UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20459
FORM 10-Q
(Mark one)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6150
ALBA-WALDENSIAN, INC.
(Exact name of registrant as specified in its Charter)
Delaware 56-0359780
(State or other jurisdiction (I.R.S.Employer Identification No.)
of incorporation or organization)
P.O. Box 100, Valdese, N.C. 28690
(Address of principal executive offices)
(Zip Code)
(704) 874-2191
Registrant's telephone number, including area code
NONE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether 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
APPLICABLE ONLY TO CORPORATE USERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of March 31, 1996, the number of common shares outstanding was 1,867,403 .
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 1-2
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Current 3
and Retained Earnings for the Three Month
Period Ended March 31, 1996 and April 2, 1995
Condensed Consolidated Statements of Cash 4-5
Flows for the Three Month Period Ended
March 31, 1996 and April 2, 1995
Notes to Condensed Consolidated Financial 6-8
Statements
Item 2. Management's Discussion and Analysis of 9-12
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13-14
Signatures 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 (1)
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash ................................... $ 40,837 $56,009
Accounts receivable,net ................ 10,817,194 9,391,137
Refundable income taxes, net ........... 296,219 437,453
Notes receivable ....................... 22,168 21,704
Inventories:
Materials .............................. 3,375,184 3,171,091
Work-in-process ........................ 4,251,041 4,749,829
Finished goods ......................... 7,584,605 7,237,050
---------- ----------
Total inventories,net .................. 15,210,830 15,157,970
Prepaid expenses and other ............. 442,950 379,373
Deferred income taxes .................. 480,850 480,850
---------- ----------
Total Current Assets ............. 27,311,048 25,924,496
---------- ----------
PROPERTY AND EQUIPMENT ................. 30,225,553 29,979,572
LESS ACCUMULATED DEPRECIATION .......... (16,648,828) (16,204,174
---------- ----------
Property, Plant and
Equipment, Net ........................ 13,576,725 13,775,398
OTHER ASSETS:
Goodwill(Note 2) ....................... 8,799,861 8,957,001
Notes receivable ....................... 57,771 60,421
Trademarks and patents ................. 268,515 281,082
Cash value-life insurance .............. 328,837 331,617
---------- ----------
Total Other Assets ..................... 9,454,984 9,630,121
------------ ------------
TOTAL ASSETS ........................... $ 50,342,757 $ 49,330,015
============ ============
(1) The balance sheet at December 31, 1995 has been taken from
the audited consolidated financial statements at that date.
See notes to consolidated condensed financial statements.
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995(1)
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short term borrowings and lines of credit(Note 3) ..... $ 1,795,622 $ 1,267,600
Current maturities of long-term debt(Note 4) .......... 2,350,000 2,350,000
Current maturities of capital lease obligations ....... 29,430 58,069
Accounts payable ...................................... 3,240,610 2,773,542
Accrued liabilities:
Labor and profit-sharing ............................. 1,042,662 517,286
Property and payroll taxes ........................... 314,017 247,453
Group health claims - estimated ...................... 42,408 188,143
Other ................................................ 536,233 481,801
Income taxes payable .................................. 61,798 0
---------- ----------
Total Current Liabilities ............................. 9,412,780 7,883,894
LONG-TERM DEBT (Note 4) ............................... 11,675,000 12,262,500
CAPITAL LEASE OBLIGATIONS ............................. -- --
DEFERRED COMPENSATION ................................. 300,705 330,086
DEFERRED INCOME TAXES ................................. 1,385,019 1,385,019
---------- ----------
Total Liabilities .................................... 22,773,504 21,861,499
========== ==========
COMMITMENTS AND CONTINGENCIES(Notes 2,3, and 4)
STOCKHOLDERS' EQUITY:
Common stock - authorized
3,000,000 shares, $2.50 par
value; issued: 1,886,580 shares
in 1996 and 1995; outstanding:
1,867,403 and 1,867,403 shares
in 1996 and 1995, respectively .................... 4,716,450 4,716,450
Additional paid-in capital ............................ 9,182,158 9,182,158
Retained earnings ..................................... 13,807,281 13,706,544
---------- ----------
Total ................................................. 27,705,889 27,605,152
Less treasury stock - at cost
(19,177 and 19,177 shares in
1996 and 1995, respectively) ....................... (136,636) (136,636)
---------- ----------
Total Stockholders' Equity ............................ 27,569,253 27,468,516
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................................. $ 50,342,757 $ 49,330,015
============= ==========
</TABLE>
(1) The balance sheet at December 31, 1995 has been taken from the audited
consolidated financial statements at that date.
See notes to consolidated condensed financial statements.
2
<PAGE>
ALBA-WALDENSIAN,INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Current
And Retained Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31, April 2,
1996 1995
<S> <C> <C>
CURRENT EARNINGS:
Net sales .............................. $17,378,944 $14,378,264
Cost of sales ......................... 13,255,693 11,263,569
----------- -----------
Gross profit .......................... 4,123,251 3,114,695
Selling, general and
administrative expenses .............. 3,638,983 2,957,876
----------- -----------
Operating income ...................... 484,268 156,819
----------- -----------
Interest expense ....................... (300,041) (130,442)
Interest income ........................ 4,040 2,876
Other .................................. (25,732) 8,703
----------- -----------
Total other income(expense) ............ (321,733) (118,863)
----------- -----------
Income before income taxes ............. 162,535 37,956
Provision for income taxes ............. 61,798 12,146
----------- -----------
Net income ............................. $ 100,737 $ 25,810
============ ============
Weighted average number of shares
of common stock outstanding .......... 1,867,403 1,863,384
============ ============
Net income per common share............. $ .05 $ .01
============ ============
RETAINED EARNINGS:
Balance at beginning of period ........ $ 13,706,544 $ 15,361,763
Net income ............................ 100,737 25,810
Exercise of stock options ......... -- 1,875
----------- -----------
Balance at end of period ...... $ 13,807,281 $ 15,389,448
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Month Periods Ended
March 31, April 2,
1996 1995
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ....................................... $ 100,737 $ 25,810
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization .................... 457,221 485,550
Goodwill amortization ............................ 157,140 0
Provision for bad debts, net of recoveries ....... 31,783 29,250
Realized loss (gain) on sale of property .......... 0 0
Provision for inventory obsolescence ............. 109,968 195,000
Changes in operating assets and
liabilities providing (using) cash:
Accounts receivable .......................... (1,457,840) (1,138,886)
Refundable income taxes ..................... 141,234 0
Inventories .................................. (162,828) 153,963
Prepaid expenses and other
(60,797) (269,817)
Accounts
payable ........................................... 467,068 420,281
Accrued and other liabilities ............... 500,637 200,733
Income taxes payable .............................. 61,798 5,212
Deferred compensation ........................ (29,381) 47,088
----------- ----------
Net cash provided by (used in)
operating activities ......................... 316,740 154,184
----------- ----------
INVESTING ACTIVITIES:
Capital expenditures ............................. (245,981) (154,403)
Payment for purchase of Balfour Healthcare ....... 0 (14,956,086)
Proceeds from sale of property ................... 0 0
Proceeds from notes receivable ................... 2,186 12,865
----------- ----------
Net cash used in investing activities ............. (243,795) (15,097,624)
----------- ----------
FINANCING ACTIVITIES:
Net borrowings (payments) under line
of credit agreements ............................ 528,022 51,753
Issuance of long term debt ....................... 0 15,000,000
Principal payments on notes and leases ........... (616,139) (156,161)
Cash proceeds from exercise of stock options .... 0 10,781
----------- ----------
Net cash provided by (used in)
financing activities ........................ (88,117) 14,906,373
----------- ----------
NET INCREASE ( DECREASE) IN CASH .................. (15,172) (37,067)
CASH AT BEGINNING OF PERIOD ....................... 56,009 103,952
----------- ----------
CASH AT END OF PERIOD ............................. $ 40,837 $ 66,885
============ ============
</TABLE>
4
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Month Period Ended
March 31, April 2,
1996 1995
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ................................... $301,019 $134,385
Income Taxes ............................... $ 0 $ 6,880
See notes to consolidated condensed financial statements.
5
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement
For the Three Periods Ended March 31, 1996 and April 2, 1995
(Unaudited)
1. UNAUDITED FINANCIAL INFORMATION
In the opinion of the Company, the accompanying unaudited Consolidated
Condensed Financial Statements contain all adjustments necessary to present
fairly the financial position as of March 31, 1996 and the results of operations
for the three month periods ended March 31, 1996 and April 2, 1995. The
financial statements are presented as permitted by the instructions to Form 10-Q
and Article 10 of regulation S-X. The accounting policies followed by the
company are set forth in the Company's Annual Report on Form 10-K which is
incorporated by reference.
The results of operations for the three month period ended March 31,
1996 are not necessarily indicative of the results to be expected for the full
year. These unaudited financial statements should be read in conjunction with
the Company's most recent audited financial statements.
The three month period for 1996 began January 1, 1996 and ended March
31, 1996. The three month period for 1995 began January 1, 1995 and ended April
2, 1995.
2. ACQUISITION
On March 6, 1995, the company acquired the Balfour Healthcare Division of
Kayser-Roth Corporation and manufacturing facility in Rockwood, Tennessee
("Balfour") for approximately $15.3 million. The Company financed 100% of the
acquisition price with a revolving loan agreement provided by a bank (See Note
4).
The acquisition has been accounted for using the purchase method of accounting.
The excess of the purchase price over the estimated fair value of the net assets
acquired (goodwill) of $9.428 million is amortized on a straight line basis over
15 years.
The results of operation of the Balfour are included in the accompanying
financial statements since the effective date of the acquisition. The following
unaudited pro forma summary presents the information as if the acquisition had
occurred at the beginning of 1995 after giving effect to certain adjustments,
including amortization of goodwill and interest expense from debt issued to fund
the acquisition and related income tax effects. The total interest expense
included in this pro forma summary is $267,000 in 1995 and $300,000 in 1996.
Goodwill amortization is $157,000. This pro forma summary is provided for
information purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations.
6
<PAGE>
Three Month Periods Ended March 31, 1996 April 2, 1995
(Amounts in thousands of dollars, except per share data)
Net Sales ................................. $ 17,378.9 $ 17,033.3
Net Income ................................ 100.7 79.2
Earnings per common share ................. $ . 05 $ .04
3. SHORT TERM BORROWINGS AND LINES OF CREDIT
The Company has an agreement with a bank which provides a seasonal line
of credit of up to $5,000,000. In addition this line of credit provides a
sublimit of $1,000,000 to support import letters of credit. Interest is accrued
at the LIBOR rate plus 1 3/4% at October 31,1996. The amount outstanding at
March 31, 1996, and December 31, 1995 was $1,795,622 and $1,267,600,
respectively. The line of credit commitment will be automatically reduced by
$1,000,000 on both May 31, 1998 and March 31, 1999. Indebtedness under this
agreement is collateralized by equipment and accounts receivable.
4. LONG TERM DEBT
Long term debt is comprised of:
March 31, December 31
1996 1995
Note Payable-Equipment Loan(a) ...... $ 875,000 $ 1,000,000
Note Payable-Balfour Purchase(b) ... 13.150,000 13,612,500
Total ...................... 14,025,000 14,612,500
Less:Current Maturities .... 2,350,000 2,350,000
Total Long Term Debt ............... $11,675,000 $12,262,500
(a) Pursuant to a fixed rate term loan agreement dated February 12,
1993, this $2,000,000 note was used to purchase new equipment. Interest accrues
at 6.3% fixed rate and principal payments are made quarterly with the final
payment due December 31, 1997.
(b) Pursuant to variable loan rate term loan agreement dated
March 6, 1995, this $15,000,000 note was used to purchase the
Balfour Healthcare Division from Kayser-Roth Corporation.
Interest accrues at the rate of LIBOR plus 2% at March 31, 1995.
Principal
payments are being made quarterly and began June 30, 1995 with the final
payment due June 30, 2000. This loan agreement contains various loan covenants,
as defined, which include maintaining a minimum tangible net worth, a minimum
cash flow and leverage ratio and a limit on capital spending. The agreement also
maintains that any cash dividends paid will not cause default of any loan
covenant as a result of paying those dividends.
7
<PAGE>
The Company has an outstanding interest rate swap agreement under
which the Company receives a variable rate based on LIBOR and pays a fixed rate
of 7.95% on a notional amount of $3,868,561, as determined in one month
intervals through November 31, 1998. The transaction effectively changes a
portion of the Company's interest rate exposure from a variable rate to a fixed
rate. The Company is exposed to a credit loss in the event of nonperformance by
the other party to the interest rate swap agreement. However, the Company does
not anticipate nonperformance by the counterparty.
A substantial portion of the Company's property and equipment, and
accounts receivable are pledged as collateral for the long term debt.
The annual principal maturites of the long term debt at March 31, 1996
were as follows:
1996 $ 1,762,500
1997 2,350,000
1998 2,350,000
1999 2,350,000
2000 5,212,500
Total $14,025,000
5. EARNINGS PER SHARE
Net income per common share is calculated on the weighted average number of
shares of common stock outstanding during the period. The effect of dilutive
common stock equivalents is immaterial.
6. LICENSE AGREEMENTS
The Company has a licensing agreement with Coats Viyella
International, UK, in which it is obligated to pay a 5% royalty on all sales
of product under the Byford Apparel label that is not produced by Coats
Viyella. The Company also has an agreement with Mr. Ray Shaw, which obligates
to Company to pay a 5% royalty on all product sold under the BBWr label.
In connection with the purchase of Balfour Health Products, the Company
is obligated to pay Ms. Ada Shapiro a royalty of 5% of sales up to $1,000,000,
2.5% of sales from $1,000,000 to $2,000,000, and 1.5% of sales over $2,000,000
on two styles of diabetic socks produced by Balfour Health Products.
The Company has a licensing agreement with harve' bernard LTD to
manufacture and market a collection of intimate apparel. The Company is
obligated to pay a 5% royalty on all sales of harve' bernard brand product with
a minimum payment of $4,417 per month.
8
<PAGE>
The Company has two other licensing agreements within the Byford
division. A 8% royalty is paid to the United States Golf Association on sales of
product for the U.S Open Golf Championship. The Smithsonian Institute receives a
royalty on sales of related products of 5.5% on sales to $1,000,000 and 7% of
sales above $1,000,000 with a minimum of $10,000 in royalty from the time period
of January 1, 1996 to June 30, 1997.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Company has good liquidity. On March 31, 1996, the Company had a
current working capital ratio of 2.9 to 1 and working capital of $17,898,268.
This ratio was down from 3.2 to 1 at April 2, 1995 primarily due to a decrease
in inventories and an increase in short term borrowings.
Liquidity needs are primarily affected by and related to capital expenditures
and increased levels of accounts receivable due to the Company's growth. These
needs are adequately being met through available working capital, and are
supplemented by a short-term line of credit of $5,000,000, to cover fluctuations
, as well as a $2,000,000 equipment term loan. In addition, the Company issued
$15,000,000 of long-term debt on March 6, 1995 to purchase the assets of Balfour
Health Products which consisted of accounts receivable, building and equipment,
and inventory.
Results of Operations
Three Month Periods Ended March 31, 1996, and April 2, 1995
Net sales by division for the first quarter of 1996 compared to the
first quarter of 1995 are set forth in the following table.
Three Month Period Ended
Mar. 31 Apr. 2 Increase/ %Increase
1996 1995 (Decrease) (Decrease)
Consumer Products .. $ 7,099,260 $ 6,678,678 $ 420,582 6.3%
Health Products .... 8,686,674 6,107,560 2,579,114 42.2%
Alba Direct ........ 528,283 430,245 98,038 22.8%
Byford ............. 1,049,949 1,158,671 (108,722) (9.4)%
AWI Retail ......... 14,778 3,110 11,668 375.2%
Total ...... $17,379,036 $14,378,264 $ 3,000,772 20.9%
Net Sales as shown in the table above increased by $3,000,772 or 20.9%.
Consumer Products sales increased primarily as a result of improvements in the
retail apparel economy. Health Products sales increased as a result of the
Balfour Health Products acquisition. The 1996 division results reflect a full
quarter of sales for Balfour as compared to approximately one month in 1995.
Alba Direct sales increased as a result of increased export sales to Japan.
Byford's sales decreased due to continued weakness in sweater sales.
Gross Profits for the first quarter of 1996 increased by $1,008,556 over
the first quarter of 1995 as a result of increased sales and an improvement in
gross margins. Gross margins increased from 21.7% of net sales in 1995 to 23.7%
in 1996 mainly due to an improvement in sales mix. Although gross profits
improved for the quarter, the Company's production and shipping was hampered by
inclement weather in January and February causing a loss in production and
excess over-time.
10
<PAGE>
Selling, General and Administrative expenses ( as a percentage of sales)
increased from 20.6% in the first quarter of 1995 to 20.6% in the first quarter
of 1996. The increase was primarily due to an increase in goodwill expenses of
$157,140(.9% of sales) caused by the acquisition of Balfour Health Products.
Operating income increased by $327,449 or 208.9% as compared to the
first quarter of 1995. The increase was the result of an increase sales and an
improvement in gross margin percentage, as discussed above.
Total other expense increased to $321,733 from $118,865 in the first
quarter of 1995. The Company experienced a full quarter of interest expense on
the $15,000,000 bank loan as compared to one month in 1995.
As a result of the foregoing, Net Income after taxes for the first
quarter of 1996, increased by $74,927 or 290.3% over the first quarter of 1995.
11
<PAGE>
Items as a percentage of sales are reflected in the following table:
Three Month Periods Ended
March 31, April 2,
1996 1995
Net sales .................................... 100.0% 100.0%
Cost of sales ................................ 76.3% 78.3%
------ ------
Gross margin ................................. 23.7% 21.7%
Selling, general and
administrative expenses ..................... 20.9% 20.6%
------ ------
Operating income ............................. 2.8% 1.1%
Other income (expense), net .................. (1.9%) (0.9%)
------ ------
Income before income taxes ................... 0.9% 0.2%
Provision for income taxes ................... (0.4%) 0.1%
------ ------
Net Income ................................... 0.5% 0.1%
===== =====
12
<PAGE>
PART II. OTHER INFORMATION
Items 1,2,3,4, and 5 are inapplicable and have been omitted.
Item 6. Exhibits and Reports on FORM 8-K
a. Exhibits
11. Computation of earnings per share
27. Financial Data Schedule(filed in electronic format only)
b. Form 8-K
None Reported
13
<PAGE>
EXHIBIT 11
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Calculation of Primary and Fully Dilutive Earnings Per Share
(unaudited)
Three Month Period Ended
March 31, April 2,
1996 1995
Primary Earning Per Share
Weighted average number of common
shares outstanding ...................... 1,867,403 1,863,384
Net Income(Loss) ............................. $ 100,829 $ 25,810
Primary Earning Per Share .................... $ .05 $ .01
Fully Dilutive Earning Per Share
Weighted average number of common
shares outstanding ..................... 1,867,403 1,863,384
Common Stock Equivalents(Options) ............ 658 22,144
1,868,061 1,885,528
Net Income(Loss) ............................. $ 100,829 $ 25,810
Fully dilutive Earnings Per Share ............ $ .05 $ .01
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Date:_________ --------------------------------------
Thomas I. Nail
Chief Financial Officer and
Principal Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 40,837
<SECURITIES> 0
<RECEIVABLES> 10,317,194
<ALLOWANCES> 0
<INVENTORY> 15,210,830
<CURRENT-ASSETS> 27,311,048
<PP&E> 30,225,553
<DEPRECIATION> 16,648,828
<TOTAL-ASSETS> 50,342,757
<CURRENT-LIABILITIES> 9,412,780
<BONDS> 0
0
0
<COMMON> 4,716,450
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,852,803
<SALES> 17,378,944
<TOTAL-REVENUES> 17,382,984
<CGS> 13,255,693
<TOTAL-COSTS> 16,894,676
<OTHER-EXPENSES> 25,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 300,041
<INCOME-PRETAX> 162,535
<INCOME-TAX> 61,798
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,737
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
