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 30, 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
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Registrant's telephone number, including area code
NONE
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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 30, 1997, 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 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Current 3
and Retained Earnings for the Three Month Periods
Ended March 30, 1997 and March 31, 1996
Condensed Consolidated Statements of Cash 4-5
Flows for the Three Month Period Ended
March 30, 1997 and March 31, 1996
Notes to Condensed Consolidated Financial 6-8
Statements
Item 2. Management's Discussion and Analysis of 9-10
Financial Condition and Results of Operation
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11-12
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 30, December 31,
1997 1996(1)
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 11,927 $ 294,447
Accounts receivable,net 9,195,021 9,712,667
Refundable income taxes, net 265,536 --
Inventories:
Materials 3,074,556 2,877,822
Work-in-process 4,859,691 4,168,965
Finished goods 4,944,972 5,295,871
------------ ------------
Total inventories,net 12,879,219 12,342,658
Prepaid expenses and other 373,317 303,142
Deferred income taxes 452,091 452,091
------------ ------------
Total Current Assets 23,177,111 23,105,005
------------ ------------
PROPERTY AND EQUIPMENT 31,767,243 31,359,652
LESS ACCUMULATED DEPRECIATION (18,237,167) (17,821,356)
------------ ------------
Property, Plant and
Equipment, Net 13,530,076 13,538,296
OTHER ASSETS:
Goodwill 7,915,472 8,062,580
Notes receivable 44,475 47,920
Trademarks and patents 441,148 445,510
------------ ------------
Total Other Assets 8,401,095 8,556,010
------------ ------------
TOTAL ASSETS $ 45,108,282 $ 45,199,311
============ ============
(1) The balance sheet at December 31, 1996 has been taken from the audited
consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
1
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 30, December 31,
1997 1996(1)
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Short term borrowings and lines of credit (Note 2) $ 37,025 $ --
Current maturities of long-term debt (Note 3) 2,350,000 2,350,000
Accounts payable 2,543,734 1,900,024
Accrued liabilities:
Labor and profit-sharing 1,219,241 605,372
Property and payroll taxes 99,742 169,554
Group health claims - estimated 402,207 241,872
Other 464,180 356,080
Income taxes payable -- 169,324
----------- -----------
Total Current Liabilities 7,116,129 5,792,226
LONG-TERM DEBT (Note 3) 9,325,000 9,912,500
DEFERRED COMPENSATION 90,015 232,160
DEFERRED INCOME TAXES 1,474,014 1,474,014
----------- -----------
Total Liabilities 18,005,158 17,410,900
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2, and 3)
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 13,341,152 14,026,439
----------- -----------
Total 27,239,760 27,925,047
Less treasury stock - at cost
(19,177 shares) (136,636) (136,636)
----------- -----------
Total Stockholders' Equity 27,103,124 27,788,411
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $45,108,282 $45,199,311
=========== ===========
(1) The balance sheet at December 31, 1996 has been taken from the audited
consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
2
<PAGE>
ALBA-WALDENSIAN,INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Current
And Retained Earnings
(Unaudited)
Three Month Period Ended
------------------------
March 30, March 31,
1997 1996
CURRENT EARNINGS:
Net sales $ 13,940,406 $ 17,378,944
Cost of sales 10,936,783 13,255,693
------------ ------------
Gross profit 3,003,623 4,123,251
Selling, general and
administrative expenses 3,540,916 3,638,983
------------ ------------
Operating income (537,293) 484,268
Interest expense (288,923) (300,041)
Interest income 19,777 4,040
Other (298,815) (25,732)
------------ ------------
Total other income(expense) (567,961) (321,733)
------------ ------------
Income before income taxes (1,105,254) 162,535
Provision for income taxes (419,967) 61,798
------------ ------------
Net income $ (685,287) $ 100,737
============ ============
Weighted average number of shares
of common stock outstanding 1,867,403 1,867,403
============ ============
Net income per common share $ (.37) $ .05
RETAINED EARNINGS:
Balance at beginning of period $ 14,026,439 $ 13,706,544
Net income (685,287) 100,737
------------ ------------
Balance at end of period 13,341,152 13,807,281
============ ============
See notes to condensed consolidated financial statements.
3
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Month Period Ended
------------------------
March 30, March 31,
1997 1996
OPERATING ACTIVITIES:
Net income(Loss) $ (685,287) $ 100,737
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 420,173 457,221
Goodwill amortization 147,108 157,140
Provision for bad debts, net of recoveries 57,666 31,783
Loss on disposal of property 230,990 0
Provision for inventory obsolescence 209,482 109,968
Changes in operating assets and
liabilities providing (using) cash:
Accounts receivable 460,486 (1,457,840)
Refundable income taxes (265,536) 141,234
Inventories (746,043) (162,828)
Prepaid expenses and other (70,175) (60,797)
Accounts payable 643,710 467,068
Accrued and other liabilities 581,502 500,637
Income taxes payable (169,324) 61,798
Deferred compensation (142,145) (29,381)
------------ ------------
Net cash provided by operating activities 672,607 316,740
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (407,591) (245,981)
Proceeds from sale of property 0 0
Proceeds from notes receivable 2,939 2,186
------------ ------------
Net cash used in investing activities (404,652) (243,795)
------------ ------------
FINANCING ACTIVITIES:
Net borrowings (payments) under line
of credit agreements 37,025 528,022
Principal payments on notes and leases (587,500) (616,139)
Cash proceeds from exercise of stock options 0 0
------------ ------------
Net cash used in financing activities (550,475) (88,117)
------------ ------------
NET INCREASE ( DECREASE) IN CASH (282,520) (15,172)
CASH AT BEGINNING OF PERIOD 294,447 56,009
------------ ------------
CASH AT END OF PERIOD $ 11,927 $ 40,837
============ ============
4
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Month Period Ended
------------------------
March 30, March 31,
1997 1996
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $238,137 $301,019
Income Taxes $ 15,675 $ 0
See notes to condensed consolidated financial statements.
5
<PAGE>
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement
For the Three Periods Ended March 30, 1997 and March 31, 1996
(Unaudited)
1. UNAUDITED FINANCIAL INFORMATION
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments necessary to present
fairly the financial position as of March 30, 1997 and the results of operations
for the three month periods ended March 30, 1997 and March 31, 1996. 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 30, 1997
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 1997 began January 1, 1997 and ended March 30,
1997. The three month period for 1996 began January 1, 1996 and ended March 31,
1996.
2. 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 March 30, 1997. The amount outstanding at March 30,
1997 was $37,025. 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.
3. LONG TERM DEBT
Long term debt is comprised of:
March 30, December 31,
1997 1996
------------ ------------
Note Payable-Equipment Loan(a) $ 375,000 $ 500,000
Note Payable-Balfour Purchase(b) 11,300,000 11,762,500
------------ ------------
Total 11,675,000 12,262,500
Less:Current Maturities 2,350,000 2,350,000
------------ ------------
Total Long Term Debt $ 9,325,000 $ 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.
6
<PAGE>
(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 30, 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 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 $3,342,806, 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 30, 1997
were as follows:
1997 1,762,500
1998 2,350,000
1999 2,350,000
2000 5,212,500
-----------
Total $11,675,000
4. 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.
5. 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 and 2.5% on all
sales of Smithsonian Institute product. The Company also has an agreement with
Mr. Ray Shaw, which obligates the Company to pay a 5% royalty on all product
sold under the BBW(R) label.
7
<PAGE>
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 Alba Health Products.
The Company has two other licensing agreements within the Byford division.
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. The
Greg Norman Division of Reebock International Limited receives a royalty of 8%
of net sales of related product with a minimum royalty of $55,000 from July 1,
1996 until December 31, 1997. The minimum increases to $104,000 in 1998 and
$150,000 in 1999.
8
<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 30, 1997, the Company had a
current working capital ratio of 3.26 to 1 and working capital of $16,060,982.
This ratio is comparable 2.90 to 1 at March 31, 1996. The decrease in inventory
levels have been offset by decreases in accounts payable and 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 30, 1997, and March 31, 1996
Net sales by division for the first quarter of 1997 compared to the
first quarter of 1996 are set forth in the following table.
Three Month Period Ended
------------------------
Mar. 30 Mar. 31 Increase/ %Increase
1997 1996 (Decrease) (Decrease)
------- ------- --------- ---------
Consumer Products $ 4,841,115 $ 7,099,260 $(2,258,145) (31.8%)
Health Products 7,661,807 8,686,674 (1,024,867) (11.8%)
Alba Direct 444,415 528,283 (83,868) (15.9%)
Byford 993,069 1,049,949 (56,880) (5.4%)
AWI Retail 0 14,778 (14,778) (100.0%)
----------- ----------- ----------- -------
Total $13,940,406 $17,378,944 $(3,438,538) (19.8%)
Net Sales as shown in the table above decreased by $3,438,538 or 19.8%.
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 a result of lower sales to two major
distributors. Alba Direct sales declined due to lower sales to Japan. The Byford
Division sales declined primarily as a result of late shipments of manufactured
socks from vendors.
Gross profits decreased from 23.7% to 21.5% of net sales mainly due to a
lower volume of sales causing manufacturing overhead cost per unit to increase.
9
<PAGE>
Selling, General and Administrative expenses ( as a percentage of sales)
increased from 20.9% in the first quarter of 1996 to 25.4% in the first quarter
of 1997. Although the percentage to net sales increased as a result of the lower
sales volume, actual expenses decreased $98,000. The Company was able to reduce
distribution, marketing, and selling expenses for the quarter in the aggregate
by $519,000, however, this was partially offset by a one-time charge to record
the severance arrangement with the Company's former President and CEO (See the
Company's 1997 Proxy Statement).
Interest Expense, net of income received, decreased in the first quarter
of 1997 by $26,855 or 9.1% as a result of lower long-term debt and less
borrowing under the line of credit agreement during the period.
Other expense increased by $273,083 primarily as a result of one-time
charges to write-off the full fashion equipment $143,000, to write off a deposit
on a canceled machinery order $80,000, and to write down the carrying value of
the idle Alba plant that is being held for sale, $48,000.
As a result of the foregoing, the Company recorded an after tax loss of
$685,287 for the first quarter of 1997 as compared to a net income of $100,737
for the first quarter 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.
Items as a percentage of sales are reflected in the following table:
Three Month Period Ended
------------------------
March 30, March 31,
1997 1996
--------- ---------
Net sales 100.0% 100.0%
Cost of sales 78.5% 76.3%
--------- ---------
Gross margin 21.5% 23.7%
Selling, general and
administrative expenses 25.4% 20.9%
--------- ---------
Operating income (3.9%) 2.8%
Other income (expense), net (4.1%) (1.9%)
--------- ---------
Income before income taxes (8.0%) 0.9%
Provision for income taxes 3.0% (0.4%)
--------- ---------
Net Income (5.0%) 0.5%
========= =========
10
<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
11
<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
12
EXHIBIT 11
ALBA-WALDENSIAN, INC. AND SUBSIDIARIES
Calculation of Primary and Fully Dilutive Earnings Per Share
(unaudited)
Three Month Period Ended
------------------------
March 30, March 31,
1997 1996
Primary Earning Per Share
Weighted average number of common
shares outstanding 1,867,403 1,867,403
---------- ----------
Net Income(Loss) $ (685,287) $ 100,737
---------- ----------
Primary Earning Per Share $ (.37) $ .05
---------- ----------
Fully Dilutive Earning Per Share
Weighted average number of common
shares outstanding 1,867,403 1,867,403
Common Stock Equivalents(Options) 0 658
---------- ----------
1,867,403 1,868,061
---------- ----------
Net Income(Loss) $ (685,287) $ 100,737
---------- ----------
Fully dilutive Earnings Per Share $ (.37) $ .05
---------- ----------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<CASH> 11,927
<SECURITIES> 0
<RECEIVABLES> 9,195,021
<ALLOWANCES> 0
<INVENTORY> 12,879,219
<CURRENT-ASSETS> 23,177,111
<PP&E> 31,767,243
<DEPRECIATION> 18,237,167
<TOTAL-ASSETS> 45,108,282
<CURRENT-LIABILITIES> 7,116,129
<BONDS> 0
0
0
<COMMON> 4,716,450
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 45,108,282
<SALES> 13,940,406
<TOTAL-REVENUES> 13,960,183
<CGS> 10,936,783
<TOTAL-COSTS> 14,477,699
<OTHER-EXPENSES> 298,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288,923
<INCOME-PRETAX> (1,105,254)
<INCOME-TAX> (419,967)
<INCOME-CONTINUING> (685,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (685,287)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
