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 30, 1997
-----------------
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
----------------------------------------------------------
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 office) (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 8, 1997
- --------------------------------- -------------------------------------
Common stock, $.20 par value 5,682,903
<PAGE>
FAB INDUSTRIES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION PAGE
Table of Contents 2
Consolidated Statements of Income
13 Weeks ended August 30, 1997 and August 31, 1996 3
Consolidated Statements of Income
39 Weeks ended August 30, 1997 and August 31, 1996 4
Consolidated Balance Sheets (Asset Section)
August 30, 1997 and November 30, 1996 5
Consolidated Balance Sheets (Liability and Stockholders'
Equity Section) August 30, 1997 and November 30, 1996 6
Consolidated Statements of Stockholders' Equity
39 Weeks ended August 30, 1997 7
Consolidated Statements of Cash Flows
39 Weeks ended August 30, 1997 and August 31, 1996 8
Notes to Consolidated Financial Statements 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
SIGNATURES 16
2
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 13 WKS ENDED
-----------------------------------
August 30, 1997 August 31, 1996
----------------------------------
(Unaudited) (Unaudited)
Net sales $41,775,000 $40,016,000
Cost of goods sold 35,009,000 33,704,000
------------ ------------
Gross profit 6,766,000 6,312,000
Selling, general and administrative expenses 4,002,000 3,825,000
------------ ------------
Operating income 2,764,000 2,487,000
------------ ------------
Other income (expense):
Interest and dividend income 939,000 900,000
Interest expense (17,000) (19,000)
Net gain on investment securities 197,000 171,000
------------ ------------
Total other income 1,119,000 1,052,000
------------ ------------
Income before taxes 3,883,000 3,539,000
Taxes on Income 1,243,000 1,119,000
------------ ------------
Net Income $2,640,000 $2,420,000
Earnings per share of common stock and $0.46 $0.42
common stock equivalents
Weighted average number of shares of common
stock and common stock equivalents 5,679,998 5,758,847
See notes to consolidated financial statements.
3
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 39 WKS ENDED
------------------------------------
August 30, 1997 August 31, 1996
------------------------------------
(Unaudited) (Unaudited)
Net sales $120,190,000 $116,372,000
Cost of goods sold 103,037,000 99,497,000
------------- -------------
Gross profit 17,153,000 16,875,000
Selling, general and administrative expenses 11,180,000 10,911,000
------------- -------------
Operating income 5,973,000 5,964,000
------------- -------------
Other income (expense):
Interest and dividend income 2,844,000 2,671,000
Interest expense (49,000) (107,000)
Net gain on investment securities 1,060,000 492,000
------------- -------------
Total other income 3,855,000 3,056,000
------------- -------------
Income before taxes 9,828,000 9,020,000
Taxes on Income 3,143,000 2,850,000
------------- -------------
Net Income $6,685,000 $6,170,000
Earnings per share of common stock and $1.17 $1.06
common stock equivalents
Weighted average number of shares of common
stock and common stock equivalents 5,713,517 5,809,042
See notes to consolidated financial statements.
4
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
- - - - - -
<TABLE>
<CAPTION>
AS OF
-----------------------------------
August 30, 1997 November 30, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents (Note 2) $ 9,093,000 $ 7,518,000
Investment securities available-for-sale (Note 3) 60,182,000 60,880,000
Accounts receivable-net of allowance of
$800,000 and $600,000 for doubtful accounts 27,204,000 28,797,000
Inventories (Note 4) 29,421,000 28,947,000
Other current assets 1,710,000 1,944,000
------------ ------------
Total current assets 127,610,000 128,086,000
------------ ------------
Property, plant and equipment - at cost 112,454,000 108,324,000
Less: Accumulated depreciation 81,983,000 78,121,000
------------ ------------
30,471,000 30,203,000
Other assets 3,595,000 2,691,000
------------ ------------
$161,676,000 $160,980,000
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<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
- - - - - - - - - - - - - - - - - -
AS OF
----------------------------------
August 30, 1997 November 30, 1996
--------------- -----------------
(Unaudited)
Current liabilities:
Accounts payable $ 10,067,000 $ 12,076,000
Corporate income and other taxes 2,377,000 1,667,000
Accrued payroll and related expenses 2,742,000 3,403,000
Dividends payable 994,000 1,007,000
Other current liabilities 606,000 532,000
Deferred income taxes 776,000 761,000
------------ ------------
Total current liabilities 17,562,000 19,446,000
------------ ------------
Obligations under capital leases - net of
current maturities 572,000 620,000
Other noncurrent liabilities 2,707,000 2,364,000
Deferred income taxes 4,860,000 4,662,000
------------ ------------
Total liabilities 25,701,000 27,092,000
------------ ------------
Stockholders' equity 135,975,000 133,888,000
------------ ------------
$161,676,000 $160,980,000
============ ============
See notes to consolidated financial statements.
6
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 39 WEEKS ENDED AUGUST 30, 1997
<TABLE>
<CAPTION>
Common Stock *
============== Additional
Number of Paid-in Retained
Total Shares Amount Capital Earnings
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
November 30, 1996 $ 133,888,000 6,564,194 $ 1,313,000 $ 6,410,000 $ 157,223,000
Net income 6,685,000 6,685,000
Cash dividends (2,994,000) (2,994,000)
Exercise of
stock options 85,000 4,800 1,000 84,000
Purchase of
treasury stock (2,385,000)
Compensation under
restricted stock plan 27,000
Payment of loan
from ESOP 790,000
Change in net
unrealized holding
gain (loss) on investment
securities available-for-
sale, net of taxes (121,000)
------------------------------------------------------------------------------
Balance at
August 30, 1997 $ 135,975,000 6,568,994 $ 1,314,000 $ 6,494,000 $ 160,914,000
(Unaudited) ==============================================================================
<CAPTION>
Net Unearned Treasury Stock
Loan to Unrealized Restricted ====================
Employee Stock Holding Gain Stock Number of
Ownership Plan (Loss) Compensation Shares Cost
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
November 30, 1996 ($ 7,907,000) $ 607,000 ($ 58,000) (806,439) ($ 23,700,000)
Net income
Cash dividends
Exercise of
stock options
Purchase of
treasury stock (83,200) ( 2,385,000)
Compensation under
restricted stock plan 27,000
Payment of loan
from ESOP 790,000
Change in net
unrealized holding
gain (loss) on investment
securities available-for-
sale, net of taxes (121,000)
----------------------------------------------------------------------------------
Balance at
August 30, 1997 ($ 7,117,000) $ 486,000 ($ 31,000) (889,639) ($ 26,085,000)
(Unaudited) ==================================================================================
</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.
7
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 39 WKS ENDED
----------------------------------
August 30, 1997 August 31, 1996
----------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 6,685,000 $ 6,170,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for doubtful accounts 300,000 300,000
Depreciation and amortization 3,862,000 4,320,000
Deferred income taxes 293,000 (43,000)
Net gain on investment securities (1,060,000) (492,000)
Compensation under restricted stock plan 27,000 159,000
Decrease (increase) in:
Accounts receivable 1,293,000 10,067,000
Inventories (474,000) 964,000
Other current assets 234,000 56,000
Other assets (904,000) (66,000)
(Decrease) increase in:
Accounts payable (2,009,000) (4,980,000)
Accruals and other liabilities 403,000 (1,242,000)
------------ ------------
Net cash provided by
operating activities 8,650,000 15,213,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (4,130,000) (3,383,000)
Proceeds from sales of investment securities 3,184,000 7,659,000
Acquisition of investment securities (1,625,000) (13,806,000)
------------ ------------
Net cash used in
investing activities (2,571,000) (9,530,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (2,385,000) (5,269,000)
Payment of loan from ESOP 790,000 790,000
Dividends (2,994,000) (3,039,000)
Exercise of stock options 85,000 228,000
------------ ------------
Net cash used in financing activities (4,504,000) (7,290,000)
------------ ------------
Increase (decrease) in cash and cash equivalents 1,575,000 (1,607,000)
Cash and cash equivalents, beginning of period 7,518,000 7,883,000
------------ ------------
Cash and cash equivalents, end of period $ 9,093,000 $ 6,276,000
============ ============
</TABLE>
See notes to consolidated financial statements.
8
<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 30, 1997 are not necessarily indicative of
the results that may be expected for the entire fiscal year ending November 29,
1997. The balance sheet at November 30, 1996 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 November 30, 1996.
2. Cash and cash equivalents consist of the following (in thousands):
August 30, 1997 November 30, 1996
--------------- -----------------
(Unaudited)
Cash $1,964 $1,700
Tax-free short-term debt instruments 7,129 5,818
------ ------
$9,093 $7,518
====== ======
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment Securities:
At August 30, 1997 and November 30, 1996, investment securities
available-for-sale consist of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Holding Holding Fair
August 30, 1997 (Unaudited) Cost Gain Loss Value
- --------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equities $ 8,478 $ 365 ($ 113) $ 8,730
U.S. Government securities 28 28
Corporate bonds 5,298 190 5,488
Tax-exempt obligations 45,567 369 45,936
-------- -------- -------- --------
$ 59,371 $ 924 ($ 113) $ 60,182
======== ======== ======== ========
<CAPTION>
Gross Gross
Unrealized Unrealized
Holding Holding Fair
November 30, 1996 Cost Gain Loss Value
- ----------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equities $ 7,251 $ 624 ($ 218) $ 7,657
U.S. Government securities 37 37
Corporate bonds 5,689 155 (37) 5,807
Tax-exempt obligations 46,891 513 (25) 47,379
-------- -------- -------- --------
$ 59,868 $ 1,292 ($ 280) $ 60,880
======== ======== ======== ========
</TABLE>
10
<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 30, 1997 November 30, 1996
--------------- -----------------
(Unaudited)
Raw materials $ 9,899,000 $10,504,000
Work in process 10,380,000 10,087,000
Finished goods 9,142,000 8,356,000
----------- -----------
Total $29,421,000 $28,947,000
=========== ===========
Approximate percentage of
inventories valued
under LIFO valuation 65% 65%
=========== ===========
Excess of FIFO valuation
over LIFO valuation $ 6,561,000 $ 7,161,000
=========== ===========
5. Stockholders' Equity:
Employee Stock Ownership Plan:
The sixth of 15 equal annual installments of $790,000 plus interest at
prime was paid by the ESOP to the Company on August 1, 1997. The balance on the
ESOP indebtedness of $7,117,000 is reflected as a reduction of the Company's
Stockholders' Equity in the consolidated balance sheet.
11
<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 30, 1997.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Third Quarter
Fiscal 1997 Compared to Fiscal 1996
Net sales for the third fiscal quarter of 1997 were $41,775,000 as
compared to $40,016,000 in the similar 1996 period, an increase of 4.4%. For the
nine months ended August 30, 1997, net sales were $120,190,000, an increase of
$3,818,000 or 3.3% from 1996. Overall Company shipments and bookings during the
quarter were on a comparable level with last year and divisional product mix was
favorable. Certain of the Company's products enjoyed stronger customer demand.
Overall Company gross profit margins for the quarter improved to
16.2% from 15.8% last year. An improved product mix and the Company's cost
control programs more than offset lower plant utilization rates. The comparative
effect of changes in LIFO inventory reserves for the quarter was negligible. For
the nine months ended August 30, 1997, gross profits margins were 14.3% compared
to 14.5% in 1996.
Selling, general and administrative expenses in the current quarter
increased by $177,000, or 4.6%, and as a percentage of sales remained constant
at 9.6%. For the nine months ended August 30, 1997, selling, general and
administrative expenses remained relatively constant as a percentage of sales.
Selling, general and administrative costs increased principally as a result of
the Wiener Laces operations in the third quarter.
13
<PAGE>
The Company continued its expense containment program which began in fiscal
1995.
Interest and dividend income increased by $39,000 in the quarter, or
4.3%. The Company has realized gains from the sale of investment securities of
$197,000 compared to gains of $171,000 in the third quarter 1996.
As a result of these factors, quarterly net income increased to
$2,640,000, or 6.3% of sales, from $2,420,000 or 6.0% of sales in last year's
third quarter.
Earnings per share, which are based upon the weighted average number of
shares outstanding (5,679,998 vs 5,758,847), were $0.46 compared to $0.42. 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 30, 1997 amounted to $8,650,000, as compared to $15,213,000
in the comparable 1996 period. Of this decrease, $8,774,000 relates to
comparative declines in accounts receivable and $1,438,000 in inventories,
offset by $4,616,000 in accounts payable and other liabilities.
Capital expenditures for the nine months were $4,130,000 against
$3,383,000 in the comparable 1996 period. The Company has purchased additional
knitting machines for two of its knitting mills.
14
<PAGE>
In August 1997, a wholly owned subsidiary of Fab Industries, Inc.,
"Gem Urethane Corporation", formed a new corporation known as "Sandel
International, Inc." which has acquired patents, licenses, trademarks and other
intellectual property worldwide. The new corporation was formed for the purpose
of creating fire and flame retardant industrial fabrics made from glass filament
yarns.
During the first nine months of fiscal 1997, the Company repurchased
83,200 shares of its Common Stock at a cost of $2,385,000 (an average price of
$28.67). 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 20, 1997, to stockholders of record as of August 29, 1997.
Stockholders' equity was $135,975,000 ($23.94 per share) at August
30,1997, as compared to $133,888,000 ($23.25 per share) at the previous fiscal
year-end November 30, 1996, and $131,805,000, ($22.87 per share) at the end of
the comparative 1996 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 8, 1997 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-29-1997
<PERIOD-END> AUG-30-1997
<CASH> 9,093
<SECURITIES> 60,182
<RECEIVABLES> 28,004
<ALLOWANCES> 800
<INVENTORY> 29,421
<CURRENT-ASSETS> 127,610
<PP&E> 112,454
<DEPRECIATION> 81,983
<TOTAL-ASSETS> 161,676
<CURRENT-LIABILITIES> 17,562
<BONDS> 572
0
0
<COMMON> 1,314
<OTHER-SE> 134,661
<TOTAL-LIABILITY-AND-EQUITY> 161,676
<SALES> 120,190
<TOTAL-REVENUES> 120,190
<CGS> 103,037
<TOTAL-COSTS> 103,037
<OTHER-EXPENSES> 11,180
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 9,828
<INCOME-TAX> 3,143
<INCOME-CONTINUING> 6,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,685
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
