SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 JULY 30, 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
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BAILEY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
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(603) 474-3011
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
COMMON STOCK, $.10 PAR VALUE NASDAQ NATIONAL MARKET SYSTEM
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL RE-
PORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EX-
CHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PE-
RIOD 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 [ ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: $18,790,283.75 (based upon the closing bid
price of the stock of NASDAQ-National Market System on October 23, 1995).
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS AT OCTOBER 23, 1995
COMMON STOCK, $.10 PAR VALUE 5,353,558
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CON-
TAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR IN-
FORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM
10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]
PART I
ITEM 1. BUSINESS
I. GENERAL
Bailey Corporation (the "Company") is a manufacturer of molded and
painted plastic exterior components for North American original equipment
manufacturers ("OEMs") of cars, light trucks, sport utility vehicles and
mini-vans. The Company has experienced significant sales growth since fis-
cal 1991 through expansion of its product line by working closely with
customers in the development of new components, the redesign of existing
components and through significant acquisitions in fiscal 1992, 1993 and
1994.
In June 1992 the Company acquired the assets and business of Trans-
plastics, Inc. (the "Conneaut Acquisition"); in July 1993 the Company ac-
quired the assets and business of Contour Technologies ("Contour"), a di-
vision of The Boler Company. ("Boler"); and effective July 31, 1994, the
Company acquired the assets and business of Premix/E.M.S. Inc. (the "Pre-
mix/EMS Acquisition").
The Company's products ("components") include grille opening panels
and reinforcements, bumper covers, body side moldings and claddings, fair-
ings, fender extensions, wheel lips, spoilers and, as a result of the Pre-
mix/EMS Acquisition, molded bumper beams and larger body panels such as
hoods, sunroofs, doors and liftgates.
The Company is generally selected to supply a component two to four
years in advance of production. Once selected, the Company usually sup-
plies the component on a sole source basis for the life of a vehicle
model, which has typically ranged from three to four years for cars and
seven to ten years for light trucks, sport utility vehicles, and mini-
vans.
The Company's business strategy is to capitalize on trends in the au-
tomotive industry including (i) increased use of a variety of plastic com-
ponents to reduce vehicle weight and cost, (ii) increased outsourcing by
OEMs of component engineering and design, and (iii) efforts by OEMs to re-
duce the number of their component suppliers. These trends are increasing
competitive pressures on many smaller companies that do not possess a full
range of manufacturing, engineering, and design capabilities. The Compa-
ny's response to these trends has been to place emphasis on efforts to
achieve internal growth and to pursue its acquisition strategy.
II. THE NORTH AMERICAN AUTOMOBILE INDUSTRY
The North American OEM supply industry with regard to passenger cars
and light trucks is composed of two distinct markets, the original equip-
ment market and the service market. The Company's sales of components into
the original equipment market are made to OEMs for the use on new vehicles
and its sales to the service market are made to OEMs for resale to their
dealers as replacement components. For fiscal year 1995, most of the Com-
pany's sales were to the original equipment market. Industry factors which
affect the Company's current and future competitiveness, as well as its
growth and performance, include trends in the automotive market, changing
policies of OEMs with respect to suppliers, and developments in technology
and materials.
TRENDS IN THE AUTOMOTIVE MARKET
The overall market for cars, light trucks, sport utility vehicles, and
mini-vans in North America is large and cyclical, and considerable growth
or decline routinely occurs within specific vehicle model lines. In par-
ticular, light truck, sport utility vehicle, and mini-van sales have grown
rapidly. The Company's components for Ford's F-Series trucks, Ranger pick-
up truck, the Explorer, the Mercury Villager van, and the Nissan Quest van
are examples of this trend. The Company believes it will continue to be
well positioned as a supplier of components to OEMs in this high-growth
market.
CHANGING POLICIES REGARDING SUPPLIERS
Certain developments have substantially altered the competitive envi-
ronment for OEM suppliers, including increased outsourcing by OEMs of com-
ponent engineering and design and efforts by OEMs to reduce the number of
their component suppliers.
Outsourcing. Outsourcing by OEMs provides a major source of potential
growth for component suppliers. Domestic OEMs are continuing to increase
outsourcing to qualified suppliers for the manufacture, engineering, and
design of plastic components. OEMs benefit from such outsourcing because
outside suppliers generally have significantly lower cost structures than
the OEM divisions which would otherwise supply the components.
Reduction of Supplier Base; Competitive Selection Process. Starting in
the 1980's, North American OEMs began to reduce the number of suppliers
from whom they purchased components, granting long-term sole source agree-
ments to a limited number of suppliers. This reduction is one of a number
of strategies OEMs initiated to control vehicle costs. The criteria for
selection and retention as a supplier now include not only cost, quality,
and responsiveness, but also certain full-service capabilities including,
among others, engineering and design. See "Business Strategy -- Engineer-
ing and Design Capability."
Competition for business within the Company's industry generally con-
sists of a competitive selection process in which the OEM approaches one
or a few suppliers for an intended component with a conceptual design of
the component and target pricing. After discussions with each potential
supplier concerning its ability to manufacture, engineer, and design the
component, the OEM selects one supplier to work in conjunction with the
OEM's design team to design and develop a component which will satisfy the
OEM's quality standards and target pricing. OEMs also have rigorous pro-
grams for evaluating and rating suppliers, which encompass quality, cost
control, reliability of delivery, new technology implementation, and over-
all management.
USE OF PLASTICS
The combined pressures of cost reduction and fuel economy have caused
OEMs to concentrate on developing and employing lower cost, lighter mate-
rials. As a result, plastic content in cars, light trucks, sport utility
vehicles, and mini-vans has increased significantly. Plastics are now com-
monly used in such structural components as grille opening reinforcements
and in such nonstructural components as exterior and interior trim, door
panels, instrument panels, grilles, bumpers, duct systems, tail lights,
and fluid reservoirs. Increasingly, automobile content requires large
plastic injection molded assemblies for both the exterior and interior.
Moreover, further advances in molding and painting technologies are im-
proving the performance and appearance of molded plastic components. The
Company believes that use of plastics for exterior trim and other exterior
applications will continue to increase.
III. BUSINESS STRATEGY
The Company's business strategy is to supply an increasing number of
components for new vehicles manufactured by its existing OEM customers as
well as to expand its OEM customer base. The Company believes a principal
source for continued growth and increased market share lies in capitaliz-
ing on its engineering and design capabilities and its status as a manu-
facturer of high quality components for North American OEMs. To pursue its
growth objective, the Company follows a business strategy based upon the
following elements.
HIGH QUALITY PRODUCTS
The Company emphasizes the importance of product quality to all of its
employees and provides ongoing training in its quality assurance methods.
The Company has made substantial investments in advanced design equipment,
machinery, and production techniques. The Company uses advanced testing
equipment and methods including Statistical Process Control ("SPC") to
continue to improve quality standards across all product lines. SPC is a
quality assurance method developed to avoid producing defective products
by monitoring key stages of the manufacturing process to identify and cor-
rect deviations from established manufacturing process parameters, rather
than merely testing for defects at the end of production.
ENGINEERING AND DESIGN CAPABILITY
In the past several years, the Company has increased its commitment to
component engineering and design in response to the evolving purchasing
policies of Ford and, to a lesser degree, other North American OEMs. These
OEMs have focused increasingly on shortening design cycles and reducing
design and production costs, and have involved component suppliers earlier
in the process of designing a vehicle. The Company has invested substan-
tial resources in developing engineering and design capabilities to meet
these new demands, including expanding its Dearborn, Michigan, design cen-
ter where the Company's sales professionals and engineers provide sophis-
ticated engineering and design services to its customers from the clay
model stage of the design process through actual component manufacture.
RELIABLE AND TIMELY DELIVERY
As OEMs have moved to just-in-time inventory management, the timeli-
ness and reliability of shipments by their suppliers have become increas-
ingly important. The Company believes it has established a reputation as a
highly reliable and timely supplier able to meet its customers' demanding
delivery requirements.
STRATEGIC ACQUISITIONS
Increased outsourcing by OEMs of component engineering and design and
efforts by OEMs to reduce the number of their component suppliers have in-
creased competitive pressures for many smaller companies that do not pos-
sess a full range of manufacturing, engineering, and design capabilities.
Although not competitive as stand-alone operations, certain of these
smaller companies could, if combined with the Company, enhance the overall
competitiveness of the Company. The Company intends to continue to con-
sider acquisitions of companies which will further the Company's objec-
tives of broadening its product line, establishing or expanding relation-
ships with additional OEMs and expanding the Company's manufacturing capa-
bilities.
IV. PRODUCTS AND CUSTOMERS
The Company produces injection and compression molded exterior plastic
components for North American OEMs of cars, light trucks, sport utility
vehicles, and mini-vans. The Company's products must meet or exceed the
increasingly exacting color, weatherability, and durability standards set
by its customers. The Company believes that its success in being selected
as a supplier is a result of, among other things, its ability to manufac-
ture, engineer, and design high quality components. The Company's primary
products include grille opening panels and reinforcements, bumper covers,
body side moldings and claddings, fairings, fender extenders, wheel lips,
spoilers, molded bumper beams and larger body panels such as hoods, sun-
roofs, doors and liftgates.
V. SERVICE MARKET
The service market consists of components manufactured for sale by
OEMs to their dealers as replacement components. Prior to the Conneaut Ac-
quisition, the Company only manufactured a given component for the service
market if it had previously manufactured that component for the original
equipment market. With the Conneaut Acquisition, the Company now manufac-
tures certain components for the service market which it had not previ-
ously manufactured for the original equipment market.
VI. ENGINEERING, DESIGN, AND MARKETING
The Company's sales of molded plastic components have grown, in part,
as a result of increased outsourcing by OEMs of component engineering and
design. In recent years, the Company has significantly expanded its capa-
bilities for providing complete engineering and design services to support
its product line. Because molded plastic components must be designed at an
early stage of the model development cycle, the Company is increasingly
given the opportunity to participate earlier in the product planning pro-
cess. This has resulted in opportunities to identify a broader range of
components which could be manufactured by the Company.
Sales of the Company's products are generally made directly by the
Company's sales and engineering staff headquartered in Dearborn, Michigan.
In addition, sales to certain customers are made via a sales representa-
tive organization. The Company also has field representatives at Ford's
manufacturing plants in Atlanta, Georgia; Avon Lake, Ohio; Chicago, Illi-
nois; Dearborn, Michigan; Kansas City, Missouri; and Louisville, Kentucky.
VII. MANUFACTURING
The Company's manufacturing facilities are as follows:
LOCATION OPERATIONS
Seabrook, NH Molding, Painting and Secondary or
Assembly Departments
Conneaut, OH Molding, Painting and Secondary or
Assembly Departments
Hillsdale, MI Molding, Painting and Secondary or
Assembly Departments
Madison, IN Painting Department
Lancaster, OH Molding, Painting and Secondary or
Assembly Departments
Portland, IN Molding, Painting and Secondary or
Assembly Departments
Hartford City, IN Molding, Painting and Secondary or
Assembly Departments
See Item 2, "Properties." The molding departments include resin mixing
and molding compound preparation as well as mold and tool maintenance and
refurbishment functions. The painting departments include equipment to
prime and finish coat the wide range of component shapes and sizes that
make up the Company's product lines. The secondary and assembly operations
include trimming, attachment of hardware, and various final processing ac-
tivities. At each of the Company's plants, operations are supported by
production planning, purchasing, manufacturing, engineering, quality as-
surance, and human resources staff.
VIII. RAW MATERIALS AND MATERIAL SUPPLIERS
The Company produces components using a variety of processes and raw
materials. The Company's raw materials include fiberglass reinforced poly-
ester, thermoplastic polyolefin ("TPO"), polyethylene terephthalate
("PET"), thermoplastic polyurethane ("TPU"), a variety of compounds for
the preparation of sheet molding compounds ("SMC"), as well as paints and
hardware items. The Company has at least two active suppliers for each of
the raw materials it uses and believes there is an adequate supply of
these raw materials.
IX. COMPETITION
The molded plastic exterior component industry is highly competitive.
The Company competes with many component suppliers, several of whom are
larger and have greater financial resources than the Company. In addition,
the Company's OEM customers design and manufacture some components and
could decide to increase this production, thereby reducing opportunities
for the Company. The Company competes primarily on the basis of manufac-
turing, engineering, and design capability, product quality, cost, deliv-
ery, and customer service.
X. EMPLOYEES
As of October 1, 1995, the Company had a total of 1,668 employees. Of
that total 1,290 are hourly and 378 are salaried. Hourly employees at two
of the Company's facilities (Seabrook, NH and Lancaster, OH) are covered
by collective bargaining agreements with the UAW, which expire in 1999 and
1997, respectively. The Company considers relations with its employees to
be good.
XI. ENVIRONMENTAL MATTERS
From time to time, the Company has been subject to claims asserted
against it by regulatory agencies for environmental matters relating to
the generation and disposal of hazardous substances and wastes. Some of
these claims related to properties or business lines acquired by the Com-
pany after a release had occurred. In each known instance, however, the
Company believes that the claims asserted against it, or obligations in-
curred by it, will not result in a material adverse effect upon the Compa-
ny's financial position or results of operations. Nonetheless, there can
be no assurance that activities at these facilities or facilities acquired
in the future, or changes in environmental laws and regulations, will not
result in additional environmental claims being asserted against the Com-
pany or additional investigations or remedial actions being required.
The Company has been notified of its status as a potentially responsi-
ble party ("PRP") at the ReSolve Superfund site in North Dartmouth, Massa-
chusetts, at the Solvents Recovery Services site in Southington, Connecti-
cut, and at the Old Southington Landfill Superfund site in Southington,
Connecticut, at the Spectron, Inc. site in Elkton, Maryland, and at the
Hazardous Waste Disposal Inc. site in Farmingdale, New York. At all five
sites, the Company and all other PRPs are jointly and severally liable for
all remediation costs under applicable hazardous waste laws. Therefore,
the Company's proportionate share is subject to increase upon the insol-
vency of other PRPs.
With respect to the ReSolve site, the Company and its immediate prede-
cessor, USM Corporation's Bailey division (in the name of Emhart Corpora-
tion), have been named as PRPs for wastes sent to the site during the
1970s. Although the Company cooperated with USM in litigation against
USM's insurers to obtain indemnification for costs incurred by the Company
and USM at the site, the Company did not obtain any recovery in that ac-
tion, which was recently settled. Recent estimates provided by the PRP
group responsible for the site's remediation indicate that the Company's
potential liability for clean-up efforts at the site is approximately
$300,651 for which the Company is fully reserved and it has posted a let-
ter of credit in favor of the PRP group. The assessment paid by the Com-
pany for the fiscal period July 1, 1994 through June 30, 1995 was $32,748,
the payment of which was charged to the previously established reserve.
The group voted not to impose an annual assessment for the fiscal period
extending from July 1, 1995 through June 30, 1996. The recent discovery of
the presence of contaminants in a form not currently susceptible of short-
term remediation, however, has created uncertainty about the future scope
and cost of clean-up efforts at this site, and a possibility that the ul-
timate cost of remediation may be higher than previously estimated. The
Company is unable to predict what, if any, effect this recent discovery
may have on the Company.
On June 18, 1992, the Company received notice from the Environmental
Protection Agency (the "EPA") that it was a PRP under the federal Super-
fund law with respect to the Solvents Recovery Services of New England
Site in Southington, Connecticut (the "SRSNE Site"). Based upon a volumet-
ric ranking dated July 7, 1993, the waste allocated to the Company repre-
sents 0.11593% of the total identified waste at the SRSNE Site. Under the
terms of a settlement with Emhart, the Company agreed to assume liability
for wastes sent to the SRSNE Site by USM's Seabrook, New Hampshire facil-
ity and Emhart agreed to assume liability for wastes sent by USM's Ames-
bury, Massachusetts facility. The identified PRPs have organized a group
to negotiate with the EPA, and the Company has joined that group. The
group has successfully negotiated with the EPA to reduce the total esti-
mated cost of the initial removal action at the SRSNE Site from an origi-
nal estimate of $14 million down to a current estimate of approximately $4
million. The total estimated cost of long-term remediation at the SRSNE
Site is not yet known.
In January 1994, the Company received a Notice of Potential Liability
for the Old Southington Landfill Superfund Site (the "OSL Site") located
in Southington, Connecticut. The EPA alleged that because the Amesbury,
Massachusetts facilities of USM Corporation sent spent solvents to the
SRSNE Site for recycling prior to 1968, it was also liable for cleanup of
the OSL Site because still bottoms and other waste from the SRSNE Site had
been disposed of at the OSL Site. Both the Company and USM/Emhart received
notices of liability for the share of OSL Site costs allocated to USM Cor-
poration (Amesbury, Massachusetts). The Company and Emhart entered into a
settlement agreement under which Emhart will assume sole responsibility
for all cleanup costs, imposed by the EPA, arising out of the alleged lia-
bilities of USM Corporation's Bailey division (Amesbury, Massachusetts)
for the OSL Site.
In June 1989, the EPA notified the Company that it was a PRP under the
federal Superfund law for the Spectron, Inc. site located in Elkton, Mary-
land. A group of PRPs ("Steering Committee") entered into an agreement
with the EPA to fund and conduct a $2.8 million emergency response action
to remove stored wastes at the site. The Steering Committee also entered
into a separate agreement to pay the government's past costs associated
with the site, approximately $635,000. There are several thousand PRPs at
this site, with most being small generators with low dollar exposure. In
December 1989, nearly 800 entities, including the Company, that sent small
quantities of waste to the site participated on a cash-out basis in the
settlement for past costs and the removal action, and the Company's allo-
cated share was $8,061.90. Participation in the cash-out settlement gives
the Company protection against contribution claims from third parties for
the first phase of the site cleanup ("Phase I").
In August 1990, a separate PRP group ("Phase II PRP Group") was formed
and negotiated an agreement with the EPA to remediate contaminated seeps
on the site and perform a limited privately-funded remedial investigation/
feasibility study for the site (the so-called Phase II activities). The
Company was not asked to join the Phase II PRP Group because that group
determined that the companies that paid for Phase I of the cleanup (the
so-called "Spectron customers" because they sent their waste to the site
primarily during the time period when it was owned and operated by Spec-
tron, Inc.) would not be asked to make any financial contributions toward
Phase II until the Galaxy customers (so-called because they did business
with the site during the time period when it was owned by the Galaxy com-
pany) have paid out an amount per gallon equal to that paid by the Spec-
tron parties. An additional investigation was conducted as part of the
Phase II activities to determine the nature and extent of a new form of
contamination discovered on the site; additional design work will be com-
menced soon.
In October 1995, the Company received a notice from the EPA that it
was a PRP that has liability for conducting a Remedial Investigation/Fea-
sibility Study ("RI/FS") at the Spectron site. The Company has sixty days
in which to decide whether to participate with a group of other PRPs in
making a good faith offer to the EPA for performance of the RI/FS. In con-
nection with this, the Company may have an opportunity to enter into a de
minimis party cash out settlement with the EPA and the other PRPs. No es-
timate can be made at this time as to the amount of the Company's liabil-
ity at the Spectron site.
In 1995, the New York Department of Environmental Conservation ("DEC")
notified the Company that it was named a responsible party under the Envi-
ronmental Conservation Law of the State of New York with respect to the
Hazardous Waste Disposal, Inc. site located in Farmingdale, New York. The
site was allegedly used to store, treat and dispose of hazardous and toxic
materials between 1979 and 1981. Various investigations have been under-
taken to date. DEC is looking to the named parties to perform a Remedial
Investigation/Feasibility Study and then a cleanup of the site as war-
ranted. The scope of the ultimate cleanup may depend, in large part, on
whether the site is viewed as a source of contamination of the nearby
Fairchild Republic Site. At this time, two hazardous waste manifests have
been produced by DEC which suggest that USM Corporation's Bailey division
(Seabrook, New Hampshire) shipped two-55 gallon drums of polyol to the
site in January 1981. Based on available information, the Company's in-
volvement at the site appears to be de minimis. Additional investigations
have been undertaken to determine: (1) whether there are any other enti-
ties that shipped wastes to the site between 1979 and 1981; and (2)
whether any of the named parties actually shipped more than was originally
attributed to them. The results to date do not suggest that the Company's
ranking at the site will change significantly. The Company has demanded
that Emhart Corporation assume the defense of this claim. Emhart Corpora-
tion has taken the Company's demand for defense and indemnification under
advisement. In doing so, Emhart Corporation has taken the position that it
did not receive "prompt written notice" of the claim.
The Company also faces the possibility of liability if it is deemed a
successor to TransPlastics with respect to wastes generated and disposed
of by TransPlastics when it owned the Conneaut property. TransPlastics has
been identified as a PRP at the Millcreek site in Millcreek Township,
Pennsylvania, and at the New Lyme site located in Dodgeville, Ashtabula
County, Ohio, two sites currently undergoing remediation. TransPlastics
also received notice of a potential third party claim in connection with
the Huth Oil Site in Cleveland, Ohio. The Company did not agree to assume
any environmental liabilities of TransPlastics and no claim has been as-
serted against the Company in connection with those liabilities. Further,
under the terms of the Conneaut Acquisition agreement, TransPlastics and
its parent companies must indemnify the Company and BTP for any liability
arising out of any such claim. Nevertheless, there can be no assurance
that TransPlastics and its parent companies will have sufficient assets to
satisfy the Company's potential liability for the remediation and any dam-
ages to third parties caused by the contamination.
The Company also faces potential liability in connection with the Con-
tour Acquisition. An environmental site assessment completed by Boler de-
termined that the ground water at the Contour facility in Hillsdale, Mich-
igan, was contaminated with chlorinated solvents as a result of past site
activities. The ground water contamination plume has migrated onto adja-
cent properties. In addition, Contour is listed as a PRP for a number of
off-site disposal locations. The Contour Acquisition Purchase and Sale
Agreement, however, requires Boler to indemnify the Company for any envi-
ronmental liabilities which arise in connection with use of the property
prior to closing. In addition, Boler has executed a remediation agreement
in which it agreed to remediate, at its own expense, the identified ground
water contamination at the Hillsdale, Michigan, facility. If Boler has in-
sufficient resources to complete remediation of any contamination for
which it has indemnified the Company or otherwise becomes insolvent, the
Company could incur successor liability for the costs of remediation and
any damages to third parties.
The Company also has potential liability in connection with contamina-
tion at certain property in Cuba, Missouri, which had been leased by the
Company from 1985 to 1992. The landlord has undertaken to remediate this
property at its own expense. The Company has negotiated the termination of
all obligations of the Company with respect to the lease.
As a result of the environmental investigation conducted as part of
its due diligence during the acquisition of the three Premix/E.M.S. Inc.
facilities, the Company identified a number of environmental concerns.
Premix/E.M.S. Inc., as part of the acquisition agreement, agreed to pursue
and address these concerns, most of which it has completed. Pursuant to
the acquisition agreement, the Company performed certain post-acquisition
investigations which appeared to confirm the presence of subsurface con-
tamination, of which it has informed Premix/E.M.S. Inc. Under the acquisi-
tion agreement, Premix/E.M.S. Inc. is obligated to undertake necessary re-
mediation of this problem, if in fact any is required. Premix/E.M.S. Inc.
has entered into an Environmental Indemnification Agreement for the bene-
fit of the Company and has granted to the Company certain limited rights
of offset against the Convertible Debenture. The shareholders of Premix-
/E.M.S. Inc. have also severally undertaken to reimburse the Company in
certain limited circumstances, to the extent of distributions received by
them from Premix/E.M.S. Inc., and to the extent that Premix/E.M.S. Inc.
does not directly satisfy its indemnification obligations.
ITEM 2. PROPERTIES
The Company's manufacturing operations are performed at seven plants
located in Seabrook, New Hampshire; Conneaut, Ohio; Hillsdale, Michigan;
Madison, Indiana; Lancaster, Ohio; Hartford City, Indiana; and Portland,
Indiana. The Seabrook plant is owned by the Company and consists of an ap-
proximately 390,000 square foot building. The Company's executive offices
are located in the Seabrook plant. The Conneaut plant is leased by the
Company and consists of an approximately 183,000 square foot building. The
Hillsdale plant is owned by the Company and consists of an approximately
119,000 square foot building. The Madison plant is owned by the Company
and consists of a 71,000 square foot building. The Lancaster plant is
owned by the Company and consists of an approximately 156,000 square foot
building. The Hartford City plant is owned by the Company and consists of
an approximately 116,000 square foot building. The Portland plant is owned
by the Company and consists of an approximately 120,000 square foot build-
ing. The Dearborn engineering and design center is leased by the Company
and consists of approximately 9,500 square feet of office space.
The Company believes that its facilities and equipment are in good
condition and, including planned additions to and refurbishment of machin-
ery and equipment, its existing facilities will be adequate for the fore-
seeable future.
ITEM 3. LEGAL PROCEEDINGS
Other than the matters set forth in Item 2, Section XI ("Environmental
Matters") above, the following is the only material pending legal proceed-
ing to which the Company is a party or as to which any of its property is
subject.
SUNA ET AL. V. BAILEY CORPORATION
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 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 intends to move to dismiss
this complaint also and the action in its entirety. If this effort is un-
successful, the Company intends vigorously to assert defenses which it be-
lieves to be meritorious. The complaint does not specify an amount of dam-
ages and the proceeding is still in its infancy. The extent of any expo-
sure of the Company, therefore, cannot be determined at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock has been quoted on the NASDAQ-National Market System
("NASDAQ- NMS") under the trading symbol "BAIB" since July 1, 1993. Prior
to that time, the Common Stock was quoted on the NASDAQ-Small Cap Market
and traded on the Boston Stock Exchange.
The following table sets forth, on a fiscal quarterly basis, the high
and low closing sale price for the period from the beginning of the fiscal
quarter ended October 30, 1993 through the close of fiscal year 1995 on
NASDAQ-NMS:
HIGH LOW
FISCAL 1995
First Quarter Ended October 30, 1994 $ 7 3/4 $ 5 3/4
Second Quarter Ended January 29, 1995 9 6 3/4
Third Quarter Ended April 30, 1995 7 3/4 5 7/8
Fourth Quarter Ended July 30, 1995 7 5/8 4 1/2
FISCAL 1994
First Quarter Ended October 30, 1993 $13 3/4 $10 1/2
Second Quarter Ended January 29, 1994 16 1/2 11 1/2
Third Quarter Ended April 30, 1994 15 7/8 9
Fourth Quarter Ended July 31, 1994 11 5 1/4
As of October 23, 1995, there were 563 record holders of Common Stock.
The Company has never paid cash dividends on the Common Stock. The
Company intends to retain all earnings for general corporate purposes and
does not anticipate paying cash dividends on the Common Stock in the fore-
seeable future. The Company's credit agreement with its principal bank
lender does not permit the payment of cash dividends on the capital stock
of the Company without the lender's prior consent.
ITEM 6. SELECTED FINANCIAL DATA
BAILEY CORPORATION AND SUBSIDIARIES
FOR THE FISCAL YEARS ENDED 1995, 1994, 1993, 1992 AND 1991
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1995 1994 1993 1992 1991
Operating Data:
Net sales $ 168,228 $ 108,313 $ 91,398 $ 56,127 $ 23,954
Cost of products sold 151,414 92,379 77,010 48,360 21,285
Selling, general and adminis-
trative expenses 15,300 9,313 7,366 4,515 4,324
Interest 3,871 1,648 1,913 1,607 1,284
Provision for income taxes
(benefit) (778) 2,207 2,044 639 (975)
Net Income (loss) $ (1,579) $ 2,766 $ 3,065 $ 1,006 $ (1,964)
Per Share Data:
Net income (loss) $ (.29) $ .52 $ .73 $ .26 $ (.52)
Weighted Average Shares
Outstanding 5,444,000 5,356,000 4,187,000 3,941,000 3,744,000
Financial Position -- Year End:
Working capital (deficiency) $ (2,082) $ 7,566 $ (1,487) $ (5,004) $ (4,713)
Total assets 100,721 91,721 52,210 38,821 24,289
Short-term debt including cur-
rent portion of long-term
debt and bank overdraft 18,710 5,857 10,836 9,812 7,563
Long-term debt and capital
leases 33,136 35,438 16,674 11,830 6,761
Common stockholders' equity 18,880 20,600 6,988 2,020 839
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain
categories of costs and expenses to net sales for the fiscal years presented:
Fiscal Years Ended
JULY 30, July 31, July 31,
1995 1994 1993
Net sales 100.0% 100.0% 100.0%
Cost of products sold 90.0 85.3 84.3
Gross profit 10.0 14.7 15.7
Selling, general and administrative expenses 9.1 8.6 8.0
Operating income 0.9 6.1 7.7
Interest expense (net) 2.3 1.5 2.1
Income (loss) before income taxes (1.4) 4.6 5.6
Provision for income tax (benefit) (0.5) 2.0 2.2
Net income (loss) (0.9 %) 2.6% 3.4%
1995 COMPARED TO 1994
The Company made the Premix/EMS Acquisition effective July 31, 1994,
and the Contour Acquisition on July 1, 1993. Accordingly, the historical results
of operations exclude the Premix/EMS Acquisition for 1994 and 1993 and include
the Contour Acquisition for one month in 1993.
Net sales in fiscal 1995 increased $59.9 million, or 55.3 % to $168.2
million, compared to $108.3 million in fiscal 1994. The increased sales are net
of planned price decreases that were effected during the year. Contributing to
the sales increase was $55.3 million of sales of the product lines purchased in
the Premix/EMS Acquisition; $9.6 million from 27 new components introduced
during the year; and $5.9 million from higher unit deliveries of 33 components
carried over from the prior year. These higher sales were offset by $10.9
million of lower sales of 50 components carried over from the prior year. The
most significant products in this category were 6 components for the Ford
Tempo/Topaz which phased out of production early in the year, and 23 components
for the Taurus/Sable which phased out at the beginning of the fourth quarter
contributing to a substantially lowered level of sales in the fourth fiscal
quarter and a net reduction for the full fiscal year.
The new product introductions during the year were primarily for the
restyled 1995 Ford Explorer sport utility vehicle and new models of the Channel
Master satellite dishes which accounted for 74.3% and 20.1%, respectively, of
the $9.6 million of new component sales.
Gross profit in fiscal 1995 increased 5.5%, to $16.8 million compared
to $15.9 million in the prior year. This increase was primarily due to the sales
volume increase resulting from the acquired Premix/EMS operations. As a
percentage of net sales, however, gross profit for fiscal 1995 declined to 10.0%
compared to 14.7% in fiscal 1994. The comparatively lower gross margin was
primarily attributable to (a) the lower average gross margin associated with the
product lines acquired in the Premix/EMS Acquisition; (b) new product launch
costs; (c) under-utilization of manufacturing capacity particularly during the
second half of the fiscal year; (d) planned price decreases effected during the
year, and (e) the gradual replacement during the year of more mature product
lines with newly introduced lower margin components.
Selling, general and administrative expenses in fiscal 1995 increased
$6.0 million, or 64.3%, to $15.3 million compared to $9.3 million in fiscal
1994. The year-to-year increase was principally due to the addition of selling
and administrative expenses associated with the acquired Premix/EMS operations
and in part due to planned increases in design engineering and program
management functions. As a percentage of net sales, selling, general and
administrative expenses increased to 9.1% in fiscal 1995 compared to 8.6% in
fiscal 1994.
Interest expense in fiscal 1995 increased $2.2 million, or 135%, to
$3.9 million compared to $1.7 million in fiscal 1994. The increase was due to
the additional interest associated with $23.0 million of debt issued to finance
the purchase of the Premix/EMS acquisition and increased utilization of the
Company's revolving line-of-credit.
Before provision for income taxes, the Company incurred a loss of $2.4
million for the fiscal year ended July 30, 1995 compared to pre-tax income of
$5.0 million for the prior year. Accordingly, the Company was able to avail
itself of income tax benefits attributable to the fiscal 1995 net operating loss
carried back to prior years. The benefit thus recognized was at an effective
rate of 33% compared to a tax expense rate of 44% for fiscal 1994.
For the fiscal year ended July 30, 1995, the Company incurred a net
loss of $1.6 million, or $.29 per share, compared to net income of $2.8 million,
or $.52 per share in fiscal 1994. This negative operating performance for fiscal
1995 was most pronounced in the fourth quarter. For the fourth quarter ended
July 30, 1995, on sales of $34.3 million the Company incurred a net loss of $4.2
million or $.77 per share. These adverse operating results were caused by the
stretching out of new product launching activities, greater than planned
acquisition assimilation costs, certain raw material cost increases and a
shortfall in sales during the final four months of the year.
1994 COMPARED TO 1993
The Company made the Premix/EMS Acquisition effective July 31, 1994,
and the Contour Acquisition on July 1, 1993. Accordingly, the historical results
of operations exclude the Premix/EMS Acquisition for both 1994 and 1993 and
include the Contour Acquisition for one month in 1993.
Net sales in fiscal 1994 increased $16.9 million, or 18.5% to $108.3
million, compared to $91.4 million in fiscal 1993. The increased sales are net
of planned price decreases that were effected during the year. Contributing to
the sales increase was $12.1 million from 19 new components introduced during
the year; $17.0 million of sales of the product line purchased in the Contour
Acquisition; and $2.5 million from higher unit deliveries of 27 components
carried over from the prior year. These increases were offset by a $10.7 million
decline in sales resulting from a reduction in unit deliveries of 39 components
carried over from the prior year.
The new product introductions during the year were primarily for the
new 1994 Ford Mustang and the new Thunderbird which accounted for 61.0% and
38.6% of the $12.1 million of new component sales, respectively. The sales
decline in carryover products was primarily associated with the Tempo/Topaz,
Taurus/Sable and Explorer which were lower in fiscal 1994 compared to fiscal
1993 by 32.3%, 14.2% and 13.0%, respectively.
Gross profit in fiscal 1994 increased $1.5 million, or 10.7%, to $15.9
million compared to $14.4 million in the prior year. This increase was primarily
due to increased sales compared to fiscal 1993. As a percentage of net sales,
gross profit for fiscal 1994 declined to 14.7% compared to 15.7% in fiscal 1993.
The reduction in gross margin was primarily attributable to (a) planned price
decreases effected during the year; (b) comparatively lower sales of components
for the Tempo/Topaz, Explorer and Taurus/Sable programs which, as more mature
products, had provided a greater contribution to manufacturing margins; (c)
under-utilized capacity during most of the year at the Hillsdale and Madison
facilities; and (d) product launch costs associated with the start-up of the
Ford Mustang and Thunderbird programs and the transfer of production of the
Mercury Villager and Nissan Quest components to one of the facilities purchased
in the Contour Acquisition.
The negative impact on gross margin for fiscal 1994 resulting from the
foregoing factors was nevertheless offset by several planned manufacturing
productivity improvements effected during the year. These included (a) material
usage reductions and labor efficiencies gained from additions to robotics in
both molding and painting processes; (b) revisions to fixtures used in some
operations; (c) improvements in packaging; and (d) changes in material handling
techniques.
Selling, general and administrative expenses in fiscal 1994 increased
$1.9 million, or 26.4%, to $9.3 million compared to $7.4 million in fiscal 1993.
The year-to-year increase was principally due to planned additions to design
engineering, marketing, program management and senior management functions. As a
percentage of net sales, selling, general and administrative expenses increased
to 8.6% in fiscal 1994 compared to 8.0% in fiscal 1993.
Interest expense in fiscal 1994 decreased $265,000, or 13.9%, to $1.6
million compared to $1.9 million in fiscal 1993. The decrease was due to a lower
average amount of short-term borrowings and long-term debt outstanding during
fiscal 1994 compared to the prior year.
The Company's effective tax rate was 44.4% for fiscal 1994 compared to
40.0% for fiscal 1993. The higher rate for fiscal 1994 is due to (a) the
adoption by the Company during the year of Financial Accounting Standards Board
Statement 109 which resulted in a one-time, non-tax deductible charge of $84,000
and (b) the recognition during the year of a non-tax deductible charge of
$300,000 related to an environmental settlement.
Net income in fiscal 1994 decreased $299,000 to $2.8 million ($.52 per
fully diluted share) compared to $3.1 million ($.73 per fully diluted share) in
fiscal 1993. As a percentage of net sales, net income in fiscal 1994 was 2.6%
compared to 3.4% in fiscal 1993. Fully diluted per share amounts reflect a 27.9%
increase in shares outstanding, calculated on a weighted average of 5,356,000
shares outstanding in fiscal 1994 compared to 4,187,000 shares outstanding in
fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
At the inception of the fiscal year ended July 30, 1995 the Company
acquired substantially all of the assets of Premix/E.M.S. Inc. for an aggregate
purchase price of $34.5 million. The acquisition was financed via issuance to
the Sellers of a $7.0 million secured promissory note plus a $9.0 million
convertible debenture, payment in cash of $9.9 million, and the assumption of
$8.6 million of current liabilities. In connection with the Acquisition, the
Company negotiated an amended credit agreement with a bank which, with
amendments, provided a new $8.0 million term loan, a revolving line-of-credit of
$24.0 million and an equipment lease line-of-credit of $2.5 million. By
subsequent amendment, $4.0 million of the revolver was carved out into a 3-year
fixed maturity note.
During the fiscal year ended July 30, 1995, the Company operated at an
expanded level primarily due to the addition of the sales volume and facilities
purchased in the Premix/EMS Acquisition. The increased operating rate required
increased investments in inventories and reimbursable automation equipment.
Meanwhile planned capital expenditures plus assets acquired under capitalized
leases totaled $9.0 million. Also, during the last four months of the fiscal
year, sales declined as certain higher-margin products phased out while
launching of new products with associated start-up costs stretched out over
protracted schedules. Meanwhile, higher than planned acquisition assimilation
costs were incurred and several raw material suppliers posted price increases.
As a result, operations generated a $4.2 million net loss in the fourth quarter.
Faced with the reduced level of operating performance during the fourth
quarter, the Company accelerated measures to curtail costs and expenses. In this
connection, during August, 1995, the Company announced a temporary phasing down
of operations at its Portland, Indiana production facility and the transfer of
production to other Company plants to improve facility utilization. This plant
deactivation is planned for an interim period until product engineering and
development projects related to 1997 and 1998 programs are ready to be started
into production.
As a result of the foregoing, at July 30, 1995 total capitalization
amounted to $52.0 million with long-term debt at $33.1 million, or 63.7%, and
stockholders' equity of $18.9 million, or 36.3% of total capitalization.
Meanwhile, during July 1995 a fixed asset note due July 1, 1996 in the amount of
$5.0 million became a current liability thereby contracting net working capital
with the result that at July 30, 1995, the Company's current ratio was .95 to 1.
With these conditions developing, as of the end of the fourth quarter,
there were instances of non-compliance with technical covenants of the Company's
bank credit agreement. The bank has issued waivers and mutually satisfactory
amended covenants are being determined for subsequent periods.
Faced with contraction of liquidity, the Company put in place for
fiscal year 1996 operating plans, budgets and expenditure curtailments so as to
operate within prospective financial resources. These measures have begun to
show progress with the outlook that the Company anticipates that cash flow and
credit availability will be adequate to meet requirements including debt
retirement obligations for the next twelve months.
COSTS AND EXPENSES RELATED TO PROTECTION OF THE ENVIRONMENT
During fiscal 1995 the Company incurred costs and expenses, satisfied
certain liabilities and made capital expenditures in connection with on-going
management of compliance with environmental laws and regulations and in response
to mandated contributions to the remediation of contaminated sites as to which
it has been identified as a potentially responsible party ("PRP"). The expenses
of on-going compliance in fiscal 1995 amounted to approximately $598,000 and
consisted primarily of the removal of hazardous wastes generated at the
Company's operating facilities, monitoring, testing and reporting activities,
depreciation of control equipment and legal expense related to environmental
matters. These expenses in fiscal 1994 and 1993 were approximately $637,000 and
$669,000, respectively. In addition, as of May 1994, the Company incurred a
one-time charge of $300,000 as the cost of full and final settlement of claims
in the State of New Hampshire related to alleged instances of non-compliance
with certain hazardous waste handling regulations.
At July 30, 1995, and July 31, 1994, the Company's environmental
accruals totaled $289,000 and $322,000, respectively. The Company's fiscal 1995
share of mandated payments as a PRP for remediation of off-site locations
amounted to approximately $33,000, which was charged to previously accrued
liabilities. The Company believes that it has identified its potential
environmental exposures that are of a material nature and has accrued the low
end of the range of its likely exposure. The Company does not believe that any
additional liability relating to identified sites is material to its liquidity,
financial position or results of operations.
During fiscal 1996 the Company expects that on-going costs of
compliance with environmental regulations will be approximately $725,000.
Capital expenditures related to environmental matters in fiscal 1996 are
expected to be approximately $650,000.
CLASS ACTION LITIGATION
In July 1994, the Company was served with a summons and complaint with
respect to 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 sought to rebuff the
plaintiff's attempt to file an amended complaint. However, the Court allowed the
plaintiffs to make one more attempt and on September 1, 1995, a second amended
complaint was filed. The Company has moved to dismiss this amended complaint and
the action in its entirety. The Court's decision is pending. Since the complaint
does not specify an amount of damages and the proceeding is still in its early
stages, the extent of the Company's exposure cannot be determined at this time.
However, should this action proceed, the Company intends to vigorously assert
defenses which it believes to be meritorious.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BAILEY CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Report of Independent Auditors 16
Consolidated Balance Sheets -- July 30, 1995 and July 31, 1994 17
Consolidated Statements of Operations for the Fiscal Years ended 1995, 1994
and 1993 18
Consolidated Statements of Stockholders' Equity for the Fiscal Years ended
1995, 1994 and 1993 19
Consolidated Statements of Cash Flows for the Fiscal Years ended 1995, 1994
and 1993 20
Notes to Consolidated Financial Statements 21
SCHEDULES
II Valuation and Qualifying Accounts for the Fiscal Years ended 1995,
1994 and 1993 36
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is included in the financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BAILEY CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Bailey
Corporation and subsidiaries as of July 30, 1995, and July 31, 1994, and
the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended July
30, 1995. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as
listed in the accompanying index. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consoli-
dated financial statements and financial statement schedule 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
Bailey Corporation and subsidiaries as of July 30, 1995 and July 31, 1994,
and the results of their operations and their cash flows for each of the
years in the three-year period ended July 30, 1995, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
October 25, 1995
BAILEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 30, 1995 AND JULY 31, 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1995 1994
ASSETS
Current assets:
Cash $ 313 $ 201
Restricted cash (Note 8) 817 500
Accounts receivable, net of allowances of $763 in 1995 and $215 in 1994
(Note 7) 13,751 19,809
Inventories (Notes 3 and 7) 18,325 15,500
Prepaid expenses and other current assets (Note 4) 4,026 1,419
Deferred income taxes (Note 11) 3,709 1,142
Total current assets 40,941 38,571
Property, plant and equipment, net (Notes 2, 5 and 8) 50,391 43,240
Other assets, net (Note 6) 9,389 9,910
$ 100,721 $ 91,721
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 1,585 $ 321
Short-term debt (Note 7) 9,360 3,846
Current portion of long-term debt (Note 8) 7,765 1,690
Accounts payable 18,611 18,554
Accrued liabilities and other current liabilities 5,535 6,468
Income taxes payable (Note 11) 167 126
Total current liabilities 43,023 31,005
Long-term debt, less current portion (Note 8) 33,136 35,438
Other long-term liabilities (Note 9) 2,245 2,104
Deferred income taxes (Note 11) 3,437 2,574
Commitments and contingencies (Note 15) -- --
Total liabilities 81,841 71,121
Stockholders' equity (Note 12):
Common stock, $.10 par value, 20,000,000 shares authorized; 5,393,558 and
5,382,058 shares issued in 1995 and 1994, respectively 539 538
Additional paid-in capital 13,805 13,587
Retained earnings 5,202 6,781
Minimum pension liability adjustment (Note 10) (403) (306)
Treasury stock, 40,000 shares at cost (263) --
Total stockholders' equity 18,880 20,600
$ 100,721 $ 91,721
See accompanying notes to consolidated financial statements.
BAILEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1995 1994 1993
Net sales (Note 13) $ 168,228 $ 108,313 $ 91,398
Cost and expenses:
Cost of products sold 151,414 92,379 77,010
Selling, general and administrative expenses 15,300 9,313 7,366
Operating income 1,514 6,621 7,022
Interest expense (net) (3,871) (1,648) (1,913)
Income (loss) before income taxes (2,357) 4,973 5,109
Income tax provision (benefit) (Note 11) (778) 2,207 2,044
Net income (loss) $ (1,579) $ 2,766 $ 3,065
Net income (loss) per common share:
Primary $ (.29) $ .52 $ .80
Fully diluted $ (.29) $ .52 $ .73
Weighted average shares outstanding:
Primary 5,444,000 5,313,000 3,842,000
Fully diluted 5,444,000 5,356,000 4,187,000
See accompanying notes to consolidated financial statements.
BAILEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED 1995, 1994 AND 1993
(IN THOUSANDS)
COMMON STOCK
MINIMUM
ADDITIONAL PENSION
PAID-IN RETAINED LIABILITY TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
Balance July 26, 1992 3,744 $ 374 $ 696 $ 950 $ -- $ -- $ 2,020
Private placement of common
stock (Note 12) 327 33 1,870 -- -- -- 1,903
Net income -- -- -- 3,065 -- -- 3,065
Balance July 31, 1993 4,071 407 2,566 4,015 -- -- 6,988
Public offering of common
stock (Note 12) 1,076 108 10,488 -- -- -- 10,596
Exercise of stock options
(Note 12) 119 12 439 -- -- -- 451
Exercise of warrants (Note
12) 116 11 (11) -- -- -- --
Tax benefit from exercise of
stock options (Note 11) -- -- 105 -- -- -- 105
Minimum pension liability ad-
justment (Note 10) -- -- -- -- (306) -- (306)
Net income -- -- -- 2,766 -- -- 2,766
Balance July 31, 1994 5,382 538 13,587 6,781 (306) -- 20,600
Purchase of treasury stock -- -- -- -- -- (263) (263)
Exercise of stock options
(Note 12) 12 1 25 -- -- -- 26
Tax benefit from exercise of
stock options (Note 11) -- -- 193 -- -- -- 193
Minimum pension liability ad-
justment (Note 10) -- -- -- -- (97) -- (97)
Net loss -- -- -- (1,579) -- -- (1,579)
Balance at July 30, 1995 5,394 $ 539 $ 13,805 $ 5,202 $ (403) $ (263) $ 18,880
See accompanying notes to consolidated financial statements.
BAILEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED 1995, 1994 AND 1993
(IN THOUSANDS)
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ (1,579) $ 2,766 $ 3,065
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 5,268 3,120 2,353
Loss (gain) on disposal of property, plant and equipment 2 (23) (27)
Deferred income taxes (1,433) 1,010 672
Gain on early payment of debt -- (165) --
Change in assets and liabilities, net of effects of acquisi-
tions:
Decrease (increase) in accounts receivable 6,058 (1,146) (1,227)
(Increase) decrease in inventory (2,825) 158 (2,392)
(Increase) decrease in prepaid expenses and other current
assets (2,607) (208) 116
Increase in other assets -- net (3,035) (1,724) (306)
Increase (decrease) in accounts payable 57 2,390 (1,137)
(Decrease) increase in accrued liabilities and other cur-
rent liabilities (453) (561) 475
Increase (decrease) in income taxes payable 234 (1,107) 1,248
(Decrease) increase in other liabilities (227) 278 (138)
Net cash (used in) provided by operating activities (540) 4,788 2,702
Cash flows from investing activities:
Capital expenditures (7,506) (4,333) (4,011)
Acquisition of businesses, net of cash acquired (723) (9,375) (73)
Proceeds from sale of property and equipment 36 77 316
Net cash used in investing activities (8,193) (13,631) (3,768)
Cash flows from financing activities:
Increase (decrease) in short-term debt (including bank over-
drafts), net 6,778 (3,800) 1,151
Proceeds from long-term borrowings 4,000 8,000 --
Payments on long-term debt and capital leases (1,696) (6,459) (4,010)
Issuance of 9% convertible subordinated promissory notes -- -- 1,278
Proceeds from issuance of common stock -- 10,596 1,875
Proceeds from exercise of stock options 26 451 --
Purchase of treasury stock (263) -- --
Decrease in restricted cash -- -- 845
Net cash provided by financing activities 8,845 8,788 1,139
Net increase (decrease) in cash 112 (55) 73
Cash, beginning of year 201 256 183
Cash, end of year $ 313 $ 201 $ 256
See accompanying notes to consolidated financial statements.
BAILEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR FISCAL YEARS ENDED 1995, 1994 AND 1993
(1) SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Bailey Corporation (the "Company") is a manufacturer of high quality
molded plastic exterior components for sale to automobile manufacturers.
Customers include original equipment manufacturers and other suppliers to
the automobile industry in the United States and Canada.
Fiscal Year
The fiscal year of the Company ends on the nearest Sunday prior to or
at July 31. All references herein to 1995, 1994, and 1993 mean the fiscal
years ended July 30, 1995, July 31, 1994, and July 31, 1993, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Com-
pany and its wholly owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market (net realizable value).
Depreciation and Amortization
Depreciation and amortization is provided on a straight-line basis
over the estimated useful lives of owned assets. Assets held under capital
leases are depreciated over their respective lease term. The following is
a summary of estimated useful lives:
Land improvements 5 years
Buildings and improvements 15-30 years
Machinery and equipment 3-11 years
Goodwill
Goodwill consists principally of excess purchase price over fair mar-
ket value of net assets acquired, and is being amortized over 40 years
using the straight-line method.
Deferred Tooling, Design and Pre-production Costs
Unreimbursed costs incurred in excess of reimbursements for customer- owned
tooling are recorded as deferred tooling costs. Costs incurred for the design of
components to be built for customers are recorded as de- ferred design,
engineering and pre-production costs. These costs are amortized based on units
produced in each year over the term of production contracts (generally 3 to 5
years) to which the tooling, design and pre-production costs relate.
Reimbursable Deferred Automation
In connection with production programs, the Company purchases automa-
tion equipment for which it is reimbursed by the customer on a per piece
shipped basis. Amounts estimated to be reimbursed in the succeeding twelve
months are classified as current. Reimbursements estimated to be received
beyond one year are included in other assets. Imputed interest on such re-
imbursements are recognized as shipments are made. Title to the equipment
reverts to the customer upon completion of the production program.
Earnings per Share
Earnings per share are calculated by dividing net income by the
weighted average common shares outstanding during each period, including
the dilutive effect of warrants and options outstanding during the period.
Fully diluted earnings per share also include the assumed conversion of
convertible debt. In fiscal 1995 warrants, options and convertible debt
were anti-dilutive, and accordingly, have not been included in the calcu-
lation.
Income Taxes
Amounts in the financial statements related to income taxes are calcu-
lated using the principles of Financial Accounting Standards Board State-
ment No.109, "Accounting for Income Taxes" (FAS 109). Prepaid and deferred
taxes reflect the impact of temporary differences between the amounts of
assets and liabilities recognized for financial reporting purposes and the
amounts recognized for tax purposes. These deferred balances are measured
by applying currently enacted tax rates. A valuation allowance reduces de-
ferred tax assets when it is "more likely than not" that some portion or
all of the deferred tax assets will not be recognized.
Prior to the adoption of the provisions of Statement No. 109, the Com-
pany accounted for income taxes under the deferred method (APB 11). APB 11
required deferred income taxes to be recognized for income and expense
items reported in different years for financial reporting and income tax
purposes using current tax rates. Under the deferred method, deferred
taxes are not adjusted for subsequent changes in tax rates.
Revenue Recognition
Sales are recognized upon shipment of products to customers.
(2) BUSINESS ACQUISITIONS
Effective July 31, 1994, the Company acquired substantially all of the
assets of Premix/EMS Inc. (the "Premix/EMS Acquisition"), a manufacturer
of automotive molded plastic exterior components, for an aggregate pur-
chase price of $34,484,000, subject to post-closing adjustments. Payment
consisted of a secured five year promissory note in the principal amount
of $7,000,000, bearing interest annually at a floating prime rate; a five-
year convertible debenture in principal amount of $9,000,000, bearing in-
terest at a fixed rate of 8% per annum, and convertible into Bailey Corpo-
ration common stock at $10 per share; cash of $9,855,000 less $480,000
held pending satisfaction of certain conditions (in fiscal 1995, this
amount was fully paid); and assumption of certain liabilities totaling
$8,629,000. The acquisition has been accounted for as a purchase with the
purchase price allocated over the estimated fair value of the assets and
liabilities assumed, resulting in goodwill of $3,227,000 at July 31, 1994.
The determination of the final purchase price was subject to a post-
closing audit which was completed in fiscal year 1995. As a result of the
audit and receipt of final appraisals of the fair market value of the net
assets acquired, the entire amount of goodwill was reclassified to machin-
ery and equipment in the fourth quarter. Additionally, the Company has un-
successfully sought recovery of a portion of the purchase price and has
instituted arbitration procedures with the sellers. It is anticipated that
the arbitration process will be resolved in the second quarter of fiscal
1996. Should any of the purchase price be recovered, it will reduce the
recorded values of the acquired property, plant and equipment.
On July 1, 1993, the Company acquired certain assets totaling
$7,801,000 and assumed certain liabilities totaling $1,580,000 of the Con-
tour Technologies Division of the Boler Company (the "Contour Acquisi-
tion"), a manufacturer of automotive plastic parts. Payment consisted of a
fixed asset note in the principal amount of $5,047,000 payable on July 1,
1996 with certain extension provisions (Note 8), bearing interest at 8%
per annum; and a working capital note in the principal amount of
$1,174,000 bearing interest at 8% and payable weekly from the proceeds of
the acquired accounts receivable. The acquisition has been accounted for
as a purchase with the purchase price allocated over the fair value of the
assets acquired and liabilities assumed. The operating results of Contour
Technologies have been included in the consolidated operating results
since the date of acquisition.
The following unaudited pro forma summary presents the consolidated
results of operations assuming that the Premix/EMS Acquisition occurred at
the beginning of fiscal 1994, after giving effect to certain adjustments,
including interest expense on the acquisition debt and related income tax
effects. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had
the Premix/EMS Acquisition been made as of that date or of results which
may occur in the future.
FISCAL YEAR ENDED
JULY 31, 1994
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net sales $ 166,894
Net (loss) $ (1,573)
Net (loss) per share $ (.29)
(3) INVENTORIES
Inventories consist of the following (in thousands):
1995 1994
Raw materials $ 7,424 $ 7,433
Work-in-process 2,555 2,480
Finished goods 2,745 3,548
Tooling 5,601 2,039
$18,325 $15,500
(4) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following (in
thousands):
1995 1994
Prepaid insurance $ 595 $ 202
Prepaid expenses 430 206
Miscellaneous receivables 614 828
Other 99 183
Reimbursable deferred automation (Note 1) 1,240 --
Income taxes receivable 1,048 --
$4,026 $1,419
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and consists of the
following (in thousands):
1995 1994
Land and improvements $ 1,098 $ 1,095
Buildings and improvements 16,557 14,200
Machinery and equipment 51,791 41,870
Total 69,446 57,165
Less accumulated depreciation (19,055) (13,925)
Net $ 50,391 $ 43,240
Included in property, plant and equipment is equipment held under cap-
italized leases. This equipment has a cost basis of $5,685,000 and
$4,237,000 at July 30, 1995, and July 31, 1994, respectively. Accumulated
depreciation relating to this equipment amounted to $1,874,000 and
$1,443,000 at July 30, 1995, and July 31, 1994, respectively.
Depreciation expense, including amortization of capitalized leases,
was $5,256,000, $3,108,000, $2,341,000, in fiscal 1995, 1994, and 1993,
respectively.
(6) OTHER ASSETS
Other assets consist of the following (in thousands):
1995 1994
Goodwill, net of accumulated amortization of $48 and $36 in 1995
and 1994 (Note 2) $ 410 $3,649
Deferred tooling, design, and pre-production costs (Note 1) 4,782 3,654
Reimbursable deferred automation, net of current portion of
$1,240 (Note 1) 2,144 --
Pension intangible assets and prepaid costs (Note 10) 1,446 1,583
Restricted Cash (Note 8) -- 317
Other assets, net 607 707
$9,389 $9,910
Amortization of goodwill amounted to $12,000 in each of the fiscal
years 1995, 1994, and 1993.
(7) SHORT-TERM DEBT
Short-term debt consists of the revolving credit facility which car-
ried a balance of $9,360,000 and $3,846,000 at July 30, 1995, and July 31,
1994, respectively.
In connection with the Premix/EMS Acquisition (Note 2), the Company
renegotiated its credit agreement with a bank. The agreement consists of a
term note with an initial advance of $8,000,000 (Note 8). Additionally,
the Company maintains a revolving credit facility with a maximum avail-
ability of $24,000,000, subject to certain limitations based on the levels
of accounts receivable and inventory.
On July 28, 1995, the Company elected to issue a $4,000,000 Fixed Ma-
turity Carve Out Note under the existing credit agreement which reclassi-
fied $4,000,000 of outstanding borrowings under the revolving credit fa-
cility to long term debt. The Fixed Maturity Carve Out Note is due in its
entirety on August 1, 1998, provided that no event of default has occurred
prior to the due date.
Obligations to the bank are secured by substantially all assets of the
Company. The term note bears interest at the bank's prime rate (8.75% at
July 30, 1995) plus 0.5%. The revolving credit facility and the Fixed Ma-
turity Carve Out Note bear interest at the bank's prime rate. The credit
agreement includes, among other provisions, restrictive covenants relating
to the maintenance of certain financial and earnings ratios, prohibits the
payment of cash dividends, and restricts the incurrence of additional
debt, except with approval of the bank. As of July 30, 1995 as to certain
of these covenants there were conditions of non-compliance by the Company.
The bank has issued waivers and has agreed to determine mutually satisfac-
tory covenants for subsequent periods.
(8) LONG-TERM DEBT
Long term debt outstanding consists of the following (in thousands):
1995 1994
Term note payable to bank (Note 7) $ 7,333 $ 8,000
Fixed Maturity Carve Out Note (Note 7) 4,000 --
Ohio Bond Fund(a) 2,476 2,730
Fixed asset note(b) 5,047 5,047
Secured promissory note(c) 7,000 7,000
8% convertible debenture(d) 9,000 9,000
Industrial Revenue Bonds at various rates from 5% to 7% and due
in varying amounts to 2003 975 1,198
Capital lease obligations, at various rates from 8.5% to 13.0%
and due in varying amounts to 2003 3,820 2,903
Total secured debt 39,651 35,878
9% convertible subordinated notes(e) 1,250 1,250
40,901 37,128
Less amounts payable in one year 7,765 1,690
$33,136 $35,438
(a) This funding was received from the Director of Development of the
State of Ohio in the form of a long term lease. Ten percent or
$317,000 was withheld to reduce the amount of the final payment and an
additional $500,000 was withheld as additional security for payments
under the lease. Both are reflected as restricted cash under current
assets. In August 1995, the Company filed an application with the Di-
rector of Development for the State of Ohio requesting conversion of
both restricted cash amounts ($817,000) to letters of credit, accord-
ingly it is anticipated that these funds will be collected within fis-
cal year 1996.
(b) This note relates to the Contour Acquisition (Note 2) and is payable
by July 1, 1996 (the "Fixed Asset Note Extension Date"). The note
bears interest at the rate of 8% and is secured by the acquired equip-
ment and by mortgages on each of the Hillsdale and Madison properties.
If the Company fails to pay the entire principal on or prior to the
Fixed Asset Note Extension Date, the principal shall be increased by
(i) an amount equal to 17.65% of the principal plus (ii) the interest
that would have accrued from closing to the Fixed Asset Note Extension
Date at an interest rate of 8%. Principal would then mature and be
payable in annual installments of $1,000,000 on July 1, 1996 and 1997,
with the remaining unpaid balance due on July 1, 1998. It is manage-
ment's intention to pay this note in full by July 1, 1996.
(c) This note relates to the Premix/EMS Acquisition (Note 2). Principal
payments of $625,000 are to be made bi-annually beginning on January
31, 1996, with a final installment of $2,625,000 due on July 31, 1999.
The note bears interest at a floating prime rate and is secured by the
acquired property, plant and equipment.
(d) This note relates to the Premix/EMS Acquisition (Note 2) and matures
on July 31, 1999. The note is convertible into Bailey Corporation com-
mon stock at $10 per share and requires the Company to obtain an ef-
fective registration statement to register the "convertible shares."
(e) These notes were issued through a private placement during April 1993
(Note 12). The notes are convertible into common stock in the Company
at $10 per share, and mature in the year 2000.
Aggregate principal payments due over the next five years (and there-
after) are as follows for the fiscal years ending (in thousands):
July 28, 1996 $ 7,765
July 27, 1997 3,472
July 26, 1998 3,827
July 25, 1999 5,486
July 31, 2000 18,902
Thereafter 1,449
$40,901
(9) OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following (in thousands):
1995 1994
Additional minimum pension liability (Note 10) $1,848 $1,635
Deferred gain on sale of equipment 108 147
Environmental liability (Note 15) 289 322
$2,245 $2,104
(10) PENSION PLANS
The Company has various retirement plans covering substantially all
employees. The Company maintains five defined benefit pension plans cover-
ing certain full-time hourly and salaried employees. After meeting certain
qualifications, an employee acquires a vested right to future benefits.
The benefits payable under the plans are generally determined on the basis
of the employees' length of service and earnings. For all plans, the Com-
pany's funding policy is to make at least the minimum annual contributions
required by Federal law and regulation.
The components of net pension cost are as follows (in thousands):
1995 1994 1993
Service costs -- benefits earned during the period $ 316 $ 108 $ 199
Interest cost on projected benefit obligations 873 505 427
Return on assets (1,001) (108) (321)
Net amortization and deferral 450 (85) 101
Net pension cost $ 638 $ 420 $ 406
The funded status of the defined benefit plans was as follows (in
thousands):
1995 1994
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
Actuarial present value of benefit obligations:
Vested benefits $3,865 $ 6,231 $3,271 $ 4,962
Nonvested benefits 181 346 275 319
Effect of union negotiations -- -- -- 692
Accumulated benefit obligation 4,046 6,577 3,546 5,973
Projected benefit obligation 4,770 6,968 4,096 5,973
Market value of plan assets 5,181 4,438 4,596 3,469
Excess (deficiency) of assets over projected benefit
obligation 411 (2,530) 500 (2,504)
Unrecognized net loss 330 674 162 325
Unrecognized prior service costs -- 879 -- 973
Unrecognized net transition obligation -- 294 -- 336
Prepaid (accrued) pension cost $ 741 $ (683) $ 662 $ (870)
An additional liability of $1,848,000 and $1,635,000 related to cer-
tain plans has been included in other long-term liabilities at July 30,
1995 and July 31, 1994, respectively, to reflect the required minimum lia-
bility for unrecognized prior service costs. As a result of recording this
additional liability the Company recorded a reduction to stockholders' eq-
uity of $403,000 at July 30, 1995, and an adjustment of $306,000 at July
31, 1994, net of applicable deferred income taxes. In addition, an intan-
gible asset in the amount of $1,173,000 and $1,309,000 has been included
in other assets at July 30, 1995, and July 31, 1994, respectively, to re-
flect the allowable asset recognizable up to the amount of unrecognized
prior service costs.
The weighted-average assumed discount rate and rate of return on plan
assets was 8% and 8.5% in 1995 and 1994. The expected rate of increase in
compensation levels used was 4.5% for both 1995 and 1994.
Plan assets consist principally of cash and cash equivalents, listed
common stocks, debentures, and fixed income securities.
On December 31, 1992, a salaried pension plan was frozen and no fur-
ther service liability will accrue under the plan. Effective January 1,
1993, a defined contribution plan was established whereby eligible employ-
ees may contribute up to 10% of their salary, with a dollar-for-dollar
match by the Company of up to 2% of an employee's salary. The Company re-
corded expense under this plan of $286,000, $220,000 and $148,800 for
1995, 1994 and 1993, respectively.
During fiscal year 1994 the Company and the Union agreed to tempo-
rarily freeze benefit accruals of the Bailey Hourly Pension Plan in con-
sideration for providing an increasing schedule of benefit levels during
the course of the bargaining agreement. The schedule of increasing monthly
benefit levels for each year of service is as follows for retirements
occurring on or after:
February 7, 1994 $18.00
June 8, 1995 $19.00
June 8, 1996 $20.00
June 8, 1997 $21.00
June 8, 1998 $22.00
(11) INCOME TAXES
As of August 1, 1993, the Company adopted Financial Accounting Stan-
dards Board Statement 109. The cumulative effect of this change in ac-
counting for income taxes was immaterial and was included in selling, gen-
eral and administrative expenses in the consolidated statement of opera-
tions for the year ended July 31, 1994. Prior years' financial statements
have not been restated to apply the provisions of Statement 109.
Total income tax expense (benefit) for the years ended July 30, 1995
and July 31, 1994 was allocated as follows (in thousands):
FISCAL YEARS ENDED
JULY 30, JULY 31,
1995 1994
Income from operations $(778) $2,207
Stockholders' equity, for compensation expense for tax pur-
poses in excess of amounts recognized for financial re-
porting purpose (193) (105)
$(971) $2,102
Income tax expense (benefit) from operations consists of (in thou-
sands):
CURRENT DEFERRED TOTAL
Year ended July 30, 1995:
U.S. Federal $ 513 $(1,218) $ (705)
State and local 142 (215) (73)
$ 655 $(1,433) $ (778)
Year ended July 31, 1994:
U.S. Federal $1,001 $ 698 $1,699
State and local 355 153 508
$1,356 $ 851 $2,207
Year ended July 31, 1993:
U.S. Federal $ 996 $ 672 $1,668
State and local 376 -- 376
$1,372 $ 672 $2,044
The differences between the statutory Federal rate and the effective
tax rate are as follows:
FISCAL YEARS ENDED
JULY 30, JULY 31, JULY 31,
1995 1994 1993
Statutory Federal income tax rate 34.0% 34.0% 34.0%
State taxes (benefit), net (3.1) 6.9 4.9
Environmental settlement -- 2.1 --
Other, net 2.1 1.4 1.1
33.0% 44.4% 40.0%
For the year ended July 31, 1993, deferred income tax expense of
$672,000 resulted in differences in the recognition of income and expense
for income tax and financial reporting purposes. The sources and tax ef-
fects of those timing differences are presented below (in thousands):
JULY 31,
1993
Alternative minimum tax $183
Depreciation 225
Pension (53)
Inventory (48)
Deferred tooling, design and pre-production costs 382
Other, net (17)
$672
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at July
30, 1995, and July 31, 1994 are presented below (in thousands):
JULY 30, JULY 31,
1995 1994
Deferred tax assets:
Accounts receivable $ 450 $ 43
Inventories 414 206
Other reserves and accruals 979 420
Minimum pension adjustment 271 --
Alternative minimum tax credit carryforwards 1,329 473
Net operating loss carryforwards 160 --
Environmental liability 106 --
Total deferred tax assets 3,709 1,142
Deferred tax liabilities:
Property, plant and equipment (2,732) (2,054)
Deferred tooling, design and pre-production costs (640) (506)
Other (65) (14)
Total deferred tax liabilities (3,437) (2,574)
Net deferred tax liabilities $ 272 $(1,432)
Management believes the Company will obtain the full benefit of State
net operating loss carryforwards and other temporary differences recorded
as deferred tax assets on the basis of its evaluation of the Company's an-
ticipated profitability over the period of years that the temporary dif-
ferences are expected to become tax deductions. It believes that suffi-
cient book and taxable income will be generated to realize the benefit of
these tax assets. This assessment of profitability takes into account the
Company's expected future earnings based on automotive supply contracts
awarded for parts to be produced beginning with the 1997 model year. Man-
agement also considered the fact that the Company has alternative minimum
tax credit carryforwards available to reduce future regular income taxes,
if any, over an indefinite period.
(12) STOCKHOLDERS' EQUITY
Public Offering
In September, 1993, the Company completed a public offering of
1,076,600 shares of its $.10 par value common stock. The net proceeds from
the offering of $10,596,000 were used to reduce short-term borrowings, pay
down certain long-term debt, retire the subordinated debentures payable to
related parties, and to fund working capital requirements.
Private Placement
During April 1993, the Company raised $3,125,000, before expenses,
from the private placement of 312,500 shares ($1,875,000) of the Company's
common stock, $.10 par value per share (the "Common Stock"), and
$1,250,000 of 9% Convertible Subordinated Notes maturing in the year 2000
(the "9% Notes"). The 9% Notes are convertible into Common Stock at $10.00
per share. In addition to the aforementioned issuance of 312,500 shares of
Common Stock, the Company issued 14,166 shares of its Common Stock in pay-
ment of a fee in connection with the private placement.
Common Stock Warrants
In addition to warrants issued with subordinated debentures issued in
June 1992, the Company, in connection with a financing agreement in 1988,
issued a warrant to a lender to purchase 115,794 shares of common stock at
$.0033 per share. The estimated value of this warrant at the time of issu-
ance was $175,000, which was recorded as a liability. The warrant was sub-
ject to certain put and call provisions, which expired on June 30, 1992.
Therefore the amount of the expired put option was transferred to addi-
tional paid-in capital in 1992. On August 5, 1993, 115,794 shares of com-
mon stock were issued pursuant to the exercise of these warrants. At July
30, 1995, 62,500 warrants remain outstanding relating to the subordinated
debentures issued in June 1992.
Stock Option Plans
In April 1986, the Company adopted an incentive stock option plan
("the 1986 plan"). The Company has reserved 200,000 shares of common stock
for distribution under the 1986 plan. Options to purchase common stock
under the 1986 plan will be exercisable during a period not to exceed ten
years from the date the options are granted with option prices of not less
than 100% of the fair market value of the stock on the respective date of
grant, or 110% of the fair market value if granted to persons owning more
than 10% of the outstanding stock.
On November 2, 1994, 10,000 options were granted under the 1986 plan
at equivalent exercise prices and vesting periods as the non-qualified
stock options discussed below.
The following is a summary of option activity under the 1986 plan for
1995, 1994, and 1993:
OPTIONED
SHARES PRICE
Balance, July 26, 1992 101,300 $1.00-$3.00
Granted 100,500 $5.88-$7.50
Exercised -- --
Cancelled (1,800) $ 3.00
Balance, July 31, 1993 200,000 $1.00-$7.50
Granted -- --
Exercised (59,025) $1.00-$7.50
Cancelled -- --
Balance, July 31, 1994 140,975 $1.00-$7.50
Granted 10,000 $ 7.18
Exercised (11,500) $1.00-$5.88
Cancelled (23,750) $ 5.88
Balance, July 30, 1995 115,725 $1.00-$7.50
At July 30, 1995, options for 89,038 shares were exercisable in accor-
dance with provisions of the incentive plan.
On November 2, 1994, the Company granted 293,000 non-qualifiied stock
options to key employees at an exercise price equivalent to the fair mar-
ket value on the date of grant ($7.18). Up to 25% of the options are exer-
cisable on the grant date with all remaining options vesting ratably over
three years. In the event of a change of control of the company, 100% of
the grant may be exercised immediately. The options expire on November 2,
2002, or ninety days after employment terminates, whichever date is ear-
lier. Subsequent to November 2, 1994, 55,000 options were cancelled as a
result of termination of the employees' employment. As of July 30, 1995,
238,000 options were outstanding with 59,500 exercisable.
In connection with a four-year employment agreement with an officer of
a subsidiary, on June 26, 1992 the Company granted options to purchase
120,000 shares of the Company's common stock, exercisable for 30,000
shares immediately and an additional 30,000 shares on each anniversary of
the employment agreement. The options are exercisable at $4.75 per share
as determined by the agreement. In fiscal year 1994, 60,000 shares were
exercised. No shares were exercised in fiscal year 1995. Therefore 60,000
shares were outstanding and exercisable at July 30, 1995.
During 1994 the Company granted two option agreements to two officers
of the Corporation. The first agreement granted options to purchase 50,000
shares of the Company's common stock at $6.125 per share (market value on
date of issuance), exercisable for 12,500 shares immediately and an addi-
tional 12,500 shares on each anniversary of the agreement. The second
agreement granted options to purchase 100,000 shares of the Company's com-
mon stock at $11 per share (market value on date of issuance), exercisable
for 25,000 shares immediately and an additional 25,000 shares on each an-
niversary of the agreement. No shares have been purchased under these
agreements.
(13) MAJOR CUSTOMERS
Sales to third parties are concentrated in a few major customers and
consisted of the following percentages of the Company's total net sales:
1995 1994 1993
Ford Motor Company 57% 83% 93%
General Motors Corporation 28% 5% 3%
Freightliner Corporation 5% 5% --
Other 10% 7% 4%
100% 100% 100%
(14) RELATED PARTY TRANSACTIONS
Certain nonemployee directors provided consulting services to the Com-
pany totaling $288,000, $298,000, and $280,000 in 1995, 1994, and 1993,
respectively.
Interest payments made to related parties on subordinated debentures
which were retired in the first quarter of fiscal 1994 amounted to $15,000
and $63,000 in fiscal years 1994 and 1993, respectively.
In July 1993 the Company negotiated an agreement with Rall Leasing, a
partnership which includes certain officers and directors who are also
stockholders of Bailey, to terminate the Company's entire obligation under
a real property lease in exchange for $230,000, thereby releasing it from
all obligations under the lease. Charges to operations under this lease
were $292,000 in 1993 (including the settlement).
(15) COMMITMENTS AND CONTINGENCIES
The Company is subject to a variety of legal proceedings, contractual
obligations and environmental issues, arising out of the conduct of its
business, which are pending or threatened.
Environmental Costs
The Company and its immediate predecessor, USM's Bailey Division, have
been named as potentially responsible parties ("PRP") at the Resolve Su-
perfund site and at the Solvents Recovery Services site. At both sites,
the Company and all other PRP's are jointly andseverally liable for all
remediation costs under applicable environmental laws. The Company is pur-
suing indemnification from USM and/or USM's insurers for some of its costs
associated with the remediation efforts at both sites.
The Company also faces potential environmental liability relating to
the Conneaut, Contour and Premix/EMS Acquisitions if the former owners
cannot fulfill the environmental obligations relating to their ownership.
For each acquisition the Company has been indemnified for environmental
obligations arising prior to its ownership as part of the acquisition
agreements. Additionally, part of the purchase consideration for the Con-
neaut Acquisition was escrowed and the right to offset debt issued by the
Company in connection with the Contour and Premix/EMS Acquisitions exists
to specifically cover environmental obligations of the former owners.
The Company's policy is to accrue environmental costs of a non-capital
nature when it is both probable that a liability has been incurred and the
amount can be reasonably estimated. On-going costs of compliance with en-
vironmental laws are charged to expense when incurred. Where the estimate
is a range and no amount within the range is a better estimate than any
other amount, the Company accrues the minimum amount in the range. The re-
liability and precision of the environmental accruals are affected by nu-
merous factors, such as different stages of site evaluation, the allocation
of responsibility among PRP's and the assertion of additional claims. The
Company adjusts its accruals as new remediation requirements are defined,
as information becomes available permitting reasonable estimates to be
made, and to reflect new and changing facts. At July 30, 1995, and July
31, 1994, the Company's environmental accruals totalled $289,000 and
$322,000, respectively and related to its share of mandated payments as a
PRP for remediation of the Resolve site. The Company believes it has iden-
tified and accrued for its material likely environmental exposures and
that any additional liability relating to identified sites is immaterial
to its liquidity, financial position and results of operations.
During fiscal 1995 and 1994, the Company paid approximately $33,000
and $370,000, respectively, for mandated payments as a PRP for remediation
of the Resolve site which was charged against previously accrued liabili-
ties. Additionally, in May 1994, the Company settled alleged waste han-
dling violations through payment of a $300,000 fine. The settlement re-
solved all claims by the state of New Hampshire arising out of a 1990 re-
view.
Litigation
In June 1994, the Company was served with a summons and complaint with
respect to a purported class action suit brought in the United States Dis-
trict Court for the District of New Hampshire. The complaint alleged that
the Company violated Rule 10b-5 of the Securities 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 re
buffing the plaintiff's 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 intends to move
to dismiss this complaint as well, and the action in its entirety. If this
effort is unsuccessful, the Company intends to vigorously 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. Accordingly,
the extent of any exposure of the Company cannot be determined at this
time.
The Company is also involved in other litigation arising in the normal
course of business. Management does not believe that such litigation will
have a material impact on its financial position or results of operations.
Development Joint Venture
The Company has entered into a joint venture for the development of
certain non-automotive plastic products. The joint venture, a limited lia-
bility company named Rail Pak, LLC (the Venture), is 60% owned by the Com-
pany and 40% by an unrelated third party corporation. Under the agreement,
the Company has committed to providing limited technical support and to
funding initial product development up to $300,000 (Phase I) and at the
option of the Company, at its sole discretion, may either elect to con-
tinue funding for production (Phase II) or may surrender its interests in
the venture with no remaining liability. During the fiscal year ended July
30, 1995, the Company funded the venture in the cash amount of $240,000
and is committed to an additional $60,000 of funding to the Venture for
Phase I. Due to the uncertainty of continuation of the Venture on the part
of the Company, Phase I costs are expensed as engineering costs in the
Company's financial accounts. In the event that the Company elects to pro-
ceed with funding Phase II (the production phase), the accounts of the
Venture will be included in the Company's consolidated financial state-
ments.
Nonemployee Directors' Retirement Agreements
In October 1994, four nonemployee directors rescinded existing agree-
ments issued during fiscal 1994 in exchange for new retirement agreements,
the terms of which are under negotiation. The new agreements are expected
to provide a maximum benefit of $60,000 per year for five years after re-
tirement from the board, plus lifetime participation in the Company's
healthcare plan.
Leases
The Company leases certain office facilities, machinery and equipment
and automobiles under operating leases with unexpired terms ranging from
one to five years. Payments due under operating leases over the next five
years are as follows for the fiscal years ending (in thousands):
July 29, 1996 $ 709
July 28, 1997 484
July 27, 1998 155
July 26, 1999 62
July 25, 2000 22
$1,432
Rent expense under operating leases was $911,000, $589,000, and
$453,000, for the fiscal years ended 1995, 1994 and 1993, respectively.
Letters of Credit
At July 30, 1995, the Company was contingently liable for $1,096,000
related to letters of credit outstanding which guarantee various trade ac-
tivities.
(16) SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities were as follows:
1995 1994 1993
(IN THOUSANDS)
Cash paid for:
Interest $3,061 $ 1,716 $1,826
Income taxes 1,206 2,680 418
Net assets acquired through issuance of debt in the Premix/EMS
Acquisition (Notes 2 and 8) -- 16,480 --
Net assets acquired through issuance of debt in the Contour ac-
quisition (Notes 2 and 8) -- -- 6,221
Minimum pension liability charge to equity (Note 10) 97 306 --
Gain on debt extinguishment (Note 8) -- 165 --
Tax benefit from exercise of stock options (Note 11) 193 105 --
Assets acquired under capitalized leases 1,469 212 705
Issuance of stock for services in lieu of cash (Note 12) -- -- 28
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
1995
Net sales $ 45,177 $41,057 $47,729 $34,265 $168,228
Gross profit (loss) $ 6,740 $ 5,479 $ 5,798 $(1,203) $ 16,814
Operating income (loss) $ 3,355 $ 1,777 $ 1,964 $(5,582) $ 1,514
Net income (loss) $ 1,473 $ 522 $ 588 $(4,162) $ (1,579)
Net income (loss) per share -- primary $ .27 $ .10 $ .11 $ (.77) $ (.29)
Net income (loss) per share -- fully di-
luted $ .25 $ .10 $ .11 $ (.77) $ (.29)
1994
Net sales $ 26,903 $26,653 $30,677 $24,080 $108,313
Gross profit $ 4,058 $ 3,958 $ 4,834 $ 3,084 $ 15,934
Operating income $ 2,076 $ 1,853 $ 2,098 $ 594 $ 6,621
Net income $ 940 $ 867 $ 894 $ 65 $ 2,766
Net income per share -- primary(1) $ .19 $ .16 $ .16 $ .01 $ .52
Net income per share -- fully diluted $ .18 $ .16 $ .16 $ .01 $ .52
(1) Note: Due to rounding, the sum of quarterly figures do not equal full
year net income per share.
(18) SUBSEQUENT EVENTS
Portland Plant Shutdown
On August 3, 1995, the Company announced its intention to temporarily
curtail operations in its Portland, Indiana, manufacturing facility. The
Company does not expect any material costs to be incurred relating to this
curtailment. Losses to be recognized in connection with the curtailment
will be recognized in the first quarter of fiscal 1996.
Stockholder Rights Plan
On September 28, 1995, the Board of Directors of the Company adopted a
stockholder rights plan. Under the plan, the Company declared a dividend of one
Right for each outstanding share of common stock, par value $.10 per share. The
Rights will be issued to the holders of record of shares of Common Stock
outstanding on September 28, 1995, and with respect to shares of Common Stock
issued thereafter until the Distribution Date (as defined in the Rights
Agreement) and, in certain circumstances, with respect to shares of Common Stock
issued after the Distribution Date. Each Right, when it becomes exercisable as
defined in the Rights Agreement, would initially entitle the registered holder
to purchase from the Company one share of Common Stock at an exercise price of
$28. The Rights expire September 28, 2005 and, under certain conditions, may be
redeemed by the Company at a price of $.01 per Right. The Rights have no voting
privileges and are not currently separable from the Common Stock.
The Rights are not currently exercisable, but would become exercisable if
certain events occurred relating to a person or group (the "Acquiring Person")
acquiring or attempting to acquire 15% or more of the outstanding shares of
Common Stock. Upon the occurrence of such an event, each right (except the
Rights beneficially owned by the Acquiring Person, which become null and void)
entitles its holder to purchase for $28 the economic equivalent of Common Stock,
or in certain circumstances, securities of the Acquiring Person, or its
affiliate, worth twice as much. The description and terms of the Rights are set
forth in a Rights Agreement dated as of September 28, 1995 between the Company
and State Street Bank and Trust Company, as Rights Agent.
BAILEY CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED 1995, 1994 AND 1993
(IN THOUSANDS)
ADDITIONS
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION BEGINNING OF YEAR EXPENSES DEDUCTIONS END OF YEAR
Year ended July 30, 1995:
Allowance for doubtful accounts $ 215 $ 1,300 $ 752 $ 763
Year ended July 31, 1994:
Allowance for doubtful accounts $ 254 $ 690 $ 729 $ 215
Year ended July 31, 1993:
Allowance for doubtful accounts $ 317 $ 580 $ 643 $ 254
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
In accordance with Paragraph (3) of General Instruction G to Form 10-
K, Part III of this Report is omitted because the registrant will file
with the Securities and Exchange Commission not later than 120 days after
the end of the fiscal year ended July 30, 1995, a definitive proxy state-
ment pursuant to Regulation 14A involving the election of directors, which
proxy statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits.
1. Financial Statements. See Item 8 for the Financial Statements
of the Company filed as a part hereof. (Exhibits omitted)
2. Financial Statement Schedules. See Item 8 for the Financial
Statement Schedules of the Company filed as a part hereof.
3. Exhibits. Pursuant to Rule 12b-32 and General Instruction G,
the following Exhibits are required to be filed with this Report by
Item 14 above and are incorporated by reference from the reference
source cited in the Exhibit Index below, are filed herewith, or are
not applicable.
(b) Reports on Form 8-K.
On October 2, 1995, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission ("SEC") to report the adoption
by the Company on September 28, 1995 of a stockholder rights plan.
The Company filed with the SEC Quarterly Reports on Form 10-Q for each
of the quarters ended October 30, 1994, January 29, 1995, and April 30,
1995, in each case within 45 days of the end of the respective quarter.
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, THERETO DULY AUTHORIZED.
BAILEY CORPORATION
Dated: October 26, 1995 By: /s/ ROGER R. PHILLIPS
ROGER R. PHILLIPS
CHAIRMAN OF THE BOARD,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER AND
SECRETARY
(PRINCIPAL EXECUTIVE OF-
FICER)
Dated: October 26, 1995 By: /s/ LEONARD J. HEILMAN
LEONARD J. HEILMAN
EXECUTIVE VICE PRESIDENT --
FINANCE AND
ADMINISTRATION, TREASURER
AND ASSISTANT SECRETARY
(PRINCIPAL FINANCIAL AND
ACCOUNTING 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.
Dated: October 26, 1995 By: /s/ ROGER R. PHILLIPS
ROGER R. PHILLIPS
DIRECTOR, CHAIRMAN OF THE
BOARD, PRESIDENT,
CHIEF EXECUTIVE OFFICER AND
SECRETARY
Dated: October 26, 1995 By: /s/ E GORDON YOUNG
E GORDON YOUNG
DIRECTOR
Dated: October 26, 1995 By: /s/ LOUIS T. ENOS
LOUIS T. ENOS
DIRECTOR
Dated: October 26, 1995 By: /s/ ALLAN B. FREEDMAN
ALLAN B. FREEDMAN
DIRECTOR
Dated: October 26, 1995 By: /s/ JOHN G. OWENS
JOHN G. OWENS
DIRECTOR
Dated: October 26, 1995 By: /s/ WILLIAM A. TAYLOR
WILLIAM A. TAYLOR
DIRECTOR
EXHIBIT INDEX
EXHIBIT
NO. TITLE METHOD OF FILING
3.1 Certificate of Incorporation Incorporated by reference
from Form 10-K, Exhibit 3.01,
filed on October 24, 1992
3.2 Amended and Restated By-Laws Filed herewith
4.1 Stockholder Rights Agreement, dated Incorporated by reference
as of September 28, 1995, between from Form 8-K, Exhibit 4(a)
Bailey Corporation and State Street filed on October 2, 1995
Bank and Trust Company, as Rights
Agent
10.01 Amended and Restated Agreement of Incorporated by reference
Purchase and Sale, dated May 5, 1992, from Form 8-K, Exhibit 2.01
and effective as of April 9, 1992 filed on July 13, 1992
10.02 Subordinated Debenture due June 25, Incorporated by reference
1995, in the amount of $200,000 from Form 8-K, Exhibit 4.01
issued to Anthony A. Martino filed on July 13, 1992
10.03 Warrant to Purchase 50,000 Shares Incorporated by reference
of Common Stock of Bailey Corporation from Form 8-K, Exhibit 4.02
dated June 26, 1992, as issued to filed on July 13, 1992
Anthony A. Martino
10.04 Subordinated Debenture due June 26, Incorporated by reference
1995, in the amount of $50,000 issued from Form 8-K, Exhibit 4.03
to Allan B. Freedman filed on July 13, 1992
10.05 Warrant to Purchase 12,500 Shares Incorporated by reference
of Common Stock of Bailey Corporation from Form 8-K, Exhibit 4.04
dated June 26, 1992, as issued to filed on July 13, 1992
Allan B. Freedman
10.06 Subordinated Debenture due June 26, Incorporated by reference
1995, in the amount of $50,000 issued from Form 8-K, Exhibit 4.05
to self-directed pension account FBO filed on July 13, 1992
Roger R. Phillips
10.07 Subordinated Debenture due June 26, Incorporated by reference
1995, in the amount of $50,000 issued from Form 8-K, Exhibit 4.06
to William A. Taylor filed on July 13, 1992
10.08 Subordinated Debenture due June 29, Incorporated by reference
1995, in the amount of $50,000 issued from Form 8-K, Exhibit 4.07
to self-directed pension account FBO filed on July 13, 1992
Roger R. Phillips
10.09 Subordinated Debenture due June 26, Incorporated by reference
1995, in the amount of $50,000 issued from Form 8-K, Exhibit 4.08
to Louis T. Enos filed on July 13, 1992
10.10 Subordinated Debenture due June 26, Incorporated by reference
1995, in the amount of $50,000 issued from Form 8-K, Exhibit 4.09
to John G. Owens filed on July 13, 1992
10.11 Subordinated Debenture due June 26, Incorporated by reference
1995, in the amount of $50,000 issued from Form 8-K, Exhibit 4.10
to E Gordon Young filed on July 13, 1992
10.12 Conformed copy of Subordinated Incorporated by reference
Debenture Purchase Agreement from Form 8-K, Exhibit 4.11
entered into by Louis T. Enos, John filed on July 13, 1992
G. Owens, and E Gordon Young with
Bailey Corporation
10.13 Conformed copy of Subordinated Incorporated by reference
Debenture and Warrant Purchase from Form 8-K, Exhibit 4.12
Agreement entered into by Allan B. filed on July 13, 1992
Freedman, Anthony A. Martino, Orion
Group Money Purchase Plan FBO, Roger
R. Phillips and William A. Taylor
with Bailey Corporation
10.14 Warrant to Purchase 115,794 Shares Incorporated by reference
of Common Stock of Bailey Corporation from Form 10-K, Exhibit 4.13
issued to Heller Financial, Inc. filed on October 24, 1992
dated November 16, 1988
10.15 Stock and Note Purchase Agreement Incorporated by reference
dated April 13, 1993 from Registration Statement
on Form S-3, Registration No.
33-62698
10.16 Form of 9% Convertible Subordinated Incorporated by reference
Promissory Note Due 2000 from Registration Statement
on Form S-3, Registration No.
33-62698
10.17 Lease between Rall Leasing, Ltd. Incorporated by reference
(Landlord) and Bailey Corporation from Form 10-K, Exhibit 10.01
(Tenant) for premises located in filed on October 24, 1992
Cuba, Missouri, dated November 1,
1985, together with Assignment by
Rall Leasing, Ltd. to Rall Leasing
Associates
10.18 Bailey Corporation 1986 Incentive Incorporated by reference
Stock Option Plan from Form 10-K, Exhibit 10.02
filed on October 24, 1992
10.19 Lease for Dearborn, Michigan Incorporated by reference
premises dated December 11, 1991, from Form 10-K, Exhibit 10.03
between Ford Motor Land Development filed on October 24, 1992
Corporation and Bailey Manufactur-
ing Corporation
10.20 Long-Term Agreement between Ford Incorporated by reference
Motor Company and Bailey from Form 10-K, Exhibit 10.04
Manufacturing Corporation dated filed on October 24, 1992
June 24, 1992 and effective for the
term August 1, 1992 to December 31,
1995
10.21 Employment and Option Agreement Incorporated by reference
between Bailey Transportation from Form 8-K, Exhibit 28.1
Products, Inc. and Anthony A. Martino filed on July 13, 1992
dated as of June 26, 1992
10.22 Non-Negotiable Working Capital Note Incorporated by reference
dated June 26, 1992, in the amount from Form 8-K, Exhibit 28.2
of $500,000 from Bailey Transpor- filed on July 13, 1992
tation Products, Inc. and payable
to TransPlastics, Inc.
10.23 Non-Negotiable Purchase Note dated Incorporated by reference
June 26, 1992, in the amount of from Form 8-K, Exhibit 28.3
$1,868,953 from Bailey Transpor- filed on July 13, 1992
tation Products, Inc. and payable
to TransPlastics, Inc.
10.24 Trust Agreement dated as of April Incorporated by reference
1, 1988, between the State of Ohio from Form 10-K, Exhibit 10.08
and The Provident Bank, Trustee filed on October 24, 1992
10.25 Twenty-Eighth Supplemental Trust Incorporated by reference
Agreement dated as of July 1, 1992, from Form 10-K, Exhibit 10.09
between the State of Ohio and The filed on October 24, 1992
Provident Bank, Trustee
10.26 Ohio State Economic Development Incorporated by reference
Revenue Bond in the amount of from Form 10-K, Exhibit 10.10
$3,170,000 as issued to The filed on October 24, 1992
Prudential Insurance Company of
America
10.27 Guaranty Agreement dated as of July Incorporated by reference
1, 1992, among Bailey Corporation, from Form 10-K, Exhibit 10.11
Bailey Transportation Products, filed on October 24, 1992
Inc. and The Provident Bank, Trustee
10.28 Lease dated July 1, 1992, between Incorporated by reference
the Director of Development of the from Form 10-K, Exhibit 10.12
State of Ohio and Bailey filed on October 24, 1992
Transportation Products, Inc.
10.29 Amended and Restated Credit Incorporated by reference
Agreement among BayBank, Bailey from Form 10-K, Exhibit 10.13
Corporation, and Bailey filed on October 24, 1992
Manufacturing Corporation
dated April 30, 1992
10.30 First Amendment to Amended and Incorporated by reference
Restated Credit Agreement among from Form 10-K, Exhibit 10.14
BayBank, Bailey Corporation, filed on October 24, 1992
and Bailey Manufacturing
Corporation dated June 26, 1992
10.31 Second Amendment to Amended and Incorporated by reference
Restated Credit Agreement among from Registration Statement
BayBank, Bailey Corporation, on Form S-2, Registration No.
and Bailey Manufacturing 33-66244
Corporation dated July 26, 1992
10.32 Third Amendment to Amended and Incorporated by reference
Restated Credit Agreement among from Registration Statement
BayBank, Bailey Corporation, on Form S-2, Registration No.
and Bailey Manufacturing 33-66244
Corporation dated January 29, 1993
10.33 Consent and Fourth Amendment to Incorporated by reference
Amended and Restated Credit from Registration Statement
Agreement among BayBank, Bailey on Form S-2, Registration No.
Corporation, and Bailey Manufac- 33-66244
turing Corporation dated July 1, 1993
10.34 Loan Agreement dated as of July 29, Incorporated by reference
1992, between the Director of from Form 10-K, Exhibit 10.15
Development of the State of Ohio and filed on October 24, 1992
Bailey Transportation Products,
Inc.
10.35 Promissory Note dated July 29, 1992, Incorporated by reference
in the principal amount of $1,000,000 from Form 10-K, Exhibit 10.16
from Bailey Transportation Prod- filed on October 24, 1992
ucts, Inc. payable to the Director
of Development of the State of Ohio
10.36 Subordination Agreement dated as of Incorporated by reference
July 26, 1992, among Bailey from Form 10-K, Exhibit 10.17
Transportation Products, Inc., the filed on October 24, 1992
Director of Development of the State
of Ohio, The Provident Bank, Trustee,
and Ashtabula County 503 Corporation
10.37 Guaranty dated as of July 29, 1992, Incorporated by reference
by Bailey Corporation to the Director from Form 10-K, Exhibit 10.18
of Development of the State of Ohio filed on October 24, 1992
10.38 Bill of Sale from Bailey Corporation Incorporated by reference
and Bailey Manufacturing Corpora- from Form 10-K, Exhibit 10.19
tion to Anthony A. Martino for one filed on October 24, 1992
Farrel Injection Molding Machine
dated August 17, 1992
10.39 Lease and Security Agreement for Incorporated by reference
Farrel Injection Molding Machine from Form 10-K, Exhibit 10.20
between Anthony A. Martino (Lessor) filed on October 24, 1992
and Bailey Transportation Products,
Inc. (Lessee) dated August 17, 1992
10.40 Lease and Security Agreement for Incorporated by reference
Farrel Injection Molding Machine from Registration Statement
between Anthony A. Martino (Lessor) on Form S-2, Registration No.
and Bailey Transportation Products, 33-66244
Inc. (Lessee) dated November 19, 1992
10.41 Lease and Security Agreement for Incorporated by reference
Farrel Injection Molding Machine from Registration Statement
between Anthony A. Martino (Lessor) on Form S-2, Registration No.
and Bailey Transportation Products, 33-66244
Inc. (Lessee) dated March 1, 1993
10.42 Agreement for Purchase and Sale of Incorporated by reference
Assets between Bailey Corporation, from Registration Statement
Bailey Manufacturing Corporation on Form S-2, Registration No.
and The Boler Company. regarding 33-66244
Bailey Corporation's purchase of the
assets and business of the Contour
division of The Boler Company. dated
July 1, 1993
10.43 Indemnification Agreement between Incorporated by reference
Bailey Corporation, Bailey Manu- from Registration Statement
facturing Corporation, and The Boler on Form S-2, Registration No.
Company. dated July 1, 1993 33-66244
10.44 Non-Negotiable Fixed Asset Note in Incorporated by reference
the amount of $5,046,730 given by from Registration Statement
Bailey Corporation and Bailey on Form S-2, Registration No.
Manufacturing Corporation to The 33-66244
Boler Company. dated July 1, 1993
10.45 Non-Negotiable Working Capital Incorporated by reference
Promissory Note in the amount of from Registration Statement
$1,174,606 given by Bailey on Form S-2, Registration No.
Corporation and Bailey Manufactur- 33-66244
ing Corporation to The Boler Company.
dated July 1, 1993
10.46 Security Agreement made by Bailey Incorporated by reference
Manufacturing Corporation in favor from Registration Statement
of The Boler Company. dated July 1, on Form S-2, Registration No.
1993 33-66244
10.47 Remediation Agreement executed by Incorporated by reference
The Boler Company. in favor of Bailey from Registration Statement
Corporation and Bailey Manufactur- on Form S-2, Registration No.
ing Corporation dated July 1, 1993 33-66244
10.48 Form of Option Agreement between Incorporated by reference
Bailey Corporation and Roger R. from Form 10-K, Exhibit 10.48
Phillips filed on October 29, 1993
10.49 Form of Employment Agreement between Incorporated by reference
Bailey Corporation and Roger R. from Form 10-Q, Exhibit 10.49
Phillips filed on March 14, 1994
10.50 Form of Employment Agreement between Incorporated by reference
Bailey Corporation and William A. from Form 10-Q, Exhibit 10.50
Taylor filed on March 14, 1994
10.51 Form of Noncompetition Agreement Incorporated by reference
between Bailey Corporation and Roger from Form 10-Q, Exhibit 10.51
R. Phillips filed on March 14, 1994
10.52 Form of Noncompetition Agreement Incorporated by reference
between Bailey Corporation and from Form 10-Q, Exhibit 10.52
William A. Taylor filed on March 14, 1994
10.53 Form of Noncompetition Agreement Incorporated by reference
between Bailey Corporation and Louis from Form 10-Q, Exhibit 10.53
T. Enos filed on March 14, 1994
10.54 Form of Noncompetition Agreement Incorporated by reference
between Bailey Corporation and Allan from Form 10-Q, Exhibit 10.54
B. Freedman filed on March 14, 1994
10.55 Form of Noncompetition Agreement Incorporated by reference
between Bailey Corporation and John from Form 10-Q, Exhibit 10.55
G. Owens filed on March 14, 1994
10.56 Form of Noncompetition Agreement Incorporated by reference
between Bailey Corporation and E from Form 10-Q, Exhibit 10.56
Gordon Young filed on March 14, 1994
10.57 Asset Purchase and Sale Agreement Incorporated by reference from
between Bailey Corporation and Exhibit 2.1 to Current Report
Premix/E.M.S. Inc., dated as of July on Form 8-K filed on August
31, 1994 18, 1994
10.58 Secured Promissory Note by Bailey Incorporated by reference
Corporation in favor of Premix- from Form 10-K, Exhibit 10.58
/E.M.S. Inc., dated August 3, 1994 filed on October 31, 1994
10.59 8% Convertible Debenture due 1999 Incorporated by reference
by Bailey Corporation in favor of from Form 10-K, Exhibit 10.59
Premix/E.M.S. Inc., dated August 3, filed on October 31, 1994
1994
10.60 Purchase Money First Mortgage and Incorporated by reference
Security Agreement by Bailey from Form 10-K, Exhibit 10.60
Corporation in favor of Premix- filed on October 31, 1994
/E.M.S. Inc., dated as of July 31,
1994, with respect to Lancaster, Ohio
site
10.61 Purchase Money First Mortgage and Incorporated by reference
Security Agreement by Bailey from Form 10-K, Exhibit 10.61
Corporation in favor of Premix- filed on October 31, 1994
/E.M.S. Inc., dated as of July 31,
1994, with respect to Hartford City,
Indiana site
10.62 Purchase Money First Mortgage and Incorporated by reference
Security Agreement by Bailey from Form 10-K, Exhibit 10.62
Corporation in favor of Premix- filed on October 31, 1994
/E.M.S. Inc., dated as of July 31,
1994, with respect to Portland,
Indiana site
10.63 Non-Environmental Indemnification Incorporated by reference
Agreement between Bailey Corpora- from Form 10-K, Exhibit 10.63
tion and Premix/E.M.S. Inc., dated filed on October 31, 1994
as of July 31, 1994
10.64 Environmental Indemnification Incorporated by reference
Agreement between Bailey Corpora- from Form 10-K, Exhibit 10.64
tion and Premix/E.M.S. Inc., dated filed on October 31, 1994
as of July 31, 1994
10.65 Amended and Restated Credit Agreement Incorporated by reference
among BayBank, Bailey Corporation, from Form 10-K, Exhibit 10.65
Bailey Manufacturing Corporation, filed on October 31, 1994
and Bailey Transportation Products,
Inc., dated as of July 29, 1994
10.66 Amended and Restated Revolving Note Incorporated by reference
by Bailey Corporation, Bailey from Form 10-K, Exhibit 10.66
Manufacturing Corporation, and filed on October 31, 1994
Bailey Transportation Products,
Inc., in favor of BayBank, dated July
29, 1994
10.67 Term Note by Bailey Corporation, Incorporated by reference
Bailey Manufacturing Corporation, from Form 10-K, Exhibit 10.67
and Bailey Transportation Products, filed on October 31, 1994
Inc., in favor of BayBank, dated July
29, 1994
10.68 Amended and Restated Security Incorporated by reference
Agreement by Bailey Corporation in from Form 10-K, Exhibit 10.68
favor of BayBank, dated as of July filed on October 31, 1994
29, 1994
10.69 Amended and Restated Security Incorporated by reference
Agreement by Bailey Manufacturing from Form 10-K, Exhibit 10.69
Corporation in favor of BayBank, filed on October 31, 1994
dated as of July 29, 1994
10.70 Security Agreement by Bailey Incorporated by reference
Transportation Products, Inc., in from Form 10-K, Exhibit 10.70
favor of BayBank, dated as of July filed on October 31, 1994
29, 1994
10.71 Recission Agreement between Bailey Incorporated by reference
Corporation and Louis T. Enos, dated from Form 10-K, Exhibit 10.71
as of September 28, 1994, with filed on October 31, 1994
respect to Noncompetition Agreement
between Bailey Corporation and Louis
T. Enos, dated as of February 14,
1994
10.72 Recission Agreement between Bailey Incorporated by reference
Corporation and Allan B. Freedman, from Form 10-K, Exhibit 10.72
dated as of September 28, 1994, with filed on October 31, 1994
respect to Noncompetition Agreement
between Bailey Corporation and Allan
B. Freedman, dated as of February
14, 1994
10.73 Recission Agreement between Bailey Incorporated by reference
Corporation and John G. Owens, dated from Form 10-K, Exhibit 10.73
as of September 28, 1994, with filed on October 31, 1994
respect to Noncompetition Agreement
between Bailey Corporation and John
G. Owens, dated as of February 14,
1994
10.74 Recission Agreement between Bailey Incorporated by reference
Corporation and E Gordon Young, dated from Form 10-K, Exhibit 10.74
as of September 28, 1994, with filed on October 31, 1994
respect to Noncompetition Agreement
between Bailey Corporation and E
Gordon Young, dated as of February
14, 1994
10.75 First Amendment to Amended and Filed herewith
Restated Credit Agreement among Bailey
Corporation, Bailey Manufacturing
Corporation, Bailey Transportation
Products, Inc. and BayBank, dated as
of September 20, 1994
10.76 Environmental Indemnity Agreement by Filed herewith
Bailey Corporation, Bailey Manufactur-
ing Corporation, Bailey Transportation
Products, Inc. in favor of BayBank,
dated as of October 10, 1994
10.77 Second Amendment to Amended and Filed herewith
Restated Credit Agreement and
Amendment to Revolving Note among
Bailey Corporation, Bailey Manufactur-
ing Corporation, Bailey Transportation
Products, Inc. and BayBank, dated as
of April 6, 1995
10.78 Third Amendment to Amended and Restated Filed herewith
Credit Agreement and Second Amendment
to Revolving Note among Bailey Corp-
oration, Bailey Manufacturing Corporation,
Bailey Transportation Products, Inc. and
BayBank, dated as of May 12, 1995
10.79 Fourth Amendment to Amended and Restated Filed herewith
Credit Agreement, Third Amendment to
Revolving Note and Modification of Third
Amendment to Amended and Restated Credit
Agreement among Bailey Corporation,
Bailey Manufacturing Corporation, Bailey
Transportation Products, Inc. and BayBank,
dated as of July 28, 1995
10.80 Fixed Maturity Carve Out Note dated July Filed herewith
28, 1995, in the amount of $4,000,000
from Bailey Corporation, Bailey
Manufacturing Corporation and Bailey
Transportation Products, Inc. payable
to BayBank
10.81 Fifth Amendment to Amended and Restated Filed herewith
Credit Agreement and Modification of
Third and Fourth Amendments, among Bailey
Corporation, Bailey Manufacturing
Corporation, Bailey Transportation
Products, Inc. and BayBank, dated as of
September 1, 1995
10.82 Agreement between Bailey Manufacturing Filed herewith
Corporation and Emhart Corporation
regarding the Solvents Recovery Service
of New England Superfund Site and the
Old Southington Landfill Superfund Site,
dated February 10, 1995
10.83 Joint Declaration between Bailey Filed herewith
Manufacturing Corporation and Emhart
Corporation regarding the Solvents
Recovery Service of New England Site
and the Old Southington Landfill Site
21.1 Subsidiaries of Bailey Corporation Filed herewith
23.1 Consent of KPMG Peat Marwick Filed herewith
27.1 Financial Data Schedule Filed herewith