<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
June 28, 1997 0-23234
L.A. T SPORTSWEAR, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1724902
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Airport Drive, Ball Ground, Georgia 30107
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 479-1877
-----------------------------
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------------ ------------
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Common Stock, without par value 4,200,001 shares
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Class Outstanding at July 31, 1997
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
L.A. T SPORTSWEAR, INC.
BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
June 28, December 28,
ASSETS 1997 1996
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 390 $ 938
Accounts receivable, net 7,523 7,599
Inventories 25,208 20,561
Income tax receivable 149 1,923
Other current assets 929 774
------- -------
Total current assets 34,199 31,795
PROPERTY, PLANT AND EQUIPMENT - Net 3,986 4,315
OTHER ASSETS 404 409
------- -------
$38,589 $36,519
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,805 $ 4,088
Accounts payable - related parties 1,902 1,049
Current portion of long-term debt 22 22
Accrued expenses 910 948
------- -------
Total current liabilities 10,639 6,107
LONG-TERM DEBT 16,766 18,929
DEFERRED INCOME TAXES 568 502
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares
authorized; no shares issued
Common Stock, no par value; 25,000,000
shares authorized; 4,200,001 shares
issued and outstanding 10,825 10,825
Paid in capital 3,304 3,304
Accumulated deficit (3,513) (3,148)
------- -------
Total stockholders' equity $10,616 $10,981
------- -------
$38,589 $36,519
======= =======
</TABLE>
See notes to unaudited financial statements.
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<PAGE> 3
L.A. T SPORTSWEAR, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
-----------------------------------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $20,267 $30,222 $36,478 $53,566
COST OF GOODS SOLD 16,748 24,213 30,168 43,575
------- ------- ------- -------
Gross Profit 3,519 6,009 6,310 9,991
OPERATING EXPENSES 2,722 4,570 5,749 8,626
------- ------- ------- -------
OPERATING PROFIT 797 1,439 561 1,365
INTEREST EXPENSE 496 591 926 1,194
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 301 848 (365) 171
PROVISION FOR INCOME TAXES -- 322 -- 71
------- ------- ------- -------
NET INCOME (LOSS) $ 301 $ 526 $ (365) $ 100
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE $ 0.07 $ 0.13 $(0.09) $ 0.02
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 4,200 4,200 4,200 4,200
======= ======= ======= =======
</TABLE>
See notes to unaudited financial statements.
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<PAGE> 4
L.A. T SPORTSWEAR, INC.
STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 28, JUNE 29,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (365) $ 100
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 346 430
(Loss) gain on sale or write-off of fixed assets (21) 85
Changes in assets and liabilities providing (using) cash:
Accounts receivable 76 (1,883)
Inventories (4,647) 7,519
Other assets 1,689 54
Accounts payable 4,570 (15)
Accrued expenses 7 (211)
Restructuring reserve (44) (528)
------- -------
Net cash provided by operating activities 1,611 5,551
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (33) (123)
Proceeds from sale of assets 38 110
------- -------
Net cash provided by (used in) investing activities 5 (13)
FINANCING ACTIVITIES:
Borrowings under (repayments of) line of credit, net (2,154) 19,180
Payment of previous line of credit -- (24,119)
Payments of long-term borrowings (10) (1,628)
------- -------
Net cash (used in) provided by financing activities (2,164) 6,567
------- -------
NET CHANGE IN CASH (548) (1,029)
CASH, BEGINNING OF PERIOD 938 2,784
------- -------
CASH, END OF PERIOD $ 390 $ 1,755
======= =======
</TABLE>
See notes to unaudited financial statements.
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<PAGE> 5
L.A. T SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
QUARTERS ENDED JUNE 28, 1997 AND JUNE 29, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
L.A. T Sportswear, Inc. (the "Company") manufactures imprintable and
decorable sportswear and distributes undecorated garments for the imprinted
garment industry. The Company also purchases merchandise from several national
sportswear manufacturers for distribution through seven distribution facilities
located across the United States. The Company's customers consist principally
of single location retailers in the imprintable and decorable sportswear
industry. Such customers operate principally within North America.
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions for Form 10-Q. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 28, 1996. In the opinion of management,
all adjustments (which include only normal recurring adjustments) considered
necessary for a fair presentation of interim results have been included. The
results of operations for the six months ended June 28, 1997 are not
necessarily indicative of the operating results for the full year.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 28, December 28,
1997 1996
<S> <C> <C>
Raw materials $ 730 $ 771
Work-in-process 313 307
Finished goods 24,165 19,483
------- -------
$25,208 $20,561
======= =======
</TABLE>
3. LONG-TERM DEBT
In April 1996, the Company entered into a new credit facility (the
"new facility"). This new facility was subsequently amended in November 1996
and March 1997 to modify certain covenants, waive existing defaults and revise
the maximum borrowing amount and interest rate. The new facility, as amended
(i) provides for maximum borrowings of $25 million, which declines to $20
million (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets) after August 1997, (ii) expires in
the second quarter of 1999, (iii) bears interest at prime plus 1.25%, and (iv)
is secured principally by all the Company's assets. As of June 28, 1997, the
Company had borrowings totaling $16.1 million outstanding under the new
facility and availability to borrow $2.8 million.
4. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS
No. 128"). SFAS No. 128 provides for new accounting principles for the
calculation of earnings per share and is effective for both interim and annual
periods ending after December 15, 1997. Early adoption is not permitted. The
Company does not anticipate that this new pronouncement will have a material
impact on the Company's earnings per share calculations.
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<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
components of the Company's statements of operations expressed as a percentage
of net sales.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
--------------------- ---------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 82.6 80.1 82.7 81.3
----- ----- ----- -----
17.4 19.9 17.3 18.7
Gross profit
Operating expenses 13.5 15.1 15.8 16.2
----- ----- ----- -----
Operating profit 3.9 4.8 1.5 2.5
Interest expense 2.4 2.0 2.5 2.2
----- ----- ----- -----
Income before income taxes 1.5 2.8 (1.0) 0.3
Provision for income taxes -- 1.1 -- 0.1
----- ----- ----- -----
Net income 1.5% 1.7% (1.0)% 0.2%
===== ===== ===== =====
</TABLE>
Second Quarter of 1997 Compared to Second Quarter of 1996
The Company's net sales decreased approximately $9.9 million, or
32.9%, to $20.3 million in the second quarter of 1997 from $30.2 million in the
second quarter of 1996. The decrease in net sales was primarily attributable
to sluggishness in the industry and to the impact of the Company's 1995
restructuring in which its screen print operations were shut down during the
1996 third quarter.
The Company's gross profit decreased approximately $2.5 million, or
41.4%, to $3.5 million for the second quarter of 1997 from $6.0 million in the
second quarter of 1996. As a percentage of net sales, gross profit margin
decreased to 17.4% in the second quarter of 1997 from 19.9% in the second
quarter of 1996. The decline in gross profit is attributable to both the
decrease in net sales and the decrease in gross profit margin. The decline in
gross profit margin was primarily attributable to stiff competition in the
industry and to the fact that sales of the Company's manufactured products,
which have a higher gross margin, decreased to 21.0% of the second quarter
sales in 1997 from 28.0% in the second quarter of 1996.
Operating expenses decreased approximately $1.9 million, or 40.4%, to
$2.7 million in the second quarter of 1997 from $4.6 million in the second
quarter of 1996. The decrease in operating expenses is due primarily to the
Company's closing of its screen print operations in the third quarter of 1996,
as part of a restructuring plan implemented during the 1995 fourth quarter,
and to additional operational streamlining. As a percentage of net sales,
operating expenses decreased to 13.5% in the second quarter of 1997 from 15.1%
in the second quarter of 1996.
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<PAGE> 7
As a result of the decrease in net sales and gross profit margin,
operating profit decreased approximately $642,000, or 44.6%, to approximately
$797,000 in the second quarter of 1997 from $1.4 million in the second quarter
of 1996. As a percentage of net sales, operating profit margin was 3.9% in the
second quarter of 1997, compared to 4.8% in the second quarter of 1996.
Interest expense decreased approximately $95,000, or 16.1%, to
$496,000 in the second quarter of 1997 from $591,000 in the second quarter of
1996, primarily due to reduced borrowings under the Company's line of credit
and as a result of lower accounts receivable and inventories.
Income before income taxes decreased approximately $547,000 to
$301,000 in the second quarter of 1997 from $848,000 in the second quarter of
1996. Income before income taxes as a percentage of net sales declined to 1.5%
in the second quarter of 1997 from 2.8% in the second quarter of 1996.
Net income decreased approximately $225,000 to $301,000 in the second
quarter of 1997 from $526,000 in the second quarter of 1996. Net income as a
percentage of net sales declined to 1.5% in the second quarter of 1997 from
1.7% in the second quarter of 1996.
First Six Months of 1997 Compared to First Six Months of 1996
The Company's net sales decreased approximately $17.1 million, or
31.9%, to $36.5 million in the first six months of 1997 from $53.6 million in
the first six months of 1996. The decrease in net sales was primarily
attributable to sluggishness in the industry and to the impact of the Company's
1995 restructuring in which its screen print operations were shut down during
the 1996 third quarter.
The Company's gross profit decreased approximately $3.7 million, or
36.8%, to $6.3 million for the first six months of 1997 from $10.0 million in
the first six months of 1996. As a percentage of net sales, gross profit
margin decreased to 17.3% in the first six months of 1997 from 18.7% in the
first six months of 1996. The decline in gross profit is attributable to both
the decrease in net sales and the decrease in gross profit margin. The decline
in gross profit margin was primarily attributable to stiff competition in the
industry and to the fact that sales of the Company's manufactured products,
which have a higher gross margin, decreased to 22.0% of the first six months
sales in 1997 from 27.0% in the first six months of 1996.
Operating expenses decreased approximately $2.8 million, or 33.3%, to
$5.8 million in the first six months of 1997 from $8.6 million in the first six
months of 1996. The decrease in operating expenses is due primarily to the
Company's closing of its screen print operations in the third quarter of 1996,
as part of a restructuring plan implemented during the 1995 fourth quarter,
and to additional operational streamlining. As a percentage of net sales,
operating expenses decreased to 15.8% in the first six months of 1997 from
16.2% in the first six months of 1996.
As a result of the decrease in net sales and gross profit margin,
operating profit decreased approximately $804,000, or 58.9% to $561,000 in the
first six months of 1997 from $1.4 million in the first six months of 1996. As
a percentage of net sales, operating profit decreased to 1.5% in the first six
months of 1997 from 2.5% in the first six months of 1996.
Interest expense decreased approximately $268,000, or 22.4%, to
$926,000 in the first six months of 1997 from $1.2 million in the first six
months of 1996, primarily due to reduced borrowings under the Company's line of
credit and as a result of lower accounts receivable and inventories.
Income before income taxes decreased approximately $536,000 to a loss
of $(365,000) in the first six months of 1997 from income of $171,000 in the
first six months of 1996. Income before income taxes as a percentage of net
sales decreased to (1.0)% in the first six months of 1997 from 0.3% in the
first six months of 1996.
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<PAGE> 8
Net income decreased approximately $465,000 to a loss of $(365,000) in
the first six months of 1997 from income of $100,000 in the first six months of
1996. Net income as a percentage of net sales decreased to (1.0)% in the first
six months of 1997 from 0.2% in the first six months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was approximately $1.6 million for the
first six months of 1997 compared to $5.6 million in the first six months of
1996. The net cash provided by operations in the first six months of 1997 was
primarily through the receipt of approximately $2.1 million in income tax
refunds.
In April 1996, the Company entered into a new credit facility (the
"new facility"). This new facility was subsequently amended in November 1996
and March 1997 to modify certain covenants, waive existing defaults and revise
the maximum borrowing amount and interest rate. The new facility, as amended
(i) provides for maximum borrowings of $25 million, which declines to $20
million (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets) after August 1997, (ii) expires in
the second quarter of 1999, (iii) bears interest at prime plus 1.25%, and (iv)
is secured by principally all the Company's assets. As of July 22, 1997, the
Company had borrowings totaling $13.3 million outstanding under the new
facility and availability to borrow $3.7 million.
The Company has incurred operating losses in each of the last two
fiscal years and the first six months of 1997. The Company restructured its
operations in 1996 and 1995 and in addition, the Company has entered into new
borrowing arrangements. Management has developed an operating plan with the
goal of improving operations in 1997 and improving results in subsequent years.
The Company's ability to fund its working capital and capital
expenditure requirements, make interest payments and meet its other cash
requirements depends, among other things, on internally generated funds and the
continued availability of and compliance with the terms of its credit facility.
Management further believes that internally generated funds and funds available
from the Company's line of credit will be sufficient to meet the Company's
capital requirements and operating needs in fiscal 1997. However, if there is
a significant reduction of internally generated funds or the Company is unable
to meet the operating projections used in amending the credit facility, the
Company may require additional funds from outside financing sources. In such
event, there can be no assurance that the Company will be able to obtain such
funding as and when required or on acceptable terms.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, such as statements relating to financial results and plans for future
business development activities, and are thus prospective. Such
forward-looking statements are subject to risks, uncertainties and other
factors which could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements. Potential
risks and uncertainties include, but are not limited to, economic conditions,
competition and other uncertainties detailed from time to time in the Company's
Securities and Exchange Commission filings.
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<PAGE> 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters for Vote of Security Holders
On May 22, 1997, the Company held its 1997 Annual Meeting of Shareholders. At
the meeting, the following persons were elected to serve on the Company's Board
of Directors for a term of one year and until their successors are elected and
have qualified. Isador E. Mitzner, J. David Keller, Kenneth L. Bernhardt and
Irwin Lowenstein. The number of votes cast for each director and the number of
shares withholding authority to vote in favor is set forth below with respect
to each division:
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
Isador E. Mitzner 3,822,844 51,313
J. David Keller 3,823,094 51,063
Kenneth Bernhardt 3,823,094 51,063
Irwin Lowenstein 3,823,094 51,063
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended June 28, 1997.
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<PAGE> 10
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.
L.A. T SPORTSWEAR, INC.
Dated: August 5, 1997 By: /s/ Isador E. Mitzner
---------------------------
Isador E. Mitzner, Chairman
and Chief Executive Officer
Dated: August 5, 1997 By: /s/ John F. Hankinson
---------------------------
John F. Hankinson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 390
<SECURITIES> 0
<RECEIVABLES> 9,398
<ALLOWANCES> 1,875
<INVENTORY> 25,208
<CURRENT-ASSETS> 34,199
<PP&E> 7,342
<DEPRECIATION> 3,356
<TOTAL-ASSETS> 38,589
<CURRENT-LIABILITIES> 10,639
<BONDS> 16,766
0
0
<COMMON> 10,825
<OTHER-SE> (209)
<TOTAL-LIABILITY-AND-EQUITY> 38,589
<SALES> 36,478
<TOTAL-REVENUES> 36,478
<CGS> 30,168
<TOTAL-COSTS> 30,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 253
<INTEREST-EXPENSE> 926
<INCOME-PRETAX> (365)
<INCOME-TAX> 0
<INCOME-CONTINUING> (365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (365)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
