SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Check One)
| x | Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2007
OR
| ¨ | Transition Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 (No Fee Required) |
For the transition period from __________ to __________
Commission file number 33-35386
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
CHATTEM, INC. SAVINGS AND INVESTMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
CHATTEM, INC., 1715 West 38th Street, Chattanooga, Tennessee 37409
REQUIRED INFORMATION
The Chattem, Inc. Savings and Investment Plan ("the Plan") is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). Therefore, in lieu of the requirements of Items 1-3 of Form 11-K, the financial statements and schedules for the Plan for the two fiscal years ended December 31, 2007 and 2006, which have been prepared in accordance with the financial reporting requirements of ERISA, are set forth on the immediately following pages and incorporated herein by reference.
CONTENTS
| | Page |
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 1 |
| | |
| FINANCIAL STATEMENTS | |
| | |
| Statements of net assets available for benefits (modified cash basis) | 2 |
| Statements of changes in net assets available for benefits (modified cash basis) | 3 |
| Notes to financial statements | 4-9 |
| | |
| SUPPLEMENTAL SCHEDULE | |
| | |
| Schedule H, line 4i - Schedule of assets held at end of year | 10 |
Report of Independent Registered Public Accounting Firm
To the Pension Plan Committee
Chattem, Inc. Savings and Investment Plan:
We have audited the accompanying statements of net assets available for benefits (modified cash basis) of the Chattem, Inc. Savings and Investment Plan as of December 31, 2007 and 2006 and the related statements of changes in net assets available for benefits (modified cash basis) for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor have we been engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, these financial statements were prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Chattem, Inc. Savings and Investment Plan as of December 31, 2007 and 2006 and the changes in its net assets available for benefits for the years then ended on the basis of accounting described in Note 1.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule is presented for the purposes of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Brentwood, Tennessee
June 24, 2008
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(MODIFIED CASH BASIS)
December 31, 2007 and 2006
| | | 2007 | | | 2006 | |
| ASSETS | | | | | | |
| Investments, at fair value | | | | | | |
| Cash | | $ | 448,729 | | | $ | 237,305 | |
| Pooled separate accounts | | | 19,214,835 | | | | 18,319,703 | |
| Chattem, Inc. common stock | | | 8,470,300 | | | | 4,820,000 | |
| Participant loans | | | 835,969 | | | | 822,469 | |
| Guaranteed investment contract | | | 7,508,697 | | | | 7,131,565 | |
| | | | | | | | | |
| Net assets available for benefits, at fair value | | | 36,478,530 | | | | 31,331,042 | |
| | | | | | | | | |
| Adjustment from fair value to contract value for fully-benefit responsive investment contract | | | 325,266 | | | | 417,941 | |
| | | | | | | | | |
| Net assets available for benefits | | $ | 36,803,796 | | | $ | 31,748,983 | |
The Notes to Financial Statements are an integral part of these statements
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(MODIFIED CASH BASIS)
Years Ended December 31, 2007 and 2006
| | | 2007 | | | 2006 | |
| Additions to net assets attributed to: | | | | | | |
| Investment Income: | | | | | | |
| Net appreciation in fair value of investments | | $ | 3,740,223 | | | $ | 3,855,965 | |
| Interest and dividends | | | 315,519 | | | | 279,190 | |
| | | | | | | | | |
| Total investment income | | | 4,055,742 | | | | 4,135,155 | |
| | | | | | | | | |
| Contributions: | | | | | | | | |
| Participants | | | 1,753,021 | | | | 1,617,158 | |
| Employer | | | 1,044,191 | | | | 1,018,445 | |
| Transfers from qualified plans | | | 42,837 | | | | 39,614 | |
| | | | | | | | | |
| Total contributions | | | 2,840,049 | | | | 2,675,217 | |
| | | | | | | | | |
| Total additions | | | 6,895,791 | | | | 6,810,372 | |
| | | | | | | | | |
| Deductions from net assets attributed to: | | | | | | | | |
| Benefits paid to participants | | | (1,837,433 | ) | | | (1,349,445 | ) |
| Administrative expenses | | | (3,545 | ) | | | (4,185 | ) |
| | | | | | | | | |
| Total deductions | | | (1,840,978 | ) | | | (1,353,630 | ) |
| | | | | | | | | |
| Net increase | | | 5,054,813 | | | | 5,456,742 | |
| | | | | | | | | |
| Net assets available for benefits: | | | | | | | | |
| Beginning of year | | | 31,748,983 | | | | 26,292,241 | |
| | | | | | | | | |
| End of year | | $ | 36,803,796 | | | $ | 31,748,983 | |
The Notes to Financial Statements are an integral part of these statements
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
Note 1. Summary of Major Accounting Policies and Plan Characteristics
The following description of the Chattem, Inc. Savings and Investment Plan (the “Plan”) provides only general information. Participants should refer to the plan agreement for a more complete description of the Plan’s provisions.
General:
The Plan, established January 1, 1985, is a defined contribution employee benefit plan providing retirement benefits to eligible participants. All employees who are residents of the United States are eligible to participate in the Plan upon the completion of six months of service. However merchandising and leased employees are not eligible. The employer, as defined by the Plan, is Chattem, Inc.
Vesting:
Participants are fully vested in all contributions made and all earnings (losses) allocated to their accounts.
Payment of benefits:
The Plan provides that a participant may begin receiving normal retirement benefits upon attaining normal retirement age or early retirement age, as defined by the plan document. Further, participants may receive an in-service distribution upon attaining age 59-1/2. Benefits are recognized when paid. There were no amounts allocated to participants who had withdrawn from the Plan, but had not been paid as of December 31, 2007 and 2006.
Contributions:
The Plan is a contributory plan whereby an employee who elects to participate can contribute any amount allowed by the Internal Revenue Code (“IRC”). The employer contributes to the Plan matching contributions equal to 25 percent of each participant’s salary deferral contributions up to 6% of the participant’s total compensation. Additional participant contributions over 6% of total compensation are not subject to employer matching contributions. For 2007 and 2006 plan years, an additional employer contribution of 3% of compensation was made on behalf of eligible participants. An additional 2% employer contribution was made to all non-highly compensated participants for plan year 2006 who had a combined age and service 65 years or greater as of December 31, 2000.
Participants direct the investment of the contributions into various investment options offered by the Plan. The Plan currently offers Chattem, Inc. stock, pooled separate accounts with various risk levels and objectives and an investment contract.
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
Note1. Summary of Major Accounting Policies and Plan Characteristics (continued)
Participant loans:
Participants who have been active participants in the Plan for a minimum of one year are eligible to make application for a loan. Investor Bank and Trust Company (the “Trustee”) is authorized to make loans, as directed by the Administrator, in amounts that comply with specific formulas in the plan documents. The minimum principal of any loan is $500. The term of a loan may not exceed five years unless it is made for a principal residence. Loans are collateralized by 50 percent of the participant’s vested interest in the Plan. Interest rates are at a fixed rate determined by the duration, repayment method, and market rate as provided by the U.S. Department of Labor. The interest rate on outstanding loans at December 31, 2007 ranged between 5.00% and 9.25%.
Participant accounts:
Each participant’s account is credited (charged) with the participant’s contribution, the employer’s matching contribution, and an allocation of employer elective contributions and plan earnings (losses). Plan earnings (losses) are allocated based on average account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Administration:
Administration of the Plan is vested in a pension plan committee appointed by the Board of Directors of Chattem, Inc. A trust agreement dated September 1, 2004, provides for the investment of trust funds and prescribes the powers, duties, obligations, and functions of the Trustee.
Plan termination provisions:
Although it has not expressed any intent to do so, the employer has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of the Employee Retirement Income Security Act of 1974.
Voting rights:
Each participant is entitled to exercise voting rights attributable to the shares of employer common stock allocated to his or her account and is notified by the trustee prior to the time such rights are to be exercised.
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
Note 1. Summary of Major Accounting Policies and Plan Characteristics (continued)
Basis of accounting:
The Plan prepares its financial statements on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Under this basis, additions to net assets (other than appreciation (depreciation) in fair value of investments) are recognized when collected rather than when earned, and deductions from net assets are recognized when paid rather than when incurred. Consequently, certain income and expenses are recognized in different reporting periods than they would be if the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America.
As described in Financial Accounting Standards Board Staff Position (“FSP”) AAG INV-1 and Statement of Position (“SOP”) 94-4-1, “Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans”, investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The Plan invests in a guaranteed investment contract. The Statement of Net Assets Available for Benefits presents the fair value of the investment contract as well as the adjustment of the investment contract from fair value to contract value relating to the investment contract. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.
Recent Accounting Pronouncements:
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, the Plan’s fiscal 2008. The provisions for SFAS No. 157, as they relate to the Plan, are to be applied prospectively. The Plan’s management does not anticipate the adoption of SFAS No. 157 having a material impact on the Plan’s results of operations or financial position.
Administrative expenses:
Under the terms of the Plan, investment management fees are paid by participants and administrative expenses are paid by the Plan. Historically, such administrative expenses have been paid by the employer through reimbursement to the Plan. The employer has represented to the Plan that future administrative expenses will be reimbursed to the Plan.
Use of estimates:
The preparation of financial statements in conformity with the modified cash basis of accounting requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
Note 2. Tax Status of the Plan
The Plan obtained its latest determination letter on August 18, 2002, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the IRC. The Plan has been amended since receiving the determination letter. However, the plan administrator and the Plan's tax counsel believe the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, they believe that the Plan was qualified and the related trust was tax-exempt as of the financial statement dates.
Certain of the Plan's investments are stated at fair value. Fair value of the participation units in the pooled separate accounts is based on quoted redemption values on the last business day of the plan year. Chattem, Inc. common stock is valued at its quoted market price. Participant loans are valued at their outstanding balances, which approximate fair value. The investment contract, which is fully benefit-responsive, is stated at contract value and is shown at fair value with an adjustment to reflect the net asset value as contract value.
Purchases and sales of securities are recorded on a trade-date basis. Interest income and dividends are recorded when received.
Investments that represent five percent or more of the Plan's net assets at December 31, 2007 and 2006 are as follows:
| | | 2007 | | | 2006 | |
| Chattem, Inc. common stock | | $ | 8,470,300 | | | $ | 4,820,000 | |
| Destination Retirement 2030 | | | 1,864,108 | | | | 1,812,573 | |
| Select Fundamental Value (Wellington) | | | 4,490,036 | | | | 4,161,052 | |
| Select Indexed Equity (Northern Trust) | | | 3,494,924 | | | | 3,345,422 | |
| Select Overseas (MFS/Harris) | | | 3,693,888 | | | | 3,727,921 | |
| Select Small Company Value (Clover/TRP/EARNEST) | | | ** | | | | 2,279,909 | |
| Guaranteed investment contract, at contract value | | | 7,833,963 | | | | 7,549,506 | |
| | **Investment does not represent 5% or more of the Plan’s net assets for the respective year. |
During 2007 and 2006, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $3,740,223 and $3,855,965 as follows:
| | | 2007 | | | 2006 | |
| Pooled separate accounts | | $ | 917,178 | | | $ | 2,455,354 | |
| Common stock | | | 2,823,045 | | | | 1,400,611 | |
| | | $ | 3,740,223 | | | $ | 3,855,965 | |
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
Note 4. Guaranteed Investment Contract
In 2004, the Plan entered into an investment contract with an insurance company, Massachusetts Mutual Life Insurance Company. The insurance company maintains the Plan's contributions in a pooled account, which is credited with earnings on the underlying investments and charged for participant withdrawals, investment losses and administrative expenses. As of December 31, 2007 and 2006, the Plan maintained two Guaranteed Investment Contract (“GIC”) investment options as follows: Guaranteed New and Guaranteed Old. The contract owned by the Plan is considered fully benefit-responsive in accordance with FSP AAG INV-1 and AICPA SOP 94-4-1. There are no reserves against contract value for credit risk of the contract issuer or otherwise. As of December 31, 2007 and 2006 the contract value of the investments in the GIC is $7,833,963 and $7,549,506, respectively.
The earnings of the GIC investments are based on an interest rate applied to each participant’s outstanding balance. The interest rates are reviewed and reset by the insurance company semi-annually. The guaranteed rate calculation starts with historical information on the GIC’s mix of assets by investment year and the Plan’s interest earnings rate by investment year. The Guaranteed New is based on the projected earnings rate for new assets in the upcoming year. For the Guaranteed Old calculation, a projection is done for the upcoming year assuming no new contributions and using projected future earnings rates by investment year. This produces an expected earnings rate, which is used to set the Guaranteed Old rate for the next six-month period.
The insurance contract has a guaranteed rate for new deposits from issue until the end of the first rate period (July 1 or January 1). If issued prior to July 1, there is a minimum guarantee for the second six month period. In the middle of the year, the guarantee is evaluated to set a rate for the second six months, which in no event is less than the minimum for that period. If issued after July 1, the initial rate for new deposits is guaranteed until December 31.
An annual review of experience of the GIC’s interest rates is performed prior to January 1 of the next year. Rates for the Guaranteed New and the Guaranteed Old options are set for the first six months of the next calendar year, as well as minimum rates for the second six months. The Guaranteed New rate applies to the contributions in the next calendar year, while the Guaranteed Old rate applies to the balance from prior years. In the middle of the year, the Guaranteed New and the Guaranteed Old are evaluated to set a rate for the second six months, which in no event is less than the minimums for that period.
Premature termination in whole or in part of the contract is at the discretion of the employer and generally involves a payment adjusted to its fair value.
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
Note 4. Guaranteed Investment Contract (continued)
The average yield for the options is as follows for the years ended December 31, 2007 and 2006:
| | | 2007 | | | 2006 | |
| Guaranteed New | | | 3.33% | | | | 3.60% | |
| Guaranteed Old | | | 3.33% | | | | 3.00% | |
| | | | | | | | | |
The crediting interest rate for the options is as follows as of December 31, 2007 and 2006:
| | | 2007 | | | 2006 | |
| Guaranteed New | | | 3.33% | | | | 3.60% | |
| Guaranteed Old | | | 3.33% | | | | 3.00% | |
| | | | | | | | | |
The minimum crediting interest rate for the options is as follows for the years ended December 31, 2007 and 2006:
| | | 2007 | | | 2006 | |
| Guaranteed New | | | 3.00% | | | | 3.00% | |
| Guaranteed Old | | | 3.00% | | | | 3.00% | |
| | | | | | | | | |
Note 5. Related Party Transactions
Massachusetts Mutual Life Insurance Company ("Mass Mutual") is the custodian of the Plan for all plan assets except those invested in Chattem, Inc. common stock and Investors Bank & Trust is the custodian of Chattem, Inc. common stock. Therefore, transactions with these parties qualify as party-in-interest transactions. Investments held with these parties totaled $35,519,098 and $30,689,209 at December 31, 2007 and 2006 respectively. The Plan also held investments in loans to participants with a current value of $835,969 and $822,469 as of December 31, 2007 and 2006, respectively.
Note 6. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
Additionally, as of December 31, 2007 and 2006, approximately 23% and 15% of the Plan’s assets were invested in the employer’s common stock, respectively. As such, the underlying value of the overall investment holdings is dependent on the performance of the employer’s common stock and the market’s evaluation of such performance.
CHATTEM, INC.
SAVINGS AND INVESTMENT PLAN
EIN 62-0156300
PLAN 003
SCHEDULE H, LINE 4i – SCHEDULE OF ASSETS HELD AT END OF YEAR
December 31, 2007
| | | | | | | | | | |
| (a) Identity of Party Involved | | (b) Identity of Issue, Borrower, Lessor or Similar Party | | (c) Description of Investment Including Maturity Date, Rate of Interest, Collateral, Par, or Maturity Value | | (d) Cost | | (e) Current Value | |
| | | | | | | | | | |
| | | Cash | | Interest-bearing Cash | | | | $ 448,729 | |
| | | | | | | | | | |
| * | | Chattem, Inc. | | Common Stock | | ** | | 8,470,300 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Premier Cap Appreciation (OFI) | | ** | | 738,327 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Premier Core Bond (Babson) | | ** | | 996,115 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Destination Retirement 2010 | | ** | | 429,678 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Destination Retirement 2020 | | ** | | 608,200 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Destination Retirement 2030 | | ** | | 1,864,108 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Destination Retirement 2040 | | ** | | 269,751 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Destination Retirement Income | | ** | | 173,697 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Select Focused Value (Harris) | | ** | | 683,195 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Select Fundamental Value (Wellington) | | ** | | 4,490,036 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Select Indexed Equity (Northern Trust) | | ** | | 3,494,924 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Select Overseas (MFS/Harris) | | ** | | 3,693,888 | |
| | | | | | | | | | |
| * | | Massachusetts Mutual Life Insurance | | Select Small Company Value (Clover/TRP/EARNEST) | | ** | | 1,772,916 | |
| | | | | | | | | | |
| | | Total pooled separate accounts | | | | | | 19,214,835 | |
| | | | | | | | | | |
| * | | Investment contract - | | | | | | | |
| | | Massachusetts Mutual Life Insurance | | Guaranteed Investment Contract | | | | 7,833,963 | *** |
| | | | | | | | | | |
| * | | Participant loans | | Loans to participants, interest at 5.00% to 9.25% | | | | 835,969 | |
| | | | | | | | | | |
| | | | | | | | | $ 36,803,796 | |
| * Represents a party-in-interest |
| ** Not required for participant directed plans |
| *** Stated at contract value |
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| | CHATTEM, INC. SAVINGS AND INVESTMENT PLAN | |
| | | | |
| | | | |
| Date: June 27, 2008 | By: | /s/ Robert B. Long | |
| | | Robert B. Long | |
| | | Member of Chattem, Inc. Pension Plan Committee | |
| | | | |
Index of Exhibits
Exhibit 23.1- Consent of Lattimore, Black, Morgan & Cain, P.C.
