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 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 May 4, 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
April 4, 1998 and January 3, 1998......................... 3
Condensed Consolidated Statements of Operations
for the Three Months ended April 4, 1998
and April 5, 1997......................................... 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended April 4, 1998
and April 5, 1997......................................... 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 8
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 11
Exhibit 27 - Financial Data Schedule...................... 13
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................ $ 2,081 $ 2,870
Accounts receivable, less allowances of $542 and $538 6,621 4,199
Inventories .......................................... 8,691 8,590
Prepaid expenses and other ........................... 368 279
-------- --------
Total current assets ............................. 17,761 15,938
-------- --------
Property, plant and equipment, less accumulated
depreciation and amortization of $3,450 and $3,329 ... 1,568 1,613
-------- --------
$ 19,329 $ 17,551
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 4,259 $ 2,821
Accrued payroll and employee benefits ................ 1,106 1,034
Liabilities related to sold assets ................... 414 578
Other accruals ....................................... 391 356
-------- --------
Total current liabilities ........................ 6,170 4,789
-------- --------
Postretirement benefits ................................. 709 709
-------- --------
Shareholders' equity:
Common Stock, $.01 par value:
2,319,530 and 2,319,330 shares issued ............ 23 23
Capital in excess of par value ....................... 18,802 18,661
Accumulated deficit .................................. (6,375) (6,631)
-------- --------
Total shareholders' equity ....................... 12,450 12,053
-------- --------
$ 19,329 $ 17,551
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
April 4, 1998 April 5, 1997
------------- -------------
(Unaudited)
<S> <C> <C>
REVENUES:
Net sales ................................................. $9,350 $9,192
------ ------
EXPENSES:
Cost of goods sold ........................................ 6,738 7,017
Selling, general and administrative ....................... 2,193 1,898
------ ------
8,931 8,915
------ ------
OPERATING INCOME ............................................. 419 277
Net interest income .......................................... 17 99
Other ........................................................ 1 6
------ ------
Income before taxes .......................................... 437 382
Provision for income taxes ................................... 181 160
------ ------
NET INCOME ................................................ $ 256 $ 222
====== ======
NET INCOME PER COMMON SHARE:
BASIC ................................................. $ 0.11 $ 0.10
====== ======
DILUTED ............................................... $ 0.11 $ 0.10
====== ======
Weighted average number of shares of common stock outstanding 2,319 2,279
Common stock equivalents outstanding ......................... 47 17
------ ------
Weighted average number of shares of common stock
and common stock equivalents outstanding .................. 2,366 2,296
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PREMIUMWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts unaudited and in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 4, 1998 April 5, 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 256 $ 222
Reconciling items:
Depreciation and amortization .......................... 121 106
Provision for losses on accounts receivable ............ 27 20
Utilization of net operating loss carryforwards ........ 140 122
Changes in operating assets and liabilities:
Receivables ........................................ (2,449) (2,038)
Inventories ........................................ (101) (1,471)
Prepaid expenses ................................... (89) (130)
Accounts payable ................................... 1,438 1,414
Other current liabilities .......................... (57) (373)
-------- --------
Net cash used in operating activities .................. (714) (2,128)
-------- --------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment .................. (76) (40)
-------- --------
FINANCING ACTIVITIES:
Principal payments on long-term debt and capital
lease obligations ...................................... -- (11)
Special cash distribution .................................. -- (12,500)
Proceeds from exercise of stock options .................... 1 958
-------- --------
Net cash provided by (used in) financing activities .... 1 (11,553)
-------- --------
Decrease in cash and cash equivalents .................. (789) (13,721)
Cash and cash equivalents at beginning of period ........... 2,870 14,477
-------- --------
Cash and cash equivalents at end of period ................. $ 2,081 $ 756
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PREMIUMWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 4, 1998
1. Basis of Financial Statement Presentation
The condensed consolidated financial statements for the three months
ended April 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.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
April 4, January 3,
(In thousands) 1998 1998
-------------- ---- ----
Raw materials........................ $ 1,557 $ 1,751
Work in process...................... 2,340 1,825
Finished goods....................... 4,794 5,014
----------- ----------
$ 8,691 $ 8,590
=========== ==========
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 4, 1998, $6,000,000 was available under the
line of credit and no amounts were utilized for borrowings or letters
of credit.
<PAGE>
4. Net Income per Common Share
Net income per common share was computed as follows:
<TABLE>
<CAPTION>
Three Months Ended
April 4, 1998 April 5, 1997
------------- -------------
<S> <C> <C>
Basic Earnings Per Share:
Weighted average number of common shares
outstanding ............................... 2,319,000 2,279,000
Net income ............................ $ 256,000 $ 222,000
Net income per common share ........... $ 0.11 $ 0.10
========== ==========
Diluted Earnings Per Share:
Weighted average number of common shares
outstanding ............................... 2,319,000 2,279,000
Common share equivalents from assumed exercise
of options ................................ 47,000 17,000
---------- ----------
Total shares .......................... 2,366,000 2,296,000
Net income ............................ $ 256,000 $ 222,000
Net income per common share and common
share equivalents ................... $ 0.11 $ 0.10
========== ==========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FIRST QUARTER
NET SALES of $9,350,000 during the first quarter of 1998 increased 2% over sales
of $9,192,000 for the same period last year. While sales to distributors
decreased 23% from the 1997 first quarter, sales to advertising specialty
dealers and uniform customers increased 63% over last year's comparable period.
Sales to distributors declined due to the current inventory management practice
of purchasing goods close to the time of sale compared to the early 1997
practice of some distributors filling the "pipeline". Sales of the Company's new
Page & Tuttle(TM) golf line were minimal during the quarter, as planned.
Order backlog totaled $3,800,000 vs. $2,500,000 at the same time last year, an
increase of 52%, and was primarily due to strong response to the Company's 1998
special markets product line.
GROSS MARGIN in the quarter was 27.9% vs. 23.7% in the first quarter last year.
The improvement was due to lower unit costs as a result of increased offshore
sourcing, improved product mix and more favorable balance between
distributor/ASI dealer volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE in the quarter increased to 23.5% of
sales from 20.6% in the first quarter of last year. The increase was due to
additional staffing in planning and customer service in efforts to improve
inventory control and customer response time, as well as startup expenses
related to the new Page & Tuttle(TM) golf line. Management has also committed
more resources to advertising in 1998 than in 1997.
NET INTEREST INCOME during the quarter was $17,000 compared to $99,000 in the
first quarter of last year. In 1997, the Company realized interest income prior
to the March 5, 1997 payment of the $12,500,000 special cash distribution.
At the beginning of 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $21,000,000, which will begin to
expire in 2002. $140,000 of the first quarter 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:
April 4, January 3,
(In thousands) 1998 1998
- -------------- ---- ----
Working capital................................ $11,591 $11,149
Current ratio.................................. 2.9:1 3.3:1
Shareholders' equity........................... $12,450 $12,053
As reported in the Condensed Consolidated Statements of Cash Flows, operating
activities during the first three months of 1998 consumed $714,000 of cash,
primarily the result of a $2,449,000 increase in receivables due to higher sales
in the first quarter of 1998 compared to the last quarter of 1997. This increase
in receivables was partially offset by a $1,438,000 increase in accounts payable
related to raw materials purchased to support increased production levels.
LOOKING FORWARD
Management continues to focus on the following priorities:
- Sales growth
- Improved profitability
- Re-entry into the golf apparel market
Management expects 1998 sales growth similar to the 1997 increase when sales
rose 25% over the prior year's level. Growth is expected as a result of the
addition of new customers, increased volume with existing customers and re-entry
into the golf market. Management projects net income to grow at a rate similar
to or higher than the expected 1998 sales growth. Gross margin will benefit from
lower unit costs due to increased offshore sourcing which coupled with higher
sales levels will lead to increased net income. Initially, the Company will
experience increased selling, general and administrative expenses as a result of
startup expenses and higher selling costs associated with the new golf business.
Capital expenditures are expected to be less than $1,000,000 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 a moderate increase in inventory
level to meet the anticipated sales demand are expected to come from operations
and the Company's bank line of credit. In addition, management expects to pursue
opportunities through development of additional brands and products as well as
acquisitions.
<PAGE>
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 a licensee of the
Munsingwear(R) name and maintaining a harmonious working relationship with the
licensor is 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.
<PAGE>
PREMIUMWEAR, INC.
PART II: OTHER INFORMATION
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: May 12, 1998 /s/Thomas D. Gleason
------------------- ----------------------------------------
Thomas D. Gleason
Chairman & CEO
/s/James S. Bury
----------------------------------------
James S. Bury
Vice President of Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 2,081
<SECURITIES> 0
<RECEIVABLES> 6,621
<ALLOWANCES> 542
<INVENTORY> 8,691
<CURRENT-ASSETS> 17,761
<PP&E> 5,018
<DEPRECIATION> 3,450
<TOTAL-ASSETS> 19,329
<CURRENT-LIABILITIES> 6,170
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 12,427
<TOTAL-LIABILITY-AND-EQUITY> 19,329
<SALES> 9,350
<TOTAL-REVENUES> 9,350
<CGS> 6,623
<TOTAL-COSTS> 6,738
<OTHER-EXPENSES> 2,193
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 437
<INCOME-TAX> 181
<INCOME-CONTINUING> 256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 256
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
