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, 1997
[ ] 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)
Indiana62-0641635
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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 (423) 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 shareNew 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: $5,498,539 calculated by using
the closing price on the New York Stock Exchange on March 10,
1998 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.
ClassOutstanding as of March 10, 1998
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Common Stock, $.01 par value 32,661,460 shares
DOCUMENTS INCORPORATED BY REFERENCE
Part ofDocuments from Which Portions are
Form 10-KIncorporated by Reference
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Part IIIProxy Statement 1998 for Annual Meeting of
Shareholders
SIGNAL APPAREL COMPANY, INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
INDEX
Item
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PART I
1.Business 4
2.Properties 9
3.Legal Proceedings 11
4.Submission of Matters to a Vote of Security Holders 11
PART II
5.Market for the Registrant's Common Equity and
Related Stockholder Matters 15
6.Selected Financial Data 15
7.Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
8.Financial Statements and Supplementary Data 23
9.Disagreements on Accounting and Financial Disclosure 51
PART III
10.Directors and Executive Officers of the Registrant 52
11.Executive Compensation 52
12.Security Ownership of Certain Beneficial Owners
and Management 52
13.Certain Relationships and Related Transactions 52
PART IV
14.Exhibits, Financial Statement Schedules and
Reports on Form 8-K 53
PART I
Item 1.BUSINESS
(a) Signal Apparel Company, Inc. ("Signal" or the "Company") is
engaged in the manufacture and marketing of apparel within
the following product lines: knit and woven activewear,
women's knit apparel and screenprinted and embroidered knit
apparel.
In October 1997, the Company purchased all of the
outstanding capital stock of GIDI Holdings, Inc. doing
business as Grand Illusion Sportswear, Inc. ("Grand
Illusion"), a supplier of embellished apparel and other
activewear primarily to large corporate accounts.
In November 1997, the Company purchased all of the
outstanding capital stock of Big Ball Sports, Inc. and Print
The Planet, Inc. (the primary screen printer for Big Ball
Sports, Inc.) (collectively, "Big Ball"). Big Ball is a
supplier of branded knitwear to department, sporting goods,
and specialty stores in the mid-tier and upstairs retail
channels.
(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) whose principal business was the marketing of branded
licensed apparel. The outstanding capital stock of Grand
Illusion and Big Ball was purchased in October 1997 and
November 1997, respectively.
The Company 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 principally
to distributors and retail accounts primarily with the Big
Ball, Signal Sport or Signal Artwear label, or with a
customer's label or, under applicable license agreements,
with the label of designers (joan vass, u.s.a. and Cynthia
Rowley), sports personalities (Magic Johnson and Hank Aaron)
or licensed brands (Looney Tunes, Garfield, Riddell, etc.).
Currently, a major portion of the products manufactured by
the Company consists of products generally similar in design
and composition to those produced by many of the Company's
competition. The Company's business is, therefore, highly
subject to competitive pressures.
The Company presently operates under the following strategic
business unit structure:
LICENSED SPORTS BUSINESS UNIT:
The Licensed Sports Business Unit is engaged in selling
decorated apparel to mid-tier and mass merchants, chain
stores, sporting goods and sport specialty stores and
department stores as a line of popularly priced sportswear,
ranging from children's to adult sizes. This unit markets
tops and bottoms from the Company's facilities and other
suppliers with a variety of silkscreened and embroidered
graphics derived under license from popular cartoons,
colleges and professional sports leagues. Finished products
are generally sold under licensed brands such as Hank Aaron
Originals, Magic Johnson Originals and Riddell.
LICENSED CHARACTER BUSINESS UNIT:
The Licensed Character Business Unit is engaged in selling
to mid-tier and mass merchants, chain stores, specialty and
department stores a line of popularly priced activewear,
ranging from children's to adult sizes. This unit utilizes
tops and bottoms from the Company's facilities 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 its internal creative art staff.
BIG BALL SPORTS BUSINESS UNIT:
The Big Ball Sports Business Unit is engaged in selling
screenprinted and embroidered apparel to mid-tier and
upstairs department, sporting goods and specialty store
accounts as a line of popularly priced activewear ranging
from children's to adult sizes. This unit markets tops and
bottoms obtained from the Company's manufacturing facilities
and other suppliers and featuring the proprietary "Is Life"
and "Big Ball Sports" trademarks.
GRAND ILLUSION SPORTSWEAR BUSINESS UNIT:
The Grand Illusion Sportswear Business Unit is engaged in
selling screenprinted and embroidered apparel to large
corporate accounts and distributors servicing those accounts
in children's, youth and adult size ranges. This unit
obtains products from the Company's facilities and other
suppliers and imprints the logos and other indicia of its
unit's corporate accounts.
HERITAGE SPORTSWEAR BUSINESS UNIT:
Heritage Sportswear produces and sells two lines of tailored
knits designed under license from Joan Vass and Cynthia
Rowley which bear the "joan vass, u.s.a." and "Cynthia
Rowley" labels, respectively. These designer lines are sold
to fine specialty stores, department stores, and Joan Vass
and Cynthia Rowley stores, respectively. The unit also
produces knit products which are marketed by other units of
the Company.
SALES BY PRODUCT LINE
The following table reflects the percentage of net sales
contributed by the Company's product lines to net sales
during 1997, 1996, and 1995:
Percentage of
Product Line Net Sales
------------------------------------
1997 1996 1995
---- ---- ----
Active sportswear 7% 18% 32%
Embellished (Licensed Sports,
Licensed Character, Big Ball
Sports & Grand Illusion) 66% 58% 51%
Women's knit apparel
(Heritage Sportswear) 27% 24% 17%
In 1997, Wal-Mart accounted for 20% and K-mart accounted for
10% of the Company's total sales. In 1996, Wal-Mart
accounted for 14% and K-mart accounted for 12% of the
Company's total sales. In 1995, no one customer accounted
for as much as 10% of sales.
DESCRIPTION OF OPERATIONS
The primary raw material used by the Company is finished
cloth made from both synthetic and natural fibers, which it
purchases from several different suppliers. The Company
also purchases blank garments, sewing thread, inks, elastic,
hangers, cartons and bags. Supplies of finished cloth with
synthetic fibers are generally dependent upon the global
availability of petroleum, while supplies of finished cloth
with natural fibers are generally 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
necessary raw materials from its current sources and
believes that, in any event, adequate alternative sources
are available.
"Big Ball", "...Is Life", "Signal Artwear" and "Signal Sport"
are the principal registered trademarks of the Company. In
addition to the license to use the "Riddell" trademark and
logo, the Company is licensed to use the registered
trademarks "joan vass, u.s.a." and "Cynthia Rowley" in
connection with women's tailored knit apparel. The Company
and its various subsidiaries are licensed directly or
through affiliates of well-known athletes to use various
trademarks of the National Football League, the National
Basketball Association, Major League Baseball, the National
Hockey League and various colleges in connection with
collections of decorated activewear. The Company is also
licensed by Warner Brothers and other companies to print
various cartoon, movie and celebrity characters and other
graphics on garments. The Company is licensed by affiliates
of well known athletes Magic Johnson (for NBA products)and
Hank Aaron (for MLB products) to produce and sell products
bearing labels with their respective names. The ability to
use the foregoing trademarks is important to the
implementation of the Company's strategy of expanding sales
of products directed 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 licenses held by the Company vary significantly in their
terms and duration. The Company's primary licenses with the
NFL, NBA, MLB and NHL, generally, are renewed for one to
two-year terms on an annual basis. The Company is currently
in negotiations with the NFL for the renewal of its license
scheduled to expire on March 31, 1998. Negotiations for
renewal of the Company's NBA and NHL licenses, presently
scheduled to expire on July 31, 1998 and June 30, 1998,
respectively, typically commence during the second calendar
quarter. An agreement in principle has been reached to
extend the Company's MLB license through at least December
31, 1998.
The Company's Looney Tunes license with Warner Brothers is
presently scheduled to expire on December 31, 1998.
The Cynthia Rowley license has a term ending December 31,
1998 and the interim extension of the joan vass, u.s.a.
license is currently scheduled to expire on November 30,
1998. It is expected that the Cynthia Rowley license will
not be renewed.
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 1997, the Company sold its products to over 1600
customers, including department stores, specialty stores,
mass merchandisers and other retailers, wholesalers,
distributors, screenprinters, and other manufacturers.
Products are shipped directly from the Company's
manufacturing facilities and warehouses. During fiscal
1996, the Company began identifying trends in its sales data
that indicated a shift in demand in the market for its
embellished products away from the smaller specialty
retailers and towards larger chain stores. These trends
continued during 1997, with the result that this portion of
the Company's business has become more dependent on a few
large customers which possess significant negotiating power
with regard to the terms of sale and the circumstances under
which unsold merchandise may be returned to the Company.
The chart below shows Signal's scheduled back orders at
year-end.
Dollars in thousands199719961995
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Embellished products $3,850 $4,238 $11,140
Active Sportswear 119 518 2,941
Womens Knit Apparel 1,350 1,997 2,807
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Total $5,319 $6,753 $16,888
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, 1997 backlog of unfilled orders by December 31, 1998;
however, orders are subject to cancellation, generally
without penalty unless specially embellished to order, by
customers prior to shipment. The Company's backlog of
orders on December 31, 1997 is not necessarily indicative of
actual shipments or sales for any future period, and period-
to-period comparisons from 1997 to 1996 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
throughout the Company's 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.
The Company had approximately 810 employees at
March 1, 1998, compared to 850 employees at March 1, 1997.
(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 977,600 square feet of usable space. The following
table sets forth certain information concerning each of these
facilities:
FacilitySquareOwned/Products/
Location FeetLeasedOperations
------------------------------
SIGNAL:
Chattanooga, TN 250,000 Leased Screen printing -
printing, warehouse,
distribution and
offices
Chattanooga, TN 192,200 Owned Sportswear - warehouse,
distribution and
offices
New Tazewell, TN 91,300 Owned Sportswear - cut and
sew, warehouse and
distribution. Sold to
the City of Tazewell in
February 1998.
Currently leased from
the City of Tazewell.
New York, NY 1,400 Leased Showroom and
Offices
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
BIG BALL SPORTS:
Houston, TX 62,700 Leased Screen printing -
printing, warehouse,
distribution and
offices
GRAND ILLUSION SPORTSWEAR:
Schaumburg, IL 28,200 Leased Imprinting, warehouse,
distribution and office
IDLE FACILITIES:
Marion, SC 29,200 Owned
Wabash, IN 69,000 Owned
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 (see later paragraph for
a discussion of the idle facilities). 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 plants in New Tazewell, Tennessee;
Wabash, Indiana; and Marion and Lakeview, South Carolina are
subject to mortgage liens incurred in connection with financing
with the senior lender and a principal shareholder, Walsh
Greenwood and affiliates. As of the February 1998 sale of the
Tazewell facility, the New Tazewell plant is no longer subject to
these mortgage liens.
The Company owns facilities in Marion, S.C. and Wabash, Indiana,
aggregating approximately 98,200 square feet, which were idle at
December 31, 1997. At the present time the Company intends to
sell these facilities.
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 1998.
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
(a) The Annual Meeting of the Company's shareholders was
held on December 30, 1997.
(b) The names of the directors elected at the meeting are as
follows: Jacob I. Feigenbaum; Paul R. Greenwood; David E.
Houseman; Thomas A. McFall; John W. Prutch; Leon Ruchlamer; and
Stephen Walsh.
(c) The meeting was held to consider and vote upon (i) a
proposal to amend the Company's 1985 Stock Option Plan to
increase the number of shares of Common Stock issuable thereunder
from 1,910,000 to 4,000,000; (ii) a proposal to issue warrants to
purchase up to 4,500,000 shares of the Company's Common Stock to
a principal shareholder in connection with certain additional
funding and waivers under the credit agreement between the
Company and said principal shareholder; (iii) a proposal to issue
15,473,220 shares of the Company's Common Stock in connection
with the Company's plan to restructure its then outstanding debt
and preferred stock; (iv) a proposal to amend the Company's
Restated Articles of Incorporation to increase the number of
authorized shares of the Company's Common Stock from 40,000,000
to 80,000,000;(v) a proposal to issue warrants to purchase up to
250,000 shares of the Company's Common Stock to a
director/consultant of the Company as compensation to said
director/consultant; (vi) a proposal to issue warrants to
purchase up to 25,000 shares of the Company's Common Stock to a
director of the Company as additional compensation to said
director in lieu of certain director fees (vii) the election of
seven directors.
The results of the proposal to amend the Company's Stock
Option Plan were as follows:
FOR 11,164,218
AGAINST 27,344
ABSTAIN 7,031
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to issue warrants in connection
with certain additional funding and waivers under the credit
agreement between the Company and a principal shareholder were as
follows:
FOR 11,174,961
AGAINST 17,569
ABSTAIN 6,063
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to issue shares of the Company's
Common Stock in connection with the Company's restructuring plan
were as follows:
FOR 11,170,850
AGAINST 18,848
ABSTAIN 8,895
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to amend the Company's Restated
Articles of Incorporation were as follows:
FOR 10,040,916
AGAINST 22,834
ABSTAIN 1,134,843
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to issue warrants to the
director/consultant were as follows:
FOR 10,023,296
AGAINST 39,852
ABSTAIN 1,135,445
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to issue warrants to the
director were as follows:
FOR 10,023,358
AGAINST 39,852
ABSTAIN 1,135,383
BROKER NON-VOTES 0
TOTAL 11,198,593
There was no solicitation in opposition to management's
nominees for directors. Each director serves a one year term, or
until his successor is elected and qualified. The results of the
election of directors were as follows:
WITHHOLD
DIRECTOR NAME FOR AUTHORITY TOTAL
Jacob I. Feigenbaum 11,187,162 11,431 11,198,593
Paul R. Greenwood 11,187,612 10,981 11,198,593
David E. Houseman 11,187,262 11,331 11,198,593
Thomas A. McFall 11,187,242 11,351 11,198,593
John W. Prutch 11,187,192 11,401 11,198,593
Leon Ruchlamer 11,187,182 11,411 11,198,593
Stephen Walsh 11,187,162 10,931 11,198,593
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
MARKET PRICES AND DIVIDENDS
Quarter Ended
March 31 June 30 September 30 December 31
1997 1996 1997 1996 1997 1996 1997 1996
Common Stock:
High $3.00 $8.00 $1.75 $7.38 $1.88 $4.38 $4.38 $3.75
Low 1.75 6.25 1.00 4.38 .88 3.50 1.13 2.88
Cash dividends 0 0 0 0 0 0 0 0
The Company's loan agreements contain provisions which currently
restrict the Company's ability to pay dividends (see Note 5 of
Notes to Consolidated Financial Statements). No Common Stock
dividends were declared during the five-year period ended
December 31, 1997,(See Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 5 of Notes
to Consolidated Financial Statements.)
Shareholders of record as of March 10, 1998:
Common990
The Company's Common Stock is listed on the New York Stock
Exchange. (Symbol "SIA")
Item 6. Selected Financial Data
SUMMARY OF SELECTED FINANCIAL DATA
Dollars in Thousands (Except Per Share Data)
1997(b) 1996 1995 1994(a) 1993
Net Sales $44,616 $58,808 $89,883 $95,818 $131,000
Net loss (30,345) (33,696) (39,959) (53,304) (34,878)
Basic/diluted net loss
per common share (2.39) (2.91) (3.80) (6.88) (4.17)
Total assets 29,660 26,167 43,229 69,448 87,914
Long-term obligations 60,147 66,423 57,243 49,258 26,748
(a) The data includes amounts applicable to American Marketing
Works from date of acquisition, November 22, 1994.
(b)The data includes amounts applicable to Grand Illusion and
Big Ball Sports from the dates of acquisition, (October 1,
1997 and November 5, 1997) respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
Net sales of $44.6 million for 1997 represent a decrease of $14.2
million or 24.1% from the $58.8 million in net sales for 1996.
This decrease is comprised of a $6.6 million reduction in
decorated products, and a $7.4 million reduction in undecorated
activewear, and a $1.9 million reduction in women's fashion
knitwear, partially offset by screenprinted sales of $1.7 million
for the newly acquired Big Ball Sports and Grand Illusion
business units.
Sales of decorated products were $27.8 million for 1997 versus
$34.4 million for 1996. Reduced unit volume accounted for a $5.0
million decrease in sales while a decrease in average selling
price accounted for a $1.6 million sales reduction. The decrease
in average selling price was due to a combination of product mix
and unit selling price changes. The Company is focusing its
efforts on the recovery of lost volume in this core area of the
business.
Sales of undecorated activewear products were $3.1 million for
1997 versus $10.5 million for 1996. The Company is concentrating
its marketing efforts on decorated products in an effort to
produce higher margin sales than can be achieved with sales of
undecorated activewear. As a result of this decision, the
Company's sales of undecorated activewear have continued to
decline during 1997 and no longer represent a significant portion
of the Company's total sales.
Sales of women's fashion knitwear were $12.0 million for 1997 as
compared to $13.9 million for 1996. Average selling price per
unit decreased 59% but was offset by a 213% increase in unit
volume. The reduction in average selling price was due to a
combination of product mix and unit selling price changes. The
reduced average selling price was the prime reason for the
increased unit sales volume.
Gross profit was $5.3 million (11.9% of sales) for 1997 compared
to $3.8 million (6.5% of sales) for 1996. The primary components
of the $1.5 million improvement in margin are lower manufacturing
costs ($6.2 million) offset by lower sales ($3.2 million) and a
lower standard margin ($1.5 million). Manufacturing costs were
improved as a result of the closing of the LaGrange, Georgia
knitting & dying plant, and reduced overhead costs.
Royalty expense related to licensed product sales was 12.3% of
sales for 1997 and 8.2% for 1996. This increase was caused by an
increase in the percentage of licensed versus non-licensed
product sales and by additional expenses to cover guarantees
where sales levels are not expected to cover minimum royalty
requirements. Selling, general and administrative (SG&A)
expenses were 31% and 30% of sales for 1997 and 1996,
respectively. Actual SG&A expense decreased $3.8 million due to
the Company's aggressive cost reduction efforts.
The primary elements making up the 1997 other expense amount of
$1.6 million are a $.8 million write down of property, plant and
equipment, a $.3 million bank charge for failing to reach the
minimum sales requirements under its factoring agreement, a $.1
million in additional amortization of goodwill and $.1 million in
factor charges for customer late payments.
The primary elements making up the 1996 other expense amount of
$4.1 million are a $3.1 million write-down of property, plant and
equipment which have been idled and/or held for resale, $.2
million in factor charges for customer late payments and $.2
million accrued severance.
1996 COMPARED WITH 1995
Net sales of $58.8 million for 1996 represent a decrease of 34.6%
or $31.1 million when compared to the $89.9 million in net sales
for 1995. This decrease is comprised of a $16.1 million
reduction for undecorated activewear, a $1.7 million reduction
for women's fashion knitwear and a $13.3 million reduction for
screenprinted product
Sales of undecorated activewear decreased 60.6% to $10.5 million
in 1996 as compared to $26.6 million in 1995. Of the $16.1
million reduction, $9.3 million is the result of Signal's
decision in the last quarter of 1995 to discontinue use of
distributors, and $2.3 million is the result of reduced sales to
a large customer. The Company made the decision to concentrate
its marketing efforts on sales of embellished products in an
effort to produce higher margin sales that can be made with
undecorated activewear. Reduction of unit volume accounted for
85% of the total reduction of undecorated activewear sales during
1996 while reduction in average selling price accounted for the
remaining 15%. The decrease in average selling price was due to
a combination of product mix and unit selling price changes.
Sales of women's fashion knitwear decreased 10.8% to $13.9
million in 1996 as compared to $15.6 million in 1995. The $1.7
million sales reduction was primarily due to competition from
garments selling at lower retail prices. Unit volume accounted
for a $2.3 million reduction which was partially offset by an
increase in average selling price. The increase in average
selling price was due to a combination of product mix and unit
selling price changes.
Sales of screenprinted products were $34.4 million for 1996
versus $47.7 million in 1995. The sales reduction was primarily
the result of reduced sales to several large customers. Based on
its sales data during 1996 as compared to 1995, the Company
believes that it is seeing a shift in demand in the market for
its screenprinted products away from the smaller specialty
retailers and towards larger chain stores, thereby making this
portion of the Company's business more dependent on a few large
customers which possess significant negotiating power with regard
to the terms of sale. Unit volume accounted for a $19.8 million
reduction which was partially offset by an increase in average
selling price. The increase in average selling price was due to
a combination of product mix (including fewer closeouts in 1996)
and unit selling price changes.
Gross profit was $3.8 million (6.5% of sales) in 1996 compared to
$14.0 million (15.6% of sales) in 1995. The $10.2 million
decrease in gross profit in 1996 was the result of decreased
first quality sales and decreased manufacturing efficiencies
partially offset by improved margins on first quality sales due
to sales mix and decreased closeout sales.
Royalty expense related to licensed product sales was 8.2% and
7.1% of total sales for 1996 and 1995, respectively. The
increase in royalty expense percentage over 1995 is the result of
increased sales of licensed products relative to total sales.
Selling, general and administrative ("SG&A") expenses were 30% of
sales for the years ended December 31, 1996 and 1995,
respectively. Actual SG&A expense decreased $9.5 million to
$17.7 million due to the Company's aggressive cost reduction
efforts and lower levels of operating activity.
The primary elements making up the 1996 other expense amount of
$4.1 million are $ 3.1 million write-down of property, plant and
equipment which have been idled and/or held for resale, $.2
million in factor charges for customer late payments and $.2
million accrued severance. The primary elements making up the
1995 other expense amount of $1.3 million are $.4 million
amortization of goodwill and $.1 million in factor charges for
customer late payments.
The write-down of property, plant and equipment was necessary
because during 1996 Signal completed the closing of the Signal
Artwear Indiana facility and moved that production to a new
facility in Chattanooga, Tennessee. Additionally, the Company
abandoned certain other facilities.
FINANCIAL CONDITION
Additional working capital was required in 1997 to fund the
continued losses incurred by the Company. Such working capital
was provided through several transactions with the Company's
principal shareholders and its senior lender. In 1997, the
Company received $21.0 million from WGI,LLC, and certain of its
affiliates (collectively "WGI") a principal shareholder. This
was to help fund the deficit during 1997. At December 31, 1997,
the Company had over-advance borrowings of approximately $34.0
million with its senior lender compared to $14.1 million at
December 31, 1996. (Please see Note 5 to the accompanying
Consolidated Financial Statements of the Company for a more
detailed discussion of the discretionary over-advance facilities
with the Company's senior lender).
The working capital deficit at December 31, 1997 increased
$13.0 million from the prior year. The increase in the working
capital deficit was primarily due to a decrease in inventories
($4.3 million), a decrease in cash ($1.3 million), a decrease in
prepaids and other ($.2 million), and an increase in the
revolving advance account ($20.1 million). These were offset by
an increase in accounts receivable ($2.5 million), an increase in
notes receivable ($0.5 million), a decrease in accounts payable
($2.5 million), a decrease in accrued liabilities ($2.4 million),
and a decrease in accrued interest ($5.4 million). Contributing
to the working capital deficit and included in the above numbers
was $2.9 million negative working capital acquired relating to
the acquisitions of Grand Illusion and Big Ball Sports.
Accounts receivable increased $2.5 million or 324% compared to
the prior year. The increase was a result of the Company's
acquisition of the two new subsidiaries ($1.1 million) and
increased sales for the last quarter of the year compared to 1996
and the timing of funding from the Company's senior lender on
factored receivables ($1.4 million).
Inventories decreased $4.3 million or 29.3% compared to last
year. Inventories decreased as a result of the Company's sale of
excess and closeout inventory as well as reduced inventory in the
undecorated activewear segment, resulting from the Company's
focus on screenprinted products ($5.1 million), which was
partially offset by the acquisition of the two new subsidiaries
($0.8 million).
Accounts payable and accrued liabilities decreased $4.9 million
or 34.6% over prior year-end. This was a result from decreased
purchases and payments of past due payables ($8.1 million) which
was offset by the acquisition of the two new subsidiaries ($3.2
million).
Accrued interest decreased $5.4 million or 77% over prior year-
end. This was the result of the conversion of interest to equity
($16.1 million) which was offset by interest accrued on other
outstanding debt ($10.7 million).
Cash used in operations was $20.8 million in 1997, compared to
$11.4 million used in operating activities in 1996. The net loss
of $30.3 million and an increase in accounts receivable ($1.4
million) were the primary uses of funds in 1997. These items
were partially offset by depreciation and amortization
($1.5 million), significantly lower inventory levels
($5.1 million), an increase in accounts payable and accrued
liabilities ($2.9 million) and losses on sale and write-down of
property, plant and equipment held for sale ($1.0 million).
Cash provided by investing activities of $1.9 million resulted
from sales of property and equipment. There were commitments to
purchase $.4 million of equipment at December 31, 1997. During
1998, the Company anticipates capital expenditures of
approximately $.9 million.
Cash provided by financing activities was $17.7 million in 1997.
The Company borrowed an additional $21.0 million from WGI as well
as $1.5 million from other lenders. This was partially offset by
principal payments on borrowings of $4.8 million.
The revolving advance account increased $20.1 million from $20.4
million at year-end 1996 to $40.5 million at December 31, 1997.
The increase of $20.1 million under the revolving advance account
is a result of the amended and restated factoring agreement with
the Senior lender. The senior lender allowed the Company to
apply $20.0 million of the proceeds to the reduction of
subordinated indebtedness under a credit agreement between the
Company and WGI. Under the amended and restated factoring
agreement, with its senior lender the Company's total outstanding
obligations to the Senior lender cannot exceed the lower of $55
million or the borrowing base as defined. At year-end, the
borrowing base was $6.8 million. Therefore, approximately $34.0
million was over advanced under the revolving advance account.
The over advance is secured by treasury bills pledged by a
principal shareholder, and in part, by the guarantee of two
principal shareholders.
The Amended and Restated Factoring Agreement provides the Company
with up to a maximum of $55,000,000 aggregate credit
availability, subject to (i) a borrowing base that is calculated
on the basis of the Company's eligible inventory, eligible
receivables and collateral pledged by a principal shareholder of
the Company and (ii) certain special over-advance provisions.
The base interest rate on the Company's outstanding indebtedness
under the Agreement will be the Senior Lender's Prime Rate plus
1-1/4%. The Agreement also provides for commissions based on the
volume of factored receivables. The Agreement also contains
revised financial covenants modified in accordance with the
Company's current business plan for the initial term of the
Agreement, but preserves existing defaults under the prior
factoring Agreement between the Company and the Senior Lender.
In connection with the Amended and Restated Factoring Agreement,
the Company has issued to the Senior Lender immediately
exercisable warrants to purchase up to 250,000 shares of the
Company's Common Stock at an exercise price of $2.50 per share.
With the Senior Lender's consent, the Company applied $20,000,000
of the proceeds from the renewed financing arrangement to the
reduction of subordinated indebtedness owed under a Credit
Agreement between the Company and WGI, one of the Company's
principal shareholders, thereby reducing the Company's effective
annual interest rate on such indebtedness from 25% to 1-1/4% over
the senior lender's prime rate.
Interest expense was $14.7 million in 1997 compared to $10.8
million in 1996. Total outstanding debt averaged $72.4 million
and $61.8 million for 1997 and 1996, respectively, with average
interest rates of 20.3% and 17.5%. Average outstanding debt and
average interest rate increased due to the borrowings under the
WGI, Credit Agreement with an annual interest rate of 25%. As a
result of continued losses, the Company has been unable to fund
its cash needs from operating activities. The Company's
liquidity shortfalls were primarily funded through the additional
$21.0 million advanced from WGI.
The Company also uses letters of credit to support some domestic
sourcing of inventory and certain other obligations. Outstanding
letters of credit were $0.6 million at December 31, 1997
(excluding collateral of $2.0 million pledged to the senior
lender in the form of a standby letter of credit).
Total shareholders' deficit decreased by $24.9 million compared
to year-end 1996. The Company sustained losses of $30.3 million
during 1997.
YEAR 2000
In 1997, the Company upgraded its main computer to an IBM AS/400
model 500. Plans are in place to move all mainframe processing
to this hardware and to Year 2000 compliant software the end of
1998.
The main manufacturing and accounting software package was
upgraded in 1997 to the Year 2000 compliant Apparel Business
Systems (ABS) software. Plans are in place to move all mainframe
processing to this software by the end of 1998. All of this
hardware and software will be tested in 1998 by in-house staff.
The cost of these hardware and software upgrades totaled $270,000
in 1997. Plans call for an additional $50,000 to be spent on
software modifications in 1998, to replace current systems.
EDI with customers was addressed in 1997 by acquiring Premenos
software for the AS/400. All customer EDI will be moved from a
PC system to the mainframe by mid-1998. Fixed asset accounting
was moved to a Year 2000 compliant software package in early
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has finalized and executed an Amended and Restated
Factoring Agreement with its senior lender, BNY Financial
Corporation (a subsidiary of the Bank of New York). The term of
the agreement extends through March 31, 2000.
The amended and restated factoring agreement provides the Company
with up to a maximum of $55.0 million aggregate credit
availability, based on the Company's inventory, receivables,
fixed assets and collateral pledged by principal shareholders of
the Company. Financial covenants under the agreement have been
modified in accordance with management's current business plan
for the Company. In connection with the agreement, the Company
has issued to the Senior Lender immediately exercisable warrants
to purchase up to 250,000 shares of the Company's Common Stock at
$2.50 per share.
With the senior lender's consent, the Company has applied $20.0
million of the proceeds from this renewed financing arrangement
to the reduction of subordinated indebtedness owed under a credit
agreement between the Company and WGI, one of the Company's
principal shareholders, thereby reducing the Company's effective
annual interest rate on such indebtedness from 25% to a rate of
1-1/4% over the senior lender's prime rate. Based upon current
interest rates, this reduction represents potential annual
savings to the Company of approximately $3.0 million. The senior
lender has also agreed to eliminate or reduce certain fees which
have previously been charged to the Company.
As a result of continuing losses, the Company has been unable to
fund its cash needs through cash generated by operations. The
Company's liquidity shortfalls from operations during these
periods have been funded through several transactions with its
principal shareholders and with the Company's senior lender.
These transactions are detailed above in the Financial Condition
section.
As of December 31, 1997, the Company's senior lender waived
certain covenant violations (pertaining to working capital and
cumulative pre-tax operating earnings) under the Company's
amended and restated factoring agreement. Nevertheless, on the
basis of such violations (which could also serve as a basis for
the senior lender enforcing its remedies under defaults preserved
from the Company's prior factoring agreement), all of the
Company's long-term debt owed to the senior lender at December
31, 1997 was subject to accelerated maturity and, as such, has
been classified as a current liability in the consolidated
balance sheets. If the senior lender were to accelerate the
maturity of such debt, the Company would not have funds available
to repay the debt.
If the Company's's sales and profit margins do not substantially
improve in the near term, the Company will be required to seek
additional capital in order to continue its operations and to
move forward with the Company's turnaround plans, which include
seeking appropriate additional acquisitions. To obtain such
additional capital and such financing, the Company may be
required to issue additional securities that may dilute the
interests of its stockholders. At the end of fiscal 1997, the
Company implemented a restructuring plan for its preferred equity
and the majority of its subordinated indebtedness (following
approval by shareholders of the issuance of Common Stock in
connection therewith), which resulted in a significant increase
in the Company's overall equity as well as a significant
reduction in the Company's level of indebtedness and ongoing
interest expense. Although management believes that the
restructuring has enhanced the Company's opportunities for
obtaining the needed funding, no assurance can be given that any
such additional financing will be available to the Company on
commercially reasonable terms or otherwise. If the Company's
sales and profit margins do not significantly improve and
additional funds cannot be raised as needed, the Company will not
be able to continue as a going concern.
INFLATION AND CHANGING PRICES
Inflation and changing prices have not had a material effect on
the Company's results of operations or financial condition during
the past three years.
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, 1997 and
December 31, 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Shareholders' Deficit for the
Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995
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, 1997 and 1996, and the related
consolidated statements of operations, shareholders' deficit and
cash flows for each of the three years in the period ended
December 31, 1997. 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.
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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
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 Company has as of December 31, 1997 a working capital deficit
of $43.4 million, an accumulated deficit of $245.2 million, and
the liquidity of the Company has been adversely affected by
recurring losses from operations. These matters raise
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 27, 1998
CONSOLIDATED BALANCE SHEETS
Signal Apparel Company, Inc. and Subsidiaries
December 31, 1997 and 1996
(Dollars in thousands, except per share amounts)
1997 1996
------------------
Assets
Current assets:
Cash and cash equivalents $ 384 $ 1,713
Receivables, less allowance for
doubtful accounts of $2,665
in 1997 and $1,573 in 1996 3,203 755
Note receivable 500 0
Inventories 10,390 14,687
Prepaid expenses and other 531 769
--------- ---------
Total current assets 15,008 17,924
--------- ---------
Property, plant and equipment, at cost:
Land 433 500
Buildings and improvements 7,957 12,102
Machinery and equipment 21,020 33,552
--------- ---------
Total property, plant and equipment 29,410 46,154
Less accumulated depreciation 23,365 37,984
--------- ---------
Net property, plant and equipment 6,045 8,170
--------- ---------
Goodwill, less accumulated amortization
of $56 in 1997 4,832 0
---------------------
Debt issuance costs, net 3,716 0
---------------------
Other assets 59 73
--------- ---------
Total assets $ 29,660 $ 26,167
========= =========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 2,577 $ 5,055
Accrued liabilities 6,617 9,003
Accrued interest 1,603 7,044
Current portion of long-term debt 7,110 6,795
Revolving advance account 40,457 20,362
-------- ---------
Total current liabilities 58,364 48,259
--------- ---------
Long-term debt, principally to
Related Parties, less current portion 12,580 39,266
--------- ---------
Other noncurrent liabilities 0 4,797
--------- ---------
Commitments and contingencies (Notes 1,
2, 5, 6, and 10)
Redeemable Series D Preferred Stock,
$100,000 stated value per share,
100 shares authorized, none out-
standing in 1997 and 1996 0 0
Shareholders' deficit:
Series A Preferred Stock, $100,000
stated value per share, 400 shares
authorized, none outstanding in 1997,
327.087 shares issued and
outstanding in 1996 (liquidation
preference of $100,000 per share
plus cumulative unpaid dividends
of $6,875 in 1996) 0 39,584
Series B Preferred Stock, $100,000
stated value per share, 250 shares
authorized, none outstanding in
1997 and 1996 0 0
Series C Preferred Stock, $100,000
stated value per share, 1,000 shares
authorized, none outstanding in 1997,
317.678 shares issued in
1996 (liquidation preference of
$100,000 per share plus
cumulative unpaid dividends of
$4,850 in 1996) 0 36,618
Series E Preferred Stock,$1,000 stated
value per share, 20,000 shares
authorized, none outstanding in
1997 and 1996 0 0
Series F Preferred Stock,
$100,000 stated value per share,
1,000 shares authorized in 1997,
443.16 shares issued and outstanding
in 1997, (cumulative undeclared
dividends at a rate of 9% per annum) 44,316 0
Common Stock, 80,000,000 shares
authorized, $.01 par value
per share, 32,536,460 shares issued in
1997, 11,578,046 shares issued in 1996 325 115
Additional paid-in capital 160,399 73,507
Accumulated deficit (245,207) (214,862)
--------- ---------
Subtotal (40,167) (65,038)
Less cost of common treasury
shares (140,220 shares) (1,117) (1,117)
--------- ---------
Total shareholders' defici (41,284) (66,155)
--------- ---------
Total liabilities and
shareholders' deficit $ 29,660 $ 26,167
========= =========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Signal Apparel Company, Inc. and Subsidiaries
Years Ended December 31, 1997, 1996, and 1995
(In thousands, except per share data)
1997 1996 1995
Net sales $ 44,616 $ 58,808 $ 89,883
Cost of sales 39,287 54,974 75,896
Gross profit 5,329 3,834 13,987
Royalty expense (5,467) (4,822) (6,362)
Selling, general and
administrative expenses (13,916) (17,742) (27,279)
Interest expense (14,726) (10,833) (8,255)
Other expense, net (1,565) (4,133) (1,314)
Write-off of goodwill 0 0 (10,736)
Loss before income taxes (30,345) (33,696) (39,959)
Income taxes 0 0 0
Net loss $(30,345) $(33,696) $(39,959)
Weighted average shares
outstanding 12,693 11,566 10,503
Basic/diluted net loss
per share $ (2.39) $ (2.91) $ (3.80)
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Signal Apparel Company, Inc. and Subsidiaries
Years Ended December 31, 1997, 1996, and 1995
(Dollars in thousands, except share data)
Preferred Stock Addt'l
------------------ Common Paid-In Accum. Treasury
Series A Series C Series F Stock Capital Deficit Stock Total
- - ------------------------ -------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1994 $39,584 $33,618 $ 0 $ 102 $69,721 $(141,207) $(1,117) $ 701
Net loss 0 0 0 0 0 ( 39,959) 0 (39,959)
Exercise of employee stock
options 0 0 0 0 97 0 0 97
Issuance of 30 shares of
Series C Preferred Stock 0 3,000 0 0 0 0 0 3,000
Issuance of 1,310,000 shares
of Common Stock 0 0 0 13 2,740 0 0 2,753
Grant of 200,000 stock
Options below quoted
market value 0 0 0 0 454 0 0 454
Balance, December 31, 1995 39,584 36,618 0 115 73,012 (181,166) (1,117) (32,954)
Net loss 0 0 0 0 0 (33,696) 0 (33,696)
Exercise of employee stock
options 0 0 0 0 200 0 0 200
Compensation expense related
to stock options granted
below quoted market value 0 0 0 0 295 0 0 295
Balance, December 31, 1996 39,584 36,61 0 115 73,507 (214,862) (1,117) (66,155)
Net Loss (30,345) (30,345)
Exercise of warrants to
acquire 4,630,000 shares
of Common Stock through
conversions of $10,582
in debt and Series C
Preferred Stock 0 (3,375) 0 46 13,911 0 0 10,582
Conversion of $23,802 in
debt and Series C
Preferred Stock into
Series F Preferred Stock 0 (20,514) 44,316 0 0 23,802
Conversion of $15,833 in
debt and Series A and C
Preferred Stock into
15,473,220 shares of
common stock (39,584) (12,729) 0 155 67,991 0 0 15,833
Issuance of 855,194
shares of common stock
for Big Ball acquisition 0 0 0 9 1,274 0 0 1,283
Issuance of 4,750,000
warrants in connection
with extension of debt 0 0 0 0 3,716 0 0 3,716
Balance, December 31,1997 $ 0 $ 0 $ 44,316 $ 325 $160,399 (245,207) $(1,117) $(41,284)
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Signal Apparel Company, Inc.
and Subsidiaries
Years Ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
1997 1996 1995
------------------------------
Operating Activities:
Net loss $(30,345) $(33,696) $(39,959)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 1,467 2,924 3,708
Loss on disposal and write-down
of property, plant and equipment 977 2,340 166
Write-off of goodwill -- -- 10,736
Compensation expense related to
stock options granted below
quoted market value -- 295 454
Changes in operating assets and
liabilities, net of effects of
businesses acquired:
Receivables (1,369) 3,603 2,354
Inventories 5,146 7,435 11,229
Prepaid expenses and other 349 775 (130)
Accounts payable and accrued
liabilities 2,931 4,958 118
--------- --------- ---------
Net cash used in operating
activities (20,844) (11,366) (11,324)
--------- --------- ---------
Investing activities:
Purchases of property, plant and
equipment (233) (285) (452)
Proceeds from the sale of property,
plant and equipment 2,295 488 81
Acquisitions of businesses, less cash
acquired (200) -- --
--------- --------- ---------
Net cash provided by
(used in) investing
activities 1,862 203 (371)
--------- --------- ---------
Financing activities:
Net(decrease) increase in revolving
advance account (26) 724 (9,244)
Proceeds from borrowings 22,472 12,533 20,000
Principal payments on borrowings (3,998) (1,830) (668)
Principal payments on multiemployer
withdrawal liability (795) (246) (298)
Proceeds from issuance of common stock -- -- 3,000
Proceeds from exercise of stock options -- 200 97
--------- --------- ---------
Net cash provided by
financing activities 17,653 11,381 12,887
--------- --------- ---------
Net (decrease) increase in cash
and cash equivalents (1,329) 218 1,192
Cash and cash equivalents,
beginning of year 1,713 1,495 303
--------- --------- ---------
Cash and cash equivalents, end of year $ 384 $ 1,713 $ 1,495
========= ========= =========
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 consolidated financial statements of Signal Apparel Company,
Inc. (the "Company")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 of $30,345,000 for the year ended December
31, 1997 and cumulative losses for the past three years of
$104,000,000. The 1995 net loss included a write-down of
goodwill of approximately $10,736,000 related to the acquisition
of American Marketing Works, Inc. ("AMW"). As a result of these
continuing losses, the Company's accumulated deficit now totals
$245,207,000 at December 31, 1997.
The Company is not currently in compliance with certain financial
covenants of its amended and restated factoring areement with its
senior lender; therefore all long-term debt due the senior lender
is subject to accelerated maturity and as such, has been
classified as a current liability in the consolidated balance
sheets. If the senior lender were to accelerate the maturity of
the debt, the Company would not have funds available to repay
this debt. The Company's working capital deficit as of December
31, 1997 totals $43,356,000.
Throughout 1997 and during the first quarter of 1998, the Company
experienced liquidity shortfalls from operations that were
resolved through advances to the Company from a principal
shareholder. The Company's continued existence is dependent upon
its ability to raise additional debt or equity financing to
maintain existing credit facilities and to substantially improve
its operating results during 1998.
Plans to improve operations include: (i) reducing general and
administrative costs, (ii) focusing the Company's efforts on the
embellished activewear business, including licensed NFL, NBA,
MLB, NHL, and various cartoon characters, (iii) reducing costs of
sales through outsourcing and other measures, (iv) seeking
appropriate additional acquisitions to enhance the Company's
sales and profitability and (v) the sale of idle facilities.
In order for the Company to have sufficient liquidity for it to
continue as a going concern in its present form, the Company will
need to raise additional funds and execute planned improvements.
The Company has no assurances it will be able to raise additional
funds. The consolidated financial statements do not include any
adjustments relating to the 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. There can be no assurances that the Company's
operations can be returned to profitability.
Nature of Operations
The Company 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
and retail accounts, primarily in the United States.
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.
Revenue Recognition
Revenue is recognized when the Company's products are shipped to
its customers.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and investments with
original maturities of three months or less.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO)
cost or market for all inventories. For discontinued and
closeout inventories, the Company evaluates the need for write-
downs on an item by item basis. Market value for finished goods
and blank (unprinted) goods is estimated 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 from 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 amounted to $1,411,000 in 1997, $2,924,000 in 1996,
and $3,353,000 in 1995. The Company has idle facilities in
Marion, South Carolina and Wabash, Indiana. At December 31,
1997, the Company had idle property, plant and equipment held for
sale with a net book value of approximately $796,000. The
Company has written the property, plant and equipment down to its
estimated fair value less estimated costs to sell. Write downs
of $753,000 and $1,845,000 have been included in other expense in
the consolidated statement of operations for 1997 and 1996,
respectively.
Net Loss per Share
Effective for the period ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No.
("SFAS")128 "Earnings Per Share", which changes the criteria for
reporting earnings per share ("EPS"). As the Company has been in
a loss position, the Company's common stock equivalents (see Note
6) would have an antidilutive effect on EPS and are excluded from
diluted EPS for all periods presented.
Stock-Based Compensation
The Company accounts for its stock-based compensation plan under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25). Effective in 1996, the
Company adopted the disclosure option of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 requires
companies that do not choose to account for stock-based
compensation as prescribed by the statement to disclose the pro
forma effects on net income and earnings per share as if SFAS No.
123 had been adopted. Additionally, certain other disclosures
are required with respect to stock-based compensation and the
assumptions used to determine the pro forma effects of SFAS No.
123. See Note 6.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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 consideration 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. At December 31, 1997,
the senior lender had outstanding receivables from the Company's
customers totaling $4.6 million, of which $1.1 million was not
credit-approved by 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.
In 1997, Wal-Mart accounted for 20% and Kmart accounted for 10%
of net sales. In 1996, Wal-Mart accounted for 14% and Kmart
accounted for 12% of net sales. In 1995, no one customer
accounted for more than 10% of net sales.
Goodwill
On October 17, 1997, the Company acquired GIDI Holdings, Inc.,
doing business as Grand Illusion Sportswear. On November 5, 1997,
the Company completed the related acquisitions of Big Ball
Sports, Inc. and Print The Planet, Inc.(collectively "Big Ball").
These acquisitions resulted in goodwill of $751,000 and
$3,949,000,respectively (Note 2). The goodwill related to these
acquisitions is being amortized on a straight-line basis over 15
years. Amortization expense for 1997 was $56,000.
In connection with the 1994 acquisition of AMW, the Company
recorded goodwill. In 1995, however, the Company determined that
the goodwill related to the acquisition of AMW had been impaired.
This impairment was due to operating losses by AMW, the loss of
significant licenses, shortfalls in sales projections, and the
uncertainty about AMW's return to profitability. As a result,
the unamortized balance of the AMW goodwill was written off.
The charge for this goodwill write-off was $10,736,000 in 1995,
and has been separately presented in the accompanying statements
of operations.
Debt Issuance Costs
During the year, the Company issued 250,000 warrants to its
senior lender at an exercise price of $2.50 per share in
connection with the extension of the revolving advance account.
In addition, the Company issued 4,500,000 warrants with an
exercise price of $1.75 per share to WGI,LLC in connection with
advances made by WGI,LLC. The fair market value using the Black
- - - Scholes option pricing model (see note 6 for assumptions) of
these warrants of $3,716,000 has been capitalized and is included
in the accompanying balance sheet as debt issuance costs. These
costs are being amortized over the term of the debt and the
expected term of the WGI,LLC advances.
Reclassifications
Certain reclassifications have been made in the fiscal 1996 and
1995 financial statements to conform with the 1997 presentation.
2. Acquisitions
Pursuant to the terms of a stock purchase agreement dated as of
October 1, 1997 the Company purchased all of the issued and
outstanding common stock of GIDI Holdings, Inc., d/b/a Grand
Illusion Sportswear, an Illinois Corporation, for $200,000.
Grand Illusion assets acquired and liabilities assumed were
$1,040,000 and $1,483,000, respectively. The acquisition has
been accounted for as a purchase. The excess of the purchase
price over the fair value of the net identifiable assets acquired
is being amortized on a straight-line basis over 15 years.
Pursuant to stock purchase agreements dated October 31, 1997 the
Company acquired all of the outstanding capital stock of Big Ball
Sports, Inc., a Texas Corporation and Print the Planet, Inc., a
Texas Corporation.
Pursuant to the terms of the purchase agreements, the Company
(i) entered into employment agreements with two of the former
owners; (ii) paid $250,000 in cash and issued a promissory note
in the amount of $250,000 (payable in 12 monthly installments of
interest only, followed by 36 monthly installments of principal
and interest beginning November 5, 1998)(in each case with
interest on the unpaid balance at prime); and (iii) issued a
total of 855,194 shares of Common Stock in settlement of various
outstanding claims of creditors pertaining to Big Ball.
All of the shares of Common Stock issued pursuant to the purchase
agreements are unregistered, restricted shares of Common Stock
pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company entered into Registration
Rights Agreements with each recipient of unregistered shares
which give each holder certain "piggy back" registration rights
for a period of two years.
Big Ball Sports and Print the Planet, Inc. assets acquired and
liabilities assumed were $3,335,000 and $5,846,000, respectively.
The acquisition has been accounted for under the purchase method
of accounting. The excess of purchase price over the fair value
of the net identifiable assets acquired has been recorded as an
intangible asset and is being amortized on a straight line basis
over 15 years.
The results of operations of Grand Illusion Sportswear and Big
Ball Sports and Print the Planet, Inc. are included in the
accompanying consolidated financial statements from their
respective dates of acquisition. The following summarized
unaudited pro forma financial information gives effect to the
acquisitions as if they had occurred on January 1 of each year:
Year Ended
Dollars in thousands, December 31,
Except per share data 1997 1996
Net sales $ 59,823 $ 80,135
Net loss (31,978) (38,537)
Net loss per share (2.40) (3.10)
3. Note Receivable
On December 2, 1997, a third party entered into a $500,000
promissory note with the Company as part of the sale of the
Company's LaGrange plant. The note bears interest at 10% payable
in 24 equal monthly installments of interest and principal
beginning January 1, 1998.
4. Inventories
Inventories consisted of the following at December 31, 1997
and 1996:
(Dollars in thousands) 1997 1996
- - -----------------------------------------------------------------
Raw materials $ 731 $ 794
Work in process 1,032 2,060
Finished goods 8,120 11,383
Supplies 507 450
- - -----------------------------------------------------------------
$10,390 $14,687
=================================================================
5. Debt
Debt consisted of the following at December 31, 1997 and 1996:
(Dollars in thousands) 1997 1996
- - -----------------------------------------------------------------
Senior obligations:
Revolving advance account under
Senior credit facility -- interest
payable monthly at the alternate
base rate (as defined) plus 1.25%
(9.75% at December 31, 1997);
secured by accounts receivable,
inventories and certain machinery
and equipment and guarantees
of principal shareholder $40,457 $20,362
Senior term note repaid in 1997 - 995
Senior term note -- interest payable
monthly at the alternate base rate
(as defined) plus 1.5% (10.0% at
December 31, 1997); 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 823 2,576
Senior secured subordinated promissory
note to related party -- interest at
25% through August 22, 1997; thereafter at
10% (payable at maturity); secured by a
second lien on accounts receivable,
inventory, machinery and equipment,
and certain real estate 11,210 32,049
Notes payable to related party - 6,500
converted to equity in 1997
Notes payable to related parties --
interest accrued monthly at 5.5% per
annum based on the average outstanding
debt. 1,981 -
Subordinated debt to related party 3,000 3,000
Obligations under capital leases 1,205 278
Other 1,471 663
- - -----------------------------------------------------------------
Total 60,147 66,423
Less: Current portion of
long-term debt 7,110 6,795
Revolving advance account 40,457 20,362
- - -----------------------------------------------------------------
Long Term Debt, excluding current
portion and revolving advance account $ 12,580 $ 39,266
=================================================================
On October 31, 1997, the financing arrangement with the Company's
senior lender was extended through March 31, 2000. On January
30, 1998, the financing agreement with the senior lender was
amended to include the factoring of Big Ball Sports, Inc. Under
the current financing arrangement, the Company's total
outstanding obligations to the senior lender (including the
revolving advance account and senior term notes) at any month-end
cannot exceed the lower of $55,000,000 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 ($16,000,000, subject to adjustment)
or 50% of eligible inventory (as defined), less certain reserves,
plus the discretionary overadvances and the senior term notes.
The senior lender has agreed to allow certain discretionary
overadvances in excess of the borrowing base. At December 31,
1997, the discretionary overadvance facilities aggregated
$34,000,000, $4,000,000 of which is secured by a collateral
pledge by two principal shareholders, FS Signal Associates II and
WGI. All such overadvance facilities with the senior lender are
discretionary. The balance of $30,000,000 is guaranteed by the
principal shareholder, WGI. The collateral pledge may only be
repaid after repayment of all outstanding borrowings under the
discretionary overadvance facility from the senior lender. Such
overadvances are classified in the revolving advance account.
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 $55,000,000 and the average amount of
obligations outstanding, as defined, to such lender.
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 the amount of indebtedness
the Company may incur. As of December 31, 1997, the Company was
not in compliance with various covenants of the credit facility.
Due to the Company's noncompliance with certain of the amended
and restated covenants, all long-term debt with the senior lender
is classified as a current liability in the accompanying
consolidated balance sheets at December 31, 1997.
During 1997, as part of the Restructing Plan (see Note 6),
$20,000,000 of the outstanding debt owed to WGI, was repaid with
proceeds from the senior lender under the terms of the new
financing agreement. In addition, notes payable to a related
party were converted to equity as part of the Restructuring Plan
(see note 6). In 1997, the Company used $1,750,000 in proceeds
from the sale of the LaGrange facility to reduce its obligations
under the senior term notes as required. Also, during 1997, the
Company entered into a Reimbursement Agreement of a Promissory
Note with FS Signal, whereby the Company agreed to repay amounts
that FS Signal pays in support of letters of credit. At December
31, 1997, the Company had a debt of $1,981,000 relating to this
agreement. Also, during 1997, the Company financed certain
capital expenditures relating to machinery and equipment totaling
$842,000 by entering into capital leases.
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 was due on April 30, 1997, subject to the terms
of the subordination agreement with the Company's senior lender.
Interest was payable at maturity at the prime rate, as defined,
plus 3%. In connection with this promissory note, accrued
interest payable to FS Signal Associates I was approximately
$1,322,000 and $989,000 at December 31, 1997 and 1996,
respectively.
Subsequent to December 31, 1997 the Company received $4,250,000
in additional advances from WGI,LLC. These amounts, as well as,
the $11,210,000 received in 1997 are expected to be documented as
funding under a new credit agreement with WGI,LLC. These
additional advances currently accrue interest at a rate of 10%.
Interest expense in the consolidated statements of operations
includes accrued interest to related parties of $1,599,000,
$7,119,000, and $3,852,000 during 1997, 1996, and 1995,
respectively.
The Company made cash payments for interest of $ 2,349,000,
$2,649,000, and $4,634,000 during 1997, 1996, and 1995,
respectively. The aggregate future scheduled maturities of debt
for the five years subsequent to December 31, 1997, are as
follows: 1998 - $47,567,000; 1999 - $11,914,000; 2000 -
$337,000; 2001 - $205,000, and 2002 - $124,000.
6. Capital Stock
On December 30, 1997, the shareholders approved an amendment to
the Company's 1985 Stock Option Plan to increase the number of
shares of Common Stock available for grant from 1,910,000 to
4,000,000 shares. The options have terms ranging from 5 to 10
years and vest over periods from one to four years from date of
grant.
The Company accounts for its stock-based compensation under APB
No. 25, under which no compensation expense has been recognized
for stock options granted with exercise prices equal to or
greater than the fair value of the Company's Common Stock on the
date of grant. The Company adopted SFAS No. 123 for disclosure
purposes only in 1996. For SFAS No. 123 purposes, the fair value
of each employee option grant has been estimated as of the date
of grant using the Black-Scholes option pricing model with the
following weighted average assumptions for 1997,1996 and 1995,
respectively: risk-free interest rate of 6.11%, 6.52% and 6.40%,
expected life of 3.0, 5.0 and 5.4 years, expected dividend yield
of 0% and expected volatility of 71% for 1997 and 46% for 1996
and 1995. Using these assumptions, the fair value of the
employee stock options granted in 1997,1996 and 1995 is
$2,743,000, $913,000 and $967,000, respectively, which would be
amortized as compensation expense over the vesting period of the
options. Compensation expense recognized under APB No. 25 in
1997, 1996 and 1995 was $0, $295,000 and $454,000, respectively.
Had compensation cost for the plan been determined in accordance
with SFAS No. 123, utilizing the assumptions detailed above, the
Company's pro forma net loss would have been $31,049,000,
$34,314,000 and $40,472,000 for the years ended December 31,
1997, 1996 and 1995, respectively. Pro forma net loss per share
would have been $2.45, $2.97 and $3.85 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The pro forma effect on net loss in this disclosure may not be
representative of the pro forma effect on net loss in future
years because it does not take into consideration expense related
to grants made prior to 1995.
A summary of the Company's stock option activity for 1997, 1996
and 1995 is as follows:
1997 1996 1995
----------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning
of year 493,600 $5.29 760,236 $5.47 483,500 $6.27
Granted, at market price
1,700,000 2.12 18,000 6.19 305,000 5.60
Granted , at below market
Price 65,000 2.38 52,500 4.48 200,000 4.00
Granted, at below market
price 682,000 2.38 0 0 0 0
Exercised 0 0 (50,000) 4.00 (13,750) 7.06
Canceled or expired (292,250) 3.38 (287,136) 5.90 (214,514) (5.98)
Outstanding at
end of year 2,648,350 $2.66 493,600 $5.29 760,236 $5.47
Exercisable at end of 380,600 $5.38 433,825 $5.31 201,786 $6.30
year
Weighted average fair $1.31 3.27 3.25
value of options granted,
at market
price
Weighted average fair $1.26 3.30 4.01
value of options
granted, at Below market
market price
Weighted average fair value
of options granted, at
above market price $ .46 N/A N/A
There are 2,648,350 options outstanding at December 31, 1997,
including 2,267,750 having exercise prices between $1.50 and
$2.50 with a weighted average exercise price of $2.20 and a
weighted average remaining contractual life of 4.5 years. None
of these options were exercisable at year end. There are also
177,500 options with exercise prices between $3.00 and $4.00,
with a weighted average exercise price of $3.89 and a weighted
average remaining contractual life of 7.3 years. All of these
options were exercisable at year end. The remaining 203,100
options have exercise prices between $5.00 and $7.06, with a
weighted average exercise price of $6.73 and a weighted average
remaining contractual life of 6.2 years. All of these options
were exercisable at year end.
At the Annual Meeting of Shareholders of Signal Apparel Company,
Inc. held on December 30, 1997, the Company's shareholders
approved the issuance of an additional 15,473,220 shares of the
Company's Common Stock in connection with a plan approved by the
Board of Directors to restructure the Company's outstanding
subordinated debt and preferred stock (the "Restructuring Plan").
In anticipation of the adoption of the Restructuring Plan, WGI,
LLC , a principal shareholder of the Company, acquired an
additional 4,630,000 shares of Common Stock through the exercise
of warrants on November 7, 1997 (the "Restructuring
Acquisition"). After this exercise of Warrants, WGI owned 50.44%
of the Common Stock of the Company (not including remaining
exercisable warrants).
Pursuant to an agreement between the Company and WGI concerning
the Restructuring Plan, the Company applied $20,000,000 of the
increased funding available under the amended and restated
factoring agreement with the Company's senior lender to reduce
the Company's outstanding indebtedness under the credit agreement
between it and WGI. The reduction of outstanding indebtedness
under the credit agreement with WGI also reduced the Company's
effective annual interest rate on this portion of its debt from
over 20% per annum to a rate of prime plus 1-1/4% (currently
9.75%). The Restructuring Plan reduces the Company's annual
interest expense by eliminating approximately $50,200,000 of
indebtedness from the Company's balance sheet, leaving
approximately $41,282,000 owed to the Senior Lender and
approximately $17,800,000 owed to WGI and FS Signal (including
approximately $11,397,000 owed to WGI). The Restructuring Plan
also eliminates a liability of $11,725,000 for accrued but unpaid
dividends on preferred stock and reduces the Company's
shareholders' deficit by over 50%, from approximately $89.3
million to approximately $41.3 million.
The Restructuring Plan also includes: (i) amendment of all
remaining outstanding warrants held by WGI (covering a total of
345,000 shares with an exercise price of $7.06 per share),
reducing the exercise price of such warrants to $1.75 per share
(approximately equal to the market price on the date of the
Annual Meeting); (ii) issuance to WGI of 8,000,000 shares of
Common Stock valued at approximately $1.98 per share (a premium
of approximately 13% over the market price on the date of the
Annual Meeting) in payment for $15,831,950 of the remaining
subordinated debt owed by the Company to WGI (representing a
discount on the debt repayment of $1,831,950, which equals the
net economic benefit of repricing the WGI warrants); and (iii)
conversion of both the remaining outstanding balance of such debt
of $23,802,000 (including accrued interest through the date of
the Annual Meeting) and approximately $20,514,000 in stated value
(plus accumulated dividends) of Series C Preferred Stock held by
WGI into a total of approximately 443.16 shares of a new Series F
Preferred Stock, stated value $100,000 per share.
The new Series F Preferred Stock accrues cumulative undeclared
dividends at the rate of 9% per annum. These dividends are
payable in cash when declared. The Series F Preferred Stock is
not convertible into Common Stock or into any other security
issued by the Company, and does not have any mandatory redemption
or call features.
In addition to the transactions described above between the
Company and WGI, the Company exercised its rights under an
agreement dated March 31, 1995 between the Company and the
holders of all outstanding shares of its Series A Preferred Stock
and Series C Preferred Stock (the "Preferred Stock Agreement") to
redeem all of the remaining outstanding shares (including
accumulated dividends) of the Company's Series A Preferred Stock
and Series C Preferred Stock with shares of Common Stock valued
for such purpose at $7 per share. Following the completion of
the restructuring transactions described above involving WGI, FS
Signal was the only remaining holder of shares of the Company's
Series A Preferred Stock and Series C Preferred Stock. The
redemption of all of such stock held by FS Signal ($39,583,700 in
stated value plus accrued dividends in Series A Preferred Stock
and $12,728,841 in stated value plus accrued dividends in Series
C Preferred Stock) resulted in the issuance of an additional
7,473,220 shares of the Company's Common Stock to FS Signal.
The issuance of Common Stock as described above in connection
with the Restructuring Plan and related transactions resulted in
WGI having a greater percentage of voting power. Prior to the
implementation of the Restructuring Plan and the aforementioned
related transactions, WGI owned 34.35% of the issued and
outstanding shares of the Company's Common Stock (not including
exercisable warrants). Now, WGI owns 50.85% of the issued and
outstanding shares of Common Stock (not including exercisable
warrants). FS Signal's percentage of voting power has remained
the same, approximately 36% of the issued and outstanding shares
of Common Stock (not including exercisable warrants).
Implementation of the Restructuring Plan and related transactions
described above has resulted in ownership of shareholders other
than WGI and FS Signal being reduced from approximately 30% to
approximately 14% of the issued and outstanding shares of the
Company's Common Stock (not including exercisable warrants).
Although WGI now owns over 50% of the voting securities (as
defined by Rule 12b-2 of Regulation S-K) of the Company, the
Company does not deem the implementation of the Restructuring
Plan and related transactions to have effected a change in
control of the Company as WGI already, through its ownership of
other securities of the Company convertible into Common Stock and
its relationship with the Company and management, possessed the
power to direct the management and policies of the Company.
Under its Restated Articles of Incorporation, as amended, 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, 1997, the Company had authorized 400 shares of
Series A Preferred Stock, 250 shares of Series B Preferred Stock,
and 1,000 shares of Series C Preferred Stock, 100 shares of
Series D Preferred Stock and 20,000 shares of Series E Preferred
Stock, and 1,000 shares of Series F Preferred Stock. See Note 7
for discussion of the Series D Redeemable Preferred Stock.
At December 31, 1997, there were no shares of the Series A, B, C,
D or E Preferred Stock outstanding. As discussed above the
Company issued 443.16 shares of Series F Preferred Stock
effective December 31, 1997 in connection with the implementation
of the Restructuring Plan.
In January 1995, Walsh Greenwood made an equity investment in the
Company of $3,000,000 for which they received 30 shares of Series
C Preferred Stock. In connection with this investment, the
Company issued warrants to Walsh Greenwood to purchase 300,000
shares of the Company's Common Stock at an exercise price of
$7.625 per share. Such warrants expire on February 1, 2000.
In conjunction with the Walsh Greenwood Credit Agreement (Note
4), in 1995 the Company issued warrants to Walsh Greenwood to
purchase 4,000,000 shares of Common Stock. Of these, warrants to
purchase 2,000,000 shares were issued with an exercise price of
$2.25 per share expiring on March 31, 1998. Such warrants vested
as funds were drawn at the rate of 100,000 warrants for each
$1,000,000 drawn. Additionally, Walsh Greenwood received
warrants to purchase 2,000,000 shares with an exercise price at a
25% discount to the 20-day average trading price in December 1996
($2.32 per share). These warrants vested upon issuance and were
exercisable for a period of three years commencing on January 1,
1997. These warrants were subsequently assigned by Walsh
Greenwood to WGI, and comprised a portion of the warrants to
acquire 4,630,000 shares of Common Stock which were exercised by
WGI in anticipation of the Restructuring Plan, as discussed
above.
On November 5, 1995, Marvin and Sherri Winkler and MW
Holdings(collectively, the "Winkler Interest") agreed to convert
outstanding promissory notes totaling approximately $2,434,000
into 1,000,000 unregistered shares of the Company's Common Stock.
The Company agreed to use its best efforts to include such shares
in the next registration statement under the Securities Act of
1933 that the Company files, and, if such registration does not
occur by November 1996, the Company agreed to pay interest at the
rate of 7% per annum on the value of the unregistered shares
(half of said interest to be paid in cash, half to be paid in
shares of Common Stock) until such shares are registered or
disposed of. The Company had not registered such shares as of
September 1997. Pursuant to the terms of an agreement between
the Winkler Interests and the Company in September 1997, the
Winkler Interests agreed to accept $175,000 (payable in equal
monthly installments of $25,000 each) and 125,000 unregistered
shares of the Company's Common Stock in lieu of certain past and
all future interest obligations of the Company to the Winkler
Interests (including interest that otherwise would have accrued
on account of the none registration of shares of Common Stock
issued to the Winkler Interests).
From June 1996 through December 1997, the Company incurred
additional indebtedness to WGI for funds advanced in an aggregate
amount of $33,044,000, bringing the Company's total indebtedness
to WGI in December 1997 (prior to implementation of the
Restructuring Plan), including accrued interest thereon, to
approximately $50,214,000. These funds were advanced to the
Company on an "as needed" basis with the understanding that the
additional indebtedness would be documented on the same terms as
the existing WGI Credit Agreement. Additionally, as of December
31, 1996, the Company had not made all interest payments required
by the WGI Credit Agreement and had breached the financial
covenants specified by the agreement. In March 1997, Walsh
Greenwood agreed to waive those conditions. Finally, in
connection with the Company's amendment and restatement of the
factoring agreement with its senior lender, the senior lender
required WGI to (i) deposit $15,000,000 of collateral as security
in support of a portion of the Company's borrowing base under the
amended and restated factoring agreement and (ii) to continue in
place a guaranty of a portion of the Company's obligations in the
amount of $9,000,000 which was originally entered into February
27, 1996 by another affiliate of WGI The Company entered into a
Reimbursement Agreement and related Promissory Note with WGI
dated October 31, 1997 (subordinate to the Company's obligations
to its senior lender and parri passu with its obligations to FS
Signal), pursuant to which the Company agreed to repay any
amounts that WGI may be required to pay to the senior lender by
virtue of these arrangements. As an inducement to WGI to provide
such additional funding to the Company, and in connection with
such waiver and the collateral and guaranty arrangements with the
senior lender, the Company agreed (subject to shareholder
approval) to issue warrants to WGI to purchase up to 4,500,000
additional shares of the Company's Common Stock at an exercise
price of $1.75 per share (approximately the then-current market
price). The Company agreed to issue these warrants with
antidilution provisions and registration rights no more favorable
than the equivalent provisions in other outstanding warrants
issued to principal shareholders of the Company, except that the
registration rights would include three demand registrations.
Using a formula vesting such warrants at the rate of 100,000
shares for each $1,000,000 of additional funding (as under the
WGI Credit Agreement), these warrants were vested as to all
4,500,000 shares when their issuance was approved by the
Company's shareholders on December 30, 1997. The warrants will
be issued effective as of such date.
A summary of the Company's warrant activity for 1997, 1996 and
1995 is as follows:
1997 1996 1995
-----------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning
of year 9,754,560 $5.22 9,754,560 $5.22 5,454,560 $7.23
Issued, at market price 250,000 2.38 0 0.00 300,000 7.63
Issued, at above market
price 5,710,000 1.86 0 0.00 0 0.00
Issued, at below market
price 250,000 2.50 0 0.00 4,000,000 2.28
Exercised (4,630,000) 3.01 0 0.00 0 0.00
Canceled or expired (445,000) 7.06 0 0.00 0 0.00
Outstanding at end of 10,889,560 $4.21 9,754,560 $5.22 9,254,560 $5.22
year
Exercisable at end of 9,824,560 $4.40 9,254,560 $5.12 9,254,560 $5.12
year
Of the 10,889,560 warrants outstanding at December 31, 1997,
6,210,000 have exercise prices between $1.75 and $2.50, with a
weighted average exercise price of $1.91 and a weighted average
remaining contractual life of 4.8 years. Of these warrants,
5,145,000 are exercisable with a weighted average exercise price
of $1.79. The remaining 4,679,560 warrants have exercise prices
between $7.06 and $11.61, with a weighted average exercise price
of $7.26 and a weighted average remaining contractual life of 0.9
years. All of these warrants are exercisable.
7. Redeemable Preferred Stock
The Series D Preferred Stock is junior to the Series A, B and C
Preferred Stock of the Company (see Note 6); 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.
The Series D Redeemable Preferred Stock has a stated value of
$100,000 per share and a liquidation preference of $100,000 per
share, plus cumulative unpaid dividends. As of December 31, 1997
and 1996 none had been issued.
8. Income Taxes
The Company recognizes 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.
There was no income tax provision or benefit recorded during the
years ended December 31, 1997, 1996, and 1995, due to the losses
sustained by the Company.
Deferred income tax assets and liabilities for 1997 and 1996
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, 1997 and 1996 are as follows
(in thousands):
1997 1996
---- ----
Deferred tax assets:
Tax loss carryforwards $86,778 $73,140
Inventory reserves 1,741 1,346
Accounts receivable
Reserves 983 1,740
Multi-employer
withdrawal liability 146 435
Other 2,012 2,690
------- --------
Total deferred tax assets $91,660 79,351
Valuation allowance (91,183) (78,635)
Deferred tax liabilities:
LIFO to FIFO change (477) (716)
-------- --------
Net deferred tax asset $ 0 $ 0
======== =========
The Company and its subsidiaries file a consolidated federal
income tax return. At December 31, 1997, the Company had tax
loss carryforwards of approximately $228,000,000 which expire in
years 1999 through 2012 if not utilized earlier. At the time
Shirt Shed, AMW and Big Ball were acquired, they had tax loss
carryforwards of $17,400,000,$11,800,000 and $3,021,000,
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 1997, 1996 and 1995.
9. Pension and Retirement Plans
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 $121,000 in 1997, $124,000 in 1996 and $109,000 in 1995.
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 any employee of the Company. The
total multi-employer withdrawal liability was $350,000 and
$1,146,000 at December 31, 1997 and 1996, respectively.
10. 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
$1,229,000 in 1997, $1,263,000 in 1996, and $1,729,000 in 1995.
Approximate future minimum rental commitments for all
noncancellable operating leases as of December 31, 1997 are as
follows (dollars in thousands):
1998 $ 1,198
1999 570
2000 242
2001 30
2002 1
-------
$ 2,041
=======
Real estate taxes, insurance, and maintenance expense are
generally obligations of the Company.
Letters of Credit Supported by Related Parties
The Company uses letters of credit (which are supported by
commitments from entities controlled by FS Signal) to assist the
Company in purchasing inventory, maintaining licenses and other
matters. During 1997, the Company entered into a Reimbursement
Agreement and a Promissory Note with FS Signal whereby the
Company agreed to repay amounts that FS Signal pays in support of
these letters of credit. At December 31, 1997, the Company had
$1,981,000 in current portion of long-term debt due to FS Signal
for creditor drawdowns on these letters of credit which were
repaid by FS Signal in 1997 and 1996.
Royalty and Other Commitments
Pursuant to the terms of various license agreements, the Company
is obligated to pay future minimum royalties of approximately
$530,000 due in 1998. The Company has estimated that certain
guaranteed royalties will not be met through the normal course of
business and has accrued approximately $350,000 at December 31,
1997 to cover such guarantees.
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.
11.Fair Value of Financial Instruments
The carrying amount of cash, receivables and short-term payables
approximates fair value because of the short maturity of these
financial instruments. Due to the current financial condition
(Note 1) and the ongoing attempts to raise additional funds, it
is not practical to estimate the fair value of the Company's
debt.
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 1997
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:
Report of Independent Public Accountants
Schedule II -- 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.
(a)3. Exhibits
(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. (S.E.C. File No. 1-2782)
(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. (S.E.C. File No. 1-2782)
(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. (S.E.C. File No. 1-
2782)
(3.1) Copy of Restated Articles of
Incorporation, as amended December 30, 1998.
(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. (S.E.C. File No. 1-2782)
(10.1) 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. (S.E.C. File No. 1-2782)
(10.2) 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. (S.E.C. File No. 1-2782)
(10.3) First Interim Extension, dated
March 29, 1996, to License Agreement, dated
June 1, 1992, between the Company and Joan
Vass, Inc.
(10.4) Second Interim Extension, dated
September 11, 1996, to License Agreement,
dated June 1, 1992, between the Company and
Joan Vass, Inc.
(10.5) Third Interim Extension, dated
January 31, 1997, to License Agreement, dated
June 1, 1992, between the Company and Joan
Vass, Inc.
(10.6) Fourth Interim Extension, dated
May 1, 1997, to License Agreement, dated June
1, 1992, between the Company and Joan Vass,
Inc.
(10.7) Fifth Interim Extension, dated
January 2, 1998, to License Agreement, dated
June 1, 1992, between the Company and Joan
Vass, Inc.
(10.8) 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 $60,000,000) credit facility.
Incorporated by reference to Exhibit 10.10 to
Form S-4 Registration Statement filed with
the Commission on May 28, 1991. (S.E.C. File
No. 33-39843)
(10.9) 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.
(S.E.C. File No. 1-2782)
(10.10) 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. (S.E.C. File No. 1-2782)
(10.11) Promissory Note of Signal
Apparel Company, Inc., for $5,000,000 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. (S.E.C.
File No. 1-2782)
(10.12) June 12, 1991 Letter Agreement
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. (S.E.C. File No. 1-2782)
(10.13) 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. (S.E.C.
File No. 1-2782)
(10.14) 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. (S.E.C.
File No. 1-2782)
(10.15) 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. (S.E.C.
File No. 1-2782)
(10.16) 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. (S.E.C.
File No. 1-2782)
(10.17) 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. (S.E.C.
File No. 1-2782)
(10.18) 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. (S.E.C.
File No. 1-2782)
(10.19) 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. (S.E.C.
File No. 1-2782)
(10.20) 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. (S.E.C. File No. 1-2782)
(10.21) 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. (S.E.C. File No. 1-2782)
(10.22) 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. (S.E.C.
File No. 1-2782)
(10.23) March 20, 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 10.2 to Form 10.Q for
the quarter ended March 31, 1992. (S.E.C.
File No. 1-2782)
(10.24) 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. (S.E.C. File No. 1-2782)
(10.25) July 31, 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. (S.E.C. File No. 1-
2782)
(10.26) 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. (S.E.C.
File No. 1-2782)
(10.27) 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,
1991, 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. (S.E.C.
File No. 1-2782)
(10.28) March 1, 1993 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 10.26 to Form 10-K for the year ended
December 31, 1992. (S.E.C. File No. 1-2782)
(10.29) 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. (S.E.C. File No. 1-
2782)
(10.30) 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. (S.E.C. File
No. 1-2782)
(10.31) 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. (S.E.C.
File No. 1-2782)
(10.32) Letter Agreement 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. (S.E.C.
File No. 1-2782)
(10.33) 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. (S.E.C. File No. 1-2782)
(10.34) 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. (S.E.C. File
No. 1-2782)
(10.35) 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. (S.E.C. File No. 1-2782)
(10.36) 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. (S.E.C. File No. 1-2782)
(10.37) 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. (S.E.C. File No. 1-2782)
(10.38) 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. (S.E.C.
File No. 1-2782)
(10.39) 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. (S.E.C. File No. 1-2782)
(10.40) 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. (S.E.C.
File No. 1-2782)
(10.41) 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. (S.E.C. File No. 1-2782)
(10.42) 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. (S.E.C. File No. 1-
2782)
(10.43) 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. (S.E.C.
File No. 1-2782)
(10.44) 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. (S.E.C.
File No. 1-2782)
(10.45) 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.
(S.E.C. File No. 1-2782)
(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. (S.E.C. File No. 1-
2782)
(10.47) Letter Agreement dated March 30,
1995 amending the Factoring Agreement dated
as of May 23, 1991 by and between BNY
Financial Corp. and the Company waiving
compliance with certain provisions thereof.
Incorporated by reference to Exhibit 10.1 to
Form 10.Q for the quarter ended June 30,
1995. (S.E.C. File No. 1-2782)
(10.48) Letter Amendment dated November
7, 1995 amending the Factoring Agreements
dated as of May 23, 1991 by and between BNY
Financial Corp. and the Company, dated July
25, 1991 by and between BNY Financial Corp.
and Shirt Shed and dated November 22, 1994 by
and between BNY Financial Corp. and AMW
waiving compliance with certain provisions
thereof. Incorporated by reference to
Exhibit 10.48 to Form 10-K for the year ended
December 31, 1995. (S.E.C. File No. 1-2782)
(10.49) Letter Amendment dated March 14,
1996 amending the Factoring Agreements dated
as of May 23, 1991 by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991 by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.49 to Form 10-K for
the year ended December 31, 1995. (S.E.C.
File No. 1-2782)
(10.50) Letter Amendment dated March 29,
1996, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.1 to Form 10.Q for
the quarter ended March 31, 1996. (S.E.C.
File No. 1-2782)
(10.51) Letter Amendment dated April 24,
1996, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed, amending certain
provisions thereof. Incorporated by
reference to Exhibit 10.2 to Form 10.Q for
the quarter ended March 31, 1996. (S.E.C.
File No. 1-2782)
(10.52) Letter Amendment dated August 9,
1996, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.1 to Form 10.Q for
the quarter ended June 30, 1996. (S.E.C. File
No. 1-2782)
(10.53) Letter Amendment dated October
31, 1996, amending the Factoring Agreements
dated as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10 to Form 10.Q for the
quarter ended September 30, 1996. (S.E.C.
File No. 1-2782)
(10.54) Letter Amendment dated March 19,
1997, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.54 to Form 10-K for
the year ended December 31, 1997. (S.E.C.
File No. 1-2782)
(10.55) Letter Amendment dated March 19,
1997, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.54 to Form 10-K for
the year ended December 31, 1996. (S.E.C.
File No. 1-2782)
(10.56) Waiver Letter, dated as of April
14, 1997, pertaining to Factoring Agreements
dated as of (i) May 23, 1991 between the
Company and BNY Financial Corporation and
(ii) July 25, 1991 between The Shirt Shed,
Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10.1 to
Form 10.Q for the quarter ended March 31,
1997. (S.E.C. File No. 1-2782)
(10.57) Letter Amendment dated as of
August 9, 1997, amending the 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 June 30, 1997. (S.E.C. File No. 1-2782)
(10.58) Waiver Letter, dated as of
November 12, 1997, pertaining to Factoring
Agreements dated as of (i) May 23, 1991
between the Company and BNY Financial
Corporation and (ii) July 25, 1991 between
The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.1 to Form 10.Q for the quarter
ended September 30, 1997. (S.E.C. File No. 1-
2782)
(10.59) Amended and Restated Factoring
Agreement dated as of October 31, 1997, by
and between BNY Financial Corp. and the
Company.
(10.60) Forbearance Agreement dated as
of October 31, 1997, by and between BNY
Financial Corp., the Company and The Shirt
Shed, Inc.
(10.61) Factoring Agreement, dated as of
January 30, 1998, by and among Big Ball
Sports, Inc. and BNY Financial Corporation.
(10.62) Letter Amendment, dated March
25, 1998, to Amended and Restated Factoring
Agreement dated as of October 31, 1997, by
and between BNY Financial Corp. and the
Company.
(10.63) 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. (S.E.C.
File No. 1-2782)
(10.64) 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. (S.E.C. File No. 1-
2782)
(10.65) 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. (S.E.C. File No. 1-
2782)
(10.66) 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. (S.E.C. File No. 1-
2782)
(10.67) Waiver Letter, dated as of June
12, 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. (S.E.C. File No. 1-2782)
(10.68) 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. (S.E.C. File No. 1-
2782)
(10.69) 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. (S.E.C. File No. 1-2782)
(10.70) 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. (S.E.C. File No. 1-
2782)
(10.71) 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. (S.E.C.
File No. 1-2782)
(10.72) 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. (S.E.C.
File No. 1-2782)
(10.73) 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. (S.E.C. File No. 1-2782)
(10.74) 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. (S.E.C.
File No. 1-2782)
(10.75) Warrant Certificate covering
200,000 shares of Common Stock of the Company
issued to Grissanti, 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. (S.E.C. File No. 1-2782)
(10.76) 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. (S.E.C.
File No. 1-2782)
(10.77) 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. (S.E.C. File No. 1-2782)
(10.78) Agreement dated May 10, 1995 by
and between the Company and Sherri Winkler
and MW Holdings, Inc. Incorporated by
reference to Exhibit 10.4 to Form 10.Q for
the quarter ended March 31, 1995 . (S.E.C.
File No. 1-2782)
(10.79) Tennessee Deed of Trust and
Security Agreement dated March 31, 1995
between the Company and Walsh Greenwood.
Incorporated by reference to Exhibit 10.2 to
current report on Form 8-K filed on May 10,
1995. (S.E.C. File No. 1-2782)
(10.80) Deed to Secure Debt and Security
Agreement dated March 31, 1995 between the
Company and Walsh Greenwood. Incorporated by
reference to Exhibit 10.3 to current report
on Form 8-K filed on May 10, 1995. (S.E.C.
File No. 1-2782)
(10.81) Real Estate Mortgage, Security
Agreement, Assignment of Lease and Rents and
Fixture filing dated March 31, 1995 between
The Shirt Shed and Walsh Greenwood.
Incorporated by reference to Exhibit 10.4 to
current report on Form 8-K filed on May 10,
1995. (S.E.C. File No. 1-2782)
(10.82) First Amendment dated August 10,
1995, to Tennessee Deed of Trust and Security
Agreement dated March 31, 1995, between the
Company and Walsh Greenwood. Incorporated by
reference to Exhibit 10.100 to Form 10-K for
the year ended December 31, 1995. (S.E.C.
File No. 1-2782)
(10.83) First Amendment dated August 10,
1995, to Secured Debt and Security Agreement
dated March 31, 1995, between the Company and
Walsh Greenwood. Incorporated by reference
to Exhibit 10.101 to Form
10-K for the year ended December 31,
1995. (S.E.C. File No. 1-2782)
(10.84) First Amendment dated August 10,
1995, to Real Estate Mortgage, Security
Agreement, Assignment of Lease and Rents and
Fixture Filing dated March 31, 1995, between
The Shirt Shed and Walsh Greenwood.
Incorporated by reference to Exhibit 10.102
to Form 10-K for the year ended December 31,
1995. (S.E.C. File No. 1-2782)
(10.85) Reimbursement Agreement and
related Promissory Note dated January 30,
1997, among the Company, FS Signal Associates
Limited Partnership and FS Signal Associates
II Limited Partnership, concerning renewal
and guaranty arrangements with respect to
certain letters of credit. Incorporated by
reference to Exhibit 10.108 to Form 10-K for
the year ended December 31, 1996. (S.E.C.
File No. 1-2782)
(10.86) Letter Agreement dated March 27,
1998 between the Company and WGI, LLC re:
balance on open debt not to be called before
January 1, 1999.
(10.87) Stock Purchase Agreement, dated
October 31, 1997, by and among the Company,
Lee Ellis and Jimmy Metyko. Incorporated by
reference to Exhibit 2-1 to Current Report on
Form 8-K dated November 5, 1997. (S.E.C. File
No. 1-2782)
(10.88) Stock Purchase Agreement, dated
October 31, 1997, by and among the Company
and Elizabeth Miller. Incorporated by
reference to Exhibit 2-2 to Current Report on
Form 8-K dated November 5, 1997. (S.E.C. File
No. 1-2782)
(10.89) Employment Agreement with Leon
Ruchlamer dated as of March 27, 1995.
Incorporated by reference to Exhibit 10.5 to
Form 10.Q for the quarter ended March 31,
1995. (S.E.C. File No. 1-2782)
(10.90) Severance Agreement dated
November 5, 1995 with Marvin Winkler.
Incorporated by reference to Exhibit 10.93 to
Form 10-K for the year ended December 31,
1995. (S.E.C. File No. 1-2782)
(10.91) Employment Agreement with Barton
Bresky, dated January 7, 1997. Incorporated
by reference to Exhibit 10.109 to Form 10-K
for the year ended December 31, 1996. (S.E.C.
File No. 1-2782)
(10.92) Employment Agreement with David
E. Houseman, dated October 1, 1997.
(10.93) Employment with John Prutch,
dated October 2, 1997.
(21) List of Subsidiaries
(23) Consent of Arthur Andersen LLP,
Independent Public Accountants
(27) Financial Data Schedule
SIGNAL APPAREL COMPANY, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Additions
-----------------
Balance at Charged to Balance
Beginning Costs and at End
of Period Expense Other Deductions of Period
-----------------------------------------------------
Year ended December 31, 1997
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 3,544 $ 4,202 0 $ 3,185 $ 4,561
Allowance for doubtful accounts 1,573 417 859(2) 184(1) 2,665
------- ------- ----- ------- -------
$ 5,117 $ 4,619 $ 859 $ 3,369 $ 7,226
======= ======= ===== ======= =======
Year ended December 31, 1996
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 3,179 $ 2,355 $ $ 1,990 $ 3,544
Allowance for doubtful 1,703 55 185(1) 1,573
accounts ------- ------- ----- ------- -------
$ 4,882 $ 2,410 $ $ 2,175 $ 5,117
======= ======= ===== ======= =======
Year ended December 31, 1995
Deducted from asset accounts:
Allowance to reduce
inventories to net $ 5,933 $ 1,804 $ $ 4,558 $ 3,179
realizable value
Allowance for doubtful 1,787 264 348(1) 1,703
accounts ------- ------- ----- ------- -------
$ 7,720 $ 2,068 $ $ 4,906 $ 4,882
======= ======= ===== ======= =======
(1) Uncollectible accounts written off, net of recoveries.
(2) Represents allowance for doubtful accounts acquired in acquisition.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
SIGNAL APPAREL COMPANY, INC.
------------------------------
(Registrant)
Date: March 25, 1998 /s/ David E. Houseman
------------------ ----------------------------
David E. Houseman
Chief Executive Officer,
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of Signal Apparel Company, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Part
II, Item 8 of this Form 10-K and have issued our report thereon
dated March 27, 1998. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. Our
report on the consolidated financial statements includes an
explanatory paragraph with respect to the Company's ability to
continue as a going concern as described in Note 1 to the
financial statements. Schedule II is the responsibility of the
Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been
subjected to the audition procedures applied in the audits of the
basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 27, 1998
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/ David E. Housemen
--------------------------
David E. Houseman
Chief Executive Officer
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below or on counterparts
thereof by the following person on behalf of the registrant in
the capacities and on the dates indicated.
Name Capacity Date
- - ---- -------- ----
/s/ Dave E. Houseman Chief Executive Officer March 31, 1998
- - -------------------- --------------
David E. Houseman
/s/ James V. Elkins Controller March 31, 1998
- - ------------------- --------------
James V. Elkins
/s/ Jacob B. Feigenbaum Director March 31, 1998
- - --------------------- --------------
Jacob Feigenbaum
/s/ Paul R. Greenwood Director March 31, 1998
- - --------------------- --------------
Paul Greenwood
/s/ John W. Prutch Director March 31, 1998
- - --------------------- --------------
John Prutch
/s/ Leon Ruchlamer Director March 31, 1998
- - --------------------- --------------
Leon Ruchlamer
/s/ Stephen Walsh Director March 31, 1998
- - --------------------- --------------
Steve Walsh
/s/ Thomas A. McFall Director March 31, 1998
- - --------------------- --------------
Thomas McFall