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, 1997 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.)
200-A Manufacturers Road, Chattanooga, Tennessee 37405
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423) 266-2175
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 3, 1997
Common Stock 12,433,240 shares<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, Dec. 31
1997 1996
Assets --------- ---------
Current Assets: (Unaudited)
Cash & cash equivalents $ 355 $ 1,713
Accounts receivable, net 3,549 755
Inventories 14,226 14,687
Prepaid expenses and other 732 769
--------- ---------
18,862 17,924
Property, plant and equipment, net 6,081 8,170
Other assets 59 73
--------- ---------
Total assets $25,002 $ 26,167
========= =========
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 2,529 $ 5,055
Accrued liabilities 5,678 9,003
Accrued interest 17,788 7,044
Current portion of long-term debt 5,957 6,795
Revolving advance account 21,046 20,362
--------- ---------
Total current liabilities 52,998 48,259
--------- ---------
Long-term debt principally from
related parties 52,021 39,266
Other non-current liabilities 3,666 4,797
--------- ---------
Shareholders' Equity (Deficit):
Redeemable Preferred Stock -- --
Common stock 115 115
Preferred stock at liquidation preference
plus cumulative undeclared dividends 76,202 76,202
Additional paid-in capital 73,507 73,507
Accumulated deficit (232,390) (214,862)
Treasury shares, at cost (1,117) (1,117)
--------- ---------
Total shareholders'
equity (deficit) (83,683) ( 66,155)
--------- ---------
Total liabilities and
shareholders' equity (deficit) $25,002 $26,167
========= =========
See accompanying notes to consolidated financial statements.<PAGE>
<TABLE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept 27, Sept 30, Sept 27, Sept 30,
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $ 10,451 $ 13,185 $ 32,708 $ 47,969
Cost of sales 8,572 12,234 25,493 43,268
--------- --------- --------- ---------
Gross profit 1,879 951 7,215 4,701
Royalty expense 1,102 1,271 3,614 3,537
Selling, general and administrative
expense 3,005 4,003 8,817 13,645
Interest expense 3,993 2,699 11,192 7,520
Other expenses, net 358 422 1,120 731
--------- --------- --------- ---------
Loss before income taxes (6,579) (7,444) (17,528) (20,732)
Income taxes -- -- -- --
--------- --------- --------- ---------
Net loss applicable to common stock
$ (6,579) $ (7,444) $(17,528) $(20,732)
========= ========= ========= =========
Net loss per common share $ (0.57) $ (0.64) $ (1.51) $ (1.79)
========= ========= ========= =========
Weighted average common shares
outstanding 11,578 11,578 11,578 11,562
========= ========= ========= =========
See accompanying notes to financial statements.<PAGE>
</TABLE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
Sept 27, Sept 30,
1997 1996
--------- ---------
Operating Activities:
Net loss $ (17,528) $(20,732)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 930 2,215
Loss on disposal of equipment 822 364
Grant of Common Stock options below
market value -- 222
Changes in operating assets
and liabilities:
(Increase)/decrease in accounts
receivable (2,794) 285
Decrease in inentories 461 4,887
(Increase) decrease in prepaid
expenses andother assets 51 186
Increase in accounts payable and
accrued liabilities 4,895 2,630
--------- ---------
Net cash used in operating
activities (13,163) (9,943)
--------- ---------
Investing Activities:
Purchases of property, plant and
equipment (130) (197)
Proceeds from the sale of property,
plant and equipment 467 233
--------- ---------
Net cash provided by
investing activities 337 36
--------- ---------
Financing Activities:
Borrowings from senior lender 27,775 40,714
Payments to senior lender (27,090) (38,877)
Proceeds from borrowings from related
party 12,613 8,880
Principal payments on borrowins (1,830) (763)
Proceeds from exercise of stock options -- 200
--------- ---------
Net cash provided by
financing activities 11,468 10,154
--------- ---------
Net increase/(decrease) in cash (1,358) 247
Cash at beginning of period 1,713 1,495
--------- ---------
Cash at end of period $ 355 $ 1,742
========= =========
See accompanying notes to consolidated financial statements.<PAGE>
Part I Item 1. (cont'd)
SIGNAL APPAREL COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying consolidated financial statements have been
prepared on a basis consistent with that of the consolidated
financial statements for the year ended December 31, 1996.
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, 1997 and December 31, 1996 and its results of
operations and cash flows for the six-month periods ended
September 30, 1997 and September 30, 1996. These
consolidated 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, 1996.
2. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the
results to be expected for the full year.
3. Inventories consisted of the following:
Sept 30, December 31,
1997 1996
---- ----
(In thousands)
Raw materials and supplies $ 1,406 $ 1,244
Work in process 1,810 2,060
Finished goods 11,010 11,383
-------- --------
$ 14,226 $ 14,687
======== ========
4. Pursuant to the terms of various license agreements, the
Company is obligated to pay future minimum royalties of
approximately $1.3 million.
5. During the nine months ended September 30, 1997, the Company
was advanced an additional $11.5 million by Walsh Greenwood
& Company, a principal shareholder ("Walsh Greenwood").
This advance is on terms similar to the $20 million Walsh
Greenwood Credit Agreement, and therefore, is considered
long-term debt in the accompanying financial statements.
6. 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128 "Earnings
Per Share" ("SFAS 128"). SFAS 128 changes the criteria for
reporting earnings per share ("EPS") by replacing primary
EPS with basic EPS and by replacing fully-diluted EPS with
diluted EPS. Due to the losses sustained by the Company
(which make common stock equivalents anti-dilutive), SFAS
128 will not have any impact on current year-to-date EPS or
prior-period EPS amounts disclosed in the current financial
statements.
7. The Company has finalized and executed an Amended and
Restated Factoring Agreement with its senior lender, BNY
Financial Corporation (a subsidiary of the Bank of New
York). The term of the agreement extends through March 31,
2000.
The revised agreement provides the Company with up to a
maximum of $55.0 million aggregate credit availability,
based on the Company's inventory, receivables, fixed assets
and collateral pledged by principal shareholders of the
Company. Financial covenants under the agreement have been
modified in accordance with management's current business
plan for the Company. In connection with the agreement, the
Company has issued to the Senior Lender immediately
exercisable warrants to purchase up to 250,000 shares of the
Company's Common Stock.
With the senior lender's consent, the Company has applied
$20.0 million of the proceeds from this renewed financing
arrangement to the reduction of subordinated indebtedness
owed under a credit agreement between the Company and Walsh
Greenwood and Co., one of the Company's principal
shareholders, thereby reducing the Company's effective
annual interest rate on such indebtedness from 25% to 1-1/4%
over the senior lender's prime rate. Based upon current
interest rates, this reduction represents potential annual
savings to the Company of approximately $3.0 million. The
senior lender has also agreed to eliminate or reduce certain
fees which have previously been charged to the Company.
8. On November 5, 1997 Signal completed the related
acquisitions of Big Ball Sports, Inc. and Print The Planet,
Inc. Both companies are privately held and based in
Houston, Texas. Big Ball Sports is a branded activewear
company that sells to Dillard's, J.C. Penney, Mercantile
Stores, Kohl's, The Sports Authority, and other "upstairs-
market" retailers. The company's products are sold under
the well-known Big Ball brand and feature highly creative
sports-related graphics. Print The Planet is the primary
screenprinter for Big Ball Sports. Related to the Big Ball
Sports and Print The Planet acquisitions, Signal Apparel has
issued 855,193 shares of its common stock, paid
approximately $2.5 million in cash, and issued promissory
notes for approximately $750,000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net sales of $10.5 million for the quarter ended September 30,
1997 represent a decrease of $2.7 million or 26% from the $13.2
million in net sales for the corresponding period of 1996. This
decrease is comprised of a $1.4 million reduction in
screenprinted products, and a $1.4 million reduction in
undecorated activewear partially offset by a $.1 million increase
in women's fashion knitwear.
Sales of screenprinted products were $6.6 million for the quarter
ended September 30, 1997 versus $8.1 million for the
corresponding period of 1996. Reduced unit volume accounted for
a $1.0 million decrease in sales while a decrease in average
selling price accounted for a $.4 million sales reduction. The
decrease in average selling price was due to a combination of
product mix and unit selling price changes. The Company is
focusing its efforts on the recovery of lost volume in this core
area of the business.
Sales of undecorated activewear products were $.2 million for the
quarter ended September 30, 1997 versus $1.6 million for the
corresponding period of 1996. As reported in the Annual Report
on Form 10-K for the year ended December 31, 1996, the Company
has made the decision to concentrate its marketing efforts on
screenprinted products in an effort to produce higher margin
sales than can be achieved with undecorated activewear. As a
result of this decision, the Company's sales of undecorated
activewear will continue to decline during 1997 and will no
longer represent a significant portion of the Company's total
sales.
Sales of women's fashion knitwear increased 2% to $3.6 million
for the quarter ended September 30, 1997 as compared to $3.5
million for the corresponding period of 1996. Average selling
price per unit decreased 58% but was offset by a 142% increase in
unit volume. The reduction in average selling price was due to a
combination of product mix and unit selling price changes. The
reduced average selling price was also the prime reason for the
increased sales volume.
Net sales of $32.7 million for the nine months ended September
30, 1997 represent a decrease of $15.3 million or 32% from the
$48.0 million in net sales for the corresponding period of 1996.
This decrease is comprised of a $7.1 million reduction in
screenprinted products, a $6.1 million reduction in undecorated
activewear and a $2.1 million reduction in women's fashion
knitwear.
Sales of screenprinted products were $20.6 million for the nine
months ended September 30, 1997 versus $27.8 million for the
corresponding period of 1996. Reduced unit volume accounted for
a $6.7 million decrease in sales while a decrease in average
selling price accounted for a $0.4 million sales reduction. The
decrease in average selling price was due to a combination of
product mix and unit selling price changes.
Sales of undecorated activewear products were $3.1 million for
the nine months ended September 30, 1997 versus $9.2 million for
the corresponding period of 1996. As reported earlier the
Company has made a decision to concentrate on sales of
screenprinted products rather than undecorated activewear.
Sales of women's fashion knitwear decreased 18% to $9.0 million
for the nine months ended September 30, 1997 as compared to $11.0
million for the corresponding period of 1996. The average
selling price decreased by 49% but was partially offset by a 58%
increase in unit volume. The reduction in average selling price
was due to a combination of product mix and unit selling price
changes, and was the prime reason for the increased sales volume.
Gross profit was $1.9 million (18% of sales) for the quarter
ended September 30, 1997 compared to $1.0 million (7% of sales)
for the corresponding period in 1996. The primary components of
the $.9 million improvement in margin are lower manufacturing
costs ($2.0 million), and a one-time favorable adjustment to
reserves ($.8 million) offset by lower sales ($.8 million) and a
lower standard margin ($1.1 million). Manufacturing costs were
improved as a result of the closing of the LaGrange, Georgia
knitting & dying plant, and reduced overhead costs.
Gross profit was $7.2 million (22% of sales) for the nine months
ended September 30, 1997 compared to $4.7 million (10% of sales)
for the corresponding period in 1996. The primary components of
the $2.5 million improvement in margin are lower manufacturing
cost ($5.0 million), and a one-time favorable adjustment to
reserves, ($2.0 million) offset by lower sales ($3.7 million) and
lower standard margins ($.8 million).
Royalty expense related to licensed product sales was 11% of
sales for the quarter ended September 30, 1997 and 10% for the
corresponding period of 1996. This increase was caused by an
increase in the percentage of licensed versus non-licensed
product sales and by additional expenses to cover guarantees
where sales levels are not expected to cover minimum royalties.
Selling, general and administrative (SG&A) expenses were 29% and
30% of sales for the quarters ended September 30, 1997 and 1996,
respectively. Actual SG&A expense decreased $1.0 million as a
result of ongoing efforts to reduce overhead costs.
Royalty expense related to licensed product sales was 11% of
sales for the nine months ended September 30, 1997 compared to 7%
for the corresponding period of 1996. This increase was
primarily caused by an increase in the percentage of licensed
versus non-licensed sales and by additional expenses to cover
guarantees where sales levels are not expected to cover minimum
royalties. Selling, general and administrative(SG&A)expenses
were 27% and 28% of sales for the nine months ended September 30,
1997 and 1996, respectively. Actual SG&A expense decreased $4.8
million as a result of ongoing efforts to reduce overhead costs,
including elimination of the blank business and the Indiana
screenprint operation.
On October 17, 1997 Signal apparel Company completed its
acquisition of GIDI Holdings, Inc., doing business as Grand
Illusion Sportswear. Grand Illusion Sportswear, a privately held
company based in Schaumburg, Illinois, imprints sportswear for
large corporate accounts. Grand Illusion develops long-term
imprinting arrangements with corporate accounts either directly
or through Advertising Specialty Institute distributors. Grand
Illusion's corporate accounts include Pepsi, Chrysler, Deere &
Company, and Sprint, among others. Signal paid a total of $0.8
million in cash, including payment of $0.6 million to creditors,
in connection with the acquisition of Grand Illusion.
On November 5, 1997 Signal completed the related acquisitions of
Big Ball Sports, Inc. and Print The Planet, Inc. Both companies
are privately held and based in Houston, Texas. Big Ball Sports
is a branded activewear company that sells to Dillard's, J.C.
Penney, Mercantile Stores, Kohl's, The Sports Authority, and
other "upstairs-market" retailers. The company's products are
sold under the well-known Big Ball brand and feature highly
creative sports-related graphics. Print The Planet is the
primary screenprinter for Big Ball Sports. Related to the Big
Ball Sports and Print The Planet acquisitions, Signal Apparel has
issued 855,193 shares of its common stock, paid approximately
$2.5 million in cash, and issued promissory notes for
approximately $750,000.
The combined 1996 annual sales of Big Ball Sports, Print the
Planet, and Grand Illusion Sportswear were more than $23 million.
Big Ball Sports, Print the Planet, and Grand Illusion Sportswear
will operate as subsidiaries of Signal Apparel.
FINANCIAL CONDITION
Additional working capital was required in the first three
quarters of 1997 to fund the continued losses and working capital
needs of the Company. The Company s need was met through several
transactions with the Company s principal shareholders and its
senior lender. In the first three quarters of 1997, the Company
received $11.5 million from Walsh Greenwood and Company. This
$11.5 million plus $12 million in funds received in 1996 are
being treated similar to funds received under the Walsh Greenwood
Credit Agreement in that interest is being accrued at an annual
rate of 25%. At September 30, 1997, the Company had overadvance
borrowings of approximately $13.6 million with its senior lender
compared to $13.1 million at June 30, 1997.
The Company s working capital deficit at September 30, 1997
increased $3.8 million compared to year end 1996. The increase
in working capital deficit was primarily due to a decrease in
inventories ($.5 million), an increase in accounts payable,
accrued liabilities and accrued interest ($4.9 million),a
decrease in cash ($1.4 million),and an increase in the revolving
advance account ($0.7 million), which were partially offset by a
reduction in the current portion of long-term debt ($0.8
million), and an increase in accounts receivable ($2.8 million).
Accounts receivable increased $2.8 million over year-end 1996.
The increase was a result of an increase in third quarter sales
over fourth quarter sales in 1996 and the timing of payments from
the senior lender pursuant to the Company's maturity-based
factoring agreement.
Inventory levels decreased as a results of increased sales in
comparison to the fourth quarter of 1996 and as a result of
ongoing efforts to reduce inventory levels.
Cash used in operations was $13.2 million during the first nine
months of 1997 compared to $9.9 million used in operating
activities during the same period in 1996. The net loss of $17.5
million and increases in accounts receivable of $2.8 million were
the primary uses of funds. These were partially offset by an
increase in accounts payable and accrued liabilities of $4.9
million.
Commitments to purchase equipment totaled approximately $.1
million at September 30, 1997. During 1997, the Company
anticipates capital expenditures of approximately $.4 million.
Cash provided by financing activities was $11.5 million for the
first nine months of 1997. The Company borrowed $11.5 million
from Walsh Greenwood and Company. The Company also borrowed $1.1
million from FS Signal Associates under a letter of credit
reimbursement agreement. The Company also had additional
borrowings from the senior lender of $0.7 million. This was
partially offset by principal payments on borrowings of $1.8
million.
The revolving advance account increased $0.7 million from $20.4
million at year-end 1996 to $21.0 million at September 30, 1997.
Under the current financing arrangement with its senior lender,
the Company s total outstanding obligations cannot exceed the
lower of $40 million or the borrowing base as defined. At
September 30, 1997, the borrowing base was $7.4 million.
Therefore, approximately $13.6 million was overadvanced under the
revolving advance account.
Certain of the Company's principal shareholders have agreed to
guarantee a discretionary overadvance of $14.0 million. FS
Signal Associates II has guaranteed $2.0 million in the form of a
letter of credit and Walsh Greenwood has guaranteed $2.0 million
in the form of cash on deposit with the senior lender. The
remaining $10.0 million is guaranteed by WG Trading Company,
L.P.,an affiliate of Walsh Greenwood.
Interest expense for the nine months ended September 30, 1997 was
$11.2 million compared to $7.5 million for the same period in
1996. Total outstanding debt averaged $74.8 million and $64.5
million for the first nine months of 1997 and 1996, respectively,
with average interest rates of 20% and 15.5%.
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 $0.9 million at
September 30, 1997 (excluding collateral of $2.0 million pledged
to the senior lender in the form of a standby letter of credit).
Average outstanding debt and the average interest rate increased
due to additional borrowings from Walsh Greenwood. As of
September 30, 1997 indebtedness to Walsh Greenwood (including
borrowing under the Walsh Greenwood Credit Agreement) totaled
$43.6 million with an interest rate of 25% and an interest rate
of 27% on accrued but unpaid interest. As a result of continued
losses, the Company has been unable to fund its cash needs from
operating activities. The Company s liquidity shortfalls for the
first nine months of 1997 were primarily funded through the
additional $11.5 million in advances from Walsh Greenwood.
In January 1997, in connection with the issuance of certain
substitute or replacement letters of credit (aggregating $4.5
million) with respect to which two of the Company s principal
shareholders (FS Signal Associates Limited Partnership and FS
Signal Associates II Limited Partnership, collectively "FS Signal
Associates") have agreed to reimburse the issuer for any draws
related to amounts owed by the Company, the Company entered into
a Reimbursement Agreement with FS Signal Associates and a related
Promissory Note for $4.5 million, each dated January 30, 1997.
Under the reimbursement Agreement and Promissory Note, the
Company has agreed to repay any amounts that FS Signal Associates
may be required to pay to the issuer of these letters of credit,
with interest at an annual rate of 5.5% until fully repaid. The
Company s obligations under the Reimbursement Agreement and
Promissory Note are subordinate to its obligations to its senior
lender, and to those under the Tranche A and Tranche B Notes, and
are parri passu with the Company s obligations under the Walsh
Greenwood Credit Agreement.
In accordance with the Company s strategic plan to focus on its
core business activities and reduce non-core operating expenses,
the Company has decided to seek purchasers for its Heritage
Sportswear unit and LaGrange, Georgia fabric manufacturing
facility. The vacant Wabash, Indiana Plant facilities are also
for sale.
Total shareholders' deficit increased $17.5 million because of
the losses sustained for the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has finalized and executed an Amended and Restated
Factoring Agreement with its senior lender, BNY Financial
Corporation (a subsidiary of the Bank of New York). The term of
the agreement extends through March 31, 2000.
The revised agreement provides the Company with up to a maximum
of $55.0 million aggregate credit availability, based on the
Company's inventory, receivables, fixed assets and collateral
pledged by principal shareholders of the Company. Financial
covenants under the agreement have been modified in accordance
with management's current business plan for the Company. In
connection with the agreement, the Company has issued to the
Senior Lender immediately exercisable warrants to purchase up to
250,000 shares of the Company's Common Stock.
With the senior lender's consent, the Company has applied $20.0
million of the proceeds from this renewed financing arrangement
to the reduction of subordinated indebtedness owed under a credit
agreement between the Company and Walsh Greenwood and Co., one of
the Company's principal shareholders, thereby reducing the
Company's effective annual interest rate on such indebtedness
from 25% to 1-1/4% over the senior lender's prime rate. Based
upon current interest rates, this reduction represents potential
annual savings to the Company of approximately $3.0 million. The
senior lender has also agreed to eliminate or reduce certain fees
which have previously been charged to the Company.
The Company believes that this credit facility will be adequate
to provide for the Company's near-term financing needs.
As a result of continuing losses, the Company has been unable to
fund its cash needs through cash generated by operations. The
Company's liquidity shortfalls from operations during these
periods have been funded through several transactions with its
principal shareholders and with the Company's senior lender.
These transactions are detailed above in the Financial Condition
section.
The Company's senior lender waived all existing loan covenant
violations as of September 30, 1997; and, as set forth above, the
Company entered into a new and amended financing arrangement with
its senior lender subsequent to the end of the quarter, which
contains new covenants based on the Company's current financial
condition and business plan. The Company is not in default of
the new loan covenants. However, as of the end of the quarter,
all long-term debt due the senior lender was subject to
accelerated maturity and as such, has been classified as a
current liability in the consolidated balance sheets. If the
senior lender were to accelerate the maturity of the debt, the
Company would not have funds available to repay this debt.
Additionally, the Company has negotiated and submitted to its
shareholders for approval, a plan to restructure its subordinated
debt and preferred stock, pursuant to which: (i) $20.0 million of
subordinated debt would be repaid with a portion of the proceeds
of the new financing arrangement with the Company's senior
lender; (ii) 8.0 million shares of common stock would be issued
in exchange for approximately $19.593 million of subordinated
debt; (iii) approximately $23.196 million of subordinated debt
and $20.513 million in stated value of Series C Preferred Stock
would be exchanged for 437.102 shares of a new Series F Preferred
Stock, stated value $100,000 per share, which would accrue
cumulative, undeclared dividends at the rate of 9% per annum;
and, (iii) the Company would redeem all remaining outstanding
shares (including accumulated dividends) of its Series A and
Series C Preferred Stock, with shares of Common Stock valued at
$7.00 per share. If approved, the restructuring will eliminate
all indebtedness other than indebtedness owed to its senior
lender under the new financing arrangement and approximately $7.6
million owed to the Company's principal shareholders. The
Company's accumulated deficit will be reduced from approximately
$82.6 million to approximately $34.6 million. The Company
believes that these actions will increase its ability to fund
both capital and other expenditures necessary to return its
operations to profitability through the issuance of additional
debt or equity securities.
In the event that sales and profit margins do not meet projected
levels in the near term, the Company may be required to seek
additional capital and sources of financing. In any event,
additional capital will be required to continue the Company's
operations and move forward with the Company's turnaround plans
which include additional planned acquisitions. To obtain such
capital and such financing, the Company may be required to issue
additional securities that would dilute the interests of its
stockholders. No assurance can be given that any such additional
financing will be available to the Company on commercially
reasonable terms or otherwise. If sales and profit margins
continue to fall below projected levels or if additional funds
cannot be raised, if and when needed, the Company will be unable
to continue as a going concern.
Part II. OTHER INFORMATION
Items 1-5
Not Required
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Waiver Letter, dated as of November 12, 1997,
pertaining to factoring Agreements dated as of (i) May
23, 1991 between the Company and BNY Financial
Corporation and (ii) July 25, 1991 between The Shirt
Shed, Inc. and BNY Financial Corporation.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
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 , 1997 /s/ David E. Houseman
---------------- ------------------------------
David E. Houseman
Chief Executive Officer,
<PAGE>
SIGNAL APPAREL COMPANY, INC.
FORM 10-Q
FOR THE QUARTER ENDED September 30, 1997
EXHIBIT INDEX
Exhibit No.
per Item 601 Sequential
of Reg. S-K Description of Exhibit Page No.
- ------------ ---------------------- ----------
(10.1) Letter Amendment dated August 9,
1996, amending the Factoring
Agreements dated as of May 23,
1991, by and between BNY
Financial Corp. and the Company,
and dated July 25, 1991, by and
between BNY Financial Corp. and
Shirt Shed waiving compliance
with certain provisions thereof.
(27) Financial Data Schedule
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
Signal Apparel Company, Inc. ("Signal")
P. O. Box 4296
200 Manufacturers Road
Chattanooga, TN 37405
The Shirt Shed, Inc. (Shirt Shed")
570 South Miami Street
Wabash, IN 46992
November 12, 1997
Re: Our Factoring Agreement with Signal bearing the effective
date of May 23, 1991 as amended and supplemented (the
"Signal Agreement") Factoring Agreement with Shirt
Shed bearing the effective date of July 25, 1991 as amended
and supplemented (the "Shirt Shed Agreement") (the Signal
Agreement and the Shirt Shed Agreement herein collectively,
the "Agreements")
Gentlemen:
We refer to each and both of the above mentioned Agreements between ourselves
on the one hand and Signal and Shirt Shed on the other hand, and in
particular to the covenants appearing therein in subparagraphs 11 (a) (iii)
thereof (herein the "Tangible Net Worth Covenant"), 11 (a) (iv) thereof
(herein the "Working Capital Covenant") and 11 (a) (v) thereof
(herein the "Pre-Tax Operating Earnings Covenant"; together with the Working
Capital Covenant and the Tangible Net Worth covenant, herein collectively
the "Covenants").
We hereby waive any default under the above Agreements to the extent arising
out of the failure of Signal and/or Shirt Shed to be in compliance with the
above specified Covenants as of September 27, 1997.
Except to the limited extent set forth herein: (a) no waiver of any other
term condition, covenant, agreement or any other aspect of any of the
Agreements is intended or implied; and (b) except for the specific period
of time and circumstances covered by this letter, no other aspect
of the Covenants referred to in this letter is waived, including without
limitation for any other period or circumstance, and no such additional
waiver is intended or implied. This limited waiver is therefore limited
exclusively to the specific purposes and time period(s) for which
it is given.
If the foregoing is in accordance with your understanding, would you kindly
sign below to so indicate.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Wayne Miller
-------------------------
Title: V.P.
AGREED:
Signal Apparel Company, Inc.
By: /s/ David E. Houseman
------------------------
Title: CEO
AGREED:
Shirt Shed, Inc.
By: /s/ David E. Houseman
------------------------
Title: CEO
BNYWAIVE.WPS
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