<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                  FORM 10-Q/A

                                QUARTERLY REPORT
                       PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MAY 31, 1999
                         COMMISSION FILE NUMBER 0-5905

                                 CHATTEM, INC.
                            A TENNESSEE CORPORATION
                 I.R.S. EMPLOYER IDENTIFICATION NO. 62-0156300
                             1715 WEST 38TH STREET
                          CHATTANOOGA, TENNESSEE 37409
                            TELEPHONE: 423-821-4571

REGISTRANT HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

AS OF JULY 12, 1999, 9,793,733 SHARES OF THE COMPANY'S COMMON STOCK, WITHOUT PAR
VALUE, WERE OUTSTANDING.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                 CHATTEM, INC.
                                     INDEX

<TABLE>
<CAPTION>
                                                              PAGE NO.
                                                              --------
<S>                                                           <C>
PART I.  FINANCIAL INFORMATION

  Item 1.  Financial Statements

    Consolidated Balance Sheets as of May 31, 1999 and
     November 30, 1998......................................      3

    Consolidated Statements of Income for the Three and Six
     Months Ended May 31, 1999 and 1998.....................      4

    Consolidated Statements of Cash Flows for the Six Months
     Ended May 31, 1999 and 1998............................      5

    Notes to Consolidated Financial Statements..............      6

  Item 2.  Management's Discussion and Analysis of Financial
    Condition and Results of Operations.....................     17

PART II.  OTHER INFORMATION

  Item 1.  Legal Proceedings................................     25

  Item 4.  Submission of Matters to a Vote of Security
    Holders.................................................     25

  Item 6.  Exhibits and Reports on Form 8-K.................     25

SIGNATURES..................................................     26

EXHIBIT 11--Statement Regarding Computation of Per Share
  Earnings

EXHIBIT 27--Financial Data Schedule
</TABLE>

                                       2
<PAGE>
                         PART 1.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                         CHATTEM, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 MAY 31,
                                                                  1999
                                                              (AS RESTATED,   NOVEMBER 30,
                                                              SEE NOTE 15)        1998
                                                              -------------   ------------
                                                               (UNAUDITED)
<S>                                                           <C>             <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................    $  4,869        $  2,076
  Accounts receivable, less allowance for doubtful accounts
    of $850 at May 31, 1999 and $775 at November 30, 1998...      58,400          36,581
  Refundable and deferred income taxes......................       3,058           3,049
  Inventories...............................................      22,980          19,606
  Prepaid expenses and other current assets.................       1,149             784
                                                                --------        --------
    Total current assets....................................      90,456          62,096
                                                                --------        --------
PROPERTY, PLANT AND EQUIPMENT, NET..........................      20,256          18,146
                                                                --------        --------
OTHER NONCURRENT ASSETS:
  Investment in Elcat, Inc..................................       3,242           3,102
  Patents, trademarks and other purchased product rights,
    net.....................................................     360,200         272,226
  Debt issuance costs, net..................................      12,461          10,091
  Other.....................................................       4,286           3,351
                                                                --------        --------
    Total other noncurrent assets...........................     380,189         288,770
                                                                --------        --------
      TOTAL ASSETS..........................................    $490,901        $369,012
                                                                ========        ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term debt......................    $  9,000        $ 17,444
  Accounts payable..........................................      13,244          12,733
  Payable to bank...........................................         128           1,026
  Accrued liabilities.......................................      42,674          30,209
                                                                --------        --------
    Total current liabilities...............................      65,046          61,412
                                                                --------        --------
LONG-TERM DEBT, less current maturities.....................     378,547         273,913
                                                                --------        --------
DEFERRED INCOME TAXES.......................................       6,826           6,826
                                                                --------        --------
OTHER NONCURRENT LIABILITIES................................       2,150           2,110
                                                                --------        --------
SHAREHOLDERS' EQUITY:
  Preferred shares, without par value, authorized 1,000,
    none issued.............................................          --              --
  Common shares, without par value, authorized 50,000,
    issued 9,764 at May 31, 1999 and 9,574 at November 30,
    1998....................................................       2,034           1,994
  Paid-in surplus...........................................      73,818          69,068
  Accumulated deficit.......................................     (36,046)        (44,960)
                                                                --------        --------
                                                                  39,806          26,102
  Cumulative other comprehensive income--
    Foreign currency translation adjustment.................      (1,474)         (1,351)
                                                                --------        --------
      Total shareholders' equity............................      38,332          24,751
                                                                --------        --------
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..........    $490,901        $369,012
                                                                ========        ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
             (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                      FOR THE THREE MONTHS        FOR THE SIX MONTHS
                                                         ENDED MAY 31,              ENDED MAY 31,
                                                    ------------------------   ------------------------
                                                    (AS RESTATED,              (AS RESTATED,
                                                    SEE NOTE 15)               SEE NOTE 15)
                                                        1999          1998         1999          1998
                                                    -------------   --------   -------------   --------
<S>                                                 <C>             <C>        <C>             <C>
NET SALES.........................................     $83,441      $58,545      $146,169      $93,466
                                                       -------      -------      --------      -------
COSTS AND EXPENSES:
  Cost of sales...................................      21,794       15,854        38,674       25,536
  Advertising and promotion.......................      33,315       23,202        58,053       38,382
  Selling, general and administrative.............       7,984        6,741        14,684       11,900
                                                       -------      -------      --------      -------
      Total costs and expenses....................      63,093       45,797       111,411       75,818
                                                       -------      -------      --------      -------
INCOME FROM OPERATIONS............................      20,348       12,748        34,758       17,648
                                                       -------      -------      --------      -------
OTHER INCOME (EXPENSE):
  Interest expense................................      (9,373)      (7,332)      (18,179)     (11,512)
  Investment and other income.....................         113          243           244          435
  Gain on product divestiture.....................          --       10,442            --       10,442
                                                       -------      -------      --------      -------
      Total other income (expense)................      (9,260)       3,353       (17,935)        (635)
                                                       -------      -------      --------      -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
  LOSS............................................      11,088       16,101        16,823       17,013

PROVISION FOR INCOME TAXES........................       4,167        6,032         6,325        6,335
                                                       -------      -------      --------      -------
INCOME BEFORE EXTRAORDINARY LOSS..................       6,921       10,069        10,498       10,678

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
  DEBT, NET.......................................      (1,157)      (1,901)       (1,584)      (1,901)
                                                       -------      -------      --------      -------
NET INCOME........................................     $ 5,764      $ 8,168      $  8,914      $ 8,777
                                                       =======      =======      ========      =======
COMMON SHARES:
  Weighted average number outstanding (basic).....       9,741        9,370         9,726        9,149
                                                       =======      =======      ========      =======
  Weighted average and dilutive potential number
    outstanding...................................      10,112        9,829        10,105        9,548
                                                       =======      =======      ========      =======
NET INCOME (LOSS) PER COMMON SHARE:
  Basic:
    Income before extraordinary loss..............     $   .71      $  1.07      $   1.08      $  1.17
    Extraordinary loss............................        (.12)        (.20)         (.16)        (.21)
                                                       -------      -------      --------      -------
      Total basic.................................     $   .59      $   .87      $    .92      $   .96
                                                       =======      =======      ========      =======
  Diluted:
    Income before extraordinary loss..............     $   .69      $  1.02      $   1.04      $  1.12
    Extraordinary loss............................        (.12)        (.19)         (.16)        (.20)
                                                       -------      -------      --------      -------
      Total diluted...............................     $   .57      $   .83      $    .88      $   .92
                                                       =======      =======      ========      =======
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       4
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 FOR THE SIX MONTHS
                                                                    ENDED MAY 31,
                                                              -------------------------
                                                              (AS RESTATED,
                                                              SEE NOTE 15)
                                                                  1999          1998
                                                              -------------   ---------
<S>                                                           <C>             <C>
OPERATING ACTIVITIES:
  Net income................................................    $   8,914     $   8,777
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation and amortization...........................        7,144         4,121
    Extraordinary loss on early extinguishment of debt,
     net....................................................        1,584         1,901
    Gain on sale of trademarks and other product rights.....           --       (10,442)
    Dividend receivable from Elcat, Inc.....................         (140)         (328)
    Other, net..............................................           28           111
    Changes in operating assets and liabilities, net of
     acquisitions:
      Accounts receivable...................................      (21,819)      (16,434)
      Inventories...........................................          119           910
      Refundable and deferred income taxes..................           (9)           --
      Prepaid and other current assets......................         (149)          729
      Accounts payable and accrued liabilities..............       13,464        15,624
                                                                ---------     ---------
        Net cash provided by operating activities...........        9,136         4,969
                                                                ---------     ---------

INVESTING ACTIVITIES:
  Purchases of property, plant and equipment................       (2,473)       (7,348)
  Proceeds from sale of investment..........................          387            --
  Purchase of trademarks and other related assets...........      (91,293)     (165,128)
  Proceeds from sale of trademarks and other product
    rights..................................................           --        11,750
  Other, net................................................       (1,147)         (293)
                                                                ---------     ---------
        Net cash used in investing activities...............      (94,526)     (161,019)
                                                                ---------     ---------

FINANCING ACTIVITIES:
  Repayment of long-term debt...............................     (126,493)      (95,998)
  Proceeds from long-term debt..............................      221,781       262,365
  Proceeds from exercise of stock options and warrants......          675         2,458
  Repurchase of common stock................................         (885)           --
  Debt issuance costs.......................................       (4,829)       (8,297)
  Cancellation of interest rate swap agreements.............       (1,155)           --
  Decrease in payable to bank...............................         (898)         (865)
                                                                ---------     ---------
        Net cash provided by financing activities...........       88,196       159,663
                                                                ---------     ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
  EQUIVALENTS...............................................          (13)           (8)
                                                                ---------     ---------

CASH AND CASH EQUIVALENTS:
  Increase for the period...................................        2,793         3,605
  At beginning of period....................................        2,076         4,858
                                                                ---------     ---------
  At end of period..........................................    $   4,869     $   8,463
                                                                =========     =========

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Issuance of 125,500 shares of common stock at $39.84 per
    share to fund portion of Thompson Medical brands'
    acquisition.............................................    $   5,000     $      --
  Additions to trademarks and other product rights by
    assumption of certain liabilities.......................    $     500     $   8,000

PAYMENTS FOR:
  Interest..................................................    $  17,170     $   8,053
  Taxes.....................................................    $   3,981     $     272
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       5
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

Note: All monetary amounts are expressed in thousands of dollars unless
contrarily evident.

1.  The accompanying unaudited consolidated financial statements have been
    prepared in accordance with generally accepted accounting principles for
    interim financial information and the instructions to Form 10-Q and
    Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
    information and footnotes required by generally accepted accounting
    principles for complete financial statements. These consolidated financial
    statements should be read in conjunction with the audited consolidated
    financial statements and related notes thereto included in the Company's
    Annual Report to Shareholders for the year ended November 30, 1998. The 1998
    Annual Report has previously been filed with the Securities and Exchange
    Commission as an exhibit to the Company's Form 10-K. The accompanying
    unaudited consolidated financial statements, in the opinion of management,
    include all adjustments necessary for a fair presentation. All such
    adjustments are of a normal recurring nature. All significant intercompany
    transactions and balances have been eliminated.

    See note 15 regarding the restatement of financial statements.

2.  The Company incurs significant expenditures on television, radio and print
    advertising to support its nationally branded over-the-counter health and
    skin care products. Customers purchase products from the Company with the
    understanding that the brands will be supported by the Company's extensive
    media advertising. This advertising supports the retailers' sales effort and
    maintains the important brand franchise with the consuming public.
    Accordingly, the Company considers its advertising program to be clearly
    implicit in its sales arrangements with its customers. Therefore, the
    Company believes it is appropriate to allocate a percentage of the necessary
    supporting advertising expenses to each dollar of sales by charging a
    percentage of sales on an interim basis based upon anticipated annual sales
    and advertising expenditures (in accordance with APB Opinion No. 28) and
    adjusting that accrual to the actual expenses incurred at the end of the
    year.

3.  The results of operations for the periods presented are not necessarily
    indicative of the results to be expected for the respective full years.

4.  Inventories consisted of the following at May 31, 1999 and November 30,
    1998:

<TABLE>
<CAPTION>
                                                         MAY 31,    NOVEMBER 30,
                                                           1999         1998
                                                         --------   ------------
<S>                                                      <C>        <C>
Raw materials and work in process......................  $ 9,140       $ 7,903
Finished goods.........................................   16,250        14,113
Excess of current cost over LIFO values................   (2,410)       (2,410)
                                                         -------       -------
  Total inventories....................................  $22,980       $19,606
                                                         =======       =======
</TABLE>

                                       6
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (UNAUDITED) (CONTINUED)

5.  Accrued liabilities consisted of the following at May 31, 1999 and
    November 30, 1998:

<TABLE>
<CAPTION>
                                                         MAY 31,
                                                          1999       NOVEMBER 30,
                                                       AS RESTATED       1998
                                                       -----------   ------------
<S>                                                    <C>           <C>
Income and other taxes...............................    $ 4,892        $ 3,881
Salaries, wages and commissions......................      2,298          2,850
Advertising and promotion............................     21,071          8,896
Interest.............................................      6,880          5,969
Product acquisitions and divestitures................      3,635          3,290
Royalties............................................        143          2,889
Other................................................      3,755          2,434
                                                         -------        -------
  Total accrued liabilities..........................    $42,674        $30,209
                                                         =======        =======
</TABLE>

6.  Effective December 1, 1998, the Company adopted Statements of Financial
    Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income"; SFAS
    No. 131, "Disclosure about Segments of an Enterprise and Related
    Information" and SFAS No. 132, "Employers' Disclosure about Pensions and
    other Retirement Benefits."

    SFAS No. 130 requires the Company to include a financial statement
    presentation of comprehensive income and its components. Note 7 of these
    Notes to Consolidated Financial Statements presents this information. The
    Shareholders' Equity sections of the accompanying Consolidated Balance
    Sheets as of May 31, 1999 and November 30, 1998 also present the "Cumulative
    other comprehensive income" portion of the respective cumulative
    comprehensive income.

    SFAS No. 131 requires the Company to expand the financial statement
    disclosures for operating segments, products and services and geographic
    areas. For fiscal 1999, the Company in accordance with the provisions of
    this statement has elected not to provide the disclosures for interim
    reporting periods, but will present the required information in its annual
    report for fiscal 1999 on a comparative annual basis.

    SFAS No. 132 revises the Company's disclosures about pension and other post
    retirement benefits plans. These revisions will be reflected in the
    Company's annual report for fiscal 1999.

                                       7
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (UNAUDITED) (CONTINUED)

7.  Comprehensive income consisted of the following components for the three and
    six months ended May 31, 1999 and 1998, respectively:

<TABLE>
<CAPTION>
                                          FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                             ENDED MAY 31,            ENDED MAY 31,
                                         ----------------------   ----------------------
                                         AS RESTATED              AS RESTATED
                                            1999         1998        1999         1998
                                         -----------   --------   -----------   --------
<S>                                      <C>           <C>        <C>           <C>
Net income.............................     $5,764      $8,168       $8,914      $8,777
Other--foreign currency translation
  adjustment...........................        (52)        102         (123)          9
                                            ------      ------       ------      ------
  Total................................     $5,712      $8,270       $8,791      $8,786
                                            ======      ======       ======      ======
</TABLE>

8.  On December 21, 1998, the Company acquired the DEXATRIM, SPORTSCREME,
    ASPERCREME, CAPZASIN-P, CAPZASIN-HP and ARTHRITIS HOT brands from Thompson
    Medical Company, Inc. (the "Thompson Medical brands") for $95,000. The
    purchase price consisted of $90,000 cash and 125,500 shares of the Company's
    common stock. The cash portion of the purchase price was financed by a new
    senior credit facility. The purchase price of $95,000 was allocated $3,493
    to inventory and $91,507 to the trademarks.

9.  On December 21, 1998, the Company refinanced its existing credit facilities
    with $165,000 in senior secured credit facilities (the "Credit Facilities").
    The Credit Facilities were provided by a syndicate of commercial banks, led
    by Bank of America as agent. The Credit Facilities include a $50,000
    revolving credit facility and a $115,000 term loan. The Credit Facilities
    were used to refinance existing senior debt, to finance the acquisition of
    the Thompson Medical brands and related fees and expenses and to finance
    working capital and other general corporate needs. The $50,000 revolving
    credit facility matures on the earlier of (i) December 21, 2003 and
    (ii) the date on which the term loan is repaid in full. The $115,000 term
    loan matures on December 21, 2003. The Credit Facilities contain covenants,
    representations, warranties and other agreements by the Company that are
    customary in loan agreements and securities instruments relating to
    financing of this type.

    The company may elect either the greater of (i) the prime rate or federal
    funds rate plus .5% or (ii) a floating rate or Eurodollar interest rate
    option applicable to the term and revolving line loans under the Credit
    Facilities. The prime rate and Eurodollar interest rate options are based on
    a base rate plus a rate margin that fluctuates on the basis of the Company's
    senior leverage ratio.

10. On May 7, 1999 the Company issued an additional $75,000 of its 8.875%
    (priced to yield 8.8125%) senior subordinated notes under its indenture
    relating to the issuance of its $200,000 of 8.875% notes on March 24, 1998.
    The additional notes mature on April 1, 2008 and were issued under the
    Company's $250,000 shelf registration statement filed on December 21, 1998
    with the Securities and Exchange Commission. The net proceeds from the
    issuance of the additional notes were used to retire $41,500 of the then
    outstanding balance of the Company's $115,000 term bank loan and the
    outstanding balance of $25,500 of its revolving bank loan dated
    December 21, 1998.

    Concurrent with the closing of the $75,000 note issue, the Company amended
    its senior credit facility. The amended facility, provided by a syndicate of
    banks, consists of a $70,000 term loan and a $50,000 revolving credit
    facility. The revolving credit facility and the term loan both mature on
    December 21, 2003. The credit facility contains covenants, representations,
    warranties and other agreements by the Company that are customary in loan
    agreements relating to financing of this type.

                                       8
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (UNAUDITED) (CONTINUED)

11. In February 1999 a complaint was filed against the Company by Genderm
    Corporation ("Genderm") in the U.S. District Court for the District of
    Arizona. The complaint alleged, among other things, that the formulations of
    CAPZASIN-P, CAPZASIN-HP and ICY HOT Arthritis Therapy Gel infringed U.S.
    Patent 4,485,450 owned by Joel Bernstein, M.D. and licensed to Genderm (the
    "Patent"). The complaint requested injunctive relief, compensatory and
    treble damages, costs and attorneys fees. A hearing on the preliminary
    injunction was held on April 13-14, 1999. On May 6, 1999 U.S. District Court
    for the District of Arizona held that Genderm had carried its burden of
    proving a substantial likelihood of success and ultimately showing that the
    Patent was infringed and issued a preliminary injunction prohibiting the
    Company from shipping CAPZASIN-P cream, CAPZASIN-HP cream and ICY HOT
    Arthritis Therapy Gel. Following the issuance of the preliminary injunction,
    Chattem reached a settlement with Genderm pursuant to which Chattem made a
    single payment of $750 in exchange for the dismissal of the complaint and a
    fully paid license to use the Patent until its expiration. The settlement
    cost was recorded as a settlement of a pre-acquisition contingency.

12. During May 1999 the Company retired $6,750 face amount of its 12.75% Senior
    Subordinated Notes, due 2004. The remaining principal amount outstanding is
    $42,901.

    In connection with the repayment of portions of its bank loans and its
    12.75% notes, the Company recognized an extraordinary loss on early
    extinguishment of debt of $1,584, net of taxes, for the six months ended
    May 31, 1999. This loss primarily related to the write-off of debt issuance
    costs connected with outstanding long-term debt retired before maturity in
    the current period and the premium paid on the retirement of the 12.75%
    notes.

13. In March 1999 the Company repurchased for $885, and returned to unissued,
    30,000 shares of its common stock, without par value.

14. For purposes of reporting cash flows, the Company considers all short-term
    deposits and investments with original maturities of three months or less to
    be cash equivalents.

                                       9
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (UNAUDITED) (CONTINUED)

15. Restatement

    In May 1999 the Company terminated its interest rate swap agreements and in
    connection therewith recorded a $716 loss, net of tax, as an extraordinary
    item. The Company recently determined that the proper accounting for this
    transaction was to defer the loss and amortize it as interest expense over
    the remaining original life of the swap agreements because the swap was
    redesignated as a hedge of continuing debt with similar terms.

    As a result of adjustments recorded by the Company to defer and amortize the
    loss, the Company has revised its previously reported results of operations
    for the three and six months ended May 31, 1999. This Form 10-Q/A reflects
    the results of these adjustments. A summary of the effect of the adjustments
    for the three and six months ended May 31, 1999 on certain previously
    reported amounts is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED          SIX MONTHS ENDED
                                         MAY 31, 1999               MAY 31, 1999
                                   ------------------------   ------------------------
                                   AS PREVIOUSLY              AS PREVIOUSLY
                                     REPORTED      RESTATED     REPORTED      RESTATED
                                   -------------   --------   -------------   --------
<S>                                <C>             <C>        <C>             <C>
Interest expense.................     $ 9,342      $ 9,373       $18,148      $ 18,179
Total other income (expense).....      (9,229)      (9,260)      (17,904)      (17,935)
Income before income taxes and
  extraordinary loss.............      11,119       11,088        16,854        16,823
Provision for income taxes.......       4,179        4,167         6,337         6,325
Income before extraordinary
  loss...........................       6,940        6,921        10,517        10,498
Extraordinary loss on early
  extinguishment of debt, net....       1,873        1,157         2,300         1,584
Net income.......................       5,067        5,764         8,217         8,914
Net income (loss) per common
  share:
  Basic:
    Income before extraordinary
      loss.......................         .71          .71          1.08          1.08
    Extraordinary loss...........        (.19)        (.12)         (.24)         (.16)
    Total basic..................         .52          .59           .84           .92
  Diluted:
    Income before extraordinary
      loss.......................         .69          .69          1.04          1.04
    Extraordinary loss...........        (.19)        (.12)         (.23)         (.16)
    Total diluted................         .50          .57           .81           .88
</TABLE>

<TABLE>
<CAPTION>
                                                              MAY 31, 1999
                                                        ------------------------
                                                        AS PREVIOUSLY
                                                          REPORTED      RESTATED
                                                        -------------   --------
<S>                                                     <C>             <C>
Other noncurrent assets...............................    $  3,161      $  4,286
Accrued liabilities...................................      42,246        42,674
Accumulated deficit...................................     (36,743)      (36,046)
</TABLE>

16. The condensed consolidating financial statements, for the dates or periods
    indicated, of Chattem, Inc. ("Chattem"), Signal Investment and Management
    Co. ("Signal"), the guarantor of the long-term debt of Chattem, and the
    non-guarantor wholly-owned subsidiary companies of Chattem are presented
    below. Signal is a wholly-owned subsidiary of Chattem; the guarantee of
    Signal is full and unconditional and joint and several.

                                       10
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                          CONSOLIDATING BALANCE SHEETS

                                  MAY 31, 1999
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         NON-GUARANTOR
                                                                           SUBSIDIARY     ELIMINATIONS
                                                   CHATTEM     SIGNAL      COMPANIES       DR, (CR.)     CONSOLIDATED
                                                  ---------   --------   --------------   ------------   ------------
<S>                                               <C>         <C>        <C>              <C>            <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.....................  $   3,248   $     19       $1,602         $    --        $  4,869
  Accounts receivable, less allowance for
    doubtful accounts of $850...................     55,113         --        3,287              --          58,400
  Refundable and deferred income taxes..........      3,058         --           --              --           3,058
  Inventories...................................     20,479         --        2,501              --          22,980
  Prepaid expenses and other current assets.....        312         --          837              --           1,149
                                                  ---------   --------       ------         -------        --------
    Total current assets........................     82,210         19        8,227              --          90,456
                                                  ---------   --------       ------         -------        --------
PROPERTY, PLANT AND EQUIPMENT, NET..............     19,856         --          400              --          20,256
                                                  ---------   --------       ------         -------        --------
OTHER NONCURRENT ASSETS:
  Investment in Elcat, Inc......................      3,242         --           --              --           3,242
  Patents, trademarks and other purchased
    product rights, net.........................      5,752    354,448           --              --         360,200
  Debt issuance costs, net......................     12,461         --           --              --          12,461
  Investment in subsidiaries....................      9,930         --           --          (9,930)             --
  Other.........................................      4,286         --           --              --           4,286
                                                  ---------   --------       ------         -------        --------
    Total other noncurrent assets...............     35,671    354,448           --          (9,930)        380,189
                                                  ---------   --------       ------         -------        --------
      TOTAL ASSETS..............................  $ 137,737   $354,467       $8,627         $(9,930)       $490,901
                                                  =========   ========       ======         =======        ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term debt..........  $   9,000   $     --       $   --         $    --        $  9,000
  Accounts payable..............................     12,256         --          988              --          13,244
  Payable to bank...............................        128         --           --              --             128
  Accrued liabilities...........................     41,718         --          956              --          42,674
                                                  ---------   --------       ------         -------        --------
    Total current liabilities...................     63,102         --        1,944              --          65,046
                                                  ---------   --------       ------         -------        --------
LONG-TERM DEBT, less current maturities.........    378,547         --           --              --         378,547
                                                  ---------   --------       ------         -------        --------
DEFERRED INCOME TAXES...........................      1,085      5,741           --              --           6,826
                                                  ---------   --------       ------         -------        --------
OTHER NONCURRENT LIABILITIES....................      2,150         --           --              --           2,150
                                                  ---------   --------       ------         -------        --------
INTERCOMPANY ACCOUNTS...........................   (344,585)   346,485       (1,900)             --              --
                                                  ---------   --------       ------         -------        --------
SHAREHOLDERS' EQUITY:
  Preferred shares, without par value,
    authorized 1,000, none issued...............         --         --           --              --              --
  Common shares, without par value, authorized
    50,000, issued 9,764........................      2,034          2        9,928           9,930           2,034
  Paid-in surplus...............................     73,818         --           --              --          73,818
  Accumulated deficit...........................    (37,909)     2,239         (376)             --         (36,046)
                                                  ---------   --------       ------         -------        --------
                                                     37,943      2,241        9,552           9,930          39,806
  Cumulative other comprehensive income--
    Foreign currency translation adjustment.....       (505)        --         (969)             --          (1,474)
                                                  ---------   --------       ------         -------        --------
      Total shareholders' equity................     37,438      2,241        8,583           9,930          38,332
                                                  ---------   --------       ------         -------        --------
        TOTAL LIABILITIES AND SHAREHOLDERS'
          EQUITY................................  $ 137,737   $354,467       $8,627         $ 9,930        $490,901
                                                  =========   ========       ======         =======        ========
</TABLE>

                                    Note 16.

                                       11
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                          CONSOLIDATING BALANCE SHEETS

                               NOVEMBER 30, 1998
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         NON-GUARANTOR
                                                                           SUBSIDIARY     ELIMINATIONS
                                                   CHATTEM     SIGNAL      COMPANIES       DR, (CR.)     CONSOLIDATED
                                                   --------   --------   --------------   ------------   ------------
<S>                                                <C>        <C>        <C>              <C>            <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents......................  $    (95)  $     11       $2,160         $    --        $  2,076
  Accounts receivable, less allowance for
    doubtful accounts of $775....................    32,920         --        3,661              --          36,581
  Refundable and deferred income taxes...........     3,049         --           --              --           3,049
  Inventories....................................    16,607         --        2,999              --          19,606
  Prepaid expenses and other current assets......        93        415          276              --             784
                                                   --------   --------       ------         -------        --------
    Total current assets.........................    52,574        426        9,096              --          62,096
                                                   --------   --------       ------         -------        --------
PROPERTY, PLANT AND EQUIPMENT, NET...............    17,675         --          471              --          18,146
                                                   --------   --------       ------         -------        --------
OTHER NONCURRENT ASSETS:
  Investment in Elcat, Inc.......................     3,102         --           --              --           3,102
  Patents, trademarks and other purchased product
    rights, net..................................     4,409    267,817           --              --         272,226
  Debt issuance costs, net.......................    10,091         --           --              --          10,091
  Investment in subsidiaries.....................     9,930         --           --          (9,930)             --
  Other..........................................     2,979         --          372              --           3,351
                                                   --------   --------       ------         -------        --------
    Total other noncurrent assets................    30,511    267,817          372          (9,930)        288,770
                                                   --------   --------       ------         -------        --------
      TOTAL ASSETS...............................  $100,760   $268,243       $9,939         $(9,930)       $369,012
                                                   ========   ========       ======         =======        ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term debt...........  $ 17,444   $     --       $   --         $    --        $ 17,444
  Accounts payable...............................    12,090         --          643              --          12,733
  Payable to bank................................     1,026         --           --              --           1,026
  Accrued liabilities............................    28,963         20        1,226              --          30,209
                                                   --------   --------       ------         -------        --------
    Total current liabilities....................    59,523         20        1,869              --          61,412
                                                   --------   --------       ------         -------        --------
LONG-TERM DEBT, less current maturities..........   273,913         --           --              --         273,913
                                                   --------   --------       ------         -------        --------
DEFERRED INCOME TAXES............................     1,085      5,741           --              --           6,826
                                                   --------   --------       ------         -------        --------
OTHER NONCURRENT LIABILITIES.....................     2,110         --           --              --           2,110
                                                   --------   --------       ------         -------        --------
INTERCOMPANY ACCOUNTS............................  (259,582)   259,661          (79)             --              --
                                                   --------   --------       ------         -------        --------
SHAREHOLDERS' EQUITY:
  Preferred shares, without par value, authorized
    1,000, none issued...........................        --         --           --              --              --
  Common shares, without par value, authorized
    50,000, issued 9,574.........................     1,994          2        9,928           9,930           1,994
  Paid-in surplus................................    69,068         --           --              --          69,068
  Accumulated deficit............................   (46,846)     2,819         (933)             --         (44,960)
                                                   --------   --------       ------         -------        --------
                                                     24,216      2,821        8,995           9,930          26,102
  Cumulative other comprehensive income--
    Foreign currency translation adjustment......      (505)        --         (846)             --          (1,351)
                                                   --------   --------       ------         -------        --------
      Total shareholders' equity.................    23,711      2,821        8,149           9,930          24,751
                                                   --------   --------       ------         -------        --------
        TOTAL LIABILITIES AND SHAREHOLDERS'
          EQUITY.................................  $100,760   $268,243       $9,939         $ 9,930        $369,012
                                                   ========   ========       ======         =======        ========
</TABLE>

                                    Note 16.

                                       12
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                       CONSOLIDATING STATEMENTS OF INCOME

                     FOR THE SIX MONTHS ENDED MAY 31, 1999
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           NON-GUARANTOR
                                                                             SUBSIDIARY     ELIMINATIONS
                                                     CHATTEM     SIGNAL      COMPANIES       DR, (CR.)     CONSOLIDATED
                                                     --------   --------   --------------   ------------   ------------
<S>                                                  <C>        <C>        <C>              <C>            <C>
NET SALES..........................................  $139,417    $   --        $6,752          $   --        $146,169
                                                     --------    ------        ------          ------        --------
COSTS AND EXPENSES:
  Cost of sales....................................    36,343        --         2,331              --          38,674
  Advertising and promotion........................    51,182     4,644         2,227              --          58,053
  Selling, general and administrative..............    13,161        --         1,523              --          14,684
                                                     --------    ------        ------          ------        --------
    Total costs and expenses.......................   100,686     4,644         6,081              --         111,411
                                                     --------    ------        ------          ------        --------
INCOME FROM OPERATIONS.............................    38,731    (4,644)          671              --          34,758
                                                     --------    ------        ------          ------        --------
OTHER INCOME (EXPENSE):
  Interest expense.................................   (18,179)       --            --              --         (18,179)
  Investment and other income......................       210        (7)           41              --             244
  Royalties........................................    (6,688)    6,802          (114)             --              --
  Premium revenue..................................       (19)       --            19              --              --
  Corporate allocations............................        18        --           (18)             --              --
                                                     --------    ------        ------          ------        --------
    Total other income (expense)...................   (24,658)    6,795           (72)             --         (17,935)
                                                     --------    ------        ------          ------        --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
  LOSS.............................................    14,073     2,151           599              --          16,823
PROVISION FOR INCOME TAXES.........................     5,321       731           273              --           6,325
                                                     --------    ------        ------          ------        --------
INCOME BEFORE EXTRAORDINARY LOSS...................     8,752     1,420           326              --          10,498
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT,
  NET..............................................    (1,584)       --            --              --          (1,584)
                                                     --------    ------        ------          ------        --------
NET INCOME.........................................  $  7,168    $1,420        $  326          $   --        $  8,914
                                                     ========    ======        ======          ======        ========
</TABLE>

                                    Note 16.

                                       13
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                       CONSOLIDATING STATEMENTS OF INCOME

                     FOR THE SIX MONTHS ENDED MAY 31, 1998
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           NON-GUARANTOR
                                                                             SUBSIDIARY     ELIMINATIONS
                                                     CHATTEM     SIGNAL      COMPANIES        DR, (CR)     CONSOLIDATED
                                                     --------   --------   --------------   ------------   ------------
<S>                                                  <C>        <C>        <C>              <C>            <C>
NET SALES..........................................  $86,499     $   --        $6,967         $    --        $93,466
                                                     -------     ------        ------         -------        -------
COSTS AND EXPENSES:
  Cost of sales....................................   23,215         --         2,321              --         25,536
  Advertising and promotion........................   33,547      2,176         2,659              --         38,382
  Selling, general and administrative..............   10,346         13         1,541              --         11,900
                                                     -------     ------        ------         -------        -------
    Total costs and expenses.......................   67,108      2,189         6,521              --         75,818
                                                     -------     ------        ------         -------        -------
INCOME FROM OPERATIONS.............................   19,391     (2,189)          446              --         17,648
                                                     -------     ------        ------         -------        -------
OTHER INCOME (EXPENSE):
  Interest expense.................................  (11,512)        --            --              --        (11,512)
  Investment and other income......................      410          1            24              --            435
  Gain on product divestiture......................       --     10,442            --              --         10,442
  Royalties........................................   (4,137)     4,251          (114)             --             --
  Premium revenue..................................     (175)        --           175              --             --
  Corporate allocations............................       16         --           (16)             --             --
                                                     -------     ------        ------         -------        -------
    Total other income (expense)...................  (15,398)    14,694            69              --           (635)
                                                     -------     ------        ------         -------        -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
  LOSS.............................................    3,993     12,505           515              --         17,013
PROVISION FOR INCOME TAXES.........................    1,728      4,500           107              --          6,335
                                                     -------     ------        ------         -------        -------
INCOME BEFORE EXTRAORDINARY LOSS...................    2,265      8,005           408              --         10,678
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT,
  NET..............................................   (1,901)        --            --              --         (1,901)
                                                     -------     ------        ------         -------        -------
NET INCOME.........................................  $   364     $8,005        $  408         $    --        $ 8,777
                                                     =======     ======        ======         =======        =======
</TABLE>

                                    Note 16.

                                       14
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                     CONSOLIDATING STATEMENTS OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED MAY 31, 1999
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      NON-GUARANTOR
                                                                        SUBSIDIARY     ELIMINATIONS
                                                CHATTEM     SIGNAL      COMPANIES        DR, (CR)       CONSOLIDATED
                                               ---------   --------   --------------   ------------   ----------------
<S>                                            <C>         <C>        <C>              <C>            <C>
OPERATING ACTIVITIES:
  Net income.................................  $   7,168    $1,420       $   326        $      --        $   8,914
  Adjustments to reconcile net income to net
    cash provided by operating activities:                                                     --
    Depreciation and amortization............      2,432     4,644            68               --            7,144
    Extraordinary loss on early
      extinguishment of debt, net............      1,584        --            --               --            1,584
    Dividend receivable from Elcat, Inc......       (140)       --            --               --             (140)
    Income tax provision.....................       (731)      731            --               --               --
    Other net................................         20         8            --               --               28
    Changes in operating assets and
      liabilities, net of acquisitions:
      Accounts receivable....................    (22,161)       --           342               --          (21,819)
      Inventories............................       (346)       --           465               --              119
      Refundable and deferred income taxes...         (9)       --            --               --               (9)
      Prepaid and other current assets.......         56        --          (205)              --             (149)
      Accounts payable and accrued
        liabilities..........................     13,166        --           298               --           13,464
                                               ---------    ------       -------        ---------        ---------
        Net cash provided by operating
          activities.........................      1,039     6,803         1,294               --            9,136
                                               ---------    ------       -------        ---------        ---------

INVESTING ACTIVITIES:
  Purchases of property, plant and
    equipment................................     (2,460)       --           (13)              --           (2,473)
  Purchase of trademarks and other related
    assets...................................    (91,293)       --            --               --          (91,293)
  Proceeds from sale of investment...........         --       387            --               --              387
  Other assets...............................     (1,147)       --            --               --           (1,147)
                                               ---------    ------       -------        ---------        ---------
        Net cash provided by (used in)
          investing activities...............    (94,900)      387           (13)              --          (94,526)
                                               ---------    ------       -------        ---------        ---------

FINANCING ACTIVITIES:
  Payments on long-term debt.................   (126,493)       --            --               --         (126,493)
  Proceeds from long-term debt...............    221,781        --            --               --          221,781
  Proceeds from exercise of stock options and
    warrants.................................        675        --            --               --              675
  Debt issuance costs........................     (4,829)       --            --               --           (4,829)
  Increase in payable to bank................       (898)       --            --               --             (898)
  Repurchase of common stock.................       (885)       --            --               --             (885)
  Cancellation of interest rate swap
    agreements...............................     (1,155)       --            --               --           (1,155)
  Dividends paid.............................      2,000    (2,000)           --               --               --
  Changes in intercompany accounts...........      7,040    (5,182)       (1,858)              --               --
                                               ---------    ------       -------        ---------        ---------
        Net cash provided by (used in)
          financing activities...............     97,236    (7,182)       (1,858)              --           88,196
                                               ---------    ------       -------        ---------        ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
  CASH EQUIVALENTS...........................        (32)       --            19               --              (13)
                                               ---------    ------       -------        ---------        ---------

CASH AND CASH EQUIVALENTS:
  Increase (decrease) for the period.........      3,343         8          (558)              --            2,793
  At beginning of period.....................        (95)       11         2,160               --            2,076
                                               ---------    ------       -------        ---------        ---------
  At end of period...........................  $   3,248    $   19       $ 1,602        $      --        $   4,869
                                               =========    ======       =======        =========        =========
</TABLE>

                                    Note 16.

                                       15
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES

                     CONSOLIDATING STATEMENTS OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED MAY 31, 1998
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          NON-GUARANTOR
                                                                            SUBSIDIARY     ELIMINATIONS
                                                    CHATTEM     SIGNAL      COMPANIES        DR, (CR)     CONSOLIDATED
                                                    --------   --------   --------------   ------------   ------------
<S>                                                 <C>        <C>        <C>              <C>            <C>
OPERATING ACTIVITIES:
  Net income......................................  $   364    $ 8,005        $  408         $     --       $  8,777
  Adjustments to reconcile net income to net cash
    provided by operating activities:                                                              --
    Depreciation and amortization.................    1,875      2,176            70               --          4,121
    Extraordinary loss on early extinguishment of
      debt, net...................................    1,901         --            --               --          1,901
    Dividend receivable from Elcat, Inc...........     (328)        --            --               --           (328)
    Gain on product divestiture...................       --    (10,442)           --               --        (10,442)
    Income tax provision..........................   (4,500)     4,500            --               --             --
    Other, net....................................      111         --            --               --            111
    Changes in operating assets and liabilities,
      net of acquisitions:
      Accounts Receivable.........................  (17,114)        --           680               --        (16,434)
      Inventories.................................    1,445         --          (535)              --            910
      Refundable and deferred income taxes........       --         --            --               --             --
      Prepaid and other current assets............      863         --          (134)              --            729
      Accounts payable and accrued liabilities....   15,475         --           149               --         15,624
                                                    --------   -------        ------         --------       --------
        Net cash provided by operating
          activities..............................       92      4,239           638               --          4,969
                                                    --------   -------        ------         --------       --------

INVESTING ACTIVITIES:
  Purchases of property, plant and equipment......   (7,331)        --           (17)              --         (7,348)
  Purchase of trademarks and other related
    assets........................................  (165,128)       --            --               --       (165,128)
  Proceeds from product divestiture...............   11,750         --            --               --         11,750
  Other assets....................................     (293)        --            --               --           (293)
                                                    --------   -------        ------         --------       --------
        Net cash (used in) investing activities...  (161,002)       --           (17)              --       (161,019)
                                                    --------   -------        ------         --------       --------

FINANCING ACTIVITIES:
  Payments on long- term debt.....................  (95,998)        --            --               --        (95,998)
  Proceeds from long-term debt....................  262,365         --            --               --        262,365
  Proceeds from exercise of stock options and
    warrants......................................    2,458         --            --               --          2,458
  Debt issuance costs.............................   (8,297)        --            --               --         (8,297)
  Payable to bank.................................     (865)        --            --               --           (865)
  Dividends paid..................................    2,000     (2,000)           --               --             --
  Changes in intercompany accounts................    2,954     (2,205)         (749)              --             --
                                                    --------   -------        ------         --------       --------
        Net cash provided by (used in) financing
          activities..............................  164,617     (4,205)         (749)              --        159,663
                                                    --------   -------        ------         --------       --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
  EQUIVALENTS.....................................       (9)        --             1               --             (8)
                                                    --------   -------        ------         --------       --------

CASH AND CASH EQUIVALENTS:
  Increase (decrease) for the period..............    3,698         34          (127)              --          3,605
  At beginning of period..........................    2,997         55         1,806               --          4,858
                                                    --------   -------        ------         --------       --------
  At end of period................................  $ 6,695    $    89        $1,679         $     --       $  8,463
                                                    ========   =======        ======         ========       ========
</TABLE>

                                    Note 16.

                                       16
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Note: All monetary amounts are expressed in thousands of dollars unless
  contrarily evident.

GENERAL

    On December 21, 1998, the Company acquired the DEXATRIM, SPORTSCREME,
ASPERCREME, CAPZASIN-P, CAPZASIN-HP and ARTHRITIS HOT brands from Thompson
Medical Company, Inc. for $95,000. The purchase price consisted of $90,000 cash
and 125,500 shares of the Company's common stock. The cash portion of the
purchase price was financed by a new senior credit facility. The purchase price
of $95,000 was allocated $3,493 to inventory and $91,507 to the trademarks.

    On May 7, 1999 the Company issued an additional $75,000 of its 8.875%
(priced to yield 8.8125%) senior subordinated notes under its indenture relating
to the issuance of its $200,000 of 8.875% notes on March 24, 1998. The
additional notes mature on April 1, 2008 and were issued under the Company's
$250,000 shelf registration statement filed on December 21, 1998 with the
Securities and Exchange Commission. The net proceeds from the issuance of the
additional notes were used to retire $41,500 of the then outstanding balance of
the Company's $115,000 term bank loan and the outstanding balance of $25,500 of
its revolving bank loan dated December 21, 1998.

    Concurrent with the closing of the $75,000 note issue, Chattem amended its
senior credit facility. The amended facility, provided by a syndicate of banks,
consists of a $70,000 term loan and a $50,000 revolving credit facility. The
revolving credit facility and the term loan both mature on December 21, 2003.
The credit facility contains covenants, representations, warranties and other
agreements by Chattem that are customary in loan agreements relating to
financing of this type.

    For the second quarter of fiscal 1999, net sales increased 42.5% to $83,441
from $58,545 for the corresponding prior year period, while operating income
rose more rapidly than sales, growing 59.6% to $20,348 for 1999 from $12,748 in
1998. Net income before extraordinary loss and product divestiture for the 1999
period was $6,921, or $.69 per share, as compared to $3,595, or $.37 per share,
for the comparable 1998 period, an increase of 92.5%. The increase in earnings
per share was achieved despite the weighted average and dilutive potential
number of shares outstanding increasing 3.0% from 1998 to 1999.

    For the first six months of fiscal 1999, net sales were $146,169 compared to
$93,466 for the same period of 1998, a 56.4% increase. Income from operations
for the 1999 period was $34,758 versus $17,648 in the comparable 1998 period, a
97.0% increase. Net income before extraordinary loss for the first six months of
fiscal 1999 was $10,498, or $1.04 per share, compared to $4,204, or $.44 per
share, excluding the gain on the sale of CORNSILK completed in the second fiscal
quarter of 1998, an increase of 149.7%.

    The BAN brand, acquired in March 1998, the Thompson Medical brands,
purchased in December 1998, and the continuing strong performance of the GOLD
BOND family of products, including the continuing strength of GOLD BOND
Medicated Body Lotion, were primarily responsible for the revenue growth and the
improvement in the Company's operating results for the three and six months
ended May 31, 1999.

    During May 1999 the Company retired $6,750 face amount of its 12.75% Senior
Subordinated Notes, due 2004.

    In connection with the repayment of portions of its bank loans and its
12.75% notes, the Company recognized an extraordinary loss on early
extinguishment of debt of $1,584, net of taxes, for the six months ended
May 31, 1999. This loss primarily related to the write-off of debt issuance
costs connected with outstanding long-term debt retired before maturity in the
current period and the premium paid on the retirement of the 12.75% notes.

                                       17
<PAGE>
    In March 1999 the Company repurchased for $885, and returned to unissued,
30,000 shares of its common stock, without par value.

    The Company will continue to seek sales increases through a combination of
acquisitions and internal growth while maintaining high operating income levels.
As previously high-growth brands mature, sales increases will become even more
dependent on acquisitions and the development of successful line extensions of
existing products. During the first six months of fiscal 1999, the Company
introduced the following line extensions/new products: BAN Ultra Dry Roll-On,
BAN Ultra Dry Solid Stick, GOLD BOND Triple Antibiotic Ointment, REPOSE Stress
Relief Formula, BULLFROG MAGICBLOCK, SUN-IN Super Streaks and PHISODERM 4 Way
Daily Acne Cleanser. Also, new packaging for the entire BAN brand was introduced
in the second quarter of fiscal 1999. Strategically, the Company continually
evaluates its products as part of its growth strategy and, in instances where
the Company's objectives are not realized, will dispose of these brands and
redeploy the assets to reduce indebtedness.

RESULTS OF OPERATIONS

    The following table sets forth, for income before extraordinary loss and for
the periods indicated, certain items from the Company's Consolidated Statements
of Income expressed as a percentage of net sales:

<TABLE>
<CAPTION>
                                                    FOR THE THREE MONTHS       FOR THE SIX MONTHS
                                                        ENDED MAY 31,             ENDED MAY 31,
                                                   -----------------------   -----------------------
                                                   AS RESTATED               AS RESTATED
                                                      1999         1998         1999         1998
                                                   -----------   ---------   -----------   ---------
<S>                                                <C>           <C>         <C>           <C>
NET SALES........................................      100.0%      100.0%        100.0%      100.0%
                                                      ------      ------        ------      ------
COSTS AND EXPENSES:
  Cost of sales..................................       26.1        27.1          26.5        27.3
  Advertising and promotion......................       39.9        39.6          39.7        41.1
  Selling, general and administrative............        9.6        11.5          10.0        12.7
                                                      ------      ------        ------      ------
    Total costs and expenses.....................       75.6        78.2          76.2        81.1
                                                      ------      ------        ------      ------
INCOME FROM OPERATIONS...........................       24.4        21.8          23.8        18.9
                                                      ------      ------        ------      ------
OTHER INCOME (EXPENSE):
  Interest expense...............................      (11.2)      (12.5)        (12.4)      (12.3)
  Investment and other income....................         .1          .4            .1          .4
  Gain on product divestiture....................         --        17.8            --        11.2
                                                      ------      ------        ------      ------
    Total other income (expense).................      (11.1)        5.7         (12.3)        (.7)
                                                      ------      ------        ------      ------
INCOME BEFORE INCOME TAXES.......................       13.3        27.5          11.5        18.2
PROVISION FOR INCOME TAXES.......................        5.0        10.3           4.3         6.8
                                                      ------      ------        ------      ------
NET INCOME BEFORE EXTRAORDINARY LOSS.............        8.3%       17.2%          7.2%       11.4%
                                                      ======      ======        ======      ======
</TABLE>

COMPARISON OF THREE MONTHS ENDED MAY 31, 1999 AND 1998

    Net sales for the three months ended May 31, 1999 increased $24,896, or
42.5%, to $83,441 from $58,545 for the same period last year. Domestic consumer
products sales increased $23,850, or 44.2%, to $77,795 from $53,945 for last
year's comparable period. Net sales of international consumer products increased
$1,046, or 22.7%, from $4,600 in the 1998 period to $5,646 in the current
period.

    The increase in domestic consumer products sales in the 1999 period was
primarily due to the BAN and Thompson Medical brands acquired in March and
December 1998, respectively, and the continuing strong performance of the GOLD
BOND product line, especially GOLD BOND Medicated Body Lotion. Sales increases
were also registered for the PAMPRIN, SUN-IN, HERPECIN-L and PHISODERM

                                       18
<PAGE>
product lines, while decreases were experienced by the SUNSOURCE and BULLFROG
brands. With the exception of the CORNSILK brand, which was sold in May 1998,
sales in the current period of the remaining product lines were essentially flat
or showed modest declines as compared to the corresponding period of 1998. All
sales variances were largely the result of changes in the volume of unit sales
of the particular brands.

    The increase in sales of the GOLD BOND product line was led by the
introductions of the Medicated Body Lotion product in the third quarter of
fiscal 1998 and the Triple Antibiotic Ointment in the first quarter of fiscal
1999, although sales increases were also realized for the medicated powders and
cream products. GOLD BOND sales in the current period were also favorably
affected by increased marketing support. PHISODERM sales increases in the
current period were largely the result of the introduction of the 4 Way Daily
Acne Cleanser line extension and increased advertising and promotional
expenditures. Sales increases for the PAMPRIN and SUN-IN brands were largely the
result of increased marketing support, while the increase in sales of HERPECIN-L
was primarily due to more effective advertising. Also, SUN-IN sales in the 1999
period benefited from the introduction of its Super Streaks product in February
of the current year.

    The sales decline in the current period for the SUNSOURCE products reflected
the general softening of sales in the dietary supplements' market. The decline
in BULLFROG sales in the current period was largely the result of reduced sales
to two larger customers.

    International consumer products sales for the second quarter of fiscal 1999
increased $689, or 55.6%, for the Canadian operation but declined $347, or
11.8%, for the United Kingdom business. The increase in Canadian sales was
primarily associated with the BAN and certain of the Thompson Medical brands,
although sales increases were recorded for all of the remaining brands currently
being sold in Canada. Sales declines were recorded for all of the United Kingdom
brands, except for SUN-IN, largely due to generally weak economic conditions
presently existing in the United Kingdom and Western Europe. U.S. export sales
increased $704, or 165.8%, for the 1999 period as compared to the same period in
fiscal 1998, with practically all of the increase being associated with the BAN
product line. All sales variances were largely the result of changes in the
volume of unit sales of the particular brands.

    Cost of goods sold as a percentage of net sales improved to 26.1% from 27.1%
in the 1998 period. The improvement was primarily the result of increased sales
of higher gross margin product lines in the current period.

    Advertising and promotion expenses increased $10,113, or 43.6%, and were
39.9% of net sales compared to 39.6% in the corresponding 1998 period. The
majority of the increase in the 1999 period was related to the BAN and Thompson
Medical brands, acquired in March and December 1998, respectively, and to the
GOLD BOND, FLEXALL, SUN-IN and PHISODERM product lines. Declines were recorded
for the HERPECIN-L, SUNSOURCE and CORNSILK brands. The CORNSILK product line was
sold in May 1998.

    The increase of $1,243, or 18.4%, in selling, general and administrative
expenses in the 1999 period was largely associated with direct selling expenses,
resulting from increased sales, with research and development costs and with
various expenses of the general service departments of the Company. The selling,
general and administrative expenses were 9.6% of net sales in the current period
as compared to 11.5% in the same period of last fiscal year, reflecting the
increase in sales from newly acquired brands without a corresponding increase in
overhead costs.

    Interest expense increased $2,041, or 27.8%, in the 1999 period, reflecting
primarily the additional debt incurred for the BAN and Thompson Medical brands'
acquisitions in March and December 1998, respectively.

    An extraordinary loss of $1,157, net of taxes, related to the early
extinguishment of debt was recorded in the 1999 period. The loss primarily
related to the write-off of debt issuance costs connected with

                                       19
<PAGE>
outstanding long-term debt retired before maturity in the current period and the
premium paid on the retirement of the 12.75% notes.

    Net income of $6,921 before extraordinary loss in the 1999 period was
$3,326, or 92.5%, greater than the comparable 1998 amount of $3,595 after
excluding the gain of $6,474, net of taxes, on the sale of the CORNSILK brand.
This increase was largely the result of increased sales, offset in part by
increased interest expense, advertising and promotion expense and selling,
general and administrative costs.

COMPARISON OF SIX MONTHS ENDED MAY 31, 1999 AND 1998

    Net sales for the six months ended May 31, 1999 increased $52,703, or 56.4%,
to $146,169 from $93,466 for the same period last year. Domestic consumer
products sales increased $51,576, or 60.1%, to $137,338 from $85,762 for last
year's comparable period. Net sales of international consumer products increased
$1,127, or 14.6%, from $7,704 in the 1998 period to $8,831 in the current
period.

    The increase in domestic consumer products sales in the 1999 period was
primarily due to the BAN and Thompson Medical brands acquired in March and
December 1998, respectively, and the continuing strong performance of the GOLD
BOND family of products, especially GOLD BOND Medicated Body Lotion. Sales
increases were also registered for the PAMPRIN, SUN-IN, HERPECIN-L and PHISODERM
product lines, while decreases were experienced by the SUNSOURCE and BULLFROG
brands. With the exception of the CORNSILK brand, which was sold in May 1998,
sales in the current period of the remaining product lines were essentially flat
or showed modest declines as compared to the corresponding period of 1998. All
sales variances were largely the result of changes in the volume of unit sales
of the particular brands.

    The increase in sales of the GOLD BOND product line was led by the
introductions of the Medicated Body Lotion product in the third quarter of
fiscal 1998 and the Triple Antibiotic Ointment in the first quarter of 1999,
although sales increases were also realized for the medicated powders and cream
products. GOLD BOND sales in the current period were also favorably affected by
increased marketing support. PHISODERM sales increases in the current period
were largely the result of the introduction of the 4 Way Daily Acne Cleanser
line extension and increased advertising and promotional expenditures. Sales
increases for the PAMPRIN and SUN-IN brands were largely the result of increased
marketing support, while the increase in sales of HERPECIN-L is primarily due to
more effective advertising. Also, SUN-IN sales in the 1999 period benefited from
the introduction of its Super Streaks product in February of the current year.

    The sales decline in the current period for the SUNSOURCE products reflected
the general softening of sales in the dietary supplements' market. The decline
in BULLFROG sales in the current period was largely the result of reduced sales
to two larger customers.

    International consumer products sales for the first half of fiscal 1999
increased $924, or 42.9%, for the Canadian operation but declined $1,139, or
23.7%, for the United Kingdom business. The increase in Canadian sales was
primarily associated with the BAN and certain of the Thompson Medical brands,
although sales increases were recorded for all of the remaining brands currently
being sold in Canada. Sales declines were recorded for all of the United Kingdom
brands, except for SUN-IN, largely due to generally weak economic conditions
presently existing in the United Kingdom and Western Europe. U.S. export sales
increased $1,342, or 182.0%, for the 1999 period as compared to the same period
in fiscal 1998, with practically all of the increase being associated with the
BAN product line. All sales variances were largely the result of changes in the
volume of unit sales of the particular brands.

    Cost of goods sold as a percentage of net sales improved to 26.5% from 27.3%
in the 1998 period. The improvement was primarily the result of increased sales
of higher gross margin product lines in the current period.

                                       20
<PAGE>
    Advertising and promotion expenses increased $19,671, or 51.3%, and were
39.7% of net sales compared to 41.1% in the corresponding 1998 period. The
majority of the dollar increase in the 1999 period was related to the BAN and
Thompson Medical brands acquired in March and December 1998, respectively, and
to the GOLD BOND, SUN-IN and PHISODERM. Declines were recorded for the
HERPECIN-L, SUNSOURCE and CORNSILK brands. The CORNSILK product line was sold in
May 1998.

    The increase of $2,784, or 23.4%, in selling, general and administrative
expenses in the 1999 period was largely associated with direct selling expenses,
resulting from increased sales, with research and development costs and with
various expenses of the general service departments of the Company. The selling,
general and administrative expenses were 10.0% of net sales in the current
period as compared to 12.7% in the same period of last fiscal year, reflecting
the increase in sales from newly acquired brands without any significant
corresponding increase in overhead costs.

    Interest expense increased $6,667, or 57.9%, in the 1999 period, reflecting
primarily the additional debt incurred for the BAN and Thompson Medical brands'
acquisitions in March and December 1998, respectively.

    An extraordinary loss of $1,584, net of taxes, related to the early
extinguishment of debt was recorded in the 1999 period. The loss primarily
related to the write-off of debt issuance costs connected with outstanding
long-term debt retired before maturity in the current period and the premium
paid on the retirement of the 12.75% notes.

    Net income of $10,498 before extraordinary loss in the 1999 period was
$6,294, or 149.7% greater than the comparable 1998 amount of $4,204 after
excluding the gain of $6,474, net of taxes, on the sale of the CORNSILK brand.
This increase was largely the result of increased sales, offset in part by
increased interest expense, advertising and promotion expense and selling,
general and administrative costs.

LIQUIDITY AND CAPITAL RESOURCES

    The Company has historically financed its operations with a combination of
internally generated funds and borrowings. The Company's principal uses of cash
are for operating expenses, long-term debt servicing, acquisitions, working
capital and capital expenditures.

    Cash of $9,136 and $4,969 was provided by operations for the six months
ended May 31, 1999, and 1998, respectively. The increase in cash flows from
operations over the prior year period was primarily the result of increases in
net income (after adjusting for the gain on the sale of the CORNSILK product
line in the fiscal 1998 period) and depreciation and amortization.

    Investing activities used cash of $94,526 and $161,019 in the six months
ended May 31, 1999 and 1998, respectively. The decrease of $66,493 in the
current period primarily represented the difference in the size of the
acquisitions of BAN in March 1998 and the Thompson Medical brands in
December 1998.

    Financing activities provided cash of $88,196 in the six months ended
May 31, 1999 compared to $159,663 for the comparable prior year period. The
decrease of $71,467 in the current period reflected principally the difference
in the financing required for the BAN acquisition in March 1998 and for the
Thompson Medical brands in December 1998.

                                       21
<PAGE>
    The following table presents working capital data at May 31, 1999 and
November 30, 1998 or for the respective periods then ended:

<TABLE>
<CAPTION>
                                                         MAY 31,
                                                          1999       NOVEMBER 30,
ITEM                                                   AS RESTATED       1998
----                                                   -----------   ------------
<S>                                                    <C>           <C>
Working capital (current assets less current
  liabilities).......................................    $25,410         $684
Current ratio (current assets divided by current
  liabilities).......................................       1.39         1.01
Quick ratio (cash and cash equivalents and accounts
  receivable divided by current liabilities).........        .97          .63
Average accounts receivable turnover.................       5.29         6.81
Average inventory turnover...........................       3.40         3.57
Working capital as a percentage of total assets......       5.18%         .19%
</TABLE>

    The improvement in the current and quick ratios at May 31, 1999 as compared
to November 30, 1998, reflected primarily increases in accounts receivable and
inventories, which were largely associated with the Thompson Medical brands
acquired in December 1998, the seasonal products, e.g., BULLFROG and SUN-IN, and
the reduction of the current maturities of long-term debt.

    Total loans outstanding were $387,547 at May 31, 1999 compared to $291,357
at November 30, 1998, an increase of $96,190 during the first half of fiscal
1999. This increase was primarily the result of additional loans required to
purchase the Thompson Medical brands in December 1998. The principal balances
outstanding at May 31, 1999 of the term loan, the revolving credit facility and
total senior subordinated notes were $70,000, $0 and $317,901, respectively.

    Management of the Company believes that projected cash flows generated by
operations along with funds available under its credit facilities will be
sufficient to fund the Company's current commitments and proposed operations.
Also, on December 21, 1998, the Company filed a shelf registration statement
with the Securities and Exchange Commission for $250,000 of debt and equity
securities of which $75,000 of notes were issued during the first half of fiscal
1999.

YEAR 2000

    The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000 date
are a known risk. The Company has developed a plan to ensure its systems are
compliant with the requirements to fulfilling those compliance requirements:

    THE COMPANY'S STATE OF READINESS

    The Company is in the process of replacing its current information
technology ("IT") systems with a new fully integrated computer system to replace
all hardware and software that the Company uses in its financial, manufacturing
and customer services functions. The new IT system will be year 2000 compliant.
Accordingly, the year 2000 compliance requirements are considered only a portion
of the Company's system replacement effort. This replacement is expected to be
completed on or before December 1, 1999, the beginning of the Company's 2000
fiscal year. Although the Company believes that the new IT system will be year
2000 compliant, the Company uses third party equipment and software that may not
be year 2000 compliant. If any of this software or equipment does not operate
properly in the year 2000 and thereafter, the Company could be forced to make
unanticipated expenditures to cure these problems, which could adversely affect
the Company's business.

                                       22
<PAGE>
    COST TO ADDRESS YEAR 2000 ISSUES

    The total cost of the new software and implementation necessary to replace
the Company's current IT system plus address the year 2000 issues is estimated
to be approximately $2,000. Plan costs have been budgeted in the Company's
capital expenditures budget. The projected costs are based on management's best
estimate and actual results could differ as the new system is implemented.
Approximately $1,774 had been expended and capitalized on this system at
May 31, 1999.

    RISK OF YEAR 2000 ISSUES

    The Company is in the process of execution of its formal year 2000
compliance plan and expects to achieve implementation on or before December 1,
1999.

    The Company is requesting from certain of its principal customers and
suppliers written statements regarding their knowledge of and plans for meeting
the year 2000 compliance requirements. All respondents indicate that they have
knowledge of and are in the process of fulfilling these requirements. These
companies have stated that they are at various stages of completion of their
compliance plans, but all have indicated that they expect to be in full year
2000 compliance by or before the end of their 1999 fiscal year.

    In the event that the Company or any of its significant customers or
suppliers does not successfully and timely achieve year 2000 compliance, the
Company's business or operations could be adversely affected.

    CONTINGENCY PLANS

    The Company is currently developing a "Worst Case Contingency Plan", which
will include generally an environment of utilizing "Work Force", "Spreadsheet"
and "Work Around" programming and procedural efforts. This contingency system
will be activated by December 1, 1999, if necessary. The cost of these temporary
measures is estimated between $500 and $1,000.

    The Company's current existing systems are fully capable (except for year
2000 date handling) of processing all present and future transactions of the
business. Accordingly, no major efforts have been delayed or avoided which
affect normal business operations as a result of the incomplete implementation
of the year 2000 IT systems. These current systems will become the foundation of
the Company's contingency system.

FOREIGN OPERATIONS

    The Company's primary foreign operations are conducted through its Canadian
and U.K. subsidiaries. The functional currencies of these subsidiaries are
Canadian dollars and British pounds, respectively. Fluctuations in exchange
rates can impact operating results, including total revenues and expenses, when
translations of the subsidiary financial statements are made in accordance with
SFAS No. 52, "Foreign Currency Translation." For the six months ended May 31,
1999 and 1998, these subsidiaries accounted for 5% and 7% of total revenues,
respectively, and 2% of total assets for each period, respectively. It has not
been the Company's practice to hedge its assets and liabilities in Canada and
the U.K. or its intercompany transactions due to the inherent risks associated
with foreign currency hedging transactions and the timing of payments between
the Company and its two foreign subsidiaries. Historically, gains or losses from
foreign currency transactions have not had a material impact on the Company's
operating results. Losses of $1 and $45 for the six months ended May 31, 1999
and 1998, respectively, resulted from foreign currency transactions.

FORWARD LOOKING STATEMENTS

    The Company may from time to time make written and oral forward looking
statements. Written forward looking statements may appear in documents filed
with the Securities and Exchange Commission,

                                       23
<PAGE>
in press releases and in reports to shareholders. The Private Securities
Litigation Reform Act of 1995 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
obligation to update publicly any forward looking statements whether as a result
of new information, future events or otherwise. The risks, uncertainties and
assumptions regarding forward looking statements 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 or
line extensions; the impact of competitive products, pricing and advertising;
constraints resulting from financial condition of the Company, including the
degree to which the Company is leveraged, debt service requirements and
restrictions under bank loan agreements and indentures; government regulations;
risks of loss of material customers; public perception regarding the Company's
products; dependence on third party manufacturers; environmental matters;
product liability and insurance; year 2000; and other risks described in the
Company's Securities and Exchange Commission filings.

                                       24
<PAGE>
                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

    In February 1999 a complaint was filed against the Company by Genderm
Corporation ("Genderm") in the U.S. District Court for the District of Arizona.
The complaint alleged, among other things, that the formulations of CAPZASIN-P,
CAPZASIN-HP and ICY HOT Arthritis Therapy Gel infringed U.S. Patent 4,485,450
owned by Joel Bernstein, M.D. and licensed to Genderm (the "Patent"). The
complaint requested injunctive relief, compensatory and treble damages, costs
and attorneys fees. A hearing on the preliminary injunction was held on
April 13 - 14, 1999. On May 6, 1999 U.S. District Court for the District of
Arizona held that Genderm had carried its burden of proving a substantial
likelihood of success and ultimately showing that the Patent was infringed and
issued a preliminary injunction prohibiting the Company from shipping CAPZASIN-P
cream, CAPZASIN-HP cream and ICY HOT Arthritis Therapy Gel. Following the
issuance of the preliminary injunction, Chattem reached a settlement with
Genderm pursuant to which Chattem made a single payment of $750 in exchange for
the dismissal of the complaint and a fully paid license to use the Patent until
its expiration. The settlement cost was recorded as a settlement of a
pre-acquisition contingency.

ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

    The annual meeting of shareholders was held on April 14, 1999 in Chattanooga
Tennessee. At the meeting, the following persons were elected as directors to
serve for a three year term: Samuel E. Allen, Philip H. Sanford and A. Alexander
Taylor II. With respect to Mr. Allen, 7,726,016 were in favor and 742,998
abstain. With respect to Mr. Sanford, 7,725,460 were in favor and 743,553
abstain. With respect to Mr. Taylor, 7,725,685 were in favor and 743,328
abstain. The following directors' terms of office continued after the annual
meeting: Zan Guerry, Louis H. Barnett, Robert E. Bosworth, Richard E. Cheney and
Scott L. Probasco, Jr.

    The proposal to increase the number of authorized shares of the Company's
common stock, without par value, to 50,000,000 from 20,000,000 shares was
approved with 7,027,433 votes in favor, 1,436,096 opposed and 5,484 abstaining.

    The 1999 Chattem, Inc. Stock Plan for Non-Employee Directors was approved by
the shareholders with 8,105,915 votes in favor, 301,086 opposed, 26,159
abstaining and 35,853 broker non-votes.

    The shareholders approved Arthur Andersen LLP as auditors for the next
fiscal year with 8,451,149 votes in favor, 4,095 opposed and 3,769 abstaining.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    (a) Exhibits:

        (1) Statement regarding computation of per share earnings, as restated
    (Exhibit 11).

        (2) Financial data schedule, as restated (Exhibit 27).

    (b) No Form 8-K reports were filed with the Securities and Exchange
       Commission during the three months ended May 31, 1999.

                                       25
<PAGE>
                                 CHATTEM, INC.

                                   SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

<TABLE>
<S>                                                   <C>
                                                      CHATTEM, INC.
                                                      (Registrant)

                                                                 /s/ A. ALEXANDER TAYLOR II
                                                      ------------------------------------------------
                                                                   A. Alexander Taylor II
Dated: January 11, 2000                               PRESIDENT AND DIRECTOR (CHIEF OPERATING OFFICER)

                                                                   /s/ STEPHEN M. POWELL
                                                      ------------------------------------------------
                                                                     Stephen M. Powell
                                                                 (CHIEF ACCOUNTING OFFICER)
</TABLE>

                                       26