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 July 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: 1-800-248-0158 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 August 4, 1997 was
2,319,330.
<PAGE>
PREMIUMWEAR, INC.
INDEX
Page No.
--------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 5, 1997 and January 4, 1997........................ 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months ended July 5, 1997
and July 6, 1996........................................ 4
Condensed Consolidated Statements of Cash Flows
for the Three Months and Six Months ended July 5, 1997
and July 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 4. Submission of Matters to a Vote of Security Holders..... 11
Item 5. Other Information....................................... 11
Item 6. Exhibits and Reports on Form 8-K........................ 11
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
July 5, January 4,
1997 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 138 $ 14,030
Restricted cash ...................................... --- 447
Accounts receivable, less allowances of $970 and $909 6,498 4,230
Inventories .......................................... 11,423 9,804
Prepaid expenses and other ........................... 206 128
-------- --------
18,265 28,639
-------- --------
Property, plant and equipment, less accumulated
depreciation and amortization of $3,287 and $3,087 ... 1,643 1,617
Deferred taxes, net of valuation allowance of $10,950 ... --- ---
-------- --------
$ 19,908 $ 30,256
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit borrowings ............................ $ 1,924 $ ---
Current maturities of long-term debt ................. 6 23
Accounts payable ..................................... 3,331 4,009
Accrued payroll and employee benefits ................ 1,124 1,050
Liabilities related to sold assets ................... 996 1,530
Other accruals ....................................... 398 761
-------- --------
Total current liabilities ........................ 7,779 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 ....................... 18,364 17,128
Retained earnings (accumulated deficit) .............. (6,959) 5,032
-------- --------
Total shareholders' equity ....................... 11,428 22,182
-------- --------
$ 19,908 $ 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 Six Months Ended
-------------------- -------------------
July 5, July 6, July 5, July 6,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Net sales ..................................... $ 9,210 $ 18,021 $ 18,402 $ 32,717
Royalties ..................................... --- 1,125 --- 2,269
-------- -------- -------- --------
9,210 19,146 18,402 34,986
-------- -------- -------- --------
EXPENSES:
Cost of goods sold ............................ 6,940 14,610 13,957 26,389
Selling, general and administrative ........... 1,762 3,815 3,660 7,490
-------- -------- -------- --------
8,702 18,425 17,617 33,879
-------- -------- -------- --------
OPERATING INCOME ................................. 508 721 785 1,107
Net interest income (expense) .................... (21) (358) 78 (717)
Other ............................................ --- 20 6 33
-------- -------- -------- --------
Income before taxes and gain on sale of trademarks 487 383 869 423
Gain on sale of trademarks ....................... --- 4,383 --- 4,383
-------- -------- -------- --------
Income before taxes .............................. 487 4,766 869 4,806
Provision for income taxes ....................... 200 1,691 360 1,719
-------- -------- -------- --------
NET INCOME .................................... $ 287 $ 3,075 $ 509 $ 3,087
======== ======== ======== ========
NET INCOME PER COMMON SHARE ................... $ 0.12 $ 1.47* $ 0.22 $ 1.48*
======== ======== ======== ========
Weighted average number of shares of common stock
and common stock equivalents outstanding ...... 2,361 2,096 2,349 2,086
======== ======== ======== ========
</TABLE>
* Includes a one time gain of $1.35 per share relating to the sale of foreign
trademarks and royalty earnings of $0.27 per share for the three months ended
July 6, 1996, and $1.35 and $0.55, respectively, for the six months ended July
6, 1996.
See notes to condensed consolidated financial statements.
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts unaudited and in thousands)
<TABLE>
<CAPTION>
Six Months Six Months
ended ended
July 5, 1997 July 6, 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income from operations ..................................... $ 509 $ 3,087
Reconciling items:
Depreciation and amortization .............................. 214 529
Provision for losses on accounts receivable ................ 40 75
Gain on sale of trademarks ................................. --- (4,383)
Unearned royalty income .................................... --- (1,556)
Utilization of net operating loss carryforwards ............ 278 1,534
Changes in operating assets and liabilities:
Receivables ............................................ (2,308) (1,797)
Inventories ............................................ (1,619) 6,282
Prepaid expenses ....................................... (78) 127
Accounts payable ....................................... (678) (383)
Other current liabilities .............................. (823) 113
-------- --------
Net cash provided by (used in) operating activities (4,465) 3,628
-------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment ...................... (240) (598)
Proceeds from sale of trademarks ............................... --- 5,000
Deposit received on pending sale of trademarks ................. --- 1,000
-------- --------
Net cash used in investing activities ............. (240) 5,402
-------- --------
FINANCING ACTIVITIES
Net change in short-term borrowings ............................ 1,924 (9,164)
Principal payments on long-term debt and capital
lease obligations .......................................... (17) (9)
Special cash distribution ...................................... (12,500) ---
Proceeds from exercise of stock options ........................ 959 149
-------- --------
Net cash used in financing activities ............. (9,634) (9,024)
-------- --------
Increase (decrease) in cash and cash equivalents .. (14,339) 6
Cash and cash equivalents at beginning of period ............... 14,477 62
-------- --------
Cash and cash equivalents at end of period ..................... $ 138 $ 68
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PREMIUMWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 5, 1997
1. Basis of Financial Statement Presentation
The condensed consolidated financial statements for the three months
and six months ended July 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 Shareholders 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 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:
July 5, January 4,
(000's omitted) 1997 1997
--------------- ------- -------
Raw materials .......... $ 2,298 $ 1,906
Work in process......... 2,116 1,265
Finished goods.......... 7,009 6,633
------- -------
$11,423 $ 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 July 5, 1997 $1,924,000 was outstanding and $146,000
was utilized for letters of credit and an additional $3,930,000 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").
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 either have had no material effect on earnings
per share amounts or have been anti-dilutive with respect to losses.
Financial Accounting Standards Board Statement No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"), issued in June 1997 and
effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and display of the total of net
income and all other nonowner changes in equity, or comprehensive
income, either below net income (loss) in the statement of operations,
in a separate statement of comprehensive income (loss) or within the
statement of changes in stockholders' equity. As the Company has had no
significant items of other comprehensive income, Statement No. 130 is
currently not applicable to the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SECOND 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 six months ended July 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 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 done since
management believes that any allocations would be entirely subjective
in nature and not necessarily indicative of the performance of the
remaining business.
<PAGE>
NET SALES of $9,210,000 for the quarter and $18,402,000 for the six
months compare to last year's promotional product/corporate identity
sales of $6,898,000 and $12,285,000, respectively. The 33% increase for
the second quarter and 50% increase for the six months were due to unit
volume growth resulting from additional customers and increased
business with existing customers. Sales of the former retail and
professional golf businesses totaled $11,123,000 in the second quarter
last year and $20,432,000 in the first six months of last year.
The backlog of unfilled orders at the end of the quarter was $1,036,000
compared to $4,673,000 for promotional product/corporate identity
business at the same time a year ago. The decrease in order backlog was
due to an industry-wide slowdown in order activity experienced midway
through the second quarter of 1997 and also to the Company's inability
to deliver orders punctually in the latter part of the second quarter
last year due to low inventory levels. Over half of last year's backlog
was "past due" in relation to customer requested delivery dates.
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 quarter was 24.6% compared to 18.9% for the same
period last year and was 24.2% for the first six months compared to
19.3% for the same period a year ago. This increase was due entirely to
the exit from 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
promotional product/corporate identity business in the second quarter
and first six months of this year was comparable to last year's
results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES in the quarter decreased
54% 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. During the quarter the
Company achieved a reduction in these expenses as a percent of total
revenues, from 19.9% last year to 19.1% this year. For the six months,
these expenses were also reduced from 21.4% to 19.9% this year.
INTEREST EXPENSE decreased significantly during the quarter, from
$358,000 last year to $22,000 this year and for the first six months
from $717,000 last year to net interest income of $78,000 this year.
This interest expense reduction was due to the 1996 sales of trademarks
which generated excess funds that were invested in short-term
government notes through the first half of the second quarter of 1997.
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. $156,000 of the second
quarter and $278,000 of the first six 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:
July 5, January 4,
(000's omitted) 1997 1997
--------------- ---- ----
Working capital.................. $ 10,486 $ 21,266
Current ratio.................... 2.3:1 3.9:1
Shareholders' equity............. $ 11,428 $ 22,182
Operating activities during the first six months of 1997 consumed
$4,465,000 of cash, primarily due to a $2,308,000 increase in
receivables due to increased sales in the second quarter of 1997
compared to sales in the last quarter of 1996. In addition, inventories
increased $1,619,000 due to a planned unit inventory increase required
to meet sales demand. Capital expenditures primarily include additions
of manufacturing equipment and 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 sales of trademarks. In the first
six months, 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
Midway through the second quarter the promotional product/corporate
identity business industry experienced an overall 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 has cut back production requirements during the
third quarter and anticipates that third quarter results may be below
those of the second quarter.
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
<PAGE>
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 4: Submission of Matters to a Vote of Security Holders:
On May 14, 1997 the Company held its Annual Meeting of Shareholders. At
the meeting, the following actions were taken:
(a) (i) The following persons were elected to the Company's Board of
Directors:
Votes For Votes Withheld
--------- --------------
C. Derek Anderson 2,005,995 22,484
Mark B. Vittert 2,005,895 22,584
(ii) The following directors' term of office continued after the
meeting:
Keith A. Benson
Thomas D. Gleason
Gerald E. Magnuson
William J. Morgan
Michael A. Raskin
(b) The Company's stockholders approved an amendment to the
Company's 1995 Stock Plan to bring the plan into compliance
with Section 162(m) of the Internal Revenue Code of 1986, as
amended, by providing for an annual cap on the number of
shares granted to an individual of 150,000 shares by a vote of
1,989,247 shares voting in favor, 22,015 shares against, and
17,217 shares abstaining or subject to broker non-votes.
Item 5: Other Information
On July 25, 1997, David E. Berg was elected President and Chief
Operating Officer of the Company. Mr. Berg had been Executive Vice
President and Chief Operating Officer. He held numerous sales and sales
management positions since beginning his career with Munsingwear,
PremiumWear's predecessor company, in 1980. The position of President
was vacant since September 1996.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11.1: Per Share Earnings Computations
Exhibit 27: Financial Data Schedule
(b) No reports on Form 8-K were filed during the period.
* * * * *
<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: August 8,1997 /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 Six Months Ended
------------------ ----------------
July 5, July 6, July 5, July 6,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Weighted average number of common
shares outstanding ................ 2,319,000 2,096,000 2,299,000 2,086,000
Common share equivalents from assumed
exercise of options and warrants .. 42,000 --- 50,000 ---
---------- ---------- ---------- ----------
Total shares .................... 2,361,000 2,096,000 2,349,000 2,086,000
Net income ...................... $ 287,000 $3,075,000 $ 509,000 $3,087,000
Net income per common and common
equivalent share ............ $ 0.12 $ 1.47 $ 0.22 $ 1.48
========== ========== ========== ==========
Fully Dilutive Earnings Per Share:
Weighted average number of common
shares outstanding ................ 2,319,000 2,096,000 2,299,000 2,086,000
Common share equivalents from assumed
exercise of options and warrants .. 47,000 --- 50,000 ---
---------- ---------- ---------- ----------
Total shares .................... 2,366,000 2,096,000 2,349,000 2,086,000
Net income ...................... $ 287,000 $3,075,000 $ 509,000 $3,087,000
Net income per common and common
equivalent share ............ $ 0.12 $ 1.47 $ 0.22 $ 1.48
========== ========== ========== ==========
</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> JUL-05-1997
<CASH> 138
<SECURITIES> 0
<RECEIVABLES> 6,498
<ALLOWANCES> 970
<INVENTORY> 11,423
<CURRENT-ASSETS> 18,265
<PP&E> 4,930
<DEPRECIATION> 3,287
<TOTAL-ASSETS> 19,908
<CURRENT-LIABILITIES> 7,779
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 11,405
<TOTAL-LIABILITY-AND-EQUITY> 19,908
<SALES> 9,210
<TOTAL-REVENUES> 9,210
<CGS> 6,812
<TOTAL-COSTS> 128
<OTHER-EXPENSES> 1,762
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 487
<INCOME-TAX> 200
<INCOME-CONTINUING> 287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
