<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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 October 2, 1999
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)
<TABLE>
<S> <C>
DELAWARE 04-1933106
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
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 November 5, 1999, 15,681,649 shares of Registrant's Common Stock, $0.01
par value, were outstanding.
- -------------------------------------------------------------------------------
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
--------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 460 $ 432
Accounts receivable, less allowances of $1,510 and $1,939 at
October 2, 1999 and January 2, 1999, respectively 40,789 40,661
Inventories 39,963 46,594
Prepaid income taxes 523 1,311
Prepaid expenses and other current assets 7,496 6,791
--------------- -----------------
Total current assets 89,231 95,789
--------------- -----------------
Property, plant and equipment, net of depreciation and amortization
of $56,954 and $47,514 at October 2, 1999
and January 2, 1999, respectively 137,016 132,420
--------------- -----------------
Other assets:
Goodwill, net of amortization 5,866 6,011
Other assets 626 546
--------------- -----------------
Total assets $ 232,739 $234,766
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 54 $ 700
Current portion of capital lease obligations 1,762 1,861
Accounts payable 18,246 13,754
Accrued expenses 8,337 6,780
--------------- -----------------
Total current liabilities 28,399 23,095
--------------- -----------------
Long-term debt, less current portion 57,300 65,536
--------------- -----------------
Capital lease obligations, net of current portion 2,934 3,475
--------------- -----------------
Deferred income taxes 16,061 15,874
--------------- -----------------
Other long-term liabilities 1,607 1,793
--------------- -----------------
Redeemable preferred stock:
Series A convertible, $.01 par value 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;
15,672,513 and 15,646,551 shares issued and outstanding as of
October 2, 1999 and January 2, 1999, respectively 157 156
Additional paid-in capital 83,520 83,410
Retained earnings 44,077 42,842
Cumulative translation adjustment (1,316) (1,415)
--------------- -----------------
Total stockholders' equity 126,438 124,993
--------------- -----------------
Total liabilities and stockholders' equity $ 232,739 $234,766
=============== ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
1
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- ------------------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
------------------------------- ------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $61,305 $60,331 $181,908 $187,136
Cost of products sold 48,973 48,194 146,112 146,814
------------- -------------- ------------- -------------
Gross margin 12,332 12,137 35,796 40,322
Selling, general and administrative expenses 9,832 9,681 30,149 28,297
------------- -------------- ------------- -------------
Operating income 2,500 2,456 5,647 12,025
Other expenses:
Interest expense, net 1,274 1,387 3,807 4,055
Other, net (17) 3 (59) 15
------------- -------------- ------------- -------------
Income before provision for income taxes 1,243 1,066 1,899 7,955
Provision for income taxes 435 374 664 2,785
------------- -------------- ------------- -------------
Net income $ 808 $ 692 $ 1,235 $ 5,170
============= ============== ============= =============
Earnings per common share - basic (Note 1) $ 0.05 $ 0.04 $ 0.08 $ 0.39
============= ============== ============= =============
Weighted average shares outstanding - basic (Note 1) 15,673 14,786 15,659 13,111
============= ============== ============= =============
Earnings per common share - diluted (Note 1) $ 0.05 $ 0.04 $ 0.08 $ 0.38
============= ============== ============= =============
Weighted average shares outstanding - diluted (Note 1) 16,180 15,369 16,167 13,777
============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
2
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<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
------------------------------- -------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 808 $ 692 $ 1,235 $ 5,170
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 2,931 2,890 9,622 8,199
Deferred income taxes 144 92 187 760
Changes in operating assets and liabilities:
Accounts receivable (net) (3,690) (5,599) (128) (9,068)
Inventories 3,749 (7,753) 6,631 (18,407)
Prepaid expenses and other current assets 117 (396) 75 (445)
Accounts payable and accrued expenses (123) 5,030 6,049 1,855
Other long-term liabilities (133) (63) (186) 24
------------- ------------- ------------- -------------
Net cash provided (used) by operating activities 3,803 (5,107) 23,485 (11,912)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Net purchase of property, plant and equipment (5,044) (9,373) (13,642) (34,377)
------------- ------------- ------------- -------------
Net cash used for investing activities (5,044) (9,373) (13,642) (34,377)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Repayments of capital leases (342) (294) (1,034) (868)
Net borrowings (repayment of) revolving line of credit 1,800 (21,300) (8,200) 11,300
Repayments of long-term debt (179) (238) (682) (752)
Proceeds from issuance of common stock,
net of offering expenses -- 36,460 -- 36,460
Proceeds from exercise of stock options 45 24 111 412
Capitalization of finance cost (1) -- (109) (50)
------------- ------------- ------------- -------------
Net cash provided (used) by financing activities 1,323 14,652 (9,914) 46,502
------------- ------------- ------------- -------------
Effect of exchange rates on cash 16 -- 99 --
Net increase in cash and cash equivalents 98 172 28 213
Cash and cash equivalents, beginning of period 362 275 432 234
------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 460 $ 447 $ 460 $ 447
============= ============= ============= =============
Non cash activity
Capital leases for new equipment $ 0 $ 0 $ 394 $ 0
============= ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements
3
<PAGE>
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 October 2, 1999 and January 2, 1999 and
the results of their operations and cash flows for the three months ended
October 2, 1999 and October 3, 1998. 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. Operating results for
the three and nine months ended October 2, 1999 are not necessarily indicative
of the results expected for the full Fiscal year or any future period. 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 2, 1999. Certain reclassifications have been made to the
prior year financial statements for consistent presentation with the current
year.
EARNINGS PER COMMON SHARE
Basic income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. For
diluted income per share, the denominator also includes dilutive outstanding
stock options determined using the treasury stock method. The following table
reconciles weighted average common shares outstanding to weighted average common
shares outstanding and dilutive potential common shares.
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1999 1998 1999 1998
------- ------- ------ -------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 15,672 14,786 15,660 13,111
Dilutive potential common shares 508 583 507 666
-------- -------- ------ -------
Weighted average common shares outstanding
and dilutive potential common shares 16,180 15,369 16,167 13,777
========= ======== ====== ======
Antidilutive potential common shares 1,058 96 1,058 96
========= ======== ====== ======
</TABLE>
4
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<PAGE>
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 October 2, 1999 and January 2, 1999 consisted of the
following:
<TABLE>
<CAPTION>
OCTOBER 2, JANUARY 2,
1999 1999
---------- ----------
(In thousands)
<S> <C> <C>
Raw materials $17,512 $20,137
Work in process 9,754 12,439
Finished goods 12,634 14,297
-------- --------
Inventory at FIFO 39,900 46,873
LIFO Reserve (63) 279
-------- --------
Inventory at LIFO $39,963 $46,594
======== ========
</TABLE>
NOTE 3 - COMPREHENSIVE INCOME
In accordance with SFAS No. 130, the Company's "other comprehensive
items" consist of foreign currency translation gains or loss. Foreign currency
translation gains were $16,000 for the third quarter of 1999 and $99,000 for the
first nine months of 1999. No foreign currency translation gains or losses were
reported in fiscal year 1998. During the third quarters of 1999 and 1998, the
Company's comprehensive income was $824,000 and $692,000, respectively. For the
first nine months of Fiscal 1999 and Fiscal 1998, the Company's comprehensive
income was $1,334,000 and $5,170,000, respectively.
NOTE 4 - SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131 "Disclosures about Segments of Enterprise and Related Information"
which the Company has adopted. Segments are defined as components of an
enterprise for which separate financial information is available and is
evaluated regularly by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance. The Company operates as a
single business segment consisting of sales of two products, upholstery fabric
and yarn.
The accounting policies of segment reporting are the same as those
described in Note 2 "Summary of Significant Accounting Policies" of the
Company's "1998 Annual Report". Management evaluates the Company's financial
performance in the aggregate and allocates the Company's resources without
distinguishing between yarn and fabric products.
5
<PAGE>
<PAGE>
Export sales from the United States to unaffiliated customers by major
geographical area were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- ------------------
Oct. 2, Oct. 3, Oct. 2, Oct. 2,
1999 1998 1999 1998
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
North America (excluding USA) $5,137 $5,020 $14,395 $15,391
Middle East 878 1,745 4,530 6,768
South America 398 319 956 987
Europe 1,426 1,229 5,045 4,174
All Other 1,583 363 4,101 1,533
-------- -------- -------- --------
$9,422 $8,676 $29,027 $28,853
======== ======== ======== ========
</TABLE>
Gross Sales by product category are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ------------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1999 1998 1999 1998
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Fabric $55,361 $53,588 $168,298 $166,378
Yarn 6,474 8,149 16,660 24,817
-------- -------- -------- --------
$61,835 $61,737 $184,958 $191,195
======== ======== ======== ========
</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 1998" ended January 2, 1999 and "Fiscal
1999" will end January 1, 2000. The first nine months of Fiscal 1998 and Fiscal
1999 ended October 3, 1998 and October 2, 1999, respectively.
RESULTS OF OPERATIONS - Quarterly Comparison
Net sales for the third quarter of Fiscal 1999 increased $1.0 million
or 1.6%, to $61.3 million from $60.3 million for the third quarter of Fiscal
1998. The average gross sales price per yard increased 7.7%, to $4.87 for the
third quarter of Fiscal 1999 from $4.52 for the third quarter of Fiscal 1998.
This increase was principally due to an increase in middle to better-end sales
which have a higher than average selling price. The gross volume of fabric sold
decreased 4.1%, to 11.4 million yards for the third quarter of Fiscal 1999 from
11.9 million yards for the third quarter of Fiscal 1998. The Company sold 5.8%
more yards of middle to better-end fabrics and 25.6% fewer yards of
promotional-end fabrics in the third quarter of Fiscal 1999 than in the third
quarter of Fiscal 1998.
The average gross sales price per yard of middle to better-end fabrics
increased by 6.0%, to $5.32 in the third quarter of Fiscal 1999 as compared to
$5.02 in the third quarter of Fiscal 1998. The average gross sales price per
yard of promotional-end fabrics increased by 0.9%, to $3.47 in the third quarter
of Fiscal 1999 as compared to $3.44 in the third quarter of Fiscal 1998.
6
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<PAGE>
Gross fabric sales within the United States increased 2.3%, to $45.9
million in the third quarter of Fiscal 1999 from $44.9 million in the third
quarter of Fiscal 1998. Foreign and Export sales increased 8.6%, to $9.4 million
in the third quarter of Fiscal 1999 from $8.7 million in the third quarter of
Fiscal 1998. Gross yarn sales decreased 20.6%, to $6.5 million in the third
quarter of Fiscal 1999 from $8.1 in the same period of Fiscal 1998.
The gross margin percentage was 20.1% for the third quarter of Fiscal
1999 and Fiscal 1998. Despite higher sales in the third quarter of 1999, the
gross margin remained the same at 20.1% due primarily to higher per unit fixed
overhead costs caused by increased total fixed overhead expenses and lower unit
sales volume in Fiscal 1999 versus 1998.
Selling, general and administrative expenses increased slightly to $9.8
million for the third quarter of Fiscal 1999 from $9.7 million for the third
quarter of Fiscal 1998. Selling, general and administrative expenses as a
percentage of net sales was 16.0% for the third quarters of both Fiscal 1999 and
Fiscal 1998. The increase in selling, general and administrative expenses was
primarily due to increased fabric sampling costs which were partially offset by
lower expenses connected with the Company's Mexican operations.
Interest expense was $1.3 million for the third quarter of Fiscal 1999,
and $1.4 million for the third quarter of Fiscal 1998. Lower levels of senior
debt, including lower levels of borrowings under the Credit Agreement (as
hereinafter defined) were the primary reasons for the decrease.
In accordance with generally accepted accounting principles, the
Company provides for income taxes on an interim basis, using the estimated
annual effective income tax rate. The Company's estimated tax rate was 35.0% for
the third quarter of both Fiscal 1999 and Fiscal 1998. The effective income tax
rate is lower than the combined federal and state statutory rates due primarily
to the foreign sales corporation tax benefits and state investment tax credits.
Net income for the third quarter of Fiscal 1999 increased to $0.8
million, or $0.05 per common share-diluted, from $0.7 million, or $0.04 per
common share-diluted, for the third quarter of Fiscal 1998. 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 2, 1999.
RESULTS OF OPERATIONS - Nine-month Comparison
Net sales for the first nine months of Fiscal 1999 decreased $5.2
million or 2.8%, to $181.9 million from $187.1 million for the first nine months
of Fiscal 1998. The average gross sales price per yard increased 5.5%, to $4.76
for the first nine months of Fiscal 1999 from $4.51 for the first nine months of
Fiscal 1998. This increase was principally due to an increase in the average
selling price of middle to better-end fabrics. The gross volume of fabric sold
decreased 4.3%, to 35.3 million yards for the first nine months of Fiscal 1999
from 36.9 million yards for the first nine months of Fiscal 1998. The Company
sold 2.6% more yards of middle to better-end fabrics and 18.3% fewer yards of
promotional-end fabrics in the first nine months of Fiscal 1999 than in the
first nine months of Fiscal 1998. The average gross sales price per yard of
middle to better-end fabrics increased by 5.0%, to $5.28 in the first nine
months of Fiscal 1999
7
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<PAGE>
as compared to $5.03 in the first nine months of Fiscal 1998. The average gross
sales price per yard of promotional-end fabrics increased by 0.3%, to $3.45 in
the first nine months of Fiscal 1999 as compared to $3.44 in the first nine
months of Fiscal 1998.
Gross fabric sales within the United States were $139.3 million in the
first nine months of Fiscal 1999, an increase of 1.3% over the first nine months
of 1998 gross fabric sales of $137.5 million. Foreign and Export sales increased
0.6%, to $29.0 million in the first nine months of Fiscal 1999 from $28.9
million in the first nine months of Fiscal 1998. Gross yarn sales decreased
32.9%, to $16.7 million in the first nine months of Fiscal 1999 from $24.8
million in the same period of Fiscal 1998.
The gross margin percentage for the first nine months of Fiscal 1999
decreased to 19.7% as compared to 21.5% for the first nine months of Fiscal
1998. The decrease in the gross margin percentage was due to higher per unit
fixed overhead expenses caused by increased total fixed overhead expenses and
lower unit sales volume.
Selling, general and administrative expenses increased to $30.1 million
for the first nine months of Fiscal 1999, from $28.3 million for the first nine
months of Fiscal 1998. Selling, general and administrative expenses as a
percentage of net sales was 16.6% in the first nine months of Fiscal 1999, up
from 15.1% in the first nine months of Fiscal 1998. The increase in selling,
general and administrative expenses was primarily due to increases in wages and
fringe benefits, and in fabric sampling expenses which were partially offset by
lower expenses attributable to the Company's Mexican operations.
Interest expense decreased to $3.8 million for the first nine months of
Fiscal 1999 from $4.1 million in the first nine months of Fiscal 1998. Lower
levels of senior debt including lower levels of borrowings under the Credit
Agreement (as hereinafter defined), were the primary reasons for the decrease.
In accordance with generally accepted accounting principles, the
Company provides for income taxes on an interim basis, using the estimated
annual effective income tax rate. The Company's estimated tax rate was 35.0% for
the first nine months of both Fiscal 1999 and Fiscal 1998. The effective income
tax rate is lower than the combined federal and state statutory rates due
primarily to foreign sales corporation tax benefits and state investment tax
credits.
Net income for the first nine months of Fiscal 1999 decreased to $1.2
million, or $0.08 per common share-diluted, from $5.2 million, or $0.38 per
common share-diluted, for the first nine months of Fiscal 1998. 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 2, 1999.
8
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and capital
requirements through a combination of internally generated funds, borrowings
under the Credit Agreement, and debt and equity offerings. The Company's capital
requirements have arisen principally in connection with the purchase of
equipment to expand production capacity and to improve the Company's quality and
productivity performance, and with an increase in the Company's working capital
needs related to its sales growth.
Capital expenditures in the first nine months of Fiscal 1998 and Fiscal
1999 were $34.4 million and $13.6 million, respectively. Capital expenditures
were funded by operating cash flow and borrowings. Management anticipates that
capital expenditures will total approximately $20.0 million in 1999, consisting
of 1.) $11.5 million primarily for new production equipment to expand fabric
finishing capacity, 2.) $7.0 million for various facilities projects, including
$3.5 million for the acquisition of land, and 3.) $1.5 million for the
introduction of new technology and the enhancement of existing management
information systems.
Management believes that operating income and borrowing under the
Credit Agreement will provide sufficient funding for the Company's capital
expenditures and working capital needs for the foreseeable future.
The Company has a $70.0 million Credit Agreement which expires December
31, 2002 (the "Credit Agreement"). As of October 2, 1999, the Company had $12.3
million outstanding under the Credit Agreement and unused availability of $57.7
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 2, 1999.
YEAR 2000
The "Year 2000 issue" is a result of the many existing computer
programs that utilize only the last two, rather than all four, digits to specify
a year. As a result, it is anticipated that date sensitive software programs may
only recognize "00" as signifying the year 1900, and therefore not recognize the
year 2000. Although the exact consequences of such an event are not yet fully
known, there is concern that there could be at least a temporary inability to
engage in normal business operations, which, in the aggregate, could have a
negative effect on the global economy.
Quaker Fabric Corporation has considered and planned for the Year 2000
issue since the middle of 1996 when the Company began working with outside
consultants and software vendors to address its response to the Year 2000 issue,
as well as to update its overall management information system. In addition, the
Company has an internal project team in place to coordinate these efforts. In
late 1996, the Company purchased a new Enterprise Resource Planning system (the
"ERP"). The ERP is intended to enhance the Company's ability to meet its
9
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<PAGE>
productivity, service and quality objectives, and is represented as fully Year
2000 compliant, and therefore carries a warranty for the latter purpose. The ERP
is designed to read all four digits of a given year, and to convert two digit
year designations, as well. The Company converted to its new Enterprise Resource
Planning system during July 1998 and fully implemented the system by the end of
1998. The Company has completed modification and replacement, to the extent
necessary, of its critical information technology systems.
The Company has completed a survey of its manufacturing and other
critical equipment that may be date-sensitive, including those with embedded
technology. Based upon the results of the survey, any remediation which may be
necessary does not appear to be material.
The Company has surveyed its major vendors in an attempt to ascertain
their state of Year 2000 readiness and to determine the extent to which the
Company may be adversely effected by their failure to sufficiently address the
Year 2000 issue. The Company has received responses to those surveys and a team
of Company employees will continue to coordinate the Company's efforts in this
regard through the end of 1999. Similarly, the Company has been in communication
with its major customers, and has received information from them as to their
state of readiness for the Year 2000. We anticipate continuing the assessment of
vendor and customer readiness through 1999. Although the Company cannot have
absolute assurance that it will not be adversely effected by the Year 2000
issues of its suppliers and customers, it will continue to communicate with its
suppliers and customers to help minimize risks presented by the Year 2000 issues
of these parties.
While the failure by our suppliers or customers to adequately address
their Year 2000 issues could have a material adverse effect on the Company, it
is not presently possible to reasonably estimate the amount of business that the
Company could lose or the other costs that the Company could sustain in the
event of such failure. Similarly, to the extent that other segments of the
global political, financial, economic, transportation and manufacturing sectors
malfunction at the Year 2000, the Company's operations and financial strength
would likely be adversely affected to some presently unknown degree.
The Company believes that it will be successful in its efforts to
address the Year 2000 issue and will therefore not suffer any material adverse
effect on its operations or financial condition. Although the Company is not
certain as to the nature and complete extent of the risks of failure in this
regard, such failure could lead to a "most reasonable likely worst case
scenario" where it was severely limited in its ability to perform its
manufacturing processes, deliver its products, and otherwise engage in its
ordinary business operations for an unknown period of time. The Company is in
the process of developing a contingency plan in response to the Year 2000 issue.
This plan is designed to mitigate the risks associated with failure of critical
systems on or after the Year 2000.
Through October 2, 1999, the Company has spent approximately $4.8
million for product acquisition, planning, conversion, and implementation in
connection with the ERP. Substantially all of the hardware and software costs
have been capitalized and are considered a component of the Company's existing
technology plan and not a result of Year 2000 deficiencies.
10
<PAGE>
<PAGE>
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) There were no reports on Form 8-K filed during the nine
months ended October 2, 1999.
11
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<PAGE>
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: November 12, 1999 By: /s/ Paul J. Kelly
-------------------- ----------------------
Paul J. Kelly
Vice President - Finance
and Treasurer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> JAN-03-1999
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 460
<SECURITIES> 0
<RECEIVABLES> 40,789
<ALLOWANCES> 1,510
<INVENTORY> 39,963
<CURRENT-ASSETS> 89,231
<PP&E> 193,970
<DEPRECIATION> 56,964
<TOTAL-ASSETS> 232,739
<CURRENT-LIABILITIES> 28,399
<BONDS> 60,234
0
0
<COMMON> 157
<OTHER-SE> 126,281
<TOTAL-LIABILITY-AND-EQUITY> 232,739
<SALES> 181,908
<TOTAL-REVENUES> 181,908
<CGS> 146,112
<TOTAL-COSTS> 146,112
<OTHER-EXPENSES> (59)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,807
<INCOME-PRETAX> 1,899
<INCOME-TAX> 664
<INCOME-CONTINUING> 1,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,235
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
