Chattem reports financial results.

CHATTANOOGA, Tenn.--(BUSINESS WIRE)--Sept. 28, 1995--Chattem, Inc. (NASDAQ: CHTT), a Chattanooga, based manufacturer of health and beauty aids announced today operating results for the third quarter and nine months ended August 31, 1995.

For the third quarter, net sales increased 12% to $28,990,000 from $25,954,000 in 1994, while operating income rose more rapidly than sales, growing 20% to $5,205,000 in 1995 from $4,347,000 in 1994. Earnings per share from continuing operations increased 35% to $.23 from $.17 in 1994. This increase was attributable not only to the increase in operating income, but also to the lower interest expense than the year earlier due to the application of proceeds form the sale of the Specialty Chemicals division ("Chemicals") on May 26, 1995. This quarter is the first period of direct comparison to a year ago with both periods including sales and income of the newly acquired PHISODERM and BENZODENT brands as well as interest expense associated with the issuance of senior subordinated notes in June, 1994.

For the nine months, net sales rose by 12% to $75,476,000 from $67,310,000 in the year earlier period. Operating income increased 20% to $11,040,000 in 1995 from $9,209,000 in 1994. The growth in operating income almost offset the rise in interest expense principally associated with the issuance of $75,000,000 of 12 3/4% senior subordinated notes, the proceeds of which were utilized to reduce senior bank indebtedness. The combination of the growth in operating income and interest expense produced income and earnings per share from continuing operations of $1,732,000 and $.24 in 1995 compared to $1,772,000 and $.24 in 1994.

For the nine months, the rise in sales reflected growth in the domestic and international operations of 10% and 35%, respectively. The increase in the domestic volume was led by PHISODERM and BENZODENT, which were acquired in mid-1994; a significant gain by BULLFROG led by new products, good summer weather, and sales to a previously lost major customer; and by strong demand for MUDD and ICY HOT. Partially offsetting these increases were declines by PREMYSYN PMS, NORWICH and ULTRASWIM due to reduced marketing support levels as well as a decline in FLEX-ALL due to significant increased competitive activity. The international volume increase was led by PHISODERM in Canada and by growth in all major brands in Europe.

For the nine months, the strong growth in the Company's operating income was led by another period of continued profit improvement by the international division, with profit up on a year to date basis by $1,525,000. On a consolidated basis, continued efforts to reduce costs were evidenced by a 3% decline in selling, general and administrative expenses. Domestically, operating income was adversely affected by the shift in sales to products with lower gross margins and by a 24% increase in advertising expenditures, primarily to support the relaunches of PHISODERM and BENZODENT.

In addition to strong year to date operating results, the Company continues to manage working capital aggressively in order to reduce outstanding borrowings and interest expense. As a result of the sale of Chemicals, the continued management of working capital and through the strong operating results, total debt has been reduced to $83,044,000 at August 31, 1995 from $103,061,000 at the same period a year ago.

The key factors in the outlook for the year ending November 30, 1995 remain the success of the relaunches of PHISODERM and BENZODENT and the performance of FLEX-ALL 454, to be judged by the success of a major bonus pack promotion. Recognizing the strong performance of the year to date results, but also recognizing the uncertainty of forecasting quarterly expectations, sales and operating income for the year should increase around 5% and 10% respectively. On a pro forma basis, excluding the operating income from Chemicals and including the benefits of the use of proceeds from the division's sale for both years, earnings per share should be approximately $.40. With the Company strategically focused on the Consumer Products business, the Company remains positioned for solid results from the existing brands as well as through potential acquired brands. -0-

                              CHATTEM, INC.
                      Consolidated Income Statement
                   (000s omitted except per share data)

               Nine Months Ended August 31,  Three Months Ended August 31,
                 1995    1994   % Change       1995    1994    % Change

Net Sales       $75,476 $67,310     12.1%     $28,990  $25,954     11.7%

Income from
  operations     11,040   9,209     19.9%       5,205    4,347     19.7%

Interest expense (8,548) (6,441)    32.7%      (2,701)  (2,922)    -7.6%

Income from continu-
  ing operations  1,732   1,772     -2.3%       1,673    1,212     38.0%

Discontinued Operations:
 Income from
   operations(A)    675     979      --            --      239      --
 Gain on
  disposal(A)     9,863      --      --            --       --      --
 Total discontinued
  operations     10,538     979      --            --      239      --

Extraordinary loss on
  early extinguish-
  ment of debt,
  net(B)           (367) (1,556)                   --   (1,556)

Net Income      $11,903 $ 1,195               $ 1,873  $  (105)

Weighted average number
  of common & common
  equivalent shares
  outstanding     7,292   7,292                 7,292    7,292

Net Income Per Common Share:
 Continuing ops. $ 0.24 $  0.24             $    0.23   $ 0.17     35.3%
 Discontinued
  ops.(A)          1.44    0.14                    --     0.03
 Extraordinary
  Loss(B)         (0.05)  (0.21)                   --    (0.21)
 Net Income     $  1.63 $  0.17               $  0.23   $(0.01)

(A) Reflects the previously disclosed sale of the Company's Specialty
    Chemicals division on May 26, 1995.
(B) Reflects the previously disclosed charge associated with the
    reduction of debt with the proceeds from the sale of the division.
-0-

CONTACT: Chattem Inc.

Joey B. Hogan, Director of Financial

or

Robert E. Bosworth, Executive Vice President & CFO 

615/821-4571