SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 28, 1998 Commission file number 1-5901
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FAB INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-2581181
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Madison Avenue, New York, NY 10016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-592-2700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.20 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: Share Purchase
Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_]
The aggregate market value at February 23, 1999 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
$72,000,000. 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 23,
1999, there were outstanding 5,414,738 shares of Common Stock, $.20 par value.
Documents Incorporated by Reference: Certain portions of the Registrant's
definitive proxy statement to be filed not later than March 29, 1999 pursuant to
Regulation 14A are incorporated by reference in Items 10 through 13 of Part III
of this Annual Report on Form 10-K.
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FAB INDUSTRIES, INC.
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
Item Number Page
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<S> <C>
PART I......................................................................................1
Item 1. Business..................................................................1
Item 2. Properties................................................................3
Item 3. Legal Proceedings.........................................................4
Item 4. Submission of Matters to a Vote of Security-Holders.......................5
PART II.....................................................................................6
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.....6
Item 6. Selected Consolidated Financial Data......................................7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...............11
Item 8. Financial Statements and Supplementary Data..............................11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.....................................................11
PART III...................................................................................12
Item 10. Directors and Executive Officers of the Registrant.......................12
Item 11. Executive Compensation...................................................12
Item 12. Security Ownership of Certain Beneficial Owners and Management...........12
Item 13. Certain Relationships and Related Transactions...........................12
PART IV....................................................................................13
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........13
SIGNATURES.................................................................................17
</TABLE>
<PAGE>
PART I
Item 1. Business
Fab Industries, Inc. (together with its subsidiaries, the "Company")
was incorporated on April 21, 1966, under the laws of the State of Delaware and
is a successor by merger to previously existing businesses.
The Company is a major manufacturer of warp and circular knit fabrics,
raschel laces, and polyurethane coated fabrics.
The Company's textile fabrics are sold to a wide variety of
manufacturers of ready-to-wear and intimate apparel for men, women and children,
including dresses and sportswear, children's sleepwear, activewear and swimwear,
recreational apparel, home furnishings, over-the-counter fabrics, industrial
fabrics, upholstery fabrics for residential and contact markets, and health care
and consumer products. Fabrics are sold primarily in piece dyed form, as well as
"PFP" (Prepared For Printing), and heat transfer printed configurations.
While sales are primarily to manufacturers of finished goods, the
Company also uses its own textile fabrics internally to produce 100% cotton
jersey (T-Shirt) sheets, flannel and satin sheets, as well as blankets,
comforters and other bedding products which the Company sells to department and
specialty stores, catalogue and mail order companies, as well as airlines and
health care institutions.
The Company's raschel lace products are sold to manufacturers of
intimate apparel through its Raval Designer - Wiener Lace divisions. The Raval
Lace division also produces raschel laces for sale to manufacturers and jobbers
of sportswear, dress, blouse and other related outerwear industries.
The Company's subsidiary, SMS Textiles, Inc., manufactures wide elastic
fabrics for sale to manufacturers of intimate apparel and swimwear.
The Company's Lida Stretch Fabrics Division specializes in products
utilizing spandex to create stretch fabrics. A wide variety of constructions and
fibers are combined with spandex fiber to create a diversified product line.
These fabrics are sold as piece dyes, yarn dyes and prints to the ready-to-wear,
aerobic wear, swimwear and intimate apparel markets.
The Company also offers a comprehensive line of heat transfer prints
for sleepwear, robewear, outerwear and activewear applications in both
traditional and contemporary patterns.
The Company's subsidiary, Gem Urethane Corporation, produces a line of
polyurethane coated fabrics and a variety of flame, adhesive and ultrasonically
bonded items for apparel, accessories, health care, environmental and industrial
products. Gem also markets a fire resistant material, SANDEL, through its
subsidiary Sandel International, Inc. Sandel is a silica-based material coated
with high performance polymeric compounds that enables it to stop fire from
spreading, even at temperatures of up to 1800 degrees Fahrenheit.
The Company engages in research and product development activities to
create new fabrics and styles to meet the continually changing demands of its
customers. Direct expenditures in this area aggregated $3,875,000 in fiscal
1996, $3,869,000 in fiscal 1997 and $3,625,000 in fiscal 1998. Through these
efforts, the Company has developed a full line of proprietary knitted fabrics
for sale to
<PAGE>
manufacturers of men's, women's and children's apparel in both domestic and
foreign markets. Similarly, the Company has also developed a full line of
proprietary sheets and blankets, including specialty blankets for the airline
industry.
While the Company uses various trademarks and trade names in the
promotion and sale of its products, it does not believe that the loss or
expiration of any such trademark or trade name would have a material adverse
effect on its operations.
The Company markets its products primarily through its full-time sales
personnel, as well as independent representatives located throughout the United
States and abroad. In cooperation with yarn producers, it employs advertisements
in various media as a marketing tool. The Company also markets its products on
its web site: www.fab-industries.com.
Historically, the Company's business reflects minor seasonal
fluctuations. Somewhat higher sales occur in the second and third fiscal
quarters, as a result of purchases by customers in anticipation of Fall and
Holiday apparel sales. First and fourth fiscal quarter sales tend to be lower as
apparel customers limit their orders to refilling smaller inventory requirements
after Fall and Holiday sales and forecasting customer reorders for Spring and
Summer fabrications.
The Company does not believe its backlog of firm orders is a material
indicator of future business trends, because goods subject to such orders are
shipped within two to ten weeks, depending on the availability of yarn and other
raw materials. On average, orders are filled within six weeks.
During fiscal 1998, no single customer or group of affiliated customers
accounted for more than 10% of the year's net sales or the year-end accounts
receivable balance. The Company's export sales are not material.
Supplies of Raw Materials
The Company has not experienced difficulties in obtaining sufficient
yarns, chemicals, dyes and other raw materials and supplies to maintain full
production. The Company does not depend upon any single source of supply, and
alternative sources are available for most of the raw materials used in its
business.
Inventories
The Company maintains adequate inventories of yarns and other raw
materials to insure an uninterrupted production flow. Greige and finished goods
are maintained as inventory to meet varying customer demand and delivery
requirements. The Company must maintain adequate working capital, because credit
terms available to customers normally exceed credit terms extended to the
Company by suppliers of raw materials.
Competition
The Company is engaged in a highly competitive business which is based
largely upon product quality, service and price and general consumer demand for
the finished goods utilizing the Company's products. There are more than 20
other manufacturers for its products. The Company believes that it is one of the
major manufacturers of warp and circular knit, raschel lace and polyurethane
products in the United States. The proportion of imported textile goods sold in
the United States has increased substantially in the past few years, adversely
impacting domestically
2
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manufactured textile products and the number of domestic manufacturers of such
products. As a result of significant expenditures on production equipment, the
Company's strong financial position and increased capacity have enabled it to
capture a larger share of the now smaller domestic textile market.
Employees
The Company employs approximately 1,600 people, of whom approximately
1,500 are employed by the Company's subsidiaries. The employees are not
represented by unions. The Company considers relations with its employees to be
satisfactory.
Acquisitions
In April 1998, the Company acquired certain assets and business of SMS
Textile Mills, Inc., which manufactured, marketed and distributed a full line of
wide elastic fabrics.
In May 1998, the Company acquired substantially all of the assets of
Lida Stretch Fabrics, Inc., which was a leading domestic manufacturer of
circular knit stretch fabrics.
Item 2. Properties.
The Company conducts its manufacturing operations in owned facilities
located in Lincolnton, Maiden, Cherryville and Salisbury, North Carolina and
Allentown, Pennsylvania, and in leased facilities located in Amsterdam, New
York. All of the Company's facilities are operated mostly on a five day-a-week
basis.
The Company's knitting, dyeing-finishing and printing operations are
conducted at the Lincolnton facility. These operations include warp and raschel
knitting, various types of dyeing, framing, lace separating, sueding, shearing,
napping, calendaring and heat-transfer printing. Dyeing-finishing operations are
also conducted at the Cherryville facility. The Lincolnton and Cherryville
facilities also process and serve as warehouses for greige goods, manufactured
and shipped from the Company's Amsterdam and Maiden plants.
At the Maiden plant facility, the Company conducts a variety of
manufacturing operations, including warping for the tricot and lace machines and
single and double knitting of fabrics. The Salisbury facility is the site of the
Company's consumer and institutional products manufacturing, retail and
over-the-counter operations. The Company's Amsterdam facilities are devoted to
tricot warping and knitting and warehousing. Approximately 106,000 square feet
in one of the Company's Amsterdam plants is used for the production of a line of
polyurethane coated fabrics and a variety of flame, adhesive and ultrasonically
bonded items.
The Company's Allentown, Pennsylvania facility is devoted to wide
elastic fabric knitting.
The following table sets forth the location of each of the Company's
manufacturing facilities, its principal use, approximate floor space, and, where
leased, the lease expiration date. No facility owned by the Company is subject
to any encumbrance.
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<TABLE>
Approximate Lease
Location Principal Use Floor Space Expiration Date
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<S> <C> <C> <C>
Lincolnton, Dyeing and finishing, 630,550 sq.ft. (1)
North Carolina raschel and tricot
warp knitting, printing and
warehouse
Lincolnton, Warehouse 55,000 sq.ft. (1)
North Carolina
Maiden, Warping, circular single and 224,013 sq.ft. (1)
North Carolina double knitting and
warehouse
Salisbury, Manufacturing finished 125,000 sq.ft. (1)
North Carolina consumer and institutional
products and retail and
over-the- counter fabrics
Amsterdam, Polyurethane coating, 106,000 sq.ft. 12/31/99 (2)
New York fire fighting material
manufacturing operations
and bonding and laminating
Amsterdam, Warping, tricot knitting and 367,000 sq.ft. 12/31/06 (2)
New York warehouse
Cherryville, Dyeing and finishing, and 197,000 sq.ft. (1)
North Carolina warehouse
Allentown, Wide elastic fabric knitting 35,000 sq.ft. (1)
Pennsylvania
New York, Executive offices and 33,000 sq.ft 4/30/06
New York showroom facilities
</TABLE>
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(1) Owned by the Company.
(2) Capitalized building lease - See note 5 of Notes to Consolidated Financial
Statements.
All of the Company's facilities are constructed of brick, steel or
concrete, and the Company considers all facilities to be adequate and in good
operating condition and repair.
Item 3. Legal Proceedings.
Neither the Company nor any of its subsidiaries or properties is
subject to any material pending legal proceedings.
4
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Item 4. Submission of Matters to a Vote of Security-Holders.
Not Applicable
Executive Officers of the Company
The following table sets forth certain information concerning the
executive officers of the Company as of February 23, 1999.
<TABLE>
<CAPTION>
Name Age Positions and Offices
- ---- --- ---------------------
<S> <C> <C>
Samson Bitensky................. 79 Chairman of the Board of Directors and Chief
Executive Officer
Stanley August.................. 67 Vice Chairman
Steven Myers.................... 50 Co-President, Chief Operating Officer
David A. Miller................. 61 Vice President-Finance, Treasurer and Chief Financial
Officer
Jerry Deese..................... 47 Vice President-Controller of Plant Operations
Sam Hiatt....................... 51 Vice President-Sales
Sherman S. Lawrence............. 80 Secretary
</TABLE>
Each of the Company's executive officers serves at the pleasure of the
Board of Directors and until his or her successor is duly elected and qualifies.
Samson Bitensky was among the founders of the Company in 1966 and has
served as Chairman of the Board of Directors and Chief Executive Officer of the
Company since such time. Mr. Bitensky also served as President of the Company
from 1970 until May 1, 1997.
Stanley August has been employed by the Company since 1980 and
previously served as General Sales Manager of its Circular Knit Division and as
Vice President - Sales. Mr. August served as Vice President - Fabric Operations
from 1987 until 1992 and as Vice President from March 1992 to May 1997, and has
served as Vice Chairman since May 1, 1997.
Steven Myers, an attorney, has been employed by the Company in various
senior administrative and managerial capacities since 1979. He served as Vice
President - Sales for more than five years prior to May 1988 and as Vice
President from May 1988 to May 1997, and has served as Co-President, Chief
Operating Officer since May 1, 1997. Mr. Myers is the son-in-law of Mr.
Bitensky.
David A. Miller has been employed by the Company since 1966 and has
served as its Controller from 1973 until December 7, 1995, as Vice President
Finance and Treasurer since December 7, 1995, and as Chief Financial Officer
since May 1, 1997.
Jerry Deese has been employed by the Company in various senior
administrative and managerial capacities since 1978. Mr. Deese served as
Divisional Controller from 1994 until 1998 and has served as Vice
President-Controller of Plant Operations since May 12, 1998.
5
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Sam Hiatt has been employed by the Company since 1978 and previously
had various management responsibilities in the warp knit area. He has served as
Vice President-Sales since May 12, 1998.
Sherman S. Lawrence has served as a Director of the Company since 1966
and as Secretary since 1968. Mr. Lawrence has been a practicing attorney since
1942 and has served as co-counsel to the Company since 1966.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the American Stock Exchange,
Inc. (ticker symbol - FIT). The table below sets forth the high and low sales
prices of the Common Stock during the past two fiscal years.
Fiscal 1998 High Low
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First Quarter......................................... $33 1/2 $30
Second Quarter........................................ $33 3/8 $26 15/16
Third Quarter......................................... $29 1/2 $23 1/2
Fourth Quarter........................................ $23 3/4 $19 3/8
Fiscal 1997
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First Quarter......................................... $ 28 3/4 $26 1/8
Second Quarter........................................ $ 31 1/4 $28
Third Quarter......................................... $ 33 $30 1/4
Fourth Quarter........................................ $ 32 1/2 $29 7/16
At February 23, 1999, there were approximately 539 holders of record of
Common Stock. For fiscal 1997, quarterly dividends of $.175 per share were
declared on February 27, 1997, May 19, 1997, August 13, 1997 and November 25,
1997. For fiscal 1998, quarterly dividends of $.175 per share were declared on
February 19, 1998, May 12, 1998, August 12, 1998 and November 24, 1998. The
payment of further cash dividends will be at the discretion of the Board of
Directors and will depend upon, among other things, earnings, capital
requirements and the financial condition of the Company.
6
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Item 6. Selected Consolidated Financial Data.
<TABLE>
<CAPTION>
As at or for the fiscal year ended
----------------------------------
November 28, November 29, November 30, December 2, December 3,
1998 1997 1996 1995 1994 (2)
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net Sales $ 151,436 $ 160,935 $ 156,136 $ 182,000 $ 189,753
Income before taxes
on income 8,017 13,529 12,596 13,760 22,428
Net income 6,017 9,394 8,796 9,410 15,093
Earnings per share:
Basic 1.07 1.65 1.52 1.57 2.44
Diluted 1.06 1.63 1.51 1.56 2.40
Total assets 160,403 163,524 160,980 161,027 163,133
Long-term debt 486 556 620 678 731
Stockholders' equity 137,527 137,892 133,888 132,932 129,533
Book value per
share (1) 24.63 24.26 23.25 22.42 21.52
Cash dividends
per share .70 .70 .70 .685 .64
Weighted average
number of shares
outstanding:
Basic 5,627,788 5,705,624 5,797,228 5,981,690 6,189,831
Diluted 5,665,194 5,752,895 5,841,138 6,037,374 6,280,795
</TABLE>
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(1) Computed by dividing stockholders' equity by the number of shares
outstanding at year-end.
(2) Fifty-three weeks.
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
Fiscal 1998 Compared to Fiscal 1997
Net sales for fiscal 1998 were $151,436,000 as compared to $160,935,000
in fiscal 1997, a decrease of 5.9%. The Asian financial crisis, which began a
year ago, is taking a sustained toll on the U.S. manufacturing sector and,
because of steep currency devaluations, U.S. firms are forced to compete against
a flood of cheap imports and falling demand for U.S. goods overseas. These
factors have continued to exert downward pressure on the Company's sales level.
Gross margins as a percentage of sales declined from 14.6% to 12.1%.
Lower sales volume reduced operating schedules at manufacturing plants. In
addition, the Company incurred start-up costs in connection with its recent
acquisitions of Lida Stretch Fabrics, a manufacturer of circular knit stretch
fabrics, and SMS Textiles, a manufacturer of wide elastic fabrics. In fiscal
1998, a reduction in LIFO inventory reserves arising principally from lower
average FIFO cost levels benefited margins in the amount of $1,703,000 compared
to $863,000 in fiscal 1997.
Selling, shipping and administrative expenses remained relatively
constant but as a percentage of sales increased from 9.3% to 9.8% primarily
because of lower sales volume. An increase in selling expenses of approximately
$2.0 million, attributable primarily to the acquisitions of Lida Stretch
Fabrics, SMS Textiles and JBJ Fabrics (acquired in October 1997), was offset by
lower incentive-based compensation and other related expenses.
Interest and dividend income decreased by $301,000 as a result of lower
average available balances.
The effective income tax rate for the year was 24.9% as compared to
30.6% in fiscal 1997. The decline was primarily attributable to a
proportionately higher percentage of tax exempt interest as a percentage of
pre-tax income in fiscal 1998.
As a result of these factors, net income declined to $6,017,000 from
$9,394,000 and as a percentage of sales decreased to 4.0% from 5.8%.
In fiscal 1998, the Company adopted SFAS No. 128, "Earnings per Share."
Under SFAS No. 128, the Company is presenting both basic earnings per share and
diluted earnings per share and has restated the 1997 and 1996 fiscal year
amounts to conform to the provisions of SFAS No. 128.
For fiscal 1998, basic earnings per share were $1.07 compared to $1.65
last fiscal year and diluted earnings per share were $1.06 compared to $1.63
last year.
Fiscal 1997 Compared to Fiscal 1996
Net sales for the 1997 fiscal year were $160,935,000 as compared to
$156,136,000 in fiscal 1996, an increase of $4,799,000 or 3.1%. Certain of the
Company's products enjoyed stronger customer demand during the year and
divisional product mix was more favorable.
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Gross profit margins for the year remained fairly constant as a
percentage of sales. The improved product mix and the Company's cost control
programs more than offset lower plant utilization rates. Due to lower average
FIFO cost levels, LIFO inventory reserves decreased by $863,000 in fiscal 1997
and $742,000 in fiscal 1996.
Selling, shipping and administrative expenses increased by $771,000, or
5.4%, and as a percentage of sales remained relatively constant. Selling,
shipping and administrative costs increased principally as a result of increased
selling expenses attributable to the Company's sales growth.
Interest and dividend income increased by $170,000, or 4.6%. The
Company realized gains from the sale of investment securities of $1,139,000
compared to $540,000 in fiscal 1996.
The effective income tax rate for the year was relatively unchanged
from fiscal 1996.
As a result of these factors, net income increased to $9,394,000 from
$8,796,000 and as a percentage of sales increased to 5.8% from 5.6%.
Earnings per share, which are based upon the weighted average number of
shares outstanding (5,705,624 vs. 5,797,228), were $1.65 as compared to $1.52 in
fiscal 1996. There was no stock option related dilution in either year.
Liquidity and Capital Resources
Net cash provided by operating activities in fiscal 1998 amounted to
$4,573,000, as compared to $11,388,000 in fiscal 1997. Of this decrease,
$4,620,000 relates to comparative changes in inventories, $2,440,000 to accounts
payable, accruals and other liabilities, and $3,377,000 to lower net income.
These decreases were offset by changes of $1,227,000 in deferred income taxes,
$968,000 in accounts receivable, $948,000 in other current assets and other
assets and $491,000 in depreciation and amortization.
In fiscal 1998, net proceeds from sales of investment securities were
approximately $18.8 million, as compared to net acquisition of investment
securities of approximately $4.0 million in fiscal 1997.
The Company's investment securities, all classified as
available-for-sale, had a fair market value of $48,233,000 and $66,068,000 at
fiscal year-end 1998 and 1997, respectively. See Note 2 to the consolidated
financial statements for further details about the Company's investment
portfolio.
In addition, approximately $15.6 million was invested in the purchase
of property, plant and equipment, including capital expenditures in connection
with the Lida Stretch Fabrics and SMS Textiles acquisitions.
During fiscal 1998, the Company repurchased 114,699 shares of its
common stock at a cost of $3,524,000 (an average price of $30.72). Subsequent to
the end of fiscal 1998, the Company repurchased an additional 172,125 shares at
an average price of $18.57. The Company intends to continue to purchase its
shares of common stock from time-to-time, as market conditions warrant and price
criteria are met.
During fiscal 1998, the Company declared regular quarterly dividends
totaling $0.70 per share.
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Stockholders' equity was $137,527,000 or $24.63 book value per share,
as compared to $137,892,000, or $24.26 book value per share, at the previous
fiscal year-end.
Management believes that the current financial position of the Company
is more than adequate to internally fund any future expenditures to maintain,
modernize and expand its manufacturing facilities, pay dividends and make
acquisitions of textile related businesses if criteria relating to indebtedness,
market expansion and existing management are met.
Inflation
The Company does not believe the effects of inflation have had a
significant impact on the consolidated financial statements.
Compliance with Year 2000
The Company has devoted significant resources and has taken steps in an
attempt to make the transition to the year 2000 successful and without incident.
Management has initiated a Company wide program to prepare the Company's
computer systems, hardware, devices and other equipment for year 2000
compliance.
An inventory of hardware and software is being completed, including the
Company's centralized information system department, distributed technologies,
and process control and non-technical components such as checks and forms. A
primary plan for remediation of the Company's legacy systems is in place, and
system and program changes are being implemented and tested as they become
ready. The Company has established a corporate task force to monitor the
progress toward the resolution of identified year 2000 issues. All known system
corrections are expected to be completed by June 30, 1999.
The Company expects to incur internal staff costs as well as other
expenses necessary to prepare its systems for the year 2000, including costs for
outside consultants. The Company expects to resolve year 2000 compliance issues
primarily through normal upgrades of its software or, when necessary, through
replacement of existing software with year 2000 compliant applications. As of
February 15, 1999, the Company has incurred approximately $75,000 of external
costs to address the Company's year 2000 issues. The total cost of this effort
is still being evaluated, but is not expected to be material to the Company's
results of operations or financial condition. However, there can be no assurance
that such corrections can be completed on schedule or within estimated costs or
can successfully address the year 2000 compliance issues.
The Company has provided information regarding the status of its year
2000 compliance to customers who requested. The Company is in the process of
asking its major customers and suppliers to certify that they are year 2000
compliant or, if they are not yet so compliant, to provide the Company with a
description of their plans to become so. If the Company's present efforts to
address the year 2000 compliance issues are not successful, or if customers,
suppliers and other third parties with which the Company conducts business do
not successfully address such issues, the Company's business, results of
operations and financial condition could be materially and adversely affected.
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
10
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uncertainties. In particular, any statement contained herein, in press releases,
written statements or other documents filed with the Securities and Exchange
Commission, or in the Company's communications and discussions with investors
and analysts in the normal course of business through meetings, phone calls and
conference calls, regarding the consummation and benefits of future
acquisitions, as well as expectations with respect to future sales, operating
efficiencies and product expansion, are subject to known and unknown risks,
uncertainties and contingencies, many of which are beyond the control of the
Company, which may cause actual results, performance or achievements to differ
materially from anticipated results, performances or achievements. Factors that
might affect such forward looking statements include, among other things,
overall economic and business conditions; the demand for the Company's goods and
services; competitive factors in the industries in which the Company competes;
changes in government regulation; changes in tax requirements (including tax
rate changes, new tax laws and revised tax law interpretations); interest rate
fluctuations and other capital market conditions, including foreign currency
rate fluctuations; economic and political conditions in international markets,
including governmental changes and restrictions on the ability to transfer
capital across borders; the ability to achieve anticipated synergies and other
cost savings in connection with acquisitions; the timing, impact and other
uncertainties of future acquisitions; and the Company's ability and its
customers' and suppliers' ability to replace, modify or upgrade computer
programs in order to adequately address the Year 2000 issue.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See Note 2 on page F-14.
Item 8. Financial Statements and Supplementary Data.
See pages F-1 and S-1.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not Applicable.
11
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PART III
Item 10. Directors and Executive Officers of the Company.
See Part I, Item 4. "Executive Officers of the Company." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than March 29, 1999
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended ("Regulation 14A").
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than March 29,
1999 pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than March 29,
1999 pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than March 29,
1999 pursuant to Regulation 14A.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements: See the Index to Consolidated Financial
Statements at page F-2.
(2) Financial Statement Schedules: See the Index to Financial Statements
Schedules at page S-2.
(3) Exhibits.
Exhibit Description of Exhibit
------- ----------------------
3.1 - Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 27,
1993 (the "1993 10-K").
3.2 - Amended and Restated By-laws, incorporated by reference
to Exhibit 3.2 to the 1993 10-K.
3.3 - Certificate of Amendment of Restated Certificate of
Incorporation, incorporated by reference to Exhibit 3.3
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 3, 1994 (the "1994 10-K").
3.4 - Amendments to the Amended and Restated By-laws,
incorporated by reference to Exhibit 3.4 of the
Company's Annual Report on Form 10-K for the fiscal
year ended November 29, 1997.
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.
13
<PAGE>
10.1 - 1987 Stock Option Plan of the Company, incorporated by
reference to Exhibit 10.1 to the 1993 10-K.
10.2 - Employment Agreement dated as of March 1, 1993, between
the Company and Samson Bitensky, incorporated by
reference to Exhibit 10.2 to the 1993 10 -K.
10.3 - Fab Industries, Inc. Hourly Employees Retirement Plan
(the "Retirement Plan"), incorporated by reference to
Exhibit 10.3 to the 1993 10-K.
10.4 - Amendment to the Retirement Plan effective December 11,
1978, incorporated by reference to Exhibit 10.4 to the
1993 10-K.
10.5 - Amendment to the Retirement Plan effective December 1,
1981, incorporated by reference to Exhibit 10.5 to the
1993 10-K.
10.6 - Amendment to the Retirement Plan dated November 21,
1983, incorporated by reference to Exhibit 10.6 to the
1993 10-K.
10.7 - Amendment to the Retirement Plan dated August 29, 1986,
incorporated by reference to Exhibit 10.7 to the 1993
10-K.
10.8 - Amendment to the Retirement Plan effective as of
December 1, 1989, incorporated by reference to Exhibit
10.8 to the 1993 10-K.
10.9 - Amendment to the Retirement Plan dated September 21,
1995, incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 2, 1995 (the "1995 10-K").
10.10 - Fab Lace, Inc. Employees Profit Sharing Plan (the
"Profit Sharing Plan"), incorporated by reference to
Exhibit 10.9 to the 1993 10-K.
10.11 - Amendment to the Profit Sharing Plan effective December
1, 1978, incorporated by reference to Exhibit 10.10 to
the 1993 10-K.
10.12 - Amendment dated December 1, 1985 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.11 to the
1993 10-K.
10.13 - Amendment dated February 5, 1987 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.12 to the
1993 10-K.
14
<PAGE>
10.14 - Amendment dated December 24, 1987 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.13 to the
1993 10-K.
10.15 - Amendment dated June 30, 1989 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.14 to the
1993 10-K.
10.16 - Amendment dated February 1, 1991 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.15 to the
1993 10-K.
10.17 - Amendment dated September 1, 1995 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.17 to the
1995 10-K.
10.18 - Lease dated as of December 8, 1988 between Glockhurst
Corporation, N.V. and the Company, incorporated by
reference to Exhibit 10.16 to the 1993 10-K.
10.19 - Lease Modification Agreement dated April 2, 1991
between Glockhurst Corporation, N.V. and the Company,
incorporated by reference to Exhibit 10.17 to the 1993
10-K.
10.20 - Second Lease Modification Agreement dated May 23, 1996
between 200 Madison Associates, L.P., and the Company,
incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1996.
10.21 - Lease dated as of March 1, 1979 between City of
Amsterdam Industrial Development Agency and Gem
Urethane Corp., incorporated by reference to Exhibit
10.18 to the 1993 10-K.
10.22 - Lease dated as of January 1, 1977 between City of
Amsterdam Industrial Development Agency and Lamatronics
Industries, Inc., incorporated by reference to Exhibit
10.19 to the 1993 10-K.
10.23 - Form of indemnification agreement between the Company
and its officers and directors, incorporated by
reference to Exhibit 10.20 to the 1993 10-K.
10.24 - Company's Employee Stock Ownership Plan effective as of
Nov. 25, 1991, incorporated by reference to Exhibit
10.24 to the 1993 10-K.
15
<PAGE>
10.25 - Amendment dated September 21, 1995 to the Employee
Stock Ownership Plan, incorporated by reference to
Exhibit 10.27 to the 1995 10-K.
10.26 - Company's Non-Qualified Executive Retirement Plan dated
as of November 30, 1990, incorporated by reference to
Exhibit 10.25 to the 1993 10-K.
21 - Subsidiaries of the Company incorporated by reference
to Exhibit 21 to the 1994 10-K.
*23 - Consent of BDO Seidman, LLP.
**27 - Financial Data Schedule pursuant to Article 5 of
Regulation S-X.
- ----------
* Filed herewith.
** Filed with EDGAR version only.
(b) Reports on Form 8-K: None
16
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 8
FISCAL YEARS ENDED NOVEMBER 28, 1998, NOVEMBER 29, 1997
AND NOVEMBER 30, 1996
F-1
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
Report of independent certified public accountants F-3
Consolidated financial statements:
Balance sheets F-4
Statements of income F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
Summary of accounting policies F-8 - F-12
Notes to consolidated financial statements F-13 - F-31
F-2
<PAGE>
Report Of Independent Certified Public Accountants
The Board of Directors and Stockholders
Fab Industries, Inc.
New York, New York
We have audited the consolidated balance sheets of Fab Industries, Inc. and
subsidiaries as of November 28, 1998 and November 29, 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three fiscal years in the period ended November 28, 1998. We have also
audited the schedule listed in the index on page S-2. These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fab Industries, Inc.
and subsidiaries as of November 28, 1998 and November 29, 1997, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended November 28, 1998 in conformity with generally accepted
accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO SEIDMAN, LLP
New York, New York
February 16, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
Fab Industries, Inc.
and Subsidiaries
Consolidated Balance Sheets
November 28, 1998 November 29, 1997
========================================================================================================================
<S> <C> <C>
Assets
Current:
Cash and cash equivalents (Note 1) $ 6,078,000 $ 4,574,000
Investment securities available-for-sale (Note 2) 48,233,000 66,068,000
Accounts receivable, net of allowance of $1,000,000 and $900,000
for doubtful accounts (Note 13) 27,979,000 28,872,000
Inventories (Note 3) 32,213,000 28,270,000
Other current assets 1,727,000 2,051,000
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 116,230,000 129,835,000
Property, plant and equipment - net (Note 4) 40,021,000 30,009,000
Other assets (Note 8) 4,152,000 3,680,000
- ------------------------------------------------------------------------------------------------------------------------
$ 160,403,000 $ 163,524,000
========================================================================================================================
Liabilities and Stockholders' Equity
Current:
Accounts payable $ 9,110,000 $ 8,862,000
Corporate income and other taxes 768,000 2,568,000
Accrued payroll and related expenses 1,980,000 3,649,000
Dividends payable 977,000 994,000
Other current liabilities 495,000 966,000
Deferred income taxes (Note 9) 1,538,000 778,000
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 14,868,000 17,817,000
Obligations under capital leases, net of current maturities (Note 5) 486,000 556,000
Other noncurrent liabilities (Note 8) 2,817,000 2,779,000
Deferred income taxes (Note 9) 4,705,000 4,480,000
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 22,876,000 25,632,000
- ------------------------------------------------------------------------------------------------------------------------
Commitments (Notes 8 and 10)
Stockholders' equity (Notes 2, 6, 7, 8 and 10):
Preferred stock, $1 par value - shares authorized 2,000,000;
none issued -- --
Common stock, $.20 par value - shares authorized 15,000,000;
issued 6,588,444 and 6,572,994 1,318,000 1,315,000
Additional paid-in capital 6,903,000 6,562,000
Retained earnings 164,714,000 162,629,000
Loan to employee stock ownership plan (6,327,000) (7,117,000)
Net unrealized holding gain on investment securities
available-for-sale, net of taxes 550,000 636,000
Unearned restricted stock compensation (1,000) (27,000)
Cost of common stock held in treasury - 1,005,081 and
890,382 shares (29,630,000) (26,106,000)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 137,527,000 137,892,000
- ------------------------------------------------------------------------------------------------------------------------
$ 160,403,000 $ 163,524,000
========================================================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fab Industries, Inc.
and Subsidiaries
Consolidated Statements of Income
============================================================================================================
Fiscal year ended
- ------------------------------------------------------------------------------------------------------------
November 28, November 29, November 30,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (Note 13) $ 151,436,000 $ 160,935,000 $ 156,136,000
Cost of goods sold 133,147,000 137,389,000 133,466,000
- ------------------------------------------------------------------------------------------------------------
Gross profit 18,289,000 23,546,000 22,670,000
Selling, shipping and administrative expenses 14,872,000 14,921,000 14,150,000
- ------------------------------------------------------------------------------------------------------------
Operating income 3,417,000 8,625,000 8,520,000
- ------------------------------------------------------------------------------------------------------------
Other income (expenses):
Interest and dividend income (Note 12) 3,529,000 3,830,000 3,660,000
Interest expense (75,000) (65,000) (124,000)
Net gain on investment securities (Note 2) 1,146,000 1,139,000 540,000
- ------------------------------------------------------------------------------------------------------------
Total other income 4,600,000 4,904,000 4,076,000
- ------------------------------------------------------------------------------------------------------------
Income before taxes on income 8,017,000 13,529,000 12,596,000
Taxes on income (Note 9) 2,000,000 4,135,000 3,800,000
- ------------------------------------------------------------------------------------------------------------
Net income $ 6,017,000 $ 9,394,000 $ 8,796,000
============================================================================================================
Earnings per share (Note 14):
Basic $ 1.07 $ 1.65 $ 1.52
Diluted $ 1.06 $ 1.63 $ 1.51
============================================================================================================
Cash dividends declared per share $ .70 $ .70 $ .70
============================================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fab Industries, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
=============================================================================================================
Fiscal years ended November 28, 1998, November 29, 1997 and November 30, 1996
- -------------------------------------------------------------------------------------------------------------
Common stock
------------------------
Number Additional Retained
Total of shares Amount paid-in capital earnings
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 2, 1995 $ 132,932,000 6,549,894 $ 1,309,000 $ 6,150,000 $ 152,473,000
Net income - fiscal 1996 8,796,000 -- -- -- 8,796,000
Cash dividends (4,046,000) -- -- -- (4,046,000)
Exercise of stock options 228,000 14,300 4,000 224,000 --
Purchase of treasury stock (5,401,000) -- -- -- --
Compensation under
restricted stock plan
(Note 6) 206,000 -- -- 36,000 --
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes 383,000 -- -- -- --
Payment of loan from ESOP
(Note 8) 790,000 -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Balance, November 30, 1996 133,888,000 6,564,194 1,313,000 6,410,000 157,223,000
Net income - fiscal 1997 9,394,000 -- -- -- 9,394,000
Cash dividends (3,988,000) -- -- -- (3,988,000)
Exercise of stock options 154,000 8,800 2,000 152,000 --
Purchase of treasury stock (2,406,000) -- -- -- --
Compensation under
restricted stock plan
(Note 6) 31,000 -- -- -- --
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes 29,000 -- -- -- --
Payment of loan from ESOP
(Note 8) 790,000 -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Balance, November 29, 1997 137,892,000 6,572,994 1,315,000 6,562,000 162,629,000
Net income - fiscal 1998 6,017,000 -- -- -- 6,017,000
Cash dividends (3,932,000) -- -- -- (3,932,000)
Exercise of stock options 344,000 15,450 3,000 341,000 --
Purchase of treasury stock (3,524,000) -- -- -- --
Compensation under
restricted stock plan
(Note 6) 26,000 -- -- -- --
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes (86,000) -- -- -- --
Payment of loan from ESOP
(Note 8) 790,000 -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Balance, November 28, 1998 $ 137,527,000 6,588,444 $ 1,318,000 $ 6,903,000 $ 164,714,000
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Fab Industries, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
========================================================================================================================
Fiscal years ended November 28, 1998, November 29, 1997 and November 30, 1996
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
Loan to Treasury stock
employee Net unrealized Unearned --------------------
stock holding gain restricted stock Number
ownership plan (loss) compensation of shares Cost
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 2, 1995 $ (8,697,000) $ 224,000 $ (228,000) (619,635) $ (18,299,000)
Net income - fiscal 1996 -- -- -- -- --
Cash dividends -- -- -- -- --
Exercise of stock options -- -- -- -- --
Purchase of treasury stock -- -- -- (186,804) (5,401,000)
Compensation under
restricted stock plan
(Note 6) -- -- 170,000 -- --
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes -- 383,000 -- -- --
Payment of loan from ESOP
(Note 8) 790,000 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1996 (7,907,000) 607,000 (58,000) (806,439) (23,700,000)
Net income - fiscal 1997 -- -- -- -- --
Cash dividends -- -- -- -- --
Exercise of stock options -- -- -- -- --
Purchase of treasury stock -- -- -- (83,943) (2,406,000)
Compensation under
restricted stock plan
(Note 6) -- -- 31,000 -- --
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes -- 29,000 -- -- --
Payment of loan from ESOP
(Note 8) 790,000 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Balance, November 29, 1997 (7,117,000) 636,000 (27,000) (890,382) (26,106,000)
Net income - fiscal 1998 -- -- -- -- --
Cash dividends -- -- -- -- --
Exercise of stock options -- -- -- -- --
Purchase of treasury stock -- -- -- (114,699) (3,524,000)
Compensation under
restricted stock plan
(Note 6) -- -- 26,000 -- --
Change in net unrealized
holding gain on
investment securities
available-for- sale, net
of taxes -- (86,000) -- -- --
Payment of loan from ESOP
(Note 8) 790,000 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Balance, November 28, 1998 $ (6,327,000) $ 550,000 $ (1,000) (1,005,081) $ (29,630,000)
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Fab Industries, Inc.
And Subsididaries
Consolidated Statements of Cash Flows
(Note 11)
=======================================================================================================================
Fiscal year ended
- -----------------------------------------------------------------------------------------------------------------------
November 28, November 29, November 30,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,017,000 $ 9,394,000 $ 8,796,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 400,000 400,000 400,000
Depreciation and amortization 5,555,000 5,064,000 5,477,000
Deferred income taxes 1,042,000 (185,000) 61,000
Compensation under restricted stock plan 26,000 31,000 206,000
Net gain on investment securities (1,146,000) (1,139,000) (540,000)
Decrease (increase) in:
Accounts receivable 493,000 (475,000) 6,020,000
Inventories (3,943,000) 677,000 (1,680,000)
Other current assets 324,000 (107,000) 26,000
Other assets (472,000) (989,000) (254,000)
Increase (decrease) in:
Accounts payable 248,000 (3,214,000) (585,000)
Accruals and other liabilities (3,971,000) 1,931,000 (704,000)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,573,000 11,388,000 17,223,000
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (15,567,000) (4,870,000) (4,101,000)
Proceeds from sales of investment securities 18,838,000 3,185,000 9,660,000
Acquisition of investment securities -- (7,183,000) (14,687,000)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 3,271,000 (8,868,000) (9,128,000)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock (3,524,000) (2,406,000) (5,401,000)
Principal repayment on loan to employee stock
ownership plan 790,000 790,000 790,000
Dividends (3,950,000) (4,002,000) (4,077,000)
Exercise of stock options 344,000 154,000 228,000
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (6,340,000) (5,464,000) (8,460,000)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,504,000 (2,944,000) (365,000)
Cash and cash equivalents, beginning of year 4,574,000 7,518,000 7,883,000
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 6,078,000 $ 4,574,000 $ 7,518,000
========================================================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-7
</TABLE>
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Business Fab Industries, Inc. (the "Company") is a major
manufacturer of knitted textile fabrics, laces and
finished home products, as well as polyurethane
coated fabrics. Sales of textile products
comprised substantially all of the Company's sales
in fiscal 1998, 1997 and 1996, and such sales were
primarily made to United States customers.
Accordingly, the Company considers itself to be
operating in a single segment business.
Principles The financial statements include the accounts of
of Consolidation the Company and its subsidiaries, all of which are
wholly owned. Significant intercompany
transactions and balances have been eliminated.
Fiscal Year The Company's fiscal year ends on the Saturday
closest to November 30. Fiscal 1998, 1997 and 1996
had fifty-two weeks.
Risks And Uncertainties The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported amounts
of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Financial instruments which potentially subject
the Company to concentrations of credit risk
consist principally of cash and cash equivalents,
investment securities, and trade receivables. The
Company places its cash and cash equivalents with
high credit quality financial institutions. By
policy, the Company limits the amount of credit
exposure to any one financial institution and
receives confirmation indicating that, with
respect to investment securities, each custodian
(with the exception of one custodian holding
equity securities with a market value of
approximately $6.9 million at November 28, 1998)
maintains appropriate insurance coverage to
protect the Company's investment portfolio.
Concentrations of credit risk with respect to
trade receivables are limited due to the diverse
group of manufacturers,
F-8
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
wholesalers and retailers to whom the Company
sells (see Note 13). The Company reviews a
customer's credit history before extending credit.
The Company has established an allowance for
doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical
trends and other information.
Cash Equivalents For purposes of the statement of cash flows, the
Company considers all highly liquid debt
instruments with original maturities of three
months or less to be cash equivalents.
Investments The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). SFAS No. 115
addresses accounting and reporting for investments
in equity securities that have readily
determinable fair values and for all investments
in debt securities. Investments in such securities
are to be classified as either held-to-maturity,
trading, or available-for-sale. The Company
classifies all of its investments as
available-for-sale. The investments are recorded
at their fair value and the unrealized gain or
loss, net of income taxes, is recorded in
stockholders' equity.
Gains and losses on sales of investment securities
are computed using the specific identification
method.
Inventories Inventories are valued at the lower of cost or
market. For a portion of the inventories, cost is
determined by the last-in, first-out (LIFO) method
with the balance being determined by the first-in,
first-out (FIFO) method.
F-9
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Property, Plant and Property, plant and equipment are stated at cost.
Equipment Depreciation is computed using principally the
straight-line method. The range of estimated
useful lives is 15 to 33 years for buildings and
building improvements, 4 to 10 years for machinery
and equipment, 10 years for leasehold improvements
and 5 years for trucks and automobiles.
Long-Lived Assets The Company reviews the carrying values of its
long-lived and identifiable intangible assets for
possible impairment whenever events or changes in
circumstances indicate that the carrying amount of
the assets may not be recoverable. Any long-lived
assets held for disposal are reported at the lower
of their carrying amounts or fair value less cost
to sell.
Research and Research and development costs are charged to
Development Costs expenses in the year incurred and amounted to
$3,625,000, $3,869,000 and $3,875,000 in fiscal
1998, 1997 and 1996, respectively.
Stock-Based In fiscal 1997, the Company became subject to SFAS
Compensation No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), which allows either the
intrinsic or fair value method. SFAS No. 123
encourages, but does not require, entities to
adopt the fair value method in place of the
intrinsic value method as provided for in
Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB
No. 25"), for all arrangements under which
employees receive shares of stock or other equity
instruments of the employer or the employer incurs
liabilities to employees in amounts based on the
price of its stock. When the Company adopted SFAS
No. 123, it elected to retain the intrinsic value
method. The required fair value disclosures are
included in the notes to the consolidated
financial statements.
F-10
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Taxes on Income The Company follows the liability method of
accounting for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes" ("SFAS
109").
Provision is made for deferred income taxes which
result from various temporary differences,
principally relating to the use of accelerated
depreciation for tax purposes.
Earnings Per Share Effective in fiscal 1998, earnings per share is
calculated in accordance with SFAS No. 128,
"Earnings Per Share" ("SFAS 128"), which requires
companies to present basic and diluted earnings
per share. Basic earnings per share is based on
the weighted average number of common shares
outstanding during the fiscal year. Diluted
earnings per share is based on the weighted
average number of common shares and dilutive
potential common shares outstanding during the
fiscal year. The Company's dilutive potential
common shares outstanding during fiscal 1998, 1997
and 1996 resulted entirely from dilutive stock
options. The Company has restated earnings per
share for fiscal 1997 and 1996 to conform to the
provisions of SFAS 128.
Revenue Recognition The Company recognizes substantially all of its
revenues upon shipment of the related goods.
Allowances for estimated returns are provided when
sales are recorded.
Pending Accounting In June 1997, the FASB issued SFAS No. 130,
Pronouncements "Reporting Comprehensive Income." This Statement
establishes standards for reporting and displaying
comprehensive income and its components in the
financial statements. It does not, however,
require a specific format for the Statement, but
requires the Company to display an amount
representing total comprehensive income for the
period in that financial statement. The Company is
in the process of determining its preferred
format. This Statement is effective for fiscal
years beginning after December 15, 1997.
F-11
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Also in June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and
Related Information." The Statement establishes
standards for the manner in which public business
enterprises report information about operating
segments in annual financial statements and
requires those enterprises to report selected
information about operating segments in interim
financial reports issued to stockholders. This
Statement is effective for financial statements
for periods beginning after December 15, 1997, and
the Company is currently evaluating the impact of
the Statement on its financial reporting.
In February 1998, the Financial Accounting
Standards Board issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other
Postretirement Benefits", which standardizes the
disclosure requirements for pensions and other
postretirement benefits. The adoption of SFAS No.
132 in fiscal 1999 is not expected to materially
impact the Company'
In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities".
SFAS No. 133 requires companies to recognize all
derivative contracts at their fair values, as
either assets or liabilities on the balance sheet.
If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective
of which is to match the timing of gain or loss
recognition on the hedging derivative with the
recognition of (1) the changes in the fair value
of the hedged asset or liability that are
attributable to the hedged risk, or (2) the
earnings effect of the hedged forecasted
transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized
in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. While management is
still reviewing the statement, it believes the
adoption of this statement will not have a
material effect on the Company's consolidated
financial position, results of operations or cash
flows and any effect will generally be limited to
the form and content of its disclosures.
F-12
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1. Cash and Cash Cash and cash equivalents at November 28, 1998 and
Equivalents November 29, 1997 consisted of the following (in
thousands):
1998 1997
------------------------------------------------------------
Cash $1,458 $1,360
Tax-free short-term debt
instruments 4,620 3,214
------------------------------------------------------------
$6,078 $4,574
============================================================
2. Investment Investment securities available-for-sale at
Securities November 28, 1998 and November 29, 1997 consisted
of the following (in thousands):
Gross Gross
unrealized unrealized
Cost holding holding Fair
gain loss value
- --------------------------------------------------------------------------------
1998:
Equities $ 9,885 $ 331 $ (55) $ 10,161
U.S. Treasury
obligations 14 -- -- 14
Tax-exempt
obligations 32,719 686 (13) 33,392
Corporate bonds 4,698 139 (171) 4,666
- --------------------------------------------------------------------------------
$ 47,316 $ 1,156 $ (239) $ 48,233
================================================================================
1997:
Equities $ 8,568 $ 389 $ (44) $ 8,912
U.S. Treasury
obligations 24 -- -- 24
Tax-exempt
obligations 51,118 526 (26) 51,618
Corporate bonds 5,298 216 -- 5,514
- --------------------------------------------------------------------------------
$ 65,008 $ 1,131 $ (70) $ 66,068
================================================================================
F-13
<PAGE>
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 28, 1998 and November 29, 1997, by
contractual maturity are as shown below:
November 28, 1998 November 29, 1997
----------------- -----------------
Cost Fair value Cost Fair value
-----------------------------------------------------------
Maturing in one
year or less $ 1,927 $ 1,931 $ 8,377 $ 8,416
Maturing after one
year through
five years 28,126 28,745 39,704 40,269
Maturing after
five years
through ten years 7,378 7,396 8,359 8,471
-----------------------------------------------------------
$37,431 $38,072 $56,440 $57,156
===========================================================
Gross and net realized gains and losses on sales
of investment securities were:
1998 1997 1996
---------------------------------------------------------
Gross realized gains $ 3,826 $ 2,371 $ 1,518
Gross realized losses (2,680) (1,232) (978)
---------------------------------------------------------
Net realized gain $ 1,146 $ 1,139 $ 540
=========================================================
Approximately $6.9 million of the Company's equity
investment securities at November 28, 1998
consists 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 28,
1998, the notional amounts of the put and call
options were $6.8 million and $6.9 million,
respectively.
F-14
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
3. Inventories Inventories at November 28, 1998 and November 29,
1997 consisted of the following (in thousands,
except for percentages):
1998 1997
----------------------------------------------------
Raw materials $ 9,090 $ 9,132
Work-in-process 14,177 9,781
Finished goods 8,946 9,357
----------------------------------------------------
$32,213 $28,270
====================================================
Approximate percentage of
inventories valued under LIFO
method 50% 65%
====================================================
Excess of FIFO valuation over
LIFO valuation $ 4,595 $ 6,298
====================================================
The reduction in the LIFO reserve during fiscal
1998 was primarily attributable to a decline in
the average cost of yarn purchased during the
year.
4. Property, Plant and Property, plant and equipment at November 28, 1998
Equipment and November 29, 1997 consisted of the following
(in thousands):
F-15
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1998 1997
-----------------------------------------------------------
Owned by the Company:
Land and improvements $ 698 $ 698
Buildings and improvements 13,877 13,041
Machinery and equipment 109,252 94,885
Trucks and automobiles 1,662 1,631
Office equipment 681 681
Leasehold improvements 808 808
-----------------------------------------------------------
126,978 111,744
Property under capital leases:
Land 18 18
Buildings and improvements 1,432 1,432
-----------------------------------------------------------
128,428 113,194
Less: Accumulated depreciation and
amortization 88,407 83,185
-----------------------------------------------------------
$ 40,021 $ 30,009
===========================================================
5. Obligations Under Obligations under capital leases at November 28,
Capital Leases 1998 and November 29, 1997 consisted of the
following (in thousands):
1998 1997
-------------------------------------------------------
Obligations under capital leases
through 2006 payable in monthly
installments of $11 including
interest at 10% per annum $514 $584
Less: Current maturities (included
with other current
liabilities) 28 28
-------------------------------------------------------
$486 $556
=======================================================
Aggregate installments on obligations under
capital leases maturing after one year are as
follows:
F-16
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Fiscal year ending (in thousands)
2000 $ 79
2001 85
2002 91
2003 97
Thereafter 134
--------------------------------------------------
$ 486
==================================================
6. Stock Stock Option Plan
Compensation
Plans Under the Company's 1987 stock option plan, which
terminated in May 1997, the Company was able to
grant to key employees either nonqualified or
incentive stock options to purchase up to a
maximum of 650,000 shares of common stock at the
fair market value at the date of the grant.
In May 1997, the Board of Directors adopted and
the shareholders approved a new stock option plan
providing for the grant of up to 175,000 shares of
common stock at any time over the next ten years.
In general, the terms of the 1997 plan are similar
to the Company's previous stock option plans.
The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the
Company's stock option plans. If the Company had
elected to recognize compensation costs based on
the fair value of the options granted at grant
date as prescribed by SFAS No. 123, net income and
earnings per share would have been reduced to the
pro forma amounts indicated below:
(Dollars in thousands, except per
share data) 1998 1997 1996
---------------------------------------------------------------
Pro forma net income $ 5,794 $ 9,233 $ 8,665
Pro forma earnings per share -
diluted $ 1.02 $ 1.60 $ 1.48
===============================================================
F-17
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The weighted average fair value of options granted
was $7.04, $10.29, $8.30 per share in fiscal 1998,
1997 and 1996, 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 1998, 1997 and 1996 grants:
--------------------------------------------------
Dividends $.70 per share
Volatility 27.5%
Risk-free interest 4.37% to 6.7%
Expected term 5 to 10 years
==================================================
Data regarding the Company's stock option plan
follows:
Weighted
average
exercise price
Shares per share
-----------------------------------------------------------------------------
Shares under option, December 2, 1995 129,200 $17.45
Options granted 50,000 27.46
Options exercised (14,300) 15.96
Options canceled (10,000) 26.26
-----------------------------------------------------------------------------
Shares under option, November 30, 1996 154,900 20.25
Options granted 64,000 29.77
Options exercised (8,800) 17.50
Options canceled (3,000) 33.88
-----------------------------------------------------------------------------
Shares under option, November 29, 1997 207,100 23.11
Options granted 20,000 29.10
Options exercised (15,450) 22.32
Options canceled (39,000) (30.29)
-----------------------------------------------------------------------------
Shares under option, November 28, 1998 172,650 22.26
=============================================================================
-----------------------------------------------------------------------------
Options exercisable at:
November 30, 1996 113,700 $17.57
November 29, 1997 125,900 19.37
November 28, 1998 125,010 20.01
=============================================================================
F-18
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The following summarizes information about shares
under option in the respective exercise price
ranges at November 28, 1998:
<TABLE>
<CAPTION>
Weighted average Weighted average
Range of exercise Weighted average exercise price Number exercise price
price per share Number outstanding remaining life per share exercisable per share
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$15.44 - $19.00 84,050 2.44 $16.06 84,050 $16.06
22.06 - 31.44 88,600 9.61 28.14 40,960 28.12
- ---------------------------------------------------------------------------------------------------------------------------
172,650 125,010
===========================================================================================================================
</TABLE>
The shares authorized but not granted under the
Company's stock option plans were 165,000 at
November 28, 1998 and 175,000 at November 29,
1997. Common stock reserved for options totaled
172,650 shares at November 28, 1998 and 207,100
shares at November 29, 1997.
F-19
<PAGE>
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.
During fiscal 1991, 60,000 shares were awarded and
were recorded at their quoted market value at the
date of grant of $26 per share, or $1,560,000. The
compensation element related to such shares was
recognized ratably over the five-year restriction
period.
During fiscal 1996 and 1994, an additional 2,400
shares and 1,000 shares, respectively, were
awarded under terms similar to those described
above.
Compensation expense related to the above
restricted shares for fiscal 1998, 1997 and 1996
was $26,000, $31,000 and $170,000, respectively.
7. Stockholder The Company has a Stockholder Rights Plan (the
Rights Plan "Plan") whereby each stockholder has received a
distribution of rights for each common share held.
The rights will become exercisable and will detach
from the common shares a specified time after any
person becomes the beneficial owner of 20% or more
of the Company's common shares, or commences a
tender or exchange offer which, if consummated,
would result in any person becoming the beneficial
owner of 30% or more of the Company's common
shares. Once exercisable, each right will entitle
the holder, other than the acquiring person, to
purchase, for the rights purchase price, common
shares having a market value of twice the right's
purchase price.
F-20
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
If, following an acquisition of 20% or more of the
Company's common shares, the Company is involved
in any merger or other business combination or
sells or transfers more than 50% of its assets or
earnings power, each right will entitle the holder
to purchase, for the rights purchase price, common
shares of the other party to such transaction
having a market value of twice the right's
purchase price.
The Company may redeem the rights at a price of
$0.01 per right at any time prior to a specified
period of time after a person has become the
beneficial owner of 20% or more of the Company's
common shares. The rights attach to all of the
Company's common shares outstanding as of June 6,
1990, or subsequently issued, and expire on June
6, 2000.
8. Benefit Plans Profit Sharing Plans
A qualified plan, which covers the majority of
salaried employees, provides for discretionary
contributions up to a maximum of 15% of eligible
salaries. The distribution of the contribution to
the Plan's participants is based upon their annual
base compensation. Contributions for fiscal 1998,
1997 and 1996 were $308,000, $429,000 and
$439,000, 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 1998, 1997 and 1996 were $59,000, $94,000
and $98,000, respectively. Benefits payable under
this plan amounting to $2,501,000 and $2,047,000
at November 28, 1998 and November 29, 1997,
respectively, are included in other noncurrent
liabilities. These liabilities are fully funded by
plan assets of equal amounts, which are included
in other assets.
Pension Plan
The Company's defined benefit plan covers all
eligible hourly production employees. The benefits
are based on years of service. Contributions are
intended to provide benefits attributable to both
past and future services.
F-21
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The net periodic pension cost of the defined
benefit plan for fiscal 1998, 1997 and 1996 is as
follows (in thousands):
1998 1997 1996
-----------------------------------------------------------------------
Service cost $ 272 $ 181 $ 178
Interest cost on projected
benefit obligation 264 179 161
Actual return on plan assets 119 (1,590) (1,267)
Net amortization and deferral (687) 1,117 924
-----------------------------------------------------------------------
Net periodic pension cost $ (32) $ (113) $ (4)
=======================================================================
The following table presents a reconciliation of
the funded status of the plan for fiscal 1998 and
1997 (in thousands):
1998 1997
---------------------------------------------------------------------
Accumulated benefit obligations
including vested benefits of
$(3,970) and $(3,468) $(4,200) $(3,690)
=====================================================================
Projected benefit obligation for
service rendered to date $(4,200) $(3,690)
Plans assets at fair value, primarily
listed stocks 4,987 5,593
---------------------------------------------------------------------
Projected plan assets in excess of
benefit obligation 787 1,903
Unrecognized net gain from past
experience different from that
assumed and effects of changes in
assumptions (1,573) (2,766)
Unrecognized prior service cost 833 906
Unrecognized net asset at transition
being recognized over 11 years - (28)
---------------------------------------------------------------------
Prepaid pension costs included in other
current assets $ 47 $ 15
=====================================================================
F-22
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The average discount rate was 6-1/2% in fiscal
1998, 7% in fiscal 1997 and 7-1/2% in fiscal 1996,
and the expected rate of return on assets for both
fiscal 1998 and 1997 was 8%.
Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan
("ESOP") which covers all full-time employees who
have completed one year of service. In 1991, the
ESOP purchased 340,000 shares of common stock from
the Chairman of the Board of Directors and
President of the Company for $34.875 per share,
which represented 5.5% of the Company's then
outstanding common stock. The ESOP was funded by
the Company, pursuant to a loan pledge agreement
for $11,857,000. The loan is payable by the ESOP
to the Company from contributions to be made in
fifteen equal annual principal installments plus
interest at the prime rate. Employee rights to the
common shares vest over a seven-year period and
are payable at retirement, death, disability or
termination of employment.
Annual principal installments of $790,000 plus
interest at prime are paid by the ESOP to the
Company. The balance on the ESOP indebtedness at
November 28, 1998 of $6,327,000 is reflected as a
reduction of the Company's stockholders' equity in
the consolidated balance sheets.
The Company accounts for the ESOP shares in
accordance with the provisions of the American
Institute of Certified Public Accountants'
Statement of Position No. 76-3. ESOP contributions
are recorded for financial reporting purposes as
the ESOP shares become allocable to the plan
participants. All ESOP shares are considered
outstanding in the determination of earnings per
share.
F-23
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The portion of the common stock dividends declared
relating to ESOP shares totaled $218,000, $227,000
and $232,000 for fiscal 1998, 1997 and 1996,
respectively. Of these amounts, $102,000, $89,000
and $75,000 for fiscal 1998, 1997 and 1996,
respectively, related to allocated shares and
$116,000, $138,000 and $157,000 for fiscal 1998,
1997 and 1996, respectively, related to
unallocated shares. The dividends related to the
unallocated shares are being applied towards the
$790,000 annual principal installments referred to
above.
As of November 28, 1998 and November 29, 1997,
ESOP shares information was as follows:
1998 1997
-----------------------------------------------------------
Allocated 154,829 141,041
Committed to be released 24,488 26,716
In suspense 128,966 151,226
-----------------------------------------------------------
Total shares held by ESOP 308,283 318,983
===========================================================
The net charges to earnings for fiscal 1998, 1997
and 1996 were as follows (in thousands):
1998 1997 1996
-----------------------------------------------------------------
Contribution to ESOP $1,176 $1,242 $1,297
Less: Interest income on loan
to ESOP 605 691 738
-----------------------------------------------------------------
Net charge to earnings $ 571 $ 551 $ 559
=================================================================
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.
F-24
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
9. Income Taxes Provisions for Federal, state and local income
taxes for fiscal 1998, 1997 and 1996 consisted of
the following components (in thousands):
1998 1997 1996
-------------------------------------------------------------
Current:
Federal $ 881 $3,876 $3,415
State and local 77 444 324
-------------------------------------------------------------
958 4,320 3,739
Deferred:
Federal and state 1,042 (185) 61
-------------------------------------------------------------
$2,000 $4,135 $3,800
=============================================================
The net deferred tax liability at November 28,
1998 and November 29, 1997 consisted of the
following (in thousands):
1998 1997
-----------------------------------------------------------------------
Long-term portion:
Gross deferred tax liability (asset)
for:
Excess depreciation for tax purposes $5,989 $5,648
Future tax deductions for employee
benefit plans (1,284) (1,168)
-----------------------------------------------------------------------
Net long-term liability 4,705 4,480
-----------------------------------------------------------------------
Current portion:
Gross deferred tax liability (asset)
for:
Accounts receivable - Section 475
adjustment 855 -
Net unrealized holding gain on
investment securities
available-for-sale, included in
stockholders' equity 367 424
ESOP contribution accrued for tax
purposes 422 408
Other (106) (54)
-----------------------------------------------------------------------
Net current liability 1,538 778
-----------------------------------------------------------------------
Net deferred tax liability $6,243 $5,258
=======================================================================
F-25
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The differences between the Company's effective
tax rate and the Federal statutory tax rate for
fiscal 1998, 1997 and 1996 arose from the
following:
1998 1997 1996
-----------------------------------------------------------------------
(% of pretax income)
Federal tax expense at
statutory rate 34.0% 35.0% 35.0%
State and local income taxes,
net of Federal benefit 2.3 2.5 2.4
Tax-free interest income and
dividends received deduction (11.1) (6.5) (6.4)
Other (.3) (.4) (.8)
-----------------------------------------------------------------------
Effective tax rate 24.9% 30.6% 30.2%
=======================================================================
10. Commitments Stock Repurchase
The Company has an agreement with the Chairman of
the Board of Directors and President ("Chairman")
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 2000.
F-26
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Lease
The Company leases its New York City offices and
showrooms until 2006, at average minimum annual
rentals of $503,000 until April 2001 and $660,000
thereafter until April 2006, plus escalation and
other costs. The Company has the option to cancel
the lease effective April 2001.
Rental expense for operating leases in fiscal
1998, 1997 and 1996 aggregated $986,000, $605,000
and $643,000, 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)
--------------------------------------------------
1999 $ 530
2000 559
2001 235
--------------------------------------------------
$1,324
==================================================
11. Statement of Cash Cash outlays for corporate income taxes and
Flows interest for fiscal 1998, 1997 and 1996 were as
follows (in thousands):
Corporate income
taxes Interest
-------------------------------------------------
1998 $2,907 $ 75
1997 3,545 65
1996 3,840 124
=================================================
F-27
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Noncash Investing and Financing Activities
In fiscal 1998, 1997 and 1996, net unrealized
holding gains (losses) of $(143,000), $48,000 and
$639,000, respectively, less related income taxes
of $(57,000), $19,000 and $256,000, on investment
securities available-for-sale, were recorded as
increases (decreases) in stockholders' equity.
12. Interest and Interest and dividend income for the past three
Dividend Income fiscal years were as follows (in thousands):
Interest income Dividend income Total
--------------------------------------------------
1998 $3,184 $345 $3,529
1997 3,654 176 3,830
1996 3,505 155 3,660
==================================================
13. Major Customer During fiscal 1998, no single customer or group of
affiliated customers accounted for more than 10%
of the year's net sales or the year-end accounts
receivable balance. For fiscal 1997 and 1996,
sales to a group of customers affiliated through
common control accounted for approximately 10% and
12% of net sales, respectively. The receivables
from this group of customers represented
approximately 12% of the November 29, 1997
accounts receivable balance.
F-28
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
14. Earnings Per Basic and diluted earnings per share for the
Share fiscal years ended November 28, 1998, November 29,
1997 and November 30, 1996 are calculated as
follows:
Weighed
Average Per Share
Net Income Shares Amount
------------------------------------------------------------------------------
Fiscal year ended
November 28, 1998:
Basic earnings per share $6,017,000 5,627,788 $1.07
============
Effect of assumed
conversion of employee
stock options 37,406
------------------------------------------------------------------------------
Diluted earnings per share $6,017,000 5,665,194 $1.06
==============================================================================
Fiscal year ended
November 29, 1997:
Basic earnings per share $9,394,000 5,705,624 $1.65
============
Effect of assumed
conversion of employee
stock options 47,271
------------------------------------------------------------------------------
Diluted earnings per share $9,394,000 5,752,895 $1.63
==============================================================================
Fiscal year ended
November 30, 1996:
Basic earnings per share $8,796,000 5,797,228 $1.52
============
Effect of assumed
conversion of employee
stock options 43,910
------------------------------------------------------------------------------
Diluted earnings per share $8,796,000 5,841,138 $1.51
==============================================================================
F-29
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Options to purchase 46,000, 52,000 and 13,000
shares of common stock with prices ranging from
$28.50 to $33.88 were outstanding during fiscal
1998, 1997 and 1996, respectively, but were not
included in the computation of diluted earnings
per share because the options' exercise prices
were greater than the average market price of the
common shares during such fiscal years.
F-30
<PAGE>
Fab Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
15. Quarterly Quarterly earnings were as follows (in thousands,
Financial Data except for earnings per share):
(unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter* Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal 1998:
Net sales $ 34,251 $ 39,761 $ 39,571 $ 37,853 $ 151,436
Cost of goods sold 29,918 33,403 34,430 35,396 133,147
Net income 1,735 2,334 1,665 283 6,017
Earnings per share:
Basic $ 0.31 $ 0.41 $ 0.30 $ .05 $ 1.07
Diluted $ 0.30 $ 0.41 $ 0.30 $ .05 $ 1.06
========================================================================================================================
Fiscal 1997:
Net sales $ 35,475 $ 42,940 $ 41,775 $ 40,745 $ 160,935
Cost of goods sold 31,427 36,601 35,009 34,352 137,389
Net income 1,650 2,395 2,640 2,709 9,394
Earnings per share:
Basic $ 0.29 $ 0.42 $ 0.46 $ 0.48 $ 1.65
Diluted $ 0.28 $ 0.42 $ 0.46 $ 0.47 $ 1.63
========================================================================================================================
</TABLE>
* As a result of lower than previously anticipated operating results, the
fourth quarter of fiscal 1998 reflects a reduction of incentive-based
compensation expenses and effective income tax rates from amounts estimated
in prior quarters, the aggregate of which increased net income by
approximately $1,085.
F-31
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K ITEM 14
FISCAL YEARS ENDED NOVEMBER 28, 1998, NOVEMBER 29, 1997
AND NOVEMBER 30, 1996
S-1
<PAGE>
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
Schedule:
II. Valuation and qualifying accounts S-3
S-2
<PAGE>
Schedule II
Fab Industries, Inc.
and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
================================================================================
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
----------------------------
(1)
Balance at Charged to (2)
beginning of costs and Charged to Balance at
Description year expenses other accounts Deductions end of year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended
November 28, 1998:
Allowance for doubtful accounts $900 $400(i) $ - $(300)(ii) $1,000
Fiscal year ended
November 29, 1997:
Allowance for doubtful accounts $600 $400(i) $ - $(100)(ii) $ 900
Fiscal year ended
November 30, 1996:
Allowance for doubtful accounts $500 $400(i) $ - $(300)(ii) $ 600
==================================================================================================================
</TABLE>
(i) Current year's provision.
(ii) Accounts receivable written-off, net of recoveries.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FAB INDUSTRIES, INC.
(Company)
By: /s/ Samson Bitensky
--------------------------------------
Samson Bitensky
Chairman of the Board and Chief Executive
Officer
Date: February 26, 1999
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.
<TABLE>
<CAPTION>
Signature Date Capacity in Which Signed
- --------- ---- ------------------------
<S> <C> <C>
/s/ Samson Bitensky February 26, 1999 Chairman of the Board, Chief Executive
- ------------------------ Officer and Director (Principal Executive
Samson Bitensky Officer)
/s/ David A. Miller February 26, 1999 Vice President - Finance, Treasurer and
- ------------------------ Chief Financial Officer
David A. Miller (Principal Financial and Accounting
Officer)
/s/ Sherman S. Lawrence February 26, 1999 Secretary and Director
- ------------------------
Sherman S. Lawrence
/s/ Martin Bernstein February 26, 1999 Director
- ------------------------
Martin Bernstein
February 26, 1999 Director
- ------------------------
Lawrence Bober
/s/ Frank Greenberg February 26, 1999 Director
- ------------------------
Frank Greenberg
/s/ Susan Lerner February 26, 1999 Director
- ------------------------
Susan Lerner
/s/ Richard Marlin February 26, 1999 Director
- ------------------------
Richard Marlin
</TABLE>
17
<PAGE>
INDEX TO EXHIBITS
Page Number In
Sequentially
Exhibit Description of Exhibit Numbered Copy
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.
4.1 - Specimen of Common Stock Certificate, incorporated by
reference to Exhibit 4-A to Registration Statement No.
2-30163, filed on November 4, 1968.
4.2 - Rights Agreement dated as of June 6, 1990 between the
Company and Manufacturers Hanover Trust Company, as
Rights Agent, which includes as Exhibit A the form of
Rights Certificate and as Exhibit B the Summary of
Rights to purchase Common Stock, incorporated by
reference to Exhibit 4.2 to the 1993 10-K.
4.3 - Amendment to the Rights Agreement between the Company
and Manufacturers Hanover Trust Company dated as of May
24, 1991, incorporated by reference to Exhibit 4.3 to
the 1993 10-K.
10.1 - 1987 Stock Option Plan of the Company, incorporated by
reference to Exhibit 10.1 to the 1993 10-K.
10.2 - Employment Agreement dated as of March 1, 1993, between
the Company and Samson Bitensky, incorporated by
reference to Exhibit 10.2 to the 1993 10 -K.
10.3 - Fab Industries, Inc. Hourly Employees Retirement Plan
(the "Retirement Plan"), incorporated by reference to
Exhibit 10.3 to the 1993 10-K.
10.4 - Amendment to the Retirement Plan effective December 11,
1978, incorporated by reference to Exhibit 10.4 to the
1993 10-K.
10.5 - Amendment to the Retirement Plan effective December 1,
1981, incorporated by reference to Exhibit 10.5 to the
1993 10-K.
10.6 - Amendment to the Retirement Plan dated November 21,
1983, incorporated by reference to Exhibit 10.6 to the
1993 10-K.
10.7 - Amendment to the Retirement Plan dated August 29, 1986,
incorporated by reference to Exhibit 10.7 to the 1993
10-K.
<PAGE>
10.8 - Amendment to the Retirement Plan effective as of
December 1, 1989, incorporated by reference to Exhibit
10.8 to the 1993 10-K.
10.9 - Amendment to the Retirement Plan dated September 21,
1995, incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 2, 1995 (the "1995 10-K").
10.10 - Fab Lace, Inc. Employees Profit Sharing Plan (the
"Profit Sharing Plan"), incorporated by reference to
Exhibit 10.9 to the 1993 10-K.
10.11 - Amendment to the Profit Sharing Plan effective December
1, 1978, incorporated by reference to Exhibit 10.10 to
the 1993 10-K.
10.12 - Amendment dated December 1, 1985 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.11 to the
1993 10-K.
10.13 - Amendment dated February 5, 1987 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.12 to the
1993 10-K.
10.14 - Amendment dated December 24, 1987 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.13 to the
1993 10-K.
10.15 - Amendment dated June 30, 1989 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.14 to the
1993 10-K.
10.16 - Amendment dated February 1, 1991 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.15 to the
1993 10-K.
10.17 - Amendment dated September 1, 1995 to the Profit Sharing
Plan, incorporated by reference to Exhibit 10.17 to the
1995 10-K.
10.18 - Lease dated as of December 8, 1988 between Glockhurst
Corporation, N.V. and the Company, incorporated by
reference to Exhibit 10.16 to the 1993 10-K.
10.19 - Lease Modification Agreement dated April 2, 1991
between Glockhurst Corporation, N.V. and the Company,
incorporated by reference to Exhibit 10.17 to the 1993
10-K.
10.20 - Second Lease Modification Agreement dated May 23, 1996
between 200 Madison Associates, L.P., and the Company,
incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1996.
10.21 - Lease dated as of March 1, 1979 between City of
Amsterdam Industrial Development Agency and Gem
Urethane Corp., incorporated by reference to Exhibit
10.18 to the 1993 10-K.
10.22 - Lease dated as of January 1, 1977 between City of
Amsterdam Industrial Development Agency and Lamatronics
Industries, Inc., incorporated by reference to Exhibit
10.19 to the 1993 10-K.
10.23 - Form of indemnification agreement between the Company
and its officers and directors, incorporated by
reference to Exhibit 10.20 to the 1993 10-K.
<PAGE>
10.24 - Company's Employee Stock Ownership Plan effective as of
Nov. 25, 1991, incorporated by reference to Exhibit
10.24 to the 1993 10-K.
10.25 - Amendment dated September 21, 1995 to the Employee
Stock Ownership Plan, incorporated by reference to
Exhibit 10.27 to the 1995 10-K.
10.26 - Company's Non-Qualified Executive Retirement Plan dated
as of November 30, 1990, incorporated by reference to
Exhibit 10.25 to the 1993 10-K.
21 - Subsidiaries of the Company incorporated by reference
to Exhibit 21 to the 1994 10-K.
*23 - Consent of BDO Seidman, LLP.
**27 - Financial Data Schedule pursuant to Article 5 of
Regulation S-X.
- ----------
* Filed herewith.
** Filed with EDGAR version only.
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Fab Industries, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-8 filed August 11,
1997, the Registration Statement on Form S-8 filed June 28, 1993, the
Registration Statement on Form S-3 filed January 31, 1992 and the Registration
Statement on Form S-8 filed June 9, 1989 of our report dated February 16, 1999
relating to the consolidated financial statements and schedule of Fab
Industries, Inc. and subsidiaries appearing in the Company's Annual Report on
Form 10-K for the year ended November 28, 1998.
We also consent to the reference to us under the caption "experts" in
the Prospectus forming a part of such Registration Statements.
/s/ BDO SEIDMAN, LLP
New York, New York
February 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
OPERATIONS CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED NOVEMBER 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-START> NOV-30-1997
<PERIOD-END> NOV-28-1998
<CASH> 6,078
<SECURITIES> 48,233
<RECEIVABLES> 28,979
<ALLOWANCES> 1,000
<INVENTORY> 32,213
<CURRENT-ASSETS> 116,230
<PP&E> 128,428
<DEPRECIATION> 88,407
<TOTAL-ASSETS> 160,403
<CURRENT-LIABILITIES> 14,868
<BONDS> 486
0
0
<COMMON> 1,318
<OTHER-SE> 136,209
<TOTAL-LIABILITY-AND-EQUITY> 160,403
<SALES> 151,436
<TOTAL-REVENUES> 151,436
<CGS> 133,147
<TOTAL-COSTS> 133,147
<OTHER-EXPENSES> 14,872
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> 8,017
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 6,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,017
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.06
</TABLE>
