FORM 10-Q QUARTERLY REPORT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 28, 2004
---------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ TO ____________
Commission file number 1-5901
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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 of (I.R.S. Employer
incorporation or organization) Identification No.)
200 MADISON AVENUE, NEW YORK, N.Y. 10016
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(Address of principal executive office) (Zip Code)
(212) 592-2700
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year;
if changed since last report)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
As of April 13, 2004, 5,215,031 shares of the registrant's common stock, $0.20
par value, were outstanding.
FAB INDUSTRIES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
13 Weeks ended February 28, 2004 and March 1, 2003 (unaudited) 2
Condensed Consolidated Balance Sheets
February 28, 2004 (unaudited) and November 29, 2003 3
Condensed Consolidated Statements of Stockholders' Equity
13 Weeks ended February 28, 2004 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
13 Weeks ended February 28, 2004 and March 1, 2003 (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Mgmt Discussion and Analysis of Financial Condition
And Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
(1)
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 13 WKS ENDED
--------------------------------
February 28, 2004 March 1, 2003
--------------------------------
(unaudited) (unaudited)
Net sales $ 10,141,000 $ 11,587,000
Cost of goods sold 9,712,000 10,846,000
------------ ------------
Gross profit (loss) 429,000 741,000
Operating expenses:
Selling, general and administrative expenses 1,676,000 1,628,000
Gain on sale of fixed assets (685,000) (174,000)
Other expense ( Note 12) 250,000 --
------------ ------------
Total operating expenses 1,241,000 1,454,000
------------ ------------
Operating loss (812,000) (713,000)
------------ ------------
Other income (expense):
Interest and dividend income 222,000 347,000
Net gain (loss) on investment securities 168,000 (29,000)
------------ ------------
Total other income 390,000 318,000
------------ ------------
Loss before taxes (422,000) (395,000)
Income tax benefit (130,000) (125,000)
------------ ------------
Net loss $ (292,000) $ (270,000)
============ ============
Income (loss) per share: (Note 5)
Basic ($0.06) ($0.05)
Diluted ($0.06) ($0.05)
Cash dividends declared per share $3.00 $0.00
See notes to condensed consolidated financial statements.
(2)
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
A S S E T S
- - - - - -
AS OF
--------------------------------------
February 28, 2004 November 29, 2003
--------------------------------------
(unaudited)
Current Assets:
Cash and cash equivalents (Note 2) $ 4,011,000 $ 3,397,000
Investment securities available-for-sale (Note 3) 31,411,000 29,004,000
Accounts receivable-net of allowance of
$600,000 and $900,000 for doubtful accounts 5,306,000 7,171,000
Inventories (Note 4) 5,481,000 5,531,000
Deferred tax asset 473,000 506,000
Other current assets 637,000 701,000
----------- -----------
Total current assets 47,319,000 46,310,000
----------- -----------
Property, plant and equipment - at cost 32,456,000 33,787,000
Less: Accumulated depreciation 24,036,000 24,303,000
----------- -----------
8,420,000 9,484,000
Other assets 2,349,000 2,281,000
----------- -----------
$58,088,000 $58,075,000
=========== ===========
See notes to condensed consolidated financial statements.
(3)
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
L I A B I L I T I E S and
-------------------------
S T O C K H O L D E R S' E Q U I T Y
------------------------------------
AS OF
--------------------------------------
February 28, 2004 November 29, 2003
--------------------------------------
(unaudited)
Current liabilities:
Accounts payable $ 2,372,000 $ 1,913,000
Corporate income and other taxes 709,000 861,000
Accrued payroll and related expenses 446,000 763,000
Dividends payable 15,645,000 --
Other current liabilities 1,312,000 1,106,000
----------- -----------
Total current liabilities 20,484,000 4,643,000
----------- -----------
Deferred income taxes -- 52,000
Other noncurrent liabilities 4,563,000 4,451,000
----------- -----------
Total liabilities 25,047,000 9,146,000
----------- -----------
Stockholders' equity 33,041,000 48,929,000
----------- -----------
$58,088,000 $58,075,000
=========== ===========
See notes to condensed consolidated financial statements.
(4)
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 13 WEEKS ENDED FEBRUARY 28, 2004 (unaudited)
COMMON STOCK* TREASURY STOCK
------------- --------------
ACCUMULATED
NUMBER OTHER
OF RETAINED COMPREHENSIVE NUMBER OF
TOTAL SHARES AMOUNT EARNINGS INCOME (LOSS) SHARES COST
---------------------------------------------------------------------------------------------
Balance at
November 29, 2003 $48,929,000 6,724,944 $1,345,000 $85,225,000 $ (186,000) (1,509,913) ($37,455,000)
Net loss (292,000) (292,000)
Change in net
unrealized holding
gain on investment
securities
available-for-
sale, net of taxes 49,000 49,000
-----------
Total comprehensive
loss (243,000)
Cash dividends (15,645,000) (15,645,000)
---------------------------------------------------------------------------------------------
Balance at
February 28, 2004 $33,041,000 6,724,944 $1,345,000 $69,288,000 $ (137,000) (1,509,913) $(37,455,000)
(Unaudited) =============================================================================================
* Common stock $0.20 par value - 15,000,000 shares authorized.
Preferred stock $1.00 par value - 2,000,000 shares authorized, none issued.
See notes to condensed consolidated financial statements.
(5)
FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 13 WKS ENDED
--------------------------------
February 28, 2004 March 1, 2003
--------------------------------
(unaudited) (unaudited)
OPERATING ACTIVITIES:
Net loss ($ 292,000) ($ 270,000)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Provision for doubtful accounts 100,000 100,000
Depreciation and amortization 407,000 480,000
Deferred income taxes (52,000) (60,000)
Net (gain) loss on investment securities (168,000) 29,000
Gain on disposition of fixed assets (685,000) (173,000)
Decrease (increase) in:
Accounts receivable 1,765,000 1,281,000
Inventories 50,000 (275,000)
Other current assets 64,000 158,000
Other assets (68,000) 204,000
(Decrease) increase in:
Accounts payable 459,000 (698,000)
Accruals and other liabilities (151,000) (1,456,000)
----------- -----------
Net cash provided by (used in)
operating activities 1,429,000 (680,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (22,000) (24,000)
Proceeds from dispositions of property 1,364,000 190,000
Acquisition of investment securities (2,157,000) (255,000)
----------- -----------
Net cash used in
investing activities (815,000) (89,000)
----------- -----------
Increase (decrease) in cash and cash equivalents 614,000 (769,000)
Cash and cash equivalents, beginning of period 3,397,000 3,146,000
----------- -----------
Cash and cash equivalents, end of period $ 4,011,000 $ 2,377,000
=========== ===========
See notes to condensed consolidated financial statements.
(6)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the 13 weeks ended February 28, 2004 are not necessarily indicative
of the results that may be expected for the entire fiscal year ending November
27, 2004. The balance sheet at November 29, 2003 has been derived from the
audited balance sheet at that date. The financial information included in the
quarterly report should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for the
fiscal year ended November 29, 2003.
The Company's Board of Directors has determined that it is in the best interests
of its stockholders to sell the Company's textile business as a going concern.
In order to maximize stockholder value, the Board of Directors adopted
resolutions dated March 1, 2002, which authorized, subject to stockholder
approval, the sale of the Company's business pursuant to a Plan of Liquidation
and Dissolution (the "Plan"). The Company's stockholders approved the Plan at
the annual meeting on May 30, 2002. The Plan provides the Company's officers and
directors will continue to operate the Company's textile business in its current
fashion and pursue a sale of the business as a going concern. The Company's
Board of Directors has approved the engagement of McFarland Dewey & Co., LLC
financial advisors in November 2002 to assist with the sale of the business. The
accompanying financial statements have been prepared on a going concern basis.
There can be no assurance, however, that the Company will be successful in
selling it's business or if it does sell the business, that it will be able to
recover full value of it's assets, particularly it's property, plant and
equipment. On August 1, 2003 and May 30, 2002, the Company's Board of Directors
declared a liquidating distribution of $4.00 per share and $10.00 per share,
respectively, which resulted in a payment to stockholders of $20,860,000 and
$52,380,000 in August 2003 and June 2002 respectively. On February 18, 2004, the
Company's Board of Directors declared a third liquidating distribution of $3.00
per share, to be payable on March 10, 2004 with a record date of February 28,
2004. This resulted in a payment of $15,645,000 on March 10, 2004.
The Company's plan of liquidation provides the Company's officers and directors
will continue to operate the Company's textile business in its current fashion
and pursue the sale of the business as a going concern. If the Company is not
sold by May 2005, all assets will be transferred to a liquidating trust. The
liquidating trust would then succeed to all our remaining assets, liabilities
and obligations.
The Company is currently in compliance with the 40% limitation on holding
investment securities set forth in the Investment Company Act of 1940 and
intends to remain in compliance with such requirement in the future.
(7)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
---------------------------------------------
The Company is party to equity option contract as part of its investing
activities. Option contracts are contractual agreements that give the purchaser
the right, but not the obligation, to purchase or sell a financial instrument at
a predetermined exercise price. In return for this right, the purchaser pays a
premium to the seller of the option. By selling or writing options, the Company
receives a premium and becomes obligated during the term of the option to
purchase or sell a financial instrument at a predetermined exercise price if the
option is exercised, and assumes the risk of not being able to enter into a
closing transaction if a liquid secondary market does not exist.
In accordance with SFAS No. 133, the Company's policy is to recognize all
derivatives instruments as either assets or liabilities on the balance sheet at
fair value. Changes in fair value are recognized in the income statement in the
period in which they occur. Derivatives are not used for trading purposes.
Derivatives are used to hedge against fluctuations in the market value of equity
securities.
ACCOUNTING FOR STOCK-BASED COMPENSATION
---------------------------------------
The Company's stock option plans were terminated subsequent to the fiscal year
ended November 30, 2002 and there has been no stock compensation expense under
the disclosure-only provisions of SFAS No.123 subsequent thereto.
RECLASSIFICATIONS
-----------------
Certain accounts in 2003 financial statements have been reclassified with the
2004 presentations for comparative purposes.
(8)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Cash and cash equivalents consist of the following (in thousands):
FEBRUARY 28, 2004 NOVEMBER 29, 2003
----------------- -----------------
Cash $ 359 $ 549
Taxable and tax-free
short-term debt instruments 3,652 2,848
------ ------
$4,011 $3,397
====== ======
3. Investment Securities:
At February 28, 2004 and November 29, 2003, investment securities
available-for-sale consisted of the following (in thousands):
GROSS GROSS
UNREALIZED UNREALIZED
HOLDING HOLDING FAIR
FEBRUARY 28, 2004 (UNAUDITED) COST GAIN LOSS VALUE
----------------------------- ---- ---------- ---------- -----
Equities $ 750 $ 30 $ 0 $ 780
U.S. Treasury obligations 28,495 487 0 28,982
Corporate bonds 253 0 (250) 3
Money market 1,646 0 0 1,646
-------- -------- -------- --------
$ 31,144 $ 517 ($250) $ 31,411
======== ======== ======== ========
GROSS GROSS
UNREALIZED UNREALIZED
HOLDING HOLDING FAIR
NOVEMBER 29, 2003 COST GAIN LOSS VALUE
----------------- ---- ---------- ---------- -----
Equities $ 750 $ 17 $ 0 $ 767
U.S. Treasury obligations 27,519 418 0 27,937
Corporate bonds 253 0 (250) 3
Money Market 297 0 0 297
-------- -------- -------- --------
$ 28,819 $ 435 ($250) $ 29,004
======== ======== ======== ========
(9)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Investment Securities (continued):
During the three months ended February 28, 2004, the Company invested a portion
of it's investment securities in equity consisting of a portfolio of Standard
and Poor's 100 ("S&P 100") common stocks, the fair value of which varies
consistently with changes in the S&P 100 index. To hedge against fluctuations in
the market value of the portfolio, the Company has purchased short-term S & P
100 index put options and sold short-term S & P 100 index call options. At
February 28, 2004 and November 29, 2003, the Company had no such investments,
but will continue to invest in such equities in the future.
The Company has agreements with various brokerage firms to carry its account as
a customer. The brokers have custody of the Company's securities and, from time
to time, cash balances, which may be due from these brokers. These securities
and/or cash positions serve as collateral for any amounts due to brokers or as
collateral for securities sold short or securities purchased on margin. The
securities and/or cash positions also serve as collateral for potential defaults
of the Company.
The Company is subject to credit risk if the brokers are unable to repay
balances due or deliver securities in their custody. It is the policy of the
Company to limit the amount of credit exposure to any one financial institution.
The Company has received confirmation indicating that, with respect to
investment securities, each custodian with the exception of one custodian
maintains appropriate insurance coverage. During fiscal 2003 and the three
months ended February 28, 2004, that custodian had an average balance of
approximately $9.6 million, and $8.0 million, respectively, of the Company's
cash under investment which from time to time during such periods was invested
entirely in equity securities. At February 28, 2004, that custodian had
approximately $8.0 million of the Company's cash under investments, which were
all invested in U.S. Treasury obligations. The Company's investment policy
currently permits up to 50% of the Company's portfolio to be held by the
custodian.
4. Inventories:
The Company's inventories are valued at the lower of cost or market. Cost is
determined principally by the last-in, first-out (LIFO) method with the
remainder being determined by the first-in, first-out (FIFO) method. Because the
inventory valuation under the LIFO method is based upon an annual determination
of inventory levels and costs as of the fiscal year-end, the interim LIFO
calculations are based on management's estimates of expected year-end inventory
levels and costs.
FEBRUARY 28, 2004 NOVEMBER 29, 2003
----------------- -----------------
Raw materials $ 1,705,000 $ 1,446,000
Work in process 1,759,000 1,867,000
Finished goods 2,017,000 2,218,000
----------------- -----------------
Total $ 5,481,000 $ 5,531,000
================= =================
Approximate percentage of
inventories valued
under LIFO valuation 59% 61%
Excess of FIFO valuation
over LIFO valuation $ 1,007,000 $ 1,007,000
================= =================
(10)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Loss Per Share:
Basic and diluted loss per share for the 13 weeks ended February 28, 2004 and
March 1, 2003 are calculated as follows:
WEIGHTED
NET AVERAGE PER-SHARE
LOSS SHARES AMOUNT
---- ------ ------
For the 13 weeks ended February 28, 2004:
Basic loss per share ($292,000) 5,215,031 ($0.06)
--------- --------- ------
For the 13 weeks ended March 1, 2003:
Basic loss per share ($270,000) 5,238,015 ($0.05)
--------- --------- ------
There were no options outstanding during the 13 weeks ended February 28, 2004
and March 1, 2003, respectively. During fiscal 2002, all outstanding options
were either exercised or cancelled.
6. Comprehensive Loss:
Accumulated other comprehensive loss is comprised of unrealized holding loss
related to available-for-sale securities. Comprehensive loss was $243,000 and
$28,000 for the 13 weeks ended February 28, 2004 and March 1, 2003,
respectively.
7. Litigation:
On November 10, 2003, a class action suit was filed against the Company in
Delaware Chancery Court. The complaint asserts claims against the Company and
certain of its officers and directors based on the management buy-out proposal
at a price allegedly lower than the cash value and book value of the Company's
shares and which was an allegedly interested transaction, the amendment to Mr.
Bitensky's employment contract, the Company's failure to seek stockholder
approval for the management buyout and the Company's failure to file a
certificate of dissolution with the Delaware Secretary of State. The complaint
alleges such actions constitute violations of defendants fiduciary duties, as
well as the provisions of the Delaware General Corporation Law.
The complaint does not seek a specific amount of damages, and seeks to enjoin
defendants from effectuating the planned management buyout. The company served
an answer to the complainant on December 11, 2003. On each of November 21 and
November 26, 2003 class action lawsuits were initiated against the Company
asserting the same allegations as those described above.
The Company believes that each of the claims described above is without merit.
Further, certain of the claims described above have been rendered moot by the
withdrawal of preliminary offer by management-led buyout to acquire the Company.
(11)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Litigation continued:
A number of claims and lawsuits seeking unspecified damages and other relief are
pending against the Company. It is impossible at this time for the Company to
predict with any certainty the outcome of such litigation. However, management
is of the opinion based upon information presently available, that it is
unlikely that any liability, to the extent not provided for through insurance or
otherwise, would be material in relation to the Company's consolidated financial
position and results of operations.
Other
The Company has a letter of credit with its insurance provider for $400,000.
8. Effect of recently Issued Accounting Standards
In July 2002, the FASB issued SFAS 146 "Accounting for Restructuring Costs".
SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts, and relocating plant facilities or personnel. Under SFAS 146, a
company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
146 requires a company to disclose information about its exit and disposal
activities, the related costs and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with an earlier adoption encouraged. Under
SFAS 146, a company may not restate its previously issued financial statements
and the new statement grandfathers the accounting for liabilities that a company
had previously recorded under Emerging Issues Task Force Issue 94-3. The
adoption of this statement did not have a material impact on the Company's
financial position or results of operations.
(12)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities. The objective of this interpretation is to provide
guidance on how to identify a variable interest entity ("VIE") and determine
when the assets, liabilities, noncontrolling interests, and results of
operations of a VIE need to be included in a company's consolidated financial
statements. A Company that holds variable interests in an entity will need to
consolidate the entity if the company's interest in the VIE is such that the
company will absorb a majority of the VIE's expected losses and/or receive a
majority of the entity's expected returns if they occur. Interpretation No.46
also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. The Interpretation became effective upon
issuance. The Company's adoption of this interpretation did not have an effect
on its consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This statement
affects the classification, measurement and disclosure requirements of the
following three types of freestanding financial instruments: 1) mandatorily
redeemable shares, which the issuing company is obligated to buy back with cash
or other assets; 2) instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets, which includes put
options and forward purchase contracts; and 3) obligations that can be settled
with shares, the monetary value of which is fixed, tied solely or predominately
to a variable such as a market index, or varies inversely with the value of the
issuers' shares. In general, SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after Fiscal
2004. The Company's adoption of SFAS No. 150 did not have an effect on the
Company's consolidated financial statements.
9. Derivative Financial Instruments Held or Issued
The Company is party to equity option contracts as part of its investing
activities. Option contracts are contractual agreements that give the purchaser
the right, but not the obligation, to purchase or sell a financial instrument at
a predetermined exercise price. In return for this right, the purchaser pays a
premium to the seller of the option. By selling or writing options, the Company
receives a premium and becomes obligated during the term of the option to
purchase or sell a financial instrument at a predetermined exercise price if the
option is exercised, and assumes the risk of not being able to enter into a
closing transaction if a liquid secondary market does not exist. As of February
28, 2004, the Company had no equity option contracts. During the three months
ended February 28, 2004, the Company was party to equity option contracts from
time to time.
(13)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Segment Information:
The Company adopted SFAS No. 131 "Disclosure About Segments of an Enterprise and
Related Information" in fiscal 1999. SFAS No. 131 requires companies to report
information on segments using the way management organizes segments within the
company for making operating decisions and assessing financial performance.
The Company's chief operating decision-maker is considered to be the Chief
Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The Company has identified three reportable segments based
upon the primary markets it serves: Apparel Fabrics, Home Fashions, Industrial
Fabrics and Accessories and Other.
Apparel Fabrics: The Company is a major manufacturer of warp and circular knit
fabrics and raschel laces. The Company's textile fabrics are sold to a wide
variety of manufacturers of ready-to-wear and intimate apparel for men, women,
and children, including dresses and sportswear, children's sleepwear,
activewear, swimwear, and recreational apparel.
Home Fashions and Accessories: While sales primarily to manufacturers of home
furnishings, we also use our own textile fabrics internally to produce flannel
and satin sheets, blanket products, comforters, and other bedding products which
we sell to specialty stores, catalogue and mail order companies, and airlines.
Other: The Company produces a line of ultrasonically, hot melt adhesive, flame
and adhesive bonded products for apparel, environmental, health care, industrial
and consumer markets. The Company's textile fabrics are sold to manufacturers
servicing the residential and contract markets. The Company also sells fabrics
in the over the counter markets.
The Company neither allocates to the segments nor bases segment decisions on the
following:
- Interest and dividend income
- Interest and other expense
- Net gain on investment securities
- Income tax expense or benefit
Many of the Company's assets are used by multiple segments. While certain assets
such as Inventory and Property, Plant and Equipment are identifiable by segment,
an allocation of the substantial remaining assets is not meaningful.
(14)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The 13 weeks ended February 28, 2004 and March 1, 2003, includes gain on the
sale of fixed assets of $685,000 and $174,000, respectively. Of this, $441,000
in the 13 weeks ended February 28, 2004 belongs to the Other Segment and the
balance applied to the Apparel Segment. In addition, Apparel Segment includes
$250,000 reserve for environmental costs. (in thousands)
HOME
FIRST QUARTER ENDED FASHIONS AND
02/28/04 (UNAUDITED) APPAREL ACCESSORIES OTHER TOTAL
-------------------- ------- ----------- ----- -----
External sales $ 6,990 $ 1,233 $ 1,918 $ 10,141
Intersegment sales 1,049 15 42 1,106
Operating income (loss) (1,383) (77) 648 (812)
Segment assets 11,080 1,141 1,651 13,872
HOME
FIRST QUARTER ENDED FASHIONS AND
03/01/03 (UNAUDITED) APPAREL ACCESSORIES OTHER TOTAL
-------------------- ------- ----------- ----- -----
External sales $ 9,122 $ 805 $ 1,660 $ 11,587
Intersegment sales 846 19 72 937
Operating income (loss) (764) (38) 89 (713)
Segment assets 16,520 1,020 2,542 20,082
PROFIT OR LOSS (UNAUDITED) 2004 2003
-------------------------- ---- ----
Total operating loss for segments $ (812) $ (713)
Total other income 390 318
------ ------
Loss before income tax benefit $ (422) $ (395)
====== ======
11. Commitments:
During fiscal year ended November 29, 2003, the Company and Mr. Bitensky amended
the employment agreement between the Company and Mr. Bitensky dated as of March
1, 1993 to provide that at such time as the Company is sold or liquidated
pursuant to the Plan, in lieu of the annual consulting fees due under such an
agreement over the five year consulting period provided therein, Mr. Bitensky
will receive a lump sum payment equal to the aggregate net present value of each
payment due under such agreement, such present value to be determined utilizing
the prevailing prime rate at the time of the payment, as determined by the
Board.
Such amendment to the employment agreement also provides that Mr. Bitensky
relinquishes his right under the terms of the original agreement to require the
Company to purchase upon his death approximately $10,000,000 of shares of Common
Stock from his estate. In consideration of Mr. Bitensky's relinquishing such
right, the Company agreed to transfer to Mr. Bitensky ownership of the three
life insurance policies on Mr. Bitensky's life owned by the Company. The Company
transferred these policies during the fiscal year ended November 29, 2003.
12. Other Expense:
During the quarter ended February 28, 2004, the Company recorded an accrual of
$250,000 for environmental costs.
(15)
ITEM 2. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter
FISCAL 2004 COMPARED TO FISCAL 2003
Net sales for the first quarter 2004 were $10,141,000 as compared to $11,587,000
in the similar 2003 period, a decrease of $1,446,000 or 12.5%. Such decreases
were caused substantially by lower volume as business conditions within the
domestic textile industry remain depressed. The continued influx of low-cost
foreign imports has also taken a sustained toll in the U.S. manufacturing
sector. These factors have negatively impacted sales and production.
Gross margins as a percentage of sales declined from 6.4% to 4.2%. Lower sales
volume reduced operating schedules at production facilities.
Selling, general and administrative expenses in the current quarter increase
slightly by $48,000 or 2.9%. The increase in expenses is due primarily to an
increase in Professional fees offset by a decrease in the number of employees
and related expenses.
Other expense includes an accrual for $250,000 for environmental costs which was
recorded in the quarter ended February 28, 2004.
The Company had a gain on the sale of fixed assets in the current quarter of
$685,000 as compared to $174,000 last year first quarter.
Interest and dividend income for the current quarter decreased by $125,000 or
36.0% as compared to the first quarter of 2003. On August 22, 2003, the Company
distributed a second liquidating distribution of $4.00 per share, or
$20,860,000. Accordingly, the Company had lower average invested balances which
were invested primarily in United States Treasury obligations resulting in lower
risks and lower yields. In the first quarter of 2004, the Company had realized
gains of $168,000 compared to realized losses of $29,000 in the comparable first
quarter 2003.
The Company had realized a tax benefits, which had effective tax rates of 30.8%
and 31.6% for the first quarters of 2004 and 2003, respectively.
As a result of these factors, the Company had a net loss of $292,000 or $0.06
basic and diluted loss per share for the 13 weeks ended February 28, 2004
compared to a net loss of $270,000 or $0.05 basic and diluted loss per share for
the 13 weeks ended March 1, 2003.
(16)
Liquidity and Capital Resources
Net cash provided by operations amounted to $1,429,000 in the first quarter 2004
compared to $680,000 used in operations for the comparative 2003 period. Of the
increase, changes were as follows: $484,000 increase in accounts receivable,
$325,000 in inventories and $2,462,000 in accounts payable and other current
liabilities. These increases were offset by an increase of $22,000 in net loss,
$512,000 in gain on disposition of fixed assets, $197,000 in net gain on
investment securities, $366,000 to current and other assets and $73,000 to
depreciation.
In the first quarter 2004, net acquisitions of investment securities were
$2,157,000 as compared to net acquisitions of $255,000 in the comparative 2003
period.
Stockholders equity was $33,041,000 ($6.34 book value per share) at February 28,
2004 compared to $48,929,000 ($9.38 book value per share) at the previous
year-end November 29, 2003 and $64,550,000 ($12.32 book value per share) at
March 1, 2003. The reduction in stockholders' equity from the first quarter 2003
was primarily due to the second liquidating distribution of $4.00 per share, or
$20,860,000 on August 22, 2003 and the third liquidating distribution of $3.00
per share or $15,645,000 declared on February 18, 2004 and paid on March 10,
2004 with a record date of February 28, 2004.
Management believes that the Company's current financial position is adequate to
satisfying working capital requirements and to internally fund any future
expenditures to maintain its manufacturing facilities for the next twelve
months.
Commitments:
During fiscal year ended November 29, 2003, the Company and Mr. Bitensky amended
the Employment Agreement between the Company and Mr. Bitensky dated as of March
1, 1993 to provide that at such time as the Company is sold or liquidated
pursuant to the Plan, in lieu of the annual consulting fees due under such an
agreement over the five year consulting period provided therein, Mr. Bitensky
will receive a lump sum payment equal to the aggregate net present value of each
payment due under such agreement, such present value to be determined utilizing
the prevailing prime rate at the time of the payment, as determined by the
Board.
Such amendment to the Employment Agreement also provides that Mr. Bitensky
relinquishes his right under the terms of the original agreement to require the
Company to purchase upon his death approximately $10,000,000 of shares of Common
Stock from his estate. In consideration of Mr. Bitensky's relinquishing such
right, the Company agreed to transfer to Mr. Bitensky ownership of the three
life insurance policies on Mr. Bitensky's life owned by the Company. The Company
transferred these policies during fiscal year ended November 29, 2003.
(17)
CRITICAL ACCOUNTING POLICIES
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 period. The critical
accounting policies that affect the Company's more complex judgments and
estimates are described in the Company's Annual Report on Form 10-K for the
fiscal year ended November 29, 2003.
FORWARD-LOOKING INFORMATION
Certain statements in this report are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in our
communications and discussions with investors and analysts in the normal course
of business including, but not limited to, meetings, phone calls and conference
calls, regarding the sale of our assets pursuant to a plan of liquidation and
dissolution, as well as expectations with respect to future sales and operating
efficiencies prior to a sale of the company, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond our control and
which may cause actual results, performance or achievements to differ materially
from anticipated results, performances or achievements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies, and expectations, are generally identifiable by the use of
words "may", "will", "should", "expect", "anticipate", "estimate" "believe"
"intend" or "project" or the negative of them or other variations of them or
comparable terminology.
Factors that could have a material adverse effect on our operations and
future prospects include, but are not limited to: our ability to find qualified
buyers for our assets; overall economic and business conditions; our continuing
ability to support the demand for our goods and services; competitive factors in
the industries in which we compete; changes in government regulation; changes in
tax requirements (including tax rate changes, new tax laws and revised tax law
interpretations); interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; material contingencies
provided for in a sale of our assets; de-listing of our common stock from the
American Stock Exchange; our ability to retain key employees through any wind
down period; and any litigation arising as a result of our plan to wind down our
operations. These risks and uncertainties should be considered in evaluating any
forward-looking statements contained in this quarterly report on Form 10-Q.
We undertake no obligation to update or revise a forward-looking statement,
whether as a result of new information, future events, or otherwise, other than
required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Derivative Instruments and Hedging Activities" in Note 1 and Note 3 of the
Notes to the Consolidated Financial Statements. See also "Derivative Financial
Instruments Held or Issued" in Note 9 of the Notes to the Condensed Consolidated
Financial Statements.
(18)
Item 4. Controls and Procedures
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES: Our Chief Executive
Officer and Chief Financial Officer, having concluded, based on their
evaluation, as of the end of the period covered by this report, that
our disclosure controls and procedures (as defined in the Securities
and Exchange Act of 1934 Rules 13a-15(e) and 15-15(e)) are (1)
effective to ensure that material information required to be disclosed
by us in reports filed or submitted by us under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and
forms, and (2) designed to ensure the material information required to
be disclosed by us in such reports is accumulated, organized and
communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriated, to allow timely decisions
regarding required disclosure.
(b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no changes in the
Company's internal control over financial reporting (as defined in
Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of
1934, as amended) that occurred during the Company's most recent
quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems,
there is only reasonable assurance that our controls will succeed in achieving
their stated goals under all potential future conditions.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
31.1 Certification by Samson Bitensky pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by David A. Miller pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification by Samson Bitensky pursuant to 18 U.S.C. Section
1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification by David A. Miller pursuant to 18 U.S.C. Section
1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
The Company filed on February 18, 2004 a report on Form 8-K
announcing the payment of a Liquidating Distribution in
connection with its Plan of Liquidation.
The Company furnished on February 27, 2004, a report on Form
8-K announcing, under Item 9 of such form, its earnings for
the 52 weeks ended November 29, 2003.
(19)
SIGNATURES
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 13, 2004 FAB INDUSTRIES, INC.
By: /s/ Samson Bitensky
---------------------------------------
Samson Bitensky
Chairman of the Board
and Chief Executive Officer
By: /s/ David A. Miller
---------------------------------------
David A. Miller
Vice President-Finance
Treasurer and Chief Financial Officer
(Principal Financial and Accounting
Officer)
(20)