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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 28, 1995
Commission File Number 0-934
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B. B. WALKER COMPANY
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(Exact name of registrant as specified in its charter)
North Carolina 56-0581797
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 East Dixie Drive, Asheboro, NC 27203
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 625-1380
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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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
On January 25, 1996, the aggregate market value of voting stock held by non-
affiliates was approximately $2,373,985.
On January 25, 1996, 1,726,535 shares of the Registrant's voting common stock
with a par value of $1.00 per share were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders of the Company for the year ended
October 28, 1995 are incorporated herein by reference in Parts II and IV.
Portions of the Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on March 18, 1996 are incorporated by reference in
Part III.
The Exhibit Index is on Pages F-4 and F-6.
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B.B. WALKER COMPANY
1995 FORM 10-K ANNUAL REPORT
Table of Contents
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Company
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of the
Results of Operations and Financial Condition
Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Exhibit Index F-4 to F-6
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B.B. Walker Company
1995 Form 10-K
PART I
ITEM 1. BUSINESS
GENERAL
B.B. Walker Company, (the "Company") was incorporated in North Carolina on
October 15, 1952. The Company designs, manufactures and markets complete
lines of moderately-priced, value-oriented western and work/outdoor boots and
shoes for men and women. The majority of the Company's products are sold
under its proprietary brand names, with the remainder sold under major
retailers' private labels and on contract to other footwear manufacturers.
The Company markets its product primarily to wholesale customers in the United
States, but it also serves customers in Canada, Japan and Europe. The Company
has one subsidiary, Bender Shoe Company ("Bender"), which is wholly owned.
Bender is located in Somerset, Pennsylvania and principally manufactures
western footwear. In addition, the Company operates three retail shoe outlets
which carry a wide assortment of footwear, including other footwear companies'
brands, accessories and footwear care products.
Internally, the Company has historically been organized along functional lines
with a marketing and sales group, a manufacturing division and a
transportation division. Marketing and sales, manufacturing and transportation
are supported by various departments of the administrative and finance
function.
CURRENT PRODUCTS
The Company manufactures and distributes high quality, moderately-priced
footwear in three primary markets: Western Boot, Work/Outdoor and Private
Label. The Company has approximately 4,500 active accounts. A majority of
the customer base is made up of small retail chains and independent retail
outlets. In 1994 and 1993, one customer accounted for approximately 12% and
10%, respectively, of net sales. In 1995, no single customer comprised more
than 10% of net sales. The Company does not feel that a single customer or
group of customers comprise a significant portion of operations or exert
significant influence over the Company. The following is a
description of each division and its respective product offerings:
Western Boot Division
- ---------------------
The Western Boot Division, with its ABILENE brand, offers high quality all-
leather boots for the traditional boot wearer. The ABILENE boot is made in
both men's and women's styles and is distributed mainly through western
apparel stores and tack shops. A more contemporary line, SAGE, is offered at
a lower price point and features brighter colors and accents. The SAGE line
is offered in both men's and women's styles. In addition, under the SAGE
brand, the Company has added a children's line in 1995. This division
operates its own sales force of approximately 18 salesmen. Led by a national
sales manager, it serves customers throughout the United States and Canada.
In addition, this division promotes its lines through use of a mobile sales
showroom which is used at special customer promotions, rodeos and other
events.
This division has a marketing/spokesman agreement with John Michael
Montgomery, winner of the 1994 Horizon Award presented by the Country Music
Association and the American Music Award for Best New Country Artist for 1994.
Under the agreement, John Michael Montgomery promotes the ABILENE line at his
concerts and in print advertising. The Company is creating new opportunities
to promote its relationship with John Michael Montgomery and anticipates
extending the agreement when it expires in fiscal 1996.
Within this division, the Company is in the final year of a licensing
agreement to manufacture and market a line of western boots under the JACK
DANIEL'S trademark of the Jack Daniel Distillery of Lynchburg, Tennessee.
The JACK DANIEL'S western boot line consists of quality, all-leather boots,
which are marketed as a separate line of boots within this division. The
Company is currently negotiating the terms for extending this agreement. The
Company had a licensing agreement to promote the Kenny Rogers line of ABILENE
boots. The agreement expired in 1995 and the Company elected not to renew it.
The ABILENE, SAGE and JACK DANIEL'S lines are manufactured at the Company's
facility in Somerset, Pennsylvania. The final product is shipped to the
central warehouse in Asheboro, North Carolina for distribution.
Work/Outdoor Division
- ---------------------
Through the Work/Outdoor Division, the Company manufactures and markets
quality boots and shoes for work, outdoor and safety use under the WALKER
FOOTWEAR THAT WORKS brand and the SAFETY FIRST brand. In addition, the
Company manufactures and distributes rugged but comfortable outdoor footwear
under its GOLDEN RETRIEVER brand. The Company offers over 100 different
styles of work/outdoor boots under the GOLDEN RETRIEVER trademark, including
pull-on, lace-up, lined, insulated and waterproof, in a variety of heights,
soles and constructions. The work/outdoor lines are manufactured at the
Company's Asheboro facility. This division has its own sales force of
approximately 20 salesmen which follows the direction of a national sales
manager. It serves customers in the United States and Canada.
Private Label Division
- ----------------------
The Company also manufactures shoes for large retailers and other
manufacturers in its Private Label Division. Most of the private label
products consist of work/outdoor footwear although the Company is actively
pursuing new customers of western private label products. The significant
customers of this division consist of large national retail chains, specialty
catalogue retailers and large wholesalers. In addition, this division serves
large accounts overseas, primarily in Europe and Japan.
Other
- -----
The Company operates three retail stores which offer the Company's branded
merchandise at discount prices to retail customers. In addition to Company
brands, a wide selection of other manufacturers' brands and accessories are
offered to provide customers with a variety of options from which to choose.
Two retail stores, which operate under THE FOOTFACTORY name, are located in
outlet malls in Myrtle Beach, South Carolina and Lancaster, Pennsylvania.
The third is a factory outlet store located in its Asheboro facility.
In prior years, the Company also imported footwear for major accounts in the
United States. This service was phased out completely in the first quarter of
1995.
MANUFACTURING
The Company operates two manufacturing facilities, in Asheboro, North Carolina
and Somerset, Pennsylvania. The Asheboro plant primarily makes work/outdoor
footwear, while the Somerset plant primarily makes western footwear. The
Company traditionally has manufactured the majority of its footwear products
in its own factories. In situations where it is advantageous to the Company,
production of components, primarily uppers, used in the manufacture of
footwear are outsourced to other manufacturers. Some of these manufacturers
are outside of the United States which subjects the Company to the normal
risks of conducting business abroad, such as political unrest, labor
disturbances or expropriation. No such problems have been experienced or are
anticipated.
The manufacture of footwear is relatively labor-intensive and involves five
primary operations: production of uppers; lasting the uppers to define the
shape, form and size of the footwear; bottoming the footwear; finishing the
footwear; and packaging the footwear. The Company produces boots and shoes
with molded or cemented bottoms and welted boots and shoes with bottoms that
are "welted" or stitched to the uppers.
The Company continues to explore manufacturing and product design innovations
in order to utilize its production capacity in the most efficient manner,
produce high quality footwear, and maintain a moderate price structure for its
products. Management believes innovation in its manufacturing process,
including innovation in product design and cost containment, is instrumental
in the Company's long term success. Despite historical capital constraints,
management has made timely capital expenditures in a number of areas to allow
the Company to maximize its manufacturing resources. These capital
expenditures and their impact on manufacturing are discussed below.
- In July 1994, the Company purchased a larger facility in Somerset,
Pennsylvania to replace the existing facility, also in Somerset, which
was operating near its maximum capacity. Relocation of the plant allowed
the Company to redesign the production flow to increase efficiency and
improve productivity.
- The Company has implemented a fully integrated bar code system for its
work-in-process inventory. This system shows where particular orders are
in the manufacturing process, allowing improvement in the scheduling of
orders as they are received, and allowing more efficient sourcing of
appropriate quantities of raw materials.
SALES AND MARKETING
The Company markets its products for each division through a sales force
directed by a National Sales Manager. The National Sales Managers are
accountable for planning the territory, budget, service, sales operations and
motivation of their salespersons. Territories are established by the National
Sales Manager using Metro Market Demographic and other statistical data.
Salespersons are hired based on strengths and experience to sell and service
within a territory, including development of the customer base. The Company's
salespersons solicit orders in all states to which they are assigned. Orders
are submitted to the Company's credit department in Asheboro, North Carolina
for acceptance or rejection based on credit history. To a lesser extent, the
Company's products are also marketed by independent sales representatives.
Such sales representatives are often engaged to develop new geographic markets
for the Company.
The Company markets its products primarily to wholesale customers in the
United States, but also provides footwear to customers in Canada, Japan and
Europe. The Company has approximately 4,500 active accounts. The Company's
salesmen are offered special incentives for opening new accounts. A majority
of the customer base is made up of small retail chains and independent retail
outlets. These customers have traditionally sold western or rugged outdoor
products and, as such, have not been affected by changing fashion trends.
During 1994 and 1993, one customer, Wal-Mart, accounted for approximately 12%
and 10% of net sales, respectively. For 1995, no customer comprised more
than 10% of net sales and the largest ten customers accounted for less than
26% of sales. The Company does not feel that a single customer or group of
customers comprise a significant portion of operations or exert significant
influence over the Company.
DISTRIBUTION
The Company's footwear is distributed nationally from its warehouse in
Asheboro, North Carolina. The Company ships its finished goods primarily with
its own fleet of trucks and trailers. The Company also uses a parcel delivery
service and common carriers when appropriate. The Company's trucks deliver
goods to large customers, as well as to trucking terminals for subsequent
delivery to customers by local or cartage carriers. On the back haul, the
trucks generally pick up raw materials from suppliers for delivery to the
Company's warehouse at its Asheboro facility.
COMPETITION
The Company operates in a highly competitive industry. Competition comes from
numerous domestic manufacturers of footwear, as well as imports, particularly
from China. According to the September 1995 Statistical Reporter of the
Footwear Industries of America, approximately 89% of all non-rubber footwear
purchased in the United States is imported from foreign countries, primarily
from China. With the passage of the North American Free Trade Agreement
("NAFTA") and approval of the General Agreement on Trade and Tariffs ("GATT"),
foreign competition has easier access to the United States markets. Foreign
competition has been at a high level since 1981, when the Reagan
Administration eliminated import restrictions on footwear. Since then,
footwear imports have grown from 73% of the United States market to its
current levels. However, the growth in footwear imports in the western and
work/outdoor markets, the Company's two primary markets, has been less than
that experienced by footwear manufacturers serving other markets.
Many of the Company's competitors have greater financial, distribution, brand
name recognition and marketing resources than the Company. The Company relies
on product performance, styling, quality, timeliness of product delivery and
perceived product value to distinguish its products from the competition. The
Company believes that, based on these factors, it maintains a strong
competitive position in its current market niches. Additionally, with the use
of an extensive cost accounting system, the Company maintains a tight control
on the costs that go into the manufacture of its products. The Company
believes this gives it the advantage of being a low cost producer and allows
it to be competitive in the pricing of its products, which are medium priced
in relation to the market. The Company anticipates that substantial
competition will continue in the future and therefore continues to plan and
develop strategies to enhance its competitive position.
RAW MATERIAL AND FINISHED GOODS INVENTORIES
Each of the Company's footwear styles has different raw material requirements
and is produced in numerous sizes and widths. Consequently, the Company
maintains substantial inventories of raw materials at its Asheboro facility.
Raw materials are shipped from the Asheboro facility to the Somerset facility
based on scheduled orders. To the extent practicable, the Company strives to
support customers by maintaining the Company's most popular branded products
in stock and by shipping products quickly to meet customer delivery
requirements, with timely notification to customers of unavoidable delays in
delivery. Because of the large number of variations in sizes and widths for
each style, the Company continues to develop enhancements to its inventory
control system and production planning process to ensure adequate stock levels
are maintained and to minimize delivery time for out-of-stock items.
While the Company believes that its products are relatively insensitive to
fashion trends, changes in consumer tastes do impact inventory levels. The
Company's product development staff monitors the market and responds on a
timely basis with new constructions and styles to prevent the buildup of
inventory that is no longer in peak demand in the marketplace. In addition,
the Company offers special incentive-based inventory reduction programs to
turn over inventory of styles that are slow moving and are being replaced with
newer styles.
The Company's principal raw materials are leather, rubber and composition-
based heels and soles, and fiber based items, such as insoles. The Company
purchases its raw materials from numerous suppliers, the majority of which are
domestic. The Company is not dependent on any one supplier for raw materials.
While the Company expects that supplies of raw materials will continue to be
readily available as needed for the Company's operations, the price of some of
the components of its products, primarily leather, has exhibited volatility in
the past, and some price volatility can be anticipated in future years. The
supply of leather and other raw materials was adequate in 1995.
SEASONALITY
The Company experiences significant seasonal fluctuations in net sales because
consumers purchase a large percentage of the Company's products from September
through January. As a result, retail dealers of the Company's products
generally request delivery of products from June through October for advance
orders and from October through December for restocking orders. Accordingly,
inventory levels are highest during June and July and accounts receivable
levels are highest during November through January. Because of seasonal
fluctuations, there can be no assurance that the results of any particular
quarter will be indicative of results for the full year or for future years.
BACKLOG
Backlog records are maintained based on orders for pairs of footwear, rather
than in terms of dollars. The backlog fluctuates on a seasonal basis,
reaching higher levels in the spring and summer months when retailers buy for
fall selling. At October 28, 1995, the backlog for orders believed to be firm
was 94,083 pairs, as compared to 100,372 pairs as of October 29, 1994. The
smaller backlog is attributable to the Company's lower sales and timing of
private label and export orders.
At October 28, 1995, the Company's backlog for branded footwear was 44,549
pairs versus 36,683 at October 29, 1994. Backlogs for private label and
export sales were 48,476 pairs as of October 28, 1995 and 61,532 as of October
29, 1994. Private label and export orders often have significant lead times.
Earlier in 1995, some lead times were up to six months. However, late in
1995, many retailers carried fully stocked inventories and had taken a wait-
and-see approach regarding the strength of Christmas sales before placing
further orders resulting in a smaller backlog.
Advance private label and export orders provide the Company with a stable work
flow which complements orders for branded footwear. The Company attempts to
ship orders for branded products from inventory as they are received. Thus,
the backlog of branded products only reflects orders that were not immediately
filled from inventory and does not accurately predict the mix of future sales.
All orders at October 28, 1995 are expected to be filled during the current
fiscal year.
INTELLECTUAL PROPERTY
The Company owns federal trademark registrations for many of its marks,
including ABILENE, SAGE, GOLDEN RETRIEVER, WALKER FOOTWEAR THAT WORKS and
SAFETY FIRST. There are no patents, licenses, franchises or concessions that
are material to the operations of the Company.
GOVERNMENTAL REGULATION
All of the Company's operations are subject to federal, state and local
regulatory standards, primarily in the area of safety, health, employment and
environmental standards. In general, the Company has experienced no
difficulty in complying with these standards and believes that they have not
had any material effect on its capital expenditures, earnings or competitive
position.
EMPLOYEES
The Company and its subsidiary employed 637 persons as of October 28, 1995,
415 at the Asheboro, North Carolina facility and 222 at the Somerset,
Pennsylvania facility. Of these individuals, 471 were engaged in
manufacturing and 166 in administrative, sales and transportation functions.
Substantially all of the Company's employees were employed on a full-time
basis. None of the Company's employees are covered by collective bargaining
agreements and the Company believes its relations with its employees are good.
CORPORATE REORGANIZATION
The Company is focusing on serving two markets for footwear, western boots and
work/outdoor boots. Recognizing that each of these markets have distinctive
characteristics that distinguishes one from the other, the Company announced a
reorganization of its internal structure in December 1995. The reorganization
will create two separate divisions that will operate independently and be
supported by a small corporate staff. The new divisions will focus on serving
western boot customers and work/outdoor boot customers, respectively, which
will include both instock and private label accounts. Each division will be
vertically integrated and will be led by a general manager who will assume
responsibility for all phases of manufacturing, marketing and distribution of
the respective division's products. By eliminating functional lines, it is
anticipated that each division will be more responsive in serving the customer
and providing products to the market on a more timely basis. Current plans
anticipate the reorganization being completed during fiscal 1996.
ITEM 2. PROPERTIES
As of October 28, 1995, the Company and its subsidiary utilized an aggregate
of approximately 358,000 square feet of floorspace in various facilities, all
of which are in service and are adequate for the operations performed.
Substantially all of the Company's property, including its facilities and
inventories, are insured on a replacement value basis. The Company and its
subsidiary, Bender Shoe Company, operate manufacturing and warehousing
facilities as follows:
Asheboro, North Carolina - This location on 414 East Dixie Drive, Asheboro,
North Carolina contains the major manufacturing facility for work/outdoor
footwear, as well as the executive offices of the Company. The Company uses
281,857 square feet of space in one building on approximately 21.8 acres of
land. The premises are used for manufacturing, shipping, warehousing,
administration and a retail outlet store. Paved parking and truck loading
areas are maintained. The premises owned in fee are subject to an existing
lien under a deed of trust in favor of Mellon Bank, N.A.
Somerset, Pennsylvania - The Company's subsidiary, Bender Shoe Company, moved
to a larger facility in Somerset in August 1994. The facility provides
approximately 68,000 square feet of space on 3.8 acres of land. The facility
is used primarily for manufacturing and raw material storage. A small portion
of the space is used as administrative offices. The Company owns the facility
which is subject to existing liens in favor of First National Bank and Trust
Company in Asheboro, NC, the Pennsylvania Industrial Development Authority,
the Pennsylvania Economic Revitalization Fund and Mellon Bank, N.A.
The Company also operates factory outlet retail stores in Asheboro, North
Carolina, Myrtle Beach, South Carolina and Lancaster, Pennsylvania. Except
for the Asheboro retail store, which is located at the Company's Asheboro
facility, the retail stores are leased by the Company. The Company closed one
retail store in Morgantown, Pennsylvania when the lease expired.
The Company has also entered into long-term agreements with non-related
lessors to lease certain machinery and equipment, including transportation
equipment. Some of the leases are in substance financing arrangements and
have been capitalized by the Company. Information regarding cost and present
value of the capitalized leases is presented in Notes 3 and 9, respectively,
in the Notes to Consolidated Financial Statements for the year ended October
28, 1995 and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
(a) 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 will not have a material effect on
the Company's financial position or results of operations.
(b) The following legal action, discussed in the Form 10-K for the fiscal year
ended October 29, 1994, is as follows. On April 5, 1994, a former employee of
the Company filed suit in the United States District Court for the Middle
District of North Carolina against the Company and a current employee at its
Asheboro facility alleging sexual harassment and seeking unspecified damages
and injunctive relief. The suit includes claims involving
intentional/negligent infliction of emotional distress, negligent hiring
and/or retention, interference with contractual relations, wrongful discharge
and a violation of the Racketeering Influenced and Corrupt Organizations Act
("RICO"). The case was dismissed with prejudice by the court in March 1995
for failure to state a claim under federal law.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the 1995 fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the executive officers of the Company as of
October 28, 1995 are listed below along with their business experience during
the past five years. Officers are elected annually by the Board of Directors
at the Annual Meeting of the Board of Directors convened immediately following
the Annual Meeting of the Shareholders. Executive officers serve until the
next annual meeting of the Directors and until their successors are elected
and qualified.
Executive Officer (Age) Position and Office
----------------------- -------------------
Kent T. Anderson (53) Chairman (1992), President (1984) and
Chief Executive Officer (1986) (1)
French P. Humphries (55) Executive Vice President (1995) (2)
William C. Massie (58) Executive Vice President (1995) (3)
David M. Sparks (36) Vice President - Sales (1994) (4)
(1) Officer is also a director of the Company.
(2) As of December 1995, officer was named Executive Vice President and is
general manager of the Western Boot Division. Prior to this position, he
served as Vice President - Marketing since 1992. Prior to 1992, he was
General Manager of the Western Division, a position he held since 1977.
(3) As of December 1995, officer was named Executive Vice President and is
general manager of the Work/Outdoor Boot Division. Prior to this position, he
served as Vice President - Finance and Administration since joining the
Company in 1988.
(4) Officer joined the Company in August 1993 as Director of Planning and
Development. In November 1993, he was promoted to Director of Sales. He was
named Vice President-Sales in July 1994. He was primarily responsible for
implementing strategies necessary to move the sales divisions in line with
current marketing plans. Prior to joining B.B. Walker Company, he was Mid-
West Manager for Country America magazine for approximately four years. He
resigned from this position in November 1995.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is found under the heading "Stock
Prices" in the Annual Report to Shareholders for the year ended
October 28, 1995 and is incorporated herein by reference. The Company had
1,229 shareholders of record at January 25, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is reported in the Annual Report to
Shareholders under the heading "Selected Financial Data" and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by this Item is reported in the Annual Report to
Shareholders under the heading "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is reported in the Annual Report to
Shareholders under the headings "Consolidated Statements of Income (Loss)",
"Consolidated Balance Sheets", "Consolidated Statements of Cash Flows",
"Consolidated Statements of Shareholders' Equity", "Notes to Consolidated
Financial Statements", and "Report of Independent Accountants" and is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There is nothing to report for this Item.
PART III
Certain information required by Part III has been omitted under Item G of the
General Instructions for Form 10-K, Rule 12-b-23, as the Company files with
the Securities and Exchange Commission a definitive proxy statement pursuant
to Regulation 14A not later than 120 days after the end of its fiscal year.
Only those sections of the Proxy Statement which specifically address the
items set forth herein are incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the Company's directors required by this Item is
incorporated herein by reference to the Company's Proxy Statement.
Information concerning the Company's executive officers required by this Item
is incorporated herein by reference to Part I of this Form 10-K following
Item 4, under the caption "Executive Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this Form 10-K:
(1) Financial Statements - The following consolidated financial
statements of the Company are incorporated herein by reference to
the Annual Report to Shareholders:
(a) Consolidated Statements of Income (Loss) for the fiscal years
ended October 28, 1995, October 29, 1994 and October 30, 1993.
(b) Consolidated Balance Sheets at October 28, 1995 and
October 29, 1994.
(c) Consolidated Statements of Cash Flows for the fiscal years ended
October 28, 1995, October 29, 1994 and October 30, 1993.
(d) Consolidated Statements of Shareholders' Equity for the fiscal
years ended October 28, 1995, October 29, 1994 and
October 30, 1993.
(e) Notes to Consolidated Financial Statements.
(f) Report of Independent Accountants.
(2) Financial Statement Schedules - The following supplementary
consolidated financial statement schedules of the Company are filed
as part of this Form 10-K and should be read in conjunction with the
Annual Report to Shareholders:
Schedule Page
-------- ----
VIII Valuation and Qualifying Accounts F-2
X Supplementary Income Statement Information F-3
The reports of the Company's independent public accountants with
respect to the above described financial statements and financial
statement schedules appear in the Annual Report to Shareholders
and on page F-1 of this report, respectively, and are incorporated
herein by reference.
All other financial statements and schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is not
applicable or required.
(B) No reports on Form 8-K were filed by the Company during the last quarter
of fiscal 1995.
(C) A listing of exhibits is incorporated herein by reference to the Index to
Exhibits on pages F-4 thru F-6.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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 (Registrant)
By: DOROTHY W. CRAVEN
---------------------------
Dorothy W. Craven
Date: February 7, 1996 Corporate Secretary
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated and on the date indicated.
Signature Title
--------- -----
Principal Executive Officer:
KENT T. ANDERSON 2/7/96 Chairman of the Board, Chief Executive
- ---------------- ------ Officer and President
Kent T. Anderson Date
Principal Financial Officer:
WILLIAM C. MASSIE 2/7/96 Executive Vice President
- ----------------- ------
William C. Massie Date
Principal Accounting Officer:
JOHN R. WHITENER 2/7/96 Corporate Controller
- ---------------- ------
John R. Whitener Date
BOARD OF DIRECTORS
KENT T. ANDERSON 2/7/96 EDNA A. WALKER 2/7/96
- ---------------- ------ -------------- ------
Kent T. Anderson Date Edna A. Walker Date
Chairman
ROBERT L. DONNELL, JR. 2/7/96 MICHAEL C. MILLER 2/7/96
- ---------------------- ------ ----------------- ------
Robert L. Donnell, Jr. Date Michael C. Miller Date
JAMES P. McDERMOTT 2/7/96 GEORGE M. BALL 2/7/96
- ------------------ ------ -------------- ------
James P. McDermott Date George M. Ball Date
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
---------------------------------
To the Board of Directors and Shareholders of
B.B. Walker Company
Our audits of the consolidated financial statements referred to in our report
dated December 1, 1995 appearing in the 1995 Annual Report to Shareholders of
B.B. Walker Company (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedules listed in Item 14(a) of this
Form 10-K. In our opinion, these Financial Statement Schedules present
fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
December 1, 1995
Page F-1
<PAGE>
Schedule VIII
B.B. WALKER COMPANY -------------
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Year Expenses Accounts Deductions End of Year
----------- ---------- ---------- ----------- ---------- -----------
Allowance for Doubtful Accounts:
October 28, 1995 $ 778,000 425,000 - 682,000 521,000
========== ========== =========== ========== ===========
October 29, 1994 $ 845,000 117,000 - 184,000 778,000
========== ========== =========== ========== ===========
October 30, 1993 $ 606,000 696,000 - 457,000 845,000
========== ========== =========== ========== ===========
Page F-2
<PAGE>
Schedule X
B.B. WALKER COMPANY ----------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
October 28, October 29, October 30,
1995 1994 1993
----------- ----------- -----------
The following amounts were charged to
costs and expenses:
Maintenance and repairs $ 565,000 $ 855,000 $ 587,000
========== ========== ==========
Advertising costs $1,118,000 $1,367,000 $1,590,000
========== ========== ==========
Page F-3
<PAGE>
INDEX TO EXHIBITS
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ------------
(3) Articles of Incorporation and By-Laws
(3)(a) Articles of Amendment to Articles of Exhibit D to Form 10-K
Incorporation and Restated Charter of for the fiscal year
B.B. Walker Company dated November 28, 1979, ended November 3, 1979
filed with the Secretary of State in Raleigh, NC
(3)(b) Articles of Amendment to Articles of Exhibit A to Form 10-Q
Incorporation dated March 24, 1980, filed with for the six month
the Secretary of State in Raleigh, NC period ended May 3,
1980
(3)(c) Articles of Merger of Lyon & Shaw, Inc. Exhibit (3) (c) to the
into Registrant dated January 21, 1987 Form 10-K for the
fiscal year ended
November 1, 1986
(3)(d) Copy of the revised By-Laws of B.B. Walker Exhibit (3)(d) to the
Company as amended January 7, 1992 Form 10-K for the
fiscal year ended
November 2, 1991
(3)(e) Articles of Merger of Walker Shoe Company Exhibit (3)(g) to the
into B.B. Walker Company dated June 29, 1987 Form 10-K for the
fiscal year ended
October 31, 1987
(3)(f) Articles of Amendment to Articles of Exhibit (3)(f) to the
Incorporation dated November 16, 1988, filed Form 10-K for the
with the Secretary of State in Raleigh, NC fiscal year ended
October 30, 1988
(3)(g) Articles of Amendment to Articles of Exhibit (3)(g) to the
Incorporation dated March 30, 1994, filed Form 10-K for the
with the Secretary of State in Raleigh, NC fiscal year ended
October 29, 1994
(4) The Registrant, B.B. Walker Company, by signing Exhibit (4) to Form
this report, agrees to furnish the Securities 10-K for the fiscal
and Exchange Commission upon its request a copy year ended November
of any instrument which defines the rights of 2, 1985
holders of long-term debt of the Registrant and
its subsidiary for which consolidated or
unconsolidated financial statements are required
to be filed and which authorizes a total amount
of securities not in excess of 10% of the total
assets of the Registrant and its subsidiary on a
consolidated basis.
Page F-4
<PAGE>
INDEX TO EXHIBITS
Page Number or
Exhibit Incorporation by
Number Description Reference To
- ------- ----------- ----------------
(4)(a) Certificate of Common Capital Stock of B.B. Exhibit (N) to Form
Walker Company 10-K for the fiscal
year ended October 28,
1978
(4)(b) Unsecured Promissory Note of B.B. Walker Exhibit (B) to Form
Company with flexible rate minimum interest 10-K for the fiscal
provisions year ended November 1,
1980
(4)(c)(1) Credit Agreement dated August 15, 1995 Exhibit (4)(c)(1) to
between Mellon Bank, N.A., Philadelphia, PA, Form 10-Q for the
as Lender and B.B. Walker Company, Asheboro, third quarter ended
NC, the Registrant, as Borrower. The twenty- July 29, 1995
one supporting schedules have been omitted
being detailed forms, lists and support for
specific provisions set out in the agreement.
(4)(c)(2) Revolving Credit Note dated August 15, 1995 Exhibit (4)(c)(2) to
in the amount of $20 million; signed by the Form 10-Q for the
Registrant and in favor of Mellon Bank, N.A., third quarter ended
Philadelphia, PA July 29, 1995
(4)(c)(3) Term Loan Note dated August 15, 1995 in the Exhibit (4)(c)(3) to
amount of $3 million; signed by the Form 10-Q for the
Registrant and in favor of Mellon Bank, third quarter ended
N.A., Philadelphia, PA July 29, 1995
(10)(a) B.B. Walker Company Nonqualified Deferred Exhibit (10) to Form
Compensation Plan as amended, adopted 10-K for the fiscal
June 7, 1983. year ended October 29,
1983
(10)(d) 1987 Incentive Stock Option Plan effective Exhibit (10)(d) to
February 11, 1987 Form 10-K for the
fiscal year ended
October 29, 1988
(10)(e) 1995 Incentive Stock Option Plan for Key Filed with the 1994
Employees and Non-Employee Directors Proxy Statement mailed
effective March 20, 1995 to shareholders on
February 27, 1995
(10)(f)(1) Employment Agreement between B.B. Walker Exhibit (10)(f)(1) to
Company and Kent T. Anderson, President Form 10-Q for the
and Chief Executive Officer, dated October nine months ended
2, 1989 July 28, 1990
Page F-5
<PAGE>
INDEX TO EXHIBITS
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ----------------
(10)(f)(2) First Amendment to Employment Agreement Exhibit (10)(f)(2) to
between B.B. Walker Company and Kent T. Form 10-Q for the
Anderson, President and Chief Executive nine months ended
Officer, dated July 6, 1990 July 28, 1990
(11) Computation of earnings per share amounts are
explained in Note 1 to the Consolidated
Financial Statements in the Annual Report to
Shareholders for the fiscal year ended
October 28, 1995, which is Exhibit 13 of this
filing
(13) Annual Report to Shareholders for the fiscal Filed herewith as
year ending October 28, 1995 Exhibit (13)
(22) Subsidiaries of the Registrant Filed herewith as
Exhibit (22)
Page F-6
<PAGE>
Exhibit 13
----------
B.B. WALKER COMPANY AND SUBSIDIARY
FORTY-EIGHTH ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 28, 1995
<PAGE>
1995 ANNUAL REPORT
B.B. WALKER COMPANY PROFILE
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 presently markets high quality, medium-
priced western and work/outdoor boots and shoes. A majority of the Company's
sales are under B.B. Walker trademarked brands. The Company's marketing
efforts are organized into three divisions: Western Boot, Work/Outdoor, and
Private Label. The Company also operates three retail stores.
THE WORK/OUTDOOR DIVISION, markets quality boots and shoes for work, outdoor
and safety use under the WALKER FOOTWEAR THAT WORKS brand. The mainstays of
this line are all-leather lace-up and pull-on utility boots. Through its
GOLDEN RETRIEVER brand, this division offers over 100 styles of work/outdoor
boots, including pull-on, lace-up, lined, insulated and waterproof, in a
variety of heights, soles and constructions. B.B. Walker's work/outdoor lines
are manufactured at the Company's Asheboro facilities.
THE WESTERN BOOT DIVISION, through its ABILENE brand, offers high quality
all-leather boots for the traditional boot wearer. The SAGE brand, also
marketed by this division, is offered at a lower price point and features
bright colors and accents. The ABILENE and SAGE lines are manufactured at
the Company's facility in Somerset, Pennsylvania.
THE PRIVATE LABEL DIVISION, has historically made shoes for large retailers
and other manufacturers. Most of the Company's private label products consist
of work/outdoor footwear.
---------
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 637 people at October 28, 1995.
Contents
Financial Highlights
Message to Shareholders
Consolidated Financial Statments and Notes
Report of Independent Accountants
Selected Financial Data
Mangement's Discussion and Analysis of Results
of Operations and Financial Condition
Stock Prices
Officers and Directors
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------
October 28, October 29, October 30,
1995 1994 1993
----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C>
OPERATIONS
Net sales $ 43,453 $ 51,148 $ 55,777
======== ======== ========
Income (loss) before income taxes
and minority interest (1,868) 812 3,055
Provision for (benefit from)
income taxes (626) 336 1,160
Minority interest (2) (2) (2)
-------- -------- --------
Net income (loss) $ (1,244) $ 474 $ 1,893
======== ======== ========
EARNINGS (LOSS) PER SHARE OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS $ (.72) $ .26 $ 1.14
======== ======== ========
Average number of shares outstanding 1,744 1,783 1,650
======== ======== ========
EARNINGS (LOSS) PER SHARE OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS
-ASSUMING FULL DILUTION $ (.72) $ .26 $ 1.12
======== ======== ========
Average number of shares outstanding 1,744 1,783 1,679
======== ======== ========
FINANCIAL CONDITION
Current assets $ 30,898 $ 30,264 $ 27,672
Current liabilities 21,533 20,510 17,357
Working capital 9,365 9,754 10,315
Current ratio 1.43 to 1 1.48 to 1 1.59 to 1
Long-term obligations,
non-current portion 4,257 3,692 3,189
Shareholders' equity 8,553 9,780 9,447
Book value per common share (1) 4.91 5.56 5.47
</TABLE>
(1) Information adjusted for three-for-two stock split paid on March 24, 1994.
<PAGE>
B.B. WALKER COMPANY
CHAIRMAN'S MESSAGE
TO OUR SHAREHOLDERS
Fiscal 1995 was a very difficult year for our Company, a year which saw much
of the footwear industry reporting poorer results than prior years. Lower
sales at the retail level have resulted in overstocked inventories which
retailers have to manage and reduce to a workable level. As a Company, we
have had to market and price our products in response to this tough retail
environment which had an impact on our operating results.
Revenues for the fiscal year ended October 28, 1995 were $43,533,000 compared
to $51,264,000 for the fiscal year ended October 29, 1994. The Company
reported a net loss for 1995 of $1,244,000 and net income of $474,000 for
1994.
Revenues for the fourth quarter of fiscal 1995 were $12,239,000 compared to
$14,430,000 in the fourth quarter of fiscal 1994. The net loss for the fourth
quarter of 1995 was $53,000. In 1994, the fourth quarter reflected income of
$454,000.
The Company has taken several positive steps to address our situation and
return to profitability in 1996. For several months now, management has
reviewed the Company's cost structure in relation to its level of operations
and identified cost savings opportunities. Plans have been implemented to cut
operating costs where possible and reduce staffing levels to match our level
of operations. This process will continue into fiscal 1996.
In December 1995, the Company announced a reorganization of its internal
structure. The Company is focusing on serving two markets for footwear,
western boots and work/outdoor boots. Each of these markets have distinctive
characteristics that distinguishes one from the other. The reorganization
will create two separate divisions that will operate independently and be
supported by a small corporate staff. The new divisions will focus on serving
western boot customers and work/outdoor boot customers, respectively, which
will include both instock and private label accounts. Each division will be
vertically integrated and will be led by a general manager who will assume
responsibility for all phases of manufacturing, marketing and distribution of
the respective division's products. By eliminating functional lines, each
division will be more responsive in serving our customers and providing
products to the market on a more timely basis.
Finally, the Company is aggressively pursuing new markets for its products
that have not traditionally been served in the past. There are many
opportunities available to the Company to gain sales volume and better utilize
existing capacity in our two plants. As we begin to capitalize on these
efforts, we will see an improvement in our operating results.
We appreciate the support and loyalty of our customers, shareholders and
employees.
Sincerely,
KENT T. ANDERSON
-------------------------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
October 28, October 29, October 30,
1995 1994 1993
----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Net sales (Note 11) $ 43,453 $ 51,148 $ 55,777
Interest and other income 80 116 102
------- ------- -------
43,533 51,264 55,879
------- ------- -------
Costs and expenses:
Cost of products sold 32,781 37,506 39,921
Selling and administrative expenses 10,359 11,040 11,226
Depreciation and amortization 667 610 544
Interest expense 1,594 1,156 1,133
Costs of uncompleted securities
offering (Note 13) - 140 -
------- ------- -------
45,401 50,452 52,824
------- ------- -------
Income (loss) before income taxes
and minority interest (1,868) 812 3,055
Provision for (benefit from)
income taxes (Note 7) (626) 336 1,160
Minority interest (2) (2) (2)
------- ------- -------
Net income (loss) $ (1,244) $ 474 $ 1,893
======= ======= =======
Earnings (loss) per share of common stock
and common stock equivalents (Note 1) $ (.72) $ .26 $ 1.14
======= ======= =======
Earnings (loss) per share of common stock
and common stock equivalents - assuming
full dilution (Note 1) $ (.72) $ .26 $ 1.12
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 28, October 29,
1995 1994
----------- -----------
(In thousands, except share data)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1 $ 1
Accounts receivable, less allowance for doubtful
accounts of $521 in 1995 and $778 in 1994 (Note 4) 13,467 13,736
Inventories (Notes 2 and 4) 15,828 15,403
Prepaid expenses 311 240
Income tax recovery receivable (Note 7) 613 -
Deferred income tax benefit, current (Note 7) 678 884
------- -------
Total current assets 30,898 30,264
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization (Notes 3, 5 and 6) 2,968 3,593
DEFERRED INCOME TAX BENEFIT, LONG-TERM (Note 7) 92 80
OTHER ASSETS 419 79
------- -------
$ 34,377 $ 34,016
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Borrowings under finance agreement (Note 4) $ 14,012 $ 12,890
Portion of long-term obligations payable
within one year (Note 5) 1,088 500
Accounts payable, trade 5,210 5,489
Accrued salaries, wages and bonuses 591 678
Other accounts payable and accrued liabilities 632 916
Income taxes payable (Note 7) - 37
------- -------
Total current liabilities 21,533 20,510
------- -------
LONG-TERM OBLIGATIONS (Note 5) 4,257 2,996
SHORT TERM DEBT TO BE REFINANCED (Note 6) - 696
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARY 34 34
SHAREHOLDERS' EQUITY (Notes 10 and 12):
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 1995 and 1994 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,726,535 shares in 1995 and
1,743,520 shares in 1994 issued and outstanding 1,727 1,744
Capital in excess of par value 2,724 2,842
Retained earnings 4,158 5,408
Equity loans collateralized by Company
common stock (139) (297)
------- -------
Total shareholders' equity 8,553 9,780
------- -------
COMMITMENTS AND CONTINGENCIES (Note 9)
$ 34,377 $ 34,016
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
October 28, October 29, October 30,
1995 1994 1993
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,244) $ 474 $ 1,893
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization 667 610 544
Gain on sale of fixed assets - (3) (15)
Deferred income taxes 194 66 (206)
(Increase) decrease in:
Accounts receivable, trade (net) 269 620 (1,829)
Inventories (425) (3,181) (582)
Prepaid expenses (71) (122) (11)
Other assets (8) 74 (3)
Increase (decrease) in:
Accounts payable, trade (279) 1,308 303
Accrued salaries, wages and bonuses (87) (12) (42)
Other accounts payable and
accrued liabilities (284) (612) 625
Income taxes payable (650) (588) 61
------- ------- -------
Net cash provided by (used for)
operating activities (1,918) (1,366) 738
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (43) (2,045) (545)
Proceeds from disposal of property, plant
and equipment 1 3 24
------- ------- -------
Net cash used for investing activities (42) (2,042) (521)
------- ------- -------
</TABLE>
(Continued)
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
October 28, October 29, October 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under finance agreement 1,122 3,201 310
Proceeds from issuance of
long-term obligations 4,232 919 2,347
Payment on long-term obligations (3,079) (570) (2,772)
Payment of debt issue costs (332) - -
Purchase of subsidiary common stock
from minority interest - (1) (7)
Repurchase of Company common stock - (3) (21)
Proceeds from issuance of common stock - 75 256
Loans to shareholders, net of
cash repayments 23 59 (221)
Advance to Employee Stock Ownership
Plan Trust - (135) -
Dividends paid on common stock - (131) (103)
Dividends paid on 7% cumulative
preferred stock (6) (6) (6)
------- ------- -------
Net cash provided by (used for)
financing activities 1,960 3,408 (217)
------- ------- -------
Net change in cash - - -
Cash at beginning of year 1 1 1
------- ------- -------
Cash at end of year $ 1 $ 1 $ 1
======= ======= =======
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities:
Capital lease obligations incurred were $10 in 1994 and $171 in 1993. No
capital lease obligations were incurred in 1995.
During 1995, the Company accepted 16,875 shares of its common stock as
repayment of an advance of $135,000 to the Employee Stock Ownership Plan
Trust.
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity Loans
(In thousands, 7% Cumulative Capital in Collateralized Total
except number Preferred Stock Common Stock Excess of Retained By Common Shareholders'
of shares) Shares Amount Shares Amount Par Value Earnings Stock Equity
------ ------ --------- ------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1992 828 $ 83 1,545,145 $ 1,545 $ 2,734 $ 3,287 $ - $ 7,649
Retirement of common stock
repurchased - - (3,968) (4) (17) - - (21)
Issuance of common stock - - 172,500 173 83 - - 256
Loans to shareholders - - - - - - (231) (231)
Repayment of shareholder
loans - - - - - - 10 10
Net income - - - - - 1,893 - 1,893
Dividends on common stock at
$.067 per share - - - - - (103) - (103)
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 30, 1993 828 83 1,713,677 1,714 2,800 5,071 (221) 9,447
Retirement of common stock
repurchased - - (400) - (3) - - (3)
Issuance of common stock - - 30,243 30 45 - - 75
Equity loans collateralized
by common stock - - - - - - (163) (163)
Repayment of equity loans col-
lateralized by common stock - - - - - - 87 87
Net income - - - - - 474 - 474
Dividends on common stock at
$.073 per share - - - - - (131) - (131)
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 29, 1994 828 83 1,743,520 1,744 2,842 5,408 (297) 9,780
Retirement of common stock
repurchased - - (110) - - - - -
Repayment of equity loans col-
lateralized by common stock - - - - - - 23 23
Repayment of equity loans by
retirement of common stock - - (16,875) (17) (118) - 135 -
Net loss - - - - - (1,244) - (1,244)
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 28, 1995 828 $ 83 1,726,535 $ 1,727 $ 2,724 $ 4,158 $ (139) $ 8,553
==== ==== ========= ====== ======= ====== ====== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
<PAGE>
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 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.
Inventories
- -----------
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out basis.
Property, plant and equipment
- -----------------------------
All property, plant and equipment, except assets under capital leases, are
reported at cost. Assets under capital leases are reported at the present
value of the minimum lease payments. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets.
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.
Earnings per share
- ------------------
Earnings per common share is computed by deducting preferred dividends from
net earnings to determine net earnings attributable to common shareholders.
This amount is divided by the weighted average number of common shares
outstanding during the year plus any common stock equivalents arising from
stock options. For primary earnings per share, the common stock equivalents
are calculated using the average common stock price for the year. For fully
diluted earnings per share, the common stock equivalents are calculated using
the common stock price at the end of the year if it is greater than the
average price for the year. The weighted average number of shares, including
common stock equivalents, used in earnings per share computations were:
1995 1994 1993
--------- --------- ---------
Primary 1,744,000 1,783,000 1,650,000
Fully diluted 1,744,000 1,783,000 1,679,000
Revenue recognition
- -------------------
The Company recognizes a sale when the goods are shipped or ownership and risk
of loss is otherwise assumed by the customer.
Advertising costs
- -----------------
The Company expenses advertising costs, other than direct response
advertising, as incurred. Direct response advertising is expensed the
first time the advertising appears. Advertising expense for 1995, 1994 and
1993 is $1,118,000, $1,367,000 and $1,590,000, 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 1995, 1994 and 1993
fiscal years consisted of fifty-two weeks each.
New accounting standards
- ------------------------
In December 1991, the Financial Accounting Standards Board (the "FASB")
adopted Statement of Financial Accounting Standards No. 107, DISCLOSURE ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, which requires disclosure about the fair
value of certain financial instruments.
In March 1995, the FASB adopted Statement of Financial Accounting Standards
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, which requires that companies assess potential
impairments of long-lived assets and certain identifiable intangibles when
there is evidence that events or changes in circumstances have made recovery
of an asset's carrying value unlikely, and recognize an impairment loss when
the sum of expected future net cash flows is less than the carrying amount.
In October 1995, the FASB adopted Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, which provides that
companies adopt a method of accounting for stock compensation awards based on
the estimated fair value at the date the awards are granted using an accepted
pricing model. The resulting charge to income is recognized over the period
during which the options or awards vest. The FASB encourages recognition of
such expense in the statement of income but does not require it. If expense
is not recorded in the financial statements, pro forma disclosures are
required regarding the effects on net income and earnings per share had
expense been recognized.
Adoption of FAS No. 107 is required for fiscal 1996. Adoption of FAS No. 121
and FAS No. 123 are required for fiscal 1997. Management is evaluating the
potential effects on the Company's financial statements of adoption of these
statements. While such evaluation is not complete, management currently does
not expect adoption of the statements will have a material effect on its
financial condition or results of operations.
NOTE 2 - INVENTORIES
Inventories on hand at October 28, 1995 and October 29, 1994 consisted of the
following:
(In thousands)
October 28, October 29,
1995 1994
----------- -----------
Finished goods $ 9,574 $ 8,688
Work in process 807 738
Raw materials and supplies 5,447 5,977
--------- ---------
$ 15,828 $ 15,403
========= =========
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, by major class, at October 28, 1995 and October
29, 1994 was as follows:
(In thousands)
October 28, October 29,
1995 1994
----------- -----------
Land $ 425 $ 425
Buildings 2,285 2,276
Leasehold improvements 489 493
Machinery and equipment:
Owned 3,770 4,075
Capital leases 1,143 1,184
Transportation equipment:
Owned 245 212
Capital leases 9 43
Construction in process 14 -
------ ------
8,380 8,708
Less accumulated depreciation
and amortization 5,412 5,115
------ ------
$ 2,968 $ 3,593
====== ======
Included in accumulated depreciation at October 28, 1995 and October 29, 1994
is $908,000 and $813,000, respectively, related to capital leases.
NOTE 4 - BORROWINGS UNDER FINANCE AGREEMENT
On August 15, 1995, the Company entered into a new revolving finance agreement
with a bank which replaced the existing revolving finance agreement. The new
financing provides daily requirements for working capital and refinanced the
existing mortgage note payable on the Asheboro facility. The new agreement
has two primary components, a revolving credit commitment and a term loan.
The revolving credit commitment permits borrowings up to certain percentages
of eligible accounts receivable and inventories, not to exceed $20,000,000 in
aggregate ($11,000,000 for accounts receivable and $6,500,000 to $9,000,000
for inventory which is adjusted seasonally). Interest at the bank's prime
rate plus one-half percent (9.25% at October 28, 1995) is accrued on all
outstanding amounts. The Company pays a commitment fee on a monthly basis
equal to .25% of the unused availability under the agreement. The Company
also incurs other miscellaneous fees related to the operation of the credit
facility.
As discussed more fully in Note 5, the second portion of the agreement
provided a term loan of $3,000,000 with a variable interest rate. Proceeds
from this loan were used to repay the existing mortgage note on the Asheboro
facility with the remainder applied against the outstanding amount under the
revolving finance agreement.
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. The Company has granted
the bank a subordinated security interest in the Somerset facility with the
approval of the other lenders on the Somerset facility.
The agreement contains various restrictive covenants, as amended effective
October 28, 1995, 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, 1995, the Company was in compliance with its
amended covenants.
The previous financing agreement with a bank permitted borrowings up to
certain percentages of eligible accounts receivable and inventories, not to
exceed $15,000,000 in aggregate ($7,000,000 for accounts receivable and
$8,000,000 for inventory). Interest accrued on outstanding amounts at one-
half percent above the bank's prime rate.
(In thousands)
Fiscal year
-------------------------
1995 1994 1993
------ ------ ------
Average short-term borrowings $ 12,633 $ 10,384 $ 7,906
Maximum short-term borrowings $ 14,717 $ 12,927 $ 10,195
Weighted average interest rate 9.6% 7.9% 7.5%
Interest rate at year-end 9.25% 8.25% 7.5%
The weighted average interest rate is computed by dividing interest expense on
the short-term borrowings by the average borrowings during the fiscal year.
NOTE 5 - LONG TERM OBLIGATIONS
Long-term debt and other non-current obligations consist of the following:
(In thousands)
October 28, October 29,
1995 1994
----------- -----------
Note payable to a bank, due in 84
monthly installments, which include
accrued interest, ranging from $36,000
to $59,000 through July 2002, variable
interest at the bank's prime rate plus
1/2% (9.25% at October 28, 1995),
secured by accounts receivable,
inventories and substantially all
fixed assets $ 2,929 $ -
Note payable to a bank, due in monthly
installments of principal plus accrued
interest of $2,550 through September 2009,
variable interest at the bank's prime
rate plus .75% (9.5% at October 28, 1995),
secured by the Company's land and
building in Somerset, PA 236 -
Note payable to the Pennsylvania Industrial
Development Authority, due in monthly
installments of principal plus accrued
interest of $3,089 through April 2010,
fixed interest at 2% per annum, secured
by the Company's land and building in
Somerset, PA 466 -
Note payable to the Pennsylvania Economic
Revitalization Fund, due in monthly
installments of principal plus accrued
interest of $1,544 through August 2010,
fixed interest at 2% per annum, secured
by the Company's land and buildings in
Somerset, PA 238 -
Mortgage note payable to a bank, due in
monthly installments including interest
of $20,000, interest at 7.75%, paid in 1995 - 2,118
Promissory notes payable to shareholders,
due in varying amounts through 1998,
variable interest based on prime rate 1,233 965
Capital lease obligations, due in monthly
installments through 1998, interest
ranging from 12% to 12.75% 243 413
------- -------
5,345 3,496
Less amounts payable within one year 1,088 500
------- -------
$ 4,257 $ 2,996
======= =======
The effective interest rate on the promissory notes payable to shareholders
averaged 9.9% in 1995 and 9.7% in 1994. Cash paid for interest was $1,574,000
in 1995, $1,153,000 in 1994 and $1,134,000 in 1993.
Principal maturities on long-term obligations are as follows:
Fiscal Year (In thousands)
Ending Amounts
----------- ------------
1996 $ 1,088
1997 1,012
1998 820
1999 484
2000 486
Thereafter 1,455
------
$ 5,345
======
NOTE 6 - SHORT TERM DEBT TO BE REFINANCED
In July 1994, the Company purchased a larger manufacturing facility in
Somerset, Pennsylvania to replace the existing facility also located in
Somerset. During 1994, the Company obtained commitments for permanent
financing on a portion of the purchase cost of the facility. During the
period between the closing date of the purchase and the date the permanent
financing was finalized, the Company temporarily borrowed $696,000 from a bank
on a short-term note to provide the funds for closing. The note carried
interest at prime plus .75%. The Company retired the short-term bank note
with the long-term financing in fiscal 1995.
NOTE 7 - INCOME TAXES (In Thousands)
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes.
FAS 109 requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of FAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under FAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Pursuant to the deferred method
under APB Opinion 11, which was applied in 1993 and prior years, deferred
income taxes were recognized for income and expense items that were reported
in different years for financial reporting purposes and income tax purposes
using the tax rate applicable for the year of the calculation. Under the
deferred method, deferred taxes were not adjusted for subsequent changes in
tax rates.
On October 31, 1993, the Company adopted FAS 109 without restating prior
years' financial statements. The cumulative effect of the change in the
method of accounting for income taxes was deemed immaterial to the Company's
financial statements and therefore is not disclosed separately in the
financial statements.
The components of the provision for (benefit from) income taxes are as
follows:
October 28, October 29, October 30,
1995 1994 1993
----------- ----------- -----------
Current:
Federal $ (820) $ 240 $ 1,141
State - 30 225
------ ------ ------
(820) 270 1,366
------ ------ ------
Deferred:
Federal 194 58 (169)
State - 8 (37)
------ ------ ------
194 66 (206)
------ ------ ------
$ (626) $ 336 $ 1,160
====== ====== ======
The Company has state net economic loss carryforwards of $115,000 which expire
in 2000. Cash paid for income taxes, net of refunds, was ($141,000) in 1995,
$853,000 in 1994, and $1,304,000 in 1993.
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, 1995, October 29,
1994 and October 30, 1993 as follows:
October 28, October 29, October 30,
1995 1994 1993
----------- ----------- -----------
Computed expected income tax
expense (benefit) $ (636) $ 275 $ 1,039
State income taxes (benefit), net
of federal income tax benefit (115) 24 124
Change in the valuation allowance 115 - -
Other, net 10 37 (3)
------ ------ ------
$ (626) $ 336 $ 1,160
====== ====== ======
The significant components of deferred income tax expense for the years ended
October 28, 1995 and October 29, 1994 are as follows:
October 28, October 29,
1995 1994
----------- -----------
Deferred tax expense (exclusive of the
effect of other components listed below) $ 194 $ 66
State deferred tax benefit (115) -
Change in the valuation allowance 115 -
----- -----
$ 194 $ 66
===== =====
For the year ended October 30, 1993, deferred income tax expense of $206,000
resulted from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below:
October 30,
1993
-----------
Provision for doubtful accounts $ (92)
Reserve for sales discounts (19)
Additional inventory costs 50
Self insurance accrual (35)
Difference in income tax and financial
statement depreciation rates (47)
Change in inventory reserve (83)
Other, net 20
-----
$ (206)
=====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at October 28, 1995 and October 29, 1994
are as follows:
October 28, October 29,
1995 1994
----------- -----------
Deferred tax assets:
Current portion:
Provision for doubtful accounts $ 193 $ 289
Reserve for sales discounts 89 104
Self insurance accrual for claims incurred
but not reported at year-end 84 82
Inventories, principally due to additional
costs inventoried for tax purposes 347 385
Accruals for certain employee benefits 24 24
----- -----
Total current 737 884
----- -----
Long-term portion:
Accruals for certain employee benefits 29 45
State economic loss carryforward 115 -
Other 62 35
----- -----
Total long-term 206 80
----- -----
Total gross deferred tax assets 943 964
Valuation allowance (115) -
----- -----
828 964
----- -----
Deferred tax liabilities:
Current portion:
Prepaid employee benefits (58) -
----- -----
Net deferred tax asset $ 770 $ 964
===== =====
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 for all
eligible employees that invests in the common stock of the Company.
Contributions to the Employee Stock Ownership Plan of B.B. Walker Company,
which are determined by the Board of Directors, were $65,000 in 1995, $65,000
in 1994 and $120,000 in 1993.
The Retirement Savings Plan of B.B. Walker Company, a Section 401-K plan, is
available to all eligible employees meeting certain age and service
requirements. The plan is not available to employees of the Company's
subsidiary who are covered by a defined benefit pension plan. 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 $30,000 in 1995, $30,000 in 1994 and $60,000 in
1993.
The Company sponsors a non-contributory, defined benefit pension plan which
covers employees of its subsidiary. 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 1995, 1994 and 1993 included the following
components (in thousands):
1995 1994 1993
---- ---- ----
Service cost - benefits earned
during the period $ 69 $ 65 $ 57
Interest on projected benefit obligation 46 39 31
Actual return on plan assets (47) (42) (40)
Net amortization and deferral (20) (17) (10)
--- --- ---
Net annual pension expense $ 48 $ 45 $ 38
=== === ===
The following table sets forth the plan's funded status at October 28, 1995
and October 29, 1994 (in thousands):
October 28, October 29,
1995 1994
----------- -----------
Actuarial present value of benefit obligations:
Vested benefit obligations $ 648 $ 594
===== =====
Accumulated benefit obligations $ 713 $ 641
===== =====
Projected benefit obligation $ (713) $ (641)
Plan assets at fair value 863 759
----- -----
Plan assets in excess of projected benefit
obligation 150 118
Unrecognized net loss 78 66
Unrecognized net asset at transition (74) (82)
----- -----
Prepaid pension cost $ 154 $ 102
===== =====
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 1995, 1994 and 1993.
The Company also has an incentive bonus plan for employees which allows the
Company to pay bonuses based upon certain percentages of operating profit.
Expenses associated with this plan were $86,000 in 1994 and $534,000 in 1993.
No incentive bonuses were accrued for 1995.
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 has 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 10 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 is still active. All available options under
this plan have been granted. The terms of this plan were substantially the
same as the 1995 Incentive Stock Option Plan described above. A summary of
the activity in the plans is as follows:
Year of Number of Options Price
Grant Shares Per Share
------- --------- -------------
Options outstanding at
October 31, 1992 199,500 $ 1.33 - 2.00
Granted 1993 92,250 4.00 - 5.83
Exercised 1989-1992 (172,500) 1.33 - 2.00
--------
Options outstanding at
October 30, 1993 119,250 1.33 - 5.83
Exercised 1989-1993 (29,700) 1.33 - 4.40
--------
Options outstanding at
October 29, 1994 89,550 1.33 - 5.83
Granted 93,000 3.50
Forfeited 1993 (15,600) 4.00 - 4.40
--------
Options outstanding at
October 28, 1995 166,950 $ 1.33 - 5.83
========
Options available for future grant - 1987 plan -
========
Options available for future grant - 1995 plan 288,350
========
Outstanding options exercisable at October 28, 1995, October 29, 1994 and
October 30, 1993 were 120,450, 89,550, and 73,125, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
- -----------------
The Company has entered into various capital and operating leases for certain
buildings and machinery and equipment. The agreements expire at various dates
through 2000. The future minimum lease payments under capital leases and
noncancelable operating leases with initial terms of one year or more are as
follows:
(In thousands)
Capital Operating
Fiscal year ending Leases Leases
------------------ --------- ---------
1996 $ 183 $ 480
1997 82 347
1998 10 214
1999 - 132
2000 - 40
----- ------
Total minimum lease payments 275 $ 1,213
Amounts representing interest 32 ======
-----
Present value of minimum lease payments
(includes current portion of $159) $ 243
=====
Rental expense amounted to $578,000 in 1995, $606,000 in 1994 and $624,000 in
1993.
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 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, 1995,
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, 1995, 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.
NOTE 11 - CREDIT CONCENTRATIONS AND SALES TO MAJOR CUSTOMERS
The Company's trade receivables do not represent significant concentrations of
credit risk because a large number of geographically diverse customers
comprise the customer base. However, a substantial portion of the customer
base is retailers and the Company derived approximately 12% and 10% of its net
sales from one major customer in 1994 and 1993, respectively. In 1995, no
customers comprised more than 10% of sales.
NOTE 12 - CHANGES IN CAPITAL STRUCTURE
In February 1994, the Company's Board of Directors approved a three-for-two
stock split of the Company's common stock. Accordingly, the per share amounts
in the financial statements and related notes thereto have been retroactively
restated to reflect this stock split.
Also in January 1994, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's common stock from 2.5 million shares to 6 million
shares. The amendment was ratified by shareholders in March 1994.
NOTE 13 - COSTS OF UNCOMPLETED SECURITIES OFFERING
During 1994, the Company filed a Form S-2 registration statement with the
Securities and Exchange Commission covering 911,500 shares of its common stock
to be offered to the public. The public offering was not completed in 1994.
The expenses incurred in preparing and filing the registration statement of
$140,000 were expensed in 1994 by the Company.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of B.B. Walker Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of B.B.
Walker Company and its subsidiary at October 28, 1995 and October 29, 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended October 28, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
December 1, 1995
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
SELECTED FINANCIAL DATA
(In thousands, except for
items denoted by (1) below)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales $ 43,453 $ 51,148 $ 55,777 $ 47,817 $ 40,239
======= ======= ======= ======= =======
Income (loss) from continuing operations
before income taxes, minority interests
and extraordinary item $ (1,868) $ 812 $ 3,055 $ 1,783 $ 445
Provision for (benefit from) income taxes (626) 336 1,160 579 164
Minority interests in continuing operations (2) (2) (2) (2) (2)
------- ------- ------- ------- -------
Income (loss) before extraordinary item (1,244) 474 1,893 1,202 279
Extraordinary item-realization of tax
operating loss carryforwards - - - 477 156
------- ------- ------- ------- -------
Net income (loss) $ (1,244) $ 474 $ 1,893 $ 1,679 $ 435
======= ======= ======= ======= =======
FINANCIAL CONDITION:
Current assets $ 30,898 $ 30,264 $ 27,672 $ 25,099 $ 25,338
Current liabilities 21,533 20,510 17,357 16,253 18,107
Working capital 9,365 9,754 10,315 8,846 7,231
Current ratio (1) 1.43 to 1 1.48 to 1 1.59 to 1 1.54 to 1 1.40 to 1
Total assets 34,377 34,016 30,028 27,234 27,265
Long-term obligations 4,257 3,692 3,189 3,290 3,110
Minority interests in consolidated subsidiary 34 34 35 42 42
Total liabilities 25,824 24,236 20,581 19,585 21,259
Shareholders' equity 8,553 9,780 9,447 7,649 6,006
PER SHARE INFORMATION (1) (2):
Shareholders' equity (book value) $ 4.91 $ 5.56 $ 5.47 $ 4.89 $ 3.80
======= ======= ======= ======= =======
Per share of common stock and common
stock equivalent:
Income (loss) from continuing
operations before extraordinary item $ (.72) $ .26 $ 1.14 $ .75 $ .17
Extraordinary item-realization of tax
operating loss carryforwards - - - .30 .10
------- ------- ------- ------- -------
Net income (loss) $ (.72) $ .26 $ 1.14 $ 1.05 $ .27
======= ======= ======= ======= =======
Per share of common stock and common
stock equivalent-assuming full dilution:
Income (loss) from continuing
operations before extraordinary item $ (.72) $ .26 $ 1.12 $ .73 $ .17
Extraordinary item-realization of tax
operating loss carryforwards - - - .29 .09
------- ------- ------- ------- -------
Net income (loss) $ (.72) $ .26 $ 1.12 $ 1.02 $ .26
======= ======= ======= ======= =======
Cash dividends on preferred stock $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00
Cash dividends on common stock (2) - .073 .067 - -
OTHER INFORMATION:
Property, plant and equipment, net $ 2,968 $ 3,593 $ 2,148 $ 1,985 $ 1,728
Depreciation and amortization 667 610 544 366 292
Capital additions 43 2,055 716 670 335
Space occupied (square feet) 358 363 325 329 332
Average number of common shares outstanding(2) 1,731 1,737 1,625 1,548 1,589
Number of shareholders (1) 1,229 1,142 1,185 1,370 1,405
Number of employees (1) 637 658 642 599 528
</TABLE>
(2) Information adjusted for three-for-two stock split paid on March 24, 1994.
<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
years ended October 28, 1995, October 29, 1994 and October 30, 1993:
October 28, October 29, October 30,
1995 1994 1993
----------- ----------- -----------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 75.4% 73.3% 71.6%
------- ------- -------
Gross margin 24.6% 26.7% 28.4%
Selling and administrative expenses 23.9% 21.6% 20.1%
Depreciation and amortization 1.5% 1.2% 1.0%
Interest expense 3.7% 2.2% 2.0%
Costs of uncompleted securities offering - .3% -
Interest and other income (.2%) (.2%) (.2%)
------- ------- -------
Income (loss) before income taxes
and minority interest (4.3%) 1.6% 5.5%
Provision for (benefit from)
income taxes (1.4%) .7% 2.1%
Minority interest - - -
------- ------- -------
Net income (loss) (2.9%) .9% 3.4%
======= ======= =======
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales
- ---------
Net sales for 1995 were $43,453,000 which was 15.0% lower than net sales of
$51,148,000 in 1994. Sales of branded footwear accounted for 73.8% and
62.3% of net sales in 1995 and 1994, respectively. Private label sales in
1995 and 1994 were 19.1% and 26.1% of net sales, respectively. The remaining
7.1% and 11.6% of net sales in 1995 and 1994, respectively, were primarily
composed of sales from the Company's retail outlets and footwear imported for
customers.
Sales of branded footwear in the Work/Outdoor Division were essentially flat
for the year compared to 1994, showing a decrease of .5%. Domestic sales in
the Work/Outdoor Division were down $500,000, or 3.8% in 1995. A mild winter
in 1995 impacted sales early in the year for this division. In addition, the
popularity of this type of footwear with customers, has led to significant
competition for shelf space. Export sales for this division were up $400,000,
or 19.6%, for 1995. Stronger sales in Europe and additional efforts made to
service new markets overseas led to the growth. Pairs sold in this division
in 1995 were down .4% while the average price per pair rose 1.7%.
Branded footwear sales in the Western Boot Division improved for the year as
compared to 1994. Sales in this division were higher than the prior year by
$1,000,000 or 6.6%. Retail sales of western footwear were sluggish during
most of 1994 which resulted in retailers overstocking inventories. As a
result, orders to replace inventory were slow as retailers worked to turn
their on-hand inventory. During 1995, retailers have worked their inventories
to a more manageable level which has resulted in stronger orders in 1995 than
in 1994. In addition, the Company has more aggressively marketed its footwear
in response to the slower sales of 1994. This has led to greater competition
for market share and more pressure on pricing of its product. For the year,
pairs shipped were up 11.3%, however, the average price per pair fell 8.0%.
Sales in the Private Label Division were down $6,500,000, or 44.1%, in 1995
from 1994 levels. Many of the customers that are part of this division
carried high inventories into the current year and did not achieve expected
sales levels, therefore, orders were significantly lower than the prior year.
Most private label customers only filled in existing lines as needed. The
Company is actively pursuing new private label markets that have not
previously been served in order to secure more shelf space with these
retailers. Pairs shipped in this division were down 47.7% from 1994.
Finally, other sales of the Company, which are primarily retail sales and
sales from shoes imported for customers, were down $2,100,000. Substantially
all of the decrease is a result of the Company no longer importing shoes for
major customers. This service was phased out during the first quarter of
1995. In addition, the Company closed one retail outlet in the third quarter
which impacted sales for the retail division.
Gross Margin
- ------------
The Company's gross profit was $10,672,000 in 1995 and $13,642,000 in 1994.
As a percentage of sales, 1995's gross margin was 24.6% and 1994's gross
margin was 26.7%. The gross margin percentage was impacted by heavy
discounting and other promotional programs in both 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 1995, the Company's plants produced 13.3% fewer pairs
than 1994. Most of the reduction can be attributed to the reduction in orders
from private label customers.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $10,359,000 for 1995 as compared to
$11,040,000 for 1994, a decrease of $681,000, or 6.2%. Expenses in most areas
were lower in 1995 than in 1994. The Company reviewed its expense structure
and aggressively moved to reduce operating expenses in 1995. Many of the
reductions were implemented in the latter half of the second quarter and their
full impact has not been fully realized. Salary and benefits were down
approximately $383,000 for 1995 as compared to 1994. Several personnel
positions, which are vacant, have not been filled with their work being
redistributed. In addition, lower sales have resulted in lower commissions
expense. Computer costs for the year were down $221,000. During 1994, the
Company implemented an extensive new manufacturing package which required
significant support from the software developer. Much of this package was
operational by the end of 1994 and required less for support expenses in 1995.
In addition, the Company has postponed some new computer-related projects in
1995 in order to reduce expenses. For 1995, advertising and sample expenses
were $249,000 lower than in 1994. The Company has reduced expenditures on its
advertising programs in order to reduce expenses in 1995. In addition, during
1994, the Company was completing the development of its consumer/retailing
advertising program. These programs have been in place during much of 1995,
resulting in lower consumer advertising outlays. These reductions in expenses
were partially offset by higher freight costs and bad debt expenses. Freight
costs were $198,000 higher in 1995 than in 1994 because of special promotional
programs offered by the branded divisions to customers. The increase in bad
debt expense for 1995 is attributed to the economy and retailers having
difficulty in turning their inventories quickly.
Interest Expense
- ----------------
Interest expense incurred in 1995 was $1,594,000, or $438,000 more than
interest expense of $1,156,000 for 1994. The increase for 1995 can be
attributed to the higher average balances on outstanding debt and higher
average interest rates than in the comparable period a year ago. Average
outstanding advances under the revolving finance agreement were approximately
$2,200,000 higher in 1995 than in 1994. Interest rates for this agreement
ranged from 8.25% to 9.5% in 1995 and from 6.75% to 8.25% in 1994. The other
major factor was outstanding amounts for promissory notes to shareholders.
For 1995, the average amount outstanding was $1,150,000 compared to $860,000
for 1994. Interest rates on these notes payable range from 8% to 10%.
The Company anticipates that interest expense from fixed rate debt will
increase due to changes in the Company's debt structure in 1995. The Company
financed the acquisition of a larger facility in Somerset, PA with $960,000 in
financing from two agencies of the Commonwealth of Pennsylvania and a bank
note. The financing from the governmental agencies amounted to $720,000 and
accrues interest at a rate of 2%. The bank note was for $240,000 and bears
interest at the bank's prime rate plus .75% (9.25% at October 28, 1995). In
addition, as part of a new financing agreement with a bank signed on August
15, 1995, the Company replaced the existing mortgage note payable which
amounted to $2,060,000 and carried interest at the bank's prime rate plus .75%
with a cap of 7.75% with a $3,000,000 term loan bearing interest at the new
bank's prime rate plus .5% (9.25% at October 28, 1995).
Depreciation and Amortization
- -----------------------------
Depreciation and amortization rose $57,000 to $667,000 in 1995 from $610,000
in 1994. The increase is the result of a full year of depreciation being
taken in 1995 on assets acquired in 1994 versus only a half year of
depreciation being taken in 1994. Capital expenditures made in 1994 were
$2,055,000. Capital expenditures for 1995 were $43,000.
Provision for Income Taxes
- --------------------------
The Company posted a net loss before income taxes for 1995 of $1,868,000 and,
therefore, recorded a net benefit from income taxes of $626,000. The
provision for income taxes in 1994 was $336,000. The largest part of the
change in the Company's effective income tax rate from 1995 to 1994 was due to
the Company recording a valuation allowance of $115,000 to establish a reserve
against its deferred tax assets.
Net Income
- ----------
For the year ended October 28, 1995, the Company reported a net loss of
$1,244,000, or 2.9% of net sales. For the year ended October 29, 1994, the
Company had net income of $474,000, or .9% of net sales. The change of
$1,718,000 can be attributed primarily to lower sales volume in 1995 compared
to 1994. Retailers were slow to turn their inventories as the market was
soft, and therefore orders to restock inventory were not as strong as the
prior years. In addition, the reduction in demand impacted the ability of the
Company to operate its plants efficiently resulting in unfavorable
manufacturing variances. Another factor that eroded the Company's margins
was significant competition which led to aggressive pricing and dating terms.
Finally, rising interest rates, larger average outstanding balances and
additional long-term debt resulted in significant increases in interest
expense. These higher expenses were partially offset by lower selling and
administrative expenses.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales
- ---------
Net sales for the 1994 were $51,148,000 which was 8% lower than net sales of
$55,777,000 in 1993. Sales of branded footwear accounted for 62.3% and 66.8%
of net sales in 1994 and 1993, respectively. Private label sales in 1994 and
1993 were 26.1% and 20.5% of net sales, respectively. The remaining 11.6% and
12.7% of net sales in 1994 and 1993, respectively, are primarily composed of
sales from retail outlets and footwear imported for customers.
Sales of branded footwear in the Work/Outdoor Division were down 1% for the
year due primarily to a decrease in export sales from the prior year. Export
sales of the Work/Outdoor Division were off $2,000,000, or 40%, from 1993. In
1993, export sales jumped significantly when the Company added several new
export accounts with large initial shipments and increased volume with
existing customers. However, development of new international accounts in
1994 was slower. Also, economic recessions in many countries, particularly
some European countries, impacted sales of several of the Company's largest
export customers. Domestic sales in the Work/Outdoor Division rose
$1,700,000, or 16%, in 1994. Growth in domestic branded sales benefited from
a restructuring of the sales force which provided more salesmen and allowed
for more aggressive pursuit of retail accounts. As a result, the Company
added numerous new accounts to this division in 1994. In addition, sales have
reflected the growing popularity of this type of footwear with customers. The
Company has adjusted its styles in order to take advantage of this demand.
Finally, the Company has devoted more resources to developing a coordinated
marketing approach for promoting the brands offered in this line.
Branded footwear sales in the Western Boot Division remained down for the
year. Sales in this division were lower than the prior year by $5,100,000, a
24% decrease. The primary reason for the decrease was a softer market for
western footwear in 1994 than 1993. Flat retail sales of western footwear
during 1994 resulted in retailers overstocking inventories. As a result,
orders to replace inventory were delayed as retailers worked to turn their on-
hand inventory. The Company anticipates good showings at the spring marketing
shows and increasing market share in 1995.
Sales in private label lines increased $2,000,000, or 17%, during the year.
Growth in this division came primarily from volume increases to existing
customers. Growth in this division reflects the growing popularity of
work/outdoor styles of footwear, which comprise a significant portion of the
sales in this division.
Gross Margin
- ------------
The Company's gross margin fell to $13,642,000 in 1994 as compared to
$15,856,000 in 1993. As a percentage of sales, 1994's gross margin was 26.7%
and 1993's gross margin was 28.4%. In 1994, net sales of branded products,
which compose the Company's most profitable lines, made up 62.3% of total net
sales compared to 66.8% in 1993. The percentage of net sales from private
label lines, which contribute lower margins than branded lines, grew to 26.1%
in 1994 from 20.5% in 1993. Gross margins were also negatively impacted by an
increase in discounting programs offered to customers, particularly in the
Western Division, to induce an increase in orders. Finally, operating
variances in the manufacturing division were more significant in 1994 than in
1993 as the Company produced 9% fewer pairs in its plants than in 1993.
Delays associated with implementation of new processes and improvements at
both manufacturing facilities resulted in reduced production. In Asheboro,
the Company invested in modern equipment to improve the flow of production
through the plant. In addition, a more sophisticated cost accounting and
production system was brought on line in 1994. Both additions provide a more
flexible production system which position the Company for growth in the
future. At Somerset, a larger production facility was acquired in August,
1994. With the purchase of the larger building and new equipment, the Company
has provided more efficient manufacturing facilities for its Western Division.
Also, operating variances were unfavorably impacted by rising health insurance
costs. Health insurance for manufacturing operations in 1994 was $191,000
higher than 1993 and significantly higher than amounts budgeted.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $11,040,000 for 1994 as compared to
$11,226,000 for 1993, a decrease of $186,000 (1.7%). Expenses incurred in
1994 were consistent with expenses incurred in 1993 except for the following.
For the year ended October 29, 1994, advertising expense was $223,000 lower
than the same period in 1993. The Company spent heavily during all of 1993
and part of 1994 to develop and refine its consumer/retailing advertising
programs. Many of these programs were in place for the latter part of 1994
resulting in lower advertising outlays. Travel and showroom expenses for 1994
ran $136,000 higher than the comparable period for 1993 as the Company devoted
more resources towards establishing consumer awareness of its branded products
in the market by more brand recognition at trade shows and pursuing new retail
accounts. Bad debt expense in 1994 was $272,000 lower than 1993. The change
from the prior year reflects significant accruals made in 1992 and 1993 in
response to anticipated losses for several large accounts. With these
accruals, adequate reserves were established and maintained in 1994. Finally,
insurance costs in 1994 were up $288,000 over the prior year. Group insurance
costs made up $170,000 of the increase as claims during the year ran
significantly higher than claims in 1993.
Interest Expense
- ----------------
Interest expense incurred in 1994 was $1,156,000, or $23,000 more than
interest expense of $1,133,000 for 1993. Several factors impacted interest
expense in 1994 and served to offset one another, resulting in only a nominal
increase in the expense of 2% for the year. First, the average outstanding
balance of the financing agreement with the bank was approximately $2,500,000
higher in 1994 than 1993. In addition, the prime rate, to which the interest
on the financing agreement is tied, increased 1.75% during the second half of
the fiscal year. However, in March 1994, the Company renegotiated the
financing agreement which lowered the interest rate paid one percentage point
to the bank's prime rate plus .5%. In addition, in October 1993, the Company
refinanced its mortgage note payable which initially lowered the interest rate
on this debt to 6.75% from 10% in 1993. With the increases in the prime rate,
the interest rate on the mortgage note payable eventually reached its cap of
7.75% late in 1994. Finally, lower average balances on the promissory note
and capital leases led to lower interest expense for this debt.
The impact of increases in the prime rate by 1.75%, to which the interest rate
on the finance agreement is tied, did not significantly impact the Company in
1994. Renegotiation of the agreement in March 1994, reduced the interest rate
one percentage point to .5% above the prime rate from 1.5% above prime rate.
Therefore the net effect for the year was a .75% increase in the rate.
However, additional increases in the bank's prime rate could lead to
significantly higher interest expense in 1995.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization rose $66,000 to $610,000 in 1994 from $544,000
in 1993. This is the result of the Company continuing to upgrade its
facilities and equipment to provide more efficient, flexible manufacturing
facilities. Capital expenditures made in 1994 were $2,055,000 compared to
$716,000 in 1993.
Provision for Income Taxes
- --------------------------
The provision for income taxes in 1994 was $336,000 as compared to the
provision for income taxes in 1993 of $1,160,000, a reduction of $824,000.
Lower tax expense was the result of lower pretax earnings of $2,243,000 in
1994. In addition, the Company changed its method of accounting for income
taxes in 1994 which impacted its effective income tax rate.
During 1993, Congress enacted the Omnibus Budget Reconciliation Act of 1993.
The Act adjusted marginal corporate tax rates and changed the deductibility of
certain expenses among other things. The changes did not materially impact
the Company.
Net Income
- ----------
For the year ended October 29, 1994, the Company reported net income of
$474,000, or .9% of net sales. For the year ended October 30, 1993, the
Company had net income of $1,893,000, or 3.4% of net sales. The decrease of
$1,419,000 can be attributed to lower sales volume in 1994 compared to 1993,
particularly in branded western footwear. Retailers have been slow to turn
their inventories as the market is soft, and therefore orders to restock
inventory have not been as strong as the prior year. Further, a reduction in
the gross margin percentage as a result of heavier discounting in marketing
products and unfavorable manufacturing variances incurred as a result of
introduction of new production equipment and relocation of a manufacturing
facility, impacted the Company's net income.
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 Company continues to rely on debt to
provide working capital for its day-to-day operations. With its revolving
finance agreement, the Company finances its accounts receivable and
inventories, paying interest at a variable rate. This arrangement provides
adequate working capital to carry on operations 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.
On August 15, 1995, the Company entered into a new financing agreement with a
bank which expanded its credit facility and provided additional liquidity for
daily working capital requirements. The new agreement provides a $20,000,000
revolving credit facility which replaces the existing revolving finance
agreement which had a maximum availability of $15,000,000. Under the new
agreement, the amount available to be drawn is determined by a formula based
on certain percentages of eligible accounts receivable and inventories.
Advances up to $11,000,000 are available against eligible accounts receivable.
The Company may also draw advances against eligible inventory amounts.
Depending on the season of the year, from $6,500,000 to $9,000,0000 may be
borrowed against the eligible inventory base. The new agreement computes
interest at a rate based on the bank's prime rate plus .5% (9.25% at October
28, 1995) which is consistent with the facility the Company operated under
during 1993 and 1994. At October 28, 1995, the Company had outstanding
advances of $14,012,000 and an additional $1,549,000 available under the
agreement. The Company believes that its revolving finance agreement will
continue to provide the necessary liquidity and working capital to fund its
current level of operations.
In addition to expanding the revolving credit facility, the new agreement also
provided a $3,000,000 term loan that was used to repay the existing mortgage
note payable to a bank which carried a balance of approximately $2,060,000.
Per the terms of the note, the Company will pay 84 monthly installments of
principal and interest ranging from $36,000 to $59,000. The term loan bears
interest at the bank's prime rate plus .5% whereas the mortgage note payable
bore interest at prime plus .75%, not to exceed 7.75%.
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. The Company has granted the bank a security interest in the
Somerset facility with the approval of the other lenders on the Somerset
facility. This security interest is subordinated to the other lenders.
As a condition to providing the financing, the bank requires that the Company
meet various restrictive covenants. These covenants included, among other
things, restrictions on dividend payments, maintenance of certain financial
ratios, limits on capital expenditures, and minimum net worth and net income
requirements.
In July 1994, the Company purchased a larger manufacturing facility in
Somerset, Pennsylvania to replace the existing facility also located in
Somerset. As discussed below, the Company had obtained commitments for
permanent financing on a portion of the purchase cost of the facility. During
the period between the closing date of the purchase and the date the permanent
financing was finalized, the Company temporarily borrowed $696,000 from a bank
on a short term note to provide the funds for closing. The Company refinanced
the note on March 7, 1995 with long-term financing from two sources. The
first source of financing was from the Pennsylvania Industrial Development
Authority ("PIDA"), a program offered by the Department of Commerce of the
Commonwealth of Pennsylvania. The loan was for $480,000 and bears interest at
2% annually. Monthly installments of $3,089, which includes principal and
interest, will be paid over 15 years. The second source of financing came
from a bank note for $240,000. This loan bears interest at .75% above the
bank's prime rate (9.25% at October 28, 1995) and will be repaid in monthly
installments of principal and interest, currently $2,055, 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, 1995 are land and buildings with a cost of approximately
$1,052,000 related to the facility. The remainder of the expenditures made
for the facility were paid with borrowings under the revolving finance
agreement.
The level of other capital expenditures in 1995 has been significantly lower
than in prior two years. Capital expenditures for 1995 were $43,000 compared
to $2,055,000 in 1994. The Company made significant upgrades to its equipment
and facilities in 1994, while no such outlays have been made in 1995. The
Company is focusing on improving operations in 1995, making capital
expenditures only to maintain current levels of operations Funding for
capital expenditures other than the building acquisition has primarily come
from the available balance on the finance agreement.
Cash flows generated from operations in 1995 was a net outflow of $1,918,000
compared to a net cash outflow of $1,366,000 in 1994. The increase in the
outflow is attributed to the Company's net loss for the year.
In 1994, the Company used long-term debt and advances under the financing
agreement to fund outlays for capital expenditures. For 1995, the Company
significantly reduced capital outlays, instead only making expenditures that
were necessary to fund the current level of operations. The Company relied on
the revolving finance agreement primarily to fund current losses.
NEW ACCOUNTING STANDARDS
- ------------------------
In December 1991, the Financial Accounting Standards Board (the "FASB")
adopted Statement of Financial Accounting Standards No. 107, DISCLOSURE ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, which requires disclosure about the fair
value of certain financial instruments.
In March 1995, the FASB adopted Statement of Financial Accounting Standards
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, which requires that companies assess potential
impairments of long-lived assets and certain identifiable intangibles when
there is evidence that events or changes in circumstances have made recovery
of an asset's carrying value unlikely, and recognize an impairment loss when
the sum of expected future net cash flows is less than the carrying amount.
In October 1995, the FASB adopted Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, which provides that
companies adopt a method of accounting for stock compensation awards based on
the estimated fair value at the date the awards are granted using an accepted
pricing model. The resulting charge to income is recognized over the period
during which the options or awards vest. The FASB encourages recognition of
such expense in the statement of income but does not require it. If expense
is not recorded in the financial statements, pro forma disclosures are
required regarding the effects on net income and earnings per share had
expense been recognized.
Adoption of FAS No. 107 is required for fiscal 1996. Adoption of FAS No. 121
and FAS No. 123 is required for fiscal 1997. Management is evaluating the
potential effects on the Company's financial statements of adoption of these
statements. While such evaluation is not complete, management currently does
not expect adoption of the statements will have a material effect on its
financial condition or results of operations.
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
STOCK PRICES
B.B. Walker company common stock is publicly traded; however, during fiscal
1992, the Company removed its stock from the National Association of Security
Dealers Automated Quotation (NASDAQ) System. Markets in B.B. Walker Company
common stock are maintained by Scott & Stringfellow of Winston-Salem, NC and
Interstate Securities of Charlotte, NC.
Approximately 1,229 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 25.74% of the total shares issued
and outstanding. At the last Annual Meeting of the Shareholders held on March
20, 1995, 81.74% of the shares outstanding were represented in person or by
proxy at the meeting. The Company paid a special cash dividend of $.073 per
share on January 4, 1994, on its common stock.
On March 24, 1994, the Company completed a three-for-two split of its common
stock outstanding for shareholders of record as of March 4, 1994. All
fractional shares were paid in cash.
The following are the Bid and Ask quotations for the last two fiscal years.
The amounts are adjusted for a three-for-two stock split paid on March 24,
1994:
Bid Prices Ask Prices
High Low High Low
--------------- ---------------
1995:
First Quarter $ 6 $ 3 $ 7 $ 4
Second Quarter 4 1/4 3 5 1/4 4
Third Quarter 2 3/4 2 3 3/4 3
Fourth Quarter 2 1 3 2
1994:
First Quarter $ 9 $ 8 $ 9 1/3 $ -
Second Quarter 10 9 11 9 2/3
Third Quarter 10 7 11 8
Fourth Quarter 7 6 8 7
These Over-the-Counter market quotations reflect interdealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
<PAGE>
B.B. WALKER COMPANY
OFFICERS
- --------
KENT T. ANDERSON
Chairman and Chief Executive Officer
FRENCH P. HUMPHRIES
Executive Vice President
WILLIAM C. MASSIE
Executive Vice President
DOROTHY W. CRAVEN
Secretary
REBECCA S. RICH
Assistant Secretary
DIRECTORS
- ---------
KENT T. ANDERSON
Chairman and Chief Executive Officer
ROBERT L. DONNELL, JR.
Retired
JAMES P. McDERMOTT
Retired
EDNA A. WALKER
President of B.B. Walker Foundation
MICHAEL C. MILLER
President
First National Bank and Trust Company
GEORGE M. BALL
Chairman of the Board
Philpott, Ball & Company
TRANSFER AGENT AND REGISTRAR
The Company acts as its own Transfer Agent and Registrar, handling all
securities transfers at its Executive Offices.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Suite 1800
200 West Second Street
Winston-Salem, NC 27101
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 18, 1996. 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.
Exhibit 22
----------
Subsidiaries of the Registrant
- ------------------------------
The Registrant, during fiscal 1995, owned the following percentages of the
voting securities of the following subsidiaries:
Name Percent Incorporated Note
---- ------- ------------ ----
Bender Shoe Company 100% Pennsylvania (1)
B.B. Walker Company of
Virginia, Inc. 100% Virginia (2)
(1) Operates as a division of B.B. Walker Company, Inc.
(2) Subsidiary was dissolved in April, 1995.
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