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 SECOND QUARTER ENDED MAY 4, 1996
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: (910) 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 June 3, 1996, 1,726,534 shares of the Registrant's voting common stock
with a par value of $1.00 per share were outstanding.
B.B. WALKER COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
May 4, October 28,
Assets 1996 1995
------ ----------- -----------
Cash $ 1 $ 1
Accounts receivable, less allowance
for doubtful accounts of $691 in
1996 and $521 in 1995 11,482 13,467
Inventories 12,937 15,828
Prepaid expenses 242 311
Income tax recovery receivable 361 613
Deferred income tax benefit, current 678 678
------- -------
Total current assets 25,701 30,898
Property, plant and equipment, net of
accumulated depreciation and amortization
of $5,718 in 1996 and $5,412 in 1995 2,657 2,968
Deferred income tax benefit, long-term 92 92
Other assets 368 419
------- -------
$ 28,818 $ 34,377
======= =======
(Continued)
1
B.B. WALKER COMPANY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands)
(Unaudited)
May 4, October 28,
Liabilities and Shareholders' Equity 1996 1995
------------------------------------ ----------- -----------
Borrowings under finance agreement $ 11,146 $ 14,012
Current portion of long-term obligations 1,156 1,088
Accounts payable, trade 3,493 5,210
Accrued salaries, wages and bonuses 572 591
Other accounts payable and accrued liabilities 1,165 632
------- -------
Total current liabilities 17,532 21,533
------- -------
Long-term obligations 3,779 4,257
Minority interests in consolidated subsidiary 34 34
Shareholders' equity:
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 1996 and 1995 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,726,535 shares issued and
outstanding in 1996 and 1995 1,727 1,727
Capital in excess of par value 2,724 2,724
Retained earnings 3,070 4,158
Shareholders' loans (131) (139)
------- -------
Total shareholders' equity 7,473 8,553
------- -------
Commitments and contingencies
$ 28,818 $ 34,377
======= =======
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 LOSS
(In Thousands, Except Per Share Data)
(Unaudited) (Unaudited)
Second Quarter Ended Six Months Ended
-------------------------- --------------------------
May 4, April 29, May 4, April 29,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net sales $ 9,046 $ 10,717 $ 19,066 $ 21,163
Interest and other income 21 22 27 44
----------- ----------- ----------- -----------
Total revenues 9,067 10,739 19,093 21,207
----------- ----------- ----------- -----------
Cost of products sold 7,040 8,364 14,618 16,083
Selling and administrative expenses 2,480 2,896 4,993 5,691
Depreciation and amortization 164 168 326 333
Interest expense 354 393 794 765
----------- ----------- ----------- -----------
Total costs and expenses 10,038 11,821 20,731 22,872
----------- ----------- ----------- -----------
Loss before income taxes and
minority interest (971) (1,082) (1,638) (1,665)
Benefit from income taxes (335) (394) (554) (609)
Minority interest - - 1 1
----------- ----------- ----------- -----------
Net loss (636) (688) (1,085) (1,057)
Retained earnings at beginning of period 3,708 5,038 4,158 5,408
Dividends on common stock - - - -
Dividends on preferred stock (2) (2) (3) (3)
----------- ----------- ----------- -----------
Retained earnings at end of period $ 3,070 $ 4,348 $ 3,070 $ 4,348
=========== =========== =========== ===========
Net loss per share:
Primary $ (.37) $ (.40) $ (.63) $ (.61)
=========== =========== =========== ===========
Fully diluted $ (.37) $ (.40) $ (.63) $ (.61)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Primary 1,728 1,730 1,728 1,739
=========== =========== =========== ===========
Fully diluted 1,728 1,730 1,728 1,739
=========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
3
B.B. WALKER COMPANY
CONSOLIDATED CASH FLOWS STATEMENTS
(In thousands)
(Unaudited)
Six Months
Ended
------------------------
May 4, April 29,
1996 1995
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (1,085) $ (1,057)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 326 333
Gain on sale of property, plant and equipment (2) (1)
Deferred income taxes - 1
(Increase) decrease in:
Accounts receivable, net 1,985 2,375
Inventories 2,891 (2,028)
Prepaid expenses 69 119
Other assets 51 (15)
Increase (decrease) in:
Accounts payable, trade (1,717) 1,254
Accrued salaries, wages and bonuses (19) (212)
Other accounts payable and accrued liabilities 533 174
Income taxes payable 252 (613)
------- -------
Net cash provided by operating activities 3,284 330
------- -------
Cash Flows From Investing Activities:
Capital expenditures (15) (14)
Proceeds from disposal of property,
plant and equipment 2 - 1
------- -------
Net cash used for investing activities (13) (13)
------- -------
Cash Flows From Financing Activities:
Net borrowing under finance agreement (2,866) (458)
Proceeds from issuance of long-term obligations 32 941
Payment on long-term obligations (442) (812)
Repurchase of common stock - (135)
Loans to shareholders, net of repayments 8 150
Dividends paid on 7% cumulative preferred stock (3) (3)
------- -------
Net cash used for financing activities (3,271) (317)
------- -------
Net change in cash - -
Cash at beginning of year 1 1
------- -------
Cash at end of second quarter $ 1 $ 1
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
B.B. WALKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
- ------
In the opinion of management, the accompanying unaudited consolidated
financial 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 fiscal year that
ends on November 2, 1996 will include fifty-three weeks of operations as
compared to fifty-two weeks in 1995. The Company elected to include the one
extra week in the first accounting period of the fiscal year. Therefore, the
results for the six months ended May 4, 1996 include twenty-seven weeks of
operations for the Company. The comparative six month results for the
period ended April 29, 1995 reflect twenty-six weeks of operations for the
Company. The results for the comparative second quarters of 1996 and 1995
each include thirteen weeks of operations.
Note 2
- ------
Earnings per common share is computed by deducting preferred dividends from
net income to determine net income attributable to common shareholders. This
amount is divided by the weighted average number of common shares outstanding
during the quarter plus the common stock equivalents arising from stock
options. For primary earnings per share, the common stock equivalents are
calculated using the average of the high and low asked price for the period.
For fully diluted earnings per share, the common stock equivalents are
calculated using the asked price at the end of the period if greater than the
average asked price for the period.
Note 3
- ------
Long-term obligations consist of the following amounts (in thousands):
(Unaudited)
May 4, October 28,
1996 1995
----------- -----------
Notes payable to banks $ 2,910 $ 3,165
Notes payable to governmental authorities 679 704
Promissory notes payable to shareholders 1,181 1,233
Capital lease obligations 165 243
------- -------
4,935 5,345
Less portion payable within one year 1,156 1,088
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$ 3,779 $ 4,257
======= =======
5
B.B. WALKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Note 4
- ------
Inventories are composed of the following amounts (in thousands):
(Unaudited)
May 4, October 28,
1996 1995
----------- -----------
Finished goods $ 8,288 $ 9,574
Work in process 624 807
Raw materials and supplies 4,025 5,447
------- -------
$ 12,937 $ 15,828
======= =======
6
B.B. WALKER COMPANY
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
second quarters and six months ended May 4, 1996 and April 29, 1995:
Second Six
Quarter Ended Months Ended
May 4, April 29, May 4, April 29,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.8% 78.0% 76.7% 76.0%
------ ------ ------ ------
Gross margin 22.2% 22.0% 23.3% 24.0%
Selling and administrative
expenses 27.4% 27.0% 26.2% 26.9%
Depreciation and amortization 1.8% 1.6% 1.7% 1.6%
Interest expense 3.9% 3.7% 4.2% 3.6%
Interest and other income (.2%) (.2%) (.2%) (.2%)
------ ------ ------ ------
Income before income taxes
and minority interest (10.7%) (10.1%) (8.6%) (7.9%)
Provision for income taxes (3.7%) (3.7%) (2.9%) (2.9%)
Minority interest - - - -
------ ------ ------ ------
Net income (7.0%) (6.4%) (5.7%) (5.0%)
====== ====== ====== ======
NET SALES
- ---------
Net sales for the second quarter were $9,046,000 which was 15.6% lower than
net sales of $10,717,000 in the second quarter of 1995. For the six months
ended May 4, 1996, net sales were $19,066,000, or 9.9% lower, as compared to
$21,163,000 for the same period in 1995.
Sales of branded footwear in the Work/Outdoor Division were down 16.2% and
11.1% for the six months and the second quarter, respectively. Demand for
footwear produced by this division was much stronger during the first six
months of 1995 compared to the first six months of 1996. A soft retail sector
is slowing inventory turns for the Company's customers and is resulting in
reduced orders compared to the prior year. Also, strong winter weather
disrupted retailers operations by forcing store closings and delaying
shipments. For the six months ended May 4, 1996, domestic sales were down
11.7% compared to the prior year. In the second quarter, domestic sales were
down 8.7% from 1995's second quarter. Pair shipments in the second quarter
were off 15.2% from 1995. For the six month period, pair shipments were down
12.9%. Export sales in this division fell 24.2% in the second quarter
compared to 1995. For the six months, export sales were off 35.9% from 1995.
7
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
Private label sales in the Work/Outdoor Division for the six months and second
quarter were down 9.2% and 35.5%, respectively. The decrease came primarily
from a decrease in pairs shipped to existing private label accounts.
Other sales in this division, which consists primarily of sales from the
Company's retail outlets and sales to institutional customers remained
relatively flat when compared to the prior year.
Branded footwear sales in the Western Boot Division fell during the second
quarter and the six month period ended May 4, 1996. Orders from customers
were down in the second quarter due to slow sales at the retail level. Sales
in this division were lower than 1995 by 9.9% for the six months and 18.9% for
the second quarter. Pair shipments were down 15.3% in the second quarter of
1996 over the second quarter of 1995. For the six month period, pair
shipments decreased 3.8% over 1995. Competition for market share led to
competitive pricing and lower average price per unit shipped.
Sales to private label customers in the Western Division increased 241.4% and
224.9% in the six months and second quarter ended May 4, 1996, respectively,
when compared to the same periods for 1995. Larger shipments to existing
customers made up the largest part of this growth as the Company has expanded
its offerings. However, since this division only comprises 5% of the
Company's net sales, its impact on operations has been minimal.
GROSS MARGIN
- ------------
The Company's gross margin fell to 23.3% for the first six months of 1996 from
24.0% for the first six months of 1995. For the second quarter of 1996 and
1995, the gross margin was 22.2% and 22.0%, respectively. The gross margin
was impacted by discounting programs in the branded divisions. Significant
competition has led to aggressive pricing and dating terms in order to induce
orders and increase market share. In addition, manufacturing variances,
primarily from fixed expenses, have had an unfavorable impact on the gross
margin. For 1996, pairs produced in the Company's plants has been 18.7% lower
than 1995. Because of reduced demand for footwear, the Company has reduced
operating schedules in its plants in order to avoid a large buildup of
finished goods inventory.
8
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
SELLING AND ADMINISTRATIVE EXPENSES
- -----------------------------------
Selling and administrative expenses were $2,480,000 for the second quarter of
1996 as compared to $2,896,000 for the second quarter of 1995, a decrease of
$416,000 or 14.4%. For the six months ended May 4, 1996 and April 29, 1995,
selling and administrative expenses were $4,993,000 and $5,691,000,
respectively, or $698,000 (12.3%) lower. The Company continues to analyze its
expenses and identify reductions of operating expenses in order to match its
cost structure with the current level of operations. Salary and benefits were
down approximately $215,000 and $307,000 for the second quarter and six
months, respectively. Several personnel positions, which are vacant, have not
been replaced and their work has been redistributed. Travel and showroom
expenses have fallen $123,000 for the second quarter and $163,000 for the six
months from 1995 levels. The Company is carefully evaluating expenses in this
area to determine opportunities for cost savings. Finally, freight expenses
are down $79,000 in the second quarter and $131,000 for the six months. The
prior year had higher than normal freight expenses because of reduced freight
promotions offered to customers.
INTEREST EXPENSE
- ----------------
Interest expense for the six months ended May 4, 1996 was $794,000, or $29,000
higher than interest expense of $765,000 for the six months ended April 29,
1995. For the second quarter, 1996 expense was $39,000 lower than 1995
expense. For the six month period, the increase is primarily attributable to
the higher average balance outstanding on long-term debt. The Company
refinanced the mortgage on its Asheboro facilities in August 1995 which
increased the outstanding amount by approximately $1,000,000. The interest
rate on this debt was 1.5% higher than the mortgage note payable that was
replaced. In addition, the Company completed the financing on its Somerset
facilities in July 1995 which added an additional $240,000 to long-term debt.
The average daily outstanding amount on the revolving finance agreement was
approximately the same for each period. For the second quarter, the impact of
increased long-term debt was offset by a lower average daily outstanding
amount on the revolving finance agreement and lower interest rates. The
average daily outstanding amount on the revolving finance agreement was
approximately $1,200,000 lower in 1996 than in 1995. In addition, during the
second quarter of 1996, interest rates on the revolving finance agreement
ranged from 8.75% to 9.25%. During the same period of 1995, interest rates
were 9.5%.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization was $326,000 in 1996 as compared to $333,000 in
1995 for the first six months of the year. For the second quarter,
depreciation expense was $164,000 in 1996 compared to $168,000 in 1995. The
Company has made few capital expenditures in 1996 and in 1995, resulting in
small changes in depreciation expense.
9
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
PROVISION FOR INCOME TAXES
- --------------------------
The Company has an income tax recovery of $335,000 for the second quarter
ended May 4, 1996 compared to an income tax recovery of $394,000 for the
second quarter of 1995. For the six months, the Company had an income tax
recovery of $554,000 in 1996 and income tax recovery of $609,000 in 1995.
Income tax rates have been consistent between 1996 and 1995.
NET INCOME
- ----------
The Company reported a net loss of $636,000 for the second quarter and a net
loss of $1,085,000 for the six months ended May 4, 1996. For the comparable
periods of 1995, the Company had a net loss of $688,000 for the second quarter
and a net loss of $1,057,000 for the six months. Net sales for the Company
were significantly lower for the six months and the second quarter compared to
the prior year. Lower sales have been partially offset by reduced selling and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company continues to rely on the revolving finance agreement with a bank
to provide its daily working capital requirements. On August 15, 1995, the
Company entered into a new revolving financing agreement which replaced its
existing revolving credit facility. The amount available to be drawn is
determined by a formula based on certain percentages of eligible accounts
receivable and inventories. By agreement of the Company's bank, certain
restrictive covenants under the revolving finance agreement have been amended
for the period ended October 28, 1995 and thereafter. As part of the
amendment, the line of credit based on eligible accounts receivable and
inventories was reduced from $20,000,000 to $16,000,000. Advances up to the
limit of the line of credit continue to be available against eligible accounts
receivable. The seasonal adjustment for inventories was amended from a range
of $6,500,000 to $9,000,000 to a range of $7,000,000 to $8,000,000. The
interest rate under the revolving finance agreement was raised from prime plus
.5% to prime plus 1.0% (9.25% at May 4, 1996).
In addition, the new agreement provided a $3,000,000 term loan that was used
to repay the existing mortgage note payable to a bank. Per the terms of the
note, the Company will pay 84 monthly installments of principal and interest
ranging from $36,000 to $59,000.
As a condition to providing the financing, the bank requires that the Company
meet various restrictive covenants. These covenants include, among other
things, maintenance of certain financial ratios, limits on capital
expenditures, minimum net worth and net income requirements and restrictions
on the amount of borrowings from stockholders.
10
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
All borrowings under the agreement 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.
The Company had approximately $80,000 of unused availability under the
agreement at May 4, 1996. The Company believes that its revolving finance
agreement, as amended, will provide the necessary liquidity to fund its
current level of operations.
The level of capital expenditures in 1996 has been comparable to the prior
year. Capital expenditures for the first six months of 1996 were $15,000
compared to $14,000 in the first six months of 1995. The Company is making
capital expenditures only to maintain current levels of operation. Funding
for capital expenditures has primarily come from the available balance on the
finance agreement.
FINANCIAL CONDITION
ACCOUNTS RECEIVABLE
- -------------------
Accounts receivable were $11,482,000 at May 4, 1996 compared to $13,467,000 at
October 28, 1995, a decrease of $1,985,000. The balance is lower for two
reasons. Trade receivables have historically been at their highest point at
the end of the fourth quarter because of the heavy sales volume related to
Christmas buying by retailers. Second, certain dating programs offered by the
Company ended in the first quarter of 1995, resulting in significant
collection of receivables.
INVENTORIES
- -----------
Inventories were $12,937,000 at May 4, 1996, a decrease of $2,891,000 from the
inventory on hand at October 28, 1995 of $15,828,000. Of the decrease,
approximately $1,286,000 is finished goods, $183,000 is work in process, and
$1,422,000 is raw materials. The decrease is a result of the reduced
production schedules in the Company's plants and greater emphasis on managing
inventories. Sales are historically at their highest point in the fourth
quarter of each year.
BORROWINGS UNDER FINANCE AGREEMENT
- ----------------------------------
The balance outstanding under the finance agreement was $11,146,000 at May 4,
1996 compared to $14,012,000 at October 28, 1995. The decrease can be
attributed to the cash applied against the outstanding balance from
collections of accounts receivable and better management of inventories.
11
PART II. OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities
Effective April 15, 1996, the Company executed an amendment to its
financing agreement which established new financial covenants for the
agreement, as well as modifying key provisions of the agreement.
Item 4. Submission of Matters to a Vote of Security Holders
The Forty-Fifth Annual Meeting of the Shareholders of the Company was
held on Monday, March 18, 1996, as set forth in the Notice of Annual
Meeting of Shareholders dated and mailed on February 26, 1996. Of
the 1,726,535 shares of common stock issued and outstanding on the
record date, 1,444,178 shares or 83.65% of the common stock
outstanding were represented in person or by proxy at the meeting.
For the issues presented to the shareholders for their consideration,
the results were as follows:
1 - The Board of Directors, in accord with the By-laws, established
the number of Directors at six. The shareholders elected the six
persons nominated by them in the proxy statement mailed February
26, 1996. All director nominees had served as directors during
the prior year and all were elected by the shareholders. There
were no other nominations for director presented at the meeting.
The six nominees were elected with results as follows:
Shares Shares Shares Marked
Director For Against Withhold Authority
-------------------- ---------- --------- ------------------
Kent Anderson 1,434,259 3,032 6,887
George M. Ball 1,436,536 504 7,138
Robert L. Donnell, Jr. 1,436,278 762 7,138
James P. McDermott 1,437,096 144 6,938
Michael C. Miller 1,436,896 144 7,138
Edna A. Walker 1,437,240 - 6,938
2 - Ratification by the Shareholders of the action by the Board of
Directors to appoint Price Waterhouse LLP as the Company's
independent certified public accounting firm for the 1996 fiscal
year. The action was ratified with 1,436,310 shares voting for,
51 shares voting against, and 7,817 abstaining from the vote.
12
PART II. OTHER INFORMATION, Continued
- --------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed:
(4)(c)(5) First Amendment to the Credit Agreement between B.B.
Walker Company and Mellon Bank, N.A.
(b) Reports on Form 8-K:
NONE
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 June 17, 1996 KENT T. ANDERSON
------------- -------------------------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
Date June 17, 1996 WILLIAM C. MASSIE
------------- -------------------------------
William C. Massie
Executive Vice President