10-Q 1 g69105e10-q.txt FULL LINE DISTRIBUTORS, INC. 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: March 31, 2001 0-23234 FULL LINE DISTRIBUTORS, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-1724902 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1200 Airport Drive, Ball Ground, Georgia 30107 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 479-1877 ----------------------------- Not applicable -------------------------------------------------------------------------------- (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 4,222,501 shares -------------------------------- ---------------------------- Class Outstanding at May 4, 2001 2 PART I. FINANCIAL INFORMATION Item 1: Financial Statements FULL LINE DISTRIBUTORS, INC.

~~SEPTEMBER~~BALANCE 30SHEETS (In thousands, ~~JANUARY~~except 1share information) -------------------------------------------------------------------------------------------- MARCH 31, DECEMBER 30, ASSETS ~~2000~~2001 2000 (UNAUDITED) CURRENT ASSETS: Cash $ ~~645~~857 $ ~~233~~404 Accounts receivable, net 109,~~014~~219 7,~~362~~055 Inventories, - net 2225,~~735~~285 2325,~~202~~050 Other current assets 2,~~115~~254 1,~~693~~864 --------- --------- Total current assets 3537,~~509~~615 3234,~~490~~373 PROPERTY, PLANT AND EQUIPMENT - ~~Net~~net 3,~~463~~489 3,~~803~~382 OTHER ASSETS ~~147~~- ~~129~~net 171 125 --------- --------- $ 3941,~~119~~275 $ 3637,~~422~~880 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 912,~~946~~090 $ 69,~~090~~194 Current portion of long-term debt ~~174~~212 ~~164~~178 Accrued expenses ~~1,423~~771 1,~~067~~094 --------- --------- Total current liabilities 1113,~~543~~073 710,~~321~~466 LONG-TERM DEBT 12,~~371~~830 1512,~~108~~364 OTHER LONG TERM LIABILITIES ~~556~~559 ~~404~~401 STOCKHOLDERS' EQUITY: Preferred stock, 5,000,000 shares Authorized; no shares issued Common Stock, no par value; 25,000,000 Shares authorized; 4,222,501 and 4,202,501 shares Issued and outstanding, respectively 10,843 10,~~827~~843 Paid in capital 3,304 3,304 Retained earnings ~~(accumulated~~666 ~~deficit)~~ 502 ~~(542)~~ --------- --------- Total stockholders' equity 14,~~649~~813 1314,~~589~~649 --------- --------- ~~$ 39~~41,~~119~~275 $ 3637,~~422~~880 ========= =========

See notes to unaudited financial statements 2 3 FULL LINE DISTRIBUTORS, INC.

~~Three~~STATEMENTS ~~Months~~OF ~~Ended~~OPERATIONS ~~Nine~~(UNAUDITED) ~~Months~~(In ~~Ended~~thousands, except share information) --------------------------- ---------------------------------------------------------------- ~~September~~THREE ~~30,~~MONTHS ~~October~~ENDED 2,---------------------------- ~~September~~MARCH 3031, ~~October~~APRIL 21, ~~2000~~2001 ~~1999~~ 2000 ~~1999~~ NET SALES $ 2520,~~092~~008 $ 2521,~~988~~769 ~~$ 73,597 $ 73,720~~ COST OF GOODS SOLD 2116,~~083~~097 2117,~~968~~703 ~~60,880 61,710~~ -------- -~~-------~~ -------- -~~-------~~ Gross Profit 43,~~009~~911 4,~~020~~066 ~~12,717 12,010~~ OPERATING EXPENSES 3,~~149~~389 3,~~150~~317 ~~10,037 9,571~~ -------- -~~-------~~ -------- -~~-------~~ OPERATING INCOME ~~860~~522 ~~870~~749 ~~2,680 2,439~~ OTHER EXPENSES, PRINCIPALLY INTEREST ~~313~~243 ~~247~~312 ~~948 730~~ -------- -~~-------~~ -------- -~~-------~~ INCOME BEFORE INCOME TAXES ~~547~~279 ~~623~~437 ~~1,732 1,709~~ INCOME TAX PROVISION ~~207~~115 ~~161~~179 ~~687 602~~ -------- -~~-------~~ -------- -~~-------~~ NET INCOME $ ~~340~~164 $ ~~462~~258 ~~$ 1,045 $ 1,107 --------~~ ======== =~~=======~~ ========= NET INCOME PER SHARE Basic $ 0.0804 $ 0.1106 ~~$ 0.25 $ 0.26~~ Diluted $ 0.0804 $ 0.1106 ~~$ 0.24 $ 0.26~~ WEIGHTED AVERAGE SHARES OUTSTANDING Basic 4,~~215~~223 4,~~200~~204 ~~4,213 4,200~~ Diluted 4,~~280~~246 4,~~275 4,286 4,288~~289

See notes to unaudited financial statements 3 4 FULL LINE DISTRIBUTORS, INC.

~~NINE~~STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) --------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED -------------------------------- ~~SEPTEMBER~~MARCH 3031, ~~OCTOBER~~APRIL 21, 2001 2000 ~~1999~~ OPERATING ACTIVITIES: Net income $ ~~1,045~~164 $ ~~1,107~~258 Adjustments to reconcile net income to net ~~cash~~Cash provided by (used in) operating activities: Depreciation and amortization ~~449~~131 ~~430~~158 Provision for doubtful accounts ~~213~~130 ~~156~~59 Loss on disposal of fixed asset 233 Changes in assets and liabilities providing (using) cash: Accounts receivable (2,~~865~~294) (53,~~071~~478) Inventories ~~467~~(235) (~~229~~4,454) Accounts payable 32,~~856~~896 ~~(650)~~6,396 Accrued expenses ~~460~~ (96323) 251 Other (~~258~~281) ~~303~~(210) ---------- ---------- Net cash provided by (used in) operating activities ~~3,390~~188 (41,~~050~~017) INVESTING ACTIVITIES: Purchase of property, plant and equipment (~~268~~236) (~~1,120~~136) ~~Proceeds from sale of assets 1 -------- -------- Net cash used in investing activities (268) (1,119)~~ FINANCING ACTIVITIES: ~~(Repayments)~~Borrowings ~~borrowings~~ under line of credit, net ~~(2,612)~~370 51,~~411~~702 ~~Repayments~~Borrowings (repayments) of long-term debt ~~(114)~~131 (3436) Proceeds from the exercise of stock options 163 ~~417~~ ---------- ---------- Net cash ~~(used in)~~ provided by financing activities ~~(2,710)~~501 51,~~794~~669 ---------- ---------- NET CHANGE IN CASH ~~412~~453 ~~625~~516 CASH,: ~~BEGINNING~~Beginning OFof ~~PERIOD~~period 404 233 ~~407~~ ---------- ---------- ~~CASH,~~End ~~END~~of OFperiod ~~PERIOD~~$ 857 $ ~~645~~749 SUPPLEMENTAL INFORMATION: Cash paid during the year for: Interest $ ~~1,032~~261 $ 253 Income taxes $ 5 $ 5

See notes to unaudited financial statements. 4 5 FULL LINE DISTRIBUTORS, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) QUARTERS ENDED MARCH 31, 2001 AND APRIL 1, 2000 1. ORGANIZATION AND BASIS OF PRESENTATION Full Line Distributors, 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 December 30, 2000. 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 three months ended March 31, 2001 are not necessarily indicative of the operating results for the full year. Accounting for Derivative Instruments and Hedging Activities - In June 1998 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as amended by SFAS 138, establishes accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 requires companies to recognize all derivatives as either assets or liabilities in the balance sheet measured at fair value. The Company adopted SFAS 133 on December 31, 2000. The adoption SFAS 133 had no impact on the Company's financial position or results of operations because the Company has no derivatives. 2. INVENTORIES

~~September~~Inventories 30consisted of the following (in thousands): March 31, ~~January~~December 130, ~~2000~~2001 2000 ----------------- ---------------- Raw materials $ ~~702~~641 $ ~~823~~764 Work-in-process ~~670~~763 ~~506~~462 Finished goods 2325,~~022~~442 2325,~~351~~122 Reserves (markdowns and obsolescence) (1,~~659~~561) (1,~~478~~298) ----------------- ----------------- $ 2225,~~735~~285 $ 2325,~~202~~050 ================= =================

3. LINE OF CREDIT AND LONG-TERM DEBT Line of Credit The Company maintains a credit facility with a bank. At March 31, 2001, the credit facility, as amended, (i) provides for a revolving credit facility with maximum borrowings of $17.0 million (subject to certain collateral restrictions based on eligible receivables, inventories and fixed assets), (ii) expires on April 30, 2002 and (iii) bears interest at the prime rate or LIBOR plus 2.25% (subject to repricing annually). The facility is secured by substantially all the Company's assets. Under the credit facility the Company had borrowings totaling $12.1 million and availability to borrow $4.9 million as of March 31, 2001. The credit agreement requires the Company to maintain certain financial ratios, all of which the Company was in compliance with at March 31, 2001. 5 6 Long Term Debt The Company has a mortgage note payable, which matures November 1, 2007 and bears interest at prime plus 2.0%. The interest rate at March 31, 2001 was 10.5%. 4. LITIGATION The Company is a party to various lawsuits in the ordinary course of doing business. The Company intends to defend these matters vigorously. The outcome of such lawsuits cannot presently be determined, but is not expected to have a material impact on the Company's financial position or results of operations. Accordingly, no provision for any loss that may result from such lawsuits has been made in the accompanying financial statements. 6 7 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.

THREE MONTHS ENDED ~~NINE MONTHS ENDED~~ ----------------------------- -------~~----------------------~~ ~~SEPTEMBER~~MARCH 3031, ~~OCTOBER~~APRIL 21, ~~SEPTEMBER~~2001 ~~30, OCTOBER 2,~~ 2000 ~~1999 2000 1999~~ Net sales 100.0% 100.0% ~~100.0% 100.0%~~ Cost of goods sold 8480.~~0 84.~~5 8281.73 ~~83.7~~ -------- --------- -------- -----~~---~~ Gross profit 1619.~~0 15.~~5 1718.37 ~~16.3~~ Operating expenses 1216.69 1215.13 ~~13.6 13.0~~ -------- --------- -------- -------- Operating income 32.46 3.4 ~~3.7 3.3~~ Other expense principally interest (1.32) (1.04) ~~1.3 1.0~~ -------- --------- -------- -----~~---~~ Income before income taxes 2.1 2.4 2.40 ~~2.3~~ Income tax provision (0.~~8 0.~~6) (0.~~9 0.~~8) -------- --------- -------- -----~~---~~ Net income 10.~~3% 1.~~8% 1.52% ~~1.5%~~ ======== ========= ======== =====~~===~~

First Quarter of 2001 Compared to First Quarter of 2000 The Company's net sales decreased $1.8 million, or 8.1%, to $20.0 million in the first quarter of 2001 (the "2001 Quarter") from $21.8 million in the first quarter of 2000 (the "2000 Quarter"). The decrease in net sales was due to decreases in unit price and overall slowdown in the imprinted garment industry. The Company's gross profit decreased $155,000, or 3.8%, to $3.9 million for the 2001 Quarter from $4.1 million in the 2000 Quarter. The gross profit margin increased to 19.5% for the 2001 Quarter compared to 18.7% in the 2000 Quarter. The increase in gross profit margin is the result of increased sales of higher margin manufactured products combined with lower costs of goods sold due to improved purchasing procedures on distribution products. Operating expenses increased $72,000, or 2.2%, to $3.4 million for the 2001 Quarter from $3.3 million in the 2000 Quarter. The increase in operating expenses was primarily due to increased credit and collections expense (primarily salaries and increases in bad debt expenses) and increased manufacturing warehousing costs. As a percentage of net sales, operating expenses increased to 16.9% in the 2001 Quarter from 15.3% in the 2000 Quarter. As a result of the above factors, operating income decreased $227,000, or 30.3%, to $522,000 in the 2001 Quarter from $749,000 in the 2000 Quarter. As a percentage of net sales, operating income decreased to 2.6% in the 2001 Quarter from 3.4% in the 2000 Quarter. Other expenses, which consist principally of interest expense, decreased $69,000, or 22.1%, to $243,000 in the 2001 Quarter from $312,000 in the 2000 Quarter. The decrease in interest expense was primarily due to a lower line of credit balance and lower interest rates attributable to decreases in the borrowing rate during the 2001 Quarter compared to the 2000 Quarter. Other expenses, as a percentage of net sales, decreased to 1.2% in the 2001 Quarter from 1.4% in the 2000 Quarter. As a result of lower gross profit and higher operating expenses, income before income taxes decreased $158,000, or 36.2%, to $279,000 in the 2001 Quarter from $437,000 in the 2000 Quarter. Income before income taxes as a percentage of net sales decreased to 1.4% in the 2001 Quarter from 2.0% in the 2000 Quarter. The Company recorded an income tax provision of $115,000 in the 2001 Quarter compared to $179,000 in the 2000 Quarter. The provision for both quarters approximates the statutory federal and state income tax rates. 7 8 As a result of the above factors, net income decreased $94,000, or 36.4%, to $164,000 ($.04 per diluted share) in the 2001 Quarter from $258,000 ($.06 per diluted share) in the 2000 Quarter. As a percentage of net sales, net income decreased to 0.8% in the 2001 Quarter from 1.2% in the 2000 Quarter. The Company expects second quarter revenues and earnings to decline compared to the second quarter of the previous year due to sluggishness and price devaluation in the industry. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations was $188,000 for the 2001 Quarter compared to net cash used in operations of ($1.0) million in the 2000 Quarter. The net cash provided by operations in the 2001 Quarter was primarily due to the Company's net income combined with an increase in accounts payable partially offset by an increase in accounts receivable. The net cash used in operations in the 2000 Quarter was used to support increased accounts receivable and inventory levels. The Company maintains a credit facility with a bank. At March 31, 2001 the credit facility, as amended, (i) provided for maximum borrowings of $17.0 million (subject to certain collateral restrictions based on eligible receivables, inventory and fixed assets), (ii) expires on April 30, 2002 and (iii) bore interest at the prime rate or LIBOR plus 2.25% (subject to repricing annually). The facility is secured by substantially all the Company's assets. As of May 4, 2001, the Company had borrowings totaling $11.2 million outstanding under the credit facility and availability to borrow $5.8 million. The credit agreement requires the Company to maintain certain financial ratios, all of which the Company was in compliance with at March 31, 2001. Over the next twelve months the Company plans to spend approximately $685,000 for capital expenditures, including the purchase of a warehouse locator system for each of the six distribution sites, warehouse racking for some of the locations, a new computer, and to fund the redesign and construction of the showrooms. 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 for the next twelve months. 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, 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. The Company is a party to various lawsuits in the ordinary course of doing business. The Company intends to defend these matters vigorously. The outcome of such lawsuits cannot presently be determined, but is not expected to have a material impact on the Company's financial position or results of operations. Accordingly, no provision for any loss that may result from such lawsuits has been made in the accompanying financial statements. FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a safe harbor to encourage companies to provide prospective information so long as it is identified as forward-looking and accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed. Forward-looking statements are related to the plans and objectives of management for the future operations, economic performance, of projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items. In the preceding discussion and elsewhere in this report, statements containing words such as "expect," "anticipate," "believe," "goal," "objective," or similar words are intended to identify forward-looking statements. The Company undertakes no obligation to update such forward-looking statements, and it wishes to identify important factors that could cause actual results to differ materially from those projected in the forward-looking statements contained in the following discussion and elsewhere in this report. The risks and uncertainties that may 8 9 affect the operations, performance, development, and results of the Company's business include but are not limited to the following: (1) heightened competition, particularly intensified price competition; (2) general economic and business conditions which are less favorable than expected; (3) unanticipated changes in industry trends; and (4) other risks detailed herein and from time to time in the Company's other reports. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. No response is required to this item. 9 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended March 31, 2001. 10 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. FULL LINE DISTRIBUTORS, INC. Dated: May 4, 2001 By: /s/ Isador E. Mitzner ---------------------------------------- Isador E. Mitzner, Chairman and Chief Executive Officer Dated: May 4, 2001 By: /s/ Mickie Schneider ---------------------------------------- Mickie Schneider (acting principal financial and accounting officer)

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