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 September 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 November 01, 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)
September 30, Dec. 31,
1995 1994
--------- ---------
(Unaudited)
Assets
Current Assets:
Cash $ 1,007 $ 303
Accounts receivable, net 6,317 6,713
Inventories 29,081 33,350
Prepaid expenses and other 1,279 1,135
--------- ---------
Total current assets $ 37,684 $ 41,501
Property, plant and equipment, net 14,155 16,810
Goodwill, net 10,526 10,786
Other assets 282 351
--------- ---------
Total assets $ 62,647 $ 69,448
========= =========
Liabilities and Shareholders'
Equity (Deficit)
Current Liabilities:
Accounts payable and accrued liabilities $ 15,909 $ 20,019
Current portion of long-term debt 1,388 1,144
Discretionary overadvances from
senior lender 5,694 10,849
--------- ---------
Total current liabilities 22,991 32,012
--------- ---------
Long-term debt (less current portion):
Senior obligations 26,716 30,217
Senior subordinated note payable to
related party 19,914 --
Subordinated note payable to related
party 5,434 5,434
--------- ---------
Total long-term debt 52,064 35,651
--------- ---------
Multiemployer pension plan withdrawal
liability 828 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 (158,240) (141,207)
Treasury shares (at cost) (1,117) (1,117)
--------- ---------
Total shareholders' equity (deficit) (13,236) 701
--------- ---------
Total liabilities and
shareholders' equity (deficit) $ 62,647 $ 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)
<CAPTION.
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 21,059 $ 21,886 $ 72,478 $ 73,658
Cost of sales 16,663 21,504 56,799 63,872
-------- -------- -------- --------
Gross profit 4,396 382 15,679 9,786
Royalty expense 2,193 1,044 5,210 2,594
Selling, general and
administrative expenses 6,494 6,266 21,021 18,767
Interest expense 2,227 734 5,855 1,958
Other expense, net 234 254 627 1,106
-------- --------- --------- ---------
Loss before income taxes (6,752) (7,916) (17,034) (14,639)
Income taxes -- -- -- --
-------- --------- --------- ---------
Net loss (6,752) (7,916) (17,034) (14,639)
Less preferred stock dividends -- -- -- 4,372
-------- --------- --------- ---------
Net loss applicable to
common stock $ (6,752) $ (7,916) $ (17,034) $ (19,011)
======== ========= ========= =========
Net loss per common share $ (0.67) $ (0.88) $ (1.69) $ (2.12)
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 10,078 8,964 10,074 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)
Nine Months Ended
September 30, September 30,
1995 1994
--------- ---------
Operating Activities:
Net loss $ (17,034) $ (14,639)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,708 3,684
Loss (gain) on disposal of equipment 294 (148)
Changes in operating assets
and liabilities:
(Increase) decrease in accounts
receivable 395 (2,191)
(Increase) decrease in inventories 4,270 (400)
Increase in prepaid expenses
and other assets (74) (493)
Increase (decrease) in accounts
payable and accrued liabilities (4,108) 3,346
--------- ---------
Net cash used in operating
activities (12,549) (10,841)
--------- ---------
Investing Activities:
Purchases of property, plant and
equipment (410) (2,096)
Proceeds from the sale of property,
plant and equipment 118 13
--------- ---------
Net cash used in
investing activities (292) (2,083)
Financing Activities:
Borrowings from senior lender 55,479 78,854
Payments to senior lender (63,182) (75,316)
Proceeds from subordinated note
payable to related party 19,000 3,000
Proceeds from other borrowings 568 --
Principal payments on borrowings (1,417) (310)
Principal payments on multi-employer
withdrawal liability (180)
Proceeds from sale of preferred stock 3,000 7,000
Proceeds from exercise of stock options 97 --
Other 64
--------- ---------
Net cash provided by
financing activities 13,545 13,112
--------- ---------
Increase (decrease) in cash 704 188
Cash at beginning of period 303 444
--------- ---------
Cash at end of period $ 1,007 $ 632
========= =========
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 September 30, 1995 and December 31, 1994 and
its results of operations and cash flows for the nine months
ended September 30, 1995 and September 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 nine months ended
September 30, 1995 are not necessarily indicative of the
results to be expected for the full year.
3. Inventories consisted of the following:
September 30, December 31,
1995 1994
---- ----
(Dollars in thousands)
Raw materials and supplies $ 2,402 $ 2,319
Work in process 4,948 5,639
Finished goods 21,731 25,392
-------- --------
$29,081 $ 33,350
======== ========
4. A principal shareholder, Walsh Greenwood & Co. ("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. As
discussed below, 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 September 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.
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 negotiated an increase in the face
value of the promissory note which permits the Company to
borrow up to $20.0 million, effective August 10, 1995. At
October 2, 1995, the Company had drawn $20.0 million under
this amended credit 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.
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.
5. Pursuant to the terms of various license agreements, the
Company is obligated to pay future minimum royalties of
approximately $5.0 million, with $1.6 million due in 1995,
$2.9 million due in 1996, and $0.5 million due in 1997
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
nine months ended September 30, 1994 as if the acquisition
of AMW had occurred on January 1, 1994.
Dollars in Thousands
(except per share data) Three Months Nine Months
------------ -----------
Net Sales $ 30,363 $ 101,182
Net Loss (9,944) (24,563)
Net Loss Per Common Share (.99) (2.44)
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 $21.1 million for the quarter ended September 30,
1995 represent a decrease of $.8 million (4%) from the $21.9
million in net sales for the corresponding period in 1994. This
decrease is comprised of a $6.4 million reduction in sales of
active sportswear partially offset by a $5.1 increase due to the
inclusion of sales of American Marketing Works, Inc. (AMW) from
the date of its acquisition, a $.4 million increase in sales of
Signal Artwear screenprinted products and a $.1 million increase
in women's fashion knitwear.
Sales of active sportswear products were $6.0 million for the
quarter ended September 30, 1995 versus $12.4 million for the
corresponding period of 1994. Reduction in unit volume accounted
for 90% of the total reduction of active sportswear while
reduction in the average selling price accounted for the
remaining 10% reduction. The decrease in average selling price
was due to a combination of product mix and unit selling price
changes.
Signal Artwear sales were $4.8 million for the quarter ended
September 30, 1995 versus $4.4 million for the corresponding
period in 1994. Sales of Signal Artwear closeouts were reduced
for the quarter ended September 30, 1995 to $.4 million from $1.0
million for the corresponding period of 1994. Artwear sales
excluding closeouts were $4.4 million for the quarter ended
September 30, 1995 versus $3.4 million for the corresponding
period of 1994. Of the $1.0 million increase, 30% was volume
related while 70% was due to increases in the average selling
price due to a combination of product mix and unit selling price
changes.
Sales of women's fashion knitwear increased 3% to $4.7 million
for the quarter ended September 30, 1995 as compared to $4.6
million for the corresponding period of 1994. The increase was
the result of increased average selling price due to a
combination of product mix and unit selling price changes.
Net sales of $72.5 million for the nine months ended
September 30, 1995 represent a decrease of $1.2 million (2%) from
the $73.7 million in net sales for the corresponding period in
1994. The decrease is comprised of a $14.0 million reduction in
active sportswear, a $3.0 million reduction in women's fashion
knitwear, a $1.6 million decrease in Signal Artwear screenprinted
products and a $17.4 million increase due to the inclusion of AMW
sales in 1995.
Sales of active sportswear products were $22.9 million for the
nine months ended September 30, 1995 versus $36.9 million for the
corresponding period of 1994. This represents a 38% decrease.
Of the $14.0 million decrease, 90% is directly related to volume
while the remaining 10% results from reduction in average selling
price per unit. 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 21% to $10.9 million
for the nine months ended September 30, 1995 as compared to $13.9
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 81% 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 $19.9 million
for the nine months ended September 30, 1995 versus $21.5 million
for the corresponding period of 1994. Signal Artwear closeout
sales were $3.3 million for the nine months ended
September 30, 1995 which is $3.1 million less than the comparable
period in 1994. Artwear sales excluding closeouts for the first
nine months of 1995 were $1.5 million more than for the
comparable period in 1994. The increase in Artwear sales
excluding closeouts is a result of increased volume offset by a
1% price per unit decrease caused by product mix.
Gross profit for the quarter ended September 30, 1995 was
$4.4 million (20.9% of sales) compared to $.4 million (1.7% of
sales) for the corresponding period of 1994. The $4.0 million
improvement is the result of reduced closeout sales
($1.6 million), improved standard margins due to sales mix
($1.4 million)and reduced write-down of inventory for
obsolescence ($1.0 million).
Gross profit for the nine months ended September 30, 1995 was
$15.7 million (21.6% of sales) compared to $9.8 million (13.3% of
sales) for the corresponding period of 1994. The $5.9 million
improvement is the result of reduced closeout sales ($2.0
million), improved standard margin due to sales mix ($1.1
million), improved manufacturing efficiencies ($1.2 million) and
reduced inventory revaluation reserves ($1.6 million).
Royalty expense related to licensed product sales was 10.4% and
4.8% of total sales for the quarters ended September 30, 1995 and
1994, respectively. In 1995 $.6 million was accrued for unearned
minimum royalties which accounts for 2.8% of the 10.4% royalty
expense experienced in 1995. The balance of the increase in
royalty expense percentage over 1994 is the result of increased
sales of licensed products relative to total sales. Royalty
expense related to licensed product sales was 7.2% and 3.5% of
total sales for the nine months ended September 30, 1995 and
1994, respectively. Again, the recording of minimum royalties
not met and the reduction of non-license sales account for the
increased royalty percentage.
Selling, general and administrative expenses were 31% and 29% of
sales for the quarters ended September 30, 1995 and 1994,
respectively. Actual SG&A expense increased $.2 million which
was the result of AMW SG&A expenses of $1.8 million being
included in 1995 offset by SG&A expense reductions at other
divisions.
Selling, general and administrative expenses were 29% and 26% of
sales for the nine months ended September 30, 1995 and 1994,
respectively. Actual SG&A expenses increased $2.3 million which
was the result of AMW SG&A expenses of $6.1 million being
included in 1995 offset by SG&A expense reductions at other
divisions.
FINANCIAL CONDITION
Working capital at September 30, 1995 increased $5.2 million or
55% over year-end 1994. The increase in working capital was
primarily due to a decrease in accounts payable and accrued
liabilities ($4.1 million) and a decrease in discretionary
overadvances under the Company's revolving credit agreement with
its senior lender ($5.2 million), which were partially offset by
lower inventories ($4.3 million).
Accounts receivable decreased $.4 million or 6% 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 $4.3 million or 13% compared to year-end
1994. As discussed herein under "Liquidity and Capital
Resources," one of several actions the Company has taken in an
effort to improve its operations during 1995 has been the
implementation of an inventory control program to eliminate the
manufacture of excess goods. Reflecting this initiative, the
decrease in inventories since year-end 1994 is due to the sale of
excess and closeout inventories of approximately $4.0 million
(net of reserves), coupled with a further reduction in overall
inventory levels of approximately $.3 million. The Company
expects inventory to continue approximately at present levels
through 1996, except for seasonal fluctuations.
Total current liabilities decreased $9.0 million or 28% over
year-end 1994 primarily due to decreases in accounts payable and
accrued liabilities of $4.1 million and in discretionary
overadvances with the senior lender of $5.2 million.
Amounts outstanding under the revolving line of credit with the
Company's senior lender decreased $7.7 million from $28.9 million
at year-end 1994 to $21.2 million at September 30, 1995. The
total credit line available under the revolving line of credit
with the Company's senior lender is $40 million, including
discretionary overadvance facilities. At September 30, 1995,
approximately $5.7 million was overadvanced under the Company's
revolving facility with its senior lender. In addition to
amounts owed to the senior lender, the Company's current
outstanding debt consists of a $6.5 million senior note acquired
in the AMW acquisition and a credit agreement negotiated during
1995 with Walsh Greenwood (the "Walsh Greenwood Credit
Agreement"), pursuant to which the Company had borrowed the full
$20 million available as of October 2, 1995. For additional
information concerning the Walsh Greenwood Credit Agreement and
the Company's overadvance facilities with its senior lender, see
the discussion under "Liquidity and Capital Resources" herein.
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
September 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).
At September 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. As discussed in
Note 4 to the financial statements included herein, in connection
with the Walsh Greenwood Credit Agreement, the holders of all
outstanding shares of Series A Preferred Stock and Series C
Preferred Stock agreed to forego all future dividends from
January 1, 1995 until the principal and interest of all the
borrowings under the Walsh Greenwood Credit Agreement are paid in
full.
Interest expense for the nine months ending September 30, 1995
was $5.9 million compared to $2.0 million for the same period in
1994. Total outstanding debt averaged $54.2 million and $29.1
million for the first nine months of 1995 and 1994, respectively,
with weighted average interest rates of 14% and 8.8%. Average
outstanding debt increased primarily due to debt assumed in the
acquisition of AMW ($6.5 million) and borrowings under the Walsh
Greenwood Credit Agreement ($20.0 million).
Total shareholders' deficit increased $13.9 million compared to
year-end 1994. The Company sustained losses of $17.0 million for
the first nine months of 1995 which were partially offset by the
$3.0 million investment in Preferred Stock by Walsh Greenwood in
January 1995.
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.
The Company's cash flows to date during 1995 may be summarized as
follows: Cash used in operations was $12.5 million during the
first nine months of 1995 compared to $10.8 million used in
operating activities during the same period in 1994. The net
loss of $17.0 million and decreases in accounts payable and
accrued liabilities of $4.1 million were the primary uses of
funds in the first nine months of 1995. These items were
partially offset by depreciation and amortization ($3.7 million),
and significantly reduced inventory levels ($4.3 million). Cash
used in investing activities for purchases of property and
equipment (after netting against proceeds realized from the sale
of property and equipment no longer needed by the Company)
totaled approximately $.3 million. Commitments to purchase
equipment totaled approximately $.4 million at September 30,
1995. During 1995, the Company anticipates capital expenditures
of approximately $.8 million for ordinary repair and replacement
of property and equipment. Net cash provided by financing
activities (as discussed in greater detail below) was $13.5
million in 1995.
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 nine months of 1995. The
Company's liquidity shortfalls from operations during these
periods have been funded through several transactions with its
principal stockholders and with 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, two principal shareholders, FS
Signal Associates II and Walsh Greenwood, pledged collateral of
$4.0 million to the Company's senior lender to support a special
overadvance facility as described below.
In January 1995, one of the Company's principal shareholders,
Walsh Greenwood, and certain of its related parties, purchased 30
shares of the Company's Series C Preferred Stock for an
investment of $3 million. Effective March 31, 1995, the Company
entered into the Walsh Greenwood Credit Agreement with Walsh
Greenwood, pursuant to which the Company could borrow up to $15
million at an effective annual interest rate of 25%, with
additional terms and restrictions as described in Note 4 to the
financial statements. Effective August 10, 1995, the parties
agreed to increase the principal amount available pursuant to the
Walsh Greenwood Credit Agreement to $20 million. As of October
2, 1995, the Company had borrowed the entire $20 million
available under the credit agreement.
During August 1994, the Company obtained an agreement from its
senior lender to lend up to $4.0 million in excess of the
borrowing base under the Company's credit facility with such
lender, supported by a pledge of $4.0 million of collateral by
two of its principal shareholders (the "special overadvance
facility"). This special overadvance facility was in addition to
an overadvance facility in an amount not to exceed $5.0 million
arranged in November 1994 and a mid-month overadvance facility
not to exceed $2.0 million. All such overadvance facilities are
discretionary with the senior lender. The mid-month overadvance
facility must be repaid in full at the first of each month,
unless such repayment is waived by the senior lender, and the
special overadvance facility may only be repaid after repayment
of all other outstanding borrowings under the other overadvance
facilities.
During the first quarter of 1995, the senior lender reduced the
aggregate amount of permitted overadvances pursuant to the
overadvance facilities to $9.0 million and, in the second quarter
of 1995, the senior lender further reduced such amount to $8.0
million and required that all outstanding overadvances be reduced
to $6.0 million during one week each month. At present, the
overadvance facilities consist of the $4.0 million special
overadvance facility, the $2.0 million overadvance facility and
the $2.0 million mid-month overadvance facility. At quarter-end,
approximately $6.0 million was outstanding under the overadvance
facilities provided by the Company's senior lender. In October
1995, the senior lender agreed to waive repayment of the
mid-month overadvance of $2.0 million for November 1995. Unless
a further waiver is obtained, the $2.0 million mid-month
overadvance will have to be repaid by the end of November, 1995.
The Company's senior lender waived all existing loan covenant
violations in its agreement with the Company at December 31,
1994, and amended the covenants for 1995. As of September 30,
1995 the Company was in violation of one of these amended loan
covenants. This violation was waived. The Company fell far
short of its projections in October and this short fall will
likely result in additional violations of its amended loan
covenants in the last quarter of 1995. There is no assurance
that the senior lender would again waive these violations. These
violations, if not waived at year-end, could jeopardize the
Company's ability to continue as a going concern. The Company
may be unable to replace the financing provided by its senior
lender if it were forced to do so.
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 nine months 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. 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 close its AMW facility in Gardena, California on October 18,
1995. The Company also announced the closing of its Rutledge,
Tennessee sewing plant on September 29, 1995. This closing will
take effect on November 29, 1995.
Effective August 1, 1995 the Board of Directors named Bruce Krebs
President and Chief Operating Officer, and Gary LaBelle assumed
the position of Vice President of Operations. These appointments
were made in order to both increase sales and further streamline
the operations of the Company.
The Company did not meet its sales and profit projections for the
first nine 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 would 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 continue to fall below projected levels, the Company's
ability to continue as a going concern will be jeopardized.
Part II. OTHER INFORMATION
Items 1-5
Not Required
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(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: November 8, 1995 /s/ Bruce Krebs
--------------- --------------------------------
Bruce Krebs
President
Date: November 8, 1995 /s/ William H. Watts
--------------- --------------------------------
William H. Watts
Chief Financial Officer
SIGNAL APPAREL COMPANY, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
EXHIBIT INDEX
Exhibit No.
per Item 601 Sequential
of Reg. S-K Description of Exhibit Page No.
- ------------ ---------------------- ----------
(27.1) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,007
<SECURITIES> 0
<RECEIVABLES> 9,481
<ALLOWANCES> 3,164
<INVENTORY> 29,081
<CURRENT-ASSETS> 37,684
<PP&E> 49,987
<DEPRECIATION> 35,832
<TOTAL-ASSETS> 62,647
<CURRENT-LIABILITIES> 22,991
<BONDS> 1,050
<COMMON> 102
0
76,202
<OTHER-SE> (88,423)
<TOTAL-LIABILITY-AND-EQUITY> 62,647
<SALES> 72,478
<TOTAL-REVENUES> 72,478
<CGS> 56,799
<TOTAL-COSTS> 56,799
<OTHER-EXPENSES> 627
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 5,855
<INCOME-PRETAX> (17,304)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,304)
<EPS-PRIMARY> (1.69)
<EPS-DILUTED> (1.69)
</TABLE>
