posted February 12, 2007
Chattem, Inc., a leading marketer and manufacturer of branded consumer products, Monday announced results for the fiscal fourth quarter and year ended Nov. 30, 2006, including an eight percent increase in total revenues for the year.
"The company completed another outstanding year in fiscal 2006, highlighted by several key events. Most significantly, we reached an agreement to acquire five major brands from Johnson & Johnson, a transaction which subsequently closed on January 2, 2007," said Chief Executive Officer Zan Guerry.
"From a capital structure perspective, we completed a $125 million convertible debt offering on very attractive terms and repurchased, during the first nine months of the fiscal year, 1.2 million shares of our common stock at an average price of $33.57 per share. Also, the Dexatrim(R) PPA litigation was brought to closure with the receipt of $19.3 million before taxes, or about $0.65 per share. Operationally, Chattem experienced a very good year with solid growth in sales led by strong performances from Gold Bond(R), Dexatrim, BullFrog(R), Pamprin(R) and Selsun(R), the latter in spite of unprecedented competitive pressures from Head & Shoulders(R). Somewhat offsetting these positive events was the launch of Icy Hot(R) Pro-Therapy(TM) which, while contributing to sales growth, experienced disappointing overall performance resulting in a direct operating loss of about $0.20 and $0.40 per share in the fourth quarter and fiscal year, respectively, for the brand. Looking ahead to fiscal 2007, we anticipate another excellent year with continued impressive performance of the base business, smooth integration of the acquired brands and management of Icy Hot Pro-Therapy at about break-even levels."
FISCAL YEAR 2006 FINANCIAL RESULTS
Total revenues for fiscal 2006 were $300.5 million, up 8%, compared to total revenues of $279.3 million in the prior year. Total revenues increased 11% over the prior year excluding sales of pHisoderm(R), which was divested in November 2005. Revenue growth for fiscal year 2006 was led by Gold Bond, Dexatrim, Selsun, BullFrog and Pamprin along with the new product launch of Icy Hot Pro-Therapy.
Net income for fiscal year 2006 was $45.1 million, up 25%, compared to $36.0 million in the prior year, and earnings per share were $2.34, up 32%, compared to $1.77 in the prior year. Adjusted net income for fiscal 2006 was $37.5 million, compared to $42.6 million in the prior year, and adjusted earnings per share were $1.95, compared to $2.09 in the prior year.(1) Adjusted net income for fiscal 2006 excludes a debt extinguishment charge, litigation settlement items and SFAS 123R employee stock option expense. Adjusted net income for fiscal 2005 excludes a debt extinguishment charge, loss on product divestures, litigation settlement items and executive severance charges.
FOURTH QUARTER FINANCIAL RESULTS
Total revenues for the fourth quarter of fiscal 2006 were $65.1 million, compared to total revenues of $63.9 million in the prior year quarter, representing a 2% increase. Total revenues increased 5% over the fourth 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, Dexatrim, BullFrog and Pamprin businesses offset by a reduction in sales of Icy Hot Pro-Therapy resulting from a reserve for retail returns recorded in the fourth quarter.
Net income for the fourth quarter of fiscal 2006 was $4.9 million, compared to $2.4 million in the prior year quarter, and earnings per share were $0.26, compared to $0.12 in the prior year quarter.
Adjusted net income for the fourth quarter of fiscal 2006 was $6.0 million, compared to $8.6 million in the prior year quarter, and adjusted earnings per share were $0.32, compared to $0.43 in the prior year quarter.(1) Adjusted net income in the fourth quarter of fiscal 2006 excludes litigation settlement items and SFAS 123R employee stock option expense. Adjusted net income for the fourth quarter of fiscal 2005 excludes a debt extinguishment charge, loss on product divestures and litigation settlement items. In the fourth quarter of fiscal 2006, the Company recorded a reserve for Icy Hot Pro-Therapy retail and in-house inventory exposure totaling $5.3 million, or $0.18 per share, which resulted in negative sales for the brand and higher costs of sales during the fiscal fourth quarter of 2006.
FINANCIAL HIGHLIGHTS
Gross margin for fiscal 2006 was 68.7%, compared to 71.4% during fiscal 2005 largely attributable to the launch of Icy Hot Pro-Therapy, which has lower gross margins than our other products.
Advertising and promotion expense was 32.0% for fiscal 2006 compared to 27.5% during fiscal 2005, due primarily to increased spending to support the Company's new product introductions.
Selling, general and administrative expenses decreased to 15.6% during fiscal 2006 compared to 16.9% during fiscal 2005 reflecting lower restricted stock and variable compensation expense, offset by share-based payment expense under SFAS 123R.
During fiscal 2006, the Company repurchased 1.2 million shares at an average cost of $33.57 per share, or $39.3 million in the aggregate.
The company completed a private offering of $125 million 2% Convertible Senior Notes, the proceeds of which were used to fund in part the acquisition of brands from Johnson & Johnson.
The company successfully resolved its Dexatrim PPA litigation and recovered $19.3 million, net of legal expenses, or $0.65 per share.
ACQUISITION OF BRANDS
On January 2, 2007, the Company completed the closing of the previously announced agreement to acquire the U.S. rights to five leading consumer and over-the-counter ("OTC") brands from Johnson & Johnson for $410 million. The acquired brands include ACT(R), an anti-cavity mouthwash/mouth rinse; Cortizone, a hydrocortisone anti-itch product; Unisom(R) an OTC sleep aid; Kaopectate(R), an anti-diarrhea product; and Balmex(R), a diaper rash product. The acquisition was funded in part with the proceeds from a new $300 million term loan arranged and led by Bank of America pursuant to a Fifth Amendment to and restatement of the Company's Credit Agreement, with the remaining funds principally provided through the use of a portion of the proceeds derived from the Company's previously announced sale of $125 million 2% Convertible Senior Notes due 2013.
FISCAL 2007 GUIDANCE
The company expects earnings per share for fiscal 2007 to be in the range of $2.80 - $3.05, excluding compensation 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.
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