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 30, 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 July 13, 1998
----- -----------------------------------
Common stock, $.20 par value 5,587,003
<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 May 30, 1998 and May 31, 1997 2
Consolidated Statements of Income
26 Weeks ended May 30, 1998 and May 31, 1997 3
Consolidated Balance Sheets (Asset Section)
May 30, 1998 and November 29, 1997 4
Consolidated Balance Sheets (Liability and Stockholders'
Equity Section) May 30, 1998 and November 29, 1997 5
Consolidated Statements of Stockholders' Equity
26 Weeks ended May 30, 1998 6
Consolidated Statements of Cash Flows
26 Weeks ended May 30, 1998 and May 31, 1997 7
Notes to Consolidated Financial Statements 8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
SIGNATURES 18
(1)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 13 WKS ENDED
------------------------------
May 30, 1998 May 31, 1997
------------------------------
(Unaudited) (Unaudited)
Net sales $ 39,761,000 $ 42,940,000
Cost of goods sold 33,403,000 36,601,000
------------ ------------
Gross profit 6,358,000 6,339,000
Selling, general and administrative expenses 4,091,000 4,140,000
------------ ------------
Operating income 2,267,000 2,199,000
------------ ------------
Other income (expense):
Interest and dividend income 890,000 959,000
Interest expense (30,000) (16,000)
Net gain on investment securities 280,000 378,000
------------ ------------
Total other income 1,140,000 1,321,000
------------ ------------
Income before taxes 3,407,000 3,520,000
Taxes on Income 1,073,000 1,125,000
------------ ------------
Net Income $ 2,334,000 $ 2,395,000
============ ============
Earnings per share (Note 5):
Basic $ 0.41 $ 0.42
Diluted $ 0.41 $ 0.42
See notes to consolidated financial statements.
(2)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 26 WKS ENDED
----------------------------
May 30, 1998 May 31, 1997
----------------------------
(Unaudited) (Unaudited)
Net sales $ 74,012,000 $ 78,415,000
Cost of goods sold 63,321,000 68,028,000
------------ ------------
Gross profit 10,691,000 10,387,000
Selling, general and administrative expenses 7,400,000 7,178,000
------------ ------------
Operating income 3,291,000 3,209,000
------------ ------------
Other income (expense):
Interest and dividend income 2,014,000 1,905,000
Interest expense (45,000) (32,000)
Net gain on investment securities 679,000 863,000
------------ ------------
Total other income 2,648,000 2,736,000
------------ ------------
Income before taxes 5,939,000 5,945,000
Taxes on Income 1,870,000 1,900,000
------------ ------------
Net Income $ 4,069,000 $ 4,045,000
============ ============
Earnings per share (Note 5):
Basic $ 0.72 $ 0.71
Diluted $ 0.71 $ 0.70
See notes to consolidated financial statements.
(3)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
- - - - - -
AS OF
------------------------------
May 30, November 29,
1998 1997
------------------------------
(Unaudited)
Current Assets:
Cash and cash equivalents (Note 2) $ 1,778,000 $ 4,574,000
Investment securities available-for-sale (Note 3) 48,701,000 66,068,000
Accounts receivable-net of allowance of
$1,100,000 and $900,000 for doubtful accounts 32,022,000 28,872,000
Inventories (Note 4) 35,434,000 28,270,000
Other current assets 1,884,000 2,051,000
------------ ------------
Total current assets 119,819,000 129,835,000
------------ ------------
Property, plant and equipment - at cost 125,191,000 113,194,000
Less: Accumulated depreciation 85,735,000 83,185,000
------------ ------------
39,456,000 30,009,000
Other assets 4,052,000 3,680,000
------------ ------------
$163,327,000 $163,524,000
============ ============
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
----------------------------
May 30, November 29,
1998 1997
----------------------------
(Unaudited)
Current liabilities:
Accounts payable $ 11,416,000 $ 8,862,000
Corporate income and other taxes 2,346,000 2,568,000
Accrued payroll and related expenses 2,229,000 3,649,000
Dividends payable 983,000 994,000
Other current liabilities 363,000 966,000
Deferred income taxes 744,000 778,000
------------ ------------
Total current liabilities 18,081,000 17,817,000
------------ ------------
Obligations under capital leases - net of
current maturities 521,000 556,000
Other noncurrent liabilities 2,861,000 2,779,000
Deferred income taxes 4,392,000 4,480,000
------------ ------------
Total liabilities 25,855,000 25,632,000
------------ ------------
Stockholders' equity 137,472,000 137,892,000
------------ ------------
$163,327,000 $163,524,000
============ ============
See notes to consolidated financial statements.
(5)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 26 WEEKS ENDED MAY 30,1998
<TABLE>
<CAPTION>
Common Stock* Net
============ Additional Loan to Unrealized
Number of Paid-in Retained EmployeeStock Holding Gain
Total Shares Amount Capital Earnings Ownership Plan (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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) $ 636,000
Net income 4,069,000 4,069,000
Cash dividends (1,978,000) (1,978,000)
Exercise of
stock options 344,000 15,450 3,000 341,000
Purchase of
treasury stock (2,817,000)
Compensation under
restricted stock
plan 24,000 19,000
Change in net
unrealized holding
gain (loss) on
investment securities
available-for-sale,
net of taxes (62,000) (62,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at
May 30, 1998 $ 137,472,000 6,588,444 $1,318,000 $6,922,000 $ 164,720,000 ($7,117,000) $ 574,000
(Unaudited) ==========================================================================================================
* Common stock $0.20 par value - 15,000,000 shares authorized.
Preferred stock $1.00 par value - 2,000,000 shares authorized, none issued.
See notes to consolidated financial statements.
Unearned Treasury Stock
Restricted ==============
Stock Number of
Compensation Shares Cost
- -------------------------------------------------------------------------
Balance at
November 29, 1997 ($ 27,000) (890,382) ($26,106,000)
Net income
Cash dividends
Exercise of
stock options
Purchase of
treasury stock (87,759) (2,817,000)
Compensation under
restricted stock
plan (76,000) 3,000 81,000
Change in net
unrealized holding
gain (loss) on
investment securities
available-for-sale,
net of taxes
- -------------------------------------------------------------------------
Balance at
May 30, 1998 ($103,000) (975,141) ($28,842,000)
(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
FOR THE 26 WKS ENDED
----------------------------
May 30, 1998 May 31, 1997
----------------------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net Income $ 4,069,000 $ 4,045,000
Adjustments to reconcile net income
to net cash used in operating
activities:
Provision for doubtful accounts 200,000 200,000
Depreciation and amortization 2,550,000 2,570,000
Deferred income taxes (81,000) 20,000
Net gain on investment securities (679,000) (863,000)
Compensation under restricted stock plan 24,000 18,000
Decrease (increase) in:
Accounts receivable (3,350,000) (967,000)
Inventories (7,164,000) (2,271,000)
Other current assets 167,000 (6,000)
Other assets (372,000) (451,000)
(Decrease) increase in:
Accounts payable 2,554,000 (1,851,000)
Accruals and other liabilities (2,209,000) (532,000)
------------ -----------
Net cash used in
operating activities (4,291,000) (88,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (11,997,000) (2,746,000)
Proceeds from sales of investment securities 18,892,000 3,294,000
Acquisition of investment securities (949,000) (952,000)
------------ -----------
Net cash provided by (used in)
investing activities 5,946,000 (404,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (2,817,000) (2,211,000)
Dividends (1,978,000) (2,000,000)
Exercise of stock options 344,000 14,000
------------ -----------
Net cash used in financing activities (4,451,000) (4,197,000)
------------ -----------
Decrease in cash and cash equivalents (2,796,000) (4,689,000)
Cash and cash equivalents, beginning of period 4,574,000 7,518,000
------------ -----------
Cash and cash equivalents, end of period $ 1,778,000 $ 2,829,000
============ ===========
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 26 weeks ended May 30, 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):
May 30, 1998 November 29, 1997
------------ -----------------
(Unaudited)
Cash $1,228 $1,360
Tax-free short-term debt instruments 550 3,214
----------- ----------
$1,778 $4,574
=========== ==========
(8)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment Securities:
At May 30, 1998 and November 29, 1997, investment securities available-for-sale
consist of the following (in thousands):
Gross Gross
Unrealized Unrealized
Holding Holding Fair
May 30, 1998 (Unaudited) Cost Gain Loss Value
- ------------------------ ------ ------ ---------- ------
Equities $ 9,428 $ 391 ($ 64) $ 9,755
U.S. Treasury obligations 19 19
Corporate bonds 5,189 157 5,346
Tax-exempt obligations 33,109 472 33,581
------- ------- -------- -------
$47,745 $ 1,020 ($ 64) $48,701
======= ======= ======== =======
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
======= ======= ======== =======
(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.
May 30, 1998 November 29, 1997
----------------- -----------------
(Unaudited)
Raw materials $10,596,000 $ 9,132,000
Work in process 12,868,000 9,781,000
Finished goods 11,970,000 9,357,000
----------- -----------
Total $35,434,000 $28,270,000
=========== ===========
Approximate percentage of
inventories valued
under LIFO valuation 53% 65%
Excess of FIFO valuation
over LIFO valuation $ 5,698,000 $ 6,298,000
=========== ===========
(10)
<PAGE>
5. Earnings Per Share:
Basic and diluted earnings per share for the 13 weeks ended May 30, 1998
and May 31, 1997 are calculated as follows:
<TABLE>
<CAPTION>
Net Per-share
Income Shares Amount
------ ------ ------
<S> <C> <C> <C>
For the 13 weeks ended May 30, 1998:
Basic earnings per share $2,334,000 5,655,979 $0.41
=====
Effect of assumed conversion of employee
stock options -- 50,514
---------- ---------
Diluted earnings per share $2,334,000 5,706,493 $0.41
========== ========= =====
For the 13 weeks ended May 31, 1997:
Basic earnings per share $2,395,000 5,708,115 $0.42
=====
Effect of assumed conversion of employee
stock options -- 48,458
---------- ---------
Diluted earnings per share $2,395,000 5,756,573 $0.42
========== ========= =====
Basic and diluted earnings per share for the 26 weeks ended May 30, 1998
and May 31, 1997 are calculated as follows:
Net Per-share
Income Shares Amount
------ ------ ------
For the 26 weeks ended May 30, 1998:
Basic earnings per share $4,069,000 5,669,851 $0.72
=====
Effect of assumed conversion of employee
stock options -- 50,254
----------- ---------
Diluted earnings per share $4,069,000 5,720,105 $0.71
========== ========= =====
For the 26 weeks ended May 31, 1997:
Basic earnings per share $4,045,000 5,730,277 $0.71
=====
Effect of assumed conversion of employee
stock options -- 45,390
---------- ---------
Diluted earnings per share $4,045,000 5,775,667 $0.70
========== ========= =====
</TABLE>
(11)
<PAGE>
6. Acquisitions:
On April 22, 1998, the Company purchased certain assets and the business of
SMS Textile Mills, Inc. of Allentown, Pennsylvania and Norwich,
Connecticut. SMS is engaged in the manufacturing, marketing and
distribution of a full line of wide elastic fabrics.
On May 8, 1998, the Company, through a wholly owned subsidiary has
purchased substantially all of the assets and the business of Lida Stretch
Fabrics, Inc. Lida is a leading domestic manufacturer of circular knit
stretch fabrics.
Pro forma financial information for the above businesses has not been
presented, as the acquisitions were not material to the Company.
(12)
<PAGE>
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 12, 1998.
The matter submitted to a vote of the Company's stockholders was the election of
two directors to Class I of the Company's Board of Directors.
The Company's stockholders elected Mrs. Susan B. Lerner and Mr. Richard
Marlin to Class I of the Company's Board of Directors, to hold office until the
2001 Annual Meeting of Stockholders and until their respective successors are
duly elected and qualified. The results of the voting were as follows:
Mrs. Susan B. Lerner
--------------------
Voted for 5,380,376
Authority withheld 90,768
Abstained 0
Broker non-votes 0
Mr. Richard Marlin
------------------
Voted for 5,274,276
Authority withheld 196,868
Abstained 0
Broker non-votes 0
(13)
<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 May 30, 1998.
(14)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Second Quarter and Six Months
Fiscal 1998 Compared to Fiscal 1997
- -----------------------------------
Net sales for the second quarter of fiscal 1998 were $39,761,000 as
compared to $42,940,000 in the similar 1997 period, a decrease of 7.4%. For the
six months ended May 30, 1998, net sales were $74,012,000, a decline of
$4,403,000, or 5.6%, from 1997. Business conditions within the textile industry
remained erratic, and the Company continued to experience competitive market
conditions, both domestic and foreign. These conditions have to date continued
into the third quarter.
Overall Company gross margins for the quarter improved to 16.0% from
14.8% last year. Margins were aided by increased efficiencies and cost control
programs. In the 1998 quarter, a reduction in LIFO inventory reserves arising
from lower average FIFO cost levels benefited margins in the amount of $600,000.
For the six months ended May 30, 1998, gross profit margins were 14.4% compared
to 13.2% in 1997. The comparative effect of changes in LIFO inventory reserves
benefited margins in the amount of $300,000.
Selling, general and administrative expenses in the current quarter
remained relatively constant, despite the lower sales volume, because of the
fixed-cost nature of certain payroll and related expenses. As a percentage of
sales, such costs increased from 9.6% to 10.3% because of the lower sales
volume. For the six months ended May 30, 1998, selling general and
administrative expenses increased by $222,000, and as a percentage of sales to
10.0% from 9.2%.
Interest and dividend income decreased by $69,000 in the quarter, or
7.2%. The Company has realized gains from the sale of investment securities of
$280,000 compared to gains of $378,000 in the second quarter 1997.
(15)
<PAGE>
As a result of these factors, quarterly net income decreased to
$2,334,000, from $2,395,000. As a percentage of sales, quarterly net income
increased to 5.9% compared to 5.6% in last year's second quarter.
In the current six 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 six months
amounts to conform to the provisions of SFAS No. 128.
For the quarter, basic and diluted earnings per share were $0.41
compared to $0.42 last year. For the six months, basic earnings per share were
$0.72 compared to $0.71 last year and diluted earnings per share were $0.71
compared to $0.70 last year.
Liquidity and Capital Resources
- -------------------------------
Operating activities used cash of $4,291,000 and $88,000, respectively,
for the 26 weeks ended May 30, 1998 and May 31, 1997. Of this increase,
$2,383,000 relates to comparative changes in accounts receivable and $4,893,000
in inventories, which was offset by $2,728,000 related to comparative changes in
accounts payable, accruals and other liabilities.
During the 26 weeks ended May 30, 1998, approximately $18.9 million was
sold in marketable securities as compared to approximately $3.3 million in the
similar 1997 period.
In addition, approximately $12.0 million was invested in the purchase
of property, plant, and equipment. These capital expenditures included assets
acquired from SMS Textile Mills, Inc. and Lida Stretch Fabrics, Inc.,
manufacturers of wide elastic fabrics and circular knit stretch fabrics,
respectively.
These textile business acquisitions, individually and in the aggregate,
were not material to the Company's financial position or results of operations.
During the first six months of fiscal 1998, the Company repurchased
87,759 shares of its common stock at a cost of $2,817,000 (an average price of
$32.10). Subsequent to the end of the quarter, the Company repurchased an
additional 26,300 shares at an average price of $26.10. 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.
(16)
<PAGE>
The Company declared a quarterly dividend of $0.175 per share, payable
July 24, 1998, to stockholders of record as of June 1, 1998.
Stockholders' equity was $137,472,000, ($24.49 per share) at May 30,
1998, as compared to $137,892,000, ($24.26 per share) at the previous fiscal
year-end November 29, 1997, and $133,444,000, ($23.49 per share) at the end of
the comparative 1997 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.
(17)
<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: July 13, 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)
(18)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-END> MAY-30-1998
<CASH> 1,778
<SECURITIES> 48,701
<RECEIVABLES> 33,122
<ALLOWANCES> 1,100
<INVENTORY> 35,434
<CURRENT-ASSETS> 119,819
<PP&E> 125,191
<DEPRECIATION> 85,735
<TOTAL-ASSETS> 163,327
<CURRENT-LIABILITIES> 18,081
<BONDS> 521
<COMMON> 1,318
0
0
<OTHER-SE> 136,154
<TOTAL-LIABILITY-AND-EQUITY> 163,327
<SALES> 74,012
<TOTAL-REVENUES> 74,012
<CGS> 63,321
<TOTAL-COSTS> 63,321
<OTHER-EXPENSES> 7,400
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 5,939
<INCOME-TAX> 1,870
<INCOME-CONTINUING> 4,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,069
<EPS-PRIMARY> .72
<EPS-DILUTED> .71
</TABLE>
