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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 JANUARY 28, 1996
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 MARCH 4, 1996
------------------- ----------------------------
COMMON STOCK, $.10 PAR VALUE 5,353,558
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<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 January 28, 1996, the results of
their operations for the three and six months ended January 28, 1996 and January
29, 1995, and the cash flows for the six months then ended, have been included.
1
<PAGE>
BAILEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
JANUARY 28, 1996 AND JULY 30, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Jan 28 Jul 30
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 816 $ 313
---------------------------------------------------------------
Restricted cash __ 817
----------------------------------------------------
Accounts receivable 22,325 13,751
------------------------------------------------
Inventories:
Raw materials 7,484 7,424
---------------------------------------------------
Work-in-process 3,152 2,555
-------------------------------------------------
Finished goods 3,929 2,745
--------------------------------------------------
Tooling 5,017 5,601
--------------------------------------------------------- ---------- ----------
Total inventories 19,582 18,325
-------------------------------------------
Prepaid expenses and other current assets 4,597 4,026
---------------------------
Deferred income taxes 3,709 3,709
----------------------------------------------- ---------- ----------
Total current assets 51,029 40,941
----------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 50,812 50,391
-------------------------------------
OTHER ASSETS, NET 9,910 9,389
------------------------------------------------------ ---------- ----------
$111,751 $100,721
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 2,145 $ 1,585
------------------------------------------------------
Short-term debt 15,871 9,360
-----------------------------------------------------
Current portion of long-term debt 7,795 7,765
-----------------------------------
Accounts payable 28,742 18,611
----------------------------------------------------
Accrued liabilities and other current liabilities 6,161 5,535
-------------------
Income taxes payable __ 167
------------------------------------------------ ------------- ----------
Total current liabilities 60,714 43,023
----------------------------------------
LONG-TERM DEBT, less current portion 32,658 33,136
-----------------------------------
OTHER LONG-TERM LIABILITIES 2,233 2,245
--------------------------------------------
DEFERRED INCOME TAXES 3,437 3,437
-------------------------------------------------- ---------- ----------
Total liabilities 99,042 81,841
------------------------------------------------ --------- ---------
STOCKHOLDERS' EQUITY:
Common stock 539 539
--------------------------------------------------------
Additional paid-in capital 13,805 13,805
------------------------------------------
Retained earnings (969) 5,202
---------------------------------------------------
Minimum pension liability adjustment (403) (403)
--------------------------------
Treasury stock (263) (263)
------------------------------------------------------ ----------- ----------
Total stockholders' equity 12,709 18,880
--------------------------------------- --------- ---------
$111,751 $100,721
</TABLE>
2
<PAGE>
BAILEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE AND SIX MONTHS ENDED JANUARY 28, 1996 AND JANUARY 29, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Jan 28 Jan 29 Jan 28 Jan 29
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $38,737 $41,057 $79,915 $86,234
------------------------------------------- ------- ------- ------- -------
COST AND EXPENSES:
Cost of products sold 39,731 35,578 78,494 74,015
-------------------------
Selling, general and administrative expenses 3,658 3,702 7,235 7,087
-- --------- -------- --------- --------
Operating income (loss) (4,652) 1,777 (5,814) 5,132
----------------
INTEREST EXPENSE (NET) 1,203 892 2,378 1,752
------------------------------ -------- -------- -------- ------
Income (loss) before income taxes (5,855) 885 (8,192) 3,380
------
INCOME TAX PROVISION (BENEFIT) (1,318) 363 (2,021) 1,385
---------------------- -------- -------- ------- ------
Net income (loss) $(4,537) $ 522 $(6,171) $ 1,995
---------------------- ======= ======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ (.84) $ .10 $ (1.14) $ .37
-------------------------------- ======= ========= ======= ========
Fully diluted $ (.84) $ .10 $ (1.14) $ .35
-------------------------- ======= ========= ========== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 5,431,000 5,440,000 5,401,000 5,457.000
------------------------------- ========= ========= ========== =========
Fully diluted 5,431,000 6,409,000 5,401,000 6,427,000
-------------------------- ========= ========= ========= =========
</TABLE>
3
<PAGE>
BAILEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE SIX MONTHS ENDED JANUARY 28, 1996 AND JANUARY 29, 1995
<TABLE>
<CAPTION>
Six Months Ended
Jan 28 Jan 29
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(6,171) $1,995
-------------------------------------------------- -------- ------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,820 2,667
----------------------------------
Change in assets and liabilities net of effects
of acquisitions:
Increase in accounts receivable (8,574) (6,617)
---------------------------
Increase in inventories (1,257) (6,115)
-----------------------------------
Increase in prepaid expenses and other current assets (571) (467)
-----
Increase in other assets, net (521) (690)
-----------------------------
Increase in accounts payable 10,131 6,963
------------------------------
Increase (decrease) in accrued liabilities
and other current liabilities 626 (1,604)
------------------------
(Decrease) increase in income taxes payable (167) 297
---------------
Decrease in other liabilities (12) (44)
----------------------------- ------- -------
Net cash used in operating activities (3,696) (3,615)
------------------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,655) (3,566)
----------------------------------------------- ------- -------
Net cash used in investing activities (2,655) (3,566)
------------------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt (including bank overdrafts), net 7,071 8,312
-------
Payments on long-term debt and capital leases (1,034) (759)
----------------------
Purchase of treasury stock __ (263)
----------------------------------------
Proceeds from exercies of stock options __ 21
---------------------------
Decrease in restricted cash 817 __
---------------------------------------- ------- -------
Net cash provided by financing activities 6,854 7,311
--------------- ------- --------
Net increase in cash 503 130
------------------------------------
CASH, beginning of period 313 201
---------------------------------------------- -------- --------
CASH, end of period $ 816 $ 331
---------------------------------------------------- ======= ========
CASH PAID FOR:
Interest $2,132 $ 1,503
-----------------------------------------------------------
Income taxes 78 799
-------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Assets acquired under capitalized leases $ 586 $ 1,293
---------------------------
</TABLE>
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
SECOND QUARTER FISCAL 1996 VS SECOND QUARTER FISCAL 1995
Net sales for the second fiscal quarter ended January 28, 1996,
decreased $2.3 million, or 5.7%, to $38.7 million, compared to $41.1 million in
the second quarter of fiscal 1995. Sales in the second quarter included $9.3
million of new and/or replacement products introduced since the beginning of the
year and $7.8 million of higher sales of certain products carried over from the
prior year. These sales increases were offset by a) $13.5 million of sales
eliminated due to the discontinuation of products for prior year models; b) $2.7
million of lower sales of certain carryover products; and c) a $3.2 million
decrease in service parts and miscellaneous other sales.
Gross profit in the second quarter ended January 28, 1996 decreased $6.5
million, or 118.1%, to a negative $994,000, compared to gross profit of $5.5
million in the second quarter of fiscal 1995. As a percentage of net sales,
gross profit was a negative 2.6% compared to positive gross profit of 13.3% in
the same period of the prior year. The reduced gross profit was attributable to
a) lower net sales compared to the same period of the prior year; b)
comparatively lower unit margins on the product mix comprising total sales this
year compared to the product mix sold in the second quarter of last year; c) a
substantial concentration of previously delayed and subsequently accelerated
product launching activities that were underway during the quarter; and d) costs
associated with the completion of the phase-down of an underutilized facility
and the allocation of its production among other plants.
Selling, general and administrative expenses in the second quarter
remained relatively constant at 9.4% of sales or $3.66 million, compared to 9.0%
of sales or $3.70 million in the second quarter of the prior year. The slight
increase
5
<PAGE>
as a percentage of sales was attributable to the comparatively lower sales in
the period this year.
Interest expense in the second fiscal quarter ended January 28, 1996,
increased $311,000, or 34.9%, to $1.2 million compared to $892,000 in the second
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 $5.9
million for the second quarter ended January 28, 1996 compared to pre-tax income
of $885,000 for the second quarter of last year. Accordingly, there were
available income tax benefits attributable to the carry-back of the second
quarter net operating loss to prior years. The benefit thus recognized was at an
effective rate of 22.5% compared to an income tax expense rate of 41% for the
second quarter of the prior fiscal year.
For the second fiscal quarter ended January 28, 1996, the Company
incurred a net loss of $4.5 million, or $.84 per share, compared to net income
of $522,000, or $.10 per share in the second quarter of the prior year. This
unfavorable operating performance resulted primarily from the aforementioned
decline in sales volume, reduced unit margins on product sales, a concentration
of new product launching activities during the period and completion of the
phasing down of an underutilized production facility.
FIRST SIX MONTHS FISCAL 1996 VS FIRST SIX MONTHS FISCAL 1995
Net Sales in the six months ended January 28, 1996, decreased $6.3
million, or 7.3%, to $79.9 million compared to $86.2 million in the first six
months of the prior fiscal year. Sales in the fiscal first-half included $15.1
million of new and/or replacement products introduced during the period and
$16.8 million of higher sales of products carried over from last year. These
sales increases were offset by a) $ 27.5 million of sales eliminated due to
discontinuation of products
6
<PAGE>
for prior year models; b) $5.7 million of lower sales of certain carryover
products; and c) a $5.0 million decrease in service parts and miscellaneous
other sales.
Gross profit for the six months ended January 28, 1996 decreased $10.8
million, or 88.4%, to $1.4 million, compared to $12.2 million in the fiscal 1995
first six months. As a percentage of net sales, gross profit for the first six
months this year was 1.8% compared to 14.2% in the same period of the prior
year. Contributing to the substantially lower gross profit during the first six
months of this year were the comparatively lower sales, a product mix carrying
narrower unit margins, a significant concentration of new product launches, and
the expenses associated with phasing down an under-utilized manufacturing plant.
The Company also experienced relatively higher raw material costs that impacted
operating performance during the first three months of the six month period.
Selling, general and administrative expenses in the six months ended
January 28, 1996 increased slightly to $7.2 million compared to $7.1 million in
the fiscal 1995 six months. The increase was related to planned additions to
engineering and program management functions. As a percentage of net sales,
selling, general and administrative expenses were 9.1% in the first six months
compared to 8.2% in the same period of the prior year. The difference was
primarily due to the comparatively lower sales volume in the six months this
year.
Interest expense in the six months ended January 28, 1996 increased
$626,000, or 35.7%, to $2.38 million compared to $1.75 million in the 1995
fiscal six months. The increase was due to higher average utilization of the
Company's revolving line-of-credit.
For the first six months ended January 28, 1996, before provision for
income taxes, the Company incurred a loss of $8.2 million compared to pre-tax
income of $3.4 million earned in the first fiscal six months of the prior year.
Due to the carryback of the six-month net operating loss to prior years, an
income tax
7
<PAGE>
benefit was available at an effective rate of 25% compared to an income tax
expense rate of 41% for the first six months of fiscal 1995.
A net loss of $6.2 million, or $1.14 per share, was incurred in the
first six months ended January 28, 1996, compared to net income of $2.0 million,
or $.35 per share, earned in the first fiscal half of the prior year. The
adverse operating results experienced in the period this year were caused by
factors identified in the foregoing discussion of gross profits realized in both
the second quarter and six month periods. During the final weeks of the six
months ended January 28, 1996, as the major product launching activities were
accomplished, sales rates were increasing. Meanwhile, cost reduction measures
and productivity improvements were taking effect with the result that, barring
adverse changes in auto industry conditions, the Company expects to realize a
turnaround to profitable operations during its third fiscal quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months ended January 28, 1996 activities related to
a series of new product launches required additional investments in inventories
totaling $1.3 million and a $8.6 million increase in accounts receivable. These
increases added to a $6.2 million net loss for the period were offset by
depreciation and amortization of $2.8 million and a $10.1 million increase in
accounts payable resulting in net use of cash in operating activities of $3.7
million. This employment of cash in operations plus capital expenditures of $2.7
million in the first six months were funded primarily by a $7.1 million increase
in utilization of the Company's revolving line-of-credit.
As a result of the foregoing, at January 28, 1996 total capitalization
was $45.4 million including long-term debt of $32.7 million, or 72%, and
stockholders' equity of $12.7 million, or 28% of total capitalization.
Meanwhile, during the first
8
<PAGE>
six months net working capital decreased $7.6 million with the result that at
January 28, 1996 the current ratio was .84 to 1.
Due to these developments, as of January 28, 1996 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 is currently
pursuing negotiations for waivers and/or amendments. At the same time, in
addition to the measures underway to restore operations to profitable levels,
the Company is pursuing several alternatives for arranging additional sources of
liquidity to meet forecasted requirements including maturing debt obligations
during the next twelve months.
9
<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 moved to dismiss the plaintiff's amended
complaint. The court granted the Company's motion. On January 23,1996,
the plaintiffs appealed the decision of the court. The Company believes
the appeal is without merit and intends to defend it.
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.
10
<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 and six months ended
January 28, 1996 and January 29, 1995)
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: March 13, 1996 /s/ Leonard J. Heilman
-----------------------
Leonard J. Heilman
Executive Vice President -
Finance and Administration,
Treasurer and Assistant Secretary
(principal financial and
accounting officer)
11
<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 January 28, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-30-1995
<PERIOD-START> JUL-31-1995
<PERIOD-END> JAN-28-1996
<CASH> 816
<SECURITIES> 0
<RECEIVABLES> 23,416
<ALLOWANCES> (1,091)
<INVENTORY> 19,582
<CURRENT-ASSETS> 51,029
<PP&E> 72,682
<DEPRECIATION> (21,870)
<TOTAL-ASSETS> 111,751
<CURRENT-LIABILITIES> 60,714
<BONDS> 32,658
0
0
<COMMON> 539
<OTHER-SE> 12,170
<TOTAL-LIABILITY-AND-EQUITY> 111,751
<SALES> 79,915
<TOTAL-REVENUES> 79,915
<CGS> 78,494
<TOTAL-COSTS> 85,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,378
<INCOME-PRETAX> (8,192)
<INCOME-TAX> (2,021)
<INCOME-CONTINUING> (6,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,171)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
