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 29, 1998
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) 879-6500
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 May 18, 1998, the number of common shares outstanding was 1,572,403.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALBA-WALDENSIAN, INC.
Consolidated Balance Sheets
($000's)
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $1,144 $2,416
Accounts receivable, net of allowance
for doubtful accounts of $300
and $260, respectively 10,634 7,823
Inventories:
Materials and supplies 3,302 2,554
Work-in-process 5,078 5,045
Finished goods 1,875 3,710
Total Inventories 10,255 11,309
Deferred income taxes 707 707
Prepaid expenses and other 141 127
Total Current Assets 22,881 22,382
PROPERTY AND EQUIPMENT 32,132 31,111
Less: accumulated depreciation (18,262) (17,857)
Net Property and Equipment 13,870 13,254
OTHER ASSETS:
Notes receivable 16 17
Trademarks and patents 476 492
Excess of cost over net assets acquired 7,327 7,474
7,819 7,983
TOTAL ASSETS $44,570 $43,619
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ALBA-WALDENSIAN, INC.
Consolidated Balance Sheets
($000's except share amounts)
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings and lines
<S> <C> <C> <C>
of credit(Note 2) $ - $ -
Current maturities of long-term debt 2,350 2,350
Accounts payable 2,994 3,118
Accrued expenses 2,463 1,542
Total Current Liabilities 7,807 7,010
LONG-TERM DEBT (Note 2) 6,864 7,452
DEFERRED INCOME TAX LIABILITY 1,746 1,746
Total Liabilities 16,417 16,208
STOCKHOLDERS' EQUITY:
Common stock - authorized 3,000,000 shares, $2.50 par value; issued: 1,886,580
shares in 1998 and 1997; outstanding:
1,867,403 in 1998 and 1997 4,716 4,716
Additional paid-in capital 9,182 9,182
Retained earnings 14,392 13,650
28,290 27,548
Less treasury stock - at cost
(19,177 shares) (137) (137)
Total Stockholders' Equity 28,153 27,411
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $44,570 $43,619
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ALBA-WALDENSIAN, INC.
Consolidated Statements of Operations
(Unaudited)
($000's except share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 29, March 30,
1998 1997
<S> <C> <C>
Net sales $18,296 $13,940
Cost of sales 13,826 10,936
Gross margin 4,470 3,004
Selling, general and
administrative expense 3,042 3,541
Operating income (loss) 1,428 (537)
Interest expense (216) (289)
Interest income 32 20
Other (49) (299)
Total other income (expense) (233) (568)
Income (loss) before income taxes 1,195 (1,105)
Provision for (benefit from)
income taxes 454 (420)
Net income (loss) $ 741 $(685)
Net income (loss) per
common share $ .40 $ (.37)
Weighted average number of
shares
of common stock outstanding 1,867,403 1,867,403
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ALBA-WALDENSIAN, INC.
Consolidated Statements of Cash Flows
(Unaudited)
($000's)
<TABLE>
<CAPTION>
Three Month Periods Ended
March 29, March 30,
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 741 $ (685)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 585 567
Provision for bad debts 45 58
Loss on disposal of property 2 231
Provision for inventory obsolescence 150 209
Changes in operating assets and liabilities providing (using) cash:
Accounts receivable (2,856) 460
Refundable income taxes -- (265)
Inventories 905 (746)
Prepaid expenses and other (14) (70)
Accounts payable (124) 644
Accrued expenses and other liabilities 467 581
Income taxes payable 454 (169)
Deferred compensation -- (142)
Net cash provided by operating activities 355 673
INVESTING
ACTIVITIES:
Capital expenditures (1,040) (408)
Proceeds from notes receivable 1 3
Net cash used in investing activities (1,039) (405)
FINANCING ACTIVITIES:
Net borrowings under line
of credit agreement -- 37
Principal payments on long-term debt (588) (588)
Net cash used in financing activities (588) (551)
NET DECREASE IN CASH (1,272) (283)
CASH AT BEGINNING OF PERIOD 2,416 294
CASH AT END OF PERIOD $ 1,144 $ 11
</TABLE>
<PAGE>
ALBA-WALDENSIAN, INC.
Consolidated Statements of Cash Flows
(Unaudited)
($000's)
<TABLE>
<CAPTION>
Three Month Periods Ended
March 29, March 30,
1998 1997
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
<S> <C> <C>
Interest $ 216 $ 238
Income taxes $ -- $ 16
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ALBA-WALDENSIAN, INC.
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 March 29, 1998, and the results of operations for the
three-month periods ended March 29, 1998, and March 30, 1997. 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-month period ended March 29, 1998,
are not necessarily indicative of the results to be expected for the full year.
2. BANK DEBT
The Company has both a $3,000,000 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 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). The seasonal line of credit matures on June 30, 1998,
and the long-term debt portion matures on January 5, 1999. There were no amounts
outstanding under the seasonal line of credit at March 29, 1998, or December 31,
1997. Quarterly principal payments of $587,500 are due under the long-term debt
agreement.
The 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. Substantially all of the Company's inventory,
property and equipment, and accounts receivable are pledged as collateral under
the agreements with the bank.
Although the loan matures within one year, the Company has continued to
classify the debt as long-term in the accompanying consolidated financial
statements due to the Company's successful refinancing of this debt subsequent
to March 29, 1998 (see Note 4).
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.
4. SUBSEQUENT EVENTS
On May 14, 1998, the Company entered into three-year $21,000,000 financing
facility with a major bank and retired both the seasonal line of credit and
long-term debt discussed above. The new facility is composed of up to a
$15,000,000 revolving loan, based upon levels of accounts receivable and
inventories, a $3,000,000 term loan and a $3,000,000 credit line to fund future
capital expenditures. The new facility bears interest at Prime plus 0.5% (or at
the option of the Company, portions of the facility may be priced at LIBOR plus
2.5%) and is secured by substantially all of the assets of the Company.
On May 15, 1998, investors, including the Company and Mr. Clyde Wm. Engle,
the Company's Chairman and beneficial holder (through Sunstates Corporation) of
a majority of the Company's common stock, purchased from a major bank 938,700
shares of the Company's common stock formerly held by Sunstates Corporation,
pursuant to a private sale of collateral held under a defaulted loan which the
Company's affiliates had with the bank. The Company purchased 295,000 of the
shares at a cost of $2,212,500 plus other estimated transaction costs totaling
$150,000. The Company utilized its existing cash plus funds obtained from the
new $21,000,000 financing facility discussed above to purchase the stock. The
Company intends to hold the 295,000 shares as treasury stock and currently has
no plans for future utilization of those shares.
As a result of these transactions, the Company is no longer a subsidiary of
Sunstates Corporation. Mr. Engle now controls approximately 35% of the Company's
outstanding common stock.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company's working capital has remained substantially unchanged from
December 31, 1997, and continues to be adequate to support the Company's
operations. On March 29, 1998, the Company had working capital of $15,074,000
with a ratio of 2.93 to1. This is comparable to $15,372,000 or 3.19 to 1 at
December 31, 1997. The decrease in the amount of working capital reflects the
Company's concerted efforts to reduce inventory levels, which have declined to
$10,255,000 at March 29, 1998, from $11,309,000 at December 31, 1997.
Liquidity needs are primarily affected by and related to capital
expenditures and changes in the Company's business volume. Capital expenditures
through the first three months of 1998 have totaled $1,040,000, reflecting the
acquisition of new seamless knitting machines in response to the increased
demand for the Company's new seamless intimate apparel products. This level of
capital expenditures compares to $408,000 for the same three months of 1997. The
Company anticipates that capital expenditures for the entire year of 1998 may
exceed $4,000,000.
The purchase of 295,000 shares of the Company's common stock for
approximately $2,362,500 (see Note 4 of Notes to Consolidated Financial
Statements) reduced the company's net worth. However, the acquisition price per
share of $7.50 was significantly less than the Company's book value per share at
March 29, 1998 ($15.08) and accordingly the net book value of the remaining
outstanding shares has been increased.
The Company's liquidity needs, including the stock repurchase, have been
more than adequately provided for with the securing of a new three-year
$21,000,000 financing facility with a major bank (see Note 4 of Notes to
Consolidated Financial Statements). The new financing facility will provide a
revolving loan of up to $15,000,000, depending upon levels of accounts
receivable and inventories, a term loan of $3,000,000 and a capital expenditure
line of $3,000,000. In addition, the Company may secure other outside financing
of capital l expenditures of up to $4,500,000 over the three-year term of the
facility.expenditures of up to $4,500,000 over the three-year term of the
facility.
<PAGE>
Results of Operations
Items as a percentage of sales are reflected in the following table:
Three Month Periods Ended
March 29, March 30,
1998 1997
Net sales 100.0% 100.0%
Cost of sales 75.6% 78.5%
Gross margin 24.4% 21.5%
Selling, general and
Administrative expenses 16.6% 25.3%
Operating income (loss) 7.8% (3.8%)
Other income (expense), net (1.3%) (4.1%)
Income before income taxes 6.5% (7.9%)
Provision for income taxes (2.4%) 3.0%
Net income (loss) 4.1% (4.9%)
Net sales by division for the first quarter of 1998 compared to the first
quarter of 1997 are set forth in the following table ($000's):
<TABLE>
<CAPTION>
Three Month Period Ended
March 29, March 30, Increase/ % Increase/
1998 1997 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
Health Products $8,423 $7,662 $761 9.9%
Consumer Products 9,800 5,285 4,515 85.4%
Byford 73 993 (920) (92.6%)
Total $18,296 $13,940 $4,356 31.2%
</TABLE>
The 9.9% increase in Health Products sales was lead by increases in treads,
cuffs and anti-embolism stockings, partially offset by declines in dressings and
the Company's pulStar system. The Consumer Products' increased sales reflect the
acceptance of the Company's seamless intimate apparel, led by a new seamless
bodysuit introduced in the first quarter. The decline in Byford sales reflects
the Company's decision in the third quarter of 1997 to no longer distribute the
line of men's socks and sweaters due to poor profitability. Sales in the
Consumer Products Division in 1997 were down due to the loss of circular knit
panty business to lower priced imports and the decision to eliminate the full
fashion panty line.
Gross margins increased in 1998 to 24.4% of net sales (21.5% in 1997) as
the result of increased volume, higher margins on new styles and cost controls.
Selling, general and administrative expenses declined (as a percentage of
net sales) from 25.3% in 1997 to 16.6% in 1998. Although the percentage to net
sales decreased as the result of increased volume, actual expenses decreased
$499,000 due primarily to a one-time charge of $401,000 in 1997 to record the
severance arrangement with the Company's former President and CEO.
Interest expense decreased as a result of lower long-term debt and less
borrowing under the line of credit agreement during the period partially offset
by higher (1%) interest rate in 1998.
Other expenses in the first quarter of 1997 included the write-off of the
full fashion knitting machines ($143,000), the write-off of a deposit on a
canceled machinery order ($80,000) and the write-down to the carrying value of
the Alba Plant being held for sale ($48,000).
As a result of the foregoing, the Company recorded net income of $741,000
or $0.40 per share in 1998 as compared to a loss of $685,000 or $0.37 per share
in 1997.
Although the Company anticipates that its seamless intimate products, will
in 1998 continue to outperform their year ago levels, the unusual profitability
attained in the first quarter may not continue for the remainder of the year.
The Company believes earnings for the second quarter are likely to be
substantially lower than those reported for the first quarter, but higher than
1997's second quarter.
THIS QUARTERLY REPORT ON FORM 1O-Q, INCLUDING ANY INFORMATION INCORPORTATED
THEREIN BY REFERENCE, MAY CONTAIN, IN ADDITION TO HISTORICAL INFORMATION,
CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE SIGNIFICANT RISKS AND
UNCERTAINTIES. SUCH FORWARD LOOKING STATEMENTS ARE BASED ON MANAGEMENTS BELIEF
AS WELL AS ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO,
MANAGEMENT PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS CAN GENERALLY BE
IDENTIFIED AS SUCH BECAUSE THE CONTEXT OF THE STATEMENT USUALLY WILL INCLUDE
WORDS SUCH AS THE COMPANY BELIEVES; OR ANTICIPATES, OR EXPECTS; OR WORDS
OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE THE COMPANYS FUTURE
PLANS, OBJECTIVES, ESTIMATES OR GOALS ARE ALSO FORWARD-LOOKING STATEMENTS.
SUCH STATEMENTS ADDRESS FUTURE EVENTS AND CONDITIONS CONCERNING CAPITAL
EXPENDITURES, EARNINGS, SALES, LIQUIDITY AND CAPITAL RESOURCES, AND ACCOUNTING
MATTERS. THE COMPANYS ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
EXPRESSED IN, OR IMPLIED BY, THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN ITEM 1 - DESCRIPTION OF BUSINESS; AND ELSEWHERE
IN THE COMPANYS ANNUAL REPORT ON FORM 1O-K FOR THE YEAR ENDED DECEMBER 31,
1997, OR IN INFORMATION INCORPORATED THERIN BY REFERENCE, AS WELL AS FACTORS
SUCH AS FUTURE ECONOMIC CONDITIONS, ACCEPTANCE BY CUSTOMERS OF THE COMPANYS
PRODUCTS, CHANGES IN CUSTOMER DEMAND, LEGISLATIVE, REGULATORY AND COMPETITIVE
DEVELOPMENTS IN MARKETS IN WHICH THE COMPANY OPERATES AND OTHER CIRCUMSTANCES
AFFECTING ANTICIPATED REVENUES AND COSTS. THE COMPANY UNDERTAKES NO OBLIGATION
TO RELEASE PUBLICLY THE RESULT OF ANY REVISIONS TO THESE FORWARD LOOKING
STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
THIS ANNUAL REPORT ON FORM 1O-K OR TO REFLECT THE OCCURRENCE OF OTHER
ANTICIPATED EVENTS.
<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.
Date: May 18, 1998 /s/ Glenn J. Kennedy
Vice President and Treasurer
(Chief Financial Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-29-1998
<CASH> 1,144
<SECURITIES> 0
<RECEIVABLES> 10,934
<ALLOWANCES> 300
<INVENTORY> 10,255
<CURRENT-ASSETS> 22,881
<PP&E> 32,132
<DEPRECIATION> 18,262
<TOTAL-ASSETS> 44,570
<CURRENT-LIABILITIES> 7,807
<BONDS> 0
0
0
<COMMON> 4,716
<OTHER-SE> 23,437
<TOTAL-LIABILITY-AND-EQUITY> 44,570
<SALES> 18,296
<TOTAL-REVENUES> 18,296
<CGS> 13,826
<TOTAL-COSTS> 16,868
<OTHER-EXPENSES> 49
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 1,195
<INCOME-TAX> 454
<INCOME-CONTINUING> 741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 741
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
