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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 5, 1997
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 May 5, 1997, 8,321,097 shares of Registrant's Common Stock, $0.01
par value, were outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
April 5, January 4,
1997 1997
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 259 $ 385
Accounts receivable, less allowances of $2,034 and $2,052 at
April 5, 1997 and January 4, 1997, respectively,
for doubtful accounts and sales returns and allowances 27,135 26,261
Inventories 28,511 27,737
Prepaid and refundable income taxes 702 694
Prepaid expenses and other current assets 1,950 2,837
--------- ---------
Total current assets 58,557 57,914
--------- ---------
Property, plant and equipment, net of depreciation and amortization
of $34,016 and $32,121 at April 5, 1997
and January 4, 1997, respectively 84,590 84,045
--------- ---------
Other assets:
Goodwill, net of amortization 6,347 6,397
Deferred financing costs 297 322
Other assets 195 154
--------- ---------
Total assets $ 149,986 $ 148,832
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 970 $ 951
Current portion of capital lease obligations 1,493 1,532
Accounts payable 13,068 14,384
Accrued expenses 8,881 8,427
--------- ---------
Total current liabilities 24,412 25,294
--------- ---------
Long-term debt, less current portion 31,481 35,731
--------- ---------
Capital lease obligations, net of current portion 6,218 6,504
--------- ---------
Deferred income taxes 12,020 11,649
--------- ---------
Other long-term liabilities 2,927 3,082
--------- ---------
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;
8,321,097 and 8,021,097 shares issued and outstanding as of
April 5, 1997 and January 4, 1997, respectively 83 80
Additional paid-in capital 45,791 41,948
Retained earnings 28,469 25,959
Cumulative translation adjustment (1,415) (1,415)
--------- ---------
Total stockholders' equity 72,928 66,572
--------- ---------
Total liabilities and stockholders' equity $ 149,986 $ 148,832
========= =========
</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
------------------------
April 5, March 30,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Net sales $53,198 $43,254
Cost of products sold 40,099 33,957
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Gross margin 13,099 9,297
Selling, general and administrative expenses 8,468 6,624
------- -------
Operating income 4,631 2,673
Other expenses:
Interest expense, net 875 948
Other, net 9 29
------- -------
Income before provision for income taxes 3,747 1,696
Provision for income taxes 1,237 560
------- -------
Net income $ 2,510 $ 1,136
======= =======
Earnings per common share (Note 1) $ 0.30 $ 0.14
======= =======
Average shares outstanding (Note 1) 8,471 8,296
======= =======
</TABLE>
2
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
April 5, March 30,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,510 $ 1,136
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,969 1,794
Deferred income taxes 371 168
Stock option compensation expense 571 62
Changes in operating assets and liabilities:
Accounts receivable (net) (874) (1,185)
Inventories (774) (421)
Prepaid expenses and other current assets 839 708
Accounts payable and accrued expenses (862) 310
Other long-term liabilities (155) (93)
------- -------
Net cash provided by operating activities 3,595 2,479
------- -------
Cash flows from investing activities:
Net purchase of property, plant and equipment (2,440) (3,276)
------- -------
Net cash used for investing activities (2,440) (3,276)
------- -------
Cash flows from financing activities:
Repayments of capital leases (325) (305)
Net borrowings (repayments of) revolving line of credit (4,000) 1,300
Repayments of term debt (231) (213)
Proceeds from issuance of common stock, net of offering expenses 3,275 0
Capitalization of finance cost 0 (14)
------- -------
Net cash (used) provided by financing
activities (1,281) 768
------- -------
Effect of exchange rates on cash 0 13
Net decrease in cash and cash equivalents (126) (16)
Cash and cash equivalents, beginning of period 385 200
------- -------
Cash and cash equivalents, end of period $ 259 $ 184
======= =======
</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 April 5, 1997 and January 4, 1997 and the
results of their operations and cash flows for the three months ended April 5,
1997 and March 30, 1996. 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 January 4, 1997.
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 January 4, 1997.
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. This statement is effective for fiscal years ending after December 15,
1997 and early adoption is not permitted. When adopted, the statement will
require restatement of prior years' earnings per share. The Company will adopt
this statement for its fiscal year ending January 3, 1998 and does not believe
that the effect of the adoption of this standard on the Company's earnings per
share results would be materially different from the amounts presented in the
accompanying statements of income.
4
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
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 April 5, 1997 and January 4, 1997 consisted of the following:
<TABLE>
<CAPTION>
APRIL 5, JANUARY 4,
1997 1997
---------- ---------
(In thousands)
<S> <C> <C>
Raw materials $11,079 $11,127
Work in process 8,822 8,421
Finished goods 8,701 8,280
------- -------
Inventory at FIFO 28,602 27,828
LIFO Reserve 91 91
------- -------
Inventory at LIFO $28,511 $27,737
======= =======
</TABLE>
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 1996" ended January 4, 1997 and "Fiscal
1997" will end January 3, 1998. The first three months of Fiscal 1996 and Fiscal
1997 ended March 30, 1996 and April 5, 1997, respectively.
RESULTS OF OPERATIONS
Net sales for the first three months of Fiscal 1997 increased $9.9 million
or 23.0%, to $53.2 million from $43.3 million for the first three months of
Fiscal 1996. The average gross sales price per yard increased 4.4%, to $4.26 for
the first three months of Fiscal 1997 from $4.08 for the first three months of
Fiscal 1996. The gross volume of fabric sold increased 13.4%, to 11.0 million
yards for the first three months of Fiscal 1997 from 9.7 million yards for the
first three months of Fiscal 1996. The Company sold 21.9% more yards of middle
to better-end fabrics and 0.2% more yards of promotional-end fabrics in the
first three months of Fiscal 1997 than in the first three months of Fiscal 1996.
The average gross sales price per yard of middle to better-end fabrics increased
by 4.7%, to $4.70 in the first three months of Fiscal 1997 as compared to $4.49
in the first three months of Fiscal 1996. The average gross sales price per yard
of promotional-end fabric decreased by 0.9%, to $3.41 in the first three months
of Fiscal 1997 as compared to $3.44 in the first three months of Fiscal 1996.
Gross fabric sales within the United
5
<PAGE> 7
States increased 18.7%, to $38.9 million in the first three months of Fiscal
1997 from $32.7 million in the first three months of Fiscal 1996. Foreign and
Export sales increased 16.4%, to $8.0 million in the first three months of
Fiscal 1997 from $6.9 million in the first three months of Fiscal 1996. Gross
yarn sales increased 57.2%, to $7.4 million in the first three months of Fiscal
1997 from $4.7 million in the same period of Fiscal 1996.
The gross margin percentage for the first three months of Fiscal 1997
increased to 24.6% as compared to 21.5% for the first three months of Fiscal
1996. The increase in gross profit margin was primarily due to 1.) increased
sales volume in the higher-margin middle to better-end and Foreign/Export
fabrics and 2.) lower manufacturing costs from improved manufacturing
efficiencies.
Selling, general and administrative expenses increased to $8.5 million
for the first three months of Fiscal 1997 from $6.6 million for the first three
months of Fiscal 1996. Selling, general and administrative expenses as a
percentage of net sales increased to 15.9% in the first three months of Fiscal
1997 from 15.3% in the first three months of Fiscal 1996. The increase in
selling, general and administrative expenses as a percentage of net sales was
due to the $480 thousand non cash increase in stock option amortization
expense. This charge was due to the accelerated vesting of certain stock
options as a result of the stock offering during the first quarter of 1997.
Adjusting for this charge would have resulted in selling, general and
administrative expenses as a percentage of net sales of 15.0% in the first
three months of Fiscal 1997.
Interest expense was approximately $0.9 million for the first three months
of Fiscal 1997 and Fiscal 1996. Lower levels of senior debt financing, and lower
capital lease and term debt obligations were partially offset by higher interest
rates on the senior revolving line of credit.
The effective tax rate was 33.0% for the first three months of Fiscal 1997,
the same rate as for the first three month of Fiscal 1996.
Net income for the first three months of Fiscal 1997 increased to $2.5
million, or $0.30 per share, from $1.1 million, or $0.14 per share, for the
first three months of Fiscal 1996. 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 January 4, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and capital
requirements through a combination of internally generated funds, borrowings,
and equipment leasing. 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 associated with the
growth of the Company's sales.
6
<PAGE> 8
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 April 5, 1997, the Company had no outstanding balance under the
Credit Agreement and had unused availability of $49.7 million, net of
outstanding letters of credit. 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 January 4, 1997.
On March 24, 1997, the Company completed a public offering of 3.4 million
shares of its common stock, of which 3.1 million shares were sold by selling
stockholders and 300,000 were sold by the Company (the "1997 Offering"). The
proceeds to the Company from the 1997 Offering were approximately $3.3 million,
net of offering expenses.
Net capital expenditures for the first three months of Fiscal 1996 were $3.3
million. Capital expenditures during the first three months of Fiscal 1997 used
$2.4 million of cash. Capital expenditures for 1997 were funded by internally
generated cash flows. Management anticipates that capital expenditures will
total approximately $21.2 million in 1997, consisting of $14.4 million, plus the
$3.3 million net proceeds to the Company from the 1997 Offering, primarily for
new production equipment to expand chenille yarn capacity, increase weaving
capacity, and support the Company's marketing, productivity, quality, service
and financial performance objectives and $3.5 million to upgrade the Company's
management information systems.
7
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QUAKER FABRIC CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27.0 - Financial Data Schedule
(B) The Company filed one Report on Form 8-K on
February 24, 1997 to report the adoption of
a stockholders' rights plan.
8
<PAGE> 10
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: May 19, 1997 By: /s/ Paul J. Kelly
------------------------ ----------------------
Paul J. Kelly
Vice President - Finance
and Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> JAN-05-1997
<PERIOD-END> APR-05-1997
<CASH> 259
<SECURITIES> 0
<RECEIVABLES> 27,135
<ALLOWANCES> 2,034
<INVENTORY> 28,511
<CURRENT-ASSETS> 58,557
<PP&E> 118,606
<DEPRECIATION> 34,016
<TOTAL-ASSETS> 149,986
<CURRENT-LIABILITIES> 24,412
<BONDS> 37,699
0
0
<COMMON> 83
<OTHER-SE> 72,845
<TOTAL-LIABILITY-AND-EQUITY> 149,986
<SALES> 53,198
<TOTAL-REVENUES> 53,198
<CGS> 40,099
<TOTAL-COSTS> 40,099
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 875
<INCOME-PRETAX> 3,747
<INCOME-TAX> 1,237
<INCOME-CONTINUING> 2,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,510
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
