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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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 27, 1999 Commission file number 1-5901
- ------------------------------------------- -----------------------------
FAB INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-2581181
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Madison Avenue, New York, NY 10016
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(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
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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 [ ]
The aggregate market value at February 16, 2000 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
$43,000,000. 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 16,
2000, there were outstanding 5,353,516 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 March 27, 2000 pursuant to
Regulation 14A are incorporated by reference in Items 10 through 13 of Part III
of this Annual Report on Form 10-K.
FAB INDUSTRIES, INC.
INDEX TO FORM 10-K
Item Number Page
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PART I.........................................................................1
Item 1. Business......................................................1
Item 2. Properties....................................................3
Item 3. Legal Proceedings.............................................4
Item 4. Submission of Matters to a Vote of Security-Holders...........5
PART II........................................................................6
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................................6
Item 6. Selected Consolidated Financial Data..........................7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................8
Item 7A.Quantitative and Qualitative Disclosures About Market Risk...11
Item 8. Financial Statements and Supplementary Data..................11
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.............................................11
PART III......................................................................12
Item 10. Directors and Executive Officers of the Registrant..........12
Item 11. Executive Compensation......................................12
Item 12. Security Ownership of Certain Beneficial Owners and
Management...........................................................12
Item 13. Certain Relationships and Related Transactions..............12
PART IV.......................................................................13
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K..........................................................13
SIGNATURES
PART I
Item 1. Business
Fab Industries, Inc. (together with its subsidiaries, the "Company")
was incorporated on April 21, 1966, under the laws of the State of Delaware and
is a successor by merger to previously existing businesses.
The Company is a major manufacturer of warp and circular knit fabrics,
raschel laces, and laminated fabrics. The Company has identified three segments
in which it operates: Apparel Fabrics, Home Fashions and Accessories, and
Others.
Apparel Fabrics
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 and swimwear,
and recreational apparel. Fabrics are sold primarily in piece dyed form, as well
as "PFP" (Prepared For Printing), and heat transfer printed configurations.
The Company's raschel lace products are sold to manufacturers of
intimate apparel through its Raval Designer and Wiener Lace divisions. The Raval
Lace division also produces raschel laces for sale to manufacturers and jobbers
of sportswear, dress, blouse and other related outerwear industries.
The Company's subsidiary, SMS Textiles, Inc., manufactures wide elastic
fabrics for sale to manufacturers of intimate apparel, swimwear, athleticwear
and sportswear.
The Company's Lida Stretch Fabrics Division specializes in circular
knit products utilizing spandex to create stretch fabrics. A wide variety of
constructions and fibers are combined with spandex fiber to create a diversified
product line. These fabrics are sold as piece dyes, yarn dyes, and prints to the
ready-to-wear, aerobic wear, swimwear and intimate apparel markets.
The Company also offers a comprehensive line of heat transfer prints
for sleepwear, robewear, outerwear, and activewear applications in both
traditional and contemporary patterns.
Home Fashions and Accessories
While sales are primarily to manufacturers of finished goods, the
Company also uses its own textile fabrics internally to produce 100% cotton
jersey sheets, flannel and satin sheets, as well as blankets, comforters and
other bedding products which the Company sells to department and specialty
stores, catalogue and mail order companies, as well as airlines and health care
institutions. The Company's textile fabrics are also sold to manufacturers of
home furnishings.
Other
The Company's subsidiary, Gem Urethane Corporation, produces a line of
ultrasonically, hot melt adhesive, flame and adhesive bonded products for
apparel, environmental, health care, industrial, and consumer markets. In
addition Gem Urethane does toll laminating and converting for these same
markets. Gem Urethane also markets a fire resistant fabric, Sandel (R), through
its subsidiary Sandel International, to the seating, transportation and military
markets. The Company's textiles are sold to manufacturers of industrial fabrics
for residential and contact markets. The Company also sells over the counter
fabrics to vendors in the retail market.
General
The Company engages in research and product development activities to
create new fabrics and styles to meet the continually changing demands of its
customers. Direct expenditures in this area aggregated $3,869,000 in fiscal
1997, $3,625,000 in fiscal 1998, and $3,478,000 in fiscal 1999. Through these
efforts, the Company has 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, the Company has also developed a full
line of proprietary sheets and blankets, including specialty blankets for the
airline industry.
While the Company uses various trademarks and trade names in the
promotion and sale of its products, it does not believe that the loss or
expiration of any such trademark or trade name would have a material adverse
effect on its operations.
The Company markets its products primarily through its full-time sales
personnel, as well as independent representatives located throughout the United
States and abroad. The Company also markets its products on its web site:
www.fab-industries.com.
Historically, the Company's business reflects minor seasonal
fluctuations. Somewhat higher sales occur in the second and third fiscal
quarters, as a result of purchases by customers in anticipation of Fall and
Holiday apparel sales. First and fourth fiscal quarter sales tend to be lower as
apparel customers limit their orders to refilling smaller inventory requirements
after Fall and Holiday sales and forecasting customer reorders for Spring and
Summer fabrications.
The Company does not believe its 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 1999, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales or the year-end accounts
receivable balance. The Company's export sales are not material.
Supplies of Raw Materials
The Company has not experienced difficulties in obtaining sufficient
yarns, chemicals, dyes and other raw materials and supplies to maintain full
production. The Company does not depend upon any single source of supply, and
alternative sources are available for most of the raw materials used in its
business.
Inventories
The Company maintains adequate inventories of yarns and other raw
materials to insure an uninterrupted production flow. Greige and finished goods
are maintained as inventory to meet varying customer demand and delivery
requirements. The Company must maintain adequate working capital, because credit
terms available to customers normally exceed credit terms extended to the
Company by suppliers of raw materials.
Competition
The Company is engaged in a highly competitive global business which is
based largely upon product quality, service and price and general consumer
demand for the finished goods utilizing the Company's products. The Company
believes that it is one of the major manufacturers of warp and circular knit,
raschel lace, and ultrasonic and hot melt laminated products in the United
States. However, there are a great number of other domestic manufacturers
producing products that compete with the Company's products. The proportion of
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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. The Company
has made significant expenditures on production equipment over the past several
years, and the Company continues to maintain a strong financial position.
However, the Company's sales have declined from approximately $182,000,000 in
1995 to approximately $128,000,000 in 1999 largely as a result of increased
foreign competition.
Employees
The Company employs approximately 1,300 people, of whom approximately
1,200 are employed by the Company's subsidiaries. The employees are not
represented by unions. During the past year the Company reduced its work force
by several hundred employees, in recognition of changed business conditions. The
Company considers relations with its employees to be satisfactory.
Acquisitions
There have been no acquisitions by the Company during fiscal 1999.
Item 2. Properties.
The Company conducts its manufacturing operations in owned facilities
located in Lincolnton, Maiden, Cherryville and Salisbury in North Carolina, and
in leased facilities located in Amsterdam, New York. The Company's facilities
are operated in general on a five day-a-week basis.
The Company's knitting, dyeing-finishing and printing operations are
conducted at the Lincolnton facility. These operations include warp and raschel
knitting, various types of dyeing, framing, lace separating, sueding, shearing,
napping, calendaring and heat-transfer printing. Dyeing-finishing operations are
also conducted at the Cherryville facility. The Lincolnton and Cherryville
facilities also process and serve as warehouses for greige goods, manufactured
and shipped from the Company's Amsterdam and Maiden plants.
At the Maiden plant facility, the Company conducts a variety of
manufacturing operations, including warping for the tricot and lace machines and
single and double knitting of fabrics. The Salisbury facility is the site of the
Company's consumer and institutional products manufacturing, retail and over-
the-counter operations. The Company's Amsterdam facilities are devoted to tricot
warping and knitting and warehousing. Approximately 106,000 square feet in one
of the Company's Amsterdam plants is used for the production of a line of a
variety of flame, adhesive and ultrasonically bonded items.
During fiscal 1999, the Company closed its Allentown, Pennsylvania
facility, and transferred the equipment from that plant to its Lincolnton, North
Carolina plant.
The following table sets forth the location of each of the Company's
manufacturing facilities, its principal use, approximate floor space, and, where
leased, the lease expiration date. No facility owned by the Company is subject
to any encumbrance.
3
Approximate Lease
Location Principal Use Floor Space Expiration Date
- -------- ------------- ----------- ---------------
Lincolnton, Dyeing and finishing, 630,550 sq.ft. (1)
North Carolina raschel and tricot
warp knitting, printing and
warehouse
Lincolnton, Warehouse 55,000 sq. ft. (1)
North Carolina
Maiden, Warping, circular single and 224,013 sq.ft. (1)
North Carolina double knitting and warehouse
Salisbury, Manufacturing finished consumer 125,000 sq.ft. (1)
North Carolina and institutional products and
retail and over-the- counter
fabrics
Amsterdam, Laminated fabrics, fire fighting 106,000 sq.ft. 12/31/99 (2)
New York material manufacturing
operations and bonding and
laminating
Amsterdam, Warping, tricot knitting and 367,000 sq.ft. 12/31/06 (2)
New York warehouse
Cherryville, Dyeing and finishing, and 197,000 sq. ft. (1)
North Carolina warehouse
New York, Executive offices and showroom 33,000 sq. ft 4/30/06
New York facilities
- ------------------------
(1) Owned by the Company.
(2) Capitalized building lease - See note 5 of Notes to Consolidated
Financial Statements.
All of the Company's facilities are constructed of brick, steel or
concrete, and the Company considers all facilities to be adequate and in good
operating condition and repair.
Item 3. Legal Proceedings.
During the fall of 1999, San Francisco Network ("SFN") commenced an
action in the Superior Court of California, Marin County, against the Company
and its Salisbury Manufacturing Corporation ("Salisbury") subsidiary. The action
relates to an agreement between SFN and Salisbury (whose performance was
guaranteed by the Company), pursuant to which Salisbury was licensed to use the
Karen Neuburger trademark for branded bedding products. The complaint alleges
that Salisbury failed to perform its obligations under the agreement, and
asserts claims for an unspecified amount of damages for breach of written
contract, breach of the implied covenant of good faith and fair dealing,
intentional misrepresentation, and negligent misrepresentation, as well as a
claim against the Company on the guarantee. The Company and Salisbury have
removed this action to the United States District Court for the Northern
District of
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California and have obtained an extension until March 16, 2000 to respond to the
complaint. The Company intends to vigorously defend this action.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not Applicable
Executive Officers of the Company
The following table sets forth certain information concerning the
executive officers of the Company as of February 18, 2000.
Name Age Positions and Offices
- ---- --- ---------------------
Samson Bitensky..................... 80 Chairman of the Board of Directors and Chief Executive Officer
Stanley August...................... 68 Co-President, Chief Operating Officer
Steven Myers........................ 51 Co-President, Chief Operating Officer
David A. Miller..................... 62 Vice President-Finance, Treasurer and Chief Financial Officer
Jerry Deese......................... 48 Vice President-Controller of Plant Operations
Sam Hiatt........................... 52 Vice President-Sales
Sherman S. Lawrence................. 81 Secretary
Each of the Company's executive officers serves at the pleasure of the
Board of Directors and until his or her successor is duly elected and qualifies.
Samson Bitensky was among the founders of the Company 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.
Stanley August has been employed by the Company since 1980 and
previously served as General Sales Manager of its Circular Knit Division and as
Vice President - Sales. Mr. August served as Vice President - Fabric Operations
from 1987 until 1992 and as Vice President from March 1992 to May 1997, and as
Vice Chairman since May 1, 1997 and has served as Co-President, Chief Operating
Officer since May 6, 1999.
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 1997, and has served as Co-President, Chief
Operating Officer since May 1, 1997. Mr. Myers is the son-in-law of Mr.
Bitensky.
David A. Miller has been employed by the Company since 1966 and has
served as its 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.
5
Sherman S. Lawrence has served as a Director of the Company since 1966
and as Secretary since 1968. Mr. Lawrence has been a practicing attorney since
1942 and has served as co-counsel to the Company since 1966.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
The Company'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 1999 High Low
First Quarter................................... $21 1/2 $18 1/4
Second Quarter.................................. $18 15/16 $13 7/8
Third Quarter................................... $16 1/8 $14 3/8
Fourth Quarter.................................. $15 $11 3/4
Fiscal 1998.......
First Quarter................................... $33 1/2 $30
Second Quarter.................................. $33 3/8 $26 15/16
Third Quarter................................... $29 1/2 $23 1/2
Fourth Quarter.................................. $23 3/4 $19 3/8
At February 17, 2000, there were approximately 511 holders of record
of Common Stock. For fiscal 1998, quarterly dividends of $.175 per share were
declared on February 19, 1998, May 12, 1998, August 12, 1998 and November 24,
1998. For fiscal 1999, quarterly dividends of $.175 per share were declared on
February 25, 1999, May 6, 1999, August 16, 1999 and November 22, 1999. The
payment of further cash dividends will be at the discretion of the Board of
Directors and will depend upon, among other things, earnings, capital
requirements and the financial condition of the Company.
6
Item 6. Selected Consolidated Financial Data.
As at or for the fiscal year ended
-------------------------------------------------------------------------------------------
November November 28, November 29, 1997 November 30, December 2,
27, 1999 1998 1996 1995
(In thousands, except share data)
Net Sales $128,889 $151,436 $160,935 $156,136 $182,000
Income before taxes (338) 8,017 13,529 12,596 13,760
on income
Net income 517 6,017 9,394 8,796 9,410
Earnings per share:
Basic .10 1.07 1.65 1.52 1.57
Diluted .10 1.06 1.63 1.51 1.56
Total assets 152,178 160,403 163,524 160,980 161,027
Long-term debt 409 486 556 620 678
Stockholders' equity 130,788 137,527 137,892 133,888 132,932
Book value per 24.20 24.63 24.26 23.25 22.42
share (1)
Cash dividends .70 .70 .70 .70 .685
per share
Weighted average
number of shares
outstanding:
Basic 5,414,687 5,627,788 5,705,624 5,797,228 5,981,690
Diluted 5,419,130 5,665,194 5,752,895 5,841,138 6,037,374
- ---------------------
(1) Computed by dividing stockholders' equity by the number of shares
outstanding at year-end.
7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
Net sales for the 1999 fiscal year were $128,889,999 as compared to
$151,436,000 in fiscal 1998, a decrease of 14.9%. Business conditions within the
domestic textile industry remained depressed and the Company continued to
experience competitive market conditions, both domestic and foreign. Increasing
amounts of garments manufactured in Asia and imported to the United States have
adversely impacted the demand for fabrics manufactured domestically. These
factors have continued to exert downward pressure on the Company's sales levels.
The Company is currently considering steps to modify its operations to meet
these adverse domestic and international market conditions.
Gross margins as a percentage of sales declined from 12.1% to 7.8%.
Lower sales volume adversely affected operating rates at production facilities
and a less profitable mix also exerted unfavorable pressure on profit margins.
The Company has intensified its cost control programs.
Due to lower average FIFO cost levels, LIFO inventory reserves
decreased by $1,595,000 in fiscal 1999 and $1,703,000 in fiscal 1998.
Selling, shipping and administrative expenses increased by $519,000, or
3.5%. In the fourth quarter of fiscal 1998 and a result of lower than previously
anticipated operating results, a reduction of incentive-based compensation
expenses of approximately $1.1 million was recorded. As percentage of sales,
such costs increased from 9.8% to 11.9% because of lower sales volume.
Interest and dividend income decreased by $578,000 as a result of lower
average balances. The Company realized gains from the sales of investment
securities of $2,087,000 compared to $1,146,000 in fiscal 1998.
The Company has realized a tax benefit for fiscal 1999 compared to an
effective income tax rate of 24.9% in fiscal 1998.
As a result of these factors, net income declined to $517,000 from
$6,017,000, and there was a loss from operations in fiscal 1999.
For fiscal 1999, basic and diluted earnings per share were $0.10
compared to basic earnings per share of $1.07 and diluted earnings of $1.06 last
year.
Fiscal 1998 Compared to Fiscal 1997
Net sales for fiscal 1998 were $151,436,000 as compared to $160,935,000
in fiscal 1997, a decrease of 5.9%. The Asian financial crisis, which began in
1997, is taking a sustained toll on the U.S. manufacturing sector and, because
of steep currency devaluations, U.S. firms are forced to compete against flood
of cheap imports and falling demand for U.S. goods overseas. These factors have
continued to exert downward pressure on the Company's sales level.
8
Gross margins as a percentage of sales declined from 14.6% to 12.1%.
Lower sales volume reduced operating schedules at manufacturing plants. In
addition, the Company incurred start-up costs in connection with its recent
acquisitions of Lida Stretch Fabrics, a manufacturer of circular knit stretch
fabrics, and SMS Textiles, a manufacturer of wide elastic fabrics. In fiscal
1998, a reduction in LIFO inventory reserves arising principally from lower
average FIFO cost levels benefited margins in the amount of $1,703,000 compared
to $863,000 in fiscal 1997.
Selling, shipping and administrative expenses remained relatively
constant but as a percentage of sales increased from 9.3% to 9.8% primarily
because of lower sales volume. An increase in selling expenses of approximately
$2.0 million, attributable primarily to the acquisitions of Lida Stretch
Fabrics, SMS Textiles and JBJ Fabrics (acquired in October 1997), was offset by
lower incentive-based compensation and other related expenses.
Interest and dividend income decreased by $301,000 as a result of lower
average available balances.
The effective income tax rate for fiscal 1998 was 24.9% as compared to
30.6% in fiscal 1997. The decline was primarily attributable to a
proportionately higher percentage of tax exempt interest as a percentage of
pre-tax income in fiscal 1998.
As a result of these factors, net income declined to $6,017,000 from
$9,394,000 and as a percentage of sales decreased to 4.0% from 5.8%.
In fiscal 1998, the Company adopted SFAS No. 128, "Earnings per Share."
Under SFAS No. 128, the Company is presenting both basic earnings per share and
diluted earnings per share and has restated the 1997 fiscal year amounts to
conform to the provisions of SFAS No. 128.
For fiscal 1998, basic earnings per share were $1.07 compared to $1.65
in fiscal 1997 and diluted earnings per share were $1.06 compared to $1.63 in
fiscal 1997.
Liquidity and Capital Resources
Net cash provided by operating activities in fiscal 1999 amounted to
$17,964,000, as compared to $4,573,000 in fiscal 1998. Of this increase,
$5,319,000 relates to comparative changes in accounts receivable, $12,154,000 to
inventories, $2,924,000 to accounts payable, accruals and other liabilities,
$319,000 to other assets, $350,000 to doubtful accounts and $649,000 to
depreciation and amortization. These increases were offset by $5,500,000
reduction in net income and related changes of $1,057,000 in deferred income
taxes, $941,000 in realized gains on investment securities and $812,000 in other
current assets.
In fiscal 1999, net acquisitions of investment securities were
approximately $9.0 million, as compared to net proceeds from sales of investment
securities of approximately $18.8 million in fiscal 1998.
The Company's investment securities, all classified as
available-for-sale, had a fair market value of $57,752,000 and $48,233,000 at
fiscal year-end 1999 and 1998, respectively. See Note 2 to the consolidated
financial statements for further details about the Company's investment
portfolio.
Capital expenditures for fiscal 1999 were $2,592,000 against
$15,567,000 for fiscal 1998. In 1998, these capital expenditures included assets
acquired from SMS Textiles Mills, Inc. and Lida Stretch Fabrics, Inc.
manufacturers of wide elastic fabrics and circular knit stretch fabrics
respectively.
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During fiscal 1999, the Company repurchased 183,308 shares of its
common stock at a cost of $3,365,000 (an average price of $18.36). Subsequent to
the end of fiscal 1999, the Company repurchased an additional 50,039 shares at
an average price of $11.05. The Company intends to continue to purchase its
shares of common stock from time-to-time, as market conditions warrant and price
criteria are met.
During fiscal 1999, the Company declared regular quarterly dividends
totaling $0.70 per share.
Stockholders' equity was $130,788,000, or $24.20 book value per share,
as compared to $137,527,000, or $24.63 book value per share, at the previous
fiscal year-end.
Management believes that the current financial position of the Company
is more than adequate to internally fund any future expenditures to maintain,
modernize and expand its manufacturing facilities, and pay dividends.
Inflation
The Company does not believe the effects of inflation have had a
significant impact on the consolidated financial statements.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its
plans to become year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expenses approximately $105,000 during 1999 in connection with
remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal systems,
or the products and services of third parties. The Company will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
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 the Company's
communications and discussions with investors and analysts in the normal course
of business through meetings, phone calls and conference calls, regarding the
consummation and benefits of future acquisitions, as well as expectations with
respect to future sales, operating efficiencies and product expansion, are
subject to known and unknown risks, uncertainties and contingencies, many of
which are beyond the control of the Company, which may cause actual results,
performance or achievements to differ materially from anticipated results,
performances or achievements. Factors that might affect such forward looking
statements include, among other things, overall economic and business
conditions; the demand for the Company's goods and services; competitive factors
in the industries in which the Company competes; 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;
economic and political conditions in international markets, including
governmental changes and restrictions on the ability to transfer capital across
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borders; the ability to achieve anticipated synergies and other cost savings in
connection with acquisitions; the timing, impact and other uncertainties of
future acquisitions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See Note 2 on page F-14.
Item 8. Financial Statements and Supplementary Data.
See pages F-1 and S-1.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not Applicable.
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PART III
Item 10. Directors and Executive Officers of the Company.
See Part I, Item 4. "Executive Officers of the Company." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than March 27, 2000
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended ("Regulation 14A").
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than March 27,
2000 pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than March 27,
2000 pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than March 27,
2000 pursuant to Regulation 14A.
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PART IV
Item 14. 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 Financial
Statements Schedules at page S-2.
(3) Exhibits.
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.
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 - 1987 Stock Option Plan of the Company, incorporated by reference
to Exhibit 10.1 to the 1993 10-K.
13
10.2 - 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.
10.3 - Fab Industries, Inc. Hourly Employees Retirement Plan (the
"Retirement Plan"), incorporated by reference to Exhibit
10.3 to the 1993 10-K.
10.4 - Amendment to the Retirement Plan effective December 11,
1978, incorporated by reference to Exhibit 10.4 to the
1993 10-K.
10.5 - Amendment to the Retirement Plan effective December 1,
1981, incorporated by reference to Exhibit 10.5 to the
1993 10-K.
10.6 - Amendment to the Retirement Plan dated November 21, 1983,
incorporated by reference to Exhibit 10.6 to the 1993 10-K.
10.7 - Amendment to the Retirement Plan dated August 29, 1986,
incorporated by reference to Exhibit 10.7 to the 1993 10-K.
10.8 - Amendment to the Retirement Plan effective as of December
1, 1989, incorporated by reference to Exhibit 10.8 to the
1993 10-K.
10.9 - 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").
10.10 - Fab Lace, Inc. Employees Profit Sharing Plan (the "Profit
Sharing Plan"), incorporated by reference to Exhibit 10.9
to the 1993 10-K.
10.11 - Amendment to the Profit Sharing Plan effective December 1,
1978, incorporated by reference to Exhibit 10.10 to the
1993 10-K.
10.12 - Amendment dated December 1, 1985 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.11 to the
1993 10-K.
10.13 - Amendment dated February 5, 1987 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.12 to the
1993 10-K.
10.14 - Amendment dated December 24, 1987 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.13 to the
1993 10-K.
14
10.15 - Amendment dated June 30, 1989 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.14 to the 1993
10-K.
10.16 - Amendment dated February 1, 1991 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.15 to the
1993 10-K.
10.17 - Amendment dated September 1, 1995 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.17 to the
1995 10-K.
10.18 - 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.
10.19 - 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.
10.20 - 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.
10.21 - 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.
10.22 - 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.
10.23 - Form of indemnification agreement between the Company and
its officers and directors, incorporated by reference to
Exhibit 10.20 to the 1993 10-K.
10.24 - 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.
10.25 - Amendment dated September 21, 1995 to the Employee Stock
Ownership Plan, incorporated by reference to Exhibit 10.27
to the 1995 10-K.
10.26 - 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.
15
10.27 - Fab Industries, Inc. 1997 Stock Incentive Plan,
incorporated by reference to Exhibit A to the Proxy
Statement dated May 6, 1999, File No. 1-5901.
21 - Subsidiaries of the Company incorporated by reference to
Exhibit 21 to the 1994 10-K.
*23.1 - Consent of Ernst & Young, LLP.
*23.2 - Consent of BDO Seidman, LLP.
**27 - Financial Data Schedule pursuant to Article 5 of
Regulation S-X.
- -------------------------
* Filed herewith.
** Filed with EDGAR version only.
(b) Reports on Form 8-K: None
16
Fab Industries, Inc.
and Subsidiaries
Consolidated Financial Statements
Form 10-K Item 8
Fiscal Years Ended November 27, 1999, November 28, 1998 and
November 29, 1997
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED NOVEMBER 27, 1999, NOVEMBER 28, 1998,
AND NOVEMBER 29, 1997
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
Report of independent auditors F-3
Report of independent certified public accountants F-4
Consolidated financial statements:
Balance sheets F-5
Statements of income F-6
Statements of stockholders' equity F-7
Statements of cash flows F-8
Summary of accounting policies F-9 - F-12
Notes to consolidated financial statements F-13 - F-36
F-2
Report of Independent Auditors
Board of Directors and Stockholders
Fab Industries, Inc.
We have audited the accompanying consolidated balance sheet of Fab Industries,
Inc. and subsidiaries as of November 27, 1999 and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. Our audit also included the 1999 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Fab Industries,
Inc. and subsidiaries at November 27, 1999 and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related 1999 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/ Ernst & Young LLP
Charlotte, North Carolina
February 11, 2000
F-3
Report Of Independent Certified Public Accountants
The Board of Directors and Stockholders
Fab Industries, Inc.
New York, New York
We have audited the consolidated balance sheets of Fab Industries, Inc. and
subsidiaries as of November 28, 1998 and November 29, 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three fiscal years in the period ended November 28, 1998. We have also
audited the schedule listed in the index on page S-2. These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
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 as of November 28, 1998 and November 29, 1997, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended November 28, 1998 in conformity with generally accepted
accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO Seidman, LLP
- --------------------
New York, New York
February 16, 1999
F-4
Fab Industries, Inc.
and Subsidiaries
Consolidated Balance Sheets
=======================================================================================================================
November 27, 1999 November 28, 1998
---------------------------------------------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents (Note 1) $ 6,078,000 $ 6,078,000
Investment securities available-for-sale (Note 2) 57,752,000 48,233,000
Accounts receivable, net of allowance of $1,500,000 and $1,000,000
for doubtful accounts 21,417,000 27,979,000
Inventories (Note 3) 24,002,000 32,213,000
Other current assets 2,215,000 1,727,000
---------------------------------------------------------------------------------------------------------------------
Total current assets 111,464,000 116,230,000
Property, plant and equipment - net (Note 4) 36,409,000 40,021,000
Other assets (Note 8) 4,305,000 4,152,000
---------------------------------------------------------------------------------------------------------------------
$152,178,000 $160,403,000
=====================================================================================================================
Liabilities and Stockholders' Equity
Current:
Accounts payable $ 7,191,000 $ 9,110,000
Corporate income and other taxes 1,553,000 768,000
Accrued payroll and related expenses 1,829,000 1,980,000
Dividends payable 946,000 977,000
Other current liabilities 562,000 495,000
Deferred income taxes (Note 9) 517,000 1,538,000
---------------------------------------------------------------------------------------------------------------------
Total current liabilities 12,598,000 14,868,000
Obligations under capital leases, net of current maturities (Note 5) 409,000 486,000
Other noncurrent liabilities (Note 8) 3,313,000 2,817,000
Deferred income taxes (Note 9) 5,070,000 4,705,000
---------------------------------------------------------------------------------------------------------------------
Total liabilities 21,390,000 22,876,000
---------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 8 and 10)
Stockholders' equity (Notes 2, 6, 7, 8 and 10):
Preferred stock, $1 par value - shares authorized 2,000,000;
none issued - -
Common stock, $.20 par value - shares authorized 15,000,000;
issued 6,591,944 and 6,588,444 1,319,000 1,318,000
Additional paid-in capital 6,967,000 6,903,000
Retained earnings 161,445,000 164,714,000
Loan to employee stock ownership plan (5,537,000) (6,327,000)
Accumulated other comprehensive income (loss) (411,000) 550,000
Unearned restricted stock compensation - (1,000)
Cost of common stock held in treasury - 1,188,389 and
1,005,081 shares (32,995,000) (29,630,000)
---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 130,788,000 137,527,000
---------------------------------------------------------------------------------------------------------------------
$152,178,000 $160,403,000
=====================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-5
Fab Industries, Inc.
and Subsidiaries
Consolidated Statements of Income
======================================================================================================================
Fiscal year ended
---------------------------------------------------------------------------------------------------------------------
November 27, 1999 November 28, 1998 November 29, 1997
---------------------------------------------------------------------------------------------------------------------
Net sales (Note 14) $128,889,000 $151,436,000 $160,935,000
Cost of goods sold 118,773,000 133,147,000 137,389,000
---------------------------------------------------------------------------------------------------------------------
Gross profit 10,116,000 18,289,000 23,546,000
Selling, shipping and administrative expenses 15,391,000 14,872,000 14,921,000
---------------------------------------------------------------------------------------------------------------------
Operating income (loss) (5,275,000) 3,417,000 8,625,000
---------------------------------------------------------------------------------------------------------------------
Other income (expenses):
Interest and dividend income (Note 12) 2,951,000 3,529,000 3,830,000
Interest expense (101,000) (75,000) (65,000)
Net gain on investment securities (Note 2) 2,087,000 1,146,000 1,139,000
---------------------------------------------------------------------------------------------------------------------
Total other income 4,937,000 4,600,000 4,904,000
---------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes on income (338,000) 8,017,000 13,529,000
Income tax expense (benefit) (855,000) 2,000,000 4,135,000
---------------------------------------------------------------------------------------------------------------------
Net income $ 517,000 $ 6,017,000 $ 9,394,000
=====================================================================================================================
Earnings per share (Note 13):
Basic $ .10 $ 1.07 $ 1.65
Diluted $ .10 $ 1.06 $ 1.63
=====================================================================================================================
Cash dividends declared per share
$ .70 $ .70 $ .70
=====================================================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
Fab Industries, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
Fiscal years ended November 27, 1999, November 28, 1998 and November 29, 1997
- -------------------------------------------------------------------------------
=====================================================================================================
Common stock
-------------------------- Additional
Number paid-in Retained
Total of shares Amount capital earnings
- -----------------------------------------------------------------------------------------------------
Balance, November 30, 1996 $ 133,888,000 6,564,194 $1,313,000 $6,410,000 $ 157,223,000
Net income - fiscal 1997 9,394,000 - - - 9,394,000
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes 29,000 - - - -
------
Total comprehensive income 9,423,000 - - - -
Cash dividends (3,988,000) - - - (3,988,000)
Exercise of stock options 154,000 8,800 2,000 152,000 -
Purchase of treasury stock (2,406,000) - - - -
Compensation under
restricted stock plan
(Note 6) 31,000 - - - -
Payment of loan from ESOP
(Note 8) 790,000 - - - -
- -----------------------------------------------------------------------------------------------------
Balance, November 29, 1997 137,892,000 6,572,994 1,315,000 6,562,000 162,629,000
Net income - fiscal 1998 6,017,000 - - - 6,017,000
Change in net unrealized
holding loss on
investment securities
available-for- sale, net
of taxes (86,000) - - - -
-------
Total comprehensive income 5,931,000 - - - -
Cash dividends (3,932,000) - - - (3,932,000)
Exercise of stock options 344,000 15,450 3,000 341,000 -
Purchase of treasury stock (3,524,000) - - - -
Compensation under
restricted stock plan
(Note 6) 26,000 - - - -
Payment of loan from ESOP
(Note 8) 790,000 - - - -
- -----------------------------------------------------------------------------------------------------
Balance, November 28, 1998 137,527,000 6,588,444 1,318,000 6,903,000 164,714,000
Net income - fiscal 1999 517,000 - - - 517,000
Change in net unrealized
holding loss on
investment securities
available-for- sale, net
of taxes (961,000) - - - -
--------
Total comprehensive loss (444,000) - - - -
Cash dividends (3,786,000) - - - (3,786,000)
Exercise of stock options 54,000 3,500 1,000 53,000 -
Purchase of treasury stock (3,365,000) - - - -
Compensation under
restricted stock plan
(Note 6) 12,000 - - 11,000 -
Payment of loan from ESOP
(Note 8) 790,000 - - - -
- -----------------------------------------------------------------------------------------------------
Balance, November 27, 1999 $ 130,788,000 6,591,944 $1,319,000 $6,967,000 $ 161,445,000
=====================================================================================================
Accumulated
Other Unearned Treasury stock
Loan to Comprehensive restricted --------------------------
employee stock Income stock Number
ownership plan (loss) compensation of shares Cost
- -----------------------------------------------------------------------------------------------------
Balance, November 30, 1996 $(7,907,000) $ 607,000 $(58,000) (806,439) $(23,700,000)
Net income - fiscal 1997 - - - - -
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes - 29,000 - - -
Total comprehensive income - - - - -
Cash dividends - - - - -
Exercise of stock options - - - - -
Purchase of treasury stock - - - (83,943) (2,406,000)
Compensation under
restricted stock plan
(Note 6) - - 31,000 - -
Payment of loan from ESOP
(Note 8) 790,000 - - - -
- -----------------------------------------------------------------------------------------------------
Balance, November 29, 1997 (7,117,000) 636,000 (27,000) (890,382) (26,106,000)
Net income - fiscal 1998 - - - - -
Change in net unrealized
holding loss on
investment securities
available-for- sale, net
of taxes - (86,000) - - -
Total comprehensive income - - - - -
Cash dividends - - - - -
Exercise of stock options - - - - -
Purchase of treasury stock - - - (114,699) (3,524,000)
Compensation under
restricted stock plan
(Note 6) - - 26,000 - -
Payment of loan from ESOP
(Note 8) 790,000 - - - -
- -----------------------------------------------------------------------------------------------------
Balance, November 28, 1998 (6,327,000) 550,000 (1,000) (1,005,081) (29,630,000)
Net income - fiscal 1999 - - - - -
Change in net unrealized
holding loss on
investment securities
available-for- sale, net
of taxes - (961,000) - - -
Total comprehensive loss - - - - -
Cash dividends - - - - -
Exercise of stock options - - - - -
Purchase of treasury stock - - - (183,308) (3,365,000)
Compensation under
restricted stock plan
(Note 6) - - 1,000 - -
Payment of loan from ESOP
(Note 8) 790,000 - - - -
- -----------------------------------------------------------------------------------------------------
Balance, November 27, 1999 $(5,537,000) $(411,000) - (1,188,389) $(32,995,000)
- -----------------------------------------------------------------------------------------------------
=====================================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-7
Fab Industries, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(Note 11)
======================================================================================================================
Fiscal year ended
- ----------------------------------------------------------------------------------------------------------------------
November 27, 1999 November 28, 1998 November 29, 1997
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 517,000 $ 6,017,000 $ 9,394,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 750,000 400,000 400,000
Depreciation 6,204,000 5,555,000 5,064,000
Deferred income taxes (15,000) 1,042,000 (185,000)
Compensation under restricted stock plan 12,000 26,000 31,000
Net gain on investment securities (2,087,000) (1,146,000) (1,139,000)
Decrease (increase) in:
Accounts receivable 5,812,000 493,000 (475,000)
Inventories 8,211,000 (3,943,000) 677,000
Other current assets (488,000) 324,000 (107,000)
Other assets (153,000) (472,000) (989,000)
Increase (decrease) in:
Accounts payable (1,919,000) 248,000 (3,214,000)
Accruals and other liabilities 1,120,000 (3,971,000) 1,931,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,964,000 4,573,000 11,388,000
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,592,000) (15,567,000) (4,870,000)
Proceeds from sales of investment securities 226,000 18,838,000 3,185,000
Acquisition of investment securities (9,260,000) - (7,183,000)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (11,626,000) 3,271,000 (8,868,000)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock (3,365,000) (3,524,000) (2,406,000)
Principal repayment on loan to employee stock
ownership plan 790,000 790,000 790,000
Dividends (3,817,000) (3,950,000) (4,002,000)
Exercise of stock options 54,000 344,000 154,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (6,338,000) (6,340,000) (5,464,000)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents - 1,504,000 (2,944,000)
Cash and cash equivalents, beginning of year 6,078,000 4,574,000 7,518,000
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 6,078,000 $ 6,078,000 $ 4,574,000
======================================================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-8
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Business Fab Industries, Inc. (the "Company") is a
major manufacturer of knitted apparel
fabrics, including laces and finished home
products, as well as laminated fabrics.
The Company's sales in fiscal 1999, 1998
and 1997 were primarily made to United
States customers.
Principles The financial statements include the
of Consolidation accounts of 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. Fiscal
1999, 1998 and 1997 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 its cash and cash
equivalents with high credit quality
financial institutions. By policy, the
Company limits the amount of credit
exposure to any one financial institution
and receives confirmation indicating that,
with respect to investment securities,
each custodian (with the exception of one
custodian, which held equity securities
during fiscal 1999 and had no such equity
securities at November 27, 1999 but will
continue to invest in such equities in the
future) maintains appropriate insurance
coverage to protect the Company's
investment portfolio. Concentrations of
credit risk with respect to trade
receivables are limited due to the diverse
group of manufacturers, wholesalers and
retailers to whom the Company sells (see
Note 14). The
F-9
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Company reviews a customer's credit
history before extending credit. The
Company has established an allowance for
doubtful accounts based upon factors
surrounding the credit risk of specific
customers, historical trends and other
information.
Cash Equivalents For purposes of the statement of cash
flows, 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.
Property, Plant and
Equipment Property, plant and equipment are stated
at 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.
F-10
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
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.
Research and Development Research and development costs are
Costs charged to expenses in the year incurred
and amounted to $3,478,000, $3,625,000,
and $3,869,000 in fiscal 1999, 1998 and
1997, respectively.
Stock-Based Compensation In fiscal 1997, the Company became subject
to SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"),
which allows either the intrinsic or fair
value method. SFAS No. 123 encourages, but
does not require, entities to adopt the
fair value method in place of the intrinsic
value method as provided for in Accounting
Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees"
("APB No. 25"), for all arrangements under
which employees receive shares of stock or
other equity instruments of the employer or
the employer incurs liabilities to
employees in amounts based on the price of
its stock. When the Company adopted SFAS
No. 123, it elected to retain the intrinsic
value method. The required fair value
disclosures are included in the notes to
the consolidated financial statements.
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.
F-11
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Earnings Per Share Basic earnings 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. The
Company's dilutive potential common shares
outstanding during fiscal 1999, 1998 and
1997 resulted entirely from dilutive stock
options.
Revenue Recognition The Company recognizes its revenues
upon shipment of the related goods.
Allowances for estimated returns are
provided when sales are recorded.
Pending Accounting Pronouncements In June 1998, the FASB issued FAS 133,
"Accounting for Derivative Instruments and
Hedging Activities", effective for years
beginning after June 15, 1999. The
effective date has been delayed to June 15,
2000, the Company's fiscal year 2001, as a
result of the FASB's issuance in August
1999 of FAS 137, "Accounting for Derivative
Instruments and Hedging Activities -
Deferral of the Effective date of FASB
Statement No. 133". FAS 133 requires that
all derivatives be recorded on the balance
sheet at fair value Derivatives that are
not hedges must be adjusted to fair value
through income. If the derivative is a
hedge, depending on the nature of the
hedge, changes in the fair value of
derivatives are either offset against the
change in the fair value of assets,
liabilities, or firm commitments through
earnings or recognized in other
comprehensive income until the hedged item
is recognized in earnings. The ineffective
portion of a derivative's change in fair
value will be immediately recognized in
earnings. The Company has not yet
determined what the effect of FAS 133 will
be on the earnings and financial position
of the Company.
F-12
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1. Cash and Cash Cash and cash equivalents at November
Equivalents 27, 1999 and November 28, 1998
consisted of the following (in thousands)
1999 1998
---------------------------------------------------------------------------------
Cash $2,078 $1,458
Tax-free short-term debt
instruments 4,000 4,620
--------------------------------------------------------------------------------
$6,078 $6,078
================================================================================
2. Investment Securities Investment securities available-for-sale at
November 27, 1999 and November 28, 1998
consisted of the following (in thousands):
Gross Gross
unrealized unrealized
Cost holding gain holding loss Fair value
------------------------ ------------- ------------- ------------- -------------
1999:
Equities $ 1,224 $ $ (25) $ 1,199
U.S. Treasury
obligations 12,587 1 - 12,588
Tax-exempt
obligations 24,168 55 (380) 23,843
Corporate bonds 20,457 19 (354) 20,122
--------------------------------------------------------------------------------
$ 58,436 $ 75 $(759) $57,752
================================================================================
1998:
Equities $ 9,885 $ 331 $ (55) $10,161
U.S. Treasury
obligations 14 - - 14
Tax-exempt
obligations 32,719 686 (13) 33,392
Corporate bonds 4,698 139 (171) 4,666
--------------------------------------------------------------------------------
$ 47,316 $ 1,156 $(239) $48,233
================================================================================
F-13
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 27, 1999 and November 28, 1998, by
contractual maturity are as shown below:
November 27, 1999 November 28, 1998
--------------------------- ---------------------------
Cost Fair value Cost Fair value
- --------------------------------------------------------------------------------
Maturing in one
year or less $ 14,957 $ 14,943 $ 1,927 $ 1,931
Maturing after one
year through five
years 31,064 30,814 28,126 28,745
Maturing after five
years through ten
years 11,191 10,796 7,378 7,396
- --------------------------------------------------------------------------------
$57,212 $56,553 $37,431 $38,072
================================================================================
Gross and net realized gains and losses on sales of investment securities were:
1999 1998 1997
- --------------------------------------------------------------------------------
Gross realized gains $ 3,865 $ 3,826 $ 2,371
Gross realized losses (1,778) (2,680) (1,232)
- --------------------------------------------------------------------------------
Net realized gain $ 2,087 $ 1,146 $ 1,139
================================================================================
Other comprehensive income (loss) for fiscal 1999, 1998, and 1997 consisted of
the following (in thousands):
1999 1998 1997
- --------------------------------------------------------------------------------
Unrealized holding gains
arising during the year, net of
tax
$291 $602 $712
Reclassification adjustment,
net of tax
(1,252) (688) (683)
- --------------------------------------------------------------------------------
Other comprehensive income
(loss) net of tax
$(961) $(86) $29
================================================================================
F-14
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
During Fiscal 1999, 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 27,
1999, the Company had no such investments, but
will continue to invest in such equities in the
future. In Fiscal 1998, approximately $6.9 million
of Company's equity investment securities was
invested in S&P 100 common stocks. The notional
amounts of the put and call options were $6.8
million and $6.9 million, respectively, at
November 28, 1998.
Realized losses on purchased short-term S & P 100
index put options and sold short-term S & P 100
call options during fiscal 1999, 1998, and 1997
were $(350,000), $(435,000), and $(370,000),
respectively.
3. Inventories Inventories at November 27, 1999 and November 28,
1998 consisted of the following (in thousands,
except for percentages):
1999 1998
-------------------------------------------------------------------
Raw materials $ 7,337 $ 9,090
Work-in-process 7,871 14,177
Finished goods 8,794 8,946
-------------------------------------------------------------------
$24,002 $32,213
===================================================================
Approximate percentage of
inventories valued under LIFO
method 53% 50%
===================================================================
Excess of FIFO valuation over
LIFO valuation $ 3,000 $4,595
===================================================================
F-15
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The reduction in the LIFO reserve during
fiscal 1999 was primarily attributable to
lower average FIFO cost levels.
4. Property, Plant and Property, plant and equipment at November
Equipment 27, 1999 and November 28, 1998 consisted of
the following (in thousands):
1999 1998
-------------------------------------------------------------------
Owned by the Company:
Land and improvements $ 698 $ 698
Buildings and improvements 13,582 13,877
Machinery and equipment 112,140 109,252
Trucks and automobiles 1,662 1,662
Office equipment 681 681
Leasehold improvements 808 808
-------------------------------------------------------------------
129,571 126,978
Property under capital leases:
Land 18 18
Buildings and improvements 1,432 1,432
-------------------------------------------------------------------
131,021 128,428
Less: Accumulated depreciation and
amortization 94,612 88,407
-------------------------------------------------------------------
$ 36,409 $ 40,021
===================================================================
As of November 27, 1999, the Company has
idle manufacturing assets of approximately
$3.1 million which continue to be
depreciated.
5. Obligations Under Obligations under capital leases at
Capital Leases November 27, 1999 and November 28, 1998
consisted of the following (in thousands):
1999 1998
-------------------------------------------------------------------
Obligations under capital leases
through 2006 payable in monthly
installments of $11 including
interest at 10% per annum $437 $514
F-16
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Less: Current maturities (included
with other current
liabilities) 28 28
-------------------------------------------------------------------
$409 $486
===================================================================
Aggregate installments on obligations
under capital leases maturing after one
year are as follows:
Fiscal year ending (in thousands)
2001 $ 85
2002 91
2003 97
2004 103
Thereafter 33
-------------------------------------------
$409
===========================================
6. Stock Compensation Stock Option Plan
Plans
Under the Company's 1987 stock option
plan, which terminated in May 1997, the
Company was able to grant to key employees
either nonqualified or incentive stock
options to purchase up to a maximum of
650,000 shares of common stock at the fair
market value at the date of the grant.
In May 1997, the Board of Directors
adopted and the shareholders approved a
new stock option plan providing for the
grant of up to 175,000 shares of common
stock at any time over the next ten years.
In general, the terms of the 1997 plan are
similar to the Company's previous stock
option plans.
F-17
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Company has adopted the
disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based
Compensation." Accordingly, no
compensation cost has been recognized for
the Company's stock option plans. If the
Company had elected to recognize
compensation costs based on the fair value
of the options granted at grant date as
prescribed by SFAS No. 123, net income and
earnings per share would have been reduced
to the pro forma amounts indicated below.
Since pro forma compensation expense from
stock options is recognized over the
future years' vesting period, and
additional awards generally are made from
time to time, pro forma amounts for 1999
may not be representative of future years'
amounts.
(Dollars in thousands, except per
share data) 1999 1998 1997
--------------------------------------------------------------------------------
Pro forma net income $ 305 $ 5,794 $ 9,233
Pro forma earnings per share -
diluted $0.06 $ 1.02 $ 1.60
================================================================================
The weighted average fair value of options granted
was $1.73, $7.04 and $10.29 per share in fiscal 1999,
1998 and 1997, respectively.
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 1999,
1998 and 1997 grants:
----------------------------------------------------------------------
Dividends $.70 per share
Volatility 21.4% to 27.5%
Risk-free interest 4.37% to 6.7%
Expected term 2 to 10 years
=====================================================================
F-18
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, November 30, 1996 154,900 20.25
Options granted 64,000 29.77
Options exercised (8,800) 17.50
Options canceled (3,000) 33.88
---------------------------------------------------------------------------------
Shares under option, November 29, 1997 207,100 23.11
Options granted 20,000 29.10
Options exercised (15,450) 22.32
Options canceled (39,000) (30.29)
---------------------------------------------------------------------------------
Shares under option, November 28, 1998 172,650 22.26
Options granted 113,700 13.00
Options exercised (3,500) 15.44
Options canceled (13,100) (27.44)
---------------------------------------------------------------------------------
Shares under option, November 27, 1999 269,750 18.19
=================================================================================
=================================================================================
Options exercisable at:
November 29, 1997 125,900 $19.37
November 28, 1998 125,010 20.01
November 27, 1999 130,130 20.80
=================================================================================
F-19
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The following summarizes information about shares under option in the respective
exercise price ranges at November 27, 1999:
Weighted average Weighted average
Range of exercise Weighted average exercise price Number exercise price
price per share Number outstanding remaining life per share exercisable per share
-------------------- -------------------- -------------------- ------------------- -------------------- -------------------
$13.00 113,700 9.89 $13.00 - $ -
15.44 - 19.00 77,450 1.03 15.96 77,450 15.96
22.06 - 31.44 78,600 6.94 27.90 52,680 27.90
-------------------- -------------------- -------------------- ------------------- -------------------- -------------------
269,750 130,130
================================================================================================================================
The shares authorized but not granted under the Company's stock option plans
were 51,300 at November 27, 1999 and 165,000 at November 28, 1998. Common stock
reserved for options totaled 269,750 shares at November 27, 1999 and 172,650
shares at November 28, 1998.
F-20
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Restricted Stock Plan
The Company has a restricted stock plan
which awards shares of common stock
previously held in its treasury to key
employees. Shares are awarded in the name
of the employee, who has all rights of a
shareholder, subject to certain
restrictions or forfeiture. Vesting occurs
over a five-year period from the date the
shares were awarded. Dividends associated
with the shares are held by the Company
and vest over the same five-year period.
The compensation element related to such
shares is recognized ratably over the
five-year restriction period. Compensation
expense related to the above restricted
shares for fiscal 1999, 1998 and 1997 was
$1,000, $26,000 and $31,000, respectively.
No restricted stock was awarded in Fiscal
1999, 1998, or 1997.
7. Stockholder Rights Plan The Company has a Stockholder Rights Plan
(the "Plan") whereby each stockholder has
received a distribution of rights for each
common share held. The rights will become
exercisable and will detach from the
common shares a specified time after any
person becomes the beneficial owner of 20%
or more of the Company's common shares, or
commences a tender or exchange offer
which, if consummated, would result in any
person becoming the beneficial owner of
30% or more of the Company's common
shares. Once exercisable, each right will
entitle the holder, other than the
acquiring person, to purchase, for the
rights purchase price, common shares
having a market value of twice the right's
purchase price.
If, following an acquisition of 20% or
more of the Company's common shares, the
Company is involved in any merger or other
business combination or sells or transfers
more than 50% of its assets or earnings
power, each right will entitle the holder
to purchase, for the rights purchase
price, common shares of the other party to
such transaction having a market value of
twice the right's purchase price.
The Company may redeem the rights at a
price of $0.01 per right at any time prior
to a specified period of time after a
person has become the beneficial owner of
20% or more of the Company's common
shares. The rights attach to all of the
Company's common shares outstanding as of
June 6, 1990, or subsequently issued, and
expire on June 6, 2000.
F-21
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
8. 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 1999, 1998 and 1997 were
$195,000, $308,000 and $429,000,
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
1999, 1998 and 1997 were $38,000, $59,000
and $94,000, respectively. Benefits
payable under this plan amounting to
$2,838,000 and $2,501,000 at November 27,
1999 and November 28, 1998, 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-22
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 1999 and
1998:
1999 1998
------------------ ------------------
Reconciliation of the benefit obligation
Obligation at beginning of year $4,200,000 $3,690,000
Service cost 301,000 272,000
Interest cost 260,000 264,000
Actuarial (gain) loss (883,000) 461,000
Benefit payments (888,000) (487,000)
------------------ ------------------
Obligation at end of year $2,990,000 $4,200,000
================== ==================
1999 1998
------------------ ------------------
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year
$4,987,000 $5,593,000
Actual return on plan assets (net of expenses) 628,000 (119,000)
Benefit payments (888,000) (487,000)
------------------ ------------------
Fair value of plan assets at end of year $4,727,000 $4,987,000
================== ==================
1999 1998
------------------ ------------------
Funded status
Funded status $1,737,000 $ 787,000
Unrecognized prior service cost 758,000 833,000
Unrecognized (gain) loss (2,588,000) (1,573,000)
------------------ ------------------
Net amount recognized $ (93,000) $ 47,000
================== ==================
F-23
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 27, 1999 and
November 28, 1998:
1999 1998
----------------- ------------------
Prepaid benefit cost $ - $ 47,000
Accrued benefit liability (93,000) -
----------------- ------------------
Net amount recognized $ (93,000) $ 47,000
================= ==================
The following table provides the
components of the net periodic benefit
cost for the Plan for fiscal 1999 and
1998:
1999 1998
----------------- ------------------
Service cost $ 302,000 $ 272,000
Interest cost on projected benefit obligation 261,000 264,000
Expected return on plan assets (397,000) (445,000)
Amortization of transition (asset) obligation - (28,000)
Amortization of prior service cost 74,000 74,000
Amortization of net (gain) loss (100,000) (168,000)
----------------- ------------------
Net periodic pension cost/(credit) $ 140,000 $ (31,000)
================= ==================
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 1999 and 1998 are
shown in the following table:
1999 1998
----------------- ------------------
Discount rate 7.50% 6.50%
Expected return on plan assets 8.00% 8.00%
F-24
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Employee Stock Ownership Plan
The Company has an Employee Stock
Ownership Plan ("ESOP") which covers 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 is 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.
Annual principal installments of $790,000
plus interest at prime are paid by the
ESOP to the Company. The balance on the
ESOP indebtedness at November 27, 1999 of
$5,537,000 is reflected as a reduction of
the Company's stockholders' equity in the
consolidated balance sheets.
The Company accounts 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 are recorded for
financial reporting purposes as the ESOP
shares become allocable to the plan
participants. All ESOP shares are
considered outstanding in the
determination of earnings per share.
The portion of the common stock dividends
declared relating to ESOP shares totaled
$213,000, $218,000 and $227,000 for fiscal
1999, 1998 and 1997, respectively. Of
these amounts, $110,000, $102,000 and
$89,000 for fiscal 1999, 1998 and 1997,
respectively, related to allocated shares
and $103,000, $116,000 and $138,000 for
fiscal 1999, 1998 and 1997, respectively,
related to unallocated shares. The
dividends related to the unallocated
shares are being applied towards the
$790,000 annual principal installments
referred to above.
F-25
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
As of November 27, 1999 and November 28,
1998, ESOP shares information was as
follows:
1999 1998
--------------------------------------------------------------------------------
Allocated 168,667 154,829
Committed to be released 23,439 24,488
In suspense 106,576 128,966
--------------------------------------------------------------------------------
Total shares held by ESOP 298,682 308,283
================================================================================
The net charges to earnings for fiscal
1999, 1998 and 1997 were as follows
(in thousands):
1999 1998 1997
--------------------------------------------------------------------------------
Contribution to ESOP $1,108 $1,176 $1,242
Less: Interest income on loan
to ESOP 535 605 691
--------------------------------------------------------------------------------
Net charge to earnings $ 573 $ 571 $ 551
================================================================================
The contribution to the ESOP is allocated
between costs of goods sold and operating
expenses; the interest income is included
in interest and dividend income.
9. Income Taxes Provisions (benefits) for Federal, state
and local income taxes for fiscal 1999,
1998 and 1997 consisted of the following
components (in thousands):
1999 1998 1997
------------------------------------------------------------------------------------
Current:
Federal $ (769) $ 881 $3,876
State and local (71) 77 444
------------------------------------------------------------------------------------
(840) 958 4,320
Deferred:
Federal and state (15) 1,042 (185)
------------------------------------------------------------------------------------
$(855) $2,000 $4,135
====================================================================================
F-26
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The net deferred tax liability at November
27, 1999 and November 28, 1998 consisted
of the following (in thousands):
1999 1998
------------------------------------------------------------------------------------
Long-term portion:
Gross deferred tax liability (asset)for:
Excess depreciation for tax purposes $6,390 $5,989
Future tax deductions for employee
benefit plans (1,206) (1,284)
Other (114)
------------------------------------------------------------------------------------
Net long-term liability 5,070 4,705
------------------------------------------------------------------------------------
Current portion:
Gross deferred tax liability (asset)for:
Accounts receivable - Section 475
adjustment 577 855
Net unrealized holding gain (loss)
on investment securities
available-for-sale, included in
stockholders' equity (274) 367
ESOP contribution accrued for tax
purposes 430 422
Other (216) (106)
------------------------------------------------------------------------------------
Net current liability 517 1,538
------------------------------------------------------------------------------------
Net deferred tax liability $5,587 $6,243
====================================================================================
F-27
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 1999 and 1998,
and 35.0% for fiscal 1997 to income (loss)
before income taxes due to the following:
1999 1998 1997
--------------------------------- -------------- --------------- ---------------
(Tax effect in thousands)
Federal tax expense
(benefit)at statutory rate $(115) $2,726 $4,735
State and local income taxes,
net of Federal benefit (78) 184 338
Tax-free interest income and
dividends received deduction (662) (890) (879)
Other - (20) (59)
--------------------------------- -------------- --------------- ---------------
Income tax expense (benefit) $(855) $2,000 $4,135
================================================================================
10. Commitments and Stock Repurchase
Contingencies
The Company has an agreement with the
Chairman of the Board of Directors and
Chief Executive Officer which provides
that, in the event of the Chairman's
death, his estate has the option to sell,
and the Company the obligation to
purchase, certain stock owned by the
Chairman. The amount of stock subject to
purchase is equal to the lesser of $7
million or 10% of the book value of the
Company at the end of the year immediately
following his death, plus the $3 million
proceeds from insurance on his life for
which the Company is the beneficiary. The
agreement extends automatically from year
to year unless either party gives notice
of cancellation at least six months prior
to the then current expiration date. The
current expiration date is March 2001.
F-28
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Lease
The Company leases its New York City
offices and showrooms until 2006, at
average minimum annual rentals of $503,000
until April 2001 and $660,000 thereafter
until April 2006, plus escalation and
other costs. The Company has the option to
cancel the lease effective April 2001.
Rental expense for operating leases in
fiscal 1999, 1998 and 1997 aggregated
$894,000, $986,000 and $605,000,
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)
-------------------------------------------
2000 $559
2001 235
-------------------------------------------
$794
===========================================
A number of claims and lawsuits seeking
unspecified damages and other relief 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.
11.Statement of Cash Flows Cash outlays (net refunds) for corporate
income taxes and interest for fiscal 1999,
1998 and 1997 were as follows (in
thousands):
Corporate income
taxes Interest
-------------------------------------------
1999 $(1,238) $101
1998 2,907 75
1997 3,545 65
===========================================
F-29
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Options to purchase 182,000, 46,000 and
52,000 shares of common stock were
outstanding during fiscal 1999, 1998 and
1997, respectively, but were not included
in the computation of diluted earnings per
share because the options' exercise prices
were greater than the average market price
of the common shares during such fiscal
years.
F-30
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Noncash Investing and Financing Activities
In fiscal 1999, 1998 and 1997, net
unrealized holding gains (losses) of
$(1,601,000), $(143,000) and $48,000,
respectively, less related income taxes of
$(640,000), $(57,000) and $19,000, on
investment securities available-for-sale,
were recorded as increases (decreases) in
stockholders' equity.
12. Interest and Dividend Interest and dividend income for the past
three fiscal years were as follows Income
(in thousands):
Interest Dividend
income income Total
-------------------------------------------
1999 $2,664 $287 $2,951
1998 3,184 345 3,529
1997 3,654 176 3,830
-------------------------------------------
F-31
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
13. Earnings Per Share Basic and diluted earnings per share
for the fiscal years ended November 27,
1999, November 28, 1998 and November 29,
1997 are calculated as follows:
Weighed
Average Per Share
Net Income Shares Amount
------------------------------------------------------------------------------
Fiscal year ended November 27, 1999:
Basic earnings per share $517,000 5,414,687 $.10
===============
Effect of assumed
conversion of employee
stock options 4,443
------------------------------------------------------------------------------
Diluted earnings per share $517,000 5,419,130 $.10
==============================================================================
Fiscal year ended November 28, 1998:
Basic earnings per share $6,017,000 5,627,788 $1.07
===============
Effect of assumed
conversion of employee
stock options 37,406
------------------------------------------------------------------------------
Diluted earnings per share $6,017,000 5,665,194 $1.06
==============================================================================
Fiscal year ended November 29, 1997:
Basic earnings per share $9,394,000 5,705,624 $1.65
===============
Effect of assumed
conversion of employee
stock options 47,271
------------------------------------------------------------------------------
Diluted earnings per share $9,394,000 5,752,895 $1.63
==============================================================================
F-32
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 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: The Company uses its own textile fabrics
internally to produce 100% cotton jersey sheets, flannel and satin sheets, as
well as blankets, comforters and other bedding products which the Company sells
to department and specialty stores, catalogues and mail order companies as well
as airlines and healthcare institutions. The Company's textile fabrics are also
sold to manufacturers of home furnishings.
Other: The Company produces a line of ultrasonically, hot melt adhesive, flame
and adhesive bonded products for apparel, environmental, health care, industrial
and consumer markets. The Company's textile fabrics are sold to manufacturers of
industrial fabrics and upholstery fabrics for residential and contact markets.
The Company also sells retail over-the-counter fabrics.
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 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-33
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
During fiscal 1999 and 1998, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales or the year-end accounts
receivable balance. For fiscal 1997, sales to a group of customers affiliated
through common control accounted for approximately 10% of net sales.
1999 Home Fashions
- ---- Apparel And Accessories Other Total
------- --------------- ----- -----
External sales $102,883 $16,034 $9,972 $128,889
Intersegment sales 12,264 47 945 13,256
Operating income/(loss) (6,196) 1,169 (248) (5,275)
Depreciation expense 5,597 54 406 6,057
Segment assets 53,024 2,506 4,396 59,926
Capital expenditures 1,244 38 1,254 2,536
Home Fashions
1998 Apparel And Accessories Other Total
- ---- ------- --------------- ----- -----
External sales $124,256 $15,409 $11,771 $151,436
Intersegment sales 18,621 67 1,015 19,703
Operating income/(loss) 3,430 745 (758) 3,417
Depreciation expense 4,997 50 356 5,403
Segment assets 62,356 4,917 4,346 71,619
Capital expenditures 15,004 64 435 15,503
Home Fashions
1997 Apparel And Accessories Other Total
- ---- ------- --------------- ----- -----
External sales $135,111 $12,951 $12,873 $160,935
Intersegment sales 12,546 24 270 12,840
Operating income/(loss) 6,455 1,569 601 8,625
Depreciation expense 4,307 60 382 4,749
Segment assets 50,793 2,535 4,048 57,376
Capital expenditures 3,299 36 1,456 4,791
F-34
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Revenues 1999 1998 1997
- -------- ---- ---- ----
Total external sales for segments $ 128,889 $ 151,436 $ 160,935
Intersegment sales for segments 13,256 19,703 12,840
Elimination of intersegment sales (13,256) (19,703) (12,840)
----------------------------------------
Total consolidated sales $ 128,889 $ 151,436 $ 160,935
========================================
Profit or Loss
Total operating income (loss) for segments $ (5,275) $ 3,417 $ 8,625
Total other income 4,937 4,600 4,904
----------------------------------------
Income (loss) before taxes on income $ (338) $ 8,017 $ 13,529
========================================
Assets
Total segments assets $ 59,926 $ 71,619 $ 57,376
Assets not allocated to segments 92,252 88,784 106,148
----------------------------------------
Total consolidated assets $ 152,178 $ 160,403 $ 163,524
========================================
Other Significant Items
Depreciation expense $ 6,057 $ 5,403 $ 4,749
Not allocated to segments 147 152 315
----------------------------------------
Consolidated total $ 6,204 $ 5,555 $ 5,064
========================================
Capital expenditures $ 2,536 $ 15,503 $ 4,791
Not allocated to segments 56 64 79
----------------------------------------
Consolidated total $ 2,592 $ 15,567 $ 4,870
========================================
F-35
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
15. Quarterly Quarterly earnings were as follows (in
Financial Data thousands, except for earnings per share):
(unaudited)
First Second Third Fourth
quarter quarter quarter quarter* Total
---------------------------------------------------------------------------------
Fiscal 1999:
Net sales $ 29,007 $37,467 $30,174 $32,241 $128,889
Cost of goods sold 28,761 31,801 27,612 30,599 118,773
Net income (1,815) 1,982 257 93 517
Earnings per share:
Basic $ (0.33) $ 0.37 $ 0.05 $ .02 $ 0.10
Diluted $ (0.33) $ 0.37 $ 0.05 $ .02 $ 0.10
=================================================================================
Fiscal 1998:
Net sales $ 34,251 $39,761 $39,571 $37,853 $151,436
Cost of goods sold 29,918 33,403 34,430 35,396 133,147
Net income 1,735 2,334 1,665 283 6,017
Earnings per share:
Basic $ 0.31 $ 0.41 $ 0.30 $ .05 $ 1.07
Diluted $ 0.30 $ 0.41 $ 0.30 $ .05 $ 1.06
=================================================================================
* As a result of lower than previously anticipated operating results, the
fourth quarter of fiscal 1998 reflects a reduction of incentive-based
compensation expenses and effective income tax rates from amounts
estimated in prior quarters, the aggregate of which increased net
income by approximately $1,085.
F-36
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 14
FISCAL YEARS ENDED NOVEMBER 27, 1999, NOVEMBER 28, 1998
AND NOVEMBER 29, 1997
S-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
Schedule:
II. Valuation and qualifying accounts S-3
S-2
Schedule II
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 30, 1999:
Allowance for doubtful
accounts $1,000 $750(i) $ - $(250)(ii) $1,500
Fiscal year ended November 28, 1998:
Allowance for doubtful
accounts $ 900 $400(i) $ - $(300)(ii) $1,000
Fiscal year ended November 29, 1997:
Allowance for doubtful
accounts $ 600 $400(i) $ - $(100)(ii) $ 900
===========================================================================================================
(i) Current year's provision.
(ii) Accounts receivable written-off, net of recoveries.
S-3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FAB INDUSTRIES, INC.
(Company)
By: /s/ Samson Bitensky
-------------------------------------
Samson Bitensky
Chairman of the Board and Chief Executive
Officer
Date: February 24, 2000
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Date Capacity in Which Signed
- --------- ---- ------------------------
/s/ Samson Bitensky February 24, 2000 Chairman of the Board,
- --------------------------- Chief Executive Officer and
Samson Bitensky Director (Principal Executive
Officer)
/s/ David A. Miller February 24, 2000 Vice President - Finance,
- --------------------------- Treasurer and Chief Financial
David A. Miller Officer (Principal
Financial and Accounting
Officer)
/s/ Sherman S. Lawrence February 24, 2000 Secretary and Director
- ---------------------------
Sherman S. Lawrence
/s/ Martin Bernstein February 24, 2000 Director
- ---------------------------
Martin Bernstein
/s/ Lawrence Bober February 24, 2000 Director
- ---------------------------
Lawrence Bober
/s/ Frank Greenberg February 24, 2000 Director
- ----------------------------
Frank Greenberg
/s/ Susan Lerner February 24, 2000 Director
- ----------------------------
Susan Lerner
/s/ Richard Marlin February 24, 2000 Director
- ----------------------------
Richard Marlin
INDEX TO EXHIBITS
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.
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 - 1987 Stock Option Plan of the Company, incorporated by reference
to Exhibit 10.1 to the 1993 10-K.
10.2 - 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.
10.3 - Fab Industries, Inc. Hourly Employees Retirement Plan (the
"Retirement Plan"), incorporated by reference to Exhibit
10.3 to the 1993 10-K.
10.4 - Amendment to the Retirement Plan effective December 11,
1978, incorporated by reference to Exhibit 10.4 to the
1993 10-K.
10.5 - Amendment to the Retirement Plan effective December 1,
1981, incorporated by reference to Exhibit 10.5 to the
1993 10-K.
10.6 - Amendment to the Retirement Plan dated November 21, 1983,
incorporated by reference to Exhibit 10.6 to the 1993 10-K.
10.7 - Amendment to the Retirement Plan dated August 29, 1986,
incorporated by reference to Exhibit 10.7 to the 1993 10-K.
10.8 - Amendment to the Retirement Plan effective as of December
1, 1989, incorporated by reference to Exhibit 10.8 to the
1993 10-K.
10.9 - 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").
10.10 - Fab Lace, Inc. Employees Profit Sharing Plan (the "Profit
Sharing Plan"), incorporated by reference to Exhibit 10.9
to the 1993 10-K.
10.11 - Amendment to the Profit Sharing Plan effective December 1,
1978, incorporated by reference to Exhibit 10.10 to the
1993 10-K.
10.12 - Amendment dated December 1, 1985 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.11 to the
1993 10-K.
10.13 - Amendment dated February 5, 1987 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.12 to the
1993 10-K.
10.14 - Amendment dated December 24, 1987 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.13 to the
1993 10-K.
10.15 - Amendment dated June 30, 1989 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.14 to the 1993
10-K.
10.16 - Amendment dated February 1, 1991 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.15 to the
1993 10-K.
10.17 - Amendment dated September 1, 1995 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.17 to the
1995 10-K.
10.18 - 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.
10.19 - 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.
10.20 - 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.
10.21 - 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.
10.22 - 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.
10.23 - Form of indemnification agreement between the Company and
its officers and directors, incorporated by reference to
Exhibit 10.20 to the 1993 10-K.
10.24 - 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.
10.25 - Amendment dated September 21, 1995 to the Employee Stock
Ownership Plan, incorporated by reference to Exhibit 10.27
to the 1995 10-K.
10.26 - 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.
10.27 - Fab Industries, Inc. 1997 Stock Incentive Plan,
incorporated by reference to Exhibit A to the Proxy
Statement dated May 6, 1999, File No. 1-5901.
21 - Subsidiaries of the Company incorporated by reference to
Exhibit 21 to the 1994 10-K.
*23.1 - Consent of Ernst & Young, LLP.
*23.2 - Consent of BDO Seidman, LLP.
**27 - Financial Data Schedule pursuant to Article 5 of
Regulation S-X.
- -------------------------
* Filed herewith.
** Filed with EDGAR version only.