EXHIBIT 99.1
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Chattem Announces Record Fourth Quarter and Fiscal 2004 Sales and
Earnings Per Share; Gives Outlook for Fiscal 2005
CHATTANOOGA, Tenn.--(BUSINESS WIRE)--Jan. 20, 2005--Chattem, Inc.
(NASDAQ: CHTT), a leading marketer and manufacturer of branded
consumer products, announced today financial results for the fourth
quarter and 2004 fiscal year ended November 30, 2004.
4th Quarter and Fiscal 2004 Financial Results
For the fourth fiscal quarter of 2004, total revenues were $60.7
million, a 16% increase over the comparable year-ago period, while
operating income excluding litigation settlement and impairment
charges was $14.2 million, a 35% increase. Net income excluding
litigation settlement and impairment charges was $7.3 million, a 66%
increase over results from the comparable year-ago period. Earnings
per share before litigation settlement and impairment charges for the
quarter were $.36, a 57% increase from the comparable year-ago period.
For the fiscal year, total revenues were $258.2 million, operating
income excluding litigation settlement and impairment charges was
$66.0 million and net income excluding debt extinguishment, litigation
settlement and impairment charges was $34.3 million, representing
increases of 10%, 18% and 47%, respectively, over the corresponding
year-ago results. Earnings per share for the fiscal year excluding
debt extinguishment, litigation settlement and impairment charges were
$1.70, a 43% increase over fiscal 2003 results.
As discussed in more detail below, in the fourth quarter of fiscal
2004 and the 2004 fiscal year, the Company took pre-tax charges
pertaining to the settlement of litigation concerning its Dexatrim(R)
products of $11.3 million and $15.8 million, respectively. Also as
discussed more fully below, in the fiscal fourth quarter the Company
took a $13.4 million (net of tax) impairment charge in connection with
the write-down on its books of the Dexatrim trademark. After giving
effect to these litigation settlement and impairment charges taken in
the fourth fiscal quarter, the Company suffered a net loss for the
quarter of $13.7 million, or $.67 per share. In addition, as was
previously disclosed, in the first and second quarters of fiscal 2004,
the Company took pre-tax charges relating to the early extinguishment
of debt totaling $13.0 million, or $.43 per share (net of tax). As a
result, for the 2004 fiscal year, after debt extinguishment,
litigation settlement and impairment charges net income was $1.6
million, or $.08 per share. See the reconciliation of income from
operations excluding litigation settlement and impairment charges and
net income excluding debt extinguishment, litigation settlement and
impairment charges in Chattem's consolidated statements of income
attached hereto.
Sales by Product Category
The strong increase in total revenues for the fourth fiscal
quarter of 2004 was led by a 41% increase in total revenues of the
Company's topical analgesic franchise, highlighted by Icy Hot(R),
whose sales rose by 55% from the corresponding year-ago period.
Additionally, sales of Aspercreme(R) increased by 31% during the
period, while Capzasin(R) enjoyed a 72% rise in revenues.
Sales of the Gold Bond(R) franchise increased 15% during the
quarter, led by Gold Bond Foot (up 45%) and Gold Bond Lotion (up 32%).
Finally, sales of Selsun Blue(R) increased 10% during the fourth
fiscal quarter.
Somewhat mitigating these sales increases were year-over-year
declines in Dexatrim diet pills (down 38%) and pHisoderm(R) (off 12%).
For the 2004 fiscal year, the increase in total revenues was
largely attributable to the same products, with the topical analgesic
portfolio rising 30% over fiscal 2003, the Gold Bond franchise up 14%
and Selsun Blue increasing by 10%. In addition, sales of Bullfrog(R)
and Pamprin(R) rose 43% and 16%, respectively, from the prior year.
Dexatrim pill sales declined 47% and pHisoderm sales dropped 15% from
fiscal 2003 to fiscal 2004.
International total revenues increased 11% in the fiscal fourth
quarter behind the continuing strength of Selsun Blue in Canada and
certain European countries. For the year, international total revenues
increased 1% from fiscal 2003.
Domestic net sales by product category for the fourth fiscal
quarter of 2004 and the 2004 fiscal year were as follows:
*T
($ in millions)
Product Category 4th Fiscal Quarter % Chg FY 2004 % Chg
- ----------------------------- ------------------ ------ ------- ------
Topical Analgesics $22.3 41 $76.3 30
Medicated Skin Care 12.6 9 60.5 7
Medicated Dandruff Shampoo 8.2 10 31.3 10
Dietary Supplements 6.4 (11) 33.0 (12)
Other 5.4 2 32.9 13
*T
Margins, Tax Rate and EBITDA
In the fourth fiscal quarter of 2004 Chattem again enjoyed
excellent margins. Gross margin based on total revenues was a very
strong 72.9%, owing to a favorable product mix. Advertising and
promotion (A&P) as a percentage of total revenues was 30.7%, while
selling, general and administrative expense (S,G&A) as a percentage of
total revenue was 18.7%. S,G&A was negatively impacted in the quarter
by higher than expected charges for accounting and administrative
services related to Sarbanes-Oxley compliance.
For the 2004 fiscal year, gross margin was 71.7%, A&P was 29.0%
and S,G&A was 17.1%, all as a percentage of total revenues.
The Company's effective tax rate for the fiscal fourth quarter and
2004 fiscal year was 33%.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) excluding litigation settlement and impairment charges was
$15.6 million for the fourth fiscal quarter of 2004 and $71.2 million
for the 2004 fiscal year.(1) The Company's EBITDA margin (EBITDA
divided by total revenues) was 26% for the fourth fiscal quarter and
28% for the 2004 fiscal year.
Net debt (long term debt minus cash) at 2004 fiscal year end was
$159.8 million compared to $185.5 million at the end of fiscal 2003.
The Company's leverage ratio (long term debt divided by EBITDA) was
2.81x while its interest coverage ratio (EBITDA divided by interest
expense) was 4.7x. These key credit statistics demonstrate Chattem's
continuing fiscal discipline and its use of its strong free cash flow
for debt reduction, among other uses.
Days sales outstanding for the fourth fiscal quarter were 48
compared to 44 in the comparable year-ago quarter, largely due to an
increase in longer dated international receivables. Inventories
measured as days on hand were 119 compared to 105 a year ago,
reflecting the building of inventories to support the launch of new
products in the Company's first fiscal quarter of 2005, as opposed to
fiscal 2004 when most of the new product launches occurred in the
second fiscal quarter.
Dexatrim Litigation
As has been previously disclosed, the federal judge presiding over
the PPA litigation has entered a final order and judgment certifying
the class and granting approval of the settlement previously reached
in this litigation. Based on the estimated litigation settlement costs
relating to its Dexatrim products, Chattem recorded a litigation
settlement charge of $11.3 million pre-tax ($7.6 million and $.37 per
share, respectively, net of taxes), during its fourth fiscal quarter.
For fiscal 2004, Chattem recorded total litigation settlement charges
of $15.8 million pre-tax ($10.6 million and $.52 per share,
respectively, net of taxes). The Company does not expect to have to
accrue any additional charges relative to the settlement of the PPA
litigation.
Chattem and Interstate Fire & Casualty Company ("Interstate") have
executed a term sheet of settlement (the "Term Sheet") with regard to
Interstate's lawsuit to rescind its $25 million of excess coverage for
product liability claims relating to Dexatrim products containing PPA.
In accordance with the Term Sheet, Interstate will provide coverage of
Dexatrim with PPA claims that are covered by its policy after $78.5
million has been paid toward covered claims. Once this $78.5 million
threshold is met, Interstate will pay 100% of the next $4 million of
claims covered by its policy; 75% of the next $8.5 million of such
claims; and 50% of the last $12.5 million of such claims.
Impairment of Indefinite-Lived Intangible Assets
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), adopted by the Company in the
first quarter of fiscal 2002, requires intangible assets with an
indefinite life being carried on the books in excess of fair market
value to be written down to fair market value. To comply with SFAS
142, Chattem recorded a one-time, non-cash write-down of $20.0 million
pre-tax ($13.4 million and $.65 per share, respectively, net of tax),
in its income statement during its fourth fiscal quarter of 2004,
relative to the book value of its Dexatrim brand. This charge does not
affect the Company's operations, and was supported by an independent
appraisal. The Company believes that its fair value of its portfolio
of intangible assets with indefinite lives are significantly greater
than their book value, although SFAS 142 does not permit the Company
to write-up above book value any intangible asset with an indefinite
life where the fair market value exceeds book value. By way of
example, the book value of Icy Hot at the end of the 2004 fiscal year
was $3.5 million, while the brand produced domestic net sales of $44.6
million during fiscal 2004, and has an estimated fair market value in
excess of $100 million.
Stock Repurchases
The Company did not repurchase any of its shares during the fourth
fiscal quarter. For fiscal 2004, a total of 190,700 shares were
repurchased at an average cost of $26.40 per share. A total of $15
million remained available under the Company's previously announced
$20 million board stock repurchase authorization at the end of the
2004 fiscal year.
2005 Outlook
Regarding fiscal 2005, the Company currently estimates total
revenues will be in a range of $268 - 276 million and earnings per
share in a range of $1.86-1.95. All estimates are prior to any
unusual, one-time items or cumulative effects of adopting a change in
accounting principle which might be recorded during the year. On a
quarterly basis, Chattem currently estimates the following ranges of
performance:
*T
($ in million, except per share data)
Q1 Q2 Q3 Q4 FY '05
- ----------------------------------------------------------------------
Total Revenues $66-68 $72-74 $68-70 $62-64 $268-276
- ----------------------------------------------------------------------
EPS $.40-.42 $.55-.57 $.52-.54 $.38-.40 $1.86-1.95
- ----------------------------------------------------------------------
*T
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. These estimates constitute forward looking statements,
and are subject to a number of risks, uncertainties and assumptions,
including those described below and in the Company's filings with the
Securities and Exchange Commission.
The Company expects the growth in total revenues to be driven by
the previously announced newly launched items, including the
Aspercreme Odor-Free Therapy Back and Body Patch; Gold Bond
Ultimate(TM) Comfort Body Powder; Dexatrim Max(TM); pHisoderm
pH20(TM); and BullFrog UV Defender(TM). Chattem will also enjoy a full
year of sales from items launched mid-year 2004, including the Icy Hot
Medicated Sleeve. The Company also anticipates an increase in sales
from its international business.
In addition, Chattem expects to announce the launch of a new item
for Selsun Blue, scheduled to ship in the third quarter of fiscal
2005.
For fiscal 2005, Chattem expects gross margins based on total
revenues to be in a range of 70-72%, A&P as a percentage of total
revenues in a range of 28-29%, SG&A as a percentage of total revenues
in a range of 16-17% and a tax rate of 33%. Quarterly results may vary
more widely than the indicated ranges due to seasonality and other
factors, including those related to all forward-looking statements.
The Company's estimated 2005 results anticipate no acquisitions,
debt repayments or share repurchases, nor any additional new product
introductions made during the fiscal year and are subject to change in
the event any such action is taken.
The Company also reiterated a previous announcement that certain
of its executive officers may from time to time during 2005 exercise
currently held stock options and sell shares related to these options.
The exercise of options and sale of shares will occur during
applicable trading windows imposed under the Company's trading policy
following the public release of financial information for the most
recently available period, or pursuant to Rule 10b5-1 plans. The
Company's executives have expressed this intention in order to
gradually diversify their financial holdings and address personal
financial needs. These executives intend to retain significant equity
interest in the Company so long as they remain employees.
Forward-Looking Statements
Statements in this press release which are not historical facts,
including, without limitation, financial guidance for 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.
Webcast
Chattem will provide an online Web simulcast and rebroadcast of
its fourth 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, January 21, 2005 beginning at 8:30
a.m. EDT. The online replay will follow shortly after the call and be
available through January 25, 2005. Please note Webcast requires
Windows Media Player.
(1) As used hereinafter, EBITDA excludes litigation settlement and
impairment charges. A reconciliation of EBITDA to net income for the
fourth fiscal quarter and the 2004 fiscal year is provided in
Chattem's consolidated statements of income attached hereto.
CHATTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the Three Months For the Twelve Months
Ended November 30, Ended November 30,
----------------------- ---------------------
2004 2003 2004 2003
----------- ----------- ----------- ---------
REVENUES:
Net sales $60,625 $52,161 $257,534 $232,527
Royalties 66 348 621 1,222
----------- ----------- ----------- ---------
Total revenues 60,691 52,509 258,155 233,749
COSTS AND EXPENSES:
Cost of sales 16,460 14,987 73,103 66,386
Advertising and
promotion 18,651 16,613 74,929 70,622
Selling, general and
administrative 11,338 10,358 44,169 40,803
Impairment of
indefinite-lived
intangible assets 20,000 - 20,000 -
Litigation settlement 11,345 - 15,836 -
----------- ----------- ----------- ---------
Total costs and
expenses 77,794 41,958 228,037 177,811
----------- ----------- ----------- ---------
INCOME (LOSS) FROM
OPERATIONS (17,103) 10,551 30,118 55,938
----------- ----------- ----------- ---------
OTHER INCOME (EXPENSE):
Interest expense (3,371) (5,000) (15,049) (20,431)
Investment and other
income, net 93 5 298 124
Loss on early
extinguishment of debt - - (12,958) -
----------- ----------- ----------- ---------
Total other income
(expense) (3,278) (4,995) (27,709) (20,307)
----------- ----------- ----------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (20,381) 5,556 2,409 35,631
PROVISION FOR (BENEFIT
FROM) INCOME TAXES (6,726) 1,132 795 12,260
----------- ----------- ----------- ---------
NET INCOME (LOSS) $(13,655) $4,424 $1,614 $23,371
=========== =========== =========== =========
DILUTED SHARES
OUTSTANDING 20,469 19,537 20,225 19,632
=========== =========== =========== =========
NET INCOME (LOSS) PER
COMMON SHARE (DILUTED) $(0.67) $0.23 $0.08 $1.19
=========== =========== =========== =========
- ----------------------------------------------------------------------
INCOME FROM OPERATIONS
(EXCLUDING IMPAIRMENT
AND LITIGATION
SETTLEMENT CHARGES):
Income (loss) from
operations $(17,103) $30,118
Impairment of indefinite-
lived intangible assets 20,000 20,000
Litigation settlement
charges 11,345 15,836
----------- -----------
Income from operations
(excluding impairment
and litigation
settlement charges) $14,242 $65,954
=========== ===========
- ----------------------------------------------------------------------
NET INCOME(LOSS)
(EXCLUDING DEBT
EXTINGUISHMENT,
IMPAIRMENT AND
LITIGATION SETTLEMENT
CHARGES) PER COMMON
SHARE (DILUTED):
Net income (loss) $(13,655) $1,614
Add:
Loss on early
extinguishment of debt - 12,958
Impairment of
indefinite-lived
intangible assets 20,000 20,000
Litigation settlement
charges 11,345 15,836
Benefit from income
taxes (10,344) (16,102)
----------- -----------
Net income (excluding
debt extinguishment,
impairment and
litigation settlement
charges) $7,346 $34,306
=========== ===========
Net income (excluding
debt extinguishment,
impairment and
litigation settlement
charges) per common
share (diluted) $0.36 $1.70
=========== ===========
- ----------------------------------------------------------------------
EBITDA RECONCILIATION
(EXCLUDING IMPAIRMENT
AND LITIGATION
SETTLEMENT CHARGES):
Net income (loss) $(13,655) $4,424 $1,614 $23,371
Add:
Provision for (benefit
from) income taxes (6,726) 1,132 795 12,260
Interest expense, net
(includes loss on
early extinguishment
of debt) 3,278 4,995 27,709 20,307
Depreciation and
amortization less
amounts included in
interest 1,335 1,664 5,293 4,969
----------- ----------- ----------- ---------
EBITDA $(15,768) $12,215 $35,411 $60,907
----------- ----------- ----------- ---------
Impairment of
indefinite-lived
intangible assets 20,000 - 20,000 -
Litigation settlement
charges 11,345 - 15,836 -
----------- ----------- ----------- ---------
EBITDA (excluding
impairment and
litigation settlement
charges) $15,577 $12,215 $71,247 $60,907
----------- ----------- ----------- ---------
Depreciation &
amortization $1,523 $2,019 $6,131 $6,584
Capital expenditures $1,476 $1,594 $3,239 $5,527
- ----------------------------------------------------------------------
MARGIN DATA:
EBITDA margin (EBITDA
(excluding impairment
and litigation
settlement charges)/
total revenues) 25.7% 23.3% 27.6% 26.1%
Net income margin (net
income/total revenues) -22.5% 8.4% 0.6% 10.0%
Net income (excluding
debt extinguishment,
impairment and
litigation settlement
charges) margin (net
income (excluding debt
extinguishment,
impairment and debt
extinguishment and
litigation settlement
charges)/total revenues) 12.1% - 13.3% -
- ----------------------------------------------------------------------
November November
30, 2004 30, 2003
----------- -----------
BALANCE SHEET DATA:
Cash and cash
equivalents $40,193 $26,931
Accounts receivable, net $32,098 $25,478
Inventories $21,690 $17,559
Accounts payable $13,341 $10,924
Senior bank debt $- $7,750
Subordinated debt 200,000 204,676
----------- -----------
Total debt $200,000 $212,426
=========== ===========
Shareholders' equity $107,112 $95,866
Total assets $371,724 $363,385
- ----------------------------------------------------------------------
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.
Earnings Release:
Alec Taylor, 423-821-2037, ext. 3281
or
Rick Moss, 423-821-2037, ext. 3278
or
Investor Relations:
Catherine Baker, 423-821-2037 ext. 3209