SANTA ANA, Calif., Nov. 21 /PRNewswire-FirstCall/ -- Advanced Medical Optics, Inc. (AMO) today announced the anticipated financial impact associated with the voluntarily recall of certain eye care product lots and the related manufacturing capacity constraints caused by a production-line issue at its manufacturing plant in China.
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AMO expects the recall to reduce revenue for the remainder of 2006 and 2007 by a total of $40 million to $45 million. This is due to expected product returns, supply shortages and temporary lost market share, primarily in Japan and Asia Pacific where the vast majority of products produced at the China facility are shipped. As a result, AMO now expects its 2006 revenue to be between $985 million and $1 billion, compared to prior guidance of $1,010 million to $1,020 million. For 2007, the company now expects revenue to be in the range of $1,060 million and $1,080 million, compared to prior guidance in the range of $1,080 million and $1,100 million.
AMO expects to incur charges and costs to complete the recall, remedy the manufacturing issue and restore market share. For the remainder of 2006 and 2007, the company expects these charges and costs to total approximately $35 million to $40 million, which includes primarily inventory writedowns, recall costs, plant costs, freight and logistics costs, as well as anticipated increased marketing expenses.
As a result of the change in anticipated revenue and the associated reduction in margin, coupled with recall-related spending for the balance of 2006 and the increased effective tax rate due to reduction of earnings outside the U.S., AMO now expects 2006 adjusted EPS to be between $1.30 and $1.40, compared to previous guidance of $1.85 to $1.90. For 2007, the company now expects adjusted EPS to be between $1.85 and $2.00, compared to prior guidance in the range of $2.25 to $2.35. These actions will affect other financial metrics such as adjusted gross margin and adjusted operating margin for 2006 and 2007. AMO will provide updated guidance on these measures in future communications.
The company commenced the voluntary recall because of a production-line issue at its manufacturing plant in China, which could affect the sterility of the product. Of the 2.9 million units being recalled, only 183,000 units were shipped to the U.S. and the remainder was shipped to Asia Pacific and Japan.
“This is a production-line issue and is not related to our formulations, which have been used safely by contact lens wearers for years,” said Jim Mazzo, AMO chairman, president and chief executive officer. “While we believe the likelihood of patients experiencing an adverse reaction is low based on our investigation to date, we are implementing this voluntary recall as a precautionary measure. While this issue is limited to two of the four production lines in the China facility, we have temporarily ceased all manufacturing there to clean and sanitize the plant. We want to be abundantly certain that eye care practitioners and their patients know they can continue to rely on and trust AMO for products that meet high quality standards. We are working aggressively to replace recalled product and minimize the inconvenience this action may cause.”
AMO plans to extend the time period of the temporary plant closure in order to move forward a previously disclosed plan to expand manufacturing capacity at the China facility. These plans include adding new filling lines and increasing packaging capacity. The company expects production at the China facility to be suspended for approximately 10 to 12 weeks. Operations at the company’s eye care facility in Alcobendas, Spain are unaffected by this action and production continues uninterrupted. None of the recalled products were manufactured at the Spain facility, which is the primarily supplier for the U.S. and European markets.
For the first nine months of 2006, AMO’s eye care sales were $208.6 million and represented approximately 28 percent of total sales. The company’s largest eye care markets are the Americas and Europe, which represented 34 percent and 28 percent of total eye care sales, respectively, for the first nine months of 2006. For this same period, Japan and Asia Pacific eye care sales were 24 percent and 14 percent of total eye care sales.
Live Webcast & Audio Replay
AMO will host a conference call to discuss this press release with analysts and investors at 11:00 a.m. ET today. The call will be Webcast for all interested parties through www.amo-inc.com. In addition, an audio replay will be available at approximately 3:00 p.m. ET today and will continue through midnight ET on November 28 at 800-642-1687 or 706-645-9291 (Passcode 2450477) or by visiting www.amo-inc.com.
About Advanced Medical Optics (AMO)
AMO is a global medical device leader focused on the discovery and delivery of innovative vision technologies that optimize the quality of life for people of all ages. Products in the cataract/implant line include intraocular lenses, phacoemulsification systems, viscoelastics, and related products used in cataract and refractive lenticular surgery. Products in the laser vision correction line include laser systems, wavefront diagnostic systems, microkeratomes and related products used in corneal refractive surgery. AMO owns or has the rights to such ophthalmic surgical product brands as ReZoom(TM), Clariflex(R), Sensar(R), CeeOn(R), Tecnis(R) and Verisyse(TM) intraocular lenses, STAR S4 IR(TM) laser vision correction system, WaveScan Wavefront(R) System, CustomVue(TM) procedure, Sovereign(R) and Sovereign(R) Compact(TM) phacoemulsification systems with WhiteStar(R) technology, Amadeus(TM) and Amadeus(TM) II microkeratomes, Healon(R) viscoelastics, and the Baerveldt(R) glaucoma shunt. Products in the contact lens care line include disinfecting solutions, enzymatic cleaners and lens rewetting drops. Among the eye care product brands the company possesses are COMPLETE(R) Moisture PLUS(TM), COMPLETE(R) Blink-N-Clean(R), Consept(R)F, Consept(R) 1 Step, Oxysept(R) 1 Step, UltraCare(R), Ultrazyme(R), Total Care(TM) and blink(TM) branded products. Amadeus is a licensed product of, and a trademark of, SIS, Ltd. AMO is based in Santa Ana, California, and employs approximately 3,800 worldwide. The company has operations in 24 countries and markets products in approximately 60 countries. For more information, visit the company’s Web site at www.amo-inc.com.
Use of Non-GAAP Measures
Our guidance for adjusted EPS for 2006 and 2007 is provided on a non-GAAP basis. The company’s adjusted EPS guidance excludes any charges associated with acquisitions or reorganization, rationalizations and repositioning strategies, recapitalization and litigation settlement. Our guidance for adjusted EPS includes the impact of stock-based compensation expense now being recognized under Statement of Financial Accounting Standards No. 123R (FAS123R) issued by the Financial Accounting Standards Board. The guidance also assumes no impact of potential unrealized gains or losses on derivative instruments. The company believes this presentation is useful to investors to conduct a more meaningful, consistent comparison of the company’s ongoing operating results. This presentation is also consistent with our internal use of the measure, which we use to measure the profitability of ongoing operating results against prior periods and against our internally developed targets. We believe that our investors also use this measure to analyze the sustainable profitability of the on-going business operations. The economic substance related to our use of adjusted EPS is our belief that the appropriate analysis of our profitability cannot be effectively considered while incorporating the effect of unusual items and charges that have not been experienced in prior periods. The company is not able to provide a reconciliation of projected adjusted EPS to expected reported results due to the unknown effect, timing and potential significance of special charges, and our inability to forecast charges associated with future transactions and initiatives.
These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results provide a more complete understanding of factors and trends affecting our business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with generally accepted accounting principles.
Forward-Looking Statements
This press release contains forecasts about AMO and its businesses, including guidance of 2006 and 2007 regarding future revenue and adjusted earnings per share. Because forecasts are inherently estimates that cannot be made with precision, the company’s performance may at times differ from its estimates and targets. The company often does not know what the actual results will be until after a quarter’s or year’s end. Therefore, the company will not report or comment on its progress during the quarter. Any statement made by others with respect to progress mid-quarter cannot be attributed to the company.
Statements in this press release regarding lost sales and charges and costs associated with the recall, financial guidance and forecasts described above, plans for manufacturing expansion, statements of Mr. Mazzo and any other statements in this press release that refer to AMO’s estimated or anticipated future results, are forward-looking statements. All forward- looking statements in this press release reflect AMO’s current analysis of existing trends and information and represent AMO’s judgment only as of the date of this press release. Actual results may differ from current expectations based on a number of factors affecting AMO’s businesses including but not limited to changes in the scope of the recall; AMO’s ongoing investigation of the root cause; interactions with global regulatory authorities; unforeseen health and safety issues; uncertainties associated with AMO’s ability to offset sales of discontinued products; changing competitive, regulatory and market conditions; unexpected trends in the contact lens or lens care markets; the performance of new products and the continued acceptance of current products; the execution of strategic initiatives and alliances; AMO’s ability to maintain a sufficient supply of products; consumer spending and confidence; product liability claims; quality issues or recalls; litigation; and the uncertainties associated with intellectual property protection for the company’s products. In addition, matters generally affecting the domestic and global economy, such as changes in interest and currency exchange rates or consumer confidence indices, can affect AMO’s results. Therefore, the reader is cautioned not to rely on these forward-looking statements. AMO disclaims any intent or obligation to update these forward-looking statements.
Additional information concerning these and other risk factors may be found in previous financial press releases issued by AMO. AMO’s public periodic filings with the Securities and Exchange Commission, including the discussion under the heading “Risk Factors” in AMO’s 2005 Form 10-K filed in March 2006 and in AMO Quarterly Report on Form 10-Q filed in November 2006 include information concerning these and other risk factors. Copies of press releases and additional information about AMO are available at www.amo-inc.com, or by contacting AMO’s Investor Relations Department by calling 714-247-8455.
Investors: Sheree Aronson (714) 247-8290 sheree.aronson@amo-inc.com Media: Steve Chesterman (714) 247-8711 steve.chesterman@amo-inc.com
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CONTACT: Investors, Sheree Aronson, +1-714-247-8290,sheree.aronson@amo-inc.com, or Media, Steve Chesterman, +1-714-247-8711,steve.chesterman@amo-inc.com, both of Advanced Medical Optics, Inc.
Web site: http://www.amo-inc.com//
