SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED February 26, 1995 COMMISSION FILE NUMBER 1-5960
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CONCORD FABRICS INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 13-5673758
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1359 Broadway, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 760-0300
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed 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 such filing
requirements for the past 90 days. Yes X No .
--- ---
2,093,111 shares of Registrant's Class A Common Stock, par value $.50 per share
and 1,509,451 shares of Registrant's Class B Common Stock, par value $.50 per
share were outstanding as of March 30, 1995.
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CONCORD FABRICS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 26, 1995
INDEX Page Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations -
Twenty-Six Weeks Ended February 26, 1995
(Unaudited) and February 27, 1994 (Unaudited) 3
Consolidated Balance Sheets - February 26,
1995 (Unaudited), and August 28, 1994 (Derived
from Audited Financial Statements) and
February 27, 1994 (Unaudited) 4-5
Consolidated Statements of Cash Flows
Twenty-Six Weeks Ended February 26, 1995
(Unaudited) and February 27, 1994 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
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Item 1. Financial Statements
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CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Note A)
For the Twenty-Six Weeks Ended For the Thirteen Weeks Ended
------------------------------- -----------------------------
February 26, February 27, February 26, February 27,
1995 1994 1995 1994
------------ ------------ ----------- -----------
Net Sales ..................... $95,181,103 $88,173,318 $46,670,809 $46,236,626
------------ ------------ ----------- -----------
Cost of Sales ................. 75,425,095 66,564,165 37,386,822 34,549,601
Merchandising Expenses ........ 5,336,975 4,696,912 2,731,249 2,398,521
Selling and Shipping Expenses . 6,582,942 5,854,230 3,275,439 3,123,363
General and Administrative
Expenses ................... 6,829,904 6,579,943 3,366,754 3,612,364
Interest Expense (Net) ........ 1,158,994 810,774 645,742 427,737
Gain on disposal of Chino
machinery and equipment .... -0- (1,420,606) -0- (1,420,606)
------------ ------------ ----------- ------------
Total ................... $95,333,910 $83,085,418 $47,406,006 $42,690,980
------------ ------------ ----------- ------------
Earnings (Loss) before income
taxes and extraordinary item (152,807) 5,087,900 (735,197) 3,545,646
Income tax provision (credit) . (21,000) 2,004,000 (263,000) 1,400,000
------------ ----------- ----------- -----------
Earnings (Loss) before extra-
ordinary item .............. (131,807) 3,083,900 (472,197) 2,145,646
Extraordinary item net of
income tax credit (Note D) . (297,266) -0- (297,266) -0-
------------ ----------- ----------- -----------
Net Earnings (Loss) ........... ($429,073) $ 3,083,900 ($769,463) $ 2,145,646
============ =========== =========== ===========
Net Earnings (Loss) per common
share before extraordinary
item ....................... ($.04) $.86 ($.13) $.60
Extraordinary item ............ ($.08) -0- ($.08) -0-
------------ ----------- ----------- -----------
Net Earnings (Loss) per Common
Share ...................... ($.12) $.86 ($.21) $.60
============ =========== =========== ===========
Number of shares used in computing
earnings per Common Share .. 3,602,562 3,565,062 3,602,562 3,565,062
============ =========== =========== ===========
Dividend per Common Share ..... NONE NONE NONE NONE
============ =========== =========== ===========
The attached notes are made a part hereof.
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CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Note A)
August 28,
1994
(Derived from
February 26, Audited February 27,
1995 Financial 1994
A S S E T S (Unaudited) Statements) (Unaudited)
- ----------- ------------ ------------ ------------
Current Assets:
Cash .......................... $ 1,385,421 $ 1,577,382 $ 2,392,558
Temporary cash investments (at cost
which approximates market) 600,000 -0- 3,000,000
Income tax refund receivable .. 898,211 -0- -0-
Accounts receivable (less
estimated doubtful accounts
of $2,805,000 on February 26,
1995, $2,175,000 on August 28,
1994, and $2,440,000 on
February 27, 1994) ......... 34,815,610 34,999,162 35,727,514
Inventories (Note B) .......... 30,284,320 31,084,560 24,894,543
Prepaid expenses and other
current assets .............. 1,841,496 2,556,929 2,138,665
Deferred income taxes ......... 1,634,000 1,923,000 1,304,000
----------- ----------- -----------
Total Current Assets .......... $71,459,058 $72,141,033 $69,457,280
Property, plant and equipment
(at cost, less depreciation
and amortization of
$6,948,125 on February 26,
1995, $6,101,858 on August 28,
1994, and $6,347,481 on
February 27, 1994) ............ 10,278,575 8,880,287 7,472,336
Property and plant leased to others 2,269,612 2,345,692 2,421,769
Deferred income taxes ............ 32,000 -0- -0-
Other assets ..................... 1,959,785 1,528,493 1,316,545
----------- ----------- -----------
T O T A L .................. $85,999,030 $84,895,505 $80,667,930
=========== =========== ===========
The attached notes are made a part hereof.
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CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Note A)
August 28,
1994
(Derived from
February 26, Audited February 27,
1995 Financial 1994
L I A B I L I T I E S (Unaudited) Statements) (Unaudited)
- --------------------- ------------ ------------ ------------
Current Liabilities:
Notes payable - banks
(Note C) ................... $ 9,000,000 $ 9,600,000 $11,600,000
Notes payable - insurance
company (current portion)
(Note D) ................... -0- 1,500,000 1,500,000
Accounts payable .............. 10,662,311 15,190,783 13,989,869
Accrued expenses and taxes .... 3,721,053 7,011,810 4,282,337
Income taxes payable .......... -0- 992,637 585,431
------------ ------------ ------------
Total Current Liabilities ..... $23,383,364 $34,295,230 $31,957,637
Notes payable - insurance
company (Note D) .............. 20,000,000 7,500,000 9,000,000
Deferred income taxes ............ -0- 75,000 178,000
Other liabilities ................ 321,417 301,953 281,525
------------ ------------ ------------
Total Liabilities ............. $43,704,781 $42,172,183 $41,417,162
Commitments and contingencies ------------ ------------ ------------
(Note E)
S T O C K H O L D E R S ' E Q U I T Y
Common stock: (Notes F & G)
Class A - $.50 par value
authorized 4,000,000 shares,
issued 2,093,111 shares at
February 26, 1995, 2,093,111
shares August 28, 1994
and 2,043,961 shares at
February 27, 1994. ......... 1,046,555 1,046,555 1,021,980
Class B - $.50 par value
authorized 4,000,000 shares,
issued 1,509,451 shares at
February 26, 1995, 1,509,451
shares at August 28, 1994
and 1,521,101 shares at
February 27, 1994. ......... 754,726 754,726 760,551
Additional paid-in capital ....... 9,031,635 9,031,635 8,937,885
Retained earnings ................ 31,461,333 31,890,406 28,530,352
----------- ----------- -----------
Total Stockholders' Equity .... $42,294,249 $42,723,322 $39,250,768
----------- ----------- -----------
T O T A L .................. $85,999,030 $84,895,505 $80,667,930
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The attached notes are made a part hereof. 5 of 14
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Note A)
For the Twenty-Six Weeks Ended
--------------------------------
February 26, February 27,
1995 1994
------------ ------------
Cash flows from operating activities:
Net earnings (loss) ............................ ($429,073) $3,083,900
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ............. 922,347 873,163
Deferred income tax ....................... 182,000 455,000
Provision for doubtful accounts ........... 630,000 600,000
Gain on disposal of Chino machinery and
equipment ................................. -0- (1,420,606)
Changes in assets:
Decrease (increase) in:
Accounts receivable ................. (446,448) 1,308,029
Inventories ......................... 800,240 (5,964,444)
Income tax refunds receivable ....... (898,211) -0-
Prepaid expenses and other
current assets .................... 715,433 518,695
Other assets ........................ (431,292) (240,066)
Changes in liabilities:
Increase (decrease) in:
Accounts payable .................... (4,528,472) 3,056,579
Accrued expenses and taxes .......... (3,290,757) (1,228,127)
Income taxes payable ................ (992,637) 153,535
Other liabilities ................... 19,464 17,500
----------- -----------
Net cash provided by (used in) operating
activities: .................................. (7,747,406) 1,213,158
----------- -----------
Cash flows from investing activities:
Purchases of property, plant, and equipment ..... (2,244,555) (726,856)
Proceeds of sale of Chino machinery and equipment -0- 2,000,000
----------- -----------
Net cash provided by (used in) investing activities (2,244,555) 1,273,144
----------- -----------
Cash flows from financing activities:
Increase (decrease) in notes payable - bank ..... (600,000) 800,000
Increase in notes payable - insurance company (net) 11,000,000 -0-
----------- -----------
Net cash provided by financing activities .......... 10,400,000 800,000
NET INCREASE IN CASH AND CASH EQUIVALENTS .......... 408,039 3,286,302
----------- -----------
Cash and cash equivalents - beginning of period .... 1,577,382 2,106,256
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD .......... $1,985,421 $5,392,558
=========== ===========
The attached notes are made a part hereof.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 26, 1995
(Unaudited)
Note A
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair representation have been included. Operating results for the twenty-six
weeks ended February 26, 1995 are not necessarily indicative of the results that
may be expected for the fiscal year ending September 3, 1995. These statements
should be read in conjunction with the financial statements and notes thereto
included in Registrant's annual report to shareholders and Form 10-K for the
fiscal year ended August 28, 1994.
Note B - Inventories:
Inventories are summarized by categories as follows:
February 26, August 28, February 27,
1995 1994 1994
------------ ----------- ------------
Finished goods......... $16,878,027 $14,295,989 $ 9,806,305
Work-in-process........ 4,707,098 5,544,442 4,303,510
Greige goods and yarn.. 8,699,195 11,244,129 10,784,728
------------ ----------- ------------
Total............... $30,284,320 $31,084,560 $24,894,543
============ =========== ============
The foregoing inventory amounts at February 26, 1995 and February 27, 1994 were
determined from perpetual inventory records maintained by Registrant.
Note C - Notes Payable - Banks:
At February 26, 1995, Registrant had total unused bank lines of credit
aggregating $11,000,000; bank debt was $9,000,000. Amounts borrowed are
generally due in 30 to 90 days. The line of credit arrangements are informal
and cancellable at the banks' option. Registrant is generally expected to
maintain average annual compensating bank balances in consideration of its
average annual bank borrowings. Registrant believes it has been in substantial
compliance with its arrangements and that withdrawal of bank balances is not
legally restricted.
A subsidiary of the Registrant had approximately $1,300,000 of letters
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 26, 1995
(Unaudited)
Continued
of credit outstanding at February 26, 1995 for merchandise scheduled for future
delivery.
Note D - Notes Payable - Insurance Company:
The loan from the Prudential Insurance Company of America, in the amount of
$9,000,000 was repaid on November 30, 1994. On that date Registrant obtained a
$20,000,000 loan from John Hancock Mutual Life Insurance Company. This
unsecured loan bears interest at 9.31% a per annum and is repayable in seven
equal annual installments commencing on November 30, 1998. A portion of the
loan proceeds was used to repay the $9,000,000 loan outstanding to the
Prudential Insurance Company of America and a prepayment penalty of $495,266
associated therewith. The prepayment penalty has been reported net of income
tax credit as an extraordinary item ($297,266).
The new loan agreement requires maintenance of certain financial ratios and
maintenance of tangible net worth of appoximately $36,000,000. The agreement
also prohibits the pledging of assets and restricts dividends and redemptions of
capital stock to $3,000,000 plus 50% of net earnings subsequent to August 28,
1994; the cumulative amount available for such payments aggregated approximately
$3,000,000 at February 26, 1995.
Note E - Purchase Commitments:
At February 26, 1995, Registrant had outstanding commitments to purchase greige
goods aggregating $13,400,000. At February 27, 1994 outstanding purchase
commitments were approximately $13,900,000.
Note F - Common Stock:
The Class A and Class B shares principally differ as follows:
(1) The Class A shares have a 15% dividend preference and a 10% liquidation
preference with respect to the Class B shares.
(2) Holders of Class A shares are entitled to one vote a share whereas holders
of Class B shares are entitled to ten votes a share.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 26, 1995
(Unaudited)
Continued
(3) Holders of Class A shares voting as a separate class are entitled to elect
25% of Registrant's directors and holders of Class A shares and Class B shares
voting together are entitled to elect the remaining directors.
(4) Class B shares are convertible into Class A shares on the basis of one
share of Class A shares for each share of Class B shares; Class A shares have
no conversion rights.
Note G - Stock Options:
Pursuant to an Incentive Program adopted on January 10, 1989, awards (as
defined) may be granted to key employees of the Registrant up to a maximum of
500,000 shares of the Registrant's Class A common stock.
On January 10, 1989, options to purchase an aggregate of 150,000 shares of the
Registrant's Class A common stock at $3 a share (fair market value at such date)
was granted to three employees. The options are exercisable in four annual
installments commencing January 10, 1994 and expire ten years from the date of
grant.
At March 1, 1994 an option to purchase 10,000 shares of the Registrant's Class A
common stock at $9.50 a share (fair market value at such date) was granted to an
employee. The option is exercisable to the extent of one-third after one year,
two-thirds after two years and in full after three years; the option expires
March 1, 1999.
Option activity for the twenty-six weeks ended February 26, 1995 is summarized
as follows:
Options Outstanding
-------------------
Shares Available Number of
for Grant Shares Amount
Balance - August 28, 1994 .... 340,000 122,500 $432,500
Twenty-Six Weeks ended
February 26, 1995:
Granted -0- -0- -0-
Exercised ................. -0- -0- -0-
------- -------- --------
Balance - February 26, 1995 .. 340,000 122,500 $432,500
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 26, 1995
(Unaudited)
Note H - Earnings (Loss) Per Share:
Earnings (loss) per share are computed by dividing net earnings by common shares
outstanding and common stock equivalents. Outstanding options did not have a
material dilutive effect on earnings per share for the twenty-six weeks ended
February 27, 1994.
Note I - Chino, California Facility:
In February 1994, the Registrant leased the land and building at the Chino
California facility for a five year period at an annual net rental of $297,000;
the lessee was also granted the option to purchase the land and building during
the lease period for $2,900,000.
Note J - Acquisition of a Kat-Em International,Inc.:
On April 18, 1994, the Registrant purchased all of the capital stock of Kat-Em
International, Inc. (Kat-Em) an importer of printed and solid finished fabrics
used in the apparel industry.
Proforma unaudited consolidated results of operations for the twenty-six and
thirteen week periods ended February 27, 1994 as if the acquisition of Kat-Em
occurred at the beginning of the twenty-six week period ended February 27, 1994
are as follows:
Twenty-Six Thirteen
Weeks Ended Weeks Ended
February 27, February 27,
1994 1994
------------ ------------
Net Sales .......................... $97,542,528 $49,812,836
Net Earnings ....................... $2,583,922 $1,695,668
Earnings per share ................. $.72 $.47
Proforma adjustments comprise interest on indebtedness to finance the
acquisition and employment compensation arrangements.
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CONCORD FABRICS INC. AND SUBSIDIARIES
FEBRUARY 26, 1995
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OPERATIONS - Twenty-Six Weeks Ended February 26, 1995 Compared With Twenty-Six
Weeks Ended February 27, 1994.
Fabric sales increased by 7.9%. Without Kat-Em sales would have declined by
4.8%. Yardage sold increased by 6.8% but without Kat-Em's contribution yardage
sold would have declined by 4.3%. The average selling price increased by
slightly more than 1%.
Gross profit margin decreased from 24.5% in fiscal 1994 to 20.8% in fiscal 1995
primarily due to higher raw material costs, poor plant performance and a less
favorable product mix.
Merchandising expenses increased by 13.6% due primarily to the acquisition of
Kat-Em.
Selling and shipping expenses increased 12.4% due primarily to the acquisition
of Kat-Em.
Interest expense increased by 42.9% due to higher short term interest rates and
increased borrowing to support the working capital requirements of Kat-Em.
There was a pre-tax loss of $153,000 for the first twenty-six weeks of fiscal
1995 compared with pre-tax earnings of $5,088,000 for the first twenty-six weeks
of fiscal 1994. This dramatic change resulted from poor gross margins in the
solid woven fabric business, part of which was attributed to manufacturing
inefficiencies, and to losses generated by the Kat-Em International, Inc.
subsidiary. The fiscal 1994 earnings included the gain from the disposal of
Registrant's Chino machinery and equipment of $1,421,000. Net loss was $429,000
for 1995 and net earnings were $3,084,000 for 1994. Registrant's 1995 net loss
included an extraordinary item (net of income tax credit) in the amount of
$297,000. Registrant believes that the Kat-Em acquisition has strategically
positioned it globally and will prove to be a contributor to future earnings.
Registrant expects its manufacturing efficiency to improve in the third quarter
of fiscal 1995.
Registrant believes that operating results will gradually improve in the second
half of fiscal 1995 but there is no assurance that this projection will be
realized.
OPERATIONS - Thirteen Weeks Ended February 26, 1995 Compared With Thirteen Weeks
Ended February 27, 1994.
Fabric sales increased by slightly less than 1%. Without Kat-Em sales would
have decreased by 13.2%. Yardage sold decreased by slighty more than 1% but
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CONCORD FABRICS INC. AND SUBSIDIARIES
FEBRUARY 26, 1995
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Continued
without Kat-Em's contribution the decrease would have been 14.6%. The average
selling price increased by 2.1%.
Gross profit margin decreased from 25.3% in fiscal 1994 to 19.9% in fiscal 1995
due to higher raw material costs, poor plant performance and a less favorable
product mix.
Merchandising expenses increased by 13.9% due primarily to the acquisition of
Kat-Em.
Interest expense increased by 51% due to higher short term interest rates and
increased borrowing to support the working capital requirements of Kat-Em.
There was a pre-tax loss of $735,000 for the second quarter of fiscal 1995
compared with pre-tax earnings of $3,546,000 for the second quarter of fiscal
1994. This dramatic change resulted from poor gross margins in the solid woven
fabric business, part of which was attributed to manufacturing inefficiencies,
and to losses generated by the Kat-Em International, Inc. subsidiary. The
fiscal 1994 earnings included the gain from the disposal of Registrant's Chino
machinery and equipment of $1,421,000. Net loss was $769,000 for 1995 and net
earnings were $2,146,000 for 1994. Registrant's 1995 net loss included an
extraordinary item (net of income tax credit) in the amount of $297,000.
LIQUIDITY AND CAPITAL RESOURCES
During the twenty-six weeks of fiscal 1995, Registrant's operations required the
use of $7,747,000 cash due to the working capital requirements of the Kat-Em
subsidiary; these were provided by increased long term debt (see Note D).
$2,245,000 was used to to acquire machinery and equipment. Cash and cash
equivalents increased by $408,000 during the period. Working capital for the
twenty-six weeks ended February 26, 1995 increased $10,230,000 but would have
shown a decrease of $770,000 if not for the increase in long term debt of
$11,000,000 (see Note D). Registrant expects its lines of credit and cash flow
from operations to be adequate to finance operations and meet its cash
requirements for the balance of fiscal 1995.
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CONCORD FABRICS INC. AND SUBSIDIARIES
FORM 10-Q
PART II
Item 6. Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits - None
(b) No report on Form 8-K was filed by
Registrant during the twenty-six
weeks ended February 26, 1995.
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CONCORD FABRICS INC. AND SUBSIDIARIES
--------------------------------------
SIGNATURES
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Pursuant to the requirements 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.
CONCORD FABRICS INC.
Registrant
Date: April 4, 1995 By /s/ Earl Kramer
Earl Kramer
President and Chief Executive
Officer
Date: April 4, 1995 By /s/ Martin Wolfson
Martin Wolfson
Senior Vice President-Treasurer
Principal Financial Officer
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