<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:
October 3, 1998 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
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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 November 10, 1998
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
L.A. T SPORTSWEAR, INC.
BALANCE SHEETS
(In thousands except share data)
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<TABLE>
<CAPTION>
OCTOBER 3, DECEMBER 27,
ASSETS 1998 1997
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 629 $ 177
Accounts receivable, net 8,415 5,523
Inventories 20,742 18,329
Other current assets 324 495
-------- --------
Total current assets 30,110 24,524
PROPERTY, PLANT AND EQUIPMENT - Net 3,338 3,749
OTHER ASSETS 187 466
-------- --------
$ 33,635 $ 28,739
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,935 $ 5,524
Current portion of long-term debt 24 23
Accrued expenses 986 695
-------- --------
Total current liabilities 10,945 6,242
LONG-TERM DEBT 11,236 11,732
OTHER LONG TERM LIABILITIES 34 530
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 (2,709) (3,894)
-------- --------
Total stockholders' equity 11,420 10,235
-------- --------
$ 33,635 $ 28,739
======== ========
</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)
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<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------- -------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
(13 weeks) (13 weeks) (40 weeks) (39 weeks)
<S> <C> <C> <C> <C>
NET SALES $22,856 $19,819 $63,270 $ 56,297
COST OF GOODS SOLD 19,261 16,632 52,989 46,800
------- ------- ------- --------
Gross Profit 3,595 3,187 10,281 9,497
OPERATING EXPENSES 2,750 2,644 8,092 8,392
------- ------- ------- --------
OPERATING PROFIT 845 543 2,189 1,105
INTEREST EXPENSE 302 343 935 1,269
------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES 543 200 1,254 (164)
PROVISION FOR INCOME TAXES 62 16 69 16
------- ------- ------- --------
NET INCOME (LOSS) $ 481 $ 184 $ 1,185 $ (180)
======= ======= ======= ========
BASIC NET INCOME (LOSS) PER SHARE $ 0.11 $ 0.04 $ 0.28 $ (0.04)
DILUTED NET INCOME (LOSS) PER SHARE $ 0.11 $ 0.04 $ 0.28 $ (0.04)
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING 4,200 4,200 4,200 4,200
AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 4,228 4,200 4,207 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)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
OCTOBER 3, SEPTEMBER 27,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,185 $ (180)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 406 482
Gain (loss) on sale or write-off of fixed assets 43 (20)
Changes in assets and liabilities providing (using) cash:
Accounts receivable (2,892) 111
Inventories (2,413) (1,342)
Other assets 7 1,844
Accounts payable 4,411 3,905
Accrued expenses 238 9
------- -------
Net cash provided by operating activities 985 4,809
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (61) (41)
Proceeds from sale of assets 23 46
------- -------
Net cash (used in) provided by investing activities (38) 5
FINANCING ACTIVITIES:
Repayments of line of credit, net (478) (5,399)
Payments of other long-term borrowings (17) (15)
------- -------
Net cash (used in) financing activities (495) (5,414)
------- -------
NET CHANGE IN CASH 452 (600)
CASH, BEGINNING OF PERIOD 177 938
------- -------
CASH, END OF PERIOD $ 629 $ 338
======= =======
</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 OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
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 six 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 27, 1997. 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 nine months ended October 3, 1998 are not necessarily
indicative of the operating results to be expected for the full year.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
October 3, December 27,
1998 1997
<S> <C> <C>
Raw materials $ 992 $ 1,087
Work-in-process 487 415
Finished goods 20,669 18,167
Reserves (1,406) (1,340)
-------- --------
$ 20,742 $ 18,329
======== ========
</TABLE>
3. LONG-TERM DEBT
In April 1996, the Company entered into a new credit facility (the
"Credit Facility"). The Credit Facility was subsequently amended in November
1996, March 1997, November 1997 and March 1998. The Credit Facility, as amended
(i) provides for maximum borrowings of $15 million (subject to certain
collateral restrictions based on eligible receivables, inventories and fixed
assets), (ii) expires on March 31, 2001, (iii) bears interest at prime plus
1.00%, and (iv) is secured principally by all the Company's assets. As of
October 3, 1998, the Company had borrowings totaling $10.6 million outstanding
under the Credit Facility and availability to borrow $4.2 million.
In May 1998 the Company had an irrevocable letter of credit issued for
$250,000, which expires in May 1999.
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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 Nine Months Ended
------------------------- -------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 84.3 83.9 83.8 83.1
----- ----- ----- -----
Gross profit 15.7 16.1 16.2 16.9
Operating expenses 12.0 13.4 12.8 14.9
----- ----- ----- -----
Operating profit 3.7 2.7 3.4 2.0
Interest expense 1.3 1.7 1.4 2.3
----- ----- ----- -----
Income (loss) before income taxes 2.4 1.0 2.0 (0.3)
Provision (benefit) for income taxes 0.3 0.1 0.1 0.0
----- ----- ----- -----
Net income (loss) 2.1% 0.9% 1.9% (0.3)%
===== ===== ===== =====
</TABLE>
Third Quarter of 1998 Compared to Third Quarter of 1997
The Company's net sales increased approximately $3.1 million, or 15.3%,
to $22.9 million in the third quarter of 1998 from $19.8 million in the third
quarter of 1997. The increase in net sales was attributable, in large part, to
intensified sales effort in both manufactured and distribution products.
Due to the increase in net sales, the Company's gross profit increased
approximately $408,000, or 12.8%, to $3.6 million for the third quarter of 1998
from $3.2 million in the third quarter of 1997. As a percentage of net sales,
gross profit margin decreased to 15.7% in the third quarter of 1998 from 16.1%
in the third quarter of 1997. The decrease in gross profit margin is due, in
part, to the fact that the Company's increase in sales was greater in
distribution products which have a lower gross profit margin than the Company's
manufactured products, and to intensified competition.
Operating expenses increased approximately $106,000, or 4.0%, to $2.7
million in the third quarter of 1998 from $2.6 million in the third quarter of
1997. The increase in operating expenses is due primarily to additional
distribution and selling costs associated with the increase in sales. As a
percentage of net sales, operating expenses decreased to 12.0% in the third
quarter of 1998 from 13.4% in the third quarter of 1997.
Primarily as a result of the increase in sales, operating profit
increased approximately $302,000, or 55.6%, to approximately $845,000 in the
third quarter of 1998 from $543,000 in the third quarter of 1997. As a
percentage of net sales, operating profit increased to 3.7% in the third quarter
of 1998, compared to 2.7% in the third quarter of 1997.
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<PAGE> 7
Interest expense decreased approximately $41,000 or 11.9%, to $302,000
in the third quarter of 1998 from $343,000 in the third quarter of 1997,
primarily due to reduced borrowings under the Company's line of credit, which
resulted from carrying lower inventory balances, and due to lower interest
rates.
As a result of the above factors, income before income taxes increased
approximately $343,000, or 172%, to $543,000 in the third quarter of 1998 from
$200,000 in the third quarter of 1997.
After an income tax provision of approximately $62,000 in the third
quarter of 1998, net income increased approximately $297,000 or 161.4% to
$481,000 in the third quarter of 1998 from $184,000 in the third quarter of
1997.
First Nine Months of 1998 Compared to First Nine Months of 1997
The Company's net sales increased approximately $7.0 million, or 12.4%,
to $63.3 million in the first nine months of 1998 (which consisted of 40 weeks)
from $56.3 million in the first nine months of 1997 (which consisted of 39
weeks). The increase in net sales was primarily attributable to intensified
sales efforts in both manufactured and distribution products.
The Company's gross profit increased approximately $784,000, or 8.3%,
to $10.3 million for the first nine months of 1998 from $9.5 million in the
first nine months of 1997. As a percentage of net sales, gross profit decreased
to 16.2% in the first nine months of 1998 from 16.9% in the first nine months of
1997. The increase in gross profit is attributable to the increase in net sales.
The decrease in gross profit margin is due, in part, to the fact that the
Company's increase in sales was greater in distribution products which have a
lower gross profit margin than the Company's manufactured products, and to
intensified competition.
Operating expenses decreased approximately $300,000, or 3.6%, to $8.1
million in the first nine months of 1998 from $8.4 million in the first nine
months of 1997. The decrease in operating expenses, which is primarily due to
operational streamlining, was partially offset by increased distribution and
selling costs associated with the increase in net sales. As a percentage of net
sales, operating expenses decreased to 12.8% in the first nine months of 1998
from 14.9% in the first nine months of 1997.
As a result of the increase in gross profit and the decrease in
operating expenses, operating profit increased approximately $1.1 million, or
98.1% to $2.2 million in the first nine months of 1998 from $1.1 million in the
first nine months of 1997.
Interest expense decreased approximately $334,000, or 26.3%, to
$935,000 in the first nine months of 1998 from $1.3 million in the first nine
months of 1997, primarily due to reduced borrowings under the Company's line of
credit, which resulted from carrying lower inventory balances, and due to lower
interest rates.
As a result of the above factors, income before income taxes increased
approximately $1.4 million to $1.3 million in the first nine months of 1998
compared to a loss of $(164,000) in the first nine months of 1997. Income before
income taxes as a percentage of net sales increased to 2.0% in the first nine
months of 1998 from (0.3)% in the first nine months of 1997.
After an income tax provision of approximately $69,000, net income
increased approximately $1.4 million to $1.2 in the first nine months of 1998
compared to a loss of $(180,000) in the first nine months of 1997. Net income as
a percentage of net sales increased to 1.9% in the first nine months of 1998
compared to a loss of (0.3)% in the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was approximately $985,000 for the
first nine months of 1998 compared to net cash provided by operations of $4.8
million in the first nine months of 1997. The net cash provided by operations in
the first nine months of 1998 was primarily due to increased accounts payable
balances.
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<PAGE> 8
In April 1996, the Company entered into a new credit facility (the
"Credit Facility"). The Credit Facility was subsequently amended in November
1996, March 1997, November 1997 and March 1998. The Credit Facility, as amended
(i) provides for maximum borrowings of $15 million (subject to certain
collateral restrictions based on eligible receivables, inventories and fixed
assets), (ii) expires on March 31, 2001, (iii) bears interest at prime plus
1.00%, and (iv) is secured by principally all the Company's assets. As of
November 9, 1998, the Company had borrowings totaling $9.2million outstanding
under the Credit Facility and availability to borrow $5.5million.
In May 1998 the Company had an irrevocable letter of credit issued for
$250,000, which expires in May 1999.
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 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 1998. However, if there is a
significant reduction of internally generated funds or the Company is unable to
meet financial covenants in 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.
YEAR 2000 COMPATIBILITY
The Company is currently utilizing two computer information systems.
The Distribution Division is currently using a distribution package known as
VICS (Vertically Integrated Computer Systems) which runs on an IBM RS6000
computer. The VICS software is year 2000 compatible. The Manufacturing Division
is currently using a manufacturing software package known as AIC (Applied
Intelligence Corporation) that runs on a Wang computer. The AIC software is not
year 2000 compatible on the Wang computer. However, the AIC software has been
rewritten to run on an IBM AS400 platform by the Manufacturing Division's
software support vendor. When the vendor completes the year 2000 conversion, the
Company's Manufacturing Division will convert to the IBM AS400 platform and be
year 2000 compatible. The vendor has informed the Company that it expects the
year 2000 conversion to be finished by November 30, 1998, and available to the
Company by December 1, 1998. The company plans to install the updated version by
June 30, 1999. The cost of the conversion is expected to be approximately
$500,000, which includes the Company's commitment of internal resources. There
can be no assurance, however, that the Company will not encounter unanticipated
delays with implementation or that costs of such implementation will not exceed
management's current estimate. The Company has issued certification requests to
both software companies and to all major vendors and customers seeking assurance
that they will be year 2000 compatible. Approximately one third of the
questionnaires have been returned. All of the companies that have responded
indicate that they are year 2000 compatible now or they have a plan in place to
be year 2000 compliant in advance of the year 2000. In addition, the Company is
currently testing all of its personal computers to determine if the computers
and software applications are year 2000 compliant.
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<PAGE> 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
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 October 3, 1998.
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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: November 10, 1998 By: /s/ Isador E. Mitzner
---------------------------
Isador E. Mitzner, Chairman
and Chief Executive Officer
Dated: November 10, 1998 By: /s/ John F. Hankinson
----------------------------
John F. Hankinson
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF L.A. T SPORTSWEAR, INC. FOR THE NINE MONTH PERIOD ENDED
OCTOBER 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> DEC-28-1997
<PERIOD-END> OCT-03-1998
<EXCHANGE RATE> 1
<CASH> 629
<SECURITIES> 0
<RECEIVABLES> 9,820
<ALLOWANCES> 1,405
<INVENTORY> 20,742
<CURRENT-ASSETS> 30,110
<PP&E> 6,895
<DEPRECIATION> 3,557
<TOTAL-ASSETS> 33,635
<CURRENT-LIABILITIES> 10,945
<BONDS> 11,236
0
0
<COMMON> 10,825
<OTHER-SE> 595
<TOTAL-LIABILITY-AND-EQUITY> 33,635
<SALES> 63,270
<TOTAL-REVENUES> 63,270
<CGS> 52,989
<TOTAL-COSTS> 52,989
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 266
<INTEREST-EXPENSE> 935
<INCOME-PRETAX> 1,254
<INCOME-TAX> 69
<INCOME-CONTINUING> 1,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,185
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
