SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
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 reports
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 April 1, 1996 was $9,384,000, based upon the closing price of
$7.25 per share on that date.
The number of shares of common stock outstanding at April 1, 1996 was
2,037,078.
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. _____
DOCUMENTS INCORPORATED BY REFERENCE:
Documents incorporated in part by reference in Parts I and II of this
report: Portions of Munsingwear, Inc. 1995 Annual Report to Stockholders for the
fiscal year ended January 6, 1996.
Documents incorporated in part by reference in Part III of this report:
Portions of definitive proxy statement for the 1996 Annual Meeting of
Stockholders.
This Form 10-K consists of 57 total pages: The exhibit index is on page
18.
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 golf pro shop 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/special markets customers and to national
chain stores, such as Montgomery Ward. Grand Slam Tour(TM) is sold
primarily through golf pro shops.
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. 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, NC 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.
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.
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.
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.
Item 2. Properties
At January 6, 1996, the Company occupied the following properties:
Approximate
Square Percentage Lease
Property Footage Utilized Expires
- -------- ------- -------- -------
Minneapolis, MN - Headquarters 29,200 50 1996
Fairmont, NC - Cutting and
sewing plant, warehouse and
distribution center 139,100 100 Owned
New York, NY - Sales office/showroom 1,000 100 1997
Dallas, TX - Sales office/showroom 500 100 1996
Management considers facilities adequate for current operations. At January
6, 1996, no facilities were occupied under capitalized leases.
Item 3. Legal Proceedings
None of a significant nature.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The following information is furnished with respect to the Company's executive
officers as of the date hereof, pursuant to Item 401(b) of Regulation S-K. Each
of the officers has been appointed to serve in his respective office until his
successor has been elected.
<TABLE>
<CAPTION>
<S> <C> <C>
Officer
Name and Age Position Since
Lowell M. Fisher (63) Director of the Company; President and Chief 1993
Executive Officer of the Company, October 1993 to
present; President of Chairman & CEO, Inc. (management
consulting firm), April 1990 to October 1993;
previously Chairman and Chief Executive Officer of
10,000 Holdings, Inc. (retail auto parts stores),
January 1989 to April 1990; Senior Vice President of
the Company, October 1987 to January 1989.
David E. Berg (39) Executive Vice President, Sales & Marketing of the 1995
Company, May 1995 to present; Vice President, General
Manager, Special Markets, October 1993 to May 1995;
Vice President, National Sales Manager, Retail Division,
January 1990 to October 1993; Vice President, General
Manager, Furnishings Division, February 1989 to January
1990.
James S. Bury (52) Vice President and Controller of the Company, 1990 to 1990
present; Corporate Controller, August 1989 to May 1990;
Vice President Finance, Men's Apparel Division, February
1988 to August 1989.
</TABLE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required under this caption is incorporated herein by
reference to pages 6 and 16 of the 1995 Annual Report to Stockholders. As
of March 31, 1996, the Registrant had 873 shareholders of record (excluding
beneficial owners of shares held in nominees' accounts).
Item 6. Selected Financial Data
The information required under this caption is incorporated herein by
reference to page 16 of the 1995 Annual Report to Stockholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required under this caption is incorporated herein by
reference to pages 3 through 6 of the 1995 Annual Report to Stockholders.
Item 8. Financial Statements and Supplementary Data
The information required under this caption is incorporated herein by
reference to pages 7 through 16 of the 1995 Annual Report to Stockholders.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Identification of Directors. The information required under this
caption is incorporated by reference to the information set forth
under the caption "Election of Directors" of the definitive proxy
statement to be filed with the Securities and Exchange Commission
within 120 days of Registrant's fiscal year ended January 6, 1996.
B. Executive Officers is included in Part I of this Report.
Item 11. Executive Compensation
The information required under this caption is incorporated by reference to
the information set forth under the caption "Executive Compensation and
Other Information" of the definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days of the Registrant's
fiscal year ended January 6, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this caption is incorporated by reference to
the information set forth under the caption "Security Ownership of Certain
Beneficial Owners, Directors and Executive Officers" of the definitive
proxy statement to be filed with the Securities and Exchange Commission
within 120 days of the Registrant's fiscal year ended January 6, 1996.
Item 13. Certain Relationships and Related Transactions
The information required under this caption is incorporated by reference to
the information set forth under the caption "Executive Compensation and
Other Information" of the definitive proxy statement to be filed within 120
days of the Registrant's fiscal year ended January 6, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Financial statements, included in cited pages of the 1995 Annual
Report to Stockholders, are incorporated by reference in Item 8:
- Consolidated Statements of Operations for the three years
ended January 6, 1996, January 7, 1995 and January 1, 1994
(page 7).
- Consolidated Balance Sheets as of January 6, 1996 and
January 7, 1995 (page 8).
- Consolidated Statements of Cash Flows for the three years
ended January 6, 1996, January 7, 1995 and January 1, 1994
(page 9).
- Consolidated Statements of Changes in Stockholders' Equity
for the period January 2, 1993 to January 6, 1996 (page 10).
- Notes to Consolidated Financial Statements (pages 11 through
16).
- Report of Independent Public Accountants (page 16).
2. Financial Statement Schedules for the three years ended January
6, 1996, January 7, 1995 and January 1, 1994.
- Schedule II - Valuation and Qualifying Accounts, pages 13-15
of this report.
- Report of Independent Public Accountants on Schedules, page
16 of this report.
- All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are not applicable and, therefore, have been
omitted.
3. Exhibits:
- Exhibit 2 - Plan of Reorganization, as confirmed October 1,
1991 by the United States Bankruptcy Court.(2)
- Exhibit 3 - Restated Certificate of Incorporation and By-
Laws, as amended.(2)(4)
- Exhibit 4 - Instruments Defining the Rights of Security
Holders - Form of Rights Agreement, incorporated by
reference to Registration Statements on Form 8-A, as
amended, dated November 6, 1987, File No. 1-63.
- Exhibit 10 - Material Contracts (Management Contracts or
Compensatory Plans or Agreements):
(A) Employment Agreement with James S. Bury dated April 24,
1990.(1)
(B) The Registrant's 1991 Stock Plan, as amended.(3)
(C) Employment Agreement with Lowell M. Fisher dated May 1,
1995.(5)
(D) Amendment No. 1 to Employment Agreement with Lowell M.
Fisher dated January 30, 1996.(5)
(E) Director Stock Option Agreement with Thomas D. Gleason
dated September 22, 1995.(5)
(F) Director Stock Option Agreement with Thomas D. Gleason
dated January 30, 1996.(5)
- Exhibit 10 - Material Contracts (Other):
(G) Restated License Agreement, dated September 21, 1994,
between the Registrant and Union Underwear Company,
Inc.(3)
(H)(i) Loan and Security Agreement, dated September 21,
1994, between the Registrant and LaSalle National
Bank.(3)
(H)(ii) Amendment to Loan and Security Agreement, dated
January 2, 1996 between the Registrant and LaSalle
National Bank.(5)
(H)(iii) Amendment to Loan and Security Agreement, dated
April 3, 1996 between the Registrant and LaSalle
National Bank.(5)
- Exhibit 13 - Munsingwear, Inc. 1995 Annual Report to
Stockholders - Such report, except for those portions
thereof which are expressly incorporated by reference in
this report, is furnished for the information of the
Securities and Exchange Commission and is not to be deemed
"filed" as part of this filing.(5)
- Exhibit 21 - Subsidiaries of the Registrant.(5)
- Exhibit 23 - Consent of Independent Public Accountants.(5)
(1) Incorporated herein by reference to Exhibit 10(N) of
the Registrant's Annual Report on Form 10-K for the
year ended January 5, 1991 (File No. 1-63).
(2) Incorporated herein by reference to Exhibits 2 and 3,
respectively, of the Registrant's Annual Report on Form
10-K for the year ended January 4, 1992 (File No.
1-63).
(3) Incorporated herein by reference to Exhibits 10(E), (G)
and (H) respectively of the Registrant's Annual Report
on Form 10-K for the year ended January 7, 1995 (File
1-63).
(4) Incorporated herein by reference to Form 8-K, dated
August 1, 1995 (File No. 1-63).
(5) Filed herewith.
(b) REPORTS ON FORM 8-K: None.
(c) EXHIBITS: Reference is made to Item 14(a)(3).
(d) SCHEDULES: Reference is made to Item 14(a)(2).
SCHEDULE II
MUNSINGWEAR, INC.
Valuation and Qualifying Accounts
Year ended January 6, 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
----------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- ------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade
receivables
Allowance for cash
discounts and
other customer
credits $ 192,000 $ (8,000) $ 250,000 $ 215,000 (a) $ 219,000
Allowance for
doubtful accounts 200,000 (162,000) 0 (120,000)(b) 242,000
Allowance for
returns 50,000 0 1,972,000 1,972,000 (c) 50,000
----------- ----------- ----------- ----------- -----------
$ 442,000 $ 154,000 $ 2,222,000 $ 2,307,000 $ 511,000
=========== =========== =========== =========== ===========
Reserve for
Facility Closing $ 37,000 $ (23,000) $ 0 $ 14,000 $ 0
=========== =========== =========== =========== ===========
Reserve for
Restructuring $ 0 $ 519,000 $ 0 $ 326,000 $ 193,000
=========== =========== =========== =========== ===========
</TABLE>
Notes:
(a) Discounts allowed and other credits to customers' accounts receivable.
(b) Uncollectible accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
SCHEDULE II
MUNSINGWEAR, INC.
Valuation and Qualifying Accounts
Year ended January 7, 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
----------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- ------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade
receivables
Allowance for cash
discounts and other
customer credits $ 272,000 $ 5,000 $ 461,000 $ 546,000(a) $ 192,000
Allowance for
doubtful accounts 262,000 142,000 0 204,000(b) 200,000
Allowance for
returns 50,000 0 1,113,000 1,113,000(c) 50,000
---------- ---------- ---------- ---------- ----------
$ 584,000 $ 147,000 $1,574,000 $1,863,000 $ 442,000
========== ========== ========== ========== ==========
Reserve for
facility closings $ 450,000 $ (100,000) $ 0 $ 313,000 $ 37,000
========== ========== ========== ========== ==========
</TABLE>
Notes:
(a) Discounts allowed and other credits to customers' accounts receivable.
(b) Uncollectible accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
MUNSINGWEAR, INC.
Valuation and Qualifying Accounts
Year ended January 1, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
-----------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- ------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade receivables
Allowance for cash
discounts and other
customer credits $ 117,000 $ (6,000) $ 699,000 $ 538,000(a) $ 272,000
Allowance for
doubtful accounts 150,000 204,000 0 92,000(b) 262,000
Allowance for
returns 50,000 0 860,000 860,000(c) 50,000
---------- ---------- ---------- ---------- ----------
$ 317,000 $ 198,000 $1,559,000 $1,490,000 $ 584,000
========== ========== ========== ========== ==========
Reserve for
facility closings $ 0 $ 450,000 $ 0 $ 0 $ 450,000
========== ========== ========== ========== ==========
</TABLE>
Notes:
(a) Discounts allowed and other credits to customers' accounts receivable.
(b) Uncollectible accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Munsingwear, Inc. included in the Company's
annual report to stockholders included in this Form 10-K and have issued our
report thereon dated April 5, 1996. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 14 of this Form 10-K is the responsibility of the company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/Arthur Anderson LLP
Minneapolis, Minnesota
April 5, 1996
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: April 16, 1996 By: /s/Lowell M. Fisher
Lowell M. Fisher,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C>
NAME TITLE
- ---- -----
/s/Lowell M. Fisher President and Chief Executive Officer April 16, 1996
Lowell M. Fisher (principal executive officer) and
Director
/s/James S. Bury Vice President Controller April 16, 1996
/s/C. D. Anderson Director April 16, 1996
C. D. Anderson
/s/Keith A. Benson Director April 16, 1996
Keith A. Benson
/s/Thomas D. Gleason Chairman of the Board and Director April 16, 1996
Thomas D. Gleason
/s/Gerald E. Magnuson Director April 16, 1996
Gerald E. Magnuson
/s/Kevin S. Moore Director April 16, 1996
Kevin S. Moore
/s/William J. Morgan Director April 16, 1996
William J. Morgan
/s/Michael A. Raskin Director April 16, 1996
Michael A. Raskin
/s/Mark B. Vittert Director April 16, 1996
Mark Vittert
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit No. Exhibit Page No.
10 (C) Employment Agreement with Lowell M. Fisher. 19-24
10 (D) Amendment No. 1 to Employment Agreement with Lowell M. 25-26
Fisher.
10 (E) Director Stock Option Agreement with Thomas D. Gleason. 27-28
10 (F) Director Stock Option Agreement with Thomas D. Gleason. 29-30
10 (H)(ii) Amendment to Loan and Security Agreement with LaSalle 31-34
National Bank.
10 (H)(iii) Amendment to Loan and Security Agreement with LaSalle 35-36
National Bank.
13 Munsingwear, Inc. 1995 Annual Report to Stockholders. 37-55
21 Subsidiaries of the Registrant. 56
23 Consent of Independent Public Accountants. 57
</TABLE>
EXHIBIT 10-C
EMPLOYMENT AGREEMENT
AGREEMENT effective as of May 1, 1995, by and between MUNSINGWEAR, INC., A
Delaware corporation (the "Company"), and Lowell M. Fisher (the "Employee").
WHEREAS, it is desirable and in the best interests of the Company and its
stockholders to obtain the benefits of the Employee's services and attention to
the affairs of the Company and to provide inducement for the Employee to remain
in the service of the Company; and
WHEREAS, the Employee desires to be employed by the Company upon the terms
and conditions contained herein; and
WHEREAS, for the reasons set forth above, the Company and the Employee
desire to enter into this Agreement,
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants and agreements contained herein, the Company and the Employee agree as
follows:
I. Term. Upon the terms and conditions contained herein, the Employee shall
remain in the employ of the Company until terminated as herein provided (the
"Term"). Either the Company or the Employee may terminate the employment of the
Employee at any time, with or without cause and for any reason whatever, upon at
least 60 days' written notice to the other party subject to the right of the
Employee to receive any payment or benefits that may be due pursuant to the
terms of this Agreement.
II. Employment. The Employee shall be employed in a senior executive
capacity, it being the expectation of the parties hereto that during the Term of
this Agreement the Employee shall serve as President and Chief Executive Officer
of the Company and shall have substantially equivalent duties, responsibilities
and authority as are presently exercised in such capacity. The Employee shall
devote his full time, energy and skill to his employment by the Company during
usual business hours except during customary vacation periods and periods of
disability resulting from injury or illness and except as otherwise may be
expressly permitted by the Board of Directors of the Company. The employee shall
be subject to the supervision and reasonable direction of the Board of Directors
of the Company as to assignment and performance of his duties hereunder.
III. Compensation.
(a) During the Term of this Agreement so long as the Employee is
employed by the Company hereunder, the Company shall pay to the Employee a
base salary at a rate of not less than $175,000.00 per annum. Such
compensation shall be paid to the Employee in installments not less
frequently than monthly.
(b) Any additional salary and any bonus or incentive compensation
shall be paid, and any stock options shall be awarded, in the sole
discretion of the Board of Directors of the Company.
(c) During the term of this Agreement so long as the Employee is
employed by the Company hereunder, the Company shall pay to the Employee
$1,000 per month for application to automobile expenses, club dues and
other business expenses not otherwise reimbursed in accordance with Company
policy.
IV. Termination.
(a) If at any time during the Term of this Agreement the Employee's
employment with the Company shall be terminated by the Employee or the
Company for any reason (unless such termination is on account of Voluntary
Resignation, Death, Retirement, Disability or Cause), the Employee:
(1) Shall be entitled to continue to receive from the Company or
its successor (which term as used herein shall include any person
acquiring all or substantially all of the assets of the Company), upon
such termination of employment with the Company or its successor, an
amount equal to his annual base salary in twelve equal monthly
payments; and
(2) Shall be entitled to continuation of health and life
insurance coverage for a period of twelve (12) months as if he were an
employee of the Company (except for those portions of such
twelve-month period during which substantially similar health
insurance coverage is in place for the Employee under any other policy
provided at the expense of the Company or another employer); provided,
however, that in the event that the Employee's participation in any
such health or life insurance plan or program is barred, the Company,
at its sole cost and expense, shall arrange to provide the Employee
with benefits substantially similar to those which the Employee is
entitled to receive under such plans and programs.
(b) While in the employ of the Company, and thereafter so long as the
Company continues to make payments and provide benefits to or for the
account of the Employee as provided in paragraph IV(a) hereof (even if the
Company shall not be obligated to make such payments and provide such
benefits after termination of employment), the Employee shall not, without
the prior written consent of the Company, authorized by the Board of
Directors of the Company, (1) render services or advice to any person
engaged in the apparel manufacturing business in the United States or in
any other activity which is competitive with the business of the Company or
any of its subsidiaries, or (2) employ or attempt to employ any employee of
the Company or any of its subsidiaries, or otherwise directly or indirectly
interfere with or disrupt the employment relationship, contractual or
otherwise, between the Company or any of its subsidiaries and any of its or
their respective employees.
(c) The obligations of the Company and the Employee under this
paragraph IV shall survive either the termination of this Agreement or the
termination of the Employee's employment with the Company.
V. Definition of Certain Terms.
(a) As used herein, the term "Person" shall mean an individual,
partnership, corporation, estate, trust or other entity.
(b) As used herein, the term "Cause" shall mean, and be limited to,
(i) willful and gross neglect of duties by the Employee, (ii) conviction of
a felony or gross misdemeanor, or (iii) public conduct of the Employee
substantially detrimental to the Company's reputation.
(c) As used herein, the term "Retirement" shall mean termination of
the Employee's employment in accordance with the Company's retirement
policy generally applicable to its salaried employees.
(d) As used herein, the term "Disability" shall mean the Employee's
absence from his duties with the Company on a full time basis for 90
consecutive days, as a result of the Employee's incapacity due to physical
or mental illness, unless within 60 days after written notice pursuant to
paragraph XIII hereof is given following such absence the Employee shall
have returned to the full time performance of his duties.
(e) As used herein, the term "Voluntary Resignation" shall mean any
termination of employment by the Employee during the Term of this
Agreement, other than a Constructive Involuntary Termination. In the event
that at any time during the Term of this Agreement the Employee shall not
(1) be given substantially equivalent title, duties, responsibilities and
authority, (2) be given substantially equivalent or greater salary and
fringe benefits, or (3) be provided an appropriate office, furniture,
supplies and clerical assistance, in each case as compared with the
Employee's status as of the date hereof, or the Company shall have failed
to obtain assumption of this Agreement by any successor as contemplated by
paragraph VI(b) hereof, a termination by the Employee thereafter shall
constitute a "Constructive Involuntary Termination" for purposes of this
Agreement.
VI. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
the legal representatives, successors and assigns of the parties hereto;
provided, however, that the Employee shall not have any right to assign,
pledge, or otherwise dispose of or transfer any interest in this Agreement
or any payments hereunder, whether directly or indirectly or in whole or in
part, without the written consent of the Company or its successor.
(b) The Company will require any successor (whether direct or
indirect, by purchase of a majority of the outstanding voting stock of the
Company or all or substantially all of the assets of the Company, by
merger, consolidation or otherwise), by agreement in form and substance
satisfactory to the Employee, to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of
the Company to obtain such agreement prior to the effectiveness of any such
succession (other than in the case of a merger or consolidation) shall be a
breach of this Agreement and shall entitle the Employee to compensation
from the Company in the same amount and on the same terms as the Employee
would be entitled hereunder if the Employee terminated his employment on
account of a Constructive Involuntary Termination, except that for purposes
of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the date of termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which is required to
execute and deliver the Agreement provided for in this paragraph VI(b) or
which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
VII. Confidential Information.
(a) The Employee shall not, either while in the Company's employ or at
any time thereafter, use or disclose to any unauthorized person, without
the prior written consent of the Company, any confidential information
concerning the Company or any of its subsidiaries (including, without
limitation, information concerning its or their business, processes, plans,
products, suppliers and customers) obtained by him while in the employ of
the Company; provided, however, that this provision shall not preclude the
Employee from use or disclosure of the information known generally to the
public (other than that which he may have disclosed in breach of this
paragraph) or of information not considered confidential by persons engaged
in the business conducted by the Company or from disclosure required by law
or court order or in the proper course of conduct of the Company's
business.
(b) The obligations of the Employee under this paragraph VII shall
survive either the termination of this Agreement or the termination of the
Employee's employment with the Company.
VIII. Specific Performance. The Employee hereby acknowledges and agrees
that the Company will have no adequate remedy at law for breach by the Employee
of the provisions of paragraph IV(b) or VII hereof and, in the event of any such
breach, the Employee hereby agrees that, in addition to any other remedies
legally available, the Company shall be entitled to injunctive and/or other
equitable relief to require specific performance or to prevent such breach.
IX. Withholding. Notwithstanding any provision to the contrary contained in
this Agreement, all payments made by the Company hereunder to or for the account
of the Employee shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation. In
lieu of withholding such amounts, the Company may accept other provisions to the
end that it has sufficient funds to pay all taxes required by law to be withheld
in respect of such payments or any of them.
X. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Minnesota.
XI. Notices. All notices, requests and demands given to or made pursuant
hereto shall be in writing and delivered or mailed to any such party at its
address which:
(a) In the case of the Company shall be:
Munsingwear, Inc.
8000 West 78th Street
Suite 400
Minneapolis, Minnesota 55439
Attention: Secretary
(b) In the case of the Employee shall be:
Mr. Lowell M. Fisher
1203 Devonshire Curve
Bloomington, Minnesota 55431
Either party may, by notice hereunder, designate a changed address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified mail,
shall be deemed dispatched on the registered date or that stamped on the
certified mail receipt, and shall be deemed received within the second business
day thereafter or when it is actually received, whichever is sooner.
XII. Severability. In the event that any portion of this Agreement may be
held to be invalid or unenforceable for any reason, it is hereby agreed that
such invalidity or unenforceability shall not affect the other portions of this
Agreement and that the remaining covenants, terms and conditions or portions
hereof shall remain in full force and effect, and any court of competent
jurisdiction may so modify the objectionable provision as to make it valid,
reasonable and enforceable.
XIII. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties hereto and supersedes any prior Employment Agreements
between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MUNSINGWEAR, INC.
By_______________________________
Its__________________________
By_______________________________
Lowell M. Fisher
EXHIBIT 10-D
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement is effective as of January 30,
1996 by and between Munsingwear, Inc., a Delaware corporation (the "Company")
and Lowell M. Fisher (the "Employee").
WHEREAS, Employee and the Company are parties to that certain Employment
Agreement dated May 1, 1995 (the "Employment Agreement") and Employee is the
recipient of various stock option grants pursuant to stock option agreements
between Employee and the Company (the "Stock Option Agreements"); and
WHEREAS, Employee and the Company desire to make certain amendments to the
Employment Agreement and the Stock Option Agreements;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledge, the Company and Employee hereby agree as follows:
1. Compensation. Section III(a) of the Employment Agreement is hereby
amended to delete the number $175,000 and replace it with the number $180,000
with the effect that the base salary of Employee shall be at a rate of not less
than $180,000 per annum.
2. Termination. Section IV(a)(1) is hereby amended to delete the clause "an
amount equal to his annual base salary in twelve (12) equal monthly payments"
and replace it with the clause "an amount equal to one and one-half (1 1/2)
times his annual base salary in eighteen (18) equal monthly payments." Section
IV(a)(2) is hereby amended to delete references to a period of "twelve" months
and insert references to a period of "eighteen" months. The effect of the
foregoing amendments will be to extend the period of time during which Employee
is eligible to receive the benefits set forth in Section IV(a) to a period of
eighteen months upon the occurrence of the events set forth in Section IV(a).
3. Home Computer. At such time as Employees employment with the Company is
terminated for any reason whatsoever, Employee shall have the option, in
Employee's sole discretion, to purchase the personal computer currently owned by
the Company and used by Employee at his home. The purchase price for such
purchase shall be the lesser of (i) the fair market value of such computer (as
such fair market value may be agreed between Employee and a representative of
the Company designated by the Company's Board of Directors) and (ii) the net
book value of the computer as reflected on the Company's books and records.
4. Stock Option Agreements. All Stock Option Agreements are hereby amended
to modify the time for exercise upon termination of employment in the following
manner, notwithstanding any provisions to the contrary contained in the Stock
Option Agreements or the 1991 Stock Plan of the Company: (i) references in the
sections on termination of employment to the exercise of options within "ten
(10) days" shall be amended to permit exercise within "thirty (30) days" and
(ii) references in the sections on termination of employment to the exercise of
options within "sixty (60) days" shall be amended to permit exercise within "six
(6) months." Employee and the Company hereby further agree that the foregoing
amendment to previously granted stock options shall also apply to any stock
options granted on or after the date of this Agreement. Employee hereby
acknowledges his understanding that the foregoing amendment will have the effect
of disqualifying any previously granted or hereafter granted stock option for
treatment as an "incentive stock option," as that term is defined in Section 422
of the Internal Revenue Code.
5. Miscellaneous. All terms and conditions of the Employment Agreement and
the Stock Option Agreements not specifically amended by this Agreement shall
remain in full force and effect. This Agreement shall be construed in accordance
with the laws of the State of Minnesota and, together with the Employment
Agreement and the Stock Option Agreements, constitutes the entire agreement
between the parties hereto with respect to the matters contemplated by the
Employment Agreement and Stock Option Agreements.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first above written.
MUNSINGWEAR, INC.
By__________________________________
Its Chairman of the Board
of Directors
By__________________________________
Lowell M. Fisher
EXHIBIT 10-E
MUNSINGWEAR, INC.
DIRECTOR STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT is made as of the 22nd day of September, 1995,
between Munsingwear, Inc., a Delaware corporation (the "Company"), and Thomas D.
Gleason, a member of the Board of Directors of the Company (the "Optionee").
WHEREAS, the Company desires to provide Optionee with an opportunity to
purchase shares of its common stock, $.01 par value (the "Common Stock"), as
hereinafter provided.
THEREFORE, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right
and option (hereinafter called the "Option") to purchase from the Company all or
any part of an aggregate amount of 5,000 shares of the Common Stock of the
Company on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of the shares of the Common Stock
covered by this Option shall be $7.50 per share.
3. Term of Option. The term of the Option shall be for a period of five
(5) years from the date hereof (the "Option Date"), subject to earlier
termination as hereinafter provided.
4. Exercise of Option. The Option may be exercised in whole or in part
at any time during the term specified in paragraph 3 above.
5. Non-Transferability. The Option shall not be transferable otherwise
than by will or the laws of descent and distribution, and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee.
6. Termination of Status. In the event the Optionee shall cease to be a
member of the Company's Board of Directors for any reason whatsoever, any
unexercised Option shall terminate and be deemed canceled thirty (30) days
thereafter. In no event shall the option be exercisable after the expiration of
the term of the Option specified in paragraph 3.
7. Method of Exercising Option. Subject to the terms and conditions of
this Option Agreement, the Option may be exercised by written notice to the
Secretary of the Company at the principal office of the Company. Such notice
shall state the election to exercise the Option and the number of shares in
respect of which it is being exercised, and shall be signed by the person so
exercising the Option. Such notice shall be accompanied by payment of the full
purchase price of such shares, which payment shall be made in cash or by check
or bank draft payable to the Company, or, provided such form of payment does not
result in a charge to earnings of the Company for financial accounting purposes,
by delivery of shares of Common Stock of the Company with a fair market value
equal to the purchase price or by a combination of cash and such shares, whose
fair market value shall equal the purchase price. For purposes of this
paragraph, the "fair market value" of the Common Stock of the Company shall mean
the value of the Common Stock on a given date as determined by the Company in
accordance with Section 422 of the Internal Revenue Code of 1986, as amended,
and any applicable Treasury Department regulations with respect to "incentive
stock options." In the event the Option shall be exercised by any person other
than the Optionee, such notice shall be accompanied by appropriate proof of such
right of such person to exercise the Option.
8. Withholding Requirements. Upon exercise of the Option by the
Optionee and prior to the delivery of shares purchased pursuant to such
exercise, the Company shall have the right to require the Optionee to remit to
the Company cash in an amount sufficient to satisfy applicable federal and state
tax withholding requirements. The Company shall inform the Optionee as to
whether it will require the Optionee to remit cash for withholding taxes in
accordance with the preceding sentence within two (2) business days after
receiving from the Optionee notice that such Optionee intends to exercise, or
has exercised, all or a portion of the Option.
9. Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, other change in corporate
structure affecting the Common Stock, or spin-off or other distribution of
assets to shareholders, an adjustment shall be made in the number and option
price of shares subject to the Option as may be determined to be appropriate by
the Company.
10. Disputes. As a condition of the granting of the Option herein
granted, the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as a
result of or pursuant to this Agreement shall be determined by the Company, in
its sole discretion, and that its interpretation of the terms of this Agreement
shall be final, binding and conclusive.
11. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.
OPTIONEE MUNSINGWEAR, INC.
____________________________ By______________________________
Thomas D. Gleason Its____________________________
EXHIBIT 10-F
MUNSINGWEAR, INC.
DIRECTOR STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT is made as of the 30th day of January, 1996, between
Munsingwear, Inc., a Delaware corporation (the "Company"), and Thomas D.
Gleason, a member of the Board of Directors of the Company (the "Optionee").
WHEREAS, the Company desires to provide Optionee with an opportunity to
purchase shares of its common stock, $.01 par value (the "Common Stock"), as
hereinafter provided.
THEREFORE, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right and
option (hereinafter called the "Option") to purchase from the Company all or any
part of an aggregate amount of 10,000 shares of the Common Stock of the Company
on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of the shares of the Common Stock
covered by this Option shall be $7.50 per share.
3. Term of Option. The term of the Option shall be for a period of five (5)
years from the date hereof (the "Option Date"), subject to earlier termination
as hereinafter provided.
4. Exercise of Option. The Option may be exercised in whole or in part at
any time during the term specified in paragraph 3 above.
5. Non-Transferability. The Option shall not be transferable otherwise than
by will or the laws of descent and distribution, and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee.
6. Termination of Status. In the event the Optionee shall cease to be a
member of the Company's Board of Directors for any reason whatsoever, any
unexercised Option shall terminate and be deemed canceled thirty (30) days
thereafter. In no event shall the option be exercisable after the expiration of
the term of the Option specified in paragraph 3.
7. Method of Exercising Option. Subject to the terms and conditions of this
Option Agreement, the Option may be exercised by written notice to the Secretary
of the Company at the principal office of the Company. Such notice shall state
the election to exercise the Option and the number of shares in respect of which
it is being exercised, and shall be signed by the person so exercising the
Option. Such notice shall be accompanied by payment of the full purchase price
of such shares, which payment shall be made in cash or by check or bank draft
payable to the Company, or, provided such form of payment does not result in a
charge to earnings of the Company for financial accounting purposes, by delivery
of shares of Common Stock of the Company with a fair market value equal to the
purchase price or by a combination of cash and such shares, whose fair market
value shall equal the purchase price. For purposes of this paragraph, the "fair
market value" of the Common Stock of the Company shall mean the value of the
Common Stock on a given date as determined by the Company in accordance with
Section 422 of the Internal Revenue Code of 1986, as amended, and any applicable
Treasury Department regulations with respect to "incentive stock options." In
the event the Option shall be exercised by any person other than the Optionee,
such notice shall be accompanied by appropriate proof of such right of such
person to exercise the Option.
8. Withholding Requirements. Upon exercise of the Option by the Optionee
and prior to the delivery of shares purchased pursuant to such exercise, the
Company shall have the right to require the Optionee to remit to the Company
cash in an amount sufficient to satisfy applicable federal and state tax
withholding requirements. The Company shall inform the Optionee as to whether it
will require the Optionee to remit cash for withholding taxes in accordance with
the preceding sentence within two (2) business days after receiving from the
Optionee notice that such Optionee intends to exercise, or has exercised, all or
a portion of the Option.
9. Adjustments. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Common Stock, or spin-off or other distribution of assets to shareholders,
an adjustment shall be made in the number and option price of shares subject to
the Option as may be determined to be appropriate by the Company.
10. Disputes. As a condition of the granting of the Option herein granted,
the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as a
result of or pursuant to this Agreement shall be determined by the Company, in
its sole discretion, and that its interpretation of the terms of this Agreement
shall be final, binding and conclusive.
11. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.
OPTIONEE MUNSINGWEAR, INC.
____________________________ By______________________________
Thomas D. Gleason Its____________________________
EXHIBIT 10-H(ii)
December 14, 1995
Munsingwear, Inc.
8000 West 78th Street
Suite 400
Minneapolis, Minnesota 55439
Gentlemen:
Munsingwear, Inc., a Delaware corporation ("Borrower") and LaSalle
National Bank, a national banking association ("Bank") have entered into that
certain Loan and Security Agreement dated September 21, 1994 (the "Security
Agreement"). From time to time thereafter, Borrower and Bank may have executed
various amendments (each an "Amendment" and collectively the "Amendments") to
the Security Agreement (the Security Agreement and the Amendments hereinafter
are referred to, collectively, as the "Agreement"). Borrower and Bank now desire
to further amend the Agreement as provided herein, subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph (1) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:
(1) LOAN LIMIT: Bank may, in its sole discretion, advance an
amount up to the sum of the following sublimits (the "Loan
Limit"):
(a) Up to eighty percent (80%) of the face amount (less
maximum discounts, credits and allowances which may be
taken by or granted to Account Debtors in connection
therewith) of Borrower's Eligible Accounts; plus
(b) Subject to Paragraph (4) of Exhibit A of the Agreement,
up to (i) sixty percent (60%) of the lower of the cost
or market value of Borrower's Eligible Inventory,
during the period of May 1st through November 30th of
calendar year 1995, which shall reduce to fifty-five
percent (55%) during such period for calendar year 1996
and thereafter; and (ii) sixty-five percent (65%) of
the lower of the cost or market value of Borrower's
Eligible Inventory, during the period of December 1st
through April 30th of each year or Ten Million and
No/100 Dollars ($10,000,000.00), whichever is less;
plus
(c) Subject to Paragraph (2) of Exhibit A of the Agreement,
up to (i) sixty percent (60%) against the face amount
of Commercial Letters of Credit issued by Bank for the
purpose of purchasing Inventory during the period of
May 1st through November 30th of calendar year 1995,
which shall reduce to fifty-five percent (55%) during
such period for calendar year 1996 and thereafter; and
(ii) sixty-five percent (65%) against the face amount
of Commercial Letters of Credit issued by Bank for the
purpose of purchasing Inventory during the period of
December 1st through April 30th of each year; provided,
that such Commercial Letters of Credit are in form and
substance satisfactory to Bank; minus
(d) Such reserves as Bank elects, in its sole discretion,
to establish from time to time;
provided, that the advances at subparagraphs (b) and
(c) above shall in no event exceed Fourteen Million
and No/100 Dollars ($14,000,000.00), in the aggregate;
and
further provided, the aggregate Loan Limit shall in no event
exceed TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00), except
as such amount may be increased or decreased by Bank, in its sole
discretion, from time to time.
(b) Paragraph (2) of Exhibit A of the Agreement is deleted in
entirety and the following is substituted in its place:
(2) LETTERS OF CREDIT: Subject to the terms and conditions of
the Agreement, including Exhibit A, and the Other
Agreements, during the Original Term or any Renewal Term,
Bank may, in its sole discretion from time to time issue,
upon Borrower's request, Commercial and/or Standby Letters
of Credit, provided that the aggregate undrawn face amount
of all such Letters of Credit shall at no time exceed
Fourteen Million and No/100 Dollars ($14,000,000.00). Bank's
contingent liability under the Letters of Credit shall
automatically reduce, dollar for dollar, the amount which
Borrower may borrow based upon the Loan Limit. Payments made
by Bank to any Person on account of any Letter of Credit
shall constitute Loans hereunder. At no time shall the
aggregate of direct Loans by Bank to Borrower plus the
contingent liability of Bank under the outstanding Letters
of Credit be in excess of the Loan Limit. Borrower shall
remit to Bank a Letter of Credit fee equal to one-fourth of
one percent (1/4 of 1%) per month on the aggregate undrawn
face amount of all Letters of Credit outstanding, which fee
shall be payable monthly in arrears on each day that
interest is payable hereunder. Borrower shall also pay on
demand Bank's normal and customary administrative charges
for issuance of any Letter of Credit.
(c) Paragraph (5) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:
(5) INTEREST RATE: Each Loan shall bear interest at the rate of
three-fourths of one percent (3/4 of 1%) per annum in excess
of Bank's publicly announced prime rate (which is not
intended to be Bank's lowest or most favorable rate in
effect at any time) (the "Prime Rate") in effect from time
to time, payable on the last business day of each month in
arrears. Commencing December 1, 1995, each Loan shall bear
interest at the rate of one and three-fourths percent (1-
3/4%) per annum in excess of Bank's Prime Rate in effect
from time to time, payable on the last business day of each
month in arrears. Said rates of interest shall increase or
decrease by an amount equal to each increase or decrease in
the Prime Rate effective on the effective date of each such
change in the Prime Rate.
Upon the occurrence of an Event of Default, each Loan shall
bear interest at the rate of two percent (2%) per annum in
excess of the interest rate otherwise payable thereon, which
interest shall be payable on demand. All interest shall be
calculated on the basis of a 360 day year.
2. This Amendment shall not become effective until fully executed by all
parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to
effectuate the transactions contemplated hereby, the Agreement and
Exhibit A thereto hereby are ratified and confirmed by the parties
hereto and remain in full force and effect in accordance with the
terms thereof.
LASALLE NATIONAL BANK,
a national banking association
By: ___________________________
Title: __________________________
Accepted and agreed to this
2nd day of January 1996
MUNSINGWEAR, INC.
By: ____________________________
Title: ___________________________
By: ____________________________
Title: ___________________________
EXHIBIT 10-H(iii)
April 1, 1996
Munsingwear, Inc.
8000 West 78th Street
Suite 400
Minneapolis, Minnesota 55439
Gentlemen:
Munsingwear, Inc., a Delaware corporation ("Borrower") and LaSalle National
Bank, a national banking association ("Bank") have entered into that certain
Loan and Security Agreement dated September 21, 1994 (the "Security Agreement").
From time to time thereafter, Borrower and Bank may have executed various
amendments (each an "Amendment" and collectively the "Amendments") to the
Security Agreement (the Security Agreement and the Amendments hereinafter are
referred to, collectively, as the "Agreement"). Borrower and Bank now desire to
further amend the Agreement as provided herein, subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Agreement hereby is amended as follows:
(a) Paragraph (9) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:
(9) TANGIBLE NET WORTH: Notwithstanding the provisions of
subparagraph 11(o) of the Agreement, Borrower shall at all
times maintain a tangible net worth of not less than the
Minimum Tangible Net Worth, as hereinafter defined.
Commencing April 1, 1996 through June 29, 1996, Minimum
Tangible Net Worth shall equal $5,000,000.00. Commencing
June 30, 1996 through December 30, 1996, Minimum Tangible
Net Worth shall equal $6,000,000.00. From December 31, 1996
through December 30, 1997, Minimum Tangible Net Worth shall
equal $6,500,000.00. Thereafter, from December 31st of each
year through December 30th of the following year, Minimum
Tangible Net Worth shall be equal to Minimum Tangible Net
Worth on the last day of the immediately preceding fiscal
year plus $500,000.00.
(b) Paragraph (6)(b) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:
(b) ONE-TIME WAIVER FEE: In consideration of Bank waiving the
Event of Default as of January 6, 1996, arising by virtue of
Borrower's failure to maintain a tangible net worth as set
forth in the Agreement, Borrower shall pay to Bank a
one-time waiver fee equal to $50,000.00, which fee shall be
fully earned by Bank and payable at the time of execution of
this Agreement.
2. This Amendment shall not become effective until fully executed by all
parties hereto.
3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to
effectuate the transactions contemplated hereby, the Agreement and
Exhibit A thereto hereby are ratified and confirmed by the parties
hereto and remain in full force and effect in accordance with the
terms thereof.
LASALLE NATIONAL BANK, a national
banking association
By: ____________________________
Title: ___________________________
Accepted and agreed to this
3rd day of April, 1996
MUNSINGWEAR, INC.
By: ____________________________
Title: ___________________________
By: ____________________________
Title: ___________________________
EXHIBIT 13
[MUNSINGWEAR LOGO]
1995 ANNUAL REPORT
ABOUT THE COMPANY
The Company was founded in 1886 as a manufacturer of men's underwear. Throughout
the early 1900's, the Company was an innovator of new textile and apparel
manufacturing processes and, during the 1940's and 1950's, expanded its product
lines, acquired a women's intimate apparel company and, in 1955, introduced the
Grand Slam(R) collection of golf apparel bearing the well-known Penguin(R)
emblem. During the 1960's and 1970's, manufacturing facilities were added,
textile research and development departments were established and the Company
entered into numerous licensing agreements for the use of its trade names and
trademarks.
Today the Company derives its revenues primarily from the sale of men's
sportswear apparel and the licensing of men's underwear, activewear and other
related apparel. The Company's products are sold primarily through
premium/special markets, department stores, golf pro shops, national chain
stores, specialty stores, sporting goods stores and wholesale clubs. The Company
designs, manufactures, imports, markets and licenses branded men's lifestyle
apparel under the Grand Slam(R) , Grand Slam Tour(R) , Munsingwear(R) , and
Penguin Sport(TM) labels. The Company is headquartered in Minneapolis, MN and
has 343 employees in company-wide operations.
TABLE OF CONTENTS
Letter to Stockholders ......................................... 2
Management's Discussion and Analysis ........................... 3
Consolidated Statements of Operations........................... 7
Consolidated Balance Sheets..................................... 8
Consolidated Statements of Cash Flows........................... 9
Consolidated Statements of Changes in Stockholders' Equity...... 10
Notes to Consolidated Financial Statements...................... 11
Report of Independent Public Accountants........................ 16
Five Year Financial Review...................................... 16
1
<PAGE>
LETTER TO STOCKHOLDERS
[LOGO]
Revenues for 1995 were $56.1 million, a 34% increase over last year. Dramatic
sales growth in our premium/special markets and golf pro shop businesses more
than offset a small decline in business with our traditional customers, such as
department and specialty stores, national chain stores and wholesale clubs.
Premium/ special markets volume increased seven-fold while golf pro shop volume
increased 52%. In 1995 these two businesses represented 40% of our total sales
volume and are expected to exceed 50% of total Company sales in 1996. As recent
as 1993, they represented only 6% of our sales, which emphasizes the dramatic
transition the Company has undergone over the past two years, significantly
reducing our exposure to the difficult retail apparel marketplace.
Royalty income was up slightly to $4.6 million. As a reminder, 1994
royalty income had increased 25% as a result of additional license agreements
and a twenty-five year extension to the Fruit of the Loom license, which will
also lead to lower cash receipts from existing licensing agreements starting in
1996. The Munsingwear trade names and trademarks have always signified quality
to the licensing market and we will continue to actively pursue additional
license agreements.
While we achieved significant revenue growth in 1995, we were not
successful in becoming profitable. The loss of $2.3 million, $1.13 per share,
was primarily the result of deep markdowns on excess end-of-season merchandise
related to the retail department store channel of distribution, losses related
to an unsuccessful entry into "Friday-wear", increased advertising expenses in
support of the retail department store business and restructuring costs related
to completed staff reductions and reduced office space requirements. In
addition, costs associated with our PGA Tour endorsement program increased, but
we feel this program is necessary to give Munsingwear brands consumer exposure.
We were successful in reducing selling, general and administrative expenses as a
percent of sales - from 32% in 1994 to 27% in 1995. Interest expense was up
significantly due to inventory build-up required to service the explosive sales
growth in the premium/special markets business. Throughout the year we also
experienced higher than planned levels of inventory for the retail department
store business, which did not meet sales forecasts. Ultimately, we sold this
inventory at deep discounts.
Looking ahead to 1996, we plan to continue to grow the premium/special
markets business which has achieved exceptional results the past two years.
Munsingwear's strong consumer brand recognition, the Penguin logo, quality
product and the ability to merchandise across a broad product line give us a
competitive advantage. We are confident that increased revenues and a return to
profitability will be achieved due to the following:
* Continued strong sales growth in premium/special markets and golf pro
shop businesses.
* Cost reduction programs.
* Continued focus on core capability - men's, short sleeve, knit, moderately
priced golf shirts.
[PICTURE OF LOWELL M. FISHER]
* Innovative designs and fabrics throughout all product lines.
* Continued upgrading of management information systems.
* Strengthening of our Board of Directors by the addition of three new members,
Thomas D. Gleason, who was named non-executive Chairman of the Board in
January of this year, and Kevin S. Moore and William J. Morgan, who represent
the Company's two largest single stockholders.
In late 1995 we retained the services of an investment banking firm to
help us explore a range of opportunities to maximize shareholder value, and we
expect this activity to accelerate in 1996. Please refer to the Management's
Discussion and Analysis section in this Annual Report for additional financial
analysis and a statement regarding forward-looking information.
Although 1995 was a difficult year for retailing, the Company achieved
extremely promising revenue growth in our two most profitable businesses -
premium/special markets and golf pro shops. These results reaffirmed our
decision to continue the Company's transition - expanding markets, enhancing
product quality, increasing consumer value and investing in infrastructure. As a
result, we are now in a much stronger strategic position and I look forward to
working with Tom Gleason and the Board in continuing our efforts to ensure the
long-term success and profitability of the Company.
In closing, I would like to thank our customers, suppliers and lender,
who have continued to support us throughout the Company's transition. Finally, I
would like to take this opportunity to thank all Munsingwear employees for their
hard work and effort which led to spectacular 1995 sales growth and reinforces
our optimism for 1996.
Sincerely,
/s/Lowell M. Fisher
Lowell M. Fisher
President and Chief Executive Officer
2
<PAGE>
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 Statement" below.
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 golf pro shops
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 golf pro shop 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 golf pro shop 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
3
<PAGE>
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. The decrease was 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 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.
4
<PAGE>
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 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. 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 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, 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.
5
<PAGE>
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.
6
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS MUNSINGWEAR, INC.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED Year ended Year ended
JANUARY 6, January 7, January 1,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net sales .................................... $ 51,512 $ 37,407 $ 37,635
Royalties .................................... 4,609 4,528 3,624
-------- -------- --------
56,121 41,935 41,259
-------- -------- --------
EXPENSES:
Cost of goods sold ........................... 42,714 30,029 28,783
Selling, general and administrative .......... 13,961 12,134 11,869
Restructuring costs (Note 9) ................. 520 -- --
(Gain) loss on closing of facilities (Note 9) -- (100) 450
-------- -------- --------
57,195 42,063 41,102
-------- -------- --------
OPERATING INCOME (LOSS) .................... (1,074) (128) 157
Interest expense ................................ (1,158) (353) (286)
Other ........................................... 2 177 (74)
-------- -------- --------
Loss before income taxes and extraordinary item . (2,230) (304) (203)
Provision for income taxes ...................... 105 108 139
-------- -------- --------
Loss before extraordinary item .................. (2,335) (412) (342)
Extraordinary loss from early debt extinguishment -- 161 --
-------- -------- --------
NET LOSS ................................... $ (2,335) $ (573) $ (342)
======== ======== ========
Net loss per common share:
Loss before extraordinary item ............... $ (1.13) $ (.20) $ (.16)
Extraordinary item ........................... -- (.08) --
-------- -------- --------
NET LOSS PER COMMON SHARE .................. $ (1.13) $ (.28) $ (.16)
======== ======== ========
Weighted average shares outstanding ............. 2,066 2,066 2,093
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
CONSOLIDATED BALANCE SHEETS MUNSINGWEAR, INC.
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
JANUARY 6, January 7,
1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 62 $ 73
Receivables:
Trade, net of allowances of $511 and $442 .......................... 8,260 4,852
Other .............................................................. 277 286
-------- --------
8,537 5,138
Inventories .......................................................... 14,641 14,219
Prepaid expenses ..................................................... 1,004 1,286
-------- --------
TOTAL CURRENT ASSETS ............................................ 24,244 20,716
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land ................................................................. 15 15
Buildings and leasehold improvements ................................. 568 550
Machinery and equipment .............................................. 3,928 3,041
-------- --------
4,511 3,606
Less accumulated depreciation and amortization ....................... 1,584 1,330
-------- --------
2,927 2,276
TRADEMARKS, net of accumulated amortization of $1,274 and $1,010 ........ 4,173 4,437
DEFERRED TAXES, net of valuation allowance of $11,796 and $11,151 ....... 2,309 2,309
-------- --------
$ 33,653 $ 29,738
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings ............................................ $ 10,890 $ 5,592
Current maturities of long-term debt ................................. 21 19
Accounts payable ..................................................... 5,008 3,760
Accrued payroll and employee benefits ................................ 1,009 1,028
Unearned royalty income .............................................. 2,993 3,159
Other accruals ....................................................... 397 311
-------- --------
TOTAL CURRENT LIABILITIES ....................................... 20,318 13,869
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities .............................. 22 38
Postretirement benefits .............................................. 319 312
Unearned royalty income .............................................. 10 200
-------- --------
TOTAL LONG-TERM LIABILITIES ..................................... 351 550
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 5, 7 AND 8)
STOCKHOLDERS' EQUITY:
Series A preferred stock, $100 stated value; voting, cumulative and
participating (authorized 50,000 shares, none issued)
Preferred stock, no par value (authorized 950,000 shares, none issued)
Common Stock, $.01 par value (authorized 20,000,000 shares,
2,065,594 shares issued and issuable) .............................. 21 21
Additional paid-in capital ......................................... 15,112 15,112
Retained earnings (deficit) ........................................ (2,149) 186
-------- --------
TOTAL STOCKHOLDERS' EQUITY ...................................... 12,984 15,319
-------- --------
$ 33,653 $ 29,738
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS MUNSINGWEAR, INC.
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED Year ended Year ended
JANUARY 6, January 7, January 1,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss from continuing operations ............ $(2,335) $ (573) $ (342)
Reconciling items:
Depreciation and amortization ................ 782 712 873
Deferred taxes ............................... -- (69) --
Provision for losses on accounts receivable .. 69 142 204
Loss on restructuring ........................ 193 -- --
(Gain) loss on closing of facilities ......... -- (100) 450
Change in unearned royalty income ............ (356) 2,729 (690)
Changes in operating assets and liabilities:
Receivables ............................... (3,468) (380) (716)
Inventories ............................... (422) (5,986) (425)
Prepaid expenses .......................... 282 (254) (192)
Accounts payable .......................... 1,248 944 (164)
Other accrued liabilities ................. (87) (292) (305)
------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES ... (4,094) (3,127) (1,307)
------- ------- -------
INVESTING ACTIVITIES
Purchases of property, plant and equipment ..... (1,201) (865) (490)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES ... (1,201) (865) (490)
------- ------- -------
FINANCING ACTIVITIES
Net change in previous line of credit borrowings -- (1,698) 1,698
Net change in new line of credit borrowings .... 5,298 5,592 --
Principal payments on long-term debt
and capital lease obligations ................ (14) (270) (303)
Proceeds from exercise of stock options ........ -- -- 133
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,284 3,624 1,528
------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS ... (11) (368) (269)
Cash and cash equivalents at beginning of period 73 441 710
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ 62 $ 73 $ 441
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid for taxes ............................ $ 178 $ 122 $ 153
======= ======= =======
Cash paid for interest ......................... $ 1,078 $ 370 $ 273
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY MUNSINGWEAR, INC.
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Common Stock
--------------------
Issued and Additional Retained
Issuable Paid-in Earnings
Shares Amount Capital (Deficit)
---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 2, 1993 ............... 2,091,783 $21 $14,979 $ 1,101
Exercise of stock options ............. 21,645 -- 133 --
Cancellation of restricted stock grants (47,834) -- -- --
Net loss for year ended January 1, 1994 -- -- -- (342)
--------- --- ------- -------
Balance at January 1, 1994 ............... 2,065,594 $21 $15,112 $ 759
Net loss for year ended January 7, 1995 -- -- -- (573)
--------- --- ------- -------
Balance at January 7, 1995 ............... 2,065,594 $21 $15,112 $ 186
NET LOSS FOR YEAR ENDED JANUARY 6, 1996 .. -- -- -- (2,335)
--------- --- ------- -------
BALANCE AT JANUARY 6, 1996 ............... 2,065,594 $21 $15,112 $(2,149)
========= === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is a wholesaler of apparel. Its products are primarily men's,
short-sleeve, knit, moderately priced golf shirts which bear the well-known
Penguin(R) emblem. Channels of distribution are primarily premium/special
markets, department and specialty stores, golf pro shops, national chain stores
and wholesale clubs. Substantially all sales are in the United States. In
addition, the Company licenses the use of its trade names and trademarks to
other apparel manufacturers. Approximately half of the Company's products are
manufactured in the United States in one Company-owned facility and at several
sewing contractors. The remaining products are sourced overseas, primarily in
the Far East, where a number of suppliers are available.
The Company incurred a net loss of $2,335,000 for the year ended
January 6, 1996 and required cash of $4,094,000 to fund operations. The Company
has obtained waivers as of January 6, 1996 for noncompliance with certain
financial covenants contained in its revolving credit agreement and has obtained
amendments to those covenants for fiscal 1996 lowering certain required
financial ratios based upon budgeted performance, which includes a marked
improvement in gross margins from 1995. Should the Company not achieve its
budgeted results as of any quarter end in fiscal 1996, an event of default could
occur and the lender would have the right to require repayment of amounts
outstanding. The Company has also retained a financial advisor to assist in
evaluating a range of options intended to improve operations and increase
shareholder value. Among the options being considered is the potential sale of
license rights for the manufacture and merchandising of product bearing certain
of the Company's trademarked names. Although there can be no assurances that the
Company will achieve its budgeted results or that the sale of license rights
will be accomplished, management believes adequate cash resources are or will be
available to support fiscal 1996 operations.
Principles of Consolidation
The financial statements include the accounts of Munsingwear, Inc. and its
inactive subsidiary, Munsingwear U.K. Ltd. (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. For those cash
equivalents, the carrying value approximates fair value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventoriable costs include raw materials, labor and related manufacturing
overhead expenses.
Inventories consisted of:
JANUARY 6, January 7,
(In thousands) 1996 1995
- -------------- ---------- ----------
Raw materials . $ 1,359 $ 2,029
Work in process 639 1,401
Finished goods. 12,643 10,789
------- -------
$14,641 $14,219
======= =======
Property, Plant and Equipment
Property, plant and equipment is stated at cost. The Company provides for
depreciation using the straight line method for financial reporting purposes and
generally uses accelerated methods for income tax purposes. Estimated useful
lives used in computing depreciation and amortization for financial reporting
purposes range from five to forty years for buildings and leasehold improvements
and from two to ten years for machinery and equipment. Assets recorded under
capital leases are amortized over the lease term.
Trademarks
Trademarks were recorded at the estimated fair value established in connection
with the Company's reorganization and are being amortized over 20 years.
Income Taxes
The Company accounts for income taxes under the liability method of accounting.
The tax benefit associated with any future utilization of the net operating loss
carryforward which survived the reorganization will first be recorded as a
reduction to deferred taxes and trademarks and then recorded as a credit to
additional paid-in capital in excess of par value.
11
<PAGE>
Revenues
Net sales are recognized at the time of shipment. The Company establishes a
reserve for estimated returns and allowances at the time of shipment. Sales to
one customer for 1994 and 1993 were 16% and 21%, respectively. In 1995, there
were no customers accounting for greater than 10% of the Company's total net
sales. Royalties are recorded as earned in accordance with specific terms of
each license agreement.
Net Loss Per Common Share
Net loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding. The effect of options is
excluded from the number of shares used to compute net loss per common share as
the impact would be anti-dilutive.
Fiscal Year
The Company's fiscal year ends on the first Saturday following December 31. The
1995, 1994 and 1993 fiscal years ended January 6, 1996, January 7, 1995 and
January 1, 1994, respectively. Fiscal 1994 had 53 weeks.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This establishes accounting standards for the recognition and measurement of
impairment of long-lived assets, certain identifiable intangibles, and goodwill
either to be held or disposed of. The Company anticipates adopting SFAS No. 121
in fiscal 1996 and does not expect the adoption will have a material impact on
the financial position or results of operations of the Company.
Statement of Financial Accounting Standards No. 119 (SFAS No. 119),
"Disclosure about Derivative Financial Instruments and Fair Value of
Instruments," requires disclosure about derivative financial instruments,
including futures, forwards, swaps and option contracts and other financial
instruments. As of January 6, 1996, the Company holds no derivative or other
related investments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Ultimate results could differ from those estimates.
Reclassifications
Certain amounts in the 1994 and 1993 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. INCOME TAXES
The income tax provision for 1995, 1994, and 1993 consists of current taxes
payable of $105,000, $108,000, and $139,000, respectively, and resulted from
state income, franchise and foreign taxes payable.
As of January 6, 1996, the Company had a net operating loss
carryforward for regular federal income tax purposes of $35,300,000, which will
begin to expire in 2002.
Temporary differences represent differences in the recognition of
assets and liabilities for tax and financial reporting purposes. Deductible
temporary differences are comprised of financial reserves not yet deductible and
unearned royalty income. Taxable temporary differences are recorded for
trademarks and excess depreciation.
The components of the net deferred tax asset were as follows:
JANUARY 6, January 7,
(In thousands) 1996 1995
---------- ----------
Federal net operating loss
carryforward ................. $ 12,930 $ 12,160
Tax credit carryforwards ....... 500 500
Deductible temporary differences 2,355 2,700
Taxable temporary differences .. (1,680) (1,900)
-------- --------
14,105 13,460
Valuation allowance ............ (11,796) (11,151)
-------- --------
$ 2,309 $ 2,309
======== ========
As of January 6, 1996 and January 7, 1995, a valuation allowance has
been established to reduce deferred tax assets resulting from the potential
future tax savings applicable to the available carryforwards in an amount for
which realizability is more likely than not.
12
<PAGE>
3. FINANCING ARRANGEMENTS, LONG-TERM DEBT AND EXTRAORDINARY LOSS FROM EARLY
DEBT EXTINGUISHMENT
JANUARY 6, January 7,
(In thousands) 1996 1995
---------- ----------
Note payable to the
Pension Benefit Guaranty
Corporation in quarterly
installments of $6,022, interest
at 10% through October 1997 .... $43 $57
Less current maturities ........... 21 19
--- ---
$22 $38
=== ===
Scheduled maturities of long-term debt are $21,000 in 1996 and $22,000
in 1997.
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. Borrowings and letters of credit are limited to an aggregate amount
equaling approximately 80% of eligible receivables and 60% of eligible finished
goods inventories and letters of credit. Substantially all the assets of the
Company are pledged as collateral under the agreement. Borrowings under the
facility are payable on demand and bear interest at the bank's base rate of
interest plus 1.75% (10.25% at January 6, 1996). At January 6, 1996, total
availability under this line of credit was $17,866,000, of which $10,890,000 was
utilized for borrowings and $4,476,000 was utilized for letters of credit,
resulting in unused availability of $2,500,000. The agreement contains a
commitment fee of .5% per annum on the unused line of credit and also contains
cross default provisions to other agreements and other covenants which, among
other matters, require maintenance of certain financial ratios, restrict the
sale of assets, and restrict consolidation or merger of the Company with another
entity. Additionally, the Company is limited in incurring additional
indebtedness and liens on assets. As of January 6, 1996, the Company was in
compliance with or has received waivers for all such requirements.
In April 1996, the Company renegotiated certain financial covenants
under the agreement based upon its fiscal 1996 budgeted performance.
Based on current market rates for debt of similar credit quality and
remaining maturities of quoted market prices for certain issues, the face value
of the Company's long-term debt approximates its market value.
The existing bank line of credit was entered into in late 1994 and
resulted in an extraordinary loss of $161,000 from early debt extinguishment.
The loss was comprised of unamortized debt issuance costs and prepayment fees
related to the previous bank line of credit.
4. POSTRETIREMENT MEDICAL AND LIFE INSURANCE PLANS
The Company has unfunded plans providing certain medical and life insurance
benefits to specific retiree groups. Future retirees are not covered by these
plans. The Company accounts for these plans under the accrual method of
accounting. The net periodic benefit cost for 1995, 1994 and 1993 included the
following components:
(In thousands) 1995 1994 1993
---- ---- ----
Interest cost on accumulated
postretirement benefit
obligation ............... $54 $64 $55
Net amortization and deferral 23 33 20
--- --- ---
Net periodic postretirement
benefit cost ............. $77 $97 $75
=== === ===
A 10% increase in the cost of covered medical benefits was assumed for
1995. This rate is assumed to decrease incrementally to 5.5% after 9 years and
remain at that level thereafter. The discount rate used in determining the
accumulated benefit obligation was 7.5% for 1995 and 1994.
The accrued postretirement benefit obligation is summarized as follows:
JANUARY 6, January 7,
(In thousands) 1996 1995
---------- ----------
Accumulated postretirement
benefit obligation ..... $ 730 $ 870
Unrecognized actuarial loss (327) (458)
----- -----
Accrued postretirement
benefit obligation ..... 403 412
Less current payable ...... 84 100
----- -----
$ 319 $ 312
===== =====
5. LEASES
The Company is party to certain operating lease agreements covering office space
and equipment through 1997. Minimum future obligations on operating leases in
effect that have initial or remaining noncancelable
13
<PAGE>
lease terms in excess of one year as of January 6, 1996 are as follows:
(In thousands)
1996.................................... $657
1997.................................... 239
----
Total minimum lease obligations......... $896
====
Total rent expense under operating leases was $821,000, $722,000 and
$543,000 for 1995, 1994 and 1993, respectively.
6. STOCKHOLDERS' EQUITY
The Company's capital structure includes 20,000,000 shares authorized for all
classes of common stock and 1,000,000 shares authorized for all classes of
preferred stock. There are restrictions with respect to the trading of common
stock to or from Five Percent Holders, as defined, through October 2001 as a
means of preserving the benefits of the net operating loss carryforwards
following the Company's reorganization in 1991.
As of January 6, 1996, 2,026,768 shares of common stock had been
issued. An additional 38,826 shares of common stock are issuable upon the
request of creditors pursuant to the Plan of Reorganization.
Preferred stock has been reserved for issuance under a 1987
stockholders' rights plan. Upon the occurrence of certain events, the
stockholders' rights plan entitles the registered holder to purchase one
two-hundredth of a share of preferred stock at a stated price or to purchase
either the Company's shares or stock in an acquiring entity at half their market
value. At January 6, 1996, no preferred stock was outstanding.
7. STOCK OPTIONS AND RESTRICTED STOCK
A total of 873,500 shares of common stock was reserved under the Munsingwear,
Inc. 1991 Stock Plan for grants to employees in the form of restricted stock
awards and incentive and non-qualified stock options. In addition, the Plan
annually grants to each non-employee director an option to purchase 5,000 shares
of common stock. At January 6, 1996 there were 442,367 shares available for
future grants under this Plan.
Information with respect to the 1991 Stock Plan is as follows:
Option Price
Options Range Per
Outstanding Share
----------- ---------------
Balance at January 2, 1993 172,260 $6.125-10.875
Granted.............. 109,500 5.750- 9.625
Exercised............ (21,645) 6.125
Canceled............. (58,312) 6.125-10.875
-------
Balance at January 1, 1994 201,803 5.750-10.875
Granted.............. 48,500 4.750- 7.000
Canceled............. (18,208) 6.125- 9.375
-------
Balance at January 7, 1995 232,095 4.750-10.875
Granted.............. 124,500 7.500- 7.875
Canceled............. (42,773) 6.125- 9.375
-------
Balance at January 6, 1996 313,822 $4.750-10.875
=======
Options exercisable at
January 6, 1996..... 218,622
=======
In 1995, under a separate plan, options to purchase 5,000 shares of
common stock at a price of $7.50 per share were granted to a non-employee
director. These options were exercisable at January 6, 1996.
14
<PAGE>
8. RETIREMENT PLANS
The Company has a 401(k) profit sharing plan covering all employees. In July
1994, the Company amended the plan to match one-half of the employee's first
five percent contribution. Expense under this plan, including profit-sharing and
Company match, totaled $73,000, $66,000 and $96,000 for 1995, 1994 and 1993,
respectively.
9. RESTRUCTURING COSTS AND CLOSING OF FACILITIES
During 1995, the Company developed a restructuring plan which included the
elimination of certain functions to achieve cost efficiencies, and provided
$520,000 to cover severance and other costs. As of January 6, 1996, $193,000 of
such costs are yet to be paid.
In 1994, the Company completed the closing of its Hong Kong sourcing
office and its subsidiary operations in the United Kingdom at a cost of
$350,000.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a condensed summary of actual quarterly results for 1995 and
1994.
(In thousands, except per share data)
Net Income
Operating Net (Loss) Per
Revenues Income (Loss) Income (Loss) Common Share
-------- ------------- ------------- ------------
1995:
First $15,923 $ 725 $ 288 $ .14
Second 16,269 766 268 .13
Third 11,042 (547) (568) (.27)
Fourth 12,887 (2,018) (2,323) (1.13)
------- ------- ------- ------
$56,121 $(1,074) $(2,335) $(1.13)
======= ======= ======= ======
Net Income
Operating Net (Loss) Per
Revenues Income (Loss) Income (Loss) Common Share
-------- ------------- ------------- ------------
1994:
First $13,181 $ 951 $ 543 $ .26
Second 12,313 611 353 .17
Third 6,480 (1,686) (1,171) (.57)
Fourth 9,961 (4) (298) (.14)
------- ------- ------- ------
$41,935 $ (128) $ (573) $ (.28)
======= ======= ====== ======
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Munsingwear, Inc.:
We have audited the accompanying consolidated balance sheets of Munsingwear,
Inc. (a Delaware corporation) and subsidiary as of January 6, 1996 and January
7, 1995, and the related consolidated statements of operations, cash flows and
changes in stockholders' equity for each of the three fiscal years in the period
ended January 6, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Munsingwear, Inc.
and subsidiary as of January 6, 1996 and January 7, 1995 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 6, 1996 in conformity with generally accepted accounting
principles.
/S/ Arthur Andersen LLP
Minneapolis, Minnesota
April 5, 1996
<TABLE>
<CAPTION>
FIVE YEAR FINANCIAL REVIEW MUNSINGWEAR, INC.
- ----------------------------------------------------------------------------------------------
(Dollar amounts in thousands) 1995 1994 1993 1992 1991(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales.................................... $51,512 $37,407 $37,635 $37,867 $35,599
Royalty income............................... 4,609 4,528 3,624 1,977 1,162
Cost of sales................................ 42,714 30,029 28,783 26,832 25,927
Gross profit %............................... 17.1 19.7 23.5 29.1 27.2
Interest expense............................. 1,158 353 286 400 1,758
Income (loss) from continuing operations
before reorganization related items,
income taxes, discontinued operations and
extraordinary items........................ (2,230) (304) (203) 2,091 1,668
Reorganization related items................. - - - - (8,211)
Income from discontinued operations.......... - - - - 1,927
Net income (loss)............................ (2,335) (573) (342) 1,241 54,574
Purchases of property, plant and equipment... 1,201 865 490 449 687
Depreciation and amortization................ 782 712 873 729 463
AS OF THE END OF THE YEAR
Total assets................................. $33,653 $29,738 $23,406 $22,929 $21,525
Current assets............................... 24,244 20,716 14,606 13,646 11,197
Current liabilities.......................... 20,318 13,869 5,045 5,538 5,135
Working capital.............................. 3,926 6,847 9,561 8,108 6,062
Current ratio................................ 1.2 1.5 2.9 2.5 2.2
Long-term debt............................... 22 38 57 331 630
Common stockholders' equity(2)............... 12,984 15,319 15,892 16,101 14,860
Number of employees.......................... 343 348 374 375 340
</TABLE>
- ---------------------
(1) Includes combined results of the Predecessor Company and Reorganized
Company, which emerged from bankruptcy on October 29, 1991.
(2) No dividends have been declared or paid for the years shown.
16
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
C. D. Anderson (1)
Investment Manager, Anderson Capital
Management, Inc., San Francisco
Keith A. Benson (1)(2)
President, Music Stores Division
Musicland Stores Corporation, Minneapolis
Lowell M. Fisher (3)
President & Chief Executive Officer
Thomas D. Gleason (3)
Chairman of the Board
Gerald E. Magnuson (1)(2)
Of Counsel to Lindquist & Vennum PLLP,
Minneapolis
Kevin S. Moore
Vice President and Chief Financial Officer
The Clark Estates, Inc., New York City
William J. Morgan
President and Managing Director
Pacholder Associates, Inc., Cincinnati
Michael A. Raskin (2)(3)
Private business advisor
Mark B. Vittert (2)
Private investor
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Planning Committee
OFFICERS
Lowell M. Fisher
President and Chief Executive Officer
David E. Berg
Executive Vice President, Sales & Marketing
James S. Bury
Vice President, Controller
John R. Houston
Partner in the law firm of Lindquist & Vennum PLLP Secretary
CORPORATION INFORMATION
FORM 10-K
Copies of Form 10-K annual report, filed with the Securities and Exchange
Commission, are available without charge upon written request to Shareholder
Relations, Munsingwear, Inc., 8000 West 78th Street, Suite 400, Minneapolis, MN
55439
TRANSFER AGENT AND REGISTRAR OF COMMON STOCK
Norwest Bank Minnesota, N.A.
Stock Transfer Department
P.O. Box 738
So. St.Paul, MN 55075-0738
MUNSINGWEAR STOCK
Munsingwear Stock is listed on the New York Stock Exchange. Symbol MUN
LEGAL COUNSEL
Lindquist & Vennum PLLP
Minneapolis, Minnesota
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Minneapolis, Minnesota
FACILITIES
CORPORATE HEADQUARTERS
8000 West 78th Street
Minneapolis, MN 55439
MANUFACTURING AND DISTRIBUTION
Fairmont, NC
SALES OFFICES
Minneapolis, MN
New York, NY
Dallas, TX
[INSIDE BACK COVER]
<PAGE>
[LOGO]
MUNSINGWEAR, INC.
8000 WEST 78TH STREET
MINNEAPOLIS, MINNESOTA 55439
[recycle logo] Printed in U.S.A. on recycled paper containing 20%
post-consumer paper fiber
[OUTSIDE BACK COVER]
<PAGE>
EXHIBIT 21
MUNSINGWEAR, INC. and SUBSIDIARIES
Subsidiaries of the Registrant
State of Jurisdiction
of Incorporation
----------------------
Munsingwear UK Limited (inactive) United Kingdom
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports, included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-83386.
/s/Arthur Andersen LLP
Minneapolis, Minnesota
April 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-06-1996
<PERIOD-END> JAN-06-1996
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 8,537
<ALLOWANCES> 511
<INVENTORY> 14,641
<CURRENT-ASSETS> 24,244
<PP&E> 4,511
<DEPRECIATION> 1,584
<TOTAL-ASSETS> 33,653
<CURRENT-LIABILITIES> 20,318
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 12,963
<TOTAL-LIABILITY-AND-EQUITY> 33,653
<SALES> 51,512
<TOTAL-REVENUES> 56,121
<CGS> 42,018
<TOTAL-COSTS> 42,714
<OTHER-EXPENSES> 14,481
<LOSS-PROVISION> 69
<INTEREST-EXPENSE> 1,158
<INCOME-PRETAX> (2,230)
<INCOME-TAX> (105)
<INCOME-CONTINUING> (2,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,335)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
