UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 March 31, 2001
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 May 2, 2001, there were
outstanding 2,741,168 shares of the issuer's only class of common stock.
Page 1 of 19
BURKE MILLS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page Number
-----------
Item 1 - Financial Statements
Condensed Balance Sheets
March 31, 2001 and December 30, 2000 3
Condensed Statements of Operations and
Retained Earnings
Thirteen Weeks Ended March 31, 2001
and April 1, 2000 5
Statements of Cash Flows
Thirteen Weeks Ended March 31, 2001
and April 1, 2000 6
Notes to Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 19
Page 2
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
March 31, December 30,
2001 2000
(Unaudited) (Note A)
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 2,123,840 $ 1,305,362
Accounts receivable 3,670,497 3,088,069
Inventories 4,316,151 4,633,978
Prepaid expenses, taxes and other
current assets 75,395 133,711
----------- -----------
Total Current Assets 10,185,883 9,161,120
----------- -----------
Equity Investment in Affiliate 614,918 586,728
----------- -----------
Property, Plant and Equipment - at cost 31,329,365 31,314,896
Less: Accumulated depreciation 18,598,280 18,018,018
----------- -----------
Property, Plant and Equipment - Net 12,731,085 13,296,878
----------- -----------
Other Assets
Deferred income taxes 976,000 933,000
Other 16,575 16,575
----------- -----------
Total Other Assets 992,575 949,575
----------- -----------
Total Assets $24,524,461 $23,994,301
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 1,178,571 $ 1,178,571
Accounts payable 2,684,510 1,897,308
Accrued salaries, wages and vacation pay 260,545 220,063
Other liabilities and accrued expenses 369,583 207,300
----------- -----------
Total Current Liabilities 4,493,209 3,503,242
Long-term Debt 4,946,429 5,241,071
Deferred Income Taxes 2,106,300 2,158,500
----------- -----------
Total Liabilities 11,545,938 10,902,813
----------- -----------
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 8,058,003 8,170,968
----------- -----------
Total Shareholders' Equity 12,978,523 13,091,488
----------- -----------
Total Liabilities & Shareholders' Equity $24,524,461 $23,994,301
=========== ===========
Page 3
Note A: The December 30, 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 4
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended
--------------------
March 31, April 1,
2001 2000
---- ----
Net Sales $ 9,428,274 $11,057,698
----------- -----------
Costs and Expenses
Cost of Sales 8,827,042 10,361,310
Selling, General and
Administrative Expenses 680,650 949,318
Factor's Charges 38,693 37,533
----------- -----------
Total Costs and Expenses 9,546,385 11,348,161
----------- -----------
Operating Earnings (Loss) (118,111) (290,463)
----------- -----------
Other Income
Interest Income 20,957 13,497
Gain on Disposal of Property Assets --- 27,374
Other, net 1,183 1,003
----------- -----------
Total 22,140 41,874
----------- -----------
Other Expenses
Interest Expense 123,281 145,731
Other, net 17,202 31,941
----------- -----------
Total 140,483 177,672
----------- -----------
Income (Loss) before Income Taxes and Equity
in Net Earnings of Affiliate (236,454) (426,261)
Provision (Credit) for Income Taxes (95,299) (165,000)
----------- -----------
Income (Loss) before Equity in Net Earnings
of Affiliates (141,155) (261,261)
Equity in Net Earnings of Affiliate 28,190 75,000
----------- -----------
Net Income (Loss) (112,965) (186,261)
Retained Earnings at Beginning of Period 8,170,968 9,020,987
----------- -----------
Retained Earnings at End of Period $ 8,058,003 $ 8,834,726
=========== ===========
Earnings (Loss) Per Share $ (.04) $ (.07)
=========== ===========
Dividends Per Share of Common Stock None None
=========== ===========
Weighted Average Common Shares Outstanding 2,741,168 2,741,168
=========== ===========
See notes to condensed financial statements.
Page 5
BURKE MILLS, INC.STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
--------------------
March 31, April 1,
2001 2000
--------- ---------
Cash flows from operating activities
Net Income (Loss) $ (112,965) $ (186,261)
--------- ---------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 580,262 593,875
(Gain) on Sale of plant and
equipment, including loss on disposal --- (27,374)
Equity in earnings of affiliate (28,190) (75,000)
Deferred income taxes (95,200) (161,250)
Changes in assets and liabilities:
Accounts receivable (582,428) (384,736)
Inventories 317,827 628,692
Prepaid expenses, taxes & other
current assets 58,316 (113,987)
Other non-current assets --- 101,527
Accounts payable 787,202 (505,578)
Accrued salaries, wages & vacation pay 40,482 31,712
Other liabilities and accrued expenses 162,283 180,076
------- -------
Total Adjustments 1,240,554 267,957
--------- ---------
Net cash provided by operating activities 1,127,589 81,696
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (14,469) (313,554)
Proceeds from sale of plant & equipment --- 60,000
--------- ---------
Net cash (used) by investing activities (14,469) (253,554)
--------- ---------
Cash flows from financing activities:
Principal payments of long-term debt (294,642) (258,929)
Proceeds from long-term bank note --- 1,000,000
--------- ---------
Net cash provided (used) by financing activities (294,642) 741,071
--------- ---------
Increase in cash and cash equivalents 818,478 569,213
Cash and cash equivalents at beginning of year 1,305,362 592,513
--------- ---------
CASH AND EQUIVALENTS AT END OF FIRST QUARTER $2,123,840 $1,161,726
========== ==========
See notes to condensed financial statements
Page 6
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 thirteen-week period ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 29, 2001. 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 December 30, 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 thirteen weeks
ended March 31, 2001 and April 1, 2000 was $123,000 and $146,000, respectively.
The Company had no cash payments for the thirteen weeks ending March 31, 2001
and April 1, 2000 for income taxes.
NOTE 3 - OPERATIONS OF THE COMPANY
- ----------------------------------
The Company is engaged in 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.
Revenues 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 U.S. 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 7
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 5 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable are comprised of the following:
March 31, December 30,
2001 2000
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $2,980,000 $2,152,000
Non-factored accounts
receivable............... 690,000 936,000
--------- ----------
$3,670,000 $3,088,000
========== ==========
NOTE 6 - INVENTORIES
- --------------------
Inventories are summarized as follows: March 31, December 30,
2001 2000
---- ----
Finished and in process.... $2,969,000 $3,103,000
Raw materials.............. 960,000 1,136,000
Dyes and chemicals......... 269,000 277,000
Other...................... 118,000 118,000
--------- ---------
$4,316,000 $4,634,000
========== ==========
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 is payable in 84 installments. At March
31, 2001 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
March 31, 2001 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 8
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 8 - LONG-TERM DEBT (continued)
- -----------------------------------
(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 March 31, 2001 are as
follows:
Current portion $ 750,000
2002/2003 $ 750,000
2003/2004 750,000
2004/2005 750,000
2005/2006 625,000 2,875,000
--------- ---------
$3,625,000
Under the loan agreement, the Equipment Line of Credit was converted to a
$3,000,000 long-term note payable in 84 installments of $35,714, plus interest
at the floating LIBOR rate plus 1.9%. The Company converted the Line of Credit
and began installments on February 29, 2000.
The annual principal maturities of this long-term debt at March 31, 2001 based
on the current amount owned are as follows:
Current Portion $ 428,571
2002/2003 $ 428,571
2003/2004 428,571
2004/2005 428,571
2005/2006 428,571
Thereafter 357,145 2,071,429
------- ---------
$2,500,000
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.
Page 9
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 9 - INCOME TAXES (continued)
- ---------------------
The items which comprise deferred tax assets and liabilities are as follows:
March 31, December 30,
2001 2000
---- ----
Deferred Tax Assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating carry forward 813,300 718,000
Inventory capitalization 5,200 5,500
Charitable contributions
carryover 8,500 8,500
Less: Valuation allowance (200,000) (148,000)
--------- ---------
$ 976,000 $ 933,000
========== ==========
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $2,101,700 $2,154,100
Undistributed earnings of foreign
affiliate, net of tax credit 4,600 4,400
--------- ---------
$2,106,300 $2,158,500
========== ==========
Thirteen Weeks Ended
--------------------
March 31, April 1
Provision (credit) for income taxes 2001 2000
---- ----
consists of:
Deferred $ (95,299) $ (165,000)
Federal --- ---
State --- ---
--------- ----------
$ (95,299) $ (165,000)
========= ==========
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 March 31, 2001 and April 1, 2000.
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
Page 10
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 11 - CONCENTRATIONS OF CREDIT RISK (continued)
- ---------------------------------------
maturity date on the 21st to the 30th of the following month. At March 31,
2001, the Company had $2,980,000 due from its factor of which $2,459,000
matured on April 20, 2001. 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.
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 cost of monitoring will be
approximately $31,000 per year.
(e) The Company is one of eight defendants in a case brought in the United
States District Court for the Southern District of Texas, Houston Division, by
a plaintiff individually and as next friend for a minor. The complaint alleges
that the minor plaintiff was injured as a result of burns suffered when
stripping on the side of a pair of jeans purchased by the minor caught fire. The
complaint alleges that the Company was one of two manufacturers providing yarn
to the defendant who allegedly manufactured the stripping sewn on to the jeans.
The Company is defending the suit through legal counsel provided by the
Company's products liability insurance carrier. Based upon the facts known to
the Company at this time, the Company does not believe that it will be
determined to have any monetary liability to the plaintiffs in this case. The
Company further believes that if the Company is determined to have any monetary
liability to the plaintiffs, such liability will be covered by its products
liability insurance policy.
Page 11
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
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 first quarter, the Company
had purchases from Fytek of $386,000 compared to $506,000 in 2000. At March 31,
2001, Fytek owed the Company $32,000 for leased equipment.
Financial information for Fytek is as follows:
STATEMENT OF INCOME
(In thousands of U.S. dollars)
(Unaudited)
1st Quarter
-----------
2001 2000
---- ----
Net Sales $1,458 $2,348
Gross Profit 94 267
Income from continuing
operations 87 239
Income before taxes 87 239
Provision for income tax 30 88
------- -------
Net Income $ 57 $ 151
======= =======
BALANCE SHEET
(In thousands of U.S. dollars)
March 31, March 31,
2001 2000
(Unaudited) (Unaudited)
----------- -----------
ASSETS
Current assets $4,091 $4,715
Non-current assets 185 176
------- -------
Total Assets $4,276 $4,891
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $2,762 $3,807
Non-current liabilities 0 0
------- -------
Total Liabilities $2,762 $3,807
Shareholders equity $1,514 $1,084
------- -------
Total Liabilities & Shareholders' Equity $4,276 $4,891
======= =======
Page 12
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
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 2000 or for the thirteen weeks ended
March 31, 2001.
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 thirteen week periods ended
March 31, 2001, and April 1, 2000.
Page 13
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
2001 Compared to 2000
- ---------------------
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 Ended
--------------------
March 31, April 1,
2001 2000
---- ----
Net Sales 100.0% 100.0%
Cost of Sales 93.6 93.7
------ ------
Gross Profit 6.4 6.3
Selling, General, Administrative
and Factoring Costs 7.6 8.9
------ ------
Operating Earnings (Loss) (1.2) (2.6)
Interest Expense 1.3 1.3
Other (Income) - net --- (0.2)
------ ------
Income (Loss) before Income Taxes (2.5) (3.7)
Equity in Net Earnings (Loss) of Affiliate 0.3 0.7
Income Taxes (Credit) (1.0) (1.3)
------ ------
Net Income (Loss) (1.2)% (1.7)%
====== ======
THIRTEEN WEEKS ENDED March 31, 2001
COMPARED TO THIRTEEN WEEKS ENDED April 1, 2000
Net Sales
- ---------
Net sales for the thirteen weeks ended March 31, 2001 decreased by 15% to
$9,428,000 compared to $11,058,000 for the first quarter of 2000. Pounds shipped
decreased by 9% compared to 2000, while average sales prices decreased by 6%.
The decrease in pounds is a result of lower customer demand. Decreases in
average sales prices is the result of sales mix and competitive pricing
pressures caused by a weak textile economy.
Page 14
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 first quarter decreased by $1,534,000 or 15%.
Cost of material used decreased by 11% while direct labor and overhead decreased
by 24% and 18%, respectively.
As a result of a 15% decrease in net sales and a 15% decrease in cost of sales,
the Company's gross margin remain relatively the same at 6.4% compared to 6.3%
in 2000.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses for the first quarter of 2001
decreased by $269,000 or 28%. The decrease is the result of $204,000 recorded to
bad debt expense in the first quarter of 2000 which did not re-occur in 2001.
Factor's Charges
- ----------------
Factor's charges were .4% of net sales compared to .3% in 2000. The percentage
of sales factored increased during the quarter. There was no change in the
Company's factoring agreement.
Interest Expense
- ----------------
Interest expense for the first quarter decreased $22,000 primarily due to lower
existing interest rates.
Interest Income
- ---------------
Interest income for the first quarter of 2001 increased as a result of an
increase in average funds invested.
Equity in Net Earnings (Loss) of Affiliate
- ------------------------------------------
The Company recorded $28,000 as income from Fytek, S.A. de C.V, its joint
venture in Mexico. The Company's share of net earnings and losses is 50%.
Also see Note 13.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirteen weeks ended March 31, 2001 the Company recorded a loss of
$236,000 before credit for taxes and income from its Mexican affiliate compared
to a loss before taxes and income from its Mexican affiliate of $426,000 in
2000.
Page 15
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Provision for Income Taxes
- --------------------------
The Company recorded a credit for income taxes of $95,000 for the first quarter
of 2001 compared to a credit for income taxes of $165,000 in 2000.
Liquidity and Capital Resources
- -------------------------------
The Company sells a substantial portion of its accounts receivable to a
commercial factor so that the factor assumes the credit risk for these accounts
and effects the collection of the receivables. As of March 31, 2001, the Company
had $2,980,000 due from its factor of which $2,459,000 matured on April 20,
2001. 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 under which the
Company was permitted to 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 (see Note 8).
The Company's working capital at March 31, 2001, aggregated $5,788,000
representing a working capital ratio of 2.3 to 1 compared with a working capital
of $5,658,000 at December 30, 2000, and a working capital ratio of 2.6 to 1.
As a measure of current liquidity, the Company's quick position (cash, cash
equivalents and receivables over current liabilities) discloses the following at
March 31, 2001:
Cash, cash equivalents and receivables........... $5,794,000
Current liabilities.............................. 4,493,000
---------
Excess of quick assets over current liabilities.. $1,301,000
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
affected by inflation in its polyester yarns (the Company's major raw material).
Prices have increased steadily since mid-year 1999, and the suppliers have said
that there is a possibility of further increases in 2001. Also, natural gas
costs have increased approximately 60% since 1999.
During the thirteen weeks of 2001, the Company acquired and made deposits on new
machinery and equipment of approximately $14,000 as set forth in the
accompanying statement of cash flows. For the balance of 2001, the Company
anticipates the acquisition of machinery and equipment of approximately $436,000
which, together with the acquisitions and deposits on acquisitions incurred to
March 31, 2001, will aggregate an anticipated acquisition of new machinery of
approximately $450,000 in 2001. The Company plans to finance its capital from
cash provided from operations and bank financing.
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BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
- -------------------------------
The Company's cash and equivalents increased for the thirteen weeks ended March
31, 2001, to $2,124,000 from $1,305,000 at December 30, 2000 primarily as a
result of improved cash flow from operations. See accompanying Statement of Cash
Flow.
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.
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BURKE MILLS, INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on 8-K
(a) Reports on Form 8-K - No report on Form 8-K has been filed during the
thirteen weeks March 31, 2001.
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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)
Date: May 10, 2001 BY: Thomas I. Nail /s
-----------------------
Thomas I. Nail
(President)
Date: May 10, 2001 BY: Thomas I. Nail /s
-----------------------
Thomas I. Nail
(Principal Financial Officer)
Page 19