Mail Stop 3-8
April 7, 2005
By Facsimile and U.S. Mail
Mr. Larry A. Liebenow
President and Chief Executive Officer
Quaker Fabric Corporation
941 Grinnell Street
Fall River, Massachusetts 02721
Re: Quaker Fabric Corporation
Form 10-K for the year ended January 1, 2005
File No. 1-7023
Dear Mr. Liebenow:
We have completed a review of the above referenced filings.
Our review was limited to your financial statements and
management`s
discussion and analysis of financial condition and results of
operations. The review resulted in the following accounting
comments. All page references are keyed to the filings you
submitted
in electronic form on EDGAR.
FORM 10-K FOR THE YEAR ENDED JANUARY 1, 2005
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 20
Results of Operations
Fiscal 2004 Compared to Fiscal 2003, page 26
Net Sales
1. You disclose several business reasons why both foreign and
domestic net sales decreased 11% during fiscal 2004. In future
filings, please disclose if you expect the current trends of lower
net sales in domestic and foreign markets to continue in future
periods. Refer to Item 303(a)(3) of Regulation S-K.
Gross Margin
2. You disclose several reasons why your gross margin percentage
for
fiscal 2004 decreased to 18.3%, but you do not quantify the impact
of
any of these reasons. In future filings, please also quantify the
extent to which each business reason you disclose contributed to
the
overall change in gross margin and indicate if you expect these
trends to continue in future periods. Refer to Item 303(a)(3) of
Regulation S-K.
Liquidity and Capital Resources
Contractual Obligations, page 31
3. Your tabular disclosure of contractual obligations and
commitments
on page 31 include an outstanding debt balance that excludes
interest
payments. Because the table is aimed at increasing the
transparency
of cash flow, we believe interest payments are contractual
obligations. Please tell us and revise your disclosures in future
filings to include the amount of scheduled payments for interest
you
expect on all outstanding debt for all periods presented as
required
by Item 303(a)(5)(ii)(A) of Regulation S-K.
4. Supplementally please tell us why your tabular disclosures of
contractual obligations exclude purchase obligations for materials
from suppliers and items included in the other long-term
liabilities
line item as required by Item 303(a)(5) of Regulation S-K. Please
note that purchase obligations and other long-term liabilities
reflected on your consolidated balance sheet under GAAP are among
the
items required to be included in the tabular disclosure of the
cash
obligations and commitments.
5. In future filings, please disclose the information relating to
your off-balance sheet arrangements in the manner required by Item
303(a)(4) of Regulation S-K.
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies
General
6. Please tell us and disclose in future filings the types of
amounts
you include in the cost of products sold and the selling, general
and
administrative expense line items. Please tell us whether you
include inbound freight charges, purchasing and receiving costs,
inspection costs, warehousing costs, internal transfer costs, and
the
other costs of your distribution network in the cost of products
sold
line item. If you currently exclude a portion of these costs from
cost of products sold, please disclose:
* in a footnote the line items that these costs are included in
and
the amounts included in each line item for each period presented,
and
* in MD&A that your gross margins may not be comparable to those
of
other entities, since some entities include all of the costs
related
to their distribution network in cost of products sold and others
may
exclude a portion of them from gross margin, including them
instead
in line items such as selling, general and administrative
expenses.
7. You disclose that you sell upholstery fabrics to over 3,000
furniture manufacturers in a highly competitive environment.
Supplementally please tell us if you offer any incentive
arrangements
whereby payments are made or credits are offered to your
customers.
For example, if you pay slotting fees, engage in cooperative
advertising programs, have buy-down programs, or make other
payments
or provide other promotions to resellers, please disclose in
future
filings your accounting policy for each of these types of
arrangements, including what line item in the statement of
operations
line item you classify each type of arrangement. For each expense
line item that includes these types of arrangements, please
disclose
the related amounts included in that line item. For each type of
arrangement treated as an expense rather than as a reduction of
revenues, please tell us how this type of arrangement meets the
requirements of EITF 01-9. If any significant estimates are made
as
a result of these arrangements, please also discuss them in MD&A.
(g) Property, Plant and Equipment, page 39
8. Supplementally please tell us and disclose in future filings
the
method you use to determine the useful life of leasehold
improvements.
(i) Goodwill, page 40
9. In future filings, please disclose the date you perform your
annual test for impairment of your goodwill and indefinite-lived
intangible assets each year.
Note 3 - Property, Plant and Equipment, page 44
10. You disclose that during the fourth quarter of fiscal 2004 you
temporarily idled certain machinery and equipment due to reduced
sales volumes. Supplementally please explain to us the
assumptions
used to develop your cash flow estimates which support your basis
of
recording no impairment on these assets. See SFAS 144.
Note 5. Debt, pages 45-46
11. We note QFR`s ability to pay dividends to you is restricted
under
your credit and note agreements. Please tell us if the restricted
net assets of your consolidated subsidiaries exceed 25% of
consolidated net assets as of the end of your most recently
completed
year. If so, please describe the restrictions on the ability of
QFR
and your consolidated subsidiaries to transfer funds to you in the
form of cash dividends, loans or advances and disclose the amounts
of
such restricted net assets as of the date of the most recent
balance
sheet provided. See Rule 4-08(e)(3) of Regulation S-X. Please
also
discuss the effects of such restrictions on your liquidity in
Management`s Discussion and Analysis of Financial Condition and
Results of Operations in future filings.
General
We urge all persons who are responsible for the accuracy
and adequacy of the disclosure in the filing reviewed by the staff
to
be certain that they have provided all information investors
require
for an informed decision. Since the company and its management
are
in possession of all facts relating to a company`s disclosure,
they
are responsible for the accuracy and adequacy of the disclosures
they
have made.
In connection with responding to our comments, please
provide, in writing, a statement from the company acknowledging
that:
* the company is responsible for the adequacy and accuracy of the
disclosures in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in connection with our review
of
your filings or in response to our comments on your filings.
Please send us your response to our comments within ten
days from the date of this letter. You should provide a cover
letter
keying your response to our comments, and provide the requested
supplementary information, if any. Where our comment requests you
to
revise future filings, we would expect that information to be
included in your next filing. If you believe complying with a
comment is not appropriate, please tell us why in your letter.
Your
supplemental response should be submitted in electronic form on
EDGAR
as a correspondence file. Refer to Rule 101 (a) of Regulation S-
T.
If you have any questions regarding our comments, please
direct them to either Milwood Hobbs at (202) 942-2846 or Donna Di
Silvio at (202) 942-1852, or in their absence, to the undersigned
at
(202) 942-2823. Any other questions regarding disclosure issues
maybe directed to H. Christopher Owings at (202) 942-1900.
Sincerely,
Michael Moran
Accounting Branch Chief
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Mr. Larry A. Liebenow
Quaker Fabric Corporation
April 7, 2005
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