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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 1, 2001 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 12, 2002 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
$63,000,000. 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 12,
2002, there were outstanding 5,210,377 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 1, 2002 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...........................7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..10
Item 8. Financial Statements and Supplementary Data..................10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................10
PART III......................................................................11
Item 10. Directors and Executive Officers............................11
Item 11. Executive Compensation......................................12
Item 12. Security Ownership of Certain Beneficial Owners
and Management..............................................12
Item 13. Certain Relationships and Related Transactions..............12
PART IV.......................................................................13
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.........................................13
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 have been a leader in the domestic textile industry since we were
founded. We are a major manufacturer of warp and circular knit fabrics, raschel
laces, and laminated fabrics. We also produce comforters, sheets, blankets and
other bedding products.
Recently, our Board of Directors has determined that it is in the best
interests of our stockholders to sell our textile business as a going concern.
In order to maximize stockholder value, the Board of Directors adopted
resolutions dated March 1, 2002 which authorized, subject to stockholder
approval, the sale of our business pursuant to a Plan of Liquidation and
Dissolution (the "Plan"). The Plan provides that if the requisite stockholder
approval is received, our officers and directors will continue to operate our
textile business in its current fashion, pursue a sale of the business as a
going concern and, if our Board of Directors deems it advisable, engage
financial advisors to assist with the sale of the business. The Board of
Directors will present the Plan for approval by stockholders at our annual
meeting, which we expect will occur in April 2002. If the Plan is not approved
by our stockholders, we will continue to operate the Company in the ordinary
course while our Board of Directors explores the alternatives then available for
the future of our Company.
We currently operate in three segments: 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 Designers 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., specializes in wide raschel 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 and yarn dyes 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 home furnishings, we also
use our own textile fabrics internally to produce flannel and satin sheets,
blanket products, comforters and other bedding products which we sell to
specialty stores, catalogue and mail order companies, airlines and cruise lines,
and health care institutions.
1
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 markets as
well as a fire resistant fabric, Sandel(R), through its subsidiary Sandel
International, to the seating, transportation and military markets.
Our textiles are sold to manufacturers servicing the residential and
contract markets. We also sell fabrics to vendors in the over the counter
markets.
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 $3,478,000 in fiscal 1999,
$3,206,000 in fiscal 2000, and $1,999,000 in fiscal 2001. Through these efforts,
we have developed a full line of proprietary knitted fabrics for sale to
manufacturers of men's, women's, and children's apparel in both domestic and
foreign markets. Similarly, we have also developed a full line of flannel and
satin sheets and blankets, including specialty blankets for the airline and
cruise lines, and health care institutions.
While we use various trademarks and trade names in the promotion and
sale of our products, we do not believe that the loss or expiration of any such
trademark or trade name would have a material adverse effect on our operations.
We market our products primarily through our full-time sales personnel,
as well as independent representatives located throughout the United States and
abroad.
We do not believe our backlog of firm orders is a material indicator of
future business trends, because goods subject to such orders are shipped within
two to ten weeks, depending on the availability of yarn and other raw materials.
On average, orders are filled within six weeks.
During fiscal 2001, 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 and foreign 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
2
manufacturers of such products. Although we continue to maintain a strong
financial position, our sales have declined from approximately $161,000,000 in
1997 to approximately $80,000,000 in 2001, largely as a result of increased
foreign competition.
SEGMENT INFORMATION
See Note 14 of the Notes to Consolidated Financial Statements.
EMPLOYEES
We employ approximately 650 people, of whom approximately 600 are
employed by our subsidiaries. The employees are not represented by unions. We
consider relations with our employees to be satisfactory. The number of our
employees has declined from approximately 1,100, 1,300 and 1,600 at the end of
2000, 1999 and 1998, respectively.
ITEM 2. PROPERTIES.
We conduct our manufacturing operations in owned facilities located in
Lincolnton and Salisbury, North Carolina, and in a leased facility 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,
circular single and double knitting, various types of dyeing, framing, lace
separating, sueding, shearing, napping, calendaring, and heat-transfer printing.
The Lincolnton facility also processes and serves as a warehouse for greige
goods.
The Salisbury facility is the site of our consumer and institutional
products manufacturing, retail and over- the-counter operations. We use
approximately 106,000 square feet in Amsterdam for the production of a line of a
variety of flame retarding, adhesive, and ultrasonically bonded items.
In an on-going effort to restore operations to acceptable levels of
profitability by eliminating over-capacities, during the first week of July 2001
we closed two of our manufacturing plants, Travis Knits in Cherryville, North
Carolina and Adirondack Knitting in Amsterdam, New York. In addition, on
November 16, 2001, we closed our manufacturing plant in Maiden, North Carolina.
The manufacturing operations of each of these facilities were consolidated into
Fab's Mohican Mills facility located in Lincolnton, North Carolina.
In July 2000, 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 realized a substantial
annual savings.
The following table sets forth the location of each of our
manufacturing facilities, our current principal use, if any, approximate floor
space and, where leased, the lease expiration date. There are no mortgages or
other encumbrances on any of our facilities.
APPROXIMATE LEASE
LOCATION PRINCIPAL USE FLOOR SPACE EXPIRATION DATE
- -------- ------------- ----------- ---------------
Lincolnton, Dyeing and finishing, 630,550 sq.ft. (1)
North Carolina Raschel and tricot
Knitting, circular single and
double knitting, tricot
and raschel warping, printing and
warehousing.
3
APPROXIMATE LEASE
LOCATION PRINCIPAL USE FLOOR SPACE EXPIRATION DATE
- -------- ------------- ----------- ---------------
Lincolnton, Warehouse 55,000 sq. ft. (1)
North Carolina
Maiden, (4) 224,013 sq.ft. (1)
North Carolina
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, (4) 367,000 sq.ft. 12/31/06 (3)
New York
Cherryville, (4) 197,000 sq. ft. (1)
North Carolina
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.
(3) Capitalized building lease - See Note 5 of the Notes to Consolidated
Financial Statements.
(4) Manufacturing operations closed during 2001 - consolidated into Fab's
Mohican Mills facility located in Lincolnton, North Carolina.
All of our facilities are constructed of brick, steel or concrete, and
we consider all facilities to be adequate and in good operating condition and
repair.
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 final stages of the discovery stage of
this action. We intend to vigorously defend this action and prosecute our
affirmative claims. Trial of this matter is currently set for March 18, 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not Applicable
4
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Fab's Common Stock is traded on the American Stock Exchange, Inc.
(ticker symbol - FIT). The table below sets forth the high and low sales prices
of the Common Stock during the past two fiscal years.
FISCAL 2001 HIGH LOW
----------- ---- ---
First Quarter................................ $14.875 $11.300
Second Quarter............................... $15.000 $11.500
Third Quarter................................ $14.500 $13.750
Fourth Quarter............................... $16.250 $12.550
FISCAL 2000
-----------
First Quarter................................ $12.750 $ 9.875
Second Quarter............................... $12.125 $10.000
Third Quarter................................ $11.000 $ 9.875
Fourth Quarter............................... $13.000 $10.250
At February 6, 2002, there were approximately 480 holders of record of
Common Stock. 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. For fiscal 2001,
quarterly dividends of $.10 per share were declared on February 22, 2001, May 3,
2001, August 15, 2001 and November 27, 2001. The payment of further cash
dividends will be at the discretion of the Board of Directors and will depend
upon, among other things, the status of the sale of our business, 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 December November November November
1, 2001 2, 2000 (1) 27, 1999 28, 1998 29, 1997
Net Sales $80,036 $118,185 $128,889 $151,436 $160,935
Income (loss) before taxes (15,488) 4,178 (338) 8,017 13,529
on income (3)
Net income (loss) (3) (8,623) 3,033 517 6,017 9,394
Earnings (loss) per share:
Basic (1.64) .57 .10 1.07 1.65
Diluted (1.64) .57 .10 1.06 1.63
Total assets 131,528 151,412 152,178 160,403 163,524
Long-term debt 311 362 409 486 556
Stockholders' equity 120,503 130,855 130,788 137,527 137,892
Book value 23.14 24.78 24.20 24.63 24.26
per share (2)
Cash dividends per share .40 .475 .70 .70 .70
Weighted average number of
shares outstanding:
Basic
Diluted 5,258,353 5,336,958 5,414,687 5,627,788 5,705,624
5,258,353 5,336,958 5,419,130 5,665,194 5,752,895
- ------------------------
(1) Fifty-three week period.
(2) Computed by dividing stockholders' equity by the number of shares
outstanding at year-end.
(3) Fiscal year ended December 1, 2001 amounts include asset impairment and
restructuring charges of $14,530,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
FISCAL 2001 COMPARED TO FISCAL 2000
As discussed in Item 1. Business, our Board of Directors has determined
to sell our textile business as a going concern. In order to maximize
stockholder value, the Board of Directors adopted resolutions dated March 1,
2002 which authorized, subject to stockholder approval, the sale of our business
pursuant to a Plan of Liquidation and Dissolution.
Net sales for fiscal 2001 were $80,036,000 as compared to $118,185,000
in fiscal 2000, a decrease of 32.3% (fiscal 2000 had 53 weeks). Such decreases
were caused substantially by lower volume as continued weakness in the economy,
market conditions and unfair foreign competition have adversely affected the
domestic textile industry.
Apparel external sales for fiscal 2001 were $60.9 million, a decrease
of $33 million or 35%, as compared to $93.9 million for fiscal 2000.
6
Home Fashions and Accessories external sales for fiscal 2001 were $10.4
million, a decrease of $3.9 million or 27%, as compared to $14.3 million for
fiscal 2000.
Other external sales for fiscal 2001 were $8.8 million, a decrease of
$1.2 million or 12%, as compared to $10 million for fiscal 2000.
The decreases across our segments were due to the current economic
downturn, continued weakness in the domestic textile industry and foreign
competition.
Gross margins as a percentage of sales declined from 9.7% to 1.9%.
Lower sales volume and the consolidation of three of our manufacturing
facilities reduced operating rates at production facilities. Due to lower
average FIFO cost levels, LIFO inventory reserves decreased by $1,518,000 in
fiscal 2001, compared to an increase in LIFO inventory reserve of $228,000 due
to higher FIFO unit material costs in fiscal 2000. With the Company's decrease
in costs relating to employee terminations, and the future decrease in
depreciation expenses and other related costs, management is hopeful that gross
margins will show an improvement over last year's performance tempered, however,
by the continuing deterioration in domestic textile manufacturing due to foreign
imports and currency valuation issues.
The Company, in an on-going effort to restore operations to acceptable
levels of profitability by eliminating over-capacities, during the first week of
July 2001, closed two of its manufacturing plants, Travis Knits in Cherryville,
North Carolina and Adirondack Knitting in Amsterdam, New York. The knitting,
dyeing and finishing activities of these two operations were consolidated into
Fab's Mohican Mills facility in Lincolnton, North Carolina. The Company also
completed the closure of its Maiden, North Carolina facility as of November 16,
2001 and also transferred its knitting and warping operations to the Mohican
Mills facility.
As a result of the consolidation of the manufacturing facilities and
the announcement to pursue a sale of the business as part of a plan of
liquidation, the results for fiscal year ended December 1, 2001 include asset
impairment and restructuring charges of $14,530,000, including $13,230,000 for
the writedown of fixed assets to fair value less costs of disposal. Such fixed
assets are comprised of machinery and equipment from the knitting, dyeing, and
finishing activities of the business, and also include the building facilities
in North Carolina. Management believes that the assets held for disposal will be
sold within six to twelve months; however, the sale of used textile machinery is
subject to worldwide economic conditions which can affect the sale of such
machinery. Additionally, for the fiscal year ended December 1, 2001, the Company
expended approximately $1,300,000 to remove and transfer machinery and equipment
to the Company's Mohican Mills facility which was included in the asset
impairment and restructuring charges. The Company expects to incur expenditures
to maintain the facilities to be disposed of until such sales occur. The above
charges for the asset impairment and restructuring charges apply mainly to the
apparel segment with a small portion to the other segment.
Selling, general and administrative expenses decreased by $2,717,000,
or 21.8% as compared to fiscal year 2000. Reduced expenses related primarily to
the reduced number of employees and a reduction of half of the floor space of
the Company's executive offices and showroom facilities in the New York City
headquarters. In addition, expenses decreased as a result of the continued
effectiveness of expense and cost containment programs.
Apparel operating loss for fiscal 2001 was $22.3 million, a decrease of
$20.2 million or 957%, as compared to $2.1 million for fiscal 2000. Lower sales
volume and the consolidation of three of our manufacturing facilities reduced
operating rates at production facilities. In addition, the financial results
include a charge for impairment of fixed assets and restructuring charges of
approximately $13.8 million. Lower selling margins also contributed to the
increase in operating loss, notwithstanding a reduction in selling, general and
administrative expenses.
Home Fashions and Accessories operating income for fiscal 2001 was
$674,000, a decrease of $443,000 or 40%, as compared to $1.1 million for fiscal
2000. These decreases were due primarily to lower sales volume and a lower gross
margin decreased operating gains.
7
Other operating loss for fiscal 2001 was $1.1 million, a decrease of
$1.0 million or 2,689%, as compared to $39,000 for fiscal 2000. These decreases
were due primarily to lower sales volume and a charge of approximately $750,000
for impairment of fixed assets and a restructuring charge.
Interest and dividend income increased by $289,000, or 7.2% as compared
to fiscal year 2000, because of higher invested balances. We realized gains from
the sale of investment securities of $3,025,000 in fiscal 2001 as compared to
$1,300,000 in fiscal 2000.
We realized a tax benefit for fiscal 2001 which had an effective tax
rate of (44.3%), as compared to an effective income tax rate of 27.4% in fiscal
2000. Fiscal 2001's tax benefit includes approximately $1.5 million of certain
tax reserves recorded in prior years, which were reversed in the fourth quarter
of fiscal 2001 due to changes in estimates for tax contingency items.
As a result of these factors, the Company had a net loss of $8,623,000
including the asset impairment and restructuring charges of $9,590,000 net of
income tax benefit in fiscal 2001, compared to net income of $3,033,000 in
fiscal 2000. For fiscal 2001, basic and diluted losses per share were $1.64,
including asset impairment and restructuring charges of $1.82 per share,
compared to basic and diluted earnings per share of $0.57 in fiscal 2000.
FISCAL 2000 COMPARED TO FISCAL 1999
Net sales for 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 continued to take a sustained toll on the
U.S. manufacturing sector and negatively impacted segment decline in sales and
production. The Company evaluated steps to reduce costs including plant
consolidation in light of 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.
Selling, general and administrative expenses decreased by $2,926,000,
or 19.0% in fiscal 2000 as compared to fiscal 1999. 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 expense and
cost containment programs.
Interest and dividend income increased by $1,049,000, or 35.5% in
fiscal 2000 as compared to fiscal 1999 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 in fiscal 2000 as 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 in
fiscal 2000 from $517,000 in fiscal
8
1999 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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in fiscal 2001 amounted to
$10,074,000, as compared to $16,162,000 in fiscal 2000. Of this decrease,
$11,656,000 relates to comparative changes in net income, $6,890,000 to deferred
taxes, $1,255,000 to depreciation, $2,563,000 to accounts payable and other
current liabilities, $450,000 to provision for doubtful accounts, $1,725,000 to
net gain on investment securities, and $155,000 to gain on disposition of
assets. These decreases were offset by increases of $2,511,000 in accounts
receivable, $2,499,000 in inventories, $355,000 to current and other assets and
$13,241,000 in non-cash asset impairment and restructuring charges.
For the fiscal year ended December 1, 2001, net acquisitions of
investment securities were $15,681,000 as compared to net acquisitions of
$3,023,000 for the fiscal year ended December 2, 2000. In the fiscal year ended
December 1, 2001, approximately $12,000,000 of the net acquisitions of
investment securities was in cash and cash equivalents. The Company has invested
these funds in high quality investment grade, taxable bonds. Our investment
securities, all classified as available-for-sale, had a fair market value of
$82,021,000 and $62,264,000 at fiscal year-end 2001 and 2000, respectively. See
Note 2 of the Notes to Consolidated Financial Statements for further details
about the investment portfolio.
Capital expenditures for fiscal 2001 were $703,000 as compared to
$1,403,000 in fiscal 2000. During fiscal 2001, we repurchased 73,116 shares of
our common stock at a cost of $1,050,000 (an average price of $14.36).
Stockholders' equity was $120,503,000, or $23.14 book value per share
at the end of fiscal 2001, as compared to $130,855,000, or $24.78 book value per
share, at the previous fiscal year end.
Management believes that our current financial position is adequate to
satisfy working capital requirements and to internally fund any future
expenditures to maintain our manufacturing facilities for the next twelve
months.
INFLATION
Management does not believe that 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 sale of our assets pursuant to a plan of liquidation and
dissolution, as well as expectations with respect to future sales and operating
efficiencies prior to a sale of the company, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond our control and
which may cause actual results, performance or achievements to differ materially
from anticipated results, performances or achievements. Factors that might
affect such forward-looking statements include, among other things: our
stockholders' decision at our upcoming annual meeting on whether to approve of a
plan of liquidation and dissolution for the company; if the plan is approved,
our ability to find qualified buyers for our assets; overall economic and
business conditions; our continuing ability to support the demand for our goods
and services; competitive factors in the industries in which we compete; changes
in government regulation; changes in tax requirements (including tax rate
changes, new tax laws and revised tax law interpretations); interest rate
fluctuations and other capital market conditions, including foreign currency
rate fluctuations; material contingencies
9
provided for in a sale of our assets; de-listing of our common stock from the
American Stock Exchange; our ability to retain key employees through any wind
down period; and any litigation arising as a result of our plan to wind down our
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Summary of Accounting Policies - Risks And Uncertainties" and
"-Investments" in the Consolidated Financial Statements attached hereto. See
also Note 2 of the Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Consolidated Financial Statements Schedules
attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
By letter dated September 11, 2001, Ernst & Young, LLP ("Ernst &
Young") resigned as our independent accountant. Ernst & Young's resignation
became effective on September 25, 2001, the date that we engaged BDO Seidman,
LLP as our new independent public accountants. The Audit Committee made no
recommendation or approval with respect to the resignation of Ernst & Young.
There were no disagreements with the former accountants on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure in connection with the audits of our two most recent fiscal
years or any subsequent interim period through September 25, 2001, which
disagreements if not resolved to the satisfaction of the former accountants
would have caused them to make reference to the subject matter of the
disagreements in connection with their reports on the financial statements for
such years. None of the principal accountants' reports on the financial
statements for the two years preceding such resignation contained an adverse
opinion or a disclaimer of opinion or were qualified or modified as to
uncertainty, audit scope or accounting principles. During the two most recent
fiscal years and the subsequent interim periods through September 25, 2001, the
Company was not advised of any of the matters referred to in Item 304 (a)(1)(v)
of Regulation S-K.
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our
executive officers as of February 12, 2002.
NAME AGE POSITIONS AND OFFICES
- ---- --- ---------------------
Samson Bitensky..................... 82 Chairman of the Board of Directors and Chief Executive
Officer
Steven Myers........................ 53 President, Chief Operating Officer
David A. Miller..................... 64 Vice President-Finance, Treasurer, and Chief Financial
Officer
Jerry Deese......................... 50 Vice President-Controller of Plant Operations
Sam Hiatt .......................... 54 Vice President-Sales
Mark J. Goldberg.................... 53 Vice President
Bruce Chroback...................... 40 Assistant Treasurer and Controller
Each of our executive officers serves at the pleasure of the Board of
Directors and until his or her successor is duly elected and qualified.
SAMSON BITENSKY was one of 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.
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 1, 1997 and Co-President, Chief Operating Officer from May 1,
1997 to November 27, 2001. On November 27, 2001, he became President, Chief
Operating Officer upon the retirement of our former Co-President, Stanley
August. Mr. Myers is the son-in-law of Mr. Bitensky.
DAVID A. MILLER has been employed by Fab since 1966 and has served as
Controller from 1973 until December 7, 1995, as Vice President - Finance and
Treasurer since December 7, 1995, and as Chief Financial Officer since May 1,
1997.
JERRY DEESE has been employed by 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.
MARK J. GOLDBERG has been employed by Fab in various financing and
operational capacities since 1983. He was the Director of Corporate Planning
from 1999 until 2001 and he has served as Vice President since May 3, 2001.
BRUCE CHROBACK, a C.P.A., has been employed by Fab since 1996 and has
held various senior financial positions with the Company. He has served as
Assistant Treasurer and Controller since May 3, 2001.
11
Other information required by this item is incorporated by reference
from our definitive proxy statement to be filed not later than April 1, 2002
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 1, 2002 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 1, 2002 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 1, 2002 pursuant
to Regulation 14A.
12
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.
13
10.4 - Amendment to the Retirement Plan effective December 11, 1978,
incorporated by reference to Exhibit 10.4 to the 1993 10-K.
10.5 - Amendment to the Retirement Plan effective December 1, 1981,
incorporated by reference to Exhibit 10.5 to the 1993 10-K.
10.6 - Amendment to the Retirement Plan dated November 21, 1983,
incorporated by reference to Exhibit 10.6 to the 1993 10-K.
10.7 - Amendment to the Retirement Plan dated August 29, 1986,
incorporated by reference to Exhibit 10.7 to the 1993 10-K.
10.8 - Amendment to the Retirement Plan effective as of December 1,
1989, incorporated by reference to Exhibit 10.8 to the 1993
10-K.
10.9 - Amendment to the Retirement Plan dated September 21, 1995,
incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
2, 1995 (the "1995 10-K").
10.10 - Fab Lace, Inc. Employees Profit Sharing Plan (the "Profit
Sharing Plan"), incorporated by reference to Exhibit 10.9 to
the 1993 10-K.
10.11 - Amendment to the Profit Sharing Plan effective December 1,
1978, incorporated by reference to Exhibit 10.10 to the 1993
10-K.
10.12 - Amendment dated December 1, 1985 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.11 to the 1993 10-K.
10.13 - Amendment dated February 5, 1987 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.12 to the 1993 10-K.
10.14 - Amendment dated December 24, 1987 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.13 to the 1993 10-K.
10.15 - Amendment dated June 30, 1989 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.14 to the 1993 10-K.
10.16 - Amendment dated February 1, 1991 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.15 to the 1993 10-K.
10.17 - Amendment dated September 1, 1995 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.17 to the 1995 10-K.
10.18 - Lease dated as of December 8, 1988 between Glockhurst
Corporation, N.V. and the Company, incorporated by reference
to Exhibit 10.16 to the 1993 10-K.
10.19 - Lease Modification Agreement dated April 2, 1991 between
Glockhurst Corporation, N.V. and the Company, incorporated by
reference to Exhibit 10.17 to the 1993 10-K.
10.20 - Second Lease Modification Agreement dated May 23, 1996 between
200 Madison Associates, L.P. and the Company, incorporated by
reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1996.
*10.21 - Third Lease Modification Agreement dated April 24, 2000
between 200 Madison Associates, L.P. and the Company.
14
10.22 - Lease dated as of March 1, 1979 between City of Amsterdam
Industrial Development Agency and Gem Urethane Corp.,
incorporated by reference to Exhibit 10.18 to the 1993 10-K.
10.23 - Lease dated as of January 1, 1977 between City of Amsterdam
Industrial Development Agency and Lamatronics Industries,
Inc., incorporated by reference to Exhibit 10.19 to the 1993
10-K.
10.24 - Form of indemnification agreement between the Company and its
officers and directors, incorporated by reference to Exhibit
10.20 to the 1993 10-K.
10.25 - Fab Industries, Inc. Employee Stock Ownership Plan effective
as of Nov. 25, 1991, incorporated by reference to Exhibit
10.24 to the 1993 10-K.
10.26 - Amendment dated September 21, 1995 to the Employee Stock
Ownership Plan, incorporated by reference to Exhibit 10.27 to
the 1995 10-K.
10.27 - Fab Industries, Inc. Non-Qualified Executive Retirement Plan
dated as of November 30, 1990, incorporated by reference to
Exhibit 10.25 to the 1993 10-K.
10.28 - 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.
10.29 - Fab Industries, Inc. 2001 Stock Incentive Plan, incorporated
by reference to Exhibit B to the Proxy Statement dated April
2, 2001, File No. 1-5901.
21 - Subsidiaries of the Company, incorporated by reference to
Exhibit 21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 2, 2000.
*23.1 - Consent of Ernst & Young, LLP.
*23.2 - Consent of BDO Seidman, LLP.
- ------------------------
* Filed herewith.
(b) Reports on Form 8-K.
On September 11 and September 25, 2001, the Company filed
reports on Form 8-K announcing its change of auditors. On
December 6, 2001, the Company filed a report on Form 8-K
announcing its intent to pursue a sale of its business and to
do so as part of a plan of liquidation.
15
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED DECEMBER 1, 2001, DECEMBER 2, 2000 AND
NOVEMBER 27, 1999
FAB INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
----------------
FISCAL YEARS ENDED DECEMBER 1, 2001, DECEMBER 2, 2000,
------------------------------------------------------
AND NOVEMBER 27, 1999
---------------------
F-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
--------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 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-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-14 - F-38
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Fab Industries, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Fab Industries,
Inc. and subsidiaries as of December 1, 2001, and the related consolidated
statements of income, stockholders' equity and cash flows for the fiscal year
then ended. Our audit also included the 2001 schedule listed in the index on
page S-2. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements and schedule.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 16 to the consolidated financial statements, on March 1,
2002, the Company's Board of Directors adopted resolutions, which authorize,
subject to shareholder approval, the sale of the business pursuant to a plan of
liquidation.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fab Industries, Inc.
and subsidiaries at December 1, 2001, and the consolidated results of their
operations and their cash flows for the fiscal year then ended, in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, the related 2001 schedule presents fairly, in all material
respects, the information set forth therein.
/s/ BDO Seidman, LLP
- --------------------
New York, New York
February 15, 2002, except for Note 16, as to which the date is March 1, 2002
F-3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Fab Industries, Inc.
We have audited the accompanying consolidated balance sheet of Fab Industries,
Inc. and subsidiaries as of December 2, 2000 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the two
years in the period ended December 2, 2000. 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 the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 2, 2000, in conformity with accounting principles generally accepted in
the United States. Also in our opinion, the related 2000 and 1999 financial
statements schedules, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material aspects the
information set forth therein.
/s/ Ernst & Young, LLP
----------------------
Charlotte, North Carolina
February 16, 2001
F-4
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
December 1, 2001 December 2, 2000
- --------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents (Note 1) $ 6,742,000 $ 14,695,000
Investment securities available-for-sale (Note 2) 82,021,000 62,264,000
Accounts receivable, net of allowance of $600,000
and $300,000 for doubtful accounts 10,668,000 17,073,000
Inventories (Note 3) 12,335,000 19,418,000
Other current assets 1,617,000 2,539,000
- --------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 113,383,000 115,989,000
PROPERTY, PLANT AND EQUIPMENT - NET (NOTE 4) 14,065,000 31,676,000
DEFERRED TAX ASSET (NOTE 8) 826,000 0
OTHER ASSETS (NOTE 7) 3,254,000 3,747,000
- --------------------------------------------------------------------------------------------------
$ 131,528,000 $ 151,412,000
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 3,661,000 $ 5,532,000
Corporate income and other taxes 1,787,000 2,911,000
Accrued payroll and related expenses 1,318,000 1,594,000
Dividends payable 521,000 528,000
Other current liabilities 816,000 760,000
Deferred income taxes (Note 8) 269,000 646,000
- --------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,372,000 11,971,000
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT MATURITIES
(NOTE 5)
311,000 362,000
OTHER NONCURRENT LIABILITIES (NOTE 7) 2,342,000 2,872,000
DEFERRED INCOME TAXES (NOTE 8) 0 5,352,000
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 11,025,000 20,557,000
- --------------------------------------------------------------------------------------------------
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 151,224,000 161,947,000
Loan to employee stock ownership plan (3,957,000) (4,747,000)
Accumulated other comprehensive gain (loss) 334,000 (297,000)
Cost of common stock held in treasury - 1,383,574 and
1,310,458 shares (35,384,000) (34,334,000)
- --------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 120,503,000 130,855,000
- --------------------------------------------------------------------------------------------------
$131,528,000 $151,412,000
==================================================================================================
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 1, 2001 December 2, 2000 November 27, 1999
(1)
- -----------------------------------------------------------------------------------------------------------------------
NET SALES (NOTE 14) $ 80,036,000 $ 118,185,000 $ 128,889,000
COST OF GOODS SOLD 78,518,000 106,756,000 118,773,000
- -----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,518,000 11,429,000 10,116,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,748,000 12,465,000 15,391,000
ASSET IMPAIRMENT AND RESTRUCTURING CHARGES (NOTE 12) 14,530,000 - -
- -----------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (22,760,000) (1,036,000) (5,275,000)
- -----------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Interest and dividend income (Note 11) 4,289,000 4,000,000 2,951,000
Interest expense (42,000) (86,000) (101,000)
Net gain on investment securities (Note 2) 3,025,000 1,300,000 2,087,000
- -----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 7,272,000 5,214,000 4,937,000
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME (15,488,000) 4,178,000 (338,000)
INCOME TAX EXPENSE (BENEFIT) (NOTE 8) (6,865,000) 1,145,000 (855,000)
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (8,623,000) $ 3,033,000 $ 517,000
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE (NOTE 13):
Basic $ (1.64) $ .57 $ .10
Diluted $ (1.64) $ .57 $ .10
=======================================================================================================================
CASH DIVIDENDS DECLARED PER SHARE $ .40 $ .475 $ .70
=======================================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(1) 53 WEEKS
F-6
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
FISCAL YEARS ENDED DECEMBER1, 2001, DECEMBER 2, 2000 AND NOVEMBER 27, 1999
----------------------------------------------------------------------------------------------------------------------------------
Common stock Accumulated
-------------------------- Loan to Other
Number Additional Retained employee stock Comprehensive
Total of shares Amount paid-in capital earnings ownership plan Income (loss)
----------------------------------------------------------------------------------------------------------------------------------
Balance, November 28, 1998 $137,527,000 6,588,444 $1,318,000 $6,903,000 $164,714,000 $(6,327,000) $550,000
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) - - - - - (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 - - - - 790,000 -
----------------------------------------------------------------------------------------------------------------------------------
Balance, November 27, 1999 130,788,000 6,591,944 1,319,000 6,967,000 161,445,000 (5,537,000) (411,000)
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 - - - - - 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 - - - - 790,000 -
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 2, 2000
130,855,000 6,591,944 1,319,000 6,967,000 161,947,000 (4,747,000) (297,000)
Net loss - fiscal 2001 (8,623,000) - - - (8,623,000) - -
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes 631,000 - - - - - 631,000
-------
Total comprehensive loss (7,992,000) - - - - - -
Cash dividends (2,100,000) - - - (2,100,000) - -
Purchase of treasury stock (1,050,000) - - - - - -
Payment of loan from ESOP
(Note 7) 790,000 - - - - 790,000 -
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 1, 2001 $120,503,000 6,591,944 $1,319,000 $6,967,000 $151,224,000 $(3,957,000) $334,000
----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
Unearned Treasury stock
restricted --------------------------
stock Number
compensation of shares Cost
- --------------------------------------------------------------------------------
Balance, November 28, 1998 $(1,000) (1,005,081) $(29,630,000)
Net income - fiscal 1999 - - -
Change in net unrealized
holding loss on
investment securities
available-for- sale, net
of taxes - - -
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) - - -
- --------------------------------------------------------------------------------
Balance, November 27, 1999 - (1,188,389) (32,995,000)
Net income - fiscal 2000 - - -
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes - - -
Total comprehensive income - - -
Cash dividends - - -
Purchase of treasury stock - (122,069) (1,339,000)
Payment of loan from ESOP
(Note 7) - - -
- --------------------------------------------------------------------------------
Balance, December 2, 2000
- (1,310,458) (34,334,000)
Net loss - fiscal 2001 - - -
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes - - -
Total comprehensive loss - - -
Cash dividends - - -
Purchase of treasury stock - (73,116) (1,050,000)
Payment of loan from ESOP
(Note 7) - - -
- --------------------------------------------------------------------------------
Balance, December 1, 2001 - (1,383,574) $(35,384,000)
- --------------------------------------------------------------------------------
================================================================================
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 1, December 2, November 27,
2001 2000 1999
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,623,000) $ 3,033,000 $ 517,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts 400,000 850,000 750,000
Depreciation 4,609,000 5,864,000 6,204,000
Deferred income taxes (6,555,000) 335,000 (15,000)
Non-cash asset impairment and restructuring charges 13,241,000 - -
Compensation under restricted stock plan - - 12,000
Net gain on investment securities (3,025,000) (1,300,000) (2,087,000)
Gain on disposition of assets (261,000) (106,000) -
Decrease (increase) in:
Accounts receivable 6,005,000 3,494,000 5,812,000
Inventories 7,083,000 4,584,000 8,211,000
Other current assets 922,000 (324,000) (488,000)
Other assets (333,000) 558,000 (153,000)
Increase (decrease) in:
Accounts payable (1,871,000) (1,659,000) (1,919,000)
Accruals and other liabilities (1,518,000) 833,000 1,120,000
------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,074,000 16,162,000 17,964,000
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (703,000) (1,403,000) (2,592,000)
Proceeds from sale of property and equipment 725,000 379,000 -
Proceeds from sales of investment securities - 2,816,000 226,000
Acquisition of investment securities (15,681,000) (5,839,000) (9,260,000)
------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (15,659,000) (4,047,000) (11,626,000)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,050,000) (1,339,000) (3,365,000)
Principal repayment on loan to employee stock ownership plan 790,000 790,000 790,000
Dividends (2,108,000) (2,949,000) (3,817,000)
Exercise of stock options - - 54,000
------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (2,368,000) (3,498,000) (6,338,000)
------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,953,000) 8,617,000 -
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,695,000 6,078,000 6,078,000
------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,742,000 $ 14,695,000 $ 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 2001, 2000 and 1999 were primarily
made to United States customers.
PRINCIPLES OF The financial statements include the accounts of
CONSOLIDATION the Company and its subsidiaries, all of which
are wholly owned. Significant intercompany
transactions and balances have been eliminated.
FISCAL YEAR The Company's fiscal year ends on the Saturday
closest to November 30. Fiscal 2001 and 1999 had
fifty-two weeks and fiscal 2000 had fifty-three
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 2001 and had no such equity
securities at December 1, 2001 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 14). 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 1, 2001 and
December 2, 2000, 18% and 23%, 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
================================================================================
DERIVATIVE FINANCIAL The Company is party to equity option contracts
INSTRUMENTS HELD OR as part of its investing activities. Option
ISSUED contracts are contractual agreements that give
the purchaser the right, but not the obligation,
to purchase or sell a financial instrument at a
predetermined exercise price. In return for this
right, the purchaser pays a premium to the
seller of the option. By selling or writing
options, the Company receives a premium and
becomes obligated during the term of the option
to purchase or sell a financial instrument at a
predetermined exercise price if the option is
exercised, and assumes the risk of not being
able to enter into a closing transaction if a
liquid secondary market does not exist.
During fiscal 2001, the Company adopted
Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In
accordance with SFAS 133, the Company's policy
is to recognize all derivatives instruments as
either assets or liabilities on the balance
sheet at fair value. Changes in fair value are
recognized in the income statement in the period
in which they occur. Derivatives are not used
for trading purposes. Derivatives are used to
hedge against fluctuations in the market value
of equity securities. The adoption of SFAS 133
did not result in a material impact on the
Company's consolidated financial statements.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at
cost. Depreciation is computed using principally
the straight-line method. The range of estimated
useful lives is 15 to 33 years for buildings and
building improvements, 4 to 10 years for
machinery and equipment, 10 years for leasehold
improvements and 5 years for trucks and
automobiles.
LONG-LIVED ASSETS The Company reviews the carrying values of its
long-lived and identifiable intangible assets
for possible impairment whenever events or
changes in circumstances indicate that the
carrying amount of the assets may not be
recoverable. Any long-lived assets held for
disposal are reported at the lower of their
carrying amounts or fair value less cost to
sell. During fiscal 2001, the Company recorded
asset impairment and restructuring charges. See
Note 12 of the notes to the financial
statements.
F-11
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
RESEARCH AND Research and development costs are charged to
DEVELOPMENT COSTS expenses in the year incurred and amounted to
$1,999,000, $3,206,000, and $3,478,000 in fiscal
2001, 2000 and 1999, respectively.
STOCK-BASED In fiscal 1997, the Company became subject to
COMPENSATION SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which allows
either the intrinsic or fair value method. SFAS
No. 123 encourages, but does not require,
entities to adopt the fair value method in place
of the intrinsic value method as provided for in
Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB
No. 25"), for all arrangements under which
employees receive shares of stock or other
equity instruments of the employer or the
employer incurs liabilities to employees in
amounts based on the price of its stock. When
the Company adopted SFAS No. 123, it elected to
retain the intrinsic value method. The required
fair value disclosures are included in the notes
to the consolidated financial statements.
TAXES ON INCOME The Company follows the liability method of
accounting for income taxes. Accordingly,
deferred income taxes reflect the net tax effect
of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and for income tax purposes.
EARNINGS (LOSS) PER Basic earnings (loss) per share is based on the
SHARE 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 2001,
2000 and 1999 resulted entirely from dilutive
stock options. For fiscal 2001 and 2000,
potentially dilutive securities that related to
shares issuable upon the exercise of stock
options granted by the Company were excluded, as
their effect was antidilutive. See Note 13 of
notes to the financial statements.
REVENUE RECOGNITION The Company recognizes its revenues upon
shipment of the related goods. Allowances for
estimated returns are provided when sales are
recorded.
F-12
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
NEW ACCOUNTING In July 2001, the Financial Accounting Standard
STANDARDS Board (FASB) issued FASB Statements Nos. 141 and
142 (FAS 141 and FAS 142), "Business
Combinations" and "Goodwill and Other Intangible
Assets." FAS 141 replaces APB 16 and eliminates
pooling-of-interests accounting prospectively.
It also provides guidance on purchase accounting
related to the recognition of intangible assets
and accounting for negative goodwill. FAS 142
changes the accounting for goodwill from an
amortization method to an impairment-only
approach. FAS 141 and FAS 142 are effective for
all business combinations completed after June
30, 2001. Companies are required to adopt FAS
142 for fiscal years beginning after December
15, 2001, but early adoption is permitted. The
Company will adopt FAS 142 on December 2, 2002,
the beginning of fiscal 2003. The Company does
not believe the adoption of FAS 142 will impact
its results of operations or financial position.
In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived
Assets," which addresses financial accounting
and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121
and the accounting and reporting provisions of
APB Opinion No. 30 for a disposal of a segment
of a business. SFAS 144 is effective for fiscal
years beginning after December 15, 2001, with
earlier application encouraged. The Company
expects to adopt SFAS 144 as of December 2,
2002, the beginning of fiscal 2003, and it does
not expect that the adoption of the Statement
will have a significant impact on the Company's
financial position and results of operations.
F-13
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. CASH AND CASH Cash and cash equivalents at December 1, 2001
EQUIVALENTS and December 2, 2000 consisted of the following
(in thousands):
2001 2000
---------------------------------------------------------------------------------
Cash $155 $2,064
Taxable and tax-free
short-term debt
instruments 6,587 12,631
---------------------------------------------------------------------------------
$6,742 $14,695
=================================================================================
2. INVESTMENT Investment securities available-for-sale at
SECURITIES December 1, 2001 and December 2, 2000 consisted
of the following (in thousands):
Gross Gross
unrealized unrealized
holding holding
Cost gain loss Fair value
---------------------------------------------------------------------------------
2001:
Equities $ 798 $ - $ (15) $783
U.S. Treasury
obligations 47,240 316 (16) 47,540
Corporate bonds 32,288 721 (450) 32,559
Money market 1,139 - - 1,139
---------------------------------------------------------------------------------
$81,465 $ 1,037 $(481) $82,021
=================================================================================
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
=================================================================================
F-14
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 1, 2001 and December 2, 2000, by
contractual maturity are as shown below:
December 1, 2001 December 2, 2000
--------------------------- ---------------------------
Cost Fair value Cost Fair value
----------------------------------------------------------
Maturing in one $ 29,983 $ 30,005 $ 19,071 $ 19,161
year or less
Maturing after one
year through five
years 35,321 35,781 32,861 32,486
Maturing after five
years through ten
years 8,130 8,161 3,480 3,339
Ten years and over 6,094 6,152
- --------------------------------------------------------------------------------
$79,528 $80,099 $55,412 $54,986
================================================================================
Gross and net realized gains and losses on sales of investment securities were:
2001 2000 1999
- --------------------------------------------------------------------------------
Gross realized gains $ 6,619 $ 4,214 $ 3,865
Gross realized losses (3,594) (2,914) (1,778)
- --------------------------------------------------------------------------------
Net realized gain $ 3,025 $ 1,300 $ 2,087
================================================================================
Other comprehensive income (loss) for fiscal 2001, 2000, and 1999 consisted of
the following (in thousands):
2001 2000 1999
- --------------------------------------------------------------------------------
Unrealized holding gains
arising during the year, net of
tax $2,446 $894 $291
Reclassification adjustment,
net of tax (1,815) (780) (1,252)
- --------------------------------------------------------------------------------
Other comprehensive income
(loss) net of tax $ 631 $114 $(961)
================================================================================
F-15
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During Fiscal 2001, 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 1, 2001 and December 2, 2000, 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
2001, 2000, and 1999 were approximately
$925,000, $2,217,000, and $(350,000),
respectively.
3. INVENTORIES Inventories at December 1, 2001 and December 2,
2000 consisted of the following (in thousands,
except for percentages):
2001 2000
---------------------------------------------------------------------------------
Raw materials $ 3,036 $ 5,019
Work-in-process 4,083 7,142
Finished goods 5,216 7,257
---------------------------------------------------------------------------------
$ 12,335 $ 19,418
=================================================================================
Approximate percentage of
inventories valued under LIFO
method 56% 52%
---------------------------------------------------------------------------------
Excess of FIFO valuation over
LIFO valuation $ 1,710 $ 3,228
=================================================================================
In fiscal 2001 and 2000, the liquidation of
certain LIFO layers increased cost of goods sold
by $1,909,000 and $465,000, respectively. 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-16
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. PROPERTY, PLANT Property, plant and equipment at December 1,
2001 and December 2, 2000 consisted of the
following (in thousands):
2001 2000
---------------------------------------------------------------------------------
Owned by the Company:
Land and improvements $ 682 $ 698
Buildings and improvements 11,304 13,582
Machinery and equipment 74,275 112,358
Trucks and automobiles 1,742 1,742
Office equipment 681 681
Leasehold improvements 929 923
Assets held for sale 1,482 -
---------------------------------------------------------------------------------
91,095 129,984
Property under capital leases:
Land - 18
Buildings and improvements - 1,432
---------------------------------------------------------------------------------
91,095 131,434
Less: Accumulated depreciation and
amortization 77,030 99,758
---------------------------------------------------------------------------------
$ 14,065 $ 31,676
=================================================================================
5. OBLIGATIONS UNDER Obligations under capital leases at December 1,
CAPITAL LEASES 2001 and December 2, 2000 consisted of the
following (in thousands):
2001 2000
---------------------------------------------------------------------------------
Obligations under capital leases $339 $390
through 2006 payable in
monthly installments of $11
including interest at 10% per
annum
Less: Current maturities (included
with other current
liabilities) 28 28
---------------------------------------------------------------------------------
$311 $362
=================================================================================
F-17
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)
2003 $ 62
2004 68
2005 75
2006 106
------------------------------------------------
$311
================================================
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 2001 and May 1997, the Board of Directors
adopted and the shareholders approved two new
stock option plans providing for the grant of up
to 200,000 shares and 175,000 shares of common
stock respectively at any time over the next ten
years. In general, the terms of the 2001 and
1997 plans are similar to the Company's previous
stock option plans.
F-18
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
(loss) and earnings (loss) 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 2001 may not be representative of future
years' amounts.
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA) 2001 2000 1999
---------------------------------------------------------------------------------
Pro forma net income (loss) ($8,652) $3,008 $305
Pro forma earnings (loss) per
share - diluted ($1.65) $0.56 $0.06
==================================================================================
The weighted average fair value of options
granted was $3.67, $2.45, and $1.73 per share in
fiscal 2001, 2000, and 1999, 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 2001, 2000, and 1999
grants:
-----------------------------------------------
Dividends $.40 to $.70 per share
Volatility 21.4% to 29.2%
Risk-free interest 4.54% to 5.00%
Expected term 1 to 10 years
===============================================
F-19
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 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 granted 8,000 12.75
Options exercised - -
Options canceled (27,500) (12.25)
---------------------------------------------------------------------------------
Shares under option, December 1, 2001 143,200 12.53
=================================================================================
---------------------------------------------------------------------------------
Options exercisable at:
November 27, 1999 130,130 20.80
December 02, 2000 24,140 13.75
December 01, 2001 47,280 12.72
=================================================================================
F-20
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 1, 2001:
Range of Weighted average Weighted average
exercise Number Weighted average exercise price Number exercise price
per share outstanding remaining life per share exercisable per share
- -----------------------------------------------------------------------------------------------------------------------
$13.00 101,200 7.89 $13.00 40,480 $13.00
11.06 34,000 8.90 11.06 6,800 11.06
12.75 8,000 9.50 12.75 - 12.75
- -----------------------------------------------------------------------------------------------------------------------
143,200 47,280
=======================================================================================================================
The shares authorized but not granted under the Company's stock option plans
were 231,800 at December 1, 2001 and 15,300 at December 2, 2000. Common stock
reserved for options totaled 143,200 shares at December 1, 2001 and 162,700
shares at December 2, 2000.
F-21
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 2001, 2000 and 1999
was $0, $0 and $1,000, respectively. No
restricted stock was awarded in Fiscal 2001,
2000, or 1999.
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 2001, 2000 and 1999 were $181,000,
$241,000 and $195,000, 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 2001, 2000 and 1999 were $52,000, $57,000
and $38,000, respectively. Benefits payable
under this plan amounting to $2,107,000 and
$2,397,000 at December 1, 2001 and December 2,
2000, respectively, are included in other
noncurrent liabilities. These liabilities are
fully funded by plan assets of equal amounts,
which are included in other assets.
PENSION PLAN
The Company maintains a non-contributory defined
benefit pension plan (Fab Industries, Inc.
Hourly Employees' Retirement Plan) which covers
substantially all hourly employees. The Plan
provides benefits based on the participants'
years of service.
F-22
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following tables provide a reconciliation of
the changes in the Plan's benefit obligations
and fair value of assets and a statement of the
funded status of the Plan for fiscal 2001 and
2000:
2001 2000
-------------------------------------
RECONCILIATION OF THE BENEFIT OBLIGATION
Obligation at beginning of year $3,588,000 $2,990,000
Service cost 246,000 239,000
Interest cost 284,000 250,000
Curtailment 55,000 -
Actuarial loss 721,000 361,000
Benefit payments (1,381,000) (252,000)
-------------------------------------
Obligation at end of year $3,513,000 $3,588,000
======================================
2001 2000
-------------------------------------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of
year $5,522,000 $4,727,000
Actual return on plan assets (net of
expenses) (286,000) 1,047,000
Benefit payments (1,381,000) (252,000)
-------------------------------------
Fair value of plan assets at end of year $3,855,000 $5,522,000
======================================
2001 2000
-------------------------------------
FUNDED STATUS
Funded status $342,000 $1,934,000
Unrecognized prior service cost 372,000 685,000
Unrecognized gain (797,000) (2,756,000)
-------------------------------------
Net amount recognized $ (83,000) $ (137,000)
======================================
F-23
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following table provides the amounts
recognized in the consolidated balance sheets as
of December 1, 2001 and December 2, 2000:
2001 2000
-------------------------------------
Prepaid benefit cost $ - $ -
Accrued benefit liability (83,000) (137,000)
-------------------------------------
Net amount recognized $ (83,000) $ (137,000)
=====================================
The following table provides the components of
the net periodic (benefit) cost for the Plan for
fiscal 2001 and 2000:
2001 2000
-------------------------------------
Service cost $ 246,000 $ 239,000
Interest cost on projected benefit obligation 284,000 250,000
Expected return on plan assets (430,000) (377,000)
Amortization of prior service cost 74,000 74,000
Amortization of net gain (156,000) (142,000)
Recognized gain due to curtailment and Settlement
(72,000) -
-------------------------------------
Net periodic pension cost/(credit) $ (54,000) $ 44,000
=====================================
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 2001 and 2000 are shown in the
following table:
2001 2000
-------------------------------------
Discount rate 7.25% 7.50%
Expected return on plan assets 8.00% 8.00%
F-24
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan
("ESOP") which covers all full-time employees
who have completed one year of service. In 1991,
the ESOP purchased 340,000 shares of common
stock from the Chairman of the Board of
Directors and President of the Company for
$34.875 per share, which represented 5.5% of the
Company's then outstanding common stock. The
ESOP was funded by the Company, pursuant to a
loan pledge agreement for $11,857,000. The loan
is payable by the ESOP to the Company from
contributions to be made in fifteen equal annual
principal installments plus interest at the
prime rate. Employee rights to the common shares
vest over a seven-year period and are payable at
retirement, death, disability or termination of
employment.
Annual principal installments of $790,000 plus
interest at prime are paid by the ESOP to the
Company. The balance on the ESOP indebtedness at
December 1, 2001 of $3,957,000 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 (loss) per share.
The portion of the common stock dividends
declared relating to ESOP shares totaled
$104,000, $161,000 and $213,000 for fiscal 2001,
2000 and 1999, respectively. Of these amounts,
$65,000, $90,000 and $110,000 for fiscal 2001,
2000 and 1999, respectively, related to
allocated shares and $39,000, $71,000 and
$103,000 for fiscal 2001, 2000 and 1999,
respectively, related to unallocated shares. The
dividends related to the unallocated shares are
being applied towards the $790,000 annual
principal installments referred to above.
F-25
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
As of December 1, 2001 and December 2, 2000,
ESOP shares information was as follows:
2001 2000
---------------------------------------------------------------------------------
Allocated 142,822 151,861
Committed to be released 18,889 21,841
In suspense 67,567 108,174
---------------------------------------------------------------------------------
Total shares held by ESOP 229,278 281,876
=================================================================================
The net charges to earnings for fiscal 2001,
2000 and 1999 were as follows (in thousands):
2001 2000 1999
---------------------------------------------------------------------------------
Contribution to ESOP $1,048 $1,150 $1,108
Less: Interest income on loan
to ESOP 296 547 535
---------------------------------------------------------------------------------
Net charge to earnings $ 752 $ 603 $ 573
=================================================================================
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 2001, 2000 and
1999 consisted of the following components (in
thousands):
2001 2000 1999
---------------------------------------------------------------------------------
Current:
Federal $ (469) $ 734 $ (769)
State and local 159 77 (71)
---------------------------------------------------------------------------------
(310) 811 (840)
Deferred:
Federal and state (6,555) 334 (15)
---------------------------------------------------------------------------------
$ (6,865) $ 1,145 $ (855)
=================================================================================
F-26
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The net deferred tax liability at December 1,
2001 and December 2, 2000 consisted of the
following (in thousands):
2001 2000
---------------------------------------------------------------------------------
Long-term portion:
Gross deferred tax liability (asset) for:
Excess depreciation for tax
purposes $ 306 $ 6,340
Future tax deductions for
employee benefit plans (1,185) (1,023)
Other 53 35
---------------------------------------------------------------------------------
Net long-term liability (asset) (826) 5,352
---------------------------------------------------------------------------------
Current portion:
Gross deferred tax liability (asset) for:
Accounts receivable - Section 475
adjustment 218 677
Net unrealized holding gain (loss)
On investment securities
available-for-sale, included in
stockholders' equity 222 (197)
ESOP contribution accrued for tax
purposes 430 430
Other (601) (264)
---------------------------------------------------------------------------------
Net current liability 269 646
---------------------------------------------------------------------------------
Net deferred tax liability (asset) $ (557) $ 5,998
=================================================================================
F-27
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The provision (benefit) for income taxes
differed from the amount computed by applying
the statutory federal income tax rate of 34.0%
for fiscal 2001, 2000 and 1999 to income (loss)
before income taxes due to the following:
2001 2000 1999
---------------------------------------------------------------------------------
(Tax effect in thousands)
Federal tax expense
(benefit)at statutory rate $(5,266) $1,421 $(115)
State and local income taxes,
net of Federal benefit 105 51 (78)
Tax-free interest income and
dividends received deduction (147) (338) (662)
Change in estimates for tax
contingency and other (1,557) 11 -
---------------------------------------------------------------------------------
Income tax expense (benefit) $(6,865) $1,145 $(855)
=================================================================================
In the fourth quarter of fiscal 2001, the
Company reversed approximately $1.5 million of
certain tax reserves recorded in prior years,
due to changes in estimates for tax contingency
items.
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 2002.
F-28
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 $298,000 plus escalation and other
costs.
Rental expense for operating leases in fiscal
2001, 2000 and 1999 aggregated $679,000,
$901,000 and $894,000, 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)
------------------------------------------------
2002 316
2003 369
2004 375
2005 253
------------------------------------------------
$1,313
================================================
LITIGATION
During the fall of 1999, San Francisco Network
("SFN") commenced an action in the Superior
Court of California, Marin County, against the
Company and the Company's Salisbury
Manufacturing Corporation ("Salisbury")
subsidiary. The action relates to an agreement
between SFN and Salisbury (whose performance the
Company guaranteed), pursuant to which Salisbury
was licensed to use the Karen Neuburger
trademark for branded bedding products. The
complaint alleges that Salisbury failed to
perform its obligations under the agreement, and
asserts claims for an unspecified amount of
damages for breach of written contract, breach
of the implied covenant of good faith and fair
dealing, intentional misrepresentation, and
negligent misrepresentation, as well as a claim
against the Company on the guarantee. The
Company 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
F-29
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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, the Company is engaged in the final
stages of the discovery stage of this action.
The Company intends to vigorously defend this
action and prosecute the Company's affirmative
claims. Trial of this matter is currently set
for March 18, 2002.
A number of other 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 income
FLOWS taxes and interest for fiscal 2001, 2000 and
1999 were as follows (in thousands):
Corporate
income taxes Interest
------------------------------------------------
2001 $ 438 $ 42
2000 (53) 86
1999 (1,238) 101
================================================
F-30
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NONCASH INVESTING AND FINANCING ACTIVITIES
In fiscal 2001, 2000 and 1999, net unrealized
holding gains (losses) of $1,051,000, $190,000
and $(1,601,000), respectively, less related
income taxes of $420,000, $76,000 and
$(640,000), on investment securities
available-for-sale, were recorded as increases
(decreases) in stockholders' equity.
11. INTEREST AND Interest and dividend income for the past three
DIVIDEND INCOME fiscal years were as follows (in thousands):
Dividend
Interest income income Total
------------------------------------------------
2001 $4,123 $166 $4,289
2000 $3,877 $123 $4,000
1999 2,664 287 2,951
------------------------------------------------
12. ASSET IMPAIRMENT In the second quarter of fiscal 2001, the
AND RESTRUCTURING Company implemented a restructuring plan to
CHARGES consolidate several manufacturing facilities. As
a result the Company's fiscal year ended
December 1, 2001 financial results include a
charge for impairment of fixed assets held for
sale of $5,958,000 for the writedown of fixed
assets held for disposal to their fair value
less costs to dispose. The consolidation of
manufacturing facilities is an effort to restore
the operations to an acceptable level of
profitability by eliminating over-capacities at
the manufacturing level in response to the
continued weakness in the economy and market
conditions that have adversely affected the
domestic textile industry.
The fixed assets held for disposal are comprised
of buildings, machinery and equipment from the
knitting, dyeing and finishing activities of the
business. Management believes that such assets
will be sold within six to twelve months;
however, the sale of used textile machinery is
subject to worldwide economic conditions which
can affect the sale of such machinery.
During the fiscal year ended December 1, 2001,
the Company has expended approximately
$1,300,000 to remove and transfer machinery and
equipment to the Company's Mohican Mills
facility as part of the consolidation of the
Company's manufacturing facilities.
F-31
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On December 5, 2001, the Company announced the
intent to pursue a sale of the business and to
do so as part of a plan of liquidation. As a
result, in accordance with FAS 121, the Company
reviewed long-lived assets to be held and used
for impairment and, in the fourth quarter of
2001, recorded an impairment charge of
approximately $7,272,000 relating to fixed (see
Note 16).
13. EARNINGS (LOSS) Basic and diluted earnings (loss) per share for
PER SHARE the fiscal years ended December 1, 2001,
December 2, 2000 and November 27, 1999 are
calculated as follows:
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Weighed
Net Income Average Per Share
(Loss) Shares Amount
---------------------------------------------------------------------------------
Fiscal year ended December 1,
2001:
Basic (loss) per share $(8,623,000) 5,258,353 $(1.64)
-------
Effect of assumed exercise of - -
employee stock options
---------------------------------------------------------------------------------
Diluted loss per share $(8,623,000) 5,258,353 $(1.64)
=================================================================================
Fiscal year ended December 2,
2000:
Basic earnings per share $ 3,033,000 5,336,958 $ .57
------
Effect of assumed exercise 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 exercise of - 4,443
employee stock options
---------------------------------------------------------------------------------
Diluted earnings per share $ 517,000 5,419,130 $ .10
=================================================================================
F-32
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Options to purchase 143,200, 162,700 and 182,000
shares of common stock were outstanding during
fiscal 2001, 2000 and 1999, respectively, but
were not included in the computation of diluted
earnings per share, as their effect would be
anti-dilutive.
F-33
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. SEGMENT INFORMATION
The Company adopted SFAS No. 131 "Disclosure About Segments of an
Enterprise and Related Information" in fiscal 1999. SFAS No. 131 requires
companies to report information on segments using the way management organizes
segments within the company for making operating decisions and assessing
financial performance.
The Company's chief operating decision-maker is considered to be the
Chief Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The Company has identified three reportable segments based
upon the primary markets it serves: Apparel Fabrics, Home Fashions, Industrial
Fabrics and Accessories.
Apparel Fabrics: The Company is a major manufacturer of warp and circular knit
fabrics and raschel laces. The Company's textile fabrics are sold to a wide
variety of manufacturers of ready-to-wear and intimate apparel for men, women,
and children, including dresses and sportswear, children's sleepwear,
activewear, swimwear, and recreational apparel.
Home Fashions and Accessories: While sales primarily to manufacturers of home
furnishings, we also use our own textile fabrics internally to produce flannel
and satin sheets, blanket products, comforters, and other bedding products which
we sell to specialty stores, catalogue and mail order companies, airlines and
cruise lines, and health care institutions.
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
servicing the residential and contract markets. We also sell fabrics to vendors
in the over the counter markets.
The accounting policy of the reportable segments are the same as those
described in Summary of Accounting Policies (Business F-9). The Company neither
allocates to the segments nor bases segment decisions on the following:
- Interest and dividend income
- Interest 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.
For the 52 weeks ending December 1, 2001, charges for the asset
impairment and restructuring charges apply mainly to the apparel segment with a
small portion to the other segment.
F-34
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During all years presented, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales.
The following are our segment revenues and income (loss) by reportable segments
for the fiscal years 2001, 2000, and 1999.
HOME FASHIONS,
2001 APPAREL AND ACCESSORIES OTHER TOTAL
- ---- ------- --------------- ----- -----
External sales $60,884 $10,382 $ 8,770 $ 80,036
Intersegment sales 9,781 44 326 10,151
Operating income/(loss) (22,346) 674 (1,088) (22,760)
Depreciation expense 3,919 54 477 4,450
Segment assets 21,844 1,454 2,867 26,165
Capital expenditures 374 - 302 676
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
F-35
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
REVENUES 2001 2000 1999
---- ---- ----
Total external sales for segments $ 80,036 $ 118,185 $ 128,889
Intersegment sales for segments 10,151 12,717 13,256
Elimination of intersegment sales (10,151) (12,717) (13,256)
--------------------------------------------
Total consolidated sales $ 80,036 $ 118,185 $ 128,889
============================================
PROFIT OR LOSS
Total operating loss for segments $(22,760) $ (1,036) $ (5,275)
Total other income 7,272 5,214 4,937
--------------------------------------------
Income (loss) before taxes on income $(15,488) $ 4,178 $ (338)
============================================
ASSETS
Total segments assets $ 26,165 $ 50,625 $ 59,926
Assets not allocated to segments 105,363 100,787 92,252
--------------------------------------------
Total consolidated assets $131,528 $ 151,412 $ 152,178
============================================
OTHER SIGNIFICANT ITEMS
Depreciation expense $ 4,450 $ 5,689 $ 6,057
Not allocated to segments 159 175 147
--------------------------------------------
Consolidated total $ 4,609 $ 5,864 $ 6,204
============================================
Capital expenditures $ 676 $ 1,244 $ 2,536
Not allocated to segments 27 159 56
--------------------------------------------
Consolidated total $ 703 $ 1,403 $ 2,592
============================================
F-36
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
15. QUARTERLY Quarterly earnings were as follows (in
FINANCIAL DATA thousands, except for earnings per share):
(UNAUDITED)
First Second Third Fourth
quarter quarter quarter quarter Total
- -------------------------------------------------------------------------------------------------------------
Fiscal 2001:
Net sales $20,005 $23,002 $19,901 $17,128 $ 80,036
Gross profit (loss) (152) 857 659 154 1,518
Net loss (1,042) (4,393) (1,320) (1,868) (8,623)
Loss per share:
Basic $ (0.20) $ (0.83) $ (0.25) $ (.36) $ (1.64)
Diluted $ (0.20) $ (0.83) $ (0.25) $ (.36) $ (1.64)
=============================================================================================================
Fiscal 2000:
Net sales $28,339 $29,541 $29,276 $31,029 $118,185
Gross profit 2,451 3,275 3,241 2,462 11,429
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
=============================================================================================================
Net loss includes $5,958,000, $967,000 and $7,605,000 for second, third and
fourth quarter 2001 respectively, and $14,530,000 for the 52 weeks ending
December 1, 2001 for asset impairment and restructuring charges.
F-37
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
16. SUBSEQUENT EVENT Recently, the Company's Board of Directors has
determined that it is in the best interests of
our stockholders to sell the Company's textile
business as a going concern. In order to
maximize stockholder value, the Board of
Directors adopted resolutions dated March 1,
2002 which authorized, subject to stockholder
approval, the sale of the Company's business
pursuant to a Plan of Liquidation and
Dissolution (the "Plan"). The Plan provides that
if the requisite stockholder approval is
received, the Company's officers and directors
will continue to operate the Company's textile
business in its current fashion, pursue a sale
of the business as a going concern and, if the
Company's Board of Directors deems it advisable,
engage financial advisors to assist with the
sale of the business. The Board of Directors
will present the Plan for the approval by
stockholders at the Company's annual meeting,
which is expected to occur in April 2002. If the
Plan is not approved by the Company's
stockholders, the Company will continue to
operate in the ordinary course while the
Company's Board of Directors explores
alternatives then available for the future of
the Company.
F-38
FAB INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES
FORM 10-K
FISCAL YEARS ENDED DECEMBER 1, 2001, DECEMBER 2, 2000,
AND NOVEMBER 27, 1999
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 1, 2001:
Allowance for doubtful $ 300 $400(i) $ - $(100)(ii) $ 600
Accounts
Fiscal year ended
December 2, 2000:
Allowance for doubtful $1,500 $850(i) $ - $(2,050)(ii) $ 300
Accounts
Fiscal year ended
November 30, 1999:
Allowance for doubtful $1,000 $750(i) $ - $(250)(ii) $1,500
Accounts
=============================================================================================================================
(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: March 1, 2002
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 March 1, 2002 Chairman of the Board, Chief Executive Officer, and
- ------------------------ and Director (Principal Executive Officer)
Samson Bitensky
/s/ David A. Miller March 1, 2002 Vice President - Finance, Treasurer, and Chief
- ------------------------ Financial Officer (Principal Financial and
David A. Miller Accounting Officer)
/s/ Martin B. Bernstein March 1, 2002 Director
- ------------------------
Martin B. Bernstein
/s/ Lawrence H. Bober March 1, 2002 Director
- ------------------------
Lawrence H. Bober
/s/ Frank S. Greenberg March 1, 2002 Director
- ------------------------
Frank S. Greenberg
/s/ Susan B. Lerner March 1, 2002 Director
- ------------------------
Susan B. Lerner
/s/ Richard Marlin March 1, 2002 Director
- ------------------------
Richard Marlin
/s/ Steven E. Myers March 1, 2002 Director, President and Chief Operating
- ------------------------ Officer
Steven E. Myers