SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 29, 2003
[_] 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Madison Avenue, New York, NY 10016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-592-2700
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $.20 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: Share Purchase
Rights
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of The Act)
Yes [_] No [X]
The aggregate market value at May 31, 2003 of shares of the
registrant's Common Stock, $.20 par value (based upon the closing price per
share of such stock on the Composite Tape for issues listed on the American
Stock Exchange), held by non-affiliates of the registrant was approximately
$33,000,000. Solely for the purposes of this calculation, shares held by
directors and executive officers of the registrant and members of their
respective immediate families sharing the same household have been excluded.
Such exclusion should not be deemed a determination or an admission by the
registrant that such individuals are, in fact, affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: At February 13,
2004, there were outstanding 5,215,031 shares of Common Stock, $.20 par value.
DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the registrant's
definitive proxy statement to be filed not later than 120 days after the end of
the fiscal year covered by this Annual Report on Form 10K pursuant to Regulation
14A are incorporated by reference in Items 10 through 14 of Part III of this
Annual Report on Form 10-K.
FAB INDUSTRIES, INC.
INDEX TO FORM 10-K
ITEM NUMBER PAGE
PART I.................................................................................1
Item 1. Business..............................................................1
Item 2. Properties............................................................4
Item 3. Legal Proceedings.....................................................6
Item 4. Submission of Matters to a Vote of Security-Holders...................6
PART II................................................................................7
Item 5. Market for Common Equity and Related Stockholder Matters..............7
Item 6. Selected Consolidated Financial Data..................................8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........15
Item 8. Financial Statements and Supplementary Data..........................15
Item 9. Changes in Disagreements with Accountants on Accounting and
Financial Disclosure............................................15
Item 9A Controls and Procedures..............................................16
PART III .............................................................................17
Item 10. Directors and Executive Officers....................................17
Item 11. Executive Compensation..............................................18
Item 12. Security Ownership of Certain Beneficial Owners and Management......18
Item 13. Certain Relationships and Related Transactions......................18
Item 14. Principal Accountant Fees and Services..............................18
PART IV...............................................................................19
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....19
PART I
ITEM 1. BUSINESS
Fab Industries, Inc. was incorporated on April 21, 1966, under the laws
of the State of Delaware and is a successor by merger to previously existing
businesses. References in this Annual Report to "Fab" or "us" or "our" or "the
Company" mean Fab Industries, Inc. and its subsidiaries on a consolidated basis,
unless the context otherwise requires.
We are a manufacturer of warp and circular knit fabrics, raschel
laces, and laminated fabrics. We also produce comforters, sheets, blankets and
other bedding products.
The Company's Board of Directors has determined that it is in the best
interests of its stockholders to sell the Company's textile business as a going
concern. In order to maximize stockholder value, the Board of Directors adopted
resolutions dated March 1, 2002 which authorized, subject to stockholder
approval, the sale of the Company's business pursuant to a Plan of Liquidation
and Dissolution (the "Plan"). The Company's stockholders approved the Plan at
the Company's annual meeting on May 30, 2002. The Plan provides the Company's
officers and directors will continue to operate the Company's textile business
in its current fashion and pursue a sale of the business as a going concern. The
Company's Board of Directors has approved the engagement of McFarland Dewey &
Co., LLC financial advisors in November 2002 to assist with the sale of the
business. The accompanying financial statements have been prepared on a going
concern basis. There can be no assurance, however, that the Company will be
successful in selling its business or if it does sell the business, that it will
be able to recover the full value of its assets, particularly its property,
plant and equipment. On August 1, 2003, and May 30, 2002 the Company's Board of
Directors declared a liquidating distribution of $4.00 per share and $10.00 per
share, respectively, which resulted in a payment to stockholders of $20,860,000
and $52,380,000 in August 2003 and June 2002, respectively. On February 18,
2004, the Company's Board of Directors declared a liquidating distribution of
$3.00 per share, to be payable on March 10, 2004, with a record date of February
28, 2004.
Pursuant to resolutions adopted by the Company's Board of Directors,
upon approval of the Plan by the stockholders on May 30, 2002 the Employee Stock
Ownership Plan (the ESOP) was terminated and all shares of common stock of the
Company then held in the ESOP suspense account (86,456 shares) were transferred
to the Company, and held as treasury stock, in exchange for the cancellation of
the outstanding loan in the amount of $3,957,000 from the Company to the ESOP.
The Company recorded the related treasury stock at fair market value on the date
of the termination, which resulted in a $2.4 million charge to additional
paid-in-capital.
Pursuant to resolutions adopted by the Company's Board of Directors and
documentation sent to and returned to the Company by option holders, effective
immediately following stockholder approval of the Plan on May 30, 2002, all
outstanding options under the Company's 1997 Stock Incentive Plan became vested,
and all options as to which optionees (including employees and directors) had
returned to the Company the appropriate forms (representing options held by all
but one optionee, who exercised via payment to the Company) were exercised
through the issuance of loans from the Company to the optionees, with stock of
the optionees held as collateral by the Company until the loans have been
satisfied. The amount loaned to the employees and directors to exercise their
options was approximately $1,495,000, which was all repaid prior to August 30,
2003. These options were subject to variable accounting at each reporting
period, until the loans were repaid. In June 2003, the Company repurchased
22,984 shares of its common stock at $9.48 per share from employees and
directors with outstanding loans from the Company and offset the related payment
against the loans due from such employees and directors, which were due as of
May 31, 2003 with a one month grace period. The Company purchased the number of
shares necessary for the employees and directors to pay off all outstanding
loans, including interest.
(1)
On October 23, 2003, Fab received a preliminary, non-binding offer from
a management-led buyout group to acquire the business, as a going concern, for
$19,556,366 (or $3.75 per share), subject to certain terms and conditions. The
offer contemplated that the management-led group would acquire all of the
assets, and assume all of the liabilities, of Fab, and assumed that Fab will not
make any further cash distributions. In connection with its receipt of the
management-led offer, Fab formed a Special Committee comprised solely of
independent directors to review the offer.
On November 26, 2003, the management-led buyout group offer to acquire
the business was withdrawn.
The Company is currently in compliance with the 40% limitation on
holding investment securities set forth in the Investment Company Act of 1940
and intends to remain in compliance with such requirements in the future.
OPERATIONS
Fab is a supplier of knitted fabrics and lace in the domestic textile
industry. The Company currently operates in three segments: (1) Apparel Fabrics,
(2) Home Fashions and Accessories, and (3) Other, consisting of the Gem Urethane
operation, the Over-the-Counter Retail operation, located at the Salisbury
Manufacturing facility, and Industrial Fabrics.
APPAREL FABRICS
The Company's textile fabrics are sold to a wide variety of
manufacturers of ready-to-wear and intimate apparel for women and children,
including dresses and sportswear, children's sleepwear, activewear, swimwear,
and recreational apparel.
These fabrics are sold and marketed through the Company's Warp Knit and
Circular Knit Business Units. The fabrics are sold primarily in piece dyed form,
as well as "PFP" (prepared for printing), and heat transfer printed
configurations.
Fab's raschel lace products are sold to manufacturers of intimate
apparel products consisting of lingerie, daywear, panty, bra and foundations,
ladies' sportswear, children's wear, swimwear, home furnishing, accessories, and
hobby and crafts.
The Company's laces are sold in both narrow and all-over constructions.
Narrow band laces are offered with scalloped or galloon edges in rigid and
stretch constructions. All-over laces are offered with either straight or
galloon edges in rigid and stretch constructions utilizing both spandex and
helenca nylon.
Fab's lace products are sold to manufacturers of intimate apparel
through the Raval Designer and Wiener Lace divisions. The Raval Lace division
sells and markets laces to manufacturers and jobbers of dresses and sportswear,
blouses, other related outwear industries, and to the home furnishing and
bedding industry.
The Company's subsidiary, SMS Textiles, Inc. ("SMS"), specializes in
wide elastic fabrics for sale to manufacturers of intimate apparel, swimwear,
athleticwear, and sportswear.
Fab's Lida Stretch Fabrics Division specializes in circular knit
products blending nylon, cotton, polyester, and rayon with spandex to create
stretch fabrics in a variety of constructions. These fabrics are sold as piece
and yarn dyes to the ready-to-wear, aerobicwear, swimwear, and intimate apparel
markets. The broad range of products includes jerseys, ribs, jacquards, and
failles.
The Company also offers a comprehensive line of heat transfer prints
for sleepwear, robewear, outerwear, and activewear applications.
(2)
HOME FASHIONS AND ACCESSORIES
The Company sells its fabrics and laces directly to manufactures in the
home fashion and bedding-related industries.
In addition, Fab utilizes its own fabrics and laces to internally
produce flannel and satin sheets, blanket products, comforters, and other
bedding-related products, which are sold to specialty stores, catalogue and mail
order companies and airlines through the Company's subsidiary, Salisbury
Manufacturing Corporation.
OTHER
Included in this segment is (1) Gem Urethane Corporation, (2) the
Over-the-Counter Retail operation, and (3) Industrial and other miscellaneous
non-apparel fabrics.
The Company's subsidiary, Gem Urethane produces a line of
ultrasonically, hot melt adhesive, flame and adhesive bonded products for
environmental, health care, industrial, and consumer markets.
In addition, Gem Urethane does toll laminating and converting for
these markets as well as a fire resistant fabric, Sandel(R), through its
subsidiary Sandel International, to the seating, transportation and military
markets.
Subsequent to year ended fiscal 2003,certain equipment was sold to a
customer which previously owned 50% of the equipment. The proceeds from the sale
amounted to $1,100,000. As a result, the customer at a future date will be doing
the production on its own.
The Company also sells its fabrics and laces to the over-the-counter
retail market through its retail manufacturing operation located at the
Salisbury Manufacturing plant. Internally produced fabrics and laces are
transported to the Salisbury Manufacturing facility where the fabrics and laces
are "doubled and rolled" on specialized equipment, packaged, and then shipped to
various over-the counter retail customers.
The Company also manufactures various engineered fabrics for specific
industrial and institutional end-uses, including Velcro-UBL (unbroken loop)
constructions, laminating and coating substrates, linings, and filtration.
GENERAL
We engage in research and product development activities to create new
fabrics and styles to meet the continually changing demands of our customers.
Direct expenditures in this area aggregated $1,999,000 in fiscal 2001,
$1,690,000 in fiscal 2002, and $850,000 in fiscal 2003. Through these efforts,
we have developed a full line of proprietary knitted fabrics for sale to
manufacturers of men's, women's, and children's apparel in both domestic and
foreign markets. Similarly, we have also developed a full line of flannel and
satin sheets and blankets, including specialty blankets for the airline and
health care institutions.
While we use various trademarks and trade names in the promotion and
sale of our products, we do not believe that the loss or expiration of any such
trademark or trade name would have a material adverse effect on our operations.
We market our products primarily through our full-time sales personnel,
as well as independent representatives located throughout the United States and
abroad.
We do not believe our backlog of firm orders is a material indicator of
future business trends because goods subject to such orders are shipped within
two to ten weeks depending on the availability of yarn and other raw materials.
On average, orders are filled within six weeks.
During fiscal 2003, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales. Our export sales are not
material.
(3)
SUPPLIES OF RAW MATERIALS
We have not experienced difficulties in obtaining sufficient yarns,
chemicals, dyes and other raw materials and supplies to maintain full
production. We do not depend upon any single source of supply, and alternative
sources are available for most of the raw materials used in our business.
INVENTORIES
We maintain adequate inventories of yarns and other raw materials to
ensure an uninterrupted production flow. Greige and finished goods are
maintained as inventory to meet varying customer demand and delivery
requirements. We must maintain adequate working capital, because credit terms
available to customers normally exceed credit terms extended to us by suppliers
of raw materials.
COMPETITION
Fab is engaged in a highly competitive global business which is based
largely upon price, product quality, service and general consumer demand for the
Company's finished goods. The portion of imported textile goods sold in the
United States has increased substantially in the past few years, adversely
impacting domestically manufactured textile products and the number of domestic
manufacturers of such products. Our sales have declined from approximately
$151,000,000 in 1998 to approximately $51,000,000 in 2003, largely as a result
of increased foreign competition.
SEGMENT INFORMATION
See Note 14 of the Notes to Consolidated Financial Statements.
EMPLOYEES
At February 13, 2004, the Company employed approximately 500 people, of
whom approximately 475 are employed by our subsidiaries. The employees are not
represented by unions. We consider relations with our employees to be
satisfactory. The number of our employees has declined from approximately 1,600
at the end of 1998 to approximately 500 on February 13, 2004.
ITEM 2. PROPERTIES.
The Company conducts its manufacturing operations in Lincolnton and
Salisbury, North Carolina, and Amsterdam, New York.
Yarn receiving and storage, dye and chemical receiving and storage,
knitting operations, and dyeing and finishing operations are conducted at the
Mohican Mills facility. These operations more specifically include tricot (warp
knit) and raschel warping, tricot knitting, raschel lace knitting, wide
elastic/stretch raschel knitting, circular and double-knit knitting, dyeing,
framing, surface finishing including sueding, napping, shearing, heat transfer
printing, lace separation, all facility-wide quality operations, laboratory
testing and certification, yielding, packaging, and shipping.
The Mohican Mills facility also processes and serves as a warehouse for
greige and finished fabrics and lace.
The Salisbury facility is the site of our consumer and institutional
finished products manufacturing, the Over-The-Counter Retail Operation, and the
Company's Mill Outlet Store.
The Gem Urethane plant in Amsterdam, New York utilizes approximately
106,000 square feet for production.
(4)
Fab closed two manufacturing plants, Travis Knits in Cherryville, North
Carolina and Adirondack Knitting in Amsterdam, New York, during the first week
of July 2001. The Adirondack Knitting Plant was on an operating lease which
expired at the time of closure. In addition, on November 16, 2001, Fab closed
its manufacturing plant in Maiden, North Carolina. The manufacturing operations
of each of these facilities were consolidated into the Company's Mohican Mills
facility located in Lincolnton, North Carolina. The Company is attempting to
sell its plants in Cherryville and Maiden, North Carolina.
Over the past two years, the Company has reduced the floor space of its
executive offices and showroom facilities in its New York City headquarters.
The following table sets forth the location of each of Fab's current
manufacturing facilities, its current principal use, if any, approximate floor
space and, where leased, the lease expiration date. There are no mortgages or
other encumbrances on any of our facilities. All the Company's operating
facilities are in good operating condition and repair.
APPROXIMATE LEASE
LOCATION PRINCIPAL USE FLOOR SPACE EXPIRATION DATE
-------- ------------- -------------- ---------------
Lincolnton, Dyeing and finishing, 630,550 sq. ft. (1)
North Carolina raschel and tricot knitting,
circular single and double knitting,
tricot and raschel warping, printing
and warehousing.
Lincolnton, North Carolina Warehouse 55,000 sq. ft. (1)
Maiden, North Carolina (3) 224,013 sq. ft. (1)
Salisbury, North Carolina Manufacturing finished consumer 125,000 sq. ft. (1)
and institutional products and
retail and over-the- counter
fabrics
Amsterdam, New York Laminated fabrics, fire fighting 106,000 sq. ft. (2)
material manufacturing
operations and bonding and
laminating
Cherryville, North Carolina (3) 197,000 sq. ft. (1)
New York, New York Executive offices and showroom 5,753 sq. ft. 7/31/05
facilities
(1) Company owned.
(2) The lease currently runs from month to month.
(3) These facilities were closed during 2001 and are currently subject to a
brokerage sale agreement. Manufacturing operations were consolidated into
Fab's Mohican Mills facility located in Lincolnton, North Carolina.
All of our facilities are constructed of brick, steel or concrete, and
we consider all facilities to be adequate and in good operating condition and
repair.
(5)
ITEM 3. LEGAL PROCEEDINGS.
On November 10, 2003, a class action complaint was filed against the
Company. The complaint asserts claims against the Company and certain of its
officers and directors based on the management buy-out proposal at a price
allegedly lower than the cash value and book value of the Company's shares which
was an allegedly interested transaction, the amendment to Mr. Bitensky's
employment contract discussed below in Item 7, and the Company's failure to file
a certificate of dissolution with the Delaware Secretary of State. The complaint
alleges such actions constitute violations of defendants' fiduciary duties, as
well as the provisions of the Delaware General Corporation Law. The complaint
does not seek a specific amount of damages, and seeks to enjoin defendants from
effectuating the planned management buyout. The Company served an answer to the
complaint on December 11, 2003.
On each of November 21 and November 26, 2003, additional class action
lawsuits were initiated against the Company, asserting substantially the same
allegations as those described above.
The Company believes that each of the claims described above is without
merit. Further, certain of the claims described above have been rendered moot by
the withdrawal of the preliminary offer by the management-led buyout group to
acquire the Company.
A number of other claims and lawsuits are pending against the Company.
It is impossible at this time for the Company to predict with any certainty the
outcome of such litigation. However, management is of the opinion, based upon
information presently available, that it is unlikely that any liability, to the
extent not provided for through insurance or otherwise, would be material in
relation to the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not Applicable
(6)
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Fab's Common Stock is traded on the American Stock Exchange, Inc.
(ticker symbol - FIT). The table below sets forth the high and low sales prices
of the Common Stock during the past two fiscal years.
FISCAL 2003 HIGH LOW
----------- ---- ---
First Quarter..................................... $ 9.00 $ 8.15
Second Quarter.................................... $ 9.75 $ 8.98
Third Quarter..................................... $ 11.25 $ 6.70
Fourth Quarter.................................... $ 7.50 $ 4.63
FISCAL 2002
-----------
First Quarter..................................... $ 18.70 $ 12.75
Second Quarter.................................... $ 19.05 $ 17.50
Third Quarter..................................... $ 8.67 $ 7.70
Fourth Quarter.................................... $ 9.00 $ 6.90
At February 3, 2004, there were approximately 683 holders of record
of Common Stock. On May 30, 2002, the Company's Board of Directors declared an
initial liquidating distribution of $10.00 per share, which was paid on June 24,
2002, with a record date of June 10, 2002. Accordingly, $52,380,000 was paid on
June 24, 2002. On August 1, 2003, the Company's Board of Directors declared a
second liquidating distribution of $4.00 per share, which was paid on August 22,
2003, with a record date of August 11, 2003. Accordingly, $20,860,000 was paid
on August 22, 2003.
The Company has terminated all of its stock option plans and as a
result there are no options outstanding or available for grant.
(7)
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(in thousands, except for share and per share data)
AS AT OR FOR THE FISCAL YEAR ENDED
-------------------------------------------------------------------------
NOVEMBER NOVEMBER DECEMBER DECEMBER NOVEMBER
29, 2003 30, 2002 1, 2001 2, 2000 (1) 27, 1999
Net Sales $51,173 $62,965 $80,036 $118,185 $128,889
Income (loss) before taxes (1,545) 3,010 (15,488) 4,178 (338)
on income (2)
Net income (loss) (2) (1,370) 1,970 (8,623) 3,033 517
Earnings (loss) per share:
Basic (.26) .38 (1.64) .57 .10
Diluted (.26) .38 (1.64) .57 .10
Total assets 58,075 81,229 131,528 151,412 152,178
Long-term debt -- -- 311 362 409
Stockholders' equity 48,929 64,571 113,503 123,855 123,788
Book value 9.38 12.33 21.79 23.45 22.91
per share (3)
Cash dividends per share 4.00 10.00 .40 .475 .70
Weighted average number of
shares outstanding:
Basic 5,226,902 5,222,812 5,258,353 5,336,958 5,414,687
Diluted 5,226,902 5,222,812 5,258,353 5,336,958 5,419,130
============================================================================================================
(1) Fifty-three week period.
(2) Fiscal year ended December 1, 2001 amounts include asset impairment and
restructuring charges of $14,530,000.
(3) Computed by dividing stockholders' equity by the number of shares
outstanding at year-end.
(8)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates are those which we believe require our
most significant judgments about the effect of matters that are inherently
uncertain. A discussion of our critical accounting estimates, the underlying
judgments and uncertainties used to make them and the likelihood that materially
different estimates would be reported under different conditions or using
different assumptions, is set forth below:
Accruals and Contingencies
We periodically assess the potential liabilities related to any lawsuits
or claims brought against us, as well as for other known unasserted claims,
including environmental, legal and tax matters. While it is typically very
difficult to determine the timing and ultimate outcome of these matters, we use
our best judgment to determine if it is probable that we will incur an expense
related to the settlement or final adjudication of such matters and whether a
reasonable estimation of such probable loss, if any, can be made. In assessing
probable losses, we make estimates of the amount of insurance recoveries, if
any. We accrue a liability when we believe a loss is probable and the amount of
the loss can be reasonably estimated, in accordance with the provisions of SFAS
No. 5, "Accounting for Contingencies," as amended. See Note 9 in the
accompanying financial statements for additional information concerning our
contingencies.
Given the inherent uncertainty related to the eventual outcome of these
matters and potential insurance recoveries, it is possible that all or some of
these matters may be resolved for amounts materially different from any
provisions or disclosures that we may have made with respect to their
resolution. In addition as new information becomes available, we may need to
reassess the amount of probable liability that needs to be accrued related to
our contingencies. All such revisions in our estimates could materially impact
our results of operations and financial position.
We maintain an accrual for workers compensation, which is classified as
other current liabilities in our consolidated balance sheets. We determine the
adequacy of the accrual by periodically evaluating our historical experience and
trends related to workers compensation claims and payments, information provided
to us by our insurance broker and industry experience and trends. If such
information indicates that our accrual is overstated or understated, we will
adjust the assumptions utilized in our methodologies and reduce or provide for
additional accruals as appropriate.
Revenue Recognition
We recognize our revenues upon shipment of the related goods. Allowances
for estimated returns are provided when sales are recorded.
Bad Debt
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
(9)
Impairment of Long-lived Assets
Whenever events or circumstances indicate that the carrying values of
long-lived assets (including property, plant and equipment) may be impaired, we
perform an analysis to determine the recoverability of the asset's carrying
value. The carrying value of the asset includes the original purchase price (net
of depreciation) plus the value of all capital improvements (net of
depreciation). If the analysis indicates that the carrying value is not
recoverable from future cash flows, we write down the asset to its estimated
fair value and recognize an impairment loss. The estimated fair value is based
on what we estimate the current sale price of the asset to be based on
comparable sales information or other estimates of the asset's value. Any
impairment losses we recognize are recorded as operating expenses. In 2001, we
recognized $13.2 million of impairment losses. We did not recognize any
impairment losses in 2002. In 2003, the Company reviewed assets held for sale
and determined an additional $685,000 was required.
We make estimates of the undiscounted cash flows from the expected
future operations of the asset. In projecting the expected future operations of
the asset, we base our estimates on future budgeted earnings before interest
expense, income taxes, depreciation and amortization, or EBITDA, and use growth
assumptions to project these amounts out over the expected life of the
underlying asset. If actual conditions differ from those in our assumptions, the
actual results of each asset's actual future operations could be significantly
different from the estimated results we used in our analysis. Our operating
results are also subject to the risks set forth under "Summary of Accounting
Policies - Risk and Uncertainties."
Results of Operations
FISCAL 2003 COMPARED TO FISCAL 2002
Net sales for the fiscal 2003 were $51,173,000 as compared to
$62,965,000 in fiscal 2002, a decrease of 18.7%. Since 1998, a flood of low-cost
foreign imports continued to take a sustained toll in the U.S. textile
manufacturing sector and negatively impacted segment decline in sales and
production
Apparel external sales for fiscal 2003 were $39.1 million, a decrease
of $12.2 million or 23.8%, as compared to $51.3 million for fiscal 2002.
Home Fashion and Accessories external sales for fiscal 2003 were $4.2
million compared to $4.7 million in fiscal 2002, a decrease of $0.5 million or
10.6%.
Other external sales for fiscal 2003 were $7.8 million, compared to
$7.0 million in fiscal 2002, an increase of $0.8 million or 11.4%.
The decreases in the apparel and home fashions segments were due to the
continued influx of low-cost foreign imports and continued weakness in the
domestic textile industry. The increase in other is due primarily to our
subsidiary, Gem Urethane Corporation.
The apparel and home fashions segments implemented measures beginning
in fiscal 2001 to reduce operating costs including a reduction in the number of
employees which reduced fixed overhead.
Gross margins as a percentage of sales decreased to 8.3% compared to
10.4% in the similar 2002 period. Lower sales volumes reduced operating
schedules at production facilities. Due to lower average FIFO cost levels, LIFO
inventory reserves decreased by $607,000 and $96,000 in fiscal 2003 and 2002,
respectively. Management is hopeful that gross margins will show an improvement
over last year's performance tempered, however, by the continuing deterioration
in domestic textile manufacturing due to foreign imports and currency valuations
issues.
(10)
Selling, general and administrative expenses decreased by $1,371,000,
or 18.6% as compared to fiscal year 2002. The decrease in expenses results
primarily from the reduction in the number of employees and related expenses,
moving its executive offices and showroom facilities to smaller premises in July
2002, and the continued effectiveness of the cost containment programs. The
decreases also resulted from the gain on sales of fixed assets totaling $443,000
and $817,000 for fiscal 2003 and 2002, respectively.
During fiscal 2003, the Company reviewed assets held for sale and
determined an additional charge of $685,000 was required.
For the fiscal year ended November 29, 2003, a charge of $1,659,000 was
recorded which represents certain amendments to the agreement with the Chief
Executive Officer. See Note 9 to the Consolidated Financial Statements.
In March 2002, the Company settled a dispute without admitting
liability for $750,000. See Note 16 to the Consolidated Financial Statements.
Apparel operating loss for fiscal 2003 was $4.6 million compared to an
operating loss of $0.7 million for fiscal 2002. Lower sales volume and lower
selling margins contributed to the increase in operating loss. In addition, the
financial results include other expenses of $1.7 million, which represents
agreement with the Chief Executive Officer (See Note 9). This was allocated
between segments with a majority included in the apparel segment (See Note 9).
The financial results include a charge for asset impairment of fixed assets
$685,000.
Home Fashion and Accessories operating loss for fiscal 2003 was $0.2,
compared to an operating loss of $1.1 million for fiscal 2002. In fiscal 2002,
the financial results includes a charge of $750,000 for settlement of a dispute
without admitting liability. See Note 16 to the Consolidated Financial
Statements.
Other segments operating income for fiscal 2003 was $0.7 million
compared to an operating income of $0.2 million for fiscal 2002. Higher margins
and reduction of costs increased operating income.
Interest and dividend income decreased by $1,134,000 or 47.0% as
compared to fiscal year 2002. On August 22, 2003, the Company distributed a
second liquidating distribution of $4.00 per share, or $20,860,000. Accordingly,
the Company had lower invested balances which were invested primarily in United
States Treasury Obligations resulting in lower risks and lower yields. The
Company realized gains from the sale of investment securities of $1,266,000 in
fiscal 2003 as compared to $2,179,000 in fiscal 2002.
The Company realized a tax benefit for fiscal 2003 which had an
effective tax rate of 11.3% as compared to an effective income tax rate of 34.6%
in the comparative 2002 period. See Note 8 to the Consolidated Financial
Statements.
As a result of these factors, the Company had a net loss of $1,370,000,
or $0.26 basic and diluted loss per share, as compared to net income of
$1,970,000, or $0.38 basic and diluted earnings per share in fiscal 2002.
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales for fiscal 2002 were $62,965,000 as compared to $80,036,000
in fiscal 2001, a decrease of 21.3%. The decrease was caused substantially by
lower volume as business conditions within the domestic textile industry
remained depressed, and low-cost foreign imports continued to take a toll on the
U.S. textile manufacturing sector. These factors have negatively impacted sales
and production.
Apparel external sales for fiscal 2002 were $51.3 million, a decrease
of $9.6 million or 15.8%, as compared to $60.9 million for fiscal 2001.
Home fashions and Accessories external sales for fiscal 2002 were $4.7
million, a decrease of $5.7 million or 55.0 %, as compared to $10.4 million for
fiscal 2001.
(11)
Other external sales for fiscal 2002 were $7.0 million, a decrease of
$1.8 million or 19.9%, as compared to $8.8 million for fiscal 2001.
The decreases across our segments were due to a flood of low-priced
imports from Asia, weak market conditions and a weak economy which has continued
to take a toll on the U.S. textile manufacturing sector.
The apparel and home fashions segments implemented measures beginning
in fiscal 2001 to reduce operating costs including a reduction in the number of
employees which reduced fixed overhead.
Gross margins as a percentage of sales increased to 10.4% from 1.9% as
compared to similar 2001 period. A more favorable product mix and the
consolidation of three manufacturing facilities, combined with a reduction in
costs due to employee terminations, a decrease in depreciation expense and other
related costs resulted in the higher margins. Due to lower average FIFO cost
levels, LIFO inventory reserves decreased by $96,000 and $1,518,000 in fiscal
2002 and fiscal 2001, respectively.
The financial results for the fiscal year ended December 1, 2001
include a charge of $14,530,000, which includes $13,230,000 for the writedown of
fixed assets to fair value less costs of disposal. Such fixed assets are
comprised of machinery and equipment from the knitting, dyeing, and finishing
activities of the business, and also include the building facilities in North
Carolina. The marketability of the assets held for disposal are subject to
worldwide economic conditions which can affect the sale of such buildings and
machinery. Additionally, for the fiscal year ended December 1, 2001, the Company
expended approximately $1,300,000 to remove and transfer machinery and equipment
to the Company's Mohican Mills facility which was included in the asset
impairment and restructuring charges.
Selling, general and administrative expenses decreased by $2,376,000,
or 24.4%, as compared to fiscal year 2001. The decrease in expenses resulted
primarily from the reduction in the number of employees and related expenses,
moving executive offices and showroom facilities to smaller premises and the
continued effectiveness of the cost containment programs. The decrease also
resulted from the gain on sale of fixed assets totaling $817,000 for fiscal
2002.
In March 2002, the Company settled a dispute without admitting
liability for $750,000. See Note 16 to the consolidated financial statements.
Apparel operating loss for fiscal 2002 was $0.7 million as compared to
a operating loss of $22.3 million for fiscal 2001. A more favorable product mix
and the consolidation of three manufacturing facilities, combined with a
reduction in costs resulted in higher margins. In fiscal 2001, the financial
results include a charge for impairment of fixed assets and restructuring
charges of approximately $13.8 million.
Home Fashions and Accessories operating loss for fiscal 2002 was $1.1
million compared to a operating income of $0.7 million for fiscal 2001. These
decreases were due primarily to lower sales volume. Additionally, in fiscal 2002
the financial results includes a charge of $750,000 for settlement of a dispute
without admitting liability. See Note 16 to consolidated financial statements.
Other segments operating income for fiscal 2002 was $0.2 million
compared to an operating loss of $1.1 million for fiscal 2001.Higher margins and
reduction of costs increased operating income. In fiscal 2001, the financial
results include a charge of approximately $750,000 for impairment of fixed
assets and a restructuring charge.
Interest and dividend income decreased by $1,876,000, or 43.7% as
compared to fiscal 2001. On June 24, 2002, the Company distributed an initial
liquidating distribution of $10.00 per share, or $52,380,000. Accordingly, the
Company had lower average invested balances which were invested primarily in
United States Treasury obligations resulting in lower risks and lower yields.
The Company realized gains from the sale of investment securities of $2,179,000
in fiscal 2002 as compared to $3,025,000 in fiscal 2001.
(12)
The effective income tax rate for fiscal 2002 was 34.6% compared to a
tax benefit of 44.3% for fiscal 2001. The fiscal 2001 tax benefit included
approximately $1.5 million of certain tax reserves recorded in prior years,
which were reversed in the fourth quarter of fiscal 2001 due to changes in
estimates for tax contingency items.
As a result of these factors, the Company generated net income of
$1,970,000, or $.38 basic and diluted per share in fiscal 2002. In fiscal 2001,
the Company had a net loss of $8,623,000 which included asset impairment and
restructuring charges of $9,590,000 net of income tax benefit. For fiscal 2001,
basic and diluted losses per share were $1.64, including asset impairment and
restructuring charges of $1.82 per share.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in fiscal 2003 amounted to
$3,313,000, as compared to $8,758,000 in fiscal 2002. Of this decrease, major
changes were as follows: $3,340,000 decrease in net income, $2,743,000 in
accounts receivable, $1,094,000 in inventories, $418,000 in compensation
relating to acceleration of stock options, and $216,000 to depreciation. These
decreases were offset by $685,000 in non-cash asset impairment, a decrease of
$913,000 in net gain on investment securities, $273,000 in other current and
other assets and $374,000 in net gain on disposition of fixed assets.
Net proceeds from sales of investment securities were $17,441,000
compared to $38,650,000 for fiscal 2002. For the fiscal year ended November 29,
2003, the Company used the proceeds for the second liquidating distribution of
$4.00 per share or $20,860,000. For the fiscal year ended November 30, 2002, the
Company used proceeds for the initial distribution of 10.00 per share, or
$52,380,000.
Stockholders' equity was $48,929,000, ($9.38 book value per share), at
November 29, 2003, as compared to $64,571,000, ($12.33 book value per share), at
the previous fiscal year November 30, 2002. The reduction in stockholders equity
was primarily due to the second liquidating dividend of $4.00 per share declared
on August 1, 2003 by the Company's Board of Directors, which was paid on August
22, 2003. This was partially offset by a re-classification of redeemable common
stock to non-redeemable common stock. The Company's plan of liquidation provides
the Company's officers and directors will continue to operate the Company's
textile business in its current fashion and pursue the sale of the business a
going concern. If the Company is not sold by May 2005, all assets will be
transferred to a liquidating trust. The liquidating trust would then succeed to
all our remaining assets, liabilities and obligations.
On February 18, 2004 the Company's Board of Directors declared a
liquidating distribution of $3.00 per share to be payable March 10, 2004 with a
record date of February 28, 2004,which is expected to total approximately $15.6
million.
In June 2003, the Company repurchased 22,984 shares of its common stock
at $9.48 per share from employees and directors with outstanding loans from the
Company and offset the related payment against the loans due from such employees
and directors, which were due as of May 31, 2003 with a one month grace period.
The Company purchased the number of shares necessary for the employees and
directors to pay off all outstanding loans, including interest.
Management believes that the Company's current financial position is
adequate to satisfying working capital requirements and to internally fund any
future expenditures to maintain its manufacturing facilities for the next twelve
months.
Inflation
Management does not believe that the effects of inflation have had a
significant impact during fiscal years 2003, 2002 and 2001.
(13)
COMMITMENTS
The Company and Mr. Bitensky amended the Employment Agreement between the
Company and Mr. Bitensky dated as of March 1, 1993 to provide that at such time
as the Company is sold or liquidated pursuant to the plan, in lieu of the annual
consulting fees due under such agreement over the five year consulting period
provided therein, Mr. Bitensky will receive a lump sum payment equal to the
aggregate net present value of each payment due under such an agreement, such
present value to be determined utilizing the prevailing prime rate at the time
of the payment as determined by the Board. Accordingly, the Company recorded a
charge of $856,000, which was included in other expense for the 52 weeks ended
November 29, 2003.
Such amendment to the Employment Agreement also provides that Mr. Bitensky
relinquishes his right under the terms of the original agreement to require the
Company to purchase upon his death approximately $10,000,000 of shares of common
stock from his estate. In consideration of Mr. Bitensky relinquishing such
right, the Company agreed to transfer to Mr. Bitensky ownership of the three
life insurance policies on Mr. Bitensky's life owned by the Company. The Company
transferred these policies having an aggregate cash surrender value at November
29, 2003 of approximately $803,000. Accordingly, the Company recorded a charge
of $803,000, which was included in other expenses for the 52 weeks ended
November 29, 2003.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not utilize off Balance Sheet arrangements.
AGGREGATE CONTRACTUAL OBLIGATIONS
The following table provided information as of November 29, 2003.
CONTRACTUAL OBLIGATIONS
(In Thousands)
------------------------------------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
------------------------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1-3 YEARS 3-5 YEARS
MORE THAN
1 YEAR (1) 5
YEARS
------------------------------------------------------------------------------------------------------------------------
Long - Term debt $ -- $ -- $ -- $ -- $ --
------------------------------------------------------------------------------------------------------------------------
Capital Lease Obligations -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------
Operating Leases 309 39 270 -- --
------------------------------------------------------------------------------------------------------------------------
Purchase Obligations -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------
Other Long-Term Liabilities Reflected on the 2,526 -- -- -- 2,526
Registrant's Balance Sheet under GAAP
------------------------------------------------------------------------------------------------------------------------
Total $ 2,835 $ 39 $ 2,526 $ -- $ --
------------------------------------------------------------------------------------------------------------------------
(1) On Feb.18, 2004 the Company's Board of Directors declared a liquidating
distribution of $3.00 per share to be payable on March 10, 2004 with a
record date of February 28, 2004, which is expected to total approximately
$15.6 million.
(14)
FORWARD-LOOKING INFORMATION
Certain statements in this report are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in our
communications and discussions with investors and analysts in the normal course
of business including, but not limited to, meetings, phone calls and conference
calls, regarding the sale of our assets pursuant to a plan of liquidation and
dissolution, as well as expectations with respect to future sales and operating
efficiencies prior to a sale of the company, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond our control and
which may cause actual results, performance or achievements to differ materially
from anticipated results, performances or achievements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may," "should," "expect," "anticipate," "estimate," "believe," "intend"
or "project" or the negative of them or other variations of them or comparable
terminology.
Factors that could have a material adverse effect on our operations and
future prospects include, but are not limited to: our ability to find qualified
buyers for our assets; overall economic and business conditions; our continuing
ability to support the demand for our goods and services; competitive factors in
the industries in which we compete; changes in government regulation; changes in
tax requirements (including tax rate changes, new tax laws and revised tax law
interpretations); interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; material contingencies
provided for in a sale of our assets; de-listing of our common stock from the
American Stock Exchange; our ability to retain key employees through any wind
down period; and any litigation arising as a result of our plan to wind down our
operations. These risks and uncertainties should be considered in evaluating any
forward-looking statements contained in the Form 10-K.
We undertake no obligation to update or revise a forward-looking
statement, whether as a result of new information, future events, or otherwise,
other than required by law.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Summary of Accounting Policies - Risks And Uncertainties" and
"-Investments" in the Consolidated Financial Statements attached hereto. See
also Note 2 of the Notes to Consolidated Financial Statements.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Consolidated Financial Statements Schedules
attached hereto.
ITEM 9 CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not Applicable
(15)
ITEM 9A. CONTROLS AND PROCEDURES
(A) DISCLOSURE CONTROLS AND PROCEDURES. Our Chief Executive Officer and
Chief Financial Officer have concluded, based on their evaluation, as of the end
of the period covered by this report, that our disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15(d)-15(e)) are (1) effective to ensure that material information required
to be disclosed by us in reports filed or submitted by us under the Securities
Exchange act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms, and (2)
designed to ensure that material information required to be disclosed by us in
such reports is accumulated, organized and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriated, to allow timely decisions regarding required disclosure.
(B) INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no changes in the
Company's internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934 , as
amended) that occurred during Fab's most recent quarter that has materially
affected, or is reasonably likely to materially affect Fab's internal control
over financial reporting.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems,
there is only reasonable assurance that our controls will succeed in achieving
their stated goals under all potential future conditions.
(16)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS
The Board of Directors of the Company is divided into three classes.
The directors of each class are elected by the holders of common stock, par
value $0.20 per share ("Common Stock"), at the annual meeting of stockholders in
the year in which the term of such class expires and will serve thereafter for
three years. The following table sets forth certain information with respect to
each director.
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE COMPANY OFFICE(1) SINCE
------------------------ ----------- --------------------------- -----------
Class I - Term will expire at the 2004 Annual Meeting of Stockholders:
Susan B. Lerner 48 Former Corporate Counsel 1997
of the Company.(2)
Richard Marlin 70 Attorney, member of the 1995
law firm of Kramer Levin
Naftalis & Frankel LLP.(3)
Class II - Term expires at the 2005 Annual Meeting of Stockholders:
Lawrence H. Bober 79 Retired, Vice Chairman of 1979
the Board, First New York
Bank for Business and
First New York Business
Bank Corp.(4)
Martin B. Bernstein 70 Chairman of Bedford 1998
Capital Corporation.(5)
Steven Myers 55 President, Chief Operating 2001
Officer and Secretary of
the Company.(6)
(17)
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE COMPANY OFFICE(1) SINCE
------------------------ ----------- --------------------------- -----------
Class III - Term expires at the 2006 Annual Meeting of Stockholders:
Samson Bitensky 84 Chairman of the Board of 1966
Directors and Chief
Executive Officer of the
Company.(7)
Frank S. Greenberg 73 Retired, Chairman of the 1998
Board of Directors and
Chief Executive Officer,
Burlington Industries,
Inc.(8)
------------------------------------
(1) Unless otherwise indicated, the directors' principal occupations have been
their respective principal occupation for at least five years.
(2) Ms. Susan B. Lerner is former Corporate Counsel of the Company. She was
Corporate Counsel from 1995 to 2002, Assistant Secretary of the Company
from May 1997 until May 2001 and Secretary of the Company from May 2001
until March 2002. From 1993 to 1995, she was president of the Company's
Raval Lace Division. Ms. Lerner is the daughter of Mr. Bitensky, Chairman
of the Board of Directors and Chief Executive Officer of the Company.
(3) Since 1979, Mr. Richard Marlin has been a member of the law firm of Kramer
Levin Naftalis & Frankel LLP ("Kramer Levin").
(4) Mr. Lawrence H. Bober is a retired Vice Chairman of the Board of First New
York Business Bank Corp. ("FNYBBC") and of First New York Bank for Business
(formerly, The First Women's Bank), a commercial bank and wholly-owned
subsidiary of FNYBBC, where he served from January 1988 until January 1991.
Prior to 1988 and for more than five years, Mr. Bober was a Senior Vice
President of Manufacturers Hanover Trust Company, a commercial bank.
(5) Mr. Martin B. Bernstein has been Chairman of Bedford Capital Corporation
("BCC") since July 31, 2001. BCC is a private equity company, engaged in
the acquisition of a variety of businesses. Mr. Bernstein was also the
Chief Executive Officer of Ponderosa Fibres of America, Inc. ("PFAI") from
1979 to 2001. PFAI is a member of a limited liability company or a
stockholder of a corporation that are partners of two partnerships which
have been reorganized under Chapter XI in fiscal 1999. PFAI filed a Chapter
XI proceeding in May of 2001. Thereafter, its assets were sold and it has
ceased operations. Mr. Bernstein is a member of the Board of Directors of
Empire Insurance Company and Allcity Insurance Company.
(6) Mr. Steven Myers served as Co-President and Chief Operating Officer of the
Company from May 1997 through July 2001. In August 2001, Mr. Myers became
President of the Company and also maintained the position of Chief
Operating Officer. In March 2002, Mr. Myers became Secretary of the
Company. Mr. Myers served as Vice President of the Company from May 1988 to
May 1997. He served as Vice President of Sales of the Company for more than
five years prior to May 1988. Mr. Myers is the son-in-law of Mr. Bitensky,
Chairman of the Board of Directors and Chief Executive Officer of the
Company.
(7) Mr. Samson Bitensky was one of the Company's founders in 1966 and has
served as Chairman of the Board of Directors and Chief Executive Officer of
the Company since such time. Mr. Bitensky also served as President of the
Company from 1970 until May 1, 1997.
(8) Mr. Frank S. Greenberg is a retired Chairman of the Board and Chief
Executive Officer of Burlington Industries, Inc., where he served from
October 1986 until February 1998.
(18)
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers of the Company as of the date hereof.
NAME AGE POSITIONS AND OFFICES
---- --- ---------------------
Samson Bitensky.................... 84 Chairman of the Board of
Directors and Chief Executive
Officer
Steven Myers....................... 55 President, Chief Operating
Officer and Director
David A. Miller.................... 66 Vice President-Finance,
Treasurer and Chief Financial
Officer
Jerry Deese........................ 52 Vice President-Controller of
Plant Operations
Sam Hiatt.......................... 56 Vice President-Sales
Each of our executive officers serves at the pleasure of the Board of
Directors and until his or her successor is duly elected and qualified.
Samson Bitensky was one of the Company's founders in 1966 and has
served as Chairman of the Board of Directors and Chief Executive Officer of the
Company since such time. Mr. Bitensky also served as President of the Company
from 1970 until May 1, 1997.
Steven Myers, an attorney, has been employed by the Company in various
senior administrative and managerial capacities since 1979. He served as Vice
President - Sales for more than five years prior to May 1988 and as Vice
President from May 1988 to May 1, 1997 and Co-President, Chief Operating Officer
from May 1, 1997 to November 27, 2001. On November 27, 2001, he became
President, Chief Operating Officer. He has been a director since 2001. Mr. Myers
is the son-in-law of Mr. Bitensky.
David A. Miller has been employed by the Company since 1966 and served
as Controller from 1973 until December 7, 1995, as Vice President - Finance and
Treasurer since December 7, 1995, and as Chief Financial Officer since May 1,
1997.
Jerry Deese has been employed by the Company in various senior
administrative and managerial capacities since 1978. Mr. Deese served as
Divisional Controller from 1994 until 1998 and has served as Vice
President-Controller of Plant Operations since May 12, 1998.
Sam Hiatt has been employed by the Company since 1978 and previously
had various management responsibilities in the warp knit area. He has served as
Vice President-Sales since May 12, 1998.
(19)
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT.
The Company has an audit committee (the "Audit Committee") composed of
Messrs. Bober, Greenberg and Marlin. The Board of Directors has determined that
Mr. Bober is an "audit committee financial expert" (as defined by the rules and
regulations of the Securities and Exchange Commission). Mr. Bober qualifies as
an audit committee financial expert as a result of his business experience
described under the heading "Directors and Executive Officers - Directors." The
Board of Directors has determined that Mr. Bober is independent pursuant to the
American Stock Exchange's (the "AMEX") listing standards as they relate to audit
committee members.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than ten percent of the Common Stock
to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with
the SEC. Directors, executive officers and greater than ten percent stockholders
are required by SEC regulations to furnish the Company with copies of all Forms
3, 4 and 5 that they file.
The Company believes that all of its directors, executive officers, and
greater than ten percent beneficial owners complied with all filing requirements
applicable to them in the fiscal year 2003.
CODE OF CONDUCT AND ETHICS
The Company has not yet adopted a code of conduct and ethics that
applies to the Company's principal executive officer, principal financial
officer and principal accounting officer. It is not yet required to have a code
of conduct and ethics under the AMEX listing standards. The Company intends to
adopt a code of conduct and ethics that complies with the AMEX listing standards
prior to the date required under the AMEX listing standards.
ITEM 11. EXECUTIVE COMPENSATION.
The Summary Compensation Table shown below sets forth certain
information concerning the annual and long-term compensation for services in all
capacities to the Company for the 2003, 2002 and 2001 fiscal years of those
persons (the "named executive officers") who were (i) the Chief Executive
Officer during fiscal 2003 and (ii) the other four most highly-compensated
executive officers of the Company who were serving as executive officers at the
end of the fiscal year ended November 29, 2003.
(20)
Summary Compensation Table
ANNUAL COMPENSATION
-------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS ($) COMPENSATION ($)(2)
----------------------------- ---- ------------ --------- -------------------
Samson Bitensky 2003 350,000 -- 5,100
Chairman of the Board of 2002 350,000 -- 5,100
Directors and Chief Executive 2001 320,832 -- 6,145
Officer
Steven Myers 2003 225,750 -- 5,100
President and Chief Operating 2002 212,000 5,000 5,100
Officer 2001 222,500 -- 7,435
Sam Hiatt 2003 209,750 -- 5,100
Vice President-Sales 2002 196,000 5,000 5,100
2001 204,167 -- 7,409
David A. Miller 2003 142,583 -- 4,290
Vice President, 2002 138,000 5,000 4,140
Finance, Treasurer and Chief 2001 145,000 -- 6,307
Financial Officer
Jerry Deese 2003 148,750 5,000 4,500
Vice President, 2002 135,000 5,000 4,050
Controller of Plant Operations 2001 134,167 20,000 5,714
------------------------------------
(1) Includes compensation deferred pursuant to the Company's qualified 401K
Money Option Savings Plan.
(2) Represents the amount of the Company's contribution under its Executive
Retirement Plan for Messrs. Bitensky, Myers and Hiatt and the Fab
Industries, Inc. Profit Sharing Plan for Messrs. Miller and Deese.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company did not make any individual grants of stock options or
stock appreciation rights during fiscal 2003 to any of the named executive
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
No named executive officer exercised options during fiscal 2003 nor
held any options to purchase shares of Common Stock as of November 29, 2003.
COMPENSATION OF DIRECTORS
During fiscal 2003, the directors who were not employees of the Company
earned the following annual directors fees: $20,000 to Mr. Bober; $15,000 each
to Messrs. Bernstein, Greenberg, Marlin and Ms. Lerner. In addition, each
non-employee director earned a fee of $1,000 for each Board of Director or
committee meeting that they attended (other than Executive Committee meetings).
No additional fee was paid for service on committees of the Board of Directors.
(21)
EMPLOYMENT AGREEMENT
The Company has only one employment agreement with a named executive
officer. Mr. Bitensky entered into an employment agreement with the Company
effective April 1, 1993, pursuant to which he is to perform the duties of its
Chief Executive Officer. The agreement provided it would expire on March 31,
1998, subject to automatic successive one year renewals unless either party
terminates on notice given not less than six months prior to the then expiration
date. The current expiration date is March 31, 2005. The agreement provides for
an annual base salary of $350,000, or such greater amount as the Board of
Directors may from time to time determine, and incentive compensation if the
Company's annual pre-tax income exceeds $10,000,000 equal to 3% of the Company's
annual pre-tax income up to $11,000,000 and 4% of such pre-tax income in excess
of $11,000,000. In the event of disability (as defined in the employment
agreement), compensation at the above rate is payable for the first year, and at
one-half such rate for the second year of such disability. Upon termination of
full-time employment other than by the Company for cause, Mr. Bitensky will be
retained to provide advisory and consulting services for a period of five years
for a fee of $250,000 per annum. In the event of the death of Mr. Bitensky while
employed or providing such consulting services, an amount equal to the average
one year total annual compensation paid to Mr. Bitensky, based upon the three
most recent full-time employment years, is payable to his beneficiaries over a
five-year period.
The Company and Mr. Bitensky amended the Employment Agreement between
the Company and Mr. Bitensky to provide that at such time as the Company is sold
or liquidated pursuant to the Plan of Liquidation and Dissolution, in lieu of
the annual consulting fees due under such agreement over the five year
consulting period provided therein, Mr. Bitensky will receive a lump sum payment
equal to the aggregate net present value of each payment due under such an
agreement, such present value to be determined utilizing the prevailing prime
rate at the time of the payment as determined by the Board of Directors. The
Employment Agreement was further amended to eliminate Mr. Bitensky's right under
the terms of the original agreement to require the Company to purchase upon his
death approximately $10,000,000 of shares of common stock from his estate. In
consideration of Mr. Bitensky relinquishing such right, the Company agreed to
transfer to Mr. Bitensky ownership of the three life insurance policies on Mr.
Bitensky's life owned by the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 25, 2004
(except as noted below) as to the shares of Common Stock beneficially owned by
each person known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding Common Stock.
(22)
PERCENT OF
NAME AND ADDRESS NUMBER OF SHARES OUTSTANDING COMMON
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) STOCK
------------------------------------ --------------------- ------------------
Samson Bitensky(2) 1,488,276(3) 28.5%
c/o Fab Industries, Inc.
200 Madison Avenue
New York, New York 10016
Private Capital Management, L.P., 948,469 18.1%
Bruce S. Sherman
Gregg J. Powers(4)
8889 Pelican Bay Blvd.
Naples, Florida 34108
Dimensional Fund Advisors Inc.(5) 306,781 5.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Esopus Creek Capital, LLC(6) 266,200 5.1%
Andrew Sole
Joseph Criscione
Ann Lauridsen
500 Fifth Avenue, Suite 2620
New York, NY 10110
------------------------------
(1) Except as otherwise indicated below, each of the persons listed in the
table owns the shares of Common Stock opposite his or its name and has sole
voting and dispositive power with respect to such shares of Common Stock.
(2) Under the rules and regulations of the SEC, Mr. Bitensky may be deemed a
"control person" of the Company.
(3) Includes 74,000 shares of Common Stock owned by the Halina and Samson
Bitensky Foundation, Inc. and 89,996 shares of Common Stock owned by Mr.
Bitensky's spouse. Mr. Bitensky disclaims beneficial ownership of the
shares owned by his spouse and by the Halina and Samson Bitensky
Foundation, Inc.
(4) Bruce S. Sherman is Chief Executive Officer of Private Capital Management,
L.P., a Florida limited partnership ("PCM"), and exercises shared voting
and dispositive power with respect to 948,469 shares of Common Stock held
by PCM on behalf of its clients. Gregg J. Powers is President of PCM and
exercises shared voting and dispositive power with respect to 919,169
shares of Common Stock held by PCM on behalf of its clients. Messrs.
Sherman and Powers disclaim beneficial ownership for the shares held by
PCM's clients and disclaim the existence of a group. This information is
derived solely from PCM's Schedule 13G, as amended, filed with the
Commission on February 13, 2004.
(5) Dimensional Fund Advisors Inc., a Delaware corporation ("Dimensional") and
an investment advisor registered under Section 203 of the Investment
Advisers Act of 1940, furnishes investment advice to four investment
companies registered under the Investment Advisers Act of 1940 and serves
as investment manager to certain other investment vehicles, including
commingled group trusts and separate accounts. In its role as investment
advisor or manager, Dimensional possesses voting and/or investment power
over the shares of Common Stock that are owned by these investment
companies and investment vehicles. Dimensional disclaims beneficial
ownership of all such shares. This information is derived solely from
Dimensional's Schedule 13G, as amended, filed with the Commission on
February 6, 2004.
(6) Esopus Creek Capital, LLC ("Esopus") is a New York limited liability
company formed to engage in the business of acquiring, holding and
disposing of investments in various companies. The address of the principal
offices of Esopus is 500 Fifth Avenue, Suite 2620, New York, NY 10110.
Esopus beneficially owns an aggregate of 226,200 shares of Common Stock.
(23)
Andrew Sole has a business address c/o Esopus Creek Capital, LLC, 500 Fifth
Avenue, Suite 2620, New York, NY 10110. Mr. Sole is a managing member of
Esopus. Mr. Sole beneficially owns an aggregate of 22,500 shares of Common
Stock.
Each of Joseph Criscione and Ann Lauridsen has a business address c/o
Esopus Creek Capital, LLC, 500 Fifth Avenue, Suite 2620, New York, NY
10110. Mr. Criscione and Ms. Lauridsen are husband and wife, and Mr.
Criscione is a managing member of Esopus. Mr. Criscione and Ms. Lauridsen
each report beneficial ownership of 17,500 shares of Common Stock
calculated as follows: 5,000 shares held jointly, 10,000 shares held by Mr.
Criscione in a self-directed IRA and 2,500 shares held by Ms. Lauridsen in
a self-directed IRA. Mr. Criscione disclaims beneficial ownership of 5,000
shares of Common Stock jointly owned by his mother and father. Ms.
Lauridsen disclaims beneficial ownership of 2,500 shares of Common Stock
owned by her mother.
This information is derived solely from the Schedule 13D filed with the
Commission by the reporting persons on March 5, 2004.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table sets forth certain information as of March 25, 2004
as to the shares of Common Stock beneficially owned by the Company's directors,
the named executive officers and the directors and executive officers of the
Company as a group.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED ON THE RECORD PERCENT OF OUTSTANDING COMMON
NAME OF BENEFICIAL OWNER DATE (1) STOCK
----------------------------------- -------------------------------- ------------------------------
Samson Bitensky 1,488,276(2) 28.5%
Martin B. Bernstein 3,744 *
Lawrence H. Bober 3,076 *
Frank S. Greenberg 500 *
Susan B. Lerner 64,514 1.2%
Richard Marlin 1,744 *
Steven Myers 92,556(3) 1.8%
Sam Hiatt 4,243 *
Jerry Deese 9,579 *
David A. Miller 9,536 *
All directors and executive
officers as a group (10 persons) 1,677,768 32.2%
------------------------------------
* Less than 1%
(1) Except as otherwise indicated below, each of the persons listed in the
table owns the shares of Common Stock opposite his or her name and has sole
voting and dispositive power with respect to the shares of Common Stock
indicated as being beneficially owned by him or her.
(2) See note 3 to the table set forth above under the heading "Security
Ownership of Certain Beneficial Owners" with respect to beneficial
ownership of these shares.
(3) Includes 48,370 shares of Common Stock owned by Beth B. Myers; 3,332 shares
owned by Jessica C. Myers in a custodial account under control of Beth B.
Myers; and 2,000 shares owned by Allison R. Myers in a custodial account
under the control of Beth B. Myers. Beth B. Myers is the daughter of Mr.
Bitensky, Chief Executive Officer of the Company, and the spouse of Steven
Myers, President and Chief Operating Officer of the Company. Jessica C.
Myers and Allison R. Myers are the minor daughters of Mr. and Mrs. Myers.
Mr. Myers disclaims beneficial ownership of the shares owned by his spouse
and minor daughters.
(24)
EQUITY COMPENSATION PLAN INFORMATION
As of November 29, 2003, there were no options to purchase common stock
outstanding or available for grant under any Company stock option plans. All
Company stock option plans have been terminated.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to resolutions adopted by the Company's Board of Directors,
effective immediately following stockholder approval of the Company's Plan of
Liquidation and Dissolution, all outstanding options under the Company's 1997
Stock Incentive Plan became vested, and all options with respect to which
optionees (including employees and directors) had returned to the Company the
appropriate forms were exercised through the issuance of loans from the Company
to the optionees. Each loan was evidenced by a full recourse promissory note
with a term of one year and an interest rate equal to 3.5% per annum. Each note
for a loan was secured by the Common Stock received by the optionee borrower
upon exercise of the options. The amount of the loans to the Company's executive
officers and directors were as follows: Bruce S. Chroback ($12,000), Jerry Deese
($32,125), Mark Goldberg ($21,000), Sam Hiatt ($12,000), David A. Miller
($32,125), Steven Myers ($30,860), Martin Bernstein ($11,500), Lawrence Bober
($11,500), Frank Greenberg ($11,500) and Richard Marlin ($11,500). Mr. Greenberg
repaid his loan obligations to the Company during fiscal 2002. The remaining
loans outstanding were retired when the Company retained an aggregate of 22,984
shares of Common Stock at an average fair market value of $9.48 per share from
employees and directors with outstanding loans, and offset the payment of the
purchase price of such Common Stock against the loans outstanding from such
employees and directors.
Kramer Levin, a law firm of which the Company's director Richard Marlin
is a member, was retained by a special committee of the Board of Directors in
October 2003 to provide legal services to the special committee in connection
with an offer to purchase the Company by members of management. The
representation ended December 2, 2003.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
For the fiscal years ended November 30, 2002 and November 29, 2003, BDO
Seidman, LLP ("BDO"), the Company's principal accountant, billed the Company
$100,000 and $90,000, respectively, for professional services rendered in
connection with the audit of the Company's financial statements included in the
Company's Annual Report on Form 10-K for such fiscal years. The amount of fees
that BDO billed for the review of the financial statements included in the
Company's Forms 10-Q for the fiscal years ended November 30, 2002 and November
29, 2003 was $12,000.
AUDIT-RELATED FEES
(25)
BDO did not bill the Company during fiscal 2002 or 2003 for any
assurance and related services reasonably related to their performance of the
audit or review of the Company that are not reported under "Audit Fees."
TAX FEES
In addition to the audit fees, the Company was billed by BDO $8,500 in
fiscal 2003 and expects to be billed by BDO in fiscal 2004 for professional
services rendered for tax compliance, tax advice and tax planning in connection
with the review of the Company's 2002 and 2003 tax returns, respectively.
ALL OTHER FEES
BDO did not bill the Company for any other fees in fiscal 2002 and 2003
other than those set for above.
PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee pre-approves all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services.
(26)
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements: See the Index to Consolidated Financial
Statements at page F-2.
(2) Financial Statement Schedules: See the Index to Consolidated
Financial Statements Schedules at page S-2.
(3) Exhibit List
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 - Restated Certificate of Incorporation, incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 27, 1993 (the "1993 10-K").
3.2 - Amended and Restated By-laws, incorporated by reference to Exhibit
3.2 to the 1993 10-K.
3.3 - Certificate of Amendment of Restated Certificate of Incorporation,
incorporated by reference to Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 3, 1994 (the
"1994 10-K").
3.4 - Amendments to the Amended and Restated By-laws, incorporated by
reference to Exhibit 3.4 of the Company's Annual Report on Form
10-K for the fiscal year ended November 29, 1997.
3.5 - Amendment to the Amended and Restated By-laws, incorporated by
reference to Exhibit 3.5 of the Company's Annual Report on Form
10-K for the fiscal year ended November 27, 1999.
4.1 - Specimen of Common Stock Certificate, incorporated by reference to
Exhibit 4-A to Registration Statement No. 2-30163, filed on
November 4, 1968.
4.2 - Rights Agreement dated as of June 6, 1990 between the Company and
Manufacturers Hanover Trust Company, as Rights Agent, which
includes as Exhibit A the form of Rights Certificate and as Exhibit
B the Summary of Rights to purchase Common Stock, incorporated by
reference to Exhibit 4.2 to the 1993 10-K.
4.3 - Amendment to the Rights Agreement between the Company and
Manufacturers Hanover Trust Company dated as of May 24, 1991,
incorporated by reference to Exhibit 4.3 to the 1993 10-K.
10.1 - Employment Agreement dated as of March 1, 1993, between the Company
and Samson Bitensky, incorporated by reference to Exhibit 10.2 to
the 1993 10-K.
(27)
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
10.2 - Fab Industries, Inc. Hourly Employees Retirement Plan (the
"Retirement Plan"), incorporated by reference to Exhibit 10.3 to
the 1993 10-K.
10.3 - Amendment to the Retirement Plan effective December 11, 1978,
incorporated by reference to Exhibit 10.4 to the 1993 10-K.
10.4 - Amendment to the Retirement Plan effective December 1, 1981,
incorporated by reference to Exhibit 10.5 to the 1993 10-K.
10.5 - Amendment to the Retirement Plan dated November 21, 1983,
incorporated by reference to Exhibit 10.6 to the 1993 10-K.
10.6 - Amendment to the Retirement Plan dated August 29, 1986,
incorporated by reference to Exhibit 10.7 to the 1993 10-K.
10.7 - Amendment to the Retirement Plan effective as of December 1, 1989,
incorporated by reference to Exhibit 10.8 to the 1993 10-K.
10.8 - Amendment to the Retirement Plan dated September 21, 1995,
incorporated by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 2, 1995 (the
"1995 10-K").
10.9 - Fab Lace, Inc. Employees Profit Sharing Plan (the "Profit Sharing
Plan"), incorporated by reference to Exhibit 10.9 to the 1993 10-K.
10.10 - Amendment to the Profit Sharing Plan effective December 1, 1978,
incorporated by reference to Exhibit 10.10 to the 1993 10-K.
10.11 - Amendment dated December 1, 1985 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.11 to the 1993 10-K.
10.12 - Amendment dated February 5, 1987 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.12 to the 1993 10-K.
10.13 - Amendment dated December 24, 1987 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.13 to the 1993 10-K.
10.14 - Amendment dated June 30, 1989 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.14 to the 1993 10-K.
10.15 - Amendment dated February 1, 1991 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.15 to the 1993 10-K.
10.16 - Amendment dated September 1, 1995 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.17 to the 1995 10-K.
10.17 - Lease dated as of December 8, 1988 between Glockhurst Corporation,
N.V. and the Company, incorporated by reference to Exhibit 10.16 to
the 1993 10-K.
(28)
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
10.18 - Lease Modification Agreement dated April 2, 1991 between Glockhurst
Corporation, N.V. and the Company, incorporated by reference to
Exhibit 10.17 to the 1993 10-K.
10.19 - Second Lease Modification Agreement dated May 23, 1996 between 200
Madison Associates, L.P. and the Company, incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1996.
10.20 - Third Lease Modification Agreement dated April 24, 2000 between 200
Madison Associates, L.P. and the Company, incorporated by reference
to Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 2001.
10.21 - Fourth Lease Modification Agreement dated April 11, 2002 between
200 Madison Associates, L.P. and the Company, incorporated by
reference to Exhibit 10.22 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 2002.
10.22 - Lease dated as of March 1, 1979 between City of Amsterdam
Industrial Development Agency and Gem Urethane Corp., incorporated
by reference to Exhibit 10.18 to the 1993 10-K.
10.23 - Lease dated as of January 1, 1977 between City of Amsterdam
Industrial Development Agency and Lamatronics Industries, Inc.,
incorporated by reference to Exhibit 10.19 to the 1993 10-K.
10.24 - Form of indemnification agreement between the Company and its
officers and directors, incorporated by reference to Exhibit 10.20
to the 1993 10-K.
10.25 - Fab Industries, Inc. Employee Stock Ownership Plan effective as of
Nov. 25, 1991, incorporated by reference to Exhibit 10.24 to the
1993 10-K.
10.26 - Amendment dated September 21, 1995 to the Employee Stock Ownership
Plan, incorporated by reference to Exhibit 10.27 to the 1995 10-K.
10.27 - Fab Industries, Inc. Non-Qualified Executive Retirement Plan dated
as of November 30, 1990, incorporated by reference to Exhibit 10.25
to the 1993 10-K.
10.28 - Form of loan agreement, dated May 30, 2002, entered into between
Fab Industries, Inc. and certain of its executive officers and
directors, incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 2002.
10.29 - Amendment dated July 25, 2003 to the Employment Agreement between
Fab Industries, Inc. and Samson Bitensky, incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
filed for the quarter ended August 30, 2003.
(29)
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
21 - Subsidiaries of the Company, incorporated by reference to Exhibit
21 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 2, 2000.
*31.1 - Certification of Samson Bitensky pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*31.2 - Certification of David A. Miller pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*32.1 - Certification of Samson Bitensky pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
*32.2 - Certification of David A. Miller pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
------------------------
* Filed herewith.
(b) Reports on Form 8-K.
The Company furnished on October 14, 2003 a report on Form 8-K
announcing its earnings for the 39 weeks and 13 weeks ended August
30, 2003.
The Company furnished on October 23, 2003 a report on Form 8-K
announcing that it had received a preliminary offer from
management-led buyout group to acquire the business, as a going
concern, for $19,556,366 (or $3.75 per share), subject to certain
terms and conditions.
The Company furnished on November 14, 2003 a report on Form 8-K
announcing a special committee of Fab's Board of Directors, which
was appointed on October 23, 2003, following receipt by Fab of a
management-led buy out group's preliminary non-binding offer for
all of Fab's assets, has begun to consider the offer and to review
various alternatives to maximize stockholder value. The report also
announces that on November 10, 2003 a stockholder filed a complaint
in Delaware Chancery Court, captioned Belanger v. Fab Industries
Inc. ET. AL. DEL. Ch., C.A. No. 054-N, naming as defendants Fab
Industries, Inc. and each of its directors, seeking class
certification, preliminary and permanent injunction against the
proposed management-led buy out, and unspecified damages.
The Company furnished on November 26, 2003 a report on Form 8-K
announcing that the management-led buyout group that had previously
made a preliminary offer to acquire the business, as a going
concern, has withdrawn its offer.
(30)
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED NOVEMBER 29, 2003, NOVEMBER 30, 2002 AND
DECEMBER 1, 2001
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED NOVEMBER 29, 2003, NOVEMBER 30, 2002,
AND DECEMBER 1, 2001
F-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-4
Statements of income F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
SUMMARY OF ACCOUNTING POLICIES F-8 - F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-16 - F-43
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Fab Industries, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Fab Industries,
Inc. and subsidiaries as of November 29, 2003 and November 30, 2002, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the fiscal years ended November 29, 2003, November 30, 2002, and
December 1, 2001. We have also audited the financial statement schedule listed
in the index on page S-2. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements and schedule.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in the summary of accounting policies, on March 1, 2002, the
Company's Board of Directors adopted resolutions which authorize, subject to
shareholder approval, the sale of the business pursuant to a plan of
liquidation. The Company's stockholders approved the Plan at the Company's
annual meeting on May 30, 2002.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fab Industries, Inc.
and subsidiaries at November 29, 2003 and November 30, 2002, and the results of
their operations and their cash flows for the fiscal years ended November 29,
2003, November 30, 2002, and December 1, 2001 in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/BDO SEIDMAN, LLP
-------------------
New York, New York
February 10, 2004, except for Note 17, as to which the date is February 18, 2004
F-3
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
NOVEMBER 29, 2003 NOVEMBER 30, 2002
----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents (Note 1) $ 3,397,000 $ 3,146,000
Investment securities available-for-sale (Note 2) 29,004,000 45,551,000
Accounts receivable, net of allowance of $900,000 and $1,000,000
for doubtful accounts 7,171,000 7,548,000
Inventories (Note 3) 5,531,000 8,386,000
Deferred income taxes (Note8) 506,000 --
Other current assets 701,000 867,000
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 46,310,000 65,498,000
PROPERTY, PLANT AND EQUIPMENT - NET (NOTE 4) 9,484,000 12,007,000
DEFERRED TAX ASSET (NOTE 8) -- 528,000
OTHER ASSETS (NOTE 7) 2,281,000 3,196,000
----------------------------------------------------------------------------------------------------------------
$58,075,000 $81,229,000
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 1,913,000 $ 2,858,000
Corporate income and other taxes 861,000 1,980,000
Accrued payroll and related expenses 763,000 903,000
Other current liabilities 1,106,000 940,000
Deferred income taxes (Note 8) -- 9,000
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,643,000 6,690,000
DEFERRED INCOME TAXES (NOTE 8) 52,000 --
OTHER NONCURRENT LIABILITIES (NOTE 7) 4,451,000 2,968,000
----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 9,146,000 9,658,000
----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 9)
REDEEMABLE COMMON STOCK (NOTE 9) -- 7,000,000
----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (NOTES 2, 6, 7, AND 9):
Preferred stock, $1 par value - shares authorized 2,000,000;
none issued -- --
Common stock, $.20 par value - shares authorized 15,000,000;
issued 6,724,944 and 6,724,944 1,345,000 1,345,000
Retained earnings 85,225,000 100,455,000
Accumulated other comprehensive gain (loss) (186,000) 229,000
Cost of common stock held in treasury - 1,509,913 and
1,486,929 shares (37,455,000) (37,237,000)
Notes receivable from stockholders (Note 6) -- (221,000)
----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 48,929,000 64,571,000
----------------------------------------------------------------------------------------------------------------
$58,075,000 $81,229,000
================================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
-------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED
-------------------------------------------------------------------------------------------------------------------------
NOVEMBER 29, 2003 NOVEMBER 30, 2002 DECEMBER 1, 2001
-------------------------------------------------------------------------------------------------------------------------
NET SALES (NOTE 14) $ 51,173,000 $62,965,000 $80,036,000
COST OF GOODS SOLD 46,918,000 56,412,000 78,518,000
-------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 4,255,000 6,553,000 1,518,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,001,000 7,372,000 9,748,000
ASSET IMPAIRMENT AND RESTRUCTURING CHARGES (NOTE 12) 685,000 -- 14,530,000
OTHER EXPENSES (NOTES 9 AND 16) 1,659,000 750,000 --
-------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (4,090,000) (1,569,000) (22,760,000)
-------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest and dividend income (Note 11) 1,279,000 2,413,000 4,289,000
Interest expense -- (13,000) (42,000)
Net gain on investment securities (Note 2) 1,266,000 2,179,000 3,025,000
-------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 2,545,000 4,579,000 7,272,000
-------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME (1,545,000) 3,010,000 (15,488,000)
INCOME TAX EXPENSE (BENEFIT) (NOTE 8) (175,000) 1,040,000 (6,865,000)
-------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (1,370,000) $ 1,970,000 $(8,623,000)
-------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE (NOTE 13):
Basic $ (.26) $ .38 $ (1.64)
Diluted $ (.26) $ .38 $ (1.64)
-------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER SHARE $ 4.00 $ 10.00 $ .40
=========================================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK LOAN TO ACCUMULATED
----------------------- ADDITIONAL EMPLOYEE OTHER
NUMBER PAID-IN RETAINED STOCK COMPREHENSIVE
TOTAL OF SHARES AMOUNT CAPITAL EARNINGS OWNERSHIP PLAN INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------------
Balance, December 2, 2000 $123,855,000 6,591,944 $1,319,000 $6,967,000 $154,947,000 $ (4,747,000) $ (297,000)
Net loss - fiscal 2001 (8,623,000) -- -- -- (8,623,000) -- --
Change in net unrealized
holding gain on
investment securities
available-for-sale, net
of taxes 631,000 -- -- -- -- -- 631,000
Total comprehensive loss (7,992,000) -- -- -- -- -- --
Cash dividends (2,100,000) -- -- -- (2,100,000) -- --
Purchase of treasury stock (1,050,000) -- -- -- -- -- --
Payment of loan from ESOP
(Note 7) 790,000 -- -- -- -- 790,000 --
------------------------------------------------------------------------------------------------------------------------------
Balance, December 1, 2001 113,503,000 6,591,944 1,319,000 6,967,000 144,224,000 (3,957,000) 334,000
Net Income - fiscal 2002 1,970,000 -- -- -- 1,970,000 -- --
Minimum pension liability
adjustment of $164,000,
net of tax benefit of
$59,000 (105,000) -- -- -- -- -- (105,000)
Total comprehensive income 1,865,000 -- -- -- -- -- --
Cash dividends (52,380,000) -- -- (6,641,000) (45,739,000) -- --
Acceleration of stock
options (Note 6) 418,000 -- -- 418,000 -- -- --
Exercise of stock options
(Note 6) 1,445,000 133,000 26,000 1,640,000 -- -- --
Purchase of treasury stock (280,000) -- -- 17,000 -- -- --
Termination of Employee
Stock Ownership Plan -- -- (2,401,000) -- 3,957,000 --
------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 2002 64,571,000 6,724,944 1,345,000 -- 100,455,000 -- 229,000
Net loss - fiscal 2003 (1,370,000) -- -- -- (1,370,000) -- --
Change in net unrealized
holding gain on
investment securities
available-for-sale, net
of taxes (223,000) -- -- -- -- -- (223,000)
Minimum pension liability
of $300,000 net of tax
benefit of $108,000 (192,000) (192,000)
Total comprehensive loss (1,785,000) -- -- -- -- -- --
Cash dividends (20,860,000) -- -- -- (20,860,000) -- --
Repayment of notes
receivable from
stockholders 221,000 -- -- -- -- -- --
Purchase of treasury stock (218,000) -- -- -- -- -- --
Reclass of redeemable
common stock to non
redeemable common stock 7,000,000 -- -- -- 7,000,000 -- --
------------------------------------------------------------------------------------------------------------------------------
Balance, November 29, 2003 $48,929,000 6,724,944 $1,345,000 -- $85,225,000 -- $ (186,000)
==============================================================================================================================
--------------------------------------------------------------------
TREASURY STOCK NOTES
------------------------ RECEIVABLE
NUMBER FROM
OF SHARES COST STOCKHOLDERS
--------------------------------------------------------------------
Balance, December 2, 2000 (1,310,458) $ (34,334,000) --
Net loss - fiscal 2001 -- -- --
Change in net unrealized
holding gain on
investment securities
available-for-sale, net
of taxes -- -- --
Total comprehensive loss -- -- --
Cash dividends -- -- --
Purchase of treasury stock (73,116) (1,050,000) --
Payment of loan from ESOP
(Note 7) -- -- --
--------------------------------------------------------------------
Balance, December 1, 2001 (1,383,574) $ (35,384,000) --
Net Income - fiscal 2002 --
Minimum pension liability
adjustment of $164,000,
net of tax benefit of
$59,000 --
Total comprehensive income --
Cash dividends --
Acceleration of stock
options (Note 6)
Exercise of stock options
(Note 6) (221,000)
Purchase of treasury stock (16,899) (297,000) --
Termination of Employee
Stock Ownership Plan (86,456) (1,556,000) --
--------------------------------------------------------------------
Balance, November 30, 2002 (1,486,929) (37,237,000) (221,000)
Net loss - fiscal 2003 -- -- --
Change in net unrealized
holding gain on
investment securities
available-for-sale, net
of taxes -- -- --
Minimum pension liability
of $300,000 net of tax
benefit of $108,000
Total comprehensive loss -- -- --
Cash dividends -- -- --
Repayment of notes
receivable from
stockholders -- -- 221,000
Purchase of treasury stock (22,984) (218,000) --
Reclass of redeemable
common stock to non
redeemable common stock -- -- --
--------------------------------------------------------------------
Balance, November 29, 2003 (1,509,913) $ (37,455,000) --
====================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 10)
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
NOVEMBER 29, NOVEMBER 30, DECEMBER 1,
FISCAL YEAR ENDED 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,370,000) $ 1,970,000 $ (8,623,000)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Provision for doubtful accounts 400,000 400,000 400,000
Depreciation and amortization 1,927,000 2,143,000 4,609,000
Deferred income taxes 214,000 38,000 (6,555,000)
Non-cash asset impairment and restructuring charges 685,000 -- 13,241,000
Compensation relating to acceleration of stock options -- 418,000 --
Net gain on investment securities (1,266,000) (2,179,000) (3,025,000)
Gain on disposition of fixed assets (443,000) (817,000) (261,000)
Decrease (increase) in:
Accounts receivable (23,000) 2,720,000 6,005,000
Inventories 2,855,000 3,949,000 7,083,000
Other current assets 166,000 750,000 922,000
Other assets 915,000 58,000 (333,000)
Increase (decrease) in:
Accounts payable (942,000) (804,000) (1,871,000)
Accruals and other liabilities 198,000 112,000 (1,518,000)
-----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,316,000 8,758,000 10,074,000
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (267,000) (225,000) (703,000)
Proceeds from sale of property and equipment 621,000 957,000 725,000
Proceeds from sales of investment securities 17,441,000 38,650,000 --
Acquisition of investment securities -- -- (15,681,000)
-----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 17,795,000 39,382,000 (15,659,000)
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock -- (280,000) (1,050,000)
Principal repayment on loan to employee stock ownership plan -- -- 790,000
Dividends (20,860,000) (52,901,000) (2,108,000)
Exercise of stock options -- 1,445,000 --
-----------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (20,860,000) (51,736,000) (2,368,000)
-----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 251,000 (3,596,000) (7,953,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,146,000 6,742,000 14,695,000
-----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,397,000 $ 3,146,000 $ 6,742,000
=============================================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
BUSINESS Fab Industries, Inc. (the "Company") is a
manufacturer of knitted apparel fabrics,
including laces and finished home products, as
well as laminated fabrics. The Company's sales
are primarily made to United States customers.
The Company's Board of Directors has determined
that it is in the best interests of its
stockholders to sell the Company's textile
business as a going concern. In order to
maximize stockholder value, the Board of
Directors adopted resolutions dated March 1,
2002, which authorized, subject to stockholder
approval, the sale of the Company's business
pursuant to a Plan of Liquidation and
Dissolution (the "Plan"). The Company's
stockholders approved the Plan at the Company's
annual meeting on May 30, 2002. The Plan
provides the Company's officers and directors
will continue to operate the Company's textile
business in its current fashion, and pursue a
sale of the business as a going concern. The
Company's Board of Directors has approved the
engagement of McFarland Dewey & Co., LLC
financial advisors in November 2002 to assist
with the sale of the business. The accompanying
financial statements have been prepared on a
going concern basis. There can be no assurance,
however, that the Company will be successful in
selling its business or if it does sell the
business, that it will be able to recover the
full value of its assets, particularly its
property, plant and equipment. On August 1, 2003
and May 30, 2002, the Company's Board of
Directors declared a liquidating distribution of
$4.00 per share and $10.00 per share,
respectively, which resulted in a payment to
stockholders of $20,860,000 and $52,380,000 in
August 2003 and June 2002, respectively.
The Company's plan of liquidation provides the
Company's officers and directors will continue
to operate the Company's textile business in its
current fashion and pursue the sale of the
business as a going concern. If the Company is
not sold by May 2005, all assets will be
transferred to a liquidating trust. The
liquidating trust would then succeed to all our
remaining assets, liabilities and obligations.
F-8
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
PRINCIPLES OF The financial statements include the accounts of
CONSOLIDATION the Company and its subsidiaries, all of which
are wholly owned. Significant intercompany
transactions and balances have been eliminated.
FISCAL YEAR The Company's fiscal year ends on the Saturday
closest to November 30.
Each of Fiscal 2003, 2002, and 2001 had
fifty-two weeks.
RISKS AND UNCERTAINTIES The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ
from those estimates and assumptions.
Financial instruments which potentially subject
the Company to concentrations of credit risk
consist principally of cash and cash
equivalents, investment securities, and trade
receivables. The Company places it cash and cash
equivalents with high credit quality financial
institutions. The Company is subject to credit
risk if brokers are unable to repay balances due
or deliver securities in their custody. By
policy, the Company limits the amount of credit
exposure to any one financial institution. The
Company has received confirmation indicating
that, with respect to investment securities,
each custodian with the exception of one
custodian maintains appropriate insurance
coverage. During fiscal 2003 and fiscal 2002,
that custodian had an average balance of
approximately $9.6 million and $13.3 million,
respectively, of the Company's cash under
investment which from time to time during such
periods was invested entirely in equity
securities. At November 29, 2003, that custodian
had approximately $7.8 million of the Company's
cash under investments, which were invested in
U.S. Treasury obligations. In August 2003, the
Company liquidated $2.5 million from that
custodian as part of the liquidating dividend.
The Company's investment policy currently
permits up to 50% of the Company's portfolio to
be held by the custodian.
Concentrations of credit risk with respect to
trade receivables are limited due to a diverse
group of manufacturers, wholesalers and
retailers to whom the Company sells. The Company
reviews a customer's credit history before
extending credit. The Company further reduces
its credit risk by factoring, without recourse,
a variable amount of trade receivables. As of
November 29, 2003 and November 30, 2002, 8% and
11%, respectively, of the accounts receivable
outstanding were due from factors.
ACCOUNTS RECEIVABLE AND
ALLOWANCE FOR DOUBTFUL The Company's accounts receivable are customer
ACCOUNTS obligations due under normal trade terms,
carried at their face value less an allowance
for doubtful accounts.
The Company evaluates its accounts receivable on
an ongoing basis and establishes an allowance
for doubtful accounts based on specific customer
circumstances and on its historical rate of
write-offs. The Company includes any accounts
receivable balances that are determined to be
uncollectible, along with a general reserve, in
an overall allowance for doubtful accounts.
After all attempts to collect a receivable have
failed, the receivable is written off against
the allowance. The Company believes the
allowance for doubtful accounts as of November
29, 2003 is adequate, however, actual write-offs
might exceed the recorded allowance.
F-9
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
CASH
EQUIVALENTS The Company considers all highly liquid debt
instruments with original maturities of three
months or less to be cash equivalents.
INVESTMENTS The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). SFAS No.
115 addresses accounting and reporting for
investments in equity securities that have
readily determinable fair values and for all
investments in debt securities. Investments in
such securities are to be classified as either
held-to-maturity, trading, or
available-for-sale. The Company classifies all
of its investments as available-for-sale. The
investments are recorded at their fair value and
the unrealized gain or loss, net of income
taxes, is recorded in stockholders' equity.
Gains and losses on sales of investment
securities are computed using the specific
identification method.
INVENTORIES Inventories are valued at the lower of cost or
market. For a portion of the inventories, cost
is determined by the last-in, first-out (LIFO)
method with the balance being determined by the
first-in, first-out (FIFO) method.
DERIVATIVE FINANCIAL The Company is party to equity option contracts
INSTRUMENTS HELD OR as part of its investing activities.
ISSUED Option contracts are contractual
agreements that give the purchaser the right,
but not the obligation, to purchase or sell a
financial instrument at a predetermined exercise
price. In return for this right, the purchaser
pays a premium to the seller of the option. By
selling or writing options, the Company receives
a premium and becomes obligated during the term
of the option to purchase or sell a financial
instrument at a predetermined exercise price if
the option is exercised, and assumes the risk of
not being able to enter into a closing
transaction if a liquid secondary market does
not exist.
In accordance with SFAS 133, the Company's
policy is to recognize all derivatives
instruments as either assets or liabilities on
the balance sheet at fair value. Changes in fair
value are recognized in the income statement in
the period in which they occur. Derivatives are
not used for trading purposes. Derivatives are
used to hedge against fluctuations in the market
value of equity securities.
F-10
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
PROPERTY, PLANT AND Property, plant and equipment are stated at
EQUIPMENT cost. Depreciation is computed using principally
the straight-line method. The range of estimated
useful lives is 15 to 33 years for buildings and
building improvements, 4 to 10 years for
machinery and equipment, 10 years for leasehold
improvements and 5 years for trucks and
automobiles.
LONG-LIVED ASSETS The Company reviews the carrying values of its
long-lived and identifiable intangible assets
for possible impairment whenever events or
changes in circumstances indicate that the
carrying amount of the assets may not be
recoverable. Any long-lived assets held for
disposal are reported at the lower of their
carrying amounts or fair value less cost to
sell. During fiscal 2003, the Company reviewed
assets held for sale and determined an
additional charge of $685,000 was required.
During fiscal 2001, the Company recorded asset
impairment and restructuring charges. See Note
12 of the notes to the financial statements.
RESEARCH AND Research and development costs are charged to
DEVELOPMENT COSTS expenses in the year incurred and amounted to
$850,000, $1,690,000, and $1,999,000 in fiscal
2003, 2002 and 2001, respectively.
ACCOUNTING FOR The Company applied Accounting Principles Board
STOCK-BASED COMPENSATION Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in
accounting for its various stock option plans.
The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" and SFAS No. 148,
"Accounting for Stock-Based
Compensation-Transition and Disclosure", which
was released in December 2002 as an amendment to
SFAS 123. In accordance with SFAS No. 148, the
following table illustrates the effect on net
income and earnings per share as if the Company
had applied the fair value recognition
provisions of SFAS No. 123. See Note 6 for
disclosure of assumptions utilized in the
calculation of fair value. The Company's stock
option plans were terminated subsequent to the
fiscal year ended November 30, 2002.
F-11
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
2003 2002 2001
---- ---- ----
(In thousands, except per share data)
Net Income (loss) as reported $(1,370) $1,970 $ (8,623)
Less: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects -- (130) (29)
------------------------------------
Pro forma net income (loss) $(1,370) $1,840 $ (8,652)
Basic and diluted net income (loss) per share-As reported $ (0.26) $0.38 $ (1.64)
Pro forma $ (0.26) $0.35 $ (1.65)
=========================================================================================================
TAXES ON INCOME The Company follows the liability method of
accounting for income taxes. Accordingly,
deferred income taxes reflect the net tax effect
of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and for income tax purposes.
EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is based on the
weighted average number of common shares
outstanding during the fiscal year. Diluted
earnings per share is based on the weighted
average number of common shares and dilutive
potential common shares outstanding during the
fiscal year. There were no dilutive potential
common shares outstanding in fiscal 2003. The
Company's dilutive potential common shares
outstanding during fiscal 2002 and 2001 resulted
entirely from dilutive stock options. For fiscal
2002 and 2001, potentially dilutive securities
that related to shares issuable upon the
exercise of stock options granted by the Company
were excluded, as their effect was antidilutive.
See Note 13 of notes to the financial
statements.
REVENUE RECOGNITION The Company recognizes its revenues upon
shipment of the related goods. Allowances for
estimated returns are provided when sales are
recorded.
F-12
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
EFFECT OF RECENTLY In July 2002, the FASB issued SFAS 146
ISSUED ACCOUNTING "Accounting for Restructuring Costs". SFAS 146
STANDARDS applies to costs associated with an exit
activity (including restructuring) or with a
disposal of long-lived assets. Those activities
can include eliminating or reducing product
lines, terminating employees and contracts, and
relocating plant facilities or personnel. Under
SFAS 146, a company will record a liability for
a cost associated with an exit or disposal
activity when that liability is incurred and can
be measured at fair value. SFAS 146 requires a
company to disclose information about its exit
and disposal activities, the related costs and
changes in those costs in the notes to the
interim and annual financial statements that
include the period in which an exit activity is
initiated and in any subsequent period until the
activity is completed. SFAS 146 is effective
prospectively for exit or disposal activities
initiated after December 31, 2002, with an
earlier adoption encouraged. Under SAFS 146, a
company may not restate its previously issued
financial statements and the new statement
grandfathers the accounting for liabilities that
a company had previously recorded under Emerging
Issues Task Force Issue 94-3. The adoption of
this statement did not have a material impact on
the Company's financial position or results of
operations.
In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees,
Including Guarantees of the Indebtedness of
Others, with addresses the accounting for and
disclosure of guarantees. Interpretation No. 45
requires a guarantor to recognize a liability
for the fair value of a guarantee at inception.
The recognition of the liability is required
even it is not probable that the payments will
be required under the guarantee. The disclosure
requirements are effective for interim and
annual financial statements ending after
December 15, 2002. The initial recognition and
measurement provisions are effective on a
prospective basis for guarantees issued or
modified after December 31, 2002. The Company's
adoption of Interpretation No. 45 did not have a
material effect on the Company's consolidated
financial statements.
F-13
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
In December 2002, the FASB issued SFAS No. 148
"Accounting for Stock Based Compensation -
Transaction and Disclosure". This Statement
amends SFAS No. 123, "Accounting for Stock Based
Compensation" to provide alternative methods of
transition for a voluntary change to fair market
value based method of accounting for stock-based
employee compensation. In addition, this
Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures
in both the annual and interim financial
statements about the method used on reported
results. The Statement has varying effective
dates commencing with interim periods beginning
after December 15, 2002. The Company plans to
continue using the intrinsic value method for
stock based compensation.
In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities. The objective of this
interpretation is to provide guidance on how to
identify a variable interest entity ("VIE") and
determine when the assets, liabilities,
noncontrolling interests, and results of
operations of a VIE need to be included in a
company's consolidated financial statements. A
Company that holds variable interests in an
entity will need to consolidate the entity if
the company's interest in the VIE is such that
the company will absorb a majority of the VIE's
expected losses and/or receive a majority of the
entity's expected returns if they occur.
Interpretation No.46 also requires additional
disclosures by primary beneficiaries and other
significant variable interest holders. The
Interpretation became effective upon issuance.
The Company's adoption of this interpretation
did not have an effect on its consolidated
financial statements.
F-14
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
In May 2003, the FASB issued SFAS No. 150,
"Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and
Equity". This statement affects the
classification, measurement and disclosure
requirements of the following three types of
freestanding financial instruments: 1)
mandatorily redeemable shares, which the issuing
company is obligated to buy back with cash or
other assets; 2) instruments that do or may
require the issuer to buy back some of its
shares in exchange for cash or other assets,
which includes put options and forward purchase
contracts; and 3) obligations that can be
settled with shares, the monetary value of which
is fixed, tied solely or predominately to a
variable such as a market index, or varies
inversely with the value of the issuers' shares.
In general, SFAS No. 150 is effective for all
financial instruments entered into or modified
after May 31, 2003, and otherwise is effective
at the beginning of the first interim period
beginning after Fiscal 2004. The Company's
adoption of SFAS No. 150 did not have an effect
on the Company's consolidated financial
statements.
RECLASSIFICATIONS Certain prior fiscal years' accounts have been
reclassified for comparative purposes.
F-15
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. CASH AND CASH Cash and cash equivalents at November 29, 2003 and
EQUIVALENTS November 30, 2002 consisted of the following
(in thousands):
2003 2002
--------------------------------------------------------------------------------
Cash $ 549 $ 526
Taxable and tax-free short-term
debt instruments 2,848 2,620
--------------------------------------------------------------------------------
$3,397 $3,146
================================================================================
2. INVESTMENT Investment securities available-for-sale at November
SECURITIES 29, 2003 and November 30, 2002 consisted of the
following (in thousands):
GROSS GROSS
UNREALIZED UNREALIZED
COST HOLDING GAIN HOLDING LOSS FAIR VALUE
--------------------------------------------------------------------------------
2003:
Equities $ 750 $ 17 $ -- $ 767
U.S. Treasury
obligations 27,519 418 -- 27,937
Corporate bonds 253 -- (250) 3
Money market 297 -- -- 297
--------------------------------------------------------------------------------
$28,819 $ 435 $(250) $29,004
================================================================================
2002:
Equities $ 750 $ -- $ -- $ 750
U.S. Treasury
obligations 32,411 617 -- 33,028
Corporate bonds 7,748 194 (254) 7,688
Money market 4,085 -- -- 4,085
--------------------------------------------------------------------------------
$44,994 $ 811 $(254) $45,551
================================================================================
F-16
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The carrying values and approximate fair values of
investments in debt securities available-for-sale, at
November 29, 2003 and November 30, 2002, by
contractual maturity are as shown below:
NOVEMBER 29, 2003 NOVEMBER 30, 2002
-------------------- -----------------------
COST FAIR VALUE COST FAIR VALUE
--------------------------------------------------------------------------------
Maturing in one $ 14,875 $ 14,978 $ 10,064 $ 10,067
year or less
Maturing after one
year through
five years 11,589 11,648 28,054 28,520
Maturing after
five years
through ten years -- -- 259 264
Ten years and over 1,308 1,314 1,782 1,865
--------------------------------------------------------------------------------
$ 27,772 $ 27,940 $ 40,159 $ 40,716
================================================================================
Gross and net realized gains and losses on sales of
investment securities were:
2003 2002 2001
--------------------------------------------------------------------------------
Gross realized gains $ 3,980 $ 6,653 $ 6,619
Gross realized losses (2,714) (4,474) (3,594)
--------------------------------------------------------------------------------
Net realized gain $ 1,266 $ 2,179 $ 3,025
================================================================================
Other comprehensive income (loss) for fiscal 2003,
2002, and 2001 consisted of the following (in
thousands):
2003 2002 2001
--------------------------------------------------------------------------------
Unrealized holding gains
arising during the year, net of
tax $ 537 $1,307 $2,446
Reclassification adjustment,
net of tax (760) (1,307) (1,815)
--------------------------------------------------------------------------------
Other comprehensive income
(loss), net of tax $(233) -- $ 631
================================================================================
F-17
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During Fiscal 2003, the Company invested a portion of
their securities in equity consisting of a portfolio
of Standard and Poor's 100 ("S&P 100") common stocks,
the fair value of which varies consistently with
changes in the S&P 100 index. To hedge against
fluctuations in the market value of the portfolio,
the Company has purchased short-term S&P 100 index
put options and sold short-term S&P 100 call options.
At November 29, 2003 and November 30, 2002, the
Company had no such investments, but will continue to
invest in such equities in the future.
Realized gains or (losses) on purchased short-term
S&P 100 index put options and sold short-term S&P 100
call options during fiscal 2003, 2002, and 2001 were
approximately $(874,000), $(1,463,000), and $925,000,
respectively.
The Company has agreements with various brokerage
firms to carry its account as a customer. The brokers
have custody of the Company's securities and, from
time to time, cash balances which may be due from
these brokers.
These securities and/or cash positions serve as
collateral for any amounts due to brokers or as
collateral for securities sold short or securities
purchased on margin. The securities and/or cash
positions also serve as collateral for potential
defaults of the Company.
F-18
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. INVENTORIES Inventories at November 29, 2003 and November 30,
2002 consisted of the following (in thousands, except
for percentages):
--------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------
Raw materials $ 1,446 $ 2,131
Work-in-process 1,867 2,717
Finished goods 2,218 3,538
--------------------------------------------------------------------------------
$ 5,531 $ 8,386
--------------------------------------------------------------------------------
Approximate percentage of
inventories valued under LIFO
method 61% 62%
--------------------------------------------------------------------------------
Excess of FIFO valuation over
LIFO valuation $ 1,007 $ 1,614
================================================================================
In fiscal 2003, 2002, and 2001 the liquidation of
certain LIFO layers increased cost of goods sold by
$925,000, $503,000, and $1,909,000 respectively. The
inventories in these LIFO layers were acquired at
higher costs than current costs.
F-19
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. PROPERTY, PLANT Property, plant and equipment at November 29, 2003
AND EQUIPMENT and November 30, 2002 consisted of the following (in
thousands):
2003 2002
--------------------------------------------------------------------------------
Land and improvements $ 682 $ 682
Buildings and improvements 7,323 8,377
Machinery and equipment 22,255 70,431
Trucks and automobiles 679 1,742
Office equipment 287 681
Leasehold improvements 548 929
Assets held for sale (Note 12) 2,013 2,786
--------------------------------------------------------------------------------
33,787 85,628
Less: Accumulated depreciation and
amortization 24,303 73,621
--------------------------------------------------------------------------------
$ 9,484 $ 12,007
================================================================================
5. OBLIGATIONS UNDER During fiscal 2002, the capital lease liability was
CAPITAL LEASES forgiven by the lessor, resulting in other income of
$339,000, which was included in selling, general and
administrative expenses for fiscal 2002.
F-20
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. STOCK STOCK OPTION PLAN
COMPENSATION
PLANS In May 2001 and May 1997, the Board of Directors
adopted and the shareholders approved two new stock
option plans providing for the grant of up to 200,000
shares and 175,000 shares of common stock,
respectively, at any time over the next ten years
from the date such plans were adopted. These stock
option plans have been terminated subsequent to the
fiscal year ended November 30, 2002.
Pursuant to resolutions adopted by the Company's
Board of Directors and documentation sent to and
returned to the Company by option holders, effective
immediately following stockholder approval of the
Plan, on May 30, 2002, all outstanding options under
the Company's 1997 Stock Incentive Plan became
vested, and all options as to which optionees
(including employees and directors) had returned to
the Company the appropriate forms (representing
options held by all but one optionee, who exercised
via payment to the Company) were exercised through
the issuance of loans from the Company to the
optionees, with stock of the optionees held as
collateral by the Company until the loans have been
satisfied. The amount loaned to the employees and
directors to exercise their options was approximately
$1,495,000, which was repaid as of June 13, 2003.
These options were subject to variable accounting at
each reporting period, until the related loans were
repaid. In June 2003, the Company repurchased 22,984
shares of its common stock at $9.48 per share from
employees and directors with outstanding loans from
the Company to offset the related payment of the
loans due from such employees and directors, which
were due as of May 31, 2003 with a one month grace
period. The Company purchased the number of shares
necessary for the employees and directors to pay off
all outstanding loans, including interest. In fiscal
2003 and 2002 no compensation costs was recorded
related to variable accounting since the market price
of the Company's stock did not change significantly
from the date the options were exercised to the date
the loans were repaid in fiscal 2003 and 2002. Based
on the acceleration of certain stock options, the
Company recorded a charge of approximately $418,000
to compensation expense and an increase to additional
paid-in capital in fiscal 2002. As of November 29,
2003 there were no outstanding options under either
of the 2001 stock option plan or the 1997 stock
option plan.
F-21
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
There were no options granted in fiscal 2003 and
2002.
The weighted average fair value of options granted
was $3.67 per share in fiscal 2001.
For purposes of pro forma disclosure, the estimated
fair value of the options are amortized to expense
over the vesting period of the options.
The fair value of each option grant is estimated on
the date of grant using the Black-Scholes
option-pricing model with the following assumptions
for fiscal 2001 grants:
--------------------------------------------------
Dividends $.40 to $.70 per share
Volatility 21.4% to 29.2%
Risk-free interest 4.54% to 5.00%
Expected term 1 to 10 years
--------------------------------------------------
F-22
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Data regarding the Company's stock option plan
follows:
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
-------------------------------------------------------------------------------
Shares under option, December 2, 2000 162,700 $12.47
Options granted 8,000 12.75
Options exercised -- --
Options canceled (27,500) (12.25)
-------------------------------------------------------------------------------
Shares under option, December 1, 2001 143,200 12.53
Options granted -- --
Options exercised (133,000) 12.51
Options canceled (10,200) 12.70
-------------------------------------------------------------------------------
Shares under option, November 30, 2002 -- --
-------------------------------------------------------------------------------
Shares under option, November 29, 2003 -- --
===============================================================================
-------------------------------------------------------------------------------
Options exercisable at:
December 01, 2001 47,280 12.72
November 30, 2002 -- --
November 29, 2003 -- --
===============================================================================
F-23
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. BENEFIT PLANS PROFIT SHARING PLANS
A qualified plan, which covers the majority of
salaried employees, provides for discretionary
contributions up to a maximum of 15% of eligible
salaries. The distribution of the contribution to the
Plan's participants is based upon their annual base
compensation. Contributions for fiscal 2003, 2002 and
2001 were $118,000, $144,000 and $181,000,
respectively.
The Company also has a nonqualified, defined
contribution retirement plan for key employees who
are ineligible for the salaried employees' qualified
profit sharing plan. Contributions for fiscal 2003,
2002 and 2001 were $41,000, $41,000 and $52,000,
respectively. Benefits payable under this plan
amounting to $1,925,000 and $1,898,000 at November
29, 2003 and November 30, 2002, respectively, are
included in other noncurrent liabilities. These
liabilities are fully funded by plan assets of equal
amounts, which are included in other assets.
PENSION PLAN
The Company maintains a non-contributory defined
benefit pension plan (Fab Industries, Inc. Hourly
Employees' Retirement Plan) which covers
substantially all hourly employees. The Plan provides
benefits based on the participants' years of service.
F-24
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following tables provide a reconciliation of the
changes in the Plan's benefit obligations and fair
value of assets and a statement of the funded status
of the Plan for fiscal 2003 and 2002:
2003 2002
-----------------------------------
RECONCILIATION OF THE BENEFIT OBLIGATION
Obligation at beginning of year $3,312,000 $3,513,000
Service cost 163,000 177,000
Interest cost 218,000 246,000
Amendments - 51,000
Curtailment - 27,000
Actuarial loss 355,000 267,000
Benefit payments (785,000) (969,000)
-----------------------------------
Obligation at end of year $3,263,000 $3,312,000
===================================
2003 2002
-----------------------------------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year $2,477,000 $3,855,000
Actual return on plan assets (net of expenses) 137,000 (409,000)
Benefit payments (785,000) (969,000)
-----------------------------------
Fair value of plan assets at end of year $1,829,000 $2,477,000
===================================
2003 2002
-----------------------------------
FUNDED STATUS
Funded status $(1,434,000) $(835,000)
Unrecognized prior service cost 256,000 293,000
Unrecognized actuarial loss 464,000 164,000
-----------------------------------
Net amount recognized $(714,000) $(378,000)
===================================
F-25
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following table provides the amounts recognized in the consolidated
balance sheets as of November 29, 2003 and November 30, 2002:
2003 2002
----------------------------------
Accrued benefit liability (included in other $ (1,434,000) $ (835,000)
noncurrent liabilities)
Intangible pension asset (included in other assets) 256,000 293,000
Accumulated other comprehensive loss (Net of tax
effect below) 297,000 105,000
Deferred tax asset 167,000 59,000
----------------------------------
Net amount recognized $ (714,000) $ (378,000)
==================================
The following table provides the components of the net periodic
(benefit) cost for the Plan for fiscal 2003 and 2002:
2003 2002
----------------------------------
Service cost $ 163,000 $ 177,000
Interest cost on projected benefit obligation 218,000 246,000
Expected return on plan assets (191,000)
(300,000)
Amortization of prior service cost 37,000 45,000
Amortization of net gain --
(35,000)
Recognized loss due to curtailment and settlement 109,000 161,000
----------------------------------
Net periodic pension cost $ 336,000 $ 294,000
==================================
Prior service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and
losses in excess of 10% of the greater of the benefit obligations and
the market-related value of assets are amortized over the average
remaining service period of active participants.
The weighted average assumptions used in the measurement of the
Company's benefit obligations for fiscal 2003 and 2002 are shown in the
following table:
2003 2002
---------------------------------
Discount rate 6.25% 6.75%
Expected return on plan assets 8.00% 8.00%
F-26
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
EMPLOYEE STOCK OWNERSHIP PLAN
The Company had an Employee Stock Ownership Plan
("ESOP") which covered all full-time employees who
have completed one year of service. In 1991, the ESOP
purchased 340,000 shares of common stock from the
Chairman of the Board of Directors and President of
the Company for $34.875 per share, which represented
5.5% of the Company's then outstanding common stock.
The ESOP was funded by the Company, pursuant to a
loan pledge agreement for $11,857,000. The loan was
payable by the ESOP to the Company from contributions
to be made in fifteen equal annual principal
installments plus interest at the prime rate.
Employee rights to the common shares vest over a
seven-year period and are payable at retirement,
death, disability or termination of employment.
The Company accounted for the ESOP shares in
accordance with the provisions of the American
Institute of Certified Public Accountants' Statement
of Position No. 76-3. ESOP contributions were
recorded for financial reporting purposes as the ESOP
shares became allocable to the plan participants. All
ESOP shares were considered outstanding in the
determination of earnings (loss) per share.
Pursuant to resolutions adopted by the Company's
Board of Directors, upon approval of the Plan by the
stockholders on May 30, 2002 Employees Stock
Ownership Plan (the ESOP) was terminated and all
shares of common stock of the Company then held in
the ESOP suspense account (86,456 shares) were
transferred to the Company, and held as treasury
stock, in exchange for the cancellation of the
outstanding loan in the amount of $3,957,000 from the
Company to the ESOP. The Company recorded the related
treasury stock at the fair market value on the date
of the termination, which resulted in a $2.4 million
charge to additional paid-in-capital in fiscal 2002.
For fiscal 2001, the portion of the common stock
dividends declared relating to ESOP shares totaled
$104,000. Of this amount, $65,000 related to
allocated shares and $39,000 related to unallocated
shares. The dividends related to the unallocated
shares was applied towards the $790,000 annual
principal installments referred to above. There were
no common stock dividends declared relating to ESOP
shares for fiscal 2002.
F-27
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The net charge to earnings for fiscal 2001 were as
follows (in thousands):
2001
-----------------------------------------------
Contribution to ESOP $1,048
Less: Interest income on loan
to ESOP 296
-----------------------------------------------
Net charge to earnings $ 752
===============================================
The contribution to the ESOP was allocated between
costs of goods sold and operating expenses. The
interest income was included in interest and dividend
income.
There was no charge to earnings for fiscal 2003 or
2002.
8. INCOME TAXES Provisions (benefits) for Federal, state
and local income taxes for fiscal 2003,
2002 and 2001 consisted of the following
components (in thousands):
2003 2002 2001
-----------------------------------------------------
Current:
Federal $ 313 $ 479 $ (469)
State and local 150 100 159
-----------------------------------------------------
463 579 (310)
Deferred:
Federal and state (638) 461 (6,555)
-----------------------------------------------------
$ (175) $1,040 $ (6,865)
=====================================================
F-28
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The net deferred tax liability at November 29, 2003
and November 30, 2002 consisted of the following (in
thousands):
2003 2002
-------------------------------------------------------------------------
Long-term portion:
Deferred tax liability (asset) for:
Depreciation $ 1,577 $ 619
Employee Benefit Plans (1,360) (1,118)
Pension obligation (167) (59)
Other 2 30
-------------------------------------------------------------------------
Net long-term liability (asset) 52 (528)
-------------------------------------------------------------------------
Current portion:
Deferred tax liability (asset) for:
Allowance for doubtful accounts (337) (204)
Net unrealized gain
on investment securities 74 249
Other (243) (36)
-------------------------------------------------------------------------
Net current liability (asset) (506) 9
-------------------------------------------------------------------------
Net deferred tax asset $ (454) $ (519)
=========================================================================
F-29
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The provision (benefit) for income taxes differed
from the amount computed by applying the statutory
federal income tax rate of 34.0% for fiscal 2003,
2002 and 2001 to income (loss) before income taxes
due to the following:
2003 2002 2001
--------------------------------------------------------------------
(Tax effect in thousands)
Federal tax expense
(benefit) at statutory rate $ (525) $ 513 $(5,266)
State and local income taxes,
net of Federal benefit 99 66 105
Tax-free interest income and
dividends received deduction (59) (119) (147)
Change in estimates for tax
contingency and other 310 580 (1,557)
--------------------------------------------------------------------
Income tax expense (benefit) $(175) $1,040 $(6,865)
=====================================================================
In the fourth quarter of fiscal 2001, the Company
reversed approximately $1.5 million of certain tax
reserves recorded in prior years, due to changes in
estimates for tax contingency items.
F-30
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
9. COMMITMENTS AND EMPLOYMENT AGREEMENT
CONTINGENCIES
The Company and Mr. Bitensky amended the employment
agreement between the Company and Mr. Bitensky dated
as of March 1, 1993 to provide that at such time as
the Company is sold or liquidated pursuant to the
Plan, in lieu of the annual consulting fees due under
such an agreement over the five year consulting
period provided therein, Mr. Bitensky will receive a
lump sum payment equal to the aggregate net present
value of each payment due under such agreement, such
present value to be determined utilizing the
prevailing prime rate at the time of the payment, as
determined by the Board. Accordingly, the Company
recorded a charge of $856,000, which was included in
other expense for fiscal 2003
Such amendment to the employment agreement also
provides that Mr. Bitensky relinquishes his right
under the terms of the original agreement to require
the Company to purchase upon his death shares of
common stock from his estate equal to the lessor of
$7 million or 10% of the book value of the Company at
the end of the year immediately following his death,
plus $3 million in proceeds from insurance on his
life for which the Company was beneficiary. In
consideration of Mr. Bitensky's relinquishing the
right to have the Company repurchase approximately
$10 million of shares of common stock from his
estate, the Company agreed to transfer to Mr.
Bitensky ownership of the three life insurance
policies on Mr. Bitensky's life owned by the Company.
The Company transferred these policies having an
aggregate cash surrender value at November 29, 2003
of approximately $803,000. Accordingly, the Company
recorded a charge of $803,000, which was included in
other expenses and reclassified the $7 million in
redeemable common stock to retained earnings in
fiscal 2003.
F-31
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
LEASE
The Company leases its New York City offices and showrooms until 2005,
at average minimum annual rentals of $136,000 plus escalation and other
costs.
Rental expense for operating leases in fiscal 2003, 2002 and 2001
aggregated $297,000, $495,000 and $679,000, respectively.
Future minimum annual payments over the remaining noncancellable term
of the Company's New York City operating lease are as follows:
FISCAL YEAR ENDING (IN THOUSANDS)
-----------------------------------------------------------------------
2004 $135
2005 91
-----------------------------------------------------------------------
$226
=======================================================================
LITIGATION
On November 10, 2003, a class action suit was filed against the
Company. The complaint asserts claims against the Company and certain
of its officers and directors based on the management buy-out proposal
at a price allegedly lower than the cash value and book value of the
Company's shares and which was an allegedly interested transaction, the
amendment to Mr. Bitensky's employment contract, the Company's failure
to seek stockholder approval for the management buyout and the
Company's failure to file a certificate of dissolution with the
Delaware Secretary of State. The complaint alleges such actions
constitute violations of defendants fiduciary duties, as well as the
provisions of the Delaware General Corporation Law.
The complaint does not seek a specific amount of damages, and seeks to
enjoin defendants from effectuating the planned management buyout. The
Company served an answer to the complaint on December 11, 2003.
On each of November 21 and November 26, 2003 class action lawsuits were
initiated against the Company asserting the same allegations as those
described above.
The Company believes that each of the claims described above is without
merit. Further, certain of the claims described above have been
rendered moot by the withdrawal of preliminary offer by the
management-led buyout to acquire the Company.
F-32
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
A number of claims and lawsuits are pending against the Company. It is
impossible at this time for the Company to predict with any certainty
the outcome of such litigation. However, management is of the opinion
based upon information presently available, that it is unlikely that
any liability, to the extent not provided for through insurance or
otherwise, would be material in relation to the Company's consolidated
financial position, or results of operations.
OTHER
The Company had a letter of credit with its insurance provider for $1.0
million as of November 29, 2003, subsequently reduced to $400,000.
10. STATEMENT OF Cash outlays for corporate income taxes and
CASH FLOWS interest for fiscal 2003, 2002 and 2001 were as
follows (in thousands):
CORPORATE INCOME
TAXES INTEREST
-----------------------------------------------------
2003 $ 538 $ --
2002 156 13
2001 438 42
=====================================================
NONCASH INVESTING AND FINANCING ACTIVITIES
In fiscal 2003, 2002 and 2001, net unrealized holding
gains (losses) of $(372,000), $0 and $1,051,000,
respectively, less related income taxes of
$(149,000), $0, and $420,000, on investment
securities available-for-sale, were recorded as
increases (decreases) in stockholders' equity.
In June 2003, the Company repurchased 22,984 shares
of its common stock at $9.48 per share from employees
and directors in exchange for its notes receivable
from those individuals.
F-33
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
11. INTEREST AND Interest and dividend income for the past three
DIVIDEND INCOME fiscal years were as follows (in thousands):
INTEREST INCOME DIVIDEND INCOME TOTAL
--------------------------------------------------
2003 $1,089 $190 $1,279
2002 $2,164 $249 $2,413
2001 4,123 166 4,289
==================================================
12. ASSET In the third quarter of fiscal 2003, the Company
IMPAIRMENT reviewed assets held for sale and determined an
AND additional charge of $685,000 was required.
RESTRUCTURING
CHARGES In the second quarter of fiscal 2001, the Company
implemented a restructuring plan to consolidate
several manufacturing facilities. As a result the
Company's fiscal year ended December 1, 2001
financial results include a charge for impairment of
fixed assets held for sale of $5,958,000 for the
writedown of fixed assets held for disposal to their
fair value less costs to dispose. The consolidation
of manufacturing facilities is an effort to restore
the operations to an acceptable level of
profitability by eliminating over-capacities at the
manufacturing level in response to the continued
weakness in the economy and market conditions that
have adversely affected the domestic textile
industry.
The fixed assets held for disposal are comprised of
buildings, machinery and equipment from the knitting,
dyeing and finishing activities of the business. The
marketability of the assets held for disposal are
subject to worldwide economic conditions which can
affect the sale of such buildings and machinery.
During the fiscal year ended December 1, 2001, the
Company had expended approximately $1,300,000 to
remove and transfer machinery and equipment to the
Company's Mohican Mills facility as part of the
consolidation of the Company's manufacturing
facilities.
As a result, in accordance with FAS 121, the Company
reviewed long-lived assets to be held and used for
impairment and, in the fourth quarter of 2001,
recorded an impairment charge of approximately
$7,272,000 relating to fixed assets.
The Company continues to utilize the majority of its
remaining property, plant, and equipment, however,
there can be no assurance that the Company will sell
its assets or if it does sell its assets, that it
will be able to recover the full value of its assets,
particularly its property, plant and equipment
F-34
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
13. EARNINGS (LOSS) Basic and diluted earnings (loss) per share for
PER SHARE the fiscal years ended November 29, 2003, November
30, 2002 and December 1, 2001 are calculated as
follows:
WEIGHTED
NET INCOME AVERAGE PER SHARE
(LOSS) SHARES AMOUNT
-----------------------------------------------------------------------------------
Fiscal year ended November 29, 2003:
Basic loss per share $(1,370,000) 5,226,902 $( .26)
===========
Effect of assumed exercise of
employee stock options -- --
-----------------------------------------------------------------------------------
Diluted loss per share $(1,301,000) 5,226,902 $( .26)
===================================================================================
Fiscal year ended November 30, 2002:
Basic earnings per share $1,970,000 5,222,812 $ .38
===========
Effect of assumed exercise of
employee stock options -- --
-----------------------------------------------------------------------------------
Diluted earnings per share $1,970,000 5,222,812 $ .38
===================================================================================
Fiscal year ended December 1, 2001:
Basic loss per share $(8,623,000) 5,258,353 $(1.64)
===========
Effect of assumed exercise of
employee stock options -- --
-----------------------------------------------------------------------------------
Diluted loss per share $(8,623,000) 5,258,353 $(1.64)
===================================================================================
F-35
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During fiscal 2003, there were no options
outstanding. During fiscal 2002, all outstanding
options were either exercised or canceled. Options to
purchase 143,200 shares of common stock were
outstanding during fiscal 2001, but were not included
in the computation of diluted earnings per share, as
their effect would be anti-dilutive.
F-36
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. SEGMENT INFORMATION
The Company adopted SFAS No. 131 "Disclosure About Segments of an
Enterprise and Related Information" in fiscal 1999. SFAS No. 131 requires
companies to report information on segments using the way management organizes
segments within the company for making operating decisions and assessing
financial performance.
The Company's chief operating decision-maker is considered to be the
Chief Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The Company has identified three reportable segments based
upon the primary markets it serves: Apparel Fabrics, Home Fashions, Industrial
Fabrics and Accessories and Other.
Apparel Fabrics: The Company is a major manufacturer of warp and circular knit
fabrics and raschel laces. The Company's textile fabrics are sold to a wide
variety of manufacturers of ready-to-wear and intimate apparel for men, women,
and children, including dresses and sportswear, children's sleepwear,
activewear, swimwear, and recreational apparel.
Home Fashions and Accessories: While sales primarily to manufacturers of home
furnishings, we also use our own textile fabrics internally to produce flannel
and satin sheets, blanket products, comforters, and other bedding products which
we sell to specialty stores, catalogue and mail order companies and airlines.
Other: The Company produces a line of ultrasonically, hot melt adhesive, flame
and adhesive bonded products for environmental, health care, industrial and
consumer markets. The Company's textile fabrics are sold to manufacturers
servicing the residential and contract markets. The Company also sells fabrics
to vendors in the over the counter markets.
The accounting policy of the reportable segments are the same as those
described in Summary of Accounting Policies (Business F-9). The Company neither
allocates to the segments nor bases segment decisions on the following:
- Interest and dividend income
- Interest and other expense
- Net gain on investment securities
- Income tax expense or benefit
Many of the Company's assets are used by multiple segments. While
certain assets such as Inventory and Property, Plant and Equipment are
identifiable by segment, an allocation of the substantial remaining assets is
not meaningful.
F-37
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
For the 52 weeks ended December 1, 2001, charges for the asset
impairment and restructuring charges applies mainly to the apparel segment with
a small portion to the other segment. The 52 weeks ended November 30, 2002
included a litigation settlement in the amount of $750,000, which was included
in the Home Fashions and Accessories segment (see Note 16). The 52 weeks ended
November 29, 2003 included other expenses of $1,659,000, relating to the
amendment to Mr. Bitensky's employment agreement (see Note 9). This amount was
allocated between segments with a majority included in the apparel segment. In
addition, the asset impairment charge in fiscal 2003 applied to the apparel
segment (see Note 12).
F-38
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During all years presented, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales.
The following are our segment revenues and income (loss) by reportable segments
for the fiscal years 2003, 2002, and 2001.
HOME FASHIONS,
2003 APPAREL AND ACCESSORIES OTHER TOTAL
---- ------- --------------- ----- -----
External sales $39,143 $ 4,227 $7,803 $51,173
Intersegment sales 3,579 56 306 3,941
Operating income/(loss) (4,647) (187) 744 (4,090)
Depreciation expense 1,475 64 364 1,903
Segment assets 11,682 929 2,370 14,981
Capital expenditures 27 38 202 267
HOME FASHIONS,
2002 APPAREL AND ACCESSORIES OTHER TOTAL
---- ------- --------------- ----- -----
External sales $51,269 $ 4,673 $7,023 $62,965
Intersegment sales 3,860 22 372 4,254
Operating income/(loss) (679) (1,085) 195 (1,569)
Depreciation expense 1,600 51 327 1,978
Segment assets 16,629 1,005 2,543 20,177
Capital expenditures -- -- 225 225
HOME FASHIONS,
2001 APPAREL AND ACCESSORIES OTHER TOTAL
---- ------- --------------- ----- -----
External sales $60,884 $ 10,382 $8,770 $80,036
Intersegment sales 9,781 44 326 10,151
Operating income/(loss) (22,346) 674 (1,088) (22,760)
Depreciation expense 3,919 54 477 4,450
Segment assets 21,844 1,454 2,867 26,165
Capital expenditures 374 -- 302 676
F-39
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
REVENUES 2003 2002 2001
---- ---- ----
Total external sales for segments $ 51,173 $ 62,965 $ 80,036
Intersegment sales for segments 3,941 4,254 10,151
Elimination of intersegment sales (3,941) (4,254) (10,151)
------------------------------------------
Total consolidated sales $ 51,173 $ 62,965 $ 80,036
==========================================
PROFIT OR LOSS
Total operating loss for segments $ (4,090) $ (1,569) $ (22,760)
Total other income 2,545 4,579 7,272
------------------------------------------
Income (loss) before taxes on income $ (1,545) $ 3,010 $ (15,488)
==========================================
ASSETS
Total segments assets $ 14,981 $ 20,177 $ 26,165
Assets not allocated to segments 43,094 61,052 105,363
------------------------------------------
Total consolidated assets $ 58,075 $ 81,229 $ 131,528
==========================================
OTHER SIGNIFICANT ITEMS
Depreciation expense $ 1,903 $ 1,978 $ 4,450
Not allocated to segments 24 165 159
------------------------------------------
Consolidated total $ 1,927 $ 2,143 $ 4,609
==========================================
Capital expenditures $ 267 $ 225 $ 676
Not allocated to segments -- -- 27
------------------------------------------
Consolidated total $ 267 $ 225 $ 703
==========================================
F-40
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
15. QUARTERLY Quarterly earnings were as follows (in thousands,
FINANCIAL DATA except for earnings per share):
(UNAUDITED)
FIRST THIRD FOURTH
QUARTER SECOND QUARTER QUARTER QUARTER TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
Fiscal 2003:
Net sales $11,587 $13,646 $13,357 $12,583 $51,173
Gross profit 741 1,353 1,002 1,159 4,255
Net income (loss) (270) 320 (1,252) (168) (1,370)
Earnings (loss)
per share:
Basic $ (0.05) $ 0.06 $ (0.24) $ (0.03) $ (0.26)
Diluted $ (0.05) $ 0.06 $ (0.24) $ (0.03) $ (0.26)
===================================================================================================================================
Fiscal 2002:
Net sales $14,250 $17,362 $17,920 $13,433 $62,965
Gross profit 1,107 2,424 2,362 660 6,553
Net income (loss) (677) 1,626 1,010 11 1,970
Earnings (loss)
per share:
Basic $ (0.13) $ 0.31 $ 0.19 $ 0.00 $ 0.38
Diluted $ (0.13) $ 0.31 $ 0.19 $ 0.00 $ 0.38
===================================================================================================================================
F-41
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
16. OTHER EXPENSE During the fall of 1999, San Francisco Network
("SFN") commenced an action in the Superior Court of
California, Marin County, against the Company and the
Company's Salisbury Manufacturing Corporation
("Salisbury") subsidiary. The action relates to an
agreement between SFN and Salisbury (whose
performance the Company guaranteed), pursuant to
which Salisbury was licensed to use the Karen
Neuburger trademark for branded bedding products. The
case was removed to the United States District Court
of California. Salisbury and the Company denied any
wrong doing and asserted affirmative claims against
SFN and certain of its principals. On March 14, 2002,
at a court ordered conference, the Company settled
this issue without admitting liability. On April 12,
2002, the Company paid SFN $750,000 in exchange for a
compete release of all claims.
F-42
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
17. SUBSEQUENT On Feb 18, 2004 the Company's Board of Directors
EVENT declared a liquidating distribution of $3 per share
to be payable on March 10, 2004 with a record date of
February 28, 2004, which is expected to total
approximately $15.6 million.
F-43
FAB INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES
FORM 10-K
FISCAL YEARS ENDED NOVEMBER 29, 2003, NOVEMBER 30, 2002,
AND DECEMBER 1, 2001
S-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
-----
SCHEDULE: PAGE
II. Valuation and Qualifying Accounts S-3
S-2
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
================================================================================
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
- - - - - - - - - - - - - -
(1) (2)
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
-----------------------------------------------------------------------------------------------------------
Fiscal year ended
November 29, 2003:
Allowance for doubtful
Accounts $ 1,000 $400(i) $ -- $ (500)(ii) $ 900
Fiscal year ended
November 30, 2002:
Allowance for doubtful
Accounts $ 600 $400(i) $ -- $ -- $ 1,000
Fiscal year ended
December 1, 2001:
Allowance for doubtful
Accounts $ 300 $400(i) $ -- $ (100)(ii) $ 600
==========================================================================================================
(i) Current year's provision.
(ii) Accounts receivable written-off, net of recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Fab has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized.
FAB INDUSTRIES, INC.
By: /s/ Samson Bitensky
-----------------------
Samson Bitensky
Chairman of the Board and
Chief Executive Officer
Date: January 27, 2005