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 February 28, 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 April 13, 1998
- --------------------------------- -------------------------------------
Common stock, $.20 par value 5,689,492
<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 February 28, 1998 and March 01, 1997 2
Consolidated Balance Sheets (Asset Section)
February 28, 1998 and November 29, 1997 3
Consolidated Balance Sheets (Liability and
Stockholders' Equity Section)
February 28, 1998 and November 29, 1997 4
Consolidated Statements of Stockholders' Equity
13 Weeks ended February 28, 1998 5
Consolidated Statements of Cash Flows
13 Weeks ended February 28, 1998 and March 01, 1997 6
Notes to Consolidated Financial Statements 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
SIGNATURES 14
(1)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE 13 WKS ENDED
------------------------------------------------
February 28, 1998 March 01, 1997
------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 34,251,000 $ 35,475,000
Cost of goods sold 29,918,000 31,427,000
------------ -------------
Gross profit 4,333,000 4,048,000
Selling, general and administrative expenses 3,309,000 3,038,000
------------ -------------
Operating income 1,024,000 1,010,000
------------ -------------
Other income (expense):
Interest and dividend income 1,124,000 946,000
Interest expense (15,000) (16,000)
Net gain on investment securities 399,000 485,000
------------ -------------
Total other income 1,508,000 1,415,000
------------ -------------
Income before taxes 2,532,000 2,425,000
Taxes on Income 797,000 775,000
------------- -------------
Net Income $ 1,735,000 $ 1,650,000
============ ============
Earnings per share: (Note 5)
Basic $0.31 $0.29
Diluted $0.30 $0.28
</TABLE>
See notes to consolidated financial statements.
(2)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
- - - - - -
AS OF
------------------------------
February 28, November 29,
1998 1997
------------------------------
(Unaudited)
Current Assets:
Cash and cash equivalents (Note 2) $ 3,041,000 $ 4,574,000
Investment securities available-for-sale (Note 3) 66,175,000 66,068,000
Accounts receivable-net of allowance of
$1,000,000 and $900,000 for doubtful accounts 24,427,000 28,872,000
Inventories (Note 4) 32,332,000 28,270,000
Other current assets 2,035,000 2,051,000
------------ -----------
Total current assets 128,010,000 129,835,000
------------ -----------
Property, plant and equipment - at cost 115,312,000 113,194,000
Less: Accumulated depreciation 84,455,000 83,185,000
------------ -----------
30,857,000 30,009,000
Other assets 3,844,000 3,680,000
------------ ------------
$162,711,000 $163,524,000
============ ============
See notes to consolidated financial statements.
(3)
<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
------------------------------
February 28, November 29,
1998 1997
------------------------------
(Unaudited)
Current liabilities:
Accounts payable $ 9,939,000 $ 8,862,000
Corporate income and other taxes 2,533,000 2,568,000
Accrued payroll and related expenses 1,576,000 3,649,000
Dividends payable 995,000 994,000
Other current liabilities 367,000 966,000
Deferred income taxes 776,000 778,000
----------- ----------
Total current liabilities 16,186,000 17,817,000
----------- ----------
Obligations under capital leases - net of
current maturities 539,000 556,000
Other noncurrent liabilities 2,842,000 2,779,000
Deferred income taxes 4,436,000 4,480,000
----------- ----------
Total liabilities 24,003,000 25,632,000
----------- ----------
Stockholders' equity 138,708,000 137,892,000
----------- -----------
$162,711,000 $163,524,000
============ ============
See notes to consolidated financial statements.
(4)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 13 WEEKS ENDED FEBRUARY 28,1998
<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 1,735,000 1,735,000
Cash dividends (995,000) (995,000)
Exercise of
stock options 76,000 4,000 1,000 75,000
Purchase of
treasury stock (1,000)
Compensation under
restricted stock plan 10,000
Change in net
unrealized holding
gain (loss) on investment
securities available-for-
sale, net of taxes (9,000)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at
February 28, 1998 $138,708,000 6,576,994 $1,316,000 $6,637,000 $163,369,000 ($7,117,000)
(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.
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 (20) (1,000)
Compensation under
restricted stock plan 10,000
Change in net
unrealized holding
gain (loss) on investment
securities available-for-
sale, net of taxes (9,000)
- --------------------------------------------------------------------------------------------------------
Balance at
February 28, 1998 $627,000 ($17,000) (890,402) ($26,107,000)
(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.
(5)
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE 13 WKS ENDED
----------------------------------------------
February 28, 1998 March 01, 1997
----------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $1,735,000 $1,650,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for doubtful accounts 100,000 100,000
Depreciation and amortization 1,270,000 1,278,000
Deferred income taxes (40,000) (43,000)
Net gain on investment securities (399,000) (485,000)
Compensation under restricted stock plan 10,000 11,000
Decrease (increase) in:
Accounts receivable 4,345,000 4,615,000
Inventories (4,062,000) (1,211,000)
Other current assets 16,000 (36,000)
Other assets (164,000) (192,000)
(Decrease) increase in:
Accounts payable 1,077,000 (2,019,000)
Accruals and other liabilities (2,661,000) (1,838,000)
------------------ ----------------
Net cash provided by
operating activities 1,227,000 1,830,000
------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,118,000) (815,000)
Proceeds from sales of investment securities 1,764,000 560,000
Acquisition of investment securities (1,486,000) (1,345,000)
------------------ ----------------
Net cash used in
investing activities (1,840,000) (1,600,000)
------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,000) (188,000)
Dividends (995,000) (1,006,000)
Exercise of stock options 76,000 6,000
------------------ ----------------
Net cash used in financing activities (920,000) (1,188,000)
------------------ ----------------
Decrease in cash and cash equivalents (1,533,000) (958,000)
Cash and cash equivalents, beginning of period 4,574,000 7,518,000
------------------ ----------------
Cash and cash equivalents, end of period $3,041,000 $6,560,000
================== ================
See notes to consolidated financial statements.
</TABLE>
(6)
<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 13 weeks ended February 28, 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):
<TABLE>
<CAPTION>
February 28, 1998 November 29, 1997
----------------- -----------------
(Unaudited)
<S> <C> <C>
Cash $1,522 $1,360
Tax-free short-term debt instruments 1,519 3,214
----------------- -----------------
$3,041 $4,574
================= =================
</TABLE>
(7)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment Securities:
At February 28, 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
February 28, 1998 (Unaudited) Cost Gain Loss Value
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equities $ 9,126 $236 ($ 80) $ 9,282
U.S. Treasury obligations 21 21
Corporate bonds 5,440 213 5,653
Tax-exempt obligations 50,543 676 51,219
------------ ------------ ------------ ------------
$ 65,130 $1,125 ($ 80) $66,175
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Holding Holding Fair
November 29, 1997 Cost Gain Loss Value
- ---------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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>
(8)
<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.
<TABLE>
<CAPTION>
February 28, 1998 November 29, 1997
--------------------- ------------------------
(Unaudited)
<S> <C> <C>
Raw materials $11,427,000 $ 9,132,000
Work in process 10,442,000 9,781,000
Finished goods 10,463,000 9,357,000
--------------------- ------------------------
Total $32,332,000 $28,270,000
===================== ========================
Approximate percentage of
inventories valued
under LIFO valuation 64% 65%
===================== ========================
Excess of FIFO valuation
over LIFO valuation $ 6,298,000 $ 6,298,000
===================== ========================
</TABLE>
5. Earnings Per Share:
Basic and diluted earnings per share for the 13 weeks ended February 28,
1998 and March 1, 1997 are calculated as follows:
<TABLE>
<CAPTION>
Net Per-share
Income Shares Amount
----------- --------- ---------
<S> <C> <C> <C>
For the 13 weeks ended February 28, 1998:
Basic earnings per share $1,735,000 5,683,723 $0.31
=====
Effect of assumed conversion of employee
stock options - 52,909
---------- ---------
Diluted earnings per share $1,735,000 5,736,632 $0.30
========== ========= =====
For the 13 weeks ended March 1, 1997:
Basic earnings per share $1,650,000 5,752,438 $0.29
=====
Effect of assumed conversion of employee
stock options - 42,898
---------- ---------
Diluted earnings per share $1,650,000 5,795,336 $0.28
========== ========= =====
</TABLE>
(9)
<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 February 28, 1998.
(10)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
First Quarter
Fiscal 1998 Compared to Fiscal 1997
- -----------------------------------
Net sales for the first quarter of fiscal 1998 were $34,251,000 as
compared to $35,475,000 in the similar 1997 period, a decrease of $1,224,000 or
3.5%. Although certain of the Company's products were in high demand, overall
shipments remained soft. Business conditions within the textile industry
remained erratic and competition, both domestic and foreign, remains prevalent.
Overall Company gross margins for the quarter improved to 12.7% from
11.4% last year. Margins were aided by improved product mix, cost control
programs and increased efficiencies. In the 1997 quarter, a reduction in LIFO
inventory reserves arising from lower average FIFO cost levels benefited margins
in the amount of $300,000. In the current quarter, no adjustment to LIFO
inventory reserves were required.
Selling, general and administrative expenses in the current quarter
increased by $271,000 or 8.9%, and as a percentage of sales increased from 8.6%
to 9.7%. The increase was attributable principally to the acquisitions of Wiener
Lace and JBJ Fabrics operations subsequent to March 1, 1997.
(11)
<PAGE>
Interest and dividend income increased by $178,000 in the quarter, or
18.8%. The Company has realized gains from the sale of investment securities of
$399,000 compared to gains of $485,000 in the 1997 period.
As a result of these factors, quarterly net income increased to
$1,735,000, or 5.1% of sales, from $1,650,000 or 4.7% of sales in last year's
first quarter.
In the current quarter, 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 first quarter 1997 to conform to
the provisions of SFAS No. 128.
The computation of earnings per share was affected in the quarter by a
dilution of 52,909 average shares outstanding compared to 42,898 in the
comparable 1997 period. The effect of such dilution for both periods is
equivalent to $0.01 per share.
Basic earnings per share were $0.31 compared to $0.29 last year and
diluted earnings per share were $0.30 the current quarter compared to $0.28 last
year.
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 13
weeks ended February 28, 1998 amounted
(12)
<PAGE>
to $1,227,000 as compared to $1,830,000 in the comparable 1997 period. Of this
decrease, $2,851,000 relates to comparative changes in inventories which was
offset by $2,273,000 related to comparative changes in accounts payable,
accruals and other liabilities.
Capital expenditures for the quarter were approximately $2.1 million
compared to $815,000 in the 1997 period. The Company has purchased additional
knitting machines as well as dyeing and finishing equipment for its mills.
The Company declared a quarterly dividend of $0.175 per share, payable
April 24, 1998, to stockholders of record as of March 11, 1998.
Stockholders' equity was $138,708,000, or $24.39 per share at February
28, 1998, compared to $137,892,000, or $24.26 per share at the previous fiscal
year-end November 29, 1997, and $134,252,000, or $23.34 per share at the end of
the comparative 1997 first 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.
(13)
<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: April 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)
(14)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-END> FEB-28-1998
<CASH> 3,041
<SECURITIES> 66,175
<RECEIVABLES> 25,427
<ALLOWANCES> 1,000
<INVENTORY> 32,332
<CURRENT-ASSETS> 128,010
<PP&E> 115,312
<DEPRECIATION> 84,455
<TOTAL-ASSETS> 162,711
<CURRENT-LIABILITIES> 16,186
<BONDS> 539
<COMMON> 1,316
0
0
<OTHER-SE> 137,392
<TOTAL-LIABILITY-AND-EQUITY> 162,711
<SALES> 34,251
<TOTAL-REVENUES> 34,251
<CGS> 29,918
<TOTAL-COSTS> 29,918
<OTHER-EXPENSES> 3,309
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 2,532
<INCOME-TAX> 797
<INCOME-CONTINUING> 1,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,735
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
