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 JUNE 29, 1997
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
As of June 29, 1997, the number of common shares
outstanding was 1,867,403.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
JUNE 29, DECEMBER 31,
1997 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $11,925 $294,447
Accounts receivable, net of allowance
for doubtful accounts of $347,829
and $275,000, respectively 10,502,172 9,712,667
Refundable income taxes 121,583 --
Inventories:
Materials and supplies 2,637,826 2,877,822
Work-in-process 5,002,751 4,168,965
Finished goods 4,210,333 5,295,871
Total inventories 11,850,910 12,342,658
Deferred income taxes 452,091 452,091
Prepaid expenses and other 261,251 303,142
Total Current Assets 23,199,932 23,105,005
PROPERTY AND EQUIPMENT 31,205,618 31,359,652
LESS: ACCUMULATED DEPRECIATION (17,392,886) (17,821,356)
Net Property and Equipment 13,812,732 13,538,296
OTHER ASSETS:
Notes receivable 40,898 47,920
Trademarks and patents 426,619 445,510
Excess of cost over net assets acquired 7,768,364 8,062,580
8,235,881 8,556,010
TOTAL ASSETS $45,248,545 $45,199,311
See notes to consolidated financial statements.
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
JUNE 29, DECEMBER 31,
1997 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings and lines
of credit(Note 2) $ 1,296,152 $ -
Current maturities of long-term debt 2,350,000 2,350,000
Accounts payable 1,974,511 1,900,024
Accrued expenses:
Payroll and profit-sharing 1,048,866 605,372
Property and payroll taxes 147,667 169,554
Group health claims 547,272 241,872
Other 265,394 356,080
Income taxes payable - 169,324
Total Current Liabilities 7,629,862 5,792,226
LONG-TERM DEBT (Note 2) 8,737,500 9,912,500
DEFERRED COMPENSATION 60,543 232,160
DEFERRED INCOME TAX LIABILITY 1,474,014 1,474,014
Total Liabilities 17,901,919 17,410,900
STOCKHOLDERS' EQUITY:
Common stock - authorized
3,000,000 shares, $2.50 par
value; issued: 1,886,580 shares
in 1997 and 1996; outstanding:
1,867,403 in 1997 and 1996 4,716,450 4,716,450
Additional paid-in capital 9,182,158 9,182,158
Retained earnings 13,584,654 14,026,439
27,483,262 27,925,047
Less treasury stock - at cost
(19,177 shares) (136,636) (136,636)
Total Stockholders' Equity 27,346,626 27,788,411
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $45,248,545 $45,199,311
See notes to consolidated financial statements.
<PAGE>
ALBA-WALDENSIAN, INC. AND
SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
Net sales $15,872,441 $16,296,147 $29,812,847 $33,675,183
Cost of sales 12,371,992 12,503,941 23,308,775 25,759,634
Gross profit 3,500,449 3,792,206 6,504,072 7,915,549
Selling, general and
administrative expenses 3,000,475 3,478,158 6,541,292 7,117,141
Operating income 499,974 314,048 (37,220) 798,408
Interest expense (244,998) (313,707) (533,921) (613,748)
Interest income 7,564 2,553 27,341 6,593
Other 130,165 5,504 (168,749) (20,320)
Total other income (expense)(107,269) (305,650) (675,329) (627,475)
Income (loss) before
income taxes 392,705 8,398 (712,549) 170,933
Provision for (benefit from)
income taxes 149,203 3,192 (270,764) 64,990
Net income (loss) $ 243,502 $ 5,206 $ (441,785) $105,943
Net income (loss) per
common share $ .13 $ .01 $ (.24) $ .06
Weighted average number of shares
of common stock
outstanding 1,867,403 1,867,403 1,867,403 1,867,403
See notes to consolidated financial statements.
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
SIX MONTH PERIODS ENDED JUNE 30,
1997 1996
OPERATING ACTIVITIES:
Net income (loss) $ (441,785) $ 105,943
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 850,515 914,442
Goodwill amortization 294,216 314,280
Provision for bad debts 75,096 50,725
Loss on disposal of property 157,419 --
Provision for inventory obsolescence 422,628 228,290
Changes in operating assets and
liabilities providing (using) cash:
Accounts receivable (863,579) (606,177)
Refundable income taxes (121,583) 151,840
Inventories 69,120 (1,526,995)
Prepaid expenses and other 41,891 381,087
Accounts payable 74,487 144,646
Accrued expenses and other liabilities 636,321 295,724
Income taxes payable (169,324) 64,990
Deferred compensation (171,617) (58,439)
Net cash provided by operating activities 853,805 460,356
INVESTING ACTIVITIES:
Capital expenditures (1,456,789) (614,180)
Proceeds from sale of property 193,310 --
Proceeds from notes receivable 6,000 2,717
Net cash used in investing activities (1,257,479) (611,463)
FINANCING ACTIVITIES:
Net borrowings under line
of credit agreement 1,296,152 1,342,065
Principal payments on long-term debt (1,175,000) (1,233,069)
Net cash provided by financing activities 121,152 108,996
NET DECREASE IN CASH (282,522) (42,111)
CASH AT BEGINNING OF PERIOD 294,447 56,009
CASH AT END OF PERIOD $ 11,925 $ 13,898
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
SIX MONTH PERIODS ENDED JUNE 30,
1997 1996
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 478,928 $ 604,158
Income taxes $ 19,713 $ 0
See notes to consolidated financial statements.
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(UNAUDITED)
1. UNAUDITED FINANCIAL INFORMATION
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the financial position as of
June 29, 1997, and the results of operations for the three
and six month periods ended June 29, 1997, and June 30,
1996. These unaudited financial statements should be read
in conjunction with the Company's most recent audited
financial statements.
The results of operations for the three and six months
period ended June 29, 1997, are not necessarily indicative
of the results to be expected for the full year.
The three-month period for 1997 began March 31, 1997, and
ended June 29, 1997. The three-month period for 1996
began April 1, 1996, and ended June 30, 1996. The six-
month period for 1997 began January 1, 1997, and ended
June 29, 1997. The six-month period for 1996 began
January 1, 1996, and ended June 30, 1996.
2. BANK DEBT
The Company has both a seasonal line of credit and long-
term debt agreements with a major bank. On March 28,
1997, the Company renegotiated the terms of these
agreements wherein the seasonal line of credit was reduced
from $5,000,000 to $3,000,000. For both the seasonal line
and the long-term agreements, the interest rate was
increased to LIBOR plus 2.75% (formerly LIBOR plus 1.75%
for the seasonal line and LIBOR plus 2% for the long-term
debt). Additionally, the terms of certain financial
covenants were revised to more closely reflect the current
level of the Company's operations.
SEASONAL LINE OF CREDIT
The Company has an agreement with a bank, which provides
a seasonal line of credit of up to $3,000,000. In
addition, this line of credit provides a sub-limit of
$1,000,000 to support import letters of credit. Interest
is accrued at the LIBOR rate plus 2.75% at June 29, 1997.
The amount outstanding at June 29, 1997, was $1,296,152.
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.
LONG-TERM DEBT
Long-term debt is comprised of:
June 29, December 31,
1997 1996
Note Payable-Equipment Loan(a) $ 250,000 $ 500,000
Note Payable-Balfour Purchase(b) 10,837,500 11,762,500
Total 11,087,500 12,262,500
Less: Current Maturities 2,350,000 2,350,000
Total Long-Term Debt $ 8,737,500 $ 9,912,500
(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
2.75% at June 29, 1997. 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.
The Company has outstanding interest rate swap
agreements under which the Company receives a variable
rate based on LIBOR and pays a fixed rate of 7.95% to
8.03% on notional amounts of $3,342,806 and $3,868,561,
respectively, 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 maturities of the long term debt at
June 29, 1997, were as follows:
1997 1,175,000
1998 2,350,000
1999 2,350,000
2000 5,212,500
Total $11,087,500
3. NON-RECURRING CHARGES
During the first quarter of 1997, severance costs of
approximately $401,000 were recorded in connection with
the Company's former President and CEO.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Although the Company's working capital has decreased by
$1,742,709 since December 31, 1996, the available working
capital continues to be adequate to support the Company's
operations and reflects an improved ratio over the
comparable period of the prior year. The working capital
decline is primarily reflected in borrowings of $1,296,152
under the Company's short-term line of credit and higher
accrued expenses. On June 29, 1997, the Company had a
current working capital of $15,570,070 with a ratio of
3.04 to1. This is comparable to $17,312,779 or 3.99 to 1
at December 31, 1996, and $17,862,920 or 2.85 to 1 at June
30, 1996. The decrease in the amount of working capital
reflects the Company's concerted efforts to reduce
inventory levels, which have declined to $11,850,910 at
June 30, 1997, from $12,342,658 at December 31, 1996, and
$16,456,673 at June 30, 1996.
Liquidity needs are primarily affected by and related to
capital expenditures and changes in the Company's business
volume. These needs are adequately being met through
available working capital, and are supplemented by a
short-term line of credit of $3,000,000, to cover
fluctuations. Capital expenditures through the first six
months of 1997 have totaled $1,456,789, reflecting
renovations to existing plants and the purchase of new,
more efficient knitting equipment. This level of capital
expenditures compares to $614,180 for the same six months
of 1996 and $1,524,893 for the full 1996 year. The
Company anticipates that capital expenditures for the
entire year of 1997 will total approximately $2,000,000.
The Company has both a seasonal line of credit and long-
term debt agreements with a major bank. On March 28,
1997, the Company renegotiated the terms of these
agreements wherein the seasonal line of credit was reduced
from $5,000,000 to $3,000,000. For both the seasonal line
and the long-term agreements, the interest rate was
increased to LIBOR plus 2.75% (formerly LIBOR plus 1.75%
for the seasonal line and LIBOR plus 2% for the long-term
debt). Additionally, the terms of certain financial
covenants were revised to more closely reflect the current
level of the Company's operations.
<PAGE>
RESULTS OF OPERATIONS
Items as a percentage of sales are reflected in the
following table:
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 78.0% 76.7% 78.2% 76.5%
Gross margin 22.0% 23.3% 21.8% 23.5%
Selling, general and
administrative expenses 18.9% 21.4% 22.0% 21.1%
Operating income 3.1% 1.9% (0.2%) 2.4%
Other income (expense), net (0.6%) (1.9%) (2.3%) (1.8%)
Income before income taxes 2.5% 0.0% (2.5%) 0.6%
Provision for income taxes (0.9%) (0.0%) 0.9% (0.2%)
Net Income 1.6% 0.0% (1.6%) 0.4%
THREE MONTH PERIODS ENDED JUNE 29, 1997, AND JUNE 30, 1996
Net sales by division for the second quarter of 1997
compared to the second quarter of 1996 are set forth in
the following table.
THREE MONTH PERIOD ENDED
June 29, June 30, Increase/ %Increase/
1997 1996 (DECREASE) (DECREASE)
Consumer Products $ 6,321,785 $6,778,000 $(456,215) (6.7%)
Health Products 8,129,515 8,033,503 96,012 1.2%
Alba Direct 404,588 410,411 (5,823) (1.4%)
Byford 1,016,553 1,074,233 (57,680) (5.4%)
Total $15,872,441 $16,296,147 $(423,706) (2.6%)
Net Sales as shown in the table above decreased by
$423,706 or 2.6%. Consumer Products sales decreased
primarily as a result of a loss of circular knit panty
business to lower priced imports and the Company's
decision to eliminate the Full Fashion panty line by mid-
year. The Full Fashion loss was offset in part by
converting customers to the seamless panty line. Due to
marginal profitability, the Company has decided to no
longer be a distributor for the Byford product line and
anticipates that all remaining Byford inventories will be
disposed of without significant loss by the end of 1997.
Byford sales totaled $2,009,700 for the first six months
of 1997 and $5,291,000 for the full year of 1996. The
effect of dropping the Byford line will not have a
material impact on the Company's continued profitability.
Gross profits decreased from 23.3% to 22.0% of net sales
mainly due to a lower volume of sales causing
manufacturing overhead cost per unit to increase and the
resistance of the marketplace to any attempt to pass along
production cost increases.
Due to slightly lower sales volume and tighter cost
controls, the selling, general and administrative expenses
decreased by $477,683 or from 21.4% of net sales in the
second quarter of 1996 to 18.9% in the second quarter of
1997. However, the Company cannot state with certainty
that it will be able to maintain such tight control over
these costs for the remainder of 1997.
Interest Expense decreased in the second quarter of 1997
as a result of lower long-term debt and less borrowing
under the line of credit agreement during the period.
Other income reflected several minor non-recurring gains,
including a gain from the sale of certain of the Company's
yarn covering equipment, reflective of a decision to
purchase covered yarn from outside vendors at a lower
cost.
As a result of the foregoing, the Company recorded an
after tax profit of $243,502 for the second quarter of
1997 as compared to a net income of $5,206 for the second
quarter of 1996.
SIX MONTH PERIODS ENDED JUNE 29, 1997 AND JUNE 30, 1996
Net Sales by division for the first six months of 1997 as
compared to the first six-month period of 1996 are set
forth in the following table:
SIX MONTHS ENDED
June 29, June 30, Increase/ %Increase/
1997 1996 (DECREASE) (DECREASE)
Consumer Products $11,162,822 $13,877,352 $ (2,714,530) (19.6%)
Health Products 15,791,322 16,720,183 (928,861) (5.6%)
Alba Direct 849,003 938,693 (89,690) (9.6%)
Byford 2,009,700 2,124,182 (114,482) (5.4%)
AWI Retail 0 14,773 (14,773) (100.0%)
Total $29,812,847 $33,675,183 $ (3,862,336) (11.5%)
Net Sales as shown in the table above decreased by
$3,862,336 or 11.5%. Consumer Products sales decreased
primarily as a result of a loss of circular knit panty
business to lower priced imports and the Company's
decision to eliminate the Full Fashion panty line by mid-
year. The Full Fashion loss was offset in part by
converting customers to the seamless panty line. Health
Products sales declined primarily as the result of lower
sales to two major distributors. Alba Direct sales
declined due to lower sales to Japan. (See discussion
above regarding the Company's decision to no longer
distribute the Byford product line.)
Gross profits decreased from 23.5% to 21.8% of net sales
mainly due to a lower volume of sales causing
manufacturing overhead cost per unit to increase and the
resistance of the marketplace to any attempt to pass along
production cost increases.
Selling, general and administrative expenses (as a
percentage of sales) increased from 21.1% to 22.0% in the
first six months of 1997 as compared to the first six
months of 1996. Although the percentage increased as the
result of lower sales volumes, actual expenses decreased
$575,849. Due to lower volumes and tighter cost controls,
the Company was able to reduce distribution, marketing and
selling expenses for the six months of 1997 by $928,958.
However, this was partially offset by a one-time charge to
record the severance arrangement with the Company's former
President and CEO.
Interest Expense decreased in the second six months of
1997 as a result of lower long-term debt and less
borrowing under the line of credit agreement during the
period.
Other expense increased primarily as a result of one-time
charges to write-off the full fashion equipment ($143,000)
and to write down the carrying value of the idle Alba
plant that is being held for sale ($48,000). Other income
reflected several minor non-recurring gains, including a
gain from the sale of certain of the Company's yarn
covering equipment, reflective of a decision to purchase
covered yarn from outside vendors at a lower cost.
As a result of the foregoing, the Company recorded an
after tax loss of $441,785 for the six months of 1997 as
compared to a net income of $105,943 for the comparable
period of 1996.
CHANGES IN ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards
Board issued FAS No. 128, "Earnings per Share". This
statement is not expected to have a material impact on the
Company's reporting of Earnings Per Share.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on FORM 8-K
a. Exhibits
27. Financial Data Schedule (filed in electronic format only)
b. Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned there unto duly
authorized.
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Date: August 13, 1997
/S/ GLENN J. KENNEDY
Vice President and Treasurer
(Chief Financial Officer and
Principal Accounting Officer)
