FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
---- ----- ------------------
March 31, 1998 Common Stock 1,001,319
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PART I - Financial Information PAGE
<S> <C>
Consolidated Balance Sheets (Unaudited) at March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Operations (Unaudited) for the Three
Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows (Unaudited) for the Three
Months Ended March 31, 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
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
Current Assets
Cash $ 877 $ 1,325
Accounts receivable, less allowance for doubtful
accounts of $4,939 in 1998 and $4,315 in 1997 41,603 38,465
Inventories 46,419 48,735
Prepaid expenses and other current assets 4,020 3,496
Deferred income taxes 1,415 1,402
-------- --------
Total current assets 94,334 93,423
Property and equipment, net 5,456 5,595
Deferred financing costs, less accumulated amortization
of $813 in 1998 and $650 in 1997 3,740 3,903
Intangible assets, less accumulated amortization of
$1,269 in 1998 and $1,060 in 1997 32,177 32,386
Deferred income taxes 1,903 1,313
Other assets 4,036 3,881
-------- --------
$141,646 $140,501
======== ========
See accompanying notes to unaudited consolidated financial statements
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
1998 1997
-------- ---------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Revolving line of credit 13,841 $ 10,617
Book overdrafts 3,073 3,233
Current installments of long-term debt 600 594
Trade accounts payable 19,072 23,254
Income taxes payable 32 24
Accrued liabilities and other current liabilities 10,155 7,361
-------- ---------
Total current liabilities 46,773 45,083
Accrued retirement benefits 2,431 2,431
Long-term debt, excluding current installments 84,761 84,742
Other liabilities 159 158
-------- ---------
Total liabilities 134,124 132,414
-------- ---------
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 1,015,937 in
1998 and 1,001,319 in 1997
9,159 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 (219) (379)
Accumulated deficit (4,399) (3,624)
Cumulative translation adjustments (19) 77
Total stockholders' equity 4,522 5,087
-------- ---------
$141,646 $ 140,501
======== =========
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 PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For Three Months Ended
March 31,
---------------------
1998 1997
--------- --------
(Unaudited)
<S> <C> <C>
Net sales $ 44,913 $ 42,043
Cost of goods sold 31,200 29,084
--------- ---------
Gross profit 13,713 12,959
Selling, general, and administrative expenses 12,090 10,974
--------- ---------
Operating income 1,623 1,985
Interest expense (3,051) (2,883)
Other income (expense), net (16) 39
--------- ---------
Loss before income taxes (1,444) (859)
Income tax benefit (596) (356)
--------- ---------
Loss before extraordinary item (848) (503)
Extraordinary loss, net of income tax benefit - (1,557)
--------- ---------
Net loss $ (848) $ (2,060)
Basic and diluted loss per common share and
common share equivalent:
Loss before extraordinary item $ (0.86) $ (0.53)
Extraordinary item, net - (1.63)
--------- ---------
Net loss per share $ (0.86) $ (2.16)
========= =========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (848) $ (2,060)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 325 261
Provision for losses on accounts receivable 238 238
Amortization of intangible assets 209 203
Amortization of deferred financing costs 163 153
Amortization of debt discount 53 52
Deferred income taxes (602) (2)
Extraordinary loss on debt extinguishment, net - 1,557
Changes in operating assets and liabilities, net
of effect of business acquisitions:
Trade accounts receivable (3,425) 3,339
Inventories 2,267 1,196
Prepaid expenses and other current assets (524) (929)
Other assets (155) 22
Income taxes payable 8 (622)
Trade accounts payable and other
liabilities (1,343) (5,907)
-------- --------
Net cash used in operating activities (3,634) (2,499)
-------- --------
Cash flows from investing activities:
Capital expenditures (239) (477)
Proceeds from sale of property and equipment 25 58
Payment for business acquisition, net of cash
acquired - (36,732)
-------- --------
Net cash used in investing activities (214) (37,151)
-------- --------
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------
1998 1997
-------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from revolving line of credit $ 3,224 $ 4,248
Decrease in book overdrafts (160) (5)
Principal payments on long-term debt (44) -
Proceeds from debt issued in business acquisitions - 83,980
Extinguishment of debt - (41,137)
Payment of financing costs - (3,606)
Repurchase and retirement of warrants - (3,026)
Proceeds from common stock issued to Company
ESOP 379 -
-------- ---------
Net cash provided by financing activities 3,399 40,454
-------- ---------
Effect of exchange rate changes on cash 1 (19)
Net change in cash (448) 785
Cash at beginning of period 1,325 882
-------- ---------
Cash at end of period $ 877 $ 1,667
======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 294 $ 479
======== =========
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 quarter ending March 31, 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
($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. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share, before extraordinary item, for the three months ended March 31, 1998
and 1997:
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Numerator for basic and diluted loss per share $ (847,989) $ (2,059,860)
============= =============
Denominator for basic loss per share-
weighted-average shares outstanding 982,371 953,674
Effect of dilutive securities:
Employee stock options - -
Warrants - -
------------- -------------
Denominator for diluted loss per share 982,371 953,674
============= =============
Loss per share - basic $ (0.86) $ (2.16)
============= =============
Loss per share - diluted $ (0.86) $ (2.16)
============= =============
</TABLE>
Employee stock options and warrants which were outstanding were
excluded from the computation of diluted loss per share because the effect would
be antidilutive.
5. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This statement
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 months
periods ended March 31, 1998 and 1997, the Company's consolidated comprehensive
income does not differ materially from the traditionally-determined consolidated
net loss set forth on the accompanying consolidated statements of operations.
6. 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 March 31, 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
<PAGE>
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
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
ASSETS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
Cash $ 904 $ (27) $ 877
Accounts receivable, net 35,351 6,252 41,603
Inventories 39,617 6,802 46,419
Other current assets 5,071 364 5,435
------------ ------------- ------------
Total current assets 80,943 13,391 94,334
Property and equipment, net 3,824 1,632 5,456
Intangible assets, net 35,917 - 35,917
Other assets 3,970 1,969 5,939
------------ ------------- ------------
$ 124,654 $ 16,992 $ 141,646
============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current notes and installments of long-
term debt $ 14,023 $ 418 $ 14,441
Book overdrafts 3,073 - 3,073
Trade accounts payable 15,306 3,766 19,072
Income taxes payable - 32 32
Accrued liabilities and other current
liabilities 8,869 1,286 10,155
------------ ------------- ------------
Total current liabilities 41,271 5,502 46,773
Long-term debt, excluding current
installments
83,925 836 84,761
Other liabilities 2,590 - 2,590
------------ ------------- ------------
Total liabilities 127,786 6,338 134,124
Common stock subject to put option 3,000 - 3,000
Common stock 9,159 - 9,159
Other equity (deficit) (15,292) 10,655 (4,637)
------------ ------------- ------------
Total stockholders' equity (6,133) 10,655 4,522
------------ ------------- ------------
$ 124,653 $ 16,993 $ 141,646
============ ============= ============
</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 33,208 5,257 38,465
Inventories 42,369 6,366 48,735
Other current assets 4,706 192 4,898
------------ ------------- ------------
Total current assets 81,537 11,886 93,423
Property and equipment, net 4,037 1,558 5,595
Intangible assets, net 36,289 - 36,289
Other assets 3,307 1,887 5,194
------------ ------------- ------------
$ 125,170 $ 15,331 $ 140,501
============ ============= ============
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
5,823 1,538 7,361
------------ ------------- ------------
Total current liabilities 40,553 4,530 45,083
Long-term debt, excluding current
installments 83,917 825 84,742
Other liabilities 2,228 361 2,589
------------ ------------- ------------
Total liabilities 126,698 5,716 132,414
------------ ------------- ------------
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
------------ ------------- ------------
$ 125,170 $ 15,331 $ 140,501
============ ============= ============
</TABLE>
<PAGE>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 40,687 $ 4,226 $ 44,913
Cost of goods sold 28,517 2,683 31,200
------------ ------------ ------------
Gross profit 12,170 1,543 13,713
Selling, general, and administrative expenses 10,725 1,365 12,090
------------ ------------ ------------
Operating income 1,445 178 1,623
Interest expense (3,013) (38) (3,051)
Other, net (47) 31 (16)
------------ ------------ ------------
Income (loss) before income taxes and (1,615) 171 (1,444)
extraordinary item
Income tax expense (benefit) (604) 8 (596)
------------ ------------ ------------
Net income (loss) $ (1,011) $ 163 $ (848)
============ ============ ============
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------
Net sales $ 36,777 $ 5,266 $ 42,043
Cost of goods sold 25,487 3,597 29,084
------------ ------------ ------------
Gross profit 11,290 1,669 12,959
Selling, general, and administrative expenses 9,778 1,196 10,974
------------ ------------ ------------
Operating income 1,512 473 1,985
Interest expense (2,709) (174) (2,883)
Other, net 32 7 39
------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item (1,165) 306 (859)
Income tax expense (benefit) (478) 122 (356)
------------ ------------ ------------
Income (loss) before extraordinary item (687) 184 (503)
Extraordinary loss, net of income tax benefit (1,557) - (1,557)
------------ ------------ ------------
Net income (loss) $ (2,244) $ 184 $ (2,060)
============ ============ ============
</TABLE>
<PAGE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities $ (3,638) $ 4 $ (3,634)
------------ ------------ ------------
Cash flows from investing activities (111) (103) (214)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from debt issuance 3,224 - 3,224
Principal payment on debt (44) - (44)
Other changes 219 - 219
------------ ------------ ------------
3,399 - 3,399
------------ ------------ ------------
Effect of exchange rates on cash balances - 1 1
------------ ------------ ------------
Net change in cash 350 (98) (448)
Cash at beginning of period 1,254 71 1,325
------------ ------------ ------------
Cash at end of period $ 904 $ (27) $ 877
============ ============ ============
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------
Cash flows from operating activities $ (2,743) $ 244 $ (2,499)
------------ ------------ ------------
Cash flows from investing activities:
Payment for business acquisitions (36,732) - (36,732)
Other changes (285) (134) (419)
------------ ------------ ------------
(37,017) (134) (37,151)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from debt issuance 88,228 - 88,228
Extinguishment of debt (41,137) - (41,137)
Payment of financing costs (3,606) - (3,606)
Repurchase and retirement of warrants (3,026) - (3,026)
Other changes (5) - (5)
------------ ------------ ------------
40,454 - 40,454
------------ ------------ ------------
Effect of exchange rates on cash balances - (19) (19)
------------ ------------ ------------
Net change in cash 694 91 785
Cash at beginning of period 343 539 882
------------ ------------ ------------
Cash at end of period $ 1,037 $ 630 $ 1,667
============ ============ ============
</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>
THREE MONTHS
ENDED MARCH 31,
----------------------
1998 1997
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 30.5 30.8
Selling, general and administrative expenses 26.9 26.1
Operating income 3.6 4.7
Interest expense 6.8 6.9
Income taxes (1.3) (0.7)
Net income (1.9) (4.9)
====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net sales were $44.9 million in the first three months of 1998, an increase
of $2.9 million, or 6.8%, as compared to the first three months of 1997. Net
<PAGE>
sales increased primarily as a result of the Company's Macpherson subsidiary.
Macpherson's sales increased 50.9% over the same period in 1997, principally
attributable to strong sales of a new line of embroidery equipment and the
correction in late 1997 of a mechanical deficiency in certain equipment
identified in early 1997. Macpherson's increase in sales was partially offset by
a decline of 31.3% in the sales of the Company's Clinton operation. Clinton's
net sales were negatively affected by a declining screen printing market and the
replacement of an existing product line by a new line of equipment. The
Company's other operations experienced a decline of 2.3% over the same period in
1997, principally due to the continued decline in apparel manufacturing in the
United States.
Gross profit in the first three months of 1998 was $13.7 million, an
increase of $0.8 million, or 5.8%, as compared with the same period of 1997. As
a percentage of net sales, gross profit in the first three months of 1998 was
30.5%, as compared with 30.8% in the same period of 1997. The decrease in gross
profit percentage was primarily attributable to Macpherson. Macpherson'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 Macpherson's sales are for equipment.
Selling, general and administrative expenses in the first three months of
1998 were $12.1 million, an increase of $1.1 million, or 10.2%, as compared to
the first three months of 1997. As a percentage of sales, such expenses
increased to 26.9% for the first three months of 1998, from 26.1% for the same
period 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 and fixed overhead costs at the Company's Clinton operation that
did not decline in proportion to lower sales by Clinton.
Operating income in the first three months of 1998 was $1.6 million, a
decrease of $0.4 million, or 18.2%, as compared to the first three months of
1997. The decrease in operating income resulted from the factors discussed
above. As a percentage of net sales, operating income was 3.6% in the first
three months of 1998, as compared to 4.7% in the first three months of 1997. The
decrease was principally attributable to the lower gross margins from
Macpherson's and Clinton's sales.
Interest expense was $3.1 million in the first three months of 1998, an
increase of $0.2 million, or 5.8%, as compared with the first three months of
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 first three months of 1998 was $0.6 million, an
increase of $0.2 million, as compared to the first three months of 1997. The
Company's effective tax rate was 41.3% in the first three months of 1998, as
compared to 36.5% in the first three months of 1997.
The Company's results for the first three months of 1997 reflect an
extraordinary loss from the extinguishment of debt (net of income tax benefit)
of $1.6 million owing to the refinancing of the Company's indebtedness in
connection with the Macpherson acquisition and the issuance by the Company of
<PAGE>
$85.0 million aggregate principal amount of its 12 1/4% Series A Senior Notes
due 2003 (the "Senior Notes") relating thereto.
Net loss in the first three months of 1998 was $0.8 million, compared to
net loss of $2.1 million in the first three months of 1997. 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 cash provided by operations, borrowings under
its credit facilities and proceeds from the issuance of debt and equity
securities.
At March 31, 1998, the Company had outstanding indebtedness of $99.2
million and cash of $0.9 million. In addition, approximately $4.2 million was
available for borrowings under the Company's Credit Agreement.
The Company's capital expenditures during the first three months of 1998
aggregated approximately $0.2 million. Such expenditures were primarily for
computer, office and warehouse equipment and improvements.
Net cash used in the Company's operating activities was $3.6 million during
the first three months of 1998 principally due to working capital changes. Net
cash provided by financing activities during the first three months of 1998
aggregated $3.4 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 segment 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 quarter ended March 31, 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
<PAGE>
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 quarter ended March 31, 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 May 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WILLCOX &
GIBBS, INC. FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 877
<SECURITIES> 0
<RECEIVABLES> 41,603
<ALLOWANCES> 4,939
<INVENTORY> 46,419
<CURRENT-ASSETS> 94,334
<PP&E> 5,456
<DEPRECIATION> 325
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<CURRENT-LIABILITIES> 46,773
<BONDS> 84,761
0
0
<COMMON> 9,159
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<TOTAL-LIABILITY-AND-EQUITY> 141,646
<SALES> 44,913
<TOTAL-REVENUES> 44,913
<CGS> 31,200
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<NET-INCOME> (848)
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