SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended April 5, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______
----------------------------------
COMMISSION FILE NUMBER 1-63
PREMIUMWEAR, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 41-0429620
(State of Incorporation) (I.R.S. Employer Identification No.)
7566 MARKET PLACE DRIVE, MINNEAPOLIS, MINNESOTA 55344-3629
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: (612) 943-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO ____
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES __X__ NO ___
The number of shares of common stock outstanding at April 5, 1997 was 2,319,030.
PREMIUMWEAR, INC.
INDEX
Page No.
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
April 5, 1997 and January 4, 1997................................. 3
Condensed Consolidated Statements of Operations
for the Three Months ended April 5, 1997
and April 6, 1996................................................. 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended April 5, 1997
and April 6, 1996................................................. 5
Notes to Condensed Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 7
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 11
<TABLE>
<CAPTION>
PREMIUMWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
April 5, January 4,
1997 1997
-------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 756 $ 14,030
Restricted cash ..................................... -- 447
Accounts receivable, less allowances of $939 and $909 6,248 4,230
Inventories ......................................... 11,275 9,804
Prepaid expenses and other .......................... 258 128
-------- --------
Total current assets ....................... 18,537 28,639
Property, plant and equipment, less accumulated
depreciation and amortization of $3,180 and $3,087 .. 1,551 1,617
Deferred taxes, net of valuation allowance of $10,950 ........ -- --
-------- --------
$ 20,088 $ 30,256
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................ $ 12 $ 23
Accounts payable .................................... 5,423 4,009
Accrued payroll and employee benefits ............... 1,250 1,050
Liabilities related to sold assets .................. 1,130 1,530
Other accruals ...................................... 588 761
-------- --------
Total current liabilities .................. 8,403 7,373
-------- --------
Postretirement medical benefits .............................. 701 701
-------- --------
Shareholders' equity:
Common Stock, $.01 par value:
2,319,030 and 2,163,153 shares issued ...... 23 22
Capital in excess of par value ...................... 18,207 17,128
Retained earnings ................................... (7,246) 5,032
-------- --------
Total shareholders' equity ................. 10,984 22,182
-------- --------
$ 20,088 $ 30,256
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
PREMIUMWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts unaudited and in thousands, except share data)
Three Months Three Months
ended ended
April 5, 1997 April 6, 1996
------------- -------------
<S> <C> <C>
REVENUES:
Net sales .................................. $ 9,192 $ 14,696
Royalties .................................. -- 1,144
-------- --------
9,192 15,840
-------- --------
EXPENSES:
Cost of goods sold ......................... 7,017 11,779
Selling, general and administrative ........ 1,898 3,675
-------- --------
8,915 15,454
-------- --------
OPERATING INCOME .................................... 277 386
Interest expense .................................... (6) (359)
Interest income ..................................... 105 --
Other ............................................... 6 13
-------- --------
Income before taxes ................................. 382 40
Provision for income taxes .......................... 160 28
-------- --------
NET INCOME ................................. $ 222 $ 12
======== ========
NET INCOME PER COMMON SHARE ................ $ 0.10 $ 0.01
======== ========
Weighted average number of shares of common stock and
common stock equivalents outstanding ....... 2,296 2,037
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
PREMIUMWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts unaudited and in thousands)
Three Months Three Months
ended ended
April 5, 1997 April 6, 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income from operations ..................................... $ 222 $ 12
Reconciling items:
Depreciation and amortization ......................... 106 257
Provision for losses on accounts receivable ........... 20 26
Unearned royalty income ............................... -- (786)
Utilization of net operating loss carryforwards ....... 122 --
Changes in operating assets and liabilities:
Receivables .................................. (2,038) (2,765)
Inventories .................................. (1,471) (244)
Prepaid expenses ............................. (130) 110
Accounts payable ............................. 1,414 1,724
Other current liabilities .................... (373) 201
-------- --------
Net cash used in operating activities (2,128) (1,465)
-------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment ...................... (40) (347)
-------- --------
Net cash used in investing activities (40) (347)
-------- --------
FINANCING ACTIVITIES
Net change in line of credit borrowings ........................ -- 1,993
Principal payments on long-term debt and capital
lease obligations ..................................... (11) (5)
Special cash distribution ...................................... (12,500) --
Proceeds from exercise of stock options ........................ 958 66
-------- --------
Net cash provided by (used in) financing activities ... (11,553) 2,054
-------- --------
Increase (decrease) in cash and cash equivalents ...... (13,721) 242
Cash and cash equivalents at beginning of period ............... 14,477 62
-------- --------
Cash and cash equivalents at end of period ............ $ 756 $ 304
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
PREMIUMWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 5, 1997
1. Basis of Financial Statement Presentation
The condensed consolidated financial statements for the three months ended
April 5, 1997 of PremiumWear, Inc. (the Company), formerly known as
Munsingwear, Inc., have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect, in the opinion of management, all normal recurring
adjustments necessary to present fairly the results of operations for the
period. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although management believes the disclosures are adequate
to make the information presented not misleading.
These financial statements should be read in conjunction with the Company's
most recent audited financial statements included in its 1996 Annual Report
to Stockholders and its 1996 Form 10-K, including amendments.
The results for the interim period presented are not necessarily indicative
of results to be expected for the full year. Management expects sales
volume for the period presented to be disproportionately lower than sales
in the second and third quarters due to seasonal aspects of the demand for
the Company's product line.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of:
April 5, January 4,
(000's omitted) 1997 1997
--------------- ---- ----
Raw materials......... $ 1,473 $ 1,906
Work in process....... 2,300 1,265
Finished goods........ 7,502 6,633
------- -------
$11,275 $ 9,804
======= =======
3. Financing Arrangements
The Company has a long-term bank line of credit under which up to
$6,000,000 is available for borrowings and letters of credit through
February 2000. Borrowings and letters of credit are limited to an aggregate
amount equaling approximately 80% of eligible receivables and 50% of
eligible finished goods inventories, and essentially all assets except
property, plant and equipment are pledged as collateral under the
agreement. At April 5, 1997, $277,000 was utilized for letters of credit,
which related to inventory purchases from suppliers in the Far East, and an
additional $5,723,000 was available under the line of credit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FIRST QUARTER
Due to the September 1996 sale of trade names and trademarks and related
assets to Supreme International Corporation (Supreme), consolidated results
for the quarter ended April 5, 1997 are not comparable to the corresponding
period last year. Where applicable in its discussion and analysis of
financial condition and results of operations, management has included
certain comparisons of the results of its special markets business.
However, in the case of selling, general and administrative expenses, no
allocation of costs to the sold businesses was done since management
believes that any allocations would be entirely subjective in nature and
not necessarily indicative of the performance of the remaining business.
Essentially all first quarter NET SALES of $9,192,000 were to special
markets customers. This represents an increase of 71% compared to the first
quarter last year when $5,387,000 was sold to special markets customers and
is a direct result of the Company's focus on that channel of distribution
following the September 1996 sale of trade names and trademarks to Supreme.
Unit volume growth was achieved by the addition of new customers and
increased business with existing customers. Sales of the former retail and
professional golf businesses totaled $9,309,000 in the first quarter last
year.
The backlog of unfilled orders at the end of the quarter was $2,507,000
compared to $2,249,000 for special markets customers at the same time a
year ago. The increase is due to the Company's continued unit volume growth
and acceptance of its 1997 product line.
All license agreements were included in the September 1996 sale to Supreme
and, as a result, the Company no longer has revenue from ROYALTIES.
GROSS PROFIT in the first quarter was 23.7% compared to 19.8% for the same
period last year. This increase was due entirely to the sale of the retail
and professional golf businesses, which encountered gross profit erosion
during the last two years the Company operated in those channels of
distribution. Gross profit of the special markets business in the first
quarter of last year was comparable to this year's results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES in the quarter decreased 48%
from the same period last year as a result of cessation of design,
merchandising, sales, advertising and other expenses related to the former
retail and professional golf businesses. In addition, the Company achieved
a reduction in these expenses as a percent of total revenues, from 23.2%
last year to 20.6% this year.
INTEREST EXPENSE decreased significantly during the first quarter, from
$359,000 last year to $6,000 this year. This was due to the 1996 sales of
trademarks, which generated excess funds that were invested in short-term
government notes throughout much of the first quarter and led directly to
INTEREST INCOME of $105,000.
At the beginning of 1997, the Company had net operating loss carryforwards
for regular federal income tax purposes of approximately $20,000,000, which
will begin to expire in 2002. $122,000 of the first quarter PROVISION FOR
INCOME TAXES was credited directly to shareholders' equity in accordance
with Fresh Start Reporting.
CAPITAL RESOURCES AND LIQUIDITY
The financial condition of the Company is reflected in the following:
April 5, January 4,
(000's omitted) 1997 1997
-------------- ---- ----
Working capital ........ $10,134 $21,266
Current ratio .......... 2.2:1 3.9:1
Shareholders' equity.... $10,984 $22,182
As reported in the Condensed Consolidated Statements of Cashflows,
operating activities during the first three months of 1997 consumed
$2,128,000 of cash, primarily the result of a $2,038,000 increase in
receivables due to increased sales in the first quarter of 1997 compared to
sales in the last quarter of 1996. In addition, inventories increased
$1,471,000 as a result of a planned unit inventory increase required to
meet anticipated second quarter demand. The accounts payable increase of
$1,414,000 related primarily to amounts due suppliers as a result of the
inventory buildup. Capital expenditures were minimal during the period, and
the Company received $958,000 from the issuance of 155,877 shares of common
stock upon exercise of common stock options by officers, directors and
employees.
On January 27, 1997 the Company's board of directors declared a special
cash distribution of $5.39 per share, or $12,500,000 in the aggregate, to
shareholders of record on February 19, 1997. The distribution was paid on
March 5, 1997, using proceeds from the 1996 sales of trademarks.
The Company expects to finance continued sales growth through its bank line
of credit and management believes alternative sources of capital are
available if additional capital resources are required.
LOOKING FORWARD
Management expects sales growth to continue, although not at the 70% rate
experienced in the first quarter of 1997. Management also expects gross
margins will improve compared to last year as a result of more effective
inventory management which will lead to fewer markdowns and increased
offshore sourcing which will lower unit costs. In addition, selling,
general and administrative costs are expected to decline, as a percent of
sales, due to increased sales volume and the fixed nature of a number of
these costs. On the other hand, management projects the discontinuance of
interest income which was the result of excess funds from the 1996 sales of
trademarks, and which funds were generally distributed to shareholders on
March 5, 1997.
CAUTIONARY STATEMENT
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the
date made. The following important factors, among others, in some cases
have affected and in the future could affect the Company's actual results
and could cause the Company's actual financial performance to differ
materially from that expressed in any forward-looking statement: (i)
competitive conditions that currently exist, including the entry into the
market by a number of competitors with significantly greater financial
resources than the Company, are expected to continue, placing pressure on
pricing which could adversely impact sales and 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) the inability to
carry out marketing and sales plans would have a materially adverse impact
on the Company's projections; (iv) since the Company now is a licensee of
the Munsingwear(R) name, maintaining a harmonious working relationship with
the licensor is extremely important for continued successful development of
the special markets business and, (v) as a licensee, the Company is
dependent on the licensor to adequately promote the brand and defend it
from trademark infringement. 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.
PREMIUMWEAR, INC.
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11.1: Per Share Earnings Computations
(b) No reports on Form 8-K were filed during the period.
* * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PremiumWear, Inc.
-------------------------------
(Registrant)
Date: May 19, 1997 /s/Thomas D. Gleason
----------------- -------------------------------
Thomas D. Gleason
Chairman & CEO
/s/James S. Bury
-------------------------------
James S. Bury
Vice President of Finance
Exhibit 11.1
<TABLE>
<CAPTION>
PREMIUMWEAR, INC.
PER SHARE EARNINGS COMPUTATIONS
April 5, April 6,
1997 1996
---------- ----------
<S> <C> <C>
Primary Earnings Per Share:
Weighted average number of common
shares outstanding ...................... 2,279,000 2,137,000
Common share equivalents from assumed
exercise of options and warrants ........ 17,000 --
---------- ----------
Total shares ................... 2,296,000 2,137,000
Net income ..................... $ 222,000 $ 12,000
Net income per common and common
equivalent share ...... $ 0.10 $ 0.01
========== ==========
Fully Dilutive Earnings Per Share:
Weighted average number of common
shares outstanding ...................... 2,279,000 2,137,000
Common share equivalents from assumed
exercise of options and warrants ........ 17,000 --
---------- ----------
Total shares ................... 2,296,000 2,137,000
Net income ..................... $ 222,000 $ 12,000
Net income per common and common
equivalent share ...... $ 0.10 $ 0.01
========== ==========
</TABLE>
Net income per common and common equivalent share is computed using the weighted
average number of shares outstanding during each period.
Common equivalent shares represent the dilutive effects of outstanding stock
options using the treasury stock method and average market prices during the
periods presented.
The calculation of fully dilutive earnings per share uses the higher of the
ending market price for the period or the average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> APR-05-1997
<CASH> 756
<SECURITIES> 0
<RECEIVABLES> 6,248
<ALLOWANCES> 939
<INVENTORY> 11,275
<CURRENT-ASSETS> 18,537
<PP&E> 4,731
<DEPRECIATION> 3,180
<TOTAL-ASSETS> 20,088
<CURRENT-LIABILITIES> 8,403
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 10,961
<TOTAL-LIABILITY-AND-EQUITY> 20,088
<SALES> 9,192
<TOTAL-REVENUES> 9,192
<CGS> 6,958
<TOTAL-COSTS> 7,017
<OTHER-EXPENSES> 1,898
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 382
<INCOME-TAX> 160
<INCOME-CONTINUING> 222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
