EXHIBIT 99.1
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Chattem, Inc. Reports Third Quarter Earnings Per Share Before Litigation Charges
Increase 35%; Total Revenues up 12%
CHATTANOOGA, Tenn.--(BUSINESS WIRE)--September 16, 2004--
Announces 2005 New Product Line-Up and
Gives Initial Guidance for Fiscal 2005
Chattem, Inc. (NASDAQ:CHTT), a leading marketer and manufacturer of branded
consumer products, announced today financial results for the fiscal third
quarter ended August 31, 2004.
Total revenues for the quarter were $66.1 million, operating income
excluding litigation settlement charges was $16.8 million and net income
excluding litigation settlement charges was $9.3 million, representing increases
of 12%, 6% and 36%, respectively, over the corresponding year-ago results.
Earnings per share excluding litigation settlement charges for the fiscal 2004
third quarter were $.46, a 35% increase over the third quarter of fiscal 2003
earnings per share.
Chattem's earlier estimates for its third fiscal quarter were $63-65
million of total revenues and $.41-.43 earnings per share, excluding litigation
settlement charges. On August 27, 2004 the Company revised these estimates to
$65-66 million of total revenues and $.44-.46 in earnings per share, excluding
litigation settlement charges.
For the first nine months of fiscal 2004, total revenues were $197.5
million, operating income excluding litigation settlement charges was $51.7
million and net income excluding debt extinguishment and litigation settlement
charges was $27.0 million, or $1.34 per share, representing increases over the
corresponding year-ago period of 9%, 14% and 41%, respectively.
After giving effect to the payments pertaining to the settlement of
litigation concerning Dexatrim(R) with phenylpropanolamine (PPA), the Company
had net income of $8.7 million, or $.43 per share, for its third fiscal quarter
of 2004. For the first nine months of fiscal 2004, net income after debt
extinguishment and litigation settlement charges was $15.3 million, or $.76 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 12% increase in total revenues for the third fiscal quarter of 2004
over the third fiscal quarter of 2003 was led by the Icy Hot(R), Aspercreme(R),
Selsun blue(R), Gold Bond(R), Pamprin(R) and Bull Frog(R) brands.
Net sales of Icy Hot were once again very strong, increasing 70% over the
corresponding year-ago period. While the Icy Hot Patches and newly introduced
Medicated Sleeve had outstanding quarters, the remaining portion of the
franchise also enjoyed double digit growth. Odor-free Aspercreme similarly
experienced a strong quarter with sales increasing 22%. Also enjoying
year-over-year sales increases during the third fiscal quarter of 2004 were
Capzasin(R) (33%) and Sportscreme(R) (8%), further evidencing the strength of
Chattem's market-leading topical analgesic franchise.
Selsun blue turned in another excellent quarter with sales up 6% from the
corresponding year-ago period, when the brand was already enjoying outstanding
sales. Selsun blue's domestic factory shipments have increased from
approximately $20 million in 2001, the last full year of Abbott Laboratories'
ownership, to a projected $34 million in 2004.
Gold Bond's sales rose 7%, led by strong performances of the foot and
lotion segments of the business. Shipments of the new 14-ounce pump version of
Gold Bond Ultimate Healing Lotion began in the latter half of the quarter and
should serve to increase the retail presence of this successful product that was
introduced a year ago.
Pamprin's sales increased 28% from the third fiscal quarter of 2003,
primarily due to the introduction of Pamprin All Day, which is being supported
by an on-going media campaign.
Bull Frog completed its most successful summer campaign since the brand was
acquired, with sales in the third fiscal quarter up 92% from the corresponding
year-ago quarter. Increased distribution and display programs and reduced
returns were cited as the reasons for the dramatic sales increase.
Somewhat offsetting the strong sales performance in the third fiscal
quarter of 2004 was a 41% decline in the Dexatrim pill business, which continues
to suffer from overall category sales weakness. The Dexatrim All in One Bar also
performed below expectations for the quarter, as the category proved to be more
promotional and seasonal than expected. pHisoderm also experienced a quarterly
drop in sales, declining 17%, due primarily to intense competition in the acne
category.
International total revenues in the quarter increased 16% from the third
fiscal quarter of 2003, reversing three straight quarters of declining sales.
This increase in revenues was principally attributed to the strengthening of
Selsun blue sales outside the United States and improvement in the Company's
Canadian business.
Chattem once again enjoyed excellent margins in the third fiscal quarter.
Gross margin based on total revenues was 71.1%. Advertising and promotion as a
percentage of total revenues was 28.2%. Selling, general and administrative
expense (S,G&A) as a percentage of total revenues was 17.4%.
For the first nine months of fiscal 2004, gross margin, advertising and
promotion, and S,G&A as a percentage of total revenues were 71.3%, 28.5% and
16.7%, respectively.
The Company's effective tax rate declined to 33% for fiscal 2004 due to the
continuing implementation of tax savings initiatives. The effective tax rate for
the first nine months of fiscal 2003 was 37%.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
excluding litigation settlement charges was $18.2 million for the third fiscal
quarter of 2004 and $55.7 million for the first nine months of fiscal 2004,
excluding debt extinguishment and litigation settlement charges. The Company's
EBITDA margin (EBITDA (excluding litigation settlement charges) divided by total
revenues) was 27.4% for the third fiscal quarter and 28.2% for the first nine
months of fiscal 2004, when EBITDA excludes debt extinguishment and litigation
settlement charges. (See reconciliation of EBITDA (excluding debt extinguishment
and litigation settlement charges) to net income in Chattem's unaudited income
statement attached hereto). EBITDA for the third fiscal quarter and first nine
months of fiscal 2004 after debt extinguishment and litigation settlement
charges was $17.3 million and $51.2 million, respectively.
Days' sales outstanding in accounts receivable were 44 compared to 43 a
year ago. Inventories measured as days on hand were 92 compared to 111 a year
ago, again demonstrating Chattem's strong adherence to balance sheet discipline.
As was previously reported on August 27, 2004, during the third fiscal
quarter the federal district judge presiding over the phenylpropanolamine (PPA)
litigation relating to the Company's Dexatrim brand stated that the Court would
enter an order approving the settlement previously reached in this litigation.
Based upon the Court's statements, the number of claims submitted in the
settlement, the number of claims which elected to opt out of the settlement and
contribution from insurers and other third parties, Chattem now expects to
record pre-tax charges totaling $10-15 million, or $7-10 million net of taxes,
although the exact timing of this charge is not yet known. The Company recorded
the first portion of this charge, $3.5 million pre-tax, or $.17 per share ($2.3
million and $.11 per share, respectively, net of taxes), during its second
fiscal quarter, and $834,000 pre-tax, or $.04 per share ($559,000 and $.03 per
share, respectively, net of taxes), during its third fiscal quarter. Chattem
expects to record the balance of this charge in the fourth quarter of fiscal
2004, although the exact timing of this charge cannot yet be determined. Chattem
previously estimated the total pre-tax charge associated with the PPA settlement
to be $20-25 million.
During its third fiscal quarter, Chattem purchased 61,100 of its shares at
an average price of $29.14 per share. A total of $15.0 million remains available
under the Company's previously announced $20 million board stock repurchase
authorization.
For the fourth fiscal quarter of 2004, Chattem currently expects total
revenues to be in the $57-59 million range and earnings per share before
litigation settlement charges to be in a range of $.33-.35. For fiscal 2005,
Chattem's current expectations are that total revenues will grow 5-8% over
fiscal 2004 levels, with earnings per share growth before any charges to be in
the 10-15% range. These estimates constitute forward-looking statements and are
subject to risks, uncertainties and assumptions, including those set forth in
the Company's filings with the Securities and Exchange Commission.
Chattem also announced its line-up of product line extensions for fiscal
2005: the Aspercreme Odor-Free Therapy Back and Body Patch which provides
odor-free, non-irritating temporary relief from minor arthritis, joint and
muscle aches; Gold Bond Ultimate(TM) Comfort Body Powder, a unique time-released
formula enriched with Aloe and vitamins A, C and E to protect and nurture all
skin types, as well as provide body freshness, odor protection and moisture
control; Dexatrim MAX, a diet pill combining a complete daily dose of B vitamin
complex and ECGC from Green Tea to boost metabolism, provide added energy, fight
weight gain and control hunger cravings; pHisoderm pH2O, a line of three
products specially formulated with an essential vitamin and hydrating complex
that boosts the skin's natural processes; and Bull Frog UV Defender, a line of
three hypoallergenic sunblocks for kids shielding delicate skin by providing
eight hours of waterproof protection from both UVA and UVB rays.
During the 2005 fiscal year Chattem expects to announce certain additional
line extensions including products from Selsun blue and the topical analgesic
portfolio.
Statements in this press release which are not historical facts, including,
without limitation, financial guidance for the fourth quarter of fiscal 2004 and
fiscal 2005, 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 third
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,
September 17 beginning at 8:30 a.m. EDT. The online replay will follow shortly
after the call and be available through September 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 Nine Months
Ended August 31, Ended August 31,
-------------------- -------------------
2004 2003 2004 2003
---------- --------- --------- ---------
REVENUES:
Net sales $66,096 $58,972 $196,909 $180,366
Royalties 39 210 555 874
---------- --------- --------- ---------
Total revenues 66,135 59,182 197,464 181,240
COSTS AND EXPENSES:
Cost of sales 19,135 15,995 56,643 51,399
Advertising and promotion 18,666 17,075 56,278 54,009
Selling, general and
administrative 11,525 10,234 32,831 30,445
Litigation settlement 834 - 4,491 -
---------- --------- --------- ---------
Total costs and expenses 50,160 43,304 150,243 135,853
---------- --------- --------- ---------
INCOME FROM OPERATIONS 15,975 15,878 47,221 45,387
---------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (3,284) (5,057) (11,678) (15,431)
Investment and other income,
net 45 32 205 119
Loss on early extinguishment
of debt - - (12,958) -
---------- --------- --------- ---------
Total other income
(expense) (3,239) (5,025) (24,431) (15,312)
---------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 12,736 10,853 22,790 30,075
PROVISION FOR INCOME TAXES 4,002 4,016 7,521 11,128
---------- --------- --------- ---------
NET INCOME $8,734 $6,837 $15,269 $18,947
========== ========= ========= =========
DILUTED SHARES OUTSTANDING 20,308 19,905 20,148 19,897
========== ========= ========= =========
NET INCOME PER COMMON SHARE
(DILUTED) $0.43 $0.34 $0.76 $0.95
========== ========= ========= =========
- ----------------------------------------------------------------------
INCOME FROM OPERATIONS
(EXCLUDING LITIGATION
SETTLEMENT CHARGES):
Income from operations $15,975 $47,221
Litigation settlement charges 834 4,491
---------- ---------
Income from operations
(excluding litigation
settlement charges) $16,809 $51,712
========== =========
- ----------------------------------------------------------------------
NET INCOME (EXCLUDING DEBT
EXTINGUISHMENT AND
LITIGATION SETTLEMENT
CHARGES) PER COMMON
SHARE (DILUTED):
Net income $8,734 $15,269
Add:
Loss on early
extinguishment of debt - 12,958
Litigation settlement
charges 834 4,491
Benefit from income taxes (275) (5,758)
---------- ---------
Net income (excluding debt
extinguishment and
litigation settlement
charges) $9,293 $26,960
========== =========
Net income (excluding debt
extinguishment and
litigation settlement
charges) per common share
(diluted) $0.46 $1.34
========== =========
- ----------------------------------------------------------------------
EBITDA RECONCILIATION
(EXCLUDING LITIGATION
SETTLEMENT CHARGES):
Net income $8,734 $6,837 $15,269 $18,947
Add:
Provision for income
taxes 4,002 4,016 7,521 11,128
Interest expense, net
(includes loss on early
extinguishment of debt) 3,239 5,025 24,431 15,312
Depreciation and
amortization less
amounts included in
interest 1,341 1,153 3,958 3,305
---------- --------- --------- ---------
EBITDA $17,316 $17,031 $51,179 $48,692
---------- --------- --------- ---------
Litigation settlement
charges 834 - 4,491 -
---------- --------- --------- ---------
EBITDA (excluding litigation
settlement charges) $18,150 $17,031 $55,670 $48,692
---------- --------- --------- ---------
Depreciation & amortization $1,536 $1,544 $4,608 $4,565
Capital expenditures $523 $1,367 $1,763 $3,933
- ----------------------------------------------------------------------
MARGIN DATA:
EBITDA margin (EBITDA
(excluding litigation
settlement charges)/total
revenues) 27.4% 28.8% 28.2% 26.9%
Net income margin (net
income/total revenues) 13.2% 11.6% 7.7% 10.5%
Net income (excluding debt
extinguishment and
litigation settlement
charges) margin
(net income (excluding debt
extinguishment and
litigation settlement
charges)/total revenues) 14.1% - 13.7% -
- ----------------------------------------------------------------------
August 31, August 31,
2004 2003
---------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents $26,755 $21,721
Accounts receivable, net $32,241 $28,540
Inventories $19,549 $19,778
Accounts payable $10,396 $10,223
Senior bank debt $ - $10,000
Subordinated debt 200,000 204,684
---------- ---------
Total debt $200,000 $214,684
========== =========
Shareholders' equity $116,065 $92,607
Total assets $371,355 $364,835
- ----------------------------------------------------------------------
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