-----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, Tbyf0IlxKmzp6TTsSUP8MyxZU8VxKB1zS0SDCCWCl2Vtf/afjpRrShBGh9TztJrh Ju8Dtwa+e0Zpkyv6UyNK8w== 0000950117-96-001518.txt : 19961202 0000950117-96-001518.hdr.sgml : 19961202 ACCESSION NUMBER: 0000950117-96-001518 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960901 FILED AS OF DATE: 19961127 SROS: AMEX 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05960 FILM NUMBER: 96673125 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-K405 1 CONCORD FABRICS INC., 10-K Exhibit index appears on page 43 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File Number September 1, 1996 I-5960 - -------------------------- ---------------------- CONCORD FABRICS INC. (Exact name of registrant as specified in its charter) Delaware 13-5673758 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 1359 Broadway, New York, New York 10018 - --------------------------------- ------------------------------ (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (212) 760-0300 -------------------------- Securities registered pursuant to Section 12(b) of the Act:
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 14, 1996, 2,146,956 Shares of Registrant's Class A Common Stock and 1,509,401 Shares of Registrant's Class B Common Stock were outstanding, and the aggregate market value of the voting stock held by non-affiliates of Registrant was $3,421,004. DOCUMENTS INCORPORATED BY REFERENCE Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on January 14, 1997, filed pursuant to Section 14 of the Securities Exchange Act of 1934, incorporated by reference into Part III hereof. PART I Item 1. Business Registrant's principal business is developing, designing and producing, in its own facility and through unaffiliated contractors, woven and knitted fabrics of natural and synthetic fibers in a wide variety of colors and patterns, for sale to manufacturers (primarily of home furnishings and apparel) and to retailers (including chains, department stores and independently owned fabric stores) for resale to the home sewing market. In the fiscal year ended September 1, 1996 Registrant deemphasized the merchandising of woven goods to apparel manufacturers and focused more heavily on merchandising knitted fabric for apparel and other end uses and concentrated its efforts on the Concord House Division which designs and markets fabrics principally for the home furnishing trade and for sales to retail stores. Manufacture and Sale of Fabrics Woven Fabrics Woven fabrics accounted for 60% of fabric sales in fiscal 1996, compared with 69% in fiscal 1995 and 70% in fiscal 1994. The significant decline in the percentage of woven fabric sales to total sales resulted from reduced sales of woven goods to the apparel trade. All of Registrant's supply of unfinished woven fabrics ("greige goods") are made from natural and/or synthetic fibers by unaffiliated companies, who frequently produce the greige goods to Registrant's specifications. In fiscal 1996, Registrant 2 was able to obtain adequate supplies of greige goods at competitive prices. Registrant purchased substantially all of its greige goods from about 55 suppliers; the five largest suppliers accounted for 51% of Registrant's purchases of greige goods and the largest supplied 14%. In fiscal 1995, Registrant purchased substantially all of its greige goods from about 85 suppliers; the five largest suppliers accounted for 36% of Registrant's purchases of greige goods and the single largest supplied 13%. In fiscal 1994, Registrant purchased its greige goods from about 100 suppliers of which the single largest supplied 11% of Registrant's needs. Registrant's greige cloth purchases derive from domestic and imported sources. Greige goods purchased by Registrant are printed or dyed and finished by unaffiliated finishers in accordance with Registrant's designs and specifications. In fiscal 1996, Registrant contracted with about 13 finishers for the finishing or printing of woven fabrics; the largest contract finisher accounted for 46% of Registrant's woven finishing requirements; no other contract finisher accounts for more than 19%. In fiscal 1995, Registrant's Washington, Georgia plant, accounted for 18% of Registrant's finishing requirements. That plant closed in October 1995 and therefore did not account for a significant portion of Registrant's 1996 finishing requirements. Registrant's woven fabrics are sold primarily by its own sales staff and to a lesser extent by independent sales agents. Sales are made to manufacturers of furniture and home furnishing products, children's apparel and women's accessories, and to retailers for resale to the home sewing market. 3 In April, 1994, Registrant acquired 100% of the capital stock of Kat-Em International, Inc., an importer of finished printed and dyed woven fabrics (see Note N to Financial Statements). Kat-Em merchandised and sold these fabrics to apparel manufacturers headquartered in the United States; some of the fabric was shipped into the United States and some was shipped to its customer's offshore manufacturing locations. Kat-Em International, Inc.'s sales, from the date of its acquisition, represented less than 6% of Registrant's consolidated sales in fiscal, 1994. In fiscal 1995 and 1996 Kat-Em's sales were approximately 13% of Registrant's consolidated sales. During fiscal 1996 Registrant began to wind down the Kat-Em operation and in August 1996 that subsidiary was merged into Concord. The decision to terminate the Kat-Em operation was a component of the deemphasis of sales to apparel manufacturers and elimination of unprofitable lines. Registrant exports printed and to a lesser extent solid woven fabrics for sale abroad. In fiscal 1995 and 1996 exports approximated 8% of sales. In fiscal 1994 exports were almost 7% of sales and in fiscal 1993 exports were almost 6% of Registrant's total sales. Prior to each "season" (i.e., spring-summer, fall-winter), Registrant's woven fabrics are designed by Registrant's design staff to meet current and developing styles that Registrant believes will be fashionable. Thus, the demand for Registrant's woven fabrics during any season depends in part upon Registrant's ability to forecast changes in styles and fashion and react thereto. Registrant often maintains a variety of greige and finished goods at necessary inventory levels to meet changing demand for its woven fabrics. 4 Knitted Fabrics Knitted fabrics accounted for 40% of fabric sales in fiscal 1996, compared with 31% in fiscal 1995 and 30% in fiscal 1994. Registrant purchases yarn for knitting from unaffiliated suppliers; in fiscal 1996, Registrant purchased yarn from 14 suppliers, the three largest suppliers accounted for 91% of Registrant's purchases of yarn; the largest of which accounted for 65% of yarn purchases. In fiscal 1995 Registrant purchased yarn from 13 suppliers; the three largest of which supplied 76% of Registrant's needs. Registrant is presently able to obtain adequate supplies of yarn at competitive prices and does not believe it is dependent on any single supplier. In fiscal 1996, 77% of the yarn purchased by Registrant was knitted into fabric at Registrant's Milledgeville, Georgia facility. The balance of the yarn purchased by Registrant in 1996 was knitted by unaffiliated contractors. In fiscal 1995, 88% of yarn purchased by Registrant was knitted at Milledgeville. In fiscal 1994, 72% of the yarn purchased by Registrant was knitted into fabric in Registrant's Milledgeville, Georgia plant. In the past three years, all of the knitted fabric was dyed and finished in Registrant's Milledgeville or Washington facilities (see Item 2. Properties). Registrant generally produces knitted fabrics against orders received in advance of production. As a result, Registrant's knitted fabrics are generally not styled with a view to anticipating fashion trends. Knitted fabrics are sold by Registrant's salesmen and by independent sales agents, to manufacturers of budget and moderately priced women's apparel, team 5 sports apparel manufacturers, infant's sleepwear manufacturers and to a lesser extent to makers of non apparel related products. Certain Factors Affecting Registrant's Business General Registrant's sales and earnings in any fiscal year are strongly influenced by various factors -- the public's acceptance of and demand for Registrant's fabrics and designs and the general state of economic conditions in the textile and apparel industry. In periods of rising raw material prices Registrant may encounter difficulty in passing such increases on to its customers; in periods of falling prices Registrant's inventory and commitment positions can result in significant reductions in gross margins. In addition, Registrant's earnings may be adversely affected by price changes in the greige goods market in the event and to the extent that management does not anticipate the direction and timing of such price changes. Registrant's management attempts to balance spot market purchases with forward commitments so as to minimize this risk. In fiscal 1995, reduced demand for fabrics marketed to apparel manufacturers coupled with lower margins for certain product ranges and the provision for loss for the disposal of the Washington, Georgia plant resulted in an operating loss. In fiscal 1996, Registrant decided to deemphasize its merchandising effort with respect to woven fabrics marketed to the apparel manufacturing trade which had an adverse effect on earnings. Sales declined by more than 18% but significantly better gross margins 6 obtained as a result of the elimination of less profitable product ranges as well as a reduction in expenses produced moderately profitable results. The amount of apparel being imported into the United States, particularly from low labor cost regions, is another factor which affects the textile and apparel industry and has had a significant adverse affect on Registrant's sales and earnings. Registrant's acquisition in 1994 of Kat-Em, to the extent that its customers included manufacturers with offshore operations, was made in part to counter the possible adverse effects of apparel and textile imports. However, Kat-Em was unprofitable since its acquisition and Registrant's winding down and termination of Kat-Em operations was implemented as a component of Registrant's plan to eliminate unprofitable product ranges. The NAFTA (North American Free Trade Act) became effective in fiscal 1994, and Registrant believes that its implementation has had an adverse effect on its business. Similarly, The General Agreement on Tariffs and Trade (GATT) has adversely affected Registrant's business by facilitating imports. Registrant has sought to insulate its business from the effects of these trade agreements. See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for more information concerning Registrant's sales and results of operations in fiscal 1996 and 1995. Seasonal Fluctuations Prior to fiscal 1989, Registrant experienced a traditional seasonal sales pattern, with sales highest from December through March, although sales trended lower as the year progressed. Subsequent thereto, much of the 7 seasonality in Registrant's business has been mitigated due to a combination of growth in Registrant's sales to retail stores which are less subject to seasonality and an increase in the production of customer orders in Registrant's own manufacturing facilities. Customers, Employees and Competition In fiscal 1996, Registrant sold its fabric products to approximately 3,600 customers, the 20 largest of which accounted for 32% of sales; the largest customer, accounted for approximately 4% of sales. Registrant sells on credit terms standard in the industry. Registrant sells its fabrics throughout the United States, but its principal sales markets for apparel fabrics are the New York metropolitan area and to a lesser extent California and its neighboring states. Registrant's home sewing fabric sales are not concentrated in any regional market. Registrant employs approximately 365 persons. Registrant's employees are not represented by a union. In fiscal 1996, approximately 35 of Registrant's employees were engaged in activities relating to development of new or improved fabrics and designs. Due to the deemphasis and elimination of certain product lines the number of employees so engaged was reduced to approximately 25 by fiscal year end. Registrant spent approximately $5,800,000 on such activities in fiscal 1996 and 1995 and approximately $4,600,000 on such activities in fiscal 1994. Registrant does not hold any significant patents or licenses, but does have copyrights on print patterns that it develops. Registrant protects its copyrights and actively pursues infringers. Registrant licenses the rights to use certain of its patterns 8 and receives royalty payments thereon. Registrant also purchases designs for its printed fabrics from independent designers and design companies. Many firms, no one of which is dominant, are in competition with Registrant; competition is based primarily on price, product, quality and service. Registrant is in competition both with converters -- whose function is limited to the conversion of greige goods and yarn into finished fabrics -- and with integrated textile companies which manufacture, as well as convert, greige goods and yarns. Since Registrant operates its knitting plant in Milledgeville, Georgia, Registrant is not solely a converter However, it is not a fully integrated producer since it does not weave greige goods or spin yarn, does not print woven or knit greige goods and does not dye and finish its woven greige goods. Registrant contracts out all its print requirements with unaffiliated producers. Since Registrant closed its Washington, Georgia Plant in October, 1995, it now contracts out all of its solid woven dyeing and finishing. Registrant believes that it is one of the larger firms whose primary business is converting, but there are a number of integrated firms with which Registrant competes that have significantly larger sales, financial, and other resources than Registrant. Item 2. Properties Registrant owns a 24 1/2-year-old knitting and finishing plant, consisting of approximately 130,000 square feet on one floor, situated on approximately 60 acres of land in Milledgeville, Georgia. The plant generally operates at full productive capacity, which is adequate for all of Registrant's finishing requirements. 9 Registrant, in fiscal 1986, purchased a 140,000-square foot building on approximately 55 acres of land in Washington, Georgia. On October 6, 1995 Registrant closed this facility and it is currently being offered for sale. Registrant, in fiscal 1987, purchased a 93,000-square foot building on approximately three acres of land in Chino, California. In February, 1994 Registrant sold the machinery and equipment in that facility, and leased the building to a non-affiliated contract dyeing and finishing company for a five year term. Registrant's Washington facility was closed because Registrant could not secure sufficient business at acceptable margins to adequately fill its capacity. Registrant believes that its Milledgeville, Georgia facility will provide substantially all of its knitting and dyeing and finishing of knitted fabrics requirements. Registrant has entered into leases expiring in 2003 for two floors at 1359 Broadway, New York, New York, consisting of approximately 40,000 square feet which it uses for its executive offices and showrooms. The Kat-Em Division of Registrant has a lease for office and warehouse space in Los Angeles, California comprised of 40,000 square feet; the lease expires in 1999. Registrant is offering the property for sublease as a consequence of the winding down of the Kat-Em operation. (See Note H of Notes to Financial Statements). Item 3. Legal Proceedings None. 10 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 71 Chairman of the Board and Director Earl Kramer 63 President and Director Martin Wolfson 60 Sr. Vice President, Treasurer and Director Mark Neugeboren 46 Vice President Joan Weinstein 64 Secretary
Alvin Weinstein has been Chairman of the Board of Registrant since 1969. Mr. Kramer joined Registrant in June 1972 as President of its Knit Division, with responsibility for supervising and coordinating the various aspects of Registrant's knit operations. In March 1976, Mr. Kramer was elected a Vice President of Registrant and was given the additional executive responsibility of supervising the operation of Registrant's dyeing and finishing plant in Washington, Georgia. Mr. Kramer has served as President of Registrant since August 1979. 11 Mr. Wolfson was elected Senior Vice President in 1995 after having been Vice President since 1981 and Treasurer and a Director of Registrant since 1973. Formerly he had served as Controller of Registrant. He served as Secretary of Registrant from January 1973 to October 1981. Mr. Wolfson is the principal financial officer of Registrant. In January 1985, Mr. Neugeboren was elected Vice President in Charge of Production. Mr. Neugeboren joined Registrant in 1972 and has held various positions in its production departments. In October 1982, Joan Weinstein (the wife of Alvin Weinstein) was elected Secretary of Registrant. She has been Registrant's Fashion Director since joining Registrant in 1973. All of Registrant's officers hold office until the next annual meeting of Registrant's Board of Directors (scheduled for January 14, 1997) and the election of their successors. 12 PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters On May 27, 1988 Registrant exchanged one share each of Class A and Class B stock of Concord Fabrics Inc. (a Delaware Corporation) for each share of stock previously issued of Concord Fabrics Inc. (a New York Corporation). As of September 1, 1996, the number of record holders of the Registrant's Class A Common Stock was 367 and the number of record holders of Registrant's Class B Common Stock was 351. Both classes of Registrant's Common Stock are listed on the American Stock Exchange. The table below sets forth information on the high and low sales prices for such Common Stock for each quarter of fiscal 1996 and 1995.
----------------1996---------------- ----------------1995---------------- Fiscal Quarters ---Class A--- ---Class B--- ---Class A---- ---Class B--- Ending On or About High Low High Low High Low High Low - ------------------ ---- --- ---- --- ---- ---- ---- ---- November 30 5 3-11/16 4-5/8 3-5/8 9-1/2 7-3/4 9-1/8 7-7/8 February 28 4-3/4 3-5/8 4-5/8 3-5/8 8-3/8 6-3/4 8 6-1/2 May 31 5-3/4 4 5-5/8 4-7/8 6-7/8 5-3/8 6-1/2 5-1/2 August 31 6-7/8 5-3/4 6-1/2 5-3/4 6-5/8 4-7/8 6-1/2 4-5/8
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) 13 subsequent to August 28, 1994 plus net cash proceeds from the sale of stock; $2,617,000 was available for such payments as of September 1, 1996. 14 ITEM 6 CONCORD FABRICS INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA
Y e a r E n d e d ----------------------------------------------------------------------------------- September 1, September 3, August 28, August 29, August 30, 1996 1995 1994 1993 1992 ------------ ------------ ---------- ------------ ----------- Net sales $146,561,416 $180,152,779 $197,804,544 $197,047,714 $201,727,239 ------------ ------------ ------------ ------------ ------------ Cost of sales 108,814,265 143,950,238 148,920,930 153,338,242 163,328,144 Merchandising expenses 9,070,758 9,644,429 8,698,897 7,758,817 7,395,576 Selling and shipping expenses 12,189,783 13,852,770 14,169,565 12,370,215 12,819,442 General and administrative expenses 11,890,945 12,640,139 13,551,493 11,724,618 11,011,780 Provision for doubtful accounts 1,070,000 633,000 1,321,000 1,777,000 698,000 Interest expense (net) 1,811,747 2,432,438 1,787,311 2,320,021 3,202,091 Plant shut-down costs 1,100,000 3,000,000 Gain on sale of equipment (1,420,606) ------------ ------------ ------------ ------------ ------------ T o t a l 144,847,498 184,253,014 187,028,590 189,288,913 201,455,033 ------------ ------------ ------------ ------------ ------------ Earnings (loss) before income taxes and extraordinary item 1,713,918 (4,100,235) 10,775,954 7,758,801 272,206 Income tax provision (credit) 776,000 (1,414,000) 4,332,000 3,133,000 102,000 ------------ ------------ ------------ ------------ ------------ Net earnings (loss) before extraordinary item 937,918 (2,686,235) 6,443,954 4,625,801 170,206 Extraordinary item (net of income tax credit) (297,266) ------------ ------------ ------------ ------------ ------------ NET EARNINGS (LOSS) $ 937,918 $ (2,983,501) $ 6,443,954 $ 4,625,801 $ 170,206 ============ ============ ============ ============ ============ Earnings (loss) per share: Earnings (loss) before extraordinary item $.26 $(.75) $1.80 $1.30 $.05 Extraordinary item (.08) ---- ----- ----- ----- ---- Net earnings (loss) $.26 $(.83) $1.80 $1.30 $.05 ==== ===== ===== ===== ==== Average number of shares used in computing earnings (loss) per share 3,630,329 3,606,976 3,574,780 3,565,062 3,565,062 ============ ============ ============ ============ ============ Dividends paid None None None None None ==== ==== ==== ==== ==== Working capital $ 47,095,320 $ 44,625,140 $ 37,845,803 $ 33,385,284 $ 30,462,022 ============ ============ ============ ============ ============ Long-term debt (less current portion) $ 20,000,000 $ 20,000,000 $ 7,500,000 $ 9,000,000 $ 10,500,000 ============ ============ ============ ============ ============ Total assets $ 73,164,882 $ 76,645,925 $ 84,895,505 $ 74,854,867 $ 76,621,865 ============ ============ ============ ============ ============ Stockholders' equity $ 40,839,125 $ 39,777,321 $ 42,723,322 $ 36,166,868 $ 31,541,067 ============ ============ ============ ============ ============ Stockholders' equity per share $11.17 $11.00 $11.86 $10.14 $8.85 ====== ====== ====== ====== =====
The year ended September 3, 1995 comprised 53 weeks; the other years presented each comprised 52 weeks. 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 1996 v. Fiscal 1995 Fiscal 1996 comprised 52 weeks; fiscal 1995 comprised 53 weeks. Net sales decreased 19% from $180,152,779 to $146,561,416. This resulted from a decline in unit sales of 17% and a 1% decline in average selling price. The decrease in sales reflected the cessation in October 1995, of Registrant's operations at its Washington, Georgia woven dyeing and finishing plant and the further deemphasis in June 1996 of the production of woven fabrics for the apparel trade. Gross margins rose to 25.8% in fiscal 1996 from 20.1% in fiscal 1995. The improvement was due to better performance at Registrant's Milledgeville, Georgia knitted fabrics manufacturing facility and the discontinuance of operations at the less productive Washington, Georgia plant. Merchandising expenses decreased by approximately $575,000 or 6% primarily due to a reduction in personnel associated with the production of solid woven fabric. Selling and shipping expense declined about 12% as a result of the decrease in Registrant's sales. The decrease was less than the actual sales decrease because some of Registrant's selling and shipping expenses do not vary directly with sales but represent sales management costs which are more fixed in nature. General and administrative expenses declined about 6% primarily due to a decrease in the number of corporate officers, the completion of Registrant's computer software development project and a reduction in travelling expense. 16 Registrant's provision for doubtful accounts increased to $1,070,000 in fiscal 1996 from $633,000 in fiscal 1995 because of an increase in customer failures in contrast with fiscal 1995. Registrant is continuously exposed to bad debt risk with respect to its wholesale customers when such customers may have significant concentration of business with retailers who may become financially unstable. Registrant attempts to monitor this situation and adjust its credit policies accordingly. Interest expense decreased by almost 26% due to a reduction in short term borrowing reflective of lower working capital requirements associated with reduced business activity which stemmed from the elimination of unprofitable product ranges. As a result at fiscal year end Registrant was free of short term debt and in the course of the year increased its cash position by more than $7,000,000. In fiscal 1996 Registrant earned $938,000 net of a tax provision of $776,000. In fiscal 1995 Registrant incurred a loss of $2,686,000 (net of an income tax credit of $1,414,000) before an extraordinary item. The loss principally reflected weak demand for Registrant's imported and domestic woven fabrics marketed to apparel manufacturers. The loss included $660,000 (net of tax credit) provision for the shut down of the Washington, Georgia plant. An extraordinary loss of $297,000 (net of income tax credit of $198,000) in connection with a penalty incurred on Registrant's early repayment of a term loan brought the net loss to $2,984,000. Although Registrant's sales in fiscal 1997 are expected to decline, operating results should improve as Registrant's recently implemented 17 strategy focuses on the more profitable aspects of its business, (Concord House and knitted fabrics), and de-emphasizes those areas that involve greater risk. Fiscal 1995 v. Fiscal 1994 Fiscal 1995 comprised 53 weeks; fiscal 1994 comprised 52 weeks. Fiscal 1995 results include the operations of Kat-Em International Inc. For a full year. Fiscal 1994 results include the operations of Kat-Em from April 18, 1994, the date it was acquired by Registrant, through August 28, 1994. Net sales decreased 9% from $197,804,544 to $180,152,779. This resulted from a decline in unit sales of 8% and a 1% decline in average selling price. Registrant believes that the decrease in sales reflected decreased consumer spending on domestically manufactured apparel. Gross margins fell from 24.7% in fiscal 1994 to 20.1% in fiscal 1995. This resulted from price competition stemming from reduced consumer demand, inefficiencies and lack of productivity in Registrant's Washington, Georgia manufacturing facility (the plant was closed in October, 1995), higher raw material costs, and inventory mark-downs predominantly in the Kat-Em subsidiary. Registrant expects that the closing of the Washington plant will lead to lower sales but higher gross margins in fiscal 1996. Merchandising expenses increased by approximately $945,000 or 11%. About $700,000 of this was due to the inclusion of the Kat-Em operation for a full year in fiscal 1995 versus a four and one half month period in fiscal 18 1994. The balance resulted from higher engraving costs associated with the production of more intricate designs on Registrant's printed fabrics. Selling and shipping expense declined about 2% as a result of the decrease in Registrant's sales. The decrease was less than the actual sales decrease because some of Registrant's selling and shipping expenses do not vary directly with sales but represent sales management costs which are more fixed in nature. General and administrative expenses declined almost 7% primarily due to a decrease in performance related compensation and profit sharing. Registrant's provision for doubtful accounts declined from $1,321,000 in fiscal 1994 to $633,000 in fiscal 1995 because there were no significant customer failures in contrast with fiscal 1994. However, Registrant is continuously exposed to bad debt risk with respect to its wholesale customers when such customers may have significant concentration of business with retailers who may become financially unstable. Registrant attempts to monitor this situation and adjust its credit policies accordingly. Interest expense increased by 36%. In November, 1994 Registrant secured $20,000,000 of long term financing which replaced $9,000,000 of long term debt and added to working capital. The additional $11,000,000 of long term borrowing, although at a lower fixed rate than the debt it replaced, in part accounted for substantially all of the increase in interest cost for the year. Average short term debt declined by almost $2,000,000 but average short term borrowing rates were higher in fiscal 1995 so that interest cost on short term debt was marginally higher. 19 In fiscal 1995 Registrant incurred a loss of $2,686,000 (net of an income tax credit of $1,414,000) before an extraordinary item. The loss principally reflected weak demand for Registrant's imported and domestic woven fabrics marketed to apparel manufacturers. The loss included $660,000 (net of tax credit) provision for the shut down of the Washington, Georgia plant. An extraordinary loss of $297,000 (net of income tax credit of $198,000) in connection with a penalty incurred on Registrant's early repayment of a term loan brought the net loss to $2,984,000. In fiscal 1994 Registrant earned $6,444,000 (net of $4,332,000 income taxes). The results included an $860,000 after tax gain from the sale of machinery and equipment. Liquidity and Capital Resources During fiscal 1996, Registrant met its cash needs from cash flow from operations ($10,052,000), sale of equipment at its Washington, Georgia facility ($901,000) and the sale of capital stock ($124,000), which it used to invest in plant and equipment ($1,696,000) and reduce short term debt ($2,000,000). Cash increased by $7,381,000. Working capital increased by $2,470,000. Under individual credit line arrangements with several New York banks, Registrant may borrow up to $20,000,000 at the prime lending rate. The credit lines are unsecured. Registrant is generally expected to maintain compensating bank balances. The banks have advised that Registrant has been in substantial compliance with its compensating balance arrangements, and that withdrawal of bank balances is not legally restricted. Amounts 20 borrowed are generally due in 30 to 90 days. Although the lending arrangements are informal and are cancelable at each bank's option, Registrant has no reason to believe that the lines of credit will not be available if needed during fiscal 1997. Registrant's actual borrowing fluctuates from month to month. The average outstanding debt during fiscal 1996 was $1,464,000 and the maximum outstanding at any time during the year was $2,000,000. Nothing was outstanding at September 1, 1996. Registrant expects its lines of credit, together with cash management and cash flow from operations, to be adequate to finance operations for fiscal 1997. Registrant's long-term lending agreement with an insurance company which is unsecured, prohibits pledging of assets, and requires (among other things - see Note G to Financial Statements) maintenance of minimum working capital, tangible net worth of $36,167,000 and maintenance of a minimum working capital ratio of 1.5 to 1. The unpaid principal balance is $20,000,000. At September 1, 1996, tangible net worth approximated $40,550,000 and Registrant's working capital ratio was 5.2 to 1. Registrant has met all of the requirements specified in the loan agreement. The loan bears interest at 9.31% a year, and is repayable in seven equal annual installments beginning November, 1998. Inflation Registrant's operating costs are subject to the general inflationary trends of the rest of the economy; in fiscal 1996 such trends were modest; inflation has not been a significant factor in Registrant's costs for the last three fiscal years. 21 Forward Looking Statements This report contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and actual results could differ materially from those contemplated by such statements. The considerations indicated under the heading "Certain Factors Affecting Registrants Business", as well as risks and uncertainties indicated elsewhere in this report represent certain important factors the Registrant believes could cause such results to differ. 22 ITEM 8 CONCORD FABRICS INC. AND SUBSIDIARIES - I N D E X - FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 1, 1996 AND SEPTEMBER 3, 1995 CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE YEARS ENDED SEPTEMBER 1, 1996, SEPTEMBER 3, 1995 AND AUGUST 28, 1994 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 1, 1996, SEPTEMBER 3, 1995 AND AUGUST 28, 1994 NOTES TO FINANCIAL STATEMENTS FINANCIAL STATEMENT SCHEDULE Schedule II - Valuation and Qualifying Accounts Schedules other than those referred to above have been omitted as the conditions requiring their filing are not present or the information has been presented elsewhere in the financial statements. 23 [EISNER & LUBIN LETTERHEAD] Independent Auditors' Report To the Board of Directors and Stockholders Concord Fabrics Inc. We have audited the accompanying consolidated balance sheets of Concord Fabrics Inc. and Subsidiaries as at September 1, 1996 and September 3, 1995, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended September 1, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Concord Fabrics Inc. and Subsidiaries as at September 1, 1996 and September 3, 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 1, 1996 in conformity with generally accepted accounting principles. 24 [LOGO] The audits of the financial statements were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index of financial statement schedules is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Eisner & Lubin LLP ------------------------------------ CERTIFIED PUBLIC ACCOUNTANTS New York, New York November 13, 1996 25 CONCORD FABRICS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
September 1, September 3, A S S E T S 1996 1995 ------------ ------------ Current assets: Cash and cash equivalents $ 9,743,024 $ 2,362,119 Accounts receivable (less estimated doubtful accounts of $1,610,000 in 1996 and $1,225,000 in 1995) 27,097,106 27,909,706 Inventories (Notes A(2) and B) 17,323,179 24,071,426 Income tax refunds receivable 423,200 2,051,000 Prepaid expenses and other current assets 1,620,319 2,352,403 Deferred income taxes (Note D) 2,189,000 2,172,000 ----------- ----------- Total current assets 58,395,828 60,918,654 Property, plant and equipment (at cost, less depreciation and amortization of $5,424,566 in 1996 and $5,101,597 in 1995) (Notes A(3) and C) 8,117,040 8,153,913 Property, plant and equipment held for sale - at estimated disposal value (Note O) 2,153,884 3,000,000 Property and plant - leased to others (Note M) 2,041,372 2,193,532 Other assets 2,456,758 2,379,826 ----------- ----------- T O T A L $73,164,882 $76,645,925 =========== =========== L I A B I L I T I E S Current liabilities: Notes payable - banks (Note E) $ 2,000,000 Accounts payable $ 6,932,477 8,923,439 Accrued expenses and taxes 4,368,031 5,370,075 ----------- ----------- Total current liabilities 11,300,508 16,293,514 Notes payable - insurance company (less current portion above) (Note G) 20,000,000 20,000,000 Deferred income taxes (Note D) 601,000 214,000 Other liabilities 424,249 361,090 ----------- ----------- Total liabilities 32,325,757 36,868,604 ----------- ----------- Commitments and contingencies (Notes B, F, G, H, K, M, O, and Q) S T O C K H O L D E R S' E Q U I T Y (Notes G, J and K) Common stock: Class A - $.50 par value - authorized 4,000,000 shares, issued 2,146,956 shares in 1996 and 2,105,611 shares in 1995 1,073,478 1,052,805 Class B - $.50 par value - authorized 4,000,000 shares, issued 1,509,401 in 1996 and 1,509,451 shares in 1995 754,701 754,726 Additional paid-in capital 9,166,123 9,062,885 Retained earnings (statement attached) 29,844,823 28,906,905 ----------- ----------- Total stockholders' equity 40,839,125 39,777,321 ----------- ----------- T O T A L $73,164,882 $76,645,925 =========== ===========
The notes to financial statements are made a part hereof. 26 CONCORD FABRICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Y e a r E n d e d -------------------------------------------------------- September 1, September 3, August 28, 1996 1995 1994 -------------------------------------------------------- Net sales $146,561,416 $180,152,779 $197,804,544 ------------ ------------ ------------ Cost of sales 108,814,265 143,950,238 148,920,930 Merchandising expenses 9,070,758 9,644,429 8,698,897 Selling and shipping expenses 12,189,783 13,852,770 14,169,565 General and administrative expenses 11,890,945 12,640,139 13,551,493 Provision for doubtful accounts 1,070,000 633,000 1,321,000 Interest expense (net) (Note I) 1,811,747 2,432,438 1,787,311 Gain on sale of equipment (Note M) (1,420,606) Plant shut-down costs (Note O) 1,100,000 ------------ ------------ ------------ T o t a l 144,847,498 184,253,014 187,028,590 ------------ ------------ ------------ Earnings (loss) before income taxes and extraordinary item 1,713,918 (4,100,235) 10,775,954 Income tax provision (credit) (Note D) 776,000 (1,414,000) 4,332,000 ------------ ------------ ------------ Earnings (loss) before extraordinary item 937,918 (2,686,235) 6,443,954 Extraordinary item - loss on early extinguishment of debt (net of income tax credit) (Note G) (297,266) ------------ ------------ ------------ Net earnings (loss) 937,918 (2,983,501) 6,443,954 Retained earnings - beginning of year 28,906,905 31,890,406 25,446,452 ------------ ------------ ------------ RETAINED EARNINGS - END OF YEAR (TO CONSOLIDATED BALANCE SHEET) $ 29,844,823 $ 28,906,905 $ 31,890,406 ============ ============ ============ Earnings (loss) per share (Notes A(4) and K): Earnings (loss) before extraordinary item $.26 $(.75) $1.80 Extraordinary item (.08) ---- ----- ----- Net earnings (loss) $.26 $(.83) $1.80 ==== ===== ===== Average number of shares used in computing earnings (loss) per share 3,630,329 3,606,976 3,574,780 ========= ========= =========
The notes to financial statements are made a part hereof. 27 CONCORD FABRICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Y e a r E n d e d ---------------------------------------------------- September 1, September 3, August 28, 1996 1995 1994 ------------ ------------ ---------- Cash flows from operating activities: Net earnings (loss) $ 937,918 $(2,983,501) $ 6,443,954 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 1,813,123 1,991,438 1,977,960 Deferred income taxes 370,000 (110,000) (249,000) Provision for doubtful accounts 1,070,000 633,000 1,321,000 (Gain) loss on sale of equipment 52,569 (1,420,606) Plant shut-down costs 1,100,000 Change in assets and liabilities, net of effects in 1994 of purchase acquisition: Decrease (increase) in: Accounts receivable (257,400) 6,456,456 1,763,070 Inventories 6,748,247 7,013,134 (9,476,448) Income tax refunds receivable 1,627,800 (2,051,000) Prepaid expenses and other current assets 732,084 204,526 37,826 Other assets (112,236) (851,333) (452,014) Increase (decrease) in: Accounts payable (1,990,962) (6,267,344) 1,919,810 Accrued expenses and taxes (1,002,044) (2,741,735) 1,682,556 Income taxes (992,637) 537,520 Other liabilities 63,159 59,137 37,928 ----------- ----------- ----------- Net cash provided by operating activities 10,052,258 1,460,141 4,123,556 ----------- ----------- ----------- Cash flows from investing activities: Purchases of property, plant and equipment (1,695,758) (4,112,904) (2,914,448) Proceeds from sale of equipment 900,520 2,000,000 Payment for purchase of Kat-Em International, Inc. (1,150,482) ----------- ----------- ----------- Net cash (used in) investing activities (795,238) (4,112,904) (2,064,930) ----------- ----------- ----------- Cash flows from financing activities: Payments of notes payable - insurance company (9,000,000) (1,500,000) Borrowing - insurance company 20,000,000 Payments of notes payable - banks (net) (2,000,000) (7,600,000) (1,200,000) Issuance of Class A common stock pursuant to stock options exercised 123,885 37,500 112,500 ----------- ----------- ----------- Net cash provided by (used in) financing activities (1,876,115) 3,437,500 (2,587,500) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,380,905 784,737 (528,874) Cash - beginning of year 2,362,119 1,577,382 2,106,256 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 9,743,024 $ 2,362,119 $ 1,577,382 =========== =========== ===========
The notes to financial statements are made a part hereof. 28 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Note A) - Summary of Significant Accounting Policies: (1) Principles of Consolidation - The financial statements include the accounts of Concord Fabrics Inc. and its wholly-owned subsidiaries (the Company); intercompany investments, advances and transactions have been eliminated. (2) Inventories - Inventories are stated at lower of cost or market, first-in, first-out; obsolete inventory items are carried at net realizable value. Inventory costs comprise material, direct labor and overhead (Note B). (3) Property and Depreciation - Property, plant and equipment is recorded at cost. Profits and losses on dispositions are reflected in current operations. Fully depreciated assets are written off against accumulated depreciation. Depreciation for financial accounting purposes is computed substantially by the straight-line method to amortize the cost of various classes of assets over their estimated useful lives. Leasehold improvements are amortized over the shorter of the life of the related asset or the life of the lease. For income tax purposes, accelerated methods of depreciation are generally used; deferred income taxes are provided for the difference between depreciation expense for financial accounting purposes and for income tax purposes. (4) Earnings (Loss) Per Share - Earnings (loss) per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the year. Outstanding options to purchase common shares (Note K) did not have a material dilutive effect on earnings per share. (5) Cash Equivalents - For purposes of the statement of cash flows, the Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents include commercial paper aggregating $9,000,000 as at September 1, 1996. (6) Fiscal Year - The Company operates on a 52-53 week year ending on the Sunday closest to August 31. The year ended September 1, 1995 comprised fifty-three weeks; the other two years in the period ended September 1, 1996 each comprised fifty-two weeks. (7) Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (Continued) 29 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 2 - (Note B) - Inventories: Inventories are summarized by categories as follows:
September 1, September 3, 1996 1995 ------------ ------------- Finished goods $ 9,750,156 $12,160,524 Work-in-process 3,268,677 3,253,096 Greige goods and yarn 4,304,346 8,657,806 ----------- ----------- T o t a l $17,323,179 $24,071,426 =========== ===========
At September 1, 1996, the Company had outstanding commitments to purchase greige goods aggregating approximately $9,351,000. (Note C) - Property, Plant and Equipment: Property, plant and equipment is summarized as follows:
Estimated September 1, September 3, Useful Life 1996 1995 (In Years) ----------- ------------ ------------ Land $ 78,503 $ 78,503 Buildings 2,568,195 2,568,195 19 to 40 Machinery and equipment 7,700,666 7,628,490 5 to 9 Furniture and fixtures 1,409,079 1,339,152 3 to 8 Leasehold improvements 1,785,163 1,641,170 Term of lease or life of asset ----------- ----------- T o t a l 13,541,606 13,255,510 Less depreciation and amortization 5,424,566 5,101,597 ----------- ----------- N e t $ 8,117,040 $ 8,153,913 =========== ===========
(Continued) 30 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 3 - (Note D) - Income Taxes: (1) Income tax provision (credit) on the consolidated statement of operations and retained earnings is analyzed as follows:
Y e a r E n d e d --------------------------------------------------- September 1, September 3, August 28, 1996 1995 1994 ------------ ------------ ---------- Currently payable (refundable): Federal $346,000 $(1,304,000) $3,792,000 State and local 60,000 789,000 Deferred: Federal 284,000 34,000 (205,000) State and local 86,000 (144,000) (44,000) -------- ----------- ---------- T o t a l $776,000 $(1,414,000)* $4,332,000 ======== =========== ==========
(2) Income taxes computed at the statutory federal income tax rate are reconciled to income tax provision (credit) on the consolidated statement of operations and retained earnings as follows:
Y e a r E n d e d --------------------------------------------------- September 1, September 3, August 28, 1996 1995 1994 ------------ ------------ --------- Income taxes at statutory federal income tax rate $583,000 $(1,364,000) $3,675,000 Effect of: State and local income taxes (net of federal income taxes) 96,000 (85,000) 606,000 Nondeductible expenses 107,000 68,000 99,000 Foreign sales corporation (10,000) (33,000) (48,000) -------- ----------- ---------- T o t a l $776,000 $(1,414,000)* $4,332,000 ======== =========== ==========
*The tax benefit related to the extraordinary item on retirement of debt was $198,000 in the year ended September 1, 1995. (Continued) 31 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 4 - (Note D) - Income Taxes (Continued): (3) Deferred tax assets and liabilities are comprised of the following elements:
September 1, September 3, 1996 1995 ------------ ------------ Gross deferred assets: Excess of tax over financial statement basis of property and plant leased to others $ 176,000 $ 177,000 Estimated doubtful accounts 640,000 489,000 Excess of tax over financial statement basis of inventory 1,163,000 1,027,000 Accruals deductible for tax purposes when paid 515,000 767,000 State and other tax loss carryforwards 60,000 ---------- ---------- Gross deferred assets 2,494,000 2,520,000 ---------- ---------- Gross deferred liabilities: Excess of financial statement over tax basis of property, plant and equipment 428,000 406,000 Excess of financial statement over tax basis of property, plant and equipment held for sale 478,000 156,000 ---------- ---------- Gross deferred liabilities 906,000 562,000 ---------- ---------- Net deferred taxes $1,588,000 $1,958,000 ========== ========== Reflected on attached consolidated balance sheet as: Current deferred asset - net $2,189,000 $2,172,000 Non-current deferred (liability) - net (601,000) (214,000) ---------- ---------- Net deferred taxes $1,588,000 $1,958,000 ========== ==========
(Continued) 32 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 5 - (Note E) - Notes Payable - Banks: The Company has total bank lines of credit aggregating $20,000,000. Amounts borrowed are generally due in 30 to 90 days. The line of credit arrangements are informal and are cancelable at the banks' option and provide for borrowings at the prime lending rate. The Company is generally expected to maintain average annual compensating bank balances in consideration of average annual bank borrowings. The banks have advised that the Company has been in substantial compliance with its compensating balance arrangements and that withdrawals of bank balances are not legally restricted. The average interest rate on amounts outstanding was 8.75% at September 3, 1995. (Note F) - Profit-Sharing Plan: The Company's noncontributory profit-sharing plan, approved by the Treasury Department, for the benefit of eligible full time employees, provides for a minimum annual contribution to a trust fund based on percentages of pre-tax profits (as defined); the Board of Directors may increase such minimum annual contribution at its sole discretion but all contributions are limited to the max imum amount deductible for federal income tax purposes. Contributions of $150,000 and $500,000 were made for the years ended September 1, 1996 and August 28, 1994, respectively; no contribution was made for the year ended September 3, 1995. (Note G) - Notes Payable - Insurance Company: On November 30, 1994, the Company borrowed $20,000,000 from an insurance company. The unsecured loan bears interest at 9.31% a year and is repayable in seven equal annual installments commencing November 30, 1998. A portion of the loan proceeds was used to prepay the $9,000,000 loan outstanding to The Prudential Insurance Company of America. A prepayment penalty of $495,266 was also paid; this amount has been reflected as an extraordinary item (net of $198,000 income tax benefit) on the statement of operations and retained earnings for the year ended September 1, 1995. (Continued) 33 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 6 - (Note G) - Notes Payable - Insurance Company (Continued): The new loan agreement requires maintenance of tangible net worth of approximately $36,000,000. The Company must also maintain, at each fiscal quarter end, ratios of current assets to current liabilities and current assets to total liabilities of not less than 1.5 to 1 and 1.4 to 1, respectively, and may not permit debt for borrowed money to exceed 55% of capitalization (as defined). The agreement also prohibits the pledging of assets and restricts dividends and redemptions of capital stock to $3,000,000 plus 50% of consolidated net income (as defined) subsequent to August 28, 1994; at September 1, 1996, $2,617,000 was available for such payments. (Note H) - Leases: The Company leases showroom and office space and various equipment under leases expiring at various dates to 2003. Minimum rental payments under long-term leases in effect at September 1, 1996 are as follows: Year ending in: 1997 $1,133,000 1998 1,069,000 1999 819,000 2000 701,000 2001 651,000 Thereafter 922,000 ---------- T o t a l $5,295,000 ==========
Rent expense aggregated $1,925,000 in 1996, $2,300,000 in 1995 and $2,200,000 in 1994. (Continued) 34 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 7 - (Note I) - Interest Expense: Interest expense (net) on the consolidated statement of operations and retained earnings comprises the following:
Y e a r E n d e d ------------------------------------------------- September 1, September 3, August 28, 1996 1995 1994 ----------- ------------ ---------- Interest expense $1,950,121 $2,533,640 $1,874,332 Interest income 138,374 101,202 87,021 ---------- ---------- ---------- N e t $1,811,747 $2,432,438 $1,787,311 ========== ========== ==========
(Note J) - Common Stock: The Class A and Class B shares principally differ as follows: (1) The Class A shares have a 15% dividend preference and a 10% liquidation preference with respect to the Class B shares. (2) Holders of Class A shares are entitled to one vote a share whereas holders of Class B shares are entitled to ten votes a share. (3) Holders of Class A shares, voting as a separate class, are entitled to elect 25% of the Company's directors and holders of Class B shares, voting as a separate class, are entitled to elect the remaining directors. (4) Class B shares are convertible into Class A shares on the basis of one share of Class A shares for each share of Class B shares; Class A shares have no conversion rights. During the years ended September 1, 1996 and August 28, 1994, 50 and 11,650 Class B shares, respectively, were converted to an equal number of Class A shares; no conversions took place during the year ended September 3, 1995. (Continued) 35 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 8 - (Note K) - Stock Options: Pursuant to an Incentive Program adopted on January 10, 1989, awards (as defined) may be granted to key employees of the Company up to a maximum of 500,000 shares of the Company's Class A common stock. On January 10, 1989, options to purchase an aggregate of 150,000 shares of the Company's Class A common stock at $3 a share (fair market value at such date) were granted to three employees. The options are exercisable in four annual installments commencing January 10, 1995 and expire ten years from the date of grant. On March 1, 1994, an option to purchase 10,000 shares of the Company's Class A common stock at $9.50 a share (fair market value at such date) was granted to an employee. The option was cancelled upon the employee's termination of employment during the year ended September 3, 1995. On January 9, 1996, options to purchase an aggregate of 200,000 shares of the Company's Class A common stock at $4.625 a share (fair market value at such date) were granted to two employees. The options are exercisable in four annual installments com mencing January 9, 1997 and expire ten years from the date of the grant. During 1996, the Company adopted a Director Stock Option Plan under which awards may be granted to outside directors of the Company up to a maximum of 75,000 shares of the Company's Class A common stock. The plan provides for the granting of 2,500 options for each outside director annually. The options become exercisable one year from the date of grant and terminate the sooner of five years or two years after a director termination. On January 9, 1996, options to purchase 5,000 shares of the Company's Class A common stock at $4.625 (fair market value at such date) were granted to two outside directors. (Continued) 36 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 9 - (Note K) - Stock Options (Continued): Option activity is summarized as follows:
Options Outstanding Shares --------------------------- Available Number of For Grant Shares Amount --------- --------- ------- Outstanding at August 29, 1993 350,000 150,000 $ 450,000 Granted (10,000) 10,000 95,000 Exercised(1) (37,500) (112,500) ------- ------- ---------- Outstanding at August 28, 1994 340,000 122,500 432,500 Cancelled 10,000 (10,000) (95,000) Exercised(1) (12,500) (37,500) ------- ------- ---------- Outstanding at September 3, 1995 350,000 100,000 300,000 Granted (200,000) 205,000 948,125 Exercised(1) (41,295) (123,885) Cancelled 2,455 (2,455) (7,365) ------- ------- ---------- Outstanding at September 1, 1996 152,455 261,250 $1,116,875 ======= ======= ==========
(1) The $103,238, $31,250 and $93,750 excess of the exercise price over the par value of the Class A common stock issued has been credited to additional paid-in capital in the years ending September 1, 1996, September 3, 1995 and August 28, 1994, respectively. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Statements (SFAS) No. 123, "Accounting for Stock-Based Compensation." This standard requires either the recognition or disclosure of compensation expense based on the fair value of equity instruments granted to employees. As permitted by SFAS 123, the Company has elected to adopt the disclosure provisions of the standard in 1997. (Note L) - Business of the Company: The Company's principal business is the manufacturing and purchasing of woven and knitted fabrics for sale to manufacturers (primarily of home furnishing and apparel) and to retailers (including chains, department stores and independently owned fabric stores) for resale to the home sewing market. (Continued) 37 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 10 - (Note M) - Chino, California Facility: In February 1994, the Company sold its Chino, California machinery and equipment for $2,000,000 cash and recognized a gain before income taxes of $1,420,606 on its statement of operations for the year ended August 28, 1994. The Company also leased the land and building for a five year period at an annual net rental of $297,000; the lessee was also granted the option to purchase the land and building during the lease period for $2,900,000. (Note N) - Acquisition of Kat-Em International, Inc. On April 18, 1994, the Company purchased all of the capital stock of Kat-Em International, Inc. (Kat-Em), an importer of printed and solid finished fabrics used in the apparel industry, for $1,150,482 cash, which includes acquisition costs. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair values at the acquisition date and the operations of Kat-Em are included in the consolidated statement of operations and retained earnings from April 18, 1994. During 1996, the Company decided to wind down the Kat-Em operations and in August 1996, Kat-Em was merged into Concord Fabrics Inc. (Note O) - Plant Shut-Down Costs: The Company decided to dispose of its Washington, Georgia dyeing and finishing plant and is actively searching for a buyer; manufacturing operations ceased October 6, 1995. The loss of $1,100,000 (before income tax benefit of $440,000) reflected on the statement of operations and retained earnings for the fiscal year ended September 3, 1995 comprises estimated expenses during the disposition period. The Company estimates that the net proceeds of sale will approximate the facility's depreciated cost. (Continued) 38 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 11 - (Note P) - Supplemental Information to Consolidated Statement of Cash Flows:
Year Ended Year Ended Year Ended September 1, September 3, August 28, 1996 1995 1994 ------------ ------------ ---------- Cash paid (refunded) for: Interest $1,984,000 $2,803,000 $1,928,000 Income taxes (1,229,000) 1,463,000 4,070,000
Noncash investing activity: During the year ended August 28, 1994, the Company purchased all of the capital stock of Kat-Em International, Inc. for $1,150,482. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $3,619,061 Cash paid for the capital stock, including acquisition costs 1,150,482 ---------- Liabilities assumed $2,468,579 ==========
(Note Q) - Concentration of Credit Risk: (1) Cash in banks, based on bank statement balances, exceeded federally insured limits by approximately $1,600,000 and $3,800,000 at September 1, 1996 and September 3, 1995, respectively. The Company's investment in commercial paper at September 1, 1996 was with a financial institution. (2) Accounts receivable from manufacturers and retailers aggregated approximately $17,303,000 and $9,611,000 at September 1, 1996 and $19,368,000 and $6,447,000 at September 3, 1995, respectively. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. (3) Accounts receivable at September 1, 1996 and September 3, 1995 also includes $1,793,000 and $3,320,000, respectively, of due from factors. (4) Five customers accounted for approximately 14% and 11% of sales for the year ended September 1, 1996 and September 3, 1995, respectively. (Continued) 39 CONCORD FABRICS INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Sheet 12 - (Note R) - Fair Values of Financial Instruments: The Company's financial instruments consist of cash, temporary investments and debt. The following summarizes the methods used to estimate the fair value of these financial instruments. The carrying values of cash and temporary investments approximate their fair values due to their short-term maturities. The carrying value of the $20,000,000 notes payable at September 1, 1996 approximates fair value based on their future cash flows discounted at a current rate for debt with similar terms and maturity. 40 SCHEDULE II CONCORD FABRICS INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Balance at beginning charged to end of Description of year operations Deductions* year ----------- ---------- ---------- ----------- ---------- Estimated doubtful accounts: Year ended August 28, 1994 $1,840,000 $1,321,000 $ 986,000 $2,175,000 Year ended September 3, 1995 $2,175,000 $ 633,000 $1,583,000 $1,225,000 Year ended September 1, 1996 $1,225,000 $1,070,000 $ 685,000 $1,610,000
*Deductions from estimated doubtful accounts represent accounts written off, net of recoveries of accounts written off in prior years. The notes to financial statements are made a part hereof. 41 Item 9. Disagreements on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. This information is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 14, 1997, to be filed pursuant to Section 14 of the Exchange Act within 120 days after the end of Registrant's 1996 fiscal year. Item 11. Executive Compensation. This information is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 14, 1997, to be filed pursuant to Section 14 of the Exchange Act within 120 days after the end of Registrant's 1996 fiscal year. Item 12. Security Ownership of Certain Beneficial Owners of Management. This information is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 14, 1997, to be filed pursuant to Section 14 of the Exchange Act within 120 days after the end of Registrant's 1996 fiscal year. Item 13. Certain Relationships and Related Transactions. This information is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 14, 1997, to be filed pursuant to Section 14 of the Exchange Act within 120 days after the end of Registrant's 1996 fiscal year. 42 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) (1) and (2) The following financial statements and schedules are filed as part of this Report. See Item 8 -- Index of Financial Statements and Schedules. (a) (3) Exhibits. *3.1 Delaware Certificate of Incorporation of the Registrant incorporated by reference from Appendix B to Registrant's Proxy Statement dated January 26, 1988. *3.2 Delaware bylaws of the Registrant incorporated by reference from Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year ended August 28, 1988. *4.1 Note Agreement between Registrant and John Hancock Mutual Life Insurance Company dated November 30, 1994 (the "Note Agreement"), incorporated by reference from exhibit 4.1 to Registrant's Report on Form 8-K dated December 15, 1994. *10.1 Employment Agreement dated August 27, 1992 between Registrant and George Gleitman incorporated by reference from exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended August 30, 1992. *10.2 Employment Agreement dated as of March 2, 1994 between Registrant and Earl Kramer, incorporated by reference from exhibit 10.2 to Registrant's annual report on form 10-K for the year ended August 28, 1994. - -------- 43 *10.3 Deferred Compensation Agreement dated June 14, 1977, as amended on February 5, 1986 between Registrant and Martin Wolfson incorporated by reference to exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1986. *10.4 Lease Agreement dated August 1, 1994 between 1359 Broadway Associates and Concord Fabrics Inc., incorporated by reference from exhibit 10.4 to Registrant's Annual Report on form 10-K for the year ended August 29, 1994. *10.5 Lease Agreement dated October 1, 1994 between 1359 Broadway Associates and Concord Fabrics Inc., incorporated by reference from exhibit 10.5 to Registrant's Annual Report on form 10-K for the year ended August 28,1994. *10.8 Employment Agreement dated December 6, 1993 between Registrant and Mark Neugeboren incorporated by reference from exhibit 10.8 to Registrant's Annual Report on form 10-K for the year ended August 28, 1994. 22 Subsidiaries of the Registrant: Concord FSC Inc.and Trilogy Fabrics Inc. (b) No report on Form 8-K was filed by Registrant in fiscal 1996. - ------------------------ *Document is available at Public Reference Section of the Securities and Exchange Commission, Commission File No. 1-5960. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 19, 1996 CONCORD FABRICS INC. By /s/ EARL KRAMER ______________________ Earl Kramer President and Director Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. 45
SIGNATURE TITLE DATE - --------- ----- ---- /s/ EARL KRAMER ____________________ Director, President November 19, 1996 Earl Kramer (Principal Executive Officer) /s/ MARTIN WOLFSON ____________________ Director, Senior Vice November 19, 1996 Martin Wolfson President, Treasurer (Principal Financial Officer) /s/ ARTHUR LANGER ____________________ Controller (Principal November 19, 1996 Arthur Langer Accounting Officer) /s/ ALVIN WEINSTEIN _____________________ Director, Chairman of November 19, 1996 Alvin Weinstein the Board /s/ DAVID WEINSTEIN _____________________ Director, President of November 19, 1996 David Weinstein Concord House Division /s/ GEORGE GLEITMAN _____________________ Director, President Emeritus November 19, 1996 George Gleitman of Home Sewing Division /s/ FRED HELLER _____________________ Director November 19, 1996 Fred Heller /s/ RICHARD SOLAR _____________________ Director November 19, 1996 Richard Solar
46 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO IT. YEAR SEP-01-1996 SEP-04-1995 SEP-01-1996 9,743,024 0 27,097,106 0 17,323,179 58,395,828 8,117,040 0 73,164,882 11,300,508 0 0 0 1,828,179 0 73,164,882 146,561,416 146,561,416 108,814,265 144,847,498 0 0 1,811,747 1,713,918 776,000 0 0 0 0 937,918 .26 0
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