<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
____________________
Date of Report (Date of earliest event reported): DECEMBER 21, 1998
CHATTEM, INC.
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(Exact name of registrant as specified in its charter)
TENNESSEE 0-5905 62-0156300
- -------------------- ---------------------- -------------------
(State of (Commission File No.) (IRS Employer
incorporation) Identification No.)
1715 WEST 38TH STREET, CHATTANOOGA, TENNESSEE 37409
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(Address of principal executive offices, including zip code)
(423) 821-4571
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(Registrant's telephone number, including area code)
<PAGE>
AMENDMENT NO. 1
The undersigned Registrant hereby amends Item 7 of its Current Report on
Form 8-K dated December 28, 1998 and files such amended Item 7 herewith.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
- ------ ------------------------------------
On December 21, 1998, Chattem, Inc. (the "Company") and Signal
Investment & Management Co. ("Signal"), its wholly-owned subsidiary, completed
the acquisition from Thompson Medical Company, Inc. of a line of dietary aids
and external analgesics sold under the DEXATRIM, ASPERCREME, CAPZASIN-P,
CAPZASIN-HP, SPORTSCREME and ARTHRITIS HOT trademarks (the "Thompson Products").
The transaction was structured as a sale of assets and the Company paid a total
of $95.0 million for the acquisition, consisting of $90.0 million in cash and
125,500 shares of the Company's common stock.
Also on December 21, 1998, the Company refinanced its existing credit
facilities with $165.0 million in senior secured credit facilities (the "Credit
Facilities"). The Credit Facilities were provided by a syndicate of commercial
banks, led by Bank of America as agent. The Credit Facilities include a $50.0
million revolving credit facility and a $115.0 million term loan. The Credit
Facilities were used to refinance existing senior debt, to finance the
acquisition of the Thompson Products and to finance working capital and other
general corporate needs. The $50.0 million revolving credit facility matures on
the earlier of (i) December 21, 2003 and (ii) the date on which the term loan is
repaid in full. The $115.0 million term loan matures on December 21, 2003. The
Credit Facilities are secured by the stock of the Company's subsidiaries and all
present and future assets of the Company, including trademarks and intangibles.
The Credit Facilities contain covenants, representations, warranties and other
agreements by the Company that are customary in loan agreements and securities
instruments relating to financings of this type.
The foregoing description does not purport to be complete and is
qualified in its entirety by reference to the Purchase and Sale Agreement
between the Company, Signal and Thompson Medical Company, Inc., which is
attached hereto as Exhibit 2.1, and the Credit Facilities which are attached
hereto as Exhibits 10.1 and 10.2, all of which documents are incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
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INFORMATION AND EXHIBITS
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(a) Financial Statements of Business Acquired:
Report of Independent Certified Public Accountants
Statements of Assets Acquired and Liabilities Assumed as of
November 30, 1998 and 1997
Statements of Net Sales and Product Contribution for the
years ended November 30, 1998, 1997 and 1996
Notes to Financial Statements.
(b) Pro Forma Financial Information:
Pro Forma Consolidated Balance Sheet
Notes to Pro Forma Consolidated Balance Sheet
Pro Forma Consolidated Statement of Income
Notes to Pro Forma Consolidated Statement of Income
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Shareholders of
Thompson Medical Company, Inc.:
We have audited the accompanying statements of assets acquired and liabilities
assumed as of November 30, 1998 and 1997, of the Dexatrim, Aspercreme,
Sportscreme, Arthritis Hot, and Capzasin U.S. Product lines (the U.S. Acquired
Brands) of Thompson Medical Company, Inc. (the Business) and the related
statements of net sales and product contribution for the years ended November
30, 1998, 1997 and 1996. These financial statements are the responsibility of
the Business' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying financial statements reflect the assets acquired and
liabilities assumed and the net sales and product contribution attributable to
the U.S. Acquired Brands and are not intended to be a complete presentation of
the U.S. Acquired Brands' assets, liabilities, revenues or expenses.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired and liabilities assumed of the U.S.
Acquired Brands as of November 30, 1998 and 1997 and the net sales and product
contribution of the U.S. Acquired Brands for the years ended November 30, 1998,
1997 and 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
January 20, 1999.
<PAGE>
THOMPSON MEDICAL COMPANY, INC.
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U.S. ACQUIRED BRANDS
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STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
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AS OF NOVEMBER 30, 1998 AND 1997
--------------------------------
(In Thousands)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
ASSETS
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INVENTORIES $ 3,435 $ 2,740
MACHINERY 685 685
Less: accumulated depreciation (668) (612)
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Total machinery 17 73
------- -------
Total assets $ 3,452 $ 2,813
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LIABILITIES
-----------
ACCRUED EXPENSES:
Consumer promotion $ 34 $ 130
Sales returns 461 651
------- -------
Total accrued expenses 495 781
------- -------
Assets less liabilities $ 2,957 $ 2,032
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
THOMPSON MEDICAL COMPANY, INC.
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U.S. ACQUIRED BRANDS
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STATEMENTS OF NET SALES AND PRODUCT CONTRIBUTION
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FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
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(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
NET SALES $ 54,735 $ 55,752 $ 54,661
COST OF GOODS SOLD 12,071 12,130 11,657
--------- --------- ---------
Gross margin 42,664 43,622 43,004
Advertising 16,530 20,152 13,225
Promotion 5,521 4,719 5,277
Allocated warehouse and distribution 1,804 1,582 1,394
Allocated variable selling 964 922 976
--------- --------- ---------
Product contribution $ 17,845 $ 16,247 $ 22,132
========= ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
THOMPSON MEDICAL COMPANY, INC.
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U.S. ACQUIRED BRANDS
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NOTES TO FINANCIAL STATEMENTS
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NOVEMBER 30, 1998 AND 1997
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1. DESCRIPTION OF BUSINESS
-----------------------
The Business manufactures and markets over-the-counter appetite suppressants and
external analgesic products. The products are sold through wholesalers and
directly to retailers throughout the United States.
On December 21, 1998, the Company sold the U.S. Acquired Brands, certain other
minor brands and the related worldwide rights to Chattem, Inc. ("Chattem").
Under the terms of this agreement, Chattem acquired the brand inventories, and
specified fixed assets, assumed certain liabilities for returns and coupons,
subject to specified limitations, and assumed all commitments for advertising
and promotion of the brands following the closing date. The purchase price was
$95 million, subject to adjustment based on the final value of the inventories.
2. BASIS OF PRESENTATION
---------------------
The accompanying financial statements present only the assets acquired and
liabilities assumed and the net sales and product contribution of the U.S.
Acquired Brands. These financial statements include all adjustments necessary
for a fair presentation of the U.S. assets acquired and liabilities assumed at
November 30, 1998 and 1997 and of the U.S. net sales and product contribution
for the years ended November 30, 1998, 1997 and 1996. These financial statements
have been prepared in accordance with Thompson Medical Company, Inc. accounting
principles which are in accordance with generally accepted accounting
principles.
These financial statements set forth only the net sales and operational expenses
attributable to the U.S. Acquired Brands and do not purport to represent all the
costs and expenses associated with a stand alone, separate company. Accordingly,
not included in operating expenses are the expenses associated with product
management, sales administration, marketing, legal and other administrative
functions.
The statements of net sales and product contribution includes amounts
attributable to the manufacture, sales, promotion and advertisement of the U.S.
Acquired Brands. Net sales include allowances for sales returns and cash
discounts. Product contribution represents net sales less cost of goods sold,
distribution, promotion, advertising and variable selling expenses attributable
to the U.S. Acquired Brands. Included in production contribution is an
allocation of certain expenses attributable to the U.S. Acquired Brands. These
expenses have been allocated to the U.S. Acquired Brands by the Business based
upon various factor's which management believes are reasonable.
<PAGE>
Net sales by the Business to one customer comprised approximately 19%, 19% and
17% of total net sales for the years ended November 30, 1998, 1997 and 1996,
respectively.
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
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Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates.
Inventories, net
----------------
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Component parts $ 1,516 $ 1,164
Finished goods 1,919 1,576
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$ 3,435 $ 2,740
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</TABLE>
Machinery
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Expenditures for additions, renewals and betterments are capitalized at cost.
Depreciation is generally computed by accelerated methods based on the estimated
useful lives of the related assets. Machinery has been depreciated over 5 years.
The machinery and equipment is located at a third party manufacturer.
4. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Business has entered into promotional, advertising, supply and certain other
commitments that are considered normal to the Business.
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet gives effect to the
acquisition of the Thompson Products, the borrowings under the Credit Facility
and the issuance of 125,500 shares of the Company's common stock (the
"Transactions") as if they had occurred on November 30, 1998. The following
unaudited pro forma consolidated statement of income gives effect to the
Transactions, the previously reported acquisition of BAN, and the disposition of
CornSilk as if they had occurred on December 1, 1997.
The unaudited pro forma financial information is presented for informational
purposes only and it is not necessarily indicative of the financial position and
results of operations that would have been achieved had the Transactions been
completed as of the dates indicated and is not necessarily indicative of the
Company's future financial position or results of operations.
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL THOMPSON
CHATTEM AS OF PRODUCTS AS OF
NOVEMBER 30, NOVEMBER 30, PRO FORMA
1998 1998 ADJUSTMENTS PRO FORMA
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash $ 2,076 $ 2,076
Accounts receivable 36,581 36,581
Inventories 19,606 $ 3,435 23,041
Other current assets 3,833 3,833
--------- -------------- -----------
Total current assets 62,096 3,435 65,531
--------- -------------- -----------
PP&E, net 18,146 17 $ 83 (a) 18,246
--------- -------------- -----------
Investment in Elcat 3,102 3,102
Trademarks and other, net 272,226 92,266 (a) 364,492
Other noncurrent assets 13,442 2,120 (b) 15,562
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Total non-current assets 288,770 383,156
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Total assets $ 369,012 $ 3,452 $ 466,933
========= ============== ===========
LIABILITIES & EQUITY:
Current maturities of debt 17,444 (17,444) (c) 14,000
14,000 (c)
Accounts payable & other accrued
liabilities 43,968 495 44,463
--------- -------------- -----------
Total current liabilities 61,412 495 58,463
--------- -------------- -----------
Long-term debt 273,913 (25,070) (c) 370,355
--------- 121,512 (c) -----------
Other noncurrent liabilities 8,936 8,936
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Shareholders' equity:
Net assets acquired - 2,957 (2,957) (d) -
Common stock 1,994 26 (c) 2,020
Paid-in surplus 69,068 4,974 (c) 74,042
Accumulated deficit (44,960) (572) (b) (45,532)
Foreign currency translation adjustment (1,351) (1,351)
--------- -------------- -----------
Total shareholders' equity 24,751 2,957 29,179
--------- -------------- -----------
Total liabilities and shareholders'
equity $ 369,012 $ 3,452 $ 466,933
========= ============== ===========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(In Thousands)
(a) The acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations". The
purchase price is being allocated first to the tangible and identifiable
assets and liabilities of the Thompson Products based upon preliminary
estimates of their fair market values, with the remainder allocated to
"Patents, trademarks, and other purchased products rights" as follows:
Purchase price $ 95,000
Acquisition expenses 306
Book value of net assets acquired (2,957)
Estimated allocation to property,
plant and equipment (83)
--------
$ 92,266
========
(b) Reflects the deferred financing costs related to the Credit Facilities
($2,692) offset by the write-off of deferred financing costs related to the
existing senior debt ($572).
(c) Represents the borrowings under the Credit Facilities and the issuance of
125,500 shares of the Company's common stock to fund the acquisition of the
Thompson Products and the repayment of existing senior debt:
Borrowings under Credit Facilities $ 135,512
Financing costs (2,692)
Issuance of common stock 5,000
---------
$ 137,820
=========
Purchase price $ 95,000
Acquisition expenses 306
Repayment of existing senior debt 42,514
---------
$ 137,820
=========
(d) Reflects the elimination of the Thompson Products net asset balance.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL BAN HISTORICAL HISTORICAL
HISTORICAL FOR THE PERIOD THOMPSON CORNSILK FOR THE
CHATTEM FOR FROM PRODUCTS FOR PERIOD FROM
THE YEAR ENDED DECEMBER 31, THE YEAR ENDED DECEMBER 1
NOVEMBER 30, 1997 TO MARCH 23, NOVEMBER 30, 1997 TO MAY 12, PRO FORMA PRO
1998 1998 1998 1998 ADJUSTMENTS FORMA
-------------- ----------------- --------------- ---------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 220,064 $ 19,444 $ 54,735 $ (4,534) $289,709
Cost of sales 60,889 7,026 12,071 (1,767) $ (2,250) (a) 75,969
-------------- -------------- ------------ ------------- ----------- --------
Gross margin 159,175 12,418 42,664 (2,767) 213,740
Advertising and promotion 86,592 9,438 22,051 (2,189) 1,387 (b) 119,586
2,307 (b)
Selling, general, and
administrative 27,364 1,655 2,768 (539) 31,248
-------------- -------------- ------------ ------------- --------
Income from operations 45,219 1,325 17,845 (39) 62,906
Interest expense 26,676 5,916 (c) 36,506
4,379 (c)
(465) (c)
Gain on product divestiture (9,548) 9,548 (d) -
Other income, net (881) (881)
-------------- -------------- ------------ ------------- --------
Income before income taxes
and extraordinary loss 28,972 1,325 17,845 (39) 27,281
Provision for income taxes 10,844 490 (e) 6,603 (e) (14) (e) (7,704) (e) 10,219
-------------- -------------- ------------ ------------- --------
Income before extraordinary loss $ 18,128 $ 835 $ 11,242 $ (25) $ 17,062
============== ============== ============ ============= ========
Weighted average
shares outstanding 9,374 9,500(f)
Weighted average and ============== ========
dilutive potential
shares outstanding 9,735 9,861(f)
Earnings per share: ============== ========
Basic $ 1.93 $ 1.80
============== ========
Diluted $ 1.86 $ 1.73
============== ========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(a) Reflects management's estimate of the cost savings that would have been
generated during the period from December 31, 1997 to March 23, 1998.
Following the consummation of the acquisition of BAN, Chattem entered into
a manufacturing agreement with Bristol-Myers Squibb (BMS), pursuant to
which BMS will manufacture BAN at a pro forma cost savings of approximately
$2,250 over the amount reflected for the manufacture of BAN in the
Historical Ban financial statements for the period from December 31, 1997
to March 23, 1998.
(b) Represents additional amortization of trademarks for BAN ($1,387) and the
Thompson Products ($2,307).
(c) Represents the increase in interest expense resulting from the March 1998
incurrence of indebtedness under the Company's 8.875% Senior Subordinated
Notes due 2008 ($5,916) and under the Credit Facilities ($4,379) offset by
the interest savings resulting from the repayment of existing bank
indebtedness from the proceeds of the sale of CornSilk ($465).
(d) Reflects the elimination of the gain on the sale of CornSilk.
(e) Represents income tax expense (benefit) at an effective tax rate of 37%.
(f) Reflects the issuance of 125,500 shares of the Company's common stock.
<PAGE>
(c) Exhibits
*2.1 Purchase and Sale Agreement dated November 16, 1998 by and
among Thompson Medical Company, Inc., Chattem, Inc. and
Signal Investment & Management Co.
*10.1 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.
*10.2 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.
23 Consent of independent certified public accountants.
*99.1 Press Release dated December 22, 1998.
* Incorporated by reference from exhibit with the same number to the
Registrant's Current Report on Form 8-K, as filed with the Commission on
December 28, 1998.
<PAGE>
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 hereunto duly authorized.
February 26, 1998 CHATTEM, INC.
By: /s/ A. Alexander Taylor II
--------------------------------------
A. Alexander Taylor II,
President and Chief Operating Officer
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report (relating to the financial statements of the U.S.
Acquired Brands of Thompson Medical Company, Inc.) dated January 20, 1999,
included in this Form 8-K/A, into Chattem's previously filed Registration
Statements on Form S-2 (file No. 33-80770), Form S-3 (file Nos. 33-69961,
33-69397, 33-31113, 33-03091 and 33-85348), Form S-4 (file No. 33-53627) and
Form S-8 (File Nos. 33-35386, 33-78524, 33-78922, and 33-61267).
ARTHUR ANDERSEN LLP
West Palm Beach, Florida
February 24, 1999
