-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RDJ+BSDxaDfgu2gpNI93fx/cKa6B8S5rMnhv6vYM4FpO8qCpad/Vjfji1E6PSneJ a+qZ4PjHGX0KpkOiP0TYGw== 0000023249-99-000002.txt : 19990331 0000023249-99-000002.hdr.sgml : 19990331 ACCESSION NUMBER: 0000023249-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCORD FABRICS INC CENTRAL INDEX KEY: 0000023249 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 135673758 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05960 FILM NUMBER: 99578016 BUSINESS ADDRESS: STREET 1: 1359 BROADWAY STREET 2: 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2127600300 MAIL ADDRESS: STREET 1: 1359 BROADWAY 4TH FLOOR STREET 2: 1359 BROADWAY 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 10-Q 1 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 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 Item 1. Financial Statements --------------------
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 ----------- ----------- ----------- ----------- 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.
3 of 18 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 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 CONCORD FABRICS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Class A Common Stock Class B Common Stock Additional Retained Total Number Dollar Number Dollar Paid-in Earnings Stockhold- of Shares Value of Shares Value Capital ers' Equity -------------------- ------------------ ---------- ----------- ----------- September 1, 1996 2,146,956 $1,073,478 1,509,401 $754,701 $9,166,123 $29,844,823 $40,839,125 Net Earnings 3,358,725 3,358,725 Conversion from Class B shares to Class A shares 53,300 26,650 (53,300) (26,650) Exercise of stock options 8,750 4,375 25,938 30,313 -------------------- ------------------ ---------- ----------- ----------- August 31, 1997 2,209,006 1,104,503 1,456,101 728,051 9,192,061 33,203,548 44,228,163 Net Earnings 2,752,828 2,752,828 Conversion from Class B shares to Class A shares 8,650 4,325 (8,650) (4,325) Exercise of stock options 20,000 10,000 82,500 92,500 -------------------- ------------------ ---------- ----------- ----------- August 30, 1998 2,237,656 1,118,828 1,447,451 723,726 9,274,561 35,956,376 47,073,491 Net Earnings 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.
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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: 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.
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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: Interest ...................................... 931,000 931,000 Income taxes .................................. 571,164 750,500 The attached notes are made a part hereof.
8 of 18 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 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 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 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 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 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 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 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 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 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 EX-27 2
5 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. 0000023249 CONCORD FABRICS INC. 6-MOS 6-MOS 3-MOS 3-MOS AUG-29-1999 AUG-30-1998 AUG-29-1999 AUG-30-1998 AUG-31-1998 SEP-01-1997 NOV-30-1998 DEC-01-1997 FEB-28-1999 MAR-01-1998 FEB-28-1999 MAR-01-1998 10,538,473 8,442,437 10,538,473 8,442,437 0 0 0 0 15,319,590 19,091,254 15,319,590 19,091,254 0 0 0 0 17,435,189 16,005,692 17,435,189 16,005,692 56,257,050 60,824,158 56,257,050 60,824,158 9,600,659 8,131,678 9,600,659 8,131,678 0 0 0 0 71,693,484 75,429,171 71,693,484 75,429,171 9,476,539 11,260,655 9,476,539 11,260,655 0 0 0 0 0 0 0 0 0 0 0 0 1,867,554 1,832,554 1,867,554 1,832,554 0 0 0 0 71,693,484 75,429,171 71,693,484 75,429,171 42,572,578 50,845,249 19,975,978 26,094,847 42,573,578 50,845,249 19,975,978 26,094,847 29,166,111 35,060,890 13,693,014 17,979,549 41,301,718 47,965,145 19,602,173 24,545,337 0 0 0 0 0 0 0 0 353,591 353,155 168,104 179,114 1,270,860 2,880,104 373,805 1,549,510 544,000 1,160,000 169,000 625,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 726,860 1,720,104 204,805 924,510 .20 .47 .06 .25 .19 .45 .05 .24
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