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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7023
QUAKER FABRIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-1933106
(State of incorporation) (I.R.S. Employer Identification No.)
941 Grinnell Street, Fall River, Massachusetts 02721
(Address of principal executive offices)
(508) 678-1951
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of April 26, 1996, 8,021,097 shares of Registrant's Common Stock,
$0.01 par value, were outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 30, December 30,
1996 1995
----------- ------------
(Unaudited) (Audited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 184 $ 200
Accounts receivable, less allowances of $1,925 and $1,985 at
March 30, 1996 and December 30, 1995, respectively,
for doubtful accounts and sales returns and allowances 25,396 24,211
Inventories 23,577 23,156
Prepaid and refundable income taxes 1,252 1,702
Prepaid expenses and other current assets 1,933 2,371
-------- --------
Total current assets 52,342 51,640
-------- --------
Property, plant and equipment, net of accumulated depreciation
and amortization of $27,280 and $25,552 at March 30, 1996
and December 30, 1995, respectively 80,722 79,156
Other assets:
Goodwill, net of amortization 6,541 6,589
Deferred financing costs 440 461
Other assets 155 271
-------- --------
Total assets $140,200 $138,117
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 896 $ 878
Current portion of capital lease obligations 1,269 1,249
Accounts payable 12,166 14,127
Accrued expenses 6,877 4,606
-------- --------
Total current liabilities 21,208 20,860
-------- --------
Long-term debt, less current portion 38,151 37,082
-------- --------
Capital lease obligations, net of current portion 7,711 8,036
-------- --------
Deferred income taxes 10,396 10,523
-------- --------
Other long-term liabilities 3,673 3,766
-------- --------
Redeemable preferred stock:
Series A convertible, $.01 par value per share, liquidation preference
$1,000 per share, 50,000 shares authorized. No shares issued and
outstanding -- --
Stockholders' equity:
Common stock, $.01 par value per share, 20,000,000 shares authorized;
8,021,097 shares issued and outstanding as of
March 30, 1996 and December 30, 1995, respectively 80 80
Additional paid-in capital 41,749 41,687
Retained earnings 18,533 17,397
Cumulative translation adjustment (1,301) (1,314)
-------- --------
Total stockholders' equity 59,061 57,850
-------- --------
Total liabilities and stockholders' equity $140,200 $138,117
======== ========
</TABLE>
1
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
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March 30, April 1,
1996 1995
--------- --------
(Unaudited)
<S> <C> <C>
Net sales $43,254 $46,250
Cost of products sold 33,957 34,146
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Gross margin 9,297 12,104
Selling, general and administrative expenses 6,624 7,135
------- -------
Operating income 2,673 4,969
Other expenses:
Interest expense, net 948 950
Other, net 29 17
------- -------
Income before provision for income taxes 1,696 4,002
Provision for income taxes 560 1,507
------- -------
Net income $1,136 $ 2,495
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Earnings per common share (Note 1) $ 0.14 $ 0.3
======= =======
Average shares outstanding (Note 1) 8,296 8,297
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</TABLE>
2
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 30, April 1,
1996 1995
--------- --------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,136 $ 2,495
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,794 1,588
Deferred income taxes 168 110
Stock option compensation expense 62 62
Changes in operating assets and liabilities:
Accounts receivable (net) (1,185) (570)
Inventories (421) (2,222)
Prepaid expenses and other current assets 708 179
Accounts payable and accrued expenses 310 323
Other long-term liabilities (93) (102)
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Net cash provided by operating activities 2,479 1,863
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Cash flows from investing activities:
Net purchase of property, plant and equipment (3,276) (2,084)
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Net cash used for investing activities (3,276) (2,084)
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Cash flows from financing activities:
Repayments of capital leases (305) (286)
Net borrowings on revolving line of credit 1,300 900
Repayments of term debt (213) (197)
Proceeds from exercise of stock options 0 44
Capitalization of finance cost (14) 0
------- -------
Net cash provided by financing activities 768 461
------- -------
Effect of exchange rates on cash 13 (395)
Net decrease in cash and cash equivalents (16) (155)
Cash and cash equivalents, beginning of period 200 335
------- -------
Cash and cash equivalents, end of period $184 $180
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</TABLE>
3
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of management,
necessary to present fairly the financial position of Quaker Fabric Corporation
and Subsidiaries (the "Company") as of March 30, 1996 and December 30, 1995 and
the results of their operations and cash flows for the three months ended March
30, 1996 and April 1, 1995. The unaudited consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to those rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10- K for the year ended December 30,
1995. Certain reclassifications have been made to the prior year financial
statements for consistent presentation with the current year.
EARNINGS PER COMMON SHARE
Earnings per common share is computed using the weighted average number of
common shares and common share equivalents outstanding during the period. See
Note 2 to the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 30, 1995.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost or market and include
materials, labor and overhead. Cost is determined by the last-in, first-out
(LIFO) method.
Inventories at March 30, 1996 and December 30, 1995 consisted of the
following:
<TABLE>
<CAPTION>
March 30, December 30,
1996 1995
--------- -------------
(In thousands)
<S> <C> <C>
Raw materials $ 9,015 $10,028
Work in process 8,404 8,087
Finished goods 6,273 5,591
Inventory at FIFO 23,692 23,706
------- -------
LIFO Reserve 115 550
------- -------
Inventory at LIFO $23,577 $23,156
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</TABLE>
4
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's fiscal year is a 52 or 53 week period ending on the
Saturday closest to January 1. "Fiscal 1995" ended December 30, 1995 and "Fiscal
1996" will end January 4, 1997. The first three months of Fiscal 1995 and Fiscal
1996 ended April 1, 1995 and March 30, 1996, respectively.
RESULTS OF OPERATIONS
Net sales for the first three months of Fiscal 1996 decreased $3.0 million
or 6.5%, to $43.3 million from $46.3 million for the first three months of
Fiscal 1995. The average gross sales price per yard increased 4.6%, to $4.08 for
the first three months of Fiscal 1996 from $3.90 for the first three months of
Fiscal 1995. The gross volume of fabric sold decreased 11.3%, to 9.7 million
yards for the first three months of Fiscal 1996 from 10.9 million yards for the
first three months of Fiscal 1995. The Company sold 6.5% fewer yards of middle
to better-end fabrics and 17.7% fewer yards of promotional-end fabrics in the
first three months of Fiscal 1996 than in the first three months of Fiscal 1995.
The average gross sales price per yard of middle to better-end fabrics increased
by 3.9%, to $4.49 in the first three months of Fiscal 1996 as compared to $4.32
in the first three months of Fiscal 1995. The average gross sales price per yard
of promotional-end fabric increased by 3.6%, to $3.44 in the first three months
of Fiscal 1996 as compared to $3.32 in the first three months of Fiscal 1995.
Gross fabric sales within the United States decreased 13.0%, to $32.7 million in
the first three months of Fiscal 1996 from $37.6 million in the first three
months of Fiscal 1995. Foreign and Export sales increased 35.7%, to $6.9 million
in the first three months of Fiscal 1996 from $5.1 million in the first three
months of Fiscal 1995. Gross yarn sales increased 2.4%, to $4.7 million in the
first three months of Fiscal 1996 from $4.6 million in the same period of Fiscal
1995.
The gross margin percentage for the first three months of Fiscal 1996
decreased to 21.5% as compared to 26.2% for the first three months of Fiscal
1995. The decrease in the gross profit margin was due to a reduction in
manufacturing efficiencies and lower absorption of fixed overhead costs because
of lower sales and production volume. The gross profit margin percentage
increased, however, by 440 basis points as compared to the fourth quarter of
1995. This increase, despite the reduced sales volume as compared to the fourth
quarter of 1995, was due to a reduction in raw material costs and improved
manufacturing efficiencies.
Selling, general and administrative expenses decreased to $6.6 million for
the first three months of Fiscal 1996 from $7.1 million for the first three
months of Fiscal 1995. Selling, general and administrative expenses as a
percentage of net sales decreased to 15.3% in the first three months of Fiscal
1996 from 15.4% in the first three months of Fiscal 1995. The decrease in
selling, general and administrative expenses as a percentage of net sales was
primarily due to a reduction in expenses associated with Quaker's operations in
Mexico, bad debts, and sampling costs.
5
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Interest expense was approximately $1.0 million for the first three months
of both Fiscal 1996 and Fiscal 1995. Higher levels of debt during the first
quarter of 1996 were offset by lower interest rates as a result of the amendment
to the Company's Credit Agreement (as hereinafter defined) which was executed
in December 1995.
The effective tax rate decreased to 33.0% for the first three months of
Fiscal 1996 from 37.7% for the first three months of Fiscal 1995. The decrease
in the effective tax rate is principally due to a reduction in the Company's
state income tax rate. See Note 7 to the Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended December
30, 1995.
Net income for the first three months of Fiscal 1996 decreased to $1.1
million, or $0.14 per share, from $2.5 million, or $0.30 per share, for the
first three months of Fiscal 1995. For a discussion of "Earnings Per Share," see
Note 2 to the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and capital
requirements through a combination of equipment leasing, borrowings, and
internally generated funds. The Company's capital requirements have arisen
principally in connection with expansion of the Company's production capacity,
the equipment modernization program the Company has been executing to reduce
manufacturing costs, and increased working capital needs arising out of the
growth in the Company's sales.
In December 1995, the Company amended its unsecured credit facility with
several banks (the "Credit Agreement") and increased the facility to $50.0
million. As of March 30, 1996, the Company had $5.7 million outstanding under
the Credit Agreement and unused availability of $43.7 million, net of
outstanding letters of credit. Management believes that this facility will
provide sufficient funding for the Company's capital expenditure and working
capital needs for the foreseeable future. For a discussion of the "Credit
Agreement," see Note 5 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 30, 1995.
Net capital expenditures for the first quarter of Fiscal 1995 were $2.1
million. Capital expenditures during the first quarter of Fiscal 1996 used $3.3
million of cash. Capital expenditures were funded by cash generated from
operations and borrowings under the Credit Agreement. Management anticipates
that capital expenditures will be approximately $13.0 to $20.0 million in Fiscal
1996 and will include the acquisition of additional manufacturing equipment.
6
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 27 - Financial Data Schedule
(B) There were no reports on Form 8-K filed during the three months
ended March 30, 1996.
7
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
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.
QUAKER FABRIC CORPORATION
Date: April 29, 1996 By: /s/ Paul J. Kelly
---------------- -----------------------------------
Paul J. Kelly
Vice President - Finance
and Treasurer
8
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> JAN-04-1997
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<PERIOD-TYPE> 3-MOS
<CASH> 184
<SECURITIES> 0
<RECEIVABLES> 25,396
<ALLOWANCES> 1,925
<INVENTORY> 23,577
<CURRENT-ASSETS> 52,342
<PP&E> 108,002
<DEPRECIATION> 27,280
<TOTAL-ASSETS> 140,200
<CURRENT-LIABILITIES> 21,208
<BONDS> 45,862
<COMMON> 80
0
0
<OTHER-SE> 58,981
<TOTAL-LIABILITY-AND-EQUITY> 140,200
<SALES> 43,254
<TOTAL-REVENUES> 43,254
<CGS> 33,957
<TOTAL-COSTS> 33,957
<OTHER-EXPENSES> 29
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 948
<INCOME-PRETAX> 1,696
<INCOME-TAX> 560
<INCOME-CONTINUING> 1,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,136
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
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