SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________
Commission File No. 1-2782
SIGNAL APPAREL COMPANY, INC.
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(Exact name of Registrant as specified in its charter)
Indiana 62-0641635
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(State of Incorporation) (I.R.S. Employer Identification Number)
200 Manufacturers Road, Chattanooga, Tennessee 37405
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (615) 266-2175
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock: Par value $.01 a share New York Stock Exchange
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
requirement for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: $14,901,243 calculated by using
the closing price on the New York Stock Exchange on March 14,
1994 of the Company's Common Stock, and excluding common shares
owned beneficially by directors and officers of the Company, and
by certain other entities, who may be deemed to be "affiliates",
certain of whom disclaim such status.
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding as of March 14, 1995
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Common Stock, $.01 par value 10,377,826 shares
DOCUMENTS INCORPORATED BY REFERENCE
Part of Documents from Which Portions are
Form 10-K Incorporated by Reference
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Part III Proxy Statement for Annual Meeting of Shareholders
SIGNAL APPAREL COMPANY, INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994
INDEX
Item
- ----
PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
9. Disagreements on Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners
and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
PART I
Item 1. BUSINESS
(a) Signal Apparel Company, Inc. ("Signal" or the "Company") is
engaged in the manufacture and marketing of apparel and
accessories within the following product lines: knit
sportswear and activewear, women's knit apparel and
screenprinted knit apparel.
In November 1994, the Company purchased all the outstanding
capital stock of American Marketing Works, Inc. ("AMW"), a
branded licenses apparel company. The Company operates AMW
as a wholly owned subsidiary.
(b) The Company is engaged in the single line of business of
apparel manufacturing and marketing.
For financial information about the Company, see the
information discussed in Item 8 below.
(c) GENERAL
Founded in 1891 as Wayne Knitting Mills, a women's hosiery
company, in Fort Wayne, Indiana, the Company merged with the
H. W. Gossard Co. of Chicago, Illinois in 1967 and became
Wayne-Gossard Corporation. The Company's name was changed
to Signal Apparel Company, Inc. in February 1987. As a
result of a merger in July 1991, The Shirt Shed, Inc. became
a wholly-owned subsidiary of the Company. During 1993, The
Shirt Shed, Inc. began doing business under the name Signal
Artwear. In November 1994, the Company purchased all the
outstanding capital stock of American Marketing Works, Inc.
("AMW"), a branded licenses apparel company. The Company
operates AMW as a wholly owned subsidiary. During the fourth
quarter of 1994, the Company began operating under the name
"Signal American Marketing".
The Company is a vertically integrated manufacturing company
which manufactures and markets activewear in juvenile, youth
and adult size ranges and upscale knit apparel for the
ladies' market. The Company's products are sold to
wholesalers, screen printers and retail accounts with the
Signal Sport, Signal Artwear, Riddell Athletic, or a
customer's label or with the label of designers for whom the
Company produces goods under license. Currently, a major
portion of the products manufactured by the Company consists
of products generally similar in design and composition to
those produced by the Company's competition. The Company's
business is therefore highly subject to competitive
pressures.
From July 1993 to November 1994, the Board of Directors
retained Grisanti, Galef and Goldress, Inc., a firm that
specializes in assisting companies in turnaround situations,
and named Marvin A. Davis as Chairman and Chief Executive
Officer, and Lee N. Katz as President of Signal.
Davis and Katz are partners of Grisanti, Galef and Goldress.
Subsequent to this managment change, the Company implemented
a plan inteded to reverse the trend of significant losses of
the previous three years. Actions taken included, but were
not limited to, replacing the divisional management
structure with a "one company" structure (while the various
division names have been retained for sales and marketing
purposes, the coordination of sales, manufacturing and
administrative functions are now coordinated on a corporate
basis), discontinuing the Keds Apparel division, closing the
Griffin, Georgia cutting and sewing plant, entering into
contract printing programs at the Signal Artwear division,
and identifying and correcting sales forecasting/production
planning problems that contributed to poor on-time delivery
performance and to excess and obsolete inventories.
Pursuant to the acquisition of AMW, the Company named Marvin
J. Winkler as Chairman and Chief Executive Officer. Mr.
Winkler had held the same offices with AMW previous to the
acquisition thereof, and has extensive licensing
experience. The Company named Leon Ruchlamer as
President and William H. Watts as Chief Financial Officer
in February 1995. The addition of Messrs. Ruchlamer and
Watts was made to more effectively manage the Company's cash
flow problems and streamline and more efficiently manage
the Company's manufacturing operations.
The Company's product lines and operating business units
are:
ACTIVE SPORTSWEAR
SIGNAL KNITWEAR DIVISION:
Signal Knitwear manufactures fabric from which it produces
T-shirts, fleece garments, and other sportswear. The
products of the division are sold primarily to wholesalers,
distributors, screenprinters and to certain retail accounts.
In addition to sales to its own customers, Signal Knitwear
is a source of products for the Riddell Athletic division,
Signal Artwear and American Marketing Works.
RIDDELL ATHLETIC DIVISION:
Riddell Athletic was created in the Fall of 1992 to market
and sell active sportswear under the Riddell label. The
Company obtained license rights to use the Riddell name and
logo on apparel products from Riddell, Inc. during 1992.
The division operated in a start-up mode in early 1992 as
Signal Athletic and continued in a start-up mode throughout
1992 as the transition was made to Riddell Athletic. The
activities of this division reflect the marketing strategy
of the Company away from the production of standard,
commodity products toward new fashion products of authentic
athletic apparel and licensed designs which compete on the
basis of styling.
The division currently has a license agreement with National
Football Properties, Inc. to produce activewear bearing NFL
logos and trademarks for sale in upscale specialty stores,
department stores and specialty catalog houses. The
division also has license agreements with certain major
colleges to produce activewear with their college logos.
The goods marketed by this division are manufactured
primarily by the Signal Knitwear division.
SCREENPRINTED APPAREL
AMERICAN MARKETING WORKS, INC.:
American Marketing Works, Inc. ("AMW"), a wholly-owned
subsidiary, is a screenprinting company engaged in selling
to mid-mass and mass merchants, chain stores, sporting goods
and sport specialty stores, a line of popularly priced
sportswear, ranging from children to adult sizes. AMW
purchases unprinted shirts and tops from the Signal Knitwear
division and other suppliers and produces its finished
products through the addition of a variety of silkscreened
graphics derived under license from popular cartoons,
colleges and professional sports leagues, as well as from
licensed brands such as Skechers, Ocean Pacific, Magic
Johnson Tees and Pure Magic.
SIGNAL ARTWEAR:
The Shirt Shed, Inc., a wholly-owned subsidiary doing
business as Signal Artwear, is a screenprinting company
engaged in selling to mass merchants and chain stores a line
of popularly priced sportswear, ranging from children to
adult sizes. Signal Artwear purchases unprinted shirts and
tops from the Signal Knitwear division and other suppliers
and produces its finished products through the addition of a
variety of silkscreened and embroidered graphics derived
under license from popular cartoons, movies, and television
shows, as well as original concepts produced by an internal
art staff. In addition, Signal Artwear provides
screenprinting services on a contract basis.
WOMEN'S KNIT APPAREL
HERITAGE SPORTSWEAR DIVISION:
Heritage Sportswear produces a designer line of tailored
knits designed primarily by Joan Vass using the "joan vass,
u.s.a." label. The designer line is sold to fine specialty
stores, department stores, and Joan Vass stores. The
Company's strategy for the division includes expansion of
its participation in the ladies' fashion market. The
division also produces knit shirts, sweaters and fashion
fleece products which are marketed by other divisions of the
Company.
SALES BY PRODUCT LINE
The following table reflects the percentage of net sales
contributed by the Company's product lines to consolidated
net sales during 1994, 1993 and 1992:
Percentage of
Product Line Net Sales
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1994 1993 1992
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Active sportswear 48% 45% 40%
Screenprinted apparel 31% 33% 43%
Women's knit apparel 21% 20% 15%
In 1994 no one customer accounted for as much as 10% of
consolidated sales. One customer, Kmart Corporation,
accounted for 21% of sales in 1993 and 18% in 1992.
GENERAL MATTERS
The primary raw material used by the Company is yarn made
from both synthetic and natural fibers which it purchases
from several different suppliers. The Company also
purchases sewing thread, dyes and chemicals, inks, elastic,
hangers, cartons and printed bags. Supplies of synthetic
fibers are dependent upon the availability of petroleum,
while supplies of natural fibers are dependent upon
worldwide crop conditions. These factors generally have had
a greater effect on price than on availability.
Although the Company does not have formal arrangements
extending beyond one year with its suppliers, the Company
has not experienced any significant difficulty obtaining
yarn or any other raw materials from its current sources and
believes that, in any event, adequate alternative sources of
supply are available.
"Signal", "Signal Artwear", "Signal Sport" and "American
Marketing Works" are registered trademarks of the Company.
In addition to the license to use the "Riddell" trademark
and logo described above, the Company is licensed through
May 1996 to use the registered trademark "joan vass, u.s.a."
in connection with machine-knit women's apparel and is
licensed to use various trademarks of the National Football
League and various colleges in connection with collections
of activewear. The Company's subsidiary, Signal Artwear, is
licensed by several companies to print various cartoon,
movie and celebrity characters and other graphics on
garments. The Company's recently acquired subsidiary,
American Marketing Works, Inc., is licensed to use a variety
of brands including Skechers, Ocean Pacific and Magic
Johnson Tees. American Marketing Works is also licensed to
use various trademarks of the National Basketball
Association, the National Football League and the National
Hockey League. The ability to use the foregoing trademarks
is important to the implementation of the Company's strategy
of expanding sales to the retail market. Sales under the
license to use the "joan vass, u.s.a." trademark have
represented a significant portion of the sales of the
Company's Heritage Sportswear Division.
The business of the Company tends to be seasonal with peak
shipping months varying from product line to product line.
To meet the demands of peak shipping months, it is necessary
to build inventories of some products well in advance of
expected shipping dates. The Company believes that its
credit practices and merchandise return policy are customary
in the industry. Borrowings are used to the extent
necessary to finance seasonal inventories and receivables.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition".
During 1994, the Company sold its products to over 2,600
customers, including department stores, mass merchandisers,
other retailers and specialty stores, wholesalers,
distributors, screenprinters, and other manufacturers.
Products are shipped directly from the Company's
manufacturing facilities and warehouses.
On December 31, 1994, Signal Knitwear, Heritage Sportswear,
Signal Artwear and American Marketing Works had scheduled
order backlogs of approximately $7,050,000, $2,322,000,
$8,250,000 and $4,265,000, respectively. On December 31,
1993, Signal Knitwear, Heritage Sportswear, and Signal
Artwear had scheduled order backlogs of approximately
$15,700,000, $3,800,000 and $10,300,000, respectively. On
December 31, 1992, Signal Knitwear, Heritage Sportswear, and
Signal Artwear had scheduled order backlogs of approximately
$41,000,000, $5,600,000 and $13,000,000, respectively.
Scheduled order backlogs consist of orders received from
customers and entered into the Company's order entry system,
at which point the orders are scheduled for production. The
Company expects to ship substantially all of its December
31, 1994 backlog of unfilled orders by December 31, 1995;
however, orders are subject to cancellation, generally
without penalty, by customers prior to shipment. The
Company's backlog of orders on December 31, 1994 is not
necessarily indicative of actual shipments or sales for any
future period, and period-to-period comparisons from 1993 to
1994 may not be meaningful.
The apparel industry as a whole, including the part of the
industry engaged in by the Company, is highly competitive.
The Company believes that the principal methods of
competition in the markets in which it competes are design
and styling, price and quality. The designer and brand name
markets are influenced by fashion, design, color, consistent
quality and consumer loyalty. Imports offer competition to
the sweater and knit shirt product lines. The industry is
very fragmented, and the Company's relative position in the
industry is not known.
Compliance with federal, state and local provisions which
have been enacted regulating the discharge of materials into
the environment, or otherwise relating to the protection of
the environment, have not had, and are not expected to have,
any material effect upon the capital expenditures, operating
results, or the competitive position of the Company;
however, in 1992 and 1993, the Company accrued $400,000 and
$55,000, respectively, for the estimated cost to clean-up an
oil spill at its LaGrange facility.
The Company had approximately 1,750 employees at March 1,
1995, compared to 1,850 employees at March 1, 1994, and
2,400 at March 1, 1993. The 1995 employee count includes
approximately 225 employees at AMW not included in previous
years. The reduction of 325 employees (excluding AMW) since
March 1, 1994 is the result of actions taken to reduce costs
as well as a response to lower manufacturing volume.
(d) All of the Company's manufacturing facilities are located in
the United States. Substantially all (over 95%) of the
Company's sales are domestic.
Item 2. PROPERTIES
The Company operates owned and leased facilities, aggregating
approximately 1,241,400 square feet of usable space. The
following table sets forth certain information concerning each of
these facilities:
Facility Square Owned/ Products/
Location Feet Leased Operations
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SIGNAL KNITWEAR:
Chattanooga, TN 192,200 Owned Sportswear - warehouse,
distribution and
offices
New Tazewell, TN 91,300 Owned Sportswear - cut and
sew, warehouse and
distribution
20,000 Leased Storage
Rutledge, TN 59,700 Owned Sportswear - sew
12,500 Leased Sportswear - warehouse
and distribution
LaGrange, GA 134,500 Owned Sportswear - knitting,
dyeing and finishing,
warehouse and
distribution
53,600 Leased Sportswear - warehouse
Marion, SC 29,200 Owned Sportswear - sew
HERITAGE SPORTSWEAR:
Marion, SC 164,600 Owned Women's apparel, knit
sweaters and skirts -
knitting, cut and sew,
and offices
Lakeview, SC 85,100 Owned Women's apparel, knit
sweaters and skirts -
warehouse and
distribution
New York, NY 3,900 Leased Showroom and offices
SIGNAL ARTWEAR:
Wabash, IN 69,000 Owned Screen printing -
printing, warehouse and
offices
3,900 Leased Storage
Marion, IN 223,700 Leased Screen printing -
warehouse and printing
New York, NY 4,200 Leased Showroom and offices
AMERICAN MARKETING WORKS:
Gardena, CA 90,200 Leased Screenprinting -
printing, warehouse and
offices
Charlotte, NC 3,800 Leased Offices
The buildings at all facilities set forth in the table above and
the machinery and equipment contained therein are well maintained
and are suitable for the Company's needs. Substantially all of
the buildings are protected by sprinkler systems and automatic
alarm systems, and all are insured for amounts which the Company
considers adequate. The plant in Rutledge, Tennessee is subject
to mortgage liens incurred in connection with industrial
development financing. The plants in New Tazewell, Tennessee,
LaGrange, Georgia and Wabash, Indiana are subject to mortgage
liens incurred in connection with financing with the senior
lender.
As part of its strategic plan, the Company uses independent
contractors to supplement the productive capacities of its own
manufacturing facilities. The Company believes the production of
its own facilities plus the contracted production will support
the expected level of business in 1995.
Item 3. Legal Proceedings
The Company is unaware of any material pending legal proceeding
other than ordinary, routine litigation incidental to its
business.
Item 4. Submission of Matters To A Vote of Security Holders
No matters were submitted to a vote of security holders in the
fourth quarter of 1994.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
MARKET PRICES AND DIVIDENDS
(Unaudited) Quarter Ended
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March 31 June 30 September 30 December 31
1994 1993 1994 1993 1994 1993 1994 1993
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Common Stock:(1)
High $7.50 $14.75 $8.00 $13.00 $8.13 $9.88 $8.00 $8.38
Low 5.13 9.13 6.50 8.38 6.50 6.75 4.00 6.63
Cash dividends -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------
(1) Classes A and B Common Stock were redesignated as Common
Stock on June 22, 1993. Prior to that date, market prices
are quoted for Class A Common.
The Company's loan agreements contain provisions which currently
restrict the Company's ability to pay dividends (see Note 4 of
Notes to Consolidated Financial Statements). No Common Stock
dividends were declared during the five-year period ended
December 31, 1994.
Shareholders of record as of March 24, 1995:
Common 1,097
The Company's Common Stock is listed on the New York Stock
Exchange.
Item 6. Selected Financial Data
SUMMARY OF SELECTED FINANCIAL DATA
Dollars in Thousands (Except Per Share Data)
1994(c) 1993 1992 1991(b) 1990
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Net Sales $95,818 $131,000 $172,194 $90,137 $76,819
================================================================================
Net loss (a) (53,304) (34,878) (20,210) (31,771) (6,669)
================================================================================
Net loss per common
share (a) (6.88) (4.17) (2.41) (6.59) (2.23)
================================================================================
Total assets 69,448 87,914 121,280 113,732 53,217
================================================================================
Long-term obligations 49,258 26,748 72,126 54,869 15,955
================================================================================
(a) Effective January 1, 1994, the Company elected to
retroactively change its method of inventory valuation from
the LIFO method which was used for all inventories except
those of Signal Artwear to the FIFO method. The Company
believes the FIFO method will produce a better matching of
current costs and current revenues due to changes in its
existing product lines and the continuous introduction of
new products. The Company has also applied to the Internal
Revenue Service to change to the FIFO method of inventory
valuation for income tax reporting purposes.
As required by generally accepted accounting principles, the
Company has retroactively restated the prior period
financial statements for this change. See the Consolidated
Financial Statements where the impact of this change is
further discussed.
(b) The data includes amounts applicable to Shirt Shed from date
of acquisition, July 22, 1991.
(c) The data includes amounts applicable to American Marketing
Works from date of acquisition, November 22, 1994.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
Net sales of $95.8 million for 1994 represent a decrease of 26.9%
or $35.2 million when compared to the $131.0 million in net sales
for 1993. This decrease is comprised of a $13.2 million
reduction for screenprinted products, a $12.5 million reduction
for active sportswear, a $5.2 million reduction for women's
fashion knitwear and a $4.3 million reduction for discontinued
lines. The inclusion of AMW's operations since the date of
acquisition increased sales by $1.8 million.
Signal Artwear's sales were $28.2 million in 1994 versus $42.6
million in 1993. Of the $14.4 million reduction, $14.7 million
is a result of reduced sales to a large customer. On a license
basis, team sports were down $6.0 million while sales of licensed
products under three movie themes accounted for a $7.9 million
reduction. Closeout sales were up $3.1 million while first
quality sales were down by $17.5 million. Total dozens sold were
down 20% in 1994 from 1993 with a 91% increase of dozens in
closeout sales and a 42% reduction of dozens in first quality
sales. Decreased dozens accounted for 58% of the total sales
dollar reduction while product mix change accounted for the
balance of the reduction. Orders for printed sportswear and
licensed apparel for Signal Artwear were approximately $8.3,
$10.3 and $13.0 million at year-end 1994, 1993 and 1992,
respectively. Orders for printed sportswear and license apparel
for AMW were approximately $4.3 million at December 31, 1994.
Manufacturing difficulties encountered during 1994 impacted the
Company's sales. Management believes that steps currently
being taken to improve the Company's financial condition will
enable it to improve its ability to perform under its licenses,
and fill customers' orders on a timely basis at acceptable
quality levels. In turn, management believes this will enhance
the Company's ability to obtain new and renew current licenses.
Furthermore, the Company continues to actively consider
opportunities to acquire new licenses to add to its license
portfolio through the acquisition of companies holding desirable
licenses. The Company's ability to implement its strategy will
depend on solving its liquidity problems and improving its
manufacturing processes.
Sales of active sportswear decreased 22% to $45.9 million in 1994
as compared to $59.0 million in 1993. Of the $13.2 million
reduction, $5.7 million is a result of reduced sales to a large
customer. In 1994, there was a 24% reduction in the dozens of
active sportswear sold which accounted for a $13.9 million
decrease in sales dollars. The sales price per dozen increased
1% ($.7 million) in 1994 over 1993 due to sales mix.
Sales of women's fashion knitwear excluding discontinued lines,
decreased $5.2 million to $19.9 million in 1994 as compared to
$25.1 million in 1993. The 21% sales reduction was primarily due
to competition from garments selling at lower retail prices.
Unit volume accounted for 32% of the decrease. Reduction in
average selling price accounted for 68% of the decrease and was
due to a combination of product mix and unit selling price
changes.
Gross profit was $8.4 million (8.7% of sales) in 1994 compared to
$12.4 million (9.5% of sales) in 1993. The $4.1 million
reduction in gross profit in 1994 compared to 1993 was the result
of decreased sales volume excluding closeouts ($9.2 million),
increased losses on closeouts ($1.6 million), offset by more
favorable sales mix ($2.0 million), increased manufacturing
efficiencies ($2.2 million), reduced favorable raw material
prices and contractor purchase price variances ($.8 million) and
a favorable inventory reserve adjustment ($3.3 million). The
1994 gross profit includes a $7.7 million charge for inventory
writedowns which compares to a $9.6 million charge for inventory
writedowns in 1993.
Royalty expense related to license product sales was 3.5% and
3.6% for the years ended December 31, 1994 and 1993,
respectively. Royalty expense declined $1.4 million in 1994
versus 1993 due to decreased sales of license apparel.
Selling, general and administrative ("SG&A") expenses were 28%
and 24% of sales for the years ended December 31, 1994 and 1993,
respectively. SG&A expenses decreased $4.7 million in 1994
compared to 1993. Closing of the Keds division, Joan Vass
Sporting and certain outlet stores accounted for a $3.0 million
reduction. Reduction in legal and professional expense ($2.0
million) and in shipping expense ($.8 million) offset by the
addition of AMW ($1.0 million) were the primary elements of the
remaining reduction.
Interest expense decreased $1.8 million from 1994 to 1993.
Average debt outstanding in 1994 was $31.9 million compared to
$59.2 million in 1993. A significant portion of the Company's
subordinated debt was converted to Preferred Stock in 1993
resulting in the lower average debt outstanding in 1994. Average
interest rates were 9.4% and 7.6% for 1994 and 1993,
respectively.
The primary elements making up the 1994 other expense amount of
$2.0 million are $1.0 million amortization of goodwill, and $.2
million in factor charges for customer late payments. The
primary elements making up the 1993 other expense amount of $1.4
million are $1.0 million for amortization of goodwill and $.3
million in factor charges for customer late payments.
Signal Artwear has incurred losses each year since its
acquisition in 1991 and the Company's projections for future
operating results for Artwear indicate an impairment of the
goodwill. Accordingly, the Company deemed it appropriate to
write off the goodwill arising from the acquisition. The write-
off resulted in a charge of $26.5 million in 1994.
Pursuant to the acquisition of AMW, the Company named Marvin
Winkler, the Chairman and Chief Executive Officer of AMW, as
Chairman and Chief Executive Officer of Signal. Subsequent to
year-end, the Company named Leon Ruchlamer as President and
William H. Watts as Chief Financial Officer. These changes in
management were undertaken to assist the Company to effect its
plans to improve sales and operating results.
1993 COMPARED WITH 1992
Net sales of $131.0 million for 1993 decreased of 23.9%, or $41.2
million, when compared to the $172.2 million in net sales for
1992. This decrease was comprised of a $31.6 million reduction
for screenprinted products and a $9.6 million reduction for
active sportswear. Net sales for women's fashion knitwear
remained constant for the two years.
Signal Artwear's sales were $42.6 million in 1993 versus $74.2
million in 1992. Signal Artwear's total dozens sold were down
52% in 1993 from 1992, primarily as a result of a decrease in the
sale of licensed products under two movie themes. This decrease
was partially offset by a product mix change resulting in a 20%
higher sales price per dozen. In 1992, sales of Batman licensed
products accounted for $33.3 million of Artwear's sales. Orders
for printed sportswear and licensed apparel for Signal Artwear
were approximately $10.3 and $13.0 million at year-end 1993 and
1992, respectively.
Sales of active sportswear products decreased 14% to $59.0
million in 1993 as compared to $68.7 million in 1992. Sales of
closeout active sportswear products increased 43% to $7.2 million
in 1993 from 1992. Sales of active sportswear excluding
closeouts decreased 18% in 1993. In 1993, there was a 23%
reduction in the dozens of active sportswear sold excluding
closeouts as compared to 1992. The sales price per dozen
increased 5% in 1993 over 1992 due to sales mix. Orders for
active sportswear were $15.7 and $41.0 million at year-end 1993
and 1992, respectively.
Sales of women's fashion knitwear remained constant at $26.4
million in both 1993 and 1992. However, there was a 2.6% drop in
sales volume that was offset by an improvement in sales mix and
price. The discontinuance of the Keds division in July 1993 was
offset by increased sales of the Heritage Sportswear division.
Orders for women's fashion knitwear were $3.8 and $5.6 million at
year-end 1993 and 1992, respectively.
Gross profit was $12.4 million (9.5% of sales) in 1993 compared
to $31.8 million (18.4% of sales) in 1992. The $19.3 million
reduction in gross profit in 1993 compared to 1992 was the result
of increased losses on closeout sales ($5.0 million), decreased
sales volume excluding closeouts ($12.0 million), less favorable
sales mix ($2.2 million), decreased manufacturing efficiencies
primarily due to under absorption of overhead ($5.0 million),
offset by favorable reduced raw material prices and contractor
purchase price variances of $4.9 million. The 1993 gross profit
includes a $9.6 million charge for inventory writedowns. Of the
$9.6 million, $1.5 million relates to closeouts of new products
(Riddell and Joan Vass Sporting), while the remaining $8.1
million related to disposal of closeouts & obsolete inventory.
In 1992 gross profit was negatively impacted by a $6.7 million
inventory write-down, $1.8 million of which related to closeouts
of new products (Keds, Riddell and Joan Vass Sporting) while the
remaining $4.9 million related to disposal of closeout and
obsolete inventory that was created by disappointing sales of
licensed products and other marketing programs.
Royalty expense related to licensed product sales was 4% and 6%
of sales in 1993 and 1992, respectively. Royalty expense
decreased $6.2 million in 1993 from 1992 primarily due to
decreased sales of licensed products in 1993 and a $2.4 million
charge in 1992 for unearned royalties under a minimum guarantee
agreement on a product license.
Selling, general and administrative ("SG&A") expenses were 24%
and 20% of sales in 1993 and 1992, respectively. Actual SG&A
expense decreased $2.3 million in 1993 compared to 1992. Closing
of the Keds division resulted in a $2.6 million reduction of
expenses while reduced volume at Artwear resulted in a $2.5
million reduction, primarily sales commissions and factoring
charges. These reductions were partially offset by increased
start-up expense in the Riddell division ($1.5 million) and
increased bad debt expense for the Knitwear division ($1.0
million).
During the first half of 1993, the Company experienced an erosion
of sales and margins. In response, the Board of Directors
retained the consulting firm of Grisanti, Galef, and Goldress,
Inc. ("Grisanti"), to assess the Company's operations, including
its marketing direction, products, manufacturing and management
structure. The restructuring by Grisanti resulted in costs of
$4.8 million being charged to operations during the second, third
and fourth quarters of 1993, at the amounts of $1.5, $3.0 and $.3
million, respectively. The primary elements of the $4.8 million
were $1.7 million for the elimination of the Keds Apparel
division, $.7 million for closing the Griffin plant and $1.9
million for employee severance and related costs. Of the $4.8
million, $.6 million was for non-cash write-offs and
approximately $2.1 million was for charges that will impact
future cash flows.
The primary elements making up the 1993 other expense amount of
$1.4 million are $1.0 million amortization of goodwill and $.3
million in factor charges for customer late payments.
The primary elements making up the 1992 other expense amount of
$1.5 million are $1.0 million amortization of goodwill, $.5
million factor charges for customer late payments, and $.3
million related to discontinuance of the Company's pension plan.
These expenses were offset by income of $.3 million from
sublicenses for the Batman program.
Shirt Shed was a partner in a joint venture which resulted in
income of $.4 million during 1992. The joint venture ceased
operating in May 1992 and was terminated prior to December 31,
1992.
Interest expense decreased $1.3 million in 1993 from 1992.
Average outstanding debt in 1993 was $59.2 million compared to
$71.5 million in 1992. Average interest rates during 1993 and
1992 were 7.6% and 7.4%, respectively.
In 1992, Signal accrued $.4 million for clean-up of an oil spill
at the LaGrange facility and an additional $.1 million was
accrued in 1993. It is estimated that this amount will be
adequate to complete the clean-up of the contaminated area.
The net loss for 1993 was $34.9 million or $4.17 per share
compared to a net loss of $20.2 million or $2.41 per share for
1992.
FINANCIAL CONDITION
Additional working capital was required by the Company in 1994 to
fund losses the Company incurred. Some of this need was funded
through a reduction in raw materials and finished goods
inventories. Also, a portion of this need was met by the
Company's principal shareholders and senior lender. In February
1994, an investor exchanged $7.0 million of collateral on deposit
with the Company's senior lender for 70 shares of Series C
Preferred Stock. Additionally, the Company issued $3.0 million
of subordinated debt to a related party in March 1994. In August
1994, the Company's senior lender increased the total senior term
note outstanding to approximately $5.6 million from $3.5 based on
appraisals of machinery and equipment and real estate. In August
1994, two principal shareholders pledged collateral of $4.0
million to the senior lender in connection with such lender's
agreement to lend, on a discretionary basis, up to $4.0 million
in excess of the borrowing base. Additionally, the senior lender
agreed to a mid-month overadvance of $2.0 million. In connection
with the acquisition of AMW, the senior lender agreed to an
additional discretionary overformula accommodation not to exceed
$5.0 million.
Working capital at December 31, 1994 decreased $16.9 million or
64% over the prior year (after retroactively restating the prior
period financial statements for the change in the Company's
method of inventory valuation from the LIFO method to the FIFO
method -- see Note 3 of notes to consolidated financial
statements). The decrease in working capital was primarily due
to a significant increase in the current portion of long-term
debt resulting from the discretionary overadvances with the
senior lender ($10.8 million), a decrease in inventories ($2.6
million) and an increase in accounts payable and accrued
liabilities ($4.5 million), which were partially offset by higher
accounts receivable ($1.0 million).
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 $2.6 million or 7% compared to last year-
end (after retroactively restating the prior period financial
statements for the change in the Company's method of inventory
valuation from the LIFO method to the FIFO method -- see Note 3
of notes to consolidated financial statements). Inventories
increased $3.9 million as a result of the acquisition of AMW and
decreased $6.5 million as a result of the Company's ongoing
efforts to improve inventory turns and to sell closeout and
obsolete inventory during the year.
Total current liabilities increased $15.4 million or 93% over
year-end 1993 primarily due to the classification of the
discretionary overadvances of $10.8 million with the senior
lender as short-term. Additionally, accounts payable and accrued
liabilities increased $4.5 million including an increase of $3.2
million related to the acquisition of AMW.
Cash used in operations was $11.2 million in 1994, compared to
$3.8 million used in operating activities in 1993. The net loss
of $53.3 million and decreases in accounts payable and accrued
expenses of $1.8 million were the primary uses of funds. These
items were partially offset by depreciation and amortization
($4.7 million), write-off of goodwill ($26.5 million)
significantly lower inventory levels ($6.9 million) and a
decrease in accounts receivable ($5.3 million).
Cash used in investing activities of $3.5 million included $2.2
million for purchases of property and equipment, including
dyeing, sewing and screenprinting equipment primarily to improve
manufacturing efficiencies. Commitments to purchase equipment
totaled approximately $.1 million at December 31, 1994. During
1995, the Company anticipates capital expenditures of
approximately $.8 million. Cash used in investing activities
also included $1.3 million related to the acquisition of AMW.
Cash provided by financing activities was $14.6 million in 1994.
The Company borrowed $3.0 million in subordinated debt with a
related party, FS Signal Associates I, during the first quarter
of 1994. Additionally, the Company exchanged collateral of $7.0
million pledged to the senior lender by a related party, Walsh
Greenwood, for Preferred Stock, which decreased the revolving
advance account with the senior lender. Cash provided by
financing activities also included a net increase in the
revolving advance account primarily in the form of guaranteed and
discretionary overadvances with the Company's senior lender of
$8.9 million during 1994.
The revolving advance account increased $9.3 million from $19.7
million at year-end 1993 to $28.9 million at December 31, 1994.
Committed credit lines with the company's senior lender
aggregated a maximum of $40.0 million at December 31, 1994. At
year-end, approximately $10.8 million was overadvanced under its
revolving advance account, which is classified as short-term in
the consolidated balance sheets at December 31, 1994 (see later
paragraphs for a discussion of overadvance arrangements totalling
$11.0 million).
In August 1994, in response to the Company's liquidity needs, two
principal shareholders, FS Signal Associates II and Walsh
Greenwood, pledged collateral of $4.0 million to the senior
lender in connection with such lender's agreement to lend, on a
discretionary basis, funds up to $4.0 million in excess of the
borrowing base. As of December 31, 1994, the Company had
received the entire $4.0 million from the lender committed under
this arrangement. The Company may reduce the outstanding debt
under this special overadvance only after repayment of its mid-
month overadvance facility and any other overadvance facilities.
On November 22, 1994, the Company acquired AMW by issuance of
1,400,000 restricted shares of the Company's Common Stock.
300,000 of the shares are contingent on future events and are
not included as outstanding for financial reporting purposes.
Simultaneously with the acquisition, AMW entered into a financing
arrangement with the Company's senior lender. Under the
agreement with the combined companies, the senior lender will
advance up to a maximum of $40.0 million in accordance with a
formula based on the values of accounts receivable, inventory and
term notes, plus a discretionary overadvance of $4.0 million
(secured by the collateral pledged by two principal shareholders)
plus a discretionary over-formula accommodation not to exceed
$5.0 million and a mid-month overadvance of $2.0 million.
Total outstanding debt averaged $31.9 million and $59.2 million
for 1994 and 1993, respectively, with average interest rates of
9.4% and 7.6%. Although the Company continued to sustain losses
in 1994, average outstanding debt decreased primarily due to the
exchange of debt and collateral pledged by related parties for
Preferred Stock and the reduction in inventory.
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 $2.5 million at
December 31, 1994 (excluding collateral of $2.0 million pledged
to the senior lender in the form of a standby letter of credit).
Total shareholders' equity decreased $45.2 million compared to
year-end 1993. The Company sustained losses of $53.3 million
during 1994 (including the write-off of goodwill of $26.5 million
- -- see previous paragraph for a further discussion), which were
partially offset by a $7.0 million investment in Preferred Stock
by a principal shareholder and by the issuance of 1,100,000
restricted shares of Common Stock in conjunction with the
acquisition of AMW.
LIQUIDITY AND CAPITAL RESOURCES
As a result of continued losses, the Company has been unable to
fund its cash needs through cash generated by operations over the
last year and during the first quarter of 1995. The Company's
liquidity shortfalls from operations were resolved through
several transactions with related parties and the Company's
senior lender. In January 1994, the Company issued a
subordinated promissory note of $3.0 million to FS Signal
Associates I. The senior lender provided discretionary
overadvances of $11.0 million during 1994 and into the first
quarter of 1995. In addition, the senior lender waived all loan
covenant violations at December 31, 1994 and amended the
covenants for 1995 (Note 4). In January 1995, the Company sold
$3.0 million in Series C Preferred Stock to Walsh Greenwood and
affiliated entities. Subsequent to December 31, 1994, the
Company was advanced $7.0 million under the terms of a $15.0
million (net of discount) senior subordinated debt facility (Note
4).
The Company's continued existence is dependent upon its ability
to substantially improve its operating results during 1995. The
board of directors installed a new president and chief financial
officer during January 1995 to effect an improvement in
operations and liquidity. Since year-end, the Company has taken
actions to improve its operations and liquidity. On March 31,
1995, the Company closed on the $15.0 million (net of discount)
senior subordinated debt facility, such funds will be utilized
for working capital purposes. The Company instituted an
extensive cost reduction program that is expected to
substantially reduce general and administrative expenses, and the
Company is considering the sale of certain assets. In addition,
the Company sold excess and closeout inventory of approximately
$4.5 million since year-end and implemented an inventory control
program in order to eliminate the manufacture of excess goods.
Also, the senior lender extended the maturity dates of the senior
notes totalling $6.5 million (Note 4).
The Company believes the execution of the above steps will
provide sufficient liquidity for it to continue as a going
concern in its present form. Accordingly, the consolidated
financial statements do not include any adjustments relating to
recoverability and classification of recorded asset amounts or
the amount and classificiation of liabilities or any other
adjustments that might become necessary should the Company be
unable to continue as a going concern in its present form.
However, there can be no assurances that all of these steps, if
successfully completed, can return the Company's operations to
profitability.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1994 and
December 31, 1993
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993, and 1992
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993, and 1992
Notes to Consolidated Financial Statements
Financial Statement Schedules:
See Part IV, Item 14 (a) 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Signal Apparel Company, Inc.:
We have audited the accompanying consolidated balance sheets of
SIGNAL APPAREL COMPANY, INC. (an Indiana corporation) AND
SUBSIDIARIES as of December 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated
financial statements of the Company for the year ended
December 31, 1992 were audited by other auditors whose report
dated March 29, 1993, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Signal Apparel Company, Inc. and subsidiaries as of
December 31, 1994 and 1993 and the results of their operations
and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements,
the Company has given retroactive effect to the change in
accounting for inventories from the last-in, first-out method to
the first-in, first-out method.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements,
the liquidity of the Company has been adversely affected by
recurring losses from operations, which raises substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result
should the Company be unable to continue as a going concern.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 31, 1995
CONSOLIDATED BALANCE SHEETS
Signal Apparel Company, Inc.
and Subsidiaries
December 31, 1994 and 1993
(Dollars in thousands)
1994 1993
--------- --------
Assets
Current assets:
Cash $ 303 $ 444
Receivables, less allowance for doubtful
accounts of $1,787 in 1994 and
$1,060 in 1993 6,713 5,699
Inventories 33,350 35,956
Prepaid expenses and other 1,135 893
--------- --------
Total current assets 41,501 42,992
--------- --------
Property, plant and equipment, at cost:
Land 505 560
Buildings and improvements 12,437 10,845
Machinery and equipment 38,684 36,405
--------- --------
Total property, plant and equipment 51,626 47,810
Less accumulated depreciation 34,816 30,425
--------- --------
Net property, plant and equipment 16,810 17,385
--------- --------
Goodwill, less accumulated amortization
of $41 in 1994 and $2,346 in 1993 10,786 27,465
Other assets 351 72
--------- --------
Total assets $ 69,448 $ 87,914
========= ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 8,663 $ 5,295
Accrued liabilities 11,356 10,184
Current portion of long-term debt 1,144 1,126
Discretionary overadvances from bank 10,849 --
--------- --------
Total current liabilities 32,012 16,605
--------- --------
Long-term debt (less current portion):
Senior obligations 30,217 23,846
Subordinated debt to related parties 5,434 --
--------- --------
Total long-term debt 35,651 23,846
--------- --------
Multiemployer pension plan withdrawal
liability 1,084 1,558
--------- --------
Commitments and Contingencies (Notes 1,
2, 4, 5 and 8)
Shareholders' equity:
Series A Preferred Stock, $100,000 stated
value per share, 400 shares authorized,
327.087 shares issued and outstanding in
1994 and 1993 (liquidation preference of
$100,000 per share plus cumulative unpaid
dividends of $6,875 in 1994 and $1,455 in
1993) 39,584 34,164
Series B Preferred Stock, $100,000 stated
value per share, 250 shares authorized,
217.678 shares issued in 1993
(liquidation preference of $100,000
per share, plus cumulative unpaid
dividends of $1,046 in 1993); exchanged
for Series C in 1994 -- 22,814
Series C Preferred Stock, $100,000 stated
value per share, 1,000 shares
authorized, 287.678 shares issued
in 1994 (liquidation preference of
$100,000 per share plus cumulative
unpaid dividends of $4,850 in 1994) 33,618 --
Common Stock, 20,000,000 shares
authorized, $.01 par value per share,
10,204,296 shares issued in 1994 and
9,104,296 shares issued in 1993 102 91
Additional paid-in capital 69,721 68,632
Accumulated deficit (141,207) (78,679)
--------- --------
Subtotal 1,818 47,022
Less cost of common treasury shares
(140,220 shares) (1,117) (1,117)
--------- --------
Total shareholders' equity 701 45,905
--------- --------
Total liabilities and
shareholders' equity $ 69,448 $ 87,914
========= ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Signal Apparel Company, Inc.
and Subsidiaries
Years ended December 31, 1994, 1993 and 1992
(In thousands, except per share data)
1994 1993 1992
- ------------------------------------------------------------------------
Net sales $ 95,818 $ 131,000 $ 172,194
Cost of sales 87,450 118,562 140,479
- ------------------------------------------------------------------------
Gross profit 8,368 12,438 31,715
Royalty expense (3,342) (4,702) (10,918)
Selling, general and administrative
expenses (26,803) (31,549) (33,827)
Interest expense (3,002) (4,855) (6,131)
Other expense, net (2,044) (1,425) (1,482)
Write-off of goodwill (26,481) -- --
Restructuring costs -- (4,785) --
Income (loss) associated with joint
venture -- -- 433
- ------------------------------------------------------------------------
Loss before income taxes (53,304) (34,878) (20,210)
Income taxes -- -- --
- ------------------------------------------------------------------------
Net loss (53,304) (34,878) (20,210)
Less Preferred Stock dividends (9,224) (2,501) (92)
- ------------------------------------------------------------------------
Net loss applicable to Common Stock $ (62,528) $ (37,379) $ (20,302)
========================================================================
Weighted average common and common
equivalent shares outstanding 9,082 8,963 8,428
========================================================================
Net loss per common share (6.88) (4.17) (2.41)
========================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Signal Apparel Company, Inc.
and Subsidiaries
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands, except share data)
Preferred Stock Senior Addt'l
------------------------ Preferred Common Class A Class B Paid-In Accum. Treasury
Series A Series B Series C Stock Stock Common Common Capital Deficit Stock Total
---------------------------- -------- -------- -------- -------- ---------------- ---------------- --------- -------- --------
Balance, December 31, 1991,
as previously reported $ - $ - $ - $ 420 $ - $ 66 $ 7 $53,718 ($24,991) ($1,106) $28,114
Restatement for change in
inventory pricing method
from LIFO to FIFO (Note 3) - - - - - - - - 4,466 - 4,466
---------------------------- -------- -------- -------- -------- ------- --------- ---------------- --------- -------- --------
Balance, December 31, 1991,
as restated $ - $ - $ - $ 420 $ - $ 66 $ 7 $53,718 ($20,525) ($1,106) $32,580
Net loss - - - - - - - - (20,210) - (20,210)
Cash dividends:
Preferred ($1.60 per share) - - - - - - - - (92) - (92)
Conversion of 6,745 shares of
Class B Common Stock into
Class A Common Stock - - - - - - - - - - -
Conversion of 105,236 shares
of Senior Preferred into
Class A and Class B Common
Stock - - - (351) - 2 2 347 - - -
Exercise of employee stock
options - - - - - 2 - 767 - (153) 616
Issuance of 1,150,000 shares
of Class A Common Stock
upon exercise of warrants - - - - - 12 - 13,788 - - 13,800
Redemption of Preferred Stock - - - (69) - - - - (473) 142 (400)
---------------------------- -------- -------- -------- -------- -------- -------- ---------------- --------- -------- --------
Balance, December 31, 1992 $ - $ - $ - $ - $ - $ 82 $ 9 $68,620 ($41,300) ($1,117) $26,294
Net loss - - - - - - - - (34,878) - (34,878)
Redesignation of Common Stock - - - - 91 (82) (9) - - - -
Exercise of employee stock
options - - - - - - - 12 - - 12
Issuance of 544.765 shares
of Preferred Stock 32,709 21,768 - - - - - - - - 54,477
Cumulative accrued dividends
on Preferred Stock 1,455 1,046 - - - - - - (2,501) - -
---------------------------- -------- -------- -------- -------- ---------------- ---------------- --------- -------- --------
Balance, December 31, 1993 $34,164 $22,814 $ - $ - $ 91 $ - $ - $68,632 ($78,679) ($1,117) $45,905
Net loss - - - - - - - - (53,304) - (53,304)
Issuance of 70 shares of
Series C Preferred Stock - - 7,000 - - - - - - - 7,000
Exchange of 287.678 shares
of Series B Preferred Stock
for 287.678 shares of Series C
Preferred Stock - (22,814) 22,814 - - - - - - - -
Cumulative accrued dividends
on Preferred Stock 5,420 - 3,804 - - - - - (9,224) - -
Issuance of 1,100,000 shares
of restricted Common Stock
in connection with the
acquisition of American
Marketing Works, Inc. - - - - 11 - - 1,089 - - 1,100
---------------------------- -------- -------- -------- -------- ---------------- ---------------- --------- -------- --------
Balance, December 31, 1994 $39,584 $ - $33,618 $ - $ 102 $ - $ - $69,721 ($141,207) ($1,117) $ 701
============================= ======== ======== ======== ======== ================ ================ ========= ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Signal Apparel Company, Inc.
and Subsidiaries
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands)
1994 1993 1992
-------- -------- --------
Operating Activities:
Net loss $(53,304)$ (34,878)$ (20,210)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 4,653 5,338 5,529
Loss on disposal of property,
plant and equipment 251 732 38
Write-off of goodwill 26,481 -- --
Changes in operating assets and
liabilities, net of effects of
business acquired:
Decrease in receivables 5,273 3,319 4,375
(Increase) decrease in inventories 6,858 25,209 (7,040)
Decrease in other assets -- -- 426
Decrease in prepaid expenses and
other 330 345 297
Decrease in accounts payable
and accrued liabilities (1,790) (3,867) (7,384)
-------- -------- --------
Net cash used in operating
activities (11,248) (3,802) (23,969)
-------- -------- --------
Investing activities:
Purchases of property, plant and
equipment (2,168) (1,838) (4,676)
Proceeds from the sale of property,
plant and equipment 20 25 50
Acquisition of business, less
cash acquired (1,343) -- --
-------- -------- --------
Net cash used in investing
activities (3,491) (1,813) (4,626)
-------- -------- --------
Financing activities:
Net increase (decrease) in revolving
advance account 8,918 (16,354) 12,993
Proceeds from subordinated notes 3,000 7,500 17,000
Principal payments on borrowings (4,102) (718) (14,705)
Principal payments on multiemployer
withdrawal liability (218) (206) (277)
Proceeds from issuance of Preferred
Stock 7,000 15,000 --
Proceeds from exercise of stock warrants -- -- 13,800
Proceeds from exercise of stock options -- 12 616
Dividends paid -- -- (140)
Redemption of Preferred Stock -- -- (400)
-------- -------- --------
Net cash provided by
financing activities 14,598 5,234 28,887
-------- -------- --------
Increase (decrease) in cash (141) (381) 292
Cash at beginning of year 444 825 533
-------- -------- --------
Cash at end of year $ 303 $ 444 $ 825
======== ======== ========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Signal Apparel Company, Inc. and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Presentation
The Company's consolidated financial statements have been
presented on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company reported a net loss
applicable to Common Stock of $62,528,000 for the year ended
December 31, 1994, and cumulative losses for the past three years
of $120,209,000. The 1994 loss includes a write-down of goodwill
of approximately $26,481,000 related to the acquisition of The
Shirt Shed, Inc. (see "Goodwill"). As a result of these losses,
shareholders' equity has declined to $701,000, at December 31,
1994, and tangible net worth is a negative $10,085,000.
Over the last year and during the first quarter of 1995, the
Company has experienced liquidity shortfalls from operations that
were resolved through (i) the issuance of a subordinated
promissory note of $3,000,000 to FS Signal Associates I, a
principal shareholder (see Note 4) in January 1994 and the sale
of $3,000,000 of Series C Preferred Stock to Walsh Greenwood, a
principal shareholder (see Note 4) in January 1995, (ii) the
advance to the Company of $7,000,000 subsequent to December 31,
1994 under the terms of a $15,000,000 (net of discount) senior
subordinated debt facility (Note 4), (iii) the waiver by the
senior lender of all loan covenant violations at December 31,
1994 and the amendment of the covenants for 1995, and (iv) the
provision by the senior lender of discretionary overadvances of
$11,000,000 during 1994 and into the first quarter of 1995 (Note
4).
The Company's continued existence is dependent upon its ability
to substantially improve its operating results during 1995. The
board of directors installed a new president and chief financial
officer during January 1995 to effect an improvement in
operations and liquidity. Actions taken by the Company since
year-end to improve its operations and liquidity include (i) the
$15,000,000 (net of discount) senior subordinated debt facility
closed on March 31, 1995, (ii) the institution of an extensive
cost reduction program that is expected to substantially reduce
general and administrative expenses, (iii) the sale of excess and
closeout inventories of approximately $4,500,000 since year-end
and the implementation of an inventory control program in order
to eliminate the manufacture of excess goods, (iv) the extension
of the maturity dates of senior notes of $6,500,000 (Note 4), and
(v) the consideration by the Company of the sale of certain
assets. The Company believes it can improve its operating
margins as a result of certain of the actions being taken.
The Company believes the execution of the above steps and other
planned improvements in operations will provide sufficient
liquidity for it to continue as a going concern in its present
form. Accordingly, the consolidated financial statements do not
include any adjustments relating to recoverability and
classification of recorded asset amounts or the amount and
classification of liabilities or any other adjustments that
might become necessary should the Company be unable to continue
as a going concern in its present form. However, there can be no
assurances that all of these steps, if successfully completed,
can return the Company's operations to profitability.
Principles of Consolidation
The consolidated financial statements include the accounts of
Signal Apparel Company, Inc. ("Signal") and its wholly-owned
subsidiaries (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO)
cost or market for all inventories (Note 3). For discontinued
and closeout inventories, the Company evaluates the need for
write-downs on an item by item basis. Market for finished goods
and blank (unprinted) goods is net realizable value.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided over
the estimated useful lives of the assets principally using
accelerated methods. Assets under capital leases are included in
property, plant and equipment, and amortization of such assets is
included with depreciation expense. The estimated useful lives
of the assets range from 4 to 32 years for buildings and
improvements and 3 to 10 years for machinery and equipment.
Expenditures for maintenance and repairs are charged to expense
as incurred. Depreciation and amortization of property, plant
and equipment for financial statement purposes amounted to
$3,635,000 in 1994, $4,355,000 in 1993 and $4,556,000 in 1992.
Net Loss Per Common Share
The net loss per common share is based on the weighted average
number of common shares outstanding during each year after giving
effect to dividend requirements of the Preferred Stock. Effects
of the Company's Common Stock equivalents have been excluded from
the per share computations as they are anti-dilutive for all
periods presented.
Line of Business
Apparel manufacturing and distribution is the Company's one line
of business. In 1994, no one customer accounted for more than
10% of total sales. One customer accounted for 21% of net sales
in 1993 and 18% of net sales in 1992.
Credit and Market Risk
The Company sells products to a wide variety of customers
servicing the ultimate consumer. Pursuant to the terms of a
factoring agreement with its senior lender, the Company sells
substantially all accounts receivable, except cash in advance or
cash on delivery sales, to the factor on a preapproved basis.
The Company pays a factoring commission as compensation for the
credit risk and other services provided by the factor.
With regard to credit-approved sales, the factor accepts the
credit risk for nonpayment due to financial inability to pay.
With regard to noncredit approved sales, the Company accepts all
credit risk of nonpayment for any reason. A portion of accounts
receivable due from customers (approximately 49% and 62% at
December 31, 1994 and 1993, respectively) is carried at the risk
of the factor. The Company performs ongoing credit evaluations
of those customers carried at its own risk and generally does not
require collateral for such receivables. The Company maintains
an allowance for doubtful accounts at a level which management
believes is sufficient to cover potential credit losses.
Goodwill
During November 1994, the Company acquired American Marketing
Works, Inc. ("AMW"). The acquisition of AMW resulted in goodwill
of $10,827,000 being recorded due to the excess of cost over the
net assets acquired (Note 2). The goodwill related to the AMW
acquisition is being amortized on straight-line basis over 30
years.
In connection with the acquisition of The Shirt Shed, Inc.
("Shirt Shed") in 1991, the Company recorded goodwill for the
excess of the cost over the net assets acquired ("goodwill").
The goodwill was being amortized on a straight-line basis over 30
years. The Company continually evaluates whether later events
and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that
the remaining balance may not be recoverable. When factors
indicate that goodwill should be evaluated for possible
impairment, the Company uses an estimate of the related business
segment's undiscounted net income over the remaining life of the
goodwill in measuring whether the goodwill is recoverable.
During the fourth quarter of 1994, the Company determined that
the goodwill related to the acquisition of Shirt Shed had been
impaired. This impairment was due to continued operating losses
by Shirt Shed along with the uncertainty about its return to
profitability. As a result, the unamortized balance of the Shirt
Shed goodwill was written off. The charge for the goodwill
write-off was $26,481,000 and has been separately presented in
the accompanying statement of operations for the year ended
December 31, 1994.
2. Acquisition of American Marketing Works
Pursuant to a stock purchase agreement dated October 6, 1994, as
subsequently amended (as so amended, the "Purchase Agreement"),
the Company acquired, as of November 22, 1994, all of the
outstanding capital stock of AMW, from Kidd, Kamm Equity
Partners, L.P., a Delaware limited partnership ("KKEP"), MW
Holdings, L.P., a California limited partnership ("MWH"), Marvin
Winkler, Sherri Winkler and certain investment companies
(collectively, the "AMW Shareholders"), in exchange for 1,400,000
shares of the Company's Common Stock, $.01 par value per share
(the "AMW Acquisition"). Included in the 1,400,000 shares are
150,000 unvested shares and 150,000 shares subject to being
returned to the Company. AMW is a branded licenses apparel
company which designs, prints and markets silkscreen printable
sportswear, principally T-shirts and sweatshirts, with tangible
assets of approximately $8,643,000 at December 31, 1994 and
calendar 1994 net sales (unaudited) of approximately $34,000,000.
AMW has a broad portfolio of licenses, cross licenses and brand
names backed by well-known products or endorsers. AMW's
distribution channels include department stores, specialty
stores, mass merchants, gift shops and souvenir shops. The
Company intends to continue the operation of AMW's business as a
wholly-owned subsidiary.
Pursuant to the terms of a registration rights agreement (the
"Registration Rights Agreement") executed in connection with the
AMW Acquisition, 150,000 of the shares are designated as
"unvested" as of the date of the AMW Acquisition, which shares
will vest (if at all) only in accordance with the Registration
Rights Agreement (as described below). An additional 150,000 (or
the proceeds therefrom, if sold) shares which are designated as
"vested" shares under the Registration Rights Agreement are
nonetheless, under the terms of the Purchase Agreement, subject
to being returned to the Company in the event that KKEP's
guaranty of certain pre-AMW Acquisition indebtedness of AMW
terminates in accordance with its terms without KKEP having
received any demand to make payments as guarantor thereunder.
Such indebtedness is secured by the fixed assets of AMW and is
also subject to separate guaranties given by the Company and by
certain of the Company's principal shareholders. The additional
300,000 common shares which are considered "vested" and
"nonvested" have not been reflected as issued in the accompanying
consolidated financial statements due to the contingencies
related to their issue.
The shares of the Company's Common Stock issued in connection
with the AMW Acquisition were issued as unregistered, restricted
shares pursuant to the rules and regulations of the Securities
and Exchange Commission. As an additional inducement to the AMW
Shareholders to enter into the Purchase Agreement, the Company
entered into a Registration Rights Agreement dated November 22,
1994 with KKEP as "nominee" for all of the AMW Shareholders
(other than Marvin Winkler and Sherri Winkler, who did not
receive any shares) under a separate agreement between KKEP and
such shareholders. The Registration Rights Agreement effectively
grants KKEP (as "Holder," as defined therein, of a majority of
the "Registrable Securities" issued in the AMW Acquisition) the
right to require the Company, upon written notice given anytime
within two years after November 22, 1994, to effect one
registration of all "Registrable Securities" issued in the AMW
Acquisition for sale under the Securities Act of 1933, as
amended. The Registration Rights Agreement defines the term
"Registrable Securities" to include all 1,250,000 "vested" shares
issued in connection with the AMW Acquisition (including the
150,000 shares subject to being returned to the Company as
described above), plus any "unvested" shares which may become
"vested" pursuant to the Registration Rights Agreement. The
"unvested" shares will only become "vested," however, in the
event that the Company exercises its rights under the
Registration Rights Agreement to require certain delays or
suspensions in the registration of shares to which the AMW
Shareholders are otherwise entitled under the terms of the
agreement.
In connection with the AMW Acquisition, the Company agreed with
the other parties to the Purchase Agreement that (i) a
subordinated promissory note of AMW in the principal amount of
$1,560,000 from MWH and (ii) a subordinated promissory note of
AMW in the principal amount of $750,000 from Marvin Winkler
(president of the general partner of MWH as well as former
Chairman and CEO of AMW and current chairman and CEO of the
Company) and his wife, Sherri Winkler (collectively, the
"Subordinated Notes") would be amended and restated in principal
amounts equal to the outstanding principal plus accrued and
unpaid interest on each of the Subordinated Notes as of November
22, 1994 (totalling $1,635,400 and $798,300, respectively) (said
amended and restated notes, collectively, the "Purchase Notes").
Each of the Purchase Notes bears interest at a rate of 11% per
annum (payable monthly) and will mature on November 22, 1999
(Note 4). The Purchase Notes are subject to a separate Put/Call
Agreement dated November 22, 1994 among the Company, MWH and
Marvin and Sherri Winkler (the "Winklers"), pursuant to which:
(i) MWH and the Winklers have the right, exercisable at any time
prior to the earlier of the maturity of the Purchase Notes or any
call of the Purchase Notes by the Company, to require the Company
to purchase either of the respective Purchase Notes in exchange
for a number of shares of the Company's Series D Preferred Stock,
$100,000 stated value per share (the "Series D Preferred Stock")
equal in stated value to the then outstanding principal plus
accrued and unpaid interest with respect to such note; and (ii)
the Company has the right, exercisable at any time (A) after any
acceleration of the senior debt of either the Company or AMW by
either lender pursuant to the terms of such debt and (B) prior to
the first to occur of (x) an exercise of the above-described put
option by either MWH or the Winklers with respect to each
Purchase Note or (y) the maturity of each such note, to require
each of MWH and the Winklers to sell their respective Purchase
Notes to the Company in exchange for a number of shares of the
Company's Series D Preferred Stock determined as described above.
Subsequent to year-end, the Company entered into an agreement
with MWH and the Winklers whereby the Purchase Notes would be
canceled in exchange for 1,000,000 shares of Common Stock to be
issued to Marvin Winkler.
On November 30, 1994, KKEP, in its capacity as nominee for the
AMW Shareholders who received shares of the Company's stock in
the AMW Acquisitions, notified the Company of its exercise of the
demand registration rights granted in the Registration Rights
Agreement. In accordance with the terms of the Registration
Rights Agreement, the Company has requested, and KKEP has agreed
to, a six month delay in the registration of shares pursuant to
such notice. As a result of the delay, the unvested shares will
vest in 1995, in accordance with the terms of the Registration
Rights Agreement.
The AMW acquisition was accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16, and accordingly,
the purchase price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values as of the
acquisition date. The net excess of the cost over the estimated
fair values of the acquired net assets as a result of the AMW
Acquisition has been allocated to goodwill. The purchase price
allocation will be finalized in 1995.
The results of operations of AMW are included in the accompanying
consolidated financial statements from the date of acquisition.
The following summarized unaudited pro forma financial
information gives effect to the acquisition as if it had occurred
on January 1 of each period and has been prepared for comparative
purposes only. The information does not purport to be indicative
of the results of operations had the transaction been in effect
on the date indicated or which may occur in the future:
Year Ended
Dollars in Thousands December 31,
(except per share data) 1994 1993
---- ----
(unaudited)
Net sales $125,603 $169,018
Net loss applicable to
common shareholders 71,407 38,770
Net loss per common share 6.99 3.80
3. Inventories
Inventories consisted of the following at December 31, 1994 and
1993:
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------
At current cost:
Raw materials $ 963 $ 1,965
Work in process 5,639 7,629
Finished goods 25,392 24,267
Supplies 1,356 2,095
- -----------------------------------------------------------------
$33,350 $35,956
=================================================================
Effective January 1, 1994, the Company elected to retroactively
change its method of inventory valuation from the last in, first
out ("LIFO") method, which was used for all divisions except the
Artwear division, to the first in, first out ("FIFO") method.
The Company believes the FIFO method will produce a better
matching of current costs and current revenues due to changes in
its existing product lines and the continuous introduction of new
products. The Company has also applied to the Internal Revenue
Service to change to the FIFO method of inventory valuation for
income tax reporting purposes.
As required by generally accepted accounting principles, the
Company has retroactively restated the prior period financial
statements for this change. The effect of the restatement was to
reduce the accumulated deficit at December 31, 1991 by
$4,466,000.
The impact of this change in accounting method on the net loss
for each subsequent period was as follows (dollars in thousands,
except per share date):
Fiscal Years
------------
1993 1992
---- ----
Increase (decrease) in:
Net loss $1,016 $(316)
====== ======
Net loss per common and
common equivalent share $.11 $(.04)
====== ======
4. Long-Term Debt
Long-term debt consisted of the following at December 31, 1994
and 1993:
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------
Senior obligations:
Revolving advance account under
credit facility -- interest payable
monthly at the alternate base rate
(as defined) plus 1.25% (9.75% at
December 31, 1994); secured by
accounts receivable, inventories
and certain machinery and equipment $28,924 $19,673
Senior term note -- interest payable
monthly at the alternate base rate
(as defined) plus 1.5% (10.0% at
December 31, 1994); secured by real
estate; payable in equal monthly
installments of $17,600 over a
period through July 1999 with a
balloon payment due August 1999 1,422 --
Senior term note -- interest payable
monthly at the alternate base rate
(as defined) plus 1.5% (10.0% at
December 31, 1994); secured by
accounts receivable, inventories,
and machinery and equipment; payable
in equal monthly installments of
$49,500 over a period through
July 1999 with a balloon payment
due August 1999 3,993 4,000
Tranche A note -- interest payable
monthly at the commercial paper rate
(as defined) plus 4.75% (10.8% at
December 31, 1994); secured by certain
machinery and equipment and certain
issued and outstanding stock, payable
on December 31, 1996 4,750 --
Tranche B note -- interest payable
monthly at the commercial paper rate
(as defined) plus 7.65% (13.7% at
December 31, 1994); secured by certain
machinery and equipment and certain
issued and outstanding stock, payable
on December 31, 1996 1,750 --
Obligations under capital leases 293 764
Mortgage notes payable 396 432
Other 682 103
- -----------------------------------------------------------------
Total 42,210 24,972
Less: Current portion of long-term debt 1,144 1,126
Discretionary overadvances
from bank 10,849 --
- -----------------------------------------------------------------
Senior obligations, excluding current
portion 30,217 23,846
Subordinated debt to related parties
(Notes 2 and 5) 5,434 --
- -----------------------------------------------------------------
Total excluding current portion $35,651 $23,846
=================================================================
On March 31, 1994, the financing arrangement with the Company's
senior lender was extended through March 31, 1997. Under the
current financing arrangement, the Company's total outstanding
obligations (including the revolving advance account and senior
term notes) at any month-end cannot exceed the lower of
$40,000,000 or the borrowing base as defined in the agreement.
The borrowing base is generally equal to the sum of 85% of
eligible receivables (as defined), plus the lower of the
inventory cap (presently $16,000,000, subject to adjustment) or
50% of eligible inventory (as defined), less certain reserves,
plus the discretionary overadvances of $11,000,000.
In August 1994, the Company's senior lender agreed to a mid-month
overadvance (unsecured advance in excess of the borrowing base)
up to a maximum of $2,000,000. These mid-month overadvances must
be repaid by and during the first week of the following
accounting month. In order to provide additional funding to the
Company, two principal shareholders, FS Signal Associates II and
Walsh Greenwood, pledged collateral of $4,000,000 to the senior
lender in August 1994 in connection with the senior lender's
agreement to lend, on a discretionary basis, funds up to
$4,000,000 in excess of the borrowing base. At December 31,
1994, the Company had received the entire $4,000,000 from the
senior lender committed under this arrangement. The Company may
reduce the outstanding debt under this special overadvance only
after repayment of its mid-month overadvance facility and any
other overadvance facilities. In connection with the acquisition
of AMW in November 1994, the senior lender agreed to an
additional discretionary over-formula accommodation not to
exceed $5,000,000 plus the mid-month overadvance of $2,000,000
described above. The Company will incur premium rates and
penalty rates on over-formula advances under certain conditions
and time periods. At December 31, 1994, $10,849,000 was
overadvanced against the overadvance arrangements of $11,000,000
under its financing arrangement. Such overadvances were
classified as current in the consolidated balance sheet at
December 31, 1994. Subsequent to year-end the senior lender
reduced the $11,000,000 overadvances described above to $10,000,000.
Under the revolving advance account, interest is at the alternate
base rate plus 1.25%. The alternate base rate is a fluctuating
rate equal to the higher of the prime rate (as defined) or the
federal funds rate plus .5%, and is payable monthly. In addition
to the amounts due to the senior lender for interest, the Company
is obligated to pay a quarterly fee of .25% per annum on the
difference between $40,000,000 and the average amount of
obligations outstanding, as defined, to such lender.
In August 1994, the senior lender increased the amount
outstanding under the senior term notes based on appraisals of
machinery and equipment and real estate. The revised notes
totaling $5,415,000 at December 31, 1994 will be repaid in equal
monthly principal payments of $67,100, which started September 1,
1994, and ending with a balloon payment of $1,677,000 on
August 1, 1999.
In connection with the AMW Acquisition, the senior lender amended
its respective factoring agreements with the Company and its
wholly owned subsidiary, Shirt Shed, to permit the AMW
Acquisition. Simultaneously with the AMW Acquisition, AMW
entered into a factoring agreement (the "AMW Factoring
Agreement") with BNY Financial Corporation ("BNY" or the "senior
lender") pursuant to which BNY will provide AMW with financing up
to a maximum principal amount of $14,000,000 on substantially the
same terms as the pre-AMW Acquisition factoring agreements with
the Company and Shirt Shed (and subject to the same overall
limitation of $40,000,000 regarding the aggregate indebtedness of
the Company, Shirt Shed and AMW). In connection with the
amendments of the pre-AMW Acquisition factoring agreements of the
Company and Shirt Shed and the execution of the AMW Factoring
Agreement: (i) AMW (A) granted security interests in all of its
inventory, equipment and trademarks to BNY with respect to AMW's
obligations under the AMW Factoring Agreement and (B) executed a
guaranty agreement with BNY guaranteeing the obligations of the
Company and Shirt Shed under their respective factoring
agreements with BNY; (ii) the Company (A) executed a guaranty
agreement with BNY guaranteeing the obligations of AMW under the
AMW Factoring Agreement, (B) pledged all the issued and
outstanding stock of both AMW and Shirt Shed to BNY to secure the
obligations of the Company, Shirt Shed and AMW under their
respective factoring agreements and (C) issued a warrant to BNY
to purchase 100,000 shares of the Company's Common Stock at an
exercise price of $7.06 per share with an expiration date of
November 18, 1997; (iii) Shirt Shed executed a guaranty agreement
with BNY guaranteeing the obligations of AMW under the AMW
Factoring Agreement; (iv) Walsh Greenwood and affiliates,
principal shareholders of the Company, guaranteed up to $250,000
of the obligations of AMW to BNY and to AMW's prior fixed assets
lender (in addition to the guarantees of such AMW debt by the
Company and KKEP, as discussed above); and (v) FS Signal
Associates II, L. P. another of the Company's principal
shareholders, pledged 500,000 shares of the Company's Common
Stock to BNY to secure the obligations of AMW to BNY.
The current financing arrangement requires, among other things,
the maintenance of minimum amounts of working capital, cumulative
pretax operating results and net worth, and also limits the
Company's ability to pay dividends and limits the amount of
indebtedness the Company may incur. As of December 31, 1994, the
Company was not in compliance with various covenants of the
credit facility, including all of the financial covenants.
Subsequent to year-end, the lender waived the loan covenant
violations and amended the financing arrangement.
In connection with the acquisition of AMW, the Company amended
and restated a credit agreement with AMW's former lender. The
amended and restated credit agreement includes two promissory
notes ("Tranche A" and "Tranche B"). The Tranche A note
totalling $4,750,000 is due on June 30, 1995, and interest is
payable monthly at the commercial paper rate (as defined) plus
4.75%. The Tranche B note totalling $1,750,000 is due on June
30, 1995, and interest is payable monthly at the commercial paper
rate (as defined) plus 7.65%. The commercial paper rate is
defined as the rate of interest equivalent to the money market
yield on the one month Commercial Paper Rate for dealer-placed
commercial paper of issuers whose corporate bonds are rated "AA"
or its equivalent. The notes are secured by a first lien on
AMW's machinery and equipment. Additionally, the Company pledged
all of the issued and outstanding stock of AMW to this lender as
collateral. A principal shareholder, FS Signal Associates II,
pledged 500,000 shares of the Company's Common Stock to this
lender to secure AMW's obligations. Another shareholder, KKEP
pledged 1,400,000 shares of the Company's Common Stock to this
lender, also. This credit agreement limits the amount of
indebtedness AMW may incur. Subsequent to year-end, the due date
of the notes was extended from June 30, 1995 to December 31,
1996. Consequently, the Tranche A note of $4,750,000 and the
Tranche B note of $1,750,000 are classified as long-term in the
accompanying balance sheet at December 31, 1994.
In March 1992, FS Signal and Walsh Greenwood exercised warrants
permitting them to purchase shares of Common Stock. Such
purchase resulted in the addition of $13,800,000 of shareholders'
equity, the proceeds of which were used to reduce the total long-
term borrowings from the related parties to $20,200,000. In June
1992, the Company negotiated a revolving credit agreement with FS
Signal providing for a credit facility of $5,000,000. The full
amount of the available facility was borrowed in June 1992. In
July 1992, the Company and FS Signal amended the revolving credit
agreement to increase the facility from $5,000,000 to
$10,000,000. Borrowings under the facility were increased
concurrently to $10,000,000. Additional funds of $7,500,000 were
borrowed from FS Signal during the first quarter of 1993 under
terms essentially identical to the terms of the revolving credit
agreement referred to above.
On August 13, 1993, the Company entered into a restructuring
agreement (the "Restructuring Agreement") with FS Signal and
Walsh Greenwood to facilitate additional equity investment in the
Company and to exchange shares of two newly-created series of
Preferred Stock for outstanding revolving and subordinated debt
held by such shareholders. The Company exchanged all outstanding
debt, related accrued interest, and unpaid fees owed to these
related parties for Preferred Stock at the rate of $100,000 per
share. The revolving credit facility of $17,500,000 with FS
Signal, together with accrued interest of approximately $158,700,
was converted into 176.587 shares of the Company's newly-created
Series A Preferred Stock. FS Signal received 130.334 shares of
newly-created Series B Preferred Stock in exchange for
subordinated debt of $12,700,000 plus accrued interest of
approximately $333,400. The subordinated debt of $7,500,000 and
related accrued interest of approximately $196,900 with Walsh
Greenwood was converted into 76.969 shares of Series B Preferred
Stock. The Company owed additional amounts to Walsh Greenwood in
the aggregate amount of $1,037,500. In exchange for the
cancellation of these fees, Walsh Greenwood received 10.375
shares of Series B Preferred Stock. In July and August 1993, the
Company received a total of $5,000,000 in additional funding from
FS Signal. The Company issued 50.5 shares of Series A Preferred
Stock for this additional funding which also included accrued
interest of $50,000. In October and November 1993, FS Signal
made an additional equity investment in the Company of
$10,000,000 for which they received 100 shares of Series A
Preferred Stock. These investments were used to fund the
Company's operating losses and working capital needs. (See Note
5 for discussion of warrants issued in conjunction with these
transactions.)
On February 9, 1994, the Company exchanged 70 shares of its
Series C Preferred Stock for the collateral of $7,000,000 pledged
to the senior lender by Walsh Greenwood. The proceeds from this
exchange were used to reduce the outstanding revolving advance
account with the senior lender.
Effective March 31, 1994, the Company signed a promissory note
for $3,000,000 with a related party, FS Signal Associates I. The
promissory note is due on April 30, 1997, subject to the terms of
the subordination agreement with the Company's senior lender.
Interest is payable at maturity at the prime rate, as defined,
plus 3%. (See Note 5 for discussion of warrants issued in
conjunction with this transaction.)
Subsequent to December 31, 1994, the Company negotiated a Senior
Secured Subordinated Note (the "Note") with a face amount of
$19,175,000, with net proceeds of $15,000,000 through Walsh
Greenwood and affiliates. (The consideration received represents
78.24% of the face amount, creating a total rate of 25%.) Interest
is at a fixed rate of 15% on the face amount. Interest from the
date of issuance will not be due until December 31, 1995, and
thereafter, interest is payable quarterly. The Company may draw
down funds as needed in increments of $1,000,000 up to $15,000,000.
Funds prepaid cannot be redrawn. To date, the Company has drawn
down $7,000,000 under this Note. The Note matures in three years
at the $19,175,000 face amount. The discount on the note will be
amortized to interest expense over the maturity period. The Note
may be prepaid in whole or in part at any time. The Note is secured
by a security interest immediately after the security interest of
the Company's senior lender and a first lien on any acquisition.
The funds received from the Note may only be used for working
capital requirements and may not be used to repay any principal
on bank debt. The funds may also be used for acquisitions.
There is no loan generation fee. The Note requires, among other
things, a minimum interest coverage ratio and prohibits the
payment of cash dividends to any class of Preferred Stock or
Common Stock.
In conjunction with this Note, the holders will receive 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 will
vest as funds are drawn. Additionally, the holders will receive
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 vest upon commitment of the funds
and are exercisable for three years. The warrants will be
adjusted for dilution caused by the conversion of Preferred
Stock. The issuance of the warrants is subject to shareholder
approval.
The Company has the right, after repayment of this
note and other senior notes of $6,500,000, to redeem the
outstanding Preferred Stock with the Company's Common Stock, such
shares being valued at $8.00 per share for the purpose of
conversion. Such redemption must take place before June 30,
1998.
Interest expense in the Consolidated Statements of Operations
includes interest to related parties of $298,000, $1,557,000, and
$1,999,000 for 1994, 1993 and 1992, respectively.
The Company made cash payments for interest of $2,674,000,
$4,245,000 and $6,122,000 during 1994, 1993 and 1992,
respectively. The aggregate future maturities of long-term debt
for the five years subsequent to December 31, 1994, after giving
consideration to the debt extension in March 1995, and excluding
the discretionary overadvances from bank in the amount of
$10,849,000, are as follows: 1995 - $1,144,000; 1996 -
$7,646,000; 1997 - $22,046,000; 1998 - $929,000; 1999 -
$5,030,000.
5. Capital Stock
On June 22, 1993, the shareholders approved amendments to the
Restated Articles of Incorporation to reclassify all outstanding
shares of Class B Common Stock as Class A Common Stock and to
redesignate the Class A Common Stock as Common Stock.
Accordingly, the differences which had previously existed between
Class A Common Stock and Class B Common Stock as to voting rights
and dividend rights were eliminated.
The Company's amended and restated 1985 stock option plan
provides for the grant of up to 1,160,000 common shares. The
options have a term of 10 years and vest over periods from one to
four years from date of grant. At December 31, 1994, stock
options available for grant totalled 503,000 shares. A summary
of stock option activity is as follows:
Shares Price Range
------ -----------
Outstanding at December 31, 1991 448,000 $4.50 - $10.25
Granted 201,000 $14.75 - $19.13
Exercised (96,000) $4.50 - $10.25
Canceled or Expired (50,000) $18.57 - $19.13
----------
Outstanding at December 31, 1992 503,000 $4.63 - $19.13
Granted 526,500 $7.06 - $7.50
Exercised (2,000) $4.63
Canceled or Expired (529,000) $8.50 - $19.13
----------
Outstanding at December 31, 1993 498,500 $7.06 - $7.50
Granted 150,000 $4.00 - $5.50
Exercised --
Canceled or Expired (165,000) $7.06 - $7.50
----------
Outstanding at December 31, 1994 483,500 $4.00 - $7.06
==========
Under the Restated Articles of Incorporation, the Company has the
authority to issue 1,600,000 shares of Preferred Stock having no
par value, issuable in series, with the designation, powers,
preferences, rights, qualifications and restrictions to be
established by the board of directors. At December 31, 1994, the
Company had authorized 400 shares of Series A Preferred Stock,
250 shares of Series B Preferred Stock, 1,000 shares of Series C
Preferred Stock and 100 shares of Series D Preferred Stock.
The Series A Preferred Stock bears a 15% cumulative, undeclared
dividend, compounded quarterly, and is senior to all other
classes or series of the Company's equity securities in all
regards, including dividends, distributions and redemptions. The
Series B Preferred Stock bears a 12.5% cumulative, undeclared
dividend, compounded quarterly, and is junior to the Company's
Series A Preferred Stock, but senior to all other equity of the
Company in all regards, including dividends, distributions and
redemptions. The Series C Preferred Stock bears a 12.5%
cumulative, undeclared dividend, compounded quarterly; is junior
to the Company's Series A Preferred Stock and is equivalent with
the Company's Series B Preferred Stock, but senior to all other
equity of the Company in all regards, including dividends,
distributions and redemptions. The Series A, B and C Preferred
Stock have a par value of $100,000 per share and a liquidation
preference of $100,000 per share, plus cumulative unpaid
dividends. The Series A, B and C shareholders' voting rights are
limited to certain consent actions as defined in the Preferred
Stock certificates.
The Series D Preferred Stock is junior to all other series of
outstanding Preferred Stock of the Company; bears a cumulative
dividend at an annual rate equal to ten percent (10%) of the
stated value of such stock, compounded quarterly; and is required
to be redeemed by the Company on November 22, 1999 at a
redemption price equal to the stated value per share for such
stock plus accrued and unpaid dividends, subject to the rights of
the holders of the company's other outstanding series of
Preferred Stock which are senior to the Series D Preferred Stock.
At December 31, 1994, there are no shares of the Series B and D
Preferred Stock outstanding.
Pursuant to a license agreement between the Company and an
affiliate of Time Warner, Inc., the Company canceled a warrant
previously issued to an affiliate of Time Warner to purchase
171.173 shares of Common Stock at an exercise price of $12.61 per
share and issued two new warrants to the same affiliate, one to
purchase 193,386 shares of Common Stock at $11.61 per share and
expiring July 22, 2001, and the other to purchase 38,674 shares
of Common Stock at $8.52 per share and expiring April 30, 2003.
Both of these new warrants were exercisble as of the date of
issuance.
In connection with financing provided to the Company by related
parties, the Company issued warrants, effective October 23, 1991,
to purchase shares of Common Stock to Walsh Greenwood
and to FS Signal. Walsh Greenwood received 500,000 warrant
shares, and FS Signal received an aggregate of 650,000 warrant
shares. In March 1992, Walsh Greenwood and FS Signal exercised
these warrants and purchased 1,150,000 shares of Common Stock.
Such purchase resulted in the addition of $13,800,000 to
shareholders' equity, the proceeds of which were used to reduce
the outstanding borrowings from such parties. In connection with
financing provided by related parties in March 1992, the Company
issued supplemental warrants, effective March 28, 1992, to
purchase shares of its Common Stock to Walsh Greenwood and FS
Signal. The Walsh Greenwood warrants were for an aggregate of
675,000 shares and the FS Signal warrants were for an aggregate
of 735,000 shares. These warrants were exercisable at $20.875
per share and were to expire on March 23, 1997. In connection
with financing provided by the revolving credit agreement with FS
Signal in June 1992 (Note 4), the Company issued warrants,
effective June 12, 1992, to purchase up to 375,000 shares of
Common Stock at $18.25 per share, expiring on June 12, 1997. In
connection with an amendment to this agreement in July 1992, the
Company issued additional warrants, effective July 21, 1992, to
purchase up to 375,000 shares of its Common Stock at $16.25 per
share, expiring on July 21, 1997. During the first quarter of
1993, FS Signal amended the revolving credit agreement and
provided additional funding to the Company. In conjunction with
this funding, the Company issued warrants, effective February 3,
1993, to purchase up to 375,000 shares at an exercise price of
$12.00 per share, and effective March 1, 1993, to purchase up to
187,500 shares at $11.25 per share. These warrants were to
expire on February 3, 1998 and March 1, 1998, respectively.
Effective August 13, 1993, the Company, FS Signal and Walsh
Greenwood entered into a Restructuring Agreement pursuant to
which the subordinated debt outstanding under the credit
agreements was canceled and extinguished, the subordinated debt
outstanding under the revolving credit agreement was canceled and
extinguished, the fees owed to Walsh Greenwood were canceled and
extinguished and the outstanding warrants issued in connection
with all such subordinated debt were canceled. In consideration
of the cancellation of the subordinated debt under the credit
agreements, the revolving credit agreement and the unpaid fees,
the Company issued shares of Preferred Stock at the rate of one
share of Series A Preferred Stock per $100,000 principal amount
of debt extinguished under the revolving credit facility and one
share of Series B Preferred Stock per $100,000 principal amount
of debt extinguished under the credit agreements, together with
fractional shares of such stock in consideration of accrued
interest which was extinguished. This resulted in the issuance
of an aggregate of 176.587 shares of Series A Preferred Stock and
217.678 shares of Series B Preferred Stock. As an inducement to
Walsh Greenwood and FS Signal to enter into the Restructuring
Agreement and accept shares of Series A and Series B Preferred
Stock in exchange for all of the subordinated debt described
above, the Company issued warrants to acquire 675,000 shares of
Common Stock at a price of $7.06 per share to Walsh Greenwood and
issued warrants to acquire an aggregate of 2,047,500 shares of
Common Stock at a price of $7.06 per share to FS Signal. The
Company also agreed to make available, by private placement, up
to 200 additional shares of Series A Preferred Stock at a price
of $100,000 per share. As an inducement to purchase such
Preferred Stock, the Company granted FS Signal a warrant to
acquire up to 2,000,000 additional shares of Common Stock at
$7.06 per share, which vests at the rate of 100,000 warrant
shares per $1,000,000 invested in Preferred Stock. As of
December 31, 1994 and 1993, FS Signal had invested an additional
$15,050,000 in the Company in the form of purchases of 150.5
shares of such Series A Preferred Stock, and warrants to acquire
1,500,000 shares of Common Stock had vested.
In February 1994, the Company exchanged 70 shares of the newly
created Series C Preferred Stock for $7,000,000 of collateral
pledged by Walsh Greenwood to the senior lender at the rate of
$100,000 per share. Such exchange resulted in additional
stockholders' equity of $7,000,000, and the proceeds were used to
reduce the outstanding revolving advance account with the senior
lender.
In conjunction with financing provided to the Company in March
1994 (Note 4), the Company issued warrants to FS Signal
Associates I to purchase 300,000 shares of the Company's Common
Stock at an exercise price of $7.06 per share, such warrants
expire on April 30, 1999.
In June 1994, the Company issued 130.334 shares of Series C
Preferred Stock to FS Signal Associates I and 9.375 shares to FS
Signal Associates II, and 77.969 shares of Series C Preferred
Stock to Walsh Greenwood in exchange for 217.678 shares of Series
B Preferred Stock previously issued to these related parties.
In consideration of funding provided by the senior lender to AMW
(Note 4), the Company issued warrants, effective November 18,
1994, to BNY Financial Corporation to purchase 100,000 shares of
Common Stock at $7.06 per share, expiring November 18, 1997.
Pursuant to the engagement of Grisanti, Galef and Goldress, Inc.
as interim manager of the Company in July 1993, the Company
issued warrants, effective August 13, 1993, to purchase up to
200,000 shares of the Company's Common Stock at an exercise price
of $7.06 per share, expiring on September 1, 1998. In October
1994, the Company amended this warrant by decreasing the warrant
shares outstanding to 100,000 and immediately vesting the 50,000
shares not previously vested.
At December 31, 1994, the Company had issued 327.087 shares of
Series A Preferred Stock and 287.678 shares of Series C Preferred
Stock. The Company has accrued cumulative, undeclared dividends
of $6,874,700 ($21,017.96 per share) for Series A Preferred Stock
and $4,850,400 ($16,860.52 per share) for Series C Preferred
Stock. These accrued dividend amounts are included in the
balance of the Series A and C Preferred Stock in the accompanying
financial statements at December 31, 1994.
A summary of warrant activity is as follows:
Shares Price Range
----------- -----------
Outstanding at December 31, 1991 1,321,173 $12.00 - $16.00
Issued 2,160,000 $16.25 - $20.875
Exercised (1,150,000) $12.00 - $16.00
Canceled or Expired --
----------
Outstanding at December 31, 1992 2,331,173 $12.61 - $20.875
Issued 5,485,000 $7.06 - $12.00
Exercised --
Canceled or Expired (2,722,500) $11.25 - $20.875
----------
Outstanding at December 31, 1993 5,093,673 $7.06 - $12.61
Issued 632,060 $7.06 - $11.16
Exercised --
Canceled or Expired (271,173) $7.06 - $12.61
----------
Outstanding at December 31, 1994 5,454,560 $7.06 - $11.16
==========
Warrants to purchase 4,954,560 shares had vested at December 31,
1994. The exercise price per the warrant agreements was $7.06 to
$11.16 per share. The exercise price per the warrant agreements
equaled fair value at the time of grant.
6. Income Taxes
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based
on the differences between the financial reporting and income tax
bases using enacted tax rates in effect for the year in which the
differences are expected to reverse. In prior years, the Company
accounted for income taxes using the deferral method in
accordance with Accounting Principles Board Opinion No. 11. The
adoption of SFAS No. 109 did not have any impact on the Company's
financial position or results of operations.
There was no income tax provision or benefit recorded during the
years ended December 31, 1994, 1993 and 1992 due to the losses
sustained by the Company.
Deferred income tax assets and liabilities for 1994 and 1993
reflect the impact of temporary differences between the amount of
assets and liabilities for financial reporting and income tax
reporting purposes. The Company has established a valuation
allowance for the entire amount of the net deferred tax
asset due to the uncertainty regarding the realizability
of these assets. Temporary differences and carryforwards
which give rise to deferred tax assets at December 31, 1994
and 1993 are as follows (in thousands):
1994 1993
---- ----
Deferred tax assets:
Tax loss carryforwards $52,399 $37,800
Inventory reserves 2,253 2,946
Other reserves 1,351 1,255
Multi-employer withdrawal liability 614 728
Other 2,181 716
-------- --------
Total deferred tax assets 58,798 43,445
Valuation allowance (57,605) (42,014)
Deferred tax liabilities:
LIFO to FIFO change (1,193) (1,431)
-------- --------
Net deferred tax asset $ 0 $ 0
======== =========
The Company and its subsidiaries file a consolidated federal
income tax return. At December 31, 1994, the Company had tax
loss carryforwards of $137,900,000 which expire in years 1999
through 2009 if not utilized earlier. At the time Shirt Shed and
AMW were acquired (Note 2), they had tax loss carryforwards of
approximately $17,400,000 and $14,000,000, respectively, which
are included above. These tax loss carryforwards are subject
to annual limitations imposed for the change in ownership (as
defined in Section 382 of the Internal Revenue Code) and
application of the consolidated income tax return rules.
The Company did not pay any income taxes in 1994 and 1993 and
received refunds of $46,000 in 1992.
7. Pension and Retirement Plans
Effective October 1, 1992, Signal terminated a defined benefit
plan for nonsalaried production employees not covered by a
collective bargaining agreement and benefits were distributed to
participants. No plan assets reverted to the Company. Benefits
for employees participating in the plan were based on years of
service during the period of participation. Signal funded the
plan to meet all obligations to participants and to comply with
the minimum funding requirements of the Employee Retirement
Income Security Act of 1974.
A summary of the components of net pension cost for the defined
benefit plan follows:
(Dollars in thousands) 1992
----
Single-employer plan:
Service cost-benefits earned during the period $ 33
Interest cost on projected benefit obligation 67
Actual return on plan assets (25)
Net amortization and deferral (104)
-----
Net pension credit - single-employer plan (29)
Settlement loss 332
-----
Net pension cost $303
=====
The Company sponsors defined contribution plans for employees.
The Company makes contributions to the plans equal to a
percentage of the participants' contributions within certain
limitations. The Company recognized expense related to these
plans of $154,000 in 1994, $261,000 in 1993 and $274,000 in 1992.
The Company's policy is to fund amounts accrued annually.
Certain former employees of Signal participate in a defined
benefit pension plan negotiated with a union (multi-employer
plan) that no longer represents the Company. In 1990, Signal
accrued an estimated withdrawal liability related to the
multiemployer plan of $2,500,000, which was payable in quarterly
installments of approximately $104,000, including interest,
beginning November, 1991.
In December 1993, the Company negotiated a revised payment
schedule with the union, whereby the quarterly payment for August
1993, along with additional accrued interest at 8%, was deferred
until December of 1993 and the quarterly payment for November
1993, along with additional accrued interest at 8%, was deferred
until July 1994. Also, one-half of the quarterly payments for
February 1994, May 1994, August 1994, November 1994 and February
1995, along with additional accrued interest at 6.5%, will be
paid in 15 equal quarterly installments beginning in May 1995.
All remaining future payments are due in accordance with the
original schedule.
At December 31, 1994 and 1993, the total multi-employer
withdrawal liability was $1,613,000 and $1,776,000, respectively.
Of these amounts, the current portion included in accrued
liabilities was $529,000 and $218,000 at December 31, 1994 and
1993, respectively.
8. Commitments and Contingencies
Operating Leases
The Company occupies certain manufacturing facilities, sales and
administrative offices and uses certain equipment under operating
lease arrangements. Rent expense aggregated approximately
$2,205,000 in 1994, $2,137,000 in 1993, and $2,406,000 in 1992.
Approximate future minimum rental commitments for all
noncancelable operating leases as of December 31, 1994 are as
follows (dollars in thousands):
1995 $1,450
1996 630
1997 290
1998 80
------
$2,450
======
Real estate taxes, insurance, and maintenance expense are
generally obligations of the Company.
Royalty and Other Commitments
Pursuant to the terms of various license agreements, the Company
is obligated to pay future minimum royalties of $9,052,000 of
which $397,000 was accrued as of December 31, 1994.
Legal Proceedings
The Company is a party to various legal proceedings incidental to
its business. The ultimate disposition of these matters is not
presently determinable but will not, in the opinion of
management, have a material adverse effect on the Company's
financial condition or results of operations.
9. Related Party Transactions
Walsh Greenwood is a shareholder of the Company and its managing
and general partners are directors of the Company. On
October 29, 1990, the Company entered into a consulting agreement
with Walsh Greenwood pursuant to which Walsh Greenwood agreed to
assist the Company in effectuating the acquisition of Shirt Shed.
This agreement included certain indemnification provisions for
the benefit of Walsh Greenwood. For its services, Walsh
Greenwood was entitled to a fee in the amount of $875,000. Under
the Restructuring Agreement effective August 13, 1993, fees due
Walsh Greenwood were exchanged for Series B Preferred Stock (see
Notes 4 and 5).
The Company acquired Shirt Shed in July, 1991. Prior to the
acquisition, Walsh Greenwood and FS Signal owned a controlling
interest in Shirt Shed. FS Signal is a shareholder of the
Company.
10. Restructuring Costs
During 1993, the Company recorded restructuring costs of
$4,785,000 (or $.53 per share). The restructuring costs
primarily relate to the Company's attempts to reduce the overhead
costs, improve manufacturing efficiencies and eliminate an
unprofitable product line. The restructuring costs include a
$1,700,000 charge for elimination of the Keds Apparel division,
$700,000 for a plant closing in Griffin, Georgia, $1,900,000 for
employee severance and related costs, and $500,000 in other
nonrecurring charges.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
PART III
Those portions of the Company's Proxy Statement for its 1994
Annual Meeting of Shareholders described below are incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant
Election of Directors and Executive Officers
Item 11. Executive Compensation
Executive Compensation and Employment Agreements
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Security Ownership of Certain Beneficial Owners and Management
Election of Directors
Item 13. Certain Relationships and Related Transactions
Compensation Committee Interlocks and Insider Participation
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1 Financial Statements and Schedules
The financial statements are incorporated by reference under
Part II, Item 8 and are set forth in the Index to Financial
Statements and Schedules found in Part II, Item 8.
(a) 2 Financial Statement Schedules:
Schedule VIII -- Valuation and Qualifying Accounts
All other schedules are omitted as the required
information is inapplicable or the information is
presented in the consolidated financial statements or
related notes.
SIGNAL APPAREL COMPANY, INC.
AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<CAPTIONS>
Additions
-----------------
Balance at Charged to Balance
Beginning Costs and at End
of Period Expense Other Deductions of Period
--------- ------- ----- ---------- ---------
Year ended December 31, 1994
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 7,886 $ 7,675 $ $ 9,628 $ 5,933
Allowance for doubtful accounts 1,060 710 256(2) 239(1) 1,787
------- ------- ------- ------- -------
$ 8,946 $ 8,385 $ 256 $ 9,867 $ 7,720
======= ======= ======= ======= =======
Year ended December 31, 1993
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 6,691 $10,082 $ $ 8,887 $ 7,886
Allowance for doubtful accounts 313 1,191 444(1) 1,060
------- ------- ------- ------- -------
$ 7,004 $11,273 $ $ 9,331 $ 8,946
======= ======= ======= ======= =======
Year ended December 31, 1992
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 1,726 $ 6,691 $ $ 1,726 $ 6,691
Allowance for doubtful accounts 1,003 426 1,116(1) 313
------- ------- ------- ------- -------
$ 2,729 $ 7,117 $ $ 2,842 $ 7,004
======= ======= ======= ======= =======
<FN>
<F1>
(1) Uncollectible accounts written off, net of recoveries.
</FN>
<FN>
<F2>
(2) Represents allowance for doubtful accounts acquired in
acquisition of AMW. Report of Independent Auditors
</F2>
Shareholders and Board of Directors
Signal Apparel Company, Inc.
We have audited the consolidated statements of operations,
shareholders' equity, and cash flows of Signal Apparel Company,
Inc. and subsidiaries for the year ended December 31, 1992
included in Part II, Item 8. Our audit also included the
financial statement schedule for the year ended December 31,
1992, listed in the Index to Consolidated Financial Statements
and Schedules at Part II, Item 8. These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material aspects, the consolidated
results of operations and cash flows of Signal Apparel Company,
Inc. and subsidiaries for the year ended December 31, 1992, in
conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information
set forth therein.
\s\Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Chattanooga, Tennessee
March 29, 1993, except for Note 3,
as to which the date is March 29, 1995
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 3. Exhibits:
Exhibits (10.48), (10.51), (10.52) and (10.53) listed
below omit certain schedules and exhibits, which are
listed therein. The Registrant hereby agrees to
furnish a copy of any such omitted schedule or exhibit
supplementally upon request of the Commission's Staff.
(2.1) Stock Purchase Agreement dated October 6, 1994,
by and among the Company, Kidd, Kamm Equity Partners,
L.P., MW Holdings, L.P., and the additional parties
listed on the signature pages thereto. Incorporated by
reference to Exhibit 2-1 to current report on Form 8-K
dated November 22, 1994.
(2.2) Amendment, dated November 1, 1994, to Stock
Purchase Agreement dated October 6, 1994. Incorporated
by reference to Exhibit 2-2 to current report on Form
8-K dated November 22, 1994.
(2.3) Amendment No. 2, dated November 21, 1994, to
Stock Purchase Agreement dated October 6, 1994.
Incorporated by reference to Exhibit 2-3 to current
report on Form 8-K dated November 22, 1994.
(3.1) Copy of Restated Articles of Incorporation, as
amended November 28, 1994.
(3.2) Copy of Bylaws as amended March 23, 1992.
Incorporated by reference to Exhibit 3-2 to Form 10-K
for the year ended December 31, 1991.
(4.1) Certificate of the voting powers, designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations
or restrictions thereof of the Series A Preferred
Stock. Incorporated by reference to Exhibit 2-1 to
Form 10-Q for the quarter ended September 30, 1993.
(4.2) Certificate of the voting powers, designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations
or restriction 3 thereof of the Series B Preferred
Stock. Incorporated by reference to Exhibit 2-2 to
Form 10-Q for the quarter ended September 30, 1993.
(4.3) Certificate of the voting powers, designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations
or restrictions thereof of the Series C Preferred Stock
of Signal Apparel Company, Inc. Incorporated by
reference to Exhibit 4-1 to Form 10-Q for the quarter
ended June 30, 1994.
(4.4) Certificate of the voting powers, designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations
or restrictions thereof of the Series D Preferred Stock
of Signal Apparel Company, Inc. Incorporated by
reference to Exhibit 4-1 to current report on Form 8-K
dated November 22, 1994.
(10.1) License Agreement, dated June 1, 1992, between
the Company and Joan Vass, Inc. Incorporated by
reference to Exhibit 10-1 to Form 10-K for the year
ended December 31, 1992.
(10.2) Factoring Agreement dated as of May 23, 1991
between the Company and BNY Financial Corporation,
together with BNY Financial Corporation General
Security Agreement, Inventory Security Agreement,
Equipment Security Agreement, and related documents,
all dated as of May 23, 1991 relating to a $60,000,00)
credit facility. Incorporated by reference to Exhibit
10.10 to Form S-4 Registration Statement filed with the
Commission on May 28, 1991.
(10.3) Factoring Agreement dated as of July 25, 1991
between The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit 10.1
to Current Report on Form 8-K dated July 22, 1991.
(10.4) General Security Agreement, Inventory Security
Agreement Equipment Security Agreement, and related
documents, all dated as of July 25, 1991 between The
Shirt Shed, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-10 to Form 10-K
for the year ended December 31, 1991.
(10.5) Promissory Note of Signal Apparel Company, Inc.,
for $5,000,00 dated as of November 12, 1992, and
payable to BNY Financial Corporation and related letter
dated October 15, 1992, canceling the Promissory Note
for $3,500,000 payable to BNY Financial Corporation.
Incorporated by reference to Exhibit 10-8 to Form 10-K
for the year ended December 31, 1992.
(10.6) June 12, 1991 Letter Amendment to Factoring
Agreement dated as of May 23, 1991, between the Company
and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-12 to Form 10-K for the year
ended December 31, 1991.
(10.7) Letter Amendments, dated as of July 22, 1991, 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. Incorporated by reference to
Exhibit 10-13 to Form 10-K for the year ended
December 31, 1991.
(10.8) July 25, 1991 Letter Amendments to Factoring
Agreement dated as of July 25, 1991, between The Shirt
Shed, Inc. and BNY Financial Corporation. Incorporated
by reference to Exhibit 10-14 to Form 10-K for the year
ended December 31, 1991.
(10.9) July 25, 1991 Letter Amendments 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. Incorporated by reference to
Exhibit 10-15 to Form 10-K for the year ended
December 31, 1991.
(10.10) Letter Amendment dated as of October 23, 1991,
to prior Letter Amendment, dated July 25, 1991, to
factoring Agreements dated (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. Incorporated by reference to
Exhibit 10-16 to Form 10-K for the year ended
December 31, 1991.
(10.11) January 24, 1992 Letter Amendment 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. Incorporated by reference to Exhibit
10-14 to Form 10-K for the year ended December 31,
1992.
(10.12) January 31, 1992 Letter Amendment to Factoring
Agreement dated as of May 23, 1991, between the Company
and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-18 to Form 10-K for the year
ended December 31, 1991.
(10.13) February 21, 1992 Letter Amendments 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. Incorporated by reference
to Exhibit 10-19 to Form 10-K for the year ended
December 31, 1991.
(10.14) Guaranty by the Company of obligations of The
Shirt Shed, Inc. to BNY Financial Corporation, dated
July 25, 1991. Incorporated by reference to Exhibit
10-21 to Form 10-K for the year ended December 31,
1991.
(10.15) Guaranty by The Shirt Shed, Inc. of obligations
of the Company to BNY Financial Corporation, dated
July 25, 1991. Incorporated by reference to Exhibit
10-23 to Form 10-K for the year ended December 31,
1992.
(10.16) Execution version (March 27, 1992) of Letter
Amendment dated as of January 24, 1992 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. Incorporated by reference to
Exhibit 10-1 to Form 10-Q for the quarter ended
March 31, 1992.
(10.17) March 20, l992 Letter Amendment 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. Incorporated by reference to
Exhibit 10-2 to Form 10-Q for the quarter ended
March 31, 1992.
(10.18) March 28, 1992 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1991, between the Company and The Shirt Shed,
Inc. Incorporated by reference to Exhibit 10-3 to Form
10-Q for the quarter ended March 31, 1992.
(10.19) July 3l, 1992 Letter concerning 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. Incorporated by reference to Exhibit 10-4
to Form 10-Q for the quarter ended September 30, 1992.
(10.20) November 12, 1992 Letter Amendment 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. Incorporated by reference to Exhibit
10-24 to Form 10-K for the year ended December 31,
1992.
(10.21) March 29, 1993 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1591, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-25 to Form 10-K for the year ended
December 31, 1992.
(10.22) March 1, 1993 Letter concerning Factoring
Agreements dated as of (i) May 23, l991, between the
Company and BNY Financial Corporation and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit
10-26 to Form 10-K for the year ended December 31,
1992.
(10.23) May 14, 1993 Letter Amendment 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. Incorporated by reference to
Exhibit 10-1 to Form 10-Q for the quarter ended
March 31, 1993.
(10.24) August 12, 1993 Letter Amendment 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. Incorporated by reference to
Exhibit 10-5 to Form 10-Q for the quarter ended
June 30, 1993.
(10.25) November 8, 1993 Waiver concerning 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. Incorporated by reference to
Exhibit 10-7 to Form 10-Q for the quarter ended
September 30, 1993.
(10.26) Letter Amendment dated as of March 31, 1994 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. Incorporated by reference
to Exhibit 10-28 to Form 10-K for the year ended
December 31, 1993.
(10.27) Subordination Agreement, dated March 31, 1994
between the Company, FS Signal Associates I and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-3 to Form 10-Q for the quarter ended
March 31, 1994.
(10.28) July 14, 1994 Letter Amendment 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. Incorporated by reference to Exhibit 10-2
to Form 10-Q for the quarter ended June 30, 1994.
(10.29) July 29, 1994 Letter Amendment to Factoring
Agreement, dated May 23, 1991 between the Company and
BNY Financial Corporation, and The Shirt Shed, Inc. as
guarantor. Incorporated by reference to Exhibit 10-3
to the Form 10-Q for the quarter ended June 30, 1994.
(10.30) Promissory Note of the Company for $4,157,000
dated July 29, 1994 and payable to BNY Financial
Corporation. Incorporated by reference to Exhibit 10-4
to the Form 10-Q for the quarter ended June 30, 1994.
(10.31) Promissory Note of the Company for $1,480,000
dated July 29, 1994 and payable to BNY Financial
Corporation. Incorporated by reference to Exhibit 10-5
to the Form 10-Q for the quarter ended June 30, 1994.
(10.32) Guaranty by The Shirt Shed, Inc. of the
obligations of the Company to pay a Promissory Note in
the amount of $1,480,000 to BNY Financial Corporation.
Incorporated by reference to Exhibit 10-6 to the Form
10-Q for the quarter ended June 30, 1994.
(10.33) Deed to Secure Debt and Security Agreement
dated July 29, 1994 between the Company and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-7 to the Form 10-Q for the quarter ended
June 30, 1994.
(10.34) Real Estate Mortgage, Security Agreement,
Assignment of Leases and Rents, and Fixture Filing
dated July 29, 1994 between The Shirt Shed, Inc. and
BNY Financial Corporation. Incorporated by reference to
Exhibit 10-8 to the Form 10-Q for the quarter ended
June 30, 1994.
(10.35) Deed of Trust, Assignment of Leases and
Security Agreement dated July 29, 1994 between the
Company and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-9 to the Form 10-Q for the
quarter ended June 30, 1994.
(10.36) Letter Agreement dated September 1, 1994
between the Company, BNY Financial Corporation, FS
Signal Associates II and WG Trading Co. Incorporated
by reference to Exhibit 10-4 to the Form 10-Q for the
quarter ended September 30, 1994.
(10.37) November 14, 1994 Letter Amendment 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. Incorporated by reference to Exhibit 10-3
to current report on Form 8-K dated November 22, 1994.
(10.38) November 22, 1994 Letter Amendments 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. Incorporated by reference to
Exhibit 10-4 to current report on Form 8-K dated
November 22, 1994.
(10.39) Factoring Agreement dated as of November 22,
1994 between American Marketing Works, Inc. and BNY
Financial Corporation, together with Equipment Security
Agreement, Inventory Security Agreement and Trademark
Assignment of Security related thereto, all dated as of
November 22, 1994 relating to a $14,000,000 credit
facility. Incorporated by reference to Exhibit 10-5 to
current report on Form 8-K dated November 22, 1994.
(10.40) November 22, 1994 Letter Amendment to Factoring
Agreement dated as of November 22, 1994 between
American Marketing Works, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-6
to current report on Form 8-K dated November 22, 1994.
(10.41) November 22, 1994 Letter Amendments to
Factoring Agreements dated as of (i) May 23, 1991
between the Company and BNY Financial Corporation; (ii)
July 25, 1991 between The Shirt Shed, Inc. and BNY
Financial Corporation; and (iii) November 22, 1994
between American Marketing Works, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-7 to current report on Form 8-K dated
November 22, 1994.
(10.42) Guaranty by the Company of obligations of
American Marketing Works, Inc. to BNY Financial
Corporation, dated November 22, 1994. Incorporated by
reference to Exhibit 10-8 to current report on Form 8-K
dated November 22, 1994.
(10.43) Guaranty by The Shirt Shed, Inc. of obligations
of American Marketing Works, Inc. to BNY Financial
Corporation, dated November 22, 1994. Incorporated by
reference to Exhibit 10-9 to current report on Form 8-K
dated November 22, 1994.
(10.44) Guaranty by American Marketing Works, Inc. of
obligations of the Company to BNY Financial
Corporation, dated November 22, 1994. Incorporated by
reference to Exhibit 10-10 to current report on Form
8-K dated November 22, 1994.
(10.45) Guaranty by American Marketing Works, Inc. of
obligations of The Shirt Shed, Inc. to BNY Financial
Corporation, dated November 22, 1994. Incorporated by
reference to Exhibit 10-11 to current report on Form
8-K dated November 22, 1994.
(10.46) Pledge Agreement, dated November 22, 1994,
between the Company and BNY Financial Corporation re:
capital stock of The Shirt Shed, Inc. and American
Marketing Works, Inc. Incorporated by reference to
Exhibit 10-12 to current report on Form 8-K dated
November 22, 1994.
(10.47) Warrant Certificate covering 100,000 shares of
Common Stock of the Company, issued to BNY Financial
Corporation in connection with transactions related to
the Company's acquisition of American Marketing Works,
Inc. Incorporated by reference to Exhibit 10-13 to
current report on Form 8-K dated November 22, 1994.
(10.48) Amended and Restated Credit Agreement dated as
of February 16, 1995 among American Marketing Works,
Inc., certain Lenders and Greyrock Capital Group, Inc.
(10.49) Tranche A Note of American Marketing Works,
Inc. for $4,750,000 to Greyrock Capital Group, Inc.
dated February 16, 1993.
(10.50) Tranche B Note of American Marketing Works,
Inc. for $1,750,000 to Greyrock Capital Group, Inc.
dated February 16, 1993.
(10.51) Security Agreement dated February 16, 1993
between American Marketing Works, Inc. and Greyrock
Capital Group, Inc.
(10.52) Guaranty and Security Agreement dated as of
November 22, 1994 between the Company and Greyrock
Capital Group, Inc. guarantying the obligations of
American Marketing Works, Inc. to Greyrock Capital
Group, Inc.
(10.53) Guaranty and Security Agreement dated as of
November 22, 1994 between Shirt Shed and Greyrock
Capital Group, Inc. guaranteeing the obligations of
American Marketing Works, Inc. to Greyrock Capital
Group, Inc.
(10.54) License Agreement between the Company, The
Shirt Shed, Inc. and LCA Entertainment (as agent for DC
Comics, Inc.), dated as of February 1, 1991, regarding
exclusive rights to use certain elements from "BATMAN
II" sequel motion picture, "BATMAN" comic books and
planned "BATMAN" television series in connection with
certain categories of apparel products. Incorporated
by reference to Exhibit 10-4 to Form 10-K for the year
ended December 31, 1991.
(10.55) Warrant Purchase Agreement, dated as of March
1, 1991, between the Company, The Shirt Shed, Inc. and
Licensing Corporation of America. Incorporated by
reference to Exhibit 10-25 to Form 10-K for the year
ended December 31, 1991.
(10.56) Warrant No. 002 issued to Licensing Corporation
of America, covering 193,386 shares of the Company's
Common Stock, dated as of July 27, 1991 and expiring
July 22, 2001. Incorporated by reference to Exhibit
10-1 to the Form 10-Q for the quarter ended
September 30, 1994.
(10.57) Warrant No. 003 issued to Licensing Corporation
of America, covering 38,674 shares of the Company's
Common Stock, dated as of April 30, 1993 and expiring
April 30, 2003. Incorporated by reference to Exhibit
10-2 to the Form 10-Q for the quarter ended
September 30, 1994.
(10.58) Restructuring Agreement, dated as of August 13,
1993 by and among the Company, FS Signal Associates,
and Walsh Greenwood & Co. Incorporated by reference to
Exhibit 10-3 to Form 10-Q for the quarter ended
September 30, 1993.
(10.59) Waiver Letter, dated as of June l2, 1992,
pertaining to Credit Agreement dated as of October 23,
1991, as amended, between the Company and FS Signal
Associates. Incorporated by reference to Exhibit 10-1
to Form 10-Q for the quarter ended September 30, 1992.
(10.60) Waiver Letter, dated as of June l2, 1992,
pertaining to Credit Agreement dated as of October 23,
1991, as amended, between the Company and WG Partners,
L.P. Incorporated by reference to Exhibit 10-2 to Form
10-Q for the quarter ended September 30, 1992.
(10.61) Subordination Agreement, dated as of June 12,
1992, between the Company, FS Signal Associates and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-3 to Form 10-Q for the quarter ended
September 30, 1992.
(10.62) Subordination Agreement, dated March 30, 1994,
between the Company, FS Signal Associates and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-47 to Form 10-K for the year ended
December 31, 1993.
(10.63) Promissory Note dated March 31, 1994 between
the Company and FS Signal Associates I. Incorporated by
reference to Exhibit 10-2 to Form 10-Q for the quarter
ended March 31, 1994.
(10.64) Warrant Certificate covering 2,047,500 shares
of Common Stock of the Company, issued to FS Signal
Associates in connection with the Restructuring
Agreement dated as of August 13, 1993. Incorporated by
reference to Exhibit 10-4 to Form 10-Q for the quarter
ended September 30, 1993.
(10.65) Warrant Certificate covering 2,000,000 shares
of Common Stock of the Company, issued to FS Signal
Associates in connection with the Restructuring
Agreement dated as of August 13, 1993. Incorporated by
reference to Exhibit 10-5 to Form 10-Q for the quarter
ended September 30, 1993.
(10.66) Warrant Certificate dated April 1, 1994 to
purchase 300,000 shares of Common Stock of the Company,
issued to FS Signal Associates I in connection with the
promissory note dated March 31, 1994. Incorporated by
reference to Exhibit 10-4 to Form 10-Q for the quarter
ended March 31, 1994.
(10.67) Warrant Certificate covering 675,000 shares of
Common Stock of the Company, issued to Walsh Greenwood
in connection with the Restructuring Agreement dated as
of August 13, 1993. Incorporated by reference to
Exhibit 10-6 to Form 10-Q for the quarter ended
September 30, 1993.
(10.68) License Agreement between the Company and RHC
Licensing Corporation dated June 2, 1992. Incorporated
by reference to Exhibit 10-52 to Form 10-K for the year
ended December 31, 1992.
(10.69) Warrant Certificate covering 200,000 shares of
Common Stock of the Company issued to Grisanti, Galef &
Goldress, Inc. in connection with their engagement.
Incorporated by reference to Exhibit 10-1 to Form 10-Q
for the quarter ended September 30, 1993.
(10.70) Amendment to Warrant Certificate dated October
18, 1994 reducing the shares issuable from 200,000 to
100,000 to Grisanti, Galef & Goldress, Inc.
Incorporated by reference to Exhibit 10-3 to Form 10-Q
for the quarter ended September 30, 1994.
(10.71) Agreement dated June 21, 1994 by and among the
Company, FS Signal Associates I, and Walsh Greenwood &
Co. exchanging all outstanding shares of the Company's
Series B Preferred Stock on a one-per-one basis for
shares of the Company's Series C Preferred Stock.
Incorporated by reference to Exhibit 10-1 to Form 10-Q
for the quarter ended June 30, 1994.
(10.72) Put/Call Agreement dated November 22, 1994,
among the Company, MW Holdings, L.P., Marvin Winkler
and Sherri Winkler. Incorporated by reference to
Exhibit 10-1 to current report on Form 8-K dated
November 22, 1994.
(10.73) Registration Rights Agreement dated
November 22, 1994, between the Company and Kidd, Kamm
Equity Partners, Inc. Incorporated by reference to
Exhibit 10-2 to current report on Form 8-K dated
November 22, 1994.
(10.74) Letter Agreement of employment with Buddy
Pilgrim dated August 4, 1993. Incorporated by reference
to Exhibit 10-5 to Form 10-Q for the quarter ended
March 31, 1994.
(10.75) Letter Agreement of employment with Daniel J.
Cox dated March 4, 1994. Incorporated by reference to
Exhibit 10-6 to Form 10-Q for the quarter ended
March 31, 1994.
(10.76) Amendment to Employment Agreement with Robert
J. Powell dated as of April 1, 1994. Incorporated by
reference to Exhibit 10-7 to Form 10-Q for the quarter
ended March 31, 1994.
(10.77) Amendment to Employment Agreement with Glenn M.
Grandin dated as of April 1, 1994. Incorporated by
reference to Exhibit 10-8 to Form 10-Q for the quarter
ended March 31, 1994.
(21) List of subsidiaries of the Registrant.
(23.1) Consent of Arthur Andersen LLP, Independent
Public Accountants.
(23.2) Consent of Ernst & Young LLP, Independent
Auditors.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed two Current Reports on Form 8-K dated
October 6, 1994 and November 22, 1994 to report the
acquisition of all the outstanding stock of American
Marketing Works, Inc. The Company filed Financial
Statements and Pro Forma Financial Information as
amendments to the latter Current Report on Form 8-K.
(d) Report of Independent Auditors on 1992 Financial
Statements
Other financial statement schedules in response to this
portion of Item 14 are included in Part IV, Item 14(a)2
of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ Marvin Winkler
------------------------------
Marvin Winkler
Chairman of the Board and
Chief Executive Officer
Date: March 31, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below or on counterparts
thereof by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
Name Capacity Date
- ---- -------- ----
\s\Marvin Winkler Chairman of the Board March 31, 1995
- --------------------- and Chief Executive --------------
Marvin Winkler Officer
\s\Leon Ruchlamer President March 31, 1995
- --------------------- --------------
Leon Ruchlamer
\s\William H. Watts Executive Vice President March 31, 1995
- --------------------- and Chief Financial --------------
William H. Watts Officer
\s\James V. Elkins Controller March 31, 1995
- --------------------- --------------
James V. Elkins
\s\Jacob I. Feigenbaum Director March 29, 1995
- --------------------- --------------
Jacob I. Feigenbaum
\s\Guido Goldman Director March 28, 1995
- --------------------- --------------
Guido Goldman
\s\Paul R. Greenwood Director March 31, 1995
- --------------------- --------------
Paul R. Greenwood
\s\B. Lance Sauerteig Director March 28, 1995
- --------------------- --------------
B. Lance Sauerteig
\s\Stephen Walsh Director March 31, 1995
- --------------------- --------------
Stephen Walsh
EXHIBIT INDEX
Exhibit No.
per Item 601
of Reg. S-K Description of Exhibit
(3.1) Copy of Restated Articles of
Incorporation, as amended November
28, 1994.
(10.48) Amended and Restated Credit
Agreement dated as of February 16,
1995 among American Marketing
Works, Inc., certain Lenders and
Greyrock Capital Group, Inc.
(10.49) Tranche A Note of American
Marketing Works, Inc. for
$4,750,000 to Greyrock Capital
Group, Inc. dated February 16,
1993.
(10.50) Tranche B Note of American
Marketing Works, Inc. for
$1,750,000 to Greyrock Capital
Group, Inc. dated February 16,
1993.
(10.51) Security Agreement dated February
16, 1993 between American Marketing
Works, Inc. and Greyrock Capital
Group, Inc.
(10.52) Guaranty and Security Agreement
dated as of November 22, 1994
between the Company and Greyrock
Capital Group, Inc. guarantying the
obligations of American Marketing
Works, Inc. to Greyrock Capital
Group, Inc..
(10.53) Guaranty and Security Agreement
dated as of November 22, 1994
between Shirt Shed and Greyrock
Capital Group, Inc. guaranteeing
the obligations of American
Marketing Works, Inc. to Greyrock
Capital Group, Inc.
(21) List of Subsidiaries
(23.1) Consent of Arthur Andersen LLP,
Independent Public Accountants
(23.2) Consent of Ernst & Young LLP,
Independent Auditors.
(27) Financial Data Schedule.