SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 1, 2000
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
QUAKER FABRIC CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 04-1933106
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
941 Grinnell Street
Fall River, Massachusetts 02721
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(Address principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 678-1951
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
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(Title of Class)
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, and (2) has been subject to such filing
requirements for the past 90 days. YES: |X| NO: |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant, computed by reference to the closing sales
price as quoted on NASDAQ on March 13, 2000 was approximately $65.2 million.
As of March 13, 2000, 15,690,309 shares of Registrant's common stock, par
value $0.01 per share were outstanding.
Documents Incorporated by Reference
Description of document Part of the Form 10-K
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Portions of the Proxy Statement to Part III (Item 10 through Item 13)
be used in connection with the and Part IV
Registrant's 2000 Annual
Meeting of Stockholders.
1999 Annual Report to Shareholders Part II (Item 5 through Item 8)
Exhibit Index on Page 20
PART I
ITEM 1. BUSINESS
Overview
Quaker is a leading designer, manufacturer and worldwide marketer of woven
upholstery fabrics for residential furniture and one of the largest producers of
Jacquard upholstery fabrics in the world. The Company is also a leading
developer and manufacturer of specialty yarns and management believes it is the
world's largest producer of chenille yarns, which Quaker both sells and uses in
the production of its fabrics. The Company's vertically integrated operations
provide Quaker with important design, cost and delivery advantages. The
Company's product line is one of the most comprehensive in the industry and
Quaker is well known for its broad range of Jacquard fabrics, including its
soft, velvet-like Jacquard chenilles. The Company's revenues in 1999 were $250.8
million.
Quaker has been producing upholstery fabric for over fifty years and is a
full-service supplier of Jacquard and plain woven upholstery fabric to the
furniture market. Quaker's current product line consists of over 3,000
traditional, contemporary, transitional and country fabric patterns intended to
meet the styling and design, color, texture, quality and pricing requirements of
promotional through middle to higher-end furniture manufacturers, and the
Company introduces approximately 1,000 new products to the market annually.
Management believes that Jacquard fabrics, with their detailed designs, provide
furniture manufacturers with more product differentiation opportunities than any
other fabric construction on the market.
The Company sells its upholstery fabrics to over 3,000 furniture
manufacturers worldwide, including virtually every significant domestic
manufacturer of upholstered furniture. Quaker also distributes its fabrics
internationally. In 1999, fabric sales outside the United States of $39.2
million represented approximately 16.8% of gross fabric sales. Quaker's October
1996 introduction of its Whitaker Collection'TM', a branded line of a select
group of the Company's better-end products, has resulted in incremental sales
to a number of well-known higher-end furniture manufacturers. Management
estimates that approximately 85% of the Company's fabric sales in recent years
have been manufactured to customer order.
During the past five years, Quaker has invested more than $88.2 million in
new manufacturing equipment to expand its yarn and fabric production capacity,
increase productivity, improve product quality and produce the more complex
fabrics associated with the Company's successful penetration of the middle to
better-end segment of the upholstery fabric market. During 2000, Quaker plans to
spend approximately $8.0 million on additional manufacturing equipment to
further its marketing, productivity, quality, service and financial objectives.
The Company produces all of its yarn and fabric products in its six
manufacturing plants in Fall River and Somerset, Massachusetts, where Quaker has
over one million square feet of manufacturing and warehousing space. In 1998,
Quaker also began using warehouse space in Brockton, Massachusetts. In addition
to distribution from the Company's facilities in Fall River, Quaker maintains
domestic distribution centers in High Point, North Carolina, Tupelo,
Mississippi, and Los Angeles, California. To provide better service to its
international customers, the Company also has a distribution center in Mexico
and is setting up a marketing and warehousing operation in Brazil to further
expand its presence in Latin America.
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History
In 1998, the Company consummated an underwritten public offering of
3,200,000 shares of Common Stock, of which 3,000,000 shares were sold by the
Company and 200,000 shares were sold by selling stockholders (the "Offering").
The price to the public per share of Common Stock was $13.00.
The Industry
Total domestic upholstery fabric sales, exclusive of automotive
applications, are estimated to be approximately $2.0 billion annually.
Management estimates the size of the international fabric market to be at least
twice that of the domestic market. Due to the capital intensive nature of the
fabric manufacturing process and the importance of economies of scale in the
industry, the domestic industry is concentrated, with the top 15 upholstery
fabric manufacturers, including Quaker, accounting for over 80% of the total
market. Most of the largest U.S. fabric producers have expanded their export
sales, capitalizing on their size, distribution capabilities, technology
advantages and broad product lines. Within the Jacquard segment, price is a more
important competitive factor in the promotional-end of the market than it is in
the middle to better-end of the market, where fabric styling and design
considerations typically play a more important role.
Demand for upholstery fabric is a function of demand for upholstered
furniture. The upholstered furniture market has grown from $5.4 billion in 1991
to a projected $10.7 billion in 2000. Total upholstered furniture demand is
affected by population growth and demographics, consumer confidence, disposable
income, geographic mobility, housing starts, and home sales. Although the
domestic residential furniture industry is cyclical, periods of decline have
been relatively brief.
The upholstery fabric covering a sofa, chair, or other piece of furniture
is one of the most significant factors influencing a furniture buyer's
selection. Purchase decisions are based primarily on the consumer's evaluation
of aesthetics, comfort, durability, quality and price. As a result, the fabric
decisions a furniture manufacturer makes play a critical role in its ability to
gain a product differentiation advantage at the retail level.
Management believes the long-term outlook for the Company's upholstery
fabric sales will be influenced by certain trends:
(i) The furniture industry has been consolidating at both the retail and
manufacturing levels for several years. As a result, fabric suppliers
are required to deal with larger customers that require shorter delivery
lead times, customer-specific inventory management programs, and
additional information technology-based support services. Large
integrated fabric suppliers have an advantage over smaller competitors
because of their ability to offer a broader range of product choices and
meet the volume and delivery requirements of the large furniture
manufacturers and retailers.
(ii) There is a growing trend in the United States toward a more casual
lifestyle, as evidenced by "casual Fridays" in the workplace and product
shifts in the apparel and home furnishings industries. Management
believes this trend has resulted in growing demand for less formal
furniture upholstered with softer, more comfortable fabric.
(iii) Pushed by consumers demanding immediate product delivery, the furniture
industry has increased its focus on just-in-time manufacturing methods
and shorter delivery lead times.
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(iv) Both consumers and furniture manufacturers have placed increased
emphasis on product quality, enabling fabric manufacturers with
effective quality control systems to gain a competitive advantage.
(v) Favorable demographic trends over the near term are expected to benefit
from continued strength of the domestic economy as well as a move by the
baby boom generation toward more upscale furniture as they approach
retirement age and additional demand generated by that same group's
purchases of vacation and retirement homes.
(vi) Technological advances in the speed and flexibility of the Jacquard loom
have reduced the cost of producing Jacquard fabrics, enabling them to
compete more effectively with prints, velvets, flocks, tufts and other
plain woven products.
(vii) Most of the largest U.S. fabric producers have expanded their export
sales, leveraging their size and broad product lines. U.S. fabric
producers with international distribution capabilities have also
benefited from a growing demand for American styles and designs by
foreign consumers.
(viii) Fabrics entering the United States from China, India and other countries
with low domestic labor costs are resulting in increased price
competition at the lower end of the upholstery fabric and upholstered
furniture markets. In addition, competition in the middle to better-end
segment of the market is being affected by upper-end fabric imports from
Europe.
Strategy
Quaker's strategy to further its growth and financial performance
objectives includes:
Increasing Sales to the Middle to Better-End Segment. To capitalize on the
consolidation trend in the furniture industry, the Company has positioned itself
as a full-service supplier of Jacquard and plain woven fabrics to the
promotional and middle to better end of the market by offering a wide variety of
fabric patterns at prices ranging from $2.50 to $35.00 per yard. Sales of the
Company's middle to better-end fabrics, which the Company first began
emphasizing in the early 1990s, have increased steadily and were $188.0 million,
or 80.8% of total fabric sales in 1999.
Expanding International Sales. The Company has made worldwide distribution
of its upholstery fabrics a key component of its strategy. Quaker has built an
international sales and distribution network, dedicated significant corporate
resources to the development of fabrics to meet the specific styling and design
needs of its international customers, and put programs in place to simplify the
purchase of product from Quaker. The Company's international sales were $39.2
million in 1999.
Penetrating Related Fabric Markets. Management believes the company's
styling and design expertise, as well as its ISO 9001-certified operations,
provide opportunities to penetrate the contract market and increase Quaker's
share of the interior decorator and recreational vehicle markets. Management
believes Quaker's Ankyra'TM' chenille yarns and fabric finishing abilities will
provide the Company with a product advantage in these markets.
Growing Specialty Yarn Sales. Quaker is a leading producer of specialty
yarns and management believes it is the world's largest producer of chenille
yarns. Approximately 80% of the chenille yarn manufactured by the Company is
used in the production of the Company's fabric. The balance is sold to apparel
and home textile firms throughout the United States through Quaker's yarn sales
division, Nortex Yarns. Sales of the Company's specialty yarns were $22.4
million in 1999. The company's current line of specialty yarns includes over 75
different varieties of spun and chenille yarns, and Quaker's yarn design
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and development staff regularly creates innovative new specialty yarns for use
in the Company's fabrics and sale to the Company's yarn customers.
Considering Acquisition Opportunities. Although all of Quaker's growth to
date has been the result of internal initiatives, the Company has evaluated a
number of acquisition candidates in the past and will continue to consider
acquisition opportunities in the future. An ideal acquisition candidate would
either support the Company's new market development objectives or offer a unique
and complementary product, manufacturing or technical capability.
Competitive Strengths
Management believes that the following competitive strengths distinguish
Quaker from its competitors and that these strengths serve as a solid foundation
for the Company's long-term growth strategy:
Product Design and Development Capabilities. Management believes that
Quaker's reputation for design excellence and product leadership is, and will
continue to be, the Company's most important competitive strength.
Focus on Jacquard Fabrics. Management believes the detailed, copyrighted
designs of the Company's Jacquard fabrics have enabled it to compete primarily
based on superior styling and design, rather than price.
Broad Product Offering. The breadth and depth of Quaker's product line
enables the Company to be a full-service supplier of Jacquard and plain woven
fabrics to virtually every significant domestic manufacturer of upholstered
furniture.
Vertical Integration. Using Quaker's own specialty yarns in the production
of its fabrics provides the Company with significant design, cost and delivery
advantages.
Commitment to Customer Service. The Company is committed to offering its
customers the best overall service levels in the industry and in 1998 launched a
major internal supply chain management initiative intended to further that
objective.
State-of-the-Art Manufacturing Equipment. Management believes the Company
has one of the most modern, efficient and technologically advanced manufacturing
bases in the industry.
Products
The Company offers a broad assortment of contemporary, traditional,
transitional and country fabrics to manufacturers of both promotional-end and
middle to better-end furniture at prices ranging from $2.50 to $35.00 per yard.
While most of the Company's fabrics are sold under the Quaker label, the Company
began marketing a select group of its middle to better-end fabrics under its
Whitaker label in October 1996. In 1999, the Company's promotional-end fabric
line and its middle to better-end fabric line had average gross sales prices of
$3.46 per yard and $5.35 per yard, respectively, compared to $3.44 and $5.05,
respectively, in 1998. The average gross sales price per yard of the Company's
fabrics was $4.84 in 1999, compared to $4.54 in 1998.
Quaker's product line is focused on fabrics with complex designs referred
to in the industry as "Jacquards," because of the special Jacquard equipment, or
heads, required to produce them, and also includes a broad assortment of
striped, plaid, and plain fabrics. All of Quaker's looms are equipped with
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Jacquard heads. The use of these heads makes it possible to vary the pattern,
color, and texture of both the filling and warp yarns in a fabric. Fabrics
manufactured on looms without Jacquard heads have a much more limited range of
possible designs.
Quaker's product offerings are noted for their wide use of chenille yarns,
which give the fabric a soft, velvet-like appearance and feel. To take advantage
of casual furniture trends, and to capitalize on the growth of the motion
furniture segment, Quaker developed a soft chenille yarn with superior abrasion
resistance to compete effectively with flocks, velvets and tufted fabrics. The
Company markets the line of chenille fabrics it produces using these yarns under
its Ankyra label. Through a licensing agreement with Solutia (f/k/a Monsanto), a
number of the Company's Ankyra-based chenille fabrics, as well as certain other
fabrics in its line, have been "Wear-Dated" by Solutia.
The Company has taken steps to expand both the breadth and depth of the
Company's product portfolio by increasing the number of fabrics designed to meet
the needs of manufacturers of middle to higher-end upholstered furniture
products, and expanding the number of fabrics and styles offered at each price
point and in each styling category to provide all of the Company's customers
with more product choices. Quaker's broad product line is very important from a
competitive standpoint. It enhances the ability of the Company's customers to
meet most of their fabric needs through one full-service supplier while, at the
same time, allowing them to purchase fabrics in a wide enough range of designs
to enable them to differentiate their own new lines of upholstered furniture
from those of their competitors. In 1996, to generate additional business from
manufacturers of higher-end upholstered furniture, the Company began offering a
select group of its middle to better-end products under its Whitaker'r' label.
Sales of the Company's middle to better-end fabrics have increased steadily and
were $188.0 million, or 80.8% of total fabric sales in 1999, with approximately
25.8% of those sales made under the Whitaker'r' label.
New Product Development and Design
Although management believes fashion trends in the upholstery industry do
not change significantly from year to year, consumer tastes in upholstery fabric
do change over time. Therefore, it is important to identify emerging fashion
needs and to develop new products responsive to those needs. Management believes
Quaker's design staff has an established reputation for design excellence and
product leadership.
The Company's design department has overall responsibility for the
development of new upholstery fabric patterns for sale by the Company. Although
the Company purchases artwork from independent artists, the Company's staff of
professional designers and designer technicians creates the majority of the
designs on which the Company's fabric patterns are based and also determines the
construction of those patterns. The design department uses state-of-the-art CAD
equipment to reduce the new product development cycle.
The development of each new fabric line requires six months. The first
step in the new product development process is the preparation of a
merchandising plan for the line. The Company's merchandising plans are based on
extensive input from Quaker's sales representatives, senior managers, and major
customers and provide both a broad outline of the number of new products to be
included within each major styling category (e.g., contemporary, traditional,
transitional, and country), as well as the number of new products to be created
for sale at each of the major price points within those styling categories.
In addition, because of the design, cost, and delivery advantages of
Quaker's vertically integrated manufacturing operations, substantial emphasis is
placed on making maximum use of the Company's internally produced yarns during
the fabric development process. After each new fabric merchandising plan is
developed, members of the Company's fabric design and yarn development staffs
meet to identify
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the design staff's yarn requirements for the Company's next fabric line and many
of Quaker's proprietary yarns trace their origins to this design-driven process.
Quaker's engineering and manufacturing staffs also play a key role in the new
product development process by reviewing each proposed new product to evaluate
its impact on the Company's raw material costs, equipment utilization rates and
quality performance. Although some plain, striped and plaid fabrics remain in
the Company's product line for 10 years or more, a successful product typically
has a life of two to three years.
Quaker's design staff also regularly creates custom patterns for customers
seeking to differentiate their products for distribution purposes, hit a certain
price point at the retail level, or meet a particular styling need in the market
they serve. These patterns, which are not part of Quaker's "open line," are
known in the industry as "Specials."
Sales and Marketing
Upholstery Fabrics
Net fabric sales during 1999 were $229.0 million, or approximately 91.3%
of the Company's net sales. The Company sells its upholstery fabrics to over
3,000 furniture manufacturers worldwide, including substantially all of the
largest domestic manufacturers of upholstered furniture. Fabric sales to the
Company's top 25 customers accounted for approximately 45% of 1999 net sales.
None of the Company's customers accounted for more than 5.4% of net sales during
1999.
The Company uses a direct marketing force of 22 sales representatives,
four of whom are based in Mexico, to market its fabrics in the United States and
Mexico. All such sales representatives are paid on a commission basis and
represent the Company exclusively. Quaker's fabrics are distributed
internationally through a network of 25 independent commissioned agents
appointed to represent the Company in Europe, the Far East, Australia, New
Zealand, the Middle East, Central and South America, Africa and Asia. During
1999, Quaker added new exclusive sales agents in China, Poland, England, and
Dubai and opened a new sales office in the United Arab Emirates. All agents
located outside the United States are supervised by Quaker's Vice President -
Sales and Marketing.
Quaker's United States customers market their products through two annual
national furniture industry trade shows held in April and October in High Point,
North Carolina, as well as through various regional shows. These shows provide
most of Quaker's customers with the opportunity to introduce their new furniture
lines to their major retail customers in a single setting. Quaker's design and
marketing process is closely linked to these trade shows. The Company develops
two major lines for introduction to the Company's customers at the Showtime
Fabric Fairs held in High Point in January and July of each year. Almost all
major U.S. furniture manufacturers attend Showtime to begin selecting fabric for
the new lines of sofas and other upholstered furniture products that they will
exhibit at the April and October High Point Furniture Markets. The Company also
introduces two less extensive lines in April and October of each year to respond
to competitive opportunities identified at the January and July Showtime trade
shows.
Quaker also markets its fabrics at a number of trade shows regularly
attended by its export customers, including shows in Belgium, China, Dubai,
Germany, Italy, and Mexico, as well as certain trade shows in the United States
aimed at the international market. Foreign sales of fabric accounted for
approximately 16.8% of Quaker's gross fabric sales during 1999.
In addition to distribution from the Company's facilities in Fall River,
Massachusetts, Quaker maintains four distribution centers from which its
customers may purchase the Company's products directly. These facilities are
located in Los Angeles, California; Mexico City, Mexico; High Point, North
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Carolina; and Verona, Mississippi. The Company is setting up a new distribution
center in Brazil, which it plans to open during Spring 2000.
Specialty Yarns
Net yarn sales during 1999 were $21.8 million, or approximately 8.7% of
the Company's net sales. The Company designs, manufactures and markets several
types of specialty yarns, including fancy spun, fancy twisted and chenille.
Quaker is a leading developer and manufacturer of specialty yarns and management
believes it is the world's largest producer of chenille yarn, a soft pile yarn
which produces a velvet-like fabric. Chenille yarns, and fabrics made out of
chenille yarns, are responsive to consumer demand for softer, more casual home
furnishings and apparel. The Company's specialty yarns are sold under the name
of Nortex Yarns to manufacturers of home furnishings products, principally
weavers of upholstery fabric, throws, afghans and other products, as well as
manufacturers of sweaters and other apparel. The Company has approximately 55
yarn customers.
Management believes the technical expertise of Quaker's yarn development
staff provides the Company with an important competitive advantage by enabling
Quaker to create and market innovative specialty yarns to meet its customers'
styling and performance criteria. For example, the creation of Quaker's line of
Ankyra chenille yarns was an important product breakthrough for both Quaker and
its yarn customers. Historically, chenille yarns have had difficulty meeting the
durability standards required for use in fabrics which are likely to be
subjected to heavy wear, such as car seats and certain home furnishings
products. Quaker's yarn development staff created a finished chenille yarn with
superior abrasion resistance, and the United States Patent and Trademark Office
has issued a patent to protect the Company's Ankyra process. Quaker's Ankyra
technology has enabled the Company to expand the sale of its chenille yarns to
makers of end products for which both softness and durability are important.
Manufacturing
All of Quaker's fabrics and yarns are manufactured at the Company's six
manufacturing facilities in Fall River and Somerset, Massachusetts, and
management estimates that approximately 85% of the Company's fabric sales in
recent years have been manufactured to customer order. The Company's objective
is to operate its production facilities on a five to five and one half-day week,
three-shift schedule. However, during periods of heaviest demand, Quaker
operates some or all of its production areas on seven-day, three-shift
schedules, and during periods of weaker demand, the Company will decrease its
production rates accordingly.
The Company's vertically integrated manufacturing process begins with the
production of specialty yarns, primarily for use in the production of the
Company's fabrics, but also for sale to manufacturers of home furnishings
products and apparel in the United States. Although the Company purchases all of
its commodity yarns, most of the Company's weft, or filling, yarn needs are met
through internal production. The next stage of the fabric manufacturing process
involves the preparation of beams of warp yarn. The beams are then sent to the
Company's weave rooms, where looms are used to weave the warp and filling yarns
together. The final steps in the fabric production process include routing the
fabric through various fabric finishing processes followed by the application of
a latex backing, to enhance the durability and performance characteristics of
the end product, as well as a stain-resistant finish upon customer request. Some
of the Company's fabrics, including its Quaker Plush products, benefit from
additional chemical and mechanical finishing processes designed to enhance their
appearance and softness. A final product quality inspection is conducted prior
to shipment to the Company's customers.
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Quaker has added approximately 300 new looms to its manufacturing base
since 1989. All of the Company's looms are equipped with Jacquard heads,
maximizing the Company's ability to design its products to meet customer needs,
without being limited by equipment-related design constraints.
The Company's fabrics are generally shipped directly to its customers on
an FOB Fall River or FOB warehouse basis. The Company also supplies its
distribution centers with an appropriate selection of fabrics for customers
needing immediate delivery.
During the past five years, the Company placed in service more than $88.2
million of new manufacturing equipment to increase capacity, improve
manufacturing efficiencies, and support the Company's marketing, quality and
delivery objectives. During 1997 and 1998, the Company implemented a $67.0
million capacity expansion program, and during 1998, the Company temporarily
outsourced a small amount of its manufacturing requirements to provide better
service to its customers until the new looms included in this capacity expansion
plan were added. All such outsourcing was discontinued during the fourth quarter
of 1998.
Quality Assurance
Management believes that product quality is a significant competitive
factor in both the domestic and international fabric markets. Quaker's quality
initiatives include:
The use of incentive programs in certain of its production
departments to factor quality into the overall compensation programs
in these areas.
Inspection of incoming raw materials to ensure they meet the
Company's product specifications and to provide prompt feedback to
vendors when defects are discovered so that corrective actions may
be undertaken immediately.
The assignment of quality control staff to each of the Company's
weaving areas and to various other quality-critical production
departments to identify defects early in the manufacturing process.
A final quality inspection of the Company's yarn and fabric products
before they are released for shipment.
Continuous monitoring of the Company's performance against industry
standards and its own internal quality standards.
ISO 9001 certification of all of the Company's operations.
In addition to these measures, the built-in quality control features and
more precise settings on the new production equipment the Company has placed in
service since 1990 also support the Company's efforts to provide defect-free
products to its customers.
The Company's quality-related return rate, as a percentage of total yards
shipped was 0.4% in both 1998 and 1999, and the Company's sales of
second-quality fabric were $2.1 million in 1998, and $1.8 million in 1999.
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Technology
As part of Quaker's overall strategy to improve productivity and achieve a
service advantage over its competitors, the Company strives to introduce new
technologies into its operations whenever possible. Quaker's efforts in this
area include: (i) the use of its management information system to provide
computer support to the Company's manufacturing operations; (ii) the use of CAD
equipment to reduce the time required to bring its new products to market,
including the design of "Specials"; (iii) the use of bar-coding systems to
improve both the efficiency of its own manufacturing operations and service to
its customers; and (iv) the use of electronic Jacquard heads and other
production equipment equipped with microprocessors to improve manufacturing
efficiencies and reduce unit costs.
The Company's CAD equipment is used to develop new fabric designs and to
prepare plastic Jacquard cards for use with the Company's mechanical Jacquard
heads, and computer disks for use with Quaker's newer electronic Jacquard heads.
These plastic cards and computer disks contain precise instructions about the
construction of the particular fabric pattern to be woven.
The Company first introduced bar-coding technology in certain of its
operations in 1993. During 1998, Quaker introduced bar-coding technology in the
balance of its manufacturing areas so that material movement can be traced
electronically from receiving to shipping.
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. In addition, the
Company has developed a contingency plan designed to minimize risks associated
with failure of critical systems after December 31, 1999.
Sources and Availability of Raw Materials
Quaker's raw materials consist principally of polypropylene, polyester,
acrylic, cotton and rayon fibers and yarns for use in its yarn manufacturing and
fabric weaving operations, and latex to backcoat its finished fabrics. In
addition, Quaker purchases commission dyeing services from various dyehouses
which dye, to the Company's specifications, certain of the yarns the Company
produces internally or purchases from other manufacturers. Substantially all of
the raw materials used by the Company are purchased from primary producers with
manufacturing operations in the United States, however, certain of the Company's
raw material requirements are purchased from non-U.S. based suppliers. The
Company is dependent upon outside suppliers for its raw material needs,
including dyeing services, and is subject to price increases and delays in
receiving these materials and services. The Company's raw materials are
predominantly petrochemical products and their prices fluctuate with changes in
the underlying market for petrochemicals in general. During 1999, the Company
experienced no significant increases in raw material prices. There can be no
assurance, however, that the cost of the raw materials required by the Company
will not increase in the future or that the Company will be able to avoid a
decrease in its margin performance in the event of such an increase in its raw
material costs.
Although other sources are available, the Company currently procures
approximately 40% of its raw material components from two major industry
suppliers, one of which is the sole supplier of a filament yarn used in the
Company's chenille manufacturing operations. Generally, Quaker has not
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experienced any significant difficulty in meeting its raw material needs,
expects that it will be able to obtain adequate amounts to meet future
requirements, and seeks to identify alternate sources for all critical raw
material components. A shortage or interruption in the supply of any critical
component could have a material adverse effect on the Company.
Competition
The markets for the Company's products are highly competitive. Competitive
factors in the upholstery fabric business include product design, styling,
price, customer service and quality. Price is a more important competitive
factor in the promotional-end of the market than it is in the middle to
better-end of the market, where competition is weighted more heavy toward fabric
styling and design considerations. Although the Company has experienced no
significant competition in the United States from imported fabric to date,
changes in foreign exchange rates or other factors could make imported fabrics
more competitive with the Company's products in the future. During 1999, the
Company's yarn sales business continued to face diminished demand due to the
effects imported apparel products from the Far East had on demand for apparel
and other products manufactured by the Company's yarn customers. Management
anticipates this condition will continue for the foreseeable future.
The Company's principal competitors include: Burlington House Upholstery
Division of Burlington Industries Inc., Culp, Inc., Joan Fabrics Corporation and
its Mastercraft Division, and Valdese Weavers, Inc. Several of the companies
with which the Company competes have greater financial resources than the
Company. The Company's products compete with other upholstery fabrics and
furniture coverings, including prints, flocks, tufts, velvets and leather.
Backlog
As of January 1, 2000, the Company had orders pending for approximately
$37.7 million of fabric and yarn compared to $31.9 million as of January 2,
1999. The Company's backlog position at any given time may not be indicative of
the Company's long-term performance.
Trademarks, Patents, Copyrights
The Company seeks copyright protection for all new fabric designs it
creates, and management believes that the copyrights owned by the Company serve
as a deterrent to those industry participants which might otherwise seek to
replicate the Company's unique fabric designs. In June 1995, the Company
introduced a new collection of fabrics featuring Quaker's proprietary Ankyra
chenille yarns. In 1997, the United States Patent and Trademark Office issued a
patent to the Company protecting the proprietary manufacturing process developed
by Quaker to produce these yarns. The Company's Whitaker mark, as well as a logo
form of the "W" mark, is registered with the U.S. Patent and Trademark Office.
Quaker has also applied to register its Quaker Plush mark with the U.S. Patent
and Trademark Office, and has received a Notice of Allowance for this
"intent-to-use" application.
Insurance
The Company maintains general liability and property insurance. The costs
of insurance coverage vary generally and the availability of certain coverages
can change. While the Company believes that its present insurance coverage is
adequate for its current operations, there can be no assurance that the coverage
is sufficient for all future claims or will continue to be available in adequate
amounts or at reasonable rates.
Employees
11
The Company is the largest manufacturer, and the largest private sector
employer, in Fall River, Massachusetts. As of January 1, 2000, Quaker employed
2,363 persons, including 1,883 production employees, 201 technical and clerical
employees, and 279 exempt employees and commissioned sales representatives. The
Company's employees are not represented by a labor union, and management
believes that employee relations are good.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT (See Item 10 herein)
The executive officers of the Company are as follows:
Officer
Name Age Position Since
---- --- -------- -----
Larry A. Liebenow............56 President, Chief Executive Officer,
and Director 1989
Anthony Degomes..............59 Vice President - New Business
Development 1991
James A. Dulude..............44 Vice President - Manufacturing 1990
Cynthia L. Gordan............52 Vice President, Secretary, and General
Counsel 1989
Mark R. Hellwig..............42 Vice President - Supply Chain Management 1998
Thomas Muzekari..............59 Vice President - Sales and Marketing 1996
Beatrice Spires..............38 Vice President - Styling and Design 1996
Paul J. Kelly................55 Vice President - Finance, Chief
Financial Officer and Treasurer 1989
J. Duncan Whitehead..........57 Vice President - Research and
Development 1990
Larry A. Liebenow. Mr. Liebenow has served as President, Chief Executive
Officer, and a Director of the Company since September 1989. From July 1983
until September 1989, Mr. Liebenow was Chairman of the Board and President of
Nortex International, Inc. ("Nortex International"). From September 1971 to July
1983, Mr. Liebenow served as the Chief Operating Officer of Grupo Pliana, S.A.,
a Mexican yarn and upholstery fabric manufacturing concern.
Anthony Degomes. Mr. Degomes has been employed by the Company since September
1989 and has served as Vice President - New Business Development since March
1996. Mr. Degomes served as Vice President - Styling and Design of the Company
from September 1991 to March 1996. From December 1990 to September 1991, Mr.
Degomes served as the Company's Director of Styling and Design. From September
1989 to November 1990, Mr. Degomes served as the Vice President - Styling,
Design and Development of the Company's Nortex Division. From March 1984 to
September 1989, Mr. Degomes served as the Vice President in charge of Styling
and Development for Nortex International.
James A. Dulude. Mr. Dulude has been employed by the Company since May 1986 and
has served as Vice President - Manufacturing since August 1995. Mr. Dulude
served as Vice President - Purchasing, Planning and MIS from November 1990 to
August 1995. Mr. Dulude served as the Company's Director of Purchasing and
Planning from May 1989 to November 1990, Director of Planning and Scheduling
from July 1988 to May 1989, and Director of Information Systems from May 1986 to
July 1988.
Cynthia L. Gordan. Ms. Gordan has been employed by the Company since March 1988
and has served as Vice President, Secretary, and General Counsel of the Company
since March 1989. Ms. Gordan is also responsible for the Company's Risk
Management, Investor Relations and Human Resources functions. From April 1986 to
November 1987, Ms. Gordan served as a Senior Associate in the Corporate
Department of the Chicago law firm of Katten Muchin & Zavis. From November 1981
to April 1986, Ms. Gordan was employed by The General Electric Company where she
served first as the Vice President and General Counsel of General Electric's
life, property, and casualty insurance affiliates in Providence, Rhode Island,
and later as the strategic planner and acquisition specialist for a division of
General Electric Capital Corporation.
12
Mark R. Hellwig. Mr. Hellwig has served as Vice President - Supply Chain
Management since October 1998. From January 1996 until October 1998, Mr. Hellwig
was Director - Supply Chain Management for Solo Cup Company. From August 1993 to
January 1996, Mr. Hellwig was Director - Logistics at Solo Cup Company. From
1989 to 1993, Mr. Hellwig was with Deloitte and Touche LLP.
Paul J. Kelly. Mr. Kelly has served as Chief Financial Officer of the Company
since December 1989, and since November 1993 has also had responsibility for
working with industry and institutional analysts. From January 1988 to December
1989, Mr. Kelly was the co-founder and President of International Business
Brokers and Consultants Ltd., a business broker and consulting firm. From
December 1977 to December 1987, Mr. Kelly served as Chief Financial Officer of
Ferranti Ocean Research Equipment, Inc., an international manufacturing concern.
From February 1973 to December 1977, he was a certified public accountant with
Arthur Andersen & Co.
Thomas H. Muzekari. Mr. Muzekari has served as Vice President - Sales and
Marketing since October 1998, and was Vice President - Marketing from March 1996
until October 1998. From September 1989 until February 1996, Mr. Muzekari was
the Vice President - Marketing for Collins & Aikman's Velvet Division. From 1970
to September 1989, Mr. Muzekari held various management positions in both sales
and marketing with Miliken and Company.
M. Beatrice Spires. Ms. Spires has been employed by the Company since September
1995 and has served as Vice President - Styling and Design since March 1996.
From September 1995 to March 1996, Ms. Spires served as Quaker's Director of
Design. From July 1992 to September 1995, Ms. Spires was Vice President -
Merchandising for Collins & Aikman's Velvet Division. From September 1991 to
July 1992, Ms. Spires was Merchandising Manager at Collins & Aikman.
J. Duncan Whitehead. Mr. Whitehead has served as Vice President - Technology and
Development, and Yarn Sales since August 1995. Mr. Whitehead served as Vice
President - Yarn Sales and Development from May 1990 to August 1995. From
September 1989 to May 1990, Mr. Whitehead was the Vice President - Sales and
Marketing for the Company's Nortex Division. From July 1983 to September 1989,
Mr. Whitehead served as Vice President of Sales and Marketing for Nortex
International.
The Company's President, Secretary, and Treasurer are elected annually by the
Board at its first meeting following the annual meeting of stockholders. All
other executive officers hold office until their successors are chosen and
qualified.
13
ITEM 2. PROPERTIES
Properties
Quaker is headquartered in Fall River, Massachusetts where it currently
has six facilities, five of which are used primarily for manufacturing and
warehousing purposes. The sixth facility houses the Company's executive,
administrative and design areas as well as certain manufacturing operations. In
addition, the Company maintains a manufacturing facility in Somerset,
Massachusetts and warehouse space in Brockton, Massachusetts. The Company has
three distribution centers in the United States and one in Mexico. The table
below sets forth certain information relating to the Company's current
facilities:
Location Status Purpose Building Area(SF) Ownership
- -----------------------------------------------------------------------------------------
Grinnell Street, Fall River.........Active Manufacturing 728,000 Owned
Quequechan Street, Fall River.......Active Manufacturing 244,000 Owned
Davol Street, Fall River...........Active Offices/Warehouse 245,000 Owned
Campanelli Drive, Brockton, MA......Active Warehouse 217,351 Leased(1)
Ferry Street, Fall River............Active Manufacturing 193,000 Owned
Graham Road, Fall River.............Active Manufacturing 52,000 Leased(2)
Lewiston Street, Fall River.........Active Manufacturing 61,762 Leased(3)
County Street, Somerset, MA.........Active Manufacturing 52,500 Leased(4)
Verona, Mississippi.................Active Distribution Center 20,000 Owned
City of Industry, California........Active Distribution Center 17,286 Leased(5)
Mexico City, Mexico.................Active Distribution Center 9,000 Leased(6)
High Point, North Carolina..........Active Distribution Center 8,500 Leased(7)
(1) Lease expires December 31, 2003
(2) Lease expires July 31, 2002
(3) Month-to-month lease
(4) Lease expires May 20, 2000 -- Quaker has exercised its option to renew
this lease for a three-year period
(5) Lease expires October 1, 2001
(6) Lease expires February 5, 2003
(7) Lease expires July 31, 2001
Quaker has sales offices in Fall River, Massachusetts; Guadalajara and
Mexico City, Mexico; Hickory and High Point, North Carolina; Chicago, Illinois;
Tupelo, Mississippi; and Los Angeles, California. During December 1999, the
Company was granted a commercial license to conduct business in the Hamriyah
Free Zone by the Government of Sharjah, United Arab Emirates. Pursuant to the
license, the Company opened a sales office in the Hamriyah Free Zone in January
2000. All of the Company's sales offices, except the one in Fall River,
Massachusetts, are leased.
During 1998, the Company announced plans to develop and construct a new
modular manufacturing facility in Fall River. The site acquisition phase of this
project is complete and certain site preparation work is underway. Preliminary
plans for the facility itself have been developed, however, commencement of the
construction phase will depend on future demand for the Company's products.
Environmental Matters
The Company's operations are subject to numerous federal, state, and local
laws and regulations pertaining to the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company's facilities are located in industrial areas and, therefore, there is
the possibility of incurring environmental liabilities as a result of historic
operations at the Company's sites. Environmental liability can extend to
previously owned or leased properties, properties owned by third parties, and
properties currently owned or leased by the Company. Environmental liabilities
can also be asserted by adjacent landowners or other third parties in toxic tort
litigation. In addition, under the
14
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), and analogous state statutes, liability can be imposed
for the disposal of waste at sites targeted for cleanup by federal and state
regulatory authorities. Liability under CERCLA is strict as well as joint and
several. Further, certain of the Company's manufacturing areas are subject to
OSHA's "Comprehensive Cotton Dust Standard." Environmental laws and regulations
are subject to change in the future, and any failure by the Company to comply
with present or future laws or regulations could subject it to future
liabilities or interruption of production which could have a material adverse
effect on the Company. In addition, changes in environmental regulations could
restrict the Company's ability to expand its facilities or require the Company
to incur substantial unexpected other expenses to comply with such regulations.
In particular, the Company is aware of soil and groundwater contamination
relating to the use of certain underground fuel oil storage tanks at its Fall
River facilities. The Company has notified the Commonwealth of Massachusetts
regarding these releases. The Company's ultimate clean-up costs relating to
these underground storage tanks cannot be predicted with certainty at this time.
In addition, during the fourth quarter of 1993 the Company removed and
encapsulated asbestos at two of its facilities and the Company has an on-going
asbestos management program in place to appropriately maintain the asbestos that
remains present at its facilities. During the fourth quarter of 1998 and the
first quarter of 1999 oil-contaminated soil resulting from a leak during the
mid-1970s from an underground fuel storage tank at the Company's former facility
in Claremont, New Hampshire, was removed and disposed of at an asphalt batching
plant. The Company has agreed to indemnify the purchaser for these clean-up
costs subject to certain limitations. The Company has also agreed to indemnify
the purchaser of the Company's former facility in Leominster, Massachusetts, for
certain environmental contingencies.
The Company has accrued reserves for environmental matters based on
information presently available. Based on this information and the Company's
established reserves, the Company does not believe that these environmental
matters will have a material adverse effect on either the Company's financial
condition or results of operations. However, there can be no assurance that
these reserves will be adequate or that the costs associated with environmental
matters will not increase in the future.
ITEM 3. LEGAL PROCEEDINGS
Except as described below, the Company is not a party to any legal
proceedings other than routine legal proceedings incidental to its business,
which, in the opinion of management, are immaterial in amount or are expected to
be covered by the Company's insurance carriers.
In September and October 1998, the Company and certain of its officers and
directors were named as defendants in four putative class actions filed during
September 1998 relating to the Company's public offering of 3.2 million shares
of common stock that was completed on August 4, 1998 (the "Offering"). Three of
the actions were commenced in the United States District Court for the District
of Massachusetts: Neng Yang, etc. v. Quaker Fabric Corp., et al., Honora
Shapiro, etc. v. Quaker Fabric Corp., et al., and Ed Forstein v. Quaker Fabric
Corp., et al. One action, Bruno DeLuca, etc. v. Quaker Fabric Corp., et al., was
filed in the United States District Court for the Eastern District of New York.
On July 9, 1999, the action commenced in the Eastern District of New York was
transferred to the District of Massachusetts. On July 15, 1999, the four actions
were consolidated and on September 13, 1999, a consolidated amended class action
complaint was filed.
The putative class consists of "all persons, other than the defendants
named herein, who purchased or otherwise acquired the common stock of [the
Company] either in or traceable to the Company's secondary offering of its
common stock conducted on or about July 29, 1998 . . . through September 24,
1998[.]" The consolidated amended class action complaint alleges that the
Company and
15
the individual defendants violated Sections 11 and 12(a)(2) of the Securities
Act of 1933 and the individual defendants violated Section 15 of the Securities
Act of 1933. The asserted violations of the Securities Act of 1933 are based
upon allegations that the Company's July 29, 1998 prospectus contained
materially false or misleading statements and omitted to state material facts
necessary to make statements made in the prospectus not misleading. The damages
sought are unspecified as to amount. In addition to damages, plaintiffs seek an
award of rescission to the extent plaintiffs and the members of the putative
class still hold the Company's shares.
The Company and the individual defendants have moved to dismiss the
consolidated amended class action complaint. Oral argument of the motion to
dismiss was heard on January 12, 2000 and the court has reserved decision. The
Company does not believe, however, that the lawsuits will have a material
adverse affect on either its operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the captions "Summary Quarterly Financial Data,"
and "Liquidity and Capital Resources" on pages 31 and 29, respectively, of
Quaker's 1999 Annual Report, filed as Exhibit 13 hereto, is incorporated by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data," on page
12 of Quaker's 1999 Annual Report, filed as Exhibit 13 hereto, is incorporated
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," on pages 26 to 30 of
Quaker's 1999 Annual Report, filed as Exhibit 13 hereto, is incorporated by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments, Other Financial Instruments, and Derivative
Commodity Instruments
As of January 1, 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 interest
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.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under the captions, "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Changes in
Stockholders' Equity," "Consolidated Statements of Cash Flows," "Summary
Quarterly Financial Data," "Notes to Consolidated Financial Statements," and
"Report of Independent Public Accountants," on pages 13 to 25 and 31 of Quaker's
1999 Annual Report, filed as Exhibit 13 hereto, is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the directors of the Company required by
this item will be included in the Company's definitive proxy statement for its
2000 Annual Meeting of Stockholders (the "Proxy Statement") to be filed pursuant
to Regulation 14A, and such information is incorporated herein by reference. The
information with respect to the executive officers of the Company required by
this item is set forth in Item 1A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K
(i) Financial Statements (incorporated by reference, see Item 8)
Consolidated Balance Sheets --January 1, 2000 and January 2, 1999
Consolidated Statements of Income -- For the years ended January 1, 2000 and
January 2, 1999
Consolidated Statements of Changes in Stockholders' Equity -- For the years
ended January 1, 2000, January 2, 1999, and January 3, 1998
Consolidated Statements of Cash Flows -- For the years ended January 1, 2000,
January 2, 1999, and January 3, 1998
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(ii) Financial Statement Schedules
The following financial statement schedule of the Company included herein
should be read in conjunction with the audited financial statements incorporated
by reference in this Form 10-K.
Schedule II - Valuation and Qualifying Accounts
All other schedules for the Company are omitted because either they
are not applicable or the required information is shown in the
financial statements or notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
3(i) - Certificate of Incorporation of the Company, as amended.(1)
3(ii) - By-laws of the Company.(1)
10.1 - Loan and Security Agreement, dated as of October 31, 1990,
between the Company and Continental Bank N.A., as amended by
Amendments Nos. 1 through 9 thereto.(1)
10.2 - Securities Purchase Agreement, dated April 13, 1993, among
the Company, MLGA Fund II, L.P. and MLGAL Partners, as
amended by Amendment No. 1 thereto.(1)
10.3 - Subscription Agreement, dated March 12, 1993, among the
Company and MLGA Fund II, L.P., Nortex Holdings, Inc., QFC
Holdings Corporation, and Larry Liebenow.(1)
10.4 - Shareholders Agreement, dated March 12, 1993, by and among
the Company, Larry Liebenow, Ira Starr, and Sangwoo Ahn.(1)
10.5 - Employment Agreement, dated as of March 12, 1993, between
the Company and Larry A. Liebenow.(1)
10.6 - Director Indemnification Contract, dated October 18, 1989,
between the Company and Larry A. Liebenow.(1)
10.7 - Director Indemnification Contract, dated October 18, 1989,
between the Company and Roberto Pesaro.(1)
10.8 - Director Indemnification Contract, dated April 15, 1992,
between the Company and Samuel A. Plum.(1)
10.9 - Director Indemnification Contract, dated May 2, 1991,
between the Company and Andrea Gotti-Lega.(1)
10.10 - Severance Contract, dated August 15, 1988, between the
Company and Thomas J. Finneran.(1)
10.11 - Severance Contract, dated May 26, 1989, between the Company
and James Dulude.(1)
10.12 - Severance Contract, dated December 1, 1988, between the
Company and Cynthia Gordan.(1)
10.13 - Equipment Financing Lease Agreement, dated September 18,
1992, between QFR and United States Leasing Corporation.(1)
10.14 - Equipment Financing Lease Agreement, dated September 29,
1992, between QFR and KeyCorp Leasing pursuant to a Notice
of Assignment from U.S. Leasing.(1)
10.15 - Equipment Financing Lease Agreement, dated February 16,
1989, between QFR and Key Financial Services, Inc.(1)
10.16 - Equipment Financing Lease Agreement, dated September 22,
1992, between QFR and Dana Commercial Credit Corporation
(Fleet National Bank).(1)
10.17 - Equipment Financing Lease Agreement, dated October 8, 1992,
between QFR and Capital Associates International, Inc.(1)
10.18 - Equipment Financing Loan Agreement, dated August 31, 1992,
between QFR and HCFS Business Equipment Corporation.(1)
10.19 - Equipment Financing Lease Agreement, dated September 13,
1991, between QFR and Sovran Leasing and Finance
Corp/NationsBanc Leasing Corp.(1)
10.20 - Equipment Financing Lease Agreement, dated December 18,
1990, between QFR and IBM Credit Corporation.(1)
10.21 - Equipment Financing Lease Agreement, dated May 5, 1993,
between QFR and The CIT Group.(1)
10.22 - Equipment Financing Lease Agreement, dated June 30, 1993,
between QFR and AT&T Commercial Finance Corporation.(1)
10.23 - Chicago, Illinois Showroom Lease, dated July 1, 1989,
between the Company and LaSalle National Bank, Trustee.(1)
10.24 - Hickory, North Carolina Showroom Lease, dated June 15, 1993,
between the Company and Hickory Furniture Mart, Inc.(6)
10.25 - High Point, North Carolina Showroom Lease, dated November 6,
1991, between the Company and Market Square Limited
Partnership.(1)
10.26 - Los Angeles, California Showroom Lease, dated September 23,
1992, between the Company and The L.A. Mart.(1)
10.27 - Tupelo, Mississippi Showroom Lease, dated December 14, 1992,
between the Company and Mississippi Furniture Market,
Inc.(6)
10.28 - Mexico City, Mexico Warehouse Lease, dated June 6, 1993,
between Quaker Fabric Mexico, S.A. de C.V. and Irene Font
Byrom.(1)
10.29 - Licensing Agreement, dated May 17, 1990, between the Company
as Licensee and General Electric Company.(1)
10.30 - Licensing Agreement, dated September 24, 1990, between the
Company as Licensee and Amoco Fabrics and Fibers Company.(1)
10.31 - Software Licensing Agreement, dated October 29, 1987,
between the Company as Licensee and System Software
Associates.(1)
10.32 - Licensing Agreement, dated June 5, 1974, between the Company
and E.I. DuPont de Nemours & Company, Inc.(1)
10.33 - Licensing Agreement, dated October 17, 1988, between the
Company as Licensee and Monsanto Company.(1)
10.34 - Licensing Agreement, dated July 28, 1987, between the
Company as Licensee and Phillips Fibers Corporation.(1)
10.35 - Software Licensing Agreement, dated July 7, 1988, between
the Company as Licensee and Software 2000, Inc.(1)
10.36 - Licensing Agreement, dated February 1, 1977, between the
Company as Licensee and 3M.(1)
10.37 - Software Licensing Agreement, dated April 8, 1992, between
the Company as Licensee and Premenos Corporation.(1)
10.38 - Software Licensing Agreement, dated March 19, 1993, between
the Company as Licensee and Sophis U.S.A., Inc.(1)
10.39 - Quaker Fabric Corporation 1993 Stock Option Plan and Form of
Option Agreement thereunder.(1)
10.40 - Option to Purchase Common Stock issued to Nortex Holdings,
Inc., effective April 13, 1993.(1)
10.41 - Amendment No. 1, dated as of October 25, 1993, to
Shareholders Agreement, dated March 12, 1993, by and among
the Company, Nortex Holdings, Inc., MLGA Fund II, L.P.,
MLGAL Partners, W. Wallace McDowell, Jr., William Ughetta,
and Ira Starr.(1)
10.42 - Quaker Fabric Corporation Deferred Compensation Plan and
related Trust Agreement.(2)
10.43 - Form of Split Dollar Agreement with Senior Officers.(2)
10.44 - Credit Agreement, dated as of June 29, 1994, by and among
the Company, The First National Bank of Boston, and
Continental Bank, N.A.(3)
10.45 - Equipment Schedule No. 5, dated as of September 14, 1994, to
Master Lease Agreement, dated as of May 5, 1993, between QFR
and the CIT Group/Equipment Financing, Inc. (4)
10.46 - Commission and Sales Agreement, dated as of April 25, 1994,
between QFR and Quaker Fabric Foreign Sales Corporation.(4)
10.47 - Stock Option Agreement, dated as of July 28, 1995, between
the Company and Eriberto R. Scocimara.(5)
10.48 - Amended and Restated Credit Agreement, dated December 18,
1995, among the Company, QFR, Quaker Textile Corporation,
Quaker Fabric Mexico, S.A. de C.V., The First National Bank
of Boston, and Fleet National Bank.(5)
10.49 - Note Purchase and Private Shelf Agreement, dated December
18, 1995, among the Company, Prudential Insurance Company of
America, and Pruco Life Insurance Company.(5)
10.50 - Guarantee Agreement, dated as of December 18, 1995, among
the Company, The Prudential Insurance Company of America,
and Pruco Life Insurance Company.(5)
10.51 - Amendment Agreement No. 1, dated as of March 21, 1996, to
that certain Amended and Restated Credit Agreement, dated as
of December 18, 1995, among the Company, QFR, Quaker Textile
Corporation, Quaker Fabric Mexico, S.A. de C.V., The First
National Bank of Boston, and Fleet National Bank.(5)
10.52- 1996 Stock Option Plan for Key Employees of QFR, dated April
26, 1996.(6)
10.53 - Amendment Agreement No. 2, dated as of October 21, 1996, to
that certain Amended and Restated Credit Agreement, dated as
of December 18, 1995, among the Company, QFR, Quaker Textile
Corporation, Quaker Fabric Mexico, S.A. de C.V., The First
National Bank of Boston, and Fleet National Bank.(6)
10.54 - Software License Agreement dated October 31, 1996 between
the Company and System Software Associates Inc.(6)
10.55 - Medical Expense Reimbursement Plan.(6)
10.56 - High Point, North Carolina Warehouse Lease, dated April 1,
1996 between QFR and C&M Investments of High Point, Inc.(6)
10.57 - Standard Industrial Lease Agreement, dated May 10, 1996,
between CIIF Associates II Limited Partnership and QFR.(6)
10.58 - Rights Agreement dated March 4, 1997 between the Company and
The First National Bank of Boston relating to the Company's
Stockholder Rights Plan.(6)
10.59 - 1997 Stock Option Plan.(6)
10.60 - Amendment, dated as of February 24, 1997, to Employment
Agreement between the Company and Larry A. Liebenow.(6)
10.61 - Amendment No. 4, dated as of December 19, 1997 to the
Amended and Restated Credit Agreement, dated as of December
18, 1995, by and among QFR, Quaker Textile Corp., Quaker
Fabric Mexico, S.A. de C.V., the Company, BankBoston and
Fleet National Bank.(7)
10.62 - Employee Stock Purchase Plan, dated as of October 1,
1997.(7)
10.63 - Note Purchase Agreement dated October 10, 1997 among QFR,
The Prudential Insurance Company of America, and Pruco Life
Insurance Company.(7)
10.64 - Guaranty Agreement, dated as of October 10, 1997, by the
Company in favor of the Prudential Insurance Company of
America and PrucoLife Insurance Company.(7)
10.65 - Commercial Lease between QFR and Clocktower Enterprises,
Inc., dated as of August 1, 1997.(7)
10.66 - Lease between Robbins Manufacturing Co., Inc. and QFR, dated
as of October 22, 1997.(7)
10.67 - Lease between Tilly Realty Associates and QFR, dated as of
December 9, 1997.(7)
10.68 Lease between 1 Lewiston Street, LLC and QFR, dated as of
March 16, 1998.(7)
10.69 Purchase and Sale Agreement, dated August 7, 1998, between
QFR and Rodney Realty Trust.(8)
10.70 Stock Option Agreement, dated as of October 19, 1998,
between the Company and Mark R. Hellwig.(8)
10.71 Lease between ADAP, Inc. and QFR, dated as of December 11,
1998.(8)
10.72 Purchase and Sale Agreement, dated January 6, 1999, between
QFR and Montaup Electric Company.(8)
10.73 Purchase and Sale Agreement, dated January 22, 1999, between
QFR and Jefferson Realty Partnership.(8)
10.74 Amendment No. 6, dated as of March 26, 1999 to the Amended
and Restated Credit Agreement, dated as of December 18,
1995, by and among QFR, Quaker Textile Corp., Quaker Fabric
Mexico, S.A. de C.V., the Company, BankBoston and Fleet
National Bank.(8)
10.75 Amendment No. 1, dated as of March 26, 1999 to the Note
Purchase Agreement dated as of October 10, 1997 among QFR,
The Prudential Insurance Company of America, and Pruco Life
Insurance Company. (8)
10.76 Purchase and Sale Agreement, dated May, 1999, between QFR
and The Center for Child Care and Development, Inc.
10.77 Tax Increment Financing Agreement, dated May 27, 1999,
between the City of Fall River and QFR
10.78 Memorandum of Understanding, dated July 1, 1999, between the
City of Fall River and QFR
10.79 Lease between Frank B. Peters, Jr. and QFR, dated as of June
15, 1999.
10.80 Amendment No. 7, dated as of September 30, 1999 to the
Amended and Restated Credit Agreement, dated as of December
18, 1995, by and among QFR, Quaker Textile Corp., Quaker
Fabric Mexico, S.A. de C.V., the Company, BankBoston and
Fleet National Bank.
10.81 Lease between Hamriyah Free Zone Authority and QFR, dated as
of November 28, 1999.
10.82 Form of change in control agreement, dated December 17,
1999, between the Company and each of its vice presidents.
10.83 Agreement concerning change in control, dated December 17,
1999, between the Company and its controller.
10.84 Amendment No. 1 to the Company's Deferred Compensation Plan,
dated December 17, 1999.
10.85 Amendment No. 1 to the Split Dollar Insurance Agreements
between QFR and each of its officers.
10.86 Amendment, dated as of December 17, 1999, to Employment
Agreement between the Company and Larry A. Liebenow.
10.87 1999 Stock Purchase Loan Program and form of related Secured
Promissory Note and Stock Pledge Agreement.
10.88 - Amendment No. 2, dated as of December 28, 1999 to the Note
Purchase Agreement dated as of October 10, 1997 among QFR,
The Prudential Insurance Company of America, and Pruco Life
Insurance Company.
10.89 Software License Agreement, dated December 29, 1999, between
QFR as Licensee and Paragon Management Systems, Inc.
13 - 1999 annual report to security holders. Included in this
exhibit are those portions of the annual report to security
holders which are expressly incorporated by reference in
this filing.
21 - Subsidiaries. (5)
23 - Consent of Arthur Andersen LLP.
27 - Financial Data Schedule.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-69002, initially filed with the Securities and
Exchange Commission on September 17, 1993, as amended.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 2, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.
(6) Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 333-21957, initially filed with the Securities and
Exchange Commission on February 25, 1997, as amended.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 3, 1998.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 29, 2000.
QUAKER FABRIC CORPORATION
By /s/ Larry A. Liebenow
-------------------------------------
Larry A. Liebenow
Chief Executive Officer,
President, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Larry A. Liebenow Chief Executive Officer, March 29, 2000
- ----------------------------- President, and Director
(Larry A. Liebenow)
/s/ Paul J. Kelly Vice President -- Finance (Chief March 29, 2000
- ----------------------------- Financial and Accounting
Officer)
(Paul J. Kelly)
/s/ Sangwoo Ahn Chairman of the Board March 29, 2000
- -----------------------------
(Sangwoo Ahn)
/s/ Jerry I. Porras Director March 29, 2000
- -----------------------------
(Jerry I. Porras)
/s/ Eriberto R. Scocimara Director March 29, 2000
- -----------------------------
(Eriberto R. Scocimara)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS
To Quaker Fabric Corporation:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements included in Quaker
Fabric Corporation and subsidiaries' Annual Report to Shareholders incorporated
by reference in this Form 10-K and have issued our report thereon dated February
10, 2000. Our audit was made for the purpose of forming an opinion on those
financial statements taken as a whole. The schedule listed in the index in Item
14(a) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states, in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 2000
SCHEDULE II
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended January 3, 1998, January 2, 1999 and January 1, 2000
(DOLLARS IN THOUSANDS)
Net
Balance at Provisions Deductions Balance
Beginning Charged to from at end
Descriptions of Period Operations Allowances of Period
Year Ended January 3, 1998
Bad Debt Reserve $1,275 $55 ($425) $905
Sales Returns & Allowances Reserve $777 $4,256 ($4,459) $574
Year Ended January 2, 1999
Bad Debt Reserve $905 $779 ($591) $1,093
Sales Returns & Allowances Reserve $574 $6,140 ($5,868) $846
Year Ended January 1, 2000
Bad Debt Reserve $1,093 $571 ($632) $1,032
Sales Returns & Allowances Reserve $846 $5,020 ($5,318) $548
STATEMENT OF DIFFERNCES
The trademark symbol shall be expressed as..........................'TM'
The registered trademark symbol shall be expressed as...............'r'
The section symbol shall be expressed as............................'SS'