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 April 6, 1996
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 April 6, 1996 was 2,040,578.
MUNSINGWEAR, INC.
INDEX
Page No.
PART I: FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets -
April 6, 1996 and January 6, 1996.................... 3
Condensed Consolidated Statements of Operations
for the Three Months ended April 6, 1996
and April 8, 1995.................................... 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended April 6, 1996
and April 8, 1995.................................... 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
<TABLE>
<CAPTION>
MUNSINGWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
April 6, January 6,
1996 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 304 $ 62
Receivables, net of allowances of $470 and $511.................................. 11,276 8,537
Inventories...................................................................... 14,885 14,641
Prepaid expenses................................................................. 894 1,004
------ ------
Total current assets.......................................................... 27,359 24,244
------ ------
Property, plant and equipment, less accumulated
depreciation and amortization of $1,775 and $1,584............................... 3,083 2,927
Deferred taxes, net of valuation allowance of $11,796............................... 2,309 2,309
Trademarks, net of amortization of $1,340 and $1,274................................ 4,107 4,173
------ ------
$ 36,858 $ 33,653
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit borrowings....................................................... $ 12,883 $ 10,890
Current maturities of long-term debt............................................ 21 21
Accounts payable................................................................ 6,732 5,008
Accrued payroll and employee benefits........................................... 1,202 1,009
Unearned royalty income......................................................... 2,217 2,993
Other accruals.................................................................. 405 397
------ ------
Total current liabilities.................................................... 23,460 20,318
------ ------
Long-term debt, less current maturities............................................ 17 22
Postretirement benefits............................................................ 319 319
Unearned royalty income............................................................ --- 10
------- -------
336 351
------- -------
Stockholders' equity:
Common stock, $.01 par value:
Issued and issuable shares - 2,079,404 and 2,065,594......................... 21 21
Capital in excess of par value.................................................. 15,178 15,112
Retained earnings............................................................... (2,137) (2,149)
------ ------
Total stockholders' equity................................................... 13,062 12,984
------ ------
$ 36,858 $ 33,653
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
MUNSINGWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts unaudited and in thousands, except per share data)
Three Months Three Months
Ended Ended
April 6, 1996 April 8, 1995
------------- -------------
<S> <C> <C>
REVENUES:
Net sales........................................................... $ 14,696 $ 14,622
Royalties........................................................... 1,144 1,301
------ ------
15,840 15,923
------ ------
EXPENSES:
Cost of goods sold.................................................. 11,779 11,599
Selling, general and administrative................................. 3,675 3,599
------ ------
15,454 15,198
------ ------
OPERATING INCOME....................................................... 386 725
Interest expense....................................................... (359) (252)
Other.................................................................. 13 5
------ ------
Income before taxes.................................................... 40 478
Provision for income taxes............................................. 28 190
------ ------
NET INCOME.......................................................... $ 12 $ 288
====== ======
NET INCOME PER COMMON SHARE......................................... $ 0.01 $ 0.14
======= =======
Weighted average number of shares of
common stock........................................................ 2,073 2,066
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
MUNSINGWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts unaudited and in thousands)
Three Months Three Months
Ended Ended
April 6, 1996 April 8, 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income from operations........................................... $ 12 $ 288
Reconciling items:
Depreciation and amortization..................................... 257 175
Provision for losses on accounts receivable....................... 26 50
Unearned royalty income........................................... (786) 2,103
Utilization of net operating loss carryforwards................... --- 163
Changes in operating assets and liabilities:
Receivables.................................................... (2,765) (4,803)
Inventories.................................................... (244) 57
Prepaid expenses............................................... 110 340
Accounts payable............................................... 1,724 (32)
Other accrued liabilities...................................... 201 (107)
------ ------
Net cash used in operating activities.......................... (1,465) (1,766)
------ ------
INVESTING ACTIVITIES
Purchases of property, plant and equipment........................... (347) (205)
------ ------
Net cash used in investing activities.......................... (347) (205)
------ ------
FINANCING ACTIVITIES
Net change in line of credit borrowings.............................. 1,993 2,007
Principal payments on long-term debt
and capital lease obligations..................................... (5) (4)
Proceeds from exercise of stock options.............................. 66 ---
------ ------
Net cash provided by financing activities...................... 2,054 2,003
------ ------
Increase in cash and cash equivalents.......................... 242 32
Cash and cash equivalents at beginning of period..................... 62 73
------ ------
Cash and cash equivalents at end of period........................... $ 304 $ 105
====== ======
</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 three months ended
April 6, 1996 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 1995
Annual Report to Stockholders and its 1995 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.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
--------------------------------------------------------------------------
(000's omitted)
April 6, January 6,
1996 1996
----------- --------
Raw materials.......................... $ 2,009 $ 1,359
Work in process........................ 1,549 639
Finished goods......................... 11,327 12,643
------- -------
$14,885 $14,641
======= =======
--------------------------------------------------------------------------
3. Financing Arrangements
The Company maintains a bank line of credit under which up to $20,000,000
is available for borrowings and letters of credit through September 1997.
At April 6, 1996, borrowings were $12,883,000 and amounts utilized for
outstanding letters of credit were $2,659,000. On April 6, 1996,
additional availability on this bank line of credit was $1,938,000, and
the Company was in compliance with all related covenants.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FIRST QUARTER
TOTAL REVENUES for the quarter ended April 6, 1996, were essentially equal to
the comparable period last year. Sales to the Company's premium/special markets
and golf pro shop customers comprised 45% of total Company sales compared to 26%
for the same period last year, continuing the trend experienced in 1995, and
which was forecasted by management to continue into 1996. The Company's backlog
of unfilled orders at the end of the first quarter was approximately $13,800,000
compared to $15,500,000 at the same time a year ago. The 11% decrease in open
orders is primarily due to the change in product mix toward the premium/special
markets and golf pro shop businesses, which are predominantly "at once"
businesses in which numerous orders are received within 30 days prior to
requested delivery date. ROYALTY INCOME decreased $157,000, primarily due to the
Company's late 1994 renegotiation of certain licenses, as previously reported.
COST OF GOODS SOLD increased due to the change in product mix, continued
promotional pricing in business with department stores and heavy shipments of
off-price merchandise remaining from prior seasons. As a percent of net sales,
gross margin dropped from 20.7% in 1995 to 19.8% for the three months ended
April 6, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $100,000 due to
depreciation and lease expense related to the upgrade of the Company's
management information systems and expenses incurred in connection with the
Company's evaluation of methods to maximize shareholder value.
INTEREST EXPENSE increased $107,000 over the comparable period a year ago due to
increased borrowings, primarily the result of higher inventories and 1995
losses.
PROVISION FOR INCOME TAXES in 1996 consists primarily of state income, franchise
and foreign taxes payable. At the beginning of fiscal 1996, the Company had
$35,300,000 of net operating loss carryforwards for regular federal income tax
purposes.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources:
The financial condition of the Company is reflected in the following:
(000's omitted)
April 6, January 6,
1996 1996
---------- ----------
Working capital......................... $ 3,899 $ 3,926
Current ratio........................... 1.2:1 1.2:1
Stockholders' equity.................... $13,062 $12,984
As reported in the Statements of Cash Flows, operating activities during the
first three months of 1996 used $1,465,000 of cash, primarily the result of
increased receivables due to seasonally higher first quarter sales. This was
partially offset by higher accounts payable as a result of increased production
levels. Capital spending of $347,000 was comprised primarily of additional
spending on the Company's information systems upgrade and investment in the
Company's first modular sewing unit, which began production midway through the
first quarter. The net use of cash was financed through a $1,993,000 net
increase in borrowings on the Company's revolving credit loan.
Liquidity:
First quarter results were in line with management's expectations for 1996,
which include flat revenues, moderate inventory growth and lower royalty income.
Management continues to be cautious in making inventory commitments for fashion
merchandise and the Company's operations are beginning to experience positive
effects from the renewed focus on core capability - men's, short sleeve, knit,
moderately priced golf shirts. Excess end-of-season merchandise is 60% less than
at the same time last year. Prospectively, 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.
Looking Forward:
The Company is in transition. During the past two years, sales by channel of
distribution have changed dramatically vs. 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 golf pro shop
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 nation-wide 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 golf pro shop customers will represent more
than half of total Company sales in 1996.
As previously reported, 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.
Cautionary Statement:
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, 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.
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: May 21, 1996 /s/Lowell M. Fisher
Lowell M. Fisher
President & CEO
/s/James S. Bury
James S. Bury
Vice President, Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-04-1997
<PERIOD-END> APR-06-1996
<CASH> 304
<SECURITIES> 0
<RECEIVABLES> 11,276
<ALLOWANCES> 470
<INVENTORY> 14,885
<CURRENT-ASSETS> 27,359
<PP&E> 4,858
<DEPRECIATION> 1,775
<TOTAL-ASSETS> 36,858
<CURRENT-LIABILITIES> 23,460
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 13,041
<TOTAL-LIABILITY-AND-EQUITY> 36,858
<SALES> 14,696
<TOTAL-REVENUES> 15,840
<CGS> 11,837
<TOTAL-COSTS> (58)
<OTHER-EXPENSES> 3,675
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 359
<INCOME-PRETAX> 40
<INCOME-TAX> 28
<INCOME-CONTINUING> 12
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
