Business Editors
MORRISVILLE, N.C.--(BUSINESS WIRE)--July 21, 2003
Charles & Colvard, Ltd., (NASDAQ:CTHR) the sole source of moissanite - a created jewel available for use in fine jewelry today reported operating results for the second quarter of 2003.
The Company reported second quarter sales of $4.3 million, resulting in income before taxes of $918,000 and net income of $502,000 or $.04 per diluted share. This represents a 6% increase over last year's second quarter sales of $4.1 million, a 44% gain over last year's pretax income of $638,000, and a 45% improvement over 2002 pro forma net income of $347,000 or $.03 per diluted share.
Sales for the six months ended June 30, 2003 aggregated $8.7 million on shipments of 48,600 carats. Net income for the first half of 2003 was $1,035,000 or $.08 per diluted share. Year-to-date sales are 6% ahead of first half 2002 sales of $8.2 million on shipments of 51,000 carats. Six months '03 net income was 67% ahead of 2002 pro forma net income of $618,000 or $.05 per diluted share.
The 21% and 9% declines in net income for the second quarter and first half of 2003, respectively, compared to the same periods last year are primarily due to no Federal taxes being recorded in 2002. During the fourth quarter of 2002, the Company recorded a one-time $6.7 million non-operating and non-cash addition to earnings due to the expected realization of deferred tax benefits from tax net operating loss carryforwards. Recognition of this deferred tax asset has resulted in the recording of income tax expense in each quarter of 2003. Pro forma amounts are shown so as to compare net income as if the Company had incurred income tax expense during 2002. A full explanation of this tax reconciliation can be found at the end of this release. A comparison of key operating results for the second quarter and first six months are as follows (in thousands, except for per share data):
Second First Six Quarter Months --------------- --------------- 2003 2002 2003 2002 ------- ------- ------- ------- Net Sales $4,312 $4,076 $8,685 $8,226 Operating Income $ 889 $ 585 $1,807 $1,035 Reported after tax net income $ 502 $ 638 $1,035 $1,138 Reported after tax net income per diluted share $ 0.04 $ 0.05 $ 0.08 $ 0.08 Net Income (Pro Forma for 2002) $ 502 $ 347 $1,035 $ 618 Net Income per diluted share (Pro Forma for 2002) $ 0.04 $ 0.03 $ 0.08 $ 0.05
North American sales, which represents 87% of total sales, were up 9% for the quarter (down 3% in carat shipments) primarily due to a 13% increase in the average selling price per carat, as customers purchased a higher percentage of larger stones. International sales for the second quarter decreased 10% and thus shipments of 23,500 carats for the current period were 7% below the 25,300 carats in the same period of 2002.
Gross margin as a percentage of sales for the second quarter was 67.7%, an increase of 7.8 percentage points when compared to the same quarter in 2002. This increase was primarily caused by a 13% increase in average selling price per carat and improved yields during the specific FIFO period being relieved from inventory.
Operating expenses were up 9% for the quarter when compared to last year amounts due to higher sales and marketing expenditures used to promote customer sales opportunities. As a percentage of sales operating expenses for the quarter were one percent higher than last year.
Bob Thomas, President and Chief Executive Officer of Charles & Colvard, said, "A 52% increase in operating income versus the second quarter of last year demonstrates our commitment to our shareholders. Although our top line growth did not meet our internal goals, the 9% increase in North American sales volume is, we feel, a major achievement, given the current economic climate."
He concluded, "I believe that Charles & Colvard is positioned for continued improvement in sales and operating income. The aggressive work of our existing distributors and addition of significant new manufacturing partners have provided us with promising new business leads and in several cases, allowed for Moissanite jewelry tests in a number of new outlets. Based upon advanced discussions, we look forward to additional tests in important distribution channels to be initiated in the near future. Our aggressive advertising campaign addressed at consumers as well as the jewelry trade is achieving the desired results."
CONFERENCE CALL
Management will host a conference call tomorrow morning, Tuesday, July 22 at 9:00 a.m. EDT to discuss these results as well as recent corporate developments. After opening remarks, there will be a question and answer period. Interested parties may participate in the call by dialing 800-863-1575 (973-582-2866 for international callers). Please call in 10 minutes before the conference is scheduled to begin and ask for the Charles & Colvard call. The conference call will also be broadcast live over the Internet. To listen to the live call, please go to www.moissanite.com and click on the Investor Relations section where conference calls are posted. Please go to the website 15 minutes early to download and install any necessary audio software. If you are unable to listen live, the conference call will be archived and can be accessed for approximately 30 days. A recorded telephone replay of the call will also be available for approximately one week following the live call. Listeners may dial 877-519-4471 (973-341-3080 for international callers) and use the code #4049662 for the telephone replay.
Charles & Colvard, based in the Research Triangle Park area of North Carolina, is the sole source of moissanite, a created jewel used in fine jewelry. Moissanite is near colorless, with more fire, brilliance and luster than a fine diamond, but retails for only a fraction of the cost. For more information, please access www.moissanite.com.
This press release may contain forward-looking statements. Such forward-looking statements are subject to a number of material risks, uncertainties and contingencies that could cause actual results to differ materially from those set forth in the forward-looking statements. Those risks and uncertainties include but are not limited to the Company's ability to manage growth effectively, dependence on Cree Inc. for SiC crystals, dependence on a limited number of distributors such as K&G Creations and Stuller Settings, Inc., limited operating history, dependence on continued growth and consumer acceptance of the Company's products, the risks and uncertainties of litigation including the substantial management time and attention required and substantial expenses incurred regardless of its outcome, and other risks and uncertainties set forth in the Company's 10-K for the year ended December 31, 2002 and other filings with the Securities and Exchange Commission.
Charles & Colvard, Ltd. Condensed Consolidated Statements Of Operations Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- (Unaudited) (Unaudited) 2003 2002 2003 2002 --------------------- --------------------- Net sales $4,311,706 $4,075,602 $8,684,849 $8,225,748 Cost of goods 1,392,576 1,632,901 3,091,017 3,671,855 ---------- ---------- ---------- ---------- Gross profit 2,919,130 2,442,701 5,593,832 4,553,893 Operating expenses: Marketing and sales 1,440,832 1,125,730 2,592,844 2,179,376 General and administrative 583,844 732,513 1,186,201 1,339,725 Research and development 5,842 --- 7,592 --- Other expense (income) --- (450) --- (450) ---------- ---------- ---------- ---------- Total operating expenses 2,030,518 1,857,793 3,786,637 3,518,651 ---------- ---------- ---------- ---------- Operating income 888,612 584,908 1,807,195 1,035,242 Interest income, net 28,989 52,879 63,909 102,755 ---------- ---------- ---------- ---------- Income before taxes 917,601 637,787 1,871,104 1,137,997 Income tax expense 415,370 --- 836,422 --- ---------- ---------- ---------- ---------- Net income $ 502,231 $ 637,787 $1,034,682 $1,137,997 ========== ========== ========== ========== Basic net income per share $ 0.04 $ 0.05 $ 0.08 $ 0.09 ========== ========== =========== ========== Diluted net income per share $ 0.04 $ 0.05 $ 0.08 $ 0.08 ========== ========== =========== ========== Weighted-average common shares: Basic 13,219,530 13,377,484 13,260,836 13,375,626 ========== ========== =========== ========== Diluted 13,521,463 13,707,458 13,584,854 13,641,479 ========== ========== =========== ========== Charles & Colvard, Ltd. Condensed Consolidated Balance Sheets June 30, December 31, 2003 2002 ------------------------ Assets (Unaudited) Current Assets: Cash and equivalents $12,354,223 $13,282,245 Accounts receivable 2,165,735 2,195,952 Interest receivable 8,170 11,926 Inventory 23,919,123 22,365,325 Prepaid expenses and other assets 337,956 327,179 Deferred Income Taxes 250,601 250,601 ----------- ----------- Total Current Assets 39,035,808 38,433,228 Long-Term Assets Equipment, net 492,928 449,947 Patent and license rights, net 273,501 272,291 Deferred Income Taxes 6,000,874 6,793,296 ----------- ----------- Total Long Term Assets 6,767,303 7,515,534 ----------- ----------- Total Assets $45,803,111 $45,948,762 =========== =========== Liabilities and Shareholders' Equity Current Liabilities: Accounts payable: Cree, Inc. $ 836,665 $ 780,029 Other 201,045 122,931 Accrued payroll 179,869 723,467 Accrued expenses 252,621 387,417 Deferred revenue 253,793 183,367 ----------- ----------- Total Current Liabilities 1,723,993 2,197,211 Shareholders' Equity: Common stock 54,258,882 54,972,302 Additional paid-in capital - stock options 2,446,039 2,439,734 Accumulated deficit (12,625,803)(13,660,485) ----------------------- Total Shareholders' Equity 44,079,118 43,751,551 ----------- ----------- Total Liabilities and Shareholders' Equity $45,803,111 $45,948,762 =========== =========== Charles & Colvard, Ltd. Pro Forma Net Income Reconciliation (unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------- 2003 2002 2003 2002 --------- --------- ----------- ----------- As reported: Income before income tax expense $917,601 $637,787 $1,871,104 $1,137,997 Income tax expense $415,370 $ --- $ 836,422 $ --- --------- --------- ----------- ----------- Net Income $502,231 $637,787 $1,034,682 $1,137,997 ========= ========= =========== =========== Pro Forma: Income before income tax expense $917,601 $637,787 $1,871,104 $1,137,997 Income tax expense (38% of U.S. taxable income) $415,370 $290,941 $ 836,422 $ 520,244 --------- --------- ----------- ----------- Net Income $502,231 $346,846 $1,034,682 $ 617,753 ========= ========= =========== ===========
Pro forma net income for 2002 is comprised of the Company's net income for the period after adjustment for estimated income taxes utilizing an effective tax rate of 38% of U.S. taxable income. During the fourth quarter of 2002, the Company recorded a one-time, non-operating, non-cash addition to earnings of $6.7 million which reflects the expected future tax benefits from net operating loss carryforwards ($16.0 million at December 31, 2002) and other deferred tax assets. Recognition of this deferred tax asset has resulted in the recording of tax expense in each quarter of 2003. Tax expense will be recorded during all profitable future quarters. However, U.S. Federal tax payments will only resume once the tax net operating loss carryforward has been completely utilized or if alternative minimum taxes are applicable.
Management believes that this pro forma information is useful to investors in comparing results of operations on a U.S. tax-equivalent basis in both periods.
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