-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GZjSfaRZwWx31Ev0U9WRjEHcae3KVZnRXU0zj+Me4A8v+UV8qyM0gEVxaGjz5Gzm fqtq9UfgO/mfPWanFDYeuQ== 0000950168-97-001052.txt : 19970425 0000950168-97-001052.hdr.sgml : 19970425 ACCESSION NUMBER: 0000950168-97-001052 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19970424 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPEIZMAN INDUSTRIES INC CENTRAL INDEX KEY: 0000092827 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 560901212 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-08544 FILM NUMBER: 97586481 BUSINESS ADDRESS: STREET 1: 508 W. 5TH STREET CITY: CHARLOTTE STATE: NC ZIP: 28231 BUSINESS PHONE: 7043723751 MAIL ADDRESS: STREET 1: 508 W. 5TH STREET CITY: CHARLOTTE STATE: NC ZIP: 28231 10-K/A 1 SPEIZMAN INDUSTRIES 10-K/A ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - ----------------------------------------------------------------------- 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. ============================================================================== (Exact name of registrant as specified in its charter) DELAWARE 56-0901212 - -------------------------------------------------------- ----------------- (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification No.) 508 West Fifth Street, Charlotte, North Carolina 28202 - -------------------------------------------------------- -------------- (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. 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 1 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:
Manufacturer Machine Territory 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
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. 2 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 3 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. 4 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.
Fiscal Year Ended ------------------------------------------------------------------- June 29, July 1, July 2, July 3, June 27, 1996 1995 1994 1993 1992 (IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA) 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
(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. 5 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 6 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. 7 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. 8 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 [ 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 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 29, July 1, 1996 1995 ASSETS Current: 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 ========== ===========
See accompanying summary of accounting policies and notes to consolidated financial statements. F-2 [ZZ] SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 29, July 1, July 2, 1996 1995 1994 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 =========== =========== ===========
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 Preferred Common Common Paid-In Retained Translation Stock Shares Stock Capital Earnings Adjustment 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) =========== ========= ======= ========== ========= ========
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 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended ------------------ ----------------- ------------------ June 29, July 1, July 2, 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 ========= ========= ============
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. (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 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 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 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 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 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:
June 29, 1996 July 1, 1995 Total Current Total Current 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 ======= =======
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 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 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 [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 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 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 -------- -------- --------- -------- --------
S-2 EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR JUN-29-1996 JUN-29-1996 7,981,723 0 12,076,832 259,956 11,639,552 34,121,835 2,977,762 1,525,058 36,149,224 17,808,965 0 0 0 323,620 17,879,305 36,149,224 46,279,969 46,279,969 40,546,962 47,124,435 0 0 (43,400) (801,066) (228,000) (573,066) 0 0 0 (573,066) (0.17) (0.17)
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