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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Amendment No. 1)
|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 29, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to _____________________
COMMISSION FILE NO. 0-8544
SPEIZMAN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 56-0901212
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(State or other jurisdiction of incorporation or (I.R.S. Employer
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
(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.
|X|
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of September 12, 1996, was $12,431,085 based on the last
sale price of $5.00 per share reported by the NASDAQ National Market System on
that date.
As of September 12, 1996, there were 3,208,599 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 19, 1996, are incorporated herein by
reference into Part III.
<PAGE>
Speizman Industries, Inc., a Delaware corporation (the "Company"),
hereby amends Items 1, 6, 7 and 8 of its Annual Report on Form 10-K for the
fiscal year ended June 29, 1996 to read in their entirety as follows:
ITEM 1. BUSINESS.
GENERAL
Speizman Industries, Inc. (the "Company") 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 the Company 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, the Company distributes other sock
knitting machines, knitting machines for underwear, sweaters, collars and trim,
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. The Company also sells dyeing and finishing equipment for the
textile industry. The Company sells textile machine parts and used textile
equipment in the United States and in a number of foreign countries.
ALL REFERENCES HEREIN ARE TO THE COMPANY'S 52-OR-53 WEEK FISCAL YEAR
ENDING ON THE SATURDAY CLOSEST TO JUNE 30. FISCAL 1996, 1995, 1994, AND 1992,
EACH CONTAINED 52 WEEKS AND ENDED ON JUNE 29, 1996, JULY, 1, 1995, JULY 2, 1994
AND JUNE 27, 1992. FISCAL 1993 CONTAINED 53 WEEKS AND ENDED ON JULY 3, 1993.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM THE "COMPANY" AS USED HEREIN
INCLUDES SPEIZMAN INDUSTRIES, INC. AND ITS SUBSIDIARIES.
The Company and Lonati entered into their present agreement for the
sale of Lonati machines in the United States in January 1992 (the "Lonati
Agreement"). The Company and Lonati also entered into a similar agreement in
January 1992 relating to the Company's distribution of Lonati sock and sheer
hosiery knitting machines in Canada. The company has distributed Lonati double
cylinder machines in the United States continuously since 1982. The Company
began distributing Lonati single cylinder machines in 1989.
Pursuant to the Lonati Agreement, Lonati has appointed the Company 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 as of
the date of the Lonati Agreement. Under the Lonati Agreement, the Company also
serves as the distributor of such equipment in the United States. Although the
Lonati Agreement does not establish the Company as the exclusive distributor of
Lonati sock machines in the United States, the Company 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. The Company and Lonati also entered
into a similar agreement in January 1992 relating to the Company's distribution
of Lonati sock and sheer hosiery knitting machines in Canada.
The Lonati Agreement contains certain covenants and conditions relating
to the Company's sale of Lonati machines, including, among others, requirements
that the Company, 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. The Company is prohibited during the term of the Lonati Agreement from
distributing any machines or parts that compete with Lonati machines and parts.
The Company believes that it is and will remain in compliance in all material
respects with such covenants. The cost to the Company of Lonati machines, as
well as the delivery schedule of these machines, are totally at the discretion
of Lonati. The Lonati Agreement allows Lonati to sell machines directly to the
sock manufacturer with any resulting commission paid to the Company determined
on a case by case basis.
The Lonati single cylinder machines distributed by the Company 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. The Company
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distributes these sock knitting machines as well as Lonati sheer hosiery
knitting machines in Canada. In addition, the Company distributes the knitting
machines, described below, manufactured by Santoni, S.r.l. Brescia, Italy
("Santoni"), one of Lonati's subsidiaries, in the United States and Canada.
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: 46.2% in 1996, 44.4% in 1995 and 65.6% in 1994. In addition, sales of
Santoni machines in the United States and Canada generated 4.8%, 9.3% and 4.4%
of the Company's net revenues in fiscal 1996, 1995 and 1994, respectively.
In addition to the Lonati machines, the Company 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:
<TABLE>
<CAPTION>
Manufacturer Machine Territory
<S> <C> <C>
Santoni, S.r.l., Circular knitting machines for underwear, United States and
Brescia, Italy men's socks and women's sheer hosiery and Canada
surgical support hose
Conti Complett, S.p.A., Sock toe closing machines and sock United States and Canada
Milan, Italy turning devices
Sperotto Rimar, S.p.A., Fabric processing and finishing machines United States
Malo, Italy
Corino Macchine, S.r.l., Fabric handling equipment United States and Canada
Alba, Italy
Fimatex, Turning devices for sock machines United States
Scandicci, Italy
Orizio Paolo, S.p.A., Fabric knitting machines United States
Brescia, Italy
Tonello, S.r.l., Garment wet processing equipment United States, Canada and Mexico
Sarcedo, Italy
Solis, S.r.l., Flat parts for knitting machines United States
Florence, Italy
Mec-Mor, S.p.A., Circular knitting machines for sweaters United States and Canada
Varese, Italy
Zamark, S.p.A.. Flat knitting machines for collars and United States, Canada, the United
Somma Lombardo, Italy trim and sweaters Kingdom and Ireland
Jumberca, S.A., Sweater knitting machines United States, Canada, the United
Badalona, Spain Kingdom and Ireland
</TABLE>
Sales of machines manufactured by Zamark (an affiliate of Lonati) generated
1.0%, 1.0% and 1.1% of the Company's net revenues in fiscal 1996, 1995 and 1994,
respectively. In August 1996, this distribution agreement was canceled effective
December 31, 1996.
Sales of machines manufactured by Jumberca generated 2.9%, 9.8% and 9.8% of
the Company's net revenues in fiscal 1996, 1995 and 1994, respectively. In
August 1995, this distribution agreement was canceled effective December 31,
1995.
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There can be no assurance that the Company will not encounter significant
difficulties in any attempt to enforce any provision of the Lonati Agreement (or
any other agreement with a foreign manufacturer), or any agreement that may
arise in connection with the placement and confirmation of orders for the
machines manufactured by Lonati (or any other foreign manufacturer) or obtain an
adequate remedy for a breach of any such provision, due principally to the fact
that Lonati (or any other foreign manufacturer) is a foreign company.
USED MACHINES, PARTS AND LIQUIDATIONS
The Company sells used machinery and parts to the textile industry. The
Company carries significant amounts of machinery and parts inventories to meet
customers' requirements and to assure itself of an adequate supply of used
machinery. The Company acts as a liquidator of textile mills and as a broker in
the purchase and sale of such mills.
MARKETING AND SALES
The Company 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 the Company's machine
in its own work environment alongside competing machines for two weeks to three
months. The Company also offers customers the opportunity to send their
employees to the Company 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, the Company exhibits its equipment at trade shows and
uses its private showroom to demonstrate new machines. These marketing
strategies are complemented by the Company's commitment to service and
continuing education. The Company also produces, at its own expense, training
videos for its major lines of equipment. At August 20, 1996, the Company
employed approximately 18 salespersons and 28 technical representatives. In
addition to its sales staff, the Company 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 both the purchase price, payment terms and delivery schedule. The
Company is usually required to purchase imported machines with a letter of
credit in favor of the manufacturer delivered not less than 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.
The Company encourages trade-ins of older equipment, which reduces the
customer's initial capital outlay. The Company believes that its trade-in policy
has increased sales of certain of the Company's new equipment lines.
Substantially all of the machines sold by the Company are drop-shipped from
the foreign manufacturer by container or air freight directly to the customer's
plant using the Company's freight forwarder to coordinate shipment. Title is
taken at the European port, and the Company insures the machines for 110% of
cost.
Because a substantial portion of the Company's 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 the
Company's purchases of Italian machines for sale in the United States are
denominated in Italian lira. Generally, the Company 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. The Company is not able to assess the quantitative effect such
international price level changes could have upon the Company's operations. All
of the Company's export sales originating from the United States are made in
U.S. dollars. Substantially all of the sales of the Company's United Kingdom
subsidiary are denominated in pounds sterling.
The Company also markets used machines through its employees and outside
commission salespersons. The Company markets its used machines in the United
States and in a number of foreign countries. The Company uses
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trade advertising extensively and at least once every two months distributes
lists throughout the industry of used machines that the Company has for sale.
The Company exports certain new and used machines and parts for sale in
Canada and a number of other foreign countries. See Note 1 of Notes to
Consolidated Financial Statements for certain financial information concerning
the Company's foreign sales in fiscal 1996, 1995 and 1994.
CUSTOMERS
The Company's customers consist primarily of the major sock manufacturers in
the United States and Canada. In fiscal 1996, the Company's two largest
customers, Renfro Corporation and Manufacturier De Bas Iris Hosiery, Inc.
(Canada), accounted for 8.8% and 5.8%, respectively, of the Company's revenues.
In fiscal 1995, the Company's two largest customers, Renfro Corporation and
Kayser-Roth Corporation, accounted for 7.3% and 5.2%, respectively, of the
Company's net revenues. In fiscal 1994, the Company's two largest customers,
Fruit of the Loom, Inc., and Renfro Corporation, accounted for 13.8% and 13.4%
of the Company's net revenues. Generally, the customers contributing the most to
the Company's net revenues vary from year to year. The Company believes that the
loss of any principal customer could have a material adverse effect on the
Company.
BACKLOG
The Company's backlog of unfilled orders for new and used machines was $19.3
million at June 29, 1996 as compared to $4.1 million at July 1, 1995 and $15.1
million at July 2, 1994. Management believes that all the company's unfilled
orders at June 29, 1996 will be filled by the end of fiscal 1997. The period of
time required to fill orders varies depending on the machine ordered. The
increase in backlog is attributed essentially to increased demand for sock
machines.
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 the Company. Lonati machines compete, to a lesser extent, with
machines manufactured by a number of other foreign companies of varying sizes
and a small domestic company, and with companies selling used machines. The
principal competitive factors in the distribution of sock knitting machines are
technology, price, service, allowance of trade-ins and delivery. Management
believes that its competitive advantages are the technological advantages of the
Lonati machines, the Company's commitment to customer service and the Company's
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, the Company
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 the Company's competitors may have substantially greater resources than the
Company.
Domestic and foreign sales of used sock and sheer hosiery knitting machines
is fragmented and highly competitive. The Company 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, the Company has one primary competitor in its sale of used
sock knitting machines. The principal competitive factors in the Company's
domestic and foreign sales of used machines are price and availability of
machines that are in demand. Although the Company 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, the
Company competes with a number of distributors and manufacturers in its other
parts sales.
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<PAGE>
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 August 20, 1996, the Company had 87 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.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
<TABLE>
<CAPTION>
Fiscal Year Ended
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June 29, July 1, July 2, July 3, June 27,
1996 1995 1994 1993 1992
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues ................................. $ 46,280 $ 61,597 $ 69,526 $ 39,552 $ 26,564
Cost of sales ................................ 40,547 53,986 60,004 32,635 22,997
-------- -------- -------- -------- --------
Gross profit ................................. 5,733 7,611 9,522 6,917 3,567
Selling, general and administrative expenses . 6,577 5,478 4,350 3,651 2,546
-------- -------- -------- -------- --------
Operating income (loss) ...................... (844) 2,133 5,172 3,266 1,021
Interest (income) expense, net ............... (43) (15) 6 186 196
-------- -------- -------- -------- --------
Income (loss) before taxes on income ......... (801) 2,148 5,166 3,080 825
Taxes (benefit) on income (1) ................ (228) 854 1,869 661 82
-------- -------- -------- -------- --------
Net income (loss) ............................ (573) 1,294 3,297 2,419 743
Preferred stock dividends .................... -- -- 41 -- --
-------- -------- -------- -------- --------
Net income (loss) applicable to common stock . $ (573) $ 1,294 $ 3,256 $ 2,419 $ 743
======== ======== ======== ======== ========
PER SHARE DATA:
Net income (loss) per share .................. $ (.17) $ .40 $ 1.12 $ 1.03 $ .32
Weighted average number of shares ............ 3,284 3,271 2,905 2,360 2,297
BALANCE SHEET DATA:
Working capital .............................. $ 16,313 $ 17,613 $ 16,579 $ 4,553 $ 2,792
Total assets ................................. 36,149 35,704 30,160 18,145 13,519
Short-term debt .............................. -- -- -- 175 401
--------
Long-term debt, including current maturity ... 148 147 293 1,060 1,374
Stockholders' equity ......................... 18,203 18,782 17,483 5,137 2,714
</TABLE>
(1) Reflects the utilization of prior net operating losses to completely
offset federal income taxes in 1992 and to partially offset federal
income taxes in 1993.
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 machines and dyeing and finishing
equipment, to manufacturers of textile products and, to a lesser extent, from
the sale of parts used in such equipment and the sale of used textile equipment.
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RESULTS OF OPERATIONS
YEAR ENDED JUNE 29, 1996 COMPARED TO YEAR ENDED JULY 1, 1995
NET REVENUES. Net revenues in fiscal 1996 were $46.3 million as compared
to $61.6 million in fiscal 1995, a decrease of $15.3 million, or 24.9%. This
decrease reflects a $11.3 million decline in sales of hosiery equipment, a $7.3
million decline in sales of sweater manufacturing and related equipment, a $0.5
million decline in parts and other sales activities partially offset by a $3.8
million increase in sales of knitted fabric machines. The Company's backlog of
unfilled orders for new and used machines at June 29, 1996, was $19.3 million as
compared to $4.1 million at July 1, 1995. The improved level of backlog in 1996
results from substantially increased demand for sock knitting machines.
COST OF SALES. In fiscal 1996, cost of sales was $40.5 million as
compared to $54.0 million in fiscal 1995, a decrease of $13.5 million, or 24.9%,
matching the relative decline in revenues. Cost of sales as a percent of
revenues was 87.6% in fiscal 1996, unchanged from fiscal 1995.
SELLING EXPENSES. Selling expenses increased to $4.7 million in fiscal
1996 from $3.6 million in fiscal 1995, an increase of 31.2%. A significant
element of the increase was disposal of the CopyGuard sales division. During the
third quarter of fiscal 1996, management decided to dispose of the Company's
CopyGuard division. CopyGuard was developing a computer-generated matrix to
invisibly mark garments to prevent counterfeiting. However, its continuing cash
requirements were diverting funds from the Company's core business while
prospects of bringing the system to market, successfully, were diminishing.
Although the system developed by CopyGuard functioned successfully from a
technical point of view, the system had not proven to be commercially feasible
for the prospective users. Other elements in the increase were salespersons'
salaries and commissions, warehouse and office space costs, travel, insurance,
telecommunications, and insurance, partially offset by a decrease in letter of
credit expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
totaled $1,878,000, down by $17,000 from $1,895,000 in fiscal 1995. This small
decrease resulted from declines in salaries and bonuses and bad debt provisions,
partially offset by increases in professional fees and in life insurance
expenses.
INTEREST EXPENSE. Interest expense is expressed net of interest income.
In fiscal 1996, interest income exceeded interest expense by $43,000. Net
interest income was $15,000 in fiscal 1995.
TAXES (BENEFIT) ON INCOME (LOSS). The provision for income taxes in
fiscal 1996 is a tax benefit of $228,000 on the $801,000 loss from operations,
or 28.5% of the loss. In the prior year, the tax provision was 39.8% of income
before taxes. The current year effective rate reflects the combined effects of
non-deductible entertainment and life insurance expenses and U.S. profits taxed
at higher rates as compared to U.K. losses taxed at lower rates.
NET INCOME (LOSS). Net income applicable to common stock declined from
$1.3 million in fiscal 1995 to a loss of $0.6 million. Net loss per share in
fiscal 1996 was $0.17. This compares to $0.40 per share net income in fiscal
1995.
YEAR ENDED JULY 1, 1995 COMPARED TO YEAR ENDED JULY 2, 1994
NET REVENUES. Net Revenues in fiscal 1995 were $61.6 million as compared
to $69.5 million in fiscal 1994, a decrease of $7.9 million, or 11.4%. This
decrease reflects a $14.3 million decline in sales of hosiery equipment,
partially offset by increases of $3.4 million in the sales of sweater machines
and related equipment, $1.8 million in the sales of dyeing and finishing
equipment, and $1.2 million in the sales of spare parts. The Company's backlog
of unfilled orders for new and used machines at July 1, 1995, was $4.1 million
as compared to $15.1 million at July 2, 1994. The decline in backlog is
attributed to weakened demand for sock and sweater machines.
COST OF SALES. In fiscal 1995, cost of sales was $54.0 million as
compared to $60.0 million for fiscal 1994, a decrease of $6.0 million, or 10.0%.
Cost of sales as a percent of net revenues increased to 87.6% in fiscal 1995 as
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compared to 86.3% in fiscal 1994. Approximately 85% of this increase is
attributable to increased field service expenses associated with new machines.
The remainder is related to leveling of demand.
SELLING EXPENSES. Selling expenses increased to $3.6 million in fiscal
1995 from $2.4 million in fiscal 1994, an increase of 48.8%. This increase
resulted from the start-up of the U.K. knitting machine division, as well as
increased selling activities, overall. Major components of the increase were
salespersons' salaries and commissions, advertising and exhibitions, travel,
warehouse and office space cost, letter of credit expense and insurance expense.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
at $1,895,000 in fiscal 1995, were down slightly from $1,942,000 in fiscal 1994.
The decrease reflects declines in salaries and bonuses, partially offset by
increases in payroll and other taxes and in provisions for losses on accounts
receivable. As a percent of net revenues, general and administrative expenses
were 3.1% in 1995 as compared to 2.8% in fiscal 1994, reflecting the 11.4%
decrease in net revenues between the two fiscal years.
INTEREST EXPENSE. Interest expense is expressed net of interest income.
In fiscal 1995, interest income exceeded interest expense by $15,000. Net
interest expense was $6,000 in fiscal 1994.
TAXES ON INCOME. The provision for taxes on income in fiscal 1995 was
39.8% of income before taxes. The provision for taxes on income in fiscal 1994
was 36.2%.
NET INCOME. Net income applicable to common stock decreased to $1.3
million in fiscal 1995 from $3.3 million in fiscal 1994. Net income per share
decreased to $0.40 as compared to $1.12 per share in fiscal 1994 on a 12.6%
increase in the equivalent number of common shares outstanding.
JUMBERCA AGREEMENT
Prior to its amendment in March 1995, the Jumberca Agreement contained
certain minimum purchase requirements for the Jumberca sweater and fabric
knitting machines. The Company did not meet the minimum purchase requirements
under the Jumberca Agreement with regard to either type of machine in fiscal
1995 due principally to weakened demand for such machines. Due, in part , to the
weakened demand, at the Company's request, in March 1995, the parties amended
the Jumberca Agreement to eliminate the minimum purchase requirements thereunder
and to allow for the termination of the agreement prior to its original
termination date in January 1997. In accordance with the terms of the Jumberca
Agreements, as amended in March 1995, the Company terminated the agreement with
regard to the Jumberca fabric knitting machines in August 1995 and with regard
to the Jumberca sweater knitting machines in December 1995. Although the
weakened demand for the machines and the termination of the Jumberca Agreement
had an adverse effect on net revenues in fiscal 1996, it did not have a
significant effect on net income for the year. See Item 1, "Business--General."
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require a substantial line of letters of credit
to cover its customers' orders. The Company's credit facility provides for an
overall facility of $18.0 million for letters of credit, including up to $2.0
million in revolving funds. This facility expires October 31, 1996. Management
believes that this facility will be extended for several additional years and
will be revised appropriately to meet current financial requirements.
Working capital at June 29, 1996 was $16.3 million as compared to $17.6
million at July 1, 1995, a decline of $1.3 million. Operating activities in
fiscal 1996 provided $6.4 million in funds. In fiscal 1995, such activities
required $2.4 million. This improvement in cash flow from operations resulted
essentially from substantial decreases in accounts receivable and inventories
and an increase in accrued expenses and customers' deposits. In the current
fiscal year, investing activities used $812,000 as compared to usage of $461,000
in the prior year. As a result, cash and cash equivalents increased by $5.5
million to total $8.0 million at June 29, 1996 as compared to $2.4 million at
July 1, 1995.
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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 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.
A substantial portion of the Company's 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.
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-13 and S-1 through S-2 of this Annual Report on
Form 10-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPEIZMAN INDUSTRIES, INC.
Date: April 23, 1997
By: /s/ Robert S. Speizman
Robert S. Speizman, President
<PAGE>
[ BDO SEIDMAN, LLP LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Speizman Industries, Inc.
We have audited the accompanying consolidated balance sheets of SPEIZMAN
INDUSTRIES, INC. AND SUBSIDIARIES as of June 29, 1996 and July 1, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 29, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SPEIZMAN INDUSTRIES,
INC. AND SUBSIDIARIES at June 29, 1996 and July 1, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended June 29, 1996, in conformity with generally accepted accounting
principles.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Charlotte, North Carolina
September 10, 1996
F-1
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 29, July 1,
1996 1995
ASSETS
Current:
<S> <C> <C>
Cash and cash equivalents.................................... $ 7,981,723 $ 2,436,859
Accounts receivable (Notes 2 and 6).......................... 12,160,449 16,078,683
Inventories (Notes 3 and 6).................................. 11,639,552 13,428,014
Prepaid expenses and other current assets.................... 2,340,111 2,458,355
----------- -----------
TOTAL CURRENT ASSETS...................................... 34,121,835 34,401,911
---------- ----------
Property and Equipment : (Notes 4 and 7)
Leasehold improvements....................................... 550,684 543,874
Machinery and equipment...................................... 1,208,508 876,565
Furniture, fixtures and transportation equipment............. 1,218,570 834,187
----------- ------------
2,977,762 2,254,626
Less accumulated depreciation and amortization............... (1,525,058) (1,440,688)
------------- -----------
NET PROPERTY AND EQUIPMENT................................ 1,452,704 813,938
----------- -------------
Other .......................................................... 574,685 488,609
------------ ------------
$36,149,224 $35,704,458
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable............................................. $14,864,567 $15,056,927
Customers' deposits.......................................... 2,723,466 884,881
Accrued expenses............................................. 209,881 833,886
Current maturities of long-term debt (Note 7)................ 11,051 13,190
------------ --------------
TOTAL CURRENT LIABILITIES................................. 17,808,965 16,788,884
Long-Term Debt (Note 7).......................................... 137,334 133,629
------------ -------------
TOTAL LIABILITIES......................................... 17,946,299 16,922,513
---------- -----------
Commitments (Notes 4, 9, 11, 12 and 13)
Stockholders' Equity (Notes 8, 9 and 10):
Common Stock - par value $.10; authorized 6,000,000 shares;
issued 3,236,199 shares................................... 323,620 323,620
Additional paid-in capital................................... 12,459,965 12,459,965
Retained earnings............................................ 5,524,360 6,097,426
Foreign currency translation adjustment...................... (5,223) 731
------------- ----------------
Total..................................................... 18,302,722 18,881,742
Treasury stock, at cost, 27,600 common shares................ (99,797) (99,797)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY................................ 18,202,925 18,781,945
---------- ----------
$36,149,224 $35,704,458
========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-2
<PAGE>
[ZZ]
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
June 29, July 1, July 2,
1996 1995 1994
<S> <C> <C> <C>
NET REVENUES (Note 1)............... $46,279,969 $61,596,833 $69,525,581
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales.................... 40,546,962 53,986,242 60,003,901
Selling expenses................. 4,699,280 3,582,719 2,407,086
General and administrative
expenses...................... 1,878,193 1,894,915 1,942,375
---------- ---------- ---------
Total costs and expenses...... 47,124,435 59,463,876 64,353,362
----------- ---------- ----------
(844,466) 2,132,957 5,172,219
INTEREST (INCOME) EXPENSE, net of
interest income of $126,522,
$101,562 and $128,675............. (43,400) (14,858) 6,393
----------- --------- ---------
Income (loss) before taxes...... (801,066) 2,147,815 5,165,826
TAXES (BENEFIT) ON INCOME (Note 5).. (228,000) 854,000 1,869,000
---------- --------- ---------
NET INCOME (LOSS)................... (573,066) 1,293,815 3,296,826
Preferred stock dividends......... -- -- 40,735
---------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK..................... $ (573,066) $ 1,293,815 $ 3,256,091
=========== =========== ===========
NET INCOME (LOSS) PER SHARE........ $ (0.17) $ 0.40 $ 1.12
=========== =========== ===========
Weighted average number of common and
equivalent shares................... 3,283,828 3,271,464 2,904,525
=========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-3
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Common Common Paid-In Retained Translation
Stock Shares Stock Capital Earnings Adjustment
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 3, 1993....... $ 894,152 1,998,841 $ 199,884 $2,595,488 $1,547,520 -
Net income before preferred
stock dividend.......... - - - - 3,296,826 -
Preferred stock dividend.... - - - - (40,735) -
Redemption of preferred
stock.................... (894,152) - - - - -
Conversion of preferred stock
to common stock........ - 240,770 24,077 55,376 - -
Net proceeds of common
stock offering.......... - 864,609 86,461 9,163,885 - -
Exercise of stock options... - 130,729 13,073 174,841 - -
Tax effect of exercise of
stock options........... 466,000 -
-------- ------- --------- ----------- --------- -----------
BALANCE, JULY 2, 1994....... - 3,234,949 323,495 12,455,590 4,803,611 -
Net income................. - - - - 1,293,815 -
Exercise of stock options... - 1,250 125 4,375 - -
Foreign currency translation
adjustment.............. - - - - - 731
-------- --------- -------- --------- ----------- ----------
BALANCE, JULY 1, 1995 - 3,236,199 323,620 12,459,965 6,097,426 731
Net Loss.................... - - - - ( 573,066) -
Foreign currency translation
adjustment.............. - - - - - (5,954)
---------- ---------- -------- ---------- ----------- ---------
BALANCE, JUNE 29, 1996 $ 3,236,199 $ 323,620 $12,459,965 $5,524,360 $ (5,223)
=========== ========= ======= ========== ========= ========
</TABLE>
Treasury Stockholders'
Stock Equity
BALANCE, JULY 3, 1993....... $(99,797) $ 5,137,247
Net income before preferred
stock dividend.......... - 3,296,826
Preferred stock dividend.... - (40,735)
Redemption of preferred stock.... - (894,152)
Conversion of preferred stock
to common stock........ - 79,453
Net proceeds of common
stock offering.......... - 9,250,346
Exercise of stock options... - 187,914
Tax effect of exercise of
stock options........... - 466,000
----------- ------------
BALANCE, JULY 2, 1994....... (99,797) 17,482,899
Net income................. - 1,293,815
Exercise of stock options... - 4,500
Foreign currency translation
adjustment.............. - 731
------------ ----------
BALANCE, JULY 1, 1995 (99,797) 18,781,945
Net Loss............. - (573,066)
Foreign currency translation
adjustment.............. - (5,954)
----------- -----------
BALANCE, JUNE 29, 1996 $ (99,797) $18,202,925
========= ==========
See accompanying summary of accounting policies and notes
to consolidated financial statements.
F-4
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
------------------ ----------------- ------------------
June 29, July 1, July 2,
<S> <C> <C> <C>
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (573,066) $ 1,293,815 $ 3,296,826
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 173,336 166,965 193,133
Provision for losses on accounts receivables......... 113,500 171,477 17,850
Provision for inventory obsolescence................. 139,436 200,000 200,000
Provision for deferred income taxes.................. (58,000) (75,000) 109,000
Provision for deferred compensation.................. 6,782 (6) 28,788
Foreign currency translation adjustment.............. (5,954) 731 --
(Increase) decrease in:
Accounts receivable................................ 3,804,734 (1,079,970) (4,322,948)
Inventories....................................... 1,649,026 (6,331,178) (2,741,376)
Prepaid Expenses.................................. 159,244 (1,176,461 (554,615)
Other assets...................................... (69,076 43,662 (168,226)
Increase (decrease) in:
Accounts payable.................................. (192,360) 5,015,062 2,237,330
Accrued expenses and customers' deposits.......... 1,214,580 (623,547) (1,159,937)
--------- -------- -------------
Net cash provided by (used in) operating activities.. 6,362,182 (2,394,450) (2,864,175)
--------- ---------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - other equipment............... (511,039) (520,274) (102,723)
Capital expenditures - equipment leased to customers.. (648,620) -- --
Proceeds from property and equipment disposals........ 347,557 59,377 3,501
--------- -------- -------------
Net cash used in investing activities.............. (812,102) (460,897) (99,222)
--------- -------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on notes payable...................... -- -- (174,785)
Principal payments on long term debt.............. (5,216) (145,958) (734,800)
Net proceeds of common stock offering............. -- -- 9,250,346
Dividends on preferred stock...................... -- -- 40,735)
Redemption of preferred stock...................... -- -- (814,699)
Issuance of common stock upon exercise of stock
options............................................ -- 4,500 187,914
-------------- -------------- ----------
Net cash provided by (used in) financing
activities.................................... (5,216) (141,458) 7,673,241
-------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS....................................... 5,544,864 (2,996,805) 4,709,844
CASH AND CASH EQUIVALENTS, at beginning of year........ 2,436,859 5,433,664 723,820
--------- --------- -------------
CASH AND CASH EQUIVALENTS, at end of year.............. $7,981,723 $ 2,436,859 $ 5,433,664
========= ========= ============
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Speizman Industries, Inc. (the
"Company") include all of its subsidiaries, all of which are majority owned. All
material intercompany transactions (domestic and foreign) have been eliminated.
The financial statements of the Company's United Kingdom subsidiary are
translated from pounds sterling to U.S. dollars in accordance with generally
accepted accounting principles.
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, except that commissions receivable
over more than one year are recognized at their discounted present value. Total
sales commissions included in net revenues approximated $56,000, $286,000 and
$142,000 for the years ended June 29, 1996, July 1, 1995 and July 2, 1994,
respectively.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents. The carrying amount of cash and cash equivalents approximates
fair value because of 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 29, 1996, the
Company had contracts maturing through June 1997 to purchase approximately 17.7
billion Lira for approximately $11.5 million which approximates the spot rate on
that date.
TAXES ON INCOME
For fiscal years ended 1996, 1995 and 1994, the Company adopted the FAS
Statement No. 109, "Accounting for Income Taxes", which changes the liability
approach to calculating deferred income taxes set forth in Statement No. 96. The
impact of adopting the rules on the Company's financial statements was not
material.
INCOME PER SHARE
Income per share is computed on the weighted average number of common and
equivalent shares outstanding during the period. Common equivalent shares
include those common shares which would be issued upon the full conversion of
the outstanding convertible preferred stock and those common shares issuable
upon the exercise of the stock options, when dilutive, net of shares assumed to
have been repurchased with the proceeds.
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 29,
1996, July 1, 1995 and July 2, 1994 included 52 weeks.
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.
F-6
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," issued by the Financial Accounting Standards Board
(FASB), encourages the accounting for stock-based employee compensation programs
to be reported within the financial statements on a fair value based method;
however, it allows an entity to continue to measure compensation cost under
Accounting Principles Board Opinion ("APB") No. 25. If the Company elects to
retain the accounting under APB No. 25, then the standard requires pro forma
disclosure of the effect on net income and earnings per share as if the fair
value based method had been adopted. This pronouncement is effective for fiscal
years beginning after December 15, 1995. Implementation of this pronouncement
should have no material effect on the Company's financial statements.
F-7
<PAGE>
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
industry. With operations in the United States, Canada and the United Kingdom,
the Company primarily sells to customers located within the United States.
Export sales from the United States were approximately $7,196,000, $8,547,000
and $5,439,000 during fiscal 1996, 1995 and 1994, respectively. There were no
export sales by the Canadian operations. Sales of the Company's United Kingdom
subsidiary amounted to approximately $2,286,000 in 1996, essentially all of
which were to customers in the United Kingdom.
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: 46.2% in 1996, 44.4% in
1995 and 65.6% in 1994. In addition, sales of Santoni machines in the United
States and Canada generated 4.8%, 9.3% and 4.4% of the Company's net revenues in
fiscal 1996, 1995 and 1994, respectively. In 1996, approximately 9% and 6% of
revenues consisted of sales to the Company's two largest customers. In 1995,
approximately 7% and 5% of revenues consisted of sales to the Company's two
largest customers. In 1994, approximately 14% and 13% 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 29, 1996 July 1, 1995
Trade receivables........................ $12,420,405 $16,285,841
Less allowance for doubtful accounts..... ( 259,956) (207,158)
----------- -----------
Net accounts receivable.................. $12,160,449 $16,078,683
============ ===========
NOTE 3 -- INVENTORIES
Inventories are summarized as follows:
June 29, 1996 July 1, 1995
Machines
New............................. $ 1,645,825 $ 4,786,811
Used............................ 6,565,417 5,319,489
Parts and supplies................ 3,428,310 3,321,714
--------- -----------
Total $11,639,552 $13,428,014
=========== ===========
NOTE 4 -- LEASES
The Company conducts its operations from leased facilities which include
both offices and warehouses. Its primary operating facility is leased from a
partnership in which Mr. Robert S. Speizman, the Company's president, has a 50%
interest. The lease extends through March 1998. Lease payments to the
partnership approximated $323,000, $204,000 and $168,000 in fiscal years 1996,
1995 and 1994, respectively.
The Company leases furniture and fixtures under noncancelable capital
lease agreements which expire at various dates through 1998.
F-8
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Capitalized leases included in property and equipment are summarized as
follows:
June 29, 1996 July 1, 1995
Furniture, fixtures and transportation
equipment................................. $ 105,264 $ 145,006
Less accumulated amortization................ (89,037 (100,440)
--------- ---------
Net leased property........................... $ 16,227 $ 44,566
========= =========
As of June 29, 1996, future net minimum lease payments under capital
leases and future minimum rental payments required under operating leases that
have initial or remaining noncancelable terms in excess of one year are as
follows:
Capital Operating
Leases Leases
1997................................... $ 12,006 $ 499,894
1998................................... 2,181 127,964
1999.................................. -- 63,158
2000.................................. -- 17,139
2001.................................. -- 4,936
Beyond ............................... -- 14,809
----------- ---------
Total minimum lease payments....... $ 14,187 $ 727,900
Less amount representing interest... (1,366)
------------
Present value of net minimum lease
payments......................... 12,821
===========
Total rent expense for operating leases approximated $791,400, $515,800 and
$311,600 for fiscal years 1996, 1995 and 1994, respectively.
NOTE 5 -- TAXES ON INCOME
Provisions for federal and state income taxes in the consolidated
statements of operations are made up of the following components:
1996 1995 1994
---- ---- ----
Current:
Federal........................ $ (70,000) $ 673,000 $1,556,000
Foreign........................ (85,000) 74,000 --
State.......................... (15,000) 182,000 204,000
-------- ------- -------
(170,000) 929,000 1,760,000
-------- -------- ---------
Deferred:
Federal........................ (58,000) $ (54,000) $ 71,000
-- (21,000) 38,000
------- ------ ----------
State.......................... (58,000) (75,000) 109,000
--------- --------- ----------
Total taxes (benefit)on income. $ (228,000) 854,000 $1,869,000
========== ========= ==========
Deferred tax benefits and liabilities are provided for the temporary
differences between the book and tax bases of assets and liabilities. Deferred
tax assets (liabilities) are reflected in the consolidated balance sheets as
follows:
June 29, 1996 July 1, 1995
Net current assets.................. $436,000 $395,000
Net noncurrent liabities............. (22,000) (39,000)
--------- ---------
$414,000 $356,000
========= =========
F-9
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Principal items making up the deferred income tax (assets) liabilities
are as follows:
Year Ended
---------------------------
June 29, July 1,
1996 1995
Inventory valuation reserves............... $(191,000) $(225,000)
Depreciation............................... 78,000 98,000
Deferred charges........................... (69,000) (54,000)
Capitalized leases......................... (4,000) (5,000
Inventory capitalization................... (130,000) (91,000)
Accounts receivable reserves............... (97,000) (78,000)
Other...................................... (1,000) (1,000)
--------- ---------
Net deferred tax asset.................. $(414,000) $(356,000
========= =========
The Company's effective income tax rates were different than the U.S.
Federal statutory tax rate for the following reasons:
1996 1995 1994
---- ---- ----
U.S. Federal statutory tax rate.............. 34.0% 34.0% 34.0%
State income taxes, net of Federal
income tax benefit......................... 3.6 3.5 3.7
Non-deductible expenses...................... (5.3) 1.7 0.7
Foreign tax rates............................ (4.9) 1.2 -
Net tax effect of prior year adjustments..... 2.5 - -
Other........................................ (1.4) (0.6) (2.2)
----- ------- -----
Effective tax rate........................... 28.5% 39.8% 36.2%
==== ==== ====
NOTE 6 -- LINE OF CREDIT
The Company has a credit facility with NationsBank, expiring October
31, 1996. This facility provides $18.0 million including up to a maximum of $2.0
million for direct borrowings, with the balance available for the issuance of
documentary letters of credit. Amounts outstanding under the line of credit bear
interest at the greater of prime plus 1% or the Federal Funds Effective Rate
plus 1.5% for base rate loans and the 30, 60 or 90 day LIBOR rate plus 2.0% for
LIBOR 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. (See Note 13)
F-10
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
This credit facility contains certain covenants that require, among
other things, the Company to maintain levels of current assets to current
liabilities, total liabilities to net worth, working capital, tangible net worth
of $13,841,000, restrictions on dividends and certain fixed charge coverage. As
of June 29, 1996, the Company was in compliance with such covenants.
NOTE 7 -- LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
June 29, 1996 July 1, 1995
Total Current Total Current
<S> <C> <C> <C> <C>
Capital lease obligations (Note 4).... $ 12,821 $ 11,051 $ 16,037 $ 13,190
Other................................. 135,564 - 130,782 -
--------- --------- --------- -----------
Total................................. 148,385 $ 11,051 146,819 $ 13,190
=========== =========
Current maturities.................... (11,051) (13,190)
-------- ---------
$ 137,334 $ 133,629
======= =======
</TABLE>
Annual maturities of long-term debt are 1997, $11,051; 1998, $1,770;
1999, $0; 2000, $0; 2001, $0; thereafter, $135,564.
NOTE 8 -- STOCK OPTIONS
The Company has reserved 125,000, 250,000 and 145,000 shares of Common
Stock under three employee stock plans, adopted in 1981, 1991 and 1995,
respectively. As of June 29, 1996, options to purchase 11,522 shares under the
1981 Plan, 192,070 shares under the 1991 Plan, and 130,500 shares under the 1995
Plan were outstanding. Each option granted under the Plans becomes exercisable
in cumulative increments of 20%, 50%, 80% and 100% on the first, second, third
and fourth anniversaries of the date of grant, respectively, and 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 from the date of the grant. 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 1996, 1995 and 1994 follows:
Year Ended
---------- -------- ----------
June 29, July 1, July 2,
1996 1995 1994
Shares under option, beginning of year ... 150,429 124,957 255,686
Options granted........................... 183,663 29,722 --
Options exercised......................... -- (1,250) (130,729)
Options expired........................... -- (3,000) --
------- ------- --------
Shares under option, end of year.......... 334,092 150,429 124,957
======= ======= =======
Options exercisable....................... 117,086 78,521 16,464
======= ======= =======
Prices of options exercised............... -- $ .75 to $ .75 to
-- $1.875 $3.1625
Prices of options outstanding, end of
year.................................. $ .75,to $ .75 to $ .75 to
$5.50 $5.50 $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 3,000 shares were granted and
outstanding at the end of the year at a price of $2.875.
F-11
<PAGE>
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9 -- STOCK REDEMPTION AGREEMENTS
The Company has an agreement with its principal holder 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.
At June 29, 1996, there were 584,932 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 10 -- PREFERRED STOCK
During the fiscal year ended July 2, 1994, all of the Company's 5%
Non-Voting Preferred Stock was redeemed and all of the Company's 5% Non-Voting
Senior Convertible Preferred was converted into common stock.
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
$53,885, $43,885 and $72,673 for the fiscal years 1996, 1995 and 1994,
respectively.
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 25% of each employee's contribution up to 4%
of pretax eligible compensation. The Company's matching contributions totaled
approximately $21,000, $17,000 and $13,000 in fiscal years 1996, 1995 and 1994,
respectively.
F-12
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company had outstanding commitments backed by letters of credit of
approximately $13,244,000 and $8,916,000 at June 29, 1996 and July 1, 1995,
respectively, relating to the purchase of machine inventory for delivery to
customers.
The Company has not obtained product liability insurance to date due to
the prohibitive cost of such insurance. The nature and extent of distributor
liability for product defects is uncertain. The Company has not engaged in
manufacturing activities since 1990, and management presently believes that
there is no material risk of loss to the Company from product liability claims
against the Company as a distributor.
NOTE 14 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Year Ended
------------------ ----------------- ---------
June 29, July 1, July 2,
1996 1995 1994
Cash paid during year for:
Interest.................. $81,578 $86,704 $135,068
Income taxes.............. 120,086 524,464 2,079,097
F-13
<PAGE>
[BDO SEIDMAN, LLP LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SPEIZMAN INDUSTRIES, INC.
The audits referred to in our report dated September 10, 1996, 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.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Charlotte, North Carolina
September 10, 1996
S-1
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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
- ----------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Fiscal year ended July 2, 1994:
Reserve for doubtful accounts .... $127,561 $ 17,580 $ -- $ 75,440 $ 69,701
-------- -------- --------- -------- --------
Reserve for inventory obsolescence $623,145 $200,000 $ -- $212,114 $611,031
-------- -------- --------- -------- --------
Fiscal year ended July 1, 1995:
Reserve for doubtful accounts .... $ 69,701 $171,477 $ -- $ 34,020 $207,158
-------- -------- --------- -------- --------
Reserve for inventory obsolescence $611,031 $200,000 $ -- $215,041 $595,990
-------- -------- --------- -------- --------
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
-------- -------- --------- -------- --------
</TABLE>
S-2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> JUN-29-1996
<CASH> 7,981,723
<SECURITIES> 0
<RECEIVABLES> 12,076,832
<ALLOWANCES> 259,956
<INVENTORY> 11,639,552
<CURRENT-ASSETS> 34,121,835
<PP&E> 2,977,762
<DEPRECIATION> 1,525,058
<TOTAL-ASSETS> 36,149,224
<CURRENT-LIABILITIES> 17,808,965
<BONDS> 0
0
0
<COMMON> 323,620
<OTHER-SE> 17,879,305
<TOTAL-LIABILITY-AND-EQUITY> 36,149,224
<SALES> 46,279,969
<TOTAL-REVENUES> 46,279,969
<CGS> 40,546,962
<TOTAL-COSTS> 47,124,435
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (43,400)
<INCOME-PRETAX> (801,066)
<INCOME-TAX> (228,000)
<INCOME-CONTINUING> (573,066)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (573,066)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
