EXHIBIT 13
                                                                      ----------
To the Shareholders

Fiscal 2001 Review

In our letter to you last year we predicted a strong rebound from a
disappointing fiscal 2000. Not only did our results rebound strongly, but they
surpassed our own expectations for earnings per share by approximately 50%.

Specifically, earnings per share before extraordinary items soared to $.93 from
a $.02 per share loss last year. The $.93 per share earnings substantially
exceeded the $.60-$.65 earnings per share we estimated at the beginning of the
year.

In addition, we recorded a $6.9 million, or $.77 per share, gain from early
extinguishment of debt. Thus, total net income for the year was $15.3 million
and total earnings per share were $1.70. Further, long term debt was reduced by
$99.3 million in fiscal 2001, and at the end of the fiscal year net debt (long
term debt less cash) was $169.3 million.

Net sales for the year were $198.3 million which exceeded our estimate at the
beginning of the year by about $15 million. Comparisons of financial results to
a year ago are not meaningful due to the sale of Ban(R) in 2000.

The strong earnings were led by a number of marketing successes of our brands
plus very strict cost controls. Specifically, DEXATRIM Natural was our biggest
success as sales more than made up for lost sales due to the discontinuation of
DEXATRIM with phenylpropanoline. We had anticipated a significant sales decline
for DEXATRIM this year, but sales almost attained fiscal 2000 levels due to
aggressive and compelling advertising for DEXATRIM Natural.

Another highlight was our topical analgesic portfolio, which increased by about
7%, led by the ICY HOT Patch. For the year, sales of ICY HOT, CAPZASIN and
ARTHRITIS HOT increased 34%, 27% and 27%, respectively.

After a number of years of disappointing results, SUNSOURCE significantly
exceeded the prior year in terms of sales and particularly in profitability.
These results were led by sales of GARLIQUE and NEW PHASE plus significant
reductions in advertising and promotion spending.

After a disappointing 2000, GOLD BOND had a respectable year with sales
essentially flat, but improving notably in the second half of the year. Our
strongest GOLD BOND products, adult powder, foot powder, cream and lotion, had
fairly good performances, which were offset by declines in ointment and baby
powder.

Finally, BULLFROG had an excellent year with increased sales of over 6% and even
a larger increase in profits due to focused spending behind the brand.

In terms of disappointments, sales of FLEXALL, PHISODERM and PAMPRIN declined
versus the previous year due primarily to intense competition.
<PAGE>

FISCAL 2002 OUTLOOK*

We begin 2002 with momentum and optimism for another successful year.

In terms of major marketing initiatives for 2002, we have three important new
product launches. The first and largest is DEXATRIM RESULTS, an innovative new
diet product which increases fat burning while adding antioxidants and other
ingredients to provide energy and nutrition. This launch will be one of our
largest ever, backed by $10 million in advertising.

Second is the launch of PHISODERM Acne Body Wash and Acne Masque. These two
products should add incremental sales to our successful acne facial cleanser.
Finally, GOLD BOND Foot Spray should become another successful GOLD BOND line
extension.

In addition to these new products we have several other major goals for the
year. We spent much of the past year working on new products for GOLD BOND and
we have a number of strong candidates. We hope to launch at least two new
products for GOLD BOND in the next twelve months.

We will also focus on research and development with a goal of launching at least
one product based on new technology within the next year. Finally, with
approximately $35 million in cash and no bank debt, we plan to be aggressively
seeking acquisitions.

In terms of our financial goals for next year, we are forecasting a 3-5%
increase in net sales and a 6-8% increase in EPS. In addition, the Financial
Accounting Standards Board has eliminated the amortization of intangibles with
indefinite lives, such as trademarks, which will result in an approximate $.38
per share increase in EPS for next year. Thus, we estimate that total EPS should
be in the range of $1.35-$1.40, although future performance is impossible to
predict with certainty.

In closing, it is great to have strong results but it is particularly exciting
when the market recognizes our performance. For calendar 2001 Chattem was in the
top 25 NASDAQ stocks with a 242% gain in stock price.

We are extremely proud of our managers', directors' and employees' achievements
during the past year and we look forward to sharing continued successes with you
this year.

*The statements in this section constitute "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.







Ban(R) is the registered trademark of Kao Corporation.
<PAGE>

CHATTEM CONSUMER PRODUCTS

DOMESTIC PRODUCT OVERVIEW

MEDICATED SKIN CARE PRODUCTS

The GOLD BOND brand, which is over 100 years old, competes in the adult and baby
medicated powder, foot powder, therapeutic lotion, anti-itch cream and
antibiotic ointment markets. GOLD BOND is the leading brand in the medicated
powder category in the United States. Total retail sales for the brand have
grown from less than $28,000,000 when the brand was acquired in fiscal 1996 to
over $61,000,000 in fiscal 2001. In 1997 the Company added two line extensions,
GOLD BOND Foot Powder and GOLD BOND Medicated Body Lotion. GOLD BOND Antibiotic
Ointment was introduced during the first quarter of 1999, while GOLD BOND
Sensitive Skin Body Lotion was added to the product line in 2000. In fiscal 2002
the GOLD BOND brand will introduce an aerosol delivery form of its successful
foot powder to meet the needs of more than half of consumers who prefer a spray
form. The product line is heavily supported by national television and radio
advertising throughout most of the year, as well as with consumer promotions. We
believe GOLD BOND continues to represent an opportunity for growth both through
the existing products and the introduction of line extensions.

TOPICAL ANALGESICS

With the acquisition of the Thompson Medical Company, Inc. ("Thompson Medical")
brands in late 1998, Chattem became the United States leader in the $220,000,000
topical analgesic market category. The Company's strong market position as well
as the advancing age of the United States population and the increasing interest
in physical fitness combine to provide solid growth prospects within the topical
analgesic category. FLEXALL is an aloe vera based topical analgesic used
primarily by chronic pain sufferers to alleviate pain and inflammation in joints
and secondarily by sufferers of muscle strain. Introduced in fiscal 1999,
FLEXALL QUIK GEL, which provides fast relief without any mess, was accompanied
by an advertising campaign featuring NFL Hall of Famer Joe Montana.

Uniquely positioned as the brand that goes on "icy to dull the pain and gets hot
to relax it away", ICY HOT is available in a cream, balm and stick. This dual
action extra strength product appeals to younger users just entering the
category as well as older consumers who want to remain active. ICY HOT Patch,
concentrated pain relief that lasts for hours and is easy to apply, was
successfully introduced in fiscal 2001.

Former Thompson Medical brands round out the Company's topical analgesic
portfolio. ASPERCREME provides odor free relief of arthritis and other chronic
pain while SPORTSCREME is targeted at serious athletes as well as "weekend
warriors". CAPZASIN, which contains capsicin, the active ingredient that doctors
recommend most, is focused on the arthritis sufferer looking for clinically
proven relief. ARTHRITIS HOT provides relief at a value price. The Company
supports the topical analgesic brands with extensive national television and
radio advertising as well as targeted consumer promotions, and is well
positioned to achieve solid growth within the topical analgesic category.

BENZODENT is a dental analgesic cream in an adhesive base for use as an oral
topical analgesic for pain related to dentures. BENZODENT is principally
supported by sampling consumers at the time they are fitted with dentures and
representation at professional dental conferences.

INTERNAL ANALGESICS

The Company competes in the menstrual analgesic segment with two brands:
PAMPRIN, a combination drug targeted towards relief of all menstrual symptoms,
and PREMSYN PMS, targeted towards the specific symptoms of premenstrual
syndrome. The Company uses a mix of television and print advertising as well as
point of entry sampling to gain trial and awareness among the female target
audience.

                                        1
<PAGE>

LIP CARE

HERPECIN-L, Chattem's entry in the lip care category, is uniquely formulated to
treat and protect cold sores by moisturizing lips to help prevent cracking and
promote healing. Available in a stick and a jar, HERPECIN-L contains a sunblock
to help protect lips from the harmful rays of the sun. The Company uses radio
advertising to generate trial use during the peak winter and summer cold sore
seasons.

APPETITE SUPPRESSANT

DEXATRIM, acquired in December of 1998, is a leading name in the diet pill
category. In 2001 DEXATRIM enjoyed strong growth in the herbal diet aid category
with DEXATRIM Natural. DEXATRIM Natural is a drug-free, all natural, dietary
supplement with special dual action that curbs appetite and helps burn more fat
and calories. DEXATRIM Natural is also available in Green Tea and Caffeine Free
versions. DEXATRIM Natural was successfully promoted with high levels of
advertising support through the New Year's resolution and spring swimsuit
seasons. DEXATRIM is now only available in herbal, dietary supplement formulas
after the removal of DEXATRIM products with phenalpropanolamine ("PPA") from the
product line in November 2000. In 2002 DEXATRIM RESULTS, a nutrition based
weight control product, will be introduced. DEXATRIM RESULTS has a unique
formula, which provides more energy sources and more nutrition so that consumers
can feel good while they are reaching their dieting goals. DEXATRIM RESULTS will
be available in a regular and an ephedrine-free formula.

DIETARY SUPPLEMENTS

The Company competes in the United States nutritional supplement category with
its SUNSOURCE line which includes GARLIQUE, REJUVEX, NEW PHASE, PROPALMEX,
MELATONEX, and OMNIGEST EZ. These products are distributed primarily through the
drug and mass merchandiser trade channels.

GARLIQUE garlic tablets support cardiovascular health and are uniquely
positioned in the marketplace as a "one per day" high potency garlic supplement.
Most major GARLIQUE competitors require multiple daily dosages. National
television advertising is utilized throughout the year to emphasize this key
advantage to consumers.

REJUVEX and NEW PHASE offer a more complete way for a woman to maintain comfort
as she enters a phase of life that, for many, is a time of hormonal imbalance
and discomfort. REJUVEX is an estrogen-free dietary supplement that contains
magnesium, vitamins and other natural ingredients to replenish nutrients and
help maintain healthy bones. NEW PHASE supports hormonal balance with 80
milligrams per tablet of natural phytoestrogens, double the isoflavone content
of many leading brands.

PROPALMEX supports prostate health and promotes free urinary flow. For men over
forty looking for all natural, drug-free options, PROPALMEX offers a healthy
choice with a unique formula that contains saw palmetto, lycopene and zinc.

MELATONEX is formulated to support a natural sleep cycle by supplementing the
body's production of melatonin, a hormone necessary for a good night's sleep.

OMNIGEST EZ contains a unique blend of seven plant derived digestive enzymes
that work along with the digestive enzymes produced by your own body to help in
the digestion of fats, proteins, carbohydrates, cellulose and dairy products.

All SUNSOURCE products are specially formulated to provide consumers with an
all-natural, drug-free way to support their specific health care goals. The
Company is committed to bringing to market the highest quality product possible
and guarantees the potency of each SUNSOURCE product on the front panel of the
package to aid and enhance consumer confidence in selecting SUNSOURCE dietary
supplements.

                                        2
<PAGE>

FACIAL CLEANSERS AND MASQUES

PHISODERM is a line of facial cleansers developed by dermatologists which
retains an ethical, troubled skin reputation. The line includes several formulas
of liquid cleansers including one for infants. In 2001 the PHISODERM brand
sustained its focus on the growing acne portion of the business which includes
the 4-Way Daily Acne Cleanser. Consumer support behind the brand is concentrated
on the acne business and includes print advertising in teen magazines, targeted
television advertising on teen cable programs and extensive sampling. In 2002
the Company will further expand the acne portion of the business with unique
line extensions: PHISODERM Clear Confidence Acne Body Wash and PHISODERM Clear
Confidence 5 Minute Blemish Masque. The entire PHISODERM line has been
repackaged in clear, contemporary-looking packages.

MUDD is a line of deep cleaning clay-based products for the face. Target
consumers for MUDD are women between the ages of 18 and 49. MUDD Masque is
available in four formulas and is a strong market leader in the masque category.
In 2001 the masque products were supported by a new television campaign
featuring the entire MUDD line and the brand promise of providing the ultimate
in facial deep cleaning.

SEASONALS

BULLFROG is the line of ultimate waterproof sunblocks for outdoor active
consumers. In 2001 BULLFROG was the fastest growing SPF 15+ sunblock, posting
sales gains of over 6%. In 2001 two new products were added to the line:
BULLFROG FastBlast, a watermelon scented spray version for kids of the popular
BULLFROG Quik Gel formula, and BULLFROG Sensitive Skin, a dermatologist
recommended, fragrance free, high protection lotion. In 2002 BULLFROG is
expected to continue to realize solid growth with a comprehensive brand plan
which includes an active new product program and targeted consumer advertising,
promotions and sampling programs.


ULTRASWIM is a line of chlorine removing shampoos, conditioners and soaps.
ULTRASWIM has a unique formula that performs chlorine removal better than any
comparable hair care or skin care product on the market. The Company supports
this brand through targeted print advertising to competitive, recreational and
exercise swimmers and through event sponsorship with targeted sampling programs.
In 2001 ULTRASWIM was relaunched with a new healthy hair formula and a clear
package design.

SUN-IN is a hair lightener available in two varieties: spray-on and Super
Streaks, a highlighting hair gel. In 2001 SUN-IN built awareness with a
continually changing teen target audience through promotional prepacks and an
interactive web site.


INTERNATIONAL MARKET OVERVIEW
-----------------------------

EUROPE

Chattem's European business is conducted through Chattem (U.K.) Limited, a
wholly-owned subsidiary located in Basingstoke, Hampshire, England. This unit
also services distributors in various other worldwide locations. Manufacturing
and packaging of the products are conducted principally in the United Kingdom
with a limited number of ingredients purchased from Chattem. Chattem (U.K.) uses
a national broker in the United Kingdom while distributors are used to market
and sell its products on the Western European continent. Due to the difficulty
and expense involved in the registration of OTC health care brands in Europe,
the unit markets exclusively the Company's toiletries and skin care products.
Chattem's products in Europe include SUN-IN, a range of MUDD face and body
products and ULTRASWIM. Cornsilk(R) is sold under a licensing arrangement with
another company. SPRAY BLOND Spray-In Hair Lightener is only marketed on the
European continent. Certain of the Company's OTC health care products are also
sold by Chattem (U.K.) to customers in the Middle and Far East.

                                        3
<PAGE>

CANADA

Chattem (Canada) Inc. is a wholly-owned subsidiary based in Mississauga,
Ontario, Canada which markets and distributes certain of Chattem's consumer
products throughout Canada. The manufacturing of the brands is principally done
in the Company's facilities in Chattanooga while some packaging takes place in
Mississauga. The division utilizes a national broker for its sales efforts.
Brands marketed and sold in Canada include GOLD BOND, PAMPRIN, MUDD, SUN-IN,
ULTRASWIM, PHISODERM, ASPERCREME and ephedrine free DEXATRIM.


UNITED STATES EXPORT

The United States Export division services various distributors primarily
located in the Caribbean and Central and South America. The Company sells ICY
HOT, GOLD BOND, PHISODERM and DEXATRIM into these markets with the primary focus
being the development of its OTC health care products.




































Cornsilk(R) is the registered trademark of Del Laboratories, Inc.






                                        4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------

The following analysis of the financial condition and results of operations
should be read in conjunction with the audited consolidated financial statements
and related notes thereto included elsewhere in this Annual Report.

GENERAL
-------

Fiscal 2001 was highlighted by the retirement of $70,462,000 principal amount of
8.875% Senior Subordinated Notes due 2008 (the "8.875% Notes") and the remaining
outstanding principal amount of $29,145,000 of 12.75% Senior Subordinated Notes
due 2004 (the "12.75% Notes"), the repurchase of 14,000 shares of the Company's
common stock, entering into a $10,000,000 unsecured revolving line of credit
from a financial institution and the restoration of DEXATRIM sales to near the
sales level attained in fiscal 2000 after the discontinuation of DEXATRIM
containing PPA.

On January 17, 2001 the Company completed the consent solicitation and tender
offer pursuant to which it retired $70,462,000 principal amount of its 8.875%
Notes and $7,397,000 principal amount of its 12.75% Notes. The consideration
paid for the consent solicitation and tender offer was $64,937,000, which was
provided by the proceeds of the Company's divestiture of the Ban product line in
fiscal 2000. An extraordinary gain on the early extinguishment of debt of
$7,551,000, net of income taxes, was recognized in the first six months of
fiscal 2001. On June 15, 2001 the Company retired all of the remaining
outstanding principal balance of $21,748,000 of its 12.75% Notes and accrued
interest thereon. In connection with the retirement of the 12.75% Notes, the
Company recognized a loss on the early extinguishment of debt of $603,000, net
of income tax benefit, in the third quarter of fiscal 2001. This loss primarily
consisted of the premium paid on the retirement of the notes and the write-off
of related unamortized deferred issuance and initial discount costs.

During fiscal 2001 the Company repurchased, and returned to unissued, 14,000
shares of its common stock, without par value, for $174,000 in accordance with
the Company's previously announced stock buyback program.

On June 21, 2001 the Company obtained a $10,000,000 unsecured revolving line of
credit from a financial institution. As of November 30, 2001 no portion of this
credit facility had been utilized by the Company.

The loss of sales of DEXATRIM containing PPA after its voluntary withdrawal from
the market in November 2000 was nearly offset in 2001 by sales of DEXATRIM
Natural.

The Company will continue to seek sales increases through a combination of
acquisitions and internal growth while maintaining high operating income levels.
As previously high-growth







                                        5
<PAGE>

brands mature, sales increases will become even more dependent on acquisitions
and the development of successful line extensions. During fiscal 2001 the
Company introduced DEXATRIM Natural Ephedrine Free, ICY HOT Patch, BULLFROG Fast
Blast and BULLFROG Sensitive Skin as line extensions. Line extensions, product
introductions and acquisitions require a significant amount of introductory
advertising and promotional support. For a period of time these products do not
generate a commensurate amount of sales and/or earnings. As a result, the
Company may experience a short-term impact on its profitability due to line
extensions.

RESULTS OF OPERATIONS
---------------------

The results of operations for fiscal 2001 were significantly affected by the
sale of Ban in September 2000, which contributed approximately $61,443,000 and
$86,659,000 in sales in fiscal 2000 and 1999, respectively.

The following table sets forth, for income (loss) before extraordinary gain
(loss) and change in accounting principle and for the periods indicated, certain
items from the Company's consolidated statements of income expressed as a
percentage of net sales.
<TABLE><CAPTION>
                                                         Year Ended November 30
                                                 --------------------------------------
                                                   2001           2000           1999
                                                 --------       --------       --------
<S>                                              <C>            <C>            <C>
NET SALES ..................................        100.0%         100.0%         100.0%
                                                 --------       --------       --------

COST AND EXPENSES:
   Cost of sales ...........................         26.5           29.7           25.4
   Advertising and promotion ...............         39.3           42.3           39.5
   Selling, general and administrative .....         17.5           12.6           10.9
                                                 --------       --------       --------
         Total costs and expenses ..........         83.3           84.6           75.8
                                                 --------       --------       --------

INCOME FROM OPERATIONS .....................         16.7           15.4           24.2
                                                 --------       --------       --------

OTHER INCOME (EXPENSE):
   Interest expense ........................        (11.0)         (14.1)         (12.3)
   Investment and other income, net ........          1.1             .6             .2
   Loss on product divestitures ............           --           (2.0)            --
                                                 --------       --------       --------
         Total other income (expense) ......         (9.9)         (15.5)         (12.1)
                                                 --------       --------       --------

INCOME (LOSS) BEFORE INCOME TAXES,
  EXTRORDINARY GAIN (LOSS) AND CHANGE
  IN ACCOUNTING PRINCIPLE ..................          6.8            (.1)          12.1

PROVISION FOR INCOME TAXES .................          2.6             --            4.5
                                                 --------       --------       --------

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN
  (LOSS) AND CHANGE IN ACCOUNTING PRINCIPLE           4.2%           (.1)%          7.6%
                                                 ========       ========       ========
</TABLE>


                                        6
<PAGE>

FISCAL 2001 COMPARED TO FISCAL 2000
-----------------------------------

Net sales for the year ended November 30, 2001 decreased $54,399,000, or 21.5%,
to $198,300,000 from $252,699,000 for the previous fiscal year. The decrease was
largely the result of the sale of Ban in September 2000, partially offset by a
net increase in other brands. The decrease consisted of $50,321,000, or 21.7%,
decrease in domestic consumer product sales from $232,144,000 in 2000 to
$181,823,000 in 2001 and a decrease of $4,078,000, or 19.8%, in international
sales to $16,477,000 from $20,555,000.

The Company's topical analgesic portfolio produced a sales increase. Sales
increases were recognized for ICY HOT, ASPERCREME, CAPZASIN and ATHRITIS HOT in
the Company's topical analgesic portfolio while FLEXALL and SPORTSCREME recorded
sales decreases. Sales declines were registered for DEXATRIM, PAMPRIN, SUN-IN,
PHISODERM and GOLD BOND, although GOLD BOND sales in the fourth quarter of 2001
exceeded those of the same prior year period. Sales variances were largely the
result of changes in the volume of unit sales of the particular brand.

The increase in sales of the topical analgesic products was attributable to the
success of the ICY HOT Patch, introduced in the second quarter of 2001 as well
as increased marketing support.

International sales from Canadian operations decreased $736,000, or 10.0%, for
2001, and the United Kingdom business decreased $1,379,000, or 14.3%. The
decrease in Canadian sales was due primarily to the initial launch of GOLD BOND
Medicated Lotion inclusion in 2000 results and the sale of Ban in September
2000. The principal sales decreases were in SUN-IN, Ban and Cornsilk in the
United Kingdom. United States export sales decreased $1,963,000, or 55.1%,
primarily due to the sale of Ban in the fourth quarter of 2000. Sales variances
were principally the result of changes in the volume of unit sales of the
respective brand.

Cost of sales as a percentage of net sales was 26.5% in 2001 as compared to
29.7% in 2000. The percentage decrease of 3.2% in 2001 was primarily the result
of the inventory write downs of $4,119,000 to cost of sales and allowances for
returns of $9,600,000 to net sales in 2000.

Advertising and promotion expenses were 39.3% of net sales as compared to 42.3%
in 2000. The cost of such expenses decreased $28,904,000, or 27.0%, to
$77,964,000 from $106,868,000 in 2000. The decrease was primarily the result of
the sale of Ban in the fourth quarter of 2000, partially offset by additional
spending on other brands. The decrease in the percent of advertising and
promotion to net sales in 2001 as compared to 2000 was primarily due to charges
to sales in the fourth quarter of 2000 of approximately $9,600,000 for
allowances for returns.

                                        7
<PAGE>

Selling, general and administrative expenses increased $2,652,000, or 8.3%, to
$34,646,000 from $31,994,000 and increased as a percentage of net sales from
12.6% to 17.5%. The dollar increase was due to increased annual bonus, pension
and insurance costs partially offset by decreased freight, selling commissions
and bad debt expense. The increase in the percent of selling, general and
administrative expenses to net sales in 2001 as compared to 2000 was principally
the result of the sale of Ban in the fourth quarter of 2000 and the net increase
in dollar costs discussed above. The Company anticipates continuing increased
insurance costs and reduced amounts and scope of coverage as a result of product
liability claims relating to DEXATRIM with PPA and the concern that other claims
relating to DEXATRIM could be filed.

Interest expense decreased $13,873,000, or 38.8%, to $21,856,000 in 2001 from
$35,729,000 in 2000, primarily as a result of payment of all of the outstanding
revolver and term loan balances on September 15, 2000 and the retirement of
$70,462,000 principal amount of the 8.875% Notes and the remaining outstanding
principal balance of $29,145,000 of the 12.75% Notes. Until the Company's
indebtedness is reduced substantially, interest expense will continue to
represent a significant percentage of the Company's net sales.

Investment and other income increased $652,000, or 41.6%, to $2,218,000 from
$1,566,000 primarily due to interest income from temporary investments made with
the remaining proceeds from the sale of Ban after the debt retirement discussed
previously.

Income before extraordinary items and cumulative effect of change in accounting
principle was $8,395,000 in 2001 as compared to a loss of $197,000 in 2000. The
loss in 2000 resulted primarily from reduced sales and the approximately
$19,300,000 of charges, including the loss on the sale of Ban and the DEXATRIM
with PPA product issues.

Cash earnings (net income before extraordinary loss on early extinguishment of
debt and change in accounting principle plus non-cash amortization) and EBITDA
(earnings before interest, taxes, depreciation and amortization) are key
standards used by the Company to measure operating performance, but may not be
comparable to similarly titled measures reported by other companies. Cash
earnings and EBITDA are used to supplement operating income as an indicator of
operating performance and not as alternatives to measures defined and required
by generally accepted accounting principles. Cash earnings for fiscal 2001 were
$12,294,000, or $1.36 per share, as compared to $5,894,000, or $.63 per share,
for fiscal 2000, an increase of 108.6%. EBITDA for fiscal 2001 was $42,261,000
as compared to $51,251,000 for fiscal 2000, a 17.5% decrease due to the Ban
sale. The EBITDA margin increased from 20.3% of net sales in 2000 to 21.3% in
2001.

                                        8
<PAGE>

FISCAL 2000 COMPARED TO FISCAL 1999
-----------------------------------

Net sales for the year ended November 30, 2000 decreased $45,443,000, or 15.2%,
to $252,699,000 from $298,142,000 for the previous fiscal year. The decrease was
largely the result of the sale of Ban and providing for expected returns of
DEXATRIM with PPA and certain SUNSOURCE products. The decrease consisted of a
$44,488,000, or 16.1%, decrease in domestic consumer products sales from
$276,632,000 in 1999 to $232,144,000 in 2000 and a decrease of $955,000, or
4.4%, in international sales to $20,555,000 from $21,510,000.

Domestic sales increases in 2000 were recognized for all of the topical
analgesic products, most notably ICY HOT and ASPERCREME, HERPECIN-L, MUDD and
PHISODERM. Declines in sales were recorded for the SUNSOURCE brands as a result
of continuing weakness of the dietary supplements' market, PAMPRIN, PREMSYN PMS,
GOLD BOND, DEXATRIM, Ban, SUN-IN and BULLFROG. Sales variances were largely the
result of changes in the volume of unit sales of the particular brand.

The increase in sales of the topical analgesic products was attributed
principally to increased marketing support. MUDD and PHISODERM sales benefited
from line extension introductions in 1999 and 2000 (MUDD Self-Heating Skin
Cleanser, PHISODERM 4-Way Daily Acne Cleanser and PHISODERM Blemish Patch) and
increased marketing support, while HERPECIN-L sales were positively impacted by
more effective advertising and promotion campaigns.

As previously stated, the Ban product line was sold in the fourth quarter of
2000, therefore markedly affecting its sales for 2000. Prior to the sale,
however, Ban sales had declined, principally as a result of the introduction of
a new, heavily promoted antiperspirant and deodorant product by a competitor and
reduced marketing support. GOLD BOND sales declined primarily due to increased
competition from less expensive private label brands and reduced advertising and
promotion expenditures. BULLFROG sales were affected principally by the loss of
a major customer, while PAMPRIN, PREMSYN PMS and SUN-IN sales were largely
influenced by reduced marketing support. As previously discussed, the decline in
sales of DEXATRIM reflects the voluntary withdrawal from the marketplace of
DEXATRIM containing PPA. Sales of the remaining brands were relatively flat or
showed modest declines in 2000.

International sales from the Canadian operation increased $645,000, or 9.6%, for
2000, but the United Kingdom business decreased $1,109,000, or 10.3%. The
increase in Canadian sales was primarily associated with the launch of GOLD BOND
Medicated Lotion while Ban, SUN-IN and MUDD constituted the principal decreases
in United Kingdom sales. United States export sales declined $491,000, or 12.1%,
for fiscal 2000, with the decrease being largely associated with sales of Ban
for reasons previously

                                        9
<PAGE>

discussed. Sales variances were principally the result of changes in the volume
of unit sales of the particular brand.

Cost of sales as a percentage of net sales in 2000 was 29.7% compared to 25.4%
in 1999. The percentage increase of 4.3% in 2000 was primarily the result of the
inventory write downs of $4,119,000 to cost of sales and allowances for returns
of $9,600,000 to net sales.

Advertising and promotion expenses were 42.3% of net sales in 2000 compared to
39.5% in 1999, although the cost of such expenses decreased $10,967,000, or
9.3%, to $106,868,000 in 2000 from $117,835,000 in 1999. This decrease in the
cost of such expenses was the result of the sale of Ban and reduced spending for
generally all of the Company's product lines except MUDD, BULLFROG, PHISODERM
and NEW PHASE and OMNIGEST EZ of SUNSOURCE. The increase in the percent of
advertising and promotion to net sales in 2000 over 1999 was primarily due to
charges to sales in the fourth quarter of 2000 of approximately $9,600,000 for
allowance for returns.

Selling, general and administrative expenses decreased $500,000, or 1.5%, to
$31,994,000 in 2000 from $32,494,000 in 1999 but increased as a percentage of
net sales to 12.6% in 2000 from 10.9% in 1999. This dollar decrease was largely
associated with increases in direct selling costs, freight and field sales
expenses, but was more than offset by decreases in annual bonus and the pension
plan curtailment gain. The increase in the percent of selling, general and
administrative expenses to net sales in 2000 over 1999 was principally the
result of the sale of Ban and charges to sales in the fourth quarter of 2000 of
approximately $9,600,000 for allowance for returns.

Interest expense decreased $843,000, or 2.3%, to $35,729,000 in 2000 from
$36,572,000 in 1999 primarily as a result of payment of all of the outstanding
revolver and term bank loan balances on September 15, 2000 and the retirement of
$5,400,000 principal amount of the 12.75% Notes, but was offset by a $578,000
charge in the fourth quarter related to the write off of an interest rate swap
termination loss because the underlying debt was retired.

Investment and other income increased $987,000, or 170.5%, to $1,566,000 in 2000
from $579,000 in 1999. The increase was due primarily to interest income from
temporary investments made with the remaining proceeds from the sale of Ban
after the retirement of the Company's revolver and term bank loans on September
15, 2000.

Loss before extraordinary loss and change in accounting principle was $197,000
in 2000 compared to income before extraordinary loss in 1999 of $22,541,000. The
loss in 2000 resulted primarily from reduced sales and the approximately
$19,300,000 of previously discussed charges, including the loss on the sale of
Ban and the DEXATRIM with PPA product issues.

                                       10
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

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

Cash provided by operating activities was $23,730,000 and $26,507,000 for 2001
and 2000, respectively. The decrease in cash flows from operations from 2000 to
2001 was primarily the result of a decrease in accounts payable and accrued
liabilities offset in part by a decrease in accounts receivable.

Investing activities used cash of $1,584,000 and provided cash of $152,796,000
in 2001 and 2000, respectively. The decrease of cash flows from investing
activities in 2001 reflected the absence in 2001 of the proceeds from the sale
of a major product line such as Ban in 2000. In 2001 capital expenditures
totaled $1,854,000 compared to $5,673,000 in 2000. The decrease was due
primarily to the substantial completion in 2000 of the extensive renovation of a
manufacturing and warehouse facility purchased in fiscal 1998 and the
acquisition of major packaging equipment. Capital expenditures are expected to
be approximately $3,000,000 in fiscal 2002.

Financing activities used cash of $89,179,000 and $78,991,000 in 2001 and 2000,
respectively. The use of cash in 2001 consisted primarily of repayment of the
outstanding principal balance of $29,145,000 of the 12.75% Notes and $70,462,000
principal amount of the 8.875% Notes. In 2000 cash was used for repayment of all
of the outstanding balances of the revolver and term loans and the retirement of
$5,400,000 principal amount of the 12.75% Notes.

Until June 30, 2003 the Company is obligated to pay an annual royalty on
Herpecin-L for the greater of $214,000 or 5% of the brand's annual net sales.

























                                       11
<PAGE>

The following table presents certain working capital data at November 30, 2001
and 2000 or for the respective years then ended:

                 ITEM                          2001               2000
--------------------------------------     ------------       ------------
Working capital (current assets less
   current liabilities) ..............     $ 53,579,000       $126,029,000
Current ratio (current assets divided
   by current liabilities) ...........             3.20               3.77
Quick ratio (cash and cash equivalents
   and receivables divided by current
   liabilities) ......................             2.32               3.15
Average accounts receivable turnover .             6.44               5.28
Average inventory turnover ...........             3.58               3.50
Working capital as a percentage of
     total assets ....................            17.88%             31.34%


The decrease in working capital, the current and quick ratios and working
capital as a percentage of total assets at November 30, 2001 as compared to
November 30, 2000 was primarily due to the reduction in cash and cash
equivalents in connection with the payment in 2001 of the remaining outstanding
balance of the 12.75% Notes and a portion of the principal balance of the 8.875%
Notes.

Total debt outstanding at November 30, 2001 was $204,740,000 compared to
$304,077,000 at November 30, 2000. The net decrease of $99,337,000 in 2001
reflected the payment of the entire outstanding balance of the 12.75% Notes and
a portion of the principal balance of the 8.875% Notes.

On June 21, 2001 the Company obtained a $10,000,000 unsecured revolving line of
credit from a financial institution. As of February 22, 2002 no portion of this
credit facility had been utilized by the Company.

As of November 30, 2001 the remaining amount authorized by the Company's board
of directors under the stock buyback plan was $6,425,000; however, the Company
is limited in its ability to repurchase shares due to restrictions under the
terms of the indenture with respect to which its 8.875% Notes were issued.

The Company has been named as a defendant in approximately 115 lawsuits alleging
that the plaintiffs were injured as a result of ingestion of products containing
PPA, which until November 2000 was the active ingredient in certain of the
Company's DEXATRIM products. Most of the lawsuits seek an unspecified amount of
compensatory and exemplary damages. None of these suits has been certified as a
class action. Approximately 40% of these suits represent cases in which the
Company is being defended and indemnified from liability by The DELACO Company,
Inc., successor to Thompson Medical from which the Company acquired DEXATRIM in
December 1998.


                                       12
<PAGE>

Excepting the potential material unfavorable resolution beyond the limits of the
Company's product liability insurance policies of the above described lawsuits,
management of the Company believes that cash generated by operations, its strong
cash and cash equivalents balance and its revolving line of credit noted above
will be sufficient to fund the Company's current commitments and proposed
operations. Also, on December 21, 1998 the Company filed with the Securities and
Exchange Commission a shelf registration for $250,000,000 of debt and equity
securities, of which $75,000,000 was utilized in the sale of the 8.875% Notes in
May 1999.

FOREIGN OPERATIONS
------------------

The Company's primary foreign operations are conducted through its Canadian and
United Kingdom subsidiaries. The functional currencies of these subsidiaries are
Canadian dollars and British pounds, respectively. Fluctuations in exchange
rates can impact operating results, including total revenues and expenses, when
translations of the subsidiary financial statements are made in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." For the years ended November 30, 2001 and 2000 these subsidiaries
accounted for 7.5% and 6.7% of total revenues, respectively, and 3.5% and 2.0%
of total assets, respectively. It has not been the Company's practice to hedge
its assets and liabilities in Canada and the United Kingdom or its intercompany
transactions due to the inherent risks associated with foreign currency hedging
transactions and the timing of payment between the Company and its two foreign
subsidiaries. Historically, gains or losses from foreign currency transactions
have not had a material impact on the Company's operating results. Losses of
$7,000 and $20,000 for the years ended November 30, 2001 and 2000, respectively,
resulted from foreign currency transactions. See "Foreign Currency Translation"
in Note 2 of Notes to Consolidated Financial Statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------

In April 1998 the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities"("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The initial adoption of SOP 98-5
was recorded as the cumulative effect of a change in accounting principle. This
one-time charge, net of income tax benefit, was $542,000, or $.06 per diluted
share, in the first quarter of fiscal 2000.

In September 2000 the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") reached a final consensus on EITF Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF 00-10").
EITF 00-10 is effective the fourth quarter of 2001 and addresses the income
statement classification of amounts charged to customers for shipping and
handling, as well as costs incurred related to shipping and handling. The EITF
concluded that amounts billed to a customer in a sales transaction related to
shipping and handling should be classified as revenue. The



                                       13
<PAGE>

EITF also concluded that if costs incurred related to shipping and handling are
significant and not included in cost of sales, an entity should disclose both
the amount of such costs and the line item on the income statement that includes
them. Costs incurred related to shipping and handling included in revenues were
required to be reclassified to cost of sales. The Company currently classifies
shipping and handling costs as a selling expense. The amount of shipping and
handling costs included in selling expense for 2001, 2000 and 1999 was
$5,551,000, $7,644,000 and $6,794,000, respectively. The adoption of this
pronouncement in 2001 did not have an impact on the results of operations or the
financial position of the Company.

In November 2000 the EITF finalized EITF Issue No. 00-14, "Accounting for
Certain Sales Incentives" ("EITF 00-14"). EITF 00-14 addresses the recognition,
measurement and income statement classification for sales incentives offered to
customers. Sales incentives include discounts, coupons, rebates, "buy one get
one free" promotions and generally any other offers that entitle a customer to
receive a reduction in the price of a product or service by submitting a claim
for a refund or rebate. Under EITF 00-14 the reduction in or refund of the
selling price of the product or service resulting from any cash sales incentives
should be classified as a reduction of revenue. Currently, the Company
recognizes all sales incentives as an advertising and promotion expense.
Although this pronouncement will not have any impact on the results of
operations or financial position of the Company, the presentation prescribed
will have an effect of reducing net sales and advertising and promotion expense
in comparison to prior years. The Company will adopt EITF 00-14 for all periods
presented in the first quarter of fiscal 2002. The impact of adopting would have
decreased net sales and advertising and promotion expense in 2001, 2000 and 1999
by $5,543,000, $15,215,000 and $11,441,000, respectively.

In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). The provisions of SFAS 142 permit the Company to
discontinue the amortization of the cost of intangible assets with indefinite
lives resulting from acquired brands for accounting purposes and require certain
fair value based tests of the carrying value of indefinite lived intangible
assets. The Company plans to early adopt the provisions of SFAS 142 effective
December 1, 2001. The amount of amortization, net of income tax benefit, was
$3,455,000, $5,496,000 and $5,882,000 in 2001, 2000 and 1999, respectively. The
Company is currently evaluating the potential impairment of these intangible
assets.

In July 2001 the EITF finalized EITF Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products"
("EITF 00-25"). Under the provisions of EITF 00-25 the Company will be required
to reclassify certain marketing and selling expenses as reductions of net sales.
The results of operations and the financial position of the Company, therefore,
will not be affected. The Company will adopt EITF 00-25 for all periods
presented in the first quarter of fiscal 2002. The amount of these marketing and
selling expenses were $11,591,000, $19,447,000 and $6,423,000 in 2001, 2000 and
1999, respectively.

                                       14
<PAGE>

SUBSEQUENT EVENTS
-----------------

On January 22, 2002 Kmart Corporation, a customer of the Company representing
approximately 5% of consolidated revenues, filed a petition under Chapter 11 of
the United States Bankruptcy Code. At the time of the filing Kmart Corporation
owed the Company approximately $1,200,000. The Company is assessing what impact,
if any, this bankruptcy filing may have on future operations. This bankruptcy
filing did not impact the Company's results of operations and financial position
for fiscal 2001.

Subsequent to year end, the Company repurchased, and returned to unissued,
44,000 shares of its common stock, without par value, for $630,000 in accordance
with the Company's previously announced stock buyback program.

FORWARD LOOKING STATEMENTS
--------------------------

The Company may from time to time make written and oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases and in reports to
shareholders. The Private Securities Litigation Reform Act of 1995 contains a
safe harbor for forward-looking statements. The Company relies on this safe
harbor in making such disclosures. The forward-looking statements are based on
management's current beliefs and assumptions about expectations, estimates,
strategies and projections for the Company. These statements are not guarantees
of future performance and involve risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements whether as a result of new information, future events
or otherwise. The risks, uncertainties and assumptions regarding forward-looking
statements include, but are not limited to, existing and possible future product
liability claims relating to the prior existence of PPA in DEXATRIM; the
possible effect of the negative public perception resulting from product
liability claims on sales of DEXATRIM products with PPA; the lack of
availability, limits of coverage and expense related to product liability
insurance; the possibility of other product liability claims, including claims
relating to the existence of ephedrine in DEXATRIM Natural; the impact of brand
acquisitions and divestitures; the impact of extraordinary gains or losses
resulting from product acquisitions or divestitures, financings or debt
repayments; product demand and market acceptance risks; product development
risks, such as delays or difficulties in developing, producing and marketing new
products or line extensions; the impact of competitive products, pricing and
advertising; constraints resulting from the financial condition of the Company,
including the degree to which the Company is leveraged; debt service
requirements and restrictions under indentures; government regulations; risks of
loss of material customers; public perception regarding the Company's products;
dependence on third party manufacturers; environmental matters; and other risks
described in the Company's Securities and Exchange Commission filings.

                                       15
<PAGE>
                             SELECTED FINANCIAL DATA
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE><CAPTION>
                                                                                 Year Ended November 30,
                                                       --------------------------------------------------------------------------
                                                          2001            2000            1999            1998            1997
                                                       ----------      ----------      ----------      ----------      ----------
<S>                                                    <C>             <C>             <C>             <C>             <C>
INCOME STATEMENT DATA:

  NET SALES .......................................... $  198,300      $  252,699      $  298,142      $  220,064      $  143,235

  OPERATING COSTS AND EXPENSES .......................    165,122         213,819         225,941         174,845         117,732
                                                       ----------      ----------      ----------      ----------      ----------
  INCOME FROM OPERATIONS .............................     33,178          38,880          72,201          45,219          25,503

  OTHER EXPENSE, NET .................................    (19,638)        (39,181)        (35,993)        (16,247)        (14,640)
                                                       ----------      ----------      ----------      ----------      ----------
  INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
  GAIN (LOSS) AND CHANGE IN ACCOUNTING PRINCIPLE .....     13,540            (301)         36,208          28,972          10,863

  PROVISION FOR (BENEFIT FROM) INCOME TAXES ..........      5,145            (104)         13,667          10,844           3,847
                                                       ----------      ----------      ----------      ----------      ----------
  INCOME (LOSS) BEFORE EXTRAORDINARY GAIN
  (LOSS) AND CHANGE IN ACCOUNTING PRINCIPLE .......... $    8,395      $     (197)     $   22,541      $   18,128      $    7,016
                                                       ==========      ==========      ==========      ==========      ==========

PER SHARE DATA:

  INCOME (LOSS) PER DILUTED SHARE BEFORE EXTRAORDINARY
  GAIN (LOSS) AND CHANGE IN ACCOUNTING PRINCIPLE .....   $      .93      $     (.02)     $     2.25      $     1.86      $      .77
                                                         ==========      ==========      ==========      ==========      ==========
BALANCE SHEET DATA:
  (At End of Year)

  TOTAL ASSETS .......................................   $  299,673      $  402,076      $  491,624      $  369,012      $  178,744
                                                         ==========      ==========      ==========      ==========      ==========
  LONG-TERM DEBT, less
     current maturities ..............................   $  204,740      $  304,077      $  358,950      $  273,913      $  133,475
                                                         ==========      ==========      ==========      ==========      ==========
</TABLE>
















                                       16
<PAGE>


MARKET PRICES

The Company's common shares trade over-the-counter on the National Market System
under the NASDAQ symbol CHTT. A quarterly summary of the high and low market
prices per common share as reported by NASDAQ is shown below:



                                      2001                        2000
                              -------------------         -------------------
QUARTER ENDED:                 High          Low           High          Low
                              ------        -----         ------        -----
February ................     10.000        4.750         23.438       16.250
May .....................     10.700        7.688         18.875       11.813
August ..................     13.500        8.500         16.000        9.750
November ................     16.290        9.520         12.313        4.500




Based upon transfer agent records, the Company's common shares were held by
approximately 2,500 shareholders as of February 22, 2002.





































                                       17
<PAGE>
                           CONSOLIDATED BALANCE SHEETS
                           NOVEMBER 30, 2001 AND 2000
                                 (IN THOUSANDS)


<TABLE><CAPTION>



ASSETS                                                                              2001           2000
                                                                                 ----------     ----------
<S>                                                                              <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents ..................................................   $   35,445     $  102,534
  Accounts receivable, less allowance for doubtful accounts
     of $500 in 2001 and $1,025 in 2000 ......................................       20,860         40,691
  Refundable and deferred income taxes .......................................        4,646         12,401
  Inventories ................................................................       14,260         15,052
  Prepaid expenses and other current assets ..................................        2,667            884
                                                                                 ----------     ----------
     Total current assets ....................................................       77,878        171,562
                                                                                 ----------     ----------

PROPERTY, PLANT AND EQUIPMENT, NET ...........................................       26,275         27,059
                                                                                 ----------     ----------

OTHER NONCURRENT ASSETS:
  Patents, trademarks and other purchased product rights, net ................      185,373        191,980
  Debt issuance costs, net ...................................................        7,665          8,829
  Other ......................................................................        2,482          2,646
                                                                                 ----------     ----------
     Total other noncurrent assets ...........................................      195,520        203,455
                                                                                 ----------     ----------

           TOTAL ASSETS ......................................................   $  299,673     $  402,076
                                                                                 ==========     ==========
</TABLE>


                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS.




















                                       18
<PAGE>
                           CONSOLIDATED BALANCE SHEETS
                           NOVEMBER 30, 2001 AND 2000
                                 (IN THOUSANDS)


<TABLE><CAPTION>


LIABILITIES AND SHAREHOLDERS' EQUITY                                          2001            2000
                                                                           ----------      ----------
<S>                                                                        <C>             <C>
CURRENT LIABILITIES:
  Accounts payable ...................................................     $    9,010      $    8,790
  Payable to bank ....................................................            151           1,529
  Accrued liabilities ................................................         15,138          35,214
                                                                           ----------      ----------
     Total current liabilities .......................................         24,299          45,533
                                                                           ----------      ----------

LONG-TERM DEBT .......................................................        204,740         304,077
                                                                           ----------      ----------

DEFERRED INCOME TAXES ................................................         16,251          12,919
                                                                           ----------      ----------

OTHER NONCURRENT LIABILITIES .........................................          1,765           1,894
                                                                           ----------      ----------

COMMITMENTS AND CONTINGENCIES (Notes 4 and 9)


SHAREHOLDERS' EQUITY:
  Preferred shares, without par value, authorized 1,000,
     none issued .....................................................           --              --
  Common shares, without par value, authorized 50,000, issued
     8,973 in 2001 and 8,861 in 2000 .................................          1,868           1,845
  Paid-in surplus ....................................................         65,960          64,443
  Accumulated deficit ................................................        (11,120)        (26,463)
                                                                           ----------      ----------
                                                                               56,708          39,825
  Unamortized value of restricted common shares issued ...............           (859)           --
  Cumulative other comprehensive income:
     Foreign currency translation adjustment .........................         (2,231)         (2,172)
     Minimum pension liability adjustment, net of income taxes .......         (1,000)           --
                                                                           ----------      ----------
     Total shareholders' equity ......................................         52,618          37,653
                                                                           ----------      ----------

          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................     $  299,673      $  402,076
                                                                           ==========      ==========
</TABLE>

                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS.







                                       19
<PAGE>
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)




<TABLE><CAPTION>
                                                             2001            2000            1999
                                                          ----------      ----------      ----------
<S>                                                       <C>             <C>             <C>
NET SALES ...........................................     $  198,300      $  252,699      $  298,142
                                                          ----------      ----------      ----------

COSTS AND EXPENSES:
  Cost of sales .....................................         52,512          74,957          75,612
  Advertising and promotion .........................         77,964         106,868         117,835
  Selling, general and administrative ...............         34,646          31,994          32,494
                                                          ----------      ----------      ----------
     Total costs and expenses .......................        165,122         213,819         225,941
                                                          ----------      ----------      ----------

INCOME FROM OPERATIONS ..............................         33,178          38,880          72,201
                                                          ----------      ----------      ----------

OTHER INCOME (EXPENSE):
  Interest expense ..................................        (21,856)        (35,729)        (36,572)
  Investment and other income, net ..................          2,218           1,566             579
  Loss on product divestitures ......................           --            (5,018)           --
                                                          ----------      ----------      ----------
     Total other income (expense) ...................        (19,638)        (39,181)        (35,993)
                                                          ----------      ----------      ----------

INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
  GAIN (LOSS) AND CHANGE IN ACCOUNTING PRINCIPLE ....         13,540            (301)         36,208

PROVISION FOR (BENEFIT FROM) INCOME TAXES ...........          5,145            (104)         13,667
                                                          ----------      ----------      ----------

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN (LOSS)
  AND CHANGE IN ACCOUNTING PRINCIPLE ................          8,395            (197)         22,541

EXTRAORDINARY GAIN (LOSS) ON EARLY EXTINGUISHMENT
  OF DEBT, NET OF INCOME TAXES ......................          6,948            (920)         (2,385)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
  NET OF INCOME TAX BENEFIT .........................           --              (542)           --
                                                          ----------      ----------      ----------

NET INCOME (LOSS) ...................................     $   15,343      $   (1,659)     $   20,156
                                                          ==========      ==========      ==========

NUMBER OF COMMON SHARES:
  Weighted average outstanding - basic ..............          8,927           9,411           9,747
                                                          ==========      ==========      ==========
  Weighted average and potential dilutive outstanding          9,038           9,411          10,024
                                                          ==========      ==========      ==========

NET INCOME (LOSS) PER COMMON SHARE:
  Basic:
     Income (loss) before extraordinary gain (loss)
       and change in accounting principle ...........     $      .94      $     (.02)     $     2.31
     Extraordinary gain (loss) ......................            .78            (.10)           (.24)
     Change in accounting principle .................           --              (.06)           --
                                                          ----------      ----------      ----------
         Total basic ................................     $     1.72      $     (.18)     $     2.07
                                                          ==========      ==========      ==========
  Diluted:
     Income (loss) before extraordinary gain (loss)
       and change in accounting principle ...........     $      .93      $     (.02)     $     2.25
     Extraordinary gain (loss) ......................            .77            (.10)           (.24)
     Change in accounting principle .................           --              (.06)           --
                                                          ----------      ----------      ----------
         Total diluted ..............................     $     1.70      $     (.18)     $     2.01
                                                          ==========      ==========      ==========
</TABLE>

                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       20
<PAGE>
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE><CAPTION>
                                                                                   Unamortized
                                                                                    Value of                  Minimum
                                                                                   Restricted   Foreign       Pension
                                                                                     Common     Currency     Liability
                                                 Common     Paid-in   Accumulated    Shares    Translation   Adjustment,
                                                 Shares     Surplus     Deficit      Issued    Adjustment        Net        Total
                                                --------    --------    --------    --------    --------      --------    --------
<S>                                             <C>         <C>         <C>         <C>         <C>           <C>         <C>
Balance, November 30, 1998 ...................  $  1,994    $ 69,068    $(44,960)   $   --      $ (1,351)     $   --      $ 24,751
  Net income .................................      --          --        20,156        --          --            --        20,156
  Stock options exercised ....................        10       1,775        --          --          --            --         1,785
  Stock warrants exercised ...................        26         860        --          --          --            --           886
  Stock repurchases ..........................       (36)     (3,876)       --          --          --            --        (3,912)
  Issuance of 128,082 common shares in
    connection with product acquisitions .....        27       5,023        --          --          --            --         5,050
  Foreign currency translation adjustment ....      --          --          --          --           (15)         --           (15)
                                                --------    --------    --------    --------    --------      --------    --------
Balance, November 30, 1999 ...................     2,021      72,850     (24,804)       --        (1,366)         --        48,701
  Net loss ...................................      --          --        (1,659)       --          --            --        (1,659)
  Stock options exercised ....................         6         847        --          --          --            --           853
  Stock repurchases ..........................      (183)     (9,306)       --          --          --            --        (9,489)
  Issuance of 3,312 common shares for
    non-employee directors' compensation .....         1          52        --          --          --            --            53
  Foreign currency translation adjustment ....      --          --          --          --          (806)         --          (806)
                                                --------    --------    --------    --------    --------      --------    --------
Balance, November 30, 2000 ...................     1,845      64,443     (26,463)       --        (2,172)         --        37,653
  Net income .................................      --          --        15,343        --          --            --        15,343
  Stock options exercised ....................         4         678        --          --          --            --           682
  Stock repurchases ..........................        (3)       (171)       --          --          --            --          (174)
  Issuance of 6,600 common shares for
    non-employee directors' compensation .....         1          38        --          --          --            --            39
  Issuance of 100,000 shares of restricted
    common stock at a weighted average value
    of $9.93 per share .......................        21         972        --          (993)       --            --           --
  Amortization of value of restricted common
    shares issued ............................      --          --          --           134        --            --           134
  Foreign currency translation adjustment ....      --          --          --          --           (59)         --           (59)
  Minimum pension liability adjustment, net ..      --          --          --          --          --          (1,000)     (1,000)
                                                --------    --------    --------    --------    --------      --------    --------
Balance, November 30, 2001 ...................  $  1,868    $ 65,960    $(11,120)   $   (859)   $ (2,231)     $ (1,000)   $ 52,618
                                                ========    ========    ========    ========    ========      ========    ========
</TABLE>

                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS.











                                       21
<PAGE>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE><CAPTION>
                                                                             2001            2000            1999
                                                                          ----------      ----------      ----------
<S>                                                                       <C>             <C>             <C>
OPERATING ACTIVITIES:
    Net income (loss) ...............................................     $   15,343      $   (1,659)     $   20,156
    Adjustments to reconcile net income (loss) to net cash provided
      by operating activities:
       Depreciation and amortization ................................         10,241          14,943          15,064
       Deferred income tax provision (benefit) ......................         11,362          (5,734)          4,598
       Loss on product divestitures .................................           --             5,018            --
       Extraordinary (gain) loss on early extinguishment of debt, net         (6,948)            920           2,385
       Cumulative effect of change in accounting principle, net .....           --               542            --
       Dividend receivable from Elcat, Inc. .........................           --              --              (279)
       Stock option charge ..........................................            525             525             525
       Other, net ...................................................            (61)             15            --
       Changes in operating assets and liabilities, net of
          acquisitions and divestitures:
             Accounts receivable ....................................         19,831          14,341         (17,428)
             Inventories ............................................            792           7,240          (4,683)
             Prepaid expenses and other current assets ..............         (1,793)         (1,538)           (159)
             Accounts payable and accrued liabilities ...............        (25,562)         (8,106)          6,743
                                                                          ----------      ----------      ----------
                  NET CASH PROVIDED BY OPERATING ACTIVITIES .........         23,730          26,507          26,922
                                                                          ----------      ----------      ----------

INVESTING ACTIVITIES:
    Purchases of property, plant and equipment ......................         (1,854)         (5,673)         (9,830)
    Purchases of patents, trademarks and other product rights .......           (277)           --           (91,127)
    Proceeds from product divestitures ..............................          1,179         160,000            --
    Proceeds from sale of investments ...............................           --              --             3,381
    Proceeds from sales of property, plant and equipment ............             95              11             272
    Increase in other assets ........................................           (727)         (1,542)         (3,200)
                                                                          ----------      ----------      ----------
                  NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES         (1,584)        152,796        (100,504)
                                                                          ----------      ----------      ----------

FINANCING ACTIVITIES:
    Repayment of long-term debt .....................................        (83,746)        (95,000)       (165,481)
    Proceeds from long-term debt ....................................           --            29,000         242,281
    Payment of consent fees and other costs related to repayment
       of long-term debt ............................................         (4,000)           --              --
    Change in payable to bank .......................................         (1,378)         (3,376)          3,879
    Repurchase of common shares .....................................           (174)         (9,489)         (3,912)
    Proceeds from exercise of stock options and warrants ............            119             237           2,104
    Debt issuance costs .............................................           --              (363)         (5,101)
                                                                          ----------      ----------      ----------
                  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES        (89,179)        (78,991)         73,770
                                                                          ----------      ----------      ----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ........            (56)            (86)             44
                                                                          ----------      ----------      ----------

CASH AND CASH EQUIVALENTS:
    Increase (decrease) for the year ................................        (67,089)        100,226             232
    At beginning of year ............................................        102,534           2,308           2,076
                                                                          ----------      ----------      ----------
    At end of year ..................................................     $   35,445      $  102,534      $    2,308
                                                                          ==========      ==========      ==========

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
    Issuance of 125,500 shares of common stock at $39.84 per share
       to fund portion of Thompson Medical brands' acquisition ......     $     --        $     --        $    5,000
    Issuance of 2,582 shares of common stock at $19.365 per share
       as part of agreement to settle future contingency payments to
       the former owners of SUNSOURCE ...............................     $     --        $     --        $       50
    Additions to trademarks and other product rights by assumption
       of certain liabilities .......................................     $     --        $     --        $    1,525
    Issuance of 100,000 shares of restricted common stock at a
       weighted average value of $9.93 per share ....................     $      993      $     --        $     --
</TABLE>

                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       22
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE: ALL MONETARY AMOUNTS ARE EXPRESSED IN THOUSANDS OF DOLLARS UNLESS
      CONTRARILY EVIDENT.





(1)  NATURE OF OPERATIONS
     --------------------
     Chattem, Inc. and its wholly-owned subsidiaries (the "Company") market and
manufacture branded over-the-counter ("OTC") health care products. The products
are sold primarily through mass merchandisers, independent and chain drug
stores, drug wholesalers and food stores in the United States and in various
markets in approximately 50 countries throughout the world.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

BASIS OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
Chattem, Inc. and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.

CASH AND CASH EQUIVALENTS

     The Company considers all short-term deposits and investments with original
maturities of three months or less to be cash equivalents.

INVENTORIES

     Inventory costs include materials, labor and factory overhead. Inventories
in the United States are valued at the lower of last-in, first-out ("LIFO") cost
or market, while international inventories are valued at the lower of first-in,
first-out ("FIFO") cost or market.

     At November 30, 2001 certain LIFO inventory quantities were lower than
their respective prior year levels resulting in liquidations of inventory
quantities carried at higher costs prevailing in prior years as compared to
current year costs. The effect of this liquidation increased cost of sales by
$86.

PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are recorded at cost. The Company capitalized
interest of $31 and $255 in 2000 and 1999, respectively. Depreciation is
computed using the straight-line method over the estimated useful lives of 10 to
40 years for buildings and improvements and 3 to 12 years for machinery and
equipment. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation expense for 2001, 2000 and 1999 was $2,618, $2,504 and
$1,936, respectively.







                                       23
<PAGE>
PATENTS, TRADEMARKS AND OTHER PURCHASED PRODUCT RIGHTS

     The costs of acquired patents, trademarks and other purchased product
rights are capitalized and amortized over periods ranging from 5 to 40 years. At
November 30, 2001 the weighted average life of patents, trademarks and other
purchased product rights was 32 years. Total accumulated amortization of these
assets at November 30, 2001 and 2000 was $28,090 and $24,964, respectively.
Amortization expense for 2001, 2000 and 1999 was $5,783, $9,151 and $9,874,
respectively. Royalty expense related to other purchased product rights for
2001, 2000 and 1999 was $180, $23, and $498, respectively. Amortization and
royalty expense are included in advertising and promotion expense in the
accompanying consolidated statements of income.

     Effective December 1, 2001 the Company will discontinue amortizing the cost
of its trademarks having an indefinite useful life in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142") issued by the Financial
Accounting Standards Board ("FASB"). See "Recent Accounting Pronouncements" of
this footnote.

     The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining useful life of long-lived assets might
warrant revision or that the remaining balance may not be recoverable. When
factors indicate that long-lived assets should be evaluated for possible
impairment, the Company uses an estimate of the future undiscounted net cash
flows of the related assets over the remaining lives of the assets in measuring
whether long-lived assets are recoverable. In connection with the Company's sale
of Norwich Aspirin in fiscal 2001, the Company determined an impairment had
occurred in fiscal 2000, resulting in a charge of $810 in that year.

DEBT ISSUANCE COSTS

     The Company has incurred debt issuance costs in connection with its
long-term debt. These costs are capitalized and amortized over the term of the
related debt. Amortization expense related to debt issuance costs was $1,143,
$1,565 and $1,556 in 2001, 2000 and 1999, respectively. Accumulated amortization
of these costs was $3,104 and $3,674 at November 30, 2001 and 2000,
respectively.

PAYABLE TO BANK

     Payable to bank includes checks outstanding in excess of certain cash
balances.

REVENUE RECOGNITION

     Revenue is recognized when the Company's products are shipped to its
customers.

     It is the Company's policy across all classes of customers that all sales
are final. As is common in the consumer products industry, product is returned
by the customer due to a number of reasons. Examples include product damaged in
transit, discontinuance of a particular size or form of product, shipping error,
etc. The Company maintains and evaluates an allowance for returns and will
record a return upon receipt of the product or deduction by the customer.






                                       24

<PAGE>
RESEARCH AND DEVELOPMENT

     Research and development costs relate primarily to the development of new
products and are expensed as incurred. Such expenses were $1,664, $1,901, and
$1,839 in 2001, 2000 and 1999, respectively.

ADVERTISING EXPENSES

     The cost of advertising is expensed in the fiscal year in which the related
advertising takes place. Production and communication costs are expensed in the
period in which the related advertising begins running. Advertising expense for
2001, 2000 and 1999 was $40,516, $46,028, and $54,764, respectively. At November
30, 2001 and 2000, the Company reported $857 and $669, respectively, of
advertising paid for in 2001 and 2000 which will run or did run in the next
fiscal year. These amounts are included in other noncurrent assets in the
accompanying consolidated balance sheets.

NET INCOME PER COMMON SHARE

     For the years ended November 30, 2001, 2000 and 1999 the weighted average
and potential dilutive number of common shares outstanding consisted of the
following (in thousands):

                                                2001       2000       1999
                                               ------     ------     ------
Weighted average common shares outstanding      8,927      9,411      9,747
Potential dilutive shares from:
   Stock options .........................         95       --          277
   Restricted common shares ..............         16       --         --
                                               ------     ------     ------
Weighted average and potential dilutive
  common shares outstanding (1) ..........      9,038      9,411     10,024
                                               ======     ======     ======

(1)  Because their effects are anti-dilutive, excludes shares issuable under
     stock option plans whose grant price was greater than the average market
     price of common shares outstanding as follows: 480 shares in 2001 and 135
     shares in 1999.

Due to the net loss sustained in 2000, the impact of stock options outstanding
were antidilutive in that year.

FOREIGN CURRENCY TRANSLATION

     Assets and liabilities of the Company's Canadian and United Kingdom
subsidiaries are translated to United States dollars at year-end exchange rates.
Income and expense items are translated at average rates of exchange prevailing
during the year. Translation adjustments are accumulated as a separate component
of shareholders' equity. Gains and losses which result from foreign currency
transactions are included in the accompanying consolidated statements of income.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.



                                       25
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS

     The Company has entered into interest rate swap agreements from time to
time as a means of managing its interest rate exposure and not for trading
purposes. These agreements have the effect of converting a portion of the
Company's variable rate obligations to fixed rate obligations. Net amounts paid
or received are reflected as adjustments to interest expense. The Company was
not a party to any interest rate swap agreements at November 30, 2001 and 2000.
On December 1, 2001 the Company adopted the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Transactions", which had no
effect on the results of operations and financial position of the Company in
fiscal 2001.

CONCENTRATIONS OF CREDIT RISK

     Financial instruments which subject the Company to concentrations of credit
risk consist primarily of accounts receivable and short-term cash investments.
The Company's exposure to credit risk associated with nonpayment of accounts
receivable is affected by conditions or occurrences within the retail industry.
As a result, the Company performs ongoing credit evaluations of its customers'
financial position but generally requires no collateral from its customers. The
Company's largest customer accounted for 26%, 24% and 19% of sales in 2001, 2000
and 1999, respectively. No other customer exceeded 10% of the Company's sales in
2001, 2000 or 1999. Short-term cash investments are placed with high
credit-quality financial institutions or in low risk, liquid instruments. No
losses have been experienced on such investments. On January 22, 2002 Kmart
Corporation, a customer of the Company representing approximately 5% of
consolidated revenues, filed a petition under Chapter 11 of the United States
Bankruptcy Code. This bankruptcy filing did not impact the Company's results of
operations and financial position for fiscal 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

     In April 1998 the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities"("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The initial adoption of SOP 98-5
was recorded as the cumulative effect of a change in accounting principle. This
one-time charge, net of income tax benefit, was $542, or $.06 per diluted share,
in the first quarter of fiscal 2000.

     In September 2000 the Emerging Issues Task Force ("EITF") of the FASB
reached a final consensus on EITF Issue No. 00-10, "Accounting for Shipping and
Handling Fees and Costs" ("EITF 00-10"). EITF 00-10 is effective the fourth
quarter of 2001 and addresses the income statement classification of amounts
charged to customers for shipping and handling, as well as costs incurred
related to shipping and handling. The EITF concluded that amounts billed to a
customer in a sale transaction related to shipping and handling should be
classified as revenue. The EITF also concluded that if costs incurred related to
shipping and handling are significant and not included in cost of sales, an
entity should disclose both the amount of such costs and the line item on the
income statement that includes them. Costs incurred related to shipping and
handling included in revenues were required to be reclassified to cost of sales.
The Company currently classifies shipping and handling costs as a selling
expense. The amount of shipping and handling costs included in selling expense
for 2001, 2000 and 1999 was $5,551, $7,644 and $6,794, respectively. The
adoption of this pronouncement in 2001 did not have an impact on the results of
operations or the financial position of the Company.

                                       26
<PAGE>
     In November 2000 the EITF finalized EITF Issue No. 00-14, "Accounting for
Certain Sales Incentives" ("EITF 00-14"). EITF 00-14 addresses the recognition,
measurement and income statement classification for sales incentives offered to
customers. Sales incentives include discounts, coupons, rebates, "buy one get
one free" promotions and generally any other offers that entitle a customer to
receive a reduction in the price of a product or service by submitting a claim
for a refund or rebate. Under EITF 00-14, the reduction in or refund of the
selling price of the product or service resulting from any cash sales incentives
should be classified as a reduction of revenue. Currently, the Company
recognizes all sales incentives as an advertising and promotion expense.
Although this pronouncement will not have any impact on the results of
operations or financial position of the Company, the presentation prescribed
will have an effect of reducing net sales and advertising and promotion expense
in comparison to prior years. The Company will adopt EITF 00-14 for all periods
presented in the first quarter of fiscal 2002. The impact of adopting would have
decreased net sales and advertising and promotion expense in 2001, 2000 and 1999
by $5,543, $15,215 and $11,441, respectively.

     In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). The provisions of SFAS 142 permit the Company to
discontinue the amortization of the cost of intangible assets with indefinite
lives resulting from acquired brands for accounting purposes and require certain
fair value based tests of the carrying value of indefinite lived intangible
assets. The Company plans to early adopt the provisions of SFAS 142 effective
December 1, 2001. The amount of amortization, net of income tax benefit, was
$3,455, $5,496 and $5,882 in 2001, 2000 and 1999, respectively. The Company is
currently evaluating the potential impairment of these intangible assets.

     In July 2001 the EITF finalized EITF Issue No. 00-25, "Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the Vendor's
Products" ("EITF 00-25"). Under the provisions of EITF 00-25 the Company will be
required to reclassify certain marketing and selling expenses as reductions of
net sales. The results of operations and the financial position of the Company,
therefore, will not be affected. The Company will adopt EITF 00-25 for all
periods presented in the first quarter of fiscal 2002. The amount of these
marketing and selling expenses were $11,591, $19,447 and $6,423 in 2001, 2000
and 1999, respectively.

STOCK-BASED COMPENSATION

     The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Effective fiscal 1997, the Company adopted the disclosure option of
SFAS No. 123, "Accounting for Stock-Based Compensation".

RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform to the current
period's presentation.

(3)  PENSION PLANS
     -------------
     The Company has a noncontributory defined benefit pension plan ("the Plan")
which covers substantially all employees. The Plan provides benefits based upon
years of service and the employee's compensation. The Company's contributions
are based on computations by independent actuaries. Plan assets at November 30,
2001 and 2000 were invested primarily in United States government and agency
securities and corporate debt and equity securities. In October 2000 the
Company's board of directors adopted an amendment to the Plan that freezes
benefits of the Plan and prohibits new entrants to the Plan effective December
31, 2000. This action by the board of directors resulted in a curtailment gain
(loss) of $(179) and $1,912 in 2001 and 2000, respectively.


                                       27
<PAGE>
     Net periodic pension cost for the years ended November 30, 2001, 2000 and
1999 included the following components:
<TABLE><CAPTION>
                                                          2001        2000        1999
                                                        --------    --------    --------
     <S>                                                <C>         <C>         <C>
     Service cost (benefits earned during the period)   $   --      $    789    $    834
     Interest cost on projected benefit obligation ..        549         794         747
     Actual (return) loss on plan assets ............     (1,018)       (325)      1,528
     Net amortization and deferral ..................        425        (337)     (2,558)
     Curtailment (gain) loss ........................        179      (1,912)       --
                                                        --------    --------    --------
     Net pension cost (benefit) .....................   $    135    $   (991)   $    551
                                                        ========    ========    ========
</TABLE>
     The change in the projected benefit obligation resulted from the following
components for the years ended November 30, 2001 and 2000:

                                                          2001        2000
                                                        --------    --------
     Projected benefit obligation, beginning of year    $  6,446    $ 10,063
     Service cost ...................................        --          789
     Interest cost ..................................        549         794
     Actuarial loss .................................      1,987         355
     Benefits paid ..................................     (1,040)     (1,327)
     Settlements ....................................        253         --
     Curtailment of benefits ........................        --       (4,228)
                                                        --------    --------
     Projected benefit obligation, end of year ......   $  8,195    $  6,446
                                                        ========    ========

     The change in plan assets resulted from the following components for the
years ended November 30, 2001 and 2000:
                                                          2001        2000
                                                        --------    --------
     Fair value of plan assets, beginning of year       $  6,957    $  7,659
     Actual return on plan assets ...................      1,018         325
     Employer contribution ..........................        886         300
     Benefits paid ..................................     (1,040)     (1,327)
                                                        --------    --------
     Fair value of plan assets, end of year .........   $  7,821    $  6,957
                                                        ========    ========

     The following table sets forth the funded status of the Plan as of November
30, 2001 and 2000:
                                                          2001        2000
                                                        --------    --------
     Plan assets at fair market value ...............   $  7,821    $  6,957
     Projected benefit obligation ...................     (8,195)     (6,446)
                                                        --------    --------
     Plan assets greater (less) than projected
       benefit obligation ...........................       (374)        511
     Unrecognized net loss ..........................      1,636        --
     Minimum pension liability adjustment ...........     (1,636)       --
                                                        --------    --------
     Pension asset (liability) recognized in
       balance sheets at end of year ................   $   (374)   $    511
                                                        ========    ========

     The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7% and 8% in 2001 and 2000, respectively. The
expected long-term rate of return on plan assets was 9% in both 2001 and 2000.

                                       28
<PAGE>
     The Company has a defined contribution plan covering substantially all
employees. Eligible participants can contribute up to 15% of their annual
compensation and receive a 25% matching employer contribution up to 6% of their
annual compensation. The defined contribution plan expense was $180, $171 and
$198 in 2001, 2000 and 1999, respectively. In fiscal 2001 the Company enhanced
its savings investment plan to include an additional 3% employer contribution
made on behalf of eligible participants. This employer contribution expense was
$492 in 2001.

(4)  LONG-TERM DEBT
     --------------
     Long-term debt consisted of the following at November 30, 2001 and 2000:

                                                          2001         2000
                                                        ---------    ---------
     8.875% Senior Subordinated Notes due 2008, plus
        unamortized premium of $202 for 2001 and $233
        for 2000.....................................   $ 204,740    $ 275,233
     12.75% Senior Subordinated Notes due 2004, net
        of unamortized discount of $301..............         --        28,844
                                                        ---------    ---------
     Total long-term debt ...........................   $ 204,740    $ 304,077
                                                        =========    =========

     On January 17, 2001 the Company completed the consent solicitation and
tender offer pursuant to which it retired $70,462 principal amount of its 8.875%
Senior Subordinated Notes due 2008 (the "8.875% Notes") and $7,397 principal
amount of its 12.75% Senior Subordinated Notes due 2004 (the "12.75% Notes").
Total consideration paid for the consent solicitation and tender offer was
$64,937, which was provided by the proceeds of the Company's divestiture of the
Ban product line in fiscal 2000 (Note 11). On June 15, 2001 the Company retired
all of the remaining outstanding principal balance of $21,748 of the 12.75%
Notes.

     On March 24, 1998 the Company issued at par value $200,000 of the 8.875%
Notes. The proceeds of the note offering were used to fund the Ban purchase
(Note 11), repay revolving bank indebtedness and provide additional working
capital.

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

     The 8.875% Notes mature on April 1, 2008 and interest is payable
semi-annually on April 1 and October 1 of each year. The 8.875% Notes are senior
subordinated obligations of the Company and are subordinated in right of payment
to all existing and future senior debt of the Company. The 8.875% Notes, which
were registered under the Securities Act of 1933, are not callable until April
1, 2003, after which they may be redeemed at the option of the Company. Upon the
occurrence of certain events constituting a change of control, the holders of
the 8.875% Notes may require the Company to repurchase the 8.875% Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest. The 8.875% Notes are guaranteed by Signal Investment &
Management Co., a wholly-owned subsidiary of the Company.


                                       29
<PAGE>
     The 8.875% Notes are issued under an indenture with an indenture trustee,
which restricts, among other things, the ability of the Company and its
subsidiaries to (i) incur additional indebtedness, (ii) pay dividends, (iii)
sell or issue capital stock of a subsidiary, (iv) create encumbrances on the
ability of any subsidiary to pay dividends or make other restricted payments,
(v) engage in certain transactions with affiliates, (vi) dispose of certain
assets, (vii) merge or consolidate with or into, or sell or otherwise transfer
all or substantially all their properties and assets as an entirety to another
person, or (viii) create additional liens.

     In 1994 the Company issued $75,000 of the 12.75% Notes with five year
warrants to purchase 417,182 shares of common stock (the "Warrants"). The right
to exercise the Warrants expired on August 16, 1999. The proceeds of the 12.75%
Notes were used to repay amounts outstanding under a prior credit agreement. The
remaining principal balance of these notes was retired in 2001.

     On June 21, 2001 the Company obtained a $10,000 unsecured revolving line of
credit from a financial institution. As of November 30, 2001 no portion of this
credit facility had been utilized by the Company.

     During 2001, 2000 and 1999 the Company prepaid previously outstanding
long-term debt with funds received from refinancings, the sales of Ban and
Cornsilk (Note 11), cash from operations, the redemption of the Elcat Preferred
Shares and the issuance of the 8.875% Notes. In connection with the repayment of
those borrowings, the Company incurred extraordinary gains (losses), net of
income tax, in 2001, 2000 and 1999 of $6,948, $(920) and $(2,385), respectively,
or $.77, $(.10) and $(.24) per diluted share, respectively. The gain and these
losses related to the write-off of debt issuance and other deferred financing
costs and the discounts taken and premiums paid on the retirement of the 8.875%
and 12.75% Notes.

     Future maturities of long-term debt are as follows:

     2002 ....................................   $     --
     2003 ....................................         --
     2004 ....................................         --
     2005 ....................................         --
     2006 ....................................         --
     Thereafter ..............................      204,538
                                                 ----------
                                                    204,538
     Unamortized premium .....................          202
                                                 ----------
                                                 $  204,740
                                                 ==========

     Cash interest payments during 2001, 2000 and 1999 were $23,408, $33,596 and
$34,822, respectively, net of $31 and $255 capitalized in 2000 and 1999,
respectively.

(5)  DERIVATIVE FINANCIAL INSTRUMENTS
     --------------------------------
     On July 21, 1997 the Company entered into two interest rate swap agreements
with a financial institution in notional amounts of $40,000 and $5,000. The
Company entered into these agreements as hedges on its variable rate debt and
not for trading purposes. The swaps were scheduled to expire July 22, 2002. In
connection with the May 1999 refinancing of its long-term debt, the Company
terminated these agreements, which resulted in a $1,155 loss. This loss was
deferred by the Company and was being written off as interest expense over the
original life of the swaps. In connection with the September 2000 retirement of
the underlying variable rate debt, the Company wrote off the unamortized portion
of the loss to interest expense. The amounts of this loss charged to interest
expense in 2000 and 1999 were $942 and $213, respectively.

                                       30
<PAGE>
(6)  FAIR VALUE OF FINANCIAL INSTRUMENTS
     -----------------------------------
     Unless otherwise indicated elsewhere in the notes to the consolidated
financial statements, the carrying value of the Company's financial instruments
approximates fair value.

     At November 30, 2001 the carrying value of the 8.875% Notes exceeded their
estimated fair value by approximately $10,429. The fair value was estimated
based on quoted market prices for the same or similar issues.

(7)  INCOME TAXES
     ------------
     The provision for (benefit from) income taxes from income (loss) before
extraordinary gain (loss) and change in accounting principle includes the
following components for the years ending November 30, 2001, 2000 and 1999:

                                         2001         2000         1999
                                       --------     --------     --------
     Current:
        Federal ...................... $ (5,534)    $  5,053     $  8,115
        State ........................     (683)         577          954
     Deferred ........................   11,362       (5,734)       4,598
                                       --------     --------     --------
                                       $  5,145     $   (104)    $ 13,667
                                       ========     ========     ========

     Deferred income tax assets and liabilities reflect the impact of temporary
differences between the amounts of assets and liabilities for financial
reporting and income tax reporting purposes. Temporary differences and
carryforwards which give rise to deferred tax assets and liabilities at November
30, 2001 and 2000 are as follows:

                                                             2001         2000
                                                           --------     --------
     Deferred tax assets:
        Allowances and accruals .......................    $    235     $  1,049
        Inventory reserve .............................         365        1,890
        Accrued promotional expenses ..................         438        2,783
        Allowance for product returns .................         765        4,382
        Accrued postretirement health care benefits ...         612          596
        Other .........................................       1,628        2,016
                                                           --------     --------
           Gross deferred tax assets ..................       4,043       12,716
                                                           --------     --------
     Deferred tax liabilities:
        Depreciation and amortization .................      16,474       14,512
        Prepaid advertising ...........................         315          261
        Inventory .....................................         195          196
        Other .........................................       1,062          388
                                                           --------     --------
           Gross deferred tax liabilities .............      18,046       15,357
                                                           --------     --------
               Net deferred liability .................    $ 14,003     $  2,641
                                                           ========     ========

     The decrease in deferred tax assets from 2000 to 2001 relates primarily to
the reduction of certain liabilities related to DEXATRIM, SUNSOURCE and Ban
products from 2000 to 2001.



                                       31
<PAGE>

     The difference between the provision for (benefit from) income taxes and
the amount computed by multiplying income (loss) before income taxes,
extraordinary gain (loss) and change in accounting principle by the United
States statutory rate for the years ended November 30, 2001, 2000 and 1999 is
summarized as follows:

                                                2001        2000        1999
                                              -------     -------     -------
     Expected tax provision (benefit) ....    $ 4,739     $  (105)    $12,673
     Dividend exclusion benefit ..........       --          --           (69)
     State income taxes, net of federal
         income tax benefit ..............        696         (11)      1,327
     Other, net ..........................       (290)         12        (264)
                                              -------     -------     -------
                                              $ 5,145     $  (104)    $13,667
                                              =======     =======     =======

     Income taxes paid in 2001, 2000 and 1999 were $1,261, $9,119 and $8,179,
respectively. The Company received income tax refunds of $4,747 and $23 during
2001 and 1999, respectively.


(8)  SHAREHOLDERS' EQUITY
     --------------------

STOCK OPTIONS

     The Company's 1993 Non-Statutory Stock Option Plan provides for issuance of
up to 350,000 shares of common stock to key employees. In addition, the
Company's 1994 Non-Statutory Stock Option Plan and the 1994 Non-Statutory Stock
Option Plan for Non-Employee Directors provide for the issuance of up to 350,000
and 80,000 shares, respectively, of common stock. The Company's 1998
Non-Statutory Stock Option Plan provides for issuance of up to 700,000 shares of
common stock to key employees, while the 1999 Non-Statutory Stock Option Plan
for Non-Employee Directors allows issuance of up to 100,000 shares of common
stock. The 2000 Non-Statutory Stock Option Plan provides for the issuance of up
to 750,000 shares of common stock. Options vest ratably over four years and are
exercisable for a period of up to ten years from the date of grant.

     For SFAS No. 123 purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions for grants in 2001, 2000 and
1999: expected dividend yield of 0%, expected volatility of 65%, 57% and 58%,
risk-free interest rates of 4.40%, 6.41% and 4.81% and expected lives of six
years.

     Had compensation expense for stock option grants been determined based on
the fair value at the grant dates consistent with the method prescribed by SFAS
No. 123, the Company's net income (loss) and net income (loss) per share would
have been adjusted to the pro forma amounts for the years ended November 30,
2001, 2000 and 1999 as indicated below:




                                       32
<PAGE>
                                               2001         2000         1999
                                             --------     --------     --------
     Net income (loss):
        As reported ......................   $ 15,343     $ (1,659)    $ 20,156
        Pro forma ........................   $ 13,573     $ (2,456)    $ 18,980

     Net income (loss) per share, basic:
        As reported.......................   $   1.72     $   (.18)    $   2.07
        Pro forma.........................   $   1.52     $   (.26)    $   1.95

     Net income (loss) per share, diluted:
        As reported ......................   $   1.70     $   (.18)    $   2.01
        Pro forma ........................   $   1.50     $   (.26)    $   1.89



     A summary of the activity of stock options during 2001, 2000 and 1999 is
presented below (shares in thousands):
<TABLE><CAPTION>
                                                             2001                  2000                  1999
                                                       -----------------     -----------------     -----------------
<S>                                                    <C>        <C>        <C>        <C>        <C>        <C>
                                                                 Weighted              Weighted              Weighted
                                                       Shares    Average     Shares    Average     Shares    Average
                                                       Under     Exercise    Under     Exercise    Under     Exercise
                                                       Option     Price      Option      Price     Option     Price
                                                       ------     ------     ------     ------     ------     ------
     Outstanding at beginning of year .............       768     $12.50        849     $15.92        762     $11.17
        Granted ...................................       822       9.96        674      18.45        136      39.38
        Exercised .................................       (20)     10.94        (27)      8.65        (46)      7.50
        Cancelled .................................       (94)     17.33       (728)     22.14         (3)     14.71
                                                       ------                ------                ------
     Outstanding at end of year ...................     1,476     $10.85        768     $12.50        849     $15.92
                                                       ======     ======     ======     ======     ======     ======
     Options exercisable at year-end ..............       508     $11.30        484     $11.50        239     $10.24
                                                       ======     ======     ======     ======     ======     ======
     Weighted average fair value of options granted               $ 7.74                $11.13                $23.25
                                                                  ======                ======                ======
</TABLE>

     Compensation expense for stock option grants with exercise prices below the
market price at the date of grant is recognized ratably over the vesting period.
In 1998 options were granted to purchase 175,000 shares, which were at market
price on the date of approval by the board of directors but at prices below the
market price on the date of shareholder approval. Compensation expense recorded
for this grant was $525 in each of the fiscal years 2001, 2000 and 1999,
respectively.













                                       33
<PAGE>
     A summary of the exercise prices for options outstanding under the
Company's stock-based compensation plans at November 30, 2001 is presented below
(shares in thousands):

<TABLE><CAPTION>
                                                                                Weighted Average
                    Shares                       Weighted Average                Exercise Price
   Exercise          Under     Weighted Average      Remaining        Shares        of Shares
  Price Range       Option      Exercise Price     Life in Years    Exercisable    Exercisable
---------------    --------    ----------------    -------------    -----------    -----------
<S>                <C>         <C>                 <C>              <C>            <C>
$ 4.63 - $ 7.95        103       $    5.00             4.40              92        $    4.91
$ 7.96 - $11.93        893            9.68             8.71             102             8.40
$11.94 - $15.92        463           13.76             6.48             308            13.72
$15.93 - $19.90          6           18.81             8.02              --              --
$19.91 - $27.86          1           26.00             6.35               1            26.00
$27.87 - $39.81         10           36.25             7.38               5            36.25
---------------    --------                                         ------------
  Total              1,476       $   10.85             7.69             508        $   11.30
                   ========    ================    =============    ============   ===========
</TABLE>

PREFERRED SHARES

     The Company is authorized to issue up to 1,000,000 preferred shares in
series and with rights established by the board of directors. At November 30,
2001 and 2000 no shares of any series of preferred stock were issued and
outstanding.

EMPLOYEE STOCK OWNERSHIP PLAN

     Effective June 1, 1989 the Company established an Employee Stock Ownership
Plan providing for the issuance of up to 360,000 shares of the Company's common
stock. At November 30, 2001 no contributions had been made to the plan.

STOCK BUYBACK

     In 1999 the Company's board of directors authorized repurchases of the
Company's common stock, not to exceed $10,000 in the aggregate. In April 2000
the Company's board of directors authorized repurchases of up to an additional
$10,000 of the Company's common stock. Under these authorizations, 172,500
shares at a cost of $3,912 were reacquired in 1999, 876,500 shares at a cost of
$9,489 were repurchased in 2000 and 14,000 shares at a cost of $174 were
reacquired in 2001. The repurchased shares were retired and returned to
unissued. As of November 30, 2001 $6,425 was available for share repurchases
under the board of directors current authorization; however, the Company is
limited in its ability to repurchase shares by restrictions under the terms of
the indenture with respect to which its 8.875% Notes were issued.

SHAREHOLDER RIGHTS PLAN

     On January 26, 2000 the Company's board of directors adopted a Shareholder
Rights Plan. Under the plan, rights were constructively distributed as a
dividend at the rate of one right for each share of common stock, without par
value, of the Company held by shareholders of record as of the close of business
on February 11, 2000. Each right initially will entitle shareholders to buy one
one-hundredth of a share of a new Series A Junior Participating Preferred Stock
at an exercise price to $90.00 per right, subject to adjustment. The rights
generally will be exercisable only if a person or group acquires beneficial
ownership of 15% or more of the Company's common stock. The rights will expire
on February 11, 2010. As of November 30, 2001 no rights had been exercised.

                                       34
<PAGE>
RESTRICTED STOCK ISSUANCE

     In 2001 the Company issued 100,000 restricted shares of its common stock to
certain employees. The value of these shares at dates of issuance was an
aggregate of $993, which is being amortized using the straight-line method over
a four year period. The amount of amortization was $134 in 2001, with the
unamortized value of $859 being shown as part of comprehensive income in the
shareholders' equity section of the November 30, 2001 consolidated balance
sheet. These shares reduced the number of shares available for issuance under
the Company's 1998 Non-Statutory Stock Option Plan.

(9)  COMMITMENTS AND CONTINGENCIES
     -----------------------------

GENERAL LITIGATION

     The Company has been named as a defendant in a lawsuit brought by the
Center for Environment Health ("CEH") contending that the Company violated the
California Safe Drinking Water and Toxic Enforcement Act of 1998 (Proposition
65) by selling to California consumers without a warning topical skin care
products containing zinc oxide which in turn contains lead. The lawsuit contends
that the purported failure to comply with Proposition 65 requirements also
constitutes a violation of the California Business & Professions Code Section
1700 et seq. Violations of either Proposition 65 or Business and Professions
Code 1700 et seq. render a defendant liable for civil penalties of up to $2.5
per day per violation.

     The Company has also been named as a defendant in a lawsuit filed in San
Francisco Superior Court on December 29, 1999, JOHNSON et al. v. BRISTOL-MYERS
SQUIBB CO., et al., Case No. 308872. This is a putative class action brought by
two named plaintiffs on behalf of the general public in California, against the
same entities that are defendants in the CEH lawsuit. As with the CEH lawsuit,
the Johnson lawsuit alleges that the Company violated Proposition 65 by selling
to California consumers without a warning topical skin care products containing
zinc oxide which in turn contains lead. The lawsuit does not assert claims
directly under Proposition 65, but asserts that the alleged failure to comply
with Proposition 65 gives rise to claims under California's Business and
Professions Code Section 17200 et seq., 17500 et seq., and the Civil Code
Section 1750 et seq. The lawsuit seeks injunctive and equitable relief,
restitution, the disgorgement of allegedly wrongfully obtained revenues and
damages.

     The plaintiffs in the two separate actions have filed a consolidated
amended complaint that includes a claim based upon the allegation that zinc
oxide allegedly also contains cadmium. As of February 22, 2002 a tentative
settlement has been reached for these two cases.

     The Company has been named as a defendant in approximately 115 lawsuits
alleging that the plaintiffs were injured as a result of ingestion of products
containing phenylpropanoline ("PPA"), which until November 2000 was the active
ingredient in certain of the Company's DEXATRIM products. Most of the lawsuits
seek an unspecified amount of compensatory and exemplary damages. Approximately
40% of these suits represent cases in which the Company is being defended and
indemnified from liability by The DELACO Company, Inc., successor to Thompson
Medical Company, Inc. ("Thompson Medical") from which the Company acquired
DEXATRIM in December 1998. The Company maintains product liability insurance
coverage for claims asserted in the lawsuits, although there can be no assurance
that such coverage will be sufficient to satisfy such claims. The Company
anticipates that additional lawsuits in which similar allegations are made could
be filed.

                                       35
<PAGE>
     The Company intends to vigorously defend these claims. At this stage of the
proceedings, it is not possible to determine the outcome of these matters or the
effect of their resolution on the Company's financial position or operating
results. Management believes that the Company's defenses will have merit;
however, there can be no assurance that the Company will be successful in its
defense or that these lawsuits will not have a material adverse effect on the
Company's results of operations for some period or on the Company's financial
position.

     Other claims, suits and complaints arise in the ordinary course of the
Company's business involving such matters as patents and trademarks, product
liability, environmental matters and other alleged injuries or damage. The
outcome of such litigation cannot be predicted, but, in the opinion of
management, based in part upon the opinion of counsel, all such pending matters
are without merit or are of such kind or involve such amounts as would not have
a material adverse effect on the consolidated operating results or financial
position of the Company if disposed of unfavorably.

REGULATORY

     In 1994 the Nonprescription Drug Manufacturers Association (now the
Consumer Healthcare Products Association) ("CHPA") initiated a large-scale study
in conjunction with the Yale University School of Medicine to investigate a
possible association, if any, of stroke in women aged 18 to 49 using PPA which,
until November 2000, was the active ingredient in certain of the DEXATRIM
products (the "Yale Study"). PPA is also used in other over-the-counter
medications which were also part of the Yale Study. In May 2000, the results of
the Yale Study were filed with the Food and Drug Administration ("FDA"). The
investigators concluded that the results of the Yale Study suggest that PPA
increases the risks of hemorrhagic stroke. The FDA indicated at that time that
no immediate action was required and scheduled an FDA advisory panel to meet in
October 2000 to discuss the results of the study. The CHPA has questioned the
execution of the Yale Study and disagreed with its conclusions.

     On October 19, 2000 a Nonprescription Drugs Advisory Committee ("NDAC"),
commissioned by the FDA to review the safety of PPA, determined that there is an
association between PPA and hemorrhagic stroke and recommended that PPA not be
considered generally recognized as safe for OTC use as a nasal decongestant or
for weight control. In response to a request from the FDA to voluntarily cease
marketing DEXATRIM with PPA, the Company announced on November 7, 2000 its
decision to immediately cease shipping DEXATRIM with PPA and to accept product
returns from any retailers who decide to discontinue marketing DEXATRIM with
PPA. To date, the FDA has not issued any final determinations concerning PPA or
products containing PPA.

     Certain countries, states and localities have enacted, or are considering
enacting, restrictions on the sale of products that contain synthetic ephedrine
or naturally-occurring sources of ephedrine. These restrictions include the
prohibition of OTC sales, required warnings or labeling statements, record
keeping and reporting requirements, the prohibition of sales to minors, per
transaction limits on the quantity of product that may be purchased and
limitations on advertising and promotion. In such countries, states or
localities these restrictions could adversely affect the sale of DEXATRIM
Natural, which contains naturally occurring sources of ephedrine. Failure to
comply with these restrictions could also lead to regulatory enforcement action,
including the seizure of violative products, product recalls, civil or criminal
fines or other penalties. The enactment of these restrictions, the perceived
safety concerns to ephedrine and the possibility of further regulatory action
increases the likelihood that claims relating to the existence of
naturally-occurring sources of ephedrine in DEXATRIM Natural will be filed
against the Company. In late 2000 the FDA requested the National Institutes of

                                       36
<PAGE>
Health to commission a review of the safety and efficacy of ephedrine in herbal
products used to control weight. This review is assumed to be retrospective in
nature and will be based on all adverse events, records and scientific data
available to the reviewers. It is expected that the report will be issued in
early Fall of 2002. On September 5, 2001 The Public Citizens Health Research
Group petitioned the FDA to ban the production and sale of dietary supplements
containing ephedrine alkaloids. As of November 30, 2001 the FDA had taken no
action with regard to this petition.

     The Company was notified in October 2000 that the FDA denied a citizen
petition submitted by Thompson Medical, the previous owner of SPORTSCREME and
ASPERCREME, seeking a determination that 10% trolamine salicylate was clinically
proven to be an effective active ingredient in external analgesic OTC drug
products, and thus should be included in the FDA's yet-to-be finalized monograph
for external analgesics. The Company has met with the FDA and submitted a
proposed protocol study to evaluate the efficacy of 10% trolamine salicylate as
an active ingredient in OTC external analgesic drug products. Based on comments
received from the FDA at the meeting, the Company may revise and resubmit the
protocol. After final comments from the FDA, the Company expects that it will
take one or two years to produce the clinical data for FDA review. Although
unlikely, the FDA could finalize the OTC external analgesic monograph before the
protocol and clinical data results are finalized, which would place 10%
trolamine salicylate in non-monograph status, thus requiring the submission of a
new drug application to market and sell OTC products with 10% trolamine
salicylate. The Company is working to develop alternate formulations for
SPORTSCREME and ASPERCREME in the event that the FDA does not consider the
available clinical data to conclusively demonstrate the efficacy of trolamine
salicylate when the OTC external analgesic monograph is finalized. The Company
is also reviewing the option of marketing SPORTSCREME and ASPERCREME as
homeopathic products.

LEASES

     The minimum rental commitments under all noncancelable operating leases,
primarily real estate, in effect at November 30, 2001 are as follows:

     2002.................................. $   298
     2003..................................     296
     2004..................................     197
     2005..................................     187
     2006..................................     187
     Thereafter............................   1,451
                                            -------
                                            $ 2,616
                                            =======

     Rental expense was $1,442, $1,802 and $1,791 for 2001, 2000 and 1999,
respectively.

(10) SUPPLEMENTAL FINANCIAL INFORMATION
     ----------------------------------
     Inventories consisted of the following at November 30, 2001 and 2000:

                                                        2001          2000
                                                      --------      --------
     Raw materials and work in process ............   $  8,108      $  6,793
     Finished goods ...............................      8,191        10,247
     Excess of current cost over LIFO value .......     (2,039)       (1,988)
                                                      --------      --------
        Total inventories .........................   $ 14,260      $ 15,052
                                                      ========      ========

     International inventories included above, valued on a lower of FIFO cost or
market at November 30, 2001 and 2000 were $2,279 and $2,670, respectively.

                                       37
<PAGE>
     Property, plant and equipment consisted of the following at November 30,
2001 and 2000:
                                                            2001        2000
                                                          --------    --------
     Land ..............................................  $    879    $    879
     Buildings and improvements ........................     5,707       5,326
     Machinery and equipment ...........................    44,043      42,603
     Construction in progress...........................       286         272
     Less - accumulated depreciation ...................   (24,640)    (22,021)
                                                          --------    --------
       Property, plant and equipment, net ..............  $ 26,275    $ 27,059
                                                          ========    ========

     Accrued liabilities consisted of the following at November 30, 2001 and
2000:
                                                             2001        2000
                                                          --------    --------
     Interest...........................................  $  3,070    $  5,810
     Salaries, wages and commissions ...................     3,462       1,103
     Product advertising and promotion..................     3,654       7,663
     Product acquisitions and divestitures..............     2,205      10,413
     Allowances for product returns.....................       255       9,600
     Taxes..............................................       290        (491)
     Pension............................................       374        (511)
     Legal fees.........................................       281          --
     Insurance..........................................       842         754
     Other..............................................       705         873
                                                          --------    --------
       Total accrued liabilities........................  $ 15,138    $ 35,214
                                                          ========    ========

(11) ACQUISITION AND SALE OF BRANDS
     ------------------------------
     On September 15, 2000 the Company completed the sale of its Ban product
line to The Andrew Jergens Company, a wholly-owned subsidiary of Kao
Corporation. Under the terms of the sales agreement, the Company received
$160,000 cash at closing, plus the right to receive up to an additional $6,500
in future payments based upon levels of sales of Ban in 2001 and 2002. The
Company recognized a loss of $4,208 on the divestiture. Concurrent with the
closing of the sale of Ban the Company used $52,194 of the net proceeds to
retire all of the outstanding balances of the revolving line of credit and term
loans and accrued interest thereon, with the balance of the net proceeds being
retained by the Company.

     On March 24, 1998 the Company acquired the Ban line of antiperspirant and
deodorant products from Bristol-Myers Squibb Company for a purchase price of
approximately $165,000 and assumed liabilities of $8,000. The Company acquired
the Ban trademarks, formulae, certain patents pertaining to
antiperspirant/deodorant technology, technical information, inventory,
manufacturing equipment and packaging related assets used in the manufacture of
Ban, but not the right to sell Ban in Japan. The purchase price of $173,000 was
allocated $8,200 to inventory and $164,800 to trademarks and other product
rights which were assigned a useful life of 40 years.

     On December 21, 1998 the Company acquired the DEXATRIM, SPORTSCREME,
ASPERCREME, CAPZASIN-P, CAPZASIN-HP and ARTHRITIS HOT brands (the "Thompson
Medical brands") from Thompson Medical Company, Inc. for $95,000. The purchase
price consisted of $90,000 cash and 125,500 shares of the Company's common
stock. The cash portion of the purchase price was financed by a new senior
credit facility. The purchase price of $95,000 was allocated $3,493 to inventory
and $91,507 to trademarks and other product rights which were assigned a useful
life of 40 years.
                                       38
<PAGE>
     The following unaudited consolidated pro forma information assumes the
acquisition of the Thompson Medical brands and the divestiture of Ban and
related long-term borrowings and repayment thereof had occurred on December 1,
1998:

            PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)

                                                    2000          1999
                                                  --------      --------
     Net sales ................................   $191,256      $215,945

     Income (loss) before extraordinary loss
       and change in accounting principle .....     (5,610)        9,632

     Net income (loss) ........................     (7,072)        7,247

     Earnings (loss) per share - basic:

     Income (loss) before extraordinary loss
       and change in accounting principle......       (.60)          .99

     Net income (loss) ........................       (.75)          .74

     Earnings (loss) per share - diluted:

     Income (loss) before extraordinary loss
       and change in accounting principle......       (.60)          .96

       Net income (loss) ......................       (.75)          .72


     The pro forma consolidated results of operations include adjustments to
give effect to amortization of intangible assets, interest expense on
acquisition debt or repayment thereof and certain other adjustments, together
with related income tax effects. The pro forma information is for comparative
purposes only and does not purport to be indicative of the results that would
have occurred had the acquisition, disposition and borrowings occurred at the
beginning of the periods presented, or indicative of the results that may occur
in the future.

     On June 26, 1997 the Company purchased certain assets of Sunsource
International, Inc. and an affiliated company ("SUNSOURCE") including the
exclusive worldwide rights to five leading branded dietary supplement products.
The purchase price for the trademarks, inventory and receivables was
approximately $32,000, net of certain assumed liabilities. The $32,000 was
allocated $1,786 to inventory and receivables and $30,214 to trademarks and
other product rights which were assigned a useful life of 40 years. Financing of
the SUNSOURCE acquisition was provided by an expansion of the Company's senior
bank credit agreement and the issuance of 300,000 shares of Chattem, Inc. common
stock to SUNSOURCE. Additional payments were scheduled to be earned by SUNSOURCE
over a six year period from the date of closing if sales exceed certain levels
as defined in the purchase agreement. In 1998 the Company paid the former owners
of SUNSOURCE $2,500 and forgave $5,625 of amounts due the Company, in exchange
for a 50% reduction in any future additional payments under the purchase
agreement. In 1999 the Company paid the former owners of SUNSOURCE $1,650 and
issued 2,582 shares of its common stock in exchange for cancellation of the
right to receive any future additional payments under the purchase agreement.
The consideration paid in 1998 and 1999 was capitalized as additional purchase
price.


                                       39
<PAGE>
(12) ACCRUED POSTRETIREMENT HEALTH CARE BENEFITS
     -------------------------------------------
     The Company maintains certain postretirement health care benefits for
eligible employees. Employees become eligible for these benefits if they meet
certain age and service requirements. The Company pays a portion of the cost of
medical benefits for certain retired employees over the age of 65. Effective
January 1, 1993, the Company's contribution is a service-based percentage of the
full premium. The Company pays these benefits as claims are incurred.

     Net periodic postretirement health care benefits cost for the years ended
November 30, 2001, 2000 and 1999, included the following components:

                                                        2001     2000     1999
                                                       ------   ------   ------
     Service cost (benefits earned during the period). $   40   $   32   $   31
     Interest cost on accumulated postretirement
        benefit obligation ...........................     75       80       76
     Amortization of prior service cost...............     15       --       --
     Amortization of net gain.........................    (44)     (22)     (10)
                                                       ------   ------   ------
     Net periodic postretirement benefits cost ....... $   86   $   90   $   97
                                                       ======   ======   ======

     The change in the accumulated benefit obligation resulted from the
following components for the years ended November 30, 2001 and 2000:

                                                             2001        2000
                                                           --------    --------
     Accumulated benefit obligation, beginning of year..   $  1,051    $  1,023
     Service cost.......................................         40          32
     Interest cost......................................         75          80
     Actuarial gain.....................................        (52)        (29)
     Benefits paid......................................        (39)        (55)
                                                           --------    --------
     Accumulated benefit obligation, end of year........   $  1,075    $  1,051
                                                           ========    ========

     The following table sets forth the funded status of the plan at November
30, 2001 and 2000:
                                                             2001        2000
                                                           --------    --------
     Accumulated benefit obligation.....................   $  1,075    $  1,051
     Fair value of plan assets..........................        --          --
                                                           --------    --------
     Funded status......................................     (1,075)     (1,051)
     Unrecognized prior service cost....................        129         144
     Unrecognized actuarial gain........................       (630)       (622)
                                                           --------    --------
     Accrued postretirement benefits cost...............   $ (1,576)   $ (1,529)
                                                           ========    ========

     For measurement purposes, a 6% annual rate of increase in the per capita
cost of covered health care benefits was assumed in 2001 and 2000. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7% and 8% at November 30, 2001 and 2000,
respectively. Due to premium caps in place which limit the Company's expense, a
1% increase in the assumed health care cost trend rate would not affect the
accumulated postretirement benefit obligation as of November 30, 2001, or the
aggregate of the service and interest cost components of the net annual
postretirement benefit cost for the year ended November 30, 2001.


                                       40
<PAGE>
(13) COMPREHENSIVE INCOME (LOSS)
     ---------------------------
     Comprehensive income (loss) consisted of the following components for the
years ended November 30, 2001, 2000 and 1999, respectively:

                                              2001         2000         1999
                                            --------     --------     --------
Net income (loss) .......................   $ 15,343     $ (1,659)    $ 20,156
Other:
  Foreign currency translation adjustment        (59)        (806)         (15)
  Minimum pension liability adjustment,
     net of income taxes of $636 ........     (1,000)        --           --
                                            --------     --------     --------
     Total ..............................   $ 14,284     $ (2,465)    $ 20,141
                                            ========     ========     ========


(14) PRODUCT AND GEOGRAPHICAL SEGMENT INFORMATION
     --------------------------------------------
     In 2000 and 1999 the Company operated in two primary segments - (1) OTC
health care and (2) toiletries and skin care. Upon the sale of Ban in September
2000, the Company currently operates in only one primary segment - OTC health
care. This segment includes medicated skin care products, topical analgesics,
internal analgesics, lip care, appetite suppressant, dietary supplement products
and other skin care products.

     Geographical segment information is as follows for the years ended November
30, 2001, 2000 and 1999:
                                           2001           2000           1999
                                        ----------     ----------     ----------
Net Sales:
  Domestic............................  $  181,823     $  232,144     $  276,632
  International (1)...................      16,477         20,555         21,510
                                        ----------     ----------     ----------
     Total............................  $  198,300     $  252,699     $  298,142
                                        ==========     ==========     ==========

Long-Lived Assets (2)
  Domestic............................  $  211,252     $  218,739     $  381,694
  International.......................         396            300            353
                                        ----------     ----------     ----------
     Total............................  $  211,648     $  219,039     $  382,047
                                        ==========     ==========     ==========

(1)  International sales include export sales from United States operations.
(2)  Consists of book value of property, plant, equipment, trademarks and other
     product rights.


(15) SUBSEQUENT EVENTS
     -----------------
     On January 22, 2002 Kmart Corporation, a customer of the Company
representing approximately 5% of consolidated revenues, filed a petition under
Chapter 11 of the United States Bankruptcy Code. At the time of the filing Kmart
Corporation owed the Company approximately $1,200. The Company is assessing what
impact, if any, this bankruptcy filing may have on future operations. This
bankruptcy filing did not impact the Company's results of operations and
financial position for fiscal 2001.



                                       41
<PAGE>

     Subsequent to year end, the Company repurchased, and returned to unissued,
44,000 shares of its common stock, without par value, for $630 in accordance
with the Company's previously announced stock buyback program.


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















































                                       42
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES                  Note 16
                          CONSOLIDATING BALANCE SHEETS
                                NOVEMBER 30, 2001
                                -----------------
                          (Unaudited and in thousands)
<TABLE><CAPTION>
                                                                                     NON-GUARANTOR
                                                                                      SUBSIDIARY     ELIMINATIONS
                                                       CHATTEM          SIGNAL         COMPANIES       DR.(CR.)      CONSOLIDATED
                                                      ----------      ----------      ----------      ----------      ----------
<S>                                                   <C>             <C>             <C>             <C>             <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents .....................     $   20,648      $   10,003      $    4,794      $     --        $   35,445
  Accounts receivable, less allowance for
    doubtful accounts of $500 ...................         17,690            --             3,170            --            20,860
  Refundable and deferred income taxes ..........          4,545            --               101            --             4,646
  Inventories ...................................         12,409            --             1,851            --            14,260
  Prepaid expenses and other current assets .....          2,517            --               150            --             2,667
                                                      ----------      ----------      ----------      ----------      ----------
    Total current assets ........................         57,809          10,003          10,066            --            77,878
                                                      ----------      ----------      ----------      ----------      ----------

PROPERTY, PLANT AND EQUIPMENT, NET ..............         25,879            --               396            --            26,275
                                                      ----------      ----------      ----------      ----------      ----------

OTHER NONCURRENT ASSETS:
  Patents, trademarks and other purchased
    product rights, net .........................          3,987         181,386            --              --           185,373
  Debt issuance costs, net ......................          7,665            --              --              --             7,665
  Investment in subsidiaries ....................          8,280            --              --            (8,280)           --
  Other .........................................          2,436            --                46            --             2,482
                                                      ----------      ----------      ----------      ----------      ----------
    Total other noncurrent assets ...............         22,368         181,386              46          (8,280)        195,520
                                                      ----------      ----------      ----------      ----------      ----------
        TOTAL ASSETS ............................     $  106,056      $  191,389      $   10,508      $   (8,280)     $  299,673
                                                      ==========      ==========      ==========      ==========      ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable ..............................     $    8,523      $     --        $      487      $     --        $    9,010
  Payable to bank ...............................            151            --              --              --               151
  Accrued liabilities ...........................         13,851            --             1,287            --            15,138
                                                      ----------      ----------      ----------      ----------      ----------
    Total current liabilities ...................         22,525            --             1,774            --            24,299
                                                      ----------      ----------      ----------      ----------      ----------

LONG-TERM DEBT ..................................        204,740            --              --              --           204,740
                                                      ----------      ----------      ----------      ----------      ----------

DEFERRED INCOME TAXES ...........................          1,401          14,850            --              --            16,251
                                                      ----------      ----------      ----------      ----------      ----------

OTHER NONCURRENT LIABILITIES ....................          1,765            --              --              --             1,765
                                                      ----------      ----------      ----------      ----------      ----------

INTERCOMPANY ACCOUNTS ...........................       (178,860)        179,833            (973)           --              --
                                                      ----------      ----------      ----------      ----------      ----------

SHAREHOLDERS' EQUITY:
  Preferred shares, without par value,
    authorized 1,000, none issued ...............           --              --              --              --              --
  Common shares, without par value,
    authorized 50,000, issued 8,973 .............          1,868               2           8,278           8,280           1,868
  Paid-in surplus ...............................         65,960            --              --              --            65,960
  Accumulated deficit ...........................        (10,994)         (3,296)          3,170            --           (11,120)
                                                      ----------      ----------      ----------      ----------      ----------
    Total .......................................         56,834          (3,294)         11,448           8,280          56,708
  Unamortized value of restricted common
    shares issued ...............................           (859)           --              --              --              (859)
  Cumulative other comprehensive income:
    Foreign currency translation adjustment .....           (490)           --            (1,741)           --            (2,231)
    Minimum pension liability adjustment, net ...         (1,000)           --              --              --            (1,000)
                                                      ----------      ----------      ----------      ----------      ----------
    Total shareholders' equity ..................         54,485          (3,294)          9,707           8,280          52,618
                                                      ----------      ----------      ----------      ----------      ----------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $  106,056      $  191,389      $   10,508      $    8,280      $  299,673
                                                      ==========      ==========      ==========      ==========      ==========
</TABLE>

                                       43
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES                  Note 16
                          CONSOLIDATING BALANCE SHEETS
                                NOVEMBER 30, 2000
                                -----------------
                          (Unaudited and in thousands)
<TABLE><CAPTION>
                                                                                     NON-GUARANTOR
                                                                                      SUBSIDIARY     ELIMINATIONS
                                                       CHATTEM          SIGNAL         COMPANIES       DR.(CR.)      CONSOLIDATED
                                                      ----------      ----------      ----------      ----------      ----------
<S>                                                   <C>             <C>             <C>             <C>             <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents .....................     $    5,515      $   95,747      $    1,272      $     --        $  102,534
  Accounts receivable, less allowance for
    doubtful accounts of $1,025 .................         35,772           1,154           3,765            --            40,691
  Refundable and deferred income taxes ..........         12,250            --               151            --            12,401
  Inventories ...................................         12,596            --             2,456            --            15,052
  Prepaid expenses and other current assets .....            711            --               173            --               884
                                                      ----------      ----------      ----------      ----------      ----------
    Total current assets ........................         66,844          96,901           7,817            --           171,562
                                                      ----------      ----------      ----------      ----------      ----------
PROPERTY, PLANT AND EQUIPMENT, NET ..............         26,759            --               300            --            27,059
                                                      ----------      ----------      ----------      ----------      ----------

OTHER NONCURRENT ASSETS:
  Patents, trademarks and other purchased
    product rights, net .........................          4,198         187,782            --              --           191,980
  Debt issuance costs, net ......................          8,829            --              --              --             8,829
  Investment in subsidiaries ....................          8,280            --              --            (8,280)           --
  Other .........................................          2,646            --              --              --             2,646
                                                      ----------      ----------      ----------      ----------      ----------
    Total other noncurrent assets ...............         23,953         187,782            --            (8,280)        203,455
                                                      ----------      ----------      ----------      ----------      ----------
       TOTAL ASSETS .............................     $  117,556      $  284,683      $    8,117      $   (8,280)     $  402,076
                                                      ==========      ==========      ==========      ==========      ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable ..............................     $    8,426      $     --        $      364      $     --        $    8,790
  Payable to bank ...............................          1,529            --              --              --             1,529
  Accrued liabilities ...........................         33,898            --             1,316            --            35,214
                                                      ----------      ----------      ----------      ----------      ----------
    Total current liabilities ...................         43,853            --             1,680            --            45,533
                                                      ----------      ----------      ----------      ----------      ----------

LONG-TERM DEBT ..................................        304,077            --              --              --           304,077
                                                      ----------      ----------      ----------      ----------      ----------

DEFERRED INCOME TAXES ...........................          2,798          10,121            --              --            12,919
                                                      ----------      ----------      ----------      ----------      ----------

OTHER NONCURRENT LIABILITIES ....................          1,894            --              --              --             1,894
                                                      ----------      ----------      ----------      ----------      ----------

INTERCOMPANY ACCOUNTS ...........................       (275,101)        277,272          (2,171)           --              --
                                                      ----------      ----------      ----------      ----------      ----------

SHAREHOLDERS' EQUITY:
  Preferred shares, without par value,
    authorized 1,000, none issued ...............           --              --              --              --              --
  Common shares, without par value,
    authorized 50,000, issued 8,861 .............          1,845               2           8,278           8,280           1,845
  Paid-in surplus ...............................         64,443            --              --              --            64,443
  Accumulated deficit ...........................        (25,771)         (2,712)          2,020            --           (26,463)
                                                      ----------      ----------      ----------      ----------      ----------
    Total .......................................         40,517          (2,710)         10,298           8,280          39,825
  Cumulative other comprehensive income -
    Foreign currency translation adjustment .....           (482)           --            (1,690)           --            (2,172)
                                                      ----------      ----------      ----------      ----------      ----------
    Total shareholders' equity ..................         40,035          (2,710)          8,608           8,280          37,653
                                                      ----------      ----------      ----------      ----------      ----------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..     $  117,556      $  284,683      $    8,117      $    8,280      $  402,076
                                                      ==========      ==========      ==========      ==========      ==========
</TABLE>
                                       44
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES                  Note 16
                       CONSOLIDATING STATEMENTS OF INCOME
                      FOR THE YEAR ENDED NOVEMBER 30, 2001
                      ------------------------------------
                          (Unaudited and in thousands)

<TABLE><CAPTION>
                                                                                     NON-GUARANTOR
                                                                                      SUBSIDIARY     ELIMINATIONS
                                                       CHATTEM          SIGNAL         COMPANIES       DR.(CR.)      CONSOLIDATED
                                                      ----------      ----------      ----------      ----------      ----------
<S>                                                   <C>             <C>             <C>             <C>             <C>
NET SALES .......................................     $  183,423      $     --        $   14,877      $     --        $  198,300
                                                      ----------      ----------      ----------      ----------      ----------

COSTS AND EXPENSES:
  Cost of sales .................................         47,596            --             4,916            --            52,512
  Advertising and promotion .....................         67,231           5,572           5,161            --            77,964
  Selling, general and administrative ...........         31,891              25           2,730            --            34,646
                                                      ----------      ----------      ----------      ----------      ----------
    Total costs and expenses ....................        146,718           5,597          12,807            --           165,122
                                                      ----------      ----------      ----------      ----------      ----------

INCOME (LOSS) FROM OPERATIONS ...................         36,705          (5,597)          2,070            --            33,178
                                                      ----------      ----------      ----------      ----------      ----------

OTHER INCOME (EXPENSE):
  Interest expense ..............................        (21,856)           --              --              --           (21,856)
  Investment and other income, net ..............            556           1,606              56            --             2,218
  Royalties .....................................         (8,900)          9,167            (267)           --              --
  Premium revenue ...............................            (79)           --                79            --              --
  Corporate allocations .........................             23            --               (23)           --              --
                                                      ----------      ----------      ----------      ----------      ----------
     Total other income (expense) ...............        (30,256)         10,773            (155)           --           (19,638)
                                                      ----------      ----------      ----------      ----------      ----------

INCOME BEFORE INCOME TAXES AND EXTRAORDINARY GAIN          6,449           5,176           1,915            --            13,540

PROVISION FOR INCOME TAXES ......................          2,698           1,760             687            --             5,145
                                                      ----------      ----------      ----------      ----------      ----------

INCOME BEFORE EXTRAORDINARY GAIN ................          3,751           3,416           1,228            --             8,395

EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF
  DEBT, NET OF INCOME TAXES .....................          6,948            --              --              --             6,948
                                                      ----------      ----------      ----------      ----------      ----------
NET INCOME ......................................     $   10,699      $    3,416      $    1,228      $     --        $   15,343
                                                      ==========      ==========      ==========      ==========      ==========
</TABLE>











                                       45
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES                  Note 16
                       CONSOLIDATING STATEMENTS OF INCOME
                      FOR THE YEAR ENDED NOVEMBER 30, 2000
                      ------------------------------------
                          (Unaudited and in thousands)

<TABLE><CAPTION>
                                                                                     NON-GUARANTOR
                                                                                      SUBSIDIARY     ELIMINATIONS
                                                       CHATTEM          SIGNAL         COMPANIES       DR.(CR.)       CONSOLIDATED
                                                      ----------      ----------      ----------      ----------       ----------
<S>                                                   <C>             <C>             <C>             <C>              <C>
NET SALES .......................................     $  235,707      $     --        $   16,992      $     --        $  252,699
                                                      ----------      ----------      ----------      ----------      ----------
COSTS AND EXPENSES:
  Cost of sales .................................         69,700            --             5,257            --            74,957
  Advertising and promotion .....................         90,975           8,865           7,028            --           106,868
  Selling, general and administrative ...........         29,141              14           2,839            --            31,994
                                                      ----------      ----------      ----------      ----------      ----------
    Total costs and expenses ....................        189,816           8,879          15,124            --           213,819
                                                      ----------      ----------      ----------      ----------      ----------

INCOME (LOSS) FROM OPERATIONS ...................         45,891          (8,879)          1,868            --            38,880
                                                      ----------      ----------      ----------      ----------      ----------

OTHER INCOME (EXPENSE):
  Interest expense ..............................        (35,729)           --              --              --           (35,729)
  Investment and other income, net ..............            129           1,352              85            --             1,566
  Loss on product divestitures ..................           --            (5,018)           --              --            (5,018)
  Royalties .....................................        (11,754)         12,051            (297)           --              --
  Corporate allocations .........................             37            --               (37)           --              --
                                                      ----------      ----------      ----------      ----------      ----------
    Total other income (expense) ................        (47,317)          8,385            (249)           --           (39,181)
                                                      ----------      ----------      ----------      ----------      ----------

INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
  LOSS AND CHANGE IN ACCOUNTING PRINCIPLE ......          (1,426)           (494)          1,619            --              (301)

PROVISION FOR (BENEFIT FROM) INCOME TAXES ......            (373)           (168)            437            --              (104)
                                                      ----------      ----------      ----------      ----------      ----------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND
  CHANGE IN ACCOUNTING PRINCIPLE ...............          (1,053)           (326)          1,182            --              (197)

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
  DEBT, NET OF INCOME TAX BENEFIT ..............            (920)           --              --              --              (920)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE, NET OF INCOME TAX BENEFIT .........            (542)           --              --              --              (542)
                                                      ----------      ----------      ----------      ----------      ----------
NET INCOME (LOSS) ..............................      $   (2,515)     $     (326)     $    1,182      $     --        $   (1,659)
                                                      ==========      ==========      ==========      ==========      ==========
</TABLE>








                                       46
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES                  Note 16
                       CONSOLIDATING STATEMENTS OF INCOME
                      FOR THE YEAR ENDED NOVEMBER 30, 1999
                      ------------------------------------
                          (Unaudited and in thousands)

<TABLE><CAPTION>
                                                                                     NON-GUARANTOR
                                                                                      SUBSIDIARY     ELIMINATIONS
                                                       CHATTEM          SIGNAL         COMPANIES       DR.(CR.)      CONSOLIDATED
                                                      ----------      ----------      ----------      ----------      ----------
<S>                                                   <C>             <C>             <C>             <C>              <C>
NET SALES .......................................     $  280,686      $     --        $   17,456      $     --        $  298,142
                                                      ----------      ----------      ----------      ----------      ----------

COSTS AND EXPENSES:
  Cost of sales .................................         69,810            --             5,802            --            75,612
  Advertising and promotion .....................        102,079           9,487           6,269            --           117,835
  Selling, general and administrative ...........         29,230              15           3,249            --            32,494
                                                      ----------      ----------      ----------      ----------      ----------
    Total costs and expenses ....................        201,119           9,502          15,320            --           225,941
                                                      ----------      ----------      ----------      ----------      ----------

INCOME (LOSS) FROM OPERATIONS ...................         79,567          (9,502)          2,136            --            72,201
                                                      ----------      ----------      ----------      ----------      ----------

OTHER INCOME (EXPENSE):
  Interest expense ..............................        (36,572)           --              --              --           (36,572)
  Investment and other income, net ..............            521              (6)             64            --               579
  Royalties .....................................        (13,448)         13,743            (295)           --              --
  Premium revenue ...............................            (20)           --                20            --              --
  Corporate allocations .........................             33            --               (33)           --              --
                                                      ----------      ----------      ----------      ----------      ----------
    Total other income (expense) ................        (49,486)         13,737            (244)           --           (35,993)
                                                      ----------      ----------      ----------      ----------      ----------

INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS         30,081           4,235           1,892            --            36,208

PROVISION FOR INCOME TAXES ......................         11,437           1,440             790            --            13,667
                                                      ----------      ----------      ----------      ----------      ----------

INCOME BEFORE EXTRAORDINARY LOSS ................         18,644           2,795           1,102            --            22,541

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
  DEBT, NET OF INCOME TAX BENEFIT ...............         (2,385)           --              --              --            (2,385)
                                                      ----------      ----------      ----------      ----------      ----------

NET INCOME ......................................     $   16,259      $    2,795      $    1,102      $     --        $   20,156
                                                      ==========      ==========      ==========      ==========      ==========
</TABLE>











                                       47
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES                  Note 16
                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED NOVEMBER 30, 2001
                      ------------------------------------
                          (Unaudited and in thousands)

<TABLE><CAPTION>
                                                                                     NON-GUARANTOR
                                                                                      SUBSIDIARY     ELIMINATIONS
                                                       CHATTEM          SIGNAL         COMPANIES       DR.(CR.)      CONSOLIDATED
                                                      ----------      ----------      ----------      ----------      ----------
<S>                                                   <C>             <C>             <C>             <C>              <C>
OPERATING ACTIVITIES:
  Net income ....................................     $   10,699      $    3,416      $    1,228      $     --        $   15,343
  Adjustments to reconcile net income to
    net cash provided by operating activities:
    Depreciation and amortization ...............          4,523           5,572             146            --            10,241
    Deferred income tax provision ...............          4,827           6,489              46            --            11,362
    Extraordinary gain on early extinguishment
      of debt, net ..............................         (6,948)           --              --              --            (6,948)
    Stock option charge .........................            525            --              --              --               525
    Other, net ..................................             18             (79)           --              --               (61)
    Changes in operating assets and liabilities:
      Accounts receivable .......................         18,115           1,154             562            --            19,831
      Inventories ...............................            210            --               582            --               792
      Prepaid expenses and other current assets .         (1,767)           --               (26)           --            (1,793)
      Accounts payable and accrued liabilities ..        (25,656)           --                94            --           (25,562)
                                                      ----------      ----------      ----------      ----------      ----------
      Net cash provided by operating activities .          4,546          16,552           2,632            --            23,730
                                                      ----------      ----------      ----------      ----------      ----------
INVESTING ACTIVITIES:
  Purchases of property, plant and equipment ....         (1,615)           --              (239)           --            (1,854)
  Additions to trademarks and other product rights          --              (277)           --              --              (277)
  Proceeds from product divestiture .............          1,179            --              --              --             1,179
  Proceeds from sales of property, plant and
    equipment ...................................             95            --              --              --                95
  Increase in other assets, net .................           (727)           --              --              --              (727)
                                                      ----------      ----------      ----------      ----------      ----------
        Net cash used in investing activities ...         (1,068)           (277)           (239)           --            (1,584)
                                                      ----------      ----------      ----------      ----------      ----------
FINANCING ACTIVITIES:
  Repayment of long- term debt ..................        (83,746)           --              --              --           (83,746)
  Payment of consent fees and other costs related
    to repayment of long-term debt ..............         (4,000)           --              --              --            (4,000)
  Change in payable to bank .....................         (1,378)           --              --              --            (1,378)
  Repurchase of common shares ...................           (174)           --              --              --              (174)
  Proceeds from exercise of stock options .......            119            --              --              --               119
  Changes in intercompany accounts ..............         96,871         (98,019)          1,148            --              --
  Dividends paid ................................          4,000          (4,000)           --              --              --
                                                      ----------      ----------      ----------      ----------      ----------
      Net cash provided by (used in) financing
         activities .............................         11,692        (102,019)          1,148            --           (89,179)
                                                      ----------      ----------      ----------      ----------      ----------
EFFECT OF EXCHANGE RATE CHANGES ON
  CASH AND CASH EQUIVALENTS .....................            (37)           --               (19)           --               (56)
                                                      ----------      ----------      ----------      ----------      ----------
CASH AND CASH EQUIVALENTS:
  Increase (decrease) for the year ..............         15,133         (85,744)          3,522            --           (67,089)
  At beginning of year ..........................          5,515          95,747           1,272            --           102,534
                                                      ----------      ----------      ----------      ----------      ----------
  At end of year ................................     $   20,648      $   10,003      $    4,794      $     --        $   35,445
                                                      ==========      ==========      ==========      ==========      ==========
</TABLE>
                                       48
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES                  Note 16
                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED NOVEMBER 30, 2000
                      ------------------------------------
                          (Unaudited and in thousands)
<TABLE><CAPTION>
                                                                                     NON-GUARANTOR
                                                                                      SUBSIDIARY     ELIMINATIONS
                                                       CHATTEM          SIGNAL         COMPANIES       DR.(CR.)      CONSOLIDATED
                                                      ----------      ----------      ----------      ----------      ----------
<S>                                                   <C>             <C>             <C>             <C>              <C>
OPERATING ACTIVITIES:
  Net income (loss) .............................     $   (2,515)     $     (326)     $    1,182      $     --        $   (1,659)
  Adjustments to reconcile net income (loss) to
    net cash provided by operating activities:
    Depreciation and amortization ...............          5,978           8,865             100            --            14,943
    Deferred income tax benefit .................         (5,410)           (168)           (156)           --            (5,734)
    Loss on product divestitures ................           --             5,018            --              --             5,018
    Extraordinary loss on early extinguishment
      of debt, net ..............................            920            --              --              --               920
    Cumulative effect of change in accounting
      principle, net ............................            542            --              --              --               542
    Stock option charge .........................            525            --              --              --               525
    Other, net ..................................              9            --                 6            --                15
    Changes in operating assets and liabilities,
      net of acquisitions and divestitures:
      Accounts receivable .......................         15,178          (1,154)            317            --            14,341
      Inventories ...............................          7,618            --              (378)           --             7,240
      Prepaid and other current assets ..........         (1,873)           --               335            --            (1,538)
      Accounts payable and accrued liabilities ..         (8,318)           --               212            --            (8,106)
                                                      ----------      ----------      ----------      ----------      ----------
        Net cash provided by operating activities         12,654          12,235           1,618            --            26,507
                                                      ----------      ----------      ----------      ----------      ----------
INVESTING ACTIVITIES:
  Purchases of property, plant and equipment ....         (5,582)           --               (91)           --            (5,673)
  Proceeds from product divestiture .............        160,000            --              --              --           160,000
  Proceeds from sales of property, plant and equipment        11            --              --              --                11
  Increase in other assets, net .................         (1,542)           --              --              --            (1,542)
                                                      ----------      ----------      ----------      ----------      ----------
        Net cash provided by (used in) investing
          activities ............................        152,887            --               (91)           --           152,796
                                                      ----------      ----------      ----------      ----------      ----------
FINANCING ACTIVITIES:
  Repayment of long-term debt ...................        (95,000)           --              --              --           (95,000)
  Proceeds from long-term debt ..................         29,000            --              --              --            29,000
  Change in payable to bank .....................         (3,376)           --              --              --            (3,376)
  Repurchase of common shares ...................         (9,489)           --              --              --            (9,489)
  Proceeds from exercise of stock options .......            237            --              --              --               237
  Debt issuance costs ...........................           (363)           --              --              --              (363)
  Changes in intercompany accounts ..............        (85,678)         87,496          (1,818)           --              --
  Dividends paid ................................          4,000          (4,000)           --              --              --
                                                      ----------      ----------      ----------      ----------      ----------
        Net cash  provided by (used in) financing
          activities ............................       (160,669)         83,496          (1,818)           --           (78,991)
                                                      ----------      ----------      ----------      ----------      ----------
EFFECT OF EXCHANGE RATE CHANGES ON
  CASH AND CASH EQUIVALENTS .....................             93            --              (179)           --               (86)
                                                      ----------      ----------      ----------      ----------      ----------
CASH AND CASH EQUIVALENTS:
  Increase (decrease) for the year ..............          4,965          95,731            (470)           --           100,226
  At beginning of year ..........................            550              16           1,742            --             2,308
                                                      ----------      ----------      ----------      ----------      ----------
  At end of year ................................     $    5,515      $   95,747      $    1,272      $     --        $  102,534
                                                      ==========      ==========      ==========      ==========      ==========
</TABLE>
                                       49
<PAGE>
                         CHATTEM, INC. AND SUBSIDIARIES                  Note 16
                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED NOVEMBER 30, 1999
                      ------------------------------------
                          (Unaudited and in thousands)


<TABLE><CAPTION>
                                                                                     NON-GUARANTOR
                                                                                      SUBSIDIARY     ELIMINATIONS
                                                       CHATTEM          SIGNAL         COMPANIES       DR.(CR.)      CONSOLIDATED
                                                      ----------      ----------      ----------      ----------      ----------
<S>                                                   <C>             <C>             <C>             <C>              <C>
OPERATING ACTIVITIES:
  Net income ....................................     $   16,259      $    2,795      $    1,102      $     --        $   20,156
  Adjustments to reconcile net income to net cash
    provided by operating activities: ...........           --
    Depreciation and amortization ...............          5,429           9,487             148            --            15,064
    Deferred income tax provision ...............          3,158           1,440            --              --             4,598
    Extraordinary loss on early extinguishment
      of debt, net ..............................          2,385            --              --              --             2,385
    Dividend receivable from Elcat, Inc. ........           (279)           --              --              --              (279)
    Stock option charge .........................            525            --              --              --               525
    Other, net ..................................             (8)              8            --              --              --
    Changes in operating assets and liabilities,
      net of acquisitions:
      Accounts receivable .......................        (16,598)           --              (830)           --           (17,428)
      Inventories ...............................         (5,366)           --               683            --            (4,683)
      Prepaid and other  current assets .........           (241)           --                82            --              (159)
      Accounts payable and accrued liabilities ..          6,355            --               388            --             6,743
                                                      ----------      ----------      ----------      ----------      ----------
        Net cash provided by operating activities         11,619          13,730           1,573            --            26,922
                                                      ----------      ----------      ----------      ----------      ----------

INVESTING ACTIVITIES:
  Purchases of property, plant and equipment ....         (9,789)           --               (41)           --            (9,830)
  Purchases of trademarks and other related assets       (91,127)           --              --              --           (91,127)
  Proceeds from sales of investments ............          2,994             387            --              --             3,381
  Proceeds from sales of property, plant and
    equipment ...................................            272            --              --              --               272
  Increase in other assets ......................         (3,200)           --              --              --            (3,200)
                                                      ----------      ----------      ----------      ----------      ----------
        Net cash provided by (used in) investing
          activities ............................       (100,850)            387             (41)           --          (100,504)
                                                      ----------      ----------      ----------      ----------      ----------

FINANCING ACTIVITIES:
  Repayment of long-term debt ...................       (165,481)           --              --              --          (165,481)
  Proceeds from long-term debt ..................        242,281            --              --              --           242,281
  Change in  payable to bank ....................          3,879            --              --              --             3,879
  Repurchase of common shares ...................         (3,912)           --              --              --            (3,912)
  Proceeds from exercise of stock options and
    warrants ....................................          2,104            --              --              --             2,104
  Debt issuance costs ...........................         (5,101)           --              --              --            (5,101)
  Change in intercompany accounts ...............         12,106         (10,112)         (1,994)           --              --
  Dividends paid ................................          4,000          (4,000)           --              --              --
                                                      ----------      ----------      ----------      ----------      ----------
        Net cash provided by (used in) financing
          activities ............................         89,876         (14,112)         (1,994)           --            73,770
                                                      ----------      ----------      ----------      ----------      ----------
EFFECT OF EXCHANGE RATE CHANGES ON
  CASH AND CASH EQUIVALENTS .....................           --              --                44            --                44
                                                      ----------      ----------      ----------      ----------      ----------
CASH AND CASH EQUIVALENTS:
  Increase (decrease) for the year ..............            645               5            (418)           --               232
  At beginning of year ..........................            (95)             11           2,160            --             2,076
                                                      ----------      ----------      ----------      ----------      ----------
  At end of year ................................     $      550      $       16      $    1,742      $     --        $    2,308
                                                      ==========      ==========      ==========      ==========      ==========
</TABLE>
                                       50
<PAGE>

(17)QUARTERLY INFORMATION (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
    ---------------------------------------------------------------------------

<TABLE><CAPTION>
                                                                                         Quarter Ended
                                                                     -------------------------------------------------------
                                                     Total          February 28      May 31       August 31      November 30
                                                   ----------        --------       --------      ---------      -----------
<S>                                                <C>               <C>            <C>           <C>            <C>
FISCAL 2001:
    Net sales ................................     $  198,300          47,420         56,542         49,641         44,697
    Gross profit .............................     $  145,788          34,936         41,136         36,978         32,738
    Before extraordinary gain:
      Income .................................     $    8,395             586          3,409          2,748          1,652
      Income per share, diluted (1) ..........     $      .93             .07            .38            .30            .18
    Total:
      Net income .............................     $   15,343           8,145          3,401          2,145          1,652
      Net income per share, diluted (1) ......     $     1.70             .92            .38            .24            .18

FISCAL 2000:
    Net sales ................................     $  252,699          62,371         79,636         73,253         37,439
    Gross profit .............................     $  177,742          45,689         58,181         54,094         19,778
    Before extraordinary loss and change in
    accounting principle:
      Income (loss) ..........................     $     (197)          3,608          6,219          5,151        (15,175)
      Income (loss) per share, diluted (1) ...     $     (.02)            .37            .65            .55          (1.66)
    Total:
      Net income (loss) ......................     $   (1,659)          3,066          6,109          5,151        (15,985)
      Net income (loss) per share, diluted (1)     $     (.18)            .31            .64            .55          (1.75)
</TABLE>


(1)  THE SUM OF THE QUARTERLY EARNINGS PER SHARE AMOUNTS MAY DIFFER FROM ANNUAL
     EARNINGS PER SHARE BECAUSE OF THE DIFFERENCES IN THE WEIGHTED AVERAGE
     NUMBER OF COMMON SHARES AND DILUTIVE POTENTIAL SHARES USED IN THE QUARTERLY
     AND ANNUAL COMPUTATIONS.























                                       51
<PAGE>
                              REPORT OF INDEPENDENT
                               PUBLIC ACCOUNTANTS


TO CHATTEM, INC.:

We have audited the accompanying consolidated balance sheets of Chattem, Inc. (a
Tennessee corporation) and subsidiaries as of November 30, 2001 and 2000, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended November 30, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chattem, Inc. and subsidiaries
as of November 30, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended November 30, 2001 in
conformity with accounting principles generally accepted in the United States.

As explained in Note 2 to the consolidated financial statements, effective
December 1, 1999, the Company changed its method of accounting for start-up
activities and organization costs.


ARTHUR ANDERSEN LLP


Chattanooga, Tennessee
January 23, 2002



















                                       52
<PAGE>
BOARD OF DIRECTORS

ZAN GUERRY
Chairman and Chief Executive Officer
Chattem, Inc.
Chattanooga, Tennessee

A. ALEXANDER TAYLOR II
President and Chief Operating Officer
Chattem, Inc.
Chattanooga, Tennessee

SAMUEL E. ALLEN
Chairman and Chief Executive Officer
GLOBALT, Inc.
Atlanta, Georgia

LOUIS H. BARNETT
Business Consultant
Fort Worth, Texas

ROBERT E. BOSWORTH
Vice President - Corporate Finance
Livingston Company
Chattanooga, Tennessee

RICHARD E. CHENEY
Former Chairman Emeritus
Hill and Knowlton, Inc.
New York, New York

SCOTT L. PROBASCO, JR.
Chairman of the Executive Committee
SunTrust Bank, Tennessee, N.A.
Chattanooga, Tennessee

PHILIP H. SANFORD
Chairman and Chief Executive Officer
The Krystal Company
Chattanooga, Tennessee

ADDITIONAL FINANCIAL INFORMATION

COPIES OF QUARTERLY PRESS RELEASES AND/OR QUARTERLY REPORTS ON FORM 10-Q AND
ANNUAL REPORT ON FORM 10-K, BOTH FORMS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO THE CONTROLLER,
CHATTEM, INC., BY CALLING 1-800-366-6077 OR VISIT OUR WEBSITE AT
WWW.CHATTEM.COM.

---------------------------------

OFFICERS

ZAN GUERRY
Chairman and Chief Executive Officer

A. ALEXANDER TAYLOR II
President and Chief Operating Officer

ANDREA M. CROUCH
Vice President
Brand Management

RON GALANTE
Vice President
New Business Development

RICHARD W. KORNHAUSER
Vice President
Brand Management

LUKE J. LENAHAN
Vice President
International

ROBERT S. MARSHALL
Vice President
Marketing

B. DERRILL PITTS
Vice President
Operations

DONALD K. RIKER, PH.D.
Vice President
Research and Development and
Chief Scientific Officer

SCOTT J. SLOAT
Controller

CHARLES M. STAFFORD
Vice President
Sales

HUGH F. SHARBER
Secretary

ANNUAL MEETING

Wednesday, April 17, 2002
1:00 P.M.
1715 West 38th Street
Chattanooga, TN 37409

---------------------------------

CORPORATE OFFICE

CHATTEM, INC.
1715 West 38th Street
Chattanooga, Tennessee 37409

SUBSIDIARIES AND AFFILIATED COMPANIES

CHATTEM (U.K.) LIMITED
Guerry House
Ringway Centre
Edison Road
Basingstoke, Hampshire RG21 2YH
England

CHATTEM (CANADA) INC.
2220 Argentia Road
Mississauga, Ontario L5N 2K7

SIGNAL INVESTMENT & MANAGEMENT CO.
1105 North Market Street
Suite 1300
Wilmington, Delaware 19890

COMMON STOCK LISTING

Over-the-Counter
NASDAQ Symbol: CHTT

TRANSFER AGENT AND REGISTRAR

SUNTRUST BANK, ATLANTA, N.A.
P.O. Box 4625
Atlanta, Georgia 30302