EXHIBIT 99.1
------------
Chattem, Inc. Reports Second Quarter Earnings
Per Share before Charges Increase 37%; Total Revenues up 10%; Revises
Upward Earnings and Revenues Estimates for Fiscal Year
CHATTANOOGA, Tenn.--(BUSINESS WIRE)--June 17, 2004--Chattem, Inc.
(NASDAQ:CHTT), a leading marketer and manufacturer of branded consumer
products, announced today record financial results for the fiscal
second quarter ended May 31, 2004.
Total revenues for the quarter were $70.1 million, operating
income excluding litigation settlement charges was $19.8 million and
net income excluding debt extinguishment and litigation settlement
charges was $10.6 million, representing increases of 10%, 16% and 41%,
respectively, over the corresponding year-ago results. Earnings per
share excluding debt extinguishment and litigation settlement charges
for the fiscal 2004 second quarter were $.52, a 37% increase over the
second quarter of fiscal 2003 earnings per share.
Chattem's earlier estimates for its second fiscal quarter were
$64-66 million of total revenues and $.42-.44 earnings per share. This
marks the 11th consecutive quarter Chattem has bested the prior year's
corresponding quarterly earnings before charges.
For the first six months of fiscal 2004, total revenues were
$131.3 million, operating income excluding litigation settlement
charges was $34.9 million and net income excluding debt extinguishment
and litigation settlement charges was $17.3 million, or $.87 per
share, representing increases over the corresponding year-ago periods
of 8%, 18%, 43% and 43%, respectively.
After giving effect to charges related to the Company's debt
refinancing and the initial payments pertaining to the settlement of
litigation concerning Dexatrim(R) with phenylpropanolamine (PPA), the
Company had net income of $7.2 million, or $.36 per share, for the
fiscal second quarter. For the first six months of fiscal 2004, net
income was $6.5 million, or $.33 per share. See the reconciliation of
operating income excluding litigation settlement charges and net
income excluding debt extinguishment and litigation settlement charges
in Chattem's unaudited consolidated statement of income attached
hereto.
The 10% increase in total revenues for the second fiscal quarter
of 2004 over the second fiscal quarter of 2003 was led by the Icy
Hot(R), Gold Bond(R), Selsun blue(R) and Bull Frog(R) brands. Net
sales of Icy Hot soared 67% over the corresponding year-ago period,
driven by continued strength of the Icy Hot Back Patch and
higher-than-expected initial shipments of the new Icy Hot Medicated
Sleeve. The brand will continue to receive strong media and
promotional support for the balance of the fiscal year, which should
continue to fuel strong sales growth. Net sales of the Gold Bond
franchise increased 32%, led by double-digit sales growth from the
lotion, foot and cream segments of the business. Selsun blue's net
sales grew 12% as the brand continued to benefit from a strong
marketing campaign and shipments of Selsun blue Conditioner. Bull
Frog's net sales increased 34% due to expanded distribution and
increased sales of pre-pack displays.
Also enjoying year-over-year sales increases during the second
fiscal quarter of 2004 were Pamprin(R) (up 20%), Sun-In(R) (up 20%),
Herpecin(R) (up 11%) and Capzasin(R) (up 9%).
Somewhat offsetting the strong sales increases in the second
fiscal quarter of 2004 noted above was a 55% decline in the Dexatrim
diet pill business from the second quarter of fiscal 2003. This
weakness was countered in part by the introduction of the Dexatrim All
in One Bar, which exceeded sales expectations and continues to be
supported by a strong marketing campaign. pHisoderm(R) also
experienced a quarterly drop in sales, declining 27% from the
corresponding year-ago quarter.
International total revenues declined 14% for the second fiscal
quarter of 2004 due principally to sales weakness in Canada and the
termination of certain European distributor relationships.
Chattem enjoyed excellent margins in the second fiscal quarter.
Gross margin based on total revenues was 70.7%. Advertising and
promotion as a percentage of total revenue was 27.2%. Selling, general
and administrative expense (S,G&A) as a percentage of total revenues
was 15.2%, exhibiting continued cost controls.
For the first six months of fiscal 2004, gross margin, advertising
and promotion, and S,G&A as a percentage of total revenues were 71.4%,
28.6% and 16.2%, respectively.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) excluding debt extinguishment and litigation settlement
charges was $21.1 million for the second fiscal quarter of 2004 and
$37.5 million for the first six months of fiscal 2004. The Company's
EBITDA margin (EBITDA (excluding debt extinguishment and litigation
settlement charges) divided by total revenues) was 30.2% for the
second fiscal quarter and 28.6% for the first half of fiscal 2004 (see
reconciliation of EBITDA (excluding debt extinguishment and litigation
settlement charges) to net income in Chattem's unaudited income
statement attached hereto).
Days' sales outstanding in accounts receivable were 50 compared to
46 a year ago, reflecting higher sales levels of seasonal brands Bull
Frog and Sun-In that carry longer dated receivables. Inventories for
the quarter declined $1.6 million despite the $6.5 million increase in
total revenue year-over-year.
As previously reported, during the first quarter of fiscal 2004
Chattem completed the refinancing of approximately $210 million of
long-term debt, resulting in a loss net of taxes from the early
extinguishment of debt of $7.4 million, or $.37 per share, recorded in
the first fiscal quarter, and an additional loss net of taxes of $1.1
million, or $.05 per share, recorded in the second fiscal quarter. No
other charges related to the debt refinancing are expected. Annual
savings on interest expense from the debt refinancing will be
approximately $3.7 million after-tax, or $.19 per share.
Net debt (total debt less cash and cash equivalents) declined
$13.3 million from the second fiscal quarter of 2003 to the second
fiscal quarter of 2004, demonstrating the Company's use of its strong
cash flows to reduce debt.
During the first fiscal quarter, the Company announced that it had
entered into a memorandum of understanding (MOU) with the plaintiffs'
steering committee which memorializes certain settlement terms
concerning lawsuits relating to Dexatrim with PPA, and the settlement
of certain related suits with its product liability insurance
carriers. During the second fiscal quarter a final settlement
agreement which supercedes the MOU was executed, the insurance
companies with which the Company reached a settlement funded their
portion of that settlement and the notice to plaintiffs requiring them
to file claims by July 7, 2004 was first published. See the Company's
filings with the Securities and Exchange Commission for a complete
discussion of this litigation. If the settlement is completed, based
on information currently known to the Company, Chattem expects to
record pre-tax charges of $20-25 million, or $13-16 million net of
taxes, although the exact amount of this charge cannot yet be
determined. The Company recorded the first portion of this charge,
$3.5 million pre-tax or $.17 per share, during its second fiscal
quarter. Chattem expects to record the balance of this charge during
the second half of fiscal 2004, although the exact timing of this
charge cannot yet be determined. The Company believes that its
available insurance, cash on hand, cash provided by operating
activities and funds available to the Company under its revolving
credit facility will be sufficient to fund the Company's portion of
the settlement, if the settlement is completed on the basis of
information currently known to it.
During its second fiscal quarter, Chattem purchased 113,000 of its
shares at an average price of $25.82 per share. For fiscal 2004, the
Company has purchased 129,000 of its shares at an average price of
$25.09. A total of $16.8 million remains available under the Company's
previously announced $20 million board stock repurchase authorization.
For the balance of the 2004 fiscal year, Chattem currently expects
to record results in the following ranges:
($ in millions, except per share data)
Q1A Q2A Q3E Q4E FYE04
- ------------------------ ------ ------ --------- --------- -----------
Total Revenues $61.2 $70.1 $63-65 $57-59 $251-255
- ------------------------ ------ ------ --------- --------- -----------
EPS $0.34 $0.52 $.41-.43 $.33-.35 $1.60-1.65
- ------------------------ ------ ------ --------- --------- -----------
(Full fiscal year results may not equal the sum of quarterly
projections due to rounding and, in the case of EPS, variations
in share count.)
All earnings per share numbers given in the above chart are prior
to any cumulative effects of adopting a change in accounting principle
which might be recorded during the year, prior to any charges recorded
or expected to be recorded relative to the Dexatrim with PPA
litigation and related insurance coverage litigation discussed above,
and before charges associated with the debt refinancing, also
discussed above. See the attached reconciliation of net income
(excluding debt extinguishment charges and settlement and
administrative costs of PPA litigation) per common share. These
estimates constitute forward-looking statements and are subject to a
number of risks, uncertainties and assumptions, including those
described in the Company's filings with the Securities and Exchange
Commission.
Statements in this press release which are not historical facts
are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements involve risks, uncertainties and assumptions that could
cause actual outcomes and results to differ materially from those
expressed or projected.
Chattem will provide an online Web simulcast and rebroadcast of
its second fiscal quarter 2004 conference call. The live broadcast of
the call will be available online at www.chattem.com and
www.streetevents.com on Friday, June 18 beginning at 8:30 a.m. EDT.
The online replay will follow shortly after the call and be available
through June 22, 2004. Please note Webcast requires Windows Media
Player.
CHATTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the Three Months For the Six Months
Ended May 31, Ended May 31,
--------------------- -------------------
2004 2003 2004 2003
----------- --------- --------- ---------
REVENUES:
Net sales $69,886 $63,269 $130,813 $121,394
Royalties 206 364 516 664
----------- --------- --------- ---------
Total revenues 70,092 63,633 131,329 122,058
COSTS AND EXPENSES:
Cost of sales 20,556 17,713 37,508 35,404
Advertising and promotion 19,080 18,529 37,612 36,934
Selling, general and
administrative 10,671 10,397 21,306 20,211
Settlement and
administrative costs of
PPA litigation 3,463 - 3,657 -
----------- --------- --------- ---------
Total costs and expenses 53,770 46,639 100,083 92,549
----------- --------- --------- ---------
INCOME FROM OPERATIONS 16,322 16,994 31,246 29,509
----------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (3,639) (5,227) (8,394) (10,374)
Investment and other
income, net 115 53 160 87
Loss on early
extinguishment of debt (1,649) - (12,958) -
----------- --------- --------- ---------
Total other income
(expense) (5,173) (5,174) (21,192) (10,287)
----------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 11,149 11,820 10,054 19,222
PROVISION FOR INCOME TAXES 3,902 4,299 3,519 7,112
----------- --------- --------- ---------
NET INCOME $7,247 $7,521 $6,535 $12,110
=========== ========= ========= =========
DILUTED SHARES OUTSTANDING 20,176 19,751 20,038 19,966
=========== ========= ========= =========
NET INCOME PER COMMON SHARE
(DILUTED) $0.36 $0.38 $0.33 $0.61
=========== ========= ========= =========
- ----------------------------------------------------------------------
INCOME FROM OPERATIONS (EXCLUDING SETTLEMENT AND ADMINISTRATIVE COSTS
OF PPA LITIGATION):
Income from operations $16,322 $31,246
Settlement and
administrative costs of
PPA litigation 3,463 3,657
----------- ---------
Income from operations
(excluding settlement and
administrative costs of
PPA litigation) $19,785 $34,903
=========== =========
- ----------------------------------------------------------------------
NET INCOME (EXCLUDING DEBT EXTINGUISHMENT CHARGES AND SETTLEMENT AND
ADMINISTRATIVE COSTS OF PPA LITIGATION) PER COMMON SHARE (DILUTED):
Net income $7,247 $6,535
Add:
Loss on early
extinguishment of debt 1,649 12,958
Settlement and
administrative costs of
PPA litigation 3,463 3,657
Benefit from income taxes (1,789) (5,815)
----------- ---------
Net income (excluding debt
extinguishment charges and
settlement and administrative
costs of PPA litigation) $10,570 $17,335
=========== =========
Net income (excluding debt
extinguishment charges and
settlement and administrative
costs of PPA litigation) per
common share (diluted) $0.52 $0.87
=========== =========
- ----------------------------------------------------------------------
EBITDA RECONCILIATION (EXCLUDING SETTLEMENT AND ADMINISTRATIVE COSTS
OF PPA LITIGATION):
Net income $7,247 $7,521 $6,535 $12,110
Add:
Provision for income taxes 3,902 4,299 3,519 7,112
Interest expense, net
(includes loss on early
extinguishment of debt) 5,173 5,174 21,192 10,287
Depreciation and
amortization less amounts
included in interest 1,349 1,018 2,617 2,152
----------- --------- --------- ---------
EBITDA $17,671 $18,012 $33,863 $31,661
----------- --------- --------- ---------
Settlement and administrative
costs of PPA litigation 3,463 - 3,657 -
----------- --------- --------- ---------
EBITDA (excluding settlement and
administrative costs of
PPA litigation) $21,134 $18,012 $37,520 $31,661
----------- --------- --------- ---------
Depreciation & amortization $1,535 $1,522 $3,072 $3,021
Capital expenditures $749 $1,102 $1,240 $2,566
- ----------------------------------------------------------------------
MARGIN DATA:
EBITDA margin (EBITDA
(excluding settlement and
administrative costs of
PPA litigation)/total
revenues) 30.2% 28.3% 28.6% 25.9%
Net income margin (net
income/total revenues) 10.3% 11.8% 5.0% 9.9%
Net income (excluding debt
extinguishment charges and
settlement and administrative
costs of PPA litigation) margin
(net income (excluding debt
extinguishment charges and
settlement and administrative
costs of PPA litigation)/total
revenues) 15.1% - 13.2% -
- ----------------------------------------------------------------------
May 31, May 31,
2004 2003
----------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents $ 10,890 $ 13,961
Accounts receivable, net $ 39,057 $ 32,197
Inventories $ 18,839 $ 20,417
Accounts payable $ 9,805 $ 10,120
Senior bank debt $ - $ 11,750
Subordinated debt 200,000 204,692
----------- ---------
Total debt $200,000 $216,442
=========== =========
Shareholders' equity $104,928 $ 84,039
Total assets $361,198 $359,190
- ----------------------------------------------------------------------
Statements in this press release which are not historical facts are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements involve risks, uncertainties and assumptions that could
cause actual outcomes and results to differ materially from those
expressed or projected.
CONTACT: Chattem, Inc., Chattanooga
Earnings Release:
Alec Taylor, 423-821-2037, ext. 3281
or
Rick Moss, 423-821-2037, ext. 3278
or
Investor Relations:
Tammy Nichols, 423-821-2037, ext. 3209