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 29, 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 November 9, 2001, there
were outstanding 2,741,168 shares of the issuer's only class of common stock.
Page 1 of 18
BURKE MILLS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
- -----------------------------
Condensed Balance Sheets:
September 29, 2001, and December 30, 2000 3
Condensed Statements of Operations and Retained Earnings:
Thirteen Weeks Ended September 29, 2001 and September 30,
2000 4
Thirty-Nine Weeks Ended September 29, 2001 and
September 30, 2000 4
Statements of Cash Flows:
Thirty-Nine Weeks Ended September 29, 2001
and September 30, 2000 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 12
- ---------------------------------------------------------
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
- -----------------------------------------
SIGNATURES 18
Page 2
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
Sept. 29, Dec. 30,
2001 2000
(Unaudited) (Note A)
----------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 3,278,155 $ 1,305,362
Accounts receivable 4,253,469 3,088,069
Inventories 4,016,368 4,633,978
Prepaid expenses, taxes and other
current assets 178,624 133,711
----------- -----------
Total Current Assets 11,726,616 9,161,120
----------- -----------
Equity Investment in Affiliate 643,005 586,728
----------- -----------
Property, Plant and Equipment - at cost 30,852,132 31,314,896
Less: Accumulated depreciation 19,115,756 18,018,018
----------- ----------
Property, Plant and Equipment - Net 11,736,376 13,296,878
----------- ----------
Other Assets
Deferred income tax 758,600 933,000
Other 16,575 16,575
----------- -----------
Total Other Assets 775,175 949,575
----------- -----------
Total Assets $24,881,172 $23,994,301
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 1,178,571 $ 1,178,571
Accounts payable 3,335,431 1,897,308
Accrued salaries, wages and vacation pay 223,278 220,063
Income Taxes Payable 889 0
Other liabilities and accrued expenses 486,629 207,300
---------- ----------
Total Current Liabilities 5,224,798 3,503,242
Long-term Debt 4,357,143 5,241,071
Deferred Income Taxes 2,015,100 2,158,500
---------- ----------
Total Liabilities 11,597,041 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 8,363,611 8,170,968
---------- ----------
Total Shareholders' Equity 13,284,131 13,091,488
---------- ----------
Total Liabilities & Shareholders' Equity $24,881,172 $23,994,301
=========== ===========
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 3
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------- -----------------------
Sept. 29 Sept. 30 Sept. 29 Sept. 30
2001 2000 2001 2000
-------- -------- -------- --------
Net Sales $9,255,121 $ 9,278,855 $29,055,726 $30,793,806
- --------- ----------- ----------- ----------- -----------
Costs and Expenses
Cost of Sales 8,447,210 8,957,697 26,525,177 28,999,546
Selling, General and
Administrative Expenses 632,518 611,342 1,935,010 2,387,632
Factor's Charges 39,789 38,392 122,363 118,271
-------- -------- -------- --------
Total Costs and Expenses 9,119,517 9,607,431 28,582,550 31,505,449
---------- ---------- --------- ----------
Operating Earnings/(Loss) 135,604 (328,576) 473,176 (711,643)
-------- -------- -------- --------
Other Income
Interest Income 20,495 17,272 60,456 50,071
Gain (loss) on disposal of
property assets 0 0 (2,275) 31,874
Other, net 7,005 54,675 9,325 60,184
------- ------- ------- -------
Total 27,500 71,947 67,506 142,129
------- ------- ------- -------
Other Expenses
Interest Expense 83,872 151,143 307,311 448,374
Other, net (7,308) 31,927 27,095 99,262
------- ------- ------- -------
Total 76,564 183,070 334,406 547,636
------- ------- ------- -------
Income (loss) before Provision for
Income Taxes and Equity in Net
Earnings (Loss) of Affiliate 86,540 (439,699) 206,276 (1,117,150)
Provision/(Credit) for Income
Taxes 18,923 (141,030) 69,910 (392,210)
------- ------- ------ -------
Net Income/(Loss) before Equity
in Net Earnings of Affiliate 67,617 (298,669) 136,366 (724,940)
Equity in Net Earnings (Losses)
of Affiliate 17,778 51,200 56,277 223,700
------- ------- ------- -------
Net Income (Loss) 85,395 (247,469) 192,643 (501,240)
Retained Earnings at Beginning
of Period 8,278,216 8,767,216 8,170,968 9,020,987
--------- --------- --------- ---------
Retained Earnings at End
of Period $8,363,611 $8,519,747 $8,363,611 $8,519,747
========== ========== ========== ==========
Earnings (Loss) Per Share $ .03 $ (.09) $ .07 $ (.18)
========== ========== ========== ===========
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. 29, Sept. 30,
2001 2000
---- ----
Cash flows from operating activities:
Net Income (Loss) $ 192,643 $ (501,240)
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 1,686,525 1,774,602
Provision for deferred income taxes 31,000 (392,210)
Equity in earnings of affiliate (56,277) (223,700)
Loss (gain) on disposal of
property assets 2,275 (31,874)
Changes in assets and liabilities:
Accounts receivable (1,165,400) (172,186)
Inventories 617,610 555,132
Prepaid expenses, taxes and other
current assets (44,913) 99,975
Other non-current assets 0 63,793
Accounts payable 1,438,123 (188,441)
Income taxes payable 889 ---
Accrued salaries, wages and
vacation pay 3,215 161,235
Other liabilities and accrued expenses 279,329 254,487
--------- ----------
Total Adjustments 2,792,376 1,900,813
--------- ----------
Net cash provided by operating activities 2,985,019 1,399,573
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (196,298) (605,547)
Proceeds from sale of equipment 68,000 64,500
--------- ---------
Net cash (used) by investing activities (128,298) (541,047)
--------- ---------
Cash flows from financing activities:
Principal payments of long-term debt (883,928) (848,215)
Proceeds from long-term bank note 0 1,000,000
--------- ---------
Net cash provided by
financing activities (883,928) 151,785
--------- ---------
Net increase (decrease) in cash and
cash equivalents 1,972,793 1,010,311
Cash and cash equivalents at
beginning of year 1,305,362 592,513
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF
THIRD QUARTER $3,278,155 $1,602,824
========== ==========
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 29,
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 thirty-nine weeks ended September 29, 2001 and September 30,
2000 was $307,000 and $448,000, respectively. The Company had a cash payment of
$12,000 for the thirty-nine weeks ending September 29, 2001 for income taxes
compared to no payments for the thirty-nine weeks ending September 30, 2000.
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.
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. 29, Dec. 30,
2001 2000
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $3,875,000 $2,152,000
Non-factored accounts
receivable............... 378,000 936,000
--------- ----------
$4,253,000 $3,088,000
========== ==========
NOTE 6 - INVENTORIES
- --------------------
Inventories are summarized as follows:
Sept. 29, Dec. 30,
2001 2000
---- ----
Finished and in process.... $2,590,000 $3,103,000
Raw materials.............. 1,098,000 1,136,000
Dyes and chemicals......... 212,000 277,000
Other...................... 116,000 118,000
--------- ---------
$4,016,000 $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.
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 September 29, 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 September 29, 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:
(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%.
Page 7
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 8 - LONG-TERM DEBT (cont.)
- -------------------------------
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 29, 2001 are as
follows:
Current portion $ 750,000
2002/2003 $ 750,000
2003/2004 750,000
2004/2005 750,000
2005/2006 250,000 2,500,000
--------- ---------
$3,250,000
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 September 29, 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 142,859 1,857,143
------- ---------
$2,285,714
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:
Sept. 29, Dec. 30,
2001 2000
---- ----
Deferred Tax Assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating loss carry forward 394,000 570,000
Inventory capitalization 4,800 5,500
Charitable contributions carryover 10,800 8,500
--------- ---------
$ 758,600 $ 933,000
========= =========
Page 8
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 9 - INCOME TAXES (contd.)
- ---------------------
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $1,990,500 $2,154,100
Undistributed earnings of foreign
affiliate, net of tax credit 24,600 4,400
--------- ---------
$2,015,100 $2,158,000
========== ==========
Thirty-Nine Weeks Ended
--------------------
Sept. 29, Sept. 30,
2001 2000
Provision (credit) for income taxes ---- ----
consists of:
Deferred $ 69,910 $ (392,210)
Federal --- ---
State --- ---
--------- ----------
$ 69,910 $ (392,210)
========= ==========
The net operating loss carryforward from a prior year is $1,022,000, expiring
2019/2020.
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 29, 2001 and September 30, 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
maturity date on the 21st to the 30th of the following month. At September 29,
2001, the Company had $3,875,000 due from its factor of which $3,006,000 matured
on October 19, 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.
Page 9
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 12 - COMMITMENTS (contd.)
- ---------------------
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) The company has committed to purchase $281,000 of machinery from Rieter ICBT
to be delivered approximately January 15, 2002. A 10% down payment of $28,000
has been made. $225,000 is payable 30 days after delivery. The remaining balance
of $28,000 is payable after successful commissioning.
e) 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.
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 $1,066,000 compared to $1,626,000 in 2000. Financial
information for Fytek is as follows:
STATEMENT OF INCOME
(In thousands of U.S. dollars)
(Unaudited)
3rd Quarter Nine Months
----------- ----------
2001 2000 2001 2000
---- ---- ---- ----
Net Sales $1,403 $2,232 $4,314 $6,744
Gross Profit 15 405 171 903
Income from continuing
operations 42 152 159 687
Income before taxes 42 152 159 687
Provision for income tax 6 50 46 240
------- ------ ------- -------
Net Income $ 36 $ 102 $ 113 $ 447
======= ====== ======= =======
Page 10
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
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. 30,
2001 2000
(Unaudited) (Audited)
----------- ---------
ASSETS
Current assets $3,355 $4,175
Non-current assets 185 166
----- -----
Total Assets $3,540 $4,341
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $2,081 $3,024
Non-current liabilities 0 0
----- -----
Total Liabilities $2,081 $3,024
Shareholders equity $1,459 $1,317
----- -----
Total Liabilities & Shareholders' Equity $3,540 $4,341
====== ======
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 thirty-nine weeks ended
September 29, 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 thirty-nine week periods ended
September 29, 2001, and September 30, 2000.
Page 11
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 Thirty-Nine Weeks
Ended Ended
-------------------- -------------------
Sept. 29 Sept. 30 Sept. 29 Sept. 30
2001 2000 2001 2000
---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 91.3 96.5 91.3 94.2
------ ------ ------ ------
Gross Profit 8.7 3.5 8.7 5.8
Selling, General, Administrative
and Factoring Costs 7.3 7.0 7.1 8.1
----- ----- ----- -----
Operating Earnings (Loss) 1.4 (3.5) 1.6 (2.3)
Interest Expense 0.9 1.6 1.0 1.4
Other (Income) - net (0.4) (0.4) (0.1) (0.1)
----- ----- ----- -----
Income (Loss) before
Income Taxes 0.9 (4.7) 0.7 (3.6)
Equity in Net Earnings
of Affiliate 0.2 0.5 0.2 0.7
Income Taxes (Credit) 0.2 (1.5) 0.2 (1.3)
----- ----- ----- -----
Net Income (Loss) 0.9% (2.7)% 0.7% (1.6)%
===== ====== ===== ======
THIRTEEN WEEKS ENDED SEPTEMBER 29, 2001
COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 30, 2000
Net Sales
- ---------
Net sales for the thirteen weeks ended September 29, 2001, decreased by 0.3% to
$9,255,000 compared to $9,279,000 for the third quarter of 2000. Pounds shipped
increased by 11.7% compared to 2000 while the average sales price per pound
decreased by 10.7%. The increase in pounds resulted from new customers and
programs. The decrease in average sales prices is the result of sales mix and
competitive pricing pressures caused by a weak textile economy.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the third quarter decreased by $510,000 or 6%.
Page 12
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Cost of Sales and Gross Margin (contd.)
- ------------------------------
Cost of material used increased by 2% while direct labor and overhead decreased
by 11% and 12% respectively.
Due to a minimal change in net sales and a 6% decrease in cost of sales, the
Company's gross margin improved to 8.7% compared to 3.5% in 2000.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses for the third quarter of 2001
increased by $21,000 or 3% compared to the third quarter of 2000.
Factor's Charges
- ----------------
Factor's charges as a percentage of sales was .4% for the third quarter of 2001
as compared to .4% of sales in 2000. There was no change in the factor's
agreement.
Interest Expense
- ----------------
Interest expense for the third quarter decreased $67,000 primarily due to lower
existing interest rates and a lower average long-term debt.
Interest Income
- ---------------
Interest income for the third quarter of 2001 was $20,000 compared to $17,000 in
2000.
Equity in Net Earnings of Affiliate
- ------------------------------------------
The Company recorded $18,000 as income from Fytek, S.A. De C.V., its joint
venture in Mexico, compared to $51,000 for the third quarter of 2000. The
Company's share of net earnings and losses is 50%. Fytek began operations in the
fourth quarter of 1997. Also see Note 13.
Income (Loss) before Provision for Income Taxes
- -----------------------------------------------
For the thirteen weeks ended September 29, 2001 the Company recorded an income
of $87,000 before provision for taxes and income from its Mexican affiliate,
compared to a loss before credit for income taxes and income from its Mexican
affiliate of $440,000 in 2000.
Provision (Credit) for Income Taxes
- ------------------------------------
The Company recorded a provision for income taxes of $19,000 for the third
quarter of 2001, compared to a credit of $141,000 in 2000 as a result of the
loss in the third quarter of 2000.
Page 13
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2001 COMPARED TO
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2000
2001 Compared to 2000
Net Sales
- ---------
Net sales for the thirty-nine weeks ended September 29, 2001, decreased by 5.6%
to $29,056,000 compared to $30,794,000 for the similar period of 2000. Pounds
shipped decreased by 1.1% compared to 2000. The decrease in net sales is due to
lower customer demand, primarily recorded in the first quarter of 2001.
Cost of Sales and Gross Margin
- ------------------------------
Cost of goods sold decreased by 8.5% on a net sales decrease of 5.6% and a
decrease of 1.1% on pounds shipped.
Material costs decreased by 3% while labor and overhead decreased by 16% and 15%
respectively. The net result of cost dropping to a greater extent than sales was
an improvement in the Company's gross profit percentages to 8.7% compared to
5.8% for the first nine months of 2000.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses decreased by $453,000 or 19.0%. The
decrease is primarily the result of $204,000 recorded to bad debt expense in the
first quarter of 2000, which did not re-occur in 2001, and to a favorable
difference in other salaries due to severance of $150,000 paid to the former
President in 2000.
Factor's Charges
- ----------------
Factor charges were 0.4% of net sales for the first nine months of 2001 and
2000. There was no change in the Company's factoring agreement.
Interest Expense
- ----------------
Interest expense decreased by $141,000 or 31.5% for the thirty-nine week period
primarily due to lower existing interest rates and a lower average long-term
debt.
Interest Income
- ---------------
Interest income for the thirty-nine week period increased by $10,000 due to an
increase in average funds invested.
Gain (Loss) on Disposal of Equipment
- ------------------------------------
The loss on disposal of equipment of $2,000 was due to the sale of old
equipment.
Page 14
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Equity in Net Earnings of Affiliate
- -----------------------------------
The Company recorded $56,300 and $223,700 for the thirty-nine week periods of
2001 and 2000 respectively 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 29, 2001, the Company recorded an
income on operations of $206,000 compared to a loss of $1,117,000 in 2000.
Provision (Credit) for Income Taxes
- -----------------------------------
The Company recorded a provision for income taxes of $70,000 for the thirty-nine
weeks of 2001, compared to a credit of $392,000 in the year 2000 resulting from
the loss 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. At September 29, 2001, the
Company had $3,875,000 due from its factor of which $3,006,000 matured on
October 19, 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 and under which the
Company may borrow up to $3,000,000 for the acquisition of production machinery.
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 September 29, 2001, aggregated $6,502,000
representing a working capital ratio of 2.2 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
September 29, 2001:
Cash, cash equivalents and receivables........... $7,532,000
Current liabilities.............................. 5,225,000
---------
Excess of quick assets over current liabilities... $2,307,000
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
Page 15
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
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 thirty-nine weeks of 2001, the Company acquired and made deposits on
new machinery and equipment of approximately $200,000 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 $100,000
which, together with the acquisitions and deposits on acquisitions incurred to
September 29, 2001, will aggregate an anticipated acquisition of new machinery
of approximately $300,000 in 2001. The Company plans to finance its capital from
cash provided from operations and bank financing.
The Company's cash and equivalents increased for the thirty-nine weeks ended
September 29, 2001, to $3,278,000 from $1,305,000 at December 30, 2000 primarily
as a result of improved cash flow from operations. See accompanying Statement of
Cash Flows.
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 sale 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 16
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
ended September 29, 2001.
Page 17
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: Ronald D. Nicholson /s
Date: November 12, 2001 ________________________
Ronald D. Nicholson
(VP, Finance)
(Principal Financial Director)
By: Thomas I. Nail /s
Date: November 12, 2001 _________________________
Thomas I. Nail
(President)
Page 18