Summary of CHATTEM INC - Yahoo! Finance

Results of Operations and Financial Condition, Financial Statements and Exhibits

Item 2.02. Results of Operations and Financial Condition.

On October 6, 2009, Chattem, Inc. (the "Company") issued a press release announcing financial results for the third fiscal quarter and nine months ended August 31, 2009 (the "Press Release"). A copy of the Press Release is attached as Exhibit 99.1 and is incorporated by reference herein.

The Press Release contains disclosure regarding net income and earnings per share, excluding certain identified items, for the Company's third fiscal quarters and nine month periods ended August 31, 2009 and 2008. The adjusted net income and earnings per share disclosures are non-GAAP financial measures (the "Operating Measures"). The Operating Measures exclude (i) for the third quarter of fiscal 2009, employee stock option expenses under SFAS 123R and debt extinguishment charges; (ii) for the first nine months of fiscal 2009, employee stock option expenses under SFAS 123R and debt extinguishment charges; (iii) for the third quarter of fiscal 2008, employee stock option expenses under SFAS 123R, a non-recurring adjustment related to the voluntary recall of Icy Hot® Heat Therapy products and a settlement related to claims alleging injury as a result of ingestion of Dexatrim® products in 1998 through 2003; and (iv) for the first nine months of fiscal 2008, employee stock option expenses under SFAS 123R, debt extinguishment charges, non-recurring expenses related to the voluntary recall of Icy Hot® Heat Therapy products and the Dexatrim® litigation settlement item.

A reconciliation of each of the Operating Measures to the most comparable GAAP measurement for the third fiscal quarters and nine months ended August 31, 2009 and 2008 is contained in the Company's unaudited consolidated statements of income attached to the Press Release. The Company considers disclosure of the Operating Measures to be meaningful information to an investor's understanding of the Company's operating performance and useful for comparison with prior periods and forecasted earnings per share. The Company believes the Operating Measures improve and clarify an investor's understanding of the Company's financial and operational performance. Management of the Company uses these non-GAAP measures to analyze the Company's performance compared to forecasted and prior period results and for other internal purposes.

The Press Release and unaudited consolidated statements of income attached to the Press Release also contain disclosure regarding the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") and EBITDA adjusted to exclude litigation settlement costs and non-recurring product recall expenses and adjustments, as applicable, for the third fiscal quarters and nine months ended August 31, 2009 and 2008, which are non-GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to net income, the most directly comparable GAAP financial measure, is contained in the Company's unaudited consolidated statements of income attached to the Press Release.

The Company considers EBITDA an important indicator of its operational strength and performance, including its ability to pay interest, service debt and fund capital expenditures. The Company believes EBITDA adjusted to exclude litigation settlement costs and non-recurring product recall expenses and adjustments provides investors with a useful measure of the Company's ongoing operating performance. Further, adjusted EBITDA is one measure used in the calculation of certain ratios to determine the Company's compliance with its existing credit facility. The Company's presentation of adjusted EBITDA should not be construed as an inference that the Company's future results will be unaffected by items similar to those excluded from the calculation of adjusted EBITDA. EBITDA and adjusted EBITDA are not measurements of financial performance and liquidity under GAAP and should not be considered as alternatives to net income, income from operations or any performance measures derived in accordance with GAAP, or as alternatives to cash flows provided by operating, investing or financing activities as measures of liquidity.

The Press Release also contains disclosure regarding the Company's "free cash flow," which the Company defines as cash flows from operations less capital expenditures, for the nine months ended August 31, 2009 and 2008. A reconciliation of free cash flow to cash flows from operations, the comparable GAAP financial measure, is contained in the Company's unaudited consolidated statements of income attached to the Press Release. The Company believes free cash flow provides investors with a useful measure of the Company's ability to service its debt and fund operations. Further, free cash flow is an important measure to our debt holders and debt rating agencies. Free cash flow is not a measurement of financial performance and liquidity under GAAP and should not be considered as an alternative to any performance measures derived in accordance with GAAP, or as an alternative to cash flows provided by operating, investing or financing activities as measures of liquidity.

The non-GAAP financial measures used by the Company do not have standardized meanings prescribed by GAAP and may not be comparable to similar measures for other companies.

The information in this current report on Form 8-K is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.