UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THIRD QUARTER ENDED JULY 31, 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 September 1, 1999, 1,745,954 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 AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) (Audited)
July 31, October 31,
Assets 1999 1998
-------- ----------- -----------
Cash $ 1 $ 1
Accounts receivable, less allowance for doubtful
accounts of $569 in 1999 and $557 in 1998 5,402 7,157
Inventories 9,663 9,660
Prepaid expenses 428 446
Property held for sale 763 -
Deferred income tax benefit, current 1,050 1,050
----------- -----------
Total current assets 17,307 18,314
Property, plant and equipment, net of accumulated
depreciation and amortization of $6,661 in 1999
and $6,523 in 1998 1,516 1,622
Other assets 125 144
----------- -----------
$ 18,948 $ 20,080
=========== ===========
(Continued)
1
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In Thousands)
(Unaudited) (Audited)
July 31, October 31,
Liabilities and Shareholders' Equity 1999 1998
------------------------------------ ----------- -----------
Borrowings under finance agreement $ 6,389 $ 6,885
Accounts payable, trade 3,566 3,536
Accrued salaries, wages and bonuses 152 367
Other accounts payable and accrued liabilities 640 555
Current portion of long-term obligations 2,867 2,566
Income taxes payable 193 193
----------- -----------
Total current liabilities 13,807 14,102
----------- -----------
Long-term obligations, net of current portion 1,078 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, 1,745,954 shares in 1999 and
1,720,954 shares in 1998 issued and outstanding 1,746 1,721
Capital in excess of par value 2,711 2,717
Retained earnings (deficit) (428) 198
Shareholders' loans (80) (77)
----------- -----------
Total shareholders' equity 4,032 4,642
----------- -----------
$ 18,948 $ 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)
Third Quarter Ended Nine Months Ended
-------------------------- --------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 6,339 $ 5,617 $ 18,937 $ 21,128
Interest and other income 11 23 134 207
----------- ----------- ----------- -----------
Total revenues 6,350 5,640 19,071 21,335
----------- ----------- ----------- -----------
Cost of products sold 4,677 4,247 13,707 15,769
Selling and administrative expenses 1,789 1,386 5,142 5,209
Depreciation and amortization 48 66 143 205
Interest expense 241 271 699 812
----------- ----------- ----------- -----------
Total costs and expenses 6,755 5,970 19,691 21,995
----------- ----------- ----------- -----------
Loss before income taxes
and minority interest (405) (330) (620) (660)
Benefit from income taxes - - - -
Minority interest 1 1 2 2
----------- ----------- ----------- -----------
Net loss (406) (331) (622) (662)
Retained earnings (deficit) at beginning of period (21) (205) 198 129
Dividends on preferred stock (1) (1) (4) (4)
----------- ----------- ----------- -----------
Retained deficit at end of period $ (428) $ (537) $ (428) $ (537)
=========== =========== =========== ===========
Net loss per share:
Basic and diluted $ (.23) $ (.19) $ (.36) $ (.39)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic and diluted 1,746 1,721 1,731 1,724
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
3
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
--------------------------
July 31, August 1,
1999 1998
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (622) $ (662)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 143 205
Gain on sale of property, plant and equipment (5) (3)
Deferred income taxes - -
(Increase) decrease in:
Accounts receivable, net 1,755 2,208
Inventories (3) (258)
Prepaid expenses 18 36
Property held for sale (763) -
Other assets 19 28
Increase (decrease) in:
Accounts payable, trade 30 (533)
Accrued salaries, wages and bonuses (215) (261)
Other accounts payable and accrued liabilities 85 75
Income taxes payable - 170
----------- -----------
Net cash provided by operating activities 442 1,005
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (37) (141)
Proceeds from disposal of property, plant
and equipment 5 3
----------- -----------
Net cash provided used for investing activities (32) (138)
----------- -----------
Cash Flows From Financing Activities:
Net borrowing under finance agreement (496) (511)
Proceeds from issuance of short-term obligations 437 -
Proceeds from issuance of long-term obligations 37 52
Payment on long-term obligations (398) (416)
Purchase of subsidiary stock from minority interests (2) -
Repurchase of Company common stock - (13)
Proceeds from issuance of Company common stock 19 -
Loans to shareholders, net of cash repayments (3) 25
Dividends paid on 7% cumulative preferred stock (4) (4)
----------- -----------
Net cash used for financing activities (410) (867)
----------- -----------
Net change in cash - -
Cash at beginning of year 1 1
----------- -----------
Cash at end of third quarter $ 1 $ 1
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1998, the Company accepted 5,580 shares of its common stock as
repayment of a loan to a shareholder of $13.
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Notes To Consolidated Financial Statements
Nine Months Ended July 31, 1999
NOTE 1
- ------
A summary of the significant accounting policies of B.B. Walker Company
and Subsidiary (the "Company") 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 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 nine months ended July 31, 1999 and August 1, 1998 each include thirty-
nine weeks of operations. The third 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 securities and other contracts to issue common 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
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 statement that is displayed with the same prominence as
other financial statements. At July 31, 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
Nine Month Period Ended July 31, 1999
Note 4
- ------
Long-term obligations consist of the following amounts (in thousands):
(Unaudited) (Audited)
July 31, October 31,
1999 1998
----------- -----------
Notes payable to banks $ 2,228 $ 2,099
Notes payable to governmental authorities 534 567
Promissory notes payable to shareholders 1,183 1,203
------- -------
3,945 3,869
Less portion payable within one year 2,867 2,566
------- -------
$ 1,078 $ 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 (see Note 6). As of
July 31, 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)
July 31, October 31,
1999 1998
----------- -----------
Finished goods $ 6,187 $ 5,167
Work in process 745 945
Raw materials and supplies 2,731 3,548
------- -------
$ 9,663 $ 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 permitted under provisions in the contract. As of July
31, 1999, the Company has invested $763,000 in property adjacent to its
Asheboro manufacturing facility which is being held for sale.
6
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
- ---------------------
The following summarizes the results of operations for the Company for the
third quarters and nine months ended July 31, 1999 and August 1, 1998:
Third Nine
Quarter Ended Months Ended
------------------- -------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
--------- --------- --------- ---------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 73.8% 75.6% 72.4% 74.6%
------ ------ ------ ------
Gross margin 26.2% 24.4% 27.6% 25.4%
Selling and administrative
expenses 28.2% 24.7% 27.1% 24.7%
Depreciation and amortization .8% 1.2% .8% 1.0%
Interest expense 3.8% 4.8% 3.7% 3.8%
Interest and other income (.2%) (.4%) (.7%) (1.0%)
------ ------ ------ ------
Loss before income taxes
and minority interest (6.4%) (5.9%) (3.3%) (3.1%)
Benefit from income taxes - - - -
Minority interest - - - -
------ ------ ------ ------
Net loss (6.4%) (5.9%) (3.3%) (3.1%)
====== ====== ====== ======
THIRD QUARTER 1999 COMPARED TO THIRD QUARTER 1998
- -------------------------------------------------
NET SALES
- ---------
Third quarter net sales in 1999 were $6,339,000, or $722,000 (12.9%) more
than third quarter net sales in 1998 of $5,617,000. For the nine month
period ended July 31, 1999, net sales were $18,937,000, a $2,191,000
(10.4%) decrease from the net sales of $21,128,000 in the comparable
nine month period ended August 1, 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 91.1% of net sales in the third
quarter of 1999 and 89.4% of net sales in the third quarter of 1998.
Retail sales made up the remaining net sales of 8.9% in 1999 and 10.6% in
1998. For the comparable nine month periods, manufactured footwear
comprised 91.6% of net sales in 1999 and 91.8% of net sales in 1998. The
remaining net sales of 8.4% in 1999 and 8.2% in 1998 were sales from
retail outlets.
7
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
NET SALES, Continued
- --------------------
Sales of branded footwear were $583,000 (15.4%) higher in the third quarter
of 1999 when compared to the same period of 1998. For the nine month
period, 1999 branded sales were $279,000 (2.1%) lower than 1998 branded
sales. Pairs shipped were up 2.2% in the third quarter but down 5.5% for
the nine month period. The year-to-date sales price per pair is up 3.6%.
The changes in price per pair can be attributed to the fact that more of
the Company's branded net sales are coming from its western styles that
carry a higher price per pair than its work or outdoor styles. The third
quarter increase in 1999 of branded sales is due primarily to the $915,000
in sales revenues associated with one of our customer's liquidation sales
which was recorded this quarter.
Private label sales for the third quarter were up $98,000 (7.8%) in 1999
when compared to the same period in 1998. For the nine month period,
1999 private label sales were $1,450,000 (26.4%) lower than 1998 private
label sales Pairs shipped were up 1.5% in the third quarter but down 21.1%
for the nine month period. The year-to-date sales price is up 6.8%. The
results of this division reflect the activity of several large accounts
and are determined by the timing of shipments. In addition, one large
contract for the manufacture of footwear has not been active in 1999 since
the customer elected to move its requirements back to in-house production.
Other sales, which consist primarily of sales from the Company's retail
outlets and sales to institutional customers, increased $51,000 (6.2%) in
1999 over the third quarter of 1998. However, in the first nine months of
1999, these sales decreased $404,000 (13.3%) from the prior year.
Two-thirds of this decrease is attributable to lower institutional sales,
as a significant contract with one customer ended when their business was
awarded to an import footwear supplier. The two retail outlets have
experienced increased competition from major discount retailers surrounding
their locations.
8
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
GROSS MARGIN
- ------------
For the third quarter of 1999 and 1998, the Company's gross margin as a
percentage of sales was 26.2% and 24.4%, respectively. For the first nine
months of the year, the Company's gross margin was 27.6% in 1999, an
increase from the 25.4% in the same period a year ago. The Company's gross
margin showed a 2.2% increase from the prior year primarily because of the
sources from which net sales were derived. During the first nine months
of 1999, 68.4% of net sales came from branded sales and 21.3% came from
private label sales. For the comparable period in 1998, 62.7% of net sales
were branded sales and 26.0% were private label sales. Since branded sales
carry higher margins, an overall increase was expected. The manufacturing
division also posted slightly improved operating results due to production
efficiencies resulting from the welt and cement construction footwear 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 $1,789,000 in the third quarter
of 1999 as compared to $1,386,000 for the third quarter of 1998, a $403,000
(or 29.1%) increase. This increase is due primarily to the $363,000 in
selling and administrative expenses related to the aforementioned
liquidation sale for a customer. YTD selling and administrative expenses
were $5,142,000 in 1999 compared to $5,209,000 in 1998, a decrease of
$67,000 (or 1.3%). This YTD decrease would have been a more significant
$430,000 (or 8.3%) were it not for the $363,000 in selling and
administrative expenses incurred from the customer's liquidation sale
which was finalized and recorded in July 1999. Management continues
to emphasize controlling costs and improving operations in the selling
and administrative areas.
INTEREST EXPENSE
- ----------------
Interest expense for the nine months ended July 31, 1999 was $699,000, or
$113,000 lower than interest expense of $812,000 for the nine months ended
August 1, 1998. For the third quarter, 1999 expense was $241,000, or
$30,000 lower than 1998 expense of $271,000. This 11.1% decrease in
interest expense can be attributed to a 0.50% drop in the interest rate and
a lower average balance on outstanding loan advances under the revolving
loan agreement. 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 land parcels on which we were contracted to close by April 7,
1999 (see Potential Sale of Property section below). As of July 31, 1999,
the Company had drawn down $437,000 of the $450,000 available from this
loan agreement at FNB Prime + 1.50% (currently 9.50%). The maturity date
is January 10, 2000.
9
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization was $143,000 in 1999 compared to $205,000
in 1998 for the first nine months of the year. In the third quarter,
depreciation expense was $48,000 in 1999 compared to $65,000 in 1998. The
Company continues to invest in capital assets only as necessary to
maintain the current level of operations. With the low level of
capital expenditures made 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 first nine months of 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 third
quarter and determined that the net deferred income tax asset was
appropriately recorded at its net realizable value.
NET LOSS
- --------
The Company reported a net loss of $406,000 for the third quarter and a net
loss of $622,000 for the first nine months of 1998. For the comparable
periods of 1998, the Company had a net loss of $330,000 for the third
quarter and a net loss of $662,000 for the nine month period. Although
the liquidation sale for one of our customers resulted in a net operating
loss of $53,000, the cash generated from the sale enabled the Company to
to eliminate a significant past due receivable balance of $314,000 plus
reduce a $300,000 note receivable on our books by $132,000. In addition,
the Company was able to liquidate some of its slow-moving or obsolete
inventory transferred to the two sale sites. At the end of July, YTD net
loss as a percentage of net sales is 3.3% in 1999 compared to 3.1% in 1998.
10
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
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. With its revolving finance agreement, the Company
finances its accounts receivable and inventories, paying interest at a
variable rate (prime plus 1.5%, or 9.5%, at July 31, 1999). The Company
had outstanding advances of $6,389,000 at July 31, 1999 and an additional
$151,000 available under the agreement.
As was previously reported in 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).
No additional funds for land parcels were spent in the third quarter of
1999. 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 July 31, 1999. These acquisitions were financed by $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 signed an
amendment to the credit agreement during the third quarter of 1999 that
extended the revolving credit maturity date to December 31, 1999. The
revolving credit agreement was set to expire on June 30, 1999. 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 July 31, 1999, the
Company was in technical default of its inventory turnover covenant. How-
ever, 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 July 31, 1999, the balance of the term loan is
approximately $1,597,000, and it bears interest at the bank's prime rate
plus 1.50% (9.50% at July 31, 1999).
11
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
LIQUIDITY AND CAPITAL RESOURCES, Continued
- ------------------------------------------
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
$3,500,000 at July 31, 1999 and $7,157,000 at October 31, 1998. The
ratio of current assets to current liabilities was 1.25 to 1 at July 31,
1999 compared to 1.46 to 1 at October 31, 1998.
FINANCIAL CONDITION
- -------------------
ACCOUNTS RECEIVABLE
- -------------------
Accounts receivable were $5,402,000 at July 31, 1999 compared to $7,157,000
at October 31, 1998, a decrease of $1,755,000. 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.
This 24.5% decrease in accounts receivable is also related to the 10.4%
decrease in YTD sales.
INVENTORIES
- -----------
Inventories were $9,663,000 at July 31, 1999, an increase of $3,000 from
the inventories held at October 31, 1998 of $9,660,000. Finished goods
increased $1,020,000, while raw materials and work in process decreased
$817,000 and $200,000, respectively. The Company continues to focus on
improving turns in inventory and improving the efficiency of raw material
procurement.
12
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
BORROWINGS UNDER FINANCE AGREEMENT
- ----------------------------------
The balance outstanding under the finance agreement was $6,389,000 at
July 31, 1999 compared to $6,885,000 at October 31, 1998, a decrease of
$496,000, or 7.2%. The decrease can be attributed to the cash applied
against the outstanding balance from collections of accounts receivable
which were down $1,474,000 in the first nine 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.
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.
13
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
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 programmer 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 September 30,
1999, with the exception of the in-house payroll system. Although all of
the payroll program conversions have been made, the new payroll system has
not been installed. It is expected that the converted payroll system will
not be installed until October 15, 1999, when the final review of the
parallel test period ending September 30, 1999 (end of the third calendar
quarter) is completed.
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 September 30, 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) changed from being an internal EDI
user to an external user in June 1999. No significant EDI transmission
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 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 September
30, 1999, or earlier if the Company becomes aware that such entities
may not be Y2K compliant in a timely manner.
14
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
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 $85,000
through July 31, 1999. The Company estimates that it is approximately 90%
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 statement that is displayed with the same prominence as
other financial statements. At July 31, 1999, the Company does not have
any items of other comprehensive 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 segments 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.
15
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
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.
16
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
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.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits Filed:
(4)(c)(13) Seventh Amendment to the Credit Agreement between B.B.
Walker Company and Mellon Bank, N.A., dated June 30, 1999
(27) Financial Data Schedule for the Third Quarter ended July 31, 1998
(b) Reports on Form 8-K:
NONE
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
B.B. Walker Company
Date September 13, 1999 KENT T. ANDERSON
------------------ -------------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
Date September 13, 1999 CAREY M. DURHAM
------------------ ------------------
Carey M. Durham
Vice President and
Chief Financial Officer
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from B.B.
Walker's Form 10-Q for the third 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> 9-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-END> JUL-30-1999
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 5,971
<ALLOWANCES> 569
<INVENTORY> 9,663
<CURRENT-ASSETS> 17,307
<PP&E> 8,177
<DEPRECIATION> 6,661
<TOTAL-ASSETS> 18,948
<CURRENT-LIABILITIES> 13,807
<BONDS> 0
0
83
<COMMON> 1,746
<OTHER-SE> 2,203
<TOTAL-LIABILITY-AND-EQUITY> 18,948
<SALES> 18,937
<TOTAL-REVENUES> 19,071
<CGS> 13,707
<TOTAL-COSTS> 18,992
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 225
<INTEREST-EXPENSE> 699
<INCOME-PRETAX> (622)
<INCOME-TAX> 0
<INCOME-CONTINUING> (622)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (622)
<EPS-BASIC> (.36)
<EPS-DILUTED> (.36)
</TABLE>
Exhibit (4)(c)(13)
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of June 30, 1999, 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", the "Third Amendment", the "Fourth Amendment", the
"Fifth Amendment", and the "Sixth 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"), the Third Amendment to Credit
Agreement dated as of November 16, 1996 ("Third Amendment"), the Fourth
Amendment to Credit Agreement dated as of March 11, 1997 ("Fourth
Amendment"), the Fifth Amendment to Credit Agreement dated as of July 8,
1998 ("Fifth Amendment"), and the Sixth Amendment to Credit Agreement
dated as of December 28, 1998 ("Sixth Amendment").
C. The Borrower has requested that the Lender extend the Term Loan
Maturity Date and amend certain other terms and provisions in 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 following definitions set forth in Article 1 of the Credit
Agreement shall be deleted and restated in their entirety as follows:
"Term Loan Maturity Date" shall mean December 31, 1999.
2. The following additions are hereby made to Article 1, Definitions,
in alphabetical order:
"Seventh Amendment" shall mean the Seventh Amendment to Credit
Agreement, dated as of June 30, 1999, by and between the Borrower and
the Lender.
"Seventh Amendment Closing Date" shall mean June 30, 1999.
3. Section 2.4, Term Loan, shall be amended by deleting Section 2.4 (d)
in its entirety and replacing it with the following:
(d) Scheduled Amortization; Maturity. As of the Seventh Amendment
Closing Date, the outstanding Principal due under the Term Loan was
$1,633,078.16. After the Seventh Amendment Closing Date, Principal due
under the Term Loan shall be payable on each Regular Payment Date in
equal monthly installments of $35,714.28, with all remaining principal
due and payable on the Term Loan Maturity Date.
REPRESENTATIONS AND WARRANTIES
4. 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 Sixth
Amendment Closing Date (except those representations and warranties that
address matters only as of a particular date, which are true and correct
as of that date), and are incorporated herein as though fully set forth.
CONDITIONS PRECEDENT
5 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) Seventh Amendment, etc. The Lender shall have received this Seventh
Amendment, duly executed by the Borrower.
(b) Officers' Certificates. The Lender shall have received certificates
from such officers of the Borrower in the form of Exhibit C attached
hereto.
(c) 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 Seventh Amendment Closing Date shall have been paid or received.
(d) Other Conditions Precedent. Each of the conditions precedent set
forth in Section 4.02 of the Credit Agreement shall have been met.
MISCELLANEOUS
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12 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.
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
----------------
Kent T. Anderson, President
[Corporate Seal]
MELLON BANK, N.A.
By: ROGER D. ATTIX
--------------
Roger D. Attix, Vice President
CONSENTED TO this 30th
day of June, 1999:
FIRST NATIONAL BANK
AND TRUST COMPANY
By: R. HOOKER THOMAS, III
---------------------
R. Hooker Thomas, III
Senior Vice President
