-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RM3yIvjf0PEdCPQnfju/TDNX6yddgtSkPLR9P+NhKwqc9fBF81D60J+LwHHOFZlA KHFAVIha15Kv6RrPGqiAow== 0000003292-97-000004.txt : 19970813 0000003292-97-000004.hdr.sgml : 19970813 ACCESSION NUMBER: 0000003292-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALBA WALDENSIAN INC CENTRAL INDEX KEY: 0000003292 STANDARD INDUSTRIAL CLASSIFICATION: KNITTING MILLS [2250] IRS NUMBER: 560359780 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06150 FILM NUMBER: 97657300 BUSINESS ADDRESS: STREET 1: 201 ST GERMAIN AVE SW STREET 2: P O BOX 100 CITY: VALDESE STATE: NC ZIP: 28601 BUSINESS PHONE: 7048796503 MAIL ADDRESS: STREET 1: P O BOX 100 CITY: VALDESE STATE: NC ZIP: 28601 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20459 FORM 10-Q (Mark one) [X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended JUNE 29, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-6150 ALBA-WALDENSIAN, INC. (Exact name of registrant as specified in its Charter) DELAWARE 56-0359780 (State or other jurisdiction (I.R.S.Employer Identification No.) of incorporation or organization) P.O. BOX 100, VALDESE, N.C. 28690 (Address of principal executive offices) (Zip code) (704) 874-2191 Registrant's telephone number, including area code NONE Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO As of June 29, 1997, the number of common shares outstanding was 1,867,403. PART I. FINANCIAL INFORMATION Item 1. Financial Statements ALBA-WALDENSIAN, INC. AND SUBSIDIARIES Consolidated Balance Sheets JUNE 29, DECEMBER 31, 1997 1996 (UNAUDITED) ASSETS CURRENT ASSETS: Cash $11,925 $294,447 Accounts receivable, net of allowance for doubtful accounts of $347,829 and $275,000, respectively 10,502,172 9,712,667 Refundable income taxes 121,583 -- Inventories: Materials and supplies 2,637,826 2,877,822 Work-in-process 5,002,751 4,168,965 Finished goods 4,210,333 5,295,871 Total inventories 11,850,910 12,342,658 Deferred income taxes 452,091 452,091 Prepaid expenses and other 261,251 303,142 Total Current Assets 23,199,932 23,105,005 PROPERTY AND EQUIPMENT 31,205,618 31,359,652 LESS: ACCUMULATED DEPRECIATION (17,392,886) (17,821,356) Net Property and Equipment 13,812,732 13,538,296 OTHER ASSETS: Notes receivable 40,898 47,920 Trademarks and patents 426,619 445,510 Excess of cost over net assets acquired 7,768,364 8,062,580 8,235,881 8,556,010 TOTAL ASSETS $45,248,545 $45,199,311 See notes to consolidated financial statements. ALBA-WALDENSIAN, INC. AND SUBSIDIARIES Consolidated Balance Sheets JUNE 29, DECEMBER 31, 1997 1996 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short term borrowings and lines of credit(Note 2) $ 1,296,152 $ - Current maturities of long-term debt 2,350,000 2,350,000 Accounts payable 1,974,511 1,900,024 Accrued expenses: Payroll and profit-sharing 1,048,866 605,372 Property and payroll taxes 147,667 169,554 Group health claims 547,272 241,872 Other 265,394 356,080 Income taxes payable - 169,324 Total Current Liabilities 7,629,862 5,792,226 LONG-TERM DEBT (Note 2) 8,737,500 9,912,500 DEFERRED COMPENSATION 60,543 232,160 DEFERRED INCOME TAX LIABILITY 1,474,014 1,474,014 Total Liabilities 17,901,919 17,410,900 STOCKHOLDERS' EQUITY: Common stock - authorized 3,000,000 shares, $2.50 par value; issued: 1,886,580 shares in 1997 and 1996; outstanding: 1,867,403 in 1997 and 1996 4,716,450 4,716,450 Additional paid-in capital 9,182,158 9,182,158 Retained earnings 13,584,654 14,026,439 27,483,262 27,925,047 Less treasury stock - at cost (19,177 shares) (136,636) (136,636) Total Stockholders' Equity 27,346,626 27,788,411 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,248,545 $45,199,311 See notes to consolidated financial statements. ALBA-WALDENSIAN, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 29, JUNE 30, JUNE 29, JUNE 30, 1997 1996 1997 1996 Net sales $15,872,441 $16,296,147 $29,812,847 $33,675,183 Cost of sales 12,371,992 12,503,941 23,308,775 25,759,634 Gross profit 3,500,449 3,792,206 6,504,072 7,915,549 Selling, general and administrative expenses 3,000,475 3,478,158 6,541,292 7,117,141 Operating income 499,974 314,048 (37,220) 798,408 Interest expense (244,998) (313,707) (533,921) (613,748) Interest income 7,564 2,553 27,341 6,593 Other 130,165 5,504 (168,749) (20,320) Total other income (expense)(107,269) (305,650) (675,329) (627,475) Income (loss) before income taxes 392,705 8,398 (712,549) 170,933 Provision for (benefit from) income taxes 149,203 3,192 (270,764) 64,990 Net income (loss) $ 243,502 $ 5,206 $ (441,785) $105,943 Net income (loss) per common share $ .13 $ .01 $ (.24) $ .06 Weighted average number of shares of common stock outstanding 1,867,403 1,867,403 1,867,403 1,867,403 See notes to consolidated financial statements. ALBA-WALDENSIAN, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) SIX MONTH PERIODS ENDED JUNE 30, 1997 1996 OPERATING ACTIVITIES: Net income (loss) $ (441,785) $ 105,943 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 850,515 914,442 Goodwill amortization 294,216 314,280 Provision for bad debts 75,096 50,725 Loss on disposal of property 157,419 -- Provision for inventory obsolescence 422,628 228,290 Changes in operating assets and liabilities providing (using) cash: Accounts receivable (863,579) (606,177) Refundable income taxes (121,583) 151,840 Inventories 69,120 (1,526,995) Prepaid expenses and other 41,891 381,087 Accounts payable 74,487 144,646 Accrued expenses and other liabilities 636,321 295,724 Income taxes payable (169,324) 64,990 Deferred compensation (171,617) (58,439) Net cash provided by operating activities 853,805 460,356 INVESTING ACTIVITIES: Capital expenditures (1,456,789) (614,180) Proceeds from sale of property 193,310 -- Proceeds from notes receivable 6,000 2,717 Net cash used in investing activities (1,257,479) (611,463) FINANCING ACTIVITIES: Net borrowings under line of credit agreement 1,296,152 1,342,065 Principal payments on long-term debt (1,175,000) (1,233,069) Net cash provided by financing activities 121,152 108,996 NET DECREASE IN CASH (282,522) (42,111) CASH AT BEGINNING OF PERIOD 294,447 56,009 CASH AT END OF PERIOD $ 11,925 $ 13,898 ALBA-WALDENSIAN, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) SIX MONTH PERIODS ENDED JUNE 30, 1997 1996 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 478,928 $ 604,158 Income taxes $ 19,713 $ 0 See notes to consolidated financial statements. ALBA-WALDENSIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) 1. UNAUDITED FINANCIAL INFORMATION In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position as of June 29, 1997, and the results of operations for the three and six month periods ended June 29, 1997, and June 30, 1996. These unaudited financial statements should be read in conjunction with the Company's most recent audited financial statements. The results of operations for the three and six months period ended June 29, 1997, are not necessarily indicative of the results to be expected for the full year. The three-month period for 1997 began March 31, 1997, and ended June 29, 1997. The three-month period for 1996 began April 1, 1996, and ended June 30, 1996. The six- month period for 1997 began January 1, 1997, and ended June 29, 1997. The six-month period for 1996 began January 1, 1996, and ended June 30, 1996. 2. BANK DEBT The Company has both a seasonal line of credit and long- term debt agreements with a major bank. On March 28, 1997, the Company renegotiated the terms of these agreements wherein the seasonal line of credit was reduced from $5,000,000 to $3,000,000. For both the seasonal line and the long-term agreements, the interest rate was increased to LIBOR plus 2.75% (formerly LIBOR plus 1.75% for the seasonal line and LIBOR plus 2% for the long-term debt). Additionally, the terms of certain financial covenants were revised to more closely reflect the current level of the Company's operations. SEASONAL LINE OF CREDIT The Company has an agreement with a bank, which provides a seasonal line of credit of up to $3,000,000. In addition, this line of credit provides a sub-limit of $1,000,000 to support import letters of credit. Interest is accrued at the LIBOR rate plus 2.75% at June 29, 1997. The amount outstanding at June 29, 1997, was $1,296,152. The line of credit commitment will be automatically reduced by $1,000,000 on both May 31, 1998, and March 31, 1999. Indebtedness under this agreement is collateralized by equipment and accounts receivable. LONG-TERM DEBT Long-term debt is comprised of: June 29, December 31, 1997 1996 Note Payable-Equipment Loan(a) $ 250,000 $ 500,000 Note Payable-Balfour Purchase(b) 10,837,500 11,762,500 Total 11,087,500 12,262,500 Less: Current Maturities 2,350,000 2,350,000 Total Long-Term Debt $ 8,737,500 $ 9,912,500 (a) Pursuant to a fixed rate term loan agreement dated February 12, 1993, this $2,000,000 note was used to purchase new equipment. Interest accrues at 6.3% fixed rate and principal payments are made quarterly with the final payment due December 31, 1997. (b) Pursuant to variable loan rate term loan agreement dated March 6, 1995, this $15,000,000 note was used to purchase the Balfour Healthcare Division from Kayser-Roth Corporation. Interest accrues at the rate of LIBOR plus 2.75% at June 29, 1997. Principal payments are being made quarterly and began June 30, 1995, with the final payment due June 30, 2000. This loan agreement contains various loan covenants, as defined, which include maintaining a minimum tangible net worth, a minimum cash flow and leverage ratio and a limit on capital spending. The agreement also maintains that any cash dividends paid will not cause default of any loan covenant as a result of paying those dividends. The Company has outstanding interest rate swap agreements under which the Company receives a variable rate based on LIBOR and pays a fixed rate of 7.95% to 8.03% on notional amounts of $3,342,806 and $3,868,561, respectively, as determined in one month intervals through November 31, 1998. The transaction effectively changes a portion of the Company's interest rate exposure from a variable rate to a fixed rate. The Company is exposed to a credit loss in the event of nonperformance by the other party to the interest rate swap agreement. However, the Company does not anticipate nonperformance by the counterparty. A substantial portion of the Company's property and equipment, and accounts receivable are pledged as collateral for the long-term debt. The annual principal maturities of the long term debt at June 29, 1997, were as follows: 1997 1,175,000 1998 2,350,000 1999 2,350,000 2000 5,212,500 Total $11,087,500 3. NON-RECURRING CHARGES During the first quarter of 1997, severance costs of approximately $401,000 were recorded in connection with the Company's former President and CEO. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Although the Company's working capital has decreased by $1,742,709 since December 31, 1996, the available working capital continues to be adequate to support the Company's operations and reflects an improved ratio over the comparable period of the prior year. The working capital decline is primarily reflected in borrowings of $1,296,152 under the Company's short-term line of credit and higher accrued expenses. On June 29, 1997, the Company had a current working capital of $15,570,070 with a ratio of 3.04 to1. This is comparable to $17,312,779 or 3.99 to 1 at December 31, 1996, and $17,862,920 or 2.85 to 1 at June 30, 1996. The decrease in the amount of working capital reflects the Company's concerted efforts to reduce inventory levels, which have declined to $11,850,910 at June 30, 1997, from $12,342,658 at December 31, 1996, and $16,456,673 at June 30, 1996. Liquidity needs are primarily affected by and related to capital expenditures and changes in the Company's business volume. These needs are adequately being met through available working capital, and are supplemented by a short-term line of credit of $3,000,000, to cover fluctuations. Capital expenditures through the first six months of 1997 have totaled $1,456,789, reflecting renovations to existing plants and the purchase of new, more efficient knitting equipment. This level of capital expenditures compares to $614,180 for the same six months of 1996 and $1,524,893 for the full 1996 year. The Company anticipates that capital expenditures for the entire year of 1997 will total approximately $2,000,000. The Company has both a seasonal line of credit and long- term debt agreements with a major bank. On March 28, 1997, the Company renegotiated the terms of these agreements wherein the seasonal line of credit was reduced from $5,000,000 to $3,000,000. For both the seasonal line and the long-term agreements, the interest rate was increased to LIBOR plus 2.75% (formerly LIBOR plus 1.75% for the seasonal line and LIBOR plus 2% for the long-term debt). Additionally, the terms of certain financial covenants were revised to more closely reflect the current level of the Company's operations. RESULTS OF OPERATIONS Items as a percentage of sales are reflected in the following table: THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED June 29, June 30, June 29, June 30, 1997 1996 1997 1996 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 78.0% 76.7% 78.2% 76.5% Gross margin 22.0% 23.3% 21.8% 23.5% Selling, general and administrative expenses 18.9% 21.4% 22.0% 21.1% Operating income 3.1% 1.9% (0.2%) 2.4% Other income (expense), net (0.6%) (1.9%) (2.3%) (1.8%) Income before income taxes 2.5% 0.0% (2.5%) 0.6% Provision for income taxes (0.9%) (0.0%) 0.9% (0.2%) Net Income 1.6% 0.0% (1.6%) 0.4% THREE MONTH PERIODS ENDED JUNE 29, 1997, AND JUNE 30, 1996 Net sales by division for the second quarter of 1997 compared to the second quarter of 1996 are set forth in the following table. THREE MONTH PERIOD ENDED June 29, June 30, Increase/ %Increase/ 1997 1996 (DECREASE) (DECREASE) Consumer Products $ 6,321,785 $6,778,000 $(456,215) (6.7%) Health Products 8,129,515 8,033,503 96,012 1.2% Alba Direct 404,588 410,411 (5,823) (1.4%) Byford 1,016,553 1,074,233 (57,680) (5.4%) Total $15,872,441 $16,296,147 $(423,706) (2.6%) Net Sales as shown in the table above decreased by $423,706 or 2.6%. Consumer Products sales decreased primarily as a result of a loss of circular knit panty business to lower priced imports and the Company's decision to eliminate the Full Fashion panty line by mid- year. The Full Fashion loss was offset in part by converting customers to the seamless panty line. Due to marginal profitability, the Company has decided to no longer be a distributor for the Byford product line and anticipates that all remaining Byford inventories will be disposed of without significant loss by the end of 1997. Byford sales totaled $2,009,700 for the first six months of 1997 and $5,291,000 for the full year of 1996. The effect of dropping the Byford line will not have a material impact on the Company's continued profitability. Gross profits decreased from 23.3% to 22.0% of net sales mainly due to a lower volume of sales causing manufacturing overhead cost per unit to increase and the resistance of the marketplace to any attempt to pass along production cost increases. Due to slightly lower sales volume and tighter cost controls, the selling, general and administrative expenses decreased by $477,683 or from 21.4% of net sales in the second quarter of 1996 to 18.9% in the second quarter of 1997. However, the Company cannot state with certainty that it will be able to maintain such tight control over these costs for the remainder of 1997. Interest Expense decreased in the second quarter of 1997 as a result of lower long-term debt and less borrowing under the line of credit agreement during the period. Other income reflected several minor non-recurring gains, including a gain from the sale of certain of the Company's yarn covering equipment, reflective of a decision to purchase covered yarn from outside vendors at a lower cost. As a result of the foregoing, the Company recorded an after tax profit of $243,502 for the second quarter of 1997 as compared to a net income of $5,206 for the second quarter of 1996. SIX MONTH PERIODS ENDED JUNE 29, 1997 AND JUNE 30, 1996 Net Sales by division for the first six months of 1997 as compared to the first six-month period of 1996 are set forth in the following table: SIX MONTHS ENDED June 29, June 30, Increase/ %Increase/ 1997 1996 (DECREASE) (DECREASE) Consumer Products $11,162,822 $13,877,352 $ (2,714,530) (19.6%) Health Products 15,791,322 16,720,183 (928,861) (5.6%) Alba Direct 849,003 938,693 (89,690) (9.6%) Byford 2,009,700 2,124,182 (114,482) (5.4%) AWI Retail 0 14,773 (14,773) (100.0%) Total $29,812,847 $33,675,183 $ (3,862,336) (11.5%) Net Sales as shown in the table above decreased by $3,862,336 or 11.5%. Consumer Products sales decreased primarily as a result of a loss of circular knit panty business to lower priced imports and the Company's decision to eliminate the Full Fashion panty line by mid- year. The Full Fashion loss was offset in part by converting customers to the seamless panty line. Health Products sales declined primarily as the result of lower sales to two major distributors. Alba Direct sales declined due to lower sales to Japan. (See discussion above regarding the Company's decision to no longer distribute the Byford product line.) Gross profits decreased from 23.5% to 21.8% of net sales mainly due to a lower volume of sales causing manufacturing overhead cost per unit to increase and the resistance of the marketplace to any attempt to pass along production cost increases. Selling, general and administrative expenses (as a percentage of sales) increased from 21.1% to 22.0% in the first six months of 1997 as compared to the first six months of 1996. Although the percentage increased as the result of lower sales volumes, actual expenses decreased $575,849. Due to lower volumes and tighter cost controls, the Company was able to reduce distribution, marketing and selling expenses for the six months of 1997 by $928,958. However, this was partially offset by a one-time charge to record the severance arrangement with the Company's former President and CEO. Interest Expense decreased in the second six months of 1997 as a result of lower long-term debt and less borrowing under the line of credit agreement during the period. Other expense increased primarily as a result of one-time charges to write-off the full fashion equipment ($143,000) and to write down the carrying value of the idle Alba plant that is being held for sale ($48,000). Other income reflected several minor non-recurring gains, including a gain from the sale of certain of the Company's yarn covering equipment, reflective of a decision to purchase covered yarn from outside vendors at a lower cost. As a result of the foregoing, the Company recorded an after tax loss of $441,785 for the six months of 1997 as compared to a net income of $105,943 for the comparable period of 1996. CHANGES IN ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued FAS No. 128, "Earnings per Share". This statement is not expected to have a material impact on the Company's reporting of Earnings Per Share. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on FORM 8-K a. Exhibits 27. Financial Data Schedule (filed in electronic format only) b. Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized. ALBA-WALDENSIAN, INC. AND SUBSIDIARIES Date: August 13, 1997 /S/ GLENN J. KENNEDY Vice President and Treasurer (Chief Financial Officer and Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----