Chattem Announces Fourth Quarter and Fiscal 2003 Sales and Earnings Per Share Exceeding Year-Ago and at Upper End of Earlier Estimates; Gives Estimates for Fiscal 2004.Business Editors CHATTANOOGA, Tenn.--(BUSINESS WIRE)--Jan. 22, 2004 Chattem, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CHTT), a leading marketer and manufacturer of branded consumer products, announced today financial results for the fiscal year and fourth quarter ended November 30, 2003. For the fiscal year, total revenues were $233.7 million, operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. was $55.9 million and income before accounting change was $23.4 million, or $1.19 per share. These results represent increases of 5%, 8% and 21%, respectively, over comparable fiscal 2002 results, and are the third straight year in which the prior year's results have been exceeded. For the fourth fiscal quarter, total revenues were $52.5 million, a 2% increase over the comparable year-ago period, while earnings per share were $.23 versus $.22 in the fourth quarter of fiscal 2002, a 5% increase. This is the ninth straight quarter in which Chattem's earnings per share have exceeded the prior year's comparable results. Fiscal fourth quarter results also were at the upper end of the Company's earlier estimates of $51-53 million of total revenues and $.21-.23 earnings per share. For the 2003 fiscal year the Company experienced increased net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight from its NewPhase(R), Selsun blue Selsun Blue is a shampoo, developed by Ross Laboratories, a subsidiary of Abbott Laboratories and later bought by Chattem, that functions as an over-the-counter treatment for dandruff. (R), Garlique(R), Gold Bond(R) and Icy Hot(R) brands of 113%, 21%, 18%, 17% and 4%, respectively, over fiscal 2002 results. Gold Bond's sales growth was attributable to the successful launch of two new first aid items and the Athletes Foot Swab in the second quarter, and Gold Bond Ultimate Healing Lotion lotion /lo·tion/ (lo´shun) a liquid suspension, solution, or emulsion for external application to the body. lo·tion n. 1. in the fourth quarter. Selsun blue, which was acquired in March 2002, continued to benefit from a strong advertising campaign and increased retail distribution. Icy Hot was led by the introduction of the Icy Hot Pain-Relieving Back Patch, which further solidified so·lid·i·fy v. so·lid·i·fied, so·lid·i·fy·ing, so·lid·i·fies v.tr. 1. To make solid, compact, or hard. 2. To make strong or united. v.intr. Icy Hot as the top selling analgesic analgesic (ăn'əljē`zĭk), any of a diverse group of drugs used to relieve pain. Analgesic drugs include the nonsteroidal anti-inflammatory drugs (NSAIDs) such as the salicylates, narcotic drugs such as morphine, and synthetic drugs patch brand in the category. Garlique and NewPhase also responded to effective media campaigns and in the case of NewPhase increased distribution. The overall increase in total revenues was somewhat offset by year-over-year declines in net sales of Dexatrim(R), Flexall(R), Sportscreme(R), Pamprin(R) and pHisoderm(R). International total revenues for the fiscal year increased to $23.9 million from $21.0 million in fiscal 2002, or 13.5%. The increase was due to a full year of revenues from Selsun blue. Abbott Laboratories Abbott Laboratories (NYSE: ABT) is a diversified pharmaceuticals and health care company. It has over 65,000 employees and operates in 130 countries. The corporate headquarters are in Abbott Park, Illinois, a neighborhood of North Chicago, Illinois. , from whom the Company acquired Selsun blue in March 2002, is manufacturing and selling the product for Chattem in certain foreign markets during a transition period, and paying Chattem an initial royalty of 28% on international sales, reducing to 14% in certain countries if local regulatory requirements Regulatory requirements are part of the process of drug discovery and drug development. Regulatory requirements describe what is necessary for a new drug to be approved for marketing in any particular country. are satisfied prior to the Company's assumption of sales and marketing responsibility in such countries. As the Company takes over responsibility for the sales and marketing effort in a foreign country, the royalty arrangement with respect to such country will terminate and Chattem will record the international sales resulting in an increase in net sales but with no material impact to net income. The Company expects to have substantially completed this transition by the end of March 2004. For the fiscal 2003 year, gross margin based on total revenue was 72%, while selling, general and administrative expense (SG&A) as a percentage of total revenue was 17%. Included in SG&A was approximately $600,000 of legal expenses related to claims against the Company involving ingestion ingestion /in·ges·tion/ (-chun) the taking of food, drugs, etc., into the body by mouth. in·ges·tion n. 1. The act of taking food and drink into the body by the mouth. 2. of Dexatrim containing PPA PPA 1. Palpation, Percussion & Ausculation 2. Pittsburgh pneumonia agent 3. Postpartum amenorrhea 4. Price per accession 5. Pure pulmonary atresia and the related product liability insurance coverage litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. which have been previously disclosed and are discussed below. Advertising and promotion as a percentage of total revenue was 30%. All of these measurements were within the estimated ranges previously announced by the Company. Earnings before cumulative effect of change in accounting principle, interest, taxes, depreciation and amortization (EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ) for fiscal 2003 was $60.9 million versus $56.1 million for fiscal 2002, an increase of 9% (see reconciliation of EBITDA to net income in Chattem's unaudited consolidated statements of income attached hereto here·to adv. To this document, matter, or proposition. hereto Adverb Formal or law to this place, matter, or document Adv. 1. ). During the fiscal year the Company reduced long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. by $12.3 million, while net long-term debt (defined as total debt less cash and cash equivalents) was reduced by $23.3 million. Accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying and inventories at the end of fiscal 2003 were both reduced from 2002 levels as Chattem continued to focus on working capital management and strengthening its balance sheet. Regarding fiscal 2004, the Company currently estimates total revenues will be in a range of $243-250 million and earnings per share will be in the range of $1.29-1.35. All estimates are prior to any extraordinary items or cumulative effects of adopting a change in accounting principle which might be recorded during the year, and prior to any charges expected to be recorded relative to the Dexatrim with PPA litigation and relating insurance coverage litigation, discussed below. On a quarterly basis, Chattem currently estimates the following ranges of performance:
($ in millions, except per share data)
Q1 Q2 Q3 Q4 FY 04
------------------ --------- --------- --------- --------- -----------
Total Revenues $58-60 $64-66 $63-65 $57-59 $243-250
------------------ --------- --------- --------- --------- -----------
EPS $.28-.30 $.37-.39 $.35-.37 $.28-.30 $1.29-1.35
------------------ --------- --------- --------- --------- -----------
Full fiscal year results may not equal the sum of quarterly projections due to rounding and, in the case of EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. , variations in share count. These estimates constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. , 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 a record number of newly launched items, including the Dexatrim All-in-One Bar, Icy Hot Medicated medicated /med·i·cat·ed/ (med´i-kat?id) imbued with a medicinal substance. medicated contains a medicinal substance. Sleeve, Pamprin All Day, pHisoderm Self-Heating Scrub and Herbal Astringent astringent (əstrĭn`jənt), substance that shrinks body tissues. Astringent medicines cause shrinkage of mucous membranes or exposed tissues and are often used internally to check discharge of serum or mucous secretions in sore throat, , Gold Bond Foot Cream and Selsun blue Conditioner. Chattem also expects sales increases from its international business. Continuing sales declines in certain smaller brands such as MUDD MUDD Multi-User Dungeons and Dragons (game) MUDD Multi-User Detector/Decoder (R), Ultra Swim(R) and Sportscreme(R) are expected to offset a portion of these sales increases. For fiscal 2004, Chattem expects gross margin based on total revenues to be in a range of 70-72%, advertising and promotional spending as a percentage of sales in a range of 28-30% and a tax rate of approximately 35%. Quarterly results may vary more widely than the indicated ranges due to seasonality and other factors. During the fourth fiscal quarter the Company did not repurchase any of its common stock, and for the fiscal year repurchased 360,000 shares. Chattem currently has available $4.6 million of authorization from its Board of Directors to repurchase shares, and plans to continue to pursue stock repurchases Stock repurchase A firm's repurchase of outstanding shares of its common stock. if it believes that its share price does not properly reflect intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. . As previously disclosed, the Company has entered into a memorandum of understanding A Memorandum of Understanding (MoU) is a legal document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action and may not imply a legal commitment. with the Plaintiffs' Steering Committee steer·ing committee n. A committee that sets agendas and schedules of business, as for a legislative body or other assemblage. steering committee Noun (PSC (Public Service Commission) Same as PUC. ) in In re Phenylpropanolamine phenylpropanolamine /phen·yl·pro·pa·nol·amine/ (-pro?pah-nol´ah-men) an adrenergic, used in the form of the hydrochloride salt as a nasal and sinus decongestant, as an appetite suppressant, and in the treatment of stress incontinence. (PPA) Products Liability Litigation, MDL MDL - (Originally "Muddle"). C. Reeve, Carl Hewitt and Gerald Sussman, Dynamic Modeling Group, MIT ca. 1971. Intended as a successor to Lisp, and a possible base for Planner-70. Basically LISP 1.5 with data types and arrays. 1407, pending before the United States District Court for the Western District of Washington The United States District Court for the Western District of Washington is the Federal district court whose jurisdiction comprises the following counties: Clallam, Clark, Cowlitz, Grays Harbor, Island, Jefferson, King, Kitsap, Lewis, Mason, Pacific, Pierce, San Juan, Skagit, . The memorandum of understanding memorializes certain settlement terms concerning lawsuits relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc Dexatrim products containing PPA. The Company is currently negotiating with the PSC on the terms of a settlement agreement that will supercede Verb 1. supercede - take the place or move into the position of; "Smith replaced Miller as CEO after Miller left"; "the computer has supplanted the slide rule"; "Mary replaced Susan as the team's captain and the highest-ranked player in the school" the memorandum of understanding. The Company currently believes it can fund its total commitment to the settlement from its product liability insurance and cash on hand. If the settlement is completed, based on the proposed terms and information currently known to the Company about the pending cases, the Company estimates that it will record a charge net of insurance recovery of approximately $20-25 million, or $13.0-16.3 million (approximately $.65-.82 per share) net of taxes, for all settlement costs, administrative expenses and costs of defense related to resolving the Dexatrim litigation during fiscal 2004. Since the terms of the preliminary settlement are not final or binding, there are no assurances that the Company will be able to reach a final settlement or that if reached the terms will be approved by the court. If the settlement is approved, the Company believes some claims will "opt out" of any class settlement and will continue to pursue claims for damages against the Company in separate lawsuits. The Company cannot estimate how many claims will opt out, whether such claims will result in significant additional liability for the Company or the number of new claims that will be filed. To the extent the number of opt outs or claims are deemed excessive, the Company reserves the right to terminate the settlement. Also as previously disclosed, the Company has reached an agreement with Kemper Indemnity Insurance indemnity insurance Managed care A type of health insurance in which a Pt can choose the hospital and provider, and the insurer reimburses the Pt or provider for a set percentage of the cost, minus deductibles and co-payments Company ("Kemper") to settle Kemper's lawsuit that sought to rescind To declare a contract void—of no legal force or binding effect—from its inception and thereby restore the parties to the positions they would have occupied had no contract ever been made. rescind v. its policy for $50 million of excess coverage for product liability claims. After giving effect to the settlement with Kemper, the Company will have available approximately $60 million of the $77 million of product liability coverage provided by three insurance policies. The $60 million of available coverage consists of $37.5 million of insurance under the Kemper policy and approximately $22.5 million under policies with two other insurance companies. The Company also announced that certain of its executive officers may from time to time during 2004 exercise currently held stock options and sell shares related to the 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 the Company's quarterly or annual financial information for the most recently available period. 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 interests in the Company so long as they remain employees. Paragraphs 7, 11, 12, 13, 14 and 15 above of this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995, which contains a safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. for forward-looking statements. The Company relies on this safe harbor in making such disclosures. The forward-looking statements are based on management's current beliefs and assumptions about expectations, estimates, strategies and projections for the Company. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligations to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. The risks, uncertainties and assumptions of the forward-looking statements include, but are not limited to the settlement on acceptable terms of product liability claims relating to the prior existence of PPA in Dexatrim; the availability of Chattem's $25 million excess product liability coverage to be determined in the rescission The abrogation of a contract, effective from its inception, thereby restoring the parties to the positions they would have occupied if no contract had ever been formed. By Agreement and declaratory judgment declaratory judgment In law, a judgment merely declaring a right or establishing the legal status or interpretation of a law or instrument. It is binding but is distinguished from other judgments or court opinions in that it includes no executive element (an order that lawsuit brought by Interstate Fire & Casualty ("Interstate"); the lack of availability, limits of coverage and expense related to product liability insurance, including the outcome of the rescission and declaration judgment action filed by Interstate; the reduction of available insurance coverage as proceeds are used to fund any product liability settlements or awards; the possibility of other product liability claims, including claims relating to the prior existence of ephedrine ephedrine (ĭfĕd`rĭn, ĕf`ĭdrēn'), drug derived from plants of the genus Ephedra (see Pinophyta), most commonly used to prevent mild or moderate attacks of bronchial asthma. in Dexatrim products or arising from the U.S. Food and Drug Administration's anticipated rule banning the sale of dietary supplement Noun 1. dietary supplement - something added to complete a diet or to make up for a dietary deficiency diet - a prescribed selection of foods vitamin pill - a pill containing one or more vitamins; taken as a dietary supplement containing ephedra ephedra: see ephedrine. ; the ability of the Company to fund liabilities from product liability claims greater than its insurance coverage or outside the scope of insurance coverage; the possible effect of the negative public perception resulting from product liability claims on sales of Dexatrim products without PPA or ephedrine; the impact of brand acquisitions and divestitures; the impact of gains or losses resulting from product acquisitions or divestitures; product demand and market acceptance risks; product development risks, such as delays or difficulties in developing, producing and marketing new products or line extensions; the impact of competitive products, pricing and advertising; the Company's ability to sell and market Selsun blue internationally where it has only limited experience and infrastructure; constraints resulting from the financial condition of the Company, including the degree to which the Company is leveraged, debt service requirements and restrictions under indentures and loan agreements; government regulations; risks of loss of material customers; public perception regarding the Company's products; dependence on third party manufacturers; environmental matters; and other risks described in the Company's Securities and Exchange Commission filings. Chattem will provide an online Web simulcast and rebroadcast of its fourth fiscal quarter and fiscal 2004 estimates conference call. The live broadcast of the call will be available online at www.chattem.com and www.streetevents.com on Friday, January 23 beginning at 8:30 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy . The online replay will follow shortly after the call and be available through February 23, 2004. Please note Webcast requires Windows Media Player Digital jukebox software for Windows from Microsoft that plays a variety of audio, video and streaming formats including MP3, WMA, CD audio and MIDI. Starting with Version 6.2 in 1999, the Windows Media Rights Manager was added for securing copyrighted content. .
CHATTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the Three For the Twelve
Months Ended Months Ended
November 30, November 30,
------------------- -------------------
2003 2002 2003 2002
--------- --------- --------- ---------
NET SALES $52,161 $51,172 $232,527 $220,789
Royalty Income 348 454 1,222 2,327
--------- --------- --------- ---------
Total Revenue 52,509 51,626 233,749 223,116
COSTS AND EXPENSES:
Cost of sales 14,987 14,084 66,386 62,757
Advertising and promotion 16,613 12,983 70,622 68,259
Selling, general and
administrative 10,358 11,210 40,803 40,212
--------- --------- --------- ---------
Total costs and expenses 41,958 38,277 177,811 171,228
--------- --------- --------- ---------
INCOME FROM OPERATIONS 10,551 13,349 55,938 51,888
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (5,000) (5,774) (20,431) (21,292)
Investment and other income
(expense), net 5 (357) 124 (114)
--------- --------- --------- ---------
Total other expense (4,995) (6,131) (20,307) (21,406)
--------- --------- --------- ---------
Income before income taxes and
accounting change 5,556 7,218 35,631 30,482
Provision for income taxes (1,132) (2,742) (12,260) (11,582)
--------- --------- --------- ---------
Income before accounting
change 4,424 4,476 23,371 18,900
Cumulative effect of change in
accounting principle, net of
taxes - - - (8,877)
--------- --------- --------- ---------
NET INCOME $4,424 $4,476 $23,371 $10,023
========= ========= ========= =========
Diluted shares outstanding 19,537 19,939 19,632 19,344
========= ========= ========= =========
NET INCOME PER COMMON SHARE (DILUTED):
Income before accounting
change $0.23 $0.22 $1.19 $0.98
Accounting change - - - (0.46)
--------- --------- --------- ---------
Net income per common share $0.23 $0.22 $1.19 $0.52
========= ========= ========= =========
EBITDA:
Net income $4,424 $4,476 $23,371 $10,023
Add: Cumulative effect of
change in accounting
principle, net of taxes - - - 8,877
Provision for income taxes 1,132 2,742 12,260 11,582
Interest expense, net 4,995 6,131 20,307 21,406
Depreciation and amortization
(excluding amounts included
in interest) 1,664 1,088 4,969 4,163
--------- --------- --------- ---------
EBITDA $12,215 $14,437 $60,907 $56,051
--------- --------- --------- ---------
EBITDA margin
(EBITDA/total revenue) 23.3% 28.0% 26.1% 25.1%
Net income margin (net
income/total revenue) 8.4% 8.7% 10.0% 4.5%
Depreciation & amortization $2,019 $1,847 $6,584 $5,816
Capital expenditures $1,594 $1,163 $5,527 $3,785
BALANCE SHEET DATA:
Cash and cash equivalents $26,931 $15,924
Accounts receivable $25,478 $25,673
Inventories $17,559 $18,769
Accounts payable $10,924 $12,661
Senior bank debt $7,750 $20,000
Subordinated debt 204,676 204,708
--------- ---------
Total debt $212,426 $224,708
========= =========
Shareholders' equity $95,571 $74,744
Total assets $363,394 $353,469
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 including, but
not limited to, those described in Paragraphs 7, 11, 12, 13, 14 and 15
of this press release.
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