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Exhibit index appears
on page 41
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
August 31, 1997 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:
Name of each exchange
Title of each Class on which registered
- ---------------------------------- -------------------
Class A Common Stock, par value $.50 per Share American Stock Exchange
Class B Common Stock, par value $.50 per Share American Stock Exchange
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 11, 1997, 2,209,006 Shares of Registrant's Class A Common Stock
and 1,456,101 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 $4,480,034.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on January 13, 1998, filed pursuant to Section 14 of the Securities
Exchange Act of 1934, incorporated by reference into Part III hereof.
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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 54% of fabric sales in fiscal 1997, compared
with 60% in fiscal 1996 and 69% in fiscal 1995. The significant decline in the
percentage of woven fabric sales to total sales resulted from reduced sales of
woven goods to the apparel trade and Registrant's deemphasis of producing
product for that market. All of Registrant's supply of unfinished woven fabrics
("greige goods") are made from natural and/or
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synthetic fibers by unaffiliated companies, who frequently produce the greige
goods to Registrant's specifications. In fiscal 1997, Registrant was able to
obtain adequate supplies of greige goods at competitive prices. Registrant
purchased substantially all of its greige goods from about 50 suppliers; the
five largest suppliers accounted for 60% of Registrant's purchases of greige
goods and the largest supplied 15%. In fiscal 1996, 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
single largest supplied 14%. In fiscal 1995, Registrant purchased its greige
goods from about 85 suppliers of which the single largest supplied 13% of
Registrant's needs. Registrant's greige cloth purchases derive from domestic and
imported sources.
Woven greige goods purchased by Registrant are printed or dyed and
finished by unaffiliated contract finishers in accordance with Registrant's
designs and specifications. In fiscal 1997, Registrant contracted with about 10
finishers for the finishing or printing of woven fabrics; the largest contract
finisher accounted for 54% of Registrant's woven finishing requirements; no
other contract finisher accounts for more than 20%. In fiscal 1996, Registrant
contracted with about 13 finishers, the largest of which accounted for 46% of
Registrant's woven finishing requirement.
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
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and women's accessories, and to retailers for resale to the home sewing market.
Approximately 42% of Registrant's woven fabric sales were made to retailers and
58% were made to other markets.
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 O 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 customers' 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 finished woven fabrics for sale abroad. In fiscal
1997 exports were 11% of sales. In fiscal 1995 and 1996 exports approximated 8%
of sales. The increase in exports as a proportion of total sales was due to the
year to year decline in revenues resulting from the deemphasis of woven fabric
sales to apparel manufacturers.
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
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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.
Knitted Fabrics
Knitted fabrics accounted for 46% of fabric sales in fiscal 1997,
compared with 40% in fiscal 1996 and 31% in fiscal 1995. The increase in percent
was due primarily to the year to year decline in revenues resulting from the
deemphasis of woven fabric sales to apparel manufacturers. Registrant purchases
yarn for knitting from unaffiliated suppliers; in fiscal 1997, Registrant
purchased yarn from 15 suppliers, the three largest suppliers accounted for 85%
of Registrant's purchases of yarn; the largest of which accounted for 73% of
yarn purchases. In fiscal 1996 Registrant purchased yarn from 14 suppliers; the
three largest of which supplied 91% 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 1997, 83% 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 1997 was knitted by unaffiliated contractors. In
fiscal 1996, 77% of yarn purchased by Registrant was knitted at Milledgeville.
In fiscal 1995, 88% of the yarn purchased by
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Registrant was knitted into fabric in Registrant's Milledgeville, Georgia plant.
In the past three years, substantially all of the knitted fabric was dyed and
finished in Registrant's owned 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 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
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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 as such efforts adversely effected earnings. Accordingly,
sales declined by more than 18% but significantly better gross margins were
obtained, which along with reductions in expenses, produced moderately
profitable results.
In fiscal 1997, Registrant increased its gross margins and further
reduced its operating expenses as part of its strategic plan to deemphasize
merchandising and marketing woven fabrics to the apparel trade. As expected,
sales declined 26% from fiscal 1996 levels but a significant improvement in
profitability resulted.
Registrant believes its strategy has significantly insulated it from the
effects of the increasing quantities of imported apparel flowing into the United
States and that future operating results will for the most part depend on how
well it designs, manufactures, merchandises and markets its products.
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 1997 and 1996.
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Seasonal Fluctuations
Although Registrant's business is somewhat seasonal, much of the
seasonality 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 1997, Registrant sold its fabric products to approximately
3,500 customers, the 20 largest of which accounted for 39% of sales; the largest
customer, accounted for almost 6% 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 1996
fiscal year end and to about 15 by the end of fiscal 1997. Registrant spent
approximately $4,300,000 on such activities in fiscal 1997; approximately
$5,800,000 was spent on such activities in
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fiscal 1996 and 1995. 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 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. 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 25 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
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full productive capacity, which is adequate for all of Registrant's finishing
requirements. Registrant is considering the expansion of the plant's knitting
capacity.
On October 6, 1995, Registrant closed its 140,000-square foot building
on approximately 55 acres of land in Washington, Georgia. The land and building
are currently being offered for sale.
Registrant, owns 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. The
lessee was granted an option to purchase the real estate through the end of its
lease (See Note N of Notes to Financial Statements).
Registrant believes that its Milledgeville, Georgia facility will
continue to 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. A division of
Registrant leased space comprised of 40,000 square feet for its office and
warehouse in Los Angeles, California; the lease expires in 1999. Registrant has
sublet a substantial part of this property but maintains some space for its Los
Angeles sales office. (See Note J of Notes to Financial Statements).
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Item 3. Legal Proceedings
None.
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.
Name Age Position
Alvin Weinstein 72 Chairman of the Board and Director
Earl Kramer 64 President and Director
Martin Wolfson 61 Sr. Vice President, Treasurer and Director
Mark Neugeboren 47 Vice President
Joan Weinstein 65 Secretary
David Weinstein 35 President, Concord House Division
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
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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.
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.
David Weinstein has been employed by Registrant for more than eight
years and serves as President of its Concord House Division. He has been a
Director since 1996.
All of Registrant's officers hold office until the next annual meeting
of Registrant's Board of Directors (scheduled for January 13, 1998) 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
As of August 31, 1997, the number of record holders of the Registrant's Class A
Common Stock was 170 and the number of record holders of Registrant's Class B
Common Stock was 154. 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 1997 and
1996.
<TABLE>
<CAPTION>
------------------1997-------------------- -------------------1996-------------------
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 6-15/16 6 6-5/8 5-3/4 5 3-11/16 4-5/8 3-5/8
February 28 6-3/4 5-7/8 6-1/8 5-5/8 4-3/4 3-5/8 4-5/8 3-5/8
May 31 6-7/8 5-7/8 6-1/2 6 5-3/4 4 5-5/8 4-7/8
August 31 7-1/2 6-1/4 7 6-1/8 6-7/8 5-3/4 6-1/2 5-3/4
</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) subsequent to August
28, 1994 plus net cash proceeds from the sale of stock; $4,374,000 was available
for such payments as of August 31, 1997.
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CONCORD FABRICS INC. AND SUBSIDIARIES ITEM 6
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Y E A R E N D E D
August 31, September 1, September 3, August 28, August 29,
1997 1996 1995 1994 1993
---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales $108,820,287 $146,561,416 $180,152,779 $197,804,544 $197,047,714
------------ ------------ ------------ ------------ ------------
Cost of Sales 76,302,759 108,814,265 143,950,238 148,920,930 153,338,242
Merchandising expenses 6,933,616 9,070,758 9,644,429 8,698,897 7,758,817
Selling and shipping expenses 8,979,360 12,189,783 13,852,770 14,169,565 12,370,215
General and administrative expenses 9,143,052 11,890,945 12,640,139 13,551,493 11,724,618
Provision for doubtful accounts 901,000 1,070,000 633,000 1,321,000 1,777,000
Interest expense (net) 1,101,775 1,811,747 2,432,438 1,787,311 2,320,021
Plant shut-down costs 1,100,000
Gain on sale of equipment (1,420,606)
------------------------------------------------------------------------
Total $103,361,562 $144,847,498 $184,253,014 $187,028,590 $189,288,913
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income
taxes and extraordinary item 5,458,725 1,713,918 (4,100,235) 10,775,954 7,758,801
Income tax provision (credit) 2,100,000 776,000 (1,414,000) 4,332,000 3,133,000
------------ ------------ ------------ ------------ ------------
Net earnings (loss) before
extraordinary item 3,358,725 937,918 (2,686,235) 6,443,954 4,625,801
Extraordinary item (net of
income tax credit) (297,266)
------------------------------------------------------------------------
NET EARNINGS (LOSS) $3,358,725 $937,918 ($2,983,501) $6,443,954 $4,625,801
------------ ------------ ------------ ------------ ------------
Earnings (loss) per share:
Earnings (loss) before
extraordinary item $0.92 $0.26 ($0.75) $1.80 $1.30
Extraordinary item -- -- ($0.08) -- --
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $0.92 $0.26 ($0.83) $1.80 $1.30
Average number of shares
used in computing earnings
(loss) per share 3,661,591 3,630,329 3,606,976 3,574,780 3,565,062
------------ ------------ ------------ ------------ ------------
Dividends paid None None None None None
Working capital $50,792,826 $47,095,320 $44,625,140 $37,845,803 $33,385,284
------------ ------------ ------------ ------------ ------------
Long-term debt
(less current portion) $20,000,000 $20,000,000 $20,000,000 $7,500,000 $9,000,000
------------ ------------ ------------ ------------ ------------
Total assets $73,034,106 $73,164,882 $76,645,925 $84,895,505 $74,854,867
------------ ------------ ------------ ------------ ------------
Stockholders' equity $44,228,163 $40,839,125 $39,777,321 $42,723,322 $36,166,868
------------ ------------ ------------ ------------ ------------
Stockholders' equity per share $12.07 $11.17 $11.00 $11.86 $10.14
------------ ------------ ------------ ------------ ------------
</TABLE>
The year ended September 3, 1995 comprised 53 weeks; the other years presented
each comprised 52 weeks.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Fiscal 1997 v. Fiscal 1996
Fiscal 1997 and 1996 comprised 52 weeks.
Net sales decreased 26% from $146,561,416 to $108,820,287. This resulted
from a decline in unit sales of 20% and a 7% decline in average selling price.
The decrease in sales reflected Registrant's deemphasis in June 1996 of the
production of woven fabrics for the apparel trade.
Gross margins rose to 29.9% in fiscal 1997 from 25.8% in fiscal 1996.
The improvement was due to Registrant's deemphasis of less profitable fabric
lines marketed to the women's apparel trade.
Merchandising expenses decreased by approximately 24% primarily due to a
reduction in personnel associated with the production of fabric designed for and
marketed to the women's apparel trade. As a percentage of sales merchandising
expenses were 6.4% of sales in fiscal 1997 and 6.2% of sales in fiscal 1996.
Selling and shipping expense declined about 26% as a result of the
decrease in Registrant's sales. The decrease resulted primarily from a reduction
in sales salaries, commissions and related travel and selling expenses. As a
percentage of sales selling and shipping expenses were 8.3% of sales in fiscal
1997 and in fiscal 1996.
General and administrative expenses declined about 23%. About 60% of
the decline stemmed from reduced salary and related costs which resulted
from the reduction in force associated with Registrant's deemphasis of its
marketing effort directed at the womens apparel trade. Telephone,
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stationery and printing, professional fees and credit and collection expenses
were reduced in relationships to the reduction in sales and the number of people
employed by Registrant. As a percent of sales general and administrative
expenses were 8.4% of sales in fiscal 1997 and 8.1% of sales in fiscal 1996.
The provision for doubtful accounts declined by about 16% as
Registrant's reduced sales volume resulted in lower accounts receivable and
therefore a lower exposure to potential bad debts.
Interest expense declined by 39% as Registrant generated cash flow from
its planned reduction in business activity and the elimination of unprofitable
product lines. Short term debt was eliminated and Registrant generated interest
income from cash invested in marketable securities.
Although Registrant's sales in fiscal 1997 declined, as expected,
operating results improved as Registrant's recently implemented strategy focuses
on the more profitable aspects of its business.
In fiscal 1997 Registrant earned $3,359,000 net of a tax provision of
$2,100,000. In fiscal 1996 Registrant earned $938,000 net of a tax provision of
$776,000.
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
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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.
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
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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 strategy
focuses on the more profitable aspects of its business, (Concord House and
knitted fabrics), and de-emphasizes those areas that involve greater risk.
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Liquidity and Capital Resources
During fiscal 1997, Registrant met its cash needs from cash flow from
operations ($11,822,000), sale of equipment at its Washington, Georgia facility
($250,000) and the sale of capital stock ($30,000), which it used to invest in
plant and equipment ($942,000) and to invest in financial instruments with a
maturity of 270 days or less ($13,522,000). Cash decreased by $2,362,000.
Working capital increased by $3,698,000.
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. Amounts 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 1998. Registrant did not borrow under these
arrangements in fiscal 1997. Registrant expects its lines of credit, together
with cash management and cash flow from operations, to be adequate to finance
operations for fiscal 1998.
Registrant's long-term lending agreement with an insurance company which
is unsecured, prohibits pledging of assets, and requires, among other things,
maintenance of minimum working capital, tangible net worth of $38,316,000 and
maintenance of a minimum working capital ratio of 1.5 to 1- (see Note I to
Financial Statements). The unpaid principal balance at August 31, 1997 was
$20,000,000. At August 31, 1997, tangible net worth approximated $44,200,000 and
Registrant's working capital ratio was 7.5 to
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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 1997 such trends were modest;
inflation has not been a significant factor in Registrant's costs for the last
three fiscal years.
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.
20
<PAGE>
<PAGE>
ITEM 8
CONCORD FABRICS INC.
AND SUBSIDIARIES
--I N D E X--
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONSOLIDATED BALANCE SHEET AS AT AUGUST 31, 1997
AND SEPTEMBER 1, 1996
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1997, SEPTEMBER 1, 1996,
AND SEPTEMBER 3, 1995
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
AUGUST 31, 1997, SEPTEMBER 1, 1996, AND SEPTEMBER 3, 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1997, SEPTEMBER 1, 1996,
AND SEPTEMBER 3, 1995
NOTES TO CONSOLIDATED 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.
21
<PAGE>
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Concord Fabrics Inc.:
We have audited the accompanying consolidated balance sheet of Concord Fabrics
Inc. (a Delaware corporation) and subsidiaries as of August 31,1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 of August 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule Valuation and Qualifying Accounts -
Schedule II of this Form 10-K for the year ended August 31,1997 is presented for
the purpose 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 audit 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.
Arthur Andersen LLP
New York, New York
November 3, 1997
22
<PAGE>
<PAGE>
[LETTERHEAD]
Independent Auditors' Report
To the Board of Directors and Stockholders
Concord Fabrics Inc.
We have audited the accompanying consolidated balance sheet of
Concord Fabrics Inc. and Subsidiaries as at September 1, 1996, and the related
consolidated statements of stockholders' equity, operations and cash flows for
each of the two 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 the results of their
operations and their cash flows for each of the two years in the period ended
September 1, 1996 in conformity with generally accepted accounting principles.
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. The information in this schedule for the years
ended September 1, 1996 and September 3, 1995 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.
Eisner & Lubin LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
November 13, 1996
23
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, September 1,
A S S E T S 1997 1996
- ------------------------------- --------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,381,044 $ 9,743,024
Investments in held to maturity
securities (Note A) 13,522,758 --
Accounts receivable (less
doubtful accounts of $1,350,000 in
1997 and $1,610,000 in 1996) 21,311,977 27,097,106
Inventories (Notes A and B) 12,903,902 17,323,179
Prepaid and refundable income taxes 255,000 423,200
Prepaid expenses and other current
assets 1,416,839 1,620,319
Deferred income taxes (Note E) 1,773,000 2,189,000
----------- -----------
Total Current Assets 58,564,520 58,395,828
Property, Plant and Equipment, net
(Notes A and C) 7,438,260 8,117,040
Property, Plant and Equipment held
for sale, at estimated disposal
value (Note P) 1,936,969 2,153,884
Property and Plant leased to
others (Note N) 1,889,212 2,041,372
Other Assets (Note D) 3,205,145 2,456,758
----------- -----------
T O T A L A S S E T S $73,034,106 $73,164,882
=========== ===========
<CAPTION>
August 31, September 1,
L I A B I L I T I E S 1997 1996
- ------------------------------------------------------ ----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 4,293,207 $ 6,932,477
Accrued Expenses and Taxes (Note G) 3,478,487 4,368,031
----------- -----------
Total Current Liabilities 7,771,694 11,300,508
Notes Payable (Note I) 20,000,000 20,000,000
Deferred Income Taxes (Note E) 550,000 601,000
Other Liabilities 484,249 424,249
----------- -----------
T O T A L L I A B I L I T I E S 28,805,943 32,325,757
----------- -----------
Commitments and contingencies
(Notes B, G, I, J, M, N, P, R, and S)
S T O C K H O L D E R S' E Q U I T Y
- ------------------------------------------------------
(Notes A, I, L and M)
Common Stock:
Class A -- $.50 par value - authorized
4,000,000 shares, issued 2,209,006
shares in 1997 and 2,146,956 shares in 1996 1,104,503 1,073,478
Class B - $0.50 par value - authorized
4,000,000 shares, issued 1,456,101
shares in 1997 and 1,509,401 shares in 1996 728,051 754,701
Additional Paid-in Capital 9,192,061 9,166,123
Retained Earnings 33,203,548 29,844,823
----------- -----------
T O T A L S T O C K H O L D E R S ' E Q U I T Y 44,228,163 40,839,125
----------- -----------
T O T A L L I A B I L I T I E S A N D
S T O C K H O L D E R S ' E Q U I T Y $73,034,106 $73,164,882
=========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
24
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Y E A R E N D E D
------------------------------------------------------------------------
August 31, September 1, September 3,
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Net sales $ 108,820,287 $ 146,561,416 $ 180,152,779
------------- ------------- -------------
Cost of sales 76,302,759 108,814,265 143,950,238
Merchandising expenses 6,933,616 9,070,758 9,644,429
Selling and shipping expenses 8,979,360 12,189,783 13,852,770
General and administrative expenses 9,143,052 11,890,945 12,640,139
Provision for doubtful accounts 901,000 1,070,000 633,000
Interest expense, net (Note K) 1,101,775 1,811,747 2,432,438
Plant shut-down costs (Note P) -- -- 1,100,000
------------- ------------- -------------
Total 103,361,562 144,847,498 184,253,014
------------- ------------- -------------
Earnings (loss) before income
taxes and extraordinary item 5,458,725 1,713,918 (4,100,235)
Income tax provision (benefit) (Note E) 2,100,000 776,000 (1,414,000)
------------- ------------- -------------
Net earnings (loss) before
extraordinary item 3,358,725 937,918 (2,686,235)
Extraordinary item--loss on early extinguishment
of debt (net of income tax benefit)(Note I) -- -- (297,266)
------------- ------------- -------------
Net earnings (loss) $ 3,358,725 $ 937,918 $ (2,983,501)
============= ============= =============
Earnings (loss) per share
(Notes A and M):
Earnings (loss) before extraordinary item $ 0.92 $ 0.26 $ (.75)
Extraordinary item -- -- $ (.08)
------------- ------------- -------------
Net earnings (loss) $ 0.92 $ 0.26 $ (.83)
============= ============= =============
Weighted average number of shares used in
computing earnings (loss) per share 3,661,591 3,630,329 3,606,976
============= ============= =============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
25
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
Number Dollar Number Dollar
of Shares Value of Shares Value
--------------------------- --------------------------
<S> <C> <C> <C> <C>
August 28, 1994 2,093,111 $ 1,046,555 1,509,451 $ 754,726
Net loss
Exercise of stock options (Note M) 12,500 6,250
--------------------------- ---------------------------
September 3, 1995 2,105,611 1,052,805 1,509,451 754,726
Net earnings
Conversion from Class B shares to Class A shares 50 25 (50) (25)
Exercise of stock options (Note M) 41,295 20,648
--------------------------- ---------------------------
September 1, 1996 2,146,956 1,073,478 1,509,401 754,701
Net earnings
Conversion from Class B shares to Class A shares 53,300 26,650 (53,300) (26,650)
Exercise of stock options (Note M) 8,750 4,375
-------------------------- ---------------------------
August 31, 1997 2,209,006 $ 1,104,503 1,456,101 $ 728,051
========================== ===========================
<CAPTION>
Additional Total
Paid-in Retained Stockholders'
Capital Earnings Equity
------------ ------------ ------------
<S> <C> <C> <C>
August 28, 1994 $ 9,031,635 $ 31,890,406 $ 42,723,322
Net loss (2,983,501) (2,983,501)
Exercise of stock options (Note M) 31,250 37,500
------------ ------------ ------------
September 3, 1995 9,062,885 28,906,905 39,777,321
Net earnings 937,918 937,918
Conversion from Class B shares to Class A shares
Exercise of stock options (Note M) 103,238 123,886
------------ ------------ ------------
September 1, 1996 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
Exercise of stock options (Note M) 25,938 30,313
------------ ------------ ------------
August 31, 1997 $ 9,192,061 $ 33,203,548 $ 44,228,163
============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
26
<PAGE>
<PAGE>
CONCORD FABRICS INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
AUGUST 31, SEPTEMBER 1, SEPTEMBER 3,
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 3,358,725 $ 937,918 $ (2,983,501)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,724,099 1,813,123 1,991,438
Deferred income taxes 365,000 370,000 (110,000)
Provision for doubtful accounts 901,000 1,070,000 633,000
Loss on sale of equipment 52,569
Loss on disposal of leasehold improvements 51,000
Plant shut-down costs 1,100,000
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable 4,884,129 (257,400) 6,456,456
Inventories 4,419,277 6,748,247 7,013,134
Prepaid and refundable income taxes 168,200 1,627,800 (2,051,000)
Prepaid expenses and other current assets 203,480 732,084 204,526
Other assets (783,691) (112,236) (851,333)
Increase (decrease) in:
Accounts payable (2,639,270) (1,990,962) (6,267,344)
Accrued expenses and taxes (889,544) (1,002,044) (2,741,735)
Income taxes (992,637)
Other liabilities 60,000 63,159 59,137
------------ ------------ ------------
Net cash provided by operating activities 11,822,405 10,052,258 1,460,141
------------ ------------ ------------
Cash flows from investing activities:
Purchases of held to maturity securities (45,193,998)
Proceeds from sales of held to maturity securities 31,671,240
Purchases of property, plant and equipment (942,328) (1,695,758) (4,112,904)
Proceeds from sale of equipment 250,390 900,520
------------ ------------ ------------
Net cash used in investing activities (14,214,696) (795,238) (4,112,904)
------------ ------------ ------------
Cash flows from financing activities:
Payments of notes payable (9,000,000)
Proceeds from notes payable 20,000,000
Payments of notes payable - banks net (2,000,000) (7,600,000)
Issuance of Class A common stock pursuant to
stock options exercised 30,311 123,885 37,500
------------ ------------ ------------
Net cash provided by (used in) financing
activities 30,311 (1,876,115) 3,437,500
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,361,980) 7,380,905 784,737
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 9,743,024 2,362,119 1,577,382
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 7,381,044 $ 9,743,024 $ 2,362,119
============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
27
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. 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.
2. Principles of Consolidation -- The financial statements include the accounts
of Concord Fabrics Inc. and its wholly-owned subsidiaries (the Company). All
intercompany investments, advances and transactions have been eliminated.
3. Inventories -- Inventories are stated at lower of cost or market using
first-in, first-out method. Inventory costs comprise material, direct labor and
overhead.
4. Property Plant and Equipment -- Property, plant and equipment is recorded at
cost.
Depreciation is computed principally by the straight line method for
financial reporting purposes and by accelerated methods for income tax purposes.
Deferred income taxes are provided for the difference between depreciation
expense for financial reporting purposes and for income tax purposes. Leasehold
improvements are amortized over the shorter of the life of the related asset or
the life of the lease.
5. Investments -- The Company's investments are in debt securities and stated at
amortized cost. The Company has the positive intent and ability to hold the
securities to maturity.
6. 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 Equivalents including commercial
paper aggregate $5,600,000 at August 31, 1997 and $9,000,000 at September 1,
1996.
7. Stock Options -- In October, 1995 the Financial Accounting Standards Board
Issued SFAS No. 123, "Accounting for Stock-Based Compensation". This statement
establishes a fair market value based method of accounting for an employee stock
option or similar equity instrument but allows companies to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees". Companies electing to continue using the accounting under APB
Opinion No. 25 must, however, make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS No. 123 had been applied (Note M). The Company has elected to continue
accounting for its stock based compensation awards to employees and directors
under the accounting prescribed by APB Opinion No. 25 and to provide the
disclosures required by SFAS No. 123.
28
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
8. Earnings (Loss) Per Share -- Earnings (loss) per share is computed using
weighted average number of common shares outstanding and, where applicable,
common equivalent shares issuable upon the exercise of stock options to the
extent they are dilutive under the treasury stock method.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. For entities with complex
capital structures, the statement requires the dual presentation of both Basic
EPS and Diluted EPS on the face of the statement of operations. Under this new
standard, Basic EPS is computed on the weighted average number of shares
actually outstanding during the year. Diluted EPS includes the effect of
potential dilution from the exercise of outstanding dilutive stock options and
warrants into common stock using the treasury stock method. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, and earlier adoption is not permitted. The Company does not expect the
adoption of this statement to have a material effect on earnings or earnings per
share.
9. Fiscal Year -- The Company operates on a 52-53 week year ending on the Sunday
closest to August 31. The years ended August 31, 1997 and September 1, 1996 were
comprised of fifty-two weeks. The year ended September 3, 1995 comprised
fifty-three weeks.
10. Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principals 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.
(B) INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
August 31, September 1,
1997 1996
---------------------------------
<S> <C> <C>
Finished goods $ 8,164,772 $ 9,750,156
Work-in-process 2,527,339 3,268,677
Greige goods and yarn 2,211,791 4,304,346
---------------------------------
Total $12,903,902 $17,323,179
=================================
</TABLE>
At August 31, 1997, the Company had outstanding commitments to purchase
greige goods aggregating approximately $12,900,000.
29
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
Estimated
August 31, September 1, Useful Life
1997 1996 (In Years)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 78,503 $ 78,503
Buildings 2,568,195 2,568,195 19 to 40
Machinery and equipment 7,414,592 7,700,666 5 to 9
Furniture and fixtures 1,650,269 1,409,079 3 to 8
Leasehold improvements 2,126,870 1,785,163 Term of lease
or life of asset
----------------------------
Total 13,838,429 13,541,606
Less accumulated depreciation
and amortization 6,400,169 5,424,566
----------------------------
Net $ 7,438,260 $ 8,117,040
============================
</TABLE>
(D) OTHER ASSETS:
The Company maintains several insurance policies on the lives of its
officers and directors, with a total face value of approximately $9,843,000.
At August 31, 1997, and September 1, 1996, the cash surrender value on these
policies aggregated $2,456,000 and $1,963,000, respectively and were included
in other assets in the balance sheets.
(E) INCOME TAXES:
1.Income tax provision (benefit) on the consolidated statements of
operations is summarized as follows:
<TABLE>
<CAPTION>
August 31, September 1, September 3,
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable (refundable):
Federal $ 1,480,000 $ 346,000 $(1,304,000)
State and local 255,000 60,000
Deferred:
Federal 216,000 284,000 34,000
State and local 149,000 86,000 (144,000)
--------------------------------------------------
Total $ 2,100,000 $ 776,000 $(1,414,000)
==================================================
</TABLE>
30
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(E) INCOME TAXES (CONTINUED):
2. Income taxes computed at the statutory federal income tax rate are reconciled
to income tax provision (benefit) on the consolidated statements of operations
as follows:
<TABLE>
<CAPTION>
August 31, September 1, September 3,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at statutory
federal income tax rate $ 1,856,000 $583,000 $(1,364,000)
Effect of:
State and local income
taxes (net of federal
income taxes) 270,000 96,000 (85,000)
Nondeductible expenses (12,000) 107,000 68,000
Foreign sales corporation (14,000) (10,000) (33,000)
----------------------------------------------------------------
Total $ 2,100,000 $776,000 $(1,414,000)*
================================================================
</TABLE>
* The tax benefit related to the extraordinary item on retirement of debt
was $198,000 in the year ended September 3, 1995
3. Deferred tax assets and liabilities are comprised of the following elements:
<TABLE>
<CAPTION>
August 31, September 1,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross deferred assets:
Excess of tax over financial statement
basis of property and plant leased
to others $ 173,000 $ 176,000
Estimated doubtful accounts 540,000 640,000
Excess of tax over financial statement
basis of inventory 941,000 1,163,000
Accruals deductible for tax purposes
when paid 421,000 515,000
-----------------------------------------
Gross deferred assets 2,075,000 2,494,000
-----------------------------------------
Excess of financial statement over
tax basis of property, plant and
equipment 431,000 428,000
Excess of financial statement over
tax basis of property, plant and
equipment held for sale 421,000 478,000
-----------------------------------------
Gross deferred liabilities 852,000 906,000
-----------------------------------------
Net deferred taxes $ 1,223,000 $ 1,588,000
=========================================
Reflected on consolidated balance sheet as:
Current deferred asset - net $ 1,773,000 $ 2,189,000
Non-current deferred (liability) - net (550,000) (601,000)
-----------------------------------------
Net deferred taxes $ 1,223,000 $ 1,588,000
=========================================
</TABLE>
31
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(F) 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. There were no borrowings under these
arrangements at August 31, 1997 and September 1, 1996.
(G) ACCRUED EXPENSES AND TAXES:
Accrued expenses and taxes comprises the following:
<TABLE>
<CAPTION>
August 31, 1997 September 1, 1996
-------------------------------------
<S> <C> <C>
Interest $ 474,425 $ 479,529
Salaries, commissions and other
performance related compensation 1,685,795 2,223,531
Profit Sharing (Note H) 345,000 150,000
Miscellaneous expenses and taxes 973,267 1,514,971
-------------------------------------
Total $3,478,487 $4,368,031
=====================================
</TABLE>
(H) PROFIT SHARING PLAN:
The Company has a noncontributory profit sharing plan, approved by the
Treasury Department, for the benefit of eligible full time employees, which
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 maximum amount deductible for federal income tax purposes.
Contributions of $345,000 and $150,000 were made for the years ended August
31, 1997 and September 1, 1996, respectively; no contribution was made for the
year ended September 3, 1995.
(I) NOTES PAYABLE:
On November 30, 1994, the Company borrowed $20,000,000 from an insurance
company. In December 1996 the insurance company sold $10,000,000 of the above
amount to a financial institution.
The unsecured loans bear interest at 9.31% a year and are repayable in
seven equal annual installments commencing November 30, 1998. A portion of the
loan proceeds was used to prepay a previous outstanding loan. In that connection
the Company paid a prepayment penalty which amount (net of $198,000 income tax
benefit) is reflected as an extraordinary item on the statement of operations
for the year ended September 3, 1995.
The loan agreement requires maintenance of tangible net worth of
approximately $38,300,000 at August 31, 1997. 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.
32
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(I) NOTES PAYABLE (CONTINUED):
At August 31, 1997, $4,374,000 was available for such payments. The Company was
in compliance with these covenants as of August 31, 1997.
(J) LEASES:
1. 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 August 31, 1997
are as follows:
Year ending in:
------------------------------
1998 $1,089,000
1999 835,000
2000 701,000
2001 651,000
2002 651,000
Thereafter 271,000
------------------------------
Total $4,198,000
==============================
2. Rent expense aggregated $1,467,000 in 1997, $1,925,000 in 1996 and
$2,300,000 in 1995
(K) INTEREST EXPENSE:
Interest expense, net on the consolidated statements of operations,
comprises the following:
August 31, September 1, September 3,
Year Ended 1997 1996 1995
- -------------------------------------------------------------------------------
Interest expense $1,856,896 $1,950,121 $2,533,640
Interest income 755,121 138,374 101,202
-------------------------------------------------
Net $1,101,775 $1,811,747 $2,432,438
=================================================
(L) 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.
33
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(L) COMMON STOCK (CONTINUED):
4. Class B shares are convertible into Class A shares on the basis of one share
of Class A shares for each share of Class B shares; Class A shares have no
conversion rights. During the years ended August 31, 1997 and September 1, 1996
53,300 and 50 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.
(M) 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 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 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 stock at $4.625 (fair market value at such date) were granted to two outside
directors. The options become exercisable one year from the date of grant and
terminate the sooner of five years, or two years after a director's termination.
On September 2, 1996, additional options to purchase 5,000 shares of the
Company's Class A common stock at $6.625 (fair market value at such date) were
granted to the above outside 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 on
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 (fair market at such date). The option is exercisable in
five annual installments commencing January 14, 1998 and expires ten years from
the date of grant.
34
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(M) STOCK OPTIONS CONTINUED:
The following table reflects activity under the plan:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Shares
Available Number of
For Grant Shares Amount
--------------------------------------------
<S> <C> <C> <C>
At August 29, 1993 350,000 150,000 $ 450,000
Granted (10,000) 10,000 95,000
Exercised (1) (37,500) (112,500)
---------------------------------------------
At August 28, 1994 340,000 122,500 432,500
Cancelled 10,000 (10,000) (95,000)
Exercised (1) (12,500) (37,500)
---------------------------------------------
At September 3, 1995 350,000 100,000 300,000
Granted (205,000) 205,000 948,125
Exercised (1) (41,295) (123,885)
Cancelled 2,455 (2,455) (7,365)
---------------------------------------------
At September 1, 1996 147,455 261,250 1,116,875
Granted (105,000) 105,000 715,250
Exercised (1) (8,750) (30,313)
---------------------------------------------
At August 31, 1997 42,455 357,500 $ 1,801,812
</TABLE>
(1) The excess of the exercise price over the par value of the Class A common
stock issued has been credited to additional paid-in capital as follows:
Year end Amount
--------- ----------
August 31, 1997 $ 25,938
September 1, 1996 $ 103,238
September 3, 1995 $ 31,250
August 28, 1994 $ 93,750
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
Company's net earnings and net earnings per share would have decreased to the
following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1997 September 1, 1996
----------------------------------------
<S> <C> <C> <C>
Net earnings: As Reported $3,358,725 $937,918
Pro Forma $3,285,025 $890,718
EPS As Reported $ .92 $ .26
Pro Forma $ .90 $ .25
</TABLE>
The SFAS No. 123 method of accounting has not been applied to options
granted prior to September 3, 1995. The resulting pro forma
compensation expense may not be indicative of pro forma expense in
future years.
35
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(M) STOCK OPTIONS (CONTINUED):
The fair value of each stock option grant is estimated as of the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
1997
Risk-Free Interest Rates 6.00%
Expected Lives 6 years
Expected Volatility 38.00%
Expected Dividend Yields 0.00%
For options granted at an exercise price equal to fair market value, the
weighted average fair value of such options is $4.86 and the weighted average
of the exercise price of such options is $3.57.
For an option granted during fiscal 1997 at an exercise price greater than
fair market value, the fair value of such option is $6.38 and the exercise
price is $4.92.
The following table summarizes information about stock options outstanding
at August 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------------------------------------------------
Number Weighted Average Weighted Average Number Weighted Average
Exercise Outstanding at Remaining Exercise Exercisable at Exercise
Price August 31, 1997 Contractual Life Price August 31, 1997 Price
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.0000 50,000 2.0 $3.0000 50,000 $3.0000
$4.6250 202,500 9.0 $4.6250 42,500 $4.6250
$6.6250 5,000 4.0 $6.6250 5,000 $6.6250
$6.3750 30,000 9.0 $6.3750 -- $6.3750
$7.0125 70,000 4.0 $7.0125 -- $7.0125
----------- ------------
357,500 97,500
=========== =============
</TABLE>
(N) 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.
(O) 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.
During 1996, the Company decided to wind down the Kat-Em operations and in
August 1996, Kat-Em was merged into Concord Fabrics Inc.
36
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(P) 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. During fiscal 1997 the Company
repaired the facility's roof at a cost of $130,000 which was charged to
operations.
(Q) SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
AUGUST 31, September 1, September 3,
Year Ended 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid (refunded) for:
Interest $1,862,000 $1,984,000 $2,803,000
Income taxes 1,671,000 (1,229,000) 1,463,000
</TABLE>
(R) CONCENTRATION OF CREDIT RISK:
1. Cash in banks, based on bank statement balances, exceeded federally insured
limits by approximately $2,675,000 and $1,600,000 at August 31, 1997 and
September 1, 1996, respectively. The Company's investment in commercial paper at
August 31, 1997 and September 1, 1996 were with financial institutions.
2. Accounts receivable from manufacturers and retailers aggregated approximately
$14,604,000 and $8,059,000 at August 31, 1997, and $17,303,000 and
$9,611,000 at September 1, 1996, 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 includes $1,793,000 of due from
factors.
4. No customer accounted for more than 10% of sales however, five customers
accounted for approximately 18% and 14% of sales for the years ended August
31, 1997, and September 1, 1996, respectively.
(S) 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 market
value of these financial instruments.
The carrying values of cash and temporary investments approximate their
fair values due to their short-term maturities.
37
<PAGE>
<PAGE>
CONCORD FABRICS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(S) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED):
The carrying value of the $20,000,000 notes payable at August 31, 1997
approximates fair value based on their future cash flows discounted at a current
rate for debt with similar terms and maturity.
At August 31, 1997, letters of credit amounting to approximately $260,000
relating to purchase commitments issued to foreign suppliers were outstanding.
At September 1, 1996 there were no letters of credit outstanding.
38
<PAGE>
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
VALUATIONS AND QUALIFYING ACCOUNTS
SCHEDULE II
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF YEAR OPERATIONS DEDUCTIONS* END OF YEAR
----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Estimated doubtful accounts:
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
Year ended
August 31, 1997 $1,610,000 $901,000 $1,161,000 $1,350,000
</TABLE>
*Deductions from estimated doubtful accounts represent accounts written off, net
of recoveries of accounts written off in prior years.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
39
<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 13, 1998, to be filed pursuant to Section 14 of the Exchange Act within
120 days after the end of Registrant's 1997 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 13, 1998, to be filed pursuant to Section 14 of the Exchange Act within
120 days after the end of Registrant's 1997 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 13, 1998, to be filed pursuant to Section 14 of the Exchange Act within
120 days after the end of Registrant's 1997 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 13, 1998, to be filed pursuant to Section 14 of the Exchange Act within
120 days after the end of Registrant's 1997 fiscal year.
40
<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.
*10.3 Deferred Compensation Agreement dated June 14, 1977, as amended
on February 5, 1986 between Registrant and Martin Wolfson incorporated by
- --------
41
<PAGE>
<PAGE>
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.
22 Subsidiaries of the Registrant: Concord FSC Inc.and Trilogy
Fabrics Inc.
(b)* A report on Form 8-K was filed by Registrant on December 6, 1996
and is incorporated by reference herein.
- ------------------------
*Document is available at Public Reference Section of the Securities
and Exchange Commission, Commission File No. 1-5960.
42
<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 18, 1997 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.
43
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Earl Kramer Director, President November 18, 1997
- ------------------- (Principal Executive
Earl Kramer Officer)
/s/ Martin Wolfson Director, Senior Vice November 18, 1997
- ------------------- President, Treasurer
Martin Wolfson (Principal Financial Officer)
/s/ Jeffrey Cohen Controller (Principal November 18, 1997
- ------------------- Accounting Officer)
Jeffrey Cohen
/s/ Alvin Weinstein Director, Chairman of November 18, 1997
- ------------------- the Board
Alvin Weinstein
/s/ David Weinstein Director, President of November 18, 1997
- ------------------- Concord House Division
David Weinstein
_____________________ Director November 18, 1997
George Gleitman
_____________________ Director November 18, 1997
Fred Heller
_____________________ Director November 18, 1997
Richard Solar
</TABLE>
44
<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> AUG-31-1997
<PERIOD-START> SEP-02-1996
<PERIOD-END> AUG-31-1997
<CASH> 7,381,044
<SECURITIES> 13,522,758
<RECEIVABLES> 21,311,977
<ALLOWANCES> 0
<INVENTORY> 12,903,902
<CURRENT-ASSETS> 58,564,520
<PP&E> 7,438,260
<DEPRECIATION> 0
<TOTAL-ASSETS> 73,034,106
<CURRENT-LIABILITIES> 7,771,694
<BONDS> 0
0
0
<COMMON> 1,832,554
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 73,034,106
<SALES> 108,820,287
<TOTAL-REVENUES> 108,820,287
<CGS> 76,302,759
<TOTAL-COSTS> 103,361,562
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,101,775
<INCOME-PRETAX> 5,458,725
<INCOME-TAX> 2,100,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,358,725
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
