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, 1998
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)
(732) 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:
Date Class Shares Outstanding
-------- --------- ----------------------
June 30, 1998 Common Stock 1,001,319
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
INDEX
-----
PART I - Financial Information Page
----
Consolidated Balance Sheets (Unaudited) at June
30, 1998 and December 31, 1997 3
Consolidated Statements of Operations (Unaudited)
for the Six Months and Three Months Ended
June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 1998 and
1997 6
Notes to Unaudited Consolidated Financial
Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II - Other Information 19
Signature 20
<PAGE>
<TABLE>
<CAPTION>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $458 $ 1,325
Accounts receivable, less allowance for doubtful accounts of
$4,760 in 1998 and $4,315 in 1997 36,148 38,466
Inventories 44,617 48,735
Prepaid expenses and other current assets 4,200 3,496
Deferred income taxes 1,756 1,402
----------- ------------
Total current assets 87,179 93,424
Property and equipment, net 5,431 5,595
Deferred financing costs, less accumulated amortization of $975
in 1998 and $650 in 1997 3,578 3,903
Intangible assets, less accumulated amortization of $1,478 in
1998 and $1,060 in 1997 31,968 32,386
Deferred income taxes 2,752 1,313
Other assets 5,088 3,193
----------- ------------
$ 135,996 $ 139,814
=========== ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Revolving line of credit $ 15,290 $ 10,617
Book overdrafts 3,266 3,233
Current installments of long-term debt 599 594
Trade accounts payable 16,531 23,254
Income taxes payable 53 24
Accrued liabilities and other current liabilities 8,062 6,832
----------- ------------
Total current liabilities 43,801 44,554
Accrued retirement benefits 2,438 2,431
Long-term debt, excluding current installments 84,559 84,742
----------- ------------
Total liabilities 130,798 131,727
----------- ------------
Common stock subject to put option - 3,000
Stockholders' Equity:
Common stock:
Class A, $10 stated value. Authorized 1,500,000 shares;
issued and outstanding 1,225,116 in 1998 and 1,001,319
in 1997 12,251 9,013
Class B, no par value. Authorized 250,000 shares; none
issued - -
Class C, no par value. Authorized 250,000 shares; none
issued - -
Class A common stock subscriptions receivable (392) (379)
Accumulated deficit (6,630) (3,624)
Accumulated other comprehensive income - cumulative
translation adjustments (31) 77
----------- ------------
Total stockholders' equity 5,198 5,087
----------- ------------
$135,996 $139,814
=========== ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 90,809 89,242 $ 45,896 $ 47,199
Cost of goods sold 62,627 61,216 31,427 32,132
-------- -------- -------- --------
Gross profit 28,182 28,026 14,469 15,067
Selling, general, and
administration expense 25,330 22,756 13,240 11,782
Restructuring charge 1,850 - 1,850 -
-------- -------- -------- --------
Operating income (loss) 1,002 5,270 (621) 3,285
Interest expense 6,233 5,937 3,182 3,054
Other income - net 308 90 324 51
-------- -------- -------- --------
Income (loss) before income
taxes (4,923) (577) (3,479) 282
Income tax expense (benefit) (1,763) (218) (1,167) 138
-------- -------- -------- --------
Income (loss) before extra-
ordinary item (3,160) (359) (2,312) 144
Extraordinary loss, net of income
tax benefit - (1,557) - -
-------- -------- -------- --------
Net income (loss) $ (3,160) $ (1,916) $ (2,312) $ 144
======== ======== ======== ========
Basic and diluted income (loss)
per common share and common share
and common share equivalent:
Income (loss) extraordinary item $ (3.19) $ (0.37) $ (2.31) $ 0.15
Extraordinary item, net - (1.62) - -
-------- -------- -------- --------
Net income (loss) per share $ (3.19) $ (1.99) $ (2.31) $ 0.15
======== ======== ======== ========
Weighted average number of common
shares and common share
equivalents:
Basic 990 963 1,001 970
======== ======== ======== ========
Diluted 990 963 1,001 980
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
UNAUDITED
For the Six Months Ended
June 30,
------------------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,160) $ (1,916)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 647 593
Provision for losses on accounts receivable 526 495
Amortization of intangible assets 418 404
Amortization of deferred financing costs 325 305
Amortization of debt discount 106 105
Deferred income taxes (1,792) (11)
Extraordinary loss on debt extinguishment, net - 1,557
Changes in operating assets and liabilities, net of effect of
business acquisitions:
Trade accounts receivable 1,751 (3,682)
Inventories 4,077 2,501
Prepaid expenses and other current assets (705) (333)
Other assets (1,273) (590)
Income taxes payable 29 (501)
Trade accounts payable and other liabilities (6,103) (9,203)
---------- ---------
Net cash used in operating activities (5,154) (10,276)
---------- ---------
Cash flows from investing activities:
Capital expenditures (529) (797)
Proceeds from sale of property and equipment 25 58
Payment for business acquisition, net of cash acquired - (37,290)
---------- ---------
Net cash used in investing activities (504) (38,029)
---------- ---------
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)
UNAUDITED
For the Six Months Ended
June 30,
------------------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from revolving line of credit $ 4,673 $ 13,607
Increase (decrease) in book overdrafts 34 (879)
Principal payments on long-term debt (296) (203)
Proceeds from debt issued in business acquisitions - 83,980
Extinguishment of debt - (41,137)
Payment of financing costs - (4,006)
Repurchase and retirement of warrants - (3,026)
Proceeds from common stock issued to Company ESOP 379 425
---------- ---------
Net cash provided by financing activities 4,790 48,761
---------- ---------
Effect of exchange rate changes on cash 1 (7)
Net increase (decrease) in cash (867) 449
Cash at beginning of period 1,325 882
---------- ---------
Cash at end of period $ 458 $ 1,331
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5,776 $ 5,417
========== ==========
Income taxes $ 9 $ 262
========== ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 principles 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 and three months ending June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
2. ACQUISITION
Effective January 3, 1997 the Company acquired all the outstanding
capital stock of Macpherson Meistergram, Inc. ("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.
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, to redeem common stock warrants for a total of $3,026,000, and to
finance the Macpherson acquisition.
4. CLINTON RESTRUCTURING
During June 1998, the Company effected a restructuring with respect
to its Clinton Management Corp. and Clinton Machinery Corp. subsidiaries
(together "Clinton"), principally involving the departure from the Company of
the former shareholders of Clinton and certain other employees. The Company has
taken a charge of $2.8 million in the second quarter of 1998, principally with
respect to severance payments, as well as for the impairment of certain
inventory and accounts receivable. Of this amount, $1.9 million has been
reflected as a restructuring charge, $0.6 million has been charged to selling,
general and administrative expense and $0.3 million has been charged to cost of
goods sold. As part of the restructuring, the Company's obligations arising from
its original purchase of Clinton have been revised to reduce the contingent
payments for each of the years 1998, 1999 and 2000 from 35% of Clinton's
operating income, as defined, to 10% thereof and to eliminate the former Clinton
shareholders' option to put 100,000 shares of the Company's Class A common stock
to the Company at $30 per share.
<PAGE>
5. PENSION PLAN
On May 21, 1998, the Board of Directors of the Company approved
amendments to the WG Apparel, Inc. Retirement Plan, effective July 31, 1998,
providing that no employees shall become a participant in the Plan after such
date and that no participant's accrued benefits under the Plan shall increase
after such date.
6. INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
income (loss) per share, before extraordinary item, for the six and three months
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Numerator for basic and diluted income (loss) per
share $(3,160,362) $(1,915,478) $(2,312,373) $144,382
============ ============= ============ ===========
Denominator for basic income (loss) per 990,492 963,266 1,001,319 970,460
share-weighted-average shares outstanding
Effect of dilutive securities:
Employee stock options - - - 9,733
Warrants - - - -
------------ ------------- ------------ -----------
Denominator for diluted income (loss) per share
990,492 963,266 1,001,319 980,193
============ ============= ============ ===========
Income (loss) per share - basic $ (3.19) $ (1.99) $ (2.31) $ 0.15
============ ============= ============ ===========
Income (loss) per share - diluted $ (3.19) $ (1.99) $ (2.31) $ 0.15
============ ============= ============ ===========
</TABLE>
Employee stock options and warrants which were outstanding were
excluded from the computation in instances where the effect would be
antidilutive.
7. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("Statement
130"). Statement 130 establishes items that are required to be recognized under
accounting standards as components of comprehensive income. Statement 130
requires, among other things, that an enterprise report a total for
comprehensive income in financial statements of interim periods issued to
shareholders. For the three and six month periods ended June 30, 1998 and 1997,
the Company's consolidated comprehensive income does not differ materially from
the consolidated net income (loss) set forth in the accompanying consolidated
statements of operations.
<PAGE>
8. 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, 1998, 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>
CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 30, 1998
(In ThousandS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
ASSETS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- -------------- --------------
<S> <C> <C> <C>
Cash $ 490 $ (32) $ 458
Accounts receivable, net 30,933 5,215 36,148
Inventories 32,263 12,354 44,617
Other current assets 5,710 246 5,956
-------------- -------------- --------------
Total current assets 69,396 17,783 87,179
Property and equipment, net 3,915 1,516 5,431
Intangible assets, net 35,546 - 35,546
Other assets 6,079 1,761 7,840
-------------- -------------- --------------
$ 114,936 $ 21,060 $ 135,996
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current notes and installments of long-term debt
$ 15,472 $ 417 $ 15,889
Book overdrafts 3,152 114 3,266
Trade accounts payable 8,192 8,339 16,531
Income taxes payable - 53 53
Accrued liabilities and other current liabilities
6,896 1,166 8,062
-------------- -------------- --------------
Total current liabilities 33,712 10,089 43,801
Long-term debt, excluding current installments
83,934 625 84,559
Accrued retirement benefits 2,438 - 2,438
-------------- -------------- --------------
Total liabilities 120,084 10,714 130,798
Common stock 12,251 - 12,251
Other equity (deficit) (17,399) 10,346 (7,053)
-------------- -------------- --------------
Total stockholders' equity (5,148) 10,346 5,198
-------------- -------------- --------------
$ 114,936 $ 21,060 $ 135,996
============== ============== ==============
</TABLE>
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
ASSETS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- -------------- --------------
<S> <C> <C> <C>
Cash $ 1,254 $ 71 $ 1,325
Accounts receivable, net 33,209 5,257 38,466
Inventories 42,369 6,366 48,735
Other current assets 4,706 192 4,898
-------------- -------------- --------------
Total current assets 81,538 11,886 93,424
Property and equipment, net 4,037 1,558 5,595
Intangible assets, net 36,289 - 36,289
Other assets 2,619 1,887 4,506
-------------- -------------- --------------
$124,483 $ 15,331 $ 139,814
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current notes and installments of long-term debt
$10,798 $ 413 $ 11,211
Book overdrafts 3,233 - 3,233
Trade accounts payable 20,699 2,555 23,254
Income taxes payable - 24 24
Accrued liabilities and other current liabilities 5,294 1,538 6,832
-------------- -------------- --------------
Total current liabilities 40,024 4,530 44,554
Long-term debt, excluding current installments
83,917 825 84,742
Accrued retirement benefits 2,070 361 2,431
-------------- -------------- --------------
Total liabilities 126,011 5,716 131,727
-------------- -------------- --------------
Common stock subject to put option 3,000 - 3,000
Common stock 9,013 - 9,013
Other equity (deficit) (13,541) 9,615 (3,926)
-------------- -------------- --------------
Total stockholders' equity (4,528) 9,615 5,087
-------------- -------------- --------------
$124,483 $ 15,331 $ 139,814
============== ============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(In thousands)
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 79,611 $ 11,198 $ 90,809
Cost of goods sold 55,503 7,124 62,627
-------------- -------------- --------------
Gross profit 24,108 4,074 28,182
Selling, general, and administrative expenses 24,125 3,055 27,180
-------------- -------------- --------------
Operating income (17) 1,019 1,002
Interest expense 6,160 73 6,233
Other income (expense), net 315 (7) 308
-------------- -------------- --------------
Income (loss) before income taxes (5,862) 939 (4,923)
Income tax expense (benefit) (1,792) 29 (1,763)
-------------- -------------- --------------
Net income (loss) $ (4,070) $ 910 $ (3,160)
============= ============== ==============
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(In thousands)
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 77,726 $ 11,516 $ 89,242
Cost of goods sold 53,229 7,987 61,216
-------------- -------------- --------------
Gross profit 24,497 3,529 28,026
Selling, general, and administrative expenses 20,199 2,557 22,756
-------------- -------------- --------------
Operating income 4,298 972 5,270
Interest expense 5,848 89 5,937
Other income (expense), net 36 54 90
-------------- -------------- --------------
Income (loss) before income taxes and (1,514) 937 (577)
extraordinary item
Income tax expense (benefit) (237) 19 (218)
-------------- -------------- --------------
Income (loss) before extraordinary item (1,277) 918 (359)
Extraordinary loss, net of income tax benefit (1,557) - (1,557)
-------------- -------------- --------------
Net income (loss) $ (2,834) $ 918 $ (1,916)
============= ============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities $ (5,283) $ 129 $ (5,154)
-------------- -------------- --------------
Cash flows from investing activities (477) (27) (504)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from debt issuance 4,707 - 4,707
Principal payment on debt (90) (206) (296)
Other changes 379 - 379
-------------- -------------- --------------
4,996 (206) 4,790
-------------- -------------- --------------
Effect of exchange rates on cash balances - 1 1
-------------- -------------- --------------
Net change in cash (764) (103) (867)
Cash at beginning of period 1,254 71 1,325
-------------- -------------- --------------
Cash at end of period $ 490 $ (32) $ 458
=============== ============== ==============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities $(10,913) $ 637 $ (10,276)
-------------- -------------- --------------
Cash flows from investing activities:
Payment for business acquisitions (37,290) (37,290)
Other changes (519) (220) (739)
-------------- -------------- --------------
(37,809) (220) (38,029)
Cash flows from financing activities:
Proceeds from debt issuance 96,708 - 96,708
Extinguishment of debt (41,135) (205) (41,340)
Payment of financing costs (4,006) - (4,006)
Repurchase and retirement of warrants (3,026) - (3,026)
Other changes 425 - 425
-------------- -------------- --------------
48,966 (205) 48,761
-------------- -------------- --------------
Effect of exchange rates on cash balances - (7) (7)
-------------- -------------- --------------
Net change in cash 244 205 449
Cash at beginning of period 343 539 882
-------------- -------------- --------------
Cash at end of period $ 587 $ 744 $ 1,331
=============== ============== ==============
</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.
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) its Macpherson Meistergram, Inc. ("Macpherson") subsidiary 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>
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 31.0 31.4 31.5 31.9
Selling, general and administrative expenses 27.9 25.5 28.8 25.0
Restructuring charge 2.0 0.0 4.0 0.0
Operating income (loss) 1.1 5.9 (1.4) 7.0
Interest expense 6.9 6.7 6.9 6.5
Income tax expense (benefit) (1.9) (0.2) (2.5) 0.3
Net income (loss) (3.5) (2.1) (5.0) 0.3
===== ===== ===== ====
</TABLE>
<PAGE>
SIX AND THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX AND THREE
MONTHS ENDED JUNE 30, 1997
Net sales were $90.8 million in the six months ending June 30, 1998,
an increase of $1.6 million, or 1.8%, as compared to the six months ending June
30, 1997. Net sales were $45.9 million in the three months ending June 30, 1998,
a decrease of $1.3 million, or 2.8%, as compared to the 1997 period.
Macpherson's sales increased 36.0% and 23.8% for the six and three months ended
June 30, 1998 over the same periods in 1997, principally attributable to strong
sales of a new line of embroidery equipment and the correction in late 1997 of a
mechanical deficiency identified in certain equipment in early 1997.
Macpherson's increases in sales were partially offset by a decline of 36.1% and
40.6% in the sales of the Company's Clinton operation for the six and three
months ended June 30, 1998. Clinton's net sales were negatively affected by a
declining screen printing market and the replacement of an existing equipment
product line, which impacted market share. Sales for the Company's other
operations experienced a decline of 3.7% and 5.0% for the six and three months
ended June 30, 1998 over the same period in 1997, principally due to the
continued decline in apparel manufacturing in the United States.
Gross profit in the six months ending June 30, 1998 was $28.2
million, an increase of $0.2 million, or 0.6%, as compared to the same period of
1997. Gross profit for the three months ending June 30, 1998 was $14.5 million,
a decrease of $0.6 million or 4.0% as compared to the same period in 1997. As a
percentage of net sales, gross profit in the six and three months ending June
30, 1998 was 31.0% and 31.5%, as compared with 31.4% and 31.9% in the same
periods in 1997. The decrease in gross profit percentage was primarily
attributable to Clinton. Clinton's margins were affected by a $0.3 million
charge in connection with the restructuring described in Note 4 of the
accompanying unaudited consolidated financial statements.
Selling, general and administrative expenses in the six months ending
June 30, 1998 were $25.3 million, an increase of $2.6 million, or 11.3%, as
compared to the same period of 1997. Such expenses were $13.2 million in the
three months ended June 30, 1998, an increase of $1.5 million, or 12.4%, as
compared to the same period in 1997. As a percentage of the net sales, such
expenses increased to 27.9% and 28.8% for the six and three months ending June
30, 1998 from 25.5% and 25.0% in the same periods of 1997. The increase in
expenses as a percentage of sales was principally a result of increased costs as
the Company continues to expand in Latin America, fixed overhead costs at the
Company's Clinton operation that did not decline in proportion to lower sales at
Clinton and a $0.6 million charge for bad debts in connection with the Clinton
restructuring described in Note 4 of the accompanying unaudited consolidated
financial statements. As a result of the Clinton restructuring, the Company
accrued severance payments and other related costs of approximately $1.9 million
in the three months ended June 30, 1998.
In the six months and three months ending June 30, 1998 the Company
had operating income of $1.0 million and an operating loss of $0.6 million,
respectively, a decrease of $4.3 million, or 81.0%, and $3.9 million, or 118.9%,
as compared to the same periods of 1997. As a percentage of net sales, operating
income was 1.1% for the six months ended June 30, 1998, as compared to 5.9% in
the same period of 1997. The decreases were attributable to the factors
discussed above.
<PAGE>
During June 1998, the Company effected a restructuring with respect
to its Clinton Management Corp. and Clinton Machinery Corp. subsidiaries
(together "Clinton"), principally involving the departure from the Company of
the former shareholders of Clinton and certain other employees. The Company has
taken a charge of $2.8 million in the second quarter, principally with respect
to severance payments, as well as for the impairment of certain inventory and
accounts receivable. Of this amount, $1.9 million has been reflected as a
restructuring charge, $0.6 million has been charged to selling, general and
administrative expense and $0.3 million has been charged to cost of goods sold.
As part of the restructuring, the Company's obligations arising from its
original purchase of Clinton have been revised to reduce the contingent payments
for each of the years 1998, 1999 and 2000 from 35% of Clinton's operating
income, as defined, to 10% thereof and to eliminate the former Clinton
shareholders' option to put 100,000 shares of the Company's Class A common stock
to the Company at $30 per share.
Interest expense was $6.2 million and $3.2 million in the six and
three months ending June 30, 1998, respectively, an increase of $0.3 million, or
5.0%, and $0.1 million, or 4.2%, as compared to the same periods in 1997. The
increase in interest expense was a result of higher borrowings in 1998 over the
same period in 1997.
Income tax benefit for the six and three months ended June 30, 1998
was $1.8 million and $1.2 million, respectively. The Company's effective tax
rate was 35.8% and 33.5% in the six and three months ending June 30, 1998, as
compared to 37.8% and 48.9% in the same periods of 1997.
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") relating thereto.
Net loss for the six and three months ended June 30, 1998 was $3.2
and $2.3 million compared to a net loss of $1.9 million and net income of $0.1
million in the same periods of 1997. The decrease was attributable to the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements, capital
expenditures and acquisitions from cash provided by operations, borrowings under
its credit facilities and proceeds from the issuance of debt and equity
securities.
At June 30, 1998, the Company had outstanding indebtedness of $100.5
million and cash of $0.5 million. In addition, approximately $5.1 million was
available for borrowings under the Company's Credit Agreement. At June 30, 1998,
the Company was not in compliance with various covenants in its Credit
Agreement, which noncompliance was waived on August 13, 1998. In addition, the
maximum permitted borrowings under the Credit Agreement will be revised from 85%
to 84%, 83% and 82% of eligible accounts receivable, effective October 1,
November 1 and December 1, 1998, respectively.
<PAGE>
The Company's capital expenditures during the first six months of
1998 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 $5.2 million
during the first six months of 1998 principally due to working capital changes.
Net cash provided by financing activities during the first six months of 1998
aggregated $4.8 million.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" establishes revised
standards for the manner in which public business enterprises report information
about operating segments. The Company does not believe that this Statement will
significantly alter the disclosures it currently provides. This
Statement is effective for fiscal years beginning after December 15, 1997.
YEAR 2000 ISSUE
The Company is in the process of assessing the Year 2000 issue and
the estimated costs necessary for the Company's remediation plan. The Company
plans to remediate all Year 2000 issues during 1998 and does not expect
remediation costs to have a material impact on results of operations, liquidity
and capital resources.
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-Q for the six and three months ended
June 30, 1998 that state the Company's or management's intentions, hopes,
beliefs, expectations or predictions of the future are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. It is important to note that the Company's actual results could differ
materially from those contained in such forward-looking statements. Additional
information concerning factors that could cause actual results to differ
materially from those in forward-looking statements is contained from time to
time in the Company's SEC filings, including under the caption "Certain Factors
that May Affect Results of Operations" in the Company's Form 10-K filed for the
year ended December 31, 1997.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule (filed with
EDGAR only)
(b) Reports on Form 8-K
During the six months ended June 30, 1998, 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, 1998 By /S/ JOHN K. ZIEGLER, JR.
----------------------------
John K. Ziegler, Jr.
Vice President
and Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
WILLCOX & GIBBS, INC.
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WILLCOX &
GIBBS, INC. FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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