Form 10-Q Quarterly Report
--------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 1996
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ ---------------------------
Commission file number 1-5901
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Fab Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2581181
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I. R. S. Employer)
incorporation or organization) Identification No.)
200 Madison Avenue, New York, N.Y. 10016
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 592-2700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year;
if changed since last report)
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 [ ]
CLASS Shares Outstanding at October 08, 1996
- --------------------------------------------------------------------------------
Common stock, $.20 par value 5,762,313
<PAGE>
FAB INDUSTRIES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Consolidated Statements of Income
13 Weeks ended August 31, 1996 and September 2, 1995 2
Consolidated Statements of Income
39 Weeks ended August 31, 1996 and September 2, 1995 3
Consolidated Balance Sheets (Asset Section)
August 31, 1996 and December 2, 1995 4
Consolidated Balance Sheets (Liability and Stockholders Equity Section)
August 31, 1996 and December 2, 1995 5
Consolidated Statements of Stockholders Equity
39 Weeks ended August 31, 1996 6
Consolidated Statements of Cash Flows
39 Weeks ended August 31, 1996 and September 2, 1995 7
Notes to Consolidated Financial Statements 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
SIGNATURES 16
</TABLE>
(1)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE 13 WKS ENDED
------------------------------------
AUGUST 31, 1996 SEPTEMBER 2, 1995
--------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $40,016,000 $44,879,000
Cost of goods sold 33,704,000 38,485,000
------------- -----------
Gross profit 6,312,000 6,394,000
Selling, general and administrative expenses 3,825,000 4,589,000
------------- -----------
Operating income 2,487,000 1,805,000
------------- -----------
Other income (expense):
Interest and dividend income 900,000 1,009,000
Interest expense (19,000) (19,000)
Net gain on investment securities 171,000 24,000
------------- -----------
Total other income 1,052,000 1,014,000
------------- -----------
Income before taxes 3,539,000 2,819,000
Taxes on Income 1,119,000 900,000
------------- -----------
Net Income $2,420,000 $1,919,000
============= ===========
Earnings per share of common stock and $0.42 $0.32
common stock equivalents
Weighted average number of shares of common
stock and common stock equivalents 5,758,847 5,974,898
</TABLE>
See notes to consolidated financial statements.
(2)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE 39 WKS ENDED
------------------------------------
AUGUST 31, 1996 SEPTEMBER 2, 1995
--------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $116,372,000 $134,630,000
Cost of goods sold 99,497,000 113,955,000
------------- -------------
Gross profit 16,875,000 20,675,000
Selling, general and administrative expenses 10,911,000 13,115,000
------------- -------------
Operating income 5,964,000 7,560,000
------------- -------------
Other income (expense):
Interest and dividend income 2,671,000 2,695,000
Interest expense (107,000) (110,000)
Net gain on investment securities 492,000 491,000
------------- -------------
Total other income 3,056,000 3,076,000
------------- -------------
Income before taxes 9,020,000 10,636,000
Taxes on Income 2,850,000 3,600,000
------------- -------------
Net Income $6,170,000 $7,036,000
============= =============
Earnings per share of common stock and
common stock equivalents $1.06 $1.17
Weighted average number of shares of common
stock and common stock equivalents 5,809,042 5,999,040
</TABLE>
See notes to consolidated financial statements.
(3)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
AS OF
--------------------------------------
AUGUST 31, 1996 DECEMBER 2, 1995
--------------- ----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $6,276,000 $7,883,000
Investment securities available-for-sale (Note 3) 61,036,000 54,674,000
Accounts receivable-net of allowance of
$500,000 and $500,000 for doubtful
accounts 24,850,000 35,217,000
Inventories (Note 4) 26,303,000 27,267,000
Other current assets 1,914,000 1,970,000
------------ ------------
Total current assets 120,379,000 127,011,000
------------ ------------
Property, plant and equipment - at cost 107,606,000 104,223,000
Less: Accumulated depreciation 76,964,000 72,644,000
------------ ------------
30,642,000 31,579,000
Other assets 2,503,000 2,437,000
------------ ------------
$153,524,000 $161,027,000
============ ============
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
L I A B I L I T I E S A N D
S T O C K H O L D E R S' E Q U I T Y
<TABLE>
<CAPTION>
AS OF
AUGUST 31, 1996 DECEMBER 2, 1995
--------------- ----------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $7,681,000 $12,661,000
Corporate income and other taxes 2,083,000 1,886,000
Accrued payroll and related expenses 2,677,000 4,295,000
Dividends payable 1,008,000 1,038,000
Other current liabilities 517,000 470,000
Deferred income taxes 188,000 246,000
------------ ------------
Total current liabilities 14,154,000 20,596,000
------------ ------------
Obligations under capital leases - net of
current maturities 635,000 678,000
Other noncurrent liabilities 2,166,000 1,961,000
Deferred income taxes 4,764,000 4,860,000
------------ ------------
Total liabilities 21,719,000 28,095,000
------------ ------------
Stockholders' equity 131,805,000 132,932,000
------------ ------------
$153,524,000 $161,027,000
============ ============
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 39 WEEKS ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
Common Stock *
-------------------- Additional Loan to
Number of Paid-in Retained Employee Stock
Total Shares Amount Capital Earnings Ownership Plan
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 2, 1995 $ 132,932,000 6,549,894 $1,309,000 $6,150,000 $152,473,000 ($8,697,000)
Net income 6,170,000 6,170,000
Cash dividends,
$.525 per share (3,039,000) (3,039,000)
Exercise of
stock options 228,000 14,300 4,000 224,000
Purchase of
treasury stock (5,269,000)
Compensation under
restricted stock plan 159,000 36,000
Payment of loan from ESOP 790,000 790,000
Change in net unrealized holding
gain (loss) on investment securities
available-for-sale,net of income
tax benefit (166,000)
Balance at August 31, 1996 ------------------------------------------------------------------------------
(Unaudited $ 131,971,000 6,564,194 $1,313,000 $6,410,000 $155,604,000 ($7,907,000)
==============================================================================
<CAPTION>
Unrealized Unearned Treasury Stock
Holding Restricted -----------------------
Gain Stock Number of
(Loss) Compensation Shares Cost
-------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 2, 1995 $224,000 ($228,000) (619,635) ($18,299,000)
Net income
Cash dividends,
$.525 per share
Exercise of
stock options
Purchase of
treasury stock (182,022) (5,269,000)
Compensation under
restricted stock plan 123,000
Payment of loan from ESOP
Change in net unrealized holding
gain (loss) on investment securities
available-for-sale,net of income
tax benefit (166,000)
----------------------------------------------------
Balance at August 31, 1996
(Unaudited $ 224,000 ($105,000) (801,657) ($23,568,000)
====================================================
</TABLE>
* Common stock $0.20 par value - 15,000,000 shares authorized.
Preferred stock $1.00 par value - 2,000,000 shares authorized, none issued.
See notes to consolidated financial statements.
(6)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 39 WKS ENDED
---------------------------------------
AUGUST 31, 1996 SEPTEMBER 2, 1995
--------------- -----------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $6,170,000 $7,036,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for doubtful accounts 300,000 300,000
Depreciation and amortization 4,320,000 4,364,000
Deferred income taxes (43,000) 58,000
Net gain on investment securities (492,000) (491,000)
Compensation under restricted stock plan 159,000 243,000
Decrease (increase) in:
Accounts receivable 10,067,000 1,638,000
Inventories 964,000 681,000
Other current assets 56,000 255,000
Other assets (66,000) (323,000)
Decrease in:
Accounts payable (4,980,000) (5,213,000)
Accruals and other liabilities (1,242,000) (1,836,000)
----------- ----------
Net cash provided by
operating activities 15,213,000 6,712,000
----------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (3,383,000) (3,918,000)
Proceeds from sales of investment securities 7,659,000 7,265,000
Acquisition of investment securities (13,806,000) (4,894,000)
----------- ----------
Net cash used in
investing activities (9,530,000) (1,547,000)
----------- ----------
FINANCING ACTIVITIES:
Purchase of treasury stock (5,269,000) (8,113,000)
Payment of loan from ESOP 790,000 790,000
Dividends paid (3,039,000) (3,053,000)
Exercise of stock options 228,000 765,000
----------- ----------
Net cash used in financing
activities (7,290,000) (9,611,000)
----------- ----------
Decrease in cash and cash
equivalents (1,607,000) (4,446,000)
Cash and cash equivalents,
beginning of period 7,883,000 11,143,000
----------- ----------
Cash and cash equivalents,
end of period $6,276,000 $6,697,000
=========== ==========
</TABLE>
See notes to consolidated financial statements.
(7)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the 39 weeks ended August 31, 1996 are not necessarily indicative of
the results that may be expected for the entire fiscal year ending November 30,
1996. The balance sheet at December 2, 1995 has been derived from the audited
balance sheet at that date. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 2, 1995.
2. Cash and cash equivalents consist of the following (in thousands):
August 31, 1996 December 2, 1995
---------------- ----------------
(Unaudited)
Cash $551 $1,335
Tax-free short-term debt instruments 5,725 6,548
------ ------
$6,276 $7,883
====== ======
(8)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment Securities:
At August 31, 1996 and December 2, 1995, investment securities
available-for-sale consist of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Holding Holding Fair
August 31, 1996 (Unaudited) Cost Gain Loss Value
--------------------------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Equities $7,219 $304 ($287) $7,236
U.S. Government securities 41 41
Corporate bonds 5,923 (8) 5,915
Tax exempt obligations 47,752 143 (51) 47,844
------- ---- ----- -------
$60,935 $447 ($346) $61,036
======= ==== ===== =======
<CAPTION>
Gross Gross
Unrealized Unrealized
Holding Holding Fair
December 2, 1995 Cost Gain Loss Value
--------------------------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Equities $1,814 $109 ($259) $1,664
U.S. Government securities 52 52
Corporate bonds 4,665 116 (91) 4,690
Tax exempt obligations 47,769 578 (79) 48,268
------- ---- ----- -------
$54,300 $803 ($429) $54,674
======= ==== ===== =======
</TABLE>
(9)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Inventories:
The Company's inventories are valued at the lower of cost or market. Cost
is determined principally by the last-in, first-out (LIFO) method with the
remainder being determined by the first-in, first-out (FIFO) method. Because the
inventory valuation under the LIFO method is based upon an annual determination
of inventory levels and costs as of the fiscal year-end, the interim LIFO
calculations are based on management's estimates of expected year-end inventory
levels and costs.
August 31, 1996 December 2, 1995
--------------- ----------------
(Unaudited)
Raw materials $ 8,808,000 $11,753,000
Work in process 9,655,000 7,675,000
Finished goods 7,840,000 7,839,000
----------- -----------
Total $26,303,000 $27,267,000
=========== ===========
Approximate percentage of
inventories valued
under LIFO valuation 63% 66%
=========== ===========
Excess of FIFO valuation
over LIFO valuation $ 7,553,000 $ 7,903,000
=========== ===========
5. Stockholders' Equity:
Employee Stock Ownership Plan:
The fifth of 15 equal annual installments of $790,000 plus interest at
prime was paid by the ESOP to the Company on August 2, 1996. The balance on the
ESOP indebtedness of $7,907,000 is reflected as a reduction of the Company's
Stockholders' Equity in the consolidated balance sheet.
(10)
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: No exhibits are filed herewith except for Exhibit 27 which is
filed with EDGAR filing only.
(b) Reports on Form 8-K: The Registrant did not file any Current Reports on
Form 8-K during the quarter ending August 31, 1996.
(11)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Third Quarter
Fiscal 1996 Compared to Fiscal 1995
Net sales for the third fiscal quarter of 1996 were $40,016,000 as
compared to $44,879,000 in the similar 1995 period, a decrease of 10.8%. Weak
consumer purchasing at the retail level as well as highly competitive market
conditions continued into the current period and adversely affected conditions
within the textile industry. These conditions have to date continued into the
fourth quarter.
For the nine months ended August 31, 1996, net sales were $116,372,000,
a decline of $18,258,000, or 13.6%, from 1995. The decline reflects an industry
wide slowdown in demand for knit fabrics as a result of weak consumer purchasing
of apparel at the national retail level as well as highly competitive market
conditions.
Overall Company gross margins for the quarter improved to 15.8% from
14.2% last year. Gross profits were aided by increased efficiencies, cost
control programs, and favorable comparative LIFO inventory levels. In 1995, an
addition to LIFO inventory reserves in the amount of $400,000 was made as a
result of higher raw material prices, as compared to a decrease of $350,000 in
reserves in 1996 due to lower average FIFO cost levels.
(12)
<PAGE>
For the nine months ended August 31, 1996, gross margin percentages
were 14.5% compared to 15.4% in 1995. Lower sales volume reduced operating
schedules at manufacturing plants, and a less profitable mix also exerted
unfavorable pressures on profit margins. In 1996, a reduction in LIFO inventory
reserves arising from lower average FIFO cost levels benefited margins in the
amount of $350,000. In 1995, because of higher unit inventory costs, resulting
from raw material price increases, LIFO reserves increased by $700,000.
Selling, general and administrative expenses in the current quarter
decreased by $764,000, or 16.6%, and as a percentage of sales decreased from
10.2% to 9.6%. For the nine months ended August 31, 1996, selling, general and
administrative expenses decreased by $2,204,000, or 16.8%, and as a percentage
of sales declined to 9.4% from 9.7% last year. Reduced expenses related
primarily to incentive-based compensation and lower related salaries. The
Company continued its expense containment program.
Interest and dividend income for the current quarter decreased by
$109,000, or 10.8%, to $900,000 as a result of lower average interest rates. The
Company had realized gains from the sale of investment securities in the quarter
of $171,000 as compared to gains of $24,000 in third quarter 1995.
As a result of these factors, quarterly net income increased to
$2,420,000, or 6.0% of sales, from $1,919,000, or 4.3% of sales.
(13)
<PAGE>
Earnings per share, which are based upon the weighted average number of
shares outstanding(5,758,847 vs 5,974,898), were $0.42 as compared to $0.32.
There was no stock option related dilution in either comparative quarter.
Liquidity and Capital Resources
The Company's principal source of funds continues to be cash flow
generated from operations. Net cash provided by operating activities for the 39
weeks ended August 31, 1996 amounted to $15,213,000, compared to $6,712,000 in
the comparative 1995 period. Of this increase, $8,429,000 relates to comparative
declines in accounts receivable.
Capital expenditures for the nine months were $3,383,000 as against
$3,918,000 in the comparable 1995 period. In the current quarter, the Company
purchased additional knitting and warping machines for two of its knitting
mills.
During the first nine months of fiscal 1996, the Company repurchased
182,022 shares of its Common Stock at a cost of $5,270,000 (an average price of
$28.95). The Company intends to continue to purchase its shares of Common Stock
from time-to-time as market conditions warrant and price criteria are met.
The Company declared a quarterly dividend of $0.175 per share, payable
October 21, 1996, to stockholders of record as of August 30, 1996.
(14)
<PAGE>
Stockholders' equity was $131,805,000, or $22.87 per share at August
31,1996, as compared to $132,932,000, or $22.42 per share, at the previous
fiscal year-end December 2, 1995, and $131,445,000, or $22.18 per share at the
end of the comparative 1995 third quarter.
Management believes that the current financial position of the Company
is more than adequate to internally fund any future expenditures to maintain,
modernize and expand its manufacturing facilities, pay dividends and make
acquisitions of textile related businesses if criteria relating to indebtedness,
market expansion and existing management are met.
(15)
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 08, 1996 FAB INDUSTRIES, INC.
By: /s/ David A. Miller
--------------------------
David A. Miller,
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
(16)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> AUG-31-1996
<CASH> 6,276
<SECURITIES> 61,036
<RECEIVABLES> 25,350
<ALLOWANCES> 500
<INVENTORY> 26,303
<CURRENT-ASSETS> 120,379
<PP&E> 107,606
<DEPRECIATION> 76,964
<TOTAL-ASSETS> 153,524
<CURRENT-LIABILITIES> 14,154
<BONDS> 635
1,313
0
<COMMON> 0
<OTHER-SE> 130,492
<TOTAL-LIABILITY-AND-EQUITY> 153,524
<SALES> 116,372
<TOTAL-REVENUES> 116,372
<CGS> 99,497
<TOTAL-COSTS> 99,497
<OTHER-EXPENSES> 10,911
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> 9,020
<INCOME-TAX> 2,850
<INCOME-CONTINUING> 6,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,170
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
