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 July 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 Chicago, Illinois 60632 (Address of principal (Zip Code) executive offices) Registrant's telephone number including area code (312) 890-1010. 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 July 20,1995 - 3,550,602 2 SELFIX, INC. AND SUBSIDIARIES INDEX Page Number ------ Part I. Financial Information --------------------- Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 5 and Retained Earnings Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial 11 Condition and Results of Operations Part II. Other Information 15 ----------------- Signatures 16 2 3 PART I FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited) July 1, December 31, ASSETS 1995 1994 Cash and cash equivalents........................... $ 3,876 $ 4,859 Investments in marketable securities -- available for sale......................................... 935 944 Accounts receivable................................. 7,022 4,947 Notes receivable and other receivables.............. 78 1,773 Refundable income taxes............................. 126 381 Inventories......................................... 6,363 5,650 Prepaid expenses and other current assets........... 190 189 --------- --------- Total current assets.............................. 18,590 18,743 PROPERTY, PLANT AND EQUIPMENT......................... 22,236 21,578 Less accumulated depreciation and amortization...... 12,544 11,243 --------- --------- 9,692 10,335 LAND.................................................. 131 131 OTHER ASSETS Restricted Cash - Industrial Revenue Bond........... - 5 Intangible assets................................... 1,270 1,536 Other............................................... 35 11 --------- --------- Total other assets................................ 1,305 1,552 --------- --------- TOTAL ASSETS $ 29,718 $ 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) July 1, December 31, 1995 1994 ---------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations........... $ 891 $ 992 Accounts payable...................................... 1,235 1,921 Accrued liabilities................................... 4,954 4,804 ---------- ---------- Total current liabilities........................... 7,080 7,717 LONG-TERM OBLIGATIONS - net of current maturities...... 9,368 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, 3,609,364 shares at July 1, 1995 and 3,603,637 shares at December 31, 1994........ 36 36 Additional paid-in-capital.......................... 9,383 9,360 Retained earnings................................... 4,293 4,500 Cumulative foreign currency translation adjustment.. (198) (222) Unrealized net holding gains (losses) on available-for-sale securities....................... 20 (51) Common stock held in treasury, at cost (58,762 shares in 1995)................................... (264) - ---------- ---------- Total stockholders' equity.......................... 13,270 13,623 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,718 $ 30,761 ========== ========== The accompanying notes are an integral part of these statements. 4 5 PART 1 - 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 Twenty-Six Weeks Ended July 1, 1995 June 25, 1994 July 1, 1995 June 25, 1994 ------------ ------------- ------------ ------------- Net sales....................................... $ 10,628 $ 11,107 $ 21,370 $ 21,039 Cost of goods sold.............................. 6,402 6,124 13,114 11,678 ----------- ------------ ----------- ----------- Gross profit................................ 4,226 4,983 8,256 9,361 Operating expenses.............................. 4,041 4,040 8,211 8,148 ----------- ------------ ----------- ----------- Operating profit ........................... 185 943 45 1,213 Other income (expense) Interest (expense)............................ (258) (273) (475) (551) Other - net................................... 113 9 236 80 ----------- ------------ ----------- ----------- (145) (264) (239) (471) ----------- ------------ ----------- ----------- Earnings (loss) before income taxes......... 40 679 (194) 742 Income tax expense ............................. 1 270 13 199 ----------- ------------ ----------- ----------- Net income (loss)........................... 39 409 (207) 543 Retained earnings at beginning of period........ 4,254 10,637 4,500 10,503 ----------- ------------ ----------- ----------- Retained earnings at end of period.............. $ 4,293 $ 11,046 $ 4,293 $ 11,046 =========== ============ =========== =========== Net earnings (loss) per common and common equivalent shares............................. $0.01 $0.12 ($0.06) $0.15 Number of common and common equivalent shares........................................ 3,568,563 3,554,218 3,586,100 3,555,862 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) - ------------------------------------------------------------------------------- Twenty-six Weeks Ended July 1, 1995 June 25, 1994 Cash flows from operating activities: Net earnings (loss)..................................... $ (207) $ 543 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization......................... 1,296 1,246 Amortization of intangible assets..................... 265 438 Deferred income tax expense........................... - (32) Provision for losses on accounts receivable........... 68 67 (Gain) on sale of fixed assets........................ (54) (2) Amortization of bond premium.......................... 59 - Changes in assets and liabilities (Increase) in accounts receivable..................... (2,130) (2,880) (Increase) in inventories............................. (692) (1,125) Decrease in refundable income taxes................... 256 231 Decrease in prepaid expenses and deposits............. 22 17 (Increase) decrease in other assets................... (23) 52 (Increase) decrease in notes and other receivables.... 1,695 5 Increase (decrease) in accounts payable............... (687) 270 Increase (decrease) in accrued liabilities............ 145 (129) Increase in income taxes payable...................... - 71 ------------- ----------- Total adjustments................................... 220 (1,771) ------------- ----------- Net cash provided by (used in) operating activities. 13 (1,228) Cash flows from investing activities: Purchase of property, plant and equipment-(net)........ (595) (1,416) Proceeds from sales of marketable securities........... - 707 Restricted cash - Industrial Revenue Bond.............. 5 791 Purchase of treasury stock............................. (264) - ------------- ----------- Net cash provided (used) by investing activities.... (854) 82 Cash flows from financing activities: Borrowings from bank................................... - 1,500 Payments on borrowings................................. (140) (2,093) Payment of capital lease obligation.................... (14) (12) Exercise of common stock options....................... 23 11 ------------- ----------- Net cash (used in) financing activities............. (131) (594) 6 7 PART I - FINANCIAL STATEMENTS FORM 10-Q Selfix, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Dollars in thousands) (unaudited) - ------------------------------------------------------------------------------ Twenty-six Weeks Ended July 1, 1995 June 25, 1994 ----------------------------------- Effect of exchange rate changes on cash................. (11) (3) ------------- ------------ Net (decrease) in cash and cash equivalents....... (983) (1,743) Cash and cash equivalents at beginning of period........ 4,859 4,390 ------------- ------------ Cash and cash equivalents at end of period.............. $ 3,876 $ 2,647 ============= ============ Supplemental disclosures of cash flow information Cash paid (received) during the period for Interest and swap fees.............................. $ 428 $ 489 Income taxes, net................................... $ (244) $ (72) The accompanying notes are an integral part of these statements. 7 8 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 July 1, 1995 and June 25, 1994, and for the thirteen and twenty-six weeks ended July 1, 1995 and June 25, 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 which were necessary to conform the presentation of the results of operations and changes in financial condition to the second quarter of 1995. 4. Inventories are summarized as follows: JULY, 1 DECEMBER 31, 1995 1994 ------ -------- Finished Goods $3,507 $2,344 Work-in-Process 913 1,406 Raw Materials 1,943 1.900 ------ ------ $6,363 $5,650 ====== ====== 5. The provision for income taxes for 1995 reflects the taxes on income of foreign subsidiaries. The provision for income taxes as of June 25, 1994 reflects a reduction of the deferred tax valuation allowance due to a change in the 8 9 PART I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) - ------------------------------------------------------------------------------- estimate of the future realization of net future tax deductions, as well as tax benefits from foreign subsidiares. 6. Earnings (losses) per share have been computed by dividing net earnings for the thirteen weeks ended July 1, 1995 and June 25, 1994 by 3,568,563 and 3,554,218 common shares, respectively. For the twenty-six weeks ended July 1, 1995 and June 25, 1994, earnings (losses) per share have been computed by dividing net earnings by 3,586,100 and 3,555,862 common shares respectively. Common share equivalents included in the computation of common and common equivalent shares represent shares issuable upon assumed exercise of the stock options using the treasury stock method. Common share equivalents are not included under the treasury stock method when their effect is antidulitive. 7. At July 1, 1995, the Company has a $3.0 million 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 as detailed as follows: 9 10 PART I - FINANCIAL STATEMENTS FORM 10-Q SELFIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) OBSOLETE SEVERANCE INVENTORY BENEFITS --------- -------------- Balance at 12/31/94 $.3 million $.7 million Changes to reserves .3 million .5 million ------------ ----------- Balance at 7/1/95 $ - $.2 million ============ =========== 9. On December 13, 1994, the Company's Board of Directors approved the 1995 Employee Stock Purchase Plan which allows eligible employees of the Company to acquire up to 200,000 shares of the Company's common stock. On July 11, 1995 the shareholders approved the plan. On May 9, 1995, options outstanding aggregating 460,000 shares were cancelled and reissued at prices ranging from $6.00 to $8.00 which exceeded the market price at the date of reissuance. 10 11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. In the discussion and analysis that follows all references to 1995 and 1994 refer to the 13 and 26 week periods ended July 1, 1995 and June 25, 1994. The following amounts are in thousands of dollars. RESULTS OF OPERATIONS FOR THE 13 WEEKS ENDED JULY 1, 1995 AND JUNE 25, 1994 Net sales decreased $479 (4%) from 1994 due to reduced activity at the Company's foreign subsidiaries and lower export sales. These decreases were partially offset by increased sales of the home improvement product line. Cost of goods sold as a percentage of sales increased to 60.2% from 55.1% compared to the comparable period last year. The increase is associated with higher inventory reserves ($296) on products to be discontinued and resin prices which increased approximately 45-48% compared to 1994. Although some stabilization of material costs is anticipated, the Company expects that material costs will continue to adversely impact gross margins over the balance of the year as compared to 1994. Additionally, the Company continues to review product line profitability and strategic fit to determine whether to continue providing certain lines to customers. As a result of this ongoing review, additional inventory reserves may be identified. Slightly offsetting these items was the impact of improved manufacturing efficiencies. As a percentage of sales, 1995 operating expenses increased to 38.0% from 36.4% during the 13 week period. Although expenses in dollars were unchanged from 1994, the percentage increased due to the decrease in sales. Lower wages and salaries associated with headcount reductions ($257), reduced amortization expenses due to the expiration of non-compete agreements and the 1994 write-down of certain intangible assets ($118), lower warehousing costs ($84) and reduced trade show expense ($23) were offset by increased performance related 11 12 incentive compensation ($225), increased acquisition related professional fees ($96), and higher marketing costs ($154) related primarily to advertising and new packaging development costs. Interest expense decreased $15 compared to the 13 week period last year due to the non-renewal of a swap agreement at one of the Company's subsidiaries. During the 13 week period, other income increased $104 due to the gains on sale of fixed assets ($37), a franchise tax refund ($21) and a foreign exchange gain compared to a loss in 1994 ($20). Income tax expense decreased $269 during the 13 week period primarily due to a combination of lower pre-tax income at the Company's domestic operations and a pre-tax loss compared to a pre-tax income last year at the Company's foreign subsidiaries. RESULTS OF OPERATIONS FOR THE 26 WEEKS ENDED JULY 1, 1995 AND JUNE 25, 1994 Net sales for the 26 week period of 1995 increased $331 (2%) from 1994 due to increased sales of the home improvement product line and increased sales of the Company's Canadian subsidiary. Partially offsetting these increases were lower sales at the Company's other foreign subsidiaries and lower export sales. During the 26 week period, cost of goods sold as a percentage of sales increased to 61.4% from 55.5%. The increase is primarily driven by a combination of increased resin costs ($601), a smaller increase in overhead absorption ($289) and provisions to inventory reserves ($267). Also contributing to the increase were higher electricity ($89) and depreciation ($34) costs. 12 13 Operating expenses as a percentage of sales decreased to 38.4% from 38.7%. Expenses year to year are essentially flat despite the positive impact of reduced headcount ($251), warehousing costs ($181) and lower amortization of intangibles ($173) resulting from 1994 second half write-downs. Offsetting these reductions were increased professional fees related to acquisition activities ($96), increased marketing costs ($222) and the impact of performance based employee incentive plans ($334). Interest expense decreased $76 during the 26 week period 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 $156 primarily as a result of a foreign exchange gain compared to a foreign exchange loss in 1994 ($18), increased gains on fixed asset sales ($45) and franchise tax refunds (30). Income tax expense decreased due to the pre-tax loss compared to the pre-tax income in 1994 at the Company's domestic operations. The 1995 expense primarily reflects taxes at the Company's foreign subsidiaries. FINANCIAL CONDITION Since the end of 1994, working capital has increased $484. This occurred as a result of positive cash flow from operations, increased accounts receivable and inventories together with a reduction in accounts payable. Cash generated from operations during the 26 weeks ended July 1, 1995 was $13 an increase of $1,241 from 1994. This improvement was largely the result of a collection of the settlement payment from a patent infringement suit. The impact of reduced net income ($750) was offset by improved use of working capital as both accounts receivable and inventories increased less than the prior year. Notes receivable and other receivables decreased 13 14 due to the receipt of a settlement payment of $1,695 from a patent infringement suit. The net settlement was recorded in other income in the fourth quarter of 1994. The receipt of the settlement and cash were used to finance the increases in accounts receivable and inventories. Sales of the Company's products are generally lower in the first and fourth quarter of the calendar year. Net earnings vary proportionately more than the variation in sales due to the effect of fixed costs. Results of operations for the 13 and 26 week periods ended July 1, 1995 are not necessarily indicative of the results to be expected for the 52 week period ending December 30, 1995. As of July 1, 1995 the Company's working capital was $11,510. Management believes that this capital is adequate to finance foreseeable operating 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 line of credit of $3.0 million all of which remains undrawn. 14 15 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 - Edgar Freer resigned as Senior Vice President, Domestic and International Sales effective July 10, 1995. On August 4, 1995 the Company announced the appointment of Jeffrey R. Dolan to the position of Senior Vice President of Sales effective August 11, 1995. Mr. Dolan comes to the Company from Rubbermaid. During his 16 years at Rubbermaid, Mr. Dolan held various sales management positions, the most recent being Vice President of National Accounts at the Home Products Division. ITEM 6.A. Exhibits and Reports - On June 29, 1995 the registrant filed a Form 8-K to report that it had signed a letter of intent to acquire the common stock of Mericon Child Safety Products, a division of the Denshaw Corporation, Inc. Mericon Child Safety Products is a manufacturer of juvenile home safety products, such as toilet seat locks, cabinet locks and electrical outlet covers. 15 16 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: August 4, 1995 16