================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended October 29, 1995
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 1-9411
------------------
BAILEY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
------------------
Delaware 13-3229215
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
700 Lafayette Road
P.O. Box 307
Seabrook, New Hampshire 03874
(Address of Principal Executive Offices, Including Zip Code)
----------------
(603) 474-3011
(Registrant's Telephone Number, Including Area Code)
--------------
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Number of Shares Outstanding
Title of Each Class at December 8, 1995
___________________ ___________________
Common Stock, $.10 Par Value 5,353,558
================================================================================
<PAGE>
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements
The condensed consolidated financial statements included herein have
been prepared by Bailey Corporation (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. While
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, the
Company believes that the disclosures made herein are adequate to make the
information not misleading. It is recommended that these condensed statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended July 30,
1995.
In the opinion of the Company all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of Bailey Corporation and Subsidiaries as of October 29, 1995, the results of
their operations for the three months ended October 29, 1995 and October 30,
1994, and the cash flows for the three months then ended, have been included.
<PAGE>
BAILEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
OCTOBER 29, 1995 AND JULY 30, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Oct 29 Jul 30
1995 1995
------ ------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 610 $ 313
Restricted cash 817 817
Accounts receivable 26,441 13,751
Inventories:
Raw materials 8,274 7,424
Work-in-process 3,276 2,555
Finished goods 3,253 2,745
Tooling 6,639 5,601
---------- ----------
Total inventories 21,442 18,325
Prepaid expenses and other current assets 3,864 4,026
Deferred income taxes 3,709 3,709
---------- ----------
Total current assets 56,883 40,941
PROPERTY, PLANT AND EQUIPMENT, NET 50,830 50,391
OTHER ASSETS, NET 10,055 9,389
---------- ----------
$ 117,768 $ 100,721
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 3,656 $ 1,585
Short-term debt 17,524 9,360
Current portion of long-term debt 7,783 7,765
Accounts payable 27,104 18,611
Accrued liabilities and other current liabilities 5,598 5,535
Income taxes payable __ 167
---------- ----------
Total current liabilities 61,665 43,023
LONG-TERM DEBT, less current portion 33,181 33,136
OTHER LONG-TERM LIABILITIES 2,239 2,245
DEFERRED INCOME TAXES 3,437 3,437
---------- ----------
Total liabilities 100,522 81,841
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 539 539
Additional paid-in capital 13,805 13,805
Retained earnings 3,568 5,202
Minimum pension liability adjustment (403) (403)
Treasury stock (263) (263)
---------- ----------
Total stockholders' equity 17,246 18,880
---------- ----------
$ 117,768 $ 100,721
========== ==========
</TABLE>
<PAGE>
BAILEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED OCTOBER 29, 1995 AND OCTOBER 30, 1994
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Oct 29 Oct 30
1995 1994
------- -------
<S> <C> <C>
NET SALES $41,178 $45,177
------- -------
COST AND EXPENSES:
Cost of products sold 38,764 38,437
Selling, general and administrative expenses 3,576 3,385
------- -------
Operating income (loss) (1,162) 3,355
INTEREST EXPENSE (NET) 1,176 860
------- -------
Income (loss) before income taxes (2,338) 2,495
INCOME TAX PROVISION (BENEFIT) (704) 1,022
------- -------
Net income (loss) $(1,634) $ 1,473
======= =======
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ (.30) $ .27
======= =======
Fully diluted $ (.30) $ .25
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 5,387,000 5,478,000
========= =========
Fully diluted 5,387,000 6,451,000
========= =========
</TABLE>
<PAGE>
BAILEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTHS ENDED OCTOBER 29, 1995 AND OCTOBER 30, 1994
<TABLE>
<CAPTION>
Three Months Ended
Oct 29 Oct 30
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,634) $1,473
-------- ------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,397 1,357
Change in assets and liabilities net of effects of acquisitions:
Increase in accounts receivable (12,690) (8,858)
Increase in inventories (3,117) (2,806)
Decrease in prepaid expenses and other current assets 162 5
Increase in other assets, net (669) (162)
Increase in accounts payable 8,493 7,161
Increase (decrease) in accrued liabilities
and other current liabilities 63 (539)
(Decrease) increase in income taxes payable (167) 681
Decrease in other liabilities (6) (38)
------- ------
Net cash used in operating activities (8,168) (1,726)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,247) (1,995)
------- -------
Net cash used in investing activities (1,247) (1,995)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt (including bank overdrafts), net 10,235 4,343
Payments on long-term debt and capital leases (523) (311)
Purchase of treasury stock __ (263)
------- -------
Net cash provided by financing activities 9,712 3,769
------- -------
Net increase in cash 297 48
CASH, beginning of period 313 201
------- -------
CASH, end of period $ 610 $ 249
======= =======
CASH PAID FOR:
Interest $1,408 $ 237
Income taxes 50 50
SUPPLEMENTAL DISCLOSURES:
Assets acquired under capitalized leases $ 586 $ __
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
First Quarter Fiscal 1996 vs First Quarter Fiscal 1995
Net sales for the first fiscal quarter ended October 29, 1995, decreased
$4.0 million, or 8.9%, to $41.2 million, compared to $45.2 million in the first
quarter of fiscal 1995. Sales in the first quarter included $5.7 million of new
and/or replacement products introduced during the period and $8.7 million of
higher sales of certain products carried over from the prior year. These sales
increases were offset by a) $14.3 million of sales eliminated due to the
discontinuation of products for prior years' models; b) $2.6 million of lower
sales of certain carryover products; and c) a $1.5 million decrease in service
parts and miscellaneous other sales.
Gross profit in the first quarter ended October 29, 1995 decreased $4.33
million, or 64.2%, to $2.41 million, compared to $6.74 million in the first
quarter of fiscal 1995. As a percentage of net sales, gross profit for the first
quarter declined to 5.9% compared to 14.9% in the same period of the prior year.
The reduced gross profit was attributable to several factors: a) the lower sales
volume; b) greater than anticipated and more protracted new-product launch
costs; c) comparatively lower margins associated with newly introduced products;
d) certain raw material cost increases; and e) under-utilization of
manufacturing capacity.
Selling, general and administrative expenses in the first quarter ended
October 29, 1995, increased $191,000, or 5.6%, to $3.57 million compared to
$3.38 million in the first quarter of fiscal 1995. As a percentage of net sales,
selling, general and administrative expenses were 8.7% in the first quarter
compared to 7.5% in the first quarter of the prior year. The higher percentage
this year was primarily due to lower sales volume in the first quarter compared
to the same period last year.
<PAGE>
Interest expense for the first fiscal quarter ended October 29, 1995
increased $316,000, or 36.7%, to $1.18 million compared to $860,000 in the first
quarter of fiscal 1995. The increase was attributable to a higher average level
of borrowing under the Company's revolving line-of-credit.
Before provision for income taxes, the Company incurred a loss of $2.34
million for the first quarter ended October 29, 1995 compared to pre-tax income
of $2.49 million for the first quarter last year. Accordingly, the Company was
able to avail itself of income tax benefits attributable to the first quarter
net operating loss carried back to prior years. The benefit thus recognized was
at an effective rate of 30% compared to a tax expense rate of 41% for the first
quarter of the prior fiscal year.
For the first fiscal quarter ended October 29, 1995, the Company
incurred a net loss of $1.63 million, or $.30 per share, compared to net income
of $1.47 million, or $.25 per share in the first quarter of the prior year. This
negative operating performance resulted from the same adverse factors that
caused the aforementioned decrease in gross profit, namely: reduced sales
volume, substantial new-product launching costs, lower margins on newly
introduced products, raw material cost increases and unabsorbed overhead expense
related to under-utilized manufacturing capacity.
LIQUIDITY AND CAPITAL RESOURCES
During the first fiscal quarter ended October 29, 1995 activities
related to a series of new product launches required additional investments in
production tooling and product inventories totaling $3.1 million and a $12.7
million increase in accounts receivable. These increases added to a $1.6 million
net loss for the period were offset by depreciation and amortization of $1.4
million and an $8.5 million increase in accounts payable resulting in net use of
cash in operating activities of $8.2 million. This employment of cash in
operations plus capital expenditures of $1.2 million in the first quarter were
funded primarily by a $10.2 million increase in utilization of the Company's
revolving line-of-credit.
<PAGE>
As a result of the foregoing, at October 29, 1995 total capitalization
was $50.4 million including long-term debt of $31.2 million, or 65.8%, and
stockholders' equity of $17.2 million, or 34.2% of total capitalization.
Meanwhile, during the first quarter net working capital decreased $2.7 million
with the result that at October 29, 1995 the current ratio was .92 to 1.
Due to these developments, as of October 29, 1995 there were instances
of non-compliance with technical covenants of certain of the Company's debt
agreements. The holders thereof have been advised and the Company expects to
undertake negotiations for waivers and/or amendments. Meanwhile, actions
initiated during the fourth quarter of last year to reduce operating costs and
expenses seeking to restore operations to a profitable level and to address
liquidity constraints are continuing. These measures have been supplemented with
efforts to identify and arrange alternative sources of interim financing to meet
requirements including debt retirement obligations for the next twelve months.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 2, 1994, the Company was served with a summons and
complaint with respect to Vicki Match Suna and Lori Rosen v. Bailey
Corporation, a purported class action suit brought in the United States
District Court for the District of New Hampshire. The complaint alleged
that the Company violated Rule 10b-5 of the Securities and Exchange Act
of 1934 by a purported dissemination of misleading information as to
its financial position in connection with the purchase and sale of its
securities. The Company was successful in having the complaint
dismissed, and also in rebuffing the plaintiffs' attempt to file an
amended complaint. The Court allowed the plaintiffs to make one more
attempt, however, and on September 1, 1995, a second amended complaint
was filed. The Company has moved for dismissal of this complaint also
and the action in its entirety. If this effort is unsuccessful, the
Company intends vigorously to assert defenses which it believes to be
meritorious. The complaint does not specify an amount of damages and
the proceeding is still in its infancy. The extent of any exposure of
the Company, therefore, cannot be determined at this time.
With respect to other legal proceedings, reference is made to
the Company's Annual Report on Form 10-K for the fiscal year ended
July, 30, 1995, filed with the Securities and Exchange Commission
on October 30, 1995.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index is set forth below.
(b) None.
<PAGE>
EXHIBIT INDEX
EXHIBIT TITLE METHOD OF FILING
- ------- ----- ----------------
11.1 Computation of Filed herewith (included in Condensed
Net Income Per Share Consolidated Statements of Operations
for the three months ended
October 29, 1995 and October 30, 1994)
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 thereto duly authorized.
BAILEY CORPORATION
------------------
Registrant
Date: December 12, 1995 /s/ Leonard J. Heilman
-----------------------
Leonard J. Heilman
Executive Vice President -
Finance and Administration,
Treasurer and Assistant Secretary
(principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from S.E.C. Form 10-Q for the quarterly
period ended October 29, 1995 and is qualified in
its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-30-1995
<PERIOD-START> JUL-31-1995
<PERIOD-END> OCT-29-1995
<CASH> 610
<SECURITIES> 0
<RECEIVABLES> 27,649
<ALLOWANCES> (1,208)
<INVENTORY> 21,442
<CURRENT-ASSETS> 56,883
<PP&E> 71,279
<DEPRECIATION> (20,449)
<TOTAL-ASSETS> 117,768
<CURRENT-LIABILITIES> 61,665
<BONDS> 33,181
<COMMON> 539
0
0
<OTHER-SE> 16,707
<TOTAL-LIABILITY-AND-EQUITY> 117,768
<SALES> 41,178
<TOTAL-REVENUES> 41,178
<CGS> 38,764
<TOTAL-COSTS> 42,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,176
<INCOME-PRETAX> (2,338)
<INCOME-TAX> ( 704)
<INCOME-CONTINUING> (1,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,634)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
