-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OUoGr8vrFzTlwwzaUMo8cz7XOwYBDK7mFMYhWnLB64ZG3M7BEiwa5gOEUEbU7kl5 11kn+EdMHXtNjF8RzGKQEA== 0001157523-06-006723.txt : 20060710 0001157523-06-006723.hdr.sgml : 20060710 20060710081517 ACCESSION NUMBER: 0001157523-06-006723 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060710 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060710 DATE AS OF CHANGE: 20060710 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHATTEM INC CENTRAL INDEX KEY: 0000019520 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 620156300 STATE OF INCORPORATION: TN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05905 FILM NUMBER: 06952535 BUSINESS ADDRESS: STREET 1: 1715 W 38TH ST CITY: CHATTANOOGA STATE: TN ZIP: 37409 BUSINESS PHONE: 4238214571 MAIL ADDRESS: STREET 1: 1715 W 38TH ST CITY: CHATTANOOGA STATE: TN ZIP: 37409 FORMER COMPANY: FORMER CONFORMED NAME: CHATTEM DRUG & CHEMICAL CO DATE OF NAME CHANGE: 19790111 8-K 1 a5183634.txt CHATTEM, INC. 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------- Date of Report (Date of earliest event reported): July 10, 2006 CHATTEM, INC. --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Tennessee 0-5905 62-0156300 - ------------------------- ---------------------------- ---------------------- (State of incorporation) (Commission File No.) (IRS Employer Identification No.) 1715 West 38th Street, Chattanooga, Tennessee 37409 ------------------------------------------------------------------------- (Address of principal executive offices, including zip code) (423) 821-4571 --------------------------------------------------------------------- (Registrant's telephone number, including area code) Item 2.02. Results of Operations and Financial Condition - ---------- --------------------------------------------- On July 10, 2006, the Company issued a press release announcing financial results for the fiscal second quarter and the six month period ended May 31, 2006 (the "Press Release"). A copy of the Press Release is attached as Exhibit 99.1 and is incorporated by reference herein. The Press Release contains disclosure regarding net income and earnings per share, excluding certain identified items. The adjusted net income and earnings per share disclosures are non-GAAP financial measures (the "Operating Measures"). The Operating Measures exclude (i) for the second fiscal quarter of 2006, the effect of employee stock option expenses under SFAS 123R; (ii) for the second fiscal quarter of 2005, the effect of a reversal of a charge related to the Dexatrim litigation and loss on early extinguishment debt; (iii) for the first six months of fiscal 2006, the effect of loss on early extinguishment of debt, a recovery related to the Dexatrim litigation and employee stock option expenses under SFAS 123R; and (iv) for the first six months of fiscal 2005, the effect of loss on early extinguishment debt and a reversal of a charge related to the Dexatrim litigation. A reconciliation of each of the Operating Measures to the most comparable GAAP measurement for the fiscal second quarter period and the six month period is contained in the Company's unaudited consolidated statements of income attached to the Press Release. The Company considers disclosure of the Operating Measures to be meaningful information to an investor's understanding of the Company's operating performance and useful for comparison with prior period and forecasted net income and earnings per share. The Company believes that the Operating Measures improve and clarify an investor's understanding of the Company's financial and operational performance. Management of the Company uses these non-GAAP measures to analyze the Company's performance compared to forecasted and prior period results and for other internal purposes. The Press Release also contains disclosure regarding the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") and EBITDA adjusted to exclude litigation settlement items for the second fiscal quarter and first six months of fiscal 2006, non-GAAP financial measures. A reconciliation of EBITDA excluding litigation settlement items to net income, the most directly comparable GAAP financial measure, is contained in the Company's unaudited consolidated statements of income attached to the Press Release. The Company considers EBITDA an important indicator of its operational strength and performance, including its ability to pay interest, service debt and fund capital expenditures. The Company believes that EBITDA adjusted to exclude litigation settlement items provides investors with a useful measure of the Company's ongoing operating performance. Further, EBITDA adjusted to exclude litigation settlement items is one measure used in the calculation of certain ratios to determine the Company's compliance with its existing credit facility. The Company's presentation of adjusted EBITDA should not be construed as an inference that the Company's future results will be unaffected by items similar to those excluded from the calculation of adjusted EBITDA. EBITDA and adjusted EBITDA are not measurements of financial performance and liquidity under GAAP and should not be considered as alternatives to net income, income from operations or any performance measures derived in accordance with GAAP, or as alternatives to cash flows provided by operating, investing or financing activities as measures of liquidity. The non-GAAP financial measures used by the Company do not have standardized meanings prescribed by GAAP and may not be comparable to similar measures for other companies. The information in this current report on Form 8-K is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. Item 9.01. Financial Statements and Exhibits. - ---------- ---------------------------------- (d) Exhibits: 99.1 Press Release dated July 10, 2006 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. July 10, 2006 CHATTEM, INC. By: /s/ Robert E. Bosworth ------------------------------------- Robert E. Bosworth President and Chief Operating Officer EXHIBIT INDEX ------------- Exhibit No. Exhibit Description - ----------- ------------------- 99.1 Press Release dated July 10, 2006 EX-99.1 2 a5183634ex99_1.txt EXHIBIT 99.1 PRESS RELEASE EXHIBIT 99.1 Chattem Reports Second Quarter Results for Fiscal 2006 CHATTANOOGA, Tenn.--(BUSINESS WIRE)--July 10, 2006--Chattem, Inc. (NASDAQ: CHTT), a leading marketer and manufacturer of branded consumer products, today announced financial results for the second fiscal quarter and six months ended May 31, 2006. 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 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 Lotion, the BullFrog(R) franchise, up 25%, reflecting strong sales of BullFrog Mosquito Coast(R), the Selsun(R) franchise, up 7%, due to the introduction of Selsun Salon(TM), and incremental 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 and a loss on early extinguishment 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 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 analgesic 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 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 and Capital Resources As previously announced, the Company commenced the solicitation of consents from the holders of its $107.5 million 7% Senior Subordinated Notes due 2014 to an amendment to the related 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. In connection with the consent solicitation, the Company's Board of Directors has 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 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 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 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 with generally accepted accounting principles, or GAAP, this earnings release also presents certain non-GAAP financial measures, including adjusted net income, adjusted earnings per share, EBITDA and adjusted EBITDA. The non-GAAP financial measures exclude certain non-cash charges, 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 under which this earnings release has been 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 Outlook section of this release relating to 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 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. For additional information please contact Catherine Baker, Investor Relations 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 and dietary supplements. The Company's products target niche market 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(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. (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 CONTACT: Chattem, Inc. Catherine Baker, 423-822-3209 -----END PRIVACY-ENHANCED MESSAGE-----