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 September 30, 1997
Commission file number 333-24507
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 X No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
DATE CLASS SHARES OUTSTANDING
---- ----- ------------------
<S> <C> <C>
September 30, 1997 Common Stock 1,016,177
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PART I - Financial Information PAGE
----
<S> <C>
Consolidated Balance Sheets (Unaudited) at September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations (Unaudited) for the Nine
Months and Three Months Ended September 30, 1997 and
1996 5
Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements (Unaudited) 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II - Other Information 18
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 1,155 $ 882
Accounts receivable, less allowance for doubtful
accounts of $3,693 in 1997 and $2,419 in 1996 42,191 22,336
Inventories 45,947 34,224
Prepaid expenses and other current assets 4,556 2,655
Deferred income taxes 881 804
---------- ---------
Total current assets 94,730 60,901
Property and equipment, net 5,276 4,400
Deferred financing costs, less accumulated
amortization of $488 in 1997 and $812 in 1996 4,095 2,323
Intangible assets, less accumulated amortization of
$856 in 1997 and $229 in 1996 32,877 11,060
Other assets 2,824 1,044
---------- ---------
$ 139,802 $ 79,728
========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Revolving line of credit $ 12,554 $ 19,347
Book overdrafts 1,276 1,499
Current installments of long-term debt 605 3,195
Trade accounts payable 16,892 12,806
Income taxes payable - 642
Accrued liabilities and other current liabilities 10,165 4,758
--------- --------
Total current liabilities 41,492 42,247
Deferred income taxes 573 290
Accrued retirement benefits 2,502 2,452
Long-term debt, excluding current installments 84,900 18,893
Other liabilities 157 168
--------- --------
Total liabilities 129,624 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
1,016,177 in 1997 and 976,277 in 1996 9,162 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 (603) (429)
Retained earnings (accumulated deficit) (1,369) 2,202
Cumulative translation adjustment (12) 238
--------- --------
Total stockholders' equity 7,178 12,678
--------- --------
$ 139,802 $ 79,728
========= ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- -------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 135,671 $ 85,412 $ 46,429 $ 28,839
Cost of goods sold 93,991 57,713 32,776 19,313
----------- ----------- ---------- ----------
Gross profit 41,680 27,699 13,653 9,526
Selling, general, and
administrative expenses 34,502 20,801 11,746 6,600
----------- ----------- ---------- ----------
Operating income 7,178 6,898 1,907 2,926
Interest expense 9,092 3,591 3,155 1,241
Other income (expense), net 192 (77) 102 (49)
----------- ----------- ---------- ----------
Income (loss) before
income taxes and
extraordinary item (1,722) 3,230 (1,146) 1,636
Income tax expense (benefit) (631) 1,211 (413) 626
----------- ----------- ---------- ----------
Income (loss) before
extraordinary item (1,091) 2,019 (733) 1,010
Extraordinary loss, net of
income tax benefit (1,557) - - -
----------- ----------- ----------- ----------
Net income (loss) $ (2,648) $ 2,019 $ (733) $ 1,010
=========== =========== =========== ==========
Earnings (loss) per common
share and common share
equivalent:
Income (loss) before
extraordinary item $ (1.13) $ 1.91 $ (0.75) $ 0.92
Extraordinary item, net (1.60) - - -
----------- ----------- ----------- -----------
Net income (loss) per
share (2.73) $ 1.91 $ (0.75) $ 0.92
=========== =========== =========== ===========
Weighted average
number of common
shares and common
share equivalents 968,577 1,055,998 976,002 1,100,136
=========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Nine Months Ended
September 30,
----------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,649) $ 2,019
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 884 506
Provision for losses on accounts receivable 830 364
Amortization of intangible assets 628 130
Amortization of deferred financing costs 458 292
Amortization of debt discount 158 131
Deferred income taxes 205 -
Extraordinary loss on debt extinguishment, net 1,557 -
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Trade accounts receivable (7,090) (6,091)
Inventories 4,117 1,163
Prepaid expenses and other current assets 861 16
Other assets (1,417) (94)
Income taxes payable (1,280) 698
Trade accounts payable and other liabilities (6,183) (646)
-------- -------
Net cash used in operating activities (8,921) (1,512)
-------- -------
Cash flows from investing activities:
Capital expenditures (1,256) (740)
Proceeds from sale of property and equipment 58 10
Payment for business acquisitions, net of cash
acquired (37,690) (8,501)
-------- -------
Net cash used in investing activities (38,888) (9,231)
-------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from revolving line of credit 12,488 3,608
Decrease in book overdrafts (224) (500)
Principal payments on long-term debt (203) (1,529)
Proceeds from debt 83,980 6,167
Extinguishment of debt (41,137) -
Payment of financing costs (4,196) -
Repurchase and retirement of warrants (3,026) -
Proceeds from common stock issued in private
placement - 2,351
Proceeds from common stock issued to the
company's ESOP 425 405
--------- -------
Net cash provided by financing activities 48,107 10,502
--------- -------
Effect of exchange rates on cash balances (25) 1
Net increase (decrease) in cash 273 (240)
Cash at beginning of period 882 920
--------- -------
Cash at end of period $ 1,155 $ 680
========= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5,792 $ 3,121
========= =======
Income taxes $ 275 $ 344
========= =======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<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 nine months ending September 30, 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, 1996, the Company acquired certain assets of
Mitchell 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
$6,100,000 of indebtedness and $6,400,000 of trade payables. Macpherson is
primarily engaged in the distribution of embroidery equipment and supplies to
the apparel industry. Pro forma financial information would not differ
significantly for the periods presented.
<PAGE>
3. REFINANCING
Effective January 3, 1997, the Company issued $85,000,000 principal amount
of 12 1/4% 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.
4. GUARANTOR SUBSIDIARIES
Set forth below are condensed consolidating financial statements of the
subsidiaries of the Company that have fully and unconditionally, jointly and
severally guaranteed the Company's 12 1/4% Senior Notes (the "Guarantor
Subsidiaries") and the non-guarantor subsidiaries of the Company (the
"Non-Guarantor Subsidiaries"). As of September 30, 1997, the Guarantor
Subsidiaries were WG Apparel, Inc., Leadtec Systems, Inc., J&E Sewing Supplies,
Inc., W&G Daon, Inc. W&G Tennessee Imports, Inc., Clinton Management Corp.,
Clinton Machinery Corporation, Clinton Leasing Corp., Clinton Equipment Corp.,
Macpherson Meistergram, Inc. and Paradise Color Incorporated, and the
Non-Guarantor Subsidiaries were Willcox & Gibbs, Ltd., Sunbrand S.A. de C.V.,
Sunbrand Caribe S.A., Allied Machine Parts Ltd., M.E.C. (Sewing Machine
Limited), Unity Sewing Supply Company (UK) Limited, Allide Machine Parts
Limited, Natyork Limited, Forest Needle Company Limited, Morris & Ingram
(Textiles) Limited, Eildon Electronics Limited, Geoffrey E. Macpherson Canada,
Inc., Embroidery Leasing Corporation, Sunbrand de Colombia, Unity de Colombia
and Clinton de Mexico. The Guarantor Subsidiaries are wholly owned by the
Company, and there are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to the Company, except those generally
applicable under relevant corporation laws. Separate financial statements of
each Guarantor Subsidiary and eliminating entries have not been included because
management has determined that they are not material to investors.
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
ASSETS
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
Cash $ 589,568 $ 565,019 $ 1,154,587
Accounts receivable, net 35,894,381 6,296,183 42,190,564
Inventories 40,445,751 5,500,942 45,946,693
Other current assets 5,233,565 204,179 5,437,744
------------- ------------ ------------
Total current assets 82,163,265 12,566,323 94,729,588
Property and equipment, net 3,648,812 1,627,546 5,276,358
Intangible assets, net 36,972,050 - 36,972,050
Other assets 1,759,320 1,064,623 2,823,943
------------- ------------ ------------
$ 124,543,447 $ 15,258,492 $139,801,939
============= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving line of credit and current
installments of long-term debt $ 12,753,950 $ 404,600 $ 13,158,550
Book overdrafts 1,263,621 12,210 1,275,831
Trade accounts payable 15,089,062 1,803,019 16,892,081
Accrued liabilities and other current
liabilities 9,112,030 1,052,767 10,164,797
------------- ------------ ------------
Total current liabilities 38,218,663 3,272,596 41,491,259
Long-term debt, excluding current
installments 83,888,922 1,011,500 84,900,422
Other liabilities 2,869,879 361,850 3,231,729
------------- ------------ ------------
Total liabilities 124,977,464 4,645,946 129,623,410
Common stock subject to put option 3,000,000 - 3,000,000
Common stock 9,161,767 - 9,161,767
Other equity (deficit) (12,595,784) 10,612,546 (1,983,238)
------------- ------------ ------------
Total stockholders' equity (3,434,017) 10,612,546 7,178,529
------------- ------------ ------------
$124,543,447 $ 15,258,492 $139,801,939
============= ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales $ 118,829,849 $ 16,840,860 $ 135,670,709
Cost of goods sold 82,375,308 11,615,970 93,991,278
--------------- --------------- ---------------
Gross profit 36,454,541 5,224,890 41,679,431
Selling, general, and administrative expenses 30,551,265 3,950,665 34,501,930
--------------- --------------- ---------------
Operating income 5,903,276 1,274,225 7,177,501
Interest expense 8,955,530 136,887 9,092,417
Other, net 113,102 79,309 192,411
--------------- --------------- ---------------
Income (loss) before income taxes and
extraordinary item (2,939,152) 1,216,647 (1,722,505)
Income tax expense (benefit) (635,560) 4,078 (631,482)
--------------- --------------- ---------------
Income (loss) before extraordinary item (2,303,592) 1,212,569 (1,091,023)
Extraordinary loss, net of income tax benefit (1,556,898) - (1,556,898)
--------------- --------------- ---------------
Net income (loss) $ (3,860,490) $ 1,212,569 $ (2,647,921)
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
--------------- --------------- ---------------
<S> <C> <C> <C>
Net sales $ 77,617,704 $ 7,794,515 $ 85,412,219
Cost of goods sold 52,213,655 5,499,292 57,712,947
--------------- --------------- ---------------
Gross profit 25,404,049 2,295,223 27,699,272
Selling, general, and administrative expenses 18,942,694 1,858,325 20,801,019
--------------- --------------- ---------------
Operating income
6,461,355 436,898 6,898,253
Interest expense 3,591,266 - 3,591,266
Other, net (149,176) 72,500 (76,676)
--------------- --------------- ---------------
Income before income taxes 2,720,913 509,398 3,230,311
Income tax expense 1,125,245 86,036 1,211,281
--------------- --------------- ---------------
Net income $ 1,595,668 $ 423,362 $ 2,019,030
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from investing activities $ (9,396,917) $ 476,931 $ (8,919,986)
--------------- --------------- ---------------
Cash flows from investing activities:
Payment for business acquisitions (37,690,050) - (37,690,050)
Other changes (978,284) (219,752) (1,198,036)
--------------- --------------- ---------------
(38,668,334) (219,752) (38,888,086)
--------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from debt issuance 96,244,951 - 96,244,951
Principal payment on debt (41,135,398) (204,950) (41,340,348)
Payments for financing costs (4,196,126) - (4,196,126)
Repurchase and retirement of warrants (3,026,454) - (3,026,454)
Other changes 425,240 - 425,240
--------------- --------------- ---------------
48,312,213 (204,950) 48,107,263
--------------- --------------- ---------------
Effect of exchange rates on cash balances - (26,104) (26,104)
--------------- --------------- ---------------
Net change in cash 246,962 26,125 273,087
Cash at beginning of period 342,607 538,893 881,500
--------------- --------------- ---------------
Cash at end of period $ 589,569 $ 565,018 $ 1,154,587
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from investing activities $ (1,751,323) $ 238,988 $ (1,512,335)
---------------- --------------- ---------------
Cash flows from investing activities:
Payment for business acquisitions (8,500,581) - (8,500,581)
Other changes (479,652) (250,973) (730,625)
---------------- --------------- ---------------
(8,980,233) (250,973) (9,231,206)
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from debt issuance 9,275,018 - 9,275,018
Principal payment on debt (1,528,838) - (1,528,838)
Proceeds from sale of common stock 2,756,697 - 2,756,697
Other changes - - -
---------------- --------------- ---------------
10,502,877 - 10,502,877
---------------- --------------- ---------------
Effect of exchange rates on cash balances - 967 967
---------------- --------------- ---------------
Net change in cash (228,679) (11,018) (239,697)
Cash at beginning of period 314,821 605,417 920,238
---------------- --------------- ---------------
Cash at end of period $ 86,142 $ 594,399 $ 680,541
================ =============== ===============
</TABLE>
<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 17.0% of the Company's net sales for the nine months ended
September 30, 1997 are attributable to the operations of Clinton. Accordingly,
the results of the Company for the nine months ended September 30, 1997 are not
directly comparable to the results for the nine months ended September 30, 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 31.4% of
the Company's net sales for the nine months ended September 30, 1997 are
attributable to the operations of Macpherson. Accordingly, the results of the
Company for the first nine 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.
("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.
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 30.7 32.4 29.4 33.0
Selling, general and
administrative expenses 25.4 24.4 25.3 22.9
Operating income 5.3 8.1 4.1 10.1
Interest expense 6.7 4.2 6.8 4.3
Income taxes (0.5) 1.4 (0.9) 2.2
Net income (2.0) 2.4 (1.6) 3.5
======== ======== ======== ========
</TABLE>
Net sales were $135.7 million in the nine months ending September 30, 1997,
an increase of $50.2 million, or 58.8%, as compared to the nine months ending
September 30, 1996. Net sales were $46.4 million in the three months ending
September 30, 1997, an increase of $17.6 million, or 61.0%, as compared to the
1996 period. Net sales increased primarily as a result of the inclusion in the
1997 periods of the results of Macpherson, acquired in 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 $45.6 million and $17.3 million to net sales in the nine and three
months, respectively, ending September 30, 1997 compared with the nine and three
months ending September 30, 1996.
Net sales of Macpherson and Clinton declined, while the aggregate sales of
the Company's other principal subsidiaries increased, in the first nine months
of 1997 as compared to the 1996 period. During the third quarter of 1997, it
became apparent that a new line of embroidery machines produced by Barudan,
Macpherson's principal supplier, included a defect, which resulted in a halt of
all deliveries of such machines in August 1997 until the defect was corrected in
September 1997. In addition, during the 1997 period Barudan was late in
supplying certain new machines, and it imposed a limit on the available
quantities of other new machines that will continue through the first quarter of
1998. In the case of Clinton, during the 1997 period the Company experienced a
decline in demand for apparel screen printing equipment supplied by M&R Printing
Equipment, Inc. ("M&R") and an increase in costs associated with marketing
efforts in the Company's European and Asian sales territories for M&R equipment.
The Company has determined to discontinue its marketing of M&R equipment and has
entered into an exclusive distribution agreement with MHM Siebdruckmaschinen
Gesmbh. KG. ("MHM"), an Austrian company, to distribute its apparel screen
printing equipment in North and South American (excluding Brazil). The initial
term of the contract is for five years with automatic renewals for successive
two year periods unless cancelled by either party six months in advance. The
agreement calls for annual quotas. Although MHM's share of the apparel screen
printing market in the U.S. is currently substantially less than that of M&R,
the Company believes that it should be able to increase MHM's market penetration
<PAGE>
in the Western Hemisphere. However, no assurance can be given as to the future
levels of sales of MHM equipment.
Gross profit in the nine and three months ending September 30, 1997 was
$41.7 million and $13.7 million, respectively, an increase of $14.0 million, or
50.5%, and $4.1 million, or 43.3%, as compared with the same periods of 1996.
Gross profit increased primarily due to the inclusion of Macpherson, Clinton and
Mitchell in the 1997 periods. As a percentage of net sales, gross profit in the
nine and three months ending September 30, 1997 was 30.7% and 29.4%, as compared
with 32.4% and 33.0% in the same periods 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 of their sales are for equipment.
Selling, general and administrative expenses for the nine and three months
ending September 30, 1997 were $34.5 million and $11.7 million, respectively, an
increase of $13.7 million, or 65.9%, and $5.1 million, or 78.0%, as compared to
the same periods of 1996. The increase consisted primarily of the addition of
$8.4 million and $3.2 million of operating expenses for Macpherson, Clinton and
Mitchell in the nine and three months ending September 30, 1997. In addition,
Macpherson incurred additional expenses relating to corrections of a defect in a
new line of embroidery equipment and Clinton incurred higher marketing expenses
in its discontinued European and Asian markets. As a percentage of sales, such
expenses increased to 25.4% and 25.3% for the nine and three months ending
September 30, 1997, from 24.4% and 22.9% for the same periods of 1996, primarily
related to the Macpherson acquisition.
Operating income in the nine and three months ending September 30, 1997 was
$7.2 million and $1.9 million, respectively, an increase of $0.3 million, or
4.1%, and a decrease of $1.0 million, or 34.8%, as compared to the same periods
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
5.3% and 4.1% for the nine and three months ending September 30, 1997,
respectively, as compared to 8.1% and 10.1% in the same periods of 1996. The
decrease was principally attributable to the lower gross margins from
Macpherson's and Clinton's sales.
Interest expense was $9.1 million and $3.2 million in the nine and three
months ending September 30, 1997, respectively, an increase of $5.5 million, or
153.2%, and $1.9 million, or 154.2%, as compared with the same periods 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 nine and three months ending September
30, 1997 was a benefit of $0.6 million and $0.4 million, respectively, a
decrease of $1.8 million and $1.0 million, respectively, as compared to same
periods of 1996. The Company's effective tax rate was 36.6% and 36.0% in the
nine and three months ending 1997, as compared to 37.5% and 38.3% in the same
periods of 1996.
<PAGE>
The Company's results for the first nine 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 nine and three months ending September 30, 1997 was $2.6
million and $0.7 million, respectively, compared to net income of $2.0 million
and $1.0 million in the same periods 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
November 1996, and to satisfy working capital requirements. The balance of such
net proceeds was 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 October 31,
1997, $2.3 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
<PAGE>
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 $1.0 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 nine months of 1997
aggregated approximately $1.3 million. Such expenditures were primarily for
computer, office and warehouse equipment and improvements. The Company expects
an additional $0.5 million of capital expenditures in the fourth quarter of
1997, primarily relating to the consolidation of certain of Macpherson's
operations.
Net cash used in the Company's operating activities was $8.9 million during
the first nine months of 1997, principally due to working capital changes. Net
cash used in the Company's investing activities during the first nine months of
1997 were $8.9 million, related principally to the Macpherson acquisition. Net
cash provided by financing activities during the first nine months of 1997
aggregated $48.1 million, reflecting $84.0 million of borrowings from the
refinancing used to extinguish debt of $41.1 million, $4.2 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
(a) Exhibits
<TABLE>
<CAPTION>
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)
</TABLE>
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, the Company did not
file any reports on Form 8-K.
<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 November 13, 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
nine and three months ended September 30, 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>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary
item $ (1,091,023) $ 2,019,030 $ (732,443) $ 1,009,248
Extraordinary item, net (1,556,898) - - -
------------ ------------ ------------ ------------
Net income (loss) $ (2,647,921) $ 2,019,030 $ (732,443) $ 1,009,248
============ ============ ============ ============
Weighted average outstanding common
shares (includes 100,000 shares
subject to put option for the nine
months ended September 30, 1997 and
for the three months ended September
30, 1997 and 1996 and 88,890 shares
subject to put option for the nine
months ended September 30, 1996,
respectively) 968,577 910,331 976,002 950,804
Increase due to assumed issuance of
shares related to outstanding stock
options using the treasury stock
method - 1,575 - 1,575
------------ ------------ ------------ ------------
Increase due to assumed exercise of
stock warrants using the treasury
stock method - 144,093 - 147,758
------------ ------------ ------------ ------------
Adjusted weighted average number of
common shares and common share
equivalents 968,577 1,055,999 976,002 1,100,137
============ ============ ============ ============
Earnings (loss) per common share and
common share equivalent:
Netincome (loss) before extraordinary
item
$ (1.13) $ 1.91 $ (0.75) $ 0.92
Extraordinary item, net (1.60) - - -
------------ ------------ ------------ ------------
Net income (loss) $ (2.73) $ 1.91 $ (0.75) $ 0.92
============= ============= ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WILLCOX &
GIBBS, INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,155
<SECURITIES> 0
<RECEIVABLES> 42,191
<ALLOWANCES> 3,693
<INVENTORY> 45,947
<CURRENT-ASSETS> 94,730
<PP&E> 5,276
<DEPRECIATION> 884
<TOTAL-ASSETS> 139,802
<CURRENT-LIABILITIES> 41,491
<BONDS> 84,900
0
0
<COMMON> 9,162
<OTHER-SE> (1,984)
<TOTAL-LIABILITY-AND-EQUITY> 139,802
<SALES> 135,671
<TOTAL-REVENUES> 135,671
<CGS> 93,991
<TOTAL-COSTS> 93,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 830
<INTEREST-EXPENSE> 9,092
<INCOME-PRETAX> (1,722)
<INCOME-TAX> (631)
<INCOME-CONTINUING> (1,091)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,557)
<CHANGES> 0
<NET-INCOME> (2,648)
<EPS-PRIMARY> (2.73)
<EPS-DILUTED> (2.73)
</TABLE>
