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 May 31, 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 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 July 7, 1997
- --------------------------------------------------------------------------------
Common stock, $.20 par value 5,679,962
<PAGE>
FAB INDUSTRIES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Table of Contents 2
Consolidated Statements of Income
13 Weeks ended May 31, 1997 and June 1, 1996 3
Consolidated Statements of Income
26 Weeks ended May 31, 1997 and June 1, 1996 4
Consolidated Balance Sheets (Asset Section)
May 31, 1997 and November 30, 1996 5
Consolidated Balance Sheets (Liability and Stockholders'
Equity Section) May 31, 1997 and November 30, 1996 6
Consolidated Statements of Stockholders' Equity
26 Weeks ended May 31, 1997 7
Consolidated Statements of Cash Flows
26 Weeks ended May 31, 1997 and June 1, 1996 8
Notes to Consolidated Financial Statements 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
SIGNATURES 17
<PAGE>
3
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 13 WKS ENDED
----------------------------
May 31, 1997 June 1, 1996
----------------------------
(Unaudited) (Unaudited)
Net sales $ 42,940,000 $ 40,768,000
Cost of goods sold 36,601,000 34,753,000
------------ ------------
Gross profit 6,339,000 6,015,000
Selling, general and administrative expenses 4,140,000 3,837,000
------------ ------------
Operating income 2,199,000 2,178,000
------------ ------------
Other income (expense):
Interest and dividend income 959,000 914,000
Interest expense (16,000) (70,000)
Net gain on investment securities 378,000 129,000
------------ ------------
Total other income 1,321,000 973,000
------------ ------------
Income before taxes 3,520,000 3,151,000
Taxes on Income 1,125,000 995,000
------------ ------------
Net Income $ 2,395,000 $ 2,156,000
============ ===========
Earnings per share of common stock and $ 0.42 $ 0.37
common stock equivalents
Weighted average number of shares of common
stock and common stock equivalents 5,708,115 5,767,621
See notes to consolidated financial statements
<PAGE>
4
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 26 WKS ENDED
------------------------------
May 31, 1997 June 1, 1996
------------------------------
(Unaudited) (Unaudited)
Net sales $ 78,415,000 $ 76,356,000
Cost of goods sold 68,028,000 65,793,000
------------ ------------
Gross profit 10,387,000 10,563,000
Selling, general and administrative expenses 7,178,000 7,086,000
------------ ------------
Operating income 3,209,000 3,477,000
------------ ------------
Other income (expense):
Interest and dividend income 1,905,000 1,771,000
Interest expense (32,000) (88,000)
Net gain on investment securities 863,000 321,000
------------ ------------
Total other income 2,736,000 2,004,000
------------ ------------
Income before taxes 5,945,000 5,481,000
Taxes on Income 1,900,000 1,731,000
------------ ------------
Net Income $ 4,045,000 $ 3,750,000
============ ===========
Earnings per share of common stock and $ 0.71 $ 0.64
common stock equivalents
Weighted average number of shares of common
stock and common stock equivalents 5,730,277 5,834,139
See notes to consolidated financial statements
<PAGE>
5
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
- - - -
<TABLE>
<CAPTION>
AS OF
--------------------------------
May 31, 1997 November 30, 1996
--------------------------------
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 2,829,000 $ 7,518,000
Investment securities available-for-sale (Note 3) 58,883,000 60,880,000
Accounts receivable-net of allowance of
$800,000 and $600,000 for doubtful accounts 29,564,000 28,797,000
Inventories (Note 4) 31,218,000 28,947,000
Other current assets 1,950,000 1,944,000
------------ ------------
Total current assets 124,444,000 128,086,000
------------ ------------
Property, plant and equipment - at cost 111,070,000 108,324,000
Less: Accumulated depreciation 80,691,000 78,121,000
------------ ------------
30,379,000 30,203,000
Other assets 3,142,000 2,691,000
------------ ------------
$157,965,000 $160,980,000
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
6
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
L I A B I L I T I E S and
--------------------------
S T O C K H O L D E R S' E Q U I T Y
------------------------------------
AS OF
----------------------------------
May 31, 1997 November 30, 1996
----------------------------------
(Unaudited)
Current liabilities:
Accounts payable $ 10,225,000 $ 12,076,000
Corporate income and other taxes 1,861,000 1,667,000
Accrued payroll and related expenses 2,549,000 3,403,000
Dividends payable 994,000 1,007,000
Other current liabilities 556,000 532,000
Deferred income taxes 654,000 761,000
------------ ------------
Total current liabilities 16,839,000 19,446,000
------------ ------------
Obligations under capital leases - net of
current maturities 588,000 620,000
Other noncurrent liabilities 2,512,000 2,364,000
Deferred income taxes 4,582,000 4,662,000
------------ ------------
Total liabilities 24,521,000 27,092,000
------------ ------------
Stockholders' equity 133,444,000 133,888,000
------------ ------------
$157,965,000 $160,980,000
============ ============
See notes to consolidated financial statements.
<PAGE>
7
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 26 WEEKS ENDED MAY 31,1997
<TABLE>
<CAPTION>
Common Stock* Net
============ Additional Loan to Unrealized
Number of Paid-in Retained Employee Stock Holding Gain
Total Shares Amount Capital Earnings Ownership Plan (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 ($7,907,000) $607,000
Net income 4,045,000 4,045,000
Cash dividends (2,000,000) (2,000,000)
Exercise of
stock options 14,000 800 14,000
Purchase of
treasury stock (2,211,000)
Compensation under
restricted stock plan 18,000
Change in net
unrealized holding
gain (loss) on investment
securities available-for-
sale, net of taxes (310,000) (310,000)
-----------------------------------------------------------------------------------------------------
Balance at May 31, 1997 $133,444,000 6,564,994 $1,313,000 $6,424,000 $159,268,000 ($7,907,000) $297,000
(Unaudited) ==================================================================================================---
Unearned Treasury Stock
Restricted ===========---
Stock Number of
Compensation Shares Cost
- --------------------------------------------------------------------
<S> <C> <C> <C>
Balance at
November 30, 1996 ($58,000) (806,439) ($23,700,000)
Net income
Cash dividends
Exercise of
stock options
Purchase of
treasury stock (77,719) (2,211,000)
Compensation under
restricted stock plan 18,000
Change in net
unrealized holding
gain (loss) on investment
securities available-for-
sale, net of taxes
------------------------------------------
Balance at May 31, 1997 ($40,000) (884,158) ($25,911,000)
(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
<PAGE>
8
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 26 WKS ENDED
---------------------------------
May 31, 1997 June 1, 1996
---------------------------------
CASH FLOWS FROM (Unaudited) (Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 4,045,000 $ 3,750,000
Adjustments to reconcile net income
to net cash provided (used in) by operating
activities:
Provision for doubtful accounts 200,000 200,000
Depreciation and amortization 2,570,000 2,845,000
Deferred income taxes 20,000 (167,000)
Net gain on investment securities (863,000) (321,000)
Compensation under restricted stock plan 18,000 112,000
Decrease (increase) in:
Accounts receivable (967,000) 7,050,000
Inventories (2,271,000) (2,860,000)
Other current assets (6,000) (175,000)
Other assets (451,000) (126,000)
Decrease in:
Accounts payable (1,851,000) (2,899,000)
Accruals and other liabilities (532,000) (1,468,000)
----------- -----------
Net cash provided by (used in) (88,000) 5,941,000
operating activities ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,746,000) (897,000)
Proceeds from sales of investment securities 3,294,000 6,616,000
Acquisition of investment securities (952,000) (5,601,000)
----------- -----------
Net cash provided by (used in)
investing activities (404,000) 118,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (2,211,000) (5,155,000)
Dividends (2,000,000) (2,040,000)
Exercise of stock options 14,000 91,000
----------- -----------
Net cash used in financing activities (4,197,000) (7,104,000)
----------- -----------
Increase (decrease) in cash and cash equivalents (4,689,000) 1,045,000)
Cash and cash equivalents, beginning of period 7,518,000 7,883,000
----------- -----------
Cash and cash equivalents, end of period $ 2,829,000 $ 6,838,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
9
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 26 weeks ended May 31, 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):
May 31, 1997 November 30, 1996
------------ -----------------
(Unaudited)
Cash $1,404 $1,700
Tax-free short-term debt instruments 1,425 5,818
------ ------
$2,829 $7,518
====== ======
<PAGE>
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment Securities:
At May 31, 1997 and November 30, 1996, investment securities available-for-sale
consist of the following (in thousands):
Gross Gross
Unrealized Unrealized
Holding Holding Fair
May 31, 1997 (Unaudited) Cost Gain Loss Value
- ----------------------------- ----- -------- ---------- ------
Equities $ 8,268 $ 366 ($ 160) $ 8,474
U.S. Government securities 30 30
Corporate bonds 5,342 160 (2) 5,500
Tax-exempt obligations 44,748 195 (64) 44,879
------- ----- -------- -------
$58,388 $ 721 ($ 226) $58,883
======= ===== ========= =======
Gross Gross
Unrealized Unrealized
Holding Holding Fair
November 30, 1996 Cost Gain Loss Value
- ---------------------------- ----- -------- ---------- -----
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
======= ====== ======== =======
<PAGE>
11
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.
May 31, 1997 November 30, 1996
---------------- -----------------
(Unaudited)
Raw materials $11,962,000 $10,504,000
Work in process 9,706,000 10,087,000
Finished goods 9,550,000 8,356,000
----------- -----------
Total $31,218,000 $28,947,000
=========== ===========
Approximate percentage of
inventories valued
under LIFO valuation 60% 65%
=========== ===========
Excess of FIFO valuation
over LIFO valuation $ 6,861,000 $ 7,161,000
=========== ===========
<PAGE>
12
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 1, 1997. The
matters submitted to a vote of the Company's stockholders were (I) the election
of two directors to Class III of the Company's Board of Directors and (ii) the
approval of the Company's 1997 Stock Incentive Plan.
The Company's stockholders elected Messrs. Samson Bitensky and Sherman S.
Lawrence to Class III of the Company's Board of Directors, to hold office until
the 2000 Annual Meeting of Stockholders and until their respective successors
are duly elected and qualified. The results of the voting were as follows:
Mr. Samson Bitensky
-------------------
Voted for 5,399,386
Authority withheld 38,790
Abstained 0
Broker non-votes 0
Mr. Sherman S. Lawrence
-----------------------
Voted for 5,294,286
Authority withheld 143,890
Abstained 0
Broker non-votes 0
The Company's stockholders also approved the Company's 1997 Stock Incentive
Plan by a vote of 4,594,601 in favor, 174,245 against, with 669,330 abstaining.
<PAGE>
13
PART II. OTHER INFORMATION
---------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------------------------
a) Exhibits:
10.1 Fab Industries, Inc. 1997 Stock Incentive Plan (incorporated
by reference to Exhibit A of the Company's Definitive Proxy
Statement on Schedule 14A, dated March 31, 1997)
27 Financial Data Schedule pursuant to Article 5 of Regulation
S-X, 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 May 31, 1997.
<PAGE>
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Second Quarter
Fiscal 1997 compared to Fiscal 1996
Net sales for the second quarter of fiscal 1997 were $42,940,000 as
compared to $40,768,000 in 1996, an increase of 5.3%. For the six months ended
May 31, 1997, net sales were $78,415,000, an increase of $2,059,000 or 2.7% from
1996. Certain of the Company's products enjoyed stronger customer demand during
the current quarter and divisional product mix was more favorable.
Comparative gross profit margins for the second quarter remained fairly
constant as a percentage of sales. An improved product mix and the Company's
cost control programs more than offset lower plant utilization rates. In the
current quarter, no adjustments to LIFO inventory reserves were required. For
the six months ended May 31, 1997, gross profit margins were 13.2% compared to
13.8% in 1996.
Selling, general and administrative expenses in the current quarter
increased by $303,000, or 7.9%, and as a percentage of sales increased slightly
from 9.4% to 9.6%. For the six months ended May 31, 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 second quarter. The Company continued its
expense containment program which began in fiscal 1995.
<PAGE>
15
Interest and dividend income increased by $45,000 in the quarter, or 4.9%.
The Company has realized gains from the sale of investment securities of
$378,000 compared to gains of $129,000 in the second quarter 1996.
As a result of these factors, quarterly net income increased to $2,395,000,
or 5.6% of sales, from $2,156,000 or 5.3% of sales in last year's second
quarter.
Earnings per share, which are based upon the weighted average number of
shares outstanding (5,708,115 vs. 5,767,621), were $0.42 compared to $0.37.
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 used in operating activities for the 26 weeks ended
May 31, 1997 amounted to $88,000 compared to net cash provided by operating
activities of $5,941,000 in the comparable 1996 period. Of this decrease,
$8,017,000 relates to comparative declines in accounts receivable, offset by
$1,984,000 in accounts payable, accruals and other liabilities.
Capital expenditures for the six months were $2,746,000 against $897,000 in
the comparable 1996 period. In the current quarter, the Company purchased
additional knitting machines for its knitting plant.
<PAGE>
16
In March 1997, the Company acquired the copyrights, trade name and certain
assets of Wiener Laces, Inc., manufacturer of raschel and leavers lace goods for
a total purchase price of approximately $1.0 million.
During the first six months of fiscal 1997, the Company repurchased 77,719
shares of its common stock at a cost of $2,211,000 (an average price of $28.45).
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 July
21,1997 to stockholders of record as of June 2, 1997.
Stockholders' equity was $133,444,000, ($23.49 per share) at May 31, 1997,
compared to $133,888,000, ($23.25 per share) at the previous fiscal year-end
November 30, 1996, and $129,559,000, ($22.50 per share) at the end of the
comparative 1996 second 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.
<PAGE>
17
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: July 7, 1997 FAB INDUSTRIES, INC.
By: /s/ David A. Miller
-------------------
David A. Miller
Vice President-Finance and Treasurer
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-29-1997
<PERIOD-END> MAY-31-1997
<CASH> 2,829
<SECURITIES> 58,883
<RECEIVABLES> 30,364
<ALLOWANCES> 800
<INVENTORY> 31,218
<CURRENT-ASSETS> 124,444
<PP&E> 111,070
<DEPRECIATION> 80,691
<TOTAL-ASSETS> 157,965
<CURRENT-LIABILITIES> 16,839
<BONDS> 588
1,313
0
<COMMON> 0
<OTHER-SE> 132,131
<TOTAL-LIABILITY-AND-EQUITY> 157,965
<SALES> 78,415
<TOTAL-REVENUES> 78,415
<CGS> 68,028
<TOTAL-COSTS> 68,028
<OTHER-EXPENSES> 7,178
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 5,945
<INCOME-TAX> 1,900
<INCOME-CONTINUING> 4,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,045
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
