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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
COMMISSION FILE NUMBER 0-5905
CHATTEM, INC.
A TENNESSEE CORPORATION
IRS EMPLOYER IDENTIFICATION NO. 62-0156300
1715 WEST 38TH STREET
CHATTANOOGA, TENNESSEE 37409
TELEPHONE: 423-821-4571
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange On
Title of Each Class Which Registered
-------------------- ----------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
REGISTRANT HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K WILL BE
CONTAINED IN THE DEFINITIVE PROXY STATEMENT INCORPORATED BY REFERENCE IN PART
III OF THE FORM 10-K.
AS OF FEBRUARY 26, 1999 THE AGGREGATE MARKET VALUE OF VOTING SHARES HELD BY
NON-AFFILIATES WAS $261,715,366
AS OF FEBRUARY 26, 1999 9,760,371 COMMON SHARES WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR FISCAL YEAR ENDED
NOVEMBER 30, 1998 (THE "1998 ANNUAL REPORT TO SHAREHOLDERS") ARE INCORPORATED BY
REFERENCE IN PARTS I, II, AND IV OF THIS REPORT. PORTIONS OF THE REGISTRANT'S
DEFINITIVE PROXY STATEMENT DATED MARCH 8, 1999 (THE "PROXY STATEMENT") ARE
INCORPORATED BY REFERENCE IN PART III OF THIS REPORT.
PART I
ITEM 1. BUSINESS
GENERAL
Chattem, Inc. (the "Company") is a leading marketer and manufacturer of a
variety of branded consumer products, including over-the-counter ("OTC")
healthcare and toiletries and skin care products. Our high-quality branded
products target niche market segments and are among the market leaders in
their respective categories. Through creative and cost effective marketing
techniques, we support these brands on a national level across all major
distribution channels, including food, drug and mass merchandisers.
Our portfolio of branded products includes:
o OTC health care products, including the GOLD BOND line
of medicated powder, cream and lotion products;
topical analgesics such as FLEXALL and ICY HOT;
menstrual internal analgesics including PAMPRIN;
dietary supplements under the SUNSOURCE label,
including GARLIQUE, HARMONEX and REJUVEX; and other
branded OTC health care products;
o Toiletries and skin care products, including BAN
antiperspirants and deodorants, PHISODERM skin
cleansers and BULLFROG sunblock.
Several of these brands have the number one market share in their categories,
including GOLD BOND (medicated powders), BAN (roll-on antiperspirant/deodorant)
and GARLIQUE (garlic extracts).
The Company conducts a portion of its business through four wholly owned
subsidiaries. One subsidiary owns or licenses substantially all of the
trademarks and intangibles associated with its domestic consumer products
business and licenses the Company's use thereof. Certain foreign sales
operations are conducted through Canadian and United Kingdom subsidiaries.
Product liability insurance is provided by a captive insurance subsidiary
incorporated in Bermuda and other third party insurers.
For purposes of this report, the "Company" or "we" refers to Chattem, Inc. and
its wholly-owned subsidiaries. Trademarks of the Company appear in this report
in all capitalized letters.
2
DEVELOPMENTS DURING FISCAL 1998
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
$165,000,000 and assumed liabilities. 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.
Also on March 24, 1998, the Company issued $200,000,000 of 8 7/8% Senior
Subordinated Notes due 2008 (the "Notes") and entered into an amended and
restated senior secured bank credit agreement. The proceeds of the Notes
offering were used to fund the BAN purchase and related fees and expenses, repay
revolving bank indebtedness and provide additional working capital.
On May 12, 1998, the Company sold the CORNSILK oil control makeup brand for
$10,750,000, plus inventories and the assumption of certain liabilities. The
Company sold, at a gain of $9,548,000, CORNSILK trademarks, formulae, technical
information, inventory and other related assets but will continue to operate the
CORNSILK business in the United Kingdom pursuant to a license agreement. The
Company used the net proceeds from the sale to reduce bank indebtedness.
On December 21, 1998, the Company acquired the DEXATRIM, SPORTSCREME,
ASPERCREME, CAPZASIN-P, CAPZASIN-HP and ARTHRITIS HOT brands from Thompson
Medical Company, Inc. for $95,000,000. The purchase price consisted of
$90,000,000 cash and 125,500 shares of the Company's common stock. The cash
portion of the purchase price was financed by a senior credit facility.
On December 21, 1998, the Company also announced, the filing of a shelf
registration with the Securities and Exchange Commission for $250,000,000 of
debt and equity securities. This shelf filing will allow the Company to access
the capital markets on a more immediate basis to fund internal growth and
acquisitions and strengthen its balance sheet.
The Company will continue to seek increases in sales through a combination of
acquisitions and internal growth while maintaining high levels of operating
income. As previously high growth brands mature, sales increases will become
more dependent on acquisitions and the development of successful line
extensions. During the year ended November 30, 1998, new additions to the
GOLD BOND (Medicated Lotion), BULLFROG (for Babies and SUPERBLOCK SPF45),
HERPECIN-L (jar lip balm) and SUNSOURCE (HARMONEX) product lines were
introduced.
GROWTH STRATEGY
The Company seeks to expand its business through:
ACQUISITION OF ESTABLISHED BRANDS. Brand acquisitions afford the Company the
opportunity to leverage its advertising and promotional capabilities and utilize
existing distribution channels to attain incremental sales increases accompanied
by higher operating margins. The Company focuses its acquisition efforts on
niche markets in the consumer products sector, where it is able to gain a
significant market position. As many of the Company's competitors rationalize
their product lines or businesses, we anticipate an increase in the number and
size of attractive brand acquisition opportunities.
Three recent examples of the execution of this strategy are the Company's
acquisitions of:
BAN in March 1998. BAN, introduced in 1955, is a leading
antiperspirant/deodorant brand with the number one U.S. market share in
the roll-on brand segment. The Company believes that BAN represents a major
growth opportunity and two new line extensions and new packaging are planned
for introduction in fiscal 1999.
3
The SUNSOURCE line of dietary supplements in June 1997. Certain of the SUNSOURCE
products are leaders in small to medium sized markets that have an older and
growing demographic profile. In addition, the dietary supplements market is a
media driven business that is compatible with the Company's marketing and
distribution capabilities. The Company believes that growth of the SUNSOURCE
brands can be achieved through the utilization of television and radio
advertising, new product introductions and improved distribution.
GOLD BOND in April 1996. GOLD BOND is the leading medicated powder with a
rapidly growing presence in the anti-itch cream and lotion markets. Annual
sales of GOLD BOND have increased by more than 20% since the time of the
acquisition, while operating margins have increased during the same period.
EXPANSION OF EXISTING PRODUCT LINES. The Company seeks to increase its market
share for its existing brands by focusing on increased market penetration and
brand awareness and introducing product line extensions. Product line extensions
allow the Company to maximize the value of the base brand through an increased
market presence and new market entry. Recent examples of product line extensions
include ICY HOT Arthritis Therapy Gel; GOLD BOND Medicated Foot Powder, GOLD
BOND Cornstarch Plus Medicated Baby Powder and GOLD BOND Medicated Lotion; and
HARMONEX from SUNSOURCE.
DEVELOPMENT OF BRANDS WITH UNREALIZED POTENTIAL. The Company seeks to acquire
brands with unrealized potential that have been under-marketed by larger firms
or have achieved success in limited geographic regions. The Company uses its
marketing ability, sales force and manufacturing capabilities to build on the
unrealized potential of the brand. BULLFROG and FLEXALL each had only regional
market presence when acquired by the Company. Both of these brands have achieved
significant sales growth following their acquisition by the Company
4
PRODUCTS
The objective of the Company is to offer high quality brand name products in
niche market segments in which its products can be among the market leaders in
their respective categories. The Company strives to achieve its objective by
identifying brands with favorable demographic appeal, quickly modifying products
and promotions in response to changing consumer demands, and developing creative
and cost-effective marketing and advertising programs. The Company competes in
the following product categories: OTC health care and toiletries and skin
care. The Company manufactures products accounting for approximately half of
its sales volume at its facility in Chattanooga, Tennessee, with the BAN,
GOLD BOND powders, the SUNSOURCE brands and NORWICH Aspirin, being
manufactured by contract manufacturers.
The Company's product brands are:
OTC HEALTH CARE
GOLD BOND- medicated powders, lotion and anti-itch cream
FLEXALL - topical analgesic
ICY HOT- topical analgesic
PAMPRIN - menstrual internal analgesic
PREMSYN PMS - premenstrual internal analgesic
BENZODENT - topical oral analgesic
NORWICH Aspirin - internal analgesic
HERPECIN-L - cold sore and fever blister balm
GARLIQUE - garlic extract
REJUVEX - menopausal supplement
HARMONEX - emotional and physical well being
PROPALMEX - prostate health
MELATONEX - sleep aid
ECHINEX - resistance to infections
TOILETRIES AND SKIN CARE
BAN - antiperspirants and deodorants
BULLFROG - sunscreen and sunblock
PHISODERM - facial and hand cleanser
ULTRASWIM - chlorine removing shampoo
SUN-IN - spray-on hair lightener
MUDD - facial mask and cleanser
5
The following table sets forth the Company's net sales attributable to
domestic and international OTC health care, toiletries and skin care, other
products and total consumer products during the past three fiscal years:
Fiscal Year Ended November 30,
------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- ------------------
Sales Percentage Sales Percentage Sales Percentage
----- ---------- ----- ---------- ----- ----------
$(000)
Domestic:
OTC Health Care ........... $114,060 51.8% $ 92,223 64.4% $ 67,214 56.5%
Toiletries and Skin Care .. 84,850 38.6 33,887 23.7 36,232 30.5
International:
OTC Health Care ........... 5,863 2.7 3,053 2.1 2,255 1.9
Toiletries and Skin Care .. 14,390 6.5 12,154 8.5 12,204 10.3
Other Products ............... 901 .4 1,918 1.3 998 .8
-------- ----- -------- ----- -------- -----
Total Consumer
Products ............. $220,064 100.0% $143,235 100.0% $118,903 100.0%
======== ===== ======== ===== ======== =====
6
OTC HEALTH CARE
The Company markets a diversified portfolio of brand name OTC health care
products, many of which are among the market leaders in the U.S. in their
respective categories.
The GOLD BOND brand, which is approximately 100 years old, competes in the adult
and baby medicated powder, therapeutic lotion and anti-inch cream markets. GOLD
BOND is the leading brand in the medicated powder market and has a rapidly
growing presence in the anti-itch cream market. GOLD BOND medicated lotion was
introduced in the last quarter of fiscal 1998. The product line is heavily
supported by national television and radio advertising, as well as consumer
promotions. The Company believes GOLD BOND represents a major growth opportunity
and is currently considering various additional line extensions including GOLD
BOND Ointment, which will be introduced in fiscal 1999.
FLEXALL is an aloe-vera based topical analgesic used primarily by arthritic
sufferers to alleviate pain and irritation in joints and secondarily by
sufferers from muscle strain. The Company believes that the advancing age of the
U.S. population and the emphasis on fitness and physical activity will increase
the overall market size of the topical analgesic market. The Company supports
the brand with a marketing program that utilizes extensive television
advertising. In fiscal 1999, FLEXALL QUIK GEL will be introduced as well as a
new advertising campaign for the FLEXALL brand featuring former NFL star Joe
Montana.
ICY HOT provides the Company with a second entry into the topical analgesic
market segment. ICY HOT is an extra strength dual action product. The Company
supports this brand with national advertising and strong promotional programs.
In the menstrual analgesic segment, the Company markets PAMPRIN, a combination
drug specifically designed for relief of menstrual symptoms, and PREMSYN PMS, a
product formulated to relieve mild to moderate symptoms of premenstrual
syndrome. PAMPRIN and PREMSYN PMS are together the number one selling
premenstrual internal analgesic, based on units sold, on the market today.
BENZODENT is a dental analgesic cream in an adhesive base for use as an oral
topical analgesic for pain related to dentures. In 1994 the Company acquired
BENZODENT and principally supports the brand by providing samples to consumers
when they are initially fitted for dentures.
NORWICH is a pharmaceutical-quality aspirin-based analgesic which complements
the Company's other OTC pharmaceuticals by offering consumers another choice in
the analgesic market segment. The Company positions the brand as a reasonably
priced alternative between private label generic aspirin and high-priced,
heavily-advertised brands.
In the lip care category, the unique formula of HERPECIN-L treats and
protects cold sores by moisturizing lips to help prevent cracking, reduce
soreness and promote healing. Also, HERPECIN-L contains an SPF 36 sunblock to
help protect lips from the harmful sun rays. In fiscal 1998 HERPECIN-L lip
balm was introduced in a jar container. The Company supports the brand with
radio advertising as well as consumer promotions designed to generate trial
during the peak winter and summer cold sore seasons.
GARLIQUE garlic tablets support cardiovascular health. The tablets are uniquely
positioned in the marketplace as a "one per day" high potency garlic supplement.
Most major GARLIQUE competitors require multiple daily dosages. Consumers have a
strong and growing interest in this odorless, drug-free, all natural approach to
maintaining normal cholesterol levels. GARLIQUE entered the market in 1992
and is the number one selling domestic garlic extract product.
REJUVEX is a dietary supplement for women in the pre- and post-menopausal age
group. REJUVEX helps women during a phase of life that is often fraught with
numerous discomforts. Additionally, REJUVEX, high in magnesium, helps promote
strong healthy bones in a population that is at risk for development of
osteoporosis.
HARMONEX is a combination of St. John's Wort, proven to help emotional balance,
and Siberian ginseng, an herb providing a boost to physical well being. In
clinical trials, the scientifically standardized St. John's Wort extract used in
HARMONEX helped maintain a healthy emotional balance in study subjects.
PROPALMEX is an herbal supplement for men over 40. PROPALMEX supports
prostate health and promotes free urinary flow. As men age, natural changes in
hormone balance result in conditions which tend to cause a swelling of the
prostate. This benign condition plagues most men past middle age and PROPALMEX
is the all natural, drug-free approach to maintenance of a healthy prostate.
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. As
we age, we produce less melatonin, tend to sleep less and have more difficulty
falling asleep and staying asleep. MELATONEX is a scored, time-release tablet
offering dosage control to users.
ECHINEX is a standardized herbal complex of echinacea, ginger and Siberian
ginseng. This effective combination supports our natural resistance against
infection. ECHINEX is a seasonal product that provides adults with added
protection during times of high risk for cold and flu.
SUNSOURCE offers a line of nine homeopathic OTC products. Homeopathic medicines
represent a growing segment of the OTC marketplace. These all natural products
are safe and effective and have no side effects. The SUNSOURCE line includes six
tablet products: Sinus Relief, Cold Relief, Insomnia Relief, Allergy Relief, Flu
Relief and Arthritis Relief; and three topical creams: Sports Injury Relief,
Arthritis Relief and Psoriasis/Eczema Relief.
7
TOILETRIES AND SKIN CARE
The Company also markets a portfolio of brand name toiletries and skin care
products, many of which are among the market leaders in the U.S. in their
respective categories.
BAN antiperspirant and deodorant products provide advanced protection from odor
and wetness. Originally introduced in 1955, BAN is the number one roll-on brand
in the U.S. The proven maximum strength protection of BAN is available in five
advanced forms - Original Roll-On, Clear Roll-On, Solid Stick, Clear Stick, and
the revolutionary Clear Soft Solid. The product line is supported with
significant national television and radio advertising. In addition, business
building consumer promotions are planned for 1999 as the antiperspirant and
deodorant category is highly responsove to promotion. The Company believes that
BAN represents a major growth opportunity and two exciting new line extensions
and new packaging are planned for introduction in the 1999 fiscal year.
BULLFROG is positioned as a line of highly efficacious sunblock products in a
unique, long-lasting, water-durable formula. The Company believes that the
BULLFROG brand should continue to benefit from an increasing brand awareness,
broader product offerings and increased consumer advertising, promotion and
sampling programs. BULLFROG for Babies and SUPERBLOCK SPF 45 were added to the
BULLFROG line in fiscal 1998. BULLFROG MAGICBLOCK, a disappearing color sun
block, will be introduced in fiscal 1999.
PHISODERM is a line of facial cleansers consisting of several formulas of liquid
cleansers, including one for infants, and a bar soap. In fiscal 1998 PHISODERM
was repositioned as "The Daily Prescription for Healthy Skin" which expanded its
consumer audience and resulted in steady brand growth. The problem skin
positioning, communicated through strong radio advertising, sets the stage for
further line extensions, increased advertising support and continued sales
momentum. PHISODERM Acne will be introduced during fiscal 1999.
ULTRASWIM is a leading line of chlorine removing shampoos, conditioners and
soaps. ULTRASWIM has a unique formula that the Company believes makes it
superior to formulations of other products in removing chlorine. The Company
supports this brand through targeted print and consumer promotions, including
event sponsorships and sampling.
SUN-IN is a leading product line in the spray-on hair lightener market. The
target customers within this market segment are light-haired men and women
between the ages of 12 and 24. The Company supports SUN-IN's position as a
market leader through recent improvements in the formula and package, seasonal
advertising to teens and consumer promotions in retail stores.
MUDD is a line of clay-based products which provide deep cleansing of the face
for healthier, cleaner skin. Target customers for MUDD are women between the
ages of 18 and 49. The MUDD line is a market leader in the masque category with
four top selling varieties. The Company anticipates expansion of the brand
through line extensions, sampling and radio advertising. MUDD Sauna Masque, a
self-heating facial mask, will be introduced during fiscal 1999.
8
INTERNATIONAL
Certain of the Company's products are sold in foreign countries. The
international business is concentrated in Canada, Europe and Central and South
America.
Sales in Canada and Europe are conducted by subsidiary companies located and
locally staffed in Canada and the United Kingdom, respectively. General export
sales are handled by the Company from its offices in Chattanooga. Most of the
products sold in international markets are manufactured by the Company at its
Chattanooga and United Kingdom facilities and are packaged by subsidiary
companies in small facilities in Canada and the United Kingdom with the
assistance, from time to time, of outside contract packagers.
The BAN, GOLD BOND, FLEXALL, PAMPRIN, BULLFROG, PHISODERM, ULTRASWIM, SUN-IN and
MUDD brands are sold in Canada. Consumer product sales in the United Kingdom and
on the continent of Western Europe are currently limited to toiletry and
cosmetic products. The Company's hair lightener is sold on the continent under
the SPRAY BLOND trademark and in the United Kingdom as SUN-IN. MUDD, CORNSILK
and ULTRASWIM are the other products sold by the Company's U.K. subsidiary in
Europe.
The Company's export division services various distributors primarily located in
Central and South America and the Caribbean. The Company sells various products
into these markets including BAN, GOLD BOND, ICY HOT and PHISODERM.
9
MANUFACTURING AND QUALITY CONTROL
The Company manufactures approximately half of the sales volume of its
products at its Chattanooga plant. BAN, GOLD BOND powders, the SUNSOURCE
brands and NORWICH Aspirin are manufactured by third party contract
manufacturers. With the addition of a newly purchased facility and through
third party manufacturers the Company has adequate capacity to meet
anticipated demand for its products. New products with formulations and
packaging that are consistent with currently manufactured products can
generally be manufactured with the adaptation of existing equipment and
facilities, the addition of new equipment at relatively small cost or through
readily available contract manufacturers. For additional information about
the extent of utilization of the Company's manufacturing facilities, see
"Properties", Item 2, in this report.
Third party manufacturers produce certain products including GOLD BOND
powders and the SUNSOURCE line. Additionally, the Company entered into a
manufacturing agreement with Bristol-Myers Squibb Company ("BMS"), whereby
BMS manufactures BAN until March 2001. In most cases, other than
with BAN, the manufacturer is not obligated under a contract that fixes the
term of its commitment. Manufacturers may experience problems with product
quality or timeliness of product delivery. Manufacturers may also discontinue
production of brands upon little or no advance notice. In each case, the
Company believes that it could find other contract manufacturers quickly if
any of its current contractors cease to perform adequately. However, if this
occurs and the Company cannot find other contract manufacturers, the Company
may be forced to shift production to in-house facilities. This may cause
manufacturing delays, which would cause disruption in the Company's ability to
fill orders. This could adversely affect the Company's business.
To monitor the quality of its products, the Company maintains an internal
quality control system supported by an on-site microbiology laboratory. The
Company's quality control inspectors who regularly test its products and
processes and shepherd the products through the manufacturing cycle. Outside
consultants also are employed from time to time to monitor product
development and the effectiveness of the Company's operations.
The Company has not experienced any material adverse effect on its business
as a result of shortages of energy, raw materials or packaging materials used
in the manufacture of its products. Certain of the Company's products contain
specialized ingredients that are obtained from international and domestic
third party suppliers. An unexpected interruption or a shortage in supply
could adversely affect the Company's business derived from these products.
The Company may not be able to raise prices quickly enough to immediately
offset the effects of any increase in the costs of these specialized
ingredients or fill customer orders in the event of a supply shortage. At
present, the Company does not foresee any significant problems in obtaining
its ingredients requirements at reasonable prices, but an unexpected
interruption of a shortage in supply could adversely affect its business in
the future.
PRODUCT DEVELOPMENT
The Company's product development expenditures were $1,369,000, $1,207,000 and
$1,117,000 in the fiscal years ended November 30, 1998, 1997 and 1996,
respectively. No material customer-sponsored product development activities were
undertaken during these periods. The Company expects product development
expenditures to increase in fiscal 1999 due to recent acquisitions.
The product development effort focuses on developing improved formulations for
existing products and on the creation of formulations for product line
extensions. The preservation and improvement of the quality of the Company's
products are also integral parts of the Company's overall strategy.
10
DISTRIBUTION
The Company's domestic products are sold primarily through food, drug and mass
merchandiser accounts. Internationally, the products are sold by a national
broker in Canada and the Company's own sales force in the United Kingdom and by
exclusive distributors in Western Europe and Central and South America.
Wal-Mart Stores, Inc. accounts for more that 10% of the sales of the Company's
consolidated net sales. No other customer accounts for more that 10% of
consolidated net sales. Boots Plc, a U.K. retailer, accounts for more than 10%
of the international consumer products segment's sales.
The Company generally maintains sufficient inventories to meet customer orders
as received absent unusual and infrequent situations. At present, the Company
has no significant backlog of customer orders and is promptly meeting customer
requirements.
The Company does not generally experience wide variances in the amount of
inventory it maintains. Inventory levels were increased during fiscals 1998,
1997 and 1996 largely as a result of product acquisitions and line extensions in
those years. In certain circumstances, the Company allows its customers to
return unsold merchandise and, for seasonal products, provides extended payment
terms to its customers.
MARKETING
The Company allocates a significant portion of its revenues to the advertising
and promotion of its products. Expenditures for these purposes were 39.3%, 39.2%
and 38.3%, respectively, as a percentage of net sales during each of the fiscal
years ended November 30, 1998, 1997 and 1996.
The Company's marketing objective is to develop and execute professionaly
designed, creative and cost-effective advertising and promotional programs. The
manner in which the Company executes promotional programs and purchases
advertising time creates more flexibility in terms of adjusting spending levels.
The Company believes that balancing advertising, trade promotion and consumer
promotion expenditures on a cost effective basis is essential to its ability to
compete successfully.
The Company develops for each of its major brands advertising strategies and
executions that sell the product by focusing on the particular strengths and
market position of the product. The Company achieves cost-effective
advertising by minimizing certain expenses, such as production of commercials
and payments to advertising agencies. New product launches are supported with
a substantial level of advertising and promotional spending. The Company
occasionally uses celebrity endorsements to increase awareness of our
products, such as Larry King's endorsement of GARLIQUE and HARMONEX. The
Company recently reached an agreement with Joe Montana for an advertising
campaign in support of FLEXALL, which began in December 1998. Where
appropriate, the Company uses radio advertising and 15-second television
advertisements. In its advertisements, the Company has successfully used
personal testimonials from individuals attesting to the effectiveness of our
products.
The Company works directly with retailers to develop for each brand promotional
calendars and campaigns that are customized to the particular requirements of
the individual retailer. The programs, which include cooperative advertising,
temporary price reductions, in-store displays and special events, are designed
to obtain or enhance distribution at the retail level and to reach the ultimate
consumers of the product. The Company also utilizes consumer promotions such as
coupons, samples and trial sizes to increase the trial and consumption of the
products.
11
SEASONALITY
During recent fiscal years, the Company's first quarter net sales and gross
profit have trailed the other fiscal quarters on average from 25% to 35% because
of slower sales of domestic seasonal and international consumer products and the
relative absence of promotional campaigns during this quarter. As a result of
the Company's acquisitions of BAN, seasonality should not be as pronounced as in
years past; however, because of seasonal products, net sales and profit during
the first quarter will continue to trail the other fiscal quarters.
COMPETITION
The Company competes in the OTC health care and toiletries and skin care
markets. These markets are highly competitive and are characterized by the
frequent introduction of new products, including the movement of prescription
drugs to the OTC market, often accompanied by major advertising and
promotional programs. We compete primarily on the basis of product quality,
price, brand loyalty and consumer acceptance. Our competitors include other
OTC pharmaceutical companies and large consumer products companies, many of
which have considerably greater financial and marketing resources than us. In
addition, our competitors have often been willing to use aggressive spending
on trade promotions and advertising as a strategy for building market share
at the expense of their competitors, including us. The private label or
generic category has also become increasingly more competitive in certain of
the Company's product markets. Our products continue to compete for shelf
space among retailers who are increasingly consolidating.
TRADEMARKS AND PATENTS
Our trademarks are of material importance to our business and are among our most
important assets. In fiscal year 1998, substantially all of our net sales were
from products bearing proprietary brands names, including BAN, GOLD BOND,
FLEXALL, ICY HOT, PAMPRIN, GARLIQUE, PHISODERM and BULLFROG. Accordingly, our
future success may depend in part upon the goodwill associated with our brand
names, particularly BAN and GOLD BOND.
Our principal brand names are registered in the United States and certain
foreign countries. However, we cannot assure you that the steps we take to
protect our proprietary rights in our brand names will be adequate to prevent
the misappropriation of these registered brand names in the United States or
abroad. In addition, the laws of some foreign countries do not protect
proprietary rights in brand names to the same extent as do the laws of the
United States.
Through our subsidiary, Signal Investment & Management Co., we maintain and have
applied for patent, trademark and copyright protection in the United States
relating to certain of our existing and proposed products and processes. We
cannot assure you that we will be able to successfully protect our intellectual
property, and the loss of our intellectual property protection could adversely
affect our business. Additionally, we license certain intellectual property from
third parties, and we cannot assure you that these third parties can
successfully maintain their intellectual property rights. The sales of certain
of our products rely on our ability to maintain and extend our licensing
agreements with third parties, and we cannot assure you that we will be
successful in maintaining these licensing agreements. If we lose the right to
use these licenses, our business could be adversely affected.
The Company also owns patents related to the ICY HOT stick topical analgesics,
which expires in 2007, and numerous patents related to the BAN antiperspirant
and deodorant products. After expiration of the patents, the Company expects
that these products will continue to compete in the market primarily on the
basis of the goodwill associated with the brands.
12
GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling and advertising
of the Company's products are subject to regulation by federal agencies,
including:
o the United States Food and Drug Administration ("FDA");
o the Federal Trade Commission ("FTC");
o the Consumer Product Safety Commission;
o the United States Department of Agriculture;
o the United States Postal Service;
o the United States Environmental Protection Agency ("EPA"); and
o the Occupational Safety and Health Administration ("OSHA").
These activities are also regulated by various agencies of the states,
localities and foreign countries in which the Company's products are sold. In
particular, the FDA regulates the safety, manufacturing, labeling and
distribution of OTC health care and toiletries and skin care products. The FDA
regulations relating to the manufacturing process are known as current Good
Manufacturing Practices ("GMP") and are different for drug and food products. In
addition, the FTC has overlapping jurisdiction with the FDA to regulate the
promotion and advertising of OTC health care and toiletries and skin care
products.
All of the Company's OTC drug products are regulated pursuant to the FDA's
monograph system for OTC drugs. The monographs set out the active ingredients
and labeling indications that are permitted for certain broad categories of OTC
drug products, such as topical analgesics. Compliance with the monograph
provisions means that the product is generally recognized as safe and effective
and is not misbranded. Future changes in the monographs could result in the
Company having to revise product labeling and formulations. The Company
responded to certain questions with respect to efficacy received from the FDA in
connection with clinical studies for pyrilamine maleate, one of the active
ingredients used in certain of the PAMPRIN and PREMSYN PMS products. While the
Company addressed all of the FDA questions in detail, the final monograph for
menstrual drug products will determine if the FDA considers pyrilamine maleate
safe and effective for menstrual relief products. The Company has been actively
monitoring the process and does not believe that either PAMPRIN or PREMSYN PMS
will be materially adversely affected by the FDA review. The Company believes
that any adverse finding by the FDA would likewise affect the Company's
principal competitor in the menstrual product category.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was enacted on
October 25, 1994. DSHEA amends the Federal Food, Drug, and Cosmetic Act by
defining dietary supplements, which include vitamins, mineral, nutritional
supplements, herbs and botanicals, as a new category of food separate from
conventional food. DSHEA provides a regulatory framework to ensure safe, quality
dietary supplements and to foster the dissemination of accurate information
about such products. Under DSHEA, the FDA is generally prohibited from
regulating dietary supplements as food additives or as drugs unless product
claims, such as claims that a product may diagnose, mitigate, cure or prevent an
illness, disease or malady, trigger drug status.
DSHEA provides for specific nutritional labeling requirements for dietary
supplements effective January 1, 1997, and FDA's final regulations require that
all dietary supplements must be labeled in compliance with the regulations no
later than March 23, 1999. DSHEA permits substantiated, truthful and
non-misleading statements of nutritional support to be make in labeling, such as
statements describing general well-being resulting from consumption of a dietary
ingredient or the role of a nutrient or dietary ingredient in affecting or
maintaining a structure or function of the body. The Company anticipates that
the FDA will promulgate GMPs which are specific to dietary supplements and
require at least some of the quality control provisions contained in the GMPs
for drugs, which are more rigorous than the GMPs for foods.
13
The FDA has finalized some if its regulations to implement DSHEA, including
those relating to nutritional labeling requirements. The FDA also has under
development additional regulations to implement DSHEA. Final labeling
regulations require expanded or different labeling for our vitamin and
nutritional products. We cannot determine what effect these regulations, when
fully implemented, will have on our business in the future. These regulations
could require the recall, reformulation or discontinuance of certain products,
additional record keeping, warnings, notifications procedures and expanded
documentation of the properties of certain products and scientific
substantiation regarding ingredients, product claims, safety or efficacy.
Failure to comply with applicable FDA requirements can result in sanctions being
imposed on the Company or the manufacture of our products, including warning
letters, product recalls and seizures, injunctions or criminal prosecution.
As part of its regulatory authority, the FDA may periodically conduct audits of
the physical facilities, machinery, processes and procedures that we and our
competitors use to manufacture products. The FDA may perform these audits at any
time without advanced notice. As a result of these audits, the FDA may order us
to make certain changes in our manufacturing facilities and processes. We may
have to make additional expenditures to comply with these orders or possibly
stop selling certain products until we comply with these orders. As a result,
our business could be adversely affected. In December 1998, the FDA conducted an
audit of our manufacturing facility in Chattanooga, Tennessee. In connection
with that audit, the FDA issued a report citing certain processes and procedures
it requires us to change or improve. We have responded to the FDA's report and
are in the process of complying with its requirements.
In 1994, the Nonprescription Drug Manufacturers Association initiated a large
scale study in conjunction with the Yale University School of Medicine to
investigate the increased risk, if any, of stroke in obese women using
phenylpropanolamine ("PPA"), the active ingredient in DEXATRIM, for weight loss
(the "Yale Study"). The Yale Study was designed in collaboration with the FDA.
The results of the Yale Study are expected to be issued in mid- to late-1999.
If the Yale Study results indicate an increased likelihood of stroke among obese
women using PPA for weigh loss, we could be forced to reformulate DEXATRIM or
discontinue manufacturing and selling it in its current form. As a result, the
DEXATRIM business would suffer, which would adversely affect our business.
14
ENVIRONMENTAL
The Company continuously assesses compliance of its operations with applicable
federal, state and local environmental laws and regulations. The Company's
policy is to record liabilities for environmental matters when loss amounts are
probable and reasonably determinable. The Company's manufacturing site utilizes
chemicals and other potentially hazardous materials and generates both hazardous
and non-hazardous waste, the transportation, treatment, storage and disposal of
which are regulated by various government agencies, and has engaged
environmental consultants on a regular basis to assist its compliance efforts.
The Company is currently in compliance with all applicable environmental permits
and is aware of its responsibilities under applicable environmental laws. Any
expenditures necessitated by changes in law and permitting requirements cannot
be predicted at this time, although such costs are not expected to be material
to the Company's financial position or results of operations.
Since the early 1980's, the U.S. Environmental Protection Agency ("EPA") has
been investigating the extent of, and the health effects resulting from,
contamination of Chattanooga Creek, which runs through a major manufacturing
area of Chattanooga in the vicinity of the Company's manufacturing facilities.
The contamination primarily stems from the dumping of coal tar into the creek
during World War II when the federal government was leasing and operating a coke
and chemical plant adjacent to the creek. However, the EPA has been
investigating virtually all businesses that have discharged any wastewater into
the creek. A 2 1/2 mile stretch of Chattanooga Creek was placed on the National
Priorities List as a Superfund site under the Comprehensive Environmental
Response, Compensation and Recovery Act in September of 1995 and remediation of
the creek bed commenced in mid-1997. The Company could be named as a potentially
responsible party in connection with such site due to the Company's historical
discharge of wastewater into the creek. However, considering the nature of the
Company's wastewater, as well as the fact that the Company's discharge point is
downstream from the old coke and chemical plant that was operated by the
government, and the availability of legal defenses and expected cost sharing,
the Company does not believe that any liability associated with such site will
be material to its financial position or results of operations.
In December 1998, the Company was named in a lawsuit with 37 other companies as
potentially responsible parties for the disposal of waste materials found at a
site in Birmingham, Alabama. Although the facts surrounding this case are
unclear, the lawsuit alleges that a company we used periodically during 1986 and
1987 to treat, store and dispose of waste materials from its manufacturing
processes improperly disposed of these waste materials. The Company cannot
currently assess its potential liability resulting from this lawsuit, but if the
Company is found liable its business could be adversely affected.
PRODUCT LIABILITY AND INSURANCE
An inherent risk of the Company's business is exposure to product liability
claims brought by users of the Company's products or by others. The Company has
not had any material claims in the past and is not aware of any material claims
pending or threatened against the Company or its products that if adversely
decided would negatively affect us. While the Company will continue to attempt
to take what it considers to be appropriate precautions, there can be no
assurance that it will avoid significant product liability exposure. The Company
maintains product liability insurance, principally through third party insurers,
that it believes to be adequate; however, there can be no assurance that it will
be able to retain its existing coverage or that such coverage will be
cost-justified or sufficient to satisfy future claims, if any.
EMPLOYEES
The Company employs approximately 364 persons on a full-time basis in the U.S.
and 37 persons at its foreign subsidiaries' offices. The Company's employees are
not represented by any organized labor union, and management considers its labor
relations to be good.
15
ITEM 2. PROPERTIES
The Company's headquarters and administrative offices are located at 1715 West
38th Street, Chattanooga, Tennessee. The Company's primary production facilities
are adjacent to the Company's headquarters on land owned by the Company. The
Company leases its primary warehouse and distribution centers in Chattanooga,
Tennessee for its domestic consumer products. The following table describes in
detail the principal properties owned and leased by the Company:
Total Area Total Buildings Square
(Acres) (Square Feet) Use Feet
---------- --------------- --------------- ------
Owned Properties:
Chattanooga, Tennessee 10.0 111,200 Manufacturing 71,800
Office &
Administration 39,400
*Chattanooga, Tennessee 8.5 68,300 Manufacturing
& Warehousing 50,600
Office 17,700
Leased Properties:
Chattanooga, Tennessee (1) 3.1 135,200 Warehousing 103,800
Chattanooga, Tennessee (2) 0.1 3,800 Warehousing &
Manufacturing 35,200
Chattanooga, Tennessee (3) 3.1 134,000 Warehousing 124,000
Office 10,000
Mississauga, Ontario, Canada (4) 0.3 15,000 Warehousing 10,500
Office &
Administration 3,000
Packaging 1,500
Basingstoke, Hampshire, England(5) 0.5 21,900 Warehousing 13,900
Office &
Administration 6,500
Packaging 1,500
*Acquired in October 1998 and not currently occupied by the Company.
NOTES:
(1) Leased under a five year lease ending January 31, 2001 for a monthly
rental of $34,547.
(2) Leased on a month-to-month basis for a monthly rental of $1,575.
(3) Leased on a month-to-month basis for a monthly rental of $31,000.
(4) Leased under a lease ending November 1999 at a monthly rental, including
property taxes and other incidentals, of approximately $5,397.
(5) Leased under leases ending in 2014 and 2015 at a monthly rental, including
property taxes and other incidentals, of approximately $22,865.
The Company is currently operating its facilities at approximately 70% of total
capacity. These facilities are FDA registered and are capable of further
utilization through the use of full-time second and the addition of a third
shift.
16
ITEM 3. LEGAL PROCEEDINGS
In February 1999 a complaint was filed by Genderm Corporation ("Genderm") in
U.S. District Court for the District of Arizona. The complaint alleges, among
other things, that the formulations of CAPZASIN-P, CAPZASIN-HP and ICY-HOT
Arthritis Therapy Gel infringe upon U.S. Patent 4,486,450 owned by Joel
Bernstein, M.D. and licensed to Genderm. The complaint requests injunctive
relief, compensatory and treble damages, costs and attorneys fees. A hearing
on the requested injunctive relief is currently scheduled for April 1999.
Note 10 to the Consolidated Financial Statements on page 37 of the Company's
1998 Annual Report to Stockholders is incorporated herein by reference.
See the "Environmental Section" in Item 1., Business, of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The information found on pages 21 and 35 to 37 of the Company's 1998 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information found on page 21 of the Company's 1998 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information found on pages 13 to 20 of the Company's 1998 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information found on pages 22 to 43 of the Company's 1998 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
(a) DIRECTORS
The information found in the Company's 1999 Proxy Statement under
the heading "Information about Nominees and Continuing Directors"
is hereby incorporated by reference.
(b) EXECUTIVE OFFICERS
The following table lists the names of the executive officers of
the Company as of February, 1999, their ages, their positions and
offices with the Company and the year in which they were first
elected or appointed to these positions:
Name Age Position With Registrant First Elected
- ---------------------- --- -------------------------------------- -------------
Zan Guerry 50 Chairman of the Board and 1990
Chief Executive Officer; Director
A. Alexander Taylor II 45 President and Chief Operating Officer; 1998
Director
Andrea M. Crouch 40 Vice-President - Toiletries Marketing 1995
Gary M. Galante 51 Vice-President - Research and 1995
Development
Ron Galante 54 Vice-President - New Buisness 1993
Development
Robert S. Marshall 33 Vice-President - OTC Marketing 1996
B. Derrill Pitts 55 Vice-President - Operations 1984
Charles M. Stafford 48 Vice-President - Sales 1994
Stephen M. Powell 37 Controller 1995
Mr. Guerry was elected to his present positions with the Company in June 1990.
Previously he served as Vice President and Chief Financial Officer from 1980
until 1983, as Executive Vice President from 1983 to 1990, as President of
Chattem Consumer Products from 1989 to 1994, as Chief Operating Officer from
1989 to 1990 and as President of the Company from 1990 to 1998. Mr. Guerry was
first elected as a director of the Company in 1981.
Mr. Taylor was elected to his present positions with the Company in January
1998. Previously he was a partner from 1983 to 1998 with the law firm of
Miller & Martin, general counsel to the Company. Mr. Taylor was first elected
as a director of the Company in 1993.
Ms. Crouch joined the Company in 1985 as an Assistant Brand Manager. In 1995,
she was named to her current position. Previously she worked with Hayes
Microcomputer Products and Arthur Andersen LLP. She was denoted an executive
officer of the Company in January 1999.
Mr. G. Galante was appointed to his present position in September 1995.
Previously he was Director of Research and Development. He joined the Company in
1983 as Manager of New Product Development and was denoted an executive officer
in January 1999.
19
Mr. R. Galante was appointed to his present position with the Company in June
1993. Previously he served as General Manager of Chattem (Canada) Inc. from June
1990 until May 1993 and as Director of Marketing for many of the Company's
domestic brands from 1980 until 1993. He was denoted an executive officer of the
Company in January 1999.
Mr. Marshall joined the Company in 1994 as a Brand Manager. In 1995, he was
promoted to Group Marketing Manager in Toiletries and in 1996 he was named to
his current position. Previously he worked in brand management at Procter &
Gamble. He was denoted an executive officer of the Company in January 1999.
Mr. Pitts is a long-term employee and has served in all manufacturing operation
disciplines since joining Chattem in 1966. He was promoted to Vice President in
1984 and was denoted an executive officer in January 1999.
Mr. Stafford was appointed to his present position in June 1994. Previously he
served as Director of Field Sales and Zone Sales Manager. Prior to joining the
Company in 1983, Mr. Stafford held sales management positions with Johnson &
Johnson and Schering Plough. He was denoted an executive officer of the Company
in January 1999.
Mr. Powell, a Certified Public Accountant, was appointed to his present position
with the Company in June 1995. Previously he was the Financial Reporting Manager
for Brock Candy Company. He worked for Joseph Decosimo and Co., CPA's from 1985
to 1993 where he was a manager in the audit department.
(c) PROMOTERS AND CONTROL PERSONS
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
The information found in the Company's 1999 Proxy Statement under the heading
"Executive Compensation and Other Information" is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information found in the Company's 1999 Proxy Statement under the heading
"Voting Securities and Principal Holders Thereof" is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Louis H. Barnett, a director of the Company, received $33,000 in consulting fees
during fiscal 1998 for services rendered to the Company in a capacity other than
as a director.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
(a) 1. The consolidated financial statements and the related report
of independent public accountants required to be filed with this
Report are incorporated by reference from pages 22 to 43 of the
Company's 1998 Annual Report to Shareholders.
2. The following documents are filed or incorporated by
reference as exhibits to this report:
Exhibit
Number Description of Exhibit References
- ------- ---------------------- ----------
3 Amended and Restated Charter of
Chattem, Inc. (1)
4 Form of Indenture Dated August 3, 1994
between Chattem, Inc. and SouthTrust
Bank of Alabama, N.A. relating to the
12.75% Series B Senior Subordinated
Notes due 2004 (2)
Form of Indenture dated March 24, 1998
between Chattem, Inc. and SouthTrust Bank
of Alabama, N.A. relating to the 8.875%
Senior Subordinated Notes due 2008 (3)
10 Material Contracts -
Non-Competition and Severance
Agreements as amended -
Zan Guerry
A. Alexander Taylor II
Robert E. Bosworth
Gary M. Galante
B. Derrill Pitts
Charles M. Stafford (4)
Lease Agreements, as amended, dated
February 1, 1996 between Tammy
Development Company and Chattem,
Inc. for warehouse space at 3100
Williams Street, Chattanooga, Tennessee (4) and (6)
Asset Purchase Agreement dated April 29,
1996 between Martin Himmel Inc., seller,
and Chattem, Inc. and Subsidiaries,
purchaser, for the GOLD BOND
business (5)
Credit Agreement dated April 29, 1996
among Chattem, Inc., as borrower,
Signal Investment & Management Co., as
guarantor, NationsBank, N.A., as agent,
and the Lenders named therein (6)
21
Exhibit
Number Description of Exhibit References
- ------- ---------------------- ----------
10 Credit Agreement dated April 29, 1996
(Secondary Working Capital Facility)
among Chattem, Inc., as borrower, Signal
Investment & Management Co., as
guarantor, NationsBank, N.A., as agent,
and the Lenders named therein (6)
Asset Purchase Agreement dated June 6,
1996 between Campbell Laboratories,
Inc., seller, and Chattem, Inc. and Signal
Investment & Management Co.,
purchasers, for the HERPECIN-L
business (6)
Amendment to the Credit Agreement
(HERPECIN-L Acquisition) dated June 6,
1996 among Chattem, Inc., as borrower,
Signal Investment & Management Co., as
guarantor, Nationsbank, N.A., as agent,
and the Lenders named therein (6)
Asset Purchase and Sale Agreement dated
May 23, 1997 by and among Chattem,
Inc., Signal Investment & Management
Co., and Sunsource International, Inc.
and Mindbody, Inc. (without schedules
and exhibits) for the SUNSOURCE
business (7)
Amended and Restated Credit Agreement
dated June 26, 1997 by and among Chattem,
Inc., Signal Investment & Management Co.
and the Lenders named therein (8)
Amended and Restated Credit Agreement
(Supplemental Credit Agreement) dated
June 26, 1997 by and among Chattem,
Inc., Signal Investment & Management
Co. and the Lenders named therein (9)
First Amended and Restated Master
Trademark License Agreement between
Signal Investment & Management Co.
and Chattem, Inc., effective
June 30, 1992 (8)
Chattem, Inc. Non-Statutory Stock
Option Plan- 1998 (8)
22
Exhibit
Number Description of Exhibit References
- ------- ---------------------- ----------
10 Asset Purchase Agreement dated
February 22, 1998 by and among
Bristol-Myers Squibb Company, Chattem,
Inc. and Signal Investment &
Management Co. for the BAN business (9)
Asset Purchase and Sale Agreement dated
May 12, 1998 by and among Chattem,
Inc., Signal Investment & Management
Co. and Del Laboratories, Inc for the
sale of the CORNSILK business (10)
Commerical Lease dated April 1, 1998
between Chattem Inc., lessee, and Kenco
Group, Inc., lessor, for warehouse
space located at 4309 Distribution
Avenue, Chattanooga, Tennessee. (11)
Purchase and Sale Agreement dated
November 16, 1998 by and among Thompson
Medical Company, Inc., Chattem, Inc. and
Signal Investment & Management Co. for
certain products (12)
Amended and Restated Credit Agreement
(New Credit Agreement) dated
December 21, 1998 among Chattem, Inc.,
its domestic subsidiaries, identified
Lenders and NationsBank, N.A., as agent (12)
Amended and Restated Credit Agreement
(Supplemental Credit Agreement) dated
December 21, 1998 among Chattem Inc.,
its domestic subsidiaries, identified
Lenders and NationsBank, N.A., as agent (12)
11 Computation of Per Share Earnings
1998 Annual Report to Shareholders of
13 Chattem, Inc.
22 Subsidiaries of the Company
24 Consent of Independent Public
Accountants
23
REFERENCES:
Previously filed as an exhibit to and incorporated by reference from:
(1) Form 10-K for the year ended November 30, 1992
(2) Form S-2 Registration Statement (No. 33-80770).
(3) Form S-4 Registration Statement (No. 333-53627) effective
June 4, 1998.
(4) Form 10-K for the year ended November 30, 1995.
(5) Form 8-K dated April 29, 1996.
(6) Form 10-K for the year ended November 30, 1996.
(7) Form 8-K dated June 26, 1997.
(8) Form 10-K for the year ended November 30, 1997.
(9) Form 8-K dated March 24, 1998.
(10) Form 8-K dated May 12, 1998.
(11) Form 10-K for the year ended November 30, 1998.
(12) Form 8-K dated December 21, 1998.
(b) Form 8-K, dated November 16, 1998, was filed with the
Securities and Exchange Commission during the three
months ended November 30, 1998.
(c) The Financial Statements and related report of
independent public accountants required to be filed
with this report pursuant to Rule 3-10(a) of Article 3
of Regulation S-X are incorporated by reference from
pages 6 to 14 of Signal Investment & Management Co.'s
Form 10-K for the fiscal year ended November 30, 1998.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: February 26, 1999 CHATTEM, INC.
By: /s/ Zan Guerry
-------------------------------------
Zan Guerry
Title: Chairman and Chief
Executive Officer
By: /s/ Stephen M. Powell
-------------------------------------
Stephen M. Powell
Title: Controller (Chief Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Zan Guerry Chairman of the Board 2/22/99
- ---------------------------- and Director
Zan Guerry (Chief Executive Officer)
/s/ A. Alexander Taylor, II President and Director 2/22/99
- ---------------------------- (Chief Operating Officer)
A. Alexander Taylor, II
/s/ Samuel E. Allen Director 2/22/99
- ----------------------------
Samuel E. Allen
/s/ Louis H. Barnett Director 2/22/99
- ----------------------------
Louis H. Barnett
/s/ Robert E. Bosworth Director 2/22/99
- ----------------------------
Robert E. Bosworth
/s/ Richard E. Cheney Director 2/22/99
- ----------------------------
Richard E. Cheney
/s/ Scott L. Probasco, Jr. Director 2/22/99
- ----------------------------
Scott L. Probasco, Jr.
25
CHATTEM, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- -----------------------------------------------------
10.1 Commercial Lease dated April 1, 1998 between Chattem,
Inc, lessee, and Kenco Group, Inc., lessor, for
warehouse space located at 4309 Distribution Avenue,
Chattanooga, Tennessee.
11 Computation of per share earnings
13 1998 Annual Report to Shareholders of Chattem, Inc.
22 Subsidiaries of the Company
24 Consent of Independent Public Accountants
27 Financial Data Schedule
26