UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 Fieldcrest Road 27288
Eden, North Carolina (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (336) 635-4000
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
Common Stock, No par value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes x . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of Common Stock, no par value, held by
non-affiliates of the registrant, as of April 5, 1999, was approximately
$2,650,316.
---------
As of April 5, 1999 there were 8,109,152 shares of Common Stock, no par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on June 23, 1999 are incorporated by reference into Parts I and III
of this report.
PART I
ITEM 1. Business
GENERAL
Pluma (the "Company") is a vertically integrated manufacturer and distributor 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. Also in 1998, Pluma operated two nationally recognized wholesale
distributors, Stardust Corporation ("Stardust") in Verona, Wisconsin and Frank
L. Robinson Company ("FLR") in Los Angeles, California. These distributors were
acquired in December 1997. Although the Company has elected to close FLR in an
effort to reduce overhead, it continues to operate Stardust and believes that
Stardust is strategically important to the distribution of Pluma's "SANTEE"
branded products and allows the Company to serve smaller customers who would
otherwise prove more difficult to service efficiently. Pluma sells its products
to companies such as adidas, Starter and Walt Disney. In addition, the Company
sells products under its own "PLUMA(R)", "SANTEE(R)", and "SNOWBANK(R)" brand
names to retail and wholesale customers such as Sam's Club and Alpha Shirt
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.
Pluma targets a diverse customer base across multiple markets and distribution
channels. Currently, Pluma's material customers include branded customers such
as adidas, Reebok and Starter, retailers such as Miller's Outpost and Sam's Club
and entertainment customers such as Hard Rock Cafe and Walt Disney. In addition,
Pluma sells to wholesale distributors, screenprinters and embroiderers who sell
the Company's products to a wide variety of retailers, ranging from small
souvenir and resort stores to large nationwide department stores. The Company's
diverse customer base provides product exposure to many consumer markets and
enables Pluma to balance its production more evenly throughout the year.
Stardust has been in operation since 1988 and served approximately 6000
customers in the apparel industry in 1998. Stardust's products include jersey
and fleece products as well as golf shirts, jackets and headwear. Its primary
customers include smaller screenprinters and embroiderers, retailers and
advertising specialists, customers who otherwise would
be inaccessible to the Company as the result of financial inefficiencies that
would result from Pluma's manufacturing division's attempts to service these
customers.
Pluma recognizes the benefits of competing in a global market. To take advantage
of lower production costs,during 1998, the Company utilized the services of two
joint ventures in Mexico (in which Pluma is a partner) to assemble (sew)
component parts of the Company's products. However, the Company underestimated
management involvement required to implement non-domestic production. These
joint ventures failed to produce the required quantities of product in a timely
fashion and quality problems were also experienced. The Company also determined
that more competitive pricing could be obtained from other Latin American
manufacturers. The Company is currently analyzing the competitiveness of the two
joint ventures with other manufacturing companies in Latin America. Should it be
determined that similar services are offered by other Latin American companies
at more competitive prices than those currently being offered by the joint
ventures Pluma intends to pursue these opportunities in an effort to expand a
portion of its manufacturing operation to Latin America.
PRODUCTS
Pluma's high quality fleece and jersey activewear meet consumer preferences for
heavier weights and higher cotton content. The Company's fleece products include
a variety of styles and colors of tops and bottoms in seven and one-half, nine,
and eleven ounce weights in cotton/polyester blends ranging from 50% cotton/50%
polyester to 100% cotton. Pluma also manufacturers six and seven ounce 100%
cotton jersey tops and bottoms designed for outerwear.
The Company believes that certain design and construction features enhance the
quality and appeal of its products relative to some competitors.
o Pluma's fleece and jersey tops are fuller cut and heavier weight.
o Pluma produces higher stitch count fabrics to reduce shrinkage, provide a
better printing surface and increase softness.
o Pluma uses air jet spun yarn for its 50% cotton/50% polyester fleece fabric to
prevent pilling.
o Most of Pluma's ribbed fabrics contain spandex to retain
shape.
o Pluma uses greater detail in its sewing processes to enhance durability and
appearance.
o Pluma utilizes advanced finishing techniques, including the application of
softeners and napping (brushing), to give its fleece fabrics more bulk and
softer texture.
The sales mix of fleece and jersey products (excluding sales by FLR and
Stardust) for the three years ended December 31, 1998, in sales, gross dozens
sold, excluding close-outs and irregulars, and the average sales price per dozen
is as follows:
Year Ended December 31
In thousands 1998 1997 1996
Except average ------------------------------------ --------------------------------- ----------------------------------
Sales price per dozen Gross Avg. Gross Avg. Gross Avg.
Dozens Sales Price/ Dozens Sales Price/ Dozens Sales Price/
Sales Sold Dozen Sales Sold Dozen Sales Sold Dozen
Fleece $ 57,568 613 $ 93.85 $ 80,751 879 $ 91.88 $ 80,423 871 $ 92.41
Jersey 53,772 944 56.97 51,836 841 61.67 46,803 765 61.16
Total/Average 111,340 1,557 71.50 132,587 1,720 76.78 127,226 1,636 76.79
Since introducing jersey products in 1990, the Company has increased jersey
sales in order to diversify its product mix, more efficiently utilize its
manufacturing base and reduce the impact of seasonality that is inherent in the
fleece industry. Generally, jersey products sell at lower price points and
generate lower profit margins than fleece.
2
The sales mix of products for the Company's Stardust and FLR divisions for the
year ended December 31, 1998 was as follows:
STARDUST
GROSS SALES PERCENTAGE
PRODUCT IN THOUSANDS OF GROSS SALES
------- ------------ --------------
Jersey 23,998 47.0%
Fleece 11,771 23.1%
Golf Shirts 12,984 25.5%
Caps 1,135 2.2%
Jackets 1,132 2.2%
TOTAL 51,019 100.0%
FLR
GROSS SALES PERCENTAGE
PRODUCT IN THOUSANDS OF GROSS SALES
------- ------------ --------------
Jersey 18,474 54.9%
Fleece 9,562 28.6%
Underwear 3,222 9.7%
Golf Shirts 1,932 5.8%
Miscellaneous 492 1.0%
TOTAL 33,682 100.0%
As of December 31, 1998 and 1997, the Company (excluding Stardust and FLR) had
backlog orders of approximately 844,182 dozens, or approximately $43 million,
and 645,475 dozens or approximately $37 million, respectively. Backlogs are
computed from orders on hand at the last day of each fiscal period. The Company
believes that as a result of the seasonality and the just-in-time nature of its
business, order backlogs are not a reliable indicator of future sales volume.
CUSTOMERS
Pluma targets a diverse customer base which is comprised of five primary
markets. These markets include branded, retailers, screenprinters and
embroiderers, wholesale distributors and entertainment. As a result of Pluma's
ability to customize products according to its customer's needs, it is focusing
on increasing sales to its branded and retail customers, which produce higher
gross margins.
For the years ended December 31, 1998, 1997, and 1996, Pluma's top ten customers
accounted for 47.9%, 80.2% and 75.5%, respectively, of the Company's net sales
and 58.9%, 47.2% and 65.4% , respectively, of its accounts receivable. For the
year ended December 31, 1998, the Company's top three customers, Sam's Club,
adidas and Starter Galt, accounted for 25.7%, 9.4% and 2.5%, respectively, of
the Company's net sales. For the year ended December 31, 1997, the Company's top
three customers, Sam's Club, adidas and FLR accounted for 31.1%, 12.0% and 8.7%
respectively of the Company's net sales. For the year ended December 31, 1996,
the Company's top three customers, Sam's Club, adidas and Frank L. Robinson,
accounted for 24.1%, 14.7% and 7.2%, respectively, of the Company's net sales.
Pluma provides products to its customers pursuant to purchase orders on an
as-needed basis.
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BRANDED
Branded accounts consist of customers such as adidas, Bike and Reebok. These
accounts require the manufacturer to meet exact specifications, such as styling,
color, screenprinting and embroidery. Products are labeled, packaged and shipped
ready for sale to consumers. The Company's ability to accommodate the
specialized nature of products manufactured for these customers often results in
higher margins. Branded accounts constituted approximately 12.2% of the
Company's net sales for the year ended December 31, 1998, 23.0% of the Company's
net sales for 1997 and 20.6% for 1996.
RETAILERS
Retail customers include specialty, high-end and value-oriented retailers. The
Company's largest retail customer in 1998 was Sam's Club, which markets and
sells "Pluma" labeled products. Pluma's other retail customers include Miller's
Outpost, which sells its own private label products manufactured by Pluma or
products with Pluma's "SANTEE(R)" label. The Company believes that this market
segment holds significant opportunity for growth as other value-oriented retail
formats continue to grow in popularity. Retail customers constituted
approximately 28.0% of the Company's net sales for the year ended December 31,
1998 and 40.9% and 33.7% for the same periods in 1997 and 1996, respectively. As
a result of the growth of the Company's business with Sam's Club, coupled with
increased consumer recognition of the "Pluma" brand name, the Company has
granted a license to Kayser Roth Corporation ("Kayser Roth") that allows it to
manufacture and distribute socks to Sam's Club under the "Pluma" brand name.
SCREENPRINTERS AND EMBROIDERERS
Screenprinters and embroiderers include Endless Design, Artisans and SouthPrint
among others. These customers typically purchase basic products to which they
add design and logos; they then resell these products to a wide variety of
retailers, ranging from small souvenir and resort stores to large, nationwide
department stores. Certain screenprinters and embroiderers resell under Pluma's
"SANTEE(R)" label. Screenprinters and embroiderers constituted approximately
7.9% of the Company's net sales for the year ended December 31, 1998 and 11.3%
and 19.7% for the same periods in 1997 and 1996, respectively.
WHOLESALE DISTRIBUTORS
Wholesale distributors include T-C Distributors and Laurel Run. These customers
generally purchase goods in large volume for further distribution to companies
such as Converse, as well as to small customers, which are typically more
difficult for the Company to service. All products sold to these customers
contain Pluma's "SANTEE(R)" label, which is becoming more recognizable by
consumers. Wholesale distributors (exclusive of Stardust and FLR in 1998)
constituted approximately 2.0% of the Company's net sales for the year ended
December 31, 1998 and 16.7% and 17.5% for the same periods in 1997 and 1996,
respectively. Wholesale distributor sales were less during 1998 than in prior
years as the result of the acquisition of Stardust and FLR, who were large
customers of Pluma before their acquisition.
ENTERTAINMENT
Entertainment accounts consist of customers such as Hard Rock Cafe and Walt
Disney. This market segment demands a basic product on which designs are printed
or embroidered for souvenir sales. Demand for goods sold to this market segment
is relatively consistent throughout the year. Entertainment accounts constituted
approximately 3.0% of the Company's net sales for the year ending December 31,
1998 and 8.1% and 8.4% for the same periods in 1997 and 1996 respectively.
STARDUST AND FLR
Stardust and FLR accounted for approximately 45.0% of the Company's net sales
for the year ending December 31, 1998. Stardust sells approximately one-third of
its products to screenprinters and embroiderers, one-third to retailers and the
4
remaining one-third to advertising specialists, Stardust's fastest growing
customer segment. Pluma has closed FLR and is in the process of liquidating a
substantial portion of its inventory.
Historically, approximately two percent of Pluma's sales consisted of irregular
products sold by the Company and independent sellers.
MANUFACTURING
Pluma is a vertically integrated manufacturer. The Company's manufacturing
process consists of knitting, dyeing, finishing, cutting and sewing. Using
proprietary equipment and advanced manufacturing processes, Pluma has the
flexibility to shift its knitting, dyeing and sewing operations between various
fabric weights, blends and styles, as well as between fleece and jersey with
minimal downtime.
At the end of 1998, Pluma was manufacturing all of if its fabrics domestically,
using independent contractors as needed. The Company continued to shift its
sewing operations to Latin America in 1998 to meet customer demands for value
and to take advantage of the labor cost savings. By the end of 1998,
approximately 50% of the Company's products were sewn domestically at sites
within close proximity to the Company's textile manufacturing facilities. The
remaining 50% of the Company's products were sewn or produced in Latin America
by the joint ventures and other contractors.
Pluma's vertically integrated manufacturing process includes the following:
KNITTING
The Company operates, high-speed circular knitting machines that produce various
types of fabric in its manufacturing facilities in Eden, North Carolina. The
circular knitting process eliminates the need for side-seaming, reduces waste
and consequently, lowers production costs. Proprietary knitting processes enable
the Company to change its production with minimal downtime for setup. The
Company can shift its knitting processes between various fabric blends, weights
and styles, as well as between fleece and jersey fabrics, without significant
loss of utilization. Pluma uses spandex in all of its ribbed fabrics to retain
shape and produces high stitch count fabrics, which results in lower shrinkage,
a better printing surface and a softer feel.
DYEING
The Company believes that its computer-controlled, pressurized dyeing operations
in Eden, North Carolina, are state-of-the-art. Computerized controls reduce
processing time and improve control of dyeing cycles, temperatures, water
pressure and chemical usage, thereby producing greater consistency and
minimizing waste. In addition, the Company's pressurized dyeing process
increases bulking, which reduces shrinkage and color bleeding of its fabrics.
FINISHING AND CUTTING
The finishing process consists of extracting, drying, napping (brushing) and
compacting the fabric. Fleece fabrics are then napped to produce a soft and
heavy feel. Also, fabrics are compacted to minimize shrinkage and increase
stability.
Pluma's cutting operation in Eden, North Carolina, uses Bierrebi & Geber
automatic continuous-cutting machines with computer-controlled hydraulic
die-cutting heads. The Company's Gerber cutting system interfaces with its
computerized pattern design process. The Company utilizes these machines to
improve consistency and efficiency and generate less waste. Manual cutting is
used to provide flexibility to process low-volume orders.
5
SEWING
The Company's domestic sewing facilities are currently located in Martinsville,
Chatham, Vesta and Altavista, Virginia. Pluma's sewing operations begin with the
pre-assembly of component parts utilizing computerized sewing equipment.
Pre-assembled parts are then sewn using the Company's proprietary tandem sewing
process or conventional sewing. Management believes that its tandem sewing
process is unique and gives the Company a competitive advantage in sewing
operations by enhancing product quality and manufacturing flexibility.
Pluma's proprietary tandem sewing process utilizes the Company's patented tandem
sewing table. This proprietary equipment allows operations to move rapidly
between sewing steps to reduce further assembly time. The table is easily
adjustable to accommodate different operators' physical characteristics,
minimizing downtime between shifts and thereby facilitating multi-shift
operations.
The Company increased its engagement of independent sewing contractors in 1998.
These independent contractors sewed approximately 37.0% of all Pluma products
during 1998 as compared to 16.0% of the Company's products in 1997 and 1996.
During 1998, 21.9% of the Company's products were sewn by independent
contractors located in Mexico and Honduras, while 15.1% were sewn by domestic
contractors. The Company intends to increase its engagement of foreign
independent contractors to sew its products as evidenced by the fact that by
December of 1998 approximately 50% of the Company's products were being sewn in
Latin America.
The Company hires independent embroidery and screen printing subcontractors to
print or embroider special images on products ordered by certain of its
entertainment and branded accounts. The Company believes that it is more cost
effective to outsource these services.
PACKAGING AND DISTRIBUTION
Pluma operates a three-building complex in Martinsville, Virginia, which serves
as its central packaging and distribution facility. The complex contains
approximately 462,950 square feet of packing and storage space.
The packaging process includes folding, tagging, bagging, packing and bar
coding. The Company's packaging operation employs automated folding machines and
other technologically advanced equipment that package products efficiently.
Pluma uses computers, scanners, radios, conveyor systems and order pickers to
track, locate and move products within its facilities and to the loading docks
for shipment. One conveyor system links two facilities, thereby significantly
reducing handling time.
The Company leases a fleet of 7 tractors and 78 trailers and owns six trailers.
It leases one truck to transport materials between plants, as necessary. It
relies upon common carriers for delivery to its customers.
SOURCES OF RAW MATERIALS
Pluma purchases yarn, dye stuffs and chemicals that are the principal raw
materials used in its products. Management believes that there is sufficient
availability of raw materials from a number of suppliers at competitive prices
to satisfy current and anticipated needs of the Company.
The Company does not spin its own yarn. Yarn spinning is a capital intensive
operation in which there is substantial domestic and foreign competition. The
Company often makes advance purchases of yarn based on projected demand. Should
any or all of these yarn suppliers be unable for any reason to fulfill their
obligations under these yarn contracts, the Company believes that such an
occurrence would not have a material adverse effect on the Company's business as
yarn is available to the Company from other suppliers at comparable prices.
6
Pluma maintains a five- to ten-day supply of raw material inventories,
minimizing the need for storage space. During 1998, Pluma's principal yarn
suppliers included Parkdale Mills, Inc. and Mayo Yarns, Inc. and its principal
suppliers of dye and chemicals included Clariant, DyStar and Ciba Specialty
Chemicals.
As discussed in Item 7 hereof, since June 30, 1998, the Company has experienced
a liquidity crises and has remained in default under certain provisions of a
Credit Agreement with its lenders. Since November 1998, the Company's lenders
have extended to the Company successive thirty-day agreements to forbear from
exercising their remedies as a result of the defaults. As a result of
insufficient cash, the Company has been unable to pay its suppliers on a timely
basis. Furthermore, since November 1998, the Company's suppliers have expressed
concern regarding the Company's ability to operate beyond thirty-day periods
resulting from the short forbearance periods. As a result of not timely paying
its suppliers and the short forbearance periods described above, the Company has
experienced difficulty in obtaining adequate supplies in a timely manner which
caused disruptions and delays in production and some lost sales. The Company has
secured amended credit and forbearance agreements and is implementing a new
business plan designed to eliminate the problems described in this paragraph.
See Item 7 below. There can be no assurance that this problem will not continue.
SEASONALITY
The activewear business is seasonal. Typically, demand for fleece products is
much lower during the first and second quarters each year and is partially
offset by increased demand for jersey products in these periods. Notwithstanding
the Company's efforts to diversify its product mix and customer base to create a
more consistent demand for its products throughout the year, the Company
produces and stores fleece finished goods inventory during the first half of
each year. This practice enables the Company to meet the heavy demand for
delivery during the second half of the year.
COMPETITION
The fleece and jersey activewear industry is highly competitive. Pluma's major
competitors are vertically integrated manufacturers such as Fruit of the Loom,
Inc., Russell Corporation, Tultex Corporation and VF Corporation. Certain of
these competitors have greater financial resources and larger manufacturing,
distribution and marketing capabilities than the Company; however, no single
manufacturer dominates the industry. Among other factors, the Company's future
success will depend to a significant extent upon its ability to remain
competitive in the areas of price, quality, marketing, product development,
manufacturing capabilities, distribution and order processing, which are the
principal methods of competing within the fleece and jersey apparel industry.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental laws
and regulations governing, among other things, the discharge, storage, handling
and disposal of a variety of hazardous and nonhazardous substances and wastes
used in or resulting from its operations and potential remediation obligations
thereunder. At the Company's textile manufacturing facility in Eden, North
Carolina, the Company disposes of dye waste through the city's municipal
wastewater treatment system under a permit issued by state regulatory
authorities.
The Company's operations also are governed by laws and regulations relating to
employee safety and health, principally OSHA and regulations thereunder, which,
among other things, establish exposure limitations for cotton dust,
formaldehyde, asbestos and noise, and regulate chemical and ergonomic hazards in
the workplace.
LABOR
The Company had approximately 2,150 employees at December 31, 1998. Since that
time, Pluma has downsized its labor force in an effort to reduce overhead and
at March 31, 1999 employed 1,626 persons. Management considers labor relations
to be good. Some of the Company's competitors located in its geographic area are
unionized, and there can be no assurance that the Company will not become a
target for union organizing activity in the future. To the extent that
unionization increases the Company's cost of operations, the Company could be
impacted adversely from both an operating and financial standpoint.
7
TRADEMARKS AND LICENSES
Pursuant to an Assignment from Superba, Inc. recorded December 22, 1997, Pluma
became the owner of the registered trademark SANTEE(R), U.S. Registration No.
830,629. SNOWBANK(R) and PLUMA(R) are also registered trademarks owned by
Pluma, U.S. Registration No. 2,079,657 and U.S. Registration No. 2,139,902,
respectively. Applications have been filed to register these marks and
THERMOLATOR(TM) in the European Community, Japan and Mexico. SANTEE(R) is
registered in Mexico under RN 579379. PLUMA(R), SANTEE(R) and SNOWBANK(R) are
all utilized in connection with marketing certain styles of the Company's
activewear.
On October 24, 1995, the Company entered into a license agreement with Kayser
Roth granting to Kayser Roth a limited exclusive license to use the name "PLUMA"
in connection with the manufacture and sale of socks in the United States and
Mexico to Sam's Club (the "Kayser Roth Agreement"). The Company receives a
royalty from Kayser Roth equal to 2.0% of net sales of socks bearing the Pluma
label up to $3,000,000 of such sales and 1.5% of all net sales of socks
thereafter (in each case, less customary trade discounts, shipping charges,
returns and allowances and sales taxes). The Kayser Roth Agreement terminates on
December 31, 1999, but is renewable by Kayser Roth for successive one-year terms
thereafter. Sam's Club has informed the Company that it may cancel its Pluma
sock program at the end of 1999. The Company maintains appropriate quality
control standards in the Kayser Roth Agreement designed to ensure that only
quality products are distributed under the PLUMA(R) name.
On July 30, 1996, U.S. Patent No. 5,540,160 was issued by the USPTO for the
Company's tandem sewing table.
ITEM 2. Properties
All of the Company's facilities are located in North Carolina, Virginia and
Wisconsin. All buildings are well maintained and several of its facilities have
been expanded since operations commenced in 1987. All of the facilities owned by
the Company are encumbered by a deed of trust to a group of lenders to secure a
$115,000,000 credit facility previously extended to the Company. The principal
facilities summarized below list those facilities utilized by the company in
1998. The Company consolidated some of its operations in 1999 and any changes
occurring as of April 5, 1999 are footnoted. The location, approximate size,
owned or leased status, year in which operations commenced and use of the
Company's principal facilities are summarized in the following table:
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
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- -------------------- ------------------ ------------------ ----------------- ------------------
LOCATION SQUARE FOOTAGE OWNERSHIP OPERATIONS USE
COMMENCED
Eden, NC 170,900 Owned 1987 Executive
offices, dyeing,
finishing and
cutting
Eden, NC 139,169 Owned 1993 Knitting and
yarn storage
Eden, NC 4,000 Leased 1998(1) Outlet Store
Eden, NC 18,000 Leased 1987(2) Sewing/Storage
Eden, NC 21,000 Leased 1998(8) Storage
Martinsville, VA 198,000 Leased 1996 Distribution and
warehouse
Martinsville, VA 181,600 Leased 1988 Distribution,
packaging and
warehouse
Martinsville, VA 83,200 Leased 1994(7) Distribution,
packaging and
management
information
systems
Martinsville, VA 43,900 Owned 1988 Sewing
Martinsville, VA 15,600 Leased 1992(3) Storage
Martinsville, VA 11,500 Leased 1997(1) Product development and outlet
Martinsville, VA 8,300 Owned 1997 Marketing and
sales office and
some executive
offices
Rocky Mount, VA 82,000 Owned 1995(4) Sewing
Chatham, VA 52,000 Owned 1990 Sewing
Vesta, VA 24,000 Owned 1994(5) Sewing
Altavista, VA 12,000 Owned 1996 Sewing
Altavista, VA 2,200 Leased 1997(1) Outlet store
Los Angeles, CA 139,500 Leased 1997(6) Distributor
Verona, WI 63,000 Owned 1997 Distributor
(1) In December 1998, the Company made the decision to close the factory
outlet locations. The Eden Factory Outlet lease terminated December 31,
1998. The Martinsville Factory Outlet lease ended March 20, 1999.
Product Development, once housed at this same location, was relocated to
the Company's main facility in Eden, NC. The Altavista Factory outlet
closed January 31, 1999.
(2) The Company leased this facility to perform sewing operations from 1987
through 1993 and subsequently executed a new lease for this facility in
December 1996. Sewing operations ceased in this facility in January 1999
and it is currently used for storage.
(3) This lease terminated February 12, 1999.
9
(4) Sewing operations are expected to cease at this facility in April 1999
and the Company intends to sell this property in an absolute auction in
1999.
(5) The Company exercised its option to purchase this property in October
1997.
(6) The Company began the process of closing this facility in March 1999.
(7) The pre-assembly, packaging and distribution operations at this facility
were consolidated into the Company's other existing facilities in March
1999. The Company entered a new lease effective March 31, 1999 to lease
1,116 square feet of this same facility to house some of its Management
Information Systems.
(8) This warehouse was utilized as temporary storage. The lease thereon
expired April 6, 1999.
ITEM 3. Legal Proceedings
The Company is not a party to nor is any of its property the subject of
any legal proceedings, the result of which it believes could have a material
adverse impact on its business, properties, or financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
EXECUTIVE OFFICERS OF THE COMPANY
"Election of Directors' on pages 1 and 2 of the Proxy Statement for
the Annual Meeting of Share Owners to be held June 23, 1999, is incorporated
herein by reference.
Additional executive officers as of December 31, 1998 and as of April 5,
1999 who were not directors are as follows:
Name Age Position
- -------------------------------------- ------ -------------------------------------------------
Forrest H. Truitt, II (1) 44 Executive Vice President and Chief Financial
Officer
Milton A. Barber, IV 38 Sr. Vice President of Sales and Marketing
David S. Green 49 Sr. Vice President of Human Resources
Walter E. Helton 59 Sr. Vice President of Operations
Douglas A. Shelton 41 Sr. Vice President of Manufacturing
Nancy B. Barksdale 41 Vice President and Controller
Clifford F. Campbell 39 Vice President and Treasurer
Raymond L. Rea 57 Vice President of Manufacturing
Jeffrey N. Robinson (2) 36 Vice President of Sales and President of Frank
L. Robinson, Inc.
James E. Beale 45 Vice President of Wholesale Distribution and
President of Stardust Corporation
John R. Beale 51 Executive Vice President of Stardust Corporation
William H. Watts 58 Vice President and Chief Financial Officer
Keith D. Lake 48 Vice President of Textile Operations
Frederick T. Burke, II 42 Vice President of Distribution
(1) Mr. Truitt resigned as an employee of Pluma on March 1, 1999.
(2) The Company has made the decision to close FLR. Although the Company
remains obligated to Mr. Robinson under the terms of an employment
agreement, it is not anticipated that Mr. Robinson will remain an active
employee of the Company.
FORREST H. TRUITT, II served as Executive Vice President and Chief Financial
Officer of the company until March 1, 1999 when he resigned as an officer of the
Company. He became Vice President, Treasurer and Chief Financial Officer
10
in March 1996 and became an Executive Vice President in January 1997. Mr. Truitt
relinquished his title as Treasurer in September 1998. From February 1994 until
he joined the Company, Mr. Truitt was a self-employed financial consultant.
Prior to that time, he served as the Chief Financial Officer of Mayo Yarns from
September 1993 to February 1994, and Vice President of Finance and
Secretary/Treasurer of Vintage Yarns, Inc. from 1982 until 1993.
WILLIAM H. WATTS was appointed Chief Financial Officer and Vice President on
March 8, 1999. Prior to joining the Company he was a self-employed financial
consultant. He served as Executive Vice President and Chief Financial Officer of
Signal Apparel Company, Inc., Chattanooga, TN from 1995 to 1997. From 1991 to
1994, he was Vice President of Finance of Land >n Sea, Inc., New York, NY, a
manufacturer and importer of women's and children's sportswear.
MILTON A. BARBER, IV became Senior Vice President of Sales and Marketing in
October 1997. Mr. Barber has been Vice President of Sales and Marketing since
January 1996. From July 1991 until December 1995, Mr. Barber served as an
Assistant Vice President of Sales and Marketing for Box & Company. Mr. Barber
was employed by Bassett-Walker, Inc. from 1987 until 1991.
DAVID S. GREEN became Senior Vice President of Human Resources in October 1997.
Mr. Green has served the company as Vice President of Human Resources since
1993. Prior to joining the Company in 1993, Mr. Green had been employed by Sara
Lee for 17 years where his most recent title was Director of Employee Relations
at the Martinsville, Virginia knitwear division.
WALTER E. HELTON became Senior Vice President of Operations in October 1997. Mr.
Helton is Vice President of Operations responsible for management information
systems. Before joining the Company in January 1992, Mr. Helton was employed by
Sara Lee as Director of Information Systems.
DOUGLAS A. SHELTON is Senior Vice President of Manufacturing. Mr. Shelton joined
the company in May 1996 as Director of Cutting. He was previously employed by
Sara Lee as Plant Manager from August 1989 to May 1996.
NANCY B. BARKSDALE is Vice President and Controller. She received her CPA
certification from the Commonwealth of Virginia in 1983. From 1983 until 1987,
Ms. Barksdale was employed by Bassett-Walker, Inc. as Assistant Controller.
Since 1987, Ms. Barksdale has served as Controller for Pluma, and served as
Treasurer from August 1993 until March 1996. She was promoted to Vice president
in January 1996.
CLIFFORD F. CAMPBELL has served as Vice President and Treasurer since September
1998. Mr. Campbell was employed at Butler and Burke, Certified Public
Accountants in Winston-Salem, NC from 1984 until 1997. He became a partner of
Butler and Burke in 1990. He joined the Company in March of 1997 as a Financial
Analyst.
RAYMOND L. REA is Vice President of Manufacturing responsible for all sewing
operations. Prior to his employment with the Company in 1987, Mr. Rea had been
employed by Bassett-Walker, Inc. for 25 years.
JEFFREY N. ROBINSON was Vice President of Marketing & Sales and President of
Frank L. Robinson, Inc., a division of Pluma, Inc. Prior to joining the Company
in 1997, Mr. Robinson was employed as a partner in Frank L. Robinson Company, a
wholesale distributor, since 1985. The Company has made the decision to close
FLR. Although the Company remains obligated to Mr. Robinson under the terms of
an employment agreement, it is not anticipated that Mr. Robinson will remain an
active employee of the Company.
JAMES E. BEALE is Vice President of Wholesale Distribution and President of
Stardust Corporation, a division of Pluma, Inc. Mr. Beale served as General
Manager of Stardust Corporation, a wholesale distributor since 1988 until he
joined Pluma in December of 1997. Mr. Beale is the brother of John R. Beale, an
executive officer of Stardust Corporation.
JOHN R. BEALE is Executive Vice President of Stardust Corporation, a division of
Pluma, Inc. Mr. Beale was founder and President of Stardust Corporation from
1988 until he joined Pluma in December of 1997. He is the brother of James A.
Beale, an executive Officer of the Company.
11
KEITH D. LAKE became Vice President of Textile Operations in January 1999. Prior
to joining the Company in May 1998 as Assistant Vice President of Textile
Manufacturing, Mr. Lake was employed by Kingstree Knits, a division of Texfi
Industries, Inc., Haw River, NC from May 1992 to May 1998. He has worked in the
textile industry for 26 years.
FREDERICK T. BURKE II became Vice President of Distribution in March 1999. Mr.
Burke joined Pluma in September 1998 as Director of Retail Sales. Prior to
accepting a position with Pluma, Mr. Burke served as Vice President of Sales of
Starter Corporation, an athletic apparel company, from October 1996 to April
1998. From 1983 to 1996, Mr. Burke was employed by Lee Apparel Company as Vice
President of Sales.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock is the only class of stock currently issued
and outstanding. The Company's common stock is listed on the New York Stock
Exchange under PLU.
The following table represents the high and low closing sales price of
the Company's common stock as listed on the New York Stock Exchange for each
full quarterly period within 1997, 1998 and on April 5, 1999.
High Low High Low
1997 Quarter Ended 1998 Quarter Ended
March 31 $12.250 $12.000 March 31 $6.75 $6.56
June 30 $15.750 $11.750 June 30 $6.75 $6.69
September 30 $14.625 $10.000 September 30 $2.38 $2.13
December 31 $10.375 $ 8.438 December 31 $2.08 $1.13
April 5, 1999 $ .56 .50
The approximate number of registered holders of the Company's common
stock on April 5, 1999 was 236.
The Company did not pay a dividend on its common stock in 1997 or 1998.
The Company's credit agreement with its several lenders prohibits the Company
from declaring and paying a dividend on its common stock. Any such dividend
payment constitutes a default under the credit agreement. The Company has not
established a dividend policy and does not expect that a dividend will be
declared and paid in the foreseeable future.
- -------------------------------------------------------------------------------
ITEM 6.
SELECTED FINANCIAL AND OPERATING DATA
Statement of operations data for each of the years in the three-year period
ended December 31, 1998, and the balance sheet data as of December 31, 1998 and
1997 set forth below have been derived from the Company's audited financial
statements included elsewhere in this Form 10-K. The statement of operations
data for each of the years in the two-year period ended December 31, 1995 and
the balance sheet data as of December 31, 1996, 1995 and 1994 are derived from
the Company's audited financial statements which are not included in this Form
10-K.
Years Ended December 31,
-----------------------------------------------------
1998(9) 1997(1) 1996(4) 1995(4) 1994
(10)(11) (2)(3) (8) (5)(6)
-----------------------------------------------------
In thousands, except per share data
STATEMENT OF OPERATIONS DATA:
Net sales $ 187,254 $134,555 $127,820 $ 100,710 $ 97,908
Cost of goods sold 186,010 118,279 106,247 81,429 81,409
Gross profit 1,244 16,276 21,573 19,281 16,499
Selling, general & administrative expenses 35,969 10,976 9,149 14,385 7,300
Income (loss) from operations (34,725) 5,300 12,424 4,896 9,199
Other expenses, net 7,153 1,782 3,251 3,130 2,255
Income (loss) before income taxes (41,878) 3,518 9,173 1,766 6,944
Income taxes (benefit) (5,819) 1,475 3,355 659 2,594
Net income (loss) $ (36,059) $ 2,043 $ 5,818 $ 1,107 $ 4,350
Earnings (loss) per common share - basic and diluted:
Net income (loss) $ (4.45) $ 0.27 $ 1.09 $ 0.21 $ 0.83
Weighted average number of
shares outstanding 8,109 7,554 5,316 5,316 5,244
Cash dividends per common share $ 0.00 $ 0.02 $ 0.11 $ 0.11 $ 0.11
December 31,
-----------------------------------------------------
1998(9) 1997(1) 1996(4) 1995(4) 1994
(10)(11) (2)(3) (8) (5)(6)
-----------------------------------------------------
In thousands
BALANCE SHEET DATA:
Working capital $ (44,664) $ 32,975 $ 49,901 $ 50,052 $ 31,926
Total assets 158,543 165,737 89,218 88,613 68,554
Long-term debt, net of current portion 0 40,000 44,420 50,120 30,465
Total shareholders' equity 27,609 63,668 32,143 26,902 26,373
Years Ended December 31,
-----------------------------------------------------
1998(9)(10) 1997(1) 1996(4) 1995(4) 1994
(11) (2)(3) (8) (5)(6)
-----------------------------------------------------
In thousands
OTHER DATA:
Gross profit as a percentage of net sales 0.7% 12.1% 16.9% 19.1% 16.9%
Income (loss) from operations as a
percentage of net sales (18.5%) 4.0% 9.7% 4.9% 9.4%
Depreciation & amortization $ 6,570 $ 4,057 $ 3,804 $ 3,440 $ 2,885
Capital expenditures 12,904 9,782 3,399 5,856 4,495
EBITDA (7) (27,494) 9,914 16,712 8,627 12,386
12
(1) 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
the over-allotment 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.
(2) During 1997, the Company capitalized significant costs associated with the
implementation of a new management information system designed to improve
the company's production planning, scheduling and distribution, as well as,
its financial reporting capabilities. In November 1997, the Emerging Issues
Task Force released EITF Issue No. 97-13 requiring certain costs associated
with software implementation to be expensed as incurred. In the fourth
quarter of 1997, the Company expensed $2.1 million of such costs which had
previously been capitalized during 1997.
(3) In December 1997, the Company purchased certain assets and assumed certain
liabilities of Stardust Corporation ("Stardust") and Frank L. Robinson
Company ("FLR"), former customers of the Company. The Company paid $51.5
million in cash for these assets, including related acquisition costs, and
assumed liabilities in the amount of $16.7 million. The acquisitions have
been accounted for as purchases. Accordingly, the assets, liabilities and
results of operations of the acquired businesses are included in the
balance sheets and statements of operations as of and since December 1997.
The acquisitions were financed through additional debt.
(4) 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 Agreement") whereby
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.
(5) 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.
(6) Had the Box Transaction occurred at the beginning of 1995, excluding the two
non-recurring charges mentioned in notes (4) and (5), 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-basic and diluted and EBITDA would have been $12.0 million, $5.5
million, $1.04 and $15.7 million, respectively.
(7) Represents earnings (loss) 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.
(8) 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 in
1996 by $53,212 ($0.01 per share).
(9) During March 1999, the Company announced the closing of FLR. Includes the
writeoff of goodwill of approximately $7.0 million associated with the FLR
purchase (see note (3) above). Inventory reserves were increased $3.0
million to reflect the estimated net realizable value for inventories to be
liquidated.
(10)Includes approximately $9.2 million reserve to reflect the estimated net
realizable value associated with a planned inventory liquidation.
(11)Includes reserves of approximately $2.2 million for property to be sold
during 1999. During January 1999 the Company announced the closing of its
sewing operation in Rocky Mount, Virginia. The building and related
equipment are to be disposed of at auction. Other long-lived assets are also
to be disposed of during 1999. In accordance with SFAS 121, these assets are
written down to their net realizable value at December 31, 1998.
17
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Pluma is a vertically integrated manufacturer and distributor 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 across
multiple markets and distribution channels. During 1998, the Company operated
two nationally recognized wholesale distributors, Stardust Corporation in
Verona, Wisconsin ("Stardust") and Frank L. Robinson, Company in Los Angeles,
California ("FLR"). Although the Company elected in March 1999 to close FLR, it
continues to operate Stardust. Currently, Pluma's material customers include
branded customers such as adidas and Starter, retailers such as Miller's Outpost
and Sam's Club and entertainment customers such as Busch Gardens, Hard Rock Cafe
and Walt Disney. The Company sells products under its own "PLUMA(R)",
"SANTEE(R)" and "SNOWBANK(R)" brand names to retail and wholesale customers. In
addition, Pluma sells to screenprinters and embroiderers who sell the Company's
products to a wide variety of retailers, ranging from souvenir and resort stores
to large nationwide department stores. Pluma seeks to grow both by increasing
sales to existing customers and by adding new customers. This diverse customer
base provides product exposure to many customer markets and enables Pluma to
balance its production more evenly throughout the year.
During 1997, the Company capitalized significant costs associated with the
implementation of a new management information system designed to improve the
Company's production planning, scheduling and distribution, as well as, its
financial reporting capabilities. In November 1997, the Emerging Issues Task
Force released EITF Issue No. 97-13 requiring certain costs associated with
software implementations to be expensed as incurred. In the fourth quarter of
1997, the Company expensed $2.1 million of such costs which had previously been
capitalized during 1997.
In December 1997, the Company purchased certain assets and assumed certain
liabilities of Stardust and FLR, former customers of the company. The Company
paid $51.5 million in cash for these assets, including related acquisition costs
and assumed liabilities in the amount of $16.7 million. The acquisitions have
been accounted for as purchases. Accordingly, the assets and liabilities of the
acquired businesses are included in the balance sheet as of December 31, 1997.
The results of Stardust's and FLR's operations from the dates of the
acquisitions to December 31, 1997 did not have a material impact on the
Company's results of operations for that year. The acquisitions were financed
through additional debt.
During 1998, the Company aggressively entered into agreements with Latin
American manufacturers to produce product. Unfortunately, there were
manufacturing disruptions that accompanied these sourcing decisions as their
manufacturers (joint ventures in which the Company is a partner) failed to
provide quantities of product in a timely fashion and quality problems were also
experienced. The Company also determined that more competitive pricing could be
obtained from the Latin American manufacturers. Therefore the Company failed to
realize the full benefit of non-domestic production. Simultaneously, the Company
experienced manufacturing disruptions in its domestic operations, as well as
higher than anticipated levels of fabric waste. The disruptions and waste at its
domestic facilities were due primarily to problems encountered during the
Company's implementation of a new management information system.
In April, 1998, the Company closed a senior credit facility of $115,000,000.00
(the "Credit Agreement") with a group of lenders (the "Banks"). In June, 1998,
the Company violated certain financial and performance covenants contained in
the credit facility and consequently, the Company became in default under the
credit agreement. Thereafter, the Company and the Banks engaged in continuing
negotiations concerning the Company's default and, initially, the Banks agreed
to a number of short-term credit agreement amendments and waiver agreements
which allowed the Company to remain in technical compliance with the credit
agreement. The Banks' agreement to waive the Company's defaults ended on
November 15, 1998. However, while not granting the Company a default waiver, on
November 16, 1998, the Banks entered into a Forbearance Agreement in which they
agreed to forbear from exercising the rights and remedies available to them as a
result of the Company's violations of the financial and performance covenants
set forth in the Credit Agreement. This allowed the Company to continue
operations notwithstanding its loan agreement defaults. The Forbearance
Agreement was subsequently amended a number of times (extending the Banks'
forbearance in successive thirty-day intervals) and, on March 31, 1999 the
Company reached an agreement with the Banks to extend and
modify the existing Credit Agreement through September 30, 1999. Subsequently on
April 15, 1999, the Company's credit facility was once again amended by the
Tenth Amendment to Credit Agreement and Sixth Amendment to Forbearance Agreement
which further modified the Company's credit arrangement and provided a cure
period for an interest payment default in the amount of $1,177,370 until
June 11, 1999. The Credit Agreement and Forbearance Agreement as amended
require the Company to achieve certain revised performance and financial goals,
grant the Banks the right to acquire warrants representing up to ten percent
(10%) of the equity in the Company, and provide the Company with additional
availability under its revolving credit line in an amount projected by the
Company to be the minimum amount necessary to enable the Company to perform
under a revised business plan designed to return the Company to profitability.
As part of the Company's above-referenced negotiations with the Banks, the
Company was required to retain various consultants to assist in the formulation
and implementation of a strategic business plan (the "New Business Plan") as
well as to assist the Company in managing its operations while under the strain
of continuing severe cash shortages. During the fourth quarter of 1998 and
continuing into the first quarter of 1999, the Company implemented a number of
initiatives in order to counter its cash crisis and remain operationally viable.
These initiatives included the expedited liquidation of a significant amount of
inventory, the closure of certain domestic manufacturing and distribution
operations and a substantial reduction and severance of employees. The Company
anticipates further closures and asset sales to occur in 1999, including the
sale of one or more of the Company's manufacturing facilities and the sale of
the Company's sales office located in Martinsville, Virginia.
As a part of the above referenced initiatives, in March 1999, the Company closed
the operations of FLR and began shipping certain FLR inventories to Stardust.
The remaining FLR inventories have been identified for liquidation and have been
written down to reflect their estimated net realizable value. In addition,
goodwill of approximately $7.0 million associated with the FLR acquisition was
written off as a result of the closing.
14
The following table presents the major components of the Company's Statements of
Operations as a percentage of net sales:
Years Ended December 31,
----------------------------------
1998 1997 1996
----------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 99.3 87.9 83.1
Gross profit .7 12.1 16.9
Selling, general and administrative expenses 19.2 8.1 7.2
Income (loss) from operations (18.5) 4.0 9.7
Other expenses, net 3.9 1.4 2.5
Income (loss) before income taxes (22.4) 2.6 7.2
Income taxes (benefit) (3.1) 1.1 2.6
Net income (loss) (19.3)% 1.5% 4.6%
RESULTS OF OPERATIONS
Year Ended December 31, 1998, Compared To Year Ended December 31, 1997
Net Sales. Net sales for 1998 were $187.3 million, an increase of $52.7 million,
or 39.2%, over net sales of $134.6 million for 1997. This increase was
attributable primarily to the inclusion of sales from FLR and Stardust which
were acquired in December 1997. New sales from FLR and Stardust after
intercompany eliminations were $23.8 million and $41.4 million, respectively, in
1998. This increase in net sales, however, was lower than anticipated due to
increased competition resulting in lower sales prices, interruptions in
production associated with a difficult implementation of a new management
information system, a temporary disruption of supply of inventory encountered at
Stardust and FLR and lower than expected sales of fleece products because of a
relatively warm winter.
The Company's implementation during 1998 of a new management information system
consumed signficantly more capital and management focus than had been
anticipated and created numerous operational problems for the Company. Pluma
experienced continuous system problems in scheduling and in producing the
appropriate product mix in the correct volumes required to meet customer orders.
As a result, the Company overproduced certain styles and colors of products not
ordered by customers, which led to an accumulation of excess inventory which
could not be sold. Furthermore, sales were lost as the result of the Company's
inability to timely manufacture product ordered by its customers.
Historically, a large majority of the inventory sold by Stardust and FLR had
been produced by manufacturers other than Pluma. The Company anticipated that
this would continue for some time until its capacity could be increased to meet
the demand for Stardust's and FLR's inventory needs. However, shortly after the
acquisition of these distributorships, two manufacturers who manufactured more
than 50% of Stardust's inventory in 1997, and a significant portion of FLR's
inventory in 1997, ceased shipping product to these distributorships. Shipments
did not resume from these third-party manufacturers until late in the second
quarter of 1998. This unanticipated inventory supply disruption required the
Company to attempt to manufacture product needed by its distributors internally
and/or acquire product from alternate sources. The unexpected demand placed on
the Company's manufacturing facilities delayed manufacturing for other
customers. These delays resulted in the Company not meeting certain customer
orders in a timely fashion, leading to lost sales and an inventory buildup of
product not taken by customers when their orders were completed.
During 1998, because of the downward trend in product prices due to an overall
market decline, inflation had a minimal effect on the Company's net sales. The
Company is exposed to inflationary pressures from the purchases of raw materials
and labor. However, during 1998, these markets were relatively stable and
inflation did not have a material effect on income from continuing operations.
Gross Profit. Gross profit as a percentage of net sales declined to 0.7% in 1998
from 12.1% in 1997. This decline was primarily due to increases in the inventory
market reserves based on the Company's decision in early 1999 to liquidate
certain inventories and to record those inventories at the resulting estimated
net realizable values at December 31, 1998. A $3.0 million reserve was recorded
against FLR inventory that is to be liquidated as a result of the closing of
FLR. The Company has also applied a $9.2 million reserve against manufactured
inventory for items that will be liquidated in order to reduce SKU's and
generate cash for operations. As a result of the general decline in the textile
industry during 1998, the Company experienced increased pricing pressures,
resulting in lower margins. In addition, the Company's product mix shifted more
toward jersey goods as the demand for fleece declined due to a warmer than
expected winter. Margins on jersey products are typically lower than those for
fleece.
Selling, General and Administrative Expenses. SG&A increased by $25.0 million in
1998 to $36.0 million from $11.0 million in 1997, an increase of 227.7%. This
increase was due to several factors. The Company's SG&A expenses include $20.5
million for the operations of FLR and Stardust in 1998. As these acquisitions
occurred in late December 1997, SG&A expenses were not materially affected by
the operations of FLR and Stardust in 1997. Amortization of the goodwill
associated with the acquisitions of FLR and Stardust was $1.7 million in 1998.
Amortization of goodwill in 1997 was not substantial. Additionally, with the
closing of the FLR operations, the Company wrote off the $7.0 million of
goodwill associated with the FLR acquisition. Furthermore, the Company has also
announced its intent to sell its Rocky Mount, Virginia sewing facility with
certain related equipment and its Martinsville, Virginia corporate offices. As a
result of these planned dispositions, the Company has placed reserves totaling
$2.3 million against these assets to reflect the estimated fair value of the
properties.
Other Expenses, Net. Other expenses, net, increased 301.4% to $7.2 million in
1998 from $1.8 million in 1997, an increase of $5.4 million. This increase was
primarily a result of an increase in interest expense. Interest expense
increased by 234.1% to $7.8 million in 1998 from $2.3 million in 1997 due to an
increase in average debt outstanding during 1998.
Income Taxes. The effective tax rate was 13.9% in 1998 compared to 41.9% in
1997. This decrease is attributable primarily to a valuation allowance in 1998
of $10.0 million, or 23.7% as a percentage of the loss before income taxes. The
valuation allowance was established due to the uncertain ability of the Company
15
to generate future taxable income and the resulting uncertain realization of tax
loss carryforwards and other deferred tax assets.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales increased 5.3% to $134.6 million in 1997 from $127.8
million in 1996. Gross dozens sold of fleece and jersey increased 5.1% to 1.7
million dozens in 1997 from 1.6 million dozens in 1996. The increase in net
sales was primarily attributable to increased sales of jersey activewear and
revenue from the addition of new customers. Sales of jersey activewear increased
by $5.0 million to $51.8 million in 1997, a 10.8% increase over the $46.8
million of jersey product sold in 1996. The average sales price per dozen for
total products sold declined by 1.0% primarily due to the increase in volume of
jersey activewear sold. Jersey products generally carry a lower sales price than
fleece products. During 1997, because of the downward trend in product prices
due to an overall market decline, inflation had a minimal effect on the
Company's net sales. The Company is exposed to inflationary pressures from the
purchases of raw materials and labor. However, during 1997, these markets were
relatively stable and inflation did not have a material effect on income from
continuing operations.
Gross Profit. Gross profit was 12.1% of net sales in 1997 compared to 16.9% in
1996. This decline in gross profit was the result of lower manufacturing
efficiencies and increased labor costs. Manufacturing efficiencies were
adversely impacted during the second and third quarters of 1997 by the
reconfiguration of the Company's textile facilities and product quality issues
resulting from changes in the Company's manufacturing processes and the
utilization of defective yarns. Labor costs increased in order to recapture a
loss of production which resulted from the Company's manufacturing
inefficiencies.
Selling, General and Administrative Expenses. SG&A increased 19.7% to $11.0
million in 1997 from $9.1 million in 1996, an increase of $1.9 million. This
increase was due primarily to the expensing of $2.1 million of software
implementation costs in compliance with EITF Issue No. 97-13. This increase in
SG&A expense was partially offset by a decline in management bonuses.
Other Expenses, Net. Other expenses, net, decreased 44.4% to $1.8 million in
1997 from $3.3 million in 1996. This decrease was primarily the result of a
decrease in interest expense. Average borrowings were lower due to the
application of the net proceeds of the Company's March 1997 initial public
offering.
Income Taxes. The effective tax rate was 41.9% in 1997 compared to 36.6% in
1996.
UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for 1998 follows:
Three Months Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
--------------------------------------------------------
Sales $39,196,435 $51,059,701 $54,608,997 $42,388,437
Gross profit (loss) 4,014,171 4,631,530 2,969,030 (10,370,812)
Net income (loss) (881,683) (1,718,296) (2,709,364) (30,749,345)
Earnings (loss) per share - basic and diluted (0.11) (0.21) (0.33) (3.80)
Summarized unaudited quarterly financial data for 1997 follows:
Three Months Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
--------------------------------------------------------
Sales $27,285,730 $33,226,268 $38,965,527 $ 35,077,528
Gross profit 4,692,571 5,172,762 4,897,317 1,513,041
Net income (loss) 864,435 1,430,627 1,768,378 (2,020,602)
Earnings (loss) per share - basic and diluted 0.15 0.18 0.22 (0.25)
16
Liquidity And Capital Resources
As a result of the inability of the Company to increase the amount of funds
available for borrowing under its credit facility with the Banks and its
operating losses during 1998, the Company experienced severe liquidity
shortages during the last quarter of 1998 which continued during the first
quarter of 1999. As a result of this inadequate liquidity, the Company failed to
pay its suppliers in a timely manner, causing delays in the delivery to the
Company of raw materials. This caused some disruptions and delays in production
and, at times, resulted in lost sales.
At December 31, 1998, the Company had a working capital deficiency of ($44.7)
million, a decrease of $77.7 million as compared to working capital of $33.0
million at December 31, 1997. This decrease is primarily attributable to an
increase in current maturities of long-term debt of $64.9 million resulting from
the Company classifying all of its debt as current. In addition, working capital
declined due to increases in accounts payable and accrued expenses of $7.7
million and a net decrease in receivables of $8.0 million. These reductions in
working capital were partially offset by an increase in inventories of $5.5
million.
Net cash used in operating activities of $11.0 million for the year ended
December 31, 1998 resulted primarily from the net loss of $36.1 million, less
noncash charges of $6.6 million for depreciation and amortization, $2.3 million
for losses on disposal of property and $7.0 million for the write off of
goodwill attributable to FLR. The changes in accounts payable, accrued expenses,
receivables and inventories discussed above were also adjustments to reconcile
the net loss to the net cash used in operations.
Net cash used in investing activities of $13.8 million for the year ended
December 31, 1998 was attributable primarily to capital expenditures for
manufacturing and computer equipment to enhance manufacturing and management
information systems capabilities.
Net cash provided by financing activities of $25.5 million for the year ended
December 31, 1998 resulted from additional net borrowings during the year.
ORIGINAL CREDIT AGREEMENT
In April 1998, the Company entered into a syndicated credit agreement (the
"Credit Agreement") with a group of financial institutions (the "Banks") for the
purpose of refinancing its then existing credit facility. The Credit Agreement
has been amended several times and currently exists under the "Ninth Amendment
to Credit Agreement". Among the various provisions, limitations and restrictions
contained in the Credit Agreement, the Company must meet specified consolidated
net worth, leverage ratio, fixed charge coverage ratio, funded debt to total
capitalization ratio and consolidated earnings before the effect of interest
expense, income taxes, depreciation and amortization requirements. Under the
Credit Agreement, the Company is restricted in the amount of its capital
expenditures, indebtedness to certain other parties, payment of dividends, or
redemption of its stock that would create an event of default. In the event of
a default under the Credit Agreement unless a waiver or forbearance is
obtained, any unpaid principal and accrued interest may be declared immediately
due and payable. The Credit 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 30 days after notice.
As of December 31, 1998, the Company was in default under certain of the
above-referenced covenants and had not obtained waivers of these defaults from
the Banks. As of December 31, 1998, the Company was required to have a funded
indebtedness to capitalization ratio of less than 0.65, a consolidated net worth
greater than or equal to $62.5 million, a fixed charge coverage ratio of less
than 1.50, and consolidated earnings before the effect of interest expense,
income taxes, depreciation and amortization greater than or equal to $20
million. As of December 31, 1998, the Company had a funded indebtedness to
capitalization ratio of 0.80, a consolidated net worth of $27.6 million, a fixed
charge coverage ratio of (2.26), and a consolidated loss before the effect of
interest expense, income taxes, depreciation and amortization of $(27.5)
million. Due to these violations, the Company has classified all of its debt as
current at December 31, 1998.
AMENDED CREDIT AGREEMENT AND AMENDED FORBEARANCE AGREEMENT
The Credit Agreement and Forbearance Agreement have been amended several times
and currently exist under the Tenth Amendment to the Credit Agreement and Sixth
Amendment to the Forbearance Agreement, which were executed on April 15, 1999.
As currently amended, the Credit Agreement includes a revolving loan facility
(the "Revolving Loans") and a term loan facility. The maximum amount available
under the term loan is $45.0 million (the "Term Loan"). The total amount that
can be borrowed under the Revolving Loans is limited to the Borrowing Base,
defined as the sum of (i) 85% of Eligible Receivables (as defined), (ii) 60% of
Eligible Inventory (as defined), and (iii) $18.0 million through April 29, 1999;
$18,400,000 through May 28, 1999; $18,800,000 through June 29, 1999;
$19.5 million from June 30, 1999 through July 30, 1999; $16.1 million from July
31, 1999 through August 30, 1999; $14.5 million from August 31, 1999 through
September 29, 1999; and $0 thereafter. The maximum amount that can be borrowed
under the Revolving Loans is limited to $63.0 million through July 30, 1999;
$55.6 million from July 31, 1999 through August 30, 1999 and, $53.0 million
thereafter.
Although the Company's defaults under the original Credit Agreement have not
been waived by the Banks, pursuant to the Forbearance
Agreement as amended, the Banks have agreed to forbear until September 30, 1999
from exercising the rights and remedies available to them as a result of the
Company's defaults under the Credit Agreement. Among other provisions in the
Forbearance Agreement, as amended until September 30, 1999, (i) the
Company's capital expenditures are limited to $0.2 million in the aggregate in
any calendar month and $0.6 million in the aggregate from April 1, 1999 to
September 30, 1999; (ii) the Company must have net sales of at least $7.2
million in any three week period; (iii) the Company must not have aggregate
payments, less aggregate cash receipts, in excess of $1.8 million in any one
week; (iv) the Company must have aggregate receipts in excess of aggregate cash
payments during any three-week period; (v) for the period April 1, 1999 through
May 31, 1999, the Company's EBITDA must be greater than or equal to $3.0
million, and for the period from April 1, 1999 through July 31, 1999, the
Company's EBITDA must be greater than or equal to $5.6 million; and (vi) the
Company's trade payables may not exceed $16.4 million at any time. The
Forbearance Agreement as amended, also provides that the Banks may request
that the Company transfer to them warrants for the issuance of stock
representing 10% of the diluted common equity of the Company and requires
that interest in the amount of $1,177,310 which was payable on April 13, 1999
be paid in weekly installments of $150,000 until paid in full on June 11, 1999.
A violation of the covenants contained in the Credit Agreement, as
amended and/or the Forbearance Agreement, as amended, will constitute events of
default thereunder. As such, unless a waiver or forbearance is obtained, the
Banks may, at their discretion, declare the unpaid principal of and any accrued
interest in respect of all amounts outstanding to them to be immediately due and
payable. Furthermore, even if there are no defaults by the Company under its
agreements with the Banks, the Banks' obligation to forbear from exercising
their remedies resulting from the Company's loan defaults expires on September
30, 1999. The Company is seeking alternative sources of financing. However,
there can be no assurances that new or additional financing will be obtained by
the Company or that the Banks will waive or continue to forbear from exercising
their rights to demand payment of the outstanding debt in the future. In the
event that the Banks declare the unpaid principal balances of their loans and
accrued interest due and payable and alternative financing can not be obtained,
the Company may not have the ability to continue to operate.
In response to the Company's poor performance and its liquidity problems
experienced during 1998 and the first quarter of 1999, the Company developed the
New Business Plan which is designed to return the Company to profitability by
reducing overhead and other costs and to provide the Company with the ability to
service its debt. Pursuant to the New Business Plan, the Company has eliminated
management positions and reduced some management salaries. Additional personnel
and overhead cost reduction measures have been and are planned to be taken
related to organizational down-sizing and the closing of certain facilities. In
January 1999, management announced its intention to close its Rocky Mount
production facility and all of the Company's outlet stores and has listed its
Rocky Mount manufacturing facility for auction. In addition, the Company has
down-sized its administrative office and has discontinued its Eden sewing
operations.
In connection with the closing of the sewing facilities noted above and a
down-sizing at its other sewing facilities, the Company has shifted a
significant portion of its sewing operations to outside contractors, primarily
in Mexico. The Company has experienced lower overhead costs associated with the
use of outside sewing contractors. In March 1999, the Company also announced the
closing of FLR. As a result of this closing, the Company will move certain FLR
inventories to Stardust to be sold as part of the Stardust operations.
Approximately $5.0 million of other FLR inventories will be liquidated to
generate cash. These inventories to be liquidated are reported at the estimated
net realizable value in the balance sheet at December 31, 1998.
As part of the Company's New Business Plan, the Company is in the process of
eliminating certain less profitable product styles. The Company believes that
this will reduce its product mix to a more manageable level. As a result of this
reduction, close-out inventories of approximately $7.9 million have been
identified for liquidation. These inventories are also reported in the balance
sheet at the estimated net realizable value at December 31, 1998.
Notwithstanding their expiration dates of September 30, 1999, the Ninth
Amendment to the Credit Agreement and the Fifth Amendment to the Forbearance
Agreement provide the Company with operating flexibility not available to it
during the last quarter of 1998 and the first quarter of 1999. Furthermore, the
New Business Plan's goal to complete an operational and financial restructuring
of the Company is designed to return the Company to profitability. However,
there can be no assurances that (i) the Company will have sufficient liquidity
to successfully implement the New Business Plan or pay its debts in a timely
manner, (ii) the New Business Plan will return the Company to profitability,
even if successfully and completely implemented and (iii) the Company will be
able to comply with every covenant contained in its Credit Agreement (as amended
by the Ninth Agreement thereto) and the Fifth Amendment to the Forbearance
Agreement.
The Company's independent public accountants have included a "going concern"
emphasis paragraph in their audit report accompanying the 1998 financial
statements. The paragraph states that the Company's significant net loss,
negative working capital and uncertain ability to obtain additional financing
for operations raise substantial doubt about the Company's ability to continue
as a going concern and cautions that the financial statements do not include
adjustments that might result from the outcome of this uncertainty.
17
YEAR 2000 COMPLIANCE
The Company recognizes that the arrival of the Year 2000 poses a unique
worldwide challenge to the ability of all systems to recognize the date change
from December 31, 1999 to January 1, 2000 and, like other companies, has
assessed its computer applications and business processes to provide for their
continued functionality. The Company believes that its current management
information systems will consistently and properly recognize the Year 2000. As
stated above, the Company is in the process of completing its implementation of
its new management information systems to improve its production planning,
scheduling and distribution, as well as its financial reporting capabilities.
This new management information system will be Year 2000 compliant. Many of the
Company's other systems include new hardware and packaged software recently
purchased from large vendors who have represented that these systems are Year
2000 compliant. The Company is in the process of obtaining assurances from
vendors that timely updates will be made available to make all remaining
purchased software Year 2000 compliant. The Company does not believe anticipated
expenditures to assure Year 2000 compliance will be material. In addition, the
Company plans to communicate with others with whom it does significant business
to determine their Year 2000 compliance readiness and the extent to which the
Company is vulnerable to any third party Year 2000 issues. Although the Company
expects to be Year 2000 compliant when necessary, failure of the Company or
significant key suppliers or customers to be fully compliant could potentially
have a material adverse impact on the results of the Company's operations.
However, due to the many factors involved, including factors impacting third
parties, which the Company cannot readily ascertain, the Company is currently
unable to estimate the potential impact. However, there can be no guarantee that
a failure to convert by another company would not have a material adverse effect
on the Company.
The Company considers the likelihood of the Company not being ready for the Year
2000 to be remote, but is currently unable to determine the likelihood of its
key suppliers and customers not being ready for the Year 2000. Contingency plans
are not being developed in the event that critical operations become interrupted
as the result of key suppliers or customers failing to resolve their respective
Year 2000 issues in a timely manner.
FORWARD LOOKING STATEMENTS
Information in this annual Form 10-K 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 the ability to maintain adequate borrowing
capability to operate as discussed above and in the Company's previous filings
with the Securities and Exchange Commission.
18
ITEM 8. Pluma, Inc. Financial Statements for the years ended December 31, 1998,
1997 and 1996 and Independent Auditor's Report.
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors of Pluma, Inc.:
We have audited the accompanying balance sheets of Pluma, Inc. as of December
31, 1998 and 1997, and the related statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. 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, 1998 and 1997,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that Pluma,
Inc. will continue as a going concern. As discussed in Notes 5 and 17 to the
financial statements, at December 31, 1998, the Company was not in compliance
with certain covenants of its long-term debt agreement and had not obtained
waivers relating to its non-compliance. The Company has negotiated a forbearance
agreement with the lenders through September 30, 1999 and also is seeking other
sources of long-term financing. The Company is also experiencing difficulty in
generating sufficient cash flow to meet its obligations and sustain its
operations. The Company's difficulties in meeting its debt agreement covenants
and financing needs, its substantial loss from operations for the year ended
December 31, 1998, and its negative working capital position discussed in Note
17 raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 17. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company changed its method of capitalizing and expensing certain costs
related to software implementation in 1997 in accordance with EITF Issue No.
97-13 (see Note 6). As discussed in Note 3, the Company changed its method of
determining the cost of inventories in 1996.
Deloitte & Touche LLP
Winston-Salem, North Carolina
April 6, 1999
19
PLUMA, INC.
BALANCE SHEETS, DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
Cash $ 1,612,087 $ 1,875,992
Accounts receivable, including related parties
(less allowance - 1998, $6,845,714;
1997, $2,353,577) 24,844,607 32,001,332
Income taxes receivable 3,039,390 1,952,796
Other receivables 1,906,178
Deferred income taxes 1,539,385
Inventories, net 56,690,891 51,177,900
Other current assets 83,043 919,873
-------- ----------
Total current assets 86,270,018 91,373,456
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,065,689 929,689
Land improvements 810,419 719,699
Buildings and improvements 18,916,761 16,663,608
Machinery and equipment 48,585,396 36,420,561
Construction in progress 486,121 4,762,235
-------- ----------
Total property, plant and equipment 69,864,386 59,495,792
Less accumulated depreciation 26,046,667 21,496,857
----------- -----------
Property, plant and equipment, net 43,817,719 37,998,935
----------- -----------
OTHER ASSETS:
Goodwill (less accumulated amortization -
1998, $1,412,700; 1997, $26,655) 26,308,208 34,831,646
Other 2,147,465 1,533,840
---------- ----------
Total other assets 28,455,673 36,365,486
----------- -----------
TOTAL $ 158,543,410 $ 165,737,877
============== ==============
LIABILITIES AND
SHAREHOLDERS' EQUITY 1998 1997
CURRENT LIABILITIES:
Current maturities of long-term debt $ 108,723,716 $ 43,869,192
Accounts payable, including related parties 17,838,270 12,057,069
Accrued expenses 4,372,255 2,472,458
---------- ----------
Total current liabilities 130,934,241 58,398,719
------------ -----------
LONG-TERM DEBT 40,000,000
------------ -----------
DEFERRED INCOME TAXES 3,671,301
------------ -----------
COMMITMENTS AND CONTINGENCIES
(Notes 10, 12 and 13)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 1,000,000
shares authorized
Common stock, no par value, 15,000,000
shares authorized, 8,109,152 shares
issued and outstanding 36,849,127 36,849,127
Retained earnings (deficit) (9,239,958) 26,818,730
------------ -----------
Total shareholders' equity 27,609,169 63,667,857
TOTAL $ 158,543,410 $ 165,737,877
============== ==============
See notes to financial statements.
20
PLUMA, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ----------------------------------------------------------------------------------------------
1998 1997 1996
NET SALES, including related parties $ 187,253,570 $ 134,555,053 $ 127,820,319
COST OF GOODS SOLD, including related parties 186,009,651 118,279,362 106,247,340
------------ ------------ -----------
GROSS PROFIT 1,243,919 16,275,691 21,572,979
------------ ------------ -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES, including related parties 24,834,379 8,859,529 9,149,039
AMORTIZATION OF GOODWILL 1,742,913 26,655
WRITEOFF OF GOODWILL 7,042,973
PROVISION FOR LOSS ON DISPOSAL OF ASSETS 2,348,578
SOFTWARE IMPLEMENTATION EXPENSES 2,089,316
----------- ---------- ----------
Total operating expenses 35,968,843 10,975,500 9,149,039
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS (34,724,924) 5,300,191 12,423,940
----------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest expense (7,813,572) (2,338,930) (3,735,468)
Other income 660,702 557,102 484,058
----------- ---------- ----------
Total other expenses, net (7,152,870) (1,781,828) (3,251,410)
----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (41,877,794) 3,518,363 9,172,530
----------- ---------- ---------
INCOME TAXES (BENEFIT):
Current (3,687,190) 1,390,880 2,445,471
Deferred (2,131,916) 84,645 908,680
----------- ---------- ----------
Total income taxes (benefit) (5,819,106) 1,475,525 3,354,151
----------- ---------- ----------
NET INCOME (LOSS) $ (36,058,688) $ 2,042,838 $ 5,818,379
============= ============ ============
EARNINGS (LOSS) PER COMMON SHARE - BASIC
AND DILUTED $ (4.45) $ 0.27 $ 1.09
======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING $ 8,109,152 $ 7,553,782 $ 5,315,852
============ ============ ============
See notes to financial statements.
21
PLUMA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ----------------------------------------------------------------------------------------------
RETAINED
Common Stock Earnings Shareholders'
Shares Amount (Deficit) Equity
BALANCE, JANUARY 1, 1996 5,315,852 $ 7,222,550 $ 19,679,768 $ 26,902,318
NET INCOME 5,818,379 5,818,379
DIVIDENDS ($.11 per share) (577,804) (577,804)
---------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1996 5,315,852 7,222,550 24,920,343 32,142,893
DIVIDENDS ($.02 per share) (144,451) (144,451)
ISSUANCE OF COMMON STOCK
IN PUBLIC OFFERING 2,793,300 29,626,577 29,626,577
NET INCOME 2,042,838 2,042,838
---------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1997 8,109,152 36,849,127 26,818,730 63,667,857
---------- ---------- ----------- ------------
NET LOSS (36,058,688) (36,058,688)
---------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1998 8,109,152 $ 36,849,127 $ (9,239,958) $ 27,609,169
========== ============ ============= ==============
See notes to financial statements.
22
PLUMA, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(36,058,688) $ 2,042,838 $ 5,818,379
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for depreciation and amortization 6,570,209 4,056,744 3,804,481
Provision for loss on disposal of property, plant and
equipment 2,348,578
Writeoff of goodwill 7,042,973
Other, net 1,040,342 (192,066) (105,154)
(Increase) decrease in accounts receivable 7,156,725 (6,966,587) (606,032)
(Increase) decrease in income taxes receivable (1,086,594) (1,952,796) 1,057,783
(Increase) decrease in other receivables 1,906,178 (1,906,178)
Increase (decrease) in deferred income taxes (2,131,916) 84,645 908,680
(Increase) decrease in inventories (5,512,991) 1,483,055 (1,856,648)
Increase (decrease) in accounts payable 5,781,201 (380,638) 1,627,989
Increase (decrease) in accrued expenses 1,899,797 (992,524) 943,100
Decrease in note payable - related party sales agency (1,999,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities (11,044,186) (4,723,507) 9,593,578
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,904,276) (9,781,622) (3,398,804)
Acquisitions (51,538,504)
Other, net (921,177) (453,997) (221,175)
------------ ------------ ------------
Net cash used in investing activities (13,825,453) (61,774,123) (3,619,979)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 45,000,000 83,268,342
Repayments of long-term debt (84,117,982) (849,640) (849,640)
Borrowings from note payable - Bank 20,000,000
Repayments of note payable - Bank (20,000,000)
Net borrowings from (repayments of) revolving loan 64,591,000 (43,569,904) (4,851,096)
Payment of loan fees (867,284) (248,790)
Payment of dividends (144,451) (577,804)
Proceeds from issuance of common stock 29,626,577
------------ ------------ ------------
Net cash provided by (used in) financing activities 24,605,734 68,082,134 (6,278,540)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (263,905) 1,584,504 (304,941)
CASH, BEGINNING OF PERIOD 1,875,992 291,488 596,429
------------ ------------ ------------
CASH, END OF PERIOD $ 1,612,087 $ 1,875,992 $ 291,488
============ ============ ============
23
PLUMA, INC.
STATEMENTS OF CASH FLOWS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 6,215,444 $ 2,970,587 $ 3,860,064
Income taxes $ 57,500 $ 3,715,176 $ 1,430,000
Details of acquisitions:
Fair value of assets $ 68,248,278
Liabilities $ 16,709,774
Cash paid $ 51,538,504
See notes to financial statements.
24
PLUMA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Pluma, Inc. (the "Company") is a vertically integrated manufacturer and
distributor 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, Starter and Walt Disney. In addition, the Company
sells products under its own "Pluma," "SANTEE" and "SNOWBANK" brand names
to retail and wholesale customers. The Company operates in a single
business segment.
During 1997, the Company completed acquisitions of two of its distributor
customers, Stardust Corporation ("Stardust") and Frank L. Robinson Company
("FLR") (see Note 11). In March 1999, the Company announced the closing of
FLR (see Note 17).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE - Accounts receivable is reduced by an allowance for
bad debts and sales returns 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. 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 methods 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:
Land improvements 15 years
Buildings and improvements 39 years
Machinery and equipment 10 years
Computer hardware and software 5 years
GOODWILL - Goodwill represents costs in excess of net assets of businesses
acquired (see Note 11). Goodwill is amortized on a straight-line basis over
20 years. The Company continually reviews goodwill to assess recoverability
from estimated future results of operations and cash flows of the related
operating entities (see Note 17).
25
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 on 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 (see Note 4).
LOAN FEES - Loan fees are capitalized and amortized to other expense using
the effective interest method over the term of the related debt.
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 - SFAS No. 123, "Accounting for Stock-Based Compensation,"
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 (see 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.
EARNINGS (LOSS) PER COMMON SHARE - In February 1997, the Financial
Accounting Standards Board issued SFAS 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 (loss) per common
share. SFAS No. 128 requires the presentation of basic earnings (loss) per
common share and diluted earnings (loss) 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 EPS except that the denominator includes dilutive potential common
shares such as stock options and warrants and the numerator is adjusted to
add back (a) any convertible preferred dividends and (b) the after tax
amount of interest recognized in the period associated with any convertible
debt.
Options to purchase shares of common stock were outstanding during 1998,
1997 and 1996 (see Note 8) 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 years. Accordingly,
there were no differences in the numerators and denominators
used in the basic EPS and diluted EPS computations.
26
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.
ADVERTISING - The Company expenses the costs of advertising as incurred
except for catalog expenses, which are capitalized and amortized over the
expected period of future benefits.
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. As
discussed in Note 6, certain costs related to SAP software implementation
are expensed.
DERIVATIVE INSTRUMENTS - The Company entered into a derivative instrument
to manage exposure to fluctuations in interest rates. The differential to
be paid or received as interest rates change is accrued and recognized as
an adjustment of interest expense related to the debt (the hedge method).
The related amount payable to or receivable from the counterparty is
included in trade and other payables. The fair value of the swap agreement
is not recognized in the financial statements. Gains and losses on
terminations of interest rate swap agreements are deferred on the balance
sheet (in other long-term liabilities) and amortized as an adjustment to
interest expense related to the debt over the remaining term of the
original contract life of the terminated swap agreement.
COMPREHENSIVE INCOME - Effective January 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income (loss) or shareholder's equity.
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.
RECLASSIFICATIONS - Certain 1997 and 1996 amounts have been reclassified
from their original presentation to conform with the 1998 presentation.
NEW ACCOUNTING STANDARDS - In June 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued, establishing
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. This statement
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Company will be required to apply the
provisions of this statement beginning with the first fiscal quarter of
2000.
27
3. INVENTORIES, NET
Inventories at December 31, 1998 and 1997 consist of the following:
1998 1997
At FIFO cost:
Raw materials $ 986,561 $ 1,429,371
Work-in-progress 6,652,569 6,077,538
Finished goods 64,207,881 45,885,484
Production supplies 870,382 953,147
------------- -----------
72,717,393 54,345,540
Excess of FIFO over LIFO cost (2,804,528) (1,846,435)
------------- -----------
69,912,865 52,499,105
Excess of cost over market (13,221,974) (1,321,205)
------------- -----------
Total $ 56,690,891 $51,177,900
============= ===========
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 $52,212 ($.01 per 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 used 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
$2,804,528 and $1,846,435 greater at December 31, 1998 and 1997,
respectively.
Reserves have been recorded against inventory for the estimated excess of
cost over market related primarily to inventories to be liquidated (see
Note 17).
4. ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1997 consist of the following:
1998 1997
Salaries, commissions and bonuses $ 183,601 $ 702,186
Interest 1,724,710 126,582
Insurance 1,467,314 888,309
Other 996,630 755,381
----------- -----------
Total $4,372,255 $ 2,472,458
=========== ===========
28
5. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following:
1998 1997
Revolving loans $ 64,591,000 $83,268,342
Term loan 45,000,000
Subordinated debt 849,640
Loan fees (867,284) (248,790)
------------ ----------
Total 108,723,716 83,869,192
Less current maturities 108,723,716 43,869,192
------------ ----------
Long-term debt $ $40,000,000
============ ===========
The Company entered into a syndicated credit facility (the "Credit
Agreement") on April 23, 1998 with a group of financial institutions for
the purpose of refinancing its existing revolving loan. The Credit
Agreement is administered by one of the member financial institutions. This
agreement has been amended and was operating under the fifth amendment as
of December 31, 1998. As amended at December 31, 1998, this agreement
consists of a term loan (the "Term Loan") and revolving loans (the
"Revolving Loans"), which include swingline loans. The Term Loan consists
of $45,000,000. Revolving Loans may be either Eurodollar Loans with a
minimum aggregate principal of $2,000,000 and integral multiples of
$500,000 or Base Rate loans with a minimum aggregate principal amount of
$500,000 and integral multiples of $100,000. The amount that can be
borrowed under Revolving Loans is limited to the lesser of the Borrowing
Base, as defined, or $70,000,000. The borrowing base is calculated as the
sum of (i) 85% of eligible receivables, as defined, (ii) 60% of eligible
inventory, as defined, and (iii) $3,000,000 through January 29, 1999, and
$0 thereafter. Swingline loans may be obtained up to $5,000,000. Swingline
loans can be made as advances of Revolving Loan amounts. Term Loan
borrowings are due in specified quarterly installments beginning in April
1999 with the final maturity in January, 2003. Any amounts outstanding
under the Revolving Loans mature on April 23, 2003.
Long-term debt is collateralized by substantially all accounts receivable,
inventories, general intangibles and property. In addition, dividends on
common stock are prohibited until such time that amounts outstanding under
the Credit Agreement have been repaid.
For the Term Loan and Revolving Loans, interest rates under the Credit
Agreement are based on the Base Rate or the Eurodollar Rate. The interest
rate for swingline loans is based on the Quoted Rate, the rate per annum
offered by the swingline lender and accepted by the Company with respect to
the swingline loan. The interest rate for the swingline loan at December
31, 1998 was 9.3%. For loans bearing the Eurodollar Rate, the interest rate
equals the quotient obtained by dividing (a) the interbank offered rate for
such eurodollar loans for such interest period by (b) 1 minus the
eurodollar reserve required for such eurodollar loans for such interest
period plus 3.75%. The interest rate for Eurodollar loans at December 31,
1998 ranged from 8.95% to 9.09%. For Base Rate loans, the per annum rate is
equal to the higher of (a) the Federal Funds Rate for such day plus one
percent and (b) the prime rate for such day plus one percent. The interest
rate for Base Rate loans was 8.75% at December 31, 1998. The Credit
Agreement also requires a commitment fee equal to 0.375% per annum on the
daily amounts of unused revolving loans. For letters of credit, a fee is
charged for the average daily maximum amount available to be drawn under
each letter of credit computed at a per annum rate of 3.5% for each day
from the date of issuance to the date of expiration.
29
Among the various provisions, limitations and restrictions contained in the
Credit Agreement, the Company must meet specified funded indebtedness to
capitalized ratio, fixed charge coverage ratio, leverage ratio,
consolidated net worth, and earnings before the effect of interest expense,
income taxes, depreciation and amortization ("EBITDA") requirements. The
Credit 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 30 days after notice. The Company was not in compliance with
the Credit Agreement covenants and had not obtained waivers relating to its
non-compliance. Accordingly, all amounts outstanding under the Credit
Agreement have been reported in the balance sheet at December 31, 1998 as
current.
Subsequent to December 31, 1998, the Credit Agreement was amended and is
currently operating under the Ninth Amendment to Credit Agreement, executed
on March 31, 1999. This amendment redefined the Borrowing Base as the sum
of (i) 85% of eligible receivables, as defined, (ii) 60% of eligible
inventory, as defined, and (iii) $18,000,000 through June 29, 1999;
$19,500,000 from June 30, 1999 through July 30, 1999; $16,100,000 from July
31, 1999 through August 30, 1999; $14,500,000 from August 31, 1999 through
September 29, 1999; and $0 thereafter. The maximum amount that can be
borrowed under the Revolving Loans was also limited to $63,000,000 through
July 30, 1999; $55,600,000 from July 31, 1999 through August 30, 1999; and
$53,000,000 thereafter.
Although the Company did not obtain a waiver for its covenant violations,
the Company reached an agreement with its lenders whereby the lenders
agreed to forbear exercising their rights and remedies (the "Forbearance
Agreement") under the Credit Agreement through September 30, 1999. Among
other provisions in the Forbearance Agreement, the Company is limited as to
the amount of capital expenditures, must maintain specified net sales,
maintain a minimum change in cash, maintain a minimum EBITDA and is limited
in the amount of trade payables. The Forbearance Agreement also provides
that the lenders may request stock warrants representing 10% of the diluted
common equity of the Company (see Note 7).
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). 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 Credit 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 reissued to him. The number of shares to be
reissued 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. This note was paid in full on
January 31, 1998.
Although the entire debt outstanding as of December 31, 1998 has been
reported as current due to the covenant violations as mentioned above, the
Credit Agreement, as amended, requires future annual payments as follows:
1999 $ 6,000,000
2000 9,500,000
2001 11,500,000
2002 14,250,000
2003 67,473,716
-------------
Total $ 108,723,716
=============
30
6. SOFTWARE IMPLEMENTATION EXPENSES
During 1997, the Company capitalized significant costs in connection with
its SAP software implementation. In November 1997, EITF Issue No. 97-13 was
issued requiring certain costs related to software implementation be
expensed as incurred. The Company expensed $2,089,316 of such costs in
1997.
7. CAPITAL STOCK
In March 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock at $12.00 per share. In April 1997, the
Underwriters' over-allotment option for 293,300 shares of Common Stock at
$12.00 per share was exercised. The net proceeds of $29,626,577 were used
to reduce debt.
On January 28, 1997, the Board of Directors declared a .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.
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.
During the year ended December 31, 1996, the Company held stock exchanges
which are private stock sales or purchases as defined under the terms of
its Stock Transfer and Redemption Agreement adopted by the Company on June
10, 1991. Under this agreement, shares of the Company could be traded at
certain times of the year. Numerous transactions among authorized parties
(as defined in the agreement) took place under these exchanges. The Company
did not repurchase shares during 1998, 1997 and 1996 under the Stock
Transfer and Redemption Agreement.
Effective March 31, 1999, the Company reached an agreement with its lenders
whereby the lenders agreed to forbear exercising their rights and remedies
under the Credit Agreement (see Note 5). Among the provisions of the
Forbearance Agreement, the lenders may request stock purchase warrants
to acquire 10% of the diluted common equity of the Company (901,017
shares as of March 31, 1999). The warrants have an exercise price of $0.01
per share. These warrants vest and become exercisable as follows: 25%
beginning March 31, 1999; 25% beginning October 1, 1999; 25% beginning
April 1, 2000; and, 25% beginning October 1, 2000. If the debt under the
Credit Agreement is paid in full, all unvested warrants are forfeited.
Furthermore, the Company may call the warrants for a price of $5.00 per
share through December 31, 1999 and $10.00 per share thereafter. The
estimated fair value of these warrants at the date of agreement was $0.50
per share using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0.0%, expected volatility of 243.7%,
risk-free interest rate of 4.6% and expected lives of 2 years.
31
8. 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.
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 (loss) and earnings (loss) per share would
have been as follows:
1998 1997 1996
Net income (loss):
As reported $(36,058,688) $2,042,838 $5,818,379
Pro forma (36,230,316) 1,838,229 5,679,877
Earnings (loss) per share - basic and dilutive:
As reported $(4.45) $ 0.27 $ 1.09
Pro forma (4.47) 0.24 1.07
A summary of the status of the Company's Stock Option Plan as of December 31,
1998, 1997 and 1996, and changes during the years ending on those dates is
presented below:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
Outstanding, January 1, 1996 350,336 $13.077
Granted 32,384 13.077
--------
Outstanding, December 31, 1996 382,720 13.077
Forfeited (2,355) 13.077
--------
Outstanding, December 31, 1997 380,365 13.077
Granted 123,000 2.000
Forfeited (15,309) 13.077
--------
Outstanding, December 31, 1998 488,056 10.285
========
1998 1997 1996
Options exercisable at year end 364,999 181,351 117,171
======== ======== =======
Weighted-average fair value of options
granted during the year $ 0.90 $ 0.00 $ 6.60
======= ======= ======
32
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Number Weighted- Weighted- Number Weighted-
Outstanding Average Average Exercisable Average
Exercise at Remaining Exercise at Exercise
Prices 12/31/98 Contractual Life Price 12/31/98 Price
$13.077 365,056 7.0 $ 13.077 241,999 $ 13.077
2.000 123,000 10.0 2.000 123,000 2.000
-------- --------
$2.000 to
13.077 488,056 7.8 10.285 364,999 9.344
======== ========
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 1998 and 1996, respectively: dividend yield
of 0.0% and 0.08%, expected volatility of 123.0% and 40.9%, risk-free
interest rates of 4.7% and 5.9%, and expected lives of 5 years.
9. INCOME TAXES
The provision for income tax expense (benefit) for the years ended December
31, 1998, 1997 and 1996 consists of the following:
1998 1997 1996
Current federal income tax expense (benefit) $(3,306,063) $1,254,831 $2,178,903
Current state income tax expense (benefit) (381,127) 136,049 266,568
------------ ---------- ---------
Total current income tax expense
(benefit) (3,687,190) 1,390,880 2,445,471
------------ ---------- ---------
Deferred federal income tax expense (benefit) (1,902,244) 78,638 809,689
Deferred state income tax expense (benefit) (229,672) 6,007 98,991
------------ ---------- ---------
Total deferred income tax expense
(benefit) (2,131,916) 84,645 908,680
------------ ---------- ---------
Total income tax expense (benefit) $(5,819,106) $1,475,525 $3,354,151
============= =========== ==========
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:
1998 1997 1996
Income taxes computed at U.S. federal
statutory rate $(14,238,450) $1,196,243 $3,118,660
State income taxes, net of federal
income tax effect (1,532,046) 93,758 243,027
Valuation allowance 9,917,010
Other, net 34,380 185,524 (7,536)
-------------- ----------- -----------
Total income tax expense (benefit) $ (5,819,106) $1,475,525 $3,354,151
============== =========== ===========
33
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 at December 31:
1998 1997
Deferred tax liabilities:
Current -
Prepaid insurance and other $ (99,890) $ (115,838)
Long-term -
Property, plant and equipment (4,818,302) (3,669,607)
Goodwill (3,246)
------------ ------------
Total deferred tax liabilities (4,918,192) (3,788,691)
------------ ------------
Deferred tax assets:
Current -
Bad debt and returns reserves 1,928,796 244,324
Medical and workers' compensation reserves 278,908 205,575
Uniform capitalization 1,085,228 606,434
Lower of cost or market write-down 4,465,202 408,905
Deferred compensation 326,765 165,485
Other 40,040 24,500
Long-term
Goodwill writeoff and amortization 2,367,466
Tax loss carryforwards 4,317,463
Other 25,334 1,552
------------ ------------
Total deferred tax assets 14,835,202 1,656,775
------------ ------------
Valuation reserve allowance (9,917,010)
------------ ------------
Net deferred tax asset (liability) $ $ (2,131,916)
============ ============
A valuation allowance has been established due to the uncertain ability of
the Company to generate future taxable income and the resulting uncertain
realization of tax loss carryforwards and other deferred tax assets.
The Company has tax loss carryforwards of $10,416,764 which expire
principally in 2019.
34
10. LEASES
At December 31, 1998, the Company was committed to pay rentals under
various noncancelable operating leases with lease terms in excess of one
year as follows:
Year ending December 31:
1999 $ 2,316,009
2000 2,184,359
2001 2,094,977
2002 1,724,933
2003 1,347,941
Thereafter 4,229,522
-------------
Total $ 13,897,741
=============
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
$2,827,628, $2,260,469, and $2,145,061 for the years ended December 31,
1998, 1997 and 1996, respectively (see Note 13).
11. ACQUISITIONS
In December 1997, the Company purchased certain assets and assumed certain
liabilities of Stardust Corporation ("Stardust") and Frank L. Robinson
Company ("FLR") for $51,538,504 in cash, including related acquisition
costs. The acquisitions have been accounted for as purchases. Accordingly,
the assets and liabilities of the acquired businesses are included in the
balance sheet as of December 31, 1997. The results of Stardust's and FLR's
operations from the dates of the acquisitions to December 31, 1997 were not
significant. The acquisitions were financed through additional debt.
The allocation of the acquisition costs resulted in intangibles, primarily
non-compete agreements of $500,000, and goodwill of $34,858,301. The
non-compete agreements and the goodwill are being amortized on a
straight-line basis over 5 years and 20 years, respectively.
The pro forma unaudited results of operations as though Stardust and FLR
had been acquired as of the beginning of fiscal 1997 and 1996 are as
follows:
1997 1996
Net sales $221,960,415 $225,898,606
Net income 2,225,288 6,239,372
Earnings per share - basic and diluted 0.29 1.17
The pro forma results include amortization of the intangibles presented
above and interest expense on debt assumed to finance the acquisitions. The
pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been completed as of the beginning of
each of the fiscal periods presented, nor are they necessarily indicative
of future results.
35
12. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with three of its senior executive
officers. The terms of two of these agreements expire in December 2000 and
the third expires December 2002. Upon termination of one of the employment
agreements 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 (i) average annual salary, as defined, plus (ii) any bonuses, as
defined. For the other two agreements, upon termination of an employment
agreement after a change of control in the Company, as defined, the Company
would be liable for (i) a maximum of the employee's annual salary, as
defined, plus (ii) any bonuses, as defined. In addition, under the
employment agreements, the senior executive officers are entitled to a
minimum annual bonus payment to be paid at such time as bonuses to other
executive officers.
WATER TAKE-OR-PAY - At December 31, 1998, the Company had an outstanding
take-or-pay agreement for the purchase of treated water and wastewater
treatment for its Eden, North Carolina facilities. The committed amount is
for 450 million gallons per year through June 30, 2011. Under this
contract, the Company is committed at December 31, 1998 to purchase treated
water and wastewater treatment, assuming current price levels, as follows:
Fixed and Determinable Portion of Take-or-Pay Obligations:
YEAR COMMITTED AMOUNT
1999 $ 1,018,125
2000 1,002,375
2001 988,875
2002 975,375
2003 959,625
Thereafter 6,887,250
-----------
Total $11,831,625
===========
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 taken as a whole if disposed of unfavorably.
13. RELATED PARTY TRANSACTIONS
Prior to 1996, sales commissions of $3,327,307, 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. 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. The Company
has not paid commissions to the sales agency for sales subsequent to
December 31, 1995.
The Company has various operating leases from certain shareholders. The
leases have terms of approximately one to 14 years with aggregate minimum
monthly payments of $122,037, $100,623 and $98,751 in 1998, 1997 and 1996,
respectively. Total operating lease expense for 1998, 1997 and 1996 was
$1,472,948, $1,197,186 and $1,144,193, respectively. As of December 31,
1998, future minimum lease payments under these operating leases totaled
$9,823,944.
36
A contractor performed miscellaneous work totaling $2,774,992, $344,751,
and $478,646 for the years ended December 31, 1998, 1997 and 1996,
respectively. Certain shareholders/directors of the Company are affiliated
with the contractor. At December 31, 1998, $43,791 was due to this
contractor.
During 1998, 1997 and 1996, the Company made payments totaling $938,109,
$118,345 and $223,338, respectively, for contract services rendered to the
Company for packaging and preparing Company products for shipment. A
director/shareholder is affiliated with this contractor. At December 31,
1998, $343,385 was due to this contractor.
During 1998, 1997 and 1996, the Company contracted for fabric dyeing
totaling $160,351, $16,894 and $42,776, respectively, with a contractor
owned by a shareholder and former director of the Company. The Company had
sales to this contractor in 1998, 1997, and 1996 of $115,131, $871,958 and
$80,005, respectively, and had a net balance receivable of $393,749 at
December 31, 1998.
During 1998, 1997 and 1996, the Company made payments to a contractor
totaling $121,394, $361,472 and $121,395, respectively, for advisory fees.
A director/shareholder of the Company is affiliated with this contractor.
At December 31, 1998, $20,522 was due to this contractor.
During 1998, the Company made payments to a contractor totaling $184,899
for advisory fees. A director of the Company is affiliated with this
contractor. At December 31, 1998, $9,636 was due to this contractor.
An electrical contractor performed services totaling $263,923 and $333,104
during 1998 and 1997, respectively. This contractor is affiliated with a
director/officer of the Company.
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.
Certain customers have accounted for significant percentages of the
Company's net sales as follows:
1998 1997 1996
Customer A 25.7% 31.1% 24.1%
Customer B 9.4% 12.0% 14.7%
Gross sales by type of product were as follows (in millions):
Fleece $ 76.7 $ 81.0 $ 80.4
Jersey 96.2 51.9 46.8
Closeouts/Irregulars 3.2 4.6 5.0
Other 21.8 0.1
The geographic location of property, plant and equipment, net, was as
follows (in millions):
1998 1997
U.S. $42.8 $38.0
Mexico 1.0
37
15. EMPLOYEE BENEFIT PLANS
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 1998, 1997 and 1996, the Company contributed $297,842,
$172,983 and $161,461, respectively, to the 401(k) retirement savings plan.
The Company has a deferred compensation plan providing key executives and
directors with the opportunity to participate in an unfunded, deferred
compensation program. Under the program, participants may defer base
compensation and bonuses and earn returns on their deferred amounts. The
Company may make discretionary matching contributions to the Plan. The
program is not qualified under the Internal Revenue Code. The total of net
participant deferrals, which is reflected in accrued liabilities was
$790,333 at December 31, 1998 and $452,115 at December 31, 1997 and $0 at
December 31, 1996. The Company contributed to the plan $25,343 in 1998 and
$20,246 in 1997 and $0 in 1996.
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, 1998, the carrying value of long-term debt is a reasonable
estimate of fair value. All financial instruments are held for purposes
other than trading.
The Company has entered into an interest rate swap agreement to reduce the
impact of changes in interest rates on some of its variable rate debt. The
swap agreement is a contract to exchange variable rate for fixed rate
interest payments over the life of the agreement without the exchange of
the underlying notional amounts. The notional amount of the interest rate
swap agreement is used to measure interest to be paid or received and does
not represent the amount of exposure to credit loss. The differential paid
or received on the interest rate swap agreement is recognized as an
adjustment to interest expense. The interest rate swap agreement is held
for purposes other than trading. The Company has entered into an interest
rate swap transaction pursuant to which it has exchanged its variable rate
interest obligation on $45,000,000 notional principal amount for a fixed
rate payment obligation of 5.89% per annum for the four year period
beginning April 30, 1999. The fixing of the interest rate for these periods
minimizes in part the Company's exposure to the uncertainty of variable
interest rates during this four-year period. The carrying value of the
interest rate swap at December 31, 1998 is $0 and the fair value is
($841,465). The fair value of the interest rate swap is based on an average
quoted market price. The interest rate swap contract is with one of the
financial institutions which is a member of the Credit Agreement (see
Note 5).
17. GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred a net loss of $36,058,688 for the year
ended December 31, 1998 and has classified all of its debt as current as of
December 31, 1998 (see Note 5). The Company also has negative working
capital of $44,664,223 at December 31, 1998. These factors among others may
indicate that the Company will be unable to continue as a going concern for
a reasonable period of time.
38
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. As described
in Note 5, the Company was not in compliance with debt covenants and was
unable to get a waiver for its violations from the banks. The Company has
been experiencing difficulty in obtaining additional financing in excess of
its current obligations. The Company's ability to continue as a going
concern is dependent upon its ability to generate sufficient cash flow to
meet its obligations on a timely basis and its ability to continue or
obtain other long-term financing.
In response to the Company's poor performance and its liquidity problems
experienced during 1998, the Company took on a project to develop a
business plan to discuss, analyze and plan future turnaround measures to
bring the Company back into profitability and to provide the Company with
the ability to service its debt.
In order to reduce overhead and other costs, the Company has eliminated one
management position, reduced management salaries, and has suspended
management bonuses for an indefinite period. Additional personnel and
overhead cost reduction measures have been and are planned to be taken
related to the closing of certain facilities. In December 1998, management
announced its intention to close the Rocky Mount production facility and
all of the outlet stores and has listed the Rocky Mount facility for
auction. The Company has also decided to sell its sales office in
Martinsville, Virginia. Due to these planned dispositions, property, plant
and equipment have been reduced by approximately $2,300,000 to reflect
their estimated net realizable value. In addition, the Company has
down-sized its corporate and administrative positions and has discontinued
the Eden sewing operations.
Because of the closing of the sewing facilities noted above and due to the
down-sizing at other sewing facilities, the Company has shifted a
significant portion of its sewing operations to outside contractors,
primarily in Mexico. The Company has experienced lower overhead costs
associated with the use of outside sewing contractors. In March 1999, the
Company also announced the closing of the Frank L. Robinson, Inc.
distributorship. As a result of this closing, the Company will move certain
FLR inventories to Stardust to be sold as part of the Stardust operations.
Approximately $2,000,000 of other FLR inventories will be liquidated to
generate cash. These inventories to be liquidated are reported at their
estimated net realizable value in the balance sheet at December 31, 1998.
The Company is in the process of eliminating certain less profitable
product styles. The Company believes that this will reduce its product mix
to a more manageable level. Due to this reduction, close-out inventories of
approximately $7,900,000 have been identified for liquidation. These
inventories are also reported in the balance sheet at their estimated net
realizable value at December 31, 1998.
While there is no assurance that the measures discussed above will be
sufficient to return the Company to profitability or enable it to generate
the sufficient cash to service the existing debt, the Company has
negotiated a forbearance agreement with the banks (see Note 5) and is
seeking additional outside financing to support its turnaround efforts.
18. ADVERTISING
The Company expenses the costs of advertising as incurred, except for
catalog expenses which are capitalized and amortized over the expected
period of future benefits.
Catalog expenses consist primarily of the production and distribution costs
of the catalog. The capitalized costs of the catalog are amortized over the
twelve-month period following the publication of the catalog.
At December 31, 1998, and 1997, $287,523 and $353,040, respectively, of
advertising, primarily catalog costs, was reported as other current assets.
Advertising expense was $1,579,103, $304,610 and $253,441 in 1998, 1997 and
1996, respectively, including $195,000 in 1998 for amounts written down to
net realizable value.
39
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
40
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The sections entitled "Nominees for Election Term Expiring 2002,"
"Incumbent Directors Term Expiring 2001," and "Incumbent Directors Term Expiring
2000" on pages 2 and 3 of the Proxy Statement for the Annual Meeting of Share
Owners to be held June 23, 1999, are incorporated herein by reference.
"Executive Officers of the Company" on page 10 of this report is
incorporated herein by reference.
ITEM 11. Executive Compensation
"Compensation Committee Report on Executive Compensation," "Performance
Graph," "Executive Compensation," "Stock Options and Stock Appreciation Rights"
and "Aggregated Opinion/SAR Exercises in the Last Fiscal Year and Year End
Option Values" on pages 10 through 16 of the Proxy Statement for the Annual
Meeting of Share Owners to be held June 23, 1999, are incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Information concerning security ownership of management set forth in
the Proxy Statement for the Annual Meeting of Share Owners to be held June 23,
1999, under the caption "Ownership of Equity Securities in the Company" on pages
7 and 8 is incorporated herein by reference.
(b) "Principal Share Owners" on page 9 of the Proxy Statement for the
Annual Meeting of Share Owners to be held June 23, 1999 is incorporated herein
by reference.
(c) There are no arrangements known to the registrant the implementation
on consummation of which may result in a change in control of the registrant.
ITEM 13. Certain Relationships and Related Transactions
"Compensation Committee Interlocks and Insider Participation" and
"Certain Relationships and Related Transactions Involving Directors not on the
Compensation Committee" on pages 4 thru 6 of the Proxy Statement for the Annual
Meeting of Share Owners to be held June 23, 1999 are incorporated herein by
reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List of Documents filed as part of this report:
(1) Financial Statements
All financial statements of the registrant as set forth under
Item 8 of this report on Form 10-K.
(2) Financial Statement Schedules
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit Page Number or
Number Description Incorporation by
- ------ ----------- Reference to
-----------------
3.1 Amended and Restated Articles of Exhibit 3.1 to Registration
Incorporation Statement No. 333-18755, filed
December 24, 1996
3.2 By-Laws Exhibit 3.2 to Registration
Statement No. 333-18755, filed
December 24, 1996
4.1 Specimen Common Stock Certificate Exhibit 4.1 to Registration
Statement No. 333-18755, filed
December 24, 1996
10.1 Lease Agreement dated June 10, 1989, Exhibit 10.1 to Registration
Exhibit Page Number or
Number Description Incorporation by
- ------ ----------- Reference to
-----------------
by and between North Bowles Statement No. 333-18755, filed
Partnership and Pluma, Inc. and December 24, 1996
amendment thereto date December 1,
1990
10.2.1 Lease Agreement dated February 1, Exhibit 10.2.1 to Registration
1996, by and between North Bowles Statement No. 333-18755, filed
Partnership and Pluma, Inc. December 24, 1996
10.2.2 Lease Agreement dated December 1, Exhibit 10.2.2 to Registration
1995, by and between North Bowles Statement No. 333-18755, filed
Partnership and Pluma, Inc. December 24, 1996
10.3.1 Form of Credit Agreement Dated as of Exhibit No. 10.1 to
April 23, 1998 Among Pluma, Inc., as Form 10-Q filed for the quarter
Borrowers, and Certain Subsidiaries of the ending June 30, 1998.
Borrowers From Time to Time Party Hereto,
as Guarantors, the Several Lenders From
Time to Time Party Hereto and
NationsBank, N.A., as Agent (the "Credit
Agreement")
10.3.2 First Amendment to Credit Agreement and
Waiver Dated as of August 27, 1998
10.3.3 Second Amendment to Credit Agreement
Dated as of September 30, 1998
10.3.4 Third Amendment to Credit Agreement
Dated as of November 16, 1998
10.3.5 Fourth Amendment to Credit Agreement
Dated as of December 11, 1998
10.3.6 Fifth Amendment to Credit Agreement
Dated as of December 31, 1998
10.3.7 Sixth Amendment to Credit Agreement
Dated as of January 29, 1999
10.3.8 Seventh Amendment to Credit Agreement
Dated as of March 1, 1999
10.3.9 Eighth Amendment to Credit Agreement
Dated as of March 15, 1999
10.3.10 Ninth Amendment to Credit Agreement
Dated as of March 31, 1999
10.3.10a Tenth Amendment to Credit Agreement
Dated as of April 15, 1999
10.3.11 Forbearance Agreement Dated as of
November 16, 1998 Between Pluma, Inc.,
as Borrower and NationsBank, N.A., as
Agent
10.3.12 Amendment to Forbearance Agreement
Dated as of December 31, 1998
10.3.13 Second Amendment to Forbearance
Agreement Dated as of January 29, 1999
10.3.14 Third Amendment to Forbearance
Agreement Dated as of March 1, 1999
10.3.15 Fourth Amendment to Forbearance
Agreement Dated as of March 15, 1999
10.3.16 Fifth Amendment to Forbearance
Agreement Dated as of March 31, 1999
10.3.17 Sixth Amendment to Forbearance Agreement
Dated as of April 15, 1999
10.4 Trademark License Agreement dated Exhibit 10.7 to Registration
July 2, 1996, by and between Pluma, Statement No. 333-18755, filed
Inc. and Kayser Roth Corporation December 24, 1996
10.5 Adoption Agreement #005 Exhibit 10.11 to Registration
Nonstandardized Codess.401(k) Profit Statement No. 333-18755, filed
Sharing Plan by Pluma, Inc. to First December 24, 1996
Union National Bank of North Carolina
dated November 30, 1993 and
Amendments thereto
10.6 1995 Stock Option Plan of Pluma, Inc. Exhibit 10.12 to Registration
Statement No. 333-18755, filed
December 24, 1996
10.7 Form of Incentive Stock Option Exhibit 10.13 to Registration
Agreement by and among Pluma, Inc. Statement No. 333-18755, filed
and the Named Officers December 24, 1996
10.8 Form of Nonstatutory Stock Option Exhibit 10.14 to Registration
Agreement by and among Pluma, Inc. Statement No. 333-18755, filed
and its Directors December 24, 1996
10.9 Pluma, Inc. Non-Qualified Deferred Exhibit 10.15 to Registration
Compensation Plan Statement No. 333-18755, filed
December 24, 1996
10.10 Pluma, Inc. Senior Executive Bonus Exhibit 10.16 to Registration
Plan Statement No. 333-18755, filed
December 24, 1996
10.11 Pluma, Inc. Sales Incentive Plan Exhibit 10.17 to Registration
Statement No. 333-18755, filed
December 24, 1996
42
Exhibit Page Number or
Number Description Incorporation by
- ------ ----------- Reference to
-----------------
10.12.1 License Agreement dated October 9, Exhibit 10.18.1 to Registration
1996 between SAP America, Inc. and Statement No. 333-18755, filed
Pluma, Inc. for license to utilize SAP December 24, 1996
R/3 Software
10.12.2 Professional Services Agreement dated Exhibit 10.18.2 to Registration
October 9, 1996, between SAP Statement No. 333-18755, filed
America, Inc. and Pluma, Inc. for December 24, 1996
installation of R/3 Software
10.13.1 Consulting Agreement dated
December 6, 1996, between Philpott Ball &
Company and Pluma, Inc.
13
Exhibit Page Number or
Number Description Incorporation by
- ------ ----------- Reference to
-----------------
10.14 Form of Employment Agreement by Exhibit 10.21 to Registration
and among Pluma, Inc. and R. Duke Statement No. 333-18755, filed
Ferrell, G. Walker Box, George G. December 24, 1996
Wade, C. Monroe Light, David S.
Green, Walter Helton, Raymond Rea,
Nancy Barksdale, Forrest H. Truitt, II;
Milton A. Barber and Jeffrey D. Cox,
John Beale, Jim Beale and Jeffrey
Robinson, except John Beale and
Jim Beale's agreement provided for
guaranteed bonuses of $50,000 annually
and Jeffrey Robinson's agreement
provides for a $55,000 bonus annually,
to be paid when bonuses are paid to
other executives
10.15 Form of Asset Purchase Agreement Exhibit 1 to Form 8-K filed
among Pluma, Inc., Stardust December 22, 1997
Corporation and John Beale and Linda
Beale dated December 22, 1997
10.16 Form of Asset Purchase Agreement Exhibit 1 to Form 8-K filed
among Pluma, Inc., Frank L. Robinson January 12, 1998
Company and the Partners of Frank L.
Robinson Company dated December
30, 1997
10.17 Letter Agreement Between Ronald A.
Norelli and Pluma, Inc. Dated January 28,
1999 engaging Mr. Norelli to assume the
responsibilities of Chief Executive Officer
of Pluma, Inc.
10.18 Settlement Agreement Dated June 18,
1998 Between Gildan Activewear, Inc. and
Pluma, Inc. for the supply of product
10.19 Agreement and Release Between Pluma,
Inc. and C. Monroe Light Dated February 9,
1999
10.20 Agreement and Release Between Pluma,
Inc. and R. Duke Ferrell, Jr. Dated February
22, 1999
10.21 Representative's Agreement Dated August
18, 1998 Between Pluma, Inc. and the Adair Group
for the sale of irregular products
10.22 Form of Non-Statutory Stock Option
Agreement By and Among Pluma, Inc. and
Certain of its Employees
10.23 Form of Incentive Stock Option Agreement
By and Among Pluma, Inc. and Certain of
its Employees
10.24 Letter Agreement Dated December 29, 1997
Between Pluma, Inc. and Norelli &
Company for the performance of consulting
services
10.25 Letter Agreement Dated February 4, 1998
Between Pluma, Inc. and Norelli &
Company for the performance of consulting
services
10.26 Letter Agreement Dated March 17, 1998
Between Pluma, Inc. and Norelli &
Company for the performance of consulting
services
10.27 Letter Agreement Dated October 1, 1998 Between
Pluma, Inc. and Ronald A. Norelli for the
engagement of Mr. Norelli as Vice Chairman
of the Company's Board of Directors.
11 Statement re: Computation of Per Set forth in Company's Annual
Share Earnings Report attached hereto as
Exhibit 13
24 Power of Attorney (included as the
signature page hereto)
(b) Reports on Form 8-K.
14
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, thereunder duly authorized.
PLUMA, INC.
By: /s/ Ronald A. Norelli
-------------------------
Ronald A. Norelli.,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ Ronald A. Norelli 4-15-98
- ------------------------------------------ ---------------------
Ronald A. Norelli, CEO Date
/s/ George G. Wade 4-12-98
- ------------------------------------------ ---------------------
George G. Wade, President, COO & Secretary Date
/s/ John B. Adams 4-15-98
- ------------------------------------------ ---------------------
John B. Adams, Director Date
/s/ Barry A. Bowles 4-12-98
- ------------------------------------------ ---------------------
Barry A. Bowles, Director Date
/s/ G. Walker Box 4-15-98
- ------------------------------------------ ---------------------
G. Walker Box, Chairman Date
/s/ Kemp D. Box 4-13-98
- ------------------------------------------ ---------------------
Kemp D. Box, Director Date
/s/ C. Monroe Light 4-15-98
- ------------------------------------------ ---------------------
C. Monroe Light, Director Date
/s/ R. Stephens Pannill 4-12-98
- ------------------------------------------ ---------------------
R. Stephens Pannill, Director Date
/s/ J. Robert Philpott, Jr. 4-12-98
- ------------------------------------------ ---------------------
J. Robert Philpott, Jr., Director Date
/s/ William H. Watts 4-12-98
- ------------------------------------------ ---------------------
William H. Watts, VP & CFO Date
/s/ Nancy B. Barksdale 4-12-98
- ------------------------------------------ ------------------
Nancy B. Barksdale, VP & Controller Date
45