-----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, Q4gGVTMQ/FhLrde08o9onWKscllbJ/hUncRUlc9mxxbyfYiAEW2kSrSyjuf4v5nH RG7iAReAXgwptRjnGTfYUQ== 0001157523-07-002885.txt : 20070322 0001157523-07-002885.hdr.sgml : 20070322 20070322083016 ACCESSION NUMBER: 0001157523-07-002885 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070322 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070322 DATE AS OF CHANGE: 20070322 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: 07710560 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 a5360819.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): March 22, 2007 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 March 22, 2007, Chattem, Inc. (the "Company") issued a press release announcing financial results for the fiscal first quarter ended February 28, 2007 (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, for the Company's first fiscal quarter periods ended February 28, 2006 and 2007. The adjusted net income and earnings per share disclosures are non-GAAP financial measures (the "Operating Measures"). The Operating Measures exclude (i) for the first fiscal quarter of 2007, employee stock option expenses under SFAS 123R; and (ii) for the first fiscal quarter of 2006, employee stock option expenses under SFAS 123R, a gain related to a recovery of legal expenses in the Dexatrim litigation and a loss on early extinguishment of debt. A reconciliation of each of the Operating Measures to the most comparable GAAP measurement for the fiscal first quarter periods ended February 28, 2006 and 2007 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 this non-GAAP measure 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") adjusted to exclude litigation settlement items for the first fiscal quarters ended February 28, 2006 and 2007, which are 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 March 22, 2007 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. March 22, 2007 CHATTEM, INC. By: /s/ Theodore K. Whitfield, Jr. --------------------------------------- Theodore K. Whitfield, Jr. Vice President, General Counsel and Secretary EXHIBIT INDEX ------------- Exhibit No. Exhibit Description - ----------- ------------------- 99.1 Press Release dated March 22, 2007 EX-99.1 2 a5360819-ex991.txt EXHIBIT 99.1 EXHIBIT 99.1 Chattem Reports Revenues Up 20%; Raises Earnings Guidance; Integration of Recently Acquired Brands On-Track CHATTANOOGA, Tenn.--(BUSINESS WIRE)--March 22, 2007--Chattem, Inc. (NASDAQ: CHTT), a leading marketer and manufacturer of branded consumer products, today announced results for the first quarter of fiscal 2007. Total revenues for the first quarter of fiscal 2007 were $100.8 million compared to total revenues of $84.0 million in the prior year quarter representing a 20% increase. Revenue growth for the quarter was driven by sales of the five brands acquired from Johnson & Johnson on January 2, 2007, continued growth of the Gold Bond(R) franchise, up 27%, the strength of the Icy Hot(R) business, up 23%, led by new product launches, and steady growth from Dexatrim(R) and Pamprin(R), each up 11%. Offsetting these increases was a reduction in sales of Icy Hot Pro-Therapy(TM) from launch levels in the first quarter of fiscal 2006. Excluding the impact of the acquired brands and Icy Hot Pro-Therapy, total revenues from the base business increased by 11% in the first quarter of fiscal 2007, compared to the prior year quarter. Net income for the first quarter of fiscal 2007 was $13.7 million, down 7%, compared to net income of $14.8 million in the prior year quarter. Earnings per share for the first quarter were $0.71, down 5%, compared to $0.75 in the prior year quarter. Net income in the first quarter of fiscal 2007 included employee stock option expenses under SFAS 123R ($0.04 per share after taxes). Net income in the first quarter of fiscal 2006 included employee stock option expense under SFAS 123R ($0.03 per share after taxes), a gain related to a recovery of legal expenses ($0.29 per share after taxes), and a loss on early extinguishment of debt ($0.10 per share after taxes). As adjusted to exclude these items, net income in the first quarter of fiscal 2007 was $14.4 million, up 25%, compared to $11.5 million in the prior year quarter and earnings per share were $0.75, up 27%, compared to $0.59 in the prior year quarter. "The Company completed its first quarter in history with revenues over $100 million," said Chief Executive Officer Zan Guerry. "The level of enthusiasm at the Company is greater than ever. With sales of Gold Bond continuing to exceed expectations, the Selsun(R) franchise continuing to perform well at retail with Nielsen data showing a 12% increase for the latest 13 week period ending February 24, 2007, a strong sell-in of our new products in the topical pain care category and the integration of our newly acquired brands progressing smoothly, Chattem is well positioned to deliver on its growth objectives in fiscal year 2007 and beyond. We are extremely pleased with the Company's 27% increase in adjusted earnings per share as we view this as a meaningful measure of our operating performance." KEY HIGHLIGHTS -- Gross margin for the first quarter of fiscal 2007 was 69.3%, compared to 69.0% in the prior year quarter. The increase in gross margin primarily reflected reduced sales of the relatively low margin Icy Hot Pro-Therapy line. Gross margins on the acquired business were in line with original expectations and should increase over time as the Company plans to bring manufacturing for certain of the brands in-house. -- Advertising and promotion expense (A&P) for the first quarter of fiscal 2007 increased to $28.8 million from $27.2 million in the prior year quarter. A&P expense as a percentage of total revenues decreased to 28.5% for the first quarter of fiscal 2007, as compared to 32.4% in the prior year quarter, with the reduction as a percentage of total revenues declining largely as a result of the heavy investment spending on Icy Hot Pro-Therapy in the first quarter of fiscal 2006. The Company continues to support both the base business and the acquired brands with strong advertising and promotional programs. -- Selling, general and administrative expenses (SG&A) for the first quarter of fiscal 2007 increased to $12.6 million from $11.6 million in the prior year quarter. SG&A as a percentage of total revenues for the first quarter of fiscal 2007 decreased to 12.5%, as compared to 13.8% in the prior year quarter reflecting the Company's ability to leverage its operating infrastructure. -- Acquisition costs primarily reflect payments made to Johnson & Johnson for services rendered under a Transition Services Agreement related to the acquired brands. -- Earnings before interest, taxes, depreciation and amortization (EBITDA) excluding litigation settlement items was $28.7 million, or 28.5% of total revenues, for the first quarter of fiscal 2007, up 40%, compared to the prior year quarter. -- Interest expense increased $4.4 million in the first quarter of fiscal 2007 as compared to the prior year quarter reflecting the impact of the additional indebtedness incurred to finance the acquisition of brands from Johnson & Johnson. -- The Company reduced outstanding borrowings under its revolving credit facility to $15.0 million as of March 21, 2007, versus an outstanding balance of $30.0 million at February 28, 2007 and an acquisition funding balance of $38.0 million on January 2, 2007. -- To date, the integration of the acquired brands is progressing very well and the Company expects any remaining transition services being provided by Johnson & Johnson to cease during the second fiscal quarter. FISCAL 2007 GUIDANCE Based on the strength of our base business and the progression of the integration of the acquired brands, the Company currently expects earnings per share in fiscal 2007 to be in the range of $2.85 to $3.10 as compared to earlier estimates of $2.80 to $3.05, in each case excluding stock option expense under SFAS 123R. Stock option expense under SFAS 123R for fiscal 2007 is estimated to be $0.14 per share prior to the impact of any additional option grants in fiscal 2007. FY2007 EPS Guidance - ---------------------------------------------------------------------- Excluding stock option expense under $2.85 - $3.10 SFAS 123R - ---------------------------------------------------------------------- Including stock option expense under $2.71 - $2.96 SFAS 123R - ---------------------------------------------------------------------- Previous FY2007 EPS Guidance - ---------------------------------------------------------------------- Excluding stock option expense under $2.80 - $3.05 SFAS 123R - ---------------------------------------------------------------------- Including stock option expense under $2.66 - $2.91 SFAS 123R - ---------------------------------------------------------------------- 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 and adjusted EBITDA. The non-GAAP financial measures exclude certain non-cash charges, such as stock option expenses, and certain charges, such as debt extinguishment 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 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 2007 Guidance section of this release, 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 first quarter 2007 conference call. The live broadcast of the call will be available online at www.chattem.com and www.streetevents.com today, Thursday, March 22, 2007 beginning at 9:00 a.m. ET. The online replay will follow shortly after the call and be available through March 29, 2007. 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, ACT, Cortizone 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. (1) See the reconciliation of adjusted net income to net income reported in accordance with GAAP for the first quarter fiscal 2007, 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 Ended February 28, ------------------ 2007 2006 --------- -------- REVENUES: Net sales $100,779 $83,977 Royalties 52 47 --------- -------- Total revenues 100,831 84,024 COSTS AND EXPENSES: Cost of sales 30,980 26,020 Advertising and promotion 28,787 27,187 Selling, general and administrative 12,586 11,591 Litigation settlement - (8,613) Acquisition costs 1,171 - --------- -------- Total costs and expenses 73,524 56,185 --------- -------- INCOME FROM OPERATIONS 27,307 27,839 --------- -------- OTHER INCOME (EXPENSE): Interest expense (7,236) (2,844) Investment and other income, net 768 194 Loss on early extinguishment of debt - (2,805) --------- -------- Total other income (expense) (6,468) (5,455) --------- -------- INCOME BEFORE INCOME TAXES 20,839 22,384 PROVISION FOR INCOME TAXES 7,189 7,611 --------- -------- NET INCOME $ 13,650 $14,773 ========= ======== DILUTED SHARES OUTSTANDING 19,224 19,577 ========= ======== NET INCOME PER COMMON SHARE (DILUTED) $ 0.71 $ 0.75 ========= ======== - ------------------------------------------------------------- -------- NET INCOME (EXCLUDING DEBT EXTINGUISHMENT, SFAS 123R EXPENSE AND LITIGATION SETTLEMENT ITEMS PER COMMON SHARE (DILUTED): Net income $ 13,650 $14,773 Add: Loss on early extinguishment of debt - 2,805 SFAS 123R expense 1,204 852 Litigation settlement items - (8,613) Benefit from (provision for) income taxes (415) 1,685 --------- -------- Net income (excluding debt extinguishment, SFAS 123R expense and litigation settlement items) $ 14,439 $11,502 ========= ======== Net income (excluding debt extinguishment, SFAS 123R expense and litigation settlement items) per common share (diluted) $ 0.75 $ 0.59 ========= ======== - ---------------------------------------------------------------------- EBITDA RECONCILIATION (EXCLUDING LITIGATION SETTLEMENT ITEMS): Net income $ 13,650 $14,773 Add: Provision for income taxes 7,189 7,611 Interest expense, net (includes loss on early extinguishment of debt) 6,468 5,455 Depreciation and amortization less amounts included in interest 1,442 1,284 --------- -------- EBITDA $ 28,749 $29,123 Litigation settlement items - (8,613) EBITDA (excluding litigation settlement items) $ 28,749 $20,510 --------- -------- Depreciation & amortization $ 2,030 $ 1,425 Capital expenditures $ 453 $ 1,276 - ------------------------------------------------------------- -------- 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. CHATTEM, INC. SELECTED SUMMARY FINANCIAL DATA (In thousands) (Unaudited) SELECTED INCOME STATEMENT DATA: The following table sets forth, for the periods indicated, certain items from our Consolidated Statements of Income expressed as a percentage of total revenues: For the Three Months Ended -------------------------- February 28, February 28, 2007 2006 ------------- ------------ TOTAL REVENUES 100% 100% ------------- ------------ COSTS AND EXPENSES: Cost of sales 30.7 31.0 Advertising and promotion 28.5 32.4 Selling, general and administrative 12.5 13.8 Litigation settlement - (10.3) Acquisition cost 1.2 - ------------- ------------ Total costs and expenses 72.9 66.9 ------------- ------------ INCOME FROM OPERATIONS 27.1 33.1 ------------- ------------ OTHER INCOME (EXPENSE): Interest expense (7.2) (3.4) Investment and other income, net 0.8 0.2 Loss on early extinguishment of debt - (3.3) ------------- ------------ Total other income (expense) (6.4) (6.5) ------------- ------------ INCOME BEFORE INCOME TAXES 20.7 26.6 PROVISION FOR INCOME TAXES 7.1 9.1 ------------- ------------ NET INCOME 13.6% 17.5% ============= ============ - ---------------------------------------------------------------------- SELECTED BALANCE SHEET DATA: February 28, February 28, 2007 2006 ------------- ------------ Cash and cash equivalents $ 15,749 $ 8,125 Accounts receivable, net $ 53,064 $ 57,738 Inventories $ 37,570 $ 25,427 Accounts payable and accrued liabilities $ 38,585 $ 32,107 Senior bank debt $ 330,000 $ 43,000 Subordinated debt 232,500 107,500 ------------- ------------ Total debt $ 562,500 $ 150,500 ============= ============ - ---------------------------------------------------------------------- SELECTED CASH FLOW DATA: For the Three Months Ended -------------------------- February 28, February 28, 2007 2006 ------------- ------------ Shares repurchased - 275 Cash paid for share repurchases $ - $ 10,130 - ---------------------------------------------------------------------- SUMMARY OF NET SALES: Net sales by domestic product category and total international for the first quarter of fiscal 2007, as compared to the corresponding period in fiscal 2006, were as follows: 2007 2006 ------------- ------------ Topical pain care products (a) $ 27,226 $ 32,441 Medicated skin care products 27,833 16,892 Medicated dandruff shampoos 10,296 11,816 Oral care products 8,487 1,615 Internal OTC's 8,449 2,561 Dietary supplements 8,030 8,853 Other OTC and toiletry products 4,302 4,265 ------------- ------------ Total Domestic 94,623 78,443 International revenues (including royalties) 6,208 5,581 ------------- ------------ Total Revenues $ 100,831 $ 84,024 ============= ============ (a) Includes Icy Hot Pro-Therapy sales CONTACT: Chattem, Inc., Chattanooga Catherine Baker, Investor Relations, 423-822-3209 -----END PRIVACY-ENHANCED MESSAGE-----