----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

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**FORM      10-Q**

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**QUARTERLY      REPORT**

**PURSUANT      TO SECTION 13 OR 15(d) OF**

**THE      SECURITIES EXCHANGE ACT OF 1934**

**For      the quarterly period ended May 31, 2006**

**Commission      file number 0-5905**

**CHATTEM,      INC.**

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**A      TENNESSEE CORPORATION**

**I.R.S.      EMPLOYER IDENTIFICATION NO. 62-0156300**

**1715      WEST 38TH STREET**

**CHATTANOOGA,      TENNESSEE 37409**

**TELEPHONE:      423-821-4571**

**Insert        by check mark whether the registrant (1) has filed all reports required to        be        filed by Section 13 or 15(d) for the Securities Exchange Act of 1934 during        the        preceding 12 months (or for such shorter period that the registrant was required        to file such reports), and (2) has been subject to such filing requirements        for        the past 90 days.**

** **
**YES**
**NO**

**Indicate        by check mark whether the registrant is a large accelerated filer, an        accelerated filer, or a non-accelerated filer. See definition of “accelerated        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check        one):**

**Large        accelerated filer **
**               Accelerated filer **
**               Non-accelerated filer **

**Indicate        by check mark whether the registrant is a shell company (as defined in Rule        12b-2 of the Exchange Act).**

** **
**YES**
**NO**

**As        of July 6, 2006,**
**  18,852,338 shares        of the Company’s common stock, without par value, were        outstanding.**

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**CHATTEM,      INC.**

**INDEX**

|                                                                                                                                                                                                       | PAGE                NO. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
| **PART              I.     FINANCIAL              INFORMATION**                                                                                                                   |                    |
|                                                                                                                                                                                                       |                    |
| Item                1.                       Financial Statements                                                                                                       |                    |
|                                                                                                                                                                                                       |                    |
| Condensed                  Consolidated Balance Sheets as of May 31, 2006 and November 30,                  2005                                                                                           | 3                       |
|                                                                                                                                                                                                       |                    |
| Condensed                  Consolidated Statements of Income for the Three and Six Months                  Ended May 31, 2006 and May 31, 2005                                                             | 5                       |
|                                                                                                                                                                                                       |                    |
| Condensed                  Consolidated Statements of Cash Flows for the Three and Six Months                  Ended May 31, 2006 and May 31, 2005                                                         | 6                       |
|                                                                                                                                                                                                       |                    |
| Notes                to Condensed Consolidated Financial Statements                                                                                                                                        | 7                       |
|                                                                                                                                                                                                       |                    |
| Item                  2.                         Management's Discussion and Analysis of Financial Condition and                  Results of Operations                 | 26                      |
|                                                                                                                                                                                                       |                    |
| Item                3.                       Quantitative and Qualitative Disclosures About Market Risk                                                                 | 37                      |
|                                                                                                                                                                                                       |                    |
| Item                4.        Controls                and Procedures                                                                                               | 37                      |
|                                                                                                                                                                                                       |                    |
|                                                                                                                                                                                                       |                    |
|                                                                                                                                                                                                       |                    |
| **PART                II.           OTHER                INFORMATION**                                                                                   |                    |
|                                                                                                                                                                                                       |                    |
| Item                1.                               Legal Proceedings                                                          | 38                      |
|                                                                                                                                                                                                       |                    |
| Item                1A.                            Risk Factors                                                                                | 38                      |
|                                                                                                                                                                                                       |                    |
| Item                2.                               Unregistered Sales of Equity Securities and Use of                Proceeds | 38                      |
|                                                                                                                                                                                                       |                    |
| Item                3.                               Defaults Upon Senior Securities                                            | 38                      |
|                                                                                                                                                                                                       |                    |
| Item                4.                               Submission of Matters to a Vote of Security Holders                        | 38                      |
|                                                                                                                                                                                                       |                    |
| Item                5.                               Other Information                                                          | 38                      |
|                                                                                                                                                                                                       |                    |
| Item                6.                               Exhibits                                                                   | 38                      |
|                                                                                                                                                                                                       |                    |
| **SIGNATURES**                                                                                                                                                                                             | 39                      |
|                                                                                                                                                                                                       |                    |
|                                                                                                                                                                                                       |                    |

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**PART      1.      FINANCIAL INFORMATION**

**Item      1.              Financial Statements**

**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

|  ASSETS                                                                                                                      |   | MAY                31,                       2006                       |    | NOVEMBER                30,                       2005                       |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                              |   | (Unaudited)                                                                                                                         |    |                                                                                                                                          |   |
|                                                                                                                              |   |                                                                                                                                |    |                                                                                                                                          |   |
| CURRENT                ASSETS:                                                                                                    |   |                                                                                                                                |    |                                                                                                                                          |   |
| Cash                and cash equivalents                                                                                          |   | $                                                                                                                                   | 13,352  |                                                                                                                                          | $      | 47,327 |   |
| Accounts                receivable, less allowances of $3,787 at May                31, 2006 and $2,338 at November 30, 2005 |   |                                                                                                                                | 43,375  |                                                                                                                                          |   | 33,672 |   |
| Other                receivables                                                                                                  |   |                                                                                                                                | 280     |                                                                                                                                          |   | 9,600 |   |
| Inventories                                                                                                                       |   |                                                                                                                                | 28,718  |                                                                                                                                          |   | 23,631 |   |
| Refundable                income taxes                                                                                            |   |                                                                                                                                | 1,064   |                                                                                                                                          |   | 1,207 |   |
| Deferred                income taxes                                                                                              |   |                                                                                                                                | 2,296   |                                                                                                                                          |   | 2,478 |   |
| Prepaid                expenses and other current assets                                                                          |   |                                                                                                                                | 3,983   |                                                                                                                                          |   | 5,106 |   |
| Total                current assets                                                                                               |   |                                                                                                                                | 93,068  |                                                                                                                                          |   | 123,021 |   |
|                                                                                                                              |   |                                                                                                                                |    |                                                                                                                                          |   |   |   |
| PROPERTY,                PLANT AND EQUIPMENT, NET                                                                                 |   |                                                                                                                                | 29,803  |                                                                                                                                          |   | 29,884 |   |
|                                                                                                                              |   |                                                                                                                                |    |                                                                                                                                          |   |   |   |
| OTHER                NONCURRENT ASSETS:                                                                                           |   |                                                                                                                                |    |                                                                                                                                          |   |   |   |
| Patents,                trademarks and other purchased product rights, net                                                        |   |                                                                                                                                | 206,268 |                                                                                                                                          |   | 206,387 |   |
| Debt                issuance costs, net                                                                                           |   |                                                                                                                                | 2,773   |                                                                                                                                          |   | 4,297 |   |
| Other                                                                                                                             |   |                                                                                                                                | 5,278   |                                                                                                                                          |   | 4,704 |   |
| Total                other noncurrent assets                                                                                      |   |                                                                                                                                | 214,319 |                                                                                                                                          |   | 215,388 |   |
|                                                                                                                              |   |                                                                                                                                |    |                                                                                                                                          |   |   |   |
| TOTAL                ASSETS                                                                                                       |   | $                                                                                                                                   | 337,190 |                                                                                                                                          | $      | 368,293 |   |
|                                                                                                                              |   |                                                                                                                                |    |                                                                                                                                          |   |   |   |

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**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

|  LIABILITIES                AND SHAREHOLDERS’ EQUITY                                                                                                                      |   | MAY                31,                     2006        |    | NOVEMBER                30,                       2005           |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                 |   | (Unaudited)                                                                                                   |    |                                                                                                                                                  |   |
|                                                                                                                                                                                 |   |                                                                                                          |    |                                                                                                                                                  |   |
| CURRENT                LIABILITIES:                                                                                                                                                  |   |                                                                                                          |    |                                                                                                                                                  |   |
|    Current                maturities of long-term debt                                                                                                                |   | $                                                                                                             | — |                                                                                                                                                  | $      | 37,000 |   |
|    Accounts                payable and other                                                                                                                          |   |                                                                                                          | 18,146  |                                                                                                                                                  |   | 17,238 |   |
|    Accrued                liabilities                                                                                                                                 |   |                                                                                                          | 10,288  |                                                                                                                                                  |   | 16,327 |   |
|     Total                current liabilities                                                                                                                     |   |                                                                                                          | 28,434  |                                                                                                                                                  |   | 70,565 |   |
|                                                                                                                                                                                 |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
| LONG-TERM                DEBT, less current maturities                                                                                                                               |   |                                                                                                          | 145,500 |                                                                                                                                                  |   | 145,500 |   |
|                                                                                                                                                                                 |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
| DEFERRED                INCOME TAXES                                                                                                                                                 |   |                                                                                                          | 29,926  |                                                                                                                                                  |   | 27,736 |   |
|                                                                                                                                                                                 |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
| OTHER                NONCURRENT LIABILITIES                                                                                                                                          |   |                                                                                                          | 1,424   |                                                                                                                                                  |   | 1,865 |   |
|                                                                                                                                                                                 |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
| COMMITMENTS                AND CONTINGENCIES (Note 18)                                                                                                                               |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
|                                                                                                                                                                                 |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
| SHAREHOLDERS’                EQUITY:                                                                                                                                           |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
| Preferred                shares, without par value, authorized 1,000, none                issued                                                                                     |   |                                                                                                          | — |                                                                                                                                                  |   | — |   |
| Common                shares, without par value, authorized 50,000, issued                and outstanding 19,133 at May 31, 2006 and 19,668                at November 30, 2005 |   |                                                                                                          | 47,511  |                                                                                                                                                  |   | 63,876 |   |
| Retained                earnings                                                                                                                                                     |   |                                                                                                          | 85,826  |                                                                                                                                                  |   | 60,853 |   |
|                                                                                                                                                                                      |   |                                                                                                          | 133,337 |                                                                                                                                                  |   | 124,729 |   |
| Unamortized                value of restricted common shares issued                                                                                                                  |   |                                                                                                          | (1,345  | )                                                                                                                                                     |   | (1,818 | ) |
| Cumulative                other comprehensive income, net of tax:                                                                                                                    |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
| Interest                rate cap adjustment                                                                                                                                          |   |                                                                                                          | 104     |                                                                                                                                                  |   | (83 | ) |
| Foreign                currency translation adjustment                                                                                                                               |   |                                                                                                          | (190    | )                                                                                                                                                     |   | (201 | ) |
| Total                shareholders’ equity                                                                                                                                      |   |                                                                                                          | 131,906 |                                                                                                                                                  |   | 122,627 |   |
|                                                                                                                                                                                 |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |
| TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                      |   | $                                                                                                             | 337,190 |                                                                                                                                                  | $      | 368,293 |   |
|                                                                                                                                                                                 |   |                                                                                                          |    |                                                                                                                                                  |   |   |   |

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**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

|                                                               |   | FOR                THE THREE MONTHSENDED                MAY 31, |    | FOR                THE SIX MONTHSENDED                MAY 31, |   |
|--------------------------------------------------------------------|--------|-----------------------------------------------------------------|---------|---------------------------------------------------------------|--------|
|                                                               |   | 2006                                                            |    | 2005                                                          |   | 2006 |   | 2005 |   |
| REVENUES:                                                          |   |                                                            |    |                                                          |   |   |   |   |   |
| Net                sales                                           |   | $                                                               | 79,352  |                                                          | $      | 75,640 |   | $ | 163,329 |   | $ | 147,120 |   |
| Royalties                                                          |   |                                                            | 59      |                                                          |   | 47 |   |   | 106 |   |   | 98 |   |
| Total                revenues                                      |   |                                                            | 79,411  |                                                          |   | 75,687 |   |   | 163,435 |   |   | 147,218 |   |
|                                                               |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| COSTS                AND EXPENSES:                                 |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| Cost                of sales                                       |   |                                                            | 25,054  |                                                          |   | 21,116 |   |   | 51,074 |   |   | 41,376 |   |
| Advertising                and promotion                           |   |                                                            | 24,781  |                                                          |   | 20,731 |   |   | 51,968 |   |   | 41,082 |   |
| Selling,                general and administrative                 |   |                                                            | 11,528  |                                                          |   | 12,335 |   |   | 23,119 |   |   | 24,219 |   |
| Litigation                settlement                               |   |                                                            | 108     |                                                          |   | (5,587 | ) |   | (8,505 | ) |   | (2,832 | ) |
| Total                costs and expenses                            |   |                                                            | 61,471  |                                                          |   | 48,595 |   |   | 117,656 |   |   | 103,845 |   |
|                                                               |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| INCOME                FROM OPERATIONS                              |   |                                                            | 17,940  |                                                          |   | 27,092 |   |   | 45,779 |   |   | 43,373 |   |
|                                                               |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| OTHER                INCOME (EXPENSE):                             |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| Interest                expense                                    |   |                                                            | (2,456  | )                                                             |   | (3,458 | ) |   | (5,300 | ) |   | (6,953 | ) |
| Investment                and other income, net                    |   |                                                            | 234     |                                                          |   | 255 |   |   | 428 |   |   | 402 |   |
| Loss                on early extinguishment of debt                |   |                                                            | — |                                                          |   | (744 | ) |   | (2,805 | ) |   | (744 | ) |
| Total                other income (expense)                        |   |                                                            | (2,222  | )                                                             |   | (3,947 | ) |   | (7,677 | ) |   | (7,295 | ) |
|                                                               |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| INCOME                BEFORE INCOME TAXES                          |   |                                                            | 15,718  |                                                          |   | 23,145 |   |   | 38,102 |   |   | 36,078 |   |
|                                                               |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| PROVISION                FOR INCOME TAXES                          |   |                                                            | 5,518   |                                                          |   | 7,638 |   |   | 13,129 |   |   | 11,906 |   |
|                                                               |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| NET                INCOME                                          |   | $                                                               | 10,200  |                                                          | $      | 15,507 |   | $ | 24,973 |   | $ | 24,172 |   |
|                                                               |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| NUMBER                OF COMMON SHARES:                            |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| Weighted                average outstanding-basic                  |   |                                                            | 19,290  |                                                          |   | 19,595 |   |   | 19,420 |   |   | 19,621 |   |
| Weighted                average and potential dilutive outstanding |   |                                                            | 19,529  |                                                          |   | 20,474 |   |   | 19,705 |   |   | 20,474 |   |
|                                                               |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| NET                INCOME PER COMMON SHARE:                        |   |                                                            |    |                                                          |   |   |   |   |   |   |   |   |   |
| Basic                                                              |   | $                                                               | .53     |                                                          | $      | .79 |   | $ | 1.29 |   | $ | 1.23 |   |
| Diluted                                                            |   | $                                                               | .52     |                                                          | $      | .76 |   | $ | 1.27 |   | $ | 1.18 |   |

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**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                                                                                                     |   | FOR                THE SIX MONTHS ENDED |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                                                                                                     |   | MAY                31, 2006        |    | MAY                31, 2005   |   |
| OPERATING                ACTIVITIES:                                                                                                                     |   |                                    |    |   |   |
| Net                income                                                                                                                                |   | $                                       | 24,973  |   | $ | 24,172 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities:                                          |   |                                    |    |   |   |   |   |
| Depreciation                and amortization                                                                                                             |   |                                    | 2,891   |   |   | 3,107 |   |
| Deferred                income taxes                                                                                                                     |   |                                    | 2,172   |   |   | 6,120 |   |
| Tax                expense from stock option plans                                                                                                       |   |                                    | — |   |   | (2,807 | ) |
| Excess                tax benefit from stock-based compensation                                                                                          |   |                                    | (661    | ) |   | — |   |
| Stock-based                compensation                                                                                                                  |   |                                    | 2,192   |   |   | — |   |
| Loss                on early extinguishment of debt                                                                                                      |   |                                    | 2,805   |   |   | 744 |   |
| Other,                net                                                                                                                                |   |                                    | 112     |   |   | 51 |   |
| Changes                in operating assets and liabilities:                                                                                              |   |                                    |    |   |   |   |   |
| Accounts                receivable                                                                                                                       |   |                                    | (383    | ) |   | (13,428 | ) |
| Inventories                                                                                                                                              |   |                                    | (4,900  | ) |   | (305 | ) |
| Refundable                income taxes                                                                                                                   |   |                                    | 804     |   |   | 4,702 |   |
| Prepaid                expenses and other current assets                                                                                                 |   |                                    | 1,936   |   |   | 1,487 |   |
| Accounts                payable and accrued liabilities                                                                                                  |   |                                    | (3,819  | ) |   | (2,431 | ) |
| Net                cash provided by operating activities                                                                                                 |   |                                    | 28,122  |   |   | 21,412 |   |
|                                                                                                                                                     |   |                                    |    |   |   |   |   |
| INVESTING                ACTIVITIES:                                                                                                                     |   |                                    |    |   |   |   |   |
| Purchases                of property, plant and equipment                                                                                                |   |                                    | (2,091  | ) |   | (1,198 | ) |
| Sales                of patents, trademarks and other product rights                                                                                     |   |                                    | — |   |   | 3,252 |   |
| Increase                in other assets, net                                                                                                             |   |                                    | (1,430  | ) |   | (2,067 | ) |
| Net                cash used in investing activities                                                                                                     |   |                                    | (3,521  | ) |   | (13 | ) |
|                                                                                                                                                     |   |                                    |    |   |   |   |   |
| FINANCING                ACTIVITIES:                                                                                                                     |   |                                    |    |   |   |   |   |
| Repayment                of long-term debt                                                                                                               |   |                                    | (75,000 | ) |   | (17,500 | ) |
| Proceeds                from borrowings under revolving credit facility                                                                                  |   |                                    | 38,000  |   |   | — |   |
| Repayment                of policy loans                                                                                                                 |   |                                    | — |   |   | (1,031 | ) |
| Proceeds                from exercise of stock options                                                                                                   |   |                                    | 658     |   |   | 1,618 |   |
| Repurchase                of common shares                                                                                                               |   |                                    | (21,332 | ) |   | (8,596 | ) |
| Increase                in debt issuance costs                                                                                                           |   |                                    | (15     | ) |   | — |   |
| Retirement                of debt issuance costs                                                                                                         |   |                                    | (1,501  | ) |   | (282 | ) |
| Excess                tax benefit from stock-based compensation                                                                                          |   |                                    | 661     |   |   | — |   |
| Net                cash used in financing activities                                                                                                     |   |                                    | (58,529 | ) |   | (25,791 | ) |
|                                                                                                                                                     |   |                                    |    |   |   |   |   |
| EFFECT                OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                                                              |   |                                    | (47     | ) |   | 16 |   |
|                                                                                                                                                     |   |                                    |    |   |   |   |   |
| CASH                AND CASH EQUIVALENTS:                                                                                                                |   |                                    |    |   |   |   |   |
| Decrease                for the period                                                                                                                   |   |                                    | (33,975 | ) |   | (4,376 | ) |
| At                beginning of period                                                                                                                    |   |                                    | 47,327  |   |   | 40,193 |   |
| At                end of period                                                                                                                          |   | $                                       | 13,352  |   | $ | 35,817 |   |
|                                                                                                                                                     |   |                                    |    |   |   |   |   |
| SCHEDULE                OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                                                                                  |   |                                    |    |   |   |   |   |
| Issuance                of 50 shares of restricted common stock at a value of $35.37 per                share for the six months ended May 31, 2005 |   | $                                       | — |   | $ | 1,768 |   |
|                                                                                                                                                     |   |                                    |    |   |   |   |   |
| PAYMENTS                FOR:                                                                                                                             |   |                                    |    |   |   |   |   |
| Interest                                                                                                                                                 |   | $                                       | 5,933   |   | $ | 6,641 |   |
| Taxes                                                                                                                                                    |   | $                                       | 9,439   |   | $ | 342 |   |

----

**CHATTEM,      INC. AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.    BASIS      OF      PRESENTATION**

**2.    CASH      AND      CASH EQUIVALENTS**

**3.          RECLASSIFICATIONS**

**4.    RECENT      ACCOUNTING PRONOUNCEMENTS**

**5.          STOCK-BASED COMPENSATION**

----

|                                   |   | Six                Months Ended May                31, |                     |
|----------------------------------------|--------|-------------------------------------------------------------|--------------------------|
|                                   |   | 2006                                                        |                     | 2005 |   |
| Expected                life           |   |                                                        | 6.0                years |   |   | 5.0                years |   |
| Volatility                             |   |                                                        | 43                       | % |   | 56 | % |
| Risk-free                interest rate |   |                                                        | 4.48                     | % |   | 3.98 | % |
| Dividend                yield          |   |                                                        | 0                        | % |   | 0 | % |
| Forfeitures                            |   |                                                        | 0.9                      | % |   | 0 | % |

----

|                                            |   | For                the Six Months Ended |   |
|-------------------------------------------------|--------|-----------------------------------------|--------|
|                                            |   |   SharesUnderOption           |   |  Weighted                AverageExercisePrice |   | WeightedAverageRemainingContractual       Life       |   |   AggregateIntrinsicValue |   |
| Outstanding                at December 1, 2005  |   |                                    | 1,753  |   | $ | 23.94 |   |   |   |   |   |   |   |
| Granted                                         |   |                                    | 432    |   |   | 38.01 |   |   |   |   |   |   |   |
|     Exercised               |   |                                    | (66    | ) |   | 10.01 |   |   |   |   |   |   |   |
|     Cancelled               |   |                                    | (81    | ) |   | 31.50 |   |   |   |   |   |   |   |
|                                            |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding                at May 31, 2006 |   |                                    | 2,038  |   | $ | 27.07 |   |   | 6.4                years |   | $ | 20,927 |   |
|                                            |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable                at May 31, 2006 |   |                                    | 1,188  |   | $ | 24.81 |   |   | 6.3                years |   | $ | 15,309 |   |

|                                         |   |  Number                ofShares |    | Weighted                AverageGrant                DateFair Value |   |
|----------------------------------------------|--------|--------------------------------------|---------|-------------------------------------------------------------------------|--------|
| Nonvested                at December 1, 2005 |   |                                 | 75      |                                                                    | $      | 24.27 |   |
| Granted                                      |   |                                 | — |                                                                    |   | — |   |
| Vested                                       |   |                                 | (17     | )                                                                       | $      | 21.13 |   |
| Forfeited                                    |   |                                 | (3      | )                                                                       | $      | 35.37 |   |
| Nonvested                at May 31, 2006     |   |                                 | 55      |                                                                    | $      | 24.76 |   |

----

|                                                          |   | For                theThree                MonthsEndedMay                31, 2005 |   | For                theSix                MonthsEndedMay                31, 2005 |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|
| Net                income :                                   |   |                                                                         |   |                                                                            |   |
| As                reported                                    |   | $                                                                                 | 15,507 |                                                                            | $      | 24,172 |   |
| Fair                value method compensation costs, net |   |                                                                              | (1,464 | )                                                                               |   | (2,732 | ) |
| Pro                forma                                      |   | $                                                                                 | 14,043 |                                                                            | $      | 21,440 |   |
|  Net                income per share, basic:             |   |                                                                              |   |                                                                            |   |   |   |
| As                reported                                    |   | $                                                                                 | .79    |                                                                            | $      | 1.23 |   |
| Pro                forma                                      |   | $                                                                                 | .72    |                                                                            | $      | 1.09 |   |
|  Net                income per share, diluted:           |   |                                                                              |   |                                                                            |   |   |   |
| As                reported                                    |   | $                                                                                 | .76    |                                                                            | $      | 1.18 |   |
| Pro                forma                                      |   | $                                                                                 | .69    |                                                                            | $      | 1.05 |   |

**6.    EARNINGS      PER SHARE**

|                                                                             |   | For                the Three MonthsEnded                May 31, |   | For                the Six MonthsEnded                May 31, |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|---------------------------------------------------------------|--------|
|                                                                             |   | 2006                                                            |   | 2005                                                          |   | 2006 |   | 2005 |   |
|                                                                             |   |                                                            |   |                                                          |   |   |   |   |   |
| NET                INCOME                                                        |   | $                                                               | 10,200 |                                                          | $      | 15,507 |   | $ | 24,973 |   | $ | 24,172 |   |
|                                                                             |   |                                                            |   |                                                          |   |   |   |   |   |   |   |   |   |
| NUMBER                OF COMMON SHARES:                                          |   |                                                            |   |                                                          |   |   |   |   |   |   |   |   |   |
| Weighted                average outstanding                                      |   |                                                            | 19,290 |                                                          |   | 19,595 |   |   | 19,420 |   |   | 19,621 |   |
| Issued                upon assumed exercise of outstanding stock options    |   |                                                            | 203    |                                                          |   | 811 |   |   | 248 |   |   | 793 |   |
| Effect                of issuance of restricted common shares               |   |                                                            | 36     |                                                          |   | 68 |   |   | 37 |   |   | 60 |   |
| Weighted                average and potential dilutive outstanding (1) |   |                                                            | 19,529 |                                                          |   | 20,474 |   |   | 19,705 |   |   | 20,474 |   |
|                                                                             |   |                                                            |   |                                                          |   |   |   |   |   |   |   |   |   |
| NET                INCOME PER COMMON SHARE:                                      |   |                                                            |   |                                                          |   |   |   |   |   |   |   |   |   |
| Basic                                                                            |   | $                                                               | .53    |                                                          | $      | .79 |   | $ | 1.29 |   | $ | 1.23 |   |
| Diluted                                                                          |   | $                                                               | .52    |                                                          | $      | .76 |   | $ | 1.27 |   | $ | 1.18 |   |

----

**7.          ADVERTISING EXPENSES**

**8.    SHIPPING      AND HANDLING**

**9.    PATENT,      TRADEMARKS AND OTHER PURCHASED PRODUCT RIGHTS**

*Selsun*

**10.   INVENTORIES**

|                                             |   | 2006   |   | 2005   |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|
|                                             |   |   |   |   |   |
| Raw                materials and work in process |   | $      | 13,275 |   | $      | 12,388 |   |
| Finished                goods                    |   |   | 15,443 |   |   | 11,243 |   |
| Total                inventories                 |   | $      | 28,718 |   | $      | 23,631 |   |

----

**11.   ACCRUED      LIABILITIES**

|                                                  |   | 2006   |   | 2005   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                  |   |   |   |   |   |
| Interest                                              |   | $      | 2,376  |   | $      | 3,201 |   |
| Salaries,                wages and commissions   |   |   | 2,772  |   |   | 5,991 |   |
| Product                advertising and promotion      |   |   | 1,708  |   |   | 2,589 |   |
| Litigation                settlement and legal fees   |   |   | 1,726  |   |   | 2,212 |   |
| Other                                                 |   |   | 1,706  |   |   | 2,334 |   |
| Total                accrued liabilities              |   | $      | 10,288 |   | $      | 16,327 |   |
|                                                  |   |   |   |   |   |   |   |

**12.   LONG-TERM      DEBT**

|                                                                                                                                                                                                                                               |   | 2006   |    | 2005   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|
| Revolving                Credit Facility due 2010 at a variable rate of 6.07% and 7.00%                as of May 31, 2006 and November 30,                2005, respectively                                                   |   | $      | 38,000  |   | $      | — |   |
| Floating                  Rate Senior Notes due 2010 at a variable rate of 7.41%                  and 6.87% as of                  December 30, 2005 (date redeemed) and November 30, 2005,                  respectively |   |   | — |   |   | 75,000 |   |
| 7.0%                Senior Subordinated Notes due 2014                                                                                                                                                                                             |   |   | 107,500 |   |   | 107,500 |   |

| Total                long-term debt                            |   |   | 145,500 |   |   | 182,500 |   |
|----------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Less:                 current maturities                  |   |   | — |   |   | 37,000  |   |
| Total                long-term debt, net of current maturities |   | $      | 145,500 |   | $      | 145,500 |   |

----

----

| 2007       |   | $      | — |   |
|------------|--------|--------|---------|--------|
| 2008       |   |   | — |   |
| 2009       |   |   | — |   |
| 2010       |   |   | 38,000  |   |
| 2011       |   |   | — |   |
| Thereafter |   |   | 107,500 |   |
|       |   | $      | 145,500 |   |

**13.   COMPREHENSIVE      INCOME**

|                                                           |   | For                the Three Months Ended May                31, |   | For                the Six Months Ended May                31, |   |
|----------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                           |   | 2006                                                                  |   | 2005                                                                |   | 2006 |   | 2005 |   |
|                                                           |   |                                                                  |   |                                                                |   |   |   |   |   |
| Net                income                                      |   | $                                                                     | 10,200 |                                                                | $      | 15,507 |   | $ | 24,973 |   | $ | 24,172 |   |
| Other                - interest rate cap adjustment            |   |                                                                  | 134    |                                                                |   | (168 | ) |   | 187 |   |   | (199 | ) |
| Other                - foreign currency translation adjustment |   |                                                                  | (231   | )                                                                   |   | (112 | ) |   | 11 |   |   | (106 | ) |
| Total                                                          |   | $                                                                     | 10,103 |                                                                | $      | 15,227 |   | $ | 25,171 |   | $ | 23,867 |   |

**14.   STOCK      REPURCHASE**

**15.                **
**RETIREMENT      PLANS AND POSTRETIREMENT HEALTH CARE BENEFITS**

|                                                                     |   | For                the Three Months Ended                May 31, |    | For                the Six Months Ended                May 31, |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|---------------------------------------------------------------------|--------|
|                                                                     |   | 2006                                                                  |    |    2005                               |   |    2006    |   |    2005    |   |
| Service                cost                                              |   | $                                                                     | — |                                                                | $      | — |   | $ | — |   | $ | — |   |
| Interest                cost on projected benefit   obligation |   |                                                                  | 156     |                                                                |   | 155 |   |   | 311 |   |   | 310 |   |
| Actual                return on plan assets                              |   |                                                                  | (226    | )                                                                   |   | (214 | ) |   | (451 | ) |   | (428 | ) |
| Net                amortization and deferral                             |   |                                                                  | — |                                                                |   | 7 |   |   | — |   |   | 14 |   |
| Net                pension cost (benefit)                                |   | $                                                                     | (70     | )                                                                   | $      | (52 | ) | $ | (140 | ) | $ | (104 | ) |

----

|                                                                               |   | For                the Three Months Ended                May 31, |   | For                the Six Months Ended                May 31, |   |
|------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                                               |   | 2006                                                             |   | 2005                                                                |   | 2006 |   | 2005 |   |
| Service                cost                                                        |   | $                                                                | 20     |                                                                | $      | 18 |   | $ | 40 |   | $ | 36 |   |
| Interest                cost on accumulated postretirement benefit obligation |   |                                                             | 22     |                                                                |   | 21 |   |   | 44 |   |   | 42 |   |
| Amortization                of prior service cost                                  |   |                                                             | 4      |                                                                |   | 4 |   |   | 8 |   |   | 8 |   |
| Amortization                of net gain                                            |   |                                                             | (4     | )                                                                   |   | (4 | ) |   | (8 | ) |   | (8 | ) |
| Curtailment                gain                                                    |   |                                                             | (496   | )                                                                   |   | — |   |   | (496 | ) |   | — |   |
| Net                periodic postretirement benefits cost   (benefit)     |   | $                                                                | (454   | )                                                                   | $      | 39 |   | $ | (412 | ) | $ | 78 |   |

**16.   **
**INCOME      TAXES**

**17.   **
**PRODUCT      SEGMENT INFORMATION**

----

|                                                            |   | For                the Three MonthsEnded                May 31, |   | For                the Six MonthsEnded                May 31, |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|---------------------------------------------------------------|--------|
|                                                            |   | 2006                                                            |   | 2005                                                          |   | 2006 |   | 2005 |   |
| Topical                pain care products                  |   | $                                                               | 28,397 |                                                          | $      | 25,044 |   | $ | 60,838 |   | $ | 46,452 |   |
| Medicated                skin care products                     |   |                                                            | 15,389 |                                                          |   | 15,833 |   |   | 32,280 |   |   | 33,457 |   |
| Dietary                supplements                              |   |                                                            | 8,909  |                                                          |   | 10,280 |   |   | 17,762 |   |   | 18,940 |   |
| Medicated                dandruff shampoos and conditioner |   |                                                            | 8,461  |                                                          |   | 7,888 |   |   | 20,278 |   |   | 17,688 |   |
| Other                OTC and toiletry products                  |   |                                                            | 10,997 |                                                          |   | 9,639 |   |   | 19,438 |   |   | 17,716 |   |
|   Total                                               |   | $                                                               | 72,153 |                                                          | $      | 68,684 |   | $ | 150,596 |   | $ | 134,253 |   |

**18.   **
**COMMITMENTS      AND CONTINGENCIES**

*Dexatrim*
*In      Re      Phenylpropanolamine (“PPA”) Products Liability Litigation, MDL No.      1407*

*Dexatrim*
*Dexatrim*

*Dexatrim*
*Dexatrim*
*Dexatrim*

*Dexatrim*
*Dexatrim*
*Dexatrim      *

*Dexatrim*
*Dexatrim*
*Dexatrim*

----

*Dexatrim*
*Dexatrim*
*Dexatrim*

*Dexatrim*
*Dexatrim*
*Dexatrim*

*Dexatrim*
*Dexatrim*

*Bullfrog*
*Bullfrog*
*Bullfrog*

*Dexatrim*
*Dexatrim*

*New      Phase*
**.      **

----

**REGULATORY**

*Dexatrim*
*Dexatrim*

*Sportscreme*
*Aspercreme.*
*Sportscreme*
*Aspercreme*
*Sportscreme*
*Aspercreme*

*Icy      Hot*
*Icy      Hot*
*Icy      Hot Pro-Therapy*
*Capzasin*
*Icy      Hot*
*Aspercreme      *
*Icy      Hot*
*Icy      Hot Pro-Therapy*
*Capzasin*

*Pamprin*
*Prēmsyn      PMS*

----

*Pamprin*
*Prēmsyn      PMS,*
*Pamprin*

*Pamprin      All Day *
*Pamprin      All Day*
*Pamprin*
*Prēmsyn      PMS*

*Bullfrog*

*Bullfrog*

**19.   **
**CONDENSED      CONSOLIDATING FINANCIAL STATEMENTS**

----

**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATING BALANCE SHEETS**

|                ASSETS                                                                                                 |   |   CHATTEM |    | GUARANTORSUBSIDIARYCOMPANIES |   | NON-GUARANTORSUBSIDIARYCOMPANIES |   |   ELIMINATIONS |    |   CONSOLIDATED |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------------|--------|----------------------------------|--------|--------------------------|---------|--------------------------|--------|
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |
| CURRENT                ASSETS:                                                                                             |   |                |    |                         |   |                             |   |                     |    |                     |   |
| Cash                and cash equivalents                                                                                   |   | $                   | 1,458   |                         | $      | 2,002                            |   | $                        | 9,892   |                     | $      | — |   | $ | 13,352 |   |
| Accounts                receivable, less allowances of $3,787                                                         |   |                | 38,376  |                         |   | 11,770                           |   |                     | 4,999   |                     |   | (11,770 | ) |   | 43,375 |   |
| Other                receivables                                                                                           |   |                | 280     |                         |   | —                          |   |                     | — |                     |   | — |   |   | 280 |   |
| Interest                receivable                                                                                         |   |                | 17      |                         |   | 625                              |   |                     | — |                     |   | (642 | ) |   | — |   |
| Inventories                                                                                                                |   |                | 22,639  |                         |   | 2,687                            |   |                     | 3,392   |                     |   | — |   |   | 28,718 |   |
| Refundable                income taxes                                                                                     |   |                | 1,064   |                         |   | —                          |   |                     | — |                     |   | — |   |   | 1,064 |   |
| Deferred                income taxes                                                                                       |   |                | 2,261   |                         |   | —                          |   |                     | 35      |                     |   | — |   |   | 2,296 |   |
| Prepaid                expenses and other current assets                                                                   |   |                | 1,868   |                         |   | —                          |   |                     | 2,145   |                     |   | (30 | ) |   | 3,983 |   |
| Total                current assets                                                                                        |   |                | 67,963  |                         |   | 17,084                           |   |                     | 20,463  |                     |   | (12,442 | ) |   | 93,068 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| PROPERTY,                PLANT AND EQUIPMENT, NET                                                                          |   |                | 28,477  |                         |   | 775                              |   |                     | 551     |                     |   | — |   |   | 29,803 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| OTHER                NONCURRENT ASSETS:                                                                                    |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| Patents,                trademarks and other purchased product rights, net                                            |   |                | 285     |                         |   | 268,273                          |   |                     | — |                     |   | (62,290 | ) |   | 206,268 |   |
| Debt                issuance costs, net                                                                                    |   |                | 2,773   |                         |   | —                          |   |                     | — |                     |   | — |   |   | 2,773 |   |
| Investment                in subsidiaries                                                                                  |   |                | 296,593 |                         |   | 33,000                           |   |                     | 66,860  |                     |   | (396,453 | ) |   | — |   |
| Note                receivable                                                                                             |   |                | — |                         |   | 33,000                           |   |                     | — |                     |   | (33,000 | ) |   | — |   |
| Other                                                                                                                      |   |                | 5,278   |                         |   | —                          |   |                     | — |                     |   | — |   |   | 5,278 |   |
| Total                other noncurrent assets                                                                               |   |                | 304,929 |                         |   | 334,273                          |   |                     | 66,860  |                     |   | (491,743 | ) |   | 214,319 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| TOTAL                ASSETS                                                                                                |   | $                   | 401,369 |                         | $      | 352,132                          |   | $                        | 87,874  |                     | $      | (504,185 | ) | $ | 337,190 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| LIABILITIES                AND SHAREHOLDERS’ EQUITY                                                                  |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| CURRENT                LIABILITIES:                                                                                        |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| Current                maturities of long-term debt                                                                        |   | $                   | — |                         | $      | —                          |   | $                        | — |                     | $      | — |   | $ | — |   |
| Accounts                payable and other                                                                                  |   |                | 15,288  |                         |   | —                          |   |                     | 2,858   |                     |   | — |   |   | 18,146 |   |
| Accrued                liabilities                                                                                         |   |                | 17,577  |                         |   | 1,480                            |   |                     | 3,673   |                     |   | (12,442 | ) |   | 10,288 |   |
| Total                current liabilities                                                                                   |   |                | 32,865  |                         |   | 1,480                            |   |                     | 6,531   |                     |   | (12,442 | ) |   | 28,434 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| LONG-TERM                DEBT, less current maturities                                                                     |   |                | 145,500 |                         |   | —                          |   |                     | 33,000  |                     |   | (33,000 | ) |   | 145,500 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| DEFERRED                INCOME TAXES                                                                                       |   |                | (1,696  | )                            |   | 31,622                           |   |                     | — |                     |   | — |   |   | 29,926 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| OTHER                NONCURRENT LIABILITIES                                                                                |   |                | 1,424   |                         |   | —                          |   |                     | — |                     |   | — |   |   | 1,424 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| INTERCOMPANY                ACCOUNTS                                                                                       |   |                | 91,368  |                         |   | (96,169                          | )      |                     | 4,801   |                     |   | — |   |   | — |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| SHAREHOLDERS’                EQUITY:                                                                                 |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| Preferred                shares, without par value, authorized 1,000, none                issued                      |   |                | — |                         |   | —                          |   |                     | — |                     |   | — |   |   | — |   |
| Common                shares, without par value, authorized 50,000, issued and                outstanding 19,133 |   |                | 47,511  |                         |   | —                          |   |                     | — |                     |   | — |   |   | 47,511 |   |
| Shares                of subsidiaries                                                                                      |   |                | — |                         |   | 329,705                          |   |                     | 39,803  |                     |   | (369,508 | ) |   | — |   |
| Retained                earnings                                                                                           |   |                | 85,826  |                         |   | 85,494                           |   |                     | 3,408   |                     |   | (88,902 | ) |   | 85,826 |   |
| Total                                                                                                                      |   |                | 133,337 |                         |   | 415,199                          |   |                     | 43,211  |                     |   | (458,410 | ) |   | 133,337 |   |
| Unamortized                value of restricted common shares issued                                                   |   |                | (1,345  | )                            |   | —                          |   |                     | — |                     |   | — |   |   | (1,345 | ) |
| Cumulative                other comprehensive income, net of tax:                                                     |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| Interest                rate cap adjustment                                                                                |   |                | 104     |                         |   | —                          |   |                     | — |                     |   | — |   |   | 104 |   |
| Foreign                currency translation adjustment                                                                     |   |                | (188    | )                            |   | —                          |   |                     | 331     |                     |   | (333 | ) |   | (190 | ) |
| Total                shareholders’ equity                                                                            |   |                | 131,908 |                         |   | 415,199                          |   |                     | 43,542  |                     |   | (458,743 | ) |   | 131,906 |   |
|                                                                                                                       |   |                |    |                         |   |                             |   |                     |    |                     |   |   |   |   |   |   |
| TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY                                                       |   | $                   | 401,369 |                         | $      | 352,132                          |   | $                        | 87,874  |                     | $      | (504,185 | ) | $ | 337,190 |   |

----

**CHATTEM,      INC. AND SUBSIDIARIES**

**CONSOLIDATING      BALANCE SHEETS**

| ASSETS                                                                                                                |   | CHATTEM |    | GUARANTORSUBSIDIARYCOMPANIES |   | NON-GUARANTORSUBSIDIARYCOMPANIES |   | ELIMINATIONS |    | CONSOLIDATED |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|---------|---------|------------------------------|--------|----------------------------------|--------|--------------|---------|--------------|--------|
| CURRENT                ASSETS:                                                                                        |   |    |    |                         |   |                             |   |         |    |         |   |
| Cash                and cash equivalents                                                                              |   | $       | 36,647  |                         | $      | 1,982                            |   | $            | 8,698   |         | $      | — |   | $ | 47,327 |   |
| Accounts                receivable, less allowances of $2,338                                                         |   |    | 29,220  |                         |   | 11,181                           |   |         | 4,452   |         |   | (11,181 | ) |   | 33,672 |   |
| Other                receivables                                                                                      |   |    | 9,600   |                         |   | —                          |   |         | — |         |   | — |   |   | 9,600 |   |
| Interest                receivable                                                                                    |   |    | 17      |                         |   | 625                              |   |         | — |         |   | (642 | ) |   | — |   |
| Inventories                                                                                                           |   |    | 18,192  |                         |   | 2,429                            |   |         | 3,010   |         |   | — |   |   | 23,631 |   |
| Refundable                income taxes                                                                                |   |    | 1,207   |                         |   | —                          |   |         | — |         |   | — |   |   | 1,207 |   |
| Deferred                income taxes                                                                                  |   |    | 2,478   |                         |   | —                          |   |         | — |         |   | — |   |   | 2,478 |   |
| Prepaid                expenses and other current assets                                                              |   |    | 4,241   |                         |   | —                          |   |         | 1,285   |         |   | (420 | ) |   | 5,106 |   |
| Total                current assets                                                                                   |   |    | 101,602 |                         |   | 16,217                           |   |         | 17,445  |         |   | (12,243 | ) |   | 123,021 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| PROPERTY,                PLANT AND EQUIPMENT, NET                                                                     |   |    | 28,567  |                         |   | 775                              |   |         | 542     |         |   | — |   |   | 29,884 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| OTHER                NONCURRENT ASSETS:                                                                               |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| Patents,                trademarks and other purchased product rights, net                                       |   |    | 404     |                         |   | 268,273                          |   |         | — |         |   | (62,290 | ) |   | 206,387 |   |
| Debt                issuance costs, net                                                                               |   |    | 4,297   |                         |   | —                          |   |         | — |         |   | — |   |   | 4,297 |   |
| Investment                in subsidiaries                                                                             |   |    | 276,987 |                         |   | 33,000                           |   |         | 66,860  |         |   | (376,847 | ) |   | — |   |
| Note                receivable                                                                                        |   |    | — |                         |   | 33,000                           |   |         | — |         |   | (33,000 | ) |   | — |   |
| Other                                                                                                                 |   |    | 4,704   |                         |   | —                          |   |         | — |         |   | — |   |   | 4,704 |   |
| Total                other noncurrent assets                                                                          |   |    | 286,392 |                         |   | 334,273                          |   |         | 66,860  |         |   | (472,137 | ) |   | 215,388 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| TOTAL                ASSETS                                                                                           |   | $       | 416,561 |                         | $      | 351,265                          |   | $            | 84,847  |         | $      | (484,380 | ) | $ | 368,293 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| LIABILITIES                AND SHAREHOLDERS’ EQUITY                                                             |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| CURRENT                LIABILITIES:                                                                                   |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| Current                maturities of long-term debt                                                                   |   | $       | 37,000  |                         | $      | —                          |   | $            | — |         | $      | — |   | $ | 37,000 |   |
| Accounts                payable and other                                                                             |   |    | 14,841  |                         |   | —                          |   |         | 2,397   |         |   | — |   |   | 17,238 |   |
| Accrued                liabilities                                                                                    |   |    | 21,432  |                         |   | 969                              |   |         | 6,169   |         |   | (12,243 | ) |   | 16,327 |   |
| Total                current liabilities                                                                              |   |    | 73,273  |                         |   | 969                              |   |         | 8,566   |         |   | (12,243 | ) |   | 70,565 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| LONG-TERM                DEBT, less current maturities                                                                |   |    | 145,500 |                         |   | —                          |   |         | 33,000  |         |   | (33,000 | ) |   | 145,500 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| DEFERRED                INCOME TAXES                                                                                  |   |    | (795    | )                            |   | 28,531                           |   |         | — |         |   | — |   |   | 27,736 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| OTHER                NONCURRENT LIABILITIES                                                                           |   |    | 1,865   |                         |   | —                          |   |         | — |         |   | — |   |   | 1,865 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| INTERCOMPANY                ACCOUNTS                                                                                  |   |    | 74,088  |                         |   | (75,941                          | )      |         | 1,853   |         |   | — |   |   | — |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| SHAREHOLDERS’                EQUITY:                                                                            |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
| Preferred                shares, without par value, authorized 1,000, none                issued                 |   |    | — |                         |   | —                          |   |         | — |         |   | — |   |   | — |   |
| Common                shares, without par value, authorized 50,000, issued and outstanding                19,668 |   |    | 63,876  |                         |   | —                          |   |         | — |         |   | — |   |   | 63,876 |   |
| Share                capital of subsidiaries                                                                          |   |    | — |                         |   | 329,705                          |   |         | 39,803  |         |   | (369,508 | ) |   | — |   |
| Retained                earnings                                                                                      |   |    | 60,853  |                         |   | 68,001                           |   |         | 1,582   |         |   | (69,583 | ) |   | 60,853 |   |
| Total                                                                                                                 |   |    | 124,729 |                         |   | 397,706                          |   |         | 41,385  |         |   | (439,091 | ) |   | 124,729 |   |
| Unamortized                value of restricted common shares issued                                              |   |    | (1,818  | )                            |   | —                          |   |         | — |         |   | — |   |   | (1,818 | ) |
| Cumulative                other comprehensive income, net of tax:                                                     |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
|                    Interest rate cap adjustment                                                        |   |    | (83     | )                            |   | —                          |   |         | — |         |   | — |   |   | (83 | ) |
|     Foreign                currency translation adjustment                                        |   |    | (198    | )                            |   | —                          |   |         | 43      |         |   | (46 | ) |   | (201 | ) |
|     Total                shareholders’ equity                                               |   |    | 122,630 |                         |   | 397,706                          |   |         | 41,428  |         |   | (439,137 | ) |   | 122,627 |   |
|                                                                                                                  |   |    |    |                         |   |                             |   |         |    |         |   |   |   |   |   |   |
|        TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY             |   | $       | 416,561 |                         | $      | 351,265                          |   | $            | 84,847  |         | $      | (484,380 | ) | $ | 368,293 |   |

----

**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATING STATEMENTS OF INCOME**

|                                                |   |    CHATTEM |    |  GUARANTORSUBSIDIARYCOMPANIES |   |  NON-GUARANTORSUBSIDIARYCOMPANIES |   |    ELIMINATIONS |    |    CONSOLIDATED |   |
|-----------------------------------------------------|--------|---------------------------|---------|------------------------------------|--------|----------------------------------------|--------|--------------------------------|---------|--------------------------------|--------|
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |
| TOTAL                REVENUES                       |   | $                         | 136,865 |                               | $      | 42,143                                 |   | $                              | 10,143  |                           | $      | (25,716 | ) | $ | 163,435 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| COSTS                AND EXPENSES:                  |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| Cost                of sales                        |   |                      | 42,951  |                               |   | 5,064                                  |   |                           | 4,501   |                           |   | (1,442 | ) |   | 51,074 |   |
| Advertising                and promotion            |   |                      | 44,124  |                               |   | 5,328                                  |   |                           | 2,516   |                           |   | — |   |   | 51,968 |   |
| Selling,                general and administrative  |   |                      | 22,795  |                               |   | (146                                   | )      |                           | 470     |                           |   | — |   |   | 23,119 |   |
| Litigation                settlement                |   |                      | (8,505  | )                                  |   | —                                |   |                           | — |                           |   | — |   |   | (8,505 | ) |
| Equity                in subsidiary income          |   |                      | (19,319 | )                                  |   | —                                |   |                           | — |                           |   | 19,319 |   |   | — |   |
| Total                costs and expenses             |   |                      | 82,046  |                               |   | 10,246                                 |   |                           | 7,487   |                           |   | 17,877 |   |   | 117,656 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| INCOME                FROM OPERATIONS               |   |                      | 54,819  |                               |   | 31,897                                 |   |                           | 2,656   |                           |   | (43,593 | ) |   | 45,779 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| OTHER                INCOME (EXPENSE):              |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| Interest                expense                     |   |                      | (5,310  | )                                  |   | —                                |   |                           | (1,228  | )                              |   | 1,238 |   |   | (5,300 | ) |
| Investment                and other income, net     |   |                      | 265     |                               |   | 1,261                                  |   |                           | 1,389   |                           |   | (2,487 | ) |   | 428 |   |
| Loss                on early extinguishment of debt |   |                      | (2,805  | )                                  |   | —                                |   |                           | — |                           |   | — |   |   | (2,805 | ) |
| Royalties                                           |   |                      | (21,388 | )                                  |   | (2,886                                 | )      |                           | — |                           |   | 24,274 |   |   | — |   |
| Corporate                allocations                |   |                      | 1,682   |                               |   | (1,652                                 | )      |                           | (30     | )                              |   | — |   |   | — |   |
| Total                other income (expense)         |   |                      | (27,556 | )                                  |   | (3,277                                 | )      |                           | 131     |                           |   | 23,025 |   |   | (7,677 | ) |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| INCOME                BEFORE INCOME TAXES      |   |                      | 27,263  |                               |   | 28,620                                 |   |                           | 2,787   |                           |   | (20,568 | ) |   | 38,102 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| PROVISION                FOR INCOME TAXES      |   |                      | 2,290   |                               |   | 9,877                                  |   |                           | 962     |                           |   | — |   |   | 13,129 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| NET                INCOME                           |   | $                         | 24,973  |                               | $      | 18,743                                 |   | $                              | 1,825   |                           | $      | (20,568 | ) | $ | 24,973 |   |

----

**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATING STATEMENTS OF INCOME**

|                                                |   |    CHATTEM |    |  GUARANTORSUBSIDIARYCOMPANIES |   |  NON-GUARANTORSUBSIDIARYCOMPANIES |   |    ELIMINATIONS |    |    CONSOLIDATED |   |
|-----------------------------------------------------|--------|---------------------------|---------|------------------------------------|--------|----------------------------------------|--------|--------------------------------|---------|--------------------------------|--------|
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |
| TOTAL                REVENUES                       |   | $                         | 119,374 |                               | $      | 40,447                                 |   | $                              | 10,372  |                           | $      | (22,975 | ) | $ | 147,218 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| COSTS                AND EXPENSES:                  |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| Cost                of sales                        |   |                      | 33,290  |                               |   | 4,964                                  |   |                           | 4,687   |                           |   | (1,565 | ) |   | 41,376 |   |
| Advertising                and promotion            |   |                      | 31,881  |                               |   | 7,009                                  |   |                           | 2,192   |                           |   | — |   |   | 41,082 |   |
| Selling,                general and administrative  |   |                      | 23,311  |                               |   | 193                                    |   |                           | 715     |                           |   | — |   |   | 24,219 |   |
| Litigation                settlement                |   |                      | (4,908  | )                                  |   | —                                |   |                           | 2,076   |                           |   | — |   |   | (2,832 | ) |
| Equity                in subsidiary income          |   |                      | (15,878 | )                                  |   | —                                |   |                           | — |                           |   | 15,878 |   |   | — |   |
| Total                costs and expenses             |   |                      | 67,696  |                               |   | 12,166                                 |   |                           | 9,670   |                           |   | 14,313 |   |   | 103,845 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| INCOME                FROM OPERATIONS               |   |                      | 51,678  |                               |   | 28,281                                 |   |                           | 702     |                           |   | (37,288 | ) |   | 43,373 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| OTHER                INCOME (EXPENSE):              |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| Interest                expense                     |   |                      | (6,953  | )                                  |   | —                                |   |                           | (1,255  | )                              |   | 1,255 |   |   | (6,953 | ) |
| Investment                and other income, net     |   |                      | 324     |                               |   | 1,248                                  |   |                           | 1,335   |                           |   | (2,505 | ) |   | 402 |   |
| Loss                on early extinguishment of debt |   |                      | (744    | )                                  |   | —                                |   |                           | — |                           |   | — |   |   | (744 | ) |
| Royalties                                           |   |                      | (18,385 | )                                  |   | (3,025                                 | )      |                           | — |                           |   | 21,410 |   |   | — |   |
| Corporate                allocations                |   |                      | 1,722   |                               |   | (1,690                                 | )      |                           | (32     | )                              |   | — |   |   | — |   |
| Total                other income (expense)         |   |                      | (24,036 | )                                  |   | (3,467                                 | )      |                           | 48      |                           |   | 20,160 |   |   | (7,295 | ) |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| INCOME                BEFORE INCOME TAXES      |   |                      | 27,642  |                               |   | 24,814                                 |   |                           | 750     |                           |   | (17,128 | ) |   | 36,078 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| PROVISION                FOR INCOME TAXES      |   |                      | 3,470   |                               |   | 8,189                                  |   |                           | 247     |                           |   | — |   |   | 11,906 |   |
|                                                |   |                      |    |                               |   |                                   |   |                           |    |                           |   |   |   |   |   |   |
| NET                INCOME                           |   | $                         | 24,172  |                               | $      | 16,625                                 |   | $                              | 503     |                           | $      | (17,128 | ) | $ | 24,172 |   |

----

**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATING STATEMENTS OF CASH FLOWS**

|                                                                                                                      |   |    CHATTEM |    |  GUARANTORSUBSIDIARYCOMPANIES |   |  NON-GUARANTOR                     SUBSIDIARY                       COMPANIES    |   |    ELIMINATIONS |    |    CONSOLIDATED |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|--------------------------------|--------|
|                                                                                                                      |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |
| OPERATING                ACTIVITIES:                                                                                      |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |
| Net                income                                                                                                 |   | $                         | 24,973  |                               | $      | 18,743                                                                                                                                                           |   | $                              | 1,825   |                           | $      | (20,568 | ) | $ | 24,973 |   |
| Adjustments                to reconcile net income to net cash provided                by (used in) operating activities: |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| Depreciation                and amortization                                                                              |   |                      | 2,702   |                               |   | —                                                                                                                                                          |   |                           | 189     |                           |   | — |   |   | 2,891 |   |
| Deferred                income taxes                                                                                      |   |                      | (884    | )                                  |   | 3,091                                                                                                                                                            |   |                           | (35     | )                              |   | — |   |   | 2,172 |   |
| Excess                tax benefit from stock-based compensation                                                           |   |                      | (661    | )                                  |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (661 | ) |
| Stock-based                compensation                                                                                   |   |                      | 2,192   |                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 2,192 |   |
| Loss                on early extinguishment of debt                                                                       |   |                      | 2,805   |                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 2,805 |   |
| Other,                net                                                                                                 |   |                      | 65      |                               |   | —                                                                                                                                                          |   |                           | 47      |                           |   | — |   |   | 112 |   |
| Equity                in subsidiary income                                                                                |   |                      | (20,568 | )                                  |   | —                                                                                                                                                          |   |                           | — |                           |   | 20,568 |   |   | — |   |
| Changes                in operating assets and liabilities:                                                               |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| Accounts                receivable                                                                                        |   |                      | 164     |                               |   | (588                                                                                                                                                             | )      |                           | (547    | )                              |   | 588 |   |   | (383 | ) |
| Inventories                                                                                                               |   |                      | (4,260  | )                                  |   | (257                                                                                                                                                             | )      |                           | (383    | )                              |   | — |   |   | (4,900 | ) |
| Refundable                income taxes                                                                                    |   |                      | 804     |                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 804 |   |
| Prepaid                expenses and other current assets                                                                  |   |                      | 2,372   |                               |   | —                                                                                                                                                          |   |                           | (46     | )                              |   | (390 | ) |   | 1,936 |   |
| Accounts                payable and accrued liabilities                                                                   |   |                      | (2,096  | )                                  |   | 510                                                                                                                                                              |   |                           | (2,035  | )                              |   | (198 | ) |   | (3,819 | ) |
| Net                cash provided by (used in) operating activities                                                        |   |                      | 7,608   |                               |   | 21,499                                                                                                                                                           |   |                           | (985    | )                              |   | — |   |   | 28,122 |   |
|                                                                                                                      |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |  |   |   |   |   |
| INVESTING                ACTIVITIES:                                                                                      |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| Purchases                of property, plant and equipment                                                                 |   |                      | (1,893  | )                                  |   | —                                                                                                                                                          |   |                           | (198    | )                              |   | — |   |   | (2,091 | ) |
| Increase                in other assets, net                                                                              |   |                      | (905    | )                                  |   | —                                                                                                                                                          |   |                           | (525    | )                              |   | — |   |   | (1,430 | ) |
| Net                cash used in investing activities                                                                 |   |                      | (2,798  | )                                  |   | —                                                                                                                                                          |   |                           | (723    | )                              |   | — |   |   | (3,521 | ) |
|                                                                                                                      |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| FINANCING                ACTIVITIES:                                                                                      |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| Repayment                of long-term debt                                                                                |   |                      | (75,000 | )                                  |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (75,000 | ) |
| Proceeds                from borrowings under revolving credit facility                                                   |   |                      | 38,000  |                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 38,000 |   |
| Proceeds                from exercise of stock options                                                                    |   |                      | 658     |                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 658 |   |
| Repurchase                of common shares                                                                                |   |                      | (21,332 | )                                  |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (21,332 | ) |
| Increase                in debt issuance costs                                                                            |   |                      | (15     | )                                  |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (15 | ) |
| Retirement                of debt issuance costs                                                                          |   |                      | (1,501  | )                                  |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (1,501 | ) |
| Excess                tax benefit from stock-based compensation                                                           |   |                      | 661     |                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 661 |   |
| Changes                in intercompany accounts                                                                           |   |                      | 18,530  |                               |   | (20,229                                                                                                                                                          | )      |                           | 1,699   |                           |   | — |   |   | — |   |
| Dividends                paid                                                                                             |   |                      | — |                               |   | (1,250                                                                                                                                                           | )      |                           | 1,250   |                           |   | — |   |   | — |   |
| Net                cash (used in) provided by financing activities                                                        |   |                      | 39,999  |                               |   | (21,479                                                                                                                                                          | )      |                           | 2,949   |                           |   | — |   |   | (58,529 | ) |
|                                                                                                                      |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| EFFECT                OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                          |   |                      | — |                               |   | —                                                                                                                                                          |   |                           | (47     | )                              |   | — |   |   | (47 | ) |
|                                                                                                                      |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| CASH                AND CASH EQUIVALENTS:                                                                                 |   |                      |    |                               |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| (Decrease)                increase for the period                                                                         |   |                      | (35,189 | )                                  |   | 20                                                                                                                                                               |   |                           | 1,194   |                           |   | — |   |   | (33,975 | ) |
| At                beginning of period                                                                                     |   |                      | 36,647  |                               |   | 1,982                                                                                                                                                            |   |                           | 8,698   |                           |   | — |   |   | 47,327 |   |
| At                end of period                                                                                           |   | $                         | 1,458   |                               | $      | 2,002                                                                                                                                                            |   | $                              | 9,892   |                           | $      | — |   | $ | 13,352 |   |

----

**CHATTEM,      INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATING STATEMENTS OF CASH FLOWS**

|                                                                                                                      |   |    CHATTEM |    |  GUARANTOR                SUBSIDIARY  COMPANIES  |   |  NON-GUARANTOR                     SUBSIDIARY                       COMPANIES    |   |    ELIMINATIONS |    |    CONSOLIDATED |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|-----------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|--------------------------------|--------|
|                                                                                                                      |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |
| OPERATING                ACTIVITIES:                                                                                      |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |
| Net                income                                                                                                 |   | $                         | 24,172  |                                                            | $      | 16,625                                                                                                                                                           |   | $                              | 503     |                           | $      | (17,128 | ) | $ | 24,172 |   |
| Adjustments                to reconcile net income to net cash provided                by (used in) operating activities: |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| Depreciation                and amortization                                                                              |   |                      | 3,075   |                                                            |   | —                                                                                                                                                          |   |                           | 32      |                           |   | — |   |   | 3,107 |   |
| Deferred                income taxes                                                                                      |   |                      | 3,163   |                                                            |   | 2,957                                                                                                                                                            |   |                           | — |                           |   | — |   |   | 6,120 |   |
| Tax                (expense) benefit realized from stock option plans                                                     |   |                      | (2,807  | )                                                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (2,807 | ) |
| Loss                on early extinguishment of debt                                                                       |   |                      | 744     |                                                            |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 744 |   |
| Other,                net                                                                                                 |   |                      | 67      |                                                            |   | —                                                                                                                                                          |   |                           | (16     | )                              |   | — |   |   | 51 |   |
| Equity                in subsidiary income                                                                                |   |                      | (17,128 | )                                                               |   | —                                                                                                                                                          |   |                           | — |                           |   | 17,128 |   |   | — |   |
| Changes                in operating assets and liabilities:                                                               |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| Accounts                receivable                                                                                        |   |                      | (15,239 | )                                                               |   | (9,533                                                                                                                                                           | )      |                           | (1,328  | )                              |   | 12,672 |   |   | (13,428 | ) |
| Interest                receivable                                                                                        |   |                      | (17     | )                                                               |   | (619                                                                                                                                                             | )      |                           | — |                           |   | 636 |   |   | — |   |
| Inventories                                                                                                               |   |                      | (660    | )                                                               |   | 927                                                                                                                                                              |   |                           | (572    | )                              |   | — |   |   | (305 | ) |
| Refundable                income taxes                                                                                    |   |                      | 4,702   |                                                            |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 4,702 |   |
| Prepaid                expenses and other current assets                                                                  |   |                      | 1,545   |                                                            |   | —                                                                                                                                                          |   |                           | (58     | )                              |   | — |   |   | 1,487 |   |
| Accounts                payable and accrued liabilities                                                                   |   |                      | 8,126   |                                                            |   | 1,919                                                                                                                                                            |   |                           | 832     |                           |   | (13,308 | ) |   | (2,431 | ) |
| Net                cash provided by (used in) operating activities                                                        |   |                      | 9,743   |                                                            |   | 12,276                                                                                                                                                           |   |                           | (607    | )                              |   | — |   |   | 21,412 |   |
|                                                                                                                      |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |  |   |   |   |   |
| INVESTING                ACTIVITIES:                                                                                      |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| Purchases                of property, plant and equipment                                                                 |   |                      | (1,188  | )                                                               |   | —                                                                                                                                                          |   |                           | (10     | )                              |   | — |   |   | (1,198 | ) |
| Sales                of patents, trademarks and other product rights                                                      |   |                      | 3,252   |                                                            |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 3,252 |   |
| Increase                in other assets, net                                                                              |   |                      | 43      |                                                            |   | —                                                                                                                                                          |   |                           | (2,110  | )                              |   | — |   |   | (2,067 | ) |
| Net                cash provided by (used in) investing activities                                                   |   |                      | 2,107   |                                                            |   | —                                                                                                                                                          |   |                           | (2,120  | )                              |   | — |   |   | (13 | ) |
|                                                                                                                      |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| FINANCING                ACTIVITIES:                                                                                      |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| Repayment                of long-term debt                                                                                |   |                      | (17,500 | )                                                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (17,500 | ) |
| Repayment                of policy loans                                                                                  |   |                      | (1,031  | )                                                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (1,031 | ) |
| Proceeds                from exercise of stock options                                                                    |   |                      | 1,618   |                                                            |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | 1,618 |   |
| Repurchase                of common shares                                                                                |   |                      | (8,596  | )                                                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (8,596 | ) |
| Debt                retirement costs                                                                                      |   |                      | (282    | )                                                               |   | —                                                                                                                                                          |   |                           | — |                           |   | — |   |   | (282 | ) |
| Changes                in intercompany accounts                                                                           |   |                      | 11,263  |                                                            |   | (10,405                                                                                                                                                          | )      |                           | (858    | )                              |   | — |   |   | — |   |
| Dividends                paid                                                                                             |   |                      | — |                                                            |   | (1,250                                                                                                                                                           | )      |                           | 1,250   |                           |   | — |   |   | — |   |
| Net                cash (used in) provided by financing activities                                                        |   |                      | (14,528 | )                                                               |   | (11,655                                                                                                                                                          | )      |                           | 392     |                           |   | — |   |   | (25,791 | ) |
|                                                                                                                      |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| EFFECT                OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                               |   |                      | — |                                                            |   | —                                                                                                                                                          |   |                           | 16      |                           |   | — |   |   | 16 |   |
|                                                                                                                      |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| CASH                AND CASH EQUIVALENTS:                                                                                 |   |                      |    |                                                            |   |                                                                                                                                                             |   |                           |    |                           |   |   |   |   |   |   |
| (Decrease)                increase for the period                                                                         |   |                      | (2,678  | )                                                               |   | 621                                                                                                                                                              |   |                           | (2,319  | )                              |   | — |   |   | (4,376 | ) |
| At                beginning of period                                                                                     |   |                      | 28,344  |                                                            |   | 1,967                                                                                                                                                            |   |                           | 9,882   |                           |   | — |   |   | 40,193 |   |
| At                end of period                                                                                           |   | $                         | 25,666  |                                                            | $      | 2,588                                                                                                                                                            |   | $                              | 7,563   |                           | $      | — |   | $ | 35,817 |   |

----

**Item      2.    Management’s Discussion and Analysis of Financial Condition      and **
**Results      of Operations**

***Overview***

|  | • | Topical                pain care products such as *Icy                Hot, Icy Hot Pro-Therapy*                and *Aspercreme*; |
|--|---------|----------------------------------------------------------------------------------------------------------------------------------|

|  | • | Medicated                skin care products such as *Gold                Bond*                medicated skin care powder, cream, lotion and foot care                products; |
|--|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | *Selsun                Blue*                and *Selsun                Salon*                medicated dandruff shampoos; |
|--|---------|---------------------------------------------------------------------------------------------------------------------------|

|  | • | Dietary                supplements including *Dexatrim*,                *Garlique*                and *New                Phase*;                and |
|--|---------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | Other                OTC and toiletry products such as *Pamprin*,                a                menstrual analgesic; *Herpecin-L*,                a                lip care product; *Benzodent*,                a                dental analgesic cream; *Bullfrog*,                a                line of suncare products; and toiletries such as *Ultraswim*,                a                chlorine-removing shampoo; and *Sun-In*,                a                hair lightener. |
|--|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Gold      Bond*

***Developments      During Fiscal 2006***

***Products***

*Icy      Hot Pro-Therapy*
*Selsun      Salon,*
*Bullfrog*
*Mosquito      Coast*
*Garlique      CardioAssist*
*Capzasin*
*      Pamprin*
*Dexatrim      *

***Debt***

***Stock      Repurchase***

----

***Litigation***

*Dexatrim*
*Dexatrim*
*Dexatrim      *

*Dexatrim*
*Dexatrim*
*Dexatrim*
*Dexatrim*

----

***Results      of Operations***

|                                                |   | For                the Three Months Ended |    | For                the Six Months Ended |   |
|-----------------------------------------------------|--------|-------------------------------------------|---------|-----------------------------------------|--------|
|                                                |   | May                31, 2006               |    | May                31, 2005             |   | May                31, 2006 |   | May                31, 2005 |   |
|                                                |   |                                      |    |                                    |   |   |   |   |   |
| TOTAL                REVENUES                       |   |                                      | 100.0   | %                                       |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |
|                                                |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| COSTS                AND EXPENSES:                  |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| Cost                of sales                        |   |                                      | 31.6    |                                    |   | 27.9 |   |   | 31.3 |   |   | 28.1 |   |
| Advertising                and promotion            |   |                                      | 31.2    |                                    |   | 27.4 |   |   | 31.8 |   |   | 27.9 |   |
| Selling,                general and administrative  |   |                                      | 14.5    |                                    |   | 16.3 |   |   | 14.1 |   |   | 16.5 |   |
| Litigation                settlement                |   |                                      | 0.1     |                                    |   | (7.4 | ) |   | (5.2 | ) |   | (1.9 | ) |
| Total                costs and expenses             |   |                                      | 77.4    |                                    |   | 64.2 |   |   | 72.0 |   |   | 70.6 |   |
|                                                |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| INCOME                FROM OPERATIONS               |   |                                      | 22.6    |                                    |   | 35.8 |   |   | 28.0 |   |   | 29.4 |   |
|                                                |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| OTHER                INCOME (EXPENSE):              |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| Interest                expense                     |   |                                      | (3.1    | )                                       |   | (4.5 | ) |   | (3.3 | ) |   | (4.7 | ) |
| Investment                and other income, net     |   |                                      | 0.3     |                                    |   | 0.3 |   |   | 0.3 |   |   | 0.3 |   |
| Loss                on early extinguishment of debt |   |                                      | — |                                    |   | (1.0 | ) |   | (1.7 | ) |   | (0.5 | ) |
| Total                other income (expense)         |   |                                      | (2.8    | )                                       |   | (5.2 | ) |   | (4.7 | ) |   | (4.9 | ) |
|                                                |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| INCOME                BEFORE INCOME TAXES           |   |                                      | 19.8    |                                    |   | 30.6 |   |   | 23.3 |   |   | 24.5 |   |
|                                                |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| PROVISION                FOR INCOME TAXES           |   |                                      | 6.9     |                                    |   | 10.1 |   |   | 8.0 |   |   | 8.1 |   |
|                                                |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| NET                INCOME                           |   |                                      | 12.9    | %                                       |   | 20.5 | % |   | 15.3 | % |   | 16.4 | % |

***Critical      Accounting Policies***

***Allowance      for Doubtful Accounts***

***Revenue      Recognition***

----

***Income      Taxes***

----

***Compensation      Expense***

----

***Comparison      of Three Months Ended May 31, 2006 and 2005***

|                                                        |   |                                  |    |   |   | Increase                (Decrease) |   |
|-------------------------------------------------------------|--------|---------------------------------------|---------|--------|--------|------------------------------------|--------|
|                                                        |   | 2006                                  |    | 2005   |   | Amount                             |   | Percentage |   |
|                                                        |   | (dollars                in thousands) |    |
| Domestic                net sales                           |   | $                                     | 72,153  |   | $      | 68,684                             |   | $ | 3,469 |   |   | 5.1 | % |
| International                revenues (including royalties) |   |                                  | 7,258   |   |   | 7,003                              |   |   | 255 |   |   | 3.6 |   |
| Total                revenues                               |   |                                  | 79,411  |   |   | 75,687                             |   |   | 3,724 |   |   | 4.9 |   |
| Cost                of sales                                |   |                                  | 25,054  |   |   | 21,116                             |   |   | 3,938 |   |   | 18.6 |   |
| Advertising                and promotion expense            |   |                                  | 24,781  |   |   | 20,731                             |   |   | 4,050 |   |   | 19.5 |   |
| Selling,                general and administrative expense  |   |                                  | 11,528  |   |   | 12,335                             |   |   | (807 | ) |   | (6.5 | ) |
| Litigation                settlement                        |   |                                  | 108     |   |   | (5,587                             | )      |   | 5,695 |   |   | 101.9 |   |
| Interest                expense                             |   |                                  | 2,456   |   |   | 3,458                              |   |   | (1,002 | ) |   | (29.0 | ) |
| Loss                on early extinguishment of debt         |   |                                  | — |   |   | 744                                |   |   | (744 | ) |   | (100.0 | ) |
| Net                income                                   |   |                                  | 10,200  |   |   | 15,507                             |   |   | (5,307 | ) |   | (34.2 | ) |

**Domestic      Net Sales**

|                                                       |   |                                  |   |   |   | Increase                (Decrease) |   |
|------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------|------------------------------------|--------|
|                                                       |   | 2006                                  |   | 2005   |   | Amount                             |   | Percentage |   |
|                                                       |   | (dollars                in thousands) |   |
| Topical                pain care products                  |   | $                                     | 28,397 |   | $      | 25,044                             |   | $ | 3,353 |   |   | 13.4 | % |
| Medicated                skin care products                |   |                                  | 15,389 |   |   | 15,833                             |   |   | (444 | ) |   | (2.8 | ) |
| Dietary                supplements                         |   |                                  | 8,909  |   |   | 10,280                             |   |   | (1,371 | ) |   | (13.3 | ) |
| Medicated                dandruff shampoos and conditioner |   |                                  | 8,461  |   |   | 7,888                              |   |   | 573 |   |   | 7.3 |   |
| Other                OTC and toiletry products             |   |                                  | 10,997 |   |   | 9,639                              |   |   | 1,358 |   |   | 14.1 |   |
|   Total                                          |   | $                                     | 72,153 |   | $      | 68,684                             |   | $ | 3,469 |   |   | 5.1 |   |

*Icy      Hot*
*Pro-Therapy*
*Capzasin*
*Capzasin*
*Back      and Body Patch*
*Icy      Hot Pro-Therapy,*

*Gold      Bond*
*Gold      Bond*
*Gold      Bond Ultimate*
*Gold      Bond*
*Gold      Bond *
*Gold      Bond *
*Gold      Bond Ultimate *

*Dexatrim*
*Dexatrim*
*Garlique*
*New      Phase*
*New      Phase *

*Selsun*
*Salon.*
*Selsun      Blue*

----

*Pamprin*
*Bullfrog,*
*Pamprin*
*Bullfrog      Mosquito Coast*

**International      Revenues**

*Selsun*

**Cost      of Sales**

*Icy      Hot*

**Advertising      and Promotion Expense**

**Selling,      General and Administrative Expense**

**Litigation      Settlement **

**Interest      Expense**

**Loss      on Early Extinguishment of Debt**

----

**Comparison      of Six Months Ended May 31, 2006 and 2005**

|                                                        |   |                                  |    |   |   | Increase                (Decrease) |   |
|-------------------------------------------------------------|--------|---------------------------------------|---------|--------|--------|------------------------------------|--------|
|                                                        |   | 2006                                  |    | 2005   |   | Amount                             |   | Percentage |   |
|                                                        |   | (dollars                in thousands) |    |
| Domestic                net sales                           |   | $                                     | 150,596 |   | $      | 134,253                            |   | $ | 16,343 |   |   | 12.2 | % |
| International                revenues (including royalties) |   |                                  | 12,839  |   |   | 12,965                             |   |   | (126 | ) |   | (1.0 | ) |
| Total                revenues                               |   |                                  | 163,435 |   |   | 147,218                            |   |   | 16,217 |   |   | 11.0 |   |
| Cost                of sales                                |   |                                  | 51,074  |   |   | 41,376                             |   |   | 9,698 |   |   | 23.4 |   |
| Advertising                and promotion expense            |   |                                  | 51,968  |   |   | 41,082                             |   |   | 10,886 |   |   | 26.5 |   |
| Selling,                general and administrative expense  |   |                                  | 23,119  |   |   | 24,219                             |   |   | (1,100 | ) |   | (4.5 | ) |
| Litigation                settlement                        |   |                                  | (8,505  | )      |   | (2,832                             | )      |   | (5,673 | ) |   | (200.3 | ) |
| Interest                expense                             |   |                                  | 5,300   |   |   | 6,953                              |   |   | (1,653 | ) |   | (23.8 | ) |
| Loss                on early extinguishment of debt         |   |                                  | 2,805   |   |   | 744                                |   |   | 2,061 |   |   | 277.0 |   |
| Net                income                                   |   |                                  | 24,973  |   |   | 24,172                             |   |   | 801 |   |   | 3.3 |   |

**Domestic      Net Sales**

|                                                       |   |                                  |    |
|------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                       |   |                                  |    |   |   | Increase                (Decrease) |   |
|                                                       |   | 2006                                  |    | 2005 |   | Amount |   | Percentage |   |
|                                                       |   | (dollars                in thousands) |    |
| Topical                pain care products                  |   | $                                     | 60,838  |   | $ | 46,452 |   | $ | 14,386 |   |   | 31.0 | % |
| Medicated                skin care products                |   |                                  | 32,280  |   |   | 33,457 |   |   | (1,177 | ) |   | (3.5 | ) |
| Dietary                supplements                         |   |                                  | 17,762  |   |   | 18,940 |   |   | (1,178 | ) |   | (6.2 | ) |
| Medicated                dandruff shampoos and conditioner |   |                                  | 20,278  |   |   | 17,688 |   |   | 2,590 |   |   | 14.6 |   |
| Other                OTC and toiletry products             |   |                                  | 19,438  |   |   | 17,716 |   |   | 1,722 |   |   | 9.7 |   |
|   Total                                          |   | $                                     | 150,596 |   | $ | 134,253 |   | $ | 16,343 |   |   | 12.2 |   |

*Icy      Hot Pro-Therapy*
*Capzasin*
*Capzasin      *
*Icy      Hot Pro-Therapy*

*Gold      Bond*
*Gold      Bond*
*Gold      Bond Ultimate *
*Gold      Bond*
*Gold      Bond Ultimate Comfort Powder*

*Dexatrim*
*Dexatrim*
*New      Phase*
*New      Phase*

*Selsun      Salon*
*Selsun      Blue*

*Pamprin      MAX *
*Bullfrog      Mosquito Coast*

----

**International      Revenues**

*Icy      Hot*

**Cost      of Sales**

*Icy      Hot Pro-Therapy*

**Advertising      and Promotion Expense**

**Selling,      General and Administrative Expense**

**Litigation      Settlement**

*Dexatrim*
*Dexatrim*
*Dexatrim*

**Interest      Expense**

**Loss      on Early Extinguishment of Debt**

----

***Liquidity        and Capital Resources***

*Selsun*

***Foreign      Operations***

*Selsun      Blue*
*Selsun      Blue*
*Selsun*
** **

***Recent      Accounting Pronouncements***

----

***Forward      Looking Statements***

*Dexatrim*
*Dexatrim*
*Selsun*

----

**Item      3.    Quantitative and Qualitative Disclosures About Market      Risks**

*Selsun*
*Selsun*

**Item      4.    Controls and Procedures**

----

**PART      II.      OTHER INFORMATION**

**Item      1.    Legal Proceedings**

**Item      1A. Risk Factors**

**Item      2.    Unregistered Sales of Equity Securities and Use of      Proceeds**

|     Period      |   |   Total                Number of Shares Purchased |    |    Average                Price Paid                Per Share (1) |   | Total                Number of Shares Purchased as Part of Publicly Announced Plans                or Programs                (2) |   | Approximate                Dollar Value that may yet be Purchased under the Plansor Programs (2) |    |
|-------------------------------------|--------|-------------------------------------------------------------|---------|----------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|---------|
|                                |   |                                                        |    |                                                                             |   |                                                                                                                                   |   |                                                                                                       |    |
| March                1- March 31    |   |                                                        | — |                                                                             | $      | —                                                                                                                                |   |                                                                                                       | — |   |   | 19,869,517 |   |
| April                1 - April 30   |   |                                                        | 60,000  |                                                                             |   | 35.84                                                                                                                                  |   |                                                                                                       | 60,000  |   |   | 17,719,284 |   |
| May                1 - May 31       |   |                                                        | 263,800 |                                                                             |   | 34.31                                                                                                                                  |   |                                                                                                       | 263,800 |   |   | 8,668,120 |   |
| Total                Second Quarter |   |                                                        | 323,800 |                                                                             | $      | 34.59                                                                                                                                  |   |                                                                                                       | 323,800 |   |   | 8,668,120 |   |
|                                |   |                                                        |    |                                                                             |   |                                                                                                                                   |   |                                                                                                       |    |   |   |   |   |

| (1)                 | Average                price paid per share includes broker commissions. |
|-------------------------------|--------------------------------------------------------------------------|

| (2)                 | In                January 2005, our board of directors increased the total authorization                to                repurchase our common stock under our stock buyback program to $30.0                million. A total of $17.3 million remained available under the stock                buyback authority prior to July 29, 2005, when our board of directors                increased the total buyback authorization back to $30.0 million.                Subsequent to share purchases made in the fourth quarter of fiscal                2005,                our board of directors again increased the total buyback authorization                back to $30.0 million, effective November 29, 2005. On June 26, 2006                our                board of directors authorized the repurchase of up to an additional                $100.0                million of our common stock under our existing stock repurchase program.                There is no expiration date specified for our stock buyback                program. |
|-------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item      3.    Defaults Upon Senior Securities**

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

**Item      5.    Other Information**

**Item      6.     Exhibits **

| **Exhibit                Number** |   | **Description**                                                                                                                                            |
|-----------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |   |                                                                                                                                                       |
| 31.1                              |   | Certification                required by Rule 13a-14(a) under the Securities Exchange Act of                1934                                           |
|                              |   |                                                                                                                                                       |
| 31.2                              |   | Certification                required by Rule 13a-14(a) under the Securities Exchange Act of                1934                                           |
|                              |   |                                                                                                                                                       |
| 32                                |   | Certification                required by Rule 13a-14(b) under the Securities Exchange Act of 1934                and                18 U.S.C. Section 1350 |

----

**CHATTEM,      INC.**

**SIGNATURES**

|                                                                         |                                                 |                               |
|------------------------------------------------------------------------------|------------------------------------------------------|------------------------------------|
|                                                                         | **CHATTEM,                  INC.** (Registrant) |
|                                                                    |                                            |                          |
| Dated:    July                10, 2006    |                                            | /s/ Zan                Guerry |
|                                                                         | Zan                Guerry                            |
|                                                                         | Chairman                and Chief Executive Officer  |

|                                                                           |                                                                                     |                                                          |
|--------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|---------------------------------------------------------------|
|                                                                           |                                                                                          |
|                                                                      |                                                                                |                                                     |
| Dated:    July                  10, 2006    |                                                                                | /s/ Robert                  E.                  Bosworth |
|                                                                           | Robert                  E. Bosworth                                                      |
|                                                                           | President                  and                  Chief Operating                  Officer |

----

**Chattem,      Inc. and Subsidiaries**

**Exhibit      Index**

|  **Exhibit                Number** |   | **Description                of Exhibit**                                                                                                                  |
|-----------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |   |                                                                                                                                                       |
| 31.1                                    |   | Certification                required by Rule 13a-14(a) under the Securities Exchange Act of                1934                                           |
|                                    |   |                                                                                                                                                       |
| 31.2                                    |   | Certification                required by Rule 13a-14(a) under the Securities Exchange Act of                1934                                           |
|                                    |   |                                                                                                                                                       |
| 32                                      |   | Certification                required by Rule 13a-14(b) under the Securities Exchange Act of 1934                and                18 U.S.C. Section 1350 |
|                                    |   |                                                                                                                                                       |

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