EX-99.1 2 a5192706ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Quaker Fabric Reports Second Quarter Financial Results FALL RIVER, Mass.--(BUSINESS WIRE)--July 20, 2006--QUAKER FABRIC CORPORATION (NASDAQ Symbol: QFAB) today reported net sales of $42.9 million, a net loss of ($12.1 million), and diluted and basic losses per share of ($0.72) for the three-month period ended July 1, 2006; compared to net sales of $68.9 million, a net loss of ($10.3 million), and diluted and basic losses per share of ($0.61) for the corresponding period of fiscal 2005. Quaker's financial results for the second quarter of fiscal year 2006 include $9.1 million of after-tax restructuring and asset impairment charges ($8.3 million of which were non-cash) associated with the Company's current restructuring activities. Excluding these charges, net loss for the second fiscal quarter of 2006 was ($3.1 million) or ($0.18) per diluted share. Results of operations for the first six months of fiscal year 2006 were net sales of $89.2 million, a net loss of ($16.3 million), and diluted and basic losses per share of ($0.96); compared to net sales of $128.1 million, a net loss of ($13.4 million), and diluted and basic losses per share of ($0.80) for the corresponding period of fiscal 2005. Excluding asset impairment, and restructuring and related charges, net loss for the first six months of fiscal 2006 was ($6.4 million), or ($0.38) per share. "The 7.3% drop in our sales versus the first quarter of this year was disappointing. At the same time, our second quarter margin performance, variable costs, fixed costs and SG&A expenses indicate a sequential improvement in our operating performance compared to the first three months of this year - reflecting the restructuring plan and cost cutting measures we have put in place, and allowing us to remain in compliance with the financial covenants in our loan documents while we simultaneously continue working on our financial structure and focusing on restoring the company to profitability. Building sales continues to be one of our biggest challenges. Competition from imported fabric rolls and kits remains intense, and the second quarter of this year saw a 37.8% drop in our total revenues versus the comparable period of last year - with domestic and international fabric sales for the quarter of $34.9 million and $6.4 million, down 30.8% and 23.4%, respectively. Net yarn sales, at $1.6 million, were down 84.0%," commented Larry A. Liebenow, Quaker's President and CEO. "We are focused on achieving major long-term reductions in our cost structure through the comprehensive consolidation of our manufacturing operations. This involves the disposition of machinery and equipment no longer needed to support our operations and the sale of excess real estate. This program to achieve a major consolidation of our operations going forward by reducing the number of facilities we use to conduct our business, in combination with the drop we have seen in our volume, resulted in the $9.1 million after-tax restructuring and asset impairment charge reflected in our second quarter financial results. The successful sale of two of our idled Fall River area manufacturing facilities since the end of the first quarter, including the sale of our Somerset, Massachusetts plant earlier this month, are part of this overall plan," Mr. Liebenow added. "An integral part of our ongoing restructuring plan includes focusing on those domestic markets least sensitive to imported products; building profitable volume in the outdoor fabric, contract fabric and specialty yarns markets; and developing strategically important commercial relationships with a limited number of carefully chosen offshore fabric mills. And, since the end of the first quarter, we have continued to make a lot of progress versus those objectives, including - a 66.2% increase in our second quarter sales into the contract market versus the comparable period of last year - the successful launch and first sales of our new line of decorative outdoor fabrics to upscale outdoor furniture manufacturers and the jobber and high-end residential markets - and incremental sales to specialty furniture retailers that helped to increase our average selling price per yard," Mr. Liebenow added. "Since the end of the first quarter, we have also made considerable progress in further developing the strategically important, offshore sourcing arrangement we put in place earlier this year with Zhongwang, including assisting Zhongwang with the installation of state-of-the-art finishing and post-finishing capability. Customer response to our outsourced products continues to be great," Mr. Liebenow said. "Since the second quarter of 2005, we have also implemented further significant reductions in our cost structure. In addition, during the twelve-month period which began at the end of fiscal June 2005, operating improvements and tight controls on inventory levels and capital spending generated operating cash flow of approximately $17.0 million. This cash flow allowed us to reduce debt from $51.9 million at the end of fiscal June 2005 to $34.8 million at the end of this year's second quarter," Mr. Liebenow added. "Between now and the end of this year, we will remain focused on effective execution of our restructuring plan, including - continued aggressive marketing of both our offshore fabric programs as well as the fabrics that it makes more sense, to us and to our customers, for us to make here in the U.S. - the consolidation of our Fall River manufacturing operations into fewer facilities - active marketing of our excess real estate and other assets - and implementation of additional substantial cost reduction programs," Mr. Liebenow concluded. Quaker Fabric Corporation is a leading manufacturer of woven upholstery fabrics for furniture markets in the United States and abroad, and the largest producer of Jacquard upholstery fabric in the world. THIS PRESS RELEASE CONTAINS "FORWARD-LOOKING STATEMENTS," AS THAT TERM IS DEFINED IN THE FEDERAL SECURITIES LAWS. THE READER IS CAUTIONED THAT SUCH STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND THAT, AS A RESULT OF VARIOUS FACTORS, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED. FOR A FURTHER DISCUSSION OF THESE FACTORS, SEE THE COMPANY'S 2005 FORM 10-K. (Tables Follow) QUAKER FABRIC CORPORATION CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) STATEMENTS OF OPERATIONS Second Quarter Ended Six Months Ended ------------------- ------------------- July 1, July 2, July 1, July 2, 2006 2005 2006 2005 --------- --------- --------- --------- Net sales $ 42,880 $ 68,885 $ 89,160 $128,100 Cost of products sold 37,655 58,751 78,494 110,285 --------- --------- --------- --------- Gross profit 5,225 10,134 10,666 17,815 Selling, general and admin. expenses 8,847 12,565 19,179 24,714 Goodwill impairment - 5,433 - 5,433 Restructuring charges and asset impairments 13,744 3,662 14,040 3,662 --------- --------- --------- --------- Operating loss (17,366) (11,526) (22,553) (15,994) Other expenses Interest expense 913 695 1,682 1,443 Early extinguishment of debt - 2,232 - 2,232 Other expenses 97 44 503 132 - - --------- --------- --------- --------- Loss before provision for income taxes (18,376) (14,497) (24,738) (19,801) Benefit from income taxes (6,246) (4,155) (8,473) (6,369) --------- --------- --------- --------- Net loss $(12,130) $(10,342) $(16,265) $(13,432) ========= ========= ========= ========= Loss per common share - basic $ (0.72) ($0.61) $ (0.96) ($0.80) ========= ========= ========= ========= Weighted average shares outstanding - basic 16,877 16,826 16,860 16,826 ========= ========= ========= ========= Loss per common share - diluted $ (0.72) ($0.61) $ (0.96) ($0.80) ========= ========= ========= ========= Weighted average shares outstanding - diluted 16,877 16,826 16,860 16,826 ========= ========= ========= ========= Note: Earnings per common share amounts for the quarters and for the six month periods presented have each been calculated separately. Accordingly, quarterly amounts may not add to the six month period amounts. Ratio analysis: --------------- Gross profit margin 12.2% 14.7% 12.0% 13.9% S.G. & A. as a percentage of net sales 20.6% 18.2% 21.5% 19.3% Operating margin -40.5% -16.7% -25.3% -12.5% Net margin -28.3% -15.0% -18.2% -10.5% Order backlog $ 8,732 $ 15,431 ------------- QUAKER FABRIC CORPORATION Reconciliation of Operating Loss as Reported to Pro Forma Operating Loss Second Quarter Ended Six Months Ended ------------------- ------------------- July 1, July 2, July 1, July 2, 2006 2005 2006 2005 --------- --------- --------- --------- Operating loss, as reported $(17,366) $(11,526) $(22,553) $(15,994) Restructuring charges and asset impairments 13,744 3,662 14,040 3,662 Goodwill impairment - 5,432 - 5,432 Consulting professional fees - - 303 - Plant relocation and duplicate occupancy costs - 371 162 371 --------- --------- --------- --------- Pro forma operating loss $ (3,622) $ (2,061) $ (8,048) $ (6,529) ========= ========= ========= ========= QUAKER FABRIC CORPORATION Reconciliation of Net Loss as Reported to Pro Forma Net Loss Second Quarter Ended Six Months Ended ------------------- ------------------- July 1, July 2, July 1, July 2, 2006 2005 2006 2005 --------- --------- --------- --------- Net loss, as reported $(12,130) $(10,342) $(16,265) $(13,432) Early extinguishment of debt, net of income taxes - 1,424 - 1,424 Restructuring charges and asset impairments, net of income taxes 9,071 2,336 9,231 2,336 Goodwill impairment 5,432 - 5,432 Plant relocation and duplicate occupancy costs, net of income taxes - 237 107 237 Consulting professional fees - - 199 - Write off of deferred financing costs - - 296 - Tax benefit from settlement of R&D claims - (1,167) - (1,167) --------- --------- --------- --------- Pro forma net loss $ (3,059) $ (2,080) $ (6,432) $ (5,170) ========= ========= ========= ========= Pro forma net loss, per share $ (0.18) $ (0.12) $ (0.38) $ (0.31) ========= ========= ========= ========= CONDENSED BALANCE SHEETS July 1, December 31, 2006 2005 --------- --------- Assets Current assets: Cash and cash equivalents $ 398 $ 725 Accounts receivable 28,451 31,822 Inventories 32,143 37,827 Prepaid expenses and other current assets 6,844 8,070 --------- --------- Total current assets 67,836 78,444 Property, plant and equipment, net 111,867 131,177 Assets held for sale 5,097 6,483 Other assets 3,498 3,758 --------- --------- $188,298 $219,862 ========= ========= Liabilities and Stockholders' Equity Current maturities of long term debt and short term debt $ 34,834 $ 37,880 Current portion of capital lease obligations 148 143 Accounts payable and accrued expenses 18,184 21,760 --------- --------- Total current liabilities 53,166 59,783 Total debt 34,834 37,880 Less: current maturities of long term debt - - Less: short term debt (34,834) (37,880) --------- --------- Total long-term debt - - Capital lease obligations, less current portion 554 629 Deferred income taxes and other liabilities 9,561 18,286 Stockholders' equity 125,017 141,164 --------- --------- $188,298 $219,862 ========= ========= This document contains "forward looking statements," as that term is defined in the federal securities laws. The reader is cautioned that such statements are not guarantees of future performance and that, as a result of various factors, including, but not limited to, the level of customer demand for the Company's products, higher than anticipated costs and lower than anticipated production rates, actual results may differ materially from those projected. For a further discussion of these factors, see the Company's 2005 10-K. CONTACT: QUAKER FABRIC CORPORATION Larry A. Liebenow, 508-646-2264 or Paul J. Kelly, 508-646-2251 or Cynthia L. Gordan, 508-646-2261