Chattem, Inc. (NASDAQ: CHTT), a leading marketer and manufacturer of branded consumer products, today announced results for the fiscal fourth quarter and year ended Nov. 30, 2008, including higher revenue totals.

“The company’s growth and momentum continued in fiscal 2008 with strong revenue and earnings growth,” said Zan Guerry, Chattem’s chairman and chief executive officer.

“Product innovation and a commitment to our advertising strategy behind our key brands, Gold Bond, ACT, Icy Hot and Cortizone-10, continues to drive our revenues, earnings and cash generation. In addition to funding our operations, the cash flow of the business allowed us to continue to reduce debt, opportunistically
repurchase shares of our common stock, fund the settlement of Dexatrim claims and increase our year-end cash balances.

“We expect fiscal 2009 to be another exciting year behind a strong line-up of new product launches, coupled with advertising support to
continue the momentum of the business. With our performance in 2008 and plans for 2009, we are affirming fiscal 2009 earnings per share guidance of $4.80 to $5.00 per share before SFAS 123R stock option expense and any debt extinguishment charges.”

Total revenues for fiscal 2008 rose to a record $454.9 million, an
increase of 7.4%, compared to total revenues of $423.4 million in fiscal 2007. Revenue growth for the fiscal year was primarily driven by the five brands acquired from Johnson & Johnson (“J&J”) on January 2, 2007 (ACT, Cortizone-10, Unisom, Balmex and Kaopectate) and continued growth of the Gold Bond, Icy Hot, Aspercreme and Bullfrog businesses,
offset by declines in the Capzasin and Dexatrim franchises, and lost sales of Icy Hot Heat Therapy as a result of the first fiscal quarter voluntary recall of the product.

Excluding the impact of the additional month of revenue from the five acquired brands in fiscal 2008 and sales of the discontinued Icy Hot Pro Therapy and Icy Hot Heat Therapy products, total revenues increased 6.5% in fiscal 2008 compared to fiscal 2007.

Net income for the fiscal year increased to a record $66.3 million,
compared to $59.7 million for fiscal 2007, and earnings per share were
$3.42, compared to $3.08 for fiscal 2007. Net income for fiscal 2008
included a loss on early extinguishment of debt, SFAS 123R employee stock option expense, non-recurring expenses related to the voluntary recall of Icy Hot Heat therapy and a settlement related to claims alleging pulmonary arterial hypertension as a result of ingestion of Dexatrim products in 1998 through 2003. Net income for fiscal 2007
included a loss on early extinguishment of debt and SFAS 123R employee stock option expense. As adjusted to exclude these items, net income for fiscal 2008 was $82.2 million, compared to $65.1 million for fiscal 2007, and earnings per share were $4.25 compared to $3.36 for fiscal 2007, a 26.5% increase.

Total revenues for the fourth quarter of fiscal 2008 were $105.5
million, compared to total revenues of $100.6 million in the prior year
quarter, representing a 4.9% increase. Revenue growth for the quarter was led by strong performances from Gold Bond, Icy Hot, ACT, Aspercreme and Bullfrog. Offsetting these increases was a reduction in sales of Dexatrim, Capzasin, Selsun Blue and discontinued sales of Icy Hot Heat Therapy, which was voluntarily recalled in the first fiscal quarter of 2008. Excluding the impact of discontinued sales of Icy Hot Heat Therapy and Icy Hot Pro Therapy, total revenues increased 3.9% compared to the prior year quarter.

Net income for the quarter rose to $16.7 million, compared to $14.8
million for the prior year quarter, and earnings per share were $0.86,
compared to $0.76 for the prior year quarter. Net income for the fourth quarter of fiscal 2008 included non-recurring expenses related to the first fiscal quarter 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 SFAS 123R employee stock option expense. Net income for the fourth quarter of fiscal 2007
included SFAS 123R employee stock option expense. As adjusted to exclude these items, net income for the fourth quarter of fiscal 2008 was $18.2 million, compared to $15.8 million for the prior year quarter, and earnings per share were $0.94 compared to $0.81 for the prior year quarter, a 16% increase.

Gross margin was 71.1% for fiscal 2008, compared to 69.5% for fiscal 2007, and 69.2% for the fourth quarter, compared to 70.0% for the prior year quarter. Gross margin decreased in the fourth quarter of fiscal 2008 as a result of cost increases on certain input components, but is expected to increase back to historical levels in the range of 70% to 72% in fiscal 2009 as general cost pressures subside and minor retail price increases are implemented on certain of our products in the first quarter of our fiscal 2009.

Advertising and promotion (A&P) expense rose by $5.9 million to $118.1 million, or 26.0% of total revenues, for fiscal 2008, compared to $112.2 million, or 26.5% of total revenues in fiscal 2007 and increased by $0.6 million to $26.6 million, or 25.2% as a percentage of total revenues for the fourth quarter of fiscal 2008. Although A&P spending increased on a dollar basis in fiscal 2008, A&P expense as a percentage of total revenues declined as compared to fiscal 2007 as a result of fiscal 2008 A&P expense not increasing commensurate with the rise in revenues for fiscal 2008.

Selling, general and administrative (SG&A) expenses increased to 13.7% of total revenues for fiscal 2008, compared to 13.6% for fiscal 2007 and increased to 16.0% of total revenues for the fourth quarter, compared to 15.5% for the prior year quarter.

For the fiscal year, cash flows from operations increased 6.3% to $92.2 million, compared to $86.7 million for fiscal 2007. Free cash flow, defined as cash flows from operations less capital expenditures, was $87.5 million, up 8.8%, compared to $80.4 million for fiscal 2007. Capital expenditures for the fiscal year were $4.6 million, a decrease of 27.0% as compared to $6.3 million for fiscal 2007, which included expenditures attributable to the integration of the in-house manufacturing for certain of the five brands acquired from J&J.

During fiscal 2008, the company reduced total debt by $48.5 million to $459.5 million as of November 30, 2008. During that same period, the company repurchased 418,281 shares of the company’s common stock for $26.3 million, or an average cost of $62.94 per share; funded the net settlement of $11.3 million related to claims involving the ingestion of Dexatrim products in 1998 through 2003 and increased cash balances by $16.9 million to $32.3 million as of November 30, 2008.

Earnings before interest, taxes, depreciation and amortization (EBITDA) excluding product recall expenses and the settlement related to Dexatrim products increased 15.2% to $154.3 million, or 33.9% of total revenues, for fiscal 2008, compared to $133.9 million, or 31.6% of total revenues in fiscal 2007 and increased 1.6% to $32.6 million, or 30.9% of total revenues, for the fourth quarter.

Effective Dec. 4, 2008, the company issued an aggregate of 487,123 shares of its common stock in exchange for $28.7 million in aggregate principal amount of its outstanding 2% Convertible Senior Notes due 2013 (the “Notes”). Following the exchange, there is $96.3 million principal amount outstanding of the $125.0 million Notes originally issued by the company in November 2006.

The company currently expects earnings per share for fiscal 2009 to be in the range of $4.80 to $5.00, excluding stock option expense under SFAS 123R and any loss on debt extinguishment. Stock option expense under SFAS 123R for fiscal 2009 is estimated to be $0.26 per share.