Item 1. Business
Fab Industries, Inc. (together with its subsidiaries, the "Company") is a major manufacturer of warp knit textile fabrics, raschel laces, circular knits, novelty knits, and polyurethane coated bonded fabrics. In addition, the Company produces comforters, sheets, blankets and other bedding products.
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's textile fabrics are sold to a wide variety of manufacturers of ready to wear and intimate apparel for men, women and children. Other use applications include children's sleepwear, activewear, recreational apparel, home furnishings, over-the-counter fabrics, industrial fabrics, upholstery fabrics for residential and contract markets, and health care and consumer products. Fabrics are sold in piece dyed, "PFP" (Prepared For Printing), and printed configurations.
While sales are primarily to manufacturers of finished goods, the Company also uses its own textile fabrics 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 manufactures Raschel lace products for sale to manufacturers of intimate apparel and bridal wear through its Ravel Designer-Wiener Lace divisions. Its Raval Lace Division produces raschel laces for sale to manufacturers and jobbers of sportswear, dress, blouse and other related outerwear industries.
The Company's JBJ Fabric Division offers an upscale line of wet and pigment prints of knits and wovens. The knit line consists of suedes, panne's, interlock and jersey. The collection of wovens include rayon crepe, crepon, challis and sheers. These fabrics are used in various segments of apparel including sportswear, dresses, children's wear and evening wear. Garments using these fabrics can be found mainly in department stores, specialty shops, boutiques, catalogues and chain stores.
Fab also offers a comprehensive line of heat transfer prints for sleepwear, robewear, outerwear and activewear. The print collection includes both traditional and contemporary patterns from around the world. Flocks, embossed, metallic, glitter and puff prints round out the print line.
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 is also manufacturing SANDEL(R), a silica-based material coated with high performance polymeric compounds whose unique construction enables it to stop fire from spreading, even at temperatures of up to 1800 degrees Fahrenheit. Gem is marketing this fire fighting material through its subsidiary Sandel International, Inc.
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 $4,184,000 in fiscal 1995, $3,875,000 in fiscal 1996, and $3,869,000 in fiscal 1997. Through these efforts, the Company has developed a full line of proprietary knitted fabrics for sale to manufacturers of men's, women's and children's apparel in both domestic and foreign markets. Similarly, 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.
For fiscal 1997, the Company's aggregate sales to companies under the common control of Sara Lee Corporation accounted for approximately 10% of the Company's net sales. The receivables from this group of customers represent approximately 12% of the Company's November 29, 1997 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 urethane product 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 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 March 1997, the Company acquired the copyrights, trade name and certain assets of Wiener Laces, Inc., a manufacturer of raschel and leavers lace.
In August 1997, a wholly-owned subsidiary of the Company, Gem Urethane Corporation, formed a new corporation known as "Sandel International, Inc." which has acquired patents, licenses, trademarks and other intellectual property worldwide. The new corporation was formed for the purpose of creating fire and flame retardant industrial fabrics made from glass filament yarns.
In October 1997, the Company acquired copyrights, trademarks and certain assets of JBJ Fabrics. The Company's JBJ Fabric Division offers an upscale line of wet and pigment prints of knits and wovens.
These acquisitions, individually and in the aggregate, were not material to the Company's financial position or results of operations.
Item 2.
Item 2. Properties.
The Company conducts its manufacturing operations in owned facilities located in Lincolnton, Maiden, Cherryville and Salisbury, North Carolina, 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 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.
Approximate Lease Location Principal Use Floor Space Expiration Date - -------- ------------- ----------- ---------------
Lincolnton, Dyeing and Finishing, 630,550 sq.ft. (1) North Carolina Raschel and Tricot Warp Knitting, Printing and Warehouse
Lincolnton, Warehouse 55,000 sq. ft. (1) North Carolina
Maiden, Warping, Circular Single 224,013 sq.ft. (1) North Carolina and Double Knitting and Warehouse
Salisbury, Manufacturing Finished 125,000 sq.ft. (1) North Carolina Consumer Products and Retail Over- the-Counter Fabric
Amsterdam, Polyurethane Coating and 106,000 sq.ft. 12/31/99 (2) New York Fire Fighting Material Manufacturing Operations and Bonding and Laminating
Amsterdam, Warping, Tricot Knitting 367,000 sq.ft. 12/31/06 (2) New York and Warehouse
Cherryville, Dyeing and Finishing 197,000 sq. ft. (1) North Carolina
New York, Executive Offices and 33,000 sq. ft. 4/30/06 New York Showroom Facilities
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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.
Item 3. Legal Proceedings.
Neither the Company nor any of its subsidiaries or properties is subject to any material pending legal proceedings.
Item 4.
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 20, 1998.
Name Age Positions and Offices - ---- --- ---------------------
Samson Bitensky........... 78 Chairman of the Board of Directors, and Chief Executive Officer
Stanley August............ 66 Vice Chairman
Steven Myers.............. 49 Co-President, Chief Operating Officer
David A. Miller........... 60 Vice President-Finance, Treasurer and Chief Financial Officer
Sherman S. Lawrence....... 79 Secretary
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 30, 1992 to May 1, 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 1982. 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.
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.
On February 2, 1998, Bernd Hopp resigned as Co-President, Chief Operating Officer of the Company. Mr. Hopp had served in such position from May 1, 1997.
PART II
Item 5.
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 1997
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
Fiscal 1996
First Quarter........................................ $ 31 7/8 $ 29 1/2
Second Quarter....................................... $ 29 7/8 $ 26 7/8
Third Quarter........................................ $ 28 7/8 $ 24 3/4
Fourth Quarter....................................... $ 28 3/8 $ 25 7/8
At February 20, 1998, there were approximately 559 holders of record of Common Stock. For fiscal 1996, quarterly dividends of $.175 per share were declared on February 12, 1996, May 20, 1996, August 14, 1996 and November 24, 1996. 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. 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.
Item 6.
Item 6. Selected Consolidated Financial Data.
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(1) Computed by dividing stockholders' equity by the number of shares outstanding at year-end.
(2) Fifty-three weeks.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
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.
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.
Fiscal 1996 Compared to Fiscal 1995
Net sales for the 1996 fiscal year were $156,136,000 as compared to $182,000,000 in 1995, a decrease of 14.2%. Business conditions within the textile industry remained under pressure as a result of sluggish consumer demand, as well as highly competitive market conditions and foreign competition.
Gross margins as a percentage of sales declined from 14.9% to 14.5%. Lower sales volume reduced operating schedules at manufacturing plants, and a less profitable mix also exerted unfavorable pressures on profit margins. Margins were benefited by cost control programs and favorable LIFO inventory levels. In fiscal 1995, an addition to LIFO inventory reserves in the amount of $893,000 was made as a result of higher raw material prices (primarily fiber), as compared to a decrease of $742,000 in reserves in fiscal 1996 due to lower average FIFO cost levels.
Selling, shipping and administrative expenses declined by $3,192,000, or 18.4%, and as a percentage of sales declined to 9.1% from 9.5% last year. The decline relates primarily to lower incentive-based compensation and lower related salaries and commissions. In addition, other selling, shipping and administrative expenses decreased as a result of the continued effectiveness of the Company's expense containment program, which began in fiscal 1995.
Interest and dividend income remained at approximately $3.7 million for both years.
The effective income tax rate for the year was 30.2% as against 31.6% in fiscal 1995. The decline was primarily attributable to a proportionately higher percentage of tax exempt interest in fiscal 1996.
As a result of these factors, net income declined to $8,796,000 from $9,410,000 but as a percentage of sales increased to 5.6% from 5.2%.
Earnings per share, which are based upon the weighted average number of shares outstanding (5,797,228 vs. 5,981,690), were $1.52 as compared to $1.57 in fiscal 1995. There was no stock option related dilution in either year.
Liquidity and Capital Resources
The Company's principal source of funds continues to be cash flow generated from operations. Net cash provided by operating activities in fiscal 1997 amounted to $11,388,000 compared to $17,223,000 in the comparative 1996 period. Of this decrease, $6,495,000 is attributable to comparative declines in accounts receivable, $735,000 to increases in other assets, $413,000 to depreciation and $599,000 to realized gains in marketable securities, offset by a $2,357,000 comparative increase in inventories.
The Company's investment securities, all classified as available-for-sale, had a fair market value of $66,068,000 and $60,880,000 at fiscal year-end 1997 and 1996, respectively. See Note 2 to the consolidated financial statements for further details about the Company's investment portfolio.
Capital expenditures for the current fiscal year were $4,870,000 compared to $4,101,000 in fiscal 1996. The current year expenditures were principally for additional knitting machines for the Company's knitting mills.
During fiscal 1997, the Company repurchased 83,943 shares of its common stock at a cost of $2,406,000 (an average price of $28.66). 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 1997, the Company declared regular quarterly dividends totaling $0.70 per share.
Stockholders' equity rose to $137,892,000, or $24.26 book value per share, from $133,888,000, or $23.25 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
Management has initiated a Company wide program to prepare the Company's computer systems and applications for year 2000 compliance. The Company expects to incur internal staff costs as well as other expenses necessary to prepare its systems for the year 2000. The Company expects to both replace some systems and upgrade others. Maintenance or modification costs will be expensed as incurred. The total cost of this effort is still being evaluated, but is not expected to be material to the Company.
Item 8.
Item 8. Financial Statements and Supplementary Data.
See pages and S-1.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not Applicable.
PART III
Item 10.
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 30, 1998 pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended ("Regulation 14A").
Item 11.
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 30, 1998 pursuant to Regulation 14A.
Item 12.
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 30, 1998 pursuant to Regulation 14A.
Item 13.
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 30, 1998 pursuant to Regulation 14A.
PART IV
Item 14.
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.
(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.
4.1 - Specimen of Common Stock Certificate, incorporated by reference to Exhibit 4-A to Registration Statement No. 2-30163, filed on November 4, 1968.
4.2 - Rights Agreement dated as of June 6, 1990 between the Company and Manufacturers Hanover Trust Company, as Rights Agent, which includes as Exhibit A the form of Rights Certificate and as Exhibit B the Summary of Rights to purchase Common Stock, incorporated by reference to Exhibit 4.2 to the 1993 10-K.
4.3 - Amendment to the Rights Agreement between the Company and Manufacturers Hanover Trust Company dated as of May 24, 1991, incorporated by reference to Exhibit 4.3 to the 1993 10-K.
10.1 - 1987 Stock Option Plan of the Company, incorporated by reference to Exhibit 10.1 to the 1993 10-K.
10.2 - Employment Agreement dated as of March 1, 1993, between the Company and Samson Bitensky, incorporated by reference to Exhibit 10.2 to the 1993 10 -K.
10.3 - Fab Industries, Inc. Hourly Employees Retirement Plan (the "Retirement Plan"), incorporated by reference to Exhibit 10.3 to the 1993 10-K.
10.4 - Amendment to the Retirement Plan effective December 11, 1978, incorporated by reference to Exhibit 10.4 to the 1993 10-K.
10.5 - Amendment to the Retirement Plan effective December 1, 1981, incorporated by reference to Exhibit 10.5 to the 1993 10-K.
10.6 - Amendment to the Retirement Plan dated November 21, 1983, incorporated by reference to Exhibit 10.6 to the 1993 10-K.
10.7 - Amendment to the Retirement Plan dated August 29, 1986, incorporated by reference to Exhibit 10.7 to the 1993 10-K.
10.8 - Amendment to the Retirement Plan effective as of December 1, 1989, incorporated by reference to Exhibit 10.8 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.
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.
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* Filed herewith. ** Filed with EDGAR version only.
(b) Reports on Form 8-K: None
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FORM 10-K ITEM 8
FISCAL YEARS ENDED NOVEMBER 29, 1997, NOVEMBER 30, 1996 AND DECEMBER 2, 1995
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
Report of independent certified public accountants
Consolidated financial statements: Balance sheets Statements of income Statements of stockholders' equity Statements of cash flows
Summary of accounting policies -
Notes to consolidated financial statements -
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors Fab Industries, Inc. New York, New York
We have audited the consolidated balance sheets of Fab Industries, Inc. and subsidiaries as of November 29, 1997 and November 30, 1996 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended November 29, 1997. 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 29, 1997 and November 30, 1996, and the results of their operations and their cash flows for each of the three fiscal years in the period ended November 29, 1997 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 5, 1998
FAB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
See accompanying summary of accounting policies and notes to consolidated financial statements.
FAB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
See accompanying summary of accounting policies and notes to consolidated financial statements.
FAB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Note: The Company has 2,000,000 shares of authorized, but unissued preferred stock.
See accompanying summary of accounting policies and notes to consolidated financial statements.
FAB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 11)
See accompanying summary of accounting policies and notes to consolidated financial statements.
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 1997, 1996 and 1995, and such sales were primarily made to United States customers. Accordingly, the Company considers itself to be operating in a single segment business.
PRINCIPLES OF CONSOLIDATION:
The financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Significant intercompany transactions and balances have been eliminated.
FISCAL YEAR:
The Company's fiscal year ends on the Saturday closest to November 30. Fiscal 1997, 1996 and 1995 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 $5.7 million at November 29, 1997) maintains appropriate insurance coverage to protect the Company's investment portfolio. Concentrations of credit risk with respect to trade receivables are limited due to the diverse group of manufacturers, wholesalers 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 No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities". SFAS 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.
FAB INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES
INVENTORIES:
Inventories are valued at the lower of cost or market. For a majority 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.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is computed using principally the straight-line method. The range of estimated useful lives is 15 to 33 years for buildings and building improvements, 4 to 10 years for machinery and equipment, 10 years for leasehold improvements and 5 years for trucks and automobiles.
LONG-LIVED ASSETS:
The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell.
RESEARCH AND DEVELOPMENT COSTS:
Research and development costs are charged to expenses in the year incurred and amounted to $3,869,000, $3,875,000, and $4,184,000 in fiscal 1997, 1996 and 1995, respectively.
STOCK-BASED COMPENSATION:
In fiscal 1997, the Company became subject to Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which allows either the intrinsic or fair value method. SFAS No. 123 encourages, but does not require, entities to adopt the fair value method in place of the intrinsic value method as provided for in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB No. 25"), for all arrangements under which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of its stock. When the Company adopted SFAS No. 123, it elected to retain the intrinsic value method. The required fair value disclosures are included in the notes to the consolidated financial statements.
TAXES ON INCOME:
The Company follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109),"Accounting for Income Taxes".
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:
Earnings per share has been computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. There was no stock option related dilution reflected in the earnings per share computation for fiscal 1997, 1996 and 1995, as the reduction was less than 3%.
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.
FAB INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES
PENDING ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 establishes a different method of computing earnings per share than is currently required under the provisions of Accounting Principles Board Opinion No. 15. Under SFAS No. 128, the Company will be required to present both basic earnings per share and diluted earnings per share. Basic and diluted earnings per share are not expected to differ materially from earnings per share as presented in the accompanying consolidated financial statements. The Company plans to adopt SFAS No. 128 in its fiscal quarter ending February 28, 1998 and at that time all historical earnings per share data presented will be restated to conform to the provisions of SFAS No. 128.
In June 1997, the FASB issued SFAS No. 130, "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.
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.
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Cash and Cash Equivalents - --------------------------------------------------------------------------------
Cash and cash equivalents at November 29, 1997 and November 30, 1996 consisted of the following (in thousands):
1997 1996 ------ ------ Cash $1,360 $1,700 Tax-free short-term debt instruments 3,214 5,818 ------ ------
$4,574 $7,518 ====== ======
Note 2 - Investment Securities - --------------------------------------------------------------------------------
Investment securities available-for-sale at November 29, 1997 and November 30, 1996 consisted of the following (in thousands):
Gross Gross Unrealized Unrealized Cost Holding Gain Holding Loss Fair Value ------- ------------ ------------ ----------
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 ======= ====== ===== =======
1996: -----
Equities $ 7,251 $ 624 $(218) $ 7,657 U.S. Treasury obligations 37 -- -- 37 Tax-exempt obligations 46,891 513 (25) 47,379 Corporate bonds 5,689 155 (37) 5,807 ------- ------ ----- -------
$59,868 $1,292 $(280) $60,880 ======= ====== ===== =======
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 29, 1997 and November 30, 1996, by contractual maturity are as shown below:
Gross and net realized gains and losses on sales of investment securities were:
1997 1996 1995 ---- ---- ----
Gross realized gains $ 2,371 $ 1,518 $ 762 Gross realized losses (1,232) (978) (251) ------- ------- -----
Net realized gain $ 1,139 $ 540 $ 511 ======= ======= =====
Approximately $5.7 million of the Company's equity investment securities at November 29, 1997 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 29, 1997, the notional amounts of the put and call options were $5.7 million and $5.8 million, respectively.
Note 3 - Inventories - --------------------------------------------------------------------------------
Inventories at November 29, 1997 and November 30, 1996 consisted of the following (in thousands, except for percentages):
1997 1996 -------- -------
Raw materials $ 9,132 $10,504 Work-in process 9,781 10,087 Finished goods 9,357 8,356 ------- -------
$28,270 $28,947 ======= =======
Approximate percentage of inventories valued under LIFO method 65% 65% ======= =======
Excess of FIFO valuation over LIFO valuation $ 6,298 $ 7,161 ======= =======
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Property, Plant and Equipment - --------------------------------------------------------------------------------
Property, plant and equipment at November 29, 1997 and November 30, 1996 consisted of the following (in thousands):
1997 1996 -------- -------- Owned by the Company: Land and improvements $ 698 $ 698 Buildings and improvements 13,041 12,703 Machinery and equipment 94,885 90,459 Trucks and automobiles 1,631 1,547 Office equipment 681 659 Leasehold improvements 808 808 -------- --------
111,744 106,874 Property under capital leases: Land 18 18 Buildings and improvements 1,432 1,432 -------- --------
113,194 108,324 Less: Accumulated depreciation and amortization 83,185 78,121 -------- --------
$ 30,009 $ 30,203 ======== ========
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Obligations Under Capital Leases - --------------------------------------------------------------------------------
Obligations under capital leases at November 29, 1997 and November 30, 1996 consisted of the following (in thousands):
Aggregate installments on obligations under capital leases maturing after one year are as follows:
Fiscal year ending (in thousands): 1999 $ 73 2000 79 2001 85 2002 91 Thereafter 228 ---- $556 ==== Note 6 - Stock Compensation Plans: - --------------------------------------------------------------------------------
Stock Option Plan:
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) 1997 1996 - --------------------------------------------- ---- ----
Pro forma net income $ 8,999 $ 8,547 Pro forma earnings per share $ 1.58 $ 1.47
The weighted-average fair value of options granted was $10.29 per share in 1997 and $8.30 per share in 1996.
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1997 and 1996 grants:
Dividends: $.70 per share Volatility: 27.5% Risk-free interest: Ranging from 5.6% to 6.7% Expected term: Ranging from 5 to 10 years
Data regarding the Company's stock option plan follows:
Shares Weighted-Average Exercise Price Per Share
Shares under option December 3, 1994 187,400 $17.25 Options granted -- -- Options exercised (56,400) 15.85 Options canceled (1,800) 15.44 ------- ------ 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 exercisable at: December 2, 1995 127,400 $17.22 November 30, 1996 113,700 17.57 November 29, 1997 125,900 19.37
The following summarizes information about shares under option in the respective exercise price ranges at November 29, 1997:
Range of Exercise Number Weighted- Weighted- Number Weighted- Price Per share Outstanding Average Average Exercisable Average Remaining Exercise Exercise Life Price Per Price Per Share Share
15.44-19.00 93,100 3.07 16.20 93,100 16.20
26.38-30.06 114,000 8.54 28.68 32,800 28.35 ------- ------
207,100 125,900 ======= =======
The shares authorized but not granted under the Company's stock option plans were 175,000 at November 29, 1997 and 128,800 at November 30, 1996. Common stock reserved for options totalled 207,100 shares at November 29, 1997 and 154,900 shares at November 30, 1996.
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 1997, 1996 and 1995 was $26,000, $181,000 and $324,000, respectively.
Note 7 - Stockholder Rights Plan - --------------------------------------------------------------------------------
In May 1990, the Board of Directors of the Company adopted a Shareholder Rights Plan which was amended in May 1991 (the "Plan"). Under the Plan, 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 rights purchase price.
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 rights 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.
Note 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 1997, 1996 and 1995 were $429,000, $439,000 and $415,000, 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 1997, 1996 and 1995 were $94,000, $98,000 and $123,000, respectively. Benefits payable under this plan amounting to $2,047,000 and $1,643,000 at November 29, 1997 and November 30, 1996, respectively, are included in other noncurrent liabilities. These liabilities are fully funded by plan assets of equal amounts, which are included in other assets.
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The net periodic pension cost of the defined benefit plan for fiscal 1997, 1996 and 1995 is as follows (in thousands):
1997 1996 1995 ---- ---- ----
Service cost $ 181 $ 178 $ 160 Interest cost on projected benefit obligation 179 161 162 Actual return on plan assets (1,590) (1,267) (1,024) Net amortization and deferral 1,117 924 768 ------- ------- -------
Net periodic pension cost $ (113) $ (4) $ 66 ======= ======= =======
The following table presents a reconciliation of the funded status of the Plan for fiscal 1997 and 1996 (in thousands):
The average discount rate was 7% in fiscal 1997, 7 1/2% in fiscal 1996 and 8% in fiscal 1995, and the expected rate of return on assets for both fiscal 1997 and 1996 was 8%.
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Ownership Plan:
The Company has an Employee Stock Ownership Plan (ESOP) which covers all full time employees who have completed one year of service. In 1991 the ESOP purchased 340,000 shares of common stock from the Chairman of the Board of Directors and President of the Company for $34.875 per share, which represented 5.5% of the Company's then outstanding common stock. The ESOP was funded by the Company, pursuant to a loan pledge agreement for $11,857,000. The loan is payable by the ESOP to the Company from contributions to be made in fifteen equal annual principal installments plus interest at the prime rate. Employee rights to the common shares vest over a seven-year period and are payable at retirement, death, disability or termination of employment.
Annual principal installments of $790,000 plus interest at prime are paid by the ESOP to the Company. The balance on the ESOP indebtedness at November 30, 1997 of $7,117,000 is reflected as a reduction of the Company's stockholders' equity in the consolidated balance sheet.
The Company accounts for the ESOP shares in accordance with the provisions of the American Institute of Certified Public Accountants' Statement of Position No. 76-3. ESOP contributions are recorded for financial reporting purposes as the ESOP shares become allocable to the Plan participants. All ESOP shares are considered outstanding in the determination of earnings per share.
The portion of the common stock dividends declared relating to ESOP shares totaled $227,000, $232,000 and $229,000 for fiscal 1997, 1996 and 1995, respectively. Of these amounts, $89,000, $75,000 and $60,000 for fiscal 1997, 1996 and 1995, respectively, related to allocated shares and $138,000, $157,000 and $169,000 for fiscal 1997, 1996 and 1995, 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 29, 1997 and November 30, 1996, ESOP shares information was as follows:
1997 1996 ----- ----
Allocated 141,041 123,694 Committed to be released 26,716 25,693 In suspense 151,226 178,965 ------- -------
Total shares held by ESOP 318,983 328,352 ======= =======
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net charges to earnings for fiscal 1997, 1996 and 1995 were as follows (in thousands):
1997 1996 1995 ---- ---- ----
Contribution to ESOP $1,242 $1,297 $1,513 Less: Interest income on loan to ESOP 691 738 840 ------ ------ ------
Net charge to earnings $ 551 $ 559 $ 673 ====== ====== ======
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.
Note 9 - Income Taxes - --------------------------------------------------------------------------------
Provisions for Federal, state and local income taxes for fiscal 1997, 1996 and 1995 consisted of the following components (in thousands):
1997 1996 1995 ---- ---- ----
Current: Federal $3,876 $3,415 $3,924 State and local 444 324 547 ------ ------ ------ 4,320 3,739 4,471 Deferred: Federal and state (185) 61 (121) ------- ------ --------
$4,135 $3,800 $4,350 ====== ====== ======
The net deferred tax liability at November 29, 1997 and November 30, 1996 consisted of the following (in thousands):
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Commitments - --------------------------------------------------------------------------------
Stock Repurchase:
In March 1993, the Company entered into a five year agreement with the Chairman of the Board of Directors and President ("Chairman"). The agreement 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 1999.
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 1997, 1996 and 1995 aggregated $605,000, $643,000 and $671,000, respectively.
Future minimum annual payments over the remaining noncancelable term of the Company's New York City operating lease are as follows:
Fiscal year ending (in thousands):
1998 $494 1999 530 2000 559 2001 235 ------
$1,818 ======
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Statement of Cash Flows - --------------------------------------------------------------------------------
Cash outlays for corporate income taxes and interest for fiscal 1997, 1996 and 1995 were as follows (in thousands):
Corporate income taxes Interest ------------ --------
1997 $3,545 $ 65 1996 3,840 124 1995 4,634 129
Non-cash investing and financing activities:
In fiscal 1997, 1996 and 1995, net unrealized holding gains of $48,000, $639,000, and $902,000, respectively, less related income taxes of $19,000, $256,000, and $364,000, on investment securities available-for-sale, were recorded as increases in stockholders' equity.
Note 12 - Interest and Dividend Income - --------------------------------------------------------------------------------
Interest and dividend income for the past three fiscal years were as follows (in thousands):
Interest Dividend income income Total ------ ------ -----
1997 $3,654 $176 $3,830 1996 3,505 155 3,660 1995 3,546 130 3,676
Note 13 - Major Customer - --------------------------------------------------------------------------------
For fiscal 1997, 1996 and 1995, sales to a group of customers affiliated through common control accounted for approximately 10%, 12% and 16% of net sales, respectively. The receivables from this group of customers represented approximately 12% and 13% of the November 29, 1997 and November 30, 1996 accounts receivable balances, respectively.
FAB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Quarterly Financial Data (unaudited) - --------------------------------------------------------------------------------
Quarterly earnings were as follows (in thousands, except for earnings per share):
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FORM 10-K ITEM 14
FISCAL YEARS ENDED NOVEMBER 29, 1997, NOVEMBER 30, 1996 AND DECEMBER 2, 1995
S-1
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
Schedule:
II. Valuation and qualifying accounts S-3
S-2
SCHEDULE II FAB INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
(i) Current year's provision.
(ii) Accounts receivable written-off, net of recoveries.
S-3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, 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
February 27, 1998 ----------------- Date
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Date Capacity in Which Signed
/s/ Samson Bitensky February 27, 1998 Chairman of the Board, Chief - ---------------------------- Executive Officer and Director Samson Bitensky Executive Officer and Director
/s/ David A. Miller February 27, 1998 Vice President - Finance, - ---------------------------- Treasurer and Chief Financial David A. Miller Officer (Principal Financial and Accounting Officer)
/s/ Sherman S. Lawrence February 27, 1998 Secretary and Director - ---------------------------- Sherman S. Lawrence
/s/ Lawrence Bober February 27, 1998 Director - ---------------------------- Lawrence Bober
/s/ Richard Marlin February 27, 1998 Director - ---------------------------- Richard Marlin
February 27, 1998 Director - ---------------------------- Louis Feil
/s/ Oscar Kunreuther February 27, 1998 Director - ---------------------------- Oscar Kunreuther
/s/ Susan Lerner February 27, 1998 Director - ---------------------------- Susan Lerner
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.
4.1 - Specimen of Common Stock Certificate, incorporated by reference to Exhibit 4-A to Registration Statement No. 2-30163, filed on November 4, 1968.
4.2 - Rights Agreement dated as of June 6, 1990 between the Company and Manufacturers Hanover Trust Company, as Rights Agent, which includes as Exhibit A the form of Rights Certificate and as Exhibit B the Summary of Rights to purchase Common Stock, incorporated by reference to Exhibit 4.2 to the 1993 10-K.
4.3 - Amendment to the Rights Agreement between the Company and Manufacturers Hanover Trust Company dated as of May 24, 1991, incorporated by reference to Exhibit 4.3 to the 1993 10-K.
10.1 - 1987 Stock Option Plan of the Company, incorporated by reference to Exhibit 10.1 to the 1993 10-K.
10.2 - Employment Agreement dated as of March 1, 1993, between the Company and Samson Bitensky, incorporated by reference to Exhibit 10.2 to the 1993 10 -K.
10.3 - Fab Industries, Inc. Hourly Employees Retirement Plan (the "Retirement Plan"), incorporated by reference to Exhibit 10.3 to the 1993 10-K.
10.4 - Amendment to the Retirement Plan effective December 11, 1978, incorporated by reference to Exhibit 10.4 to the 1993 10-K.
10.5 - Amendment to the Retirement Plan effective December 1, 1981, incorporated by reference to Exhibit 10.5 to the 1993 10-K.
10.6 - Amendment to the Retirement Plan dated November 21, 1983, incorporated by reference to Exhibit 10.6 to the 1993 10-K.
10.7 - Amendment to the Retirement Plan dated August 29, 1986, incorporated by reference to Exhibit 10.7 to the 1993 10-K.
10.8 - Amendment to the Retirement Plan effective as of December 1, 1989, incorporated by reference to Exhibit 10.9 to the 1993 10-K.
10.9 - Amendment to the Retirement Plan dated September 21, 1995, incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 2, 1995 (the "1995 10-K").
10.10 - Fab Lace, Inc. Employees Profit Sharing Plan (the "Profit Sharing Plan"), incorporated by reference to Exhibit 10.9 to the 1993 10-K.
10.11 - Amendment to the Profit Sharing Plan effective as of December 1, 1978, incorporated by reference to Exhibit 10.10 to the 1993 10-K.
10.12 - Amendment dated December 1, 1985 to the Profit Sharing Plan, incorporated by reference to Exhibit 10.11 to the 1993 10-K.
10.13 - Amendment dated February 5, 1987 to the Profit Sharing Plan, incorporated by reference to Exhibit 10.12 to the 1993 10-K.
10.14 - Amendment dated December 24, 1987 to the Profit Sharing Plan, incorporated by reference to Exhibit 10.13 to the 1993 10-K.
10.15 - Amendment dated June 30, 1989 to the Profit Sharing Plan, incorporated by reference to Exhibit 10.14 to the 1993 10-K.
10.16 - Amendment dated February 1, 1991 to the Profit Sharing Plan, incorporated by reference to Exhibit 10.15 to the 1993 10-K.
10.17 - Amendment dated September 1, 1995 to the Profit Sharing Plan, incorporated by reference to Exhibit 10.17 to the 1995 10-K.
10.18 - Lease dated as of December 8, 1988 between Glockhurst Corporation N.V. and the Company, incorporated by reference to Exhibit 10.16 to the 1993 10-K.
10.19 - Lease Modification Agreement dated as of April 8, 1991 between Glockhurst Corporation N.V. and the Company, incorporated by reference to Exhibit 10.17 to the 1993 10-K.
10.20 - Second Lease Modification Agreement dated May 23, 1996 between 200 Madison Associates, L.P., and the Company, incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996.
10.21 - Lease dated as of March 1, 1979 between City of Amsterdam Industrial Development Agency and Gem Urethane Corp., incorporated by reference to Exhibit 10.18 to the 1993 10-K.
10.22 - Lease dated as of January 1, 1977 between City of Amsterdam Industrial Development by reference to Exhibit 10.19 to the 1993 10-K.
10.23 - Form of Indemnification agreement between Company and its officers and directors, incorporated by reference to Exhibit 10.20 to the 1993 10-K.
10.24 - Company's Employee Stock Ownership Plan effective as of November 25, 1991, incorporated by reference to Exhibit 10.24 to the 1993 10-K.
10.25 - Amendment dated September 21, 1995 to the Employee Stock Ownership Plan, incorporated by reference to Exhibit 10.27 to the 1995 10-K.
10.26 - 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.