Chattem Announces Second Quarter Results.

CHATTANOOGA, Tenn.--(BUSINESS WIRE)--June 19, 1997--Chattem, Inc. (NASDAQ: CHTT), a Chattanooga, Tennessee based manufacturer of health and beauty care products, announced today record sales and operating income and substantial growth in earnngs per share for the scond quarter and six months ended May 31, 1997. Net sales, operating income and earnings per share grew by 37%, 74%, and 38%, respectively, for the six months and by 29%, 62%, and 34%, respectively, for the quarter.

For the six months, net sales increased 37% to $67.1 million in 1997, from $49.1 million in 1996. Operating income grew by 74% to $11.6 million in 1997, from $6.6 million in 1996. Net income from continuing operations surged by 62% to $3.2 million, or $.36 per share, in 1997, from $2.0 million, or $.26 per share, in 1996. The rate of increase in operating income was higher than the rate of increase in net income from continuing operations due to increased interest expense arising from the acquisitions of GOLD BOND and HERPECIN-L in mid-1996. Additionally, earnings per share from continuing operations rose by 38% despite a 17% increase in the average shares outstanding resulting from the issuance of equity in conjunction with the acquisition of GOLD BOND.

For the second quarter, net sales increased by 29% to $39.2 million in 1997, from $30.4 million in 1996, while operating income grew by 62% to $7.9 million in 1997, from $4.9 million in 1996. Net income from continuing operations for the quarter rose by 52% to $3.1 million in 1997, from $2.0 million in 1996, while earnings per share from continuing operations jumped by 34% to $.35 per share in 1997, from $.26 per share in 1996, in spite of a 14% increase in average shares outstanding.

Importantly from an earnings perspective, substantial non-cash expenses related to the amortization of intangibles associated principally with the acquisition of certain brands are included in the income statement. These expenses amounted to about $2.3 million, or $.16 per share, for the six months ended May 31, 1997, and approximately $1.2 million, or $.08 per share, for the second quarter ended May 31, 1997. Adjusting for these expenses, earnings for the six months and second quarter would have been $.52 per share and $.43 per share, respectively.

The strong sales growth was driven by GOLD BOND and HERPECIN-L which were acquired in April and June of 1996, respectively, and the relaunch of CORNSILK with completely new contemporary packaging. Importantly, sales growth was also achieved from existing brands including FLEXALL, ICY HOT, PAMPRIN, PREMSYN PMS, SUN-IN and MUDD.

Late in the first quarter and early in the second quarter, the Company began shipping a number of important new line extensions including GOLD BOND Medicated Foot Powder, ICY HOT Arthritis Therapy Gel and GOLD BOND CORNSTARCH PLUS Medicated Baby Powder. The reception by the retail trade to these line extensions has been extremely good. Also, while the major advertising and promotional campaigns for these products will not begin until July, early indications of consumer acceptance as measured by A.C. Nielsen have been positive.

The increase in operating income was principally the result of higher sales volume. The growth in income was also achieved while increasing advertising and promotion expenditures substantially in support of the acquired brands, the existing businesses and the new line extensions. Selling related expenses rose with the increased sales level while the Company continued to exert cost control measures by holding general and administrative expenditures relatively constant in absolute dollars and reducing those costs as a percentage of sales in comparison with 1996.

Based n the results for the first six months of 1997, the Company continues to be optimistic about achieving its goals for 1997 of an increase in sales of approximately 20% and an increase in earnings per share of greater than 60% over 1996. Additionally, there are future growth opportunities from the current brands as well as from the previously announced agreement to acquire substantially all the herbal dietary supplement business of Sunsource International, Inc. and an affiliated company. This acquisition, which will add approximately $25 million in annual sales volume and is expected to be closed in late June, should, in 1998, bring the Company within 10% to 15% of its stated goal of achieving the $200 million sales plateau. In terms of earnings, the acquisition will not add materially to earnings per share in 1997, since substantial advertising dollars will be expended on the acquired business during the important transition period, but should add $.20 to $.30 pe share in its first full year of operations in 1998.

All forward looking statements are subject to the risks and uncertainties detailed in the Company's filings with the Securities and Exchange Commission. -0-

Note to Editors: Statements in this press release which are not historical facts, including statements about the Company's confidence, strategies and expectations about new and existing products and opportunities, the demand and acceptance of new and existing products and markets and the return on investments in products and markets are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements involve risks and uncertainties. These include, but are not limited to, product demand and market acceptance risks; product development risks, such as delays or difficulties in developing, producing and marketing new products; the impact of competitive products, pricing and advertising; constraints resulting from the financial condition of the Company, including the degree to which the Company is leveraged, debt service requirements and restrictions under bank loan agreements and indenture; and other risks described in the Company's Securities and Exchange commission filings. -0-

                            Chattem, Inc.
                   Consolidated Statement of Income
              (in thousands, except per share amounts)
                            (unaudited)

                                 For the Three Months Ended
                                          May 31,

                          1997              1996            % Change

NET SALES               $39,178           $30,430              28.7%
COSTS AND EXPENSES:
  Cost of sales          10,888             9,329              16.7%
  Advertising and
    promotion            14,602            11,365              28.5%
  Selling, general and
    administrative        5,766             4,836              19.2%
    Total costs and
     expenses            31,256            25,530              22.4%

INCOME FROM OPERATIONS    7,922             4,900              61.7%

OTHER INCOME (EXPENSE):
  Interest expense       (3,835)           (3,014)             27.2%
  Investment and other
   income, net              694               260             166.9%
  Gain on product
   divestitures               -               877            -100.0%
    Total other income
     (expense)           (3,141)           (1,877)             67.3%

INCOME FROM CONTINUING
 OPERATIONS BEFORE
 INCOME TAXES             4,781             3,023              58.2%
(PROVISION) FOR BENEFIT
 FROM INCOME TAXES       (1,723)           (1,013)             70.1%
INCOME FROM
 CONTINUING OPERATIONS
 BEFORE EXTRAORDINARY
 LOSS                     3,058             2,010              52.1%

EXTRAORDINARY LOSS ON
 EARLY EXTINGUISHMENT
 OF DEBT, NET OF
 TAXES                        -              (532)

NET INCOME               $3,058            $1,478             106.9%

WEIGHTED AVERAGE
 NUMBER OF COMMON AND
 COMMON EQUIVALENT
 SHARES OUTSTANDING       8,852             7,794              13.6%

NET INCOME
 PER COMMON SHARE:
 Continuing operations    $0.35             $0.26              34.0%
 Extraordinary Loss           -             (0.07)           -100.0%
    Net income per
     common share         $0.35             $0.19              82.2%

Depreciation &
 amortization            $1,515            $1,112
Capital expenditures       $425              $433
Cash and cash
 equivalents
Total debt


                                  For the Six Months Ended
                                          May 31,

                          1997              1996            % Change

NET SALES               $67,124           $49,127              36.6%
COSTS AND EXPENSES:
  Cost of sales          19,282            15,078              27.9%
  Advertising and
    promotion            25,869            18,366              40.9%
  Selling, general and
    administrative       10,423             9,060              15.0%
    Total costs and
     expenses            55,574            42,504              30.8%

INCOME FROM OPERATIONS   11,550             6,623              74.4%

OTHER INCOME (EXPENSE):
  Interest expense       (7,633)           (5,631)             35.6%
  Investment and other
   income, net            1,013               913              11.0%
  Gain on product
   divestitures               -               877            -100.0%
    Total other income
     (expense)           (6,620)           (3,841)             72.4%

INCOME FROM CONTINUING
 OPERATIONS BEFORE
 INCOME TAXES             4,930             2,782              77.2%
(PROVISION) FOR BENEFIT
 FROM INCOME TAXES       (1,736)             (809)            114.6%
INCOME FROM
 CONTINUING OPERATIONS
 BEFORE EXTRAORDINARY
 LOSS                     3,194             1,973              61.9%

EXTRAORDINARY LOSS ON
 EARLY EXTINGUISHMENT
 OF DEBT, NET OF
 TAXES                                       (532)

NET INCOME               $3,194            $1,441             121.7%

WEIGHTED AVERAGE
 NUMBER OF COMMON AND
 COMMON EQUIVALENT
 SHARES OUTSTANDING       8,830             7,547              17.0%

NET INCOME
 PER COMMON SHARE:
 Continuing operations    $0.36             $0.26              38.4%
 Extraordinary Loss           -             (0.07)           -100.0%
    Net income per
     common share         $0.36             $0.19              89.4%

Depreciation &
 amortization            $2,979            $2,109
Capital expenditures       $624              $711
Cash and cash
 equivalents            $13,449            $8,582
Total debt             $129,393          $126,932

CONTACT: Chattem, Inc.

Robert E. Bosworth, 423/821-2037 ext. 287

or

Stephen M. Powell

423/821-2037 Ext. 340

or

Investor Relations:

The Foristall Company, Inc.

Lynn E. Foristall, 212/797-4646