<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission file number 1-8176
LITTLEFIELD, ADAMS & COMPANY
(Exact name of registrant as specified in its charter)
New Jersey #22-1469846
---------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
253 North First Avenue, Sturgeon Bay, Wisconsin 54235-2551
(Address of principal executive offices, and Zip Code)
Registrant's telephone number, including area code (414) 743-8743
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES_____ NO__X__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1995
----- ---------------------------------
Common Stock, par value 2,279,647 shares
$1.00 per share
<PAGE> 2
LITTLEFIELD, ADAMS & COMPANY
<TABLE>
<CAPTION>
INDEX Page No.
----- --------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Report of Independent Accountants 3
Consolidated Balance Sheets-
September 30, 1995 and December 31, 1994 4
Consolidated Statements of Operations -
for the three months and nine months ended
September 30, 1995 and 1994 5
Consolidated Statements of Cash Flow -
for the nine months ended
September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management Discussion and Analysis of
Financial Condition and Results of Operations 16
Part II. Other Information
Item 1. Legal Proceedings 18
Signatures 19
</TABLE>
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 2
<PAGE> 3
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Littlefield, Adams & Company:
We have reviewed the accompanying consolidated balance sheet of Littlefield,
Adams & Company (a New Jersey corporation) and subsidiaries (the Company) as of
September 30, 1995, and the related consolidated statements of operations for
the three-month and the nine-month periods ended September 30, 1995, and the
statement of cash flows for the nine-month period ended September 30, 1995.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
------------------------
Arthur Andersen LLP
San Antonio, Texas
November 8, 1995
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 3
<PAGE> 4
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash $ 81 $ 221
Accounts receivable:
Trade, less allowance of $246 at 9/30/95 and
$329 at 12/31/94 2,726 2,792
Affiliates 75 150
Other 677 238
Inventories 3,684 3,624
Prepaid expenses and other current assets 184 275
------- -------
Total current assets 7,427 7,300
Property, plant and equipment, net 1,171 1,254
Goodwill - net 543 599
Notes receivable and other assets 40 79
------- -------
TOTAL ASSETS $ 9,181 $ 9,232
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable $ 1,917 $ 2,147
Accrued expenses 2,061 2,579
Notes payable 56 10
Revolving lines of credit 2,466 1,136
Current portion of long-term debt 477 523
------- -------
Total current liabilities 6,977 6,395
Creditors' debt settlement 3 205
Long-term debt, less current portion 12 14
Deferred compensation 53 46
Class action settlement payable in common stock 1,400 1,400
Commitments & contingencies -- --
Shareholders' investment:
Common stock, $1.00 par; authorized 25,000,000;
issued 2,296,145 for 1995 and 2,371,145 for 1994;
outstanding 2,279,647 for 1995 and 2,277,267 for 1994. 2,296 2,371
Capital in excess of par value 5,406 5,474
Accumulated deficit (6,863) (6,583)
------- -------
839 1,262
Treasury stock, at cost - shares of 16,498 for
1995 and 18,878 for 1994. (103) (90)
------- -------
736 1,172
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 9,181 $ 9,232
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 4
<PAGE> 5
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 3 months ended For the 9 months ended
September 30, September 30,
------------------------ ---------------------------
1995 1994 1995 1994
-------- ------- ------- --------
(DOLLARS IN THOUSANDS, (DOLLARS IN THOUSANDS,
Except per share amounts) Except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 3,412 $ 7,291 $ 12,686 $ 19,847
Other revenues 53 55 212 172
---------- ---------- ---------- ----------
Total revenues 3,465 7,346 12,898 20,019
Costs & expenses:
Cost of products sold 2,567 4,868 8,750 13,560
Selling & administrative 1,419 1,782 4,638 5,097
---------- ---------- ---------- ----------
Total costs and expenses 3,986 6,650 13,388 18,657
---------- ---------- ---------- ----------
Income (loss) from operations (521) 696 (490) 1,362
Other income (expense):
Gain on sale of property, plant and equipment 29 -- 29 --
Interest (68) (108) (221) (315)
Litigation settlement, net 366 -- 366 --
---------- ---------- ---------- ----------
327 (108) 174 (315)
Income (loss) before provision for income taxes (194) 588 (316) 1,047
Provision for income taxes (4) 119 (36) 224
---------- ---------- ---------- ----------
Net income (loss) $ (190) $ 469 $ (280) $ 823
========== ========== ========== ==========
Weighted average common shares outstanding 2,274,373 2,326,871 2,274,373 2,326,871
========== ========== ========== ==========
Net income (loss) per share $ (0.08) $ 0.20 $ (0.12) $ 0.35
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 5
<PAGE> 6
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 9 months ended September 30,
1995 1994
------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (280) $ 823
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 395 241
Gain on sale of property, plant and equipment (29) (1)
Changes in operating assets and liabilities:
Accounts and notes receivable, net (386) (720)
Inventories, net (60) 469
Prepaid expenses and other current assets 22 (49)
Accounts payable (230) (565)
Accrued expenses and other (511) 441
-------- --------
Net cash (used in) provided by operating activities (1,079) 639
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 104 1
Purchase of property, plant, and equipment (218) (283)
Decrease in notes receivable and other assets 1 125
-------- --------
Net cash used in investing activities (113) (157)
Cash flows from financing activities:
Decrease in bank overdraft -- (24)
Proceeds from line of credit and short term borrowings 13,591 17,033
Repayments of line of credit and short term borrowings (12,261) (17,042)
Payment on creditors' settlement debt (202) (202)
Proceeds from bank and other notes payable 93 --
Repayment of bank and other notes payable (101) (138)
Cost to purchase treasury stock (68) --
-------- --------
Net cash provided by (used in) financing activities 1,052 (373)
-------- --------
Net increase (decrease) in cash (140) 109
Cash at beginning of period 221 --
-------- --------
Cash at end of period $ 81 $ 109
======== ========
Supplemental disclosures of cash flows Information:
Cash paid during the period for interest $ 228 $ 317
Cash paid during the period for income taxes $ 322 $ 87
In May 1995, the Company received 7,974 shares of its own stock which satisfied a receivable of $88.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 6
<PAGE> 7
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the
accounts of Littlefield, Adams & Company and its subsidiaries, Medical Sales
Associates, Inc., Cornerstone Laboratories, Inc., and NUTECH, Inc. ("the
Company"). The former wholly owned subsidiaries, Collegiate Pacific Company
and Sports Imprints, Inc. were merged into Littlefield, Adams & Company
effective June 30, 1995. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The consolidated balance sheet at September 30, 1995, and the
consolidated statements of operations and cash flows for the interim periods
ended September 30, 1995 and 1994 have been prepared by the Company without
audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the consolidated
financial position, results of operations and cash flows have been made.
However, it should be understood that accounting measurements at interim dates
may be less precise than at year end. The results of operations for the interim
periods are not necessarily indicative of the operating results for a full year
or of future operations.
Certain information normally included in financial statements prepared
in accordance with generally accepted accounting principles has been condensed
or omitted. The accompanying consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
Certain reclassifications of prior year amounts have been made to
conform to current year presentation.
NOTE 2. NATURE OF BUSINESS
The Company is principally engaged in the imprinting and distribution
of athletic and leisure wear products. The Company, in the course of
conducting its operations, sells to customers in various markets such as major
nationwide retailers, college bookstores, resort areas and theme parks across
the United States.
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Land $ 95 $ 95
Building and improvements 904 902
Machinery and equipment 1,710 2,343
----- -----
2,709 3,340
Less: Accumulated depreciation
and amortization (1,538) (2,086)
----- -----
$1,171 $1,254
====== ======
</TABLE>
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 7
<PAGE> 8
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 4. REVOLVING LINES OF CREDIT
On January 17, 1992, Collegiate Pacific Company entered into a line of
credit agreement with the Bank of Floyd, Virginia for a maximum principal
amount of $750 payable on demand, but not less than monthly payments of .25% of
the outstanding principal balance and accrued interest. Effective August 29,
1994, the Bank of Floyd reduced the maximum principal amount available to $500
payable on demand. In addition, the Bank of Floyd set the interest rate on the
line of credit at prime plus 1%. The Company is required to make monthly
payments of .25% of the outstanding principal balance and accrued interest
until the line is paid in full. Collateral consists of all of the plant and
equipment of Collegiate Pacific Company and is guaranteed by Littlefield, Adams
& Company. At September 30, 1995, there is no remaining availability under
this line of credit.
On September 16, 1992, Collegiate Pacific Company signed an agreement
for a $3,000 revolving line of credit with Fremont Financial Corporation. The
line of credit was for accounts receivable and inventory financing and required
accounts receivable to be less than 90 days outstanding to be eligible
collateral. As of August 1, 1995, the agreement with Fremont was terminated
and the balance was paid off.
The Company has an accounts receivable financing agreement with
Merchant Factors Corp. which expires January 31, 1996, and which allows the
Company to borrow up to 75% of qualified net accounts receivable. The balance
due at September 30, 1995, is approximately $1,980 and is due currently as
receivables are collected. The agreement bears interest at prime plus 5%;
however, the Company does not pay any financing fees. Furthermore, the
Company's inventory and machinery and equipment are collateral for additional
borrowing. Currently, the Company has a verbal agreement which sets the
maximum amount of this additional borrowing at $600. At September 30, 1995,
the remaining availability from Merchant Factors Corp. was approximately $70.
<TABLE>
<CAPTION>
Outstanding balances are as follows: September 30, December 31
1995 1994
---- ----
<S> <C> <C>
The Bank of Floyd $ 486 $ 499
Fremont Financial Corporation -- 373
Merchant Factors 1,980 264
----- ---
$2,466 $1,136
====== ======
</TABLE>
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 8
<PAGE> 9
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 5. LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Long-term debt balances are as follows:
Mortgage payable, principal callable after
January 1995, interest at 9.38%, due July 1, 2003,
payable monthly, collateralized by real property $258 $275
Note payable to a bank, principal callable on demand,
due September 1, 1999, interest at 8.75%, payable
monthly, collateralized by machinery and equipment 208 240
Other 22 22
-- --
Total debt 488 537
Less - current portion 477 523
--- ---
$ 11 $ 14
Following are the maturities of long-term debt outstanding at September 30, 1995.
Current $477
1996 5
1997 5
1998 1
-
$488
====
</TABLE>
The schedule above reflects the classification of the mortgage payable
and the note payable to a bank as current maturities of long-term debt. The
Company believes the likelihood of the mortgage payable and the note payable
being called is remote and that the obligations will be satisfied by scheduled
payments through July 2003 and 1999, respectively. As discussed in Note 11,
the Company is attempting to sell the property related to the mortgage. When
the property is sold, the mortgage will be paid off. The carrying value of
total debt approximates fair market value at September 30, 1995 and December
31, 1994.
NOTE 6. CREDITORS' DEBT SETTLEMENT
In July 1991 Sports Imprints, Inc. entered into a plan of
reorganization with its creditors and a bank pursuant to Chapter 11 of the U.S.
Bankruptcy Code. The plan was confirmed in February 1992 and as a result,
Sports Imprints, Inc. negotiated a payment plan with its creditors that
includes extending payments through 1996. Of the total $273 to be repaid as of
September 30, 1995, $270 is included in accrued expenses and the remaining
balance is shown as creditors' debt settlement in the accompanying consolidated
financial statements.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 9
<PAGE> 10
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 7. COMMON STOCK
As of September 30, 1995, the Company had issued a total of 2,296,145
shares of its common stock. Treasury stock consisted of 16,498 shares, making a
total of 2,279,647 shares outstanding.
As of December 31, 1994, the Company had issued a total of 2,371,145
shares of its common stock. Treasury stock consisted of 18,878 shares and
75,000 shares were held in escrow, making a total of 2,277,267 shares
outstanding.
NOTE 8. RELATED PARTY TRANSACTIONS
For the nine months ending September 30, 1995 and 1994, the Company
paid approximately $33 and $34, respectively, in sales commissions to JSA,
Inc., a sales and marketing company founded by John K. Stuth, former Chairman
of the Board of Directors, Chief Executive Officer and President of
Littlefield, Adams & Company. The relationship between the Company and JSA,
Inc. has been terminated.
During the nine months ending September 30, 1995 and 1994, the Company
paid approximately $95 and $46, respectively, in legal fees and reimbursed
expenses to David M. Simmonds, Esquire. Mr. Simmonds, who is a member of the
Board of Directors, also serves as general counsel for the Company. Mr.
Simmonds was elected President of the Company by the Board of Directors on May
30, 1995, and Chief Executive Officer of the Company and interim Chairman of
the Board on July 12, 1995. As a result, Mr. Simmonds is now compensated as an
employee.
NOTE 9. LEGAL MATTERS - (A more detailed description of these matters is set
forth in the Company's 1994 Form 10-K.)
SEC Investigation-
An enforcement action entitled Securities and Exchange Commission v.
Younts, et. al., was filed in the United States District Court for the District
of Columbia in June, 1995. The Company and two of its former officers are
named as defendants. As a result of a settlement agreement reached prior to
the filing of the suit, which was approved by the Securities and Exchange
Commission, the Company, without admitting or denying the substantive
allegations of the complaint, agreed to the entry of a consent decree and
judgment which enjoins the Company from violating certain federal securities
laws and regulations in the future. As a result of this settlement and the
judgment entered by the Court, which requires no monetary payment by the
Company, the claims against the Company are fully settled.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 10
<PAGE> 11
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Securities Class Action-
The Company and certain of its current and past officers and
directors, and others, have been named as defendants in three actions brought
by individual plaintiffs, purportedly representing persons who purchased
securities of the Company during the period from July 1, 1991 through May 17,
1994. These actions have been consolidated for discovery and pretrial purposes
in the United States District Court for the Western District of Texas and are
captioned In re Littlefield, Adams & Co. Securities Litigation, Civil Action
No. SA 93 CA 0561 ("Consolidated Action"). The plaintiffs allege that the
Company and certain of its current and past officers and directors, and others,
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10(b)-5 promulgated thereunder, as a result of alleged misrepresentations
and omissions in connection with the annual report for 1992, the 1993 quarterly
reports, and certain press releases. The complaint also alleges a claim for
treble-damages under the Racketeer Influenced and Corrupt Organization Act, 18
U.S.C. Sec. 1964. The amount of damages sought is not specified. On February
21, 1995, the Company reached an agreement with the plaintiffs to settle these
claims, as well as certain related claims involving other parties. Under the
terms of this agreement, which is subject to court approval, the Company will
issue $1,400 in stock and pay $210 in cash to the members of the class to
settle the claims brought by the securities plaintiffs. In return, the Company
will receive releases from the plaintiffs and the other defendants. A motion
for preliminary approval of the settlement has been filed, but no hearing date
has been set for the Court for final approval of the settlement. If the
settlement is approved, the Company will receive $360 from the settlement of a
related matter.
During the third quarter, certain parties referred to in the February
21, 1995 Settlement Agreement as "the Younts Group" filed a motion with the
Court seeking reformation of the terms of the Agreement. A counter motion has
been filed in which the Court is being requested to enforce the terms of a
final settlement agreement against the Younts Group. The Court has not yet
ruled on either motion.
Littlefield, Adams & Company v. Younts, et al.-
This action was filed in the Texas District Court in the 57th Judicial
District, Bexar County, Texas, by the Company against its former Chairman,
Curtis A. Younts, Jr., his wife, and various of their affiliated entities
seeking the immediate repayment of $912 and other amounts alleged to have been
misappropriated by the defendants. Younts filed a counterclaim against the
Company seeking compensation for an unstated amount for services and expense
funds he claims to have provided the Company. The Company denies that it owes
any amount to Younts. The parties have agreed to dismiss this case once the
settlement in the Class Action becomes final.
Curtis A. Younts, Jr. v. Littlefield, Adams & Company, et al.-
This action was filed in the Texas District Court in the 169th
Judicial District, Bell County, Texas, against the Company and one of its
officers by its former Chairman, Curtis A. Younts, Jr. Younts seeks an
unspecified amount for the reasonable value of his services, allegedly rendered
on behalf of the Company since 1991. The Company denies that it owes any
amount to Younts. The parties have agreed to dismiss this case once the
settlement in the Class Action becomes final.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 11
<PAGE> 12
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Charlotte E. Picard, Derivatively on Behalf of Littlefield, Adams & Company,
v. Curtis A. Younts, Jr., et al.-
This action was filed in the United States District Court, Western
District of Texas on June 29, 1994. The Company is named as a nominal
defendant. The complaint alleges that certain current and former officers and
directors of the Company, some of the Company's former lawyers, and the
Company's former auditors "damaged LFA by causing or permitting LFA to commit
securities fraud and by damaging or destroying the Company's reputation." The
parties to this action, with the exception of certain of the Company's former
lawyers, have agreed to settle this action. Under the terms of this agreement,
which is subject to court approval, the Company's former auditors will pay $130
to the Company and the Company will issue $50 in stock to those former auditors
in settlement of claims for fees. In addition, (1) John K. Stuth, the Company's
former Chairman of the Board, President and CEO will relinquish back to the
Company rights that he has to 5,000 shares of LFA stock and rights that he has
to an option to acquire 50,000 shares of LFA stock; (2) Director Stanley
Halbreich will relinquish back to the Company rights that he has to 5,000
shares of LFA stock; and (3) former President Wade Hudman will return 1,000
shares of LFA stock to the Company. The counsel for the plaintiffs in this
action has stated that he will ask the Court to award the entire $130 cash
payment to him as attorneys fees. The Company will oppose that request.
Littlefield, Adams & Company v. Jeffers, Brook, Kreager & Gragg, et al.-
This action was filed in the United States District Court for the
Western District of Texas in May 1995, by the Company against its former
attorneys, as described in the Company's June 30, 1995 Form 10-Q. The Company
and the defendants settled this case during the third quarter. Pursuant to the
agreement among the parties, the terms of the settlement are confidential.
Littlefield, Adams & Company v. Midlantic National Bank
This action was filed in the Texas District Court in the 131st
Judicial District, Bexar County, Texas, by the Company against its transfer
agent. The suit alleges various acts of wrongdoing which facilitated the
improper issuance and/or transfer of Company stock. The complaint seeks actual
damages in excess of $765 and additional damages and attorneys' fees under the
Texas Deceptive Trade Practices Act.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 12
<PAGE> 13
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 10. CONCENTRATION OF SALES AND CREDIT RISK
Significant Customers-
The Company manufactures and sells imprinted apparel to companies in
the retail industry. Sales to one retail customer which individually exceeded
ten percent of consolidated revenue totaled 66% for the nine months ended
September 30, 1995 and 39% for the nine months ended September 30, 1994. The
Company's customers are primarily reputable national and regional retail
chains. The Company mitigates credit risk by performing ongoing credit
evaluations on its customers. Historically, bad debt expense has been within
management's expectations.
Trade receivable balances relating to this customer were approximately
$2,411 at September 30, 1995 and $1,255 at December 31, 1994.
Significant Licensors-
The Company has obtained licenses from most of the major colleges and
universities in the United States. The Company also holds several licenses for
such highly recognizable entities as Harley-Davidson, Warner Brothers "Looney
Tunes" characters and "NASCAR." These licenses are typically non-exclusive and
generally have a term of one year. The Company has historically been able to
renew the contracts from its significant licensors. There are no assurances
that such licenses can or will be extended beyond the expiration dates shown
below. The following is a list of significant licenses held by the Company as
of September 30, 1995, and their respective expiration dates:
<TABLE>
<CAPTION>
LICENSOR EXPIRATION
-------- ----------
<S> <C>
Harley-Davidson December 1995
Warner Brothers "Looney Tunes"/Collegiate Licensing Company December 1995
Warner Brothers "Looney Tunes"/NASCAR December 1995
NASCAR December 1995
The University of Notre Dame December 1995
The National Pastime December 1996
Laguna December 1997
Outer Limits December 1997
Tales From The Crypt December 1997
</TABLE>
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 13
<PAGE> 14
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARD IN THOUSANDS)
Harley-Davidson licensed sales accounted for 87% and 76% of total
sales for the nine months ended September 30, 1995 and 1994, respectively. The
Company is uncertain about its future business relationship with
Harley-Davidson and is unable to determine if its current licensing agreement
with Harley-Davidson, which expires on December 31, 1995, will be renewed. The
Company has developed, and will continue to pursue, new licensing
opportunities. If, however, the Company is unable to continue its relationship
with Harley-Davidson, it would have a material adverse effect on its future
results of operations. In that event, if the Company cannot generate
sufficient revenues from sales of other licensed products, it is probable that
the Company will not be able to continue as a going concern. There can be no
assurances that the Company's financial resources (as described in Notes 4 and
5) will be adequate to support existing operations until such time, if ever,
sales levels from other licensed products are sufficient to generate positive
cash flow from operations. This factor raises substantial doubt concerning the
ability of the Company to continue as a going concern. The ability of the
Company to continue as a going concern is dependent upon the ongoing support of
its stockholders, customers, and creditors, and its ability to continue the
Harley-Davidson licensing agreement under virtually the same terms and
conditions as the current year, or its ability to generate sufficient revenues
from sales of other licensed products.
The Company has scheduled discussions with Harley-Davidson with
respect to its future business relationship. No assurance can be given as to
the outcome of these discussions.
NOTE 11. SALE OF COLLEGIATE PACIFIC ASSETS
During the three months ended September 30, 1995, the Company ceased
operations at the Roanoke, Virginia facility and commenced liquidating the
assets of such facility. Property, plant and equipment with a net book value
of $82, were sold, along with inventory and supplies related to the felt
products and embroidery operations. As of September 30, 1995, the Company has
received a total of $181 in connection with these sales, and assigned a capital
lease liability of $4 to a third party. A $29 gain on the sale of the fixed
assets was recorded in the third quarter. The remaining Collegiate Pacific
assets, including the land and building, will be sold as soon as acceptable
offers are obtained. The Collegiate Pacific inventory remaining at September
30, 1995 was transferred to the Sports Imprints, Dayton, Ohio facility during
the fourth quarter and will be utilized in production.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 14
<PAGE> 15
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
MANAGEMENT'S DICUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL SOURCES
Net cash flows used in or provided by operating activities during the
first three quarters of 1995 and 1994 amounted to $(1,079,000) and $639,000,
respectively. Investing activities in 1995 primarily related to the
acquisition of $227,000 of property, plant, and equipment, including $9,000
through capital lease arrangements. Financing activities centered around the
Company's revolving lines of credit whose combined balances increased by
$1,330,000 during the first nine months of 1995 (Note 4).
The Company has pledged its inventory and machinery and equipment in
order to secure additional borrowing. Currently, the Company has a verbal
agreement which sets the maximum amount of this additional borrowing at
$600,000. By closing its Collegiate Pacific facility in Roanoke, Virginia, and
if the Company is successful in reducing its existing inventory levels during
the balance of the fourth quarter, then management believes that the Company
will have sufficient working capital to meet its needs through the end of the
year (Note 4).
As of August 1, 1995, the agreement with Fremont Financial Corporation
was terminated and the balance was paid off (Note 4).
The table below is a summary of the consolidated statement of cash
flows for the nine months ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
For the nine months ended
September 30,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Net cash (used in) provided by operating activities $(1,079,000) $ 639,000
Net cash used in investing activities (113,000) (157,000)
Net cash provided by (used in) financing activities 1,052,000 (373,000)
----------- ---------
Net (decrease) increase in cash (140,000) 109,000
Cash at beginning of year 221,000 --
----------- ---------
Cash at end of period $ 81,000 $ 109,000
=========== =========
</TABLE>
For the first nine months of 1995, the Company borrowed a total of
$13,684,000 and repaid $12,564,000. Additionally, the Company utilized $68,000
to purchase treasury stock. This resulted in a net increase of $1,052,000 from
financing activities. During the nine months ended September 30, 1995, there
was a net decrease in cash of $140,000.
To effect management's plan of closing the Collegiate Pacific
facility, the Company has begun selling off its fixed assets. During the
quarter, $104,000 were received for the sale of fixed assets. The Company sold
all inventories and supplies relating to pennants and banners at net carrying
value. The total cash received for all the above assets was $181,000 (Note 11).
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 15
<PAGE> 16
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the third quarter of 1995 were $3,412,000, compared to
$7,291,000 for the third quarter of 1994. Net sales for the first three
quarters of 1995 were $12,686,000, compared to $19,847,000 for the first three
quarters of 1994.
The decrease in sales for the third quarter was primarily as a result
of a general continued softening of apparel sales at the retail level. As a
result, the inventories at September 30, 1995 were $3,684,000 compared to the
inventories at December 31, 1994 of $3,624,000; an increase of approximately
2%. For the first nine months of 1995, inventory turnover was approximately
3.2 turns per year compared to 6.0 turns per year for the same period in 1994.
Management is making every effort to reduce its inventory by year end.
Gross profit margins for the third quarter were 25% compared to 26% in
the second quarter and 33% in the 1994 third quarter. The reason for the lower
margins was that some sales were made at lower than normal list prices. Year
to date in 1995 and 1994, gross profit margins were 31% and 32%, respectively.
Bookings for shipments in the fourth quarter are approximately
$3,150,000 as compared to $5,000,000 a year ago.
Cash flow was adversely impacted during the third quarter because of a
decrease in sales and increased inventories.
As part of a restructuring plan, effective June 30, 1995, Sports
Imprints, Inc. and Collegiate Pacific Company converted from wholly-owned
subsidiary corporations and merged into Littlefield, Adams & Company. This
change will significantly reduce the base on which certain income tax
obligations are calculated, and, correspondingly, reduce the Company's income
tax liabilities.
Selling and administrative expenses for the third quarter were
$1,419,000 compared to $1,782,000 for the third quarter of 1994, a decrease of
20%. Year to date selling and administrative expenses were $4,638,000 and
$5,097,000 for 1995 and 1994, respectively.
Royalties for the third quarter of 1995 were $399,000 compared to
$544,000 for the third quarter of 1994. As a percentage of sales, the
royalties for the third quarter were 11.7% compared to 8.4% last year.
Royalties for the first nine months of 1995 were $1,499,000 compared to
$1,810,000 for 1994. In 1995, royalties were 11.8% of sales versus 9.1% of
sales for 1994.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 16
<PAGE> 17
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Professional fees in the 1995 and 1994 third quarters were $179,685
and $363,282, respectively. Nine months professional fees amounted to $663,640
this year against $1,014,580 last year.
Harley-Davidson licensed sales accounted for 87% and 76% of total
sales for the nine months ended September 30, 1995 and 1994, respectively. The
Company is uncertain about its future business relationship with
Harley-Davidson and is unable to determine if its current licensing agreement
with Harley-Davidson, which expires on December 31, 1995, will be renewed. The
Company has developed, and will continue to pursue, new licensing
opportunities. If, however, the Company is unable to continue its relationship
with Harley-Davidson, it would have a material adverse effect on its future
results of operations. In that event, if the Company cannot generate
sufficient revenues from sales of other licensed products, it is probable that
the Company will not be able to continue as a going concern. There can be no
assurances that the Company's financial resources (as described in Notes 4 and
5) will be adequate to support existing operations until such time, if ever,
sales levels from other licensed products are sufficient to generate positive
cash flow from operations. This factor raises substantial doubt concerning the
ability of the Company to continue as a going concern. The ability of the
Company to continue as a going concern is dependent upon the ongoing support of
its stockholders, customers, and creditors, and its ability to continue the
Harley-Davidson licensing agreement under virtually the same terms and
conditions as the current year, or its ability to generate sufficient revenues
from sales of other licensed products.
The Company has scheduled discussions with Harley-Davidson with
respect to its future business relationship. No assurance can be given as to
the outcome of these discussions.
Because of the unanticipated continued softness in retail apparel
sales and the corresponding effect on the Company's third quarter results, it
is doubtful that the Company will be profitable for calendar year 1995.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 17
<PAGE> 18
LITTLEFIELD, ADAMS & COMPANY
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS:
The Company is involved in various legal proceedings.
Information required by this Item is included in Note 9 to the
interim Consolidated Financial Statements, which information
is incorporated herein by reference.
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITTLEFIELD, ADAMS & COMPANY
(Registrant)
Date: November 14, 1995 /S/ DAVID M. SIMMONDS /S/
-----------------------------
David M. Simmonds
Interim Chairman, President,
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1995 /S/ STANLEY I. HALBREICH /S/
-------------------------------
Stanley I. Halbreich
Chief Financial Officer, Treasurer
(Principal Financial & Accounting
Officer)
Littlefield, Adams & Company, September 30, 1995 Form 10-Q; Page 19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 81
<SECURITIES> 0
<RECEIVABLES> 2,972
<ALLOWANCES> 246
<INVENTORY> 3,684
<CURRENT-ASSETS> 7,427
<PP&E> 2,709
<DEPRECIATION> 1,538
<TOTAL-ASSETS> 9,181
<CURRENT-LIABILITIES> 6,977
<BONDS> 12
<COMMON> 2,296
0
0
<OTHER-SE> (1,560)
<TOTAL-LIABILITY-AND-EQUITY> 9,181
<SALES> 12,686
<TOTAL-REVENUES> 12,898
<CGS> 8,750
<TOTAL-COSTS> 8,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> (221)
<INCOME-PRETAX> (316)
<INCOME-TAX> (36)
<INCOME-CONTINUING> (280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (280)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
<FN>
<F1>Bad debt expense of 240 is included in the 4,638 reported as Selling and
Administrative expenses.
</FN>
</TABLE>
