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Chattem Announces First Quarter Fiscal 2001 Financial Results Exceeding Earlier Guidance, and $7.6 Million Gain On Debt Retirement.

Business Editors

CHATTANOOGA, Tenn.--(BUSINESS WIRE)--March 22, 2001

Chattem, Inc. (NASDAQ: CHTT), a leading marketer and manufacturer of branded consumer products, announced today financial results for the fiscal first quarter ended February 28, 2001.

Net sales for the quarter were $47.4 million, a 5% increase over first quarter 2000 pro forma sales, which exclude sales of the BAN(R) and Norwich(R) brands. First quarter 2001 operating income was $6.4 million, while earnings before interest, taxes, depreciation and amortization (EBITDA) and an extraordinary gain were $8.6 million. Earnings per share and cash earnings per share for the quarter, both before the extraordinary gain, were $.07 and $.18, respectively.

The 5% increase in net sales for the fiscal first quarter of 2001 over pro forma first quarter 2000 results was led by Dexatrim(R), which exceeded expectations. Aided by the launch of Dexatrim Natural Ephedrine Free, Dexatrim net sales in the first fiscal quarter increased almost 5% over the first quarter of 2000, despite the discontinuation of Dexatrim with PPA, which was being sold in the corresponding year-ago period. Also, sales of the Company's toiletry and skin care brands were up approximately 13% from the first quarter of 2000, led by the performances of BullFrog(R) and pHisoderm(R). Sales of the Gold Bond(R) family of products improved approximately 3% from the first quarter of 2000, led by Gold Bond Lotion, which benefited from the launch of Gold Bond Fragrance Free Lotion, a colder winter and an enhanced marketing program. Finally, the Company's topical analgesic franchise (Flexall(R), Icy Hot(R), Aspercreme(R), Sportscreme(R), Capzasin-P(R), Capzasin-HP(R), Arthritis Hot(R)), again performed solidly.

Net sales of $47.4 million bettered the Company's earlier guidance of $41-43 million. Likewise, earnings per share before extraordinary gain for the quarter of $.07 exceeded the Company's earlier forecast of a loss of $.04-$.08 and EBITDA of $8.6 million exceeded Chattem's earlier prediction of $6-7 million.

During the quarter, the Company recorded an extraordinary after-tax gain of $7.6 million or $.85 per share from the early extinguishment of debt resulting from the successful completion of the tender offer and consent solicitation pursuant to which Chattem repurchased a total of approximately $78 million of 8 7/8% and 12 3/4% senior subordinated notes for approximately $65 million. This extraordinary gain contributed to the $8.4 million or 22.3% increase in shareholders' equity achieved since the end of the 2000 fiscal year.

For the quarter, gross margin was a strong 73.7% while selling, general and administrative expense as a percentage of sales was 15.8%. Advertising and promotion as a percentage of sales for the quarter was 44.4%, slightly higher than the annual target of 38-40%, reflecting, in particular, aggressive marketing campaigns supporting Dexatrim and Gold Bond, and the timing of certain promotional payments. Chattem maintained its strong EBITDA margins (EBITDA divided by net sales) of 18.1% for the quarter. Finally, days' sales outstanding in accounts receivable decreased to 61 in the first quarter of 2001 from 67 in the fourth quarter of 2000, and from 75 in the year-ago corresponding quarter.

Included in the Company's income statement are substantial non-cash expenses related to the amortization of intangibles associated principally with the acquisition of certain brands. These expenses, net of tax, amounted to $1.0 million, or $.11 per share, for the first fiscal quarter. For the 2001 fiscal year, these expenses are expected to be $3.9 million, or $.43 per share. The Company is currently required to amortize the purchase price of acquired brands for accounting purposes, while at the same time it attempts to increase these brands' value through advertising and promotional programs, product enhancements and line extensions. The Company thus believes cash earnings - net income before extraordinary items, plus non-cash amortization - are the most appropriate measure of its financial performance. The Financial Accounting Standards Board has issued a revised exposure draft of a statement which, among other things, will have the effect of eliminating amortization of goodwill and intangibles with an indefinite life. The change in accounting principle is currently expected to become effective during the third quarter and positively impact the Company's fourth fiscal quarter income statement by approximately $.10 per share.

For the balance of the fiscal year, the Company is reaffirming its guidance given in the fourth quarter 2000 earnings release, and is cautiously optimistic that actual results will now be at the upper end of the ranges indicated in that guidance.

Chattem has begun shipping Dexatrim Natural Ephedrine Free and the Icy Hot Pain-Relieving Patch, both of which will be supported with heavy media and promotional spending, beginning in the second fiscal quarter. The Company also expects to launch yet-to-be announced Gold Bond and pHisoderm line extensions and additional Dexatrim products during its fourth fiscal quarter.

No shares of the Company's stock were repurchased in the first fiscal quarter. A total of approximately $6.6 million remains available under the Company's $10 million board stock repurchase authorization.

Finally, the Company continues to review opportunities for accretive acquisitions, divestitures of non-core brands and strategic alliances. Chattem continues to hold approximately $35 million from the sale of BAN in September, 2000 which can be used for acquisitions and the further reduction of indebtedness.

Paragraph eight above of this press release constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which contains a safe harbor 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 regarding forward looking statements include, but are not limited to, the impact of the loss of sales from Dexatrim with ephedrine; the increased likelihood that claims relating to the existence of PPA in Dexatrim will be filed against the Company; 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; 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; government regulations; risk of loss of material customers; public perception regarding the Company's products; dependence on third party manufacturers; environmental matters; product liability insurance and other risks described in the Company's Securities and Exchange Commission filings.

Chattem will provide an online Web simulcast and rebroadcast of its first quarter 2001 conference call. The live broadcast of the call will be available online at and on Friday, March 23, 2001 beginning at 8:30 a.m. EST. The online replay will follow shortly after the call and continue through April 23, 2001. Please note Webcast requires RealPlayer G2 Software to participate in the conference call. Software is available free at Please allow up to 30 minutes for download to occur, depending on connection.

 (In thousands, except per share amounts)

 For the Three Months Ended

 February 28, February 29,
 2001 2000
 ---- ----

--------- ---------

--------- ---------
NET SALES $47,420 $62,371

--------- ---------

 Cost of sales 12,484 16,682
 Advertising and promotion 21,065 23,582
 Selling, general and
 administrative 7,510 7,403

--------- ---------
 Total costs and expenses 41,059 47,667

--------- ---------


--------- ---------

 Interest expense (6,504) (8,974)
 Investment and other
 income, net 1,089 74
 Total other income
 (expense) (5,415) (8,900)

--------- ---------

Income before income taxes 946 5,804
Provision for income taxes (360) (2,196)


--------- ---------
Income before extraordinary
 gain and accounting change 586 3,608

--------- ---------

--------- ---------

Extraordinary gain 7,559 -

Cumulative effect of change
 in accounting principle,
 net of taxes - (542)


--------- ---------
NET INCOME $8,145 $3,066

========= =========

Diluted shares outstanding 8,889 9,861

 Continuing operations $ 0.07 $ 0.37
 Extraordinary gain $ 0.85 $ -
 Cumulative effect of
 accounting change $ - $(0.06)
 Net income per common
 share $ 0.92 $ 0.31

 Cash earnings from
 continuing operations $1,564 $5,268
 Cash earnings per share $ 0.18 $ 0.53

EBITDA $8,566 $17,934
EBITDA margin 18.1% 28.8%
Depreciation & amortization $2,533 $3,742
Capital expenditures $ 332 $2,814

 Cash and cash equivalents $ 37,581 $ 2,481
 Accounts receivable $ 31,977 $ 51,861
 Inventories $ 16,085 $ 29,450
 Accounts payable $ 5,826 $ 12,235

 Senior bank debt $ - $ 58,600
 Subordinated debt $226,306 $309,368
 Total debt $226,306 $367,968

 Shareholders' equity $ 46,052 $ 50,144
 Total assets $327,473 $488,538

Statements in this press release which are not historical facts, including statements about the Company's confidence, strategies and expectations about new and existing products and opportunities, the demand and acceptance of new and existing products and markets and the return on investments in products and markets are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements involve risks and uncertainties. These include, but are not limited to, product demand and market acceptance risks; product development risks, such as delays or difficulties in developing, producing and marketing new products; the impact of competitive products, pricing and advertising; constraints resulting from the financial condition of the Company, including the degree to which the Company is leveraged, debt service requirements and restrictions under bank loan agreements and indentures; and other risks described in the Company's Securities and Exchange Commission filings.
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Publication:Business Wire
Geographic Code:1USA
Date:Mar 22, 2001
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