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 29, 2000
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, 2000, 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 29, October 30,
Assets 2000 1999
-------- ----------- -----------
Cash $ 1 $ 1
Accounts receivable, less allowance for doubtful
accounts of $595 in 2000 and $525 in 1999 4,196 6,471
Inventories 8,415 9,210
Prepaid expenses 526 471
Property held for sale 889 803
Deferred income tax benefit, current 1,039 1,039
----------- -----------
Total current assets 15,066 17,995
Property, plant and equipment, net of accumulated
depreciation and amortization of $6,786 in 2000
and $6,690 in 1999 1,346 1,467
Other assets 128 130
----------- -----------
$ 16,540 $ 19,592
=========== ===========
(Continued)
1
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In Thousands, Except Share Data)
(Unaudited) (Audited)
July 29, October 30,
Liabilities and Shareholders' Equity 2000 1999
------------------------------------ ----------- -----------
Borrowings under finance agreement $ 5,782 $ 7,113
Accounts payable, trade 3,634 3,518
Accrued salaries, wages and bonuses 187 368
Other accounts payable and accrued liabilities 459 471
Current portion of long-term obligations 2,349 1,118
Income taxes payable 182 182
----------- -----------
Total current liabilities 12,593 12,770
----------- -----------
Long-term obligations, net of current portion 1,161 2,726
Minority interest in consolidated subsidiary 31 31
Shareholders' equity:
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 2000 and 1999 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,745,954 shares issued and
outstanding in 2000 and 1999 1,746 1,746
Capital in excess of par value 2,712 2,712
Retained deficit (1,723) (400)
Shareholders' loans (63) (76)
----------- -----------
Total shareholders' equity 2,755 4,065
----------- -----------
$ 16,540 $ 19,592
=========== ===========
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 29, July 31, July 29, July 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 5,014 $ 6,339 $ 16,042 $ 18,937
Interest and other income 5 11 33 134
----------- ----------- ----------- -----------
Total revenues 5,019 6,350 16,075 19,071
----------- ----------- ----------- -----------
Cost of products sold 3,694 4,677 11,664 13,707
Selling and administrative expenses 1,636 1,789 4,873 5,142
Depreciation and amortization 41 48 122 143
Interest expense 254 241 733 699
----------- ----------- ----------- -----------
Total costs and expenses 5,625 6,755 17,392 19,691
----------- ----------- ----------- -----------
Loss before income taxes
and minority interest (606) (405) (1,317) (620)
Benefit from income taxes - - - -
Minority interest 1 1 2 2
----------- ----------- ----------- -----------
Net loss (607) (406) (1,319) (622)
Retained earnings (deficit) at beginning of period (1,115) (21) (400) 198
Dividends on preferred stock (1) (1) (4) (4)
----------- ----------- ----------- -----------
Retained deficit at end of period $ (1,723) $ (428) $ (1,723) $ (428)
=========== =========== =========== ===========
Net loss per share:
Basic and diluted $ (.35) $ (.23) $ (.76) $ (.36)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic and diluted 1,746 1,746 1,746 1,731
========== ========== =========== ===========
</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 29, July 31,
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (1,319) $ (622)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 122 143
Gain on sale of property, plant and equipment (18) (5)
(Increase) decrease in:
Accounts receivable, net 2,275 1,755
Inventories 795 (3)
Prepaid expenses (55) 18
Other assets 2 19
Increase (decrease) in:
Accounts payable, trade 116 30
Accrued salaries, wages and bonuses (181) (215)
Other accounts payable and accrued liabilities (12) 85
----------- -----------
Net cash provided by operating activities 1,725 1,205
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (6) (37)
Proceeds from disposal of property, plant
and equipment 23 5
Purchases of property held for sale (86) (763)
----------- -----------
Net cash used in investing activities (69) (795)
----------- -----------
Cash Flows From Financing Activities:
Net borrowing under finance agreement (1,331) (496)
Proceeds from issuance of short-term obligations 84 437
Proceeds from issuance of long-term obligations 39 37
Payment on long-term obligations (457) (398)
Purchase of subsidiary stock from minority interests - (2)
Proceeds from issuance of Company common stock - 19
Loans to shareholders, net of cash repayments - (15)
Repayments of loans to shareholders 13 12
Dividends paid on 7% cumulative preferred stock (4) (4)
----------- -----------
Net cash used in financing activities (1,656) (410)
----------- -----------
Net change in cash - -
Cash at beginning of year 1 1
----------- -----------
Cash at end of third quarter $ 1 $ 1
=========== ===========
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 29, 2000
NOTE 1
------
A summary of the Company's significant accounting policies is presented
on page 9 of its 1999 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 29, 2000 and July 31, 1999 each include thirty-
nine weeks of operations. The third quarters for 2000 and 1999 each include
thirteen weeks of operations.
Note 2
------
Basic earnings per share (EPS) are computed by dividing income (loss)
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. Due to losses
for all periods presented, the stock options outstanding would have been
antidilutive and were excluded from the calculation of diluted earnings
per share.
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 29, 2000, the Company does not have
any items of other comprehensive income to report.
5
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Nine Month Period Ended July 29, 2000
Note 4
------
On August 15, 1995, the Company entered into a revolving financing agree-
ment (the "Agreement") with a bank which permits borrowings up to certain
percentages of eligible accounts receivable and inventories. The Company
signed an amendment to this Agreement on June 23, 2000, which lowered the
maximum credit line available from $8,000,000 to $7,000,000. This amend-
ment also reduced the borrowing base on retail inventory from its
previous 40% of net value to 0%, using a phase-out method based on a
monthly rate reduction of 10% per month from the period June 1, 2000
through September 1, 2000. The Company must meet certain restrictive
financial covenants that require the satisfaction of certain financial
tests and the maintenance of certain financial ratios as defined in the
Agreement. At July 29, 2000, the Company was not in compliance with three
interim debt covenants. Based on the terms of this Agreement, all debt
instruments affected by these financial covenants are recorded as current
liabilities at July 29, 2000.
Note 5
------
Long-term obligations consist of the following amounts (in thousands):
(Unaudited) (Audited)
July 29, October 30,
2000 1999
----------- -----------
Notes payable to banks $ 1,912 $ 2,160
Notes payable to governmental authorities 488 522
Promissory notes payable to shareholders 1,110 1,162
------- -------
3,510 3,844
Less portion payable within one year 2,349 1,118
------- -------
$ 1,161 $ 2,726
======= =======
Note 6
------
Inventories are composed of the following amounts (in thousands):
(Unaudited) (Audited)
July 29, October 30,
2000 1999
----------- -----------
Finished goods $ 5,542 $ 6,059
Work in process 560 544
Raw materials and supplies 2,313 2,607
------- -------
$ 8,415 $ 9,210
======= =======
6
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Nine Month Period Ended July 29, 2000
Note 7
------
The Company's reportable segments are wholesale and retail sales. Wholesale
sales are made to major chain stores, retail stores, and governmental entities,
while retail sales are made directly to the public from the Company's two
retail outlets in Asheboro, NC, and Lancaster, PA. The segments are managed
separately because each business unit requires different marketing strategies.
Segment information for the first nine months of 2000 and 1999 are as follows:
WHOLESALE RETAIL TOTAL
-----------------------------------------
2000 (in 000s)
-----------------------------------------
Net sales $ 14,749 $ 1,293 $ 16,042
Cost of sales 10,903 761 11,664
Gross profit 3,846 532 4,378
Operating loss (1,248) (69) (1,317)
Depreciation and amortization 121 1 122
WHOLESALE RETAIL TOTAL
-----------------------------------------
1999 (in 000s)
-----------------------------------------
Net sales $ 17,481 $ 1,456 $ 18,937
Cost of sales 12,846 861 13,707
Gross profit 4,635 595 5,230
Operating profit (loss) (632) 12 (620)
Depreciation and amortization 142 1 143
Note 8
------
In February 2000, the Company entered into a contract to sell its
manufacturing facility in Asheboro, North Carolina, along with an adjacent
piece of property. In July 2000, this contract was cancelled by the
purchaser as permitted under provisions in the contract.
7
<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 29, 2000 and July 31, 1999:
Third Nine
Quarter Ended Months Ended
------------------- -------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 73.7% 73.8% 72.7% 72.4%
------ ------ ------ ------
Gross margin 26.3% 26.2% 27.3% 27.6%
Selling and administrative
expenses 32.6% 28.2% 30.4% 27.1%
Depreciation and amortization .8% .8% .7% .8%
Interest expense 5.1% 3.8% 4.6% 3.7%
Interest and other income (.1%) (.2%) (.2%) (.7%)
------ ------ ------ ------
Loss before income taxes
and minority interest (12.1%) (6.4%) (8.2%) (3.3%)
Benefit from income taxes - - - -
Minority interest - - - -
------ ------ ------ ------
Net loss (12.1%) (6.4%) (8.2%) (3.3%)
====== ====== ====== ======
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999
-------------------------------------------------
NET SALES
---------
Third quarter sales in fiscal 2000 were $5,014,000, or $1,325,000 (20.9%)
less than third quarter sales in 1999. For the nine month period ended
July 29, 2000, sales were $16,042,000, a $2,895,000 (15.3%) decrease from
the comparable nine months. However, it should be noted that for nine months
in fiscal 1999, the Company oversaw one of its customer's liquidation sales
which accounted for $915,000 in western sales, all of which was recorded at
the sale's conclusion in July 1999. Excluding the 1999 liquidation sales of
$915,000, the third quarter shipments decreased $410,000 (7.6%) while
year-to-date shipments have decreased $1,980,000 (11.0%) when comparing
2000 with 1999's adjusted results.
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 90.3% of net sales in the third
quarter of 2000 and 91.1% of net sales in the third quarter of 1999.
Retail sales made up the remaining net sales of 9.7% in 2000 and 8.9% in
1999. For the comparable nine month periods, manufactured footwear
comprised 91.2% of net sales in 2000 and 91.6% of net sales in 1999. The
remaining net sales of 8.8% in 2000 and 8.4% in 1999 were sales from
retail outlets.
8
<PAGE>
B.B. WALKER COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Results of Operations and Financial Condition, Continued
NET SALES, Continued
--------------------
The decrease in net sales can be attributed to two factors. First, import
penetration of 95% into the U.S. footwear market has made it easier to enter
the work shoe market. This increase in low-priced imports has caused a
dramatic adverse effect on the Company's work/outdoor shipments. The
Company's use of imported footwear from Mexico in 2000 has helped recover
some of the ground lost these past two years in the lower-priced work shoe
market, but the increase has not been significant enough to offset the
overall softness in the industry. The third quarter of 2000 showed a
$458,000 (20.9%) decrease in work/outdoor shipments from the third quarter
of 1999. Second, western sales in the third quarter of fiscal 2000 were
down $757,000 (22.6%), primarily due to the aforementioned customer
liquidation sale which boosted third quarter sales in 1999. Not including
the impact of this liquidation sale, western shipments were actually up
$158,000 (6.5%) over last year's third quarter. Increased bookings above
last year's orders at five of our western shows during early 2000 should help
continue this positive trend in western sales in the fall of calendar 2000.
Due to the reasons noted above, sales of branded footwear in the third quarter
of 2000 were down $172,000 (5.0%) from 1999's third quarter (not including the
customer liquidation sale). Including the 1999 liquidation sale of $915,000,
sales were down $1,087,000 (24.9%). Branded pairs shipped were down 20,249
(25.9%) in the third quarter while year-to-date price per pair is up 4.5%.
Private label sales for the third quarter were down $246,000 (18.3%) in 2000
when compared to the same period in 1999. The decrease can be attributed
to an overall weaker work/outdoor private label business. The exception
was to the Company's largest customer, a major discount retailer, whose
shipments increased 4.4% over last year's third quarter. Private label
pairs shipped were down 5,039 (14.6%) in the third quarter of 2000 versus
1999 while year-to-date price per pair is up 7.0%.
Sales to institutional customers in the third quarter of 2000 were down
$23,000 (7.4%) from the third quarter of 1999. 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. Unfortunately, there is an increasing trend
toward being underbid by import suppliers on new institutional business.
Retail sales decreased $75,000 (13.3%) from the third quarter of the prior
year. The two retail outlets, one in Asheboro, NC, and one in Lancaster, PA,
continued to experience increased competition from major discount retailers
surrounding their locations.
9
<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 2000 and 1999, the Company's gross margin as a
percentage of sales was 26.3% and 26.2%, respectively. The Company's gross
margin was 27.3% and 27.6% for the first nine months of 2000 and 1999,
respectively. This slight (0.3%) decrease from the prior year is due to
lower production than budgeted which has not covered the Company's fixed
costs in manufacturing as well as expected. However, considering the 15.3%
decrease in year-to-date revenues, manufacturing has adjusted well to
maintain a gross margin very comparable to last year. The 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 $1,636,000 in the third quarter
of 2000 as compared to $1,789,000 for the third quarter of 1999, a
$153,000 (8.6%) decrease. YTD selling and administrative expenses
were $4,873,000 in 2000 compared to $5,142,000 in 1999. Even though there
has been a $269,000 (5.2%) reduction in the first nine months of 2000 over
1999, selling and administrative expenses as a percentage of sales have
increased from 27.1% in 1999 to 30.4% in 2000 since these relatively-fixed
expenses are being compared to year-to-date sales which have declined 15.3%
from the previous year. Management continues to emphasize controlling costs
and improving operations in the selling and administrative areas.
INTEREST EXPENSE
----------------
Interest expense for the third quarter of 2000 was $254,000, or $13,000
higher than interest expense of $241,000 for the third quarter of 1999.
This 5.4% increase in interest expense for the third quarter can be
attributed to a 1.5% jump in the interest rate over last year. For the nine-
month period, interest expense is $733,000 and $699,000 in 2000 and 1999,
respectively. Additional interest has also been expensed this year on
short-term debt to finance the purchase of land parcels adjacent to the
Asheboro, NC, property currently on the market.
10
<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 in the third quarter of 2000 was $41,000, or
$7,000 less than the 1999 expense. Year-to-date expense is $122,000, or
$21,000 less than the $143,000 recorded in 1999. 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 2000 and 1999, the Company recorded no
benefit from income taxes. The Company evaluated the valuation allowance
recorded 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 losses of $607,000 and $1,319,000 for the third quarter
and first nine months of fiscal 2000, respectively. For the comparable periods
of 1999, the Company had a net loss of $406,000 for the third quarter and a net
loss of $622,000 for the nine month period. As discussed above, the 20.9%
decrease in third quarter sales and the 15.3% decrease in overall year-to-date
sales have adversely affected the Company's bottom line as revenues have not
completely covered the Company's fixed manufacturing, administrative, and
debt service costs.
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
-------------------------------
Historically, the Company has funded substantially all of its working
capital and capital expenditure requirements through borrowings under its
financing agreement and other indebtedness. The revolving financing agreement
provides flexibility 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 financing agreement, the Company finances its accounts
receivable and inventories, paying interest at a variable rate (prime plus
1.5%, or 11.0%, at July 29, 2000). The Company had outstanding advances of
$5,782,000 at July 29, 2000 and an additional $496,000 available under the
agreement. Despite the Company's increased losses over last year, cash
provided by year-to-date operations is up $520,000, from $1,205,000 in 1999
to $1,725,000 in 2000. The Company continues to rely on the revolving
financing agreement to provide working capital, and management anticipates
that the revolving financing agreement will continue to provide the necessary
liquidity to fund its daily operations.
Under the Company's financing agreement, 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 $7,000,000. 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 its
credit agreement on June 23, 2000, which lowered the maximum credit line
available from $8,000,000 to $7,000,000. This amendment also reduced the
borrowing base on retail inventory from the previous 40% of net value to 0%
using a phase-out method based on a monthly rate reduction of 10% per month
from the period June 1, 2000 through September 1, 2000.
The Company must meet certain restrictive financial covenants that require
the satisfaction of certain financial tests and the maintenance of certain
financial ratios as defined in the agreement. At July 29, 2000, the
Company was not in compliance with three interim debt covenants but expects
to satisfy them if the sale of the Asheboro, NC property is consummated.
In late July 2000, the contract to sell this property was cancelled when
one of the parties involved dropped out of the investment group.
Immediately thereafter, the Company began negotiations with one of the
remaining parties involved in the February contract. It is possible that
a new contract will 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.
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 29, 2000, the balance of the term loan is
approximately $1,169,000, and it bears interest at the bank's prime rate
plus 1.5% (11.0% at July 29, 2000).
12
<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 significant upgrades to its equipment and facilities in
1993 and 1994 but has made only minimal capital expenditures during the past
six years. Because of cash flow considerations and restrictions under the
financing agreement, the Company has made only capital expenditures necessary
to maintain current levels of operations. Funding for capital expenditures,
other than the acquisition of the Somerset, Pennsylvania facility in July 1994,
has come primarily from the available balance on the financing agreement and
cash from operations.
Net working capital, which consists primarily of accounts receivable and
inventories less current liabilities, was $2,473,000 at July 29, 2000 and
$5,225,000 at October 30, 1999. The ratio of current assets to current
liabilities was 1.27 at July 29, 2000 compared to 1.41 at October 30, 1999.
These calculations are based on special classification by the bank of the
current portion of one long-term debt instrument.
FINANCIAL CONDITION
-------------------
ACCOUNTS RECEIVABLE
-------------------
Accounts receivable were $4,196,000 at July 29, 2000 compared to $6,471,000
at October 29, 1999, a decrease of $2,275,000. 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 35.2% decrease is also related to the 15.3% decrease in year-to-date
net sales and continued stronger collection efforts.
INVENTORIES
-----------
Inventories were $8,415,000 at July 29, 2000, a decrease of $795,000 (8.6%)
from the inventories held at October 30, 1999 of $9,210,000. Of this
decrease, approximately $517,000 is in finished goods and $294,000 is in raw
materials. These were offset minimally by a $16,000 increase in work in
process inventory. The Company continues to focus on improving turns in
inventory and improving the efficiency of raw material procurement.
13
<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 financing agreement was $5,782,000 at
July 29, 2000 compared to $7,113,000 at October 30, 1999, a decrease of
$1,331,000. This 18.7% decrease can be attributed primarily to the cash
applied against the outstanding balance from collections of accounts
receivable which were down $2,275,000 in the first nine months of 2000 and
better management of raw material inventories.
POTENTIAL SALE OF PROPERTY
--------------------------
The Company entered into a contract on February 4, 2000 to sell all of its
approximately 26 acres in prime real property in Asheboro, North Carolina.
Under this contract, the purchaser had until August 2, 2000 to examine the
suitability of the property for its needs. In late July 2000, this contract
was cancelled when one of the parties involved dropped out of the investment
group. Immediately thereafter, the Company began negotiations with one
of the remaining parties involved in the February 2000 contract. It is
possible that a new contract will be entered into in the near future. How-
ever, 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.
YEAR 2000 ISSUE
---------------
To date, the Company has not experienced any significant business disrup-
tions related to the Year 2000 Issue. The Company incurred approximately
$115,000 addressing the issue and funded the expenditures through cash
flows from operations. Although the Company believes that it successfully
avoided any significant disruption from the Year 2000 Issue, it will
continue to monitor all critical systems for the appearance of delayed
complications or disruptions, problems encountered through suppliers,
customers, and other third parties with whom the Company deals.
14
<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.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Because the Company's obligations under the bank credit agreement bear
interest at floating rates, the Company is sensitive to changes in pre-
vailing market rates. A 10% increase or decrease in market interest
rates would not have a material impact on earnings during the next
fiscal year.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------ --------------------------------
(a) Exhibits Filed:
(4)(c)(16) Tenth Amendment to the Credit Agreement between B.B.
Walker Company and Mellon Bank, N.A., dated June 23, 2000
(27) Financial Data Schedule for the Third Quarter ended July 29, 2000
(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 8, 2000 KENT T. ANDERSON
----------------- -------------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
Date September 8, 2000 CAREY M. DURHAM
----------------- ------------------
Carey M. Durham
Vice President and
Chief Financial Officer
16
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