Chattem Reports Second Quarter Results for Fiscal 2006.CHATTANOOGA Chattanooga (chăt'ən  `gə), city (1990 pop. 152,466), seat of Hamilton co., E Tenn., on both sides of the Tennessee River near the Georgia line; inc. 1839. , Tenn. -- Chattem Chattem NASDAQ: CHTT is a Chattanooga, TN based producer and marketer of over-the-counter healthcare products, toiletries, dietary supplements, topical analgesics, and medicated skin care products. , Inc. (NASDAQ NASDAQin 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 CHTT may refer to:
Second Quarter Financial Results Total revenues for the second quarter of fiscal 2006 were $79.4 million compared to total revenues of $75.7 million in the prior year quarter, representing a 5% increase. Total revenues increased 8% over the second quarter of fiscal 2005 excluding sales of pHisoderm, which was divested in November November: see month. 2005. Revenue growth for the quarter was driven by the continued strength of the Gold Bond(R) franchise, up 11%, led by Gold Bond Ultimate(R) Healing Healing See also Medicine. Achilles’ spear had power to heal whatever wound it made. [Gk. Lit.: Iliad] Agamede Augeas’ daughter; noted for skill in using herbs for healing. [Gk. Myth. Lotion lotion /lo·tion/ (lo´shun) a liquid suspension, solution, or emulsion for external application to the body. lo·tion n. 1. , 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 25%, reflecting strong sales of BullFrog Mosquito Coast Mosquito Coast or Mosquitia (məskē`tēə, mōskētē`ä), region, east coast of Nicaragua and Honduras. (R), the Selsun Sel·sun A trademark for a preparation of selenium disulfide. (R) franchise, up 7%, due to the introduction of Selsun Salon Salon, annual exhibition of art works chosen by jury and presented by the French Academy since 1737; it was originally held in the Salon d'Apollon of the Louvre. By the mid-19th cent. the Salon had become an expression of conservative, established tastes in art. (TM), and 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 from Icy Hot Pro-Therapy(R) and Dexatrim Max20(TM). Net income in the second quarter of fiscal 2006 was $10.2 million, compared to $15.5 million in the prior year quarter and earnings per share were $0.52, compared to $0.76 in the prior year quarter. Net income in the second quarter of fiscal 2006 was reduced by employee stock option expenses under FAS 123R. Net income for the second quarter of fiscal 2005 included the reversal of a charge related to the Dexatrim(R) 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. and 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. As adjusted to exclude these items, net income for the second quarter of fiscal 2006 was $11.1 million, compared to $12.3 million in the prior year quarter, and earnings per share were $0.57, compared to $0.60 in the prior year quarter.(1) The decrease of adjusted net income in the second quarter of fiscal 2006, in spite of in opposition to all efforts of; in defiance or contempt of; notwithstanding. See also: Spite an increase in total revenues, was due to increased advertising and promotional spending to support the Company's new products, primarily Icy Hot Pro-Therapy and Selsun Salon. First Six Months Financial Results For the first six months of fiscal 2006, total revenues were $163.4 million compared to total revenues of $147.2 million in the prior year period, representing an 11% increase. Total revenues increased 15% over the prior year period excluding sales of pHisoderm, which was divested in November 2005. Revenue growth for the first half 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 lotion business. For the first six months of fiscal 2006, the Selsun franchise increased 15%, the Gold Bond franchise increased 12% and the topical topical /top·i·cal/ (top´i-k'l) pertaining to a particular area, as a topical antiinfective applied to a certain area of the skin and affecting only the area to which it is applied. top·i·cal adj. 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 portfolio decreased slightly, as compared to the prior year period. Net income in the first six months of fiscal 2006 was $25.0 million, compared to $24.2 million in the prior year period and earnings per share were $1.27, compared to $1.18 in the prior year period. Net income in the first six months of fiscal 2006 included a loss on early extinguishment of debt, a recovery related to the Dexatrim litigation settlement and employee stock option expenses under FAS 123R. Net income in the first six months of fiscal 2005 included a loss on early of extinguishment of debt and the reversal of a charge related to the Dexatrim litigation. As adjusted to exclude these items, net income in the first six months of fiscal 2006 was $22.7 million, compared to $22.8 million in the prior year period, and earnings per share were $1.15, compared to $1.11 in the prior year period.(1) Net income grew at a lower rate than total revenues for the first six months of fiscal 2006 as a result of increased advertising and promotional spending to support the Company's new products, primarily Icy Hot Pro-Therapy and Selsun Salon. Outlook The Company's overall business remains strong, as evidenced by 12% retail sales growth in the latest 13-week period ended June 17, 2006 and five consecutive four-week periods of double-digit retail sales growth, as compared to year ago results for the same periods excluding sales of pHisoderm, which was divested in November 2005. The Company's strong performance has been led by the Gold Bond lotion business, which has experienced a sales increase of 46% in the first six months of fiscal 2006, compared to the prior year period. The Selsun franchise has also achieved double-digit sales growth in the first six months of fiscal 2006 in the face of increased advertising and promotional support by its competitors. The Company is also very pleased with the initial sales performance of BullFrog Mosquito Coast and Dexatrim Max2O, which have both exceeded the Company's expectations. The Company's positive sales momentum has continued into the third quarter of fiscal 2006, with June sales up 24% compared to the prior year period excluding sales of pHisoderm, led by Gold Bond, which posted the highest monthly sales total in its history. While the Company's overall business is very healthy, the nature of the Icy Hot Pro-Therapy launch has created a degree of variability in terms of estimating sales and earnings for fiscal 2006 as compared to prior years. The Company believes it has established a viable franchise in Icy Hot Pro-Therapy and will continue to support the brand with significant advertising and promotional investments during the second half of the year. Though the Company remains optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the potential of the brand, its sales to date have fallen below the Company's original expectations. As a result, the Company is lowering its expectations for total revenues for fiscal 2006 from a range of $315 to $330 million to a 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 as compared to earlier estimates of $2.30 to $2.40. In each case, these estimates exclude any litigation related items, debt extinguishment charges and the estimated $0.15 per share impact of adopting FAS 123R, which requires the expensing of stock based compensation. Given the strength of the Company's overall business and product development pipeline, and the Company's ability to adjust future advertising and promotional expenditures for Icy Hot Pro-Therapy and Selsun Salon to normalized levels, the Company remains very confident in its outlook for fiscal 2007 and currently expects that earnings per share in fiscal 2007 will be $2.50 or greater, excluding compensation expense under FAS 123R and any litigation related items. 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 As previously announced, the Company commenced the solicitation solicitation In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual of consents from the holders of its $107.5 million 7% Senior Subordinated Notes due 2014 to an amendment to the related indenture An agreement declaring the benefits and obligations of two or more parties, often applicable in the context of Bankruptcy and bond trading. The term indenture primarily describes secured contracts and has several applications in U.S. law. to increase the Company's capacity to make restricted payments by an additional $85.0 million, including payments for the repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. of the Company's common stock. In connection with the 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 , the Company's Board of Directors has authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: 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 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. . From March 1, 2006 through July 6, 2006, the Company repurchased 605,000 shares of its common stock at an average cost of $32.75 per share, or $19.8 million in the aggregate. The Company currently plans to fund any future stock repurchases with cash generated from operations and borrowings under its existing senior credit facility. As of May 31, 2006, the Company's outstanding indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. under the senior credit facility was $38.0 million. The Company's net debt (total debt less cash) as of May 31, 2006 was $132.1 million compared to $146.7 million as of May 31, 2005. The Company's leverage ratio (net debt/EBITDA(2) on a trailing 12 month basis) was 1.7x as of May 31, 2006 compared to 1.9x as of May 31, 2005. Non-GAAP Financial Measures In addition to presenting financial results in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. 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 non-recurring charges, such as loss on early extinguishment of debt and litigation settlement items, which Chattem believes provides 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 has been 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 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. Statements in this press release which are not historical facts, including, without limitation, statements in the Outlook section of this release relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc estimated results for fiscal 2006 and fiscal 2007 and potential results for new product launches and potential recoveries from the Dexatrim settlement trust, 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 second quarter 2006 conference call. The live broadcast of the call will be available online at www.chattem.com and www.streetevents.com today, Monday, July 10, 2006 beginning at 9:00 a.m. ET. The online replay will follow shortly after the call and be available through July 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 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. (R), Garlique(R), Pamprin(R) and BullFrog. 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 first six months and the second quarter of fiscal 2006 and fiscal 2005, respectively, 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 to net income reported in accordance with GAAP for the first six months and the second quarter of fiscal 2006 and fiscal 2005, respectively, 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 Three Months For the Six Months
Ended May 31, Ended May 31,
-------------------- -------------------
2006 2005 2006 2005
---------- --------- --------- ---------
REVENUES:
Net sales $79,352 $75,640 $163,329 $147,120
Royalties 59 47 106 98
---------- --------- --------- ---------
Total revenues 79,411 75,687 163,435 147,218
COSTS AND EXPENSES:
Cost of sales 25,054 21,116 51,074 41,376
Advertising and promotion 24,781 20,731 51,968 41,082
Selling, general and
administrative 11,528 12,335 23,119 24,219
Litigation settlement 108 (5,587) (8,505) (2,832)
---------- --------- --------- ---------
Total costs and expenses 61,471 48,595 117,656 103,845
---------- --------- --------- ---------
INCOME FROM OPERATIONS 17,940 27,092 45,779 43,373
---------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (2,456) (3,458) (5,300) (6,953)
Investment and other income,
net 234 255 428 402
Loss on early extinguishment
of debt - (744) (2,805) (744)
---------- --------- --------- ---------
Total other income
(expense) (2,222) (3,947) (7,677) (7,295)
---------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 15,718 23,145 38,102 36,078
PROVISION FOR INCOME TAXES 5,518 7,638 13,129 11,906
---------- --------- --------- ---------
NET INCOME $10,200 $15,507 $24,973 $24,172
========== ========= ========= =========
DILUTED SHARES OUTSTANDING 19,529 20,474 19,705 20,474
========== ========= ========= =========
NET INCOME PER COMMON SHARE
(DILUTED) $0.52 $0.76 $1.27 $1.18
========== ========= ========= =========
------------------------------------------------------------ ---------
NET INCOME (EXCLUDING DEBT
EXTINGUISHMENT, FAS 123R
EXPENSE AND LITIGATION
SETTLEMENT ITEMS) PER COMMON
SHARE (DILUTED):
Net income $10,200 $15,507 $24,973 $24,172
Add:
Loss on early
extinguishment of debt - 744 2,805 744
FAS 123R expense 1,340 - 2,192 -
Litigation settlement
items 108 (5,587) (8,505) (2,832)
Benefit from (provision
for) income taxes (508) 1,598 1,209 689
---------- --------- --------- ---------
Net income (excluding debt
extinguishment, FAS 123R
expense and litigation
settlement items) $11,140 $12,262 $22,674 $22,773
========== ========= ========= =========
Net income (excluding debt
extinguishment, FAS 123R
expense and litigation
settlement items) per
common share (diluted) $0.57 $0.60 $1.15 $1.11
========== ========= ========= =========
----------------------------------------------------------------------
EBITDA RECONCILIATION
(EXCLUDING LITIGATION
SETTLEMENT ITEMS):
Net income $10,200 $15,507 $24,973 $24,172
Add:
Provision for income
taxes 5,518 7,638 13,129 11,906
Interest expense, net
(includes loss on early
extinguishment of debt) 2,222 3,947 7,677 7,295
Depreciation and
amortization less
amounts included in
interest 2,712 1,292 4,848 2,726
---------- --------- --------- ---------
EBITDA $20,652 $28,384 $50,627 $46,099
Litigation settlement
items 108 (5,587) (8,505) (2,832)
---------- --------- --------- ---------
EBITDA (excluding litigation
settlement items) $20,760 $22,797 $42,122 $43,267
---------- --------- --------- ---------
Depreciation & amortization $1,466 $1,483 $2,891 $3,107
Capital expenditures $815 $599 $2,091 $1,198
------------------------------------------------------------ ---------
SELECTED CASH FLOW DATA:
Stock repurchases (324 shares
and 137 shares for the three
months ended and 599 shares
and 239 shares for the six
months ended, respectively) $11,202 $5,082 $21,332 $8,596
----------------------------------------------------------------------
May 31, 2006 May 31, 2005
-------------- --------------
BALANCE SHEET DATA: (as adjusted)(1)
Cash and cash equivalents $13,352 $35,817
Accounts receivable, net $43,655 $45,526
Inventories $28,718 $23,428
Accounts payable and accrued liabilities $28,434 $34,673
Senior bank debt $38,000 $-
Subordinated debt $107,500 $182,500
-------------- --------------
Total debt $145,500 $182,500
============== ==============
----------------------------------------------------------------------
(1) The 2005 financial statements have been adjusted to effect the
retroactive change in accounting principle from the LIFO to the
FIFO method of inventory valuation.
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.
Summary of Net Sales
Net sales by domestic product category and total international for
the second quarter of fiscal 2006, as compared to the corresponding
period in fiscal 2005, were as follows:
Increase (Decrease)
---------------------
2006 2005 Amount Percentage
----------- --------- ---------- ----------
(dollars in
thousands)
Topical pain care
products $28,397 $25,044 $3,353 13.4 %
Medicated skin care
products(a) 15,389 15,833 (444) (2.8)
Dietary supplements 8,909 10,280 (1,371) (13.3)
Medicated dandruff
shampoos and conditioner 8,461 7,888 573 7.3
Other OTC and toiletry
products 10,997 9,639 1,358 14.1
----------- --------- ----------
Total Domestic 72,153 68,684 3,469 5.1
International 7,199 6,956 243 3.5
----------- --------- ----------
Total Net Sales $79,352 $75,640 $3,712 4.9
=========== ========= ==========
Net sales by domestic product category and total international for
the first half of fiscal 2006, as compared to the corresponding
period in fiscal 2005, were as follows:
Increase (Decrease)
---------------------
2006 2005 Amount Percentage
----------- --------- ---------- ----------
(dollars in
thousands)
Topical pain care
products $60,838 $46,452 $14,386 31.0 %
Medicated skin care
products(a) 32,280 33,457 (1,177) (3.5)
Dietary supplements 17,762 18,940 (1,178) (6.2)
Medicated dandruff
shampoos and conditioner 20,278 17,688 2,590 14.6
Other OTC and toiletry
products 19,438 17,716 1,722 9.7
----------- --------- ----------
Total Domestic 150,596 134,253 16,343 12.2
International 12,733 12,867 (134) (1.0)
----------- --------- ----------
Total Net Sales $163,329 $147,120 $16,209 11.0
=========== ========= ==========
(a) Includes pHisoderm sales in fiscal 2005
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