CTAC ChaSerg Technology Acquisition Corporation

DRAPER, Utah, July 26 /PRNewswire-FirstCall/ -- 1-800 CONTACTS, INC. (NASDAQ:CTAC), today reported results for its second quarter ended July 1, 2006 and also announced it has engaged an investment banking firm for a strategic review of ClearLab. (Logo: http://www.newscom.com/cgi-bin/prnh/20040107/LACONTACTSLOGO) Second Quarter Results Consolidated net sales for the second quarter ended July 1, 2006 were $63.2 million, compared to $61.4 million for the comparable quarter of the prior year. For the second quarter of fiscal 2006, the Company reported a consolidated net loss of $(2.0) million, or $(0.15) per diluted common share, compared to consolidated net income of $41,000, or $0.00 per diluted common share, for the second quarter of fiscal 2005. U.S. Retail Net sales and operating income for the Company's U.S. retail business for the second quarter of fiscal 2006 were $57.7 million and $5.8 million, respectively, compared to net sales of $56.8 million and operating income of $4.4 million for the second quarter of fiscal 2005. Gross margin for the Company's U.S. retail business decreased to 39.4% for the second quarter of fiscal 2006 from 40.3% for the second quarter of fiscal 2005. Advertising expense for the second quarter of fiscal 2006 was approximately $3.4 million less than the second quarter of fiscal 2005. During the second quarter of fiscal 2006, other selling, general and administrative expenses as a percentage of net sales for the U.S. retail business increased to 21.8% from 19.0% in the second quarter of fiscal 2005. ClearLab Net sales and operating loss for ClearLab, the Company's international manufacturing business, for the second quarter of fiscal 2006 were $5.4 million and $(5.5) million, respectively, compared to net sales of $4.6 million and an operating loss of $(2.0) million for the second quarter of fiscal 2005. ClearLab's net sales for the second quarter of fiscal 2006 included $1.5 million in license fees from the Company's Japanese license agreement, compared to $1.0 million in the second quarter of fiscal 2005. ClearLab's gross profit for the second quarter of fiscal 2006 was reduced by provisions recorded on certain inventory. For the second quarter of fiscal 2006, ClearLab's operating results include a $0.8 million increase in research and development expense and a $1.8 million increase in other selling, general and administrative expenses, including costs related to today's AquaSoft Singles product announcement as well as costs to strengthen the management team. The change in consolidated other income (expense) for the second quarter of fiscal 2006 was principally due to unrealized foreign exchange transaction gains related primarily to intercompany loans to ClearLab. Brian Bethers, President, stated, "Despite the fact that ClearLab makes FDA approved lenses ready for sale in the United States, ClearLab has deliberately not entered the U.S. market to avoid conflict for our U.S. retail business with its principal suppliers. Limiting ClearLab to less than half of the global market for contact lenses has been a considerable constraint on ClearLab's business." Third Quarter Outlook For the third quarter of fiscal 2006, the Company expects U.S. retail net sales of approximately $55.0 million to $57.0 million and operating income of approximately $4.0 million to $5.0 million. The Company expects ClearLab's net sales and operating loss for the third quarter of fiscal 2006 to be similar to those reported for the second quarter of fiscal 2006. Strategic Review Over the last several months, 1-800 CONTACTS' management and directors have been evaluating a broad range of strategic alternatives in an effort to capitalize on the value of ClearLab and its innovative AquaSoft Singles product. The Company has engaged Sonenshine Partners LLC, an investment banking firm, as its financial advisor for this strategic review. Among the options being considered to maximize value for the Company's shareholders is the possible separation of ClearLab from the Company's U.S. retail business. Jonathan Coon, Chief Executive Officer, remarked, "Over the past four years, we have invested more than $90 million in ClearLab. We are extremely pleased to have introduced today AquaSoft Singles, a milestone product that defines the category for single-use contact lenses. We must now consider how to best position ClearLab for the next phase of its growth, as the initiatives underway require a strong global business focus and significant additional capital. Through our current exploration of strategic alternatives for ClearLab, we aim to enable ClearLab to take full advantage of the revolutionary technology it has developed, to enable 1-800 CONTACTS to sharpen its focus on its U.S. retail business, and to maximize value for our shareholders." About 1-800 CONTACTS, INC. 1-800 CONTACTS offers consumers an attractive alternative for obtaining replacement contact lenses in terms of convenience, price and speed of delivery. Through its easy-to-remember, toll-free telephone number, "1-800 CONTACTS" (1-800-266-8228), and its Internet web site, http://www.1800contacts.com/ , the Company sells almost all of the popular brands of contact lenses. 1-800 CONTACTS offers products at competitive prices, while delivering a high level of customer service. ClearLab develops and manufactures a wide range of disposable contact lens products and distributes these lenses in markets outside of the United States. More information about ClearLab can be found at its website, http://www.clearlab.com/. About Sonenshine Partners LLC Sonenshine Partners LLC is a New York-based investment bank that provides integrated strategic and financial advisory services for a variety of large cap and middle market companies. The firm was founded in 2000 by Marshall Sonenshine, who had previously been a partner at investment bank Wolfensohn & Co. Since its inception, Sonenshine Partners has completed major merger and acquisition, restructuring and corporate finance assignments involving a broad range of Fortune 500 and middle market companies worldwide. More information regarding Sonenshine Partners can be found on http://www.sonenshinepartners.com/ . Forward-looking Statements This news release contains forward-looking statements about the Company's future business prospects. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements. Factors that may cause future results to differ materially from the Company's current expectations include, among others: general economic conditions, the health and size of the contact lens industry, consumer acceptance of ClearLab's products, product health benefits, successful completion and implementation of the recommendations from the strategic review of ClearLab, inventory acquisition and management, manufacturing operations, governmental regulations, exchange rate fluctuations, advertising spending and effectiveness, unanticipated costs and expected benefits associated with the Japanese license agreement and the Company's supply agreements and related arrangements, research and development initiatives, prescription verification requirements of The Fairness to Contact Lens Consumers Act, and other regulatory considerations. Information on the Company's websites, other than the information specifically referenced in this press release, shall not be deemed to be part of this press release. 1-800 CONTACTS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION (in thousands, except per share amounts) (unaudited) Quarter Ended Two Quarters Ended July 2, July 1, July 2, July 1, 2005 2006 2005 2006 NET SALES $61,365 $63,155 $121,648 $126,646 COST OF GOODS SOLD 37,697 40,523 75,472 79,536 Gross profit 23,668 22,632 46,176 47,110 SELLING, GENERAL & ADMINISTRATIVE EXPENSES: Advertising 7,120 3,703 13,658 7,686 Legal and professional 906 1,123 2,190 2,248 Research and development 811 1,637 1,866 2,965 Other selling, general & administrative 12,304 15,922 23,821 29,601 Total selling, general & administrative expenses 21,141 22,385 41,535 42,500 INCOME FROM OPERATIONS 2,527 247 4,641 4,610 OTHER INCOME (EXPENSE), net (1,166) 352 (1,807) 665 INCOME BEFORE PROVISION FOR INCOME TAXES 1,361 599 2,834 5,275 PROVISION FOR INCOME TAXES (1,320) (2,637) (2,610) (6,132) NET INCOME (LOSS) $41 $(2,038) $224 $(857) PER SHARE INFORMATION: Basic and diluted net income (loss) per common share $-- $(0.15) $0.02 $(0.06) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 13,312 13,360 13,307 13,352 Diluted 13,463 13,360 13,476 13,352 OTHER DATA: Depreciation $1,115 $1,518 $2,170 $2,906 Amortization 1,050 1,076 2,121 1,986 Total depreciation and amortization $2,165 $2,594 $4,291 $4,892 Depreciation and amortization included in the following captions: Cost of goods sold $711 $821 $1,403 $1,592 Research and development 26 63 53 111 Other selling, general & administrative 1,428 1,710 2,835 3,189 Total depreciation and amortization $2,165 $2,594 $4,291 $4,892 SEGMENT INFORMATION: Quarter Ended July 2, 2005 U.S. International Eliminations Total Net sales $56,767 $4,601 $(3) $61,365 Gross profit (loss) 22,857 703 108 23,668 Research and development -- 811 -- 811 Other selling, general & administrative 10,794 1,510 -- 12,304 Income (loss) from operations 4,389 (1,970) 108 2,527 Depreciation and amortization $1,208 $957 $-- $2,165 Quarter Ended July 1, 2006 U.S. International Eliminations Total Net sales $57,734 $5,421 $-- $63,155 Gross profit (loss) 22,774 (180) 38 22,632 Research and development -- 1,637 -- 1,637 Other selling, general & administrative 12,569 3,353 -- 15,922 Income (loss) from operations 5,755 (5,546) 38 247 Depreciation and amortization $1,480 $1,114 $-- $2,594 Two Quarters Ended July 2, 2005 U.S. International Eliminations Total Net sales $113,133 $8,889 $(374) $121,648 Gross profit (loss) 45,044 1,306 (174) 46,176 Research and development -- 1,866 -- 1,866 Other selling, general & administrative 20,872 2,949 -- 23,821 Income (loss) from operations 8,792 (3,977) (174) 4,641 Depreciation and amortization 2,394 1,897 -- 4,291 Two Quarters Ended July 1, 2006 U.S. International Eliminations Total Net sales $116,907 $9,739 $-- $126,646 Gross profit (loss) 46,398 458 254 47,110 Research and development 10 2,955 -- 2,965 Other selling, general & administrative 24,282 5,319 -- 29,601 Income (loss) from operations 12,761 (8,405) 254 4,610 Depreciation and amortization 2,736 2,156 -- 4,892 1-800 CONTACTS, INC. CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION (in thousands) (unaudited) ASSETS December 31, July 1, 2005 2006 CURRENT ASSETS: Cash $1,481 $89 Accounts receivable, net 3,451 3,471 Inventories, net 21,458 20,419 Deferred income taxes 1,624 1,817 Other current assets 5,530 4,650 Total current assets 33,544 30,446 PROPERTY, PLANT AND EQUIPMENT, net 29,705 31,223 DEFERRED INCOME TAXES 1,087 1,006 GOODWILL 35,405 35,963 DEFINITE-LIVED INTANGIBLE ASSETS, net 13,847 12,639 OTHER ASSETS 1,357 1,726 Total assets $114,945 $113,003 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $-- $19,479 Current portion of long-term debt 1,633 2,221 Current portion of capital lease obligations 58 25 Accounts payable and accrued liabilities 24,126 27,584 Total current liabilities 25,817 49,309 LONG-TERM LIABILITIES: Line of credit 23,746 -- Long-term debt, net of current portion 6,440 5,377 Capital lease obligations, net of current portion 83 59 Other long-term liabilities 1,642 643 Total long-term liabilities 31,911 6,079 STOCKHOLDERS' EQUITY 57,217 57,615 Total liabilities and stockholders' equity $114,945 $113,003 http://www.newscom.com/cgi-bin/prnh/20040107/LACONTACTSLOGO http://photoarchive.ap.org/ DATASOURCE: 1-800 CONTACTS, INC. CONTACT: Brian W. Bethers, President, or Robert G. Hunter, CFO, both of 1-800 CONTACTS, INC., +1-801-316-5000, Web site: http://www.1800contacts.com/

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