<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 MAY 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 JULY 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.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of May 31, 1996 and
November 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Income for the Three Months and Six Months
Ended May 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows for the Six Months Ended May 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)
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 11 $ 851
Royalties receivable from Chattem, Inc. . . . . . . . . . . . . 1,273 1,021
Note receivable from Chattem, Inc.. . . . . . . . . . . . . . . 2,666 2,621
----------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . 3,950 4,493
Trademarks and other purchased product rights, net. . . . . . . 67,399 30,054
----------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $ 71,349 $ 34,547
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY:
Liabilities:
Payable to Chattem, Inc. . . . . . . . . . . . . . . . . . . . $ 67,904 $ 29,844
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 874 874
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 68,778 30,718
----------- -----------
Shareholder's equity:
Common shares, without par value, 500 shares
authorized, 250 shares issued and outstanding. . . . . . . . 2 2
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 2,569 3,827
----------- -----------
Total shareholder's equity. . . . . . . . . . . . . . . . . . 2,571 3,829
----------- -----------
Total liabilities and shareholder's equity. . . . . . . . . . $ 71,349 $ 34,547
----------- -----------
----------- -----------
</TABLE>
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 Six
Months Ended May 31, Months Ended May 31,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Royalties from Chattem, Inc. . . . . . . . . $ 1,272 $ 1,147 $ 2,075 $ 1,991
Other income . . . . . . . . . . . . . . . . 896 6 1,219 12
Interest from Chattem, Inc . . . . . . . . . 46 46 91 91
---------- ---------- ---------- ----------
Total revenues. . . . . . . . . . . . . 2,214 1,199 3,385 2,094
---------- ---------- ---------- ----------
EXPENSES:
Amortization of trademarks
and other purchased product
rights . . . . . . . . . . . . . . . . . . 367 286 655 567
General and administrative . . . . . . . . . 8 6 10 7
---------- ---------- ---------- ----------
Total expenses. . . . . . . . . . . . . 375 292 665 574
---------- ---------- ---------- ----------
INCOME BEFORE
PROVISION FOR INCOME
TAXES . . . . . . . . . . . . . . . . . . 1,839 907 2,720 1,520
PROVISION FOR INCOME
TAXES . . . . . . . . . . . . . . . . . . 625 306 925 513
---------- ---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . $ 1,214 $ 601 $ 1,795 $ 1,007
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME PER
COMMON SHARE. . . . . . . . . . . . . . . . . $ 4,856 $ 2,404 $ 7,180 $ 4,028
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE
NUMBER OF COMMON
AND COMMON SHARE
EQUIVALENTS . . . . . . . . . . . . . . . . . 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)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------
May 31, May 31,
1996 1995
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.......................................................... $ 1,795 $ 1,007
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization.................................................... 655 567
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. .......... (252) (75)
------- -------
Net cash provided by operating activities................. 1,323 1,499
------- -------
INVESTING ACTIVITIES:
Increase in note receivable from Chattem, Inc. ..................... (90) --
Payments on note receivable from Chattem, Inc. ..................... 45 7
------- -------
Net cash provided by (used in) investing activities....... (45) 7
------- -------
FINANCING ACTIVITIES:
Net increase in payable to Chattem, Inc. ........................... 935 519
Dividends paid to Chattem, Inc. ($12 per share) .................... (3,053) (2,000)
------- -------
Net cash used in financing activities..................... (2,118) (1,481)
------- -------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period.................................. (840) 25
At beginning of period.............................................. 851 476
------- -------
At end of period.................................................... $ 11 $ 501
------- -------
------- -------
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.................... $38,000 --
</TABLE>
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. As of 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 $66,500,000 bank debt. The bank debt consists
of $42,500,000 in term loans and $24,000,000 in 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 $1,207,000 to $1,219,000 for the six months ended
May 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.
Interest income from the Chattem, Inc. note receivable did not change in the
six months ended May 31, 1996 from the corresponding period of the prior year.
Royalty income increased $84,000 in the six months ended May 31, 1996, from
the corresponding period of the prior year primarily due to the additional
royalty income from the sales of GOLD BOND for one month.
Amortization expense increased $88,000 in the six months ended May 31, 1996,
from the corresponding period of the prior year. The increase was primarily
due to the amortization of the GOLD BOND trademark for one month.
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 three months ended May 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: July 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 INFORMATION EXTRACTED FROM SIGNAL INVESTMENT AND
MANAGEMENT COMPANY'S UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 3,939
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,950
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,349
<CURRENT-LIABILITIES> 68,778
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 2,569
<TOTAL-LIABILITY-AND-EQUITY> 71,349
<SALES> 0
<TOTAL-REVENUES> 3,385
<CGS> 0
<TOTAL-COSTS> 665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,720
<INCOME-TAX> 925
<INCOME-CONTINUING> 1,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,795
<EPS-PRIMARY> 7,180
<EPS-DILUTED> 7,180
</TABLE>
