<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:
July 3, 1999 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 August 4, 1999
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
L.A. T SPORTSWEAR, INC.
BALANCE SHEETS
(In thousands except share data)
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JULY 3, JANUARY 2,
ASSETS 1999 1999
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 843 $ 407
Accounts receivable, net 10,329 6,115
Inventories 21,616 23,665
Other current assets 632 919
-------- --------
Total current assets 33,420 31,106
PROPERTY, PLANT AND EQUIPMENT - Net 3,639 3,201
OTHER ASSETS 134 156
-------- --------
$ 37,193 $ 34,463
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,474 $ 11,647
Current portion of long-term debt 32 30
Accrued expenses 858 809
-------- --------
Total current liabilities 10,364 12,486
LONG-TERM DEBT 14,634 10,162
OTHER LONG TERM LIABILITIES 106 371
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 (2,040) (2,685)
-------- --------
Total stockholders' equity 12,089 11,444
-------- --------
$ 37,193 $ 34,463
======== ========
</TABLE>
See notes to unaudited financial statements.
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<TABLE>
<CAPTION>
L.A. T SPORTSWEAR, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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Three Months Ended Six Months Ended
------------------------------------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
(13 weeks) (13 weeks) (26 weeks) (27 weeks)
<S> <C> <C> <C> <C>
NET SALES $ 27,277 $ 22,747 $ 47,732 $ 40,413
COST OF GOODS SOLD 22,876 19,156 39,742 33,728
-------- -------- -------- --------
Gross Profit 4,401 3,591 7,990 6,685
OPERATING EXPENSES 3,392 2,743 6,420 5,341
-------- -------- -------- --------
OPERATING PROFIT 1,009 848 1,570 1,344
OTHER INCOME (EXPENSE) PRIMARILY
INTEREST (247) (341) (483) (633)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 762 507 1,087 711
PROVISION FOR INCOME TAXES 313 7 442 7
-------- -------- -------- --------
NET INCOME $ 449 $ 500 $ 645 $ 704
======== ======== ======== ========
BASIC NET INCOME PER SHARE $ 0.11 $ 0.12 $ 0.15 $ 0.17
DILUTED NET INCOME PER SHARE $ 0.10 $ 0.12 $ 0.15 $ 0.17
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING 4,200 4,200 4,200 4,200
AVERAGE SHARES OUTSTANDING ASSUMING
DILUTION 4,302 4,213 4,293 4,200
</TABLE>
See notes to unaudited financial statements.
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<TABLE>
<CAPTION>
L.A. T SPORTSWEAR, INC.
STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS)
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SIX MONTHS ENDED
--------------------------
JULY 3, JULY 4,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 645 $ 704
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 281 285
Provision for doubtful account 148 237
Gain (loss) on sale or write-off of fixed assets -- 21
Changes in assets and liabilities providing (using) cash:
Accounts receivable (4,362) (3,803)
Inventories 2,050 (3,058)
Other 11 38
Accounts payable (2,173) 3,906
Accrued expenses 50 162
------- -------
Net cash used in operating activities (3,350) (1,508)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (688) (48)
Proceeds from sale of assets 1 4
------- -------
Net cash used in investing activities (687) (44)
FINANCING ACTIVITIES:
Borrowings under line of credit, net 4,488 1,629
Payments of long-term borrowings (15) (11)
------- -------
Net cash provided by financing activities 4,473 1,618
------- -------
NET CHANGE IN CASH 436 66
CASH, BEGINNING OF PERIOD 407 177
------- -------
CASH, END OF PERIOD $ 843 $ 243
======= =======
</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 JULY 3, 1999 AND JULY 4, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
L.A. T Sportswear, Inc. (The "Company") distributes and manufactures
sportswear principally for the imprinted garment industry. The Company
manufactures certain of its products and also purchases merchandise from
national sportswear manufacturers for distribution currently through six
distribution facilities across the United States. The Company's customers are
principally domestic retailers in the imprintable and decorable sportswear
industry. Accordingly, the Company operates in one business segment.
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for
interim financial information, the instructions for Form 10-Q, and Regulation
S-X. 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 January 2, 1999. 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 3, 1999 are not necessarily indicative of the
operating results for the full year.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
July 3, January 2,
1999 1999
<S> <C> <C>
Raw materials $ 850 $ 952
Work-in-process 678 476
Finished goods 21,822 23,745
Reserves (1,734) (1,508)
------- -------
$21,616 $23,665
======= =======
</TABLE>
3. LONG-TERM DEBT
The Company maintains a credit facility with a bank. At July 3, 1999 the
credit facility, as amended, (i) provides for maximum borrowings of $16 million
(subject to certain collateral restrictions based on eligible receivables,
inventories and fixed assets), (ii) expires on April 30, 2002 and (iii) bears
interest for 1999 at the prime rate plus .25% (subject to repricing annually
thereafter). The facility is secured by substantially all the Company's assets.
As of July 3, 1999, the Company had borrowings totaling approximately $14.0
million outstanding under the credit facility and availability to borrow $1.6
million.
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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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales 100.00% 100.0% 100.0% 100.0%
Cost of goods sold 83.9 84.2 83.3 83.5
------ ------ ------ ------
Gross profit 16.1 15.8 16.7 16.5
Operating expenses 12.4 12.1 13.5 13.2
------ ------ ------ ------
Operating profit 3.7 3.7 3.2 3.3
Other income (expense) primarily interest (0.9) (1.5) (0.9) (1.6)
------ ------ ------ ------
Income before income taxes 2.8 2.2 2.3 1.7
Provision for income taxes 1.2 -- 0.9 --
------ ------ ------ ------
Net income 1.6% 2.2% 1.4% 1.7%
====== ====== ====== ======
</TABLE>
Second Quarter of 1999 Compared to Second Quarter of 1998
The Company's net sales increased approximately $4.6 million, or 19.9%, to
$27.3 million in the second quarter of 1999 from $22.7 million in the second
quarter of 1998. The increase in net sales was attributable, in large part, to
the continued ramp up of the national sales program. The national sales program
focused on the Company employing its own national sales force as opposed to
using outside sales representatives.
The Company's gross profit increased approximately $810,000, or 22.6% to
$4.4 million for the second quarter of 1999 from $3.6 million in the second
quarter of 1998. The increase in gross profit resulted from the increase in net
sales and an increase in gross profit margin on manufactured products. As a
percentage of net sales, gross profit increased to 16.1% in the second quarter
of 1999 from 15.8% in the second quarter of 1998 due to the increase in gross
profit margin on manufactured products.
Operating expenses increased approximately $649,000, or 23.7% to $3.4
million in the second quarter of 1999 from $2.7 million in the second quarter
of 1998. The increase in operating expenses was due primarily to increased
selling costs associated with the national sales program, increased
distribution costs relating to the installation of new warehousing systems, and
to costs associated with the purchase of a new computer system which includes
training, data conversion costs and other non-capitalizable costs. As a
percentage of net sales, operating expenses increased to 12.4% in the second
quarter of 1999 from 12.1% in the second quarter of 1998.
As a result of the increase in net sales and gross profit, operating
profit increased approximately $161,000, or 18.9%, to $1.0 million in the
second quarter of 1999 from $848,000 in the second quarter of 1998. As a
percentage of net sales, operating profit remained constant at 3.7% in the
second quarter of 1999.
Other income (expense), which consists principally of interest expense,
decreased approximately $94,000, or 27.6%, to $(247,000) in the second quarter
of 1999 from $(341,000) in the second quarter of 1998. The decrease was
primarily due to lower interest rates, which more than offset increased
borrowings. Other income (expense) as a percentage of net sales decreased to
(0.9)% in the second quarter of 1999, from (1.5)% in the second quarter of
1998.
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<PAGE> 7
As a result, income before income taxes increased approximately $255,000,
or 50.3% to $762,000 in the second quarter of 1999 from $507,000 in the second
quarter of 1998. Income before income taxes as a percentage of net sales
increased to 2.8% in 1999 from 2.2% in 1998.
The Company recorded an income tax provision of $313,000 in the second
quarter of 1999. In 1998, only a small income tax provision of $7,000 was
recorded due to the use of previously reserved net operating loss carryforwards
to offset most of the 1998 taxable income.
As a result of the increased income tax provision, net income decreased
$51,000, or 10.2%, to $449,000 in the second quarter of 1999 from $500,000 in
the second quarter of 1998. As a percentage of net sales, net income decreased
to 1.6% in the second quarter of 1999 from 2.2% in the second quarter of 1998.
First Six Months of 1999 Compared to First Six Months of 1998
The Company's net sales increased approximately $7.3 million, or 18.1%, to
$ 47.7 million in the first six months of 1999 from $40.4 million in the first
six months of 1998. The increase in net sales was attributable, in large part,
to the continued ramp up of the national sales program. The national sales
program focused on the Company employing its own national sales force as
opposed to using outside sales representatives.
The Company's gross profit increased approximately $1.3 million, or 19.5%,
to $8.0 million for the first six months of 1999 from $6.7 million in the first
six months of 1998. As a percentage of net sales, gross profit increased to
16.7% in the first six months of 1999 from 16.5% in the first six months of
1998. The increase in gross profit is attributable to the increase in net sales
and the increase in gross profit margins. The increase in gross profit margin
is primarily due to an increase in manufactured product gross profit margins.
Operating expenses increased approximately $1.1 million, or 20.2%, to $6.4
million in the first six months of 1999 from $5.3 million in the first six
months of 1998. The increase in operating expenses is due primarily to
increased selling costs associated with the national sales program, increased
distribution costs relating to the installation of new warehousing systems, and
to costs associated with the purchase of a new computer system which includes
training, data conversion costs and other non-capitalizable costs. As a
percentage of net sales, operating expenses increased to 13.5% in the first six
months of 1999 from 13.2% in the first six months of 1998.
As a result of the increase in sales and gross profit, operating profit
increased approximately $226,000, or 16.8%, to approximately $1.6 million in
the first six months of 1999 from $1.3 million in the first six months of 1998.
As a percentage of net sales, operating profit decreased slightly to 3.2% in
the first six months of 1999 from 3.3% in the first six months of 1998.
Other income (expense), which consists principally of interest expense,
decreased approximately $150,000, or 23.5%, to $(483,000) in the first six
months of 1999 from $(633,000) in the first six months of 1998, primarily due
to lower interest rates, which more than offset increased borrowings. Other
income (expense) as a percentage of net sales decreased to (0.9)% in the first
six months of 1999 from (1.6)% in the first six months of 1998.
As a result of the above factors, income before income taxes increased
approximately $376,000, or 52.9% to $1.1 million in the first six months of
1999 compared to $711,000 in the first six months of 1998. Income before income
taxes as a percentage of net sales increased to 2.3% in the first six months of
1999 from 1.7% in the first six months of 1998.
The Company recorded an income tax provision of $442,000 in the first six
months of 1999. In the first six months of 1998, only a small income tax
provision of $7,000 was recorded due to the use of previously reserved net
operating loss carryforwards to offset most of the 1998 taxable income.
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As a result of the increased income tax provision, net income decreased
$59,000, or 8.4%, to $645,000 in the first six months of 1999 from $704,000 in
the first six months of 1998. As a percentage of net sales, net income
decreased to 1.4% in the first six months of 1999 from 1.7% in the first six
months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was approximately $3.4 million for the first
six months of 1999 compared to net cash used in operations of $1.5 million in
the first six months of 1998. The increase in net cash used in operations in
the first six months of 1999 was primarily the result of increased accounts
receivable balances.
The Company maintains a credit facility with a bank. At July 3, 1999 the
credit facility, as amended, (i) provides for maximum borrowings of $16 million
(subject to certain collateral restrictions based on eligible receivables,
inventories and fixed assets), (ii) expires on April 30, 2002 and (iii) bears
interest for 1999 at the prime rate plus .25% (subject to repricing annually
thereafter). The facility is secured by substantially all the Company's assets.
As of July 22, 1999, the Company had borrowings totaling $13.2 million
outstanding under the credit facility and availability to borrow $2.4 million.
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 1999. However, if there is a
significant reduction of internally generated funds or the Company is unable to
meet the financial covenants contained in the credit facility, as amended, 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 READINESS
The Company's year 2000 state of readiness has been divided into three
areas: (1) the distribution division's information technology system, (2) the
manufacturing division's information technology system and (3) other items
which include non-information technology systems.
The Company's distribution division (which accounted for approximately 80% of
the sales volume in 1998) utilizes a distribution package known as VICS
(Vertically Integrated Computer Systems) that runs on an IBM RS6000 computer.
The distribution division's package is year 2000 compliant according to
certifications by both IBM and the VICS software vendor. The Company conducted
basic tests of its own to assure itself that mission critical features are in
fact year 2000 compliant.
The Company's manufacturing division (which accounted for approximately
20% of the sales volume in 1998) utilizes a manufacturing software package
known as AIC (Applied Intelligence Corporation) that runs on a Wang computer.
The AIC software is not year 2000 compliant on the Wang computer. The Company
is purchasing a new manufacturing software package, which is year 2000
compliant according to a certification by the software vendor. The new
manufacturing software package will operate on a new IBM AS400. A separate
certification for the AS400 was obtained from IBM. The cost of the new system
is approximately $450,000, which includes the Company's commitment of internal
resources. As of July 3, 1999, the Company had incurred approximately $382,000
of the $450,000 cost. The Company converted to the new manufacturing system on
July 12, 1999. However there are still a substantial number of custom software
enhancements to be added.
Other items which include non-information technology systems are being
tested and upgraded as needed. Included in the non-information technology
systems are the Company's personal computers and applications, telephone
systems, manufacturing equipment, security systems, and other non-crucial
items.
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<PAGE> 9
The Company has a substantial amount of personal computers and software
applications. Many of the personal computers were replaced as part of the
manufacturing division's new computer system. In order to make the other
personal computers and software applications year 2000 compliant, the Company
has installed a new network communication package which has tied most of the
Company's personal computers and software applications together. The Company
will upgrade all non-compliant personal computers and install the latest
versions of year 2000 compliant applications throughout the network.
Specialized applications not used Company wide will be upgraded as necessary.
The estimated cost of the network was approximately $101,000 and is
substantially completed.
The Company has received certification that its primary telephone systems
are year 2000 compliant, with the exception of the voice mail and call
accounting applications for two of the manufacturing division locations. The
Company plans to upgrade the voice mail and call accounting applications of the
manufacturing division. New personal computers and software packages have been
ordered for the call accounting packages at a cost of less than $6,000. The
Company is still reviewing options for the voice mail systems.
The manufacturing division utilizes a computerized Lectra Systems(R)
marking and grading system which is crucial to the manufacturing operations.
The current version of Lectra Systems(R) is not year 2000 compliant. Lectra
Systems(R) has now completed a year 2000 upgrade package and expects to have it
out to its customers in the third quarter of 1999. Since the Company has a
maintenance agreement with Lectra Systems(R), there will be no charge for the
upgrade. No contingency plan has been established in the event that Lectra
Systems(R) does not complete the year 2000 compliant upgrade. However, Lectra
Systems(R) does have current versions of the software that are year 2000
compliant. The Company will monitor the progress of the year 2000 upgrade and
make a decision to convert to a new system if necessary.
Other non-information technology systems such as security systems, copiers
and other non-essential items are being assessed for year 2000 compliance. The
Company is contacting vendors of these items either by mail or through internet
access to determine their compliance status. No time frame or estimated cost
has been established to bring these non-essential items year 2000 compliant.
The costs of major year 2000 projects have been included in the current
operating budget. The majority of the costs will be capitalized with the
exception of software data conversion costs and training costs. The funds to
finance these projects will come from the Company's cash flows from operations,
line of credit or other lenders. There can be no assurance that the Company
will not encounter unanticipated delays with the implementations or that costs
of such implementations will not exceed management's current estimates.
The Company has issued certification requests to all major vendors and
customers as well as to its primary bank seeking assurance that they will be
year 2000 compliant. The Company is evaluating the responses received from
vendors and customers and continues to monitor the progress of these third
parties in becoming year 2000 compliant. At this time the Company has no
contingency plans to address problems if third parties are not compliant.
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<PAGE> 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters for Vote of Security Holders
On May 11, 1999, the Company held its 1999 Annual Meeting of Shareholders. At
the meeting, the following persons were elected to serve on the Company's Board
of Directors until the next annual meeting of shareholders 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 3,652,546 4,838
J. David Keller 3,653,146 4,238
Kenneth Bernhardt 3,653,146 4,238
Irwin Lowenstein 3,645,646 11,738
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule (for S.E.C. use only).
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the quarter
ended July 3, 1999.
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<PAGE> 11
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 4, 1999 By: /s/ Isador E. Mitzner
----------------------------------------
Isador E. Mitzner, Chairman
and Chief Executive Officer
Dated: August 4, 1999 By: /s/ John F. Hankinson
----------------------------------------
John F. Hankinson
Chief Financial Officer
<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 SIX MONTHS ENDED JULY 3,
1999 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-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JUL-03-1999
<CASH> 843
<SECURITIES> 0
<RECEIVABLES> 11,792
<ALLOWANCES> 1,463
<INVENTORY> 21,616
<CURRENT-ASSETS> 33,420
<PP&E> 7,521
<DEPRECIATION> 3,882
<TOTAL-ASSETS> 37,193
<CURRENT-LIABILITIES> 10,364
<BONDS> 14,634
0
0
<COMMON> 10,825
<OTHER-SE> 1,264
<TOTAL-LIABILITY-AND-EQUITY> 37,193
<SALES> 47,732
<TOTAL-REVENUES> 47,732
<CGS> 39,742
<TOTAL-COSTS> 39,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 148
<INTEREST-EXPENSE> 507
<INCOME-PRETAX> 1,087
<INCOME-TAX> 442
<INCOME-CONTINUING> 645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
</TABLE>
