FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number _________
WILLCOX & GIBBS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3308457
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Milik Street, Carteret, New Jersey 07008
(Address of principal executive offices) (Zip Code)
(908) 541-6255
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
DATE CLASS SHARES OUTSTANDING
---- ----- ------------------
March 31, 1997 Common Stock 987,223
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PART I - Financial Information PAGE
----
<S> <C>
Consolidated Balance Sheets (Unaudited) at
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations (Unaudited)
for the Three Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements (Unaudited) 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - Other Information 14
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ----------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 1,667 $ 882
Accounts receivable, less allowance for doubtful
accounts of $3,506 in 1997 and $2,419 in 1996 32,416 22,336
Inventories 49,229 34,224
Prepaid expenses and other current assets 4,862 2,655
Assets held for sale 826 -
Deferred income taxes 939 804
-------- --------
Total current assets 89,939 60,901
Property and equipment, net 5,475 4,400
Deferred financing costs, less accumulated
amortization of $153 in 1997 and $812 in 1996 4,122 2,323
-------- --------
Intangible assets, less accumulated amortization of
$431 in 1997 and $229 in 1996 31,719 11,060
Other assets 1,384 1,044
-------- --------
$132,639 $ 79,728
-------- --------
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Revolving line of credit $ 4,314 $ 19,347
Book overdrafts 1,495 1,499
Current installments of long-term debt 610 3,195
Trade accounts payable 17,700 12,806
Income taxes payable - 642
Accrued liabilities and other current liabilities 9,868 4,758
--------- ---------
Total current liabilities 33,987 42,247
Deferred income taxes 422 290
Accrued retirement benefits 2,517 2,452
Long-term debt, excluding current installments 85,100 18,893
Other liabilities 168 168
--------- ---------
Total liabilities 122,194 64,050
--------- ---------
Common stock subject to put option 3,000 3,000
Stockholders' Equity:
Common stock:
Class A, $10 stated value. Authorized
1,500,000 shares; issued and outstanding
987,223 in 1997 and 976,277 in 1996 8,872 8,763
Class B, no par value. Authorized 250,000
shares; none issued - -
Class C, no par value. Authorized 250,000
shares; none issued - -
Additional paid in capital - 1,904
Subscriptions receivable (637) (429)
Retained earnings (accumulated deficit) (882) 2,202
Cumulative translation adjustment 92 238
--------- ---------
Total stockholders' equity 7,445 12,678
--------- ---------
$ 132,639 $ 79,728
--------- ---------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Net sales $ 42,043 $ 26,320
Cost of goods sold 29,084 17,976
--------- ---------
Gross profit 12,959 8,344
Selling, general, and administrative expenses 10,974 6,763
--------- ---------
Operating income 1,985 1,581
Interest expense 2,883 1,100
Other income, net 39 14
--------- ---------
Income (loss) before income taxes (859) 495
Income tax expense (benefit) (356) 179
Income (loss) before extraordinary item (503) 316
Extraordinary loss, net of income tax benefit (1,557) -
--------- ---------
Net Income (loss) $ (2,060) $ 316
--------- ---------
Earnings (loss) per common share and common
share equivalent:
Income (loss) before extraordinary item $ (0.53) $ 0.32
Extraordinary item, net (1.63) -
--------- ---------
Net Income (loss) per share $ (2.16) $ 0.32
--------- ---------
Weighted average number of common shares and
common share equivalents 953,674 977,196
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,060) $ 316
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 261 151
Provision for losses on accounts receivable 238 164
Amortization of intangible assets 203 34
Amortization of deferred financing costs 153 90
Amortization of debt discount 62 40
Deferred income taxes (2) -
Extraordinary loss on debt extinguishment, net 1,557 -
Changes in operating assets and liabilities,
net of effect of business acquisitions:
Trade accounts receivable 3,339 (4,057)
Inventories 1,196 397
Prepaid expenses and other current assets (929) 39
Other assets 22 (44)
Income taxes payable (622) 46
Trade accounts payable and other liabilities (5,926) 258
-------- --------
Net cash used in operating activities (2,518) (2,566)
-------- --------
Cash flows from investing activities:
Capital expenditures (477) (190)
Proceeds from sale of property and equipment 58 10
Payment for business acquisitions, net of cash acquired (36,732) (8,219)
-------- --------
Net cash used in investing activities (37,151) (8,399)
-------- --------
Cash flows from financing activities:
Net proceeds from revolving line of credit 4,248 2,440
Increase (decrease) in book overdrafts (5) 13
Principal payments on long-term debt - (438)
Proceeds from debt 83,980 6,167
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Extinguishment of debt (41,137) -
Payment of financing costs (3,606) (265)
Repurchase and retirement of warrants (3,026) -
Proceeds from common stock issued in private placement - 2,283
-------- --------
Net cash provided by financing activities 40,454 10,200
-------- --------
Net increase (decrease) in cash 785 (765)
Cash at beginning of period 882 920
-------- --------
Cash at end of period $ 1,667 $ 155
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 479 $ 925
-------- --------
Income taxes $ 262 $ 145
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Willcox &
Gibbs, Inc. and subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principals for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ending March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
The operations of Clinton Management Corp. (d/b/a Clinton Machine & Supply)
and Clinton Machinery Corp. (together, "Clinton") have been included in the
Company's consolidated operations since their February 1, 1996 acquisition date.
The operations of E.C. Mitchell Co., Inc. ("Mitchell") have been included in the
Company's consolidated operations since their November 27, 1996 acquisition
date. The operations of Macpherson Meistergram, Inc. ("Macpherson") have been
included in the Company's consolidated operations since their January 3, 1997
acquisition date. The operations of Embroidery Leasing Corp. ("ELC") have been
included in the Company's consolidated operations since their January 3, 1997
acquisition date.
2. ACQUISITIONS
Effective February 1, 1996, the Company acquired Clinton in exchange for
$4,000,000 in cash, assumption of $4,500,000 in debt and payables, 100,000
shares of Company Class A common stock and contingent payments of up to 38.87%
of operating income (as defined in the purchase agreement) of Clinton during
each of the five years ending December 31, 2000. Such contingent payments shall
not exceed $10,500,000. In addition, the former shareholders of Clinton have the
right to require the Company to purchase their shares of Company common stock at
a purchase price of $30 per share upon the occurrence of certain events.
Effective November 27, 1997, the Company acquired certain assets of E.C.
Mitchell, Co., Inc. for $3,000,000 in cash. The acquired assets relate to the
manufacture and sale of abrasive cords and tape used principally in the apparel
industry.
Effective January 3, 1997 the Company acquired all the outstanding capital
stock of Macpherson for $24,000,000 in cash and the assumption of approximately
<PAGE>
$6,100,000 of indebtedness and $8,400,000 of trade payables. Macpherson is
primarily engaged in the distribution of embroidery equipment and supplies to
the apparel industry.
3. REFINANCING
Effective January 3, 1997, the Company issued $85,000,000 principal amount
of 12.25% Series A senior notes which are due in December 2003. The Company used
the proceeds, in part, to repay approximately $40,952,000 of its indebtedness
($40,550,000 of which existed at December 31, 1996), to redeem common stock
warrants for a total of $3,026,000, and to finance the Macpherson acquisition.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Willcox & Gibbs, Inc. (the "Company") was organized in 1994 by members of
the Company's current management and certain other investors (the "Management
Buyout") to acquire the sewn products replacement parts, supply and specialized
equipment distribution businesses of the Company's predecessor (the
"Distribution Business"), which occurred on July 13, 1994.
Effective February 1, 1996, the Company acquired Clinton Management Corp.
and Clinton Machinery Corp. (together, "Clinton"), a distributor of screen
printing equipment for the apparel industry (the "Clinton Acquisition").
Approximately 18.7% of the Company's net sales for the three months ended March
31, 1997 are attributable to the operations of Clinton. Accordingly, the results
of the Company for the three months ended March 31, 1997 are not directly
comparable to the results for the three months ended March 31, 1996 due to the
inclusion of the operations of Clinton in the full 1997 period.
In addition, on January 3, 1997, the Company acquired Macpherson
Meistergram, Inc. and its subsidiary, Geoffrey E. Macpherson Canada, Inc.
(collectively, "Macpherson"), a distributor of embroidery equipment and supplies
for the apparel industry (the "Macpherson Acquisition"). Approximately 27.4% of
the Company's net sales for the three months ended March 31, 1997 are
attributable to the operations of Macpherson. Accordingly, the results of the
Company for the first three months of 1997 are not directly comparable to the
results for the same period in 1996 due to the inclusion of the operations of
Macpherson in the 1997 period.
The Company currently operates through six principal business units: (i)
its Sunbrand division ("Sunbrand"), which is a distributor of replacement parts,
supplies and specialized equipment to manufacturers of apparel and other sewn
products; (ii) its Unity Sewing Supply Co. division ("Unity"), which is a
wholesale distributor to dealers of replacement parts and supplies for use by
the apparel and other sewn products industry; (iii) its Willcox & Gibbs, Ltd.
<PAGE>
("W&G, Ltd.") subsidiary, which is a distributor to manufacturers and dealers in
the United Kingdom and Europe of replacement parts and supplies for use by the
apparel and other sewn products industry; (iv) its Clinton subsidiaries, which
distribute screen printing equipment and supplies for the apparel industry; (v)
its Leadtec Systems, Inc. ("Leadtec") subsidiary, which develops and supplies
computer-based production planning and control systems for the apparel industry;
and (vi) Macpherson, which distributes embroidery equipment and supplies used in
the apparel industry.
RESULTS OF OPERATIONS
The following table sets forth the percentages that certain income and
expense items bear to net sales for the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
---------------------
1996 1997
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 31.7 30.8
Selling, general and administrative expenses 25.7 26.1
Operating income 6.0 4.7
Interest expense 4.2 6.9
Income taxes 0.7 (0.7)
Net income 1.2 (4.9)
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales were $42.0 million in the first three months of 1997, an
increase of $15.7 million, or 59.7%, as compared to the first three months of
1996. Net sales increased primarily as a result of the inclusion in the 1997
period of the results of Macpherson, acquired January 1997, Clinton, acquired in
February 1996, and E.C. Mitchell Co., Inc. ("Mitchell"), a manufacturer of
abrasive cords and tapes used principally by apparel manufacturers acquired in
November 1996, which contributed an aggregate additional $14.0 million to net
sales in the first three months of 1997 compared with the first three months of
1996.
Gross profit in the first three months of 1997 was $13.0 million, an
increase of $4.6 million, or 55.3%, as compared with the same period of 1996.
Gross profit increased primarily due to the inclusion of Macpherson, Clinton and
Mitchell in the 1997 period. As a percentage of net sales, gross profit in the
first three months of 1997 was 30.8%, as compared with 31.7% in the same period
of 1996. The decrease in gross profit percentage was attributable to Macpherson
and Clinton. Macpherson's and Clinton's gross profit margins have traditionally
been lower than the gross profit margin associated with the Company's parts and
supplies businesses because a larger percentage their sales are for equipment.
<PAGE>
Selling, general and administrative expenses in the first three months of
1997 were $11.0 million, an increase of $4.2 million, or 62.3%, as compared to
the first three months of 1996. The increase consisted of the addition of $3.5
million of operating expenses for Macpherson, Clinton and Mitchell. As a
percentage of sales, such expenses increased to 26.1% for the first three months
of 1997, from 25.7% for the same period of 1996, primarily related to the
Macpherson acquisition.
Operating income in the first three months of 1997 was $2.0 million, an
increase of $0.4 million, or 25.6%, as compared to the first three months of
1996. The increase in operating income resulted from an increase in sales and
the factors discussed above. As a percentage of net sales, operating income was
4.7% in the first three months of 1997, as compared to 6.0% in the first three
months of 1996. The decrease was principally attributable to the lower gross
margins from Macpherson's and Clinton's sales.
Interest expense was $2.9 million in the first three months of 1997, an
increase of $1.8 million, or 162.0%, as compared with the first three months of
1996. The increase in interest expense was a result of the refinancing as of
January 3, 1997, a portion of which was used to finance the acquisition of
Macpherson.
Provision for income taxes for the first three months of 1997 was $0.3
million, a decrease of $0.5 million, as compared to the first three months of
1996. The Company's effective tax rate was 36.5% in the first three months of
1997, as compared to 36.3% in the first three months of 1996.
The Company's results for the first three months of 1997 reflect an
extraordinary loss from the extinguishment of debt (net of income tax benefit)
of $1.6 million owing to the refinancing of the Company's indebtedness in
connection with the Macpherson Acquisition and the issuance by the Company of
$85.0 million aggregate principal amount of its 12 1/4% Series A Senior Notes
due 2003 (the "Senior Notes").
Net loss in the first three months of 1997 was $2.1 million, compared to
net income of $0.3 million in the first three months of 1996. The decrease was
attributable to the additional cost factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements, capital
expenditures and acquisitions from net cash provided by operations, borrowings
under its credit facilities and proceeds from the issuance of debt and equity
securities.
On January 3, 1997, the Company issued and sold $85.0 million aggregate
principal amount of its Senior Notes pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended, the net
proceeds of which were $80.5 million. The Company used a portion of the net
proceeds from the sale of the Senior Notes to repay substantially all of its
existing debt, most of which was incurred to fund the Management Buyout in July
1994, the Clinton acquisition in February 1996, the Mitchell acquisition in
<PAGE>
November 1996, and to satisfy working capital requirements. The balance of such
net proceeds were used to fund the $24.0 million purchase price for the
Macpherson Acquisition, to repay approximately $6.1 million of indebtedness of
Macpherson and to pay approximately $6.4 million of trade payables of
Macpherson.
In connection with the sale of the Senior Notes, the Financing and
Security Agreements, dated February 1, 1996, between the Company and
NationsBank, N.A. ("NationsBank") was terminated, and the Company entered into
an $18.5 million working capital facility also with NationsBank (the "New Credit
Facility") which became effective upon consummation of the sale of the Senior
Notes. The New Credit Facility, as amended as of April 23, 1997, provides for
borrowings of up to $18.5 million in the aggregate outstanding at any time,
subject to a borrowing base limitation equal to 85% of the Company's eligible
accounts receivable. Borrowings under the New Credit Facility bear interest at a
rate per annum, at the Company's option, equal to (i) NationsBank's prime rate
plus 0.25% or (ii) LIBOR plus 2.50%. The New Credit Facility is secured by all
accounts receivable of the Company and includes certain covenants applicable to
the Company, including requirements that the Company comply with certain
financial ratios. The New Credit Facility expires on July 13, 2001. As of April
30, 1997, $6.0 million was available to be borrowed by the Company under the New
Credit Facility.
In connection with the Macpherson Acquisition, the Company acquired
Embroidery Leasing Corporation (the "Leasing Company"), a leasing company
affiliate of Macpherson, for approximately $0.5 million, payable over three
years, plus interest at 6.0% annum. The Company intends to utilize the Leasing
Company to offer flexible lease financing to its customers to support the
Company's sales of equipment. The Company intends to fund its investment in the
Leasing Company through borrowings under the New Credit Facility, which
borrowings are expected to aggregate approximately $3.5 million in 1997. The
Company plans for the Leasing Company to arrange additional borrowings to
finance its operations and sell a portion of its leases on a nonrecourse basis.
The Company's capital expenditures during the first three months of 1997
aggregated approximately $0.5 million. Such expenditures were primarily for
computer, office and warehouse equipment and improvements.
Net cash used in the Company's operating activities was $2.5 million
during the first three months of 1997 principal due to working capital changes.
The Company's investing activities during the first three months of 1997 related
principally to $36.7 million utilized in the Macpherson acquisition. Net cash
provided by financing activities aggregated $40.5 million, reflecting $84.0
million of borrowings from the refinancing used to extinguish debt of $41.1
million, $3.6 million in financing costs and $3.0 million to repurchase and
retire warrants.
The Company believes that the cash generated from operations and
borrowings available under the New Credit Facility will be sufficient to meet
the Company's working capital and liquidity needs for the foreseeable future.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
11.1 Computation of net income per common and
common equivalent shares
27.1 Financial Data Schedule (filed with EDGAR
only)
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Company did not file any
reports on Form 8-K.
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLCOX & GIBBS, INC.
(Registrant)
Date May 15, 1997 By /S/ JOHN K. ZIEGLER, JR.
---------------------------
John K. Ziegler, Jr.
Vice President
and Chief Financial Officer
Exhibit 11.1
Statement re: Computation of Per Share Earnings
The following table sets forth the computation of earnings per share for the
three months ended March 31, 1997 and 1996. The computation of weighted average
common shares and common share equivalents on a fully diluted basis is the same
as on the primary basis since the average and ending market price used in the
computation is the same.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net income (loss) before extraordinary item $ (503,000) $ 316,000
Extraordinary item, net (1,557,000) -
----------- -----------
Net income (loss) $(2,060,000) $ 316,000
=========== ===========
Weighted average outstanding
common shares (includes 100,000 and 66,667
shares subject to put option in 1997 and 1996, 953,674 838,859
respectively)
Increase due to assumed issuance of shares
related to outstanding stock options
using the treasury stock method - 1,574
Increase due to assumed exercise of stock
warrants using the treasury stock method - 136,763
----------- -----------
Adjusted weighted average number of
common shares and common share equivalents 953,674 977,196
=========== ===========
Earnings (loss) per common share and
common share equivalent:
Net income (loss) before extraordinary item $ (0.53) $ 0.32
Extraordinary item, net (1.63) -
----------- -----------
Net income (loss) $ (2.16) $ 0.32
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WILLCOX &
GIBBS, INC. FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,667
<SECURITIES> 0
<RECEIVABLES> 32,416
<ALLOWANCES> 3,506
<INVENTORY> 49,229
<CURRENT-ASSETS> 89,939
<PP&E> 5,475
<DEPRECIATION> 261
<TOTAL-ASSETS> 132,639
<CURRENT-LIABILITIES> 33,987
<BONDS> 85,100
0
0
<COMMON> 8,872
<OTHER-SE> (1,427)
<TOTAL-LIABILITY-AND-EQUITY> 132,639
<SALES> 42,043
<TOTAL-REVENUES> 42,043
<CGS> 29,084
<TOTAL-COSTS> 29,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 238
<INTEREST-EXPENSE> 2,883
<INCOME-PRETAX> (859)
<INCOME-TAX> (356)
<INCOME-CONTINUING> (503)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,557)
<CHANGES> 0
<NET-INCOME> 2,060
<EPS-PRIMARY> (2.16)
<EPS-DILUTED> (2.16)
</TABLE>
