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Ocular Sciences, Inc., USA Reports Continued Growth in First Quarter 2004


10/19/2005 5:11:12 PM

CONCORD, Calif., May 4 /PRNewswire-FirstCall/ -- Ocular Sciences, Inc. today announced first quarter net sales of $80.6 million, up 14% (6.2% in constant currency) over the same period one year ago. Net income for the quarter was $6.0 million, or $0.24 per diluted share. Prior to the after-tax restructuring and related expenses associated with the manufacturing consolidation program announced in the fourth quarter of 2002, net income for the quarter was $8.6 million, or $0.34 per diluted share. The first quarter performance compares with net revenue of $70.7 million and net income of $5.9 million, or $0.25 per diluted share for the first quarter of 2003. Prior to the after-tax restructuring and related expenses associated with the manufacturing consolidation program, net income for the first quarter of 2003 was $6.9 million, or $0.29 per diluted share. Fully diluted shares outstanding were 25.4 million as of March 31, 2004 compared with 23.9 million as of March 31, 2003.

"We are pleased with our execution in our three key areas of focus: growing our international presence, expanding our specialty lens product lines and reducing manufacturing costs," said Stephen J. Fanning, President and CEO of Ocular Sciences.

"When we embarked upon this strategy in 2000, international sales comprised only 34% of our total revenue, compared with this quarter when they represented 61% of our revenue," continued Mr. Fanning. "Total international sales grew 29% (14% constant currency) as sales increased in Europe by 28% and in Japan by 29%, the second and third largest contact lens markets in the world and we believe we continue to be the fastest growing major contact lens manufacturer in both of these markets.

Likewise, our growth in the specialty lens category also illustrates our success in executing this strategy. In 2000, this category was less than 5% of our revenue, but grew to represent approximately 36% of our revenue in the first quarter of 2004. In addition, our specialty disposable Toric and daily disposable products, two of the largest and fastest growing specialty lens categories, continue to grow much faster than the overall market in their respective categories. Toric lens revenue grew 70%, more than twice the rate that we believe the market is growing, and now represents more than 10% of our total revenue. Daily disposable lens revenue grew more than 50% and now represents more than 17% of total revenue.

"Our third area of focus ... reduced manufacturing costs ... resulted in a 310 basis point improvement in gross margin from the first quarter 2003 gross margin. Our improved first quarter gross margin reflects the lower cost of goods sold on both our daily and Toric lenses that we have achieved as a result of the manufacturing consolidation program, which is substantially completed. The significance of this program is demonstrated by the fact that we realized a demonstrated improvement in gross margin in the quarter when our lower margin daily disposable lenses grew dramatically," added Mr. Fanning.

"Investment in R&D and new product development continued in the first quarter. We will be launching a new specialty sphere product late in the second quarter with a great deal of marketing support. The new sphere, which gives better vision and comfort, is designed with aspheric optics and a new patented edge shape. It is the first of several new products we will be launching over the next year. These launches, as well as significantly expanded distribution of the disposable Toric, will support our strategy to increase our U.S. disposable lens growth rate, a key focus for us going forward. Our U.S. two week disposable spherical lens sales were down in the quarter as customers, especially those with proprietary brands, started to reduce their inventories in advance of the new product launch," said Mr. Fanning.

"Operating expenses, before restructuring charges, as a percentage of revenue increased slightly, as planned, from the year ago period," commented Steven M. Neil, CFO of Ocular Sciences. "We are investing in selling and marketing programs as we drive our global commercial operations to realize sustainable double digit sales growth for the foreseeable future. For example, during the quarter, we more than doubled our planned 2004 new set introductions of Toric lenses into the U.S. market, which will facilitate market share growth. Overall, R&D expenses increased 31% to support our accelerated new product development efforts.

"Including these investments, our operating income prior to restructuring and related expenses grew 38%, which is more than twice our sales growth rate. And, even with an increase in our effective tax rate from 19.5% to 22% we still generated 26% earnings growth, prior to restructuring and related expenses, during the quarter," Mr. Neil continued. "Our earnings growth, combined with a continued focus on managing our working capital, resulted in cash flow from operations of more than $20 million during the quarter and free cash flow generation of $12.2 million."

The Company's balance sheet continued to improve with nearly $50 million in cash and equivalents as of March 31, 2004. Inventory levels continued to decline and were down by approximately $9.2 million from the end of the first quarter last year, despite higher sales levels. Inventory turns remained at just over two turns, comparable to the turnover in the prior quarter and significantly improved from 1.7 turns a year ago. Debt was reduced to $13.7 million as of March 31, 2004, a $3.6 million decline from the beginning of the year and days sales outstanding declined to 63 days versus 68 days a year ago. Capital expenditures for the quarter totaled $7.9 million and were primarily devoted to expanding manufacturing capacity for Toric lenses and daily disposable lenses.

"As we execute our plan to build profitable growth, we are realizing the benefits of our investments in the manufacturing consolidation program as well as in programs to boost sales in international and domestic markets," said John Fruth, Chairman of the Board of Ocular Sciences. "Demand for contact lenses continues to grow and our products, especially in the specialty Toric and daily disposable segments, are very successful. We anticipate that our new specialty sphere products will be equally successful and will lead to U.S. sales growth that will outpace the market for the two week category. These products, when combined with the more than doubling of the Toric product kits shipped to eye care professionals fitting the lens, and the planned launch of subsequent new products in the near term into the U.S., should enable us to generate solid overall growth in the U.S. in the not too distant future. We will also continue to explore strategic uses of our cash position designed to increase shareholder return including stock buyback programs, geographic acquisitions and dividends."

Guidance

The Company provided updated guidance for the full year ending December 31, 2004. Sales are expected to grow 8 to 10% in constant currency and gross margins are expected to be in the 56% to 57% range. The manufacturing transition program initiated in December 2002 is expected to be completed during 2004, and $8 to $10 million in related pre-tax manufacturing consolidation expenses are expected to be incurred during the year. While operating margins are expected to improve, the Company plans to nearly double its investment in product development from 2003 levels, focusing largely on continuous wear, silicone-hydrogel product development with a targeted market launch in 2005. The Company also anticipates increasing its investments in sales and marketing at a rate slightly greater than sales growth in order to support a sustainable double-digit sales growth rate for the foreseeable future. The effective tax rate, prior to expenses incurred in the manufacturing consolidation program, is expected to be approximately 22%, compared with 19.5% in 2003, due to increased international income generated in higher tax rate jurisdictions. Earnings per share for 2004 before restructuring costs are expected to be $1.73 to $1.76 per share assuming 25 million fully diluted shares outstanding. Earnings per share for 2004 including restructuring costs are expected to be $1.33 to $1.40. The Company expects cash flow from operations of approximately $60 to $63 million and free cash flow of $22 to $25 million.

Use of Non-GAAP Measures

The Company believes that non-GAAP measures of operating expenses, net income and earnings per share before restructuring and other charges are appropriate measures for evaluating the operating performance of the Company because this information provides investors and others with a measure of operating results without regard to the restructuring costs associated with the manufacturing transition program announced in December 2002, and, in turn, allows them to compare the Company's results of operations with those of other companies on a more comparable basis. The Company also believes that the use of a free cash flow measure is appropriate information because it provides investors and others with a measure of cash generated by the Company which could be available to fund on going operations, repay creditors and generate returns to shareholders.

Conference Call Ocular will host a conference call and webcast today, Tuesday, May 4, 2004 at 4:30 p.m. ET to discuss the Company's first quarter results, outlook for 2004 and current corporate developments. The dial in number for the conference call is 800-218-0204 for domestic participants and 303-262-2175 for international participants.

A taped replay of the conference call will also be available beginning approximately one hour after the call's conclusion and will remain available through 9:00 p.m. ET on Tuesday, May 11, 2004 and can be accessed by dialing 800-405-2236 for domestic callers and 303-590-3000 for international callers. To access the domestic or international replay callers should use passcode 575778#. To access the live webcast of the call, go to Ocular's website at http://www.ocularsciences.com/ and click on the Investors icon. An archived webcast will also be available at http://www.ocularsciences.com/.

Safe Harbor Statement

This release contains forward-looking statements including the Company's beliefs about its business prospects and future results of operations, including expected reduction in production costs, completion of its manufacturing transition program, growth in U.S. and international markets, category growth in disposable Torics and disposable dailies, the effect of expected investments in sales and marketing, planned product launches and expected sales, operating income and other results for 2004. These statements involve risks and uncertainties. Among the important factors that could cause actual results to differ materially from those forward-looking statements are risks associated with the overall economic environment, effective income tax rates including the effect of the current IRS audit, the impact of competitive products and pricing, product demand both domestically and overseas, market receptiveness to new product launches, extended manufacturing difficulties, customer bad debts, currency fluctuations, changes in the anticipated earnings of the Company and other factors detailed in the Company's filings with the Securities and Exchange Commission including recent filings of Forms 10-K and 10-Q. In addition, the factors underlying company forecasts are dynamic and subject to change and therefore those forecasts speak only as of the date they are given. The Company does not undertake any obligation to update them.

About Ocular Sciences, Inc.

Ocular Sciences, Inc. manufactures a broad line of high quality, competitively priced soft contact lenses marketed directly to eye-care practitioners. The Company's lenses are brand and product differentiated by distribution channel, and Ocular's unique lens technology makes thinner lenses that are easier to handle and more comfortable to wear than those of leading competitors.

OCULAR SCIENCES, INC. (All information is unaudited) (In thousands, except per share data) CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 2004 2003 Net sales $80,623 $70,691 Cost of sales 35,428 33,214 Gross profit 45,195 37,477 Selling and marketing expenses 23,758 20,373 General and administrative expenses 7,411 6,876 Research and development expenses 2,249 1,716 Restructuring and related expenses 3,074 1,186 Total operating expenses 36,492 30,151 Income from operations 8,703 7,326 Interest expense (160) (192) Interest income 142 71 Other income/(expense), net (695) 146 Income before taxes 7,990 7,351 Provision for income taxes 1,998 1,433 Net income $5,992 $5,918 Net income per share data: Diluted net income per share $0.24 $0.25 Weighted average common and dilutive potential common shares outstanding 25,402 23,913 CONSOLIDATED BALANCE SHEET DATA As of March 31, December 31, 2004 2003 Cash and cash equivalents $49,757 $34,187 Total assets 398,867 399,308 Total debt 13,731 17,288 Total stockholders' equity 315,444 301,845

Note: Certain prior year amounts have been reclassified to conform with current year presentation.

OCULAR SCIENCES, INC. (All information is unaudited) (In thousands, except per share data) NON GAAP DATA AND RECONCILIATIONS Three Months Ended March 31, 2004 2003 Operating Income Income from operations $8,703 $7,326 Restructuring and related expenses 3,074 1,186 Operating income before restructuring and related expenses $11,777 $8,512 Operating income as a percentage of sales 14.6% 12.0% Free Cashflow Net cash provided by operating activities $20,119 $11,522 Capital expenditures (7,871) (6,153) Free cash flow $12,248 $5,369 EPS Income before taxes $7,990 $7,351 Restructuring and related expenses, before taxes 3,074 1,186 Income before restructuring and related expenses and taxes 11,064 8,537 Tax rate excluding restructuring and related expenses 22.0% 19.5% Net income excluding restructuring and related expenses $8,630 $6,872 EPS excluding restructuring and related expenses $0.34 $0.29 After-tax impact of restructuring and related expenses 2,638 954 GAAP net income $5,992 $5,918 GAAP EPS $0.24 $0.25 Weighted average diluted shares 25,402 23,913

Ocular Sciences, Inc.

CONTACT: Investors & Media, Douglas Sherk, +1-415-652-9100, or JenniferBeugelmans, +1-415-896-6820, both of EVC Group, for Ocular Sciences, Inc.


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