SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995 or
--------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-2782
SIGNAL APPAREL COMPANY, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Indiana 62-0641635
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200A Manufacturers Road, Chattanooga, Tennessee 37405
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615) 756-8146
---------------
Indicate by check mark 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
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 7, 1995
-------- ------------------------------
Common Stock 10,077,826 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
June 30, Dec. 31,
1995 1994
--------- ---------
(Unaudited)
Assets
Current Assets:
Cash $ 717 $ 303
Accounts receivable, net 8,050 6,713
Inventories 28,278 33,350
Prepaid expenses and other 1,337 1,135
--------- ---------
Total current assets $ 38,382 $ 41,501
Property, plant and equipment, net 15,001 16,810
Goodwill, net 10,616 10,786
Other assets 288 351
--------- ---------
Total assets $ 64,287 $ 69,448
========= =========
Liabilities and Shareholders'
Equity (Deficit)
Current Liabilities:
Accounts payable and accrued liabilities $ 16,135 $ 20,019
Current portion of long-term debt 1,232 1,144
Discretionary overadvances from
senior lender 5,243 10,849
--------- ---------
Total current liabilities 22,610 32,012
--------- ---------
Long-term debt (less current portion):
Senior obligations 26,317 30,217
Senior subordinated note payable to
related party 15,495 --
Subordinated note payable to related
party 5,434 5,434
--------- ---------
Total long-term debt 47,246 35,651
--------- ---------
Multiemployer pension plan withdrawal
liability 915 1,084
--------- ---------
Shareholders' Equity (Deficit):
Common stock 102 102
Preferred stock at liquidation preference
plus cumulative undeclared dividends 76,202 73,202
Additional paid-in capital 69,817 69,721
Accumulated deficit (151,488) (141,207)
Treasury shares (at cost) (1,117) (1,117)
--------- ---------
Total shareholders' equity (deficit) (6,484) 701
--------- ---------
Total liabilities and
shareholders' equity (deficit) $ 64,287 $ 69,448
========= =========
See accompanying notes to consolidated condensed financial
statements.
<TABLE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTIONS>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 25,202 $ 24,295 $ 51,419 $ 51,772
Cost of sales 19,664 20,199 40,136 42,368
-------- -------- -------- --------
Gross profit 5,538 4,096 11,283 9,404
Royalty expense 1,670 651 3,017 1,550
Selling, general and
administrative expenses 6,669 6,335 14,527 12,501
Interest expense 2,025 631 3,628 1,224
Other expense, net 138 413 393 852
-------- --------- --------- ---------
Loss before income taxes (4,964) (3,934) (10,282) (6,723)
Income taxes -- -- -- --
-------- --------- --------- ---------
Net loss (4,964) (3,934) (10,282) (6,723)
Less preferred stock
dividends -- 2,251 -- 4,372
-------- --------- --------- ---------
Net loss applicable to
common stock $ (4,964) $ (6,185) $(10,282) $ (11,095)
======== ========= ========= =========
Net loss per common share $ (0.49) $ (0.69) $ (1.02) $ (1.24)
========= ========= ========= =========
Weighted average common
and common equivalent
shares outstanding 10,078 8,964 10,073 8,964
========= ========= ========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30, June 30,
1995 1994
--------- ---------
Operating Activities:
Net loss $ (10,282) $ (6,723)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,357 2,523
Loss on disposal of equipment 92 15
Changes in operating assets
and liabilities:
Increase in accounts receivable (1,338) (366)
(Increase) decrease in inventories 5,073 (141)
Increase in prepaid expenses
and other assets (138) (287)
Increase (decrease) in accounts
payable and accrued liabilities (3,883) 1,473
--------- ---------
Net cash used in operating
activities (8,119) (3,506)
--------- ---------
Investing Activities:
Purchases of property, plant and
equipment (210) (1,162)
Proceeds from the sale of property,
plant and equipment 117 7
--------- ---------
Net cash used in
investing activities (93) (1,155)
Financing Activities:
Borrowings from senior lender 33,680 51,636
Payments to senior lender (42,579) (56,798)
Proceeds from subordinated note
payable to related party 15,000 3,000
Proceeds from other borrowings 433 --
Principal payments on borrowings (1,005) (399)
Proceeds from sale of preferred stock 3,000 7,000
Proceeds from exercise of stock options 97 --
--------- ---------
Net cash provided by
financing activities 8,626 4,439
--------- ---------
Increase (decrease) in cash 414 (222)
Cash at beginning of period 303 444
--------- ---------
Cash at end of period $ 717 $ 222
========= =========
See accompanying notes to consolidated condensed financial statements.
Part I Item 1. (cont'd)
SIGNAL APPAREL COMPANY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying consolidated condensed financial statements
have been prepared on a basis consistent with that of the
consolidated financial statements for the year ended
December 31, 1994. The accompanying financial statements
include all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of the Company,
necessary to present fairly the financial position of the
Company as of June 30, 1995 and December 31, 1994 and its
results of operations and cash flows for the six months
ended June 30, 1995 and June 30, 1994. These consolidated
condensed financial statements should be read in conjunction
with the Company's audited financial statements and notes
thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 1994.
2. The results of operations for the six months ended
June 30, 1995 are not necessarily indicative of the results
to be expected for the full year.
3. Inventories consisted of the following:
June 30, December 31,
1995 1994
---- ----
(Dollars in thousands)
Raw materials and supplies $ 2,556 $ 2,319
Work in process 6,363 5,639
Finished goods 19,359 25,392
-------- --------
$28,278 $ 33,350
======== ========
4. A principal shareholder, Walsh Greenwood, made an equity
investment in the Company of $3.0 million in January 1995
for which Walsh Greenwood received 30 shares of Series C
Preferred Stock. The holders of Series A and Series C
Preferred Stock agreed to a moratorium on the required
dividends related to the shares effective January 1, 1995.
At June 30, 1995, the Company has accrued cumulative,
undeclared dividends of $6,874,700 for Series A Preferred
Stock and $4,850,400 for Series C Preferred Stock.
5. Pursuant to the terms of various license agreements, the
Company is obligated to pay future minimum royalties of
approximately $9.0 million, with $1.9 million due in 1995,
$3.4 million due in 1996, $1.3 million due in 1997, and $2.4
million due in 1998 and later.
6. On November 22, 1994, the Company acquired all of the
outstanding stock of American Marketing Works, Inc., (AMW).
The following unaudited pro forma summary presents the
consolidated results of operations for the three months and
six months ended June 30, 1994 as if the acquisition of AMW
had occurred on January 1, 1994.
Dollars in Thousands
(except per share data) Three Months Six Months
------------ ----------
Net Sales $ 34,450 $70,819
Net Loss (7,734) (14,619)
Net Loss Per Common Share (.77) (1.45)
The pro forma financial information presented has been
prepared for comparative purposes only and is not
necessarily indicative of the results of operations that
would have resulted had the acquisition of AMW occurred at
the beginning of the period indicated or the future results
of operations of the combined companies.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales of $25.2 million for the quarter ended June 30, 1995
represent an increase of $.9 million (4%) from the $24.3 million
in net sales for the corresponding period in 1994. This increase
is comprised of a $.7 million increase in Signal Artwear
screenprinted products and a $6.0 million increase due to the
inclusion of American Marketing Works, Inc. (AMW) sales in 1995
partially offset by a $4.8 million reduction in active sportswear
and a $1.0 million reduction in women's fashion knitwear.
Sales of active sportswear products were $8.9 million for the
quarter ended June 30, 1995 versus $13.7 million for the
corresponding period of 1994. Of the $4.8 million reduction,
$.9 million is a result of reduced sales to a large customer.
Reduction in unit volume accounted for 88% of the total reduction
of active sportswear while reduction in the average selling price
accounted for the remaining 12% reduction. The decrease in
average selling price was due to a combination of product mix and
unit selling price changes.
Sales of women's fashion knitwear decreased 24% to $3.2 million
for the quarter ended June 30, 1995 as compared to $4.2 million
for the corresponding period of 1994. Decrease in unit volume
accounted for all of the sales reduction and was slightly offset
by a 1.6% increase in the average selling price per unit.
Signal Artwear sales were $6.7 million for the quarter ended
June 30, 1995 versus $6.0 million for the corresponding period in
1994. Sales of Signal Artwear closeouts were dramatically
reduced for the quarter ended June 30, 1995 to $.7 million from
$3.4 million for the corresponding period of 1994. Artwear sales
excluding closeouts were $6.1 million for the quarter ended
June 30, 1995 versus $2.6 million for the corresponding period of
1994. Of the $3.5 million increase, $3.4 million was due to
licensed products sales under a movie theme. The increase in
Artwear sales excluding closeouts is a result of increased volume
of sales offset by a 15% price per unit decrease caused by
product mix changes.
Net sales of $51.4 million for the six months ended June 30, 1995
represent a decrease of $.4 million (1%) from the $51.8 million
in net sales for the corresponding period in 1994. The decrease
is comprised of a $7.5 million reduction in active sportswear, a
$3.2 million reduction in women's fashion knitwear, a $2.0
million decrease in Signal Artwear screenprinted products and a
$12.3 million increase due to the inclusion of AMW sales in 1995.
Sales of active sportswear products were $16.9 million for the
six months ended June 30, 1995 versus $24.4 million for the
corresponding period of 1994. Of the $7.5 million reduction,
$2.4 million is a result of reduced sales to a large customer.
Reduction in unit volume accounted for 91% of the reduction in
active sportswear while reduction in average selling price per
unit accounted for the remaining 9%. The decrease in average
selling price was due to a combination of product mix and unit
selling price changes.
Sales of women's fashion knitwear decreased 33% to $6.2 million
for the six months ended June 30, 1995 as compared to $9.3
million for the corresponding period in 1994. The sales
reduction was primarily due to competition from garments selling
at lower retail prices. Decrease in unit sales volume accounted
for 75% of the sales reduction with decreases in price per unit
causing the remaining decrease. The decrease in average selling
price was due to a combination of product mix and unit selling
price changes.
Sales of Signal Artwear screenprinted products were $15.2 million
for the six months ended June 30, 1995 versus $17.1 million for
the corresponding period of 1994. Signal Artwear closeout sales
were $2.9 million for the six months ended June 30, 1995 which is
$2.4 million less than the comparable period in 1994. Artwear
sales excluding closeouts for the first six months of 1995 were
$.4 million more than for the comparable period in 1994. The
increased Artwear sales excluding closeouts is a result of
increased volume of sales offset by a 7% price per unit decrease
caused by product mix.
Gross profit for the quarter ended June 30, 1995 was $5.5 million
(22.0% of sales) compared to $4.1 million (16.9% of sales) for
the corresponding period of 1994. The $1.4 million improvement
is the result of reduced closeout sales ($1.3 million)and
improved manufacturing efficiencies ($.6 million) which are
partially offset by lower margins on sales excluding closeouts
($.5 million). The lower margin on sales excluding closeouts is
a result of product mix.
Gross profit for the six months ended June 30, 1995 was
$11.3 million (21.9% of sales) compared to $9.4 million (18.2% of
sales) for the corresponding period of 1994. The $1.9 million
improvement in gross profit is primarily the result of improved
manufacturing efficiencies.
Royalty expense related to licensed product sales was 6.6% and
2.7% of total sales for the quarters ended June 30, 1995 and
1994, respectively. Royalty expense related to licensed product
sales was 5.9% and 3.0% of total sales for the six months ended
June 30, 1995 and 1994, respectively. The increase in 1995 was
primarily caused by the inclusion of AMW, which has higher
royalty rates.
Selling, general and administrative expenses were 26% of sales
for both quarters ended June 30, 1995 and 1994. Actual SG&A
expense increased $.3 million which was the result of AMW SG&A
expenses of $1.7 million being included in 1995 offset by SG&A
expense reductions at other divisions and corporate.
Selling, general and administrative expenses were 28% and 24% of
sales for the six months ended June 30, 1995 and 1994,
respectively. Actual SG&A expenses increased $2.0 million which
was the result of AMW SG&A expenses of $4.3 million being
included in 1995 offset by SG&A expense reductions at other
divisions and corporate.
FINANCIAL CONDITION
Working capital at June 30, 1995 increased $6.3 million or 66%
over year-end 1994. The increase in working capital was
primarily due to an increase in accounts receivable ($1.3
million), a decrease in accounts payable and accrued liabilities
($3.9 million) and a decrease in the discretionary overadvances
with the senior lender ($5.6 million), which were partially
offset by lower inventories ($5.1 million).
Accounts receivable increased $1.3 million or 20% over year-end
1994. Due to the seasonality of the business, trade accounts
receivable normally peak from February to May and August to
October and are lower in the other months as cash is collected
and as shipments decrease. A significant portion of accounts
receivable due from customers is carried at the risk of the
factor and is not reflected in the accompanying balance sheets.
Inventories decreased $5.1 million or 15% compared to year-end
1994. Inventories decreased as a result of the sale of excess
and closeout inventory. The Company expects inventory to
continue at present levels except for seasonal fluctuations.
Total current liabilities decreased $9.4 million or 29% over
year-end 1994 primarily due to the decrease in accounts payable
and accrued liabilities of $3.9 million and the discretionary
overadvances with the senior lender of $5.6 million.
Cash used in operations was $8.1 million during the first six
months of 1995 compared to $3.5 million used in operating
activities during the same period in 1994. The net loss of
$10.3 million, increases in accounts receivable of $1.3 million
and decreases in accounts payable and accrued liabilities of
$3.9 million were the primary uses of funds in the first six
months of 1995. These items were partially offset by
depreciation and amortization ($2.4 million), and significantly
lower inventory levels ($5.1 million).
Cash used in investing activities was for purchases of property
and equipment. Commitments to purchase equipment totaled
approximately $.1 million at June 30, 1995. During 1995, the
Company anticipates capital expenditures of approximately
$.8 million for ordinary repair of property and equipment.
Cash provided by financing activities was $8.6 million in 1995.
In January 1995, Walsh Greenwood, a principal shareholder, made
an equity investment in the Company of $3.0 million for which
Walsh Greenwood received 30 shares of Series C Preferred Stock.
On March 31, 1995, the Company executed a credit agreement with
Walsh Greenwood and affiliates. The related promissory note had
a face amount of the lesser of $15.0 million or the unpaid draws
and an effective interest rate of 25%. As of June 30, 1995, the
Company had drawn $15.0 million under this credit agreement. The
Board of Directors approved an increase in the face value of the
promissory note up to $20.0 million effective August 10, 1995.
An additional $1.0 million has been drawn during August against
this amount. The credit agreement prohibits the payment of cash
dividends to any class of stock, except required dividends on the
Company's Preferred Stock.
Effective April 1, 1995, Marvin and Sherri Winkler and MW
Holdings agreed to convert their outstanding promissory notes
totaling approximately $2.4 million into 1,000,000 shares of the
Company's Common Stock. Conversion of such debt is contingent
upon the effectiveness of the employment contract of Marvin
Winkler, which is further contingent upon the Company's extension
of its license agreement with Ocean Pacific Apparel Corporation.
The revolving advance account decreased $8.9 million from
$28.9 million at year-end 1994 to $20.0 million at June 30, 1995.
Committed credit lines with the Company's senior lender
aggregated a maximum of $40.0 million at June 30, 1995. At
quarter-end, approximately $5.2 million was overadvanced on a
discretionary basis under its revolving advance account, which is
classified as short-term in the consolidated balance sheets at
June 30, 1995 (see later paragraphs for a discussion of
overadvance arrangements totalling $8.0 million).
In August 1994, in response to the Company's liquidity needs, two
principal shareholders, FS Signal Associates II and Walsh
Greenwood, pledged collateral of $4.0 million to the senior
lender in connection with such lender's agreement to lend, on a
discretionary basis, funds up to $4.0 million in excess of the
borrowing base. The Company may reduce the outstanding debt
under this special overadvance only after repayment of its mid-
month overadvance facility and any other overadvance facilities.
In November 1994, the senior lender agreed to provide a
discretionary over-formula accommodation not to exceed
$5.0 million and a mid-month overadvance of $2.0 million. During
the first quarter of 1995, the senior lender reduced the
$11.0 million in overadvances described above to $9.0 million.
During the second quarter of 1995, the senior lender reduced the
overadvance of $9.0 million to $8.0 million. The $8.0 million
discretionary overadvance consists of $4. million pledged
collateral from the principal shareholders, $2.0 million
discretionary overadvance and a $2.0 million mid-month
overadvance from the senior lender. In July 1995, the senior
lender agreed to waive repayment of its mid-month overadvance of
$2.0 million for August 1995. At the end of August the Company
needs to be back in formula.
Interest expense for the six months ending June 30, 1995 was
$3.6 million compared to $1.2 million for the same period in
1994. Total outstanding debt averaged $60.5 million and
$27.3 million for the first six months of 1995 and 1994,
respectively, with weighted average interest rates of 12% and
8.7%. Average outstanding debt increased primarily due to the
senior notes of $6.5 million related to the acquisition of AMW
and the $15.0 million credit agreement with Walsh Greenwood.
The Company also uses letters of credit to support foreign and
some domestic sourcing of inventory and certain other
obligations. Outstanding letters of credit were $2.2 million at
June 30, 1995 (excluding collateral of $2.0 million pledged by FS
Signal to the senior lender in the form of a standby letter of
credit).
Total shareholders' deficit increased $7.2 million compared to
year-end 1994. The Company sustained losses of $10.3 million for
the first six months of 1995 which were partially offset by a
$3.0 million investment in Preferred Stock by a principal
shareholder in January 1995. At June 30, 1995, the Company has
accrued cumulative, undeclared dividends of $6,874,700 for Series
A Preferred Stock and $4,850,400 for Series C Preferred.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated financial statements for the fiscal
year ended December 31, 1994 were prepared under the assumption
that the Company will continue as a going concern. The liquidity
of the Company has been adversely affected by recurring losses
from operations, which raises substantial doubt, in the opinion
of the Company's independent public accountants, about the
Company's ability to continue as a going concern.
As a result of continuing losses, the Company has been unable to
fund its cash needs through cash generated by operations over the
last fiscal year and during the first half of 1995. The
Company's liquidity shortfalls from operations were funded
through several transactions with related parties and the
Company's senior lender.
In January 1994, the Company issued a subordinated promissory
note of $3.0 million to a principal shareholder, FS Signal
Associates I. In August 1994, in response to the Company's
liquidity needs, two principal shareholders, FS Signal Associates
II and Walsh Greenwood & Co. ("Walsh Greenwood"), pledged
collateral of $4.0 million to the senior lender in connection
with such lender's agreement to lend, on a discretionary basis,
funds up to $4.0 million in excess of the borrowing base under
the Company's outstanding agreements with such lender. The
Company may reduce the outstanding debt under this special
overadvance only after repayment of its mid-month overadvance of
$2.0 million. During the first half of 1995, the senior lender
reduced the $11.0 million in overadvances described above to $8.0
million with the requirement that the overadvances be reduced to
$6.0 million during one week each month. Additionally, the
senior lender waived all existing loan covenant violations at
December 31, 1994 and amended the covenants for 1995.
The Company's revolving advance account with its senior lender
decreased $8.9 million from $28.9 million at year-end 1994 to
$20.0 million at June 30, 1995. Committed credit lines with the
Company's senior lender aggregated a maximum of $40.0 million at
June 30, 1995. At June 30, 1995 approximately $5.2 million was
overadvanced under the Company's revolving advance account with
the senior lender.
In January 1995, Walsh Greenwood made an equity investment in the
Company of $3.0 million in exchange for 30 shares of Series C
Preferred Stock. On March 31, 1995, the Company executed a
credit agreement with Walsh Greenwood and affiliates. The
related promissory note had a face amount of the lesser of
$15.0 million or the unpaid draws and an effective interest rate
of 25%. As of June 30, 1995 the Company had drawn down the
entire $15 million. The Company has negotiated an increase in
the face value of the promissory note which will permit the
Company to borrow up to $20.0 million, effective August 10,
1995. An additional $1.0 million has been drawn during August
under this amended agreement. The credit agreement prohibits the
payment of cash dividends to any class of stock, except required
dividends on the Company's Preferred Stock. As additional
conditions to the extension of credit under this agreement, the
Company obtained the agreement of the holders of its preferred
stock (i) to forego all future dividends from January 1, 1995
until the principal and interest of all the borrowings under the
Walsh Greenwood credit agreement have been paid in full and (ii)
to grant the Company the right, following repayment of all
outstanding debt under the Walsh Greenwood credit agreement and
under an additional $6.5 million in outstanding senior notes, to
redeem the outstanding shares of preferred stock with shares of
the Company's Common Stock valued for such purposes at $7.00 per
share, which right extends until June 30, 1998. As of
June 30, 1995, the Company had accrued cumulative, undeclared
dividends of $6,874,700 for Series A Preferred Stock and
$4,850,400 for Series C Preferred Stock.
In conjunction with the initial funding of the credit agreement
described above, Walsh Greenwood received warrants to purchase
1,500,000 shares of Common Stock at an exercise price of $2.25
per share, expiring in three years. Such warrants vest as funds
are drawn at the rate of 100,000 warrants for each $1.0 million
drawn. Additionally, Walsh Greenwood received a second warrant
to purchase 1,500,000 shares with an exercise price at a 25%
discount to the 20 day average trading price in December 1996.
These warrants vested upon issuance and are exercisable for a
period of three years commencing on January 1, 1997. The
warrants will be adjusted for dilution caused by certain dilutive
transactions. The issuance of these warrants in conjunction with
the Walsh Greenwood credit agreement was subject to shareholder
approval, which was obtained at the Company's Annual Meeting of
Shareholders on May 11, 1995.
In conjunction with the amendment of the credit agreement with
Walsh Greenwood to extend the maximum borrowings thereunder from
$15.0 million to $20.0 million, Walsh Greenwood received
additional warrants on the basis of the same formula as under the
original agreement. Thus, Walsh Greenwood received: (i)
warrants to purchase an additional 500,000 shares of Common Stock
with an exercise price of $2.25 per share, expiring in three
years and vesting at the rate of 100,000 warrants for each $1.0
million drawn; and (ii) warrants to purchase an additional
500,000 shares of Common Stock with an exercise price set at a
25% discount to the 20 day average trading price in December
1996, vesting immediately upon issuance and exercisable for a
period of three years commencing on January 1, 1997. These
warrants will also be adjusted for dilution caused by certain
dilutive transactions.
As an additional step toward addressing its liquidity needs for
the remainder of 1995, the Company entered into the MCP Agreement
with the landlord of the Company's former executive office
facilities. Pursuant to the MCP Agreement, the landlord agreed
to accept shares of Common Stock having a market value equal to
$179,361 in exchange for the cancellation of approximately
$358,722 of indebtedness owed to the landlord by the Company
pursuant to the terms of an outstanding promissory note, subject
to the Company's registering such shares for resale.
The Board of Directors installed Leon Ruchlamer as the Company's
new President and William H. Watts as its new Executive Vice
President and Chief Financial Officer during February 1995 to
effect improvements in operations and liquidity. Actions taken
by the Company since year-end to improve its operations and
liquidity have included: (i) the institution of an extensive cost
reduction program that has reduced general and administrative
expenses during the first half of 1995 and is expected to further
reduce such expenses during the remainder of the year; (ii) the
sale of excess and close-out inventories of approximately $4.0
million (net of reserves) since year-end; (iii) the
implementation of an inventory control program in order to
eliminate the manufacture of excess goods; (iv) the extension of
the maturity dates of $6.5 million in senior notes acquired in
the AMW acquisition. Additionally, as discussed above, on
March 31, 1995, the Company closed a $15.0 million credit
agreement with Walsh Greenwood. That credit agreement was
subsequently increased to $20.0 million face value. Such funds
are being utilized for working capital purposes. The Company
believes it can improve its operating margins as a result of
certain of the actions being taken. The Company has also
considered the sale of certain assets. At the present time,
however, the Company has no definitive plans for any such sale.
The Company did not meet its sales and profit projections for the
first six months of 1995. If the Company's sales and profit
margins for the remainder of 1995 do not meet projected levels,
management will be required to reduce the Company's activities or
seek additional capital to complete its plan for improving the
Company's performance. In any event, management anticipates that
additional capital will be required to continue the Company's
operations at current levels in 1996. In order to obtain such
additional capital, the Company may be required to issue
securities that may dilute the interests of the stockholders of
the Company. No assurance can be given that any such additional
financing, if required, will be available to the Company on
commercially reasonable terms or otherwise. If sales and profit
margins fall below projected levels, the Company's ability to
continue as a going concern may be jeopardized.
Part II. OTHER INFORMATION
Items 1-3
Not Required
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Company's shareholders was
held on May 11, 1995.
(c) The meeting was held to consider the vote upon (i) a
proposal to amend the Company's Restated Articles of
Incorporation to increase the number of authorized shares of the
Company's Common Stock from 20,000,000 to 40,000,000; (ii) a
proposal to amend the Company's Common Stock issuable thereunder
from 1,160,000 to 1,910,000; (iii) a proposal to issue warrants
to purchase up to 3,000,000 shares of the Company's Common Stock
to Walsh Greenwood & Co., a principal shareholder of the Company,
in connection with a credit agreement between the Company and
Walsh Greenwood & Co.; and (iv) the election of seven directors.
The results of the proposal to amend the Company's Restated
Articles of Incorporation were as follows:
FOR 9,758,320
AGAINST 9,071,714
ABSTAIN 7,535
BROKER, NON-VOTES 2
TOTAL 9,840,147
The results of the proposal to amend the Company's Stock
Option Plan were as follows:
FOR 9,017,714
AGAINST 92,295
ABSTAIN 16,563
BROKER NON-VOTES 659,577
TOTAL 9,180,572
The results of the proposal to issue warrants were as
follows:
FOR 9,104,009
AGAINST 92,295
ABSTAIN 7,051
BROKER NON-VOTES 609,794
TOTAL 9,230,355
There was no solicitation in opposition to management's
nominees for directors. Each director serves a one year term, or
until his successor is elected and qualified. The results of the
election of directors were as follows:
WITHHOLD BROKER
DIRECTOR NAME FOR AUTHORITY NON-VOTES TOTAL
- ------------- --- --------- --------- -----
Jacob I. Feigenbaum 9,825,776 14,373 0 9,840,149
Paul R. Greenwood 9,826,270 13,879 0 9,840,149
Gregory B. Murphy 9,825,776 14,373 0 9,840,149
Leon Ruchlamer 9,825,752 14,397 0 9,840,149
Stephen Walsh 9,826,270 13,879 0 9,840,149
William H. Watts 9,825,752 14,397 0 9,840,149
Marvin J. Winkler 9,825,776 14,373 0 9,840,149
Item 5.
Not Required
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3.1) Articles of Amendment to the Restated
Articles of Incorporation dated July 28,
1995.
(10.1) Letter Agreement dated March 30, 1995
amending the Factoring Agreement dated as of
May 23, 1991 by and between BNY Financial
Corp. and the Company waiving compliance with
certain provisions thereof.
(27.1) Financial Data Schedule.
(b) Reports on Form 8-K:
None
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 APPAREL COMPANY, INC.
--------------------------------
(Registrant)
Date: August 11, 1995 /s/ Bruce Krebs
--------------- --------------------------------
Bruce Krebs
President
Date: August 11, 1995 /s/ William H. Watts
--------------- --------------------------------
William H. Watts
Chief Financial Officer
SIGNAL APPAREL COMPANY, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
EXHIBIT INDEX
Exhibit No.
per Item 601
of Reg. S-K Description of Exhibit
- ------------ ----------------------
(3.1) Articles of Amendment to the Restated
Articles of Incorporation dated July 28, 1995.
(10.1) Letter Agreement dated March 30, 1995 amending
the Factoring Agreement dated as of May 23, 1991
by and between BNY Financial Corp. and the
Company waiving compliance with certain provisions
thereof.
(27.1) Financial Data Schedule
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
SIGNAL APPAREL COMPANY, INC.
The undersigned officers of Signal Apparel Company, Inc.
(hereinafter referred to as the "Corporation") existing pursuant
to the provisions of the Indiana Business Corporation Law as
amended (hereinafter referred to as the "Act"), desiring to give
notice of corporate action effectuating amendment of certain
provisions of its Articles of Incorporation, certify the
following facts:
ARTICLE 1 Amendment(s)
Section 1 The date of incorporation of the corporation is:
April 24, 1891.
Section 2 The name of the corporation following this amendment
to the Articles of Incorporation is:
Signal Apparel Company, Inc.
Section 3 The exact text of Article(s) Fourth of the Articles of
Incorporation is now as follows:
The total number of shares of capital stock of all
classifications which the Corporation shall have the authority to
issue is Forty-One Million Six Hundred Thousand (41,600,000)
shares, divided into two classes, as follows: Forty Million
(40,000,000) shares of Common Stock having par value of $.01 par
value, One Million Six Hundred Thousand (1,600,000) shares of
Preferred Stock having no par value.
Section 4 Date of each amendment's adoption:
May 11, 1995
ARTICLE II Manner of Adoption and Vote
Section 1 Action by Directors:
The Board of Directors of the Corporation duly adopted a
resolution proposing to amend the terms and provisions of
Article(s) Fourth of the Articles of Incorporation and directing
a meeting of the Shareholders, to be held on May 11, 1995,
allowing such Shareholders to vote on the proposed amendment.
The resolution was adopted by: a vote of the Board of Directors
at a meeting held on February 24, 1995, at which a quorum of such
Board was present.
Section 2 Action by Shareholders:
The Shareholders of the Corporation entitled to vote in respect
of the Articles of Amendment adopted the proposed amendment. The
amendment was adopted by: a vote of such Shareholders during the
meeting called by the Board of Directors. The result of such
vote is as follows:
TOTAL
SHAREHOLDERS ENTITLED TO VOTE: 10,377,826
SHAREHOLDERS VOTED IN FAVOR: 9,758,320
SHAREHOLDERS VOTED AGAINST: 74,292
Section 3 Compliance with Legal Requirements
The manner of the adoption of the Articles of Amendment and the
vote by which they were adopted constitute full legal compliance
with the provisions of the Act, the Articles of Incorporation,
and the By-Laws of the Corporation.
I hereby verify subject to the penalties of perjury that the
statements contained are true this 26th day of July, 1995.
Current Officer's Signature Officers Name Printed
/s/ Robert J. Powell Robert J. Powell
Officer's Title
Secretary
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK - FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10104
212-408-7000
March 30, 1995
---
Signal Apparel Company, Inc.
P. O. Box 4296
200 Manufacturers Road
Chattanooga, Tenn 37405
Ladies/Gentlemen:
We refer to our Factoring Agreement with you as Amended and
Supplemented bearing an effective date of May 23, 1991 (the
"Agreement"). All capitalized terms unless otherwise defined
herein shall have such meanings as are set forth in the
Agreement.
This letter shall serve to confirm that provided your actual
financial performance through December 31, 1994 was a no worse
than actually presented to us in your financial statements, we
hereby waive as an Event of Default under the Agreement your
failure to achieve the financial performance required under the
financial covenants listed in Section 11(a)(iii),(iv),(v) and
(vi) of the Agreement.
Additionally, effective immediately the following financial
covenants listed below shall be amended for your fiscal quarters
in 1995 in the following manner:
1. The portion of the table in Section 11(a)(iii) of the
Agreement setting forth your Tangible Net Worth
covenant shall be amended by deleting the amounts
previously indicated for the quarters ending in 1995
and inserting in substitution therefor the following:
3/31/95 $ 3,811,000.00
6/30/95 $( 463,000.00)
9/30/95 $(1,881,000.00)
12/31/95 $(4,233,000.00)
2. The portion of the table in Section 11(a)(iv) of the
Agreement for the calendar quarters in 1995 is amended
to read as follows:
3/31/95 $(2,000,000.00)
6/30/95 $(3,000,000.00)
9/30/95 $(4,000,000.00)
12/31/95 $(5,000,000.00)
3. The portion of the table in Section 11(a)(v) of the
Agreement for the quarters in calendar year 1995 is
amended to read as follows;
3/31/95 S(7,348,000.00)
6/30/95 $(3,348,000.00)
9/30/95 $(2,348,000.00)
12/31/95 $(2,352,000,00)
4. Section 11(a)(vi) of the Agreement shall be amended
such that the ratio of your liabilities to your
Tangible Net Worth shall not be more than 14.9 as of
March 31, 1995, (130.4) as of June 30, 1995, (29.4)
as of September 30, 1995 and (11.6) as of
December 31, 1995.
For purposes of determining your compliance with the
financial covenants set forth in Paragraphs 1, 2 and 4 above
through the period ending March 31, 1995 only, we shall calculate
such covenants as if the entire $15,000,000.00 of a certain
subordinated loan from WG Trading Company Limited Partnership has
been advanced to you (whether or not actually advanced by that
time).
In part consideration of the waiver by us of your failure
to achieve the financial covenants through December 31, 1994 as
an Event of Default under the Agreement as set forth above, you
agree to pay us a covenant waiver fee of $40,000.00 which shall
be due and payable immediately and which amount we may charge to
your account with us.
Except as hereby specifically modified or amended all of
the terms and conditions of the Agreement continue to remain in
full force and effect.
If the foregoing correctly sets forth the Agreement between
us please execute a copy of this letter in the space provided
below and return a fully executed copy to our offices.
Very truly yours,
BNY FINANCIAL CORPORATION
By /s/ Wayne Miller
-----------------------
Title: VP
READ AND AGREED TO:
SIGNAL APPAREL COMPANY, INC.
BY: /s/ William H. Watts
--------------------------
Title: Executive VP & CFO
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 717
<SECURITIES> 0
<RECEIVABLES> 10,960
<ALLOWANCES> 2,910
<INVENTORY> 28,278
<CURRENT-ASSETS> 38,382
<PP&E> 50,205
<DEPRECIATION> 35,204
<TOTAL-ASSETS> 64,287
<CURRENT-LIABILITIES> 22,610
<BONDS> 1,158
<COMMON> 102
0
76,202
<OTHER-SE> (81,671)
<TOTAL-LIABILITY-AND-EQUITY> 64,287
<SALES> 51,419
<TOTAL-REVENUES> 51,419
<CGS> 40,136
<TOTAL-COSTS> 40,136
<OTHER-EXPENSES> 393
<LOSS-PROVISION> (203)
<INTEREST-EXPENSE> 3,628
<INCOME-PRETAX> (10,282)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,282)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
