SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------
FORM 10-K
{x} ANNUAL REPORT PURSUANT TO SECTION
13 or 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the
fiscal year ended December 31,
1998
{ }TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
201 St. Germain Avenue, S.W.
P.O. Box 100 Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 828-879-6500
Securities registered pursuant to Section
12 (b) of the Act:
COMMON STOCK ($2.50 PAR VALUE) AMERICAN STOCK EXCHANGE
(Title of class) (Name of exchange on which registered)
Securities registered pursuant to Section to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss..229.405 of this chapter) 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. [ ]
State the aggregate market value of the voting stock held by the
non-affiliates of the registrant: Approximately $46,970,000 as of March 24,
1999.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 2,348,480 shares of
Common Stock ($2.50 par value) as of March 24, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference into Parts I and III.
<PAGE>
THIS ANNUAL REPORT ON FORM 1O-K, 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 MANAGEMENT'S 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; "EXPECTS"; OR WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT
DESCRIBE THE COMPANY'S 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 COMPANY'S 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 COMPANY'S
ANNUAL REPORT ON FORM 1O-K FOR THE YEAR ENDED DECEMBER 31, 1998, OR IN
INFORMATION INCORPORATED THERIN BY REFERENCE, AS WELL AS FACTORS SUCH AS FUTURE
ECONOMIC CONDITIONS, ACCEPTANCE BY CUSTOMERS OF THE COMPANY'S 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.
PART I
Item 1. Business.
General Development of Business
Alba-Waldensian, Inc., (the "Company") manufactures a variety of knitted
apparel and health care products at two plants in Valdese, North Carolina and
one plant in Rockwood, Tennessee and markets the products through two divisions,
the Consumer Products Division and the Health Products Division.
During 1997, the Company determined that it was able to obtain certain
covered yarn from outside suppliers at a quality level and cost such that
producing such yarn was no longer justified. Accordingly, the Company was able
to close its yarn covering facilities and sell most of its yarn covering
machinery. The Company intends to either lease and/or utilize the idled
production facilities (the Alba plant) for material storage.
In order to focus its efforts on seamless intimate apparel, the Company in
1997 discontinued the production of the "old technology" full fashion product
line and severely curtailed production of the circular knit panty.
Since its acquisition in 1992, the Byford menswear distribution
business had been unable to generate the volumes necessary to justify the
Company's investment of capital and management time. Accordingly, in 1997 the
Company discontinued the Byford business and began disposing of all remaining
Byford inventories.
In order to maintain its competitive position, in 1997 the Company
established an outsourcing program in Mexico. During 1998, Alba solidified its
Mexican outsourcing program and achieved the targeted levels of Mexican produced
goods. For 1999, the Company plans to further expand its outsourcing program for
hosiery.
The Company experienced outstanding growth in demand for its seamless
intimates and bodywear products during 1998. To meet such demand, the Company
expanded its seamless knitting capacity by 66% during 1998 and has plans to
further increase capacity by over another 50% in 1999. Upgrades to dying, sewing
and finishing capabilities coupled with a major expansion of Research and
Development efforts round out the Company's response to meeting the growing
demand for its seamless products.
Financial Information About Industry Segments
See Note 10 of Notes to Consolidated Financial Statements contained in
Item 8 of this Report for financial information about the Company's two industry
segments.
Principal Products
The principal products of the Company's two Divisions are described
below.
Consumer Products Division
Products manufactured and sold by this Division include women's apparel
and women's hosiery products. Women's apparel includes both intimate apparel
(brassieres, briefs and bodywear, as well as specially designed briefs for
maternity wear) and combination internally/externally worn products (bodysuits,
bandeaus, tube tops, and dresses). Women's hosiery products include sheer
stockings, pantyhose, tights and trouser socks, primarily for large-size women
and the maternity market.
The Company has developed a process that makes it possible to knit bras,
briefs, tank tops, bodysuits and many other products on seamless knitting
equipment. This design technology, which is patented for the knit bra and
various knit-in features for all seamless products, has allowed the Company to
significantly broaden its product offerings. The seamless knit bra was
introduced in 1994 and the tank tops and bodysuits were introduced in 1995.
During 1998, the Company introduced several new products utilizing the seamless
technology, including bandeaus, tube tops, dresses and activewear.
The Company uses state of the art computer-controlled circular-knitting
technology. Such equipment produces apparel that management believes is better
fitting and therefore more comfortable than traditional cut and sew products.
Health Products Division
Products manufactured and sold by this Division are designed to assist
in healthcare. They include anti-embolism stockings and compression therapy
systems, an intermittent pneumatic compression device, both of which are
designed to improve circulation and reduce the incidence of deep vein
thrombosis; sterile wound dressings such as pre-saturated gauze, petrolatum and
xeroform gauze, non-adhering dressings and gauze strips and XX-Span(R) dressing
retainers, an extensible net tubing designed to hold dressings in place without
the use of adhesive tape. All dressing products are used in wound care therapy.
In addition, this Division manufactures a knitted stockinette in a variety
of sizes, which is used under fracture casts or is sterile packaged for use as a
supplemental drape in surgical procedures, as well as heel and elbow pads which
are XX-Span(R) sleeves with an inner soft foam pad used to reduce pressure and
the incidence of decubitus ulcers.
Other products include slip-resistant patient treads, which are knitted
soft patient footwear with slip resistant soles to help prevent patient falls
while keeping feet warm even while in bed; knitted arm sleeves, which provide
protection to the skin of patients with poor circulation; oversize socks for
diabetic patients; baby caps to retain body temperature; and knitted cuffs for
use on surgical gowns.
Methods of Distribution
The Company's products are sold throughout the United States through
salaried and commissioned salesmen as well as by in-house marketing personnel.
The Consumer Products Division markets its products directly to major retail
organizations, which sell them under their own labels and to several companies
that market nationally advertised brands. The Company also distributes branded
Consumer Products to the independent retail trade through telemarketing.
Products of the Health Products Division for use in hospitals are marketed to
major distributors by the Company's sales representatives. These products are
sold both under private label and under the Company's own Life Span(R) Label.
Sales offices are located in Valdese, North Carolina and in New York City. Total
expenses for marketing and selling of all products from the Company's continuing
operations were 7.1% of sales in 1998 and 8.2% of sales in 1997. (See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" contained in Item 7 of this Report.)
Manufacturing
All Health Products manufacturing and distribution is located at the
Rockwood, Tennessee plant. The Rockwood plant is a 246,000 square foot building,
with space and available labor market for growth. All products are knitted on
circular knitting equipment. Most of this equipment has been purchased in the
past ten years. Automated seaming, printing and packaging are used in the
finishing process.
Consumer Products manufacturing and distribution is located at two
plants in Valdese, North Carolina. Products are knitted on circular knitting
equipment. Most of the circular knitting equipment is the latest equipment
available. Greige seaming and finishing is manual or automated, depending on
product and size of product.
The Company has an ongoing program for the outsourcing of production to
augment certain of its internal production capacities. Domestically, the Company
obtains manual sewing from outside contractors. In 1997, the Company established
a Mexican source for the production and finishing of women's sheer hosiery, with
the first imports being received in late December. The Company solidified this
program in 1998 and attained targeted levels of Mexican produced goods. For
1999, the Company plans to further expand its outsourcing program for hosiery.
Due to unprecedented demand for its seamless intimate apparel, the
Company increased its capital expenditures in 1998 to $6,365,000. Significant
portions of these expenditures were for the acquisition of seamless knitting
machines. The Company expects capital expenditures for 1999 to be approximately
$10,500,000. The capital expenditures in 1999 will be for purchasing new and
used equipment (including seamless knitting machines), upgrading remaining older
equipment and computer systems, automating, renovating and improving plant
facilities. The Company anticipates that it will be able to obtain adequate
financing to allow for any such increased capital expenditures.
Financial Information About Classes of Similar Products
The table below presents information as to the sales volumes of the
Company's product classes for each of the last three years:
<TABLE>
<CAPTION>
Years
Ended Women's Women's Men's Health
December 31, Hosiery Apparel Wear Other Products
<S> <C> <C> <C> <C> <C>
1996 13.8% 28.6% 8.0% 0% 49.6%
1997 15.0% 27.3% 6.8% 0% 50.9%
1998 11.2% 44.2% 0.2% 1.1% 43.3%
<FN>
Note: Amounts represent percentages of annual net sales.
Women's apparel consists of regular size bras, briefs and bodywear as well
as maternity and plus size briefs.
Women's hosiery products consist of maternity and plus-size panty hose, as
well as trouser socks and tights.
Health products consist of stockinettes, treads, arm sleeves, anti-embolism
stockings, pulStar(R), sterile wound dressings, heel pads, elbow pads, oversize
socks, baby caps, and knitted cuffs.
</FN>
</TABLE>
New Products
The Company maintains an active research and development department that
continually evaluates new products and processes. During 1998 the Company
introduced several new product lines such as bandeaus, tube tops and dresses
which represented new applications of the Company's seamless knitting
technology. Management also evaluates new products, business opportunities, and
acquisitions on an on-going basis and could encounter an opportunity that would
require substantial investment in the future.
Sources and Availability of Raw Materials
The principal raw materials used by the Company in its manufacturing
processes include various types of yarn, chemicals for dyeing and finishing and
for impregnating medical products, plus packaging materials for all products.
The Company acquires these materials from a number of sources and is not
dependent on any one source for a significant amount of its raw materials. The
Company anticipates no material change in either the availability or the cost of
its raw materials.
Patents and Trademarks
The only material patents held by the Company are (1) for a device used
to warm wet dressings, which expires in 2002; (2) for a process covering the
manufacture of dressings, which expires in 2002, and (3) a variety of patents
for processes which make it possible to knit bras and various functional
features in bras and panties on seamless knitting equipment, which expire in
2014. Also, the Company acquired a co-exclusive License Agreement for a patented
process which makes it possible to knit briefs. The agreement is for the life of
the patent, which expires in 2012. The material trademarks held by the Company
are: Alba(R), All Day Long(R), ComfortKnit(R), SomeBody(R), While You Wait(R),
Comfort Zone(R), Seamless Comfort(R), Lady Alba(R), Occasionals(R),
Ultimates(R), XX-Span(R), Speed-Roll(R), Life Span(R), Coplex(R), PAS(R), Baby
Bogan(R), Balfour(R), Care-Steps(R), Case Sox(R), Body Makeup(R), Fashion
Tread(R), Figure Perfect(R), Castmate(R) and pulStar(R). The Company holds
numerous other patents and trademarks that, because of obsolescence or other
reasons, are not material to the Company's current operations.
Seasonality
In prior years, sales tended to be fairly even throughout the year.
However, in 1998 with the introduction of new fashionable and holiday-focused
products, the Company may for the first time be experiencing seasonality in its
sales. The magnitude of such seasonal demand can only be measured as the Company
gains more sales history with its new fashion product lines and experiences a
full cycle of seasons: Spring, Back-to-School and Holiday. For an unaudited
summary of financial information on a quarterly basis, see Note 11 of Notes to
Consolidated Financial Statements contained in Item 8 of this Report.
Working Capital
Differences resulting from seasonal fluctuations have not materially
affected the Company's working capital requirements and the Company has an
adequate revolving credit line to cover any short-term cash requirements. The
Company sells merchandise on consignment only on a limited basis. Although
returns are permitted when the quality of merchandise sold is below acceptable
standards or when an error in completing an order occurs, the number and amounts
of returns did not have a material effect on working capital of the Company
during fiscal 1998 or 1997. Due to the various approaches to manufacturing and
distribution used by the industry, the Company is not aware of any industry-wide
norms relating to sale and delivery requirements.
Significant Customers
See Note 10 of Notes to Consolidated Financial Statements contained in
Item 8 of this report for information on significant customers.
The loss of either of the two customers mentioned in such note would have a
material adverse effect on the business of the Company.
Open Orders
The Company's open orders at December 31, 1998 and 1997 were $9,413,000
and $3,825,000 respectively. Open orders at any point in time may not
necessarily be indicative of orders for the remainder of the year.
Competition
The Company encounters substantial competition in the sale of its
products from numerous competitors, a few of which are known to have larger
sales and capital resources than the Company. Management is unable to estimate
the number of the Company's competitors or its relative position among them.
Management believes that the principal methods of competition in the markets in
which the Company competes include price, delivery, performance, service and the
ability to bring to the market innovative products. Management believes that the
Company is competitive with respect to these factors but is unable to identify
specific positive and negative aspects of the Company's business pertaining to
such factors. (See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this Report.)
Research and Development
In 1998, the Company spent approximatel $946,000 on Company-sponsored
research and development projects through the Company's Research and Development
Department. This compares to $513,000 in 1997 and $474,000 in 1996.
Environmental Regulations
In the opinion of management, the Company and its subsidiaries are in
substantial compliance with present federal, state and local regulations
regarding the discharge of materials into the environment. Capital expenditures
required to be made in order to achieve such compliance have had no material
effect upon the earnings or competitive position of the Company or its
subsidiaries.
Management believes that continued compliance will require no material
expenditures.
Government Regulation
The Company is subject to various regulations relating to the
maintenance of safe working conditions and manufacturing practices. In addition,
certain of the products manufactured by the Health Products Division are subject
to the requirements of the Food and Drug Administration with respect to
environmentally controlled facilities. Management believes that it is currently
in compliance with all such regulations.
Employees
The Company had 752 employees as of December 31, 1998. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its employee relations to be excellent.
<PAGE>
Item 2. Properties.
<TABLE>
<CAPTION>
The Company's principal physical properties are listed below:
Approximate
Square
Name Location Footage Use
<S> <C> <C> <C>
Alba Valdese, NC 157,000 Warehouse (Consumer
Products)
John Louis Valdese, NC 178,300 Finishing (Consumer
Products)
Pineburr Valdese, NC 81,000 Knitting (Consumer
Products)
Rockwood Rockwood, TN 245,940 Knitting, Yarn
Processing &
Finishing (Health
Products)
Offices Valdese, NC 52,000 Corporate
headquarters
Offices New York City 3,200 Leased Sales Offices and
$86,400 Showroom
Annually
Expires April 2000
<FN>
All plants are of brick and steel construction, and most areas have
been air-conditioned. All have been maintained in working condition. The Company
leases its New York City office. The rest of the Company's physical properties
are held in fee simple, subject to encumbrances that are described in Note 5 of
Notes to Consolidated Financial Statements contained in Item 8 of this Report.
</FN>
</TABLE>
Item 3. Legal Proceedings.
Litigation
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries or which any of its properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's $2.50 par value Common Stock is registered and traded on the
American Stock Exchange under the symbol "AWS".
<TABLE>
<CAPTION>
Sales Price of Common Shares
1998 1997
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 3.42 3.00 4.17 3.33
Second Quarter 7.08 3.42 3.50 3.25
Third Quarter 9.17 6.17 3.50 3.21
Fourth Quarter 28.88 7.33 3.83 3.08
<FN>
All per share prices have been restated to reflect the 3 for 2 stock split paid
on November 16, 1998.
</FN>
</TABLE>
Primarily as a result of the Company's record profits, the Board of
Directors declared a dividend of $0.05 per share (adjusted for the 3 for 2 stock
split on November 16, 1998) payable on August 24, 1998, to shareholders of
record on August 14, 1998. This was the first dividend the Company has paid
since 1984. On February 1, 1999, the Board of Directors declared an increased
dividend of $0.075 per share of common stock payable on February 22 1999, to
shareholders of record on February 12, 1999.
See Note 5 to the consolidated financial statements concerning restrictions
on the payment of dividends.
As of January 29, 1999, there were 152 registered holders of the Company's
Common Stock. The Company believes that there are over 400 additional
shareholders who maintain their positions in the name of beneficial owners.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
$000's Except for Per Share Amounts
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $75,242 $59,912 $65,815 $63,718 $56,507
Gross margin 22,155 12,222 15,191 12,042 14,254
Income (loss) before income taxes 8,265 (591) 504 (2,470) 3,150
Provision (benefit) for income taxes 3,282 (214) 184 (814) 1,204
Net income (loss) 4,983 (377) 320 (1,656) 1,946
EBITDA** 11,509 2,850 4,142 1,081 5,161
Depreciation 1,726 1,768 1,700 1,789 1,693
Cash dividends 118 -- -- -- --
Per Share Data:
Income (loss) per common share (*):
Net income (loss) per common share - basic $1.98 $(.13) $.11 $(.59) $.70
Net income (loss) per common share - diluted 1.90 (.13) .11 (.59) .70
Cash dividends (*) .05 -- -- -- --
Stockholders' equity per basic common share (*) 12.56 9.79 9.92 9.82 10.49
Stock Price (*)
High 28.9 4.2 5.5 7.4 8.1
Low 3.0 3.1 3.6 5.0 6.5
Close 25.4 3.1 3.9 5.1 7.4
Weighted average number of share of common stock
outstanding (in thousands of shares) (*) 2,518 2,801 2,801 2,798 2,774
Balance Sheet Data:
Working capital $14,888 $15,372 $17,488 $17,960 $19,866
Property and equipment, net 17,882 13,254 13,538 13,775 11,605
Capital spending 6,365 1,869 1,525 1,610 1,919
Total assets 46,779 43,619 45,271 49,250 37,730
Long-term debt and capital lease obligations 8,383 7,452 9,913 12,263 1,058
Stockholders' equity 29,649 27,411 27,788 27,469 29,093
Ratios & Other Data:
Net sales growth (decline) 25.6% (9.1%) 3.3% 12.8% 11.1%
% of Net Sales:
Gross margin 29.4 20.4 23.1 18.9 25.2
Operating income (loss) 12.2 0.7 2.7 (1.7) 5.7
Income taxes (benefit) 4.4 (0.4) 0.3 (1.3) 2.1
Net income (loss) 6.6 (0.6) 0.5 (2.6) 3.4
EBITDA** 15.3 4.8 6.3 1.7 9.1
Debt to equity 31.1 35.8 44.1 57.8 9.4
Return on average assets 11.0 (0.8) 0.7 (3.8) 5.3
Return on average shareholders' equity 17.5 (1.4) 1.2 (5.9) 6.9
Sales per employee $101 $80 $80 $71 $67
Open Orders $9,413 $3,825 $2,868 $3,651 $2,174
<FN>
* Restated to reflect the 3 for 2 stock split on November 16, 1998.
** EBITDA represents net income before provision for interest, income
taxes, depreciation and amortization. It is not a measure of cash flow from
operating activities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Item 7 of this Report for a discussion of certain
factors that affect the comparability of the information reflected above.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following analysis of the financial condition and results of
operations should be read in conjunction with the financial statements and notes
and other information contained elsewhere in this Annual Report on Form 10-K.
OVERVIEW
Alba is a leading worldwide producer of seamless apparel for private
label and contract brand markets. The Consumer Products Division also produces
women's hosiery, primarily for the queen size and maternity markets. Our Health
Products Division manufactures medical specialty products and markets them
throughout the Americas and Europe. The Company employs approximately 752 people
in Valdese, North Carolina and Rockwood, Tennessee.
In our Consumer Products Division, we made the strategic decision to
focus our intimate apparel production on the new seamless knitting technology,
which we helped pioneer in the early 1990's. To that end, we discontinued all
full fashion and circular knit production in 1997. During 1998, the marketplace
validated our decision through explosive growth in demand for our seamless
products.
To meet this demand we aggressively expanded our seamless knitting
capacity by approximately 66% in 1998 and have additional machines on order
through the first half of 1999 to further increase capacity to 263% of its
beginning 1998 levels.
Our research and development group has led the marketplace to new and
innovative applications of our seamless technology to new product lines such as
bodysuits, tubes, bandeaus and dresses. New product line introductions during
1998 accounted for $14.4 million or 43 % of women's apparel sales.
RESULTS OF OPERATIONS
The following table details the items in the Consolidated Statements of
Operations as a percentage of sales for 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Percentage of Sales
Year ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 70.6 79.6 76.9
Gross Margin 29.4 20.4 23.1
Selling, General
and Administrative 17.2 19.7 20.4
Operating Income/(Loss) 12.2 0.7 2.7
Other Income (Expense), Net (1.2) (1.7) (1.9)
Income (Loss) Before
Income Taxes 11.0 (1.0) 0.8
Provision (Benefit) for
IncomeTaxes 4.4 (0.4) 0.3
Net Income (Loss) 6.6 (0.6) 0.5
</TABLE>
DISCUSSION OF 1998 COMPARED TO 1997
During 1998, we reached record levels of revenues and earnings. Earnings of
$4,983,000 compared to a loss of $377,000 in 1997. Basic earnings per share of
$1.98 ($1.90 diluted) was a record for us and compared to a loss of $0.13 per
share in 1997. Revenues for 1998 increased 25.6%, reaching a record level of
$75,242,000.
Net Sales for 1998 as compared to 1997 are set forth in the following
table:
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Increase/ % Increase/
1998 1997 (Decrease) (Decrease)
($000's)
<S> <C> <C> <C> <C>
Health Products $32,548 $30,527 $2,021 6.6%
-----------------------------------------------------------
Consumer Products:
Women's apparel 33,284 16,356 16,928 103.5%
Women's hosiery 8,400 8,945 (545) (6.1%)
Byford 118 4,084 (3,966) (97.1%)
Other 892 -- 892 --
-------------------------------------------------------
Total Consumer 42,694 29,385 13,309 45.3%
----------------------------------------------------------
Total $75,242 $59,912 $15,330 25.6%
===========================================================
</TABLE>
Sales of Health Products increased $2,021,000 or 6.6% over 1997
highlighted by our market leading treads and surgical gown cuffs, partially
offset by slightly lower sales of sterile dressings. Market acceptance of our
newly redesigned pulStar(R) system has been slower than anticipated during 1998
and will be a major focus of our marketing efforts in 1999.
Sales of women's apparel (primarily all seamless) more than doubled in
1998, increasing by $16,928,000 to reach a record level of $33,284,000.
Innovative research and development efforts enabled the Company to introduce six
new seamless product lines during the year. Escalating consumer demand for the
superior fit, comfort and style of seamless garments translated into strong
demand for all categories of our seamless women's apparel. This outstanding
performance validated our strategic decision in early 1997 to focus future
production of women's apparel on our pioneering seamless knitting technology.
Several of the new product lines introduced in 1998 represented apparel
such as bodysuits, bandeaus, tube tops and dresses (combination
innerwear/outerwear). In prior years, women's intimates (primarily bras and
panties) composed the majority of our women's apparel line. The marketing of
this new combination of internal/external apparel through major specialty retail
stores has introduced both new market opportunities and new product quality
requirements as well as having introduced for the first time the potential for
significant seasonality in the Company's business. The impact of this
seasonality cannot be measured until we have been through at least one complete
seasonal cycle. Sales of women's apparel to one retail customer represented
$18,325,000, or 55%, of women's apparel sales in 1998.
Worldwide demand for women's sheer hosiery has been on the decline for
several years. This trend has accelerated as informal dress codes have become
accepted in most workplaces. Our women's hosiery volume dropped $545,000, or
6.1%, in 1998. The Company is continuing to explore new product categories
within women's hosiery markets, such as trouser socks and compression hosiery,
to offset this continuing decline in traditional sheer hosiery.
The decline in Byford sales reflects our decision in the third quarter
of 1997 to no longer distribute the licensed line of men's socks and sweaters
due to poor profitability.
Gross profits increased in 1998 to 29.4% of net sales, as compared to
20.4% in 1997. Health Products' gross margin percentage increased 6% in 1998
with all major products reporting improved profitability. This increase is
significant in the face of prior year declines in margins due to cost reduction
pressures within the healthcare industry and the loss of dressing business to
competition.
Consumer Products Division's gross margin percentage doubled in 1998,
reflecting an increase in women's apparel margins due to the large increase in
production volume and the introduction of higher margin specialty and
fashionable product categories. This increase in margins was partially offset by
a 0.8 point decline in hosiery margins resulting primarily from declining
volume. The decline in hosiery margins was minimized during 1998 as we began to
shift production of certain hosiery styles to Mexican subcontractors in order to
maintain our competitive position against many other hosiery manufacturers who
began offshore production much earlier than Alba. The discontinuation of the
Byford business resulted in the disposition of inventories at substantially less
than normal margins in 1997.
Selling, General and Administrative Expenses decreased as a percentage of
sales to 17.2% from 19.7% in 1997. Higher sales volumes along with strong
spending controls resulted in the lower expense percentage.
Interest expense was $865,000 in 1998 as compared to $1,020,000 in 1997
primarily as the result of lower borrowing levels throughout most of 1998.
Additionally, the refinancing of the Company's long-term debt in May 1998
yielded a lower borrowing rate than in 1997.
DISCUSSION OF 1997 COMPARED TO 1996
Net Sales by Division for 1997 as compared to 1996 are set forth in the
following table:
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Increase/ % Increase/
1997 1996 (Decrease) (Decrease)
($000's)
<S> <C> <C> <C> <C>
Health Products $30,527 $32,640 $(2,113) (6.5%)
Consumer Products:
Women's apparel 16,356 18,824 (2,468) (13.1%)
Women's hosiery 8,945 9,045 (100) (1.1%)
Byford 4,084 5,291 (1,207) (22.8%)
Other -- 15 (15) (100%)
--------------------------------------------------------
Total Consumer $29,385 $33,175 $(3,790) (11.4%)
-----------------------------------------------------------
Consolidated $59,912 $65,815 $(5,903) (9.0%)
============================================================
</TABLE>
Net sales, as shown in the table above, decreased by $5,903,000 or 9.0%in
1997. Health Products business was down primarily due to problems encountered
with its P.A.S.(R) anti-embolism compression system. The Company was able to
redesign the product and re-introduce its new pulStar(R) wrap system in late
1997. Consolidation of product lines by a major distributor resulted in the loss
of significant dressing sales in the second half of 1997. These declines were
partially offset by increased sales of tread footwear, gown cuffs and specialty
products. The decline in Consumer Products sales of women's apparel was due to
the decision in early 1997 to discontinue the "old technology" full fashion
panty production and the loss of circular knit business to lower priced imports.
The full fashion loss was offset in part by converting customers to the new
seamless panty line. Women's hosiery volume remained relatively flat compared to
1996. Due to marginal profitability, the Company decided in 1997 to no longer be
a distributor for the Byford product line.
Gross profits decreased in 1997 to 20.4% of net sales, as compared to 23.1%
in 1996. Health Products' margins declined 4.4% in 1997 due to problems with its
high margin P.A.S.(R) anti-embolism stocking system, cost reduction pressures
within the healthcare industry and the loss of dressing business to competition.
Consumer Products' margins increased by 1.8% in 1997 reflecting a 4.3-point
increase in intimate apparel margins due to a shift to higher margin seamless
products from the "old technology" full fashion and circular knit lines. This
increase in margins was partially offset by a 3-point decline in hosiery margins
resulting from quality problems and startup expenses related to the installation
of new knitting equipment in late 1996. The discontinuation of the Byford
business in 1997 resulted in the disposition of inventories at substantially
less than normal margins.
Selling, General and Administrative Expenses decreased as a percentage
of sales to 19.7% from 20.4% in 1996. Strong spending controls resulted in the
lower expense percentage in the face of the decline in net sales and in spite of
the one-time costs of approximately $400,000 in connection with the severance
arrangement with the Company's former President and CEO.
Interest expense was $1,020,000 in 1997 as compared to $1,286,000 in 1996.
Average borrowings under the Short-Term Revolver were $71,000 with an average
interest rate of 8.65% compared to average borrowings of $1,066,000 with an
average interest rate of 7.40% in 1996. Additionally, the Company's long-term
debt continued to decline in 1997, reflecting normal quarterly principal
reductions as well as a special one-time principal reduction of $111,000 in
connection with the sale a substantial portion of the Byford inventories.
LIQUIDITY AND CAPITAL RESOURCES
In May 1998, we secured a new three-year $21,000,000 financing facility
with a major bank (see Note 5 of Notes to Consolidated Financial Statements).
The new financing facility provides 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 future capital expenditure line of $3,000,000. In addition, the
facility permits the Company to secure other outside financing of capital
expenditures of up to $4,500,000 over the three-year term of the facility. On
August 7, 1998, the Company secured a $1,500,000 financing lease facility with a
major financial institution covering the acquisition of qualified machinery
during the remainder of 1998.
Working capital continues to be adequate to support the Company's
operations. On December 31, 1998, the Company had current working capital of
$14,888,000 with a current ratio of 3.23 to 1. This is comparable to $15,372,000
or 3.19 to 1 at December 31, 1997. Although our working capital decreased
slightly ($484,000) since December 31, 1997, our liquidity has actually improved
during 1998. Under the terms of our new financing facility, all of our excess
cash is used daily to reduce the outstanding balance on our revolving credit
line. This results in increasing the amount available to borrow under the
revolver while at the same time providing for the maximum short-term investment
return on the Company's available cash balances. However, this results in our
not reporting normal levels of cash (current asset) which have been utilized to
temporarily reduce our revolving credit line (long-term liability). Our cash
balances at the end of 1997 totaled $2,416,000, as compared to $15,000 at the
end of the current year. However, availability under our revolving credit line
totaled $6,332,000 at December 31, 1998.
Liquidity needs are primarily affected by and related to capital
expenditures and changes in the Company's business volume. During 1998, these
needs were adequately met through the new $21 million financing facility and
$1,500,000 of other lease financing. Capital expenditures for 1998 totaled
$6,365,000, reflecting expansion of our seamless knitting capacity by
approximately 70% during the year. This level of capital expenditures compares
to $1,869,000 for the 1997 year.
We intend to continue to aggressively expand our seamless knitting
capacity in 1999. In addition to the 66% capacity increase in 1998, we have
enough machines on order with scheduled delivery dates in 1999 to further
increase seamless knitting capacity to 263% of its beginning 1998 levels.
Capital expenditures in 1999 may approximate $10,500,000. This level of
investment in the future of our Company may require that additional sources of
funding be obtained beyond that provided in our current financing facility. The
Company believes that it will be successful in securing the necessary funds to
allow us to capitalize on the expanding demand for seamless apparel.
Cash provided by operating activities was $7,263,000 in 1998 as
compared to $6,092,000 in 1997, and $5,082,000 in 1996. The increase in cash
provided in 1998 was primarily due to increased business volume partially offset
by higher working capital required to support the higher operating levels. The
1997 cash provided from operations was higher than 1996 mainly as the result of
decreases in working capital commensurate with the lower business volume in 1997
as compared to 1996.
Net cash used in investing activities was $4,793,000 in 1998 compared
to $1,509,000 in 1997 and $1,168,000 in 1996. The cash used in each of these
three years was primarily for capital expenditures to expand capacities, and to
replace and update plant and equipment. During 1998, Alba increased its seamless
knitting capacity by 66%. Net cash used by financing activities was $4,871,000
in 1998 as compared to $2,461,000 in 1997 and $3,676,000 in 1996. Financing
activities in 1998 included the refinancing of our long-term bank debt with a
new $21 million financing. The purchase on May 15, 1998 of 295,000 shares of the
Company's common stock for approximately $2,328,000 reduced the company's net
worth. However, the acquisition price per share of $7.50 (plus transaction
costs) was significantly less than the Company's book value per share ($15.08 at
March 29, 1998) and accordingly the net book value of the remaining outstanding
shares was increased.
On August 4, 1998, the Company declared a semi-annual cash dividend of
$.075 per share ($.05 per post-split share) totaling $118,000 on its common
stock payable on August 24, 1998, to shareholders of record on August 14, 1998.
Under the Company's loan agreement with a bank, dividends and repurchases of
Company stock may not exceed $3,500,000 during the three-year term of the loan.
At December 31, 1998, dividends and stock repurchases totaled $2,897,000.
On August 12, 1998, the Company's Board of Directors authorized the
Corporation to acquire up to 40,000 shares (60,000 post-split shares) of the
outstanding Common Stock of the Corporation for an aggregate purchase price not
to exceed $550,000. During 1998, the Company purchased a total of 29,200 shares
(43,800 post-split shares) at an aggregate cost of $416,644.
Net cash used in 1997 and 1996 was primarily for principal payments on
long-term debt and payments to reduce the borrowings under the line of credit.
YEAR 2000 COMPLIANCE
We have addressed the Year 2000 compliance issues in three parts; our
products, our internal systems and third-parties.
Our Products - Year 2000 compliance is not an issue for any of our
products. None of our products, women's hosiery, women's intimate apparel or
health products contains date-sensitive-electronic components or date-sensitive
software.
Our Internal Systems - We are confident that all major systems within
Alba will be Year 2000 compliant before the turn of the century. For operational
reasons, in late 1996 we decided to install a new integrated manufacturing and
financial reporting management information system. This new system involved
acquiring new system hardware, new PC-based local and wide-area networks and the
standardization of PC software. All of these hardware and software systems are
Year 2000 compliant. The new system hardware, the new PC-based local area
network and the new financial reporting system are now operational. The new
manufacturing system and the wide-area network should be operational in the
second quarter of 1999. Additionally, we have substantially completed our review
of all other date-sensitive systems throughout Alba with no material
non-compliance problems noted. This review also included non-information
technology systems and equipment such as the electronic components of our
knitting and other manufacturing equipment.
Third Parties - Like most all other companies, we are dependent upon
our material vendors, suppliers and customers to ensure that we remain a going
concern. We are unable to control the actions of others with respect to their
Year 2000 compliance. However, our material suppliers, service providers and
customers are mostly all very large companies within their own industries and
have much at stake in ensuring their own compliance. We are questioning these
third parties as to their compliance plans and to date have not been advised of
any major non-compliance problems. We expect to have this process completed by
mid-1999 and will then develop contingency plans in indicated problem areas, as
feasible. The risks to Alba in this area are obviously significant; for example,
we could not operate without a continuous source of electricity to our
manufacturing plants and there are no realistic contingency alternatives
available. Similarly, there is very little that we can do to continue sales to
customers who themselves are unable to operate due to their own failure to
ensure Year 2000 compliance.
We have not incurred and do not anticipate that we will incur material
costs associated with the Year 2000 compliance issue. Our operational decision
in 1996 to replace our manufacturing and financial reporting systems had the
side benefit of eliminating most Year 2000 compliance issues for us.
EFFECTS OF INFLATION
Management believes that inflation has not had a material effect on the
Company's operations for the years ended December 31, 1998 and 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98 5, "Reporting on the Costs of Start-up
Activities", which is effective for fiscal years beginning after December 15,
1998. The SOP requires that the costs of start-up activities be expensed as
incurred. The Company is not currently engaged in any start-up activities and
does not have any deferred start-up costs recorded on its balance sheet. Should
the Company engage in any start-up activities at any time in the future, they
will be recorded in accordance with generally accepted accounting principles in
effect at such time.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 requires companies to recognize
all derivative contracts as either assets or liabilities in the balance sheet
and to measure them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging derivative with the
recognition of (I) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company is not presently a party to any derivative
contracts and does not expect adoption of the new standard to affect its
financial statements.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Description Page
Management's Responsibility for Financial Statements F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996 F-5
Summary of Significant Accounting Policies F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Alba-Waldensian, Inc. is responsible for the accuracy and
consistency of all the information contained in the annual report, including all
accompanying consolidated financial statements. The statements have been
prepared to conform with generally accepted accounting principles and include
amounts based on management's estimates and judgments.
Alba-Waldensian, Inc. maintains a system of internal accounting controls
designed to provide reasonable assurance that financial records are accurate,
Company assets are safeguarded, and financial statements present fairly the
consolidated financial position of the Company.
The Audit Committee of the Board of Directors, composed solely of outside
directors, reviews the scope of audits and the findings of the independent
certified public accountants. The auditors meet regularly with the Audit
Committee to discuss audit and financial issues.
BDO Seidman, LLP, the Company's independent certified public accountants, has
audited the financial statements prepared by management. Their opinion on the
financial statements is presented as follows.
LEE N. MORTENSON
President and Chief Executive
GLENN J. KENNEDY
Chief Financial Officer
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Alba-Waldensian, Inc.
Valdese, North Carolina
We have audited the accompanying consolidated balance sheets of Alba-Waldensian,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Alba-Waldensian,
Inc. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Greensboro, North Carolina
February 2, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
($000's, except share amounts)
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $15 $2,416
Accounts receivable (net of allowance for uncollectible accounts
of $260 in 1998 and 1997) 6,426 7,823
Inventories 13,622 11,309
Deferred income tax asset 906 707
Prepaid expenses and other 602 127
- -------------------------------------------------------------------------------------------------------------------
Total current assets 21,571 22,382
- -------------------------------------------------------------------------------------------------------------------
Net Property and Equipment 17,882 13,254
- -------------------------------------------------------------------------------------------------------------------
Other Assets:
Notes receivable 13 17
Trademarks and patents 427 492
Excess of cost over net assets acquired, net 6,886 7,474
- -------------------------------------------------------------------------------------------------------------------
Total other assets 7,326 7,983
- -------------------------------------------------------------------------------------------------------------------
Total assets $46,779 $43,619
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $852 $2,350
Accounts payable 2,989 3,118
Accrued expenses 2,842 1,542
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,683 7,010
Long-Term Debt 8,383 7,452
Deferred Compensation 200 --
Deferred Income Tax Liability 1,864 1,746
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 17,130 16,208
- -------------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' Equity:
Common stock -- authorized 3,000,000 shares, $2.50 par value;
issued: 2,829,834 and 1,886,580 shares in 1998 and 1997, respectively;
outstanding: 2,361,231 and 1,867,403 shares in 1998 and 1997, respectively 7,075 4,716
Additional paid-in capital 6,823 9,182
Retained earnings 18,436 13,650
- -------------------------------------------------------------------------------------------------------------------
Total 32,334 27,548
Less treasury stock -- at cost (468,603 and 19,177 shares in 1998
and 1997, respectively) (2,685) (137)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 29,649 27,411
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $46,779 $43,619
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1998, 1997 and
1996 ($000's, except share amounts)
<S> <C> <C> <C>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
NET SALES $75,242 $59,912 $65,815
COST OF SALES 53,087 47,690 50,624
- ------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 22,155 12,222 15,191
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,966 11,809 13,392
- ------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 9,189 413 1,799
- ------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (865) (1,020) (1,286)
Interest income 56 79 21
Loss on sale of property and equipment (1) (77) (9)
Other (114) 14 (21)
- ------------------------------------------------------------------------------------------------------------------
Total other income (expense), net (924) (1,004) (1,295)
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 8,265 (591) 504
PROVISION (BENEFIT) FOR INCOME TAXES 3,282 (214) 184
- ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $4,983 $(377) $320
- ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE - BASIC $1.98 $(.13) $.11
- ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE - DILUTED $1.90 $(.13) $.11
- ---------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1998,
1997 and 1996 ($000's, except share amounts)
Additional
Common Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 1,886,580 $4,716 $9,182 $13,707 (19,177) $(137) $27,468
Net income -- -- -- 320 -- -- 320
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 1,886,580 4,716 9,182 14,027 (19,177) (137) 27,788
Net loss -- -- -- (377) -- -- (377)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 1,886,580 4,716 9,182 13,650 (19,177) (137) 27,411
Net income -- -- -- 4,983 -- -- 4,983
Cash dividends -- -- -- (118) -- -- (118)
Purchase of treasury stock -- -- -- -- (324,200) (2,779) (2,779)
Stock split 943,254 2,359 (2,359) -- (157,138) -- --
Exercise of stock options -- -- -- (79) 31,912 231 152
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 2,829,834 $7,075 $6,823 $18,436 (468,603) $(2,685) $29,649
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
($000's)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $4,983 $(377) $320
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 2,379 2,421 2,352
Provision for bad debts 48 103 110
Loss on sale of property and equipment 1 77 9
Increase (decrease) in deferred income taxes (81) (86) 118
Provision for inventory obsolescence 2,132 1,388 754
Changes in operating assets and liabilities providing (using) cash:
Accounts receivable 1,350 1,767 (408)
Refundable income taxes -- -- 437
Inventories (4,445) (354) 2,061
Prepaid expenses and other (475) 65 (142)
Accounts payable (129) 1,218 (873)
Accrued expenses and other liabilities 1,300 102 442
Deferred compensation 200 (232) (98)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,263 6,092 5,082
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from surrender of life insurance policies -- --- 328
Capital expenditures (4,797) (1,869) (1,525)
Proceeds from sale of property and equipment 2 233 7
Proceeds from collections of notes receivable 2 127 22
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,793) (1,509) (1,168)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit agreement, net 4,328 -- (1,268)
Proceeds from issuance of long-term debt 3,664 -- --
Principal payments on long-term debt and capital leases (10,118) (2,461) (2,408)
Payment of dividends (118) -- --
Cash proceeds from exercise of stock options 152 -- --
Repurchase of capital stock (2,779) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,871) (2,461) (3,676)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (2,401) 2,122 238
CASH, BEGINNING OF YEAR 2,416 294 56
- ---------------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $15 $2,416 $294
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for:
Interest $764 $979 $1,281
Income taxes, net of refunds received $2,903 $(54) $1
Non-cash transactions:
Equipment acquired under capital leases $1,568 -- --
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
</FN>
</TABLE>
F-5
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Years Ended December 31, 1998, 1997
and 1996
Operations -- Alba-Waldensian, Inc. (the Company) manufactures and sells an
extensive line of knitted apparel products as well as a variety of specialty
medical products for the health care industry. The Company's principal market
for both apparel and medical products is the United States.
Principles of Consolidation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, which are inactive.
Estimates -- The financial statements are prepared in conformity with generally
accepted accounting principles which requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements and notes.
Actual results could differ from those estimates.
Cash -- The Company considers any short-term investments with original
maturities of three months or less to be cash equivalents and presents such
investments as cash in the accompanying financial statements.
Inventories -- Inventories are stated at the lower of cost (first-in, first-out
"FIFO" basis) or market. The Company writes down closeout and irregular
inventory on an ongoing basis based on market conditions. Inventories reflect
valuation allowances necessary to reduce inventories to their net realizable
value. It is possible that these estimates could change in 1999.
Property, Equipment, Depreciation and Amortization -- Property and equipment are
stated at cost. Betterments are capitalized. Maintenance and repairs are
expensed as incurred.
Depreciation of plant and equipment is provided over the estimated useful lives
of the assets primarily on the straight-line method. Estimated useful lives
range from seven to forty years for buildings and improvements and three to
twenty years for furniture, fixtures, machinery and equipment. Assets under
capital leases are amortized in accordance with the Company's normal
depreciation policy for owned assets.
Intangible Assets -- The costs of acquired or developed trademarks and patents
are amortized using the straight-line method over their estimated useful lives
of approximately fifteen to seventeen years. Cumulative amortization totaled
$632,230 and $567,358 at December 31, 1998 and 1997, respectively.
Excess of cost of business assets acquired over their fair value (goodwill) is
being amortized on the straight-line method over 15 years. Cumulative
amortization totaled $2,256,781 and $1,668,349 at December 31, 1998 and 1997,
respectively. Amortization expense charged to operations was approximately
$588,000, $588,000 and $608,000 in 1998, 1997, and 1996, respectively. The
Company periodically reviews the value of its goodwill to determine if an
impairment has occurred. The Company measures the potential impairment of
recorded goodwill by the undiscounted value of expected future operating cash
flows in relation to its net capital investment. Based on its review, the
Company does not believe that an impairment of its goodwill has occurred.
Revenue Recognition -- The Company recognizes revenue when goods are shipped.
Concentration of Credit Risk -- Financial instruments which potentially subject
the Company to concentrations of credit risk consist of trade receivables. Any
such risk is limited due to the Company's large number of customers and their
geographic dispersion, except as discussed in Note 10.
Advertising Costs -- Advertising costs are charged to operations when incurred.
The Company spent approximately $155,000, $329,000, and $408,000, for
advertising in 1998, 1997 and 1996, respectively.
Research and Development -- All research and development costs are expensed as
incurred and totaled approximately $946,000, $513,000, and $474,000 in 1998,
1997 and 1996, respectively.
F-6
<PAGE>
Income Taxes -- The Company calculates income taxes using the asset and
liability method which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amount and tax basis of assets and liabilities.
Net Income Per Common Share - Basic earnings per share is computed by
dividing the net income available to common shareholders by the weighted average
shares of outstanding common stock (2,517,909 in 1998 and 2,801,105 in 1997 and
1996 - each adjusted for a 3 for 2 stock split in 1998). The calculation of
diluted earnings per share is similar to basic earnings per share except the
denominator includes any dilutive effect of potential common shares outstanding
during the period such as stock options and warrants. The dilutive effect of
potential common shares outstanding during 1998 was a weighted average of
104,019 shares. There was no dilutive effect with respect to potential common
shares outstanding during 1997 or 1996.
Deferred Compensation -- The Company allows certain key employees, directors and
officers to defer a portion of their annual compensation until their retirement
from the Company. Agreements entered into for 1998 are for three years. The
agreements allow for deferred amounts to earn interest at the current prime rate
and provide for payment of the accumulated amounts over a ten year period
beginning on the retirement date. Compensation expense is being recognized in
the year the deferred salary is earned. Interest expense is recorded as accrued
and the reported liability represents the accumulated value (including interest)
of all previously deferred amounts.
Additionally, in 1998 the Company awarded certain key employees deferred
compensation which will be paid out over a three year period beginning in 1999.
Compensation expense was recorded in 1998 and such deferred amounts earn
interest at the Company's incremental borrowing rate.
Fair Value of Financial Instruments -- Financial instruments of the Company
include long-term debt and line of credit agreements. Based upon the current
borrowing rates available to the Company, estimated fair values of these
financial instruments approximate their recorded carrying amounts.
Group Health Insurance -- The Company is self-insured as to group health
insurance for its employees. The Company accrues an amount for estimated claims
incurred but not reported.
Reclassification -- Certain 1996 and 1997 amounts have been reclassified to
conform to 1998 classifications.
Comprehensive Income - Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income", which establishes standards for reporting
and display of comprehensive income, its components and accumulated balances
became effective for the Company in 1998. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. The
adoption of SFAS No. 130 had no impact upon the accompanying financial
statements.
Segment Information - SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise" became effective for the Company in 1998.
SFAS No. 131 establishes standards for the way that public companies report
information about operating segments in financial statements issued to the
public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief decision makers in
deciding how to allocate resources and in assessing performance. The Company
adopted the provisions of SFAS No. 131 in 1998 and has disclosed required
segment information, including comparative information for earlier years.
Results of operations and financial position, however, were unaffected by
implementation of this standard.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997
and 1996
1. INVENTORIES
($000's) 1998 1997
- ----------------------------------------------------------
Materials and supplies $3,076 $2,554
Work-in-process 7,048 5,045
Finished goods 3,498 3,710
- ----------------------------------------------------------
Total $13,622 $11,309
- ----------------------------------------------------------
2. PROPERTY AND EQUIPMENT
($000's) 1998 1997
- ----------------------------------------------------------
Land $256 $256
Buildings 8,399 8,274
Machinery and equipment 28,786 22,581
- ----------------------------------------------------------
Total property and equipment 37,441 31,111
Less: accumulated depreciation
and amortization (19,559) (17,857)
- ----------------------------------------------------------
Net property and equipment $17,882 $13,254
- ----------------------------------------------------------
Included in machinery and equipment are assets under capital lease with a cost
of $1,568,000 ($0 in 1997) and with accumulated amortization of $51,000 ($0 in
1997).
Depreciation expense amounted to approximately $1,726,000, $1,768,000, and
$1,700,000 in 1998, 1997 and 1996, respectively.
At December 31, 1998, the Company had paid $508,000 of deposits covering
outstanding commitments to purchase production equipment totaling $5,054,000.
3. SHORT-TERM BORROWINGS AND LINES OF CREDIT
On May 14, 1998, the Company entered into a new $21 million credit facility (See
Note 5). Previously the Company had an agreement with a bank that provided a
seasonal line of credit of up to $3,000,000. That line of credit bore interest
at the LIBOR rate plus 2.75% (8.72% at December 31, 1997) and was scheduled to
expire on June 30, 1998.
There were no borrowings under the line of credit in 1998. The following relates
to aggregate short-term borrowings in 1997 and 1996 ($000's):
1997 1996
Amount outstanding
at December 31. $-- $--
Maximum amount
outstanding at any
month end $764 $2,555
Average amount outstanding
(based on weighted daily
average balances) $71 $1,066
Weighted average interest
rate during the year 8.65% 7.40%
Weighted average interest
rate at December 31. 8.72% 7.41%
- --------------------------------------------------------------
F-8
<PAGE>
The weighted average interest rate during the year was computed by dividing
total short-term interest expense for the year by the weighted average amount
outstanding during the year.
4. ACCRUED EXPENSES
($000'S) 1998 1997
- ------------------------------------------------------------
Compensation $1,371 $897
Healthcare claims 350 255
Income taxes 459 --
Other 662 390
- ------------------------------------------------------------
Total $2,842 $1,542
- ------------------------------------------------------------
5. LONG-TERM DEBT
($000's) 1998 1997
- ------------------------------------------------------------
Revolving Credit Line $4,328 $--
Equipment Loan 2,786 --
Capital Expenditure Line 664 --
Capital Lease Obligations 1,457 --
Variable Rate Term Loan, due in graduated
installments plus interest at LIBOR plus
2.75% (8.72% at December 31, 1997) -- 9,802
- ------------------------------------------------------------
Total 9,235 9,802
Less current portion (852) (2,350)
- ------------------------------------------------------------
Long-term debt $8,383 $7,452
- ------------------------------------------------------------
On May 14, 1998, the Company obtained a three-year $21 million credit facility
from a major financial institution (the "Facility"). The Facility provides for a
$15 million revolving line of credit (based upon levels of inventories and
accounts receivable), a $3 million equipment loan and a $3 million capital
expenditure line and matures on May 14, 2001. Interest on the facility is
payable monthly and is based upon the Prime rate plus 0.5% (or at the option of
the Company, portions of the Facility may be priced at LIBOR plus 2.5%). The
equipment loan is payable in 84 equal monthly payments and the capital
expenditure line is amortized over 60 monthly payments, both with balloon
payments due upon the expiration of the three-year Facility. Proceeds from the
new credit facility were used to retire the Company's outstanding long-term
debt.
Availability under the revolving credit line totaled $6,332,000 at December 31,
1998 and availability under the capital expenditure line totaled $2,336,000. The
Facility also provides that the Company may secure additional outside financing
for capital expenditures of up to $1,500,000 per year during its three-year
term.
The Facility is collateralized by substantially all of the Company's assets and
contains provisions whereby the Company is required to maintain certain
financial ratios and other financial conditions. The Facility also prohibits the
Company from incurring certain additional indebtedness, limits certain
investments, advances or loans and restricts substantial asset sales, capital
expenditures, cash dividends and other payments to shareholders. At December 31,
1998 the company was not in compliance with the capital expenditure covenant of
the agreement. However, the lender has waived this violation as of December 31,
1998.
The future maturities of long-term debt are as follows:
1999 $852
2000 847
2001 6,979
Thereafter 557
$9,235
F-9
<PAGE>
6. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS
Common Stock Transactions
On November 16, 1998, the Company effected a 3 for 2 stock split paid in the
form of a stock dividend on the Company's Common Stock. Earnings per share
amounts and weighted average shares outstanding for all years presented have
been restated to reflect the 3 for 2 stock split.
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 (1,408,050 post-split 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 Sunstates Corporation's affiliates had with the bank. The
Company purchased 295,000 of the shares (442,500 post-split shares) at a cost of
$2,212,500 plus other transaction costs totaling approximately $115,000. The
Company utilized its existing cash plus funds obtained from the new $21,000,000
financing facility to purchase the stock. The Company intends to hold the
295,000 shares (442,500 post-split 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 36% of the Company's
outstanding common stock.
On August 4, 1998, the Company declared a semi-annual cash dividend of $.075 per
share ($.05 per post-split share) totaling $117,930 on its common stock payable
on August 24, 1998, to shareholders of record on August 14, 1998.
On August 12, 1998, the Company's Board of Directors authorized the Corporation
to acquire up to 40,000 shares (60,000 post-split shares) of the outstanding
Common Stock of the Corporation for an aggregate purchase price not to exceed
$550,000. During 1998, the Company purchased a total of 29,200 shares (43,800
post-split shares) at an aggregate cost of approximately $416,644.
Under the Company's loan agreement with a bank (see Note 4), dividends and
repurchases of Company stock may not exceed $3,500,000 during the three-year
term of the loan. As of December 31, 1998, dividends and stock repurchases
totaled $2,897,000.
Employee Incentive Plans
In June, 1993, the Company adopted the 1993 Long Term Performance Plan (the 1993
Plan), which includes both qualified and nonqualified option provisions and
stock appreciation rights and restricted, performance and other stock-based
awards. Under the 1993 Plan, the Compensation Committee of the Board of
Directors is authorized to grant stock awards to purchase up to 375,000 shares
of the Company's common stock at prices equal to the fair value of the stock on
the dates of grant.
The 1993 Plan options are exercisable over a period determined by the
Compensation Committee at the date of grant (usually 5 years).
The 1992 Nonqualified Stock Option Plan for Non-employee Directors (the 1992
Plan) was a plan under which each non-employee director was granted options to
purchase 3,000 shares of the Company's common stock at prices equal to the fair
value of the stock on the dates of grant. The 1992 Plan expired on December 17,
1997, and was replaced with a new 1997 Nonqualified Stock Option Plan for
Director which provides for all directors to immediately receive 3,000 shares
plus 750 shares in each succeeding year of the Plan.
F-10
<PAGE>
Transactions involving the Plans are summarized as follows:
Weighted Average
Shares Exercise Price
Option Shares
outstanding at
January 1, 1996 220,500 $6.01
Granted 13,875 4.61
Expired and/or cancelled (42,000) 6.18
- ----------------------------------------------------------
Outstanding at
December 31, 1996 192,375 5.86
Granted 197,625 3.32
Expired and/or cancelled (139,500) 5.81
- ----------------------------------------------------------
Outstanding at
December 31, 1997 250,500 3.33
Granted. 63,000 18.17
Exercised and/or cancelled (71,401) 3.32
- ----------------------------------------------------------
Outstanding at
December 31, 1998 242,099 $6.91
--------------------------------------------------------
The following summarizes information about stock options outstanding at December
31, 1998:
Weighted Weighted
Range of Average Average
Exercise Number Remaining Exercise
Prices Outstanding Life Price
$3.08 - $3.67 191,099 3.3 $3.31
$6.83 - $8.00 18,000 4.7 $7.81
$27.25 33,000 5 $27.25
------
242,099 $6.91
-------
Information with respect to stock options exercisable at December 31, 1998 is as
follows:
Weighted
Range of Average
Exercise Number Exercise
Prices Exercisable Price
- ----------------------------------------------------------
$3.08 - $3.67 58,257 $3.35
$6.83 - $8.00 3,000 $6.83
$27.25 6,750 $27.25
-----
68,007 $5.87
------
During 1998, 63,000 options were issued with a range of exercise prices from
$3.08 to $27.25 and a contract life of 5.0 years
F-11
<PAGE>
The Company has adopted Statement of Financial Accounting Standards (SFAS) 123,
"Accounting for Stock-Based Compensation,". In accordance with the provisions of
SFAS 123, the Company continues to apply APB Opinion 25 and related
interpretations in accounting for its stock option plans and, accordingly, has
not recognized compensation cost. If the Company had elected to recognize
compensation cost based on fair value of the options granted at the grant date
as prescribed by SFAS 123, net income (loss) and earnings (loss) per share would
have been reduced to the pro forma amounts indicated in the table below ($000's,
except per share amounts):
1998 1997 1996
- ------------------------------------------------------------
Net income (loss) -- as reported $4,983 $ (377) $ 320
Net income (loss) -- pro forma $4,888 (427) 308
Basic EPS -- as reported 1.98 (.13) .11
Basic EPS -- pro forma 1.94 (.15) .10
Diluted EPS - as reported 1.90 (.13) .11
Diluted EPS - pro forma 1.86 (.15) .10
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
1998 1997 1996
- ------------------------------------------------------------
Expected dividend yield 0.40% 0.00% 0.00%
Expected stock price volatility 35.00% 18.00% 18.26%
Risk-free interest rate 4.60% 6.21% 5.67%
Expected life of options. 5 years 5 years 5 years
The weighted average fair values of options granted during 1998, 1997 and 1996
were $6.65, $1.51 and $2.03, respectively.
7. INCOME TAXES
Components of the income tax provision (benefit) for 1998, 1997 and 1996
included ($000's):
1998 1997 1996
- ------------------------------------------------------------
Current:
Federal $ 2,796 $-- $66
State 566 -- --
Deferred:
Federal (119) (182) 102
State 39 (32) 16
- --------------------------------------------------------------
Provision (benefit)
for income taxes $3,282 $(214) $184
- --------------------------------------------------------------
F-12
<PAGE>
The approximate tax effect of temporary differences and carryforward amounts
that are the basis for the Company's deferred income tax assets and liabilities
for 1998 and 1997 are as follows:
($000's) 1998 1997
- ------------------------------------------------------------
Current deferred tax assets:
Receivables $169 $95
Inventories 719 610
Benefit of state operating
loss carryforwards -- 2
Other 18 --
- ------------------------------------------------------------
Current deferred tax assets 906 707
- ------------------------------------------------------------
Noncurrent deferred tax assets (liabilities), net:
Property (1,998) (2,129)
Deferred compensation 110 44
Insurance reserve 128 93
Benefit of state operating
loss carryforwards -- 85
Alternative minimum tax
credit carryforward -- 264
Other (104) (103)
- ------------------------------------------------------------
Noncurrent deferred tax
assets (liabilities), net (1,864) (1,746)
- ------------------------------------------------------------
Total deferred tax assets
(liabilities), net ($958) $(1,039)
-----------------------------------------------------------
The income tax provision differs from the amount computed by applying the
federal statutory income tax rate of 34% to pre-tax income. The computed amount
is reconciled to total income tax expense as follows:
($000's) 1998 1997 1996
- ------------------------------------------------------------
Federal income tax at
statutory rate (benefit) $2,810 ($201) $171
State income taxes, net of
federal benefit (cost) 399 (21) 10
Expenses which are not
deductible for income
tax purposes 39 15 21
All other 34 (7) (18)
- ------------------------------------------------------------
Total provision (benefit) for
income taxes $3,282 ($214) $184
- ------------------------------------------------------------
8. EMPLOYEE 401-K RETIREMENT PLAN
The Company has a 401-K retirement plan covering substantially all employees
which allows participants to defer from 2% to 20% of their salaries, or the
maximum allowable under the Internal Revenue Code. The Company's matching
contribution, if any, is discretionary on an annual basis and may not exceed 6%
of participants' compensation. For the three years ended December 31, 1998, the
Company has contributed 40% of the participant's contributions up to 4% of their
compensation. Effective January 1, 1999, the Company will contribute 50% of the
participant's contribution, up to 4% of their compensation. Contribution
expenses related to this plan for the years ended December 31, 1998, 1997 and
1996 were $146,000, $132,000, and $149,000, respectively.
F-13
<PAGE>
9. LEASE OBLIGATIONS
The future minimum lease payments under capital and other operating leases
having initial or remaining lease in excess of one year are as follows:
Operating Capital
Year Leases Leases
- ------------------------------------------------------------
1999 $340 $427
2000 187 354
2001 26 330
2002 10 330
2003 3 264
- ------------------------------------------------------------
Total minimum lease payments $566 1,705
====
Less amounts representing interest 248
- ------------------------------------------------------------
Present value of net minimum lease
payments $1,457
- ------------------------------------------------------------
Total rental expense for all operating leases was $521,000 in 1998, $515,000 in
1997, and $543,000 in 1996.
10. SEGMENT INFORMATION
Alba has two operating segments; Consumer Products and Health Products. Each
segment is a strategic business unit that offers different products, has
separate management and requires different technology and marketing strategies.
The Consumer Products Division ("Consumer Products") manufactures seamless
women's intimate and fashion apparel along with women's hosiery, all of which
are marketed domestically to both the private label and contract brand markets.
The Health Products Division ("Health Products") manufactures specialty medical
products that it markets throughout the Americas and Europe.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Alba evaluates performance based
upon profit or loss from divisional manufacturing and marketing activities not
including corporate general and administrative expenses, interest expense or
other nonrecurring gains and losses or income taxes.
The following table contains selected information with respect to the Company's
business segments:
Consumer Health
Products Products
1998 ($000's)
Net sales $42,694 $32,548
Depreciation and amortization 1,282 414
Segment profit 8,357 5,474
% Net sales 19.6% 16.8%
Segment assets 25,294 11,286
Capital expenditures 4,958 671
1997 ($000's)
Net sales $29,385 $30,527
Depreciation and amortization 1,161 566
Segment profit 2 4,900
% Net sales 0% 16.1%
Segment assets 19,652 11,706
Capital expenditures 1,080 467
F-14
<PAGE>
1996
Net sales $33,175 $32,640
Depreciation and amortization 1,187 338
Segment profit (loss) (378) 6,446
% Net sales (1.1%) 19.7%
Segment assets N/A N/A
Capital expenditures 1,013 312
N/A = Information not available.
Reconciliation of Segment Profits, Assets and Other Information ($000's):
1998 1997 1996
Segment profit $13,831 $4,902 $6,068
General and administrative
expenses (4,054) (3,901) (3,661)
Goodwill amortization (588) (588) (608)
Other income (expense), net (924) (1,004) (1,295)
Income taxes (3,282) 214 (184)
- ------------------------------------------------------------
Net income (loss) $4,983 ($377) $320
- ------------------------------------------------------------
Segments assets $36,580 $31,358
Cash 15 2,416
Other current assets 1,289 900
Corporate property and
equipment, net 2,009 1,471
Goodwill 6,886 7,474
Other assets -- --
- --------------------------------------------------
Total assets $46,779 $43,619
- --------------------------------------------------
Segment capital expenditures $5,629 $1,547 1,325
Corporate capital expenditures 736 322 200
- ------------------------------------------------------------
Total capital expenditures $6,365 $1,869 $1,525
- ------------------------------------------------------------
Segment depreciation and
amortization $1,696 $1,727 $1,525
Corporate depreciation and
amortization 683 694 827
----------------------------------------------------------
Total depreciation and
amortization $2,379 $2,421 $2,352
- ------------------------------------------------------------
Revenues from Intimate Brands, Inc., one customer of Alba's Consumer Products
segment, represented approximately $18,325,000 of the Company's consolidated net
sales in 1998. Revenues from Allegiance Healthcare Corporation, one customer of
the Health Products segment, represented approximately $14,296,000, $13,937,000
and $15,932,000 of the Company's consolidated net sales in 1998, 1997 and 1996,
respectively.
Foreign sales totaled $1,099,000 and $1,004,000 for the years ended December 31,
1998 and 1997, respectively.
F-15
<PAGE>
11. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended ($000's except per share amounts)
1998 1997
Dec. 31 Sept. 27 Jun. 28 Mar. 29 Dec. 31 Sept. 28 Jun. 29 Mar. 30
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $20,328 $18,904 $17,714 $18,296 $14,710 $15,390 $15,872 $13,940
Gross Margin 7,502 5,665 4,518 4,470 2,533 3,185 3,500 3,004
Net Income (Loss) 2,357 1,232 653 741 (97) 162 243 (685)
EPS - Basic 1.01 .52 .25 .27 (.03) .06 .09 (.25)
EPS - Diluted .94 .49 .24 .27 (.03) .06 .09 (.25)
Weighted Average Number
Of Shares of Common Stock
Outstanding 2,346 2,355 2,801 2,801 2,801 2,801 2,801 2,801
<FN>
All per share amounts and number of shares outstanding information has been
restated to reflect the 3 for 2 stock split effected on November 16, 1998.
</FN>
</TABLE>
F-16
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information regarding Directors and Executive Officers called for by
this item appears beneath the heading "Information about Directors and Nominees
for Director" and "Executive Officers" in the Company's Proxy Statement for the
1999 Annual Meeting of Shareholders, which information is incorporated herein by
reference. Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the Company's fiscal year end.
Item 11. Executive Compensation.
The information called for by this item appears under the heading
"Executive Compensation" in the Proxy Statement for the Company's 1999 Annual
Meeting of Shareholders, which information is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information called for by this item appears under the heading "Voting
Securities and Principal Security Holders" in the Company's Proxy Statement for
the 1999 Annual Meeting of Shareholders, which information is incorporated
herein by reference.
Item 13. Certain Relationships and Transactions.
The information called for by this item appears under the heading
"Information About Directors and Nominees for Directors" in the Proxy Statement
for the Company's 1999 Annual Meeting of Shareholders, which information is
incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following are filed as a part of this report:
(1) Financial Statements filed:
Consolidated Balance Sheets as of December 31, 1998 and 1997 (page F-3 of
this report)
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996 (page F-4 of this report)
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 (page F-4 of this report)
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996 (page F-5 of this report)
Summary of Significant Accounting Policies (page F-6 of this report)
Notes to Consolidated Financial Statements (page F-8 of this report)
(2) Financial Statement Schedules filed:
Report of Independent Certified Public Accountants on Financial Statement
Schedule (page S-1 of this report)
Schedule II (Valuation and Qualifying Accounts) (page S-2 of this report)
All other schedules are omitted as the required information is inapplicable
or is present in the financial statements or related notes thereto.
(3) Exhibits filed:
3.1 Certificate of Incorporation, as amended, which is incorporated herein
by reference to Exhibit 3.1 of the Company's 1986 Annual Report on Form 10-K.
3.1.1 Amendment to Certificate of Incorporation adopted by shareholders
which is incorporated herein by reference to Exhibit 3.1 of the Company's 1987
Annual Report on Form 10-K.
3.2 Bylaws, which are incorporated herein by reference to Exhibit 3.2 of
the Company's 1986 Annual Report on Form 10-K.
4.1 Specimen certificate of common stock, which is incorporated herein by
reference to Exhibit 4 of the Company's Registration Statement on Form S-2 (No.
2-83186).
4.3 Undertaking of the Company to file exhibits pursuant to Item 601 (b)
(4) (iii) (A) of Regulation S-K, which is incorporated herein by reference to
Exhibit 28 of the Company's 1986 Annual Report on Form 10-K.
*10.10 1989 Non-Qualified Deferred Compensation Plan, which is incorporated
herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1988.
*10.11 1989 Management Incentive Plan which is incorporated herein by
reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1988.
*10.13 1993 Long Term Performance Plan, which is incorporated herein by
reference to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
*10.14 1997 Nonqualified Stock Option Plan for Directors (filed herewith).
23.1 Consent of Independent Certified Public Accountants, BDO Seidman, LLP
(filed herewith).
27 Financial Data Schedule (filed in electronic format only). This schedule
is furnished for the information of the Commission and is not deemed to be
"filed".
* Identifies compensation plans.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the last
quarter of the year ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ALBA-WALDENSIAN, INC.
Date : March 30, 1999 By /S/________________
Lee N. Mortenson
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated
/S/ /S/
Paul H. Albritton, Jr., Director William M. Cousins, Jr., Director
March 30, 1999 March 30, 1999
/S/
Nathan H Dardick, Director
March 30, 1999
/S/ /S/
Clyde Wm. Engle, Director C. Alan Forbes, Director
March 30, 1999 March 30, 1999
/S/ /S/
James M. Fawcett, Jr., Director Glenn J. Kennedy, Director and
March 30, 1999 Chief Financial Officer (Chief
Accounting Officer)
March 30, 1999
/S/ /S/
Joseph C. Minio, Director Lee N. Mortenson , Director and
March 30, 1999 Chief Executive Officer
(Principal Executive Officer)
March 30, 1999
<PAGE>
ALBA-WALDENSIAN, INC.
INDEX TO EXHIBITS
Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1998 Commission File No. 1-6150
Exhibit Number Exhibit
10.14 1997 Nonqualified Stock Option Plan
for Directors
23.1 Consent of Independent Certified Public
Accountants, BDO Seidman, LLP
27 Financial Data schedule (filed in electronic
format only)
ALBA-WALDENSIAN, INC.
1997 NONQUALIFIED STOCK OPTION PLAN
FOR DIRECTORS
1. Purpose. This Plan is intended to provide Directors of the Company a
sense of proprietorship and personal involvement in the development and
financial success of the Company and to encourage Directors to remain with and
to devote their best efforts to the Company.
2. Definitions. Whenever used in the Plan, unless the context clearly
indicates otherwise, the following terms shall have the following meanings:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(c) "Common Stock" means the Common Stock, $2.50 par value, of the Company
and any other stock or securities resulting from the adjustment thereof or
substitution therefor as described in Paragraph 8 below.
(d) "Company" means Alba-Waldensian, Inc., a Delaware corporation, and any
corporation succeeding to the Company's rights and obligations hereunder.
(e) "Director" means a member of the Board of Directors of the Company.
(f) "Fair Market Value", with respect to a share of the Common Stock on a
particular date, shall be (i) if such Common Stock is listed on a national
securities exchange or a foreign securities exchange or traded on the National
Market System, the closing sale price of the Common Stock on said date on the
national securities exchange, the foreign securities exchange or the National
Market System on which the Common Stock is principally traded, or, if no sales
occur on said date, then on the next preceding date on which there were such
sales of Common Stock, or (ii) if the Common Stock shall not be listed on a
national securities exchange or a foreign securities exchange or traded on the
National Market System, the mean between the closing bid and asked prices last
reported by the National Association of Securities Dealers, Inc. for the
over-the-counter market on said date or, if no bid and asked prices are reported
on said date, then on the next preceding date on which there were such
quotations, or (iii) if at any time quotations for the Common Stock shall not be
reported by the National Association of Securities Dealers, Inc. for the
over-the-counter market and the Common Stock shall not be listed on any national
securities exchange or any foreign securities exchange or traded on the National
Market System, the fair market value based on quotations for the Common Stock by
market makers or other securities dealers as determined by the Board of
Directors in such manner as the Board may deem reasonable.
(g) "Grant Date" means December 17, 1997.
(h) "Option" means a stock option granted pursuant to this Plan.
(i) "Optionee" means the person to whom an Option is granted.
(j) "Option Price" is defined in Section 6.
(k) "Plan" means this 1997 Nonqualified Stock Option Plan for Directors, as
in effect from time to time.
(l) "Stock Option Agreement" means the written agreement between an
Optionee and the Company evidencing the grant of an Option under the Plan and
setting forth or incorporating the terms and conditions thereof.
3. Administration. The Plan shall be administered by the Board of
Directors. The Board shall have all of the powers necessary to enable it
properly to carry out its duties under the Plan, including but not limited to
the power and duty to construe and interpret the Plan and to determine all
questions that shall arise under the Plan, which interpretations and
determinations shall be conclusive and binding upon all persons. Subject to the
express provisions of the Plan, the Board may establish from time to time such
regulations, provisions and procedures which in its opinion may be advisable in
the administration of the Plan.
4. Eligibility; Option Grants. Each Director at the Grant Date shall
automatically be granted Options on the Grant Date to purchase 2,000 shares
(subject to adjustment or substitution pursuant to Paragraph 8 hereof) of the
Common Stock. In addition, each Director, upon his or her initial appointment to
the Board of Directors, will automatically be granted an Option to purchase
2,000 shares (subject to adjustment or substitution pursuant to Paragraph 8
hereof) of the Common Stock. Each Director shall automatically be granted
Options on each of December 17, 1998, December 17, 1999, December 17, 2000, and
December 17, 2001 to purchase 500 shares (subject to adjustment or substitution
pursuant to Paragraph 8 hereof) of Common Stock. Provided, however, that such
automatic grants shall be made pro rata to all Directors if on the date of a
grant there shall not be a number of shares sufficient to make all such grants.
5. Shares Available for Option. The Board of Directors shall reserve
for the purposes of the Plan, and by adoption of the Plan does hereby reserve,
out of the authorized but unissued Common Stock, 40,000 shares of Common Stock
of the Company (subject to adjustment or substitution pursuant to Paragraph 8
hereof). In the event that an Option granted under the Plan to any Director
expires or is terminated unexercised as to any shares covered thereby, such
shares shall not thereafter be available for the granting of Options under the
Plan and the reserve for such shares shall be terminated.
6. Option Price. The price at which each share of Common Stock
(subject to adjustment pursuant to Section 8 hereof) may be purchased upon the
exercise of an Option (the "Option Price") shall be the Fair Market Value of the
shares of Common Stock subject to the Option at the Grant Date.
7. Exercise of Options.
(a) An Optionee shall be entitled to exercise all of such
Optionee's Options (not theretofore exercised) at any time and from
time to time on or after the Grant Date and prior to the Expiration
Date.
(b) For purposes of this Plan, the "Expiration Date" as to an
Optionee means the earliest of:
(i) the fifth anniversary of the date of grant; or
(ii) if the Optionee ceases to be a Director, ninety (90)
days after the date the Optionee so ceases.
(c) Each Option granted under the Plan by its terms may be
transferable by the Optionee, and such Option shall be exercisable
during such Optionee's lifetime only by such Optionee. In the event of
the death of an Optionee, then such Optionee's Options shall be
exercisable to the extent herein provided by the executor or personal
representative of the Optionee's estate or by any person who acquired
the right to exercise such Option by bequest under the Optionee's will
or by inheritance.
(d) Each Option shall be confirmed by a Stock Option Agreement
executed by the Company and by the Optionee to whom such Option is
granted.
(e) The Option Price for each share of Common Stock purchased
pursuant to the exercise of each Option shall, at the time of the
exercise of the Option, be paid in full in cash or equivalent. An
Option shall be deemed exercised only when written notice of such
exercise, together with payment of the Option Price, is received from
the Optionee by the Company at its principal office. No Optionee shall
have any rights as a shareholder of the Company with respect to Common
Stock issuable pursuant to such Optionee's Option until such Option is
duly exercised.
(f) To the extent that an Option is not exercised within the
period of time prescribed therefor as set forth in the Plan, the Option
shall lapse and all rights of the Optionee thereunder shall terminate.
8. Adjustment of Number of Shares. In the event that a dividend shall
be declared upon the Common Stock payable in shares of Common Stock, the number
of shares of Common Stock then subject to any Option and the number of shares
reserved for issuance pursuant to the Plan shall be adjusted by adding to each
such share the number of shares which would be distributable thereon if such
share had been outstanding on the date fixed for determining the shareholders
entitled to receive such stock dividend. In the event that the outstanding
shares of Common Stock generally shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation, or changed into or exchanged for cash or property or
the right to receive cash or property (but not including any dividend payable in
cash or property other than a liquidating distribution), whether through
reorganization, recapitalization, stock split-up, combination of shares, merger
or consolidation, then there shall be substituted for each share of Common Stock
subject to any Option, and for each share of Common Stock reserved for issuance
pursuant to the Plan, the number and kind of shares of stock or other securities
or cash or property or right to receive cash or property into which each
outstanding share of Common Stock shall be so changed or for which each such
share shall be exchanged. In the case of any such substitution or adjustment as
provided for in this Paragraph 8, the Option Price for each share covered
thereby prior to such substitution or adjustment shall be the Option Price for
all shares of stock or other securities or cash or property or right to receive
cash or property which shall have been substituted for such share or to which
such share shall have been adjusted pursuant to this Paragraph 8. No adjustment
or substitution provided for in this Paragraph 8 shall require the Company in
any Stock Option Agreement to issue a fractional share and the total
substitution or adjustment with respect to each Stock Option Agreement shall be
limited accordingly.
9. Amendment of Plan. The Board of Directors shall have the right to
amend, suspend or terminate the Plan at any time; provided that, except as and
to the extent authorized and permitted by Paragraph 8 above, (a) no amendment,
suspension or termination shall adversely affect the rights of any Optionee as
to any outstanding Option without the consent of such Optionee, subject to any
limitation on such rights set forth in the Plan or such Optionee's Stock Option
Agreement and except for any amendment the Board deems necessary to preserve or
provide exemptions from the applicability of Section 16(b) of the Act to the
grant, lapse, disposition, cancellation or exercise of Options; and (b) no
amendment relating to the determination of the Optionees or of the Grant Date or
of the number of Options granted to any Optionee shall be made more than once
every six months, other than to comport with changes in the Internal Revenue
Code of 1986 or the rules thereunder.
10. Resales of Shares. The Company may impose such restrictions on the
sale or other disposition of shares issued pursuant to the exercise of Options
as the Board deems necessary to comply with applicable securities laws.
Certificates for shares issued upon the exercise of Options may bear such
legends as the Company deems necessary to give notice of such restrictions.
11. Compliance with Law and Other Conditions. No shares shall be issued
pursuant to the exercise of any Option granted under the Plan prior to
compliance by the Company, to the satisfaction of its counsel, with any
applicable laws. The Company shall not be obligated to (but may in its
discretion) take any action under applicable federal or state securities laws
(including registration or qualification of the Plan, the Options or the Common
Stock) necessary for compliance therewith in order to permit the issuance of
shares upon the exercise of Options or the immediate resale thereof by
Optionees, except for actions (other than registration or qualification) that
may be taken by the Company without unreasonable effort or expense and without
the incurrence of any material exposure to liability.
12. Nonqualified Options. Options granted under the Plan will not be
treated as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986.
13. Effective Date. The effective date of the Plan shall be December
17, 1997, subject to approval of the Plan by the holders of a majority of the
outstanding shares of the Common Stock at or before the 1998 Annual Meeting of
Stockholders. Until such approval shall be obtained, no Options shall be
exercised and if such approval shall not be obtained prior to the earlier of the
completion of the 1998 Annual Meeting of Shareholders or the first anniversary
of the Grant Date, this Plan and all Options granted hereunder shall be void.
14. Duration of Plan. This Plan shall terminate upon the earlier of
December 17, 2002 and the date upon which all shares reserved for issuance
pursuant to the Plan have been issued or are subject to outstanding Options.
<PAGE>
Exhibit 23.1
Consent of Independent Certified Public Accountants
Alba-Waldensian, Inc.
Valdese, NC North Carolina
We hereby consent to the incorporation by reference in the Registration
Statements No. 333-58229 and No. 333-64299 on Form S-8 of our reports dated
February 2, 1999 relating to the consolidated financial statements and schedules
of Alba-Waldensian, Inc. included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
Greensboro, North Carolina BDO Seidman, LLP
March 30, 1999
<PAGE>
(S-1)
Report of Independent Certified Public Accountants
on Financial Statement Schedule
Alba-Waldensian, Inc.
Valdese, North Carolina
The audits referred to in our report dated February 2, 1999 relating to the
consolidated financial statements of Alba-Waldensian, Inc. and subsidiaries,
which is included in Item 8 of the Form 10-K included the audits of the
financial statement schedule listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedu1e
based upon our audit.
In our opinion, the financial statement schedule presents fairly, in all
material respects, the information set forth therein.
Greensboro, North Carolina BDO Seidman, LLP
February 2, 1999
<PAGE>
<TABLE>
<CAPTION>
(S-2)
Schedule II
Alba-Waldensian, Inc.
and Subsidiaries
Valdese, North Carolina
Valuation and Qualifying Accounts
Balance at Charged to Reduction Balance
Description/ Beginning of Cost and of at End
Fiscal Year Ended Period Expenses Allowance of Period
Year Ended December 31, 1998
<S> <C> <C> <C> <C>
Accounts Receivable - Allowance $260,000 48,437 48,437 $260,000
for uncollectible accounts
Inventory - Reserve for markdowns $1,695,293 2,132,384 2,464,248 $1,363,429
Year Ended December 31, 1997
Accounts Receivable - Allowance $275,000 102,877 117,877 $260,000
for uncollectible accounts
Inventory - Reserve for markdowns $722,641 1,387,734 415,082 $1,695,293
Year Ended December 31, 1996
Accounts Receivable - Allowance $250,000 109,868 84,868 $275,000
for uncollectible accounts
Inventory - Reserve for markdowns $610,504 754,106 641,969 $722,641
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 6,686
<ALLOWANCES> 260
<INVENTORY> 13,622
<CURRENT-ASSETS> 21,571
<PP&E> 37,441
<DEPRECIATION> 19,559
<TOTAL-ASSETS> 46,779
<CURRENT-LIABILITIES> 21,571
<BONDS> 0
0
0
<COMMON> 7,075
<OTHER-SE> 22,574
<TOTAL-LIABILITY-AND-EQUITY> 46,779
<SALES> 75,242
<TOTAL-REVENUES> 75,242
<CGS> 53,087
<TOTAL-COSTS> 66,053
<OTHER-EXPENSES> 59
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 865
<INCOME-PRETAX> 8,265
<INCOME-TAX> 3,282
<INCOME-CONTINUING> 4,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,983
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.90
</TABLE>
