<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 AUGUST 31, 1996
COMMISSION FILE NUMBER 33-80770
SIGNAL INVESTMENT & MANAGEMENT CO.
A DELAWARE CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NO. 62-1290284
1105 NORTH MARKET, SUITE 1300
WILMINGTON, DELAWARE 19890
TELEPHONE: 302-656-3950
THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1) (a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
INDICATE BY CHECK WHETHER THE REGISTRANT (1) 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 (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO .
--- ---
AS OF OCTOBER 8, 1996, 250 SHARES OF THE COMPANY'S COMMON STOCK, WITHOUT PAR
VALUE, WERE OUTSTANDING.
Page 1 of 10
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SIGNAL INVESTMENT & MANAGEMENT CO.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of August 31, 1996 and
November 30, 1995............................................. 3
Condensed Statements of Income for the Three and Nine Months
Ended August 31, 1996 and 1995................................ 4
Statements of Cash Flows for the Nine Months Ended August 31, 1996
and 1995..................................................... 5
Notes to Condensed Financial Statements ........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 8
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K ..................................... 9
SIGNATURES ......................................................... 10
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNAL INVESTMENT & MANAGEMENT CO.
CONDENSED BALANCE SHEETS
(In Thousands)
August 31, November 30,
1996 1995
----------- ------------
(Unaudited)
ASSETS:
Cash and cash equivalents ........................ $ 281 $ 851
Royalties receivable from Chattem, Inc. .......... 1,707 1,021
Note receivable from Chattem, Inc. ............... 2,711 2,621
-------- --------
Total current assets ........................ 4,699 4,493
Trademarks and other purchased product rights, net 72,925 30,054
-------- --------
Total assets ................................ 77,624 $ 34,547
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY:
Liabilities:
Payable to Chattem, Inc. ....................... $ 74,461 $ 29,844
Deferred income taxes .......................... 874 874
-------- --------
Total liabilities ........................... 75,335 30,718
-------- --------
Shareholder's equity:
Common shares, without par value, 500 shares
authorized, 250 shares issued and outstanding 2 2
Retained earnings .............................. 2,287 3,827
-------- --------
Total shareholder's equity .................. 2,289 3,829
-------- --------
Total liabilities and shareholder's equity... $ 77,624 $ 34,547
-------- --------
See accompanying notes to condensed financial statements.
3
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SIGNAL INVESTMENT & MANAGEMENT CO.
CONDENSED STATEMENTS OF INCOME
(Unaudited and in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended August 31, Months Ended August 31,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Royalties from Chattem, Inc. $ 1,706 $ 1,187 $ 3,782 $ 3,178
Other income (loss) ............. (20) 1 1,199 13
Interest from Chattem, Inc....... 45 46 136 137
--------- --------- --------- --------
Total revenues ............. 1,731 1,234 5,117 3,328
--------- --------- --------- --------
EXPENSES:
Amortization of trademarks
and other purchased product
rights ......................... 633 298 1,288 865
General and administrative ...... 5 1 16 8
--------- --------- --------- --------
Total expenses ............. 638 299 1,304 873
--------- --------- --------- --------
INCOME BEFORE
PROVISION FOR INCOME
TAXES ........................... 1,093 935 3,813 2,455
PROVISION FOR INCOME
TAXES ........................... 375 318 1,300 831
--------- --------- --------- --------
NET INCOME ........................ $ 718 $ 617 $ 2,513 $ 1,624
--------- --------- --------- --------
--------- --------- --------- --------
NET INCOME PER
COMMON SHARE .................... $ 2,872 $ 2,468 $ 10,052 $ 6,496
--------- --------- --------- --------
--------- --------- --------- --------
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES .......................... 250 250 250 250
--------- --------- --------- --------
--------- --------- --------- --------
</TABLE>
See accompanying notes to condensed financial statements.
4
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SIGNAL INVESTMENT & MANAGEMENT CO.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and in Thousands)
For the Nine
Months Ended August 31,
1996 1995
---------- ----------
OPERATING ACTIVITIES:
Net income ..................................... $ 2,513 $ 1,624
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization ............................... 1,288 865
Proceeds from sale of trading security ..... 323 --
Gain on sale of trading security ........... (323) --
Gain on sale of trademarks and other product rights (875) --
Changes in operating assets and liabilities:
Increase in royalties receivable from Chattem, Inc. (686) (262)
------- -------
Net cash provided by operating activities 2,240 2,227
------- -------
INVESTING ACTIVITIES:
Increase in note receivable from Chattem, Inc.. (134) (46)
Payments on note receivable from Chattem, Inc.. 45 7
------- -------
Net cash used in investing activities.... (89) (39)
------- -------
FINANCING ACTIVITIES:
Net increase in payable to Chattem, Inc. ...... 1,332 842
Dividends paid to Chattem, Inc. ............... (4,053) (3,000)
------- -------
Net cash used in financing activities.... (2,721) (2,158)
------- -------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period ............ (570) 30
At beginning of period ........................ 851 476
------- -------
At end of period .............................. $ 281 $ 506
------- -------
------- -------
SUPPLEMENTAL SCHEDULE OF NON-CASH
TRANSACTIONS:
Decrease in payable to Chattem, Inc. in connection
with the sale of trademarks and other product
rights $ 875 $ --
------- -------
------- -------
Purchases of trademarks and other product rights $44,160 $ --
------- -------
------- -------
DIVIDENDS PER SHARE .............................. $ 16 $ 12
------- -------
------- -------
See accompanying notes to condensed financial statements.
5
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SIGNAL INVESTMENT & MANAGEMENT CO.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed 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. The accompanying unaudited
condensed 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. On June 17, 1994, the Company acquired a license to the PHISODERM trademark
in the United States, Canada and Puerto Rico (the "Territory") from
Sterling Winthrop Inc. ("Sterling"). The purchase price for the license of
PHISODERM in the territory was $16,826,000. If net sales of PHISODERM
products in the United States by Chattem, Inc. exceed $11,000,000 for
either of the 12-month periods beginning July 1, 1995 and July 1, 1996,
respectively, and ending June 30, 1996 and June 30, 1997, respectively,
then within 45 days after the end of the applicable 12-month period with
respect to which the applicable net sales threshold specified above have
been exceeded, the Company will pay Sterling an additional $1,000,000 per
year. For the 12-month period ended June 30, 1996, annual net sales of
PHISODERM exceeded the $11,000,000 threshold.
3. On April 29, 1996, the Company and Chattem, Inc. purchased the worldwide
rights for the GOLD BOND line of medicated powders and anti-itch creams.
GOLD BOND is the leading brand in the medicated powder market and has a
growing presence in the anti-itch cream market. The purchase price for the
trademarks, certain assumed liabilities and inventory, was $39,000,000 plus
$1,000,000 of Chattem stock valued at the average closing price of the
stock ten days prior to closing. Concurrently with the closing of the
acquisition, Chattem, Inc. entered into a $61,500,000 bank credit agreement
and issued 1,100,000 new shares of Chattem stock at $5.00 per share to a
group of investors, including certain officers, directors and affiliates.
The proceeds of the financing were used to fund the GOLD BOND purchase and
repay all existing bank indebtedness of Chattem, Inc.
6
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SIGNAL INVESTMENT & MANAGEMENT CO.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. On June 6, 1996, the Company and Chattem, Inc. purchased the rights for the
HERPECIN-L line of medicated lip balm. HERPECIN-L is a cold sore and fever
blister treatment that also contains a sunscreen. The purchase price for
the trademark, receivables and inventory was $5,560,000 plus a royalty
payment equal to the greater of $214,000 or 5% of net sales. The trademark
was acquired by the Company and licensed to Chattem, Inc. Receivables and
inventory were acquired by Chattem, Inc. The royalty payment is payable
annually for each of the seven twelve-month periods beginning July 1, 1996
and ending June 30, 2003. The purchase was financed by Chattem, Inc. with
a $5,000,000 addition to its existing bank credit agreement and the
remaining $560,000 being funded by Chattem, Inc.
5. In connection with the new bank credit agreement entered into by Chattem,
Inc. on April 29, 1996 and amended June 6, 1996, the Company is a guarantor
on Chattem's bank debt which consists of term loans and working capital
revolving loans.
6. Certain amounts in the prior period's financial information have been
reclassified to conform to the current presentation.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following narrative represents management's comparative analysis of the
material changes in the year-to-date results of operations of the Company
pursuant to General Instruction H(2)(a) of Form 10-Q:
Other income increased by $1,186,000 to $1,199,000 for the nine months ended
August 31, 1996. The increase over the prior year period was primarily due to
the sale of the trademarks of the SOLTICE and BLIS-TO-SOL brands during the
second quarter of fiscal 1996 and the sale of an investment.
Royalty income increased $604,000 in the nine months ended August 31, 1996, from
the corresponding period of the prior year primarily due to the additional
royalty income from the sales of GOLD BOND.
Amortization expense increased $423,000 in the nine months ended August 31,
1996, from the corresponding period of the prior year. The increase was
primarily due to the amortization of the GOLD BOND trademark.
8
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PART II. OTHER INFORMATION
ITEM 6. REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the nine months ended August 31, 1996.
9
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SIGNAL INVESTMENT & MANAGEMENT CO.
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.
SIGNAL INVESTMENT & MANAGEMENT CO.
(Registrant)
Dated: October 15, 1996 /s/ Stephen M. Powell
---------------------------
Stephen M. Powell
Treasurer
(duly authorized signatory and
principal financial officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIGNAL
INVESTMENT & MANAGEMENT CO.'S UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 281
<SECURITIES> 0
<RECEIVABLES> 4,418
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,699
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,624
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 2,287
<TOTAL-LIABILITY-AND-EQUITY> 77,624
<SALES> 0
<TOTAL-REVENUES> 5,117
<CGS> 0
<TOTAL-COSTS> 1,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,813
<INCOME-TAX> 1,300
<INCOME-CONTINUING> 2,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,513
<EPS-PRIMARY> 10,052
<EPS-DILUTED> 10,052
</TABLE>
