UNITED STATES 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 October 4, 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: (800) 248-0158 OR (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 ___
The number of shares of common stock outstanding at October 4, 1997 was
2,319,330.
<PAGE>
PREMIUMWEAR, INC.
INDEX
Page No.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
October 4, 1997 and January 4, 1997.............................. 3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months ended October 4, 1997
and October 5, 1996.............................................. 4
Condensed Consolidated Statements of Cash Flows
for the Three Months and Nine Months ended October 4, 1997
and October 5, 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
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
October 4, January 4,
1997 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 99 $ 14,030
Restricted cash ..................................... -- 447
Accounts receivable, less allowances of $736 and $909 6,740 4,230
Inventories ......................................... 8,583 9,804
Prepaid expenses and other .......................... 226 128
-------- --------
15,648 28,639
-------- --------
Property, plant and equipment, less accumulated
depreciation and amortization of $3,395 and $3,087 .. 1,649 1,617
Deferred taxes, net of valuation allowance of $10,950 .. -- --
-------- --------
$ 17,297 $ 30,256
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit borrowings ........................... $ 648 $ --
Current maturities of long-term debt ................ -- 23
Accounts payable .................................... 2,178 4,009
Accrued payroll and employee benefits ............... 1,011 1,050
Liabilities related to sold assets .................. 739 1,530
Other accruals ...................................... 345 761
-------- --------
Total current liabilities ....................... 4,921 7,373
-------- --------
Postretirement medical benefits ........................ 701 701
-------- --------
Shareholders' equity Common Stock $.01 par value:
2,319,330 and 2,163,153 share issued ............ 23 22
Capital in excess of par value ...................... 18,452 17,128
Retained earnings (accumulated deficit) ............. (6,800) 5,032
-------- --------
Total shareholders' equity ...................... 11,675 22,182
-------- --------
$ 17,297 $ 30,256
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
October 4, October 5, October 4, October 5,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Net sales .................................... $ 7,836 $ 10,194 $ 26,238 $ 42,911
Royalties .................................... -- 692 -- 2,961
-------- -------- -------- --------
7,836 10,886 26,238 45,872
-------- -------- -------- --------
EXPENSES:
Cost of goods sold ........................... 5,941 8,588 19,898 34,977
Selling, general and administrative .......... 1,570 2,395 5,230 9,885
-------- -------- -------- --------
7,511 10,983 25,128 44,862
-------- -------- -------- --------
OPERATING INCOME (LOSS) ......................... 325 (97) 1,110 1,010
Net interest income (expense) ................... (51) 6 27 (711)
Other ........................................... 0 17 6 51
-------- -------- -------- --------
Income (loss) before taxes and gain on
sale of trademarks .......................... 274 (74) 1,143 350
Gain on sale of trademarks ...................... -- 6,245 -- 10,627
-------- -------- -------- --------
Income before taxes ............................. 274 6,171 1,143 10,977
Provision for income taxes ...................... 115 2,146 475 3,865
-------- -------- -------- --------
NET INCOME ................................... $ 159 $ 4,025 $ 668 $ 7,112
======== ======== ======== ========
NET INCOME PER COMMON SHARE-PRIMARY .......... $ 0.07 $ 1.87* $ 0.28 $ 3.37*
======== ======== ======== ========
NET INCOME PER COMMON SHARE-FULLY DILUTED .... $ 0.07 $ 1.86* $ 0.28 $ 3.29*
======== ======== ======== ========
Weighted average number of shares of common stock
and common stock equivalents outstanding ..... 2,358 2,165 2,344 2,159
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
* Includes a one-time gain of $1.88 per share relating to the sale of trademarks
and royalty earnings of $.16 per share for the three months ended October 5,
1996, and $3.19 and $.71 per share, respectively, for the nine months ended
October 5, 1996.
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts unaudited and in thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
ended ended
October 4, October 5,
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income from operations ..................................... $ 668 $ 7,112
Reconciling items:
Depreciation and amortization .............................. 322 742
Provision for losses on accounts receivable ................ 60 113
Gain on sale of trademarks ................................. -- (10,627)
Unearned royalty income .................................... -- (1,988)
Utilization of net operating loss carryforwards ............ 366 3,413
Changes in operating assets and liabilities:
Restricted cash ........................................ -- (650)
Receivables ............................................ (2,570) 1,744
Inventories ............................................ 1,221 5,594
Prepaid expenses ....................................... (98) 142
Accounts payable ....................................... (1,831) (294)
Other current liabilities .............................. (1,246) (2,436)
Change in other non-current assets and liabilities ......... -- 382
-------- --------
Net cash provided by (used in) operating activities (3,108) 3,247
-------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment ...................... (354) (691)
Proceeds from sale of trademarks ............................... -- 23,000
-------- --------
Net cash provided by (used in) investing activities (354) 22,309
-------- --------
FINANCING ACTIVITIES
Net change in short-term borrowings ............................ 648 (10,890)
Principal payments on long-term debt and capital
lease obligations .......................................... (23) (15)
Special cash distribution ...................................... (12,500) --
Proceeds from exercise of stock options ........................ 959 313
-------- --------
Net cash used in financing activities .................. (10,916) (10,592)
-------- --------
Increase (decrease) in cash and cash equivalents ....... (14,378) 14,964
Cash and cash equivalents at beginning of period ............... 14,477 62
-------- --------
Cash and cash equivalents at end of period ............. $ 99 $ 15,026
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PREMIUMWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 4, 1997
1. Basis of Financial Statement Presentation
The condensed consolidated financial statements for the three months
and nine months ended October 4, 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 Shareholders and its 1996 Form 10-K.
Demand for the Company's products can be affected, among other things,
by unseasonal weather patterns, changes in fashion and style trends,
and the addition of new customers throughout the year. As a result,
interim period results are not necessarily indicative of results to be
expected for the full year.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
October 4, January 4,
(000's omitted) 1997 1997
--------------- ---- ----
Raw materials............ $ 2,195 $ 1,906
Work in process.......... 877 1,265
Finished goods........... 5,511 6,633
------- -------
$ 8,583 $ 9,804
======= =======
<PAGE>
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 October 4, 1997 $648,000 was outstanding and $311,000
was utilized for letters of credit and an additional $5,041,000 was
available under the line of credit.
4. Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 128, "Earnings per
share (Statement No. 128"), issued in February 1997 and effective for
fiscal years ending after December 15, 1997, establishes and simplifies
standards for computing and presenting earnings per share ("EPS"). The
Company anticipates the implementation of Statement No. 128 will not
have a material impact on the Company's computation or presentation of
EPS, as the Company's common stock equivalents have had no material
effect on earnings per share amounts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER
Due to the September 1996 sale of trade names and trademarks and
related assets to Supreme International Corporation (Supreme),
consolidated results for the three months and nine months ended October
4, 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 promotional products/corporate identity markets
business. However, in the case of selling, general and administrative
expenses, no allocation of costs to the sold businesses was made since
management believes that any allocations would be entirely subjective
in nature and not necessarily indicative of the performance of the
remaining business.
Demand for the Company's product is typically strongest in the second
and third quarters. However, demand was affected this year by cold
weather in late second quarter which adversely affected third quarter
sales.
NET SALES of $7,836,000 for the quarter and $26,238,000 for the nine
months compare to last year's promotional product/corporate identity
sales of $7,718,000 and $20,003,000, respectively. After experiencing
strong net sales growth each of the first two quarters, the Company's
third quarter sales were generally flat with the prior year's
comparable period, primarily due to an industry-wide sales slowdown at
the end of the second quarter and the UPS strike in August. The 31%
increase for the nine months was due to unit volume growth in the
<PAGE>
first six months. Sales of the former retail and professional golf
businesses totaled $2,476,000 in the third quarter last year and
$22,908,000 in the first nine months of last year.
The backlog of unfilled orders at the end of the quarter was $2,482,000
compared to $4,136,000 for like sales at the same time a year ago. The
decrease in order backlog vs. last year was due to distributors'
evolving practice of delaying the placement of orders for future
delivery and the Company's inability to deliver orders punctually
during the third quarter last year due to low inventory levels.
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 for promotional product/corporate identity sales in the
quarter was 24.2% compared to 22.9% for the same period last year and
24.2% for the first nine months compared to 23.6% for the same period a
year ago. The increase was due to favorable product mix and increased
off-shore sourcing which has led to lower unit production cost.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES in the quarter decreased
34% from the same period last year as a result of cessation of design,
merchandising, sales, advertising and other expenses related to the
exited retail and professional golf businesses.
NET INTEREST EXPENSE during the quarter was higher this year as a
result of the 1996 sales of trademarks which generated excess funds
through much of the third quarter last year. These excess funds also
led to lower interest expense through nine months this year compared to
last year.
In the third quarter of last year, the Company realized a $6,245,000
GAIN ON THE SALE OF TRADEMARKS to Supreme. Nine month results last year
also included a $4,382,000 gain from the second quarter sale of
trademarks in certain Far East countries.
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. $88,000 of the third
quarter and $322,000 of the first nine months PROVISION FOR INCOME
TAXES was credited directly to shareholders' equity in accordance with
Fresh Start Reporting.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The financial condition of the Company is reflected in the following:
October 4, January 4,
(000's omitted) 1997 1997
--------------- ---- ----
Working capital..................... $ 10,727 $ 21,266
Current ratio....................... 3.2:1 3.9:1
Shareholders' equity................ $ 11,675 $ 22,182
Operating activities during the first nine months of 1997 consumed
$3,108,000 of cash, primarily due to a $2,570,000 increase in
receivables due to extended terms selling to certain key customers, a
$1,831,000 reduction in accounts payable due to reduced production
levels during the third quarter and payoff of $791,000 of liabilities
related to the 1996 trademark sales. Inventories were lower by
$1,221,000 at the end of the third quarter compared to the beginning of
the year as a result of reduced production levels in the third quarter
in response to the slowdown in orders experienced in late second
quarter. Capital expenditures primarily included additions of
manufacturing equipment and second quarter leasehold improvements at
the Company's new headquarters offices. A special cash distribution of
$5.39 per share, $12,500,000 in the aggregate, was paid to shareholders
on March 5, 1997, using proceeds from the 1996 trademark sales. In the
first nine months of 1997, the Company received $959,000 from the
issuance of 156,177 shares of common stock upon exercise of common
stock options by officers, directors and employees. 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
As previously reported, midway through the second quarter the
promotional product/corporate identity industry experienced a general
sales decline due to unseasonably cool weather in many parts of the
country. This also caused the Company's sales orders to decline during
the quarter. As a result, management cut back production during the
third quarter which led to a $2,840,000 inventory reduction vs. the
second quarter this year. The Company has experienced a rebound in its
sales order rate and management expects 1997 fourth quarter sales to
exceed last year's $6,973,000 for the comparable period. In addition,
the Company expects to continue to increase the amount of off-shore
production in order to remain competitive and improve margins.
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-
<PAGE>
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) the Company is dependent on
its license for the Munsingwear(R) name for the sale of Munsingwear(R)
labeled products in the special markets business, and (v) as a
licensee, the Company is dependent on the licensor to prosecute
trademark infringements. 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.
<PAGE>
PREMIUMWEAR, INC.
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11.1: Per Share Earnings Computations
Exhibit 27: Financial Data Schedule
(b) The Company filed a report on Form 8-K on September 24, 1997,
which reported the adoption of a Shareholders' Rights
Agreement by the Board of Directors on July 25, 1997. This
Shareholders' Rights Agreement is intended to replace a
similar agreement which expires November 12, 1997.
* * * * *
<PAGE>
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: November 11, 1997 /s/Thomas D. Gleason
Thomas D. Gleason
Chairman & CEO
/s/James S. Bury
James S. Bury
Vice President of Finance
Exhibit 11.1
PREMIUMWEAR, INC.
PER SHARE EARNINGS COMPUTATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
October 4, October 5, October 4, October 5,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Weighted average number of common
shares outstanding ................ 2,319,000 2,060,000 2,306,000 2,051,000
Common share equivalents from assumed
exercise of options and warrants .. 39,000 97,000 38,000 59,000
---------- ---------- ---------- ----------
Total shares .................... 2,358,000 2,157,000 2,344,000 2,110,000
Net income ...................... $ 159,000 $4,025,000 $ 668,000 $7,112,000
Net income per common and common
equivalent share ............ $ 0.07 $ 1.87* $ 0.28 $ 3.37*
========== ========== ========== ==========
Fully Dilutive Earnings Per Share:
Weighted average number of common
shares outstanding ................ 2,319,000 2,060,000 2,306,000 2,051,000
Common share equivalents from assumed
exercise of options and warrants .. 47,000 105,000 38,000 108,000
---------- ---------- ---------- ----------
Total shares .................... 2,366,000 2,165,000 2,344,000 2,159,000
Net income ...................... $ 159,000 $4,025,000 $ 668,000 $7,112,000
Net income per common and common
equivalent share ............ $ 0.07 $ 1.86* $ 0.28 $ 3.29*
========== ========== ========== ==========
</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.
* Includes a one-time gain of $1.88 per share relating to the sale of trademarks
and royalty earnings of $.16 per share for the three months ended October 5,
1996, and $3.19 and $.71 per share, respectively, for the nine months ended
October 5, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> OCT-04-1997
<CASH> 99
<SECURITIES> 0
<RECEIVABLES> 6,740
<ALLOWANCES> 736
<INVENTORY> 8,583
<CURRENT-ASSETS> 15,648
<PP&E> 5,044
<DEPRECIATION> 3,395
<TOTAL-ASSETS> 17,297
<CURRENT-LIABILITIES> 4,921
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 11,652
<TOTAL-LIABILITY-AND-EQUITY> 17,297
<SALES> 7,836
<TOTAL-REVENUES> 7,836
<CGS> 5,692
<TOTAL-COSTS> 249
<OTHER-EXPENSES> 1,570
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> (51)
<INCOME-PRETAX> 274
<INCOME-TAX> 115
<INCOME-CONTINUING> 159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
