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 June 29, 1996
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.
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 July 18, 1996 - 3,881,423
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 7
Management's Discussion and Analysis of Results of 10
Operations and Financial Condition
Part II. Other Information 15
-----------------
Signatures 16
3
PART I - FINANCIAL STATEMENTS
FORM 10-Q
Selfix, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)
(unaudited)
June 29, December 30,
ASSETS 1996 1995
---------- ----------
CURRENT ASSETS
Cash and cash equivalents..................................................... $ 889 $ 2,982
Restricted cash............................................................... 400 -
Investments in marketable securities -- available for sale................... 230 516
Accounts receivable........................................................... 6,191 4,690
Notes receivable and other receivables........................................ 65 83
Refundable income taxes....................................................... 323 222
Inventories................................................................... 4,607 5,151
Prepaid expenses and other current assets..................................... 258 175
---------- ----------
Total current assets........................................................ 12,963 13,819
PROPERTY, PLANT AND EQUIPMENT................................................... 21,584 21,231
Less accumulated depreciation................................................. 13,653 12,909
---------- ----------
7,931 8,322
LAND............................................................................ 131 131
---------- ----------
8,062 8,453
OTHER ASSETS
Intangible assets............................................................. 2,617 2,693
Other......................................................................... 126 11
---------- ----------
Total other assets............................................................ 2,743 2,704
---------- ----------
TOTAL ASSETS $ 23,768 $ 24,976
========== ==========
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 except share amounts)
(unaudited)
June 29, December 30,
1996 1995
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations............................... $ 861 $ 892
Accounts payable.......................................................... 1,308 1,334
Accrued liabilities....................................................... 4,093 4,881
--------- ----------
Total current liabilities................................................. 6,262 7,107
LONG-TERM OBLIGATIONS - net of current
maturities................................................................ 7,007 7,022
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, 3,878,094 shares at June 29, 1996
and 3,861,784 at December 30, 1995....................................... 39 38
Additional paid-in-capital................................................ 10,825 10,766
Retained earnings......................................................... 83 490
Cumulative foreign currency translation adjustment........................ (187) (192)
Unrealized net holding gains on available-for-sale securities............. 3 9
Common stock held in treasury at cost (58,762 shares)..................... (264) (264)
--------- ----------
Total stockholders' equity............................................... 10,499 10,847
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,768 $ 24,976
========= ==========
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 Twenty-Six Weeks Ended
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
------------- ------------ ------------- ------------
Net sales......................................... $ 10,155 $ 10,628 $ 18,781 $ 21,370
Cost of goods sold................................ 5,844 6,402 11,612 13,114
---------- ---------- ----------- ----------
Gross profit.................................... 4,311 4,226 7,169 8,256
Operating expenses................................ 3,449 4,041 7,275 8,211
---------- ---------- ----------- ----------
Operating income (loss)......................... 862 185 (106) 45
Other income (expense)
Interest (expense).............................. (180) (258) (360) (475)
Other income - net.............................. 27 113 59 236
---------- ---------- ----------- ----------
(153) (145) (301) (239)
---------- ---------- ----------- ----------
Income (loss) before income taxes.............. 709 40 (407) (194)
Income tax expense................................ - 1 - 13
---------- ---------- ----------- ----------
Net income (loss)............................... 709 39 (407) (207)
Retained earnings at beginning of period.......... (626) 4,254 (490) 4,500
---------- ---------- ----------- ----------
Retained earnings at end of period................ $ 83 $ 4,293 $ 83 $ 4,293
========== ========== =========== ==========
Net loss per common and common equivalent shares.. $0.19 $0.01 ($0.11) ($0.06)
Number of common and common equivalent shares..... 3,820,147 3,568,563 3,818,664 3,586,100
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
June 29, 1996 July 1, 1995
----------------- ---------------
Cash flows from operating activities
Net (loss)................................................................ $ (407) $ (207)
Adjustments to reconcile net (loss) to net
cash provided by operating activities
Depreciation............................................................ 1,056 1,296
Amortization of intangible assets....................................... 76 265
Provision for losses on accounts receivable............................. 67 68
(Gain) loss on sale of fixed assets...................................... 9 (54)
Amortization of bond premium............................................ 6 59
Changes in assets and liabilities
(Increase) in accounts receivable....................................... (1,568) (2,130)
(Increase) decrease in inventories...................................... 544 (692)
(Increase) decrease in refundable income taxes......................... (101) 256
(Increase) decrease in prepaid expenses and other current assets........ (83) 22
(Increase) in other assets.............................................. (115) (23)
(Decrease) in accounts payable.......................................... (26) (687)
Increase (decrease) in accrued liabilities............................. (667) 145
Decrease in notes and other receivables................................ 18 1,695
---------------- ---------------
Total adjustments.................................................... (784) 220
---------------- ---------------
Net cash provided by (used in) operating activities.................. (1,191) 13
Cash flows from investing activities
Purchase of property, plant and equipment (net)........................... (801) (595)
Proceeds from maturity of marketable securities........................... 286 -
Restricted cash - Industrial Revenue Bond................................. - 5
Purchase of treasury stock................................................ - (264)
---------------- ---------------
Net cash (used) by investing activities................................. (515) (854)
Cash flows from financing activities
Payments on borrowings.................................................... (31) (140)
Reduction of capital lease obligation..................................... (15) (14)
Exercise of common stock options.......................................... - 23
Issuance of common stock under stock purchase plan........................ 59 -
---------------- ---------------
Net cash provided (used) by financing activities........................ 13 (131)
---------------- ---------------
Effect of exchange rate changes on cash..................................... - (11)
Net (decrease) in cash and cash equivalents............................. (1,693) (983)
---------------- ---------------
Cash and cash equivalents at beginning of period............................ 2,982 4,859
---------------- ---------------
Cash and cash equivalents at end of period.................................. $ 1,289 $ 3,876
================ ===============
Supplemental disclosures of cash flow information
Cash (refunded) paid during the period for
Interest and swap fees.................................................. $ 294 $ 428
Income taxes, net....................................................... $ 101 $ (244)
6
The accompanying notes are an integral part of these statements.
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
June 29, 1996 and July 1, 1995 for the thirteen and twenty-six weeks ended
June 29, 1996 and July 1, 1995 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, as well as
previously filed 10-Qs, should be read in conjunction with the
accompanying condensed consolidated financial statements.
3. Inventories are summarized as follows (in thousands):
June 29, December 30,
1996 1995
------ ------
Finished Goods $2,343 $3,165
Work-in-Process 1,129 893
Raw Materials 1,135 1,093
------ ------
$4,607 $5,151
====== ======
4. No provision was made for income taxes in 1996 due to net operating loss
carryforwards available to the Company. The provision for income taxes
for 1995 reflects the taxes on income of foreign subsidiaries.
7
8
PART I - FINANCIAL STATEMENTS
FORM 10-Q
SELFIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Earnings per share have been computed by dividing net earnings for the
thirteen weeks ended June 29, 1996 and July 1, 1995 by 3,820,147 and
3,568,563 common shares, respectively. For the twenty-six weeks ended
June 29, 1996 and July 1, 1995, earnings per share have been computed by
dividing the net loss by 3,818,664 and 3,568,100 of 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.
6. During the fourth quarter of 1995, the Company recorded a $2.1 million
charge to exit certain unprofitable product lines, close the Company's
Canadian facility and move the Canadian operations to the Chicago
manufacturing and distribution facilities. As of December 30, 1995
approximately $.6 million of obsolete inventory reserves, $.2 million of
accrued legal and accrued severance and $.5 million of accrued facility
closing costs remained on the Company's books. The amount of cash paid
for legal and severance benefits, disposition of obsolete inventory and
cash paid and fixed asset write-offs charged to facility closing costs in
1996 is detailed as follows:
FACILITY LEGAL AND
INVENTORY CLOSING SEVERANCE
RESERVES COSTS BENEFITS
-------- ----- --------
Balance at 12/30/95 $.6 million $.5 million $.2 million
Charges to reserves .3 million .3 million .1 million
---------- ----------- -----------
Balance at 6/29/96 $.3 million $.2 million $.1 million
=========== =========== ===========
The payouts will be substantially completed by the end of 1996.
7. On April 12, 1996 the Company completed the consolidation of its banking
relationships and entered into a new Credit Agreement. The Credit
Agreement provides an $8.0 million line of credit subject to asset based
availability formulas and a line of credit to support letters of credit
required for the Company's Industrial Development Finance Authority Bonds.
All of the
8
9
PART I - FINANCIAL STATEMENTS
FORM 10-Q
SELFIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(Unaudited)
Company's assets are pledged as collateral in support of the Credit
Agreement. The Company is in compliance with the loan covenants of the
Credit Agreement. At July 18, 1996 there were no borrowings outstanding
under the asset based line of credit.
8. Restricted cash represents deposits made to sinking fund accounts used to
repay the current portion of the Company's Industrial Revenue Bond debt in
compliance with the Credit Agreement discussed above.
9. Subsequent event:
On July 12, 1996, the Company issued 3,329 shares of common stock in
conjunction with the 1995 Employee Stock Purchase Plan.
9
10
Item 2 - Management's Discussion and Analysis of Results of Operations
and Financial Condition
When used in this discussion, the words "believes", "anticipates",
"expected" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ
materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to
republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers are also urged to carefully review and
consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's
business, in this report, as well as the Company's periodic reports
on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission.
In the discussion and analysis that follows, all references to 1996
and 1995 refer to the 13 and 26 week periods ended June 29, 1996
and July 1, 1995. The following amounts are in thousands of dollars.
Results of operations for the 13 weeks ended June 29, 1996, and July 1, 1995.
Net sales decreased $473 (4%) from 1995 due primarily to lower housewares
segment sales associated with the discontinuation of certain products.
Housewares sales declined 10% ($788) however, sales of the home improvement
segment were up 12% ($315) as projects deferred during the first quarter due to
inclement weather were initiated in the current period.
Gross profit margin improved to 42.5% from 39.8% last year. The improvement is
primarily associated with increased gross profit margins in the housewares
segment due to the
10
11
discontinuation of unprofitable product lines, reduced provisions for obsolete
inventory and lower resin prices. Partially mitigating these variances was
lower overhead absorption associated with the decrease in sales and required
cutbacks in production.
Operating expenses decreased 15% during the period primarily as a result of
reduction in personnel, acquisition related expenses, professional services,
sales detailing, packaging graphics, and the closing of the Canadian plant.
Amortization of intangibles was also reduced due to the expiration of a
non-compete agreement and the 1995 write-down of certain intangible assets. As
a percentage of net sales, operating expenses decreased to 34% from 38%,
primarily attributable to management's efforts to control such expenses.
Interest expense decreased $78 from last year due to debt reductions of $2.3
million in the fourth quarter of 1995.
Other income decreased $86 compared to last year due to lower gains on fixed
asset sales, the absence of a franchise tax refund received in 1995 and a
foreign exchange loss compared to the foreign exchange gain recorded last year.
No income tax expense was recorded during the period due to the availability of
net operating loss carryforwards.
Results of operations for the 26 weeks ended June 29, 1996 and July 1, 1995.
Net sales decreased 12% ($2,589) during the period. Housewares sales were down
$2,283 (13%) during the period due to the discontinuation of certain products,
inventory restrictions imposed by certain key retail customers and the absence
of pipeline fill sales to a large retail customer. Home improvement sales were
down 7% ($306) as a result of inclement weather during the first few months of
the year.
11
12
Gross profit margin decreased to 38.2% from 38.6% last year. The decrease in
the gross profit percentage is associated with unabsorbed fixed costs at the
home improvement segment due to the weather related sales decrease during the
first few months of 1996. However, this decrease in gross profit margin was
largely mitigated by an increase in the gross profit percentage at the
housewares segment associated with the 1995 decision to discontinue certain
unprofitable product lines, reduced resin prices and lower provisions for
obsolete inventory.
Operating expenses decreased 11% for the 26 week period. The decrease was due
to reduced costs at the housewares segment associated with the closing of the
Canadian plant, headcount related salary and benefit reductions, reduced
acquisition and other professional services, depreciation, legal fees, trade
show expense, travel, sales detailing and the absence of a 1995 marketing
expense accrual. Also contributing to the decrease in operating expenses was
reduced amortization associated with the expiration of a non-compete agreement
and the 1995 write-down of certain intangible assets as well as volume related
decreases in commissions and freight expense.
Interest expense decreased $115 due to debt reduction of $2.3 million in the
fourth quarter of 1995.
Other income decreased $177 as a result of lower gains on fixed asset sales,
foreign exchange losses compared to the foreign exchange gains and lower
interest income as a result of reduced cash balances and the maturity of
interest bearing marketable securities.
Income tax expense decreased $13 compared to last year. No tax expense was
recorded this year due to the availability of net operating loss carryforwards.
12
13
OUTLOOK
The Company anticipates that the factors impacting net sales in the first half
of the year have been reduced and that second half sales trends will approach
last year's performance. Inventory restrictions at a key housewares customer
have been lifted and recent order patterns have returned to normal. Further,
the second half of 1995 did not include any significant pipeline fill shipments
to housewares customers. As such, second half net sales in the housewares
business are expected to track closer to prior year performance. Management
believes the home improvement business will perform at or slightly better than
1995 in the second half as a result of new product introductions. The home
improvement business, however, is highly susceptible to weather conditions
since sales are predicated on building contractors' ability to work outside.
As such, general weather conditions can have either a positive or negative (as
occurred in the first quarter) impact, particularly in the fourth quarter.
Gross profit margins are expected to continue the second quarter trend. Margin
improvement is the result of mix improvements in the housewares segment and
slightly lower resin costs. The Company will continue to monitor inventory
levels closely and, as such, does not expect to produce at capacity.
Accordingly, certain overhead costs are not expected to be fully absorbed.
Management efforts to control operating expenses in the second quarter resulted
in reductions of a permanent nature. The Canadian facility was closed and
other personnel reductions were initiated. These actions will result in the
continuing decline of operating expenses during the remainder of the year as
compared to 1995. Management believes the cost structure of the Company is now
reflective of existing sales levels and that the Company is positioned for
sustained profitability.
FINANCIAL CONDITION
Net working capital of $6,701 was $11 less than the end of 1995. Cash used by
operations increased $1,204 compared to last year due to the 1995 collection of
a patent infringement suit
13
14
($1,600). Also contributing to the increase in cash used by operations was the
increase in the net loss, funding of severance and other items related to the
closing of the Company's Canadian facility and the payment of accrued employee
wages, incentive compensation and other benefits. However, efforts to control
inventories at a level consistent with the current sales volume and reductions
in receivables generated increased cash flow compared to last year.
Sales of the Company's home improvement products are generally lower in the
first and fourth quarter of the calendar year. Net earnings vary
proportionately more than sales due to the effect of fixed costs. Results of
operations for the 13 week period ended June 29, 1996 are not necessarily
indicative of the results to be expected for the 52 week period ended December
28, 1996.
On April 12, 1996 the Company completed the consolidation of its banking
relationships and entered into a new Credit Agreement. The Credit Agreement
provides an $8.0 million line of credit subject to asset based availability
formulas and a line of credit to support letters of credit required for the
Company's Industrial Development Finance Authority Bonds. All of the Company's
assets are pledged as collateral in support of the Credit Agreement. The
Company is in compliance with the loan covenants of the Credit Agreement. At
July 18, 1996 there were no borrowings outstanding under the asset based line
of credit.
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 - On June 11, 1996 William P.
Mahoney resigned his position as
director of the registrant.
ITEM 6. A. Exhibits and Reports On April 22, 1996 the registrant
filed a Form 8-K disclosing that
Grant Thorton LLP was dismissed as
its independent public accountants
effective April 12, 1996 and that
Arthur Andersen LLP was engaged as
its new independent public
accountants effective with the
dismissal of its former
accountants.
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 2, 1996
16