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 October 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 0-8544
SPEIZMAN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-0901212
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
508 West Fifth St. 28202
------------------ -----
Charlotte, North Carolina (Zip Code)
-------------------------
(Address of principal executive offices)
(704) 372-3751
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if
changed since last report)
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, 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.
Outstanding at
Class of Common Stock November 10, 1998
--------------------- -----------------
Par value $.10 per share 3,295,806
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets.................. 3 - 4
Consolidated Condensed Statements of Operations........ 5
Consolidated Condensed Statements of Cash Flows........ 6
Notes to Consolidated Condensed Financial Statements... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 8 - 11
PART II. OTHER INFORMATION:
Item 6. Exhibits and reports on Form 8-K................ 12
Page 2
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
October 3, June 27,
1998 1998
---- ----
(Unaudited) (Unaudited)
ASSETS
CURRENT:
<S> <C> <C>
Cash and cash equivalents $ 281,177 $ 2,193,329
Accounts receivable, less allowances of
$752,178 and $655,656 16,248,374 19,817,834
Inventories 17,632,049 15,934,745
Prepaid expenses and other current assets 4,329,215 3,372,266
---------- ----------
TOTAL CURRENT ASSETS 38,490,815 41,318,174
---------- ----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 582,573 552,655
Machinery and equipment 1,902,776 1,825,959
Furniture, fixtures and transportation
equipment 1,320,041 1,341,728
---------- ----------
Total 3,805,390 3,720,342
Less accumulated depreciation and amortization (1,815,796) (1,632,367)
---------- ----------
NET PROPERTY AND EQUIPMENT 1,989,594 2,087,975
---------- ----------
OTHER LONG-TERM ASSETS 767,652 517,352
INTANGIBLES, NET OF ACCUMULATED AMORTIZATION 6,000,410 6,110,410
--------- ---------
$ 47,248,471 $ 50,033,911
============ ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 3
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
October 3, June 27,
1998 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Note payable - bank line of credit $ 5,100,000 $ 4,000,000
Accounts payable 8,207,511 10,809,976
Customers' deposits 3,029,354 2,158,512
Accrued expenses 1,054,792 2,188,557
Current maturities of long-term debt 1,970,000 1,945,000
---------- ----------
TOTAL CURRENT LIABILITIES 19,361,657 21,102,045
LONG-TERM DEBT 4,940,000 5,725,000
---------- ----------
TOTAL LIABILITIES 24,301,657 26,827,045
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock - par value $.10; authorized
20,000,000
shares, issued 3,357,406, outstanding
3,301,806;
and issued 3,357,406, outstanding
3,319,806,
respectively. 335,741 335,741
Additional paid-in capital 12,889,546 12,889,546
Retained earnings 9,961,380 10,143,226
---------- ----------
Total 23,186,667 23,368,513
Treasury stock, at cost, 55,600 and 37,600 common
shares (239,853) (161,647)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 22,946,814 23,206,866
---------- ----------
$47,248,471 $50,033,911
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 4
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
For the Three Months Ended
---------------------------------------
October 3, 1998 September 27, 1997
(14 Weeks) (13 Weeks)
---------- ----------
<S> <C> <C>
REVENUES $ 20,465,641 $21,469,630
------------- -----------
COSTS AND EXPENSES:
Cost of sales 16,988,902 17,901,555
Selling expenses 1,807,355 1,656,623
General and administrative expenses 1,730,385 1,090,455
------------- -----------
Total costs and expenses 20,526,642 20,648,633
------------- -----------
(61,001) 820,997
NET INTEREST EXPENSE 230,845 160,918
------------- -----------
Income (loss) before taxes on income (291,846) 660,079
TAXES (BENEFIT) ON INCOME (110,000) 251,000
------------- -----------
NET INCOME (LOSS) $ (181,846) $ 409,079
============ ==========
Basic earnings (loss) per share $ ( 0.05) $ 0.13
Diluted earnings (loss) per share ( 0.05) 0.12
Weighted average shares outstanding:
Basic 3,311,020 3,235,662
Diluted 3,311,020 3,391,301
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 5
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
-----------
For the Three Months Ended
--------------------------
10-03-98 9-27-97
(14 Weeks) (13 Weeks)
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (181,846) $ 409,079
Adjustments to reconcile net income (loss) to cash
used by operating activities:
Depreciation and amortization 296,879 252,919
Provision for inventory obsolescence 75,000 50,000
Gain on disposal of assets (600) (1,390)
Foreign currency translation adjustment - 11,000
(Increase) decrease in:
Accounts receivable 3,569,460 5,280,865
Inventories (1,772,304) 981,576
Prepaid expenses and other current assets (956,949) (777,313)
Other assets (250,300) 221,138
Increase (decrease) in:
Accounts payable (2,602,465) (6,709,308)
Customers' deposits 870,842 420,059
Accrued expenses (1,133,765) (1,075,463)
---------- ----------
Net cash used in operating activities (2,086,048) (936,838)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Wink Davis Equipment Company - (9,500,000)
Capital expenditures (90,898) (104,868)
Proceeds on sale of assets 3,000 3,500
---------- ----------
Net cash used in investing activities (87,898) (9,601,368)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit agreement 1,100,000 2,500,000
Payments on line of credit agreement - (1,100,000)
Payment on line of credit agreement of Wink
Davis Equipment
Company - (201,977)
Proceeds from issuance of term note due to bank - 7,000,000
Principal payments on long-term debt (760,000) (6,337)
Issuance of common stock for stock options - 16,809
Purchase of treasury stock (78,206) -
---------- ----------
Net cash provided by financing activities 261,794 8,208,495
----------- ----------
NET DECREASE IN CASH (1,912,152) (2,329,711)
CASH AND CASH EQUIVALENTS at beginning of period 2,193,329 3,832,534
---------- ----------
CASH AND CASH EQUIVALENTS at end of period $ 281,177 $ 1,502,823
========== ==========
Supplemental Disclosures:
Cash paid during period for:
Interest 270,822 $ 104,296
Income taxes 273,850 277,428
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 6
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Management Statement re Adjustments
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present the
Registrant's financial position, the results of operations and changes
in cash flow for the periods indicated.
The accounting policies followed by the Registrant are set forth on page
F-6 of the Registrant's Form 10-K for the fiscal year ended June 27,
1998, which is incorporated by reference.
Note 2. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
October 3 June 27,
1998 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Machines $11,768,867 $ 9,466,125
Parts and supplies 5,863,182 6,468,620
----------- -----------
Total $17,632,049 $15,934,745
=========== ===========
</TABLE>
Note 3. Taxes on Income
Taxes on income are allocated to interim periods on the basis of an
estimated annual effective tax rate.
Note 4. Net Income (Loss) Per Share
Basic net income per share includes no dilution and is calculated by
dividing net income by the weighted average number of common shares
outstanding for the period. Diluted net income per share reflects the
potential dilution of securities that could share in the net income of
the Company which consists of stock options (using the treasury stock
method). In a period with a net loss, the weighted average shares
outstanding will be the same.
Note 5. Intangibles
Goodwill is calculated as the excess cost of purchased businesses over
the value of their underlying net assets and is being amortized on a
straight-line basis over fifteen years.
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Speizman Industries, Inc. and subsidiaries (collectively the "Company") is a
major distributor operating through four companies: Speizman Industries, Inc.
("Speizman" or "Speizman Industries"), Wink Davis Equipment Co., Inc. ("Wink
Davis"), Todd Motion Controls, Inc. ("TMC"), and Speizman Yarn Equipment, Inc.
("Speizman Yarn"). Speizman distributes sock knitting machines, other knitting
equipment and related parts. Wink Davis sells commercial and industrial laundry
equipment, including the distribution of machines and parts as well as
installation and after sales service. TMC manufactures automated boarding,
finishing and packaging equipment used in the sock knitting industry. TMC's
products are sold through Speizman's distribution network. Speizman Yarn
distributes equipment used in the yarn processing industry.
NOTE: Wink Davis was acquired on August 1, 1997; TMC was acquired on February 6,
1998; Speizman Yarn began operations on August 1, 1998. Accordingly, each of
these subsidiaries contain different lengths of operations between the first
quarter of fiscal 1998 compared to the same quarter of fiscal 1999.
RESULTS OF OPERATIONS
Revenues decreased by approximately $1.0 million to about $20.5 million in the
first quarter of fiscal 1999 compared to the same quarter of the prior fiscal
year. Sales revenues from hosiery machinery and parts decreased by about $4.1
million, offset by increases in knitted fabric equipment of approximately $1.0
million and increased revenues of Wink Davis (related primarily to the inclusion
of a full quarter's activity) of approximately $1.9 million.
Cost of sales as a percentage of net revenues in the quarter ended October 3,
1998 was 83.1%, as compared to 83.4% in the same quarter of the prior fiscal
year. Cost of sales percentages for both textile equipment and laundry equipment
and services were both substantially unchanged from the prior year.
Selling expenses for the first quarter of fiscal 1999 totaled approximately
$1,807,000 as compared to approximately $1,657,000 in the same quarter of last
year. Substantially all of the increase relates to new activity of the three
recently acquired subsidiaries.
General and administrative costs in the first quarter of the current fiscal year
were approximately $1,730,000. In the first quarter of the prior fiscal year
these costs totaled approximately $1,090,000. Approximately $401,000 of the
increase relates to the inclusion of a complete quarter's worth of activity in
the current fiscal period for the three recently acquired subsidiaries.
Page 8
<PAGE>
The balance of the increase is attributable to increased rent, depreciation and
professional expenses.
Interest expense is shown net of interest income. In the quarter ended October
3, 1998, net interest expense was approximately $231,000 as compared to $161,000
for the quarter ended September 27, 1997. The increase is primarily due to the
additional usage of the Company's bank line of credit.
In the first quarter of fiscal 1999, income tax benefit was $110,000 or 37.7% of
the net loss. In the first quarter of fiscal 1998, income tax expense was
$251,000 or 38.0% of the net income.
Net loss for the first quarter totaled $182,000 or $0.05 per share, as compared
to net income in the same quarter last year of $409,000 or $0.13 basic and $0.12
diluted.
OUTLOOK
The sock machine business remains in a state of transition, as many athletic
sock producers wait and assess whether new technology from Lonati for closing
the toe of the sock on the knitting machine will meet their customers' needs.
Demand remains strong for large diameter circular knitting machinery utilizing
new technology used in the production of seamless undergarments, actionwear and
swimsuits. Sales and profits of Wink Davis continue to improve.
LIQUIDITY AND CAPITAL RESOURCES
At October 3, 1998, the Company's working capital totaled $19.4 million. This
figure represents a decrease of $1,740,000 from the Company's working capital at
the end of fiscal 1998. The Company's current ratio at October 3, 1998 was 1.99
to 1.00. At June 27, 1998, it was 1.96 to 1.00.
Operating activities used $2,086,000 in cash in the quarter ended October 3,
1998, as compared to usage of $937,000 for the same quarter last year. In the
current quarter, this usage of cash was generated essentially by decreases in
accounts payable and accrued expenses and increases in inventories, partially
offset by decreases in accounts receivable. In the first quarter of last year,
this usage was generated by decreases in accounts payable, partially offset by
decreases in accounts receivable.
In the quarter ended October 3, 1998, investing activities used $88,000. In the
same quarter of fiscal 1998, investing activities used $9.6 million, primarily
related to the acquisition of Wink Davis.
In the first fiscal quarter of fiscal 1999, financing activities provided
$262,000. In the same quarter of fiscal 1998, financing activities provided $8.2
million to fund the investment in Wink Davis.
Page 9
<PAGE>
Overall, net cash decreased by $1.9 million in the quarter ended October 3,
1998. In the same quarter last year, net cash decreased by $2.3 million.
The Company anticipates it will consolidate several machinery warehouses and the
administrative offices of Speizman Industries into a new location in the spring
of 1999. The Company expects to incur approximately $1.2 million to $1.4 million
in leasehold upfitting costs through the remainder of fiscal 1999.
SEASONALITY AND OTHER FACTORS
There are certain seasonal factors that may affect the Company's business.
Traditionally, manufacturing businesses in Italy close for the month of August,
and the Company's hosiery customers close for one week in July. Consequently, no
shipments or deliveries, as the case may be, of machines distributed by the
Company that are manufactured in Italy are made during these periods which fall
in the Company's first quarter. In addition, manufacturing businesses in Italy
generally close for two weeks in December, during the Company's second quarter.
Fluctuations of customer orders or other factors may result in quarterly
variations in net revenues from year to year.
EFFECTS OF INFLATION AND CHANGING PRICES
Management believes that inflation has not had a material effect on the
Company's operations.
DISCLOSURE ABOUT FOREIGN CURRENCY RISK
Generally, the Company's purchases of foreign manufactured machinery for resale
are denominated in Italian lira. In the ordinary course of business, the Company
enters into foreign exchange forward contracts to mitigate the effect of foreign
currency movements between the Italian lira and the U.S. dollar from the time of
placing the Company's purchase order until final payment for the purchase is
made. The contracts have maturity dates that do not generally exceed 12 months.
Substantially all of the increase or decrease of the lira denominated purchase
price is offset by the gains and losses of the foreign exchange contract. The
unrealized gains and losses on these contracts are deferred and recognized in
the results of operations in the period in which the hedged transaction is
consummated.
A substantial portion of the Company's textile machine and spare part purchases
are denominated and payable in Italian lira. Currency fluctuations of the lira
could result in substantial price level changes and therefore impede or promote
import/export sales and substantially impact profits. However, to reduce
exposure to adverse foreign currency fluctuations during the period from
customer orders to payment for goods sold, the Company enters into forward
exchange contracts. The Company is not able to assess the quantitative effect
that such currency fluctuations could have upon the Company's operations. There
can be no assurance that fluctuations in foreign currency exchange rates will
not have a significant adverse effect on future operations.
Page 10
<PAGE>
NOTE REGARDING PRIVATE SECURITIES LITIGATION REFORM ACT
Statements made by the Company which are not historical facts are forward
looking statements that involve risks and uncertainties. Actual results could
differ materially from those expressed or implied in forward-looking statements.
All such forward-looking statements are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995. Important factors that
could cause financial performance to differ materially from past results and
from those expressed and implied in this document include, without limitation,
the risks of acquisition of businesses (including limited knowledge of the
businesses acquired and misrepresentations by sellers) availability of
financing, competition, management's ability to manage growth, loss of
customers, and a variety of other factors.
YEAR 2000 COMPLIANCE
The Company has reviewed its computer and business systems to identify those
areas that could be adversely affected by Year 2000 software failures. The
primary information system used by Speizman Industries, TMC, and Speizman Yarn
has been reviewed and all known issues related to the Year 2000 issues have been
resolved. Costs incurred were not significant. The primary information system
used by Wink Davis is not Year 2000 compliant. In conjunction with the purchase
of Wink Davis on August 1, 1997, management planned to integrate Wink Davis'
information into the existing system used by Speizman Industries. The
integration project, which was not accelerated due to the Year 2000 issue, is
scheduled to be completed in January 1999. The estimated project cost of
integrating Wink Davis' information system is approximately $100,000.
A substantial portion of the equipment distributed by the Company has
computerized controls and features. However, to the Company's knowledge, no
operating features of the equipment are dependent on any time or date
information, such as the Year 2000 issue.
The Company is aware of one subsidiary's voice mail system and there may be
other computer-based systems which may require upgrading to ensure operational
continuity beyond December 31, 1999. The Company has substantially completed
identification of all such systems and believes that all significant systems
will be compliant in time to ensure no disruption to the Company's operations.
The cost of bringing these minor systems into compliance is not anticipated to
be material.
Currently, the Company cannot predict the effect of the Year 2000 problem on
entities with which it transacts business and there can be no assurance it will
not have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows. The Company will be formulating
a contingency plan to address the possible effects of any of its customers
experiencing Year 2000 problems.
Page 11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
None.
Page 12
<PAGE>
SIGNATURES
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.
SPEIZMAN INDUSTRIES, INC.
(Registrant)
Date: November 17, 1998 /s/ Robert S. Speizman
----------------------------------- ---------------------------------
Robert S. Speizman
President
Date: November 17, 1998 /s/ Josef Sklut
----------------------------------- ---------------------------------
Josef Sklut
Vice President-Finance
(Chief Financial Officer)
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-28-1998
<PERIOD-END> OCT-03-1998
<CASH> 281,177
<SECURITIES> 0
<RECEIVABLES> 17,000,552
<ALLOWANCES> 752,178
<INVENTORY> 17,632,049
<CURRENT-ASSETS> 38,490,815
<PP&E> 3,805,390
<DEPRECIATION> 1,815,796
<TOTAL-ASSETS> 47,248,471
<CURRENT-LIABILITIES> 19,361,657
<BONDS> 0
335,741
0
<COMMON> 0
<OTHER-SE> 22,611,073
<TOTAL-LIABILITY-AND-EQUITY> 47,248,471
<SALES> 20,465,641
<TOTAL-REVENUES> 20,465,641
<CGS> 16,988,902
<TOTAL-COSTS> 20,526,642
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230,845
<INCOME-PRETAX> (291,846)
<INCOME-TAX> (110,000)
<INCOME-CONTINUING> (181,846)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,846)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
