Exhibit 99.1
NEWS RELEASE
- --------------------------------------------------------------------------------
FOR 3:00 P.M. CT RELEASE
November 2, 2006
Contact:
Sam Reinkensmeyer Joseph Diaz, Jr.
Chief Financial Officer Lytham Partners, LLC
CNS, Inc. (602) 889-9700
(952) 229-1500 diaz@lythampartners.com
sreinkensmeyer@cns.com
Nasdaq: CNXS
CNS, INC. REPORTS STRONG SECOND QUARTER REVENUE AND EARNINGS GROWTH
o Second quarter sales increased by 37% versus the prior year
quarter.
o Earnings per share increased 56% versus the prior year quarter.
o Breathe Right(R) domestic sales increased 24% driven by new
advertising campaigns.
o FiberChoice(R) sales increased 87% driven by two new products.
o Breathe Right international sales increased 46% driven by strong
consumer demand.
o On October 8, 2006, CNS and GlaxoSmithKline plc (GSK) entered
into a definitive agreement for GSK to acquire CNS for $37.50 per
share in cash.
MINNEAPOLIS, November 2, 2006 -- CNS, Inc. (NASDAQ: CNXS), the Breathe
Right(R) company, today announced strong results for the second quarter of
fiscal year 2007 ended September 30, 2006.
Net sales for the second quarter were $35.8 million, an increase of 37%
compared to $26.1 million in the prior year period. Net income was $6.9 million,
or $0.47 per fully diluted share, up 56% per fully diluted share compared to net
income of $4.5 million, or $0.30 per fully diluted share in the second quarter
of fiscal 2006. After adjusting for the impact of stock-based compensation
expense, proforma net income in the second quarter of fiscal 2006 was $4.3
million, or $0.29 per fully diluted share (see attached reconciliation of GAAP
to non-GAAP disclosures).
For the first six months of fiscal 2007, CNS reported net sales of
$65.2 million, up 31% compared to $49.6 million in the first six months of last
year. Net income for the first half of fiscal 2007 rose 22% to $10.4 million, or
$0.71 per fully diluted share, versus $8.6 million, or $0.57 per fully diluted
share in the prior-year period. After adjusting for the impact of stock-based
compensation expense, proforma net income for the first six months of fiscal
2006 was $8.1 million or $0.54 per fully diluted share.
CNS, Inc. Reports Fiscal 2007 Q2 Results
Page 2
"We are very pleased with our second quarter results. We delivered
strong revenue growth from the FiberChoice(R) brand as well as the Breathe
Right(R) brand, both domestically and internationally," said Marti Morfitt, CNS'
president and CEO. "This profitable growth resulted from deploying tested,
proven growth strategies and tactics such as new advertising messages to drive
the growth of Breathe Right(R) nasal strips, and the launch of new products to
expand the FiberChoice brand.
CNS is focused on a number of key initiatives to grow the Breathe Right
and FiberChoice brands in fiscal 2007, including:
o Continued expansion of Breathe Right nasal strips both
domestically and in overseas markets, using tested, proven growth
strategies;
o Year round advertising of Breathe Right nasal strips as a
solution for consumers' chronic nasal breathing conditions
outside of the cold/flu season;
o Increasing FiberChoice sales with strong support for our new
fortified fiber products as we develop the "Fiber for Health"
platform;
o Expansion of the Breathe Right brand leadership in the snore
relief segment with the launch of Breathe Right(R) Snore
Relief(TM) throat rinse;
o Continued development our pipeline of new products; and
o Continued development and testing of new marketing tactics for
both the Breathe Right and FiberChoice brands.
The gross margin rate for the 2007 second quarter was 73.1%, up from
the prior year period's gross margin rate of 70.7%, primarily due to lower cost
of goods sold and a price increase on FiberChoice products effective February
2006. Advertising and promotion expense for the fiscal 2007 second quarter was
$10.2 million compared to $6.9 million in the second quarter of fiscal 2006.
Higher levels of advertising and promotion expense resulted from our strategy to
position Breathe Right nasal strips as a year-round treatment for consumers'
chronic nasal breathing conditions, as well as increased advertising for the
FiberChoice brand and its two new fortified fiber products.
CNS generated $9.9 million in cash from operations during the six-month
period ended September 30, 2006 and ended the second quarter with $61 million in
cash and marketable securities and no debt.
CNS, Inc. Reports Fiscal 2007 Q2 Results
Page 3
SECOND-QUARTER PRODUCT RESULTS
Domestic Breathe Right(R) sales in the fiscal 2007 second quarter grew
24% to $22.9 million, compared to prior year sales of $18.4 million. The growth
is attributable to our successful strategy to promote year-round Breathe
Right(R) nasal strip usage with two new advertising campaigns. One campaign
features Bruce Johnson, the inventor of the Breathe Right nasal strip. The
second campaign is targeted to snorers and features our "How Snoring Works"
demonstration.
International sales of Breathe Right products in the fiscal 2007 second
quarter rose 46% to $4.4 million versus sales of $3.0 million in the second
quarter of last year. Sales increased in all major markets including Europe,
Canada and Japan.
FiberChoice(R) sales grew 87% to $8.5 million in the second quarter
compared to $4.5 million in the prior year period. Effective advertising and
trade promotions delivered strong consumer demand for the FiberChoice line of
products, including FiberChoice(R) plus Calcium and Fiber Choice(R) Weight
Management which were launched in February 2006.
"We are very pleased to see continued strong revenue growth in each of
our product lines," said Morfitt. "Breathe Right nasal strips benefited from
continued advertising support, both domestically and internationally; and our
FiberChoice brand has achieved a higher growth rate by the strength of new
products and increased and continued effective advertising support."
GLAXOSMITHKLINE TO ACQUIRE CNS, INC.
On October 8, 2006, CNS and GlaxoSmithKline plc (GSK) entered into a
definitive agreement for GSK to acquire CNS for $37.50 per share in cash,
valuing the transaction at approximately $566 million. Upon completion of the
transaction, CNS will become a wholly-owned subsidiary of GSK. The transaction,
which is expected to close by early 2007, is subject to customary conditions
including CNS stockholder approval and antitrust clearance under the
Hart-Scott-Rodino Act. On October 30, 2006, CNS filed a preliminary proxy with
the Securities and Exchange Commission in connection with its special meeting of
stockholders to approve the proposed merger.
CNS will not declare a cash dividend this quarter because of its
announced merger agreement with GlaxoSmithKline plc.
Marti Morfitt commented, "We are very pleased that our shareholders
will achieve significant value at the closing of this transaction," Ms. Morfitt
continued. "While we work to complete this transaction, everyone at CNS remains
focused on delivering strong profitable growth."
CNS, Inc. Reports Fiscal 2007 Q2 Results
Page 4
CONFERENCE CALL WEBCAST
A conference call to review the second quarter results is scheduled
today, November 2 at 4 p.m. CT (5 p.m. ET). Interested participants may listen
to the live conference call or replay over the Internet by logging onto CNS' Web
site at www.cns.com. A replay of the second quarter conference call may also be
accessed by dialing (800) 405-2236, conference call ID 11073198. The replay will
be available beginning at approximately 6 p.m. CT on Thursday, November 2, 2006,
until 6 p.m. CT on Thursday, November 9, 2006.
ABOUT CNS, INC.
CNS, based in Minneapolis, designs and markets consumer health care
products, including Breathe Right(R) nasal strips and FiberChoice(R) dietary
fiber supplements. The company focuses on products that address important
consumer needs within the aging well/self-care market, including better
breathing and digestive health. Its common stock is listed on the Nasdaq
National Market under the ticker symbol "CNXS." More information about CNS and
its products is available at www.cns.com.
SOME OF THE INFORMATION CONTAINED IN THIS NEWS RELEASE IS FORWARD-LOOKING AND
SUBJECT TO CERTAIN BUSINESS RISKS AS DESCRIBED IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, INCLUDING THOSE REFERRED TO IN ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2006. THIS NEWS RELEASE
CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND UNCERTAINTIES.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Any statements made regarding the proposed merger transaction between CNS, Inc.
(the "Company") and GlaxoSmithKline plc, the expected timetable for completing
the transaction, the satisfaction of closing conditions, timing or satisfactory
receipt of regulatory or CNS stockholder approvals, future products or market
growth, and any other statements regarding CNS' future expectations, beliefs,
goals or prospects are forward-looking statements which are subject to risks and
uncertainties. For a more complete list and description of such risks and
uncertainties, refer to CNS' Annual Report on Form 10-K for the year ended March
31, 2006 and Quarterly Report on Form 10-Q for the period ended June 30, 2006,
as well as other filings by CNS with the Securities and Exchange Commission (the
"SEC"). Actual results may differ materially from those contained in the
forward-looking statements in this document. You are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this document. CNS undertakes no obligation and does not intend to
update any forward-looking statements after the date of this document, whether
as a result of new information, future events, developments, changes in
assumptions or otherwise.
IMPORTANT MERGER INFORMATION
On October 30, 2006, the Company filed a preliminary proxy statement with the
SEC in connection with a special meeting of stockholders to approve the proposed
merger with GlaxoSmithKline. STOCKHOLDERS AND INVESTORS ARE ADVISED TO READ THE
DEFINITIVE PROXY STATEMENT AND ANY OTHER DEFINITIVE ADDITIONAL SOLICITING
MATERIALS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE MERGER AND THE COMPANY. Investors may obtain a free copy
of these proxy materials and other documents filed by the Company with the SEC
at the SEC's web site at www.sec.gov. Free copies of the
CNS, Inc. Reports Fiscal 2007 Q2 Results
Page 5
definitive proxy statement, once available, and the Company's other filings with
the SEC, may also be obtained from the Company at www.cns.com by clicking on the
"Investors" tab and then following the link at "Financial Information" to "SEC
Filings." Free copies of the Company's filings may be obtained by directing a
written request to CNS, Inc., 7615 Smetana Lane, Eden Prairie, Minnesota 55344,
Attention: Samuel E. Reinkensmeyer or by telephone at 952-229-1500.
PARTICIPANTS IN THE SOLICITATION
The Company and its directors, executive officers and certain other members of
its management may be deemed to be soliciting proxies from the Company's
stockholders in favor of the merger. Investors and stockholders may obtain more
detailed information regarding the direct and indirect interests in the merger
of persons who may, under the rules of the SEC, be considered participants in
the solicitation of the Company's stockholders in connection with the merger by
reading the preliminary and definitive proxy statements regarding the merger,
which will be filed with the SEC. Information about the Company's directors and
executive officers may be found in the Company's preliminary proxy statement
filed on October 30, 2006 and definitive proxy statement filed with the SEC on
July 7, 2006. These documents will be available free of charge once available at
the SEC's web site at www.sec.gov or by directing a request to the Company as
described above.
CNS, Inc. Reports Fiscal 2007 Q2 Results
Page 6
CNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts) (unaudtied)
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ----------------------
2006 2005 2006 2005
------- ------- ------- -------
Net sales $35,820 $26,058 $65,166 $49,597
Cost of goods sold 9,627 7,625 17,944 14,593
------- ------- ------- -------
Gross profit 26,193 18,433 47,222 35,004
------- ------- ------- -------
Operating expenses:
Advertising and promotion 10,246 6,932 20,711 12,889
Selling, general and administrative 5,644 4,831 11,298 9,540
------- ------- ------- -------
Total operating expenses 15,890 11,763 32,009 22,429
------- ------- ------- -------
Operating income 10,303 6,670 15,213 12,575
Investment income 443 312 813 633
------- ------- ------- -------
Income before income taxes 10,746 6,982 16,026 13,208
Income tax expense 3,826 2,452 5,581 4,633
------- ------- ------- -------
Net income $ 6,920 $ 4,530 $10,445 $ 8,575
======= ======= ======= =======
Diluted net income per share $ .47 $ .30 $ .71 $ .57
======= ======= ======= =======
Weighted average number of common and
potential common shares outstanding 14,695 15,046 14,656 15,073
======= ======= ======= =======
CNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) (unaudited)
September 30, March 31,
2006 2006
-------- --------
Current assets:
Cash and cash equivalents $ 4,080 $ 4,152
Marketable securities 56,444 48,439
Accounts receivable, net 21,327 17,667
Inventories 6,296 5,766
Other current assets 4,183 3,277
-------- --------
Total current assets 92,330 79,301
Long-term assets 11,027 11,173
-------- --------
Total assets $103,357 $ 90,474
======== ========
Current liabilities 18,395 15,211
Stockholders' equity 84,962 75,263
-------- --------
Total liabilities and stockholders' equity $103,357 $ 90,474
======== ========
CNS, Inc. Reports Fiscal 2007 Q2 Results
Page 7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
Six Months Ended
September 30,
-------------------------
2006 2005
-------- --------
Operating activities:
Net income $ 10,445 $ 8,575
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 747 408
Stock based compensation 848 --
Deferred income taxes (131) 288
Changes in operating assets and liabilities:
Accounts receivable (3,660) (50)
Inventories (531) (3,460)
Prepaid expenses and other current assets (974) (317)
Accounts payable and accrued expenses 3,185 829
-------- --------
Net cash from operating activities 9,929 6,273
-------- --------
Investing activities:
Purchases of marketable securities (55,540) (34,778)
Sales of marketable securities 47,651 35,100
Payments for purchases of property and equipment (386) (127)
Payments for product rights (14) (164)
-------- --------
Net cash from investing activities (8,289) 31
-------- --------
Financing activities:
Proceeds from issuance of common stock
under stock plans 258 1,094
Excess income tax benefits from stock option exercises 16 --
Purchase of treasury shares (27) (7,305)
Payment of cash dividends (1,959) (1,705)
-------- --------
Net cash from financing activities (1,712) (7,916)
-------- --------
Net change in cash and cash equivalents
(72) (1,612)
Cash and cash equivalents:
Beginning of period 4,152 4,814
-------- --------
End of period $ 4,080 $ 3,202
======== ========
CNS, Inc. Reports Fiscal 2007 Q2 Results
Page 8
RECONCILIATION OF GAAP NET INCOME TO PROFORMA NET INCOME
The non-GAAP financial measures used in this press release quantify the impact
of adopting Financial Accounting Standards Board (FASB) Statement of Accounting
Standards No. 123R related to the expensing of stock based compensation.
Non-GAAP financial measures should not be considered as a substitute for, or
superior to, measures of financial performance prepared in accordance with GAAP.
We view these non-GAAP financial measures to be helpful in assessing the
Company's on-going operating results and allow for greater transparency related
to supplemental information. Investors are encouraged to review the
reconciliations of the non-GAAP financial measures used in this press release to
their most directly comparable GAAP financial measures as provided with the
financial statements attached to this press release.
GAAP to Non-GAAP Disclosure - - Impact of Stock Based Compensation Expense
(Unaudited) Amounts in '000's, except per share amounts
For the Three For the Six
Months Ended Months Ended
September 30, 2005 September 30, 2005
------------------ ------------------
Operating income, as reported $ 6,670 $ 12,575
Deduct: Total stock-based compensation expense, pre-tax 351 713
-------- --------
Proforma operating income 6,319 11,862
======== ========
Net income, as reported $ 4,530 $ 8,575
Deduct: Total stock-based compensation expense, pre-tax 351 713
Income tax benefit relating to stock-based compensation (130) (264)
-------- --------
Proforma net income $ 4,309 $ 8,126
======== ========
Weighted average number of common and potential common shares
outstanding, as reported
15,046 15,073
Impact of stock-based compensation on common and potential common
shares outstanding (67) (84)
-------- --------
Proforma weighted average number of common and potential common shares
outstanding 14,979 14,989
======== ========
Diluted income per share, as reported $ 0.30 $ 0.57
Less: Per share impact of stock-based compensation, net of income tax
effect 0.01 0.03
-------- --------
Proforma diluted income per share $ 0.29 $ 0.54
======== ========