<PAGE>
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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 September 30, 2000
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 13, 2000, 15,715,930 shares of Registrant's Common Stock,
$0.01 par value, were outstanding.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, January 1,
2000 2000
-------------- --------------
(Unaudited) (Audited)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 763 $ 332
Accounts receivable, less reserves of $2,147 and $1,755 at
September 30, 2000 and January 1, 2000, respectively 42,365 41,191
Inventories 44,666 40,890
Prepaid and refundable income taxes 950 1,563
Prepaid expenses and other current assets 5,687 7,440
-------------- --------------
Total current assets 94,431 91,416
-------------- --------------
Property, plant and equipment, net of depreciation and amortization
of $70,767 and $60,442 at September 30, 2000
and January 1, 2000, respectively 141,710 138,509
Other assets:
Goodwill, net of amortization 5,674 5,818
Deferred financing costs 275 293
Other assets 2,451 1,446
-------------- --------------
Total assets $244,541 $237,482
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 2,004 $ 1,062
Accounts payable 15,627 19,983
Accrued expenses 11,446 7,337
-------------- --------------
Total current liabilities 29,077 28,382
Long-term debt, less current portion 57,700 59,000
Capital lease obligations, net of current portion 930 2,672
Deferred income taxes 18,732 17,504
Other long-term liabilities 2,667 2,646
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, 40,000,000 shares authorized;
15,709,887 and 15,681,649 shares issued and outstanding as of
September 30, 2000 and January 1, 2000, respectively 157 157
Additional paid-in capital 83,665 83,554
Retained earnings 52,940 44,915
Accumulated other comprehensive loss (Note 3) (1,327) (1,348)
-------------- --------------
Total stockholders' equity 135,435 127,278
-------------- --------------
Total liabilities and stockholders' equity $244,541 $ 237,482
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
1
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -------------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------------------------ -------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $68,628 $61,305 $224,001 $181,908
Cost of products sold 53,653 48,973 173,397 146,112
------------ ------------ ------------ ------------
Gross margin 14,975 12,332 50,604 35,796
Selling, general and administrative expenses 10,829 9,832 34,537 30,149
------------ ------------ ------------ ------------
Operating income 4,146 2,500 16,067 5,647
Other expenses:
Interest expense, net 1,167 1,274 3,716 3,807
Other, net (9) (17) 4 (59)
------------ ------------ ------------ ------------
Income before provision for income taxes 2,988 1,243 12,347 1,899
Provision for income taxes 1,046 435 4,322 664
------------ ------------ ------------ ------------
Net income $ 1,942 $ 808 $ 8,025 $ 1,235
============ ============ ============ ============
Earnings per common share - basic (Note 1) $ 0.12 $ 0.05 $ 0.51 $ 0.08
============ ============ ============ ============
Weighted average shares outstanding - basic (Note 1) 15,710 15,673 15,701 15,659
============ ============ ============ ============
Earnings per common share - diluted (Note 1) $ 0.12 $ 0.05 $ 0.50 $ 0.08
============ ============ ============ ============
Weighted average shares outstanding - diluted (Note 1) 16,156 16,180 16,137 16,167
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
2
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
September 30, October 2,
2000 1999
------------------- -----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,025 $ 1,235
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 10,507 9,622
Deferred income taxes 1,228 187
Changes in operating assets and liabilities:
Accounts receivable (net) (1,174) (128)
Inventories (3,776) 6,631
Prepaid expenses and other assets 1,361 75
Accounts payable and accrued expenses (247) 6,049
Other long-term liabilities 21 (186)
------------------- -----------------
Net cash provided by operating activities 15,945 23,485
------------------- -----------------
Cash flows from investing activities:
Net purchase of property, plant and equipment (13,526) (13,642)
------------------- -----------------
Net cash used for investing activities (13,526) (13,642)
------------------- -----------------
Cash flows from financing activities:
Repayments of capital leases (764) (1,034)
Net borrowings (repayments of) revolving line of credit (1,300) (8,200)
Repayments of term debt (36) (682)
Proceeds from exercise of stock options 111 111
Capitalization of financing costs (20) (109)
------------------- -----------------
Net cash provided by (used in) financing activities (2,009) (9,914)
------------------- -----------------
Effect of exchange rates on cash 21 99
------------------- -----------------
Net increase in cash 431 28
Cash, beginning of period 332 432
------------------- -----------------
Cash, end of period $ 763 $ 460
=================== =================
Non cash activity
Capital leases for new equipment $ 0 $ 394
=================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 September 30, 2000 and January 1, 2000
and the results of their operations and cash flows for the periods ended
September 30, 2000 and October 2, 1999. 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
accounting principles generally accepted in the United States 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 months and nine months ended September 30, 2000
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 1, 2000. Certain
reclassifications have been made to the prior year financial statements for
consistent presentation with the current year.
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income by
the weighted average number of common shares outstanding during the period. For
diluted earnings 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>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 15,710 15,672 15,701 15,660
Dilutive potential common shares 446 508 436 507
------- ------- ------- -------
Weighted average common shares outstanding
and dilutive potential common shares 16,156 16,180 16,137 16,167
======= ======= ======= ======
Antidilutive potential common shares 1,193 1,058 1,193 1,058
======= ======= ======= =======
</TABLE>
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.
4
<PAGE>
Inventories at September 30, 2000 and January 1, 2000 consisted of the
following:
<TABLE>
<CAPTION>
September 30, January 1,
2000 2000
---- ----
<S> <C> <C>
Raw materials $20,881 $19,380
Work in process 9,771 9,761
Finished goods 14,074 11,809
-------- --------
Inventory at FIFO 44,726 40,950
LIFO Reserve (60) (60)
-------- --------
Inventory at LIFO $44,666 $40,890
======== ========
</TABLE>
NOTE 3 - COMPREHENSIVE INCOME
The Company's "Other Comprehensive Items" consist of foreign currency
translation gains or loss. Foreign currency translation gains were $117 and $16
for the third quarters of Fiscal 2000 and Fiscal 1999, respectively. During the
third quarters of 2000 and 1999, the Company's comprehensive income was $2,059
and $824, respectively. Foreign currency gains were $21 and $99 for the first
nine months of Fiscal 2000 and Fiscal 1999, respectively. For the first nine
months of Fiscal 2000 and Fiscal 1999, the Company's comprehensive income was
$8,046 and $1,334, respectively.
NOTE 4 - SEGMENT REPORTING
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 9 "Summary of Significant Accounting Policies" of the
Company's "1999 Annual Report." Management evaluates the Company's financial
performance in the aggregate based, in part, on gross revenues and allocates the
Company's resources without distinguishing between yarn and fabric products.
5
<PAGE>
Gross foreign and export sales from the United States to unaffiliated
customers by major geographical area were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America (excluding USA) $6,214 $5,137 $18,365 $14,395
Middle East 687 878 2,482 4,530
South America 390 398 1,012 956
Europe 1,152 1,426 3,966 5,045
All Other 1,532 1,583 4,206 4,101
------- ------- ------- -------
$9,975 $9,422 $30,031 $29,027
======= ======= ======= =======
</TABLE>
Gross Sales by product category are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fabric $ 63,857 $ 55,361 $208,203 $168,298
Yarn 5,962 6,474 18,971 16,660
-------- -------- -------- --------
$ 69,819 $ 61,835 $227,174 $184,958
======== ======== ======== ========
</TABLE>
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements." SAB 101 includes requirements for
when shipments may be recorded as revenue when the terms of the sale include
customer acceptance provisions or an obligation of the seller to install the
product. In such instances, SAB 101 generally requires that revenue recognition
occur at completion of installation and/or upon customer acceptance. SAB 101
requires that companies conform their revenue recognition practices to the
requirements therein no later than the fourth quarter of calendar 2000 through
recording a cumulative net of tax effect of the change in accounting as of
January 2, 2000. Given the Company's current accounting practices concerning
revenue recognition, the Company has determined the effect of SAB 101 to be
immaterial to its financial statements.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
137 issued in June 1999 deferred the effective date of SFAS 133 by one year. As
such, the Company is now required to adopt the provisions of the standard during
the first quarter of 2001. Because the Company's use of derivatives is minimal,
it does not expect that the adoption of the new standard will have a material
impact on the results of operations or financial condition.
6
<PAGE>
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 1999" ended January 1, 2000 and "Fiscal
2000" will end December 30, 2000. The first nine months of Fiscal 1999 and
Fiscal 2000 ended October 2, 1999 and September 30, 2000, respectively.
RESULTS OF OPERATIONS - Quarterly Comparison
Net sales for the third quarter of Fiscal 2000 increased $7.3 million
or 11.9%, to $68.6 million from $61.3 million for the third quarter of Fiscal
1999. The average gross sales price per yard increased 9.9%, to $5.35 for the
third quarter of Fiscal 2000 from $4.87 for the third quarter of Fiscal 1999.
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 increased 5.1%, to
11.9 million yards for the third quarter of Fiscal 2000 from 11.4 million yards
for the third quarter of Fiscal 1999. The Company sold 6.6% more yards of middle
to better-end fabrics and 0.3% more yards of promotional-end fabrics in the
third quarter of Fiscal 2000 than in the third quarter of Fiscal 1999. The
average gross sales price per yard of middle to better-end fabrics increased by
9.4%, to $5.82 in the third quarter of Fiscal 2000 as compared to $5.32 in the
third quarter of Fiscal 1999. The average gross sales price per yard of
promotional-end fabric increased by 8.6%, to $3.77 in the third quarter of
Fiscal 2000 as compared to $3.47 in the third quarter of Fiscal 1999.
Gross fabric sales within the United States increased 17.3%, to $53.9
million in the third quarter of Fiscal 2000 from $45.9 million in the third
quarter of Fiscal 1999. Foreign and Export sales increased 5.9%, to $10.0
million in the third quarter of Fiscal 2000 from $9.4 million in the third
quarter of Fiscal 1999. Gross yarn sales decreased 7.9%, to $6.0 million in the
third quarter of Fiscal 2000 from $6.5 million in the same period of Fiscal
1999.
The gross margin percentage for the third quarter of Fiscal 2000
increased to 21.8%, as compared to 20.1% for the third quarter of Fiscal 1999.
The increase in gross profit margin was primarily due to 1.) lower per unit
fixed overhead expenses resulting from higher sales volume, and 2.) higher sales
volume in middle to better-end fabrics which have higher than average selling
prices.
Selling, general and administrative expenses increased to $10.8 million
for the third quarter of Fiscal 2000 from $9.8 million for the third quarter of
Fiscal 1999. Selling, general and administrative expenses as a percentage of net
sales decreased to 15.8% in the third quarter of Fiscal 2000 from 16.0% in the
third quarter of Fiscal 1999. The increase in selling, general and
administrative expenses was primarily due to higher variable expenses resulting
from increased sales volume during the quarter, while the decrease as a
percentage of net sales is attributable to the allocation of fixed costs over a
higher sales base.
Interest expense was approximately $1.2 million for the third quarter
of Fiscal 2000 and $1.3 million for the third quarter of Fiscal 1999. Lower
average levels of senior debt were offset by higher rates of interest.
7
<PAGE>
In accordance with accounting principles generally accepted in the
United States, 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 quarters of both Fiscal 2000 and Fiscal 1999. 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 2000 increased to $1.9
million, or $0.12 per common share-diluted, from $808,000 or $0.05 per common
share-diluted, for the third quarter of Fiscal 1999. 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 1, 2000.
RESULTS OF OPERATIONS - Nine-month Comparison
Net sales for the first nine of Fiscal 2000 increased $42.1 million or
23.1%, to $224.0 million from $181.9 million for the first nine months of Fiscal
1999. The average gross sales price per yard increased 9.9%, to $5.23 for the
first nine months of Fiscal 2000 from $4.76 for the first nine months of Fiscal
1999. 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 increased
12.8%, to 39.8 million yards for the first nine months of Fiscal 2000 from 35.3
million yards for the first nine months of Fiscal 1999. The Company sold 18.7%
more yards of middle to better-end fabrics and 2.4% fewer yards of
promotional-end fabrics in the first nine months of Fiscal 2000 than in the
first nine months of Fiscal 1999. The average gross sales price per yard of
middle to better-end fabrics increased by 8.3%, to $5.72 in the first nine
months of Fiscal 2000 as compared to $5.28 in the first nine months of Fiscal
1999. The average gross sales price per yard of promotional-end fabric increased
by 6.7%, to $3.68 in the first nine months of Fiscal 2000 as compared to $3.45
in the first nine months of Fiscal 1999.
Gross fabric sales within the United States were $178.2 million in the
first nine months of Fiscal 2000, an increase of 27.9% over the first nine
months of 1999 gross fabric sales of $139.3 million. Foreign and Export sales
increased 3.5%, to $30.0 million in the first nine months of Fiscal 2000 from
$29.0 million in the first nine months of Fiscal 1999. Gross yarn sales
increased 13.9%, to $19.0 million in the first nine months of Fiscal 2000 from
$16.7 million in the same period of Fiscal 1999.
The gross margin percentage for the first nine months of Fiscal 2000
increased to 22.6% as compared to 19.7% for the first nine months of Fiscal
1999. The increase in gross profit margin was primarily due to 1.) lower per
unit fixed overhead expenses resulting from higher sales volume, and 2.) higher
sales volume of middle to better-end fabrics and yarn, both of which have higher
than average selling prices.
Selling, general and administrative expenses increased to $34.5 million
for the first nine months of Fiscal 2000 from $30.1 million for the first nine
months of Fiscal 1999. Selling, general and administrative expenses as a
percentage of net sales decreased to 15.4% in the first nine months of Fiscal
2000 from 16.6% in the first nine months of Fiscal 1999. The increase in
selling, general and administrative expenses was primarily due to increased
variable expenses
8
<PAGE>
resulting from higher sales volume during the first nine months of Fiscal 2000,
while the decrease as a percentage of net sales is attributable to the
allocation of fixed costs over a higher sales base.
Interest expense was $3.7 million for the first nine months of Fiscal
2000 and $3.8 million for the first nine months of Fiscal 1999. Lower levels of
senior debt were offset by higher rates of interest.
In accordance with accounting principles generally accepted in the
United States, 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 2000 and Fiscal 1999. 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 first nine months of Fiscal 2000 increased to $8.0
million, or $0.50 per common share-diluted, from $1.2 million, or $0.08 per
common share-diluted, for the first nine months of Fiscal 1999. 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
1, 2000.
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 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 1999 and Fiscal
2000 were $14.0 million and $13.5 million, respectively. Capital expenditures
were funded by operating cash flow and borrowings. Management anticipates that
capital expenditures will total approximately $18.0 million in 2000, and will
include new production equipment to expand capacity and enhancements to the
Company's information technology 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 outstanding $45.0 million of Senior Notes due October
2005 and 2007 (the "Senior Notes"). The Senior Notes bear interest at a fixed
rate of 7.09% on $15.0 million and 7.18% on $30.0 million. Annual principal
payments begin on October 10, 2003 with a final payment due October 10, 2007.
For a discussion of the Senior Notes, see Note 5 to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended January 1, 2000.
The Company has a $70.0 million Credit Agreement with a bank which
expires December 31, 2002 (the "Credit Agreement"). As of September 30, 2000,
the Company had $12.7 million outstanding under the Credit Agreement and unused
availability of $57.3 million.
9
<PAGE>
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 1, 2000.
YEAR 2000
Because many existing computer programs use only the last two, rather
than all four, digits to specify a year, there was widespread concern prior to
January 1, 2000 that date sensitive programs would only recognize "00" as
signifying the year 1900 and, therefore, not recognize the year 2000. This
concern was commonly referred to as the "Year 2000" or "Y2K" issue.
The Company believes that it has been 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 due to the Y2K problem. The
Company has a contingency plan in place designed to minimize risks associated
with failure of critical systems after December 31, 1999. In addition, the
Company could be adversely affected if its customers or suppliers suffer a
malfunction related to the Year 2000 issue. The Company has no knowledge,
however, that any of its customers or suppliers has experienced a Y2K problem.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND DERIVATIVE
COMMODITY INSTRUMENTS
As of September 30, 2000 the Company did not participate in any
derivative financial instruments or other financial and commodity instruments
for which fair value disclosure would be required under SFAS No. 107. The
Company uses excess cash to reduce borrowings under its Revolving Credit
Agreement. Occasionally the Company will invest excess cash in short-term Euro
dollar deposits or money market accounts that are carried on the Company's books
at amortized cost, which approximates fair market value. Accordingly, the
Company has no quantitative information concerning the market risk of
participating in such investments.
PRIMARY MARKET RISK EXPOSURES
The Company's primary market risk exposures are in the areas of
interest rate risk and foreign currency exchange rate risk. The Company's
primary rate risk is related to borrowings under its Revolving Credit Agreement.
The interest rate on those borrowings fluctuates with changes in short-term
borrowing rates. The Company is also exposed to currency exchange rate
fluctuations related to its operations in Mexico. Operations in Mexico are
denominated in Mexican pesos. The exchange rate between the U.S. dollar and
Mexican peso has fluctuated during the past five years. The Company has not
engaged in currency hedging activities to date and attempts to minimize exchange
rate risk by converting excess peso funds to U.S. dollars as often as
practicable.
10
<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 8K filed during the three
months ended September 30, 2000.
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
11
<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 13, 2000 By: /s/ Paul J. Kelly
------------------------
Paul J. Kelly
Vice President - Finance
and Treasurer
12
