Chattem, Inc. Reports First Quarter Fiscal 2003 Sales and Earnings Per Share up 21% and 77%, Respectively; Reaffirms Guidance for Fiscal Year.

Business Editors

CHATTANOOGA, Tenn.--(BUSINESS WIRE)--March 20, 2003

Chattem, Inc. (NASDAQ: CHTT), a leading marketer and manufacturer of branded consumer products, announced today financial results for the fiscal first quarter ended February 28, 2003, all of which exceeded results for the first quarter of fiscal 2002.

Total revenues for the quarter were $58.4 million, operating income was $12.5 million and income before accounting change was $4.6 million, representing increases of 21%, 47% and 93%, respectively, over the corresponding year-ago period results. Earnings per share for the fiscal 2003 first quarter were $.23, a 77% increase over the first quarter of fiscal 2002 earnings per share.

Chattem's earlier guidance for its first fiscal quarter was $57-59 million of total revenues and $.17-.19 earnings per share.

The 21% increase in total revenues for the first fiscal quarter of 2003 over the first quarter of 2002 was led by Selsun blue(R), Gold Bond(R), pHisoderm(R) and Garlique(R). Selsun blue, which the Company acquired March 28, 2002, achieved first quarter domestic net sales up 38% versus the same period year-ago performance when the brand was owned by Abbott Laboratories. Net sales of the Gold Bond franchise increased 11%, led by Gold Bond Lotion and the early shipments of three new Gold Bond items. pHisoderm's net sales increased by 13% over the corresponding year-ago period behind the Acne Facial Wash and the Clear Swab. Garlique's net sales rose 30% as the result of a strong marketing program.

Offsetting these sales increases were year-over-year sales declines in Chattem's topical analgesic portfolio (Icy Hot(R), FlexAll(R), Aspercreme(R), Sportscreme(R), Capsazin-P(R), Capsazin-HP(R) and Arthritis Hot(R)), Dexatrim and the Company's menstrual brands, Pamprin(R) and Premsyn(R). The topicals were impacted by a difficult comparison to the year-ago period when dramatic growth of the Icy Hot brand was experienced, led by the Pain Relieving Patch. As discussed below, the Icy Hot Back Patch will be launched in the third fiscal quarter of fiscal 2003. Dexatrim was hurt by a difficult diet pill category, and the year-ago launch of Dexatrim Results. Pamprin and Premsyn continued to suffer sales declines along with the entire menstrual category.

International total revenues for the first quarter of 2003 increased 89% over the prior year comparable period, led by sales of Selsun blue and the continuing strength of Gold Bond in Canada.

Shipping of Chattem's three newly offered Gold Bond items, the First Aid Wipe, First Aid Quick Spray and the Antifungal Foot Swab, will increase in the second quarter of fiscal 2003. The Company is enjoying excellent distribution of these items and will begin a strong media campaign to support them in the second quarter. Chattem expects to begin shipping the Icy Hot Pain Relieving Back Patch at the beginning of its third fiscal quarter, following the highly successful launch of the Pain Relieving Patch. The launch of the Icy Hot Back Patch will be backed by a $12 million measured media campaign featuring the endorsement of basketball star Shaquille O'Neal, the agreement for which was separately announced today.

For the quarter, gross margin based on total revenues was 69.7%, while selling, general and administrative expense as a percentage of total revenue was 16.8%. Advertising and promotion as a percentage of total revenue was 31.5%. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $13.6 million. The Company's EBITDA margin (EBITDA divided by total revenue) was 23.4%. All of these measurements were within the estimated ranges previously announced by Chattem. Days' sales outstanding in accounts receivable were 50.0 compared to 52.3 a year ago. Finally, inventories increased from $15.5 million at the end of the first quarter of fiscal 2002 to $19.9 million at the same period of fiscal 2003, reflecting higher sales volumes, the building of inventories to support the launch of the three new Gold Bond items and the transfer of Selsun manufacturing to the Company's facilities.

During its fiscal first quarter, Chattem recorded a $750,000 inventory obsolescence charge to its cost of sales related to Dexatrim with ephedrine which the Company ceased shipping in September 2002. Some of this product remains on the shelves at retail, and Chattem is in the process of replacing it with Dexatrim without ephedrine. This charge reflects the anticipated cost of disposing of Dexatrim product containing ephedrine which will be taken back from retailers.

At the end of the first fiscal quarter of 2003, Chattem's net debt (long-term debt less cash) was reduced to $202.2 million from $208.8 million at the end of the 2002 fiscal year. The Company's leverage ratio on a net debt basis (net debt / last twelve month's EBITDA of $60.2 million) was 3.4x, compared to 3.7x at the end of the 2002 fiscal year.

During the first quarter Chattem purchased 103,000 of its shares at an average price of $15.27 per share. A total of approximately $8.4 million remains available under the Company's $10 million board stock repurchase authorization.

For the balance of the 2003 fiscal year, Chattem reaffirmed its earlier guidance for the year of net revenues of $240-245 million, EBITDA of $60-64 million and earnings per share of $1.10-1.15, subject to risks, uncertainties and assumptions, including those described in the Company's filings with the Securities and Exchange Commission.

Chattem separately announced that it has acquired the "FISODERM", "FISOHEX" and "FISOAC" product line in Brazil and nearly all of the worldwide trademarks for "PHISODERM", "PHISOHEX" and other related trademarks from GlaxoSmithKline. This purchase excludes trademarks in Taiwan, Australia, Papua/New Guinea and New Zealand. The purchase price for these trademarks was not disclosed. In 2002, sales of the Brazilian product line were less than US$200,000. These acquisitions, together with the "PHISODERM" trademarks rights previously acquired in 1994 for the United States, Canada and Puerto Rico, provide Chattem with the worldwide capability to expand its pHisoderm business.

Paragraphs 7, 12 and 13 above of this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which contains a safe harbor for forward-looking statements. The Company relies on this safe harbor in making such disclosures. The forward-looking statements are based on management's current beliefs and assumptions about expectations, estimates, strategies and projections for the Company. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligations to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. The risks, uncertainties and assumptions of the forward-looking statements include, but are not limited to existing and possible additional future product liability claims relating to the prior existence of PPA in Dexatrim; the possible effect of the negative public perception resulting from product liability claims or sales of Dexatrim products without PPA; the lack of availability, limits of coverage and expense related to product liability insurance; the reduction of available insurance coverage as proceeds are used to fund any product liability settlements or awards; the possibility of other product liability claims, including claims relating to the existence of ephedrine in Dexatrim products; the ability of the Company to fund liabilities from product liability claims greater than its insurance coverage or outside the scope of insurance coverage; the impact of brand acquisitions and divestitures; the impact of gains or losses resulting from product acquisitions or divestitures, extraordinary gains or losses resulting from financings or debt repayments; product demand and market acceptance risks; product development risks, such as delays or difficulties in developing, producing and marketing new products or line extensions; the impact of competitive products, pricing and advertising; the Company's ability to integrate Selsun blue into its own operations; the Company's ability to sell and market Selsun blue internationally where it has only limited experience and infrastructure; constraints resulting from the financial condition of the Company, including the degree to which the Company is leveraged, debt service requirements and restrictions under indentures and loan agreements; government regulations; risks of loss of material customers; public perception regarding the Company's products; dependence on third party manufacturers; environmental matters; and other risks described in the Company's Securities and Exchange Commission filings.

Chattem will provide an online Web simulcast and rebroadcast of its first quarter 2003 conference call. The live broadcast of the call will be available online at www.chattem.com and www.streetevents.com on Friday, March 21 beginning at 8:30 a.m. EST. The online replay will follow shortly after the call and be available through April 21, 2003. Please note Webcast requires Windows Media Player.

                             CHATTEM, INC.
                   CONSOLIDATED STATEMENTS OF INCOME
               (In thousands, except per share amounts)
                              (Unaudited)


                                            For the Three Months Ended
                                                   February 28,
                                            --------------------------


                                                 2003          2002
                                               --------      --------

NET SALES                                     $ 58,125      $ 48,414
Royalty Income                                     300             -
                                               --------      --------
Total Revenue                                   58,425        48,414

COSTS AND EXPENSES:
 Cost of sales                                  17,691        14,461
 Advertising and promotion                      18,405        15,874
 Selling, general and administrative             9,814         9,537
                                               --------      --------
   Total costs and expenses                     45,910        39,872
                                               --------      --------

INCOME FROM OPERATIONS                          12,515         8,542
                                               --------      --------

OTHER INCOME (EXPENSE):
 Interest expense                               (5,147)       (4,841)
 Investment and other income, net                   34           106
                                               --------      --------
   Total other expense                          (5,113)       (4,735)
                                               --------      --------

Income before income taxes and
 accounting change                               7,402         3,807
Provision for income taxes                      (2,813)       (1,435)

                                              ---------     ---------
Income before accounting change                  4,589         2,372

Cumulative effect of change in accounting
 principle, net of taxes                             -        (8,877)

                                              ---------     ---------
NET INCOME (LOSS)                             $  4,589      $ (6,505)
                                               ========      ========


Diluted shares outstanding                      19,949        18,637
                                               ========      ========


NET INCOME (LOSS) PER COMMON SHARE (DILUTED):
 Income before accounting change              $   0.23      $   0.13
 Accounting change                            $      -      $  (0.48)
                                               --------      --------
   Net income (loss) per common share         $   0.23      $  (0.35)
                                               ========      ========

EBITDA:
Income before accounting change               $  4,589      $  2,372
Add: Provision for income taxes                  2,813         1,435
   Interest expense,net                          5,113         4,735
   Depreciation and amortization (excluding
    amounts included in interest)                1,134           995
                                               --------      --------
EBITDA                                        $ 13,649      $  9,537
                                               --------      --------
EBITDA margin                                     23.4%         19.7%
Depreciation & amortization                   $  1,499      $  1,263
Capital expenditures                          $  1,464      $    510




BALANCE SHEET DATA:
 Cash and cash equivalents                    $ 20,726      $ 40,606
 Accounts receivable                          $ 32,443      $ 28,114
 Inventories                                  $ 19,885      $ 15,520
 Accounts payable                             $ 10,493      $  5,908

 Senior bank debt                             $ 18,250      $      -
 Subordinated debt                            $204,700      $204,732
                                               --------      --------
   Total debt                                 $222,950      $204,732
                                               ========      ========

 Shareholders' equity                         $ 78,591      $ 45,619
 Total assets                                 $368,522      $296,505

Statements in this press release which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks, uncertainties and assumptions including, but not limited to, those described in Paragraphs 7, 12 and 13 of this press release.