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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 FEBRUARY 29, 2000
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.
REGISTRANT 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, AND HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
AS OF APRIL 12, 2000, 250 SHARES OF THE COMPANY'S COMMON STOCK, WITHOUT PAR
VALUE, WERE OUTSTANDING.
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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 February 29, 2000
and November 30, 1999 ....................................................3
Statements of Income for the Three Months
Ended February 29, 2000 and February 28, 1999.............................4
Statements of Cash Flows for the Three Months Ended
February 29, 2000 and February 28, 1999...................................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. Exhibits and 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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February 29, November 30,
2000 1999
------------ ------------
ASSETS (Unaudited)
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Current Assets:
Cash and cash equivalents .................................................................. $ 12 $ 16
Royalties receivable from Chattem, Inc. .................................................... 2,871 3,320
-------- --------
Total current assets .................................................................. 2,883 3,336
Trademarks and Other Purchased Product Rights, Net ........................................... 348,600 350,762
-------- --------
TOTAL ASSETS ........................................................................ $351,483 $354,098
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Payable to Chattem, Inc. ................................................................... $338,027 $339,932
Deferred income taxes ...................................................................... 12,550 12,550
-------- --------
Total liabilities ..................................................................... 350,577 352,482
-------- --------
Shareholder's Equity:
Common shares, without par value, 500 shares authorized, 250 shares issued and outstanding . 2 2
Retained earnings .......................................................................... 904 1,614
-------- --------
Total shareholder's equity ............................................................ 906 1,616
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY .......................................... $351,483 $354,098
======== ========
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The accompanying notes are an integral part of these 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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For the Three Months Ended
February 29, February 28,
2000 1999
------------ ---------------
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REVENUES:
Royalties from Chattem, Inc. ............................................................... $2,871 $2,961
Investment income .......................................................................... 1 1
------ ------
Total revenues ........................................................................ 2,872 2,962
------ ------
EXPENSES AND LOSSES:
Amortization of trademarks and other purchased product rights .............................. 2,428 2,225
General and administrative ................................................................. 5 --
Loss on sale of investment ................................................................. -- 8
------ ------
Total expenses and losses ............................................................. 2,433 2,233
INCOME BEFORE PROVISION FOR INCOME TAXES ..................................................... 439 729
PROVISION FOR INCOME TAXES ................................................................... 149 248
------ ------
NET INCOME ................................................................................... $ 290 $ 481
====== ======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - BASIC AND DILUTED ................................. 250 250
====== ======
NET INCOME PER COMMON SHARE - BASIC AND DILUTED .............................................. $1,160 $1,924
====== ======
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The accompanying notes are an integral part of these 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 Three Months Ended
February 29, February 28,
2000 1999
------------ ------------
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OPERATING ACTIVITIES:
Net income .................................................... $ 290 $ 481
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization .............................................. 2,428 2,225
Income tax provision ...................................... 149 248
Loss on sale of investment ................................ -- 8
Changes in operating assets and liabilities:
(Increase) decrease in royalties receivable from Chattem,
Inc. .................................................. 449 (283)
-------- --------
Net cash provided by operating activities ........... 3,316 2,679
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INVESTING ACTIVITIES:
Proceeds from sale of investment .............................. -- 386
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Net cash provided by investing activities ........... -- 386
-------- --------
FINANCING ACTIVITIES:
Payments to Chattem, Inc. ..................................... (2,320) (2,060)
Dividends paid to Chattem, Inc. ............................... (1,000) (1,000)
-------- --------
Net cash used in financing activities ............... (3,320) (3,060)
-------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period ............................ (4) 5
At beginning of period ........................................ 16 11
-------- --------
At end of period .............................................. $ 12 $ 16
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS:
Increase in payable to Chattem, Inc. in connection with -
Purchase of trademarks and other product rights ............. $ 266 $ 91,275
Provision for income taxes .................................. $ 149 $ 248
DIVIDENDS PER SHARE ............................................. $ 4 $ 4
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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SIGNAL INVESTMENT & MANAGEMENT CO.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The Company is a wholly-owned subsidiary of Chattem, Inc. ("Chattem") and
is included in Chattem's consolidated financial statements and 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, 1999
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, 1999. 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:
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Payable balance - November 30, 1999 .... $ 339,932,000
Repayments ..................... (2,320,000)
Income tax provision ........... 149,000
Purchase of trademarks and other
products rights .......... 266,000
-------------
Payable balance - February 29, 2000 .... $ 338,027,000
=============
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The weighted average balance due Chattem, Inc. during the three months
ended February 29, 2000, was $338,980,000.
6. Chattem provides the Company with the use of all of its information
technology (IT) systems. Chattem has successfully completed the replacement
of its previous IT systems with those that are year 2000 compliant. The
cost of the new IT systems to date is approximately $3,271,000, which has
been capitalized.
6
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To date Chattem has experienced no major problems with its implementation,
nor has it encountered any unusual situations with its principal customers
and suppliers in connection with their year 2000 IT systems' compliance.
However, if unanticipated problems arise in the future with regard to year
2000 compliance with Chattem's new IT systems or those of its principal
customers and suppliers, Chattem's business could be adversely affected.
7. The Company is a guarantor of Chattem's $75,000,000 of 12.75% Series B
Senior Subordinated Notes due 2004 and $275,000,000 of 8.875% Series B
Senior Subordinated Notes due 2008, which guarantees and notes were
registered under the Securities Act of 1933. During 1995, 1998 and 1999
Chattem repurchased approximately $40,106,000 of the 12.75% Notes. The
outstanding book values of the 12.75% and 8.875% Notes were $34,110,000 and
$275,257,000, respectively, at February 29, 2000.
Signal is also guarantor of Chattem's current bank credit facility which
consists of a term loan and a working capital revolving loan maturing at
various dates from December 31, 1999 to December 21, 2003. The outstanding
balances as of February 29, 2000 were $53,600,000 for the term loan and
$5,000,000 for the working capital revolving loan.
8. There have been no material changes as of February 29, 2000 relating to the
matters discussed in the Company's "Item 1. Business - Government
Regulation" and "Item 3. Legal Proceedings" sections of its Annual Report
on Form 10-K filed with the Securities and Exchange Commission for the year
ended November 30, 1999.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
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 decreased $90,000, or 3.0%, in the three months ended February
29, 2000, from the corresponding period of the prior year. The decrease was due
to decline in the net sales of the brands subject to royalty payments.
Amortization expense increased $203,000, or 9.1%, in the three months ended
February 29, 2000, from the corresponding period of the prior year. The increase
was largely due to the purchase of the Thompson brands' trademarks in December
1998, and the additional amounts paid in fiscal 1999 to the former owners of the
SUNSOURCE product line for cancellation of their rights to receive any future
payments under the purchase agreement for these brands.
8
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Financial data schedule (Exhibit 27)
b. No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended February 29, 2000.
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: April 14, 2000 /s/ A. Alexander Taylor II
--------------------------
A. Alexander Taylor II
President and Director
(principal executive officer)
/s/ Stephen M. Powell
-------------------------
Stephen M. Powell
Vice-President, Treasurer and
Director
(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> 3-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 2,871
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,883
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 351,483
<CURRENT-LIABILITIES> 0
<BONDS> 338,027
0
0
<COMMON> 2
<OTHER-SE> 904
<TOTAL-LIABILITY-AND-EQUITY> 351,483
<SALES> 0
<TOTAL-REVENUES> 2,872
<CGS> 0
<TOTAL-COSTS> 2,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 439
<INCOME-TAX> 149
<INCOME-CONTINUING> 290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290
<EPS-BASIC> 1.160
<EPS-DILUTED> 1.160
</TABLE>
