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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 June 27, 1998
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 (I.R.S. Employer
incorporation or organization) Identification No.)
508 West Fifth Street, Charlotte,
North Carolina 28202
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(Address of principal executives offices) (Zip Code)
Registrant's telephone number, including area code: (704) 372-3751
Securities registered pursuant to Section 12(b) of the Act:
NONE
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 11, 1998, was $12,864,248 based on the last sale
price of $3.88 per share reported by the NASDAQ National Market System on that
date.
As of September 11, 1998, there were 3,319,806 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 18, 1998 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 three companies: Speizman Industries, Inc.
("Speizman" or "Speizman Industries"), Wink Davis Equipment Co., Inc. ("Wink
Davis") and Todd Motion Controls, Inc. ("TMC"). Speizman distributes sock
knitting machines, other knitting equipment and related parts. Wink Davis sells
commercial and industrial laundry equipment, including the distribution of
machines and parts as well as installation and after sales service. TMC
manufactures automated boarding, finishing and packaging equipment used in the
sock knitting industry. TMC's products are sold through Speizman's distribution
network.
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 1994 THROUGH 1998 EACH
CONTAINED 52 WEEKS AND ENDED ON JUNE 27, 1998, JUNE 28, 1997, JUNE 29, 1996,
JULY, 1, 1995 AND JULY 2, 1994.
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 exclusive agent in the United States for the sale of its range of
single and double cylinder sock knitting machines and related spare parts. Under
the Lonati Agreement, Speizman Industries also serves as the distributor of such
equipment in the United States. 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 or parts that compete with
Lonati machines and parts. 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
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machines directly to the sock manufacturer with any resulting commission paid to
Speizman determined on a case by case basis.
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. Speizman Industries distributes these sock knitting
machines as well as Lonati sheer hosiery knitting machines in Canada and in
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. 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
Speizman's net revenues: 41.1% in fiscal 1998, 60.1% in fiscal 1997 and 46.2% in
fiscal 1996. In addition, sales of Santoni machines in the United States, Canada
and Mexico generated 5.3%, 7.0% and 4.8% of Speizman Industries' net revenues in
fiscal 1998, 1997 and 1996, 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:
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MANUFACTURER MACHINE TERRITORY
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Santoni, S.r.l., Circular knitting machines United States, Canada
Brescia, Italy for underwear, men's socks and Mexico
and women's sheer hosiery
and surgical support hose
Conti Complett, S.p.A., Sock toe closing machines United States and
Milan, Italy and sock turning devices Canada
Dinema, Data collection United States and
Brescia, Italy Canada
Marchisio, Fabric knitting machines United States and
Brescia, Italy Canada
Mecmor, Fabric knitting machines United States and
Varese, Italy Canada
Vignoni, Fabric knitting machines United States and
Cividino, Italy Canada
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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
manufacturer 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 mills and as
a broker in the purchase and sale of such mills.
MARKETING AND SALES
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 competitive
trials in a customer's plant and allow the customer to use Speizman's machine in
its own work
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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.
Speizman Industries also produces, at its own expense, training videos for its
major lines of equipment. At September 11, 1998, Speizman employed approximately
10 salespersons and 28 technical representatives. In addition to its sales
staff, Speizman Industries uses over 40 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. 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
updates its Internet web site 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 1998, 1997 and 1996.
CUSTOMERS
Speizman Industries' customers consist primarily of the major sock
manufacturers in the United States and Canada. In fiscal 1998, Speizman
Industries' two largest customers, Manufactuier De Bas Iris Hosiery, Inc.
(Canada) and Renfro Corporation, accounted for 11.7% and 3.8%, respectively, of
the Company's revenues. In fiscal 1997, Speizman Industries' two largest
customers, Manufactuier De Bas Iris Hosiery, Inc. (Canada) and Sara Lee Company,
accounted for 10.5% and 9.9%, respectively, of Speizman Industries' revenues. In
fiscal 1996, Speizman Industries' two largest customers, Renfro Corporation and
Manufacturier De Bas Iris Hosiery, Inc. (Canada), accounted for 8.8% and 5.8%,
respectively, of Speizman Industries' 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.
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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
is 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 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, based in Atlanta, Georgia, 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 of 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 for the southeastern United States
and Chicago, Illinois areas. Specifically, Wink Davis' territories include
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.
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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
original equipment manufacturers ("OEMs"), distributes other laundry related
equipment. The following table sets forth certain information concerning the
additional distribution agreements:
MANUFACTURER MACHINE TERRITORY
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Ajax Manufacturing, Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas
Cincinnati, OH Presses
American Dryer, Commercial Dryers Southeastern U.S. & Chicago, IL areas
Fall River, MA
Cissell Manufacturing, Commercial Dryers, Southeastern U.S. & Chicago, IL areas
Louisville, KY laundry and dry
cleaning pressing
equipment
Consolidated Laundry Commercial Dryers Southeastern U.S. & Chicago, IL areas
Machinery,
Los Angeles, CA
Energenics Corp., Lint collectors and Southeastern U.S. & Chicago, IL areas
Naples, FL automatic cart
wash systems
Forenta, Inc., Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas
Morrisville, TN Presses
Huebsch Originators, Commercial Dryers Southeastern U.S. & Chicago, IL areas
Ripon, WI
Unipress, Inc., Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas
Tampa, FL Presses
VIC Manufacturing, Dry Cleaning Equipment Southeastern U.S. & Chicago, IL areas
Minneapolis, MN
MARKETING AND SALES
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, 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 11, 1998, Wink Davis employed approximately 15
sales persons and 32 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
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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.
Additionally, Wink Davis provides repair and maintenance services to OPL
facilities. Customers' OPL facilities are typically operated and managed by the
property, maintenance or janitorial 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. 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 the main Atlanta warehouse 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 will 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 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 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 single-color, casual 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.
PRODUCTION
The production process 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 11, 1998, TMC employed 15
direct assemblers, 8 indirect laborers, and 9 persons in research and
development. All assembly is done at TMC's leased facility on Patterson Avenue
in Winston-Salem, N.C. Since the acquisition by Speizman Industries on February
6, 1998 through September 11, 1998, TMC has shipped approximately 33 machines.
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Historically, most of the products have been built to order based on unique
customer specifications. Currently, research and development, together with
manufacturing, are designing a modularization project. The modularization
project will transform the product from a custom ordered machine to standardized
configurations. Customers will have the opportunity to select the most commonly
requested features for addition to the standard product. Management believes
that this will continue to meet virtually all of the potential customers' needs.
However, by creating modular components, management hopes to improve production
efficiencies. Management also hopes to reduce cycle time between receiving the
customer order and delivery of the equipment.
RESEARCH AND DEVELOPMENT
TMC has 9 employees in research and development, including William Todd, the
former owner and current Vice President. Key components of the product have been
patented and several other patents are pending. Currently, the research and
development staff is developing equipment for additional hosiery manufacturing
functions and other packaging applications, possibly outside the hosiery
industry.
SALES AND MARKETING
TMC was acquired by Speizman on February 6, 1998. Prior to the acquisition,
equipment was sold directly through TMC's sales force. After the acquisition,
all sales are now made through Speizman Industries' sales force. The customer
base for TMC's product significantly overlaps with the customer base for hosiery
knitting machinery.
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.
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 11, 1998, the Company had 231 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 $24.5
million, $16.8 million and $19.3 million at June 27, 1998, June 28, 1997 and
June 29, 1996, respectively. Management believes that all Speizman Industries'
unfilled orders at June 27, 1998 will be filled by the end of fiscal 1999. The
period of time required to fill orders varies depending on the machine ordered.
RECEIPT OF MARZOLI AND VOUK PRODUCT LINES
On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Marzoli product line manufactured by
Fratelli Marzoli & C. SpA, an Italian corporation. Lonati has an ownership
interest in Fratelli Marzoli & C. Spa. Operations of this product line are being
conducted through a new, wholly-owned subsidiary of the Company, Speizman Yarn
Equipment, Inc. As part of its agreement with Fratelli Marzoli & C.
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SpA, the Company will assume the operations of the current offices, showrooms
and personnel. Fratelli Marzoli & C. SpA manufactures equipment used in the yarn
processing industry. Prior to the Company's receipt of distribution rights,
Fratelli Marzoli & Co. SpA distributed their products in the United States
through its wholly-owned subsidiary, Marzoli International, Inc., a domestic
corporation based in Spartanburg, South Carolina. Revenues of Marzoli
International, Inc. for the twelve months ended December 31, 1997 were
approximately $13.9 million.
On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Vouk product line manufactured by Vouk SpA
Officine Meccanotessili, an Italian corporation in which Lonati has an ownership
interest. Vouk SpA Officine Meccanotessili manufactures equipment used in the
yarn processing industry. Operations of this product line are being conducted
through Speizman Yarn Equipment, Inc. Prior to the Company's receipt of the
distribution rights, Vouk SpA Officine Meccanotessili sold directly in the
United States and Canada through several agents.
ITEM 2. PROPERTIES.
The Company leases all of its real property. Significant leases are
summarized in the table below:
APPROXIMATE
LEASE LEASE TERM MONTHLY RENTAL SQUARE
USE LOCATION ORIGINATION DATE (MONTHS) RENTAL RATE FOOTAGE
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Properties used primarily by Speizman:
Current executive, administrative,
machinery rebuilding and warehousing Charlotte, NC April 1, 1998 12 $ 29,669 89,000 (a)
Future executive, administrative, machinery
rebuilding and warehousing Charlotte, NC October 1, 1997 180 $ 54,923 122,052 (b)
Warehousing Charlotte, NC March 1, 1998 9 $ 9,375 45,000
Warehousing Charlotte, NC - Monthly $ 9,654 41,000
Warehousing Charlotte, NC - Monthly $ 4,000 20,000
Sales office and warehouse Glendale, NY August 1, 1998 24 $ 2,314 3,641
Properties used primarily by Wink Davis:
Administrative, sales office and warehouse Atlanta, GA July 30, 1997 24 $ 7,651 23,700 (c)
Sales office and warehouse Wooddale, IL July 30, 1997 24 $ 6,099 6,500 (c)
Sales office and warehouse Charlotte, NC July 30, 1997 24 $ 2,012 6,045 (c)
Sales office and warehouse Chester, VA July 30, 1997 24 $ 1,982 6,000 (c)
Properties used primarily by TMC:
Research and development and administration Winston-Salem, NC February 6, 1998 24 $ 2,120 6,000 (d)
Machine assembly Winston-Salem, NC September 1, 1996 24 $ 4,417 35,340
(a)The Company's headquarters are leased from a partnership owned by Robert S.
Speizman and his brother. The City of Charlotte has designated this building
an "historic landmark" and, as a result, modifications to the building
require prior approval of the Charlotte-Mecklenburg Historic Landmark
Commission.
(b)This property is leased from a corporation owned by Robert S. Speizman, his
wife and their children. The Company plans to relocate its executive,
administrative, machinery rebuilding and a substantial portion of its
warehousing to this location in the spring of 1999. Currently, this location
is being upfitted to support these functions.
(c)These properties are leased from a partnership owned by C. Alexander Davis,
a former shareholder and current President of Wink Davis, and his brother.
(d)This property is leased from William H. Todd, a former shareholder and
current VP-Research and Development of TMC, and his wife.
8
ITEM 3. LEGAL PROCEEDINGS.
Speizman Industries, Inc. is presently the Defendant in a lawsuit filed by
Mr. Boyd A. McClure, a former employee of the Company who lost his job in
mid-1997, pursuant to a reduction in workforce. The lawsuit presently pending in
the United States District Court for the Western District of North Carolina,
Charlotte Division, is entitled BOYD A. MCCLURE V. SPEIZMAN INDUSTRIES, INC.,
Case No. 3:98-CV-195-MU.
In this lawsuit, Mr. McClure asserts three (3) claims against Speizman
Industries, Inc.: (1) he alleges that he was discharged from his employment
because of a physical disability in violation of The Americans With Disabilities
Act; (2) he alleges he was discharged from his employment because of his age in
violation of The Age Discrimination In Employment Act; and (3) he alleges he was
the victim of "wrongful discharge", a tort claim recognized under the State of
North Carolina which basically encompasses the substance of the two
above-mentioned federal law claims.
At the present time, both Plaintiff and Speizman Industries, Inc. are engaged
in discovery processes including depositions, and it is the Company's unwavering
position that it will defend vigorously against all claims brought by Mr.
McClure through trial, if necessary. At this early juncture, there is too much
subjectivity inherent in an assessment of the likelihood of Mr. McClure's
success to accurately quantify or qualify the underlying merits of this case.
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 1997.
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... 58 Chairman of the Board, President and Director
Josef Sklut.......... 69 Vice President-Finance, Secretary,
Treasurer and Director
C. Alexander Davis... 50 President, Wink Davis Equipment Company, Inc.
Bryan D. Speizman ... 33 Senior Vice President, Non-Hosiery
Mark A. Speizman .... 27 Senior Vice President, Hosiery
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.
Josef Sklut has served as Vice President-Finance of the Company since 1978,
as Secretary of the Company since 1977, as Treasurer of the Company since 1969
and as a director of the Company since 1977.
C. Alexander Davis has served as President, Wink Davis Equipment Company,
Inc., since August 1, 1997, as Executive Vice President, Wink Davis Equipment
Co., Inc., from 1973 to July 31, 1997 and as a director of Wink Davis Equipment
Company, Inc., from 1973 to July 31, 1997.
Bryan D. Speizman, son of Robert S. Speizman, began serving as Senior Vice
President, Non-Hosiery in fiscal 1998.
Mark A. Speizman, son of Robert S. Speizman, began serving as Senior Vice
President, Hosiery in fiscal 1998.
9
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 1997 HIGH LOW
---- ---
First Quarter (ended September 28, 1996) ............ 5.75 3.75
Second Quarter (ended December 28, 1996)............. 6.88 4.38
Third Quarter (ended March 29, 1997)................. 7.13 4.50
Fourth Quarter (ended June 28, 1997)................. 6.25 3.88
FISCAL 1998
First Quarter (ended September 27, 1997) ............ 9.50 4.88
Second Quarter (ended December 27, 1997)............. 9.19 5.38
Third Quarter (ended March 28, 1998)................. 7.25 5.38
Fourth Quarter (ended June 27, 1998)................. 7.13 5.00
As of June 27, 1998, there were approximately 241 stockholders of record of
the Common Stock.
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
------------------------------------------------------
June 27, June 28, June 29, July 1, July 2,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
STATEMENT OF INCOME DATA:
Net revenues.................................$ 90,886 $79,103 $46,280 $61,597 $69,526
Cost of sales................................ 74,034 65,935 40,547 53,986 60,004
------ ------ ------ ------ ------
Gross profit................................. 16,852 13,168 5,733 7,611 9,522
Selling, general and administrative expenses 12,855 8,855 6,577 5,478 4,350
------ ------ ------ ------ ------
Operating income (loss)...................... 3,997 4,313 (844) 2,133 5,172
Interest (income) expense, net. 791 (18) (43) (15) 6
------ ------ ------ ------ ------
Income (loss) before taxes on income 3,206 4,331 (801) 2,148 5,166
Taxes (benefit) on income ................... 1,273 1,645 (228) 854 1,869
------ ------ ------ ------ ------
Net income (loss)............................ 1,933 2,686 (573) 1,294 3,297
Preferred stock dividends.................... - - - - 41
------ ------ ------ ------ ------
Net income (loss) applicable to common stock $1,933 $ 2,686 $ (573) $ 1,294 $ 3,256
====== ======= ======= ======== ========
PER SHARE DATA:
Basic earnings (loss) per share $ 0.59 $ 0.83 $ (0.18) $ 0.40 $ 1.16
Diluted earnings (loss) per share 0.56 0.80 (0.18) 0.40 1.10
Weighted average shares outstanding - basic 3,284 3,229 3,209 3,209 2,805
Weighted average shares outstanding -
diluted ........................................ 3,426 3,353 3,209 3,272 2,949
BALANCE SHEET DATA:
Working capital.............................. $20,216 $18,741 $16,313 $17,613 $16,579
Total assets................................. 50,034 43,174 36,149 35,704 30,160
Short-term debt.............................. 4,000 - - - -
Long-term debt, including current maturity 7,670 112 148 147 293
Stockholders' equity......................... 23,207 20,938 18,203 18,782 17,483
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company's revenues are generated primarily from its distribution of
textile equipment (principally knitting equipment and, to a lessor 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 lessor 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 JUNE 27, 1998 COMPARED TO YEAR ENDED JUNE 28, 1997
NET REVENUES. Net revenues in fiscal 1998 were $90.9 million as compared to
$79.1 million in fiscal 1997, an increase of $11.8 million or 14.9%. This
increase is primarily due to the acquisition of Wink Davis on August 1, 1997.
Wink Davis recognized revenues in fiscal 1997 of $23.7 million. Additional
components of the increase include $2.0 million increase from sales of TMC
products (acquired on February 6, 1998) and an increase of $0.7 million in parts
sales, offset by an $10.8 million decrease in hosiery related equipment, a $1.6
million decrease in knitted fabric equipment and a decrease of $2.2 million in
products no longer represented, including sweater, and garment wet processing
equipment.
COST OF SALES. In fiscal 1998 cost of sales were $74.0 million an increase of
$8.1million from $65.9 million in fiscal 1997. Cost of sales as a percentage of
revenues decrease to 81.5% in fiscal 1998 as compared to 83.3% in fiscal 1997.
This decrease results from higher margins on hosiery related parts and equipment
and the exclusion of lower margin
11
liquidations of products discontinued in 1997. This decrease in cost of sales as
a percentage of revenues was slightly offset by lower margins on Wink Davis
sales.
SELLING EXPENSES. Selling expenses increased to $6.9 million in fiscal 1998
as compared to $5.8 million in fiscal 1997. This net increase of $1.1 million
results from increased selling expenses of $1.8 million at Wink Davis and TMC,
offset by decreases of $443,000 in textile equipment related salaries and
commissions and other decreases in letter of credit expenses, professional fees,
advertising and other expense decreases generally related to lower overall sales
volume of textile machinery.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased in
fiscal 1998 to $5.9 million from $3.0 million in fiscal 1997. This increase
results primarily from additional administrative expenses of $1.7 million of
Wink Davis and TMC, amortization expenses of $405,000 and rental expense of the
new facility of $324,000.
INTEREST EXPENSE. Interest expense is expressed net of interest income. In
fiscal 1998, net interest expense was $791,000. This significant increase in
interest expense is related directly to the debt funded acquisitions of Wink
Davis and TMC.
TAXES (BENEFIT) ON INCOME (LOSS). The provision for income taxes in fiscal
1998 is $1,273,000 or 39.7% of income before taxes. The provision for income
taxes in fiscal 1997 is $1,645,000 or 38.0% of income before taxes.
NET INCOME (LOSS). Net income for fiscal 1998 decreased to $1.9 million
compared to net income of $2.7 million for fiscal 1997. Basic earnings per share
decreased to $0.59 and diluted earnings per share decreased to $0.56. In fiscal
1997, basic earnings per share was $0.83 and diluted earnings per share was
$0.80.
YEAR ENDED JUNE 28, 1997 COMPARED TO YEAR ENDED JUNE 29, 1996
NET REVENUES. Net revenues in fiscal 1997 were $79.1 million as compared to
$46.3 million in fiscal 1996, an increase of $32.8 million or 70.9%. This
increase is due to a combination of price and volume increases. This increase
reflects a $32.2 million increase in sales of hosiery equipment, a $0.7 million
increase in sales of dyeing and finishing equipment, a $0.6 million increase in
sales of garment wet processing equipment, a $1.2 million increase in parts and
other sales activities partially offset by a $1.9 million decrease in sales of
sweater manufacturing and related equipment. The market for hosiery equipment is
influenced by the retail sector, changes in technology and general economic
conditions affecting the Company's customers.
COST OF SALES. In fiscal 1997, cost of sales was $65.9 million as compared to
$40.5 million in fiscal 1996, an increase of $25.4 million or 62.6%. Cost of
sales as a percent of revenue decreased to 83.4% in fiscal 1997 from 87.6% in
fiscal 1996. This decrease results from increased demand for hosiery equipment
resulting in increased sales prices and increased field service efficiency
arising from increased volume.
SELLING EXPENSES. Selling expenses increased to $5.8 million in fiscal 1997
from $4.7 million in fiscal 1996, an increase of 23.6%. The increase results
from overall increased selling activity, including salaries, sales commissions,
exhibition expenses and letter of credit expenses. These increases are partially
offset by elimination of expenses of the CopyGuard division, which was disposed
in fiscal 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
fiscal 1997 totaled $3.0 million, an increase of $1.1 million from $1.9 million
in fiscal 1996. The increase results primarily from additional salaries and
management bonuses.
INTEREST INCOME. Interest income is expressed net of interest expense. In
fiscal 1997, interest income exceeded interest expense by $18,000. Net interest
income was $43,000 in fiscal 1996.
TAXES (BENEFIT) ON INCOME (LOSS). The provision for income taxes in fiscal
1997 is $1,645,000 or 38.0% of income before taxes. In fiscal 1996 the provision
for income taxes is a tax benefit of $228,000 or 28.5% of loss before taxes. The
higher effective tax rate in fiscal 1997 results from the combined effects of
non-deductible entertainment and life insurance expenses and U.S.
profits taxed at rates higher than foreign tax rates.
12
NET INCOME (LOSS). Net income for fiscal 1997 increased to $2.7 million
compared to a net loss of $0.6 million for fiscal 1996. Basic earnings per share
increased to$0.83 and diluted earnings per share increased to $0.80 in fiscal
1997. In fiscal 1996, basic and diluted loss per share was $0.18.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit facility with NationsBank, opened on August 1, 1997,
in conjunction with the purchase of Wink Davis, amended on February 6, 1998, in
conjunction with the purchase of TMC and expiring on July 31, 2000. This
facility furnished term loan financing for these acquisitions and also provides
a line of credit for direct borrowings and issuance of documentary letters of
credit. The line of credit provides 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. Amounts outstanding under the line of credit bear interest at 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. In connection with
this line of credit, the Company granted a security interest in accounts
receivable and inventory, as defined in the loan agreement.
Working capital at June 27, 1998 was $20.2 million as compared to $18.7
million at June 28, 1997, an increase of $1.5 million. Operating activities in
fiscal 1998 used $1.3 million. In fiscal 1997 operating activities used $3.4
million. 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 the revolving line of credit. Cash flows from investing and
financing activities in fiscal 1997 were significantly less.
SEASONALITY AND OTHER FACTORS
There are certain seasonal factors that may affect the Company's business.
Traditionally, manufacturing businesses in Italy close for the month of August,
and the Company's hosiery customers close for one week in July. Consequently, no
shipments or deliveries, as the case may be, of machines distributed by the
Company that are manufactured in Italy are made during these periods which fall
in the Company's first quarter. In addition, manufacturing businesses in Italy
generally close for two weeks in December, during the Company's second quarter.
Fluctuations of customer orders or other factors may result in quarterly
variations in net revenues from year to year.
EFFECTS OF INFLATION AND CHANGING PRICES
Management believes that inflation has not had a material effect on the
Company's operations.
DISCLOSURE ABOUT FOREIGN CURRENCY RISK
Generally, the Company's purchases of foreign manufactured machinery for
resale are denominated in Italian lira. In the ordinary course of business, the
Company enters into foreign exchange forward contracts to mitigate the effect of
foreign currency movements between the Italian lira and the U.S. dollar from the
time of placing the Company's purchase order until final payment for the
purchase is made. The contracts have maturity dates that do not generally exceed
12 months. Substantially all of the increase or decrease of the lira denominated
purchase price is offset by the gains and losses of the foreign exchange
contract. The unrealized gains and losses on these contracts are deferred and
recognized in the results of operations in the period in which the hedged
transaction is consummated.
A substantial portion of the Company's textile machine and spare part
purchases are denominated and payable in Italian lira. Currency fluctuations of
the lira could result in substantial price level changes and therefore impede or
promote import/export sales and substantially impact profits. However, to reduce
exposure to adverse foreign currency fluctuations during the period from
customer orders to payment for goods sold, the Company enters into forward
exchange contracts. The Company is not able to assess the quantitative effect
that such currency fluctuations could have upon the Company's operations. There
can be no assurance that fluctuations in foreign currency exchange rates will
not have a significant adverse effect on future operations.
13
At June 27, 1998, the Company had contracts maturing through March 1999 to
purchase approximately 24.3 billion Lira for approximately $13.7 million, which
approximates the spot rate on that date.
NOTE REGARDING PRIVATE SECURITIES LITIGATION REFORM ACT
Statements made by the Company which are not historical facts are forward
looking statements that involve risks and uncertainties. Actual results could
differ materially from those expressed or implied in forward looking statements.
All such forward looking statements are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995. Important factors that
could cause financial performance to differ materially from past results and
from those expressed and implied in this document include, without limitation,
the risks of acquisition of businesses (including limited knowledge of the
businesses acquired and misrepresentations by sellers) availability of
financing, competition, management's ability to manage growth, loss of
customers, and a variety of other factors.
YEAR 2000 COMPLIANCE
The Company has reviewed its computer and business systems to identify those
areas that could be adversely affected by Year 2000 software failures. The
primary information system used by both Speizman Industries and TMC has been
reviewed and all known issues related to the Year 2000 issues have been
resolved. Costs incurred were not significant. The primary information system
used by Wink Davis is not Year 2000 compliant. In conjunction with the purchase
of Wink Davis on August 1, 1997, management planned to integrate Wink Davis'
information into the existing system used by Speizman Industries. The
integration project, which was not accelerated due to the Year 2000 issue, is
scheduled to be completed in December 1998. The estimated project cost of
integrating Wink Davis' information system is approximately $100,000.
A substantial portion of the equipment distributed by the Company has
computerized controls and features. However, to the Company's knowledge, no
operating features of the equipment are dependent on any time or date
information, such as the Year 2000 issue.
The Company is aware of one subsidiary's voice mail system and there may be
other computer-based systems which may require upgrading to ensure operational
continuity beyond December 31, 1999. The Company has substantially completed
identification of all such systems and believes that all significant systems
will be compliant in time to ensure no disruption to the Company's operations.
The cost of bringing these minor systems into compliance is not anticipated to
be material.
Currently, the Company cannot predict the effect of the Year 2000 problem on
entities with which it transacts business and there can be no assurance it will
not have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows. The Company will be formulating
a contingency plan to address the possible effects of any of its customers
experiencing Year 2000 problems.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, the standard may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementations of this standard.
14
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about SEGMENTS OF AN ENTERPRISE and RELATED INFORMATION, (SFAS 131)
which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. SFAS 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. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 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.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, it may have on future financial
statement disclosures. Results of operations and financial position, however,
will be unaffected by implementation of this standard.
Statement of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) 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, 1999. Management is presently assessing the impact of the adoption of
SFAS No. 133, on its consolidated financial statements.
In May, 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs at Start-Up Activities. SOP
98-5 requires that entities expense start-up costs and organization costs as
they are incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. Management does not anticipate SOP 98-5 having a material
impact on its consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
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-16 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 18, 1998 (the "1998 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 1998 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.
15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this Item 12 is set forth in the 1998 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 1998 Proxy Statement under
the section captioned "Certain Transactions," which section is incorporated
herein by reference.
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 - June 27, 1998 and June 28, 1997...... F-2
Consolidated Financial Statements for each of the three years in
the periods ended June 27, 1998,
June 28, 1997 and June 29, 1996:
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:
Report of Independent Certified Public Accountants................. S-1
Schedule II - Valuation and Qualifying Accounts.................... S-2
16
3. EXHIBITS:
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
On April 6, 1998, the Company filed a Current Report on Form 8-K pursuant
to Item 5 thereof reporting that on March 31, 1998, the Company announced a plan
to repurchase up to $500,000 of its currently outstanding common stock.
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 25, 1998
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 President and Director September 25, 1998
- -------------------------- (Principal Executive Officer)
Robert S. Speizman
/s/ Josef Sklut Vice President-Finance, Secretary, September 25, 1998
- -------------------------- Treasurer and Director
Josef Sklut (Principal Financial Officer and
Principal Accounting Officer)
/s/ Steven P. Berkowitz Director September 24, 1998
- --------------------------
Steven P. Berkowitz
/s/ William Gorelick Director September 23, 1998
- --------------------------
William Gorelick
/s/ Scott C. Lea Director September 23, 1998
- --------------------------
Scott C. Lea
17
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 June 27, 1998 and June 28, 1997,
and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June
27, 1998. 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 audit 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 June 27, 1998 and June 28,
1997, and the results of their operations and their cash flows for each of
the three years in the period ended June 27, 1998, in conformity with
generally accepted accounting principles.
Charlotte, North Carolina BDO Seidman, LLP
August 27, 1998
F-1
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 27, June 28,
1998 1997
----------- ------------
ASSETS
Current:
Cash and cash equivalents...................... $ 2,193,329 $ 3,832,534
Accounts receivable (Notes 1, 2 and 7).......... 19,817,834 21,075,138
Inventories (Notes 3 and 7)..................... 15,934,745 12,970,134
Prepaid expenses and other current assets....... 3,372,266 2,988,786
----------- ------------
TOTAL CURRENT ASSETS.......................... 41,318,174 40,866,592
----------- ------------
Property and Equipment: (Note 7)
Leasehold improvements.......................... 552,655 750,140
Machinery and equipment......................... 1,825,959 1,770,886
Furniture, fixtures and transportation equipment 1,341,728 1,078,429
----------- ------------
3,720,342 3,599,455
Less accumulated depreciation and amortization.. (1,632,367) (1,811,183)
----------- ------------
NET PROPERTY AND EQUIPMENT.................... 2,087,975 1,788,272
----------- ------------
Other long-term assets............................. 517,352 518,957
Intangibles, net of accumulated amortization
(Note 4)........................................ 6,110,410 -
----------- ------------
$50,033,911 $ 43,173,821
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank line of credit (Note 7) .... $ 4,000,000 $ -
Accounts payable................................ 10,809,976 19,075,766
Customers' deposits............................. 2,158,512 1,380,621
Accrued expenses................................ 2,188,557 1,667,621
Current maturities of long-term debt (Note 8)... 1,945,000 1,769
----------- ------------
TOTAL CURRENT LIABILITIES..................... 21,102,045 22,125,777
Long-Term Debt (Note 8)............................ 5,725,000 110,344
----------- ------------
TOTAL LIABILITIES............................. $26,827,045 $ 22,236,121
=========== =============
Commitments and Contingencies (Notes 5, 10, 11, 12 and 13)
Stockholders' Equity (Notes 9 and 10):
Common Stock - par value $.10; authorized
20,000,000 shares, issued 3,357,406,
outstanding 335,741 3,319,806; and
issued 3,262,866, outstanding 3,235,266,
respectively .................................. 335,741 326,287
Additional paid-in capital........................12,889,546 12,512,299
Retained earnings.................................10,143,226 8,209,911
Foreign currency translation adjustment.......... - (11,000)
----------- ------------
Total...........................................23,368,513 21,037,497
Treasury stock, at cost, 37,600 shares and
27,600 shares................................... (161,647) (99,797)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY......................23,206,866 20,937,700
----------- ------------
$50,033,911 $ 43,173,821
=========== =============
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
------------------------------------------
June 27, June 28, June 29,
1998 1997 1996
------------ ----------- -----------
NET REVENUES (Note 1)................... $ 90,886,285 $79,103,225 $46,279,969
------------ ----------- -----------
COSTS AND EXPENSES:
Cost of sales......................... 74,033,817 65,934,696 40,546,962
Selling expenses...................... 6,944,079 5,810,360 4,699,280
General and administrative expenses.... 5,911,007 3,045,269 1,878,193
------------ ----------- -----------
Total costs and expenses........... 86,888,903 74,790,325 47,124,435
------------ ----------- -----------
3,997,382 4,312,900 (844,466)
INTEREST (INCOME) EXPENSE, net of
interest income of $102,968, $113,137 and
$126,522 ................................. 791,067 (17,651) (43,400)
------------ ----------- -----------
NET INCOME (LOSS) BEFORE TAXES........... 3,206,315 4,330,551 (801,066)
TAXES (BENEFIT) ON INCOME (Note 6)....... 1,273,000 1,645,000 (228,000)
------------ ----------- -----------
NET INCOME (LOSS)....................... $ 1,933,315 $ 2,685,551 (573,066)
============ ============ ========
Earnings (loss) per share:
Basic ................................. 0.59 0.83 (0.18)
Diluted ............................... 0.56 0.80 (0.18)
Weighted average shares outstanding:
Basic ................................ 3,284,278 3,228,745 3,208,599
Diluted .............................. 3,425,899 3,353,419 3,208,599
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Foreign
Additional Currency
Common Common Paid-In Retained Translation Treasury Stockholders'
Shares Stock Capital Earnings Adjustment Stock Equity
--------- --------- ------------ ------------ ---------- --------- --------------
BALANCE, JULY 2, 1995 3,236,199 $323,620 $ 12,459,965 $ 6,097,426 $ 731 $(99,797) $ 18,781,945
Net loss.................... - - - (573,066) - - (573,066)
Foreign currency translation
adjustment............... - - - - (5,954) - (5,954)
--------- -------- ----------- ----------- -------- ---------- -----------
BALANCE, JUNE 29, 1996 3,236,199 323,620 12,459,965 5,524,360 (5,223) (99,797) 18,202,925
Net income................. - - - 2,685,551 - - 2,685,551
Exercise of stock options 26,667 2,667 52,334 - - - 55,001
Foreign currency translation
adjustment............... - - - - (5,777) - (5,777)
--------- -------- ----------- ----------- -------- ---------- -----------
BALANCE, JUNE 28, 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)
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
========= ======== =========== =========== ======== ========== ===========
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
---------------------------------------------
June 27, June 28, June 29,
1988 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................... $ 1,933,315 $ 2,685,551 $ (573,066)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Gain on disposal of fixed assets ....... (4,980) - -
Depreciation and amortization .......... 1,184,724 484,152 173,336
Provision for losses on accounts
receivable.............................. 189,545 214,521 113,500
Provision for inventory obsolescence.... 275,000 154,133 139,436
Provision for deferred income taxes..... (187,000) (121,000) (58,000)
Provision for deferred compensation..... 379 (25,220) 6,782
Foreign currency translation adjustment. 11,000 (5,777) (5,954)
(Increase) decrease in:
Accounts receivable................... 5,304,947 (9,129,210) 3,804,734
Inventories........................... (337,132) (1,484,715) 1,649,026
Prepaid expenses...................... 22,717 (701,675) 159,244
Other assets.......................... 590,564 229,728 (69,076)
Increase (decrease) in:
Accounts payable...................... (9,302,942) 4,211,199 (192,360)
Accrued expenses and customers'
deposits............................. (985,393) 114,895 1,214,580
---------- --------- --------
Net cash provided by (used in)
operating activities.................... (1,305,256) (3,373,418) 6,362,182
---------- --------- --------
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.................... (470,221) (846,845) (1,159,659)
Proceeds from property and equipment
disposals............................... 76,304 27,125 347,557
---------- --------- --------
Net cash used in investing activities... (11,702,898) (819,720) (812,102)
---------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit
agreement ................................ 4,000,000 - -
Principal payments on long term debt... (1,154,202) (11,052) (5,216)
Issuance of common stock upon exercise
of stock options........................ 285,001 55,001 -
Purchase of treasury stock ............. (61,850) - -
Proceeds from issuance of long term
notes due to bank ...................... 8,300,000 - -
---------- --------- --------
Net cash provided by (used in)
financing activities................. 11,368,949 43,949 (5,216)
---------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... (1,639,205) (4,149,189) 5,544,864
CASH AND CASH EQUIVALENTS, at beginning
of year.................................. 3,832,534 7,981,723 2,436,859
---------- --------- --------
CASH AND CASH EQUIVALENTS, at end of year. $ 2,193,329 $ 3,832,534 $ 7,981,723
========== ========== ==========
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. The financial statements of the Company's United
Kingdom subsidiary were translated from pounds sterling to U.S. dollars in
accordance with generally accepted accounting principles. The United Kingdom
subsidiary was liquidated on June 28, 1997. Wink Davis Equipment Company, Inc.
("Wink Davis") was acquired on August 1, 1997. Todd Motion Controls, Inc.
("TMC") was acquired on February 6, 1998.
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 is
recognized in full at the time of shipment.
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 method for
financial reporting purposes and by accelerated methods for income tax purposes.
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 June 27, 1998, the
Company had contracts maturing through March 1999 to purchase approximately 24.3
billion Lira for approximately $13.7 million, which approximates the spot rate
on that date.
TAXES ON INCOME
The Company has adopted the SFAS Statement No. 109, "Accounting for Income
Taxes." Accordingly, 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 PER SHARE
The Company has adopted SFAS Statement no. 128, "Earnings per Share."
Accordingly, 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).
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. Years ending June 27,
1998, June 28, 1997 and June 29, 1996 included 52 weeks.
ADVERTISING
The Company expenses advertising costs as incurred. Total advertising
expense approximated $97,000, $95,000 and $80,000 for fiscal years 1998, 1997
and 1996, respectively.
F-6
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED)
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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Because of the recent issuance of this standard, management has
been unable to fully evaluate the impact, if any, the standard may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementations of this standard.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about SEGMENTS OF AN ENTERPRISE and RELATED INFORMATION, (SFAS 131)
which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. SFAS 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. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 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.
SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Because of the recent issuance of this standard, management has
been unable to fully evaluate the impact, if any, it may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133) 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, 1999. Management is presently assessing the impact of the
adoption of SFAS No. 133 on its consolidated financial statements.
In May, 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs at Start-Up Activities. SOP
98-5 requires that entities expense start-up costs and organization costs as
they are incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. Management does not anticipate SOP 98-5 having a material
impact on its consolidated 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,
Mexico and formerly the United Kingdom, the Company primarily sells to customers
located within the United States. Export sales from the United States were
approximately $15,992,000, $12,433,000 and $7,196,000 during fiscal 1998, 1997
and 1996, 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 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: 41.1% in 1998, 60.1% in
1997 and 46.2% in 1996. In addition, sales of Santoni machines in the United
States and Canada generated 5.3%, 7.0% and 4.8% of the Company's net revenues in
fiscal 1998, 1997 and 1996, respectively. In 1998, approximately 12% and 4% of
revenues consisted of sales to the Company's two largest customers. In 1997,
approximately 11% and 10% of revenues consisted of sales to the Company's two
largest customers. In 1996, approximately 9% and 6% of revenues consisted of
sales to the Company's two largest customers. 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:
June 27, June 28,
1998 1997
------------ -----------
Trade receivables............................ $ 20,671,045 $21,549,615
Less allowance for doubtful accounts......... (853,211) (474,477)
------------ -----------
Net accounts receivable...................... $ 19,817,834 $21,075,138
============ ===========
NOTE 3 -- INVENTORIES
Inventories are summarized as follows:
June 27, June 28,
1998 1997
------------ -----------
Machines
New....................................... $ 3,051,280 $3,961,362
Used...................................... 6,414,845 4,807,479
Parts and supplies........................... 6,468,620 4,201,293
------------ -----------
Total........................................ $15,934,745 $12,970,134
============ ===========
NOTE 4 - INTANGIBLES
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 $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 manufacturing facilities. The primary operating
facility of the textile operations and corporate offices is leased from a
partnership in which Mr. Robert S. Speizman, the Company's President, has a 50%
interest. The lease extends through March 1999. Lease payments to the
partnership approximated $356,000, $356,000 and $323,000 in fiscal years 1998,
1997 and 1996, respectively.
The Company plans to consolidate several textile machinery warehouses and
the corporate offices into a single location. After renovating this new
facility, the Company plans to complete this consolidation in the spring of
1999. This new facility is leased from a corporation owned by Robert S.
Speizman, his wife and their children. This lease extends through September
2012. Lease payments to the corporation, net of sublease payments received from
the former lessor, approximated $307,000 in fiscal 1998.
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, President of Wink Davis, has a 50% interest. The leases extend
through July 1999. Lease payments to the partnership approximated $128,000 in
fiscal 1998.
As of June 27, 1998, future minimum rental payments required under
operating leases that have initial or remaining noncancelable terms in excess of
one year are as follows:
Operating
Leases
------
1999 ........................................ $ 1,239,816
2000 ........................................ 920,929
2001 ........................................ 744,327
2002 ........................................ 684,179
2003 ....................................... 664,012
Beyond....................................... 6,101,389
-----------
Total minimum lease payments ............. $10,354,652
===========
Total rent expense for operating leases approximated $1,566,000, $1,021,600
and $791,400 for fiscal years 1998, 1997 and 1996, respectively.
NOTE 6-- TAXES ON INCOME
Provisions for federal and state income taxes in the consolidated
statements of operations are made up of the following components:
1998 1997 1996
---- ---- ----
Current:
Federal.......................$ 1,206,000 $1,482,000 $ (70,000)
State.......................... 251,000 282,000 (15,000)
Foreign........................ 3,000 2,000 (85,000)
--------- --------- ----------
1,460,000 1,766,000 (170,000)
--------- --------- ----------
Deferred:
Federal........................ (152,000) (87,000) (50,000)
State.......................... (35,000) (34,000) (8,000)
--------- --------- ---------
(187,000) (121,000) (58,000)
--------- --------- ---------
Total taxes (benefit) on income..$ 1,273,000 $1,645,000 $ (228,000)
=========== ========== ===========
F-9
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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:
June 27, June 28,
1998 1997
----------- ---------
Net current assets........................... $ 647,000 $ 383,000
Net noncurrent assets........................ 147,000 152,000
----------- ---------
$ 794,000 $ 535,000
=========== =========
Principal items making up the deferred income tax assets (liabilities) are
as follows:
Year Ended
---------------------
June 27, June 28,
1998 1997
---------- --------
Inventory valuation reserves.............. $ 195,000 $162,000
Depreciation.............................. (110,000) (107,000)
Deferred charges.......................... 161,000 107,000
Inventory capitalization ................. 224,000 191,000
Accounts receivable reserves.............. 324,000 182,000
---------- --------
Net deferred tax asset................. $ 794,000 $535,000
========== ========
The Company's effective income tax rates are different than the U.S.
Federal statutory tax rate for the following reasons:
1998 1997 1996
---- ---- ----
U.S. Federal statutory tax rate.............. 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit...................................... 5.1 4.3 3.6
Non-deductible expenses...................... 1.2 1.5 (5.3)
Foreign tax rates............................ - (0.8) (4.9)
Net tax effect of prior year adjustments..... - - 2.5
Other........................................ (0.6) (1.0) (1.4)
----- ----- ----
Effective tax rate........................... 39.7% 38.0% 28.5%
===== ==== ====
NOTE 7 -- LINE OF CREDIT
The Company has a credit facility with NationsBank, opened on August 1,
1997, in conjunction with the purchase of Wink Davis, amended on February 6,
1998, in conjunction with the purchase of TMC and expiring on July 31, 2000.
This facility furnished term loan financing for these acquisitions and also
provides a line of credit for direct borrowings and issuance of documentary
letters of credit. The line of credit provides 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. Amounts outstanding under the line of credit bear interest at 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. At June 27, 1998,
the interest rate on the line of credit was 9.50%. In connection with this line
of credit, the Company granted a security interest in accounts receivable and
inventory, as defined in the loan agreement. (See Note 8)
This credit facility contains certain covenants that require, among other
things, the Company to maintain levels of current assets to current liabilities,
gross borrowings to EBITDA, working capital, tangible net worth, restrictions on
dividends, and certain fixed charge coverage. As of June 27, 1998, the Company
was in compliance with such covenants.
F-10
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists primarily of a term loan with NationsBank which
provided $8.3 million used for financing the acquisitions of Wink Davis and TMC.
The repayment schedule requires quarterly principal payments of $380,000, a
single annual prepayment calculated as a percentage of the prior year's adjusted
earnings, and the balance due on the loan's expiration date, July 31, 2000.
The term loan agreement permits the Company to select either a base
interest rate or a Eurodollar interest rate plus 2.0%. The base interest is the
greater of prime plus 1.0% or the Federal Funds Effective Rate plus 1.5%. At
June 27, 1998, $7,250,000 of the term loan was borrowed under the Eurodollar
selection bearing interest at 7.625% and the balance of $420,000 was borrowed
under the base rate selection bearing interest at 9.5%.
The term loan agreement requires that the Company enter an interest rate
swap agreement for a portion of the outstanding principal. The swap agreement is
an interest rate hedge which, in effect, converts the interest rate from a
variable to a fixed rate over a three-month period. At June 27, 1998, $7,250,000
was fixed at an interest rate of 7.625% through August 15, 1998.
Long-term debt consists of:
June 27, 1998 June 28, 1997
------------- -------------
Total Total
-------------- -------------
Term loan........................ $ 7,670,000 $ -
Other............................ - 112,113
------------- -----------
Total............................ 7,670,000 112,113
Current maturities............... (1,945,000) (1,769)
------------- -----------
$ 5,725,000 $ 110,344
============= ===========
Annual maturities of long-term debt are 1999, $1,945,000; 2000,
$1,520,000; and 2001, $4,205,000.
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 June 27, 1998, options to purchase 4,000, 85,385 and 371,000 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 1998, 1997, and 1996 follows:
F-11
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Year Ended
------------------------------------------------------------
Weighted Weighted Weighted
June 27, Average June 28, Average June 29, Average
1998 Price/Sh 1997 Price/Sh. 1996 Price/Sh
-------- -------- --------
Shares under option,
beginning of year.......... 466,925 $4.17 334,092 $3.13 150,429 $3.15
Options granted............ 88,000 6.31 159,500 6.00 183,663 3.10
Options exercised.......... (94,540) 3.01 (26,667) 2.06 - -
Options expired............ - - - - - -
-------- ----- ------- ----- ------- -----
Shares under option, end
of year.....................460,385 $4.81 466,925 $4.17 334,092 $3.13
======== ===== ======= ===== ======= =====
Options exercisable.........236,410 141,668 117,086
======== ======= =======
Prices of options $.75 to
exercised................. $5.50 $2.063 -
Prices of options $.75 to $.75 to $.75 to
outstanding, end of year...$6.31 $6.00 $5.50
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 9,000 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
1998, 1997 and 1996 follows:
Year Ended
--------------------------------------------------------
Weighted Weighted Weighted
June 27, Average June 28, Average June 29, Average
1998 Price/Sh 1997 Price/Sh 1996 Price/Sh.
-------- -------- -------- -------- -------- ---------
Shares under option,
beginning of year............6,000 $ 4.16 3,000 $ 2.88 - $ -
Options granted..............3,000 6.13 3,000 5.44 3,000 2.88
Options exercised............ - - - - - -
Options expired.............. - - - - - -
----- ------ ----- ------- ----- ------
Shares under option, end
of year..................... 9,000 $ 4.81 6,000 $ 4.16 3,000 $ 2.88
===== ======= ===== ======= ===== ======
Options exercisable......... 4,500 1,500 -
===== ===== =====
Prices of options
exercised................... - - -
Prices of options $2.88 to $2.88 to
outstanding, end of year....$6.13 $5.44 $2.88
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants: expected lives of 10.0 years, expected
volatility of 0.574, 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 1998 and 1997 was $4.69 and $4.46 per share,
respectively.
F-12
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options 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
June 27, 1998 June 28, 1997
------------- -------------
Pro forma net income ............ $ 1,480,353 $ 2,512,366
Pro forma basic earnings per
share ............................ $ 0.45 $ 0.78
Pro forma diluted earnings per
share ............................ 0.43 0.75
The following table summarizes information about stock options outstanding
at June 27, 1998:
Range of exercise prices $0.75 to $6.31
------------------------ --------------
Outstanding options
Number outstanding........................ 469,385
Weighted average remaining contractual
life (years)............................... 7.2
Weighted average exercise price............ $ 4.81
Exercisable options
Number outstanding......................... 264,609
Weighted average exercise price............ $ 4.07
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 stock in the
Company held by the 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 holder's
estate's percentage of the outstanding common stock of the Company to less than
16%.
At June 27, 1998, there were 673,475 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.
NOTE 11 -- DEFERRED COMPENSATION PLANS
The Company has deferred compensation agreements with two employees
providing for payments amounting to $2,056,680 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 and the second agreement was effective
October 1989. Both agreements provide for monthly payments on retirement or
death benefits over fifteen year periods. Both 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
$50,362, $48,885 and $53,885 for the fiscal years 1998, 1997 and 1996,
respectively.
F-13
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 12 -- EMPLOYEES' RETIREMENT PLAN
The Company adopted a 401(k) retirement plan, effective October 1, 1989,
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% (25% prior to September 13, 1996) of each employee's
contribution up to 4% of pretax eligible compensation. The Company's matching
contributions totaled approximately $107,000, $47,000 and $21,000 in fiscal
years 1998, 1997 and 1996, respectively.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company had outstanding commitments backed by letters of credit of
approximately $8,220,000 and $16,631,000 at June 27, 1998 and June 28, 1997,
respectively, relating to the purchase of machine inventory for delivery to
customers.
The Company is presently the Defendant in a lawsuit filed by a former
employee of the Company who lost his job in 1997, pursuant to a reduction in
workforce. At the present time, both Plaintiff and the Company are engaged in
discovery processes including depositions, and it is the Company's position that
it will defend vigorously against all claims brought by this former employee
through trial, if necessary.
While the amount claimed may be substantial, the ultimate liability cannot
now be determined because of a number of considerable uncertainties, both
factual and legal, that presently exist. Therefore, it is possible that results
of operations in a particular period could be materially affected. Based on
facts currently available, management believes that the disposition of this
matter will not have a materially adverse effect on the financial position of
the Company.
NOTE 14 - SUBSEQUENT EVENT
On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Marzoli product line manufactured by
Fratelli Marzoli & C. spa, an Italian corporation. As part of its agreement with
Fratelli Marzoli & C. SpA, the Company will assume the operations of the current
offices, showrooms and personnel. Fratelli Marzoli & C. SpA manufactures
equipment used in the yarn processing industry. Prior to the Company's receipt
of distribution rights, Fratelli Marzoli & Co. SpA distributed its products in
the United States through its wholly-owned subsidiary, Marzoli International,
Inc., a domestic corporation based in Spartanburg, South Carolina. Revenues of
Marzoli International, Inc. for the twelve months ended December 31, 1997 were
approximately $13.9 million.
NOTE 15 - BUSINESS ACQUISITIONS
On August 1, 1997, the Company acquired all of the outstanding stock of
Wink Davis, a Georgia corporation. For financial statement purposes, 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. The aggregate purchase price was
approximately $9,467,677. 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. These contingent payments, if any, will be capitalized as
increases to the original purchase price and amortized accordingly. 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 based upon their respective fair market values. The
excess of the purchase price over assets acquired (Goodwill) approximated
$4,343,662 and is being amortized over fifteen years.
F-14
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 $1,841,304. 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 based upon their respective fair market values. The excess of the
purchase price over assets acquired (Goodwill) approximated $2,094,247 and is
being amortized over fifteen years.
The following unaudited pro forma consolidated results of operations for
fiscal 1997 have been prepared as if the acquisition of Wink Davis occurred as
of the beginning of fiscal 1997. Pro forma operating results for fiscal 1998 as
though the enterprises had been combined as of the beginning of the fiscal year
would not differ materially from actual results for fiscal 1998. The acquisition
of Wink Davis occurred early in fiscal 1998, and, accordingly, operating results
for the incremental period of approximately one month would not be significant.
The incremental operating results of TMC for fiscal 1997 and incremental period
of approximately seven months in fiscal 1998 would not be significant.
Pro Forma Results for the
Year Ended June 28, 1997
------------------------
Net sales $ 111,739,000
Net income $ 2,589,000
Net income per share - basic $ 0.80
Net income per share - diluted $ 0.77
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisitions been in effect for the
period presented, nor do they purport to be indicative of the results that will
be obtained in the future.
NOTE 16 - SEGMENT INFORMATION
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.
Total revenues
Textile equipment $ 67,229,741
Laundry equipment and services 23,656,544
----------
$ 90,886,285
============
Total assets
Textile equipment $ 38,744,098
Laundry equipment and services 11,289,813
----------
$ 50,033,911
============
Income before interest and taxes
Textile equipment $ 3,915,662
Laundry equipment and services 81,720
----------
$ 3,997,382
============
F-15
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Year Ended
------------------------------------
June 27, June 28, June 29,
1998 1997 1996
---- ---- ----
Cash paid during year for:
Interest................................$ 776,544 $ 101,315 $ 81,578
Income taxes............................1,381,196 1,440,696 120,086
F-16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SPEIZMAN INDUSTRIES, INC.
The audits referred to in our report dated August 27, 1998, 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 consolidated financial statement schedule presents fairly,
in all material respects, the information set forth therein.
Charlotte, North Carolina BDO Seidman, LLP
August 27, 1998
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 29, 1996:
Reserve for doubtful accounts........ $207,158 $113,500 $ - $ 60,702 $259,956
-------- -------- --------- --------- --------
Reserve for inventory obsolescence... $595,990 $139,436 $ - $ 226,456 $508,970
-------- -------- --------- --------- --------
Fiscal year ended June 28, 1997:
Reserve for doubtful accounts........ $259,956 $233,671 $ - $ 19,150 $474,477
-------- -------- --------- --------- --------
Reserve for inventory obsolescence... $508,970 $154,133 $ - $ 241,629 $421,474
-------- -------- --------- --------- --------
Fiscal year ended June 27, 1998:
Reserve for doubtful accounts........ $474,477 $247,631 $ 189,189 $ 58,086 $853,211
-------- -------- --------- --------- --------
Reserve for inventory obsolescence... $421,474 $275,000 $ - $ 189,288 $507,186
-------- -------- --------- --------- --------
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.
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 Letter from Orizio Paolo, S.p.A., Brescia, Italy, dated July 18, 1995,
appointing Company as its exclusive distributor. (Incorporated by
reference to Exhibit 10.15 contained in the Company's Annual Report on
Form 10-K for the fiscal year ended July 1, 1995, File No. 0-8544,
filed with the Commission on September 29, 1995 (the "1995 Form
10-K").)
10.9 Independent Distributor Agreement between the Company and Orizio
Paolo, S.p.A., dated August 1, 1995. (Incorporated by reference to
Exhibit 10.15.1 contained in the Company's Annual Report on Form 10-K
for fiscal year ended June 29, 1996, File No. 0-8544, filed with the
Commission on September 25, 1996 (the "1996 Form 10-K").)
10.10 Termination Agreement (fax) of Distributor Agreement between the
Company and Orizio Paola, S.p.A. dated as of April 1998.
10.11 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.)
10.12 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.)
10.13 Lease Agreement between the Company and Speizman Brothers Partnership,
dated as of December 12, 1990. (Incorporated by reference to Exhibit
10.14 contained in the 1993 Form S-1.)
10.14 Lease Amendment and Extension Agreement between the Company and
Speizman Brothers Partnership dated April 1, 1995. (Incorporated by
reference to Exhibit 10.18 contained in the Company's 1995 Form 10-K.)
10.15 Second Lease Amendment and Extension Agreement between the Company and
Speizman Brothers Fifth Street Partnership (formerly Speizman Brothers
Partnership), dated April 1, 1996. (Incorporated by reference to
Exhibit 10.18.1 contained in the Company's 1996 Form 10-K.)
10.16 Third Lease Amendment and Extension Agreement between the Company and
Speizman Brothers Fifth Street Partnership, dated April 1, 1998.
10.17 Lease Agreement by and between The Speizman LLC and Speizman
Industries, Inc., dated as of October 29, 1997.
10.18 First Amendment to Lease Agreement by and between The Speizman LLC and
Speizman Industries, Inc., dated as of October 29, 1997, and executed
July 22, 1998.
10.19 Deed of Lease between Speizman Canada, Inc., and Metro II & III,
undated, as renewed by letter agreement, dated February 17, 1992.
(Incorporated by reference to Exhibit 10.19 contained in the 1993 Form
S-1.)
10.20 Letter Agreement extending lease between Speizman Canada, Inc., and
Metro II & III, dated October 21, 1994. (Incorporated by reference to
Exhibit 10.20 contained in the Company's 1995 Form 10-K.)
10.21 Memorandum of Agreement of Extension of Lease between Speizman Canada,
Inc., and Metro II & III, dated November 21, 1995. (Incorporated by
reference to Exhibit 10.20.1 contained in the Company's 1996 Form
10-K.)
10.22 Memorandum of Agreement of Extension of Lease between Speizman Canada,
Inc., and Metro II & III, dated January 29, 1997. (Incorporated by
reference to Exhibit 10.17 contained in the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1997, File No. 0-8544, filed
with the Commission on September 26, 1997 (the "1997 Form 10-K").)
10.23 Memorandum of Agreement of Extension of Lease between Speizman Canada,
Inc., and Metro II & III, dated September 23, 1997.
10.24 Agreement of Lease between the Company and LBA Properties, Inc., dated
June 2, 1994. (Incorporated by reference to Exhibit 10.17.1 contained
in the Company's 1994 Form 10-K.)
10.25 Lease Agreement between the Company and B.F. Knott, dated May 12,
1993. (Incorporated by reference to Exhibit 10.18 contained in the
Company's 1994 Form 10-K.)
10.26 Modification and Extension of Lease between the Company and B.F.
Knott, dated March 29, 1994. (Incorporated by reference to Exhibit
10.18.1 contained in the Company's 1994 Form 10-K.)
10.27 Modification and Extension of Lease between the Company and B.F.
Knott, dated October 17, 1994. (Incorporated by reference to Exhibit
10.24 contained in the Company's 1995 Form 10-K.)
10.28 Modification and Extension of Lease between the Company and B.F.
Knott, dated February 13, 1995. (Incorporated by reference to Exhibit
10.25 contained in the Company's 1995 Form 10-K.)
10.29 Lease Agreement between the Company and Daniel H. Porter, dated August
17, 1995. (Incorporated by reference to Exhibit 10.26 contained in the
Company's 1995 Form 10-K.)
10.30 Extension of Lease Agreement between the Company and Daniel H. Porter,
dated May 14, 1997. (Incorporated by reference to Exhibit 10.25
contained in the Company's 1997 Form 10-K.)
10.31 Lease Agreement between the Company and Kathryn B. Godley, dated March
5, 1996. (Incorporated by reference to Exhibit 10.27 contained in the
Company's 1996 Form 10-K.)
10.32 Lease Agreement between the Company and Hans L. Lengers, LLC, dated
February 15, 1996. (Incorporated by reference to Exhibit 10.28
contained in the Company's 1996 Form 10-K.)
10.33* 1981 Incentive Stock Option Plan of the Company. (Incorporated by
reference to Exhibit 10.19 contained in the 1993 Form S-1.)
10.34* 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.)
10.35* 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.)
10.36* 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.)
10.37* 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.)
10.38* 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.)
10.39* 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.)
10.40* 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.)
10.41* 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.)
10.42* Executive Bonus Plan of the Company, adopted July 20, 1993.
(Incorporated by reference to Exhibit 10.30 contained in the 1993 Form
S-1.)
10.43* 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.)
10.44 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.)
10.45 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).
10.46 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.)
10.47 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).
10.48 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.)
10.49 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.)
10.50 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.)
10.51 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.)
10.52 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.)
10.53 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.)
10.54 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.)
10.55 NationsBank Letter increasing Term Loan by $1.3 million, dated
February 4, 1998.
10.56 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.)
10.57 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.)
10.58 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.)
10.59 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 Atlanta, Georgia area. (Incorporated by
reference to Exhibit 10.52 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 Charlotte, North Carolina area.
(Incorporated by reference to Exhibit 10.53 contained in the Company's
1997 Form 10-K.)
10.61 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.)
10.62 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.)
10.63 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.
10.65 Lease Agreement by and between William H. Todd and wife, Jo Anne Todd
and Todd Motion Controls, Inc., dated February 6, 1998, for the
Reynolda facility.
10.66 Agreement to Lease between Todd Motion Controls, Inc. and Douglas I.
Cook, et al., dated September 1, 1996, for the Patterson Avenue
facility.
21 List of Subsidiaries
23 Consent of BDO Seidman
27 Financial Data Schedule
- -------------------------
* Represents a management contract or compensatory plan or arrangement
of the Registrant.