[bc]SOLA International Announces Fiscal 2004 Third Quarter Results[/bc]

Summary:
o Net Sales Increase 17.8%
o Adjusted Net Income of $7.6 million Exceeds First Call Estimates of $7.0 million
o Increases Fourth Quarter Adjusted Net Income Guidance from
$13.0 million to $16.4 million
o Completes Recapitalization
o Acquires Great Lakes Coating Laboratory


SAN DIEGO, CA February 12, 2004 – SOLA International Inc. (NYSE: SOL) today announced the following fiscal year 2004 third quarter results.

o Net sales of $159.3 million compared with $135.2 million in the year ago period, an increase of 17.8%.
o Adjusted net income of $7.6 million compared to consensus First Call estimates of $7.0 million and year ago adjusted net income of $5.8 million, an increase of 31.0%.
o Debt reduced by $48.3 million from the prior quarter.


Fourth Quarter Fiscal 2004 Guidance

The Company is raising fiscal 2004 fourth quarter guidance and now expects adjusted net income to reach $16.4 million, up $3.4 million form prior guidance. This new estimate assumes that the Company will continue to benefit from the current interest rate of approximately 3.6% on its $175 million term loan.

Third Quarter Fiscal 2004 Management Commentary

Commenting on the fiscal 2004 third quarter, Chief Executive Officer Jeremy Bishop said, “This has been a landmark quarter for SOLA. Our successful operating strategy provided us with a financial performance that allowed us to recapitalize the Company. This increased liquidity in our common stock, strengthened our balance sheet, reduced interest expense and improved earnings and cash flow. Also, because virtually all of our remaining debt is US Dollar denominated, the transparency of our future financial statements improves.”


“Net sales, excluding the impact of currency, increased 7.4% in the quarter with North America increasing 9.3%, Europe increasing 9.1% and Rest of World increasing 0.4%.

The quarter provided continuing sales growth from each of our 4 key product areas:

o Progressive lenses which were supported by new product launches including SOLAOne™ and AO Easy.
o High index lenses which included the launch of a 1.67 index progressive lens during the quarter.
o Photochromic lenses which continued to expand volume and sales at double-digit growth rates.
o Anti-reflection coated lenses which continued to benefit from increased sales of Teflon® EasyCare lenses.

Further, as reported net sales in our global prescription laboratory network increased 35% compared to the prior year quarter. This success continues to confirm the attractiveness of expanding our global prescription laboratory network. As such, I am pleased to announce that effective February 6, 2004, SOLA has acquired 100% of the stock of Great Lakes Coating Laboratory. The purchase price consisted of $15.3 million in cash consideration and the assumption of $1.9 million in debt. Contingent payments total an additional $3.8 million. Great Lakes is located in Troy, Michigan, has annual sales of approximately $11.5 million and is considered by many to be the premier coating lab in the United States. We anticipate that this acquisition will further improve our ability to distribute Teflon EasyCare lenses in North America.”

Recapitalization

As previously announced, a recapitalization of the Company was completed during the third quarter. In a series of transactions, the Company issued 6.9 million shares of common stock at $17.50 per share and entered into a new senior credit facility consisting of a $175 million six-year term loan and a $50 million five-year revolving credit facility. Net proceeds from these transactions were used to repurchase Euro 195 million of the Company’s 11% notes and for general working capital purposes. As a result, total debt at December 31, 2003 was $290.6 million compared to $338.9 million at September 30, 2003 and, as a percent of capital, debt at December 31 was 43.3% compared to 54.4% at September 30.

Third Quarter Results

Reported earnings under Generally Accepted Accounting Principles (“GAAP”), which include the realized foreign currency loss on the Company’s net long-term Euro-denominated debt, special charges and the loss on early extinguishment of debt, was a net loss of $25.3 million in the fiscal 2004 third quarter compared to a net loss of $5.2 million in the year ago period. In accordance with GAAP, the Company is required to re-measure its Euro-denominated debt into U.S. Dollars for financial reporting purposes. As a result of re-measuring its net long-term Euro-denominated debt into U.S. Dollars, the Company recorded a net after-tax foreign exchange loss of $1.5 million in the third quarter compared to an after-tax foreign exchange loss of $11.0 million in the year ago quarter.

Also, as a result of the Company’s recapitalization, a $28.7 million after-tax loss on early extinguishment of debt was recorded in the third quarter of fiscal 2004. The components of this charge included an after-tax loss of $22.5 million relating to the tender premium paid on the repurchase of Euro 195 million principal amount of the Company’s 11% Euro-denominated notes and an after-tax loss of $6.2 million relating to the write-off of prior period debt issuance costs and tender fees. Finally, during the third quarter of fiscal 2004, after-tax special charges of $3.2 million were recorded which related to workforce reductions, facility closures and the impairment of certain assets. These charges are part of the anticipated $20 million special charge which was announced in the second quarter of fiscal 2004.

Operating expense on an as reported basis was $49.4 million, or 31.0% of sales in the third quarter fiscal 2004 compared to $42.0 million, or 31.1% of sales, in the year ago quarter. Excluding special charges of $4.6 million and the translation impact of foreign currency of $3.3 million, operating expense in the third quarter fiscal 2004 decreased approximately $0.5 million from the comparable year ago period.

Adjusted operating income, excluding special charges of $4.6 million, was $20.0 million, or 12.6% of sales, in the third quarter of fiscal 2004 compared to $14.0 million, or 10.4% of sales, in the year ago period, an increase of 43.0%. Adjusted EBITDA was $26.4 million, or 16.6% of sales, in the third quarter of fiscal 2004 compared to $19.1 million, or 14.2% of sales, in the year ago period.

Balance Sheet and Cash Flow

Ron Dutt, Executive Vice President and Chief Financial Officer of SOLA commented, “I am encouraged by our working capital performance, which continued to improve in the quarter. Inventory, excluding the translation effect of foreign currency, decreased $6.9 million compared to the second quarter of fiscal 2004. This decrease occurred despite additional inventory required to support new product launches including Teflon EasyCare lenses, AO Easy and SOLAOne. On a year-to-date basis, and excluding the impact of currency, inventory has increased $2.4 million. Finished goods inventory turnover was 4.5 times in the quarter, which compares to 3.9 times in the comparable year ago period and 4.4 times in the second quarter of this fiscal year.”

“Receivables, excluding the translation effect of foreign currency, increased $1.5 million compared to the second quarter of fiscal 2004. This increase primarily reflects the normal seasonal slowdown we experience in collection activity at the end of December. On a year-to-date basis, and excluding the impact of currency, receivables have decreased $0.2 million despite a comparable year-to-date sales increase of 7.0%. Days sales outstanding (“DSO”) of 71.2 this quarter compares to 72.5 in the prior year quarter and 67.0 in the second quarter of this fiscal year.”

“Cash flow from operations on an as reported basis was $16.7 million in the third quarter of fiscal 2004 compared to $9.7 million in the year ago period. Excluding the effect of the Company’s recapitalization and special charges, cash flow from operations in the third quarter fiscal 2004 was $15.1 million, or an increase of $5.3 million from the third quarter last year.”

Nine Months Year-to-Date

Net sales for the nine months ended December 31, 2003 were $471.9 million compared to $408.9 million for the nine months ended December 31, 2002, an increase of 15.4%.

Adjusted operating income, excluding special charges of $4.6 million, for the nine months ended December 31, 2003 was $60.5 million, or 12.8% of sales, compared to $44.0 million, or 10.8% of sales, in the year ago period. Adjusted EBITDA for the nine months ended December 31, 2003 was $78.6 million, or 16.7% of sales, compared to $59.5 million, or 14.6% of sales, in the year ago period. Adjusted net income was $22.6 million for the nine months ended December 31, 2003 compared to $17.3 million in the comparable year ago period.


Use of Non-GAAP Measures

The Company believes that non-GAAP measures of sales, operating expenses, operating income, EBITDA , net income, inventory and accounts receivable adjusted for the translation effect of foreign currency, special charges and costs associated with the recapitalization are appropriate measures for evaluating the operating performance of the Company because this information provides investors and other interested parties with a measure of operating results that allows them to evaluate the Company’s results of operations with those of other companies on a more comparable basis.

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This press release includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including statements relating to SOLA’s potential growth prospects. Such forward-looking statements are subject to various risks and uncertainties, many of which are beyond the control of SOLA. Actual results could differ materially from the forward-looking statements as a result of, among other things, the highly competitive nature of the eyeglass lens and coating industry; SOLA’s need to develop new products; potential adverse developments in the domestic and foreign economic and political environment, including exchange rates, tariffs and other trade barriers and potentially adverse tax consequences; potential difficulties in staffing and managing foreign operations; and the other factors described in SOLA’s Form 10-K for the fiscal year ended March 31, 2003. The words “believe”, “expect”, “will”, “anticipate”, “estimate”, “plan”, “expectation”, “intention”, “guidance” and similar expressions identify forward-looking statements. SOLA undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.