Exhibit 13
----------
B.B. WALKER COMPANY AND SUBSIDIARY
FIFTY-THIRD ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 28, 2000
2000 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 305 people at October 28, 2000.
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............................................38
Officers and Directors..........................Back Cover
Inside Front Cover
B.B. WALKER COMPANY AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
Fiscal Year Ended
---------------------------------------
October 28, October 30, October 31,
2000 1999 1998
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except per share data)
OPERATIONS
Net sales $ 22,156 $ 25,896 $ 28,813
======== ======== ========
Loss before income taxes
and minority interests $ (1,449) $ (591) $ (736)
Provision for (benefit from)
income taxes 320 - (813)
Minority interests (2) (1) (2)
-------- -------- --------
Net income (loss) $ (1,771) $ (592) $ 75
======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE $ (1.01) $ (.34) $ .04
======== ======== ========
Average number of shares outstanding 1,746 1,735 1,724
======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ (1.01) $ (.34) $ .04
======== ======== ========
Average number of shares outstanding 1,746 1,735 1,727
======== ======== ========
FINANCIAL CONDITION
Current assets $ 14,360 $ 17,995 $ 18,314
Current liabilities 12,294 14,309 14,102
Working capital 2,066 3,686 4,212
Current ratio 1.17 to 1 1.26 to 1 1.30 to 1
Long-term obligations,
non-current portion 1,158 1,187 1,303
Shareholders' equity 2,306 4,065 4,642
Book value per common share 1.27 2.28 2.65
1
CHAIRMAN'S MESSAGE TO SHAREHOLDERS
TO OUR SHAREHOLDERS
Net sales for fiscal 2000 were $22,156,000 compared to $25,896,000 for the
same period in 1999 or 14.4% decrease from the prior year. The net loss for
the year was $1,771,000 compared to a net loss in 1999 of $592,000.
The net loss per share was $1.01 in 2000 and $.34 in 1999, The loss for
fiscal 2000 included an adjustment to our tax valuation reserve
of $320,000.
Fiscal 2000 found us facing an uphill battle for survival in a declining
market. We were able to hold our own in terms of market share but found
ourselves facing increased competition from low priced imports and
competitors dumping product in the market place. We have been forced to
continue shrinking our Asheboro manufacturing operation due to declining
margins available to us in the domestic market. As a result, today we have
fewer than 325 employees and expect that decline to continue somewhat in the
coming year.
The sale of part of our Asheboro property generated a substantial profit
($2,041,000 pre-tax) which will be reflected in the first quarter of 2001.
In addition, the cash flow enabled us to pay down debt substantially which
will improve our cash flow each month. We were able to negotiate a lease
arrangement on part of the building which enabled us to remain in the
building and avoid any relocation costs. We have included the effects
of this transaction in the pro forma balance sheet included in this report.
We are continuing to market the remaining 10 acres of our property and hope
to sell all or part of that in fiscal 2001.
2
CHAIRMAN'S LETTER TO SHAREHOLDERS, Continued
We have always had a strong belief in our domestic production capabilities
but the realities of today's marketplace and the financial community demand
that we source our product globally. Accordingly, this past fall, we made a
decision to expand our product lines through the use of imports. We will
continue to run our domestic manufacturing as long as it is economically
feasible. We do this in order to control our product line. Abilene Boots
has a reputation in the industry for innovation in products. If we do not
control some of our own production, we run the risk of being a "me-too"
product line with all of our competitors.
Our markets are limited. While we may get some relief from western products
becoming more fashionable, our future depends upon us offering quality
product at a "reasonable" price. The new products we are introducing from
China and Spain will not be cheap. We are maintaining high specifications in
these products and offering the China product at mid-price points. The
Spanish product is high end, handmade and is above the current price points
we offer. We believe that these products will be shipped beginning in the
summer of 2001. Acceptance of these products at our initial markets has
has been very good and we believe that we can expect substantial growth
from it later this year.
In addition to the new products mentioned above, we have also been awarded a
Contract by the U S Government for the manufacture of ski boots. We expect
this to begin shipping in May 2001.
We appreciate your patience and support as we continue in our efforts to
Improve our market position and return the Company to profitability.
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 28, October 30, October 31,
2000 1999 1998
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except per share data)
Revenues:
Net sales (Note 11) $ 22,156 $ 25,896 $ 28,813
Interest and other income 62 152 39
------- ------- -------
22,218 26,048 28,852
------- ------- -------
Costs and expenses:
Cost of products sold 16,248 18,611 21,507
Selling and administrative
expenses (Note 12) 6,274 6,888 6,736
Depreciation and amortization 162 192 269
Interest expense 983 948 1,076
------- ------- -------
23,667 26,639 29,588
------- ------- -------
Loss before income taxes
and minority interests (1,449) (591) (736)
Provision for (benefit from) (Note 7) 320 - (813)
Minority interests (2) (1) (2)
------- ------- -------
Net income (loss) $ (1,771) (592) $ 75
======= ======= =======
Basic and diluted earnings (loss)
per share (Note 1) $ (1.01) $ (.34) $ .04
======= ======= =======
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
PRO FORMA
October 28, ACTUAL ACTUAL
2000 October 28, October 30,
(Note 14) 2000 1999
----------- ----------- -----------
(In thousands, except share data)
CURRENT ASSETS:
Cash $ 1 $ 1 $ 1
Accounts receivable, less allowance for doubtful
accounts of $495 in 2000 and $525 in 1999 (Note 4) 5,271 5,271 6,471
Inventories (Notes 2 and 4) 6,930 6,930 9,210
Prepaid expenses 542 550 471
Property held for sale 889 889 803
Deferred income tax benefit (Note 7) - 719 1,039
------- -------
Total current assets 13,633 14,360 17,995
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization (Notes 3, 4, 5, and 14) 879 1,320 1,467
OTHER ASSETS 94 109 130
------- ------- -------
$ 14,606 $ 15,789 $ 19,592
======= ======= =======
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
PRO FORMA
October 28, ACTUAL ACTUAL
2000 October 28, October 30,
(Note 14) 2000 1999
----------- ----------- -----------
(In thousands, except share data)
CURRENT LIABILITIES:
Borrowings under finance agreement (Note 4) $ 4,882 $ 5,710 $ 7,113
Accounts payable, trade 3,461 3,497 3,518
Accrued salaries, wages and bonuses 333 333 368
Other accounts payable and accrued liabilities 543 552 653
Portion of long-term obligations payable
within one year (Note 5) 579 2,202 2,657
------- ------- -------
Total current liabilities 9,798 12,294 14,309
------- ------- -------
LONG-TERM OBLIGATIONS (Note 5) 1,158 1,158 1,187
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARY 31 31 31
SHAREHOLDERS' EQUITY (Notes 10):
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 2000 and 1999 83 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,745,954 shares issued and
outstanding in 2000 and 1999 1,746 1,746 1,746
Capital in excess of par value 2,712 2,712 2,712
Retained deficit (864) (2,177) (400)
Equity loans collateralized by Company
common stock (58) (58) (76)
------- ------- -------
Total shareholders' equity 3,619 2,306 4,065
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Note 9)
$ 14,606 $ 15,789 $ 19,592
======= ======= =======
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 28, October 30, October 31,
2000 1999 1998
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except share data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,771) $ (592) $ 75
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 162 192 269
Gain on sale of fixed assets (18) (11) (3)
Change in operating activities:
(Increase) decrease in:
Accounts receivable, trade (net) 1,200 686 1,927
Inventories 2,280 450 (127)
Prepaid expenses (79) (25) (33)
Deferred income tax expense (benefit) 320 11 (813)
Other assets 21 14 12
Increase (decrease) in:
Accounts payable, trade (21) (18) (401)
Accrued salaries, wages and bonuses (35) 1 (101)
Other accounts payable and
accrued liabilities (101) (95) 236
------- ------- -------
Net cash provided by operating activities 1,958 613 1,041
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (21) (37) (141)
Proceeds from disposal of property, plant
and equipment 24 11 3
Purchase of property held for sale (86) (803) -
------- ------- -------
Net cash used for investing activities (83) (829) (138)
------- ------- -------
(Continued)
7
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Fiscal Year Ended
-------------------------------------
October 28, October 30, October 31,
2000 1999 1998
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except share data)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under
finance agreement $ (1,403) $ 228 $ (479)
Proceeds from issuance of
short-term obligations 84 478 -
Proceeds from issuance of
long-term obligations 39 59 75
Proceeds from issuance of common stock - 20 -
Payment on long-term obligations (607) (562) (509)
Purchase of subsidiary common stock
from minority interest - (2) -
Loans to shareholders - (15) -
Repayments of loans to shareholders 18 16 16
Dividends paid on 7% cumulative
preferred stock (6) (6) (6)
------- ------- -------
Net cash (used for) provided by financing
activities (1,875) 216 (903)
------- ------- -------
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 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
Repayment of equity loans col-
laterized by common stock - - - - - - 18 18
Net loss - - - - - (1,771) - (1,771)
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 28, 2000 828 $ 83 1,745,954 $ 1,746 $ 2,712 $(2,177) $ (58) $ 2,306
==== ==== ========= ====== ======= ====== ====== ========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
[FN]
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.
Other comprehensive income
- --------------------------
Based upon management's evaluation, FASB Statement No. 130, Reporting
Comprehensive Income, has no effect on the Company, therefore, no other
comprehensive income is recognized.
New accounting pronouncement
- ------------------------------
The Financial Accounting Standards board has issued FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, and FASB
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, which will be effective for the Company in 2001.
Management anticipates that the adoption of the Statements will not have an
effect on the Company. Management is also evaluating the SEC's Staff
accounting Bulletin No. 101, Revenue Recognition in Financial Statements
and does not expect that its adoption will have an effect on the Company.
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 are reported at cost. 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 (loss) available
to common shareholders by the weighted-average number of common shares
outstanding for the year. In arriving at income (loss) available to common
shareholders, preferred stock dividends of $5,796 were deducted in each year
presented. In 2000 and 1999 the Company was in a loss position; therefore,
the existing stock options had no impact on the diluted share calculation.
In 1998 which has net income, 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:
2000 1999 1998
--------- --------- ---------
Basic 1,746,000 1,735,000 1,724,000
Diluted 1,746,000 1,735,000 1,727,000
Revenue recognition
- -------------------
The Company recognizes a sale when the goods are shipped or ownership and
risk of loss is otherwise assumed by the customer, except for consignment
sales which are recognized when cash is received from the customer.
Advertising costs
- -----------------
The Company expenses advertising costs as incurred. Advertising expense for
2000, 1999, and 1998 is $794,000, $860,000, and $925,000, 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 28, 2000, October 30, 1999, and October 31, 1998, consisted of
fifty-two weeks each.
Reclassifications
- -----------------
Certain reclassifications have been made in prior years' financial statements
to conform to classifications used in the current year.
NOTE 2 - INVENTORIES
Inventories consisted of the following:
(In thousands)
October 28, October 30,
2000 1999
----------- -----------
Finished goods $ 4,418 $ 6,059
Work in process 510 544
Raw materials and supplies 2,002 2,607
-------- --------
$ 6,930 $ 9,210
======== ========
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 28, October 30,
2000 1999
----------- -----------
Land $ 531 $ 531
Buildings 2,286 2,294
Leasehold improvements 459 459
Machinery and equipment 4,698 4,715
Transportation equipment 158 158
-------- --------
8,132 8,157
Less accumulated depreciation
and amortization 6,812 6,690
-------- --------
$ 1,320 $ 1,467
======== ========
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 $7,000,000 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% (11.00% at
October 28, 2000) 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.
Borrowings under the Agreement are collateralized 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
28, 2000, 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 28,
2000, the Company was not in compliance with four of its seven restrictive
covenants. The Company is currently operating under forbearance agreements
which expire March 31, 2001. The Company is currently negotiating an asset
based credit facility with a new lender. As of February 9, 2001, this new
facility has not closed.
A summary of activity for borrowings under the finance agreement for the
year is as follows:
(In thousands)
Fiscal year
----------------------------
2000 1999 1998
-------- -------- --------
Average short-term borrowings $ 5,991 $ 6,396 $ 6,900
Maximum short-term borrowings $ 7,273 $ 7,155 $ 7,592
Weighted average interest rate 10.8% 9.7% 10.3%
Interest rate at year-end 11.0% 9.8% 9.5%
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 28, October 30,
2000 1999
----------- -----------
Note payable to a bank, payable in monthly
installments of $35,714 with a balloon
payment of $990,224 due December 31, 2000,
variable interest at the bank's prime
rate plus 1.50% (11.00% at October 28, 2000) $ 1,061 $ 1,490
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% (10.25% at October 28, 2000),
collateralized by the Company's land and
building in Somerset, PA 178 192
Note payable to the Pennsylvania Industrial
Development Authority, due in monthly
installments of $3,089 through February
2010, fixed interest at 2% per annum,
collaterized by the Company's land and
building in Somerset, PA 313 343
Note payable to the Pennsylvania Economic
Revitalization Fund, due in monthly
installments of $1,544 through August 2010,
fixed interest at 2% per annum, collateralized
by the Company's land and buildings
in Somerset, PA 164 179
Note payable to a bank, payable on December 31,
2000, variable interest at the bank's prime
rate plus 1.50% (11.00% at October 28, 2000) 562 478
Promissory notes payable to shareholders,
due in varying amounts through 2005, variable
interest based on prime rate 1,082 1,162
-------- --------
3,360 3,844
Less amounts payable within one year 2,202 2,657
-------- --------
$ 1,158 $ 1,187
======== ========
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 9.8% in 2000 and 9.7% in 1999.
Cash paid for interest was $993,000, $952,000 and $1,089,000 in 2000, 1999
and 1998, respectively.
Principal maturities on long-term obligations are as follows:
Fiscal Year (In thousands)
Ending Amounts
----------- ------------
2001 $ 2,202
2002 558
2003 120
2004 68
2005 83
Thereafter 329
---------
$ 3,360
=========
As a result of the subsequent event discussed in Note 14, a portion of the
proceeds from the property sale was used to pay off the $1,061,000 and $562,000
note balances to banks listed at the beginning of Note 5.
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 28, October 30, October 31,
2000 1999 1998
----------- ----------- -----------
Current:
Federal $ - $ - $ -
State - - -
------- ------- -------
- - -
------- ------- -------
Deferred:
Federal 290 - (533)
State 30 - (280)
------- ------- -------
320 - (813)
------- ------- -------
$ 291 $ - $ (813)
======= ======= =======
The Company has net operating loss carryforwards available to offset future
U.S. tax liabilities of approximately $3,722,000, of which $450,000 will expire
in 2012, $940,000 will expire in 2018, $685,000 will expire in 2019, and
$1,636,000 in 2020. The Company has state net operating loss carryforwards of
$5,998,000, which expire from 2000 to 2015. Due to the continuing 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 adjacent 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. Due to the uncertainty of the Company's operating profitability, the
1999 and 2000 increases in the deferred tax asset were offset by an increase to
the valuation allowance. Additionally, due to the changes in the estimated
realizability of the deferred asset through property sales (see Note 14 and
operating results, a portion of the previously released valuation allowance was
re-established, thus accounting for the deferred tax expense generated for 2000.
Cash paid for income taxes, net of refunds, was $0 in 2000 and 1999, and
$166,000 in 1998.
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 28, 2000, October 30,
1999, and October 31, 1998 as follows:
(In thousands)
October 28, October 30, October 31,
2000 1999 1998
----------- ----------- -----------
Computed expected income tax
benefit $ (493) $ (201) $ (251)
State income tax benefit, net
of federal income tax benefit (75) (30) (37)
Change in the valuation allowance 877 224 (609)
Other, net 11 7 84
------- ------- -------
$ 320 $ - $ (813)
======= ======= =======
The significant components of deferred income tax expense for 2000, 1999, and
1998 are as follows:
(In thousands)
2000 1999 1998
----------- ----------- -----------
Deferred tax expense (exclusive of
the effect of other components
listed below) $ 91 $ 44 $ 21
State deferred tax benefit (88) (28) (20)
Federal operating loss and
credit carryforwards (560) (240) (205)
Change in the valuation allowance 877 224 (609)
------- ------- -------
$ 320 $ - $ (813)
======= ======= =======
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 28, 2000 and October 30, 1999
are as follows:
(In thousands)
October 28, October 30,
2000 1999
----------- -----------
Deferred tax assets:
Current portion:
Provision for doubtful accounts $ 194 $ 206
Reserve for sales discounts 24 58
Self insurance accrual for claims incurred
but not reported at year-end 38 21
Inventories, principally due to additional
costs inventoried for tax purposes 273 305
Accruals for certain personnel costs 17 15
Federal net operating loss carryforward 1,265 706
State economic loss carryforward 485 383
Other - 29
------- -------
Total current 2,296 1,723
------- -------
Long-term portion:
Fixed assets 190 189
Other 10 7
------- -------
Total long-term 200 196
------- -------
Total gross deferred tax assets 2,496 1,919
Valuation allowance (1,620) (743)
------- -------
876 1,176
------- -------
Deferred tax liabilities:
Current portion:
Prepaid employee benefits (157) (137)
------- -------
Net deferred tax asset $ 719 $ 1,039
======= =======
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 2000, 1999 and 1998.
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 $22,812 in 2000,
$23,343 in 1999, and $20,800 in 1998.
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 2000, 1999 and 1998 included the following
components:
(In thousands)
2000 1999 1998
------ ------ ------
Service cost - benefits earned during the period $ 94 $ 85 $ 88
Interest on projected benefit obligation 87 82 76
Actual return on plan assets (82) (81) (77)
Net amortization and deferral (15) (15) (18)
---- ---- ----
Net annual pension expense $ 84 $ 71 $ 69
==== ==== ====
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 28, 2000
and October 30, 1999:
(In thousands)
October 28, October 30,
2000 1999
----------- -----------
Actuarial present value of benefit obligations:
Vested benefit obligations $ 1,196 $ 1,094
======= =======
Accumulated benefit obligations $ 1,291 $ 1,178
======= =======
Projected benefit obligation $ (1,291) $ (1,178)
Plan assets at fair value 1,441 1,334
------- -------
Plan assets in excess of projected
benefit obligation 150 156
Unrecognized net loss 283 234
Unrecognized net asset at transition (33) (41)
------- -------
Prepaid pension cost $ 400 $ 349
======= =======
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 2000, 1999 and 1998.
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 2000, 1999 and 1998.
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 loss As reported $ (1,771) $ (592)
Pro forma $ (1,774) $ (596)
Basic and diluted loss per share As reported $ (1.01) $ (.34)
Pro forma $ (1.02) $ (.34)
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 2000, 1999 and 1998, respectively: no
expected dividend yield for each year; expected volatility of 203% for each
year; risk free interest rates of 5.72%, 6.25% and 6.00%; 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 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
Granted 5,000 1.25 1.25
Forfeited 1995-1997 (9,000) 0.75 - 3.50 2.58
--------
Options outstanding at
October 28, 2000 173,950 0.63 - 4.00 2.63
========
Options available for future grant - 1995 plan 215,000
=======
Outstanding options exercisable at October 28, 2000, October 30, 1999, and
October 31, 1998 were 171,450, 175,450, and 203,950, 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
2006. The future minimum lease payments under noncancellable operating
leases with initial terms of one year or more are as follows:
(In thousands)
Fiscal year ending Operating Leases
------------------ ------------------
2001 $ 331
2002 227
2003 196
2004 119
2005 2
--------
Total minimum lease payments $ 875
========
Rental expense amounted to $366,000 in 2000, $438,000 in 1999 and $558,000
in 1998.
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 28, 2000,
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 28, 2000, 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 in the retail industry. In 2000, 1999 and 1998, one major customer
comprised 12.38%, 11.79% and 11.89% 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.
Services rendered by the external advertising agency totaled $91,600, $88,800
and $93,600 in 2000, 1999 and 1998, respectively. These costs are included
in selling and administrative expenses on the Consolidated Statements of
Income (Loss).
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 2000, 1999 and
1998 follows:
WHOLESALE RETAIL TOTAL
-------------------------------
2000 (in 000s)
-------------------------------
Net sales $ 21,118 $ 1,731 $ 22,156
Cost of sales 15,210 1,038 16,248
Gross profit 5,215 693 5,908
Operating losses (1,359) (90) (1,449)
Depreciation and amortization 161 1 162
-------------------------------
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
NOTE 14 - SUBSEQUENT EVENT
On November 8, 2000, the Company sold approximately 15 acres of it real
property located in Asheboro, NC for a cash purchase price of $2,500,000,
which purchase price was determined by arms-length negotiations of the
parties. The sale included a building on this property in Asheboro, NC,
which houses manufacturing operations, warehousing, corporate offices and a
retail store of the Company. A portion of the proceeds from this property
sale was used to pay off certain note balances (see Note 5).
Concurrent with the sale of this property, the Company signed a five-year lease
agreement with the buyer to rent approximately 164,000 square feet of the
289,000 square foot facility for $20,500 per month. Notice of an intention to
terminate the lease by the Company prior to the expiration of the initial term
or any renewal term must be made in writing ninety days prior to the Company's
vacating the premises. At the expiration of the lease term on November 7,
2005, the Company shall have the option to extend this lease on a
month-to-month basis with a ninety day notice to vacate.
NOTE 15 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As discussed in Note 4, the
Company has significant borrowings which require, among other things,
compliance with certain financial ratios, limits on capital expenditures,
minimum net worth requirements and net income requirements. At October 28,
2000, the Company was not in compliance with certain restrictive covenants
under the borrowing facility; however, the Company requested and received a
forbearance agreement which expires on March 31, 2001. The Company has
requested and received a conditional commitment from another asset-based
lender. As of February 9, 2001, this loan has not closed. The Company's
continuation as a going concern is dependent upon its ability to successfully
establish the necessary financial arrangements and to comply with the terms
thereof and to restore profitability to the Company. Although no assurance
can be given, management remains confident that the Company will be able to
obtain the necessary financing and continue operating as a going concern.
26
<AUDIT-REPORT>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of B.B. Walker Company
We have audited the accompanying consolidated balance sheets of B. B. Walker
and its subsidiaries as of October 28, 2000 and October 30, 1999, and the
related consolidated statements of income (loss), of cash flows, and of
changes in shareholders' equity for each of the three years in the period
ended October 28, 2000. 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 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 misstatements. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of B. B.
Walker and its subsidiaries at October 28, 2000 and October 30, 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended October 28, 2000 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements as of October 28, 2000
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 15 to the financial statements, the Company has suffered
recurring losses from operations and has been operating under a forbearance
agreement with its current lender, which expires on March 31, 2001. The
Company is in current negotiations of a new debt facility with an asset based
lender and has received a conditional commitment from the lender. These
issues raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described
in Note 15. The financial statements do not include any adjustments that
might result from the outcome of this uncertainity.
PRICEWATERHOUSECOOPERS LLP
- --------------------------
PricewaterhouseCoopers LLP
Greensboro, North Carolina
December 27, 2000, except for Note 15 for
which the date is February 9, 2001.
</AUDIT-REPORT>
27
B.B. WALKER COMPANY AND SUBSIDIARY
SELECTED FINANCIAL DATA
(In thousands, except for
items denoted by (1) below)
2000 1999 1998 1997 1996
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
---------- ---------- ---------- ---------- ----------
RESULTS OF OPERATIONS:
Net sales $ 22,156 $ 25,896 $ 28,813 $ 32,648 $ 37,506
======= ======= ======= ======= =======
Loss from continuing operations before
income taxes and minority interests $ (1,449) $ (591) $ (736) $ (54) $ (4,659)
Provision for (benefit from) income taxes 320 - (813) (80) (620)
Minority interests in continuing operations (2) (1) (2) (2) (2)
------- ------- ------- ------- -------
Net income (loss) $ (1,771) $ (592) $ 75 $ 24 $ (4,041)
======= ======= ======= ======= =======
FINANCIAL CONDITION:
Current assets $ 14,360 $ 17,995 $ 18,314 $ 19,268 $ 24,953
Current liabilities 12,294 14,309 14,102 13,368 19,534
Working capital 2,066 3,686 4,212 5,900 5,419
Current ratio (1) 1.17 to 1 1.26 to 1 1.30 to 1 1.44 to 1 1.28 to 1
Total assets 15,789 19,592 20,080 21,174 27,375
Long-term obligations 1,158 1,187 1,303 3,216 3,286
Minority interests in consolidated subsidiary 31 31 33 33 33
Total liabilities 13,483 15,527 15,438 16,617 22,853
Shareholders' equity 2,306 4,065 4,642 4,557 4,522
PER SHARE INFORMATION (1) (2):
Shareholders' equity (book value) $ 1.27 $ 2.28 $ 2.65 $ 2.59 $ 2.57
======= ======= ======= ======= =======
Basic per share:
Net income (loss) $ (1.01) $ (.34) $ .04 $ .01 $ (2.34)
======= ======= ======= ======= =======
Diluted per share:
Net income (loss) $ (1.01) $ (.34) $ .04 $ .01 $ (2.34)
======= ======= ======= ======= =======
Cash dividends on preferred stock $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00
OTHER INFORMATION:
Property, plant and equipment, net $ 1,320 $ 1,467 $ 1,622 $ 1,750 $ 2,208
Depreciation and amortization 162 192 269 458 637
Capital additions 21 37 141 - 21
Space occupied (square feet) 355 355 355 358 358
Average number of common shares outstanding 1,746 1,735 1,724 1,727 1,727
Number of shareholders (1) 1,169 1,163 1,166 1,177 1,169
Number of employees (1) 305 350 392 423 521
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 28, 2000, October 30, 1999, and October 31, 1998:
October 28, October 30, October 31,
2000 1999 1998
----------- ----------- -----------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 73.3% 71.9% 74.6%
------- ------- -------
Gross margin 26.7% 28.1% 25.4%
Selling and administrative expenses 28.3% 26.6% 23.4%
Depreciation and amortization .7% .7% .9%
Interest expense 4.4% 3.7% 3.7%
Interest and other income (.2%) (.6%) (.1%)
------- ------- -------
Loss before income taxes
and minority interest (6.5%) (2.3%) (2.5%)
Provision for (benefit from)
income taxes 1.5% - (2.8%)
Minority interest - - -
------- ------- -------
Net income (loss) (8.0%) (2.3%) .3%
======= ======= =======
FISCAL 2000 COMPARED TO FISCAL 1999
Material Changes in Operations
- ------------------------------
The Company entered into a contract on February 4, 2000 to sell all of its
approximately 25 acres in prime real property located in Asheboro, North
Carolina. Under this contract, the purchaser had until August 2, 2000 to
examine the suitability of the property for its needs. In late July 2000,
this contract was cancelled when one of the parties involved dropped out
of the investment group. Immediately thereafter, the Company began nego-
tiations with other prospective buyers for the same property. Subsequent
to fiscal year ended October 28, 2000, the Company sold approximately 15
acres of its real property in Asheboro, North Carolina (see "Sale of
Property" discussion in the Liquidity and Capital Resources section).
29
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 $22,156,000 in 2000 as compared to $25,896,000
in 1999. This was a reduction of $3,740,000, or 14.4%, from the prior year.
The Company's revenues include sales of footwear manufactured and wholesaled
by the Company and sales from the Company's retail outlets. Footwear manu-
factured and wholesaled by the Company, which includes branded, private label
and institutional sales, comprised 91.5% of net sales in 2000 and 91.6% of
net sales in 1999. The remaining 8.5% and 8.4% of net sales in 2000 and 1999,
respectively, were sales from the Company's retail outlets.
Sales of branded footwear were down $2,054,000, or 11.8%, in 2000 from 1999.
Pairs shipped decreased 14.6% while the price per pair shipped increased 3.2%.
Work branded shipments were down $1,607,000, or 18.3%, and western branded
sales were down $1,667,000, or 12.1%, in 2000 over 1999. The increase in price
per pair can be attributed to a slight price increase during the year.
Increased competition from inported footwear has continued to depress sales of
the Company's branded products.
Private label sales in 2000 reflected a decrease of $1,529,000, or 26.0%, com-
pared to 1999 private label sales. Private label pairs shipped were off 28.5%
while the average price per pair was up 3.5%. Sales in this division have been
impacted by soft retail sales domestically. Also negatively impacting private
label sales was a $318,000, or 10.4%, decrease in shipments to the Company's
largest customer, a major discount retailer, due to their internal inventory
adjustments in 2000. The results of private label sales are dictated by the
activity of several large accounts and the timing of shipments to those
accounts.
Sales to institutional customers fell by $73,000, or 5.4%, from 1999 to 2000.
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 have been negatively
impacted by a trend in institutional customers awarding their contracts to
import footwear suppliers.
Retail sales for the year were $269,000, or 13.5%, lower than the results for
1999. Two retail outlets, one in Asheboro, NC and one in Lancaster, PA,
experienced increased competition from major discount retailers surrounding
the retail outlets.
Gross Margin
- ------------
The Company's gross margin was $5,908,000 in 2000 and $7,285,000 in 1999, a
decrease of $1,377,000. As a percentage of sales, the gross margin for 2000
decreased to 26.7% from 28.1% in 1999. Considering the 14.4% decrease in
revenues, this slight 1.4% decrease in gross margin indicates that manu-
facturing expenses were effectively controlled during the year.
30
B.B WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $6,274,000 for 2000 as compared to
$6,888,000 for 1999, a decrease of $614,000, or 8.9%. However, these expenses
increased as a percentage of sales from 26.6% in 1999 to 28.3% in 2000.
Interest Expense
- ----------------
Interest expense incurred in 2000 was $983,000, or $35,000 more than interest
expense of $948,000 for 1999. This 3.7% increase can be attributed to the
1.25% jump in the prime interest rate since October 1999. Also, additional
interest was expensed this year on short-term debt financing the acquisition
of adjacent land parcels purchased to make the Asheboro, NC property more
attractive to prospective buyers.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization decreased $30,000 to $162,000 in 2000 from
$192,000 in 1999. For the previous six 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.
Provision for Income Taxes
- --------------------------
The Company had a net loss before income taxes of $1,451,000 in 2000. In
1999, the net loss before income taxes was $592,000. Whereas there was no
provision for income taxes in 1999, there was an adjustment to the valuation
allowance for deferred tax assets of $320,000 in 2000, which is reflected in
the provision for income taxes (see Note 7). This adjustment was made to
reflect the asset at the level for which it will "more likely than not" be
realized in the future. Because of recent losses, this amount has been
adjusted to the amount which will be realized from the sale of the
property (see Note 14).
Net Loss
- --------
For the year ended October 28, 2000, the Company reported a net loss of
$1,771,000, or 8.0%, of net sales, whereas for the year ended October 30, 1999,
the Company reported a net loss of $592,000, or 2.3% of net sales. The change
of $1,179,000 can be attributed primarily to the effect of two items: the
valuation allowance adjustment of $320,000 in 2000 and the $858,000 additional
loss from operations (from $591,000 in 1999 to $1,449,000 in 2000). This
increase in loss is due primarily to the $3,740,000, or 14.4%, decrease in
net sales from 1999 to 2000.
31
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
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.
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. That contract was cancelled in late July 2000
(see "Potential Sale of Property" discussion in the Liquidity and Capital
Resources section).
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.
32
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
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.
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.
33
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
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.
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 1999 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.
34
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 11.0%, at October 28, 2000). The Company had outstanding
advances of $5,710,000 at October 28, 2000, and an additional $447,000
available under the agreement.
Despite the Company's increased losses over last year, cash provided by
operations in 2000 was $1,958,000, which was used to reduce advances under the
revolving finance agreement by $1,403,000 and long-term obligations by
$607,000. This significant cash generation was achieved primarily by reducing
accounts receivable and inventories by $1,200,000 and $2,280,000, respectively.
As of year-end, 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 a maximum of $7,000,000. In addition, the
sublimit for inventory, the maximum advances that can be taken against
inventory under the revolving credit agreement, is $4,000,000. The Company
signed an amendment to its finance agreement on June 23, 2000, which lowered
the maximum credit line available from $8,000,000 to $7,000,000. This
amendment also reduced the borrowing base on retail inventory from the
previous 40% of net value to 0% using a phase-out method completed by
October 28, 2000.
In addition to the revolving credit facility, the finance agreement also
provided a $3,000,000 term loan that was used to repay an existing mortgage
note payable to a bank. At October 28, 2000, this note carried a balance of
$1,061,000 at an interest rate of 11.0% (the bank's prime rate plus 1.5%).
Per the terms of the note, the Company had monthly installments of $35,714
with a balloon payment of $990,224 due December 31, 2000 (see Note 5 regarding
the payment in full of this loan balance on November 8, 2000 as a result of a
subsequent event discussed in Note 14).
During fiscal 2000, two amendments were made to the finance agreement: the
first on December 30, 1999 to extend the due date of the term loan to the
aforementioned 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. Had the subsequent event on
November 8, 2000 (see Note 14) occurred prior to fiscal year ended October 28,
2000, the Company would have been in compliance with all of its restrictive
covenants. However, at October 28, 2000, the Company was not in compliance
with four of its seven debt covenants. On September 29, 2000 and October 30,
2000, forebearance agreements were signed between the bank and the Company
which acknowledged that certain terms and provisions of the finance agreement
were violated, but the bank agreed that it will forbear in the exercise of its
rights and remedies under the loan documents. The maturity date of the finance
agreement is March 31, 2001.
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.
35
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
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 (10.25% at October 28,
2000) 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 28, 2000 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 $21,000 in 2000 and has made only
minimal capital expenditures during the past six 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 six years. Other than
the aforementioned building acquisition in 1994, funding for capital
expenditures has come primarily from the available balance on the finance
agreement. The one significant exception is the bank loan signed in October
1999 to finance the acquisition of adjacent land parcels in Asheboro, North
Carolina (see Note 5 regarding the payment in full of this $562,000 loan
balance on November 8, 2000 as a result of a subsequent event discussed in
Note 14).
Net working capital, which consists primarily of accounts receivable and
inventories less current liabilities, was $2,066,000 at October 28, 2000
and $3,686,000 at October 30, 1999. The ratio of current assets to current
liabilities decreased to 1.17 to 1 at October 28, 2000, compared to 1.26 to
1 at October 30, 1999. Cash flows provided by operations in 2000 was a net
inflow of $1,958,000 compared to a net cash inflow of $613,000 in 1999.
The Company is negotiating a new debt facility with an asset-based lender
and has received a conditional commitment. As of February 9, 2001, the
loan had not closed. If the Company is not able to establish a new debt
facility with the asset-based lender in the near future, it believes that
it will be able to generate necessary cash through the sale of its
remaining 10 acre tract of land in Asheboro, North Carolina, to provide
it additional time to establish a new debt facility. The continued
viability of the Company in its present form is dependent upon, among
other things its ability to successfully establish the necessary
financial arrangements and to generate sufficient cash from operations
to meet on-going obligations over a sustained period. Although no
assurance can be given, management believes that the Company will be
able to obtain the necessary financing and continue operating as a going
concern.
36
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Sale of Property
- ----------------
The Company entered into a contract on February 4, 2000 to sell all of its
approximately 25 acres in prime real property in Asheboro, North Carolina.
Under this contract, the purchaser had until August 2, 2000 to examine the
suitability of the property for its needs. In late July 2000, this contract
was cancelled when one of the parties involved dropped out of the investment
group. Immediately thereafter, the Company began negotiations with other
prospective buyers for the same property. Subsequent to fiscal year ended
October 28, 2000, the Company sold approximately 15 acres of its real
property in Asheboro, North Carolina, which includes a building that houses
manufacturing operations, warehousing, corporate offices, and a retail store
of the Company. Concurrent with the sale of this property, the Company signed
a five-year lease agreement with the buyer to rent approximately 57% of the
building. The Company does not anticipate that the sale will cause a
significant disruption in the Company's operations. After this sale, the
Company retains approximately 10 adjacent acres which includes parking lots,
three rental houses, and a non-related manufacturing facility which is no
longer in use. The Company is in preliminary discussions with potential buyers
regarding the sale of this property, but there can be no assurance that the
Company will sell this property.
New 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. At October 28, 2000, the Company does not have
any items of other comprehensive income to report.
The Financial Accounting Standards Board has issued FASB Statement No. 133
Accounting for Derivative Instruments and Hedging Activities, and FASB
Statement No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, which will be effective for the Company in
2001. Management anticipates that the adoption of the Statements will
not have an effect on the Company. Management is also evaluating the
SEC's Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, and does not expect that its adoption will have
any effect on the Company.
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 secure the necessary financing
arrangements to meet its working capital and capital expenditure
requirements, and (6) failure to enter into a contract for the
remaining 10 acres of the Asheboro, North Carolina property and if entered
into, the consummation of the transaction provided for therein.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
Because the Company's obligations under the bank credit agreement bear interest
at floating rates, the Company is sensitive to changes in prevailing market
rates. A 10% increase or decrease in market interest rates would not have a
material impact on earnings during the next fiscal year.
37
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 1,169 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 17.7% of the total shares issued
and outstanding. At the last Annual Meeting of the Shareholders held on March
20, 2000, 73.0% 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
-------------- ---------------
2000:
First Quarter $ 1 $ 3/4 $ 1 1/2 $ 1 1/2
Second Quarter 3/4 3/4 1 1/2 1 1/2
Third Quarter 3/4 3/4 1 1/2 1 1/2
Fourth Quarter 3/4 1/4 1 1/2 7/8
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
These Over-the-Counter market quotations reflect interdealer prices, without
retail mark-up, mark-down or commissions, and may not necessarily represent
actual transactions.
38
B.B. WALKER COMPANY
OFFICERS
- --------
KENT T. ANDERSON
Chairman and Chief Executive Officer
FRENCH P. HUMPHRIES JOYCE C. WALKER
Executive Vice President Chief Accountant
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 & Werner
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 19, 2001. 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