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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, 1997
Commission file number 33-80770-01
SIGNAL INVESTMENT & MANAGEMENT CO.
A DELAWARE CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NO. 62-1290284
1105 NORTH MARKET STREET, 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, 1997, 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
Balance Sheets as of May 31, 1997 and November 30, 1996.... 3
Statements of Income for the Three and Six
Months Ended May 31, 1997 and 1996....................... 4
Statements of Cash Flows for the Six Months
Ended May 31, 1997 and 1996.............................. 5
Notes to 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.
BALANCE SHEETS
(In Thousands, except for number of shares)
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1997 1996
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(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................................... $ 223 $ 2,911
Royalties receivable from Chattem, Inc.............................. 1,692 1,287
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Total current assets.............................................. 1,915 4,198
Trademarks and other purchased product rights, net.................. 72,957 74,086
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Total assets...................................................... $ 74,872 $ 78,284
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LIABILITIES AND SHAREHOLDER'S EQUITY:
Liabilities:
Payable to Chattem, Inc........................................... $ 73,603 $ 75,713
Deferred income taxes............................................. 1,556 1,556
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Total liabilities............................................... 75,159 77,269
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Shareholder's equity:
Common shares, without par value, 500 shares authorized, 250
shares issued and outstanding................................... 2 2
Retained earnings (deficit)....................................... (289) 1,013
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Total shareholder's equity (deficit)............................ (287) 1,015
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Total liabilities and shareholder's equity...................... $ 74,872 $ 78,284
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</TABLE>
See accompanying notes to financial statements.
3
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SIGNAL INVESTMENT & MANAGEMENT CO.
STATEMENTS OF INCOME
(Unaudited and in Thousands, Except Share Data)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MAY 31, MONTHS ENDED MAY 31,
------------------------ --------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUES:
Royalties from Chattem, Inc......................................... $ 1,692 $ 1,272 $ 2,955 $ 2,075
Other income........................................................ 3 896 22 1,219
Interest from Chattem, Inc.......................................... -- 46 -- 91
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Total revenues.................................................... 1,695 2,214 2,977 3,385
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EXPENSES:
Amortization of trademarks and other purchased product rights....... 578 367 1,149 655
General and administrative.......................................... 9 8 10 10
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Total expenses.................................................... 587 375 1,159 665
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INCOME BEFORE PROVISION FOR INCOME TAXES.............................. 1,108 1,839 1,818 2,720
PROVISION FOR INCOME TAXES............................................ 380 625 620 925
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NET INCOME............................................................ $ 728 $ 1,214 $ 1,198 $ 1,795
--------- ------ --------- ---------
NET INCOME PER COMMON SHARE........................................... $ 2,912 $ 4,856 $ 4,792 $ 7,180
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OUTSTANDING COMMON SHARES............................................. 250 250 250 250
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</TABLE>
See accompanying notes to financial statements.
4
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SIGNAL INVESTMENT & MANAGEMENT CO.
STATEMENTS OF CASH FLOWS
(Unaudited and in Thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MAY 31,
--------------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................. $ 1,198 $ 1,795
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization........................................... 1,149 655
Gain on sale of investment............................. -- (323)
Gain on sale of trademarks and other product rights.... -- (875)
Other.................................................. -- 10
Changes in operating assets and liabilities:
Income taxes......................................... 620 925
Increase in royalties receivable from Chattem, Inc... (405) (252)
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Net cash provided by operating activities.......... 2,562 1,935
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INVESTING ACTIVITIES:
Increase in note receivable from Chattem, Inc.............. -- (90)
Payments on note receivable from Chattem, Inc.............. -- 45
Proceeds from sale of investment........................... -- 323
Other.................................................... -- --
-
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Net cash provided by investing activities............ -- 278
-
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FINANCING ACTIVITIES:
Decrease in payable to Chattem, Inc....................... (2,750) --
Dividends paid to Chattem, Inc. ($10 and $12 per share,
respectively)........................................... (2,500) (3,053)
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Net cash used in financing activities................. (5,250) (3,053)
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CASH AND CASH EQUIVALENTS:
Decrease for the period.................................... (2,688) (840)
At beginning of period..................................... 2,911 851
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At end of period........................................... $ 223 $ 11
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SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS:
Decrease in payable to Chattem, Inc. in connection with the
sale of trademarks and other rights................... $ -- $ 875
Increase in payable to Chattem, Inc. in connection with
purchases of trademarks and other product rights...... $ -- $ 37,500
Increase in payable to Chattem, Inc. for certain items paid
by Chattem, Inc. on behalf of the Company............. $ 20 $ --
</TABLE>
See accompanying notes to financial statements.
5
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SIGNAL INVESTMENT & MANAGEMENT CO.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited 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 financial statements should be read
in conjunction with the audited financial statements and related notes
thereto included in the Company's Form 10-K for the year ended November
30, 1996. The accompanying unaudited 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 results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the respective
full years.
3. On May 23, 1997, the Company and Chattem, Inc. announced the signing of
an agreement to purchase certain assets of Sunsource International, Inc.
and an affiliated company ("Sunsource") including the exclusive worldwide
rights to five leading branded dietary supplement products. The products
being acquired are GARLIQUE, REJUVEX, MELATONEX, ECHINEX and PROPALMEX.
The purchase price for the trademarks, inventory and receivables was
approximately $32,000,000. Additional payments may be earned by the
seller over a six year period from the date of closing if sales exceed
certain levels as defined in the purchase agreement, but such additional
payments are not to exceed $15,750,000 in the aggregate. Financing of the
Sunsource acquisition was provided by an expansion of Chattem, Inc.'s
senior bank credit agreement and the issuance of 300,000 shares of
Chattem, Inc. common stock to the seller. The trademarks were acquired by
the Company and licensed to Chattem, Inc. Receivables and inventory were
acquired by Chattem, Inc. The transaction was completed on June 26, 1997.
4. In connection with the bank credit agreement entered into by Chattem,
Inc. on April 29, 1996, amended June 6, 1996 and amended and restated as
of June 26, 1997, the Company is a guarantor on Chattem's bank debt. The
bank debt consists of term loans and working capital revolving loans. The
Company is a guarantor on Chattem, Inc.'s expanded bank debt used to
finance the Sunsource acquisition.
6
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5. 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"). If net sales of PHISODERM
products in the United States by Chattem, Inc. exceed $11,000,000 for the
12-month period beginning July 1, 1996 and ending June 30, 1997, 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. As
of June 30, 1997, annual net sales of PHISODERM exceeded the $11,000,000
threshold.
6. Certain amounts in the prior period's financial information have been
reclassified to conform to the current presentation.
7. The Company is a wholly-owned subsidiary of Chattem, Inc. and is included
in the parent company's consolidated tax returns.
8. The Company had no outstanding debt as of the periods presented and
therefore incurred no interest expense.
9. A summary analysis of the activity between the Company and Chattem Inc.
is as follows:
Balance - November 30, 1996........................... $ 75,713
Repayments.................................. (2,750)
Additions................................... 640
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Balance - May 31, 1997................................ $ 73,603
----------
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The weighted average balance due Chattem, Inc. during the six-months ended
May 31, 1997, was $74,338.
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:
Royalty income increased $880, or 42.4% in the six months ended May 31, 1997,
from the corresponding period of the prior year. The increase was primarily
due to higher sales on the brands upon which royalties are calculated. The
prior year period did not include sales for the entire six months of GOLD
BOND, HERPECIN-L or PHISODERM Antibacterial Hand Cleanser. These products
were acquired or introduced to the market in the second and third quarters of
fiscal 1996.
Other income decreased by $1,197 or 98.2% in the six months ended May 31,
1997. The decrease 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 decreased $91 in the
six months ended May 31, 1997 from the corresponding period of the prior
year. The note was repaid in full by Chattem in the fourth quarter of fiscal
1996.
Amortization expense increased $494, or 75.4% in the six months ended May 31,
1997, from the corresponding period of the prior year. The increase was
primarily due to the full six month period amortization in fiscal 1997 of
GOLD BOND and HERPECIN-L. GOLD BOND and HERPECIN-L were acquired in the
second and third quarters of fiscal 1996.
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, 1997.
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, 1997 /S/ STEPHEN M. POWELL
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STEPHEN M. POWELL
VICE-PRESIDENT AND TREASURER
(DULY AUTHORIZED SIGNATORY AND
PRINCIPAL ACCOUNTING OFFICER)
10
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<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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 223
<SECURITIES> 0
<RECEIVABLES> 1692
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1915
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 74872
<CURRENT-LIABILITIES> 0
<BONDS> 73603
0
0
<COMMON> 2
<OTHER-SE> (289)
<TOTAL-LIABILITY-AND-EQUITY> 74872
<SALES> 0
<TOTAL-REVENUES> 2977
<CGS> 0
<TOTAL-COSTS> 1159
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1818
<INCOME-TAX> 620
<INCOME-CONTINUING> 1198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1198
<EPS-PRIMARY> 4792
<EPS-DILUTED> 4792
</TABLE>
