SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period Ended October 7, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
COMMISSION FILE NUMBER 1-63
MUNSINGWEAR, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 41-0429620
(State of Incorporation) (I.R.S. Employer Identification No.)
8000 W. 78TH STREET, SUITE 400, MINNEAPOLIS, MINNESOTA 55439
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: (612) 943-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES _X_ NO ___
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES _X_ NO ___
The number of shares of common stock outstanding at October 7, 1995 was
2,026,768.
MUNSINGWEAR, INC.
INDEX
Page No.
PART I: FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets -
October 7, 1995 and January 7, 1995......................... 3
Condensed Consolidated Statements of Operations
for the Nine months ended October 7, 1995
and October 1, 1994......................................... 4
Condensed Consolidated Statements of Cash Flows
for the Nine months ended October 7, 1995
and October 1, 1994......................................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 8
PART II: OTHER INFORMATION............................................. 11
SIGNATURES.................................................... 12
<PAGE>
MUNSINGWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
October 7, January 7,
1995 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 74 $ 73
Accounts receivable, less allowances of $506 and $442 6,797 5,138
Inventories ......................................... 17,052 14,219
Prepaid expenses and other .......................... 1,434 1,286
Total current assets ............................. 25,357 20,716
Property, plant and equipment, less accumulated
depreciation and amortization of $1,680 and $1,330 .. 2,886 2,276
Deferred taxes, net of valuation allowance of $11,151 .. 2,274 2,309
Trademarks, net of amortization of $1,207 and $1,010 ... 4,240 4,437
$34,757 $29,738
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes payable ............................ $ 9,983 $ 5,592
Current maturities of long-term debt ................ 21 19
Accounts payable .................................... 3,729 3,760
Accrued payroll and employee benefits ............... 1,157 1,028
Unearned royalty income ............................. 3,090 3,159
Other accrued expenses .............................. 420 311
Total current liabilities ........................ 18,400 13,869
Long-term debt, less current maturities ................ 23 38
Postretirement medical benefits ........................ 312 312
Unearned royalty income ................................ 715 200
1,050 550
Stockholders' equity:
Common Stock, $.01 par value:
Issued and issuable shares - 2,065,594 ........... 21 21
Capital in excess of par value ...................... 15,112 15,112
Retained earnings ................................... 174 186
Total stockholders' equity ....................... 15,307 15,319
$34,757 $29,738
See notes to condensed consolidated financial statements.
MUNSINGWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine months ended
October 7, October 1, October 7, October 1,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES:
Net sales ............................ $ 9,906 $ 5,287 $ 39,634 $ 28,813
Royalties ............................ 1,136 1,193 3,600 3,161
11,042 6,480 43,234 31,974
EXPENSES:
Cost of goods sold ................... 8,285 5,337 31,632 23,118
Selling, general and administrative .. 3,304 2,829 10,258 8,980
Restructuring costs .................. -- -- 400 --
11,589 8,166 42,290 32,098
OPERATING INCOME (LOSS) ................. (547) (1,686) 944 (124)
Interest expense, net ................... (274) (52) (832) (187)
Other ................................... 1 1 (7) 22
Income (loss) before taxes .............. (820) (1,737) 105 (289)
Provision for (benefit from) income taxes (252) (566) 117 (14)
NET LOSS ............................. $ (568) $ (1,171) $ (12) $ (275)
NET LOSS PER COMMON SHARE ............ $ (0.27) $ (0.57) $ (0.01) $ (0.13)
Weighted average number of shares of
common stock ......................... 2,066 2,066 2,066 2,066
</TABLE>
See notes to condensed consolidated financial statements.
MUNSINGWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts unaudited and in thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
October 7, October 1,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net loss from operations ............................... $ (12) $ (275)
Reconciling items:
Depreciation and amortization ....................... 546 541
Provision for losses on accounts receivable ......... 112 135
Unearned royalty income ............................. 446 3,830
Utilization of net operating loss carryforwards ..... 35 (87)
Changes in operating assets and liabilities:
Receivables ...................................... (1,771) (3,067)
Inventories ...................................... (2,833) (2,709)
Prepaid expenses ................................. (148) (35)
Accounts payable ................................. (31) 1,313
Other current liabilities ........................ 238 265
Net cash used in operating activities .......... (3,418) (89)
INVESTING ACTIVITIES
Purchase of property, plant and equipment .............. (959) (478)
Net cash used in investing activities .......... (959) (478)
FINANCING ACTIVITIES
Net change in line of credit borrowings ................ 4,391 511
Principal payments on long-term debt
and capital lease obligations ....................... (13) (265)
Net cash provided by financing activities ...... 4,378 246
Increase (decrease) in cash and cash equivalents 1 (321)
Cash and cash equivalents at beginning of period .......... 73 441
Cash and cash equivalents at end of period ................ $ 74 $ 120
</TABLE>
See notes to condensed consolidated financial statements.
MUNSINGWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statement Presentation
The condensed consolidated financial statements for the nine months ended
October 7, 1995 of Munsingwear, Inc. (the Company) have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect, in the opinion of
management, all normal recurring adjustments necessary to present fairly
the results of operations for the period. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
management believes the disclosures included herein are adequate to make
the information presented not misleading.
These financial statements should be read in conjunction with the Company's
most recent audited financial statements included in its 1994 Annual Report
to Stockholders and its 1994 Form 10-K.
The results of operations for the interim period presented are not
necessarily indicative of the results to be expected for the full fiscal
year, since the Company typically reports disproportionately higher
revenues in its first and second quarters due to the seasonality of its
product line.
Certain amounts in the 1994 financial statements have been reclassified to
conform to the 1995 presentation. These reclassifications had no effect on
previously reported net loss or stockholders' equity.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of:
(000's omitted)
October 7, January 7,
1995 1995
Raw materials........................ $ 1,503 $ 2,029
Work in process...................... 2,117 1,401
Finished goods....................... 13,432 10,789
$17,052 $14,219
3. Financing Arrangements
The Company maintains a bank line of credit under which up to $25,000,000
is available for borrowings and letters of credit through September 1997.
At October 7, 1995, borrowings were $9,983,000 and amounts utilized for
outstanding letters of credit were $4,837,000. On October 7, 1995,
additional availability on this bank line of credit was $814,000, and the
Company was in compliance with or had received waivers for all related
covenants.
4. Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123"), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages,
but does not require, a fair value based method of accounting for employee
stock options or similar equity instruments. It also allows an entity to
elect to continue to measure compensation cost under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25"), but requires pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting had been applied. The
Company expects to adopt Statement No. 123 in 1996. While the Company is
still evaluating Statement No. 123, it currently expects to elect to
continue to measure compensation cost under APB No. 25 and comply with the
pro forma disclosure requirements. If the Company makes this election, this
statement will have no impact on the Company's results of operations or
financial position because the Company's plans are fixed stock option plans
which have no intrinsic value at the grant date under APB No. 25.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER
TOTAL REVENUES for the quarter ended October 7, 1995, increased 70% over the
comparable period last year as a result of increased business with golf pro
shops and the Company's new special markets channel of distribution. Shipments
to golf pro shops increased 69% while special markets volume was up 854%, both
the result of management's focus on increasing volume in those channels of
distribution.
For the first nine months of 1995, revenues increased 35% over the comparable
period last year. This growth was due to a 66% increase in sales to golf pro
shops and an eight-fold increase in the special markets business. The Company
has experienced steady growth in its golf pro shop business during the past
three years while the special markets business increase was largely reflective
of low sales during the first half of 1994 when that business was in a start-up
phase. Through the first nine months of 1995, business with department stores
was flat compared to last year as a result of the Company's focus on doing
business with selected, quality retailers.
The Company's backlog of unfilled orders at the end of the third quarter was
approximately $14,400,000 compared to $17,000,000 at the same time a year ago.
The reduction in order backlog is the result of the following:
* Retailers' continued practice of very strict inventory control and
delaying the placement of orders until the last possible moment.
* In the Company's special markets and golf pro shop businesses, orders
are normally received less than 30 days prior to requested delivery.
* The Company is reducing its business with wholesale clubs.
In the third quarter and first nine month periods, COST OF GOODS SOLD increased
in total principally due to increased volume. As a percent of net sales, third
quarter gross margin increased to 16.4% from -1% in 1994 when the Company
recorded a $750,000 loss reserve in connection with a product recall. Without
this loss reserve, 1994 gross margin would have been 13.3%, as a percent of
sales. The gross margin improvement from 1994 was the result of improved margins
in chain store business and product mix. The gross margin ratio for the nine
month period increased from 19.8% in 1994 to 20.2% in 1995, primarily the result
of the 1994 provision for product recall. Without the product recall reserve,
1994 gross margins through nine months would have been 22.4%. The decrease in
gross margin ratio in 1995 vs. 1994 is due to the Company's decision to enhance
the value of its products without increasing selling prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased over the prior year in
both the third quarter and first nine month periods as a result of
volume-related expenses such as sales commissions and warehouse and distribution
expense. However, as a percent of revenues, expenses decreased during the third
quarter from 43.7% last year to 29.9% in 1995. In the first nine months, these
expenses dropped from 28.1% in 1994 to 23.7% this year.
RESTRUCTURING COSTS of $400,000 during the first nine months of 1995 relate
primarily to severance costs associated with staffing reductions. As previously
reported, management estimates that these reductions, the decision to not fill
certain open positions, and other re-engineering programs will result in annual
savings of $1,500,000 in selling, general and administrative expenses.
INTEREST EXPENSE increased over the comparable periods a year ago due to
increased borrowings, primarily the result of the requirement to maintain higher
inventory levels to support the Company's entry into the special markets channel
of distribution, which requires an "in-stock" inventory position. In addition,
at October 7, 1995, the Company held a higher level of prior season merchandise
than at the same time last year. Anticipated losses on the sale of this prior
season inventory were included in operating results for the nine months ended
October 7, 1995.
At the beginning of fiscal 1995, the Company had $32,800,000 of net operating
loss carryforwards for federal income tax purposes. In accordance with "Fresh
Start Reporting", which was required as a result of the Company's 1991
reorganization, benefits from the utilization of these net operating loss
carryforwards are recognized as a reduction in the deferred tax asset.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources:
The financial condition of the Company is reflected in the following:
(000's omitted)
October 7, January 7,
1995 1995
Working capital....................... $ 6,957 $ 6,847
Current ratio......................... 1.4:1 1.5:1
Stockholders' equity.................. $15,307 $15,319
As reported in the Condensed Statements of Cash Flows, operating activities
during the first nine months of 1995 used $3,418,000 of cash, primarily due to
the effect of increased receivables as a result of higher revenues and increased
inventory levels to support the special markets business. These uses of cash
were partially offset by cash advances received on license agreements and
non-cash expenses such as depreciation, amortization and bad debts. Capital
expenditures related primarily to installment of the Company's new management
information system, which went on-line immediately following the end of the
third quarter. Management expects benefits of the new system to include improved
order fulfillment and inventory management. Cash used in operating activities
and capital expenditures were financed through a $4,391,000 net increase in
borrowings on the Company's revolving credit loan.
For the first nine months of 1994, operating activities consumed $89,000 of
cash, primarily the result of a $2,709,000 inventory buildup in response to the
Company's planned growth in its golf pro shop and special markets businesses and
the planned acceleration of the arrival of import goods for fourth quarter
sales. This use of cash was generally offset by more aggressive management of
accounts payable, which provided $1,313,000 of cash, and $3,830,000 of net
royalty advances. During the first nine months, the Company invested $478,000 in
capital equipment, primarily for manufacturing equipment in its Fairmont, North
Carolina facility and management information systems. During the first nine
months of 1994, the Company increased net borrowings on its line of credit
facility by $511,000 and paid off $265,000 on long-term debt, primarily the
final installment on an industrial revenue bond on its Fairmont, North Carolina
facility.
Liquidity:
In reaction to the continued sluggish retail environment, retailers' expanded
practice of waiting longer to commit orders, and intense competition in the
marketplace, management continues to be cautious in making inventory commitments
for fashion merchandise. Although planning to be more aggressive in the sale and
movement of end-of-season merchandise, management still expects higher total
inventories and borrowing levels as compared to last year due to the need to
maintain an "in-stock" inventory position in support of the new special markets
business. Prospectively, management believes its financial resources are
sufficient to meet current needs.
During the past four years, the Company has experienced relatively significant
cash proceeds from licensing agreements. However, based upon terms of an
existing agreement which provides for reduced minimum royalties based on
licensee estimated sales, such revenues and cash proceeds are expected to
decline starting in 1997. As a result, management has reorganized its licensing
group and is placing increased emphasis on the renewal of existing license
agreements and the establishment of new licenses. Management considers licensing
to be vital to the continued market expansion of its well-established brands,
trade names and trademarks.
Management continues to emphasize customer satisfaction, continually improving
product quality, increasing product value and maintaining strategic positioning
of its brands in existing and expanding channels of distribution. In addition,
on September 22, 1995, the Company announced it would seek the services of an
investment banker in an effort to increase shareholder value.
MUNSINGWEAR, INC.
PART II: OTHER INFORMATION
Item 5: Other Information
On September 26, 1995, Richard T. Brokl, Executive Vice President of
Operations and Chief Financial Officer, resigned from the Company.
Item 6: Exhibits and Reports on Form 8-K
None.
* * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Munsingwear, Inc.
(Registrant)
Date: November 20, 1995 /s/Lowell M. Fisher
Lowell M. Fisher
President & CEO
/s/James S. Bury
James S. Bury
Vice President, Controller
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<PERIOD-END> OCT-07-1995
<CASH> 74
<SECURITIES> 0
<RECEIVABLES> 6,797
<ALLOWANCES> 506
<INVENTORY> 17,052
<CURRENT-ASSETS> 25,357
<PP&E> 4,566
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<SALES> 9,906
<TOTAL-REVENUES> 11,042
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<INTEREST-EXPENSE> 274
<INCOME-PRETAX> (820)
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