Exhibit 13
----------
B.B. WALKER COMPANY AND SUBSIDIARY
FIFTY-FIRST ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 30, 1999
1999 ANNUAL REPORT OF
B.B. WALKER COMPANY
B.B. WALKER COMPANY is a publicly held manufacturer and distributor of men's
and women's footwear, whose common stock is registered with the Securities and
Exchange Commission and is traded in the Over The Counter Securities Market.
A substantial portion of the Company's common stock is owned by employees
through participation in the Employee Stock Ownership Plan and Trust and by
many employees individually.
Founded in 1947 in Asheboro, North Carolina and incorporated in 1952 in the
State of North Carolina, the Company currently markets high quality, medium-
priced western and work/outdoor boots and shoes under the ABILENE BOOT COMPANY
name. A majority of the Company's sales are under trademarked brands. In
addition, the Company manufactures footwear under major retailers' private
labels and on contract for other footwear manufacturers. The Company also
operates two retail stores.
For western boot customers, the Company offers quality western boots through
two proprietary brands. Through its ABILENE[REGISTERED] brand, the Company
manufactures and markets high quality all-leather boots for the traditional
boot wearer that look and feel great. Abilene Boots[REGISTERED] feature the
AIR RIDE[REGISTERED] Comfort System which is designed to deliver comfort from
every part of the boot by utilizing a technologically advanced cushion insole.
Abilene Boots[REGISTERED] definitely live up to their "AFFORDABLE QUALITY"
[REGISTERED] slogan. The SAGE COLLECTION[REGISTERED] is offered at a lower
price point and features bright colors and accents which can be worn on most
any occasion by the metro fashion consumer or the traditional boot wearer.
Sage[REGISTERED] styles offer the same craftmanship and superior fit that
Abilene[REGISTERED] styles do.
For work/outdoor footwear customers, the Company markets quality boots through
its GOLDEN RETRIEVER[REGISTERED] brand, including pull-on, lace-up, lined,
insulated and waterproof, in a variety of heights, soles and constructions.
The Golden Retriever[REGISTERED] Easy Comfort[REGISTERED] System features a
specially contoured cushioned insole that is guaranteed to never give out.
Made for the working consumer, DURATUFF[REGISTERED]Work Boots feature
double cushioned insoles and are built to work for a living. The Company
continues to manufacture boots and shoes for work and safety use under the
WALKER FOOTWEAR THAT WORKS[REGISTERED] brand and the SAFETY FIRST[REGISTERED]
brand. The mainstays of this line are all-leather lace-up and pull-on utility
boots.
The Company has historically served the private label market, manufacturing
footwear for large retailers and other footwear manufacturers on a contract
basis. Most of the Company's private label products consist of work/outdoor
footwear. In addition, the Company also produces several styles purchased in
large quantities by institutional customers such as prison systems and work
camps.
B.B. WALKER COMPANY and its subsidiary are equal opportunity employers. All
matters regarding recruiting, hiring, training, compensation, benefits,
promotion, transfers and other personnel policies will continue to be free
from all discriminatory practices.
The Company and its subsidiary employ 350 people at October 30, 1999.
Contents Page
-------- ----
Financial Highlights.....................................1
Message to Shareholders..................................2
Consolidated Financial Statements and Notes..............4
Report of Independent Accountants.......................27
Selected Financial Data.................................28
Management's Discussion and Analysis of Results
of Operations and Financial Condition.................29
Stock Prices............................................41
Officers and Directors..........................Back Cover
Inside Front Cover
B.B. WALKER COMPANY AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
Fiscal Year Ended
---------------------------------------
October 30, October 31, November 1,
1999 1998 1997
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except per share data)
OPERATIONS
Net sales $ 25,896 $ 28,813 $ 32,648
======== ======== ========
Income (loss) before income taxes
and minority interest (591) (736) (54)
Provision for (benefit from)
income taxes - (813) (80)
Minority interest (1) (2) (2)
-------- -------- --------
Net income (loss) $ (592) $ 75 $ 24
======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE $ (.34) $ .04 $ .01
======== ======== ========
Average number of shares outstanding 1,735 1,724 1,729
======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ (.34) $ .04 $ .01
======== ======== ========
Average number of shares outstanding 1,735 1,727 1,732
======== ======== ========
FINANCIAL CONDITION,
Current assets $ 17,995 $ 18,314 $ 19,268
Current liabilities 14,309 14,102 13,368
Working capital 3,686 4,212 5,900
Current ratio 1.26 to 1 1.30 to 1 1.44 to 1
Long-term obligations,
non-current portion 1,187 1,303 3,216
Shareholders' equity 4,065 4,642 4,557
Book value per common share 2.28 2.65 2.59
1
CHAIRMAN'S MESSAGE TO SHAREHOLDERS
TO OUR SHAREHOLDERS
1999 was a watershed year for the footwear industry. Import penetration into
the U.S. footwear market increased to 95% making it easier for other companies
to enter the work shoe market. This resulted in a proliferation of brands
full of low-priced imports. Due to this increased competition, we were forced
to rethink our approach to the work shoe business and take action to preserve
our position in the industry.
Accordingly, we dramatically reduced our manufacturing operation in Asheboro
and increased our manufacturing operation in Asheboro and increased our use
of imports. Introduced by the Company in late 1999, a line of work shoes
manufactured in Mexico will begin shipment early in calendar 2000. As a
result of these actions, coupled with our continuing domestic production of
the product, we hope to recover some of the ground we have lost in the work
shoe market these past two years.
In a declining overall market, we are pleased to report that our western boot
market share has continued to increase this past year. Due to our new
product line being introduced in January 2000 plus the return of the western
influence in fashion, we expect this trend to continue.
Although the company showed a 1% increase in sales of western footwear in
1999, it was not enough to overcome the 21% decrease in work/outdoor shoe
shipments. Overall net sales dropped $2,917,000 (or 10%) from $28,813,000
in 1998 to $25,896,000 in 1999. In spite of this year's decrease in net
sales, a positive note is that gross margin as a percentage of sales
increased from 25% in 1998 to 28% in 1999. This 3% increase was due
primarily to improved operations from the welt and cement construction
footwear being produced in separate locations since late in fiscal 1998.
This improvement allowed our loss from operations to be reduced $145,000
(or 20%) from $736,000 in 1998 to $591,000 in 1999.
The Company's net loss before taxes of $738,000 in 1998 was overcome by
a significant $813,000 adjustment to our tax provision resulting in net
income of $75,000 in 1998, whereas there was no valuation allowance
available to adjust the $592,000 loss in 1999. However, it is possible
that the Company will have significant net income in 2000 (which will
allow the Company to offset related income tax liabilities with net
operating loss carryforwards from prior years) as a result of an
attractive offer received in December 1999 to sell all of its 26 acres
of real property in Asheboro, North Carolina. This land is in one of
the prime commercial sections of Randolph County.
2
CHAIRMAN'S LETTER TO SHAREHOLDERS, Continued
The Company entered into a contract to sell its Asheboro, NC property
on February 4, 2000. Under this contract, the purchaser has a
substantial period to examine the suitability of the property for its
needs. At the end of this 180 day period, the purchaser may extend
the examination period for two additional 90 day periods. At the end
of the examination period, the contract may be terminated by the
purchaser without further obligation to the Company. Accordingly,
there can be no assurances that the sale of the Asheboro, NC property
will be consummated or, if consummated, that such sale will occur in
the Company's fiscal year 2000. If the sale is consummated in fiscal
year 2000, the resulting selling price is expected to have a
significant positive impact on the Company's net worth, as the property
is carried on our books at a relatively low valuation. While there
will be costs associated with relocating the Asheboro facility and some
interruption in the Company's manufacturing operations, the Company
has taken steps to limit the effects of these matters and does not
expect the relocation to have a material adverse effect on the
operations of the Company.
The coming year will be another one of major transition for B.B.
Walker Company, as we look forward to the relocation of our
facilities in this area. In the meantime, we appreciate the support
and loyalty of our customers, shareholders, and employees.
Sincerely,
KENT T. ANDERSON
- ----------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer, and President
3
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Fiscal Year Ended
-------------------------------------
October 30, October 31, November 1,
1999 1998 1997
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except per share data)
Revenues:
Net sales (Note 11) $ 25,896 $ 28,813 $ 32,648
Interest and other income 152 39 77
------- ------- -------
26,048 28,852 32,725
------- ------- -------
Costs and expenses:
Cost of products sold 18,611 21,507 24,121
Selling and administrative
expenses (Note 12) 6,888 6,736 6,996
Depreciation and amortization 192 269 458
Interest expense 948 1,076 1,204
------- ------- -------
26,639 29,588 32,779
------- ------- -------
Loss before income taxes
and minority interest (591) (736) (54)
Benefit from income taxes (Note 7) - (813) (80)
Minority interest (1) (2) (2)
------- ------- -------
Net income (loss) $ (592) $ 75 $ 24
======= ======= =======
Basic and diluted earnings (loss)
per share (Note 1) $ (.34) $ .04 $ .01
======= ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
October 30, October 31,
1999 1998
----------- -----------
(In thousands, except share data)
CURRENT ASSETS:
Cash $ 1 $ 1
Accounts receivable, less allowance for doubtful
accounts of $525 in 1999 and $557 in 1998 (Note 4) 6,471 7,157
Inventories (Notes 2 and 4) 9,210 9,660
Prepaid expenses 471 446
Property held for sale (Notes 1 and 14) 803 -
Deferred income tax benefit, current (Note 7) 1,039 1,050
------- -------
Total current assets 17,995 18,314
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization (Notes 3, 4, 5, and 14) 1,467 1,622
OTHER ASSETS 130 144
------- -------
$ 19,592 $ 20,080
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
5
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
LIABILITIES AND SHAREHOLDERS' EQUITY
October 30, October 31,
1999 1998
----------- -----------
(In thousands, except share data)
CURRENT LIABILITIES:
Borrowings under finance agreement (Note 4) $ 7,113 $ 6,885
Accounts payable, trade 3,518 3,536
Accrued salaries, wages and bonuses 368 367
Other accounts payable and accrued liabilities 471 555
Portion of long-term obligations payable
within one year (Note 5) 2,657 2,566
Income taxes payable (Note 7) 182 193
------- -------
Total current liabilities 14,309 14,102
------- -------
LONG-TERM OBLIGATIONS (Note 5) 1,187 1,303
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARY 31 33
SHAREHOLDERS' EQUITY (Notes 10):
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 1999 and 1998 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,745,954 shares in 1999 and
1,720,954 shares in 1998 issued and outstanding 1,746 1,721
Capital in excess of par value 2,712 2,717
Retained earnings (deficit) (400) 198
Equity loans collateralized by Company
common stock (76) (77)
------- -------
Total shareholders' equity 4,065 4,642
------- -------
COMMITMENTS AND CONTINGENCIES (Note 9)
$ 19,592 $ 20,080
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
6
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-------------------------------------
October 30, October 31, November 1,
1999 1998 1997
52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except share data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (592) $ 75 $ 24
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization 192 269 458
Gain on sale of fixed assets (11) (3) (29)
(Increase) decrease in:
Accounts receivable, trade (net) 686 1,927 1,724
Inventories 450 (127) 2,978
Prepaid expenses (25) (33) 28
Deferred income tax benefit 11 (813) (87)
Other assets 14 12 58
Increase (decrease) in:
Accounts payable, trade 18 (401) (1,047)
Accrued salaries, wages and bonuses 1 (101) (634)
Other accounts payable and
accrued liabilities (84) 66 (191)
Income taxes payable (11) 170 1,065
------- ------- -------
Net cash provided (used) by
operating activities 613 1,041 4,347
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (37) (141) -
Proceeds from disposal of property, plant
and equipment 11 3 29
Purchase of property held for sale (803) - -
------- ------- -------
Net cash provided (used) by
investing activities (829) (138) 29
------- ------- -------
(Continued)
7
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Fiscal Year Ended
-------------------------------------
October 30, October 31, November 1,
1999 1998 1997
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except share data)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under
finance agreement $ 228 $ (479) $ (4,100)
Proceeds from issuance of
short-term obligations 478 - -
Proceeds from issuance of
long-term obligations 59 75 241
Proceeds from issuance of common stock 20 - -
Payment on long-term obligations (562) (509) (528)
Purchase of subsidiary common stock
from minority interest (2) - -
Loans to shareholders (15) - -
Repayments of loans to shareholders 16 16 17
Dividends paid on 7% cumulative
preferred stock (6) (6) (6)
------- ------- -------
Net cash provided (used) by financing
activities 216 (903) (4,376)
------- ------- -------
Net change in cash - - -
Cash at beginning of year 1 1 1
------- ------- -------
Cash at end of year $ 1 $ 1 $ 1
======= ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
8
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Equity Loans
(In thousands, 7% Cumulative Capital in Retained Collateralized Total
except number Preferred Stock Common Stock Excess of Earnings By Common Shareholders'
of shares) Shares Amount Shares Amount Par Value (Deficit) Stock Equity
------ ------ --------- ------ --------- -------- -------------- -------------
Balance at November 2, 1996 828 $ 83 1,726,534 $ 1,727 $ 2,724 $ 111 $ (123) $ 4,522
Repayment of equity loans col-
lateralized by common stock - - - - - - 17 17
Net income - - - - - 24 - 24
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at November 1, 1997 828 83 1,726,534 1,727 2,724 129 (106) 4,557
Repayment of equity loans by
retirement of common stock - - (5,580) (6) (7) 13 -
Repayment of equity loans col-
laterized by common stock - - - - - - 16 16
Net income - - - - - 75 - 75
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 31, 1998 828 83 1,720,954 1,721 2,717 198 (77) 4,642
Issuance of common stock - - 25,000 25 (5) - - 20
Equity loans collaterized
by common stock - - - - - - (15) (15)
Repayment of equity loans col-
lateralized by common stock - - - - - - 16 16
Net loss - - - - - (592) - (592)
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 30, 1999 828 $ 83 1,745,954 $ 1,746 $ 2,712 $ (400) $ (76) $ 4,065
==== ==== ========= ====== ======= ====== ====== ========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
9
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Business
- --------
B.B. Walker Company and Subsidiary (the "Company") is engaged in the design,
manufacture, marketing and distribution of western and work/outdoor footwear.
The Company's sales come primarily from sales of branded footwear to small
independent retail chains and private label products to selected large
retailers. The Company has manufacturing facilities in Asheboro, North
Carolina and Somerset, Pennsylvania. A subsequent event relating to the
Asheboro, North Carolina property is discussed in Note 14. The significant
accounting policies followed by the Company in preparing the accompanying
consolidated financial statements are as follows:
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of B.B. Walker
Company and its subsidiary. All significant intercompany balances and
transactions are eliminated in consolidation.
Use of estimates in the preparation of financial statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
the accompanying notes. Actual results could differ from those estimates.
Inventories
- -----------
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out basis.
Property, plant and equipment
- -----------------------------
All property, plant and equipment, except assets under capital leases, are
reported at cost. Assets under capital leases are reported at the present
value of the minimum lease payments. Maintenance and repairs which do not
improve or extend the life of an asset are charged to expense as incurred.
Any gain or loss on the disposal of assets is recorded as other income or
expense.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. The depreciable lives for various classes of property,
plant and equipment are as follows:
Buildings and improvements 5 to 40 years
Machinery and equipment 3 to 10 years
10
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 1 - ACCOUNTING POLICIES, Continued
Earnings per share
- ------------------
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted-average number of common shares
outstanding for the year. In arriving at income available to common
shareholders, preferred stock dividends of $5,796 were deducted in each year
presented. Diluted EPS reflects the potential dilution that could occur if
dilutive securities and other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. The weighted average number
of shares, including common stock equivalents, used in earnings per share
computations were:
1999 1998 1997
--------- --------- ---------
Primary 1,735,000 1,724,000 1,729,000
Fully diluted 1,735,000 1,727,000 1,732,000
Revenue recognition
- -------------------
The Company recognizes a sale when the goods are shipped or ownership and
risk of loss is otherwise assumed by the customer.
Advertising costs
- -----------------
The Company expenses advertising costs, other than direct response
advertising, as incurred. Direct response advertising was expensed the first
time the advertising appears. Advertising expense for 1999, 1998, and 1997 is
$860,000, $925,000, and $1,011,000, respectively.
Fiscal year
- -----------
The Company's operations are based on a fifty-two, fifty-three week fiscal
year that ends on the Saturday closest to October 31. The fiscal years ended
October 30, 1999, October 31, 1998, and November 1, 1997 consisted of
fifty-two weeks each.
NOTE 2 - INVENTORIES
Inventories consisted of the following:
(In thousands)
October 30, October 31,
1999 1998
----------- -----------
Finished goods $ 6,059 $ 5,167
Work in process 544 945
Raw materials and supplies 2,607 3,548
-------- --------
$ 9,210 $ 9,660
======== ========
11
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, by major class, was as follows:
(In thousands)
October 31, November 1,
1998 1997
----------- -----------
Land $ 531 $ 531
Buildings 2,294 2,287
Leasehold improvements 459 459
Machinery and equipment 4,715 4,710
Transportation equipment 158 158
-------- --------
8,157 8,145
Less accumulated depreciation
and amortization 6,690 6,523
-------- --------
$ 1,467 $ 1,622
======== ========
12
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 4 - BORROWINGS UNDER FINANCE AGREEMENT
On August 15, 1995, the Company entered into a revolving finance agreement
(the "Agreement") with a bank which permits borrowings up to certain
percentages of eligible accounts receivable and inventories. Advances
available to the Company cannot exceed $8,000,000 in the aggregate, of which
no more than $4,000,000 may be borrowed against inventory. Under the terms
of the Agreement, interest at the bank's prime rate plus 1.50% (9.75% at
October 30, 1999) is accrued on all outstanding amounts. The Company pays
a monthly commitment fee equal to .25% of the unused availability under the
Agreement along with other miscellaneous fees related to its operation.
As discussed more fully in Note 5, the Agreement also provides a term loan
of $3,000,000 with a variable interest rate at the bank's prime rate plus
1.50%. Proceeds from this loan were used to repay the existing deed of trust
on the Asheboro facility with the remainder applied against the outstanding
amount under the revolving finance agreement. Subsequent to fiscal year
ending October 30, 1999, the Agreement was amended effective on December 30,
1999 to set the maturity date at December 31, 2000, and on January 26, 2000 to
amend certain restrictive covenants effective October 30, 1999 and thereafter.
Borrowings under the Agreement are secured by all accounts receivable,
inventories, and machinery and equipment of the Company. In addition, the
bank has a first lien on the Asheboro land and facilities. The bank also
as a subordinated security interest in the manufacturing facility in Somerset.
The amended Agreement contains various restrictive covenants effective October
30, 1999, which include, among other things, maintenance of certain financial
ratios, limits on capital expenditures, minimum net worth requirements and net
income requirements. The Agreement also restricts payment of dividends on
common stock to payments made with shares of common stock. At October 30,
1999, the Company was in compliance with its restrictive covenants.
A summary of activity for borrowings under the finance agreement for the
year is as follows:
(In thousands)
Fiscal year
----------------------------
1999 1998 1997
-------- -------- --------
Average short-term borrowings $ 6,396 $ 6,900 $ 7,780
Maximum short-term borrowings $ 7,155 7,592 $ 11,526
Weighted average interest rate 9.7% 10.3% 10.4%
Interest rate at year-end 9.8% 9.5% 10.3%
The weighted average interest rate is computed by dividing interest expense
and other borrowing costs on the short-term borrowings by the average
borrowings during the fiscal year.
13
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 5 - LONG TERM OBLIGATIONS
Long-term debt and other non-current obligations consist of the following:
(In thousands)
October 30, October 31,
1999 1998
----------- -----------
Note payable to a bank, payable in monthly
installments of $35,714 with a balloon
payment of $990,224 due December 31, 2000
(as amended), variable interest at the
bank's prime rate plus 1.50% (9.75% at
October 30, 1999) $ 1,490 $ 1,894
Note payable to a bank, due in monthly
installments of $2,550 through January 2009,
variable interest at the bank's prime rate
plus .75% (9.00% at October 30, 1999),
secured by the Company's land and building
in Somerset, PA 192 205
Note payable to the Pennsylvania Industrial
Development Authority, due in monthly
installments of $3,089 through February
2010, fixed interest at 2% per annum,
secured by the Company's land and building
in Somerset, PA 343 373
Note payable to the Pennsylvania Economic
Revitalization Fund, due in monthly
installments of $1,544 through August 2010,
fixed interest at 2% per annum, secured
by the Company's land and buildings
in Somerset, PA 179 194
Note payable to a bank, payable on December 31,
2000 (as amended), variable interest at the
bank's prime rate plus 1.50% (9.75% at
October 30, 1999) 478 -
Promissory notes payable to shareholders,
due in varying amounts through 2003, variable
interest based on prime rate 1,162 1,203
-------- --------
3,844 3,869
Less amounts payable within one year 2,657 2,566
-------- --------
$ 1,187 $ 1,303
======== ========
14
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 5 - LONG TERM OBLIGATIONS, Continued
The effective interest rate on the promissory notes payable to shareholders
averaged 9.7% and 9.5% in 1999 and 1998, respectively. Cash paid for interest
was $952,000 in 1999, $1,089,000 in 1998, and $1,124,000 in 1997.
Principal maturities on long-term obligations are as follows:
Fiscal Year (In thousands)
Ending Amounts
----------- ------------
2000 $ 2,657
2001 360
2002 282
2003 84
2004 69
Thereafter 392
---------
$ 3,844
=========
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, short-term notes receivable,
and borrowings under finance agreement approximate fair value because of the
short maturity of those instruments. The carrying amount of long-term debt
approximates fair value because the interest rate is variable based on the
bank's prime rate.
15
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES
The components of the provision for (benefit from) income taxes are as
follows:
(In thousands)
October 30, October 31, November 1,
1999 1998 1997
----------- ----------- -----------
Current:
Federal $ - $ - $ 7
State - - -
------- ------- -------
- - 7
------- ------- -------
Deferred:
Federal - (533) (87)
State - (280) -
------- ------- -------
- (813) (87)
------- ------- -------
$ - $ (813) $ (80)
======= ======= =======
The Company has net operating loss carryforwards available to offset future
U.S. tax liabilities of approximately $2,075,000, of which $450,000 will
expire in 2012, $940,000 will expire in 2018, and $685,000 will expire in
2019. The Company has state net operating loss carryforwards of $4,835,000,
which expire from 2000 to 2014. Due to the uncertainty surrounding the
ability of the Company to utilize these loss carryforwards, a valuation
allowance of $1,190,000 was recorded in fiscal 1996. During fiscal 1998, the
Company began negotiating the sale of its manufacturing facility in Asheboro,
NC, along with an adjacent piece of property. The projected gain on this sale
was expected to be sufficient to utilize all of the net operating loss
carryforwards generated through 1998 and was accounted for in the release of
the valuation allowance in 1998 which produced an income tax benefit of
$609,000. That particular contract expired on February 26, 1999, without
further obligation to the Company (see "Subsequent Event," Note 14). Due to
the uncertainty of the Company's operating profitability, the 1999 current
year increase in the deferred tax asset was offset by an increase to the
valuation allowance of $224,000.
Cash paid for income taxes, net of refunds, was $0 in 1999, $166,000 in 1998,
and $1,061,000 in 1997.
16
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES, Continued
The provision for (benefit from) income taxes differs from the amount computed
by applying the U.S. federal income tax rate of 34 percent to income (loss)
before income taxes for the three years ended October 30, 1999, October 31,
1998, and November 1, 1997 as follows:
(In thousands)
October 30, October 31, November 1,
1999 1998 1997
----------- ----------- -----------
Computed expected income tax
benefit $ (201) $ (251) $ (18)
State income tax benefit, net
of federal income tax benefit (30) (37) (40)
Change in the valuation allowance 224 (609) (62)
Other, net 7 84 40
------- ------- -------
$ - $ (813) $ (80)
======= ======= =======
The significant components of deferred income tax expense for 1999, 1998, and
1997 are as follows:
(In thousands)
1999 1998 1997
----------- ----------- -----------
Deferred tax expense (exclusive of
the effect of other components
listed below) $ 44 $ 21 $ 275
State deferred tax benefit (28) (20) (40)
Federal operating loss and
credit carryforwards (240) (205) (260)
Change in the valuation allowance 224 (609) (62)
------- ------- -------
$ - $ (813) $ (87)
======= ======= =======
17
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at October 30, 1999 and October 31, 1998
are as follows:
(In thousands)
October 30, October 31,
1999 1998
----------- -----------
Deferred tax assets:
Current portion:
Provision for doubtful accounts $ 206 $ 219
Reserve for sales discounts 58 36
Self insurance accrual for claims incurred
but not reported at year-end 21 41
Inventories, principally due to additional
costs inventoried for tax purposes 305 319
Accruals for certain personnel costs 15 22
Federal net operating loss carryforward 706 465
State economic loss carryforward 383 348
Other 29 29
------- -------
Total current 1,723 1,479
------- -------
Long-term portion:
Fixed assets 189 206
Other 7 4
------- -------
Total long-term 196 210
------- -------
Total gross deferred tax assets 1,919 1,689
Valuation allowance (743) (519)
------- -------
1,176 1,170
------- -------
Deferred tax liabilities:
Current portion:
Prepaid employee benefits (137) (120)
------- -------
Net deferred tax asset $ 1,039 $ 1,050
======= =======
18
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Company and its subsidiary sponsor retirement plans which provide benefits
to all qualified employees. Administrative and trustee expenses associated
with these plans are paid by the Company.
The Company provides a non-contributory, defined contribution plan that
invests in the common stock of the Company. The plan covers all eligible
employees excluding employees of the Company's subsidiary who are covered by a
defined benefit pension plan. Contributions to the Employee Stock Ownership
Plan of B.B. Walker Company, which are determined by the Board of Directors,
were $65,000 in 1999, 1998, and 1997.
The Retirement Savings Plan of B.B. Walker Company, a Section 401-K plan, is
available to all eligible employees of the Company who meet certain age and
service requirements. This plan was opened to employees of the Company's
subsidiary during 1997. Employee contributions are limited to a percentage of
their base compensation, as defined in the plan. The plan does provide for
matching contributions by the Company, but such contributions are made at the
discretion of the Company. Contributions to the plan were $23,343 in 1999,
$20,800 in 1998, and $16,500 in 1997.
For the benefit of the employees of its subsidiary, the Company sponsors a
non-contributory, defined benefit pension plan. The plan provides benefits
based on years of service. The Company's funding policy is to contribute
annually the minimum required contribution. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
Net annual pension expense for 1999, 1998, and 1997 included the following
components:
(In thousands)
1999 1998 1997
------ ------ ------
Service cost - benefits earned during the period $ 85 $ 88 $ 91
Interest on projected benefit obligation 82 76 66
Actual return on plan assets (81) (77) (67)
Net amortization and deferral (15) (18) (17)
---- ---- ----
Net annual pension expense $ 71 $ 69 $ 73
==== ==== ====
19
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The following table sets forth the plan's funded status at October 30, 1999
and October 31, 1998:
(In thousands)
October 30, October 31,
1999 1998
----------- -----------
Actuarial present value of benefit obligations:
Vested benefit obligations $ 1,094 $ 1,068
======= =======
Accumulated benefit obligations $ 1,178 $ 1,155
======= =======
Projected benefit obligation $ (1,178) $ (1,155)
Plan assets at fair value 1,334 1,330
------- -------
Plan assets in excess of projected
benefit obligation 156 175
Unrecognized net loss 234 181
Unrecognized net asset at transition (41) (50)
------- -------
Prepaid pension cost $ 349 $ 306
======= =======
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation and the expected long-term rate of
return on assets was 7.5% for 1999, 1998, and 1997.
20
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The Company also has an incentive bonus plan for employees which allows the
Company to pay bonuses based upon certain percentages of operating profit.
No incentive bonuses were granted in 1999, 1998, or 1997.
In March 1995, the Board of Directors approved, and the shareholders ratified,
the 1995 Incentive Stock Option Plan and Automatic Stock Option Grant Program
for Key Employees and Non-Employee Directors. Under the Incentive Stock
Option Plan for Key Employees, a maximum of 300,000 shares of the Company's
authorized but unissued common stock have been reserved for issuance to key
employees. For employees owning less than 10% of the Company's common stock,
the options are granted at not less than 100% of the fair market value at the
date of grant and expire ten years from the date of grant. For employees
owning 10% or more of the Company's stock, options are granted at not less
than 110% of the fair market value and expire five years from the date of
grant. One-half of the options granted are exercisable at the date of grant;
one-half are exercisable after twelve months.
Under the Automatic Stock Option Grant Program of the 1995 Incentive Stock
Option Plan, a maximum of 50,000 shares of the Company's authorized but
unissued common stock has been reserved for issuance to non-employee directors
of the Company. Non-employee directors will be granted an option to purchase
1,000 shares of common stock on the first business day after the annual
meeting of shareholders where the director is elected or remains a member of
the Board of Directors. The option price for each option granted is 100% of
the fair market value at the date of grant. The options will expire ten years
from the date of grant. One-half of the options granted are exercisable at
the date of grant; one-half are exercisable after twelve months.
The Company's 1987 Incentive Stock Option Plan, which covered 300,000 shares
of the Company's common stock, expired during 1997 according to the terms of
the plan. All options under the plan that have been granted but not exercised
will expire ten years from the date of grant and no additional options will be
granted under this plan. The terms governing this plan are substantially the
same as the 1995 Incentive Stock Option Plan described above.
21
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The Company follows Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for these plans in the Consolidated
Statements of Income (Loss). Proforma information regarding net income
(loss) and per share amounts required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," is presented
below:
(In thousands, except per share amount)
1999 1998
------ ------
Net income (loss) As reported $ (592) $ 75
Pro forma (596) 41
Basic and diluted earnings As reported $ (.34) $ .04
(loss) per share Pro forma (.34) .02
22
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively: no
expected dividend yield for each year; expected volatility of 204% for each
year; risk free interest rates of 6.25%, 6.00%, and 6.76%; and expected lives
of ten years.
A summary of the activity in the Company's stock option plans is as follows:
Year of Number of Options Price Weighted-Average
Grant Shares Per Share Exercise Price
------- --------- ------------- ----------------
Options outstanding at
November 2, 1996 159,450 1.33 - 4.00 3.55
Granted 81,000 0.75 0.75
Forfeited 1992-1995 (11,250) 2.00 - 4.00 3.47
Expired 1987 (3,000) 1.33 1.33
--------
Options outstanding at
November 1, 1997 226,200 0.75 - 4.00 2.58
Granted 10,000 0.63 - 1.00 0.81
Forfeited 1987-1995 (27,250) 0.75 - 4.00 2.90
--------
Options outstanding at
October 31, 1998 208,950 0.63 - 4.00 2.45
Granted 5,000 1.50 1.50
Forfeited 1995-1997 (11,000) 0.75 - 3.50 2.25
Exercised 1997 (25,000) 0.75 0.75
--------
Options outstanding at
October 30, 1999 177,950 0.63 - 4.00 2.67
========
Options available for future grant - 1995 plan 211,000
=======
Outstanding options exercisable at October 30, 1999, October 31, 1998, and
November 1, 1997 were 175,450, 203,950, and 185,700, respectively.
23
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company has entered into various operating leases for certain buildings
and machinery and equipment. The agreements expire at various dates
through 2003. The future minimum lease payments under noncancellable
operating leases with initial terms of one year or more are as follows:
(In thousands)
Operating
Fiscal year ending Leases
------------------ ---------
2000 $ 400
2001 201
2002 186
2003 164
2004 105
-------
Total minimum lease payments $ 1,056
=======
Rental expense amounted to $438,000, $558,000 in 1998, and $589,000 in 1997.
LITIGATION
From time to time, the Company is a defendant in legal actions involving
claims arising in the normal course of business. In management's opinion,
after consultation with counsel and a review of the facts, the liabilities, if
any, resulting from such legal proceedings presently pending will not have a
material effect on the Company's financial position or results of operations.
NOTE 10 - SHAREHOLDERS' EQUITY
The 7% cumulative preferred stock is callable at the option of the Company at
$103 per share plus any unpaid dividends. Preferred shareholders are entitled
to seventy voting rights per share if dividends on preferred stock are not
paid within ninety days after the scheduled due date. At October 30, 1999,
there are no preferred dividends in arrears.
The Company is authorized to issue up to 200,000 shares of Class A preferred
stock having no par value. The Class A preferred stock may be issued in one
or more series with terms, preferences, limitations and relative rights being
established by the Board of Directors. At October 30, 1999, no Class A
preferred stock has been issued.
The Company has made loans to certain key employees for the purchase of the
Company's common stock as stipulated in the 1987 Incentive Stock Option Plan.
The loans are secured by the common stock purchased and shares are released
from collateral as the loan principal is paid down. The loans bear interest
at 4% annually.
24
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 11 - CREDIT CONCENTRATIONS AND SALES TO MAJOR CUSTOMERS
The Company's trade receivables do not represent significant concentrations of
credit risk because a large number of geographically diverse customers
comprise the customer base. However, a substantial portion of the customer
base is retailers. In 1999, 1998, and 1997, one major customer comprised
11.79%, 11.89%, and 10.25% of net sales, respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
Through July 1997, the Company employed an advertising agency and public
relations firm that was owned by an officer and director of the Company and
his wife, who also managed and directed the daily operations of the agency.
The agency rendered technical and creative services to the Company in the
areas of design, layout, photography and other services essential to its
advertising programs. The agency also placed Company advertisements and ad
copy in trade publications, footwear magazines and other related media sources,
and coordinated public relations events and press releases for the Company.
In August 1997, the Company created an in-house advertising agency to provide
more focus to its advertising programs. The in-house agency is staffed by
four employees who were formerly employed by the Company's external
advertising agency. The manager of the external advertising agency, who is
also the wife of an officer and director of the Company, is managing the
operations for the in-house agency and is providing consultation regarding the
implementation of advertising programs. The manager, who still manages the
external advertising agency, is on a monthly retainer to the Company and is
supervised by management of the Company. The in-house agency will provide
comparable technical and creative services, as well as fulfilling other
functions related to the Company's advertising programs as previously provided
by the external agency.
In 1999, 1998, and 1997, the Company paid the external advertising agency
$88,800, $93,600, and 373,300, respectively, for services rendered.
25
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 13 - OPERATING SEGMENTS
In June 1997, FAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued effective for fiscal years ending after
December 15, 1998. The Company's reportable segments are wholesale and
retail sales. Whereas wholesale sales are made to major chain wholesale
stores, retail stores, and governmental entities, our retail sales are
made directly to the public from the Company's two retail outlet stores
in Asheboro, North Carolina and Lancaster, Pennsylvania. The segments
are managed separately because each business unit requires different
marketing strategies. The Company evaluates performance based on
operating earnings of the respective business units. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. Segment information for the years 1999,
1998, and 1997 follows:
WHOLESALE RETAIL TOTAL
-------------------------------
1999 (in 000s)
-------------------------------
Net sales $ 23,896 $ 2,000 $ 25,896
Cost of sales 17,433 1,178 18,611
Gross profit 6,463 822 7,285
Operating earnings (losses) (618) 27 (591)
Depreciation and amortization 191 1 192
-------------------------------
1998 (in 000s)
-------------------------------
Net sales $ 26,647 $ 2,166 $ 28,813
Cost of sales 20,226 1,281 21,507
Gross profit 6,421 885 7,306
Operating earnings (losses) (845) 109 (736)
Depreciation and amortization 268 1 269
-------------------------------
1997 (in 000s)
-------------------------------
Net sales $ 30,267 $ 2,381 $ 32,648
Cost of sales 22,752 1,369 24,121
Gross profit 7,515 1,012 8,527
Operating earnings (losses) (225) 171 (54)
Depreciation and amortization 457 1 458
NOTE 14 - SUBSEQUENT EVENT
In February 2000, the Company entered into a contract to sell its
manufacturing facility in Asheboro, NC, along with an adjacent piece of
property.
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of B.B. Walker Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), of cash flows, and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of B.B. Walker Company and its subsidiary at October 30, 1999 and
October 31, 1998, and the results of their operations and their cash flows
for each of the three years in the period ended October 30, 1999, in
conformity with generally accepted accounting principles generally accepted
in the United States. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
- --------------------------
PricewaterhouseCoopers LLP
Greensboro, North Carolina
December 3, 1999
27
B.B. WALKER COMPANY AND SUBSIDIARY
SELECTED FINANCIAL DATA
(In thousands, except for
items denoted by (1) below)
1999 1998 1997 1996 1995
(52 weeks) (52 weeks) (53 weeks) (53 weeks) (52 weeks)
---------- ---------- ---------- ---------- ----------
RESULTS OF OPERATIONS:
Net sales $ 25,896 $ 28,813 $ 32,648 $ 37,506 $ 43,453
======= ======= ======= ======= =======
Income (loss) from continuing operations
before income taxes, minority interests
and extraordinary item $ (591) $ (736) $ (54) $ (4,659) $ (1,868)
Provision for (benefit from) income taxes - (813) (80) (620) (626)
Minority interests in continuing operations (1) (2) (2) (2) (2)
------- ------- ------- ------- -------
Net income (loss) $ (592) $ 75 $ 24 $ (4,041) $ (1,224)
======= ======= ======= ======= =======
FINANCIAL CONDITION:
Current assets $ 17,995 $ 18,314 $ 19,268 $ 24,953 $ 30,898
Current liabilities 14,309 14,102 13,368 19,534 21,533
Working capital 3,686 4,212 5,900 5,419 9,365
Current ratio (1) 1.26 to 1 1.30 to 1 1.44 to 1 1.28 to 1 1.43 to 1
Total assets 19,592 20,080 21,174 27,375 34,377
Long-term obligations 1,187 1,303 3,216 3,286 4,257
Minority interests in consolidated subsidiary 31 33 33 33 34
Total liabilities 15,527 15,438 16,617 22,853 25,824
Shareholders' equity 4,065 4,642 4,557 4,522 8,553
PER SHARE INFORMATION (1) (2):
Shareholders' equity (book value) $ 2.28 $ 2.65 $ 2.59 $ 2.57 $ 4.91
======= ======= ======= ======= =======
Per share of common stock and common
stock equivalent:
Net income (loss) $ (.34) $ .04 $ .01 $ (2.34) $ (.72)
======= ======= ======= ======= =======
Per share of common stock and common
stock equivalent-assuming full dilution:
Net income (loss) $ (.34) $ .04 $ .01 $ (2.34) $ (.72)
======= ======= ======= ======= =======
Cash dividends on preferred stock $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00
OTHER INFORMATION:
Property, plant and equipment, net $ 1,467 $ 1,622 $ 1,750 $ 2,208 $ 2,968
Depreciation and amortization 192 269 458 637 667
Capital additions 37 141 - 21 43
Space occupied (square feet) 355 355 355 358 358
Average number of common shares outstanding 1,735 1,724 1,727 1,727 1,731
Number of shareholders (1) 1,163 1,166 1,177 1,169 1,229
Number of employees (1) 350 392 423 521 637
28
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
The following summarizes the results of operations for the Company for the
years ended October 31, 1998, November 1, 1997, and November 2, 1996:
October 30, October 31, November 1,
1999 1998 1997
----------- ----------- -----------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 71.9% 74.6% 73.9%
------- ------- -------
Gross margin 28.1% 5.4% 26.1%
Selling and administrative expenses 26.6% 23.4% 21.4%
Depreciation and amortization .7% .9% 1.4%
Interest expense 3.7% 3.7% 3.7%
Interest and other income (.6%) (.1%) (.2%)
------- ------- -------
Loss before income taxes
and minority interest (2.3%) (2.5%) (.2%)
Benefit from income taxes - (2.8%) (.3%)
Minority interest - - -
------- ------- -------
Net income (loss) (2.3%) .3% .1%
======= ======= =======
FISCAL 1999 COMPARED TO FISCAL 1998
Material Changes in Operations
- ------------------------------
Due to current import penetration of 95% of the U.S. footwear market,
increased competition forced the Company to analyze its approach to the
work shoe business in 1999 and take action to preserve its position in
the industry. Accordingly, the workforce at the Asheboro, NC plant and
office was reduced by 54 positions, or 28.0%, over the course of 1999,
and the Company increased its use of imported footwear from Mexico
toward the end of 1999. The effect of these changes late in 1999 was
not expected to have a significant impact on 1999's financial results.
It should be noted that the other manufacturing facility, in Somerset,
Pennsylvania, increased its workforce by 12 positions, or 6.0%, to
meet additional demand for its product in 1999.
29
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
In January 1999, the Company entered into a contract to sell its manu-
facturing facility in Asheboro, NC, along with an adjacent piece of
property. That particular contract expired on February 26, 1999, without
further obligation to the Company. Subsequently in February 2000, the
Company entered into a contract with another party to sell the same
Asheboro, NC property (see "Potential Sale of Property" discussion in
the Liquidity and Capital Resources section). The increase in capital
and income created by this sale will result in substantial benefits to
the Company. Subsequent relocation is not expected to adversely affect
operations of the Company.
Net Sales
- ---------
Net sales for the Company were $25,896,000 in 1999 as compared to $28,813,000
in 1998. This was a reduction of $2,917,000, or 10.1%, from the prior year.
Management has addressed this deterioration in revenues as was discussed in
the previous section. The Company's revenues include sales of footwear
manufactured and wholesaled by the Company and sales from the Company's
retail outlets. Footwear manufactured and wholesaled by the Company, which
includes branded, private label and institutional sales, comprised 91.6% of
net sales in 1999 and 91.8% of net sales in 1998. The remaining 8.4% and
8.2% of net sales in 1999 and 1998, respectively, were sales from the
Company's retail outlets.
Sales of branded footwear were down $484,000, or 2.7%, in 1999 from 1998.
Pairs shipped decreased 5.8% while the price per pair shipped increased 3.2%.
While the work branded shipments were down $2,325,000, or 20.9%, western
branded and export sales were up $122,000, or 0.9%, and $22,000, or 3.4%,
respectively, in 1999 over 1998. The increase in western boot sales is
encouraging during a year when many western retailers went out of business.
The increase in price per pair can be attributed to a more favorable mix of
inventory shipped. As discussed in the section above, increased competition
from imported footwear has depressed sales of the Company's branded products.
Private label sales in 1999 reflected a decrease of $1,697,000, or 22.4%,
compared to 1998 private label sales. Private label pairs shipped were off
21.0% while the average price per pair was down 1.7%. Sales in this division
have been impacted by soft retail sales, as orders from customers did not keep
pace with the prior year. Also negatively impacting private label sales was a
$365,000, or 10.7%, decrease in shipments to the Company's largest customer,
a major discount retailer, due to their internal inventory adjustments in
1999. The results of private label sales are dictated by activity of several
large accounts and the timing of shipments to those accounts.
Sales to institutional customers fell by $377,000, or 21.8%, from 1998 to
1999. Much of this business is solicited through a formal bidding process
with governmental entities and the results of this division are impacted by
the Company's success in bidding on new business. Sales were negatively
impacted by one of the Company's largest institutional customers awarding
its 1999 contract to an import footwear supplier.
Retail sales for the year were $197,000, or 8.3%, lower than the results for
1998. Two retail outlets, one in Asheboro, NC and one in Lancaster, PA,
experienced increased competition from major discount retailers surrounding
the retail outlets. These locations' sales were also hurt by 1999's unusually
dry, extremely hot summer season.
30
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Gross Margin
- ------------
The Company's gross margin was $7,285,000 in 1999 and $7,306,000 in 1998, a
decrease of $21,000. As a percentage of sales, however, the gross margin for
1999 increased to 28.1% from 25.4% in 1998. This 2.7% increase was due
primarily to improved operations from the welt and cement construction
footwear being produced in separate locations since late in fiscal 1998.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $6,888,000 for 1999 as compared to
$6,736,000 for 1998, an increase of $152,000, or 2.3%. Excluding the
$438,000 in selling and administrative expenses relating to a six-month
liquidation sale of one of our large customer's inventory (which resulted
in $961,000 in sales), selling and administrative expenses decreased
$286,000, or 4.2%. The Company continued to reduce expenses in most
functional areas by lowering the general and administrative headcount and
realigning significant responsibilities in the administrative functions;
accordingly, personnel costs decreased $180,000, or 4.7%. Other significant
savings areas were insurance costs by $24,000, or 19.5%, and utility
expenses by $15,000, or 24.0%. One expense item that increased was pro-
fessional (legal, tax, audit, and bank) services by $60,000, or 23.2%,
primarily due to the Company's continued efforts to sell the Asheboro, NC
property.
Interest Expense
- ----------------
Interest expense incurred in 1999 was $948,000, or $128,000 less than
interest expense of $1,076,000 for 1998. Less interest expense in 1999 is
a result of a lower overall interest rates (by 0.25% and 1.00%) and a
lower average outstanding balance on the revolving finance agreement as
compared to 1998's average balance, partially offset by increased interest
expense on the new short-term borrowings in 1999 to purchase land parcels
adjacent to the Asheboro, NC property. The average outstanding balance
on the revolving finance agreement was approximately $504,000, or 7.3%,
less in 1999 than in 1998.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization decreased $77,000 to $192,000 in 1999 from
$269,000 in 1998. For the previous five years, the Company has made only
minimal fixed asset additions. With minimal amounts invested in fixed
assets in recent years, depreciation charges are lower because fixed assets
are becoming fully depreciated and are not being replaced. See additional
discussion in the Liquidity and Capital Resources section.
31
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Provision for Income Taxes
- --------------------------
The Company had a net loss before income taxes of $592,000 in 1999 with no
related income tax provision or benefit. In 1998, the net loss before
income taxes was $738,000, which was overcome by a reduction of the
valuation reserve against the Company's deferred tax asset of $813,000
resulting in net income of $75,000. The increase in the deferred tax
benefit in the current year of $224,000 was offset by an increase in the
valuation allowance.
Net Income (Loss)
- -----------------
For the year ended October 30, 1999, the Company reported a net loss of
$592,000, or 2.3% of net sales, whereas for the year ended October 31,
1998, the Company reported a net income of $75,000, or .3% of net sales.
The change of $667,000 can be attributed primarily to the net effect of
two items: the valuation allowance adjustment of $813,000 in 1998 offset
by the $145,000, or 19.7%, improvement in the loss from operations, from
$736,000 in 1998 to $591,000 in 1999.
FISCAL 1998 COMPARED TO FISCAL 1997
Material Changes in Operations
- ------------------------------
The Company operates two manufacturing facilities, one in Asheboro, North
Carolina, and one in Somerset, Pennsylvania. To make the Company more
competitive, management decided to move all of the production of footwear with
cement construction from the Somerset plant to the Asheboro plant. At the
same time, all of the footwear with welt construction was moved from the
Asheboro plant to the Somerset plant. Since there was not enough product
demand to support two welt operations, this consolidation of operations in
two separate locations in July, 1998 should create substantial manufacturing
efficiencies in both production and inventory costs during fiscal 1999.
In January 1999, the Company entered into a contract to sell its manufacturing
facility in Asheboro, NC, along with an adjacent piece of property. This
particular contract expired on February 26, 1999, without further obligation
to the Company.
32
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Net Sales
- ---------
Net sales for the Company were $28,813,000 in 1998 as compared to $32,648,000
in 1997. This was a reduction of $3,835,000, or 11.7%, from the prior year.
Management attributes this decrease to the additional impact from the major
changes made in 1997 to combine the sales forces of the western boots and
work/outdoor boots. Also, there was some erosion in the Company's channel of
distribution over the past year. This trend is a continuation of the soft
retail environment that the western footwear market has experienced for
several years. Recent steps have been taken to address this deterioration in
revenues. The Company's sales include sales of footwear manufactured and
wholesaled by the Company and sales from the Company's retail outlets.
Footwear manufactured and wholesaled by the Company, which includes branded,
private label and institutional sales, comprised 91.8% of net sales in 1998
and 92.0% of net sales in 1997. The remaining 8.2% and 8.0% of net sales in
1998 and 1997, respectively, were sales from the Company's retail outlets.
Sales of branded footwear were down $1,713,000, or 8.8%, in 1998 from 1997.
Pairs shipped were off 14.6% while the price per pair shipped increased 6.2%.
While the work branded and exports were down $1,323,000, or 20.8%, and
$639,000, or 49.8%, respectively, western branded sales were up $280,000, or
2.4%, in 1998 over 1997. The increase in western boot sales is encouraging
during a year when many western retailers went out of business, therefore
increasing the Company's western footwear market share in 1998. Weak consumer
spending for work footwear depressed sales of the Company's branded products,
and most of the export decrease is due to the loss of a major account in
Japan. The increase in price per pair can be attributed to a more favorable
mix of inventory shipped.
Private label sales in 1998 reflected a decrease of $1,636,000, or 19.1%,
compared to 1997 private label sales. Private label pairs shipped were off
20.3% while the average price per pair was up .6%. Sales in this division
have been impacted by soft retail sales, as orders from customers did not keep
pace with the prior year. The one exception is the Company's largest
customer, a major discount retailer, whose shipments rose $78,000, or 2.3%,
over the prior year. The results of private label sales are dictated by
activity of several large accounts and the timing of shipments to those
accounts.
Sales to institutional customers fell by $353,000, or 16.9%, under the prior
year. Much of this business is solicited through a formal bidding process
with governmental entities and the results of this division are impacted by
the Company's success in bidding on new business.
Retail sales for the year were $227,000, or 8.7%, lower than the results for
two retail outlets, one in Asheboro, NC and one in Lancaster, PA,
experienced increased competition from major discount retailers
surrounding the retail outlets. Another reason for the loss in volume from
1997 to 1998 was our January, 1997 closing of a retail store in Myrtle Beach,
SC.
33
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Gross Margin
- ------------
The Company's gross margin was $7,306,000 in 1998 and $8,527,000 in 1997, a
decrease of $1,221,000. As a percentage of sales, the gross margin for 1998
decreased to 25.4% from 1997's gross margin of 26.1%. Most of this decrease
can be attributed to the $190,000 cost in moving the welt division from the
Asheboro, NC plant to the Somerset, PA plant during the third quarter of 1998.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $6,736,000 for 1998 as compared to
$6,996,000 for 1997, a decrease of $260,000, or 3.7%. The Company continued
to reduce expenses in most functional areas to more appropriately reflect the
level at which the Company intended to operate. Management lowered the
general and administrative headcount and realigned significant
responsibilities in the administrative functions. The largest savings came
from advertising and promotional expenses, which were down $133,000, or 14.5%,
from 1997, as the Company continued to redefine its advertising strategy with
the intention of maintaining its brand awareness using cost effective methods.
Personnel related expenses in the sales department were down $69,000, or 2.9%,
from the prior year. Professional fees were $38,000, or 33.0%, less in 1998.
One expense item that increased in 1998 was software services by $12,000, or
22.0%, as the Company continued to address the Year 2000 conversion of its
computer system.
Interest Expense
- ----------------
Interest expense incurred in 1998 was $1,076,000, or $128,000 less than
interest expense of $1,204,000 for 1997. Lower interest expense in 1998 is
a result of a lower average outstanding balance on the revolving finance
agreement as compared to 1997's average balance. The average outstanding
balance on the revolving finance agreement was approximately $880,000, or
11.3%, less in 1998 than in 1997. Interest on other borrowings remained at
similar levels to the prior year.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization decreased $189,000 to $269,000 in 1998 from
$458,000 in 1997. For the previous four years, the Company has made only
minimal fixed asset additions. With minimal amounts invested in fixed assets
in recent years, depreciation charges are lower because fixed assets are
becoming fully depreciated and are not being replaced.
34
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Provision for Income Taxes
- --------------------------
The Company had a net loss before income taxes of $736,000 in 1998. In 1997,
the net loss before income taxes was $54,000. Accordingly, the Company
recorded a net benefit from income taxes of $813,000 and $80,000 in 1998 and
1997, respectively. The primary difference between the Company's income tax
benefit and the federal statutory rate of 34% represents a change in
management's estimate of the amount to be recorded in the valuation allowance
that established a reserve against the net deferred income tax asset. Under
Financial Accounting Standard No. 109, whose guidelines the Company follows in
accounting for income taxes, deferred income tax assets must be recorded at a
value that reflects their net realizable value determined to be the amount
that "more likely than not" will be recovered in future periods. Based on an
analysis at October 31, 1998, a net asset of $1,050,000 was recorded which was
an increase of $813,000 over the prior year.
Net Income
- ----------
For the year ended October 31, 1998, the Company reported net income of
$75,000, or .3% of net sales, whereas for the year ended November 1, 1997,
the Company reported a net income of $24,000, or .1% of net sales. The
improvement of $51,000 can be attributed to the effect of the valuation
allowance adjustment in 1998. This adjustment was made due to the impact of
the property sale which was previously discussed.
35
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded substantially all of its working capital
and capital expenditure requirements through borrowings under its finance
agreement and other indebtedness. The revolving finance agreement provides
flexibility to the Company as the availability of funds fluctuates with the
seasonal needs of the Company. Generally, the Company's working capital needs
are highest in the fourth fiscal quarter and lowest in the first fiscal
quarter. With its revolving finance agreement, the Company finances its
accounts receivable and inventories, paying interest at a variable rate (prime
plus 1.5%, or 9.75%, at October 30, 1999). The Company had outstanding
advances of $7,113,000 at October 30, 1999, and an additional $427,000
available under the agreement.
During fiscal 1999, the Company generated $613,000 in cash from operations.
This was achieved primarily by reducing accounts receivable, inventories, and
current liabilities by $686,000, $450,000, and $101,000, respectively, to
overcome the 1999's net loss of $592,000. Cash to purchase %$803,000 in
adjacent land parcels (to make the Company's Asheboro property more
attractive to potential buyers) was partially provided by the issuance of
short-term obligations for $478,000. As of year-end 1999, the Company
continued to rely on the revolving finance agreement to provide working
capital, and management anticipates that the revolving finance agreement
will continue to fund its daily operations going forward.
Under the Company's financing agreement with the bank, the amount available
to be drawn is determined by a formula based on certain percentages of
eligible accounts receivable and inventories. The credit line available
under the current agreement is $8,000,000, with the sublimit for inventory
at $4,000,000. In addition to the revolving credit facility, the financing
agreement also provides a $3,000,000 term loan that was used to repay an
existing mortgage note payable to a bank which and which carries a balance
of $1,490,000 at October 30, 1999. Per the terms of the note, the Company
has monthly installments of $35,714 with a balloon payment of $990,224.
The term loan bears interest at the bank's prime rate plus 1.5% (9.75% at
October 30, 1999).
The due date of the original term loan was June 30, 1999, but the
financing agreement was amended on June 29, 1999 to extend the due date to
December 31, 1999. Subsequent to fiscal year ending October 30, 1999, two
amendments were made: the first on December 30, 1999 to extend the due
date of the term loan to December 31, 2000; and the second on January 26,
2000 to amend certain restrictive financial covenants under the revolving
finance agreement effective October 30, 1999 and thereafter. The
covenants require the satisfaction of certain financial tests and the
maintenance of certain financial ratios as defined in the agreement. At
October 31, 1999, the Company was in compliance with its restrictive
covenants. The primary reason for this extension was the Company's receipt
in December 1999 of an attractive offer to sell all of its approximate
26 acres of property in Asheboro, NC (see following section entitled
"Potential Sale of Property"). This offer was followed by a contract in
February 2000. Since both the Company's management and the bank felt that
the sale of this property would substantially benefit the Company, it was
decided to postpone the due date of the term loan until after the actual
close of the sale. Management expects that the contract will be finalized
by December 31, 2000.
36
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
All advances under the revolving credit facility and the term loan are
secured by all accounts receivable, inventories, machinery and equipment of
the Company. In addition, the bank has a first lien on the Asheboro land
and facilities and a subordinated lien on the Somerset facilities.
In July 1994, the Company purchased a larger manufacturing facility in
Somerset, Pennsylvania to replace the existing facility also located in
Somerset. The Company paid for the acquisition with financing from three
sources. The Company completed two sources of long-term financing on
March 7, 1995. The first source of financing was from the Pennsylvania
Industrial Development Authority ("PIDA"), a program offered by the Depart-
ment of Commerce of the Commonwealth of Pennsylvania. The loan was for
$480,000 and bears interest at 2% annually. Monthly installments of $3,089,
which includes principal and interest, will be paid over 15 years. The
second source of financing came from a bank note for $240,000. This loan
bears interest at .75% above the bank's prime rate (9.00% at October 30,
1999) and will be repaid in monthly installments of principal and interest,
currently $2,550, for 15 years. On July 27, 1995, the Company finalized the
long-term financing for this project with a loan from a program offered by
the Department of Commerce of the Commonwealth of Pennsylvania. This
financing, which was provided under the Economic Development Partnership
Program, was for $240,000. This note bears interest at 2% annually with
monthly payments of principal and interest amounting to $1,544 for 15 years.
All notes are secured by the manufacturing facility. Capitalized in fixed
assets at October 30, 1999 are land and buildings with a cost of approxi-
mately $1,062,000 related to the facility. The remainder of the expenditures
made for the facility were paid with borrowings under the revolving finance
agreement.
The Company made capital expenditures of $37,000 in 1999 and has made only
minimal capital expenditures during the past four years. The Company made
significant upgrades to its equipment and facilities in 1993 and 1994.
Because of cash flow considerations and restrictions under the finance
agreement with a bank, the Company has only been making capital expenditures
to maintain current levels of operations during the past four years. Funding
for capital expenditures other than the building acquisition in 1994 has come
primarily from the available balance on the finance agreement. The Company
anticipates raising the level of capital expenditures in 2000 due to costs
associated with relocating the Asheboro, NC administrative, manufacturing,
and retail operations of the business, but it is premature to estimate those
costs at this time. Funding is expected to be provided by the bank under
mutually-suitable arrangements.
Net working capital, which consists primarily of accounts receivable and
inventories less current liabilities, was $3,686,000 at October 30, 1999
and $4,212,000 at October 31, 1998. The ratio of current assets to current
liabilities decreased to 1.26 to 1 at October 30, 1999, compared to 1.30 to
1 at October 31, 1998. Cash flows provided by operations in 1999 was a net
inflow of $613,000 compared to a net cash inflow of $1,041,000 in 1998.
37
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Potential Sale of Property
- --------------------------
In December 1999, the Company received an attractive offer to sell all of
its approximately 26 acres of real property in Asheboro, North Carolina.
This land is in one of the prime commercial sections of Randolph County.
The Company entered into a contract to sell its Asheboro, NC property on
February 4, 2000. Under this contract, the purchaser has until August 2,
2000 to examine the suitability of the property for its needs. At the
end of this 180 day period, the purchaser may extend the examination
period for two additional 90 day periods. At the end of the examination
period, the contract may be terminated by the purchaser without further
obligation to the Company. Accordingly, there can be no assurances that
the sale of the Asheboro, NC property will be consummated or, if
consummated, that such sale will occur in the Company's fiscal year 2000.
While there will be costs associated with relocating the Asheboro
operations, the Company has taken steps to limit the effects of these
matters and does not expect the relocation to have a material adverse
effect on the operations of the Company.
Readiness for Year 2000 Compliance
- ----------------------------------
In November 1997 the Company initiated a program to minimize the risk of
potential disruption from the "Year 2000 ('Y2K') problem." This problem was
a result of computer programs having been written using two digits (rather
than four) to define the applicable year. Any information technology ("IT")
systems having time-sensitive software might recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
and system failures. The problem also extended to "non-IT" systems; that is,
operating and control systems that rely on embedded chip systems. In
addition, like every other business enterprise, the Company would be at risk
from Y2K failures on the part of its major business counterparts, including
suppliers, distributors, and manufacturers, as well as potential failures in
public and private infrastructure services, including electricity, water, gas,
transportation, and communications.
The Company began developing a plan in November 1997 to resolve the Y2K issues
that are reasonably within its control. These efforts were being coordinated
through the Company's data processing department and chaired by the
information systems programming manager ("ISPM"). With respect to the
Company's Y2K efforts, the ISPM reported periodically to the Company's
president, who in turn updated the Audit Committee of the Board of Directors.
In January 1998, the ISPM completed an identification of those IT systems
which would require detailed program changes to be Y2K compliant. An employee
programmer already familiar with the Company's computer system was assigned
full-time to modify those identified programs. Program changes and
testing were made in a test directory specifically created for the Y2K
modifications so that there were no conflicts with live data. When testing
was completed for a system, files were then converted, and modified programs
were copied to live directories on a weekend when no users were on the
system. The Company's current timetable anticipated completion of all
conversions, necessary testing, and full implementation by November 30, 1999.
As of fiscal year ended October 30, 1999, the Company had not deemed it
necessary to develop contingency plans for any applications not converted and
operating by November 30, 1999. Subsequent to FYE 99, it was determined that
no contingency plans would be necessary as discussed in the last paragraph
of this section.
38
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
With regard to non-IT systems, the Company's phone and security systems were
both Y2K compliant as of October 30, 1999. Major suppliers to the Company had
been contacted by questionnaire, and the Company had received confirmations
of either Y2K compliance or a timetable to be compliant from such suppliers.
The Company had also contacted its major customers by questionnaire to assess
their status with regard to the Y2K issue. Contingency plans would be
developed for any significant suppliers or customers that are not Y2K compliant
by December 15, 1999 or earlier if the Company became aware that such
entities would not be Y2K compliant in a timely manner.
It is important to note that the description of the Company's efforts
necessarily involved estimates and projections with respect to activities
required in the future. The required code changes, testing, and
implementation necessary to address the Y2K issue were expected to cost
approximately $115,000, and the Company had incurred approximately $110,000
through October 30, 1999. As of that date, the Company estimated being
approximately 99% complete with the efforts required to be Y2K compliant.
The Company completed its final Y2K system testing on December 10, 1999.
When January 1, 2000 passed, the Y2K costs had not exceeded the project budget
of $115,000. Now well into January 2000, the Company believes it has
successfully avoided any significant disruption from any Y2K issues relating
to the new century rollover. Therefore, no contingency plans appear to be
necessary, but the Company will continue to monitor all critical systems for
the appearance of delayed complications or disruptions, problems relating to
the leap year, and problems encountered through suppliers, customers, and
other third parties with whom the Company deals. Although these and other
unanticipated Y2K issues could have an adverse effect on the results of
operations or financial condition of the Company, it is not possible to
anticipate the extent of impact at this time.
Recently-issued Accounting Standards
- ------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". This Statement requires that changes in the amounts of
comprehensive income items, which are currently reported as separate
components of equity, be shown in a financial statement, displayed as
prominently as other financial statements. The common components of other
comprehensive income would include foreign currency translation adjustments,
minimum pension liability adjustments and/or unrealized gains or losses on
available-for-sale securities. The Statement does not require a specific
format for the financial statement in which comprehensive income is reported,
but does require that an amount representing total comprehensive income be
reported in that statement. The Company does not have any items of other
comprehensive income to report for any period presented.
In June 1997, the FASB issued FAS 131, "Disclosures About Segments of an
Enterprise and Related Information". This Statement will change the way
companies report information about segments of their business in their annual
financial statements and require companies to report selected segment
information in their quarterly reports issued to shareholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Statement also requires companies
to disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. See Note
13 to the consolidated financial statements.
39
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Forward-Looking Statements
- --------------------------
The foregoing discussion contains some forward-looking statements about the
Company's financial condition and results of operations, which are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's judgment only as of the date
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events and circumstances that arise
after the date hereof.
Factors that might cause actual results to differ materially from these
forward-looking statements include (1) the effects of general economic
conditions, (2) the impact of competitive products and pricing in the
footwear industry, (3) failure to achieve anticipated sales results, (4)
management's ability to accurately predict the effect of cost reductions,
and (5) management's ability to accurately predict the adequacy of the
Company's financing arrangement to meet its working capital and capital
expenditure requirements.
40
B.B. WALKER COMPANY AND SUBSIDIARY
STOCK PRICES
B.B. Walker Company common stock is publicly traded. Markets in B.B. Walker
Company common stock are maintained by Scott & Stringfellow of Winston-Salem,
North Carolina.
Approximately 1,163 shareholders own common stock in B.B. Walker Company, some
shares of which are held by banks, brokers, investment trusts or nominees.
The largest shareholder is the Employee Stock Ownership Plan and Trust of B.B.
Walker Company, which holds approximately 21.0% of the total shares issued
and outstanding. At the last Annual Meeting of the Shareholders held on March
15, 1999, 81.2% of the shares outstanding were represented in person or by
proxy at the meeting.
The following are the Bid and Ask quotations for the last two fiscal years:
Bid Prices Ask Prices
High Low High Low
-------------- ---------------
1999:
First Quarter $1 1/2 $ 3/4 $ 1 1/4 $ None
Second Quarter 1 1/2 1 1/2 None None
Third Quarter 1 1/2 1 1/2 None None
Fourth Quarter 1 1/2 1 1 1/2 None
1998:
First Quarter $ 1/2 $ 3/8 $ 1 1/4 $ 7/8
Second Quarter 3/8 3/8 7/8 7/8
Third Quarter 1 1/4 3/8 2 1/4 7/8
Fourth Quarter 1 1/4 1/2 2 1/4 1 1/4
These Over-the-Counter market quotations reflect interdealer prices, without
retail mark-up, mark-down or commissions, and may not necessarily represent
actual transactions.
41
B.B. WALKER COMPANY
OFFICERS
- --------
KENT T. ANDERSON
Chairman and Chief Executive Officer
FRENCH P. HUMPHRIES CAREY M. DURHAM
Executive Vice President Vice President/Chief Financial Officer
DOROTHY W. CRAVEN REBECCA S. RICH
Secretary Assistant Secretary
DIRECTORS
- ---------
KENT T. ANDERSON EDNA A. WALKER
Chairman and Chief Executive Officer President, B.B. Walker Foundation
ROBERT L. DONNELL, JR. MICHAEL C. MILLER
Retired President
First National Bank and Trust Co.
JAMES P. McDERMOTT GEORGE M. BALL
Retired Chairman of the Board
Philpott, Ball & Company
TRANSFER AGENT AND REGISTRAR
The Company acts as its own Transfer Agent and Registrar, handling all
securities transfers at its Executive Offices.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
101 Centreport Drive
Suite 250
Greensboro, NC 27409
FORM NO. 10-K
Each year, B.B. Walker Company files a Form No. 10-K report with the
Securities and Exchange Commission in Washington, DC which contains more
detailed information. If you would like to receive a copy, please send your
request to Corporate Secretary, B.B. Walker Company, Drawer 1167, Asheboro,
North Carolina 27204.
NOTICE OF ANNUAL MEETING
The Annual Meeting of the Company's Shareholders will be held in the executive
offices of B.B. Walker Company at 414 East Dixie Drive, Highway 64 East,
Asheboro, North Carolina, at 7:00 p.m. EST on Monday night, March 20, 2000. A
formal notice of the meeting, together with a proxy statement and proxy, will
be mailed prior to the meeting. Shareholders who cannot attend are urged to
exercise their right to vote by signing and promptly returning the proxy.
Inside Back Cover