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 April 6, 1997.
( ) Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
for the transition period from to .
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Commission File Number
0-20240
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AMERICAN WHITE CROSS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1342417
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15200 Interstate 45 North
Houston, Texas 77090
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(Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code: (281) 443-8884
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349 Lake Road
Dayville, Connecticut 06241
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(Former Address, including zip code, of principal executive offices)
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
As of May 12, 1997, 6,675,891 shares of Common Stock, $.01 par value, were
outstanding.
Total sequentially numbered pages in this filing: 17.
<PAGE>
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Part I. Financial Information
Item 1. Financial Statements
<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<CAPTION>
April 6, December 31,
1997 1996
------------ -----------
<S> <C> <C>
ASSETS (unaudited) (audited)
Current assets:
Cash $ 537 $ 440
Accounts receivable 8,878 8,955
Inventory 19,254 19,843
Prepaid expenses and deposits 835 1,027
Supplies 1,498 1,511
Other current assets 731 1,104
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Total current assets 31,733 32,880
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Property, plant and equipment, net 15,011 15,946
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Other assets:
Goodwill 4,353 4,388
Trademarks, licenses and customer list 161 180
Organization and deferred financing costs 832 869
Noncompetition agreements 117 142
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Total other assets 5,463 5,579
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Total assets $52,207 $54,405
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
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<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<CAPTION>
April 6, December 31,
1997 1996
------------ -----------
<S> <C> <C>
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities not subject to compromise:
Revolving DIP facility $17,056 $16,827
Accounts payable 2,406 2,108
Other accrued expenses 2,597 2,973
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Total current liabilities not subject
to compromise 22,059 21,908
Total liabilities subject to compromise 34,794 35,371
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Total liabilities 56,853 57,279
Commitments and contingencies (See Notes 3 and 9)
Stockholders' deficit:
Preferred stock - -
Common stock 67 67
Additional paid-in capital 33,990 33,990
Accumulated deficit (38,703) (36,931)
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Total stockholders' deficit (4,646) (2,874)
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Total liabilities and stockholders'
deficit $52,207 $54,405
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
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<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Fiscal Quarters Ended
---------------------------
April 6, March 31,
1997 1996
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(unaudited)
<S> <C> <C>
Sales $ 20,408 $22,559
Cost of sales 16,570 18,180
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Gross profit 3,838 4,379
Selling expenses 2,744 3,246
General and administrative expenses 933 1,142
Impairment of long-lived assets 806 -
Interest expense 696 1,191
Other income (4) (2)
-------- --------
Loss before reorganization items and
benefit from income taxes (1,337) (1,198)
Reorganization items:
Professional fees (435) -
-------- --------
Loss before benefit from income taxes (1,772) (1,198)
Benefit from income taxes (Note 4) - 437
-------- -------
Net loss $(1,772) $ (761)
======== =======
Net loss per share $ (.27) $ (.11)
======== =======
Weighted average shares
outstanding 6,676 6,676
======== =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
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<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<CAPTION>
Fiscal Quarter Ended
---------------------------
April 6, March 31,
1997 1996
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(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,772) $ (761)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 410 823
Impairment of Long-Lived Assets 806 -
Benefit from deferred income taxes (437)
Restructuring charge - 65
Changes in operating assets and liabilities:
Accounts receivable 77 (2,527)
Inventory 589 (2,290)
Prepaid expenses, supplies and other
current assets 578 142
Accounts payable and accrued expenses (90) (304)
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Net cash provided by (used in)
operating activities 598 (5,289)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (165) (641)
Increase in other assets - (102)
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Net cash used in
investing activities (165) (743)
------- -------
</TABLE>
<PAGE>
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<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Amounts in thousands)
<CAPTION>
Fiscal Quarter Ended
---------------------------
April 6, March 31,
1997 1996
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(unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit loan, net $ 229 $6,717
Repayments of long-term debt and
liabilities subject to compromise (565) (994)
Deferred financing costs - (14)
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Net cash provided (used) by
financing activities (336) 5,709
Net increase (decrease) in cash 97 (323)
CASH, beginning of period 440 848
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CASH, end of period $ 537 $ 525
====== ======
Supplemental Disclosures:
Cash paid during the period-
Interest $ 451 $1,131
Income taxes - 18
Non-cash transactions-
Capital lease obligations - -
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
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AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 6, 1997
(UNAUDITED)
1.ORGANIZATION
American White Cross, Inc. ("the Company") manufactures and markets a
wide variety of health and personal care products including disposable
first aid products such as adhesive bandages, sterile pads, first aid
kits and waterproof tape. The Company also produces and sells products
manufactured primarily from cotton (the "Cotton Business"), including
cotton swabs, pharmaceutical coil, used in the packaging of drugs and
vitamins in bottles, cosmetic puffs, rounds and squares, cotton rolls
and sterile cotton balls.
The Company's business was founded in 1925, became a division of
National Patent Development Corporation (NPDC) in 1972 and was
reorganized in April 1991 as National Patent Medical Partnership, L.P.
("the Partnership").
In November 1992, NPM Healthcare Products, Inc., which was formed for
such purpose, succeeded to the assets, liabilities and business of the
Partnership.
In May 1993, the Company acquired all of the outstanding capital stock
of The American White Cross Laboratories, Inc. (AWCL) and its wholly
owned subsidiary, Weaver Manufacturing Corporation (Weaver). In March
1994, AWCL was merged into the Company and the Company changed its name
from NPM Healthcare Products, Inc. to American White Cross, Inc.
See Note 3 for a discussion of the Company's filing for protection under
Chapter 11 of the U.S. Bankruptcy Code on July 17, 1996 and Note 11 for
a discussion of the sale of the Cotton Business.
2.BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the results of the Company and its wholly-owned subsidiaries,
Weaver and Acme Chaston Puerto Rico, Inc. (ACPR). These statements have
been prepared on a going concern basis, which assumes continuity of
operations, realization of assets and liquidation of liabilities in the
ordinary course of business. However, such realization of assets and
liquidation of liabilities is subject to significant uncertainty in
light of the Company's filing of voluntary petitions under Chapter 11
<PAGE>
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("Chapter 11 Filings")(see Note 3 - "Status of Chapter 11 Proceedings").
Such financial statements, consequently, do not reflect all potential
adjustments that may result from the Company's Chapter 11 filings and
related matters.
Under the reorganization proceedings, the Company may sell or otherwise
realize assets, and liquidate or settle liabilities, for amounts other
than those reflected in the condensed consolidated financial statements.
The amounts reported in the condensed consolidated financial statements
do not give effect to all potential adjustments to the carrying value of
assets or amounts and classifications of liabilities that might be
necessary pursuant to a plan of reorganization.
The results for the first fiscal quarter ended April 6, 1997 are not
necessarily indicative of the results to be expected for the full year.
The Company's year end is December 31. The first two months in each
calendar quarter consist of four weeks each with the final month
consisting of five weeks. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
Form 10-K.
3.STATUS OF CHAPTER 11 PROCEEDINGS
On July 17, 1996 (the "Filing Date"), the Company and its wholly owned
consolidated subsidiaries, ACPR and Weaver, filed voluntary petitions
for reorganization under Chapter 11 of Title 11 (the "Chapter 11
Filing") of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") and are currently operating their respective businesses as
debtors-in-possession pursuant to section 1107 and 1108 of the
Bankruptcy Code. On July 29, 1996, a single unsecured creditors'
committee was appointed by the U.S. Trustee for the District of Delaware
pursuant to Section 1102 of the Bankruptcy Code (the "Creditors'
Committee"). The Creditors' Committee has the right to review and
object to certain business transactions and is expected to participate
in the negotiation of the Company's plan of reorganization.
As of the Filing Date, actions to collect pre-petition indebtedness have
been automatically stayed pursuant to Section 362 of the Bankruptcy Code
(subject to order of the Bankruptcy Court) and, in certain
circumstances, other pre-petition contractual obligations may not be
enforced against the Company. In addition, the Company may reject pre-
petition executory contracts and lease obligations, and parties affected
<PAGE>
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by these rejections may file claims with the Bankruptcy Court in
accordance with the reorganization process. Substantially all
liabilities as of the Petition Date are subject to being paid or
compromised under a plan of reorganization to be voted upon by impaired
classes of creditors and equity security holders and approved by the
Bankruptcy Court.
On July 17, 1996, the Company entered into a ratification and amendment
of its loan agreement with Congress Financial (the "Congress Financing")
to provide a working capital, Debtor-In-Possession facility (the
"Revolving DIP Facility") to the Company through December 31, 1996. The
facility was subsequently extended to the earlier of the effective date
of a confirmed plan of reorganization, or August 31, 1997. The amount
available for borrowings is based upon the levels of eligible accounts
receivable and inventory, subject to maximum borrowings of $30,000,000.
Under the Revolving DIP Facility, the formulas for calculating available
borrowing were modified, increasing the amount the Company can borrow by
up to $1,500,000. In exchange for this increase, the Company, (i)
pledged previously unencumbered collateral, (ii) granted a second lien
position to Congress on certain machinery and equipment and, (iii) paid
a $50,000 facility fee, along with an additional $20,000 facility fee at
the time of extension. The interest rate increased to 2% above prime
rate (10.25%) at March 31, 1997) from prime rate plus 1 3/4%. The
Revolving DIP Facility, approved by the Bankruptcy Court on August 13,
1996, contains certain financial covenants, related to performance
against weekly cash flow projections provided by the Company.
Borrowings outstanding at April 6, 1997 were $17,056,000. Based on
eligible receivables and inventory at April 6, 1997, the Company had
approximately $1,900,000 available for additional borrowings.
Since the Filing Date, the Company has continued to manage its business
as a debtor-in-possession. Key activities during the post-petition
period have included: 1) obtaining post-petition financing, 2)
increasing cash flows through a number of operational changes such as
personnel layoffs and negotiated union concessions, 3) evaluating the
Company's strategic direction and cost structure, resulting in a
determination to discontinue certain product lines and to divest its
Cotton Business (see Note 11-Subsequent Events), 4) offsetting the
effect of certain customer account losses through a renewed sales effort
and focus on profitable core product lines, and 5) making progress in
developing a formal plan of reorganization. By a court order dated
March 1997, the Company has received an extension of it's exclusive
period to file a plan of reorganization to June 14, 1997.
<PAGE>
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4.INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
The benefit from income taxes includes federal and state income taxes on
earnings generated in the United States, Puerto Rican income taxes on
earnings generated in Puerto Rico and taxes due upon repatriation of
Puerto Rican earnings and is based on the expected tax rate to be
incurred for the full fiscal year. The benefit recognized in the first
quarter ended March 31, 1996 was subsequently determined to not be
realizable upon the Company's Chapter 11 Filing and was reversed to
expense in the quarter December 31, 1996.
5.NET LOSS PER SHARE
Net loss per share has been calculated using the weighted average number
of shares outstanding. The effect of stock options and warrants during
each period is not dilutive and, therefore, not considered.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which establishes new standards for computing and presenting earnings
per share. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997 and earlier application is
not permitted. Upon adoption, all prior earnings (loss) per share data
presented will be restated. Basic earnings (loss) per share and diluted
earnings (loss) per share for the three months ended April 6, 1997,
calculated in accordance with SFAS No. 128, are the same as net income
(loss) per common share computed using the existing rules.
6.GOODWILL
Goodwill, which represents the excess of the purchase price over the fair
values of net assets acquired in connection with certain acquisitions, is
amortized on a straight-line basis over an expected forty-year life. The
recoverability of this intangible is subject to uncertainty as a result of
the Bankruptcy Proceedings and may be affected by a plan of reorganization.
7.REORGANIZATION COSTS
Professional fees and expenditures directly related to the Chapter 11
Filing are classified as reorganization costs and expensed as incurred.
<PAGE>
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8.REVOLVING DIP FACILITY
As of April 6, 1997, the Company had approximately $17,056,000 outstanding
under its Revolving DIP Facility. Pre-petition borrowings bore interest at
a rate per annum equal to the prime rate plus 1 3/4% and were secured by
the Company's accounts receivable, inventories and intangible assets. Post
petition borrowings under the DIP facility bear interest at a rate per
annum equal to the prime rate plus 2% (see Note 3).
9. LIABILITIES SUBJECT TO COMPROMISE
Pursuant to the provisions of the Bankruptcy Code, liabilities arising
prior to the Chapter 11 Filing may not be paid without prior approval
of the Bankruptcy Court. Pre Chapter 11 Filing liabilities that are
expected to be settled as part of a plan of reorganization are denoted
as liabilities subject to compromise and include the following (all or
a portion of which may be disputed by the Company):
(dollars in thousands)
Accounts payable $11,705
Term loans:
Notes payable to Bank One 11,386
Other notes:
Subordinated notes payable to Electra 7,079
Subordinated note payable to NPMI 1,700
Other 73
Capital lease obligations 2,387
Accrued interest 264
Other accrued expenses 200
-------
Total liabilities subject to compromise $34,794
=======
Liabilities subject to compromise under reorganization proceedings
include the Company's present estimates of substantially all
liabilities, except the Revolver, as of the Chapter 11 Filing. As
discussed above, payment of these liabilities, including the maturity
of debt obligations, are stayed while the Company continues to operate
its business as debtor-in-possession. The Company notified all known
or identifiable potential claimants for the purpose of identifying all
pre-petition claims against the Company. Additional bankruptcy claims
and pre-petition liabilities may arise by termination of contractual
obligations, Bankruptcy Court determination of allowed claims, and as
<PAGE>
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certain contingent and/or potentially disputed bankruptcy claims are
settled for amounts which may differ from those shown in the
consolidated balance sheets.
As of April 6, 1997, the Company had approximately $11,386,000
outstanding under its term loans consisting of $8,693,000 outstanding
under its original term loan dated September 1, 1994 and $2,693,000
outstanding under two term loans which were effective September 1,
1995. These term loans are secured by substantially all of the
Company's machinery and equipment, other than the machinery and
equipment which collateralizes capital lease obligations and certain
equipment acquired after September 1, 1995, and bear interest at a
fixed rate of 9% per annum and 11.57%, respectively. Payments on the
three term loans are due in equal monthly installments of principal
and interest over a five-year term. As of April 6, 1997, payments
totaling $250,000 had been made pursuant to an adequate protection
order signed by the Court on February 3, 1997 requiring the Company to
pay $50,000 per month in principal commencing effective November 1,
1996 through March 31, 1997.
On December 1, 1995, the Company entered into an agreement with certain
investors to issue senior subordinated notes for proceeds of $9,000,000.
The senior subordinated notes are subordinate in right of payment to the
revolving credit facility and to the term loans (up to a maximum
aggregate principal amount of $44,000,000) and are guaranteed by the
Company's subsidiaries. The notes are due on December 1, 2003 and bear
interest at an annual rate of 8% through December 1, 1996. The interest
rate increases by 2% annually until December 1, 1999 at which time the
rate will be 16%. Interest expense was being recorded using the
effective yield method. An adjustment was recorded in July 1996 to
restate interest expense to reflect the rate actually paid since
December 1, 1995. There is no penalty for early repayment. The
agreement also requires an annual monitoring fee of $75,000 to be paid
by the Company. No payments have been made under these notes since the
Filing Date.
Warrants were also issued to the investors in the senior subordinated
notes to purchase up to 1,334,511 shares of the Company's common stock
at an exercise price of $1 per share. The estimated fair value of
$2,086,000 was recorded as a reduction in the carrying value of the
debt and is being recorded as additional interest expense using the
effective yield method. For the period ended July 17, 1996, $142,000
had been recorded as additional interest expense related to the fair
value assigned to the warrants.
<PAGE>
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As of April 6, 1997, the Company had approximately $2,387,000
outstanding under certain capital lease agreements. As of April 6,
1997, payments totaling $315,000 had been made pursuant to an adequate
protection order signed by the Court on January 6, 1997 requiring the
Company to pay approximately $49,000 per month in principal commencing
effective September 18, 1996 through the effective date of a confirmed
plan of reorganization. In connection with the sale of the Cotton
Products Business, certain of the assets subject to these capital
lease agreements were sold and, pursuant to a revised stipulation
dated April 15, 1997, the monthly adequate protection obligation was
reduced to approximately $32,000.
The Bankruptcy Court entered an order setting January 17, 1997 as the
deadline for filing proofs of claim in the Chapter 11 Filing (except
for proofs of claim arising from the rejection of unexpired leases or
executory contracts, which must be filed within the later of (i) the
time period established by the Bankruptcy Court in a final order
approving such rejection, and (ii) if no such time period is or was
established, thirty (30) days from and after the date of entry of such
final order approving such rejection). Creditors who fail to file
proofs of claim in respect of pre-Filing Date claims before this date
are barred from thereafter asserting such claims against the Company,
the reorganized Company or any of their respective affiliates.
Any plan of reorganization ultimately approved by the Company's impaired
pre-petition creditors and stockholders and confirmed by the Bankruptcy
Court may materially change the amounts and terms of these pre-petition
liabilities. Such amounts are estimated as of April 6, 1997, and the
Company anticipates that claims filed with the Bankruptcy Court by the
Company's creditors will be reconciled to the Company's financial
records. The additional liability arising from this reconciliation
process, if any, is not subject to reasonable estimation, and
accordingly, no provision has been recorded for these possible claims.
The termination of other contractual obligations and the settlement of
disputed claims may create additional pre-petition liabilities. Such
amounts, if any, will be recognized in the consolidated balance sheet
and statement of operations as they are identified and become subject
to reasonable estimation.
10. IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." In accordance
with SFAS No. 121 and in connection with the Company's decision to
divest the Cotton Business (see Note 11), the Company recorded non-cash
charges totaling $806,000 during the first quarter of 1997 to write down
certain assets to the future net proceeds from the sale of such assets
(see Note 11).
<PAGE>
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11. SUBSEQUENT EVENTS
On April 22, 1997, the Company completed the divestiture of its Cotton
Business pursuant to an agreement dated as of March 20, 1997. The
Cotton Business sales were approximately $41 million, or 47%, of the
Company's sales for the year ended December 31, 1996. The primary terms
of the transaction include purchase consideration of $9,800,000, which
approximates the carrying value of the Cotton Business assets, primarily
inventory and equipment sold, and the assumption of the Canovanas,
Puerto Rico facility lease. Of the purchase consideration, $8,300,000
was paid at closing and the remaining $1,500,000 was placed in escrow.
The net proceeds were paid to secured creditors and lessors asserting
interest in the assets sold. Additionally, the Company has entered into
a supply agreement for up to nine months from the closing date to
manufacture cotton products for the purchaser using equipment sold to
the purchaser. This agreement received Bankruptcy Court approval.
On May 5, 1997 the Company announced that it had reached an agreement
with its major lenders and Official Committee of Unsecured Creditors on
the principal terms of a formal plan of reorganization. The terms
provide for the treatment of all existing creditors, and call for the
Company's unsecured creditors to exchange their claims for common stock
in the reorganized company. Existing shareholders would exchange their
shares for approximately 3% of the reorganized company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales for the first fiscal quarter of 1997 were $20,408,000 as compared
to $22,559,000 for the same period in 1996. This $2,151,000 (10%)
decrease consisted primarily of lower private label and branded adhesive
strip sales due in large part to the absence of one major adhesive
bandage promotion which occurred in the first quarter of 1996. This
decrease was partially offset by higher sales of automotive first aid
kits and pharmaceutical coil.
Cost of sales in the first fiscal quarter of 1997 was $16,570,000, or
81.2% of sales, compared to $18,180,000, or 80.6% of sales in the first
fiscal quarter of 1996. The decrease in cost of sales was caused
primarily by lower sales in the quarter. The increase in cost of sales
as a percentage of sales was due to the impact of lower sales volume on
overhead costs as well as an unfavorable product mix related to adhesive
strip sales, offset partially by the impact of overhead spending
reductions.
<PAGE>
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Selling expenses in the first fiscal quarter of 1997 of $2,744,000, or
13.4% of sales, were lower than the $3,246,000, or 14.4% of sales in the
same period last year. This decrease relates to lower sales
administration costs, including salaries, commissions and travel, due to
the reorganization of the Company's sales efforts in both the Consumer
and Healthcare divisions, as well as lower distribution costs resulting
from the closure of a leased distribution facility in Dayville,
Connecticut. These gains were partially offset by higher freight costs
due to the loss of certain discounted rates following the Company's
Chapter 11 filing.
General and administrative expenses for the quarter of $933,000, or 4.6%
of sales, were lower than prior years results of $1,142,000, or 5.1% of
sales, due to lower personnel, bad debt and amortization expenses.
Impairment of long-lived assets was $806,000 for the first quarter of
1997 compared to no provision for 1996. The Company recorded non-cash
charges in connection with its decision to divest the Cotton Business
(see Note 10).
Interest expense of $696,000 was 3.4% of sales for the first fiscal
quarter of 1997 compared to $1,191,000 or 5.3% of sales in the same
period of 1996. The decrease is due, primarily, to the fact that
certain debt service requirements have been stayed by the bankruptcy
filing.
Reorganization items, consisting of professional fees related to the
Company's Chapter 11 Filing, was $435,000 for the first quarter of 1997
compared to no expense for the same period of 1996.
The Company operated at a loss before income taxes of approximately
$531,000 before non-cash valuation charges of $806,000 and
reorganization professional fees of $435,000, compared to a loss of
approximately $1,198,000 in the same period of 1996. This improvement
was primarily due to lower selling and general administrative expenses
caused by reorganization efforts of the Company, as well as lower
interest costs.
LIQUIDITY AND CAPITAL RESOURCES
At April 6, 1997, the Company had working capital of $9,674,000 and a
current ratio of 1.4 to 1 as compared to $10,972,000 and 1.5 to 1 at
December 31, 1996. The April 6, 1997 and December 31, 1996 amounts do
not include liabilities normally classified as current, but currently
classified as liabilities subject to compromise (see Notes 3 and 9).
<PAGE>
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During the fiscal quarter ended April 6, 1997, the Company provided
$598,000 of cash from operating activities principally due to reduction
of inventories and prepaid expenses, as well as the collection on an
insurance claim, offset partially by the impact of operating losses,
including professional fees related to the reorganization.
The Company used $165,000 in investing activities primarily for
purchases of new machinery and equipment during the first fiscal quarter
of 1997.
The amount available for borrowings under the Company's Revolving DIP
Facility is determined pursuant to a formula which is based upon the
levels of eligible accounts receivable and inventory subject to a
maximum amount of $30.0 million. Based on eligible receivables and
inventory at April 6, 1997, the Company had approximately $1.9 million
available borrowings at that time.
Management believes that the sale of the Cotton Business is a
significant step in its efforts to emerge from Bankruptcy. The adequacy
of the Company's available borrowings under the Revolving DIP Facility
is dependent upon a number of factors, including successful confirmation
of a formal plan of reorganization and therefore, is not assured.
Part II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
As of April 6, 1997 the Company was in default under various loan
agreement covenants, including payment defaults (see Notes 3 and 9).
Item 6. 8-K
A Form 8-K dated March 20, 1997 relating to the sale of the Cotton
Business was filed on March 24, 1997.
<PAGE>
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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 thereunto duly authorized.
AMERICAN WHITE CROSS, INC.
By: s/ Thomas M. Rallo
----------------------------------------------
Thomas M. Rallo
Senior Vice President, Finance & Administration
and Chief Accounting Officer
Date: May 15, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> APR-06-1997
<CASH> 537
<SECURITIES> 0
<RECEIVABLES> 8878
<ALLOWANCES> 0
<INVENTORY> 19254
<CURRENT-ASSETS> 31733
<PP&E> 35537
<DEPRECIATION> 20526
<TOTAL-ASSETS> 52207
<CURRENT-LIABILITIES> 22059
<BONDS> 0
0
0
<COMMON> 67
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