<PAGE>
<PAGE>
Exhibit index appears
on page 43
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
September 1, 1996 I-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 Identification
incorporation or organization) Number)
1359 Broadway, New York, New York 10018
- --------------------------------- ------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (212) 760-0300
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each Class on which registered
- ---------------------------------------------- ---------------------
<S> <C>
Class A Common Stock, par value $.50 per Share American Stock Exchange
Class B Common Stock, par value $.50 per Share American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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
---- ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes No X
---- ------
As of November 14, 1996, 2,146,956 Shares of Registrant's Class A Common Stock
and 1,509,401 Shares of Registrant's Class B Common Stock were outstanding, and
the aggregate market value of the voting stock held by non-affiliates of
Registrant was $3,421,004.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on January 14, 1997, filed pursuant to Section 14 of the Securities
Exchange Act of 1934, incorporated by reference into Part III hereof.
<PAGE>
<PAGE>
PART I
Item 1. Business
Registrant's principal business is developing, designing and producing,
in its own facility and through unaffiliated contractors, woven and knitted
fabrics of natural and synthetic fibers in a wide variety of colors and
patterns, for sale to manufacturers (primarily of home furnishings and apparel)
and to retailers (including chains, department stores and independently owned
fabric stores) for resale to the home sewing market. In the fiscal year ended
September 1, 1996 Registrant deemphasized the merchandising of woven goods to
apparel manufacturers and focused more heavily on merchandising knitted fabric
for apparel and other end uses and concentrated its efforts on the Concord House
Division which designs and markets fabrics principally for the home furnishing
trade and for sales to retail stores.
Manufacture and Sale of Fabrics
Woven Fabrics
Woven fabrics accounted for 60% of fabric sales in fiscal 1996, compared
with 69% in fiscal 1995 and 70% in fiscal 1994. The significant decline in the
percentage of woven fabric sales to total sales resulted from reduced sales of
woven goods to the apparel trade. All of Registrant's supply of unfinished woven
fabrics ("greige goods") are made from natural and/or synthetic fibers by
unaffiliated companies, who frequently produce the greige goods to Registrant's
specifications. In fiscal 1996, Registrant
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was able to obtain adequate supplies of greige goods at competitive prices.
Registrant purchased substantially all of its greige goods from about 55
suppliers; the five largest suppliers accounted for 51% of Registrant's
purchases of greige goods and the largest supplied 14%. In fiscal 1995,
Registrant purchased substantially all of its greige goods from about 85
suppliers; the five largest suppliers accounted for 36% of Registrant's
purchases of greige goods and the single largest supplied 13%. In fiscal 1994,
Registrant purchased its greige goods from about 100 suppliers of which the
single largest supplied 11% of Registrant's needs. Registrant's greige cloth
purchases derive from domestic and imported sources.
Greige goods purchased by Registrant are printed or dyed and finished by
unaffiliated finishers in accordance with Registrant's designs and
specifications. In fiscal 1996, Registrant contracted with about 13 finishers
for the finishing or printing of woven fabrics; the largest contract finisher
accounted for 46% of Registrant's woven finishing requirements; no other
contract finisher accounts for more than 19%. In fiscal 1995, Registrant's
Washington, Georgia plant, accounted for 18% of Registrant's finishing
requirements. That plant closed in October 1995 and therefore did not account
for a significant portion of Registrant's 1996 finishing requirements.
Registrant's woven fabrics are sold primarily by its own sales staff and
to a lesser extent by independent sales agents. Sales are made to manufacturers
of furniture and home furnishing products, children's apparel and women's
accessories, and to retailers for resale to the home sewing market.
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In April, 1994, Registrant acquired 100% of the capital stock of Kat-Em
International, Inc., an importer of finished printed and dyed woven fabrics (see
Note N to Financial Statements). Kat-Em merchandised and sold these fabrics to
apparel manufacturers headquartered in the United States; some of the fabric was
shipped into the United States and some was shipped to its customer's offshore
manufacturing locations. Kat-Em International, Inc.'s sales, from the date of
its acquisition, represented less than 6% of Registrant's consolidated sales in
fiscal, 1994. In fiscal 1995 and 1996 Kat-Em's sales were approximately 13% of
Registrant's consolidated sales. During fiscal 1996 Registrant began to wind
down the Kat-Em operation and in August 1996 that subsidiary was merged into
Concord. The decision to terminate the Kat-Em operation was a component of the
deemphasis of sales to apparel manufacturers and elimination of unprofitable
lines.
Registrant exports printed and to a lesser extent solid woven fabrics for
sale abroad. In fiscal 1995 and 1996 exports approximated 8% of sales. In fiscal
1994 exports were almost 7% of sales and in fiscal 1993 exports were almost 6%
of Registrant's total sales.
Prior to each "season" (i.e., spring-summer, fall-winter), Registrant's
woven fabrics are designed by Registrant's design staff to meet current and
developing styles that Registrant believes will be fashionable. Thus, the demand
for Registrant's woven fabrics during any season depends in part upon
Registrant's ability to forecast changes in styles and fashion and react
thereto. Registrant often maintains a variety of greige and finished goods at
necessary inventory levels to meet changing demand for its woven fabrics.
4
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Knitted Fabrics
Knitted fabrics accounted for 40% of fabric sales in fiscal 1996,
compared with 31% in fiscal 1995 and 30% in fiscal 1994. Registrant purchases
yarn for knitting from unaffiliated suppliers; in fiscal 1996, Registrant
purchased yarn from 14 suppliers, the three largest suppliers accounted for 91%
of Registrant's purchases of yarn; the largest of which accounted for 65% of
yarn purchases. In fiscal 1995 Registrant purchased yarn from 13 suppliers; the
three largest of which supplied 76% of Registrant's needs. Registrant is
presently able to obtain adequate supplies of yarn at competitive prices and
does not believe it is dependent on any single supplier.
In fiscal 1996, 77% of the yarn purchased by Registrant was knitted into
fabric at Registrant's Milledgeville, Georgia facility. The balance of the yarn
purchased by Registrant in 1996 was knitted by unaffiliated contractors. In
fiscal 1995, 88% of yarn purchased by Registrant was knitted at Milledgeville.
In fiscal 1994, 72% of the yarn purchased by Registrant was knitted into fabric
in Registrant's Milledgeville, Georgia plant. In the past three years, all of
the knitted fabric was dyed and finished in Registrant's Milledgeville or
Washington facilities (see Item 2. Properties).
Registrant generally produces knitted fabrics against orders received in
advance of production. As a result, Registrant's knitted fabrics are generally
not styled with a view to anticipating fashion trends. Knitted fabrics are sold
by Registrant's salesmen and by independent sales agents, to manufacturers of
budget and moderately priced women's apparel, team
5
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sports apparel manufacturers, infant's sleepwear manufacturers and to a lesser
extent to makers of non apparel related products.
Certain Factors Affecting Registrant's Business
General
Registrant's sales and earnings in any fiscal year are strongly
influenced by various factors -- the public's acceptance of and demand for
Registrant's fabrics and designs and the general state of economic conditions in
the textile and apparel industry. In periods of rising raw material prices
Registrant may encounter difficulty in passing such increases on to its
customers; in periods of falling prices Registrant's inventory and commitment
positions can result in significant reductions in gross margins. In addition,
Registrant's earnings may be adversely affected by price changes in the greige
goods market in the event and to the extent that management does not anticipate
the direction and timing of such price changes. Registrant's management attempts
to balance spot market purchases with forward commitments so as to minimize this
risk.
In fiscal 1995, reduced demand for fabrics marketed to apparel
manufacturers coupled with lower margins for certain product ranges and the
provision for loss for the disposal of the Washington, Georgia plant resulted in
an operating loss. In fiscal 1996, Registrant decided to deemphasize its
merchandising effort with respect to woven fabrics marketed to the apparel
manufacturing trade which had an adverse effect on earnings. Sales declined by
more than 18% but significantly better gross margins
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obtained as a result of the elimination of less profitable product ranges as
well as a reduction in expenses produced moderately profitable results.
The amount of apparel being imported into the United States, particularly
from low labor cost regions, is another factor which affects the textile and
apparel industry and has had a significant adverse affect on Registrant's sales
and earnings. Registrant's acquisition in 1994 of Kat-Em, to the extent that its
customers included manufacturers with offshore operations, was made in part to
counter the possible adverse effects of apparel and textile imports. However,
Kat-Em was unprofitable since its acquisition and Registrant's winding down and
termination of Kat-Em operations was implemented as a component of Registrant's
plan to eliminate unprofitable product ranges. The NAFTA (North American Free
Trade Act) became effective in fiscal 1994, and Registrant believes that its
implementation has had an adverse effect on its business. Similarly, The General
Agreement on Tariffs and Trade (GATT) has adversely affected Registrant's
business by facilitating imports. Registrant has sought to insulate its business
from the effects of these trade agreements.
See Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for more information concerning Registrant's
sales and results of operations in fiscal 1996 and 1995.
Seasonal Fluctuations
Prior to fiscal 1989, Registrant experienced a traditional seasonal sales
pattern, with sales highest from December through March, although sales trended
lower as the year progressed. Subsequent thereto, much of the
7
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seasonality in Registrant's business has been mitigated due to a combination
of growth in Registrant's sales to retail stores which are less subject to
seasonality and an increase in the production of customer orders in
Registrant's own manufacturing facilities.
Customers, Employees and Competition
In fiscal 1996, Registrant sold its fabric products to approximately
3,600 customers, the 20 largest of which accounted for 32% of sales; the largest
customer, accounted for approximately 4% of sales. Registrant sells on credit
terms standard in the industry. Registrant sells its fabrics throughout the
United States, but its principal sales markets for apparel fabrics are the New
York metropolitan area and to a lesser extent California and its neighboring
states. Registrant's home sewing fabric sales are not concentrated in any
regional market.
Registrant employs approximately 365 persons. Registrant's employees are
not represented by a union. In fiscal 1996, approximately 35 of Registrant's
employees were engaged in activities relating to development of new or improved
fabrics and designs. Due to the deemphasis and elimination of certain product
lines the number of employees so engaged was reduced to approximately 25 by
fiscal year end. Registrant spent approximately $5,800,000 on such activities in
fiscal 1996 and 1995 and approximately $4,600,000 on such activities in fiscal
1994. Registrant does not hold any significant patents or licenses, but does
have copyrights on print patterns that it develops. Registrant protects its
copyrights and actively pursues infringers. Registrant licenses the rights to
use certain of its patterns
8
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and receives royalty payments thereon. Registrant also purchases designs for its
printed fabrics from independent designers and design companies.
Many firms, no one of which is dominant, are in competition with
Registrant; competition is based primarily on price, product, quality and
service. Registrant is in competition both with converters -- whose function is
limited to the conversion of greige goods and yarn into finished fabrics -- and
with integrated textile companies which manufacture, as well as convert, greige
goods and yarns. Since Registrant operates its knitting plant in Milledgeville,
Georgia, Registrant is not solely a converter However, it is not a fully
integrated producer since it does not weave greige goods or spin yarn, does not
print woven or knit greige goods and does not dye and finish its woven greige
goods. Registrant contracts out all its print requirements with unaffiliated
producers. Since Registrant closed its Washington, Georgia Plant in October,
1995, it now contracts out all of its solid woven dyeing and finishing.
Registrant believes that it is one of the larger firms whose primary business is
converting, but there are a number of integrated firms with which Registrant
competes that have significantly larger sales, financial, and other resources
than Registrant.
Item 2. Properties
Registrant owns a 24 1/2-year-old knitting and finishing plant,
consisting of approximately 130,000 square feet on one floor, situated on
approximately 60 acres of land in Milledgeville, Georgia. The plant generally
operates at full productive capacity, which is adequate for all of Registrant's
finishing requirements.
9
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Registrant, in fiscal 1986, purchased a 140,000-square foot building on
approximately 55 acres of land in Washington, Georgia. On October 6, 1995
Registrant closed this facility and it is currently being offered for sale.
Registrant, in fiscal 1987, purchased a 93,000-square foot building on
approximately three acres of land in Chino, California. In February, 1994
Registrant sold the machinery and equipment in that facility, and leased the
building to a non-affiliated contract dyeing and finishing company for a five
year term.
Registrant's Washington facility was closed because Registrant could not
secure sufficient business at acceptable margins to adequately fill its
capacity.
Registrant believes that its Milledgeville, Georgia facility will provide
substantially all of its knitting and dyeing and finishing of knitted fabrics
requirements.
Registrant has entered into leases expiring in 2003 for two floors at
1359 Broadway, New York, New York, consisting of approximately 40,000 square
feet which it uses for its executive offices and showrooms. The Kat-Em Division
of Registrant has a lease for office and warehouse space in Los Angeles,
California comprised of 40,000 square feet; the lease expires in 1999.
Registrant is offering the property for sublease as a consequence of the winding
down of the Kat-Em operation. (See Note H of Notes to Financial Statements).
Item 3. Legal Proceedings
None.
10
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Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of Registrant
The following table shows the executive officers of Registrant, their
respective ages, and all positions presently held with Registrant by each such
person.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Alvin Weinstein 71 Chairman of the Board and Director
Earl Kramer 63 President and Director
Martin Wolfson 60 Sr. Vice President, Treasurer and Director
Mark Neugeboren 46 Vice President
Joan Weinstein 64 Secretary
</TABLE>
Alvin Weinstein has been Chairman of the Board of Registrant since 1969.
Mr. Kramer joined Registrant in June 1972 as President of its Knit
Division, with responsibility for supervising and coordinating the various
aspects of Registrant's knit operations. In March 1976, Mr. Kramer was
elected a Vice President of Registrant and was given the additional
executive responsibility of supervising the operation of Registrant's dyeing
and finishing plant in Washington, Georgia. Mr. Kramer has served as
President of Registrant since August 1979.
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Mr. Wolfson was elected Senior Vice President in 1995 after having been
Vice President since 1981 and Treasurer and a Director of Registrant since
1973. Formerly he had served as Controller of Registrant. He served as
Secretary of Registrant from January 1973 to October 1981. Mr. Wolfson is
the principal financial officer of Registrant.
In January 1985, Mr. Neugeboren was elected Vice President in Charge of
Production. Mr. Neugeboren joined Registrant in 1972 and has held various
positions in its production departments.
In October 1982, Joan Weinstein (the wife of Alvin Weinstein) was
elected Secretary of Registrant. She has been Registrant's Fashion Director
since joining Registrant in 1973.
All of Registrant's officers hold office until the next annual meeting of
Registrant's Board of Directors (scheduled for January 14, 1997) and the
election of their successors.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
On May 27, 1988 Registrant exchanged one share each of Class A and Class B stock
of Concord Fabrics Inc. (a Delaware Corporation) for each share of stock
previously issued of Concord Fabrics Inc. (a New York Corporation). As of
September 1, 1996, the number of record holders of the Registrant's Class A
Common Stock was 367 and the number of record holders of Registrant's Class B
Common Stock was 351. Both classes of Registrant's Common Stock are listed on
the American Stock Exchange. The table below sets forth information on the high
and low sales prices for such Common Stock for each quarter of fiscal 1996 and
1995.
<TABLE>
<CAPTION>
----------------1996---------------- ----------------1995----------------
Fiscal Quarters ---Class A--- ---Class B--- ---Class A---- ---Class B---
Ending On or About High Low High Low High Low High Low
- ------------------ ---- --- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
November 30 5 3-11/16 4-5/8 3-5/8 9-1/2 7-3/4 9-1/8 7-7/8
February 28 4-3/4 3-5/8 4-5/8 3-5/8 8-3/8 6-3/4 8 6-1/2
May 31 5-3/4 4 5-5/8 4-7/8 6-7/8 5-3/8 6-1/2 5-1/2
August 31 6-7/8 5-3/4 6-1/2 5-3/4 6-5/8 4-7/8 6-1/2 4-5/8
</TABLE>
Registrant has not paid cash dividends for many years.
The payment of dividends by Registrant is subject to restrictions under
the terms of the Note Agreement between Registrant and John Hancock Mutual Life
Insurance Company (the "Note Agreement"). Under the Note Agreement, cumulative
payments for cash dividends and redemption of capital stock are limited to
$3,000,000 plus 50% of Consolidated Net Income (as defined)
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subsequent to August 28, 1994 plus net cash proceeds from the sale of stock;
$2,617,000 was available for such payments as of September 1, 1996.
14
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ITEM 6 CONCORD FABRICS INC.
AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Y e a r E n d e d
-----------------------------------------------------------------------------------
September 1, September 3, August 28, August 29, August 30,
1996 1995 1994 1993 1992
------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales $146,561,416 $180,152,779 $197,804,544 $197,047,714 $201,727,239
------------ ------------ ------------ ------------ ------------
Cost of sales 108,814,265 143,950,238 148,920,930 153,338,242 163,328,144
Merchandising expenses 9,070,758 9,644,429 8,698,897 7,758,817 7,395,576
Selling and shipping expenses 12,189,783 13,852,770 14,169,565 12,370,215 12,819,442
General and administrative expenses 11,890,945 12,640,139 13,551,493 11,724,618 11,011,780
Provision for doubtful accounts 1,070,000 633,000 1,321,000 1,777,000 698,000
Interest expense (net) 1,811,747 2,432,438 1,787,311 2,320,021 3,202,091
Plant shut-down costs 1,100,000 3,000,000
Gain on sale of equipment (1,420,606)
------------ ------------ ------------ ------------ ------------
T o t a l 144,847,498 184,253,014 187,028,590 189,288,913 201,455,033
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes and
extraordinary item 1,713,918 (4,100,235) 10,775,954 7,758,801 272,206
Income tax provision (credit) 776,000 (1,414,000) 4,332,000 3,133,000 102,000
------------ ------------ ------------ ------------ ------------
Net earnings (loss) before extraordinary item 937,918 (2,686,235) 6,443,954 4,625,801 170,206
Extraordinary item (net of income tax credit) (297,266)
------------ ------------ ------------ ------------ ------------
NET EARNINGS (LOSS) $ 937,918 $ (2,983,501) $ 6,443,954 $ 4,625,801 $ 170,206
============ ============ ============ ============ ============
Earnings (loss) per share:
Earnings (loss) before extraordinary item $.26 $(.75) $1.80 $1.30 $.05
Extraordinary item (.08)
---- ----- ----- ----- ----
Net earnings (loss) $.26 $(.83) $1.80 $1.30 $.05
==== ===== ===== ===== ====
Average number of shares used in computing
earnings (loss) per share 3,630,329 3,606,976 3,574,780 3,565,062 3,565,062
============ ============ ============ ============ ============
Dividends paid None None None None None
==== ==== ==== ==== ====
Working capital $ 47,095,320 $ 44,625,140 $ 37,845,803 $ 33,385,284 $ 30,462,022
============ ============ ============ ============ ============
Long-term debt (less current portion) $ 20,000,000 $ 20,000,000 $ 7,500,000 $ 9,000,000 $ 10,500,000
============ ============ ============ ============ ============
Total assets $ 73,164,882 $ 76,645,925 $ 84,895,505 $ 74,854,867 $ 76,621,865
============ ============ ============ ============ ============
Stockholders' equity $ 40,839,125 $ 39,777,321 $ 42,723,322 $ 36,166,868 $ 31,541,067
============ ============ ============ ============ ============
Stockholders' equity per share $11.17 $11.00 $11.86 $10.14 $8.85
====== ====== ====== ====== =====
</TABLE>
The year ended September 3, 1995 comprised 53 weeks; the other
years presented each comprised 52 weeks.
15
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Fiscal 1996 v. Fiscal 1995
Fiscal 1996 comprised 52 weeks; fiscal 1995 comprised 53 weeks. Net sales
decreased 19% from $180,152,779 to $146,561,416. This resulted from a decline in
unit sales of 17% and a 1% decline in average selling price. The decrease in
sales reflected the cessation in October 1995, of Registrant's operations at its
Washington, Georgia woven dyeing and finishing plant and the further deemphasis
in June 1996 of the production of woven fabrics for the apparel trade.
Gross margins rose to 25.8% in fiscal 1996 from 20.1% in fiscal 1995. The
improvement was due to better performance at Registrant's Milledgeville, Georgia
knitted fabrics manufacturing facility and the discontinuance of operations at
the less productive Washington, Georgia plant.
Merchandising expenses decreased by approximately $575,000 or 6%
primarily due to a reduction in personnel associated with the production of
solid woven fabric.
Selling and shipping expense declined about 12% 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 and shipping expenses do not vary
directly with sales but represent sales management costs which are more fixed in
nature.
General and administrative expenses declined about 6% primarily due to a
decrease in the number of corporate officers, the completion of Registrant's
computer software development project and a reduction in travelling expense.
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Registrant's provision for doubtful accounts increased to $1,070,000 in
fiscal 1996 from $633,000 in fiscal 1995 because of an increase in customer
failures in contrast with fiscal 1995. Registrant is continuously exposed to bad
debt risk with respect to its wholesale customers when such customers may have
significant concentration of business with retailers who may become financially
unstable. Registrant attempts to monitor this situation and adjust its credit
policies accordingly.
Interest expense decreased by almost 26% due to a reduction in short term
borrowing reflective of lower working capital requirements associated with
reduced business activity which stemmed from the elimination of unprofitable
product ranges. As a result at fiscal year end Registrant was free of short term
debt and in the course of the year increased its cash position by more than
$7,000,000.
In fiscal 1996 Registrant earned $938,000 net of a tax provision of
$776,000.
In fiscal 1995 Registrant incurred a loss of $2,686,000 (net of an income
tax credit of $1,414,000) before an extraordinary item. The loss principally
reflected weak demand for Registrant's imported and domestic woven fabrics
marketed to apparel manufacturers. The loss included $660,000 (net of tax
credit) provision for the shut down of the Washington, Georgia plant. An
extraordinary loss of $297,000 (net of income tax credit of $198,000) in
connection with a penalty incurred on Registrant's early repayment of a term
loan brought the net loss to $2,984,000.
Although Registrant's sales in fiscal 1997 are expected to decline,
operating results should improve as Registrant's recently implemented
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strategy focuses on the more profitable aspects of its business, (Concord House
and knitted fabrics), and de-emphasizes those areas that involve greater risk.
Fiscal 1995 v. Fiscal 1994
Fiscal 1995 comprised 53 weeks; fiscal 1994 comprised 52 weeks. Fiscal
1995 results include the operations of Kat-Em International Inc. For a full
year. Fiscal 1994 results include the operations of Kat-Em from April 18, 1994,
the date it was acquired by Registrant, through August 28, 1994.
Net sales decreased 9% from $197,804,544 to $180,152,779. This resulted
from a decline in unit sales of 8% and a 1% decline in average selling price.
Registrant believes that the decrease in sales reflected decreased consumer
spending on domestically manufactured apparel.
Gross margins fell from 24.7% in fiscal 1994 to 20.1% in fiscal 1995.
This resulted from price competition stemming from reduced consumer demand,
inefficiencies and lack of productivity in Registrant's Washington, Georgia
manufacturing facility (the plant was closed in October, 1995), higher raw
material costs, and inventory mark-downs predominantly in the Kat-Em subsidiary.
Registrant expects that the closing of the Washington plant will lead to lower
sales but higher gross margins in fiscal 1996.
Merchandising expenses increased by approximately $945,000 or 11%. About
$700,000 of this was due to the inclusion of the Kat-Em operation for a full
year in fiscal 1995 versus a four and one half month period in fiscal
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1994. The balance resulted from higher engraving costs associated with the
production of more intricate designs on Registrant's printed fabrics.
Selling and shipping expense declined about 2% 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 and shipping expenses do not vary
directly with sales but represent sales management costs which are more fixed in
nature.
General and administrative expenses declined almost 7% primarily due to a
decrease in performance related compensation and profit sharing.
Registrant's provision for doubtful accounts declined from $1,321,000 in
fiscal 1994 to $633,000 in fiscal 1995 because there were no significant
customer failures in contrast with fiscal 1994. However, Registrant is
continuously exposed to bad debt risk with respect to its wholesale customers
when such customers may have significant concentration of business with
retailers who may become financially unstable. Registrant attempts to monitor
this situation and adjust its credit policies accordingly.
Interest expense increased by 36%. In November, 1994 Registrant secured
$20,000,000 of long term financing which replaced $9,000,000 of long term debt
and added to working capital. The additional $11,000,000 of long term borrowing,
although at a lower fixed rate than the debt it replaced, in part accounted for
substantially all of the increase in interest cost for the year. Average short
term debt declined by almost $2,000,000 but average short term borrowing rates
were higher in fiscal 1995 so that interest cost on short term debt was
marginally higher.
19
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In fiscal 1995 Registrant incurred a loss of $2,686,000 (net of an income
tax credit of $1,414,000) before an extraordinary item. The loss principally
reflected weak demand for Registrant's imported and domestic woven fabrics
marketed to apparel manufacturers. The loss included $660,000 (net of tax
credit) provision for the shut down of the Washington, Georgia plant. An
extraordinary loss of $297,000 (net of income tax credit of $198,000) in
connection with a penalty incurred on Registrant's early repayment of a term
loan brought the net loss to $2,984,000.
In fiscal 1994 Registrant earned $6,444,000 (net of $4,332,000 income
taxes). The results included an $860,000 after tax gain from the sale of
machinery and equipment.
Liquidity and Capital Resources
During fiscal 1996, Registrant met its cash needs from cash flow from
operations ($10,052,000), sale of equipment at its Washington, Georgia facility
($901,000) and the sale of capital stock ($124,000), which it used to invest in
plant and equipment ($1,696,000) and reduce short term debt ($2,000,000). Cash
increased by $7,381,000. Working capital increased by $2,470,000.
Under individual credit line arrangements with several New York banks,
Registrant may borrow up to $20,000,000 at the prime lending rate. The
credit lines are unsecured. Registrant is generally expected to maintain
compensating bank balances. The banks have advised that Registrant has been
in substantial compliance with its compensating balance arrangements, and
that withdrawal of bank balances is not legally restricted. Amounts
20
<PAGE>
<PAGE>
borrowed are generally due in 30 to 90 days. Although the lending arrangements
are informal and are cancelable at each bank's option, Registrant has no reason
to believe that the lines of credit will not be available if needed during
fiscal 1997. Registrant's actual borrowing fluctuates from month to month. The
average outstanding debt during fiscal 1996 was $1,464,000 and the maximum
outstanding at any time during the year was $2,000,000. Nothing was outstanding
at September 1, 1996. Registrant expects its lines of credit, together with cash
management and cash flow from operations, to be adequate to finance operations
for fiscal 1997.
Registrant's long-term lending agreement with an insurance company which
is unsecured, prohibits pledging of assets, and requires (among other things -
see Note G to Financial Statements) maintenance of minimum working capital,
tangible net worth of $36,167,000 and maintenance of a minimum working capital
ratio of 1.5 to 1. The unpaid principal balance is $20,000,000. At September 1,
1996, tangible net worth approximated $40,550,000 and Registrant's working
capital ratio was 5.2 to 1. Registrant has met all of the requirements specified
in the loan agreement. The loan bears interest at 9.31% a year, and is repayable
in seven equal annual installments beginning November, 1998.
Inflation
Registrant's operating costs are subject to the general inflationary
trends of the rest of the economy; in fiscal 1996 such trends were modest;
inflation has not been a significant factor in Registrant's costs for the last
three fiscal years.
21
<PAGE>
<PAGE>
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. The
considerations indicated under the heading "Certain Factors Affecting
Registrants Business", as well as risks and uncertainties indicated elsewhere in
this report represent certain important factors the Registrant believes could
cause such results to differ.
22
<PAGE>
<PAGE>
ITEM 8 CONCORD FABRICS INC.
AND SUBSIDIARIES
- I N D E X -
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 1, 1996
AND SEPTEMBER 3, 1995
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED
EARNINGS FOR THE YEARS ENDED SEPTEMBER 1, 1996,
SEPTEMBER 3, 1995 AND AUGUST 28, 1994
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS
ENDED SEPTEMBER 1, 1996, SEPTEMBER 3, 1995 AND
AUGUST 28, 1994
NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
Schedules other than those referred to above have been omitted as the conditions
requiring their filing are not present or the information has been presented
elsewhere in the financial statements.
23
<PAGE>
<PAGE>
[EISNER & LUBIN LETTERHEAD]
Independent Auditors' Report
To the Board of Directors
and Stockholders
Concord Fabrics Inc.
We have audited the accompanying consolidated balance sheets of
Concord Fabrics Inc. and Subsidiaries as at September 1, 1996 and September 3,
1995, and the related consolidated statements of operations and retained
earnings and cash flows for each of the three years in the period ended
September 1, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Concord Fabrics
Inc. and Subsidiaries as at September 1, 1996 and September 3, 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended September 1, 1996 in conformity with generally accepted
accounting principles.
24
<PAGE>
<PAGE>
[LOGO]
The audits of the financial statements were made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
the index of financial statement schedules is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Eisner & Lubin LLP
------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
November 13, 1996
25
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 1, September 3,
A S S E T S 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,743,024 $ 2,362,119
Accounts receivable (less estimated
doubtful accounts of $1,610,000 in
1996 and $1,225,000 in 1995) 27,097,106 27,909,706
Inventories (Notes A(2) and B) 17,323,179 24,071,426
Income tax refunds receivable 423,200 2,051,000
Prepaid expenses and other current
assets 1,620,319 2,352,403
Deferred income taxes
(Note D) 2,189,000 2,172,000
----------- -----------
Total current assets 58,395,828 60,918,654
Property, plant and equipment (at cost,
less depreciation and amortization of
$5,424,566 in 1996 and $5,101,597 in
1995) (Notes A(3) and C) 8,117,040 8,153,913
Property, plant and equipment held
for sale - at estimated disposal
value (Note O) 2,153,884 3,000,000
Property and plant - leased to
others (Note M) 2,041,372 2,193,532
Other assets 2,456,758 2,379,826
----------- -----------
T O T A L $73,164,882 $76,645,925
=========== ===========
L I A B I L I T I E S
Current liabilities:
Notes payable - banks (Note E) $ 2,000,000
Accounts payable $ 6,932,477 8,923,439
Accrued expenses and taxes 4,368,031 5,370,075
----------- -----------
Total current liabilities 11,300,508 16,293,514
Notes payable - insurance company
(less current portion above) (Note G) 20,000,000 20,000,000
Deferred income taxes (Note D) 601,000 214,000
Other liabilities 424,249 361,090
----------- -----------
Total liabilities 32,325,757 36,868,604
----------- -----------
Commitments and contingencies
(Notes B, F, G, H, K, M, O, and Q)
S T O C K H O L D E R S' E Q U I T Y
(Notes G, J and K)
Common stock:
Class A - $.50 par value - authorized
4,000,000 shares, issued 2,146,956
shares in 1996 and 2,105,611 shares
in 1995 1,073,478 1,052,805
Class B - $.50 par value - authorized
4,000,000 shares, issued 1,509,401
in 1996 and 1,509,451 shares
in 1995 754,701 754,726
Additional paid-in capital 9,166,123 9,062,885
Retained earnings (statement attached) 29,844,823 28,906,905
----------- -----------
Total stockholders' equity 40,839,125 39,777,321
----------- -----------
T O T A L $73,164,882 $76,645,925
=========== ===========
</TABLE>
The notes to financial statements are made a part hereof.
26
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS
<TABLE>
<CAPTION>
Y e a r E n d e d
--------------------------------------------------------
September 1, September 3, August 28,
1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C>
Net sales $146,561,416 $180,152,779 $197,804,544
------------ ------------ ------------
Cost of sales 108,814,265 143,950,238 148,920,930
Merchandising expenses 9,070,758 9,644,429 8,698,897
Selling and shipping expenses 12,189,783 13,852,770 14,169,565
General and administrative expenses 11,890,945 12,640,139 13,551,493
Provision for doubtful accounts 1,070,000 633,000 1,321,000
Interest expense (net) (Note I) 1,811,747 2,432,438 1,787,311
Gain on sale of equipment (Note M) (1,420,606)
Plant shut-down costs (Note O) 1,100,000
------------ ------------ ------------
T o t a l 144,847,498 184,253,014 187,028,590
------------ ------------ ------------
Earnings (loss) before income taxes and
extraordinary item 1,713,918 (4,100,235) 10,775,954
Income tax provision (credit) (Note D) 776,000 (1,414,000) 4,332,000
------------ ------------ ------------
Earnings (loss) before extraordinary item 937,918 (2,686,235) 6,443,954
Extraordinary item - loss on early extinguishment
of debt (net of income tax credit) (Note G) (297,266)
------------ ------------ ------------
Net earnings (loss) 937,918 (2,983,501) 6,443,954
Retained earnings - beginning of year 28,906,905 31,890,406 25,446,452
------------ ------------ ------------
RETAINED EARNINGS - END OF YEAR
(TO CONSOLIDATED BALANCE SHEET) $ 29,844,823 $ 28,906,905 $ 31,890,406
============ ============ ============
Earnings (loss) per share (Notes A(4) and K):
Earnings (loss) before extraordinary item $.26 $(.75) $1.80
Extraordinary item (.08)
---- ----- -----
Net earnings (loss) $.26 $(.83) $1.80
==== ===== =====
Average number of shares used in computing
earnings (loss) per share 3,630,329 3,606,976 3,574,780
========= ========= =========
</TABLE>
The notes to financial statements are made a part hereof.
27
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Y e a r E n d e d
----------------------------------------------------
September 1, September 3, August 28,
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 937,918 $(2,983,501) $ 6,443,954
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,813,123 1,991,438 1,977,960
Deferred income taxes 370,000 (110,000) (249,000)
Provision for doubtful accounts 1,070,000 633,000 1,321,000
(Gain) loss on sale of equipment 52,569 (1,420,606)
Plant shut-down costs 1,100,000
Change in assets and liabilities, net of
effects in 1994 of purchase acquisition:
Decrease (increase) in:
Accounts receivable (257,400) 6,456,456 1,763,070
Inventories 6,748,247 7,013,134 (9,476,448)
Income tax refunds receivable 1,627,800 (2,051,000)
Prepaid expenses and other current assets 732,084 204,526 37,826
Other assets (112,236) (851,333) (452,014)
Increase (decrease) in:
Accounts payable (1,990,962) (6,267,344) 1,919,810
Accrued expenses and taxes (1,002,044) (2,741,735) 1,682,556
Income taxes (992,637) 537,520
Other liabilities 63,159 59,137 37,928
----------- ----------- -----------
Net cash provided by operating activities 10,052,258 1,460,141 4,123,556
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,695,758) (4,112,904) (2,914,448)
Proceeds from sale of equipment 900,520 2,000,000
Payment for purchase of Kat-Em International, Inc. (1,150,482)
----------- ----------- -----------
Net cash (used in) investing activities (795,238) (4,112,904) (2,064,930)
----------- ----------- -----------
Cash flows from financing activities:
Payments of notes payable - insurance company (9,000,000) (1,500,000)
Borrowing - insurance company 20,000,000
Payments of notes payable - banks (net) (2,000,000) (7,600,000) (1,200,000)
Issuance of Class A common stock pursuant to
stock options exercised 123,885 37,500 112,500
----------- ----------- -----------
Net cash provided by (used in) financing activities (1,876,115) 3,437,500 (2,587,500)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,380,905 784,737 (528,874)
Cash - beginning of year 2,362,119 1,577,382 2,106,256
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 9,743,024 $ 2,362,119 $ 1,577,382
=========== =========== ===========
</TABLE>
The notes to financial statements are made a part hereof.
28
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Note A) - Summary of Significant
Accounting Policies:
(1) Principles of Consolidation - The financial statements include the
accounts of Concord Fabrics Inc. and its wholly-owned subsidiaries (the
Company); intercompany investments, advances and transactions have been
eliminated.
(2) Inventories - Inventories are stated at lower of cost or market,
first-in, first-out; obsolete inventory items are carried at net realizable
value. Inventory costs comprise material, direct labor and overhead (Note B).
(3) Property and Depreciation - Property, plant and equipment is recorded
at cost. Profits and losses on dispositions are reflected in current
operations. Fully depreciated assets are written off against accumulated
depreciation.
Depreciation for financial accounting purposes is computed
substantially by the straight-line method to amortize the cost of various
classes of assets over their estimated useful lives. Leasehold improvements are
amortized over the shorter of the life of the related asset or the life of the
lease.
For income tax purposes, accelerated methods of depreciation are
generally used; deferred income taxes are provided for the difference between
depreciation expense for financial accounting purposes and for income tax
purposes.
(4) Earnings (Loss) Per Share - Earnings (loss) per share is computed by
dividing net earnings by the weighted average number of common shares
outstanding during the year. Outstanding options to purchase common shares (Note
K) did not have a material dilutive effect on earnings per share.
(5) Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid debt investments purchased with a maturity
of three months or less to be cash equivalents. Cash and cash equivalents
include commercial paper aggregating $9,000,000 as at September 1, 1996.
(6) Fiscal Year - The Company operates on a 52-53 week year ending on the
Sunday closest to August 31. The year ended September 1, 1995 comprised
fifty-three weeks; the other two years in the period ended September 1, 1996
each comprised fifty-two weeks.
(7) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
(Continued)
29
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 2 -
(Note B) - Inventories:
Inventories are summarized by categories as follows:
<TABLE>
<CAPTION>
September 1, September 3,
1996 1995
------------ -------------
<S> <C> <C>
Finished goods $ 9,750,156 $12,160,524
Work-in-process 3,268,677 3,253,096
Greige goods and yarn 4,304,346 8,657,806
----------- -----------
T o t a l $17,323,179 $24,071,426
=========== ===========
</TABLE>
At September 1, 1996, the Company had outstanding commitments to purchase
greige goods aggregating approximately $9,351,000.
(Note C) - Property, Plant and Equipment:
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
Estimated
September 1, September 3, Useful Life
1996 1995 (In Years)
----------- ------------ ------------
<S> <C> <C> <C>
Land $ 78,503 $ 78,503
Buildings 2,568,195 2,568,195 19 to 40
Machinery and
equipment 7,700,666 7,628,490 5 to 9
Furniture and
fixtures 1,409,079 1,339,152 3 to 8
Leasehold
improvements 1,785,163 1,641,170 Term of lease or
life of asset
----------- -----------
T o t a l 13,541,606 13,255,510
Less depreciation
and amortization 5,424,566 5,101,597
----------- -----------
N e t $ 8,117,040 $ 8,153,913
=========== ===========
</TABLE>
(Continued)
30
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 3 -
(Note D) - Income Taxes:
(1) Income tax provision (credit) on the consolidated statement of
operations and retained earnings is analyzed as follows:
<TABLE>
<CAPTION>
Y e a r E n d e d
---------------------------------------------------
September 1, September 3, August 28,
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Currently payable
(refundable):
Federal $346,000 $(1,304,000) $3,792,000
State and local 60,000 789,000
Deferred:
Federal 284,000 34,000 (205,000)
State and local 86,000 (144,000) (44,000)
-------- ----------- ----------
T o t a l $776,000 $(1,414,000)* $4,332,000
======== =========== ==========
</TABLE>
(2) Income taxes computed at the statutory federal income tax rate are
reconciled to income tax provision (credit) on the consolidated statement of
operations and retained earnings as follows:
<TABLE>
<CAPTION>
Y e a r E n d e d
---------------------------------------------------
September 1, September 3, August 28,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Income taxes at statutory
federal income tax rate $583,000 $(1,364,000) $3,675,000
Effect of:
State and local income
taxes (net of federal
income taxes) 96,000 (85,000) 606,000
Nondeductible expenses 107,000 68,000 99,000
Foreign sales corporation (10,000) (33,000) (48,000)
-------- ----------- ----------
T o t a l $776,000 $(1,414,000)* $4,332,000
======== =========== ==========
</TABLE>
*The tax benefit related to the extraordinary item on retirement of
debt was $198,000 in the year ended September 1, 1995.
(Continued)
31
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 4 -
(Note D) - Income Taxes (Continued):
(3) Deferred tax assets and liabilities are comprised of the
following elements:
<TABLE>
<CAPTION>
September 1, September 3,
1996 1995
------------ ------------
<S> <C> <C>
Gross deferred assets:
Excess of tax over financial
statement basis of property
and plant leased to others $ 176,000 $ 177,000
Estimated doubtful accounts 640,000 489,000
Excess of tax over financial
statement basis of
inventory 1,163,000 1,027,000
Accruals deductible for tax
purposes when paid 515,000 767,000
State and other tax loss
carryforwards 60,000
---------- ----------
Gross deferred assets 2,494,000 2,520,000
---------- ----------
Gross deferred liabilities:
Excess of financial statement
over tax basis of property,
plant and equipment 428,000 406,000
Excess of financial statement
over tax basis of property,
plant and equipment held
for sale 478,000 156,000
---------- ----------
Gross deferred liabilities 906,000 562,000
---------- ----------
Net deferred taxes $1,588,000 $1,958,000
========== ==========
Reflected on attached consolidated
balance sheet as:
Current deferred asset - net $2,189,000 $2,172,000
Non-current deferred
(liability) - net (601,000) (214,000)
---------- ----------
Net deferred taxes $1,588,000 $1,958,000
========== ==========
</TABLE>
(Continued)
32
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 5 -
(Note E) - Notes Payable - Banks:
The Company has total 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 are cancelable at the banks' option and provide
for borrowings at the prime lending rate. The Company is generally expected to
maintain average annual compensating bank balances in consideration of average
annual bank borrowings. The banks have advised that the Company has been in
substantial compliance with its compensating balance arrangements and that
withdrawals of bank balances are not legally restricted. The average interest
rate on amounts outstanding was 8.75% at September 3, 1995.
(Note F) - Profit-Sharing Plan:
The Company's noncontributory profit-sharing plan, approved by the
Treasury Department, for the benefit of eligible full time employees, provides
for a minimum annual contribution to a trust fund based on percentages of
pre-tax profits (as defined); the Board of Directors may increase such minimum
annual contribution at its sole discretion but all contributions are limited to
the max imum amount deductible for federal income tax purposes. Contributions
of $150,000 and $500,000 were made for the years ended September 1, 1996 and
August 28, 1994, respectively; no contribution was made for the year ended
September 3, 1995.
(Note G) - Notes Payable - Insurance
Company:
On November 30, 1994, the Company borrowed $20,000,000 from an
insurance company. The unsecured loan bears interest at 9.31% a year and is
repayable in seven equal annual installments commencing November 30, 1998. A
portion of the loan proceeds was used to prepay the $9,000,000 loan outstanding
to The Prudential Insurance Company of America. A prepayment penalty of $495,266
was also paid; this amount has been reflected as an extraordinary item (net of
$198,000 income tax benefit) on the statement of operations and retained
earnings for the year ended September 1, 1995.
(Continued)
33
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 6 -
(Note G) - Notes Payable - Insurance
Company (Continued):
The new loan agreement requires maintenance of tangible net worth of
approximately $36,000,000. The Company must also maintain, at each fiscal
quarter end, ratios of current assets to current liabilities and current assets
to total liabilities of not less than 1.5 to 1 and 1.4 to 1, respectively, and
may not permit debt for borrowed money to exceed 55% of capitalization (as
defined). The agreement also prohibits the pledging of assets and restricts
dividends and redemptions of capital stock to $3,000,000 plus 50% of
consolidated net income (as defined) subsequent to August 28, 1994; at September
1, 1996, $2,617,000 was available for such payments.
(Note H) - Leases:
The Company leases showroom and office space and various equipment under
leases expiring at various dates to 2003.
Minimum rental payments under long-term leases in effect at September 1,
1996 are as follows:
<TABLE>
<S> <C>
Year ending in:
1997 $1,133,000
1998 1,069,000
1999 819,000
2000 701,000
2001 651,000
Thereafter 922,000
----------
T o t a l $5,295,000
==========
</TABLE>
Rent expense aggregated $1,925,000 in 1996, $2,300,000 in 1995 and
$2,200,000 in 1994.
(Continued)
34
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 7 -
(Note I) - Interest Expense:
Interest expense (net) on the consolidated statement of operations and
retained earnings comprises the following:
<TABLE>
<CAPTION>
Y e a r E n d e d
-------------------------------------------------
September 1, September 3, August 28,
1996 1995 1994
----------- ------------ ----------
<S> <C> <C> <C>
Interest expense $1,950,121 $2,533,640 $1,874,332
Interest income 138,374 101,202 87,021
---------- ---------- ----------
N e t $1,811,747 $2,432,438 $1,787,311
========== ========== ==========
</TABLE>
(Note J) - 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 B shares,
voting as a separate class, 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. During the years ended September 1, 1996 and August
28, 1994, 50 and 11,650 Class B shares, respectively, were converted to an equal
number of Class A shares; no conversions took place during the year ended
September 3, 1995.
(Continued)
35
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 8 -
(Note K) - Stock Options:
Pursuant to an Incentive Program adopted on January 10, 1989, awards (as
defined) may be granted to key employees of the Company up to a maximum of
500,000 shares of the Company's Class A common stock.
On January 10, 1989, options to purchase an aggregate of 150,000 shares of
the Company'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, 1995 and expire ten years from the
date of grant.
On March 1, 1994, an option to purchase 10,000 shares of the Company's
Class A common stock at $9.50 a share (fair market value at such date) was
granted to an employee. The option was cancelled upon the employee's termination
of employment during the year ended September 3, 1995.
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
date) were granted to two employees. The options are exercisable in four annual
installments com mencing January 9, 1997 and expire ten years from the date of
the grant.
During 1996, the Company adopted a Director Stock Option Plan under which
awards may be granted to outside directors of the Company up to a maximum of
75,000 shares of the Company's Class A common stock. The plan provides for the
granting of 2,500 options for each outside director annually. The options become
exercisable one year from the date of grant and terminate the sooner of five
years or two years after a director termination. 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.
(Continued)
36
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 9 -
(Note K) - Stock Options (Continued):
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares ---------------------------
Available Number of
For Grant Shares Amount
--------- --------- -------
<S> <C> <C> <C>
Outstanding at August 29, 1993 350,000 150,000 $ 450,000
Granted (10,000) 10,000 95,000
Exercised(1) (37,500) (112,500)
------- ------- ----------
Outstanding at August 28, 1994 340,000 122,500 432,500
Cancelled 10,000 (10,000) (95,000)
Exercised(1) (12,500) (37,500)
------- ------- ----------
Outstanding at September 3, 1995 350,000 100,000 300,000
Granted (200,000) 205,000 948,125
Exercised(1) (41,295) (123,885)
Cancelled 2,455 (2,455) (7,365)
------- ------- ----------
Outstanding at September 1, 1996 152,455 261,250 $1,116,875
======= ======= ==========
</TABLE>
(1) The $103,238, $31,250 and $93,750 excess of the exercise price
over the par value of the Class A common stock issued has been
credited to additional paid-in capital in the years ending
September 1, 1996, September 3, 1995 and August 28, 1994,
respectively.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Statements (SFAS) No. 123, "Accounting for Stock-Based
Compensation." This standard requires either the recognition or disclosure of
compensation expense based on the fair value of equity instruments granted to
employees. As permitted by SFAS 123, the Company has elected to adopt the
disclosure provisions of the standard in 1997.
(Note L) - Business of the Company:
The Company's principal business is the manufacturing and purchasing of
woven and knitted fabrics for sale to manufacturers (primarily of home
furnishing and apparel) and to retailers (including chains, department stores
and independently owned fabric stores) for resale to the home sewing market.
(Continued)
37
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 10 -
(Note M) - Chino, California Facility:
In February 1994, the Company sold its Chino, California machinery and
equipment for $2,000,000 cash and recognized a gain before income taxes of
$1,420,606 on its statement of operations for the year ended August 28, 1994.
The Company also leased the land and building 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 N) - Acquisition of Kat-Em
International, Inc.
On April 18, 1994, the Company 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, for $1,150,482 cash, which includes
acquisition costs.
The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair values at
the acquisition date and the operations of Kat-Em are included in the
consolidated statement of operations and retained earnings from April 18, 1994.
During 1996, the Company decided to wind down the Kat-Em operations and in
August 1996, Kat-Em was merged into Concord Fabrics Inc.
(Note O) - Plant Shut-Down Costs:
The Company decided to dispose of its Washington, Georgia dyeing and
finishing plant and is actively searching for a buyer; manufacturing operations
ceased October 6, 1995. The loss of $1,100,000 (before income tax benefit of
$440,000) reflected on the statement of operations and retained earnings for the
fiscal year ended September 3, 1995 comprises estimated expenses during the
disposition period. The Company estimates that the net proceeds of sale will
approximate the facility's depreciated cost.
(Continued)
38
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 11 -
(Note P) - Supplemental Information to
Consolidated Statement of
Cash Flows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 1, September 3, August 28,
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Cash paid (refunded) for:
Interest $1,984,000 $2,803,000 $1,928,000
Income taxes (1,229,000) 1,463,000 4,070,000
</TABLE>
Noncash investing activity:
During the year ended August 28, 1994, the Company purchased all of the
capital stock of Kat-Em International, Inc. for $1,150,482. In conjunction
with the acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $3,619,061
Cash paid for the capital stock,
including acquisition costs 1,150,482
----------
Liabilities assumed $2,468,579
==========
</TABLE>
(Note Q) - Concentration of Credit Risk:
(1) Cash in banks, based on bank statement balances, exceeded federally
insured limits by approximately $1,600,000 and $3,800,000 at September 1, 1996
and September 3, 1995, respectively. The Company's investment in commercial
paper at September 1, 1996 was with a financial institution.
(2) Accounts receivable from manufacturers and retailers aggregated
approximately $17,303,000 and $9,611,000 at September 1, 1996 and $19,368,000
and $6,447,000 at September 3, 1995, respectively. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers.
(3) Accounts receivable at September 1, 1996 and September 3, 1995 also
includes $1,793,000 and $3,320,000, respectively, of due from factors.
(4) Five customers accounted for approximately 14% and 11% of sales for
the year ended September 1, 1996 and September 3, 1995, respectively.
(Continued)
39
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- Sheet 12 -
(Note R) - Fair Values of Financial
Instruments:
The Company's financial instruments consist of cash, temporary investments
and debt. The following summarizes the methods used to estimate the fair value
of these financial instruments.
The carrying values of cash and temporary investments approximate their
fair values due to their short-term maturities.
The carrying value of the $20,000,000 notes payable at September 1, 1996
approximates fair value based on their future cash flows discounted at a current
rate for debt with similar terms and maturity.
40
<PAGE>
<PAGE>
SCHEDULE II
CONCORD FABRICS INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Additions Balance at
beginning charged to end of
Description of year operations Deductions* year
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Estimated doubtful
accounts:
Year ended
August 28, 1994 $1,840,000 $1,321,000 $ 986,000 $2,175,000
Year ended
September 3, 1995 $2,175,000 $ 633,000 $1,583,000 $1,225,000
Year ended
September 1, 1996 $1,225,000 $1,070,000 $ 685,000 $1,610,000
</TABLE>
*Deductions from estimated doubtful accounts represent accounts written
off, net of recoveries of accounts written off in prior years.
The notes to financial statements are made a part hereof.
41
<PAGE>
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
January 14, 1997, to be filed pursuant to Section 14 of the Exchange Act within
120 days after the end of Registrant's 1996 fiscal year.
Item 11. Executive Compensation.
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
January 14, 1997, to be filed pursuant to Section 14 of the Exchange Act within
120 days after the end of Registrant's 1996 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners of Management.
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
January 14, 1997, to be filed pursuant to Section 14 of the Exchange Act within
120 days after the end of Registrant's 1996 fiscal year.
Item 13. Certain Relationships and Related Transactions.
This information is incorporated by reference from the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
January 14, 1997, to be filed pursuant to Section 14 of the Exchange Act within
120 days after the end of Registrant's 1996 fiscal year.
42
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) and (2) The following financial statements and schedules are
filed as part of this Report. See Item 8 -- Index of Financial Statements and
Schedules.
(a) (3) Exhibits.
*3.1 Delaware Certificate of Incorporation of the Registrant incorporated
by reference from Appendix B to Registrant's Proxy Statement dated January 26,
1988.
*3.2 Delaware bylaws of the Registrant incorporated by reference from
Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year ended August
28, 1988.
*4.1 Note Agreement between Registrant and John Hancock Mutual Life
Insurance Company dated November 30, 1994 (the "Note Agreement"), incorporated
by reference from exhibit 4.1 to Registrant's Report on Form 8-K dated December
15, 1994.
*10.1 Employment Agreement dated August 27, 1992 between Registrant and
George Gleitman incorporated by reference from exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended August 30, 1992.
*10.2 Employment Agreement dated as of March 2, 1994 between Registrant
and Earl Kramer, incorporated by reference from exhibit 10.2 to Registrant's
annual report on form 10-K for the year ended August 28, 1994.
- --------
43
<PAGE>
<PAGE>
*10.3 Deferred Compensation Agreement dated June 14, 1977, as amended on
February 5, 1986 between Registrant and Martin Wolfson incorporated by reference
to exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1986.
*10.4 Lease Agreement dated August 1, 1994 between 1359 Broadway
Associates and Concord Fabrics Inc., incorporated by reference from exhibit 10.4
to Registrant's Annual Report on form 10-K for the year ended August 29, 1994.
*10.5 Lease Agreement dated October 1, 1994 between 1359 Broadway
Associates and Concord Fabrics Inc., incorporated by reference from exhibit 10.5
to Registrant's Annual Report on form 10-K for the year ended August 28,1994.
*10.8 Employment Agreement dated December 6, 1993 between Registrant and
Mark Neugeboren incorporated by reference from exhibit 10.8 to Registrant's
Annual Report on form 10-K for the year ended August 28, 1994.
22 Subsidiaries of the Registrant: Concord FSC Inc.and Trilogy
Fabrics Inc.
(b) No report on Form 8-K was filed by Registrant in fiscal 1996.
- ------------------------
*Document is available at Public Reference Section of the Securities
and Exchange Commission, Commission File No. 1-5960.
44
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: November 19, 1996 CONCORD FABRICS INC.
By /s/ EARL KRAMER
______________________
Earl Kramer
President and Director
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
45
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ EARL KRAMER
____________________ Director, President November 19, 1996
Earl Kramer (Principal Executive
Officer)
/s/ MARTIN WOLFSON
____________________ Director, Senior Vice November 19, 1996
Martin Wolfson President, Treasurer
(Principal Financial Officer)
/s/ ARTHUR LANGER
____________________ Controller (Principal November 19, 1996
Arthur Langer Accounting Officer)
/s/ ALVIN WEINSTEIN
_____________________ Director, Chairman of November 19, 1996
Alvin Weinstein the Board
/s/ DAVID WEINSTEIN
_____________________ Director, President of November 19, 1996
David Weinstein Concord House Division
/s/ GEORGE GLEITMAN
_____________________ Director, President Emeritus November 19, 1996
George Gleitman of Home Sewing Division
/s/ FRED HELLER
_____________________ Director November 19, 1996
Fred Heller
/s/ RICHARD SOLAR
_____________________ Director November 19, 1996
Richard Solar
</TABLE>
46
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO IT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-01-1996
<PERIOD-START> SEP-04-1995
<PERIOD-END> SEP-01-1996
<CASH> 9,743,024
<SECURITIES> 0
<RECEIVABLES> 27,097,106
<ALLOWANCES> 0
<INVENTORY> 17,323,179
<CURRENT-ASSETS> 58,395,828
<PP&E> 8,117,040
<DEPRECIATION> 0
<TOTAL-ASSETS> 73,164,882
<CURRENT-LIABILITIES> 11,300,508
<BONDS> 0
0
0
<COMMON> 1,828,179
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 73,164,882
<SALES> 146,561,416
<TOTAL-REVENUES> 146,561,416
<CGS> 108,814,265
<TOTAL-COSTS> 144,847,498
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,811,747
<INCOME-PRETAX> 1,713,918
<INCOME-TAX> 776,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937,918
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
