Chattem reports results for the year and fiscal fourth-quarter ended November 30, 2009

Chattem, Inc. (NASDAQ: CHTT), a leading marketer and manufacturer of branded consumer products, today announced results for the year and fiscal fourth quarter ended November 30, 2009.

FISCAL YEAR 2009 FINANCIAL RESULTS

Total revenues for fiscal 2009 rose to $463.3 million, an increase of 1.9%, compared to total revenues of $454.9 million in fiscal 2008. Total domestic revenues, excluding $1.9 million of sales of Icy Hot Heat Therapy in fiscal 2008 prior to the product being recalled in the first quarter of fiscal 2008, increased $17.6 million, or 4.2%, in fiscal 2009 to $438.8 million, as compared to $421.2 million in the prior year period. Revenues of the international division decreased by $7.3 million, or 22.9%, in fiscal 2009. On a constant currency basis, international revenues in fiscal 2009 decreased $5.4 million, or 16.8%, compared to the prior year period.

Net income for the fiscal year decreased to $63.2 million, compared to $66.3 million for fiscal 2008, and earnings per share were $3.28, compared to $3.42 for fiscal 2008. Net income for fiscal 2009 included a loss on early extinguishment of debt, employee stock option expense and a non-cash impairment of indefinite-lived intangible assets related to certain of the Company’s brands within the dietary supplements category, which represented approximately 4% of fiscal 2009 total revenues. Net income for fiscal 2008 included a loss on early extinguishment of debt, employee stock option expense, non-recurring expenses related to the voluntary recall of Icy Hot Heat Therapy and a settlement for claims related to ingestion of Dexatrim products in 1998 through 2003. Adjusted to exclude these items, net income for fiscal 2009 was $94.1 million, compared to $82.2 million for fiscal 2008, and earnings per share rose 14.8% to $4.88 compared to $4.25 for fiscal 2008.

FOURTH QUARTER FINANCIAL RESULTS

Total revenues for the fourth quarter of fiscal 2009 were $110.2 million, compared to total revenues of $105.5 million in the prior year quarter, representing a 4.5% increase. Total domestic revenues increased $5.1 million, or 5.2%, in the fourth quarter of fiscal 2009 to $103.2 million, as compared to $98.1 million in the prior year period. Revenues of the international division decreased by $0.3 million, or 4.6%, in the fourth quarter of fiscal 2009. On a constant currency basis, international revenues for the fourth quarter of fiscal 2009 decreased $0.7 million, or 10.1%, compared to the prior year period.

For the fourth quarter of fiscal 2009, Chattem had a net loss of $4.1 million and a loss per share of $0.21, compared to net income of $16.7 million and earnings per share of $0.86 for the prior year quarter. Net loss for the fourth quarter of fiscal 2009 included a loss on early extinguishment of debt, employee stock option expense and a non-cash impairment of indefinite-lived intangible assets. Net income for the fourth quarter of fiscal 2008 included non-recurring expenses related to the first quarter of fiscal 2008 voluntary recall of Icy Hot Heat Therapy, legal expenses related to the settlement of claims related to ingestion of Dexatrim products in 1998 through 2003 and employee stock option expense. Adjusted to exclude these items, net income for the fourth quarter of fiscal 2009 was $22.5 million, compared to $18.2 million for the prior year quarter, and earnings per share rose 25.5% to $1.18, compared to $0.94 for the prior year quarter.

HIGHLIGHTS

• Gross margin was 69.8% for fiscal 2009, compared to 71.1% for fiscal 2008, and 70.4% for the fourth quarter of fiscal 2009, compared to 69.2% for the prior year quarter.
• Advertising and promotion expense (A&P) decreased by $12.4 million to $105.7 million, or 22.8% of total revenues, for fiscal 2009, compared to $118.1 million, or 26.0% of total revenues in fiscal 2008. A&P increased by $0.7 million to $27.3 million, or 24.7% as a percentage of total revenues for the fourth quarter of fiscal 2009.
• Selling, general and administrative expenses (SG&A) decreased to 13.0% of total revenues for fiscal 2009, compared to 13.7% for fiscal 2008 and decreased to 13.8% of total revenues for the fourth quarter of fiscal 2009, compared to 16.0% for the prior year quarter.
• For fiscal 2009, cash flows from operations increased 19.4% to $110.1 million, compared to $92.2 million for fiscal 2008. Free cash flow, defined as cash flows from operations less capital expenditures, was $103.1 million, up 17.8%, compared to $87.5 million for fiscal 2008. Total debt was reduced during fiscal 2009 by $68.5 million to $391.0 million as a result of the repayment of $22.5 million of senior bank debt, the issuance of 487,123 shares of common stock on December 4, 2008 in exchange for $28.7 million of 2% Convertible Senior Notes due 2013 and the repurchase of $17.3 million of 7.0% Senior Subordinated Notes in fiscal 2009 at an average premium 0.9% above par value. As of the date of this release, no amounts are outstanding under the Company’s $100.0 million revolving line-of-credit.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted to exclude the non-cash impairment of indefinite-lived intangible assets was $170.5 million, or 36.8% of total revenues, an increase of 10.5% for fiscal 2009, compared to EBITDA adjusted to exclude product recall expenses and the settlement related to Dexatrim products of $154.3 million, or 33.9% of total revenues, for fiscal 2008.
• As previously announced, Chattem has entered into a definitive agreement with sanofi-aventis pursuant to which, an indirect wholly-owned subsidiary of sanofi-aventis committed to make a cash tender offer for all of the outstanding shares of the Company’s common stock at $93.50 per share, net to the sellers in cash without interest, less any required withholding taxes. The tender offer commenced on January 11, 2010 and is scheduled to expire at 12:00 midnight, New York City time, on February 8, 2010, unless extended. Following the successful completion of the tender offer, the wholly-owned subsidiary of sanofi-aventis will merge with and into the Company with the Company continuing as the surviving corporation and an indirect wholly-owned subsidiary of sanofi-aventis. At the effective time of the merger, each outstanding share not tendered in the tender offer (except for the shares of the Company’s common stock owned by the Company, sanofi-aventis or any sanofi-aventis subsidiary) will be cancelled and converted into the right to receive the same $93.50 per share net in cash paid in the tender offer. Chattem has previously filed a Schedule 14D-9 Solicitation/Recommendation Statement with the Securities and Exchange Commission containing additional information regarding the tender offer.