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 February 28, 1999 COMMISSION FILE NUMBER 1-5960
CONCORD FABRICS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-5673758
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1359 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 760-0300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
2,168,626 shares of Registrant's Class A Common Stock, par value $.50
per share and 1,446,451 shares of Registrant's Class B Common Stock, par
value $.50 per share were outstanding as of March 18, 1999.
1 of 18<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1999
INDEX Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income -
Twenty-Six Weeks Ended February 28, 1999
(Unaudited) and March 1, 1998 (Unaudited) 3
Consolidated Balance Sheets - February 28, 1999
(Unaudited), August 30, 1998 (Derived
from Audited Financial Statements) and
March 1, 1998 (Unaudited) 4-5
Consolidated Statements of Changes in
Stockholders' Equity (Unaudited for the period
August 30, 1998 to February 28, 1999) 6
Consolidated Statements of Cash Flows -
Twenty-Six Weeks Ended February 28, 1999
(Unaudited) and March 1, 1998 (Unaudited) 7-8
Notes to Consolidated Financial Statements
(Unaudited) 9-13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14-16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
2 of 18<PAGE>
<TABLE>
Item 1. Financial Statements
--------------------
<CAPTION> CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Note A)
For the Twenty-Six Weeks Ended For the Thirteen Weeks Ended
------------------------------ -----------------------------
February 28, March 1, February 28, March 1,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales ..................... $42,572,578 $50,845,249 $19,975,978 $26,094,847
----------- ----------- ----------- -----------
Cost of Sales ................. 29,166,111 35,060,890 13,693,014 17,979,549
Merchandising Expenses ........ 3,151,216 3,782,591 1,450,936 1,910,106
Selling and Shipping Expenses . 3,918,232 3,853,571 1,927,549 1,961,265
General and Administrative
Expenses ................... 4,712,568 4,914,938 2,362,570 2,515,303
Interest Expense (Net) ........ 353,591 353,155 168,104 179,114
----------- ----------- ----------- -----------
Total ................... $41,301,718 $47,965,145 $19,602,173 $24,545,337
----------- ----------- ----------- -----------
Earnings before income taxes .. 1,270,860 2,880,104 373,805 1,549,510
Income tax provision .......... 544,000 1,160,000 169,000 625,000
----------- ----------- ----------- -----------
Net Earnings .................. $ 726,860 $ 1,720,104 $ 204,805 $ 924,510
=========== =========== =========== ===========
Basic Earnings Per Share ...... $.20 $.47 $.06 $.25
=========== =========== =========== ===========
Diluted Earnings Per Share .... $.19 $.45 $.05 $.24
=========== =========== =========== ===========
Weighted average shares used in
computing basic earnings per
share ...................... 3,680,209 3,665,107 3,677,893 3,665,107
=========== =========== =========== ===========
Weighted average shares used in
computing diluted earnings
per share .................. 3,737,265 3,808,259 3,736,200 3,820,079
=========== =========== =========== ===========
Dividend per Common Share ..... NONE NONE NONE NONE
=========== =========== =========== ===========
The attached notes are made a part hereof.
</TABLE> 3 of 18<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note A)
August 30,
1998
(Derived from
February 28, Audited March 1,
1999 Financial 1998
A S S E T S (Unaudited) Statements) (Unaudited)
- ----------- ------------ ------------ ------------
Current Assets:
Cash and cash equivalents ..... $10,538,473 $ 8,678,053 $ 8,442,437
Held to maturity investments
(at cost) .................. 9,863,897 14,593,225 14,043,354
Accounts receivable (less
allowance for doubtful accounts
of $1,592,000 on February 28,
1999, $1,350,000 on August 30,
1998, and $1,651,000 on
March 1, 1998) ............. 15,319,590 18,003,495 19,091,254
Inventories (Note B) .......... 17,435,189 16,015,819 16,005,692
Prepaid and refundable income
taxes ...................... -0- -0- 255,000
Prepaid expenses and other
current assets .............. 1,260,901 1,289,839 1,444,421
Deferred income taxes ......... 1,839,000 1,935,000 1,542,000
----------- ----------- -----------
Total Current Assets .......... $56,257,050 $60,515,431 $60,824,158
Property, plant and equipment
(at cost, less accumulated
depreciation and amortization of
$8,437,389 on February 28,
1999, $7,538,169 on August 30,
1998, and $7,221,667 on
March 1, 1998) ................ 9,600,659 9,159,596 8,131,678
Property and plant leased to others -0- 1,737,052 1,813,132
Property, plant, & equipment held
for sale (Notes H & I) ........ 2,966,701 1,352,319 1,902,059
Other assets ..................... 2,869,074 3,119,732 2,758,144
----------- ----------- -----------
T O T A L .................. $71,693,484 $75,884,130 $75,429,171
=========== =========== ===========
The attached notes are made a part hereof. 4 of 18 <PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note A)
August 30,
1998
(Derived from
February 28, Audited March 1,
1999 Financial 1998
L I A B I L I T I E S (Unaudited) Statements) (Unaudited)
- --------------------- ------------ ------------ ------------
Current Liabilities:
Current portion of notes payable
insurance company (Note D) . $ 2,850,000 $ 2,850,000 $ 2,850,000
Accounts payable .............. 4,481,457 4,608,507 5,281,383
Accrued expenses and taxes .... 2,071,082 3,298,883 2,820,272
Income taxes payable .......... 74,000 59,000 309,000
----------- ----------- -----------
Total Current Liabilities ..... $ 9,476,539 $10,816,390 $11,260,655
Notes payable - insurance
company (Note D) .............. 14,300,000 17,150,000 17,150,000
Deferred income taxes ............ 288,000 288,000 550,000
Other liabilities ................ 409,249 556,249 520,249
----------- ----------- -----------
Total Liabilities ............. $24,473,788 $28,810,639 $29,480,904
Commitments and contingencies ----------- ----------- -----------
(Notes B and C)
S T O C K H O L D E R S ' E Q U I T Y
- --------------------------------------
Common stock: (Notes E & F)
Class A - $.50 par value
authorized 4,000,000 shares,
issued 2,288,656 shares at
February 28, 1999, 2,237,656
shares at August 30, 1998
and 2,216,356 shares at
March 1, 1998 .............. 1,144,328 1,118,828 1,108,178
Class B - $.50 par value
authorized 4,000,000 shares,
issued 1,446,451 shares at
February 28, 1999, 1,447,451
shares at August 30, 1998
and 1,448,751 shares at
March 1, 1998 .............. 723,226 723,726 724,376
Additional paid-in capital ....... 9,399,561 9,274,561 9,192,061
Retained earnings ................ 36,683,236 35,956,376 34,923,652
Treasury stock at cost
117,266 shares (Note J) ....... (730,655) -0- -0-
----------- ----------- -----------
Total Stockholders' Equity .... $47,219,696 $47,073,491 $45,948,267
----------- ----------- -----------
T O T A L .................. $71,693,484 $75,884,130 $75,429,171
=========== =========== ===========
The attached notes are made a part hereof. 5 of 18<PAGE>
<TABLE>
CONCORD FABRICS INC.
<CAPTION> CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Class A Common Stock Class B Common Stock Additional Retained Total
Number Dollar Number Dollar Paid-in Earnings Stockhold-
of Shares Value of Shares Value Capital ers' Equity
-------------------- ------------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
September 1, 1996 2,146,956 $1,073,478 1,509,401 $754,701 $9,166,123 $29,844,823 $40,839,125
Net Earnings 3,358,725 3,358,725
Conversion from
Class B shares
to Class A
shares 53,300 26,650 (53,300) (26,650)
Exercise of stock
options 8,750 4,375 25,938 30,313
-------------------- ------------------ ---------- ----------- -----------
August 31, 1997 2,209,006 1,104,503 1,456,101 728,051 9,192,061 33,203,548 44,228,163
Net Earnings 2,752,828 2,752,828
Conversion from
Class B shares
to Class A
shares 8,650 4,325 (8,650) (4,325)
Exercise of stock
options 20,000 10,000 82,500 92,500
-------------------- ------------------ ---------- ----------- -----------
August 30, 1998 2,237,656 1,118,828 1,447,451 723,726 9,274,561 35,956,376 47,073,491
Net Earnings 726,860 726,860
Conversion from
Class B shares
to Class A
shares 1,000 500 (1,000) (500)
Exercise of stock
options 50,000 25,000 125,000 150,000
-------------------- ------------------ ---------- ----------- -----------
Balance 2,288,656 $1,144,328 1,446,451 $723,226 $9,399,561 $36,683,236 $47,950,351
-------------------- ------------------ ---------- -----------
Less purchase of Treasury Stock
in Fiscal 1999 (730,655)
-----------
February 28, 1999 $47,219,696
===========
The data reflecting Changes in Stockholders' Equity for the period August 30, 1998 to February
28, 1999 is unaudited.
The attached notes are made a part hereof.
</TABLE>
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<TABLE>
CONCORD FABRICS INC. AND SUBSIDIARIES
<CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Note A)
For the Twenty-Six Weeks Ended
--------------------------------
February 28, March 1,
1999 1998
------------ -----------
Cash flows from operating activities:
<S> <C> <C>
Net earnings .................................... $ 726,860 $1,720,104
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization ............. 790,784 797,578
Deferred income tax ....................... 96,000 231,000
Provision for doubtful accounts ........... 239,997 298,649
Changes in assets:
Decrease (increase) in:
Accounts receivable ................. 2,443,908 1,922,074
Inventories ......................... (1,419,370) (3,101,790)
Prepaid expenses and other
current assets .................... 28,938 (27,582)
Other assets ........................ 250,658 447,001
Changes in liabilities:
Increase (decrease) in:
Accounts payable .................... (127,050) 988,176
Accrued expenses and taxes .......... (1,227,801) (658,215)
Income taxes payable ................ 15,000 309,000
Other liabilities ................... (147,000) 36,000
------------ -----------
Net cash provided by operating activities ....... 1,670,924 2,961,995
------------ -----------
Cash flows from investing activity:
Proceeds from sales of held to maturity
securities ................................... 20,548,882 7,832,478
Purchases of held to maturity securities ........ (15,819,554) (8,353,074)
Purchases of property, plant, and equipment ..... (1,181,127) (1,414,916)
Proceeds from sale of machinery and equipment ... 71,950 34,910
------------ -----------
Net cash (used in) provided by investing activities: 3,620,151 (1,900,602)
Cash flows from financing activities:
Decrease in notes payable - insurance company ... (2,850,000) -0-
Issuance of common stock (stock options exercised) 150,000 -0-
Repurchase of Class A Common Stock at cost ...... (730,655) -0-
------------ -----------
Net cash (used in) financing activities ............ (3,430,655) -0-
NET INCREASE IN CASH AND CASH EQUIVALENTS .......... 1,860,420 1,061,393
------------ -----------
Cash and cash equivalents - beginning of period .... 8,678,053 7,381,044
------------ -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD .......... $10,538,473 $8,442,437
============ ===========
The attached notes are made a part hereof.
</TABLE> 7 of 18<PAGE>
<TABLE>
CONCORD FABRICS INC. AND SUBSIDIARIES
<CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Note A)
Continued
For the Twenty-Six Weeks Ended
--------------------------------
February 28, March 1,
1999 1998
------------ ------------
Supplemental Information:
Cash Paid for:
<S> <C> <C>
Interest ...................................... 931,000 931,000
Income taxes .................................. 571,164 750,500
The attached notes are made a part hereof.
</TABLE> 8 of 18 <PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 28, 1999
(Unaudited)
Note A
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments of a normal recurring nature
considered necessary for a fair presentation have been included. Operating
results for the twenty-six weeks ended February 28, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ending
August 29, 1999. These statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report to shareholders and Form 10-K for the fiscal year ended August 30,
1998.
Note B - Inventories:
Inventories are summarized by as follows:
February 28, August 30, March 1,
1999 1998 1998
------------ ----------- ------------
Finished goods......... $ 9,866,267 $ 8,844,722 $ 8,109,402
Work-in-process........ 1,935,774 2,596,291 2,545,014
Greige goods and yarn.. 5,633,148 4,574,806 5,351,276
------------ ----------- ------------
Total............... $17,435,189 $16,015,819 $16,005,692
============ =========== ============
The foregoing inventory amounts at February 28, 1999 and March 1, 1998 were
derived from perpetual inventory records maintained by the Company.
At February 28, 1999, the Company had outstanding commitments to purchase
greige goods aggregating $300,000.
Note C - Notes Payable - Banks:
At February 28, 1999, the Company was free of bank debt and had total unused
bank lines of credit aggregating $20,000,000.
The Company had approximately $99,000 of letters of credit outstanding as at
February 28, 1999.
Note D - Notes Payable - Insurance Company:
On November 30, 1994, the Company obtained a $20,000,000 loan from John
9 of 18<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 28, 1999
(Unaudited)
Continued
Hancock Mutual Life Insurance Company. This unsecured loan bears interest at
9.31% a per annum and is repayable in seven equal annual installments
commencing on November 30, 1998. The first annual installment of $2,850,000
was paid during this quarter on November 30, 1998.
The loan agreement requires maintenance of certain financial ratios and
maintenance of tangible net worth of approximately $40,055,000. The
agreement also prohibits the pledging of assets and restricts dividends and
redemptions of capital stock to $3,000,000 plus 50% of net earnings
subsequent to August 28, 1994; the cumulative amount available for such
payments aggregated approximately $5,476,000 at February 28, 1999.
Note E - Common Stock:
The Class A and Class B shares principally differ as follows:
(1) The Class A shares have a 15% dividend preference and a 10% liquidation
preference with respect to the Class B shares.
(2) Holders of Class A shares are entitled to one vote a share whereas
holders of Class B shares are entitled to ten votes a share.
(3) Holders of Class A shares voting as a separate class are entitled to
elect 25% of the Company's directors and holders of Class A shares and Class
B shares voting together are entitled to elect the remaining directors.
(4) Class B shares are convertible into Class A shares on the basis of one
share of Class A shares for each share of Class B shares; Class A shares
have no conversion rights.
Note F - Stock Options:
Pursuant to an Incentive Program adopted on January 10, 1989, and amended on
December 4, 1996, awards (as defined) may be granted to key employees and
directors of the Company up to a maximum of 500,000 shares of the Company's
Class A common stock.
On January 9, 1996, options to purchase an aggregate of 200,000 shares of the
Company's Class A common stock at $4.625 a share (fair market value at such
10 of 18
<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 28, 1999
(Unaudited)
Continued
date) were granted to two employees. The options are exercisable in four
annual installments commencing January 9, 1997 and expire ten years from the
date of the grant.
On January 9, 1996 options to purchase 5,000 shares of the Company's Class A
common stock at $4.625 (fair market value at such date) were granted to two
outside directors. On September 2, 1996, options to purchase an additional
5,000 shares of the Company's Class A common stock at $6.625 (fair market
value at such date) were granted to those directors.
On January 14, 1997, the Company granted an option to the Chairman of the
Board of Directors to purchase an aggregate of 70,000 shares of the Company's
Class A common stock at $7.0125 a share (110% of the fair market value at
such date). This option is exercisable in five annual installments
commencing January 14, 1998, and expires five years from the date of grant;
the Chairman was also granted an option to purchase 30,000 shares of the
Company's Class A common stock at $6.375 a share. This option is exercisable
in five annual installments commencing January 14, 1998 and expires ten years
from the date of grant.
On January 13, 1998 options to purchase 7,500 shares of the Company's Class A
common stock at $8.875 (fair market value at such date) were granted to three
outside directors. The options are exercisable January 13, 1999 and expire
five years from the date of grant.
On November 10, 1998 options to purchase 30,000 shares of the Company's Class
A common stock at $6.50 (fair market value at such date) were granted to
three outside directors (10,000 shares each). The options are exercisable
over a four year period commencing November 10, 1999 at 25% per year and
expire five years from the date of grant.
The Company accounts for equity - based awards granted to employees and
directors under APB Opinion No. 25 under which no compensation cost has been
recognized for stock options granted at fair market value. Had compensation
cost for these stock options been determined consistent with SFAS No. 123,
the decrease in the Company's net earnings and net earnings per share would
have not been material.
Note G - Earnings Per Share:
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 replaced the calculation of primary and
11 of 18<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 28, 1999
(Unaudited)
Continued
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share excludes any dilutive effects of options, warrants
and convertible securities. Diluted earnings per share gives effect to all
potentially dilutive common shares that were outstanding during the period
under the Company stock option Incentive Program (Note F). All earnings per
share amounts for all periods have been presented and, where appropriate,
restated to conform to the SFAS No. 128 requirements.
Note H - Chino, California Facility:
In February 1994, the Company leased the land and building at its Chino,
California facility for a five year period at an annual net rental of
$297,000; the lessee was also granted the option to purchase the land and
building during the lease period for $2,900,000. In the first quarter of
fiscal 1999 the lessee chose not to exercise its purchase option and the
Company put the property up for sale. The property has been reclassified to
property, plant, & equipment held for sale. The estimated market value of
this asset exceeds its book value which at February 28, 1999 was $1,674,000.
It was formerly classified as property and plant leased to others.
Note I - Washington, Georgia Facility:
In the fourth quarter of fiscal 1995 the Company decided to dispose of its
Washington, Georgia dyeing and finishing plant and has been actively
searching for a buyer; manufacturing operations ceased October 6, 1995. At
such time, the Company reclassified the facility to property, plant and
equipment held for sale and estimated the net realizable value of the
facility and accrued expenses for an estimated disposition period.
In fiscal 1998, the Company reevaluated the facility and, in that connection,
recorded a charge of $500,000 reflecting the estimated impairment in value.
On March 9, 1999, the Company sold the Washington plant and equipment for
$1,340,000 cash which approximated book value.
12 of 18<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AS AT FEBRUARY 28, 1999
(Unaudited)
Continued
Note J - Stock Repurchase:
In September, 1998, the Company's Board of Directors authorized the
repurchase of up to 300,000 shares of the Company's common stock. The
repurchases were to be made at the discretion of Concord's management
depending upon financial and market conditions and in accordance with rules
provided by the Securities and Exchange Commission and the American Stock
Exchange. At February 28, 1999, 117,266 shares had been repurchased at an
average cost of $6.23 per share and are recorded in the Stockholders' Equity
section of the Balance Sheet as Treasury Stock.
Note K - Concord Fabrics (UK) Limited:
Concord Fabrics (UK) Limited, a wholly owned subsidiary of Concord Fabrics
Inc. was incorporated on February 19, 1999. It is in the process of
acquiring inventory and other assets of an United Kingdom business. The
transaction is expected to close in March, 1999 and will not have a material
impact on the Company's Balance Sheet or its results of operations for fiscal
1999.
13 of 18<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
FEBRUARY 28, 1999
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OPERATIONS - Twenty-Six Weeks Ended February 28, 1999 Compared With Twenty-
Six Weeks Ended March 1, 1998.
Fabric sales decreased by 16.3%. This resulted from a 14.7% decline in yards
sold and a 1.9% decrease in average selling price. Sales of knitted fabrics
and to a greater extent sales of Concord House fabrics declined.
Gross profit margin increased from 31% in the prior period to 31.5% in the
current period. Lower raw material costs resulted in improved gross margins
on knitted fabric sales which offset slightly lower gross margins on Concord
House fabric sales.
Merchandising expenses declined by 16.7% or approximately $631,000. Reduced
sales and less design related expenses resulted in the lower expenses. In
both the current period and the prior year's period merchandising expenses
were 7.4% of sales.
Selling and shipping expenses increased 1.7% primarily due to higher cost of
sales aids and advertising. As a percent of sales, selling and shipping
expenses increased from 7.6% in 1998 to 9.2% in 1999.
General and administrative expenses decreased 4.1%; as a percent of sales
they increased from 9.7% in 1998 to 11.1% in 1999.
Earnings before income taxes for the first twenty-six weeks of fiscal 1999
were $1,271,000 compared with $2,880,000 for the first twenty-six weeks of
fiscal 1998. Net earnings were $727,000 for 1999 and $1,720,000 for 1998.
The decline in earnings was principally due to the decline in sales of
Concord House fabrics. Expenses declined by $769,000 but as a percent of
sales they increased from 24.7% in the first twenty-six weeks of fiscal 1998
to 27.7% in the current period. To date management has not been successful
in reducing expenses at the rate at which sales have declined. Expense
reductions were effected in late January, 1999 and it is expected that they
will be fully reflected in the third fiscal quarter. Customer orders for
future deliveries continue at levels below those obtained in fiscal, 1998 and
it is likely that the thirty-nine week earnings will decline from fiscal 1998
levels.
The Company's planned acquisition of the assets of a United Kingdom business
is expected to enable the Company to establish a presence in Europe and
provide the Company with an additional brand which it will market globally.
OPERATIONS - Thirteen Weeks Ended February 28, 1999 Compared With Thirteen
Weeks Ended March 1, 1998.
Fabric sales decreased by 23.4%. This resulted from a 20.3% decline in yards
14 of 18<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
FEBRUARY 28, 1999
Continued
Item 2..........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
sold and a 4.0% decrease in average selling price. Sales of knitted fabrics
and to a much greater extent sales of Concord House fabrics declined.
Gross profit margin increased from 31.1% in fiscal 1998 to 31.5% in fiscal
1999. Lower raw material costs resulted in improved gross margins on knitted
fabric sales which offset slightly lower gross margins on Concord House
fabric sales.
Merchandising expenses declined by 24% or approximately $459,000. Reduced
sales and less design related expenses resulted in the lower expenses. In
both the current period and the prior year's period merchandising expenses
were 7.3% of sales.
Selling and shipping expenses decreased 1.7%; as a percent of sales they
increased from 7.5% in 1998 to 9.6% in 1999.
General and administrative expenses decreased 6.1%; as a percent of sales
they increased from 9.6% in 1998 to 11.8% in 1999.
Earnings before income taxes for the second quarter of fiscal 1999 were
$374,000 compared with $1,550,000 for the second quarter of fiscal 1998. Net
earnings were $205,000 for 1999 and $925,000 for 1998. Expenses declined by
$646,000 but as a percent of sales they increased from 24.5% in the second
quarter of fiscal 1998 to 28.7% in the current period. To date management
has not been successful in reducing expenses at the rate at which sales have
declined. Expense reductions were effected in late January, 1999 and it is
expected that they will be fully reflected in the third fiscal quarter.
Customer orders for future deliveries continue at levels below those obtained
in fiscal, 1998 and it is likely that third quarter earnings will decline
from fiscal 1998 levels.
LIQUIDITY AND CAPITAL RESOURCES
During the first twenty-six weeks of fiscal 1999, the Company's operations
provided $1,671,000 cash primarily as a result of lower accounts receivable
reflective of the decline in sales. Fixed assets in the amount of $1,181,000
were acquired ($868,000 for plant and equipment at the Company's
Milledgeville, Georgia production facility and the balance for furniture,
fixtures and leasehold improvements in the Company's New York office). The
Company reduced its investments in held to maturity securities by $4,729,000.
The sale of machinery and equipment produced $72,000 in cash. The repurchase
15 of 18<PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
FEBRUARY 28, 1999
Continued
Item 2 ...........MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
of 117,266 shares of stock cost $731,000; the exercise of stock options
produced $150,000. $2,850,000 was paid as the first scheduled repayment of
notes payable - insurance company. As a result, cash increased by $1,860,000
during the period. Working capital decreased by $2,919,000. The Company
expects its short-term cash investments, its lines of credit, and cash flow
from operations to be adequate to finance operations and meet its cash
requirements for the rest of fiscal 1999.
Year 2000 Compliance
The Company believes it has taken reasonable steps in developing its Year
2000 Program. Its computer systems provide for four digits in the year field
so that data processing and reporting should not be disrupted at the
millennium. Notwithstanding this, the Company cannot be certain whether
microprocessors embedded in other equipment or Year 2000 problems of its
customers, key suppliers or service providers will be discovered and or
resolved satisfactorily before the Year 2000. The Company is requesting
information on Year 2000 issues from third parties significant to its
business
If the Company's key suppliers, service providers, customers and other third
parties fail to adequately address their Year 2000 Problems, and there are no
alternatives available to the Company, then the Company's usual channels of
supply and distribution could be disrupted with a resulting adverse impact on
its business. The Company does not believe that the cost of its Year 2000
program will be material to its financial position or its results of
operations.
Forward Looking Statements
This report contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and actual results could
differ materially from those contemplated by such statements. Such forward
looking statements include references to expected future results of
operations and Year 2000 issues.
16 of 18<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
the Company during the twenty-six
weeks ended February 28, 1999.
17 of 18 <PAGE>
CONCORD FABRICS INC. AND SUBSIDIARIES
-------------------------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, Concord
Fabrics Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORD FABRICS INC.
---------------------------------
Registrant
Date: March 30, 1999 By /s/ Earl Kramer
Earl Kramer
President and Chief Executive
Officer
Date: March 30, 1999 By /s/ Martin Wolfson
Martin Wolfson
Senior Vice President-Treasurer
Chief Financial Officer
18 of 18<PAGE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER AND TWENTY-SIX 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> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> AUG-29-1999 AUG-30-1998 AUG-29-1999 AUG-30-1998
<PERIOD-START> AUG-31-1998 SEP-01-1997 NOV-30-1998 DEC-01-1997
<PERIOD-END> FEB-28-1999 MAR-01-1998 FEB-28-1999 MAR-01-1998
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<TOTAL-REVENUES> 42,573,578 50,845,249 19,975,978 26,094,847
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