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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7023
QUAKER FABRIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-1933106
(State of incorporation) (I.R.S. Employer Identification No.)
941 GRINNELL STREET, FALL RIVER, MASSACHUSETTS 02721
(Address of principal executive offices)
(508) 678-1951
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of August 3, 1999, 15,672,703 shares of Registrant's Common Stock, $0.01
par value, were outstanding.
------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
July 3, January 2,
1999 1999
-------------- ----------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 362 $ 432
Accounts receivable, less allowances of $1,693 and $1,939 at
July 3, 1999 and January 2, 1999, respectively 37,099 40,661
Inventories 43,711 46,594
Prepaid income taxes 523 1,311
Prepaid expenses and other current assets 7,621 6,791
------------ ------------
Total current assets 89,316 95,789
------------ ------------
Property, plant and equipment, net of depreciation and amortization
of $54,084 and $47,514 at July 3, 1999
and January 2, 1999, respectively 134,841 132,420
------------ ------------
Other assets:
Goodwill, net of amortization 5,915 6,011
Other assets 631 546
------------ ------------
Total assets $ 230,703 $ 234,766
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 233 $ 700
Current portion of capital lease obligations 1,791 1,861
Accounts payable 19,618 13,754
Accrued expenses 7,088 6,780
------------ ------------
Total current liabilities 28,730 23,095
------------ ------------
Long-term debt, less current portion 55,500 65,536
------------ ------------
Capital lease obligations, net of current portion 3,247 3,475
------------ ------------
Deferred income taxes 15,917 15,874
------------ ------------
Other long-term liabilities 1,740 1,793
------------ ------------
Redeemable preferred stock:
Series A convertible, $.01 par value per share,
50,000 shares authorized. No shares issued and outstanding -- --
Stockholders' equity:
Common stock, $.01 par value per share, 20,000,000 shares authorized;
15,659,902 and 15,646,551 shares issued and outstanding as of
July 3, 1999 and January 2, 1999, respectively 156 156
Additional paid-in capital 83,476 83,410
Retained earnings 43,269 42,842
Cumulative translation adjustment (1,332) (1,415)
------------ ------------
Total stockholders' equity 125,569 124,993
------------ ------------
Total liabilities and stockholders' equity $ 230,703 $ 234,766
------------ ------------
------------ ------------
The accompanying notes are an integral part of
these consolidated financial statements
1
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
------------------------ -----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
------ ------ ------ ------
(Unaudited) (Unaudited)
Net sales $ 64,463 $ 64,075 $ 120,603 $ 126,805
Cost of products sold 51,336 49,481 97,139 98,620
--------- --------- --------- ---------
Gross margin 13,127 14,594 23,464 28,185
Selling, general and administrative expenses 10,664 9,218 20,317 18,616
--------- --------- --------- ---------
Operating income 2,463 5,376 3,147 9,569
Other expenses:
Interest expense, net 1,249 1,468 2,533 2,668
Other, net (29) (3) (42) 12
--------- --------- --------- ---------
Income before provision for income taxes 1,243 3,911 656 6,889
Provision for income taxes 434 1,369 229 2,411
--------- --------- --------- ---------
Net income $ 809 $ 2,542 $ 427 $ 4,478
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per common share - basic (Note 1) $ 0.05 $ 0.20 $ 0.03 $ 0.35
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding - basic (Note 1) 15,660 12,622 15,655 12,615
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per common share - diluted (Note 1) $ 0.05 $ 0.19 $ 0.03 $ 0.34
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding - diluted (Note 1) 16,171 13,361 16,161 13,325
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of
these consolidated financial statements
2
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Three Months Ended Six Months Ended
---------------------------- ----------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
--------- ------------- ------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 809 $ 2,542 $ 427 $ 4,478
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 3,451 2,774 6,691 5,309
Deferred income taxes 97 398 43 668
Changes in operating assets and liabilities:
Accounts receivable (net) (1,654) (1,961) 3,562 (3,469)
Inventories 261 (4,886) 2,882 (10,654)
Prepaid expenses and other current assets 62 (671) (42) (49)
Accounts payable and accrued expenses 2,630 (5,114) 6,172 (3,175)
Other long-term liabilities 7 46 (53) 87
-------- -------- -------- --------
Net cash provided (used) by operating activities 5,663 (6,872) 19,682 (6,805)
-------- -------- -------- --------
Cash flows from investing activities:
Net purchase of property, plant and equipment (4,341) (12,692) (8,598) (25,004)
-------- -------- -------- --------
Net cash used for investing activities (4,341) (12,692) (8,598) (25,004)
-------- -------- -------- --------
Cash flows from financing activities:
Repayments of capital leases (352) (290) (692) (574)
Net borrowings (repayment of) revolving line of credit (700) 19,500 (10,000) 32,600
Repayments of term debt (254) (264) (503) (514)
Proceeds from exercise of stock options 45 376 66 388
Capitalization of finance cost (52) (50) (108) (50)
-------- -------- -------- --------
Net cash provided (used) by financing activities (1,313) 19,272 (11,237) 31,850
-------- -------- -------- --------
Effect of exchange rates on cash 19 0 83 0
Net decrease in cash and cash equivalents 28 (292) (70) 41
Cash and cash equivalents, beginning of period 334 567 432 234
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 362 $ 275 $ 362 $ 275
-------- -------- -------- --------
-------- -------- -------- --------
Non cash activity
Capital leases for new equipment $ 0 $ 0 $ 394 $ 0
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of
these consolidated financial statements
3
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of management,
necessary to present fairly the financial position of Quaker Fabric Corporation
and Subsidiaries (the 'Company') as of July 3, 1999 and January 2, 1999 and the
results of their operations and cash flows for the three months ended July 3,
1999 and July 4, 1998. The unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to those rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended January 2, 1999. Certain
reclassifications have been made to the prior year financial statements for
consistent presentation with the current year.
EARNINGS PER COMMON SHARE
The Company reports earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, 'Earnings per Share.' Basic
income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. For diluted
income per share, the denominator also includes dilutive outstanding stock
options determined using the treasury stock method. The following table
reconciles weighted average common shares outstanding to weighted average
common shares outstanding and dilutive potential common shares.
Three Months Ended Six Months Ended
--------------------- ---------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
Weighted average common shares outstanding 15,660 12,622 15,655 12,615
Dilutive potential common shares 511 739 506 710
------ ------ ------ ------
Weighted average common shares outstanding and dilutive
potential common shares 16,171 13,361 16,161 13,325
------ ------ ------ ------
------ ------ ------ ------
Antidilutive potential common shares 943 -- 937 --
------ ------ ------ ------
------ ------ ------ ------
4
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost or market and include
materials, labor and overhead. Cost is determined by the last-in, first-out
(LIFO) method.
Inventories at July 3, 1999 and January 2, 1999 consisted of the following:
July 3, January 2,
1999 1999
---- ----
(In thousands)
Raw materials $20,024 $20,137
Work in process 10,924 12,439
Finished goods 12,850 14,297
------- -------
Inventory at FIFO 43,798 46,873
LIFO Reserve 87 279
------- -------
Inventory at LIFO $43,711 $46,594
------- -------
------- -------
NOTE 3 - COMPREHENSIVE INCOME
In accordance with SFAS No. 130, the Company's 'other comprehensive items'
consist of foreign currency translation gains or loss. Foreign currency
translation gains were $19,000 for the second quarter of 1999 and $83,000 for
the first six months of 1999. No foreign currency translation gains or losses
were reported in fiscal year 1998. During the second quarters of 1999 and 1998,
the Company's comprehensive income was $790,000 and $2,542,000 respectively. For
the first six months of Fiscal 1999 and Fiscal 1998, the Company's comprehensive
income was $344,000 and $4,478,000, respectively.
NOTE 4 - SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131 'Disclosures about Segments of Enterprise and Related Information' which
the Company has adopted. Segments are defined as components of an enterprise for
which separate financial information is available and is evaluated regularly by
the chief operating decision-maker in deciding how to allocate resources and in
assessing performance. The Company operates as a single business segment
consisting of sales of two products; upholstery fabric and yarn.
5
The accounting policies of segment reporting are the same as those
described in Note 2 'Summary of Significant Accounting Policies' of the
Company's '1998 Annual Report'. The Company evaluates the performance of
operating results taken as a whole.
Export sales from the United States to unaffiliated customers by major
geographical area were as follows:
Three Months Ended Six Months Ended
--------------------- ---------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
North America (excluding USA) $ 4,989 $ 5,605 $ 9,258 $10,228
Middle East 2,492 1,990 3,652 5,023
South America 163 607 558 1,204
Europe 1,419 987 3,619 2,068
All Other 1,250 823 2,518 1,654
------- ------- ------- -------
$10,313 $10,012 $19,605 $20,177
------- ------- ------- -------
------- ------- ------- -------
Gross Sales by product category are as follows:
Three Months Ended Six Months Ended
--------------------- ---------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
Fabric $60,120 $57,289 $112,937 $112,790
Yarn 5,687 7,888 10,186 16,668
------- ------- ------- -------
$65,807 $65,177 $123,123 $129,458
------- ------- ------- -------
------- ------- ------- -------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's fiscal year is a 52 or 53 week period ending on the Saturday
closest to January 1. 'Fiscal 1998' ended January 2, 1999 and 'Fiscal 1999' will
end January 1, 2000. The first six months of Fiscal 1998 and Fiscal 1999 ended
July 4, 1998 and July 3, 1999, respectively.
RESULTS OF OPERATIONS - Quarterly Comparison
Net sales for the second three months of Fiscal 1999 increased $0.4 million
or 0.6%, to $64.5 million from $64.1 million for the second three months of
Fiscal 1998. The average gross sales price per yard increased 5.4%, to $4.72 for
the second three months of Fiscal 1999 from $4.48 for the second three months of
Fiscal 1998. This increase was principally attributable to growth in the
higher priced middle to better-end fabric category. The gross volume of fabric
sold decreased 0.8%, to 12.7 million yards for the second three months of Fiscal
1999 from 12.8 million yards for the second three months of Fiscal 1998. The
Company sold 3.9% more yards of middle to better-end fabrics and 10.1% fewer
yards of promotional-end fabrics in the second
6
three months of Fiscal 1999 than in the second three months of Fiscal 1998. The
average gross sales price per yard of middle to better-end fabrics increased by
5.2%, to $5.29 in the second three months of Fiscal 1999 as compared to $5.03 in
the second three months of Fiscal 1998. The average gross sales price per yard
of promotional-end fabric increased by 0.6%, to $3.42 in the second three months
of Fiscal 1999 as compared to $3.40 in the second three months of Fiscal 1998.
Gross fabric sales within the United States increased 5.4% to $49.8 million
in the second three months of Fiscal 1999 from $47.3 million in the second three
months of Fiscal 1998. Foreign and Export sales increased 3.0%, to $10.3 million
in the second three months of Fiscal 1999 from $10.0 million in the second three
months of Fiscal 1998. Gross yarn sales decreased 27.9% to $5.7 million in the
second three months of Fiscal 1999 from $7.9 in the second three months of
Fiscal 1998.
The gross margin percentage for the second three months of Fiscal 1999
decreased to 20.4% as compared to 22.8% for the second three months of Fiscal
1998. The decrease in gross profit margin percentage was due to higher per unit
fixed overhead costs due primarily to increased total fixed overhead expenses in
Fiscal 1999 versus 1998.
Selling, general and administrative expenses increased to $10.7 million for
the second three months of Fiscal 1999 from $9.2 million for the second three
months of Fiscal 1998. Selling, general and administrative expenses as a
percentage of net sales increased to 16.5% in the second three months of Fiscal
1999 from 14.4% in the second three months of Fiscal 1998. The increase in
selling, general and administrative expenses was primarily due to increases in
labor and fringe benefits, increased fabric sampling, and related expenses
associated with the development of the Company's fabric line.
Interest expense was $1.2 million for the second three months of Fiscal
1999, and $1.5 million for the second three months of Fiscal 1998. Lower levels
of borrowing on the Company's senior debt at lower rates of interest were the
primary reasons for the decrease.
In accordance with generally accepted accounting principles, the Company
provides for income taxes on an interim basis, using the estimated annual
effective income tax rate. The Company's estimated tax rate was 35.0% for the
second three months of both Fiscal 1999 and Fiscal 1998. The effective income
tax rate is lower than the combined federal and state statutory rates due
primarily to the foreign sales corporation tax benefits and state investment tax
credits.
Net income for the second three months of Fiscal 1999 decreased to $0.8
million, or $0.05 per common share-diluted, from $2.5 million, or $0.19 per
common share-diluted, for the second three months of Fiscal 1998. For a
discussion of 'Earnings Per Share,' see Note 2 to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended January 2, 1999.
7
RESULTS OF OPERATIONS - Six-month Comparison
Net sales for the first half of Fiscal 1999 decreased $6.2 million or 4.9%,
to $120.6 million from $126.8 million for the first half of Fiscal 1998. The
average gross sales price per yard increased 4.7%, to $4.71 for the first half
of Fiscal 1999 from $4.50 for the first half of Fiscal 1998. This increase was
principally due to an increase in the average selling price of middle to
better-end fabric. The gross volume of fabric sold decreased 4.4%, to 24.0
million yards for the first half of Fiscal 1999 from 25.1 million yards for the
first half of Fiscal 1998. The Company sold 1.0% more yards of middle to better-
end fabrics and 15.0% fewer yards of promotional-end fabrics in the first half
of Fiscal 1999 than in the first half of Fiscal 1998. The average gross sales
price per yard of middle to better-end fabrics increased by 4.4% to $5.25 in the
first half of Fiscal 1999 as compared to $5.03 in the first half of Fiscal 1998.
The average gross sales price per yard of promotional-end fabric remained
constant at $3.44 in the first half of both Fiscal 1999 and 1998.
Gross fabric sales within the United States were $93.3 million in the first
half of Fiscal 1999 an increase of 0.8% over the first half of 1998 gross fabric
sales of $92.6 million. Foreign and Export sales decreased 2.8% to $19.6 million
in the first half of Fiscal 1999 from $20.2 million in the first half of Fiscal
1998. Gross yarn sales decreased 38.9% to $10.2 million in the first half of
Fiscal 1999 from $16.7 million in the same period of Fiscal 1998.
The gross margin percentage for the first half of Fiscal 1999 decreased to
19.5% as compared to 22.2% for the first half of Fiscal 1998. The decrease in
the gross margin percentage was due to higher per unit fixed costs due to 1.)
increased total fixed overhead expenses in Fiscal 1999 versus 1998 and 2.) lower
fabric sales volume in certain foreign markets and lower sales volume of yarn.
Selling, general and administrative expenses increased to $20.3 million for
the first half of Fiscal 1999 from $18.6 million for the first half of Fiscal
1998. Selling, general and administrative expenses as a percentage of net sales
increased to 16.8% in the first half of Fiscal 1999 from 14.7% in the first half
of Fiscal 1998. The increase in selling, general and administrative expenses was
primarily due to increases in labor and fringe benefits, fabric sampling
expenses, and related costs associated with the development of the Company's
fabric line.
Interest expense decreased to $2.5 million for the first half of Fiscal
1999 from $2.7 million in the first half of Fiscal 1998. Lower levels of senior
debt financing, at lower rates of interest were the primary reasons.
In accordance with generally accepted accounting principles, the Company
provides for income taxes on an interim basis, using the estimated annual
effective income tax rate. The Company's estimated tax rate was 35.0% for the
first half of both Fiscal 1999 and Fiscal 1998.
8
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 half of Fiscal 1999 decreased to $0.4 million, or
$0.03 per common share-diluted, from $4.5 million, or $0.34 per common
share-diluted, for the first half of Fiscal 1998. For a discussion of 'Earnings
Per Share,' see Note 2 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended January 2, 1999.
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 half of Fiscal 1998 and Fiscal 1999 were
$25.0 million and $9.0 million, respectively. Capital expenditures were funded
by operating cash flow and borrowings. Management anticipates that capital
expenditures will total approximately $24.0 million in 1999, consisting of 1.)
$14.5 million primarily for new production equipment to expand finishing
capacity, 2.) $7.0 million for facilities projects including $3.5 million for
the acquisition of land, and 3.) $2.5 million for the introduction of new
technology and enhancement of management information systems. Management
believes that operating income and borrowing under the Credit Agreement will
provide sufficient funding for the Company's capital expenditures and working
capital needs for the foreseeable future.
The Company issued $45.0 million of Senior Notes due October 2005 and 2007
(the 'Senior Notes') during 1997. 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 2, 1999.
The Company has a $70.0 million Credit Agreement with two banks which
expires December 31, 2002. In 1998, the Company amended its Credit Agreement to
increase the amount of the facility from $50.0 million to $70.0 million and to
eliminate covenant limitations with respect to capital expenditures. As of July
3, 1999, the Company had $10.5 million outstanding under the Credit Agreement
and unused availability of $59.5 million, net of outstanding letters of credit.
For a discussion of the 'Credit Agreement,' see Note 5 to the Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended January 2, 1999.
9
YEAR 2000
The 'Year 2000 issue' is a result of the many existing computer programs
that utilize only the last two, rather than all four, digits to specify a year.
As a result, it is anticipated that date sensitive software programs may only
recognize '00' as signifying the year 1900, and therefore not recognize the year
2000. Although the exact consequences of such an event are not yet fully known,
there is concern that there could be at least a temporary inability to engage
in normal business operations, which, in the aggregate, could have a negative
effect on the global economy.
Quaker Fabric Corporation has considered and planned for the Year 2000
issue since the middle of 1996 when the Company began working with outside
consultants and software vendors to address its response to the Year 2000 issue,
as well as to update its overall management information system. In addition, the
Company has an internal project team in place to coordinate these efforts. In
late 1996, the Company purchased a new Enterprise Resource Planning system (the
'ERP'). The ERP is intended to enhance the Company's ability to meet its
productivity, service and quality objectives, and is represented as fully Year
2000 compliant, and therefore carries a warranty for the latter purpose. The ERP
is designed to read all four digits of a given year, and to convert two digit
year designations, as well. The Company converted to its new Enterprise Resource
Planning system during July 1998 and fully implemented the system by the end of
1998. The Company has completed modification and replacement, to the extent
necessary, of its critical information technology systems.
The Company has completed a survey of its manufacturing and other critical
equipment that may be date-sensitive, including those with embedded technology.
Based upon the results of the survey, only remediation of non-critical equipment
is necessary and does not appear to be material.
The Company has sent surveys to its major vendors in an attempt to
ascertain their state of Year 2000 readiness and to determine the extent to
which the Company may be adversely effected by their failure to sufficiently
address the Year 2000 issue. The Company has begun to receive responses to those
surveys and a team of Company employees will continue to coordinate the
Company's efforts in this regard. Similarly, the Company has been in
communication with its major customers, and is receiving information from them
as to their state of readiness for the Year 2000. We anticipate continuing the
assessment of vendor and customer readiness through 1999. Although the Company
cannot have absolute assurance that it will not be adversely effected by the
year 2000 issues of its suppliers and customers, it will continue to communicate
with its suppliers and customers to help minimize risks presented by the Year
2000 issues of these parties.
While the failure by our suppliers or customers to adequately address their
Year 2000 issues could have a material adverse effect on the Company, it is not
presently possible to reasonably estimate the amount of business that the
Company could lose or the other costs that the Company could sustain in the
event of such failure. Similarly, to the extent that other segments of the
global political, financial, economic, transportation and manufacturing sectors
malfunction at the Year 2000, the Company's operations and financial strength
would likely be adversely affected to some presently unknown degree.
10
The Company believes that it will be successful in its efforts to address
the Year 2000 issue and will therefore not suffer any material adverse effect on
its operations or financial condition. Although the Company is not certain as to
the nature and complete extent of the risks of failure in this regard, such
failure could lead to a 'most reasonable likely worst case scenario' where it
was severely limited in its ability to perform its manufacturing processes,
deliver its products, and otherwise engage in its ordinary business operations
for an unknown period of time. At present, the Company has no contingency plan
in place for such an occurrence and has no firm plans to initiate the creation
of such a contingency plan or to further study the uncertainty surrounding the
risks of failure.
Through July 3, 1999, the Company has spent approximately $4.8 million for
product acquisition, planning, conversion, and implementation in connection with
the ERP. Substantially all of the hardware and software costs have been
capitalized.
11
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1999, an annual meeting of the shareholders of the Company was
held at which directors were elected to serve until their successors shall have
been elected and shall have qualified and the appointment of the Company's
outside auditors for the year ended January 1, 2000 was ratified. The number of
votes cast for, against, or withheld/abstained and the number of broker
non-votes with regard to each nominee or matter are set forth below:
Withheld/ Broker
For Against Abstained Non-Votes
--- ------- --------- ---------
Election of directors:
Sangwoo Ahn 14,556,031 N/A 133,278 --
Larry A. Liebenow 14,578,699 N/A 110,610 --
Jerry I. Porras 14,589,199 N/A 100,110 --
Eriberto R. Scocimara 14,584,199 N/A 105,110 --
Ratification of auditors 14,655,090 23,118 11,100
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 six months
ended July 3, 1999.
12
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: August 2, 1999 By: /s/ Paul J. Kelly
-------------- -------------------
Paul J. Kelly
Vice President - Finance
and Treasurer
13