Troubled Year Foreshadows Singer Bankruptcy

Company Cites Adverse Global Market Conditions, Excessive Debt Burden as Factors in Chapter 11 Filing

Following consecutive first and second quarter losses and faced with financial burdens -- including support of its G.M. Pfaff AG subsidiary and the acquisition of a Russian sewing machine parts manufacturer -- The Singer Co. N.V. has filed a voluntary petition for reorganization under Chapter 11 of the U.S. bankruptcy code.

Singer, a manufacturer and distributor of industrial and consumer sewing machines, had 1998 sales of approximately $1.3 billion (excluding sales for Pfaff). In 1999, the firm posted a first quarter net loss of $26.7 million and a second quarter net loss of $18.6 million. Revenues for the quarters were $254.5 million and $246 million, respectively.

According to the company, first quarter losses were linked to a 43 percent and 44 percent decline in industrial sewing machine sales in the United Kingdom and United States, respectively. During the second quarter, U.S. sales continued to decline 13 percent, while industrial sewing revenues in Europe, the company's largest industrial market, were down 22 percent. Other factors having a negative impact on performance included the divestiture of a retail operation in Brazil and the sale of a consumer sewing machine factory in Taiwan.

According to Singer president and CEO Stephen H. Goodman, the company has felt the brunt of adverse global market developments for four years, which have weakened Singer and created an excessive debt burden. In a press statement, Goodman noted: "The negative impact of these events was exacerbated by the capital needs flowing from the largely unsuccessful expansion program undertaken by previous management." This included a furniture acquisition in the United States and retail investments in Brazil, China, Vietnam and other emerging markets.

According to company statements, Pfaff's struggle with a deteriorating industrial sewing base accounted for the bulk of Singer's operating loss. The subsidiary, which has filed for insolvency protection in Germany, had high fixed costs and experienced delays in implementing programs to adjust for market turndowns. Under German bankruptcy laws, the company will be reorganized or liquidated as an independent entity and will no longer be considered in Singer's financial statements. However, Singer remains a creditor to Pfaff and a guarantor on certain outstanding Pfaff debt. Final determinations regarding these assets and liabilities were not reached at press time.

Singer's balance sheet also was impacted by acquisition activity related to a Russian sewing facility that produces industrial sewing arms and beds. The deal was initiated in December 1997 for $50 million, which Singer placed in a bank deposit. In an August amendment, the purchase price was renegotiated at $30.6 million, which was to be deducted from the original deposit. The balance of $23.6 million, including interest, was to be refunded to Singer according to a schedule through Oct. 1, 1999. At press time, the company had received $6 million and was still awaiting a payment of $2.5 million that was due by Aug. 31.

Deloitte and Touche LLP suspended its audit of Singer's 1998 financial statements, due in part to not being able to account for millions related to this transaction. In response, Singer has hired lawyers to conduct a formal investigation to assess certain aspects of the transactions, including the nature and extent of any relationships that may exist among the seller and certain parties related to Singer.

Speaking with Bobbin, a spokesperson for Singer would not elaborate on specifics regarding the filing -- including the impact of the troubled Russian acquisition -- explaining that it is still too early in the process to comment.

During the restructuring, the company said that its operations will continue without interruption and that business will be conducted as usual in its retail stores, distribution centers and manufacturing facilities. In the formal statement, Goodman noted: "We are optimistic that Singer will emerge from the restructuring process as a stronger, more competitive company with a renewed focus on its retail and other distribution channels."

At press time, Singer had received court approval for $28.4 million in interim debtor-in-possession financing through its major lender, the Bank of Nova Scotia. Goodman said that this funding will help provide vendors with additional financial assurances that they will be paid in the ordinary course for post-petition goods and services.

COPYRIGHT 1999 Miller Freeman, Inc.
COPYRIGHT 2000 Gale Group