<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (section mark)240.14a-11(c) or
(section mark)240.14a-12
Pluma, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth in amount on which the filing
fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
June 5, 1997
<PAGE>
(PLUMA LOGO GOES HERE)
Pluma, Inc.
801 Fieldcrest Road
Eden, NC 27288
May 5, 1997
Dear Share Owner:
You are cordially invited to attend the Annual Meeting of
share owners which will be held on Thursday, June 5, 1997, at
10:00 a.m., local time at Bassett Country Club, Oak Level Road,
Bassett, Virginia.
The enclosed Notice and Proxy Statement contain details
concerning the business to come before the meeting. You will
note that the Board of Directors of the Company recommends a
vote "FOR" the election of four Directors to serve until the
Annual Meeting of share owners to be held in the year 2000 and
"FOR" the ratification of Deloitte & Touche, LLP as independent
auditors of the Company for the 1997 fiscal year. Please sign
and return your proxy card in the enclosed envelope at your
earliest convenience to assure that your shares will be
represented and voted at the meeting even if you cannot attend.
Sincerely,
/s/ George Walker Box /s/ Robert Ferrell, Jr.
G. WALKER BOX R. DUKE FERRELL JR.
<PAGE>
(PLUMA LOGO GOES HERE)
NOTICE OF ANNUAL MEETING OF SHARE OWNERS
TO THE OWNERS OF COMMON STOCK
PLUMA, INC.
The Annual Meeting of share owners of PLUMA, INC. A North Carolina
corporation (the "Company"), will be held at Bassett Country Club, Oak Level
Road, Bassett, Virginia, on Thursday, June 5, 1997, at 10:00 a.m., local time,
for the following purposes:
1. to elect four Directors to serve until the Annual Meeting of share
owners to be held in the year 2000;
2. to ratify the appointment of Deloitte & Touche, LLP as independent
auditors; and,
3. to transact such other business as may properly come before the meeting
and any adjournments or postponements thereof.
Share owners of record at the close of business on April 22, 1997, are
entitled to notice of and to vote at the meeting and any adjournments or
postponements thereof. A list of share owners of the Company as of the close of
business on April 22, 1997, will be available for inspection during normal
business hours from May 15 through June 4, 1997, at the offices of the Company
and will also be available at the meeting.
Attendance at the meeting will be limited to shareholders of record or
their authorized representative by proxy. If your shares are held through an
intermediary, such as a bank or broker, you should request a ticket from the
intermediary, or present proof of your ownership of Pluma, Inc., shares at the
meeting. Proof of ownership could include a proxy from the intermediary or a
copy of your account statement, which confirms your beneficial ownership of
Pluma, Inc., shares.
By Order of the Board of Directors
/s/ George G. Wade
SECRETARY
Eden, North Carolina
May 5, 1997
EACH SHARE OWNER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A SHARE OWNER DECIDES TO ATTEND THE MEETING, HE OR SHE
MAY, IF SO DESIRED, REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.
<PAGE>
PROXY STATEMENT
FOR ANNUAL MEETING OF SHARE OWNERS
TO BE HELD JUNE 5, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ELECTION OF DIRECTORS.................................................................................................. 1
Board of Directors................................................................................................... 1
Recommendation of the Board of Directors Concerning the Election of Directors........................................ 2
NOMINEES FOR ELECTION TO TERM EXPIRING 2000............................................................................ 2
INCUMBENT DIRECTORS -- TERM EXPIRING 1999.............................................................................. 2
INCUMBENT DIRECTORS -- TERM EXPIRING 1998.............................................................................. 2
COMMITTEES OF THE BOARD OF DIRECTORS, MEETINGS AND COMPENSATION OF DIRECTORS........................................... 3
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............................................................ 4
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS INVOLVING DIRECTORS NOT ON THE COMPENSATION COMMITTEE................... 5
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................................................................ 5
OWNERSHIP OF EQUITY SECURITIES IN THE COMPANY.......................................................................... 6
PRINCIPAL SHARE OWNERS................................................................................................. 7
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION................................................................ 7
Overall Objectives and Programs...................................................................................... 7
Components of Executive Compensation................................................................................. 8
Base Salary.......................................................................................................... 8
Senior Executive Bonus Plan.......................................................................................... 8
Stock Option Plan.................................................................................................... 9
Benefits............................................................................................................. 10
Sales Incentive Plan................................................................................................. 10
1996 Compensation for the Chief Executive Officer.................................................................... 10
Summary.............................................................................................................. 10
PERFORMANCE GRAPH...................................................................................................... 11
EXECUTIVE COMPENSATION................................................................................................. 12
Summary Compensation Table........................................................................................... 12
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS............................................................................ 12
Aggregated Option/SAR Exercises in the Last Fiscal Year-End and FY End Option Values................................. 13
Option Grants in Last Fiscal Year.................................................................................... 13
Employment Agreements, Change of Control Arrangements................................................................ 13
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.................................................................... 15
Recommendation of the Board of Directors............................................................................. 15
PROXY PROCEDURE AND EXPENSES OF SOLICITATION........................................................................... 15
SHARE-OWNERS' PROPOSALS................................................................................................ 16
OTHER INFORMATION...................................................................................................... 16
</TABLE>
<PAGE>
PLUMA, INC.
Eden, North Carolina
May 5, 1997
PROXY STATEMENT
FOR ANNUAL MEETING OF SHARE OWNERS
TO BE HELD JUNE 5, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Pluma, Inc. (The "Company") to be
voted at the Annual Meeting of share owners of the Company to be held at Bassett
Country Club, Oak Level Road, Bassett, Virginia, on June 5, 1997, at 10:00 a.m.,
local time, and at any adjournments or postponements thereof.
All proxies delivered pursuant to this solicitation are revocable at any
time at the option of the persons executing them by giving written notice to the
Secretary of the Company, by delivering a later dated proxy or by voting in
person at the Annual Meeting.
The mailing address of the principal executive offices of the Company is
801 Fieldcrest Road, Eden, North Carolina, 27288. The approximate date on which
this Proxy Statement, form of proxy, and Annual Report to share owners are first
being sent or given to share owners is May 5, 1997.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of Directors to serve until the Annual
Meeting of share owners to be held in the year 2000, in voting by proxy, share
owners may vote in favor of all nominees or withhold their votes as to all
nominees or withhold their votes as to specific nominees. With respect to the
ratification of the appointment of Deloitte & Touche LLP as independent
auditors, share owners may vote in favor of the proposal, against the proposal
or may abstain from voting. Share owners should specify their choices on the
enclosed form of proxy. If no specific instructions are given with respect to
the matters to be acted upon, the shares represented by a signed proxy will be
voted FOR the election of all nominees and FOR the proposal to ratify the
appointment of Deloitte & Touche LLP. Directors will be elected by a plurality,
and ratification of the appointment of Deloitte & Touche LLP will require
approval by a majority of the votes cast by the holders of the shares of Common
Stock of the Company voting in person or by proxy at the Annual Meeting.
Accordingly, abstentions and broker non-votes will not be included in vote
totals and will have no effect on the outcome of the vote. Only owners of record
of shares of Common Stock of the Company at the close of business on April 22,
1997, are entitled to vote at the meeting or adjournments or postponements
thereof. Each owner of record on the record date is entitled to one vote for
each share of Common Stock of the Company so held. On April 22, 1997, there were
8,109,152 shares of Common Stock of the Company issued and outstanding.
ELECTION OF DIRECTORS
(ITEM 1)
BOARD OF DIRECTORS
The Board of Directors consists of ten members. The Directors are divided
into three classes, each class serving for a period of three years, which has
been the practice of the Company since June of 1996.
Approximately one-third of the members of the Board of Directors are
elected by the share owners annually. The Directors, whose terms will expire at
the 1997 Annual Meeting of share owners are George G. Wade, G. Walker Box, Dr.
David C. Jones and J. Robert Philpott, Jr., all of whom have been nominated to
stand for reelection as Directors at the 1997 Annual Meeting of share owners to
hold office until the Annual Meeting of share owners to be held in the year 2000
and until their successors are elected and qualified.
Should any one or more of these nominees become unable to serve for any
reason, or for good cause will not serve, which is not anticipated, the Board of
Directors may, unless the Board by resolution provides for a lesser number of
Directors, designate substitute nominees, in which event the persons named in
the enclosed proxy will vote proxies that would otherwise be voted for all named
nominees for the election of such substitute nominee or nominees.
1
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS CONCERNING THE ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR GEORGE G. WADE,
G. WALKER BOX, DR. DAVID C. JONES AND J. ROBERT PHILPOTT, JR., AS DIRECTORS TO
HOLD OFFICE UNTIL THE ANNUAL MEETING OF SHARE OWNERS TO BE HELD IN THE YEAR 2000
AND UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED. PROXIES RECEIVED BY THE
BOARD OF DIRECTORS WILL BE SO VOTED UNLESS SHARE OWNERS SPECIFY IN THEIR PROXY A
CONTRARY CHOICE.
NOMINEES FOR ELECTION TO TERM EXPIRING 2000
GEORGE G. WADE, age 63, a founder of the Company, served as Chairman of the
Company's Board of Directors until January 1996, when he became Chairman
Emeritus. Mr. Wade served as the Company's President and Chief Executive Officer
from January 1987, until he relinquished the titles of Chief Executive Officer
and President in September 1993 to become the Company's Secretary. Mr. Wade is a
member of the Company's Strategic Planning Committee. Mr. Wade was employed by
Bassett-Walker, Inc. from 1956 to 1986.
G. WALKER BOX, age 46, a founder of the Company, has served as a member of
the Board since 1987 and became Chairman of the Company's Board of Directors in
January 1996. He is a member of the Company's Nominating Committee and Strategic
Planning Committee. Mr. Box was employed by Bassett-Walker, Inc. from 1973 to
1986 when he became the President of Box-Ferrell and Company, the Company's
first exclusive sales agent. Mr. Box served as President of Box & Company from
1991 until December 1995, which served as the Company's exclusive sales agent
until purchased by the Company on December 31, 1995. Mr. Box is also a member of
the Board of Directors of the North Carolina Textile Foundation. Mr. Box is the
brother of Kemp D. Box, a Director of the Company.
DR. DAVID C. JONES, age 50, became a member of the Board of Directors in
1994 and has been engaged in the private practice of orthodontics since 1978. He
serves as a member of the Audit Committee.
J. ROBERT PHILPOTT, JR., age 51, became a director in April 1996. Mr.
Philpott is President, Treasurer and a director of Philpott, Ball & Company
("Philpott, Ball"), a private investment banking firm that he co-founded in
1991. Philpott, Ball has served as a financial adviser to the Company since
1991, providing corporate financial advisory services and valuations of Company
stock from time to time. Prior to founding Philpott, Ball, Mr. Philpott was a
Senior Vice President and Managing Director of Interstate/Johnson Lane, Capital
Markets Group. Mr. Philpott is a member of the Compensation and Strategic
Planning Committees.
INCUMBENT DIRECTORS -- TERM EXPIRING 1999
C. MONROE LIGHT, age 56, a founder of the Company, has been Vice President
of Manufacturing responsible for yarn sourcing and knitting and a Director since
1987. He became an Executive Vice President in January 1996. Mr. Light was
employed from 1960 to 1986 by Bassett-Walker, Inc. He serves on the Company's
Strategic Planning Committee.
WILLIAM K. MILESKI, age 54, a founder of the Company, has served as a
member of the Board of Directors since 1987 and is a member of the Audit
Committee. He was Vice President of the Company responsible for dyeing,
finishing and cutting operations from 1987 until he left the Company in December
1995 to found Meritage LLC, a contract garment-dyeing company.
KEMP D. BOX, age 43, became a member of the Board of Directors in 1988 and
is a member of the Compensation Committee. He is a private investor. Mr. Box is
the brother of G. Walker Box, who is a Director and executive officer of the
Company.
INCUMBENT DIRECTORS -- TERM EXPIRING 1998
R. DUKE FERRELL, JR., age 44, a founder of the Company, has been the
Company's President since January 1992 and its Chief Executive Officer since
September 1993. He served as the Company's Executive Vice President and Chief
Operating Officer from 1991 until he became President of the Company and is a
member of the Board of Directors, serving on its Nominating Committee and
Strategic Planning Committee. In 1987, Mr. Ferrell was employed by Box-Ferrell
and Company until his employment by Pluma as Executive Vice President and Chief
Operating Officer. He was employed by Bassett-Walker, Inc. from 1982 to 1986.
2
<PAGE>
BARRY A. BOWLES, age 51, became a member of the Board of Directors in 1988
and is the chairman of the Compensation Committee and a member of the Nominating
Committee. Mr. Bowles is Chairman of the Board of Directors of Stanley W. Bowles
Corporation, a general construction contractor by which he has been employed
since 1967.
R. STEPHENS PANNILL, age 50, became a member of the Board of Directors in
1988 and is the chairman of the Audit Committee and a member of the Nominating
Committee. Mr. Pannill is a private investor.
COMMITTEES OF THE BOARD OF DIRECTORS, MEETINGS
AND COMPENSATION OF DIRECTORS
In accordance with the Bylaws of the Company, the Board of Directors has
established a Nominating Committee, an Audit Committee, a Compensation
Committee, and a Strategic Planning Committee. The members of these Committees
are indicated below.
The Company's Board of Directors established an Audit Committee in March
1994. The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to conduct
the annual audit of the Company's financial statements, reviewing the proposed
scope of such audit and approving the audit fees to be paid. This committee is
also responsible for reviewing the adequacy and effectiveness of the internal
auditing, accounting and financial controls of the Company with the independent
public accountants and the Company's financial and accounting staff and
reviewing and approving transactions between the Company and its directors,
officers and their affiliates. The Audit Committee consists exclusively of
outside directors who are R. Stephens Pannill (chairman), Dr. David C. Jones and
William K. Mileski.
The Company's Board of Directors established a Compensation Committee in
April 1989. The Compensation Committee provides a general review of the
Company's compensation plans to ensure that they meet corporate objectives. The
responsibilities of the Compensation Committee also include administering the
Company's Senior Executive Bonus Plan, Sales Incentive Plan, Non-Qualified
Deferred Compensation Plan and 1995 Stock Option Plan, including selecting the
officers and salaried employees to whom bonuses and stock options will be
granted. The Compensation Committee consists exclusively of outside directors
who are Barry A. Bowles (chairman), Kemp D. Box and J. Robert Philpott, Jr.
Until April 10, 1996, G. Walker Box also served as a member of this Committee.
The Company's Board of Directors established a Nominating Committee in
January 1994. The Nominating Committee is responsible for making recommendations
to the Board of Directors concerning executive officer appointments. The
Nominating Committee consists of R. Duke Ferrell, Jr. (chairman), Barry A.
Bowles, G. Walker Box and R. Stephens Pannill.
The Company's Board of Directors established a Strategic Planning Committee
in October 1996. This Committee is responsible for monitoring industry trends
and making recommendations to the Company's Board of Directors regarding Company
actions designed to enable the Company to compete effectively in the future. The
Strategic Planning Committee consists of G. Walker Box, R. Duke Ferrell, Jr., C.
Monroe Light, J. Robert Philpott, Jr. and George G. Wade.
In 1996, the Board of Directors held nine meetings and committees of the
Board of Directors held a total of thirteen meetings. Overall attendance at such
meetings was 97% for Board and 88% for Committees. All of the Directors attended
more than 90% of the aggregate of all meetings of the Board of Directors and the
Committees on which they served during 1996.
Officers of the Company who are also directors do not receive any fee or
remuneration for services as members of the Board of Directors or of any
Committee of the Board of Directors.
Each non-employee director of the Company receives $10,000 annually for
serving as a director, $750 for each board meeting attended and $500 for each
meeting of any Committee of the Board attended, except that the Chairman of each
Committee is paid $750 for each meeting of his Committee which he attends. In
addition, directors may be compensated under the Company's 1995 Stock Option
Plan. J. Robert Philpott, Jr., became a member of the Company's Board of
Directors in April of 1996. At that time, and pursuant to the Company's 1995
stock option plan, Mr. Philpott was granted the option to purchase 14,720 shares
of the Company's common stock at a price of $13.07 per share. At the time of the
grant of this option, the exercise price was equal to or greater than the value
of the option shares. Beginning in April of 1997, and in April of each year
thereafter, Mr. Philpott's right to purchase the option shares vest with respect
to twenty percent of the option shares so granted.
3
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On December 31, 1996, the Company's Compensation Committee consisted of
Barry A. Bowles (Chairman), Dr. David C. Jones, and J. Robert Philpott, Jr.
Until April 10, 1996, G. Walker Box also served as a member of this Committee.
On December 29, 1995, pursuant to an Agreement of Termination and Release,
the Company terminated the Sales and Marketing Agreement with Box & Company by
paying to Box & Company a termination payment in the amount of $2.0 million. The
Company paid Box & Company $1,000 on December 29, 1995, and the balance on
January 30, 1996, pursuant to a promissory note given as payment for the
termination payment. In addition to the $2.0 million termination payment, the
Company paid Box & Company all commissions due under the Sales and Marketing
Agreement for shipments made by the Company to customers prior to December
31,1995 ("Final Commissions"). The amount of the Final Commissions was $152,418,
which was paid in full on February 5, 1996. Also, as part of the negotiated
settlement related to the termination, Pluma assumed the risk of all customer
returns of products previously shipped (for which commissions had been paid) and
waived any further right of offset against sums due Box & Company as the result
of uncollected accounts receivable due from Pluma's customers (on which
commissions had been paid previously). Box & Company is a company solely owned
by G. Walker Box.
North Bowles Partnership is a general partnership of which Barry A. Bowles,
a director of Pluma and a member of its Compensation Committee, owns a 33.0%
general partnership interest.
On June 10, 1989, the Company entered into a lease with North Bowles
Partnership for a building located in Martinsville, Virginia, to operate a
distribution center. On December 1, 1990, this lease was amended to add 67,500
square feet to the building subject to the original lease. The building now
contains 181,550 square feet. Rental expense for 1996 was $52,026 per month, or
a total of $624,312 annually. Rental payments increase with any annual increase
in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The
term of this lease is 20 years. As additional rent, the Company is responsible
for paying 75.0% of the increase in taxes and insurance premium payments due on
this property. This lease grants the Company the option to purchase the
distribution center at the end of the fifth year, tenth year and fifteenth year
of the lease term, as well as at the end of the lease term in June 2009, at a
price to be agreed upon by the parties, or if no agreement can be reached, at a
price determined by appraisers.
On December 1, 1995, the Company entered into a lease with North Bowles
Partnership for a 83,200 square foot building that is being utilized by the
Company as a warehouse, packaging facility and management information systems
location. Seven hundred square feet of additional office space was recently
added to this facility. Rent is payable in monthly installments of $14,500. This
lease terminates on February 1, 1998.
On February 1, 1996, the Company entered into a lease with North Bowles
Partnership for a 200,000 square foot building that is being utilized by the
Company as a warehouse and distribution facility. Annual rental on this facility
is $384,000 payable in equal monthly installments of $32,000. This lease
terminates on July 31, 1998. As additional rent, the Company is responsible for
paying any increase in North Bowles Partnership's taxes and insurance premiums
related to the property in excess of 1995 levels.
For the year ended December 31, 1996, the Company paid Stanley Bowles
Corporation $478,646 for services rendered in connection with the installation
of a new conveyor system linking two of the Company's distribution facilities.
This payment included the cost of the equipment and labor and materials utilized
for installation. Stanley Bowles Corporation is a corporation of which Barry A.
Bowles, a director of Pluma and a member of its Compensation Committee, owns 20%
of the voting stock.
For the year ended December 31, 1996, the Company paid Diversified
Distribution, Inc. $223,338 in fees related to contract services rendered to the
Company for packaging and preparing Company products for shipment. These
services were contracted for on a job-by-job basis as needed during busy
delivery times. The Company has no long term contract for such services. Barry
A. Bowles owns 22.5% of the Common Stock of Diversified Distribution, Inc.
The Company paid Philpott, Ball $120,000 of advisory fees plus
out-of-pocket expenses during 1996 pursuant to a contract for financial advisory
services. The Company has signed a similar contract, requiring the payment of
$120,000 during 1997. Philpott, Ball's advisory services performed or to be
performed under these agreements include negotiating with underwriters regarding
pricing of the Company's stock in a public offering and other matters related
thereto, coordinating selling shareholders in the Company's public offering,
assisting in the preparation of "road-shows" for any public offering, assisting
the Company with strategic planning, executive compensation and benefits,
financial forecasting and acquisition inquiries. J. Robert Philpott, Jr., a
director of the Company, owns 50.0% of the outstanding equity interests in
Philpott, Ball.
4
<PAGE>
With reference to all of the transactions described above, the Company
followed its policy set forth in its Bylaws related to transactions with its
directors ("Interested Directors"). The Company's Bylaws require that any
transaction or series of transactions between the Company and an Interested
Director in which such Interested Director may receive either directly or
indirectly, (through an entity with which the director is affiliated as a
shareholder, partner, director, officer, employee or agent) compensation or
benefits of more than $25,000 within a twelve-month period be first considered
by the Company's Board of Directors (without, the involvement of the Interested
Director and any of his family members who may be directors) and determined by
it that the terms of such transaction(s) are on terms at least equal to, if not
better than, terms which the Company could have received from a party
unaffiliated with the Company. Although transactions in the ordinary course of
the Company's business can be exempted from this requirement, the transactions
described above were not in the ordinary course of business and were on terms at
least equal to, if not better than, the terms the Company could have received
from a nonaffiliated party.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS INVOLVING DIRECTORS
NOT ON THE COMPENSATION COMMITTEE
For the year ended December 31, 1996, the Company paid $42,776 to Meritage
LLC for special contract dyeing services. In addition, in 1996, the Company had
sales of fleece activewear totaling $80,005 to Meritage LLC. Meritage LLC is a
limited liability company principally owned by William K. Mileski, a director of
Pluma and a member of the Company's Audit Committee.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Pluma's
Directors and executive officers and any persons who own beneficially more than
10% of the outstanding shares of the Company's common stock to file with the
Securities and Exchange Commission and the New York Stock Exchange reports
disclosing their initial ownership of the Company's common stock, as well as
subsequent reports disclosing changes of such ownership. The Company became
subject to the reporting requirements of this Rule on March 11, 1997 and
therefore no reports were required to be filed in 1996.
[REMAINDER OF PAGE IS LEFT BLANK INTENTIONALLY]
5
<PAGE>
OWNERSHIP OF EQUITY SECURITIES IN THE COMPANY
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock as of April 22, 1997, by each Director, the
Company's five most highly compensated executive officers at year end and the
Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER PERCENTAGE
OF SHARES OF
BENEFICIALLY OUTSTANDING
NAME(1) OWNED SHARES(2)
<S> <C> <C>
G. Walker Box.......................................................................... 794,061 (2)(3) 9.65 %(3)
R. Duke Ferrell, Jr.................................................................... 513,621 (2)(4) 6.24 %(4)
George G. Wade......................................................................... 423,561 (5) 5.15 %(5)
Kemp D. Box............................................................................ 383,114 (6)(7) 4.66 %(7)
Dr. David C. Jones..................................................................... 359,085 (6)(8) 4.36 %(8)
William K. Mileski..................................................................... 259,934 (6)(9) 3.16 %(9)
C. Monroe Light........................................................................ 281,414 (2)(10) 3.42 %(10)
R. Stephens Pannill.................................................................... 244,241 (6)(11) 2.97 %(6)(11)
Barry A. Bowles........................................................................ 141,579 (6)(12) 1.72 %(6)(12)
Milton A. Barber, IV................................................................... 14,432 (6) .18 %
J. Robert Philpott, Jr................................................................. 7,944 (6) .10 %
All directors and executive officers as a group (17 persons)........................... 3,231,530 39.27 %
</TABLE>
(1) As of April 22, 1997, the percentages calculated are based on 8,109,152
shares issued and outstanding plus 120,115 shares subject to presently
exercisable stock options issued under the Company's 1995 Stock Option Plan,
a total of 8,229,267 shares.
(2) Includes 8,832 shares issuable upon the exercise of options that have vested
(does not include 35,328 shares issuable upon the exercise of options that
have not yet vested).
(3) Includes (a) 23,552 shares owned by the George Walker Box Family Trust of
which G. Walker Box is the trustee and has sole voting and investment power;
(b) 237,687 shares owned by Box, Ferrell & Co. of which Mr. Box shares
voting power and investment power equally with R. Duke Ferrell, Jr. -- these
shares are included in both Mr. Box's and Mr. Ferrell's beneficially owned
shares; (c) 46,758 shares owned by Mr. Box as custodian for his minor
children living in his household; (d) 100,995 shares owned by the George
Henry Box, Jr. Revocable Trust dated April 27, 1992 of which Mr. Box as
Co-trustee, shares voting and investment power equally with Kemp D.
Box -- these shares are included in both Mr. Box's and Kemp D. Box's
beneficially owned shares; and (e) 16,240 shares owned by Mr. Box's wife of
which shares Mr. Box disclaims beneficial ownership.
(4) Includes (a) 237,687 shares owned by Box, Ferrell & Co. of which Mr. Ferrell
shares voting power and investment power equally with G. Walker Box -- these
shares are included in both Mr. Ferrell's and Mr. Box's beneficially owned
shares; (b) 19,636 shares held by Mr. Ferrell as custodian for his minor
children living in his household; (c) 4,740 shares held by Mr. Ferrell's
Individual Retirement Account; and (d) 20,019 shares owned of record by Mr.
Ferrell's wife of which shares Mr. Ferrell disclaims beneficial ownership.
(5) Includes (a) 44,160 shares issuable upon the exercise of options that are
currently exercisable; and (b) 85,376 shares owned by Mr. Wade's wife. Mr.
Wade disclaims beneficial ownership of the shares owned by his wife. Does
not include 589 shares owned by Mr. Wade's adult children who do not reside
in his household.
(6) Includes 2,944 shares issuable upon the exercise of options that are
currently exercisable (does not include 11,776 shares issuable upon the
exercise of options that have not yet vested).
(7) Includes (a) 100,995 shares owned by the George Henry Box, Jr. Revocable
Trust dated April 27, 1992 of which Mr. Box as Co-trustee, shares voting and
investment power equally with G. Walker Box -- these shares are included in
both Mr. Box's and G. Walker Box's beneficially owned shares; (b) 23,552
shares owned by the Kemp D. Box Family Trust, of which Mr. Box is the
trustee and has sole voting and investment power; (c) 4,465 shares owned by
Mr. Box's wife; (d) 18,468 shares owned by Mr. Box's wife as trustee for
trusts for her and Mr. Box's minor children living in Mr. Box's household;
and (e) 43,356 shares owned by Mr. Box's wife as trustee for the Kemp D. Box
Descendants' Trust. Mr. Box disclaims beneficial ownership of all shares
beneficially owned by his wife.
(8) Includes 31,100 shares owned by his Individual Retirement Account, but does
not include 36,108 shares owned by the David C. Jones Foundation, the
trustees of which are Dr. Jones' wife, Karen Jones, and Philip G. Gardner.
6
<PAGE>
(9) Includes 22,080 shares owned by Mr. Mileski's wife of which shares Mr.
Mileski disclaims beneficial ownership. Does not include 3,165 shares owned
by Mr. Mileski's adult children who do not reside in his household.
(10) Includes 58,880 shares owned by Mr. Light's wife of which shares Mr. Light
disclaims beneficial ownership. Does not include 8,689 shares owned by Mr.
Light's adult children who do not reside in his household and 5,888 shares
owned by Mr. Light's grandchildren who do not reside in his household.
(11) Includes (a) all of the 257,600 shares Mr. Pannill owns of record with his
wife as a joint tenant with right of survivorship; and (b) 2,682 shares
owned by Mr. Pannill's wife of which shares Mr. Pannill disclaims
beneficial ownership.
(12) Includes 1,472 shares held by Mr. Bowles' Individual Retirement Account.
Does not include 29 shares owned by Mr. Bowles' adult children who do not
reside in his household and does not include 11,482 shares owned by the
Barry A. Bowles Irrevocable Trust of which John L. Gregory, III is the
trustee.
PRINCIPAL SHARE OWNERS
Set forth in the table below is information as of April 22, 1997 with respect to
persons known to the Company to be the beneficial owners of more than five
percent of the Company's issued and outstanding stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS(1) BENEFICIALLY OWNED OF CLASS
<S> <C> <C>
G. Walker Box............................................................................... 794,061(2) 9.65 %(2)
R. Duke Ferrell, Jr......................................................................... 513,621(3) 6.24 %(3)
George C. Wade.............................................................................. 423,561 5.15 %(3)
</TABLE>
(1) The address of each who is a person five percent shareholder of the Company
is c/o Pluma, Inc., 801 Fieldcrest Road, Eden, North Carolina 27288.
(2) Includes (a) 23,552 shares owned by the George Walker Box Family Trust of
which G. Walker Box is the trustee and has sole voting and investment power;
(b) 237,687 shares owned by Box, Ferrell & Co. of which Mr. Box shares
voting power and investment power equally with R. Duke Ferrell, Jr. -- these
shares are included in both Mr. Box's and Mr. Ferrell's beneficially owned
shares; (c) 46,758 shares owned by Mr. Box as custodian for his minor
children living in his household; (d) 100,995 shares owned by the George
Henry Box, Jr. Revocable Trust dated April 27, 1992 of which Mr. Box as
Co-trustee, shares voting and investment power equally with Kemp D. Box and
(e) 16,240 shares owned by Mr. Box's wife of which shares Mr. Box disclaims
beneficial ownership.
(3) Includes (a) 237,687 shares owned by Box, Ferrell & Co. of which Mr. Ferrell
shares voting power and investment power equally with G. Walker Box -- these
shares are included in both Mr. Ferrell's and Mr. Box's beneficially owned
shares; (b) 19,636 shares held by Mr. Ferrell as custodian for his minor
children living in his household; (c) 4,740 shares held by Mr. Ferrell's
Individual Retirement Account; and (d) 20,019 shares owned of record by Mr.
Ferrell's wife of which shares Mr. Ferrell disclaims beneficial ownership.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of Pluma's
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate future filings by reference,
including this Proxy Statement, in whole or in part, the following Report of the
Compensation Committee shall not be incorporated by reference into any such
filings.
OVERALL OBJECTIVES AND PROGRAMS
The objective of the Company's executive compensation program is to provide
compensation that will attract and retain executives, to motivate each executive
toward the achievement of the Company's short and long-term financial and other
goals and to recognize individual contributions as well as overall business
results. In order to achieve this objective, the primary focus of the
Compensation Committee has been on the competitiveness of each of the key
elements of executive compensation -- base salary, bonus and periodic stock
option grants -- and the compensation package as a whole. In general, the
Committee believes that total compensation should be competitive with the
compensation paid by a peer group used
7
<PAGE>
for compensation comparisons (the "Compensation Peer Group"). As described
below, the Company's total executive compensation has recently become more
dependent upon the Company achieving targeted pre-tax income goals set each year
by the Compensation Committee.
Each year the Compensation Committee reviews a report prepared by Philpott
Ball & Company, the Company's consultant (50% of the outstanding stock of which
is owned by J. Robert Philpott, Jr., a director of the Company and member of the
Compensation Committee) assessing the competitiveness of the Company's
compensation program for the past year with the Compensation Peer Group to
determine whether there is a need to make prospective adjustments in the
compensation of executive officers. The Compensation Peer Group incudes all of
the companies listed on page 11, footnote 2 to the Performance Graph.
Over the last several years the Compensation Committee has sought to relate
an increasingly greater percentage of total executive compensation directly to
the financial performance of the Company and to the part each executive played
in achieving that performance. This has resulted in a compensation package in
which a greater portion of each executive officer's compensation is contingent
upon the achievement of specific targeted pretax income goals for the year. For
1996 executive bonus compensation represented approximately 40.3% of their total
direct compensation (base salary plus bonus).
It has also been the Committee's objective that, in any year in which a
budgeted bonus pool is earned under the Senior Executive Bonus Plan and the
Company's performance compares favorably with the Compensation Peer Group, the
total direct compensation of Pluma's executive officers should be relatively
comparable to the executive compensation of other members of the Compensation
Peer Group whose performances compare to the Company's performance. The same
competitive peer group is used for all components of the compensation package.
The total executive compensation for each top executive in any year is based on
Pluma's financial performance relative to the financial performance of the
Compensation Peer Group (comparing, among other criteria, the company's net
margins, return on assets, total assets, net income and net revenue) and the
attainment of individual non-financial objectives during the preceding fiscal
year. For the most recent period for which information is available, the total
direct compensation of the Company's executive officers was the eighth highest
within the Compensation Peer Group of twenty-four companies.
COMPONENTS OF EXECUTIVE COMPENSATION
The five primary components of executive compensation are:
(Bullet) Base Salary
(Bullet) Senior Executive Bonus Plan
(Bullet) Stock Option Plan
(Bullet) Benefits
(Bullet) Sales Incentive Plan (for salesmen only, only one of which is
currently an executive officer)
Each category is offered to key executives in various combinations,
structured in each case to meet varying business objectives, to cumulatively
provide a level of total compensation that is competitive with total
compensation offered by the Compensation Peer Group.
BASE SALARY
Executive officers' base salaries are determined by evaluating the
responsibilities of their positions and their performance, and by reference to
the levels of base salaries paid in the Compensation Peer Group. In the case of
operating executive officers, other factors considered are manufacturing
productivity; product quality and relationships with customers, suppliers and
employees; employee safety; environmental quality of operations; business
ethics; leadership and management development. The Committee exercises its
judgment in determining the impact that these or any other relevant performance
criteria have on setting the executive officers' base salaries.
SENIOR EXECUTIVE BONUS PLAN
The Company's Compensation Committee administers Pluma's Senior Executive
Bonus Plan (the "Bonus Plan"), which is designed to create incentive for
participants in the Bonus Plan to increase Company profitability. Participants
in the Bonus Plan are stratified by the Compensation Committee into one of two
tiers, based upon the executive's responsibility, past performance with the
Company, and possible impact on Company profitability as a result of his or her
executive position
8
<PAGE>
with the Company. Ten executives participated in the Bonus Plan in 1996 (the
"Participants"). R. Duke Ferrell, Jr., George Walker Box, George G. Wade and C.
Monroe Light participated in tier 1. Milton A. Barber, IV, David S. Green,
Walter E. Helton, Raymond L. Rea, Nancy B. Barksdale and Jeffrey D. Cox
participated in tier 2.
The "Bonus Pool" available for distribution is determined in the early part
of each fiscal year by adding executive compensation to the Company's previous
fiscal year-end's pre-tax income (Pre-Tax Income Before Compensation). In 1996,
20% of this adjusted Pre-Tax Income Before Compensation was the "Compensation
Pool" from which the "Bonus Pool" was determined. In any year, this percentage
could be increased or decreased, at the discretion of the Compensation
Committee, to adjust for increases or decreases in the number of Participants to
allow for unforeseen factors which might affect Pluma's performance and to
adjust for changes in the performance of the Compensation Peer Group. The "Bonus
Pool" is equal to the amount of the "Compensation Pool" less the sum of all base
salaries paid to the Participants for the year in which bonuses are calculated.
The Compensation Committee allocates the "Bonus Pool" between the two tiers
described above in a discretionary manner, with consideration given to the
number of Participants in each tier as determined at the sole discretion of the
Compensation Committee. In addition, the Compensation Committee and the Board
may grant to the tier 1 Participants an extraordinary bonus ("Bonus Percentage")
equal to a percentage (as determined by the Compensation Committee) of any
annual Pre-Tax Income Before Compensation earned in excess of a pre-determined
Pre-Tax Income Before Compensation level (the "Profit Target"). This Bonus
Percentage was 10% of Pre-Tax Income Before Compensation in excess of a
predetermined level of Pre-Tax Income Before Compensation for 1996. The Bonus
Percentage and the Profit Target are determined in the early part of each fiscal
year at the discretion of the Compensation Committee. The Compensation Committee
attempts to set the Profit Target at a level so that if Pluma attains the Profit
Target, the total compensation paid to the Company's executives will be
relatively similar in amount to the total compensation of executives of other
high performing companies within the Compensation Peer Group.
Notwithstanding the formularization of the process used to determine
bonuses under the Bonus Plan, the Compensation Committee is allowed discretion
to consider or disregard extraordinary items, usually of a one-time nature, that
might either increase or decrease the amount of the "Compensation Pool."
STOCK OPTION PLAN
In May 1995, the Company and its shareholders adopted the Pluma, Inc. 1995
Stock Option Plan (the "1995 Stock Option Plan"), which provides for the
issuance of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986 and non-qualified stock options to purchase an
aggregate of up to 515,200 shares of Common Stock. The 1995 Stock Option Plan
permits the grant of options to officers, employees, directors and independent
contractors of the Company and their employees.
The 1995 Stock Option Plan is administered by the Company's Compensation
Committee, of which all voting members are "disinterested persons" within the
meaning of Rule 16b-3 under the Securities and Exchange Act of 1934, as amended
(the "Committee"). Each option is evidenced by written agreement in a form
approved by the Committee. No options granted under the 1995 Stock Option Plan
are transferable by the optionee other than by will or by the laws of descent
and distribution, and each option is exercisable, during the lifetime of the
optionee, only by the optionee.
Under the 1995 Stock Option Plan, the exercise price of an incentive stock
option must be at least equal to 100.0% of the fair market value of the Common
Stock on the date of grant (110.0% of the fair market value in the case of
options granted to employees who hold more than ten percent of the voting power
of the Company's capital stock on the date of grant). The exercise price of a
non-qualified stock option is the same as for incentive stock options. The term
of an incentive or non-qualified stock option is not to exceed ten years (five
years in the case of an incentive stock option granted to a ten percent Pluma
shareholder). The Committee has the discretion to determine the vesting schedule
and the period required for full exercisability of stock options, and all
options granted under the Plan to date have contained a 20.0% per year vesting
schedule, except for options granted to George G. Wade and to a former director,
both who became 100% vested in all option shares granted to them under the 1995
Stock Option Plan at the time of the grant. Upon exercise of any option granted
under the 1995 Stock Option Plan, the exercise price may be paid in cash and/or
such other form of payment as may be permitted under the applicable option
agreement, including, without limitation, previously owned shares of the
Company's Common Stock. J. Robert Phillpot, Jr., was the only director or
executive officer who was granted stock options in 1996. The Company has not
granted stock options each year to its executive officers and directors, but
reserves the right to do so in the future if determined by the Company's Board
of Directors that such grants are necessary for the Company's compensation
structure to remain competitive with the Compensation Peer Group.
9
<PAGE>
BENEFITS
In 1991, the Company adopted the Pluma, Inc. 401(k) Retirement Savings Plan
(the "401(k) Plan"), which is intended to be qualified under section 401(k) of
the Internal Revenue Code of 1986, as amended. To be eligible, an employee must
have been employed by the Company for at least one year. The 401(k) Plan permits
employees who have completed one year of service to defer up to 10.0% of their
annual compensation into the 401(k) Plan, provided, the total amount of
compensation deferred in any year does not exceed the maximum amount allowed
under law (which sum is adjusted annually). Additional annual contributions may
be made at the discretion of the Company, and matching contributions may be made
by the Company up to a maximum of 6.0% of a participating employee's annual
compensation. To date, Company matching contributions have equaled $0.35 for
every $1.00 contributed by the employee. Contributions made by the Company vest
after two years of employment.
Effective December 19, 1996, the Company adopted a Non-Qualified Deferred
Compensation Plan for certain selected key executives and for certain of its
Directors. This plan is designed to mirror the 401(k) Plan. Key executive
employees and directors chosen to participate in this plan are selected by the
Compensation Committee of the Company's Board of Directors. The purposes of this
plan is to provide certain directors and selected key executives of the Company
the opportunity to defer elements of their compensation which might not
otherwise be deferrable under other Company plans, including the 401(k) Plan, to
receive the benefit of additions to their deferral comparable to those
obtainable under the 401(k) Plan in the absence of certain restrictions and
limitations in the Internal Revenue Code, and to provide the directors with
benefits similar to the 401(k) Plan (absent certain restrictions and
limitations) were they eligible to participate in such 401(k) Plan.
SALES INCENTIVE PLAN
The Company's Compensation Committee administers Pluma's Sales Incentive
Plan (the "Sales Incentive Plan") which is designed to create incentive for the
Company's sales staff to increase customer sales. Each year, the Company's
Compensation Committee establishes a base level of annual sales volume (the
"Sales Threshold") upon which the incentive sales bonus is calculated. At each
fiscal year end, the Company subtracts the Sales Threshold from the Company's
actual total net sales for such year. This difference (the "Bonus Base") is the
base amount upon which bonuses are determined for the Company's salespeople. In
the event the Company's actual net sales for a fiscal year exceed the Sales
Threshold, then each Company salesperson is entitled to the payment of a bonus
determined by multiplying his or her base annual salary by a fraction, the
numerator of which is the Bonus Base and the denominator of which is the Sales
Threshold. The Sales Threshold is determined annually by the Company's Board of
Directors after a recommendation from its Compensation Committee. Milton A.
Barber, IV, is currently the only executive officer entitled to participate in
the Company's Sales Incentive Plan.
1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's compensation is determined pursuant to the
same basic factors as described above for other members of senior management. In
establishing a base salary and bonus of the Chief Executive Officer for 1996,
the Committee considered the base salary of the chief executive officers of the
Compensation Peer Group. Mr. Ferrell's bonus was determined in a similar manner
to G. Walker Box, George G. Wade and C. Monroe Light under the Company's Senior
Executive Bonus Plan.
SUMMARY
The Committee believes the executive compensation policies and programs
described in this Report serve the interests of the share owners and the
Company. Pay delivered to executives is intended to be linked to, and
commensurate with, Company performance and with share owner expectations. The
Committee cautions that the practice and the performance results of the
compensation philosophy described herein should be measured over a period
sufficiently long to determine whether strategy development and implementation
are in line with, and responsive to, share owner expectation.
Barry A. Bowles, Chairman
Kemp D. Box
J. Robert Philpott, Jr.
10
<PAGE>
PERFORMANCE GRAPH
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING PERFORMANCE
GRAPH SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
PERFORMANCE GRAPH (1)
Comparisons of Total Cumulative Return Among
Pluma, Inc., S&P 500 Index and Industry Peer Group (2)
(PERFORMANCE GRAPH GOES HERE/PLOT POINTS NEEDED)
(1) Pluma, Inc., completed an initial public offering of its common shares on
March 11, 1997. Therefore, this graph reflects the performance of the common
stock of the Company, the Industry Peer Group and the S&P Index over a very
limited period of time and should not be considered indicative of the future
performance of the Company's stock or the stock of the compared indices.
(2) Based on information for a self-constructed peer group consisting of Tultex
Corporation; Fruit of the Loom, Inc.; Russell Corporation; and VF
Corporation.
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and the four most highly compensated executive officers other than the
Chief Executive Officer (the "Named Officers"), for services rendered to the
Company during 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
(1) SECURITIES
SALARY BONUS UNDERLYING ALL OTHER
NAME AND POSITION YEAR (1) (2) OPTIONS (#) COMPENSATION (3)
<S> <C> <C> <C> <C> <C>
G. Walker Box 1996(4) $196,500 $229,667 -- $1,278
Chairman of the Board 1995 -- -- 44,160 --
1994 -- -- -- --
R. Duke Ferrell, Jr. 1996 196,500 229,667 -- 2,200
President, Chief Executive 1995 192,520 118,164 44,160 1,857
Officer and Director 1994 179,925 32,887 -- 1,280
George G. Wade 1996 189,200 221,135 -- 5,428
Chairman Emeritus of the 1995 185,323 80,760 44,160 4,513
Board, Secretary and Director 1994 179,925 26,309 -- 3,023
C. Monroe Light 1996 168,000 196,357 -- 3,304
Executive Vice President of 1995 153,465 66,877 44,160 2,451
Manufacturing and Director 1994 146,157 16,546 -- 2,242
Milton A. Barber, IV 1996(5) 165,000 59,348(6) -- 316
Vice President of Sales 1995 -- -- 14,720 --
and Marketing 1994 -- -- -- --
</TABLE>
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses, including car allowances. The aggregate
amount of such personal benefits, however, do not exceed the lesser of
$50,000 or 10.0% of the total of the annual salary and bonus reported for
the named executive officer.
(2) Bonuses are reflected in the year in which they are earned and are paid in
the following year.
(3) These amounts represent the Company's contribution to the Company's 401(k)
plan and the payment of premiums on split-dollar life insurance policies
owned by the employee.
(4) On January 1, 1996, G. Walker Box became the Chairman of the Company's Board
of Directors and an employee of the Company. Prior to that date, Mr. Box was
not a paid employee of the Company.
(5) On January 1, 1996, Milton A. Barber, IV became a Vice President of the
Company in charge of sales and marketing. Prior to that date, Mr. Barber was
not employed by the Company.
(6) Mr. Barber is a participant in the Company's Senior Executive Bonus Plan and
Sales Incentive Plan.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table sets forth information with respect the exercise of
options during 1996 and exercisable and unexercisable options to acquire common
stock of the Company held at December 31, 1996 by the Named Officers.
These values have not been, and may never be, realized, as these options
have not been, and may never be, exercised. Actual gains, if any, upon exercise
will depend on the value of common stock on the date of any exercise of options.
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN THE
LAST FISCAL YEAR-END AND FY END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
SHARES OPTIONS
ACQUIRED ON VALUE UNEXERCISED OPTIONS AT FY-END
EXERCISE REALIZED AT FY-END (#) (2)
NAME (#)(1) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C> <C>
G. Walker Box................................... 0 N/A 8,832 35,328 $ 0
George G. Wade.................................. 0 N/A 44,160 -- 0
R. Duke Ferrell................................. 0 N/A 8,832 35,328 0
C. Monroe Light................................. 0 N/A 8,832 35,328 0
Milton A. Barber, IV............................ 0 N/A 2,944 11,776 0
<CAPTION>
NAME UNEXERCISABLE
<S> <C>
G. Walker Box................................... $ 0
George G. Wade.................................. 0
R. Duke Ferrell................................. 0
C. Monroe Light................................. 0
Milton A. Barber, IV............................ 0
</TABLE>
(1) No options were exercised in 1996.
(2) Based on market price of $12.50 per share (market price of the Company's
common stock on April 30, 1997), less the exercise price.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options to Named Officers during 1996.
EMPLOYMENT AGREEMENTS, CHANGE OF CONTROL ARRANGEMENTS
Pursuant to employment contracts dated December 19, 1996 (the "Employment
Agreements"), George G. Wade, R. Duke Ferrell, Jr., G. Walker Box, C. Monroe
Light, David S. Green, Walter E. Helton, Raymond L. Rea, Nancy B. Barksdale,
Forrest H. Truitt, II, Jeffrey D. Cox and Milton A. Barber, IV (each an
"employee") are employed by the Company in their various executive capacities.
Each of these Employment Agreements, if not sooner terminated (for reasons of
death, disability, change of control or "for cause"), terminates on December 18,
1998. Thereafter an employee's employment may continue until terminated by the
Company or the employee. Under the Employment Agreements, these individuals are
entitled to annual bonus payments pursuant to Pluma's Senior Executive Bonus
Plan and all benefits made available to other senior executives under any
employee benefit plans including the Company's 401(k) Plan, medical expense
reimbursement plans, group life, health, accident, medical, hospitalization and
disability insurance plans. Currently, no senior executive is the beneficiary of
any such plans not made available to all Pluma employees except for Pluma's
Senior Executive Bonus Plan, Non-Qualified Deferred Compensation Plan, Sales
Incentive Plan (with respect to the Company's salespeople) and the split-dollar
insurance policies referenced in note (3) to the Summary Compensation Table.
The Company or the employee may terminate his or her Employment Agreement
upon a "change of control" of the Company. A change of control shall mean the
occurrence of any one of the following events:
(1) if any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Act") (other than the Company,
any trustee, fiduciary or other person or entity holding securities under
any employee benefit plan of the Company), together with all "affiliates"
and "associates" (as such terms are defined in Rule 12b-2 under the Act) of
such person, shall become the "beneficial owner" (as such term is defined
in Rule 13d-3 under the Act), directly or indirectly, of securities of the
Company representing 50.0% or more of either (a) the combined voting power
of the Company's then outstanding securities having the right to vote in an
election of the Company's Board of Directors ("Voting Securities"), or (b)
the then outstanding shares of the Company (in either such case other than
as a result of acquisition of securities directly from the Company); or
(2) if the majority of those persons who, as of January 1, 1996,
constituted the Company's Board of Directors (the "Incumbent Directors")
cease for any reason, including, without limitation, as a result of a
tender offer, proxy contest, merger or similar transaction, to constitute
at least a majority of the Board of Directors, provided that any person
becoming a director of the Company subsequent to January 1, 1996, whose
election or nomination for election was approved by a vote of at least a
majority of the Incumbent Directors or Directors chosen by the Incumbent
Directors shall be considered an Incumbent Director; or
(3) if the shareholders of the Company shall approve (a) any
consolidation or merger of the Company where the shareholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly,
13
<PAGE>
shares representing in the aggregate 50.0% of the voting shares of the
corporation issuing cash securities in the consolidation or merger (or of
its ultimate parent corporation, if any), (b) any sale, lease, exchange or
other conveyance, in a transaction or series of transactions of all or
substantially all of the assets of the Company, or (c) any plan or proposal
for the liquidation or dissolution of the Company.
Upon termination of the Employment Agreements after a "change of control,"
if the employee is eligible (as defined below), the Company shall:
(1) Within 30 days after termination, pay to the employee an amount,
in cash, equal to: (a) three times the employee's (i) average annual salary
for the 36-month period prior to such change of control and (ii) any
bonuses received during the 18 months preceding the effective date of the
change of control, less (b) 1/36 of the amount calculated in (a) above for
each month that the employee remains employed with the Company following
the effective date of the change of control; and
(2) Continue the medical, disability and life insurance benefits the
employee was receiving at the time of termination for a period of 36 months
after termination of employment or, if earlier, until the employee has
commenced employment elsewhere and becomes eligible for participation in
the medical, disability and life insurance programs, if any, of the
successor employer. Coverage under the Company's medical, disability and
life insurance programs shall cease with respect to each such program as
the employee becomes eligible for the medical, disability and life
insurance programs, if any, of the successor employer. During the first 18
months of such 36-month period, the Company shall be responsible for the
costs associated with continued insurance coverage for the employee, but
only to the extent it would have been responsible for such costs if the
employee was still employed by the Company. The employee shall be
responsible for the remaining costs. If at the end of 18 months, the
employee is still afforded medical, disability and life insurance coverage
under the Company's insurance programs, the Company shall arrange to
provide continued coverage under said programs, but the employee will be
responsible for the total cost of all such continued coverage after the
first 18-month period.
The employee is eligible for the benefits provided above, unless the
Company or the Company's successor, after a change of control, offers the
employee a bona fide employment contract for a term that would expire no earlier
than three years after the effective date of the change of control under the
terms of which the employee would perform the same duties for the same or
greater levels of compensation as were afforded under the terms of the
Employment Agreements, and the employee rejects the offer.
The employee's employment may also be terminated under the Employment
Agreement in the event of death, "for cause" or, at the Company's election, in
the event of the employee's long-term disability. In the event of the death of
the employee during employment, the following payments shall be made to the
employee's designated beneficiary, or, in the absence of such designation, to
the estate or other legal representative of the employee: (i) base salary for
the month in which death occurs, and (ii) such bonuses (if any) as have been
earned and not paid at the time of death. Any rights and benefits the employee
or his/her estate or any other person may have under employee benefit plans and
programs of the Company generally applicable in the event of the employee's
death shall be determined in accordance with the terms of such plans and
programs. Except as provided in the Employment Agreement, neither the employee's
estate nor any other person shall have any rights or claims against the Company
in the event of the death of the employee during employment.
Upon termination for cause, the employee shall receive his or her base
salary only through the date of termination, and neither the employee nor any
other person shall be entitled to any further payments from the Company for
salary, unpaid bonuses or any other amounts. Any rights and benefits the
employee may have under employee benefit plans and programs of the Company
generally following a termination of the employee's employment for cause shall
be determined in accordance with the terms of such plans and programs.
In the event of the employee's disability during his or her employment
under the Employment Agreement, employment may be terminated by the Company. For
the first three months following termination of employment due to disability,
the employee shall be paid the base salary in effect at the time of the
commencement of disability. Thereafter, the employee shall be entitled to
benefits in accordance with and subject to the terms and provisions of the
Company's long-term disability plan for senior management employees, as in
effect at the time of the commencement of disability. If, during the three-month
period following a termination of employment because of disability in which
salary continuation payments are payable by the Company, the employee becomes
re-employed (whether as an employee, partner, consultant or otherwise), any
salary or other remuneration or benefits earned by him or her from such
employment or engagement shall not offset any payments due the employee from the
Company as the result of disability.
14
<PAGE>
The Board of Directors believes that these Employment Agreements will
enable key employees to conduct Company business with less concern for personal
economic risk when faced with a possible change of control. Furthermore, it is
the opinion of Pluma's Board of Directors that these agreements also should
enhance the Company's ability to attract new key executives as needed.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 2)
The Board of Directors of the Company, upon the recommendation of the Audit
Committee, has appointed the firm of Deloitte & Touche, LLP to serve as
independent auditors of the Company for the fiscal year ending December 31,
1997, subject to ratification of this appointment by the share owners of the
Company. Deloitte & Touche, LLP has served as independent auditors of the
Company since 1987 and is considered by management of the Company to be well
qualified. The Company has been advised by that firm that neither it nor any
member thereof has any financial interest, direct or indirect, in the Company or
any of its subsidiaries in any capacity.
One or more representatives of Deloitte & Touche, LLP will be present at
this year's Annual Meeting of share owners, will have an opportunity to make a
statement if he or she desires to do so and will be available to respond to
appropriate questions.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the votes cast by the holders of the shares of
Common Stock of the Company voting in person or by proxy at the Annual Meeting
of share owners. If the share owners should not ratify the appointment of
Deloitte & Touche LLP, the Board of Directors will reconsider the appointment.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE, LLP AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE 1997 FISCAL YEAR. PROXIES RECEIVED BY THE BOARD OF DIRECTORS
WILL BE SO VOTED UNLESS SHARE OWNERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
PROXY PROCEDURE AND
EXPENSES OF SOLICITATION
The Company will hold the votes of all share owners in confidence from the
Company, its Directors, officers and employees except: (i) as necessary to meet
applicable legal requirements and to assert or defend claims for or against the
Company; (ii) in case of a contested proxy solicitation; (iii) in the event that
a share owner makes a written comment on the proxy card or otherwise
communicates his/her vote to management; or (iv) to allow the independent
inspectors of the election of directors to certify the results of the vote. The
Company will also retain an independent tabulator to receive and tabulate the
proxies and an independent inspector of election to certify the results.
All expenses incurred in connection with the solicitation of proxies will
be borne by the Company. The Company has engaged Corporate Communications, Inc.,
the Company's consultant for investor relations, to assist with the solicitation
of proxies. The Company will reimburse brokers, fiduciaries and custodians for
their costs in forwarding proxy materials to beneficial owners of Common Stock
held in their names.
Solicitation may be undertaken by mail, telephone and personal contact by
Directors, officers and employees of the Company without additional
compensation.
Under North Carolina law, abstentions and broker nonvotes are counted to
determine whether a quorum is present at the Meeting. (Under New York Stock
Exchange rules, a broker may, if the broker does not have instruction from a
beneficial owner, vote shares on routine proposals. A broker does not have
discretionary voting instructions regarding nonroutine proposals from the
beneficial owner, the broker cannot vote on those proposals. This is referred to
as a broker nonvote.)
15
<PAGE>
SHARE OWNERS' PROPOSALS
Proposals of share owners intended to be presented at the 1998 Annual
Meeting of share owners must be received by the Company on or before January 5,
1998, to be eligible for inclusion in the Company's Proxy Statement and proxy
relating to that meeting.
According to the Bylaws of the Company, a proposal for action to be
presented by any share owner at an annual or special meeting of share owners
shall be out of order unless specifically described in the Company's notice to
all share owners of the meeting and the matters to be acted upon, thereat or
unless the proposal shall have been submitted in writing to the Chairman of the
Board of Directors and received at the principal executive offices of the
Company at least 60 days prior to the date of such meeting, and such proposal
is, under law, an appropriate subject for share owner action.
OTHER INFORMATION
Management does not know of any matters other than those referred to in the
accompanying Notice of Annual Meeting of share owners which may properly come
before the meeting or other matters incident to the conduct of the meeting. As
to any other matter or proposal that may properly come before the meeting,
including voting for the election of any person as a Director in place of a
nominee named herein who becomes unable to serve or for good cause will not
serve and voting on a proposal omitted from this Proxy Statement pursuant to the
rules of the Securities and exchange Commission, it is intended that proxies
received will be voted in accordance with the discretion of the proxy holders.
The form of proxy and this Proxy Statement have been approved by the Board
of Directors and are being mailed and delivered to share owners by its
authority.
/s/ George G. Wade
SECRETARY
Eden, North Carolina
May 5, 1997
THE ANNUAL REPORT TO SHARE OWNERS OF THE COMPANY FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996, WHICH INCLUDES FINANCIAL STATEMENTS FOLLOWS THIS PROXY
STATEMENT. THE ANNUAL REPORT DOES NOT FORM ANY PART OF THE MATERIALS FOR THE
SOLICITATION OF PROXIES.
16
- -------------------------------------------------------------------------------
APPENDIX
- -------------------------------------------------------------------------------
PLUMA, INC. - PROXY
Solicited by Board of Directors for Annual Meeting of Shareholders-June 5, 1997
The undersigned appoints R. Duke Ferrell, Jr. and G. Walker Box, or any one
of them, attorneys and proxies with power of substitution to vote all of the
Common Shares of PLUMA, INC, standing in the name of the undersigned at the
Annual Meeting of Shareholders on June 5, 1997, and at all adjournments thereof,
upon the matters set forth in the Notice and Proxy Statement of said meeting,
receipt of which is acknowledged.
The shares represented by this proxy will be voted as directed by the
Shareholder. If you wish to vote in accordance with the recommendations of the
Board of Diectors, you may sign below and mail in the envelope provided. If no
direction is given, shares will be voted FOR Proposals 1 and 2. Specific choices
may be made on the reverse side.
DATED: _________________________, 1997
______________________________________
______________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
Please sign exactly as name or names
appear hereon. Full title of one
signing in representative capacity
should be clearly designated after
signature. Names of all joint holders
should be written even if signed by
only one.)
Please complete, date, sign and mail Proxy Card in the envelope provided.
Postage not necessary if mailed in the United States.
<PAGE>
The Board of Directors recommends a vote "FOR" Proposals 1 and 2
1. Election of Directors
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY TO
(except as marked to the contrary) vote for all nominees listed
George G. Wade Dr. David C. Jones G. Walker Box J. Robert Philpott, Jr.
(To withhold authority to vote for any individual nominee, line through the
nominee's name above.)
2. Proposal to ratify Deloitte & Touche, LLP as the Company's independent
auditors for the 1997 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy will be voted FOR Proposals 1 and 2 unless instructions to the
contrary are indicated.
PLEASE TURN OVER AND SIGN ON THE REVERSE SIDE
<PAGE>
PLUMA
ANNUAL REPORT
1996
<PAGE>
<PAGE>
LETTER TO SHAREHOLDERS
April 28, 1997
Dear Fellow Shareholders:
In our first letter to you as a public company, we would like to highlight
some of our accomplishments over the past year and, more importantly, discuss
the outlook for 1997.
We were pleased with the Company's performance in 1996. Sales volume reached a
record level for the year with a 27% increase over 1995. After a slow start to
the year, primarily due to harsh winter weather hampering production and a
carryover of an industry-wide slowdown during the fourth quarter of 1995, we
were able to operate at higher capacity levels in the third and fourth quarters.
Although gross profit as a percentage of net sales decreased slightly to 16.9%
as compared to 19.1% a year ago due to higher raw material costs, harsh winter
weather and weak demand in the first quarter, we were able to reduce selling,
general and administrative costs by 36.4% in 1996. As a result, net income rose
dramatically to $5,818,000 in 1996 from $1,107,000 in 1995. With an improved
business environment in 1997, we expect gross profit margins to return to their
historical levels.
The balance sheet continued to improve in 1996 as inventories and receivables
were up slightly while long-term debt was down to $44.4 million at year end.
With our initial public offering of 2.8 million primary shares in March 1997, we
raised $30 million in net proceeds to significantly reduce long-term debt giving
us the resources to continue the growth of the Company.
During 1996, we doubled our distribution capacity with the opening of a second
distribution center and warehouse in Martinsville, Virginia. We also increased
sewing capacity with the opening of a new sewing facility in Altavista,
Virginia. These facilities will enable us to more efficiently accommodate the
Company's growth.
In addition to upgrading manufacturing and distribution facilities, we also
continued to upgrade our management information systems. We commenced the
implementation of a new financial and manufacturing controls system in 1996.
When fully operational by January 1998, we expect this system to enhance our
ability to more efficiently meet customer demands and better manage our growth.
Pluma will continue to focus on increasing sales and profitability by
producing high quality products, developing new products and styles and
diversifying our customer base. Recently introduced products such as pique
fleece, 100% cotton fleece and cotton/Spandex blend five-way stretch fleece have
been well received by our customers. We are optimistic that these new products
as well as increased demand for jersey products will lead to higher sales in
1997.
The initial public offering in March 1997 was a significant achievement for
Pluma, but we are already looking ahead to the rest of 1997 and beyond. We
appreciate your continued support and look forward to reporting our results to
you.
Sincerely,
/s/ G. Walker Box /s/ R. Duke Ferrell, Jr.
George WALKER BOX R. DUKE FERRELL, JR.
CHAIRMAN PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
Statement of Operations Data for each of the years in the three-year period
ended December 31, 1996, and the Balance Sheet Data as of December 31, 1996 and
1995 set forth below have been derived from the Company's audited financial
statements included elsewhere in this Annual Report. The Statement of Operations
Data for each of the years in the two-year period ended December 31, 1993, and
the Balance Sheet Data as of December 31, 1994, 1993 and 1992 are derived from
the Company's audited financial statements which are not included in this Annual
Report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996(1)(7) 1995(1)(2)(3) 1994 1993 1992
<S> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
STATEMENT OF OPERATIONS DATA:
Net sales........................................................ $ 127,820 $ 100,710 $97,908 $86,645 $83,569
Cost of goods sold............................................... 106,247 81,429 81,409 72,762 69,421
Gross profit..................................................... 21,573 19,281 16,499 13,883 14,148
Selling, general and administrative expenses..................... 9,149 14,385 7,300 6,255 5,788
Income from operations........................................... 12,424 4,896 9,199 7,628 8,360
Other expenses, net.............................................. 3,251 3,130 2,255 1,633 774
Income before income taxes and cumulative effect of accounting
change......................................................... 9,173 1,766 6,944 5,995 7,586
Income taxes..................................................... 3,355 659 2,594 2,202 2,795
Income before cumulative effect of accounting change............. 5,818 1,107 4,350 3,793 4,791
Cumulative effect of accounting change........................... -- -- -- 74(4) --
Net income....................................................... $ 5,818 $ 1,107 $ 4,350 $ 3,867(4) $ 4,791
Earnings per common share and common equivalent -- primary and
fully diluted:
Income before cumulative effect of accounting change........... $ 1.09 $ .21 $ .83 $ .69 $ .87
Net income..................................................... $ 1.09 $ .21 $ .83 $ .70 $ .87
Supplemental (5)............................................... $ .91
Weighted average number of shares outstanding.................... 5,316 5,316 5,244 5,554 5,537
Cash dividends per common share.................................. $ .11 $ .11 $ .11 $ .11 $ .08
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
IN THOUSANDS
BALANCE SHEET DATA:
Working capital........................................................ $49,901 $50,052 $31,926 $29,935 $24,735
Total assets........................................................... 89,218 88,613 68,554 61,941 52,442
Long-term debt, net of current portion................................. 44,420 50,120 30,465 28,684 22,169
Total shareholders' equity............................................. 32,143 26,902 26,373 25,110 21,946
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996(1)(7) 1995(1)(2)(3) 1994 1993 1992
<S> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
OTHER DATA:
Gross profit as a percentage of net sales.............................. 16.9% 19.1% 16.9% 16.0% 16.9%
Income from operations as a percentage of net sales.................... 9.7% 4.9% 9.4% 8.8% 10.0%
Depreciation and amortization.......................................... $3,804 $ 3,440 $2,885 $2,292 $1,753
Capital expenditures................................................... 3,399 5,856 4,495 7,086 5,952
EBITDA (6)............................................................. 16,712 8,627 12,386 9,928 10,695
</TABLE>
(1) In December 1995, the Company brought its sales and marketing functions
in-house in order to increase control and enhance profitability (the "Box
Transaction"). The Company had previously conducted its sales and marketing
activities through an exclusive sales agent, Box & Company ("Box &
Company"), under an arrangement (the "Sales & Marketing
1
<PAGE>
<PAGE>
Agreement") pursuant to which the Company paid a commission of 3.0% of net
sales plus an allowance for certain promotional material. Box & Company is a
corporation owned by G. Walker Box, a principal shareholder of the Company
and Chairman of the Board. The Company terminated the Sales & Marketing
Agreement as of December 31, 1995, and recorded a non-recurring charge of
$2.0 million, the amount of the termination payment. The Company's sales and
marketing expenses have decreased as a result of the Box Transaction. For
the year ended December 31, 1996, the Company's sales and marketing expenses
as a percent of net sales were 1.3% compared to 5.3% for the same period in
1995 including the non-recurring charge of $2.0 million for termination of
the Sales & Marketing Agreement.
(2) Includes a non-recurring charge of $3.3 million to increase the allowance
for doubtful accounts receivable primarily related to the bankruptcy of a
customer. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
(3) Had the Box Transaction occurred at the beginning of 1995, excluding the two
non-recurring charges mentioned in notes (1) and (2), for the year ended
December 31, 1995, selling, general and administrative expenses ("SG&A")
would have been $7.3 million compared to $14.4 million as reported. In
addition, Income from operations, Net income, Earnings per common share and
common equivalent -- primary and fully diluted and EBITDA would have been
$12.0 million, $5.5 million, $1.04 and $15.7 million, respectively.
(4) Includes $73,651 of income from the cumulative effect of a change in
accounting for the adoption of SFAS No. 109.
(5) Based upon earnings with adjusted interest expense and adjusted weighted
average number of shares after net proceeds from the Offering are used for
repayment of indebtedness.
(6) Represents earnings before interest expense, income taxes, depreciation and
amortization. EBITDA is commonly used to analyze companies on the basis of
operating performance, leverage and liquidity. EBITDA should not be
considered as a measure of profitability or liquidity as determined in
accordance with generally accepted accounting principles in the statements
of operations and cash flows.
(7) Includes $83,930 of expense from the change in the method of determining the
cost of inventories, except production supplies, from the FIFO method to the
LIFO method. The effect of the change was to decrease net income by $53,212
($0.01 per share).
2
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Pluma is a vertically integrated manufacturer of high quality fleece and
jersey activewear. The Company is focused on increasing sales and profitability
by offering high value products to a diverse customer base. Pluma sells its
products to companies such as adidas, Nike, Starter and Walt Disney. In
addition, the Company sells products under its own "Pluma," "SANTEE" and
"SNOWBANK" brand names to retail and wholesale customers such as Sam's Club and
Frank L. Robinson Company.
Since its inception, the Company has been an innovator of new products and
styles and has focused on delivering higher quality products. The Company was
one of the first to introduce heavyweight, fuller cut fleece products at
attractive price points and fleecewear with higher cotton content. These
products were well-received by consumers, and the Company rapidly increased
sales and profitability as it expanded its business across broad market
segments. In 1990, the Company began to produce heavyweight cotton jersey
products suitable for outerwear in order to diversify its product mix, more
efficiently utilize its manufacturing base and increase sales and profitability.
Today, the Company continues to be an innovator of new products and recently
introduced pique fleece, 100% cotton fleece and cotton/Spandex(TM) five-way
stretch fleece.
In December 1995, the Company brought its sales and marketing functions
in-house in order to increase control and enhance profitability (the "Box
Transaction"). The Company had previously conducted its sales and marketing
activities through an exclusive sales agent, Box & Company ("Box & Company"),
under an arrangement (the "Sales and Marketing Agreement") pursuant to which the
Company paid a commission of 3.0% of net sales plus an allowance for certain
promotional material. Box & Company is a corporation owned by G. Walker Box, a
principal shareholder of the Company and Chairman of the Board. The Company
terminated the Sales and Marketing Agreement as of December 31, 1995, and
recorded a non-recurring charge of $2.0 million, the amount of the termination
payment. Sales and marketing expenses have decreased as a result of the Box
Transaction. For the year ended December 31, 1996, the Company's sales and
marketing expenses as a percent of net sales were 1.3% as compared to 5.3% for
the same period in 1995 including the non-recurring charge of $2.0 million for
termination of the Sales & Marketing Agreement. In addition, in December 1995,
the Company incurred a non-recurring charge of $3.3 million to increase the
allowance for doubtful accounts receivable related to the bankruptcy of 20/20
Sport. Had the Box Transaction occurred as of the beginning of 1995, and
excluding the two non-recurring charges, for the year ended December 31, 1995,
SG&A as a percent of net sales would have been 7.3% as compared to 14.2%, as
reported.
The following table presents the major components of the Company's
Statements of Operations as a percentage of net sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales............................................................................... 100.0 % 100.0 % 100.0 %
Cost of goods sold...................................................................... 83.1 80.9 83.1
Gross profit............................................................................ 16.9 19.1 16.9
Selling, general and administrative expenses............................................ 7.2 14.2 7.5
Income from operations.................................................................. 9.7 4.9 9.4
Other expenses, net..................................................................... 2.5 3.1 2.3
Income before income taxes and cumulative effect of accounting change................... 7.2 1.8 7.1
Income taxes............................................................................ 2.6 .7 2.7
Net income.............................................................................. 4.6 % 1.1 % 4.4 %
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 26.9% to $127.8 million in 1996 from $100.7
million in 1995, an increase of $27.1 million. Gross dozens sold of fleece and
jersey increased 25.2% to 1.6 million dozens in 1996 from 1.3 million dozens in
1995. The increase in net sales was principally attributable to increased sales
of jersey activewear, sales of new products and revenue from the addition of new
customers. Sales of jersey activewear increased by 56.1% to $46.8 million in
1996 from $30.0 million in 1995, an increase of $16.8 million. Sales of new
products accounted for 16.1% of 1996 net sales. Average
3
<PAGE>
sales price per dozen for total products increased 1.0% in 1996 as a result of
an increased average sales price per dozen for fleece that was partially offset
by a slight decline in the average sales price per dozen for jersey products.
GROSS PROFIT. Gross profit was 16.9% of net sales in 1996 as compared to
19.1% in 1995. This decrease in gross profit was the result of increased sales
of jersey activewear as a percent of total sales, higher raw material costs,
harsh winter weather causing higher fuel costs, weak demand in the first quarter
of 1996, and increased medical and workers' compensation insurance costs due to
an increase in the labor force. As a result of the weak demand in the first
quarter and the harsh winter weather mentioned above, the Company experienced
lower than expected utilization of its plant facilities. There can be no
assurance that the factors discussed above will not occur again.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A decreased 36.4% to $9.1
million in 1996 from $14.4 million in 1995. SG&A as a percent of net sales for
1996 was 7.2% compared to 14.2% in 1995. This decrease in SG&A as a percentage
of net sales resulted primarily from bringing sales and marketing functions
in-house.
OTHER EXPENSES, NET. Other expenses, net, increased 3.9% to $3.3 million in
1996 from $3.1 million in 1995, an increase of $0.1 million. This increase was
primarily the result of an increase in interest expense as a result of
additional borrowings to fund higher inventories.
INCOME TAXES. The effective tax rate was 36.6% in 1996 compared to 37.3% in
1995.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased 2.9% to $100.7 million in 1995 from $97.9
million in 1994, an increase of $2.8 million. Gross dozens sold of fleece and
jersey increased 9.5% to 1.3 million dozens in 1995 from 1.2 million dozens in
1994. The increase in net sales was principally attributable to increased sales
of jersey activewear, sales of new products and additional revenue from a major
customer. Sales of jersey activewear increased by 89.6% to $30.0 million in 1995
from $15.8 million in 1994, an increase of $14.2 million. Sales of new products
accounted for 12.5% of 1995 net sales. Sales to one major customer, Sam's Club,
increased by $8.7 million. This increase in net sales was offset by a 10.6%
decrease in sales of fleece activewear to $70.6 million in 1995 from $79.0
million in 1994. This decrease was primarily attributable to a general weakness
in demand for back-to-school and holiday seasonal purchasing. Average sales
price per dozen for total products decreased 3.1% in 1995 as a result of
increased sales of jersey products, which generally sell at lower price points
than fleece. However, average sales price per dozen for fleece and jersey each
increased.
GROSS PROFIT. Gross profit was 19.1% of net sales in 1995, as compared to
16.9% in 1994. This increase in gross profit was a result of efficiency
improvements resulting from computerized purchasing and scheduling controls and
higher utilization of capacity for the first three quarters. This increase in
gross profit was offset primarily by lower than expected utilization of the
Company's plant and equipment in the fourth quarter of 1995, increased sales of
jersey products and increased medical and workers' compensation insurance costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased 97.0% to $14.4
million in 1995 from $7.3 million in 1994, an increase of $7.1 million. SG&A as
a percent of net sales for 1995 was 14.2% compared to 7.5% in 1994. This
increase was due primarily to a non-recurring charge of $3.3 million to increase
the allowance for doubtful accounts receivable related to 20/20 Sport, a
customer that filed for bankruptcy protection in the U.S. Bankruptcy Court in
the Southern District of New York in February 1996 (such amount subsequently has
been written off), and a non-recurring charge of $2.0 million for termination of
the Sales and Marketing Agreement as a result of the Box Transaction. In
addition, compensation costs increased by $0.9 million. Had the Box Transaction
occurred as of the beginning of 1995, and excluding the two non-recurring
charges, for the year ended December 31, 1995, SG&A as a percent of net sales
would have been 7.3% as compared to 14.2%, as reported.
OTHER EXPENSES, NET. Other expenses, net, increased 38.9% to $3.1 million
in 1995 from $2.3 million in 1994, an increase of $0.9 million. This increase
was primarily the result of an increase in interest expense as a result of
additional borrowings to fund higher inventories and the absence of the $0.3
million insurance settlement recognized in 1994.
INCOME TAXES. The effective tax rate was 37.3% in 1995 compared to 37.4% in
1994.
4
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth quarterly unaudited financial information of
the Company for the eight quarters ended December 31, 1996. This information has
been prepared on the same basis as the annual information presented elsewhere in
this Annual Report and, in management's opinion, reflects all adjustments
necessary for a fair presentation of the information for the quarters presented
when read in conjunction with the Company's financial statements and the notes
thereto included elsewhere in this Annual Report. The operating results for any
quarter are not necessarily indicative of the results for any subsequent period
or for the entire fiscal year. The quarterly unaudited financial information
below differs from amounts previously reported by the Company as a result of
allocating certain year-end accruals, including the Company's change in
accounting for inventories, except production supplies, from the FIFO method to
the LIFO method in 1996, to the respective interim periods in which the related
charges were incurred. Except as otherwise indicated, any comparison discussed
below reflects a change from the comparable quarter of the prior year.
<TABLE>
<CAPTION>
QUARTERS ENDED
1995 1996
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales............................ $ 19,220 $23,141 $ 31,817 $26,532 $ 21,932 $33,887 $ 39,719 $32,282
Cost of goods sold................... 15,351 18,461 26,204 21,413 19,022 29,759 32,126 25,340
Gross profit......................... 3,869 4,680 5,613 5,119 2,910 4,128 7,593 6,942
Selling, general and administrative
expenses........................... 1,893 2,202 2,557 7,733 2,025 2,298 2,356 2,470
Income (loss) from operations........ 1,976 2,478 3,056 (2,614) 885 1,830 5,237 4,472
Other expenses, net.................. 595 782 868 885 761 816 909 765
Income (loss) before income taxes.... 1,381 1,696 2,188 (3,499) 124 1,014 4,328 3,707
Income taxes (benefits).............. 508 624 805 (1,278) 46 373 1,593 1,343
Net income (loss).................... $ 873 $ 1,072 $ 1,383 $(2,221) $ 78 $ 641 $ 2,735 $ 2,364
Earnings per common share and
common equivalent -- primary and
fully diluted...................... $ .16 $ .20 $ .26 $ (.41) $ .01 $ .12 $ .51 $ .45
</TABLE>
The activewear business is seasonal. Typically, demand for fleece products
is lower during the first and second quarters of each year, which is partially
offset by increased demand for jersey products in these periods.
Compared to first quarter sales in 1995, first quarter sales in 1996 were
$2.7 million higher. This increase was due, in part, to a carryover of
additional demand for jersey and fleece products the Company experienced in the
fourth quarter of 1995. Second quarter and third quarter sales increased $10.7
million and $7.9 million, respectively, over the prior year's second and third
quarters' sales. The increase in net sales was principally attributable to
increased sales of jersey activewear, sales of new products and revenue from the
addition of new customers. The first and second quarters' gross profit as a
percentage of net sales in 1995 was 20.1% and 20.2%, respectively. The first and
second quarters' gross profit as a percentage of net sales in 1996 decreased to
13.3% and 12.2%, respectively. This decrease in gross profit was the result of
increased sales of jersey activewear as a percent of total sales, higher raw
material costs, harsh winter weather causing higher fuel costs, lower than
expected utilization of the Company's plant and equipment during 1996 and sales
of higher cost inventory which was manufactured during the fourth quarter of
1995. In the third and fourth quarters of 1996, gross profit as a percentage of
net sales increased to 19.1% and 21.5%, respectively. This increase resulted
from improved utilization as the result of greater demand and higher average
sales price per dozen for fleece products.
During the fourth quarter of 1995, the Company incurred two non-recurring
charges: a $2.0 million termination charge as a result of the Box Transaction
and a $3.3 million increase in the allowance for doubtful accounts due to the
bankruptcy of 20/20 Sport.
The Company has experienced and expects to continue to experience
fluctuations in its quarterly results. The Company's revenues and operating
performance are affected by a number of factors, including, but not limited to,
changes in raw material prices, product mix and the general retailing
environment. Therefore, the Company believes that quarter-to-quarter comparisons
of its operating results are not necessarily indicative of future performance.
5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
PRINCIPAL SOURCES OF LIQUIDITY. Principal sources of liquidity have been
bank financing, cash generated from the Company's operations and private
placements of equity securities. Pursuant to a loan agreement executed on May
25, 1995 (the "Loan Agreement"), the Company entered into the Credit Facility
with FUNB in the amount of the lesser of $55.0 million or the Company's
"borrowing base" as defined in the Loan Agreement. As of December 31, 1996,
$43.6 million was outstanding, leaving $11.4 million available. The Loan
Agreement expires on May 30, 2000. The interest rate of the Credit Facility is
variable, and, on December 31, 1996, it was 6.86%.
The loan agreement evidencing the Credit Facility imposes certain operating
and financial restrictions on the Company including but not limited to
limitations on mergers or other consolidations, acquisition of assets,
indebtedness or incurrence of capital leases, the creation of liens and other
encumbrances on Company assets, the disposition of assets, the payment of
dividends (if such payment would create a default under such loan), capital
expenditures and investments and related party transactions. Further, the
Company is required under the Credit Facility to maintain specified financial
ratios and levels including (i) a minimum tangible net worth equal to the
greater of $25.0 million plus an annual increase of $2.0 million for each
calendar year beginning January 1, 1996 or its tangible net worth as of the
immediately preceding December 31 less $4.0 million; (ii) a debt to equity ratio
of no greater than 2.5 to 1 from January 1 through November 30 of each year and
2.0 to 1 during each December; and (iii) a requirement that the ratio of the
Company's EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) to interest expense for any four consecutive quarters be no
less than 3.5 to 1. The Company's obligations under the Loan Agreement are
secured by substantially all of the Company's assets.
As of December 31, 1996, the Company's debt to equity ratio was
approximately 1.4 to 1. After applying the net proceeds of its Initial Public
Offering of its Common Stock which was completed on March 14, 1997, the
Company's debt to equity ratio was approximately 0.3 to 1.
In 1994, the Company conducted a private placement of Common Stock at
$10.686 per share pursuant to Regulation D promulgated under the Securities Act
of 1933. The Company received approximately $1.7 million for 161,920 shares as a
result of that offering. Proceeds from this private placement were used to
reduce outstanding indebtedness.
As of the date hereof, the Company owes $0.8 million on a promissory note
given in January 1994 to a former officer/shareholder of the Company, as a
portion of the purchase price paid to redeem all of his Pluma shares. The
principal balance of this note, plus interest at 5.0% per annum, is due in full
in January 1998. In the event the Company defaults on this obligation, it will
be required to issue shares of Common Stock to this former officer/shareholder
equal in value to the unpaid amount of the indebtedness plus any unpaid interest
at the time of default.
CASH FLOWS FROM OPERATING ACTIVITIES. For the year ended December 31, 1996,
the Company's operations provided $9.6 million of cash. The principal uses of
cash were repayment of the note payable issued in connection with the Box
Transaction for $2.0 million and additional investments of $1.9 million in
inventories and $0.6 million in accounts receivable. This use was offset by
increases of $2.6 million in accounts payable and accrued expenses, consisting
primarily of interest payable and reserves for medical and workers' compensation
claims. For the year ended December 31, 1995, the Company's operations used
$10.6 million of cash. The principal uses of cash were a $14.0 million increase
in inventories and a $2.4 million increase in tax-related assets. Inventories
increased primarily due to lower than expected demand in the fourth quarter of
1995. These uses were offset by increases in accrued expenses, primarily
interest payable and reserves for medical and workers' compensation claims. For
the year ended December 31, 1994, the Company's operations generated $4.0
million of cash. The principal use of cash was $5.6 million to fund accounts
receivable. Cash flows from operations are impacted by seasonality and changes
in product demand. In the past, in periods of weak demand, the Company has
relied on bank financing to fund operations. However, the Company believes that
cash flows from operations will be sufficient to cover operations and capital
requirements for the next twelve months.
CASH FLOWS FROM INVESTING ACTIVITIES. In each of the last three years the
Company has invested heavily in plant and equipment to grow its business.
Capital expenditures were $3.4 million for the year ended December 31, 1996.
Capital expenditures were $5.9 million and $4.5 million in 1995 and 1994,
respectively.
CASH FLOWS FROM FINANCING ACTIVITIES. For the year ended December 31, 1996,
the Company had net repayments of borrowings of $5.7 million and paid cash
dividends of $0.6 million. In 1995, the Company had net proceeds from borrowings
of $17.4 million to fund operations and investments and paid cash dividends of
$0.6 million. In 1994, the Company had net repayments of borrowings of $0.4
million and paid cash dividends of $0.6 million. In addition, in 1994, the
Company had proceeds of $1.7 million from the issuance of Common Stock and
repurchases of stock totaling $0.8 million.
CAPITAL EXPENDITURES. Additional capital expenditures are expected in
future years to meet continued growth expectations. The Company anticipates
expending approximately $3.0 million in 1997 for additional plant and equipment
as well as approximately $2.0 million for the purchase and implementation of a
new management information system to enhance the timing of financial reporting
and accuracy of its controls.
6
<PAGE>
FORWARD LOOKING STATEMENTS
Information in this Annual Report may contain "forward-looking statements."
These statements involve risks and uncertainties that could cause actual results
to differ materially, including without limitation, the actual costs of
operating the Company's business, actual operating performance, the ability to
maintain large client contracts or to enter into new contracts, and the level of
demand for the Company's products. Additional factors that could cause actual
results to differ materially are discussed in the Company's recent filings with
the Securities and Exchange Commission.
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
SHAREHOLDERS AND BOARD OF DIRECTORS OF PLUMA, INC.:
We have audited the accompanying balance sheets of Pluma, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pluma, Inc. at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Winston-Salem, North Carolina
January 28, 1997
8
<PAGE>
PLUMA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash......................................................................................... $ 291,488 $ 596,429
Accounts receivable (less allowance -- 1996, $817,080; 1995, $4,069,763) (note 5)............ 22,545,795 21,939,763
Income taxes receivable...................................................................... -- 1,057,783
Deferred income taxes (note 9)............................................................... 1,509,535 2,296,429
Inventories (notes 3 and 5).................................................................. 34,025,895 32,169,247
Other current assets......................................................................... 627,576 148,130
Total current assets.................................................................... 59,000,289 58,207,781
Property, plant and equipment (note 5):
Land......................................................................................... 599,978 599,978
Land improvements............................................................................ 678,160 662,885
Buildings and improvements................................................................... 14,078,626 13,516,551
Machinery and equipment...................................................................... 31,753,681 28,966,411
Total property, plant and equipment....................................................... 47,110,445 43,745,825
Less accumulated depreciation................................................................ 17,468,062 13,682,273
Property, plant and equipment, net...................................................... 29,642,383 30,063,552
Other assets................................................................................... 575,662 341,787
TOTAL.......................................................................................... $89,218,334 $88,613,120
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (notes 5 and 16)........................................ $ 849,640 $ 849,640
Note payable -- related party sales agency (note 13)......................................... -- 1,999,000
Accounts payable............................................................................. 4,456,770 2,828,781
Income taxes payable......................................................................... 371,500 --
Accrued expenses, including related party sales agency -- 1995, $152,418 (notes 4
and 13)................................................................................... 3,421,181 2,478,081
Total current liabilities............................................................... 9,099,091 8,155,502
Long-term debt (notes 5 and 16)................................................................ 44,419,544 50,120,280
Deferred income taxes (note 9)................................................................. 3,556,806 3,435,020
Commitments and contingencies (notes 10 and 12)
Shareholders' equity (notes 7, 8 and 17):
Preferred stock, no par value, 1,000,000 shares authorized................................... -- --
Common stock, no par value, 15,000,000 shares authorized, shares issued and
outstanding -- 1996, 5,315,852; 1995, 5,315,852........................................... 7,222,550 7,222,550
Retained earnings............................................................................ 24,920,343 19,679,768
Total shareholders' equity.............................................................. 32,142,893 26,902,318
TOTAL.......................................................................................... $89,218,334 $88,613,120
</TABLE>
See notes to financial statements.
9
<PAGE>
PLUMA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales including related party customers -- 1994, $2,313,230 (notes 13 and
14)........................................................................ $127,820,319 $100,710,495 $97,907,504
Cost of goods sold (notes 11 and 13)......................................... 106,247,340 81,429,370 81,408,677
Gross profit................................................................. 21,572,979 19,281,125 16,498,827
Selling, general and administrative expenses including related party sales
agency -- 1995, $3,327,307; 1994, $3,181,467 (notes 10, 13 and 15)......... 9,149,039 12,384,876 7,300,187
Termination fee (note 13).................................................. -- 2,000,000 --
Total selling, general and administrative expenses.................... 9,149,039 14,384,876 7,300,187
Income from operations....................................................... 12,423,940 4,896,249 9,198,640
Other income (expenses):
Interest expense (note 5).................................................. (3,735,468) (3,421,385) (2,556,134)
Other income (expenses).................................................... 484,058 291,261 (10,794)
Casualty gain (note 11).................................................... -- -- 312,733
Total other expenses, net............................................. (3,251,410) (3,130,124) (2,254,195)
Income before income taxes................................................... 9,172,530 1,766,125 6,944,445
Income taxes (benefit) (note 9):
Current.................................................................... 2,445,471 2,029,624 1,888,986
Deferred................................................................... 908,680 (1,370,488) 705,008
Total income taxes.................................................... 3,354,151 659,136 2,593,994
Net income................................................................... $ 5,818,379 $ 1,106,989 $ 4,350,451
Earnings per common share and common equivalent -- primary and fully
diluted................................................................. $ 1.09 $ .21 $ .83
Weighted average number of shares outstanding................................ 5,315,852 5,315,852 5,244,060
</TABLE>
See notes to financial statements.
10
<PAGE>
PLUMA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
(NOTES 7 AND 17) PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994.............................. 5,551,475 $3,771,345 $ 347,941 $20,990,301 $25,109,587
Sale of common stock.................................. 161,920 110,000 1,620,300 -- 1,730,300
Repurchase of common stock............................ (397,543) (270,070) (347,941) (3,630,190) (4,248,201)
Net income............................................ -- -- -- 4,350,451 4,350,451
Dividends ($.11 per share)............................ -- -- -- (569,004) (569,004)
Balance, December 31, 1994............................ 5,315,852 3,611,275 1,620,300 21,141,558 26,373,133
Stock split........................................... -- 3,611,275 (1,620,300) (1,990,975) --
Net income............................................ -- -- -- 1,106,989 1,106,989
Dividends ($.11 per share)............................ -- -- -- (577,804) (577,804)
Balance, December 31, 1995............................ 5,315,852 7,222,550 -- 19,679,768 26,902,318
Net income............................................ -- -- -- 5,818,379 5,818,379
Dividends ($.11 per share)............................ -- -- -- (577,804) (577,804)
Balance, December 31, 1996............................ 5,315,852 $7,222,550 $ -- $24,920,343 $32,142,893
</TABLE>
See notes to financial statements.
11
<PAGE>
PLUMA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 5,818,379 $ 1,106,989 $4,350,451
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for depreciation and amortization............................... 3,804,481 3,439,559 2,885,179
Other, net................................................................ (105,154) 13,260 70,406
Increase in accounts receivable........................................... (606,032) (499,523) (5,629,265)
(Increase) decrease in income taxes receivable............................ 1,057,783 (1,057,783) 436,752
(Increase) decrease in deferred income taxes.............................. 908,680 (1,370,488) 705,008
Increase in inventories................................................... (1,856,648) (14,046,154) (523,378)
Increase (decrease) in accounts payable................................... 1,627,989 (1,577,237) 1,595,554
Increase in accrued expenses.............................................. 943,100 1,435,387 107,071
Increase (decrease) in note payable -- related party sales agency......... (1,999,000) 1,999,000 --
Net cash provided by (used in) operating activities.............................. 9,593,578 (10,556,990) 3,997,778
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................ (3,398,804) (5,855,714) (4,494,511)
Other, net................................................................ (221,175) (17,342) (48,418)
Net cash used in investing activities............................................ (3,619,979) (5,873,056) (4,542,929)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................................. -- -- 1,926,223
Repayments of long-term debt.............................................. (849,640) (14,102,575) (1,997,132)
Borrowings from note payable -- Bank...................................... 20,000,000 5,000,000 4,418,133
Repayments of note payable -- Bank........................................ (20,000,000) (5,000,000) (4,418,133)
Net borrowings from (repayments of) revolving loan........................ (4,851,096) 31,557,000 (371,000)
Payment of dividends...................................................... (577,804) (577,804) (569,004)
Proceeds from sale of common stock........................................ -- -- 1,730,300
Repurchase of common stock................................................ -- -- (849,640)
Net cash provided by (used in) financing activities.............................. (6,278,540) 16,876,621 (130,253)
Net increase (decrease) in cash.................................................. (304,941) 446,575 (675,404)
Cash, beginning of period........................................................ 596,429 149,854 825,258
Cash, end of period.............................................................. $ 291,488 $ 596,429 $ 149,854
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................................... $ 3,860,064 $ 2,538,550 $2,556,134
Income taxes................................................................ $ 1,430,000 $ 3,212,641 $1,327,000
</TABLE>
Noncash financing activities -- A subordinated promissory note was issued in
exchange for common stock of $3,398,561 during 1994 (notes 5 and 7).
See notes to financial statements.
12
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Pluma, Inc. (the "Company") is a vertically integrated manufacturer of high
quality fleece and jersey activewear. The Company is focused on increasing sales
and profitability by offering high value products to a diverse customer base.
The Company sells its products, either directly or through its distributors, to
a number of highly recognized companies such as adidas, Nike, Starter Galt and
Walt Disney. In addition, it sells products under its own "Pluma," "SANTEE" and
"SNOWBANK" brand names to retail and wholesale customers such as Sam's Club and
Frank L. Robinson Company. The Company operates in a single business segment.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE -- Accounts receivable is reduced by an allowance to
the amount expected to be collected with a charge against net income. Specific
accounts that are considered to be uncollectible are written off by reducing
accounts receivable and the allowance.
INVENTORIES -- Beginning in 1996, raw materials, work-in-progress and
finished goods inventories are valued at the lower of cost, as determined by the
last-in, first-out ("LIFO") method, or market. Production supplies are valued at
the lower of cost, as determined by the first-in, first-out ("FIFO") method, or
market. Prior to 1996, all inventories were valued at the lower of cost, as
determined by the FIFO method, or market. Inventory cost includes material and
conversion costs.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated at
cost and is depreciated using the straight-line method for financial reporting
purposes and accelerated method for income tax purposes. Maintenance and repairs
are charged to income and betterments are capitalized.
The average estimated useful lives of property for purposes of computing
depreciation are:
<TABLE>
<S> <C>
Land improvements..................................................................15 years
Buildings and improvements.........................................................39 years
Machinery and equipment............................................................10 years
</TABLE>
SELF-INSURANCE RESERVES -- Self-insurance reserves represent the estimated
liability on medical and workers' compensation claims reported to the Company
plus reserves for claims incurred but not yet reported and the estimated
settlement expenses related to these claims. The liabilities for claims and
related settlement expenses are determined using "case basis" evaluations and
statistical analysis and represent estimates of the ultimate net cost of all
losses incurred through the balance sheet date. The Company's policy is to
discount its workers' compensation reserves at a discount rate not to exceed a
risk-free rate of return on U.S. government securities of similar duration as
the reserves being discounted. Although considerable variability is inherent in
such estimates, management believes that the liabilities for unpaid claims and
related settlement expenses are adequate. The estimates are continually reviewed
by management and, as adjustments to these liabilities become necessary, such
adjustments are reflected in current operations. Self-insurance reserves are
included in accrued expenses.
INCOME TAXES -- Income taxes are provided on pre-tax earnings as reported
in the financial statements. Deferred income taxes result from temporary
differences between the amounts of assets and liabilities for financial
reporting purposes and such amounts as measured for income tax purposes.
STOCK OPTIONS -- In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 is
effective for transactions entered into in fiscal years that begin after
December 15, 1995. This statement adopts a "fair value based method" of
accounting for employee stock option plans or similar stock-based compensation
plans. Under the fair value based method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service or vesting period. The statement does allow entities to continue to
measure compensation using the "intrinsic value based method" of APB No. 25
provided that they make pro forma disclosures on net income and earnings per
common share as if the fair value based method of accounting had been applied.
The Company has elected to continue to follow APB No. 25 (note 8).
TREASURY STOCK -- Under the state laws of North Carolina, shares of stock
repurchased by the Company are considered authorized but unissued shares, and
are reflected as such in the financial statements.
13
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT -- Primary earnings per
common share and common equivalent amounts are based on the weighted average
number of shares actually outstanding plus shares that would be outstanding
assuming exercise of dilutive stock options, all of which are considered to be
common stock equivalents. The number of shares that would be issued from the
exercise of stock options has been reduced by the number of shares that could
have been purchased from the proceeds at the average market price of the
Company's stock. The number of shares used in the computations were 5,315,852
for 1996, 5,315,852 for 1995 and 5,244,060 for 1994. The effect of fully
diluting earnings per share amounts is not material.
REVENUE RECOGNITION -- The Company recognizes the sale of goods when the
goods are shipped or ownership is assumed by the customer. Sales are recognized
net of estimated returns and allowances.
CAPITALIZED SOFTWARE COSTS -- The Company capitalizes certain computer
software costs which are amortized utilizing the straight-line method over the
economic lives of the related products not to exceed five years.
ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these estimates.
For the year ended December 31, 1995, the statement of operations includes a
provision for doubtful accounts receivable which totals $3,250,071 principally
related to 20/20 Sport, a customer that filed for bankruptcy protection. The
Company wrote-off this account in 1996.
RECLASSIFICATIONS -- Certain 1995 and 1994 amounts have been reclassified
to conform with 1996 presentation.
NEW ACCOUNTING STANDARD -- In 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", which requires that long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and to
long-lived assets and certain identifiable intangibles to be disposed of, be
reported at the lower of carrying amount or fair value less cost to sell. An
entity shall review long-lived assets and certain identifiable intangibles to be
held and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss recognized in accordance with this standard shall be measured as
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Since adoption, no material impairment losses have been recognized.
(3) INVENTORIES
Inventories at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
At FIFO cost:
Raw materials.......................................................... $ 1,279,512 $ 695,225
Work-in-progress....................................................... 3,297,522 2,641,316
Finished goods......................................................... 30,037,951 28,718,963
Production supplies.................................................... 608,824 725,911
35,223,809 32,781,415
Excess of FIFO over LIFO cost.......................................... (83,930) --
35,139,879 32,781,415
Excess of cost over market............................................. (1,113,984) (612,168)
Total.................................................................. $34,025,895 $32,169,247
</TABLE>
During 1996, the Company changed its method of determining the cost of
inventories, except production supplies, from the FIFO method to the LIFO
method. The Company believes the LIFO method more closely relates current costs
with current sales in periods of rising prices. The effect of the change was to
decrease net income for 1996 by $53,212 ($0.01 per
14
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(3) INVENTORIES -- Continued
share). The change had no effect on prior years because inventories under the
FIFO method at December 31, 1995, as previously reported, were the amount of the
beginning 1996 inventories under the LIFO method. Accordingly, pro forma results
for prior years under the LIFO method are not applicable.
If the cost of all inventories had been determined by the FIFO method,
which approximates current cost, the cost of inventories would have been $83,930
greater at December 31, 1996.
(4) ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Salaries, commissions and bonuses......................................... $1,042,786 $ 663,672
Interest.................................................................. 758,239 882,835
Insurance................................................................. 1,369,549 738,172
Other..................................................................... 250,607 193,402
Total..................................................................... $3,421,181 $2,478,081
</TABLE>
(5) LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Revolving loan......................................................... $43,569,904 $48,421,000
Subordinated debt...................................................... 1,699,280 2,548,920
Total.................................................................. 45,269,184 50,969,920
Less current maturities................................................ 849,640 849,640
Long-term debt......................................................... $44,419,544 $50,120,280
</TABLE>
On May 25, 1995, the Company renegotiated the revolving loan in its
entirety. All term loans and the prior revolving loan were consolidated into one
revolving loan (the "Loan Agreement") with a maximum borrowing limit of
$55,000,000. The revolving line of credit is subject to defined borrowings based
on eligible assets as defined in the Loan Agreement. Interest is computed daily
and payable quarterly at the lowest borrower selected rate of (a) prime rate
minus 25 basis points, (b) certificates of deposit contract rate or (c) monthly
LIBOR contract rate. The selected rate of interest is determined monthly and is
subject to defined adjustments pursuant to the interest coverage ratio. At
December 31, 1996 and 1995, the interest rate was 6.86% and 7.04%, respectively.
A fee is payable quarterly based on the product of the unused commitment margin
times the difference between the committed amount during the prior quarter and
the average daily balance of the loans outstanding during such quarter.
Among the various provisions, limitations and restrictions contained in the
Loan Agreement, the Company must meet specified tangible net worth, debt to
equity ratio and interest coverage ratio requirements. Under the Loan Agreement,
the Company is restricted in the amount of its capital expenditures,
indebtedness to certain other parties, or redemption of its stock that would
create an event of default. In the event of default, unless a waiver is
obtained, the Company is prohibited from paying dividends. The Loan Agreement
may be terminated at any time upon the occurrence of an event of default. The
Company retains the right to remedy certain events of default within 10 days
after notice. The Company was in compliance with all covenants as of December
31, 1996. The Company was in violation of the indebtedness and capital leases,
transactions with related persons, capital expenditures, liabilities to equity
ratio, and interest coverage ratio covenants and obtained waivers for these
violations as of December 31, 1995. The Company was in compliance with all other
covenants.
Long-term debt is collateralized by substantially all accounts receivable,
inventories and property.
15
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(5) LONG-TERM DEBT -- Continued
The Company issued a promissory note dated January 28, 1994 to a former
officer/shareholder in connection with the repurchase of his stock (see note 7).
This note matures on January 31, 1998 and requires annual payments of $849,640.
Interest on the unpaid principal balance is paid quarterly at an annual rate of
5.0%, since May 1, 1994. The promissory note is subordinated to the Loan
Agreement. The Company's obligations under the promissory note are secured by
the shares repurchased from the former officer/shareholder. In the event the
Company is in default under the terms of the promissory note, the former
officer/shareholder will be entitled to have the Company's Common Stock
re-issued to him. The number of shares to be re-issued in the event of default
will be determined by dividing the amount due under the note at the time of such
default by the fair value of the Company's Common Stock shares at such time.
Future aggregate annual payments on long-term debt are $849,640, $849,640,
and $43,569,904 for 1997, 1998 and 2000, respectively.
(6) NOTE PAYABLE -- BANK
On April 16, 1996, the Company borrowed $10,000,000 at the rate of monthly
LIBOR plus 150 basis points. During September 1996, the Company repaid the April
1996 note and borrowed $10,000,000 bearing interest at the rate of monthly LIBOR
plus 120 basis points. The principal was repaid during November 1996 (note 17).
(7) 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. On
June 27, 1995, the Board of Directors declared a two-for-one common stock split
for shareholders of record on October 1, 1995. The shares were issued on
November 27, 1995. All references in the accompanying financial statements to
the number of common shares and per share amounts reflect the stock split and
reverse stock split.
On July 22, 1996, the Company amended its Articles of Incorporation
changing the par value of Common Stock from $1.00 per share to Common Stock
having no par value and authorizing 1,000,000 shares of no par value Preferred
Stock.
In December of 1995, the shareholders of the Company adopted an amendment
to the Articles of Incorporation to increase the Company's authorized shares of
Common Stock from 8,000,000 to 15,000,000, which was effective January 10, 1996.
During the years ended December 31, 1996, 1995 and 1994, the Company held
stock exchanges under the terms of its Stock Transfer and Redemption Agreement
adopted by the Company on June 10, 1991. Numerous transactions among authorized
parties (as defined in the agreement) took place under these exchanges. The
Company did not repurchase shares during 1996, 1995 and 1994 under the Stock
Transfer and Redemption Agreement.
On January 28, 1994, the Company repurchased 397,543 shares of Common Stock
owned by a former officer/shareholder at $10.686 per share. Approximately twenty
percent of the purchase price, or $849,640, was paid in cash with the balance to
be paid under terms of a promissory note (note 5).
During the year ended December 31, 1994, the Company conducted a private
placement of Common Stock. The Company received $1,730,300 (161,920 shares
issued at $10.686 per share) as a result of the stock offering.
(8) 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.
16
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(8) STOCK OPTIONS -- Continued
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 and 58,880 options are exercisable as of December 31,
1996 and 1995, respectively. 29,440 options were forfeited as of December 31,
1995. The remaining 265,549 options become exercisable in 20% increments on the
anniversary dates of the grants as follows:
<TABLE>
<CAPTION>
YEAR SHARES
<S> <C>
1997............................................................... 64,768
1998............................................................... 64,768
1999............................................................... 64,768
2000............................................................... 64,768
2001............................................................... 6,477
Total............................................................ 265,549
</TABLE>
The Company applies APB 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 dates consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995
<S> <C> <C>
Net income:
As reported............................................................. $5,818,379 $1,106,989
Pro forma............................................................... 5,679,877 444,500
Earnings per share:
As reported............................................................. $ 1.09 $ .21
Pro forma............................................................... 1.07 .08
</TABLE>
A summary of the status of the Company's 1995 Stock Option Plan as of
December 31, 1996 and 1995, and changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding, January 1, 1995............................................. -- --
Granted................................................................ 379,776 $ 13.077
Forfeited.............................................................. (29,440) 13.077
Outstanding, December 31, 1995........................................... 350,336 13.077
Granted................................................................ 32,384 13.077
Outstanding, December 31, 1996........................................... 382,720 13.077
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Options exercisable at year end................................................ $117,171 $58,880
Weighted average fair value of options granted during the year................. $ 6.60 $ 3.04
</TABLE>
At December 31, 1996, the outstanding options have a weighted average
remaining contractual life of 8.9 years. All outstanding options and exercisable
options have an exercise price of $13.077.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
0.8% and 1.2%; expected volatility of 40.9% and 41.2%, risk-free interest rates
of 5.9% and 6.8%; and expected lives of 5 years for both years.
17
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(9) INCOME TAXES
The provision for income tax expense for the years ended December 31, 1996,
1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Current federal income tax expense......................... $2,178,903 $ 1,808,190 $1,658,236
Current state income tax expense........................... 266,568 221,434 230,750
Total current income tax expense......................... 2,445,471 2,029,624 1,888,986
Deferred federal income tax expense (benefit).............. 809,689 (1,202,587) 637,156
Deferred state income tax expense (benefit)................ 98,991 (167,901) 67,852
Total deferred income tax expense (benefit).............. 908,680 (1,370,488) 705,008
Total income tax expense................................. $3,354,151 $ 659,136 $2,593,994
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rate (34%) because of the effect of the following
items:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Income taxes computed at U.S. federal statutory rate.......... $3,118,660 $600,482 $2,361,111
State income taxes, net of federal income tax effect.......... 243,027 47,473 196,862
Other, net.................................................... (7,536) 11,181 36,021
Total income tax expense...................................... $3,354,151 $659,136 $2,593,994
</TABLE>
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Significant components comprising the Company's net deferred tax
assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Current -- Prepaid insurance.......................................... $ (74,642) $ (54,287)
Long-term -- Property, plant and equipment............................ (3,556,806) (3,435,020)
Total deferred tax liabilities................................... (3,631,448) (3,489,307)
Deferred tax assets:
Current --
Bad debt reserve................................................... 196,951 1,328,963
Medical reserve.................................................... 170,823 73,276
Uniform capitalization............................................. 634,729 699,121
Returns reserve.................................................... 102,443 162,545
Workers' compensation reserve...................................... 220,585 86,811
LIFO market write-down............................................. 258,646 --
Total deferred tax assets........................................ 1,584,177 2,350,716
Net deferred tax liability............................................ $(2,047,271) $(1,138,591)
</TABLE>
18
<PAGE>
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(10) LEASES
At December 31, 1996, the Company was committed to pay rentals under
various noncancelable operating leases with lease terms in excess of one year as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
<S> <C>
1997........................................................... $ 1,875,457
1998........................................................... 1,390,164
1999........................................................... 1,066,478
2000........................................................... 1,006,990
2001........................................................... 929,884
Thereafter................................................... 5,257,869
Total..................................................... $11,526,842
</TABLE>
Lease agreements frequently include renewal options and require that the
Company pay for utilities, taxes, insurance and maintenance expenses. Options to
purchase are also included in some lease agreements.
Rental expense under all leases accounted for as operating leases was
$2,145,061, $1,730,932 and $1,414,971 for the years ended December 31, 1996,
1995 and 1994, respectively (see note 13).
(11) INSURANCE SETTLEMENT
On August 17, 1994, a tornado partially destroyed one of the Company's
leased warehouses and substantially damaged finished goods inventory. The
inventory loss was covered by insurance. Insurance and salvage proceeds were
$1,763,431. Most of the proceeds are reflected as a reduction of cost of goods
sold ($1,450,698) to offset expense and inventory losses incurred as a result of
the storm. The proceeds in excess of inventory costs and miscellaneous expenses
are reflected in the financial statements as other income ($312,733).
(12) COMMITMENTS AND CONTINGENCIES
The Company has Employment Agreements with its senior executive officers,
the terms of which expire December 1998. Upon termination of an Employment
Agreement after a change of control in the Company, as defined, the Company
would be liable for a maximum of three times the eligible employee's, as
defined, (i) average annual salary, as defined, and (ii) any bonuses, as
defined. In addition, under the Employment Agreements, the senior executive
officers are entitled to annual incentive bonus payments if specified management
goals are attained under Pluma's Bonus Plan.
The Company maintains a Sales Incentive Plan payable to the sales staff if
specified sales volume is reached.
Arising out of the conduct of its business, on occasion, various claims,
suits and complaints have been filed or are pending against the Company. In the
opinion of management, all matters are adequately covered by insurance or, if
not covered, are without merit or are of such kind, or involve such amounts, as
would not have a material effect on the financial position or results of
operations of the Company if disposed of unfavorably.
(13) RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995 and 1994, sales commissions of
$3,327,307 and $3,181,467, respectively, at a rate of 3.0% of the aggregate
sales price of orders shipped by the Company, plus marketing reimbursements,
were paid to the Company's sales agency, a company owned by a certain
shareholder and director of the Company. At December 31, 1995, $152,418 was due
the sales agency. During December 1995, the Company entered into an agreement
for the termination of the sales contract with the sales agency. Under the terms
of this agreement, the Company paid the sales agency $1,000 on December 29, 1995
and $1,999,000 with a promissory note that was paid in full in January 1996.
Since December 31, 1995, the Company has not paid commissions to the sales
agency for sales subsequent to December 31, 1995. Selling, general and
administrative expenses would have been $12,384,876 if the cost of terminating
the sales agreement were
19
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(13) RELATED PARTY TRANSACTIONS -- Continued
excluded for the year ended December 31, 1995. The Company will be liable for
any returns or uncollectible accounts resulting from sales prior to December 31,
1995. The sales agency and the Company have released and discharged each other
from any and all past, present and future actions.
The Company has various operating leases from certain shareholders. The
leases have terms of approximately one to 14 years with aggregate monthly
payments of $98,751, $65,254 and $63,150 in the years ended 1996, 1995 and 1994,
respectively. Total operating lease expense for 1996, 1995 and 1994 was
$1,144,193, $773,600, and $507,120, respectively. As of December 31, 1996,
future minimum lease payments under these operating leases totaled $8,603,330.
The Company leased sewing equipment and accessories from relatives of an
officer/director. Lease payments under these leases were $28,650 in 1994.
Equipment under these leases was purchased by the Company for $98,384 during
1994 after the leases expired.
A contractor performed miscellaneous work totaling $478,646, $31,032 and
$40,358 for the years ended December 31, 1996, 1995 and 1994, respectively.
Certain shareholders of the Company are affiliated with the contractor.
The president of one of the Company's major customers was re-elected to the
Board of Directors at the annual shareholders' meeting in April 1995. The
Company had sales in 1994 of $2,313,230 to this customer. These sales were
consummated on terms equivalent to those that prevail in arm's-length
transactions.
During 1996 and 1995, the Company made payments totaling $223,338 and
$247,324, respectively, for contract services rendered to the Company for
packaging and preparing Company products for shipment. A director/shareholder is
affiliated with this contractor.
During 1996, the Company contracted for fabric dyeing totaling $42,776 with
a contractor owned by a director of the Company. The Company had sales to this
contractor in 1996 of $80,005 and had a balance due of $67,096 at December 31,
1996.
During 1996, the Company made payments to a contractor totaling $121,395
for advisory fees. A director/shareholder is affiliated with this contractor. At
December 31, 1996, $10,014 was due this contractor.
(14) SALES TO MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
A substantial amount of sales and receivables are to relatively few
customers. Credit limits, ongoing credit evaluations and account monitoring
procedures are utilized to minimize the risk of loss. Collateral is generally
not required.
In 1996, two customers accounted for approximately 24.1% and 14.7%,
respectively, of net sales. In 1995, three customers accounted for approximately
16.1%, 12.8% and 11.4%, respectively, of net sales. In 1994, three customers
accounted for approximately 13.2%, 10.4% and 10.1%, respectively, of net sales.
(15) 401(K) RETIREMENT SAVINGS PLAN
The Company maintains a 401(k) retirement savings plan for the benefit of
its employees who have completed at least one year of service and have attained
age 21. The amount of the Company's annual matching contribution is
discretionary, and the Company currently funds accrued profit sharing expenses.
During 1996, 1995 and 1994, the Company contributed $161,461, $129,378 and
$121,279, respectively, to the 401(k) retirement savings plan.
20
<PAGE>
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(16) FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. The carrying amount of cash, accounts receivable and trade accounts
payable is a reasonable estimate of fair value. The fair value of long-term debt
is estimated based on quoted market prices. At December 31, 1996, the carrying
value and the fair value of long-term debt totaled $45,269,184 and $44,458,592,
respectively. All financial instruments are held for purposes other than
trading.
(17) EVENTS SUBSEQUENT TO DECEMBER 31, 1996
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 (note
7).
21
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
DIRECTORS
George G. Wade
CHAIRMAN EMERITUS OF THE BOARD AND SECRETARY
Pluma, Inc.
G. Walker Box
CHAIRMAN OF THE BOARD; PRESIDENT
Box & Company
R. Duke Ferrell, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pluma, Inc.
C. Monroe Light
EXECUTIVE VICE PRESIDENT OF MANUFACTURING
Pluma, Inc.
Barry A. Bowles
CHAIRMAN OF THE BOARD
Stanley W. Bowles Corporation
Kemp D. Box
PRIVATE INVESTOR
Dr. David C. Jones
PRIVATE INVESTOR
William K. Mileski
FOUNDER
Meritage LLC
R. Stephens Pannill
PRIVATE INVESTOR
J. Robert Philpott, Jr.
PRESIDENT AND TREASURER
Philpott, Ball & Company
EXECUTIVE OFFICERS
George G. Wade
CHAIRMAN EMERITUS OF THE BOARD AND SECRETARY
G. Walker Box
CHAIRMAN OF THE BOARD
R. Duke Ferrell, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
C. Monroe Light
EXECUTIVE VICE PRESIDENT OF MANUFACTURING
Forrest H. Truitt, II
EXECUTIVE VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
Milton A. Barber, IV
VICE PRESIDENT OF SALES AND MARKETING
Nancy B. Barksdale
VICE PRESIDENT AND CONTROLLER
Jeffrey D. Cox
VICE PRESIDENT OF MANUFACTURING
David S. Green
VICE PRESIDENT OF HUMAN RESOURCES
Walter E. Helton
VICE PRESIDENT OF OPERATIONS
Raymond L. Rea
VICE PRESIDENT OF MANUFACTURING
<PAGE>
<PAGE>
CORPORATE INFORMATION
CORPORATE OFFICES
801 Fieldcrest Road
Eden, North Carolina 27288
(910) 635-4000
STOCK TRANSFER AGENT AND REGISTRAR
First Union National Bank
Customer Information Center
1525 West W.T. Harris Boulevard -- 3C3
Charlotte, North Carolina 28288-1153
(800) 829-8432
Shareholders seeking information concerning stock transfers, change of address,
and lost certificates should contact First Union directly.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Winston-Salem, North Carolina
INVESTOR RELATIONS
Investor Relations
Pluma, Inc.
P.O. Drawer 487
Eden, North Carolina 27289
(910) 635-4000
PUBLICATIONS
The Company's Annual and Interim Reports, Proxy Statement, Form 10-K and Form
10-Q reports will be available free of charge from our Investor Relations
Department at the Company's corporate address.
GENERAL COUNSEL
Allman Spry Leggett & Crumpler, P.A.
Winston-Salem, North Carolina
STOCK LISTING
New York Stock Exchange
Symbol: PLU
STOCK MARKET INFORMATION
Pluma, Inc. completed its initial public offering of common stock on March 14,
1997. At April 22, 1997, there were approximately 1,400 beneficial shareholders.
ANNUAL MEETING
The 1997 Annual Meeting of Shareholders will be held at 10:00 a.m. Eastern
Daylight Time on June 5, 1997, at Bassett Country Club, Bassett, Virginia.
DIVIDENDS
The Company paid quarterly cash dividends on its Common Stock in the amount of
$0.0272 per share for each quarter of 1995 and 1996. The Company does not
anticipate paying any cash dividends in the foreseeable future, and it intends
to retain future earnings for the development and expansion of its business.
<PAGE>
PLUMA
PLUMA, INC. (Bullet) 801 FIELDCREST ROAD (Bullet) P.O. DRAWER 487 (Bullet) EDEN,
NC 27289-0487 (Bullet) TELEPHONE: (910) 635-4000 (Bullet) FAX: (910) 635-1814
<PAGE>
