1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the Period Ended April 1, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) Commission file number 0-17237 SELFIX, INC. (Exact name of registrant as specified in its Charter) Delaware 36-2490451 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4501 West 47th Street 60632 Chicago, Illinois (Zip Code) (Address of principal executive offices) Registrant's telephone number including area code (312) 890-1010. Securities registered pursuant to Section 12(b) of the Act: None Name of Each Exchange On Which Registered None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Common, Par Value $0.01 Per Share 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 ---- ----- Common shares, par value $0.01, outstanding as of April 18, 1995 - 3,603,637 2 SELFIX, INC. AND SUBSIDIARIES INDEX Page Number ------ Part I. Financial Information --------------------- Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations and Retained Earnings 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II. Other Information 13 Signatures 14 2 3 FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited) April 1, December 31, ASSETS 1995 1994 ------------- ---------------- Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 4,422 $ 4,859 Investments in marketable securities -- available for sale . . . . 946 944 Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . 6,254 4,947 Notes receivable and other receivables . . . . . . . . . . . . . . . 99 1,773 Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . 125 381 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,401 5,650 Prepaid expenses and other current assets . . . . . . . . . . . . . 169 189 --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . . . . 18,416 18,743 PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . . . . 21,935 21,578 Less accumulated depreciation and amortization . . . . . . . . . 11,891 11,243 ---------- --------- 10,044 10,335 LAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 131 ---------- --------- 10,175 10,466 OTHER ASSETS Restricted Cash - Industrial Revenue Bond. . . . . . . . . . . . -- 5 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . 1,372 1,536 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 11 ---------- --------- Total other assets . . . . . . . . . . . . . . . . . . . . . . 1,383 1,552 ---------- --------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,974 $ 30,761 ========== ========= The accompanying notes are an integral part of these statements. 3 4 PART I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED (Dollars in thousands) (unaudited) April 1, December 31, 1995 1994 ---------------- ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations . . . . . . . . . . . $ 913 $ 992 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,656 1,921 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 4,632 4,804 ------------ ----------- Total current liabilities . . . . . . . . . . . . . . . . . . . 7,201 7,717 LONG-TERM OBLIGATIONS - net of current maturities..... . . . . . . . . . . . . . . . . . . . . . . . . . 9,391 9,421 STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock - authorized 500,000 shares; . . . . . . . . . . . -- -- $.01 par value; none issued . . . . . . . . . . . . . . . . . . Common stock - authorized 7,500,000 shares; $.01 par value; issued and outstanding, 3,603,637 shares at April 1, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . 36 36 Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . 9,360 9,360 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 4,254 4,500 Cumulative foreign currency translation adjustment . . . . . . . . (219) (222) Unrealized net holding (losses) on available-for-sale securities . (49) (51) ------------ ----------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . 13,382 13,623 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . $ 29,974 $ 30,761 ============ ========== The accompanying notes are an integral part of these statements. 4 5 PART I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (Dollars in thousands except per share amounts) (unaudited) Thirteen Weeks Ended April 1, 1995 March 26, 1994 ------------- ----------------- Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,742 $ 9,932 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . 7,333 6,410 ----------- ---------- Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 3,409 3,522 Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 3,549 3,253 ----------- ---------- Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . (140) 269 Other income (expense) Interest (expense) . . . . . . . . . . . . . . . . . . . . . . . . (201) (241) Other income (expense) - net . . . . . . . . . . . . . . . . . . . 107 36 ----------- ---------- (94) (205) ----------- ---------- Income (Loss) before income taxes . . . . . . . . . . . . . . . . (234) 64 Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . 12 (70) ----------- ---------- Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . (246) 134 Retained earnings at beginning of period . . . . . . . . . . . . . . 4,500 10,503 ------------ ---------- Retained earnings at end of period . . . . . . . . . . . . . . . . . $ 4,254 $ 10,637 ============ ========== Net Income per common and common equivalent shares . . . . . . . . . $ (0.07) $ 0.04 Number of common and common equivalent shares . . . . . . . . . . . . 3,603,637 3,557,505 The accompanying notes are an integral part of these statements. 5 6 PART I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) Thirteen Weeks Ended April 1, 1995 March 26, 1994 ----------------- ------------------ Cash flows from operating activities Net income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ (246) $ 134 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization . . . . . . . . . . . . . . . . . 647 622 Amortization of intangible assets . . . . . . . . . . . . . . . 164 220 Deferred income taxes . . . . . . . . . . . . . . . . . . . . -- (66) Provision for losses on accounts receivable . . . . . . . . . . 34 29 (Gain) on sale of fixed assets . . . . . . . . . . . . . . . . (11) (2) Changes in assets and liabilities (Increase) in accounts receivable . . . . . . . . . . . . . . . . (1,334) (2,219) (Increase) in inventories . . . . . . . . . . . . . . . . . . . . (749) (831) Decrease in refundable income taxes . . . . . . . . . . . . . . 256 139 (Increase) decrease in prepaid expenses and deposits . . . . . . 20 (86) (Increase) decrease in other assets . . . . . . . . . . . . . . . -- (13) Increase (decrease) in accounts payable . . . . . . . . . . . . . (265) 547 (Decrease) in accrued liabilities . . . . . . . . . . . . . . . . (175) (3) (Increase) decrease in notes and other receivables . . . . . . . 1,676 (6) ------------ --------- Total adjustments . . . . . . . . . . . . . . . . . . . . . . . 263 (1,669) ------------ --------- Net cash provided by (used in) operations . . . . . . . . . . 17 (1,535) Cash flows from investing activities Purchase of property, plant and equipment (net) . . . . . . . . . . . (346) (966) Decrease in Marketable Securities . . . . . . . . . . . . . . . . . -- 712 Restricted cash - Industrial Revenue Bond . . . . . . . . . . . . . . 5 568 ------------ --------- Net cash provided (used) by investing activities . . . . . . . (341) 314 Cash flows from financing activities Payments on borrowings . . . . . . . . . . . . . . . . . . . . . . (102) (496) Reduction of capital lease obligation . . . . . . . . . . . . . . . (6) (5) Exercise of common stock options . . . . . . . . . . . . . . . . . -- 11 ------------ --------- Net cash used by financing activities . . . . . . . . . . . . . (108) (490) ------------ --------- Effect of exchange rate changes on cash. . . . . . . . . . . . . . . (5) (3) Net (decrease) in cash and cash equivalents . . . . . . . . . . (437) (1,714) ------------ ---------- Cash and cash equivalents at beginning of period . . . . . . . . . . 4,859 4,390 ------------ ---------- Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 4,422 $ 2,676 ============ ========== Supplemental disclosures of cash flow information Cash paid during the period for Interest and swap fees . . . . . . . . . . . . . . . . . . . . . $ 206 $ 248 Income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . $ (243) $ (143) The accompanying notes are an integral part of these statements. 6 7 PART I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The condensed consolidated financial statements included herein as of April 1, 1995 and for the thirteen weeks ended April 1, 1995 and March 26, 1994 are unaudited and, in the opinion of the Company, reflect all adjustments (which include normal recurring accruals) necessary for the fair presentation of the financial position and the results of operations and cash flows. 2. These financial statements are presented in accordance with the requirements of Form 10-Q and, consequently, may not include all disclosures normally required by generally accepted accounting principles or those normally in the Company's audited annual financial statements. Accordingly, the Company's audited consolidated financial statements and notes thereto, included in its Annual Report on Form 10-K, should be read in conjunction with the accompanying condensed consolidated financial statements. 3. The financial statements include certain reclassifications of 1994 information which were necessary to present the results of operations and change in financial condition on a consistent basis with 1995. 4. Inventories are summarized as follows: April 1, December 31, 1995 1994 ------- --------------- Finished Goods $3,131 $2,344 Work-in-Process 1,402 1,406 Raw Materials 1,868 1,900 ------ ------- $6,401 $5,650 ====== ====== 7 8 PART I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 5. The provision for income taxes for 1995 reflects the taxes on income of foreign subsidiaries. The provision for income taxes (benefit) for 1994 reflects the reduction of the deferred tax valuation allowance due to a change in estimate of the future realization of net future tax deductions, as well as tax benefits from foreign subsidiaries. 6. Earnings per share have been computed by dividing net earnings (loss) for 1995 and 1994 by 3,603,637 and 3,557,505 of common shares respectively. Common share equivalents are not included in the computation for 1995 since their effect under the treasury stock method would be anti-dilutive. Common share equivalents included in the computation for 1994 represent shares issuable upon assumed exercise of the stock option using the treasury stock method. 7. At April 1, 1995, the Company has a $3,000,000 line of credit all of which remained undrawn. 8. During the third and fourth quarter of 1994, the Company recorded a $1.7 million charge relating to costs of severance and termination benefits paid or accrued for a change in the level and composition of employees, termination of existing employee arrangements, inventory adjustments and fixed asset write-downs related to product lines to be discontinued. As of December 31, 1994 approximately $.3 million of obsolete inventory reserves and $.7 million of accrued severance benefits remained on the Company's books. The amount of cash paid for severance benefits and obsolete inventory disposed of in 1995 is detailed as follows: Obsolete Severance Inventory Benefits --------- -------- Balance at 12/31/94 $.3 million $.7 million Charges to reserves .3 million .3 million ------------ ------------ Balance at 4/1/95 $ -- $.4 million ============ =========== 8 9 PART I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The payouts will be substantially completed by the end of 1995. 9. Subsequent event: On May 5,1995, the Company bought back 58,162 shares of stock at a market price of $4.50 per share. The shares will be held as treasury stock. 9 10 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition In the discussion and analysis that follows, all references to 1995 and 1994 refer to the 13 week periods ended April 1, 1995 and March 26, 1994, respectively. Net sales for 1995 increased $.8 million (8%) as compared to last year. The increase in sales is due to a combination of increased sales of the home improvement product line and increased sales at the Company's Canadian subsidiary. These increases were somewhat mitigated by small sales decreases at the Company's other foreign subsidiaries and a slight decrease in export sales. Cost of goods as a percentage of sales increased to 68.3% from 64.5% for the comparable period last year. The increase is associated with higher material costs primarily due to increased cost of resin, a reduction in overhead absorption resulting from lower inventory levels and an unfavorable gross margin change resulting from sales mix shifts. The Company expects that material costs will continue to adversely impact gross profit margins over the balance of the year. Additionally, the Company is continuing to evaluate product line profitability to determine whether to continue providing certain lines to customers. As a percentage of sales, 1995 operating expenses increased to 33.0% from 32.8% due to increased marketing and selling salaries and benefits resulting from staff additions. Also contributing to the increases were increased marketing and selling expense for trade shows, travel and entertainment and other accrued marketing and selling expenses. This increase was slightly mitigated by reduced amortization expense associated with the write-down of certain intangible assets in the second half of fiscal year 1994 as well as the expiration of certain non-compete and consulting agreements in 1995. Advertising expenses were also lower 10 11 due to decreased promotional activity in the home organization line. Additionally, general and administrative salaries and benefits decreased as a result of headcount reductions. Interest expense decreased compared to 1994 due to the non-renewal of a swap agreement at one of the Company's subsidiaries as well as the reduction in debt associated with scheduled repayments of principal. Other income increased due to a foreign exchange gain this year compared to an exchange loss in 1994, and an increase in interest income associated with increased investments and larger cash balances compared to the same period in 1994. Income tax expense increased compared to the tax benefit last year due to the absence of a deferred tax benefit in 1995, tax expense compared to tax benefits at the Company's foreign subsidiaries, and the absence of a reduction in the deferred tax valuation allowance recorded last year. Since December 31, 1994, accounts receivable and inventories increased due to the increase in volume in 1995 compared to the fourteen week period ended December 31, 1994. These increases were financed by a reduction in cash and cash equivalents, a receipt of refundable income taxes and the reduction in notes receivable and other accounts receivable related to the receipt of the settlement payment from a patent infringement lawsuit. The settlement was recorded in other income in 1994. Net fixed assets and other assets decreased due to normal depreciation and amortization expense. Current liabilities decreased due to a reduction in accrued liabilities associated with the payment of severance benefits recorded in the second half of 1994, reduced levels of accounts payable and lower current maturities of long-term debt obligations. 11 12 Long-term obligations decreased due to scheduled repayments of principal. Sales of the Company's products are generally lower in the first half of the calendar year than in the remaining half of the calendar year. Net earnings vary proportionately more than the variation in sales due to the affect of the fixed costs. Results of operation for the thirteen weeks ended April 1, 1995 are not necessarily indicative of the results to be expected for the fifty-two week period ending December 30, 1995. As of April 1, 1995 the Company's working capital was $11.2 million. Management believes that this capital is adequate to finance forseeable future needs. It may be necessary, however, to borrow on a short-term basis against a line of credit during the remainder of the year. The Company has a line of credit of $3.0 million all of which remains undrawn. 12 13 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None ITEM 2. Changes in Securities - Not Applicable ITEM 3. Default Upon Senior Securities - Not Applicable ITEM 4. Submission of Matters to a Vote of Security Holders - Not Applicable ITEM 5. Other Information - On April 1, 1995 Charles F. Veselits, Vice President and Treasurer, retired. ITEM 6. A. Exhibits and Reports There were no reports on Form 8-K filed during the thirteen weeks ended April 1, 1995. 13 14 SIGNATURE PAGE 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. SELFIX, INC. By: /s/ James E. Winslow ------------------------------ James E. Winslow Senior Vice President Chief Financial Officer Dated: May 12, 1995 14