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 June 2, 1996 COMMISSION FILE NUMBER 1-5960
CONCORD FABRICS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-5673758
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1359 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 760-0300
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 .
2,121,906 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 July 1, 1996.
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CONCORD FABRICS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 2, 1996
INDEX Page Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations -
Thirty-Nine Weeks Ended June 2, 1996
(Unaudited) and May 28, 1995 (Unaudited) 3
Consolidated Balance Sheets - June 2,
1996 (Unaudited), and September 3, 1995 (Derived
from Audited Financial Statements) and
May 28, 1995 (Unaudited) 4-5
Consolidated Statements of Cash Flows -
Thirty-Nine Weeks Ended June 2, 1996
(Unaudited) and May 28, 1995 (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
--------------------
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Note A)
For the Thirty-Nine Weeks Ended For the Thirteen Weeks Ended
------------------------------- ----------------------------
June 2, May 28, June 2, May 28,
1996 1995 1996 1995
------------ ------------ ----------- -----------
Net Sales ..................... $110,938,359 $139,092,222 $37,475,161 $43,911,119
------------ ------------ ----------- -----------
Cost of Sales ................. 81,846,998 109,671,333 27,623,716 34,246,238
Merchandising Expenses ........ 7,509,889 7,968,963 2,391,927 2,631,988
Selling and Shipping Expenses . 9,300,785 9,867,681 3,121,792 3,284,739
General and Administrative
Expenses ................... 8,635,962 10,256,774 2,813,908 3,426,870
Interest Expense (Net) ........ 1,411,505 1,793,951 453,282 634,957
Restructuring Charge .......... 750,000 -0- 750,000 -0-
------------- ------------- ----------- -----------
Total ................... $109,455,139 $139,558,702 $37,154,625 $44,224,792
------------- ------------- ----------- -----------
Earnings (Loss) before income
taxes and extraordinary item 1,483,220 (466,480) 320,536 (313,673)
Income tax provision (credit) . 733,000 (119,000) 185,000 (98,000)
------------- ------------ ----------- -----------
Earnings (Loss) before extra-
ordinary item .............. 750,220 (347,480) 135,536 (215,673)
Extraordinary item net of
income tax credit (Note D) . -0- (297,266) -0- -0-
------------- ------------ ------------ -----------
Net Earnings (Loss) ........... $ 750,220 ($644,746) $ 135,536 ($215,673)
============= ============ ============ ===========
Net Earnings (Loss) per common
share before extraordinary
item ....................... $.21 ($.10) $.04 ($.06)
Extraordinary item ............ -0- (.08) -0- -0-
------------- ------------ ------------ -----------
Net Earnings (Loss) per Common
Share ...................... $.21 ($.18) $.04 ($.06)
============= ============ ============ ===========
Number of shares used in computing
earnings per Common Share .. 3,625,591 3,604,416 3,627,442 3,608,125
============= ============ ============ ===========
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)
September 3,
1995
(Derived from
June 2, Audited May 28,
1996 Financial 1995
A S S E T S (Unaudited) Statements) (Unaudited)
- ----------- ------------ ------------ ------------
Current Assets:
Cash .......................... $ 1,160,574 $ 2,362,119 $ 1,289,536
Temporary cash investments (at cost
which approximates market) . 800,000 -0- 1,600,000
Income tax refund receivable .. 146,889 2,051,000 1,070,372
Accounts receivable (less
estimated doubtful accounts
of $1,855,000 on June 2,
1996, $1,225,000 on September 3,
1995, and $3,125,000 on
May 28, 1995) .............. 28,817,907 27,909,706 32,569,811
Inventories (Note B) .......... 23,161,402 24,071,426 31,219,863
Prepaid expenses and other
current assets .............. 1,496,943 2,352,403 2,061,513
Deferred income taxes ......... 2,099,000 2,172,000 1,631,000
----------- ----------- -----------
Total Current Assets .......... $57,682,715 $60,918,654 $71,442,095
Property, plant and equipment
(at cost, less depreciation
and amortization of
$6,055,687 on June 2,
1996, $5,101,597 on September 3,
1995, and $7,399,595 on
May 28, 1995) ................. 8,257,505 8,153,913 10,250,041
Property and plant leased to others 2,079,412 2,193,532 2,231,572
Property, plant, & equipment held for sale -
at estimated disposal value ... 2,343,673 3,000,000 -0-
Deferred income taxes ............ -0- -0- 32,000
Other assets ..................... 2,420,197 2,379,826 2,146,367
----------- ----------- -----------
T O T A L .................. $72,783,502 $76,645,925 $86,102,075
=========== =========== ===========
The attached notes are made a part hereof.
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CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Note A)
September 3,
1995
(Derived from
June 2, Audited May 28,
1996 Financial 1995
L I A B I L I T I E S (Unaudited) Statements) (Unaudited)
- --------------------- ------------ ------------ ------------
Current Liabilities:
Notes payable - banks
(Note C) ................... $ -0- $ 2,000,000 $ 8,000,000
Accounts payable .............. 8,178,323 8,923,439 11,464,655
Accrued expenses and taxes .... 3,408,662 5,370,075 4,208,945
------------ ------------ ------------
Total Current Liabilities ..... $11,586,985 $16,293,514 $23,673,600
Notes payable - insurance
company (Note D) .............. 20,000,000 20,000,000 20,000,000
Deferred income taxes ............ 214,000 214,000 -0-
Other liabilities ................ 406,090 361,090 331,149
------------ ------------ ------------
Total Liabilities ............. $32,207,075 $36,868,604 $44,004,749
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 2,121,906 shares at
June 2, 1996, 2,105,611
shares September 3, 1995
and 2,099,361 shares at
May 28, 1995. .............. 1,060,953 1,052,805 1,049,680
Class B - $.50 par value
authorized 4,000,000 shares,
issued 1,509,451 shares at
June 2, 1996, 1,509,451
shares at September 3, 1995
and 1,509,451 shares at
May 28, 1995. .............. 754,726 754,726 754,726
Additional paid-in capital ....... 9,103,623 9,062,885 9,047,260
Retained earnings ................ 29,657,125 28,906,905 31,245,660
----------- ----------- -----------
Total Stockholders' Equity .... $40,576,427 $39,777,321 $42,097,326
----------- ----------- -----------
T O T A L .................. $72,783,502 $76,645,925 $86,102,075
=========== =========== ===========
The attached notes are made a part hereof.
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CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Note A)
For the Thirty-Nine Weeks Ended
--------------------------------
June 2, May 28,
1996 1995
Cash flows from operating activities: ------------ ------------
Net earnings (loss) ............................. $ 750,220 ($644,746)
Adjustments to reconcile net earnings (loss) to net
cash (used in) operating activities:
Depreciation and amortization ............. 1,068,210 1,411,857
Deferred income tax ....................... 73,000 185,000
Provision for doubtful accounts ........... 630,000 945,000
Changes in assets:
Decrease (increase) in:
Accounts receivable ................. (1,538,201) 1,484,351
Inventories ......................... 910,024 (135,303)
Income tax refunds receivable ....... 1,904,111 (1,070,372)
Prepaid expenses and other
current assets .................... 855,460 495,416
Other assets ........................ (40,371) (617,874)
Changes in liabilities:
Increase (decrease) in:
Accounts payable .................... (745,116) (3,726,128)
Accrued expenses and taxes .......... (1,961,413) (2,802,865)
Income taxes payable ................ -0- (992,637)
Other liabilities ................... 45,000 29,196
------------ ------------
Net cash provided by (used in) investing activities: 1,950,924 (5,439,105)
Cash flows from investing activity:
Purchases of property, plant, and equipment ..... (1,057,682) (2,667,491)
Proceeds of sale of Washington Plant machinery
and equipment ................................. 656,327 -0-
------------ ------------
Net cash (used in) investing activities: ........... (401,355) (2,667,491)
Cash flows from financing activities:
(Decrease) in notes payable - bank .............. (2,000,000) (1,600,000)
Sale of common stock (stock options exercised) .. 48,886 18,750
Increase in notes payable - insurance company (net) -0- 11,000,000
------------ ------------
Net cash provided by (used in) financing activities: (1,951,114) 9,418,750
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (401,545) 1,312,154
------------ ------------
Cash and cash equivalents - beginning of period .... 2,362,119 1,577,382
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD .......... $ 1,960,574 $ 2,889,536
============ ============
The attached notes are made a part hereof.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT JUNE 2, 1996
(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 June 2, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending
September 1, 1996. 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 September 3, 1995.
Note B - Inventories:
Inventories are summarized by categories as follows:
June 2, September 3, May 28,
1996 1995 1995
------------ ----------- ------------
Finished goods......... $13,034,839 $12,160,524 $17,561,047
Work-in-process........ 4,298,025 3,253,096 4,148,064
Greige goods and yarn.. 5,828,538 8,657,806 9,510,752
------------ ----------- ------------
Total............... $23,161,402 $24,071,426 $31,219,863
============ =========== ============
The foregoing inventory amounts at June 2, 1996 and May 28, 1995 were
determined from perpetual inventory records maintained by Registrant.
Note C - Notes Payable - Banks:
At June 2, 1996, Registrant had total unused bank lines of credit aggregating
$20,000,000. 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.
Registrant had approximately $495,000 of letters of credit outstanding at
June 2, 1996 for merchandise scheduled for future delivery.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT JUNE 2, 1996
(Unaudited)
Continued
Note D - Notes Payable - Insurance Company:
On November 30, 1994, the 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 $495,000 associated therewith.
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 $2,400,000 at June 2, 1996.
Note E - Purchase Commitments:
At June 2, 1996, Registrant had outstanding commitments to purchase greige
goods aggregating $5,700,000. At May 28, 1995 outstanding purchase
commitments were approximately $11,400,000.
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.
(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.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT JUNE 2, 1996
(Unaudited)
Continued
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) were 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.
On January 9, 1996, options to purchase an aggregate of 200,000 shares of the
Registrant's Class A common stock at $4.625 a share (fair market value at
such date) were granted to two employees. The options are exercisable in
four annual installments commencing January 9, 1997 and expire ten years from
the date of the grant.
Option activity for the thirty-nine weeks ended June 2, 1996 is summarized as
follows:
Options Outstanding
-------------------
Shares Available Number of
for Grant Shares Amount
Balance - September 3, 1995 .. 350,000 100,000 $ 300,000
Thirty-Nine Weeks Ended
June 2, 1996:
Granted ...................(200,000) 200,000 925,000
Exercised ................. -0- (6,250) (18,751)
Exercised ................. -0- (10,045)* (30,135)
Cancelled ................. -0- (2,455)** (7,365)
------- -------- -----------
Balance - June 2, 1996 ....... 150,000 281,250 $1,168,749
======= ======== ===========
* Exercised upon the retirement of an employee.
** Cancelled as a result of an employee's retirement.
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CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT JUNE 2, 1996
(Unaudited)
Continued
Note H - Earnings (Loss) Per Share:
Earnings (loss) per share are computed by dividing net earnings or (loss) by
common shares outstanding and common stock equivalents. Outstanding options
did not have a material dilutive effect on earnings per share for the
thirteen and thirty-nine week periods ended June 2, 1996.
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 - Property, Plant and Equipment Held for Sale:
In the fourth quarter of fiscal 1995 Registrant decided to dispose of its
Washington, Georgia dyeing and finishing plant and has been actively
searching for a buyer; manufacturing operations ceased October 6, 1995.
Registrant provided for estimated expenses during the disposition period in
its fiscal year ended September 3, 1995 and estimates that the net proceeds
of sale will approximate the facility's depreciated cost.
Note K - Restructuring Charge:
Registrant is de-emphasizing its merchandising effort with respect to woven
fabrics marketed to the apparel manufacturing trade. In that connection
Registrant incurred a $750,000 (before tax benefit) charge to earnings. The
charge comprised provisions for severance pay and inventory write-downs.
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CONCORD FABRICS INC. AND SUBSIDIARIES
JUNE 2, 1996
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OPERATIONS - Thirty-Nine Weeks Ended June 2, 1996 Compared With Thirty-Nine
Weeks Ended May 28, 1995.
Fabric sales decreased by 20.2% principally due to a decrease in yardage
sold. The decline was concentrated in the solid woven fabrics business and
coincided with the closing of the Washington, Georgia woven fabrics dyeing
and finishing facility.
Gross profit margin increased from 21.2% in fiscal 1995 to 26.2% in fiscal
1996 primarily due to better performance at Registrant's Milledgeville,
Georgia plant and the discontinuance of operations, at the less productive
Washington, Georgia facility.
Selling and shipping expenses declined by 5.7% as a result of the decrease in
Registrant's sales. The decrease was less than the actual sales decrease
because some of Registrant's selling expenses do not vary with sales but
represent sales management costs which are more fixed in nature.
General and administrative expenses declined by 15.8% as a result of a
decline in Registrant's 1) provision for doubtful accounts as there were
fewer significant customer failures in the current period in contrast with
the 1995 thirty-nine week experience, 2) consulting fees associated with
systems programming, and 3) administrative costs at the Washington, Georgia
manufacturing facility which was shut-down in October 1995.
Interest expense declined by 21.3% due to decreased short-term borrowing
needs due to lower working capital requirements associated with reduced
business activity.
There were pre-tax earnings of $1,483,000 for the first thirty-nine weeks of
fiscal 1996 which compared with a pre-tax loss of $466,000 for the first
thirty-nine weeks of fiscal 1995. Net earnings were $750,000 for 1996 and
the net loss was $645,000 for 1995. Registrant's 1996 earnings were net of a
$450,000 (after tax benefit) restructuring charge. Registrant's 1995 net
loss included an extraordinary item (net of income tax benefit) in the amount
of $297,000 paid to an insurance company as a prepayment penalty.
Although Registrant's sales in fiscal 1997 are expected to decline, operating
results should improve as Registrant's recently implemented strategy focuses
on the more profitable aspects of its business, (Concord House and knitted
fabrics), and de-emphasizes those areas that involve greater risk.
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CONCORD FABRICS INC. AND SUBSIDIARIES
JUNE 2, 1996
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Continued
OPERATIONS - Thirteen Weeks Ended June 2, 1996 Compared With Thirteen Weeks
Ended May 28, 1995.
Fabric sales decreased by 14.7% principally due to a decrease in yardage
sold. The decline was primarily concentrated in the solid woven fabrics
business but some weakness in demand was experienced in sales to retailers
which cater to the home sewing and decorating customer.
Gross profit margin increased from 22.0% in fiscal 1995 to 26.3% in fiscal
1996 primarily due to better performance at Registrant's Milledgeville,
Georgia plant and the discontinuance of operations, at the less productive
Washington, Georgia facility.
Selling and shipping expenses declined by 5.0% as a result of the decrease in
Registrant's sales. The decrease was less than the actual sales decrease
because some of Registrant's selling expenses do not vary with sales but
represent sales management costs which are more fixed in nature.
General and administrative expenses declined by 17.9% as a result of a
decline in Registrant's 1) provision for doubtful accounts as there were
fewer significant customer failures in the current period in contrast with
the third fiscal quarter 1995 experience, 2) consulting fees associated with
systems programming, and 3) administrative costs at the Washington, Georgia
manufacturing facility which was shut-down in October 1995.
Interest expense declined by 28.6% due to decreased short-term borrowing
needs due to lower working capital requirements associated with reduced
business activity.
There were pre-tax earnings of $321,000 for the third quarter of fiscal 1996
which compared with a pre-tax loss of $314,000 for the third quarter of
fiscal 1995. Net earnings were $136,000 for 1996 and the net loss was
$216,000 for 1995. Registrant's 1996 net earnings were net of a $450,000
(after tax benefit) restructuring charge.
LIQUIDITY AND CAPITAL RESOURCES
During the thirty-nine weeks of fiscal 1996, Registrant's operations provided
$1,951,000 cash which was used to repay short-term debt. Cash decreased by
$402,000 as machinery and equipment acquisitions aggregated $1,058,000 and
the sale of equipment at the Washington facility provided $656,000. Working
capital increased by $1,471,000. Registrant expects its cash flow from
operations to be adequate to finance operations and meet its cash
requirements for fiscal 1996.
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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 June 2, 1996.
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CONCORD FABRICS INC. AND SUBSIDIARIES
-------------------------------------
SIGNATURES
----------
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 8, 1996 By /s/ Earl Kramer
Earl Kramer
President and Chief Executive
Officer
Date: July 8, 1996 By /s/ Martin Wolfson
Martin Wolfson
Senior Vice President-Treasurer
Chief Financial Officer
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