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 29, 1998
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 12, 1998
----- --------------------------------------
Common stock, $.20 par value 5,583,363
<PAGE>
FAB INDUSTRIES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION PAGE
Table of Contents 1
Consolidated Statements of Income
13 Weeks ended August 29, 1998 and August 30, 1997 2
Consolidated Statements of Income
39 Weeks ended August 29, 1998 and August 30, 1997 3
Consolidated Balance Sheets (Asset Section)
August 29, 1998 and November 29, 1997 4
Consolidated Balance Sheets (Liability and Stockholders' Equity Section)
August 29, 1998 and November 29, 1997 5
Consolidated Statements of Stockholders' Equity
39 Weeks ended August 29, 1998 6
Consolidated Statements of Cash Flows
39 Weeks ended August 29, 1998 and August 30, 1997 7
Notes to Consolidated Financial Statements 8
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
-1-
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 13 WKS ENDED
--------------------------------------------
August 29, 1998 August 30, 1997
--------------------------------------------
(Unaudited) (Unaudited)
Net sales $39,571,000 $41,775,000
Cost of goods sold 34,430,000 35,009,000
---------------- ----------------
Gross profit 5,141,000 6,766,000
Selling, general and administrative
expenses 4,568,000 4,002,000
---------------- ----------------
Operating income 573,000 2,764,000
---------------- ----------------
Other income (expense):
Interest and dividend income 793,000 939,000
Interest expense (15,000) (17,000)
Net gain on investment securities 914,000 197,000
---------------- ----------------
Total other income 1,692,000 1,119,000
---------------- ----------------
Income before taxes 2,265,000 3,883,000
Taxes on Income 600,000 1,243,000
---------------- ----------------
Net Income $ 1,665,000 $ 2,640,000
================ ================
Earnings per share (Note 6):
Basic $0.30 $0.46
Diluted $0.30 $0.46
See notes to consolidated financial statements.
-2-
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 39 WKS ENDED
--------------------------------------------
August 29, 1998 August 30, 1997
--------------------------------------------
(Unaudited) (Unaudited)
Net sales $113,583,000 $120,190,000
Cost of goods sold 97,751,000 103,037,000
-------------- ----------------
Gross profit 15,832,000 17,153,000
Selling, general and administrative
expenses 11,968,000 11,180,000
-------------- ----------------
Operating income 3,864,000 5,973,000
-------------- ----------------
Other income (expense):
Interest and dividend income 2,807,000 2,844,000
Interest expense (60,000) (49,000)
Net gain on investment securities 1,593,000 1,060,000
-------------- ----------------
Total other income 4,340,000 3,855,000
-------------- ----------------
Income before taxes 8,204,000 9,828,000
Taxes on Income 2,470,000 3,143,000
-------------- ----------------
Net Income $ 5,734,000 $ 6,685,000
============== ================
Earnings per share (Note 6):
Basic $1.02 $1.17
Diluted $1.01 $1.16
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 29, 1998 November 29, 1997
--------------------------------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 2) $ 7,761,000 $ 4,574,000
Investment securities available-for-sale (Note 3) 47,254,000 66,068,000
Accounts receivable-net of allowance of
$1,200,000 and $900,000 for doubtful accounts 27,319,000 28,872,000
Inventories (Note 4) 34,544,000 28,270,000
Other current assets 1,699,000 2,051,000
---------------- ---------------
Total current assets 118,577,000 129,835,000
---------------- ---------------
Property, plant and equipment - at cost 128,267,000 113,194,000
Less: Accumulated depreciation 87,299,000 83,185,000
---------------- ---------------
40,968,000 30,009,000
Other assets 3,736,000 3,680,000
---------------- ---------------
$163,281,000 $163,524,000
================ ===============
</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 and
-------------------------------
S T O C K H O L D E R S' E Q U I T Y
------------------------------------------------
AS OF
--------------------------------------------
August 29, 1998 November 29, 1997
--------------------------------------------
(Unaudited)
Current liabilities:
Accounts payable $ 10,951,000 $ 8,862,000
Corporate income and other taxes 1,918,000 2,568,000
Accrued payroll and related expenses 2,414,000 3,649,000
Dividends payable 977,000 994,000
Other current liabilities 416,000 966,000
Deferred income taxes 1,526,000 778,000
--------------- ----------------
Total current liabilities 18,202,000 17,817,000
--------------- ----------------
Obligations under capital leases -
net of current maturities 504,000 556,000
Other noncurrent liabilities 2,628,000 2,779,000
Deferred income taxes 4,348,000 4,480,000
--------------- ----------------
Total liabilities 25,682,000 25,632,000
--------------- ----------------
Stockholders' equity 137,599,000 137,892,000
--------------- ----------------
$163,281,000 $163,524,000
=============== ================
See notes to consolidated financial statements.
-5-
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 39 WEEKS ENDED AUGUST 29, 1998
<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
November 29, 1997 $ 137,892,000 6,572,994 $1,315,000 $6,562,000 $162,629,000 ($7,117,000)
Net income 5,734,000 5,734,000
Cash dividends (2,955,000) (2,955,000)
Exercise of
stock options 344,000 15,450 3,000 341,000
Purchase of
treasury stock (3,524,000)
Compensation under
restricted stock plan 21,000
Payment of loan from ESOP 790,000 790,000
Change in net
unrealized holding
gain (loss) on investment
securities available-for-
sale, net of taxes (703,000)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Balance at
August 29, 1998 $137,599,000 6,588,444 $1,318,000 $6,903,000 $165,408,000 ($6,327,000)
(Unaudited) ===================================================================================================-
</TABLE>
<TABLE>
<CAPTION>
Net Unearned Treasury Stock
Unrealized Restricted ==========================
Holding Gain Stock Number of
(Loss) Compensation Shares Cost
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
November 29, 1997 $636,000 ($27,000) ( 890,382) ($26,106,000)
Net income
Cash dividends
Exercise of
stock options
Purchase of
treasury stock ( 114,699) ( 3,524,000)
Compensation under
restricted stock plan 21,000
Payment of loan from ESOP
Change in net
unrealized holding
gain (loss) on investment
securities available-for-
sale, net of taxes (703,000)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Balance at
August 29, 1998 ($ 67,000) ($ 6,000) (1,005,081) ($29,630,000)
(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.
-6-
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 39 WKS ENDED
--------------------------------------------
August 29, 1998 August 30, 1997
--------------------------------------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $5,734,000 $6,685,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for doubtful accounts 300,000 300,000
Depreciation and amortization 4,114,000 3,862,000
Deferred income taxes 1,084,000 293,000
Net gain on investment securities (1,593,000) (1,060,000)
Compensation under restricted stock plan 21,000 27,000
Decrease (increase) in:
Accounts receivable 1,253,000 1,293,000
Inventories (6,274,000) (474,000)
Other current assets 351,000 234,000
Other assets (56,000) (904,000)
(Decrease) increase in:
Accounts payable 2,089,000 (2,009,000)
Accruals and other liabilities (2,655,000) 403,000
---------------- ----------------
Net cash provided by
operating activities 4,368,000 8,650,000
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (15,073,000) (4,130,000)
Proceeds from sales of investment securities 19,237,000 3,184,000
Acquisition of investment securities - (1,625,000)
---------------- ----------------
Net cash provided by (used in)
investing activities 4,164,000 (2,571,000)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (3,524,000) (2,385,000)
Payment of loan from ESOP 790,000 790,000
Dividends (2,955,000) (2,994,000)
Exercise of stock options 344,000 85,000
---------------- ----------------
Net cash used in financing activities (5,345,000) (4,504,000)
---------------- ----------------
Increase in cash and cash equivalents 3,187,000 1,575,000
Cash and cash equivalents, beginning
of period 4,574,000 7,518,000
---------------- ----------------
Cash and cash equivalents, end of period $7,761,000 $9,093,000
================ ================
</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 29, 1998 are not necessarily indicative of
the results that may be expected for the entire fiscal year ending November 28,
1998. The balance sheet at November 29, 1997 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 29, 1997.
2. Cash and cash equivalents consist of the following (in thousands):
August 29, 1998 November 29, 1997
--------------- -----------------
(Unaudited)
Cash $1,132 $1,360
Tax-free short-term debt instruments 6,629 3,214
--------------- -----------------
$7,761 $4,574
=============== =================
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment Securities:
At August 29, 1998 and November 29, 1997, investment securities
available-for-sale consist of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Holding Holding Fair
August 29, 1998 (Unaudited) Cost Gain Loss Value
- -------------------------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Equities $10,354 $162 ($897) $ 9,619
U.S. Treasury obligations 17 17
Corporate bonds 4,944 116 (121) 4,939
Tax-exempt obligations 32,050 636 (7) 32,679
------------ ------------ ------------ ----------
$ 47,365 $914 ($1,025) $47,254
============ ============ ============ ==========
Gross Gross
Unrealized Unrealized
Holding Holding Fair
November 29, 1997 Cost Gain Loss Value
- -------------------- ------------ ------------ ------------ ----------
Equities $ 8,568 $ 389 ($ 45) $ 8,912
U.S. Treasury obligations 24 24
Corporate bonds 5,298 216 5,514
Tax-exempt obligations 51,118 526 (26) 51,618
------------ ------------- ------------ ----------
$ 65,008 $1,131 ($ 71) 66,068
============ ============= ============ ==========
</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 29, 1998 November 29, 1997
---------------- ------------------
(Unaudited)
Raw materials $10,274,000 $ 9,132,000
Work in process 13,391,000 9,781,000
Finished goods 10,879,000 9,357,000
---------------- -----------------
Total $34,544,000 $28,270,000
================ =================
Approximate percentage of
inventories valued
under LIFO valuation 49% 65%
================ =================
Excess of FIFO valuation
over LIFO valuation $ 4,798,000 $ 6,298,000
================ =================
5. Stockholders' Equity:
Employee Stock Ownership Plan:
The seventh of 15 equal annual installments of $790,000 plus interest at prime
was paid by the ESOP to the Company on August 3, 1998. The balance on the ESOP
indebtedness of $6,327,000 is reflected as a reduction of the Company's
Stockholders' Equity in the consolidated balance sheet.
-10-
<PAGE>
6. Earnings Per Share:
Basic and diluted earnings per share for the 13 weeks ended August 29, 1998 and
August 30, 1997 are calculated as follows:
Net Per-share
Income Shares Amount
------ ------ ---------
For the 13 weeks ended August 29, 1998:
Basic earnings per share $1,665,000 5,588,089 $0.30
=====
Effect of assumed conversion of employee
stock options - 32,620
--------- ---------
Diluted earnings per share $1,665,000 5,620,709 $0.30
========== ========= =====
For the 13 weeks ended August 30, 1997:
Basic earnings per share $2,640,000 5,679,998 $0.46
=====
Effect of assumed conversion of employee
stock options - 56,923
--------- ---------
Diluted earnings per share $2,640,000 5,736,921 $0.46
========== ========= =====
Basic and diluted earnings per share for the 39 weeks ended August 29, 1998 and
August 30, 1997 are calculated as follows:
Net Per-share
Income Shares Amount
------ ------ ---------
For the 39 weeks ended August 29, 1998:
Basic earnings per share $5,734,000 5,642,597 $1.02
Effect of assumed conversion of employee
stock options - 43,007
--------- ---------
Diluted earnings per share $5,734,000 5,685,604 $1.01
========== ========= =====
For the 39 weeks ended August 30, 1997:
Basic earnings per share $6,685,000 5,713,517 $1.17
=====
Effect of assumed conversion of employee
stock options - 47,624
--------- ---------
Diluted earnings per share $6,685,000 5,761,141 $1.16
========== ========= =====
-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 29, 1998.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Third Quarter and Nine Months
Fiscal 1998 Compared to Fiscal 1997
Net sales for the third quarter ended August 29, 1998 were $39,571,000
as compared to $41,775,000 in the similar 1997 period, a decrease of 5.3%. For
the nine months ended August 29, 1998, net sales were $113,583,000, a decline of
$6,607,000, or 5.5%, from 1997. The Asian financial crisis, which began nearly a
year ago, is taking a sustained toll on the U.S. manufacturing sector and,
because of steep currency devaluations, U.S. firms are forced to compete against
a flood of cheap imports and falling demand for U.S. goods overseas. These
factors have continued to exert downward pressure on the Company's sales levels.
Gross profit as a percentage of sales decreased to 13.0% for the fiscal
1998 third quarter as compared to 16.2% last year. Lower sales volume reduced
operating schedules at manufacturing plants and a less profitable mix also
exerted unfavorable pressure on profit margins. In addition, the Company
incurred start-up costs in connection with its recent acquisitions of Lida
Stretch Fabrics and SMS Textiles, manufacturers of circular knit stretch fabrics
and wide elastic fabrics, respectively. In the 1998 quarter, a reduction in LIFO
inventory reserves arising from lower average FIFO cost levels benefited margins
in the amount of $900,000 compared to $300,000 in the third quarter 1997. For
the nine months ended August 29, 1998, gross profit percentages were 13.9%
compared to 14.3% in 1997. The comparative effect of changes in LIFO inventory
reserves benefited margins in the amount of $900,000.
Selling, general and administrative expenses in the current quarter
increased by $566,000 or 14.1% and as a percentage of sales increased from 9.6%
to 11.5%. The increase was attributable to the acquisitions of Lida Stretch
Fabrics and SMS Textiles. For the nine months ended August 29, 1998, selling
general and administrative expenses increased by $788,000, and as a percentage
of sales to 10.5% from 9.3%.
-13-
<PAGE>
Interest and dividend income decreased by $146,000 in the quarter, or
15.5%, as a result of lower average available balances. The Company has realized
gains from the sale of investment securities of $914,000 compared to gains of
$197,000 in the third quarter 1997.
The effective income tax rate for the current quarter was 26.5% as
against 32.0% in the comparative 1997 period. The decline was primarily
attributable to the fact that tax exempt interest represents a higher percentage
of pre-tax income than in the comparative 1997 period.
As a result of these factors, quarterly net income decreased to
$1,665,000, from $2,640,000. As a percentage of sales, quarterly net income
decreased to 4.2% compared to 6.3% in last year's third quarter.
In the current nine months, the Company adopted SFAS No. 128, "Earnings
per Share". Under SFAS 128, the Company is presenting both basic earnings per
share and diluted earnings per share and has restated the 1997 nine months
amounts to conform to the provisions of SFAS No. 128.
For the quarter, basic and diluted earnings per share were $0.30
compared to $0.46 last year. For the nine months, basic earnings per share were
$1.02 compared to $1.17 last year and diluted earnings per share were $1.01
compared to $1.16 last year.
Liquidity and Capital Resources
Net cash provided by operating activities for the 39 weeks ended August
29, 1998 amounted to $4,368,000, as compared to $8,650,000 in the comparable
1997 period. Of this decrease, $5,800,000 relates to comparative changes in
inventories, $951,000 to lower net income and $533,000 to the increase in
realized gains on investment securities. These decreases were offset by
$1,040,000 in comparative changes in accounts payable, accruals and other
liabilities, $848,000 in other assets and $791,000 in deferred income taxes.
During the 39 weeks ended August 29, 1998, approximately $19.2 million
was sold in marketable securities as compared to approximately $3.2 million in
the similar 1997 period.
-14-
<PAGE>
In addition, approximately $15.1 million was invested in the purchase of
property, plant and equipment, including capital expenditures in connection
with the Lida Stretch Fabrics and SMS Textiles acquisitions.
During the first nine months of fiscal 1998, the Company repurchased
114,699 shares of its common stock at a cost of $3,524,000 (an average price of
$30.72). 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 23, 1998, to stockholders of record as of August 28, 1998.
Stockholders' equity was $137,599,000 ($24.65 per share) at August 29,
1998, as compared to $137,892,000 ($24.26 per share) at the previous fiscal
year-end November 29, 1997, and $135,975,000 ($23.94 per share) at the end of
the comparative 1997 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 12, 1998 FAB INDUSTRIES, INC.
By: /s/ David A. Miller
-------------------
David A. Miller
Vice President-Finance, Treasurer
And Chief Financial Officer
(Principal Financial and Accounting
Officer)
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-END> AUG-29-1998
<CASH> 7,761
<SECURITIES> 47,254
<RECEIVABLES> 28,519
<ALLOWANCES> 1,200
<INVENTORY> 34,544
<CURRENT-ASSETS> 118,577
<PP&E> 128,267
<DEPRECIATION> 87,299
<TOTAL-ASSETS> 163,281
<CURRENT-LIABILITIES> 18,202
<BONDS> 504
<COMMON> 1,318
0
0
<OTHER-SE> 136,281
<TOTAL-LIABILITY-AND-EQUITY> 163,281
<SALES> 113,583
<TOTAL-REVENUES> 113,583
<CGS> 97,571
<TOTAL-COSTS> 97,571
<OTHER-EXPENSES> 11,968
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 8,204
<INCOME-TAX> 2,470
<INCOME-CONTINUING> 5,734
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,734
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.01
</TABLE>
