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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 August 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 October 10, 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
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of August 31, 1997 and November 30, 1996........................... 3
Statements of Income for the Three and Nine Months Ended
August 31, 1997 and 1996............................................................ 4
Statements of Cash Flows for the Nine Months Ended August 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
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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)
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<CAPTION>
AUGUST 31, NOVEMBER 30,
1997 1996
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(UNAUDITED)
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ASSETS:
Cash and cash equivalents............................................................ $ 166 $ 2,911
Royalties receivable from Chattem, Inc............................................... 1,638 1,287
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Total current assets............................................................... 1,804 4,198
Trademarks and other purchased product rights, net................................... 102,099 74,086
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Total assets....................................................................... $ 103,903 $ 78,284
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LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT):
Liabilities:
Payable to Chattem, Inc............................................................. $ 103,265 $ 75,713
Deferred income taxes............................................................... 1,556 1,556
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Total liabilities.................................................................. 104,821 77,269
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Shareholder's equity (deficit):
Common shares, without par value, 500 shares authorized, 250 shares issued and
outstanding........................................................................ 2 2
Retained earnings (deficit).......................................................... (920) 1,013
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Total shareholder's equity (deficit)............................................... (918) 1,015
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Total liabilities and shareholder's equity (deficit).................................. $ 103,903 $ 78,284
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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)
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<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
AUGUST 31, AUGUST 31,
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1997 1996 1997 1996
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REVENUES:
Royalties from Chattem, Inc............................................. $ 1,638 $ 1,706 $ 4,593 $ 3,782
Other income (loss)..................................................... 3 (20) 26 1,199
Interest from Chattem, Inc.............................................. -- 45 -- 136
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Total revenues........................................................ 1,641 1,731 4,619 5,117
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EXPENSES:
Amortization of trademarks and other purchased product rights........... 708 633 1,857 1,288
General and administrative.............................................. 3 5 15 16
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Total expenses........................................................ 711 638 1,872 1,304
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INCOME BEFORE PROVISION FOR INCOME TAXES.................................. 930 1,093 2,747 3,813
PROVISION FOR INCOME TAXES................................................ 310 375 930 1,300
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NET INCOME................................................................ $ 620 $ 718 $ 1,817 $ 2,513
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NET INCOME PER COMMON SHARE............................................... $ 2,480 $ 2,872 $ 7,268 $ 10,052
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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)
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<CAPTION>
FOR THE NINE MONTHS
ENDED AUGUST 31,
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1997 1996
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OPERATING ACTIVITIES:
Net income................................................................................ $ 1,817 $ 2,513
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization........................................................................... 1,857 1,288
Income taxes........................................................................... 930 1,300
Gain on sale of investment............................................................. -- (323)
Gain on sale of trademarks and other product rights.................................... -- (875)
Other.................................................................................. 2 32
Changes in operating assets and liabilities:
Increase in royalties receivable from Chattem, Inc................................... (351) (686)
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Net cash provided by operating activities.......................................... 4,255 3,249
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INVESTING ACTIVITIES:
Increase in note receivable from Chattem, Inc............................................ -- (134)
Payments on note receivable from Chattem, Inc............................................ -- 45
Proceeds from sale of investment......................................................... -- 323
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Net cash provided by investing activities.......................................... -- 234
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FINANCING ACTIVITIES:
Decrease in payable to Chattem, Inc...................................................... (3,250) --
Dividends paid to Chattem, Inc........................................................... (3,750) (4,053)
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Net cash used in financing activities.............................................. (7,000) (4,053)
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CASH AND CASH EQUIVALENTS:
Decrease for the period................................................................. (2,745) (570)
At beginning of period.................................................................. 2,911 851
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At end of period........................................................................ $ 166 $ 281
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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
product rights.......................................................................... $ -- $ 875
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Increase in payable to Chattem, Inc. in connection with purchases of trademarks and
other product rights.................................................................... $ 29,870 $ 44,160
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DIVIDENDS PER SHARE......................................................................... $ 15 $ 16
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</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 June 26, 1997, the Company and Chattem, Inc. purchased 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 acquired were GARLIQUE, REJUVEX,
MELATONEX, ECHINEX and PROPALMEX. The cash purchase price for the
trademarks, inventory and receivables was $28,200,000. Additional
payments may be earned by SUNSOURCE 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 SUNSOURCE.
The trademarks were acquired by the Company and licensed to Chattem, Inc.
Receivables and inventory were acquired by Chattem, Inc.
4. On August 26, 1997, the Company and Chattem, Inc. terminated the license
agreement for ULTRASWIM and purchased the trademark for $450,000. The
trademark was acquired by the Company and licensed to Chattem, Inc.
5. 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 a working capital revolving loan.
The Company is also a guarantor of Chattem, Inc.'s 12.75% Senior
Subordinated Notes due 2004.
6
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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:
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Balance--November 30, 1996................................ $75,713,000
Repayments....................................... (3,250,000)
Additions........................................ 30,802,000
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Balance--August 31, 1997.................................. $103,265,000
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</TABLE>
The weighted average balance due Chattem, Inc. during the nine months
ended August 31,1997, was $80,698,000.
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 $811,000, or 21.4% in the nine months ended August
31, 1997, from the corresponding period of the prior year. The increase was
due to higher sales of the brands upon which royalties are calculated. The
prior year did not include sales for the entire nine months for GOLD BOND or
HERPECIN-L. These products were acquired in the second and third quarters of
fiscal 1996. The 1997 period also included sales of the SUNSOURCE products
which were acquired on June 26, 1997.
Other income decreased by $1,173,000, or 97.8% for the nine months ended
August 31, 1997. The decrease from the prior year was 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 $136,000 in
the nine months ended August 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 $569,000, or 44.2% in the nine months ended
August 31, 1997, from the corresponding period of the prior year. The
increase was primarily due to the full nine month period amortization in
fiscal 1997 of GOLD BOND and HERPECIN-L. These products were acquired in the
second and third quarters of fiscal 1996. The 1997 period also included
amortization of the SUNSOURCE products which were acquired on June 26, 1997.
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 August 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: October 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 166
<SECURITIES> 0
<RECEIVABLES> 1,638
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,804
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,903
<CURRENT-LIABILITIES> 0
<BONDS> 104,821
0
0
<COMMON> 2
<OTHER-SE> (920)
<TOTAL-LIABILITY-AND-EQUITY> 103,903
<SALES> 0
<TOTAL-REVENUES> 4,619
<CGS> 0
<TOTAL-COSTS> 1,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,747
<INCOME-TAX> (930)
<INCOME-CONTINUING> 1,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,817
<EPS-PRIMARY> 7,268
<EPS-DILUTED> 7,268
</TABLE>
