.41 per share, which included charges of $1.5 million or $0.09 per share, that were primarily related to the recognition of deferred losses resulting from the translation of foreign currency statements into U.S. dollars from subsidiaries that were closed. For the first nine months of 2001, STAAR had a net loss of $6.4 million, or $0.38 per share, which included charges of $7.7 million, or $0.45 per share. The charges primarily consisted of a $2.0 million charge for excess and obsolete inventory, a $3.6 million charge for failed products and a $2.1 million reserve for officer's notes.

Revenues for the third quarter decreased from the prior year quarter by $953,003 or 7.8 percent, compared to the eight percent decline in revenues in the first half of 2002. As in the first half of the year, the decline in sales during the third quarter was due to lower Intraocular Lenses (IOL(TM)) sales in North America, and to a much lesser degree in Latin America. The weakness in IOL sales was partially offset by increased sales of Aquaflow, STAARVisc II, and other cataract products.

David Bailey, STAAR Surgical's CEO and President, said that the third quarter loss is primarily due to slower than anticipated sales in North America, which are down 11 percent in the first three quarters of 2002. "As I have previously told shareholders, we are focused on turning this trend around. Sales of our silicone IOL are slowing the decline, but have not resulted in the increase in market share that we anticipated. Unfortunately, it has taken more time to turn our domestic sales around than we originally thought," Bailey said. "STAAR's new Senior Vice President of Sales & Marketing, Nick Curtis, has made significant headway since he joined the Company at the end of August. He has already accomplished a great deal to turn around our domestic sales, while initiating programs that will prepare the Company for the introduction of the ICL. His strong background in the cataract and refractive surgery market, and his marketing ability are proving to be an invaluable asset to STAAR."

International ICL unit sales for the first nine months were up 33 percent year-over-year on strong sales in the Asia/Pacific market. "We expect ICL growth to accelerate in the fourth quarter as sales pick up following the summer slowdown in Europe and more surgeons in Asia become qualified to implant the ICL," Bailey commented. A second Korean training course was attended by over seventy doctors in October. Thirty of them are expected to begin implanting ICLs by year-end.

Bailey said that the Company's cash flow from operations is gaining strength, despite the lower sales. "Through strict control of inventory, receivables and expenses we were cash positive from operations by $308,000 and had a modest increase in total cash of $48,000 for the third quarter," he stated.

Cost of sales for the quarter was 49.8 percent of revenues, up from 45.0 percent in the same quarter last year, as the company continued to work off its high cost IOL inventory. The Company has sold most of its high cost inventory and expects to see continued improvement in gross profit over the rest of the year.

Operating expenses for the third quarter of 2002 decreased over the third quarter 2001 by $2.2 million, or 23 percent, and decreased $2.8 million, or 11 percent, for the first three-quarters. Charges taken during the nine months of 2002 and 2001 and included in operating expenses were $1.5 million and $2.1 million, respectively.

The improvement in operating expenses was primarily in the area of sales and marketing. Sales and marketing expenses for the three and nine months of 2002 decreased by $444,000 (10.0%) and $2.6 million (17.3%), respectively. The improvement is due to the 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.

As previously disclosed, due to the Company's near term inability to realize its deferred tax assets, the Company has adopted a prudent accounting policy 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 new law enabled the Company to carry back a portion of its 2001 losses to offset the tax liability for earnings in 1996, 1997, and 1998. The refund claim for approximately $959,000 was filed in the third quarter and the Company expected to receive the refund in that quarter. The Internal Revenue Service, however, notified the Company that it would review the refund claim prior to making the payment due to the complexity of the claim. The Company expects to address any questions the IRS has related to the refund claim in the fourth quarter and anticipates receiving the refund shortly thereafter.

During the quarter ended September 27, 2002, the Company was not in compliance with certain restrictive covenants of its loan agreement with its domestic lender, resulting in a renegotiation of the agreement. The restated agreement, effective October 25, 2002, provides for monthly reductions of the loan amount totaling $0.5 million through February 2003 in addition to the $1.0 million required by the agreement of July 31, 2002. The interest rate is prime plus a spread from 1% to 5%, plus a commitment fee of .25% to 1.25% based on the Company's ratio of funded debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) at each fiscal quarter on a trailing 12-month basis. There was no change in term, or collateral and certain restrictive covenants were changed. Covenant violations of August and September 2002 were waived. The balance outstanding under the note at September 27, 2002, was approximately $3.2 million.

During the quarter, the Company continued to make solid progress toward U.S. approval for the ICL. On August 29 the first Toric ICL was implanted in the U.S. clinical trial by and patient enrollment for this new lens is going well. This week, the Company received the "CE Mark," for the new Collamer 3-piece lens, the approval to market the lens in the European Union, and will begin shipping the lens to international markets immediately.

Bailey said STAAR participated in two major trade shows during the quarter with encouraging results. "The Company presented the latest data from its U.S. clinical trials of the ICL at the first show, which continued to show favorable outcomes. We also saw a number of targeted peer review publications on the ICL.

"We are excited about these new developments and about our future, but with sales for the quarter well below expectations, we have reduced our projections for sales and income for 2002. We are now forecasting $45 to $50 million in sales and a loss of $7 to $9 million, down from the $50 million in sales and $6.2 million loss we forecasted last quarter."

A conference call to discuss these results will be held this afternoon at 1:30 p.m. Pacific time, 4:30 p.m. Eastern time. The phone number is (800) 733-2261 in the US and Canada and (706)-634-1467 for international. Ask for conference ID# 6289635.

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 Nine Months Ended

                                       Sept. 27, Sept. 28, Sept. 27, Sept. 28,
                                           2002     2001     2002     2001

      Sales                               $11,086  $12,030  $34,725  $37,714
      Royalties                               115      124      295      332
         Total revenues                    11,201   12,154   35,020   38,046

         Total cost of goods sold           5,580    5,466   17,664   21,671

    Gross profit                            5,621    6,688   17,356   16,375

      General and administrative            2,086    2,218    6,786    6,832
      Marketing and selling                 4,000    4,444   12,502   15,122
      Research and development              1,002      781    3,055    2,537
      Restructuring, impairment, and non-
       recurring charges                      230    2,109    1,455    2,109

         Total selling, general and
          administrative expenses:          7,318    9,552   23,798   26,600

    Operating loss                         (1,697)  (2,864)  (6,442) (10,225)

    Total other expense                      (155)    (191)    (849)    (348)

    Loss before income taxes               (1,852)  (3,055)  (7,291) (10,573)

    Income tax provision (benefit)            222   (1,128)    (406)  (4,309)

    Minority interest                          70       64      165      133

    Net loss                              ($2,144) ($1,991) ($7,050) ($6,397)

    Net loss per share                     ($0.12)  ($0.12)  ($0.41)  ($0.38)

    Weighted average shares outstanding    17,182   16,966   17,168   16,958

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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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