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, 1997...................................
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from...................to......................
Commission file number 333-18755
...................................Pluma, Inc....................
(Exact name of registrant as specified in its charter)
North Carolina 56-1541893
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
................................................................................
...............801 Fieldcrest Road, Eden, North Carolina 27289..................
..................................(910) 635-4000................................
(Address of principal executive offices)
(Zip Code)
(Registrant's telephone number, including area code)
(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.
7,815,852 shares of common stock, no par value, as of May 14, 1997.
1
PLUMA, INC.
INDEX TO FORM 10-Q
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets - March 31, 1997 and December 31, 1996 3
Statements of Operations - Three Months Ended March 31, 1997 and 1996 4
Statements of Cash Flows - Three Months Ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PLUMA, INC.
Balance Sheets
- --------------------------------------------------------------------------------
Unaudited
March 31, December 31,
1997 1996
Assets
Current assets:
Cash $ 70,610 $ 291,488
Accounts receivable (less allowance - 1997, $1,051,813
1996, $817,080) 28,740,836 22,545,795
Deferred income taxes 1,810,214 1,509,535
Inventories 38,788,587 34,025,895
Other current assets 282,909 627,576
------------ -----------
Total current assets 69,693,156 59,000,289
------------ -----------
Property, plant and equipment
Land 599,978 599,978
Land improvements 678,160 678,160
Buildings and improvements 14,296,059 14,078,626
Machinery and equipment 33,968,697 31,753,681
------------ -----------
Total property, plant and equipment 49,542,894 47,110,445
Less accumulated depreciation 18,447,233 17,468,062
------------ -----------
Property, plant and equipment, net 31,095,661 29,642,383
------------ -----------
Other assets 575,537 575,662
------------ -----------
Total $101,364,354 $89,218,334
============ ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 849,640 $ 849,640
Note payable 507,466 --
Accounts payable 6,220,571 4,456,770
Income taxes payable 691,893 371,500
Accrued expenses 4,023,277 3,421,181
------------ -----------
Total current liabilities 12,292,847 9,099,091
------------ -----------
Long-term debt 26,203,289 44,419,544
------------ -----------
Deferred income taxes 3,588,435 3,556,806
------------ -----------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value, 1,000,000 shares authorized
Common stock, no par value, 15,000,000 shares authorized,
shares issued and outstanding - March 31, 1997, 7,815,852;
1996, 5,315,852 7,222,550 7,222,550
Paid-in-capital 26,416,906 --
Retained earnings 25,640,327 24,920,343
------------ -----------
Total shareholders' equity 59,279,783 32,142,893
------------ -----------
Total $101,364,354 $89,218,334
============ ===========
The accompanying notes are an integral part of this statement.
3
PLUMA, INC.
Statements of Operations
- --------------------------------------------------------------------------------
(Unaudited)
Three Months
Ended March 31,
1997 1996
Net sales $ 27,285,730 $21,932,290
Cost of goods sold 22,593,159 19,021,900
------------ -----------
Gross profit 4,692,571 2,910,390
Selling, general and administrative expenses 2,773,627 2,025,296
------------ -----------
Income from operations 1,918,944 885,094
------------ -----------
Other income (expenses):
Interest expense 677,979 829,898
Other income (126,814) (68,309)
------------ -----------
Total other expenses, net 551,165 761,589
------------ -----------
Income before income taxes 1,367,779 123,505
------------ -----------
Income taxes 503,344 45,450
------------ -----------
Net income $ 864,435 $ 78,055
============ ===========
Earnings per common share and common equivalent -
primary and fully diluted $ 0.15 $ 0.01
============ ===========
Weighted average number of shares outstanding 5,899,185 5,315,852
============ ===========
The accompanying notes are an integral part of this statement
4
PLUMA, INC.
Statements of Cash Flows
- --------------------------------------------------------------------------------
(Unaudited)
Three Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Net income $ 864,435 $ 78,055
Adjustments to reconcile net income to net cash
used in operating activities
Provision for depreciation and amortization 980,465 926,451
Other, net (1,163) 1,158
(Increase) decrease in accounts receivable (6,195,041) 749,817
Decrease in deferred income taxes (269,050) (25,116)
Increase in inventories (4,762,692) (6,092,269)
Decrease in other current assets 344,667 15,742
Increase in accounts payable 1,763,801 4,579,803
Increase in income taxes payable 320,393 70,565
Increase in accrued expenses 602,096 400,807
Decrease in note payable - related party sales agency -- (1,999,000)
------------ -----------
Net cash used in operating activities (6,352,089) (1,293,985)
------------ -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,436,761) (580,063)
Other, net 4,306 4,025
------------ -----------
Net cash used in investing activities (2,432,455) (576,038)
------------ -----------
Cash flows from financing activities:
Repayment of subordinated debt (849,640) (849,640)
Net borrowings from note payable 507,466 --
Net borrowings from (repayments of) revolving loan (17,366,615) 2,307,375
Net proceeds from sale of common stock 26,416,906 --
Payment of dividends (144,451) (144,451)
------------ -----------
Net cash provided by financing activities 8,563,666 1,313,284
------------ -----------
Net decrease in cash (220,878) (556,739)
Cash, beginning of period 291,488 596,429
------------ -----------
Cash, end of period $ 70,610 $ 39,690
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 750,474 $ 894,640
Income taxes $ 452,000
The accompanying notes are an integral part of this statement.
5
PLUMA, INC.
Notes to Financial Statements
(Unaudited) March 31, 1997
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The accompanying unaudited financial statements of Pluma, Inc. (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim periods.
In the opinion of management, these financial statements include all
adjustments, including all normal recurring accruals, necessary for a fair
presentation of the financial position at March 31, 1997 and December 31,
1996 and the results of operations and cash flows for the periods ended
March 31, 1997 and 1996.
The operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year
ending December 31, 1997.
2. INVENTORIES
Inventories consist of the following:
March 31, December 31,
1997 1996
At FIFO cost:
Raw materials $ 1,453,138 $ 1,279,512
Work-in-progress 4,069,119 3,297,522
Finished goods 33,671,278 30,037,951
Production supplies 974,087 608,824
----------- -------------
40,167,622 35,223,809
Excess of FIFO over LIFO cost (338,004) (83,930)
----------- -------------
39,829,618 35,139,879
Excess of cost over market (1,041,031) (1,113,984)
----------- -------------
$38,788,587 $ 34,025,895
=========== =============
3. CAPITAL STOCK
On January 28, 1997, the Board of Directors declared a 0.736-for-one
reverse common stock split for shareholders of record on February 3, 1997.
All references in the accompanying financial statements to the number of
common shares and per share amounts reflect the reverse stock split.
In March 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock at $12.00 per share. The $26,400,000 net
proceeds were used to reduce debt.
6
4. STOCK OPTIONS
In October 1995, the Company adopted the 1995 Stock Option Plan in which
515,200 shares of the Company's Common Stock may be issued. The exercise
price of the options may not be less than the fair value of the Common
Stock on the date of grant. The options granted become exercisable at such
time or times as shall be determined by the Compensation Committee of the
Board of Directors (the "Committee"). The Committee may at any time
accelerate the exercisability of all or any portion of any stock option.
These options expire, if not exercised, ten years from the date of grant.
Participants in the Plan may be independent contractors or employees of
independent contractors, full or part-time officers and other employees of
the Company, or independent directors of the Company.
In October 1995 and April 1996, the Company granted 379,776 and 32,384
options, respectively, to purchase Common Stock at an exercise price of
$13.077 per share of which 117,171 options are exercisable as of March 31,
1997 and December 31, 1996. 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:
Year Shares
1997 64,768
1998 64,768
1999 64,768
2000 64,768
2001 6,477
--------
265,549
========
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 dates consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" the Company's net income and earnings per
share would have not been effected for the three months ended March 31,
1997 and 1996.
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128")
which changes the method of computing and presenting earnings per share.
SFAS 128 requires the presentation of basic earnings per share and diluted
earnings per share ("EPS") on the face of the income statement for all
entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic earnings per share is
computed by dividing the net income available to common shareholders by the
weighted average shares of outstanding common stock. The calculation of
diluted earnings per share is similar to basic earnings per share except
that the denominator includes dilutive common stock equivalents such as
stock options and warrants. SFAS 128 is effective for financial statements
for periods ending after December 31, 1997 and early adoption is not
permitted. The pro forma basic earnings per share and diluted earnings per
share calculated in accordance with SFAS 128 for the three months ended
March 31, are as follows:
7
1997 1996
Pro forma basic earnings per share $ .15 $ .01
Pro forma diluted earnings per share $ .15 $ .01
6. SUBSEQUENT EVENT
In April 1997, the Underwriters' over-allotment option for 293,300 shares
of Common Stock at $12.00 per share was exercised. The $3,300,000 net
proceeds were used to reduce debt.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion and analysis should be read in conjunction with
the financial statements and related notes of this Quarterly Report on Form
10-Q and should be read in conjunction with the Company's 1996 Annual
Report.
Results of Operations
The following table presents the major components of the Company's
Statement of Operations as a percentage of net sales:
Three Months Ended March 31,
1997 1996
Net sales 100.0% 100.0%
Cost of goods sold 82.8 86.7
----- -----
Gross profit 17.2 13.3
Selling, general and
administrative expenses 10.2 9.2
----- -----
Income from operations 7.0 4.1
Other expenses, net 2.0 3.5
----- -----
Income before income taxes 5.0 0.6
Income taxes 1.8 0.2
----- -----
Net income 3.2% 0.4%
===== =====
Three Months Ended March 31, 1997 ("1997"), Compared to Three Months Ended
March 31, 1996 ("1996").
Net Sales - Net sales increased 24.4% to $27.3 million in 1997 from $21.9
million in 1996, an increase of $5.3 million. Gross dozens sold of fleece
and jersey increased 19.3% to 378,000 dozens in 1997 from 317,000 dozens in
1996. The increase in net sales was principally attributable to increased
sales of fleece and increased average prices for jersey and fleece. Sales
of fleece increased by 92.9% to $14.2 million in 1997 from $7.4 million in
1996, an increase of $6.9 million. Average sales price per dozen for fleece
and jersey increased 3.0% and 2.9%, respectively.
8
Gross Profit - Gross profit was 17.2% of net sales in 1997 as compared to
13.3% in 1996. The increase in gross profit was the result of increased
sales of fleece as a percent of total sales, lower yarn costs and improved
operating efficiencies.
Selling, General and Administrative Expenses ("SG&A") - SG&A expenses
increased 36.9% to $2.8 million in 1997 from $2.0 million in 1996. SG&A as
a percent of net sales for 1997 was 10.2% compared to 9.2% in 1996. This
increase in SG&A as a percentage of net sales resulted primarily from
travel and training related to the implementation of a new management
information system, an increase in compensation expense which is primarily
related to increased bonus accruals as the result of higher earnings, an
increase in bad debts reserves, and an increase in advertising expenses.
Other Expenses, Net - Other expenses, net, decreased 27.6% to $0.5 million
in 1997 from $0.8 million in 1996, a decrease of $0.2 million. This
decrease was primarily the result of a decrease in interest expense due to
long-term debt declining to $26.2 million in 1997 from $44.4 million in
1996. The $26.4 million net proceeds from the March 1997 initial public
offering were used to reduce debt.
Income Taxes - The effective tax rate was 36.8% in 1997 and 1996.
Liquidity and Capital Resources
Principal Sources of Liquidity - Principal sources of liquidity have been
net proceeds from the Company's initial public offering and bank financing.
In March 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock at $12.00 per share. The $26,400,000 net
proceeds were used to reduce debt. Pursuant to a loan agreement executed on
May 25, 1995 (the "Loan Agreement"), the Company entered into a credit
facility with First Union National Bank in the amount of the lesser of
$55.0 million or the Company's "borrowing base" as defined in the
Loan Agreement. As of March 31, 1997, $26.2 million was outstanding,
leaving $28.8 million available. The Loan Agreement expires on May 30,
2000. The interest rate of the credit facility is variable, and on
March 31, 1997, it was 6.475%. 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,
1997 and 1996, net cash used in operating activities totaled $6.4 million
and $1.3 million, respectively. Accounts receivable, net increased $6.2
million from December 31, 1996 to March 31, 1997, due to the seasonality of
activewear shipments, as well as, significant March 1997 shipments.
Inventories increased $4.8 million from December 31, 1996 to March 31, 1997
in order to support shipments due in the last six months of the year.
Cash Flows from Investing Activities - Capital expenditures were $2.4
million for the three months ended March 31, 1997. Capital expenditures,
primarily to enhance manufacturing and management information systems
capabilities, are expected to be approximately $5.0 million in 1997.
Cash Flows from Financing Activities - For the three months ended March 31,
1997, the Company had net repayments of borrowings of $17.4 million as
$26.4 million net proceeds from the initial public offering were used to
reduce debt.
9
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On January 28, 1997, the Board of Directors declared a 0.736-for-one
reverse Common Stock split for shareholders of record on February 3,
1997.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
Number Filed Herewith (*)
-------
11.1 Computation of Earnings per Share *
27 Financial Data Schedule (for S.E.C. use only) *
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.
May 14, 1997
--------------------------
R. Duke Ferrell, Jr.
President, Chief Executive Officer
and Director
May 14, 1997
--------------------------
Forrest H. Truitt II
Executive Vice President, Treasurer
and Chief Financial Officer
10