UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
IRS EMPLOYER IDENTIFICATION (56-0506342)
NORTH CAROLINA
(State or other jurisdiction of incorporation or organization)
191 Sterling Street, N.W.
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
(828) 874-6341
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if
changed since last report)
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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of November 7, 2000, there
were outstanding 2,741,168 shares of the issuer's only class of common stock.
Page 1 of 22
BURKE MILLS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
- -----------------------------
Condensed Balance Sheets:
September 30, 2000, and January 1,2000 3
Condensed Statements of Operations and Retained Earnings:
Thirteen Weeks Ended September 30, 2000 and October 2, 1999
Thirty-Nine Weeks Ended September 30, 2000 and
October 2, 1999. 4
Statements of Cash Flows:
Thirty-Nine Weeks Ended September 30, 2000
and October 2, 1999 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 13
- ---------------------------------------------------------
Part II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote by Security Holders 20
- ------------------------------------------------------------
Item 6 - Exhibits and Reports on Form 8-K 20
Item 6(a)- Exhibit 27 - Financial Data Schedule 21
--------------------------------------------------------
SIGNATURES 22
Page 2
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
Sept. 30, Jan. 1,
2000 2000
(Unaudited) (Note A)
----------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 1,602,824 $ 592,513
Accounts receivable 3,967,705 3,795,519
Inventories 4,507,162 5,062,294
Prepaid expenses, taxes and other
current assets 438,005 537,980
----------- -----------
Total Current Assets 10,515,696 9,988,306
----------- -----------
Equity Investment in Affiliate 679,428 455,728
----------- -----------
Property, Plant and Equipment - at cost 31,412,295 31,154,954
Less: Accumulated depreciation 17,537,462 16,078,440
----------- ----------
Property, Plant and Equipment - Net 13,874,833 15,076,514
----------- ----------
Other Assets
Deferred Charges & Other Non Current Assets 54,309 118,102
Deferred income taxes 817,932 356,722
----------- -----------
Total Other Assets 872,241 474,824
----------- -----------
Total Assets $25,942,198 $25,995,372
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 1,178,571 $ 1,011,905
Accounts payable 2,740,776 2,929,217
Accrued salaries, wages and vacation pay 362,146 200,911
Other liabilities and accrued expenses 493,924 239,437
---------- ----------
Total Current Liabilities 4,775,417 4,381,470
Long-term Debt 5,535,714 5,550,595
Deferred Income Taxes 2,190,800 2,121,800
---------- ----------
Total Liabilities 12,501,931 12,053,865
---------- ----------
Shareholders' Equity
Common stock, no par value(stated value, $.66)
Authorized - 5,000,000 shares
Issued and outstanding -2,741,168 shares 1,809,171 1,809,171
Paid-in capital 3,111,349 3,111,349
Retained earnings 8,519,747 9,020,987
---------- ----------
Total Shareholders' Equity 13,440,267 13,941,507
---------- ----------
Total Liabilities & Shareholders' Equity $25,942,198 $25,995,372
=========== ===========
Note A: The January 1, 2000, Condensed Balance Sheet has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required for generally accepted accounting principles
for complete financial statements.
See notes to condensed financial statements.
Page 3
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------- -----------------------
Sept. 30 Oct. 2 Sept. 30 Oct. 2
2000 1999 2000 1999
-------- -------- -------- --------
Net Sales $ 9,278,855 $11,625,189 $30,793,806 $32,416,882
- --------- ----------- ----------- ----------- -----------
Costs and Expenses
Cost of Sales 8,957,697 10,105,347 28,999,546 28,606,839
Selling, General and
Administrative Expenses 611,342 1,182,970 2,387,632 3,291,930
Factor's Charges 38,392 47,375 118,271 120,077
-------- -------- -------- --------
Total Costs and Expenses 9,607,431 11,335,692 31,505,449 32,018,846
---------- ---------- ---------- ----------
Operating Earnings/(Loss) (328,576) 289,497 (711,643) 398,036
-------- -------- -------- --------
Other Income
Interest Income 17,272 13,814 50,071 62,802
Gain on
Disposal of Property --- --- 31,874 224,740
Other, net 54,675 9,208 60,184 11,837
------ ------- ------- -------
Total 71,947 23,022 142,129 299,379
------- ------- ------- -------
Other Expenses
Interest Expense 151,143 109,991 448,374 315,659
Other, net 31,927 31,082 99,262 94,036
------- ------- ------- -------
Total 183,070 141,073 547,636 409,695
------- ------- ------- -------
Income (Loss) before Provision for
Income Taxes and Equity in Net
Earnings (Loss) of Affiliate (439,699) 171,446 (1,117,150) 287,720
Provision/(Credit) for Income
Taxes (141,030) 61,054 (392,210) 111,592
------- ------- ------- -------
Net Income/(Loss) before Equity
in Net Earnings of Affiliate (298,669) 110,392 (724,940) 176,128
Equity in Net Earnings (Losses)
of Affiliate 51,200 (82,000) 223,700 17,900
------- ------- ------- -------
Net Income (Loss) (247,469) 28,392 (501,240) 194,028
Retained Earnings at Beginning
of Period 8,767,216 9,473,938 9,020,987 9,308,302
--------- ---------- ---------- ----------
Retained Earnings at End
of Period $8,519,747 $9,502,330 $8,519,747 $9,502,330
========== ========== ========== ==========
Earnings (Loss) Per Share $ (.09) $ .01 $ (.18) $ .07
========== ========== ========== ==========
Dividends Per Share of
Common Stock None None None None
========== ========== ========== ==========
Weighted Average Common
Shares Outstanding 2,741,168 2,741,168 2,741,168 2,741,168
========== ========== ========== ==========
See notes to condensed financial statements.
Page 4
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-Nine Weeks Ended
----------------------
Sept. 30, Oct. 2,
2000 1999
---- ----
Cash flows from operating activities:
Net Income (Loss) $ (501,240) $ 194,028
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 1,774,602 1,397,387
Provision for deferred income taxes (392,210) 68,030
Equity in earnings of affiliate (223,700) (17,900)
Gain on disposal of property assets (31,874) (224,740)
Changes in assets and liabilities:
Accounts receivable (172,186) (1,697,399)
Inventories 555,132 (504,157)
Prepaid expenses, taxes and other
current assets 99,975 (199,539)
Other non-current assets 63,793 48,329
Accounts payable (188,441) 2,111,387
Income taxes payable - (31,600)
Accrued salaries, wages and vacation pay 161,235 289,990
Other liabilities and accrued expenses 254,487 131,863
--------- -----------
Total Adjustments 1,900,813 1,371,651
--------- -----------
Net cash provided by operating activities 1,399,573 1,565,679
--------- -----------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (605,547) (4,359,263)
Proceeds from sale of equipment 64,500 524,693
------ -------
Net cash (used) by investing activities (541,047) (3,834,570)
--------- ---------
Cash flows from financing activities:
Principal payments of long-term debt (848,215) (562,500)
Proceeds from long-term bank note 1,000,000 1,396,000
--------- ---------
Net cash provided by
financing activities 151,785 833,500
--------- ---------
Net increase (decrease) in cash and
cash equivalents 1,010,311 (1,435,391)
Cash and cash equivalents at
beginning of year 592,513 3,384,439
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF
THIRD QUARTER $1,602,824 $1,949,048
========== ==========
See notes to condensed financial statements
Page 5
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all necessary adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the thirty-nine week period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 30, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended January 1, 2000.
NOTE 2 - STATEMENTS OF CASH FLOWS
- ---------------------------------
For the purposes of the statements of cash flows, the Company considers cash on
hand, deposits in banks, interest bearing demand matured funds on deposit with
factor, and all highly liquid debt instruments with a maturity of three months
or less when purchased as cash and cash equivalents.
FASB No. 95 requires that the following supplemental disclosures to the
statements of cash flows be provided in related disclosures. Cash paid for
interest for the thirty-nine weeks ended September 30, 2000 and October 2, 1999
was $448,000 and $322,000, respectively. The Company had no cash payments for
the thirty-nine weeks ending September 30, 2000 for income taxes and received
$23,000 for a refund compared to $41,000 paid for the thirty-nine weeks ending
October 2, 1999.
NOTE 3 - OPERATIONS OF THE COMPANY
- ----------------------------------
The Company is engaged in twisting, texturing, winding, dyeing, processing and
selling of filament, novelty and spun yarns, and in the dyeing and processing of
these yarns for others on a commission basis.
The Company's fiscal year is the 52 or 53 week period ending on the Saturday
nearest to December 31. Its fiscal quarters also end on the Saturday nearest to
the end of the calendar quarter.
Revenue recognition - revenue from sales are recognized at the time shipments
are made to the customer.
NOTE 4 - USE OF ESTIMATES
- -------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Page 6
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 5 - ACCOUNTS RECEIVABLE
- -----------------------------
Accounts receivable are comprised of the following:
Sept. 30, January 1,
2000 2000
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $2,966,000 $2,271,000
Non-factored accounts
receivable............... 1,002,000 1,525,000
--------- ----------
$3,968,000 $3,796,000
========== ==========
NOTE 6 - INVENTORIES
- --------------------
Inventories are summarized as follows:
Sept. 30, January 1,
2000 2000
---- ----
Finished and in process.... $2,725,000 $3,235,000
Raw materials.............. 1,368,000 1,345,000
Dyes and chemicals......... 284,000 343,000
Other...................... 130,000 139,000
--------- ---------
$4,507,000 $5,062,000
========== ==========
NOTE 7 - LINE OF CREDIT
- -----------------------
Pursuant to a loan agreement dated March 29, 1996, and a second amendment dated
January 20, 2000, the Company secured an Equipment Loan facility of $3,000,000
and a $1,750,000 Letter of Credit facility. The Equipment Loan shall be
evidenced by the Equipment Note, and shall bear interest at a rate that varies
with the LIBOR rate. The Equipment Note would be payable in 84 installments. At
September 30, 2000, the Company has borrowed $3,000,000 under this line of
credit. Also under the Company's factoring arrangement, the Company may borrow
from the factor up to 90% of the face amount of each account sold to the factor.
As of September 30, 2000 the Company had no borrowings from its factor.
NOTE 8 - LONG-TERM DEBT
- -----------------------
On March 29, 1996, the Company entered into a loan agreement with its bank
providing for a term loan of $6,000,000. The term loan refinanced the two
formerly existing term loans, and accordingly, all term obligations were
consolidated into the one $6,000,000 obligation. This new loan is secured by:
Page 7
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 8 - LONG-TERM DEBT (cont.)
- -------------------------------
(1) a first Deed of Trust on property and buildings located at the Company's
manufacturing sites in North Carolina, (2) a first lien position on the new
equipment and machinery installed at these manufacturing sites and (3) a first
lien position on the existing machinery and equipment located at the Company's
manufacturing sites.
Under the term loan agreement, interest only was payable monthly until February
1998. Thereafter, principal maturities are payable in the amount of $62,500 per
month for ninety-six (96) consecutive months plus interest at the floating LIBOR
rate plus 1.90%.
Among other things, covenants include a debt service coverage ratio, a limit on
annual property asset acquisitions exclusive of property acquired with the loan
proceeds under this new loan agreement, the retirement or acquisition of the
Company's capital stock in excess of a stated amount, the maintenance of a
minimum tangible net worth which shall increase by a stated amount annually, a
minimum quick ratio, and a maximum debt to tangible net worth ratio.
The annual principal maturities of long-term debt at September 30, 2000 are as
follows:
Current portion $ 750,000
2001/2002 $ 750,000
2002/2003 750,000
2003/2004 750,000
2004/2005 750,000
Thereafter 250,000 3,250,000
--------- ---------
$4,000,000
Under the loan agreement, the Equipment Line of Credit was converted to a
long-term note payable in 84 installments. The Company converted the Line of
Credit and began installments on February 29, 2000.
The annual principal maturities of this long-term debt at September 30, 2000
based on the current amount owned are as follows:
Current Portion $ 428,571
2001/2002 $ 428,571
2002/2003 428,571
2003/2004 428,571
2004/2005 428,571
Thereafter 571,430 2,285,714
------- ---------
$2,714,285
Page 8
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 9 - INCOME TAXES
- ---------------------
The Company uses the liability method as required by FASB Statement 109
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on the differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws.
The items which comprise deferred tax assets and liabilities are as follows:
September 30, January 1,
2000 2000
---- ----
Deferred Tax Assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating loss carry forward 461,232 ---
Other 7,700 7,700
--------- ---------
$ 817,932 $ 356,700
========= =========
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $2,158,500 $2,100,700
Undistributed earnings of foreign
affiliate, net of tax credit 32,300 21,100
--------- ---------
$2,190,800 $2,121,800
========== ==========
Thirty-Nine Weeks Ended
--------------------
September 30, October 2,
Provision (credit) for income taxes 2000 1999
---- ----
consists of:
Deferred $(392,210) $ 68,030
Federal --- 22,702
State --- 20,860
--------- ----------
$(392,210) $ 111,592
========= ==========
The net operating loss carryforward from a prior year is $384,000, expiring
2019.
NOTE 10 - EMPLOYEE BENEFIT PLAN
- -------------------------------
The Company is a participating employer in the Burke Mills, Inc., Savings and
Retirement Plan and Trust that has been qualified under Section 401(k) of the
Internal Revenue Code. This plan allows eligible employees to contribute a
salary reduction amount of not less than 1% nor greater than 25% of the
employee's salary but not to exceed dollar limits set by law. The employer may
make a discretionary contribution for each employee out of current net profits
or accumulated net profits in an amount the employer may from time to time deem
advisable. No provision was made for a discretionary contribution for the period
ended September 30, 2000 and October 2, 1999.
Page 9
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
- ---------------------------------------
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of occasional temporary cash investments and
amounts due from the factor on receivables sold to the factor on a non-recourse
basis. The receivables sold to the factor during a month generally have a
maturity date on the 21st to the 30th of the following month. At September 30,
2000, the Company had $2,966,000 due from its factor of which $2,423,000 matured
on October 20, 2000. Upon maturity, the funds are automatically transferred by
the factor to the Company's bank.
NOTE 12 - COMMITMENTS
- ---------------------
a) The Company entered into a supply agreement, dated November 23, 1996, with
its joint venture Company, Fytek, S.A. de C.V. to purchase twisted yarns. The
Company agrees to purchase approximately $1,800,000 of twisted yarn annually for
the five years beginning November 1997.
b) The Company entered into a supply agreement, dated November 19, 1996, with
Fibras Quimicas, S.A. to purchase yarn. The Company agrees to purchase yarn
based on the schedule below, beginning February 1, 1997, for a five year period.
Year 1 Approximately $2,600,000
Year 2 Approximately $6,400,000
Year 3 Approximately $7,100,000
Year 4 Approximately $7,700,000
Year 5 Approximately $7,700,000
c) The Company and Titan Textile Company, Inc., signed an agreement which became
effective April 1, 1999, whereby the Company sold its friction texturing
equipment to Titan and in turn will purchase textured yarns from Titan. The
agreement states that the Company will purchase 70,000 pounds per week as long
as the Company has a requirement for textured yarns. When the Company's
requirements exceeds 140,000 pounds per week, the Company will purchase at least
50% of its requirements from Titan. The textured yarn pricing structure will be
reviewed every six months and when POY prices increase or decrease by 5% or
more.
Page 10
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 12 - COMMITMENTS (continued)
- ---------------------------------
d) During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property. The assessment indicated the presence of a contaminant in the
groundwater under the Company's property. The contaminant was a solvent used by
the Company in the past but no longer used. The contamination was reported to
the North Carolina Department of Environment and Natural Resources (DENR). DENR
required a Comprehensive Site Assessment that has been completed. The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR. The Company has identified remediation issues and is
moving toward a solution of natural attenuation. The Company believes it has
made an adequate provision to earnings in 1997 to cover any future cost. No
provision has been made in 2000. The Company believes this situation will have
no material impact on the capital expenditures, earnings or competitive position
of the Company.
e) On November 18, 1999, the Company entered into a three year agreement with
Trio Marketing & Sales Company, LLC (Trio) to market and sell imported yarns.
Under the agreement the Company will import yarns which would be marketed and
sold by Trio. Trio will receive a commission based on the net sales price. The
commission would be 4% during the first six months of the contract and 3%
thereafter. Trio would also receive 15% of the profits before taxes realized on
the sales of the yarns.
NOTE 13 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS
- ----------------------------------------------------------------
The Company owns 49.8% of Fytek, S.A. de C.V. (Fytek), a Mexican corporation.
Fytek began operation in the fourth quarter of 1997. The Company accounts for
the ownership using the equity method. During the thirty-nine weeks, the Company
had purchases from Fytek of $1,626,000 compared to $1,153,000 in 1999. Financial
information for Fytek is as follows:
STATEMENT OF INCOME
(In thousands of U.S. dollars)
(Unaudited)
3rd Quarter Nine Months
----------- ----------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $2,232 $1,839 $6,744 $5,411
Gross Profit 405 218 903 634
Income from continuing
operations 152 124 687 463
Income before taxes 152 124 687 463
Provision for income tax 50 295 240 462
------- ------ ------- -------
Net Income $ 102 $ (171) $ 447 $ 1
======= ======= ======= =======
Page 11
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS (continued)
- ----------------------------------------------------------------
Fytek's financial information (continued):
BALANCE SHEETS
(In thousands of U.S. dollars)
Sept. 30, Dec. 31,
2000 1999
(Unaudited) (Audited)
----------- -----------
ASSETS
Current assets $3,732 $4,176
Non-current assets 168 144
------- -------
Total Assets $3,900 $4,320
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $2,519 $3,386
Non-current liabilities 0 0
------- -------
Total Liabilities $2,519 $3,386
Shareholders equity $1,381 $ 934
------- -------
Total Liabilities & Shareholders' Equity $3,900 $4,320
======= =======
During the thirty-nine weeks ended September 30, the Company purchased $739,000
of yarn from Nafees Cotton Mills, Ltd. The Company pays for the purchase by
Letters of Credit at 120 and 180 days from Bill of Lading date. Future purchases
can reasonably be anticipated if the Company receives orders for the Nafees
yarns. Humayun N. Shaikh, Chairman and CEO of the Company is also Director of
Nafees Cotton Mills, Ltd. Aehsun Shaikh, Director of the Company is also
Director of Nafees Cotton Mills, Ltd., since 1993 and of Legler-Nafees Denim
Mills, Ltd., since 1999.
NOTE 14 - ACCOUNTING FOR POSSIBLE IMPAIRMENT OF LONG-LIVED ASSETS
- -----------------------------------------------------------------
In 1995 the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", which requires impairment losses to be recorded on long- lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets carrying amount. Statement No.121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement No.121 in the first quarter of 1996 and such adoption did not have any
effect on the financial statements for 1999 or for the thirty-nine weeks ended
September 30, 2000.
NOTE 15 - EARNINGS PER SHARE
- ----------------------------
Earnings per share are based on the net income divided by the weighted average
number of common shares outstanding during the thirty-nine week periods ended
September 30, 2000, and October 2, 1999.
Page 12
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
2000 Compared to 1999
- ---------------------
The following discussion should be read in conjunction with the information set
forth under the Financial Statements and Notes thereto included elsewhere in the
10-Q.
RESULTS OF OPERATIONS
The following table sets forth operating data of the Company as a percentage of
net sales for the periods indicated below:
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
-------------------- -------------------
Sept. 30 Oct. 2 Sept. 30 Oct. 2
2000 1999 2000 1999
---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 96.5 86.9 94.2 88.2
---- ---- ---- ----
Gross Profit 3.5 13.1 5.8 11.8
Selling, General, Administrative
and Factoring Costs 7.0 10.6 8.1 10.5
---- ---- ---- ----
Operating Earnings (Loss) (3.5) 2.5 (2.3) 1.3
Interest Expense (1.6) (0.9) (1.4) (1.0)
Other (Income) - net 0.4 (0.1) 0.1 0.6
---- ---- ---- ----
Income (Loss) before
Income Taxes (4.7) 1.5 (3.6) 0.9
Equity in Net Earnings (Loss)
of Affiliate 0.5 (0.7) 0.7 0.0
Income Taxes (Credit) (1.5) 0.5 (1.3) 0.3
---- ---- ---- ---
Net Income (Loss) (2.7)% 0.3% (1.6)% 0.6%
====== ===== ====== =====
THIRTEEN WEEKS ENDED SEPTEMBER 30, 2000
COMPARED TO THIRTEEN WEEKS ENDED OCTOBER 2, 1999
Net Sales
- ---------
Net sales for the thirteen weeks ended September 30, 2000, decreased by 20.2% to
$9,279,000 compared to $11,625,000 for the third quarter of 1999. The decrease
in net sales was primarily due to a decline in sewing thread business as one of
the thread distributors went out of business, the loss of major sales in the
automotive portion of our business, and a general decline in the textile
economy.
Page 13
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirteen weeks decreased by 11.4% on a sales decrease of
20.2%. The Company experienced lower gross margins as it sold inventory that was
marked down in the previous quarter, its sales mix changed due to a decline in
sales in the automotive industry, and it experienced cost increases in raw
materials in the first quarter that could not be totally passed on in price
increases. Also, the Company was only able to reduce manufacturing overhead cost
by 9.3% on the sales decline of 20.2%.
As a result of a 20.2% decrease in net sales and an 11.4% decrease in cost of
sales, the Company's gross margin decreased to 3.5% compared to 13.1% in the
third quarter of 1999.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling general and administrative expenses decreased by $572,000 compared to
the third quarter of 1999. In 1999 the Company recorded $481,000 in cost that
was related to the start up of the Company's new ERP software. This was a
one-time cost and not experienced in 2000.
Factor's Charges
- ----------------
Factor's charges as a percentage of sales was .4% for the third quarter of 2000
and 1999. There was no change in the factor's agreement.
Interest Expense
- ----------------
Interest expense increased by $41,000 as a result of an increase in long-term
debt.
Interest Income
- ---------------
Interest income for the third quarter of 2000 increased by $3,000 due to an
increase in average funds invested.
Equity in Net Earnings (Loss) of Affiliate
- ------------------------------------------
The Company recorded $51,200 as earnings from Fytek, S.A. De C.V., its joint
venture in Mexico. The Company's share of net earnings and losses is 50%. Fytek
began operations in the fourth quarter of 1997.
Page 14
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Income (Loss) before Provision for Income Taxes
- -----------------------------------------------
For the thirteen weeks ended September 30, 2000 the Company recorded an
operating loss primarily as a result of a decline in sales and lower gross
margins.
Provision (Credit) for Income Taxes
- ------------------------------------
The Company recorded a credit of $141,000 for the third quarter of 2000,
compared to a provision of $61,000 in 1999.
Page 15
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2000 COMPARED TO
THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999
2000 Compared to 1999
Net Sales
- ---------
Net sales for the thirty-nine weeks ended September 30, 2000, decreased by 5.0%
to $30,794,000 compared to $32,417,000 for 1999. The decline in sales was
primarily due to the loss of a program in the third quarter in the automotive
industry, a decline in sewing thread sales due to the loss of a distributor
that went out of business, and a general decline in the textile economy.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales increased by 1.4% on a sales decline of 5.0%. The Company
experienced increases in the cost of raw materials during the first quarter
compared to decreases in the first six months of 1999. The Company increased
sales prices where possible, but was unable to pass along all of the cost
increases. Also, the Company recorded $221,000 for markdown of slow moving and
obsolete inventory in the second quarter.
As a result of a decrease in sales of 5.0% and an increase in cost of sales of
1.4%, the Company's gross margin declined to 5.8% compared to 11.8% in 1999.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses decreased by $904,000. In 1999 the
Company had a one time cost of $1,121,000 related to the training and data
conversion for its new ERP software. Also, the Company recorded severance of
$150,000 for its former President in the second quarter of 2000.
Factor's Charges
- ----------------
Factor charges as a percentage of sales was .4% for 2000 and 1999. There was no
change in the factor's agreement.
Interest Expense
- ----------------
Interest expense increased by $133,000 as a result of an increase in long-term
debt.
Interest Income
- ---------------
Interest income decreased by $13,000 as a result of lower average funds
invested.
Page 16
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Gain on Disposal of Equipment
- -----------------------------
In 1999 the Company sold its friction texturing equipment, which had a gross
value of $1,342,000 and a net book value of $230,000, for $446,000 (also see
Note 12 Commitments), resulting in a gain on disposal of $216,000.
Also, the Company replaced dyeing equipment with a gross value of $86,000 and a
net book value of $26,000, resulting in a loss on disposal of $26,000.
These were the major transactions that netted a gain on disposal of equipment in
1999.
Equity in Net Earnings of Affiliate
- -----------------------------------
The Company recorded $223,700 as earnings from Fytek, S.A. De C.V., its joint
venture in Mexico. The Company's share of net earnings and losses is 50%. Fytek
began operations in the fourth quarter of 1997.
Income (Loss) before Provision for Income Taxes
- -----------------------------------------------
For the thirty-nine weeks ended September 30, 2000, the Company recorded a loss
on operations primarily as a result of an increase in cost of sales resulting in
a gross margin of 5.8% compared to 11.8% in 1999.
Provision (Credit) for Income Taxes
- -----------------------------------
The Company recorded a credit for income taxes of $392,000 for the thirty-nine
weeks of 2000, compared to a provision of $112,000 in 1999.
Other Discussion
- ----------------
The Company's major polyester yarn suppliers have announced price increases
beginning in October and possibly again in January 2001. The Company does not
believe it will be able to pass along to its customers all of the price
increases. The Company has various projects in process to reduce cost and offset
some of the polyester cost increase.
Liquidity and Capital Resources
- -------------------------------
The Company sells a substantial portion of its accounts receivable to a
commercial factor, and the factor assumes the credit risk for these accounts and
effects the collection of the receivables. As of September 30, 2000, the Company
had $2,966,000 due from its factor of which $2,423,000 matured on October 20,
2000. The Company has the right to borrow up to 90% of the face amount of each
account sold to the factor.
The Company has an equipment line of credit from its bank and under which the
Company may borrow up to $3,000,000 for the acquisition of production machinery,
and a $1,750,000 Letter of Credit facility. The Company borrowed $3,000,000 from
the Line of Credit and converted the Line of Credit to long-term debt on
February 29, 2000.
Page 17
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
The Company's working capital at September 30, 2000, aggregated $5,740,000
representing a working capital ratio of 2.2 to 1 compared with a working capital
of $5,607,000 at January 1, 2000, and a working capital ratio of 2.3 to 1.
At September 30, 2000, the Company reclassified its deferred income tax assets
at January 1, 2000 from current asset status to non-current assets to conform
with the September 30, 2000 presentation.
As a measure of current liquidity, the Company's quick position (cash, cash
equivalents and receivables over current liabilities) discloses the following at
September 30, 2000:
Cash, cash equivalents and receivables........... $5,571,000
Current liabilities.............................. 4,775,000
---------
Excess of quick assets over current liabilities... $ 796,000
The Company believes that its cash, cash equivalents and receivables, and its
factoring and credit arrangements will be sufficient to finance its operations
for the next 12 months.
The results of operations of the Company for the periods discussed have been
significantly affected by inflation in its polyester yarns that are petroleum
based. The Company's major polyester yarn suppliers have announced additional
price increases beginning in October and possibly again in January 2001.
During the thirty-nine weeks of 2000, the Company acquired and made deposits on
new machinery and equipment of approximately $606,000 as set forth in the
accompanying statement of cash flows. For the balance of 2000, the Company
anticipates the acquisition of machinery and equipment of approximately $100,000
which, together with the acquisitions and deposits on acquisitions incurred to
September 30, 2000, will aggregate an anticipated acquisition of new machinery
of approximately $706,000 in 2000. The Company plans to finance its capital
acquisitions from cash provided from operations and bank financing.
The Company's cash and cash equivalents increased for the thirty-nine weeks
ended September 30, 2000 to $1,603,000 from $593,000 at January 1, 2000,
primarily as a result of a long-term loan of $1,000,000, decreases in inventory
of $555,000, proceeds from sale of property assets of $64,000, decreases in
prepaid expenses, other assets and other current assets of $164,000, increases
in accrued salaries and wages and other liabilities of $415,000, offset in part
by acquistion of machinery and equipment of $606,000, principal payments of
long-term debt of $848,000, decreases in accounts payable of $188,000 and
increases in accounts receivable of $172,000. The net amount of these increases
and decreases in assets and liabilities aggregates $384,000. The cash effect of
the net loss when modified by the effect of depreciation and amortization,
deferred taxes, equity in earnings of the affiliate and gain on disposal of
capital assets aggregates $626,000 of cash increases, thus setting forth the net
increase in cash and cash equivalents of $1,010,000.
Page 18
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Year 2000 Compliance
- --------------------
After the first thirty-nine weeks of the year 2000, the Company has had no
information systems, non-information systems, or supplier problems related to
the year 2000. On May 29, 1999, the Company began using a new fully integrated
system that replaced its manufacturing and accounting software. The new software
was installed to improve the Company's information efficiencies and bring the
Company into compliance for all critical applications affected by the year 2000.
During 1999, the Company experienced an effect on earnings of $1,186,000 for
data conversion and training. The cost to bring the existing software into
compliance for year 2000 is not known as the Company planned to replace the
software.
Forward Looking Statements
- --------------------------
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, and other sections of this report, contain
forward-looking statements within the meaning of federal securities laws about
the Company's financial condition and results of operations that are based on
management's current expectations, beliefs, assumptions, estimates and
projections about the markets in which the Company operates. Words such as
"expects", "anticipates", "believes", "estimates", variations of such words and
other similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's judgement only as of the date hereof. The
Company undertakes no obligations to update publicly any of these
forward-looking statements to reflect new information, future events or
otherwise.
Factors that may cause actual outcome and results to differ materially from
those expressed in, or implied by, these forward-looking statements include, but
are not necessarily limited to, availability, sourcing and pricing of raw
materials, pressures on sales prices due to competition and economic conditions,
reliance on and financial viability of significant customers, technological
advancements, employee relations, changes in construction spending and capital
equipment expenditures (including those related to unforeseen acquisition
opportunities), the timely completion of construction and expansion projects
planned or in process, continued availability of financial resources through
financing arrangements and operations, negotiations of new or modifications of
existing contracts for asset management and for property and equipment
construction and acquisition, regulations governing tax laws, other governmental
and authoritative bodies, policies and legislation, and proceeds received from
the sale of assets held for disposal. In addition to these representative
factors, forward-looking statements could be impacted by general domestic and
international economic and industry conditions in the markets where the Company
competes; such as, changes in currency exchange rates, interest and inflation
rates, recession and other economic and political factors over which the Company
has no control.
Page 19
BURKE MILLS, INC.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on July 10,
2000. At the meeting all five director nominees were elected.
(a) The following directors were elected for a one-year term by
the votes indicated:
Humayun N. Shaikh 2,447,974
Thomas I. Nail 2,447,974
Aehsun Shaikh 2,447,974
Robert P. Huntley 2,447,974
William T. Dunn 2,448,074
(b) There were no other matters presented for vote of stockholders.
Item 6 - Exhibits and Reports on 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - No report on Form 8-K has been
filed during the thirteen weeks ended September 30,
2000.
Page 20
BURKE MILLS, INC.
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS INCLUDED IN THE QUARTERLY REPORT
ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2000
ITEM NUMBER ITEM DESCRIPTION AMOUNT
5-02(1) Cash and cash items $ 1,602,824
5-02(2) Marketable securities 0
5-02(3)(a)(1) Notes and accounts receivable - trade 3,967,705
5-02(4) Allowances for doubtful accounts 0
5-02(6) Inventory 4,507,162
5-02(9) Total current assets 10,515,696
5-02(13) Property, plant and equipment 31,412,295
5-02(14) Accumulated depreciation 17,537,462
5-02(18) Total assets 25,942,198
5-02(21) Total current liabilities 4,775,417
5-02(22) Bonds, mortgages and similar debt 5,535,714
5-02(28) Preferred stock- mandatory redemption 0
5-02(29) Preferred stock-no mandatory redemption 0
5-02(30) Common stock 1,809,171
5-02(31) Other stockholders' equity 11,631,096
5-02(32) Total liabilities and stockholders
equity 25,942,198
5-03(b)1(a) Net sales of tangible products 30,793,806
5-03(b)1 Total revenues 30,793,806
5-03(b)2(a) Cost of tangible goods sold 28,999,546
5-03(b)2 Total costs and expenses applicable
to sales and revenues 28,999,546
5-03(b)3 Other costs and expenses 0
5-03(b)5 Provision for doubtful accounts
and notes 0
5-03(b)(8) Interest and amortization of debt
discount 448,374
5-03(b)(10) Income before taxes and other items (893,450)
5-03(b)(11) Income tax expense (392,210)
5-03(b)(14) Income/loss continuing operations (501,240)
5-03(b)(15) Discontinued operations 0
5-03(b)(17) Extraordinary items 0
5-03(b)(18) Cumulative effect - changes in
accounting principles 0
5-03(b)(19) Net income or loss (501,240)
5-03(b)(20) Earnings per share - primary $(.18)
5-03(b)(20) Earnings per share - fully diluted $(.18)
Page 21
BURKE MILLS, INC.
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.
BURKE MILLS, INC.
(Registrant)
By: Thomas I. Nail /s
Date: November 14, 2000 ________________________
Thomas I. Nail
(President)
By: Thomas I. Nail /s
Date: November 14, 2000 _________________________
Thomas I. Nail
(Principal Financial Officer)
Page 22
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