SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED November 30, 1997 COMMISSION FILE NUMBER 1-5960
CONCORD FABRICS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-5673758
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1359 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 760-0300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
2,216,356 shares of Registrant's Class A Common Stock, par value $.50
per share and 1,448,751 shares of Registrant's Class B Common Stock, par
value $.50 per share were outstanding as of January 6, 1998.
1 of 13 <PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 1997
INDEX Page Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income -
Thirteen Weeks Ended November 30, 1997
(Unaudited) and December 1, 1996 (Unaudited) 3
Consolidated Balance Sheets - November 30, 1997
(Unaudited), and August 31, 1997 (Derived
from Audited Financial Statements) and
December 1, 1996 (Unaudited) 4-5
Consolidated Statements of Cash Flows -
Thirteen Weeks Ended November 30, 1997
(Unaudited) and December 1, 1996 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 13
2 of 13
<PAGE>
Item 1. Financial Statements
--------------------
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Note A)
For the Thirteen Weeks Ended
----------------------------
November 30, December 1,
1997 1996
------------ ------------
Net Sales ................................. $24,750,402 $27,048,240
----------- -----------
Cost of Sales ............................. 17,081,341 18,949,596
Merchandising Expenses .................... 1,872,485 1,883,723
Selling and Shipping Expenses ............. 1,892,306 2,560,296
General and Administrative Expenses ....... 2,399,635 2,421,408
Interest Expense (Net) .................... 174,041 301,418
----------- -----------
Total ............................... $23,419,808 $26,116,441
----------- -----------
Earnings before income taxes .............. 1,330,594 931,799
Income tax provision ...................... 535,000 389,000
----------- -----------
Net Earnings .............................. $ 795,594 $ 542,799
=========== ===========
Net Earnings per Common Share ............. $.22 $.15
=========== ===========
Weighted average number of shares used in
computing earnings per Common Share .... 3,665,107 3,656,357
=========== ===========
Dividend per Common Share ................. NONE NONE
=========== ===========
The attached notes are made a part hereof.
3 of 13
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note A)
August 31,
1997
(Derived from
November 30, Audited December 1,
1997 Financial 1996
A S S E T S (Unaudited) Statements) (Unaudited)
- ----------- ------------ ------------ ------------
Current Assets:
Cash and cash equivalents ..... $11,734,313 $ 7,381,044 $11,858,828
Held to maturity investments (at
cost plus accrued interest) 10,854,833 13,522,758 966,095
Prepaid and refundable income
taxes ...................... 255,000 255,000 430,848
Accounts receivable (less
allowance for doubtful accounts
of $1,501,000 on November 30,
1997, $1,350,000 on August 31,
1997, and $1,715,000 on
December 1, 1996) .......... 18,605,931 21,311,977 21,616,295
Inventories (Note B) .......... 17,168,452 12,903,902 19,108,381
Prepaid expenses and other
current assets .............. 1,025,406 1,416,839 1,261,754
Deferred income taxes ......... 1,666,000 1,773,000 2,102,000
----------- ----------- -----------
Total Current Assets .......... $61,309,935 $58,564,520 $57,344,201
Property, plant and equipment
(at cost, less accumulated
depreciation and amortization of
$6,745,539 on November 30,
1997, $6,400,169 on August 31,
1997, and $5,815,089 on
December 1, 1996) ............. 7,371,463 7,438,260 8,099,097
Property and plant leased to others 1,851,172 1,889,212 2,003,332
Property, plant, & equipment held for sale -
at estimated disposal value
(Note I) ...................... 1,904,434 1,936,969 2,116,158
Other assets ..................... 2,950,057 3,205,145 2,281,928
----------- ----------- -----------
T O T A L .................. $75,387,061 $73,034,106 $71,844,716
=========== =========== ===========
The attached notes are made a part hereof.
4 of 13<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note A)
August 31,
1997
(Derived from
November 30, Audited December 1,
1997 Financial 1996
L I A B I L I T I E S (Unaudited) Statements) (Unaudited)
- --------------------- ------------ ------------ ------------
Current Liabilities:
Accounts payable .............. $ 5,995,428 $ 4,293,207 $ 5,541,260
Accrued expenses and taxes .... 2,883,627 3,478,487 3,542,283
Income taxes payable .......... 432,000 -0- 339,000
------------ ------------ ------------
Total Current Liabilities ..... $ 9,311,055 $ 7,771,694 $ 9,422,543
Notes payable - insurance
company (Note D) .............. 20,000,000 20,000,000 20,000,000
Deferred income taxes ............ 550,000 550,000 601,000
Other liabilities ................ 502,249 484,249 439,249
------------ ------------ ------------
Total Liabilities ............. $30,363,304 $28,805,943 $30,462,792
Commitments and contingencies ------------ ------------ ------------
(Note B)
S T O C K H O L D E R S ' E Q U I T Y
- --------------------------------------
Common stock: (Notes E & F)
Class A - $.50 par value
authorized 4,000,000 shares,
issued 2,216,356 shares at
November 30, 1997, 2,209,006
shares August 31, 1997
and 2,146,956 shares at
December 1, 1996 ........... 1,108,178 1,104,503 1,073,478
Class B - $.50 par value
authorized 4,000,000 shares,
issued 1,448,751 shares at
November 30, 1997, 1,456,101
shares at August 31, 1997
and 1,509,401 shares at
December 1, 1996 ........... 724,376 728,051 754,701
Additional paid-in capital ....... 9,192,061 9,192,061 9,166,123
Retained earnings ................ 33,999,142 33,203,548 30,387,622
----------- ----------- -----------
Total Stockholders' Equity .... $45,023,757 $44,228,163 $41,381,924
----------- ----------- -----------
T O T A L .................. $75,387,061 $73,034,106 $71,844,716
=========== =========== ===========
The attached notes are made a part hereof.
5 of 13<PAGE>
<TABLE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION> (Note A)
For the Thirteen Weeks Ended
--------------------------------
November 30, December 1,
1997 1996
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings .................................... $ 795,594 $ 542,799
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization ............. 383,410 428,563
Deferred income taxes ..................... 107,000 87,000
Provision for doubtful accounts ........... 148,649 155,100
Changes in assets:
Decrease (increase) in:
Accounts receivable ................. 2,557,397 5,325,711
Inventories ......................... (4,264,550) (1,785,202)
Prepaid and refundable income taxes . -0- (7,648)
Prepaid expenses and other
current assets .................... 391,433 358,565
Other assets ........................ 255,088 174,830
Changes in liabilities:
Increase (decrease) in:
Accounts payable .................... 1,702,221 (1,391,217)
Accrued expenses and taxes .......... (594,860) (825,748)
Income taxes payable ................ 432,000 339,000
Other liabilities ................... 18,000 15,000
------------ ------------
Net cash provided by operating activities ....... 1,931,382 3,416,753
------------ ------------
Cash flows from investing activity:
Proceeds from sales of held to maturity
securities ................................... 4,667,925 -0-
Purchases of held to maturity securities ........ (2,000,000) (966,095)
Purchases of property, plant, and equipment ..... (278,573) (372,580)
Proceeds from sale of machinery and equipment ... 32,535 37,726
------------ ------------
Net cash provided by (used in) investing activities 2,421,887 (1,300,949)
NET INCREASE IN CASH AND CASH EQUIVALENTS .......... 4,353,269 2,115,804
------------ ------------
Cash and cash equivalents - beginning of period .... 7,381,044 9,743,024
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD .......... $11,734,313 $11,858,828
============ ============
Supplemental Information:
Cash Paid for:
Interest ...................................... 931,000 931,000
Income taxes .................................. 3,000 6,000
The attached notes are made a part hereof.
</TABLE> 6 of 13 <PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT NOVEMBER 30, 1997
(Unaudited)
Note A
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments of a normal recurring nature
considered necessary for a fair presentation have been included. Operating
results for the thirteen weeks ended November 30, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending
August 30, 1998. These statements should be read in conjunction with the
financial statements and notes thereto included in Registrant's annual report
to shareholders and Form 10-K for the fiscal year ended August 31, 1997.
Note B - Inventories:
Inventories are summarized by as follows:
November 30, August 31, December 1,
1997 1997 1996
------------ ----------- ------------
Finished goods......... $ 9,270,180 $ 8,164,772 $12,343,451
Work-in-process........ 3,735,099 2,527,339 2,848,509
Greige goods and yarn.. 4,163,173 2,211,791 3,916,421
------------ ----------- ------------
Total............... $17,168,452 $12,903,902 $19,108,381
============ =========== ============
The foregoing inventory amounts at November 30, 1997 and December 1, 1996
were derived from perpetual inventory records maintained by Registrant.
At November 30, 1997, Registrant had outstanding commitments to purchase
greige goods aggregating $8,600,000.
Note C - Notes Payable - Banks:
At November 30, 1997, Registrant was free of bank debt and had total unused
bank lines of credit aggregating $20,000,000.
Note D - Notes Payable - Insurance Company:
On November 30, 1994, the Registrant obtained a $20,000,000 loan from John
Hancock Mutual Life Insurance Company. This unsecured loan bears interest at
9.31% a per annum and is repayable in seven equal annual installments
commencing on November 30, 1998.
7 of 13<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT NOVEMBER 30, 1997
(Unaudited)
Continued
The loan agreement requires maintenance of certain financial ratios and
maintenance of tangible net worth of approximately $38,713,000. The
agreement also prohibits the pledging of assets and restricts dividends and
redemptions of capital stock to $3,000,000 plus 50% of net earnings
subsequent to August 28, 1994; the cumulative amount available for such
payments aggregated approximately $4,772,000 at November 30, 1997.
Note E - Common Stock:
The Class A and Class B shares principally differ as follows:
(1) The Class A shares have a 15% dividend preference and a 10% liquidation
preference with respect to the Class B shares.
(2) Holders of Class A shares are entitled to one vote a share whereas
holders of Class B shares are entitled to ten votes a share.
(3) Holders of Class A shares voting as a separate class are entitled to
elect 25% of Registrant's directors and holders of Class A shares and Class B
shares voting together are entitled to elect the remaining directors.
(4) Class B shares are convertible into Class A shares on the basis of one
share of Class A shares for each share of Class B shares; Class A shares
have no conversion rights.
Note F - Stock Options:
Pursuant to an Incentive Program adopted on January 10, 1989, and amended on
December 4, 1996 awards (as defined) may be granted to key employees and
directors of the Registrant up to a maximum of 500,000 shares of the
Registrant's Class A common stock.
On January 10, 1989, options to purchase an aggregate of 150,000 shares of
the Registrant's Class A common stock at $3 a share (fair market value at
such date) were granted to three employees. The options are exercisable in
four annual installments commencing January 10, 1994 and expire ten years
from the date of grant.
On January 9, 1996, options to purchase an aggregate of 200,000 shares of the
Registrant's Class A common stock at $4.625 a share (fair market value at
8 of 13<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT NOVEMBER 30, 1997
(Unaudited)
Continued
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 Registrant's Class
A common stock at $4.625 (fair market value at such date) were granted to two
outside directors. On September 2, 1996, options to purchase an additional
5,000 shares of the Registrant's Class A common stock at $6.625 (fair market
value at such date) were granted to those directors.
On January 14, 1997, the Registrant granted an option to the Chairman of the
Board of Directors to purchase an aggregate of 70,000 shares of the
Registrant's Class A common stock at $7.0125 a share (110% of the fair market
value at such date). This option is exercisable in five annual installments
commencing January 14, 1998, and expires five years from the date of grant;
the Chairman was also granted an option to purchase 30,000 shares of the
Registrant's Class A common stock at $6.375 a share. This option is
exercisable in five annual installments commencing January 14, 1998 and
expires ten years from the date of grant.
There was no option activity for the thirteen weeks ended November 30, 1997.
The Registrant accounts for equity - based awards granted to employees and
directors under APB Opinion No. 25 under which no compensation cost has been
recognized for stock options granted at fair market value. Had compensation
cost for these stock options been determined consistent with SFAS No. 123,
the decrease in Registrant's net earnings and net earnings per share would
have not been material.
Note G - Earnings Per Share:
Earnings per share is computed using weighted average number of common shares
outstanding and, where applicable, common equivalent shares issuable upon
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.
9 of 13<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT NOVEMBER 30, 1997
(Unaudited)
Continued
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 Registrant does not expect the adoption of this statement
to have a material effect on earnings or earnings per share.
Note H - Chino, California Facility:
In February 1994, the Registrant leased the land and building at the Chino,
California facility for a five year period at an annual net rental of
$297,000; the lessee was also granted the option to purchase the land and
building during the lease period for $2,900,000.
Note I - Property, Plant and Equipment Held for Sale:
In the fourth quarter of fiscal 1995 Registrant decided to dispose of its
Washington, Georgia dyeing and finishing plant and has been actively
searching for a buyer; manufacturing operations ceased October 6, 1995.
Registrant estimates that the net proceeds, from the sale of the facility
will approximate the facility's net book value.
10 of 13<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOVEMBER 30, 1997
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OPERATIONS - Thirteen Weeks Ended November 30, 1997 Compared With Thirteen
Weeks Ended December 1, 1996.
Fabric sales decreased by 8.5%. This resulted from a 4.2% decline in yards
sold and a 4.5% decline in average selling prices.
Gross profit margin increased from 29.9% in the prior period to 31% in the
current period primarily due to improved plant performance and the wider
distribution of knitted fabrics. However, gross profit declined
approximately 5% because the net sales decline more than offset the
improvement in gross profit percentage.
Selling and shipping expenses declined by 26.1% or approximately $668,000.
Reduced sales in Registrant's current business lines resulted in a $321,000
reduction in selling and shipping expenses. The balance of the reduction was
primarily due to the phasing out of sales of woven fabrics to womens apparel
manufacturers. Future quarterly comparisons to prior year results will not
benefit substantially from the latter expense reductions. In the current
period selling and shipping expenses were 7.6% of sales; in the prior year's
period they were 9.5% of sales.
Interest expense declined by 42.3% as Registrant generated cash flow from its
reduction in business activity and received interest income from the cash
invested in marketable securities.
Earnings before income taxes for the first thirteen weeks of fiscal 1998 were
$1,331,000 compared with $932,000 for the first thirteen weeks of fiscal
1997. Net earnings were $796,000 for 1998 and $543,000 for 1997. The
improvement in earnings was principally due to the reduction in selling and
shipping expenses resulting from the phasing out of sales of woven fabrics to
women's apparel manufacturers and to a lesser extent to reduced net interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
During the first thirteen weeks of fiscal 1998, Registrant's operations
provided $1,931,000 cash. $279,000 was used to acquire machinery and
equipment. Cash increased by $4,353,000 during the period. $2,668,000 of
held to maturity securities matured. Working capital increased by $1,206,000
for the thirteen weeks ended November 30, 1997. Registrant's improved
liquidity is attributable to the reduction in accounts receivable and
inventory. Registrant expects its lines of credit and cash flow from
operations to be adequate to finance operations and meet its cash
requirements for fiscal 1998.
11 of 13<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
FORM 10-Q
PART II
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - None
(b) No report on Form 8-K was filed by
Registrant during the thirteen
weeks ended November 30, 1997.
12 of 13
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CONCORD FABRICS INC. AND SUBSIDIARIES
-------------------------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORD FABRICS INC.
---------------------------------
Registrant
Date: January 9, 1998 By /s/ Earl Kramer
Earl Kramer
President and Chief Executive
Officer
Date: January 9, 1998 By /s/ Martin Wolfson
Martin Wolfson
Senior Vice President-Treasurer
Chief Financial Officer
13 of 13<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST QUARTER AND THIRTEEN WEEKS ENDED FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO IT.
</LEGEND>
<RESTATED>
<CIK> 0000023249
<NAME> CONCORD FABRICS INC.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> AUG-30-1998 AUG-31-1997
<PERIOD-START> SEP-01-1997 SEP-02-1996
<PERIOD-END> NOV-30-1997 DEC-01-1996
<CASH> 11,734,313 11,858,828
<SECURITIES> 0 0
<RECEIVABLES> 18,605,931 21,616,295
<ALLOWANCES> 0 0
<INVENTORY> 17,168,452 19,108,381
<CURRENT-ASSETS> 61,309,935 57,344,201
<PP&E> 7,371,463 8,099,097
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 75,387,061 71,844,716
<CURRENT-LIABILITIES> 9,311,055 9,422,543
<BONDS> 0 0
0 0
0 0
<COMMON> 1,832,554 1,828,179
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 75,387,061 71,844,716
<SALES> 24,750,402 27,048,240
<TOTAL-REVENUES> 24,750,402 27,048,240
<CGS> 17,081,341 18,949,596
<TOTAL-COSTS> 23,419,808 26,116,441
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 174,041 301,418
<INCOME-PRETAX> 1,330,594 931,799
<INCOME-TAX> 535,000 389,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 795,594 542,799
<EPS-PRIMARY> .22 .15
<EPS-DILUTED> 0 0
</TABLE>
