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 1, 2000
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 000-28501
PREMIUMWEAR, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 41-0429620
(State of Incorporation) (I.R.S. Employer Identification No.)
5500 FELTL ROAD, MINNETONKA, MINNESOTA 55343-7902
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: 1-800-248-0158 OR (952) 979-1700
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 April 28, 2000 was
2,567,485.
This Form 10-Q consists of 14 pages.
<PAGE>
PREMIUMWEAR, INC.
INDEX
Page No.
--------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
April 1, 2000 and January 1, 2000................................ 3
Condensed Consolidated Statements of Operations
for the Three Months ended April 1, 2000
and April 3, 1999................................................ 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended April 1, 2000
and April 3, 1999................................................ 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 8
Item 3. Qualitative and Quantitative Disclosures about Market Risk....... 11
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 12
Exhibit 27 - Financial Data Schedule............................. 14
2
<PAGE>
PREMIUMWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
April 1, January 1,
2000 2000
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 273 $ 2,744
Accounts receivable, less allowances of $381 and $377 ........... 9,300 7,769
Inventories ..................................................... 10,840 10,421
Deferred taxes .................................................. 1,224 1,224
Prepaid expenses and other ...................................... 929 1,146
---------- ----------
Total current assets ........................................ 22,566 23,304
---------- ----------
Property, plant and equipment, less accumulated
depreciation and amortization of $1,333 and $1,171 .............. 3,247 3,258
Deferred taxes ..................................................... 2,788 2,788
Noncurrent prepaid expenses ........................................ 186 176
Goodwill ........................................................... 2,238 2,277
---------- ----------
$ 31,025 $ 31,803
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 4,029 $ 6,607
Accrued payroll and employee benefits ........................... 859 1,323
Other accruals .................................................. 869 751
---------- ----------
Total current liabilities ................................... 5,757 8,681
---------- ----------
Postretirement benefits ............................................ 657 657
Line of credit borrowings .......................................... 1,283 --
Long-term debt ..................................................... 937 937
---------- ----------
Total long-term liabilities ................................. 2,877 1,594
---------- ----------
Shareholders' equity:
Common stock, $.01 par value:
2,613,860 and 2,596,610 shares issued ....................... 26 26
Additional paid-in capital ...................................... 18,418 18,052
Treasury stock (50,000 shares at cost) .......................... (272) (272)
Retained earnings ............................................... 4,219 3,722
---------- ----------
Total shareholders' equity .................................. 22,391 21,528
---------- ----------
$ 31,025 $ 31,803
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
PREMIUMWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
April 1, 2000 April 3, 1999
------------- -------------
<S> <C> <C>
REVENUES:
Net sales ..................................................... $ 13,091 $ 8,998
Commission income ............................................. 581 49
------------ ------------
13,672 9,047
------------ ------------
EXPENSES:
Cost of goods sold ............................................ 9,015 6,276
Selling, general and administrative ........................... 3,767 2,318
------------ ------------
12,782 8,594
------------ ------------
OPERATING INCOME ................................................... 890 453
Interest income (expense), net ..................................... (57) 39
------------ ------------
Income before income taxes ......................................... 833 492
Provision for income taxes ......................................... 336 202
------------ ------------
NET INCOME ...................................................... $ 497 $ 290
============ ============
NET INCOME PER COMMON SHARE:
BASIC ....................................................... $ 0.19 $ 0.12
DILUTED ..................................................... $ 0.19 $ 0.12
Weighted average number of shares of common stock outstanding:
Basic ....................................................... 2,555 2,366
Diluted, including common stock equivalents ................. 2,645 2,453
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
PREMIUMWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts unaudited and in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 1, 2000 April 3, 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................... $ 497 $ 290
Reconciling items:
Depreciation and amortization .................................... 201 122
Provision for losses on accounts receivable ...................... 23 22
Utilization of net operating loss carryforwards .................. 284 158
Changes in operating assets and liabilities, net of effects
of acquisition:
Receivables .................................................. (1,554) 446
Inventories .................................................. (419) (2,616)
Prepaid expenses and other ................................... 207 32
Accounts payable ............................................. (2,578) 170
Other current liabilities .................................... (346) (527)
------------ ------------
Net cash used in operating activities ............................ (3,685) (1,903)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ............................ (307) (187)
Purchase of Klouda-Lenz, net of cash acquired ........................ -- (1,474)
Proceeds from sale of property, plants & equipment ................... 156 --
------------ ------------
Net cash used in investing activities ............................ (151) (1,661)
------------ ------------
FINANCING ACTIVITIES:
Net change in line of credit borrowings .............................. 1,283 605
Proceeds from exercise of stock options .............................. 82 --
------------ ------------
Net cash provided by financing activities ........................ 1,365 605
------------ ------------
Decrease in cash and cash equivalents ............................ (2,471) (2,959)
Cash and cash equivalents at beginning of period ..................... 2,744 3,215
------------ ------------
Cash and cash equivalents at end of period ........................... $ 273 $ 256
============ ============
Non-cash transaction:
Issuance of 241,892 shares of common stock in Klouda-Lenz
acquisition ........................................................ $ -- $ 1,209
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
PREMIUMWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 1, 2000
1. Basis of Financial Statement Presentation
The condensed consolidated financial statements for the three months
ended April 1, 2000 of PremiumWear, Inc. (the Company), 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.
Due to the seasonality of the business, results of operations for the
three months ended April 1, 2000 are not necessarily indicative of
results for the full year.
These financial statements should be read in conjunction with the
Company's most recent audited financial statements included in its 1999
Annual Report to Shareholders and its 1999 Form 10-K.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
April 1, January 1,
(In thousands) 2000 2000
-------------- ---- ----
Raw materials .......................... $ 161 $ 141
Work in process ........................ 1,227 1,458
Finished goods ......................... 9,452 8,822
---------- ----------
$ 10,840 $ 10,421
========== ==========
3. Financing Arrangements
The Company has a bank line of credit under which up to $6,000,000 is
available for borrowings and letters of credit through February 2002.
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 1, 2000, $4,469,000 was available under the line of credit.
Amounts utilized for borrowings and letters of credit were $1,283,000
and $248,000, respectively.
6
<PAGE>
4. Net Income per Common Share
Net income per common share was computed as follows:
<TABLE>
<CAPTION>
Three Months Ended
April 1, 2000 April 3, 1999
------------- -------------
<S> <C> <C>
Basic Earnings Per Share:
Weighted average number of common shares
outstanding.......................................... 2,555,000 2,366,000
Net income....................................... $ 497,000 $ 290,000
Net income per common share...................... $ 0.19 $ 0.12
=========== ============
Diluted Earnings Per Share:
Weighted average number of common shares
outstanding.......................................... 2,555,000 2,366,000
Common share equivalents from assumed exercise
of options........................................... 90,000 87,000
----------- ------------
Total shares..................................... 2,645,000 2,453,000
Net income....................................... $ 497,000 $ 290,000
Net income per common share and common
share equivalents.............................. $ 0.19 $ 0.12
=========== ============
</TABLE>
5. Reclassifications
Certain amounts in the 1999 financial statements have been reclassified
to conform to 2000 presentation. These reclassifications had no effect
on previously reported net income or shareholders' equity.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FIRST QUARTER
REVENUES increased 51% vs. the first quarter of 1999 due to a strong
increase in orders for Munsingwear(R) corporate apparel for the
promotional products/advertising specialty industry (PPAI/ASI). The
Company also benefited from a full quarter of commission revenue from
Klouda-Lenz, Inc., which was acquired near the end of last year's first
quarter.
Order backlog totaled $2,918,000 vs. $3,000,000 at the same time last
year. The change includes a slight decrease in Munsingwear(R) open
orders offset by an increase in Page & Tuttle(R) orders.
GROSS MARGIN in the quarter was 34.1% vs. 30.6% in the first quarter
last year. The improvement was primarily due to the completion of the
Company's move to 100% offshore sourcing which lowered unit production
costs, an increase in sales to the higher margin advertising specialty
industry and commission income which has little related cost of goods
sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE in the quarter increased to
27.6% of total revenues in 2000 from 25.6% in the first quarter 1999.
This increase was due to a full quarter of commission expense related
to Klouda-Lenz, Inc. activity, and to certain short term operating cost
inefficiencies in the first months of operating the Company's new
distribution center which was opened in late 1999.
NET INTEREST EXPENSE during the quarter was $57,000 compared with NET
INTEREST INCOME of $39,000 in the prior year, when the Company had
excess funds during most of the quarter preceding the purchase of
Klouda-Lenz, Inc.
At the beginning of 2000, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$18,000,000, which will begin to expire in 2005. Due to the adoption of
"Fresh Start Reporting" in 1991, the Company recognized no benefit from
operating loss carryforwards in its PROVISION FOR INCOME TAXES but
rather reflected such benefit as a direct credit to shareholders'
equity, which amount totaled $284,000 in the first quarter of 2000.
8
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The financial condition of the Company is reflected in the following:
April 1, January 1,
(In thousands) 2000 2000
-------------- ---- ----
Working capital ........................ $ 16,809 $ 14,623
Current ratio .......................... 3.9:1 2.7:1
Shareholders' equity ................... $ 22,391 $ 21,528
As reported in the Condensed Consolidated Statements of Cash Flows,
operating activities during the first three months of 2000 consumed
$3,685,000 of cash, primarily the result of a $2,578,000 reduction in
payables associated with December 1999 inventory receipts; accompanied
by a $1,554,000 increase in receivables due to the first quarter sales
increase.
LOOKING FORWARD
Management's strategic plans emphasize continued development of the
PPAI/ASI channel of distribution, supported by improved customer
service, and increased efficiencies at the Company's new distribution
center, which opened in November 1999. The Company seeks to profitably
broaden its spectrum of product offerings to the PPAI/ASI market, as
evidenced by agreements signed in the first quarter of 2000 to
represent CROAKIES(R) and Softspikes(R) accessories. In addition, the
Company is seeking continuous improvement in quick response to these
markets, by developing and implementing certain customer service
initiatives, upgrading its website, and streamlining distribution
center operations.
Management plans capital spending of approximately $1,500,000 in 2000,
primarily for upgrading its website and continued investment in
distribution center processes and equipment. Management believes the
Company's bank line of credit and funds generated from operations will
be sufficient to meet operating and capital spending needs. In
addition, management believes other sources of capital are available,
if necessary.
Long-term management priorities remain focused on building strategic
alliances to increase the Company's product offerings, and utilizing
information technology to improve the Company's service levels to its
customers.
9
<PAGE>
CAUTIONARY STATEMENT
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, elsewhere in Form 10-Q
of which this is a part, 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 selling prices which could adversely impact sales and gross
margins; (ii) the inability to carry out marketing and sales plans
would have a materially adverse impact on the Company's projections;
(iii) the Company is a licensee of the Munsingwear(R) brand and
maintaining a cooperative working relationship with the licensor is
important for continued successful development of the PPAI/ASI
business; (iv) as a licensee, the Company is dependent on the licensor
to adequately promote and properly distribute 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.
10
<PAGE>
ITEM 3. QUALITATIVE AND QUANTITIVE DISCLOSURES ABOUT
MARKET RISK
MARKET RISK
Market risk is the potential loss arising from adverse changes in
market rates and prices, such as foreign currency exchange rates,
interest rates and commodity futures pricing. The Company is exposed to
various market risks, including fluctuations in foreign currency
exchange rates, interest rates and cotton prices. The Company does not
enter into derivatives or other financial instruments for trading,
speculative or hedging purposes.
The Company follows certain practices to manage market risk. Contracts
for the purchase of goods from Far East suppliers are negotiated in
U.S. dollars, which tends to minimize the potential for short-term loss
due to adverse changes in foreign currency exchange rates. The Company
invests excess funds in U.S. government securities with maturities of
30 days or less, minimizing the effect of short-term interest rate
changes on investments. The Company's products are made chiefly of
cotton, the price of which is affected by worldwide commodity futures
markets. The Company negotiates fabric purchases for twelve-month
intervals, which minimizes the effect of short-term fluctuations in the
price of cotton.
11
<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.
* * * * *
12
<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 10, 2000 /s/ David E. Berg
--------------- -------------------------------------
David E. Berg
President & CEO
/s/ James S. Bury
-------------------------------------
James S. Bury
Vice President of Finance
Principal Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-06-2001
<PERIOD-END> APR-01-2000
<CASH> 273
<SECURITIES> 0
<RECEIVABLES> 9,300
<ALLOWANCES> 381
<INVENTORY> 10,840
<CURRENT-ASSETS> 22,566
<PP&E> 4,580
<DEPRECIATION> 1,333
<TOTAL-ASSETS> 31,025
<CURRENT-LIABILITIES> 5,757
<BONDS> 0
0
0
<COMMON> 26
<OTHER-SE> 22,365
<TOTAL-LIABILITY-AND-EQUITY> 31,025
<SALES> 13,091
<TOTAL-REVENUES> 13,672
<CGS> 9,015
<TOTAL-COSTS> 9,015
<OTHER-EXPENSES> 3,767
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 833
<INCOME-TAX> 336
<INCOME-CONTINUING> 497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 497
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
