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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
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For Quarterly Period Ended Commission File Number:
July 4, 1998 0-23234
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L.A. T SPORTSWEAR, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
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)
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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:
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Common Stock, without par value 4,200,001 shares
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Class Outstanding at August 12, 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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<CAPTION>
JULY 4 DECEMBER 27
ASSETS 1998 1997
(UNAUDITED)
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CURRENT ASSETS:
Cash $ 243 $ 177
Accounts receivable, net 9,089 5,523
Inventories 21,387 18,329
Income tax receivable 11 10
Other current assets 433 485
-------- --------
Total current assets 31,163 24,524
PROPERTY, PLANT AND EQUIPMENT - Net 3,487 3,749
OTHER ASSETS 218 466
-------- --------
$ 34,868 $ 28,739
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,390 $ 4,653
Accounts payable - related parties 2,040 871
Current portion of long-term debt 24 23
Accrued expenses 909 695
-------- --------
Total current liabilities 10,363 6,242
LONG-TERM DEBT 13,349 11,732
OTHER LONG TERM LIABILITIES 217 530
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 (3,190) (3,894)
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Total stockholders' equity 10,939 10,235
-------- --------
$ 34,868 $ 28,739
======== ========
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See notes to unaudited financial statements.
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L.A. T SPORTSWEAR, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
Quarter Ended Six Months Ended
------------------------------- --- -------------------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
(13 weeks) (13 weeks) (27 weeks) (26 weeks)
<S> <C> <C> <C> <C>
NET SALES $ 22,747 $ 20,267 $ 40,413 $ 36,478
COST OF GOODS SOLD 19,156 16,748 33,728 30,168
------------ ------------ ------------ -------------
Gross Profit 3,591 3,519 6,685 6,310
OPERATING EXPENSES 2,743 2,722 5,341 5,749
------------ ------------ ------------ -------------
OPERATING PROFIT 848 797 1,344 561
INTEREST EXPENSE 341 496 633 926
------------ ------------ ------------ -------------
INCOME (LOSS) BEFORE INCOME TAXES 507 301 711 (365)
PROVISION FOR INCOME TAXES 7 -- 7 --
------------ ------------ ------------ -------------
NET INCOME (LOSS) $ 500 $ 301 $ 704 $ (365)
============ ============ ============ =============
BASIC NET INCOME (LOSS) PER SHARE $ 0.12 $ 0.07 $ 0.17 $ (0.09)
DILUTED NET INCOME PER SHARE $ 0.12 $ 0.07 $ 0.17 $ (0.09)
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING 4,200 4,200 4,200 4,200
AVERAGE SHARES OUTSTANDING ASSUMING
DILUTION 4,213 4,200 4,200 4,200
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See notes to unaudited financial statements.
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L.A. T SPORTSWEAR, INC.
STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS)
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SIX MONTHS ENDED
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JULY 4, JUNE 28,
1998 1997
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OPERATING ACTIVITIES:
Net income (loss) $ 704 $ (365)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 285 346
GAIN (LOSS) ON SALE OR WRITE-OFF OF FIXED ASSETS 21 (21)
CHANGES IN ASSETS AND LIABILITIES PROVIDING (USING) CASH:
ACCOUNTS RECEIVABLE (3,566) 76
INVENTORIES (3,058) (4,647)
OTHER ASSETS 38 1,689
ACCOUNTS PAYABLE 3,906 4,570
ACCRUED EXPENSES 181 7
RESTRUCTURING RESERVE (19) (44)
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,508) 1,611
INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (48) (33)
PROCEEDS FROM SALE OF ASSETS 4 38
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NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (44) 5
FINANCING ACTIVITIES:
BORROWINGS UNDER (REPAYMENTS OF) LINE OF CREDIT, NET 1,629 (2,154)
PAYMENTS OF LONG-TERM BORROWINGS (11) (10)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,618 (2,164)
------- -------
NET CHANGE IN CASH 66 (548)
CASH, BEGINNING OF PERIOD 177 938
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CASH, END OF PERIOD $ 243 $ 390
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SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
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L.A. T SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
QUARTERS ENDED JULY 4, 1998 AND JUNE 28, 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 six months ended July 4, 1998 are not necessarily indicative
of the operating results for the full year.
2. INVENTORIES
Inventories consisted of the following (in thousands):
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July 4, December 27,
1998 1997
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Raw materials $ 944 $ 1,087
Work-in-process 392 415
Finished goods 21,501 18,167
Reserves (1,450) (1,340)
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$ 21,387 $18,329
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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 July 4, 1998, the Company
had borrowings totaling $12.7 million outstanding under the new facility and
availability to borrow $1.8 million.
On May 28, 1998 the Company had an irrevocable letter of credit issued in
favor of D.C.D. Capital, L.L.C. for $250,000. The letter of credit expires on
May 28, 1999.
4. STOCK OPTIONS
During the second quarter of 1998 certain officers of the Company were
granted options to purchase 10,000 and 125,000 shares of common stock. The
options were granted at the fair market value of the stock at the time of grant.
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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.
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Quarter Ended Six Months Ended
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July 4, June 28, July 4, June 28,
1998 1997 1998 1997
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Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 84.2 82.6 83.5 82.7
----- ----- ----- -----
Gross profit 15.8 17.4 16.5 17.3
Operating expenses 12.1 13.5 13.2 15.8
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Operating profit 3.7 3.9 3.3 1.5
Interest expense 1.5 2.4 1.6 2.5
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Income before income taxes 2.2 1.5 1.7 (1.0)
Provision for income taxes -- -- -- --
----- ----- ----- -----
Net income 2.2% 1.5% 1.7% (1.0)%
===== ===== ===== =====
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Second Quarter of 1998 Compared to Second Quarter of 1997
The Company's net sales increased approximately $2.4 million, or 12.2%, to
$22.7 million in the second quarter of 1998 from $20.3 million in the second
quarter of 1997. The increase in net sales was attributable, in large part, to
an intensified sales effort in distribution products.
Due to the increase in net sales, the Company's gross profit increased
approximately $72,000, or 2.0% to $3.6 million for the second quarter of 1998
from $3.5 million in the second quarter of 1997. As a percentage of net sales,
gross profit margin decreased to 15.8% in the second quarter of 1998 from 17.4%
in the second quarter of 1997. The decrease in gross profit margin is due, in
part, to the fact that the Company's increase in sales was primarily in
distribution products which have a lower gross profit margin than the Company's
manufactured products, and to intensified competition.
Operating expenses were approximately $2.7 million for both the second
quarter of 1998 and 1997. As a percentage of net sales, operating expenses
decreased to 12.1% in the second quarter of 1998 from 13.5% in the second
quarter of 1997, due to increased sales in the fiscal 1998 second quarter.
As a result of the increase in sales and gross profit, operating profit
increased approximately $51,000, or 6.4%, to approximately $848,000 in the
second quarter of 1998 from $797,000 in the second quarter of 1997.
Interest expense decreased approximately $155,000, or 31.2%, to $341,000 in
the second quarter of 1998 from $496,000 in the second quarter of 1997,
primarily due to reduced borrowings under the Company's line of credit, which
resulted from carrying lower accounts receivable and inventory balances and due
to lower interest rates.
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As a result of the above factors, income before income taxes increased
approximately $206,000 to $507,000 in the second quarter of 1998 from $301,000
in the second quarter of 1997.
After an alternative minimum tax provision of approximately $7,000 in the
second quarter of 1998, net income increased approximately $199,000 or 66.1% to
$500,000 in the second quarter of 1998 from $301,000 in the second quarter of
1997. No income tax provision was recorded for 1998 or 1997 due to the
utilization of an operating loss carryforward for which a valuation allowance
was previously provided.
First Six Months of 1998 Compared to First Six Months of 1997
The Company's net sales increased approximately $3.9 million, or 10.7%, to
$ 40.4 million in the first six months of 1998 from $36.5 million in the first
six months of 1997. The increase in net sales was primarily attributable to
increased sales in manufactured products and to an intensified sales effort in
distribution products.
The Company's gross profit increased approximately $375,000, or 5.9%, to
$6.7 million for the first six months of 1998 from $6.3 million in the first six
months of 1997. As a percentage of net sales, gross profit margin decreased to
16.5% in the first six months of 1998 from 17.3% in the first six months of
1997. The increase in gross profit is attributable to the increase in net sales.
The decrease in gross profit margin is primarily due to the increase in sales of
distribution products, which carry a lower gross profit margin than manufactured
products, and to intensified competition.
Operating expenses decreased approximately $408,000, or 7.1%, to $5.3
million in the first six months of 1998 from $5.7 million in the first six
months of 1997. The decrease in operating expenses is due primarily to
operational streamlining. As a percentage of net sales, operating expenses
decreased to 13.2% in the first six months of 1998 from 15.8% in the first six
months of 1997.
As a result of the increase in gross profit and the decrease in operating
expenses, operating profit increased approximately $783,000, or 131.7%, to
approximately $1.3 million in the first six months of 1998 from $561,000 in the
first six months of 1997.
Interest expense decreased approximately $293,000, or 31.6%, to $633,000 in
the first six months of 1998 from $926,000 in the first six months of 1997,
primarily due to reduced borrowings under the Company's line of credit, which
resulted from carrying lower accounts receivable and inventory balances and due
to lower interest rates.
As a result of the above factors, income before income taxes increased
approximately $1.1 million to $711,000 in the first six months of 1998 compared
to a loss of $(365,000) in the first six months of 1997. Income before income
taxes as a percentage of net sales increased to 1.7% in the first six months of
1998 from (1.0)% in the first six months of 1997.
After an alternative minimum tax provision of approximately $7,000, net
income increased approximately $1.1 million or 292.9% to $704,000 in the first
six months of 1998 compared to a loss of $(365,000) in the first six months of
1997. Net income as a percentage of net sales increased to 1.7% in the first six
months of 1998 compared to a loss of (1.0)% in the first six months of 1997. No
income tax provision or benefit was recorded for 1998 or 1997 due to the
utilization of an operating loss carryforward for which a valuation allowance
was previously provided.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was approximately $1.5 million for the first
six months of 1998 compared to net cash provided by operations of $1.6 million
in the first six months of 1997. The net cash used in operations in the first
six months of 1998 was primarily for increased accounts receivable and inventory
balances.
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
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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 July
21,1998, the Company had borrowings totaling $12.8 million outstanding under the
new facility and availability to borrow $1.9 million.
On May 28, 1998 the Company had an irrevocable letter of credit issued in
favor of D.C.D. Capital, L.L.C. for $250,000. The letter of credit expires on
May 28, 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 RS600 computer.
The VICS software is year 2000 compatible. The Manufacturing Division is
currently using a manufacturing software package know 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 September 30, 1998 and the Company plans
to install the updated version by December 31, 1998. The cost of the conversion
is expected to be between $300,000 and $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 will be well in advance of the year 2000.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters for Vote of Security Holders
On May 12, 1998, the Company held its 1998 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:
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For Withheld
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Isador E. Mitzner 3,862,244 7,100
J. David Keller 3,862,244 7,100
Kenneth Bernhardt 3,862,244 7,100
Irwin Lowenstein 3,862,244 7,100
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Item 5. Other Information
As set forth in the Company's Proxy Statement for the 1998 Annual Meeting, any
shareholder proposals intended to be presented at the 1999 Annual Meeting of
Shareholders must be received by the Company by December 9, 1998, in order to be
considered for inclusion in the proxy statement and form of proxy for that
meeting.
Any shareholder who intends to present a proposal at the 1999 Annual Meeting of
Shareholders and has not sought inclusion of the proposal in the Company's proxy
materials pursuant to Rule 14a-8, must provide the Company with notice of such
proposal no later than February 21, 1999.
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 July 4, 1998.
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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 12, 1998 By: /s/ Isador E. Mitzner
---------------------------
Isador E. Mitzner, Chairman
and Chief Executive Officer
Dated: August 12, 1998 By: /s/ John F. Hankinson
---------------------------
John F. Hankinson
Chief Financial Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF L.A.T. SPORTSWEAR, INC. FOR THE SIX MONTHS ENDED JULY 4,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> DEC-28-1997
<PERIOD-END> JUL-04-1998
<CASH> 243
<SECURITIES> 0
<RECEIVABLES> 10,634
<ALLOWANCES> 1,545
<INVENTORY> 21,387
<CURRENT-ASSETS> 31,163
<PP&E> 7,119
<DEPRECIATION> 3,632
<TOTAL-ASSETS> 34,868
<CURRENT-LIABILITIES> 10,363
<BONDS> 13,349
0
0
<COMMON> 10,825
<OTHER-SE> 114
<TOTAL-LIABILITY-AND-EQUITY> 34,868
<SALES> 40,413
<TOTAL-REVENUES> 40,413
<CGS> 33,728
<TOTAL-COSTS> 33,728
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 127
<INTEREST-EXPENSE> 633
<INCOME-PRETAX> 711
<INCOME-TAX> 7
<INCOME-CONTINUING> 704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 704
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
