Exhibit 99.1
Chattem Reports 51% Revenue Growth in the
Third Quarter; Raises Guidance for Fiscal 2007 and Provides Initial
Guidance for Fiscal 2008
CHATTANOOGA, Tenn.--(BUSINESS WIRE)--September 27, 2007--Chattem,
Inc. (NASDAQ: CHTT), a leading marketer and manufacturer of branded
consumer products, today reported total revenues in the third fiscal
quarter ended August 31, 2007 of $109.0 million, a 51% increase
compared to total revenues of $72.0 million in the prior year quarter.
Total revenues in the nine months ended August 31, 2007 rose to $322.8
million, an increase of 37% compared to total revenues of $235.4
million in the prior year period. Revenue growth for both periods was
driven by the five brands acquired from Johnson & Johnson on January
2, 2007, which include ACT(R), Cortizone-10(R), Unisom(R), Balmex(R)
and Kaopectate(R), continued growth of the Gold Bond(R) franchise and
the strength of the Icy Hot(R) business.
Net income for the quarter rose to $16.3 million, compared to
$15.2 million for the prior year quarter, and earnings per share were
$0.84, compared to $0.81 for the prior year quarter. Net income for
the third quarter of fiscal 2007 included a loss on early
extinguishment of debt and SFAS 123R employee stock option expense.
Net income for the third quarter of fiscal 2006 included a net
recovery related to the Dexatrim(R) litigation settlement and SFAS
123R employee stock option expense. As adjusted to exclude these
items, net income for the third quarter of fiscal 2007 was $17.5
million, compared to $8.9 million for the prior year quarter, and
earnings per share were $0.90 compared to $0.47 for the prior year
quarter, a 91% increase.
Net income for the nine months increased to a record $44.9
million, compared to $40.2 million for the prior year period, and
earnings per share were $2.33, compared to $2.07 for the prior year
period. Net income for the nine months of fiscal 2007 included a loss
on early extinguishment of debt and SFAS 123R employee stock option
expense. Net income for the nine months of fiscal 2006 included a loss
on early extinguishment of debt, net recoveries related to the
Dexatrim litigation settlement and SFAS 123R employee stock option
expense. As adjusted to exclude these items, net income for the nine
months of fiscal 2007 was $49.3 million, compared to $31.6 million for
the prior year period, and earnings per share were $2.56 compared to
$1.62 for the prior year period, a 58% increase.
"The third quarter proved to be another impressive quarter with
total revenues up 51%, adjusted earnings per share up 91% and EBITDA
up a significant 102%," said President and Chief Operating Officer Bob
Bosworth. "We are very pleased with our results for the quarter led by
strong performances from our six largest brands. We have successfully
integrated the acquired brands and are well positioned to capitalize
on the continued strength of our business."
KEY HIGHLIGHTS
-- Revenue growth for the quarter was led by the five acquired
brands as well as strong performances from Gold Bond, Icy Hot
and Selsun Blue(R). Offsetting these increases were a
reduction in sales of Icy Hot Pro-Therapy(R) and, due to
increased competition in the weight loss category, a decrease
in sales of Dexatrim. Excluding the impact of the acquired
brands and Icy Hot Pro-Therapy, total revenues increased 4% in
the third quarter of fiscal 2007 compared to the prior year
quarter. If the impact of Dexatrim is also excluded, total
revenues increased 9% in the third quarter of fiscal 2007
compared to the prior year quarter.
-- Revenue growth for the first nine months was driven by the
five acquired brands, continued growth of the Gold Bond
business along with increases in the Icy Hot franchise.
Offsetting these increases were a reduction in sales of Icy
Hot Pro-Therapy and a decline in sales of Dexatrim. Excluding
the impact of the acquired brands and Icy Hot Pro-Therapy,
total revenues increased 5% in the first nine months of fiscal
2007 compared to the prior year period. If the impact of
Dexatrim is also excluded, total revenues increased 7% in the
first nine months of fiscal 2007 compared to the prior year
period.
-- Gross margin for the quarter rose to 69.9%, compared to 69.1%
for the prior year quarter, and 69.4% for the nine months,
compared to 68.8% for the prior year period. The increases in
gross margin are primarily attributable to product mix
including, most notably, a reduction in sales of lower margin
Icy Hot Pro-Therapy.
-- Advertising and promotion expense (A&P) for the quarter
increased by $4.2 million to $27.8 million, or 25.5% as a
percentage of total revenues, and rose by $10.6 million to
$86.2 million, or 26.7% of total revenues, for the nine
months.
-- Selling, general and administrative expenses (SG&A) decreased
to 14.3% of total revenues for the quarter, compared to 15.1%
for the prior year quarter, and to 13.3% of total revenues for
the nine months, compared to 14.4% for the prior year period.
The decrease as a percentage of revenues was attributable to
increased revenue without commensurate increases in SG&A,
reflecting the Company's ability to leverage its operating
infrastructure.
-- Earnings before interest, taxes, depreciation and amortization
(EBITDA) increased 102% to $35.8 million, or 32.8% of total
revenues, for the quarter and increased 70.0% to $101.7
million, or 31.5% of total revenues, for the nine months.
-- The Company's effective tax rate increased to 35.0% for the
nine months as a result of an increase in domestic taxable
income, which is taxed at a higher statutory rate than foreign
taxable income.
-- Since acquiring the five brands on January 2, 2007, the
Company has reduced total debt by $46.7 million to $523.8
million as of August 31, 2007. During that same period, the
Company funded the purchase of a net bond hedge of $12.1
million in connection with the issuance of the 1.625% senior
convertible notes in April 2007; acquired the ACT business in
Western Europe and the worldwide trademark rights to ACT for
$4.1 million; and repurchased 380,129 shares of the Company's
common stock for $22.3 million, or an average cost of $58.56
per share.
FISCAL 2007 GUIDANCE
Based on our strong performance in the first nine months, the
successful integration of the acquired brands and the continued
strength of our key brands, the Company currently expects earnings per
share for fiscal 2007 to be in the range of $3.15 - $3.25 as compared
to the earlier estimate of $3.00 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.
FY2007 EPS Guidance
- ----------------------------------------------------------------------
Excluding stock option expense under
SFAS 123R and loss on debt
$3.15 - $3.25 extinguishment
- ----------------------------------------------------------------------
Including stock option expense under
$2.96 - $3.06 SFAS 123R
- ----------------------------------------------------------------------
Previous FY2007 EPS Guidance
- ----------------------------------------------------------------------
Excluding stock option expense under
SFAS 123R and loss on debt
$3.00 - $3.19 extinguishment
- ----------------------------------------------------------------------
Including stock option expense under
$2.81 - $3.00 SFAS 123R
- ----------------------------------------------------------------------
FISCAL 2008 GUIDANCE
"With an innovative lineup of new products for fiscal 2008, the
ability to delever with strong operating cash flows and continued
gross margin improvement as we bring manufacturing of certain of the
acquired brands in house, we remain very optimistic about the
Company's prospects for revenue and earnings growth in fiscal 2008 and
beyond," commented Chairman and Chief Executive Officer Zan Guerry.
"We expect continued strong sales growth in fiscal 2008 behind our new
products and record levels of planned advertising support for our key
brands. At the same time, we currently expect earnings per share to
grow rapidly to the guidance level of $3.90 to $4.10 per share,
excluding stock option expense under SFAS 123R and loss on debt
extinguishment, as we leverage our operating structure and delever our
balance sheet. Stock option expense under SFAS 123R for fiscal 2008 is
estimated to be $0.21 per share."
FY2008 EPS Guidance
- ----------------------------------------------------------------------
Excluding stock option expense under SFAS
$3.90 - $4.10 123R and loss on debt extinguishment
- ----------------------------------------------------------------------
Including stock option expense under SFAS
$3.69 - $3.89 123R
- ----------------------------------------------------------------------
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 EBITDA. A
reconciliation of adjusted net income and EBITDA to net income
reported in accordance with GAAP for the third quarter and nine month
year to date periods of fiscal 2007 and 2006 is provided in the
unaudited consolidated statements of income attached hereto. Chattem
believes these non-GAAP financial measures provide both management and
investors with additional insight into the Company's operational
strength and ongoing operating performance. These 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 and
Fiscal 2008 Guidance sections 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 third quarter 2007 conference call. The live broadcast of
the call will be available online at www.chattem.com and
www.streetevents.com today, Thursday, September 27, 2007 beginning at
9:00 a.m. ET. The online replay will follow shortly after the call and
be available through October 4, 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.
CHATTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
August 31, August 31,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
REVENUES:
Net sales $108,880 $ 71,947 $322,574 $235,276
Royalties 85 58 186 164
--------- --------- --------- ---------
Total revenues 108,965 72,005 322,760 235,440
COSTS AND EXPENSES:
Cost of sales 32,793 22,238 98,868 73,312
Advertising and promotion 27,760 23,607 86,211 75,575
Selling, general and
administrative 15,619 10,855 42,516 33,974
Litigation settlement - (10,800) - (19,305)
Acquisition expenses - - 2,057 -
--------- --------- --------- ---------
Total costs and expenses 76,172 45,900 229,652 163,556
--------- --------- --------- ---------
INCOME FROM OPERATIONS 32,793 26,105 93,108 71,884
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (7,147) (3,018) (22,702) (8,318)
Investment and other
income, net 199 188 1,258 616
Loss on early
extinguishment of debt (414) - (2,633) (2,805)
--------- --------- --------- ---------
Total other income
(expense) (7,362) (2,830) (24,077) (10,507)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 25,431 23,275 69,031 61,377
PROVISION FOR INCOME TAXES 9,119 8,046 24,161 21,175
--------- --------- --------- ---------
NET INCOME $ 16,312 $ 15,229 $ 44,870 $ 40,202
========= ========= ========= =========
DILUTED SHARES OUTSTANDING 19,409 18,912 19,273 19,468
========= ========= ========= =========
NET INCOME PER COMMON SHARE
(DILUTED) $ 0.84 $ 0.81 $ 2.33 $ 2.07
========= ========= ========= =========
- ----------------------------------------------------------------------
NET INCOME (EXCLUDING DEBT
EXTINGUISHMENT, SFAS 123R
EXPENSE AND LITIGATION
SETTLEMENT ITEMS PER COMMON
SHARE (DILUTED)):
Net income $ 16,312 $ 15,229 $ 44,870 $ 40,202
Add:
Loss on early
extinguishment of debt 414 - 2,633 2,805
SFAS 123R expense 1,490 1,130 4,122 3,322
Litigation settlement items - (10,800) - (19,305)
Benefit from (provision
for) income taxes (690) 3,343 (2,364) 4,546
--------- --------- --------- ---------
Net income (excluding debt
extinguishment, SFAS 123R
expense and litigation
settlement items) $ 17,526 $ 8,902 $ 49,261 $ 31,570
========= ========= ========= =========
Net income (excluding debt
extinguishment, SFAS 123R
expense and litigation
settlement items) per common
share (diluted) $ 0.90 $ 0.47 $ 2.56 $ 1.62
========= ========= ========= =========
- ----------------------------------------------------------------------
EBITDA RECONCILIATION
(EXCLUDING LITIGATION
SETTLEMENT ITEMS):
Net income $ 16,312 $ 15,229 $ 44,870 $ 40,202
Add:
Provision for income taxes 9,119 8,046 24,161 21,175
Interest expense, net
(includes loss on early
extinguishment of debt) 7,362 2,830 24,077 10,507
Depreciation and
amortization (including
SFAS 123R expense, less
amounts included in
interest) 2,991 2,411 8,588 7,259
--------- --------- --------- ---------
EBITDA $ 35,784 $ 28,516 $101,696 $ 79,143
Litigation settlement items - (10,800) - (19,305)
--------- --------- --------- ---------
EBITDA (excluding litigation
settlement items) $ 35,784 $ 17,716 $101,696 $ 59,838
========= ========= ========= =========
Depreciation & amortization
(including SFAS 123R expense) $ 3,672 $ 2,578 $ 10,583 $ 7,661
Capital expenditures $ 2,223 $ 1,466 $ 3,830 $ 3,557
- ----------------------------------------------------------------------
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 For the
Three Months Ended Nine Months Ended
--------------------- ---------------------
August 31, August 31, August 31, August 31,
2007 2006 2007 2006
---------- ---------- ---------- ----------
TOTAL REVENUES 100% 100% 100% 100%
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 30.1 30.9 30.6 31.2
Advertising and
promotion 25.5 32.8 26.7 32.1
Selling, general and
administrative 14.3 15.1 13.3 14.4
Litigation settlement - (15.0) - (8.2)
Acquisition expenses - - 0.6 -
---------- ---------- ---------- ----------
Total costs and
expenses 69.9 63.8 71.2 69.5
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 30.1 36.2 28.8 30.5
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (6.6) (4.2) (7.0) (3.5)
Investment and other
income, net 0.2 0.3 0.4 0.3
Loss on early
extinguishment of debt (0.4) - (0.8) (1.2)
---------- ---------- ---------- ----------
Total other income
(expense) (6.8) (3.9) (7.4) (4.4)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 23.3 32.3 21.4 26.1
PROVISION FOR INCOME TAXES 8.4 11.2 7.5 9.0
---------- ---------- ---------- ----------
NET INCOME 14.9% 21.1% 13.9% 17.1%
========== ========== ========== ==========
- ----------------------------------------------------------------------
SELECTED BALANCE SHEET August 31, August 31,
DATA: 2007 2006
---------- ----------
Cash and cash equivalents $ 13,069 $ 29,043
Accounts receivable, net $ 42,755 $ 29,789
Inventories $ 35,270 $ 28,903
Accounts payable and
accrued liabilities $ 47,291 $ 23,149
Senior bank debt $191,250 $ 53,500
Subordinated debt 332,500 107,500
---------- ----------
Total debt $523,750 $161,000
========== ==========
- ----------------------------------------------------------------------
SELECTED CASH FLOW DATA: For the For the
Three Months Ended Nine Months Ended
--------------------- ---------------------
August 31, August 31, August 31, August 31,
2007 2006 2007 2006
---------- ---------- ---------- ----------
Shares repurchased 380 573 380 1,172
Cash paid for share
repurchases $ 22,260 $ 18,000 $22,260 $39,332
- ----------------------------------------------------------------------
SUMMARY OF NET SALES:
Net sales by domestic product category and total international for the
third quarter 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(i) $ 23,548 $ 21,767 $ 1,781 8%
Medicated skin care
products 32,678 17,340 15,338 88%
Medicated dandruff
shampoos 8,770 7,798 972 12%
Oral care products 13,042 1,601 11,441 715%
Internal OTC's 12,967 3,550 9,417 265%
Dietary supplements 6,710 9,934 (3,224) (32%)
Other OTC and toiletry
products 3,046 4,321 (1,275) (30%)
---------- ---------- ----------
Total Domestic 100,761 66,311 34,450 52%
International revenues
(including royalties) 8,204 5,694 2,510 44%
---------- ---------- ----------
Total Revenues $108,965 $ 72,005 $36,960 51%
========== ========== ==========
Net sales by domestic product category and total international for the
nine 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(i) $ 75,700 $ 82,605 $(6,905) (8%)
Medicated skin care
products 92,105 49,620 42,485 86%
Medicated dandruff
shampoos 27,406 28,075 (669) (2%)
Oral care products 35,260 4,919 30,341 617%
Internal OTC's 33,430 9,143 24,287 266%
Dietary supplements 21,564 27,696 (6,132) (22%)
Other OTC and toiletry
products 16,136 14,849 1,287 9%
---------- ---------- ----------
Total Domestic 301,601 216,907 84,694 39%
International revenues
(including royalties) 21,159 18,533 2,626 14%
---------- ---------- ----------
Total Revenues $322,760 $235,440 $87,320 37%
========== ========== ==========
(i) Includes Icy Hot Pro-Therapy sales
CONTACT: Chattem, Inc.
Catherine Baker, Investor Relations, 423-822-3209