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 May 28, 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
--- ---.
2,105,611 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 June 26, 1995.
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CONCORD FABRICS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 28, 1995
INDEX Page Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations -
Thirty-Nine Weeks Ended May 28, 1995
(Unaudited) and May 29, 1994 (Unaudited) 3
Consolidated Balance Sheets - May 28,
1995 (Unaudited), and August 28, 1994 (Derived
from Audited Financial Statements) and
May 29, 1994 (Unaudited) 4-5
Consolidated Statements of Cash Flows
Thirty-Nine Weeks Ended May 28, 1995
(Unaudited) and May 29, 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 Thirty-Nine Weeks Ended For the Thirteen Weeks Ended
------------------------------- ----------------------------
May 28, May 29, May 28, May 29,
1995 1994 1995 1994
------------ ------------ ----------- -----------
Net Sales ..................... $139,092,222 $144,549,144 $43,911,119 $56,375,826
------------ ------------ ----------- -----------
Cost of Sales ................. 109,671,333 108,892,413 34,246,238 42,328,248
Merchandising Expenses ........ 7,968,963 7,566,558 2,631,988 2,869,646
Selling and Shipping Expenses . 9,867,681 9,662,722 3,284,739 3,808,492
General and Administrative
Expenses ................... 10,256,774 10,231,127 3,426,870 3,651,184
Interest Expense (Net) ........ 1,793,951 1,269,236 634,957 458,462
Gain on disposal of Chino
machinery and equipment .... -0- (1,420,606) -0- -0-
------------- ------------- ----------- -----------
Total ................... $139,558,702 $136,201,450 $44,224,792 $53,116,032
------------- ------------- ----------- -----------
Earnings (Loss) before income
taxes and extraordinary item (466,480) 8,347,694 (313,673) 3,259,794
Income tax provision (credit) . (119,000) 3,293,000 (98,000) 1,289,000
------------- ------------ ----------- -----------
Earnings (Loss) before extra-
ordinary item .............. (347,480) 5,054,694 (215,673) 1,970,794
Extraordinary item net of
income tax credit (Note D) . (297,266) -0- -0- -0-
------------- ------------ ------------ -----------
Net Earnings (Loss) ........... ($644,746) $ 5,054,694 ($215,673) $ 1,970,794
============= ============ ============ ===========
Net Earnings (Loss) per common
share before extraordinary
item ....................... ($.10) $1.42 ($.06) $.55
Extraordinary item ............ (.08) -0- -0- -0-
------------- ------------ ------------ -----------
Net Earnings (Loss) per Common
Share ...................... ($.18) $1.42 ($.06) $.55
============= ============ ============ ===========
Number of shares used in computing
earnings per Common Share .. 3,604,416 3,566,596 3,608,125 3,569,664
============= ============ ============ ===========
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
May 28, Audited May 29,
1995 Financial 1994
A S S E T S (Unaudited) Statements) (Unaudited)
- ----------- ------------ ------------ ------------
Current Assets:
Cash .......................... $ 1,289,536 $ 1,577,382 $ 814,533
Temporary cash investments (at cost
which approximates market) 1,600,000 -0- -0-
Income tax refund receivable .. 1,070,372 -0- -0-
Accounts receivable (less
estimated doubtful accounts
of $3,125,000 on May 28,
1995, $2,175,000 on August 28,
1994, and $2,696,000 on
May 29, 1994) .............. 32,569,811 34,999,162 44,276,428
Inventories (Note B) .......... 31,219,863 31,084,560 29,942,366
Prepaid expenses and other
current assets .............. 2,061,513 2,556,929 2,144,832
Deferred income taxes ......... 1,631,000 1,923,000 1,304,000
----------- ----------- -----------
Total Current Assets .......... $71,442,095 $72,141,033 $78,482,159
Property, plant and equipment
(at cost, less depreciation
and amortization of
$7,399,595 on May 28,
1995, $6,101,858 on August 28,
1994, and $6,732,871 on
May 29, 1994) ................. 10,250,041 8,880,287 7,721,218
Property and plant leased to others 2,231,572 2,345,692 2,383,730
Deferred income taxes ............ 32,000 -0- -0-
Other assets ..................... 2,146,367 1,528,493 1,543,416
----------- ----------- -----------
T O T A L .................. $86,102,075 $84,895,505 $90,130,523
=========== =========== ===========
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
May 28, Audited May 29,
1995 Financial 1994
L I A B I L I T I E S (Unaudited) Statements) (Unaudited)
- --------------------- ------------ ------------ ------------
Current Liabilities:
Notes payable - banks
(Note C) ................... $ 8,000,000 $ 9,600,000 $15,000,000
Notes payable - insurance
company (current portion)
(Note D) ................... -0- 1,500,000 1,500,000
Accounts payable .............. 11,464,655 15,190,783 15,049,008
Accrued expenses and taxes .... 4,208,945 7,011,810 7,401,903
Income taxes payable .......... -0- 992,637 443,025
------------ ------------ ------------
Total Current Liabilities ..... $23,673,600 $34,295,230 $39,393,936
Notes payable - insurance
company (Note D) .............. 20,000,000 7,500,000 9,000,000
Deferred income taxes ............ -0- 75,000 206,000
Other liabilities ................ 331,149 301,953 290,275
------------ ------------ ------------
Total Liabilities ............. $44,004,749 $42,172,183 $48,890,211
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 2,099,361 shares at
May 28, 1995, 2,093,111
shares August 28, 1994
and 2,050,211 shares at
May 29, 1994. .............. 1,049,680 1,046,555 1,025,105
Class B - $.50 par value
authorized 4,000,000 shares,
issued 1,509,451 shares at
May 28, 1995, 1,509,451
shares at August 28, 1994
and 1,521,101 shares at
May 29, 1994. .............. 754,726 754,726 760,551
Additional paid-in capital ....... 9,047,260 9,031,635 8,953,510
Retained earnings ................ 31,245,660 31,890,406 30,501,146
----------- ----------- -----------
Total Stockholders' Equity .... $42,097,326 $42,723,322 $41,240,312
----------- ----------- -----------
T O T A L .................. $86,102,075 $84,895,505 $90,130,523
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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 Thirty-Nine Weeks Ended
--------------------------------
May 28, May 29,
1995 1994
Cash flows from operating activities: ------------ ------------
Net earnings (loss) ............................. ($644,746) $ 5,054,694
Adjustments to reconcile net earnings (loss) to net
cash (used in) operating activities:
Depreciation and amortization ............. 1,411,857 1,258,803
Deferred income tax ....................... 185,000 483,000
Provision for doubtful accounts ........... 945,000 850,000
Gain on disposal of Chino machinery and
equipment ................................. -0- (1,420,606)
Changes in assets:
Decrease (increase) in:
Accounts receivable ................. 1,484,351 (6,728,598)
Inventories ......................... (135,303) (8,128,254)
Income tax refunds receivable ....... (1,070,372) -0-
Prepaid expenses and other
current assets .................... 495,416 658,671
Other assets ........................ (617,874) (466,937)
Changes in liabilities:
Increase (decrease) in:
Accounts payable .................... (3,726,128) 3,790,892
Accrued expenses and taxes .......... (2,802,865) (354,198)
Income taxes payable ................ (992,637) 11,129
Other liabilities ................... 29,196 26,250
------------ ------------
Net cash (used in) operating activities: ........ (5,439,105) (4,965,154)
Cash flows from investing activity:
Purchases of property, plant, and equipment ..... (2,667,491) (1,281,770)
Proceeds of sale of Chino machinery and equipment -0- 2,000,000
Purchase of 100% of the capital stock of Kat-Em
International, Inc. ............................. -0- (1,263,549)
------------ ------------
Net cash (used in) investing activities: ........ (2,667,491) (545,319)
Cash flows from financing activities:
Increase (decrease) in notes payable - bank ..... (1,600,000) 4,200,000
Sale of common stock (stock option exercised) ... 18,750 18,750
Increase in notes payable - insurance company (net) 11,000,000 -0-
------------ ------------
Net cash provided by financing activities: ...... 9,418,750 4,218,750
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,312,154 (1,291,723)
------------ ------------
Cash and cash equivalents - beginning of period .... 1,577,382 2,106,256
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD .......... $ 2,889,536 $ 814,533
============ ============
The attached notes are made a part hereof.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT MAY 28, 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 thirty-nine
weeks ended May 28, 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:
May 28, August 28, May 29,
1995 1994 1994
------------ ----------- ------------
Finished goods......... $17,561,047 $14,295,989 $15,234,130
Work-in-process........ 4,148,064 5,544,442 5,294,480
Greige goods and yarn.. 9,510,752 11,244,129 9,413,756
------------ ----------- ------------
Total............... $31,219,863 $31,084,560 $29,942,366
============ =========== ============
The foregoing inventory amounts at May 28, 1995 and May 29, 1994 were determined
from perpetual inventory records maintained by Registrant.
Note C - Notes Payable - Banks:
At May 28, 1995, Registrant had total unused bank lines of credit aggregating
$12,000,000; bank debt was $8,000,000. 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 $1,757,000 of letters
of credit outstanding at May 28, 1995 for merchandise scheduled for future
delivery.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT MAY 28, 1995
(Unaudited)
Continued
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 approximately $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 May 28, 1995.
Note E - Purchase Commitments:
At May 28, 1995, Registrant had outstanding commitments to purchase greige goods
aggregating $11,400,000. At May 29, 1994 outstanding purchase commitments were
approximately $14,900,000.
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.
(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.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT MAY 28, 1995
(Unaudited)
Continued
(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 thirty-nine weeks ended May 28, 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
Thirty-Nine Weeks ended
May 28, 1995:
Granted -0- -0- -0-
Exercised* ................ -0- (6,250) (18,750)
------- -------- ---------
Balance - May 28, 1995 ....... 340,000 116,250 $413,750
======= ======== =========
*The $15,625 excess of the exercise price over the par value of the Class A
common stock issued has been credited to additional paid-in capital.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT MAY 28, 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 thirty-nine weeks ended
May 29, 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 thirty-nine and
thirteen week periods ended May 29, 1994 as if the acquisition of Kat-Em
occurred at the beginning of the thirty-nine week period ended May 29, 1994 are
as follows:
Thirty-Nine Thirteen
Weeks Ended Weeks Ended
May 29, May 29,
1994 1994
------------ ------------
Net Sales ......................... $158,347,000 $60,795,000
Net Earnings ...................... $5,182,000 $1,978,000
Earnings per share ................ $1.45 $.55
Proforma adjustments comprise interest on indebtedness to finance the
acquisition and employment compensation arrangements.
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CONCORD FABRICS INC. AND SUBSIDIARIES
MAY 28, 1995
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OPERATIONS - Thirty-Nine Weeks Ended May 28, 1995 Compared With Thirty-Nine
Weeks Ended May 29, 1994.
Fabric sales decreased by 3.8%. Without Kat-Em sales would have declined by
13.7%. Yardage sold decreased by 3.1% but without Kat-Em's contribution yardage
sold would have declined by 11.9%. The average selling price decreased by less
than 1%.
Gross profit margin decreased from 24.7% in fiscal 1994 to 21.2% in fiscal 1995
primarily due to higher raw material costs, poor plant performance and a less
favorable product mix.
Interest expense increased by 41.3% 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 $466,000 for the first thirty-nine weeks of fiscal
1995 compared with pre-tax earnings of $8,348,000 for the first thirty-nine
weeks of fiscal 1994. The reversal 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 $645,000
for 1995 and net earnings were $5,055,000 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 which began to improve in April
to help stabilize margins in the fourth quarter of fiscal 1995.
OPERATIONS - Thirteen Weeks Ended May 28, 1995 Compared With Thirteen Weeks
Ended May 29, 1994.
Fabric sales decreased by 22.1%. Without Kat-Em sales would have decreased by
28.5%. Yardage sold decreased 19.7% but without Kat-Em's contribution the
decrease would have been 25.5%. The average selling price decreased by 3%.
Gross profit margin decreased from 24.9% in fiscal 1994 to 22% in fiscal 1995
due to higher raw material costs, poor plant performance and a less favorable
product mix.
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CONCORD FABRICS INC. AND SUBSIDIARIES
MAY 28, 1995
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Continued
Selling and shipping expenses decreased by 13.8% due primarily to the decrease
in sales.
Interest expense increased by 38.5% 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 $314,000 for the third quarter of fiscal 1995
compared with pre-tax earnings of $3,260,000 for the third quarter of fiscal
1994. The reversal resulted from poor gross margins in the solid woven fabric
business, part of which was attributed to manufacturing inefficiencies, losses
generated by the Kat-Em International, Inc. subsidiary and reduced sales. Net
loss was $216,000 for 1995 and net earnings were $1,971,000 for 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the thirty-nine weeks of fiscal 1995, Registrant's operations required
the use of $5,439,000 cash due to the working capital requirements of the Kat-Em
subsidiary; cash was provided by increased long term debt (see Note D).
$2,667,000 was used to acquire machinery and equipment. Cash and cash
equivalents increased by $1,312,000 during the period. Working capital for the
thirty-nine weeks ended May 28, 1995 increased $9,923,000 but would have shown a
decrease of $1,077,000 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 thirty-nine
weeks ended May 28, 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: July 5, 1995 By /s/ Earl Kramer
Earl Kramer
President and Chief Executive
Officer
Date: July 5, 1995 By /s/ Martin Wolfson
Martin Wolfson
Senior Vice President-Treasurer
Chief Financial Officer
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