10-K 1 g67984e10-k.txt FULL LINE DISTRIBUTORS, INC. 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NO. 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, 30107 BALL GROUND, GEORGIA (Address of principal executive (Zip Code) offices)

Issuer's telephone number, including area code: (770) 479-1877 Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934: COMMON STOCK, WITHOUT PAR VALUE Securities Registered Pursuant to Section 12(g) of the Act Securities Exchange Act of 1934: NONE 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of the registrant held by nonaffiliates of the registrant (1,626,006 shares) on March 15, 2001 was $1,525,194. For the purposes of this response, officers, directors and holders of 5% or more of the registrant's common stock are considered the affiliates of the registrant at that date. The number of shares outstanding of the registrant's Common Stock, without par value, as of March 15, 2001: 4,222,501 shares. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD IN 2001 ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT, WITH THE EXCEPTION OF INFORMATION REGARDING EXECUTIVE OFFICERS REQUIRED UNDER ITEM 10 OF PART III, WHICH INFORMATION IS INCLUDED IN PART I, ITEM 1. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS Full Line Distributors, Inc. (the "Company"), which changed its name from L.A. T Sportswear, Inc. on March 1, 2000, is a national distributor and manufacturer of quality imprintable and decorable knitted sportswear. Through its distribution operations, the Company is a national distributor of undecorated garments for the imprinted sportswear industry, carrying a broad product line, including basic t-shirts and sweatshirts, golf shirts, baseball and golf caps, jackets, athletic jerseys and shorts, bags and aprons. The Company carries the products and brands of nationally recognized manufacturers, including Fruit of the Loom(R), Hanes(R), Jerzees(R) and Jonathan Corey(R), as well as its own line of manufactured apparel. The Company targets the small independent imprinter and decorator and seeks to provide that customer with a broad product line, carried in-depth at multiple locations to ensure that the customer's order is filled and received on a "just in time" basis. In 2000, approximately 18% (vs. 17% in 1999 and 20% in 1998) of the Company's revenues were sales of self-manufactured products. The Company designs and manufactures decorable sportswear, primarily for the infant and toddler, youth, ladies and corporate markets. The Company's manufactured products include basic t-shirts, sweatshirts and one-piece rompers in infant and toddler wear, under the Rabbit Skins(R) brand; cover-ups, tank tops, shorts and ladies and girls fashion coordinates, under the L.A. T Sportswear(R) brand; men and boys spirit wear under the L.A. T Sport(R) brand; and golf shirts, dress shirts and denim shirts under the Woodbridge(TM) brand. OPERATIONS The Company is a national distributor of decorable sportswear and accessories. The imprinted sportswear industry is highly fragmented and includes a wide variety of businesses such as screen printers, embroiderers, advertising specialty companies, crafters, sporting goods and uniform companies. The majority of the Company's distribution customers are small, independent companies that lack the capitalization and space requirements to warehouse their product needs, instead relying on distributors such as the Company to supply their products. The Company believes that for these customers, breadth of product line, immediate availability of product and superior customer service are as important as price. For these reasons, the Company's distribution operations are geared to breadth of product line, depth of inventory and prompt order filling, as well as competitive pricing. The Company carries a wide variety of specialty products from bags and aprons to golf shirts in over 300 colors and sizes ranging from extra-small to five-extra large. Products The Company's distribution philosophy is to provide its customers a broad selection of imprintable sportswear, carried in depth in inventory, and available to the customer within the most responsive time. At December 30, 2000, the Company's inventory included approximately 370 styles of products from 15 garment and accessories manufacturers. This inventory included approximately 9,139 individual items (SKUs) including all color and size variations. The Company's primary suppliers are Fruit of the Loom(R), Hanes(R) and Jerzees(R) (t-shirts and sweatshirts), Print-Ons(R) and Jonathan Corey(R) (golf shirts and sports shirts), Yupoong(R) (baseball and golf caps), Rabbit Skins(R) (infant and toddler wear), L.A.T Sport(R) (men and boys spirit wear), L.A. T Sportswear(R) (ladies and girls fashion wear), and Woodbridge(TM) (corporate apparel). Product offerings are reviewed annually in connection with the preparation of the Company's catalog, new and expanded lines are routinely added and slow moving or discontinued products are deleted. The Company generally enters into non-exclusive oral distribution agreements with the vendors of the products it distributes which are cancelable by either party upon notice. Management believes that the current relationship with its vendors is satisfactory. 2 3 Distribution and Warehousing The Company operates six distribution centers located in the metropolitan areas of Atlanta, Cleveland, Houston, Los Angeles, Miami and St. Louis. Each distribution center is leased and ranges from approximately 41,000 to 59,000 square feet. Each facility is supervised by a location manager and includes a support staff of office and warehouse personnel. The distribution centers offer same day shipping on all orders placed before 4:00 p.m. local time, and 24-hour shipping on all other orders. A customer order entered by a customer service representative on the centralized inventory control computer system automatically generates a picking ticket in the warehouse. Each customer order is then hand picked, checked and packed, and the shipment staged in the warehouse for customer pick-up or shipment by UPS or other carrier. In the event the order-entering distribution center is out of stock on all or any portion of a customer's order, the order may be completed for same day shipment from any of the Company's other distribution centers. The Company also has an on-line real time business to business internet site at www.FullLine.com where customers can place orders, check inventory availability, review current and previous orders, and track UPS shipments twenty-four hours a day, seven days a week. Customers and Customer Service The Company's customers are predominantly small independent imprinters, embroiderers, advertising specialty companies, crafters and sporting goods and uniform companies which purchase their requirements on an as needed basis for immediate delivery. At December 30, 2000, the Company had an active customer list of over 25,000 customers (customers who had placed an order within the preceding year). In 2000, the largest customer accounted for less than 2% of the Company's $95.2 million in sales and the Company's ten largest customers accounted for less than 8% of sales. By contrast, approximately 78% of sales were to customers who purchased less than $100,000 worth of merchandise during the year. All credit decisions are handled by the Company's centralized credit staff at its Atlanta facility. For 2000, the Company experienced credit losses of 0.9% of sales. The Company has a centralized customer service department located in Atlanta. Customer service lines are answered Monday through Friday from 8:00 a.m. to 9:00 p.m., Eastern Time. Customer service representatives are required to be familiar with the entire product line and able to answer customer questions concerning the Company's product offerings. The Company utilizes a comprehensive training program for new customer service representatives. Each service representative spends time training in the warehouse, pulling customer orders and learning the product lines. Trainees are provided with a training manual which details each style with complete line sketches of each product highlighting all features and detailing all colors and sizes, dimensions and fabric content. The manual also outlines telephone and order entry procedures, both computerized and manual, and provides tests to ensure that service representatives are trained to the Company's standards. Marketing and Advertising The Company primarily markets its products through its catalog, trade shows, major trade magazines, direct mail flyers, mass facsimiles and its in-house and outside sales force. The Company produces and distributes approximately 415,000 catalogs annually. Advertisements and flyers are designed to educate the customer about the Company's business by highlighting its multiple locations, extended operating hours, excellent service and product availability. The Company exhibited at 10 industry trade shows in 2000. The participation in these trade shows provides the Company with opportunities to display its collection of imprintable apparel and solicit new customers. The Company's in-house and outside sales staff sell to major screen printers, embroiderers, advertising-specialty and uniform customers in the imprintable sportswear industry. 3 4 Manufacturing Operations The Company designs and manufactures its own lines of imprintable and decorable sportswear for the infant and toddler, youth, ladies and corporate markets for sale to mass merchants and specialty retailers and private label garments for selected distributors, screen printers and retailers. The Company manufactures product for market niches in the imprinted sportswear industry where it has a competitive advantage by virtue of its ability to manufacture on a shorter product run basis than fully integrated mills, and where innovative product design or fabric introductions can differentiate it from its competitors. Under its Rabbit Skins(R) label, the Company produces a full line of activewear for infants and toddlers, including basic t-shirts and sweatshirts, one-piece rompers, dresses and fashion coordinates. The Company's 2001 Rabbit Skins(R) line consists of approximately 53 styles and 674 SKUs including all color and size variations. Rabbit Skins(R) infant and toddler wear was the first product line developed by the Company and the Company believes it is a major manufacturer in this category of imprintable garments. In 2001, the Company introduced a new line under the label L.A. T Sport(R), which focuses on men and boys athletic spirit wear. The line combines athletic styles from both the L.A. T Sportswear(R) label and the L.A. T For Kids(R) label, as well as a variety of new styles. The L.A. T Sport(R) line consists of approximately 26 styles and 836 SKUs. The Company designs and manufactures a line of ladies and girls fashion wear under the label L.A. T Sportswear(R). Offerings in this line consist of shorts, fashion t-shirts and tops, and cover-ups. The line consists of approximately 47 styles and 451 SKUs. The L.A. T Sportswear(R) line tends to be more upscale and fashion oriented, avoiding the commodity-type garment offerings. Although all L.A. T Sportswear(R) garments are sold as separates, the Company makes available many products in the line as top/bottom coordinates. The Company also produces a line of corporate apparel under the Woodbridge(TM) label. The Woodbridge(TM) line consists of 10 styles and 236 SKUs that includes golf shirts, dress shirts and denim shirts. Product development and new product design are the primary responsibility of the Company's merchandising department, with new product ideas and proposals subject to review by the Company's marketing personnel and executive officers at regularly scheduled meetings. The Company considers itself an innovator in new product style development. Approximately half of the Company's products are manufactured at two facilities in Georgia. Management believes that the manufacturing of some of its products domestically permits it to have greater control over production, enhances the quality of the finished product and facilitates greater responsiveness to its customers' needs. Management also believes that the Company's ability to accommodate orders in varying quantities while controlling production costs and maintaining consistent quality provides it with a competitive advantage. The other half of the Company's manufactured products are sewn by off-shore contractors or imported as finished garments. Management believes that utilizing off-shore labor for some of its manufacturing helps the Company to remain competitive on price. Raw Materials and Supplies The primary raw materials used in the Company's manufacturing operations are cotton and synthetic yarns which are purchased on a contractual basis (usually 12 months in advance) from a small number of suppliers. The Company also contracts for the conversion of its yarn to finished fabric, primarily through a single knitting source and two contract finishing houses. Approximately 10% of the Company's total fabric needs is purchased from a small number of outside sources. The Company currently utilizes limited supply sources on the theory that the loyalty and commitment generated by the long-standing business relationship between supplier and customer outweigh the risk inherent in dependency on limited sources of supply. At the same time, the Company believes that alternative sources of supply, both for raw materials and conversion services, are readily available at competitive prices and its reliance on limited supply sources causes no significant risk to the business. 4 5 Backlog As of December 30, 2000, the Company had a backlog of orders believed to be firm of approximately $1,864,217 for products to be delivered during 2001. At January 1, 2000, the backlog totaled $1,682,676. Competition Competition in the screen print garment distribution business is intense and is based primarily on product line quality, availability and prompt delivery of products, price, level of customer support and the ability to offer a wide selection of products. Some of the Company's competitors have substantially greater financial resources and larger staffs. Principal competitors include national distributors such as Alpha Shirts, Broder Brothers and Staton Wholesale. In some cases, the Company also competes with manufacturers that sell directly to screen printers, sometimes at prices below those charged by the Company for similar products. Most manufacturers, however, limit their direct sales only to large resellers because of the costs associated with dealing with a large number of small volume customers. The imprinted sportswear segment of the apparel industry includes several companies that have substantially greater financial resources and manufacturing capabilities than the Company. The Company believes that the primary competition for its manufactured products comes from ten to fifteen companies in the infant, toddler, youth and adult fashion markets. The Company competes in this aspect of its business primarily based on price, product design, quality and responsiveness to customer service needs. EMPLOYEES At December 30, 2000, the Company employed approximately 386 full time employees, of which 46 were salaried, 244 were paid on an hourly basis and 96 were paid on an incentive piece work basis. None of the Company's employees is covered by a collective bargaining agreement and the Company believes that its employee relations are satisfactory. EXECUTIVE OFFICERS The executive officers of the Company are as follows:

Isador E. Mitzner, age 48, founded the Company, and has served as its Chairman and Chief Executive Officer since its inception in 1978. J. David Keller, age 53, joined the Company in March 1981 and has served as President of the manufacturing division since 1987. Mr. Keller has served as a director of the Company since 1986, as President of the Company since October 1993, and as Secretary of the Company since March 1994. For three years prior to joining the Company, Mr. Keller worked for Hanes Activewear as a sales representative in the Southeast United States and the Caribbean. Gina Watson-McElroy, age 38, joined the Company in December 1991 and has served as Executive Vice President-Operations since July 1998. Ms. Watson-McElroy served as Merchandising Manager from December 1991 through June 1994, Vice President of Product Development from June 1994 through December 1995, and Vice President of Manufacturing Operations from December 1995 through July 1998. The Company currently does not have a full-time Chief Financial Officer. Until the Company appoints a full-time Chief Financial Officer, Mickie Schneider, the Company's Controller, is serving as Acting Chief Financial Officer. 5 6 TRADEMARKS The Company believes its trademarks have significant value and are important to its marketing efforts. The Company has registered the trademarks Rabbit Skins(R), L.A. T Sport(R) and L.A. T Sportswear(R) with the United States Patent and Trademark office. The Company's policy is to pursue registration of its marks whenever possible and to oppose vigorously any infringement of its marks. The Company sells products under various trademarks and trade names used in this Annual Report that are the property of owners other than the Company. The following is a list of such trademarks and tradenames that are used in this Annual Report: Fruit of the Loom(R); Hanes(R); Jerzees(R); Jonathan Corey(R); Print-Ons(R); and Yupoong(R). ITEM 2. PROPERTIES The following table presents information as to the real properties and facilities of the Company as of March 20, 2001:

ITEM 3. LEGAL PROCEEDINGS 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the fourth quarter ended December 30, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock currently trades on the American Stock Exchange under the symbol FLD. From January 25, 1994 through February 20, 1997, the Common Stock traded on the NASDAQ National Market and from February 21, 1997 through February 7, 2000 on the OTC Bulletin Board under the symbol LATS. The following table sets forth, by fiscal quarter, the high and low sales prices (high and low bid prices with respect to the period during which the Company's shares were quoted on the OTC Bulletin Board) of the Common Stock reported by The Nasdaq Stock Market, the OTC Bulletin Board or the American Stock Exchange during the most recent two fiscal years. Quotations from the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of March 20, 2001, the number of shareholders of record of the Company's Common Stock was approximately 51 and the number of beneficial holders of the Company's Common Stock was approximately 301. The Company has not declared or paid any cash dividends on its Common Stock. The policy of the Board of Directors of the Company is to retain earnings, if any, for the expansion and development of the Company's business. Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including the Company's earnings, financial condition, bank and other contractual restrictions and other factors deemed relevant by the Board. ITEM 6. SELECTED FINANCIAL DATA

7 8

--------------- (1) Prior to fiscal year 1998, the Company's year-end was the last Saturday in December. Beginning in fiscal year 1998, the Company modified its operating year to end on the Saturday closest to December 31st. Due to this change, fiscal 1998 contained 53 weeks; all other years presented contained 52 weeks. (2) Includes a tax benefit (principally from the reversal of net deferred tax asset's valuation allowance) of approximately $1.1 million ($0.25 per diluted share) for fiscal year 1999. 8 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 contained herein are related to the plans and objectives of management for the future operations, economic performance, projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items. In the following 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 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. RESULTS OF OPERATIONS The following table sets forth, for the years indicated, the components of the Company's statements of operations expressed as a percentage of net sales:

Comparison of 2000 to 1999 The Company's net sales increased approximately $560,000, or 0.6%, to $95.2 million in 2000 from $94.7 million in 1999. The slight increase in net sales was primarily attributable to an intensified sales effort and improved product availability. The Company's gross profit increased approximately $869,000, or 5.5%, to $16.7 million for 2000 from $15.9 million in 1999. The increase in gross profit is attributable to the increase in net sales and to improved profit margins. As a percentage of net sales, gross profit increased to 17.6% in 2000 from 16.7% in 1999. The increase in gross profit margin is due principally to improved purchasing procedures on distribution products. Operating expenses increased approximately $843,000, or 6.5%, to $13.9 million in 2000 from $13.0 million in 1999. The increase in operating expenses was primarily due to higher facility and selling costs, increased corporate administrative and legal expenses, and costs associated with the June 30, 2000 Ball Ground sewing facility closure. As a percentage of net sales, operating expenses increased to 14.5% in 2000 from 13.7% in 1999. As a result of the above factors, operating profit remained constant at $2.9 million for 2000 and 1999. 9 10 Interest expense increased to $1.3 million in 2000 from $1.1 million in 1999. The Company's borrowing rate with its bank was reduced from prime plus .25% or LIBOR plus 2.50% in 1999 to prime or LIBOR plus 2.25% in 2000. However, the benefit of the reduced rate was offset by increases to the prime rate during 2000 and by increased borrowings under the Company's line of credit. As a result of the above factors, income before income taxes decreased approximately $83,000, or 4.7% to $1.7 million in 2000 from $1.8 million in 1999. Income before income taxes as a percentage of net sales remained relatively constant for 2000 and 1999. In 2000 the Company had an income tax provision of $644,000 compared to a tax benefit of $372,000 in 1999. The 1999 income tax provision of approximately $700,000 at statutory federal and state rates was favorably affected by a reduction in the deferred tax valuation allowance (and certain other minor offsetting matters) aggregating approximately $1.1 million, resulting in the benefit of approximately $372,000. Both the benefit and provision were computed based upon applying federal and state income tax rates to taxable income and offsetting the provision or benefit with changes in valuation allowances associated with deferred tax assets. As a result of the factors described above, net income decreased approximately $1.1 million, or 51.3%, to $1.0 million in 2000 from $2.1 million in 1999. Net income as a percentage of net sales decreased to 1.1% in 2000 from 2.2% in 1999. Comparison of 1999 to 1998 The Company's net sales increased approximately $12.8 million, or 15.6%, to $94.7 million in 1999 from $81.9 million in 1998. The increase in net sales was primarily attributable to an intensified sales effort and improved product availability. The Company's gross profit increased approximately $2.6 million, or 19.2%, to $15.9 million for 1999 from $13.3 million in 1998. The increase in gross profit is attributable to the increase in net sales and to increased gross profit margins. As a percentage of net sales, gross profit margin increased to 16.7% in 1999 from 16.2% in 1998. The increase in gross profit margin is due principally to increased margins on manufactured products and improved purchasing procedures on distribution products. Operating expenses increased approximately $2.2 million, or 20.6%, to $13.0 million in 1999 from $10.8 million in 1998. The increase in operating expenses was due primarily to increased selling costs associated with the national sales program, increased distribution costs, and to costs associated with the purchase of a new computer system which included training, data conversion costs and other non-capitalized costs. As a percentage of net sales, operating expenses increased to 13.7% in 1999 from 13.1% in 1998. As a result of the increase in net sales and gross profit, operating profit increased approximately $331,000, or 13.1% to $2.9 million in 1999 from $2.5 million in 1998. As a percentage of net sales, operating profit was 3.0% and 3.1% in 1999 and 1998, respectively. Interest expense was $1.1 million in both 1999 and 1998. The Company's borrowing rate with its bank was reduced from prime plus 1% in 1998 to prime plus .25% or LIBOR plus 2.50% in 1999. However, the benefit of the reduced rate was offset by increases to the prime rate during 1999 and by increased borrowings under the Company's line of credit. As a result of the above factors, income before income taxes increased approximately $486,000, or 37.8%, to $1.8 million in 1999 from $1.3 million in 1998. Income before income taxes as a percentage of net sales increased to 1.8% in 1999 from 1.6% in 1998. In 1999 the Company had an income tax benefit of $372,000 compared to an income tax expense of $76,000 in 1998. The 1999 income tax provision of approximately $700,000 at statutory federal and state rates was favorably affected by a reduction in the deferred tax valuation allowance (and certain other minor offsetting matters) aggregating approximately $1.1 million. As profitable operations have continued through fiscal 1999, the Company (in the fourth quarter of fiscal 1999) reduced its deferred tax valuation allowance as management believes that it is now more likely than not that most of the Company's net deferred tax assets will be realized. 10 11 As a result of the factors described above, net income increased approximately $934,000, or 77.3%, to $2.1 million in 1999 from $1.2 million in 1998. Net income as a percentage of net sales increased to 2.2% in 1999 from 1.5% in 1998. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by (used in) operating activities was $3.2 million, $(4.1) million and $1.9 million in 2000, 1999 and 1998, respectively. In 2000, cash provided by operating activities was primarily used to repay $2.6 million of borrowings under the Company's credit facility with a bank. At December 30, 2000, the credit facility, as amended, (i) provided for maximum borrowings of $17 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 March 20, 2001, the Company had borrowings totaling $11.1 million outstanding under the credit facility and availability to borrow $5.8 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 2001. 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. EFFECTS OF INFLATION The Company does not believe inflation has materially impacted earnings during the past three years. Substantial increases in costs could have a significant impact on the Company and the industry. If operating expenses increase, management believes it can recover increased costs by increasing prices but there is no assurance of such. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks from changes in interest rates that may impact our financial position. We have never used derivative instruments or engaged in hedging activities. The Company's credit facility bears interest at the prime rate or LIBOR plus 2.25%, subject to repricing annually. Accordingly, changes in the prime rate or LIBOR, which are effected by changes in interest rates generally, will offset the interest rate on and therefore the Company's costs under the credit facility. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements are filed with this report: Independent Auditors' Report Balance Sheets as of December 30, 2000 and January 1, 2000 Statements of Operations for the years ended December 30, 2000, January 1, 2000, and January 2, 1999 Statements of Stockholders' Equity for the years ended December 30, 2000, January 1, 2000, and January 2, 1999 Statements of Cash Flows for the years ended December 30, 2000, January 1, 2000, and January 2, 1999 11 12 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Full Line Distributors, Inc.: We have audited the accompanying balance sheets of Full Line Distributors, Inc. (the "Company") as of December 30, 2000 and January 1, 2000 and the related statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 30, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2000 and January 1, 2000 and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Atlanta, Georgia January 31, 2001 12 13 FULL LINE DISTRIBUTORS, INC. BALANCE SHEETS

See notes to financial statements. 13 14 FULL LINE DISTRIBUTORS, INC. STATEMENTS OF OPERATIONS

See notes to financial statements. 14 15 FULL LINE DISTRIBUTORS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See notes to financial statements. 15 16 FULL LINE DISTRIBUTORS, INC. STATEMENTS OF CASH FLOW

See notes to financial statements. 16 17 FULL LINE DISTRIBUTORS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Full Line Distributors, Inc. (The "Company") distributes and manufactures sportswear principally for the imprinted garment industry. The Company self-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. Prior to 1998, the Company's fiscal year ended on the last Saturday in December. The years ended December 30, 2000 (fiscal 2000) and January 1, 2000 (fiscal 1999) contained approximately 52 weeks. The Company modified its operating year in 1998 to end on the Saturday closest to December 31. Due to the change, the year ended January 2,1999 (fiscal 1998) contained 53 weeks. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories. Inventories are stated at the lower of cost (first-in first-out method) or market net of a reserve for markdowns and obsolescence. Revenue Recognition. Staff Accounting Bulletin No. ("SAB") 101, "Revenue Recognition in Financial Statements" provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101, as amended by SAB 101A and 101B, was effective beginning in the fourth quarter of fiscal year 2000. Management assessed the impact of the adoption of SAB 101 on the Company's 2000 financial position and results of operations and determined the affect to not be material. The Company recognizes revenue from product sales when shipped to the customer. At this point persuasive evidence of a sale arrangement exists, and the Company's price to the buyer is fixed and determinable and collectibility of the associated receivable is reasonably assured. Property, Plant and Equipment. Property, plant and equipment are stated at cost and are depreciated principally using the straight-line method over the estimated asset lives. Buildings and improvements are depreciated over 40 years, while machinery and equipment and furniture and fixtures are depreciated over periods ranging principally from five to ten years. The Company periodically evaluates assets for possible impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. In the event of a possible impairment, an evaluation of recoverability is performed. Such evaluation would compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a write down to fair market value is required. Assets held for sale are carried at the lower of carrying amount or fair value, less estimated costs to sell such assets. The Company discontinues depreciation of assets held for sale at the time the decision to sell the assets is made. Income Taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Basic and Diluted Net Income Per Share. Basic and diluted net income per share is calculated by dividing net income by the respective weighted average shares outstanding. In fiscal year 2000, 1999 and 1998 17 18 diluted net income per share includes the dilutive effect of 63,000, 86,000 and 14,000 options to purchase common stock, respectively. Fair Value of Financial Instruments. The Company's line of credit and long term debt bears interest at variable rates. As a result, the carrying value of the Company's financial instruments approximate their fair values. 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

The Company is obligated to purchase certain raw materials over a twelve-month period through December 31, 2001. The remaining purchase obligation under this contract is approximately $2.2 million at December 30, 2000. 3. PROPERTY, PLANT AND EQUIPMENT

4. LINE OF CREDIT AND LONG-TERM DEBT Line of Credit The Company maintains a credit facility with a bank. At December 30, 2000, 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 $11.7 million and availability to borrow $2.7 million as of December 30, 2000, compared to borrowings totaling $14.3 million and availability to borrow $736,000 as of January 1, 2000. 18 19 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 December 30, 2000 was 11.5%. A summary of long-term debt is as follows:

Maturities of long-term debt (exclusive of the credit facility and capital lease obligation -- see Note 5) at December 30, 2000 are as follows (in thousands): Fiscal Year 2001........................................................ $ 35 2002........................................................ 38 2003........................................................ 42 2004........................................................ 46 2005........................................................ 51 Thereafter.................................................. 392 ---- $604 ====

5. COMMITMENTS AND CONTINGENCIES The Company leases a plant facility and certain of its distribution facilities under noncancellable operating leases expiring through December 2004. The Company can, at its option, renew most of these leases at the then fair rental value. The Company also leases various other equipment under a capital lease. The net book value of assets under the capital lease at December 30, 2000 was $342,000. The present value of net minimum lease payments under the capital lease and future minimum lease payments under noncancellable operating leases at December 30, 2000 are as follows (in thousands):

Rent expense was $1,319,000, $1,201,000, and $1,191,000 for fiscal 2000, 1999 and 1998, respectively. 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. 19 20 6. RESTRUCTURING During the second quarter of 2000, the Company closed its sewing facility located in Ball Ground, Georgia. Closure costs included in operating expenses in the accompanying statement of operations consist of $29,000 of paid severance costs for 39 employees, impairment charges of $101,160 to record equipment at its net realizable value and other costs of $5,670 which were paid through December 30, 2000. The equipment is held for sale at December 30, 2000 and its adjusted basis of $32,631 is included in the other current assets in the accompanying balance sheet. The Company had no restructuring accrual outstanding at December 30, 2000. 7. INCOME TAXES The provision (benefit) for income taxes includes the following (in thousands):

The provision (benefit) for income taxes differs from amounts computed by applying the federal statutory rate to income before income taxes as follows (in thousands):

The tax effects of temporary differences at December 30, 2000 and January 1, 2000 are as follows (in thousands):

20 21 As a result of operating losses in fiscal 1995 through 1997, the Company established valuation allowances for all of its net deferred tax assets due to the uncertainty of their realization. As the Company experienced profitable operations during 1998 and 1999, the valuation allowance was reduced by approximately $1.1 million in the fourth quarter of 1999 as management believed that it was more likely than not that most of the Company's net deferred tax assets would be realized. The remaining valuation allowance at December 30, 2000 and January 1, 2000 is being maintained for certain deferred tax assets whose realization remains uncertain. 8. EMPLOYEE AND OUTSIDE DIRECTOR INCENTIVE PLANS In 1992, the Company's Chairman granted an option to an officer of the Company to purchase 97,500 shares of the Company's common stock owned by the Chairman for $1.21 per share. The officer resigned in early 1995. During March 1995 and April 1996, the Chairman purchased option rights covering 33,000 and 45,000 shares under this option agreement for approximately $150,000 and $54,800, respectively. As a result, 19,500 shares remain outstanding under this option agreement. The remaining option is currently exercisable and expires on March 1, 2002. The Company has established the Full Line Distributors, Inc. 1993 Employee Incentive Plan (the "Incentive Plan"). Awards under this plan may be represented by (i) incentive or nonqualified stock options, (ii) stock appreciation rights, (iii) restricted stock, or (iv) performance awards of stock, cash or a combination of stock and cash. Stock options granted under the Incentive Plan are nontransferable, have an exercise price of not less than 100% of the fair market value of the stock on the date of the grant, and may have a term of no longer than ten years. The Company has reserved 475,000 shares of common stock for issuance under the Incentive Plan. As of December 30, 2000 and January 1, 2000, 185,150 and 202,350 options, respectively, to acquire shares (which vest over one to four years) were outstanding under this plan. During 1994, the Company approved an Outside Directors Incentive Plan and reserved 40,000 shares for plan issuances. Awards under this plan may be represented by (i) nonqualified stock options, (ii) stock appreciation rights, (iii) restricted stock, or (iv) performance awards of stock, cash or a combination of stock and cash. Stock options granted under the Outside Directors Incentive Plan are nontransferable, have an exercise price of not less than 100% of the fair market value of the stock on the date of the grant, and may have a term of no longer than ten years. As of December 30, 2000 and January 1, 2000, 26,000 options to acquire shares (which vest over three to four years) were outstanding under this plan. During 1998, the Company granted its Chief Executive Officer a non-qualified stock option (not included in the Incentive Plan) to purchase 125,000 shares of the Company's common stock at $1.0625 per share representing the fair market value of the stock on the date of grant. The option vests ratably through May 2001 and expires in May 2008. As of December 30, 2000, 83,333 of the shares under the option are currently exercisable and the option remains outstanding. Activity for all stock options issued by the Company is as follows:

The Company applies Accounting Principle Board Opinion 25 and related interpretations in accounting for stock options. Accordingly, no compensation costs have been recognized for these grants. Had compensa- 21 22 tion cost for the Company's grants been determined based on the fair value at the grant dates consistent with the method of FASB Statement 123, "Accounting for Stock-Based Compensation," the Company's net income and net income per share for the years ended December 30, 2000, January 1, 2000, and January 2, 1999 would have changed to the pro forma amounts indicated below:

The fair value of each option grant has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2000, 1999 and 1998: (i) a weighted average risk-free interest rate of 6.6% (2000) and 5.6% (1999 and 1998), (ii) expected lives of five to ten years, (iii) expected volatility of approximately 65% (2000), 51% (1999) and 77% (1998) and (iv) no expected dividends. The weighted average fair value of options granted was $1.09, $.76 and $.80 for fiscal years 2000, 1999 and 1998, respectively. The following table summarizes information about stock options outstanding at December 30, 2000: OPTIONS OUTSTANDING

9. RELATED PARTY TRANSACTIONS The Company purchases certain merchandise for its distribution business from businesses affiliated with a former director and current stockholder of the Company. These purchases aggregated $438,000, $8,529,000 and $9,414,000 during fiscal 2000, 1999 and 1998, respectively. There were no amounts due to these businesses as of December 30, 2000. The amount due as of January 1, 2000 to these businesses was $1,553,900. The Company recorded $26,400 and $31,000 in sales to these businesses during fiscal 2000 and 1999, respectively. 22 23 A business owned by one of the Company's stockholders received commissions of approximately $4,000, $19,000 and $94,000 on the Company's purchases of certain merchandise for its distribution business during fiscal 2000, 1999 and 1998, respectively. These commissions generally average 4% of dollar purchases. 10. 401(K) RETIREMENT PLAN The Company sponsors a 401(k) Plan (the "Plan"). Substantially all employees are eligible for participation in the Plan after completing one year of service. Participants may defer and contribute to the Plan from 1% to 15% of their salary with certain limitations on highly compensated individuals. The Company matches 50% of the first 5% of the participants contributions. The participant's contributions vest 100% immediately, while the Company's contributions vest over six years. Company contributions were $95,530, $77,739 and $73,129 for fiscal 2000, 1999 and 1998, respectively. 11. QUARTERLY DATA (UNAUDITED) Summarized quarterly financial information:

--------------- (1) Includes $163,000 of bad debt expense on doubtful accounts receivable and an expense of disposal of inventory, totaling $342,000. (2) Includes $287,000 of bad debt expense on doubtful accounts receivable. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no occurrence requiring a response to this item. PART III Except as to information with respect to executive officers which is contained in a separate heading under Item 1 to this Form 10-K, the information required by Part III of Form 10-K is, pursuant to General Instruction G(3) of Form 10-K, incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A for the Company's Annual Meeting of Stockholders to be held in 2001 (the "Proxy Statement"). The Company will, within 120 days of the end of its fiscal year, file with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A. 23 24 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning directors and executive officers of the Registrant is set forth in the Proxy Statement under the headings "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934," which information is incorporated herein by reference. The name, age and position of each executive officer of the Company is set forth under the heading "Executive Officers" in Item 1 of this Report. ITEM 11. EXECUTIVE COMPENSATION The information concerning executive compensation is set forth in the Proxy Statement under the heading "Executive Compensation," which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information concerning security ownership of certain beneficial owners and management is set forth in the Proxy Statement under the heading "Security Ownership of Certain Beneficial Owners and Management," which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information concerning certain relationships and related transactions is set forth in the Proxy Statement under the headings "Certain Transactions" and "Compensation Committee Interlocks and Insider Participation," which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1). Financial Statements and Independent Auditors' Report. The following financial statements and independent auditors' report are included in Item 8 of this Report: Independent Auditors' Report Balance Sheets as of December 30, 2000 and January 1, 2000 Statements of Operations for fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 Statements of Cash Flows for fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 Statements of Stockholders' Equity for fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 Notes to Financial Statements (2). Financial Statement Schedules. Schedule I -- Valuation and qualifying accounts. (3). Exhibits. The exhibits listed below are filed with or incorporated by reference into this Report. The exhibits which are denominated with an asterisk (*) were previously filed as part of, and are hereby incorporated by reference from either (i) the Company's Registration Statement on Form S-1, Registration Number 33-60452, declared effective by the Securities and Exchange Commission on January 25, 1994 (the "S-1"); (ii) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "1994 10-K"); (iii) the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996 (the "3/30/96 10-Q"); 24 25 (iv) the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (the "1996 10-K"); (v) The Company's Annual Report on Form 10-K for the fiscal year ended December 27, 1997 (the "1997 10-K"); (vi) the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999 (the "10/2/99 10-Q") or (vii) the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 (the "1999 10-K"). Unless otherwise indicated, the exhibit number corresponds to the exhibit number in the referenced document.

25 26

(b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter ended December 30, 2000. 26 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 26, 2001 By: /s/ ISADOR E. MITZNER ---------------------------------------------------- Isador E. Mitzner Chairman of the Board and Chief Executive Officer (principal executive officer) Dated: March 26, 2001 By: /s/ MICKIE SCHNEIDER ---------------------------------------------------- Mickie Schneider Acting Chief Financial Officer (principal financial and accounting officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Dated: March 26, 2001 By: /s/ ISADOR E. MITZNER ---------------------------------------------------- Isador E. Mitzner Chairman of the Board and Chief Executive Officer Dated: March 26, 2001 By: /s/ J. DAVID KELLER ---------------------------------------------------- J. David Keller President, Secretary and Director Dated: March 26, 2001 By: /s/ KENNETH L. BERNHARDT ---------------------------------------------------- Kenneth L. Bernhardt Director Dated: March 26, 2001 By: /s/ IRWIN LOWENSTEIN ---------------------------------------------------- Irwin Lowenstein Director

27 28 SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNTS

28 29 EXHIBIT INDEX

FULL LINE DISTRIBUTORS INC 10-K