<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FIRST QUARTER ENDED FEBRUARY 1, 1997
Commission File Number 0-934
B.B. WALKER COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0581797
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 East Dixie Drive, Asheboro, NC 27203
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 625-1380
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
On March 14, 1997, 1,726,534 shares of the Registrant's voting common stock
with a par value of $1.00 per share were outstanding.
Cover
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
February 1, November 2,
Assets 1997 1996
------ ----------- -----------
<S> <C> <C>
Cash $ 1 $ 1
Accounts receivable, less allowance
for doubtful accounts of $873 in
1997 and $742 in 1996 8,060 10,808
Inventories 10,800 12,511
Prepaid expenses 331 441
Income tax recovery receivable 1,102 1,042
Deferred income tax benefit 180 150
------- -------
Total current assets 20,474 24,953
Property, plant and equipment, net of
accumulated depreciation and amortization
of $5,997 in 1997 and $5,906 in 1996 2,083 2,208
Other assets 199 214
------- -------
$ 22,756 $ 27,375
======= =======
</TABLE>
1
(Continued)
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
February 1, November 2,
Liabilities and Shareholders' Equity 1997 1996
------------------------------------ ----------- -----------
<S> <C> <C>
Borrowings under finance agreement $ 8,378 $ 11,464
Current portion of long-term obligations 1,239 1,304
Accounts payable, trade 4,028 4,984
Accrued salaries, wages and bonuses 753 1,102
Other accounts payable and accrued liabilities 773 680
------- -------
Total current liabilities 15,171 19,534
------- -------
Long-term obligations 3,163 3,286
Minority interests in consolidated subsidiary 33 33
Shareholders' equity:
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 1997 and 1996 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,726,534 shares issued and
outstanding in 1997 and 1996 1,727 1,727
Capital in excess of par value 2,724 2,724
Retained earnings (26) 111
Shareholders' loans (119) (123)
------- -------
Total shareholders' equity 4,389 4,522
------- -------
$ 22,756 $ 27,375
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
2
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED STATEMENTS OF LOSS
(In thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
First Quarter
Ended
------------------------
February 1, February 3,
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 8,289 $ 10,020
Interest and other income 32 6
------- -------
Total revenues 8,321 10,026
------- -------
Cost of products sold 6,181 7,578
Selling and administrative expenses 1,880 2,513
Depreciation and amortization 125 162
Interest expense 360 440
------- -------
Total costs and expenses 8,546 10,693
------- -------
Loss before income taxes and
minority interest (225) (667)
Benefit from income taxes (90) (219)
Minority interest 1 1
------- -------
Net loss (136) (449)
Retained earnings, beginning of quarter 111 4,158
Dividends on common stock - -
Dividends on preferred stock (1) (1)
------- -------
Retained earnings, end of quarter $ (26) $ 3,708
======= =======
Net loss per share:
Primary $ (.08) $ (.26)
======= =======
Fully diluted $ (.08) $ (.26)
======= =======
Weighted average common shares outstanding:
Primary 1,727 1,728
======= =======
Fully diluted 1,727 1,728
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
3
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED CASH FLOWS STATEMENTS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
First Quarter
Ended
------------------------
February 1, February 3,
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (136) $ (449)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 125 162
Gain on sale of fixed assets (17) -
Deferred income taxes (30) -
(Increase) decrease in:
Accounts receivable, net 2,748 3,244
Inventories 1,711 1,188
Prepaid expenses 110 (68)
Other assets 15 25
Increase (decrease) in:
Accounts payable, trade (956) (800)
Accrued salaries, wages and bonuses (349) (288)
Other accounts payable and accrued liabilities 93 451
Income taxes payable (60) (219)
------- -------
Net cash provided by operating activities 3,254 3,246
------- -------
Cash Flows From Investing Activities:
Capital expenditures - (5)
Proceeds from disposal of property,
plant and equipment 17 -
------- -------
Net cash provided by (used for)
investing activities 17 (5)
------- -------
Cash Flows From Financing Activities:
Net borrowing under finance agreement (3,086) (3,000)
Proceeds from issuance of long-term obligations 6 14
Payment on long-term obligations (194) (258)
Loans to shareholders, net of repayments 4 4
Dividends paid on 7% cumulative preferred stock (1) (1)
------- -------
Net cash used for financing activities (3,271) (3,241)
------- -------
Net change in cash - -
Cash at beginning of year 1 1
------- -------
Cash at end of quarter $ 1 $ 1
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
<PAGE>
B.B. WALKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
- ------
A summary of the Company's significant accounting policies is presented on
page 10 of its 1996 Annual Report to Shareholders. Users of financial
information presented for interim periods are encouraged to refer to the
footnotes contained in the Annual Report to Shareholders when reviewing
interim financial results.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair presentation
of the financial results of B.B. Walker Company and Subsidiary (the "Company")
for the interim periods included. All such adjustments are of a normal
recurring nature. The results of operations for the interim periods shown in
this report are not necessarily indicative of the results to be expected for
the fiscal year.
The Company's operations are reported on a fifty-two, fifty-three week fiscal
year that ends on the Saturday closest to October 31. The fiscal year that
ends on November 1, 1997 will include fifty-two weeks of operations. The
fiscal year that ended on November 2, 1996 included fifty-three weeks of
operations. For fiscal 1996, the Company elected to include the one extra
week in the first accounting period of the fiscal year. Therefore, the
results for the first quarter ended February 3, 1996 include fourteen weeks of
operations for the Company compared to thirteen weeks for the first quarter
ended February 1, 1997.
Note 2
- ------
Earnings per common share is computed by deducting preferred dividends from
net income to determine net income attributable to common shareholders. This
amount is divided by the weighted average number of common shares outstanding
during the quarter plus the common stock equivalents arising from stock
options. For primary earnings per share, the common stock equivalents are
calculated using the average of the high and low asked price for the period.
For fully diluted earnings per share, the common stock equivalents are
calculated using the asked price at the end of the period if greater than the
average asked price for the period.
5
<PAGE>
B.B. WALKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Note 3
- ------
Long-term obligations consist of the following amounts (in thousands):
(Unaudited)
February 1, November 2,
1997 1996
----------- -----------
Notes payable to banks $ 2,616 $ 2,690
Notes payable to governmental authorities 643 654
Promissory notes payable to shareholders 1,088 1,162
Capital lease obligations 55 84
------- -------
4,402 4,590
Less portion payable within one year 1,239 1,304
------- -------
$ 3,163 $ 3,286
======= =======
Note 4
- ------
Inventories are composed of the following amounts (in thousands):
(Unaudited)
February 1, November 2,
1997 1996
----------- -----------
Finished goods $ 6,588 $ 6,943
Work in process 624 692
Raw materials and supplies 3,588 4,876
------- -------
$ 10,800 $ 12,511
======= =======
6
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
The following summarizes the results of operations for the Company for the
first quarter ended February 1, 1997 and February 3, 1996:
Three
Months Ended
-------------------------
February 3, January 28,
1996 1995
----------- -----------
Net sales 100.0% 100.0%
Cost of products sold 74.6% 75.6%
------- -------
Gross margin 25.4% 24.4%
Selling and administrative expenses 22.7% 25.1%
Depreciation and amortization 1.5% 1.6%
Interest expense 4.3% 4.4%
Interest and other income (.4%) -
------- -------
Loss before income taxes
and minority interest (2.7%) (6.7%)
Benefit from income taxes (1.1%) (2.2%)
Minority interest - -
------- -------
Net loss (1.6%) (4.5%)
======= =======
Material Changes in Operations
- ------------------------------
During the first quarter of fiscal 1997, the Company implemented many of the
changes put in place at the end of the fourth quarter of the prior year.
Among these changes was the completion of the consolidation of the separate
western and work/outdoor sales forces into a single unit that markets all of
the Company's branded product lines. Management continued to review the
product lines and evaluate individual styles to determine their potential
contribution. Many styles were eliminated while some new styles were
developed to provide a well-focused line of western and work footwear for the
sales force to present to customers. The resulting branded product lines are
leaner and should require less of an investment in both finished goods and raw
materials.
7
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, Continued
Material Changes in Operations, Continued
- -----------------------------------------
The Company has also made other less significant operational changes to
support the repositioning of the product lines. Continued internal focus on
manufacturing, marketing and administrative operations remains a priority for
management. Careful control of these expenses is imperative for returning the
Company to profitability. The efficient use of manufacturing capacity is one
area that holds strong potential for improving the Company's operations.
Management is examining its options related to current manufacturing
operations to maximize use of manufacturing capacity.
The assumptions underlying management's plans are contingent on the Company
achieving anticipated sales levels. Management will analyze the progress of
the current consolidation and reduction of operations in achieving
profitability and cash flow projections. If market conditions do not improve
for the Company and the anticipated sales levels are not achieved, further
material changes and reductions will be required. If the Company is unable to
implement the necessary changes in a timely manner or unforseen problems
occur, there can be no assurances as to when the Company will return to a
profitable level of operations and positive cash flow.
Net Sales
- ---------
Net sales for the first quarter of 1997 were $8,289,000 which was 17.3% lower
than net sales of $10,020,000 in the first quarter of 1996. Sales in the
first quarter of 1997 were lower than the prior year as the Company
implemented several operational changes related to the repositioning of its
product lines. A significant change involved the merger of the separate sales
forces that previously marketed work/outdoor boots and western boots,
respectively, into a single sales force. The merged sales force is marketing
both work/outdoor boots and western boots to customers within their territory.
During the first quarter, territorial boundaries for the merged sales force
were established and the salesmen received extensive training on marketing
both lines of footwear. As a result of this transition, salesmen had to
develop relationships with customers that may have been previously served by
another Company salesman. Extensive resources and time were devoted to
establishing the salesmen in their new territories in order to minimize the
disruption to the Company's business. However, orders for footwear were
impacted as the plan was put in place.
Sales of the Company's branded footwear were down 26.7% in 1997's first
quarter from 1996's first quarter. Domestic sales of branded footwear fell
24.4% from the prior year. Orders in this division come primarily from the
Company's sales force, therefore sales were impacted by changes discussed
previously. Pairs shipped for domestic sales were down 34.8% in the first
quarter while price per pair was up 14.9%. The improvement in price per pair
can be attributed to product mix. Export sales dropped 46.0% from the first
quarter results of a year ago. Pairs exported were down 53.7% from 1996's
first quarter shipments as orders from foreign customers slowed while the
price per pair was up slightly.
8
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, Continued
Net Sales, Continued
- --------------------
Private label sales in the first quarter were down 3.3% from the prior year
which is primarily due to the timing of orders. The lower sales were a
combination of a 8.1% decrease in pairs shipped and a 4.8% increase in the
price per pair.
Other sales, which consists primarily of sales from the Company's retail
outlets and sales to institutional customers, increased 12.4% in 1997 over
1996. Retail sales in the Company's three outlets were up 3.7% from the prior
year. Sales to institutional customers increased 27.0% from 1996 levels as
the Company took on more of this business to provide production volume for its
plants.
Gross Margin
- ------------
The Company's gross margin as a percentage of sales increased to 25.4% for the
first three months of 1997 from 24.4% for the first three months of 1996. The
increase can be attributed to higher margins generated by a better product mix
and cost reduction efforts. The Company's gross margin percentage continues
to be impacted by the necessity to compete with discounting programs and
aggressive dating terms in order to induce orders and increase market share.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $1,880,000 for the first quarter of
1997 as compared to $2,513,000 for the first quarter of 1996, a decrease of
25.2%. Expenses in most areas were lower in 1997 than in 1996 as the Company
realizes the benefits of its aggressive cost reduction efforts. In order to
return the Company to profitability, management has implemented many
operational changes in order to improve efficiency and reduce costs. Salary
and benefits were down approximately $433,000 from 1996. To support a lower
sales volume, management has lowered the selling and administrative headcount,
primarily through the reduction and merger of the Company's sales force and
normal attrition. As employees leave, their work is being redistributed and
the positions are not being replaced. Travel and showroom expenses are down
$50,000 from 1996 levels as the Company is more selective about where expenses
for travel are used and a smaller sales force. Advertising expenses have been
lowered by $76,000 from the first quarter of 1996. Management has adjusted
its advertising budget as part of its overall cost reduction program.
9
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, Continued
Interest Expense
- ----------------
Interest expense for the three months ended February 1, 1997 was $360,000, or
$80,000 lower than interest expense of $440,000 for the three months ended
February 3, 1996. The decrease for the three month period can be attributed
to the lower average balance on outstanding debt and was partially offset by
higher average interest rates than in the comparable period of a year ago.
Average outstanding advances under the revolving finance agreement were
approximately $2,800,000 lower in the first quarter of 1997 than in 1996.
Interest rates for this agreement were 10% in 1997 and ranged from 9.25% to 9%
in 1996. Other long-term debt carried lower balances in 1997 when compared to
1996 as the Company continues to amortize the debt according to each issue's
respective terms. No new material debt was added during the past year.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization decreased in amount by $37,000 to $125,000 in
1997 from $162,000 in 1996 for the first three months of the fiscal year. The
Company made minimal capital expenditures during 1996 and the first quarter of
1997 resulting in a small change in depreciation expense. Depreciation on
these capital expenditures has not offset depreciation charges for fixed
assets that have become fully amortized.
Benefit From Income Taxes
- -------------------------
For the first quarter ended February 1, 1997, the Company recorded a benefit
from income taxes of $90,000. For the comparable period in 1996, the Company
had a benefit from income taxes of $219,000. Income tax rates applied to the
current year loss before income taxes were consistent between 1997 and 1996.
Adjustments to the net deferred income tax asset did impact 1997's income tax
benefit and effective income tax rate.
Net Income
- ----------
The Company reported a net loss of $136,000 in the first quarter of 1997. In
the first quarter of 1996, the Company incurred a net loss of $449,000. The
improvement of $313,000 can be attributed to lower operating costs and
interest expense for the Company. These lower costs helped offset a decrease
of $1,731,000 in net sales.
10
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, Continued
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Historically, the Company has funded substantially all of its working capital
and capital expenditure requirements through borrowings under its finance
agreement and other indebtedness. The revolving finance agreement provides
flexibility to the Company as the availability of funds fluctuates with the
seasonal needs of the Company. Generally, the Company's working capital needs
are highest in the fourth fiscal quarter and lowest in the first fiscal
quarter. The Company continues to rely on the revolving finance agreement 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 (prime plus 1.75%, or 10%, at
February 1, 1997).
By agreement of the Company's bank, certain restrictive covenants under the
revolving finance agreement have been amended for the period ended November 2,
1996 and thereafter. The Company and its bank entered into a fourth amendment
to its finance agreement on March 14, 1997. Under the terms of the amendment,
which addresses the Company's projections and plans for fiscal 1997, the
amount committed under the revolving credit agreement is reduced from
$13,000,000 to $8,000,000 as of the date of the agreement. The inventory
sublimit will be reduced to $4,000,000 and the advance rate against eligible
accounts receivable will be dropped to 80% from 85%.
As a condition to providing the financing, the bank requires that the Company
meet various restrictive covenants. These covenants include, among other
things, maintenance of certain financial ratios, limits on capital
expenditures, minimum net worth and net income requirements and restrictions
on the amount of borrowings from stockholders.
All borrowings under the agreement are secured by all accounts receivable,
inventories, machinery and equipment of the Company. In addition, the bank
has a first lien on the Asheboro land and facilities and a subordinated lien
on the Somerset facilities.
The Company had approximately $405,000 of unused availability under the
agreement at February 1, 1997. The Company believes that its revolving
finance agreement, as amended, will provide the necessary liquidity to fund
its current level of operations.
The Company has not made any outlays for capital equipment during the first
quarter of 1997. Capital expenditures for the first three months of 1996 were
$5,000. The Company is making capital expenditures only to maintain current
levels of operations because of capital constraints.
11
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, Continued
FINANCIAL CONDITION
- -------------------
Accounts Receivable
- -------------------
Accounts receivable were $8,060,000 at February 1, 1997 compared to
$10,808,000 at November 2, 1996, a decrease of $2,748,000. Trade receivables
are historically at their highest point at the end of the fourth quarter
because of the heavy sales volume related to Christmas buying by retailers.
Second, certain dating programs offered by the Company ended in the first
quarter of 1997, resulting in collection of a significant amount of
outstanding receivables.
Inventories
- -----------
Inventories were $10,800,000 at February 1, 1997, an decrease of $1,711,000
from the inventories held at November 2, 1996 of $12,511,000. Of the
decrease, approximately $355,000 is finished goods, $68,000 is work in
process, and $1,288,000 is raw materials. The Company has experienced a
decline in the demand for its footwear during the past two years. In response
to this decrease, management repositioned its product offerings at the end of
the fourth quarter of fiscal 1996. Accordingly, the investment in inventory
has been decreased as fewer styles are now being carried in finished goods.
Also, with fewer styles in the product lines, raw material inventories include
fewer varieties of components of footwear.
Borrowings Under Finance Agreement
- ----------------------------------
The balance outstanding under the finance agreement was $8,378,000 at February
1, 1997 compared to $11,464,000 at November 2, 1996. The decrease can be
attributed to the cash applied against the outstanding balance from
collections of accounts receivable which were down $2,748,000 in the first
quarter of 1997 and better management of inventories.
Forward-Looking Statements
- --------------------------
The foregoing discussion contains some forward-looking statements about the
Company's financial condition and results of operations, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's judgment only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements
to reflect events and circumstances that arise after the date hereof.
Factors that might cause actual results to differ materially from these
forward-looking statements include (1) the effects of general economic
conditions, (2) the impact of competitive products and pricing in the footwear
industry, (3) failure to achieve anticipated sales results, (4) management's
ability to accurately predict the effect of cost reductions, and (5)
management's ability to accurately predict the adequacy of the Company's
financing arrangement to meet its working capital and capital expenditure
requirements.
12
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed:
(4)(c)(8) Fourth Amendment to the Credit Agreement dated March 11,
1997 between B.B. Walker Company and Mellon Bank, N.A.
(27) Financial Data Schedule for the period ended February 1,
1997
(b) Reports on Form 8-K:
NONE
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
B.B. Walker Company
Date March 18, 1997 KENT T. ANDERSON
---------------------------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
Date March 18, 1997 WILLIAM C. MASSIE
---------------------------------
William C. Massie
Executive Vice President
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
B.B. Walker's Form 10-Q for the first quarter of fiscal 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000104218
<NAME> B.B. WALKER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 8,933
<ALLOWANCES> 873
<INVENTORY> 10,800
<CURRENT-ASSETS> 20,474
<PP&E> 8,080
<DEPRECIATION> 5,997
<TOTAL-ASSETS> 22,756
<CURRENT-LIABILITIES> 15,171
<BONDS> 0
0
83
<COMMON> 1,727
<OTHER-SE> 2,579
<TOTAL-LIABILITY-AND-EQUITY> 22,756
<SALES> 8,289
<TOTAL-REVENUES> 8,321
<CGS> 6,181
<TOTAL-COSTS> 8,186
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 360
<INCOME-PRETAX> (226)
<INCOME-TAX> (90)
<INCOME-CONTINUING> (136)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
<PAGE>
Exhibit (4)(c)(8)
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
March 14, 1997, by and between B.B. WALKER COMPANY, a North Carolina
corporation (the "Borrower"), and MELLON BANK, N.A., a national banking
association (the "Lender").
RECITALS
A. The Borrower and the Lender are parties to a certain Credit Agreement
dated as of August 15, 1995 (as amended by the "First Amendment", the "Second
Amendment" and the "Third Amendment", each defined below, the "Credit
Agreement") pursuant to which the Lender established certain credit facilities
for the Borrower in order to provide working capital financing and to
refinance certain existing indebtedness. Except as otherwise defined herein,
capitalized terms used in this Amendment shall have the same meaning as in the
Credit Agreement.
B. As a result of certain Events of Default, the Borrower and the Lender
entered into the First Amendment to Credit Agreement dated as of April 15,
1996 ("First Amendment"), the Second Amendment to Credit Agreement dated as of
October 18, 1996 ("Second Amendment"), and the Third Amendment to Credit
Agreement dated as of November 16, 1996 ("Third Amendment").
C. Certain additional Events of Default have occurred, as more fully
described in Exhibit A attached hereto.
D. As a consequence of these Events of Default, the Borrower and the
Lender have agreed to reduce the amount of the Revolving Credit Commitment and
to amend certain other terms and provisions of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
AMENDMENTS
1. The definition of "PRIME RATE OPTION" set forth in Article 1 of the
Credit Agreement shall be deleted in its entirety, and the following
definitions set forth in Article 1 of the Credit Agreement shall be deleted
and restated in their entirety as follows:
(a) The definition of "REVOLVING CREDIT COMMITTED AMOUNT" shall be
deleted and replaced with the following:
"REVOLVING CREDIT COMMITTED AMOUNT" shall mean Eight Million Dollars
($8,000,000).
(b) The definition of "SEASONAL REDUCTION FORMULA" shall be deleted and
replaced with the following:
"REDUCTION FORMULA" shall have the meaning set forth in Section
2.02(b) hereof.
Page 1 of 8
<PAGE>
Exhibit (4)(c)(8), Continued
2. The following additions shall be made to Article 1, Definitions, in
alphabetical order:
"FOURTH AMENDMENT" shall mean the Fourth Amendment to Credit Agreement,
dated as of March 14, 1997, by and between the Borrower and the
Lender.
"FOURTH AMENDMENT CLOSING DATE" shall mean March 14, 1997.
3. Sections 2.2(a) and (b) shall be deleted in their entirety and replaced
with the following.
2.02. BORROWING BASE
(a) BORROWING BASE. The "BORROWING BASE" shall mean the sum of
(i) (A) until February 28, 1997, eighty-five percent (85%) of
the Net Value of Eligible Receivables, and
(B) as of March 1, 1997, eighty percent (80%) of the Net
Value of Eligible Receivables, PLUS
(ii) sixty percent (60%) of the Net Value of Eligible Finished
Goods Inventory; PLUS
(iii) fifty percent (50%) of the Net Value of Eligible Raw
Materials Inventory; PLUS
(iv) forty percent (40%) of the Net Value of Eligible Retail
Inventory, PROVIDED, however, that in no event shall
aggregate Loans made against Eligible Retail Inventory
exceed $300,000; PLUS
(v) an amount equal to fifty percent (50%) of the face amount
of Merchandise L/Cs used to purchase Eligible Inventory;
LESS, an amount equal to one hundred percent (100%) of the face amount of all
issued and outstanding Standby L/Cs and Merchandise L/Cs. The Lender may
impose the maintenance of any additional reserve against the Borrowing Base,
in accordance with reasonable commercial finance standards and practices,
based on determinations as to the value, quality of collectibility of the
Eligible Receivables or Eligible Inventory, or the value or lien status of
any Collateral.
Page 2 of 8
<PAGE>
Exhibit (4)(c)(8), Continued
(b) REDUCTION OF THE BORROWING BASE.
Notwithstanding the foregoing Section 2.02(a), the aggregate amount of all
Revolving Credit Loans made based upon the Net Value of all Eligible Inventory
(the "INVENTORY BASED LOANS") shall not exceed the following amounts as of the
following dates, at any time prior to the Revolving Credit Maturity Date (the
"REDUCTION FORMULA"):
AMOUNT OF INVENTORY BASED LOANS DATE FOR REDUCTION
------------------------------- ------------------
$4,500,000 March 1, 1997
$4,000,000 June 1, 1997
4. Section 2.06, INTEREST RATES, shall be amended by deleting Section
2.06(a) in its entirety and replacing it with the following:
(a) RATE OF INTEREST. The unpaid principal amount of interest of the
Revolving Credit Loans and the Term Loan shall bear interest for
each day until due at the Prime Rate plus one and three quarters
of one percent (1.75%).
5. Section 2.12 (c), COLLATERAL MANAGEMENT FEE, shall be amended by
increasing the quarterly collateral management fee described therein
from $12,000 to $15,000.
6. Article 5, AFFIRMATIVE COVENANTS, shall be amended by adding the
following as new Section 5.17:
5.17. 1997 CONSULTANT. As soon as possible, but no later than
February 28, 1997, the Borrower shall retain a consultant, who
shall be reasonably acceptable to the Lender, with industry
expertise to assist the Borrower in its current business plan.
As part of this engagement, the consultant shall prepare a
written report which shall be delivered to the Lender no later
than March 31, 1997.
7. Sections 6.1(a) through (f) are hereby deleted in their entirety and
replaced with the following:
6.1 FINANCIAL COVENANTS
(a) CONSOLIDATED CURRENT RATIO. The Consolidated Current Ratio shall
not at any time be less than 1.28 to 1.00 as of the fiscal year
ending October 31, 1996; 1.20 to 1.00 as of and from January 31,
1997 and at all times through February 28, 1997; 1.25 to 1.00 as of
and from March 1, 1997 and at all times through June 30, 1997; 1.30
to 1.00 as of and from July 1, 1997 and at all times through
September 30, 1997; and 1.35 to 1.00 as of and from October 1, 1997
and at all times thereafter.
Page 3 of 8
<PAGE>
Exhibit (4)(c)(8), Continued
(b) CONSOLIDATED LEVERAGE RATIO. The Consolidated Leverage Ratio shall
not at any time exceed 4.06 to 1.00 as of the fiscal year ending
October 31, 1996; 4.06 to 1.00 as of and from January 31, 1997 and
at all times through March 30, 1997; 3.50 to 1.00 as of and from
April 1, 1997 and at all times through June 30, 1997; and 3.00 to
1.00 as of and from July 1, 1997 and at all times thereafter.
(c) CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth
shall not at any time be less than $5,600,000 as of the fiscal year
ending October 31, 1996; $5,400,000 as of and from January 31, 1997
and at all times through September 30, 1997; and $5,600,000 as of
and from October 1, 1997 and at all times thereafter.
(d) CONSOLIDATED WORKING CAPITAL. Consolidated Working Capital shall
not at any time be less than $5,000,000 as of the fiscal year
ending October 31, 1996; $5,000,000 as of and from January 31, 1997
and at all times through September 30, 1997; and $5,250,000 as of
and from October 1, 1997 and at all times thereafter.
(e) CONSOLIDATED NET INCOME. Consolidated Net Income for the fiscal
year ending October 31, 1996 shall not exceed a loss of
($4,041,200). Consolidated Net Income for the fiscal year ending
October 31, 1997 and for each fiscal year thereafter shall be
breakeven.
(f) Capital Expenditures. The Borrower shall not make any Capital
Expenditures which exceed, in the aggregate, (a) $21,000 for the
fiscal year ending October 31, 1996, and which exceed $150,000 for
the fiscal year ending October 31, 1997 and for each fiscal year
thereafter.
REPRESENTATIONS AND WARRANTIES
8. OTHER REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties (as amended hereby) made by the Borrower in Article 3 of
the Credit Agreement are true and correct on and as of the Fourth
Amendment Closing Date and are incorporated herein as though fully set
forth.
CONDITIONS PRECEDENT
9. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. The obligation of the
Lender to enter into this Amendment is subject to the satisfaction,
immediately prior to or concurrently with the execution of the
Amendment, of the following conditions precedent:
(a) FOURTH AMENDMENT, ETC. The Lender shall have received the Fourth
Amendment, duly executed by the Borrower, and a side letter
regarding a six month moratorium on Term Loan payments, in form
and substance satisfactory to the Lender, and duly executed by the
Borrower, First National Bank and Trust Company and the Lender.
Page 4 of 8
<PAGE>
Exhibit (4)(c)(8), Continued
(b) CORPORATE PROCEEDINGS. The Lender shall have received
certificates by the Secretary or Assistant Secretary of the
Borrower dated as of the Second Amendment Closing Date as to (i)
true copies of the articles of incorporation and by-laws (or other
constituent documents) of the Borrower in effect on such date
(which, in the case of articles of incorporation or other
constituent documents filed or required to be filed with the
Secretary of State or other Governmental Authority in its
jurisdiction of incorporation, shall be certified to be true,
correct and complete by such Secretary of State or other
Governmental Authority not more than thirty (30) days before the
date of this Amendment), (ii) true copies of all corporate action
taken by the Borrower relative to this Amendment and the other
Amendment Documents and (iii) the incumbency and signature of the
respective officers of the Borrower executing this Amendment and
the other Amendment Documents, together with satisfactory evidence
of the incumbency of such Secretary or Assistant Secretary. The
Lender shall have received certificates from the appropriate
Secretaries of State or other applicable Governmental Authorities
dated October 4, 1996 showing the good standing of the Borrower in
its state of incorporation and each state in which the Borrower
does business, if applicable in such state.
(c) OFFICERS' CERTIFICATES. The Lender shall have received
certificates from such officers of the Borrower in the form of
Exhibit C attached hereto.
(d) RESTRUCTURING FEE. The Lender shall have received from the
Borrower a one-time fee of $25,000 in connection with the
preparation and execution of the Fourth Amendment.
(e) FEES, EXPENSES, ETC. All fees and other compensation (including,
without limitation, attorneys' fees) required to be paid to the
Lender pursuant hereto or pursuant to any other written agreement
on or prior to the Fourth Amendment Closing Date shall have been
paid or received.
(f) OTHER CONDITIONS PRECEDENT. Each of the conditions precedent set
forth in Section 4.02 of the Credit Agreement shall have been met.
MISCELLANEOUS
10. REAFFIRMATION; NO WAIVER. Except as expressly modified herein, the
terms of the Credit Agreement, the Security Documents and all of the
Loan Documents executed in connection therewith, remain in full force
and effect in accordance with their respective terms and conditions,
are in no manner impaired hereby and, are hereby reaffirmed by all of
the parties. In the event of any conflict between this Amendment and
any other Loan Document, the provisions of this Amendment shall
prevail.
Page 5 of 8
<PAGE>
Exhibit (4)(c)(8), Continued
11. FEES, EXPENSES, ETC. Within ten (10) days of receipt of invoice, the
Borrower shall pay all fees and other compensation (including, without
limitation, attorneys' fees, costs of searches, field examination
expenses, filing and recording fees) required to be paid to the Lender
pursuant hereto, pursuant to any Amendment Document or pursuant to any
other written agreement.
12. SEVERABILITY. The provisions of this Amendment are intended to be
severable. If any provision of this Amendment shall be held invalid
or unenforceable in whole or in part in any jurisdiction such
provision shall, as to such jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without in any manner affecting
the validity or enforceability thereof in any other jurisdiction or
the remaining provisions hereof in any jurisdiction.
13. PRIOR UNDERSTANDINGS. This Amendment and the other Amendment
Documents supersede all prior and contemporaneous understandings and
agreements, whether written or oral, among the parties hereto relating
to the transactions provided for herein and therein.
14. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the
same instrument.
15. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
inure to the benefit of the Borrower, the Lender, all future holders
of the Notes, and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights hereunder or
interests herein without the prior written consent of the Lender, and
any purported assignment without such consent shall be void.
16. GOVERNING LAW. THIS AMENDMENT AND ALL OTHER AMENDMENT DOCUMENTS
(EXCEPT TO THE EXTENT, IF ANY, OTHERWISE EXPRESSLY STATED IN SUCH
OTHER AMENDMENT DOCUMENTS) SHALL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF PENNSYLVANIA,
WITHOUT REGARD TO CHOICE OF LAW PRINCIPLES.
Page 6 of 8
<PAGE>
Exhibit (4)(c)(8), Continued
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Amendment as of the date first
above written.
ATTEST: B.B. WALKER COMPANY
By: DOROTHY W. CRAVEN By: KENT T. ANDERSON
------------------------ ------------------------------
[Corporate Seal] Kent T. Anderson, President
MELLON BANK, N.A.
By: ROGER D. ATTIX
------------------------------
Roger D. Attix, Vice President
Page 7 of 8
<PAGE>
Exhibit (4)(c)(8), Continued
EXHIBIT A
EVENTS OF DEFAULT
B.B. Walker Company's violation of each of the following covenants, measured
pursuant to its financial statements dated October 28, 1995, constituted a
separate Event of Default under the Credit Agreement dated August 15, 1995 by
and between B.B. Walker Company and Mellon Bank, N.A. (the "Credit
Agreement"):
1) Section 6.01(b) of the Credit Agreement -
Consolidated Leverage Ratio;
2) Section 6.01(c) of the Credit Agreement -
Consolidated Tangible Net Worth; and
3) Section 6.01(e) of the Credit Agreement -
Consolidated Net Income.
Page 8 of 8
