Chattem Reports Record Revenue Increases of 55% for Fourth Quarter and 41% for Fiscal 2007.Higher Than Expected Earnings Raises Fiscal 2008 Guidance CHATTANOOGA, Tenn. -- 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, today announced results for the fiscal fourth quarter and year ended November 30, 2007. "The Company experienced the most successful year in its 128 year history," said Zan Guerry, Chattem's Chairman and Chief Executive Officer. "Early in the year, we made the exciting acquisition of five brands from Johnson & Johnson and were able to integrate those brands into our organization smoothly and ahead of schedule. The acquisition, combined with the growth of our existing business, resulted in a 41% increase in total revenues for the year to a record $423 million and even more impressive earnings growth," Guerry stated. "In reference to the balance sheet," Guerry commented further, "we were able to finance the acquisition of the five brands on very favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. terms and have put in place a very solid and effective capital structure. Our strong operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. for fiscal 2007 enabled us to reduce debt more rapidly than we anticipated at the time of the acquisition while also repurchasing over 400,000 shares of our common stock for $23.6 million, or an average cost of $58.98 per share." "Looking to fiscal 2008," Guerry continued, "we have tremendous momentum and robust advertising support planned for our Big 6 brands, Gold Bond[R], Icy Hot[R], ACT[R], Cortizone-10[R], Selsun[R] and Unisom[R], which accounted for approximately 72% of our total revenues in fiscal 2007. The strength of our Big 6 brands, together with an impressive line up of new products, expected gross margin improvement and the ability to rapidly deleverage with strong cash flows, has led us to increase our earnings per share guidance for fiscal 2008 to a range of $4.00 to $4.20 per share before SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123R and debt extinguishment The destruction or cancellation of a right, a power, a contract, or an estate. Extinguishment is sometimes confused with merger, though there is a clear distinction between them. charges." FISCAL YEAR 2007 FINANCIAL RESULTS Total revenues for fiscal 2007 rose to a record $423.4 million, an increase of 40.9%, compared to total revenues of $300.5 million in fiscal 2006. Revenue growth for the fiscal year was driven by the five acquired brands and continued growth of the Gold Bond and Icy Hot businesses, offset by declines in the Icy Hot Pro-Therapy[R] and Dexatrim[R] franchises, the latter of which was impacted by unprecedented competition in the weight loss category as well as difficult comparisons to the fiscal 2006 launch period of Dex DEX - A cross between Modula-2 and C by W. van Oortmerssen. Amiga version 1.2. Max2O[R]. Excluding the impact of the acquired brands and Icy Hot Pro-Therapy, total revenues increased 5% compared to fiscal 2006. Net income for the fiscal year increased to a record $59.7 million, compared to $45.1 million for fiscal 2006, and earnings per share were $3.08, compared to $2.34 for fiscal 2006. Net income for fiscal 2007 included a loss on early extinguishment of debt and SFAS 123R employee stock option expense. Net income for fiscal 2006 included a debt extinguishment charge, 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. settlement items and SFAS 123R employee stock option expense. As adjusted to exclude these items, net income for fiscal 2007 was $65.1 million, compared to $37.5 million for fiscal 2006, and earnings per share were $3.36 compared to $1.95 for fiscal 2006, a 72.3% increase. FOURTH QUARTER FINANCIAL RESULTS Total revenues for the fourth quarter of fiscal 2007 were $100.6 million, compared to total revenues of $65.1 million in the prior year quarter, representing a 54.5% increase. Revenue growth for the quarter was led by the five acquired brands as well as strong performances from Gold Bond and Icy Hot. Offsetting these increases was a reduction in sales of Dexatrim and lower sales of Icy Hot Pro-Therapy. Excluding the impact of the acquired brands and Icy Hot Pro-Therapy, total revenues increased 3% compared to the prior year quarter. Net income for the quarter rose to $14.8 million, compared to $4.9 million for the prior year quarter, and earnings per share were $0.76, compared to $0.26 for the prior year quarter. Net income for the fourth quarter of fiscal 2007 included SFAS 123R employee stock option expense. Net income for the fourth quarter of fiscal 2006 included litigation settlement items and SFAS 123R employee stock option expense. As adjusted to exclude these items, net income for the fourth quarter of fiscal 2007 was $15.8 million, compared to $6.0 million for the prior year quarter, and earnings per share were $0.81 compared to $0.32 for the prior year quarter, a 153% increase. In the fourth quarter of fiscal 2007, the Company increased the reserves for Icy Hot Pro-Therapy retail and in-house inventory exposure by approximately $7.0 million, or $0.24 per share, which resulted in lower revenue and reduced gross margins during the fourth quarter of fiscal 2007. This increase in reserves was based on a detailed evaluation of the Icy Hot Pro-Therapy business. Management believes this amount fully addresses any significant product return or in-house inventory obsolescence ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. exposure. KEY HIGHLIGHTS * Gross margin for the quarter rose to 70.0%, compared to 68.2% for the prior year quarter, and 69.5% for fiscal 2007, compared to 68.7% for fiscal 2006. Gross margin for fiscal 2008 is expected to approach historical levels as a result of the full year impact of the in-house manufacturing of certain of the five acquired brands and product mix. * Advertising and promotion expense (A&P) for the quarter increased by $5.5 million to $26.0 million, or 25.8% as a percentage of total revenues, and rose by $16.1 million to $112.2 million, or 26.5% of total revenues, for the fiscal year, compared to $96.1 million, or 32.0% of total revenues in fiscal 2006. The decline in A&P expense as a percentage of total revenues from fiscal 2006 reflected unusually high A&P expenses in fiscal 2006 due primarily to the launch of Icy Hot Pro-Therapy. The Company anticipates A&P spending to increase significantly on a dollar basis for fiscal 2008 and remain consistent with historical levels of 26% to 28% as a percentage of total revenues. * Selling, general and administrative expenses (SG&A) decreased to 15.3% of total revenues for the quarter, compared to 20.0% for the prior year quarter, and to 13.6% of total revenues for the fiscal year, compared to 15.6% for fiscal 2006. For fiscal 2008, SG&A expenses are not expected to rise commensurate com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. with increases in total revenues as the Company continues to leverage its operating infrastructure. * For the fiscal year, cash flows from operations increased 59.4% to $86.7 million compared to $54.4 million for fiscal 2006. Free cash flow, defined as cash flows from operations less capital expenditures, was $80.4 million, up 61.8%, compared to $49.7 million for fiscal 2006. Capital expenditures for the fiscal year were $6.3 million with more than half of these expenditures attributable to the integration of in-house manufacturing for certain of the five acquired brands. * Earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
* Since acquiring the five brands on January 2, 2007, the Company has reduced total debt by $62.5 million to $508.0 million as of November 30, 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 Western Europe The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). and the worldwide trademark rights to ACT for $4.1 million; and repurchased 400,129 shares of the Company's common stock for $23.6 million, or an average cost of $58.98 per share. FISCAL 2008 GUIDANCE The Company currently expects earnings per share for fiscal 2008 to be in the range of $4.00 to $4.20 as compared to our earlier estimate of $3.90 to $4.10, in each case excluding stock option expense under SFAS 123R and any loss on debt extinguishment. Stock option expense under SFAS 123R for fiscal 2008 is estimated to be $0.21 per share. [TABLE OMITTED] NON-GAAP FINANCIAL MEASURES In addition to presenting financial results in accordance with accounting principles generally accepted in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , or U.S. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). , this earnings release also presents certain non-GAAP financial measures, including adjusted net income, adjusted earnings per share, EBITDA and free cash flow. A reconciliation of adjusted net income and EBITDA to net income reported in accordance with GAAP for the fourth quarter and fiscal year to date periods of fiscal 2007 and 2006 is provided in the 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. . As discussed in this release, the Company defines free cash flow as cash flows from operations less capital expenditures. Cash flows from operations and capital expenditures reported in accordance with GAAP are presented in the unaudited financial statements 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 U.S. GAAP. See the accompanying Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. under which this earnings release is furnished fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. 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 2008 Guidance section of this release, are 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. 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. 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 fourth quarter and fiscal 2007 conference call. The live broadcast of the call will be available online at www.chattem.com and www.streetevents.com today, Tuesday, January 29, 2008 beginning at 9:00 a.m. ET. The online replay will follow shortly after the call and be available through February 5, 2008. Please note that the 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. . For additional information please contact Catherine Baker Catherine Baker (born 16 July 1947 in Lille) is a French journalist and home schooling essayist. She has also more recently written against the whole prison system, arguing for a complete abolition. , Investor Relations Investor relations The process by which the corporation communicates with its investors. at 423-821-2037 ext. 3209. About Chattem Chattem, Inc. is a leading marketer and manufacturer of a broad portfolio of branded OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). healthcare products, toiletries toi·let·ry n. pl. toi·let·ries An article, such as toothpaste or a hairbrush, used in personal grooming or dressing. toiletries npl → artículos mpl de aseo (= and dietary supplements 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 . The Company's products target niche market A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. 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 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. , 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. [TABLE OMITTED] [TABLE OMITTED] |
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