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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended July 1, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from __________________ to _____________________
Commission File No. 0-8544
SPEIZMAN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 56-0901212
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
701 Griffith Road, Charlotte, North Carolina 28217
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(Address of principal executives offices) (Zip Code)
Registrant's telephone number, including area code: (704) 559-5777
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 filing such
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of September 8, 2000, was $9,120,997 based on the last sale
price of $2.69 per share reported by the NASDAQ National Market System on that
date.
As of September 8, 2000, there were 3,393,228 shares of the
registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on November 16, 2000 are incorporated herein by
reference into Part III.
PART I
Item 1. Business.
General
Speizman Industries, Inc. and subsidiaries (collectively the "Company") is a
major distributor operating through six companies: Speizman Industries, Inc.
("Speizman"), Wink Davis Equipment Co., Inc. ("Wink Davis"), Todd Motion
Controls, Inc. ("TMC"), Speizman Yarn Equipment, Inc. ("Speizman Yarn"),
Speizman Canada, Inc. ("Speizman Canada") and Speizman de Mexico S.A. de C.V.
("Speizman Mexico"). Speizman Industries, Speizman Canada and Speizman Mexico
(collectively "Speizman Industries") 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 and related parts used in the yarn processing industry.
All references herein are to the Company's 52-or-53 week fiscal year ending
on the Saturday closest to June 30. The fiscal years 1996, 1997, 1998 and 2000
contained 52 weeks and ended on July 1, 2000, June 27, 1998, June 28, 1997 and
June 29, 1996. Fiscal 1999 contained 53 weeks and ended on July 3, 1999.
Speizman Industries
Speizman Industries is the leading distributor of new sock knitting machines
in the United States. It distributes technologically advanced sock knitting
machines manufactured by Lonati, S.p.A., Brescia, Italy ("Lonati"), which
Speizman Industries believes is the world's largest manufacturer of hosiery
knitting equipment. It also distributes Lonati sock and sheer hosiery knitting
machines in Canada. In addition, through sales arrangements with other European
textile machinery manufacturers, Speizman distributes other sock knitting
machines, knitting machines for underwear and other knitted fabrics and other
equipment related to the manufacture of socks, sheer hosiery and other textile
products, principally in the United States and Canada. Speizman sells textile
machine parts and used textile equipment in the United States and in a number of
foreign countries.
Speizman Industries and Lonati entered into their present agreement for the
sale of Lonati machines in the United States in January 1992 (the "Lonati
Agreement"). Speizman and Lonati also entered into a similar agreement relating
to Speizman Industries' distribution of Lonati sock and sheer hosiery knitting
machines in Canada in January 1992 and in Mexico in 1997. Speizman Industries
has distributed Lonati double cylinder machines in the United States
continuously since 1982. Speizman began distributing Lonati single cylinder
machines in 1989.
Pursuant to the Lonati Agreement, Lonati has appointed Speizman Industries
as Lonati's distributor and exclusive agent in the United States for the sale of
its range of single and double cylinder sock knitting machines and related spare
parts. Although the Lonati Agreement does not establish Speizman Industries as
the exclusive distributor of Lonati sock machines in the United States, Speizman
in fact has exclusively distributed Lonati double cylinder sock machines
continuously since 1982 and Lonati single cylinder sock knitting machines since
1989. The Lonati Agreement extended to December 31, 1995 and continues from year
to year thereafter, although it may be terminated on 90 days written notice at
any year end or without notice in the event of a breach. Speizman and Lonati
also entered into a similar agreement relating to Speizman Industries'
distribution of Lonati sock and sheer hosiery knitting machines in Canada in
January 1992.
The Lonati Agreement contains certain covenants and conditions relating to
Speizman Industries' sale of Lonati machines, including, among others,
requirements that Speizman Industries, at its own expense, promote the sale of
Lonati machines and assist Lonati in maintaining its competitive position,
maintain an efficient sales staff, provide for the proper installation and
servicing of the machines, maintain an adequate inventory of parts and pay for
all costs of advertising the machines. Speizman is prohibited during the term of
the Lonati Agreement from distributing any machines that compete with Lonati
machines. Speizman believes that it is and will remain in compliance in all
material respects with such covenants. The cost to Speizman of Lonati machines,
as well as the delivery schedule of these machines, are totally at the
discretion of Lonati. The Lonati Agreement allows Lonati to sell machines
directly to the sock manufacturer with any resulting commission paid to Speizman
determined on a case by case basis.
1
The Lonati single cylinder machines distributed by Speizman Industries are
for the knitting of athletic socks. The Lonati double cylinder machines are for
the knitting of dress and casual socks. The Lonati machines are electronic,
high-speed, and have computerized controls. Lonati single cylinder machines are
capable of knitting pouch heel and toe, reciprocated heel and toe and tube
socks. These and other features allow the rapid change of sock design, style and
size, result in increased production volume and efficiency and simplify the
servicing of the machines. Lonati single cylinder machines are also available in
a closed toe model which enables hosiery manufacturers to automate their
production processes by knitting in the toe as opposed to manually seaming. This
procedure not only results in a higher quality product but manufacturers also
benefit from lower costs. In addition to the previously described machines
distributed in the United States, Speizman Industries distributes these sock
knitting machines as well as Lonati sheer hosiery knitting machines in Canada
and Mexico. In addition, Speizman distributes the knitting machines, described
below, manufactured by Santoni, S.r.l. Brescia, Italy ("Santoni"), one of
Lonati's subsidiaries, in the United States, Canada and Mexico. The most popular
Santoni products are large diameter circular knitting machines utilizing new
technology in the production of seamless undergarments, action wear and
swimsuits. Sales by Speizman Industries in the United States, Canada and Mexico
of new machines manufactured by Lonati, S.p.A., generated the following
percentages of the Company's net revenues: 21.2% in fiscal 2000, 22.5% in fiscal
1999 and 41.1% in fiscal 1998. In addition, sales of Santoni machines in the
United States, Canada and Mexico generated 32.3%, 20.3% and 5.3% of the
Company's net revenues in fiscal 2000, 1999 and 1998, respectively.
In addition to the Lonati machines, Speizman Industries distributes new
knitting and other machines and equipment under written agreements and other
arrangements with the manufacturers. The following table sets forth certain
information concerning certain of these additional distribution arrangements:
----------------------------- ------------------------------------------------------- ------------------------------
Manufacturer Machine Territory
----------------------------- ------------------------------------------------------- ------------------------------
Santoni, S.r.l., Circular knitting machines for seamless United States, Canada and
Brescia, Italy under-garments, action wear, swimsuits, men's Mexico
socks and women's sheer hosiery and surgical
support hose
Conti Complett, S.p.A., Sock toe closing machines and sock turning devices United States, Canada and
Milan, Italy Mexico
Dinema, Data collection United States and Canada
Brescia, Italy
Marchisio, Fabric knitting machines United States and Canada
Brescia, Italy
Vignoni, Fabric knitting machines United States and Canada
Cividino, Italy
----------------------------- ------------------------------------------------------- ------------------------------
There can be no assurance that Speizman will not encounter significant
difficulties in any attempt to enforce any provisions of the agreements with
foreign manufacturers, or any agreement that may arise in connection with the
placement and confirmation of orders for the machines manufactured by foreign
manufacturers or obtain an adequate remedy for a breach of any such provision,
due principally to the fact that they are foreign companies.
Speizman Industries sells used machinery and parts to the textile industry.
Speizman Industries carries significant amounts of machinery and parts
inventories to meet customers' requirements and to assure itself of an adequate
supply of used machinery. Speizman acts as a liquidator of textile mill
equipment and as a broker in the purchase and sale of such equipment.
Sales and Marketing
Speizman Industries markets and sells knitting machines and related
equipment primarily by maintaining frequent contacts with customers and
understanding of its customers' individual business needs. Salespersons will set
up
2
competitive trials in a customer's plant and allow the customer to use
Speizman's machine in its own work environment alongside competing machines for
two weeks to three months. Speizman Industries also offers customers the
opportunity to send their employees to Speizman Industries for training courses
on the operation and service of the machines and, depending on the number of
machines purchased and the number of employees to train, may offer such training
courses at the customer's facility. In addition, Speizman Industries exhibits
its equipment at trade shows and uses its private showroom to demonstrate new
machines. These marketing strategies are complemented by Speizman's commitment
to service and continuing education. At September 8, 2000, Speizman employed 11
salespersons and 36 technical representatives. In addition to its sales staff,
Speizman Industries uses several commission sales agents in a number of foreign
countries in connection with its sales of used machines.
The terms of new machine sales generally are individually negotiated
including the purchase price, payment terms and delivery schedule. Speizman
Industries is usually required to purchase imported machines with a letter of
credit in favor of the manufacturer delivered not less than about 15 days prior
to the machine's shipment to the customer's plant. Generally, the letter of
credit must be payable 60 days or longer from the date of the on-board bill of
lading and upon presentation of the bill of lading. The period from shipment by
the manufacturer to installation in the customer's plant is generally 30-60
days.
Speizman encourages trade-ins of older equipment, which reduces the
customer's initial capital outlay. Speizman Industries believes that its
trade-in policy has increased sales of certain of Speizman Industries' new
equipment lines.
Substantially all of the new machines sold by Speizman Industries are
drop-shipped from the foreign manufacturer by container or air freight directly
to the customer's plant using Speizman's freight forwarder to coordinate
shipment. Title is taken at the European port, and Speizman insures the machines
for 110% of cost.
Because a substantial portion of Speizman Industries' revenues are derived
from sales of machines and equipment imported from abroad, these sales may be
subject to import controls, duty and currency fluctuations. The majority of
Speizman Industries' purchases of Italian machines for sale in the United States
are denominated in Italian lira. Generally, Speizman has been able to adjust
sales prices or purchase lira hedging contracts to compensate for anticipated
dollar fluctuations. However, international currency fluctuations that result in
substantial price level changes could impede import sales and substantially
impact profits. Speizman is not able to assess the quantitative effect such
international price level changes could have upon Speizman Industries'
operations. There can be no assurance that fluctuations in foreign exchange rate
will not have an adverse effect on Speizman Industries future operations. All of
Speizman Industries' export sales originating from the United States are made in
U.S. dollars.
Speizman Industries also markets used machines through its employees and
outside commission salespersons. Speizman Industries markets its used machines
in the United States and in a number of foreign countries. Speizman uses trade
advertising extensively and frequently distributes lists throughout the industry
of used machines that Speizman Industries has for sale. Additionally, Speizman
utilizes its Internet web site for listing used machines available for sale.
Speizman Industries exports certain new and used machines and parts for sale
in Canada, Mexico and a number of other foreign countries. See Note 1 of Notes
to Consolidated Financial Statements for certain financial information
concerning Speizman Industries' foreign sales in fiscal 2000, 1999 and 1998.
Customers
Speizman Industries' customers consist primarily of the major sock
manufacturers in the United States and Canada. In fiscal years 2000 and 1999, no
single customer represented over 10% of the Company's revenues. In fiscal 1998,
Speizman Industries' largest customer accounted for 11.7% of the Company's
revenues. Generally, the customers contributing the most to Speizman Industries'
net revenues vary from year to year. Speizman Industries believes that the loss
of any principal customer could have a material adverse effect on Speizman
Industries.
3
Competition
The sock knitting machine industry is competitive. Lonati single cylinder
machines compete primarily with machines manufactured by an Italian and a Czech
company and Lonati double cylinder machines compete primarily with machines
manufactured by an Italian company acquired in 1993 by Lonati but not
represented by Speizman Industries. Lonati machines compete, to a lesser extent,
with machines manufactured by a number of other foreign companies of varying
sizes and with companies selling used machines. The principal competitive
factors in the distribution of sock knitting machines are technology, price,
service, and allowance of trade-ins and delivery. Management believes that its
competitive advantages are the technological advantages of the Lonati machines,
Speizman Industries' commitment to customer service and Speizman Industries'
allowance of trade-ins of used machines on new Lonati machines. Management
believes that it is at a short term competitive disadvantage if a potential
customer's decision will be based primarily on price since, generally, the
purchase price of Lonati machines is higher than that of competing machines.
In its sale of new equipment in addition to Lonati machines, Speizman
Industries competes with a number of foreign and domestic manufacturers and
distributors of new and used machines. In its sale of such other machines and
equipment, certain of Speizman Industries' competitors may have substantially
greater resources than Speizman Industries.
Domestic and foreign sales of used sock and sheer hosiery knitting machines
are fragmented and highly competitive. Speizman Industries competes with a
number of domestic and foreign companies that sell used machines as well as
domestic and foreign manufacturers that have used machines for sale as a result
of trade-ins. In the United States, Speizman Industries has one primary
competitor in its sale of used sock knitting machines. The principal competitive
factors in Speizman Industries' domestic and foreign sales of used machines are
price and availability of machines that are in demand. Although Speizman
Industries is the exclusive distributor of original equipment manufacturer
("OEM's") parts for a number of the machines it distributes, it competes with
firms that manufacture and distribute duplicates of such parts. In addition,
Speizman Industries competes with a number of distributors and manufacturers in
its other parts sales.
Wink Davis
Wink Davis, with offices in Atlanta, Georgia, Wooddale, Illinois, Charlotte,
North Carolina, and Chester, Virginia, distributes commercial laundry equipment
and parts and provides related service. Wink Davis was acquired by Speizman on
August 1, 1997. Wink Davis sells to a wide variety of customers. A large share
of these customers maintain on premise laundries ("OPL's"). OPL's are commonly
found in hotels, nursing homes and other institutions that perform their laundry
services in-house. Some larger installations of equipment are found in
hospitals, prisons and linen processing plants. The largest portion of Wink
Davis' sales are generated from its distributorships with both Pellerin Milnor
(washer extractor equipment manufacturers based in Kenner, LA) and Chicago Dryer
(commercial ironer/folder manufacturers based in Chicago, IL). Wink Davis
represents both of these companies in Georgia, South Carolina, North Carolina,
Virginia, middle and eastern Tennessee, Maryland, Washington, D.C., northern and
central Florida, and the Chicago, Illinois areas.
The Pellerin Milnor agreement appoints Wink Davis as the exclusive agent
within its territories. In some instances, a customer's purchase order may be
taken in one agent's territory, but the equipment is actually delivered to a
territory served by a different Pellerin Milnor agent. In these instances,
Pellerin Milnor grants the sale to the territory in which the purchase order was
taken. The dealer servicing the territory in which the equipment is installed
receives a commission for which that dealer must assume responsibility for
installing the equipment. Historically, these sales involving two separate
Pellerin Milnor dealers have been infrequent and management feels this issue
does not significantly improve or hurt its operations. The Chicago Dryer
agreement does not appoint Wink Davis as the exclusive agent within its
territories. Both the Pellerin Milnor and Chicago Dryer agreements are renewed
on an annual basis and may be terminated in the event of a breach. Wink Davis
has continuously represented both manufacturers for most of its current
territories since 1972. Since 1980, Pellerin Milnor has presented its annual top
distributor award to Wink Davis for all but three years. There can be no
assurance that the loss of one or both of these distributorships would not have
a materially adverse impact to Wink Davis' operations.
4
The Pellerin Milnor and Chicago Dryer agreements contain certain covenants
and conditions relating to Wink Davis' sales of these products, including, among
other things, that Wink Davis, at its own expense, promote the sale of the
manufacturers' machines and assist the manufacturers in maintaining their
competitive positions, maintain an efficient sales staff, provide for the proper
installation, maintenance and servicing of the machines, maintain adequate
inventory of parts and pay for all costs of advertising the machines. Wink Davis
believes that it is and will remain in compliance in all material respects with
such covenants.
Additionally, Wink Davis, under written agreements and other arrangements
with OEMs, distributes other laundry related equipment. The following table sets
forth, in alphabetical order, certain information concerning the additional
distribution agreements:
- -------------------------------------- -------------------------------------- ------------------------------------------
Manufacturer Machine Territory
- -------------------------------------- -------------------------------------- ------------------------------------------
American Dryer, Commercial Dryers Southeastern U.S. & Chicago, IL areas
Fall River, MA
Cissell Manufacturing, Commercial Dryers, laundry and dry Southeastern U.S. & Chicago, IL areas
Louisville, KY Cleaning pressing equipment
Consolidated Laundry Machinery, Commercial Dryers Southeastern U.S. & Chicago, IL areas
Los Angeles, CA
Energenics Corp., Lint collectors and automatic cart Southeastern U.S. & Chicago, IL areas
Naples, FL wash systems
Forenta, Inc., Laundry and Dry Cleaning Presses Southeastern U.S. & Chicago, IL areas
Morrisville, TN
Huebsch Originators, Commercial Dryers Southeastern U.S. & Chicago, IL areas
Ripon, WI
Unipress, Inc., Laundry and Dry Cleaning Presses Southeastern U.S. & Chicago, IL areas
Tampa, FL
- -------------------------------------- -------------------------------------- ------------------------------------------
Sales and Marketing
Wink Davis' primary products include washers, dryers, ironers and other
finishing equipment. Some of the larger installations include continuous batch
washers ("CBW's"), large dryers, pressing and folding equipment and conveyor
systems resulting in the laundering process being substantially automated. The
majority of the sales consist of washers, with less than 165 pound capacity per
load ("white machines"), and corresponding dryers. CBW systems or tunnels are
highly customized with a variety of features depending on the unique needs and
constraints of each customer. Sales orders are generated through a variety of
methods including repeat business referrals, cold calls and unsolicited
telephone orders. Typical sales terms on larger contracts require 15% down with
the balance due 10 days after delivery. At September 8, 2000, Wink Davis
employed approximately 11 sales persons and 46 technical representatives.
Most used equipment in smaller facilities has little value and there is
little demand for that type of used laundry equipment. Accordingly, Wink Davis
rarely accepts trade-ins of low capacity used equipment, nor do they purchase
used equipment of that nature. Some used CBW units can be rebuilt at a
substantial reduction in price to new units. Wink Davis does occasionally find
sales opportunities of this type. Many large orders, especially those at new
construction sites, require newly designed or modified electrical, plumbing,
construction or other work at the customer site. Wink Davis often subcontracts
these tasks for the customer in conjunction with the sale. Wink Davis has a
staff of CAD operators, and service personnel who assist and support outside
contractors to ensure that the facilities are properly prepared prior to the
delivery of equipment. Wink Davis personnel install the equipment and provide
training for the customers' operators. Smaller white sales generally require
less support and frequently consist of matching the specifications of the newly
ordered machine to the existing site.
5
Additionally, Wink Davis provides repair and maintenance services to OPL
facilities. Customers' OPL facilities are typically operated and managed by
their property, maintenance or housekeeping staffs. These staffs are often small
with broad areas of responsibilities and limited technical expertise, especially
for specific maintenance and repair issues of the laundry equipment.
Accordingly, Wink Davis provides a full range of repair and maintenance
services. Generally, each sales office is staffed by four or more technicians.
Each technician travels to the customer's site in a maintenance van, fully
stocked with the most commonly needed parts. Upon notification, Wink Davis will
dispatch and commonly have a technician addressing the problem within 24 hours.
If additional parts are required, they may be ordered from any of the Wink
Davis' four locations or shipped directly from the manufacturer.
Customers
Wink Davis has over 4,000 customers ranging in size from single washing
machine facilities to large laundry systems in hospitals or linen supply houses.
Customers purchasing laundry machines typically continue their association with
Wink Davis through purchase of repair parts or through service calls for
equipment repairs. No customer represents more than 10% of Wink Davis' business.
Accordingly, the loss of any single customer would not materially affect the
operations of Wink Davis.
Competition
The laundry equipment business is very competitive. Wink Davis competes
directly with several other distributors representing other OEMs. Wink Davis
believes the products they represent are of equal or better than their
competitors' quality. In some instances, Wink Davis may be at a price
disadvantage when a customer considers price only. Many sales of white machines
are price sensitive, however this varies by region. The purchase decision on
larger installations is less price sensitive as these customers are more
concerned about production output and quality, and the seller's ability to
efficiently service the machines being purchased. Wink Davis maintains a
well-trained staff of technicians covering all geographic areas of distribution.
Management believes this staff is more comprehensive than any maintained by the
competition.
TMC
TMC assembles, distributes and services automated boarding and finishing
equipment for the sock manufacturing industry. Management believes significant
potential exists for automating finishing operations in mills that specialize in
high volume production which is sold through large discount retail chains.
Typically, this denotes athletic socks, but may also include dress socks.
The current technology for athletic sock knitting operations is considered
highly automated and capital intensive. Raw material on yarn cones directly
feeds a machine which knits the entire product. A second off line operation
closes the toe using automated turners and toe closing equipment. Finishing
processes, unlike knitting operations, are significantly labor intensive.
Through a series of steps, socks are boarded, trimmed, paired and bagged.
TMC's machine significantly automates this process. In addition to boarding,
trimming, pairing and bagging, the equipment can also insert j-hooks (a small
plastic hanger for a display case), transfer print and board.
Intellectual Property
TMC had 2 employees in research and development, including William Todd, the
former owner and Vice President. Key components of the product have been
patented and several other patents are pending. During August 2000, the Company
entered into a non-binding letter of intent to license all patents, trademarks,
machine drawings, and intellectual property relating to the manufacturing of TMC
equipment to S.R.A. srl ("SRA") of Florence, Italy, a division of the Lonati
Group. The license arrangement will be exclusive for a four-year period
commencing December 1, 2000. Total license fees over the contract period will be
$2.0 million payable quarterly to the Company.
6
Production
The production process at TMC is basically assembly. Many of the electronic,
pneumatic, and structural parts are standard items available from various
distributors. A significant portion of the hardware and structural components
are custom designed and ordered. As of September 8, 2000, TMC employed 3 direct
assemblers, 1 indirect laborer and 1 person in research and development. All
assembly is expected to be done or coordinated at TMC's leased facility on
Patterson Avenue in Winston-Salem, NC through December 2000. Commencing in
January 2001, the Company expects to source TMC and other automation equipment
from SRA.
Sales and Marketing
Sales are made through Speizman Industries' sales force. The customer base
for TMC's product significantly overlaps with the customer base for hosiery
knitting machinery.
Commencing in January 2001 and in conjunction with the non-binding letter of
intent to license certain TMC assets to SRA, SRA will have distribution rights
for TMC equipment outside the United States, Canada and Mexico. Speizman
Industries will retain exclusive rights to distribute TMC equipment in the
United States, Canada and Mexico.
Competition
Competition consists of domestic and foreign manufacturers of similar
equipment. Such competitors consist of both large and small firms, many of which
compete intensely with TMC.
Speizman Yarn
Speizman Yarn distributes yarn processing equipment and parts and provides
related services. Under written and other arrangements with the manufacturers,
Speizman Yarn distributes or sells as an agent yarn processing equipment. The
following table sets forth certain information concerning distribution and sales
agreements:
- --------------------------------------------- --------------------------------------------- ----------------------------
Manufacturer Machine Territory
- --------------------------------------------- --------------------------------------------- ----------------------------
Margasa Proycetos E Ingeniera Textile, S.L. Fiber waste reclaiming and recycling United States, Canada and
Barcelona, Spain machinery Mexico
Meccanica Carresi S.r.L. Pillow stuffing and fiber blending boxes United States and Canada
Arezzo, Italy
UTIT Roving Handling Automation - Automatic Yarn United States and Canada
Modena, Italy Palletizing Machinery
Shanghai P & E Ring Spinning Machinery United States, Canada,
Shanghai, China Mexico and South America
- --------------------------------------------- --------------------------------------------- ----------------------------
Sales and Marketing
The Company's primary suppliers are UTIT for yarn automation equipment,
Shanghai P & E for ring spinning machines, and Margaga for fiber waste
reclaiming and recycling systems. Speizman Yarn employs 5 salespeople and 3
technicians. It also employs 1 CAD designer to assists its salespeople and
customers in efficient floor and space design at customers' mills. Among its
fulltime salespeople, 1 salesperson works exclusively in the purchase and resale
of used yarn processing equipment. Additionally, Speizman Yarn utilizes its
Internet Web site for marketing its parts and used machinery.
Customers
There are a limited number of yarn processing companies in the United
States. Yarn processing equipment requires a large capital investment. Yarn
processing entails conversion of raw bales of cotton into yarn and thread on
cones
7
which are then sold to textile knitters and weavers. This process involves
opening, carding, drawing, combing, roving and spinning. Substantially all of
the Company's customers complete all of these processes. The cost of a new
production line for all of these processes currently exceeds several million
dollars. Many customers with existing plants typically replace selected
components of the process at a time.
The Company's customers, i.e. yarn processors, are currently facing
difficult business conditions due to foreign competition.
Competition
Competition in the yarn processing equipment industry is intense. Most
manufacturers are located in Europe. Many of these manufacturers sell direct,
without a national distributor such as Speizman Yarn. Different manufacturers
are typically known for specific strengths in specific processes. UTIT and
Shanghai offer equipment for automation and ring spinning, respectively. Both
UTIT and Shanghai manufacture machinery used in the process of ring spinning.
UTIT supplies automation used in transporting roving bobbins between roving and
spinning frames. They also manufacture automatic palletizing machinery. Shanghai
supplies ring spinning machines used in manufacturing yarn.
Regulatory Matters
The Company is subject to various federal, state and local statutes and
regulations relating to the protection of the environment and safety in the work
place. The failure by the Company to comply with any of such statutes or
regulations could result in significant monetary penalties, the cessation of
certain of its operations, or both. Management believes that the Company's
current operations are in compliance with applicable environmental and work
place safety statutes and regulations in all material respects. The Company's
compliance with these statutes and regulations has not materially affected its
business; however, the Company cannot predict the future effects of compliance
with such statutes or regulations.
Employees
As of September 8, 2000, the Company had 206 full-time employees. The
Company's employees are not represented by a labor union, and the Company has
never suffered an interruption of business as a result of a labor dispute. The
Company considers its relations with its employees to be good.
Backlog
The Company's backlog of unfilled orders for new and used machines was $37.7
million, $53.6 million and $24.5 million at July 1, 2000, July 3, 1999 and June
27, 1998, respectively. At July 1, 2000, $9.5 million of these orders were
contingent upon the successful trials of the equipment in the customers' plants.
At July 3, 1999, the backlog included orders associated with an increase in
demand for the knitted fabric equipment line. The period of time required to
fill orders varies depending on the machine ordered.
The Company typically fills its backlog within 12 months; however, orders
constituting the current backlog are subject to customer cancellation, changes
in delivery and machine performance. As a result, the Company's backlog may not
necessarily be indicative of future revenue. In addition, the Company's current
backlog will not necessarily lead to revenues in any future period. Any
cancellation, delay or change in orders which constitute our current or future
backlog may result in lower than expected revenues.
Item 2. Properties.
The Company leases all of its real property. Significant leases are
summarized in the table below:
Lease Monthly Approximate
Lease Origination Term Rental Rental Square
Use Location Date (months) Rate Footage
- ------------------------------ --------------------- -------------------- ----------- ------------ -----------------------
Properties used primarily by Speizman:
Executive, administrative, Charlotte, NC December 1, 1999 180 $ 87,931 221,000 (a)
machinery rebuilding and
warehousing
Properties used primarily by Wink Davis:
Administrative, sales office Atlanta, GA August 1, 1999 24 $ 9,875 23,700 (b)
and warehouse
8
Lease Monthly Approximate
Lease Origination Term Rental Rental Square
Use Location Date (months) Rate Footage
- ------------------------------ --------------------- -------------------- ----------- ------------ -----------------------
Sales office and warehouse Wooddale, IL August 1, 1999 24 $ 6,099 6,500 (b)
Sales office and warehouse Chester, VA August 1, 1999 24 $ 1,982 6,000 (b)
Sales office and warehouse Charlotte, NC March 1, 2000 60 $ 6,469 11,000 (c)
Properties used primarily by TMC:
Machine assembly Winston-Salem, NC September 1, 1999 12 $ 5,890 35,340
(a) The Company's headquarters are leased from a limited liability company
owned by Robert S. Speizman, his wife and their children. The Company
relocated its executive, administrative, machinery rebuilding and a
substantial portion of its warehousing to this location in the spring of
1999.
(b) These properties are leased from a partnership owned by C. Alexander Davis,
a former shareholder and President of Wink Davis, and his brother.
(c) This property is leased from a limited liability company owned by Robert S.
Speizman, his wife and their children.
Item 3. Legal Proceedings.
The Company is a defendant in a lawsuit brought by Bluegrass Hosiery, Inc.,
now pending in a Kentucky federal court, in which Bluegrass alleges that the
Company breached a contract in which it had sold machines to Bluegrass, and
seeking damages, including punitive damages in an unspecified amount. The
Company vigorously denies the allegations. The matter is in a discovery stage.
Trial is scheduled for November 2001.
Wink Davis Equipment Company, Inc. and the Company are defendants in a
lawsuit brought by Hazel Hernandez, now pending in Kankakee County Circuit Court
of Illinois in which the plaintiff alleges that her decedent, a laundry company
employee, was killed by a Milnor 2-stage laundry press machine which was sold by
Wink Davis Equipment Company, Inc. to the employer of Hernandez's decedent. The
manufacturer of the machine, as well as manufacturers of certain components
therein, have also been joined as defendants in the lawsuit. The legal grounds
for including the company as a defendant are not clear. The plaintiff's claims
include allegations that the Company and Wink Davis Equipment Company, Inc.
placed an unreasonably dangerous machine in the stream of commerce, were
negligent in the design, manufacture, sale, and distribution of the machine, and
other grounds. The Company and Wink Davis Equipment Company, Inc. deny the
allegations and believe that they will ultimately prevail in the matter.
Wink Davis Equipment Company, Inc. is a defendant in a lawsuit brought by
Latavia Lowery now pending in Fulton County, Georgia Superior Court in which the
plaintiff alleges that her ward, a child, climbed into a coin operated laundry
machine in a laundromat, that her sister closed the door, and that the machine
started without the insertion of coins, injuring the child. The laundry machine
was manufactured by the Pellerin-Milnor Company, and sold by Wink Davis
Equipment Company, Inc. to the laundromat. The manufacturer and the laundromat
have also been joined as defendants in the lawsuit. The plaintiff claims various
theories of liability and alleges that she is entitled to receive damages in an
unspecified amount. Wink Davis Equipment Company, Inc. vigorously denies the
allegations of the complaint as to it, and believes that it will ultimately
prevail in this matter.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal 2000.
Executive Officers of Registrant
The following table sets forth certain information regarding the executive
officers of the Company:
Name Age Positions with the Company
---- --- --------------------------
Robert S. Speizman............. 60 Chairman of the Board, President and Director
Bryan D. Speizman ............. 34 Senior Vice President, Non-Hosiery
Mark A. Speizman .............. 29 Senior Vice President, Hosiery
John C. Angelella.............. 38 Vice President-Finance, Chief Financial Officer, Secretary
and Treasurer
P. Donald Mullen II............ 36 President, Wink Davis Equipment Company, Inc.
9
Robert S. Speizman has served as President of the Company since November
1976. From 1969 to October 1976, Mr. Speizman served as Executive Vice President
of the Company. Mr. Speizman has been a director of the Company since 1967 and
Chairman of the Board of Directors since July 1987.
Bryan D. Speizman, son of Robert S. Speizman, began serving as Senior Vice
President, Non-Hosiery in July 1997 and served as a sales representative of the
Company from 1990 to June 1997.
Mark A. Speizman, son of Robert S. Speizman, began serving as Senior Vice
President, Hosiery in July 1997 and served as a sales representative of the
Company from 1995 to June 1997.
John C. Angelella began serving as Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer in May 2000. He served as Vice President,
Finance and Corporate Controller of a privately held e-business solutions and
network integration provider from November 1998 to May 2000. Prior to that, he
served as Chief Financial Officer for a privately held confectionery business
from September 1995 to November 1998.
P. Donald Mullen II, son-in-law of Robert S. Speizman, began serving as
President of Wink Davis Equipment Company, Inc. in August 2000. He served as
Vice President of Wink Davis from June 1998 to August 2000 and as Sales Engineer
of Wink Davis from August 1997 to June 1998. He also served as a Sales Manager
of the Company from August 1996 to August 1997. Prior to that, he served four
years as an account manager for a division of TimeWarner.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock has been included for quotation on the NASDAQ
National Market System under the NASDAQ symbol "SPZN" since October 1993. The
following table sets forth, for the periods indicated, the high and low sale
prices as reported by the NASDAQ National Market System.
Fiscal 1999 High Low
---- ---
First Quarter (ended October 3, 1998) ....................................... $ 5.25 $ 3.63
Second Quarter (ended January 2, 1999)....................................... 6.00 3.63
Third Quarter (ended April 3, 1999).......................................... 5.75 3.63
Fourth Quarter (ended July 3, 1999).......................................... 4.13 3.13
Fiscal 2000
First Quarter (ended October 2,1999) ........................................ 5.88 3.50
Second Quarter (ended January 1, 2000)....................................... 5.50 3.69
Third Quarter (ended April 1, 2000).......................................... 5.00 3.50
Fourth Quarter (ended July 1, 2000).......................................... 4.25 3.13
As of July 1, 2000, there were approximately 210 stockholders of record of
the Common Stock. Management believes that when the number of beneficial
stockholders are included with the number of record stockholders, the Company is
in compliance with the maintenance standards set by the Nasdaq Stock Market.
The Company has never declared or paid any dividends on its Common Stock.
Future cash dividends, if any, will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, surplus, restrictive covenants in agreements
to which the Company may be subject, general business conditions and such other
factors as the Board of Directors may deem relevant. The Company's present
credit facility contains certain financial and other covenants that could limit
the Company's ability to pay cash dividends on its capital stock.
10
Item 6. Selected Consolidated Financial Data.
Fiscal Year Ended
------------------------------------------------------------------
July 1, July 3, June 27, June 28, June 29,
2000 1999 1998 (a) 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands, except net earnings (loss) per share data)
Statement of Operations Data:
Net revenues.................................. $ 115,182 $ 101,412 $ 90,886 $ 79,103 $ 46,280
Cost of sales................................. 96,443 85,564 74,034 65,935 40,547
---------- ---------- ---------- ---------- ----------
Gross profit.................................. 18,739 15,848 16,852 13,168 5,733
Selling, general and administrative expenses.. 15,421 15,124 12,658 8,855 6,577
---------- ---------- ---------- ---------- ----------
Operating income (loss)....................... 3,318 724 4,194 4,313 (844)
Interest (income) expense, net................ 1,972 1,103 988 (18) (43)
---------- ---------- ---------- ---------- ----------
Income (loss) before taxes on income.......... 1,346 (379) 3,206 4,331 (801)
Taxes (benefit) on income .................... 544 (126) 1,273 1,645 (228
---------- ---------- ---------- ---------- ----------
Net income (loss)............................. $ 802 $ (253) $ 1,933 $ 2,686 $ (573)
========== ========== ========== ========== ==========
Per Share Data:
Basic earnings (loss) per share............... $ 0.25 $ (0.08) $ 0.59 $ 0.83 $ (0.18)
Diluted earnings (loss) per share............. 0.24 (0.08) 0.56 0.80 (0.18)
Weighted average shares outstanding - basic .. 3,243 3,274 3,284 3,229 3,209
Weighted average shares outstanding - diluted 3,296 3,274 3,426 3,353 3,209
Balance Sheet Data:
Working capital............................... $ 28,182 $ 16,058 $ 20,210 $ 18,741 $ 16,313
Total assets.................................. 68,255 56,456 51,925 43,174 36,149
Short-term debt............................... - 4,900 4,000 - -
Long-term debt, including current maturity.... 19,725 7,196 9,561 112 148
Stockholders' equity.......................... 23,490 22,577 23,207 20,938 18,203
- ------------
(a) On August 1, 1997, the Company acquired Wink Davis. On February 6, 1998,
the Company acquired TMC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of 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.
General
The Company's revenues are generated primarily from its distribution of
textile equipment (principally knitting equipment and, to a lesser extent, from
the sale of parts used in such equipment and the sale of used equipment) and
commercial laundry equipment and services (principally commercial washers and
dryers and, to a lesser extent, the sale of parts used in such equipment and
related services). The Company began operating in the laundry equipment and
services segment with the purchase of Wink Davis on August 1, 1997.
Results of Operations
Year Ended July 1, 2000 Compared to Year Ended July 3, 1999
Net Revenues. Net revenues increased to approximately $115.2 million for
the year ended July 1, 2000, an increase of $13.8 million (or 13.6%) from the
prior year. Knitted fabric equipment sales due to high demand primarily during
the first half of the year, showed a substantial increase of $18.4 million from
year to year. Other components of the increase include $1.1 million increase in
parts sales and $1.5 million increase in laundry equipment and services.
11
These increases were offset by a $2.6 million decrease in the hosiery-related
equipment due to delays in introducing the closed toe machine as well as a $3
million decrease in yarn processing equipment and a $1.4 million decrease in
products no longer represented.
Cost of Sales. Cost of sales as a percentage of revenue decreased favorably
to 83.7% of revenues for the current year as compared to 84.4% in the prior
year. The increase is primarily due to higher margins in the laundry and
services segment from a greater proportion in the current year of parts sales
which have higher gross margins. The textile segment showed slight increases in
gross margin primarily from higher margins in yarn processing equipment due to a
greater mix of used machinery sales.
Selling Expenses. Selling expenses increased by $166,000 (or 2.2%) to $7.9
million in fiscal year 2000 compared to $7.7 million in the prior fiscal year.
The increase is primarily due to increases in salaries and wages from the hiring
of additional personnel associated with the growth in the knitted fabric
equipment line during the year as well as general salary increases. Selling
expenses, as a percentage of sales, improved to 6.9% compared to 7.6% in the
prior year.
General and Administrative. General and administrative expenses totaled
approximately $7.5 million, an increase of $130,000 (or 1.8%) from the prior
year. The increase included one-time charges associated with severance of two
executives, increases in depreciation for capitalized leases, offset by
reduction in rents associated with operating leases.
Interest Expense. In fiscal year 2000, interest expense was approximately
$1,972,000 as compared to approximately $1,103,000 in the prior year. The
increase was primarily due to increases in interest from additions in the
obligation under capital lease and increased borrowings under the Company's line
of credit from year to year.
Taxes (Benefit) on Income (Loss). The expense for income taxes was $544,000
for the current year, a rate of 40.4% of the net income as compared to the 1999
effective rate of 33.3%. The difference is primarily due to a change in tax
legislation that was favorable in 1999.
Net Income. Net income for the year was $802,000, or $0.25 per basic and
$0.24 per diluted share. In the prior year, net loss was $253,000 or $0.08 per
basic and diluted share.
Year Ended July 3, 1999 Compared to Year Ended June 27, 1998
Net Revenues. Net revenues increased to approximately $101.4 million for the
year ended July 3, 1999, an increase of $10.5 million (or 11.6%) from the prior
year. Revenues substantially increased in the knitted fabric line, yarn
processing line and Wink Davis. Knitted fabric sales increased by $15.5 million
due primarily to sales of equipment for producing seamless garments. Yarn
processing revenues totaled $7.8 million; the line began operations in the
current fiscal year. Wink Davis, which had twelve months operations in the
current year as compared to only eleven in the prior year, had increased
revenues of $4.6 million. These increases were offset by decreased revenues of
hosiery equipment. Hosiery revenues decreased by approximately $18.1 million,
primarily due to lower demand for open toe equipment.
Cost of Sales. Cost of sales as a percentage of revenues increased
unfavorably to 84.4% of revenues for the fiscal year 1999 as compared to 81.5%
in fiscal year 1998. The increase is due to generally lower margins on hosiery
and yarn processing equipment. Hosiery margins decreased due to lower demand for
the open toe equipment being sold by the company in fiscal 1999. Many customers
delayed major purchases of new equipment in anticipation of new closed toe
technology. Gross margins on yarn processing equipment were also generally lower
than the Company's historical product lines. These yarn processing sales were on
backorder at the time Speizman assumed operations.
Selling Expenses. Selling expenses increased by $780,000 (or 11.2%) to $7.7
million in fiscal 1999 as compared to $6.9 million in the prior fiscal year. The
increase is primarily due to additional sales expenses of yarn processing
equipment, which began operations in August 1999 and, to a lesser extent, sales
expenses of TMC. These increases were offset by lower commissions relating to
decreased volumes of hosiery equipment sales.
General and Administrative. General and administrative expenses totaled
approximately $7.4 million, an increase of $1,686,000 (or 29.5%) from the prior
year. One significant reason for the increase is inclusion of a full year's
12
operations for the Company's subsidiaries. TMC had twelve months operations in
fiscal 1999 as compared to only four months of fiscal 1998. Similarly, Speizman
Yarn commenced operations beginning on August 1, 1998 in the current fiscal
year. Other increases were due to higher salary expenses and bad debts offset
partially by no bonuses for fiscal 1999.
Interest Expense. In fiscal 1999, interest expense was approximately
$1,103,000 as compared to about $988,000 in the prior year. The increase is due
to higher balances on the Company's line of credit and interest expenses on the
recently added obligation under capital lease.
Taxes (Benefit) on Income (Loss). The benefit for income taxes was $126,000
for the current year, a rate of 33.3% of the net loss as compared to the 1998
effective rate of 39.7%.
Net Loss. Net loss for the year was $253,000 or $0.08 per share basic and
diluted. In the prior year, net income was $1,933,000 or $0.59 per share basic
and $0.56 per share diluted.
Liquidity and Capital Resources
The Company has a three-year revolving credit facility with SouthTrust Bank,
N.A. that commenced May 31, 2000. The line of credit provides up to $32.5
million, subject to current collateral balances, including up to a maximum of
$17.5 million for direct borrowings, with the balance available for documentary
letters of credit. Amounts outstanding under the line of credit for direct
borrowings bear interest based upon two components: London Interbank Offered
Rate (LIBOR) rate plus 1.5% to 2.5% for a short term fixed period and prime plus
0% to 1% for the non-fixed period. The rates vary based upon the Company's
funded debt as defined in the loan agreement. In connection with this line of
credit, the Company granted a security interest in accounts receivable and
inventory, as defined in the agreement.
Working capital at July 1, 2000 was $28.2 million as compared to $16.0
million at July 3, 1999 an increase of $12.2 million. Operating activities in
fiscal 2000 used $4.2 million in cash. In fiscal 1999, operating activities
provided $3.0 million of cash. In fiscal 2000, $394,000 of funds were used by
investing activities. Financing activities provided $4.7 million, primarily
related to net borrowings on the line of credit. In fiscal 1998, significant
funds were used in investing activities, primarily the purchases of Wink Davis
and TMC for $9.5 million and $1.8 million, respectively. Funds for these
acquisitions were provided from financing activities, primarily through the
issuance of $8.3 million in long term notes and $4.0 million of borrowings on a
revolving line of credit.
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 domestic 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, Speizman Industries' purchases of foreign manufactured machinery
and spare parts for resale are denominated 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. 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 Speizman Industries' future operations.
13
In the ordinary course of business and as part of the Company's risk
management programs, the Company enters into foreign exchange forward contracts
to mitigate the effect of foreign currency movements between the lira and the
U.S. dollar for both anticipated and firm purchase commitments. 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. Because these contracts
qualify as hedges for accounting purposes, the gains and losses on these
contracts are deferred and recognized in the results of operations in the period
in which the hedge transaction is consummated. The Company does not hold or
issue foreign currency forward exchange contracts or other derivative financial
instruments for trading purposes.
At July 1, 2000, the Company had contracts maturing through February 2001
to purchase approximately 83.3 billion lira for approximately $46.3 million, for
which the market value at that date if terminated was $41.2 million. The Company
anticipates that it will utilize all outstanding forward contracts in the
ordinary course of business in fiscal year 2001. Although the Company is unable
to quantify the effects on its results, the Company believes that this
utilization will have an adverse effect on its results for fiscal year 2001. The
Company is also reviewing its risk management strategy and is considering other
alternatives for mitigating foreign currency risk in the future.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133), as amended by SFAS
No. 137, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
The statement requires the Company to recognize all derivatives on the
balance sheet at fair value. If the derivative is a hedge, changes in the fair
value of derivatives are either offset against the change in fair value of
assets, liabilities, or firm commitments through earnings or recognized in
comprehensive income (equity) until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value is recognized in
earnings. In transition, the statement requires all hedging relationships be
evaluated and designated anew, resulting in cumulative-effect-type transition
adjustments to earnings and other comprehensive income (equity). The Company is
currently evaluating the impact of adopting this statement on its consolidated
financial statements.
Financial Accounting Standards Board issued Interpretation
("Interpretation") No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB Opinion No. 25" is effective July 1,
2000. Interpretation No. 44 clarifies (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
stock compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of Interpretation
are not expected to have a significant impact on our financial statements.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
The Company is exposed to market risks, which include changes in U.S. and
international interest rates as well as changes in foreign currency exchange
rates as measured against the U.S. dollar and each other. The Company attempts
to reduce these risks by utilizing financial instruments, pursuant to Company
policies.
The value of the U.S. dollar affects the Company's financial results.
Changes in exchange rates may positively or negatively affect the Company's
revenues (as expressed in U.S. dollars), cost of sales, gross margins, operating
expenses, and retained earnings. Where the Company deems it prudent, it engages
in hedging those transactions aimed at limiting in part the impact of currency
fluctuations. As discussed in the Foreign Currency Risk section above, the
Company purchases forward exchange contracts to protect against currency
exchange risks associated with the Company's anticipated and firm commitments of
lira-dominated purchases for resale.
These hedging activities provide only limited protection against currency
exchange risks. Factors that could impact the effectiveness of the Company's
programs include volatility of the currency markets, and availability of hedging
instruments. All currency contracts that are entered into by the Company are
components of hedging programs and are entered into for the sole purpose of
hedging an existing or anticipated currency exposure, not for speculation.
Although the Company maintains these programs to reduce the impact of changes in
currency exchange rates, when the U.S. dollar sustains a strengthening position
against the lira in which the Company has anticipated purchase commitments, the
Company's gross margins could be adversely affected if future sale prices cannot
be increased because of market pressures.
The Company is also subject to interest rate exposure on $13.8 million of
debt outstanding at July 1, 2000 that was priced at interest rates that float
with the market. Reference is made to Note 7 for additional information.
14
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this Item 8
appear on Pages F-1 through F-17 and S-1 through S-2 of this Annual Report on
Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The response to this Item 10 is set forth in part under the caption
"Executive Officers of the Registrant" in Part I of this Annual Report on Form
10-K and the remainder is set forth in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held November 16, 2000 (the "2000 Proxy
Statement") under the sections captioned "Election of Directors," "Certain
Information Regarding the Board of Directors" and "Compliance with Section 16(a)
of the Securities Exchange Act of 1934," which sections are incorporated herein
by reference.
Item 11. Executive Compensation.
The response to this Item 11 is set forth in the 2000 Proxy Statement under
the section captioned "Executive Compensation and Related Information," which
section, other than the subsections captioned "Report of the Compensation
Committee and the Stock Option Committee on Executive Compensation" and
"Comparative Performance Graph," is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to this Item 12 is set forth in the 2000 Proxy Statement under
the section captioned "Stock Ownership of Certain Beneficial Owners and
Management," which section is incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
The response to this Item 13 is set forth in the 2000 Proxy Statement under
the section captioned "Certain Transactions," which section is incorporated
herein by reference.
15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are included as part of the Annual Report on
Form 10-K:
1. Financial Statements:
Page
----
Report of Independent Certified Public Accountants ............................................... F-1
Consolidated Balance Sheets - July 1, 2000 and July 3, 1999....................................... F-2
Consolidated Financial Statements for each of the three years in the period ended July 1, 2000,
July 3, 1999 and June 27, 1998: ................................................................
Consolidated Statements of Operations ...................................................... F-3
Consolidated Statements of Stockholders' Equity ............................................ F-4
Consolidated Statements of Cash Flows ...................................................... F-5
Summary of Accounting Policies ................................................................... F-6
Notes to Consolidated Financial Statements ....................................................... F-8
2. Financial Statement Schedules:
Page
----
Report of Independent Certified Public Accountants................................................ S-1
Schedule II - Valuation and Qualifying Accounts................................................... S-2
3. Exhibits:
(a) The Exhibits filed as part of this Annual Report on Form 10-K are
listed on the Exhibit Index immediately preceding such Exhibits, and are
incorporated herein by reference.
(b) Reports on Form 8-K
none.
16
SIGNATURES
Pursuant to the requirements of Section 131 or 15(d) 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.
Date: September 26, 2000
By: /s/ Robert S. Speizman
----------------------
Robert S. Speizman, President
Pursuant to the requirements of the Securities Act of 1933, this has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Robert S. Speizman Chairman of the Board, President September 26, 2000
- -------------------------------------- and Director (Principal Executive
Robert S. Speizman Officer)
/s/ John C. Angelella Vice President-Finance, CFO, September 26, 2000
- ------------------------------------ Secretary and Treasurer
John C. Angelella
/s/ Josef Sklut Director September 26, 2000
- ------------------------------------
Josef Sklut
/s/ Steven P. Berkowitz Director September 28, 2000
- ------------------------------------
Steven P. Berkowitz
/s/ William Gorelick Director September 26, 2000
- ------------------------------------
William Gorelick
/s/ Scott C. Lea Director September 26, 2000
- ------------------------------------
Scott C. Lea
17
[BDO SEIDMAN LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Speizman Industries, Inc.
We have audited the accompanying consolidated balance sheets of Speizman
Industries, Inc. and subsidiaries as of July 1, 2000 and July 3, 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended July 1, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Speizman Industries,
Inc. and subsidiaries at July 1, 2000 and July 3, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
July 1, 2000, in conformity with generally accepted accounting principles.
Charlotte, North Carolina BDO Seidman, LLP
August 29, 2000
F-1
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 1, July 3,
2000 1999
----------- -----------
ASSETS
Current:
Cash and cash equivalents.................................................. $ 713,754 $ 642,167
Accounts receivable (Notes 1, 2 and 7)..................................... 30,722,678 21,138,563
Inventories (Notes 3 and 7)................................................ 16,489,494 16,360,366
Prepaid expenses and other current assets.................................. 6,181,283 6,140,919
----------- -----------
TOTAL CURRENT ASSETS.................................................... 54,107,209 44,282,015
----------- -----------
Property and Equipment: (Notes 5 and 8)
Building and leasehold improvements........................................ 7,310,261 4,449,204
Machinery and equipment.................................................... 1,008,656 1,610,559
Furniture, fixtures and transportation equipment........................... 1,779,829 1,726,918
----------- -----------
10,098,746 7,786,681
Less accumulated depreciation and amortization............................. (2,092,204) (1,972,975)
----------- -----------
NET PROPERTY AND EQUIPMENT.............................................. 8,006,542 5,813,706
----------- -----------
Other long-term assets........................................................ 910,897 689,902
Goodwill, net of accumulated amortization (Notes 4 and 14)..................... 5,230,410 5,670,410
----------- -----------
$ 68,255,058 $ 56,456,033
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank line of credit (Note 7) ............................... $ - $ 4,900,000
Accounts payable........................................................... 20,196,790 15,069,201
Customers' deposits........................................................ 3,351,778 5,280,271
Accrued expenses........................................................... 1,491,593 1,434,229
Current maturities of long-term liabilities (Note 5 and 8)................. 884,996 1,540,273
----------- -----------
TOTAL CURRENT LIABILITIES............................................... 25,925,157 28,223,974
Long-term debt (Note 8)........................................................ 458,001 3,800,000
Note Payable - bank line of credit (Note 7) ................................... 13,800,000 -
Obligation under capital lease (Notes 5 and 8) ................................ 4,581,593 1,855,341
----------- -----------
TOTAL LIABILITIES....................................................... $ 44,764,751 $ 33,879,315
----------- -----------
Commitments and Contingencies (Notes 5, 10, 11, 12, 13 and 14)
Stockholders' Equity (Notes 9 and 10):
Common Stock - par value $.10; authorized 20,000,000
shares, issued 3,393,228, outstanding 3,252,428; and
issued 3,369,506, outstanding 3,228,706, respectively .................. 339,323 336,951
Additional paid-in capital................................................. 13,045,200 12,935,886
Retained earnings.......................................................... 10,692,607 9,890,704
----------- -----------
Total................................................................... 24,077,130 23,163,541
Treasury stock, at cost, 140,800 shares.................................... (586,823) (586,823)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.............................................. 23,490,307 22,576,718
----------- -----------
$ 68,255,058 $ 56,456,033
=========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-2
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
----------------------------------------------------
July 1, July 3, June 27,
2000 1999 1998
----------- ----------- -----------
NET REVENUES (Note 1)........................................ $ 115,181,669 $ 101,412,128 $ 90,886,285
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales............................................ 96,442,751 85,563,543 74,033,817
Selling expenses......................................... 7,890,174 7,724,174 6,944,079
General and administrative expenses...................... 7,530,340 7,399,792 5,713,697
----------- ----------- -----------
Total costs and expenses............................. 111,863,265 100,687,509 86,691,593
----------- ----------- -----------
3,318,404 724,619 4,194,692
INTEREST EXPENSE, net of interest income of
$63,028, $91,586 and $102,968 ........................... 1,972,538 1,103,141 988,377
----------- ----------- -----------
NET INCOME (LOSS) BEFORE TAXES............................... 1,345,866 (378,522) 3,206,315
TAXES (BENEFIT) ON INCOME (Note 6) .......................... 543,963 (126,000) 1,273,000
----------- ----------- -----------
NET INCOME (LOSS)............................................ $ 801,903 $ (252,522) $ 1,933,315
=========== =========== ===========
Earnings (loss) per share:
Basic ................................................... $ 0.25 $ (0.08) $ 0.59
Diluted ................................................. 0.24 (0.08) 0.56
Weighted average shares outstanding:
Basic ................................................... 3,243,311 3,274,435 3,284,278
Diluted ................................................. 3,295,579 3,274,435 3,425,899
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
[START HERE]
Accumulated
Additional Other
Common Common Paid-In Retained Comprehensive Treasury Stockholders'
Shares Stock Capital Earnings Income Stock Equity
----------- ---------- ----------- -------- ------------- ---------- -------------
BALANCE, JUNE 29, 1997 3,262,866 $ 326,287 $12,512,299 $ 8,209,911 $ (11,000) $ (99,797) $20,937,700
Net income................. - - - 1,933,315 - - 1,933,315
Exercise of stock options... 94,540 9,454 275,547 - - - 285,001
Purchase of treasury stock . - - - - - (61,850) (61,850)
Comprehensive income:
Foreign currency translation
adjustment.............. - - - - 11,000 - 11,000
Tax effect of exercise of
stock options........... - - 101,700 - - - 101,700
--------- ---------- ----------- ----------- ---------- ---------- -----------
BALANCE, JUNE 27, 1998 3,357,406 335,741 12,889,546 10,143,226 - (161,647) 23,206,866
Net loss - - - (252,522) - - (252,522)
Comprehensive income - - - - - - -
Exercise of stock options 12,100 1,210 46,340 - - - 47,550
Purchase of treasury stock - - - - - (425,176) (425,176)
--------- ---------- ----------- ----------- ---------- ---------- -----------
BALANCE, JULY 3, 1999 3,369,506 336,951 12,935,886 9,890,704 - (586,823) 22,576,718
Net income................. - - - 801,903 - - 801,903
Comprehensive income - - - - - - -
Exercise of stock options... 23,722 2,372 109,314 - - - 111,686
--------- ---------- ----------- ----------- ---------- ---------- -----------
BALANCE, JULY 1, 2000 3,393,228 $ 339,323 $13,045,200 $10,692,607 $ - $ (586,823) $23,490,307
========= ========== =========== =========== ========== ========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
-----------------------------------------------------
July 1, July 3, June 27,
2000 1999 1998
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................... $ 801,903 $ (252,522) $ 1,933,315
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain (loss) on disposal of fixed assets ................... (6,453) 3,560 (4,980)
Depreciation and amortization ............................. 1,570,755 1,366,938 1,193,295
Provision for losses on accounts receivable................ 259,034 394,127 189,545
Provision for inventory obsolescence....................... 807,001 400,000 275,000
Deferred Income Taxes..................................... (246,000) (366,000) (187,000)
Foreign currency translation adjustment.................... - - 11,000
(Increase) decrease in:
Accounts receivable.................................... (9,843,149) (1,714,856) 5,304,947
Inventories............................................ ( 936,129) (825,621) (337,132)
Prepaid expenses and other current assets.............. 105,844 (2,653,614) 613,281
Increase (decrease) in:
Accounts payable....................................... 5,127,589 4,259,225 (9,302,942)
Accrued expenses and customers' deposits............... (1,871,129) 2,367,431 (985,014)
------------- ------------- -------------
Net cash provided by (used in) operating activities........ (4,230,734) 2,978,668 (1,296,685)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Wink Davis Equipment Company, Inc. ......... - - (9,467,677)
Acquisition of Todd Motion Controls, Inc. ................. - - (1,841,304)
Capital expenditures....................................... (473,288) (2,976,464) (470,221)
Proceeds from property and equipment disposals............. 79,133 290,075 76,304
------------- ------------- -------------
Net cash used in investing activities.................. (394,155) (2,686,389) (11,702,898)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit agreements................ - 900,000 4,000,000
Borrowings on line of credit (Note 7)...................... 13,510,000 - -
Payment on line of credit.................................. (4,610,000) - -
Principal payments on long-term debt....................... (5,641,315) (2,365,815) (1,162,773)
Debt Issue Costs........................................... (244,186) - -
Other Borrowings........................................... 1,570,291 - -
Issuance of common stock upon exercise of stock options.... 111,686 47,550 285,001
Purchase of treasury stock ................................ - (425,176) (61,850)
Proceeds from issuance of long-term notes due to bank ..... - - 8,300,000
------------- ------------- -------------
Net cash provided by (used in) financing activities.... 4,696,476 (1,843,441) 11,360,378
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... 71,587 (1,551,162) ( 1,639,205)
CASH AND CASH EQUIVALENTS, at beginning of year.............. 642,167 2,193,329 3,832,534
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, at end of year.................... $ 713,754 $ 642,167 $ 2,193,329
============= ============= =============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Speizman Industries, Inc. and
subsidiaries (collectively the "Company") include all of its subsidiaries, all
of which are wholly owned. All material intercompany transactions (domestic and
foreign) have been eliminated. Wink Davis Equipment Company, Inc. ("Wink Davis")
was acquired on August 1, 1997. Todd Motion Controls, Inc. ("TMC") was acquired
on February 6, 1998. Speizman Yarn Equipment Co., Inc. ("Speizman Yarn") began
operations on August 1, 1998. Speizman Canada, Inc. was incorporated on February
16, 1989. Speizman de Mexico S.A. de C.V. was incorporated on April 2, 1997.
REVENUE RECOGNITION
The major portion of the Company's revenues consists of sales and
commissions on sales of machinery and equipment. The profit derived therefrom
for the textile segment is recognized in full at the time of shipment, and for
the laundry segment, at time of installation.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents. The carrying amount of cash equivalents approximates
fair value due to the short-term maturity of these instruments.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost is computed,
in the case of machines, on an identified cost basis and, in the case of other
inventories, on an average cost basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by the straight-line and accelerated
methods for financial reporting purposes and by accelerated methods for income
tax purposes. Amortization of leasehold improvements and depreciation of capital
lease are computed using the straight-line method over the lease term.
Long-Lived Assets
Long-lived assets, such as goodwill and property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to fair value.
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign currency contracts to reduce the foreign
currency exchange risks. Foreign currency hedging contracts obligate the Company
to buy a specified amount of a foreign currency at a fixed price in specific
future periods. Realized and unrealized gains and losses are recognized in net
income in the period of the underlying transaction. As of July 1, 2000, the
Company had contracts maturing through February 2001 to purchase approximately
83.3 billion Lira for approximately $46.3 million, for which the market value at
July 1, 2000 was approximately $41.2 million.
TAXES ON INCOME
Deferred tax assets or liabilities at the end of each period are
determined using the tax rate expected to be in effect when taxes are actually
paid or recovered. Income tax expense will increase or decrease in the same
period in which a change in tax rates is enacted.
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).
A reconciliation of shares used in calculating basic and diluted earnings
per share for years ended July 1, 2000, July 3, 1999 and June 27, 1998 is as
follows:
The basic shares outstanding for the fiscal years 2000, 1999 and 1998 is
3,243,311; 3,274,435, and 3,284,278, respectively. The effect of the assumed
conversion of employee stock options was 52,268; 0 and 141,621 for fiscal years
2000, 1999 and 1998, respectively. Options to purchase approximately 284,500;
273,722 and 58,000 shares of common stock at prices from $4.87 to $6.13, $4.95
to $6.31 and $6.31 per share were outstanding during portions of fiscal years
2000, 1999, and 1998, respectively, but were not included in the computation of
diluted earnings per share for each of the respective years because they were
anti-dilutive.
FISCAL YEAR
The Company maintains its accounting records on a 52-53 week fiscal year.
The fiscal year ends on the Saturday closest to June 30. The year ending July 1,
2000 included 52 weeks. The years ending July 3, 1999 and June 27, 1998 included
53 weeks and 52 weeks, respectively.
F-6
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES - (Continued)
ADVERTISING
The Company expenses advertising costs as incurred. Total advertising
expense approximated $169,000, $145,000 and $97,000 for fiscal years 2000, 1999
and 1998, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments of the Company include long-term debt and line of
credit agreements. Based upon the current borrowing rates available to the
Company, estimated fair values of these financial instruments approximate their
recorded carrying amounts.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications were made to the prior years' financial
statements to conform to the current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133), as amended by SFAS
No. 137, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
The statement requires the Company to recognize all derivatives on the
balance sheet at fair value. If the derivative is a hedge, changes in the fair
value of derivatives are either offset against the change in fair value of
assets, liabilities, or firm commitments through earnings or recognized in
comprehensive income (equity) until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value is recognized in
earnings. In transition, the statement requires all hedging relationships be
evaluated and designated anew, resulting in cumulative-effect-type transition
adjustments to earnings and other comprehensive income (equity). The Company is
currently evaluating the impact of adopting this statement on its consolidated
financial statements.
Financial Accounting Standards Board issued Interpretation
("Interpretation") No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB Opinion No. 25" is effective July 1,
2000. Interpretation No. 44 clarifies (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
stock compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of Interpretation
are not expected to have a significant impact on our financial statements.
F-7
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND CREDIT RISK CONCENTRATION
The Company is engaged in the distribution of machinery for the textile
and commercial laundry industries. With operations in the United States, Canada
and Mexico, the Company primarily sells to customers located within the United
States. Export sales from the United States were approximately $16,633,000,
$13,941,000 and $15,992,000 during fiscal 2000, 1999 and 1998, respectively.
There were no export sales by the Canadian operations or the commercial laundry
operations.
Financial instruments which potentially subject the Company to credit
risk consist principally of temporary cash investments and trade receivables.
The Company places its temporary cash investments with high credit quality
financial institutions and, by policy, limits the amount of credit exposure to
any one financial institution. The Company also reviews a customer's credit
history before extending credit. An allowance for doubtful accounts is
established based upon factors surrounding the credit risk of specific
customers, historical trends and other information. To reduce credit risk the
Company generally requires a down payment on large equipment orders.
A substantial amount of the Company's revenues are generated from the
sale of sock knitting and other machines manufactured by Lonati, S.p.A. and one
of its wholly owned subsidiaries (Santoni). Sales by the Company in the United
States and Canada of machines manufactured by Lonati, S.p.A., generated the
following percentages of the Company's net revenues: 21.2% in 2000, 22.5% in
1999 and 41.1% in 1998. In addition, sales of Santoni machines in the United
States and Canada generated 32.3%, 20.3% and 5.3% of the Company's net revenues
in fiscal 2000, 1999 and 1998, respectively. In 2000 and 1999, there were no
sales to customers in excess of 10% of revenues. In 1998, sales to one customer
approximated 12% of revenues. Generally, the customers contributing the most to
the Company's net revenues vary from year to year.
NOTE 2 -- ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
July 1, 2000 July 3, 1999
------------ ------------
Trade receivables................................................. $ 31,324,483 $ 21,784,879
Less allowance for doubtful accounts.............................. (601,805) (646,316)
------------ -------------
Net accounts receivable........................................... $ 30,722,678 $ 21,138,563
============ =============
NOTE 3 -- INVENTORIES
Inventories are summarized as follows:
July 1, 2000 July 3, 1999
------------- -------------
Machines
New.......................................................... $ 6,222,435 $ 4,049,057
Used......................................................... 5,067,409 6,213,301
Parts and supplies................................................ 5,199,650 6,098,008
------------ ------------
Total ........................................................... $ 16,489,494 $ 16,360,366
============ ============
NOTE 4 - GOODWILL
Goodwill is calculated as the excess of the cost of purchased businesses
over the value of their underlying net assets and is amortized on a
straight-line basis over fifteen years. Goodwill is net of accumulated
amortization of $1,207,500 at July 1, 2000, $767,500 at July 3, 1999 and
$327,500 at June 27, 1998.
F-8
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5 -- LEASES
The Company conducts its operations from leased real properties, which
include offices, warehouses and a manufacturing facility.
The former primary operating facility of the textile operations and
corporate offices was leased from a partnership in which Mr. Robert S. Speizman,
the Company's President, has a 50% interest. In April 1999, the Company
relocated these functions to a newly renovated facility. Warehouse space at the
former location was leased on a monthly basis until additional warehouse space
at the new facility was completed. Lease payments to the partnership
approximated $76,366, $336,000 and $356,000 in fiscal years 2000, 1999 and 1998,
respectively.
In April 1999, several textile machinery warehouses and the corporate
offices were located into a new facility. This new facility is leased from The
Speizman LLC, a limited liability company owned by Mr. Robert S. Speizman, his
wife and their children. In accordance with SFAS No. 13, Accounting for Leases,
the Company recognized a portion of the lease applicable to the land as an
operating lease.
In December 1999, The Speizman LLC completed construction of an
additional 100,000 square feet of warehouse space to the facility. In order to
consolidate the remaining textile equipment warehouses to this single location,
the Company entered into a new lease agreement. This agreement, including the
portion attributable to the land, has been accounted for as a capital lease.
In June 2000, the Company amended the lease with The Speizman LLC. The
amendment extended the term to 180 months, ending May 2015, and made maintenance
and taxes the responsibility of the Company.
Lease payments to The Speizman LLC, net of sublease payments received in
1998 from the former lessee, approximated $860,000, $659,000 and $307,000 in
fiscal years 2000, 1999 and 1998, respectively.
The primary operating facility and certain sales offices of the laundry
equipment and services operations are leased from a partnership in which Mr. C.
Alexander Davis, former President of Wink Davis, has a 50% interest. The leases
extend through 2001. Lease payments to the partnership were approximately
$205,000, $216,000 and $216,000 in fiscal years 2000, 1999 and 1998,
respectively.
In April 2000, Wink Davis entered into a five-year lease for office
facilities with The Speizman LLC II, a limited liability company owned by Mr.
Robert S. Speizman, his wife and their children. Lease payments to The Speizman
LLC II totaled approximately $19,000 in 2000. The lease has been accounted for
as an operating lease.
As of July 1, 2000, future net minimum lease payments under capital and
operating leases that have initial or remaining noncancelable terms in excess of
one year are as follows:
Capital Operating
Lease Leases
---------- ----------
2001 $ 1,055,174 $ 607,491
2002 1,055,174 422,817
2003 1,055,174 264,324
2004 ........................................................... 1,055,174 158,715
2005 ........................................................... 1,055,174 100,129
Beyond 10,463,812 66,113
---------- ---------
Total minimum lease payments ................................ $ 15,739,682 $1,619,589
=========
Less amount representing interest at 22%..................... (11,112,284)
----------
Present value of net minimum lease payments (see Note 8)..... 4,627,398
===========
F-9
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following summarizes property held under capital leases:
2000 1999
--------- ----------
Land and Building .............................. $ 5,126,719 $ 2,326,719
Less accumulated depreciation ................. (318,684) (72,294)
--------- ---------
$ 4,808,035 $ 2,254,425
========== =========
Total rent expense for all operating leases approximated $1,057,000,
$1,634,000 and $1,369,000 in fiscal years 2000, 1999 and 1998, respectively.
NOTE 6-- TAXES (BENEFIT) ON INCOME
Provisions (benefit) for federal and state income taxes in the
consolidated statements of operations are made up of the following components:
2000 1999 1998
----------- ----------- -----------
Current:
Federal...................................... $ 549,963 $ 158,000 $ 1,206,000
State........................................ 240,000 82,000 251,000
Foreign...................................... - - 3,000
------------ ------------ ------------
789,963 240,000 1,460,000
------------ ------------ ------------
Deferred:
Federal...................................... (167,000) (325,000) (152,000)
State........................................ (79,000) (41,000) (35,000)
------------ ------------ ------------
(246,000) (366,000) (187,000)
------------ ------------ ------------
Total taxes (benefit) on income.................. $ 543,963 $ (126,000) $ 1,273,000
============ ============ -===========
Deferred tax benefits and liabilities are provided for the temporary
differences between the book and tax bases of assets and liabilities. Deferred
tax assets (liabilities) are reflected in the consolidated balance sheets as
follows:
July 1, 2000 July 3, 1999
------------ ------------
Net current assets................................................ $ 960,000 $ 866,000
Net noncurrent assets............................................. 446,000 294,000
------------ ------------
$ 1,406,000 $ 1,160,000
============ ============
Principal items making up the deferred income tax assets (liabilities) are as
follows:
Year Ended
---------------------------
July 1, July 3,
2000 1999
----------- -----------
Inventory valuation reserves................................. $ 496,000 $ 271,000
Depreciation................................................. (76,000) (206,000)
Deferred compensation........................................ 400,000 280,000
Deferred charges and other................................... (214,000) 34,000
Inventory capitalization .................................... 450,000 400,000
Accounts receivable reserves................................. 228,000 238,000
Net operating loss carryforwards............................. 122,000 143,000
----------- ---------
Net deferred tax asset................................... $ 1,406,000 $1,160,000
========= =========
F-10
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred taxes include a net operating loss carry forward of
approximately $290,000 which may be utilized to offset future taxable income.
Utilization of these carryforwards is limited to approximately $90,000 per year
and these carryforwards expire in 2019.
The Company's effective income tax rates are different than the U.S.
Federal statutory tax rate for the following reasons:
2000 1999 1998
---- ---- ----
U.S. Federal statutory tax rate................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit............. 7.9 (6.0) 5.1
Non-deductible expenses........................................... 3.3 (31.1) 1.2
Effective change in tax regulation................................ - 33.0 -
Other............................................................. (4.8) 3.4 (0.6)
------ ----- ----
Effective tax rate................................................ 40.4% 33.3% 39.7%
====== ==== ====
NOTE 7 -- LINE OF CREDIT
On May 31, 2000, the Company entered into a three-year revolving, $17.5
million credit facility with SouthTrust Bank, N.A. that replaced the credit
facility with Bank of America. The facility also provides for an additional
Guidance Line of Credit for the issuance of Documentary Letters of Credit of
$15.0 million. Amounts outstanding under the $17.5 million Line of Credit are
broken down into two (2) components for the calculation of interest expense: a
London Interbank Offered Rate (LIBOR) component that accrues interest at the
LIBOR rate plus 1.5% to 2.5%, and a Base Rate component that accrues interest at
Prime plus 0% to 1.0%. The rates are scaled based upon the Company's funded debt
as defined in the agreement. At July 1, 2000, the Company had borrowed
$13,800,000 under this Line of Credit, $10,000,000 of which was fixed under a
30-day LIBOR Rate that matures on July 3, 2000 bearing interest of 8.9038%, and
the remaining $3,800,000 bearing interest of 10.25%. The prior facility provided
up to $38.3 million, subject to current collateral balances, including up to a
maximum of $8.5 million for direct borrowings, with the balance available for
documentary letters of credit and term debt. The prior line of credit's interest
was the greater of prime plus 1.0% or the Federal Funds Rate plus 1.5% for base
rate loans and the Eurodollar Rate plus 2.0% for Eurodollar loans.
The credit facility contains covenants that require, among other
things, the Company to maintain a specified level of tangible net worth and to
be in compliance with stipulated fixed charge, funded debt and liability versus
net worth ratios. The availability under this facility is limited to a borrowing
base as defined in the agreement. The facility is secured by accounts
receivable, inventory and outstanding Documentary Letters of Credit.
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists primarily of an obligation under capital lease
with The Speizman LLC and certain trade notes payable. During the year, the
Company paid off the term loan with Bank of America.
The notes payable consist of two notes entered into during the year with
two vendors for the purchase of various machines. The non-interest bearing notes
payable are to be paid in equal monthly installments of $34,922 and $30,506 and
both expire in January 2002. At July 1, 2000, the outstanding balances are
$717,571 and $579,621, respectively.
The obligation under the capital lease represents the Company's lease of
its corporate offices and textile machinery warehouses. The obligation is based
on monthly principal and interest payments of $87,931, for fifteen years ending
May, 2015 at an imputed interest rate of 22%.
F-11
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-term debt consists of:
July 1, 2000 July 3, 1999
---------------------------------------------------
Total Total
----- -----
Notes payable.................................. $ 1,297,192 -
Term loan...................................... - 5,320,000
Obligation under capital lease (see Note 5).... 4,627,398 1,875,614
------------ ------------
Total.......................................... 5,924,590 7,195,614
Current maturities............................. (884,996) (1,540,273)
------------ ------------
$ 5,039,594 $ 5,655,341
============ ============
Annual maturities of long-term debt excluding capital lease obligations
are:
2001 .................................. $ 839,191
2002 .................................. 458,001
------------
$ 1,297,192
============
F-12
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9 -- STOCK OPTIONS
The Company has reserved 125,000, 250,000 and 450,000 shares of Common
Stock under employee stock plans adopted in 1981, 1991 and 1995, respectively.
As of July 1, 2000, options to purchase 3,000, 55,163 and 405,000 were
outstanding under the 1981, 1991 and 1995 Plans, respectively. Currently,
outstanding options become exercisable in two to four years from the grant date.
All options, subject to certain exceptions with regard to termination of
employment and the percentage of outstanding shares of common stock owned, must
be exercised within ten (10) years of the grant date. The option price under the
1981 and 1991 Plans, subject to certain exceptions, may not be less than 100% of
the fair market value per share of Common Stock on the date of the grant of the
option or 110% of such value for persons who control 10% or more of the voting
power of the Company's stock on the date of the grant. The option price under
the 1995 Plan is not limited and may be less than 100% of the fair market value
on the date of the grant. A summary of employee stock option transactions and
other information for 2000, 1999 and 1998 follows:
Year Ended
---------------------------------------------------------------------------------------
Weighted Weighted Weighted
July 1, Average July 3, Average June 27, Average
2000 Price/Sh 1999 Price/Sh 1998 Price/Sh
----------- ----------- ---------- ------------ ---------- ------------
Shares under option, beginning of year.. 440,385 $4.83 460,385 $4.81 466,925 $4.17
Options granted........................ 46,500 4.51 - - 88,000 6.31
Options exercised...................... 23,722) 4.81 (12,100) 3.93 (94,540) 3.01
Options expired........................ - - (7,900) 4.90 - -
----------- ----------- ---------- ------------ ---------- ------------
Shares under option, end of year....... 463,163 $4.80 440,385 $ 4.83 460,385 $ 4.81
=========== =========== ========== ============ ========== ============
Options exercisable.................... 416,663 379,803 236,410
=========== ========== ==========
Prices of options exercised............ $0.75 to $3.00 to $0.75 to
$4.95 $4.50 $5.50
Prices of options outstanding, end of
year................................... $0.75 to $0.75 to $0.75 to
$6.31 $6.31 $6.31
The Company has reserved 15,000 shares of Common Stock under a
non-employee directors stock option plan adopted in 1995. Each option granted
under the Plan becomes exercisable in cumulative increments of 50% and 100% on
the first and second anniversaries of the date of the grant, respectively, and
subject to certain exceptions must be exercised within ten (10) years from the
date of the grant. The option price equals the fair market value per share of
Common Stock on the date of the grant. Options to purchase 15,000 shares were
granted and outstanding at the end of the year at a price of $2.88 to $6.13.
A summary of non-employee directors stock option and other information
for 2000, 1999 and 1998 follows:
Year Ended
--------------------------------------------------------------------------------
Weighted Weighted Weighted
July 1, Average July 3, Average June 27, Average
2000 Price/Sh. 1999 Price/Sh. 1998 Price/Sh.
-------- --------- -------- --------- -------- ---------
Shares under option, beginning of year.. 12,000 $5.11 9,000 $ 4.81 6,000 $ 4.16
Options granted......................... 3,000 4.88 3,000 6.00 3,000 6.13
Options exercised....................... - - - - - -
Options expired......................... - - - - - -
-------- --------- -------- --------- -------- ---------
Shares under option, end of year........ 15,000 $5.06 12,000 $ 5.11 9,000 $ 4.81
======== ========= ======== ========= ======== =========
Options exercisable..................... 10,500 7,500 4,500
======== ======== ========
Prices of options exercised............. - - -
Prices of options outstanding, end of
year ................................... $2.88 to $2.88 to $2.88 to
$6.13 $6.13 $6.13
F-13
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123). Accordingly, no compensation cost has been recognized for the
stock option plans. The fair value of these options was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for fiscal years 2000, 1999 and 1998: expected
lives of 10.0 years, expected volatility of 53% for fiscal year 2000 and 57.4%
for fiscal years 1999 and 1998, risk-free interest rate of 6.5% and dividend
yield of 0.0%.
The Black-Scholes option valuation model was developed for estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. Because option valuation models require the use of subjective
assumptions and changes in these assumptions can materially impact the fair
value of the options and the Company's options do not have the characteristics
of traded options, the option valuation models do not necessarily provide a
reliable measure of the fair value of its options. The estimated fair value of
stock options granted during fiscal years 2000, 1999 and 1998 was $3.36, $4.46
and $4.04 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period. Had compensation cost
for the Company's stock option plans been determined based on the fair value at
the grant date for awards consistent with the provisions of SFAS No. 123, the
Company's net earnings and earnings per share would have been changed to the pro
forma amounts indicated below:
Year Ended Year Ended Year Ended
July 1, 2000 July 3, 1999 June 27, 1998
------------ ------------ -------------
Pro forma net income (loss) ....................... $ 670,036 $ (646,994) $ 1,480,353
Pro forma basic earnings (loss) per share .......... $0.20 $(0.20) $ 0.45
Pro forma diluted earnings (loss) per share ....... 0.21 (0.20) 0.43
The following table summarizes information about stock options
outstanding at July 1, 2000:
Range of exercise prices $0.75 to $6.31
Outstanding options
-------------------
Number outstanding............................................. 478,163
Weighted average remaining contractual life (years)............ 5.9
Weighted average exercise price................................ $4.81
Exercisable options
-------------------
Number outstanding............................................. 427,163
Weighted average exercise price................................ $4.85
NOTE 10 -- STOCK REDEMPTION AGREEMENTS
The Company has an agreement with its principal stockholder whereby, upon
his death, the Company is obligated to redeem a portion of the Company's stock
held by his estate. The redemption price for common stock is to be the fair
market value of common stock, less 5%, plus any accrued dividends. In no case
will the Company pay out more than the amount of life insurance proceeds
received by the Company as a result of the death of the stockholder, nor will
the Company redeem a number of shares that would reduce the principal
stockholder's estate to less than 16% of the outstanding common stock of the
Company.
At July 1, 2000, there were 379,000 common shares covered by the above
agreement. The face value of life insurance carried by the Company under this
agreement amounts to $1,150,000.
F-14
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11 -- DEFERRED COMPENSATION PLANS
The Company has deferred compensation agreements with three employees
providing for payments amounting to $3,371,580 upon retirement and from
$1,546,740 to $2,181,600 upon death prior to retirement. One agreement, as
modified, has been in effect since 1972, the second agreement was effective
October 1989 and the third agreement effective June 1999. The earliest of the
agreements matured in December 1998. The agreements provide for monthly payments
on retirement or death benefits over fifteen year periods. The agreements are
funded under trust agreements whereby the Company pays to the trust amounts
necessary to pay premiums on life insurance policies carried to meet the
obligations under the deferred compensation agreements.
Charges to operations applicable to those agreements were approximately $30,200,
$113,000 and $50,000 for the fiscal years 2000, 1999 and 1998, respectively.
NOTE 12 -- EMPLOYEES' RETIREMENT PLAN
During 1989, the Company adopted a 401(k) retirement plan for all
qualified employees of the Company to participate in the plan. Employees may
contribute a percentage of their pretax eligible compensation to the plan, and
the Company matches 50% of each employee's contribution up to 4% of pretax
eligible compensation. The Company's matching contributions totaled
approximately $163,000, $160,000 and $107,000 in fiscal years 2000, 1999 and
1998, respectively.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company had outstanding commitments backed by letters of credit of
approximately $11,302,000 and $11,825,000 at July 1, 2000 and July 3, 1999,
respectively, relating to the purchase of machine inventory for delivery to
customers.
In the normal course of business, the Company is named in various
lawsuits. The Company vigorously defends such lawsuits, none of which are
expected to have a material impact on operations, either individually or in the
aggregate.
NOTE 14 - BUSINESS ACQUISITIONS
On August 1, 1997, the Company acquired all of the outstanding stock of
Wink Davis, a Georgia corporation. The acquisition was accounted for as a
purchase and accordingly, Wink Davis' results for the eleven months since the
date of acquisition are included in the consolidated financial statements for
the year ended June 27, 1998. The aggregate purchase price was approximately
$9,468,000. There is a possible additional conditional payment of up to $1.5
million in cash over a five-year period based on certain pre-tax earnings
calculations. The aggregate purchase price, which was financed through available
cash resources, borrowings on the revolving line of credit and issuance of a
term loan, has been allocated to the assets acquired based upon their respective
estimated fair market values. The excess of the purchase price over assets
acquired (goodwill) approximated $4,344,000 and is being amortized over fifteen
years.
On February 6, 1998, the Company acquired all of the outstanding stock of
TMC, a North Carolina corporation. For financial statement purposes the
acquisition was accounted for as a purchase and, accordingly, TMC's results are
included in the consolidated financial statements since the date of acquisition.
The aggregate purchase price was approximately $1,841,000. The aggregate
purchase price, which was financed through available cash resources, borrowings
on the revolving line of credit and issuance of a term loan, has been allocated
to the assets acquired based upon their respective fair market values. The
excess of the purchase price over assets acquired (goodwill) approximated
$2,094,000 and is being amortized over fifteen years. See Note 17 regarding the
non-binding letter of intent entered into to license certain assets of TMC.
F-15
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15 - SEGMENT INFORMATION
During fiscal 1999, the Company adopted Standard of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS No. 131). SFAS No. 131 establishes standards for the way that
public companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. SFAS No. 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
The Company operates primarily in two segments of business, textile
equipment and laundry equipment and services. Prior to the acquisition of Wink
Davis on August 1, 1997, the Company operated only in the textile segment. TMC
is included in the textile equipment classification. The table below summarizes
financial data by segment.
July 1, 2000 July 3, 1999 June 27, 1998
------------ ------------ -------------
Total revenues for the year ended
Textile equipment........................... $ 85,369,319 $ 73,140,182 $ 67,229,741
Laundry equipment and services.............. 29,812,350 28,271,946 23,656,544
------------ ------------- -------------
115,181,669 $ 101,412,128 $ 90,886,285
============ ============= =============
Depreciation and amortization
Textile equipment........................... $ 1,158,335 $ 920,770 $ 705,153
Laundry equipment and services.............. 412,420 446,168 488,142
------------ ------------- -------------
$ 1,570,755 $ 1,366,938 $ 1,193,295
============ ============= =============
Income before interest and taxes for the year
ended
Textile equipment........................... $ 2,734,825 $ 631,887 $ 4,112,972
Laundry equipment and services.............. 583,579 92,732 81,720
------------ ------------- -------------
$ 3,318,404 $ 724,619 $ 4,194,692
============ ============= =============
Capital Expenditures
Textile equipment........................... $ 3,214,245 $ 2,928,402 $ 2,284,787
Laundry equipment and services.............. 59,043 48,062 85,434
------------ ------------- -------------
$ 3,273,288 $ 2,976,464 $ 2,370,221
============ ============= =============
Total assets as of
Textile equipment........................... $ 54,756,278 $ 42,554,774
Laundry equipment and services.............. 13,498,780 13,901,259
------------ -------------
$ 68,255,058 $ 56,456,033
============ =============
NOTE 16 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Year Ended
-------------------------------------------------------
July 1, July 3, June 27,
2000 1999 1998
------------- ------------- --------------
Cash paid during year for:
Interest expense (including capitalized interest of $0,
$392,098 and $118,119 in 2000, 1999 and 1998,
respectively) (Note 5)................................... $ 2,053,566 $ 1,686,815 $ 1,091,973
Income taxes............................................... 872,934 758,212 1,381,196
Non-Cash Transactions:
A capital lease obligation of $1,900,000 was incurred in 1998 when the
Company entered into a lease for its corporate offices and warehouses. An
additional $2,800,000 was incurred in fiscal 2000 from the addition of 100,000
square feet of warehouse space leased and related land during the year.
F-16
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 17 - SUBSEQUENT EVENT
In August 2000, the Company entered into a non-binding letter of intent
to license certain assets of TMC to S.R.A. srl (SRA) of Florence, Italy, a
division of the Lonati Group. The license will include all patents, trademarks,
machine drawings, and intellectual property relating to the manufacturing of TMC
sock packaging equipment as well as distribution rights outside the United
States, Canada, and Mexico. Speizman Industries will retain exclusive rights to
distribute TMC equipment in the United States, Canada, and Mexico. The license
arrangement will be exclusive for a four-year period commencing December 1,
2000. Total license fees over the contract period will be $2,000,000 payable
quarterly to the Company.
F-17
[BDO SEIDMAN LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Speizman Industries, Inc.
The audits referred to in our report dated August 29, 2000, relating to the
consolidated financial statements of Speizman Industries, Inc. and subsidiaries
which is contained in Item 8 of this Form 10-K included the audit of the
financial statement schedule listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
Charlotte, North Carolina BDO Seidman, LLP
August 29, 2000
S-1
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E Column F
- -------- --------- -------- ---------- ---------- ----------
Balance at Charged to Charged to Deductions Balance
beginning costs and other from at end
Description of period expenses accounts reserves of period
- ----------- --------- -------- -------- -------- ---------
Fiscal year ended June 27, 1998:
Reserve for doubtful accounts.......... $474,477 $247,631 $ 189,189 (a) $ 58,086 $853,211
------- ------- -------- -------- -------
Reserve for inventory obsolescence..... $421,474 $275,000 $ - $189,288 $507,186
------- ------- --------- ------- -------
Fiscal year ended July 3, 1999:
Reserve for doubtful accounts.......... $853,211 $394,127 $ - $601,022 $646,316
------- ------- --------- ------- -------
Reserve for inventory obsolescence..... $507,186 $400,000 $ - $171,670 $735,516
------- ------- --------- ------- -------
Fiscal year ended July 1, 2000:
Reserve for doubtful accounts.......... $646,316 $259,034 $ - $303,545 $601,805
-------- -------- --------- ------- -------
Reserve for inventory obsolescence..... $735,516 $807,001 $ - $230,179 $1,312,338
------- ------- --------- ------- ---------
- --------------------
(a) Purchase price adjustment for Wink Davis.
S-2
SPEIZMAN INDUSTRIES, INC.
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Certificate of Incorporation of Speizman Industries, Inc. (the
"Company"). (Incorporated by reference to Exhibit 3.1 contained
in the Company's Registration Statement on Form S-1 (the "1993
Form S-1"), registration number 33-69748, filed with the
Securities and Exchange Commission (the "Commission") on
September 30, 1993, and amendments thereto.)
3.2 Certificate of Amendment to Certificate of Incorporation of the
Company, dated December 4, 1978. (Incorporated by reference to
Exhibit 3.2 contained in the 1993 Form S-1.)
3.3 Certificate of Amendment to Certificate of Incorporation of the
Company, dated February 8, 1993. (Incorporated by reference to
Exhibit 3.3 contained in the 1993 Form S-1.)
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, dated January 31, 1997.
3.5 Bylaws of the Company, as amended November 7, 1978. (Incorporated
by reference to Exhibit 3.6 contained in the 1993 Form S-1.)
4.1 Certificate of Incorporation of the Company as currently in
effect (included as Exhibits 3.1 through 3.5). (Incorporated by
reference to Exhibit 4.1 contained in the 1993 Form S-1.)
4.2 Bylaws of the Company, as amended November 7, 1978. (Incorporated
by reference to Exhibit 4.2 contained in the 1993 Form S-1.)
4.3 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.3 contained in the 1993 Form S-1.)
10.1 Agency Agreement between the Company and Lonati, S.r.l., Brescia,
Italy ("Lonati"), dated January 2, 1992, relating to the
Company's distribution of machines in the United States.
(Incorporated by reference to Exhibit 10.1 contained in the 1993
Form S-1.)
10.2 Agency Agreement between the Company and Lonati, dated January 2,
1992, relating to the Company's distribution of machines in
Canada. (Incorporated by reference to Exhibit 10.2 contained in
the 1993 Form S-1.)
10.3 Distribution Agreement by and between Company and Lonati, dated
January 2, 1997, relating to the Company's distribution of
circular knitting machines, ladies and men in Mexico.
(Incorporated by reference to Exhibit 10.3 contained in the
Company's Annual Report on Form 10-K for the fiscal year ended
June 28, 1998, File No. 0-8544, filed with the Commission on
September 25, 1998 (the "1998 Form 10-K").)
10.4 Agency Agreement between the Company and Santoni, S.r.l.,
Brescia, Italy ("Santoni"), dated January 2, 1992 ("Santoni
Agreement"). (Incorporated by reference to Exhibit 10.3 contained
in the 1993 Form S-1.)
10.5 Letter from Santoni relating to the Santoni Agreement, dated June
8, 1992. (Incorporated by reference to Exhibit 10.4 contained in
the 1993 Form S-1.)
10.6 Letter Agreement between the Company and Santoni relating to the
Santoni Agreement, dated July 21, 1993. (Incorporated by
reference to Exhibit 10.5 contained in the 1993 Form S-1.)
10.7 Distributorship Agreement between the Company and Conti Complett,
S.p.A., Milan, Italy, dated October 2, 1989. (Incorporated by
reference to Exhibit 10.8 contained in the Company's Annual
Report on Form 10-K for the fiscal year ended July 2, 1994, File
No. 0-8544, filed with the Commission on September 30, 1994 (the
"1994 Form 10-K").)
10.8 Exclusive Distributor Agreement between Speizman Yarn and Marzoli
International, dated on or about July 15, 1998. (Incorporated by
reference to Exhibit 10.8 contained in the Company's Annual
Report on Form 10-K for the fiscal year ended July 3, 1999, File
No. 0-8544, filed with the Commission on October 1, 1999 (the
"1999 Form 10-K").)
10.9 Addendum to the Exclusive Distributor Agreement between Speizman
Yarn and Marzoli International, dated June 6, 1999. (Incorporated
by reference to Exhibit 10.9 contained in the 1999 Form 10-K.)
10.10 Termination Letter of Distributor Agreement between the Company
and Marzoli, dated December 16, 1999. (Incorporated by reference
to Exhibit 10(d) contained in the Company's Quarterly Report on
Form 10-Q for quarter ended January 1, 2000, File No. 0-8544,
filed with the Commission on February 15, 2000 (the "January 1,
2000 Form 10-Q").)
10.11 Letter Agreement between Speizman Yarn Equipment, Inc. and
Margasa, dated June 15, 1999. (Incorporated by reference to
Exhibit 10.10 contained in the 1999 Form 10-K.)
10.12 Letter Agreement between Speizman Yarn Equipment, Inc. and
Meccanica Carresi, dated June 15, 1999. (Incorporated by
reference to Exhibit 10.11 contained in the 1999 Form 10-K.)
10.13 Agency Agreement by and between U.T.I.T. S.p.A. and the Company,
dated as of March 22, 2000.
10.14 Memorandum of understanding and agreement between Shanghai P & E
Import and Export Co., Ltd. and the Company, dated February 24,
2000.
10.15 Split Dollar Insurance Agreement, dated January 15, 1992, between
the Company and Richard A. Bigger, Jr., Successor Trustee of the
Robert S. Speizman Irrevocable Insurance Trust. (Incorporated by
reference to Exhibit 10.13 contained in the 1993 Form S-1.)
10.16 First Amendment to Split Dollar Insurance Agreement, dated
September 4, 1996, between the Company and Richard A. Bigger,
Jr., Successor Trustee of the Robert S. Speizman Irrevocable
Insurance Trust. (Incorporated by reference to Exhibit 10.16.1
contained in the Company's 1996 Form 10-K.)
10.17 Lease Agreement by and between The Speizman LLC and the Company
regarding corporate headquarters and warehouse, dated as of
December 1, 1999.
10.18 First Amendment to Lease Agreement,dated December 1, 1999 by and
between The Speizman LLC and the Company, dated as of June 2000.
10.19* 1981 Incentive Stock Option Plan of the Company. (Incorporated by
reference to Exhibit 10.19 contained in the 1993 Form S-1.)
10.20* 1991 Incentive Stock Option Plan and Amendment to 1981 Incentive
Stock Option Plan of the Company. (Incorporated by reference to
Exhibit 10.20 contained in the 1993 Form S-1.)
10.21* 1991 Incentive Stock Option Plan, as Amended and Restated
Effective September 20, 1993, of the Company. (Incorporated by
reference to Exhibit 10.21 contained in the 1993 Form S-1.)
10.22* Speizman Industries, Inc. 1995 Stock Option Plan. (Incorporated
by reference to Exhibit 4 to the Company's Registration Statement
on Form S-8, registration number 333-06287, filed with the
Commission on June 19, 1996.)
10.23* Speizman Industries, Inc. Nonqualified Stock Option Plan as
amended on October 4, 1996. (Incorporated by reference to Exhibit
99.1 to the Company's Registration Statement on Form S-8,
registration no. 333-23503, filed with the Commission on March
18, 1997.)
10.24* Speizman Industries, Inc. Nonqualified Stock Option Plan as
amended on September 29, 1997. (Incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on Form S-8,
registration no. 333-46769, filed with the Commission on February
24, 1998.)
10.25* Restated Deferred Compensation Agreement, dated May 22, 1989,
between the Company and Josef Sklut, as amended by Amendment to
Deferred Compensation Agreement, dated December 30, 1992 (the
"Deferred Compensation Agreement"). (Incorporated by reference to
Exhibit 10.27 contained in the 1993 Form S-1.)
10.26* Restated Trust Agreement, dated May 22, 1989, between the Company
and First Citizens Bank and Trust Company, as amended by First
Amendment to Trust Agreement dated December 30, 1992, relating to
the Deferred Compensation Agreement. (Incorporated by reference
to Exhibit 10.28 contained in the 1993 Form S-1.)
10.27* Executive Bonus Plan of the Company, adopted February 2, 1990, as
amended March 5, 1990. (Incorporated by reference to Exhibit
10.29 contained in the 1993 Form S-1.)
10.28* Executive Bonus Plan of the Company, adopted July 20, 1993.
(Incorporated by reference to Exhibit 10.30 contained in the 1993
Form S-1.)
10.29* Resolutions of the Company's Board of Directors dated November
15, 1995, extending Executive Bonus Plan adopted July 20, 1993.
(Incorporated by reference to Exhibit 10.34 contained in the
Company's 1995 Form 10-K.)
10.30 Redemption Agreement between the Company and Robert S. Speizman,
dated May 31, 1974, as amended by Modified Redemption Agreement,
dated April 14, 1987, Second Modified Redemption Agreement, dated
September 30, 1991, and Third Modified Redemption Agreement,
dated as of July 14, 1993. (Incorporated by reference to Exhibit
10.34 contained in the 1993 Form S-1.)
10.31 Fourth Modified Redemption Agreement between the Company and
Robert S. Speizman, dated September 14, 1994. (Incorporated by
reference to Exhibit 10.36 contained in the Company's 1995 Form
10-K).
10.32 NationsBank of North Carolina, National Association $12,000,000
Credit Facility for Speizman Industries, Inc., dated April 19,
1994. (Incorporated by reference to Exhibit 10.45 contained in
the 1994 Form 10-K.)
10.33 1995 Consolidated Amendment Agreement to Loan Agreement and
Related Documents dated May, 1995. (Incorporated by reference to
Exhibit 10.38 contained in the Company's 1995 Form 10-K)
10.34 1995 Second Consolidated Amendment Agreement to Loan Agreement
and Related Documents, dated September 1, 1995. (Incorporated by
reference to Exhibit 10.43 contained in the Company's 1996 Form
10-K.)
10.35 1995 Third Consolidated Amendment Agreement to Loan Agreement and
Related Documents, dated October 31, 1995. (Incorporated by
reference to Exhibit 10.44 contained in the Company's 1996 Form
10-K.)
10.36 1996 First Consolidated Amendment Agreement to Loan Agreement and
Related Documents, dated May 15, 1996. (Incorporated by reference
to Exhibit 10.45 contained in the Company's 1996 Form 10-K.)
10.37 1996 Second Consolidated Amendment Agreement to Loan Agreement
and Related Documents, dated June 26, 1996. (Incorporated by
reference to Exhibit 10.46 contained in the Company's 1996 Form
10-K.)
10.38 1996 Third Consolidated Amendment Agreement to Loan Agreement and
Related Documents, dated August 26, 1996. (Incorporated by
reference to Exhibit 10.47 contained in the Company's 1996 Form
10-K.)
10.39 NationsBank $25,000,000 Amended and Restated Credit Facility,
dated December 19, 1996. (Incorporated by reference to Exhibit
10.47 contained in the Company's 1997 Form 10-K.)
10.40 NationsBank $37,000,000 Amended and Restated Credit Facility,
dated July 31, 1997. (Incorporated by reference to Exhibit 10.48
contained in the Company's 1997 Form 10-K.)
10.41 NationsBank Letter increasing Term Loan by $1.3 million, dated
February 4, 1998. (Incorporated by reference to Exhibit 10.55
contained in the Company's 1998 Form 10-K.)
10.42 1998 First Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of February 6,
1998. (Incorporated by reference to Exhibit 10(a) contained in
the Company's January 2, 1999 Form 10-Q.)
10.43 1998 Second Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of December 30,
1998. (Incorporated by reference to Exhibit 10(b) contained in
the Company's January 2, 1999 Form 10-Q.)
10.44 1999 First Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of May 17, 1999.
(Incorporated by reference to Exhibit 10.61 contained in the 1999
Form 10-K.)
10.45 1999 Second Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of August 27,
1999. (Incorporated by reference to Exhibit 10.62 contained in
the 1999 Form 10-K.)
10.46 1999 Third Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of September 27,
1999. (Incorporated by reference to Exhibit 10.63 contained in
the 1999 Form 10-K.)
10.47 1999 Fourth Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of September 30,
1999. (Incorporated by reference to Exhibit 10(a) contained in
the Company's Quarterly Report on Form 10-Q for quarter ended
September 2, 1999, File No. 0-8544, filed with the Commission on
October 16, 1999 (the "September 2, 1999 Form 10-Q").)
10.48 1999 Fifth Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of October 29,
1999. (Incorporated by reference to Exhibit 10(a) contained in
the Company's January 1, 2000 Form 10-Q.)
10.49 1999 Sixth Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of November 16,
1999. (Incorporated by reference to Exhibit 10(b) contained in
the Company's January 1, 2000 Form 10-Q.)
10.50 2000 First Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of January 26,
2000. (Incorporated by reference to Exhibit 10(c) contained in
the Company's January 1, 2000 Form 10-Q.)
10.51 2000 Second Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of February 29,
2000. (Incorporated by reference to Exhibit 10(a) contained in
the Company's Quarterly Report on Form 10-Q for quarter ended
April 1, 2000, File No. 0-8544, filed with the Commission on May
15, 2000 (the "April 1, 2000 Form 10-Q").)
10.52 2000 Third Amendment Agreement to $37,000,000 Amended and
Restated Loan Agreement and Term Note dated as of May 9, 2000.
10.53 Credit Facility Agreement by and between the Company and its
subsidiaries and SouthTrust Bank, N.A., dated as of May 31, 2000.
10.54 Stock Purchase Agreement, dated as of July 31, 1997, by and among
Speizman Industries, Inc. and Wink Davis, Jr., C. Alexander
Davis, Wingfield Austin Davis IIII, Taylor Ferrell Davis, Allison
Davis Jabaley, Matthew Worley Davis, Amy Butler Davis and Kyle
Alexander Davis. (Incorporated by reference to Exhibit 3
contained in the Company's Current Report on Form 8-K, File No.
0-8544, filed on August 14, 1997.)
10.55 Dealer Agreement by and between Pellerin Milnor Corporation and
Wink Davis Equipment Company, Inc. ("Wink Davis"), dated July 1,
1989, relating to the Company's distribution of machines
primarily in the southeastern United States and the Chicago,
Illinois area. (Incorporated by reference to Exhibit 10.50
contained in the Company's 1997 Form 10-K.)
10.56 Distributor Agreement by and between Chicago Dryer Corporation
("CDC") and Wink Davis, dated January 1, 1994, relating to the
distribution of certain items of CDC's commercial laundry
equipment. (Incorporated by reference to Exhibit 10.51 contained
in the Company's 1997 Form 10-K.)
10.57 Atlanta Commercial Board of Realtors Standard Commercial Lease
Agreement by and among Davis Brothers Venture and Wink Davis,
dated July 31, 1997 relating to the Atlanta, Georgia area.
(Incorporated by reference to Exhibit 10.52 contained in the
Company's 1997 Form 10-K.)
10.58 Atlanta Commercial Board of Realtors Standard Commercial Lease
Agreement by and among Davis Brothers Venture and Wink Davis,
dated July 31, 1997 relating to the Charlotte, North Carolina
area. (Incorporated by reference to Exhibit 10.53 contained in
the Company's 1997 Form 10-K.)
10.59 Atlanta Commercial Board of Realtors Standard Commercial Lease
Agreement by and among Davis Brothers Venture and Wink Davis,
dated July 31, 1997 relating to the Wooddale, Illinois area.
(Incorporated by reference to Exhibit 10.54 contained in the
Company's 1997 Form 10-K.)
10.60 Atlanta Commercial Board of Realtors Standard Commercial Lease
Agreement by and among Davis Brothers Venture and Wink Davis,
dated July 31, 1997 relating to the Chester, Virginia area.
(Incorporated by reference to Exhibit 10.55 contained in the
Company's 1997 Form 10-K.)
10.61 Lease Agreement by and between The Speizman LLC, II and Wink
Davis Equipment Company, Inc., dated as of March 1, 2000 relating
to the Wink Davis Charlotte, North Carolina office.
10.62 Letter Agreement by the Company and Wink Davis relating to the
Charlotte, North Carolina, Richmond, Virginia and Chicago,
Illinois locations, dated August 10, 1999. (Incorporated by
reference to Exhibit 10.71 contained in the Company's 1999 Form
10-K.)
10.63 Earnout Agreement by and among Speizman Industries, Inc. and C.
Alexander Davis, Amy Butler Davis, Taylor Ferrell Davis and Kyle
Alexander Davis, dated July 31, 1997. (Incorporated by reference
to Exhibit 10.56 contained in the Company's 1997 Form 10-K.)
10.64 Stock Purchase Agreement, dated as of February 6, 1998, by and
among Speizman Industries, Inc. and William H. Todd, Leon
Locklear, Marion C. Todd and Joseph L. Collins. (Incorporated by
reference to Exhibit 10.64 contained in the Company's 1998 Form
10-K.)
10.65 Agreement to Lease between Todd Motion Controls, Inc. and Douglas
I. Cook, et al., dated September 1, 1996, for the Patterson
Avenue facility. (Incorporated by reference to Exhibit 10.66
contained in the Company's 1998 Form 10-K.)
10.66 Agreement to Lease between Todd Motion Controls, Inc. and Douglas
I. Cook, et al., dated September 3, 1999, for the Patterson
Avenue facility. (Incorporated by reference to Exhibit 10.76
contained in the Company's 1999 Form 10-K.)
10.67 Letter of Intent regarding licensing agreement between TMC and
SRA srl dated July 31, 2000.
21 List of Subsidiaries
23 Consent of BDO Seidman
27 Financial Data Schedule
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* Represents a management contract or compensatory plan or arrangement of the
Registrant.