EXHIBIT 99.1
Chattem Reports Second Quarter Results for Fiscal 2006
CHATTANOOGA, Tenn.--(BUSINESS WIRE)--July 10, 2006--Chattem, Inc.
(NASDAQ: CHTT), a leading marketer and manufacturer of branded
consumer products, today announced financial results for the second
fiscal quarter and six months ended May 31, 2006.
Second Quarter Financial Results
Total revenues for the second quarter of fiscal 2006 were $79.4
million compared to total revenues of $75.7 million in the prior year
quarter, representing a 5% increase. Total revenues increased 8% over
the second quarter of fiscal 2005 excluding sales of pHisoderm, which
was divested in November 2005. Revenue growth for the quarter was
driven by the continued strength of the Gold Bond(R) franchise, up
11%, led by Gold Bond Ultimate(R) Healing Lotion, the BullFrog(R)
franchise, up 25%, reflecting strong sales of BullFrog Mosquito
Coast(R), the Selsun(R) franchise, up 7%, due to the introduction of
Selsun Salon(TM), and incremental sales from Icy Hot Pro-Therapy(R)
and Dexatrim Max20(TM).
Net income in the second quarter of fiscal 2006 was $10.2 million,
compared to $15.5 million in the prior year quarter and earnings per
share were $0.52, compared to $0.76 in the prior year quarter. Net
income in the second quarter of fiscal 2006 was reduced by employee
stock option expenses under FAS 123R. Net income for the second
quarter of fiscal 2005 included the reversal of a charge related to
the Dexatrim(R) litigation and a loss on early extinguishment of debt.
As adjusted to exclude these items, net income for the second quarter
of fiscal 2006 was $11.1 million, compared to $12.3 million in the
prior year quarter, and earnings per share were $0.57, compared to
$0.60 in the prior year quarter.(1) The decrease of adjusted net
income in the second quarter of fiscal 2006, in spite of an increase
in total revenues, was due to increased advertising and promotional
spending to support the Company's new products, primarily Icy Hot
Pro-Therapy and Selsun Salon.
First Six Months Financial Results
For the first six months of fiscal 2006, total revenues were
$163.4 million compared to total revenues of $147.2 million in the
prior year period, representing an 11% increase. Total revenues
increased 15% over the prior year period excluding sales of pHisoderm,
which was divested in November 2005. Revenue growth for the first half
of fiscal 2006 was led by the new product launches of Icy Hot
Pro-Therapy and Selsun Salon and continued growth of the Gold Bond
lotion business. For the first six months of fiscal 2006, the Selsun
franchise increased 15%, the Gold Bond franchise increased 12% and the
topical analgesic portfolio decreased slightly, as compared to the
prior year period.
Net income in the first six months of fiscal 2006 was $25.0
million, compared to $24.2 million in the prior year period and
earnings per share were $1.27, compared to $1.18 in the prior year
period. Net income in the first six months of fiscal 2006 included a
loss on early extinguishment of debt, a recovery related to the
Dexatrim litigation settlement and employee stock option expenses
under FAS 123R. Net income in the first six months of fiscal 2005
included a loss on early of extinguishment of debt and the reversal of
a charge related to the Dexatrim litigation. As adjusted to exclude
these items, net income in the first six months of fiscal 2006 was
$22.7 million, compared to $22.8 million in the prior year period, and
earnings per share were $1.15, compared to $1.11 in the prior year
period.(1) Net income grew at a lower rate than total revenues for the
first six months of fiscal 2006 as a result of increased advertising
and promotional spending to support the Company's new products,
primarily Icy Hot Pro-Therapy and Selsun Salon.
Outlook
The Company's overall business remains strong, as evidenced by 12%
retail sales growth in the latest 13-week period ended June 17, 2006
and five consecutive four-week periods of double-digit retail sales
growth, as compared to year ago results for the same periods excluding
sales of pHisoderm, which was divested in November 2005. The Company's
strong performance has been led by the Gold Bond lotion business,
which has experienced a sales increase of 46% in the first six months
of fiscal 2006, compared to the prior year period. The Selsun
franchise has also achieved double-digit sales growth in the first six
months of fiscal 2006 in the face of increased advertising and
promotional support by its competitors. The Company is also very
pleased with the initial sales performance of BullFrog Mosquito Coast
and Dexatrim Max2O, which have both exceeded the Company's
expectations. The Company's positive sales momentum has continued into
the third quarter of fiscal 2006, with June sales up 24% compared to
the prior year period excluding sales of pHisoderm, led by Gold Bond,
which posted the highest monthly sales total in its history.
While the Company's overall business is very healthy, the nature
of the Icy Hot Pro-Therapy launch has created a degree of variability
in terms of estimating sales and earnings for fiscal 2006 as compared
to prior years. The Company believes it has established a viable
franchise in Icy Hot Pro-Therapy and will continue to support the
brand with significant advertising and promotional investments during
the second half of the year. Though the Company remains optimistic
about the potential of the brand, its sales to date have fallen below
the Company's original expectations. As a result, the Company is
lowering its expectations for total revenues for fiscal 2006 from a
range of $315 to $330 million to a range of $295 to $310 million, and
currently expects earnings per share in fiscal 2006 to be in the range
of $1.90 to $2.20 as compared to earlier estimates of $2.30 to $2.40.
In each case, these estimates exclude any litigation related items,
debt extinguishment charges and the estimated $0.15 per share impact
of adopting FAS 123R, which requires the expensing of stock based
compensation.
Given the strength of the Company's overall business and product
development pipeline, and the Company's ability to adjust future
advertising and promotional expenditures for Icy Hot Pro-Therapy and
Selsun Salon to normalized levels, the Company remains very confident
in its outlook for fiscal 2007 and currently expects that earnings per
share in fiscal 2007 will be $2.50 or greater, excluding compensation
expense under FAS 123R and any litigation related items.
Share Repurchase and Capital Resources
As previously announced, the Company commenced the solicitation of
consents from the holders of its $107.5 million 7% Senior Subordinated
Notes due 2014 to an amendment to the related indenture to increase
the Company's capacity to make restricted payments by an additional
$85.0 million, including payments for the repurchase of the Company's
common stock. In connection with the consent solicitation, the
Company's Board of Directors has authorized the repurchase of up to an
additional $100.0 million of the Company's common stock, under the
terms of the Company's existing stock repurchase program. Under the
program, the Company may, from time to time, purchase shares of its
common stock based on a number of factors, including market
conditions, the market price of the common stock, effect on earnings,
available cash and other factors as the Company deems appropriate,
subject to the limitations under the indenture, the Company's credit
agreement and applicable regulatory requirements. From March 1, 2006
through July 6, 2006, the Company repurchased 605,000 shares of its
common stock at an average cost of $32.75 per share, or $19.8 million
in the aggregate.
The Company currently plans to fund any future stock repurchases
with cash generated from operations and borrowings under its existing
senior credit facility. As of May 31, 2006, the Company's outstanding
indebtedness under the senior credit facility was $38.0 million. The
Company's net debt (total debt less cash) as of May 31, 2006 was
$132.1 million compared to $146.7 million as of May 31, 2005. The
Company's leverage ratio (net debt/EBITDA(2) on a trailing 12 month
basis) was 1.7x as of May 31, 2006 compared to 1.9x as of May 31,
2005.
Non-GAAP Financial Measures
In addition to presenting financial results in accordance with
generally accepted accounting principles, or GAAP, this earnings
release also presents certain non-GAAP financial measures, including
adjusted net income, adjusted earnings per share, EBITDA and adjusted
EBITDA. The non-GAAP financial measures exclude certain non-cash
charges, such as stock option expenses, and certain non-recurring
charges, such as loss on early extinguishment of debt and litigation
settlement items, which Chattem believes provides both management and
investors with additional insight into the Company's operational
strength and ongoing operating performance. The additional non-GAAP
financial measures should be considered in conjunction with, but not
as a substitute for, the financial information presented in accordance
with GAAP. See the accompanying Form 8-K under which this earnings
release has been furnished to the Securities and Exchange Commission
for further discussion of the utility of these non-GAAP measures and
the purposes for which they are used by management.
Forward-Looking Statements
Statements in this press release which are not historical facts,
including, without limitation, statements in the Outlook section of
this release relating to estimated results for fiscal 2006 and fiscal
2007 and potential results for new product launches and potential
recoveries from the Dexatrim settlement trust, 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, including those described in our
filings with the Securities and Exchange Commission, 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 fiscal second quarter 2006 conference call. The live broadcast of
the call will be available online at www.chattem.com and
www.streetevents.com today, Monday, July 10, 2006 beginning at 9:00
a.m. ET. The online replay will follow shortly after the call and be
available through July 24, 2006. Please note that the webcast requires
Windows Media Player. For additional information please contact
Catherine Baker, Investor Relations at 423-821-2037 ext. 3209.
About Chattem
Chattem, Inc. is a leading marketer and manufacturer of a broad
portfolio of branded OTC healthcare products, toiletries and dietary
supplements. The Company's products target niche market segments and
are among the market leaders in their respective categories across
food, drug and mass merchandisers. The Company's portfolio of products
includes well-recognized brands such as Icy Hot, Gold Bond, Selsun
Blue(R), Garlique(R), Pamprin(R) and BullFrog. Chattem conducts a
portion of its global business through subsidiaries in the United
Kingdom, Ireland and Canada. For more information, please visit the
Company's website: www.chattem.com.
(1) See the reconciliation of adjusted net income to net income
reported in accordance with GAAP for the first six months and the
second quarter of fiscal 2006 and fiscal 2005, respectively, provided
in the unaudited consolidated statements of income attached hereto.
(2) See the reconciliation of EBITDA excluding litigation
settlement items to net income reported in accordance with GAAP for
the first six months and the second quarter of fiscal 2006 and fiscal
2005, respectively, provided in the unaudited 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 Six Months
Ended May 31, Ended May 31,
-------------------- -------------------
2006 2005 2006 2005
---------- --------- --------- ---------
REVENUES:
Net sales $79,352 $75,640 $163,329 $147,120
Royalties 59 47 106 98
---------- --------- --------- ---------
Total revenues 79,411 75,687 163,435 147,218
COSTS AND EXPENSES:
Cost of sales 25,054 21,116 51,074 41,376
Advertising and promotion 24,781 20,731 51,968 41,082
Selling, general and
administrative 11,528 12,335 23,119 24,219
Litigation settlement 108 (5,587) (8,505) (2,832)
---------- --------- --------- ---------
Total costs and expenses 61,471 48,595 117,656 103,845
---------- --------- --------- ---------
INCOME FROM OPERATIONS 17,940 27,092 45,779 43,373
---------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (2,456) (3,458) (5,300) (6,953)
Investment and other income,
net 234 255 428 402
Loss on early extinguishment
of debt - (744) (2,805) (744)
---------- --------- --------- ---------
Total other income
(expense) (2,222) (3,947) (7,677) (7,295)
---------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 15,718 23,145 38,102 36,078
PROVISION FOR INCOME TAXES 5,518 7,638 13,129 11,906
---------- --------- --------- ---------
NET INCOME $10,200 $15,507 $24,973 $24,172
========== ========= ========= =========
DILUTED SHARES OUTSTANDING 19,529 20,474 19,705 20,474
========== ========= ========= =========
NET INCOME PER COMMON SHARE
(DILUTED) $0.52 $0.76 $1.27 $1.18
========== ========= ========= =========
- ------------------------------------------------------------ ---------
NET INCOME (EXCLUDING DEBT
EXTINGUISHMENT, FAS 123R
EXPENSE AND LITIGATION
SETTLEMENT ITEMS) PER COMMON
SHARE (DILUTED):
Net income $10,200 $15,507 $24,973 $24,172
Add:
Loss on early
extinguishment of debt - 744 2,805 744
FAS 123R expense 1,340 - 2,192 -
Litigation settlement
items 108 (5,587) (8,505) (2,832)
Benefit from (provision
for) income taxes (508) 1,598 1,209 689
---------- --------- --------- ---------
Net income (excluding debt
extinguishment, FAS 123R
expense and litigation
settlement items) $11,140 $12,262 $22,674 $22,773
========== ========= ========= =========
Net income (excluding debt
extinguishment, FAS 123R
expense and litigation
settlement items) per
common share (diluted) $0.57 $0.60 $1.15 $1.11
========== ========= ========= =========
- ----------------------------------------------------------------------
EBITDA RECONCILIATION
(EXCLUDING LITIGATION
SETTLEMENT ITEMS):
Net income $10,200 $15,507 $24,973 $24,172
Add:
Provision for income
taxes 5,518 7,638 13,129 11,906
Interest expense, net
(includes loss on early
extinguishment of debt) 2,222 3,947 7,677 7,295
Depreciation and
amortization less
amounts included in
interest 2,712 1,292 4,848 2,726
---------- --------- --------- ---------
EBITDA $20,652 $28,384 $50,627 $46,099
Litigation settlement
items 108 (5,587) (8,505) (2,832)
---------- --------- --------- ---------
EBITDA (excluding litigation
settlement items) $20,760 $22,797 $42,122 $43,267
---------- --------- --------- ---------
Depreciation & amortization $1,466 $1,483 $2,891 $3,107
Capital expenditures $815 $599 $2,091 $1,198
- ------------------------------------------------------------ ---------
SELECTED CASH FLOW DATA:
Stock repurchases (324 shares
and 137 shares for the three
months ended and 599 shares
and 239 shares for the six
months ended, respectively) $11,202 $5,082 $21,332 $8,596
- ----------------------------------------------------------------------
May 31, 2006 May 31, 2005
-------------- --------------
BALANCE SHEET DATA: (as adjusted)(1)
Cash and cash equivalents $13,352 $35,817
Accounts receivable, net $43,655 $45,526
Inventories $28,718 $23,428
Accounts payable and accrued liabilities $28,434 $34,673
Senior bank debt $38,000 $-
Subordinated debt $107,500 $182,500
-------------- --------------
Total debt $145,500 $182,500
============== ==============
- ----------------------------------------------------------------------
(1) The 2005 financial statements have been adjusted to effect the
retroactive change in accounting principle from the LIFO to the
FIFO method of inventory valuation.
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.
Summary of Net Sales
Net sales by domestic product category and total international for
the second quarter of fiscal 2006, as compared to the corresponding
period in fiscal 2005, were as follows:
Increase (Decrease)
---------------------
2006 2005 Amount Percentage
----------- --------- ---------- ----------
(dollars in
thousands)
Topical pain care
products $28,397 $25,044 $3,353 13.4 %
Medicated skin care
products(a) 15,389 15,833 (444) (2.8)
Dietary supplements 8,909 10,280 (1,371) (13.3)
Medicated dandruff
shampoos and conditioner 8,461 7,888 573 7.3
Other OTC and toiletry
products 10,997 9,639 1,358 14.1
----------- --------- ----------
Total Domestic 72,153 68,684 3,469 5.1
International 7,199 6,956 243 3.5
----------- --------- ----------
Total Net Sales $79,352 $75,640 $3,712 4.9
=========== ========= ==========
Net sales by domestic product category and total international for
the first half of fiscal 2006, as compared to the corresponding
period in fiscal 2005, were as follows:
Increase (Decrease)
---------------------
2006 2005 Amount Percentage
----------- --------- ---------- ----------
(dollars in
thousands)
Topical pain care
products $60,838 $46,452 $14,386 31.0 %
Medicated skin care
products(a) 32,280 33,457 (1,177) (3.5)
Dietary supplements 17,762 18,940 (1,178) (6.2)
Medicated dandruff
shampoos and conditioner 20,278 17,688 2,590 14.6
Other OTC and toiletry
products 19,438 17,716 1,722 9.7
----------- --------- ----------
Total Domestic 150,596 134,253 16,343 12.2
International 12,733 12,867 (134) (1.0)
----------- --------- ----------
Total Net Sales $163,329 $147,120 $16,209 11.0
=========== ========= ==========
(a) Includes pHisoderm sales in fiscal 2005
CONTACT: Chattem, Inc.
Catherine Baker, 423-822-3209