SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 2 TO FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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FOR THE FISCAL YEAR ENDED JANUARY 6, 1996 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 par value New York Stock Exchange
Preferred share purchase rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all report
required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934
during the preceding 12 months, 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 aggregate market value of the voting stock held by nonaffiliates of the
Registrant at July 30, 1996 was $12,571,331 based upon the closing price of
$9.375 per share on that date.
The number of share of common stock outstanding at July 30, 1996 was 2,058,078.
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.
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This Form 10-K/A consists of 15 pages.
PART I
ITEM 1. BUSINESS.
A. GENERAL DEVELOPMENT OF BUSINESS.
The Company was incorporated under the laws of Delaware in 1923 as the
successor to a business founded in 1886. The Company's principal executive
offices are located at 8000 West 78th Street, Suite 400, Minneapolis, Minnesota
55439, and its telephone number is (612) 943-5000. As used in this document, the
term "Company" refers to Munsingwear, Inc. and its subsidiaries unless otherwise
noted or indicated by the context. At January 6, 1996, the Company had one
subsidiary, Munsingwear UK Limited, which was idled in 1994.
After suffering a severely weakened financial condition, primarily due
to losses of $89,243,000 during the years 1989 through 1990, the Company, on
July 3, 1991, filed a voluntary petition for bankruptcy under Chapter 11 of the
United States Bankruptcy Code, together with a proposed Plan of Reorganization.
The Company emerged from bankruptcy on October 29, 1991.
Prior to the reductions in operations implemented during 1989 through
1991, the Company designed, manufactured and distributed a broad range of men's,
women's, and children's apparel through several operating divisions and
subsidiaries. Today, the Company's operations consist of what was formerly the
Men's Apparel Division and sells primarily men's knit sport shirts under the
following major brands or labels: Munsingwear(R), Grand Slam(R), Grand Slam
Tour(TM), Penguin Sport(TM) and Slammer(R). In addition, the Company licenses
its trade names and trademarks for use in a variety of products.
In the recent two fiscal years, the Company's sales by channel of
distribution have undergone significant change. In 1995, sales to
premium/special markets and professional golf market customers, collectively,
represented 40% of total Company sales as compared to less than 10% in 1993.
This is the result of management's attempt to reduce the Company's reliance on
sales to traditional retail apparel channels of distribution where heavy
promotional pricing, discounting and advertising activities are required.
In late 1995, the Company retained the services of an investment
banking firm to explore a range of opportunities to maximize shareholder value.
Among the options under consideration is the potential sale of license rights
for the manufacture and merchandising of product which bears certain of the
Company's trademarks and trade names, as well as the sale of certain trademarks
and trade names in various markets. There is no assurance that any of these
options presently being considered will be completed.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates in one industry segment, apparel manufacturing. As
of January 6, 1996, the Company's foreign operations were not material.
C. NARRATIVE DESCRIPTION OF BUSINESS.
Principal Products:
The Company sells primarily men's knit sport shirts under four major
brands or labels: Grand Slam(R), Grand Slam Tour(TM), Munsingwear(R), and
Penguin Sport(TM). Grand Slam(R) and Penguin Sport(TM) products are sold
primarily to department stores, specialty stores and Sears. Munsingwear(R)
products are sold primarily to premium market customers and to national chain
stores, such as Montgomery Ward. Grand Slam Tour(TM) is sold primarily through
professional golf markets.
Method of Distribution:
The Company solicits orders from retail department stores, specialty
stores, national chain stores and discounters through four internal sales
representatives and seven independent sales representatives. Orders for the
Company's professional golf business are solicited through the Company's network
of approximately twenty-five outside sales representatives. Orders for the
Company's premium business are solicited through a sales agent organization,
which has approximately twenty-five sales representatives, and through seven
distributors. These organizations solicit and receive orders from a network of
over 50,000 Advertising Specialty Incentive (ASI) representatives throughout the
country and directly from end customers. The Company's premium business also
includes uniform programs, in which the Company's national sales manager and
representatives from the sales agent organization meet with potential customers
to fulfill the customers' uniform requirements.
Essentially all shipments to customers are made from the Company's
distribution center, which is attached to its North Carolina manufacturing
facility. Shipments generally are by truck, but in some instances where timing
is critical air shipments may be utilized. In the retail business, shipments are
generally made direct to the customers' retail stores or to the customers'
distribution centers, which subsequently break down orders for individual
stores. Shipments to professional golf customers are normally direct to the
customer via parcel service. In the premium business, sales to distributors are
shipped direct to the distributors' warehouse, while sales through the ASI
network are shipped direct to customers or to embroiderers and screenprinters
who customize product and then forward shipment to end customers. Shipments of
uniforms are generally made direct to the customers.
Sources and Availability of Raw Materials and Products:
Approximately 60% of the Company's products are manufactured
domestically. The other 40% is sourced primarily from manufacturers in the Far
East through a relationship with Associated Merchandising Corporation (AMC). The
Company also sources some product through the 807 program in the Caribbean
Basin. "807" is an apparel industry term referring to a former United States
tariff schedule under which import duty is exempted on U.S.-made components that
go into finished garments. In practice, U.S.-made fabrics, trims and packaging
materials are shipped to offshore manufacturers and returned to the United
States after assembly.
The principal raw materials used in the domestic production process are
cotton, synthetic and cotton/synthetic blended goods obtained principally from
United States sources. The Company purchases most of its piece goods from
approximately ten sources. There are currently no major problems in availability
of raw materials, and alternative sources are available.
The Company's Fairmont, North Carolina manufacturing facility includes
a raw material warehouse, cutting, sewing and embroidery operations, and a
finished goods distribution center. The Company also utilizes contract sewing
manufacturers in close proximity to its North Carolina facility to meet demand
during peak production periods. All products, both domestically and offshore
produced, are distributed to customers from the North Carolina facility.
Merchandising Calendar:
Considerable lead time is required in the Company's business with
retailers. Conceptual product line meetings generally start eleven months prior
to initial customer delivery dates. This period lasts three to four months and
includes such processes as development of design and merchandising concepts,
color selection, coordination of various products, review of targeted customers,
financial goals and a sourcing trip to review potential manufacturers. Offshore
production generally requires five to six months from the placement of
production orders to receipt of goods in the Company's distribution center.
Subsequent shipments to customers usually take another two months. Because of
the significant lead time for offshore product, the Company is subjected to a
number of risks including, but not limited to:
* Changing fashion trends
* Availability of new fabrications
* Import quota restrictions
* Coordination of product lines from multiple manufacturers
* Cancellation of orders by retailers in response to changing
marketplace conditions
In recent years, the Company minimized a large portion of this risk
through the development of a relationship with Associated Merchandising
Corporation, a world-wide sourcing organization skilled in the procurement of
apparel from overseas manufacturers. The Company's premium business and about
half of its professional golf business generally is made domestically,
where lead times are approximately three months shorter than in the import
purchasing cycle above.
Trademarks and Trade Names:
In 1991, management initiated the strategy to actively pursue licensing
as a vital part of the Company's growth plan. During the period 1991 through
1993, the Company entered into eleven license agreements, and in 1994,
renegotiated its licenses with Fruit of the Loom which, among other things,
extended the original agreement for twenty-five years. In 1995, the Company
entered into four additional license agreements. Management intends to continue
development of its licensing programs and believes that its advertising, styling
and brand name identification established over many years are important to the
competitive position of the Company. The Company has the following license
agreements:
* A license with Fruit of the Loom, Inc. to market underwear and
activewear.
* A license with a New York entity to market sleepwear.
* Five licenses with Montgomery Ward to market men's pants,
outerwear, accessories, dresswear and shirts.
* A license with a Canadian corporation to market knit shirts.
* A license with a North Carolina entity to market men's and
boys' hosiery.
* A license with a Peoples Republic of China entity to market a
variety of clothing and accessories.
* A license with a South Carolina entity to market sweaters.
* A license with a Missouri entity to market outerwear.
* A license with a New York entity to market woven shirts.
* A license with a South African entity for apparel.
Management's emphasis on licensing activities in recent years has led
to a dramatic increase in the Company's royalty income, from $1,162,000 in 1991
to $4,609,000 in 1995.
Seasonal Aspects of the Business:
Sales of the Company's products can vary significantly by season, with
peak shipments normally occurring in the first and second quarters of the fiscal
year.
Working Capital Practices:
The Company maintains a secured bank line of credit to meet its working
capital needs. Peak borrowings under this agreement normally occur in the first
six months of the year during the heavier shipping period and during the fourth
quarter when inventories are increased to meet the additional first and second
quarter sales volume. Seasonal increases in inventory are normal for the apparel
manufacturing industry. The bank line of credit is also used for letters of
credit that are required for generally all of the Company's purchases from
offshore sources. The Company allows returns of merchandise as a result of
shipping errors, damaged merchandise and for other reasons. Returns have been
less than 4% of sales in each of the past two years.
Customers:
The Company sells to approximately 4,500 customers. Sales to Sam's Club
(a division of Wal-Mart Stores, Inc.) in 1994 and 1993 were 16% and 21%,
respectively, of net sales. In 1995, no single customer represented more than
10% of total Company sales. During 1995, sales were approximately as follows:
37% Department stores such as Dayton/Hudson, Federated Department
Stores, May Company Stores, Mervyns, Carson Pirie Scott,
Mercantile Stores and Beall's.
18% ASI customers and uniforms.
13% Premium distributors such as San Mar Corporation, Alpha Shirt
Sales and Brazos Sportswear.
11% Professional golf shops.
10% Discounters and wholesale clubs such as Target, ShopKo and
Sam's Wholesale Club.
8% Specialty stores.
3% National chain stores such as Sears and Montgomery Ward.
Backlog of Orders:
The Company's backlog of unfilled orders at January 6, 1996 was
approximately $15,600,000 as compared to $18,800,000 a year ago. The decrease
was due primarily to management's emphasis on reducing reliance on traditional
retail apparel customers. The unfilled order backlog consists of orders received
for subsequent delivery. However, since it includes orders subject to change for
color, size, stock adjustments, extension of delivery dates and cancellation,
the unfilled order backlog does not necessarily relate directly to future sales.
Competition:
The apparel industry in the United States is highly competitive and
characterized by a relatively small number of broad-line companies and a large
number of specialty manufacturers. In addition, there are unbranded and private
label competitors as well as numerous, small specialty manufacturers competing
with the Company. The principal methods of competition in the apparel industry
are pricing, styling, quality (both in material and production), inventory
replenishment programs and customer service. The Company seeks to maintain its
competitive position in the markets in which it operates through the use of all
these methods.
Competitive conditions in the industry continue to escalate. In
response to the continued sluggish retail apparel marketplace, retailers have
been aggressively decreasing prices and increasing advertising to generate
customer traffic; applying more pressure on wholesalers to lower prices;
increasing cooperative advertising programs and demanding participation in the
cost of store fixturing; escalating electronic data interchange programs to more
effectively manage inventory levels; demanding extended payment terms to reduce
capital requirements; and expanding the retail industry-wide practice of
initiating chargebacks and service charges for non-compliance with rigid
inventory management rules.
The Company's major competitors in the retail channel of distribution
in knit, short sleeve, collar and placket shirts in the $20.00 to $30.00 retail
price range are Chaps by Ralph Lauren, Knights of the Roundtable, Gant,
Greenline, Guess?, Izod, Dockers by Levi Straus, and Private Label. Competitive
brands in the professional golf business include AM Player, Antigua, Cross
Creek, Izod and LaMode. In the premium markets, major competitors are Cross
Creek, Outer Banks, Chesterfield, Vantage, Fruit of the Loom, Crystal Springs,
Anvil and Pine State.
In recent years, the Company's competitive position in the retail
channel of distribution has eroded due to retailers' practice of placing extreme
margin pressure on all manufacturers. Those companies with broad-based
merchandise, coordinating lines, and large sales volume have generally been the
most successful. Smaller wholesalers, such as the Company, have been forced to
seek other channels of distribution.
Research and Development:
The Company is involved in limited experimental research activities
related to the development of new fabrics and production methods. Research and
development expenses, other than for product design, are not significant.
Environmental Considerations:
The Company's manufacturing operations are subject to various federal,
state and local laws restricting the discharge of materials into the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of its operations because of such
regulations. In 1995, the Company's capital expenditures for environmental
control facilities were not significant, and no significant capital expenditures
related to environmental issues are projected in 1996.
Employees:
As of January 6, 1996, there were 343 employees, none of whom were
represented by a union.
D. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES.
Sales to unaffiliated foreign customers located outside the United
States and its territories for the past three years were not significant.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and related notes, which provide additional
information concerning the Company's financial activities and condition.
Capital Resources and Liquidity:
At January 6, 1996, working capital totaled $3,926,000 compared to
$6,847,000 a year ago and the current ratio was 1.2:1 compared to 1.5:1 the
previous year. During 1995, operating activities used $4,094,000 of cash,
primarily the result of net losses of $2,335,000 and an increase in receivables
of $3,468,000, which was due to a 29% increase in fourth quarter revenues
compared to the previous year. These operating uses of cash were offset by a
$1,248,000 increase in accounts payable and $782,000 of depreciation and
amortization. Capital expenditures totaled $1,201,000, primarily for information
systems improvements and manufacturing equipment. The Company financed the net
use of cash through a $5,298,000 increase in its bank line of credit borrowings.
At January 7, 1995 working capital totaled $6,847,000 compared to
$9,561,000 the previous year and the current ratio was 1.5:1 compared to 2.9:1
the year before. During 1994, operating activities used $3,127,000 of cash,
primarily the result of net losses of $573,000 and an increase in inventories of
$5,986,000, which was due to a planned increase in support of the Company's
first quarter 1995 sales and shelf stock in support of the Company's entry into
the premium/special markets channel of distribution. These operating uses of
cash were offset by a $2,729,000 net increase in royalty advances, primarily the
result of a late 1994 contract extension with one of the Company's licensees, an
increase in accounts payable of $944,000 and $712,000 of depreciation and
amortization. Capital expenditures totaled $865,000, primarily for manufacturing
equipment and information systems improvements. Principal payments on long-term
debt and capital lease obligations totaled $270,000. The Company financed the
net use of cash through a $3,894,000 increase in its bank line of credit
borrowings.
During 1993, operating activities used $1,307,000 of cash, primarily
the result of net losses of $342,000 and an increase of $1,141,000 in
receivables and inventories as a result of higher 1993 fourth quarter revenues,
a planned increase in the Company's first quarter 1994 sales and higher levels
of end-of-season merchandise. Total capital expenditures were $490,000,
primarily for manufacturing equipment and information systems improvements, and
principal payments on long-term debt and capital lease obligations totaled
$303,000. The Company financed the net use of cash through a $1,698,000 increase
in its line of credit borrowings.
The Company has a bank line of credit which makes funds available based
on certain financial formulas. In an effort to reduce costs, in late 1995
management negotiated a reduction in the maximum amount of outstanding
borrowings and letters of credit from $25,000,000 to $20,000,000. Concurrently,
the bank increased the annual borrowing interest rate by .5%. In early 1996, the
Company received waivers for events of non-compliance as of fiscal 1995
year-end.
Management's expectations for 1996 are for revenues to be comparable to
1995, inventory growth to be moderate and capital spending to be less than
$1,000,000, primarily for continued improvements to the Company's management
information systems and various additions of manufacturing equipment designed to
improve quality, shorten lead times and promote efficiency. However,
significantly lower cash receipts from existing licensing agreements will be
received in 1996, since minimum royalties from a major licensee were prepaid in
1994 and 1995 in conjunction with the renegotiation of that license agreement.
Management expects to be able to finance working capital needs and capital
expenditures through a combination of funds from operations, operating leases,
the potential sale of license rights, and its bank line of credit. Statements in
this paragraph constitute "forward-looking statements;" readers are referred to
"Cautionary Statements" below.
At July 29, 1996, total availability under the Company's bank line of
credit was $8,523,000 of which $941,000 was utilized for borrowings and $717,000
was utilized for letters of credit, resulting in unused availability of
$6,865,000. Borrowings under the facility are payable on demand and bear
interest at the bank's base rate of interest plus 1.75% (10.00% at July 29,
1996). The line of credit is available through September 1997. The bank line of
credit includes a minimum tangible net worth covenant which the Company must
comply with at the end of each fiscal quarter. Because of losses for the fiscal
year ended January 6, 1996, the Company's minimum tangible net worth was below
the level required by the covenant. Subsequently, the lender waived this
covenant as of January 6, 1996 and, at the same time, lowered the minimum
tangible net worth levels required to be met by the Company at the end of each
quarter during fiscal 1996. The Company was in compliance with this covenant as
of April 6, 1996 and July 6, 1996, the end of the first two quarters of fiscal
1996.
Results of Operations:
Net sales for 1995 increased 38% over 1994. Sales to premium/special
markets customers increased seven-fold over 1994 levels and business with
professional golf markets increased 52% over the prior year. These increases
offset lower sales to department stores, chain stores and wholesale clubs, which
decreased 4%, collectively.
Net sales for fiscal 1994, a 53-week period, were essentially flat with
1993 levels. Sales increases of 628% and 62%, respectively, in the
premium/special markets and professional golf market channels of distribution
were offset by a 10% decline in business in the Company's traditional channels
of distribution. 1993 net sales were generally flat with 1992 levels as sales
increases of 12% in national chain, 64% in professional golf and 11% in
wholesale club channels of distribution were offset by an 11% decline in
business with department stores.
The Company's backlog of unfilled orders at the end of 1995 was
approximately $15,600,000 as compared to $18,800,000 the previous year. The 17%
decrease was primarily the result of decreased orders for department stores,
national chain stores and discount stores. Orders for premium/special markets
customers increased 114%. The unfilled order backlog consists of orders received
for subsequent delivery. However, since it includes orders subject to change for
color, size, stock adjustment, extension of delivery dates and cancellation, the
unfilled order backlog does not necessarily relate directly to future sales.
Royalties in 1995 were essentially flat with 1994. In 1994, royalties
were 25% above 1993 levels due to increased minimum guarantees on previous
years' agreements and additional income recognized in connection with a late
1994 license agreement extension. 1993 royalties increased 83% over 1992 as a
result of increased minimum guarantees on previous years' agreements and the
establishment of three new license agreements during the year for dresswear,
shirts and accessories.
Gross profit in 1995 was 17% of net sales vs. 20% in 1994. The decrease
was primarily the result of losses related to a new product line and markdowns
taken during the last half of the year to move excess end-of-season merchandise
in response to the continued sluggish retail apparel marketplace. 1994 gross
profit was 20% of net sales vs. 24% in 1993. In 1994, gross margins decreased
primarily due to higher manufacturing and material costs that were not able to
be passed on through higher selling prices and because of management's decision
to add value to products by using better quality fabrics, trims and other
materials, as well as increasing overall sizes of products, without increasing
prices in order to achieve wider customer acceptance.
Gross profit was 24% of net sales in 1993. The erosion of gross profit
margin from 1992 levels was the result of markdowns taken during the last half
of the year to move end-of-season merchandise, low production volumes in the
Company's manufacturing facility during the third quarter in response to low
demand, quality problems encountered with certain offshore sourced product and
increased product costs that were not able to be passed on to customers through
price increases.
Selling, general and administrative expenses were $1,827,000 higher in
1995 than in 1994. However, as a percent of sales, these expenses dropped from
32% in 1994 to 27% in 1995. Commissions expense increased $1,161,000 and
warehouse and distribution costs increased $358,000, both due primarily to the
38% increase in sales volume. Advertising costs increased $909,000 due to
additional cooperative advertising programs with retailers, media advertising
during the second quarter of 1995, additional expenses for catalogs and higher
costs associated with the Company's PGA Tour endorsement program. Administrative
expenses were $248,000 lower due to reduced legal expenses related to patent and
trademark matters. In 1994, selling, general and administrative expenses were
$265,000 higher than in 1993. Merchandising and design expenses increased
$251,000 due to the addition of a senior merchandising executive and the full
year effect of other additions to design staff. Information systems expenses
increased $231,000 due to lease and other expenses associated with the Company's
management information systems improvement project, and selling expenses
increased $256,000 due to increased commissions expense. Advertising expenses
decreased $423,000 as a result of management's late 1993 reassessment of
advertising activities. In 1993, the Company increased selling, general and
administrative expenses approximately $1,300,000 over 1992 levels. Advertising,
merchandising, design and marketing activities were increased $929,000 in an
unsuccessful effort to increase sales. In addition, bad debts expense was
$200,000 higher than 1992, when large recoveries were recorded from prior major
retailer bankruptcies. The Company also experienced an additional $250,000 of
recruiting expense in 1993, primarily related to the recruitment of senior
management positions. During the last half of 1993, the Company took steps to
reduce spending, which included a reduction in complement and curtailment of
advertising activities.
In 1995, restructuring costs of $520,000 reflect expenses associated
with completed staff reductions and future lease payments on excess office
space. In 1994, the Company completed the closing of its Hong Kong sourcing
office and United Kingdom sales office. The closings were accomplished for
$100,000 less than the related Reserve for closing of facilities established in
1993.
As a result of decreased gross margin ratios, increased selling,
general and administrative expenses and restructuring costs, the 1995 operating
loss was $1,074,000 compared to an operating loss of $128,000 in 1994 and an
operating income of $157,000 in 1993.
Interest expense in 1995 was $805,000 higher than 1994 interest expense
due to higher borrowings to finance increased inventory levels required to meet
demand in the premium/special markets channel of distribution. Interest expense
in 1994 was $67,000 higher than 1993 interest expense as a result of rising
interest rates and higher average daily borrowings. In 1993, interest expense
was $64,000 lower than 1992 interest expense as a result of lower interest rates
and the full year effect of more favorable minimum borrowing requirements
included in the Company's asset-based loan agreement entered into in late 1992.
Provision for income taxes represents federal, state, local and foreign
taxes. The 1995, 1994 and 1993 provisions are attributable to state income,
franchise and foreign taxes, which are generally not dependent on pre-tax
income. At January 6, 1996 the Company had a net operating loss carryforward of
$35,300,000 for domestic federal income tax purposes.
In late 1994, the Company entered into a new banking agreement, which
resulted in an extraordinary loss from early debt extinguishment of $161,000.
The loss was comprised of unamortized debt issuance costs and prepayment fees
related to the previous bank line of credit.
Looking Forward:
The Company is in transition. During the past two years, sales by
channel of distribution have changed dramatically versus historical performance.
This is the result of management's decision to direct significant human and
financial resources to the development of the premium/special markets and
professional golf channels of distribution. Following are some of the factors
management has considered in effecting this change:
* continued sluggishness and increased promotional and
competitive pricing pressures in the retail department store
environment
* strong nationwide growth in the premium/special markets
channel of distribution
* worldwide consumer interest in golf as a sport and lifestyle
Management plans to continue this product mix change in 1996 and
expects sales to its premium/special markets and professional golf customers
will represent more than half of total Company sales in 1996. Collectively,
these two businesses represented 40%, 15% and less than 10% of total Company
sales in 1995, 1994 and 1993, respectively. Management anticipates this change
in sales mix will also benefit gross profit margins, which have been declining
in recent years from 24% in 1993, to 20% in 1994, to 17% in 1995. This decline
in gross profit margin is directly attributable to the continued sluggish sales,
extreme price competition and increased promotional activity in the retail
apparel marketplace. During those three years, the Company experienced increased
amounts of end-of-season closeout merchandise, primarily the result of
diminishing demand in its traditional department store channel of distribution.
In addition, merchandising attempts to broaden product offerings in order to
increase market share were unsuccessful and led to losses. In early 1995,
management severely curtailed the design and marketing of products that depart
from the following criteria: men's, short-sleeve, knit, moderately priced golf
shirts. However, because of the lead times in the apparel industry, management
does not expect to see benefit from this action until 1996.
In late 1995, the Company retained the services of an investment
banking firm to explore a range of opportunities to maximize shareholder value.
Among the options under consideration is the potential sale of license rights
for the manufacture and merchandising of product which bears certain of the
Company's trademarks and trade names, as well as the sale of certain trademarks
and trade in various markets. There is no assurance that any of these options
presently being considered will be completed.
Cautionary Statement:
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Letter to Stockholders,
elsewhere in the Annual Report, in the Company's Form 10-K and in future filings
by the Company with the Securities and Exchange Commission, in the Company's
press releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The following
important factors, among others, in some cases have affected and in the future
could affect the Company's actual results and could cause the Company's actual
financial performance to differ materially from that expressed in any
forward-looking statement: (i) the extremely competitive and volatile conditions
that currently exist in the retail apparel marketplace are expected to continue,
placing further pressure on pricing which could adversely impact sales and
further erode gross margins; (ii) continued implementation of the North America
Free Trade Agreement (NAFTA) is expected to put competitive cost pressure on
apparel wholesalers with domestic production facilities such as the Company;
(iii) many of the Company's major competitors in each of its channels of
distribution have significantly greater financial resources than the Company;
(iv) the Company's bank loan agreement was amended for fiscal 1996 to
accommodate budgeted performance, including marked improvements in gross margins
from 1995, and failure to achieve budgeted results could lead to an event of
default and the lender would have the right to require immediate repayment of
indebtedness; and (v) the inability to carry out marketing and sales plans would
have a materially adverse impact on the Company's projections. The foregoing
list should not be construed as exhaustive and the Company disclaims any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
Impact of Inflation:
Inflation affects the Company's business principally in the form of
cost increases for materials and wages. The Company generally attempts to offset
these cost increases by a combination of effective merchandising and design
techniques, purchasing practices, labor savings and price increases.
Market Statistics:
The Company's common stock is listed on the New York Stock Exchange
under the symbol MUN. The 1994 and 1995 market price high and low were as
follows:
Quarter
1st 2nd 3rd 4th
--- --- --- ---
1994
High 7 6 5/8 7 1/2 8 7/8
Low 5 4 1/2 4 7/8 6 1/2
1995
High 8 3/4 8 5/8 9 5/8 8 7/8
Low 6 7/8 6 7/8 7 7/8 6 1/4
As of March 31, 1996, the Company had 873 stockholders of record.
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 behalf
of the undersigned, thereunto duly authorized.
MUNSINGWEAR, INC.
Date: August 15, 1996 By: /s/ Lowell M. Fisher
---------------------
Lowell M. Fisher
President and
Chief Executive Officer
