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
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:
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.
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
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.
DISCONTINUED OPERATION
During fiscal 1996, management decided to discontinue the operations of the Company's CopyGuard Division, which was in the development stage. CopyGuard was developing a computer-generated matrix to invisibly mark garments to prevent counterfeiting. However, its continuing cash funding 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. Consequently, in the third fiscal quarter of fiscal 1996, management elected to cease all CopyGuard operations, write off all assets of the CopyGuard Division and provide for any remaining expenses. The loss on disposal of CopyGuard was $333,000, after income tax benefits, or approximately $0.10 per share of outstanding common stock. Costs incurred during fiscal year ended 1995 related to software development and were deferred.
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 2.
ITEM 2. PROPERTIES.
The Company's headquarters, in which its administrative offices, machinery rebuilding facilities and a substantial portion of its warehouse space are located, is in Charlotte, North Carolina in an approximately 89,000 square foot building that is leased from a partnership owned by Robert S. Speizman and his brother. The City of Charlotte has designated this building an "historic landmark," and, as a result, modifications to the building require prior approval of the Charlotte-Mecklenburg Historic Landmark Commission. The term of the lease extends to March 31, 1998. The annual rent thereunder was $168,400 from January 1, 1993 to March 31, 1995 and $311,500 from April 1995 through March 1996. Annual rent is $356,000 from April 1996 through March 1998. The Company also leases approximately 41,000 square feet of additional warehouse space for approximately $113,800 per year under a lease agreement that expires December 1997, approximately 20,000 square feet of additional warehouse space under a lease that expires September 1996 for an annual rental of $48,000, 45,000 square feet of additional warehouse space under a lease that expires in March 1998 for an annual rental of $112,000, and approximately 10,000 square feet of additional warehouse space on a month-to-month basis for $100 per month, all in Charlotte, North Carolina. The Company leases approximately 5,000 square feet of office and warehouse space in Hicksville, New York, for approximately $30,000 per year, under a lease expiring June 1997. The Company leases approximately 250 square feet of office space, in which the headquarters of its Canadian subsidiary are located, in Montreal, Canada, for approximately $315 per month. The Company leases approximately 2,500 square feet of office and warehouse space, in which the headquarters of its United Kingdom subsidiary are located, in Leicester, U.K., for approximately $1,700 per month under a lease that expires in 1998.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 1996.
EXECUTIVE OFFICERS OF REGISTRANt
The following table sets forth certain information regarding the executive officers of the Company:
Robert S. Speizman has served as President of the Company since November 1976. From 1969 to October 1976, Mr. Speizman served as Executive Vice President of the Company. Mr. Speizman has been a director of the Company since 1967 and Chairman of the Board of Directors since July 1987.
Josef Sklut has served as Vice President-Finance of the Company since 1978, as Secretary of the Company since 1977, as Treasurer of the Company since 1969 and as a director of the Company since 1977.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been included for quotation on the NASDAQ National Market System under the NASDAQ symbol "SPZN" since October 1993. The following table sets forth, for the periods indicated, the high and low sale prices as reported by the NASDAQ National Market System.
FISCAL 1995 HIGH LOW ---- --- First Quarter (ended October 1, 1994)...........$ 8.75 $ 6.00 Second Quarter (ended December 31, 1994)........ 6.50 3.22 Third Quarter (ended April 1, 1995)............. 5.38 3.38 Fourth Quarter (ended July 1, 1995)............. 6.75 4.25
FISCAL 1996 First Quarter (ended September 30, 1995) ....... 5.12 3.50 Second Quarter (ended December 30, 1995)........ 3.88 2.62 Third Quarter (ended March 30, 1996)............ 4.50 2.50 Fourth Quarter (ended June 29, 1996)............ 5.62 3.50
As of June 29, 1996, there were approximately 419 stockholders of record of the Common Stock.
The Company has never declared or paid any dividends on its Common Stock. On November 29, 1993, the Company purchased all of the 8,147 outstanding shares of its 5% noncumulative nonvoting preferred stock, par value $100 per share (the "5% Preferred Stock"), for $100.00 per share. Under the terms of the 5% Preferred Stock, the Company was obligated to pay a cash dividend of $5.00 per share in connection with this purchase. Consequently, on November 29, 1993, a dividend of $40,735 was paid to the former holders of the 5% Preferred Stock.
Future cash dividends, if any, will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, surplus, restrictive covenants in agreements to which the Company may be subject, general business conditions and such other factors as the Board of Directors may deem relevant. The Company's present credit facility contains certain financial and other covenants that could limit the Company's ability to pay cash dividends on its capital stock.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(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.
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.
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 $4.2 million in fiscal 1996 from $3.6 million in fiscal 1995, an increase of 16.3%. Major 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) FROM CONTINUING OPERATIONS. The provision for income taxes in fiscal 1996 is a tax benefit of $29,000 on the $269,000 loss from continuing operations, or 10.8% 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) FROM CONTINUING OPERATIONS. Net loss from continuing operations was $240,000 in fiscal 1996. This compares to net income of $1,294,000 in fiscal 1995.
LOSS FROM DISCONTINUED OPERATION. During the third quarter of fiscal 1996, management decided to discontinue the operations of the Company's CopyGuard Division which was in the development stage. CopyGuard was developing a computer-generated matrix to invisibly mark garments to prevent counterfeiting. However, its continuing cash funding 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. Consequently, in the third fiscal quarter of fiscal 1996, management elected to cease all CopyGuard operations, write off all assets of the CopyGuard Division and provide for any remaining expenses. The loss on CopyGuard operations was $55,000, after tax benefits. The loss on disposal of CopyGuard, after tax benefits, was $278,000. The combined loss on the discontinued operation was $333,000 or approximately $0.10 per share of outstanding common stock.
NET INCOME (LOSS). Net income applicable to common stock declined from $1.3 million in fiscal 1995 to a loss of $0.6 million. The 1996 loss is composed of $240,000 in losses from continuing operations and $333,000 in losses from discontinued operations. Net loss per share in fiscal 1996 was $0.17, composed of $0.07 from continuing operations and $0.10 from discontinued operations. These compare 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 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 7required $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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item 8 appear on Pages through and S-1 through S-2 of this Annual Report on Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to this Item 10 is set forth in part under the caption "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K and the remainder is set forth in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held November 14, 1996 (the "1996 Proxy Statement") under the sections captioned "Election of Directors," "Certain Information Regarding the Board of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934," which sections are incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The response to this Item 11 is set forth in the 1996 Proxy Statement under the section captioned "Executive Compensation and Related Information," which section, other than the subsections captioned "Report of the Compensation Committee and the Stock Option Committee on Executive Compensation" and "Comparative Performance Graph," is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this Item 12 is set forth in the 1996 Proxy Statement under the section captioned "Stock Ownership of Certain Beneficial Owners and Management," which section is incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this Item 13 is set forth in the 1996 Proxy Statement under the section captioned "Certain Transactions," which section is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are included as part of the Annual Report on Form 10-K:
3. EXHIBITS:
The Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately preceding such Exhibits, and are incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed no Forms 8-K in any of the months included in the fourth quarter of the Company's current fiscal year.
SIGNATURES
Pursuant to the requirements of Section 131 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SPEIZMAN INDUSTRIES, INC.
Date: September 25, 1996
By: /s/ Robert S. Speizman ---------------------- Robert S. Speizman, President
Pursuant to the requirements of the Securities Act of 1933, this has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
(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
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying summary of accounting policies and notes to consolidated financial statements.
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying summary of accounting policies and notes to consolidated financial statements.
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
See accompanying summary of accounting policies and notes to consolidated financial statements.
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying summary of accounting policies and notes to consolidated financial statements.
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.
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.
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.
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 applicable to continuing operations are made up of the following components:
1996 1995 1994 ---- ---- ----- Current: Federal ........................ $ 114,000 $ 673,000 $ 1,556,000 Foreign ........................ (85,000) 74,000 -- State .......................... -- 182,000 204,000 ----------- ----------- ----------- 29,000 929,000 1,760,000 ----------- ----------- ----------- Deferred: Federal ........................ (58,000) $ (54,000) $ 71,000 State .......................... -- (21,000) 38,000 ----------- ----------- ----------- (58,000) (75,000) 109,000 ----------- ----------- -----------
Total taxes (benefit) on income.... $ (29,000) $ 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 liabilities....... (22,000) (39,000) ----------- ---------
$ 414,000 $ 356,000 ======= =========
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 - 3.5 3.7 Non-deductible expenses.................................(15.8) 1.7 0.7
Foreign tax rates....................................... (14.5) 1.2 - Net tax effect of prior year adjustments................ 7.4 - - Other................................................... (0.3) (0.6) (2.2) ----- ------- ----- Effective tax rate...................................... 10.8% 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 14)
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:
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.
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.
NOTE 13 --DISCONTINUED OPERATION
During fiscal 1996, management decided to discontinue the operations of the Company's CopyGuard Division, which was in the development stage. CopyGuard was developing a computer-generated matrix to invisibly mark garments to prevent counterfeiting. However, its continuing cash funding 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. Consequently, in the third fiscal quarter of fiscal 1996, management elected to cease all CopyGuard operations, write off all assets of the CopyGuard Division and provide for any remaining expenses. The loss on disposal of CopyGuard was $333,000, after income tax benefits, or approximately $0.10 per share of outstanding common stock. Costs incurred during fiscal year ended 1995 related to software development and were deferred.
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 14 -- 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 15 -- 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
(BDO Seidman LLP letterhead appears here)
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 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
S-2
SPEIZMAN INDUSTRIES, INC. INDEX TO EXHIBITS
* Represents a management contract or compensatory plan or arrangement of the Registrant.