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 June 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 ___ 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
------------- ------------ ------------------
June 30, 1997 Common Stock 1,002,981
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PART I - Financial Information PAGE
----
<S> <C>
Consolidated Balance Sheets (Unaudited) at June 30, 1997 and
December 31, 1996 3
Consolidated Statements of Operations (Unaudited) for the Six
Months and Three Months Ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited) for the Six
Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements (Unaudited) 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II - Other Information 16
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 1,331 $ 882
Accounts receivable, less allowance for doubtful
accounts of $3,667 in 1997 and $2,419 in 1996 39,179 22,336
Inventories 47,925 34,224
Prepaid expenses and other current assets 4,136 2,655
Assets held for sale 836 -
Deferred income taxes 1,053 804
------------ ------------
Total current assets 94,460 60,901
Property and equipment, net 5,486 4,400
Deferred financing costs, less accumulated
amortization of $305 in 1997 and $812 in 1996 3,970 2,323
Intangible assets, less accumulated amortization of
$633 in 1997 and $229 in 1996
32,073 11,060
Other assets 1,997 1,044
------------ ------------
$ 137,986 $ 79,728
============ ============
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Revolving line of credit $ 13,672 $ 19,347
Book overdrafts 620 1,499
Current installments of long-term debt 610 3,195
Trade accounts payable 16,453 12,806
Income taxes payable - 642
Accrued liabilities and other current liabilities 7,578 4,758
------------ ------------
Total current liabilities 38,933 42,247
Deferred income taxes 529 290
Accrued retirement benefits 2,529 2,452
Long-term debt, excluding current installments 84,861 18,893
Other liabilities 117 168
------------ ------------
Total liabilities 126,969 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
1,002,981 in 1997 and 976,277 in 1996 9,030 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 134 1,904
Subscriptions receivable (405) (429)
Retained earnings (accumulated deficit) (836) 2,202
Cumulative translation adjustment 94 238
------------ ------------
Total stockholders' equity 8,017 12,678
------------ ------------
$ 137,986 $ 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>
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 89,242 $ 56,574 $ 47,199 $ 30,254
Cost of goods sold 61,216 38,400 32,132 20,424
-------------- -------------- -------------- --------------
Gross profit 28,026 18,174 15,067 9,830
Selling, general, and
administrative expenses 22,756 14,201 11,782 7,438
-------------- -------------- -------------- --------------
Operating income 5,270 3,973 3,285 2,392
Interest expense 5,937 2,350 3,054 1,250
Other income, net 90 (29) 51 (42)
-------------- -------------- -------------- --------------
Income (loss) before
income taxes (577) 1,594 282 1,100
Income tax expense (benefit) (218) 584 138 406
-------------- -------------- -------------- --------------
Income (loss) before
extraordinary item (359) 1,010 144 694
Extraordinary loss, net of
income tax benefit (1,557) - - -
-------------- -------------- -------------- --------------
Net income (loss) $ (1,916) $ 1,010 144 694
============== ============== ============== ==============
Earnings (loss) per common
share and common share
equivalent:
Income (loss) before
extraordinary item $ (0.37) $ 0.98 $ 0.14 0.64
Extraordinary item, net (1.62) - - -
-------------- -------------- -------------- --------------
Net income (loss) per
share $ (1.99) $ 0.98 $ 0.14 $ 0.64
-------------- -------------- -------------- --------------
Weighted average
number of common
shares and common
share equivalents 964,865 1,033,930 1,019,078 1,088,958
============== ============== ============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,916) $ 1,010
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 593 338
Provision for losses on accounts receivable 495 303
Amortization of intangible assets 404 82
Amortization of deferred financing costs 305 189
Amortization of debt discount 105 85
Deferred income taxes (11) -
Extraordinary loss on debt extinguishment, net 1,557 -
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Trade accounts receivable (3,682) (5,071)
Inventories 2,501 1,309
Prepaid expenses and other current assets (333) (685)
Other assets (590) (93)
Income taxes payable (501) 363
Trade accounts payable and other liabilities (9,203) (830)
----------- -----------
Net cash used in operating activities (10,276) (3,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (797) (436)
Proceeds from sale of property and equipment 58 10
Payment for business acquisitions, net of cash
acquired (37,290) (8,328)
----------- -----------
Net cash used in investing activities (38,029) (8,754)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,916) $ 1,010
Cash flows from financing activities:
Net proceeds from revolving line of credit 13,607 3,708
Increase (decrease) in book overdrafts (879) 118
Principal payments on long-term debt (203) (983)
Proceeds from debt 83,980 6,167
Extinguishment of debt (41,137) -
Payment of financing costs (4,006) (275)
Repurchase and retirement of warrants (3,026) -
Proceeds from common stock issued in private
placement - 2,283
Proceeds from common stock issued to company
ESOP 425 168
----------- -----------
Net cash provided by financing activities 48,761 11,186
----------- -----------
Effect of exchange rates (7) -
Net increase (decrease) in cash 449 (568)
Cash at beginning of period 882 920
----------- -----------
Cash at end of period $ 1,331 $ 352
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5,417 $ 2,030
=========== ===========
Income taxes $ 262 $ 239
=========== ===========
</TABLE>
See accompanying notes to unaudited 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 six months ending June 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
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 $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 12.25% 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.
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 June 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, Matyork 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 have not been included because management has
determined that they are not material to investors.
WILLCOX & GIBBS, INC.
CONSOLIDATED BALANCE SHEETS JUNE 30, 1997
<TABLE>
<CAPTION>
ASSETS
GUARANTOR NON GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------- ------------- -------------
<S> <C> <C> <C>
Cash $ 587,106 $ 744,202 $ 1,331,308
Accounts receivable, net 33,542,886 5,636,607 39,179,493
Inventories 43,119,290 4,805,485 47,924,775
Other current assets 5,270,202 754,454 6,024,656
------------- ------------- -------------
Total current assets 82,519,484 11,940,748 94,460,232
Property and equipment, net 3,866,870 1,619,368 5,486,238
Intangible assets, net 36,042,433 - 36,042,433
Other assets 1,293,914 703,299 1,997,213
------------- ------------- -------------
$123,722,701 $ 14,263,415 $137,986,116
============= ============= =============
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current notes and current
portion long-term debt $ 3,872,440 $ 410,100 $ 14,282,540
Trade accounts payable 14,800,402 1,652,325 16,452,727
Accrued liabilities and other
current liabilities 7,393,697 804,886 8,198,583
------------- ------------- -------------
Total current liabilities 36,066,539 2,867,311 38,933,850
Long-term debt, excluding current
installments 83,835,797 1,025,250 84,861,047
Other liabilities 2,812,221 362,050 3,174,271
------------- ------------- -------------
Total liabilities 122,714,557 4,254,611 126,969,168
Common stock subject to put option 3,000,000 - 3,000,000
Common stock 9,029,807 - 9,029,807
Other equity (deficit) (11,021,663) 10,008,804 (1,012,859)
------------- ------------- -------------
Total stockholders' equity (1,991,856) 10,008,804 8,018,948
------------- ------------- -------------
$123,722,701 $ 14,263,415 $137,986,116
============= ============= =============
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
GUARANTOR NON GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 77,725,490 $ 11,516,044 $ 89,241,534
Cost of goods sold 53,228,893 7,987,237 61,216,130
------------- ------------- -------------
Gross profit 24,496,597 3,528,807 28,025,404
Selling, general, and
administrative expenses 20,199,929 2,556,545 22,756,474
------------- ------------- -------------
Operating income 4,296,668 972,262 5,268,930
Interest expense 5,848,405 88,650 5,937,055
Other, net 36,043 54,151 90,194
------------- ------------- -------------
Income (loss) before income
taxes (1,515,694) 937,763 (577,931)
Income tax expense (benefit) (238,759) 19,408 (219,351)
------------- ------------- -------------
Income (loss) before
extraordinary item (1,276,935) 918,355 (358,580)
------------- ------------- -------------
Extraordinary loss, net of
income tax benefit (1,556,898) - (1,556,898)
------------- ------------- -------------
Net income (loss) $ (2,833,833) $ 918,355 $ (1,915,478)
============= ============= =============
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
GUARANTOR NON GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 50,311,496 $ 6,262,095 $ 56,573,591
Cost of goods sold 34,020,870 4,378,923 38,399,793
------------- ------------- -------------
Gross profit 16,290,626 1,883,172 18,173,798
Selling, general, and
administrative expenses 12,680,375 1,520,670 14,201,045
------------- ------------- -------------
Operating income 3,610,251 362,502 3,972,753
Interest expense 2,350,151 - 2,350,151
Other, net (101,269) 72,500 (28,769)
------------- ------------- -------------
Income before income taxes 1,158,831 435,002 1,593,833
Income tax expense 498,015 86,036 584,051
------------- ------------- -------------
Income before extraordinary
item 660,816 348,966 1,009,782
------------- ------------- -------------
Extraordinary loss, net of
income tax benefit - - -
------------- ------------- -------------
Net income $ 660,816 $ 348,966 $ 1,009,782
============= ============= =============
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
GUARANTOR NON GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating
Activities $(10,912,022) $ 636,873 $(10,275,149)
------------- ------------- -------------
Cash Flows From Investing
Activities
Payment for business
acquisitions (37,290,321) (37,290,321)
Other changes (518,428) (219,752) (738,180)
------------- ------------- -------------
(37,808,749) (219,752) (38,028,501)
Cash Flows From Financing
Activities
Proceeds from debt issuance 96,707,695 - 96,707,695
Principal payment on debt (41,135,398) (204,950) (41,340,348)
Payments for financing costs (4,005,812) - (4,005,812)
Repurchase and retirement of
warrants (3,026,454) - (3,026,454)
Other changes 425,240 - 425,240
------------- ------------- -------------
48,965,271 (204,950) 48,760,321
Effect of exchange rates - (6,863) (6,863)
------------- ------------- -------------
Net change in cash 244,500 205,308 449,808
Cash at beginning of period 342,607 538,893 881,500
------------- ------------- -------------
Cash at end of period $ 587,107 $ 744,201 $ 1,331,308
============= ============= =============
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
GUARANTOR NON GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating
Activities $ (3,146,078) $ 146,632 $ (2,999,446)
------------- ------------- -------------
Cash Flows From Investing
Activities
Payment for business
acquisitions (8,368,017) - (8,328,017)
Other changes (268,130) (157,412) (425,542)
------------- ------------- -------------
(8,596,147) (157,412) (8,753,559)
Cash Flows From Financing
Activities
Proceeds from debt issuance 9,993,678 - 9,993,678
Principal payment on debt (983,167) - (983,167)
Proceeds from sale of
common stock 2,449,972 - 2,449,972
Other changes (275,114) - (275,114)
------------- ------------- -------------
11,185,369 - 11,185,369
Effect of exchange rates - (238) (238)
------------- ------------- -------------
Net change in cash (556,856) (11,018) (567,874)
Cash at beginning of period 314,821 605,417 920,238
------------- ------------- -------------
Cash at end of period $ (242,035) $ 594,399 $ 352,364
============= ============= =============
</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 18.1% of the Company's net sales for the six months ended June 30,
1997 are attributable to the operations of Clinton. Accordingly, the results of
the Company for the six months ended June 30, 1997 are not directly comparable
to the results for the six months ended June 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 28.6% of
the Company's net sales for the six months ended June 30, 1997 are attributable
to the operations of Macpherson. Accordingly, the results of the Company for the
first six 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>
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------- ----------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 31.4 32.1 31.9 32.5
Selling, general and
administrative expenses
25.5 25.1 25.0 24.6
Operating income 5.9 7.0 7.0 7.9
Interest expense 6.7 4.2 6.5 4.1
Income taxes (0.2) 1.0 0.3 1.3
Net income (2.1) 1.8 0.3 2.3
======== ======== ======== ========
</TABLE>
Net sales were $89.2 million in the six months ending June 30, 1997,
an increase of $32.7 million, or 57.7%, as compared to the six months ending
June 30, 1996. Net sales were $47.2 million in the three months ending June 30,
1997, an increase of $16.9 million, or 56.0%, 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 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 $28.3 million and $14.2
million to net sales in the six and three months, respectively, ending June 30,
1997 compared with the six and three months ending June 30, 1996.
Gross profit in the six and three months ending June 30, 1997 was
$28.0 million and $15.1 million, respectively, an increase of $9.9 million, or
54.2%, and $5.2 million, or 53.3%, 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
six and three months ending June 30, 1997 was 31.4% and 31.9%, as compared with
32.1% and 32.5% 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 six and three
months ending June 30, 1997 were $22.8 million and $11.8 million, respectively,
an increase of $8.6 million, or 60.2%, and $4.3 million, or 58.4%, as compared
to the same periods of 1996. The increase consisted primarily of the addition of
$6.5 million and $3.0 million of operating expenses for Macpherson, Clinton and
Mitchell in the six and three months ending June 30, 1997. As a percentage of
sales, such expenses increased to 25.5% and 25.0% for the six and three months
ending June 30, 1997, from 25.1% and 24.6% for the same periods of 1996,
primarily related to the Macpherson acquisition.
<PAGE>
Operating income in the six and three months ending June 30, 1997 was
$5.3 million and $3.3 million, respectively, an increase of $1.3 million, or
32.7%, and $0.9 million, or 37.3%, 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 5.9% and
7.0% for the six and three months ending June 30, 1997, respectively, as
compared to 7.0% and 7.9% 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 $5.9 million and $3.1 million in the six and
three months ending June 30, 1997, respectively, an increase of $3.6 million, or
152.6%, and $1.8 million, or 144.4%, 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 six and three months ending June
30, 1997 was a benefit of $0.2 million and a charge of $0.1 million,
respectively, a decrease of $0.8 million and $0.3 million, respectively, as
compared to same periods of 1996. The Company's effective tax rate was 37.8% and
48.9% in the six and three months ending 1997, as compared to 36.6% and 36.9% in
the same periods of 1996.
The Company's results for the first six 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 income (loss) in the six and three months ending June 30, 1997 was
($1.9) million and $0.1 million, respectively, compared to net income of $1.0
million and $0.7 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 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 July
31, 1997, $1.8 million was available to be borrowed by the Company under the New
Credit Facility.
<PAGE>
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 six months of 1997
aggregated approximately $0.8 million. Such expenditures were primarily for
computer, office and warehouse equipment and improvements.
Net cash used in the Company's operating activities was $10.3 million
during the first six months of 1997, principally due to working capital changes.
The Company's investing activities during the first six months of 1997 were
$37.3 million, related principally to the Macpherson acquisition. Net cash
provided by financing activities aggregated $48.8 million, reflecting $84.0
million of borrowings from the refinancing used to extinguish debt of $41.1
million, $4.0 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
EXHIBIT NO. DESCRIPTION
----------- -----------
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 June 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 August 14, 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 six
and three months ended June 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>
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary
item $ (358,580) $ 1,009,782 $ 144,382 $ 694,123
Extraordinary item, net (1,556,898) - - -
-------------- -------------- -------------- --------------
Net income (loss) $ (1,915,478) $ 1,009,782 $ 144,382 $ 694,123
============== ============== ============== ==============
Weighted average outstanding common
shares (includes 100,000 shares
subject to put option for the six
months ended June 30, 1997 and for the
three months ended June 30, 1997 and
1996 and 83,333 shares subject to put
option for the six months ended June
30, 1996, respectively) 964,865 890,094 976,055 939,625
Increase due to assumed issuance of
shares related to outstanding stock
options using the treasury stock
method - 1,575 6,083 1,575
Increase due to assumed exercise of
stock warrants using the treasury
stock method - 142,261 36,940 147,758
-------------- -------------- -------------- --------------
Adjusted weighted average number of
common shares and common share
equivalents 964,865 1,033,930 1,019,078 1,088,958
============== ============== ============== ==============
Earnings (loss) per common share and
common share equivalent:
Net income (loss) before extraordinary
item
$ (0.37) $ 0.98 $ 0.14 $ 0.64
Extraordinary item, net (1.62) - - -
-------------- -------------- -------------- --------------
Net income (loss) $ (1.99) $ 0.98 $ 0.14 $ 0.64
============== ============== ============== ==============
</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 JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,331
<SECURITIES> 0
<RECEIVABLES> 39,179
<ALLOWANCES> 3,667
<INVENTORY> 47,925
<CURRENT-ASSETS> 94,460
<PP&E> 5,486
<DEPRECIATION> 593
<TOTAL-ASSETS> 137,986
<CURRENT-LIABILITIES> 38,933
<BONDS> 84,861
0
0
<COMMON> 9,030
<OTHER-SE> (1,013)
<TOTAL-LIABILITY-AND-EQUITY> 137,986
<SALES> 89,242
<TOTAL-REVENUES> 89,242
<CGS> 61,216
<TOTAL-COSTS> 61,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 495
<INTEREST-EXPENSE> 5,937
<INCOME-PRETAX> (577)
<INCOME-TAX> (218)
<INCOME-CONTINUING> (359)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,557)
<CHANGES> 0
<NET-INCOME> (1,916)
<EPS-PRIMARY> (1.99)
<EPS-DILUTED> (1.99)
</TABLE>
