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 April 3, 1999
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.)
701 Griffith Road 28217
-----------------
Charlotte, North Carolina (Zip Code)
- ------------------------------
(Address of principal executive offices)
(704)559-5777
-------------
(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 May 12, 1999
--------------------- ------------
Par value $.10 per share 3,243,706
Page 1
<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.............. 8-12
PART II. OTHER INFORMATION:
Item 6. Exhibits and reports on Form 8-K................... 13
Page 2
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
April 3, June 27,
1999 1998
-------- --------
(Unaudited) (Unaudited)
ASSETS
------
CURRENT:
Cash and cash equivalents $ 442,885 $ 2,193,329
Accounts receivable, less allowances of
$562,292 and $655,656 16,962,449 19,817,834
Inventories 16,806,268 15,934,745
Prepaid expenses and other current assets 4,601,564 3,372,266
----------- ------------
TOTAL CURRENT ASSETS 38,813,166 41,318,174
PROPERTY AND EQUIPMENT:
Leasehold improvements 556,187 552,655
Machinery and equipment 1,368,336 1,825,959
Furniture, fixtures and transportation
equipment 1,239,168 1,341,728
Construction in progress 1,176,164 -
----------- ------------
Total 4,339,855 3,720,342
Less accumulated depreciation and
amortization (1,722,075) (1,632,367)
----------- ------------
NET PROPERTY AND EQUIPMENT 2,617,780 2,087,975
----------- ------------
OTHER LONG-TERM ASSETS 946,171 517,352
INTANGIBLES, NET OF ACCUMULATED
AMORTIZATION 5,780,410 6,110,410
----------- ------------
$48,157,527 $ 50,033,911
=========== ============
See accompanying notes to consolidated condensed financial statements.
Page 3
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
April 3, June 27,
1999 1998
-------- --------
(Unaudited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Note payable -band line of credit $ 3,500,000 $ 4,000,000
Accounts payable 11,211,186 10,809,976
Customers' deposits 5,080,377 2,158,512
Accrued expenses 556,523 2,188,557
Current maturities of long-term debt 1,520,000 1,945,000
----------- ------------
TOTAL CURRENT LIABILITIES 21,868,086 21,102,045
LONG-TERM DEBT 4,180,000 5,725,000
----------- ------------
TOTAL LIABILITIES 26,048,086 26,827,045
----------- ------------
STOCKHOLDERS' EQUITY:
Common stock - par value $.10; authorized
20,000,000 shares, issued 3,369,506,
outstanding 3,263,706; and issued
3,357,406, outstanding 3,319,806,
respectively 336,951 335,741
Additional paid-in capital 12,935,886 12,889,546
Retained earnings 9,280,661 10,143,226
----------- ------------
Total 22,553,498 23,368,513
Treasury stock, at cost, 105,800 and 37,600
common shares (444,057) (161,647)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 22,109,441 23,206,866
----------- ------------
$ 48,157,527 $ 50,033,911
=========== ============
See accompanying notes to consolidated condensed financial statements.
Page 4
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
04-03-99 03-28-98 04-03-99 03-28-98
(13 Weeks) (13 Weeks) (40 Weeks) (39 Weeks)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 22,714,726 $ 20,637,767 $ 71,391,446 $ 66,438,792
------------ ------------ ------------ -------------
COST AND EXPENSES:
Cost of sales 19,246,048 17,146,817 60,684,884 54,609,642
Selling expenses 1,751,802 1,658,143 5,408,522 5,100,399
General and administrative
expenses 2,125,212 1,470,512 5,894,992 4,160,507
------------ ------------ ------------ -------------
Total costs and expenses 23,123,062 20,275,472 71,988,398 63,870,548
------------ ------------ ------------ -------------
(408,336) 362,295 (596,952) 2,568,244
NET INTEREST EXPENSE 268,867 199,323 766,613 531,057
------------ ------------ ------------ -------------
INCOME (LOSS) BEFORE
TAXES ON INCOME (677,203) 162,972 (1,363,565) 2,037,187
TAXES (BENEFIT) ON
INCOME (233,000) 63,000 (501,000) 790,000
------------ ------------ ------------ -------------
NET INCOME (LOSS) $ (444,203) $ 99,972 $ (862,565) $ 1,247,187
============ ============ ============ =============
Basic earnings (loss) per share $ (0.14) $ 0.03 $ (0.26) $ 0.38
Diluted earnings (loss) per share (0.14) 0.03 (0.26) 0.36
Weighted average shares
Outstanding:
Basic 3,273,773 3,300,136 3,288,441 3,270,787
Diluted 3,273,773 3,430,674 3,288,441 3,426,928
</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 Nine Months Ended
---------------------------------
04-03-99 03-28-98
(40 Weeks) (39 Weeks)
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (862,565) $ 1,247,187
Adjustments to reconcile net income (loss) to
cash used by operating activities:
Depreciation and amortization 906,464 845,527
Provision for inventory obsolescence 225,000 200,000
Gain on disposal of assets (4,389) (19,904)
Foreign currency translation adjustment - 11,000
(Increase) decrease in:
Accounts receivable 2,855,385 5,938,225
Inventories (1,096,523) (315,596)
Prepaid expenses and other current assets (1,229,298) 176,056
Other assets (428,819) 723,968
Increase (decrease) in:
Accounts payable 401,210 (8,181,167)
Customers' deposits 2,921,865 (644,136)
Accrued expenses (1,632,034) (901,977)
------------- ------------
Net cash provided by (used in) operating
activities 2,056,296 920,817
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Wink Davis Equipment Company - (9,500,000)
Acquisition of TMC Automation Company, Inc. - (1,841,304)
Capital expenditures (1,418,905) (300,114)
Proceeds on sale of assets 317,025 73,742
------------- ------------
Net cash used in investing activities (1,101,880) (11,567,676)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit
agreement (500,000) 2,300,000
Payment on line of credit agreement of Wink
Davis Equipment Company - (201,977)
Proceeds from issuance of term note due to bank - 8,300,000
Principal payments on long-term debt (1,970,000) (266,215)
Principal payments on debt assumed from TMC
Automation Company - (524,202)
Issuance of common stock for stock options 47,550 285,000
Purchase of treasury stock (282,410) -
------------- -----------
Net cash provided by (used in) financing
activities (2,704,860) 9,892,606
------------- -----------
NET DECREASE IN CASH (1,750,444) (2,595,887)
CASH AND CASH EQUIVALENTS at beginning of period 2,193,329 3,832,534
------------- -----------
CASH AND CASH EQUIVALENTS at end of period $ 442,885 $ 1,236,647
============= ===========
Supplemental Disclosures:
Cash paid during period for:
Interest 898,088 $ 510,658
Income taxes 371,100 1,087,223
</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:
April 3, June 27,
1999 1998
------------ -----------
(Unaudited) (Unaudited)
Machines $ 10,950,937 $ 9,466,125
Parts and supplies 5,855,331 6,468,620
------------ -----------
Total $ 16,806,268 $ 15,934,745
============ ===========
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, these subsidiaries may contain different lengths of
operations between periods of fiscal 1998 compared to the same periods
of fiscal 1999.
RESULTS OF OPERATIONS
---------------------
Revenues increased by about $2.1 million in the 13-week period ended
April 3, 1999. Yarn processing equipment, which was acquired in the
current fiscal year, had revenues of about $2.1 million and knitted
fabric equipment increased by approximately $4.0 million. These and
other smaller increases from TMC and Wink Davis were offset by a $5.1
million decrease in revenues of hosiery equipment in the current fiscal
quarter.
Year-to-date revenues increased by approximately $5.0 million to $71.4
million. Yarn equipment revenues were approximately $7.3 million and
knitted fabric equipment revenues increased by about $9.3 million.
Year-to-date revenues for both TMC and Wink Davis each increased by
about $2.3 million. These increases were offset by decreased hosiery
equipment revenues of about $15.6 million.
Cost of sales in the current third quarter were 84.7% of revenues. For
the same period of the prior fiscal year, cost of sales were 83.1% of
revenues. Similarly, cost of sales for the current nine-months
increased to 85.2% from 82.2% compared to the same period last year.
These unfavorable shifts result from lower sales volumes and margins on
hosiery equipment and lower margins on new yarn processing equipment.
Orders for this yarn processing equipment were on back order at the
time Speizman assumed operations. These decreases were offset by higher
margins and increased volumes on knitted fabric equipment and textile
equipment parts.
Page 8
<PAGE>
Selling expenses for the current third quarter totaled approximately
$1,752,000, an increase of approximately $100,000 compared to the same
period of the prior fiscal year. Year-to-date selling expenses are
approximately $5.4 million, an increase of $300,000 from the prior
year. Substantially all of these increases result from the inclusion of
TMC and yarn processing equipment, offset by lower commissions on
hosiery related equipment.
General and administrative expenses increased by approximately $655,000
in the third fiscal quarter of the current year as compared to the same
period of the previous year. Components of the increase include
increased rent, personnel and a full quarters' expenses of TMC and the
yarn processing divisions.
In the current fiscal year, general and administrative expenses were
approximately $5.9 million, an increase of approximately $1.7 million
over the nine month period ending March 28, 1998. Approximately
$829,000 of the increase is directly related to the inclusion of longer
operating periods of Wink Davis, TMC and yarn processing divisions.
Other increases are due to increased rent expense and personnel.
Interest expense is shown net of interest income. Net interest expense
increased to approximately $269,000 and $767,000 in the current quarter
and fiscal year, respectively. Increased interest expense results from
higher borrow quarterly installments paid on the term loan.
Net loss for the third quarter was $444,000 or $0.14 per share, as
compared to net income of $100,000, or $0.03 basic and diluted per
share for the same period of the prior fiscal year. For the current
nine-month period, net loss is $863,000 or $0.26 per share, as compared
to the prior year's income of $1,247,000 or $0.38 basic ($0.36
diluted).
OUTLOOK
-------
The outlook for sock machinery has become substantially stronger than
in the prior quarter. Because sales of athletic socks at retail have
been very strong, the producers of athletic socks have decided to
purchase conventional non-closed toc machines. The Company currently
has a backlog of more than 400 of the conventional machines. These
machines should be delivered in the fourth quarter of fiscal 1999 and
first quarter of fiscal 2000. Demand remains strong for large diameter
circular knitting machines utilizing new technology in the production
of seamless undergarments, action wear and swimsuits. The yarn
processing industry is still in a state of uncertainty in North
America. One of the industries' major trade shows will be held in early
June, at which time, customers will evaluate new technologies offered
in the circular knitting machine as well as yarn processing industries.
The Wink Davis backlog continues to be at approximately the same level
as it was in the prior quarter.
Page 9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital was approximately $16.9 million at April 3, 1999,
a decrease of $3.3 million from the Company's working capital at June 27, 1998.
The current ratio at the end of the third quarter was 1.77 to 1.00.
At the end of the prior fiscal year, this ratio was 1.96 to 1.00.
Operating activities provided approximately $2.1 million of cash in the current
nine-month period, as opposed to a usage of about $0.9 million in the same
period of the prior fiscal year. In the current year, cash used in the net loss
was offset by non-cash expenses including depreciation, amortization and
inventory reserves. Additional cash was provided from decreases in accounts
receivable and increases in customers' deposits offset by increases in
inventories and prepaids and other current assets and decreases in accrued
expenses. In the same period of the prior year cash was provided by net income
and decreases in accounts receivable offset by decreases in accounts payable.
For the nine months ended April 3, 1999, investing activities used about $1.1
million in cash, substantially all related to capital expenditures, including
leasehold upfitting costs of the new facility for machinery warehousing and
corporate offices. In the prior year, approximately $11.6 million in cash was
used for the investments of Wink Davis and TMC.
Financing activities used approximately $2.7 million in the current fiscal year,
including principal payments of $1,970,000 on the Company's term loan. In the
prior year financing activities provided about $9.9 million, which related
substantially to the acquisitions of Wink Davis and TMC.
Overall, net cash decreased by $1,750,000 in the current year as compared to a
decrease of $2,596,000 for the same period of the prior fiscal year.
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.
Page 10
<PAGE>
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 flunctuations 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.
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 and its three
subsidiaries has been reviewed and all known issues related to the Year 2000
issues have been resolved. In May 1999, Wink Davis' information systems were
integrated into this primary information system. Costs incurred were not
significant.
Page 11
<PAGE>
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 12
<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 13
<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: May 18, 1999 By: /s/ Robert S. Speizman
------------- -------------------------------------
Robert S. Speizman
President
Date: May 18, 1999 By: /s/ James H. McCorkle, III
------------- -------------------------------------
James H. McCorkle, III
Secretary-Treasurer
(Chief Financial Officer)
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> APR-03-1999
<CASH> 442,885
<SECURITIES> 0
<RECEIVABLES> 17,524,741
<ALLOWANCES> 562,292
<INVENTORY> 16,806,268
<CURRENT-ASSETS> 38,813,166
<PP&E> 4,339,855
<DEPRECIATION> 1,722,075
<TOTAL-ASSETS> 48,157,527
<CURRENT-LIABILITIES> 21,868,086
<BONDS> 0
336,951
0
<COMMON> 0
<OTHER-SE> 22,216,547
<TOTAL-LIABILITY-AND-EQUITY> 48,157,527
<SALES> 71,391,446
<TOTAL-REVENUES> 71,391,446
<CGS> 60,834,884
<TOTAL-COSTS> 71,988,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 766,613
<INCOME-PRETAX> (1,363,565)
<INCOME-TAX> (501,000)
<INCOME-CONTINUING> (862,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (862,565)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
