Chattem, Inc. (NASDAQ:CHTT), the Chattanooga-based leading marketer and manufacturer of branded consumer products, announced today financial results for the fiscal second quarter ended May 31 - including an 8 percent revenue rise.
Total revenues for the quarter were $63.6 million, operating
income was $17.0 million and income before accounting change was $7.5 million, representing increases of 8%, 18% and 33%, respectively, over the corresponding year-ago period results. Earnings per share for the
fiscal 2003 second quarter were $.38, a 31% increase over the second
quarter of fiscal 2002 earnings per share. Earnings per share for the
quarter also exceeded the Company's prior estimate of $.34-.36 per
share and the analysts' consensus estimate of $.35.
For the first six months of fiscal 2003, total revenues were
$122.1 million, operating income was $29.5 million and income before
accounting change was $12.1 million, or $.61 per share, representing
increases over the corresponding year-ago periods of 14%, 29% and 51%, respectively.
The 8% increase in total revenues for the second fiscal quarter of
2003 over the second quarter of 2002 was led by Selsun blue(R), Gold
Bond(R), pHisoderm(R), NewPhase(R) and the Company's seasonal brands, Bull Frog(R), Sun-In(R) and Ultra Swim(R). Domestic net sales of Selsun blue increased 57% over the corresponding year-ago period (when the brand was owned two months by Chattem and one month by Abbott Laboratories), driven by a strong advertising campaign and increased distribution. Net sales of the Gold Bond franchise were up 11% led by
the shipment of three new items and the continuing strength of the
foot care portion of the business. pHisoderm's net sales increased
24%, driven by the continuing strength of new acne items launched last year. NewPhase, a phytoestrogen menopausal supplement launched in 2000, experienced a net sales increase of 163%. Finally, net sales of Chattem's seasonal brands increased 13%, due principally to strong display sales and distribution gains.
Offsetting these sales increases were year-over-year sales declines in Chattem's topical analgesic portfolio (Icy Hot(R), Flex-All(R), Aspercreme(R), Sportscreme(R), Capsazin-P(R),
Capsazin-HP(R) and Arthritis Hot(R)), Dexatrim(R) and the Company's
menstrual brands, Pamprin(R) and Premsyn(R). While Icy Hot sales were up modestly in the quarter, sales of the balance of the portfolio were
flat to down. Chattem began shipping the Icy Hot Back Patch(R) late in the second fiscal quarter and will begin supporting this new item
during the third quarter with media and a nationally distributed
coupon, both featuring Shaquille O'Neal. The Company anticipates that
sales of this item will lead to more favorable second half comparisons
for the topical analgesics. Dexatrim continues to suffer from a weak
diet pill category, while the menstrual brands have been impacted by
strong competition.
International total revenues for the second quarter of 2003
increased 43% over the prior year comparable period, due principally
to sales of Selsun blue.
Abbott Laboratories, from whom the Company acquired Selsun blue on
March 28, 2002 for $75 million plus $1.4 million in inventories, is
manufacturing and selling the product for Chattem during a transition
period, and paying Chattem an initial royalty of 28% on international
sales, reducing to 14% in certain countries if local regulatory
requirements are satisfied prior to the Company's assumption of sales
and marketing responsibility in such countries. As the Company takes
over responsibility for the sales and marketing effort in a foreign
country, the royalty arrangement with respect to such country will
terminate and Chattem will record the international sales resulting in
an increase in net sales but with no material impact to net income.
Chattem enjoyed excellent margins in the second fiscal quarter, officials said. Gross margin based on total revenues was 72.2%, due principally to the substantial completion of the integration of Selsun blue domestic manufacturing into the Company's facilities. Selling, general and administrative expense (S,G &A) as a percentage of total revenues was 16.3%, due primarily to the success of a number of cost containment programs. Advertising and promotion as a percentage of total revenue was 29.1%. For the first six months of fiscal 2003, gross margin, S,G&A and advertising and promotion as a percentage of total revenues were 71.0%, 16.6% and 30.3%, respectively.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) for the second fiscal quarter of 2003 was $18.0 million (see
the reconciliation of EBITDA to income before accounting change in
Chattem's unaudited consolidated statements of income attached
hereto). EBITDA for the first six months of fiscal 2003 was $31.7
million.
At the end of the second fiscal quarter of 2003, Chattem's net
debt (long-term debt less cash) was reduced to $202.5 million from
$208.8 million at the end of the 2002 fiscal year. The Company prepaid
$5.0 million of its term debt during its fiscal 2003 second quarter.
During the second quarter Chattem repurchased 169,800 shares of
its common stock at an average price of $13.67. A total of approximately $6.1 million remains available under the Company's $10 million board stock repurchase authorization. The Company intends to continue to purchase its shares when it believes the shares are
undervalued.
For the 2003 fiscal year, Chattem now expects total revenues of
$238-243 million. The Company further estimates its earnings per share for the year to be $1.17-1.22. The Company's previous estimate had
been for earnings per share of $1.10-1.15 for the 2003 fiscal year.
The Company's expectations and estimates are subject to risks,
uncertainties and assumptions, including those summarized in paragraph 14 below or included in filings with the Securities and Exchange Commission. Full fiscal year projected results may not equal the sum of quarterly projections due to rounding, and in the case of EPS, variations in share count.
Chattem also announced it has entered into an agreement to amend its senior credit facility to increase the revolving line of credit from $15 million to $50 million, eliminate the term loan feature of the facility and modify certain other terms and conditions. The existing term loan had an outstanding balance at the end of the second fiscal quarter of $11.8 million, which amount will initially be outstanding under the new $50 million revolving credit facility, leaving an initial amount available for borrowing of $38.2 million.
The Company stated that the amended senior credit facility, together
with its strong cash flow from operations, will allow it greater
financial flexibility to fund potential acquisitions and repurchase
the Company's stock and senior subordinated notes, and should also
reduce the amount of interest payable annually. The senior credit
facility is led by Bank of America.
CHATTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the Three Months Ended May 31, 2002, 2003
For the Six Months Ended May 31, 2002, 2003
NET SALES $63,269 $57,746 $121,394 $106,160
Royalty Income 364 926 664 926
--------- --------- --------- ---------
Total Revenue 63,633 58,672 122,058 107,086
COSTS AND EXPENSES:
Cost of sales 17,713 16,686 35,404 31,147
Advertising and promotion 18,529 18,095 36,934 33,969
Selling, general and
administrative 10,397 9,539 20,211 19,076
--------- --------- --------- ---------
Total costs and expenses 46,639 44,320 92,549 84,192
--------- --------- --------- ---------
INCOME FROM OPERATIONS 16,994 14,352 29,509 22,894
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (5,227) (5,303) (10,374) (10,144)
Investment and
other income, net 53 58 87 164
--------- --------- --------- ---------
Total other expense (5,174) (5,245) (10,287) (9,980)
--------- --------- --------- ---------
Income before income taxes and
accounting change 11,820 9,107 19,222 12,914
Provision for income taxes (4,299) (3,472) (7,112) (4,907)
--------- --------- --------- ---------
Income before accounting
change 7,521 5,635 12,110 8,007
Cumulative effect of change in
accounting principle, net of
taxes - - - (8,877)
--------- --------- --------- ---------
NET INCOME (LOSS) $7,521 $5,635 $12,110 $(870)
========= ========= ========= =========
Diluted shares outstanding 19,751 19,329 19,966 18,919
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE (DILUTED):
Income before accounting
change $0.38 $0.29 $0.61 $0.42
Accounting change $- $- $- $(0.47)
--------- --------- --------- ---------
Net income (loss) per common
share $0.38 $0.29 $0.61 $(0.05)
========= ========= ========= =========
EBITDA:
Income before accounting
change $7,521 $5,635 $12,110 $8,007
Add: Provision for income
taxes 4,299 3,472 7,112 4,907
Interest expense, net 5,174 5,245 10,287 9,980
Depreciation and amortization
(excluding amounts included
in interest) 1,018 1,034 2,152 2,029
--------- --------- --------- ---------
EBITDA $18,012 $15,386 $31,661 $24,923
--------- --------- --------- ---------
EBITDA margin 28.3% 26.2% 25.9% 23.3%
Depreciation & amortization $1,522 $1,338 $3,021 $2,601
Capital expenditures $1,102 $1,538 $2,566 $2,048
BALANCE SHEET DATA:
Cash and cash equivalents $13,961 $17,779
Accounts receivable $32,197 $30,765
Inventories $20,417 $15,130
Accounts payable $10,120 $9,119
Senior bank debt $11,750 $38,500
Subordinated debt 204,692 204,724
--------- ---------
Total debt $216,442 $243,224
========= =========
Shareholders' equity $84,039 $60,377
Total assets $361,606 $356,451