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 July 8, 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 July 8, 1995 was 2,026,768.
MUNSINGWEAR, INC.
INDEX
Page No.
PART I: FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets -
July 8, 1995 and January 7, 1995......................... 3
Condensed Consolidated Statements of Operations
for the Six Months ended July 8, 1995
and July 2, 1994......................................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended July 8, 1995
and July 2, 1994......................................... 5
Notes to Condensed Consolidated Financial Statements....... 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 7
PART II: OTHER INFORMATION.......................................... 10
SIGNATURES................................................. 11
MUNSINGWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
July 8, January 7,
1995 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 17 $ 73
Accounts receivable, less allowances of $554 and $442 8,719 5,138
Inventories 14,813 14,219
Prepaid expenses and other 1,074 1,286
Total current assets 24,623 20,716
Property, plant and equipment, less accumulated
depreciation and amortization of $1,559 and $1,330 2,574 2,276
Deferred taxes, net of valuation allowance of $11,151 1,994 2,309
Trademarks, net of amortization of $1,142 and $1,010 4,305 4,437
$33,496 $29,738
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 6,354 $ 5,592
Current maturities of long-term debt 20 19
Accounts payable 4,709 3,760
Accrued payroll and employee benefits 1,054 1,028
Unearned royalty income 3,198 3,159
Other accrued expenses 494 311
Total current liabilities 15,829 13,869
Long-term debt, less current maturities 33 38
Postretirement medical benefits 312 312
Unearned royalty income 1,447 200
1,792 550
Stockholders' equity:
Common Stock, $.01 par value:
Issued and issuable shares - 2,065,594 21 21
Capital in excess of par value 15,298 15,112
Retained earnings 556 186
Total stockholders' equity 15,875 15,319
$33,496 $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 Six Months Ended
July 8, July 2, July 8, July 2,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 15,106 $ 11,315 $ 29,728 $ 23,526
Royalties 1,163 998 2,464 1,968
16,269 12,313 32,192 25,494
EXPENSES:
Cost of goods sold 11,748 8,533 23,347 17,781
Selling, general and administrative 3,355 3,169 6,954 6,151
Restructuring costs 400 -- 400 --
15,503 11,702 30,701 23,932
OPERATING INCOME 766 611 1,491 1,562
Interest expense, net (308) (58) (558) (135)
Other (11) 19 (8) 21
Income before taxes 447 572 925 1,448
Provision for income taxes 179 219 369 552
NET INCOME $ 268 $ 353 $ 556 $ 896
NET INCOME PER COMMON SHARE $ 0.13 $ 0.17 $ 0.27 $ 0.43
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>
Six Months Six Months
Ended Ended
July 8, July 2,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net income from operations $ 556 $ 896
Reconciling items:
Depreciation and amortization 361 361
Provision for losses on accounts receivable 62 90
Unearned royalty income 1,286 (70)
Utilization of net operating loss carryforwards 315 504
Changes in operating assets and liabilities:
Receivables (3,643) (1,752)
Inventories (594) 2,859
Prepaid expenses 212 108
Accounts payable 949 (602)
Other current liabilities 209 262
Net cash (used in) provided by operating activities (287) 2,656
INVESTING ACTIVITIES
Purchase of property, plant and equipment (527) (299)
Net cash used in investing activities (527) (299)
FINANCING ACTIVITIES
Net change in line of credit borrowings 762 (1,698)
Principal payments on long-term debt
and capital lease obligations (4) (256)
Net cash (used in) provided by financing activities 758 (1,954)
Increase (decrease) in cash and cash equivalents (56) 403
Cash and cash equivalents at beginning of period 73 441
Cash and cash equivalents at end of period $ 17 $ 844
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
MUNSINGWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statement Presentation
The condensed consolidated financial statements for the six months ended
July 8, 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 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 quarter due to the seasonality of its product line.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
(000's omitted)
July 8, January 7,
1995 1995
Raw materials.................... $ 2,265 $ 2,029
Work in process.................. 2,225 1,401
Finished goods................... 10,323 10,789
$14,813 $14,219
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SECOND QUARTER
TOTAL REVENUES for the quarter ended July 8, 1995, increased 32% over the
comparable period last year as a result of increased business with golf pro
shops, the Company's new premium/special markets channel of distribution, and
additional income recognized in connection with the late 1994 re-negotiation of
the Company's licenses with Fruit of the Loom.
For the first six months of 1995, revenues increased 26% over the comparable
period last year. This growth was due to a 65% increase in sales to golf pro
shops and an eight-fold increase in the premium/special markets business. The
Company has experienced steady growth in its golf pro shop business during the
past three years while the premium/special markets business increase is largely
due to low sales during the first half of 1994 when that business was in a
start-up phase. Through the first six months, business with department stores is
flat compared to last year.
The Company's backlog of unfilled orders at the end of the second quarter was
approximately $7,900,000 compared to $8,600,000 at the same time a year ago.
Management believes the reduction in order backlog is the result of retailers'
continued practice of very strict inventory control and delaying the placement
of orders until the last possible moment. In addition, in the Company's
premium/special markets business, orders are normally received less than 30 days
prior to requested delivery.
In the second quarter and first six months, COST OF GOODS SOLD increased in
total principally as a result of the increased volume. As a percent of net
sales, second quarter gross margin dropped from 24.6% in 1994 to 22.2% in 1995.
For the six months period, gross margin dropped from 24.4% of net sales in 1994
to 21.5% in 1995. This decrease was due to product mix and planned product
enhancements without increasing prices and continued price resistance in the
retail marketplace.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased over the prior year in
both the second quarter and first six months as a result of volume-related
expenses such as sales commissions and warehouse and distribution expense.
However, as a percent of net sales, expenses decreased during the second quarter
from 28% last year to 22.2% in 1995. In the first six months, these expenses
dropped from 26.2% in 1994 to 23.4% this year.
RESTRUCTURING COSTS of $400,000 relate primarily to severance costs associated
with staffing reductions. Management estimates that these reductions, the
decision to not fill other 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 premium/special markets
channel of distribution, which requires an "in-stock" inventory position. In
addition, at July 8, 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 inventory are included in operating results for the six months ended July
8, 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)
July 8, January 7,
1995 1995
Working capital................... $ 8,794 $ 6,847
Current ratio..................... 1.6:1 1.5:1
Stockholders' equity.............. $15,875 $15,319
As reported in the Statements of Cash Flows, operating activities during the
first six months of 1995 used $287,000 of cash, primarily due to the effect of
increased receivables from higher revenues and increased inventories to support
the premium/special markets business. These uses of cash were offset by cash
advances received on license agreements and higher accounts payable, the result
of higher inventory levels. Capital expenditures relate primarily to installment
of the Company's new management information system, which is planned to go
on-line in the last quarter of 1995. Cash used in operating activities and
capital expenditures were financed through a $762,000 net increase in borrowings
on the Company's revolving credit loan. At the end of the second quarter, the
Company was in compliance with all covenants on its bank line of credit.
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 premium/special
markets business. Prospectively, management believes its financial resources are
sufficient to meet current and anticipated short-term 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.
MUNSINGWEAR, INC.
PART II: OTHER INFORMATION
Item 5: Other Information
None.
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: August 21, 1995 /s/Lowell M. Fisher
Lowell M. Fisher
President & CEO
/s/Richard T. Brokl
Richard T. Brokl
Exec. Vice President, Operations & CFO
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-06-1996
<PERIOD-END> JUL-08-1995
<CASH> 17
<SECURITIES> 0
<RECEIVABLES> 8,719
<ALLOWANCES> 554
<INVENTORY> 14,813
<CURRENT-ASSETS> 24,623
<PP&E> 4,133
<DEPRECIATION> 1,559
<TOTAL-ASSETS> 33,496
<CURRENT-LIABILITIES> 15,829
<BONDS> 0
<COMMON> 21
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0
<OTHER-SE> 15,854
<TOTAL-LIABILITY-AND-EQUITY> 33,496
<SALES> 15,106
<TOTAL-REVENUES> 16,269
<CGS> 12,145
<TOTAL-COSTS> 11,748
<OTHER-EXPENSES> 3,755
<LOSS-PROVISION> 62
<INTEREST-EXPENSE> 308
<INCOME-PRETAX> 447
<INCOME-TAX> 179
<INCOME-CONTINUING> 268
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 268
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
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