EXHIBIT 99.1
Chattem Reports Increase in Revenues and Earnings for the
Second Quarter and First Six Months of Fiscal 2007
CHATTANOOGA, Tenn.--(BUSINESS WIRE)--July 10, 2007--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, 2007.
"The first six months of fiscal 2007 was a record period for the
Company," said Bob Bosworth, President and Chief Operating Officer of
Chattem. "The positive momentum in our business following the
acquisition of five brands from Johnson & Johnson on January 2, 2007
has continued as evidenced by the strong sales growth and operating
results for the first half of fiscal 2007. Sales growth in the six
months was driven by the five acquired brands, continued expansion of
the Gold Bond(R) franchise, the growth of Icy Hot(R) led by the launch
of Icy Hot Heat Therapy and the introduction of Bullfrog(R) Marathon
Mist. The integration of the acquired brands is on schedule and we
have successfully leveraged our infrastructure during this period
resulting in incremental earnings growth. Also, the Company has
effectively managed its capital structure by the issuance of $100
million of 1.625% convertible debt issued on April 11, 2007 and
borrowings under the revolving credit facility. Additionally, the
Company has significantly reduced total debt outstanding by about $35
million since the date of the acquisition of the J&J brands."
First Six Months Financial Results
For the first six months of fiscal 2007, total revenues were
$213.8 million compared to total revenues of $163.4 million in the
prior year period, representing a 31% increase. Revenue growth for the
first half of fiscal 2007 was primarily led by the sales of the five
brands acquired from Johnson & Johnson. For the first six months of
fiscal 2007, sales from the Gold Bond franchise increased 25%, the
topical pain care portfolio, excluding Icy Hot Pro-Therapy, increased
9%, and Bullfrog increased 28%. Offsetting these gains were sales
decreases of the Selsun(R) franchise (down 8%) and Icy Hot Pro-Therapy
(down 83%), compared to the prior year period which included the
initial launch of Selsun Salon and Icy Hot Pro-Therapy, and a sales
decrease of the Sunsource(R) line of dietary supplements (down 34%)
due to a decline in overall category sales of garlic products and
reduced advertising for Garlique(R).
Net income in the first six months of fiscal 2007 was $28.6
million, compared to $25.0 million in the prior year period and
earnings per share were $1.48, compared to $1.27 in the prior year
period. Net income in the first six months of fiscal 2007 included a
loss on early of extinguishment of debt ($0.08 per share after taxes)
and employee stock option expenses under SFAS 123R ($0.09 per share
after taxes). Net income in the first six months of fiscal 2006
included a loss on early extinguishment of debt ($0.09 per share after
taxes), a recovery related to the Dexatrim(R) litigation settlement
($0.28 per share after taxes) and employee stock option expenses under
SFAS 123R ($0.07 per share after taxes). As adjusted to exclude these
items, net income in the first six months of fiscal 2007 was $31.7
million, up 40%, compared to $22.7 million in the prior year period,
and earnings per share were $1.65, compared to $1.15 in the prior year
period, an increase of 43%.(1)
Second Quarter Financial Results
Total revenues for the second quarter of fiscal 2007 were $113.0
million compared to total revenues of $79.4 million in the prior year
quarter, representing a 42% increase. Revenue growth for the quarter
was driven by sales of the five brands acquired from Johnson &
Johnson, continued growth of the Gold Bond franchise, up 23%, and
strong performance from the Bullfrog franchise, up 62%, as a result of
initial sales of the Marathon Mist product and the timing of shipments
as compared to the second quarter of fiscal 2006.
Net income for the second quarter of fiscal 2007 was $14.9
million, up 46%, compared to net income of $10.2 million in the prior
year quarter. Earnings per share for the second quarter were $0.77, up
48%, compared to $0.52 in the prior year quarter. Net income in the
second quarter of fiscal 2007 included employee stock option expenses
under SFAS 123R ($0.05 per share after taxes) and a loss on early
extinguishment of debt ($0.08 per share after taxes). Net income in
the second quarter of fiscal 2006 included employee stock option
expenses under SFAS 123R ($0.05 per share after taxes) and legal
expenses related to the Dexatrim litigation. As adjusted to exclude
these items, net income in the second quarter of fiscal 2007 was $17.3
million, up 56%, compared to $11.1 million in the prior year quarter
and earnings per share were $0.89, up 56%, compared to $0.57 in the
prior year quarter.(1)
"We are extremely pleased with the Company's performance in the
quarter, with total revenues up 42%, adjusted earnings per share up
56% and EBITDA up an impressive 73%," said Zan Guerry, Chief Executive
Officer of Chattem. "ACT(R), Cortizone-10(R) and Unisom(R) continue to
respond very well to advertising, with each brand performing strongly
at retail. Moreover, the Gold Bond franchise continued its impressive
growth at retail during this period, Icy Hot experienced renewed
growth led by recently introduced line extensions and Bullfrog
performed well with the Marathon Mist product. Given these positive
results and the strength of our business, we remain very excited about
the Company's prospects for the balance of fiscal 2007 and beyond."
KEY HIGHLIGHTS
-- Gross margin for the second quarter of fiscal 2007 was 68.9%,
compared to 68.4% in the prior year quarter. For the first six
months of fiscal 2007 gross margin as a percentage of revenues
was 69.1% compared to 68.7% for the prior year period. The
gross margin increase was largely attributable to decreased
sales of Icy Hot Pro-Therapy which has a lower margin compared
to our other brands.
-- Advertising and promotion expense (A&P) for the second quarter
of fiscal 2007 increased to $29.7 million from $24.8 million
in the prior year quarter. A&P expense as a percentage of
total revenues decreased to 26.2% for the second quarter of
fiscal 2007, as compared to 31.2% in the prior year quarter.
For the first six months of fiscal 2007 A&P expense increased
to $58.5 million, or 27.3% of total revenues, from $52.0
million, or 31.8%, in the prior year period. The decrease in
A&P expense as a percent of revenue for the quarter and
six-month period reflects higher A&P spending for Icy Hot
Pro-Therapy and Selsun Salon during the fiscal 2006 launch
period.
-- Selling, general and administrative expenses (SG&A) for the
second quarter of fiscal 2007 increased to $14.3 million from
$11.5 million in the prior year quarter. SG&A as a percentage
of total revenues for the second quarter of fiscal 2007
decreased to 12.7%, as compared to 14.5% in the prior year
quarter and to 12.6% as compared to 14.1% for the first six
months of fiscal 2007. The decrease as a percentage of revenue
was attributable to increased revenue without commensurate
increases in SG&A.
-- The integration of the brands acquired from Johnson & Johnson
is essentially complete, except for the assimilation of
manufacturing operations for certain brands that are expected
to be brought in-house in the fourth quarter of 2007. The
transition services agreement entered into at closing of the
acquisition was terminated in April 2007 with the functions
previously covered by the agreement having been transitioned
to Chattem.
-- Earnings before interest, taxes, depreciation and amortization
(EBITDA) excluding litigation settlement items was $36.0
million, or 31.8% of total revenues, for the second quarter of
fiscal 2007, up 73.1%, as compared to $20.8 million, or 26.1%
of total revenues, for the prior year quarter and $65.9
million, or 30.8% of total revenues, for the first six months
of fiscal 2007, up 56.5%, compared to $42.1 million, or 25.8%
of total revenues, for the first six months of fiscal 2006.(1)
-- Interest expense increased $5.9 million in the second quarter
of fiscal 2007 as compared to the prior year quarter
reflecting the impact of the additional indebtedness incurred
to finance the acquisition of brands from Johnson & Johnson.
-- The Company refinanced $128.0 million of its senior secured
term loan with net proceeds from a $100.0 million 1.625%
Senior Convertible Note offering that was completed on April
11, 2007 and borrowings under the Company's senior secured
revolving credit facility. As a result of the refinancing, the
Company incurred a debt extinguishment charge of $2.2 million,
or $0.08 per share after taxes, in the second quarter of
fiscal 2007.
-- The Company decreased outstanding borrowings under its
revolving credit facility to $29.0 million as of July 2, 2007,
versus an outstanding balance of $32.0 million at May 31,
2007.
BRAND ACQUISITION
On May 25, 2007, the Company closed the previously announced
agreement to acquire the ACT business in Western Europe together with
worldwide trademark rights to ACT from Johnson & Johnson for $4.1
million in cash plus certain assumed liabilities. Chattem funded the
acquisition with existing cash.
FISCAL 2007 GUIDANCE
Based on the continued strength of our base business and the
successful integration of the acquired brands to date, the Company
currently expects earnings per share in fiscal 2007 to be in the range
of $3.00 - $3.19 as compared to the earlier estimate of $2.94 to
$3.19, in each case excluding stock option expense under SFAS 123R and
loss on debt extinguishment. Stock option expense under SFAS 123R for
fiscal 2007 is estimated to be $0.19 per share, an increase of $.05
per share from the previous estimate of $0.14 per share as a result of
the annual stock option grants during the second quarter of fiscal
2007. The estimated $0.19 of SFAS 123R stock option expense is before
any additional stock option grants in fiscal 2007 which are expected
to be immaterial.
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 and adjusted EBITDA.
The non-GAAP financial measures exclude certain non-cash charges, such
as stock option expenses, and certain charges, such as debt
extinguishment charges and litigation settlement items. Chattem
believes these measures provide 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 is 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 Fiscal 2007 Guidance
section of this release, 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 2007 conference call. The live broadcast of
the call will be available online at www.chattem.com and
www.streetevents.com today, Tuesday, July 10, 2007 beginning at 9:00
a.m. ET. The online replay will follow shortly after the call and be
available through July 17, 2007. 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, ACT, Cortizone-10 and Unisom. 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
and the adjusted EBITDA reconciliation to net income, in each case
with net income reported in accordance with GAAP for the second
quarter and six month year to date periods of fiscal 2007 and 2006
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 For the
Three Months Ended Six Months Ended
May 31, May 31,
------------------- -------------------
2007 2006 2007 2006
---------- -------- --------- ---------
REVENUES:
Net sales $112,915 $79,352 $213,694 $163,329
Royalties 49 59 101 106
---------- -------- --------- ---------
Total revenues 112,964 79,411 213,795 163,435
COSTS AND EXPENSES:
Cost of sales 35,095 25,054 66,075 51,074
Advertising and promotion 29,664 24,781 58,451 51,968
Selling, general and
administrative 14,311 11,528 26,897 23,119
Litigation settlement - 108 - (8,505)
Acquisition costs 886 - 2,057 -
---------- -------- --------- ---------
Total costs and expenses 79,956 61,471 153,480 117,656
---------- -------- --------- ---------
INCOME FROM OPERATIONS 33,008 17,940 60,315 45,779
---------- -------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (8,319) (2,456) (15,555) (5,300)
Investment and other income,
net 291 234 1,059 428
Loss on early extinguishment
of debt (2,219) - (2,219) (2,805)
---------- -------- --------- ---------
Total other income
(expense) (10,247) (2,222) (16,715) (7,677)
---------- -------- --------- ---------
INCOME BEFORE INCOME TAXES 22,761 15,718 43,600 38,102
PROVISION FOR INCOME TAXES 7,853 5,518 15,042 13,129
---------- -------- --------- ---------
NET INCOME $ 14,908 $10,200 $ 28,558 $ 24,973
========== ======== ========= =========
DILUTED SHARES OUTSTANDING 19,359 19,529 19,237 19,705
========== ======== ========= =========
NET INCOME PER COMMON SHARE
(DILUTED) $ 0.77 $ 0.52 $ 1.48 $ 1.27
========== ======== ========= =========
- ----------------------------------------------------------------------
NET INCOME (EXCLUDING DEBT
EXTINGUISHMENT, SFAS 123R
EXPENSE AND LITIGATION
SETTLEMENT ITEMS PER COMMON
SHARE (DILUTED)):
Net income $ 14,908 $10,200 $ 28,558 $ 24,973
Add:
Loss on early
extinguishment of debt 2,219 - 2,219 2,805
SFAS 123R expense 1,428 1,340 2,632 2,192
Litigation settlement
items - 108 - (8,505)
Benefit from (provision
for) income taxes (1,259) (508) (1,674) 1,209
---------- -------- --------- ---------
Net income (excluding debt
extinguishment, SFAS 123R
expense and litigation
settlement items) $ 17,296 $11,140 $ 31,735 $ 22,674
========== ======== ========= =========
Net income (excluding debt
extinguishment, SFAS 123R
expense and litigation
settlement items) per common
share (diluted) $ 0.89 $ 0.57 $ 1.65 $ 1.15
========== ======== ========= =========
- ----------------------------------------------------------------------
EBITDA RECONCILIATION
(EXCLUDING LITIGATION
SETTLEMENT ITEMS):
Net income $ 14,908 $10,200 $ 28,558 $ 24,973
Add:
Provision for income taxes 7,853 5,518 15,042 13,129
Interest expense, net
(includes loss on early
extinguishment of debt) 10,247 2,222 16,715 7,677
Depreciation and
amortization less amounts
included in interest 2,951 2,712 5,597 4,848
---------- -------- --------- ---------
EBITDA $ 35,959 $20,652 $ 65,912 $ 50,627
Litigation settlement
items - 108 - (8,505)
---------- -------- --------- ---------
EBITDA (excluding litigation
settlement items) $ 35,959 $20,760 $ 65,912 $ 42,122
========== ======== ========= =========
Depreciation & amortization $ 2,249 $ 1,466 $ 4,279 $ 2,891
Capital expenditures $ 1,154 $ 815 $ 1,607 $ 2,091
- ----------------------------------------------------------------------
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, INC.
SELECTED SUMMARY FINANCIAL DATA
(In thousands)
(Unaudited)
SELECTED INCOME STATEMENT DATA:
The following table sets forth, for the periods indicated, certain
items from our Consolidated Statements of Income expressed as a
percentage of total revenues:
For the Three Months For the Six Months
Ended Ended
-------------------- ---------------------
May 31, May 31, May 31, May 31,
2007 2006 2007 2006
---------- --------- ---------- ----------
TOTAL REVENUES 100% 100% 100% 100%
---------- --------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 31.1 31.6 30.9 31.3
Advertising and promotion 26.2 31.2 27.3 31.8
Selling, general and
administrative 12.7 14.5 12.6 14.1
Litigation settlement - 0.1 - (5.2)
Acquisition costs 0.8 - 1.0 -
---------- --------- ---------- ----------
Total costs and
expenses 70.8 77.4 71.8 72.0
---------- --------- ---------- ----------
INCOME FROM OPERATIONS 29.2 22.6 28.2 28.0
---------- --------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (7.4) (3.1) (7.3) (3.3)
Investment and other
income, net 0.3 0.3 0.5 0.3
Loss on early
extinguishment of debt (2.0) - (1.0) (1.7)
---------- --------- ---------- ----------
Total other income
(expense) (9.1) (2.8) (7.8) (4.7)
---------- --------- ---------- ----------
INCOME BEFORE INCOME TAXES 20.1 19.8 20.4 23.3
PROVISION FOR INCOME TAXES 6.9 6.9 7.0 8.0
---------- --------- ---------- ----------
NET INCOME 13.2% 12.9% 13.4% 15.3%
========== ========= ========== ==========
- ----------------------------------------------------------------------
SELECTED BALANCE SHEET May 31, May 31,
DATA: 2007 2006
---------- ---------
Cash and cash equivalents $ 12,657 $ 17,053
Accounts receivable, net $ 51,828 $ 39,712
Inventories $ 34,225 $ 28,718
Accounts payable and
accrued liabilities $ 46,075 $ 28,472
Senior bank debt $204,000 $ 38,000
Subordinated debt 332,500 107,500
---------- ---------
Total debt $536,500 $145,500
========== =========
- ----------------------------------------------------------------------
SELECTED CASH FLOW DATA: For the Three Months For the Six Months
Ended Ended
-------------------- ---------------------
May 31, May 31, May 31, May 31,
2007 2006 2007 2006
---------- --------- ---------- ----------
Shares repurchased - 324 - 599
Cash paid for share
repurchases $ - $ 11,201 $ - $ 21,332
- ----------------------------------------------------------------------
SUMMARY OF NET SALES:
Net sales by domestic product category and total international for the
six months of fiscal 2007, as compared to the corresponding period in
fiscal 2006, were as follows:
Increase (Decrease)
---------------------
2007 2006 Amount Percentage
---------- --------- ---------- ----------
Topical pain care products $ 52,153 $ 60,838 $(8,685) (14%)
Medicated skin care
products 59,427 32,280 27,147 84%
Medicated dandruff shampoos
and conditioner 18,636 20,278 (1,642) (8%)
Oral care products 22,218 3,318 18,900 570%
Internal OTC's 20,463 5,592 14,871 266%
Dietary supplements 14,854 17,762 (2,908) (16%)
Other OTC and toiletry
products 13,090 10,528 2,562 24%
---------- --------- ----------
Total Domestic 200,841 150,596 50,245 33%
International revenues
(including royalties) 12,954 12,839 115 1%
---------- --------- ----------
Total Revenues $213,795 $163,435 $50,360 31%
========== ========= ==========
CONTACT: Chattem, Inc.
Investor Relations
Catherine Baker, 423-822-3209