EX-99.1 2 a5342919-ex991.txt EXHIBIT 99.1 EXHIBIT 99.1 Quaker Fabric Reports Fiscal 2006 Financial Results FALL RIVER, Mass.--(BUSINESS WIRE)--Feb. 26, 2007--QUAKER FABRIC CORPORATION (NASDAQ Symbol: QFAB) today reported net sales of $32.2 million, a net loss of ($12.9 million), and diluted and basic losses per share of ($0.77) for the three-month period ended December 30, 2006; compared to net sales of $50.1 million, a net loss of ($5.7 million), and diluted and basic losses per share of ($0.34) for the corresponding period of fiscal 2005. Quaker's financial results for the fourth quarter of fiscal year 2006 include after-tax restructuring, including asset impairment and related charges of $6.1 million, as well as approximately $1.3 million of after-tax expenses related to the early extinguishment of debt and inventory and deferred financing cost write-offs. Excluding these charges and expenses, net loss for the fourth fiscal quarter of 2006 was ($5.5 million), or ($0.32) per diluted share. Net sales for the 52-week fiscal year ended December 30, 2006 were $151.7 million, with a net loss of ($37.6 million), and diluted and basic losses per share of ($2.23); compared to net sales of $224.7 million, a net loss of ($26.3 million), and diluted and basic losses per share of ($1.56) for the 52-week fiscal year ended December 31, 2005. Quaker's 2006 financial results reflect significant one-time charges related to the Company's ongoing restructuring plan, including after-tax asset impairment and associated charges of $18.4 million, as well as approximately $1.9 million of after-tax expenses related to the early extinguishment of debt and inventory and deferred financing cost write-offs. Excluding these charges, net loss for fiscal 2006 was ($17.4 million), or ($1.03) per share. "Pre-tax restructuring and asset impairment charges related to the execution of our restructuring plan accounted for $26.5 million, or more than half, of last year's $48.5 million operating loss. These charges are primarily non-cash and include the write-down to estimated realizable value of assets, including manufacturing plants and machinery and equipment, that we have put up for sale as part of our consolidation strategy," commented Larry A. Liebenow, Quaker's President and CEO. "The market for upholstery fabric in the United States is continuing to experience unprecedented change, with imports, in a variety of forms, now representing a very large percentage of total consumption. For us, this meant a 29% drop in last year's domestic fabric sales and an 18% drop in export fabric sales. This fall-off in our sales outpaced the speed with which we were able to take costs out of our operations. Continued implementation of our restructuring plan is intended to bring our cost structure in line with projected revenues, and we believe that the steps we took last year to reshape and restructure the company represent progress toward returning the company to profitability," Mr. Liebenow said. "To counter the decline in our sales, we have made repositioning our marketing efforts towards segments less vulnerable to Chinese imports one of our top priorities - and we believe that we made important strides in that area during 2006, including the development and introduction of new products for the outdoor, jobber and contract markets in addition to our core line of products for the residential market. This effort will remain a major focus for us again this year. To further our dual strategy of striking the right balance between domestic production and global sourcing, we also developed and implemented a China strategy intended to give us a strategic advantage in the global sourcing arena. In addition, during 2006, we sold two manufacturing plants and about $5.0 million of machinery and equipment we no longer needed, and reduced annualized SG&A and manufacturing costs by approximately $10.0 million and $20.0 million, respectively. And finally, we reduced inventory by about $9.7 million, senior debt by a little over $4.0 million and put new financing agreements in place during November of last year, " Mr. Liebenow continued. "While we believe that much of our consolidation effort and the related asset impairment charges are now behind us, this year's primary focus will be on rebuilding our sales line and aligning our costs with our sales expectations. The strategic alliance we put in place with our China-based partner in January of last year is on its way to becoming the strong and effective outsourcing arrangement we had hoped it would be, with the products we have designed for production at their plant in China achieving widespread market acceptance. We are also continuing to build demand for fabrics slated for production in our Fall River manufacturing plants, including the new products we have developed for the contract, jobber, outdoor and residential markets. And, of course, during the rest of this year, we will be continuing to actively market the facilities and equipment we no longer need. Within the past week, we have entered into two asset sale agreements. The first involves a pending sale at $4.7 million and partial leaseback of our corporate headquarters building in Fall River - the second covers the ongoing sale of additional excess machinery and equipment and calls for an initial payment to the company of $1.3 million. The net proceeds from both of these deals will be used to reduce the outstanding balance of our term loan. This is a very important transition year for us, with much work behind us, a clear, focused strategy in place for the future, and much work still to be done," Mr. Liebenow concluded. Quaker Fabric Corporation is a leading designer, manufacturer and distributor of woven upholstery fabrics for furniture markets in the United States and abroad. 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, INCLUDING, BUT NOT LIMITED TO, THE LEVEL OF CUSTOMER DEMAND FOR THE COMPANY'S PRODUCTS, HIGHER THAN ANTICIPATED COSTS, ANY INTERRUPTION IN THE SUPPLY OF RAW MATERIALS USED BY THE COMPANY 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 FORM 10-K. (Tables Follow) QUAKER FABRIC CORPORATION CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) STATEMENTS OF OPERATIONS Fourth Quarter Ended Twelve Months Ended -------------------- ------------------- December December December December 30, 31, 30, 31, 2006 2005 2006 2005 ---------- --------- --------- --------- Net sales $32,193 $50,127 $151,664 $224,684 Cost of products sold 30,001 45,097 136,809 195,764 ---------- --------- --------- --------- Gross profit 2,192 5,030 14,855 28,920 Selling, general and admin. expenses 8,713 10,828 37,053 46,076 Goodwill impairment - - - 5,432 Restructuring charges and asset impairments 7,670 1,551 26,458 11,203 Loss (gain) on sale of assets, net 187 - (190) - ---------- --------- --------- --------- Operating loss (14,378) (7,349) (48,466) (33,791) Other Interest expense 966 822 3,727 3,019 Early extinguishment of debt 628 - 628 2,232 Other expenses 541 51 1,264 196 Loss before provision for income taxes ---------- --------- --------- --------- (16,513) (8,222) (54,085) (39,238) Benefit from income taxes (3,584) (2,553) (16,453) (12,982) ---------- --------- --------- --------- Net loss $(12,929) $(5,669) $(37,632) $(26,256) ========== ========= ========= ========= Loss per common share - basic $(0.77) ($0.34) $(2.23) ($1.56) ========== ========= ========= ========= Weighted average shares outstanding - basic 16,877 16,826 16,869 16,826 ========== ========= ========= ========= Loss per common share - diluted $(0.77) ($0.34) $(2.23) ($1.56) ========== ========= ========= ========= Weighted average shares outstanding - diluted 16,877 16,826 16,869 16,826 ========== ========= ========= ========= Note: Earnings per common share amounts for the quarters and for the twelve month periods presented have each been calculated separately. Accordingly, quarterly amounts may not add to the twelve month period amounts. Ratio analysis: ----------------------------- Gross profit margin 6.8% 10.0% 9.8% 12.9% S.G. & A. as a percentage of net sales 27.1% 21.6% 24.4% 20.5% Operating margin -44.7% -14.7% -32.0% -15.0% Net margin -40.2% -11.3% -24.8% -11.7% Order backlog $8,439 $11,270 ----------------------------- QUAKER FABRIC CORPORATION Reconciliation of Operating Loss as Reported to Pro Forma Operating Loss Fourth Quarter Ended Twelve Months Ended -------------------- ------------------- December December December December 30, 31, 30, 31, 2006 2005 2006 2005 ----------- -------- --------- --------- Operating loss, as reported $(14,378) $(7,349) $(48,466) $(33,791) Restructuring charges and asset impairments 7,670 1,551 26,458 11,203 Loss (gain) on sale of assets, net 187 - (190) - Goodwill impairment - - - 5,432 Consulting professional fees - - 303 - Occupancy costs of closed facilities 173 - 173 - Inventory writedown 765 - 765 - Plant relocation and duplicate occupancy costs - 402 162 1,203 ----------- -------- --------- --------- Pro forma operating loss $(5,583) $(5,396) $(20,795) $(15,953) =========== ======== ========= ========= QUAKER FABRIC CORPORATION Reconciliation of Net Loss as Reported to Pro Forma Net Loss Fourth Quarter Ended Twelve Months Ended -------------------- ------------------- December December December December 30, 31, 30, 31, 2006 2005 2006 2005 ----------- -------- --------- --------- Net loss, as reported $(12,929) $(5,669) $(37,632) $(26,256) Early extinguishment of debt, net of income tax 437 - 437 1,424 Restructuring charges and asset impairments, net of income taxes 6,062 990 18,415 7,147 Loss (gain) on sale of assets, net 116 - (132) - Goodwill impairment - - - 5,432 Plant relocation and duplicate occupancy costs, net of income taxes - 261 107 772 Occupancy costs of closed facilities 120 - 120 - Inventory writedown 532 - 532 - Consulting professional fees - 199 - Write-off of deferred financing costs 211 - 507 - Tax benefit from settlement of R&D claims - - - (1,167) ----------- -------- --------- --------- Pro forma net loss $(5,451) $(4,418) $(17,447) $(12,648) =========== ======== ========= ========= Pro forma net loss, per share $(0.32) $(0.26) $(1.03) $(0.75) =========== ======== ========= ========= CONDENSED BALANCE SHEETS December 30, December 31, 2006 2005 ------------ ------------ Assets Current assets: Cash and cash equivalents $724 $725 Accounts receivable 21,512 31,822 Inventories 28,122 37,827 Prepaid expenses and other current assets 5,620 8,070 ------------ ------------ Total current assets 55,978 78,444 Property, plant and equipment, net 77,413 131,177 Assets held for sale 21,811 6,483 Other assets 5,642 3,758 ------------ ------------ $160,844 $219,862 ============ ============ Liabilities and Stockholders' Equity Current maturities of long term debt and short term debt $11,280 $37,880 Current portion of capital lease obligations 152 143 Accounts payable and accrued expenses 21,248 21,760 ------------ ------------ Total current liabilities 32,680 59,783 Total debt 33,720 37,880 Less: current maturities of long term debt (1,800) - Less: short term debt (9,480) (37,880) ------------ ------------ Total long-term debt 22,440 - ------------ Capital lease obligations, less current portion 477 629 Deferred income taxes and other liabilities 2,318 18,286 Stockholders' equity 102,929 141,164 ------------ ------------ $160,844 $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 PAUL J. KELLY, 508-646-2251 CYNTHIA L. GORDAN, 508-646-2261