UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998...................................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from.....................to...........................
Commission file number.........333-18755........................................
.............................Pluma, Inc...................
(Exact name of registrant as specified in its charter)
North Carolina 56-1541893
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
............................................................................
(Address of principal executive offices)
(Zip Code)
................801 Fieldcrest Road, Eden, North Carolina 27289................
(Registrant's telephone number, including area code)
.................................(336) 635-4000.................................
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ...X... No........
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date 8,109,152 shares of common
stock, no par value, as of May 11, 1998.
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PLUMA, INC.
INDEX TO FORM 10-Q
- -----------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets - March 31, 1998 and December 31, 1997 3
Statements of Operations - Three Months Ended March 31, 1998 and 1997 4
Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PLUMA, INC.
Balance Sheets
- ------------------------------------------------------------------------------------------------------
(Unaudited)
March 31, December 31,
1998 1997
Assets
Current assets:
Cash $ 971,759 $ 1,875,992
Accounts receivable (less allowance - 1998, 2,010,491;
1997, $2,353,577) 34,472,149 32,001,332
Other receivables 1,906,178 1,906,178
Income taxes receivable 3,106,116 1,952,796
Deferred income taxes 1,060,651 1,539,385
Inventories 61,791,837 51,177,900
Other current assets 1,640,174 1,168,663
--------------- --------------
Total current assets 104,948,864 91,622,246
--------------- --------------
Property, plant and equipment:
Land 929,689 929,689
Land improvements 719,699 719,699
Buildings and improvements 16,674,761 16,663,608
Machinery and equipment 36,711,488 36,420,561
Construction in Progress 7,666,850 4,762,235
--------------- --------------
Total property, plant and equipment 62,702,487 59,495,792
Less accumulated depreciation 22,410,365 21,496,857
--------------- --------------
Property, plant and equipment, net 40,292,122 37,998,935
--------------- --------------
Other assets:
Goodwill (less accumulated amortization - 1998, $462,383;
1997, $26,655) 34,395,918 34,831,646
Other 1,648,565 1,533,840
--------------- --------------
Total other assets 36,044,483 36,365,486
--------------- --------------
Total $ 181,285,469 $ 165,986,667
=============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt 48,079,236 44,117,982
Accounts payable 23,162,404 12,057,069
Accrued expenses 3,455,050 2,472,458
--------------- --------------
Total current liabilities 74,696,690 58,647,509
--------------- --------------
Long-term debt 40,000,000 40,000,000
--------------- --------------
Deferred income taxes 3,802,605 3,671,301
--------------- --------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized
Common stock, no par value, 15,000,000 shares authorized,
shares issued and outstanding - March 31, 1998, 8,109,152;
December 31, 1997, 8,109,152 36,849,127 36,849,127
Retained earnings 25,937,047 26,818,730
--------------- --------------
Total shareholders' equity 62,786,174 63,667,857
--------------- --------------
Total $ 181,285,469 $ 165,986,667
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
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PLUMA, INC.
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
(Unaudited)
Three Months
Ended March 31,
1998 1997
Net sales $ 39,196,435 $ 27,285,730
Cost of goods sold 35,182,264 22,593,159
--------------- --------------
Gross profit 4,014,171 4,692,571
Selling, general and administrative expenses 3,832,825 2,773,627
--------------- --------------
Income from operations 181,346 1,918,944
--------------- --------------
Other income (expenses):
Interest expense (1,468,282) (677,979)
Amortization of goodwill (435,728)
Other income, net 336,370 126,814
--------------- --------------
Total other expenses, net (1,567,640) (551,165)
--------------- --------------
Income (loss) before income taxes (1,386,294) 1,367,779
--------------- --------------
Income taxes (benefit) (504,611) 503,344
--------------- --------------
Net income (loss) $ (881,683) $ 864,435
=============== ==============
Earnings (loss) per common share and common equivalent -
basic and diluted $ (.11) $ .15
=============== ==============
Weighted average number of shares outstanding 8,109,152 5,899,185
=============== ==============
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The accompanying notes are an integral part of these statements.
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PLUMA, INC.
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------
(Unaudited)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income (loss) $ (881,683) $ 864,435
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for:
depreciation 1,054,290 980,465
amortization 460,729
Other, net (42,498) (1,163)
Increase in accounts receivable (2,470,817) (6,195,041)
(Increase) decrease in deferred income taxes 610,038 (269,050)
Increase in inventories (10,613,937) (4,762,692)
(Increase) decrease in other current assets (471,511) 344,667
Increase in accounts payable 11,105,335 1,763,801
(Increase) decrease in income taxes payable (receivable) (1,153,320) 320,393
Increase in other current liabilities 982,592 1,109,562
--------------- ---------------
Net cash used in operating activities (1,420,782) (5,844,623)
--------------- ---------------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,355,479) (2,436,761)
Proceeds from disposal of property 50,500
Other, net (139,726) 4,306
--------------- ---------------
Net cash used in investing activities (3,444,705) (2,432,455)
--------------- ---------------
Cash flows from financing activities:
Repayment of long-term debt (849,640) (849,640)
Proceeds from issuance of long-term debt 4,810,894
Net repayments of revolving loan (17,366,615)
Net proceeds from sale of common stock 26,416,906
Payment of dividends (144,451)
--------------- ---------------
Net cash provided by financing activities 3,961,254 8,056,200
--------------- ---------------
Net decrease in cash (904,233) (220,878)
Cash, beginning of period 1,875,992 291,488
--------------- ---------------
Cash, end of period $ 971,759 $ 70,610
--------------- ---------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 1,592,187 $ 750,474
Income taxes 38,671 452,000
</TABLE>
The accompanying notes are an integral part of these statements.
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PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) MARCH 31, 1998
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The accompanying unaudited financial statements of Pluma, Inc. (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim periods.
In the opinion of management, these financial statements include all
adjustments, including all normal recurring accruals, necessary for a fair
presentation of the financial position at March 31, 1998 and December 31,
1997, the results of operations for the three months ended March 31, 1998
and 1997 and cash flows for the three months ended March 31, 1998 and
1997.
The operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year
ending December 31, 1998.
In December 1997, the Company purchased certain assets and assumed certain
liabilities of Stardust Corporation ("Stardust") and Franklin L. Robinson
Company ("FLR"). The acquisitions have been accounted for as purchases.
Accordingly, the assets, liabilities, revenues and expenses of the
acquired businesses are included in the financial statements as of
December 31, 1997 and for the three months ended March 31, 1998.
2. INVENTORIES
Inventories consist of the following:
(UNAUDITED)
MARCH 31, DECEMBER 31
1998 1997
At FIFO cost:
Raw materials $ 1,905,404 $ 1,429,371
Work-in-progress 5,807,240 6,077,538
Finished goods 56,114,511 45,885,484
Production supplies 920,026 953,147
-------------- ---------------
64,747,181 53,345,540
Excess of FIFO over LIFO cost (2,061,838) (1,846,435)
-------------- ---------------
62,685,343 52,499,105
Excess of cost over market (893,506) (1,321,205)
-------------- ---------------
$ 61,791,837 $ 51,177,900
============== ===============
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3. CAPITAL STOCK
On January 28, 1997, the Board of Directors declared a 0.736-for-one
reverse common stock split for shareholders of record on February 3, 1997.
All references in the accompanying financial statements to the number of
common shares and per share amounts reflect the reverse stock split.
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In March 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock at $12.00 per share. The $26,416,906 net
proceeds were used to reduce debt.
In April 1997, the Underwriters' over-allotment option for 293,300 shares
of Common Stock at $12.00 per share was exercised. The $3,209,671 net
proceeds were used to reduce debt.
4. STOCK OPTIONS
In May 1995, the Company adopted the 1995 Stock Option Plan in which
515,200 shares of the Company's Common Stock may be issued. The exercise
price of the options may not be less than the fair value of the Common
Stock on the date of grant. The options granted become exercisable at such
time or times as shall be determined by the Compensation Committee of the
Board of Directors (the "Committee"). The Committee may at any time
accelerate the exercisability of all or any portion of any stock option.
These options expire, if not exercised, ten years from the date of grant.
Participants in the Plan may be independent contractors or employees of
independent contractors, full or part-time officers and other employees of
the Company, or independent directors of the Company.
In April 1996 and October 1995, the Company granted 32,384 and 379,776
options, respectively, to purchase Common Stock at an exercise price of
$13.077 per share of which 184,296 and 117,171 options are exercisable as
of March 31, 1998 and December 31, 1997, respectively. Forfeited options
were 31,795 as of March 31, 1998 and December 31, 1997. The remaining
196,069 options become exercisable in 20% increments on the anniversary
dates of the grants as follows:
YEAR SHARES
1998 64,179
1999 64,179
2000 64,180
2001 3,531
-------
Total 196,069
=======
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the 1995 Stock Option Plan. Accordingly, no compensation
cost has been recognized since the exercise price approximates the fair
value of the stock price at the grant dates. Had compensation cost been
determined based on the fair value at the grant date consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," the Company's net income and earnings per
common share would have been effected for the three months ended March 31,
1998 and 1997 as indicated below:
THREE MONTHS
ENDED MARCH 31,
1998 1997
Net Income:
As reported $ (876,138) $ 864,438
Pro forma $ (906,709) $ 813,124
Earnings per Share:
As reported $ (.11) $ .15
Pro forma $ (.11) $ .14
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5. EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share".
SFAS No. 128 is effective for financial statements for periods ending
after December 15, 1997 and early adoption is not permitted. This
statement changes the method of computing and presenting earnings per
common share. SFAS No. 128 requires the presentation of basic earnings per
common share and diluted earnings per common share ("EPS") on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation. Basic EPS is computed by dividing the net income available to
common shareholders by the weighted average shares of outstanding common
stock. The calculation of diluted EPS is similar to basic earnings per
share except that the denominator includes dilutive common stock
equivalents such as stock options and warrants.
Options to purchase shares of common stock were outstanding during the
three months ended March 31, 1998 and 1997 but were not included in the
computation of diluted EPS because the options' exercise prices were
greater than the average market prices of the common shares during those
periods. Accordingly, there were no differences in the numerators and
denominators used in the basic EPS and diluted EPS computations.
6. LONG-TERM DEBT
In April 1998, the Company replaced its existing debt with a $115.0
million syndicated credit facility (the "Syndicated Credit Facility"). The
Syndicated Credit Facility permits revolving loans of up to $70.0 million
(the "Revolving Loans") and term loans of up to $45.0 million (the "Term
Loans"). Any amounts outstanding under the Revolving Loans mature in
April, 2003. Term Loan borrowings will be due in specified quarterly
installments beginning in April, 1999 with a final maturity in January,
2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the financial statements and related notes of this Quarterly Report on
Form 10-Q and should be read in conjunction with the Company's 1997 Annual
Report.
RESULTS OF OPERATIONS
The following table presents the major components of the Company's
Statements of Operations as a percentage of net sales:
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
1998 1997
Net sales 100.0% 100.0%
Cost of goods sold 89.8 82.8
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Gross profit 10.2 17.2
Selling, general and
administrative expenses 9.7 10.2
Income from operations 0.5 7.0
Other expenses, net 4.0 2.0
Income (loss) before income taxes (3.5) 5.0
Income taxes (benefit) (1.3) 1.8
Net income (loss) (2.2) 3.2
THREE MONTHS ENDED MARCH 31, 1998 ("1998"), COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997 ("1997")
NET SALES
Net sales for the three months ended March 31, 1998 were $39.2 million, an
increase of $11.9 million, or 43.7%, over net sales of $27.3 million for
the first three months of 1997. This increase in net sales was
attributable to the inclusion of sales from FLR and Stardust which were
acquired by the Company in December of 1997.
GROSS PROFIT
Gross profit was 10.2% of net sales for the first three months of 1998
compared to 17.2% for the same period of 1997. The decline was the result
of lower operating efficiencies during the early part of the quarter and a
shift in product mix. Manufacturing efficiencies were adversely impacted
during the early part of the first quarter of 1998 due to problems which
arose during the initial implementation phase of the Company's SAP
management information system. Efficiencies returned to normal levels by
the end of the quarter. In addition, the Company sold a higher percentage
of jersey relative to fleece product during the first three months of 1998
compared to the same period of 1997. Jersey product, on average, provides
a lower gross profit percentage than fleece product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
Selling, general and administrative expenses for the first quarter
increased 38.2% to $3.8 million in 1998 from $2.8 million in 1997 due to
the inclusion of expenses from FLR and Stardust in the first quarter of
1998. SG&A as a percent of sales declined to 9.7% in 1998 from 10.2% in
1997. This decline is primarily attributable to the higher sales base
discussed above.
OTHER EXPENSES, NET
Other expenses, net, increased 184.4% to $1.6 million in the first quarter
of 1998 from $0.6 million in 1997. This increase was due to an increase in
interest expense and amortization expense associated with the acquisitions
made in December of 1997.
INCOME TAXES
The effective tax rate was 36.4% in 1998 compared to 36.8% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
PRINCIPAL SOURCES OF LIQUIDITY
Principal sources of liquidity have been net proceeds from the Company's
initial public offering and bank financing. In March 1997, the Company
completed its initial public offering of 2,500,000 shares of common stock
at $12.00 per share. Upon the exercise of an overallotment option in April
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1997, the Company issued an additional 293,300 shares at $12.00 per share.
The $29.6 million in net proceeds from the issuance of Common Stock was
used to reduce debt.
The Company entered into a credit agreement on December 22, 1997 (the
"Credit Agreement") with Nationsbank, N.A. for the purpose of funding the
acquisitions of the assets of Stardust and FLR and to refinance its
existing debt. The Company could borrow the lesser of $100.0 million or
the Company's borrowing base, as defined in the Credit Agreement. As of
March 31, 1998, $88.1 million was outstanding under the Credit Agreement.
In April 1998, the Company replaced the debt available under the Credit
Agreement with a $115.0 million syndicated credit facility (the
"Syndicated Credit Facility"). The Syndicated Credit Facility permits
revolving loans of up to $70.0 million (the "Revolving Loans") and term
loans of up to $45.0 million (the "Term Loans"). Any amounts outstanding
under the Revolving Loans mature in April, 2003. Term Loan borrowings will
be due in specified quarterly installments beginning in April, 1999 with a
final maturity in January, 2003. Management believes that the funding
available to the Company is sufficient to meet its anticipated capital
expenditure, working capital, and other financial needs.
CASH FLOWS FROM OPERATING ACTIVITIES
For the three months ended March 31, 1998 and 1997, net cash used in
operating activities totaled $1.4 million and $5.8 million, respectively.
Accounts receivable, net increased $2.5 million from December 31, 1997 to
March 31, 1998 due to increased sales volume. Inventories increased $10.6
million from December 31, 1997 to March 31, 1998 in order to support
shipments due in the last six months of the year. These uses of cash were
offset primarily by an increase in accounts payable of $11.1 million.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures were $3.4 million for the three months ended March
31, 1998. Capital expenditures, primarily to enhance manufacturing and
management information systems capabilities, are expected to be
approximately $8.0 million for the year ending December 31, 1998.
CASH FLOWS FROM FINANCING ACTIVITIES
For the three months ended March 31, 1998, the Company had net borrowings
of $4.0 million to help meet working capital and capital expenditure
financing needs.
FORWARD LOOKING STATEMENTS
Information in this form 10-Q may contain certain 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 product.
Additional factors that could cause actual results to differ are discussed
in the Company's recent filings with the Securities and Exchange
Commission.
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PART II- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On January 28, 1997, the Board of Directors declared a 0.736-for-one
reverse Common Stock split for shareholders of record on February 3,
1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Filed Herewith (*)
11.1 Computation of Earnings per Share *
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Pluma, Inc.
-----------------------------------
R. Duke Ferrell, Jr.
President, Chief Executive Officer
and Director
-----------------------------------
Forrest H. Truitt II
Executive Vice President, Treasurer
and Chief Financial Officer
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EXHIBIT 11.1
PLUMA, INC.
Computation of Earnings Per Common Share
- --------------------------------------------------------------------------------
(Unaudited)
Three Months
Ended March 31
1998 1997
Income (loss) available to common shareholders:
Net income (loss) available to common shareholders: $ (881,683) $ 864,435
----------- ----------
Weighted average common shares outstanding:
Common shares outstanding 8,109,152 5,899,185
Assumed exercise of stock options ----------- ----------
Total 8,109,152 5,899,185
----------- ----------
Earnings (loss) per common share and common
equivalent - basic and diluted $ (.11) $ .15
----------- ----------
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<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and statements of operations for the three months ended March 31,
1997 and is qualified in its entirety by reference to such financial statement.
</LEGEND>
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<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 971,759
<SECURITIES> 0
<RECEIVABLES> 36,482,640
<ALLOWANCES> 2,010,491
<INVENTORY> 61,791,837
<CURRENT-ASSETS> 104,948,864
<PP&E> 62,702,487
<DEPRECIATION> 22,410,365
<TOTAL-ASSETS> 181,285,469
<CURRENT-LIABILITIES> 74,696,690
<BONDS> 40,000,000
0
0
<COMMON> 36,849,127
<OTHER-SE> 25,937,047
<TOTAL-LIABILITY-AND-EQUITY> 181,285,469
<SALES> 39,196,435
<TOTAL-REVENUES> 39,196,435
<CGS> 35,182,264
<TOTAL-COSTS> 35,182,264
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (343,086)
<INTEREST-EXPENSE> 1,468,282
<INCOME-PRETAX> (1,386,294)
<INCOME-TAX> (504,611)
<INCOME-CONTINUING> (881,683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (881,683)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
