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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
For the fiscal year ended November 27, 2004
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-5901
FAB INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2581181
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Madison Avenue, New York, NY 10016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-592-2700
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $.20 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: Share Purchase
Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of The Act)
Yes [_] No [X]
The aggregate market value at May 31, 2004 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
$12,400,000. 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 May 4, 2005 there
were outstanding 5,215,031 shares of Common Stock, $.20 par value.
FAB INDUSTRIES, INC.
INDEX TO FORM 10-K
ITEM NUMBER PAGE
PART I.........................................................................1
Item 1. Business...........................................................1
Item 2. Properties.........................................................4
Item 3. Legal Proceedings..................................................6
Item 4. Submission of Matters to a Vote of Security-Holders................6
PART II........................................................................7
Item 5. Market for Common Equity and Related Stockholder Matters...........7
Item 6. Selected Consolidated Financial Data...............................8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......18
Item 8. Financial Statements and Supplementary Data.......................18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.........................................18
Item 9A Controls and Procedures...........................................18
PART III .....................................................................20
Item 10. Directors and Executive Officers.................................20
Item 11. Executive Compensation...........................................22
Item 12. Security Ownership of Certain Beneficial Owners and Management...25
Item 13. Certain Relationships and Related Transactions...................27
Item 14. Principal Accountant Fees and Services...........................27
PART IV.......................................................................29
PART I
ITEM 1. BUSINESS
Fab Industries, Inc. was incorporated on April 21, 1966, under the laws
of the State of Delaware and is a successor by merger to previously existing
businesses. References in this Annual Report to "Fab" or "us" or "our" or "the
Company" mean Fab Industries, Inc. and its subsidiaries on a consolidated basis,
unless the context otherwise requires. We are a manufacturer of warp and
circular knit fabrics, raschel laces, and laminated fabrics. We also produce
comforters, sheets, blankets and other bedding products.
The Company's Board of Directors adopted resolutions dated March 1,
2002, which authorized, subject to stockholders approval, the sale of the
Company's business pursuant to a Plan of Liquidation and Dissolution (the
"Plan"). The Company's stockholders approved the Plan at the Company's annual
meeting on May 30, 2002.
The Company engaged the investment banking firm of McFarland Dewey &
Co., LLC in November 2002 to assist it with the sale of the Company's business.
McFarland Dewey contacted over 80 potential acquirers during the course of this
eighteen-month process. On October 14, 2003, the Company announced that it had
yet to receive any bona-fide offers to acquire the business as a going concern.
Following that announcement, on October 23, 2003, the Company received a
preliminary offer from a management-led buyout group to acquire the business, as
a going concern, for $3.75 per share. The Company subsequently announced on
November 14, 2003, that a stockholder filed a lawsuit, naming as defendants, the
Company and each of its directors, seeking class-action certification,
preliminary and permanent injunctions against the proposed management-led
buyout, and unspecified damages. The preliminary offer from the management-led
buyout group was subsequently withdrawn.
The Company continued the auction process following the withdrawal of
the management-led buyout group's preliminary offer. On March 10, 2004, the
Company paid a $3.00 per share liquidating distribution. Following this
liquidating distribution, the auction process resulted in the Company receiving
three non-binding initial indications of interest from unaffiliated third
parties, at prices ranging from $1.50 per share to $2.25 per share and a
non-binding initial indication of interest from SSJJJ, at a price of $2.83 per
share. A Special Committee of the Company's Board of Directors, (the "Special
Committee") comprised solely of independent directors, was formed to evaluate
SSJJJ's preliminary indication of interest. After further discussions between
the Special Committee and SSJJJ, SSJJJ indicated that it may be willing make a
binding offer of $2.80 per share to purchase the Company's business as a going
concern. SSJJJ informed the Special Committee on August 9, 2004, that it would
not be making a binding offer at that time to purchase the Company's business.
On August 11, 2004, the Company announced that it suspended its formal auction
process because it failed to receive a binding offer to purchase the Company's
business as a going concern.
The Company announced on March 9, 2005 that it had received a
preliminary non-binding indication of interest from SSJJJ Manufacturing Co.,
Inc., an acquisition vehicle owned by several members of the Company's
management, including Steven Myers, the Company's President and Chief Operating
Officer ("SSJJJ"), to acquire the business, as a going concern, at a price of
$2.80 per share. A Special Committee of the Company's Board of Directors,
comprised solely of independent directors, is currently evaluating SSJJJ's
preliminary non-binding indication of interest.
Under the Plan, if the Company's business is not sold prior to May 30,
2005, the Company will be required to transfer its assets and liabilities to a
liquidating trust for the benefit of the Company's stockholders. If the
Company's assets and liabilities are transferred to a liquidating trust on May
30, 2005, the Company's stock transfer books will close and its common stock
will be delisted from trading on the AMEX effective on the close of business on
May 30, 2005. Thereafter, certificates representing shares of Company common
stock will not be assignable or transferable on the books of the Company, except
by will, intestate succession or by operation of law. Thus, at such time, it
will no longer be possible for the Company's stockholders to publicly trade the
Company's stock and the proportionate interests of all of the Company's
stockholders will be fixed on the basis of their respective stock holdings at
the close of business on May 30, 2005. After such date, any distributions made
by the Company will be made solely to the stockholders of record at the close of
business on May 30, 2005, except as may be necessary to reflect subsequent
transfers recorded on the Company's books from any transfers by will, intestate
succession or by operation of law. The interests in any liquidating trust will
not be transferable.
(1)
There can be no assurance that the Company will be able to sell its business as
a going concern, that the Company will be able to liquidate all of its assets
prior to May 30, 2005, or that the sale of its business and assets will generate
proceeds to the stockholders in an amount equal to or greater than the market
price of its stock or the liquidation value of its assets.
Due to the uncertainty as to whether the Company will be sold prior to
May 30, 2005, the Company and its accountants, BDO Siedman, LLP, have determined
that it is more appropriate to present the Company's financial statements on a
liquidation basis. Therefore, we changed our basis of accounting to the
liquidation basis as of November 27, 2004. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable value and
liabilities are stated at their anticipated settlement amounts. Included in the
liabilities, we accrued approximately $11.6 million in costs of liquidation
representing the Company's estimate of the costs and expenses to be incurred
during actual liquidation. There can be no assurance that actual liquidation
costs and expenses will be equal to the Company's estimated liquidation costs
and expenses.
The amount of distributions ultimately available to be made to
shareholders upon the final liquidation of the Company may differ from the "net
assets in liquidation" recorded in the accompanying statements of Net Assets in
Liquidation as a result of future changes in settlement of liabilities and
obligations and actual costs of liquidation.
The accompanying statements of operations, shareholders' equity and
cash flows for the period November 30, 2003 to November 26, 2004 (fiscal 2004)
and for each of the years in the two year period ended November 29, 2003 and
November 30, 2002 have been presented on a going concern basis comparable to
prior periods.
Upon approval of the Plan by the stockholders on May 30, 2002 the
Employee Stock Ownership Plan (the ESOP) was terminated and all shares of common
stock of the Company then in the ESOP suspense account (86,456 shares) were
transferred to the Company, and held as treasury stock in exchange for the
cancellation of the outstanding loan in the amount of $3,957,000 from the
Company to the ESOP. The Company recorded the related treasury stocks at fair
market value on the date of termination, which resulted in a $2.4 million charge
to additional paid-in-capital.
Pursuant to resolutions adopted by the Company's Board of Directors and
documentation sent to and returned to the Company by option holders, effective
immediately following stockholder approval of the Plan on May 30, 2002, all
outstanding options under the Company's 1997 Stock Incentive Plan became vested,
and all options as to which optionees (including employees and directors) had
returned to the Company the appropriate forms (representing options held by all
but one optionee, who exercised via payment to the Company) were exercised
through the issuance of loans from the Company to the optionees, with stock of
the optionees held as collateral by the Company until the loans have been
satisfied. The amount loaned to the employees and directors to exercise their
options was approximately $1,495,000, which was all repaid prior to August 30,
2003. These options were subject to variable accounting at each reporting
period, until the loans were repaid. In June 2003, the Company repurchased
22,984 shares of its common stock at $9.48 per share from employees and
directors with outstanding loans from the Company and offset the related payment
against the loans due from such employees and directors, which were due as of
May 31, 2003 with a one month grace period. The Company purchased the number of
shares necessary for the employees and directors to pay off all outstanding
loans, including interest.
(2)
OPERATIONS
Fab is a supplier of knitted fabrics and lace in the domestic textile
industry. The Company currently operates in three segments: (1) Apparel Fabrics,
(2) Home Fashions and Accessories, and (3) Other, consisting of the Gem Urethane
operation, the Over-the-Counter Retail operation, located at the Salisbury
Manufacturing facility, and Industrial Fabrics.
APPAREL FABRICS
The Company's basic warp and circular knit fabrics are sold to
manufacturers of outerwear, intimate apparel, loungwear, and activewear. These
fabrics are sold primarily in piece dyed form, as well as in "PFP" (prepared for
print), and heat transfer print configurations.
The Company's wide elastic fabrics are sold to manufacturers of
intimate apparel, foundation, swimwear, athleticwear, aerobicwear, sportswear,
and healthcare products.
The Company's lace products are sold to manufacturers of intimate
apparel, hosiery, ladies sportswear, children's wear, swimwear, accessories, and
hobbies and crafts.
HOME FASHIONS AND ACCESSORIES
The Company utilizes its internally manufactured fabrics and laces to
produce flannel and satin sheets, blankets, comforters, and other
bedding-related products which are sold to specialty retail stores, catalog and
mail order companies and airlines through the Company's subsidiary, Salisbury
Manufacturing Corporation.
OTHER
Included in this segment is (1) Gem Urethane Corporation, (2) the
Over-the-Counter Retail operation, and (3) Industrial and other miscellaneous
fabrics.
The Company's subsidiary, Gem Urethane Corporation produces a line
of bonded products for manufacturers of environmental, healthcare, industrial
and consumer products.
Gem also performs commission laminating for various manufacturers of
consumer products. Fire resistant fabrics are sold to manufacturers in the
seating, transportation, and military markets through its subsidiary Sandel
International Corporation.
The Company also sells its fabric and laces to "Over-the-Counter"
retail customers throught the Company's retail manufacturing operations, which
are located at the Company's Salisbury Manufacturing plant.
Specialized, engineered fabrics are sold to manufacturers of
industrial, healthcare, medical, and military products.
In the first quarter 2004, certain equipment was sold to a customer who
previously owned 50% of the equipment. The proceeds from the sale amounted to
$1,100,000. As a result, the customer at a future date will be doing the
production on its own.
(3)
GENERAL
We engage in research and product development activities to create new
fabrics and styles to meet the continually changing demands of our customers.
Direct expenditures in this area aggregated $1,690,000 in fiscal 2002, $850,000
in fiscal 2003, and $775,000 in fiscal 2004. Through these efforts, we have
developed a full line of proprietary knitted fabrics for sale to manufacturers
of men's, women's, and children's apparel in both domestic and foreign markets.
Similarly, we have also developed a full line of flannel and satin sheets and
blankets, including specialty blankets for the airline and health care
institutions.
While we use various trademarks and trade names in the promotion and
sale of our products, we do not believe that the loss or expiration of any such
trademark or trade name would have a material adverse effect on our operations.
We market our products primarily through our full-time sales personnel,
as well as independent representatives located throughout the United States and
abroad.
We do not believe our backlog of firm orders is a material indicator of
future business trends because goods subject to such orders are shipped within
two to ten weeks depending on the availability of yarn and other raw materials.
On average, orders are filled within six weeks.
During fiscal 2004, one customer accounted for approximately 13% of net
sales. The receivable from this customer represents approximately 26% of
consolidated accounts receivable at November 27, 2004. No single customer
accounted for net sales greater than 10% of consolidated net sales for the
fiscal years 2003 and 2002. No single customer had a net balance due greater
than 10% of consolidated net accounts receivable at November 29, 2003. 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
ensure an uninterrupted production flow. Greige and finished goods are
maintained as inventory to meet varying customer demand and delivery
requirements. We must maintain adequate working capital, because credit terms
available to customers normally exceed credit terms extended to us by suppliers
of raw materials.
COMPETITION
Fab is engaged in a highly competitive global business, which is based
largely upon price, product quality, service and general consumer demand for the
Company's finished goods. The portion of imported textile goods sold in the
United States has increased substantially in the past few years, adversely
impacting domestically manufactured textile products and the number of domestic
manufacturers of such products. Our sales have declined from approximately
$151,000,000 in 1998 to approximately $50,000,000 in 2004, largely as a result
of increased foreign competition.
SEGMENT INFORMATION
See Note 14 of the Notes to Consolidated Financial Statements.
EMPLOYEES
At April 10, 2005, the Company employed approximately 475 people, of
whom approximately 455 are employed by our subsidiaries. The employees are not
represented by unions. We consider relations with our employees to be
satisfactory. The number of our employees has declined from approximately 1,600
at the end of 1998 to approximately 475 on April 10, 2005.
(4)
ITEM 2. PROPERTIES.
The Company conducts its manufacturing operations in Lincolnton and
Salisbury, North Carolina, and Amsterdam, New York. Yarn receiving and storage,
dye and chemical receiving and storage, knitting operations, and dyeing and
finishing operations are conducted at the Mohican Mills facility. These
operations more specifically include tricot (warp knit) and raschel warping,
tricot knitting, raschel lace knitting, wide elastic/stretch raschel knitting,
circular and double-knit knitting, dyeing, framing, surface finishing including
sueding, napping, shearing, heat transfer printing, lace separation, all
facility-wide quality operations, laboratory testing and certification,
yielding, packaging, and shipping. The Mohican Mills facility also processes and
serves as a warehouse for greige and finished fabrics and lace.
The Salisbury facility is the site of our consumer and institutional
finished products manufacturing, the Over-The-Counter Retail Operation, and the
Company's Mill Outlet Store. The Gem Urethane plant in Amsterdam, New York
utilizes approximately 106,000 square feet for production. Fab closed two
manufacturing plants, Travis Knits in Cherryville, North Carolina and Adirondack
Knitting in Amsterdam, New York, during the first week of July 2001. The
Adirondack Knitting Plant was on an operating lease which expired at the time of
closure.
In addition, on November 16, 2001, Fab closed its manufacturing plant
in Maiden, North Carolina. The manufacturing operations of each of these
facilities were consolidated into the Company's Mohican Mills facility located
in Lincolnton, North Carolina. The Company is attempting to sell its plants in
Cherryville and Maiden, North Carolina.
Over the past three years, the Company has reduced the floor space of
its executive offices and showroom facilities in its New York City headquarters.
(5)
The following table sets forth the location of each of Fab's current
manufacturing facilities, its current principal use, if any, approximate floor
space and, where leased, the lease expiration date. There are no mortgages or
other encumbrances on any of our facilities. All the Company's operating
facilities are in good operating condition and repair.
APPROXIMATE LEASE
LOCATION PRINCIPAL USE FLOOR SPACE EXPIRATION DATE
- -------- ------------- ----------- ---------------
Lincolnton, Dyeing and finishing, 630,550 sq. ft. (1)
North Carolina raschel and tricot knitting,
circular single and double knitting,
tricot and raschel warping, printing
and warehousing.
Lincolnton, North Carolina Warehouse 55,000 sq. ft. (1)
Maiden, North Carolina (3) 224,013 sq. ft. (1)
Salisbury, North Carolina Manufacturing finished consumer 125,000 sq. ft. (1)
and institutional products and
retail and over-the- counter
fabrics
Amsterdam, New York Laminated fabrics, fire fighting 106,000 sq. ft. (2)
material manufacturing
operations and bonding and
laminating
Cherryville, North Carolina (3) 197,000 sq. ft. (1)
New York, New York Executive offices and showroom 5,753 sq. ft. 7/31/05
facilities
(1) Company owned.
(2) The lease currently runs from month to month.
(3) These facilities were closed during 2001 and are currently subject to a
brokerage sale agreement. Manufacturing operations were consolidated into
Fab's Mohican Mills facility located in Lincolnton, North Carolina.
All of our facilities are constructed of brick, steel or concrete, and
we consider all facilities to be adequate and in good operating condition and
repair.
(6)
ITEM 3. LEGAL PROCEEDINGS.
On November 10, 2003, a class action complaint was filed against the
Company in Delaware Chancery Court. The complaint asserts claims against the
Company and certain of its officers and directors based on the management
buy-out proposal at a price allegedly lower than the cash value and book value
of the Company's shares which was an allegedly interested transaction, the
amendment to Mr. Bitensky's employment contract discussed below in Item 7, and
the Company's failure to file a certificate of dissolution with the Delaware
Secretary of State. The complaint alleges such actions constitute violations of
defendants' fiduciary duties, as well as the provisions of the Delaware General
Corporation Law. The complaint does not seek a specific amount of damages, and
seeks to enjoin defendants from effectuating the planned management buyout. The
Company served an answer to the complaint on December 11, 2003.
On each of November 21 and November 26, 2003, additional class action
lawsuits were initiated against the Company in Delaware Chancery Court,
asserting substantially the same allegations as those described above.
The Company believes that each of the claims described above is without
merit. Further, certain of the claims described above have been rendered moot by
the withdrawal of the preliminary offer by the management-led buyout group to
acquire the Company.
By petition dated September 9, 2004, plaintiff requested that all of
its claims be dismissed because they have been rendered moot by the withdrawal
of the management buy-out and there is no current plan to effectuate a sale of
the Company's assets. Plaintiff also petitioned the Court for an award of
reasonable attorney's fees in the amount of $300,000 and attorney's expenses of
$13,794.05 (the "Fee Petition") because plaintiff's claim conferred a benefit on
the Company's public stockholders by preventing the consummation of the proposed
management buy-out and preserving the value of the public stockholders'
investment in the Company's stock. The Company opposed the petition.
On December 29, 2004 the Court of Chancery of the State of Delaware
denied the Fee Petition. The Court concluded that the Fee Petition should be
denied as plaintiff's claims either were not meritorious when filed or, to the
extent that they were, they are not yet moot.
Following that decision, plaintiff moved for summary judgment on its
claims relating to the Company's alleged failure to timely file a certificate of
dissolution and seeking a declaration that the plan of dissolution (the "Plan")
is invalid for failure to require a shareholder vote before the sale of all of
the Company's assets. The motions were fully briefed and argued before the Court
on April 12, 2005. On May 2, 2005, the court issued its opinion holding that the
Plan is valid in its entirety and that the Company has not violated Delaware law
by not yet filing its certificate of dissolution. The court stated that the
Company may negotiate and agree to a sale before the certificate of dissolution
is filed, but that the sale cannot be consummated until the certificate of
dissolution has become effective. The court concluded that once the dissolution
becomes effective, Fab may consummate a sale of its assets without a shareholder
vote.
A number of other claims and lawsuits are pending against the Company.
It is impossible at this time for the Company to predict with any certainty the
outcome of such litigation. However, management is of the opinion, based upon
information presently available, that it is unlikely that any liability, would
be material in relation to the Company's consolidated financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not Applicable
(7)
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 2004 HIGH LOW
----------- ---- ---
First Quarter.................................... $ 6.25 $ 5.08
Second Quarter................................... $ 6.60 $ 3.25
Third Quarter.................................... $ 4.50 $ 3.33
Fourth Quarter................................... $ 4.39 $ 3.74
FISCAL 2003
-----------
First Quarter.................................... $ 9.00 $ 8.15
Second Quarter................................... $ 9.75 $ 8.98
Third Quarter.................................... $ 11.25 $ 6.70
Fourth Quarter................................... $ 7.50 $ 4.63
At April 22, 2005, there were approximately 737 holders of record of
Common Stock. On May 30, 2002, the Company's Board of Directors declared an
initial liquidating distribution of $10.00 per share, which was paid on June 24,
2002, with a record date of June 10, 2002. Accordingly, $52,380,000 was paid on
June 24, 2002. On August 1, 2003, the Company's Board of Directors declared a
second liquidating distribution of $4.00 per share, which was paid on August 22,
2003, with a record date of August 11, 2003. Accordingly, $20,860,000 was paid
on August 22, 2003. On February 18, 2004 the Company's Board of Directors
declared a third liquidating distribution of $3.00 per share, which was paid on
March 10, 2004 with a record date of February 28, 2004. Accordingly, $15,645,000
was paid on March 10, 2004.
On March 15, 2005, the Company received a letter from the American
Stock Exchange ("AMEX") that it is not in compliance with continued listing
standards as set forth in Section 1101 of the AMEX Company Guide as a result of
the Company's failure to file its annual report on Form 10-K for the fiscal year
ended November 27, 2004 and that trading of the Company's common stock would be
halted as a result thereof. On March 15, 2005, AMEX halted trading of the
Company's common stock. AMEX further advised the Company that it would initiate
proceedings to delist the Company's common stock from the AMEX on April 14,
2005, if the Company was not then in compliance with all AMEX continued listing
standards or the AMEX determined that the Company had made reasonable
demonstration of its ability to regain compliance with such listing standards.
AMEX requested that the Company submit a plan by March 25, 2005, advising AMEX
what actions the Company will take to regain compliance with all AMEX continued
listing standards.
On March 24, 2005, the Company notified the AMEX that the preparation
of its financial statements for the fiscal year ended November 27, 2004 will be
complete within the next two weeks. On April 14, 2005, the Company asked for an
additional two weeks extension. Accordingly, Fab believes once this 10-K is
filed and its 10-Q for the quarter ended February 26, 2005 is filed it will be
in compliance with the AMEX requirements in this respect.
On April 11, 2005, the Company filed a form 12b-25 indicating that it
would not be able to timely file it's 10-Q for the first quarter ended February
26, 2005.
The Company has terminated all of its stock option plans and as a
result there are no options outstanding or available for grant.
(8)
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(in thousands, except for share and per share data)
AS AT OR FOR THE FISCAL YEAR ENDED
-----------------------------------------------------------------
NOVEMBER 30, 2003 NOVEMBER NOVEMBER DECEMBER DECEMBER
THRU NOVEMBER 26, 2004 29, 2003 30, 2002 1, 2001 2, 2000 (1)
Net Sales $49,660 $51,173 $62,965 $80,036 $118,185
Income (loss) before taxes on (107) (1,545) 3,010 (15,488) 4,178
income (2)(5)
Net income (loss) (2) (72) (1,370) 1,970 (8,623) 3,033
Earnings (loss) per share: (5)
Basic
Diluted (.01) (.26) .38 (1.64) .57
(.01) (.26) .38 (1.64) .57
Total assets (6) (7) -- 57,783 80,937 131,236 151,120
Long-term debt -- -- -- 311 362
Redeemable Common Stock -- -- 7,000 7,000 7,000
Stockholders' equity (6) (7) -- 48,637 64,279 113,211 123,563
Book value -- 9.38 12.33 21.79 23.45
per share (3) (7)
Cash dividends per share (4) 3.00 4.00 10.00 .40 .475
Weighted average number of
shares outstanding:
Basic 5,215,031 5,226,902 5,222,812 5,258,353 5,336,958
Diluted 5,215,031 5,226,902 5,222,812 5,258,353 5,336,958
=============================================================================================================================
Net assets in liquidation: (7) NOVEMBER 27, 2004
-----------------
Cash and cash equivalents and
investment securities $19,894,000
Accounts receivable 7,057,000
Property, plant and equipment 6,082,000
Other assets 4,551,000
---------
Total assets 37,584,000
Total liabilities 20,597,000
----------
Net assets in liquidation $16,987,000
===========
(9)
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (CONT.)
(1) Fifty-three week period.
(2) Fiscal year ended December 1, 2001 amounts include asset impairment and
restructuring charges of $14,530,000.
(3) Computed by dividing stockholders' equity by the number of shares
outstanding at year-end.
(4) Fiscal years ended November 27, 2004, November 29, 2003 and November 30,
2002 cash dividends represent liquidating dividends.
(5) Fiscal year ended November 30, 2002 includes litigation settlement of
$750,000 and fiscal year ended November 29, 2003 includes $685,000 in
asset impairment charges and $1,659,000 in charges resulting from the
amended employment agreement between the Company and Mr. Bitensky. Fiscal
year ended November 27, 2004 includes $615,000 in asset impairment
charges and environmental costs of $226,000.
(6) The consolidated financial statements for the years ended November 29,
2003, November 30, 2002, December 1, 2001 and December 2, 2000 have been
restated to correct an error relating to the fact that the Company has
not depreciated certain improvements to it's land, mainly consisting of
two parking lots constructed in 1984 and 1989 with a cost totaling
approximately $292,000.
(7) Due to the uncertainty as to whether the Company will be sold prior to
May 30, 2005, the Company and its accountants BDO Siedman, LLP have
determined that it is more appropriate to present the Company's financial
statements on a liquidation basis. Therefore, we changed our basis of
accounting to the liquidation basis as of November 27, 2004. Under the
liquidation basis of accounting, assets are stated at their estimated
realizable value and liabilities at their anticipated settlement amounts.
(10)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The domestic textile industry has been negatively affected by a flow of low cost
foreign imports and market conditions since 1998.
The Company's Board of Directors adopted resolutions dated March 1, 2002, which
authorized, subject to stockholders approval, the sale of the Company's business
pursuant to a Plan of Liquidation and Dissolution (the "Plan"). The Company's
stockholders approved the Plan at the Company's annual meeting on May 30, 2002.
The Company engaged the investment banking firm of McFarland Dewey & Co., LLC in
November 2002 to assist it with the sale of the Company's business. McFarland
Dewey contacted over 80 potential acquirers during the course of this
eighteen-month process. On October 14, 2003, the Company announced that it had
yet to receive any bona-fide offers to acquire the business as a going concern.
Following that announcement, on October 23, 2003, the Company received a
preliminary offer from a management-led buyout group to acquire the business, as
a going concern, for $3.75 per share. The Company subsequently announced on
November 14, 2003, that a stockholder filed a lawsuit, naming as defendants, the
Company and each of its directors, seeking class-action certification,
preliminary and permanent injunctions against the proposed management-led
buyout, and unspecified damages. The preliminary offer from the management-led
buyout group was subsequently withdrawn.
The Company continued the auction process following the withdrawal of the
management-led buyout group's preliminary offer. On March 10, 2004, the Company
paid a $3.00 per share liquidating distribution. Following this liquidating
distribution, the auction process resulted in the Company receiving three
non-binding initial indications of interest from unaffiliated third parties, at
prices ranging from $1.50 per share to $2.25 per share and a non-binding initial
indication of interest from SSJJJ, at a price of $2.83 per share. A Special
Committee of the Company's Board of Directors, comprised solely of independent
directors, was formed to evaluate SSJJJ's preliminary indication of interest.
After further discussions between the Special Committee and SSJJJ, SSJJJ
indicated that it may be willing make a binding offer of $2.80 per share to
purchase the Company's business as a going concern. SSJJJ informed the Special
Committee on August 9, 2004, that it would not be making a binding offer at that
time to purchase the Company's business. On August 11, 2004, the Company
announced that it suspended its formal auction process because it failed to
receive a binding offer to purchase the Company's business as a going concern.
The Company announced on March 9, 2005 that it had received a preliminary
non-binding indication of interest from SSJJJ Manufacturing Co., Inc., an
acquisition vehicle owned by several members of the Company's management,
including Steven Myers, the Company's President and Chief Operating Officer
("SSJJJ"), to acquire the business, as a going concern, at a price of $2.80 per
share. A Special Committee of the Company's Board of Directors, comprised solely
of independent directors, is currently evaluating SSJJJ's preliminary
non-binding indication of interest.
Under the Plan, if the Company's business is not sold prior to May 30, 2005, the
Company will be required to transfer its assets and liabilities to a liquidating
trust for the benefit of the Company's stockholders. If the Company's assets and
liabilities are transferred to a liquidating trust on May 30, 2005, the
Company's stock transfer books will close and its common stock will be delisted
from trading on the AMEX effective on the close of business on May 30, 2005.
Thereafter, certificates representing shares of Company common stock will not be
assignable or transferable on the books of the Company, except by will,
intestate succession or by operation of law. Thus, at such time, it will no
longer be possible for the Company's stockholders to publicly trade the
Company's stock and the proportionate interests of all of the Company's
stockholders will be fixed on the basis of their respective stock holdings at
the close of business on May 30, 2005.
After such date, any distributions made by the Company will be made solely to
the stockholders of record at the close of business on May 30, 2005, except as
may be necessary to reflect subsequent transfers recorded on the Company's books
from any transfers by will, intestate succession or by operation of law. The
interests in any liquidating trust will not be transferable.
There can be no assurance that the Company will be able to sell its business as
a going concern, that the Company will be able to liquidate all of its assets
prior to May 30, 2005, or that the sale of its business and assets will generate
proceeds to the stockholders in an amount equal to or greater than the market
price of its stock or the liquidation value of its assets.
(11)
Due to the uncertainty as to whether the Company will be sold prior to May 30,
2005, the Company and its accountants, BDO Siedman, LLP, have determined that it
is more appropriate to present the Company's financial statements on a
liquidation basis. Therefore, we changed our basis of accounting to the
liquidation basis as of November 27, 2004. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable value and
liabilities are stated at their anticipated settlement amounts. Included in the
liabilities, we accrued approximately $11.6 million in costs and expenses of
liquidation representing the Company's estimate of the costs to be incurred
during actual liquidation. There can be no assurance that actual liquidation
costs and expenses will be equal to the Company's estimated liquidation costs
and expenses.
The amount of distributions ultimately available to be made to shareholders upon
the final liquidation of the Company may differ from the "net assets in
liquidation" recorded in the accompanying statements of Net Assets in
Liquidation as a result of future changes in settlement of liabilities and
obligations and actual costs of liquidation.
The accompanying statements of operations, shareholders' equity and cash flows
for the period November 30, 2003 to November 26, 2004 (fiscal 2004) and for each
of the years in the two year period ended November 29, 2003 and November 30,
2002 have been presented as a going concern basis comparable to prior periods.
At November 27, 2004, the following represent the Company's estimated costs and
expenses of liquidation:
Compensation and benefits $ 6,191,000
Defined benefit pension plan 2,033,000
Legal, audit and tax service 1,250,000
Insurance 450,000
Other costs, including property taxes, utilities, maintenance,
repairs, stationery supplies, postage and security 1,665,000
---------
TOTAL $11,589,000
===========
CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates are those which we believe require
our most significant judgments about the effect of matters that are inherently
uncertain. A discussion of our critical accounting estimates, the underlying
judgments and uncertainties used to make them and the likelihood that materially
different estimates would be reported under different conditions or using
different assumptions, is set forth below:
Uncertainties
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable value and liabilities are stated at their anticipated
settlement amounts which approximates the $16,987,000 net orderly liquidation
value. Included in the liabilities, we accrued approximately $11.6 million in
costs of liquidation representing the estimate of the costs to be incurred
during liquidation, however, actual costs could vary from those estimates.
Distributions ultimately made to the shareholders upon liquidation will differ
from the "net assets in liquidation" recorded in the accompanying statements of
Net Assets in Liquidation as a result of future changes in settlement of
liabilities and obligations and final costs of liquidation.
Accruals and Contingencies
We periodically assess the potential liabilities related to any
lawsuits or claims brought against us, as well as for other known unasserted
claims, including environmental, legal and tax matters. While it is typically
very difficult to determine the timing and ultimate outcome of these matters, we
use our best judgment to determine if it is probable that we will incur an
expense related to the settlement or final adjudication of such matters and
whether a reasonable estimation of such probable loss, if any, can be made. In
assessing probable losses, we make estimates of the amount of insurance
recoveries, if any. We accrue a liability when we believe a loss is probable and
the amount of the loss can be reasonably estimated, in accordance with the
provisions of SFAS No. 5, "Accounting for Contingencies," as amended. See Note 9
in the accompanying financial statements for additional information concerning
our contingencies.
(12)
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 provided benefits based on the
participants' years of service.
An estimate of the liability associated with terminating the plan for
underfunding of the hourly plan would be approximately $2.0 million. This will
be assessed by the Pension Benefit Guarantee Corporation. This has been included
in the estimated costs of liquidation. The Company plans to terminate the
non-contributory defined benefit pension plan and distribute the lump sum
payment to it's participant on transfer of the Company to the liquidating trust.
Given the inherent uncertainty related to the eventual outcome of these
matters and potential insurance recoveries, it is possible that all or some of
these matters may be resolved for amounts materially different from any
provisions or disclosures that we may have made with respect to their
resolution. In addition as new information becomes available, we may need to
reassess the amount of probable liability that needs to be accrued related to
our contingencies. All such revisions in our estimates could materially impact
our results of operations and financial position.
We maintain an accrual for workers compensation, which is classified as
other current liabilities in our consolidated balance sheets. We determine the
adequacy of the accrual by periodically evaluating our historical experience and
trends related to workers compensation claims and payments, information provided
to us by our insurance broker and industry experience and trends. If such
information indicates that our accrual is overstated or understated, we will
adjust the assumptions utilized in our methodologies and reduce or provide for
additional accruals as appropriate.
Bad Debt
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Revenue Recognition
The Company recognizes its revenue upon shipment of related goods.
Shipping terms are FOB shipping point pursuant to the Company's sales
agreements. Risk of loss transfers to the Company's customers at the time the
goods are transferred to a common carrier, per the Company's sales agreements.
The acceptance of goods by customers is not subject to inspection. Allowances
for estimated returns are provided when sales are recorded.
Impairment of Long-lived Assets
Whenever events or circumstances indicate that the carrying values of
long-lived assets (including property, plant and equipment) may be impaired, we
perform an analysis to determine the recoverability of the asset's carrying
value. The carrying value of the asset includes the original purchase price (net
of depreciation) plus the value of all capital improvements (net of
depreciation). If the analysis indicates that the carrying value is not
recoverable from future cash flows, we write down the asset to its estimated
fair value and recognize an impairment loss. The estimated fair value is based
on what we estimate the current sale price of the asset to be based on
comparable sales information or other estimates of the asset's value. Any
impairment losses we recognize are recorded as operating expenses. In 2001, we
recognized $13.2 million of impairment losses. We did not recognize any
impairment losses in 2002. In 2004 and 2003, the Company reviewed assets held
for sale and determined an additional impairment charge of $615,000 and
$685,000, respectively, was required.
We make estimates of the undiscounted cash flows from the expected
future operations of the asset. In projecting the expected future operations of
the asset, we base our estimates on future budgeted earnings before interest
expense, income taxes, depreciation and amortization, or EBITDA, and use growth
assumptions to project these amounts out over the expected life of the
underlying asset. If actual conditions differ from those in our assumptions, the
actual results of each asset's actual future operations could be significantly
different from the estimated results we used in our analysis. Our operating
results are also subject to the risks set forth under "Summary of Accounting
Policies - Risk and Uncertainties."
(13)
Results of Operations
NOVEMBER 30, 2003 THRU NOVEMBER 26, 2004 (FISCAL 2004) COMPARED TO FISCAL 2003
Net sales for the fiscal 2004 were $49,660,000 as compared to
$51,173,000 in fiscal 2003, a decrease of 3.0 %. The domestic textile industry
has been negatively affected by a flow of low cost foreign imports and market
conditions since 1998. Apparel external sales for fiscal 2004 were $37.3
million, compared to $39.1 million in fiscal 2003, a decrease of $1.8 million or
4.6%. Home Fashion and Accessories external sales for fiscal 2004 were $4.5
million compared to $4.2 million in fiscal 2003, an increase of $0.3 million or
7.1%. Other external sales for fiscal 2004 were $7.9 million, compared to $7.8
million in fiscal 2003, an increase of $0.1 million or 1.3%. The decreases in
the apparel segment were caused substantially by lower volume due to continued
weakness in the domestic textile industry and market conditions and increased
foreign competition. There was a slight increase in the home fashions and
accessories and other segments.
Gross margins as a percentage of sales increased to 9.9% from 8.3% in
the similar 2003 period. For fiscal 2004, an increase in LIFO reserves of
$314,000 was recorded. This was due to higher FIFO prices. For fiscal 2003, LIFO
inventory reserves decreased $607,000, due to lower average FIFO cost levels.
Additionally, gross margin has increased as a result of a decrease in
depreciation expense of $309,000 for fiscal 2004 compared to the prior
comparable period. This decrease in depreciation expense is a result of the sale
of fixed assets and fixed assets that have been fully depreciated over the past
year. Reductions in costs due to employee terminations and related expenses in
our production facilities also aided gross profit in fiscal 2004. Management is
hopeful that future gross margins will show an improvement over the current
year's performance due to an expected reduction in costs due to employee
terminations and related expenses in fiscal 2004 and a decrease in expected
depreciation as a result of a reduction in capital expenditures over the last
few years and assets which will become fully depreciated in 2005, tempered,
however, by the continuing deterioration in domestic textile manufacturing due
to foreign imports.
Selling, general and administrative expenses for fiscal 2004 increased
by $229,000 or 3.6% compared to the prior comparable period due to a decrease in
payroll totaling $551,000, as a result of employee terminations over the past
year, offset by an increase in professional fees totaling $320,000, mainly
incurred in the first two quarters of 2004, relating to legal fees included in
connection with the class action law suits filed in November of 2003 (See Note 9
to the Consolidated Financial Statements), and an increase in bad debt expense
totaling $200,000 as a result of several customers who filed for bankruptcy or
have been unable to make their required payments due in the current year. In
addition in fiscal 2004, we have recorded compensation expenses and an offset to
investment income totaling $155,000 to reflect changes in the fair value of the
trading securities held by the nonqualified defined contribution plan, in
accordance with EITF 97-14.
During fiscal 2004 and fiscal 2003 the Company reviewed assets held for
sale and determined an additional impairment charge of $615,000 and $685,000
respectively was required. These expenses apply to the apparel segment.
In fiscal 2004, the Company recorded an expense of $226,000 for
environmental costs. The expense represents the costs associated with the lagoon
cleaning process as per North Carolina State requirements to eliminate odors in
a lagoon, which is located next to one of our plants. The lagoon process has
been completed and all costs associated with the process have been paid. For the
fiscal year ended November 29, 2003, a charge of $1,659,000 was recorded which
represents certain amendments to the agreement with the Chief Executive Officer.
See Note 9 to the Consolidated Financial Statements. This amount was allocated
between segments with a majority included in the apparel segment.
For the fiscal year ended 2004, the Company had a gain on the sale of
fixed assets of $1,073,000 compared to $427,000 in last year's comparable
period. Approximately $441,000 of the current year gain belongs to the other
segment and the balance applies to the apparel segment. The fixed assets which
were sold in the first quarter of 2004 relating to the other segment, were sold
to a customer, which previously owned 50% of the equipment. The proceeds from
this sale amounted to $1,100,000. As a result, the customer, at an
undeterminable future date will be doing the production on its own.
(14)
Apparel operating loss for fiscal 2004 was $3.0 million compared to an
operating loss of $4.6 million for fiscal 2003. Lower sales volume in fiscal
2004 reduced operating schedules at production facilities. The apparel segment
includes gain on the sale of fixed assets of $632,000 offset by $226,000 for
environmental costs.
Home Fashion and Accessories operating income for 2004 was $0.2
compared to an operating loss of 0.2 in fiscal 2003.
Other segment operating income for fiscal 2004 was $1.3 million
compared to $0.7 million in fiscal 2003. Of this, $441,000 includes gain on the
sale of fixed assets, which were sold to a customer who previously owned 50% of
the equipment. The proceeds from this sale amounted to $1,100,000. As a result,
the customer, at an undeterminable future date will be doing the production on
its own. In addition, higher margins increased operating income.
Interest and dividend income decreased by $638,000 or 49.9% as compared
to fiscal year 2003. On March 10, 2004, the Company distributed its third
liquidating dividend of $3.00 per share, or $15,645,000. On August 22, 2003 the
Company distributed its second liquidating distribution of $4.00 per share or
$20,860,000. Accordingly, the Company had lower investment balances. In
addition, interest income includes a $155,000 gain reflecting an increase in the
fair value of the trading securities held by the nonqualified defined
contribution plan, in accordance with EITF 97-14.
The Company realized gains from the sale of investment securities of
$759,000 in fiscal 2004 as compared to $1,266,000 in fiscal 2003.
The Company realized a tax benefit for fiscal 2004 and fiscal 2003 of
32.7% and 11.3%, respectively.
As a result of these factors, the Company had a net loss of $72,000 or
0.01 basic and diluted loss per share for fiscal 2004, and a net loss of
$1,370,000 or 0.26 basic and diluted loss per share in fiscal 2003.
FISCAL 2003 COMPARED TO FISCAL 2002
Net sales for the fiscal 2003 were $51,173,000 as compared to
$62,965,000 in fiscal 2002, a decrease of 18.7%. Since 1998, a flood of low-cost
foreign imports continued to take a sustained toll in the U.S. textile
manufacturing sector and negatively impacted segment decline in sales and
production
Apparel external sales for fiscal 2003 were $39.1 million, a decrease
of $12.2 million or 23.8%, as compared to $51.3 million for fiscal 2002.
Home Fashion and Accessories external sales for fiscal 2003 were $4.2
million compared to $4.7 million in fiscal 2002, a decrease of $0.5 million or
10.6%.
Other external sales for fiscal 2003 were $7.8 million, compared to
$7.0 million in fiscal 2002, an increase of $0.8 million or 11.4%.
The decreases in the apparel and home fashions segments were due to a
loss of customers and related sales volume, which resulted from the continued
influx of low-cost foreign imports and continued weakness in the domestic
textile industry. The increase in other is due primarily to our subsidiary, Gem
Urethane Corporation, which experienced an increase in volume to several
customers.
The apparel and home fashions segments implemented measures beginning
in fiscal 2001 to reduce operating costs including a reduction in the number of
employees, which reduced fixed overhead.
(15)
Gross margins as a percentage of sales decreased to 8.3% compared to
10.4% in the similar 2002 period. Lower sales volumes reduced operating
schedules at production facilities. Due to lower average FIFO cost levels, LIFO
inventory reserves decreased by $607,000 and $96,000 in fiscal 2003 and 2002,
respectively. Management is hopeful that gross margins will show an improvement
over last year's performance due to an expected reduction in costs due to
employee terminations and related expenses in 2003 and a decrease in expected
depreciation as a result of a reduction in capital expenditures over the last
few years and assets which will become fully depreciated in 2004, tempered,
however, by the continuing deterioration in domestic textile manufacturing due
to foreign imports.
Selling, general and administrative expenses decreased by $1,371,000,
or 18.6% as compared to fiscal year 2002. The decrease in expenses results
primarily from the reduction in the number of employees and related expenses
totaling approximately $790,000, moving its executive offices and showroom
facilities to smaller premises in July 2002 totaling approximately $335,000,
decreases in the amortization of intangible totaling approximately $124,000 due
to the fact that intangibles were fully amortized in 2002, decreases in
professional fees totaling approximately $475,000 as a result of a litigation
settlement in fiscal 2002 and the continued effectiveness of the cost
containment programs resulting in a decrease in expenses totaling approximately
$360,000, offset by a reduction in gains on the sale of fixed assets totaling
approximately $374,000 and a forgiveness of a debt of $339,000 in fiscal 2002
which was in selling, general and administrative expenses in fiscal 2002.
During fiscal 2003, the Company reviewed assets held for sale and
determined an additional charge of $685,000 was required.
For the fiscal year ended November 29, 2003, a charge of $1,659,000 was
recorded which represents certain amendments to the agreement with the Chief
Executive Officer. See Note 9 to the Consolidated Financial Statements.
In March 2002, the Company settled a dispute without admitting
liability for $750,000. See Note 16 to the Consolidated Financial Statements.
Apparel operating loss for fiscal 2003 was $4.6 million compared to an
operating loss of $0.7 million for fiscal 2002. Lower sales volume affected
operating loss by approximately $690,000 and lower selling margins resulted from
the write-down of inventory to market value totaling approximately $825,000
contributed to the increase in operating loss. In addition, the financial
results include other expenses of $1.7 million, which represents agreement with
the Chief Executive Officer (See Note 9). This was allocated between segments
with a majority included in the apparel segment (See Note 9). The financial
results include a charge for asset impairment of fixed assets $685,000.
Home Fashion and Accessories operating loss for fiscal 2003 was $0.2,
compared to an operating loss of $1.1 million for fiscal 2002. In fiscal 2002,
the financial results includes a charge of $750,000 for settlement of a dispute
without admitting liability. See Note 16 to the Consolidated Financial
Statements.
Other segments operating income for fiscal 2003 was $0.7 million
compared to an operating income of $0.2 million for fiscal 2002. Higher margins
and reduction of costs increased operating income.
Interest and dividend income decreased by $1,134,000 or 47.0% as
compared to fiscal year 2002. On August 22, 2003, the Company distributed a
second liquidating distribution of $4.00 per share, or $20,860,000. Accordingly,
the Company had lower invested balances, which were invested primarily in United
States Treasury Obligations resulting in lower risks and lower yields. The
Company realized gains from the sale of investment securities of $1,266,000 in
fiscal 2003 as compared to $2,179,000 in fiscal 2002.
The Company realized a tax benefit for fiscal 2003, which had an
effective tax rate of 11.3% as compared to an effective income tax rate of 34.6%
in the comparative 2002 period. See Note 8 to the Consolidated Financial
Statements.
As a result of these factors, the Company had a net loss of $1,370,000,
or $0.26 basic and diluted loss per share, as compared to net income of
$1,970,000, or $0.38 basic and diluted earnings per share in fiscal 2002.
(16)
Liquidity and Capital Resources
Due to the uncertainty as to whether the Company will be sold prior to
May 30, 2005, the Company has determined that it is more appropriate to present
the Company's financial statements on the liquidation basis. Therefore, we
changed our basis of accounting to the liquidation basis as of November 27,
2004. If the Company is not sold by May 30, 2005, all assets and liabilities
will be transferred to a liquidating trust. The liquidating trust would then
succeed to all our remaining assets, liabilities and obligations.
Net cash provided by operating activities in fiscal 2004 amounted to
$907,000, primarily due to a decrease in inventories and increase in accounts
payable, offset by increases in accounts receivable. The variability of
operating cash flows is principally caused by sales fluctuations and the amount
of cash provided by changes in working capital accounts. The Company expects to
be generating a positive operating cash flow in future periods subject to any
unknown events that may arise.
Net proceeds from sales of investment securities were $10,774,000 for
fiscal 2004 compared to $17,441,000 for fiscal 2003. The Company mainly used the
proceeds from sales of investment securities in fiscal 2004 for the third
liquidating distribution of $3.00 per share or $15,645,000 on March 10, 2004. In
fiscal 2003, the Company mainly used the proceeds for sales of investment
securities for the second liquidating distribution of $4.00 per share or
$20,860,000 on August 22, 2003.
As of November 27, 2004, our assets consisted of $19,894,000 of cash
and cash equivalents and investment securities available for sale, $7,057,000
for accounts receivable, $1,517,000 for inventories, $3,034,000 for other assets
and $6,082,000 for property, plant and equipment. Our liabilities consist of
$9,008,000 for accounts payable, accruals and other liabilities, and $11,589,000
for estimated costs of liquidation. The net assets in liquidation is
$16,987,000. Distribution ultimately made to shareholders upon liquidation will
differ from the "net assets in liquidation" as a result in future changes in
amounts actually realized on dispositions of assets, as well as settlement of
liabilities and obligations and final costs of liquidation.
Inflation
Management does not believe that the effects of inflation have had a
significant impact during fiscal years 2004, 2003 and 2002.
COMMITMENTS
On July 25, 2003, the Company and Mr. Bitensky amended the Employment
Agreement between the Company and Mr. Bitensky dated as of March 1, 1993 to
provide that at such time as the Company is sold or liquidated pursuant to the
plan, in lieu of the annual consulting fees due under such agreement over the
five year consulting period provided therein, Mr. Bitensky will receive a lump
sum payment equal to the aggregate net present value of each payment due under
such an agreement, such present value to be determined utilizing the prevailing
prime rate at the time of the payment as determined by the Board. Accordingly,
the Company recorded a charge of $856,000, which was included in other expense
for the 52 weeks ended November 29, 2003.
Such amendment to the Employment Agreement also provides that Mr.
Bitensky relinquishes his right under the terms of the original agreement to
require the Company to purchase upon his death approximately $10,000,000 of
shares of common stock from his estate. In consideration of Mr. Bitensky
relinquishing such right, the Company agreed to transfer to Mr. Bitensky
ownership of the three life insurance policies on Mr. Bitensky's life owned by
the Company. The Company transferred these policies having an aggregate cash
surrender value at November 29, 2003 of approximately $803,000. Accordingly, the
Company recorded a charge of $803,000, which was included in other expenses for
the 52 weeks ended November 29, 2003.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not utilize off Balance Sheet arrangements.
(17)
AGGREGATE CONTRACTUAL OBLIGATIONS
The following table provided information as of November 27, 2004.
CONTRACTUAL OBLIGATIONS
(In Thousands)
- --------------------------------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
- --------------------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1-3 YEARS 3-5 YEARS MORE THAN
1 YEAR (1) 5 YEARS
- --------------------------------------------------------------------------------------------------------------------
Long-Term debt $ -- $ -- $ -- $ -- $ --
- --------------------------------------------------------------------------------------------------------------------
Capital Lease Obligations -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Operating Leases 121 121 -- -- --
- --------------------------------------------------------------------------------------------------------------------
Purchase Obligations -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Other Liabilities Reflected on the 3,190 3,190 -- -- --
Registrant's Balance Sheet under GAAP
- --------------------------------------------------------------------------------------------------------------------
Total $ 3,311 $ 3,311 $ -- $ -- $ --
- --------------------------------------------------------------------------------------------------------------------
FORWARD-LOOKING INFORMATION
Certain statements in this report are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in our
communications and discussions with investors and analysts in the normal course
of business including, but not limited to, meetings, phone calls and conference
calls, regarding the sale of our assets pursuant to a plan of liquidation and
dissolution, as well as expectations with respect to future sales and operating
efficiencies prior to a sale of the company, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond our control and
which may cause actual results, performance or achievements to differ materially
from anticipated results, performances or achievements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may," "should," "expect," "anticipate," "estimate," "believe," "intend"
or "project" or the negative of them or other variations of them or comparable
terminology.
Factors that could have a material adverse effect on our operations and
future prospects include, but are not limited to: our ability to find qualified
buyers for our assets; overall economic and business conditions; our continuing
ability to support the demand for our goods and services; competitive factors in
the industries in which we compete; changes in government regulation; changes in
tax requirements (including tax rate changes, new tax laws and revised tax law
interpretations); interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; material contingencies
provided for in a sale of our assets; de-listing of our common stock from the
American Stock Exchange; our ability to retain key employees through any wind
down period; and any litigation arising as a result of our plan to wind down our
operations. These risks and uncertainties should be considered in evaluating any
forward-looking statements contained in the Form 10-K.
We undertake no obligation to update or revise a forward-looking
statement, whether as a result of new information, future events, or otherwise,
other than required by law.
(18)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to risk of fluctuations in the market value of
equity securities. To manage this exposure, the Company uses derivatives to
hedge against fluctuations in the market value of equity securities. The
Company's policy is to recognize all derivative instruments as either assets or
liabilities on the balance sheet at fair value. Changes in the fair value are
recognized in the income statement in the period in which they occur.
Derivatives are not used for trading purposes. At November 27, 2004, included in
the Company's equity investment securities are short term S & P 100 index put
options with a fair value of $74,120 and short term S & P 100 index call options
sold, not yet purchased with a fair value of $20,710. We believe this is our
only area of market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Consolidated Financial Statements Schedules
attached hereto.
ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not Applicable
ITEM 9A. CONTROLS AND PROCEDURES
(A) DISCLOSURE CONTROLS AND PROCEDURES. Our Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation, as of the end of
the period covered by this report, that our disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15(d)-15(e)) are (1) effective to ensure that material information required to
be disclosed by us in reports filed or submitted by us under the Securities
Exchange act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms, and (2)
designed to ensure that material information required to be disclosed by us in
such reports is accumulated, organized and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriated, to allow timely decisions regarding required disclosure.
(B) INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no changes in the
Company's internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934 , as
amended) that occurred during Fab's most recent quarter that has materially
affected, or is reasonably likely to materially affect Fab's internal control
over financial reporting.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems,
there is only reasonable assurance that our controls will succeed in achieving
their stated goals under all potential future conditions.
(19)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS
The following table sets forth certain information concerning our
directors as of May 1, 2005.
NAME AGE PRINCIPAL OCCUPATION AND COMPANY OFFICE (1) DIRECTOR SINCE
- ---- --- ------------------------------------------- --------------
Samson Bitensky............ 85 Chairman of the Board of Directors and Chief 1966
Executive Officer (2)
Steven Myers............... 56 President, Chief Operating Officer and Director (3) 2001
Susan B. Lerner............ 48 Former Corporate Counsel of the Company (4) 1997
Richard Marlin............. 70 Attorney, member of the law firm of Kramer Levin 1995
Naftalis & Frankel LLP. (5)
Lawrence H. Bober.......... 79 Retired, Vice Chairman of the Board, First New York 1979
Bank for Business and First New York Business Bank
Corp.(6)
Martin B. Bernstein........ 70 Chairman of Bedford Capital Corporation.(7) 1998
- ------------------------------
(1) Unless otherwise indicated, the directors' principal occupations have
been their respective principal occupation for at least five years.
(2) Mr. Samson Bitensky was one of the Company's founders in 1966 and has
served as Chairman of the Board of Directors and Chief Executive
Officer of the Company since such time. Mr. Bitensky also served as
President of the Company from 1970 until May 1, 1997.
(3) Mr. Steven Myers served as Co-President and Chief Operating Officer of
the Company from May 1997 through July 2001. In August 2001, Mr. Myers
became President of the Company and also maintained the position of
Chief Operating Officer. In March 2002, Mr. Myers became Secretary of
the Company. Mr. Myers served as Vice President of the Company from May
1988 to May 1997. He served as Vice President of Sales of the Company
for more than five years prior to May 1988. Mr. Myers is the son-in-law
of Mr. Bitensky, Chairman of the Board of Directors and Chief Executive
Officer of the Company.
(4) Ms. Susan B. Lerner is former Corporate Counsel of the Company. She was
Corporate Counsel from 1995 to 2002, Assistant Secretary of the Company
from May 1997 until May 2001 and Secretary of the Company from May 2001
until March 2002. From 1993 to 1995, she was president of the Company's
Raval Lace Division. Ms. Lerner is the daughter of Mr. Bitensky,
Chairman of the Board of Directors and Chief Executive Officer of the
Company.
(5) Since 1979, Mr. Richard Marlin has been a member of the law firm of
Kramer Levin Naftalis & Frankel LLP.
(6) Mr. Lawrence H. Bober is a retired Vice Chairman of the Board of First
New York Business Bank Corp. ("FNYBBC") and of First New York Bank for
Business (formerly, The First Women's Bank), a commercial bank and
wholly-owned subsidiary of FNYBBC, where he served from January 1988
until January 1991. Prior to 1988 and for more than five years, Mr.
Bober was a Senior Vice President of Manufacturers Hanover Trust
Company, a commercial bank.
(7) Mr. Martin B. Bernstein has been Chairman of Bedford Capital
Corporation ("BCC") since July 31, 2001. BCC is a private equity
company, engaged in the acquisition of a variety of businesses. Mr.
Bernstein was also the Chief Executive Officer of Ponderosa Fibres of
America, Inc. ("PFAI") from
(20)
1979 to 2001. PFAI is a member of a limited liability company or a
stockholder of a corporation that are partners of two partnerships
which have been reorganized under Chapter XI in fiscal 1999. PFAI filed
a Chapter XI proceeding in May of 2001. Thereafter, its assets were
sold and it has ceased operations. Mr. Bernstein is a member of the
Board of Directors of Empire Insurance Company and Allcity Insurance
Company.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our
executive officers as of May 1, 2005.
NAME AGE POSITIONS AND OFFICES
- ---- --- ---------------------
Samson Bitensky..................... 85 Chairman of the Board of Directors and Chief Executive Officer
Steven Myers........................ 56 President, Chief Operating Officer and Director
David A. Miller..................... 67 Vice President-Finance, Treasurer, and Chief Financial Officer
Jerry Deese......................... 53 Vice President-Controller of Plant Operations
Sam Hiatt .......................... 58 Vice President-Sales
Each of our executive officers serves at the pleasure of the Board of
Directors and until his or her successor is duly elected and qualified.
SAMSON BITENSKY was one of 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.
(21)
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT.
The Company has an audit committee (the "Audit Committee") composed of
Messrs. Bober and Marlin. The Board of Directors has determined that Mr. Bober
is an "audit committee financial expert" (as defined by the rules and
regulations of the Securities and Exchange Commission). Mr. Bober qualifies as
an audit committee financial expert as a result of his business experience
described under the heading "Directors and Executive Officers - Directors." The
Board of Directors has determined that Mr. Bober is independent pursuant to the
American Stock Exchange's (the "AMEX") listing standards as they relate to audit
committee members.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than ten percent of the Common Stock
to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with
the SEC. Directors, executive officers and greater than ten percent stockholders
are required by SEC regulations to furnish the Company with copies of all Forms
3, 4 and 5 that they file.
The Company believes that all of its directors, executive officers, and
greater than ten percent beneficial owners complied with all filing requirements
applicable to them in the fiscal year 2004.
CODE OF CONDUCT AND ETHICS
The Company has not yet adopted a code of conduct and ethics that
applies to the Company's principal executive officer, principal financial
officer and principal accounting officer. The Company does not intend to do in
light of the fact that the Company will be transferred to a liquidated trust
pursuant to the Plan by May 30, 2005.
ITEM 11. EXECUTIVE COMPENSATION.
The Summary Compensation Table shown below sets forth certain
information concerning the annual and long-term compensation for services in all
capacities to the Company for the 2004, 2003 and 2002 fiscal years of those
persons (the "named executive officers") who were (i) the Chief Executive
Officer during fiscal 2004 and (ii) the other four most highly-compensated
executive officers of the Company who were serving as executive officers at the
end of the fiscal year ended November 27, 2004.
(22)
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS ($) COMPENSATION ($)(2)
--------------------------- ---- ------------ --------- -------------------
Samson Bitensky 2004 350,000 -- 6,000
Chairman of the Board of Directors and 2003 350,000 -- 5,100
Chief Executive Officer 2002 350,000 -- 5,100
Steven Myers 2004 227,000 -- 6,000
President and Chief Operating Officer 2003 225,750 -- 5,100
2002 212,000 5,000 5,100
Sam Hiatt 2004 211,000 -- 6,000
Vice President-Sales 2003 209,750 -- 5,100
2002 196,000 5,000 5,100
David A. Miller 2004 143,000 -- 4,290
Vice President, Finance, Treasurer and 2003 142,583 -- 4,290
Chief Financial Officer 2002 138,000 5,000 4,140
Jerry Deese 2004 150,000 5,000 4,500
Vice President, Controller of Plant 2003 148,750 5,000 4,500
Operations 2002 135,000 5,000 4,050
- -------------------------------------
(1) Includes compensation deferred pursuant to the Company's qualified 401K
Money Option Savings Plan.
(2) Represents the amount of the Company's contribution under its Executive
Retirement Plan for Messrs. Bitensky, Myers and Hiatt and the Fab
Industries, Inc. Profit Sharing Plan for Messrs. Miller and Deese.
(23)
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company did not make any individual grants of stock options or
stock appreciation rights during fiscal 2004 to any of the named executive
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
No named executive officer exercised options during fiscal 2004 nor
held any options to purchase shares of Common Stock as of November 27, 2004.
COMPENSATION OF DIRECTORS
During fiscal 2004, the directors who were not employees of the Company
earned the following annual directors fees: $22,000 to Mr. Bober; $17,000 each
to Messrs. Bernstein and Marlin; $14,500 to Mr. Frank Greenberg; $11,000 to Ms.
Lerner. In addition, each non-employee director earned a fee of $1,000 for each
Audit Committee meeting that they attended (other than Executive Committee
meetings). No additional fee was paid for service on committees of the Board of
Directors.
EMPLOYMENT AGREEMENT
The Company has only one employment agreement with a named executive
officer. Mr. Bitensky entered into an employment agreement with the Company
effective April 1, 1993, pursuant to which he is to perform the duties of its
Chief Executive Officer. The agreement provided it would expire on March 31,
1998, subject to automatic successive one year renewals unless either party
terminates on notice given not less than six months prior to the then expiration
date. The current expiration date is March 31, 2006. The agreement provides for
an annual base salary of $350,000, or such greater amount as the Board of
Directors may from time to time determine, and incentive compensation if the
Company's annual pre-tax income exceeds $10,000,000 equal to 3% of the Company's
annual pre-tax income up to $11,000,000 and 4% of such pre-tax income in excess
of $11,000,000. In the event of disability (as defined in the employment
agreement), compensation at the above rate is payable for the first year, and at
one-half such rate for the second year of such disability. Upon termination of
full-time employment other than by the Company for cause, Mr. Bitensky will be
retained to provide advisory and consulting services for a period of five years
for a fee of $250,000 per annum. In the event of the death of Mr. Bitensky while
employed or providing such consulting services, an amount equal to the average
one year total annual compensation paid to Mr. Bitensky, based upon the three
most recent full-time employment years, is payable to his beneficiaries over a
five-year period.
The Company and Mr. Bitensky amended the Employment Agreement between
the Company and Mr. Bitensky to provide that at such time as the Company is sold
or liquidated pursuant to the Plan of Liquidation and Dissolution, in lieu of
the annual consulting fees due under such agreement over the five year
consulting period provided therein, Mr. Bitensky will receive a lump sum payment
equal to the aggregate net present value of each payment due under such an
agreement, such present value to be determined utilizing the prevailing prime
rate at the time of the payment as determined by the Board of Directors. The
Employment Agreement was further amended to eliminate Mr. Bitensky's right under
the terms of the original agreement to require the Company to purchase upon his
death approximately $10,000,000 of shares of common stock from his estate. In
consideration of Mr. Bitensky relinquishing such right, the Company agreed to
transfer to Mr. Bitensky ownership of the three life insurance policies on Mr.
Bitensky's life owned by the Company.
(24)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth certain information as of May 4, 2005
(except as noted below) as to the shares of Common Stock beneficially owned by
each person known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding Common Stock.
NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES OUTSTANDING
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK
- --------------------------------------- --------------------- ------------
Samson Bitensky(2) 1,488,276(3) 28.5%
c/o Fab Industries, Inc.
200 Madison Avenue
New York, New York 10016
Private Capital Management, L.P., 764,196 14.7%
Bruce S. Sherman
Gregg J. Powers(4)
8889 Pelican Bay Blvd.
Naples, Florida 34108
Dimensional Fund Advisors Inc.(5) 305,081 5.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
FMR Corporation((6)) 521,100 10.0%
82 Devonshire Street
Boston, Massachusetts 02109
Salvatore Muoio((7)) 262,200 5.0%
S. Muoio & Co. LLC
c/o 509 Madison Avenue - Suite 406
New York, New York 10022
- -------------------------------------
(1) Except as otherwise indicated below, each of the persons listed in the
table owns the shares of Common Stock opposite his or its name and has
sole voting and dispositive power with respect to such shares of Common
Stock.
(2) Under the rules and regulations of the SEC, Mr. Bitensky may be deemed
a "control person" of the Company.
(3) Includes 74,000 shares of Common Stock owned by the Halina and Samson
Bitensky Foundation, Inc. and 89,996 shares of Common Stock owned by
Mr. Bitensky's spouse. Mr. Bitensky disclaims beneficial ownership of
the shares owned by his spouse and by the Halina and Samson Bitensky
Foundation, Inc.
(25)
(4) Bruce S. Sherman is Chief Executive Officer of Private Capital
Management, L.P., a Florida limited partnership ("PCM"), and exercises
shared voting and dispositive power with respect to 764,196 shares of
Common Stock held by PCM on behalf of its clients. Gregg J. Powers is
President of PCM and exercises shared voting and dispositive power with
respect to 764,196 shares of Common Stock held by PCM on behalf of its
clients. Messrs. Sherman and Powers disclaim beneficial ownership for
the shares held by PCM's clients and disclaim the existence of a group.
This information is derived solely from PCM's Schedule 13G, as amended,
filed with the Commission on February 14, 2005.
(5) Dimensional Fund Advisors Inc., a Delaware corporation ("Dimensional")
and an investment advisor registered under Section 203 of the
Investment Advisers Act of 1940, furnishes investment advice to four
investment companies registered under the Investment Advisers Act of
1940 and serves as investment manager to certain other investment
vehicles, including commingled group trusts and separate accounts. In
its role as investment advisor or manager, Dimensional possesses voting
and/or investment power over the shares of Common Stock that are owned
by these investment companies and investment vehicles. Dimensional
disclaims beneficial ownership of all such shares. This information is
derived solely from Dimensional's Schedule 13G, as amended, filed with
the Commission on February 9, 2005.
(6) FRM Corp., a Delaware corporation ("FMR"), is the parent holding
company of Fidelity Management & Research Company, an investment
advisor registered under Section 203 of the Investment Advisers Act of
1940 ("Fidelity"). Fidelity furnishes investment advice to various
investment companies registered under the Investment Advisers Act of
1940. In its role as investment advisor, Fidelity possesses voting
and/or investment power over the shares of Common Stock that are owned
by these investment companies. This information is derived solely from
FMR's Schedule 13G filed with the Commission on February 14, 2005.
(7) S. Muoio & Co. LLC, a Delaware limited liability company ("SMC"),
possesses shared voting and dispositive power over 262,200 shares of
Common Stock that are held by various investment vehicles and managed
accounts for which SMC serves as general partner and/or investment
manager. Salvatore Muoio, as the managing member of SMC, possesses
shared voting and dispositive power over 262,200 shares of Common
Stock. This information is derived solely from FMR's Schedule 13G filed
with the Commission on August 19, 2004.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table sets forth certain information as of May 4, 2005 as
to the shares of Common Stock beneficially owned by the Company's directors, the
named executive officers and the directors and executive officers of the Company
as a group.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED ON THE PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER RECORD DATE (1) COMMON STOCK
- ------------------------------------- ------------------------- ----------------------
Samson Bitensky 1,488,276(2) 28.5%
Martin B. Bernstein 3,744 *
Lawrence H. Bober 3,076 *
Susan B. Lerner 64,514 1.2%
Richard Marlin 500 *
Steven Myers 92,556(3) 1.8%
Sam Hiatt 4,243 *
Jerry Deese 9,579 *
David A. Miller 9,536 *
All directors and executive
officers as a group (9 persons) 1,676,024 32.1%
- -------------------------------------
* Less than 1%
(1) Except as otherwise indicated below, each of the persons listed in the
table owns the shares of Common Stock opposite his or her name and has
sole voting and dispositive power with respect to the shares of Common
Stock indicated as being beneficially owned by him or her.
(2) See note 3 to the table set forth above under the heading "Security
Ownership of Certain Beneficial Owners" with respect to beneficial
ownership of these shares.
(26)
(3) Includes 48,370 shares of Common Stock owned by Beth B. Myers; 3,332
shares owned by Jessica C. Myers in a custodial account under control
of Beth B. Myers; and 2,000 shares owned by Allison R. Myers in a
custodial account under the control of Beth B. Myers. Beth B. Myers is
the daughter of Mr. Bitensky, Chief Executive Officer of the Company,
and the spouse of Steven Myers, President and Chief Operating Officer
of the Company. Jessica C. Myers and Allison R. Myers are the minor
daughters of Mr. and Mrs. Myers. Mr. Myers disclaims beneficial
ownership of the shares owned by his spouse and minor daughters.
EQUITY COMPENSATION PLAN INFORMATION
As of November 27, 2004, there were no options to purchase common stock
outstanding or available for grant under any Company stock option plans. All
Company stock option plans have been terminated.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There were no relationships or related transactions required to be
reported under this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
For the fiscal years ended November 29, 2003 and November 27, 2004, BDO
Seidman, LLP ("BDO"), the Company's principal accountant, billed the Company
$100,000 and $110,000, respectively, for professional services rendered in
connection with the audit of the Company's financial statements included in the
Company's Annual Report on Form 10-K for such fiscal years. The amount of fees
that BDO billed for the review of the financial statements included in the
Company's Forms 10-Q for the fiscal years ended November 29, 2003 and November
27, 2004 was $12,000.
AUDIT-RELATED FEES
BDO did not bill the Company during fiscal 2003 or 2004 for any
assurance and related services reasonably related to their performance of the
audit or review of the Company that are not reported under "Audit Fees."
(27)
TAX FEES
In addition to the audit fees, the Company was billed $8,500 by BDO in
fiscal 2004 for professional services rendered for tax compliance, tax advice
and tax planning in connection with the review of the Company's 2003 tax
returns. The Company also expects to be billed by BDO in fiscal 2005 for
professional services rendered for tax compliance, tax advice and tax planning
in connection with the review of the Company's 2004 tax returns in addition to
the audit fees.
ALL OTHER FEES
BDO did not bill the Company for any other fees in fiscal 2003 and 2004
other than those set for above.
PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee pre-approves all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services.
(28)
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) Financial Statements: See the Index to Consolidated Financial
Statements at page F-2.
(2) Financial Statement Schedules: See the Index to Consolidated
Financial Statements Schedules at page S-2.
(3) Exhibit List
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1 - Restated Certificate of Incorporation, incorporated by reference
to Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended November 27, 1993 (the "1993 10-K").
3.2 - Amended and Restated By-laws, incorporated by reference to
Exhibit 3.2 to the 1993 10-K.
3.3 - Certificate of Amendment of Restated Certificate of
Incorporation, incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 3, 1994 (the "1994 10-K").
3.4 - Amendments to the Amended and Restated By-laws, incorporated by
reference to Exhibit 3.4 of the Company's Annual Report on Form
10-K for the fiscal year ended November 29, 1997.
3.5 - Amendment to the Amended and Restated By-laws, incorporated by
reference to Exhibit 3.5 of the Company's Annual Report on Form
10-K for the fiscal year ended November 27, 1999.
4.1 - Specimen of Common Stock Certificate, incorporated by reference
to Exhibit 4-A to Registration Statement No. 2-30163, filed on
November 4, 1968.
4.2 - Rights Agreement dated as of June 6, 1990 between the Company and
Manufacturers Hanover Trust Company, as Rights Agent, which
includes as Exhibit A the form of Rights Certificate and as
Exhibit B the Summary of Rights to purchase Common Stock,
incorporated by reference to Exhibit 4.2 to the 1993 10-K.
4.3 - Amendment to the Rights Agreement between the Company and
Manufacturers Hanover Trust Company dated as of May 24, 1991,
incorporated by reference to Exhibit 4.3 to the 1993 10-K.
10.1 - Employment Agreement dated as of March 1, 1993, between the
Company and Samson Bitensky, incorporated by reference to Exhibit
10.2 to the 1993 10-K.
(29)
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.2 - Fab Industries, Inc. Hourly Employees Retirement Plan (the
"Retirement Plan"), incorporated by reference to Exhibit 10.3 to
the 1993 10-K.
10.3 - Amendment to the Retirement Plan effective December 11, 1978,
incorporated by reference to Exhibit 10.4 to the 1993 10-K.
10.4 - Amendment to the Retirement Plan effective December 1, 1981,
incorporated by reference to Exhibit 10.5 to the 1993 10-K.
10.5 - Amendment to the Retirement Plan dated November 21, 1983,
incorporated by reference to Exhibit 10.6 to the 1993 10-K.
10.6 - Amendment to the Retirement Plan dated August 29, 1986,
incorporated by reference to Exhibit 10.7 to the 1993 10-K.
10.7 - Amendment to the Retirement Plan effective as of December 1,
1989, incorporated by reference to Exhibit 10.8 to the 1993 10-K.
10.8 - Amendment to the Retirement Plan dated September 21, 1995,
incorporated by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 2, 1995
(the "1995 10-K").
10.9 - Fab Lace, Inc. Employees Profit Sharing Plan (the "Profit Sharing
Plan"), incorporated by reference to Exhibit 10.9 to the 1993
10-K.
10.10 - Amendment to the Profit Sharing Plan effective December 1, 1978,
incorporated by reference to Exhibit 10.10 to the 1993 10-K.
10.11 - Amendment dated December 1, 1985 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.11 to the 1993 10-K.
10.12 - Amendment dated February 5, 1987 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.12 to the 1993 10-K.
10.13 - Amendment dated December 24, 1987 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.13 to the 1993 10-K.
10.14 - Amendment dated June 30, 1989 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.14 to the 1993 10-K.
10.15 - Amendment dated February 1, 1991 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.15 to the 1993 10-K.
10.16 - Amendment dated September 1, 1995 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.17 to the 1995 10-K.
10.17 - Lease dated as of December 8, 1988 between Glockhurst
Corporation, N.V. and the Company, incorporated by reference to
Exhibit 10.16 to the 1993 10-K.
(30)
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.18 - Lease Modification Agreement dated April 2, 1991 between
Glockhurst Corporation, N.V. and the Company, incorporated by
reference to Exhibit 10.17 to the 1993 10-K.
10.19 - Second Lease Modification Agreement dated May 23, 1996 between
200 Madison Associates, L.P. and the Company, incorporated by
reference to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1996.
10.20 - Third Lease Modification Agreement dated April 24, 2000 between
200 Madison Associates, L.P. and the Company, incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 2001.
10.21 - Fourth Lease Modification Agreement dated April 11, 2002 between
200 Madison Associates, L.P. and the Company, incorporated by
reference to Exhibit 10.22 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 2002.
10.22 - Lease dated as of March 1, 1979 between City of Amsterdam
Industrial Development Agency and Gem Urethane Corp.,
incorporated by reference to Exhibit 10.18 to the 1993 10-K.
10.23 - Lease dated as of January 1, 1977 between City of Amsterdam
Industrial Development Agency and Lamatronics Industries, Inc.,
incorporated by reference to Exhibit 10.19 to the 1993 10-K.
10.24 - Form of indemnification agreement between the Company and its
officers and directors, incorporated by reference to Exhibit
10.20 to the 1993 10-K.
10.25 - Fab Industries, Inc. Employee Stock Ownership Plan effective as
of Nov. 25, 1991, incorporated by reference to Exhibit 10.24 to
the 1993 10-K.
10.26 - Amendment dated September 21, 1995 to the Employee Stock
Ownership Plan, incorporated by reference to Exhibit 10.27 to the
1995 10-K.
10.27 - Fab Industries, Inc. Non-Qualified Executive Retirement Plan
dated as of November 30, 1990, incorporated by reference to
Exhibit 10.25 to the 1993 10-K.
10.28 - Form of loan agreement, dated May 30, 2002, entered into between
Fab Industries, Inc. and certain of its executive officers and
directors, incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 2002.
10.29 - Amendment dated July 25, 2003 to the Employment Agreement between
Fab Industries, Inc. and Samson Bitensky, incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q filed for the quarter ended August 30, 2003.
(31)
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
21 - Subsidiaries of the Company, incorporated by reference to Exhibit
21 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 2, 2000.
*31.1 - Certification of Samson Bitensky pursuant to Section 302 of the
Sarbanes-Oxley Act.
*31.2 - Certification of David A. Miller pursuant to Section 302 of the
Sarbanes-Oxley Act.
*32.1 - Certification of Samson Bitensky pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act.
*32.2 - Certification of David A. Miller pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act.
(32)
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED NOVEMBER 27, 2004, NOVEMBER 29, 2003 AND
NOVEMBER 30, 2002
F-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
--------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Statement of Net Assets in Liquidation F-4
Statement of changes in Net Assets in Liquidation F-5
Balance sheets F-6
Statements of operations F-7
Statements of stockholders' equity F-8
Statements of cash flows
F-9
SUMMARY OF ACCOUNTING POLICIES F-10 - F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-17 - F-42
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Fab Industries, Inc.
New York, New York
We have audited the accompanying statement of net assets in liquidation of Fab
Industries, Inc. and subsidiaries as of November 27, 2004, and the related
statement of changes in net assets in liquidation for the one day period ended
November 27, 2004. We have also audited the consolidated balance sheet of Fab
Industries, Inc. and subsidiaries as November 29, 2003, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from November 30, 2003 to November 26, 2004 and for the fiscal years
ended November 29, 2003 and November 30, 2002. We have also audited the
financial statement schedules listed in the index on page S-1. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and schedules are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedules, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in the summary of accounting policies, on March 1, 2002, the
Company's Board of Directors adopted resolutions, which authorize, subject to
shareholder approval, the sale of the business pursuant to a plan of
liquidation. The Company's stockholders approved the Plan at the Company's
annual meeting on May 30, 2002, which requires the transfer of assets and
liabilities of the Company to a liquidating trust of May 30, 2005. As a result
of the Company's liquidation on May 30, 2005, the Company has changed its basis
of accounting for periods subsequent to November 26, 2004, from the going
concern basis to the liquidation basis.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the net assets in liquidation of Fab
Industries, Inc. and subsidiaries at November 27, 2004, and changes in net
assets in liquidation for the one day period ended November 27, 2004. In
addition, in our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of Fab Industries, Inc. and
subsidiaries as of November 29, 2003, and the results of their operations and
their cash flows for the period from November 30, 2003 to November 26, 2004 and
for the fiscal years ended November 29, 2003 and November 30, 2002 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedules presents fairly, in all
material respects, the information set forth therein.
As described in Note 17 to the consolidated financial statements, the
accompanying consolidated financial statements as of November 29, 2003 has been
restated.
/s/ BDO Seidman, LLP
- ---------------------
BDO Seidman, LLP
New York, New York
April 29, 2005
F-3
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
STATEMENT OF NET ASSETS IN LIQUIDATION
================================================================================
ASSETS: NOVEMBER 27, 2004
-----------------
Cash and cash equivalents $ 639,000
Investment securities available-for-sale 19,255,000
Accounts receivable 7,057,000
Inventories 1,517,000
Other assets 3,034,000
Property, plant and equipment 6,082,000
- --------------------------------------------------------------------------------
TOTAL ASSETS 37,584,000
- --------------------------------------------------------------------------------
LIABILITIES:
Accounts payable 3,570,000
Corporate income and other taxes 819,000
Accrued payroll and related expenses 983,000
Other liabilities 3,636,000
Estimated cost of liquidation 11,589,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 20,597,000
- --------------------------------------------------------------------------------
$16,987,000
Net assets in liquidation
================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
================================================================================
PERIOD FROM NOVEMBER 26, 2004 THRU NOVEMBER 27, 2004
- ----------------------------------------------------
Net assets in liquidation at November 26, 2004 $16,987,000
-----------
Net assets in liquidation at November 27, 2004 $16,987,000
-----------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
================================================================================
NOVEMBER 29, 2003
- --------------------------------------------------------------------------------
(Restated)
ASSETS
CURRENT:
Cash and cash equivalents $ 3,397,000
Investment securities available-for-sale 29,004,000
Accounts receivable, net of allowance of $1,100,000 for
doubtful accounts 7,171,000
Inventories 5,531,000
Deferred income taxes 506,000
Other current assets 701,000
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 46,310,000
PROPERTY, PLANT AND EQUIPMENT - NET 9,192,000
OTHER ASSETS 2,281,000
- --------------------------------------------------------------------------------
$57,783,000
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 1,913,000
Corporate income and other taxes 861,000
Accrued payroll and related expenses 763,000
Other current liabilities 1,106,000
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,643,000
DEFERRED INCOME TAXES 52,000
OTHER NONCURRENT LIABILITIES 4,451,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 9,146,000
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 9) --
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value - shares authorized 2,000,000;
none issued --
Common stock, $.20 par value - shares authorized 15,000,000;
issued 6,724,944 1,345,000
Retained earnings 84,933,000
Accumulated other comprehensive (loss) (186,000)
Cost of common stock held in treasury - 1,509,913 (37,455,000)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 48,637,000
- --------------------------------------------------------------------------------
$57,783,000
================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
========================================================================================================
NOVEMBER 30, FISCAL YEAR ENDED
2003 THROUGH --------------------------------------
NOVEMBER 26, 2004 NOVEMBER 29, 2003 NOVEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------
NET SALES $49,660,000 $51,173,000 $62,965,000
COST OF GOODS SOLD 44,742,000 46,918,000 56,412,000
- --------------------------------------------------------------------------------------------------------
GROSS PROFIT 4,918,000 4,255,000 6,553,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,657,000 6,428,000 8,189,000
ASSET IMPAIRMENT AND RESTRUCTURING CHARGES 615,000 685,000 --
OTHER EXPENSES 226,000 1,659,000 750,000
GAIN ON SALE OF FIXED ASSETS (1,073,000) (427,000) (817,000)
- --------------------------------------------------------------------------------------------------------
OPERATING LOSS (1,507,000) (4,090,000) (1,569,000)
- --------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest and dividend income 641,000 1,279,000 2,413,000
Interest expense -- -- (13,000)
Net gain on investment securities 759,000 1,266,000 2,179,000
- --------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 1,400,000 2,545,000 4,579,000
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME (107,000) (1,545,000) 3,010,000
INCOME TAX EXPENSE (BENEFIT) (35,000) (175,000) 1,040,000
- --------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (72,000) $(1,370,000) $ 1,970,000
========================================================================================================
EARNINGS (LOSS) PER SHARE:
Basic $ (.01) $ (.26) $ .38
Diluted $ (.01) $ (.26) $ .38
- --------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER SHARE $ 3.00 $ 4.00 $ 10.00
========================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
============================================================================================================
COMMON STOCK
------------------------
RETAINED
EARNINGS
(RESTATED -
SEE SUMMARY
ADDITIONAL OF
NUMBER PAID-IN ACCOUNTING
TOTAL OF SHARES AMOUNT CAPITAL POLICIES)
- ------------------------------------------------------------------------------------------------------------
Balance, December 1, 2001, as
previously reported $113,503,000 6,591,944 $1,319,000 $6,967,000 $144,224,000 $(3,957,000)
Restatement adjustment (See
Note 17) (292,000) -- -- -- (292,000) --
- ------------------------------------------------------------------------------------------------------------
Balance, December 1, 2001, as
restated 113,211,000 6,591,944 1,319,000 6,967,000 143,932,000 3,957,000)
Net loss-- fiscal 2002 1,970,000 -- -- -- 1,970,000 --
Minimum pension liability
adjustment of $164,000, net
of tax benefit of $59,000 (105,000) -- -- -- -- --
Total comprehensive loss 1,865,000 -- -- -- -- --
Cash dividends (52,380,000) -- -- (6,641,000) (45,739,000) --
Acceleration of stock options
(Note 6) 418,000 -- -- 418,000 -- --
Exercise of stock options
(Note 6) 1,445,000 133,000 26,000 1,640,000 -- --
Purchase of treasury stock (280,000) -- -- 17,000 -- --
P Termination of Employee Stock
Ownership Plan -- -- (2,401,000) -- 3,957,000
- ------------------------------------------------------------------------------------------------------------
Balance, November 30, 2002 64,279,000 6,724,944 1,345,000 -- 100,163,000 --
Net loss - fiscal 2003 (1,370,000) -- -- -- (1,370,000) --
Change in net unrealized
holding gain on investment
securities available-for- (223,000)
sale, net of taxes -- -- -- -- --
Minimum pension liability of
$300,000 net of tax benefit
of $108,000 (192,000)
Total comprehensive loss (1,785,000) -- -- -- -- --
Cash dividends (20,860,000) -- -- -- (20,860,000) --
Repayment of notes receivable
from stockholders 221,000 -- -- -- -- --
Purchase of treasury stock (218,000) -- -- -- -- --
Reclass of redeemable common
stock to non redeemable
common stock 7,000,000 -- -- -- 7,000,000 --
- ------------------------------------------------------------------------------------------------------------
Balance, November 29, 2003 48,637,000 6,724,944 1,345,000 -- 84,933,000 --
Net loss - fiscal 2004 (72,000) -- -- -- (72,000) --
Change in net unrealized
holding loss on investment
securities available-for- (193,000)
sale, net of taxes -- -- -- -- --
Minimum pension liability of
$50,000 net of tax benefit
of $18,000 (32,000) --
Total comprehensive loss (297,000) -- -- -- -- --
Cash dividends (15,645,000) -- -- -- (15,645,000) --
- ------------------------------------------------------------------------------------------------------------
Balance, November 26, 2004 $32,695,000 6,724,944 $1,345,000 -- $69,216,000 --
- ------------------------------------------------------------------------------------------------------------
TREASURY STOCK
-------------------------
ACCUMULATED ------------
OTHER NOTES
COMPREHENSIVE RECEIVABLE
INCOME NUMBER FROM
(LOSS) OF SHARES COST STOCKHOLDERS
- -----------------------------------------------------------------------------------
Balance, December 1, 2001, as
previously reported $ 334,000 (1,383,574) $(35,384,000) $--
Restatement adjustment (See
Note 17) -- -- -- --
- -----------------------------------------------------------------------------------
Balance, December 1, 2001, as
restated 334,000 (1,383,574) (35,384,000) --
Net loss-- fiscal 2002 -- -- -- --
Minimum pension liability
adjustment of $164,000, net
of tax benefit of $59,000 (105,000) -- -- --
Total comprehensive loss -- -- -- --
Cash dividends -- -- -- --
Acceleration of stock options
(Note 6) -- -- -- --
Exercise of stock options
(Note 6) -- -- -- (221,000)
Purchase of treasury stock -- (16,899) (297,000) --
P Termination of Employee Stock
Ownership Plan -- (86,456) (1,556,000) --
- -----------------------------------------------------------------------------------
Balance, November 30, 2002 229,000 (1,486,929) (37,237,000) (221,000)
Net loss - fiscal 2003 -- -- -- --
Change in net unrealized
holding gain on investment
securities available-for-
sale, net of taxes (223,000) -- -- --
Minimum pension liability of
$300,000 net of tax benefit
of $108,000 (192,000)
Total comprehensive loss -- -- -- --
Cash dividends -- -- -- --
Repayment of notes receivable
from stockholders -- -- -- 221,000
Purchase of treasury stock -- (22,984) (218,000) --
Reclass of redeemable common
stock to non redeemable
common stock -- -- -- --
- -----------------------------------------------------------------------------------
Balance, November 29, 2003 (186,000) (1,509,913) (37,455,000) --
Net loss - fiscal 2004 -- -- -- --
Change in net unrealized
holding loss on investment
securities available-for-
sale, net of taxes (193,000) -- -- --
Minimum pension liability of
$50,000 net of tax benefit
of $18,000 (32,000)
Total comprehensive loss -- -- -- --
Cash dividends -- -- -- --
- -----------------------------------------------------------------------------------
Balance, November 26, 2004 (411,000) (1,509,913) $(37,455,000) $--
- -----------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 10)
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
NOVEMBER 30,
2003 THROUGH FISCAL YEAR ENDED
NOVEMBER 26, NOVEMBER 29, NOVEMBER 30,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (72,000) $ (1,370,000) $ 1,970,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for doubtful accounts 600,000 400,000 400,000
Depreciation and amortization 1,618,000 1,927,000 2,143,000
Deferred income taxes (534,000) 214,000 38,000
Non-cash asset impairment and restructuring charges 615,000 685,000 --
Compensation relating to acceleration of stock options -- -- 418,000
Net gain on investment securities (759,000) (1,266,000) (2,179,000)
Gain on disposition of fixed assets (1,073,000) (443,000) (817,000)
Decrease (increase) in:
Accounts receivable (1,479,000) (23,000) 2,720,000
Inventories 423,000 2,855,000 3,949,000
Other current assets 81,000 166,000 750,000
Other assets 87,000 915,000 58,000
Increase (decrease) in:
Accounts payable 1,657,000 (942,000) (804,000)
Accruals and other liabilities (257,000) 198,000 112,000
- ------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 907,000 3,316,000 8,758,000
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (34,000) (267,000) (225,000)
Proceeds from sale of property and equipment 1,828,000 621,000 957,000
Proceeds from sales of investment securities 10,774,000 17,441,000 38,650,000
Acquisition of investment securities (588,000) -- --
- ------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 11,980,000 17,795,000 39,382,000
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock -- -- (280,000)
Dividends (15,645,000) (20,860,000) (52,901,000)
Exercise of stock options -- -- 1,445,000
- ------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (15,645,000) (20,860,000) (51,736,000)
- ------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,758,000) 251,000 (3,596,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,397,000 3,146,000 6,742,000
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 639,000 $ 3,397,000 $ 3,146,000
============================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-9
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
BUSINESS
Fab Industries, Inc. (the "Company") is a manufacturer of knitted apparel
fabrics, including laces and finished home products, as well as laminated
fabrics. The Company's sales are primarily made to United States customers.
The Company's Board of Directors adopted resolutions dated March 1, 2002,
which authorized, subject to stockholders approval, the sale of the
Company's business pursuant to a Plan of Liquidation and Dissolution (the
"Plan"). The Company's stockholders approved the Plan at the Company's
annual meeting on May 30, 2002.
The Company engaged the investment banking firm of McFarland Dewey & Co.,
LLC in November 2002 to assist it with the sale of the Company's business.
McFarland Dewey contacted numerous potential acquirers during the course of
this eighteen-month process. On October 14, 2003, the Company announced
that it had yet to receive any bona-fide offers to acquire the business as
a going concern. Following that announcement, on October 23, 2003, the
Company received a preliminary offer from a management-led buyout group to
acquire the business, as a going concern, for $3.75 per share. The Company
subsequently announced on November 14, 2003, that a stockholder filed a
lawsuit, naming as defendants, the Company and each of its directors,
seeking class-action certification, preliminary and permanent injunctions
against the proposed management-led buyout, and unspecified damages. The
preliminary offer from the management-led buyout group was subsequently
withdrawn.
The Company continued the auction process following the withdrawal of the
management-led buyout group's preliminary offer. On March 10, 2004, the
Company paid a $3.00 per share liquidating distribution. Following this
liquidating distribution, the auction process resulted in the Company
receiving three non-binding initial indications of interest from
unaffiliated third parties, at prices ranging from $1.50 per share to $2.25
per share and a non-binding initial indication of interest from SSJJJ (an
affiliated company, see below), at a price of $2.83 per share. A Special
Committee of the Company's Board of Directors, comprised solely of
independent directors, was formed to evaluate SSJJJ's preliminary
indication of interest. After further discussions between the Special
Committee and SSJJJ, SSJJJ indicated that it may be willing make a binding
offer of $2.80 per share to purchase the Company's business as a going
concern. SSJJJ informed the Special Committee on August 9, 2004, that it
would not be making a binding offer at that time to purchase the Company's
business. On August 11, 2004, the Company announced that it suspended its
formal auction process because it failed to receive a binding offer to
purchase the Company's business as a going concern.
The Company announced on March 9, 2005 that it had received a preliminary
non-binding indication of interest from SSJJJ Manufacturing Co., Inc., an
acquisition vehicle owned by several members of the Company's management,
including Steven Myers, the Company's President and Chief Operating Officer
("SSJJJ"), to acquire the business, as a going concern, at a price of $2.80
per share. A Special Committee of the Company's Board of Directors,
comprised solely of independent directors, is currently evaluating SSJJJ's
preliminary non-binding indication of interest.
F-10
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
Under the Plan, if the Company's business is not sold prior to May 30,
2005, the Company will be required to transfer its assets and liabilities
to a liquidating trust for the benefit of the Company's stockholders. If
the Company's assets and liabilities are transferred to a liquidating trust
on May 30, 2005, the Company's stock transfer books will close and its
common stock will be delisted from trading on the AMEX effective on the
close of business on May 30, 2005. Thereafter, certificates representing
shares of Company common stock will not be assignable or transferable on
the books of the Company, except by will, intestate succession or by
operation of law. Thus, at such time, it will no longer be possible for the
Company's stockholders to publicly trade the Company's stock and the
proportionate interests of all of the Company's stockholders will be fixed
on the basis of their respective stock holdings at the close of business on
May 30, 2005. After such date, any distributions made by the Company will
be made solely to the stockholders of record at the close of business on
May 30, 2005, except as may be necessary to reflect subsequent transfers
recorded on the Company's books from any transfers by will, intestate
succession or by operation of law. The interests in any liquidating trust
will not be transferable.
There can be no assurance that the Company will be able to sell its
business as a going concern, that the Company will be able to liquidate all
of its assets prior to May 30, 2005, or that the sale of its business and
assets will generate proceeds to the stockholders in an amount equal to or
greater than the market price of its stock or the liquidation value of its
assets.
Due to the uncertainty as to whether the Company will be sold prior to May
30, 2005, the Company has determined that it is more appropriate to present
the Company's financial statements on a liquidation basis. Therefore, the
Company changed its basis of accounting to the liquidation basis as of
November 27, 2004.
The amount of distributions ultimately available to be made to shareholders
upon the final liquidation of the Company may differ from the "net assets
in liquidation" recorded in the accompanying statements of Net Assets in
Liquidation as a result of future changes in settlement of liabilities and
obligations and actual costs of liquidation.
F-11
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable value and liabilities are stated at their
anticipated settlement amounts, which approximates the $16,987,000 net
orderly liquidation value. The liquidation values of the Company's
receivables, inventory and fixed assets were based on valuations made by an
independent valuation company. Included in the liabilities, the Company
accrued $11,589,000 in costs of liquidation representing the estimate of
the costs to be incurred during liquidation, however, actual costs could
vary from those estimates. Distributions ultimately made to the
shareholders upon liquidation will differ from the "net assets in
liquidation" recorded in the accompanying statements of Net Assets in
Liquidation as a result of future changes in settlement of liabilities and
obligations and final costs of liquidation.
As a result of the change to the liquidation basis of accounting on
November 27, 2004, the Company wrote down assets by $5,656,000 and recorded
additional liabilities relating to costs to liquidate totaling $10,052,000.
The net adjustment as recorded as a reduction to equity of $15,708,000,
resulting in the net assets in liquidation value of $16,987,000 as of
November 27, 2005.
Costs of liquidation including losses to be incurred winding down
operations are $11,589,000, as summarized below:
Compensation and benefits $ 6,191,000
Defined benefit pension plan 2,033,000
Legal, audit and tax services 1,250,000
Insurance 450,000
Other costs, including leases, property taxes, utilities,
maintenance, repairs, stationery supplies, postage, and security 1,665,000
---------
Total $11,589,000
===========
Certain costs to liquidate have been offset against the related assets (see
notes 3 and 4).
Certain of the following policies and footnotes relate to periods prior to
the change to the liquidation basis on November 27, 2004.
PRINCIPLES OF
CONSOLIDATION
The financial statements include the accounts of the Company and its
subsidiaries, all of which are wholly owned. Significant intercompany
transactions and balances have been eliminated.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to November 30.
Fiscal 2004 includes the period November 30, 2003 through November 26, 2004
on a going concern basis. Fiscal 2003 and 2002 had fifty-two weeks.
F-12
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
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. The Company is subject to credit risk if brokers are unable
to repay balances due or deliver securities in their custody. By policy,
the company limits the amount of credit exposure to any one financial
institution. The Company has received confirmation indicating that, with
respect to investment securities, each custodian with the exception of one
custodian maintains appropriate insurance coverage. During fiscal 2004 and
fiscal 2003, that custodian had an average balance of approximately $6.3
million and $9.6 million, respectively, of the Company's cash under
investment, which from time to time during such periods was invested
entirely in equity securities. At November 27, 2004, that custodian had
approximately $5.9 million of the Company's cash under investments, with a
majority invested in equities. In March 2004, the Company liquidated $2.5
million from that custodian as part of the liquidating dividend. The
Company's investment policy currently permits up to 50% of the Company
portfolio to be held by the custodian.
F-13
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
Concentrations of credit risk with respect to trade receivables are limited
due to a diverse group of manufacturers, wholesalers and retailers to whom
the Company sells. The Company reviews a customer's credit history before
extending credit. The Company further reduces its credit risk by factoring,
without recourse, a variable amount of trade receivables. As of November
27, 2004 and November 29, 2003, 18% and 8%, respectively, of the accounts
receivable outstanding were due from factors. During fiscal 2004, one
customer accounted for approximately 13% of net sales. The receivable from
this customer represents approximately 26% of consolidated accounts
receivable at November 27, 2004. No single customer accounted for sales
greater than 10% of consolidated accounts receivable for the fiscal years
2003 and 2002. No single customer had a net balance due greater than 10% of
consolidated accounts receivable at November 29, 2003. Our export sales are
not material. The Company's accounts receivable are customer obligations
due under normal trade terms and up until November 26, 2004, carried at
their face value less an allowance for doubtful accounts.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR
DOUBTFUL ACCOUNTS
The Company's accounts receivable are customer obligations due under normal
trade terms and up until November 26, 2004, carried at their face value
less an allowance for doubtful accounts.
Up until November 26, 2004 the Company evaluated its accounts receivable on
an ongoing basis and established an allowance for doubtful accounts based
on specific customer circumstances and on its historical rate of
write-offs. The Company included any accounts receivable balances that are
determined to be uncollectible, along with a general reserve, in an overall
allowance for doubtful accounts. After all attempts to collect a receivable
have failed, the receivable is written off against the allowance. The
Company believes the allowance for doubtful accounts as of November 26,
2004 is adequate, however, actual write-offs might exceed the recorded
allowance. As of November 27, 2004, accounts receivable are valued at net
orderly liquidation value determined by an outside independent APPRAISER.
F-14
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
INVESTMENTS
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"). SFAS No. 115 addresses accounting and reporting for
investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Investments in such securities
are to be classified as held-to-maturity, trading, or available-for-sale up
until November 26, 2004. The Company classified 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, was recorded in
stockholders' equity.
Gains and losses was on sales of investment securities prior to November
27, 2004, are computed using the specific identification method.
INVENTORIES
Up until November 26, 2004, inventories were valued at the lower of cost or
market. For a portion of the inventories, cost was determined by the
last-in, first-out (LIFO) method with the balance being determined by the
first-in, first-out (FIFO) method. Inventories accounted for under the LIFO
method are goods for the Apparel segment. Inventories accounted for under
the FIFO method are goods manufactured for the Home Furnishing and
Accessories and the Other segments. Both methods are not used for similar
types of goods. The Company reviewed inventory values on a quarterly basis
for items requiring markdowns to lower of cost or market value or due to
obsolescence. As of November 27, 2004, inventories are valued at net
orderly liquidation value determined by an independent appraiser.
COST OF GOODS SOLD
Cost of goods sold includes labor, purchases, inbound freight charges,
receiving costs, warehouse costs and the change in inventory during the
period. Excess fixed production costs are not inventoried and are expensed
in the period incurred.
F-15
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses primarily include costs
relating to administrative and salespersons salaries and benefits, bad debt
expense, professional and consulting fees, insurance expense and rent for
the New York office. In addition, these expenses include compensation
expense and an offset to investment income to reflect changes in the fair
value of the trading securities held by the nonqualified defined
contribution plan, in accordance with EITF 97-14.
REVENUE RECOGNITION
The Company recognizes its revenues upon shipment of related goods.
Shipping terms are FOB shipping point pursuant to the Company's sales
agreements. Risk of loss transfers to the Company's customers at the time
the goods are transferred to a common carrier, per the Company's sales
agreements. The acceptance of goods by the customer is not subject to
inspection. Allowances for estimated returns are provided when sales are
recorded.
SHIPPING AND
HANDLING COSTS
Shipping and handling costs billed to customers are recorded as revenue.
The costs associated with shipping goods to customers are recorded as the
cost of goods sold. The majority of the shipping costs are paid directly by
the Company's customers to independent trucking companies.
DERIVATIVE FINANCIAL
INSTRUMENTS HELD OR
ISSUED
The Company is party to equity option contracts as part of its investing
activities. Option contracts are contractual agreements that give the
purchaser the right, but not the obligation, to purchase or sell a
financial instrument at a predetermined exercise price. In return for this
right, the purchaser pays a premium to the seller of the option. By selling
or writing options, the Company receives a premium and becomes obligated
during the term of the option to purchase or sell a financial instrument at
a predetermined exercise price if the option is exercised, and assumes the
risk of not being able to enter into a closing transaction if a liquid
secondary market does not exist.
In accordance with SFAS 133, the Company's policy is to recognize all
derivatives instruments as either assets or liabilities on the balance
sheet at fair value. Changes in fair value are recognized in the income
statement in the period in which they occur. Derivatives are not used for
trading purposes. Derivatives are used to hedge against fluctuations in the
market value of equity securities.
PROPERTY, PLANT AND
EQUIPMENT
Up until November 26, 2004, property, plant and equipment was stated at
cost. Depreciation was computed using principally the straight-line method.
The range of estimated useful lives was 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.
Depreciation ceases upon any items classification as held for sale. As of
November 27, 2004, property, plant and equipment are valued at net orderly
liquidation value determined by an outside independent appraiser.
F-16
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
LONG-LIVED ASSETS
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Any long-lived assets held for disposal are reported at the
lower of their carrying amounts or fair value less cost to sell. During
fiscal 2004 and fiscal 2003, the Company reviewed assets held for sale and
determined an additional impairment charge of $615,000 and $685,000,
respectively, was required. See Note 12 of the notes to the financial
statements. As of November 27, 2004, the Company changed to liquidation
basis of accounting.
RESEARCH AND
DEVELOPMENT COSTS
Research and development costs are charged to expenses in the year incurred
and amounted to $775,000, $850,000, and $1,690,000 in fiscal 2004, 2003 and
2002, respectively.
ACCOUNTING FOR
STOCK-BASED COMPENSATION
The Company applied Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting
for its various stock option plans. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" and SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", which was released in December
2002 as an amendment to SFAS 123. In accordance with SFAS No. 148, the
following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of SFAS
No. 123. See Note 6 for disclosure of assumptions utilized in the
calculation of fair value. The Company's stock option plans were terminated
subsequent to the fiscal year ended November 30, 2002.
2004 2003 2002
(In thousands, except per share data)
Net Income (loss) as reported $(72) $(1,370) $1,970
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards,
net of related tax effects -- -- (130)
----------------------------------
Pro forma net income (loss) $(72) $(1,370) $1,840
Basic and diluted net income (loss) per share-As reported $(0.01) $(0.26) $0.38
Pro forma $(0.01) $(0.26) $0.35
==============================================================================================
F-17
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
TAXES ON INCOME
The Company follows the liability method of accounting for income taxes.
Accordingly, deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and for income tax purposes.
EARNINGS (LOSS)
PER SHARE
Basic earnings (loss) per share is based on the weighted average number of
common shares outstanding during the fiscal year. Diluted earnings per
share is based on the weighted average number of common shares and dilutive
potential common shares outstanding during the fiscal year. There were no
dilutive potential common shares outstanding in fiscal 2004 and 2003. For
fiscal 2002, 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.
RECLASSIFICATIONS
Certain prior fiscal years' accounts have been reclassified for comparative
purposes.
F-18
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at November 27, 2004 and November 29, 2003
consisted of the following (in thousands):
2004 2003
---------------------------------------------------------------------------
Cash $369 $549
Taxable and tax-free short-term
debt instruments
270 2,848
---------------------------------------------------------------------------
$639 $3,397
===========================================================================
2. INVESTMENT SECURITIES
Investment securities available-for-sale at November 27, 2004 and November
29, 2003 consisted of the following (in thousands):
GROSS GROSS
UNREALIZED UNREALIZED
COST HOLDING GAIN HOLDING LOSS FAIR VALUE
---------------------------------------------------------------------------
2004:
Equities $ 6,516 $ 222 $ (87) $ 6,651
U.S. Treasury
obligations 11,132 -- (20) 11,112
Corporate bonds 1,591 -- (252) 1,339
Money market 153 -- -- 153
----------------------------------------------------------------------------
$ 19,392 $ 222 $ (359) $ 19,255
===========================================================================
2003:
Equities $ 750 $ 17 $ -- $ 767
U.S. Treasury
obligations 27,519 418 -- 27,937
Corporate bonds 253 -- (250) 3
Money market 297 -- -- 297
---------------------------------------------------------------------------
$ 28,819 $ 435 $ (250) $ 29,004
===========================================================================
F-19
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The carrying values and approximate fair values of investments in debt
securities available-for-sale, at November 27, 2004 and November 29, 2003.
NOVEMBER 27, 2004 NOVEMBER 29, 2003
----------------------- ---------------------------
Cost Fair value Cost Fair value
$12,723 $12,451 $27,772 $27,940
========================================================================
Gross and net realized gains and losses on sales of investment securities were:
2004 2003 2002
-------------------------------------------------------------------------
Gross realized gains $ 1,705 $ 3,980 $ 6,653
Gross realized losses (946) (2,714) (4,474)
-------------------------------------------------------------------------
Net realized gain $ 759 $ 1,266 $ 2,179
=========================================================================
Other comprehensive income (loss) for fiscal 2004, 2003, and 2002 included the
following (in thousands):
2004 2003 2002
---------------------------------------------------------------------------
Unrealized holding gains
arising during the year, net of
tax
$ 262 $ 537 $1,307
Reclassification adjustment,
net of tax (455) (760) (1,307)
---------------------------------------------------------------------------
Other comprehensive loss, net
of tax $(193) $(223) --
===========================================================================
F-20
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During Fiscal 2004, 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. Although the Company uses these
instruments to hedge against fluctuations in the market value of the
securities, the Company does not maintain adequate documentation for its
hedging activities, and therefore does not use hedge accounting. All gains
and losses from the use of these instruments are included in the income
statement in the period that they occur. At November 27, 2004, the Company
had a majority invested in equities. At November 29, 2003 the Company had
no such investments. The Company will continue to invest in such equities
in the future.
Realized losses on purchased short-term S&P 100 index put options and sold
short-term S&P 100 call options during fiscal 2004, 2003, and 2002 were
approximately $(64,000), $(874,000), and $(1,463,000), respectively.
The Company has agreements with various brokerage firms to carry its
account as a customer. The brokers have custody of the Company's securities
and, from time to time, cash balances which may be due from these brokers.
These securities and/or cash positions serve as collateral for any amounts
due to brokers or as collateral for securities sold short or securities
purchased on margin. The securities and/or cash positions also serve as
collateral for potential defaults of the Company.
F-21
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. INVENTORIES
Inventories at November 27, 2004 and November 29, 2003 consisted of the
following (in thousands, except for percentages):
NET ORDERLY
LIQUIDATION VALUE COST
---------------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------------
Raw materials $ 623 $ 1,446
Work-in-process 233 1,867
Finished goods 1,486 2,218
---------------------------------------------------------------------------
$ 2,342 $ 5,531
Less: Estimated costs to liquidate 825
--------------------------------------------------------------------------
Net orderly liquidation value $ 1,517
===========================================================================
Approximate percentage of
inventories valued under LIFO
method 61%
===========================================================================
Excess of FIFO valuation over LIFO
valuation $ 1,007
===========================================================================
The net orderly liquidation value has been determined by an outside
independent appraiser.
F-22
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at November 27, 2004 and November 29, 2003
consisted of the following (in thousands):
NET ORDERLY
LIQUIDATION VALUE COST
---------------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------------
Land and improvements $ 390 $ 390
Buildings and improvements 2,205 7,323
Machinery and equipment 3,637 22,255
Trucks and automobiles -- 679
Office equipment -- 287
Leasehold improvements -- 548
Assets held for sale (Note 12) -- 2,013
---------------------------------------------------------------------------
6,232 33,495
Less: Accumulated depreciation and
amortization -- 24,303
---------------------------------------------------------------------------
6,232 $ 9,192
Less: Estimated costs to liquidate 150 --
---
$ 6,082
===========================================================================
The net orderly liquidation value has been determined by an outside
independent appraiser.
5. OBLIGATIONS UNDER CAPITAL LEASES
During fiscal 2002, the capital lease liability was forgiven by the lessor,
resulting in other income of $339,000, which was included in selling,
general and administrative expenses for fiscal 2002.
F-23
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. STOCK COMPENSATION PLANS
STOCK OPTION PLAN
In May 2001 and May 1997, the Board of Directors adopted and the
shareholders approved two new stock option plans providing for the grant of
up to 200,000 shares and 175,000 shares of common stock, respectively, at
any time over the next ten years from the date such plans were adopted.
These stock option plans have been terminated subsequent to the fiscal year
ended November 30, 2002.
Pursuant to resolutions adopted by the Company's Board of Directors and
documentation sent to and returned to the Company by option holders,
effective immediately following stockholder approval of the Plan, on May
30, 2002, all outstanding options under the Company's 1997 Stock Incentive
Plan became vested, and all options as to which optionees (including
employees and directors) had returned to the Company the appropriate forms
(representing options held by all but one optionee, who exercised via
payment to the Company) were exercised through the issuance of loans from
the Company to the optionees, with stock of the optionees held as
collateral by the Company until the loans have been satisfied. The amount
loaned to the employees and directors to exercise their options was
approximately $1,495,000, which was repaid as of June 13, 2003. These
options were subject to variable accounting at each reporting period, until
the related loans were repaid. In June 2003, the Company repurchased 22,984
shares of its common stock at $9.48 per share from employees and directors
with outstanding loans from the Company to offset the related payment of
the loans due from such employees and directors, which were due as of May
31, 2003 with a one month grace period. The Company purchased the number of
shares necessary for the employees and directors to pay off all outstanding
loans, including interest. In fiscal 2003 and 2002 no compensation costs
was recorded related to variable accounting since the market price of the
Company's stock did not change significantly from the date the options were
exercised to the date the loans were repaid in fiscal 2003 and 2002. Based
on the acceleration of certain stock options, the Company recorded a charge
of approximately $418,000 to compensation expense and an increase to
additional paid-in capital in fiscal 2002. As of November 27, 2004 there
were no outstanding options under either of the 2001 stock option plan or
the 1997 stock option plan.
F-24
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
There were no options granted in fiscal 2004, 2003 and 2002.
Data regarding the Company's stock option plan follows:
SHARES WEIGHTED AVERAGE
EXERCISE PRICE
PER SHARE
---------------------------------------------------------------------------
Shares under option, December 1, 2001 143,200 $ 12.53
Options granted -- --
Options exercised (133,000) 12.51
Options canceled (10,200) 12.70
----------------------------------------------------------------------------
Shares under option, November 30, 2002 -- --
----------------------------------------------------------------------------
Shares under option, November 29, 2003 -- --
----------------------------------------------------------------------------
Shares under option, November 27, 2004
----------------------------------------------------------------------------
===========================================================================
----------------------------------------------------------------------------
Options exercisable at:
November 30, 2002 -- --
November 29, 2003 -- --
November 27, 2004 -- --
===========================================================================
F-25
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. BENEFIT PLANS
PROFIT SHARING PLANS
A qualified plan, which covers the majority of salaried employees, provides
for discretionary contributions up to a maximum of 15% of eligible
salaries. The distribution of the contribution to the Plan's participants
is based upon their annual base compensation. Contributions for fiscal
2004, 2003 and 2002 were $104,000, $118,000 and $144,000, 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 2004, 2003 and 2002 were
$39,000, $41,000 and $41,000, respectively. Benefits payable under this
plan amounting to $1,901,000 and $1,925,000 at November 27, 2004 and
November 29, 2003, respectively, are included in other noncurrent
liabilities. These liabilities are fully funded by plan assets of equal
amounts, which are included in other assets.
In fiscal 2004, the Company recorded compensation expense and an offset to
investment income totaling $155,000 to reflect changes in the fair value of
the trading securities held by the nonqualified defined contribution
retirement plan, in accordance with EITF 97-14.
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.
An estimate of the liability associated with terminating the plan for
underfunding of the hourly plan would be approximately $2.0 million. This
will be assessed by the Pension Benefit Guarantee Corporation. This has
been included in the estimated costs of liquidation. The Company plans to
terminate the non-contributory defined benefit pension plan and distribute
the lump sum payment to its participant on transfer of the Company's assets
to the liquidating trust.
F-26
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following table provide a reconciliation of the changes in the Plan's
benefit obligations and fair value of assets and a statement of the funded
status of the Plan for fiscal 2003:
2003
------------------
RECONCILIATION OF THE BENEFIT OBLIGATION
Obligation at beginning of year $3,312,000
Service cost 163,000
Interest cost 218,000
Actuarial loss 355,000
Benefit payments (785,000)
------------------
Obligation at end of year $3,263,000
==================
2003
------------------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year
$2,477,000
Actual return on plan assets (net of expenses)
137,000
Employer contribution --
Benefit payments (785,000)
------------------
Fair value of plan assets at end of year $1,829,000
==================
2003
------------------
FUNDED STATUS
Funded status $(1,434,000)
Unrecognized prior service cost 256,000
Unrecognized actuarial loss 464,000
------------------
Net amount recognized $(714,000)
==================
F-27
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following table provides the amounts recognized in the consolidated
balance sheets as of November 29, 2003:
2003
--------------
Accrued benefit liability (included in other $(1,434,000)
noncurrent liabilities)
Intangible pension asset (included in other assets) 256,000
Accumulated other comprehensive loss (Net of tax
effect below) 297,000
Deferred tax asset 167,000
--------------
Net amount recognized $ (714,000)
==============
The following table provides the components of the net periodic (benefit)
cost for the Plan for fiscal 2004 and 2003:
2004 2003
-------------------------
Service cost $ 159,000 $ 163,000
Interest cost on projected benefit obligation 215,000 218,000
Expected return on plan assets (144,000) (191,000)
Amortization of prior service cost 37,000 37,000
Amortization of net gain 31,000 --
Recognized loss due to curtailment and settlement
83,000 109,000
=========================
Net periodic pension cost $ 381,000 $ 336,000
=========================
Prior service costs are being amortized over the average remaining service
period as of the date of each amendment for active members expected to
receive benefits. Accumulated gains/losses in excess of 10% of the greater
of Projected Benefit Obligation and the Fair Value of Assets are amortized
over the average future work life of participants expected to receive
benefits.
The weighted average assumptions used in the measurement of the Company's
benefit obligations for fiscal 2004 and 2003 are shown in the following
table:
2004 2003
--------------------
Discount rate 6.00% 6.25%
Expected return on plan assets 8.00% 8.00%
F-28
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
EMPLOYEE STOCK OWNERSHIP PLAN
The Company had an Employee Stock Ownership Plan ("ESOP"), which covered
all full-time employees who have completed one year of service. In 1991,
the ESOP purchased 340,000 shares of common stock from the Chairman of the
Board of Directors and President of the Company for $34.875 per share,
which represented 5.5% of the Company's then outstanding common stock. The
ESOP was funded by the Company, pursuant to a loan pledge agreement for
$11,857,000. The loan was payable by the ESOP to the Company from
contributions to be made in fifteen equal annual principal installments
plus interest at the prime rate. Employee rights to the common shares vest
over a seven-year period and are payable at retirement, death, disability
or termination of employment.
The Company accounted for the ESOP shares in accordance with the provisions
of the American Institute of Certified Public Accountants' Statement of
Position No. 76-3. ESOP contributions were recorded for financial reporting
purposes as the ESOP shares became allocable to the plan participants. All
ESOP shares were considered outstanding in the determination of earnings
(loss) per share.
Pursuant to resolutions adopted by the Company's Board of Directors, upon
approval of the Plan by the stockholders on May 30, 2002 Employees Stock
Ownership Plan (the ESOP) was terminated and all shares of common stock of
the Company then held in the ESOP suspense account (86,456 shares) were
transferred to the Company, and held as treasury stock, in exchange for the
cancellation of the outstanding loan in the amount of $3,957,000 from the
Company to the ESOP. The Company recorded the related treasury stock at the
fair market value on the date of the termination, which resulted in a $2.4
million charge to additional paid-in-capital in fiscal 2002.
F-29
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. Income Taxes
Provisions (benefits) for Federal, state and local income taxes for fiscal
2004, 2003 and 2002 consisted of the following components (in thousands):
2004 2003 2002
------------------------------------------------------------------------
Current:
Federal $ 379 $ 313 $ 479
State and local 120 150 100
------------------------------------------------------------------------
499 463 579
Deferred:
Federal and state (534) (638) 461
------------------------------------------------------------------------
$ (35) $ (175) $1,040
========================================================================
The provision (benefit) for income taxes differed from the amount computed
by applying the statutory federal income tax rate of 34.0% for fiscal 2004,
2003 and 2002 to income (loss) before income taxes due to the following:
2004 2003 2002
(Tax effect in thousands)
------------------------------------------------------------------------
Federal tax expense (benefit)
at statutory rate $ (36) $ (525) $ 513
State and local income taxes,
net of Federal benefit 79 99 66
Tax-free interest income and
dividends received deduction (50) (59) (119)
Other (28) 310 580
------------------------------------------------------------------------
Income tax expense (benefit) $ (35) $ (175) $ 1,040
========================================================================
F-30
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The net deferred tax liability (asset) at November 27, 2004 and November
29, 2003 consisted of the following (in thousands):
---------------------------------------------------------------------------
2003
---------------------------------------------------------------------------
Long-term portion:
Deferred tax liability (asset) for:
Depreciation $ 1,577
Employee Benefit Plans (1,360)
Pension obligation (167)
Other 2
---------------------------------------------------------------------------
Net long-term liability (asset) 52
---------------------------------------------------------------------------
Current portion:
Deferred tax liability (asset) for:
Allowance for doubtful accounts (337)
Net unrealized gain
on investment securities 74
Other (243)
---------------------------------------------------------------------------
Net current liability (asset) (506)
---------------------------------------------------------------------------
Net deferred tax asset $ (454)
===========================================================================
2004
---------------------------------------------------------------------------
DEFERRED TAX ASSET
Accounts Receivable $ (713)
Inventory (1,203)
Other (111)
Total (2,027)
Valuation Allowance 172
---------------------------------------------------------------------------
Net Asset after Valuation Allowance $ (1,855)
---------------------------------------------------------------------------
DEFERRED TAX LIABILITY
Fixed Assets $ 739
Prepaid Insurance 164
Total 903
---------------------------------------------------------------------------
Net Deferred Tax Asset (1) $ (952)
---------------------------------------------------------------------------
(1) Included in other assets in the statement of net assets in liquidation
and represents expected recoveries in liquidation.
F-31
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
9. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENT
On July 25, 2003, the Company and Mr. Bitensky amended the employment
agreement between the Company and Mr. Bitensky dated as of March 1, 1993 to
provide that at such time as the Company is sold or liquidated pursuant to
the Plan, in lieu of the annual consulting fees due under such an agreement
over the five year consulting period provided therein, Mr. Bitensky will
receive a lump sum payment equal to the aggregate net present value of each
payment due under such agreement, such present value to be determined
utilizing the prevailing prime rate at the time of the payment, as
determined by the Board. Accordingly, the Company recorded a charge of
$856,000, which was included in other expense for fiscal 2003.
Such amendment to the employment agreement also provides that Mr. Bitensky
relinquishes his right under the terms of the original agreement to require
the Company to purchase upon his death shares of common stock from his
estate equal to the lessor of $7 million or 10% of the book value of the
Company at the end of the year immediately following his death, plus $3
million in proceeds from insurance on his life for which the Company was
beneficiary. In consideration of Mr. Bitensky's relinquishing the right to
have the Company repurchase approximately $10 million of shares of common
stock from his estate, the Company agreed to transfer to Mr. Bitensky
ownership of the three life insurance policies on Mr. Bitensky's life owned
by the Company. The Company transferred these policies having an aggregate
cash surrender value at November 29, 2003 of approximately $803,000.
Accordingly, the Company recorded a charge of $803,000, which was included
in other expenses and reclassified the $7 million in redeemable common
stock to retained earnings in fiscal 2003. The redeemable shares were
included in the basic and diluted weighted average number of shares
outstanding for the fiscal years ending November 29, 2003 and November 30,
2002.
F-32
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
LEASES
The Company leases its New York City offices and showrooms until 2005, at
average minimum annual rentals of $91,000 plus escalation and other costs.
Rental expense for operating leases in fiscal 2004, 2003 and 2002
aggregated $251,000, $297,000 and $495,000, 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)
=====================================================================
2005 $ 91
---------------------------------------------------------------------
LITIGATION
On November 10, 2003, a class action suit was filed against the Company in
Delaware Chancery Court. The complaint asserts claims against the Company
and certain of its officers and directors based on the management buy-out
proposal at a price allegedly lower than the cash value and book value of
the Company's shares and which was an allegedly interested transaction, the
amendment to Mr. Bitensky's employment contract, the Company's failure to
seek stockholder approval for the management buyout and the Company's
failure to file a certificate of dissolution with the Delaware Secretary of
State. The complaint alleges such actions constitute violations of
defendants' fiduciary duties, as well as the provisions of the Delaware
General Corporation Law.
The complaint does not seek a specific amount of damages, and seeks to
enjoin defendants from effectuating the planned management buyout. The
Company served an answer to the complaint on December 11, 2003.
On each of November 21 and November 26, 2003 class action lawsuits were
initiated against the Company in Delaware Chancery Court asserting the same
allegations as those described above.
The Company believes that each of the claims described above is without
merit. Further, certain of the claims described above have been rendered
moot by the withdrawal of preliminary offer by the management-led buyout to
acquire the Company.
By petition dated September 9, 2004, plaintiff requested that all of its
claims be dismissed because they have been rendered moot by the withdrawal
of the management buy-out and there is no current plan to effectuate a sale
of the Company's assets. Plaintiff also petitioned the Court for an award
of reasonable attorney's fees in the amount of $300,000 and attorney's
expenses of $13,794.05 (the "Fee Petition") because plaintiff's claim
conferred a benefit on the Company's public stockholders by preventing the
consummation of the proposed management buy-out and preserving the value of
the public stockholders' investment in the Company's stock. The Company
opposed the petition.
F-33
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On December 29, 2004 the Court of Chancery of the State of Delaware denied
the Fee Petition. The Court concluded that the Fee Petition should be
denied as plaintiff's claims either were not meritorious when filed or, to
the extent that they were, they are not yet moot.
Following that decision, plaintiff moved for summary judgment on its claims
relating to the Company's alleged failure to timely file a certificate of
dissolution and seeking a declaration that the plan of dissolution (the
"Plan") is invalid for failure to require a shareholder vote before the
sale of all of the Company's assets. The motions were fully briefed and
argued before the Court on April 12, 2005. On May 2, 2005, the court issued
its opinion holding that the Plan is valid in its entirety and that the
Company has not violated Delaware law by not yet filing its certificate of
dissolution. The court stated that the Company may negotiate and agree to a
sale before the certificate of dissolution is filed, but that the sale
cannot be consummated until the certificate of dissolution has become
effective. The court concluded that once the dissolution becomes effective,
Fab may consummate a sale of its assets without a shareholder vote.
A number of claims and lawsuits are pending against the Company. It is
impossible at this time for the Company to predict with any certainty the
outcome of such litigation. However, management is of the opinion based
upon information presently available, that it is unlikely that any
liability would be material in relation to the Company's consolidated
financial position, or results of operations.
OTHER
The Company had a letter of credit with its insurance provider for $400,000
as of November 27, 2004, subsequently reduced to $100,000.
10. STATEMENT OF CASH FLOWS
Cash outlays for corporate income taxes and interest for fiscal 2004, 2003
and 2002 were as follows (in thousands):
CORPORATE INCOME
TAXES INTEREST
----------------------------------------------------------------------
November 30, 2003 thru November 26, 2004 $ 162 $ --
Fiscal 2003 538 --
Fiscal 2002 156 13
======================================================================
NONCASH INVESTING AND FINANCING ACTIVITIES
In fiscal 2004, 2003 and 2002, net unrealized holding losses of $(322,000),
$(372,000) and $0, respectively, less related income taxes of $(129,000),
$(149,000), and $0, on investment securities available-for-sale, were
recorded as decreases in stockholders' equity.
In June 2003, the Company repurchased 22,984 shares of its common stock at
$9.48 per share from employees and directors in exchange for its notes
receivable from these individuals.
F-34
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
11. INTEREST AND DIVIDEND INCOME
Interest and dividend income for the past three fiscal years were as
follows (in thousands):
DIVIDEND
INTEREST INCOME INCOME TOTAL
--------------------------------------------------------------------------
November 30, 2003 $529 $112 $641
thru November 26, 2004
Fiscal 2003 1,089 190 1,279
Fiscal 2002 2,164 249 2,413
==========================================================================
Fiscal 2004 includes investment income of $155,000 offset by compensation
expense to reflect changes in the fair value of the trading securities held
by the nonqualified defined contribution plan, in accordance with EITF
97-14.
12. ASSET IMPAIRMENT AND RESTRUCTURING CHARGES
From November 30, 2003 thru November 26, 2004 and fiscal 2003, the Company
reviewed assets held for sale and determined an additional impairment
charge of $615,000 and $685,000, respectively was required based on a
comparison of a comparison the assets book value to market prices
determined by an independent appraiser.
The Company continues to utilize the majority of its remaining property,
plant, and equipment, however, there can be no assurance that the Company
will sell its assets or if it does sell its assets, that it will be able to
recover the full value of its assets, particularly its property, plant and
equipment. (see summary of accounting policies for the transfer to the
liquidating trust)
F-35
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
13. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share for fiscal 2004, 2003 and 2002
are calculated as follows:
NET INCOME WEIGHTED
(LOSS) AVERAGE SHARES PER SHARE AMOUNT
-----------------------------------------------------------------------------------
November 30, 2003 thru
November 26, 2004:
Basic loss per share $(72,000) 5,215,031 $ (.01)
===============
Effect of assumed exercise of
employee stock options -- --
-----------------------------------------------------------------------------------
Diluted loss per share $(72,000) 5,215,031 $ (.01)
===================================================================================
Fiscal year ended November 29,
2003:
Basic loss per share $(1,370,000) 5,226,902 $( .26)
===============
Effect of assumed exercise of
employee stock options -- --
-----------------------------------------------------------------------------------
Diluted loss per share $(1,370,000) 5,226,902 $( .26)
===================================================================================
Fiscal year ended November 30,
2002:
Basic earnings per share $1,970,000 5,222,812 $ .38
===============
Effect of assumed exercise of
employee stock options -- --
-----------------------------------------------------------------------------------
Diluted earnings per share $1,970,000 5,222,812 $ .38
===================================================================================
During fiscal 2004 and 2003 there were no options outstanding. During
fiscal 2002, all outstanding options were either exercised or canceled.
F-36
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. SEGMENT INFORMATION
The Company adopted SFAS No. 131 "Disclosure About Segments of an Enterprise and
Related Information" in fiscal 1999. SFAS No. 131 requires companies to report
information on segments using the way management organizes segments within the
company for making operating decisions and assessing financial performance.
The Company's chief operating decision-maker is considered to be the Chief
Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The Company has identified three reportable segments based
upon the primary markets it serves: Apparel Fabrics, Home Fashions, Industrial
Fabrics and Accessories and Other.
Apparel Fabrics: The Company's basic warp and circular knit fabrics are sold to
manufacturers of outerwear, intimate apparel, loungwear, and activewear. These
fabrics are sold primarily in piece dyed form, as well as in "PFP" (prepared for
print), and heat transfer print configurations.
The Company's wide elastic fabrics are sold to manufacturers of intimate
apparel, foundation, swimwear, athleticwear, aerobicwear, sportswear, and
healthcare products.
The Company's lace products are sold to manufacturers of intimate apparel,
hosiery, ladies sportswear, children's wear, swimwear, accessories, and hobbies
and crafts.
Home Fashions and Accessories: The Company utilizes its internally manufactured
fabrics and laces to produce flannel and satin sheets, blankets, comforters, and
other bedding-related products which are sold to specialty retail stores,
catalog and mail order companies and airlines through the Company's subsidiary,
Salisbury Manufacturing Corporation.
Other: Included in this segment is (1) Gem Urethane Corporation, (2) the
Over-the-Counter Retail operation and (3) sales of industrial and other
miscellaneous fabrics.
The Company's subsidiary, Gem Urethane Corporation produces a line of bonded
products for manufacturers of environmental, healthcare, industrial and consumer
products.
Gem also performs commission laminating for various manufacturers of consumer
products. Fire resistant fabrics are sold to manufacturers in the seating,
transportation, and military markets through its subsidiary Sandel International
Corporation.
F-37
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company also sells its fabric and laces to "Over-the-Counter" retail
customers throught the Company's retail manufacturing operations, which are
located at the Company's Salisbury Manufacturing plant.
Specialized, engineered fabrics are sold to manufacturers of industrial,
healthcare, medical, and military products.
The accounting policy of the reportable segments are the same as those described
in Summary of Accounting Policies. The Company neither allocates to the segments
nor bases segment decisions on the following:
- Interest and dividend income
- Interest and other expense
- Net gain on investment securities
- Income tax expense or benefit
Many of the Company's assets are used by multiple segments. While certain assets
such as Inventory and Property, Plant and Equipment are identifiable by segment,
an allocation of the substantial remaining assets is not meaningful.
The 52 weeks ended November 30, 2002 includes a litigation settlement in the
amount of $750,000, which was included in the Home Fashions and Accessories
segment (see Note 16). The 52 weeks ended November 29, 2003 included other
expenses of $1,659,000, relating to the amendment to Mr. Bitensky's employment
agreement (see Note 9). This amount was allocated between segments with a
majority included in the apparel segment. In addition, the asset impairment
charge in fiscal 2004 and fiscal 2003 applied to the apparel segment (see Note
12). The 52 weeks ended November 27, 2004 includes a gain on the sale of fixed
assets of $1,073,000. Of this, $441,000 belongs to the other segment and the
balance applied to the apparel segment. The fixed assets, which were sold in the
first quarter of 2004 relating to the other segment, were sold to a customer,
which previously owned 50% of the equipment. The proceeds from this sale
amounted to $1,100,000. As a result, the customer, at an undeterminable future
date will be doing the production on its own. In, addition, the apparel segment
includes a $226,000 reserve for environmental costs (see Note16). The apparel
segment includes $155,000 compensation expenses and an offset to investment
income to reflect changes in the fair value of the trading securities held by
the nonqualified defined contribution retirement plan, in accordance with EITF
97-14. As of November 27, 2004, accounts receivable, inventory, and plant and
equipment are valued at net orderly liquidation value determined by an outside
independent appraiser. In addition, other assets were decreased to liquidation
value.
F-38
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During fiscal 2004, one customer accounted for approximately 13% of net sales.
The receivable from this customer represents approximately 26%. Our export sales
are not material.
The following are our segment revenues and income (loss) by reportable segments
for the fiscal years 2004, 2003, and 2002.
HOME FASHIONS,
NOVEMBER 30, 2003 THRU NOVEMBER 26, 2004 APPAREL AND ACCESSORIES OTHER TOTAL
- ---------------------------------------- ------- --------------- ----- -----
External sales $37,311 $ 4,478 $7,871 $49,660
Intersegment sales 3,088 50 216 3,354
Operating income/(loss) (2,998) 184 1,307 (1,507)
Depreciation expense 1,296 56 247 1,599
Segment assets (1) 6,197 385 1,001 7,583
Capital expenditures 13 7 14 34
HOME FASHIONS,
2003 APPAREL AND ACCESSORIES OTHER TOTAL
- ---- ------- --------------- ----- -----
External sales $39,143 $ 4,227 $7,803 $51,173
Intersegment sales 3,579 56 306 3,941
Operating income/(loss) (4,647) (187) 744 (4,090)
Depreciation expense 1,475 64 364 1,903
Segment assets 11,682 929 2,370 14,981
Capital expenditures 27 38 202 267
HOME FASHIONS,
2002 APPAREL AND ACCESSORIES OTHER TOTAL
- ---- ------- --------------- ----- -----
External sales $51,269 $ 4,673 $7,023 $62,965
Intersegment sales 3,860 22 372 4,254
Operating income/(loss) (679) (1,085) 195 (1,569)
Depreciation expense 1,600 51 327 1,978
Segment assets 16,317 1,005 2,543 19,865
Capital expenditures -- -- 225 225
(1) As of November 27, 2004, accounts receivable, inventory and property,
plant and equipment are valued at net orderly liquidation value determined
by an outside independent appraiser.
F-39
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
REVENUES 2004 2003 2002
---- ---- ----
Total external sales for segments $ 49,660 $ 51,173 $ 62,965
Intersegment sales for segments
3,354 3,941 4,254
Elimination of intersegment sales (3,354) (3,941) (4,254)
----------------------------------------------
Total consolidated sales $ 49,660 $ 51,173 $ 62,965
==============================================
PROFIT OR LOSS
Total operating loss for segments $ (1,507) $ (4,090) $ (1,569)
Total other income
1,400 2,545 4,579
----------------------------------------------
Income (loss) before taxes on income $ (107) $ (1,545) $ 3,010
==============================================
ASSETS
Total segments assets (1) $ 7,583 $ 14,981 $ 19,865
Assets not allocated to segments
30,001 42,802 61,052
----------------------------------------------
Total consolidated assets $ 37,584 $ 57,783 $ 80,937
==============================================
OTHER SIGNIFICANT ITEMS
Depreciation expense $ 1,599 $ 1,903 $ 1,978
Not allocated to segments
19 24 165
----------------------------------------------
Consolidated total $ 1,618 $ 1,927 $ 2,143
==============================================
Capital expenditures $ 34 $ 267 $ 225
Not allocated to segments
-- -- --
----------------------------------------------
Consolidated total $ 34 $ 267 $ 225
==============================================
(1) As of November 27, 2004, accounts receivable, inventory and property, plant
and equipment are valued at net orderly liquidation value determined by an
outside independent appraiser.
F-40
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly earnings were as follows (in thousands, except for earnings per
share):
FIRST THIRD FOURTH
QUARTER SECOND QUARTER QUARTER QUARTER (1) TOTAL
--------------------------------------------------------------------------------------------------
Fiscal 2004:
Net sales $ 10,141 $ 14,596 $ 11,741 $ 13,182 $ 49,660
Gross profit 429 2,311 492 1,686 4,918
Net income (loss) (292) 767 (508) (39) (72)
Earnings (loss)
per share:
Basic $ (0.06) $ 0.15 $ (0.10) $ (0.01) $ (0.01)
Diluted $ (0.06) $ 0.15 $ (0.10) $ (0.01) $ (0.01)
==================================================================================================
Fiscal 2003:
Net sales $ 11,587 $ 13,646 $ 13,357 $ 12,583 $ 51,173
Gross profit 741 1,353 1,002 1,159 4,255
Net income (loss) (270) 320 (1,252) (168) (1,370)
Earnings (loss)
per share:
Basic $ (0.05) $ 0.06 $ (0.24) $ (0.03) $ (0.26)
Diluted $ (0.05) $ 0.06 $ (0.24) $ (0.03) $ (0.26)
==================================================================================================
(1) For Fiscal 2004, the period of the fourth quarter was from August 29,
2004 to November 26, 2004.
F-41
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
16. OTHER EXPENSE
In fiscal 2004, the Company recorded an expense of $226,000 for
environmental costs. The expense represents the costs associated with a
lagoon cleaning process as per North Carolina State requirements to
eliminate odors in a lagoon, which is located next to one of our plants.
The lagoon process has been completed and all associated costs associated
with this process have been paid.
During the fall of 1999, San Francisco Network ("SFN") commenced an action
in the Superior Court of California, Marin County, against the Company and
the Company's Salisbury Manufacturing Corporation ("Salisbury") subsidiary.
The action relates to an agreement between SFN and Salisbury (whose
performance the Company guaranteed), pursuant to which Salisbury was
licensed to use the Karen Neuburger trademark for branded bedding products.
The case was removed to the United States District Court of California.
Salisbury and the Company denied any wrong doing and asserted affirmative
claims against SFN and certain of its principals. On March 14, 2002, at a
court ordered conference, the Company settled this issue without admitting
liability. On April 12, 2002, the Company paid SFN $750,000 in exchange for
a complete release of all claims.
17. RESTATEMENT
The consolidated balance sheet as of November 29, 2003 has been restated to
correct an error relating to the fact that the Company had not depreciated
certain improvements to it's land, mainly consisting of two parking lots
constructed in 1984 and 1989 with a cost totaling approximately $292,000.
The restatement adjustments have resulted in a reduction of approximately
$292,000 in fixed assets and retained earnings, from the amounts previously
reported. This adjustment does not effect the statements of operations for
any period presented, as the fixed assets would have been depreciated over
an estimated useful life of 15 years.
F-42
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES
FORM 10-K
INDEX
SCHEDULE: PAGE
II. Valuation and Qualifying Accounts S-2
S-1
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
- -------------------------------------------------------------------------------------------------------------------
November 30, 2003 thru
November 27, 2004:
Allowance for doubtful
Accounts $ 900 $ 600(i) $ -- $ (1,500)(ii) $ --
Fiscal year ended
November 29, 2003:
Allowance for doubtful
Accounts $ 1,000 $ 400(i) $ -- $ (500)(ii) $ 900
Fiscal year ended
November 30, 2002:
Allowance for doubtful
Accounts $ 600 $ 400(i) $ -- $ -- $ 1,000
(i) Current year's provision.
(ii) Accounts receivable written-off, net of recoveries and an adjustment was
recorded on November 27, 2004 in the amount of $1,100 to reduce the allowance to
$0, based on the change in the basis of accounting to the liquidation basis on
November 27, 2004.
===================================================================================================================
November 30, 2003 thru
November 27, 2004: $ 500 $ 400 $ -- $ (900)(iii) $ --
Allowance for sales returns
Fiscal year ended
November 29, 2003:
Allowance for sales returns $ 700 $ -- $ -- $ (200) $ 500
Fiscal year ended
November 30, 2002:
Allowance for sales returns $ 700 $ -- $ -- $ -- $ 700
(iii) An adjustment was recorded on November 27, 2004 to reduce the allowance to
$0, based on the change in the basis of accounting to the liquidation basis on
November 27, 2004.
S-2
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: May 4, 2005
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
- --------- ---- ------------------------
May 4, 2005 Chairman of the Board, Chief
/s/ Samson Bitensky Executive Officer, and Director
- ------------------------- (Principal Executive Officer)
Samson Bitensky
May 4, 2005 Vice President - Finance,
/s/ David A. Miller Treasurer, and Chief Financial
- ------------------------- Officer (Principal Financial
David A. Miller and Accounting Officer)
/s/ Martin B. Bernstein May 4, 2005 Director
- -------------------------
Martin B. Bernstein
/s/ Lawrence H. Bober May 4, 2005 Director
- -------------------------
Lawrence H. Bober
/s/ Susan B. Lerner May 4, 2005 Director
- -------------------------
Susan B. Lerner
/s/ Richard Marlin May 4, 2005 Director
- -------------------------
Richard Marlin
/s/ Steven E. Myers May 4, 2005 Director, President and Chief
- ------------------------- Operating Officer
Steven E. Myers