UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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.........333-18755.......................................
.....................................Pluma, Inc..........
(Exact name of registrant as specified in its charter)
North Carolina 56-1541893
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
.............................................................................
(Address of principal executive offices)
(Zip Code)
...............801 Fieldcrest Road, Eden, North Carolina 27289................
(Registrant's telephone number, including area code)
.............................(910) 635-4000..............................
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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
...... ........
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date 8,109,152 shares of
common stock, no par value, as of November 14, 1997
<PAGE>
1
PLUMA, INC.
INDEX TO FORM 10-Q
- -----------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
<TABLE>
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Page
Item 1. Financial Statements
Balance Sheets - September 30, 1997 and December 31, 1996 3
Statements of Operations - Three Months and Nine Months Ended September 30, 1997
and 1996 4
Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 5
Notes to 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 10
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
PLUMA, INC.
Balance Sheets
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
September 30, December 31,
1997 1996
Assets
Current assets:
Cash $ 138,802 $ 291,488
Accounts receivable (less allowance - 1997, 1,007,200
1996, $817,080) 41,161,412 22,545,795
Refundable income taxes 319,937
Deferred income taxes 1,305,967 1,509,535
Inventories 35,010,866 34,025,895
Other current assets 283,511 627,576
----------- ----------
Total current assets 78,220,495 59,000,289
----------- ----------
Property, plant and equipment:
Land 599,978 599,978
Land improvements 719,699 678,160
Buildings and improvements 14,441,942 14,078,626
Machinery and equipment 40,158,662 31,753,681
----------- ----------
Total property, plant and equipment 55,920,281 47,110,445
Less accumulated depreciation 20,485,339 17,468,062
---------- ----------
Property, plant and equipment, net 35,434,942 29,642,383
---------- ----------
Other assets 798,163 575,662
----------- ----------
Total $ 114,453,600 $ 89,218,334
----------- ----------
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 849,640 $ 849,640
Note payable 187,773
Accounts payable 6,725,626 4,456,770
Income taxes payable 371,500
Accrued expenses 4,039,718 3,421,181
--------- ---------
Total current liabilities 11,802,757 9,099,091
--------- ---------
Long-term debt 33,303,467 44,419,544
--------- ---------
Deferred income taxes 3,658,918 3,556,806
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized
Common stock, no par value, 15,000,000 shares authorized,
shares issued and outstanding - September 30, 1997, 8,109,152;
1996, 5,315,852 7,222,550 7,222,550
Paid-in-capital 29,626,577
Retained earnings 28,839,331 24,920,343
--------- ---------
Total shareholders' equity 65,688,458 32,142,893
--------- ---------
Total $ 114,453,600 $ 89,218,334
========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
PLUMA, INC.
Statements of Operations
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Net sales $ 38,965,527 $ 39,719,025 $ 99,477,525 $ 95,538,124
Cost of goods sold 34,068,210 32,126,408 84,714,875 80,907,717
------------ ---------- ------------ -----------
Gross profit 4,897,317 7,592,617 14,762,650 14,630,407
Selling, general and administrative expenses 1,738,339 2,355,404 7,043,811 6,678,230
------------ ---------- ------------ -----------
Income from operations 3,158,978 5,237,213 7,718,839 7,952,177
------------ ---------- ------------ -----------
Other income (expenses):
Interest expense (519,051) (1,027,667) (1,697,223) (2,846,085)
Other income 158,139 118,714 407,878 359,606
------------ ---------- ------------ -----------
Total other expenses, net (360,912) (908,953) (1,289,345) (2,486,479)
------------ ---------- ------------ -----------
Income before income taxes 2,798,066 4,328,260 6,429,494 5,465,698
------------ ---------- ------------ -----------
Income taxes 1,029,688 1,592,800 2,366,054 2,011,377
------------ ---------- ------------ -----------
Net income $ 1,768,378 $ 2,735,460 $ 4,063,440 $ 3,454,321
------------ ---------- ------------ -----------
Earnings per common share and common equivalent -
primary and fully diluted $ .22 $ .51 $ .55 $ .65
------------ ---------- ------------ -----------
Weighted average number of shares outstanding 8,109,152 5,315,852 7,366,625 5,315,852
------------ ---------- ------------ -----------
The accompanying notes are an integral part of this statement.
</TABLE>
4
<PAGE>
PLUMA, INC.
Statements of Cash Flows
- ------------------------------------------------------------------------------
<TABLE>
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<S> <C> <C>
(Unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income $ 4,063,440 $ 3,454,321
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for depreciation and amortization 3,018,571 2,832,072
Other, net (1,162) 4,038
Increase in accounts receivable (18,615,617) (13,038,484)
Increase in deferred income taxes 305,680 1,099,933
Increase in inventories (984,971) (983,431)
(Increase) decrease in other current assets 344,065 (286,529)
Increase in accounts payable 2,268,856 2,666,946
(Increase) decrease in refundable income taxes (691,437) 1,140,257
Increase in accrued expenses 618,535 1,635,785
Decrease in note payable - related party sales agency - (1,999,000)
---------- -------------
Net cash used in operating activities (9,674,040) (3,474,092)
---------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (8,814,148) (1,974,263)
Other, net (218,320) 10,073
---------- -------------
Net cash used in investing activities (9,032,468) (1,964,190)
---------- -------------
Cash flows from financing activities:
Repayment of subordinated debt (849,640) (849,640)
Net borrowings from note payable 187,773 10,000,000
Net repayments of revolving loan (10,266,437) (3,818,453)
Net proceeds from sale of common stock 29,626,577 -
Payment of dividends (144,451) (433,353)
---------- -------------
Net cash provided by financing activities 18,553,822 4,898,554
---------- -------------
Net decrease in cash (152,686) (539,728)
Cash, beginning of period 291,488 596,429
---------- -------------
Cash, end of period $ 138,802 $ 56,701
---------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 1,889,717 $ 2,865,017
Income taxes $ 2,751,811 $ 171,188
Cash received during the period for:
Income taxes $ 400,000
The accompanying notes are an integral part of this statement.
</TABLE>
5
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The accompanying unaudited financial statements of Pluma, Inc. (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim periods.
In the opinion of management, these financial statements include all
adjustments, including all normal recurring accruals, necessary for a fair
presentation of the financial position at September 30, 1997 and December
31, 1996, the results of operations for the three months and nine months
ended September 30, 1997 and 1996 and cash flows for the nine months ended
September 30, 1997 and 1996.
The operating results for the three months and nine months ended September
30, 1997 are not necessarily indicative of the results to be expected for
the full year ending December 31, 1997.
2. INVENTORIES
Inventories consist of the following:
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
At FIFO cost:
Raw materials $ 1,490,557 $ 1,279,512
Work-in-progress 4,643,401 3,297,522
Finished goods 29,061,938 30,037,951
Production supplies 982,097 608,824
-------------- ---------------
36,177,993 35,223,809
Excess of FIFO over LIFO cost (832,109) (83,930)
-------------- ---------------
35,345,884 35,139,879
Excess of cost over market (335,018) (1,113,984)
--------------- ---------------
$ 35,010,866 $ 34,025,895
============== ===============
3. CAPITAL STOCK
On January 28, 1997, the Board of Directors declared a 0.736-for-one
reverse common stock split for shareholders of record on February 3, 1997.
All references in the accompanying financial statements to the number of
common shares and per share amounts reflect the reverse stock split.
In March 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock at $12.00 per share. The $26,400,000 net
proceeds were used to reduce debt.
6
<PAGE>
In April 1997, the Underwriters' over-allotment option for 293,300 shares
of Common Stock at $12.00 per share was exercised. The $3,300,000 net
proceeds were used to reduce debt.
4. STOCK OPTIONS
In October 1995, the Company adopted the 1995 Stock Option Plan in which
515,200 shares of the Company's Common Stock may be issued. The exercise
price of the options may not be less than the fair value of the Common
Stock on the date of grant. The options granted become exercisable at such
time or times as shall be determined by the Compensation Committee of the
Board of Directors (the "Committee"). The Committee may at any time
accelerate the exercisability of all or any portion of any stock option.
These options expire, if not exercised, ten years from the date of grant.
Participants in the Plan may be independent contractors or employees of
independent contractors, full or part-time officers and other employees of
the Company, or independent directors of the Company.
In October 1995 and April 1996, the Company granted 379,776 and 32,384
options, respectively, to purchase Common Stock at an exercise price of
$13.077 per share of which 117,171 options are exercisable as of September
30, 1997 and December 31, 1996. 2,355 and 29,440 options were forfeited as
of September 30, 1997 and December 31, 1995. The remaining 263,194 options
become exercisable in 20% increments on the anniversary dates of the
grants as follows:
YEAR SHARES
1997 64,179
1998 64,179
1999 64,179
2000 64,180
2001 6,477
----------
263,194
----------
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the 1995 Stock Option Plan. Accordingly, no compensation
cost has been recognized since the exercise price approximates the fair
value of the stock price at the grant dates. Had compensation cost been
determined based on the fair value at the grant date consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" the Company's net income and earnings per
share would have been effected for the three months and nine months ended
September 30, 1997 and 1996 as indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Net Income:
As reported $1,768,378 $ 2,735,460 $ 4,063,440 $ 3,454,321
Pro forma $1,768,378 $ 2,735,460 $ 4,063,440 $ 3,315,819
Earnings per Share:
As reported $ .22 $ .51 $ .55 $ .65
Pro forma $ .22 $ .51 $ .55 $ .62
</TABLE>
7
<PAGE>
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") which changes the method of computing and presenting earnings
per share. SFAS 128 requires the presentation of basic earnings per share
and diluted earnings per share ("EPS") on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. Basic earnings per share is computed by dividing the net
income available to common shareholders by the weighted average shares of
outstanding common stock. The calculation of diluted earnings per share is
similar to basic earnings per share except that the denominator includes
dilutive common stock equivalents such as stock options and warrants. SFAS
128 is effective for financial statements for periods ending after
December 15, 1997 and early adoption is not permitted. The pro forma basic
earnings per share and diluted earnings per share calculated in accordance
with SFAS 128 for the three months and nine months ended September 30, are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Three Months Nine months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Pro forma basic earnings per share $ .22 $ .51 $ .55 $ .65
Pro forma diluted earnings per share $ .22 $ .51 $ .55 $ .65
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
The following discussion and analysis should be read in conjunction with
the financial statements and related notes of this Quarterly Report on
Form 10-Q and should be read in conjunction with the Company's 1996 Annual
Report.
RESULT OF OPERATIONS
The following table presents the major components of the Company's
Statement of Operations as a percentage of net sales:
(Unaudited) (Unaudited)
Three Months Nine months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 87.4 80.9 85.2 84.7
Gross profit 12.6 19.1 14.8 15.3
Selling, general and
administrative expenses 4.5 5.9 7.0 7.0
Income from operations 8.1 13.2 7.8 8.3
Other expenses, net .9 2.3 1.3 2.6
Income before income taxes 7.2 10.9 6.5 5.7
Income taxes 2.7 4.0 2.4 2.1
Net income 4.5 6.9 4.1 3.6
8
<PAGE>
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 ("1997"), COMPARED TO
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 ("1996")
NET SALES
Net sales for the nine months ended September 30, 1997 were $99.5 million,
an increase of $3.9 million, or 4.1% over net sales of $95.5 million for
the first nine months of 1996. This increase in net sales was principally
attributable to increased sales of fleece and an increase in the combined
average sales price per dozen. Sales of fleece increased by 4.7% to $60.0
million in 1997 from $57.3 million in 1996. The combined average sales
price per dozen increased by 1.6%. Net sales for the third quarter of 1997
were $39.0 million, a decrease of 1.9% from net sales of $39.7 million in
the comparable period of the prior year. This decrease is primarily the
result of lower unit volume.
GROSS MARGINS
Gross margins declined to 12.6% and 14.8% for the third quarter and first
nine months of 1997, respectively, from 19.1% and 15.3% in the comparable
periods of 1996. These declines in gross margin were the result of lower
operating efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
For the first nine months, SG&A expenses increased 5.5% to $7.0 million in
1997 from $6.7 million in 1996. SG&A as a percent of sales for 1997 was
7.0% compared to 6.9% in 1996. This increase in SG&A expense is primarily
attributable to travel and training expenses related to the implementation
of a new management information system and expenses associated with the
opening of new outlet stores. These expense increases were partially
offset by a decline in compensation expense primarily related to lower
bonus accruals.
OTHER EXPENSES, NET
Other expenses, net, decreased 60.3% to $0.4 million in the third quarter
of 1997 and 48.1% to $1.3 million in the first nine months of 1997. This
decrease is due primarily to a decrease in interest expense. Net proceeds
from the March 1997 initial public offering and from the April 1997
overallotment exercise were used to reduce debt.
INCOME TAXES
The effective tax rate was 36.8% in 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
PRINCIPAL SOURCES OF LIQUIDITY
Principal sources of liquidity have been net proceeds from the Company's
initial public offering and bank financing. In March 1997, the Company
completed its initial public offering of 2,500,000 shares of common stock
at $12.00 per share. Upon the exercise of an overallotment option in April
1997, the Company issued an additional 293,300 shares at $12.00 per share.
The $29.6 million in net proceeds from the issuance of Common Stock was
used to reduce debt. The Company maintains a revolving credit facility
which permits borrowing of up to $55.0 million. As of September 30, 1997,
$33.3 million was outstanding under the facility, leaving $21.7 million in
availability. Management believes that the funding available to the
Company is sufficient to meet its anticipated capital expenditure, working
capital, and other financial needs.
CASH FLOWS FROM OPERATING ACTIVITIES
For the nine months ended September 30, 1997 and 1996, net cash used in
operating activities totaled
9
<PAGE>
$9.7 million and $3.5 million, respectively. Accounts receivable, net
increased $18.6 million from December 31, 1996 to September 30, 1997 due
to increased sales volume and the seasonality of activewear shipments.
Inventories increased $1.0 million from December 31, 1996 to September
30, 1997.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures were $8.8 million for the nine months ended September
30, 1997. These capital expenditures were primarily to enhance
manufacturing and management information systems capabilities.
CASH FLOWS FROM FINANCING ACTIVITIES
For the nine months ended September 30, 1997, the Company had net debt
repayments of $11.1 million as $29.6 million net proceeds from the
issuance of Common Stock was used to reduce debt.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On January 28, 1997, the Board of Directors declared a 0.736-for-one
reverse Common Stock split for shareholders of record on February 3,
1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Filed Herewith (*)
11.1 Computation of Earnings per Share *
27 Financial Data Schedule
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pluma, Inc.
-----------------------------------
R. Duke Ferrell, Jr.
President, Chief Executive Officer
and Director
-----------------------------------
Forrest H. Truitt II
Executive Vice President, Treasurer
and Chief Financial Officer
11
<PAGE>
EXHIBIT 11.1
PLUMA, INC.
COMPUTATION OF EARNINGS PER SHARE
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<CAPTION>
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
INCOME AVAILABLE TO COMMON SHAREHOLDERS:
Net income available to common shareholders $ 1,768,378 $ 2,735,460 $ 4,063,440 $ 3,454,321
============ ============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Common shares outstanding 8,109,152 5,315,852 7,366,625 5,315,852
Assumed exercise of stock options
--------- --------- --------- ---------
Total 8,109,152 5,315,852 7,366,625 5,315,852
========== ========== ========== =========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT - PRIMARY AND FULLY DILUTED $ .22 $ .51 $ .55 $ .65
====== ====== ====== =====
</TABLE>
12
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary Financial Information extracted from the
balance sheet and statements of operations for the nine months ended
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 138,802
<SECURITIES> 0
<RECEIVABLES> 42,168,612
<ALLOWANCES> 1,007,200
<INVENTORY> 35,010,866
<CURRENT-ASSETS> 78,220,495
<PP&E> 55,920,281
<DEPRECIATION> 20,485,339
<TOTAL-ASSETS> 114,453,600
<CURRENT-LIABILITIES> 11,802,757
<BONDS> 33,303,467
0
0
<COMMON> 7,222,550
<OTHER-SE> 58,465,908
<TOTAL-LIABILITY-AND-EQUITY> 114,453,600
<SALES> 99,477,525
<TOTAL-REVENUES> 99,477,525
<CGS> 84,714,875
<TOTAL-COSTS> 84,714,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 190,120
<INTEREST-EXPENSE> 1,697,223
<INCOME-PRETAX> 6,429,494
<INCOME-TAX> 2,366,054
<INCOME-CONTINUING> 4,063,440
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,063,440
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
