UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 30, 1999
Commission File Number 0-934
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B. B. WALKER COMPANY
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(Exact name of registrant as specified in its charter)
North Carolina 56-0581797
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 East Dixie Drive, Asheboro, NC 27203
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 625-1380
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
On January 28, 2000, the aggregate market value of voting stock held by non-
affiliates was approximately $1,964,198.
On January 28, 2000, 1,745,954 shares of the Registrant's voting common stock
with a par value of $1.00 per share were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders of the Company for the year
ended October 30, 1999 are incorporated herein by reference in Parts II and
IV. Portions of the Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on March 20, 2000 are incorporated by reference in
Part III.
The Exhibit Index is on Pages F-3 and F-5.
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B.B. WALKER COMPANY
1999 FORM 10-K ANNUAL REPORT
Table of Contents
PART I
Page No.
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Executive Officers of the Company 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of the
Results of Operations and Financial Condition 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure 9
PART III
Item 10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners
and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 10
Exhibit Index F-3 to F-5
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B.B. Walker Company
1999 Form 10-K
PART I
ITEM 1. BUSINESS
GENERAL
B.B. Walker Company, (the "Company") was incorporated in North Carolina on
October 15, 1952. The Company designs, manufactures and markets complete
lines of moderately-priced, value-oriented western and work/outdoor boots and
shoes for men and women. The majority of the Company's products are sold
under its proprietary brand names, with the remainder sold under major
retailers' private labels and on contract to other footwear manufacturers.
The Company markets its product primarily to wholesale customers in the
United States, but it also serves customers in Canada, Japan and Europe
The Company has one subsidiary, Bender Shoe Company ("Bender"), which is
wholly-owned. Bender is located in Somerset, Pennsylvania and principally
manufactures footwear with welt construction. In addition, the Company
operates two retail shoe outlets which carry a wide assortment of footwear,
including other footwear companies' brands, accessories, and footwear care
products. The Company's business is separated into two divisions, wholesale
and retail. Footwear manufactured and wholesaled by the Company, which
includes branded, private label and institutional sales, comprised 91.6% of
net sales in 1999, 91.8% of net sales in 1998, and 92.0% of net sales in 1997.
The remaining 8.4%, 8.2%, and 8.0% of net sales in fiscal 1999, 1998, and 1997,
respectively, were sales from the Company's retail outlets.
Revenues for 1999 decreased $2,917,000 (or 10.1%) from 1998. Although the
Company showed a $122,000 (or 0.9%) increase in sales of western footwear in
1999, it was not enough to overcome the $2,325,000 (or 20.9%) decrease in work/
outdoor shoe shipments. This deterioration in revenues was due primarily to
the current import penetration of 95% of the U.S. footwear market, which has
made it easier for other companies to enter the work shoe market. This has
resulted in a proliferation of brands full of low-priced imports adversely
affecting business. Due to this increased competition, the Company has been
forced to rethink its approach to the work shoe business and take action
to preserve its position in the industry. Accordingly, the Company
dramatically reduced its manufacturing operation in the Asheboro, North
Carolina plant and increased its use of imported goods. Introduced by the
Company in fiscal 1999, a line of work shoes manufactured in Mexico will begin
shipment early in calendar 2000. The combined.sales of the Company's two
retail outlets declined $197,000 (or 8.3%) due to increased competition from
major discount retailers surrounding the retail outlets.
In spite of 1999's decrease in net sales, a positive note is that gross margin
as a percentage of sales increased from 25.4% in 1998 to 28.1% in 1999. This
2.7% increase was due primarily to improved operations from the welt and
cement construction footwear being produced in separate locations since late
in fiscal 1998. This improvement allowed our loss from operations to be
reduced $145,000 (or 19.7%) from $736,000 in 1998 to $591,000 on 1999.
In December 1999, the Company received an attractive offer to sell all of its
approximately 26 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 on February 4, 2000. Under this contract, the
purchaser has until August 2, 2000 to examine the suitability of the property
for its needs. At the end of this 180 day period, the purchaser may extend
the examination period for two additional 90 day periods. At the end of the
examination period, the contract may be terminated by the purchaser without
further obligation to the Company. Accordingly, there can be no assurances
that the sale of the Asheboro, North Carolina property will be consummated or,
if consummated, that such sale will occur in the Company's fiscal year 2000.
While there will be costs associated with relocating the Asheboro operations,
the Company has taken steps to limit the effects of these matters and does
not expect the relocation to have a material adverse effect on the operations
of the Company.
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B.B. Walker Company
1999 Form 10-K
CURRENT PRODUCTS
The Company manufactures and distributes high quality, moderately-priced
branded and private label footwear. The Company's product offerings to its
customers consist principally of either western boots or work/outdoor boots.
The Company also manufactures safety shoes with steel toe construction. The
following is a description of the respective product offerings of the
Company for each of its primary markets:
BRANDED FOOTWEAR
For western boot customers, the Company offers quality western boots through
two proprietary brands. With its ABILENE[REGISTERED] brand, the Company
manufactures high quality, all-leather boots for the traditional boot wearer.
ABILENE BOOTS[REGISTERED] are made in both men's and women's styles and are
distributed mainly through a variety of western apparel and footwear stores.
A more contemporary line, SAGE[REGISTERED], is offered at a lower price point
and features brighter colors and accents. The SAGE[REGISTERED] line is
offered in both men's and women's styles. Also under the SAGE[REGISTERED]
brand, the Company has a children's line of western footwear which is
manufactured overseas for the Company.
For the work/outdoor customer, the Company manufactures and distributes
work/outdoor footwear under its GOLDEN RETRIEVER[REGISTERED] brand. The
Company offers a variety of work/outdoor styles under the GOLDEN RETRIEVER
[REGISTERED] trademark, including pull-on, lace-up, lined, insulated
and waterproof, in a variety of heights, soles and constructions. The
DURATUFF[REGISTERED] Work Boot brand, which has been well-received since
being introduced in 1997, features double-cushioned insoles. In addition, the
Company manufactures and markets quality boots and shoes for work and safety
use under the WALKER FOOTWEAR THAT WORKS[REGISTERED] brand and the SAFETY
FIRST[REGISTERED] brand.
After being produced in either of the Company's two manufacturing plants, the
final product is transferred to the central warehouse in Asheboro, North
Carolina for distribution.
The Company continues to review all styles in its product lines and eliminates
those styles that offer only marginal returns to the Company. Historically,
the Company has developed a solid reputation as a producer of quality, durable
work boots and western footwear.
PRIVATE LABEL FOOTWEAR
The Company manufactures shoes for large retailers and other footwear
manufacturers under contract. Most of the private label products consist of
work/outdoor footwear, although the Company is actively pursuing new customers
of its western private label products. The significant customers in this
division consist of large national retail chains, specialty catalog retailers,
and large wholesalers. In addition, this division serves several accounts
overseas, primarily in Europe and Japan.
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B.B. Walker Company
1999 Form 10-K
OTHER
The Company operates two retail stores which offer the Company's branded
merchandise at discount prices to retail customers. In addition to Company
brands, a wide selection of other manufacturers' brands and accessories are
offered to provide customers with a variety of options from which to choose.
One retail store, which operates under THE FOOTFACTORY[REGISTERED] name, is
located in an outlet mall in Lancaster, Pennsylvania. The second store is a
factory outlet store located in its Asheboro, North Carolina facility.
In addition, the Company also manufactures footwear for institutional
customers, primarily prisons and correctional facilities. Styles manufactured
for these customers are a basic work boot construction. Most orders for
institutional customers are obtained through a competitive bidding process.
MANUFACTURING
The Company operates two manufacturing facilities, in Asheboro, North Carolina
and in Somerset, Pennsylvania. As of the fourth quarter of 1998, the Asheboro
plant produces only cement-constructed footwear while the Somerset plant
manufactures only welt-constructed footwear. The Company has entered into an
Agreement for Purchase and Sale of Real Property located in Asheboro, North
Carolina, dated as of February 4, 2000 (see previous discussion in Item 1
under GENERAL).
The Company traditionally has manufactured the majority of its footwear
products in its own factories. In situations where it is advantageous to the
Company, production of components, primarily uppers, used in the manufacture
of footwear are outsourced to other manufacturers. Some of these
manufacturers are outside of the United States which subjects the Company to
the normal risks of conducting business abroad, such as political unrest,
labor disturbances or expropriation. No such problems have been experienced
or are anticipated.
The manufacture of footwear is relatively labor-intensive and involves five
primary operations: production of uppers; lasting the uppers to define the
shape, form and size of the footwear; bottoming the footwear; finishing the
footwear; and packaging the footwear. The Company produces boots and shoes
with "cemented" or molded bottoms as well as boots and shoes with bottoms
that are "welted" or stitched to the uppers.
The Company continues to explore manufacturing and product design innovations
in order to utilize its production capacity in the most efficient manner, to
produce high quality footwear, and to maintain a moderate price structure for
its products. Management believes innovation in its manufacturing process,
including innovation in product design and cost containment, is instrumental
in the Company's long-term success.
SALES AND MARKETING
The Company markets its products through a single sales force directed by a
national sales manager. The national sales manager is accountable for
planning the territory, budget, service, sales operations, and motivation of
the sales staff. Territories are established by the national sales manager
using Metro Market Demographic and other statistical data. Salespersons are
hired based on strengths and experience to sell and service within a
territory, including development of the customer base. The Company's
salespersons solicit orders within the territory to which they are assigned.
Orders are submitted to the Company's credit department in Asheboro, North
Carolina for acceptance or rejection based on the customer's credit history.
To a lesser extent, the Company's products are also marketed by independent
sales representatives, who are often engaged to develop new geographic
markets for the Company.
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B.B. Walker Company
1999 Form 10-K
The Company markets its products primarily to wholesale customers in the
United States, but also provides footwear to customers in Canada, Japan and
Europe. The Company has approximately 2,600 active accounts. The Company's
salesmen are offered special incentives for opening new accounts. A majority
of the customer base is made up of small retail chains and independent retail
outlets, which have been adversely affected by the larger retail chains.
One customer accounted for approximately 12% of net sales in 1999 and 1998,
and 10% in 1997. Historically, the largest ten customers account for less
than 30% of net sales. The Company does not feel that a single customer or
group of customers comprise a significant portion of operations or exert
significant influence over the Company.
DISTRIBUTION
The Company's footwear is distributed nationally from its warehouse in
Asheboro, North Carolina. The Company ships its finished goods with its own
fleet of trucks and trailers leased from a third party carrier or uses a
parcel delivery service and common carriers when cost effective or requested
by the customer. The Company's trucks deliver goods to large customers, as
well as to trucking terminals for subsequent delivery to customers by local
or cartage carriers. On the back haul, the trucks generally pick up raw
materials from suppliers for delivery to the Company's warehouse at its
Asheboro facility.
COMPETITION
The Company operates in a highly competitive industry. Competition comes from
numerous domestic manufacturers of footwear, as well as imports, particularly
from China and Mexico. With the North American Free Trade Agreement ("NAFTA")
and the General Agreement on Trade and Tariffs ("GATT"), foreign competition
has easier access to the United States markets. The growth in footwear
imports, particularly in the work/outdoor markets, has led the Company to
increase its use of imports. Introduced by the Company in fiscal 1999, a line
of work shoes manufactured in Mexico will begin shipments early in calendar
2000.
Many of the Company's competitors have greater financial, distribution, brand
name recognition and marketing resources than the Company. The Company relies
on product performance, styling, quality, and timeliness of product delivery
and perceived product value to distinguish its products from the competition.
The Company believes that, based on these factors, it maintains a strong
competitive position in its current market niches. Additionally, with the use
of an extensive cost accounting system, the Company maintains a tight control
on the costs that go into the manufacture of its products. The Company
believes this gives it the advantage of being a low cost producer and allows
it to be competitive in the pricing of its products, which are medium priced
in relation to the market. The Company anticipates that substantial
competition will continue in the future and therefore continues to plan and
develop strategies to enhance its competitive position.
RAW MATERIAL AND FINISHED GOODS INVENTORIES
Each of the Company's footwear styles has different raw material requirements
and is produced in numerous sizes and widths. The Company maintains its
inventories of raw materials at both its Asheboro and Somerset facilities.
To the extent practicable, the Company strives to support customers
by maintaining the Company's most popular branded products in stock and by
shipping products quickly to meet customer delivery requirements, with timely
notification to customers of unavoidable delays in delivery. Because of the
large number of variations in sizes and widths for each style, the Company
continues to develop enhancements to its inventory control system and
production planning process to ensure adequate stock levels are maintained
and to minimize delivery time for out-of-stock items.
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B.B. Walker Company
1999 Form 10-K
While the Company believes that its products are relatively insensitive to
fashion trends, changes in consumer tastes do impact inventory levels. The
Company's product development staff monitors the market and responds on a
timely basis with new constructions and styles to prevent the buildup of
inventory that is no longer in peak demand in the marketplace. In addition,
the Company offers special incentive-based inventory reduction programs to
turn over on-hand inventory of styles that are slow moving or that are being
replaced with newer styles.
The Company's principal raw materials are leather, rubber and composition-
based heels and soles, and fiber based items, such as insoles. The Company
purchases its raw materials from numerous suppliers, the majority of which
are domestic. The Company is not dependent on any one supplier for raw
materials. While the Company expects that supplies of raw materials will
continue to be readily available as needed for the Company's operations, the
price of some of the components of its products, primarily leather, has
exhibited volatility in the past, and some price volatility can be
anticipated in future years. The supply of leather and other raw materials
was adequate in fiscal 1999.
SEASONALITY
The Company experiences significant seasonal fluctuations in net sales because
consumers purchase a large percentage of the Company's products from September
through December. As a result, retail dealers of the Company's products
generally request delivery of products from June through October for advance
orders and from October through December for restocking orders. Accordingly,
inventory levels are highest during June and July and accounts receivable
levels are highest during October through December. Because of seasonal
fluctuations, there can be no assurance that the results of any particular
quarter will be indicative of results for the full year or for future years.
BACKLOG
Backlog records are maintained based on orders for pairs of footwear, rather
than in terms of dollars. The backlog fluctuates on a seasonal basis,
reaching higher levels in the spring and summer months when retailers buy for
fall selling. At October 30, 1999, the backlog for orders believed to be
firm was 38,989 pairs, as compared to 65,289 pairs as of October 31, 1998.
One of the reasons for this backlog decrease is the general softness in the
retail footwear environment, as evidenced by the 22.4% sales decrease from
1998 to 1999. The backlog at a particular time is affected by a number of
factors, including seasonality and scheduled date of manufacture and delivery.
Private label and export orders often have significant lead times. Therefore,
a comparison of the Company's backlog from period to period may not be
meaningful and may not be indicative of future sales.
Advance private label and export orders provide the Company with a stable work
flow which complements orders for branded footwear. The Company attempts to
ship orders for branded products from inventory as they are received. Thus,
the backlog of branded products only reflects orders that were not immediately
filled from inventory and does not accurately predict the mix of future sales.
All orders at October 30, 1999 are expected to be filled during the current
fiscal year.
INTELLECTUAL PROPERTY
The Company owns federal trademark registrations for many of its marks,
including ABILENE[REGISTERED], SAGE[REGISTERED], GOLDEN RETRIEVER
[REGISTERED], DURATUFF[REGISTERED], WALKER FOOTWEAR THAT WORKS[REGISTERED],
SAFETY FIRST[REGISTERED], AIR RIDE[REGISTERED], COMFORT SYSTEM[REGISTERED],
and EASY COMFORT SYSTEM[REGISTERED]. The Company's trademarks are valuable
assets. Therefore, it is the policy of the Company to pursue registration of
its trademarks whenever possible and to defend its trademarks from
infringement. There are no patents, licenses, franchises or concessions
that are material to the operations of the Company.
5
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B.B. Walker Company
1999 Form 10-K
GOVERNMENTAL REGULATION
All of the Company's operations are subject to federal, state and local
regulatory standards, primarily in the area of safety, health, employment and
environmental standards. In general, the Company has experienced no
difficulty in complying with these standards and believes that they have not
had any material effect on its capital expenditures, earnings or competitive
position.
EMPLOYEES
The Company and its subsidiary employed 350 persons as of October 30, 1999,
139 at the Asheboro, North Carolina facility and 211 at the Somerset,
Pennsylvania facility. Of these individuals, 270 were engaged in
manufacturing and 80 in administrative, sales, and transportation functions.
Substantially all of the Company's employees were employed on a full-time
basis. None of the Company's employees are covered by collective bargaining
agreements and the Company believes its relations with its employees are good.
READINESS FOR YEAR 2000 COMPLIANCE
In November 1997 the Company initiated a program to minimize the risk of
potential disruption from the "Year 2000 ('Y2K') problem." This problem was
a result of computer programs having been written using two digits (rather
than four) to define the applicable year. Any information technology ("IT")
systems having time-sensitive software might 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 extended 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 would be 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 were 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 reported periodically to the Company's
president, who in turn updated 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 was assigned
full-time to modify those identified programs. Program changes and
testing were made in a test directory specifically created for the Y2K
modifications so that there were no conflicts with live data. When testing
was completed for a system, files were then converted, and modified programs
were copied to live directories on a weekend when no users were on the system.
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B.B. Walker Company
1999 Form 10-K
With regard to non-IT systems, the Company's phone and security systems were
both Y2K compliant as of October 30, 1999. Major suppliers to the Company had
been contacted by questionnaire, and the Company had received confirmations
of either Y2K compliance or a timetable to be compliant from such suppliers.
The Company had also contacted its major customers by questionnaire to assess
their status with regard to the Y2K issue. Contingency plans would be
developed for any significant suppliers or customers that are not Y2K compliant
by December 15, 1999, or earlier if the Company became aware that such
entities would not be Y2K compliant in a timely manner.
It is important to note that the description of the Company's efforts
necessarily involved estimates and projections with respect to activities
required in the future. The required code changes, testing, and
implementation necessary to address the Y2K issue were expected to cost
approximately $115,000, and the Company had incurred approximately $110,000
through October 30, 1999. As of that date, the Company estimated being
approximately 99% complete with the efforts required to be Y2K compliant.
Subsequent to fiscal year ended October 30, 1999, the Company completed its
final Y2K system testing on December 10, 1999. When January 1, 2000 passed,
the Y2K costs had not exceeded the project budget of $115,000. Now well into
January 2000, the Company believes it has successfully avoided any significant
disruption from any Y2K issues relating to the new century rollover.
Therefore, no contingency plans appear to be necessary, but the Company will
continue to monitor all critical systems for the appearance of delayed
complications or disruptions, problems relating to the leap year, and problems
encountered through suppliers, customers, and other third parties with whom
the Company deals. Although these and other unanticipated Y2K issues could
have an adverse effect on the results of operations or financial condition
of the Company, it is not possible to anticipate the extent of impact at this
time.
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 state-
ments, which reflect management's judgment only as of the date hereof. The
Company undertakes no obligation to publicly revise these forward-looking
statements to reflect events and circumstances that arise after the date
hereof.
Factors that might cause actual results to differ materially from these
forward-looking statements include (1) the effects of general economic
conditions, (2) the impact of competitive products and pricing in the
footwear industry, (3) failure to achieve anticipated sales results,
(4) management's ability to accurately predict the effect of cost reductions,
and (5) management's ability to accurately predict the adequacy of the
Company's financing arrangement to meet its working capital and capital
expenditure requirements.
ITEM 2. PROPERTIES
As of October 30, 1999, the Company and its subsidiary utilized an aggregate
of approximately 355,000 square feet of floorspace in various facilities, all
of which are in service and are adequate for the operations performed.
Substantially all of the Company's property, including its facilities and
inventories, are insured on a replacement value basis.
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B.B. Walker Company
1999 Form 10-K
The Company and its subsidiary, Bender Shoe Company, operate manufacturing and
warehousing facilities as follows:
Asheboro, North Carolina - This location on 414 East Dixie Drive, Asheboro,
North Carolina contains the manufacturing facility for footwear with cement
construction, as well as the administrative offices of the Company. The
Company uses 281,857 square feet of space in one building on approximately
26 acres of land. The premises are used for manufacturing, shipping,
warehousing, administration, and a retail outlet store. Paved parking and
truck loading areas are maintained. The premises owned in fee are subject to
an existing lien under a deed of trust in favor of Mellon Bank, N.A. The
Company has entered into an Agreement for Purchase and Sale of Real Property
located in Asheboro, North Carolina, dated as of February 4, 2000 (see
previous discussion in Item 1 under GENERAL).
Somerset, Pennsylvania - The Company's subsidiary, Bender Shoe Company, moved
to a larger facility in Somerset in August, 1994. The facility provides
approximately 68,000 square feet of space on 3.8 acres of land. The facility
is used primarily for the manufacture of footwear with welt construction plus
raw material storage. A small portion of the space is used as administrative
offices. The Company owns the facility which is subject to existing liens in
favor of First National Bank and Trust Company in Asheboro, NC, the
Pennsylvania Industrial Development Authority, the Pennsylvania Economic
Revitalization Fund and Mellon Bank, N.A.
The Company also operates factory outlet retail stores in Asheboro, North
Carolina and Lancaster, Pennsylvania. The Asheboro retail store is located
at the Company's Asheboro manufacturing facility. The Company leases the
retail store space in Lancaster, PA.
ITEM 3. LEGAL PROCEEDINGS
(a) From time to time, the Company is a defendant in legal actions
involving claims arising in the normal course of business. In management's
opinion, after consultation with counsel and a review of the facts, the
liabilities, if any, resulting from such legal proceedings currently pending
will not have a material effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the executive officers of the Company as of
October 30, 1999 are listed below along with their business experience during
the past five years. Officers are elected annually by the Board of Directors
at the Annual Meeting of the Board of Directors convened immediately following
the Annual Meeting of the Shareholders. Executive officers serve until the
next annual meeting of the Directors and until their successors are elected
and qualified.
Executive Officer (Age) Position and Office
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Kent T. Anderson (57) Chairman (1992), President (1984) and
Chief Executive Officer (1986) (1)
French P. Humphries (59) Executive Vice President (1995) (2)
Carey M. Durham (48) Chief Financial Officer (1998) (3)
(1) Officer is also a director of the Company.
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B.B. Walker Company
1999 Form 10-K
(2) As of December 1995, officer was named Executive Vice President and
directs the Company's marketing and merchandising efforts. From 1992 to 1995,
he served as Vice President - Marketing. Prior to 1992, he was General
Manager of the Western Division, a position he held since 1977.
(3) Served in this position since October 1, 1998. His responsibilities
include directing the Company's finance and accounting functions. A Certified
Public Accountant, he was in executive financial management in the home
furnishings industry (1995-98) and injection-molded plastics manufacturing
(1989-95) prior to joining the Company.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is found under the heading "Stock
Prices" on page 41 of the Annual Report to Shareholders (included as Exhibit
13 to this filing) for the year ended October 30, 1999 and is incorporated
herein by reference. The Company had 1,163 shareholders of record at January
28, 2000.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is reported on page 28 of the Annual
Report to Shareholders (included as Exhibit 13 to this filing) under the
heading "Selected Financial Data" and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by this Item is on pages 29 through 40 of the Annual
Report to Shareholders (included as Exhibit 13 to this filing) under the
heading "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is reported on pages 1 through 41 of
the Annual Report to Shareholders (included as Exhibit 13 to this filing)
and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III has been omitted under Item G of the
General Instructions for Form 10-K, Rule 12-b-23, as the Company files with
the Securities and Exchange Commission a definitive proxy statement pursuant
to Regulation 14A not later than 120 days after the end of its fiscal year.
Only those sections of the Proxy Statement which specifically address the
items set forth herein are incorporated by reference.
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B.B. Walker Company
1999 Form 10-K
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the Company's directors required by this Item is
incorporated herein by reference to the Company's Proxy Statement.
Information concerning the Company's executive officers required by this Item
is incorporated herein by reference to Part I of this Form 10-K on Page 8,
under the caption "Executive Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this Form 10-K:
(1) Financial Statements - The following consolidated financial
statements of the Company are incorporated herein by reference to
pages 4 through 27 of the Annual Report to Shareholders:
(a) Consolidated Statements of Income (Loss) for the fiscal years
ended October 30, 1999, October 31, 1998, and November 1, 1997.
(b) Consolidated Balance Sheets at October 30, 1999 and October 31,
1998.
(c) Consolidated Statements of Cash Flows for the fiscal years ended
October 30, 1999, October 31, 1998, and November 1, 1997.
(d) Consolidated Statements of Shareholders' Equity for the fiscal
years ended October 30, 1999, October 31, 1998, and November 1,
1997.
(e) Notes to Consolidated Financial Statements
(f) Report of Independent Accountants
(2) Financial Statement Schedule - The following supplementary
consolidated financial statement schedule of the Company is filed
as part of this Form 10-K and should be read in conjunction with
the Annual Report to Shareholders:
Schedule Page
-------- ----
II Valuation and Qualifying Accounts F-2
10
<PAGE>
B.B. Walker Company
1999 Form 10-K
The reports of the Company's independent public accountants with
respect to the above described financial statements and financial
statement schedules appear on page 27 of the Annual Report to
Shareholders and on page F-1 of this report, respectively, and are
incorporated herein by reference.
All other financial statements and schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is not
applicable or required.
(B) No reports on Form 8-K were filed by the Company during the last quarter
of fiscal 1999.
(C) A listing of exhibits is incorporated herein by reference to the Index to
Exhibits on pages F-3 through F-5.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
B.B. WALKER COMPANY (Registrant)
By: DOROTHY W. CRAVEN
---------------------
Dorothy W. Craven
Date: February 08, 2000 Corporate Secretary
-----------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated and on the date indicated.
Signature Title
--------- -----
Principal Executive Officer:
KENT T. ANDERSON 2/08/2000 Chairman of the Board, Chief Executive
- ------------------ --------- Officer and President
Kent T. Anderson Date
Principal Financial and Accounting Officer:
CAREY M. DURHAM 2/08/2000 Vice President/Chief Financial Officer
- ------------------ ---------
Carey M. Durham Date
BOARD OF DIRECTORS
KENT T. ANDERSON 2/08/2000 EDNA A. WALKER 2/08/2000
- ------------------ --------- ---------------- ---------
Kent T. Anderson Date Edna A. Walker Date
Chairman
ROBERT L. DONNELL, JR. 2/08/2000 MICHAEL C. MILLER 2/08/2000
- ------------------------ --------- ------------------- ---------
Robert L. Donnell, Jr. Date Michael C. Miller Date
JAMES P. McDERMOTT 2/08/2000 GEORGE M. BALL 2/08/2000
- -------------------- --------- ---------------- ---------
James P. McDermott Date George M. Ball Date
11
<PAGE>
B.B. Walker Company
1999 Form 10-K
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
---------------------------------
To the Board of Directors and Shareholders of
B.B. Walker Company
Our audits of the consolidated financial statements referred to in our report
dated December 3, 1999 appearing on page 27 of the 1999 Annual Report to
Shareholders of B.B. Walker Company (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(A) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
- --------------------------
PricewaterhouseCoopers LLP
Greensboro, North Carolina
December 3, 1999
F-1
<PAGE>
B.B. Walker Company
1999 Form 10-K
B.B. WALKER COMPANY Schedule II
-----------
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Year Expenses Accounts Deductions End of Year
----------- ---------- ---------- ----------- ---------- ----------
Allowance for Doubtful Accounts:
October 30, 1999 $ 557,000 199,000 - 231,000 $ 525,000
========== ========== =========== ========= ===========
October 31, 1998 $ 503,000 453,000 - 399,000 $ 557,000
========== ========== ========== ========== ===========
November 1, 1997 $ 742,000 267,000 - 506,000 $ 503,000
========== ========== =========== ========= ===========
F-2
<PAGE>
INDEX TO EXHIBITS
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ------------
(3) Articles of Incorporation and By-Laws
(3)(a) Articles of Amendment to Articles of Exhibit D to Form 10-K
Incorporation and Restated Charter of for the fiscal year
B.B. Walker Company dated November 28, 1979, ended November 3, 1979
filed with the Secretary of State in
Raleigh, NC
(3)(b) Articles of Amendment to Articles of Exhibit A to Form 10-Q
Incorporation dated March 24, 1980, filed for the six month
with the Secretary of State in Raleigh, NC period ended May 3,
1980
(3)(c) Articles of Merger of Lyon & Shaw, Inc. Exhibit (3) (c) to
into Registrant dated January 21, 1987 the Form 10-K for the
fiscal year ended
November 1, 1986
(3)(d) Copy of the revised By-Laws of B.B. Walker Exhibit (3)(d) to the
Company as amended January 7, 1992 Form 10-K for the
fiscal year ended
November 2, 1991
(3)(e) Articles of Merger of Walker Shoe Company Exhibit (3)(g) to the
into B.B. Walker Company dated June 29, 1987 Form 10-K for the
fiscal year ended
October 31, 1987
(3)(f) Articles of Amendment to Articles of Exhibit (3)(f) to the
Incorporation dated November 16, 1988, filed Form 10-K for the
with the Secretary of State in Raleigh, NC fiscal year ended
October 30, 1988
(3)(g) Articles of Amendment to Articles of Exhibit (3)(g) to the
Incorporation dated March 30, 1994, filed Form 10-K for the
with the Secretary of State in Raleigh, NC fiscal year ended
October 29, 1994
(4) The Registrant, B.B. Walker Company, by signing Exhibit (4) to Form
this report, agrees to furnish the Securities 10-K for the fiscal
and Exchange Commission upon its request a copy year ended November
of any instrument which defines the rights of 2, 1985
holders of long-term debt of the Registrant and
its subsidiary for which consolidated or
unconsolidated financial statements are required
to be filed and which authorizes a total amount
of securities not in excess of 10% of the total
assets of the Registrant and its subsidiary on a
consolidated basis.
(4)(a) Certificate of Common Capital Stock of B.B. Exhibit (N) to Form
Walker Company 10-K for the fiscal
year ended October
28, 1978
(4)(b) Unsecured Promissory Note of B.B. Walker Exhibit (B) to Form
Company with flexible rate minimum interest 10-K for the fiscal
provisions year ended November
1, 1980
F-3
<PAGE>
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ------------
(4)(c)(1) Credit Agreement dated August 15, 1995 Exhibit (4)(c)(1) to
between Mellon Bank, N.A., Philadelphia, PA, Form 10-Q for the
as Lender and B.B. Walker Company, Asheboro, third quarter ended
NC, the Registrant, as Borrower. The twenty- July 29, 1995
one supporting schedules have been omitted
being detailed forms, lists and support for
specific provisions set out in the agreement.
(4)(c)(2) Revolving Credit Note dated August 15, 1995 Exhibit (4)(c)(2) to
in the amount of $20 million; signed by the Form 10-Q for the
Registrant and in favor of Mellon Bank, N.A., third quarter ended
Philadelphia, PA July 29, 1995
(4)(c)(3) Term Loan Note dated August 15, 1995 in the Exhibit (4)(c)(3) to
amount of $3 million; signed by the Form 10-Q for the
Registrant and in favor of Mellon Bank, third quarter ended
N.A., Philadelphia, PA July 29, 1995
(4)(c)(4) Letter dated February 6, 1996 acknowledging Exhibit (4)(c)(4) to
Mellon Bank's agreement to amend financial Form 10-Q for the
covenants of the Revolving Credit Agreement first quarter ended
effective as of October 28, 1995 and February 3, 1996
thereafter
(4)(c)(5) First Amendment to the Credit Agreement Exhibit (4)(c)(5) to
dated April 15, 1996 between B.B. Walker Form 10-Q for the
and Mellon Bank, N.A. second quarter ended
May 4, 1996
(4)(c)(6) Second Amendment to the Credit Agreement Exhibit (4)(c)(6) to
dated October 18, 1996 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. fiscal year ended
November 2, 1996
(4)(c)(7) Third Amendment to the Credit Agreement Exhibit (4)(c)(7) to
dated November 14, 1996 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. fiscal year ended
November 2, 1996
(4)(c)(8) Fourth Amendment to the Credit Agreement Exhibit (4)(c)(8) to
dated April 15, 1997 between B.B. Walker Form 10-Q for the
and Mellon Bank, N.A. second quarter ended
May 3, 1997
(4)(c)(9) Fifth Amendment to the Credit Agreement Exhibit (4)(c)(9)
dated July 8, 1998 between B.B. Walker Form 10-Q for the
and Mellon Bank, N.A. third quarter ended
August 1, 1998
(4)(c)(10)Separate Agreement with Mellon Bank Exhibit (4)(c)(10)
Regarding Calculation of Financial Form 10-Q for the
Covenants, dated September 10, 1998 third quarter ended
August 1, 1998
(4)(c)(11)Sixth Amendment to the Credit Agreement Exhibit (4)(c)(11)
dated December 29, 1998 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. fiscal year ended
October 31, 1998
(4)(c)(12)Separate Agreement with Mellon Bank Exhibit (4)(c)(12)
Regarding Calculation of Financial Form 10-K for the
Covenants, dated December 30, 1998 fiscal year ended
October 31, 1998
F-4
<PAGE>
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ------------
(4)(c)(13)Seventh Amendment to the Credit Agreement Exhibit (4)(c)(13)
dated June 30, 1999 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. third quarter ended
July 31, 1999
(4)(c)(14)Eighth Amendment to the Credit Agreement Exhibit (4)(c)(14)
dated December 30, 1999 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. fiscal year ended
October 30, 1999
(4)(c)(15)Ninth Amendment to the Credit Agreement Exhibit (4)(c)(15)
dated January 26, 2000 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. fiscal year ended
October 30, 1999
(10)(a) B.B. Walker Company Nonqualified Deferred Exhibit (10) to Form
Compensation Plan as amended, adopted 10-K for the fiscal
June 7, 1983. year ended October
29, 1983
(10)(d) 1987 Incentive Stock Option Plan effective Exhibit (10)(d) to
February 11, 1987 Form 10-K for the
fiscal year ended
October 29, 1988
(10)(e) 1995 Incentive Stock Option Plan for Key Filed with the 1994
Employees and Non-Employee Directors Proxy Statement
effective March 20, 1995 mailed to
to shareholders on
February 27, 1995
(10)(f)(1) Employment Agreement between B.B. Walker Exhibit (10)(f)(1) to
Company and Kent T. Anderson, President Form 10-Q for the
and Chief Executive Officer, dated October nine months ended
2, 1989 July 28, 1990
(10)(f)(2) First Amendment to Employment Agreement Exhibit (10)(f)(2) to
between B.B. Walker Company and Kent T. Form 10-Q for the
Anderson, President and Chief Executive nine months ended
Officer, dated July 6, 1990 July 28, 1990
(10)(g) Contract for Purchase and Sale of Real Exhibit (10)(g) to
Property Located in Asheboro, North Form 10-K for the
Carolina, between B.B. Walker Company fiscal year ended
and H. William Hull, Jr., dated October 31, 1998
January 28, 1999
(10)(h) Agreement for Purchase and Sale of Real Exhibit (10)(h) to
Property located in Asheboro, North Form 10-K for the
Carolina, between B.B. Walker Company fiscal year ended
and MART Acquisition, Inc. October 30, 1999
dated February 4, 2000
(11) Computation of earnings per share amounts are
explained in Note 1 to the Consolidated
Financial Statements in the Annual Report to
Shareholders for the fiscal year ended
October 30, 1999, which is Exhibit 13 to this
filing
(13) Annual Report to Shareholders for the fiscal Filed herewith as
year ending October 30, 1999 Exhibit (13)
(22) Subsidiaries of the Registrant Filed herewith as
Exhibit (22)
(27) Summary Financial Information Schedule Filed herewith as
Exhibit (27)
F-5
<PAGE>
Exhibit 13
----------
B.B. WALKER COMPANY AND SUBSIDIARY
FIFTY-FIRST ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 30, 1999
1999 ANNUAL REPORT OF
B.B. WALKER COMPANY
B.B. WALKER COMPANY is a publicly held manufacturer and distributor of men's
and women's footwear, whose common stock is registered with the Securities and
Exchange Commission and is traded in the Over The Counter Securities Market.
A substantial portion of the Company's common stock is owned by employees
through participation in the Employee Stock Ownership Plan and Trust and by
many employees individually.
Founded in 1947 in Asheboro, North Carolina and incorporated in 1952 in the
State of North Carolina, the Company currently markets high quality, medium-
priced western and work/outdoor boots and shoes under the ABILENE BOOT COMPANY
name. A majority of the Company's sales are under trademarked brands. In
addition, the Company manufactures footwear under major retailers' private
labels and on contract for other footwear manufacturers. The Company also
operates two retail stores.
For western boot customers, the Company offers quality western boots through
two proprietary brands. Through its ABILENE[REGISTERED] brand, the Company
manufactures and markets high quality all-leather boots for the traditional
boot wearer that look and feel great. Abilene Boots[REGISTERED] feature the
AIR RIDE[REGISTERED] Comfort System which is designed to deliver comfort from
every part of the boot by utilizing a technologically advanced cushion insole.
Abilene Boots[REGISTERED] definitely live up to their "AFFORDABLE QUALITY"
[REGISTERED] slogan. The SAGE COLLECTION[REGISTERED] is offered at a lower
price point and features bright colors and accents which can be worn on most
any occasion by the metro fashion consumer or the traditional boot wearer.
Sage[REGISTERED] styles offer the same craftmanship and superior fit that
Abilene[REGISTERED] styles do.
For work/outdoor footwear customers, the Company markets quality boots through
its GOLDEN RETRIEVER[REGISTERED] brand, including pull-on, lace-up, lined,
insulated and waterproof, in a variety of heights, soles and constructions.
The Golden Retriever[REGISTERED] Easy Comfort[REGISTERED] System features a
specially contoured cushioned insole that is guaranteed to never give out.
Made for the working consumer, DURATUFF[REGISTERED]Work Boots feature
double cushioned insoles and are built to work for a living. The Company
continues to manufacture boots and shoes for work and safety use under the
WALKER FOOTWEAR THAT WORKS[REGISTERED] brand and the SAFETY FIRST[REGISTERED]
brand. The mainstays of this line are all-leather lace-up and pull-on utility
boots.
The Company has historically served the private label market, manufacturing
footwear for large retailers and other footwear manufacturers on a contract
basis. Most of the Company's private label products consist of work/outdoor
footwear. In addition, the Company also produces several styles purchased in
large quantities by institutional customers such as prison systems and work
camps.
B.B. WALKER COMPANY and its subsidiary are equal opportunity employers. All
matters regarding recruiting, hiring, training, compensation, benefits,
promotion, transfers and other personnel policies will continue to be free
from all discriminatory practices.
The Company and its subsidiary employ 350 people at October 30, 1999.
Contents Page
-------- ----
Financial Highlights.....................................1
Message to Shareholders..................................2
Consolidated Financial Statements and Notes..............4
Report of Independent Accountants.......................27
Selected Financial Data.................................28
Management's Discussion and Analysis of Results
of Operations and Financial Condition.................29
Stock Prices............................................41
Officers and Directors..........................Back Cover
Inside Front Cover
B.B. WALKER COMPANY AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
Fiscal Year Ended
---------------------------------------
October 30, October 31, November 1,
1999 1998 1997
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except per share data)
OPERATIONS
Net sales $ 25,896 $ 28,813 $ 32,648
======== ======== ========
Income (loss) before income taxes
and minority interest (591) (736) (54)
Provision for (benefit from)
income taxes - (813) (80)
Minority interest (1) (2) (2)
-------- -------- --------
Net income (loss) $ (592) $ 75 $ 24
======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE $ (.34) $ .04 $ .01
======== ======== ========
Average number of shares outstanding 1,735 1,724 1,729
======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ (.34) $ .04 $ .01
======== ======== ========
Average number of shares outstanding 1,735 1,727 1,732
======== ======== ========
FINANCIAL CONDITION,
Current assets $ 17,995 $ 18,314 $ 19,268
Current liabilities 14,309 14,102 13,368
Working capital 3,686 4,212 5,900
Current ratio 1.26 to 1 1.30 to 1 1.44 to 1
Long-term obligations,
non-current portion 1,187 1,303 3,216
Shareholders' equity 4,065 4,642 4,557
Book value per common share 2.28 2.65 2.59
1
CHAIRMAN'S MESSAGE TO SHAREHOLDERS
TO OUR SHAREHOLDERS
1999 was a watershed year for the footwear industry. Import penetration into
the U.S. footwear market increased to 95% making it easier for other companies
to enter the work shoe market. This resulted in a proliferation of brands
full of low-priced imports. Due to this increased competition, we were forced
to rethink our approach to the work shoe business and take action to preserve
our position in the industry.
Accordingly, we dramatically reduced our manufacturing operation in Asheboro
and increased our manufacturing operation in Asheboro and increased our use
of imports. Introduced by the Company in late 1999, a line of work shoes
manufactured in Mexico will begin shipment early in calendar 2000. As a
result of these actions, coupled with our continuing domestic production of
the product, we hope to recover some of the ground we have lost in the work
shoe market these past two years.
In a declining overall market, we are pleased to report that our western boot
market share has continued to increase this past year. Due to our new
product line being introduced in January 2000 plus the return of the western
influence in fashion, we expect this trend to continue.
Although the company showed a 1% increase in sales of western footwear in
1999, it was not enough to overcome the 21% decrease in work/outdoor shoe
shipments. Overall net sales dropped $2,917,000 (or 10%) from $28,813,000
in 1998 to $25,896,000 in 1999. In spite of this year's decrease in net
sales, a positive note is that gross margin as a percentage of sales
increased from 25% in 1998 to 28% in 1999. This 3% increase was due
primarily to improved operations from the welt and cement construction
footwear being produced in separate locations since late in fiscal 1998.
This improvement allowed our loss from operations to be reduced $145,000
(or 20%) from $736,000 in 1998 to $591,000 in 1999.
The Company's net loss before taxes of $738,000 in 1998 was overcome by
a significant $813,000 adjustment to our tax provision resulting in net
income of $75,000 in 1998, whereas there was no valuation allowance
available to adjust the $592,000 loss in 1999. However, it is possible
that the Company will have significant net income in 2000 (which will
allow the Company to offset related income tax liabilities with net
operating loss carryforwards from prior years) as a result of an
attractive offer received in December 1999 to sell all of its 26 acres
of real property in Asheboro, North Carolina. This land is in one of
the prime commercial sections of Randolph County.
2
CHAIRMAN'S LETTER TO SHAREHOLDERS, Continued
The Company entered into a contract to sell its Asheboro, NC property
on February 4, 2000. Under this contract, the purchaser has a
substantial period to examine the suitability of the property for its
needs. At the end of this 180 day period, the purchaser may extend
the examination period for two additional 90 day periods. At the end
of the examination period, the contract may be terminated by the
purchaser without further obligation to the Company. Accordingly,
there can be no assurances that the sale of the Asheboro, NC property
will be consummated or, if consummated, that such sale will occur in
the Company's fiscal year 2000. If the sale is consummated in fiscal
year 2000, the resulting selling price is expected to have a
significant positive impact on the Company's net worth, as the property
is carried on our books at a relatively low valuation. While there
will be costs associated with relocating the Asheboro facility and some
interruption in the Company's manufacturing operations, the Company
has taken steps to limit the effects of these matters and does not
expect the relocation to have a material adverse effect on the
operations of the Company.
The coming year will be another one of major transition for B.B.
Walker Company, as we look forward to the relocation of our
facilities in this area. In the meantime, we appreciate the support
and loyalty of our customers, shareholders, and employees.
Sincerely,
KENT T. ANDERSON
- ----------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer, and President
3
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
October 30, October 31, November 1,
1999 1998 1997
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Net sales (Note 11) $ 25,896 $ 28,813 $ 32,648
Interest and other income 152 39 77
------- ------- -------
26,048 28,852 32,725
------- ------- -------
Costs and expenses:
Cost of products sold 18,611 21,507 24,121
Selling and administrative
expenses (Note 12) 6,888 6,736 6,996
Depreciation and amortization 192 269 458
Interest expense 948 1,076 1,204
------- ------- -------
26,639 29,588 32,779
------- ------- -------
Loss before income taxes
and minority interest (591) (736) (54)
Benefit from income taxes (Note 7) - (813) (80)
Minority interest (1) (2) (2)
------- ------- -------
Net income (loss) $ (592) $ 75 $ 24
======= ======= =======
Basic and diluted earnings (loss)
per share (Note 1) $ (.34) $ .04 $ .01
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
October 30, October 31,
1999 1998
----------- -----------
(In thousands, except share data)
CURRENT ASSETS:
Cash $ 1 $ 1
Accounts receivable, less allowance for doubtful
accounts of $525 in 1999 and $557 in 1998 (Note 4) 6,471 7,157
Inventories (Notes 2 and 4) 9,210 9,660
Prepaid expenses 471 446
Property held for sale (Notes 1 and 14) 803 -
Deferred income tax benefit, current (Note 7) 1,039 1,050
------- -------
Total current assets 17,995 18,314
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization (Notes 3, 4, 5, and 14) 1,467 1,622
OTHER ASSETS 130 144
------- -------
$ 19,592 $ 20,080
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
5
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
LIABILITIES AND SHAREHOLDERS' EQUITY
October 30, October 31,
1999 1998
----------- -----------
(In thousands, except share data)
CURRENT LIABILITIES:
Borrowings under finance agreement (Note 4) $ 7,113 $ 6,885
Accounts payable, trade 3,518 3,536
Accrued salaries, wages and bonuses 368 367
Other accounts payable and accrued liabilities 471 555
Portion of long-term obligations payable
within one year (Note 5) 2,657 2,566
Income taxes payable (Note 7) 182 193
------- -------
Total current liabilities 14,309 14,102
------- -------
LONG-TERM OBLIGATIONS (Note 5) 1,187 1,303
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARY 31 33
SHAREHOLDERS' EQUITY (Notes 10):
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 2,712 2,717
Retained earnings (deficit) (400) 198
Equity loans collateralized by Company
common stock (76) (77)
------- -------
Total shareholders' equity 4,065 4,642
------- -------
COMMITMENTS AND CONTINGENCIES (Note 9)
$ 19,592 $ 20,080
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
6
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-------------------------------------
October 30, October 31, November 1,
1999 1998 1997
52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except share data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (592) $ 75 $ 24
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization 192 269 458
Gain on sale of fixed assets (11) (3) (29)
(Increase) decrease in:
Accounts receivable, trade (net) 686 1,927 1,724
Inventories 450 (127) 2,978
Prepaid expenses (25) (33) 28
Deferred income tax benefit 11 (813) (87)
Other assets 14 12 58
Increase (decrease) in:
Accounts payable, trade 18 (401) (1,047)
Accrued salaries, wages and bonuses 1 (101) (634)
Other accounts payable and
accrued liabilities (84) 66 (191)
Income taxes payable (11) 170 1,065
------- ------- -------
Net cash provided (used) by
operating activities 613 1,041 4,347
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (37) (141) -
Proceeds from disposal of property, plant
and equipment 11 3 29
Purchase of property held for sale (803) - -
------- ------- -------
Net cash provided (used) by
investing activities (829) (138) 29
------- ------- -------
(Continued)
7
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Fiscal Year Ended
-------------------------------------
October 30, October 31, November 1,
1999 1998 1997
(52 weeks) (52 weeks) (52 weeks)
----------- ----------- -----------
(In thousands, except share data)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under
finance agreement $ 228 $ (479) $ (4,100)
Proceeds from issuance of
short-term obligations 478 - -
Proceeds from issuance of
long-term obligations 59 75 241
Proceeds from issuance of common stock 20 - -
Payment on long-term obligations (562) (509) (528)
Purchase of subsidiary common stock
from minority interest (2) - -
Loans to shareholders (15) - -
Repayments of loans to shareholders 16 16 17
Dividends paid on 7% cumulative
preferred stock (6) (6) (6)
------- ------- -------
Net cash provided (used) by financing
activities 216 (903) (4,376)
------- ------- -------
Net change in cash - - -
Cash at beginning of year 1 1 1
------- ------- -------
Cash at end of year $ 1 $ 1 $ 1
======= ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
8
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity Loans
(In thousands, 7% Cumulative Capital in Retained Collateralized Total
except number Preferred Stock Common Stock Excess of Earnings By Common Shareholders'
of shares) Shares Amount Shares Amount Par Value (Deficit) Stock Equity
------ ------ --------- ------ --------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 2, 1996 828 $ 83 1,726,534 $ 1,727 $ 2,724 $ 111 $ (123) $ 4,522
Repayment of equity loans col-
lateralized by common stock - - - - - - 17 17
Net income - - - - - 24 - 24
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at November 1, 1997 828 83 1,726,534 1,727 2,724 129 (106) 4,557
Repayment of equity loans by
retirement of common stock - - (5,580) (6) (7) 13 -
Repayment of equity loans col-
laterized by common stock - - - - - - 16 16
Net income - - - - - 75 - 75
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 31, 1998 828 83 1,720,954 1,721 2,717 198 (77) 4,642
Issuance of common stock - - 25,000 25 (5) - - 20
Equity loans collaterized
by common stock - - - - - - (15) (15)
Repayment of equity loans col-
lateralized by common stock - - - - - - 16 16
Net loss - - - - - (592) - (592)
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 30, 1999 828 $ 83 1,745,954 $ 1,746 $ 2,712 $ (400) $ (76) $ 4,065
==== ==== ========= ====== ======= ====== ====== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
9
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Business
- --------
B.B. Walker Company and Subsidiary (the "Company") is engaged in the design,
manufacture, marketing and distribution of western and work/outdoor footwear.
The Company's sales come primarily from sales of branded footwear to small
independent retail chains and private label products to selected large
retailers. The Company has manufacturing facilities in Asheboro, North
Carolina and Somerset, Pennsylvania. A subsequent event relating to the
Asheboro, North Carolina property is discussed in Note 14. The significant
accounting policies followed by the Company in preparing the accompanying
consolidated financial statements are as follows:
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of B.B. Walker
Company and its subsidiary. All significant intercompany balances and
transactions are eliminated in consolidation.
Use of estimates in the preparation of financial statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
the accompanying notes. Actual results could differ from those estimates.
Inventories
- -----------
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out basis.
Property, plant and equipment
- -----------------------------
All property, plant and equipment, except assets under capital leases, are
reported at cost. Assets under capital leases are reported at the present
value of the minimum lease payments. Maintenance and repairs which do not
improve or extend the life of an asset are charged to expense as incurred.
Any gain or loss on the disposal of assets is recorded as other income or
expense.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. The depreciable lives for various classes of property,
plant and equipment are as follows:
Buildings and improvements 5 to 40 years
Machinery and equipment 3 to 10 years
10
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 1 - ACCOUNTING POLICIES, Continued
Earnings per share
- ------------------
Basic earnings per share (EPS) is 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 $5,796 were deducted in each year
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. The weighted average number
of shares, including common stock equivalents, used in earnings per share
computations were:
1999 1998 1997
--------- --------- ---------
Primary 1,735,000 1,724,000 1,729,000
Fully diluted 1,735,000 1,727,000 1,732,000
Revenue recognition
- -------------------
The Company recognizes a sale when the goods are shipped or ownership and
risk of loss is otherwise assumed by the customer.
Advertising costs
- -----------------
The Company expenses advertising costs, other than direct response
advertising, as incurred. Direct response advertising was expensed the first
time the advertising appears. Advertising expense for 1999, 1998, and 1997 is
$860,000, $925,000, and $1,011,000, respectively.
Fiscal year
- -----------
The Company's operations are based on a fifty-two, fifty-three week fiscal
year that ends on the Saturday closest to October 31. The fiscal years ended
October 30, 1999, October 31, 1998, and November 1, 1997 consisted of
fifty-two weeks each.
NOTE 2 - INVENTORIES
Inventories consisted of the following:
(In thousands)
October 30, October 31,
1999 1998
----------- -----------
Finished goods $ 6,059 $ 5,167
Work in process 544 945
Raw materials and supplies 2,607 3,548
-------- --------
$ 9,210 $ 9,660
======== ========
11
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, by major class, was as follows:
(In thousands)
October 31, November 1,
1998 1997
----------- -----------
Land $ 531 $ 531
Buildings 2,294 2,287
Leasehold improvements 459 459
Machinery and equipment 4,715 4,710
Transportation equipment 158 158
-------- --------
8,157 8,145
Less accumulated depreciation
and amortization 6,690 6,523
-------- --------
$ 1,467 $ 1,622
======== ========
12
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 4 - BORROWINGS UNDER FINANCE AGREEMENT
On August 15, 1995, the Company entered into a revolving finance agreement
(the "Agreement") with a bank which permits borrowings up to certain
percentages of eligible accounts receivable and inventories. Advances
available to the Company cannot exceed $8,000,000 in the aggregate, of which
no more than $4,000,000 may be borrowed against inventory. Under the terms
of the Agreement, interest at the bank's prime rate plus 1.50% (9.75% at
October 30, 1999) is accrued on all outstanding amounts. The Company pays
a monthly commitment fee equal to .25% of the unused availability under the
Agreement along with other miscellaneous fees related to its operation.
As discussed more fully in Note 5, the Agreement also provides a term loan
of $3,000,000 with a variable interest rate at the bank's prime rate plus
1.50%. Proceeds from this loan were used to repay the existing deed of trust
on the Asheboro facility with the remainder applied against the outstanding
amount under the revolving finance agreement. Subsequent to fiscal year
ending October 30, 1999, the Agreement was amended effective on December 30,
1999 to set the maturity date at December 31, 2000, and on January 26, 2000 to
amend certain restrictive covenants effective October 30, 1999 and thereafter.
Borrowings under the Agreement are secured by all accounts receivable,
inventories, and machinery and equipment of the Company. In addition, the
bank has a first lien on the Asheboro land and facilities. The bank also
as a subordinated security interest in the manufacturing facility in Somerset.
The amended Agreement contains various restrictive covenants effective October
30, 1999, which include, among other things, maintenance of certain financial
ratios, limits on capital expenditures, minimum net worth requirements and net
income requirements. The Agreement also restricts payment of dividends on
common stock to payments made with shares of common stock. At October 30,
1999, the Company was in compliance with its restrictive covenants.
A summary of activity for borrowings under the finance agreement for the
year is as follows:
(In thousands)
Fiscal year
----------------------------
1999 1998 1997
-------- -------- --------
Average short-term borrowings $ 6,396 $ 6,900 $ 7,780
Maximum short-term borrowings $ 7,155 7,592 $ 11,526
Weighted average interest rate 9.7% 10.3% 10.4%
Interest rate at year-end 9.8% 9.5% 10.3%
The weighted average interest rate is computed by dividing interest expense
and other borrowing costs on the short-term borrowings by the average
borrowings during the fiscal year.
13
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 5 - LONG TERM OBLIGATIONS
Long-term debt and other non-current obligations consist of the following:
(In thousands)
October 30, October 31,
1999 1998
----------- -----------
Note payable to a bank, payable in monthly
installments of $35,714 with a balloon
payment of $990,224 due December 31, 2000
(as amended), variable interest at the
bank's prime rate plus 1.50% (9.75% at
October 30, 1999) $ 1,490 $ 1,894
Note payable to a bank, due in monthly
installments of $2,550 through January 2009,
variable interest at the bank's prime rate
plus .75% (9.00% at October 30, 1999),
secured by the Company's land and building
in Somerset, PA 192 205
Note payable to the Pennsylvania Industrial
Development Authority, due in monthly
installments of $3,089 through February
2010, fixed interest at 2% per annum,
secured by the Company's land and building
in Somerset, PA 343 373
Note payable to the Pennsylvania Economic
Revitalization Fund, due in monthly
installments of $1,544 through August 2010,
fixed interest at 2% per annum, secured
by the Company's land and buildings
in Somerset, PA 179 194
Note payable to a bank, payable on December 31,
2000 (as amended), variable interest at the
bank's prime rate plus 1.50% (9.75% at
October 30, 1999) 478 -
Promissory notes payable to shareholders,
due in varying amounts through 2003, variable
interest based on prime rate 1,162 1,203
-------- --------
3,844 3,869
Less amounts payable within one year 2,657 2,566
-------- --------
$ 1,187 $ 1,303
======== ========
14
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 5 - LONG TERM OBLIGATIONS, Continued
The effective interest rate on the promissory notes payable to shareholders
averaged 9.7% and 9.5% in 1999 and 1998, respectively. Cash paid for interest
was $952,000 in 1999, $1,089,000 in 1998, and $1,124,000 in 1997.
Principal maturities on long-term obligations are as follows:
Fiscal Year (In thousands)
Ending Amounts
----------- ------------
2000 $ 2,657
2001 360
2002 282
2003 84
2004 69
Thereafter 392
---------
$ 3,844
=========
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, short-term notes receivable,
and borrowings under finance agreement approximate fair value because of the
short maturity of those instruments. The carrying amount of long-term debt
approximates fair value because the interest rate is variable based on the
bank's prime rate.
15
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES
The components of the provision for (benefit from) income taxes are as
follows:
(In thousands)
October 30, October 31, November 1,
1999 1998 1997
----------- ----------- -----------
Current:
Federal $ - $ - $ 7
State - - -
------- ------- -------
- - 7
------- ------- -------
Deferred:
Federal - (533) (87)
State - (280) -
------- ------- -------
- (813) (87)
------- ------- -------
$ - $ (813) $ (80)
======= ======= =======
The Company has net operating loss carryforwards available to offset future
U.S. tax liabilities of approximately $2,075,000, of which $450,000 will
expire in 2012, $940,000 will expire in 2018, and $685,000 will expire in
2019. The Company has state net operating loss carryforwards of $4,835,000,
which expire from 2000 to 2014. Due to the uncertainty surrounding the
ability of the Company to utilize these loss carryforwards, a valuation
allowance of $1,190,000 was recorded in fiscal 1996. During fiscal 1998, the
Company began negotiating the sale of its manufacturing facility in Asheboro,
NC, along with an adjacent piece of property. The projected gain on this sale
was expected to be sufficient to utilize all of the net operating loss
carryforwards generated through 1998 and was accounted for in the release of
the valuation allowance in 1998 which produced an income tax benefit of
$609,000. That particular contract expired on February 26, 1999, without
further obligation to the Company (see "Subsequent Event," Note 14). Due to
the uncertainty of the Company's operating profitability, the 1999 current
year increase in the deferred tax asset was offset by an increase to the
valuation allowance of $224,000.
Cash paid for income taxes, net of refunds, was $0 in 1999, $166,000 in 1998,
and $1,061,000 in 1997.
16
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES, Continued
The provision for (benefit from) income taxes differs from the amount computed
by applying the U.S. federal income tax rate of 34 percent to income (loss)
before income taxes for the three years ended October 30, 1999, October 31,
1998, and November 1, 1997 as follows:
(In thousands)
October 30, October 31, November 1,
1999 1998 1997
----------- ----------- -----------
Computed expected income tax
benefit $ (201) $ (251) $ (18)
State income tax benefit, net
of federal income tax benefit (30) (37) (40)
Change in the valuation allowance 224 (609) (62)
Other, net 7 84 40
------- ------- -------
$ - $ (813) $ (80)
======= ======= =======
The significant components of deferred income tax expense for 1999, 1998, and
1997 are as follows:
(In thousands)
1999 1998 1997
----------- ----------- -----------
Deferred tax expense (exclusive of
the effect of other components
listed below) $ 44 $ 21 $ 275
State deferred tax benefit (28) (20) (40)
Federal operating loss and
credit carryforwards (240) (205) (260)
Change in the valuation allowance 224 (609) (62)
------- ------- -------
$ - $ (813) $ (87)
======= ======= =======
17
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at October 30, 1999 and October 31, 1998
are as follows:
(In thousands)
October 30, October 31,
1999 1998
----------- -----------
Deferred tax assets:
Current portion:
Provision for doubtful accounts $ 206 $ 219
Reserve for sales discounts 58 36
Self insurance accrual for claims incurred
but not reported at year-end 21 41
Inventories, principally due to additional
costs inventoried for tax purposes 305 319
Accruals for certain personnel costs 15 22
Federal net operating loss carryforward 706 465
State economic loss carryforward 383 348
Other 29 29
------- -------
Total current 1,723 1,479
------- -------
Long-term portion:
Fixed assets 189 206
Other 7 4
------- -------
Total long-term 196 210
------- -------
Total gross deferred tax assets 1,919 1,689
Valuation allowance (743) (519)
------- -------
1,176 1,170
------- -------
Deferred tax liabilities:
Current portion:
Prepaid employee benefits (137) (120)
------- -------
Net deferred tax asset $ 1,039 $ 1,050
======= =======
18
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Company and its subsidiary sponsor retirement plans which provide benefits
to all qualified employees. Administrative and trustee expenses associated
with these plans are paid by the Company.
The Company provides a non-contributory, defined contribution plan that
invests in the common stock of the Company. The plan covers all eligible
employees excluding employees of the Company's subsidiary who are covered by a
defined benefit pension plan. Contributions to the Employee Stock Ownership
Plan of B.B. Walker Company, which are determined by the Board of Directors,
were $65,000 in 1999, 1998, and 1997.
The Retirement Savings Plan of B.B. Walker Company, a Section 401-K plan, is
available to all eligible employees of the Company who meet certain age and
service requirements. This plan was opened to employees of the Company's
subsidiary during 1997. Employee contributions are limited to a percentage of
their base compensation, as defined in the plan. The plan does provide for
matching contributions by the Company, but such contributions are made at the
discretion of the Company. Contributions to the plan were $23,343 in 1999,
$20,800 in 1998, and $16,500 in 1997.
For the benefit of the employees of its subsidiary, the Company sponsors a
non-contributory, defined benefit pension plan. The plan provides benefits
based on years of service. The Company's funding policy is to contribute
annually the minimum required contribution. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
Net annual pension expense for 1999, 1998, and 1997 included the following
components:
(In thousands)
1999 1998 1997
------ ------ ------
Service cost - benefits earned during the period $ 85 $ 88 $ 91
Interest on projected benefit obligation 82 76 66
Actual return on plan assets (81) (77) (67)
Net amortization and deferral (15) (18) (17)
---- ---- ----
Net annual pension expense $ 71 $ 69 $ 73
==== ==== ====
19
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The following table sets forth the plan's funded status at October 30, 1999
and October 31, 1998:
(In thousands)
October 30, October 31,
1999 1998
----------- -----------
Actuarial present value of benefit obligations:
Vested benefit obligations $ 1,094 $ 1,068
======= =======
Accumulated benefit obligations $ 1,178 $ 1,155
======= =======
Projected benefit obligation $ (1,178) $ (1,155)
Plan assets at fair value 1,334 1,330
------- -------
Plan assets in excess of projected
benefit obligation 156 175
Unrecognized net loss 234 181
Unrecognized net asset at transition (41) (50)
------- -------
Prepaid pension cost $ 349 $ 306
======= =======
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation and the expected long-term rate of
return on assets was 7.5% for 1999, 1998, and 1997.
20
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The Company also has an incentive bonus plan for employees which allows the
Company to pay bonuses based upon certain percentages of operating profit.
No incentive bonuses were granted in 1999, 1998, or 1997.
In March 1995, the Board of Directors approved, and the shareholders ratified,
the 1995 Incentive Stock Option Plan and Automatic Stock Option Grant Program
for Key Employees and Non-Employee Directors. Under the Incentive Stock
Option Plan for Key Employees, a maximum of 300,000 shares of the Company's
authorized but unissued common stock have been reserved for issuance to key
employees. For employees owning less than 10% of the Company's common stock,
the options are granted at not less than 100% of the fair market value at the
date of grant and expire ten years from the date of grant. For employees
owning 10% or more of the Company's stock, options are granted at not less
than 110% of the fair market value and expire five years from the date of
grant. One-half of the options granted are exercisable at the date of grant;
one-half are exercisable after twelve months.
Under the Automatic Stock Option Grant Program of the 1995 Incentive Stock
Option Plan, a maximum of 50,000 shares of the Company's authorized but
unissued common stock has been reserved for issuance to non-employee directors
of the Company. Non-employee directors will be granted an option to purchase
1,000 shares of common stock on the first business day after the annual
meeting of shareholders where the director is elected or remains a member of
the Board of Directors. The option price for each option granted is 100% of
the fair market value at the date of grant. The options will expire ten years
from the date of grant. One-half of the options granted are exercisable at
the date of grant; one-half are exercisable after twelve months.
The Company's 1987 Incentive Stock Option Plan, which covered 300,000 shares
of the Company's common stock, expired during 1997 according to the terms of
the plan. All options under the plan that have been granted but not exercised
will expire ten years from the date of grant and no additional options will be
granted under this plan. The terms governing this plan are substantially the
same as the 1995 Incentive Stock Option Plan described above.
21
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The Company follows Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for these plans in the Consolidated
Statements of Income (Loss). Proforma information regarding net income
(loss) and per share amounts required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," is presented
below:
(In thousands, except per share amount)
1999 1998
------ ------
Net income (loss) As reported $ (592) $ 75
Pro forma (596) 41
Basic and diluted earnings As reported $ (.34) $ .04
(loss) per share Pro forma (.34) .02
22
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively: no
expected dividend yield for each year; expected volatility of 204% for each
year; risk free interest rates of 6.25%, 6.00%, and 6.76%; and expected lives
of ten years.
A summary of the activity in the Company's stock option plans is as follows:
Year of Number of Options Price Weighted-Average
Grant Shares Per Share Exercise Price
------- --------- ------------- ----------------
Options outstanding at
November 2, 1996 159,450 1.33 - 4.00 3.55
Granted 81,000 0.75 0.75
Forfeited 1992-1995 (11,250) 2.00 - 4.00 3.47
Expired 1987 (3,000) 1.33 1.33
--------
Options outstanding at
November 1, 1997 226,200 0.75 - 4.00 2.58
Granted 10,000 0.63 - 1.00 0.81
Forfeited 1987-1995 (27,250) 0.75 - 4.00 2.90
--------
Options outstanding at
October 31, 1998 208,950 0.63 - 4.00 2.45
Granted 5,000 1.50 1.50
Forfeited 1995-1997 (11,000) 0.75 - 3.50 2.25
Exercised 1997 (25,000) 0.75 0.75
--------
Options outstanding at
October 30, 1999 177,950 0.63 - 4.00 2.67
========
Options available for future grant - 1995 plan 211,000
=======
Outstanding options exercisable at October 30, 1999, October 31, 1998, and
November 1, 1997 were 175,450, 203,950, and 185,700, respectively.
23
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company has entered into various operating leases for certain buildings
and machinery and equipment. The agreements expire at various dates
through 2003. The future minimum lease payments under noncancellable
operating leases with initial terms of one year or more are as follows:
(In thousands)
Operating
Fiscal year ending Leases
------------------ ---------
2000 $ 400
2001 201
2002 186
2003 164
2004 105
-------
Total minimum lease payments $ 1,056
=======
Rental expense amounted to $438,000, $558,000 in 1998, and $589,000 in 1997.
LITIGATION
From time to time, the Company is a defendant in legal actions involving
claims arising in the normal course of business. In management's opinion,
after consultation with counsel and a review of the facts, the liabilities, if
any, resulting from such legal proceedings presently pending will not have a
material effect on the Company's financial position or results of operations.
NOTE 10 - SHAREHOLDERS' EQUITY
The 7% cumulative preferred stock is callable at the option of the Company at
$103 per share plus any unpaid dividends. Preferred shareholders are entitled
to seventy voting rights per share if dividends on preferred stock are not
paid within ninety days after the scheduled due date. At October 30, 1999,
there are no preferred dividends in arrears.
The Company is authorized to issue up to 200,000 shares of Class A preferred
stock having no par value. The Class A preferred stock may be issued in one
or more series with terms, preferences, limitations and relative rights being
established by the Board of Directors. At October 30, 1999, no Class A
preferred stock has been issued.
The Company has made loans to certain key employees for the purchase of the
Company's common stock as stipulated in the 1987 Incentive Stock Option Plan.
The loans are secured by the common stock purchased and shares are released
from collateral as the loan principal is paid down. The loans bear interest
at 4% annually.
24
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 11 - CREDIT CONCENTRATIONS AND SALES TO MAJOR CUSTOMERS
The Company's trade receivables do not represent significant concentrations of
credit risk because a large number of geographically diverse customers
comprise the customer base. However, a substantial portion of the customer
base is retailers. In 1999, 1998, and 1997, one major customer comprised
11.79%, 11.89%, and 10.25% of net sales, respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
Through July 1997, the Company employed an advertising agency and public
relations firm that was owned by an officer and director of the Company and
his wife, who also managed and directed the daily operations of the agency.
The agency rendered technical and creative services to the Company in the
areas of design, layout, photography and other services essential to its
advertising programs. The agency also placed Company advertisements and ad
copy in trade publications, footwear magazines and other related media sources,
and coordinated public relations events and press releases for the Company.
In August 1997, the Company created an in-house advertising agency to provide
more focus to its advertising programs. The in-house agency is staffed by
four employees who were formerly employed by the Company's external
advertising agency. The manager of the external advertising agency, who is
also the wife of an officer and director of the Company, is managing the
operations for the in-house agency and is providing consultation regarding the
implementation of advertising programs. The manager, who still manages the
external advertising agency, is on a monthly retainer to the Company and is
supervised by management of the Company. The in-house agency will provide
comparable technical and creative services, as well as fulfilling other
functions related to the Company's advertising programs as previously provided
by the external agency.
In 1999, 1998, and 1997, the Company paid the external advertising agency
$88,800, $93,600, and 373,300, respectively, for services rendered.
25
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 13 - OPERATING SEGMENTS
In June 1997, FAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued effective for fiscal years ending after
December 15, 1998. The Company's reportable segments are wholesale and
retail sales. Whereas wholesale sales are made to major chain wholesale
stores, retail stores, and governmental entities, our retail sales are
made directly to the public from the Company's two retail outlet stores
in Asheboro, North Carolina and Lancaster, Pennsylvania. The segments
are managed separately because each business unit requires different
marketing strategies. The Company evaluates performance based on
operating earnings of the respective business units. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. Segment information for the years 1999,
1998, and 1997 follows:
WHOLESALE RETAIL TOTAL
-------------------------------
1999 (in 000s)
-------------------------------
Net sales $ 23,896 $ 2,000 $ 25,896
Cost of sales 17,433 1,178 18,611
Gross profit 6,463 822 7,285
Operating earnings (losses) (618) 27 (591)
Depreciation and amortization 191 1 192
-------------------------------
1998 (in 000s)
-------------------------------
Net sales $ 26,647 $ 2,166 $ 28,813
Cost of sales 20,226 1,281 21,507
Gross profit 6,421 885 7,306
Operating earnings (losses) (845) 109 (736)
Depreciation and amortization 268 1 269
-------------------------------
1997 (in 000s)
-------------------------------
Net sales $ 30,267 $ 2,381 $ 32,648
Cost of sales 22,752 1,369 24,121
Gross profit 7,515 1,012 8,527
Operating earnings (losses) (225) 171 (54)
Depreciation and amortization 457 1 458
NOTE 14 - SUBSEQUENT EVENT
In February 2000, the Company entered into a contract to sell its
manufacturing facility in Asheboro, NC, along with an adjacent piece of
property.
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of B.B. Walker Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), of cash flows, and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of B.B. Walker Company and its subsidiary at October 30, 1999 and
October 31, 1998, and the results of their operations and their cash flows
for each of the three years in the period ended October 30, 1999, in
conformity with generally accepted accounting principles generally accepted
in the United States. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
- --------------------------
PricewaterhouseCoopers LLP
Greensboro, North Carolina
December 3, 1999
27
B.B. WALKER COMPANY AND SUBSIDIARY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except for
items denoted by (1) below)
1999 1998 1997 1996 1995
(52 weeks) (52 weeks) (53 weeks) (53 weeks) (52 weeks)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales $ 25,896 $ 28,813 $ 32,648 $ 37,506 $ 43,453
======= ======= ======= ======= =======
Income (loss) from continuing operations
before income taxes, minority interests
and extraordinary item $ (591) $ (736) $ (54) $ (4,659) $ (1,868)
Provision for (benefit from) income taxes - (813) (80) (620) (626)
Minority interests in continuing operations (1) (2) (2) (2) (2)
------- ------- ------- ------- -------
Net income (loss) $ (592) $ 75 $ 24 $ (4,041) $ (1,224)
======= ======= ======= ======= =======
FINANCIAL CONDITION:
Current assets $ 17,995 $ 18,314 $ 19,268 $ 24,953 $ 30,898
Current liabilities 14,309 14,102 13,368 19,534 21,533
Working capital 3,686 4,212 5,900 5,419 9,365
Current ratio (1) 1.26 to 1 1.30 to 1 1.44 to 1 1.28 to 1 1.43 to 1
Total assets 19,592 20,080 21,174 27,375 34,377
Long-term obligations 1,187 1,303 3,216 3,286 4,257
Minority interests in consolidated subsidiary 31 33 33 33 34
Total liabilities 15,527 15,438 16,617 22,853 25,824
Shareholders' equity 4,065 4,642 4,557 4,522 8,553
PER SHARE INFORMATION (1) (2):
Shareholders' equity (book value) $ 2.28 $ 2.65 $ 2.59 $ 2.57 $ 4.91
======= ======= ======= ======= =======
Per share of common stock and common
stock equivalent:
Net income (loss) $ (.34) $ .04 $ .01 $ (2.34) $ (.72)
======= ======= ======= ======= =======
Per share of common stock and common
stock equivalent-assuming full dilution:
Net income (loss) $ (.34) $ .04 $ .01 $ (2.34) $ (.72)
======= ======= ======= ======= =======
Cash dividends on preferred stock $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00
OTHER INFORMATION:
Property, plant and equipment, net $ 1,467 $ 1,622 $ 1,750 $ 2,208 $ 2,968
Depreciation and amortization 192 269 458 637 667
Capital additions 37 141 - 21 43
Space occupied (square feet) 355 355 355 358 358
Average number of common shares outstanding 1,735 1,724 1,727 1,727 1,731
Number of shareholders (1) 1,163 1,166 1,177 1,169 1,229
Number of employees (1) 350 392 423 521 637
</TABLE>
28
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
The following summarizes the results of operations for the Company for the
years ended October 31, 1998, November 1, 1997, and November 2, 1996:
October 30, October 31, November 1,
1999 1998 1997
----------- ----------- -----------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 71.9% 74.6% 73.9%
------- ------- -------
Gross margin 28.1% 5.4% 26.1%
Selling and administrative expenses 26.6% 23.4% 21.4%
Depreciation and amortization .7% .9% 1.4%
Interest expense 3.7% 3.7% 3.7%
Interest and other income (.6%) (.1%) (.2%)
------- ------- -------
Loss before income taxes
and minority interest (2.3%) (2.5%) (.2%)
Benefit from income taxes - (2.8%) (.3%)
Minority interest - - -
------- ------- -------
Net income (loss) (2.3%) .3% .1%
======= ======= =======
FISCAL 1999 COMPARED TO FISCAL 1998
Material Changes in Operations
- ------------------------------
Due to current import penetration of 95% of the U.S. footwear market,
increased competition forced the Company to analyze its approach to the
work shoe business in 1999 and take action to preserve its position in
the industry. Accordingly, the workforce at the Asheboro, NC plant and
office was reduced by 54 positions, or 28.0%, over the course of 1999,
and the Company increased its use of imported footwear from Mexico
toward the end of 1999. The effect of these changes late in 1999 was
not expected to have a significant impact on 1999's financial results.
It should be noted that the other manufacturing facility, in Somerset,
Pennsylvania, increased its workforce by 12 positions, or 6.0%, to
meet additional demand for its product in 1999.
29
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
In January 1999, the Company entered into a contract to sell its manu-
facturing facility in Asheboro, NC, along with an adjacent piece of
property. That particular contract expired on February 26, 1999, without
further obligation to the Company. Subsequently in February 2000, the
Company entered into a contract with another party to sell the same
Asheboro, NC property (see "Potential Sale of Property" discussion in
the Liquidity and Capital Resources section). The increase in capital
and income created by this sale will result in substantial benefits to
the Company. Subsequent relocation is not expected to adversely affect
operations of the Company.
Net Sales
- ---------
Net sales for the Company were $25,896,000 in 1999 as compared to $28,813,000
in 1998. This was a reduction of $2,917,000, or 10.1%, from the prior year.
Management has addressed this deterioration in revenues as was discussed in
the previous section. The Company's revenues 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 91.6% of
net sales in 1999 and 91.8% of net sales in 1998. The remaining 8.4% and
8.2% of net sales in 1999 and 1998, respectively, were sales from the
Company's retail outlets.
Sales of branded footwear were down $484,000, or 2.7%, in 1999 from 1998.
Pairs shipped decreased 5.8% while the price per pair shipped increased 3.2%.
While the work branded shipments were down $2,325,000, or 20.9%, western
branded and export sales were up $122,000, or 0.9%, and $22,000, or 3.4%,
respectively, in 1999 over 1998. The increase in western boot sales is
encouraging during a year when many western retailers went out of business.
The increase in price per pair can be attributed to a more favorable mix of
inventory shipped. As discussed in the section above, increased competition
from imported footwear has depressed sales of the Company's branded products.
Private label sales in 1999 reflected a decrease of $1,697,000, or 22.4%,
compared to 1998 private label sales. Private label pairs shipped were off
21.0% while the average price per pair was down 1.7%. Sales in this division
have been impacted by soft retail sales, as orders from customers did not keep
pace with the prior year. Also negatively impacting private label sales was a
$365,000, or 10.7%, decrease in shipments to the Company's largest customer,
a major discount retailer, due to their internal inventory adjustments in
1999. The results of private label sales are dictated by activity of several
large accounts and the timing of shipments to those accounts.
Sales to institutional customers fell by $377,000, or 21.8%, from 1998 to
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. Sales were negatively
impacted by one of the Company's largest institutional customers awarding
its 1999 contract to an import footwear supplier.
Retail sales for the year were $197,000, or 8.3%, lower than the results for
1998. Two retail outlets, one in Asheboro, NC and one in Lancaster, PA,
experienced increased competition from major discount retailers surrounding
the retail outlets. These locations' sales were also hurt by 1999's unusually
dry, extremely hot summer season.
30
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Gross Margin
- ------------
The Company's gross margin was $7,285,000 in 1999 and $7,306,000 in 1998, a
decrease of $21,000. As a percentage of sales, however, the gross margin for
1999 increased to 28.1% from 25.4% in 1998. This 2.7% increase was due
primarily to improved operations from the welt and cement construction
footwear being produced in separate locations since late in fiscal 1998.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $6,888,000 for 1999 as compared to
$6,736,000 for 1998, an increase of $152,000, or 2.3%. Excluding the
$438,000 in selling and administrative expenses relating to a six-month
liquidation sale of one of our large customer's inventory (which resulted
in $961,000 in sales), selling and administrative expenses decreased
$286,000, or 4.2%. The Company continued to reduce expenses in most
functional areas by lowering the general and administrative headcount and
realigning significant responsibilities in the administrative functions;
accordingly, personnel costs decreased $180,000, or 4.7%. Other significant
savings areas were insurance costs by $24,000, or 19.5%, and utility
expenses by $15,000, or 24.0%. One expense item that increased was pro-
fessional (legal, tax, audit, and bank) services by $60,000, or 23.2%,
primarily due to the Company's continued efforts to sell the Asheboro, NC
property.
Interest Expense
- ----------------
Interest expense incurred in 1999 was $948,000, or $128,000 less than
interest expense of $1,076,000 for 1998. Less interest expense in 1999 is
a result of a lower overall interest rates (by 0.25% and 1.00%) and a
lower average outstanding balance on the revolving finance agreement as
compared to 1998's average balance, partially offset by increased interest
expense on the new short-term borrowings in 1999 to purchase land parcels
adjacent to the Asheboro, NC property. The average outstanding balance
on the revolving finance agreement was approximately $504,000, or 7.3%,
less in 1999 than in 1998.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization decreased $77,000 to $192,000 in 1999 from
$269,000 in 1998. For the previous five years, the Company has made only
minimal fixed asset additions. With minimal amounts invested in fixed
assets in recent years, depreciation charges are lower because fixed assets
are becoming fully depreciated and are not being replaced. See additional
discussion in the Liquidity and Capital Resources section.
31
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Provision for Income Taxes
- --------------------------
The Company had a net loss before income taxes of $592,000 in 1999 with no
related income tax provision or benefit. In 1998, the net loss before
income taxes was $738,000, which was overcome by a reduction of the
valuation reserve against the Company's deferred tax asset of $813,000
resulting in net income of $75,000. The increase in the deferred tax
benefit in the current year of $224,000 was offset by an increase in the
valuation allowance.
Net Income (Loss)
- -----------------
For the year ended October 30, 1999, the Company reported a net loss of
$592,000, or 2.3% of net sales, whereas for the year ended October 31,
1998, the Company reported a net income of $75,000, or .3% of net sales.
The change of $667,000 can be attributed primarily to the net effect of
two items: the valuation allowance adjustment of $813,000 in 1998 offset
by the $145,000, or 19.7%, improvement in the loss from operations, from
$736,000 in 1998 to $591,000 in 1999.
FISCAL 1998 COMPARED TO FISCAL 1997
Material Changes in Operations
- ------------------------------
The Company operates two manufacturing facilities, one in Asheboro, North
Carolina, and one in Somerset, Pennsylvania. To make the Company more
competitive, management decided to move all of the production of footwear with
cement construction from the Somerset plant to the Asheboro plant. At the
same time, all of the footwear with welt construction was moved from the
Asheboro plant to the Somerset plant. Since there was not enough product
demand to support two welt operations, this consolidation of operations in
two separate locations in July, 1998 should create substantial manufacturing
efficiencies in both production and inventory costs during fiscal 1999.
In January 1999, the Company entered into a contract to sell its manufacturing
facility in Asheboro, NC, along with an adjacent piece of property. This
particular contract expired on February 26, 1999, without further obligation
to the Company.
32
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Net Sales
- ---------
Net sales for the Company were $28,813,000 in 1998 as compared to $32,648,000
in 1997. This was a reduction of $3,835,000, or 11.7%, from the prior year.
Management attributes this decrease to the additional impact from the major
changes made in 1997 to combine the sales forces of the western boots and
work/outdoor boots. Also, there was some erosion in the Company's channel of
distribution over the past year. This trend is a continuation of the soft
retail environment that the western footwear market has experienced for
several years. Recent steps have been taken to address this deterioration in
revenues. 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 91.8% of net sales in 1998
and 92.0% of net sales in 1997. The remaining 8.2% and 8.0% of net sales in
1998 and 1997, respectively, were sales from the Company's retail outlets.
Sales of branded footwear were down $1,713,000, or 8.8%, in 1998 from 1997.
Pairs shipped were off 14.6% while the price per pair shipped increased 6.2%.
While the work branded and exports were down $1,323,000, or 20.8%, and
$639,000, or 49.8%, respectively, western branded sales were up $280,000, or
2.4%, in 1998 over 1997. The increase in western boot sales is encouraging
during a year when many western retailers went out of business, therefore
increasing the Company's western footwear market share in 1998. Weak consumer
spending for work footwear depressed sales of the Company's branded products,
and most of the export decrease is due to the loss of a major account in
Japan. The increase in price per pair can be attributed to a more favorable
mix of inventory shipped.
Private label sales in 1998 reflected a decrease of $1,636,000, or 19.1%,
compared to 1997 private label sales. Private label pairs shipped were off
20.3% while the average price per pair was up .6%. Sales in this division
have been impacted by soft retail sales, as orders from customers did not keep
pace with the prior year. The one exception is the Company's largest
customer, a major discount retailer, whose shipments rose $78,000, or 2.3%,
over the prior year. The results of private label sales are dictated by
activity of several large accounts and the timing of shipments to those
accounts.
Sales to institutional customers fell by $353,000, or 16.9%, under the prior
year. 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.
Retail sales for the year were $227,000, or 8.7%, lower than the results for
two retail outlets, one in Asheboro, NC and one in Lancaster, PA,
experienced increased competition from major discount retailers
surrounding the retail outlets. Another reason for the loss in volume from
1997 to 1998 was our January, 1997 closing of a retail store in Myrtle Beach,
SC.
33
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Gross Margin
- ------------
The Company's gross margin was $7,306,000 in 1998 and $8,527,000 in 1997, a
decrease of $1,221,000. As a percentage of sales, the gross margin for 1998
decreased to 25.4% from 1997's gross margin of 26.1%. Most of this decrease
can be attributed to the $190,000 cost in moving the welt division from the
Asheboro, NC plant to the Somerset, PA plant during the third quarter of 1998.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $6,736,000 for 1998 as compared to
$6,996,000 for 1997, a decrease of $260,000, or 3.7%. The Company continued
to reduce expenses in most functional areas to more appropriately reflect the
level at which the Company intended to operate. Management lowered the
general and administrative headcount and realigned significant
responsibilities in the administrative functions. The largest savings came
from advertising and promotional expenses, which were down $133,000, or 14.5%,
from 1997, as the Company continued to redefine its advertising strategy with
the intention of maintaining its brand awareness using cost effective methods.
Personnel related expenses in the sales department were down $69,000, or 2.9%,
from the prior year. Professional fees were $38,000, or 33.0%, less in 1998.
One expense item that increased in 1998 was software services by $12,000, or
22.0%, as the Company continued to address the Year 2000 conversion of its
computer system.
Interest Expense
- ----------------
Interest expense incurred in 1998 was $1,076,000, or $128,000 less than
interest expense of $1,204,000 for 1997. Lower interest expense in 1998 is
a result of a lower average outstanding balance on the revolving finance
agreement as compared to 1997's average balance. The average outstanding
balance on the revolving finance agreement was approximately $880,000, or
11.3%, less in 1998 than in 1997. Interest on other borrowings remained at
similar levels to the prior year.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization decreased $189,000 to $269,000 in 1998 from
$458,000 in 1997. For the previous four years, the Company has made only
minimal fixed asset additions. With minimal amounts invested in fixed assets
in recent years, depreciation charges are lower because fixed assets are
becoming fully depreciated and are not being replaced.
34
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Provision for Income Taxes
- --------------------------
The Company had a net loss before income taxes of $736,000 in 1998. In 1997,
the net loss before income taxes was $54,000. Accordingly, the Company
recorded a net benefit from income taxes of $813,000 and $80,000 in 1998 and
1997, respectively. The primary difference between the Company's income tax
benefit and the federal statutory rate of 34% represents a change in
management's estimate of the amount to be recorded in the valuation allowance
that established a reserve against the net deferred income tax asset. Under
Financial Accounting Standard No. 109, whose guidelines the Company follows in
accounting for income taxes, deferred income tax assets must be recorded at a
value that reflects their net realizable value determined to be the amount
that "more likely than not" will be recovered in future periods. Based on an
analysis at October 31, 1998, a net asset of $1,050,000 was recorded which was
an increase of $813,000 over the prior year.
Net Income
- ----------
For the year ended October 31, 1998, the Company reported net income of
$75,000, or .3% of net sales, whereas for the year ended November 1, 1997,
the Company reported a net income of $24,000, or .1% of net sales. The
improvement of $51,000 can be attributed to the effect of the valuation
allowance adjustment in 1998. This adjustment was made due to the impact of
the property sale which was previously discussed.
35
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 9.75%, at October 30, 1999). The Company had outstanding
advances of $7,113,000 at October 30, 1999, and an additional $427,000
available under the agreement.
During fiscal 1999, the Company generated $613,000 in cash from operations.
This was achieved primarily by reducing accounts receivable, inventories, and
current liabilities by $686,000, $450,000, and $101,000, respectively, to
overcome the 1999's net loss of $592,000. Cash to purchase %$803,000 in
adjacent land parcels (to make the Company's Asheboro property more
attractive to potential buyers) was partially provided by the issuance of
short-term obligations for $478,000. As of year-end 1999, the Company
continued to rely on the revolving finance agreement to provide working
capital, and management anticipates that the revolving finance agreement
will continue 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 current agreement is $8,000,000, with the sublimit for inventory
at $4,000,000. In addition to the revolving credit facility, the financing
agreement also provides a $3,000,000 term loan that was used to repay an
existing mortgage note payable to a bank which and which carries a balance
of $1,490,000 at October 30, 1999. Per the terms of the note, the Company
has monthly installments of $35,714 with a balloon payment of $990,224.
The term loan bears interest at the bank's prime rate plus 1.5% (9.75% at
October 30, 1999).
The due date of the original term loan was June 30, 1999, but the
financing agreement was amended on June 29, 1999 to extend the due date to
December 31, 1999. Subsequent to fiscal year ending October 30, 1999, two
amendments were made: the first on December 30, 1999 to extend the due
date of the term loan to December 31, 2000; and the second on January 26,
2000 to amend certain restrictive financial covenants under the revolving
finance agreement effective October 30, 1999 and thereafter. The
covenants require the satisfaction of certain financial tests and the
maintenance of certain financial ratios as defined in the agreement. At
October 31, 1999, the Company was in compliance with its restrictive
covenants. The primary reason for this extension was the Company's receipt
in December 1999 of an attractive offer to sell all of its approximate
26 acres of property in Asheboro, NC (see following section entitled
"Potential Sale of Property"). This offer was followed by a contract in
February 2000. Since both the Company's management and the bank felt that
the sale of this property would substantially benefit the Company, it was
decided to postpone the due date of the term loan until after the actual
close of the sale. Management expects that the contract will be finalized
by December 31, 2000.
36
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, 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.
In July 1994, the Company purchased a larger manufacturing facility in
Somerset, Pennsylvania to replace the existing facility also located in
Somerset. The Company paid for the acquisition with financing from three
sources. The Company completed two sources of long-term financing on
March 7, 1995. The first source of financing was from the Pennsylvania
Industrial Development Authority ("PIDA"), a program offered by the Depart-
ment of Commerce of the Commonwealth of Pennsylvania. The loan was for
$480,000 and bears interest at 2% annually. Monthly installments of $3,089,
which includes principal and interest, will be paid over 15 years. The
second source of financing came from a bank note for $240,000. This loan
bears interest at .75% above the bank's prime rate (9.00% at October 30,
1999) and will be repaid in monthly installments of principal and interest,
currently $2,550, for 15 years. On July 27, 1995, the Company finalized the
long-term financing for this project with a loan from a program offered by
the Department of Commerce of the Commonwealth of Pennsylvania. This
financing, which was provided under the Economic Development Partnership
Program, was for $240,000. This note bears interest at 2% annually with
monthly payments of principal and interest amounting to $1,544 for 15 years.
All notes are secured by the manufacturing facility. Capitalized in fixed
assets at October 30, 1999 are land and buildings with a cost of approxi-
mately $1,062,000 related to the facility. The remainder of the expenditures
made for the facility were paid with borrowings under the revolving finance
agreement.
The Company made capital expenditures of $37,000 in 1999 and has made only
minimal capital expenditures during the past four 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 with a bank, the Company has only been making capital expenditures
to maintain current levels of operations during the past four years. Funding
for capital expenditures other than the building acquisition in 1994 has come
primarily from the available balance on the finance agreement. The Company
anticipates raising the level of capital expenditures in 2000 due to costs
associated with relocating the Asheboro, NC administrative, manufacturing,
and retail operations of the business, but it is premature to estimate those
costs at this time. Funding is expected to be provided by the bank under
mutually-suitable arrangements.
Net working capital, which consists primarily of accounts receivable and
inventories less current liabilities, was $3,686,000 at October 30, 1999
and $4,212,000 at October 31, 1998. The ratio of current assets to current
liabilities decreased to 1.26 to 1 at October 30, 1999, compared to 1.30 to
1 at October 31, 1998. Cash flows provided by operations in 1999 was a net
inflow of $613,000 compared to a net cash inflow of $1,041,000 in 1998.
37
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Potential Sale of Property
- --------------------------
In December 1999, the Company received an attractive offer to sell all of
its approximately 26 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 its Asheboro, NC property on
February 4, 2000. Under this contract, the purchaser has until August 2,
2000 to examine the suitability of the property for its needs. At the
end of this 180 day period, the purchaser may extend the examination
period for two additional 90 day periods. At the end of the examination
period, the contract may be terminated by the purchaser without further
obligation to the Company. Accordingly, there can be no assurances that
the sale of the Asheboro, NC property will be consummated or, if
consummated, that such sale will occur in the Company's fiscal year 2000.
While there will be costs associated with relocating the Asheboro
operations, the Company has taken steps to limit the effects of these
matters and does not expect the relocation to have a material adverse
effect on the operations of the Company.
Readiness for Year 2000 Compliance
- ----------------------------------
In November 1997 the Company initiated a program to minimize the risk of
potential disruption from the "Year 2000 ('Y2K') problem." This problem was
a result of computer programs having been written using two digits (rather
than four) to define the applicable year. Any information technology ("IT")
systems having time-sensitive software might 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 extended 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 would be 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 were 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 reported periodically to the Company's
president, who in turn updated 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 was assigned
full-time to modify those identified programs. Program changes and
testing were made in a test directory specifically created for the Y2K
modifications so that there were no conflicts with live data. When testing
was completed for a system, files were then converted, and modified programs
were copied to live directories on a weekend when no users were on the
system. The Company's current timetable anticipated completion of all
conversions, necessary testing, and full implementation by November 30, 1999.
As of fiscal year ended October 30, 1999, the Company had not deemed it
necessary to develop contingency plans for any applications not converted and
operating by November 30, 1999. Subsequent to FYE 99, it was determined that
no contingency plans would be necessary as discussed in the last paragraph
of this section.
38
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
With regard to non-IT systems, the Company's phone and security systems were
both Y2K compliant as of October 30, 1999. Major suppliers to the Company had
been contacted by questionnaire, and the Company had received confirmations
of either Y2K compliance or a timetable to be compliant from such suppliers.
The Company had also contacted its major customers by questionnaire to assess
their status with regard to the Y2K issue. Contingency plans would be
developed for any significant suppliers or customers that are not Y2K compliant
by December 15, 1999 or earlier if the Company became aware that such
entities would not be Y2K compliant in a timely manner.
It is important to note that the description of the Company's efforts
necessarily involved estimates and projections with respect to activities
required in the future. The required code changes, testing, and
implementation necessary to address the Y2K issue were expected to cost
approximately $115,000, and the Company had incurred approximately $110,000
through October 30, 1999. As of that date, the Company estimated being
approximately 99% complete with the efforts required to be Y2K compliant.
The Company completed its final Y2K system testing on December 10, 1999.
When January 1, 2000 passed, the Y2K costs had not exceeded the project budget
of $115,000. Now well into January 2000, the Company believes it has
successfully avoided any significant disruption from any Y2K issues relating
to the new century rollover. Therefore, no contingency plans appear to be
necessary, but the Company will continue to monitor all critical systems for
the appearance of delayed complications or disruptions, problems relating to
the leap year, and problems encountered through suppliers, customers, and
other third parties with whom the Company deals. Although these and other
unanticipated Y2K issues could have an adverse effect on the results of
operations or financial condition of the Company, it is not possible to
anticipate the extent of impact at this time.
Recently-issued Accounting Standards
- ------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". This Statement requires that changes in the amounts of
comprehensive income items, which are currently reported as separate
components of equity, be shown in a financial statement, displayed as
prominently as other financial statements. The common components of other
comprehensive income would include foreign currency translation adjustments,
minimum pension liability adjustments and/or unrealized gains or losses on
available-for-sale securities. The Statement does not require a specific
format for the financial statement in which comprehensive income is reported,
but does require that an amount representing total comprehensive income be
reported in that statement. The Company does not have any items of other
comprehensive income to report for any period presented.
In June 1997, the FASB issued FAS 131, "Disclosures About Segments of an
Enterprise and Related Information". This Statement will change 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. See Note
13 to the consolidated financial statements.
39
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,
and (5) management's ability to accurately predict the adequacy of the
Company's financing arrangement to meet its working capital and capital
expenditure requirements.
40
B.B. WALKER COMPANY AND SUBSIDIARY
STOCK PRICES
B.B. Walker Company common stock is publicly traded. Markets in B.B. Walker
Company common stock are maintained by Scott & Stringfellow of Winston-Salem,
North Carolina.
Approximately 1,163 shareholders own common stock in B.B. Walker Company, some
shares of which are held by banks, brokers, investment trusts or nominees.
The largest shareholder is the Employee Stock Ownership Plan and Trust of B.B.
Walker Company, which holds approximately 21.0% of the total shares issued
and outstanding. At the last Annual Meeting of the Shareholders held on March
15, 1999, 81.2% of the shares outstanding were represented in person or by
proxy at the meeting.
The following are the Bid and Ask quotations for the last two fiscal years:
Bid Prices Ask Prices
High Low High Low
-------------- ---------------
1999:
First Quarter $1 1/2 $ 3/4 $ 1 1/4 $ None
Second Quarter 1 1/2 1 1/2 None None
Third Quarter 1 1/2 1 1/2 None None
Fourth Quarter 1 1/2 1 1 1/2 None
1998:
First Quarter $ 1/2 $ 3/8 $ 1 1/4 $ 7/8
Second Quarter 3/8 3/8 7/8 7/8
Third Quarter 1 1/4 3/8 2 1/4 7/8
Fourth Quarter 1 1/4 1/2 2 1/4 1 1/4
These Over-the-Counter market quotations reflect interdealer prices, without
retail mark-up, mark-down or commissions, and may not necessarily represent
actual transactions.
41
B.B. WALKER COMPANY
OFFICERS
- --------
KENT T. ANDERSON
Chairman and Chief Executive Officer
FRENCH P. HUMPHRIES CAREY M. DURHAM
Executive Vice President Vice President/Chief Financial Officer
DOROTHY W. CRAVEN REBECCA S. RICH
Secretary Assistant Secretary
DIRECTORS
- ---------
KENT T. ANDERSON EDNA A. WALKER
Chairman and Chief Executive Officer President, B.B. Walker Foundation
ROBERT L. DONNELL, JR. MICHAEL C. MILLER
Retired President
First National Bank and Trust Co.
JAMES P. McDERMOTT GEORGE M. BALL
Retired Chairman of the Board
Philpott, Ball & Company
TRANSFER AGENT AND REGISTRAR
The Company acts as its own Transfer Agent and Registrar, handling all
securities transfers at its Executive Offices.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
101 Centreport Drive
Suite 250
Greensboro, NC 27409
FORM NO. 10-K
Each year, B.B. Walker Company files a Form No. 10-K report with the
Securities and Exchange Commission in Washington, DC which contains more
detailed information. If you would like to receive a copy, please send your
request to Corporate Secretary, B.B. Walker Company, Drawer 1167, Asheboro,
North Carolina 27204.
NOTICE OF ANNUAL MEETING
The Annual Meeting of the Company's Shareholders will be held in the executive
offices of B.B. Walker Company at 414 East Dixie Drive, Highway 64 East,
Asheboro, North Carolina, at 7:00 p.m. EST on Monday night, March 20, 2000. A
formal notice of the meeting, together with a proxy statement and proxy, will
be mailed prior to the meeting. Shareholders who cannot attend are urged to
exercise their right to vote by signing and promptly returning the proxy.
Inside Back Cover
Exhibit 22
----------
SUBSIDIARIES OF THE REGISTRANT
- ------------------------------
The Registrant, during fiscal 1999, owned the following percentages of the
voting securities of the following subsidiaries:
NAME PERCENT INCORPORATED NOTE
Bender Shoe Company 100% Pennsylvania (1)
(1) Operates as a division of B.B. Walker Company.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-END> OCT-30-1999
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 6,996
<ALLOWANCES> 525
<INVENTORY> 9,210
<CURRENT-ASSETS> 17,995
<PP&E> 8,157
<DEPRECIATION> 6,690
<TOTAL-ASSETS> 19,592
<CURRENT-LIABILITIES> 14,309
<BONDS> 0
0
83
<COMMON> 1,746
<OTHER-SE> 2,236
<TOTAL-LIABILITY-AND-EQUITY> 19,592
<SALES> 25,896
<TOTAL-REVENUES> 26,048
<CGS> 18,611
<TOTAL-COSTS> 25,691
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 199
<INTEREST-EXPENSE> 948
<INCOME-PRETAX> (592)
<INCOME-TAX> 0
<INCOME-CONTINUING> (592)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (592)
<EPS-BASIC> (.34)
<EPS-DILUTED> (.34)
</TABLE>
Exhibit (4)(c)(14)
------------------
EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of December 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", the "Sixth Amendment", and the "Seventh 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"), the Sixth Amendment to Credit Agreement dated
as of December 28, 1998 ("Sixth Amendment"), and the Seventh Amendment to
Credit Agreement dated as of June 29, 1999 ("Seventh 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, 2000.
2. The following additions are hereby made to Article 1, Definitions,
in alphabetical order:
"Eighth Amendment" shall mean the Seventh Amendment to Credit
Agreement, dated as of December 30, 1999, by and between the Borrower
and the Lender.
"Eighth Amendment Closing Date" shall mean December 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
$1,418,792.48. After the Eighth 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.
4. The Borrower acknowledges that certain Events of Default relating to
the violation of financial covenants have occurred and are continuing.
REPRESENTATIONS AND WARRANTIES
5. 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 Eighth
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
6. 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) Eighth Amendment, etc. The Lender shall have received this Eighth
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 Eighth Amendment Closing Date shall have been paid or received.
(d) Extension Fee. The Lender shall have received in immediately
available funds from the Borrower an extension fee in the amount of
$15,000.
(e) 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 December, 1999:
FIRST NATIONAL BANK
AND TRUST COMPANY
By: R. HOOKER THOMAS, III
---------------------
R. Hooker Thomas, III
Senior Vice President
Exhibit (4)(c)(15)
------------------
NINTH AMENDMENT TO CREDIT AGREEMENT
THIS NINTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
January 26, 2000, 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", the "Sixth Amendment," the "Seventh Amendment," and the "Eighth
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"),
and the Fifth Amendment to Credit Agreement dated as of July 8, 1998 ("Fifth
Amendment"), the Sixth Amendment to Credit Agreement dated as of December 28,
1998 ("Sixth Amendment"), the Seventh Amendment to Credit Agreement dated
as of June 29, 1999 ("Seventh Amendment"), and the Eighth Amendment to Credit
Agreement dated as of December 30, 1999 ("Eighth 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 additions are hereby made to Article 1, Definitions,
in alphabetical order:
"Ninth Amendment" shall mean the Ninth Amendment to Credit
Agreement, dated as of January 26, 2000, by and between the
Borrower and the Lender.
"Ninth Amendment Closing Date" shall mean January 26, 2000.
1
<PAGE>
NINTH AMENDMENT TO CREDIT AGREEMENT, Continued
2. Sections 6.1(a) through (f) are hereby deleted in their entirety
and replaced with the following new Sections 6.1(a) through (f) and new
Section 6.1(g):
6.1. Financial Covenants. The following Financial Covenants shall
be calculated without recognizing the proceeds of sale of the Borrower's
assets at its Asheboro, N.C. plant:
(a) Consolidated Current Ratio. The Consolidated Current Ratio
shall not at any time be less than 1.25 to 1.00 as of fiscal year ending
October 30, 1999, and at all times thereafter.
(b) Consolidated Leverage Ratio. The Consolidated Leverage Ratio
shall not at any time exceed 3.00 to 1:00 as of fiscal year ending October 30,
1999, and at all times thereafter.
(c) Consolidated Tangible Net Worth. Consolidated Tangible Net
Worth shall not at any time be less than $5,100,000 as of the fiscal year
ending October 30, 1999; $5,000,000 as of and from October 31, 1999 and at all
times through September 30, 2000; $5,250,000 as of the fiscal year ending
October 28, 2000; and $5,500,000 and at all times thereafter.
(d) Consolidated Working Capital. Consolidated Working Capital
shall not at any time be less than $4,700,000 as of the fiscal year ending
October 30, 1999; $4,000,000 as of and from October 31, 1999 and at all times
through the fiscal year ending October 28, 2000; and $4,250,000 at all times
thereafter.
(e) Consolidated Net Income. Consolidated Net Income for the
fiscal year ending October 30, 1999 shall be not greater than a net loss of
$600,000; Consolidated Net Income for the fiscal year ending October 28,
2000 and for each fiscal year thereafter shall be not less than $250,000.
(f) Capital Expenditures. The Borrower shall not make any
Capital Expenditures which exceed, in the aggregate, $150,000 for the fiscal
year ending October 28, 2000 and for each fiscal year thereafter.
(g) Inventory Turnover. The Borrower shall not have Inventory
Turnover, determined annually, of less than 1.85 to 1.0 for the fiscal year
ending October 30, 1999; and 2.4 to 1.0 as of and from January 1, 2000
and at all times thereafter.
2
<PAGE>
NINTH AMENDMENT TO CREDIT AGREEMENT, Continued
REPRESENTATIONS AND WARRANTIES
3. 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 Eighth 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
4. 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) Ninth Amendment, etc. The Lender shall have received this
Ninth 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 Ninth 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.
3
<PAGE>
NINTH AMENDMENT TO CREDIT AGREEMENT, Continued
MISCELLANEOUS
5. 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.
6. 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.
7. 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.
8. 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.
11. 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.
12. 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.
13. 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.
4
<PAGE>
NINTH AMENDMENT TO CREDIT AGREEMENT, Continued
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Amendment as of
the date first above written.
ATTEST: B.B. WALKER COMPANY
By: DOROTHY W. CRAVEN By: KENT T. ANDERSON
----------------- ----------------
Dorothy W. Craven Kent T. Anderson, President
Corporate Secretary
[Corporate Seal]
MELLON BANK, N.A.
By: ROGER D. ATTIX
--------------
Roger D. Attix, Vice President
CONSENTED TO this 26th
day of January, 2000:
FIRST NATIONAL BANK
AND TRUST COMPANY
By: R. HOOKER THOMAS III
--------------------
R. Hooker Thomas, III
Senior Vice President
5
EXHIBIT (10)(h)
---------------
(NORTH CAROLINA ASSOCIATION OF REALTORS, INC. -- FORM #580)
AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY
located in Asheboro, North Carolina
- ------------------------------------------------
THIS AGREEMENT made this 4th day of February, 2000, by and between
MART Acquisition Inc. ("Buyer"), and
B. B. Walker Company ("Seller").
FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES SET
FORTH HEREIN AND OTHER GOOD AND VALUABLE
CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE
HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE
AS FOLLOWS:
SECTION 1. Terms and Definitions: The terms listed below shall have the
respective meaning given them as set forth adjacent to each term.
(a) "Property": (Address) 414 E. Dixie Drive,
Asheboro, North Carolina 27203
(Legal Description/Description) Approximately 26 acres at the
southwest quadrant of NC
Highway 64 and Zoo Parkway.
"Property" shall mean that property described on Exhibit A attached hereto
and incorporated herewith by reference as if fully set forth herein,
together with all buildings and improvements thereon and all fixtures and
appurtenances thereto.
$5,225,000.00 (b) "Purchase Price" shall meant the sum of Five Million
Two Hundred Twenty-Five Thousand Dollars,
payable on the following terms:
$ 49,000.00 (i) "Earnest Money" shall mean Forty Nine Thousand Dollars
or terms as follows: see Exhibit B attached hereto.
Upon acceptance of this contract, the Earnest Money shall be promptly
deposited in the escrow with NAI Maxwell Associates, Inc. (name of
person/entity with whom deposited), to be applied as part payment of the
purchase price of the Property at the time sale is closed, or disbursed
as agreed upon under the provisions of Section 9 herein.
The earnest money is to be deposited in an interest bearing account, to
be applied as part payment of the purchase price of the property at the
time sale is closed, or disbursed as agreed upon under the provisions of
Section 9 herein.
1
AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY, cont'd.
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$ N/A (ii) Proceeds of a new Loan
$ N/A (iii) Delivery of a Promissory Note
$ N/A (iv) Assumption of Unpaid Obligation
$5,225,000.00 (v) Cash at closing in the amount of "Five Million
Two Hundred Twenty-Five Thousand less deposits"
Dollars, balance of Purchase Price.
(c) "Closing" shall occur on or before sixty (60) days after the end
of the Examination Period.
(d) "Broker(s)" shall mean NAI Maxwell Associates, Inc. ("Selling
Agency") and Sam B. Munday ("Selling Agent"), acting as Buyer's
Agent.
(e) "Examination Period" shall mean the period beginning on the date
hereof and extending through 180 days from the date hereof. See
Exhibit B.
2
AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY, cont'd.
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(f) "Intended Use" shall mean the use of the Property for the following
purpose: shopping center containing approximately 250,000 square
feet.
(g) "Seller's Notice Address" shall be as follows:
414 E. Dixie Drive, Asheboro, North Carolina 27203
except as same may be changed pursuant to Section 10.
(h) "Buyer's Notice Address" shall be as follows:
MART, 170 W. Ridgely Road, Suite 300, Lutherville, Maryland 21093
with a copy to Pridemore Development Co., 141 Old Greenville
Highway, St. 228, Clemson, South Carolina 29831
Except as same may be changed pursuant to Section 10.
(i) Additional terms of this Agreement are set forth on Exhibit B
attached hereto and incorporated herein by reference.
SECTION 2. Proration of Expenses and Payment of Costs: Seller and
Buyer agree that all property taxes, leases, rents, mortgage payments and
utilities to any other assumed liabilities as detailed on attached
Exhibit B, it any, shall be prorated as of the date of Closing. Seller
shall pay deed stamps and other conveyance fees or taxes, and Buyer shall
pay recording costs, costs of any title search, title insurance, survey,
and the costs of any inspections, examinations or studies of the Property
made or contracted for the Buyer.
SECTION 3. Sale of Property: Seller agrees to sell the Property for the
Purchase Price set forth on page 1.
SECTION 4. Payment of Purchase Price: Buyer shall pay the Purchase
Price in accordance with all the terms and conditions of this contract.
SECTION 5. Title: Seller agrees to convey fee simple marketable title to
the Property by general warranty deed, subject only to the exceptions
hereinafter described. Seller represents and warrants that Seller is the
fee simple owner of the Property, and at Closing, Seller shall deliver to
Buyer good and marketable fee simple title to said Property, free and clear
of all liens, encumbrances and defects of title other than zoning ordinances
affecting the Property, utility easements of record serving the Property,
taxes not yet due and payable, road rights-of-way of record and those
other encumbrances, reservations, restrictions and easements and other
exceptions set forth on Exhibit C attached hereto ("Permitted Exceptions").
SECTION 6. Conditions: This Agreement and the rights and obligations of
the parties under this Agreement are hereby made expressly conditioned
upon fulfillment (or waiver by Buyer) of the following conditions:
(a) New Loan: Not Applicable.
3
AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY, cont'd.
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(b) Qualification for Financing: Not Applicable.
(c) Title Examination: After the date of execution of this Agreement by
Seller, Buyer shall, at Buyer's expense, cause a title examination to be
made of the Property before the end of the Examination Period, as defined
in Section 1(e). In the event that such title examination shall show that
Seller's title is not good, marketable, fee simple and insurable, then the
Buyer shall immediately notify the Seller in writing of all such title
defects and exceptions, as of the date Buyer learns of the title defects,
and Seller shall have thirty (30) days to cure said noticed defects. If
Seller does not cure the defects or objections within thirty (30) days of
notice thereof, the Buyer may terminate this Agreement and receive a
return of Earnest Money (notwithstanding that the Examination Period may
have expired). If Buyer is to purchase title insurance,
the insuring company must be licensed to do business in the state in which
the property is located. Title to the Property must be insurable at
regular rates, subject only to standard exceptions and Permitted
Exceptions.
(d) Intended Use: If Buyer determines, prior to the date of Closing,
that use of the Property of its Intended Use will violate any such private
restrictions or governmental regulations, then Buyer may terminate the
Agreement by written notice and receive a return of the Earnest Money,
and neither party shall then have any further obligations in connection
with this Agreement.
(e) Same Condition: Not Applicable.
(f) Inspections: Buyer, its agents or representatives, at Buyer's
expense and at reasonable times during normal business hours, shall have
the right to enter upon the Property for the purpose of inspecting,
examining, performing soil boring and other testing, conducting timber
cruises, and surveying the Property. Buyer shall also have a right to
review and inspect all leases, contracts or other agreements affecting
or related directly to the Property and shall be entitled to review such
books and records of Seller as relate directly to the operations and
maintenance of the Property. Buyer assumes all responsibility for the
acts of itself, its agents or representatives in exercising its rights
under this Paragraph and agrees to indemnify and hold Seller harmless
from any damages resulting therefrom. Except as provided in Sections 6(c)
above, Buyer shall have from the date of acceptance through the end of the
Examination Period to perform the above inspections, examination and
testing to determine if the Property is suitable for the Intended Use.
If, prior to the expiration of the Examination Period , Buyer determines
that the Property is unsuitable, in Buyer's sole discretion, and provides
written notice to Seller thereof, then the Agreement shall terminate ,
and Buyer shall receive a return of the Earnest Money.
SECTION 7. Environmental: Except as set forth in that Phase I
Environmental Site Assessment covering the Property made by Trigon
Engineering Consultants, Inc. dated August 24, 1989, a copy of which has
been furnished to Buyer, Seller represents and warrants that it has no
actual knowledge of the presence or disposal within the buildings or on
the Property of hazardous or toxic waste or substances, which are defined
as those substances, materials, and wastes, including but not limited to,
those substances, materials and wastes listed in the United States
Department of Transportation Hazardous Materials Table (49 CFR 172.101) or
by the Environmental Protection Agency as hazardous substances (40 CFR
Part 302) and amendments thereto, or such substances, materials and
wastes, which are or become regulated under any applicable local, state
or federal law, including, without limitation, any material, waste or
substance which is (i) petroleum, (ii) asbestos, (iii) polychlorinated
biphenyls, (iv) designated as a Hazardous Substance pursuant to Section
331 of the Clean Water Act, 33 U.S.C. Sec. 1251, et. seq. (33 U.S.C. 1321)
or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Sec.
1371) (v) defined as a hazardous waste pursuant to Section 1004 of the
Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901, et. seq.
(42 U.S.C. Sec. 6903) or (vi) defined as a hazardous substance pursuant
to Section 101 of the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Sec. 9601, et. seq. (42 U.S.C. 9601). Seller
further states that it has no actual knowledge of any contamination of the
Property from such substances as may have been disposed of or stored on
neighboring tracts.
4
AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY, cont'd.
- ---------------------------------------------------------
SECTION 8. Risk of Loss/Damage/Repair: Not Applicable.
SECTION 9. Earnest Money Disbursement: In the event this offer is not
accepted, or in the event that any of the conditions hereto are not
satisfied, or in the event of a breach of this Agreement by Seller, then
the Earnest Money shall be returned to Buyer. In the event this offer is
accepted and Buyer breaches this Agreement, then the Earnest Money shall
be forfeited. NOTE: In the event of a dispute between Seller and Buyer
over the return or forfeiture of Earnest Money in its trust or escrow
account until it has obtained a written release from the parties
consenting to its disposition or until disbursement is ordered by a court
of competent jurisdiction.
SECTION 10. Closing: The Closing shall consist of the execution and
delivery by Seller to Buyer of a General Warranty Deed and other documents
customarily executed by a seller in similar transactions, including without
limitation, an owner's affidavit, lien waiver forms and a non-foreign
affidavit and the payment by Buyer to Seller of the Purchase Price in
accordance with the terms of the Purchase Price. At Closing, the Earnest
Money shall be applied as part of the Purchase Price or as otherwise
provided in Section 1(b)(i). The Closing shall be held at the office of
Buyer's attorney or such other place as the parties hereto may mutually
agree. Possession shall be delivered at closing, unless otherwise agreed
herein.
SECTION 11. Notices: Unless otherwise provided herein, all notices and
other communications which may be or are required to be given or made by
any party to the other in connection herewith shall be in writing and shall
be deemed to have been properly given and received on the date delivered
in person or deposited in the United States mail, registered or certified,
return receipt requested, to the addresses set out in Section 1(g) as to
Seller and in Section 1(h) as to Buyer, or as such other addresses as
specified by written notice delivered in accordance herewith.
SECTION 12. Entire Agreement: This agreement constitutes the sole and
entire agreement among the parties hereto and no modification of this
Agreement shall be binding unless in writing and signed by all parties
hereto.
SECTION 13. Adverse Information and Compliance with Laws:
(a) Seller Knowledge: Seller has no knowledge of (i) condemnation(s)
affecting or contemplated with respect to the Property; (ii) actions, suits
or proceedings pending or threatened against the Property; (iii) changes
contemplated in any applicable laws, ordinances or restrictions affecting
the Property; or (iv) governmental special assessments, either pending or
confirmed, for sidewalk, paving, water, sewer, or other improvements on or
adjoining the Property, and no owners' association special assessments,
except as follows: (None). Seller shall pay all confirmed owners'
association assessments and all confirmed governmental assessments, if any,
and Buyer shall take title subject to all pending assessments, if any,
unless otherwise agreed as follows: (None).
(b) Compliance: To the best of Seller's knowledge and belief,
(i) performance of the Agreement will not result in the breach of,
constitute any default under or result in the imposition of any lien or
encumbrance upon the Property under any agreement of other instrument to
which Seller is a party of by which Seller of the Property is bound; and
(ii) there are no legal actions, suits or other legal or administrative
proceedings pending or threatened against the Property, and Seller is not
aware of any facts which might result in any such action, suit or
other proceeding.
5
AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY, cont'd.
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SECTION 14. Survival of Representations and Warranties: All
representations, warranties, covenants and agreements made by the parties
hereto shall survive the Closing and delivery of the deed for a period of
one (1) year. Seller shall, at or within six (6) months after the
Closing, and without further consideration, execute, acknowledge and
deliver to Buyer such other documents and instruments, and take such other
action as Buyer may reasonably request or as may be necessary to more
effectively transfer to Buyer the Property described herein in accordance
with this Agreement.
SECTION 15. Applicable Law: This Agreement shall be construed under the
laws of the state in which the Property is located.
SECTION 16. Tax-Deferred Exchange: In the event Buyer or Seller desires
to effect a tax-deferred exchange in connection with the conveyance of the
Property, Buyer and Seller agree to cooperate in effecting such exchange;
provided, however, that the exchanging party shall be responsible for all
additional costs associated with such exchange and provided further, that a
non-exchanging party shall not assume any additional liability with respect
to such tax-deferred exchange. Seller and Buyer shall execute such
additional documents, at no cost to the non-exchanging party, as shall be
required to give effect to this provision.
THIS DOCUMENT IS A LEGAL DOCUMENT. EXECUTION OF THIS
DOCUMENT HAS LEGAL CONSEQUENCES THAT COULD BE
ENFORCEABLE IN A COURT OF LAW. THE NORTH CAROLINA
ASSOCIATION OF REALTORS(REGISTERED) MAKES NO
REPRESENTATIONS CONCERNING THE LEGAL SUFFICIENCY,
LEGAL EFFECT OR TAX CONSEQUENCES OF THIS DOCUMENT
OR THE TRANSACTION TO WHICH IT RELATES. IF YOU DO NOT
FEEL THIS DOCUMENT MEETS YOUR NEEDS, YOU MAY WISH TO
CONSULT YOUR ATTORNEY.
BUYER: SELLER:
Business Entity: Business Entity:
MART Acquisition, Inc. B.B. Walker Company
BY: PAUL F. ROBINSON BY: KENT T. ANDERSON
---------------- ----------------
Paul F. Robinson Kent T. Anderson
Title: Vice President Title: President
Date: 2/4/2000 Date: 2/4/2000
The undersigned hereby acknowledges receipt of the Earnest Money set forth
herein and agrees to hold said Earnest Money in accordance with the terms
hereof: NAI Maxwell Associates, Inc.
BY: SAM B. MUNDAY
-------------
Sam B. Munday
Date: 2/4/2000
6
EXHIBIT A
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To that Agreement of Sale Between B.B. Walker Company,
As Seller, and MART Acquisition, Inc. as Buyer
The Property which is the subject hereof is all of those lots and
tracts of land located in Asheboro, North Carolina as are outlined on the
Survey Map attached hereto (except for the lot belonging to the B.B.
Walker Foundation which lot is marked on the attached map) together
with all of Seller's right, title and interest in all roadways, roadbeds
and streets adjoining such lots and tracts as shown on the attached map.
Explanations to Exhibit A
1. This lot is owned by the B.B. Walker Foundation and must be
purchased directly from the Foundation due to federal tax exempt laws.
2. This is the Rich Property which Seller has contracted to purchase
and which will be acquired by Seller prior to Closing hereunder.
3. This is the general location of the property which is the subject
of the Oliver Rubber Company Agreement.
7
EXHIBIT B
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ADDENDUM TO AGREEMENT FOR PURCHASE AND SALE OF
REAL PROPERTY BY AND BETWEEN MART ACQUISITION, INC.,
AS BUYER, AND B. B. WALKER COMPANY, AS SELLER
1. During the Examination Period, Buyer shall have the right to study
the Property and to obtain approval of the site from such retailers as
Buyer deems appropriate. If Buyer, for any reason, chooses to terminate
the Agreement during the initial one hundred eighty (180) day Examination
Period, Buyer shall notify Seller in writing prior to the expiration of
such 180 day period and upon such termination Buyer shall be entitled to a
refund of the Earnest Money Deposit and the parties shall be relieved of
all further obligations to one another except for Buyer's indemnity
obligation pursuant to Paragraph 7 below.
Buyer shall have the right to extend the Examination Period set forth in
Section 1(d) for two additional ninety (90) day periods, provided that
prior to the end of each current Examination Period, Buyer delivers
written notice to Seller that Buyer is extending the Examination Period
and increases the Earnest Money Deposit by an additional $25,000. If
Buyer, for any reason, chooses to terminate the Agreement during the
Examination Period as extended, Buyer shall notify Seller in writing prior
to the end of the current Examination Period and upon such termination
Seller shall be entitled to the Earnest Money Deposit, except (i) in the
event of Seller's default occurring prior to Buyer's notice of termination,
or (ii) in the event that Buyer is unable to obtain permits for the
construction upon the Property of a shopping center containing
approximately 250,000 square feet and Buyer terminates this Agreement as
the result of its inability to obtain such construction permits, Buyer
having applied for such permits and having used good faith efforts to
obtain all such permits. If Buyer terminates this Agreement after the
initial 180 Examination Period and either event described in clauses
(i) or (ii) of the preceding sentence are applicable, then, in either
of such events, (but not otherwise) the Earnest Money Deposit shall be
returned to Buyer. The Earnest Money Deposit shall be applicable to the
Purchase Price.
2. The Earnest Money Deposit referred to in Section 1(c) hereof shall
be delivered by Buyer to the Escrow Agent within five (5) days of the date
hereof. In the event Buyer fails to make the initial Earnest Money
Deposit, Seller may terminate this Agreement. All interest earned on the
Earnest Money Deposit shall be deemed a part of the Earnest Money Deposit.
3. Within five (5) days of Buyer's request therefor, Seller shall
deliver to Buyer such information which Seller has in Seller's possession
pertaining to the Property as Buyer may reasonably request, such as copies
of surveys, title insurance policies, environmental reports and similar
items.
4. Buyer shall have the right to assign this Agreement to any entity
owned or controlled by Buyer or affiliated with Buyer upon prior written
notice to Seller. Except as set forth in the immediately preceding
sentence Buyer may not assign this Agreement without Seller's prior
written consent which consent shall not be unreasonably withheld.
8
5. Mid-Atlantic WM Realty, Inc. is representing the Buyer in connection
with Buyer's purchase of the Property and shall receive a portion of the
commission due to NAI Maxwell Associates pursuant to a separate agreement.
Buyer represents and warrants that it has dealt with and negotiated only
through Mid-Atlantic WM Realty, Inc. and NAI Maxwell Associates with
request to the Purchase of the Property.
6. Seller shall (if necessary), without charge therefor but at no
expense or obligation to Seller, cooperate fully, and request others to
cooperate fully with Buyer, in obtaining building or other permits and
approvals from any governmental agency or quasi-governmental agency
asserting jurisdiction over the Property as may be necessary for the
construction on the Property of a shopping center containing approximately
250,000 square feet including without limitation special use permits,
rezonings of the Property or portions thereof, subdivision approvals, and
other similar permits, approvals and authorizations. Notwithstanding any
other provision hereof, however, Seller shall not be obligated to cooperate
with Buyer in obtaining or to consent to Buyer's obtaining of any permit,
approval, authorization or rezoning which in Seller's good faith judgment
impairs the value of the Property or imposes upon Seller an unacceptable
risk, cost or obligation. In the event, Seller refuses to cooperate with
Buyer in obtaining any permit, approval, authorization or rezoning sought
by Buyer, Buyer's sole remedy shall be to terminate this Agreement in which
event the Earnest Money Deposit shall be refunded to Buyer.
7. Buyer shall have the right during the Examination Period to enter the
Property for the purpose of making inspections, assessments and evaluations
thereof. All such entries will be coordinated through Seller and shall be
subject to reasonable prior notice to Seller. Buyer shall indemnify and
hold Seller harmless from all damages caused by any such inspections,
assessments and evaluations and all such inspections, assessments and
evaluations shall be made at Buyer's sole risk, cost and expense.
8. Time is of the essence under this Agreement and there shall be no
extension of the Examination Period except as expressly set forth herein
and there shall be no extension of the Closing Date except upon the
written agreement of both Seller and Buyer.
9. During the Examination Period, Buyer shall make such environmental
inspections, audits and examinations of the Property as Buyer deems
appropriate. Except as otherwise herein provided, if Buyer completes the
acquisition of the Property hereunder, it is understood and agreed that
Buyer will be acquiring the Property in its AS IS, WHERE IS CONDITION WITH
ALL FAULTS and subject to any and all environmental matters present upon
or affecting the Property as such environmental matters may now exist.
Except as otherwise herein provided, Seller shall have no responsibility,
liability or duty to Buyer of any kind, express or implied, whether at
common law, pursuant to contract, or pursuant to any so-called federal or
state environmental laws, with respect to any environmental condition,
circumstance or matter now or hereafter located upon or affecting the
Property and Seller shall have no obligation or duty of any kind or nature
to correct, remediate, or remove any environmental condition, circumstance
or matter at, upon or affecting the Property.
10. In the event that Seller breaches any obligation hereunder or defaults
in its performance hereunder, then (except as provided below) Buyer's sole
and exclusive remedy for such breach or default shall be to either (i)
terminate this Agreement, in which event the Earnest Money Deposit shall be
returned to Buyer whereupon both Seller and Buyer shall be relieved of all
obligations to one another except for Buyer's indemnity obligations pursuant
to Paragraph 7 of this Addendum; or (ii) to enforce this Agreement against
Seller by a suit for specific performance, Seller agreeing that this
Agreement is intended to be specifically enforceable. Except as provided
below, in no event shall Buyer be entitled to maintain against Seller an
action for compensatory damages for any amount, it being agreed that Buyer's
remedies for Seller's breach or default hereunder shall be limited either to
termination or specific performance as set forth above. In the event that
Buyer defaults in the performance of its obligations hereunder, the Earnest
Money Deposit shall be disbursed to Seller. Notwithstanding the foregoing,
in the event that Seller intentionally and in bad faith breaches its
obligation to sell the Property to Buyer in accordance with the terms
hereof by wrongfully conveying the Property to a third party, then Buyer
shall be entitled to pursue against Seller any and all claims and remedies
and to recover from Seller any and all damages as may be available to Buyer
at law or in equity as the result of such intentional and bad faith breach
by Seller, including without limitation the right to terminate this
Agreement, the right to have the Earnest Money Deposit disbursed to Buyer,
and the right to recover from Seller compensatory damages.
11. Prior to Closing, Seller shall be entitled to take such action with
respect to the performance of Seller's obligations under the Oliver Rubber
Agreement as Seller in its discretion may elect. In the event that Seller
conveys to Oliver Rubber Company the portion of the Property as is provided
for in the Oliver Rubber Agreement, then such conveyance shall not
constitute a default hereunder or result in any diminution in the Purchase
Price. In the event that Seller does not fulfill all of Seller's
obligations under the Oliver Rubber Agreement prior to Closing, then Seller
shall assign the Oliver Rubber Agreement to Buyer and Buyer shall assume
all of Seller's obligations under the Oliver Rubber Agreement. In
addition, Seller shall not be obligated to construct (or to reimburse Buyer
for any expenses or costs associated with such construction) Telephone
Avenue from its present termination point (as shown on Exhibit A) to Cox
Road (a.k.a. Zoo Park Road) which extension of Telephone Avenue is a
condition precedent to the closing of Atlantic Avenue.
12. Buyer acknowledges that one of the lots fronting on Atlantic Avenue
which is shown on Exhibit A is presently owned by the B.B. Walker Shoe
Foundation (the "Foundation") such lot being that property acquired by
the Foundation pursuant to that certain deed recorded in Book 952 at
Page 552 in the Office of the Register of Deeds in Randolph County, North
Carolina (such lot being referred to herein as the "Foundation Lot").
Buyer acknowledges that the Foundation is a separate entity distinct from
the Seller and that in order to purchase the Foundation Lot Buyer must
enter into a contract of purchase directly with the Foundation. Buyer's
obligation to purchase the Property hereunder is conditioned upon Buyer
being able to enter into a contract with the Foundation contemporaneously
with the execution of this Agreement providing for the Buyer's purchase
from the Foundation of the Foundation Lot for a purchase price not to
exceed $25,000 and otherwise on terms comparable to those of this
Agreement. In the event that the Buyer does not terminate this Agreement
prior to the expiration of the initial 180 Examination Period, then Buyer
shall be deemed to have waived the condition set forth in this Paragraph
12. In the event that Buyer enters into a contract to purchase the
Foundation Lot and thereafter Buyer does not for any reason complete the
purchase of the Property from Seller, then Buyer shall upon Seller's
demand assign the contract to purchase the Foundation Lot to Seller or if
Buyer has acquired the Foundation Lot, Buyer shall convey the Foundation
Lot to Seller upon Seller's payment to Buyer of an amount equal to the
amount paid by Buyer to the Foundation for the purchase of the Foundation
Lot.
10
13. Buyer acknowledges that Seller does not yet own those lots marked on
Exhibit A as being owned by the Estate of Rich. Seller agrees that prior
to Closing it shall acquire the lots shown on Exhibit A as belonging to the
Estate of Rich (the "Rich Property") so that Seller may convey such Rich
Property to Buyer as a portion of the Property. Seller represents and
warrants that Seller has entered into a contract providing for the Seller's
purchase of the Rich Property. If Seller does not acquire the Rich
Property so that the Rich Property can be conveyed to Buyer at Closing as
provided herein, then Buyer may terminate this Agreement and upon such
termination the Earnest Money Deposit shall be returned to Buyer and Seller
shall be obligated to reimburse Buyer for its actual reasonable
out-of-pocket expenses incurred by Buyer in connection with this Agreement
and Buyer's examination of the Property.
14. In the event that Buyer's title examination reveals any matter of
record which is not a Permitted Exception and which Buyer is not willing
to accept, then Seller shall have the right but not the obligation to seek
to cure or remove such title exception as set forth in Paragraph 6 (c) of
the Agreement For Purchase and Sale to which this Addendum is attached.
In the event that Seller fails or refuses to cure or remove the title
matter to which Buyer has objected, Buyer's sole and exclusive rights shall
be either (i) to terminate this Agreement and obtain a refund of the Earnest
Money Deposit; or (ii) to waive its objection to the title exception and
complete the closing hereunder without any decrease in the Purchase Price.
Notwithstanding the forgoing, Seller shall be obligated to remove and
discharge deeds of trust, mortgages, monetary liens, and monetary
encumbrances constituting liens against the Property.
15. Buyer acknowledges that the buildings and improvements presently
located upon the Property are not material to Buyer's obligation to
purchase the Property inasmuch as Buyer's intent is to develop the
Property into a shopping center which will necessarily entail the removal
and demolition of the buildings and improvements presently located upon
the Property. Accordingly, Seller and Buyer hereby agree as follows with
respect to the buildings and improvements presently upon the Property.
Prior to Closing Seller may, but shall not be obligated to, continue to
operate its business upon the Property in the usual and customary course
of Seller's business consistent with past operations. Seller may, but
shall be under no obligation of any kind to Buyer to, make any repairs or
capital expenditures of any kind or type with respect to any buildings or
improvements presently located upon the Property. Seller shall not be
required to restore or repair any casualty damage or loss to any buildings
or improvements located upon the Property and no fire loss, storm damage
or other casualty damage or loss to the buildings and improvements shall
relieve Buyer of its obligation to purchase hereunder. Prior to Closing
Seller may, at any time, remove, demolish, or alter any and all buildings
or improvements presently located upon the Property and may remove
therefrom any and all fixtures, equipment, and personal property belonging
to Seller all without notice to or consent from Buyer and no such removal,
demolition, or alteration shall relieve Buyer of its obligation to
purchase the Property hereunder or result in a diminution of the Purchase
Price. If Seller elects to remove or demolish any building or other
improvement presently upon the Property, Seller shall do so in an orderly
manner and shall, prior to Closing, remove from the Property all debris
or waste associated with such removal or demolition and shall grass the
area from which the building or improvement was removed or demolished.
16. The terms of this Addendum shall be incorporated into and shall
constitute terms of the Agreement for Purchase and Sale identified above.
In the event of any conflict between the terms of this Addendum and the
printed terms of the Agreement, the terms of this Addendum shall control.
11
EXHIBIT C
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Asheboro, North Carolina
PERMITTED EXCEPTIONS
1. All easements, restrictions, rights of way and other exceptions of
record as of the date hereof except: (I) deeds of trust, mortgages and
monetary liens which Seller shall discharge at closing utilizing the
proceeds from the Purchase Price; and (ii) such restrictions and
easements, if any objected to by Buyer in writing prior to the end of the
Examination Period.
2. That certain Agreement With Respect to Telephone Avenue
between Seller and Oliver Rubber Company dated January 29, 1999, a
copy of which has been furnished to Buyer (the "Oliver Rubber
Agreement").
12
