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, 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) 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 2, 1997
Common Stock
11,578,046 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, Dec. 31
1997 1996
Assets --------- ---------
Current Assets:
Cash & cash equivalents $ 245 $ 1,713
Accounts receivable, net 4,028 755
Inventories 12,250 14,687
Prepaid expenses and other 940 769
--------- ---------
17,463 17,924
Property, plant and equipment, net 6,517 8,170
Other assets 59 73
--------- ---------
Total assets $24,039 $ 26,167
========= =========
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 2,294 $ 5,055
Accrued liabilities 7,977 9,003
Accrued interest 12,250 7,044
Current portion of long-term debt 6,193 6,795
Revolving advance account 19,613 20,362
--------- ---------
Total current liabilities 48,327 48,259
--------- ---------
Long-term debt principally from
related parties 46,775 39,266
Other non-current liabilities 6,041 4,797
--------- ---------
Shareholders' Equity (Deficit):
Redeemnable Preferred Stock -0- -0-
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 (225,811) (214,862)
Treasury shares (at cost) (1,117) (1,117)
--------- ---------
Total shareholders'
equity (deficit) (77,104) (66,155)
--------- ---------
Total liabilities and
shareholders' equity (deficit) $24,039 $ 26,167
========= =========
See accompanying notes to consolidated financial statements.
<TABLE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 11,891 $ 15,279 $ 22,257 $34,784
Cost of sales 8,375 13,284 16,921 31,034
--------- --------- --------- ---------
Gross profit 3,516 1,995 5,336 3,750
Royalty expense 1,651 1,129 2,512 2,266
Selling, general and administrative
expense 3,108 4,535 5,812 9,642
Interest expense 3,713 2,457 7,199 4,821
Other expenss, net 653 109 762 309
--------- --------- --------- --------
Loss before income taxes (5,609) (6,235) (10,949) (13,288)
Income taxes -- -- -- --
--------- --------- --------- ---------
Net loss applicable to common stock $ (5,609) $ (6,235) $(10,949) $(13,288)
========= ========= ========= ========
Net loss per common share $ (0.48) $ (0.54) $ (0.95) $ (1.15)
========= ========= ========= =========
Weighted average common shares
outstanding 11,578 11,578 11,578 11,553
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30, June 30,
1997 1996
--------- ---------
Operating Activities:
Net loss $(10,949) $(13,288)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 639 1,527
Loss on disposal of equipment 482 222
Grant of Common Stock options below
market value -- 74
Changes in operating assets
and liabilities:
(Increase)/decrease in accounts
receivable (3,273) 623
Decrease in inventories 2,437 4,094
(Increase) decrease in prepaid
expenses and other assets (157) 58
Increase in accounts payable and
accrued liabilities 2,160 3,101
--------- ---------
Net cash used in operating
activities (8,661) (3,589)
--------- ---------
Investing Activities:
Purchases of property, plant and
equipment (58) (163)
Proceeds from the sale of property,
plant and equipment 456 108
--------- ---------
Net cash provided by/(used in)
investing activities 398 (55)
--------- ---------
Financing Activities:
Borrowings from senior lender 16,190 29,659
Payments to senior lender (16,938) (27,215)
Proceeds from borrowings from related
party 8,878 --
Principal payments on borrowings (1,335) 81
Proceeds from exercise of stock options -- 200
--------- ---------
Net cash provided by
financing activities 6,795 2,725
--------- ---------
Net decrease in cash (1,468) (919)
Cash at beginning of period 1,713 1,495
-------- ---------
Cash at end of period $ 245 $ 576
========= =========
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
June 30, 1997 and December 31, 1996 and its results of
operations and cash flows for the six-month periods ended
June 30, 1997 and June 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 six months ended June 30,
1997 are not necessarily indicative of the results to be
expected for the full year.
3. Inventories consisted of the following:
June 30, December 31,
1997 1996
---- ----
(In thousands)
Raw materials and supplies $ 1,299 $ 1,244
Work in process 1,508 2,060
Finished goods 9,443 11,383
-------- --------
$ 12,250 $ 14,687
======== ========
4. Pursuant to the terms of various license agreements, the Company
is obligated to pay future minimum royalties of approximately
$1.0 million.
5. During the six months ended June 30, 1997, the Company was
Advanced an additional $7.8 million by Walsh Greenwood &
Company, a principal shareholder ("Walsh Greenwood"). This
advance is expected to be documented as a loan on terms similar
to the $20 million Walsh Greenwood Credit Agreement and
therefore is considered long-term debt in the accompanying
financial statements.
6. In 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 fnancial
statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net sales of $11.9 million for the quarter ended June 30, 1997
represent a decrease of $3.4 million or 22% from the $15.3
million in net sales for the corresponding period of 1996. This
decrease is comprised of a $.8 million reduction in screenprinted
products, a $1.9 million reduction in undecorated activewear and
a $.7 million reduction in women's fashion knitwear.
Sales of screenprinted products were $7.8 million for the quarter
ended June 30, 1997 versus $8.5 million for the corresponding
period of 1996. Reduced unit volume accounted for a $.6 million
decrease in sales while a decrease in average selling price
accounted for a $0.1 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 $1.6 million for
the quarter ended June 30, 1997 versus $3.5 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 decreased 22% to $2.6 million
for the quarter ended June 30, 1997 as compared to $3.3 million
for the corresponding period of 1996. Average selling price per
unit decreased 53% but was partially offset by increased unit
volume 67%.
The reduction in average selling price was due to a combination
of product mix and unit selling price changes. The $0.7 million
sales reduction for the quarter was primarily due to competition
from garments selling at lower retail prices.
Net sales of $22.3 million for the six months ended June 30, 1997
represent a decrease of $12.5 million or 36% from the $34.8
million in net sales for the corresponding period of 1996. This
decrease is comprised of a $5.7 million reduction in
screenprinted products, a $4.7 million reduction in undecorated
activewear and a $2.1 million reduction in women's fashion
knitwear.
Sales of screenprinted products were $14.0 million for the six
months ended June 30, 1997 versus $19.7 million for the
corresponding period of 1996. Reduced unit volume accounted for
a $5.5 million decrease in sales while a decrease in average
selling price accounted for a $0.2 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 $2.9 million for
the six months ended June 30, 1997 versus $7.6 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 28% to $5.4 million
for the six months ended June 30, 1997 as compared to $7.5
million for the corresponding period of 1996. The average
selling price decreased by 42% but was partially offset by
increased unit volume 24%. The reduction in average selling
price was due to a combination of product mix and unit selling
price changes.
Gross profit was $3.5 million (30% of sales) for the quarter
ended June 30, 1997 compared to $2.0 million (13% of sales) for
the corresponding period in 1996. The primary components of the
$1.5 million improvement in margin are lower manufacturing cost
($1.8 million) a one-time favorable adjustment to reserves ($1.2
million) offset by lower sales ($0.8 million) and lower standard
margin ($0.7 million). Manufacturing cost was improved as a
result of having only one printing operation this year versus two
last year, the closing of the LaGrange, Georgia knitting & dying
plant, and reduced overhead costs.
Gross profit was $5.3 million (24% of sales) for the six months
ended June 30, 1997 compared to $3.7 million (11% of sales) for
the corresponding period in 1996. The primary components of the
$1.6 million improvement in margin are lower manufacturing cost
($3.0 million), a one-time favorable adjustment to reserves,
($1.2 million) offset by lower sales ($2.6 million).
Royalty expense related to licensed product sales was 14% of
sales for the quarter ended June 30, 1997 and 7% 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 both plans additional expenses to cover
guarantees where sales levels are not expected to cover minimum
royalties. Selling, general and administrative (SG&A) expenses
were 26% and 30% of sales for the quarters ended June 30, 1997
and 1996, respectively. Actual SG&A expense decreased $1.4
million as a result of ongoing efforts to reduced overhead costs.
Royalty expense related to licensed product sales was 11% of
sales for the six months ended June 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 both plans additional expenses to cover
guarantees where sales levels are not expected to cover minimum
royalties. Selling, general and administrative (SG&A), expenses
were 26% of sales for the six months ended June 30, 1997 and
1996, respectively. Actual SG&A expense decreased $3.8 million
as a result of ongoing efforts to reduce overhead costs.
In June 1997, David Houseman was appointed Chief Operating
Officer & Chief Financial Officer of the Company. Mr. Houseman
will focus his efforts on implementing the Company's turnaround
plan which includes shifting the Company's marketing efforts to
higher margin, screenprinted activewear, aligning the Company's
cost structure and revenue base, and executing the Company's
growth through acquisition strategy.
FINANCIAL CONDITION
Additional working capital was required in the first half of 1997
to fund the continued losses incurred by the Company. The
Company s need was met through several transactions with the
Company s principal shareholders and its senior lender. In the
first half of 1997, the Company received $7.8 million from Walsh
Greenwood. The Company is in the process of negotiating to amend
the Walsh Greenwood Credit Agreement dated March 31, 1995 to
include these additional funds as well as funds received in 1996
($12.0 million). Therefore, the Company is currently accruing
interest on these additional funds at an annual rate of 25%,
based on the terms of the Walsh Greenwood Credit Agreement. At
June 30, 1997, the Company had overadvance borrowings of
approximately $13.1 million with its senior lender compared to
$13.3 million at March 31, 1997.
The Company s working capital deficit at June 30, 1997 increased
$0.5 million compared to year end 1996. The increase in working
capital deficit was primarily due to a decrease in inventories
($2.4 million), an increase in accounts payable, accrued
liabilities and accrued interest ($1.4 million), and a decrease
in cash ($1.5 million), which were partially offset by a
reduction in the current portion of long-term debt ($0.6
million), an increase in accounts receivable ($3.3 million), an
increase in prepaid expenses of $0.2 million, and a reduction in
the revolving advance account ($0.7 million).
Accounts receivable increased $3.3 million over year-end 1996.
The increase was a result of an increase in second quarter sales
over fourth quarter sales in 1996 and the timing of payments from
the senior lender pursuant to the Company maturity based
factoring agreement.
Inventories decreased $2.4 million or 16.6% compared to year-end
1996. Inventories decreased as a result of ongoing efforts to
reduce inventory levels and an increase in sales compared to the
fourth quarter 1996.
Cash used in operations was $8.7 million during the first six
months of 1997 compared to $3.6 million used in operating
activities during the same period in 1996. The net loss of $10.9
million and increases in accounts receivable of $3.3 million were
the primary uses of funds in the first six months of 1997.
Commitments to purchase equipment totaled approximately $.1
million at June 30, 1997. During 1997, the Company anticipates
capital expenditures of approximately $.8 million.
Cash provided by financing activities was $6.8 million for the
first six months of 1997. The Company borrowed $7.8 million from
Walsh Greenwood. The Company also borrowed $1.1 million from FS
Signal Associates under a letter of credit reimbursement
agreement. This was partially offset by principal payments on
borrowing of $1.3 million and payments to senior lender of $0.7
million.
The revolving advance account decreased $0.7 million from $20.4
million at year-end 1996 to $19.6 million at June 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 June
30, 1997, the borrowing base was $6.5 million. Therefore,
approximately $13.1 million was overadvanced under the revolving
advance account.
The Company and the senior lender have agreed in principle to
adjust and to extend through March 31, 2000 the current credit
facility. The new agreement will provide a $67,000,000 credit
facility consisting of (i) a $33,000,000 revolving advance
account which is similar in terms to the Company s current
revolving advance account, (ii) a $34,000,000 additional facility
replacing the existing $14,000,000 overadvance facility and which
will provide an additional $5,000,000 of debt availability for
the Company for which no additional collateral will be required,
(iii) a significant reduction in the fees charged for services as
a result of lowered volume guarantees and the elimination and
reduction of certain other fees, and (iv) issuance to the senior
lender of warrants to purchase 250,000 shares of Common Stock at
$2.50 per share.
The Company believes that this credit facility, which is subject
to final documentation, will be adequate to provide for the
Company s financing through at least 1997.
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 six months ended June 30, 1997 was $7.2
million compared to $4.8 million for the same period in 1996.
Total outstanding debt averaged $72.5 million and $58.6 million
for the first six months of 1997 and 1996, respectively, with
average interest rates of 19.9% and 16.5%.
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
June 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 June
30, 1997 total indebtedness to Walsh Greenwood (including
borrowing under the Walsh Greenwood Credit Agreement) totaled
$39.9 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 six months of 1997 were primarily funded through the
additional $7.8 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 those under the Tranche A and Tranche B Notes, and
are parri passu with the Company s obligations under the Walsh
Greenwood Credit Agreement.
The Rutledge, Tennessee plant was sold on May 5, 1997 for
$400,000. Approximately $352,000 was used to retire the debt to
CDBG, City of Rutledge and Grainger County. Approximately
$48,000 of these funds were applied against the term debt due to
the Company's senior lender.
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 $10.9 million because of
the losses sustained for the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
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 June 30, 1997. However, as the Company is not
currently in compliance with certain financial covenants, all
long-term debt due the senior lender is 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.
Actions taken by the Company to improve its operations and
liquidity have included: (i) the institution of an extensive cost
reduction program that has reduced general and administrative
expenses; (ii) the sale of excess and close-out inventories;
(iii) the implementation of an inventory control program in order
to eliminate the manufacture of excess goods and to more
effectively utilize working capital; (iv) obtaining $20.0 million
in financing under the Walsh Greenwood Credit Agreement and
further financial support by Walsh Greenwood in the amount of
$19.8 million in cash through June 1997; and (v) further
guarantees by Walsh Greenwood to the senior lender in order to
support an increase in the Company's overadvance position with
the senior lender. 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 non-
strategic assets as discussed above.
If the Company's sales and profit margins for 1997 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,
additional capital will be required to continue the Company's
operations. 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 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, 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 August 13, 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
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 13, 1997 /s/ Barton J. Bresky
---------------- ------------------------------
Barton J. Bresky
President
Date: August 13, 1997 /s/ David E. Houseman
---------------- ------------------------------
David E. Houseman
Chief Operating Officer and
Chief Financial Officer
SIGNAL APPAREL COMPANY, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
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
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
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").
As requested in the letter of Jim Elkins to the
undersigned dated August 7, 1997, we hereby waive any default
under the above Agreements, to the extent set forth on the sheet
entitled "Debt Covenant Compliance Computations" for June, 1997
enclosed with said letter, a copy of which is attached as Exhibit
A and arising out of the failure of Signal and/or Shirt Shed to
be in compliance with the above specified Covenants as of June
30, 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: Chief Operating Officer and
Chief Financial Officer
AGREED:
Shirt Shed, Inc.
By: /s/ David E. Houseman
------------------------
Title: Chief Operating Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> (705)
<SECURITIES> 950
<RECEIVABLES> 6,281
<ALLOWANCES> (2,253)
<INVENTORY> 12,250
<CURRENT-ASSETS> 17,463
<PP&E> 44,545
<DEPRECIATION> (38,028)
<TOTAL-ASSETS> 24,039
<CURRENT-LIABILITIES> 48,328
<BONDS> 6,041
0
76,202
<COMMON> 115
<OTHER-SE> (152,305)
<TOTAL-LIABILITY-AND-EQUITY> 24,039
<SALES> 11,891
<TOTAL-REVENUES> 11,891
<CGS> 13,134
<TOTAL-COSTS> 13,134
<OTHER-EXPENSES> 653
<LOSS-PROVISION> (321)
<INTEREST-EXPENSE> 3,713
<INCOME-PRETAX> (5,609)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,609)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,609)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)
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