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 30, 1999 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 . 2,169,764 shares of Registrant's Class A Common Stock, par value $.50 per share and 1,444,451 shares of Registrant's Class B Common Stock, par value $.50 per share were outstanding as of June 24, 1999. 1 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MAY 30, 1999 INDEX Page Number Part I. Financial Information Item 1. Financial Statements Consolidated Statements of Income - Thirty-Nine Weeks Ended May 30, 1999 (Unaudited) and May 31, 1998 (Unaudited) 3 Consolidated Balance Sheets - May 30, 1999 (Unaudited), August 30, 1998 (Derived from Audited Financial Statements) and May 31, 1998 (Unaudited) 4-5 Consolidated Statements of Changes in Stockholders' Equity (Unaudited for the period August 30, 1998 to May 30, 1999) 6 Consolidated Statements of Cash Flows - Thirty-Nine Weeks Ended May 30, 1999 (Unaudited) and May 31, 1998 (Unaudited) 7-8 Notes to Consolidated Financial Statements (Unaudited) 9-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-16 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 17 Signature Page 18 2 of 18 Item 1. Financial Statements -------------------- CONCORD FABRICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Note A) For the Thirty-Nine Weeks Ended For the Thirteen Weeks Ended ------------------------------- ---------------------------- May 30, May 31, May 30, May 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net Sales ..................... $65,809,885 $76,462,685 $23,237,307 $25,617,436 ----------- ----------- ----------- ----------- Cost of Sales ................. 44,691,217 52,780,855 15,525,106 17,719,965 Merchandising Expenses ........ 4,739,378 5,769,593 1,588,162 1,987,002 Selling and Shipping Expenses . 6,026,743 5,890,367 2,108,511 2,036,796 General and Administrative Expenses ................... 7,021,195 7,111,090 2,308,627 2,196,152 Interest Expense (Net) ........ 520,707 569,504 167,116 216,349 Loss on sale of plant ......... 86,849 -0- 86,849 -0- ----------- ----------- ----------- ----------- Total ................... $63,086,089 $72,121,409 $21,784,371 $24,156,264 ----------- ----------- ----------- ----------- Earnings before income taxes .. 2,723,796 4,341,276 1,452,936 1,461,172 Income tax provision .......... 1,249,000 1,758,000 705,000 598,000 ----------- ------------ ----------- ----------- Net Earnings .................. $ 1,474,796 $ 2,583,276 $ 747,936 $ 863,172 =========== =========== =========== =========== Basic Earnings Per Share ...... $.40 $.70 $.20 $.23 =========== =========== =========== =========== Diluted Earnings Per Share .... $.40 $.68 $.20 $.22 =========== =========== =========== =========== Weighted average shares used in computing basic earnings per share ...................... 3,658,382 3,670,015 3,669,490 3,679,832 =========== =========== =========== =========== Weighted average shares used in computing diluted earnings per share .................. 3,708,906 3,814,804 3,675,038 3,842,129 =========== =========== =========== =========== Dividend per Common Share ..... NONE NONE NONE NONE =========== =========== =========== =========== The attached notes are made a part hereof. 3 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Note A) August 30, 1998 (Derived from May 30, Audited May 31, 1999 Financial 1998 A S S E T S (Unaudited) Statements) (Unaudited) - ----------- ------------ ------------ ------------ Current Assets: Cash and cash equivalents ..... $ 6,525,042 $ 8,678,053 $ 1,827,699 Held to maturity investments (at cost) .................. 14,513,822 14,593,225 18,028,507 Accounts receivable (less allowance for doubtful accounts of $1,665,000 on May 30, 1999, $1,350,000 on August 30, 1998, and $1,791,000 on May 31, 1998) .............. 18,134,884 18,003,495 18,508,161 Inventories (Note B) .......... 15,223,419 16,015,819 19,980,668 Prepaid and refundable income taxes ...................... -0- -0- 255,000 Prepaid expenses and other current assets .............. 1,528,216 1,289,839 1,413,091 Deferred income taxes ......... 1,706,000 1,935,000 1,419,500 ----------- ----------- ----------- Total Current Assets .......... $57,631,383 $60,515,431 $61,432,626 Property, plant and equipment (at cost, less accumulated depreciation and amortization of $8,904,321 on May 30, 1999, $7,538,169 on August 30, 1998, and $7,603,173 on May 31, 1998) ................. 9,281,224 9,159,596 8,553,478 Property and plant leased to others (Note H) ...................... -0- 1,737,052 1,775,092 Property, plant, & equipment held for sale (Notes H & I) ........ 1,674,332 1,352,319 1,877,319 Other assets ..................... 3,284,994 3,119,732 2,970,487 ----------- ----------- ----------- T O T A L .................. $71,871,933 $75,884,130 $76,609,002 =========== =========== =========== The attached notes are made a part hereof. 4 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Note A) August 30, 1998 (Derived from May 30, Audited May 31, 1999 Financial 1998 L I A B I L I T I E S (Unaudited) Statements) (Unaudited) - --------------------- ------------ ------------ ------------ Current Liabilities: Current portion of notes payable insurance company (Note D) . $ 2,850,000 $ 2,850,000 $ 2,850,000 Accounts payable .............. 3,673,386 4,608,507 6,192,913 Accrued expenses and taxes .... 1,946,008 3,298,883 2,270,901 Income taxes payable .......... 442,000 59,000 153,000 ----------- ----------- ----------- Total Current Liabilities ..... $ 8,911,394 $10,816,390 $11,466,814 Notes payable - insurance company (Note D) .............. 14,300,000 17,150,000 17,150,000 Deferred income taxes ............ 288,000 288,000 550,000 Other liabilities ................ 427,249 556,249 538,249 ----------- ----------- ----------- Total Liabilities ............. $23,926,643 $28,810,639 $29,705,063 Commitments and contingencies ----------- ----------- ----------- (Notes B and C) S T O C K H O L D E R S ' E Q U I T Y - -------------------------------------- Common stock: (Notes E & F) Class A - $.50 par value authorized 4,000,000 shares, issued 2,290,656 shares at May 30, 1999, 2,237,656 shares at August 30, 1998 and 2,236,356 shares at May 31, 1998 ............... 1,145,328 1,118,828 1,118,178 Class B - $.50 par value authorized 4,000,000 shares, issued 1,444,451 shares at May 30, 1999, 1,447,451 shares at August 30, 1998 and 1,448,751 shares at May 31, 1998 ............... 722,226 723,726 724,376 Additional paid-in capital ....... 9,399,561 9,274,561 9,274,561 Retained earnings ................ 37,431,172 35,956,376 35,786,824 Treasury stock at cost 120,892 shares (Note J) ....... (752,997) -0- -0- ----------- ----------- ----------- Total Stockholders' Equity .... $47,945,290 $47,073,491 $46,903,939 ----------- ----------- ----------- T O T A L .................. $71,871,933 $75,884,130 $76,609,002 =========== =========== =========== The attached notes are made a part hereof. 5 of 18 CONCORD FABRICS INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Class A Common Stock Class B Common Stock Additional Retained Total Number Dollar Number Dollar Paid-in Earnings Stockhold- of Shares Value of Shares Value Capital ers' Equity -------------------- ------------------ ---------- ----------- ----------- September 1, 1996 2,146,956 $1,073,478 1,509,401 $754,701 $9,166,123 $29,844,823 $40,839,125 Net Earnings 3,358,725 3,358,725 Conversion from Class B shares to Class A shares 53,300 26,650 (53,300) (26,650) Exercise of stock options 8,750 4,375 25,938 30,313 -------------------- ------------------ ---------- ----------- ----------- August 31, 1997 2,209,006 1,104,503 1,456,101 728,051 9,192,061 33,203,548 44,228,163 Net Earnings 2,752,828 2,752,828 Conversion from Class B shares to Class A shares 8,650 4,325 (8,650) (4,325) Exercise of stock options 20,000 10,000 82,500 92,500 -------------------- ------------------ ---------- ----------- ----------- August 30, 1998 2,237,656 1,118,828 1,447,451 723,726 9,274,561 35,956,376 47,073,491 Net Earnings 1,474,796 1,474,796 Conversion from Class B shares to Class A shares 3,000 1,500 (3,000) (1,500) Exercise of stock options 50,000 25,000 125,000 150,000 -------------------- ------------------ ---------- ----------- ----------- Balance 2,290,656 $1,145,328 1,444,451 $722,226 $9,399,561 $37,431,172 $48,698,287 -------------------- ------------------ ---------- ----------- Less purchase of Treasury Stock in Fiscal 1999 (752,997) ----------- May 30, 1999 $47,945,290 =========== The data reflecting Changes in Stockholders' Equity for the period August 30, 1998 to May 30, 1999 is unaudited. The attached notes are made a part hereof. 6 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Note A) For the Thirty-Nine Weeks Ended -------------------------------- May 30, May 31, 1999 1998 Cash flows from operating activities: ------------ ------------ Net earnings .................................... $ 1,474,796 $ 2,583,276 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ............. 1,257,716 1,217,124 Deferred income tax ....................... 229,000 353,500 Provision for doubtful accounts ........... 344,997 438,649 Loss on sale of Washington Plant .......... 86,849 -0- Changes in assets: Decrease (increase) in: Accounts receivable ................. (476,386) 2,365,167 Inventories ......................... 792,400 (7,076,766) Prepaid expenses and other current assets .................... (238,377) 3,748 Other assets ........................ 129,433 234,658 Changes in liabilities: Increase (decrease) in: Accounts payable .................... (935,121) 1,899,706 Accrued expenses and taxes .......... (1,352,875) (1,207,586) Income taxes payable ................ 383,000 153,000 Other liabilities ................... (129,000) 54,000 ------------ ------------ Net cash provided by operating activities: 1,566,432 1,018,476 ------------ ------------ Cash flows from investing activity: Proceeds from sales of held to maturity securities ................................... 26,628,149 15,522,758 Purchases of held to maturity securities ........ (26,548,746) (20,028,507) Purchases of property, plant, and equipment ..... (1,328,624) (2,218,222) Proceeds from sale of machinery and equipment ... 71,950 59,650 Net proceeds from the sale of the Washington Plant 1,205,520 -0- Purchase of assets of an United Kingdom business (294,695) -0- ------------ ------------ Net cash (used in) investing activities ............ (266,446) (6,664,321) ------------ ------------ Cash flows from financing activities: Scheduled payment of notes payable - insurance co. (2,850,000) -0- Issuance of common stock (stock options exercised) 150,000 92,500 Repurchase of Class A Common Stock at cost ...... (752,997) -0- ------------ ------------ Net cash (used in) provided by financing activities (3,452,997) 92,500 NET (DECREASE) IN CASH AND CASH EQUIVALENTS ........ (2,153,011) (5,553,345) ------------ ------------ Cash and cash equivalents - beginning of period .... 8,678,053 7,381,044 ------------ ------------ CASH AND CASH EQUIVALENTS - END OF PERIOD .......... $ 6,525,042 $ 1,827,699 ============ ============ The attached notes are made a part hereof. 7 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Note A) Continued For the Thirty-Nine Weeks Ended -------------------------------- May 30, May 31, 1999 1998 ------------ ------------ Supplemental Information: Cash Paid for: Interest ...................................... 1,729,332 1,832,000 Income taxes .................................. 792,000 1,515,500 The attached notes are made a part hereof. 8 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FORM 10-Q AS AT May 30, 1999 (Unaudited) Note A The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they 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 of a normal recurring nature considered necessary for a fair presentation have been included. Operating results for the thirty-nine weeks ended May 30, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending August 29, 1999. These statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report to shareholders and Form 10-K for the fiscal year ended August 30, 1998. Note B - Inventories: Inventories are summarized by as follows: May 30, August 30, May 31, 1999 1998 1998 ------------ ----------- ------------ Finished goods......... $ 8,727,829 $ 8,844,722 $ 9,658,672 Work-in-process........ 2,665,046 2,596,291 4,622,406 Greige goods and yarn.. 3,830,544 4,574,806 5,699,590 ------------ ----------- ------------ Total............... $15,223,419 $16,015,819 $19,980,668 ============ =========== ============ The foregoing inventory amounts at May 30, 1999 and May 31, 1998 were derived from perpetual inventory records maintained by the Company. At May 30, 1999, the Company had outstanding commitments to purchase greige goods aggregating $200,000. Note C - Notes Payable - Banks: At May 30, 1999, the Company was free of bank debt and had total unused bank lines of credit aggregating $20,000,000. The Company had approximately $461,000 of letters of credit for the purchase of finished goods outstanding as at May 30, 1999. Note D - Notes Payable - Insurance Company: On November 30, 1994, the Company obtained a $20,000,000 loan from John 9 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FORM 10-Q AS AT MAY 30, 1999 (Unaudited) Continued 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. The first annual installment of $2,850,000 was paid on November 30, 1998. The loan agreement requires maintenance of certain financial ratios and maintenance of tangible net worth of approximately $40,429,000. 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 $5,827,000 at May 30, 1999. Note E - 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 the Company'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 F - Stock Options: Pursuant to an Incentive Program adopted on January 10, 1989, and amended on December 4, 1996, awards (as defined) may be granted to key employees and directors of the Company up to a maximum of 500,000 shares of the Company's Class A common stock. On January 9, 1996, options to purchase an aggregate of 200,000 shares of the Company's Class A common stock at $4.625 a share (fair market value at such 10 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FORM 10-Q AS AT MAY 30, 1999 (Unaudited) Continued 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. On January 9, 1996 options to purchase 5,000 shares of the Company's Class A common stock at $4.625 (fair market value at such date) were granted to two outside directors. On September 2, 1996, options to purchase an additional 5,000 shares of the Company's Class A common stock at $6.625 (fair market value at such date) were granted to those directors. On January 14, 1997, the Company granted an option to the Chairman of the Board of Directors to purchase an aggregate of 70,000 shares of the Company's Class A common stock at $7.0125 a share (110% of the fair market value at such date). This option is exercisable in five annual installments commencing January 14, 1998, and expires five years from the date of grant; the Chairman was also granted an option to purchase 30,000 shares of the Company's Class A common stock at $6.375 a share. This option is exercisable in five annual installments commencing January 14, 1998 and expires ten years from the date of grant. On January 13, 1998 options to purchase 7,500 shares of the Company's Class A common stock at $8.875 (fair market value at such date) were granted to three outside directors. The options are exercisable January 13, 1999 and expire five years from the date of grant. On November 10, 1998 options to purchase 30,000 shares of the Company's Class A common stock at $6.50 (fair market value at such date) were granted to three outside directors (10,000 shares each). The options are exercisable over a four year period commencing November 10, 1999 at 25% per year and expire five years from the date of grant. The Company accounts for equity - based awards granted to employees and directors under APB Opinion No. 25 under which no compensation cost has been recognized for stock options granted at fair market value. Had compensation cost for these stock options been determined consistent with SFAS No. 123, the decrease in the Company's net earnings and net earnings per share would have not been material. Note G - Earnings Per Share: In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced the calculation of primary and 11 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FORM 10-Q AS AT MAY 30, 1999 (Unaudited) Continued fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share gives effect to all potentially dilutive common shares that were outstanding during the period under the Company stock option Incentive Program (Note F). All earnings per share amounts for all periods have been presented and, where appropriate, restated to conform to the SFAS No. 128 requirements. Note H - Chino, California Facility: In February 1994, the Company leased the land and building at its 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. In the first quarter of fiscal 1999 the lessee chose not to exercise its purchase option and the Company put the property up for sale. The property has been reclassified from property and plant leased to others to property, plant, and equipment held for sale. The estimated market value of this asset exceeds its book value which at May 30, 1999 was $1,674,000. Note I - Washington, Georgia Facility: In the fourth quarter of fiscal 1995 the Company decided to dispose of its Washington, Georgia dyeing and finishing plant and had been actively searching for a buyer; manufacturing operations ceased October 6, 1995. At such time, the Company reclassified the facility to property, plant and equipment held for sale and estimated the net realizable value of the facility and accrued expenses for an estimated disposition period. In fiscal 1998, the Company reevaluated the facility and, in that connection, recorded a charge of $500,000 reflecting the estimated impairment in value. On March 9, 1999, the Company sold the Washington plant and equipment for $1,340,000 cash. The sale resulted in a loss of $86,849. 12 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FORM 10-Q AS AT MAY 30, 1999 (Unaudited) Continued Note J - Stock Repurchase: In September, 1998, the Company's Board of Directors authorized the repurchase of up to 300,000 shares of the Company's common stock. The repurchases were to be made at the discretion of Concord's management depending upon financial and market conditions and in accordance with rules provided by the Securities and Exchange Commission and the American Stock Exchange. At May 30, 1999, 120,892 shares had been repurchased at an average cost of $6.23 per share and are recorded in the Stockholders' Equity section of the Balance Sheet as Treasury Stock. Note K - Concord Fabrics (UK) Limited: Concord Fabrics (UK) Limited, a wholly owned subsidiary of Concord Fabrics Inc. was incorporated on February 19, 1999. It acquired inventory and other assets of an United Kingdom business for $294,695. The transaction closed March 31, 1999 and will not have a material impact on the Company's Balance Sheet or its results of operations for fiscal 1999. 13 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES MAY 30, 1999 Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS OPERATIONS - Thirty-Nine Weeks Ended May 30, 1999 Compared With Thirty-Nine Weeks Ended May 31, 1998. Fabric sales decreased by 13.9%. This resulted from a 10.9% decline in yards sold due to a significant decline in yards of fabrics sold by Concord House and a slight decline in yards of knitted fabrics sold and a 3.4% decrease in average selling price due to substantially lower prices for knitted fabric partially offset by slightly higher prices for Concord House fabric. Gross profit margin increased from 31% in the prior period to 32.1% in the current period. Lower raw material costs resulted in improved gross margins on knitted fabric sales which offset slightly lower gross margins on Concord House fabric sales. Merchandising expenses declined by 17.9% or approximately $1,030,000. Reduced sales and less design related expenses resulted in the lower expenses. As a percent of sales, merchandising expenses decreased from 7.5% in 1998 to 7.2% in 1999. Selling and shipping expenses increased 2.3% primarily due to higher cost of sales aids and advertising. As a percent of sales, selling and shipping expenses increased from 7.7% in 1998 to 9.2% in 1999. General and administrative expenses decreased 1.3%; as a percent of sales they increased from 9.3% in 1998 to 10.7% in 1999. Earnings before income taxes for the thirty-nine weeks of fiscal 1999 were $2,724,000 compared with $4,341,000 for the thirty-nine weeks of fiscal 1998. Net earnings were $1,475,000 for 1999 and $2,583,000 for 1998. A higher effective tax rate in the 1999 period reflected a lower tax basis than the book value of the Washington Plant which was sold. The decline in earnings was principally due to the decline in sales of Concord House fabrics. Expenses declined by $984,000 but as a percent of sales they increased from 24.5% in the thirty-nine weeks of fiscal 1998 to 27% in the current period. To date management has not been successful in reducing expenses at the rate at which sales have declined. Expense reductions were effected in late January, 1999 and they are reflected in the third fiscal quarter. The Company's acquisition of the assets of an United Kingdom business, will not have a material impact on the Company balance sheet or results of operations for fiscal 1999. The acquisition is expected to enable the Company to establish a presence in Europe and provide the Company with an additional brand which it will market globally. 14 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES MAY 30, 1999 Continued Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS OPERATIONS - Thirteen Weeks Ended May 30, 1999 Compared With Thirteen Weeks Ended May 31, 1998. Fabric sales decreased by 9.3%. This resulted from a 3.7% decline in units sold stemming from a decline in unit (yards) sold of Concord House product offset slightly by an increase in unit (yards) sold of knitted fabric and a 5.8% decrease in average selling price due to lower prices for knitted fabrics sold; the average selling price for Concord House fabrics rose slightly. Gross profit margin increased from 30.8% in fiscal 1998 to 33.2% in fiscal 1999. Lower raw material costs resulted in improved gross margins on knitted fabric sales which offset lower gross margins on Concord House fabric sales. Merchandising expenses declined by 20.1% or approximately $399,000. Reduced sales and less design related expenses resulted in the lower expenses. Merchandising expenses decreased from the prior year's period from 7.8% of sales to 6.8% of sales in the current period. Selling and shipping expenses increased 3.5%; as a percent of sales they increased from 8% in 1998 to 9.1% in 1999. General and administrative expenses increased 5.1%; as a percent of sales they increased from 8.6% in 1998 to 9.9% in 1999. Interest expense decreased 22.8% or approximately $49,000 primarily due to a scheduled payment of principal on Notes Payable - Insurance Company. Earnings before income taxes for the third quarter of fiscal 1999 were $1,453,000 compared with $1,461,000 for the third quarter of fiscal 1998. Net earnings were $748,000 for 1999 and $863,000 for 1998. A higher effective tax rate in the 1999 period reflected a lower tax basis than the book value of the Washington Plant which was sold. Expenses declined by $215,000 but as a percent of sales they increased from 24.3% in the third quarter of fiscal 1998 to 25.8% in the current period. To date management has not been successful in reducing expenses at the rate at which sales have declined. Expense reductions were effected in late January, 1999 and they are reflected in this fiscal quarter. LIQUIDITY AND CAPITAL RESOURCES During the thirty-nine weeks of fiscal 1999, the Company's operations provided $1,566,000. Fixed assets in the amount of $1,329,000 were acquired 15 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES MAY 30, 1999 Continued Item 2 ...........MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS ($960,000 for plant and equipment at the Company's Milledgeville, Georgia production facility and the balance for furniture, fixtures and leasehold improvements in the Company's New York office). The Company decreased its investments in held to maturity securities which produced $79,000. The sale of machinery and equipment produced $72,000 in cash. The Company received the net proceeds, $1,206,000, from the sale of the Washington, Georgia facility. On March 31, 1999 $295,000 was used to acquire the assets of an United Kingdom business. The repurchase of 120,892 shares of stock cost $753,000; the exercise of stock options produced $150,000. $2,850,000 was paid as the first scheduled repayment of notes payable - insurance company. As a result, cash decreased by $2,153,000 during the period. Working capital decreased by $979,000. The Company expects its short-term cash investments, its lines of credit, and cash flow from operations to be adequate to finance operations and meet its cash requirements for the rest of fiscal 1999. Year 2000 Compliance The Company believes it has taken reasonable steps in developing its Year 2000 Program. Its computer systems provide for four digits in the year field so that data processing and reporting should not be disrupted at the millennium. Notwithstanding this, the Company cannot be certain whether microprocessors embedded in other equipment or Year 2000 problems of its customers, key suppliers or service providers will be discovered and or resolved satisfactorily before the Year 2000. The Company is requesting information on Year 2000 issues from third parties significant to its business If the Company's key suppliers, service providers, customers and other third parties fail to adequately address their Year 2000 Problems, and there are no alternatives available to the Company, then the Company's usual channels of supply and distribution could be disrupted with a resulting adverse impact on its business. The Company does not believe that the cost of its Year 2000 program will be material to its financial position or its results of operations. Forward Looking Statements This report contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and actual results could differ materially from those contemplated by such statements. Such forward looking statements include references to expected future results of operations and Year 2000 issues. 16 Of 18 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 the Company during the thirty-nine weeks ended May 30, 1999. 17 of 18 CONCORD FABRICS INC. AND SUBSIDIARIES ------------------------------------- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, Concord Fabrics Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONCORD FABRICS INC. --------------------------------- Registrant Date: June 30, 1999 By /s/ Earl Kramer Earl Kramer President and Chief Executive Officer Date: June 30, 1999 By /s/ Martin Wolfson Martin Wolfson Senior Vice President-Treasurer Chief Financial Officer 18 of 18