Item 1. Business Registrant's principal business is developing, designing and producing, in its own facilities 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 women's 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 3, 1995 ("fiscal 1995") 68% of Registrant's fabric sales was to manufacturers and 32% was to retail stores. In the fiscal year ended August 28, 1994 ("fiscal 1994") 71% of Registrant's fabric sales was to manufacturers and 29% was to retail stores.
Manufacture and Sale of Fabrics Woven Fabrics Woven fabrics accounted for 69% of fabric sales in fiscal 1995, compared with 70% in fiscal 1994 and 72% in fiscal 1993. 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 1995, Registrant was able to obtain adequate supplies of greige goods at competitive prices. 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 largest supplied 13%. In fiscal 1994, Registrant purchased substantially all of its greige goods from about 100 suppliers; the five largest suppliers accounted for 37% of Registrant's purchases of greige goods and the single largest supplied 11%. In fiscal 1993, Registrant purchased its greige goods from about 105 suppliers of which the single largest supplied 12%
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 specifications, or until October, 1995, by Registrant in its Washington, Georgia plant. On October 6, 1995 the Washington Plant was closed (See Item 2.
Item 2. Properties Registrant owns a 23 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 Registrant's requirements. 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. See Part I, Item 1. Business for more information concerning this location. 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. See Part I, Item 1. Business and Management's Discussion and Analysis for more information concerning this location. 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. Kat-Em International, Inc. has a lease for office and warehouse space in Los Angeles, California comprised of 40,000 square feet; the lease expires in 1999. (See Note H of Notes to Financial Statements).
Item 3.
Item 3. Legal Proceedings None.
Item 4.
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 70 Chairman of the Board and Director Frank Weinstein 65 Vice Chairman of the Board and Director Earl Kramer 62 President and Director Martin Wolfson 59 Senior Vice President, Treasurer and Director Mark Neugeboren 45 Vice President Joan Weinstein 63 Secretary
Alvin Weinstein has been Chairman of the Board of Registrant since 1969. Frank Weinstein has been Vice Chairman of the Board since 1979. Alvin and Frank Weinstein are brothers.
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.
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 a 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 9, 1996) and the election of their successors.
PART II Item 5.
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 3, 1995, the number of record holders of the Registrant's Class A Common Stock was 400 and the number of record holders of Registrant's Class B Common Stock was 374. The principal market on which both classes of
Registrant's Common Stock is traded is 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 1995 and 1994.
Registrant has not paid cash dividends for many years and has no present intention to do so. The payment of dividends by Registrant is subject to restrictions under the terms of the Note Agreement between Registrant and John Hancock Mutual Life Insurance Company (the "Note Agreement"). Under the Note Agreement, cumulative payments for cash dividends and redemption of capital stock are limited to $3,000,000 plus 50% of Consolidated Net Income (as defined) subsequent to August 28, 1994 plus net cash proceeds from the sale of stock; $2,025,000 was available for such payments as of September 3, 1995.
ITEM 6
ITEM 6 CONCORD FABRICS INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The year ended September 3, 1995 comprised 53 weeks; the other years presented each comprised 52 weeks.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Fiscal 1995 vs. 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 1994. The balance resulted from higher engraving costs associated with the production of more intricate designs on Registrant's printed fabrics. Selling and shipping expenses 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 cost which are more fixed in nature.
General and administrative expenses declined almost 7% primarily due to decreased 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 they 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. 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.
Fiscal 1994 vs. Fiscal 1993
Fiscal 1994 and fiscal 1993 comprised 52 weeks. Fiscal 1994 results include the operations of Kat-Em from April 18, 1994 (the date it was acquired by Registrant). Net sales increased less than 1% from $197,047,714 to $197,804,544. A decline in unit sales by approximately 3 1/2% was offset by an increase in average selling price of about 4%. Gross margins rose from 22.2% in fiscal 1993 to 24.7% in fiscal 1994 primarily due to a more favorable product mix comprised of proprietary printed fabric lines and a favorable greige goods market. Increasing greige goods costs are expected to put pressure on future gross margins and may adversely affect operating results. However, Registrant believes that the disposition of the Chino facility will lead to improved operating efficiencies at its Washington, Georgia plant as its solid woven fabric dyeing and finishing needs are concentrated there. Accordingly, gross margins for certain of Registrant's products may improve. In February, 1994 Registrant sold the operating assets of its Chino, California plant for $2,000,000 cash and recognized a pre-tax gain of $1,420,606. Registrant also leased the land and building for a five year period to the buyer. The lessee has an option to purchase the real estate for $2,900,000. Merchandising expenses increased by approximately 8% reflective of higher costs associated with designing and engraving print patterns and 4% due to the acquisition of Kat-Em. Selling and shipping expenses increased by almost 12% as a result of the payment of higher performance related compensation and 3% due to the acquisition of Kat-Em.
General and administrative expenses increased by almost 10% reflective of higher performance related compensation and 6% due to the acquisition of Kat- Em. Registrant's provision for doubtful accounts declined from $1,777,000 in fiscal, 1993 to $1,321,000 in fiscal, 1994. Interest expense declined by 23% reflective of lower average short term borrowing requirements permitted by cash flow generation from earnings and reduced long term debt as a result of Registrant's scheduled amortization payment thereon. In fiscal 1994 Registrant earned $6,444,000 (net of $4,332,000 income taxes) in fiscal 1993 Registrant earned $4,626,000 (net of $3,133,000 income taxes). The 1994 results included a pre-tax gain of $1,421,000 ($860,000 after tax) from the sale of the Chino, California plant's operating assets. Liquidity and Capital Resources During fiscal 1995, Registrant met its cash needs from cash flow from operations ($1,460,000), issuance and sale of notes ($20,000,000) and the sale of capital stock ($38,000), which it used to invest in plant and equipment ($4,113,000), reduce short term debt ($7,600,000), and repay long term debt ($9,000,000). Cash increased by $785,000. Working capital increased by $6,779,000. Under individual credit line arrangements with several New York banks, Registrant may borrow up to $20,000,000 at the prime lending rate. In addition, the Registrant has a facility of $5,000,000 for letters of credit in connection with the operations of Kat-Em. 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 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 during fiscal 1996. Registrant's actual borrowing fluctuates from month to month. The average outstanding debt during fiscal 1995 was $9,538,000 and the maximum outstanding at any time during the year was $18,000,000. $2,000,00 was outstanding at September 3, 1995. Registrant expects its lines of credit, together with cash management and cash flow from operations, to be adequate to finance operations for fiscal 1996. 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 $36,166,868 and maintenance of a minimum working capital ratio of 1.5 to 1. The unpaid principal balance is $20,000,000. At September 3, 1995, tangible net worth approximated $39,450,000 and Registrant's working capital ratio was 3.7 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 1995 such trends were modest; inflation has not been a significant factor in Registrant's costs for the last three fiscal years.
ITEM 8
ITEM 8 CONCORD FABRICS INC. AND SUBSIDIARIES
- I N D E X -
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 3, 1995 AND AUGUST 28, 1994
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE YEARS ENDED SEPTEMBER 3, 1995, AUGUST 28, 1994 AND AUGUST 29, 1993
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 3, 1995, AUGUST 28, 1994 AND AUGUST 29, 1993
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.
[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 3, 1995 and August 28, 1994, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended September 3, 1995. 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 3, 1995 and August 28, 1994, and the results of its operations and its cash flows for each of the three years in the period ended September 3, 1995 in conformity with generally accepted accounting principles.
The audits of the financial statements were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index of financial statement schedules is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. 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.
EISNER & LUBIN ---------------------------- CERTIFIED PUBLIC ACCOUNTANTS
New York, New York November 20, 1995
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
The notes to financial statements are made a part hereof.
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
The notes to financial statements are made a part hereof.
CONCORD FABRICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
The notes to financial statements are made a part hereof.
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 (Note N).
(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 effect on earnings per share for the years ended August 28, 1994 and August 29, 1993.
(5) 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.
(6) The Company operates on a 52-53 week year ending on the Sunday closest to August 31. The year ended September 3, 1995 comprised fifty-three weeks; the other two years in the period ended September 3, 1995 each comprised fifty-two weeks.
(Continued)
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Sheet 2 -
(Note B) - Inventories:
Inventories are summarized by categories as follows:
At September 3, 1995, the Company had outstanding commitments to purchase greige goods aggregating approximately $6,500,000.
(Note C) - Property, Plant and Equipment:
Property, plant and equipment is summarized as follows:
(Continued)
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:
(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:
*The tax benefit related to the extraordinary item on retirement of debt was $198,000 in the year ended September 3, 1995.
(Continued)
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:
(4) Concord Fabrics Inc. files a consolidated federal income tax return with its domestic subsidiary; separate returns are filed for state and local income tax purposes.
(Continued)
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Sheet 5 -
(Note E) - Notes Payable - Banks:
(1) The Company has total bank lines of credit aggregating $20,000,000; $2,000,000 of loans were outstanding at September 3, 1995. 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 rates on amounts outstanding were 8.75% and 7.75% at September 3, 1995 and August 28, 1994, respectively.
(2) A subsidiary of the Company had approximately $450,000 of letters of credit outstanding at September 3, 1995 for merchandise scheduled for future receipts.
(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 maximum amount deductible for federal income tax purposes. Contributions of $500,000 and $420,000 were made for the years ended August 28, 1994 and August 29, 1993, 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 on the fourth anniversary date of the borrowing. 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 3, 1995.
(Continued)
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 3, 1995, $2,025,000 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 3, 1995 are as follows:
Rent expense aggregated $2,300,000 in 1995, $2,200,000 in 1994 and $2,380,000 in 1993.
(Continued)
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:
(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 year ended August 28, 1994, 11,650 Class B shares were converted to an equal number of Class A shares; no conversions took place during the year ended September 3, 1995.
(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.
(Continued)
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Sheet 8 -
(Note K) - Stock Options (Continued):
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 become exercisable in four annual installments com- mencing January 10, 1994 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.
Option activity is summarized as follows:
(1) Subsequent to September 3, 1995, 10,045 and 2,455 options were exercised and cancelled, respectively, by an employee who retired.
(2) The $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 3, 1995 and August 28, 1994, respectively.
(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 women's apparel) and to retailers (including chains, department stores and independently owned fabric stores) for resale to the home sewing market.
(Continued)
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Sheet 9 -
(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. In connection therewith, the former sole shareholder is being employed by Kat-Em pursuant to a five year employment contract.
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.
(Note O) - Plant Shut-Down Costs:
The Company has 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)
CONCORD FABRICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Sheet 10 -
(Note P) - Supplemental Information to Consolidated Statement of Cash Flows:
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:
(Note Q) - Concentration of Credit Risk:
(1) Cash in banks, based on bank balances, exceeded federally insured limits by $3,800,000 and $2,700,000 at September 3, 1995 and August 28, 1994, respectively.
(2) Accounts receivable from manufacturers and retailers aggregated approximately $19,368,000 and $6,447,000 at September 3, 1995, respectively, and $23,554,000 and $8,855,000 at August 28, 1994, 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 3, 1995 and August 28, 1994 also includes $3,320,000 and $4,765,000, respectively, of due from factors.
CONCORD FABRICS INC. SCHEDULE II AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
*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.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure. Not applicable. PART III Item 10.
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 9, 1996, to be filed pursuant to Section 14 of the Exchange Act within 120 days after the end of Registrant's 1995 fiscal year.
Item 11.
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 9, 1996, to be filed pursuant to Section 14 of the Exchange Act within 120 days after the end of Registrant's 1995 fiscal year.
Item 12.
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 9, 1996, to be filed pursuant to Section 14 of the Exchange Act within 120 days after the end of Registrant's 1995 fiscal year.
Item 13.
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 9, 1996, to be filed pursuant to Section 14 of the Exchange Act within 120 days after the end of Registrant's 1995 fiscal year.
PART IV Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) (1) and (2) The following financial statements and schedules are filed as part of this Report. See Item 8 -- Index of Financial Statements and Schedules.
(a) (3) Exhibits. *3.1 Delaware Certificate of Incorporation of the Registrant incorporated by reference from Appendix B to Registrant's Proxy Statement dated January 26, 1988. *3.2 Delaware bylaws of the Registrant incorporated by reference from Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year ended August 28, 1988. *4.1 Note Agreement between Registrant and John Hancock Mutual Life Insurance Company dated November 30, 1994 (the "Note Agreement"), incorporated by reference from exhibit 4.1 to Registrant's Report on Form 8-K dated December 15, 1994. *10.1 Employment Agreement dated August 27, 1992 between Registrant and George Gleitman incorporated by reference from exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended August 30, 1992. *10.2 Employment Agreement dated as of March 2, 1994 between Registrant and Earl Kramer, incorporated by reference from exhibit 10.2 to Registrant's annual report on form 10-K for the year ended August 28, 1994. *10.3 Deferred Compensation Agreement dated June 14, 1977, as amended on February 5, 1986 between Registrant and Martin Wolfson incorporated by 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
- -------------------
* Document is available at Public Reference Section of the Securities and Exchange Commission, Commission File No. 1-5960.
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., Trilogy Fabrics Inc., and Kat-Em International, Inc. (b) Report on Form 8-K dated December 15, 1994 in connection with the issuance and sale $20,000,000 in notes to John Hancock Mutual Life Insurance Company. (c) See item 14(a)(3), above. (d) See item 14(a)(2), above.
- -------------------
* Document is available at Public Reference Section of the Securities and Exchange Commission, Commission File No. 1-5960.
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 20, 1995 CONCORD FABRICS INC.
/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.