-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S5LVxEJIe6WfGLN3msOlXad6n2YYI5Pil237bZU6EZX2Yp++EP8BbJgnKThKdy6E jEq9OECrVNkZjfQQ51GHQg== 0000950117-03-002164.txt : 20030519 0000950117-03-002164.hdr.sgml : 20030519 20030519153937 ACCESSION NUMBER: 0000950117-03-002164 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030405 FILED AS OF DATE: 20030519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUAKER FABRIC CORP /DE/ CENTRAL INDEX KEY: 0000103341 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILS, MAN MADE FIBER & SILK [2221] IRS NUMBER: 041933106 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07023 FILM NUMBER: 03710491 BUSINESS ADDRESS: STREET 1: 941 GRINNELL ST. CITY: FALL RIVER STATE: MA ZIP: 02721 BUSINESS PHONE: 5086781951 MAIL ADDRESS: STREET 1: 941 GRINNELL ST CITY: FALL RIVER STATE: MA ZIP: 02721 FORMER COMPANY: FORMER CONFORMED NAME: VERTIPILE INC DATE OF NAME CHANGE: 19870811 10-Q 1 a35353.txt QUAKER FABRIC CORPORATION ================================================================================ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 5, 2003 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 May 15, 2003, 16,760,026 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, except per share amounts)
April 5, January 4, 2003 2003 ----------- ---------- ASSETS (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 1,053 $ 1,098 Accounts receivable, less reserves of $1,807 and $1,826 at April 5, 2003 and January 4, 2003, respectively 48,676 42,346 Inventories 51,367 50,407 Prepaid and deferred income taxes 3,100 4,080 Production supplies 1,616 1,634 Prepaid insurance 1,658 2,130 Other current assets 5,529 6,250 -------- -------- Total current assets 112,999 107,945 Property, plant and equipment, net 170,742 173,790 Other assets: Goodwill 5,432 5,432 Other assets 1,405 1,519 -------- -------- Total assets $290,578 $288,686 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of debt $ 5,000 $ 5,000 Accounts payable 17,074 15,559 Accrued expenses 15,192 12,578 -------- -------- Total current liabilities 37,266 33,137 Long-term debt 55,200 61,200 Deferred income taxes 31,559 30,643 Other long-term liabilities 1,969 1,901 Redeemable preferred stock: Series A convertible, $0.01 par value per share, liquidation preference $1,000 per share, 50,000 shares authorized, none issued -- -- Stockholders' equity: Common stock, $0.01 par value per share, 40,000,000 shares authorized; 16,680,398 and 16,146,026 shares issued and outstanding as of April 5, 2003 and January 4, 2003, respectively 167 161 Additional paid-in capital 88,550 87,668 Unearned compensation (853) (901) Retained earnings 78,860 76,964 Accumulated other comprehensive loss (2,140) (2,087) -------- -------- Total stockholders' equity 164,584 161,805 -------- -------- Total liabilities and stockholders' equity $290,578 $288,686 ======== ========
The accompanying notes are an integral part of these consolidated financial statements 1 QUAKER FABRIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share amounts)
Three Months Ended -------------------- April 5, March 30, 2003 2002 -------- --------- (Unaudited) Net sales $90,225 $100,032 Cost of products sold 71,258 77,432 ------- -------- Gross profit 18,967 22,600 Selling, general and administrative expenses 14,251 14,497 ------- -------- Operating income 4,716 8,103 Other expenses: Interest expense 1,069 1,069 Other, net (24) 5 ------- -------- Income before provision for income taxes 3,671 7,029 Provision for income taxes 1,358 2,601 ------- -------- Net income $ 2,313 $ 4,428 ======= ======== Earnings per common share - basic (Note 1) $ 0.14 $ 0.28 ======= ======== Earnings per common share - diluted (Note 1) $ 0.14 $ 0.26 ======= ======== Dividends per common share $ 0.025 $ -- ======= ======== Weighted average shares outstanding - basic (Note 1) 16,416 15,858 ======= ======== Weighted average shares outstanding - diluted (Note 1) 16,764 16,744 ======= ========
QUAKER FABRIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands)
Three Months Ended -------------------- April 5, March 30, 2003 2002 -------- --------- (Unaudited) Net income $2,313 $4,428 ------ ------ Other compensation income (loss) Foreign currency translation adjustments (35) 2 Unrealized loss on hedging instruments (18) (50) ------ ------ Other compensation loss (53) (48) ------ ------ Comprehensive income $2,260 $4,380 ====== ======
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 -------------------- April 5, March 30, 2003 2002 -------- --------- (Unaudited) Cash flows from operating activities: Net income $ 2,313 $ 4,428 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,943 4,188 Amortization of unearned compensation 48 -- Deferred income taxes 916 1,293 Tax benefit related to exercise of common stock options 397 65 Changes in operating assets and liabilities: Accounts receivable (6,384) (6,901) Inventories (980) (3,433) Prepaid expenses and other assets 2,292 252 Accounts payable and accrued expenses 4,129 2,770 Other long-term liabilities 68 87 ------- ------- Net cash provided by operating activities 7,742 2,749 ------- ------- Cash flows from investing activities: Purchase of property, plant and equipment (1,882) (9,843) ------- ------- Cash flows from financing activities: Change in revolving credit facility (6,000) 2,500 Repayments of capital lease obligations -- (69) Proceeds from exercise of common stock options and issuance of shares under the employee stock purchase plan 491 124 Proceeds from issuance of long-term debt -- 5,000 Capitalization of deferred financing costs -- (130) Cash dividends (417) ------- ------- Net cash provided by (used in) financing activities (5,926) 7,425 ------- ------- Effect of exchange rates on cash 21 (48) ------- ------- Net increase in cash (45) 283 Cash and cash equivalents, beginning of period 1,098 600 ------- ------- Cash and cash equivalents, end of period $ 1,053 $ 883 ======= =======
The accompanying notes are an integral part of these consolidated financial statements 3 QUAKER FABRIC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) 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 (Company) as of April 5, 2003 and January 4, 2003 and the results of their operations and cash flows for the three months ended April 5, 2003 and March 30, 2002. The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Operating results for the three months ended April 5, 2003 are not necessarily indicative of the results expected for the full fiscal year or any future period. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 4, 2003. Earnings Per Common Share Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. For diluted earnings per share, the denominator also includes dilutive outstanding stock options determined using the treasury stock method. The following table reconciles weighted average common shares outstanding to weighted average common shares outstanding and dilutive potential common shares.
Three Months Ended -------------------- April 5, March 30, 2003 2002 -------- --------- (In thousands) Weighted average common shares outstanding 16,416 15,858 Dilutive potential common shares 348 886 ------ ------ Weighted average common shares outstanding and dilutive potential common shares 16,764 16,744 ====== ====== Antidilutive options 1,838 581 ====== ======
4 Note 2 - INVENTORIES Inventories are stated at the lower of cost or market and include materials, labor and overhead. A standard cost system is used and approximates cost on a first in, first out (FIFO) basis. Cost for financial reporting purposes is determined by the last-in, first-out (LIFO) method. Inventories at April 5, 2003 and January 4, 2003 consisted of the following:
April 5, January 4, 2003 2003 -------- ---------- Raw materials $24,143 $24,984 Work-in-process 10,153 8,930 Finished goods 15,984 13,786 ------- ------- Inventory at FIFO 50,280 47,700 LIFO adjustment 1,087 2,707 ------- ------- Inventory at LIFO $51,367 $50,407 ======= =======
LIFO inventory values are higher than FIFO costs because current manufacturing costs are lower than the older historical costs used to value inventory on a LIFO basis. Note 3 - SEGMENT REPORTING The Company operates as a single business segment consisting of sales of two products, upholstery fabric and specialty yarns. Management evaluates the Company's financial performance in the aggregate and allocates the Company's resources without distinguishing between yarn and fabric products. Gross foreign and export sales from the United States to unaffiliated customers by major geographical area were as follows:
Three Months Ended -------------------- April 5, March 30, 2003 2002 -------- --------- (In thousands) North America (excluding USA) $ 6,336 $ 6,908 Middle East 457 2,018 South America 617 772 Europe 1,051 1,089 All Other 843 645 ------- ------- $ 9,304 $11,432 ======= =======
5 Gross sales by product category are as follows:
Three Months Ended -------------------- April 5, March 30, 2003 2002 -------- --------- (In thousands) Fabric $87,928 $ 97,616 Yarn 3,023 3,608 Other 364 325 ------- -------- $91,315 $101,549 ======= ========
Note 4 - ACCOUNTING FOR STOCK BASED COMPENSATION Accounting for Stock Based Compensation. The Company discloses stock-based compensation information in accordance with SFAS 148 and SFAS 123. SFAS 148 does not change the provisions of SFAS 123 that permit entities to continue to apply the intrinsic value method of APB 25. The Company has elected to continue to account for its stock option plans under APB 25 and related interpretations as well as to provide disclosure of stock based compensation as outlined in SFAS 123 as amended by SFAS 148. SFAS 123 requires disclosure of pro forma net income, EPS and other information as if the fair value method of accounting for stock options and other equity instruments described in SFAS 123 had been adopted. SFAS 123 does not apply to awards made prior to June 24, 1995, and so all pro forma disclosures include the effects of all options granted after June 24, 1995. Additional awards in future years are anticipated. The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future expectations. The following table illustrates the effect on net income and earnings per share as if the Black-Scholes fair value method described in SFAS No. 123, "Accounting for Stock-Based Compensation," as amended, had been applied to the Company's stock option plans. 6
Three Months Ended -------------------- April 5, March 30, 2003 2002 -------- --------- (In thousands) (Unaudited) Net income, as reported $2,313 $4,428 Add: Stock-based employee compensation expense included in net income, net of related tax effects 30 -- Less: Stock-based employee compensation expense determined under Black-Scholes option pricing model, net of related tax effects 252 231 ------ ------ Pro forma net income: $2,091 $4,197 ====== ====== Earnings per common share - basic As reported $ 0.14 $ 0.28 Pro forma $ 0.13 $ 0.26 Earnings per common share - diluted As reported $ 0.14 $ 0.26 Pro forma $ 0.12 $ 0.25
Note 5 - SUBSEQUENT EVENTS On April 24, 2003, the Board of Directors approved and announced the payment of a cash dividend of $0.025 per common share payable on May 23, 2003 to stockholders of record on May 9, 2003. 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 2002" was a 53 week period ended January 4, 2003 and "Fiscal 2003" will be a 52 week period ending January 3, 2004. The first three months of Fiscal 2002 and Fiscal 2003 ended March 30, 2002 and April 5, 2003, respectively. 7 Critical Accounting Policies The Company considered the disclosure requirements of Financial Reporting Release No. 60 regarding critical accounting policies and Financial Reporting Release No. 61 regarding liquidity and capital resources, certain trading activities and related party/certain other disclosures, and concluded that there were no material changes during the first three months of 2003 that would warrant further disclosure beyond those matters previously disclosed in the Company's Annual Report on Form 10-K for the year ended January 4, 2003. Results of Operations Net sales for the first quarter of 2003 decreased $9.8 million or 9.8%, to $90.2 million from $100.0 million for the first quarter of 2002. The overall weighted average gross sales price per yard decreased 1.4%, to $5.51 for the first quarter of 2003 from $5.59 for the first quarter of 2002. The average gross sales price per yard of middle to better-end fabrics increased by 1.9%, to $6.51 in the first quarter of 2003 as compared to $6.39 in the first quarter of 2002. The average gross sales price per yard of promotional-end fabric was $4.04 in the first quarters of 2003 and 2002. The gross volume of fabric sold decreased 8.7%, to 15.9 million yards for the first quarter of 2003 from 17.5 million yards for the first quarter of 2002. Middle to better-end fabrics represented 70.6% of fabric sales during the first quarter of 2003 compared to 75.4% in the first quarter of 2002. The Company sold 17.2% fewer yards of middle to better-end fabrics and 7.8% more yards of promotional-end fabrics in the first quarter of 2003 than in the first quarter of 2002. The Company's new order rate declined approximately 19% during the first quarter of 2003 as compared to the first quarter of 2002, and the Company's backlog decreased by approximately 49% to $26.3 million at the end of the first quarter of 2003 as compared to $51.5 million at the end of the first quarter of 2002. The decline in the new order rate and backlog position resulted primarily from slow growth in the domestic economy as well as steps taken to significantly reduce the Company's average delivery lead time to customers. Gross fabric sales within the United States decreased 8.8%, to $78.6 million in the first quarter of 2003 from $86.2 million in the first quarter of 2002. Foreign and Export sales decreased 18.6%, to $9.3 million in the first quarter of 2003 from $11.4 million in the first quarter of 2002. Gross yarn sales decreased 16.2%, to $3.0 million in the first quarter of 2003 from $3.6 million in the same period of 2002. The gross profit margin for the first quarter of 2003 decreased to 21.0%, as compared to 22.6% for the first quarter of 2002. Due to a decline in orders during the quarter, the Company adjusted its production rates to levels consistent with the lower order rates. The decrease in the gross margin percentage resulted primarily from higher fixed costs per unit attributable to lower production volumes as well as fairly significant quarter over quarter increases in energy, insurance and depreciation costs which were partially offset by a decrease in manufacturing overtime costs. Selling, general and administrative expenses decreased to $14.3 million for the first quarter of 2003 from $14.5 million for the first quarter of 2002. Selling, general and 8 administrative expenses as a percentage of net sales increased to 15.8% in the first quarter of 2003 from 14.5% in the first quarter of 2002. The increase in selling, general and administrative expenses as a percentage of sales was due to lower sales volume in combination with higher sampling expenses and higher professional fees. Interest expense was $1.1 million for the first quarters of 2003 and 2002. Lower levels of variable rate debt in the first quarter of 2003 were offset by higher average senior debt with higher fixed interest rates. 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 37.0% for the first quarter of 2003 and 2002. The effective income tax rate is lower than the combined federal and state statutory rates, due primarily to certain tax benefits related to extraterritorial income at the federal level and investment tax credits at the state level. Net income for the first quarter of 2003 decreased to $2.3 million or $0.14 per common share-diluted, from $4.4 million or $0.26 per common share-diluted for the first quarter of 2002. 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 (as hereinafter defined), and debt and equity offerings. The Company's capital requirements have arisen principally in connection with (i) the purchase of equipment to expand production capacity, introduce new technologies to broaden and differentiate the Company's products, and improve the Company's quality and productivity performance, (ii) increases in the Company's working capital needs related to its sales growth, and (iii) investments in the Company's information technology systems. The primary source of the Company's liquidity and capital resources has been operating cash flow. The Company's net cash provided by operating activities was $7.7 million and $2.7 million in the first three months of 2003 and 2002, respectively. As necessary, the Company supplements its operating cash flow with borrowings. Net borrowings (repayments) were ($6.0) million in the first quarter of 2003 and $7.4 million in the first quarter of 2002. Capital expenditures in the first three months of 2003 and 2002 were $1.9 million and $9.8 million, respectively. Capital expenditures during the first three months of 2003 were funded by operating cash flow. Management anticipates that capital expenditures for new projects will total approximately $9.0 million in 2003, consisting principally of $5.0 million for various manufacturing equipment, $2.0 million for IT projects and $2.0 million for various other capital projects. Additionally, the Company is analyzing several financing alternatives in connection with the possible development of additional manufacturing and warehousing facilities in the Fall River area. Management believes that operating income and borrowings under the Credit Agreement (as hereinafter defined) 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 9 a final payment due October 10, 2007. Annual principal payment amounts are three payments of $5.0 million beginning in 2003 followed by two payments of $15.0 million beginning in 2006. On February 14, 2002, the Company issued $5.0 million of 7.56% Series A Notes due February 2009 (the "Series A Notes"). The Series A Notes are unsecured and bear interest at a fixed rate of 7.56%, payable semiannually. The Series A Notes may be prepaid in whole or in part prior to maturity, at the Company's option, subject to a yield maintenance premium, as defined. In addition and also on February 14, 2002, the Company entered into a $45.0 million non-committed shelf note agreement with an insurance company pursuant to which the Company may issue additional senior notes prior to February 14, 2005 with maturity dates of up to ten years. The Company also has a $60.0 million Credit Agreement with a bank which expires January 31, 2007 (the Credit Agreement). As of April 5, 2003, the Company had $10.2 million outstanding under the Credit Agreement and unused availability of $49.6 million. See Note 5 of Notes to Consolidated Financial Statements included in the Company's 2002 Annual Report on Form 10-K. The Company is required to comply with a number of affirmative and negative convenants under the Credit Agreement, the Senior Notes, and the Series A Notes, including, but not limited to, maintenance of certain financial tests and ratios (including interest coverage ratios, net worth related ratios, and net worth requirements); limitations on certain business activities of the Company; restrictions on the Company's ability to declare and pay dividends, incur additional indebtedness, create certain liens, incur capital lease obligations, make certain investments, engage in certain transactions with stockholders and affiliates, and purchase, merge, or consolidate with or into any other corporation. The Company is currently in compliance with all the affirmative and negative convenants in the Credit Agreement, the Series A Notes, and the Senior Notes and management believes the Company's continued compliance will not prevent the Company from operating in the normal course of business. The Company has historically not paid dividends, instead using earnings to fuel growth and capital equipment requirements. On March 3, 2003, the Company's Board of Directors adopted a new dividend policy reflecting Quaker's intention to pay quarterly dividends going forward, with the level of each dividend payment, if any, to be determined by Quaker's Board of Directors based on a number of factors, including the Company's financial performance, cash flows and cash requirements. On April 24, 2003, the Board of Directors approved and announced the payment of a cash dividend of $0.025 per common share payable on May 23, 2003 to stockholders of record on May 9, 2003. Inflation The Company does not believe that inflation has had a significant impact on the Company's results of operations for the periods presented. Historically, the Company believes it has been able to minimize the effects of inflation by improving its manufacturing and purchasing efficiency, by increasing employee productivity, and by reflecting the effects of inflation in the selling prices of the new products it introduces each year. 10 Cautionary Statement Regarding Forward-Looking Information Statements contained in this report, as well as oral statements made by the Company that are prefaced by the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," "designed" and similar expressions, are intended to identify forward-looking statements regarding events, conditions and financial trends that may affect the Company's future plans of operations, business strategy, results of operations and financial position. These statements are based on the Company's current expectations and estimates as to prospective events and circumstances about which the Company can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. As it is not possible to predict every new factor that may emerge, forward-looking statements should not be relied upon as a prediction of the Company's actual future financial condition or results. These forward-looking statements like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or unanticipated. Such risks and uncertainties include product demand and market acceptance of the Company's products, regulatory uncertainties, the effect of economic conditions, the impact of competitive products and pricing, foreign currency exchange rates, changes in customer ordering patterns, and the effect of uncertainties in markets outside the U.S. (including Mexico and South America) in which the Company operates. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (In thousands) Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments Quantitative and Qualitative Disclosures About Market Risk The Company's exposures relative to market risk are due to foreign exchange risk and interest rate risk. Foreign currency risk Approximately 2.8% of the Company's revenues are generated outside the U.S. from sales which are not denominated in U.S. dollars. Foreign currency risk arises because the Company engages in business in certain foreign countries in local currency. Accordingly, in the absence of hedging activities whenever the U.S. dollar strengthens relative to the other major currencies, there is an adverse affect on the Company's results of operations, and alternatively, whenever the U.S. dollar weakens relative to the other major currencies, there is a positive affect on the Company's results of operations. 11 It is the Company's policy to minimize, for a period of time, the unforeseen impact on its results of operations of fluctuations in foreign exchange rates by using derivative financial instruments to hedge the fair value of foreign currency denominated intercompany payables. The Company's primary foreign currency exposures in relation to the U.S. dollar are the Mexican peso and the Brazilian real. At April 5, 2003, the Company has the following derivative financial instruments to hedge the anticipated cash flows from the repayment of foreign currency denominated intercompany payables outstanding:
Notional Weighted Notional Amount in Average Amount in Type of Local Contract U.S. Fair Instrument Currency Currency Rate Dollars Value Maturity - ---------------- -------------- ------------ -------- ------------ --------- --------- Forward Contract Mexican Peso 12.0 million 11.10 $1.1 million $(25,000) Jun. 2003 Forward Contract Brazilian Real 1.0 million 3.60 $0.3 million $(28,000) Jun. 2003
Interest Rate Risk Approximately 83.0% of the Company's long-term debt is at fixed rates. Accordingly, a change in interest rates has an insignificant effect on the Company's interest expense. The fair value of the Company's long-term debt, however, would change in response to interest rate movements due to its fixed rate nature. The Company has evaluated the impact on all long-term maturities of changing the interest rate 10% from the rate levels that existed at April 5, 2003 and has determined that such a rate change would not have a material impact on the Company. 12 QUAKER FABRIC CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION Item 4. Controls and Procedures During the 90-day period prior to the filing date of this report, management, including the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon, and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. There have been no significant changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. There were no significant deficiencies or material weaknesses identified in the evaluation and, therefore, no corrective actions were taken. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits None (B) There were no reports on Form 8-K filed during the three months ended April 5, 2003. 13 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: May 15, 2003 By: /s/ Paul J. Kelly -------------------------------- Paul J. Kelly Vice President - Finance and Treasurer 14 CERTIFICATIONS I, Larry A. Liebenow, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Quaker Fabric Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ Larry A. Liebenow -------------------------------- Larry A. Liebenow Chief Executive Officer Date: May 15, 2003 15 I, Paul J. Kelly, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Quaker Fabric Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ Paul J. Kelly -------------------------------- Paul J. Kelly Chief Financial Officer Date: May 15, 2003 16 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with this quarterly report on Form 10-Q of Quaker Fabric Corporation for the quarterly period ended April 5, 2003 (the "Periodic Report"), I, Larry A. Liebenow, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: : May 15, 2003 /s/ Larry A. Liebenow ------------------------------------ Larry A. Liebenow Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with this quarterly report on Form 10-Q of Quaker Fabric Corporation for the quarterly period ended April 5, 2003 (the "Periodic Report"), I, Paul J. Kelly, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 15, 2003 /s/ Paul J. Kelly ------------------------------------ Paul J. Kelly Chief Financial Officer 17 -----END PRIVACY-ENHANCED MESSAGE-----