REF Refac Optical Grp

Refac Optical Group (AMEX: REF) today announced results for the first quarter ended April 30, 2006. The Company reported net income for the three months ended April 30, 2006, of $1.5 million, or $0.09 per diluted share, compared with $3.3 million, or $0.20 per diluted share, for the prior year period. Net income from continuing operations was $1.1 million, or $0.07 per diluted share, for the first quarter of fiscal 2006, compared with net income from continuing operations of $3.0 million, or $0.19 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. Adjusted operating income from continuing operations was $2.4 million for the first quarter of 2006. The adjusted 2006 results exclude merger-related transaction costs of $0.5 million. For the first quarter of 2005, adjusted operating income from continuing operations was $1.8 million. The adjusted 2005 results exclude $1.8 million in non-recurring intellectual property licensing-related and related party consulting income, $0.2 million in non-recurring health services contract settlements, net of expenses, and $0.05 million in asset management search expenses. The $0.6 million improvement is primarily the result of increases in optical related revenues. A reconciliation of non-GAAP financial measures to results reported in accordance with GAAP is attached to this release. Commenting on the first quarter results, J. David Pierson, president and chief executive officer of Refac Optical Group, said, "We are pleased with the year-over-year improvement in our adjusted operating income during our first quarter as a combined company. In early March, we completed our acquisition of U.S. Vision and OptiCare, making us the sixth largest retail optical company in the United States, the second largest independent operator of optical stores in host retailers in terms of store count and the first in terms of the number of brands. We made considerable progress in integrating U.S. Vision and OptiCare and will continue to seek ways to increase efficiencies, reduce costs and improve overall performance." Total revenues for the three months ended April 30, 2006, increased to $47.9 million from $46.8 million for the prior year despite a $1.7 million decline in managed vision sales from Cole Managed Vision programs in the current period. The $1.1 million increase in revenues was principally attributable to a $2.6 million increase in retail product sales and a $0.6 million increase in services offset by a $2.1 million decrease in intellectual property licensing-related revenues and other non-recurring income. 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. This is the first fiscal quarter in which Refac Optical Group, U.S. Vision and OptiCare are reporting 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. Mr. Pierson provided the following update, "During the past year, we have opened 10 new fashion optical stores in three regions of Macy's department stores, including Marshall Field's which is converting to Macy's North and have taken a leadership position in this emerging category. Last month, the department store chain recognized us as its "Partner of the Year" for our work in pioneering the introduction of optical departments on its main fashion floor. In addition to our growth prospects within Macy's, we are also encouraged by JCPenney's recent announcement of a major expansion program. Our relationship with JCPenney dates back to 1981, and we are currently operating optical departments in 352 JCPenney stores. We believe that JCPenney's investment in renovating and adding new stores will provide us with growth opportunities. "In April, we entered into a definitive agreement to sell OptiCare's managed vision care business to a subsidiary of Centene Corporation, which we expect to close during the second quarter. We believe that OptiCare's medically driven full service eye care model gives it an advantage over the traditional eyewear model, and with the sale of its managed vision care division, it will concentrate on increasing its presence in Connecticut where it is already the second largest optical retailer." In conclusion, Pierson stated, "Our growth opportunities, coupled with an outstanding management team and staff, make us very excited about the future of Refac Optical Group." 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 509 licensed departments, six 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 509 licensed departments, 352 are located at JCPenney stores, 63 at Sears, 29 at Macy's and Marshall Field's department stores, 23 in regional department stores, 29 at The Bay, a division of Hudson's Bay Company, Canada's oldest and largest traditional department store retailer and 13 departments at Meijer. 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. 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. -0- *T REFAC OPTICAL GROUP UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except share and per share data) For the Three Months Ended April 30, ----------------------- 2006 2005 ---------- ---------- Net revenues: Product sales $42,550 $39,949 Services 5,315 4,680 Licensing related activities 55 1,795 Other 30 390 ---------- ---------- Total revenues 47,950 46,814 Operating expenses: Cost of product sales 12,708 12,047 Cost of services 2,002 1,746 Selling, general and administrative 29,192 27,660 Merger expense 547 -- Depreciation and amortization 1,683 1,623 ---------- ---------- Total operating expenses 46,132 43,076 Operating income 1,818 3,738 Other income (expense): Dividends and interest income 310 192 Interest expense (625) (621) ---------- ---------- Income from continuing operations before income taxes and minority interest 1,503 3,309 Minority interest 245 236 Provision for income taxes 113 35 ---------- ---------- Income from continuing operations 1,145 3,038 Income from discontinued operations, net of taxes and minority interest 364 238 ---------- ---------- Net income $1,509 $3,276 ========== ========== Earnings per share: Basic: Continuing operations $0.07 $0.19 Discontinued operations 0.02 0.01 ---------- ---------- Total $0.09 $0.20 ========== ========== Diluted: Continuing operations $0.07 $0.19 Discontinued operations 0.02 0.01 ---------- ---------- Total $0.09 $0.20 ========== ========== Weighted average shares outstanding: Basic 17,533,613 16,491,902 Diluted 17,847,642 16,494,818 REFAC OPTICAL GROUP UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) April 30, January 31, 2006 2006 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents $8,260 $10,129 Accounts receivable, net of allowances for doubtful accounts of $247 and $220 at April 30, 2006 and January 31, 2006, respectively 8,287 10,676 Investments being held to maturity 23,461 24,229 Inventories 20,645 20,205 Prepaid expenses and other current assets 1,039 1,057 Restricted cash and investments being held to maturity 4,223 4,849 Assets held for sale 1,697 2,092 ---------- ---------- Total current assets 67,612 73,237 ---------- ---------- Property and equipment, net 33,183 34,544 Licensed optical department agreements 17,107 14,595 Goodwill 6,137 4,746 Other intangibles, net 288 300 Assets held for sale, non-current 8,833 5,384 Other assets 1,299 1,452 ---------- ---------- Total assets $134,459 $134,258 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $9,184 $8,627 Accrued expenses 6,514 8,958 Accrued salaries and related expenses 2,018 1,783 Customer deposits 3,552 3,358 Deferred revenue 3,353 3,174 Current portion of capital lease obligations 695 724 Current portion of long-term debt 3,586 4,926 Liabilities of held for sale business 3,390 3,991 Other current liabilities 470 940 ---------- ---------- Total current liabilities 32,762 36,481 ---------- ---------- Capital lease obligations, net of current portion 1,214 1,372 Long-term debt, net of current portion 2,826 3,378 Revolving line of credit 12,023 14,983 Subordinated vendor debt 9,000 10,000 Other long-term liabilities 330 389 Minority interest -- 3,956 Temporary equity 4,223 4,849 Stockholders' equity: Common stock, $0.001 par value; 25,000,000 shares authorized; 18,019,997 and 16,572,558 shares issued; 17,856,293 and 16,484,335, shares outstanding at April 30, 2006 and January 31, 2006, respectively 18 16 Additional paid-in capital 97,374 84,892 Treasury stock, at cost; 163,704 and 88,223 shares at April 30, 2006 and January 31, 2006, respectively (1,365) (738) Unearned compensation -- (89) Accumulated deficit (23,638) (24,923) Receivable from issuance of common stock (308) (308) ---------- ---------- Total stockholders' equity 72,081 58,850 ---------- ---------- Total liabilities and stockholders' equity $134,459 $134,258 ========== ========== REFAC OPTICAL GROUP UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) For the Three Months Ended April 30, ----------------------- 2006 2005 ---------- ---------- Cash flows from operating activities: Net income $1,509 $3,276 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,713 1,694 Non-cash stock-based compensation 134 -- Loss on disposal of fixed assets 143 20 Minority interest 277 279 Other 156 109 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable 2,370 205 Inventories (415) (1,237) Prepaid expenses and other current assets (158) (210) Accounts payable and accrued expenses (1,468) 759 Deferred revenue and customer deposits 401 1,361 Assets and liabilities of business held for sale (91) 34 Other current liabilities (485) (398) -------- -------- Net cash provided by operating activities 4,086 5,892 -------- -------- Cash flows from investing activities: Proceeds from (purchase of) investments being held to maturity 3,993 (1,207) Payments received on notes receivable 129 43 Expenditures for property and equipment (497) (985) Investments in acquisitions, net of cash acquired (20) (75) Proceeds from sale of businesses -- 3,580 -------- -------- Net cash used in investing activities 3,605 1,356 -------- -------- Cash flows from financing activities: Net payments on revolving line of credit (2,225) (9,505) Principal payments on long-term debt and capital leases (1,292) (2,040) Principal payments on subordinated debt (1,000) (75) Proceeds from issuance of preferred stock -- 4,445 Proceeds from issuance of common stock -- 528 Proceeds from exercise of stock options 16 -- Purchase of treasury stock (617) -- -------- -------- Net cash used in financing activities (5,118) (6,647) -------- -------- Net increase in cash and cash equivalents 2,573 601 Cash and cash equivalents at beginning of period 7,371 4,747 Cash and cash equivalents included in assets held for sale (1,684) (1,436) -------- -------- Cash and cash equivalents at end of period $8,260 $3,912 ======== ======== Supplemental disclosure of non cash transaction 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 Ended April 30, ----------------------- 2006 2005 ---------- ---------- Operating income - GAAP basis $1,818 $3,738 Adjustments: Merger transaction expenses 547 -- Non-recurring intellectual property licensing-related revenues -- (1,739) Non-recurring health services settlement revenues, net of expenses -- (243) Non-recurring related party consulting services -- (44) Asset management search expenses -- 52 ---------- ---------- Adjusted operating income $2,365 $1,764 ========== ========== *T