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 30, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-5901
FAB INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2581181
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Madison Avenue, New York, NY 10016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-592-2700
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $.20 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: Share Purchase
Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_]
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 June 3, 2002 of shares of the
registrant's Common Stock, $.20 par value (based upon the closing price per
share of such stock on the Composite Tape for issues listed on the American
Stock Exchange), held by non-affiliates of the registrant was approximately
$29,000,000. Solely for the purposes of this calculation, shares held by
directors and executive officers of the registrant and members of their
respective immediate families sharing the same household have been excluded.
Such exclusion should not be deemed a determination or an admission by the
registrant that such individuals are, in fact, affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: At February 11,
2003, there were outstanding 5,238,015 shares of Common Stock, $.20 par value.
DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the
registrant's definitive proxy statement to be filed not later than 120 days
after the end of the fiscal year covered by this Annual Report on Form 10K
pursuant to Regulation 14A are incorporated by reference in Items 10 through 13
of Part III of this Annual Report on Form 10-K.
FAB INDUSTRIES, INC.
INDEX TO FORM 10-K
ITEM NUMBER PAGE
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PART I.........................................................................1
Item 1. Business......................................................1
Item 2. Properties....................................................4
Item 3. Legal Proceedings.............................................5
Item 4. Submission of Matters to a Vote of Security-Holders...........6
PART II........................................................................6
Item 5. Market for Common Equity and Related Stockholder Matters......7
Item 6. Selected Consolidated Financial Data..........................7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..13
Item 8. Financial Statements and Supplementary Data..................13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................13
PART III......................................................................14
Item 10. Directors and Executive Officers............................14
Item 11. Executive Compensation......................................15
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................................15
Item 13. Certain Relationships and Related Transactions..............15
Item 14. Controls and Procedures.....................................15
PART IV.......................................................................16
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................16
PART I
ITEM 1. BUSINESS
Fab Industries, Inc. was incorporated on April 21, 1966, under the laws
of the State of Delaware and is a successor by merger to previously existing
businesses. References in this Annual Report to "Fab" or "us" or "our" or "the
Company" mean Fab Industries, Inc. and its subsidiaries on a consolidated basis,
unless the context otherwise requires.
We have been a leader in the domestic textile industry since we were
founded. We are a major manufacturer of warp and circular knit fabrics, raschel
laces, and laminated fabrics. We also produce comforters, sheets, blankets and
other bedding products.
The Company's Board of Directors has determined that it is in the best
interests of its stockholders to sell the Company's textile business as a going
concern. In order to maximize stockholder value, the Board of Directors adopted
resolutions dated March 1, 2002 which authorized, subject to stockholder
approval, the sale of the Company's business pursuant to a Plan of Liquidation
and Dissolution (the "Plan"). The Company's stockholders approved the Plan at
the Company's annual meeting on May 30, 2002. The Plan provides the Company's
officers and directors will continue to operate the Company's textile business
in its current fashion and pursue a sale of the business as a going concern. The
Company's Board of Directors has approved the engagement of McFarland Dewey &
Co., LLC financial advisors in November 2002 to assist with the sale of the
business. There can be no assurance, however, that the Company will be
successful in selling its business or if it does sell the business, that it will
be able to recover the full value of its property, plant and equipment. 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.
In addition, pursuant to resolutions adopted by the Company's Board of
Directors, upon approval of the Plan by the stockholders, the Employee Stock
Ownership Plan (the "ESOP") was terminated and all shares of common stock of the
Company then held in the ESOP suspense account (86,456 shares) were transferred
to the Company, and held as treasury stock, in exchange for the cancellation of
the outstanding loan in the amount of $3,957,000 from the Company to the ESOP.
The liquidating distribution paid on the ESOP shares allocated to participants
are being held in a money market account under the ESOP and the shares plus the
liquidating distribution will be paid to participants following approval of the
ESOP plan termination by the Internal Revenue Service.
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, 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. These
loans receivable have been recorded as a reduction of stockholders' equity as of
November 30, 2002. As of November 30, 2002, the balance of the loans outstanding
was $221,000.
OPERATIONS
Fab is a leading 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.
1
APPAREL FABRICS
The Company's textile fabrics are sold to a wide variety of
manufacturers of ready-to-wear and intimate apparel for women and children,
including dresses and sportswear, children's sleepwear, activewear, swimwear,
and recreational apparel.
These fabrics are sold and marketed through the Company's Warp Knit and
Circular Knit Business Units. The fabrics are sold primarily in piece dyed form,
as well as "PFP" (prepared for printing), and heat transfer printed
configurations.
Fab's raschel lace products are sold to manufacturers of intimate
apparel products consisting of lingerie, daywear, panty, bra and foundations,
ladies' sportswear, children's wear, swimwear, home furnishing, accessories, and
hobby and crafts.
The Company's laces are sold in both narrow and all-over constructions.
Narrow band laces are offered with scalloped or galloon edges in rigid and
stretch constructions. All-over laces are offered with either straight or
galloon edges in rigid and stretch constructions utilizing both spandex and
helenca nylon.
Fab's lace products are sold to manufacturers of intimate apparel
through the Raval Designer and Wiener Lace divisions. The Raval Lace division
sells and markets laces to manufacturers and jobbers of dresses and sportswear,
blouses, other related outwear industries, and to the home furnishing and
bedding industry.
The Company's subsidiary, SMS Textiles, Inc. ("SMS"), specializes in
wide elastic fabrics for sale to manufacturers of intimate apparel, swimwear,
athleticwear, and sportswear.
Fab's Lida Stretch Fabrics Division specializes in circular knit
products blending nylon, cotton, polyester, and rayon with spandex to create
stretch fabrics in a variety of constructions. These fabrics are sold as piece
and yarn dyes to the ready-to-wear, aerobicwear, swimwear, and intimate apparel
markets. The broad range of products includes jerseys, ribs, jacquards, and
failles.
The Company also offers a comprehensive line of heat transfer prints
for sleepwear, robewear, outerwear, and activewear applications.
HOME FASHIONS AND ACCESSORIES
The Company sells its fabrics and laces directly to manufactures in the
home fashion and bedding-related industries.
In addition, Fab utilizes its own fabrics and laces to internally
produce flannel and satin sheets, blanket products, comforters, and other
bedding-related products, which are sold to specialty stores, catalogue and mail
order companies, airlines and cruise lines, and health care institutions through
the Company's subsidiary, Salisbury Manufacturing Corporation.
OTHER
Included in this segment is (1) Gem Urethane Corporation, (2) the
Over-the-Counter Retail operation, and (3) Industrial and other miscellaneous
non-apparel fabrics.
The Company's subsidiary, Gem Urethane produces a line of
ultrasonically, hot melt adhesive, flame and adhesive bonded products for
apparel, environmental, health care, industrial, and consumer markets.
2
In addition, Gem Urethane does toll laminating and converting for these
markets as well as a fire resistant fabric, Sandel(R), through its subsidiary
Sandel International, to the seating, transportation and military markets.
The Company also sells its fabrics and laces to the over-the-counter
retail market through its retail manufacturing operation located at the
Salisbury Manufacturing plant. Internally produced fabrics and laces are
transported to the Salisbury Manufacturing facility where the fabrics and laces
are "doubled and rolled" on specialized equipment, packaged, and then shipped to
various over-the counter retail customers.
The Company also manufactures various engineered fabrics for specific
industrial and institutional end-uses, including Velcro-UBL (unbroken loop)
constructions, laminating and coating substrates, linings, and filtration.
GENERAL
We engage in research and product development activities to create new
fabrics and styles to meet the continually changing demands of our customers.
Direct expenditures in this area aggregated $3,206,000 in fiscal 2000,
$1,999,000 in fiscal 2001, and $1,690,000 in fiscal 2002. Through these efforts,
we have developed a full line of proprietary knitted fabrics for sale to
manufacturers of men's, women's, and children's apparel in both domestic and
foreign markets. Similarly, we have also developed a full line of flannel and
satin sheets and blankets, including specialty blankets for the airline and
cruise lines, and health care institutions.
While we use various trademarks and trade names in the promotion and
sale of our products, we do not believe that the loss or expiration of any such
trademark or trade name would have a material adverse effect on our operations.
We market our products primarily through our full-time sales personnel,
as well as independent representatives located throughout the United States and
abroad.
We do not believe our backlog of firm orders is a material indicator of
future business trends because goods subject to such orders are shipped within
two to ten weeks depending on the availability of yarn and other raw materials.
On average, orders are filled within six weeks.
During fiscal 2002, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales. Our export sales are not
material.
SUPPLIES OF RAW MATERIALS
We have not experienced difficulties in obtaining sufficient yarns,
chemicals, dyes and other raw materials and supplies to maintain full
production. We do not depend upon any single source of supply, and alternative
sources are available for most of the raw materials used in our business.
INVENTORIES
We maintain adequate inventories of yarns and other raw materials to
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.
3
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 $63,000,000 in 2002, largely as a result
of increased foreign competition.
SEGMENT INFORMATION
See Note 14 of the Notes to Consolidated Financial Statements.
EMPLOYEES
At February 8, 2003, the Company employed approximately 620 people, of
whom approximately 585 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 620 on February 8, 2003.
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
griege 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. In addition, on November 16, 2001, Fab closed its manufacturing
plant in Maiden, North Carolina. The manufacturing operations of each of these
facilities were consolidated into the Company's Mohican Mills facility located
in Lincolnton, North Carolina. The Company is attempting to sell its plants in
Cherryville and Maiden, North Carolina.
Over the past two years, the Company has reduced the floor space of its
executive offices and showroom facilities in its New York City headquarters.
The following table sets forth the location of each of Fab's current
manufacturing facilities, its current principal use, if any, approximate floor
space and, where leased, the lease expiration date. There are no mortgages or
other encumbrances on any of our facilities. All the Company's operating
facilities are in good operating condition and repair.
4
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.
ITEM 3. LEGAL PROCEEDINGS.
During the fall of 1999, San Francisco Network ("SFN") commenced an
action in the Superior Court of California, Marin County, against the Company
and the Company's Salisbury Manufacturing Corporation ("Salisbury") subsidiary.
The action related 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 wrongdoing 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.
A number of claims and lawsuits are pending against the Company. It is
impossible at this time for the Company to predict with any certainty the
outcome of such litigation. However, management is of the opinion, based upon
information presently available, that it is unlikely that any liability, to the
extent not provided for through insurance or otherwise, would be material in
relation to the Company's consolidated financial position or results of
operations.
5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not Applicable
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 2002 HIGH LOW
----------- ---- ---
First Quarter........................... $ 18.70 $ 12.75
Second Quarter.......................... $ 19.05 $ 17.50
Third Quarter........................... $ 8.67 $ 7.70
Fourth Quarter.......................... $ 9.00 $ 6.90
FISCAL 2001
-----------
First Quarter........................... $ 14.87 $ 11.30
Second Quarter.......................... $ 15.00 $ 11.50
Third Quarter........................... $ 14.50 $ 13.75
Fourth Quarter.......................... $16.25 $12.55
At February 6, 2003, there were approximately 479 holders of record of
Common Stock. For fiscal 2001, quarterly dividends of $.10 per share were
declared on February 22, 2001, May 3, 2001, August 15, 2001 and November 27,
2001. 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. The payment of further cash dividends will be at the discretion of the
Board of Directors and will depend upon, among other things, the status of the
sale of our business, our earnings, our capital requirements and our financial
condition.
Subsequent to November 30, 2002, the Company has terminated all of its
stock option plans. As a result, currently, there are no options outstanding or
available for grant.
6
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(in thousands, except for share and per share data)
AS AT OR FOR THE FISCAL YEAR ENDED
--------------------------------------------------------------------------
NOVEMBER DECEMBER DECEMBER NOVEMBER NOVEMBER
30, 2002 1, 2001 2, 2000 (1) 27, 1999 28, 1998
-------- ------- -------- -------- --------
Net Sales $62,965 $80,036 $118,185 $128,889 $151,436
Income (loss) before taxes 3,010 (15,488) 4,178 (338) 8,017
on income (3)
Net income (loss) (3) 1,970 (8,623) 3,033 517 6,017
Earnings (loss) per share:
Basic .38 (1.64) .57 .10 1.07
Diluted .38 (1.64) .57 .10 1.06
Total assets 81,229 131,528 151,412 152,178 160,403
Long-term debt -- 311 362 409 486
Stockholders' equity 64,571 113,503 123,855 123,788 130,527
Book value 12.33 21.79 23.45 22.91 23.38
per share (2)
Cash dividends per share 10.00 .40 .475 .70 .70
Weighted average number of
shares outstanding:
Basic 5,222,812 5,258,353 5,336,958 5,414,687 5,627,788
Diluted 5,222,812 5,258,353 5,336,958 5,419,130 5,665,194
---------------------
(1) Fifty-three week period.
(2) Computed by dividing stockholders' equity by the number of shares
outstanding at year-end.
(3) Fiscal year ended December 1, 2001 amounts include asset impairment and
restructuring charges of $14,530,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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:
7
Accruals and Contingencies
We periodically assess the potential liabilities related to any
lawsuits or claims brought against us, as well as for other known unasserted
claims, including environmental, legal and tax matters. While it is typically
very difficult to determine the timing and ultimate outcome of these matters, we
use our best judgment to determine if it is probable that we will incur an
expense related to the settlement or final adjudication of such matters and
whether a reasonable estimation of such probable loss, if any, can be made. In
assessing probable losses, we make estimates of the amount of insurance
recoveries, if any. We accrue a liability when we believe a loss is probable and
the amount of the loss can be reasonably estimated, in accordance with the
provisions of SFAS No. 5, "Accounting for Contingencies," as amended. See Note 9
in the accompanying financial statements for additional information concerning
our contingencies.
Given the inherent uncertainty related to the eventual outcome of these
matters and potential insurance recoveries, it is possible that all or some of
these matters may be resolved for amounts materially different from any
provisions or disclosures that we may have made with respect to their
resolution. In addition as new information becomes available, we may need to
reassess the amount of probable liability that needs to be accrued related to
our contingencies. All such revisions in our estimates could materially impact
our results of operations and financial position.
We maintain an accrual for workers compensation, which is classified as
other current liabilities in our consolidated balance sheets. We determine the
adequacy of the accrual by periodically evaluating our historical experience and
trends related to workers compensation claims and payments, information provided
to us by our insurance broker and industry experience and trends. If such
information indicates that our accrual is overstated or understated, we will
adjust the assumptions utilized in our methodologies and reduce or provide for
additional accruals as appropriate.
Revenue Recognition
We recognize our revenues upon shipment of the related goods.
Allowances for estimated returns are provided when sales are recorded.
Bad Debt
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
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 or 2000.
8
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, amounts and use
growth assumptions to project these amounts out over the expected life of the
underlying asset. If actual conditions differ from those in our assumptions, the
actual results of each asset's actual future operations could be significantly
different from the estimated results we used in our analysis. Our operating
results are also subject to the risks set forth under "Summary of Accounting
Policies - Risk and Uncertainties."
RESULTS OF OPERATIONS
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales for fiscal 2002 were $62,965,000 as compared to $80,036,000
in fiscal 2001, a decrease of 21.3%. The decrease was caused substantially by
lower volume as business conditions within the domestic textile industry
remained depressed, and low-cost foreign imports continued to take a toll on the
U.S. textile manufacturing sector. These factors have negatively impacted sales
and production.
Apparel external sales for fiscal 2002 were $51.3 million, a decrease
of $9.6 million or 15.8%, as compared to $60.9 million for fiscal 2001.
Home Fashions and Accessories external sales for fiscal 2002 were $4.7
million, a decrease of $5.7 million or 55.0%, as compared to $10.4 million for
fiscal 2001.
Other external sales for fiscal 2002 were $7.0 million, a decrease of
$1.8 million or 19.9%, as compared to $8.8 million for fiscal 2001.
The decreases across our segments were due to a flood of low-priced
imports from Asia, weak market conditions and a weak economy which has continued
to take a toll on the U.S. textile manufacturing sector.
The apparel and home fashions segments implemented measures beginning
in fiscal 2001 to reduce operating costs including a reduction in the number of
employees which reduced fixed overhead.
Gross margins as a percentage of sales increased to 10.4% from 1.9% as
compared to similar 2001 period. A more favorable product mix and the
consolidation of three manufacturing facilities, combined with a reduction in
costs due to employee terminations, a decrease in depreciation expense and other
related costs resulted in the higher margins. Due to lower average FIFO cost
levels, LIFO inventory reserves decreased by $96,000 and $1,518,000 in fiscal
2002 and fiscal 2001, respectively.
Management projects that in fiscal 2003 that gross margins will be
fairly consistent with fiscal 2002 results tempered, however, by the continuing
deterioration in domestic textile manufacturing due to foreign imports and
currency valuation issues.
The financial results for the fiscal year ended December 1, 2001
include a charge of $14,530,000, which includes $13,230,000 for the writedown of
fixed assets to fair value less costs of disposal. Such fixed assets are
comprised of machinery and equipment from the knitting, dyeing, and finishing
activities of the business, and also include the building facilities in North
Carolina. The marketability of the assets held for disposal are subject to
worldwide economic conditions which can affect the sale of such buildings and
machinery. Additionally, for the fiscal year ended December 1, 2001, the Company
expended approximately $1,300,000 to remove and transfer machinery and equipment
to the Company's Mohican Mills facility which was included in the asset
impairment and restructuring charges.
9
Selling, general and administrative expenses decreased by $2,376,000,
or 24.4% as compared to fiscal year 2001. The decrease in expenses resulted
primarily from the reduction in the number of employees and related expenses,
moving executive offices and showroom facilities to smaller premises and the
continued effectiveness of the cost containment programs. This decrease also
resulted from the gain on sale of fixed assets totaling $817,000 for fiscal
2002.
In March 2002, the Company settled a dispute without admitting
liability for $750,000. See Note 16 to the consolidated financial statements.
Apparel operating loss for fiscal 2002 was $0.7 million as compared to
a operating loss of $22.3 million for fiscal 2001. A more favorable product mix
and the consolidation of three manufacturing facilities, combined with a
reduction in costs resulted in higher margins. In fiscal 2001, the financial
results include a charge for impairment of fixed assets and restructuring
charges of approximately $13.8 million.
Home Fashions and Accessories operating loss for fiscal 2002 was $1.1
million compared to a operating income of $0.7 million for fiscal 2001. These
decreases were due primarily to lower sales volume. Additionally, in fiscal 2002
the financial results includes a charge of $750,000 for settlement of a dispute
without admitting liability. See Note 16 to the consolidated financial
statements.
Other segments operating income for fiscal 2002 was $0.2, million
compared to an operating loss of $1.1 million for fiscal 2001. Higher margins
and reduction of costs increased operating income. In fiscal 2001, the financial
results include a charge of approximately $750,000 for impairment of fixed
assets and a restructuring charge.
Interest and dividend income decreased by $1,876,000, or 43.7% as
compared to fiscal 2001. On June 24, 2002, the Company distributed an initial
liquidating distribution of $10.00 per share, or $52,380,000. Accordingly, the
Company had lower average invested balances which were invested primarily in
United States Treasury obligations resulting in lower risks and lower yields.
The Company realized gains from the sale of investment securities of $2,179,000
in fiscal 2002 as compared to $3,025,000 in fiscal 2001.
The effective income tax rate for fiscal 2002 was 34.6% compared to a
tax benefit of 44.3% for fiscal 2001. The fiscal 2001 tax benefit included
approximately $1.5 million of certain tax reserves recorded in prior years,
which were reversed in the fourth quarter of fiscal 2001 due to changes in
estimates for tax contingency items.
As a result of these factors, the Company generated net income of
$1,970,000, or $.38 basic and diluted per share in fiscal 2002. In fiscal 2001,
the Company had a net loss of $8,623,000 which included asset impairment and
restructuring charges of $9,590,000 net of income tax benefit. For fiscal 2001,
basic and diluted losses per share were $1.64, including asset impairment and
restructuring charges of $1.82 per share.
FISCAL 2001 COMPARED TO FISCAL 2000
Net sales for fiscal 2001 were $80,036,000 as compared to $118,185,000
in fiscal 2000, a decrease of 32.3% (fiscal 2000 had 53 weeks). Such decreases
were caused substantially by lower volume as continued weakness in the economy,
market conditions and unfair foreign competition have adversely affected the
domestic textile industry.
Apparel external sales for fiscal 2001 were $60.9 million, a decrease
of $33 million or 35%, as compared to $93.9 million for fiscal 2000.
Home Fashions and Accessories external sales for fiscal 2001 were $10.4
million, a decrease of $3.9 million or 27%, as compared to $14.3 million for
fiscal 2000.
10
Other external sales for fiscal 2001 were $8.8 million, a decrease of
$1.2 million or 12%, as compared to $10 million for fiscal 2000.
The decreases across our segments were due to the current economic
downturn, continued weakness in the domestic textile industry and foreign
competition.
Gross margins as a percentage of sales declined from 9.7% to 1.9%.
Lower sales volume and the consolidation of three of our manufacturing
facilities reduced operating rates at production facilities. Due to lower
average FIFO cost levels, LIFO inventory reserves decreased by $1,518,000 in
fiscal 2001, compared to an increase in LIFO inventory reserve of $228,000 due
to higher FIFO unit material costs in fiscal 2000. With the Company's decrease
in costs relating to employee terminations, and the future decrease in
depreciation expenses and other related costs, management is hopeful that gross
margins will show an improvement over last year's performance tempered, however,
by the continuing deterioration in domestic textile manufacturing due to foreign
imports and currency valuation issues.
The Company, in an on-going effort to restore operations to acceptable
levels of profitability by eliminating over-capacities, during the first week of
July 2001, closed two of its manufacturing plants, Travis Knits in Cherryville,
North Carolina and Adirondack Knitting in Amsterdam, New York. The knitting,
dyeing and finishing activities of these two operations were consolidated into
Fab's Mohican Mills facility in Lincolnton, North Carolina. The Company also
completed the closure of its Maiden, North Carolina facility as of November 16,
2001 and also transferred its knitting and warping operations to the Mohican
Mills facility.
As a result of the consolidation of the manufacturing facilities and
the announcement to pursue a sale of the business as part of a plan of
liquidation, the results for fiscal year ended December 1, 2001 include asset
impairment and restructuring charges of $14,530,000, including $13,230,000 for
the writedown of fixed assets to fair value less costs of disposal. Such fixed
assets are comprised of machinery and equipment from the knitting, dyeing, and
finishing activities of the business, and also include the building facilities
in North Carolina. Management believes the marketability of the assets held for
disposal are subject to worldwide economic conditions which can affect the sale
of such buildings and machinery. Additionally, for the fiscal year ended
December 1, 2001, the Company expended approximately $1,300,000 to remove and
transfer machinery and equipment to the Company's Mohican Mills facility which
was included in the asset impairment and restructuring charges. The Company
expects to incur expenditures to maintain the facilities to be disposed of until
such sales occur. The above charges for the asset impairment and restructuring
charges apply mainly to the apparel segment with a small portion to the other
segment.
Selling, general and administrative expenses decreased by $2,717,000,
or 21.8% as compared to fiscal year 2000. Reduced expenses related primarily to
the reduced number of employees and a reduction of half of the floor space of
the Company's executive offices and showroom facilities in the New York City
headquarters. In addition, expenses decreased as a result of the continued
effectiveness of expense and cost containment programs.
Apparel operating loss for fiscal 2001 was $22.3 million, a decrease of
$20.2 million or 957%, as compared to $2.1 million for fiscal 2000. Lower sales
volume and the consolidation of three of our manufacturing facilities reduced
operating rates at production facilities. In addition, the financial results
include a charge for impairment of fixed assets and restructuring charges of
approximately $13.8 million. Lower selling margins also contributed to the
increase in operating loss, notwithstanding a reduction in selling, general and
administrative expenses.
Home Fashions and Accessories operating income for fiscal 2001 was
$674,000, a decrease of $443,000 or 40%, as compared to $1.1 million for fiscal
2000. These decreases were due primarily to lower sales volume and a lower gross
margin decreased operating gains.
11
Other operating loss for fiscal 2001 was $1.1 million, a decrease of
$1.0 million or 2,689%, as compared to $39,000 for fiscal 2000. These decreases
were due primarily to lower sales volume and a charge of approximately $750,000
for impairment of fixed assets and a restructuring charge.
Interest and dividend income increased by $289,000, or 7.2% as compared
to fiscal year 2000, because of higher invested balances. We realized gains from
the sale of investment securities of $3,025,000 in fiscal 2001 as compared to
$1,300,000 in fiscal 2000.
We realized a tax benefit for fiscal 2001 which had an effective tax
rate of 44.3%, as compared to an effective income tax rate of 27.4% in fiscal
2000. Fiscal 2001's tax benefit includes approximately $1.5 million of certain
tax reserves recorded in prior years, which were reversed in the fourth quarter
of fiscal 2001 due to changes in estimates for tax contingency items.
As a result of these factors, the Company had a net loss of $8,623,000
including the asset impairment and restructuring charges of $9,590,000 net of
income tax benefit in fiscal 2001, compared to net income of $3,033,000 in
fiscal 2000. For fiscal 2001, basic and diluted losses per share were $1.64,
including asset impairment and restructuring charges of $1.82 per share,
compared to basic and diluted earnings per share of $0.57 in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in fiscal 2002 amounted to
$8,758,000, as compared to $10,074,000 in fiscal 2001. Of this decrease, major
changes were as follows: $3,285,000 relates to comparative changes in accounts
receivable, $3,134,000 to inventories, $2,466,000 to depreciation and
amortization, $556,000 to gain on disposition of fixed assets, and $13,241,000
to non-cash assets impairment and restructuring charges. These decreases were
offset by $10,953,000 increase in net income, $6,593,000 in deferred income
taxes, $219,000 to current and other assets, $846,000 to net gain on investment
securities and $2,697,000 attributable to accounts payable, accruals and other
liabilities.
For the fiscal year ended November 30, 2002, proceeds from sales of
investment securities were $38,650,000 as compared to the acquisitions of
$15,681,000 in investment securities for the fiscal year ended December 1, 2001.
For the fiscal year ended November 30, 2002, the Company used proceeds for the
initial distribution of $10.00 per share or $52,380,000. In the fiscal year
ended December 1, 2001 approximately $12,000,000 of the net acquisitions of
invested securities was in cash and cash equivalents. The Company has invested
these funds in high quality investment grade taxable bonds. Our investment
securities, all classified as available-for-sale, had a fair market value of
$45,551,000 and $82,021,000 at fiscal year-end 2002 and 2001, respectively. See
Note 2 of the Notes to Consolidated Financial Statements for further details
about the investment portfolio.
Capital expenditures for fiscal 2002 were $225,000 as compared to
$703,000 in fiscal 2001.
Stockholders' equity was $64,571,000, or $12.33 book value per share at
the end of fiscal 2002, as compared to $113,503,000, or $21.79 book value per
share, at the previous fiscal year end. The reduction in stockholders' equity
was primarily due to the liquidating dividend of $10.00 per share or $52,380,000
declared on May 30, 2002 by the Company's Board of Directors, which was paid on
June 24, 2002.
Management believes that our current financial position is adequate to
satisfy working capital requirements and to internally fund any future
expenditures to maintain our manufacturing facilities for the next twelve
months.
12
INFLATION
Management does not believe that the effects of inflation have had a
significant impact on our consolidated financial statements.
FORWARD-LOOKING INFORMATION
Certain statements in this report are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in our
communications and discussions with investors and analysts in the normal course
of business including, but not limited to, meetings, phone calls and conference
calls, regarding the sale of our assets pursuant to a plan of liquidation and
dissolution, as well as expectations with respect to future sales and operating
efficiencies prior to a sale of the company, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond our control and
which may cause actual results, performance or achievements to differ materially
from anticipated results, performances or achievements. 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," "will," "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
furutre 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 an forward-looking
statement, whether as a result of new information, future events, or otherwise,
other than required by law.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Summary of Accounting Policies - Risks And Uncertainties" and
"-Investments" in the Consolidated Financial Statements attached hereto. See
also Note 2 of the Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Consolidated Financial Statements Schedules
attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As previously reported on our Current Report on Form 8-K dated
September 17, 2001 and our Annual Report on Form 10-K for the fiscal year ended
December 1, 2001, by letter dated September 11, 2001, Ernst & Young, LLP ("Ernst
& Young") resigned as our independent accountants. Ernst & Young's resignation
became effective on September 25, 2001, the date that we engaged BDO Seidman,
LLP as our new independent public accountants.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our
executive officers as of February 13, 2003.
NAME AGE POSITIONS AND OFFICES
Samson Bitensky............ 83 Chairman of the Board of Directors and
Chief Executive Officer
Steven Myers............... 54 President, Chief Operating Officer
David A. Miller............ 65 Vice President-Finance, Treasurer, and
Chief Financial Officer
Jerry Deese................ 51 Vice President-Controller of Plant
Operations
Sam Hiatt ................. 55 Vice President-Sales
Mark J. Goldberg........... 54 Vice President
Bruce Chroback............. 41 Assistant Treasurer and Controller
Each of our executive officers serves at the pleasure of the Board of
Directors and until his or her successor is duly elected and qualified.
SAMSON BITENSKY was one of Fab's founders in 1966 and has served as
Chairman of the Board of Directors and Chief Executive Officer of Fab since such
time. Mr. Bitensky also served as President of Fab from 1970 until May 1, 1997.
STEVEN MYERS, an attorney, has been employed by Fab in various senior
administrative and managerial capacities since 1979. He served as Vice President
- Sales for more than five years prior to May 1988 and as Vice President from
May 1988 to May 1, 1997 and Co-President, Chief Operating Officer from May 1,
1997 to November 27, 2001. On November 27, 2001, he became President, Chief
Operating Officer upon the retirement of our former Co-President, Stanley
August. Mr. Myers is the son-in-law of Mr. Bitensky.
DAVID A. MILLER has been employed by Fab since 1966 and has served as
Controller from 1973 until December 7, 1995, as Vice President - Finance and
Treasurer since December 7, 1995, and as Chief Financial Officer since May 1,
1997.
JERRY DEESE has been employed by Fab in various senior administrative
and managerial capacities since 1978. Mr. Deese served as Divisional Controller
from 1994 until 1998 and has served as Vice President-Controller of Plant
Operations since May 12, 1998.
SAM HIATT has been employed by Fab since 1978 and previously had
various management responsibilities in the warp knit area. He has served as Vice
President-Sales since May 12, 1998.
MARK J. GOLDBERG has been employed by Fab in various financing and
operational capacities since 1983. He was the Director of Corporate Planning
from 1999 until 2001 and he has served as Vice President since May 3, 2001.
BRUCE S. CHROBACK, a C.P.A., has been employed by Fab since 1996 and
has held various senior financial positions with the Company. He has served as
Assistant Treasurer and Controller since May 3, 2001.
14
Other information required by this item is incorporated by reference
from our definitive proxy statement to be filed not later than 120 days after
the end of the fiscal year covered by this Annual Report on Form 10-K pursuant
to Regulation 14A of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended ("Regulation 14A").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
our definitive proxy statement to be filed not later than 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K pursuant to
Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
our definitive proxy statement to be filed not later than 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K pursuant to
Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
our definitive proxy statement to be filed not later than 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K pursuant to
Regulation 14A.
ITEM 14. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The
Company's Chief Executive Officer and its Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)
as of a date within 90 days of the filing date of this Annual Report on Form
10-K (the "Evaluation Date")), have concluded that as of the Evaluation Date,
the Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those entities,
particularly during the period in which this Annual Report on Form 10-K was
being prepared.
(b) CHANGES IN INTERNAL CONTROLS. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect the Company's internal controls and procedures subsequent
to the date of their evaluation, nor any significant deficiencies or material
weaknesses in such internal controls and procedures requiring corrective
actions. As a result, no corrective actions were taken.
15
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements: See the Index to Consolidated Financial
Statements at page F-2.
(2) Financial Statement Schedules: See the Index to Consolidated
Financial Statements Schedules at page S-2.
(3) Exhibit List
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 - Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 27, 1993 (the
"1993 10-K").
3.2 - Amended and Restated By-laws, incorporated by reference to
Exhibit 3.2 to the 1993 10-K.
3.3 - Certificate of Amendment of Restated Certificate of
Incorporation, incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 3, 1994 (the "1994 10-K").
3.4 - Amendments to the Amended and Restated By-laws, incorporated
by reference to Exhibit 3.4 of the Company's Annual Report on
Form 10-K for the fiscal year ended November 29, 1997.
3.5 - Amendment to the Amended and Restated By-laws, incorporated by
reference to Exhibit 3.5 of the Company's Annual Report on
Form 10-K for the fiscal year ended November 27, 1999.
4.1 - Specimen of Common Stock Certificate, incorporated by
reference to Exhibit 4-A to Registration Statement No.
2-30163, filed on November 4, 1968.
4.2 - Rights Agreement dated as of June 6, 1990 between the Company
and Manufacturers Hanover Trust Company, as Rights Agent,
which includes as Exhibit A the form of Rights Certificate and
as Exhibit B the Summary of Rights to purchase Common Stock,
incorporated by reference to Exhibit 4.2 to the 1993 10-K.
4.3 - Amendment to the Rights Agreement between the Company and
Manufacturers Hanover Trust Company dated as of May 24, 1991,
incorporated by reference to Exhibit 4.3 to the 1993 10-K.
10.1 - 1987 Stock Option Plan of the Company, incorporated by
reference to Exhibit 10.1 to the 1993 10-K.
10.2 - Employment Agreement dated as of March 1, 1993, between the
Company and Samson Bitensky, incorporated by reference to
Exhibit 10.2 to the 1993 10-K.
10.3 - Fab Industries, Inc. Hourly Employees Retirement Plan (the
"Retirement Plan"), incorporated by reference to Exhibit 10.3
to the 1993 10-K.
16
10.4 - Amendment to the Retirement Plan effective December 11, 1978,
incorporated by reference to Exhibit 10.4 to the 1993 10-K.
10.5 - Amendment to the Retirement Plan effective December 1, 1981,
incorporated by reference to Exhibit 10.5 to the 1993 10-K.
10.6 - Amendment to the Retirement Plan dated November 21, 1983,
incorporated by reference to Exhibit 10.6 to the 1993 10-K.
10.7 - Amendment to the Retirement Plan dated August 29, 1986,
incorporated by reference to Exhibit 10.7 to the 1993 10-K.
10.8 - Amendment to the Retirement Plan effective as of December 1,
1989, incorporated by reference to Exhibit 10.8 to the 1993
10-K.
10.9 - Amendment to the Retirement Plan dated September 21, 1995,
incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
2, 1995 (the "1995 10-K").
10.10 - Fab Lace, Inc. Employees Profit Sharing Plan (the "Profit
Sharing Plan"), incorporated by reference to Exhibit 10.9 to
the 1993 10-K.
10.11 - Amendment to the Profit Sharing Plan effective December 1,
1978, incorporated by reference to Exhibit 10.10 to the 1993
10-K.
10.12 - Amendment dated December 1, 1985 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.11 to the 1993 10-K.
10.13 - Amendment dated February 5, 1987 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.12 to the 1993 10-K.
10.14 - Amendment dated December 24, 1987 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.13 to the 1993 10-K.
10.15 - Amendment dated June 30, 1989 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.14 to the 1993 10-K.
10.16 - Amendment dated February 1, 1991 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.15 to the 1993 10-K.
10.17 - Amendment dated September 1, 1995 to the Profit Sharing Plan,
incorporated by reference to Exhibit 10.17 to the 1995 10-K.
10.18 - Lease dated as of December 8, 1988 between Glockhurst
Corporation, N.V. and the Company, incorporated by reference
to Exhibit 10.16 to the 1993 10-K.
10.19 - Lease Modification Agreement dated April 2, 1991 between
Glockhurst Corporation, N.V. and the Company, incorporated by
reference to Exhibit 10.17 to the 1993 10-K.
10.20 - Second Lease Modification Agreement dated May 23, 1996 between
200 Madison Associates, L.P. and the Company, incorporated by
reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1996.
17
10.21 - 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.
*10.22 - Fourth Lease Modification Agreement dated April 11, 2002
between 200 Madison Associates, L.P. and the Company.
10.23 - 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.
10.24 - 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.
10.25 - Form of indemnification agreement between the Company and its
officers and directors, incorporated by reference to Exhibit
10.20 to the 1993 10-K.
10.26 - 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.
10.27 - Amendment dated September 21, 1995 to the Employee Stock
Ownership Plan, incorporated by reference to Exhibit 10.27 to
the 1995 10-K.
10.28 - 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.
10.29 - Fab Industries, Inc. 1997 Stock Incentive Plan, incorporated
by reference to Exhibit A to the Proxy Statement dated May 6,
1999, File No. 1-5901.
10.30 - Fab Industries, Inc. 2001 Stock Incentive Plan, incorporated
by reference to Exhibit B to the Proxy Statement dated April
2, 2001, File No. 1-5901.
*10.31 - Form of loan agreement, dated May 30, 2002, entered into
between Fab Industries, Inc. and certain of its executive
officers and directors.
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.
*99.1 - Certification of Chief Executive Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*99.2 - Certification of Chief Financial Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
---------------------
* Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
18
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED NOVEMBER 30, 2002, DECEMBER 1, 2001 AND
DECEMBER 2, 2000
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED NOVEMBER 30, 2002, DECEMBER 1, 2001,
AND DECEMBER 2, 2000
F-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
REPORT OF INDEPENDENT AUDITORS F-4
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-5
Statements of operations F-6
Statements of stockholders' equity F-7
Statements of cash flows
F-8
SUMMARY OF ACCOUNTING POLICIES F-9 - F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-17 - F-43
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Fab Industries, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Fab Industries,
Inc. and subsidiaries as of November 30, 2002 and December 1, 2001, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the fiscal years then ended. Our audits also included the 2002 and
2001 schedule listed in the index on page S-2. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements and schedule.
We believe that our audits provides 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
stockholders approval, the sale of the business pursuant to a plan of
liquidation. The Company's stockholders approved the Plan at the Company's
annual meeting on May 30, 2002.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fab Industries, Inc.
and subsidiaries at November 30, 2002 and December 1, 2001, and the results of
their operations and their cash flows for the fiscal years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Also, in our opinion, the related schedule presents fairly, in all material
respects, the information set forth therein for the fiscal years ended November
30, 2002 and December 1, 2001.
/s/ BDO SEIDMAN, LLP
--------------------
New York, New York
February 15, 2003
F-3
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Fab Industries, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of Fab Industries, Inc. and subsidiaries
for the year ended December 2, 2000. Our audit also included the 2000 financial
statement schedule listed in the index on page S-2. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations of Fab Industries,
Inc. and subsidiaries and their cash flows for the year ended December 2, 2000,
in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related 2000 financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
---------------------
Charlotte, North Carolina
February 16, 2001
F-4
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
NOVEMBER 30, 2002 DECEMBER 1, 2001
---------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents (Note 1) $ 3,146,000 $ 6,742,000
Investment securities available-for-sale (Note 2) 45,551,000 82,021,000
Accounts receivable, net of allowance of $1,000,000 and $600,000
for doubtful accounts 7,548,000 10,668,000
Inventories (Note 3) 8,386,000 12,335,000
Other current assets 867,000 1,617,000
---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 65,498,000 113,383,000
PROPERTY, PLANT AND EQUIPMENT - NET (NOTE 4) 12,007,000 14,065,000
DEFERRED TAX ASSET (NOTE 8) 528,000 826,000
OTHER ASSETS (NOTE 7) 3,196,000 3,254,000
---------------------------------------------------------------------------------------------------------------------
$81,229,000 $131,528,000
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 2,858,000 $ 3,661,000
Corporate income and other taxes 1,980,000 1,787,000
Accrued payroll and related expenses 903,000 1,318,000
Dividends payable -- 521,000
Other current liabilities 940,000 816,000
Deferred income taxes (Note 8) 9,000 269,000
---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 6,690,000 8,372,000
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT MATURITIES (NOTE 5)
-- 311,000
OTHER NONCURRENT LIABILITIES (NOTE 7) 2,968,000 2,342,000
---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 9,658,000 11,025,000
---------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 9)
REDEEMABLE COMMON STOCK (NOTE 9) 7,000,000 7,000,000
---------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (NOTES 2, 6, 7, AND 9):
Preferred stock, $1 par value - shares authorized 2,000,000;
none issued -- --
Common stock, $.20 par value - shares authorized 15,000,000;
issued 6,724,944 and 6,591,944 1,345,000 1,319,000
Additional paid-in capital -- 6,967,000
Retained earnings 100,455,000 144,224,000
Loan to employee stock ownership plan -- (3,957,000)
Accumulated other comprehensive gain 229,000 334,000
Cost of common stock held in treasury - 1,486,929 and
1,383,574 shares (37,237,000) (35,384,000)
Notes receivable from stockholders (Note 6) (221,000) --
---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 64,571,000 113,503,000
---------------------------------------------------------------------------------------------------------------------
$81,229,000 $131,528,000
=====================================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
=====================================================================================================================
FISCAL YEAR ENDED
---------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, DECEMBER 1, DECEMBER 2,
2002 2001 2000 (1)
---------------------------------------------------------------------------------------------------------------------
NET SALES (NOTE 14) $ 62,965,000 $ 80,036,000 $ 118,185,000
COST OF GOODS SOLD 56,412,000 78,518,000 106,756,000
---------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 6,553,000 1,518,000 11,429,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,372,000 9,748,000 12,465,000
ASSET IMPAIRMENT AND RESTRUCTURING CHARGES (NOTE 12) -- 14,530,000 --
OTHER EXPENSE (NOTE 16) 750,000 -- --
---------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (1,569,000) (22,760,000) (1,036,000)
---------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Interest and dividend income (Note 11) 2,413,000 4,289,000 4,000,000
Interest expense (13,000) (42,000) (86,000)
Net gain on investment securities (Note 2) 2,179,000 3,025,000 1,300,000
---------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 4,579,000 7,272,000 5,214,000
---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME 3,010,000 (15,488,000) 4,178,000
INCOME TAX EXPENSE (BENEFIT) (NOTE 8) 1,040,000 (6,865,000) 1,145,000
---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,970,000 $ (8,623,000) $ 3,033,000
=====================================================================================================================
EARNINGS (LOSS) PER SHARE (NOTE 13):
Basic $ .38 $ (1.64) $ .57
Diluted $ .38 $ (1.64) $ .57
=====================================================================================================================
CASH DIVIDENDS DECLARED PER SHARE $ 10.00 $ .40 $ .475
=====================================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(1) 53 WEEKS
F-6
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ACCUMULATED
----------------------- ADDITIONAL LOAN TO OTHER
NUMBER PAID-IN RETAINED EMPLOYEE STOCK COMPREHENSIVE
TOTAL OF SHARES AMOUNT CAPITAL EARNINGS OWNERSHIP PLAN INCOME (LOSS)
----------------------------------------------------------------------------------------------------------------------------
Balance, November 27, 1999 123,788,000 6,591,944 1,319,000 6,967,000 154,445,000 (5,537,000) (411,000)
Net income - fiscal 2000 3,033,000 -- -- -- 3,033,000 -- --
Change in net unrealized
holding gain on
investment securities
available-for-sale, net
of taxes 114,000 -- -- -- -- -- 114,000
-------- --
Total comprehensive income 3,147,000 -- -- -- -- -- --
Cash dividends (2,531,000) -- -- -- (2,531,000) -- --
Purchase of treasury stock (1,339,000) -- -- -- -- -- --
Payment of loan from ESOP 790,000
(Note 7) -- -- -- -- 790,000 --
----------------------------------------------------------------------------------------------------------------------------
Balance, December 2, 2000 123,855,000 6,591,944 1,319,000 6,967,000 154,947,000 (4,747,000) (297,000)
Net loss - fiscal 2001 (8,623,000) -- -- -- (8,623,000) -- --
Change in net unrealized
holding gain on
investment securities
available-for-sale, net
of taxes 631,000 -- -- -- -- -- 631,000
--------
Total comprehensive loss (7,992,000) -- -- -- -- -- --
Cash dividends (2,100,000) -- -- -- (2,100,000) -- --
Purchase of treasury stock (1,050,000) -- -- -- -- -- --
Payment of loan from ESOP 790,000
(Note 7) -- -- -- -- 790,000 --
----------------------------------------------------------------------------------------------------------------------------
Balance, December 1, 2001 113,503,000 6,591,944 1,319,000 6,967,000 144,224,000 (3,957,000) 334,000
Net income - fiscal 2002 1,970,000 -- -- -- 1,970,000 -- --
Minimum pension liability
adjustment of $164,000,
net of tax benefit of
$59,000 (105,000) -- -- -- -- -- (105,000)
--------- ---------
Total comprehensive income 1,865,000 -- -- -- -- -- --
Cash dividends (52,380,000) -- -- (6,641,000) (45,739,000) -- --
Acceleration of stock 418,000
options (Note 6) -- -- 418,000 -- -- --
Exercise of stock options 1,445,000
(Note 6) 133,000 26,000 1,640,000 -- -- --
Purchase of treasury stock (280,000) -- -- 17,000 -- -- --
Termination of Employee
Stock Ownership Plan -- -- -- (2,401,000) 3,957,000 --
----------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 2002 $64,571,000 6,724,944 $1,345,000 -- $100,455,000 -- $229,000
----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================
--------------------------------------------------------------------
TREASURY STOCK NOTES
------------------------ RECEIVABLE
NUMBER FROM
OF SHARES COST STOCKHOLDERS
--------------------------------------------------------------------
Balance, November 27, 1999 (1,188,389) (32,995,000)
Net income - fiscal 2000 -- -- --
Change in net unrealized
holding gain on
investment securities
available-for-sale, net
of taxes -- -- --
Total comprehensive income -- -- --
Cash dividends -- -- --
Purchase of treasury stock (122,069) (1,339,000) --
Payment of loan from ESOP
(Note 7) -- -- --
--------------------------------------------------------------------
Balance, December 2, 2000 (1,310,458) (34,334,000) --
Net loss - fiscal 2001 -- -- --
Change in net unrealized
holding gain on
investment securities
available-for-sale, net
of taxes -- -- --
Total comprehensive loss -- -- --
Cash dividends -- -- --
Purchase of treasury stock (73,116) (1,050,000) --
Payment of loan from ESOP
(Note 7) -- -- --
--------------------------------------------------------------------
Balance, December 1, 2001 (1,383,574) (35,384,000) --
Net income - fiscal 2002 -- -- --
Minimum pension liability
adjustment of $164,000,
net of tax benefit of
$59,000 -- -- --
Total comprehensive income -- -- --
Cash dividends -- -- --
Acceleration of stock
options (Note 6) --
Exercise of stock options
(Note 6) -- -- (221,000)
Purchase of treasury stock (16,899) (297,000) --
Termination of Employee
Stock Ownership Plan (86,456) (1,556,000) --
--------------------------------------------------------------------
Balance, November 30, 2002 (1,486,929) $(37,237,000) $(221,000)
--------------------------------------------------------------------
====================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 10)
============================================================================================================================
NOVEMBER 30, DECEMBER 1, DECEMBER 2,
FISCAL YEAR ENDED 2002 2001 2000
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,970,000 $ (8,623,000) $ 3,033,000
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Provision for doubtful accounts 400,000 400,000 850,000
Depreciation and amortization 2,143,000 4,609,000 5,864,000
Deferred income taxes 38,000 (6,555,000) 335,000
Non-cash asset impairment and restructuring charges -- 13,241,000 --
Compensation relating to acceleration of stock options 418,000 -- --
Net gain on investment securities (2,179,000) (3,025,000) (1,300,000)
Gain on disposition of fixed assets (817,000) (261,000) (106,000)
Decrease (increase) in:
Accounts receivable 2,720,000 6,005,000 3,494,000
Inventories 3,949,000 7,083,000 4,584,000
Other current assets 750,000 922,000 (324,000)
Other assets 58,000 (333,000) 558,000
Increase (decrease) in:
Accounts payable (804,000) (1,871,000) (1,659,000)
Accruals and other liabilities 112,000 (1,518,000) 833,000
----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,758,000 10,074,000 16,162,000
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (225,000) (703,000) (1,403,000)
Proceeds from sale of property and equipment 957,000 725,000 379,000
Proceeds from sales of investment securities 38,650,000 -- 2,816,000
Acquisition of investment securities -- (15,681,000) (5,839,000)
----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 39,382,000 (15,659,000) (4,047,000)
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (280,000) (1,050,000) (1,339,000)
Principal repayment on loan to employee stock ownership plan -- 790,000 790,000
Dividends (52,901,000) (2,108,000) (2,949,000)
Exercise of stock options 1,445,000 -- --
----------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (51,736,000) (2,368,000) (3,498,000)
----------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,596,000) (7,953,000) 8,617,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,742,000 14,695,000 6,078,000
----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,146,000 $ 6,742,000 $ 14,695,000
============================================================================================================================
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
BUSINESS Fab Industries, Inc. (the "Company") is a major
manufacturer of knitted apparel fabrics,
including laces and finished home products, as
well as laminated fabrics. The Company's sales
in fiscal 2002, 2001 and 2000 were primarily
made to customers in the United States.
The Company's Board of Directors has determined
that it is in the best interests of its
stockholders to sell the Company's business as a
going concern. In order to maximize stockholder
value, the Board of Directors adopted
resolutions dated March 1, 2002 which
authorized, subject to stockholder approval, the
sale of the Company's business pursuant to a
Plan of Liquidation and Dissolution (the
"Plan"). The Company's stockholders approved the
Plan at the Company's annual meeting on May 30,
2002. The Plan provides the Company's officers
and directors will continue to operate the
Company's business in its current fashion and
pursue a sale of the business as a going
concern. The Company's Board of Directors has
approved the engagement of McFarland Dewey &
Co., LLC financial advisors in November 2002 to
assist with the sale of the business. The
accompanying financial statements have been
prepared on a going concern basis. There can be
no assurance, however, that the Company will be
successful in selling its business or if it does
sell the business, that it will be able to
recover the full value of its assets,
particularly its property, plant and equipment.
On May 30, 2002, the Company's Board of
Directors declared an initial liquidating
distribution of $10.00 per share, which resulted
in a payment to stockholders of $52,380,000 in
June 2002.
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.
F-9
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
FISCAL YEAR The Company's fiscal year ends on the Saturday
closest to November 30. Each of fiscal 2002 and
2001 had fifty-two weeks, and fiscal 2000 had
fifty-three weeks.
RISKS AND UNCERTAINTIES The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ
from those estimates and assumptions.
Financial instruments which potentially subject
the Company to concentrations of credit risk
consist principally of cash and cash
equivalents, investment securities, and trade
receivables. The Company places its cash and
cash equivalents with high credit quality
financial institutions. The Company is subject
to credit risk if the 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 2002 and
fiscal 2001, that custodian had approximately
$10 million and $16 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 30,
2002, that custodian had approximately $10
million of the Company's cash under investments,
which were invested in U.S. Treasury
obligations. In June 2002, the Company
liquidated $8,000,000 from that custodian as
part of the liquidating dividend. The Company's
investment policy currently permits up to 25% of
the Company's portfolio to include equity
securities.
F-10
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
Concentrations of credit risk with respect to
trade receivables are limited due to the diverse
group of manufacturers, wholesalers and
retailers to whom the Company sells. 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 30, 2002 and December 1, 2001, 11% and
18%, respectively, of the accounts receivable
outstanding were due from factors. The Company
has established an allowance for doubtful
accounts based upon factors surrounding the
credit risk of specific customers, historical
trends and other information.
F-11
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
CASH EQUIVALENTS The Company considers all highly liquid debt
instruments with original maturities of three
months or less to be cash equivalents.
INVESTMENTS The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). SFAS No.
115 addresses accounting and reporting for
investments in equity securities that have
readily determinable fair values and for all
investments in debt securities. Investments in
such securities are to be classified as either
held-to-maturity, trading, or
available-for-sale. The Company classifies all
of its investments as available-for-sale. The
investments are recorded at their fair value and
the unrealized gain or loss, net of income
taxes, is recorded in stockholders' equity.
Gains and losses on sales of investment
securities are computed using the specific
identification method.
INVENTORIES Inventories are valued at the lower of cost or
market. For a portion of the inventories, cost
is determined by the last-in, first-out (LIFO)
method with the balance being determined by the
first-in, first-out (FIFO) method.
F-12
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
DERIVATIVE FINANCIAL The Company is party to equity option
INSTRUMENTS HELD OR ISSUED 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 No. 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 Property, plant and equipment are stated at
cost. Depreciation is computed using principally
the straight-line method. The range of estimated
useful lives is 15 to 33 years for buildings and
building improvements, 4 to 10 years for
machinery and equipment, 10 years for leasehold
improvements and 5 years for trucks and
automobiles.
LONG-LIVED ASSETS The Company reviews the carrying values of its
long-lived and identifiable intangible assets
for possible impairment whenever events or
changes in circumstances indicate that the
carrying amount of the assets may not be
recoverable. Any long-lived assets held for
disposal are reported at the lower of their
carrying amounts or fair value less cost to
sell. During fiscal 2001, the Company recorded
asset impairment and restructuring charges. See
Note 12 of the notes to the consolidated
financial statements.
RESEARCH AND DEVELOPMENT Research and development costs are charged to
COSTS expenses in the year incurred and amounted to
$1,690,000, $1,999,000, and $3,206,000 in fiscal
2002, 2001 and 2000, respectively.
F-13
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
STOCK-BASED COMPENSATION In fiscal 1997, the Company became subject to
SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which allows
either the intrinsic or fair value method. SFAS
No. 123 encourages, but does not require,
entities to adopt the fair value method in place
of the intrinsic value method as provided for in
Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB
No. 25"), for all arrangements under which
employees receive shares of stock or other
equity instruments of the employer or the
employer incurs liabilities to employees in
amounts based on the price of its stock. When
the Company adopted SFAS No. 123, it elected to
retain the intrinsic value method. The required
fair value disclosures are included in the notes
to the consolidated financial statements.
TAXES ON INCOME The Company follows the liability method of
accounting for income taxes. Accordingly,
deferred income taxes reflect the net tax effect
of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and for income tax purposes.
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. The Company's dilutive potential
common shares outstanding during fiscal 2002,
2001, and 2000 resulted entirely from dilutive
stock options. For fiscal 2002, 2001 and 2000,
potentially dilutive securities that related to
shares issuable upon the exercise of stock
options granted by the Company were excluded, as
their effect was antidilutive. See Note 13 of
notes to the consolidated financial statements.
REVENUE RECOGNITION The Company recognizes its revenues upon
shipment of the related goods. Allowances for
estimated returns are provided when sales are
recorded.
F-14
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standard
Board (FASB) issued FASB Statements Nos. 141 and
142 (FAS 141 and FAS 142), "Business
Combinations" and "Goodwill and Other Intangible
Assets." FAS 141 replaces APB 16 and eliminates
pooling-of-interests accounting prospectively.
It also provides guidance on purchase accounting
related to the recognition of intangible assets
and accounting for negative goodwill. FAS 142
changes the accounting for goodwill from an
amortization method to an impairment-only
approach. FAS 141 and FAS 142 are effective for
all business combinations completed after June
30, 2001. Companies are required to adopt FAS
142 for fiscal years beginning after December
15, 2001, but early adoption is permitted. The
Company will adopt FAS 142 on December 1, 2002,
the beginning of fiscal 2003. The Company does
not believe the adoption of FAS 142 will impact
its results of operations or financial position.
In August 2001, the FASB issued FAS No. 144,
"Accounting for the Impairment or Disposal of
Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or
disposal of long-lived assets and supersedes FAS
No. 121 and the accounting and reporting
provisions of APB Opinion No. 30 for a disposal
of a segment of a business. FAS 144 is effective
for fiscal years beginning after December 15,
2001, with earlier application encouraged. The
Company will adopt FAS 144 as of December 1,
2002, the beginning of fiscal 2003, and it does
not expect that the adoption of the Statement
will have a significant impact on the Company's
financial position and results of operations.
F-15
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
In July 2002, the FASB issued FAS No. 146,
"Accounting for Restructuring Costs". FAS 146
applies to costs associated with an exit
activity (including restructuring) or with a
disposal of long-lived assets. Those activities
can include eliminating or reducing product
lines, terminating employees and contracts, and
relocating plant facilities or personnel. Under
FAS 146, a company will record a liability for a
cost associated with an exit or disposal
activity when that liability is incurred and can
be measured at fair value. FAS 146 will require
a company to disclose information about its exit
and disposal activities, the related costs, and
changes in those costs in the notes to the
interim and annual financial statements that
include the period in which an exit activity is
initiated and in any subsequent period until the
activity is completed. FAS 146 is effective
prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier
adoption encouraged. Under SFAS 146, a company
may not restate its previously issued financial
statements and the new statement grandfathers
the accounting for liabilities that a company
had previously recorded under Emerging Issues
Task Force Issue 94-3. The Company does not
anticipate that the adoption of FAS 146 will
have a material effect on its results of
operations or financial position.
RECLASSIFICATIONS Certain prior fiscal years' accounts have been
reclassified for comparative purposes.
F-16
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. CASH AND CASH Cash and cash equivalents at November 30, 2002
EQUIVALENTS and December 1, 2001 consisted of the
following (in thousands):
2002 2001
---------------------------------------------------------------------------------
Cash $ 526 $ 155
Taxable and tax-free short-term
debt instruments
2,620 6,587
---------------------------------------------------------------------------------
$3,146 $6,742
=================================================================================
2. INVESTMENT SECURITIES Investment securities available-for-sale at
November 30, 2002 and December 1, 2001
consisted of the following (in thousands):
GROSS GROSS
UNREALIZED UNREALIZED
COST HOLDING GAIN HOLDING LOSS FAIR VALUE
--------------------------------------------------------------------------------
November 30, 2002:
Equities $ 750 $ -- $ -- $ 750
U.S. Treasury
obligations 32,411 617 -- 33,028
Corporate bonds 7,748 194 (254) 7,688
Money market 4,085 -- -- 4,085
--------------------------------------------------------------------------------
$44,994 $ 811 $ (254) $ 45,551
================================================================================
December 1, 2001:
Equities $ 798 $ -- $ (15) $ 783
U.S. Treasury
obligations 47,240 316 (16) 47,540
Corporate bonds 32,288 721 (450) 32,559
Money market 1,139 -- -- 1,139
--------------------------------------------------------------------------------
$81,465 $ 1,037 $ (481) $ 82,021
================================================================================
F-17
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 30, 2002 and December 1, 2001, by
contractual maturity are as shown below:
NOVEMBER 30, 2002 DECEMBER 1, 2001
--------------------------- -----------------------------
Cost Fair value Cost Fair value
--------------------------------------------------------------------------------
Maturing in one
year or less $ 10,064 $ 10,067 $ 29,983 $ 30,005
Maturing after one
year through
five years 28,054 28,520 35,321 35,781
Maturing after five
years through
ten years 259 264 8,130 8,161
Ten years and over 1,782 1,865 6,094 6,152
--------------------------------------------------------------------------------
$40,159 $40,716 $79,528 $80,099
================================================================================
Gross and net realized gains and losses on sales of investment securities were:
2002 2001 2000
--------------------------------------------------------------------------------
Gross realized gains $ 6,653 $ 6,619 $ 4,214
Gross realized losses (4,474) (3,594) (2,914)
--------------------------------------------------------------------------------
Net realized gain $ 2,179 $ 3,025 $ 1,300
================================================================================
Other comprehensive income for fiscal 2002, 2001, and 2000 consisted of the
following (in thousands):
2002 2001 2000
--------------------------------------------------------------------------------
Unrealized holding gains
arising during the year, net of
tax $1,307 $2,446 $894
Reclassification adjustment,
net of tax (1,307) (1,815) (780)
--------------------------------------------------------------------------------
Other comprehensive income, net
of tax $ -- $ 631 $114
================================================================================
F-18
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During fiscal 2002, the Company invested a portion
of its securities in equity consisting of a
portfolio of Standard and Poor's 100 ("S&P 100")
common stocks, the fair value of which varies
consistently with changes in the S&P 100 index. To
hedge against fluctuations in the market value of
the portfolio, the Company has purchased
short-term S&P 100 index put options and sold
short-term S&P 100 call options. At November 30,
2002 and December 1, 2001, the Company had no such
investments, but will continue to invest in such
equities in the future.
Realized gains or (losses) on purchased short-term
S&P 100 index put options and sold short-term S&P
100 call options during fiscal 2002, 2001, and
2000 were approximately ($1,463,000), $925,000 and
$2,217,000, 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-19
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. INVENTORIES Inventories at November 30, 2002 and December 1, 2001
consisted of the following (in thousands, except for
percentages):
--------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------
Raw materials $ 2,131 $ 3,036
Work-in-process 2,717 4,083
Finished goods 3,538 5,216
--------------------------------------------------------------------------------
$ 8,386 $12,335
================================================================================
Approximate percentage of
inventories valued under LIFO
method 62% 56%
================================================================================
Excess of FIFO valuation over
LIFO valuation $ 1,614 $ 1,710
================================================================================
In fiscal 2002 and 2001, the liquidation of certain
LIFO layers increased cost of goods sold by $503,000
and $1,909,000, respectively. The inventories in
these LIFO layers were acquired at higher costs than
current costs.
F-20
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. PROPERTY, PLANT AND Property, plant and equipment at
EQUIPMENT November 30, 2002 and December 1, 2001
consisted of the following (in thousands):
2002 2001
-----------------------------------------------------------------------------
Land and improvements $ 682 $ 682
Buildings and improvements 8,377 11,304
Machinery and equipment 70,431 74,275
Trucks and automobiles 1,742 1,742
Office equipment 681 681
Leasehold improvements 929 929
Assets held for sale 2,786 1,482
-----------------------------------------------------------------------------
85,628 91,095
Less: Accumulated depreciation and
amortization 73,621 77,030
-----------------------------------------------------------------------------
$ 12,007 $ 14,065
=============================================================================
5. OBLIGATIONS UNDER Obligations under capital leases at
CAPITAL LEASES November 30, 2002 and December 1, 2001
consisted of the following (in thousands):
2002 2001
--------------------------------------------------------------------------------
Obligations under capital leases -- $339
through 2006 payable in monthly
installments of $11 including
interest at 10% per annum
Less: Current maturities (included
with other current
liabilities) -- 28
--------------------------------------------------------------------------------
- $311
================================================================================
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-21
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. STOCK COMPENSATION STOCK OPTION PLAN
PLANS
In May 2001 and May 1997, the Board of
Directors adopted and the shareholders
approved two new stock option plans providing
for the grant of up to 200,000 shares and
175,000 shares of common stock, respectively,
at any time over the next ten years from the
date such plans were adopted. These stock
option plans have been terminated subsequent
to the fiscal year ended November 30, 2002.
Pursuant to resolutions adopted by the
Company's Board of Directors and
documentation sent to and returned to the
Company by option holders, effective
immediately following stockholder approval of
the Plan on May 30, 2002, all outstanding
options under the Company's 1997 Stock
Incentive Plan became vested, and all options
as to which optionees (including employees
and directors) had returned to the Company
the appropriate forms (representing options
held by all but one optionee, who exercised
via payment to the Company) were exercised
through the issuance of loans from the
Company to the optionees, with stock of the
optionees held as collateral by the Company
until the loans have been satisfied. These
loans receivable have been recorded as a
reduction of stockholders' equity as of
November 30, 2002. The original amount of the
loans issued to employees to exercise their
options was approximately $1,495,000, of
which approximately $1,274,000 was repaid
prior to the fiscal year ending November 30,
2002. These options are subject to variable
accounting at each reporting period, until
the related loans are repaid. No compensation
cost was recorded at November 30, 2002
related to variable accounting since the
market price per option did not change
significantly from the date the options were
exercised to November 30, 2002. As of
November 30, 2002, the balance of the loans
outstanding was $221,000. 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. As of
November 30, 2002, there were no outstanding
options under either the 2001 stock option
plan or the 1997 stock option plan.
F-22
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the
Company's stock option plans. If the Company
had elected to recognize compensation costs
based on the fair value of the options
granted at grant date as prescribed by SFAS
No. 123, net income (loss) and earnings
(loss) per share would have been reduced to
the pro forma amounts indicated below.
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA) 2002 2001 2000
--------------------------------------------------------------------------------
Pro forma net income (loss) $1,840 ($8,652) $3,008
Pro forma earnings (loss) per share
- diluted $0.35 ($1.65) $0.56
================================================================================
There were no options granted in fiscal 2002.
The weighted average fair value of options
granted was $3.67 and $2.45 per share in
fiscal 2001 and 2000, respectively.
The fair value of each option grant is
estimated on the date of grant using the
Black-Scholes option-pricing model with the
following assumptions for fiscal 2001 and
2000 grants:
-------------------------------------------
Dividends $.40 to $.70 per share
Volatility 21.4% to 29.2%
Risk-free interest 4.54% to 5.00%
Expected term 1 to 10 years
===========================================
F-23
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Data regarding the Company's stock option
plan follows:
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
---------------------------------------------------------------------------------
Shares under option, November 27, 1999 269,750 $18.19
Options granted 54,000 11.06
Options exercised -- --
Options canceled (161,050) (21.58)
---------------------------------------------------------------------------------
Shares under option, December 2, 2000 162,700 12.47
Options granted 8,000 12.75
Options exercised -- --
Options canceled (27,500) (12.25)
---------------------------------------------------------------------------------
Shares under option, December 1, 2001 143,200 12.53
Options granted -- --
Options exercised (133,000) 12.51
Options canceled (10,200) 12.70
---------------------------------------------------------------------------------
Shares under option, November 30, 2002 -- --
=================================================================================
---------------------------------------------------------------------------------
Options exercisable at:
December 2, 2000 24,140 13.75
December 1, 2001 47,280 12.72
November 30, 2002 -- --
=================================================================================
F-24
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
RESTRICTED STOCK PLAN
The Company has a restricted stock plan which
awards shares of common stock previously held
in its treasury to key employees. Shares are
awarded in the name of the employee, who has
all rights of a shareholder, subject to
certain restrictions or forfeiture. Vesting
occurs over a five-year period from the date
the shares were awarded. Dividends associated
with the shares are held by the Company and
vest over the same five-year period. The
compensation element related to such shares
is recognized ratably over the five-year
restriction period. Compensation expense
related to the above restricted shares was $0
for fiscal 2002, 2001 and 2000. No restricted
stock was awarded in fiscal 2002, 2001 or
2000 and no restricted stock was outstanding
as of November 30, 2002. This restricted
stock plan was terminated subsequent to
fiscal year ended November 30, 2002.
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 2002,
2001 and 2000 were $144,000, $181,000 and
$241,000, 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 2002, 2001 and 2000
were $41,000, $52,000 and $57,000,
respectively. Benefits payable under this
plan amounting to $1,898,000 and $2,107,000
at November 30, 2002 and December 1, 2001,
respectively, are included in other
noncurrent liabilities. These liabilities are
fully funded by plan assets of equal amounts,
which are included in other assets.
F-25
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
PENSION PLAN
The Company maintains a non-contributory
defined benefit pension plan (Fab Industries,
Inc. Hourly Employees' Retirement Plan) which
covers substantially all hourly employees.
The Plan provides benefits based on the
participants' years of service.
F-26
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following tables provide a reconciliation
of the changes in the Plan's benefit
obligations and fair value of assets and a
statement of the funded status of the Plan
for fiscal 2002 and 2001:
2002 2001
------------------ ------------------
RECONCILIATION OF THE BENEFIT OBLIGATION
Obligation at beginning of year $3,513,000 $3,588,000
Service cost 177,000 246,000
Interest cost 246,000 284,000
Amendments 51,000 --
Curtailment 27,000 55,000
Actuarial loss 267,000 721,000
Benefit payments (969,000) (1,381,000)
-------------------------------------
Obligation at end of year $3,312,000 $3,513,000
=====================================
2002 2001
-------------------------------------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year
$3,855,000 $5,522,000
Actual return on plan assets (net of expenses)
(409,000) (286,000)
Benefit payments (969,000) (1,381,000)
-------------------------------------
Fair value of plan assets at end of year $2,477,000 $3,855,000
=====================================
2002 2001
-------------------------------------
FUNDED STATUS
Funded status $(835,000) $342,000
Unrecognized prior service cost 293,000 372,000
Unrecognized actuarial (gain) loss 164,000 (797,000)
-------------------------------------
Net amount recognized $(378,000) $ (83,000)
=====================================
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 30, 2002 and December 1, 2001:
2002 2001
------------------------------------
Accrued benefit liability (included in other
noncurrent liabilities) $ (835,000) $ (83,000)
Intangible pension asset (included in other assets) 293,000 --
Accumulate other comprehensive loss (Net of tax
effect below) 105,000 --
Deferred tax asset 59,000 --
------------------------------------
Net amount recognized $ (378,000) $ (83,000)
====================================
The following table provides the components
of the net periodic (benefit) cost for the
Plan for fiscal 2002 and 2001:
2002 2001
------------------------------------
Service cost $ 177,000 $ 246,000
Interest cost on projected benefit obligation 246,000 284,000
Expected return on plan assets (300,000) (430,000)
Amortization of prior service cost 45,000 74,000
Amortization of net gain (35,000) (156,000)
Recognized (gain) loss due to curtailment and
settlement 161,000 ( 72,000)
====================================
Net periodic pension cost (credit) $ 294,000 $ ( 54,000)
====================================
Prior service costs are amortized on a
straight-line basis over the average
remaining service period of active
participants. Gains and losses in excess of
10% of the greater of the benefit obligations
and the market-related value of assets are
amortized over the average remaining service
period of active participants.
The weighted average assumptions used in the
measurement of the Company's benefit
obligations for fiscal 2002 and 2001 are
shown in the following table:
2002 2001
----------------
Discount rate 6.75% 7.25%
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.
The portion of the common stock dividends
declared relating to ESOP shares totaled $0,
$104,000 and $161,000 for fiscal 2002, 2001
and 2000, respectively. Of these amounts, $0,
$65,000 and $90,000 for fiscal 2002, 2001 and
2000, respectively, related to allocated
shares and $0, $39,000 and $71,000 for fiscal
2002, 2001 and 2000, respectively, related to
unallocated shares. The dividends related to
the unallocated shares were applied towards
the $790,000 annual principal installments
referred to above.
Pursuant to resolutions adopted by the
Company's Board of Directors, upon approval
of the Plan by the stockholders on May 30,
2002, 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.
F-29
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
As of November 30, 2002 and December 1, 2001,
ESOP shares information was as follows:
2002 2001
--------------------------------------------------------------------------------
Allocated -- 142,822
Committed to be released -- 18,889
In suspense -- 67,567
--------------------------------------------------------------------------------
Total shares held by ESOP -- 229,278
================================================================================
The net charges to earnings for fiscal 2002,
2001 and 2000 were as follows (in thousands):
2002 2001 2000
--------------------------------------------------------------------------------
Contribution to ESOP $ -- $1,048 $1,150
Less: Interest income on
loan to ESOP -- 296 547
--------------------------------------------------------------------------------
Net charge to earnings $ -- $ 752 $ 603
================================================================================
The contribution to the ESOP is allocated
between costs of goods sold and operating
expenses; the interest income is included in
interest and dividend income.
8. INCOME TAXES Provisions (benefits) for Federal, state
and local income taxes for fiscal 2002,
2001 and 2000 consisted of the following
components (in thousands):
2002 2001 2000
------------------------------------------------------------------------------
Current:
Federal $ 902 $ (469) $ 734
State and local 100 159 77
------------------------------------------------------------------------------
1,002 (310) 811
Deferred:
Federal and state 38 (6,555) 334
------------------------------------------------------------------------------
$1,040 $ (6,865) $1,145
==============================================================================
F-30
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The net deferred tax liability at November
30, 2002 and December 1, 2001 consisted of
the following (in thousands):
2002 2001
------------------------------------------------------------------------------------
Long-term portion:
Gross deferred tax liability (asset) for:
Excess depreciation for tax purposes $ 619 $ 306
Future tax deductions for employee
benefit plans (1,118) (1,185)
Pension obligation (59) --
Other 30 53
------------------------------------------------------------------------------------
Net long-term asset (528) (826)
------------------------------------------------------------------------------------
Current portion:
Gross deferred tax liability (asset) for:
Accounts receivable - Section 475
adjustment (204) 218
Net unrealized holding gain
on investment securities
available-for-sale, included in
stockholders' equity 249 222
ESOP contribution accrued for tax
purposes -- 430
Other (36) (601)
------------------------------------------------------------------------------------
Net current liability 9 269
------------------------------------------------------------------------------------
Net deferred tax asset $ (519) $ (557)
====================================================================================
F-31
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The provision (benefit) for income taxes
differed from the amount computed by applying
the statutory federal income tax rate of
34.0% for fiscal 2002, 2001 and 2000 to
income (loss) before income taxes due to the
following:
2002 2001 2000
-----------------------------------------------------------------------------
(Tax effect in thousands)
Federal tax expense
(benefit) at statutory rate $ 513 $(5,266) $1,421
State and local income taxes,
net of Federal benefit 66 105 51
Tax-free interest income and
dividends received deduction (119) (147) (338)
Change in estimates for tax
contingency and other 580 (1,557) 11
-----------------------------------------------------------------------------
Income tax expense (benefit) $1,040 $(6,865) $1,145
=============================================================================
In the fourth quarter of fiscal 2001, the
Company reversed approximately $1.5 million
of certain tax reserves recorded in prior
years, due to changes in estimates for tax
contingency items.
9. COMMITMENTS AND STOCK REPURCHASE
CONTINGENCIES
The Company has an agreement with the
Chairman of the Board of Directors and Chief
Executive Officer which provides that, in the
event of the Chairman's death, his estate has
the option to sell, and the Company the
obligation to purchase, certain stock owned
by the Chairman. The amount of stock subject
to purchase is equal to the lesser of $7
million or 10% of the book value of the
Company at the end of the year immediately
following his death, plus the $3 million
proceeds from insurance on his life for which
the Company is the beneficiary. The agreement
extends automatically from year to year
unless either party gives notice of
cancellation at least six months prior to the
then current expiration date. The current
expiration date is March 2003. As a result of
this feature, $7 million has been classified
as redeemable common stock, for all periods
presented.
F-32
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
LEASE
The Company leases its New York City offices
and showrooms until 2005, at average minimum
annual rentals of $112,000 plus escalation
and other costs.
Rental expense for operating leases in fiscal
2002, 2001 and 2000 aggregated $495,000,
$679,000 and $901,000, 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)
---------------------------------------------
2003 $133
2004 135
2005 91
---------------------------------------------
$359
=============================================
LITIGATION
A number of claims and lawsuits are pending
against the Company. It is impossible at this
time for the Company to predict with any
certainty the outcome of such litigation.
However, management is of the opinion, based
upon information presently available, that it
is unlikely that any liability, to the extent
not provided for through insurance or
otherwise, would be material in relation to
the Company's consolidated financial position
or results of operations.
F-33
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
10. STATEMENT OF CASH FLOWS Cash outlays (net refunds) for corporate
income taxes and interest for fiscal 2002,
2001 and 2000 were as follows (in thousands):
CORPORATE
INCOME TAXES INTEREST
---------------------------------------------
2002 $ 156 $ 13
2001 438 42
2000 (53) 86
=============================================
F-34
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NONCASH INVESTING AND FINANCING ACTIVITIES
In fiscal 2002, 2001 and 2000, net unrealized
holding gains of $0, $1,051,000 and $190,000,
respectively, less related income taxes of
$0, $420,000 and $76,000, on investment
securities available-for-sale were recorded
as increases in stockholders' equity.
11. INTEREST AND DIVIDEND Interest and dividend income for the past
INCOME three fiscal years were as follows (in
thousands):
INTEREST INCOME DIVIDEND INCOME TOTAL
-----------------------------------------------------------------
2002 $2,164 $249 $2,413
2001 4,123 166 4,289
2000 3,877 123 4,000
=================================================================
12. ASSET IMPAIRMENT AND In the second quarter of fiscal 2001, the
RESTRUCTURING CHARGES Company implemented a restructuring plan to
consolidate several manufacturing facilities.
As a result, the Company's fiscal year ended
December 1, 2001 financial results include a
charge for impairment of fixed assets held
for sale of $5,958,000 for the writedown of
fixed assets held for disposal to their fair
value less costs to dispose. The
consolidation of manufacturing facilities is
an effort to restore the operations to an
acceptable level of profitability by
eliminating over-capacities at the
manufacturing level in response to the
continued weakness in the economy and market
conditions that have adversely affected the
domestic textile industry.
The fixed assets held for disposal are
comprised of buildings, machinery and
equipment from the knitting, dyeing and
finishing activities of the business. The
marketability of the assets held for disposal
are subject to worldwide economic conditions
which can affect the sale of such buildings
and machinery.
During the fiscal year ended December 1,
2001, the Company had expended approximately
$1,300,000 to remove and transfer machinery
and equipment to the Company's Mohican Mills
facility as part of the consolidation of the
Company's manufacturing facilities.
F-35
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
As a result, in accordance with FAS No. 121,
the Company reviewed long-lived assets to be
held and used for impairment and, in the
fourth quarter of 2001, recorded an
impairment charge of approximately $7,272,000
relating to fixed assets. The Company
continues to utilize the majority of its
property, plant and equipment, however, there
can be no assurance that the Company will
sell its assets or if it does sells its
assets, that it will be able to recover the
full value of its assets, particularly its
property, plant and equipment.
F-36
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
13. EARNINGS (LOSS) Basic and diluted earnings (loss) per share
PER SHARE for the fiscal years ended November 30, 2002,
December 1, 2001 and December 2, 2000 are
calculated as follows:
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
WEIGHED
NET INCOME AVERAGE
(LOSS) SHARES PER SHARE AMOUNT
-------------------------------------------------------------------------------------------
Fiscal year ended November 30, 2002:
Basic earnings per share $1,970,000 5,222,812 $ .38
================
Effect of assumed exercise of
employee stock options -- --
-------------------------------------------------------------------------------------------
Diluted earnings per share $1,970,000 5,222,812 $ .38
===========================================================================================
Fiscal year ended December 1, 2001:
Basic loss per share $(8,623,000) 5,258,353 $(1.64)
================
Effect of assumed exercise of
employee stock options -- --
-------------------------------------------------------------------------------------------
Diluted loss per share $(8,623,000) 5,258,353 $(1.64)
===========================================================================================
Fiscal year ended December 2, 2000:
Basic earnings per share $3,033,000 5,336,958 $ .57
================
Effect of assumed exercise of
employee stock options -- --
-------------------------------------------------------------------------------------------
Diluted earnings per share $3,033,000 5,336,958 $ .57
===========================================================================================
F-37
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During fiscal 2002, all outstanding options
were either exercised or cancelled. Options
to purchase 143,200, and 162,700 shares of
common stock were outstanding during fiscal
2001 and 2000, respectively, but were not
included in the computation of diluted
earnings per share, as their effect would be
anti-dilutive.
F-38
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. SEGMENT INFORMATION
The Company adopted SFAS No. 131 "Disclosure About Segments of an
Enterprise and Related Information" in fiscal 1999. SFAS No. 131 requires
companies to report information on segments using the way management organizes
segments within the company for making operating decisions and assessing
financial performance.
The Company's chief operating decision-maker is considered to be the
Chief Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The Company has identified three reportable segments based
upon the primary markets it serves: Apparel Fabrics, Home Fashions, Industrial
Fabrics and Accessories.
Apparel Fabrics: The Company is a major manufacturer of warp and circular knit
fabrics and raschel laces. The Company's textile fabrics are sold to a wide
variety of manufacturers of ready-to-wear and intimate apparel for men, women,
and children, including dresses and sportswear, children's sleepwear,
activewear, swimwear, and recreational apparel.
Home Fashions and Accessories: While sales primarily to manufacturers of home
furnishings, the Company used its own textile fabrics internally to produce
flannel and satin sheets, blanket products, comforters, and other bedding
products which it sells to specialty stores, catalogue and mail order companies,
airlines and cruise lines, and health care institutions.
Other: The Company produces a line of ultrasonically, hot melt adhesive, flame
and adhesive bonded products for apparel, environmental, health care, industrial
and consumer markets. The Company's textile fabrics are sold to manufacturers
servicing the residential and contract markets. The Company sells fabrics to
vendors in the over the counter markets.
The accounting policy of the reportable segments are the same as those
described in Summary of Accounting Policies (Business F-9). The Company neither
allocates to the segments nor bases segment decisions on the following:
- Interest and dividend income
- Interest expense
- Net gain on investment securities
- Income tax expense or benefit
Many of the Company's assets are used by multiple segments. While
certain assets such as Inventory and Property, Plant and Equipment are
identifiable by segment, an allocation of the substantial remaining assets is
not meaningful.
For the 52 weeks ending December 1, 2001, charges for the asset
impairment and restructuring charges apply mainly to the apparel segment with a
small portion to the other segment. The 52 weeks ended November 30, 2002 include
a litigation settlement in the amount of $750,000, which is included in the Home
Fashions and Accessories segment (see Note 16).
F-39
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
During all years presented, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales.
The following are segment revenues and income (loss) by reportable segments for
the fiscal years 2002, 2001, and 2000.
HOME FASHIONS
2002 APPAREL AND ACCESSORIES OTHER TOTAL
---- ------- --------------- ----- -----
External sales $51,269 $4,673 $7,023 $62,965
Intersegment sales 3,860 22 372 4,254
Operating income/(loss) (679) (1,085) 195 (1,569)
Depreciation expense 1,600 51 327 1,978
Segment assets 16,629 1,005 2,543 20,177
Capital expenditures -- -- 225 225
HOME FASHIONS
2001 APPAREL AND ACCESSORIES OTHER TOTAL
---- ------- --------------- ----- -----
External sales $60,884 $10,382 $8,770 $80,036
Intersegment sales 9,781 44 326 10,151
Operating income/(loss) (22,346) 674 (1,088) (22,760)
Depreciation expense 3,919 54 477 4,450
Segment assets 21,844 1,454 2,867 26,165
Capital expenditures 374 -- 302 676
HOME FASHIONS
2000 APPAREL AND ACCESSORIES OTHER TOTAL
---- -------- --------------- ----- -----
External sales $93,901 $14,269 $10,015 $118,185
Intersegment sales 12,324 51 342 12,717
Operating income/(loss) (2,114) 1,117 (39) (1,036)
Depreciation expense 5,171 55 463 5,689
Segment assets 44,671 1,579 4,375 50,625
Capital expenditures 922 4 318 1,244
F-40
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
REVENUES 2002 2001 2000
---- ---- ----
Total external sales for segments $ 62,965 $ 80,036 $ 118,185
Intersegment sales for segments 4,254 10,151 12,717
Elimination of intersegment sales (4,254) (10,151) (12,717)
-------------------------------------------------
Total consolidated sales $ 62,965 $ 80,036 $ 118,185
=================================================
PROFIT OR LOSS
Total operating loss for segments $ (1,569) $ (22,760) $ (1,036)
Total other income
4,579 7,272 5,214
-------------------------------------------------
Income (loss) before taxes on income $ 3,010 $ (15,488) $ 4,178
=================================================
ASSETS
Total segments assets $ 20,177 $ 26,165 $ 50,625
Assets not allocated to segments 61,052 105,363 100,787
-------------------------------------------------
Total consolidated assets $ 81,229 $ 131,528 $ 151,412
=================================================
OTHER SIGNIFICANT ITEMS
Depreciation expense $ 1,978 $ 4,450 $ 5,689
Not allocated to segments 165 159 175
-------------------------------------------------
Consolidated total $ 2,143 $ 4,609 $ 5,864
=================================================
Capital expenditures $ 225 $ 676 $ 1,244
Not allocated to segments
-- 27 159
-------------------------------------------------
Consolidated total $ 225 $ 703 $ 1,403
=================================================
F-41
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
15. QUARTERLY Quarterly earnings were as follows (in
FINANCIAL DATA thousands, except for earnings per share):
(UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------------------------------------------------------------------------------------------------------------------------
Fiscal 2002:
Net sales $ 14,250 $ 17,362 $ 17,920 $ 13,433 $ 62,965
Gross profit 1,107 2,424 2,362 660 6,553
Net income (loss) (677) 1,626 1,010 11 1,970
Earnings (loss)
per share:
Basic $ (0.13) $ 0.31 $ 0.19 $ 0.00 $ 0.38
Diluted $ (0.13) $ 0.31 $ 0.19 $ 0.00 $ 0.38
===========================================================================================================================
Fiscal 2001:
Net sales $ 20,005 $ 23,002 $ 19,901 $ 17,128 $ 80,036
Gross profit (loss) (152) 857 659 154 1,518
Net loss (1,042) (4,393) (1,320) (1,868) (8,623)
Loss per share:
Basic $ (0.20) $ (0.83) $ (0.25) $ (.36) $ (1.64)
Diluted $ (0.20) $ (0.83) $ (0.25) $ (.36) $ (1.64)
===========================================================================================================================
Net loss includes $5,958,000, $967,000 and $7,605,000 for second, third
and fourth quarter 2001 respectively, and $14,530,000 for the 52 weeks
ending December 1, 2001 for asset impairment and restructuring charges.
F-42
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
16. OTHER EXPENSE During the fall of 1999, San Francisco Network
("SFN") commenced an action in the Superior
Court of California, Marin County, against the
Company and the Company's Salisbury
Manufacturing Corporation ("Salisbury")
subsidiary. The action relates to an agreement
between SFN and Salisbury (whose performance
the Company guaranteed), pursuant to which
Salisbury was licensed to use the Karen
Neuburger trademark for branded bedding
products. The case was removed to the United
States District Court of California. Salisbury
and the Company denied any wrongdoing and
asserted affirmative claims against SFN and
certain of its principals. On March 14, 2002,
at a court ordered conference, the Company
settled this issue without admitting
liability. On April 12, 2002, the Company paid
SFN $750,000 in exchange for a compete release
of all claims.
F-43
FAB INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES
FORM 10-K
FISCAL YEARS ENDED NOVEMBER 30, 2002, DECEMBER 1, 2001,
AND DECEMBER 2, 2000
S-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
-----
SCHEDULE: PAGE
II. Valuation and Qualifying Accounts S-3
S-2
SCHEDULE II
FAB INDUSTRIES, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
================================================================================
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
- - - - - - - - - - - - - -
(1) (2)
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
-----------------------------------------------------------------------------------------------------------
Fiscal year ended
November 30, 2002:
Allowance for doubtful
Accounts $ 600 $400(i) $ -- $ -- $ 1,000
Fiscal year ended
December 1, 2001:
Allowance for doubtful
Accounts $ 300 $400(i) $ -- $ (100)(ii) $ 600
Fiscal year ended
December 2, 2000:
Allowance for doubtful
Accounts $ 1,500 $850(i) $ -- $(2,050)(ii) $ 300
===========================================================================================================
(i) Current year's provision.
(ii) Accounts receivable written-off, net of recoveries.
S-3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Fab has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized.
FAB INDUSTRIES, INC.
By: /s/ Samson Bitensky
---------------------------
Samson Bitensky
Chairman of the Board and
Chief Executive Officer
Date: February 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
SIGNATURE DATE CAPACITY IN WHICH SIGNED
--------- ---- ------------------------
/s/ Samson Bitensky February 28, 2003 Chairman of the Board, Chief Executive Officer, and
--------------------------- Director (Principal Executive Officer)
Samson Bitensky
/s/ David A. Miller February 28, 2003 Vice President - Finance, Treasurer, and Chief Financial
--------------------------- Officer (Principal Financial and Accounting Officer)
David A. Miller
/s/ Martin B. Bernstein February 28, 2003 Director
---------------------------
Martin B. Bernstein
/s/ Lawrence H. Bober February 28, 2003 Director
---------------------------
Lawrence H. Bober
/s/ Frank S. Greenberg February 28, 2003 Director
---------------------------
Frank S. Greenberg
/s/ Susan B. Lerner February 28, 2003 Director
---------------------------
Susan B. Lerner
/s/ Richard Marlin February 28, 2003 Director
---------------------------
Richard Marlin
/s/ Steven E. Myers February 28, 2003 Director, President and Chief Operating
--------------------------- Officer
Steven E. Myers
CERTIFICATION
-------------
I, Samson Bitensky, certify that:
1. I have reviewed this annual report on Form 10-K of Fab
Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 28, 2003
/s/ Samson Bitensky
-----------------------
Samson Bitensky
Chief Executive Officer
CERTIFICATION
-------------
I, David A. Miller, certify that:
1. I have reviewed this annual report on Form 10-K of Fab
Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 28, 2003
/s/ David A. Miller
-----------------------
David A. Miller
Chief Financial Officer