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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 December 2, 2000 Commission file number 1-5901
FAB INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2581181
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Madison Avenue, New York, NY 10016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-592-2700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -------------------------
Common Stock, $.20 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: Share Purchase
Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
---
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value at February 14, 2001 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 14,
2001, there were outstanding 5,281,368 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 April 2, 2001 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
- ----------- ----
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..........4
PART II.......................................................................5
Item 5. Market for Common Equity and Related Stockholder Matters.....5
Item 6. Selected Consolidated Financial Data.........................6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................6
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.................................................9
Item 8. Financial Statements and Supplementary Data..................9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................9
PART III.....................................................................10
Item 10. Directors and Executive Officers...........................10
Item 11. Executive Compensation.....................................11
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................11
Item 13. Certain Relationships and Related Transactions.............11
PART IV......................................................................12
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................12
PART I
Item 1. Business
Fab Industries, Inc. was incorporated on April 21, 1966, under the laws
of the State of Delaware and is a successor by merger to previously existing
businesses. References in this Annual Report to "Fab" or "us" or "our" or "the
Company" mean Fab Industries, Inc. and its subsidiaries on a consolidated basis,
unless the context otherwise requires.
We are a major manufacturer of warp and circular knit fabrics, raschel
laces, and laminated fabrics. We have identified three segments in which we
operate: Apparel Fabrics, Home Fashions and Accessories, and Others.
Apparel Fabrics
Our 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.
Our raschel lace products are sold to manufacturers of intimate apparel
through our 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.
Our subsidiary, SMS Textiles, Inc., manufactures wide elastic fabrics
for sale to manufacturers of intimate apparel, swimwear, athleticwear and
sportswear.
Our 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.
We also offer 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, we also
use our own textile fabrics internally to produce 100% cotton jersey sheets,
flannel and satin sheets, as well as blankets, comforters and other bedding
products which we sell to specialty stores, catalogue and mail order companies,
as well as airlines and health care institutions. Our textile fabrics are also
sold to manufacturers of home furnishings.
Other
Our 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. Our textiles are sold to manufacturers of industrial fabrics for
residential and contact markets. We also sell fabrics to over the counter
vendors in the retail market.
General
We engage in research and product development activities to create new
fabrics and styles to meet the continually changing demands of our customers.
Direct expenditures in this area aggregated $3,625,000 in fiscal 1998,
$3,478,000 in fiscal 1999, and $3,206,000 in fiscal 2000. Through these efforts,
we have developed a full line of proprietary knitted fabrics for sale to
manufacturers of men's, women's, and children's apparel in both domestic and
foreign markets. Similarly, we have also developed a full line of proprietary
sheets and blankets, including specialty blankets for the airline industry.
While we use various trademarks and trade names in the promotion and
sale of our products, we do not believe that the loss or expiration of any such
trademark or trade name would have a material adverse effect on our operations.
We market our products primarily through our full-time sales personnel,
as well as independent representatives located throughout the United States and
abroad. We also market our products on our web site: www.fab-industries.com.
Historically, our 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.
We do not believe our backlog of firm orders is a material indicator of
future business trends, because goods subject to such orders are shipped within
two to ten weeks, depending on the availability of yarn and other raw materials.
On average, orders are filled within six weeks.
During fiscal 2000, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales. Our export sales are not
material.
Supplies of Raw Materials
We have not experienced difficulties in obtaining sufficient yarns,
chemicals, dyes and other raw materials and supplies to maintain full
production. We do not depend upon any single source of supply, and alternative
sources are available for most of the raw materials used in our business.
Inventories
We maintain adequate inventories of yarns and other raw materials to
insure an uninterrupted production flow. Greige and finished goods are
maintained as inventory to meet varying customer demand and delivery
requirements. We must maintain adequate working capital, because credit terms
available to customers normally exceed credit terms extended to us by suppliers
of raw materials.
Competition
We are 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 our products. We believe that we are 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 our
products. The proportion of imported textile goods sold in the United States has
increased substantially in the past few years, adversely impacting domestically
manufactured textile products and the number of domestic manufacturers of such
products. We have made significant expenditures on production equipment over the
past several years, and we continue to maintain a strong financial position.
However, our sales have
declined from approximately $156,000,000 in 1996 to approximately $118,000,000
in 2000 largely as a result of increased foreign competition.
We will continue to evaluate steps to reduce costs, including plant
consolidation, if present market conditions do not improve. As a result of
increased competition and other factors adversely affecting our business in the
past three years, we have embarked upon a number of cost saving initiatives.
Segment Information
See Note 13 of the Notes to Consolidated Financial Statements.
Employees
We employ approximately 1,100 people, of whom approximately 1,050 are
employed by our subsidiaries. The employees are not represented by unions. We
consider relations with our employees to be satisfactory. The number of our
employees has declined from approximately 1300 at the end of 1999, and from
approximately 1600 at the end of 1998.
Item 2. Properties.
We conduct our manufacturing operations in owned facilities located in
Lincolnton, Maiden, Cherryville and Salisbury in North Carolina, and in leased
facilities located in Amsterdam, New York. Our facilities are operated in
general on a five day-a-week basis.
We conduct our knitting, dyeing-finishing and printing operations 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. We also conduct dyeing-finishing
operations at the Cherryville facility. The Lincolnton and Cherryville
facilities also process and serve as warehouses for greige goods, manufactured
and shipped from our Amsterdam and Maiden plants.
At the Maiden plant facility, we conduct 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 our consumer
and institutional products manufacturing, retail and over- the-counter
operations. We have devoted our Amsterdam facilities to tricot warping and
knitting and warehousing. We use approximately 106,000 square feet in one of our
Amsterdam plants for the production of a line of a variety of flame retarding,
adhesive, and ultrasonically bonded items.
We surrendered to our landlord approximately half of the floor space of
our executive offices and showroom facilities in our New York City headquarters.
As a result of this decision, we expect to realize a substantial annual savings.
The following table sets forth the location of each of our
manufacturing facilities, our principal use, approximate floor space, and, where
leased, the lease expiration date. There are no mortgages or other encumbrances
on any of our facilities.
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
3
Approximate Lease
Location Principal Use Floor Space Expiration Date
- -------- ------------- ----------- ---------------
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. (2)
New York material manufacturing
operations and bonding and
laminating
Amsterdam, Warping, tricot knitting and 367,000 sq.ft. 12/31/06 (3)
New York warehouse
Cherryville, Dyeing and finishing, and 197,000 sq. ft. (1)
North Carolina warehouse
New York, Executive offices and showroom 15,949 sq. ft 7/31/05
New York facilities
- ------------------------
(1) Owned by us.
(2) The lease currently runs from month to month. A new lease is being
negotiated.
(3) Capitalized building lease - See Note 5 of the Notes to Consolidated
Financial Statements.
All of our facilities are constructed of brick, steel or concrete, and
we consider all facilities to be adequate and in good operating condition and
repair.
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 us and our
Salisbury Manufacturing Corporation ("Salisbury") subsidiary. The action relates
to an agreement between SFN and Salisbury (whose performance we guaranteed),
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 us on the guarantee.
We removed this action to the United States District Court for the Northern
District of California. Salisbury filed an answer and counterclaim on March 16,
2000 and an amended answer and counterclaim on August 28, 2000. Salisbury
asserts claims against SFN for breach of contract, negligent and intentional
misrepresentation, breach of the implied covenant of good faith and fair
dealing, unfair business practices, and violations of the California Franchise
Investment Act, the California Franchise Relations Act, and New York Franchises
Law. Currently, we are engaged in the discovery stage of this action. We intend
to vigorously defend this action.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not Applicable
4
PART II
Item 5. Market for Fab's Common Equity and Related Stockholder Matters.
Fab's Common Stock is traded on the American Stock Exchange, Inc.
(ticker symbol - FIT). The table below sets forth the high and low sales prices
of the Common Stock during the past two fiscal years.
Fiscal 2000 High Low
----------- ---- ---
First Quarter.......................................... $12 3/4 $9 7/8
Second Quarter......................................... $12 1/8 $10
Third Quarter.......................................... $11 $9 7/8
Fourth Quarter......................................... $13 $10 1/4
Fiscal 1999
-----------
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
At February 14, 2001, there were approximately 495 holders of record
of Common Stock. 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. For fiscal 2000, a quarterly dividend of $.175 per share was declared on
February 24, 2000 and quarterly dividends of $.10 per share were declared on May
4, 2000, August 24, 2000 and November 20, 2000. The payment of further cash
dividends will be at the discretion of the Board of Directors and will depend
upon, among other things, our earnings, our capital requirements and our
financial condition.
5
Item 6. Selected Consolidated Financial Data.
(in thousands, except for share and per share data)
As at or for the fiscal year ended
---------------- ----------------- -------------------- --------------- -------------------
December 2, November 27, November 28, November 29, November 30,
2000 (1) 1999 1998 1997 1996
Net Sales $118,185 $128,889 $151,436 $160,935 $156,136
Income before
taxes on income 4,178 (338) 8,017 13,529 12,596
Net income 3,033 517 6,017 9,394 8,796
Earnings per share:
Basic .57 .10 1.07 1.65 1.52
Diluted .57 .10 1.06 1.63 1.51
Total assets 151,412 152,178 160,403 163,524 160,980
Long-term debt 362 409 486 556 620
Stockholders' equity 130,855 130,788 137,527 137,892 133,888
Book value per share (2) 24.75 24.20 24.63 24.26 23.25
Cash dividends per share .475 .70 .70 .70 .70
Weighted average number
of shares outstanding:
Basic 5,336,958 5,414,687 5,627,788 5,705,624 5,797,228
Diluted 5,336,958 5,419,130 5,665,194 5,752,895 5,841,138
- ---------------------
(1) Fifty-three week period.
(2) Computed by dividing stockholders' equity by the number of shares
outstanding at year-end.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Fiscal 2000 Compared to Fiscal 1999
Net sales for the fiscal 2000 were $118,185,000 as compared to
$128,889,000 in fiscal 1999, a decrease of 8.3% (Fiscal 2000 had 53 weeks).
Since 1998, a flood of low cost imports from Asia has continued to take a
sustained toll on the U.S. manufacturing sector and has negatively impacted
segment decline in sales and production. We are continuing to evaluate steps to
reduce costs including plant consolidation in light of the present market
conditions.
Gross margins as a percentage of sales increased to 9.7% from 7.8%.
Margins were aided by increased efficiencies and extensive cost control
programs. Higher FIFO unit material costs resulted in an increase in LIFO
inventory reserves of $228,000 as compared to a decrease in the comparable
period in 1999 of $1,595,000, arising principally from lower average FIFO cost
levels.
The apparel and home fashion segments have taken measures to reduce
operating costs, including a reduction in the number of employees, which have
had a positive effect and have reduced fixed overhead. This was partially offset
by rising raw material costs.
6
Selling, general and administrative expenses decreased by $2,926,000,
or 19.0%. Reduced expenses related primarily to the reduced number of employees
on the payroll. In addition, expenses decreased as a result of the continued
effectiveness of our expense and cost containment programs.
Interest and dividend income increased by $1,049,000, or 35.5% as a
result of both higher average invested balances and higher average rates. As a
result of a change in our investment policy, in order to maximize total return,
a major portion of our portfolio was transferred from tax-free municipals to
high quality, investment grade, taxable bonds. We realized gains from the sale
of investment securities of $1,300,000 compared to $2,087,000 in fiscal 1999.
The effective income tax rate for fiscal 2000 was 27.4% as against a
tax benefit in the comparative period in 1999. In fiscal 2000, the provision for
income taxes differed from the statutory federal income tax rate of 34% due to
tax free investment income and state and local income taxes.
As a result of these factors, net income increased to $3,033,000 from
$517,000 last fiscal year and loss from operations decreased to $1,036,000 in
fiscal 2000 from $5,275,000 in fiscal 1999. For fiscal 2000, and fiscal 1999
basic and diluted earnings per share were $0.57 and $0.10, respectively.
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 were depressed and we experienced competitive market
conditions, both domestic and foreign. Garments manufactured in Asia and
imported to the United States adversely impacted the demand for fabrics
manufactured domestically. These factors continued to exert downward pressure on
our sales levels.
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.
We intensified our 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. We realized gains from the sales of investment securities of
$2,087,000 compared to $1,146,000 in fiscal 1998.
We 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 in
fiscal 1998.
7
Liquidity and Capital Resources
Net cash provided by operating activities in fiscal 2000 amounted to
$16,162,000, as compared to $17,964,000 in fiscal 1999. Of this decrease,
$2,318,000 relates to comparative changes in accounts receivable, $3,627,000 to
inventories, and $340,000 to depreciation. These decreases were offset by
$2,516,000 increase in net income, $875,000 in other current assets and other
assets, $787,000 in net gain on investment securities and $350,000 in deferred
income taxes.
In fiscal 2000, net acquisitions of investment securities were
approximately $3.0 million, as compared to net acquisitions of approximately
$9.0 million in fiscal 1999. Our investment securities, all classified as
available-for-sale, had a fair market value of $62,264,000 and $57,752,000 at
fiscal year-end 2000 and 1999, respectively. See Note 2 of the Notes to
Consolidated Financial Statements for further details about the our investment
portfolio.
Capital expenditures for fiscal 2000 were $1,403,000 against $2,592,000
for fiscal 1999. During fiscal 2000, we repurchased 122,069 shares of our common
stock at a cost of $1,339,000 (an average price of $10.97). We intend to
continue to purchase shares of our common stock from time-to-time, as market
conditions warrant and price criteria are met.
During fiscal 2000, we declared regular quarterly dividends totaling
$0.475 per share. Stockholders' equity was $130,855,000, or $24.78 book value
per share, as compared to $130,788,000, or $24.20 book value per share, at the
previous fiscal year. Management believes that our current financial position is
adequate to internally fund any future expenditures to maintain and modernize
our manufacturing facilities, and pay dividends.
Inflation
We do not believe the effects of inflation have had a significant
impact on our consolidated financial statements.
FORWARD LOOKING INFORMATION
Certain statements in this report are "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forward looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in our
communications and discussions with investors and analysts in the normal course
of business including, but not limited to, meetings, phone calls and conference
calls, regarding the 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 our control, 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 our goods and services; competitive factors in the
industries in which we compete; changes in government regulation; changes in tax
requirements (including tax rate changes, new tax laws and revised tax law
interpretations); interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; economic and political
conditions in international markets, including governmental changes and
restrictions on the ability to transfer capital across borders; the ability to
achieve anticipated synergies and other cost savings in connection with
acquisitions; the timing, impact and other uncertainties of future acquisitions.
8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See "Summary of Accounting Policies - Risks And Uncertainties" and
"-Investments" in the Consolidated Financial Statements. See also Note 2 of the
Notes to Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data.
See the Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Consolidated Financial Statements Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
9
PART III
Item 10. Directors and Executive Officers.
Executive Officers
The following table sets forth certain information concerning our
executive officers as of February 14, 2001.
Name Age Positions and Offices
- ---- --- ---------------------
Samson Bitensky..................... 81 Chairman of the Board of Directors and Chief Executive Officer
Stanley August...................... 69 Co-President, Chief Operating Officer
Steven Myers........................ 52 Co-President, Chief Operating Officer
David A. Miller..................... 63 Vice President-Finance, Treasurer, and Chief Financial Officer
Jerry Deese......................... 49 Vice President-Controller of Plant Operations
Sam Hiatt........................... 53 Vice President-Sales
Sherman S. Lawrence................. 82 Secretary
Each of our 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 one of Fab's founders in 1966 and has served as
Chairman of the Board of Directors and Chief Executive Officer of Fab since such
time. Mr. Bitensky also served as President of Fab from 1970 until May 1, 1997.
Stanley August has been employed by Fab since 1980 and previously
served as General Sales Manager of our 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 Fab 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 Fab since 1966 and has served as
our 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 Fab 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 Fab since 1978 and previously had
various management responsibilities in the warp knit area. He has served as Vice
President-Sales since May 12, 1998.
Sherman S. Lawrence has served as a Director of Fab since 1966 and as
Secretary since 1968. Mr. Lawrence has been a practicing attorney since 1942 and
has served as co-counsel to Fab since 1966. Mr. Lawrence resigned as Director of
Fab in May 2000.
10
Other information required by this item is incorporated by reference
from our definitive proxy statement to be filed not later than April 2, 2001
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
our definitive proxy statement to be filed not later than April 2, 2001 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
our definitive proxy statement to be filed not later than April 2, 2001 pursuant
to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference from
our definitive proxy statement to be filed not later than April 2, 2001 pursuant
to Regulation 14A.
11
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 Consolidated
Financial Statements Schedules at page S-2.
(3) Exhibit List
Exhibit Description of Exhibit
- ------- ----------------------
3.1 - Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 27, 1993 (the
"1993 10-K").
3.2 - Amended and Restated By-laws, incorporated by reference to
Exhibit 3.2 to the 1993 10-K.
3.3 - Certificate of Amendment of Restated Certificate of
Incorporation, incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 3, 1994 (the "1994 10-K").
3.4 - Amendments to the Amended and Restated By-laws, incorporated
by reference to Exhibit 3.4 of the Company's Annual Report on
Form 10-K for the fiscal year ended November 29, 1997.
3.5 - Amendment to the Amended and Restated By-laws, incorporated by
reference to Exhibit 3.5 of the Company's Annual Report on
Form 10-K for the fiscal year ended November 27, 1999.
4.1 - Specimen of Common Stock Certificate, incorporated by
reference to Exhibit 4-A to Registration Statement No.
2-30163, filed on November 4, 1968.
4.2 - Rights Agreement dated as of June 6, 1990 between the Company
and Manufacturers Hanover Trust Company, as Rights Agent,
which includes as Exhibit A the form of Rights Certificate and
as Exhibit B the Summary of Rights to purchase Common Stock,
incorporated by reference to Exhibit 4.2 to the 1993 10-K.
4.3 - Amendment to the Rights Agreement between the Company and
Manufacturers Hanover Trust Company dated as of May 24, 1991,
incorporated by reference to Exhibit 4.3 to the 1993 10-K.
10.1 - 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.
12
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.
13
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.
*23.1 - Consent of Ernst & Young, LLP.
*23.2 - Consent of BDO Seidman, LLP.
- -------------------------
* Filed herewith.
(b) Reports on Form 8-K.
We did not file any reports on Form 8-K during the quarter
ended December 2, 2000.
14
Fab Industries, Inc.
and Subsidiaries
Consolidated Financial Statements
Form 10-K Item 8
Fiscal Years Ended December 2, 2000, November 27, 1999 and
November 28, 1998
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED DECEMBER 2, 2000, NOVEMBER 27, 1999,
AND NOVEMBER 28, 1998
F-1
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-35
F-2
Report Of Independent Auditors
The Board of Directors and Stockholders
Fab Industries, Inc.
We have audited the accompanying consolidated balance sheets of Fab Industries,
Inc. and subsidiaries as of December 2, 2000 and November 27, 1999 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. Our audit also included the 2000 and 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 based on
our audits.
We conducted our audits 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 audits provide 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 December 2, 2000 and November 27, 1999 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States. Also in our opinion, the related 2000 and 1999 financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material aspects the information set forth
therein.
/s/ Ernst & Young, LLP
Charlotte, North Carolina
February 16, 2001
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 statements of income, stockholders' equity and
cash flows of Fab Industries, Inc. and subsidiaries, and the schedule on page
S-3, for the fiscal year ended November 28, 1998. 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 audit.
We conducted our audit 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 results of operations and cash flows of
Fab Industries, Inc. and subsidiaries for the fiscal year 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
December 2, 2000 November 27, 1999
----------------------------------------------------------------------- ---------------------- ----------------------
Assets
Current:
Cash and cash equivalents (Note 1) $ 14,695,000 $ 6,078,000
Investment securities available-for-sale (Note 2) 62,264,000 57,752,000
Accounts receivable, net of allowance of $300,000 and $1,500,000
for doubtful accounts 17,073,000 21,417,000
Inventories (Note 3) 19,418,000 24,002,000
Other current assets 2,539,000 2,215,000
----------------------------------------------------------------------- ---------------------- ----------------------
Total current assets 115,989,000 111,464,000
Property, plant and equipment - net (Note 4) 31,676,000 36,409,000
Other assets (Note 7) 3,747,000 4,305,000
----------------------------------------------------------------------- ---------------------- ----------------------
$151,412,000 $152,178,000
----------------------------------------------------------------------- ---------------------- ----------------------
Liabilities and Stockholders' Equity
Current:
Accounts payable $ 5,532,000 $ 7,191,000
Corporate income and other taxes 2,911,000 1,553,000
Accrued payroll and related expenses 1,594,000 1,829,000
Dividends payable 528,000 946,000
Other current liabilities 760,000 562,000
Deferred income taxes (Note 8) 646,000 517,000
----------------------------------------------------------------------- ---------------------- ----------------------
Total current liabilities 11,971,000 12,598,000
Obligations under capital leases, net of current maturities (Note 5) 362,000 409,000
Other noncurrent liabilities (Note 7) 2,872,000 3,313,000
Deferred income taxes (Note 8) 5,352,000 5,070,000
----------------------------------------------------------------------- ---------------------- ----------------------
Total liabilities 20,557,000 21,390,000
----------------------------------------------------------------------- ---------------------- ----------------------
Commitments and contingencies (Notes 7 and 9)
Stockholders' equity (Notes 2, 6, 7, and 9):
Preferred stock, $1 par value - shares authorized 2,000,000;
none issued - -
Common stock, $.20 par value - shares authorized 15,000,000;
issued 6,591,944 and 6,591,944 1,319,000 1,319,000
Additional paid-in capital 6,967,000 6,967,000
Retained earnings 161,947,000 161,445,000
Loan to employee stock ownership plan (4,747,000) (5,537,000)
Accumulated other comprehensive loss (297,000) (411,000)
Cost of common stock held in treasury - 1,310,458 and
1,188,389 shares (34,334,000) (32,995,000)
----------------------------------------------------------------------- ---------------------- ----------------------
Total stockholders' equity 130,855,000 130,788,000
----------------------------------------------------------------------- ---------------------- ----------------------
$151,412,000 $152,178,000
----------------------------------------------------------------------- ---------------------- ----------------------
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
----------------------------------------------------------- ------------------ ------------------- ------------------
December 2, 2000 November 27, 1999 November 28, 1998
(1)
----------------------------------------------------------- ------------------ ------------------- ------------------
Net sales (Note 13) $118,185,000 $128,889,000 $151,436,000
Cost of goods sold 106,756,000 118,773,000 133,147,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Gross profit 11,429,000 10,116,000 18,289,000
Selling, general and administrative expenses 12,465,000 15,391,000 14,872,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Operating income (loss) (1,036,000) (5,275,000) 3,417,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Other income (expenses):
Interest and dividend income (Note 11) 4,000,000 2,951,000 3,529,000
Interest expense (86,000) (101,000) (75,000)
Net gain on investment securities (Note 2) 1,300,000 2,087,000 1,146,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Total other income 5,214,000 4,937,000 4,600,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Income (loss) before taxes on income 4,178,000 (338,000) 8,017,000
Income tax expense (benefit) 1,145,000 (855,000) 2,000,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Net income $ 3,033,000 $ 517,000 $ 6,017,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Earnings per share (Note 12):
Basic $ .57 $ .10 $ 1.07
Diluted $ .57 $ .10 $ 1.06
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash dividends declared per share $ .475 $ .70 $
.70
----------------------------------------------------------- ------------------ ------------------- ------------------
(1) 53 Weeks
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 December 2, 2000, November 27, 1999 and November 28, 1998
-------------------------------------------------------------------------------
Common stock
--------------------------
Number Additional Retained
Total of shares Amount paid-in capital earnings
----- --------- ------ --------------- --------
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 7) 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 7) 790,000 -- -- -- --
Balance, November 27, 1999 130,788,000 6,591,944 1,319,000 6,967,000 161,445,000
Net income - fiscal 2000 3,033,000 -- -- -- 3,033,000
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes 114,000 -- -- -- --
Total comprehensive income 3,147,000 -- -- -- --
Cash dividends (2,531,000) -- -- -- (2,531,000)
Purchase of treasury stock (1,339,000) -- -- -- --
Payment of loan from ESOP
(Note 7) 790,000 -- -- -- --
Balance, December 2, 2000 $ 130,855,000 6,591,944 $1,319,000 $6,967,000 $ 161,947,000
Treasury stock
Accumulated ------------------------
Loan to Other Unearned
employee stock Comprehensive restricted stock Number
ownership plan Income (loss) compensation of shares Cost
-------------- ------------- ------------ --------- ----
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 7) 790,000 -- -- -- --
Balance, November 28, 1998 (6,327,000) 550,000 (1,000) (1,005,081)
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 7) 790,000 -- -- -- --
Balance, November 27, 1999 (5,537,000) (411,000) -- (1,188,389)
Net income - fiscal 2000 -- -- -- -- --
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes -- 114,000 -- -- --
Total comprehensive income -- -- -- -- --
Cash dividends -- -- -- -- --
Purchase of treasury stock -- -- -- (122,069) (1,339,000)
Payment of loan from ESOP
(Note 7) 790,000 -- -- -- --
Balance, December 2, 2000 $(4,747,000) $(297,000) -- (1,310,458) $(34,334,000)
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 10)
Fiscal year ended
----------------------------------------------------------- ------------------ ------------------- ------------------
December 2, 2000 November 27, 1999 November 28, 1998
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from operating activities:
Net income $ 3,033,000 $ 517,000 $ 6,017,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 850,000 750,000 400,000
Depreciation 5,864,000 6,204,000 5,555,000
Deferred income taxes 335,000 (15,000) 1,042,000
Compensation under restricted stock plan - 12,000 26,000
Net gain on investment securities (1,300,000) (2,087,000) (1,146,000)
Gain on disposition of assets (106,000) - -
Decrease (increase) in:
Accounts receivable 3,494,000 5,812,000 493,000
Inventories 4,584,000 8,211,000 (3,943,000)
Other current assets (324,000) (488,000) 324,000
Other assets 558,000 (153,000) (472,000)
Increase (decrease) in:
Accounts payable (1,659,000) (1,919,000) 248,000
Accruals and other liabilities 833,000 1,120,000 (3,971,000)
----------------------------------------------------------- ------------------ ------------------- ------------------
Net cash provided by operating activities 16,162,000 17,964,000 4,573,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,403,000) (2,592,000) (15,567,000)
Proceeds from sale of equipment 379,000 - -
Proceeds from sales of investment securities 2,816,000 226,000 18,838,000
Acquisition of investment securities (5,839,000) (9,260,000) -
----------------------------------------------------------- ------------------ ------------------- ------------------
Net cash provided by (used in) investing
activities (4,047,000) (11,626,000) 3,271,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash flows from financing activities:
Purchase of treasury stock (1,339,000) (3,365,000) (3,524,000)
Principal repayment on loan to employee stock
ownership plan 790,000 790,000 790,000
Dividends (2,949,000) (3,817,000) (3,950,000)
Exercise of stock options - 54,000 344,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Net cash used in financing activities (3,498,000) (6,338,000) (6,340,000)
----------------------------------------------------------- ------------------ ------------------- ------------------
Increase in cash and cash equivalents 8,617,000 - 1,504,000
Cash and cash equivalents, beginning of year 6,078,000 6,078,000 4,574,000
----------------------------------------------------------- ------------------ ------------------- ------------------
Cash and cash equivalents, end of year $ 14,695,000 $ 6,078,000 $ 6,078,000
----------------------------------------------------------- ------------------ ------------------- ------------------
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 2000, 1999
and 1998 were primarily made to United
States customers.
Principles of Consolidation The financial statements include the
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
2000 had fifty-three weeks; fiscal 1999
and 1998 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 2000 and had no such equity
securities at December 2, 2000 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
F-9
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
- --------------------------------------------------------------------------------
and retailers to whom the Company sells
(see Note 13). The Company reviews a
customer's credit history before extending
credit. The Company further reduces its
credit risk by factoring, without
recourse, a variable amount of trade
receivables. As of December 2, 2000 and
November 27, 1999, 23% and 16%,
respectively, of the accounts receivable
outstanding were due from factors. 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.
F-10
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Property, Plant and Property, plant and equipment are stated at
Equipment cost. Depreciation is computed using
principally the straight-line method. The
range of estimated useful lives is 15 to 33
years for buildings and building
improvements, 4 to 10 years for machinery
and equipment, 10 years for leasehold
improvements and 5 years for trucks and
automobiles.
Long-Lived Assets The Company reviews the carrying values
of its long-lived and identifiable
intangible assets for possible impairment
whenever events or changes in circumstances
indicate that the carrying amount of the
assets may not be recoverable. Any
long-lived assets held for disposal are
reported at the lower of their carrying
amounts or fair value less cost to sell.
Research and Research and development costs are charged
Development Costs to expenses in the year incurred and
amounted to $3,206,000, $3,478,000, and
$3,625,000 in fiscal 2000, 1999 and 1998,
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.
F-11
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Taxes On Income The Company follows the liability method of
accounting for income taxes. Accordingly,
deferred income taxes reflect the net tax
effect of temporary differences between the
carrying amounts of assets and liabilities
for financial reporting purposes and for
income tax purposes.
Earnings 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 2000, 1999 and
1998 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 In June 1998, the FASB issued SFAS No. 133,
Pronouncements "Accounting for Derivative Instruments and
Hedging Activities", effective for years
beginning after June 15, 1999. As a result
of the FASB's issuance of SFAS No. 137,
"Accounting for Derivative Instruments and
Hedging Activities - Deferral of the
Effective date of FASB Statement No. 133",
the effective date has been delayed until
years beginning after June 15, 2000, the
Company's fiscal year 2001. Due to the
Company's limited use of derivative
financial instruments, the Company has
determined that there will be no impact on
the earnings and financial position
resulting from the adoption of this
standard in the fiscal year 2001.
Reclassification Certain amounts in the 1999 Financial
Statements have been reclassified to
conform with the 2000 presentation.
F-12
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------------------------------------------
1. Cash and Cash Cash and cash equivalents at December 2, 2000 and November 27, 1999 consisted
Equivalents of the following (in thousands):
2000 1999
---------------------------------- ---------------------- -----------------------
Cash $2,064 $2,078
Tax-free short-term debt
instruments 12,631 4,000
---------------------------------- ---------------------- -----------------------
$14,695 $6,078
---------------------------------- ---------------------- -----------------------
2. Investment Securities Investment securities available-for-sale at December 2, 2000 and November 27,
1999 consisted of the following (in thousands):
Gross Gross
unrealized unrealized
Cost holding gain holding loss Fair value
------------------------ ------------- ------------- ------------- -------------
2000:
Equities $ 849 $ - $ (68) $781
U.S. Treasury
obligations 14,172 93 - 14,265
Tax-exempt
obligations 6,015 8 (74) 5,949
Corporate bonds 35,225 95 (548) 34,772
Money market 6,497 - - 6,497
------------------------ ------------- ------------- ------------- -------------
$62,758 $ 196 $(690) $62,264
------------------------ ------------- ------------- ------------- -------------
1999:
Equities $ 1,224 $ - $ (25) $1,199
U.S. Treasury
obligations 12,575 1 - 12,576
Tax-exempt
obligations 23,784 55 (380) 23,459
Corporate bonds 20,457 19 (354) 20,122
Money market 396 - - 396
------------------------ ------------- ------------- ------------- -------------
$58,436 $ 75 $(759) $57,752
------------------------ ------------- ------------- ------------- -------------
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 December 2, 2000 and November 27, 1999, by
contractual maturity are as shown below:
December 2, 2000 November 27, 1999
------------- ------------- ------------- -------------
Cost Fair value Cost Fair value
---- ---------- ---- ----------
Maturing in one
year or less $ 19,071 $ 19,161 $ 14,561 $ 14,547
Maturing after one
year through five
years 32,861 32,486 31,064 30,814
Maturing after five
years through ten
years 3,480 3,339 11,191 10,796
- --------------------- ------------- ------------- -- ------------- -------------
$55,412 $54,986 $56,816 $56,157
- --------------------- ------------- ------------- -- ------------- -------------
Gross and net realized gains and losses on sales of investment securities were:
2000 1999 1998
- --------------------------------- --------------- -------------- ---------------
Gross realized gains $ 4,214 $ 3,865 $ 3,826
Gross realized losses (2,914) (1,778) (2,680)
- --------------------------------- --------------- -------------- ---------------
Net realized gain $ 1,300 $ 2,087 $ 1,146
- --------------------------------- --------------- -------------- ---------------
Other comprehensive income (loss) for fiscal 2000, 1999, and 1998 consisted of
the following (in thousands):
2000 1999 1998
--------------------------------- ---------- ------------ ----------
Unrealized holding gains
arising during the year, net of
tax $894 $291 $602
Reclassification adjustment,
net of tax (780) (1,252) (688)
--------------------------------- ---------- ------------ ----------
Other comprehensive income
(loss) net of tax $114 $(961) $(86)
--------------------------------- ---------- ------------ ----------
F-14
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
During Fiscal 2000, 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 December 2,
2000 and November 27, 1999, the Company had no
such investments, but will continue to invest in
such equities in the future.
Realized gains or (losses) on purchased short-term
S&P 100 index put options and sold short-term S&P
100 call options during fiscal 2000, 1999, and
1998 were $2,217,000, $(350,000), and $(435,000),
respectively.
3. Inventories Inventories at December 2, 2000 and November 27,
1999 consisted of the following (in thousands,
except for percentages):
2000 1999
---------------------------------- -------------- -----------
Raw materials $ 5,019 $ 7,337
Work-in-process 7,142 7,871
Finished goods 7,257 8,794
---------------------------------- -------------- -----------
$19,418 $24,002
---------------------------------- -------------- -----------
Approximate percentage of
inventories valued under LIFO
method 52% 53%
---------------------------------- -------------- -----------
Excess of FIFO valuation over
LIFO valuation $ 3,228 $ 3,000
---------------------------------- -------------- -----------
In fiscal 2000, the liquidation of certain LIFO layers
increased cost of goods sold by $465,000. The inventories in
these LIFO layers were acquired at higher costs than current
costs. The impact of inventory liquidations in fiscal 1999
was not significant.
F-15
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. Property, Plant and Property, plant and equipment at
Equipment December 2, 2000 and November 27, 1999
consisted of the following (in thousands):
2000 1999
----------------------------------------- ------------------- ------------------
Owned by the Company:
Land and improvements $ 698 $ 698
Buildings and improvements 13,582 13,582
Machinery and equipment 112,358 112,140
Trucks and automobiles 1,742 1,662
Office equipment 681 681
Leasehold improvements 923 808
----------------------------------------- ------------------- ------------------
129,984 129,571
Property under capital leases:
Land 18 18
Buildings and improvements 1,432 1,432
----------------------------------------- ------------------- ------------------
131,434 131,021
Less: Accumulated depreciation and
amortization 99,758 94,612
----------------------------------------- ------------------- ------------------
$ 31,676 $ 36,409
----------------------------------------- ------------------- ------------------
As of December 2, 2000, the Company has
idle manufacturing assets of approximately
$3.6 million which continue to be
depreciated.
5. Obligations Under Obligations under capital leases at
Capital Leases December 2, 2000 and November 27, 1999
consisted of the following (in thousands):
2000 1999
----------------------------------------- ------------------- ------------------
Obligations under capital leases
through 2006 payable in monthly
installments of $11 including
interest at 10% per annum $390 $437
Less: Current maturities (included
with other current liabilities) 28 28
----------------------------------------- ------------------- ------------------
$362 $409
----------------------------------------- ------------------- ------------------
F-16
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Aggregate installments on obligations
under capital leases maturing after one
year are as follows:
Fiscal year ending (in thousands)
2002 $ 56
2003 62
2004 68
2005 75
2006 101
------------------------------------------
$362
------------------------------------------
6. Stock Stock Option Plan
Compensation
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 2000
may not be representative of future years'
amounts.
(Dollars in thousands,
except per share data) 2000 1999 1998
----------------------------------- ------------ --------------- ---------------
Pro forma net income $3,008 $305 $ 5,794
Pro forma earnings per share -
diluted $0.56 $0.06 $ 1.02
----------------------------------- ------------ --------------- ---------------
The weighted average fair value of options
granted was $2.45, $1.73 and $7.04 per
share in fiscal 2000, 1999 and 1998,
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 2000,
1999 and 1998 grants:
---------------------------------------------------- ----------------------------
Dividends $.40 to $.70 per share
Volatility 21.4% to 23.5%
Risk-free interest 5.00%
Expected term 1 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 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 granted 54,000 11.06
Options exercised - -
Options canceled (161,050) (21.58)
--------------------------------------------- ---------------- --------------
Shares under option, December 2, 2000 162,700 12.47
--------------------------------------------- ---------------- --------------
--------------------------------------------- ---------------- --------------
Options exercisable at:
November 28, 1998 125,010 $20.01
November 27, 1999 130,130 20.80
December 2, 2000 24,140 13.75
--------------------------------------------- ---------------- --------------
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 December 2, 2000:
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
-------------------- -------------------- -------------------- ------------------- -------------------- ----------------
$13.00 105,700 8.89 $13.00 21,140 $13.00
11.06 54,000 9.90 11.06 - 11.06
19.00 3,000 .70 19.00 3,000 19.00
-------------------- ------------------ ------------------- ------------------- -------------------- -------------------
162,700 24,140
-------------------- ------------------ ------------------- ------------------- -------------------- -------------------
The shares authorized but not granted under the Company's stock option plans
were 15,300 at December 2, 2000 and 51,300 at November 27, 1999. Common stock
reserved for options totaled 162,700 shares at December 2, 2000 and 269,750
shares at November 27, 1999.
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 2000, 1999 and 1998 was
$0, $1,000 and $26,000, respectively. No
restricted stock was awarded in Fiscal
2000, 1999, or 1998.
7. Benefit Plans Profit Sharing Plans
A qualified plan, which covers the
majority of salaried employees, provides
for discretionary contributions up to a
maximum of 15% of eligible salaries. The
distribution of the contribution to the
Plan's participants is based upon their
annual base compensation. Contributions
for fiscal 2000, 1999 and 1998 were
$241,000, $195,000 and $308,000,
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
2000, 1999 and 1998 were $57,000, $38,000
and $59,000, respectively. Benefits
payable under this plan amounting to
$2,397,000 and $2,838,000 at December 2,
2000 and November 27, 1999, 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-21
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 2000 and
1999:
2000 1999
------------------ ------------------
Reconciliation of the benefit obligation
Obligation at beginning of year $2,990,000 $4,200,000
Service cost 239,000 301,000
Interest cost 250,000 260,000
Actuarial (gain) loss 361,000 (883,000)
Benefit payments (252,000) (888,000)
------------------ ------------------
Obligation at end of year $3,588,000 $2,990,000
------------------ ------------------
2000 1999
------------------ ------------------
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year $4,727,000 $4,987,000
Actual return on plan assets (net of expenses) 1,047,000 628,000
Benefit payments (252,000) (888,000)
------------------ ------------------
Fair value of plan assets at end of year $5,522,000 $4,727,000
------------------ ------------------
2000 1999
------------------ ------------------
Funded status
Funded status $1,934,000 $1,737,000
Unrecognized prior service cost 685,000 758,000
Unrecognized (gain) (2,756,000) (2,588,000)
------------------ -----------------
Net amount recognized $ (137,000) $ (93,000)
------------------ ------------------
F-22
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following table provides the amounts
recognized in the consolidated balance
sheets as of December 2, 2000 and November
27, 1999:
2000 1999
-------------- -----------
Prepaid benefit cost $ - $ -
Accrued benefit liability (137,000) (93,000)
-------------- -----------
Net amount recognized $ (137,000) $ (93,000)
-------------- ----------
The following table provides the
components of the net periodic benefit
cost for the Plan for fiscal 2000 and
1999:
2000 1999
------------ -----------
Service cost $ 239,000 $ 302,000
Interest cost on projected benefit obligation 250,000 261,000
Expected return on plan assets (377,000) (397,000)
Amortization of prior service cost 74,000 74,000
Amortization of net (gain) loss (142,000) (100,000)
------------- -----------
Net periodic pension cost/(credit) $ 44,000 $ 140,000
------------- -----------
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 2000 and 1999 are
shown in the following table:
2000 1999
--------- ---------
Discount rate 7.50% 7.50%
Expected return on plan assets 8.00% 8.00%
F-23
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 December 2, 2000 of
$4,747,000 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
$161,000, $213,000 and $218,000 for fiscal
2000, 1999 and 1998, respectively. Of
these amounts, $90,000, $110,000 and
$102,000 for fiscal 2000, 1999 and 1998,
respectively, related to allocated shares
and $71,000, $103,000 and $116,000 for
fiscal 2000, 1999 and 1998, 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-24
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
As of December 2, 2000 and November 27,
1999, ESOP shares information was as
follows:
2000 1999
- ----------------------------------------- ------------------- ------------------
Allocated 151,861 168,667
Committed to be released 21,841 23,439
In suspense 108,174 106,576
- ----------------------------------------- ------------------- ------------------
Total shares held by ESOP 281,876 298,682
- ----------------------------------------- ------------------- ------------------
The net charges to earnings for fiscal 2000, 1999 and 1998 were as follows (in
thousands):
2000 1999 1998
- --------------------------------- -------------- --------------- ---------------
Contribution to ESOP $1,150 $1,108 $1,176
Less: Interest income on loan
to ESOP 547 535 605
- --------------------------------- -------------- --------------- ---------------
Net charge to earnings $ 603 $ 573 $ 571
- --------------------------------- -------------- --------------- ---------------
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.
8. Income Taxes Provisions (benefits) for Federal, state
and local income taxes for fiscal 2000,
1999 and 1998 consisted of the following
components (in thousands):
2000 1999 1998
- ----------------------------- --------------- ----------------- ----------------
Current:
Federal $ 734 $ (769) $ 881
State and local 77 (71) 77
- ----------------------------- --------------- ----------------- ----------------
811 (840) 958
Deferred:
Federal and state 334 (15) 1,042
- ----------------------------- --------------- ----------------- ----------------
$1,145 $(855) $2,000
- ----------------------------- --------------- ----------------- ----------------
F-25
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The net deferred tax liability at December 2, 2000 and November 27, 1999
consisted of the following (in thousands):
2000 1999
- --------------------------------------------- ----------------- ----------------
Long-term portion:
Gross deferred tax liability (asset) for:
Excess depreciation for tax purposes $6,340 $6,390
Future tax deductions for employee
benefit plans (1,023) (1,206)
Other 35 (114)
- ------------------------------------------------- ---------------- -------------
Net long-term liability 5,352 5,070
- ------------------------------------------------- ---------------- -------------
Current portion:
Gross deferred tax liability (asset) for:
Accounts receivable - Section 475
adjustment 677 577
Net unrealized holding gain (loss)
On investment securities
available-for-sale, included in
stockholders' equity (197) (274)
ESOP contribution accrued for tax
purposes 430 430
Other (264) (216)
- ------------------------------------------------- ---------------- -------------
Net current liability 646 517
- ------------------------------------------------- ---------------- -------------
Net deferred tax liability $5,998 $5,587
- ------------------------------------------------- ---------------- -------------
F-26
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 2000, fiscal
1999 and 1998 to income (loss) before income taxes due to the following:
2000 1999 1998
--------------------------------- -------------- --------------- --------------
(Tax effect in thousands)
Federal tax expense
(benefit)at statutory rate $1,421 $(115) $2,726
State and local income taxes,
net of Federal benefit 51 (78) 184
Tax-free interest income and
dividends received deduction (338) (662) (890)
Other 11 - (20)
--------------------------------- -------------- --------------- --------------
Income tax expense (benefit) $1,145 $(855) $2,000
--------------------------------- -------------- --------------- --------------
9. 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-27
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Lease
The Company leases its New York City
offices and showrooms until 2005, at
average minimum annual rentals of $280,000
plus escalation and other costs.
Rental expense for operating leases in
fiscal 2000, 1999 and 1998 aggregated
$901,000, $894,000 and $986,000,
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)
-----------------------------------------
2001 $256
2002 316
2003 369
2004 375
2005 253
-----------------------------------------
$1,569
-----------------------------------------
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, or results of operations.
10. Statement of Cash Cash outlays (net refunds) for corporate
Flows income taxes and interest for fiscal 2000,
1999 and 1998 were as follows (in
thousands):
Corporate income
taxes Interest
---------------------------- --------------
2000 $ (53) $ 86
1999 (1,238) 101
1998 2,907 75
---------------------------- --------------
F-28
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Noncash Investing and Financing Activities
In fiscal 2000, 1999 and 1998, net
unrealized holding gains (losses) of
$190,000, $(1,601,000) and $(143,000),
respectively, less related income taxes of
$76,000, $(640,000) and $(57,000), on
investment securities available-for-sale,
were recorded as increases (decreases) in
stockholders' equity.
11. Interest and Dividend Interest and dividend income for the past
Income three fiscal years were as follows (in
thousands):
Interest Dividend
income income Total
-------------------------------------------
2000 $3,877 $123 $4,000
1999 2,664 287 2,951
1998 3,184 345 3,529
-------------------------------------------
F-29
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
12. Earnings Per Basic and diluted earnings per share for
Share the fiscal years ended December 2, 2000,
November 27, 1999 and November 28, 1998
are calculated as follows:
Weighed
Average Per Share
Net Income Shares Amount
---------- ------ ------
Fiscal year ended December 2, 2000:
Basic earnings per share $3,033,000 5,336,958 $.57
Effect of assumed
conversion of employee
stock options -
- ------------------------------- --------------- -------------- ---------------
Diluted earnings per share $3,033,000 5,336,958 $.57
- ------------------------------- --------------- -------------- ---------------
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
- ------------------------------- --------------- -------------- ---------------
F-30
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Options to purchase 162,700, 182,000 and
46,000 shares of common stock were
outstanding during fiscal 2000, 1999 and
1998, 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-31
13. Segment Information
The Company adopted SFAS No. 131 "Disclosure About Segments of an
Enterprise and Related Information" in fiscal 1999. SFAS No. 131 requires
companies to report information on segments using the way management organizes
segments within the company for making operating decisions and assessing
financial performance.
The Company's chief operating decision-maker is considered to be the
Chief Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The Company has identified three reportable segments based
upon the primary markets it serves: Apparel Fabrics, Home Fashions, Industrial
Fabrics and Accessories.
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 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-32
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
During all years presented, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales.
Home Fashions,
2000 Apparel and Accessories Other Total
- ---- ------- --------------- ----- -----
External sales $ 93,901 $14,269 $ 10,015 $ 118,185
Intersegment sales 12,324 51 342 12,717
Operating income/(loss) (2,114) 1,117 (39) (1,036)
Depreciation expense 5,171 55 463 5,689
Segment assets 44,671 1,579 4,375 50,625
Capital expenditures 922 4 318 1,244
Home Fashions,
1999 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
F-33
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Revenues 2000 1999 1998
---- ---- ----
Total external sales for segments $118,185 $128,889 $151,436
Intersegment sales for segments 12,717 13,256 19,703
Elimination of intersegment sales (12,717) (13,256) (19,703)
----------- ----------- ------------
Total consolidated sales $118,185 $128,889 $151,436
=========== =========== ============
Profit or Loss
Total operating income (loss) for
segments (1,036) (5,275) $ 3,417
Total other income 5,214 4,937 4,600
--------- ----------- ------------
Income (loss) before taxes on income 4,178 (338) $ 8,017
========= =========== =============
Assets
Total segments assets $ 50,625 $ 59,926 $ 71,619
Assets not allocated to segments 100,787 92,252 88,784
--------- ----------- ------------
Total consolidated assets 151,412 152,178 $ 160,403
========= =========== ============
Other Significant Items
Depreciation expense $ 5,689 $ 6,057 $ 5,403
Not allocated to segments 175 147 152
--------- ----------- ------------
Consolidated total $ 5,864 $ 6,204 $ 5,555
========= =========== ============
Capital expenditures $ 1,244 $ 2,536 $ 15,503
Not allocated to segments 159 56 64
--------- ----------- ------------
Consolidated total $ 1,403 $ 2,592 $ 15,567
========= =========== ============
F-34
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
14. Quarterly Financial Data Quarterly earnings were as follows
(unaudited) (in thousands, except for earnings per
share):
First Third Fourth
quarter Second quarter quarter quarter Total
---------------------- ------------------- ------------------- ------------------- -------------------- -------------------
Fiscal 2000:
Net sales $28,339 $29,541 $29,276 $31,029 $118,185
Cost of goods sold 25,888 26,266 26,035 28,567 106,756
Net income 304 832 1,059 838 3,033
Earnings per share:
Basic $ 0.06 $ 0.16 $ 0.20 $ .16 $ 0.57
Diluted $ 0.06 $ 0.16 $ 0.20 $ .16 $ 0.57
------------------------ ------------------- ------------------- ------------------- -------------------- -------------------
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
------------------------ ------------------- ------------------- ------------------- -------------------- -------------------
F-35
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES
FORM 10-K
FISCAL YEARS ENDED DECEMBER 2, 2000, NOVEMBER 27, 1999,
AND NOVEMBER 28, 1998
S-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Schedule: Page
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
December 2, 2000:
Allowance for doubtful
Accounts $1,500 $850(i) $ - $(2,050)(ii) $ 300
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
- -------------------------------------------------------------------------------------------------------------------
(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, Fab has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized.
FAB INDUSTRIES, INC.
By: /s/ Samson Bitensky
------------------------
Samson Bitensky
Chairman of the Board and
Chief Executive Officer
Date: February 22, 2001
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 22, 2001 Chairman of the Board,
- ------------------- Chief Executive Officer,
Samson Bitensky and Director (Principal
Executive Officer)
/s/ David A. Miller February 22, 2001 Vice President - Finance,
- ------------------- Treasurer, and Chief
David A. Miller Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Martin B. Bernstein February 22, 2001 Director
- -----------------------
Martin B. Bernstein
/s/ Lawrence H. Bober February 22, 2001 Director
- ---------------------
Lawrence H. Bober
/s/ Frank S. Greenberg February 22, 2001 Director
- ----------------------
Frank S. Greenberg
/s/ Susan B. Lerner February 22, 2001 Director
- -------------------
Susan B. Lerner
/s/ Richard Marlin February 22, 2001 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, incorporated by
reference to Exhibit 3.5 of the Company's Annual Report on Form
10-K for the fiscal year ended November 27, 1999.
4.1 - Specimen of Common Stock Certificate, incorporated by reference
to Exhibit 4-A to Registration Statement No. 2-30163, filed on
November 4, 1968.
4.2 - Rights Agreement dated as of June 6, 1990 between the Company
and Manufacturers Hanover Trust Company, as Rights Agent, which
includes as Exhibit A the form of Rights Certificate and as
Exhibit B the Summary of Rights to purchase Common Stock,
incorporated by reference to Exhibit 4.2 to the 1993 10-K.
4.3 - Amendment to the Rights Agreement between the Company and
Manufacturers Hanover Trust Company dated as of May 24, 1991,
incorporated by reference to Exhibit 4.3 to the 1993 10-K.
10.1 - 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 10.9 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 as of 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 as of April 8, 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 by reference to Exhibit 10.19 to the 1993
10-K.
10.23 - Form of Indemnification agreement between 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 November 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.
*23.1 - Consent of Ernst & Young, LLP.
*23.2 - Consent of BDO Seidman, LLP.
- -------------
* Filed herewith.