<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 February 28, 1998
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 April 10, 1998, 250 shares of the Company's common stock, without par
value, were outstanding.
<PAGE>
SIGNAL INVESTMENT & MANAGEMENT CO.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of February 28, 1998
and November 30, 1997.............................................. 3
Statements of Income for the Three Months
Ended February 28, 1998 and 1997 .................................. 4
Statements of Cash Flows for the Three Months Ended
February 28, 1998 and 1997 ........................................ 5
Notes to Financial Statements ....................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 7
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K .......................................... 8
SIGNATURES .............................................................. 9
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNAL INVESTMENT & MANAGEMENT CO.
BALANCE SHEETS
(In Thousands, Except for Number of Shares)
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents ................................ $ 42 $ 55
Royalties receivable from Chattem, Inc. .................. 1,558 1,588
--------- ---------
Total current assets ................................ 1,600 1,643
Trademarks and other purchased product rights, net ....... 100,656 101,426
--------- ---------
Total assets .................................... $ 102,256 $ 103,069
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S DEFICIT:
Payable to Chattem, Inc. ................................. $ 102,253 $ 102,573
--------- ---------
Deferred income taxes .................................... 2,628 2,628
--------- ---------
Shareholder's deficit:
Common shares, without par value, 500 shares authorized,
250 shares issued and outstanding .................... 2 2
Accumulated deficit .................................... (2,627) (2,134)
--------- ---------
Total shareholder's deficit ........................ (2,625) (2,132)
--------- ---------
Total liabilities and shareholder's deficit .... $ 102,256 $ 103,069
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
SIGNAL INVESTMENT & MANAGEMENT CO.
STATEMENTS OF INCOME
(Unaudited and in Thousands, Except Share Data)
<TABLE>
<CAPTION>
For the Three Months Ended
February 28,
--------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Royalties from Chattem, Inc. ................. $1,559 $1,263
Investment income ............................ -- 19
------ ------
Total revenues .......................... 1,559 1,282
------ ------
EXPENSES:
Amortization of trademarks and other purchased
product rights
770 571
General and administrative expenses .......... 2 1
------ ------
Total expenses .......................... 772 572
------ ------
Income before provision for income taxes ....... 787 710
Provision for income taxes ..................... 280 240
------ ------
NET INCOME ..................................... $ 507 $ 470
------ ------
------ ------
NET INCOME PER COMMON SHARE ................... $2,028 $1,880
------ ------
------ ------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES ...... 250 250
------ ------
------ ------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SIGNAL INVESTMENT & MANAGEMENT CO.
STATEMENTS OF CASH FLOWS
(Unaudited and in Thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
February 28,
--------------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .............................................. $ 507 $ 470
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization ........................................ 770 571
Income taxes ........................................ 280 240
Changes in operating assets and liabilities:
Decrease in royalties receivable from Chattem, Inc. 30 24
------- -------
Net cash provided by operating activities ..... 1,587 1,305
------- -------
FINANCING ACTIVITIES:
Payments to Chattem, Inc. ............................... (600) (2,750)
Dividends paid to Chattem, Inc. ......................... (1,000) (1,250)
------- -------
Net cash used in financing activities ......... (1,600) (4,000)
------- -------
CASH AND CASH EQUIVALENTS:
Decrease for the period ................................. (13) (2,695)
At beginning of period .................................. 55 2,911
------- -------
At end of period ........................................ $ 42 $ 216
------- -------
------- -------
SUPPLEMENTAL SCHEDULE OF NON-CASH
TRANSACTIONS:
Income tax provision .................................... $ 280 $ 240
------- -------
------- -------
DIVIDENDS PER SHARE ....................................... $ 4 $ 5
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
SIGNAL INVESTMENT & MANAGEMENT CO.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The Company is a wholly-owned subsidiary of Chattem, Inc. and is
included in the parent company's consolidated tax returns.
2. 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, 1997 and with the audited
consolidated financial statements and related notes thereto included in
Chattem, Inc.'s Annual Report to Shareholders for the year ended
November 30, 1997. 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.
3. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the respective
full years.
4. The Company had no outstanding debt as of the periods presented and
therefore incurred no interest expense.
5. A summary analysis of the activity between the Company and Chattem,
Inc. is as follows:
<TABLE>
<CAPTION>
<S> <C>
Payable balance - November 30, 1997 $ 102,573,000
Repayments ......... (600,000)
Income tax provision 280,000
-------------
Payable balance - February 28, 1998 $ 102,253,000
-------------
-------------
</TABLE>
The weighted average balance due Chattem, Inc. during the three months ended
February 28, 1998, was $102,408,000.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On March 24, 1998, the Company and Chattem, Inc. announced the completion of the
previously reported acquisition of the BAN line of anti-perspirant/deodorant
products from Bristol-Myers Squibb Company for a purchase price of $165,000,000
(subject to an inventory adjustment), plus the assumption of up to $5,000,000 of
liabilities. The Company and Chattem acquired the BAN world-wide trademarks,
formulae, certain patents pertaining to the anti-perspirant/deodorant products
technology, technical information, inventory, manufacturing equipment and
packaging related assets used in the manufacture of BAN, but not the right to
sell BAN in Japan. Concurrently with the closing of the acquisition, Chattem,
with the Company as guarantor, issued $200,000,000 of 8-7/8% Senior Subordinated
Notes due 2008 and amended and restated its existing senior secured credit
facilities. The proceeds from the Senior Subordinated Notes were used to fund
the purchase of BAN, pay related acquisition and financing fees and expenses and
repay certain bank indebtedness.
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 $296,000, or 23.4%, in the three months ended February
28, 1998, 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 of the SUNSOURCE products which were acquired in the
third quarter of fiscal 1997.
Investment income decreased by $19,000, or 100%, in the three months ended
February 28, 1998, from the corresponding period of the prior year primarily due
to the reduction of investments held by the Company.
Amortization expense increased $199,000, or 31.8%, in the three months ended
February 28, 1998, from the corresponding period of the prior year. The increase
was due primarily to the purchase of the SUNSOURCE trademarks, which were
acquired in the third quarter of fiscal 1997.
7
<PAGE>
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 February 28, 1998.
8
<PAGE>
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: April 14, 1998 /s/ Stephen M. Powell
------------------- ----------------------
Stephen M. Powell
Vice-President and Treasurer
(duly authorized signatory and
principal accounting officer)
9
<PAGE>
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: April 14, 1998
------------------- ------------------------------
Stephen M. Powell
Vice-President and Treasurer
(duly authorized signatory and
principal accounting 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> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 42
<SECURITIES> 0
<RECEIVABLES> 1,558
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,600
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 102,256
<CURRENT-LIABILITIES> 0
<BONDS> 102,253
0
0
<COMMON> 2
<OTHER-SE> (2,627)
<TOTAL-LIABILITY-AND-EQUITY> 102,256
<SALES> 0
<TOTAL-REVENUES> 1,559
<CGS> 0
<TOTAL-COSTS> 772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 787
<INCOME-TAX> 280
<INCOME-CONTINUING> 507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 507
<EPS-PRIMARY> 2,028
<EPS-DILUTED> 2,028
</TABLE>
