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 June 30, 1997....................................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from.....................to...........................
Commission file number.........333-18755........................................
..........................Pluma, Inc......................
(Exact name of registrant as specified in its charter)
North Carolina 56-1541893
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
.............................................................
(Address of principal executive offices)
(Zip Code)
.............801 Fieldcrest Road, Eden, North Carolina 27289...................
(Registrant's telephone number, including area code)
..............................(910) 635-4000....................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 8,109,152 shares of
common stock, no par value, as of August 11, 1997
1
PLUMA, INC.
INDEX TO FORM 10-Q
- -------------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets - June 30, 1997 and December 31, 1996 3
Statements of Operations - Three Months and Six Months Ended June 30, 1997 and 1996 4
Statements of Cash Flows - Six Months Ended June 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PLUMA, INC.
Balance Sheets
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1997 1996
Assets
Current assets:
Cash $ 129,078 $ 291,488
Accounts receivable (less allowance - 1997, $1,109,818
1996, $817,080) 32,814,817 22,545,795
Refundable income taxes 176,084
Deferred income taxes 1,710,214 1,509,535
Inventories 40,285,309 34,025,895
Other current assets 155,731 627,576
---------- ----------
Total current assets 75,271,233 59,000,289
---------- ----------
Property, plant and equipment:
Land 599,978 599,978
Land improvements 719,699 678,160
Buildings and improvements 14,344,409 14,078,626
Machinery and equipment 36,917,886 31,753,681
---------- ----------
Total property, plant and equipment 52,581,972 47,110,445
Less accumulated depreciation 19,472,244 17,468,062
---------- ----------
Property, plant and equipment, net 33,109,728 29,642,383
---------- ----------
Other assets 725,412 575,662
---------- ----------
Total $ 109,106,373 $ 89,218,334
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 849,640 $ 849,640
Note payable 326,155
Accounts payable 6,806,602 4,456,770
Income taxes payable 371,500
Accrued expenses 4,439,923 3,421,181
---------- ----------
Total current liabilities 12,422,320 9,099,091
---------- ----------
Long-term debt 29,138,136 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 - June 30, 1997, 8,109,152;
1996, 5,315,852 7,222,550 7,222,550
Paid-in-capital 29,663,978
Retained earnings 27,070,954 24,920,343
---------- ----------
Total shareholders' equity 63,957,482 32,142,893
---------- ----------
Total $ 109,106,373 $ 89,218,334
=============== =================
The accompanying notes are an integral part of this statement.
3
PLUMA, INC.
Statements of Operations
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Net sales $ 33,226,268 $33,886,809 $ 60,511,998 $ 55,819,099
Cost of goods sold 28,053,506 29,759,409 50,646,665 48,781,309
------------ ----------- ------------ ------------
Gross profit 5,172,762 4,127,400 9,865,333 7,037,790
Selling, general and administrative expenses 2,531,845 2,297,530 5,305,472 4,322,826
------------ ----------- ------------ ------------
Income from operations 2,640,917 1,829,870 4,559,861 2,714,964
------------ ----------- ------------ ------------
Other income (expenses):
Interest expense (500,193) (988,520) (1,178,172) (1,818,418)
Other income 122,925 172,583 249,739 240,892
------------ ----------- ------------ ------------
Total other expenses, net (377,268) (815,937) (928,433) (1,577,526)
------------ ----------- ------------ ------------
Income before income taxes 2,263,649 1,013,933 3,631,428 1,137,438
------------ ----------- ------------ ------------
Income taxes 833,022 373,127 1,336,366 418,577
------------ ----------- ------------ ------------
Net income $ 1,430,627 $ 640,806 $ 2,295,062 $ 718,861
------------ ----------- ------------ ------------
Earnings per common share and common equivalent -
primary and fully diluted $ .18 $ .12 $ .33 $ .14
------------ ----------- ------------ ------------
Weighted average number of shares outstanding 8,067,252 5,315,852 6,989,208 5,315,852
------------ ----------- ------------ ------------
The accompanying notes are an integral part of this statement.
4
PLUMA, INC.
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,295,062 $ 718,861
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for depreciation and amortization 2,005,474 1,872,260
Other, net (1,162) 4,038
Increase in accounts receivable (10,269,022) (7,945,723)
Decrease in deferred income taxes (169,050) (50,231)
Increase in inventories (6,259,414) (5,296,541)
(Increase) decrease in other current assets 471,845 (104,719)
Increase in accounts payable 2,349,832 3,001,808
(Increase) decrease in refundable income taxes (547,584) 868,808
Increase in accrued expenses 1,018,742 1,203,989
Decrease in note payable - related party sales agency (1,999,000)
---------------------------------
Net cash used in operating activities (9,105,277) (7,726,450)
--------------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,475,838) (1,439,642)
Other, net (145,569) 9,950
--------------------------------------
Net cash used in investing activities (5,621,407) (1,429,692)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of subordinated debt (849,640) (849,640)
Net borrowings from note payable 326,155 10,000,000
Net repayments of revolving loan (14,431,768) (109,974)
Net proceeds from sale of common stock 29,663,978
Payment of dividends (144,451) (288,902)
-----------------------------------
Net cash provided by financing activities 14,564,274 8,751,484
----------------------------------
Net decrease in cash (162,410) (404,658)
Cash, beginning of period 291,488 596,429
------------------------------------
Cash, end of period $ 129,078 $ 191,771
=====================================
Supplemental disclosures of cash flow information:
Cash paid during the period
for:
Interest $ 1,448,773 $ 1,851,446
Income taxes $ 2,053,000
Cash received during the period for:
Income taxes $ 400,000
The accompanying notes are an integral part of this statement.
5
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 1997
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The accompanying unaudited financial statements of Pluma, Inc. (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim periods.
In the opinion of management, these financial statements include all
adjustments, including all normal recurring accruals, necessary for a fair
presentation of the financial position at June 30, 1997 and December 31,
1996, the results of operations for the three months and six months ended
June 30, 1997 and 1996 and cash flows for the six months ended June 30,
1997 and 1996.
The operating results for the three months and six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the
full year ending December 31, 1997.
2. INVENTORIES
Inventories consist of the following:
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
At FIFO cost:
Raw materials $ 1,467,564 $ 1,279,512
Work-in-progress 4,175,085 3,297,522
Finished goods 34,747,180 30,037,951
Production supplies 1,178,248 608,824
-------------- ---------------
41,568,077 35,223,809
Excess of FIFO over LIFO cost (410,178) (83,930)
-------------- ---------------
41,157,899 35,139,879
Excess of cost over market (872,590) (1,113,984)
-------------- ---------------
$ 40,285,309 $ 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.
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.
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 June 30,
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 date consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" the Company's net income and earnings per
share would have been effected for the three months and six months ended
June 30, 1997 and 1996 as indicated below:
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Net Income:
As reported ..... $1,430,627 $640,806 $2,295,062 $ 718,861
Pro forma ....... $1,430,627 502,303 2,295,062 580,359
Earnings per Share:
As reported ..... $ .18 $ .12 $ .33 $ .14
Pro forma ....... $ .18 $ .09 $ .33 $ .11
7
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
("SFAS 128") which changes the method of computing and presenting earnings
per share. SFAS 128 requires the presentation of basic earnings per share
and diluted earnings per share ("EPS") on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. Basic earnings per share is computed by dividing the net
income available to common shareholders by the weighted average shares of
outstanding common stock. The calculation of diluted earnings per share is
similar to basic earnings per share except that the denominator includes
dilutive common stock equivalents such as stock options and warrants. SFAS
128 is effective for financial statements for periods ending after
December 15, 1997 and early adoption is not permitted. The pro forma basic
earnings per share and diluted earnings per share calculated in accordance
with SFAS 128 for the three months and six months ended June 30, are as
follows:
(Unaudited) (Unaudited)
Three Months Six months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Pro forma basic earnings per share $ .18 $ .12 $ .33 $ .14
Pro forma diluted earnings per share $ .18 $ .12 $ .33 $ .14
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.
8
RESULTS OF OPERATIONS
The following table presents the major components of the Company's
Statement of Operations as a percentage of net sales:
(Unaudited) (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 84.5 87.9 83.7 87.4
------- -------- ------ ------
Gross profit 15.5 12.1 16.3 12.6
Selling, general and
administrative expenses 7.6 6.8 8.7 7.7
------- -------- ------ ------
Income from operations 7.9 5.3 7.6 4.9
Other expenses, net 1.1 2.4 1.5 2.9
------- -------- ------ ------
Income before income taxes 6.8 2.9 6.1 2.0
Income taxes 2.5 1.1 2.2 .7
------- -------- ------ ------
Net income 4.3% 1.8% 3.9% 1.3%
======= ======== ====== ======
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 ("1997"), COMPARED TO
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 ("1996").
NET SALES - Net sales for the six months ended June 30, 1997 were $60.5
million, an increase of $4.7 million, or 8.4%, over net sales of $55.8
million for the first six months of 1996. This increase in net sales was
principally attributable to increased sales of fleece and an increase in
the combined average sales price per dozen. Sales of fleece increased by
23.5% to $34.0 million in 1997 from $27.5 million in 1996. The combined
average sales price per dozen increased by 3.8%. Net sales for the second
quarter of 1997 were $33.2 million, a decrease of 2.0% from net sales of
$33.9 million in the comparable period of the prior year. This decrease is
primarily the result of lower unit volume.
GROSS MARGINS - Gross margins improved to 15.6% and 16.3% for the second
quarter and first six months of 1997, respectively, from 12.2% and 12.6%
in the comparable periods of 1996. This improvement in gross margins was
the result of increased sales of fleece as a percent of total sales, lower
yarn costs, and lower unit overhead costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") - For the first six
months, SG&A expenses increased 22.7% to $5.3 million in 1997 from $4.3
million in 1996. SG&A as a percent of sales for 1997 was 8.8% compared to
7.7% in 1996. This increase in SG&A expense is primarily attributable to
travel and training expenses related to the implementation of a new
management information system, an increase in compensation expense
principally related to increased bonus accruals as the result of higher
earnings, and expenses associated with the opening of new outlet stores.
OTHER EXPENSES, NET - Other expenses, net, decreased 53.8% to $0.4 million
in the second quarter of 1997 and 41.1% to $0.9 million in the first six
months of 1997. This decrease is due primarily to a
9
decrease in interest expense. Net proceeds from the March 1997 initial
public offering and from the April 1997 overallotment exercise were used
to reduce debt.
INCOME TAXES - The effective tax rate was 36.8% in 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
PRINCIPAL SOURCES OF LIQUIDITY - Principal sources of liquidity have been
net proceeds from the Company's initial public offering and bank
financing. In March 1997, the Company completed its initial public
offering of 2,500,000 shares of common stock at $12.00 per share. Upon the
exercise of an overallotment option in April 1997, the Company issued an
additional 293,300 shares at $12.00 per share. The $29.6 million in net
proceeds from the issuance of Common Stock was used to reduce debt. The
Company maintains a revolving credit facility which permits borrowing of
up to $55.0 million. As of June 30, 1997, $29.1 million was outstanding
under the facility, leaving $25.9 million in availability. Management
believes that the funding available to the Company is sufficient to meet
its anticipated capital expenditures, working capital, and other financial
needs.
CASH FLOWS FROM OPERATING ACTIVITIES - For the six months ended June 30,
1997 and 1996, net cash used in operating activities totaled $9.1 million
and $7.7 million, respectively. Accounts receivable, net, increased $10.3
million from December 31, 1996 to June 30, 1997 due to increased sales
volume and seasonality of activewear shipments. Inventories increased $6.3
million from December 31, 1996 to June 30, 1997 in order to support
shipments due in the last six months of the year.
CASH FLOWS FROM INVESTING ACTIVITIES - Capital expenditures were $5.5
million for the six months ended June 30, 1997. These capital expenditures
were primarily to enhance manufacturing and management information systems
capabilities.
CASH FLOWS FROM FINANCING ACTIVITIES - For the six months ended June 30,
1997, the Company had net repayments of $14.4 million as $29.6 million net
proceeds from the issuance of Common Stock were used to reduce debt.
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 *
27.0 Financial Data Schedule (for SEC use only)
b. Reports on Form 8-K
None
10
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.
August 11, 1997 ___________________________________
R. Duke Ferrell, Jr.
President, Chief Executive Officer
and Director
August 11, 1997 ___________________________________
Forrest H. Truitt II
Executive Vice President, Treasurer
and Chief Financial Officer
11