<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
Commission file number 0-5905
CHATTEM, INC.
A TENNESSEE CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NO. 62-0156300
1715 WEST 38TH STREET
CHATTANOOGA, TENNESSEE 37409
TELEPHONE: 423-821-4571
Registrant has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months, and has been
subject to such filing requirements for the past 90 days.
As of April 10, 1998, 9,422,587 shares of the Company's common stock, without
par value, were outstanding.
<PAGE>
CHATTEM, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 1998 and
November 30, 1997 .................................................... 3
Consolidated Statements of Income for the Three
Months Ended February 28, 1998 and 1997 .............................. 5
Consolidated Statements of Cash Flows for the Three Months Ended
February 28, 1998 and 1997 ........................................... 6
Notes to Consolidated Financial Statements ............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................ 15
SIGNATURES ................................................................. 20
EXHIBIT 11 - Statement Regarding Computation of Per Share Earnings
EXHIBIT 27 - Financial Data Schedule
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CHATTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
ASSETS 1998 1997
- ------ ------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............... $ 1,398 $ 4,858
Accounts receivable, net ................ 30,596 28,078
Refundable and deferred income taxes .... 1,876 1,876
Inventories ............................. 16,737 14,493
Prepaid expenses and other current assets 748 667
-------- --------
Total current assets .................. 51,355 49,972
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET ........ 11,045 10,988
-------- --------
OTHER NONCURRENT ASSETS:
Investment in Elcat, Inc. ............... 6,804 6,640
Patents, trademarks and other
purchased product rights, net ........... 104,223 104,972
Debt issuance costs, net ................ 3,166 3,118
Other ................................... 2,158 3,054
-------- --------
Total other noncurrent assets ......... 116,351 117,784
-------- --------
TOTAL ASSETS ........................ $178,751 $178,744
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CHATTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt .... $ 9,089 $ 8,919
Accounts payable ........................ 3,960 9,319
Payable to bank ......................... 5,368 2,618
Accrued liabilities ..................... 13,067 13,596
--------- ---------
Total current liabilities ............. 31,484 34,452
--------- ---------
LONG-TERM DEBT, less current maturities ... 136,034 133,475
--------- ---------
DEFERRED INCOME TAXES ..................... 3,290 3,290
--------- ---------
OTHER NONCURRENT LIABILITIES .............. 2,976 3,157
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred shares, without par value,
authorized 1,000, none issued .......... -- --
Common shares, without par value,
authorized 20,000, issued 9,128
at February 28, 1998 and 9,082 at
November 30, 1997 ..................... 1,955 1,945
Paid-in surplus ......................... 64,046 63,975
Accumulated deficit ..................... (59,620) (60,229)
--------- ---------
6,381 5,691
Foreign currency translation adjustment (1,414) (1,321)
--------- ---------
Total shareholders' equity ............ 4,967 4,370
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY .......................... $ 178,751 $ 178,744
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CHATTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FEBRUARY 28,
1998 1997
-------- --------
<S> <C> <C>
NET SALES .............................. $ 34,921 $ 27,946
-------- --------
COSTS AND EXPENSES:
Cost of sales ........................ 9,682 8,394
Advertising and promotion ............ 15,180 11,267
Selling, general and administrative .. 5,159 4,657
-------- --------
Total costs and expenses ........... 30,021 24,318
-------- --------
INCOME FROM OPERATIONS ................. 4,900 3,628
-------- --------
OTHER INCOME (EXPENSE):
Interest expense ..................... (4,180) (3,798)
Investment and other income, net ..... 192 319
-------- --------
Total other income (expense) ....... (3,988) (3,479)
-------- --------
INCOME BEFORE INCOME TAXES ............. 912 149
PROVISION FOR INCOME TAXES ............. 303 13
-------- --------
NET INCOME ............................. $ 609 $ 136
-------- --------
-------- --------
COMMON SHARES:
Weighted average number outstanding 9,087 8,603
-------- --------
-------- --------
Weighted average number and equivalent
number outstanding ................. 9,491 8,807
-------- --------
-------- --------
NET INCOME PER COMMON SHARE:
Basic ................................ $ .07 $ .02
-------- --------
-------- --------
Diluted .............................. $ .06 $ .02
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CHATTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FEBRUARY 28,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................... $ 609 $ 136
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization .............. 1,691 1,467
Dividend receivable from Elcat, Inc. ....... (164) (164)
Other, net ................................. (285) 282
Changes in operating assets and liabilities:
Increase in accounts receivable .......... (2,518) (2,603)
Increase in inventories .................. (2,244) (1,429)
Decrease in prepaid expenses and other
current assets ........................... 659 1,285
Decrease in refundable and deferred income
taxes .................................... -- 2,386
Decrease in accounts payable ............. (5,359) (2,358)
Decrease in other accrued liabilities .... (518) (1,819)
-------- --------
Net cash used in operating activities (8,129) (2,817)
-------- --------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (566) (203)
Additions to patents, trademarks and other
product rights ............................ (96) --
Increase in other assets, net .............. -- (147)
-------- --------
Net cash used in investing activities (662) (350)
-------- --------
FINANCING ACTIVITIES:
Repayment of long-term debt ................ (3,318) (1,363)
Proceeds from long-term debt ............... 6,000 --
Proceeds from exercise of stock options
and warrants ............................... 88 --
Change in payable to bank .................. 2,750 2,125
Other, net ................................. (169) (27)
-------- --------
Net cash provided by financing
activities ............................ 5,351 735
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS .......................... (20) (115)
-------- --------
CASH AND CASH EQUIVALENTS:
Decrease for the period .................... (3,460) (2,547)
At beginning of period ..................... 4,858 16,040
-------- --------
At end of period ........................... $ 1,398 $ 13,493
-------- --------
-------- --------
PAYMENTS FOR:
Interest ................................... $ 6,057 $ 5,287
Taxes ...................................... $ 221 $ 145
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CHATTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note: All monetary amounts are expressed in thousands of dollars unless
contrarily evident.
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in
the Company's Annual Report to Shareholders for the year ended November
30, 1997. The 1997 Annual Report has previously been filed with the
Securities and Exchange Commission as an exhibit to the Company's Form
10-K. The accompanying unaudited consolidated financial statements, in
the opinion of management, include all adjustments necessary for a fair
presentation. All such adjustments are of a normal recurring nature.
2. The Company incurs significant expenditures on television, radio and
print advertising to support its nationally branded over-the-counter
pharmaceuticals, functional toiletries and cosmetics and dietary
supplements. Customers purchase products from the Company with the
understanding that the brands will be supported by the Company's
extensive media advertising. This advertising supports the retailers'
sales effort and maintains the important brand franchise with the
consuming public. Accordingly, the Company considers its advertising
program to be clearly implicit in its sales arrangements with its
customers. Therefore, the Company believes it is appropriate to
allocate a percentage of the necessary supporting advertising expenses
to each dollar of sales by charging a percentage of sales on an interim
basis based upon anticipated annual sales and advertising expenditures
(in accordance with APB Opinion No. 28) and adjusting that accrual to
the actual expenses incurred at the end of the year.
3. The results of operations for the three months ended February 28, 1998
and 1997 are not necessarily indicative of the results to be expected
for the respective full years. Seasonality is a factor in the Company's
overall business, with the first quarter sales and income traditionally
trailing the other fiscal quarters.
7
<PAGE>
4. Inventories consisted of the following at February 28, 1998 and
November 30, 1997:
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
-------- --------
<S> <C> <C>
Raw materials and work in process $ 10,369 $ 9,107
Finished goods .................. 8,832 7,850
Excess of current cost over LIFO
values .......................... (2,464) (2,464)
-------- --------
Total inventories ............... $ 16,737 $ 14,493
-------- --------
-------- --------
</TABLE>
5. Accrued liabilities consisted of the following at February 28, 1998 and
November 30, 1997:
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
------- -------
<S> <C> <C>
Income and other taxes ........ $ 148 $ --
Salaries, wages and commissions 651 1,696
Advertising and promotion ..... 5,495 2,840
Interest ...................... 2,063 4,119
Product acquisitions .......... 1,335 1,489
Other ......................... 3,375 3,452
------- -------
Total accrued liabilities ..... $13,067 $13,596
------- -------
------- -------
</TABLE>
8
<PAGE>
6. Effective December 1, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 (FAS 128), "Earnings per
share". This new standard requires dual presentation of basic and
diluted earnings per share (EPS) on the face of the income statement
and requires a reconciliation of the numerators and denominators of
the basic and diluted EPS calculations. The earnings per share for
the three months ended February 28, 1997 have been restated to
conform to FAS 128.
7. For purposes of reporting cash flows, the Company considers all
short-term deposits and investments with original maturities of
three months or less to be cash equivalents, including cash and cash
equivalents available exclusively for the repayment of long-term
debt.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Note: All monetary amounts are expressed in thousands of dollars unless
contrarily evident.
General
On March 24, 1998, the Company announced the completion of the previously
reported acquisition of the BAN line of anti-perspirant/deodorant products from
Bristol-Myers Squibb Company for a purchase price of $165,000 (subject to an
inventory adjustment), plus the assumption of up to $5,000 of liabilities. The
Company acquired the BAN world-wide trademarks, formulae, certain patents
pertaining to the anti-perspirant/deodorant products 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.
Concurrently with the closing of the acquisition, the Company issued $200,000 of
8-7/8% Senior Subordinated Notes due 2008 and amended and restated its existing
senior secured credit facilities. The proceeds from the Senior Subordinated
Notes were used to fund the purchase of BAN, pay related acquisition and
financing fees and expenses and repay certain bank indebtedness.
For the three months ended February 28, 1998, the Company experienced a $6,975,
or 25.0%, increase in sales to $34,921 from $27,946 in the first quarter of
fiscal 1997. Operating income during the period likewise increased $1,272, or
35.1%, to $4,900 from $3,628. Net income of $609, or $.06 per share, was
recorded during the period compared to net income of $136, or $.02 per share,
during the same period last year. Seasonality is a factor in the Company's
overall business with the first quarter sales and income traditionally trailing
the other fiscal quarters.
The SUNSOURCE product line, acquired in the third quarter of fiscal 1997, was
largely responsible for the improvement in the Company's operating results for
the three months ended February 28, 1998.
The Company will continue to seek increases in sales through a combination of
acquisitions and internal growth while maintaining high operating income. As
previously high growth brands mature, sales increases will become even more
dependent on acquisitions and the development of successful line extensions.
During the first quarter of fiscal 1998, the Company introduced the following
line extensions/new products: BENZODENT cream; HERPECIN-L cold sore lip balm in
a jar; BULLFROG SPF45 for babies and SPF45 Superblock; CORNSILK (Weightless
label) light liquid makeup in six shades; CORNSILK green concealer stick; and
HARMONEX. Strategically, the Company continually evaluates its products and
businesses as part of its sales growth strategy and, in instances where the
Company's objectives are not realized, will dispose of these brands or
businesses and redeploy the assets to products or businesses with greater growth
potential or to reduce indebtedness.
9
<PAGE>
Results of Operations
The following table sets forth for the periods indicated certain items from the
Company's Consolidated Statements of Income expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
Three Months Ended
February 28,
1998 1997
----- -----
<S> <C> <C>
NET SALES ........................... 100.0% 100.0%
----- -----
COSTS AND EXPENSES:
Cost of sales ..................... 27.7 30.0
Advertising and promotion ......... 43.5 40.3
Selling, general and administrative 14.8 16.7
----- -----
Total costs and expenses ........ 86.0 87.0
----- -----
INCOME FROM OPERATIONS .............. 14.0 13.0
----- -----
OTHER INCOME (EXPENSE):
Interest expense .................. (11.9) (13.6)
Investment and other income, net .. .5 1.1
----- -----
Total other income (expense) .... (11.4) (12.5)
----- -----
INCOME BEFORE INCOME TAXES .......... 2.6 .5
PROVISION FOR INCOME TAXES .......... .9 --
----- -----
NET INCOME .......................... 1.7% .5%
----- -----
----- -----
</TABLE>
10
<PAGE>
Comparison of Three Months Ended February 28, 1998 and 1997
Net sales for the three months ended February 28, 1998 increased $6,975, or
25.0%, to $34,921 from $27,946 for the same period last year. Domestic consumer
products sales increased to $6,204, or 24.2%, to $31,818 from $25,614 for last
year's comparative period. Net sales of international consumer products
increased $771, or 33.1%, from $2,332 in the 1997 period to $3,103 in the
current period.
The increase in domestic consumer products sales in the 1998 period was
primarily due to the SUNSOURCE brands, which were acquired in the third
quarter of 1997. Sales increases were also registered for the PAMPRIN,
BENZODENT and BULLFROG product lines, while decreases were experienced by the
HERPECIN-L, NORWICH Aspirin, FLEXALL, CORNSILK and GOLD BOND baby powders.
All sales variances were principally due to sales volume changes.
The increase in sales of PAMPRIN and BENZODENT reflects the effect of extensions
of these two product lines initiated in fiscal 1997 or the first quarter of
fiscal 1998. The substantial increase in BULLFROG sales represents the
introduction of two new SPF45 products in the current quarter, the addition of
several new or former customers for the 1998 season and increased advertising
and promotion support. The sales decline for CORNSILK reflects the
reintroduction of that entire line in new packaging in the first quarter of
fiscal 1997, resulting in abnormally high sales in the first quarter of
fiscal 1997. The reduced GOLD BOND sales were almost entirely associated with
the CORNSTARCH PLUS Medicated Baby Powder product which was introduced in the
first quarter of fiscal 1997. The decline in sales of the remaining brands
listed above reflects the maturation of these products, increased competition
in their respective product categories and, in most instances, reduced
marketing support.
International consumer product sales for the first quarter of fiscal 1998
increased $66, or 7.8%, for the Canadian operation and $607, or 47.8%, for the
United Kingdom business. The increase in Canadian sales was largely associated
with the GOLD BOND product line, although sales increases were recorded for the
PAMPRIN, FLEXALL, SUN-IN and ULTRASWIM brands. Sales increases were experienced
for all of the United Kingdom brands. U.S. export sales increased $98, or 45.6%,
for the 1998 quarter as compared to the same period in fiscal 1997, with
practically all of the increase being associated with the ICY HOT product line.
All sales variances were primarily due to sales volume changes.
Cost of goods sold as a percentage of net sales improved to 27.7% from 30.0% in
the 1997 period. The decline was primarily the result of increased sales of
higher gross margin product lines in the current period and the SUNSOURCE brands
acquired in mid 1997.
Advertising and promotion expenses increased $3,913, or 34.7%, in the 1998
period and were 43.5% of net sales compared to 40.3% in the corresponding 1997
period. The majority of the increase in the 1998 period was related to the
SUNSOURCE product line, although significant increases were recorded for the
BULLFROG and GOLD BOND brands. Substantial declines were realized for the
FLEXALL, MUDD, CORNSILK and PHISODERM product lines.
The increase of $502, or 10.8%, in selling, general and administrative expenses
in the 1998 period was largely associated with increased direct selling expenses
resulting from increased sales. The selling, general and administrative expenses
were 14.8% of net sales in the current period as compared to 16.7% in the same
period of last fiscal year.
11
<PAGE>
Interest expense increased $382, or 10.1%, in the 1998 period, reflecting
primarily the additional debt incurred for the SUNSOURCE products acquisition in
mid 1997.
Investment and other income decreased by $127 in the 1998 period largely due to
a decline in interest income and gains on sales of property items.
The increase of $473 in net income in 1998 was largely the result of increased
sales offset in part by increased interest charges, advertising and promotion
expenses and selling, general and administrative expenditures.
Liquidity and Capital Resources
The Company has historically financed its operations with a combination of
internally generated funds and borrowings. The Company's principal uses of cash
are for operating expenses, acquisitions, working capital, capital expenditures
and long-term debt servicing.
Cash of $8,129 and $2,817 was used in operations for the three months ended
February 28, 1998 and 1997, respectively. The decrease in cash flows from
operations over the prior year period was primarily the result of changes in
accounts receivable, inventories, accounts payable and accrued liabilities. The
changes were due in part to the SUNSOURCE acquisition in mid 1997.
Investing activities used cash of $662 and $350 in the three months ended
February 28, 1998 and 1997, respectively. The increase of $312 in the current
period was largely the result of increased property, plant and equipment
additions.
Financing activities provided cash of $5,351 in the three months ended February
28, 1998 compared to $735 for the comparable prior year period. The increase of
$4,616 in the current period reflects additional bank borrowings required for
working capital purposes.
12
<PAGE>
The following table presents working capital data at February 28, 1998 and
November 30, 1997 or for the respective periods then ended:
<TABLE>
<CAPTION>
Item 1998 1997
-------- ----------- -----------
<S> <C> <C>
Working capital (current assets less current liabilities) ...... $ 19,871 $ 15,520
Current ratio (current assets divided by current liabilities) .. 1.63 1.45
Quick ratio (cash and cash equivalents and accounts
receivable divided by current liabilities) ................... 1.02 .96
Average accounts receivable turnover ........................... 5.62 5.92
Average inventory turnover ..................................... 2.85 3.17
Working capital as a percentage of total assets ................ 11.12% 8.68%
</TABLE>
The improvement in the current and quick ratio at February 28, 1998 as compared
to November 30, 1997, reflect primarily increases in accounts receivable and
inventories, which were largely associated with the seasonal products, e.g.,
BULLFROG and SUN-IN, and the reduction of accounts payable.
Total loans outstanding were $145,123 at February 28, 1998 compared to
$142,394 at November 30, 1997, an increase of $2,729 during the first quarter
of 1998. The revolving line of credit is available to the Company up to
$30,000 or such lesser amount as is determined to be available under the
terms of the Company's bank credit agreement. The availability of credit
under the revolver is determined based on the Company's accounts receivable
and inventories. As of February 28, 1998, the Company had $17,000 outstanding
on its $30,000 working capital line of credit.
On March 24, 1998, the Company completed the previously reported acquisition
of the BAN line of anti-perspirant/deodorant products. Concurrently with the
closing of the acquisition, the Company issued $200,000 of 8-7/8% senior
subordinated notes due 2008 and amended and restated its existing senior
secured credit facilities. The proceeds from the senior subordinated notes
were used to fund the purchase of BAN, pay related acquisition and financing
fees and expenses and repay the outstanding balance on the working capital
line of credit which was $19,000 as of March 24, 1998.
Management of the Company believes that projected cash flows generated by
operations along with funds available under its credit facilities will be
sufficient to fund the Company's current commitments and proposed operations.
Year 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000
date are a known risk. The Company has developed a plan to ensure its systems
are compliant with the requirements to process transactions in the year 2000.
The majority of the Company's internal information systems will be replaced
with fully compliant new systems. The total cost of the software and
implementation is estimated to be $1,500 to $2,000 which will be capitalized
as incurred. The majority of actual cash payments will be made in 1998 with
the remainder to be paid in early 1999. This new system implementation is
expected to be completed during 1999.
The Company does not currently have any information concerning the year 2000
compliance status of its suppliers and customers. In the event that any of
the Company's significant suppliers or customers does not successfully and
timely achieve year 2000 compliance, the Company's business or operations
could be adversely affected.
Foreign Operations
The Company's primary foreign operations are conducted through its Canadian and
U.K. subsidiaries. The functional currencies of these subsidiaries are Canadian
dollars and British pounds, respectively. Fluctuations in exchange rates can
impact operating results, including total revenues and expenses, when
translations of the subsidiary financial statements are made in accordance with
SFAS No. 52, "Foreign Currency Translation." For the three months ended February
28, 1998 and 1997, these subsidiaries accounted for 8% and 8% of total revenues,
respectively, and 4% and 5% of total assets, respectively. It has not been the
Company's practice to hedge its assets and liabilities in Canada and the U.K. or
its intercompany transactions due to the inherent risks associated with foreign
currency hedging transactions and the timing of payments between the Company and
its two foreign subsidiaries. Historically, gains or losses from foreign
currency transactions have not had a material impact on the Company's operating
results. Losses of $49 and $10 for the three months ended February 28, 1998 and
1997, respectively, resulted from foreign currency transactions.
13
<PAGE>
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward looking statements that are based on management's
current beliefs and assumptions about expectations, estimates, strategies and
projections for the Company. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult
to predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward looking statements. The Company
undertakes no obligation to update publicly any forward looking statements
whether as a result of new information, future events or otherwise. The risks,
uncertainties and assumptions regarding forward looking statements include, but
are not limited to, product demand and market acceptance risks; product
development risks, such as delays or difficulties in developing, producing and
marketing new products or line extensions; the impact of competitive products,
pricing and advertising; constraints resulting from financial condition of the
Company, including the degree to which the Company is leveraged, debt service
requirements and restrictions under bank loan agreements and the indenture; and
other risks described in the Company's Securities and Exchange Commission
filings.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(1) Statement regarding computation of per share earnings
(Exhibit 11).
(2) Financial data schedule (Exhibit 27).
(b) The following Form 8-K report was filed with the Securities and
Exchange Commission during the three months ended February 28,
1998:
Report, dated February 22, 1998, relating to signing by the
Company of a definitive agreement to acquire the BAN
anti-perspirant and deodorant brand from Bristol-Myers
Squibb.
15
<PAGE>
CHATTEM, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHATTEM, INC.
(Registrant)
Dated: April 14, 1998 \s\ A. Alexander Taylor II
-------------- --------------------------
A. Alexander Taylor II
President and Director
(Chief Operating Officer)
\s\ Stephen M. Powell
---------------------
Stephen M. Powell
(Chief Accounting Officer)
16
<PAGE>
EXHIBIT 11
CHATTEM, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FEBRUARY 28,
--------------------------
1998 1997
------ ------
<S> <C> <C>
NET INCOME ..................................... $ 609 $ 136
------ ------
------ ------
COMMON SHARES:
Weighted average number outstanding ........ 9,087 8,603
Number issued upon assumed exercise of
outstanding stock options and stock
warrants ................................. 404 204
------ ------
Weighted average number of common and common
equivalent shares outstanding ............ 9,491 8,807
------ ------
------ ------
NET INCOME PER COMMON SHARE:
Basic ...................................... $ .07 $ .02
------ ------
------ ------
Diluted .................................... $ .06 $ .02
------ ------
------ ------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Chattem,
Inc.'s unaudited financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 1,398
<SECURITIES> 0
<RECEIVABLES> 31,096
<ALLOWANCES> 500
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0
0
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</TABLE>
