Chattem Reports Results for the Third Fiscal Quarter 2006.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 financial results for the third fiscal quarter and nine months ended August 31, 2006. THIRD QUARTER FINANCIAL RESULTS Total revenues for the third quarter of fiscal 2006 were $72.0 million, compared to total revenues of $68.2 million in the prior year quarter, representing a 6% increase. Total revenues increased 9% over the third 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 24%, led by increases in Gold Bond Lotion, up 57%, Gold Bond Powders, up 18% and Gold Bond Foot Care, up 15%; the Dexatrim[R] franchise, up 42%, reflecting strong sales of Dexatrim Max2O[TM]; the BullFrog bullfrog, common name of the largest North American frog, Rana catesbeiana. Native to the E United States, this species has been successfully introduced in the West and in other parts of the world. The body length is 4 to 8 in. [R] franchise, up 9%, due to sales of BullFrog Mosquito Coast Mosquito Coast or Mosquitia (məskē`tēə, mōskētē`ä), region, east coast of Nicaragua and Honduras. [TM]; along with incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. sales growth from Icy Hot[R] Pro-Therapy[TM] and Selsun[R] Salon[TM]. Net income in the third quarter of fiscal 2006 was $15.2 million, compared to $9.4 million in the prior year quarter, and earnings per share were $0.81, compared to $0.46 in the prior year quarter. Net income in the third quarter of fiscal 2006 included a net recovery related to the Dexatrim 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 and 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 employee stock option expense. Net income for the third quarter of fiscal 2005 included legal expenses related to the Dexatrim litigation settlement and a severance charge. As adjusted to exclude these items, net income for the third quarter of fiscal 2006 was $8.9 million, compared to $11.3 million in the prior year quarter, and earnings per share were $0.47, compared to $0.55 in the prior year quarter. NINE MONTH PERIOD FINANCIAL RESULTS For the first nine months of fiscal 2006, total revenues were $235.4 million, compared to total revenues of $215.4 million in the prior year period, representing a 9% increase. Total revenues increased 13% over the prior year period excluding sales of pHisoderm, which was divested in November 2005. Revenue growth for the first nine months 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 business. For the first nine months of fiscal 2006, the Selsun franchise increased 11% and the Gold Bond franchise increased 16%, as compared to the prior year period. Net income in the first nine months of fiscal 2006 was $40.2 million, compared to $33.6 million in the prior year period, and earnings per share were $2.07, compared to $1.64 in the prior year period. Net income in the first nine months of fiscal 2006 included a loss on early 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. of debt, net recoveries related to the Dexatrim litigation settlement and SFAS 123R employee stock option expense. Net income in the first nine months of fiscal 2005 included a loss on early extinguishment of debt, a net recovery related to the Dexatrim litigation settlement and a severance charge. As adjusted to exclude these items, net income in the first nine months of fiscal 2006 was $31.6 million, compared to $34.0 million in the prior year period, and earnings per share were $1.62, compared to $1.66 in the prior year period. INCOME STATEMENT HIGHLIGHTS Operating Metrics * Gross margin for the third quarter and first nine months of fiscal 2006 was lower compared to the prior year quarter and nine month period. The decline was largely attributable to the launch of Icy Hot Pro-Therapy, which has lower gross margins than our other products. * Advertising and promotion expense increased for the third quarter and first nine months of fiscal 2006 compared to the prior year quarter and nine month period, due primarily to increased spending to support the Company's new product introductions. * Selling, general and administrative expenses decreased for the third quarter and first nine months of fiscal 2006 compared to the prior year quarter and nine month period reflecting lower restricted stock and variable compensation expense, offset by share-based payment expense under SFAS 123R. Interest Expense Interest expense decreased for the third quarter and first nine month period of fiscal 2006 as compared to the same prior year periods as a result of the Company's retirement of the $75.0 million Floating Rate Senior Notes in the first quarter of fiscal 2006, offset in part by borrowings under our Amended Revolving Credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. Facility. SHARE REPURCHASE Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. AND CAPITAL RESOURCES On July 25, 2006, the Company successfully completed a consent solicitation Consent Solicitation A solicitation by one party to the stakeholders of a particular security for the consent of a material change. Notes: Should the majority of stakeholders provide valid consent prior to the consent expiry date, the issuer may then follow through with from the holders of its $107.5 million 7% Senior Subordinated Notes due 2014 to an amendment to the 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, and adjust the fixed charge coverage ratio as defined in the indenture. In connection with the consent solicitation, the Company's Board of Directors 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 Stock repurchase A firm's repurchase of outstanding shares of its common stock. 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 June 1, 2006 to October 5, 2006, the Company repurchased 572,863 shares of its common stock at an average cost of $31.42 per share, or $18.0 million in the aggregate. As of October 5, 2006 a total of $88.1 million remains available under the Company's board authorized stock Authorized Stock The maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation. This figure is usually listed in the capital accounts section of the balance sheet. repurchase program. Year to date, the Company has repurchased 1,171,663 shares of its common stock at an average cost of $33.57 per share, or $39.3 million in the aggregate. The Company's net debt (total debt less cash) as of August 31, 2006 was $134.1 million compared to $139.4 million as of August 31, 2005. The Company's leverage ratio (net debt/EBITDA2 on a trailing 12 month basis) was 1.8x as of August 31, 2006 and 2005. DEXATRIM LITIGATION UPDATE Over the past two years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time Company has resolved all of the claims submitted in the Dexatrim PPA PPA 1. Palpation, Percussion & Ausculation 2. Pittsburgh pneumonia agent 3. Postpartum amenorrhea 4. Price per accession 5. Pure pulmonary atresia class action settlement. All claims in the settlement have been paid by the settlement trust that was funded by our insurance carriers and the manufacturer of Dexatrim products containing PPA. On July 14, 2006, the court granted a motion to dissolve the settlement trust. In accordance with the approved dissolution of the trust, the Company received a payment of $10.7 million from the trust on August 31, 2006. Receipt of this payment and the dissolution of the settlement trust concludes the Dexatrim PPA class action settlement. ACQUISITION OF BRANDS On October 6, 2006, the Company announced that it has entered into an agreement to acquire the U.S. rights to five leading consumer and over-the-counter ("OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). ") brands from Johnson & Johnson and the consumer healthcare business of Pfizer Inc., including ACT[R], Unisom[R], Cortizone, Kaopectate[R] and Balmex[R]. The Company agreed to pay $410 million in cash for the brands and assume certain obligations related to such brands. The transaction is subject to review and approval by the Federal Trade Commission and certain closing conditions, including the acquisition by Johnson & Johnson of the consumer healthcare business of Pfizer Inc., which is expected to close by the end of 2006. FISCAL 2006 AND 2007 GUIDANCE As previously announced, the Company expects total revenues for fiscal 2006 to be in the 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. In each case, these estimates exclude any litigation related items, debt extinguishment charges and the estimated $0.15 per share fiscal 2006 impact of adopting SFAS 123R, which requires the expensing of stock based compensation. The Company reiterates its confidence in the outlook for fiscal 2007, and currently expects that earnings per share in fiscal 2007 will be $2.50 or greater, excluding compensation expense under SFAS 123R and any litigation related items. These estimates exclude any financial impact associated with the Company's pending acquisition of the U.S. rights to five leading consumer and OTC brands from Johnson & Johnson and the consumer healthcare business of Pfizer Inc., as described above and as previously disclosed on October 6, 2006. NON-GAAP FINANCIAL MEASURES In addition to presenting financial results in accordance with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , or 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 (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 and adjusted EBITDA. The non-GAAP financial measures exclude certain non-cash charges Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. , such as stock option expenses, and certain charges, such as loss on early extinguishment of debt, executive severance 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 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 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 2006 and 2007 Guidance section of this release are 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. 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 2006 conference call. The live broadcast of the call will be available online at www.chattem.com and www.streetevents.com today, Tuesday, October 10, 2006 beginning at 9:30 a.m. ET. The online replay will follow shortly after the call and be available through October 24, 2006. 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 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. 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[R], Gold Bond[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], Pamprin[R] and BullFrog[R]. 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 third quarter and first nine months of fiscal 2006 and fiscal 2005, 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. . (2) See the reconciliation of EBITDA excluding litigation settlement items and executive severance charge to net income reported in accordance with GAAP for the third quarter and first nine months of fiscal 2006 and fiscal 2005, provided in the unaudited consolidated statements of income attached hereto. [TABLE OMITTED] [TABLE OMITTED] |
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