<PAGE>
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 3, 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 September 12, 1996, 1,726,534 shares of the Registrant's voting common stock
with a par value of $1.00 per share were outstanding.
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
August 3, October 28,
Assets 1996 1995
-------- ----------- -----------
Cash $ 1 $ 1
Accounts receivable, less allowance for doubtful
accounts of $784 in 1996 and $521 in 1995 11,343 13,467
Inventories 13,030 15,828
Prepaid expenses 167 311
Income tax recovery receivable 644 613
Deferred income tax benefit, current 678 678
----------- -----------
Total current assets 25,863 30,898
Property, plant and equipment, net of accumulated
depreciation and amortization of $5,886 in 1996
and $5,412 in 1995 2,494 2,968
Deferred income tax benefit, long-term 92 92
Other assets 335 419
----------- -----------
$ 28,784 $ 34,377
=========== ===========
(Continued)
1
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In Thousands)
(Unaudited)
August 3, October 28,
Liabilities and Shareholders' Equity 1996 1995
------------------------------------ ----------- -----------
Borrowings under finance agreement $ 10,398 $ 14,012
Current portion of long-term obligations 1,242 1,088
Accounts payable, trade 4,947 5,210
Accrued salaries, wages and bonuses 311 591
Other accounts payable and accrued liabilities 1,411 632
Income taxes payable - -
----------- -----------
Total current liabilities 18,309 21,533
----------- -----------
Long-term obligations, net of current portion 3,540 4,257
Minority interests in consolidated subsidiary 33 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, 1,726,534 shares in 1996 and
1,726,535 shares in 1995 issued and outstanding 1,727 1,727
Capital in excess of par value 2,724 2,724
Retained earnings 2,495 4,158
Shareholders' loans (127) (139)
----------- -----------
Total shareholders' equity 6,902 8,553
----------- -----------
$ 28,784 $ 34,377
=========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
2
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Third Quarter Ended Nine Months Ended
-------------------------- --------------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 8,539 $ 10,073 $ 27,605 $ 31,236
Interest and other income 11 14 38 58
----------- ----------- ----------- -----------
Total revenues 8,550 10,087 27,643 31,294
----------- ----------- ----------- -----------
Cost of products sold 6,502 7,640 21,120 23,723
Selling and administrative expenses 2,391 2,125 7,384 7,816
Depreciation and amortization 168 168 494 501
Interest expense 345 395 1,139 1,160
----------- ----------- ----------- -----------
Total costs and expenses 9,406 10,328 30,137 33,200
----------- ----------- ----------- -----------
Loss before benefit from income taxes and
minority interest (856) (241) (2,494) (1,906)
Benefit from income taxes (283) (108) (837) (717)
Minority interest 1 1 2 2
----------- ----------- ----------- -----------
Net loss (574) (134) (1,659) (1,191)
Retained earnings at beginning of period 3,070 4,348 4,158 5,408
Dividends on preferred stock (1) (1) (4) (4)
----------- ----------- ----------- -----------
Retained earnings at end of period $ 2,495 $ 4,213 $ 2,495 $ 4,213
=========== =========== =========== ===========
Net loss per share:
Primary $ (.33) $ (.08) $ (.96) $ (.69)
=========== =========== =========== ===========
Fully diluted $ (.33) $ (.08) $ (.96) $ (.69)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Primary 1,727 1,729 1,727 1,736
=========== =========== =========== ===========
Fully diluted 1,727 1,729 1,727 1,736
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
3
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
--------------------------
August 3, July 29,
1996 1995
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (1,659) $ (1,191)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 494 501
Gain on sale of property, plant and equipment (6) (1)
Deferred income taxes - 3
(Increase) decrease in:
Accounts receivable, net 2,124 2,242
Inventories 2,798 (1,428)
Prepaid expenses 144 105
Other assets 84 (120)
Increase (decrease) in:
Accounts payable, trade (263) 155
Accrued salaries, wages and bonuses (280) (78)
Other accounts payable and accrued liabilities 779 (187)
Income taxes (31) (720)
----------- -----------
Net cash provided by (used for) operating
activities 4,184 (719)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (21) (25)
Proceeds from disposal of property, plant
and equipment 6 1
----------- -----------
Net cash used for investing activities (15) (24)
----------- -----------
Cash Flows From Financing Activities:
Net borrowing under finance agreement (3,614) 393
Proceeds from issuance of long-term obligations 45 1,284
Payment on long-term obligations (607) (899)
Purchase of stock from minority interest (1) -
Repurchase of common stock - (135)
Loans to shareholders, net of repayments 12 154
Dividends paid on 7% cumulative preferred stock (4) (4)
----------- -----------
Net cash provided by (used for) financing
activities (4,169) 793
----------- -----------
Net change in cash - 50
Cash at beginning of year 1 1
----------- -----------
Cash at end of third quarter $ 1 $ 51
=========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
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 nine months ended August 3, 1996 include forty weeks of
operations for the Company. The comparative nine month results for the period
ended July 29, 1995 reflect thirty-nine weeks of operations for the Company.
The results for the comparative third 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)
August 3, October 28,
1996 1995
----------- -----------
Notes payable to banks $ 2,800 3,165
Notes payable to governmental authorities 664 704
Promissory notes payable to shareholders 1,193 1,233
Capital lease obligations 125 243
----------- -----------
4,782 5,345
Less portion payable within one year 1,242 1,088
----------- -----------
$ 3,540 4,257
=========== ===========
5
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Notes To Consolidated Financial Statements, Continued
NOTE 4
- ------
Inventories are composed of the following amounts (in thousands):
(Unaudited)
August 3, October 28,
1996 1995
----------- -----------
Finished goods $ 7,803 9,574
Work in process 741 807
Raw materials and supplies 4,486 5,447
----------- -----------
$ 13,030 15,828
=========== ===========
6
<PAGE>
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 quarters and nine months ended August 3, 1996 and July 29, 1995:
Third Nine
Quarter Ended Months Ended
------------------- -------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
--------- --------- --------- ---------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 76.1% 75.8% 76.5% 75.9%
------ ------ ------ ------
Gross margin 23.9% 24.2% 23.5% 24.1%
Selling and administrative
expenses 28.0% 21.1% 26.7% 25.0%
Depreciation and amortization 2.0% 1.7% 1.8% 1.6%
Interest expense 4.0% 3.9% 4.1% 3.7%
Interest and other income (.1%) (.1%) (.1%) (.2%)
------ ------ ------ ------
Loss before income taxes
and minority interest (10.0%) (2.4%) (9.0%) (6.0%)
Benefit from income taxes (3.3%) (1.1%) (3.0%) (2.3%)
Minority interest - - - -
------ ------ ------ ------
Net loss (6.7%) (1.3%) (6.0%) (3.7%)
====== ====== ====== ======
NET SALES
- ---------
Net sales for the third quarter ended August 3, 1996 were $8,539,000 which was
15.2% lower than net sales of $10,073,000 in the third quarter ended July 29,
1995. For the nine months ended August 3, 1996, net sales were $27,605,000,
or 11.6% lower, as compared to $31,236,000 for the same period in 1995.
Branded footwear sales for the Work/Outdoor Division were down 18.3% and 22.1%
for the nine months and the third quarter, respectively when compared to the
prior year. Sales in this division have been impacted by soft retail sales.
Demand for this style of footwear was stronger in 1995 than in 1996. This
environment has led to competitive pricing and dating terms to maintain market
share. Domestic sales in the Work/Outdoor Division were 16.3% and 23.5% lower
for the nine months and third quarter, respectively. Pairs shipped were down
13.5% for the nine months and 14.4% for the third quarter. Export sales in
this division were down 29.4% for the nine months and 10.9% for the third
quarter as compared to 1995's results. Orders from existing customers
overseas have not kept pace with the prior year.
7
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
Private label sales for the nine month period are down 5.1% compared to the
first nine months of 1995. However, for the third quarter, sales improved
4.2% from 1995's third quarter. Pairs shipped were down 6.6% for the nine
months and up 8.8% for the third quarter. The results of this division
reflect the activity of several large accounts and is determined by the timing
of shipments. Year-to-date results reflect an overall slowdown in pairs
shipped which is a result of a soft retail sector.
Other sales in this division, which consists primarily of sales at the
Company's retail outlets remained relatively flat when compared to the prior
year.
Branded footwear sales in the Western Boot Division fell during the nine month
period and the third quarter when compared to the prior year. Sales in this
division were down 13.6% for the nine months and 22.4% for the third quarter.
This division has also been impacted by a soft retail sector. The Company has
aggressively marketed its footwear and this has led to greater competition for
market share and more pressure on pricing of its product. For the nine months
and third quarter, pairs shipped were down 11.8% and 29.7%, respectively.
Sales to private label customers in the Western Division increased 220.3%
during the first nine months and 161.3% during the third quarter as compared
to the same periods in 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 comprises less than 5% of the Company's net
sales, its impact on results has been minimal.
GROSS MARGIN
- ------------
The Company's gross margin fell to 23.5% for the first nine months of 1996
from 24.1% for the first nine months of 1995. For the third quarter of 1996
compared to 1995, the gross margin decreased to 23.9% from 24.2%.
A weak retail environment continues to impact the Company's operations.
In order to compete, the branded divisions continue to aggressively
price their products and to offer discounting and extended dating terms.
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 17.3% lower than 1995. Because of lower shipments,
the Company has reduced operating schedules in its plants at various intervals
during the year to avoid a large buildup of finished goods inventory.
8
<PAGE>
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 $2,391,000 for the third quarter of
1996 as compared to $2,125,000 for the third quarter of 1995. For the nine
months ended August 3, 1996 and July 29, 1995, selling and administrative
expenses were $7,384,000 and $7,816,000, respectively. Expenses in most areas
were lower in 1996 than in 1995. The Company has been reducing operating
expenses in response to its lower operating level. Salary and benefits were
down approximately $433,000 for the nine months and $126,000 in the third
quarter as compared to 1995. Several personnel positions, which are vacant,
have not been replaced. In addition, better claims experience and a new third
party administrator contract have contributed to a decrease in health care
costs. The Company is also monitoring travel and showroom expenses carefully
to identify cost reductions. For the nine months and third quarter,
respectively, travel and showroom expenses are down $195,000 and $32,000.
Finally, shipping costs are down $163,000 for the nine months and $32,000 for
the third quarter as compared to 1995. The prior year had higher than normal
freight expenses because of reduced freight promotions offered to customers.
Offsetting these reductions partially is an increase in advertising expenses.
For the nine months ended August 3, 1996, advertising expenses were $413,000
higher than the same period in 1995. Third quarter expenses for 1996 were
$349,000 higher than 1995. The Company is more aggressively promoting its
products in the market in response to a weak retail environment and
significant competition. In addition, in the third quarter of 1995, the
Company made modifications to some of its marketing plans and adjusted
accruals related to these plans accordingly.
INTEREST EXPENSE
- ----------------
Interest expense for the nine months ended August 3, 1996 was $1,139,000, or
$21,000 lower than interest expense of $1,160,000 for the nine months ended
July 29, 1995. For the third quarter, 1996 expense was $50,000 lower than
1995 expense. The decrease for the nine month period and in the third quarter
can be attributed to the lower average balances on outstanding debt and lower
average interest rates than in the comparable periods of a year ago. Average
outstanding advances under the revolving finance agreement were approximately
$1,000,000 lower in the nine month period and $2,700,000 lower in the third
quarter than in 1995. Interest rates for this agreement ranged from 8.75% to
9.25% in 1996 and from 9.0% to 9.5% in 1995. These savings have been offset
by increases in interest expense on long-term debt. On average, outstanding
long-term debt has averaged approximately $1,000,000 more in the current year
than in the prior year. This is primarily the result of the refinancing of
the mortgage note payable on its Asheboro facilities in August of 1995 and the
completion of the financing on its Somerset facility in July 1995.
9
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
DEPRECIATION AND AMORTIZATION
- -----------------------------
For the first nine months of the year, depreciation and amortization fell
$7,000 to $494,000 in 1996 from $501,000 in 1995. For the third quarter, the
expense was $168,000 in 1996 and in 1995. Depreciation expense has remained
fairly level as the Company has reduced its level of capital expenditures in
1995 and 1996 to minimal amounts.
BENEFIT FROM INCOME TAXES
- -------------------------
For the nine months and third quarter ended August 3, 1996, the Company
recorded a benefit from income taxes of $837,000 and $283,000, respectively.
For the comparable periods of 1995, the Company had a benefit from income
taxes of $717,000 and $108,000, respectively. Income tax rates have been
consistent between 1996 and 1995.
NET LOSS
- --------
For the third quarter of 1996 and 1995, the Company reported a net loss of
$574,000 and $134,000, respectively. For the first nine months of 1996, the
Company's net loss was $1,659,000 compared to a net loss of $1,191,000 for the
same period in 1995. The primary reason for the larger net loss in the third
quarter and for the nine month period as compared to the same periods in the
prior year is the lower net sales volume. A soft retail sector has resulted
in significant competition for a share of a smaller market. Lower sales have
been partially offset by lower 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 on April 15,
1996, 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 August 3, 1996).
10
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
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. At the end of the third
quarter, the Company was out of compliance with certain financial covenants
relating to its leverage ratio, net worth, and working capital. The Company
had entered into a forbearance agreement with the bank in which the bank
agreed not to take any action against the Company for violation of its
financial covenants. The agreement expired at the end of August 1996. As of
the date of this filing, the Company is negotiating the terms of a new
forbearance agreement with the bank to cover financial covenants violations.
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 $488,000 of unused availability under the
agreement at August 3, 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 nine months of 1996 were $21,000
compared to $25,000 in the first nine 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 $11,343,000 at August 3, 1996 compared to $13,467,000
at October 28, 1995, a decrease of $2,124,000. 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 1996, resulting in significant collection of outstanding
receivables.
11
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
INVENTORIES
- -----------
Inventories were $13,030,000 at August 3, 1996, a decrease of $2,798,000 from
the inventories held at October 28, 1995 of $15,828,000. Of the decrease,
approximately $1,771,000 is finished goods, $66,000 is work in process, and
$961,000 is raw materials. The lower balance is a result of the Company
focusing on managing inventory turns, both finished goods and raw materials,
in order to reduce the investment in inventories.
BORROWINGS UNDER FINANCE AGREEMENT
- ----------------------------------
The balance outstanding under the finance agreement was $10,398,000 at August
3, 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.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits Filed:
NONE
(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 September 16, 1996 KENT T. ANDERSON
------------------ ----------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
Date September 16, 1996 WILLIAM C. MASSIE
------------------ -----------------
William C. Massie
Executive Vice President
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000104218
<NAME> B.B. WALKER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-END> AUG-03-1996
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 12,127
<ALLOWANCES> 784
<INVENTORY> 13,030
<CURRENT-ASSETS> 25,863
<PP&E> 8,380
<DEPRECIATION> 5,886
<TOTAL-ASSETS> 28,784
<CURRENT-LIABILITIES> 18,309
<BONDS> 0
0
83
<COMMON> 1,727
<OTHER-SE> 5,092
<TOTAL-LIABILITY-AND-EQUITY> 28,784
<SALES> 27,605
<TOTAL-REVENUES> 27,643
<CGS> 21,120
<TOTAL-COSTS> 28,640
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 358
<INTEREST-EXPENSE> 1,139
<INCOME-PRETAX> (2,496)
<INCOME-TAX> (837)
<INCOME-CONTINUING> (1,659)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,659)
<EPS-PRIMARY> (.96)
<EPS-DILUTED> (.96)
</TABLE>
