Chattem, Inc. (NASDAQ: CHTT), a leading marketer and
manufacturer of branded consumer products, today announced
financial results for the nine months and third fiscal quarter
ended August 31, 2009.
“The strength of Gold Bond®, ACT®, Icy Hot® and Cortizone-10®
and the successes of our 2009 new product launches for these brands
produced another period of strong earnings and operating results.
Our earnings and cash flow growth has allowed us to increase our
cash reserves and manage our capital structure by reducing debt and
repurchasing approximately 491,000 shares of our common stock in
the first nine months of fiscal 2009. The Company’s domestic
business, representing 95% of our total revenues, achieved growth
of 3.9% and 3.5% over the year ago nine and three month periods,
respectively, when excluding the discontinued Icy Hot Heat Therapy
product from the first quarter of fiscal 2008,” stated Zan Guerry,
Chairman and Chief Executive Officer of Chattem.
FIRST NINE MONTHS FINANCIAL RESULTS
Total revenues for the first nine months of fiscal 2009 were
$353.1 million, compared to total revenues of $349.4 million in the
prior year period, representing a 1.1% increase. Total domestic
revenues, excluding $1.9 million of sales of Icy Hot Heat Therapy,
which was recalled in the first quarter of fiscal 2008, increased
$12.6 million, or 3.9%, in the first nine months of fiscal 2009 to
$335.6 million, as compared to $323.0 million in the prior year
period. The increase in domestic revenues was led by sales of Gold
Bond, ACT, Icy Hot and Cortizone-10. Offsetting these increases
were lower revenues from certain smaller brands and an $8.5
million, or 51%, increase in promotional programs recorded as a
reduction of revenue rather than as advertising and promotion
expense in our consolidated statement of income during the nine
months ended August 31, 2009 as compared to the same year ago
period. Revenues of our international division decreased by $7.0
million, or 29%, in the first nine months of fiscal 2009, resulting
from our change in distributors in Latin America, general sales
weakness in our European markets due to the weak economy and an
adverse foreign exchange rate impact. On a constant currency basis,
international revenues for the first nine months of fiscal 2009
decreased $4.6 million, or 19%, compared to the prior year
period.
Net income in the first nine months of fiscal 2009 was $67.2
million, compared to $49.6 million in the prior year period, and
earnings per share were $3.48, compared to $2.56 in the prior year
period. Net income in the first nine months of fiscal 2009 included
a loss on early extinguishment of debt and employee stock option
expenses under SFAS 123R. Net income in the first nine months of
fiscal 2008 included a loss on early extinguishment of debt,
employee stock option expenses under SFAS 123R, non-recurring
expenses related to the voluntary recall of Icy Hot Heat Therapy
and a settlement related to claims alleging injury as a result of
ingestion of Dexatrim® products in 1998 through 2003. As adjusted
to exclude these items, net income in the first nine months of
fiscal 2009 was $71.5 million, compared to $63.8 million in the
prior year period, and earnings per share were $3.70, compared to
$3.29 in the prior year period, an increase of 12% for both net
income and earnings per share, as compared to the prior year
period.
THIRD QUARTER FINANCIAL RESULTS
Total revenues for the third quarter of fiscal 2009 were $115.2
million compared to total revenues of $111.9 million in the prior
year quarter, representing a 2.9% increase. Total domestic revenues
increased $3.6 million, or 3.5%, in the third quarter of fiscal
2009 to $108.6 million, as compared to $105.0 million in the prior
year period. The increase in domestic revenues was led by sales of
Gold Bond, ACT, Icy Hot and Cortizone-10. Partially offsetting
these increases were decreased sales of certain smaller brands and
a $1.8 million, or 30%, increase in promotional programs recorded
as a reduction of revenue rather than as advertising and promotion
expense in our consolidated statement of income during the quarter
ended August 31, 2009 as compared to the same year ago period.
Revenues of our international division decreased by $0.4 million,
or 5.6%, in the third quarter of fiscal 2009 resulting from our
change in distributors in Latin America, general sales weakness in
our European markets due to the weak economy and an adverse foreign
exchange rate impact. On a constant currency basis, international
revenues for the third quarter of fiscal 2009 increased $0.2
million, or 3%, compared to the prior year period.
Net income in the third quarter of fiscal 2009 was $23.4 million
compared to net income of $14.0 million in the prior year quarter.
Earnings per share in the third quarter of fiscal 2009 were $1.22
compared to $0.73 in the prior year quarter. Net income in the
third quarter of fiscal 2009 included a loss on early
extinguishment of debt and employee stock option expenses under
SFAS 123R. Net income in the third quarter of fiscal 2008 included
employee stock option expenses under SFAS 123R, a non-recurring
adjustment related to the voluntary recall of Icy Hot Heat Therapy
products and a settlement related to claims alleging injury as a
result of ingestion of Dexatrim products in 1998 through 2003. As
adjusted to exclude these items, net income in the third quarter of
fiscal 2009 was $25.0 million, or $1.31 per share, compared to
$22.3 million, or $1.17 per share, in the prior year quarter,
reflecting increases of 12% for both net income and earnings per
share, as compared to the prior year quarter.
KEY FINANCIAL HIGHLIGHTS
- Alterations in the strategy for
trade promotions by our retail customers has resulted in greater
utilization of price promotion programs in fiscal 2009 as compared
to fiscal 2008 (an increase of $8.5 million for the first nine
months of fiscal 2009 as compared to the same period in 2008). The
cost of these price promotion programs is reflected as a reduction
of our total revenues and not as a component of advertising and
promotion expense (A&P). The utilization by retailers of more
price promotion programs and the resulting impact on our reported
total revenues for fiscal 2009 also arithmetically reduces our
gross margin, decreases our reported A&P and the ratio of
A&P as a percentage of total revenues and increases the ratio
of selling, general and administrative expense as a percentage of
total revenues.
- Gross margin for the first nine
months of fiscal 2009 was 69.7%, compared to 71.6% for the prior
year period. For the third quarter of fiscal 2009, gross margin was
69.8%, compared to 71.6% in the prior year quarter. These gross
margin decreases resulted in part from higher input costs for
certain product components in fiscal 2009 as compared to the same
year ago periods, offset in part by consistent, and in some cases
slightly lower, costs realized on certain other input
components.
- Advertising and promotion
expense (A&P) for the first nine months of fiscal 2009
decreased to $78.4 million or 22.2% as a percentage of total
revenues, from $91.5 million, or 26.2% as a percentage of total
revenues in the prior year period. For the third quarter of fiscal
2009, A&P decreased to $22.9 million, or 19.8% as a percentage
of total revenues, as compared to 23.9% in the prior year quarter.
We have continued to support the new product launches for fiscal
2009, which are principally from the Gold Bond, ACT, Icy Hot,
Cortizone-10 and Selsun Blue® franchises, with strong A&P
support to drive consumer trial of the new products and continued
growth of the base business.
- Selling, general and
administrative expenses (SG&A) for the first nine months of
fiscal 2009 decreased to $45.0 million or 12.8% as a percentage of
total revenues, from $45.7 million, or 13.0% as a percentage of
total revenues for the first nine months of fiscal 2008. SG&A
as a percentage of total revenues for the third quarter of fiscal
2009 decreased to 13.3% as compared to 13.4% in the prior year
quarter.
- Earnings before interest, taxes,
depreciation and amortization (EBITDA) was $132.0 million, or 37.4%
of total revenues, for the first nine months of fiscal 2009. EBITDA
in fiscal 2009 was up 8.4%, compared to EBITDA, excluding
litigation settlement costs and one-time product recall expenses,
of $121.7 million, or 34.8% of total revenues, for the first nine
months of fiscal 2008. EBITDA was $45.7 million, or 39.6% of total
revenues, for the third quarter of fiscal 2009, up 10.0%, as
compared to EBITDA, excluding litigation settlement costs and
one-time product recall expenses, of $41.5 million, or 37.1% of
total revenues, for the prior year quarter.
- For the first nine months of
fiscal 2009, cash flow from operations increased to $83.9 million,
compared to $77.3 million in the year ago period. Free cash flow,
defined as cash flow from operations less capital expenditures, was
$80.3 million, compared to $73.7 million in the year ago period.
Our total debt was reduced during the first nine months of fiscal
2009 by $59.6 million to $399.9 million as a result of the
repayment of $21.8 million of senior bank debt, the issuance of
487,123 shares of our common stock on December 4, 2008 in exchange
for $28.7 million of our 2% Convertible Senior Notes due 2013 and
the repurchase of $9.1 million of our 7.0% Senior Subordinated
Notes (7% Notes) in the third quarter of fiscal 2009 at prices
approximately equal to the par value of the 7% Notes. Subsequent to
August 31, 2009, we have repurchased an additional $7.0 million of
the 7% Notes at a premium to par value of 1.5%. As of the date of
this release, no amounts are outstanding under our $100.0 million
revolving line-of-credit.
- Effective September 30, 2009, we
entered into an amendment to the credit agreement that governs our
revolving line-of-credit and senior secured bank term loan to,
among other things, extend the maturity date of the revolving
line-of-credit portion to January 2013 and increase our flexibility
to repurchase shares of our common stock and the 7% Notes. In
connection with the amendment to our credit agreement our Board of
Directors increased the authorization under our stock repurchase
program to repurchase shares of our common stock to a total of
$100.0 million.
- In the first nine months of
fiscal 2009, we repurchased 491,392 shares of our common stock for
approximately $26.1 million, or an average cost of $53.13 per
share.
FISCAL 2009 GUIDANCE
We currently expect earnings per share in fiscal 2009 to be in
the range of $4.80 - $4.90, excluding non-cash employee stock
option expense under SFAS 123R of $0.26 per share, any loss on debt
extinguishment, which was $0.04 per share for the first nine months
of fiscal 2009, and any non-cash brand asset value impairment
charge.
NON-GAAP FINANCIAL MEASURES
In addition to presenting financial results in accordance with
accounting principles generally accepted in the United States, or
U.S. GAAP, this earnings release also presents certain non-GAAP
financial measures, including adjusted net income, adjusted
earnings per share, EBITDA, EBITDA excluding one-time product
recall expenses and free cash flow. A reconciliation of adjusted
net income, EBITDA and EBITDA excluding one-time product recall
expenses to net income reported in accordance with U.S. GAAP for
the first nine months and third fiscal quarter of fiscal 2009 and
fiscal 2008 is provided in the unaudited consolidated statements of
income attached hereto. As discussed in this release, the Company
defines free cash flow as cash flows from operations less capital
expenditures. A reconciliation of free cash flow to cash flows from
operations reported in accordance with U.S. GAAP is presented in
the unaudited financial statements attached hereto. Chattem
believes these non-GAAP financial measures provide both management
and investors with additional insight into the Company’s
operational strength and ongoing operating performance. These
non-GAAP financial measures should be considered in conjunction
with, but not as a substitute for, the financial information
presented in accordance with U.S. GAAP. See the accompanying Form
8-K under which this earnings financial 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
This press release contains forward-looking statements within
the meaning of the federal securities laws. Statements that are not
historical facts, including statements about our beliefs and
expectations, are forward-looking statements. Forward-looking
statements include statements preceded by, followed by or that
include the words, “believes,” “expects,” “anticipates,” “plans,”
“estimates” or similar expressions. Examples of forward-looking
statements in this press release include the estimated stock option
expense under SFAS 123R for fiscal 2009 and the fiscal 2009
earnings per share guidance. Forward-looking statements are only
predictions and are not guarantees of performance. These statements
are based on beliefs and assumptions of management, which in turn
are based on currently available information. The forward-looking
statements also involve risks and uncertainties, which could cause
actual results to differ materially from those contained in any
forward-looking statement. Many of these factors are beyond our
ability to control or predict. Important factors that could cause
actual results to differ materially from those contained in any
forward-looking statement include, but are not limited to, the risk
factors disclosed in our Annual Report on Form 10-K for the year
ended November 30, 2008, as added or revised by our subsequent
Quarterly Reports on Form 10-Q, under the caption “Risk Factors.”
We believe these forward-looking statements are reasonable;
however, undue reliance should not be placed on any forward-looking
statements, which are based on current expectations. Further,
forward-looking statements speak only as of the date they are made,
and we undertake no obligation to update publicly any of these in
light of new information or future events.
WEBCAST
Chattem will provide an online Web simulcast and rebroadcast of
its third fiscal quarter conference call. The live broadcast of the
call will be available online at www.chattem.com and
www.streetevents.com today, October 6, 2009, beginning at 8:30 a.m.
ET. The online replay will follow shortly after the call and be
available through October 13, 2009. Please note that the webcast
requires Windows Media Player. For additional information please
contact Robert Long, Vice President and Chief Financial Officer, at
423-822-4450.
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-10 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.
CHATTEM, INC. CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts) (Unaudited)
For the Three Months Ended August
31, For the Nine Months Ended August 31,
2009
2008
2009
2008
REVENUES $ 115,171 $ 111,929 $ 353,093
$ 349,418
COSTS AND EXPENSES: Cost of
sales 34,765 31,753 107,153 99,127 Advertising and promotion 22,866
26,789 78,424 91,532 Selling, general and administrative 15,275
15,024 45,031 45,676 Litigation settlement - 11,196 - 11,196
Product recall expenses - (112 ) -
5,931 Total costs and expenses 72,906
84,650 230,608 253,462
INCOME FROM OPERATIONS 42,265
27,279 122,485 95,956
OTHER INCOME (EXPENSE): Interest expense (5,126 )
(6,176 ) (16,075 ) (19,293 ) Investment and other income, net 45
109 223 362 Loss on early extinguishment of debt (405 )
- (1,101 ) (526 ) Total other income
(expense) (5,486 ) (6,067 ) (16,953 )
(19,457 )
INCOME BEFORE INCOME TAXES 36,779 21,212
105,532 76,499
PROVISION FOR INCOME TAXES
13,351 7,246 38,308
26,928
NET INCOME $ 23,428 $ 13,966
$ 67,224 $ 49,571
DILUTED SHARES
OUTSTANDING 19,161 19,004
19,323 19,385
NET INCOME PER COMMON
SHARE (DILUTED) $ 1.22 $ 0.73 $ 3.48 $
2.56
NET INCOME (EXCLUDING DEBT
EXTINGUISHMENT, SFAS 123R EXPENSE, LITIGATION SETTLEMENT AND
PRODUCT RECALL EXPENSES) PER COMMON SHARE (DILUTED):
Net income $ 23,428 $ 13,966 $ 67,224 $ 49,571 Add: Loss on
early extinguishment of debt 405 - 1,101 526 SFAS 123R expense
2,124 1,701 5,667 4,281 Litigation settlement - 11,196 - 11,196
Product recall expenses - (112 ) - 5,931 Provision for income taxes
(918 ) (4,464 ) (2,457 ) (7,721 )
Net income (excluding debt
extinguishment, SFAS 123R expense, litigation settlement and
product recall expenses)
$ 25,039 $ 22,287 $ 71,535 $ 63,784
Net income (excluding debt
extinguishment, SFAS 123R expense, litigation settlement and
product recall expenses) per common share (diluted)
$ 1.31 $ 1.17 $ 3.70 $ 3.29
EBITDA RECONCILIATION
(EXCLUDING LITIGATION SETTLEMENT AND PRODUCT RECALL
EXPENSES):
Net income $ 23,428 $ 13,966 $ 67,224 $ 49,571 Add:
Provision for income taxes 13,351 7,246 38,308 26,928 Interest
expense, net (includes loss on early extinguishment of debt) 5,486
6,067 16,953 19,457 Depreciation and amortization (including SFAS
123R expense, less amounts included in interest) 3,388
3,145 9,465 8,604
EBITDA $ 45,653 $ 30,424 $ 131,950 $ 104,560 Litigation settlement
- 11,196 - 11,196 Product recall expenses -
(112 ) - 5,931 EBITDA (excluding
litigation settlement and product recall expenses) $ 45,653
$ 41,508 $ 131,950 $ 121,687
Depreciation & amortization (including SFAS 123R expense) $
4,010 $ 3,801 $ 11,338 $ 10,597 Capital expenditures $ 1,389 $
1,101 $ 3,623 $ 3,567
CASH FLOWS FROM OPERATIONS:
For the Nine Months Ended August 31,
2009
2008
Net income
$ 67,224 $ 49,571 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
5,671 6,316 Deferred income taxes 12,635 12,404 Tax benefit
realized from stock options exercised (325 ) (2,342 ) Stock-based
compensation expense 5,667 4,281 Loss on early extinguishment of
debt 1,101 526 Other, net (1 ) 137 Changes in operating assets and
liabilities: Accounts receivable 828 (7,567 ) Inventories (1,363 )
2,611 Prepaid expenses and other current assets (5,174 ) (5,885 )
Accounts payable and accrued liabilities (2,376 )
17,248 Net cash provided by operating activities $ 83,887
$ 77,300
FREE CASH FLOW
RECONCILIATION: Net cash provided by operating
activities $ 83,887 $ 77,300 Less: Capital expenditures
(3,623 ) (3,567 ) Free cash flow $ 80,264 $ 73,733
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 For the Nine Months Ended August
31, 2009 August 31, 2008 August 31, 2009 August 31, 2008
TOTAL REVENUES 100 % 100 % 100 % 100 %
COSTS AND EXPENSES: Cost of sales 30.2 28.4 30.3 28.4
Advertising and promotion 19.8 23.9 22.2 26.2 Selling, general and
administrative 13.3 13.4 12.8 13.0 Product recall expenses - 10.0 -
3.2 Litigation settlement - (0.1 ) -
1.7 Total costs and expenses 63.3
75.6 65.3 72.5
INCOME FROM OPERATIONS 36.7 24.4
34.7 27.5 OTHER INCOME
(EXPENSE): Interest expense (4.4 ) (5.5 ) (4.6 ) (5.5 ) Investment
and other income, net - 0.1 0.1 0.1 Loss on early extinguishment of
debt (0.4 ) - (0.3 ) (0.2 )
Total other income (expense) (4.8 ) (5.4 )
(4.8 ) (5.6 ) INCOME BEFORE INCOME TAXES 31.9 19.0
29.9 21.9 PROVISION FOR INCOME TAXES 11.6
6.5 10.9 7.7 NET
INCOME 20.3 % 12.5 % 19.0 % 14.2 %
SELECTED BALANCE SHEET DATA: August 31, 2009 August
31, 2008 Cash and cash equivalents $ 59,400 $ 13,031
Accounts receivable, net $ 48,589 $ 51,320 Inventories $ 42,336 $
40,655
Accounts payable, accrued
liabilities and bank overdraft
$ 38,181 $ 56,277 Senior bank debt $ 105,250 $ 127,750
Subordinated debt 294,670 332,500 Total
debt $ 399,920 $ 460,250
SHARE REPURCHASE
DATA: For the Three Months Ended For the Nine Months Ended
August 31, 2009 August 31, 2008
August 31, 2009
August 31, 2008
Shares repurchased - 231 491 418 Cash paid for share
repurchases $ - $ 13,773 $ 26,107 $ 26,327
SUMMARY OF NET
SALES:
Net sales by domestic product
category and total international for the third quarter of fiscal
2009, as compared to the corresponding period in fiscal 2008, were
as follows:
Increase (Decrease) 2009 2008 Amount Percentage Medicated skin care
$ 38,429 $ 35,806 $ 2,623 7 % Topical pain care 26,023 24,192 1,831
8 % Oral care 17,089 15,859 1,230 8 % Internal OTC's 11,307 12,149
(842 ) (7 %) Medicated dandruff shampoos 7,216 7,654 (438 ) (6 %)
Dietary supplements 5,141 4,939 202 4 % Other OTC and toiletry
products 3,391 4,364 (973 ) (22
%) Total domestic 108,596 104,963 3,633 3 % International revenues
(including royalties) 6,575 6,966
(391 ) (6 %) Total revenues $ 115,171 $ 111,929
$ 3,242 3 %
Net sales by domestic product
category and total international for the first nine months of
fiscal 2009, as compared to the corresponding period in fiscal
2008, were as follows:
Increase (Decrease) 2009 2008 Amount Percentage Medicated skin care
$ 117,856 $ 107,931 $ 9,925 9 % Topical pain care * 72,380 74,279
(1,899 ) (3 %) Oral care 53,839 47,045 6,794 14 % Internal OTC's
34,357 36,633 (2,276 ) (6 %) Medicated dandruff shampoos 26,304
26,940 (636 ) (2 %) Dietary supplements 14,982 15,446 (464 ) (3 %)
Other OTC and toiletry products 15,884 16,695
(811 ) (5 %) Total domestic 335,602 324,969 10,633 3
% International revenues (including royalties) 17,491
24,449 (6,958 ) (28 %) Total revenues $
353,093 $ 349,418 $ 3,675 1 % *
Includes Icy Hot Heat Therapy and Icy Hot Pro Therapy
Chattem, Inc. (MM) (NASDAQ:CHTT)
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