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 4, 1998
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 7, 1998 was
2,319,530.
This Form 10-Q consists of 13 pages.
<PAGE>
PREMIUMWEAR, INC.
INDEX
Page No.
--------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 4, 1998 and January 3, 1998........................ 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months ended July 4, 1998
and July 5, 1997........................................ 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended July 4, 1998
and July 5, 1997........................................ 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 5. Other Information....................................... 11
Item 6. Exhibits and Reports on Form 8-K........................ 11
Exhibit 27 - Financial Data Schedule.................... 13
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 1,825 $ 2,870
Accounts receivable, less allowances of $636 and $538 7,605 4,199
Inventories .......................................... 9,103 8,590
Prepaid expenses and other ........................... 289 279
-------- --------
Total current assets ............................. 18,822 15,938
-------- --------
Property, plant and equipment, less accumulated
depreciation and amortization of $3,548 and $3,329 ... 1,508 1,613
-------- --------
$ 20,330 $ 17,551
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 4,333 $ 2,821
Accrued payroll and employee benefits ................ 1,316 1,034
Liabilities related to sold assets ................... 407 578
Other accruals ....................................... 410 356
-------- --------
Total current liabilities ........................ 6,466 4,789
-------- --------
Postretirement medical benefits ......................... 709 709
-------- --------
Shareholders' equity
Common Stock $.01 par value:
2,319,530 and 2,319,330 shares issued ............ 23 23
Additional paid-in capital ........................... 19,047 18,661
Accumulated deficit .................................. (5,915) (6,631)
-------- --------
Total shareholders' equity ....................... 13,155 12,053
-------- --------
$ 20,330 $ 17,551
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 4, July 5, July 4, July 5,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Net sales ......................... $ 12,938 $ 9,210 $ 22,288 $ 18,402
EXPENSES:
Cost of goods sold ................ 9,690 6,940 16,428 13,957
Selling, general and administrative 2,512 1,762 4,705 3,660
-------- -------- -------- --------
12,202 8,702 21,133 17,617
-------- -------- -------- --------
OPERATING INCOME ..................... 736 508 1,155 785
Interest income (expense), net ....... 30 (21) 47 78
Other ................................ -- -- 1 6
-------- -------- -------- --------
Income before income taxes ........... 766 487 1,203 869
Provision for income taxes ........... 306 200 487 360
-------- -------- -------- --------
NET INCOME ........................ $ 460 $ 287 $ 716 $ 509
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
BASIC ......................... $ 0.20 $ 0.12 $ 0.31 $ 0.22
======== ======== ======== ========
DILUTED ....................... $ 0.19 $ 0.12 $ 0.30 $ 0.22
======== ======== ======== ========
</TABLE>
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 4, 1998 July 5, 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................ $ 716 $ 509
Reconciling items:
Depreciation and amortization ..................... 237 214
Provision for losses on accounts receivable ....... 55 40
Deferred taxes .................................... 385 278
Changes in operating assets and liabilities:
Receivables ................................... (3,461) (2,308)
Inventories ................................... (513) (1,619)
Prepaid expenses and other .................... (10) (78)
Accounts payable .............................. 1,512 (678)
Other current liabilities ..................... 165 (823)
-------- --------
Net cash used in operating activities ............. (914) (4,465)
-------- --------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ............. (132) (240)
-------- --------
FINANCING ACTIVITIES:
Net change in short-term borrowings ................... -- 1,924
Principal payments on long-term debt and capital
lease obligations ................................. -- (17)
Special cash distribution ............................. -- (12,500)
Proceeds from exercise of stock options ............... 1 959
-------- --------
Net cash provided by (used in) financing activities 1 (9,634)
-------- --------
Decrease in cash and cash equivalents ............. (1,045) (14,339)
Cash and cash equivalents at beginning of period ...... 2,870 14,477
-------- --------
Cash and cash equivalents at end of period ............ $ 1,825 $ 138
======== ========
</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 4, 1998
1. Basis of Financial Statement Presentation
The condensed consolidated financial statements for the three months
and six months ended July 4, 1998 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 1997
Annual Report to Shareholders and its 1997 Form 10-K, including
amendments.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
July 4, January 3,
(000's omitted) 1998 1998
--------------- ---- ----
Raw materials........................... $ 1,897 $ 1,751
Work in process......................... 2,841 1,825
Finished goods.......................... 4,365 5,014
----- -----
$ 9,103 $ 8,590
===== =====
<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 4, 1998 $214,000 was utilized for letters of
credit and an additional $5,786,000 was available under the line of
credit.
4. Net Income per Common Share
Net Income per common share was computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 4, July 5, July 4, July 5,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Weighted average number of
common shares outstanding.................... 2,320,000 2,319,000 2,319,000 2,299,000
Net income................................ $ 460,000 $ 287,000 $ 716,000 $ 509,000
Net income per common
share................................... $ 0.20 $ 0.12 $ 0.31 $ 0.22
=========== =========== =========== ============
Diluted Earnings Per Share:
Weighted average number of
common shares outstanding.................... 2,320,000 2,319,000 2,319,000 2,299,000
Common share equivalents from
assumed exercise of options.................. 47,000 42,000 46,000 50,000
------------ ------------ ------------ -------------
Total shares.............................. 2,367,000 2,361,000 2,365,000 2,349,000
Net income................................ $ 460,000 $ 287,000 $ 716,000 $ 509,000
Net income per common share
and common share equivalents............ $ 0.19 $ 0.12 $ 0.30 $ 0.22
=========== =========== =========== ============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SECOND QUARTER
NET SALES for the quarter and six month periods in 1998 increased 40%
and 21%, respectively, compared to the comparable 1997 periods. Sales
to wholesale distributors were up 50% in the quarter, helped by the
addition of a new customer, and sales to other
<PAGE>
customers were up 16%. For the six month period, sales to distributors
increased 11% while sales to other customers increased 34% compared to
the same period last year. Sales of the Company's new Page & Tuttle(TM)
golf line, which was introduced at the PGA Show in Orlando in January
1998, were not significant during the quarter or first six months of
1998.
The backlog of unfilled orders at the end of the 1998 second quarter
was $3,500,000 compared to $1,036,000 at the same time last year. The
increase in order backlog was due primarily to increased orders from
distributors and other customers.
GROSS PROFIT increased from comparable 1997 period results. For the
quarter, gross margin improved from 24.6% last year to 25.1% this year,
primarily due to increased offshore sourcing which led to lower unit
costs. For the six month period, gross margin increased from 24.2% last
year to 26.3% this year, also due to the increased offshore sourcing
during the entire period. Golf sales, while small, helped gross
margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased 42.6% and 28.6%,
respectively, during the quarter and six month periods of 1998 as a
result of the volume effect on certain sales related costs such as
commissions, advertising, royalties and distribution expenses. As a
percent of sales, selling, general and administrative expenses were
19.4% and 21.1%, respectively, for the quarter and six month periods of
1998. This compares to 19.1% and 19.9%, respectively, for the same
periods last year.
During the quarter, the Company realized NET INTEREST INCOME as a
result of excess funds invested throughout the period, primarily due to
effective inventory management. At the end of the quarter, inventories
totaled $9.1 million compared to $11.4 million at the same time last
year. For the six month period, net interest income declined compared
to 1997 due to funds which were invested last year from the time of the
Company's September 1996 sale of trademarks to the early March 1997
$12.5 million special cash distribution to shareholders.
At the beginning of 1998, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$21,000,000, which will begin to expire in 2002. $385,000 of the first
six months PROVISION FOR INCOME TAXES was credited directly to
shareholders' equity in accordance with Statement of Position 90-7 (SOP
90-7), "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", which was implemented at the time of the Company's
1991 reorganization.
The Company expects to finance continued sales growth through profits
and its bank line of credit and management believes alternative sources
of capital are available if additional resources are required.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The financial condition of the Company is reflected in the following:
July 4, January 3,
(000's omitted) 1998 1998
--------------- ---- ----
Working capital...............................$ 12,356 $ 11,149
Current ratio................................. 2.9:1 3.3:1
Shareholders' equity..........................$ 13,155 $ 12,053
During the first six months of 1998 operating activities used $914,000
of cash, primarily due to increased receivables from higher sales
levels, increased inventory levels and incentive payments related to
the 1996 sale of assets. These uses of cash were partially offset by
higher accounts payable due to increased production and offshore
sourcing levels as compared to the end of 1997. The Company expects to
incur additional expenses of approximately $407,000 due to operational
changes resulting from the 1996 sale of trade names and trademarks. The
Company's provision for income taxes included a non-cash charge of
$385,000. In accordance with SOP 90-7, as net operating loss
carryforwards are realized, the Company reports no benefit in its
statement of operations, but rather they are reported as a direct
credit to shareholders' equity. Capital expenditures were $132,000,
primarily for production support equipment, information systems
equipment and software and market show display equipment.
LOOKING FORWARD
Management continues to focus on the following priorities:
- Sales growth
- Improved profitability
- Re-entry into the golf apparel market using the new
Page & Tuttle(TM) line
Management expects sales growth for the balance of 1998 will generally
be comparable to that experienced in the first six months, when sales
increased 21% vs. the same period last year. Growth is expected to come
from the addition of new customers, increased volume with existing
customers and re-entry into the golf market with the introduction of
the Company's new Page & Tuttle(TM) line. Net income for the last six
months of 1998 is expected to grow at a rate similar to or higher than
the expected 1998 sales growth and could approximate the rate of growth
in profits in the first half of the year. Gross margin will continue to
benefit from lower unit costs due to increased offshore sourcing and
higher margin Page & Tuttle(TM) sales. Capital expenditures are
expected to be approximately $500,000 and will primarily be for
information systems improvements and the installation of manufacturing
equipment and processes designed to lower production costs and reduce
production cycle times. Funds for capital expenditures and an increase
in inventory level to meet anticipated sales demand and improve
customer order fulfillment are expected to come from operations and the
Company's bank line of credit.
<PAGE>
In addition, management expects to pursue opportunities through
development of additional brands and products as well as acquisitions.
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) 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 5: Other Information
As disclosed in this year's Proxy Statement, the deadline for
submission of shareholder proposals pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended, for inclusion in
the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders is December 3, 1998. Additionally, if the Company
receives notice of a separate shareholder proposal before February
12, 1999 or after March 14, 1999, such proposal will be considered
untimely pursuant to Rules 14a-4 and 14a-5(e) and the persons
named in proxies solicited by the Board of Directors of the
Company for its 1999 Annual Meeting of Shareholders may exercise
discretionary voting power with respect to such proposal.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
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 10, 1998 /s/Thomas D. Gleason
---------------------- ------------------------------
Thomas D. Gleason
Chairman & CEO
/s/James S. Bury
------------------------------
James S. Bury
Vice President of Finance
(Principal Accounting Officer)
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 1,825
<SECURITIES> 0
<RECEIVABLES> 7,605
<ALLOWANCES> 636
<INVENTORY> 9,103
<CURRENT-ASSETS> 18,822
<PP&E> 5,056
<DEPRECIATION> 3,548
<TOTAL-ASSETS> 20,330
<CURRENT-LIABILITIES> 6,466
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 13,132
<TOTAL-LIABILITY-AND-EQUITY> 20,330
<SALES> 12,938
<TOTAL-REVENUES> 12,938
<CGS> 9,810
<TOTAL-COSTS> 9,690
<OTHER-EXPENSES> 2,512
<LOSS-PROVISION> 55
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 766
<INCOME-TAX> 306
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</TABLE>
