UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THIRD QUARTER ENDED AUGUST 04, 2001
Commission File Number 0-934
B.B. WALKER COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0581797
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 East Dixie Drive, Asheboro, NC 27203
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 625-1380
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
--- ---
On September 10, 2001, 1,735,114 shares of the Registrant's voting common
stock with a par value of $1.00 per share were outstanding.
Cover
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) (Audited)
Aug 04, October 28,
Assets 2001 2000
------ ----------- -----------
Cash $ 1 $ 1
Accounts receivable, less allowance
for doubtful accounts of $590 in
2001 and $495 in 2000 1,458 5,271
Inventories 4,545 6,930
Prepaid expenses 441 550
Property held for sale - 889
Deferred income tax benefit, current - 719
------- -------
Total current assets 6,445 14,360
Property, plant and equipment, net of
accumulated depreciation and amortization
of $5,548 in 2001 and $6,812 in 2000 603 1,320
Other assets 48 109
------- -------
$ 7,096 $ 15,789
======= =======
(Continued)
1
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands)
(Unaudited) (Audited)
Aug 04, October 28,
Liabilities and Shareholders' Equity 2001 2000
------------------------------------ ----------- -----------
Borrowings under finance agreement $ 1,640 $ 5,710
Current portion of long-term obligations 760 2,202
Accounts payable, trade 2,674 3,497
Accrued salaries, wages and bonuses 85 333
Other accounts payable and accrued liabilities 319 552
------- -------
Total current liabilities 5,478 12,294
------- -------
Long-term obligations 804 1,158
Minority interests in consolidated subsidiary 31 31
Shareholders' equity:
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 2001 and 2000 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,735,114 shares in 2001 and
1,745,954 in 2000 issued and outstanding 1,735 1,746
Capital in excess of par value 2,706 2,712
Retained (deficit) (3,697) (2,177)
Shareholders' loans (44) (58)
------- -------
Total shareholders' equity 783 2,306
------- -------
$ 7,096 $ 15,789
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
2
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)
(Unaudited)
Third Quarter Ended
Nine Months Ended
--------------------------
--------------------------
Aug 04, July 29,
Aug 04, July 29,
2001 2000
2001 2000
----------- -----------
----------- -----------
Net sales $ 1,922 $ 5,014
$ 10,873 $ 16,042
Gain (loss) on sale of property (Note 7) (98) -
1,943 -
Interest and other income 4 5
16 33
----------- -----------
----------- -----------
Total revenues 1,828 5,019
12,832 16,075
----------- -----------
----------- -----------
Cost of products sold 1,897 3,694
8,926 11,664
Selling and administrative expenses 1,344 1,636
4,362 4,873
Depreciation and amortization 29 41
91 122
Interest expense 103 254
430 733
----------- -----------
----------- -----------
Total costs and expenses 3,373 5,625
13,809 17,392
----------- -----------
----------- -----------
Loss before income taxes
and minority interest (1,545) (606)
(977) (1,317)
Provision for income taxes - -
537 -
Minority interest 1 1
2 2
----------- -----------
----------- -----------
Net loss (1,546) (607)
(1,516) (1,319)
Retained deficit at beginning of quarter (2,150) (1,115)
(2,177) (400)
Dividends on preferred stock (1) (1)
(4) (4)
----------- -----------
----------- -----------
Retained deficit at end of quarter $ (3,697) $ (1,723)
$ (3,697) $ (1,723)
=========== ===========
=========== ===========
Net loss per share:
Basic $ (.89) $ (.35)
$ (.88) $ (.76)
=========== ===========
=========== ===========
Diluted $ (.89) $ (.35)
$ (.88) $ (.76)
=========== ===========
=========== ===========
Weighted average common shares outstanding:
Basic 1,736 1,746
1,736 1,746
=========== ===========
=========== ===========
Diluted 1,736 1,746
1,736 1,746
=========== ===========
=========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
3
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months
Ended
-----------------------
Aug 4, July 29,
2001 2000
----------- ----------
Cash Flows From Operating Activities:
Net loss $ (1,516) $ (1,319)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 91 122
Gain on sale of property and equipment (1,946) (18)
Deferred income tax expense 719 -
(Increase) decrease in:
Accounts receivable, net 3,813 2,275
Inventories 2,385 795
Prepaid expenses 109 (55)
Other assets 61 2
Increase (decrease) in:
Accounts payable, trade (823) 116
Accrued salaries, wages and bonuses (248) (181)
Other accounts payable and accrued liabilities (233) (12)
-------- -------
Net cash provided by operating activities 2,412 1,725
-------- -------
Cash Flows From Investing Activities:
Capital expenditures - (6)
Proceeds from disposal of fixed assets 2,644 23
Sale (purchase) of property held for sale 817 (86)
-------- --------
Net cash provided by (used in)
investing activities 3,458 (69)
-------- --------
Cash Flows From Financing Activities:
Net payments under finance agreement (4,070) (1,331)
Payment on long-term obligations (1,798) (457)
Proceeds from issuance of short-term obligations - 84
Proceeds from issuance of long-term obligations 2 39
Repurchase of common stock (17) -
Repayments from shareholders, net of borrowings 14 13
Dividends paid on 7% cumulative preferred stock (4) (4)
-------- --------
Net cash used in financing activities (5,873) (1,656)
-------- --------
Net change in cash - -
Cash at beginning of year 1 1
-------- -------
Cash at end of third quarter $ 1 $ 1
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
B.B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
------
A summary of the Company's significant accounting policies is presented on
page 9 of its 2000 Annual Report to Shareholders. Users of financial
information presented for interim periods are encouraged to refer to the
footnotes contained in the Annual Report to Shareholders when reviewing
interim financial results.
In the opinion of management, the accompanying unaudited consolidated finan-
cial statements contain all adjustments necessary for a fair presentation of
the financial results of B.B. Walker Company and Subsidiary (the "Company")
for the interim periods included. All such adjustments are of a normal
recurring nature. The results of operations for the interim periods shown
in this report are not necessarily indicative of the results to be expected
for the fiscal year.
The Company's operations are reported on a fifty-two, fifty-three week
fiscal year that ends on the Saturday closest to October 31. The results
for the first nine months ended August 4, 2001 includes forty weeks of
operations and July 29, 2000 includes thirty-nine weeks of operations.
The third quarters of 2001 and 2000 each include thirteen weeks of operations.
Note 2
------
Basic earnings per share (EPS) are computed by dividing loss available to
common shareholders by the weighted-average number of common shares
outstanding for the period. In arriving at loss available to common
shareholders, preferred stock dividends of $1,449 were deducted in
each quarter 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.
Note 3
------
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" requires that certain items such as foreign currency
translation adjustments, unrealized gains and losses on certain investments
in debt and equity securities, minimum pension liability adjustments, net
gain or loss on derivative instruments designated and qualifying as cash
flow hedging instruments, and unrealized gains and losses on certain invest-
ments in debt and equity securities be presented as separate components of
shareholders' equity. SFAS 130 defines these as items of other comprehensive
income and as such must be reported in a financial statement that is displayed
with the same prominence as other financial statements. At August 4, 2001
and July 29, 2000, the Company does not have any items of other comprehensive
income to report.
5
B.B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Note 4
------
Long-term obligations consist of the following amounts (in thousands):
(Unaudited) (Audited)
Aug 04, October 28,
2001 2000
----------- ----------
Notes payable to banks $ 168 $ 1,802
Notes payable to governmental authorities 442 476
Promissory notes payable to shareholders 954 1,082
------- -------
1,564 3,360
Less portion payable within one year 760 2,202
------- -------
$ 804 $ 1,158
======= =======
Note 5
------
Inventories are composed of the following amounts (in thousands):
(Unaudited) (Audited)
Aug. 04, October 28,
2001 2000
----------- -----------
Finished goods $ 2,546 $ 4,418
Work in process 424 510
Raw materials and supplies 1,575 2,002
------- -------
$ 4,545 $ 6,930
======= =======
Note 6
------
The Company's reportable segments are wholesale and retail sales. Whereas
wholesale sales are made to major chain stores, retail stores, and
governmental entities, retail sales are made directly to the public
from the Company's two retail outlets in Asheboro, NC, and Lancaster, PA.
The segments are managed separately because each business unit requires
different marketing strategies. Segment information for the first nine
months of 2001 and 2000 are as follows:
WHOLESALE RETAIL TOTAL
---------------------------------------------
2001 (in 000s)
---------------------------------------------
Net sales $ 9,877 $ 996 $ 10,873
Cost of sales 8,374 552 8,926
Gross profit 1,503 444 1,947
Gain on sale of property 1,943 0 1,943
Loss before income taxes and
minority interests (865) (112) (977)
Depreciation and amortization 91 0 91
WHOLESALE RETAIL TOTAL
---------------------------------------------
2000 (in 000s)
---------------------------------------------
Net sales $ 14,749 $ 1,293 $ 16,042
Cost of sales 10,903 761 11,664
Gross profit 3,846 532 4,378
Loss before income taxes and
minority interests (1,248) (69) (1,317)
Depreciation and amortization 122 0 122
Note 7
------
On November 8, 2000, the Company sold approximately 15 acres of its real
property located in Asheboro, NC for a cash price of $2,500,000, which
purchase price was determined by arms-length negotiations of the parties.
This sale resulted in a gain of $2,041,000. 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.
Concurrent with the sale of this property, the Company signed a five-year
lease agreement with the buyer to rent the facility. This lease, as amended,
calls for monthly payments of $27,500. 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.
On July 18, 2001, the Company sold approximately 10 acres of real property
located in Asheboro, NC to Schwarz Properties, LLC for a cash purchase price
$990,000, which purchase price was determined by arms-length negotiations of
parties.
This property included parking lots, three rental houses, and a non-related
manufacturing facility which is no longer in use. This property was not a
part of the daily operations of the Company.
Note 8
------
The Company has significant borrowings under the finance agreement in the
amount of $1,640,000 as of August 4, 2001. 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. At August 4, 2001, the amount available was $1,722,000, of
which $82,000 was unused. The Company is currently operating under an
amendment to the credit agreement which will expire on October 15, 2001.
The Company is in violation of certain covenants of the amended credit
Agreement. The Company is currently in discussions with asset-based
lenders to replace this financing. This replacement has not been
accomplished. 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. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
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.
6
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
third quarter and nine months ended August 4, 2001 and July 29, 2000:
Third Nine
Quarter Ended Months Ended
Aug. 4, July 29, Aug. 4, July 29,
2001 2000 2001 2000
--------- -------- --------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 98.7% 73.7% 82.1% 72.7%
------- ------- ------- -------
Gross margin 1.3% 26.3% 17.9% 27.3%
Selling and administrative
expenses 69.9% 32.6% 40.1% 30.4%
Depreciation and amortization 1.5% .8% .8% .7%
Interest expense 5.4% 5.1% 4.0% 4.6%
Gain (loss)on sale of property 5.1% - (17.9%) -
Interest and other income (.2%) (.1%) (.1%) (.2%)
------- ------- ------- -------
Loss before income taxes and
minority interest (80.4%) (12.1%) (9.0%) (8.2%)
Provision for income taxes - - 4.9% -
Minority interest - - - -
------- ------- ------- -------
Net loss (80.4%) (12.1%) (13.9%) (8.2%)
======= ======= ======= =======
Net Sales
---------
For the third quarter of 2001, the Company's net sales were $1,922,000, or
$3,092,000 (61.7%) lower than net sales of $5,014,000 in the third quarter of
2000. For the nine month period ended August 04, 2001, net sales were
$10,873,000, a $5,169,000 (32.2%) decrease from net sales of $16,042,000
in the comparable nine months period ended July 29, 2000. The Company's
revenues include sales of footwear both manufactured and purchased by the
Company and sales from the Company's retail outlets. Footwear wholesaled
by the Company, which includes branded, private label and institutional
sales, comprised 83.9% of net sales in the third quarter of 2001 and
91.0% of net sales in the third quarter of 2000. Retail sales made up the
remaining net sales of 16.1% in 2001 and 9.0% in 2000. For the comparable
nine month periods, wholesaled footwear comprised 90.8% of net sales in
2001 and 91.9% of net sales in 2000. The remaining net sales of 9.2% in
2001 and 8.1% in 2000 were sales from the Company's retail outlets.
7
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
The decrease in net sales can be attributed to two factors. First, our
inability to purchase raw materials and run our factories because of cash
constraints placed on the Company by our bank during the first nine months
of this fiscal year. However, late in the third quarter an agreement was
reached with our bank permitting the sale of additional property as discussed
in Note 7 which provided needed cash to purchase raw materials and resume
production in our factories. Our order position remains strong and we
anticipate shipments will exceed previous fourth quarter levels. Also,
during late 2000, a decision was made to begin importing high end, handmade
western product from Spain along with a line of mid-priced footwear from
China. These new introductions have been well received in the marketplace
and should translate into increased sales in the fall of calendar 2001.
Second, import penetration in excess of 96% into the U.S. footwear market
has made it easier for competitors to enter the work shoe market. This
increase in low-priced imports has caused a dramatic adverse effect on the
Company's work/outdoor shipments.
Sales of the Company's branded footwear in the third quarter of 2001 were
down $1,955,000, or 59.7%, from 2000's third quarter because of the reasons
discussed above. Branded pairs shipped were down 32,002, or 55.3%, in the
third quarter while price per pair was down 9.9%.
Private label sales in the third quarter of 2001 were down $894,000, or
81.2%, from the third quarter of 2000. The decrease can be attributed to
an overall weaker work/outdoor private label business. Pairs shipped were
down 24,342, or 82.7% while price per pair was up 8.9%. This segment of our
business has also been dramatically affected by imported footwear. In the
second quarter, we made a decision to begin phasing out our business with a
major discount retailer due to our inability to pass along needed price
increases.
Sales to institutional customers in the third quarter of 2001 were down
$163,000, or 56.8%, from the third quarter of 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. Unfortunately, there is an increasing trend
toward being underbid by import suppliers on new institutional business.
In January 2001, the Company was awarded a contract by the Defense Personnel
Supply Agency for the production of 6,000 pairs per year for the next three
years of a mountain ski boot. The first order for 4,680 pairs is now in
production and scheduled to be completed prior to the end of the calendar
year.
Retail sales decreased $160,000, or 32.9%, from the third quarter of the
prior year. The two retail outlets, one in Asheboro, NC and one in
Lancaster, PA, continue to experience increased competition from major
discount retailers surrounding their locations.
8
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
Gross Margin
------------
For the third quarter of 2001 and 2000, the gross margin was 1.3% and
26.3%, respectively. The Company's gross margin was 17.9% and 27.3% for the
first nine months of 2001 and 2000, respectively. This 9.4% decrease
from the prior year is due to high manufacturing variances created by our
inability to run our plants at capacity. We expect to be running at full
capacity by the end of the fourth quarter which will result in our margins
improving considerably. In addition, we have eliminated some of our private
label sales to concentrate on more profitable branded sales which will result
in improved margins in the fourth quarter. The gross margin percentage
continues to be impacted by competitive pressure at the retail level which
requires that the Company remain competitive in the pricing and terms
offered.
Selling and Administrative Expenses
-----------------------------------
Selling and administrative expenses were $1,344,000 for the third quarter
of 2001 as compared to $1,636,000 for the third quarter of 2000, a
decrease of $292,000. Year-to-date expenses for 2001 and 2000 are
$4,362,000 and $4,873,000, respectively. Even though there has been a
$511,000 reduction in the first nine months of 2001 over 2000, selling and
administrative expenses as a percentage of sales have increased from 30.4%
in 2000 to 40.1% in 2001 since these relatively-fixed expenses are being
compared to year-to-date sales which have declined 32.2% from the previous
year. Management continues to emphasize cost control and operational
efficiency in the selling and administrative areas.
Interest Expense
----------------
Interest expense in the third quarter of 2001 was $103,000, or $151,000
lower than interest expense of $254,000 for the third quarter of 2000.
This 59.4% decrease in interest expense for the third quarter can be
attributed to a lower average balance on outstanding loan advances under the
revolving loan agreement in the third quarter due to lower sales. Also,
during the first quarter of 2001, the term loan which was a part of the bank
financing agreement was paid in full with the proceeds from the property
sale (see note 7) which significantly reduced the amount of interest incurred.
Other long-term debt carried lower balances in 2001 when compared to 2000, as
the Company continued to amortize the debt according to each issue's
respective terms.
9
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 in the third quarter of 2001 was $29,000, or
$12,000 less than 2000 expenses of $41,000. With minimal amounts invested in
fixed assets in recent years, depreciation charges on fixed assets that are
becoming fully depreciated are not being replaced, resulting in lower
depreciation expense.
Benefit from Income Taxes
-------------------------
For the third quarter of both 2001 and 2000, the Company recorded no benefit
from income taxes. The Company evaluated the valuation allowance
reserved against its deferred income tax asset at the end of the third
quarter and determined that the net deferred income tax asset was
appropriately recorded at its net realizable value.
Net Loss
-----------------
The Company reported a loss of $1,546,000 in the third quarter of 2001
compared to a $607,000 loss in the third quarter of 2000. As discussed
above, the 61.7% decrease in net sales from the third quarter of 2001 has
adversely affected gross margins as lower production than budgeted has not
covered the Company's fixed manufacturing costs.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Historically, the Company has funded substantially all of its working
capital and capital expenditure requirements through borrowings under its
financing agreement and other indebtedness. The revolving financing agree-
ment 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 financing agreement, the
Company finances its accounts receivable and inventories, paying interest at
a variable rate (prime plus 3.50%, or 10.25%, at Aug 4, 2001). The
Company had outstanding advances of $1,640,000 at Aug 4, 2001. The Company
continues to rely on the revolving financing agreement to provide working
capital.
10
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
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. At August 4, 2001, the amount
available was $1,722,000, of which $82,000 was unused. The Company signed
the eleventh amendment to the financing agreement on March 30, 2001 which
lowered the credit line available under the agreement to $5,000,000 and
extended the maturity date to May 31, 2001. This amendment also reduced
the borrowing base on raw materials from the previous 50% to a net value
of 0% using a phase-out method completed by May 31, 2001. On May 31, 2001,
the Company signed the twelfth amendment to the credit agreement which
lowered the credit line available under the agreement to $4,000,000 and
extended the due date to July 15, 2001. On July 16, 2001, the Company signed
the Thirteenth Amendment to the Credit Agreement which increased the credit
line available under the agreement to $5,000,000 and extended the due date
to October 15, 2001.
In addition to the revolving credit facility, the financing agreement also
provided a $3,000,000 term loan bearing interest at the bank's prime rate
plus 1.50%(10.5% at January 27, 2001). During the first quarter of 2001,
this loan was paid in full using the proceeds from the property sale as
discussed in Note 7.
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 subordinated lien on the Somerset
facilities.
The Company made significant upgrades to its equipment and facilities in
1993 and 1994 but has made only minimal capital expenditures during the
past six years. Because of cash flow considerations and restrictions under
the financing agreement, the Company has made capital expenditures only
to maintain current levels of operations during the past six years.
Funding for capital expenditures, other than the acquisition of the
Somerset, Pennsylvania facility in July 1994, has primarily come from the
available balance on the financing agreement and cash from operations.
Net working capital, which consists primarily of accounts receivable and
inventories less current liabilities, was $967,000 at Aug 4, 2001 and
$2,066,000 at October 28, 2000. The ratio of current assets to current
liabilities was 1.18 to 1 at Aug 4, 2001 compared to 1.17 to 1 at
October 28, 2000.
The Company is currently in discussion with asset based lenders to replace
the financing facility or renew with the current lender. This renewal or
replacement has not been accomplished. The continued viability of the Company
in its present form is dependent upon, among other factors, its ability to
successfully establish the necessary financing 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 to continue operating
as a going concern.
11
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
FINANCIAL CONDITION
-------------------
Accounts Receivable
-------------------
Accounts receivable were $1,458,000 at Aug 4, 2001 compared to $5,271,000
at October 28, 2000. Trade receivables are historically at their highest
point at the end of the fiscal year because of the heavy sales volume
related to seasonal buying by retailers. This 72.3% decrease in accounts
receivable is also related to the 32.2% decrease in year-to-date net sales.
Inventories
-----------
Inventories were $4,545,000 at Aug 4, 2001, a decrease of $2,385,000, or
34.4%, from the inventories of $6,930,000 held at October 28, 2000. Of this
decrease, approximately $1,872,000 is finished goods and $427,000 is raw
materials. Work in process inventory is also down $86,000. The major
decreases in inventories were caused by the cash constraints placed on the
Company by our bank resulting in our plants not being able to run at full
capacity. As previously mentioned, late in the third quarter an agreement
was reach with our bank and our plants have resumed production. We do not
anticipate dramatic changes in our inventory levels during the fourth quarter
as our order position is strong and we are entering our busiest selling season.
Borrowings under Finance Agreements
-----------------------------------
The balance outstanding under the financing agreement was $1,640,000 at
Aug 4, 2001 as compared to $5,710,000 at October 28, 2000, a decrease
of $4,070,000, or 71.3%. The decrease can be attributed to the cash
applied against the outstanding balance from the property sales in the first
and third quarters, collections from accounts receivable, lower inventories
and loan agreement modifications.
Sale of Properties
----------------
On November 8, 2000, the Company sold approximately 15 acres of its 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 sale was
used to pay off certain debt.
Concurrent with the sale of this property, the Company signed a five year
lease with the buyer to rent the facility. This lease, as amended, calls for
monthly payments of $27,500. 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.
On July 18, 2001, the Company sold approximately 10 acres of its real property
located in Asheboro, NC to Schwarz Properties, LLC for a cash purchase price
of $990,000, which purchase price was determined by arms length negotiations
with the parties.
This property included parking lots, three rental houses, and a non-related
manufacturing facility which was no longer in use. This property was not
a part of the daily operations of the Company.
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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, (5) failure to establish financing arrangements with a new
lender or renew the agreement with the current lender and,(6) management's
ability to accurately predict the adequacy of the Company's financing
arrangement to meet its working capital and capital expenditure
requirements.
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 pre-
vailing interest rates. A 10% increase or decrease in market interest
rates would not have a material impact on earnings during the next fiscal
year.
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PART II. OTHER INFORMATION
---------------------------
Item 2. Changes in Securities:
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed:
(4)(c)(21)Thirteenth Amendment to the Credit Agreement
dated July 16, 2001 between B. B. Walker Company and
Michigan National Bank, as successor in interest to
Mellon Bank, N.A., LaSalle Business Credit, Inc., Its Agent
(b) Reports on Form 8-K:
Yes - Sale of property
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
B.B. Walker Company
Date September 17, 2001 S/KENT T. ANDERSON---
Chairman of the Board, Chief
Executive Officer and President
Date September 17, 2001 S/JOYCE C. WALKER
Chief Accountant
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