<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 SECOND QUARTER ENDED MAY 1, 1999
Commission File Number 0-934
B.B. WALKER COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0581797
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 East Dixie Drive, Asheboro, NC 27203
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 625-1380
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
On June 1, 1999, 1,725,954 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)
(Unaudited) (Audited)
May 1, October 31,
Assets 1999 1998
------ ----------- -----------
Cash $ 1 $ 1
Accounts receivable, less allowance
for doubtful accounts of $717 in
1999 and $545 in 1998 5,995 7,157
Inventories 9,294 9,660
Prepaid expenses 313 446
Property held for sale 763 -
Deferred income tax benefit, current 1,050 1,050
------- -------
Total current assets 17,416 18,314
Property, plant and equipment, net of
accumulated depreciation and amortization
of $6,618 in 1999 and $6,393 in 1998 1,556 1,622
Other assets 174 144
------- -------
$ 19,146 $ 20,080
======= =======
1
(Continued)
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands)
(Unaudited) (Audited)
May 1, October 31,
Liabilities and Shareholders' Equity 1999 1998
------------------------------------ ----------- -----------
Borrowings under finance agreement $ 6,514 $ 6,885
Accounts payable, trade 2,873 3,536
Accrued salaries, wages and bonuses 346 367
Other accounts payable and accrued liabilities 649 555
Current portion of long-term obligations 2,971 2,566
Income taxes payable 193 193
------- -------
Total current liabilities 13,546 14,102
------- -------
Long-term obligations 1,134 1,303
Minority interests in consolidated subsidiary 31 33
Shareholders' equity:
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 1999 and 1998 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,725,954 shares in 1999 and
1,720,954 shares in 1998 issued and
outstanding 1,726 1,721
Capital in excess of par value 2,716 2,717
Retained earnings (deficit) (21) 198
Shareholders' loans (69) (77)
------- -------
Total shareholders' equity 4,435 4,642
------- -------
$ 19,146 $ 20,080
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
2
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Second Quarter Ended Six Months Ended
-------------------------- --------------------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 6,475 $ 7,779 $ 12,598 $ 15,511
Interest and other income 6 53 123 184
----------- ----------- ----------- -----------
Total revenues 6,481 7,832 12,721 15,695
----------- ----------- ----------- -----------
Cost of products sold 4,519 5,730 9,030 11,522
Selling and administrative expenses 1,676 1,922 3,353 3,823
Depreciation and amortization 48 65 95 139
Interest expense 225 265 458 541
----------- ----------- ----------- -----------
Total costs and expenses 6,468 7,982 12,936 16,025
----------- ----------- ----------- -----------
Income (loss) before income taxes
and minority interest 13 (150) (215) (330)
Provision for (benefit from) income taxes - - - -
Minority interest - - 1 1
----------- ----------- ----------- -----------
Net income (loss) 13 (150) (216) (331)
Retained earnings (deficit) at beginning of period (32) (53) 198 129
Dividends on preferred stock (2) (2) (3) (3)
----------- ----------- ----------- -----------
Retained deficit at end of period $ (21) $ (205) $ (21) $ (205)
=========== =========== =========== ===========
Net income (loss) per share:
Primary $ .01 $ (.09) $ (.13) $ (.19)
=========== =========== =========== ===========
Fully diluted $ .01 $ (.09) $ (.12) $ (.19)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Primary 1,726 1,726 1,724 1,726
=========== =========== =========== ===========
Fully diluted 1,762 1,735 1,760 1,738
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
3
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended
------------------------
May 1, May 2,
1999 1998
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (216) $ (331)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 95 139
Gain on sale of property, plant and equipment - (3)
Deferred income taxes - -
(Increase) decrease in:
Accounts receivable, net 1,162 1,019
Inventories 366 45
Prepaid expenses 133 263
Property held for sale (763) -
Other assets (30) 14
Increase (decrease) in:
Accounts payable, trade (663) (702)
Accrued salaries, wages and bonuses (21) 2
Other accounts payable and accrued liabilities 94 212
Income taxes payable - 169
------- -------
Net cash provided by operating activities 157 827
------- -------
Cash Flows From Investing Activities:
Capital expenditures (29) (116)
Proceeds from disposal of property,
plant and equipment - 3
------- -------
Net cash used for investing activities (29) (113)
------- -------
Cash Flows From Financing Activities:
Net borrowing under finance agreement (371) (454)
Payment on long-term obligations (232) (303)
Proceeds from issuance of short-term obligations 437 -
Proceeds from issuance of long-term obligations 31 37
Proceeds from issuance of common stock 4 -
Purchase of subsidiary stock from minority interests (2) -
Loans to shareholders, net of repayments 8 9
Dividends paid on 7% cumulative preferred stock (3) (3)
------- -------
Net cash used for financing activities (128) (714)
------- -------
Net change in cash - -
Cash at beginning of year 1 1
------- -------
Cash at end of second quarter $ 1 $ 1
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
<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 9 of its 1998 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 results for the
first six months ended May 1, 1999 and May 2, 1998 each include twenty-six
weeks of operations. The second quarters for 1999 and 1998 each include
thirteen weeks of operations.
Note 2
- ------
Basic earnings per share (EPS) are computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the year. In arriving at income available to common shareholders, preferred
stock dividends of $1,449 were deducted in each quarter presented. Diluted EPS
reflects the potential dilution that could occur if dilutive sercurities and
other contracts to issuecommon stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the Company.
Note 3
- ------
Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting
ComprehensiveIncome" requires that certain items such as foreign currency
translation adjustments, unrealized gains and losses on certain investments in
debt and equity securities, minimum pension liability adjustments, and unearned
compensation expense related to stock issuances to employees be presented as
separate components of stockholders'equity. FAS 130 defines these as items of
other comprehensive income and as such must be reported in a financial
statement that is displayed with the same prominence as other financial
statements. At May 1, 1999, the Company does not have any items of other
comprehensive income to report.
5
<PAGE>
B.B. WALKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Note 4
- ------
Long-term obligations consist of the following amounts (in thousands):
(Unaudited) (Audited)
May 1, October 31,
1999 1998
----------- -----------
Notes payable to banks $ 2,339 $ 2,099
Notes payable to governmental authorities 545 567
Promissory notes payable to shareholders 1,221 1,203
------- -------
4,105 3,869
Less portion payable within one year 2,971 2,566
------- -------
$ 1,134 $ 1,303
======= =======
On April 6, 1999, the Company entered into a short-term loan agreement with a
bank to finance the final payments due on two land parcels on which the Company
was contracted to close on April 7, 1999. As of May 1, 1999, the balance of
this short-term borrowing due January 10, 2000 is $437,000, which is included
in the portion payable within one year.
Note 5
- ------
Inventories are composed of the following amounts (in thousands):
(Unaudited) (Audited)
May 1, October 31,
1999 1998
----------- -----------
Finished goods $ 5,996 $ 5,167
Work in process 550 945
Raw materials and supplies 2,748 3,548
------- -------
$ 9,294 $ 9,660
======= =======
Note 6
- ------
In January 1999, the Company entered into a contract to sell its manufacturing
facility in Asheboro, North Carolina, along with an adjacent piece of property.
On February, 26, 1999, this contract was cancelled by the purchaser as per-
mitted under provisions in the contract. As of May 1, 1999, the Company has
invested $763,000 in property adjacent to its Asheboro manufacturing facility
which is being held for sale. The Company is negotiating with several
interested parties, and it is possible that a new contract will be entered
into in the near future. However, there can be no assurances that the terms
of a new contract will be agreed to or that, even if another contract is
entered into, a sale of the Asheboro property will be consummated.
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
second quarters and six months ended May 1, 1999 and May 2, 1998:
Second Six
Quarter Ended Months Ended
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 69.8% 73.7% 71.7% 74.3%
------ ------ ------ ------
Gross margin 30.2% 26.3% 28.3% 25.7%
Selling and administrative
expenses 25.9% 24.7% 26.6% 24.6%
Depreciation and amortization .7% .8% .8% .9
Interest expense 3.5% 3.4% 3.6% 3.5%
Interest and other income (.1%) (.7%) (1.0%) (1.2%)
------ ------ ------ ------
Income (loss) before income
taxes and minority interest .2% (1.9%) (1.7%) (2.1%)
Provision for income taxes - - - -
Minority interest - - - -
------ ------ ------ ------
Net income (loss) .2% (1.9%) (1.7%) (2.1%)
====== ====== ====== ======
Net Sales
- ---------
For the second quarter of 1999, the Company's net sales were $6,475,000, or
$1,304,000 (16.8%) lower than net sales of $7,779,000 in the second quarter of
1998. For the six month period ended May 1, 1999, net sales were $12,598,000,
a $2,913,000 (18.8%) decrease from the net sales of $15,511,000 in the
comparable six month period ended May 2, 1998. The Company's sales include
sales of footwear manufactured and wholesaled by the Company and sales from the
Company's retail outlets. Footwear manufactured and wholesaled by the Company,
which includes branded, private label and institutional sales, comprised
92.3% of net sales in the second quarter of 1999 and 92.9% of net sales in the
second quarter of 1998. Retail sales made up the remaining net sales of 7.7%
in 1999 and 7.1% in 1998. For the comparable six month periods, manufactured
footwear comprised 91.8% of net sales in 1999 and 92.7% of net sales in 1998.
The remaining net sales of 8.2% in 1999 and 7.3% in 1998 were sales from the
Company's retail outlets.
7
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
The decrease in net sales can be attributed to two factors. First, the
Company's western branded business continues to be impacted by a weak western
retail sector. Historically, western footwear has proven to be a cyclical
business. Demand reached a peak in 1993 and 1994 but has declined during the
past five years. With the repositioning of its product lines in recent years,
the Company's sales are more dependent on its western branded business, whose
shipments in the second quarter of 1999 increased only $40,000, or 1.1%, over
the second quarter of 1998. Second, shipments of work/outdoor footwear for
the second quarter of 1999 decreased $856,000, or 31.2%, from the second
quarter of 1998. The Company's largest customer, a major discount retailer,
showed a 17.4% decrease in shipments from the second quarter of 1998 compared
to the same period in 1999, due to an inventory adjustment period which caused
a delay in orders being placed which affected the early part of the second
quarter of 1999.
Sales of the Company's branded footwear in the second quarter of 1999 were
down $460,000, or 8.9%, from 1998's second quarter because of the reasons
discussed above. Branded pairs shipped were down 9,056, or 9.6%, in the first
quarter while price per pair was down only .23%. The slight decrease in price
per pair can be attributed to product mix.
Private label sales in the second quarter of 1999 were down $506,000, or 31.2%,
from the second quarter of 1998. The decrease can be attributed to weaker
work/outdoor private label business. Much of this business is dependent on the
timing of orders for several large customers which did not keep pace with the
prior year. Pairs shipped were down 15,001, or 34.5%, while the price per pair
was down 12.0%. The primary reason for this decrease in price per pair is due
to a significant private label order which required only the finishing
procedure by the Company; therefore, the realized price per pair was lower
than usual.
Sales to institutional customers in the second quarter of 1999 were down
$203,000, or 34.5%, from the second quarter of 1998. Much of this business is
solicited through a formal bidding process with governmental entities, and the
results of this division are impacted by the Company's success in bidding on
new business. One of the Company's major contracts was lost to an import
footwear supplier.
Retail sales decreased $55,000, or 9.9%, from the second quarter of the prior
year. The two retail outlets, one in Asheboro, NC and one in Lancaster, PA,
continue to experience increased competition from major discount retailers
surrounding their locations.
8
<PAGE>
Gross Margin
- ------------
For the second quarter of 1999 and 1998, the gross margin was 30.2% and 26.3%,
respectively. The Company's gross margin was 28.3% and 25.7% for the first six
months of 1999 and 1998, respectively. The Company's gross margin increase
from the prior year was due primarily to the sources from which net sales were
derived. For the second quarter of 1999, 72.6% of net sales came from branded
sales and 17.2% came from private label sales. For the comparable period in
1998, 66.3% of net sales were branded sales and 20.8% were private label sales.
Since branded sales carry higher margins, an overall increase was experienced.
The manufacturing division also posted improved operating results due to
production efficiencies resulting from the welt and cement construction foot-
wear being in separate facilities since late in fiscal year 1998. The
Company's gross margin percentage continues to be impacted by competitive
pressure at the retail level that requires that the Company remain
competitive in the pricing and terms offered.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $1,676,000 for the second quarter of
1999 as compared to $1,922,000 for the second quarter of 1998, a decrease of
$246,000, or 12.8%. This improvement is due to management's continuing
emphasis of controlling costs and improving operations in the selling and
administrative areas.
Interest Expense
- ----------------
Interest expense in the second quarter of 1999 was $225,000, or $40,000 lower
than interest expense of $265,000 for the second quarter of 1998. This 15.1%
decrease in interest expense for the second quarter can be attributed to a 1.0%
drop in the interest rate and a lower average balance on outstanding debt.
Average outstanding advances under the revolving finance agreement were
approximately $500,000, or 7.5%, lower in the second quarter of 1999 than in
1998. Other fees incurred for this agreement were approximately the same rate
for each year. Other long-term debt carried lower balances in 1999 when
compared to 1998 as the Company continues to amortize the debt according to
each issue's respective terms. On April 6, 1999, the Company entered into a
short-term loan agreement with a bank to finance the final payments due on
two adjacent land parcels on which the Company was contracted to close on
April 7, 1999. As of May 1, 1999, the balance of this note was $437,000
with an interest rate of 9.25%. The maturity date is January 10, 2000.
9
<PAGE>
Depreciation and Amortization
- -----------------------------
Depreciation and amortization in the second quarter of 1999 was $48,000, or
$17,000 less than 1998 expenses of $65,000. With minimal amounts invested in
fixed assets in recent years, depreciation charges on fixed assets that are
becoming fully depreciated are not being replaced, resulting in lower
depreciation expense.
Benefit from Income Taxes
- -------------------------
For the second quarter of both 1999 and 1998, the Company recorded no benefit
from income taxes. The Company evaluated the valuation allowance reserved
against its deferred income tax asset at the end of the second quarter and
determined that the net deferred income tax asset was appropriately recorded
at its net realizable value.
Net Income
- ----------
The Company reported a net profit of $13,000 in the second quarter of 1999
compared to a $150,000 net loss in the second quarter of 1998. Despite a
16.8% decrease in net sales from the second quarter of 1998 to the comparable
period in 1999, the net profit in 1999 is primarily attributable to the
improvement in gross margin and reduction of operational costs as noted above.
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. With its revolving finance agreement, the Company finances its
accounts receivable and inventories, paying interest at a variable rate
(prime plus 1.50%, or 9.25%, at May 1, 1999). The Company had outstanding
advances of $6,515,000 at May 1, 1999 and an additional $652,000 available
under the agreement.
During the second quarter of 1999, the Company purchased four land parcels
which are adjacent to the Asheboro manufacturing facility (see Potential Sale
of Property section below). The $737,000 spent during the second quarter of
1999 for this land being held for sale is classified as a current asset on
the balance sheet at May 1, 1999. These acquisitions were financed by a
10
<PAGE>
$437,000 short-term loan with a bank (see Interest Expense section above),
with the balance of $300,000 out of the Company's financing agreement. The
Company continues to rely on the revolving finance agreement to provide
working capital, and management anticipates that the revolving finance
agreement will continue to provide the necessary liquidity to fund its daily
operations going forward.
Under the Company's financing agreement with the bank, the amount available
to be drawn is determined by a formula based on certain percentages of
eligible accounts receivable and inventories. The credit line available
under the agreement is a maximum of $8,000,000. In addition, the sublimit
for inventory, the maximum advances that can be taken against inventory
under the revolving credit agreement, is $4,000,000. The Company must also
meet certain restrictive financial covenants that were amended effective
December 29, 1998 and for periods thereafter. The covenants require the
satisfaction of certain financial tests and the maintenance of certain
financial ratios as defined in the agreement. At May 1, 1999, the Company
was in technical default of its inventory turnover covenant. However,
management believes that this is a temporary situation, and that the Company
will be in full compliance by fiscal year ending October 30, 1999.
In addition to the revolving credit facility, the financing agreement also
provided a $3,000,000 term loan that was used to repay an existing mortgage
note payable to a bank. At May 1, 1999, the balance of the term loan is
approximately $1,705,000, and it bears interest at the bank's prime rate plus
1.50% (9.25% at May 1, 1999).
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 and a subordinated lien on the Somerset facilities.
The Company made only minimal capital expenditures during the past five
years. The Company made significant upgrades to its equipment and facilities
in 1993 and 1994. Because of cash flow considerations and restrictions under
the finance agreement, the Company has only been making capital expenditures
to maintain current levels of operations during the past five years. Funding
for capital expenditures, other than the acquisition of the Somerset,
Pennsylvania facility in July 1994, has primarily come from the available
balance on the finance agreement and cash from operations.
Net working capital, which consists primarily of accounts receivable and
inventories less current liabilities, was $3,870,000 at May 1, 1999 and
$7,157,000 at October 31, 1998. The ratio of current assets to current
liabilities was 1.29 to 1 at May 1, 1999 compared to 1.46 to 1 at October 31,
1998.
11
<PAGE>
FINANCIAL CONDITION
- -------------------
Accounts Receivable
- -------------------
Accounts receivable were $5,995,000 at May 1, 1999 compared to $7,157,000 at
October 31, 1998. Trade receivables are historically at their highest point
at the end of the fiscal year because of the heavy sales volume related to
Christmas buying by retailers. This 16.2% decrease in accounts receivable is
also related to the 18.8% decrease in net sales.
Inventories
- -----------
Inventories were $9,294,000 at May 1, 1999, a decrease of $366,000, or 3.8%,
from the inventories of $9,533,000 held at November 1, 1997. Of the decrease,
approximately $395,000 is work in process and $800,000 is raw materials.
These were offset by a $829,000 increase in finished goods. The investment
in work in process and raw materials is down as the Company has focused on
improving the efficiency of materials procurement and plant utilization. The
Company continues to focus on improving inventory turns.
Borrowings under Finance Agreements
- -----------------------------------
The balance outstanding under the finance agreement was $6,515,000 at May 1,
1999 as compared to $6,885,000 at October 31, 1998, a decrease of $370,000, or
5.4%. The decrease can be attributed to the cash applied against the
outstanding balance from collections of accounts receivable which were down
$1,162,000 in the first six months of 1999 and better management of raw
material inventories.
Potential Sale of Property
- --------------------------
Late in the fourth quarter of 1998, the Company received an attractive offer to
sell all of its approximately 22.3 acres of real property in Asheboro, North
Carolina. This land is in one of the prime commercial sections of Randolph
County. The Company entered into a contract to sell the property dated as of
January 28, 1999. Under this contract, the purchaser had until February 26,
1999 to cancel the contract. On February 26, 1999, the contract was cancelled
with the purchaser having no further obligation to the Company. Immediately
thereafter, the Company began negotiating with several other interested parties
who had become aware of the Company's intentions to sell the Asheboro property
when the initial contract became public. It is possible that a new contract
will be entered into in the near future. However, there can be no assurances
that the terms of a new contract will be agreed to or that, even if another
contract is entered into, a sale of the Asheboro property will be consummated.
The Company has purchased certain property adjacent to its Asheboro facility to
enhance the sale of the facility.
12
<PAGE>
Readiness for Year 2000 Compliance
- ----------------------------------
The Company has initiated a program to minimize the risk of potential disrup-
tion from the "Year 2000 ('Y2K') problem." This problem is a result of
computer programs having been written using two digits (rather than four) to
define the applicable year. Any information technology ("IT") systems that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000, which could result in miscalculations and system
failures. The problem also extends to "non-IT" systems; that is, operating
and control systems that rely on embedded chip systems. In addition, like
every other business enterprise, the Company is at risk from Y2K failures on
the part of its major business counterparts, including suppliers, distributors,
and manufacturers, as well as potential failures in public and private
infrastructure services, including electricity, water, gas, transportation,
and communications.
The Company began developing a plan in November 1997 to resolve the Y2K issues
that are reasonably within its control. These efforts are being coordinated
through the Company's data processing department and chaired by the information
systems programming manager ("ISPM"). With respect to the Company's Y2K
efforts, the ISPM reports periodically to the Company's president, who in turn
updates the Audit Committee of the Board of Directors.
In January 1998, the ISPM completed an identification of those IT systems which
would require detailed program changes to be Y2K compliant. An employee pro-
grammer already familiar with the Company's computer system has been assigned
full-time to modify those identified programs. Program changes and testing are
made in a test directory specifically created for the Y2K modifications so that
there are no conflicts with live data. When testing is completed for a system,
files are then converted, and modified programs are copied to live directories
on a weekend when no users are on the system. The Company's current timetable
anticipates completion of all conversions, necessary testing, and full
implementation by August 31, 1999. At this time, the Company has not deemed it
necessary to develop contingency plans for any of the applications being
converted; however, the Company will continue to assess this and will develop
contingency plans for any applications not converted and operating by
August 31, 1999.
With respect to Electronic Data Interchange ("EDI") applications, a Company
manager with extensive computer experience is assessing the Company's impact
from four customers who transmit orders via EDI. All but three of these
customers utilize a third-party EDI service bureau, while the fourth one (the
Company's largest customer) is expected to be changed from being an internal
EDI user to an external user by June 30, 1999. No significant EDI trans-
mission problems are anticipated.
With regard to non-IT systems, the Company's phone and security systems are
both Y2K compliant. The Company is in the process of assessing personal
computers and manufacturing machines that are not Y2K compliant, especially
those with programs that involve stitching patterns on western boots. Major
suppliers to the Company have been contacted by questionnaire, and the Company
has received confirmations of either Y2K compliance or a timetable to be
compliant from such
13
<PAGE>
suppliers. The Company has also contacted its major customers by questionnaire
to assess their status with regard to the Y2K issue. Contingency plans will be
developed for any significant suppliers or customers that are not Y2K compliant
by August 31, 1999, or earlier if the Company becomes aware that such entities
may not be Y2K compliant in a timely manner.
It is important to note that the description of the Company's efforts
necessarily involves estimates and projections with respect to activities
required in the future. The required code changes, testing, and implementation
necessary to address the Y2K issue are expected to cost approximately $115,000,
and the Company has incurred approximately $67,000 through May 1, 1999. The
Company estimates that it is approximately 85% complete with the efforts
required to be Y2K compliant. These estimates and projections are subject to
change as work continues.
Even though the Company's Y2K plan should adequately address the Y2K issue,
there can be no assurance that unforeseen difficulties will not arise. If the
Company does not identify and fix all Y2K problems, or if a major supplier or
customer is unable to adequately address its Y2K issue, the Company's results
of operations or financial condition could be materially impacted.
New Accounting Standards
- ------------------------
Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting
Comprehensive Income" requires that certain items such as foreign currency
translation adjustments, unrealized gains and losses on certain investments in
debt and equity securities, minimum pension liability adjustments, and unearned
compensation expense related to stock issuances to employees be presented as
separate components of stockholders' equity. FAS 130 defines these as items of
other comprehensive income and as such must be reported in a financial state-
ment that is displayed with the same prominence as other financial state-
ments. At May 1, 1999, the Company does not have any items of other compre-
hensive income to report.
In June 1997, the FASB issued FAS 131, "Disclosures About Segments of an
Enterprise and Related Information". This Statement changes the way companies
report information about segments of their business in their annual financial
statements and require companies to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. The Statement also requires companies to disclose segment data
based on how management makes decisions about allocating resources to seg-
ments and measuring their performance. FAS 131 is effective for the Company
in fiscal year 1999, but as permitted, this Statement need not be applied to
interim financial statements in the initial year of its application.
14
<PAGE>
Forward-Looking Statements
- --------------------------
The foregoing discussion contains some forward-looking statements about the
Company's financial condition and results of operations, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which reflect management's judgment only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
Factors that might cause actual results to differ materially from these forward-
looking statements include (1) the effects of general economic conditions, (2)
the impact of competitive products and pricing in the footwear industry, (3)
failure to achieve anticipated sales results, (4) management's ability to
accurately predict the effect of cost reductions, (5) management's ability to
accurately predict the adequacy of the Company's financing arrangement to meet
its working capital and capital expenditure requirements, and (6) failure to
enter into a contract for the sale of the Asheboro, North Carolina property and
if entered into, the consummation of the transaction provided for therein.
15
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
The Forty-Eighth Annual Meeting of the Shareholders of the Company was
held on Monday, March 15, 1999, as set forth in the Notice of Annual
Meeting of Shareholders dated and mailed on February 22, 1999. Of
the 1,725,954 shares of common stock issued and outstanding on the
record date, 1,400,849 shares or 81.2% of the common stock
outstanding were represented in person or by proxy at the meeting.
For the issues presented to the shareholders for their consideration,
the results were as follows:
1 - The Board of Directors, in accord with the By-laws, established
the number of Directors at six. The shareholders elected the six
persons nominated by them in the proxy statement mailed February
22, 1999. All director nominees had served as directors during
the prior year and all were elected by the shareholders. There
were no other nominations for director presented at the meeting.
The six nominees were elected with results as follows:
Shares Shares Shares Marked
Director For Against Withhold Authority
-------- --------- ------- ------------------
Kent Anderson 1,203,197 - 197,652
George M. Ball 1,203,647 - 197,202
Robert L. Donnell, Jr. 1,203,834 - 197,015
James P. McDermott 1,203,647 - 197,202
Michael C. Miller 1,351,659 - 49,190
Edna A. Walker 1,351,659 - 49,190
16
<PAGE>
PART II. OTHER INFORMATION, Continued
- --------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed:
(27) Financial Data Schedule for the period ended May 1, 1999
(b) Reports on Form 8-K:
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
B.B. Walker Company
Date June 14, 1999 KENT T. ANDERSON
------------- -------------------------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
Date June 14, 1999 CAREY M. DURHAM
------------- -------------------------------
Carey M. Durham
Vice President and
Chief Financial Officer
17
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from B.B.
Walker's Form 10-Q for the second quarter of fiscal 1999 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> 6-MOS
<FISCAL-YEAR-END> 0CT-30-1999
<PERIOD-END> MAY-01-1999
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 6,712
<ALLOWANCES> 717
<INVENTORY> 9,294
<CURRENT-ASSETS> 17,416
<PP&E> 8,174
<DEPRECIATION> 6,618
<TOTAL-ASSETS> 19,146
<CURRENT-LIABILITIES> 13,546
<BONDS> 0
0
83
<COMMON> 1,726
<OTHER-SE> 2,626
<TOTAL-LIABILITY-AND-EQUITY> 19,146
<SALES> 12,598
<TOTAL-REVENUES> 12,721
<CGS> 9,030
<TOTAL-COSTS> 12,478
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> (216)
<INCOME-TAX> 0
<INCOME-CONTINUING> (216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (216)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.12)
</TABLE>
