Chattem issues recall of Icy Hot Heat Therapy products

CHATTANOOGA, Tenn. In what will quite possibly chill sales for the company, Chattem late Friday evening initiated a voluntary nationwide recall of its Icy Hot Heat Therapy products, including consumer “samples” that were included on a limited promotional basis in cartons of its 3 oz. Aspercreme product.

Chattem is recalling these products because it has received some consumer reports of first-, second- and third-degree burns as well as skin irritation resulting from consumer use, or possible misuse, of these products.

The number of adverse events reported to date represents less than one-tenth of one percent of the approximately 1.8 million units of product sold at retail, the company advised.

All lots and all sizes of the following Icy Hot Heat Therapy products are affected by this recall:

• Icy Hot Heat Therapy Air Activated Heat- Back

• Icy Hot Heat Therapy Air Activated Heat- Arm, Neck, and Leg

• Icy Hot Heat Therapy Air Activated Heat- Arm, Neck, and Leg single consumer use “samples” included on a limited promotional basis in cartons of 3 oz. Aspercreme Pain Relieving Creme.

The news comes only one week after Chattem chairman and chief executive officer Zan Guerry declared that Chattem “experienced the most successful year in its 128 year history” based on year-ending results for the period ending Nov. 30 reported Jan. 29.

Icy Hot is one of six brands that was expected to draw considerable advertising support in the coming year, Guerry had reported. The company’s total pain care products sales, which included Icy Hot, totaled $95.9 million for the fiscal year 2007, down 5 percent as compared to 2006. While sales behind the core Icy Hot brand had been strong, the company reported, sales of Icy Hot Pro-Therapy were disappointing. The recall impacts Chattem’s core icy Hot brand.

“If consumer sales are strong and growing, profits are going to follow,” Guerry told analysts last week. “Total Nielsen sales, excluding Pro-Therapy, were up 7.5 percent [for the month of December] and our big six brands [were] up double-digits as a group led by Gold Bond and Icy Hot, our two biggest brands, Gold Bond up 22 percent for December and Icy Hot up 30-percent-plus.”

Consequently, a drop in Icy Hot sales may negatively impact Chattem profits.

However, sales of Icy Hot Heat Therapy in fiscal 2007 represented only 2.3 percent of the company’s total revenues of $423 million and less than 1 percent of its total EBITDA, the company stated in a press release explaining the recall. For fiscal 2008, Icy Hot Heat Therapy was forecasted to represent less than 2 percent of total revenues and less than 1 percent of EBITDA. In the first quarter of fiscal 2008, Chattem expects to record a charge for the Icy Hot Heat Therapy recall related costs and expenses of approximately $6 million to $9 million, or $0.20 to $0.30 per share. The charge encompasses the return of products from the company’s distributors, retail customers and end-user consumers, impairment of the affected in-house inventory and other recall-related costs.

Chattem reiterated its previously forecasted earnings per share for fiscal 2008 of $4 to $4.20 and trend toward the upper end of this range, excluding the impact of the Icy Hot Heat Therapy recall charge, stock option expense and any loss on debt extinguishment.

Consumers who have the Icy Hot Heat Therapy products under recall should immediately stop using the products, discard them and/or return them to Chattem, the company stated.

Product may be returned for a full refund (average retail price) by calling Chattem’s Consumer Affairs Department at 1-877-742-6275 or via the company’s website at www.chattem.com.

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