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 April 3, 2004
[ ] 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___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No _X__
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 4, 2004, there were
outstanding 2,741,168 shares of the issuer's only class of common stock.
Page 1
BURKE MILLS, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
-----------
Item 1 - Financial Statements
-------
Condensed Balance Sheets 3
April 3, 2004 and January 3, 2004
Condensed Statements of Operations and
Retained Earnings 4
Thirteen Weeks Ended April 3, 2004
and March 29, 2003
Statements of Cash Flows 5
Thirteen Weeks Ended April 3, 2004
and March 29, 2003
Notes to Condensed Financial Statements 6
- ---------------------------------------------------------
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
- ---------------------------------------------------------
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 15
- ---------------------------------------------------------
Item 4 - Controls and Procedures 15
- -------------------------------------------------------
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities and Use of Proceeds, Use
of Proceeds and Issuer Purchases of Equity Securities 16
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security
Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
- ---------------------------------------------------------
SIGNATURES 16
EXHIBIT INDEX 17
EXHIBITS/CERTIFICATIONS 18-20
Page 2
BURKE MILLS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
April 3 January 3
2004 2004
(Unaudited) (Audited)
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ -0- $ 147,062
Accounts receivable 3,474,955 2,365,284
Inventories 2,072,242 1,880,477
Prepaid expenses and other current assets 135,434 52,633
---------- ----------
Total Current Assets 5,682,631 4,445,456
========== ==========
Equity Investment in Affiliate 255,000 553,180
--------- ----------
Property, plant & equipment - at cost 30,527,300 30,513,251
Less: accumulated depreciation 22,908,069 22,450,432
---------- ----------
Property, Plant and Equipment- Net 7,619,231 8,062,819
---------- ----------
Other Assets
Deferred income taxes 62,000 60,000
Other 16,575 16,575
---------- ----------
78,575 76,575
---------- ----------
Total Assets $13,635,437 $13,138,030
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft $ 50,885 $ -0-
Short-term debt - revolving bank line -0- 141,514
Accounts payable 1,991,165 871,695
Accrued salaries and wages 183,591 54,050
Other liabilities and accrued expenses 201,281 113,412
---------- ----------
Total Current Liabilities 2,426,922 1,180,671
Deferred Income Taxes 1,288,000 1,374,000
---------- ----------
Total Liabilities 3,714,922 2,554,671
---------- ----------
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 4,999,995 5,662,839
---------- ----------
Total Shareholders' Equity 9,920,515 10,583,359
---------- ----------
Total Liabilities & Shareholder's Equity $13,635,437 $13,138,030
=========== ===========
See notes to financial statements.
Page 3
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended
--------------------
April 3, March 29,
2004 2003
---- ----
Net Sales $6,600,614 $6,619,994
---------- ----------
Costs and Expenses
Cost of Sales 6,401,110 6,119,934
---------- ----------
Gross Profit 199,504 500,060
Selling, General and
Administrative Expenses 633,010 639,043
---------- ----------
Operating Loss (433,506) (162,974)
---------- ----------
Other Income
Interest Income 175 7,167
Other, net 80 16,802
---------- ----------
Total Other Income 255 23,969
---------- ----------
Other Expenses
Interest Expense 552 32,566
Other, net 12,580 -0-
---------- ----------
Total Other Expenses 13,132 32,566
---------- ----------
Loss Before Income Tax Benefit and
Equity in Net Loss of Affiliate (446,383) (171,571)
Income Tax Benefit (81,719) (53,038)
---------- ----------
Loss Before Equity in Net Loss
of Affiliate (364,664) (118,533)
Equity in Net Loss of Affiliate (298,180) -0-
---------- ----------
Net Loss (662,844) (118,533)
Retained Earnings at Beginning of Period 5,662,839 8,166,972
---------- ----------
Retained Earnings at End of Period $4,999,995 $8,048,438
========== ==========
Basic and Diluted Net Loss Per Share $ (0.24) $ (0.04)
========== ==========
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 4
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
-----------------------
April 3, March 29,
2004 2003
--------- ---------
Cash flows from operating activities
Net Loss $ (662,844) $ (118,533)
---------- ----------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 457,637 511,929
Allowance for mark-down inventory 25,200 -0-
Deferred income tax (88,000) -0-
Equity in affiliate 298,180 -0-
Changes in assets and liabilities:
Accounts receivable (1,109,671) (468,520)
Inventories (216,965) (710,582)
Prepaid expenses & other
current assets (82,801) (126,576)
Other non-current assets -0- (42,170)
Accounts payable 1,119,470 726,347
Accrued salaries & wages 129,541 73,643
Other liabilities and accrued expenses 87,869 98,874
--------- ---------
Total Adjustments 620,460 62,945
--------- ---------
Net cash used by operating activities (42,384) (55,588)
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (14,049) (60,936)
--------- ---------
Net cash used by investing activities (14,049) (60,936)
--------- ---------
Cash flows from financing activities:
Bank overdraft 50,885 -0-
Net payments to revolving credit line (141,514) -0-
Principal payments of long-term debt -0- (294,643)
--------- --------
Net cash used by financing activities (90,629) (294,643)
--------- --------
Net decrease in cash and cash equivalents (147,062) (411,167)
Cash and cash equivalents at beginning of year 147,062 4,191,173
--------- ----------
CASH AND EQUIVALENTS AT END OF FIRST QUARTER $ -0- $3,780,006
========== ==========
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 accounting principles generally accepted in the United States of
America 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 accounting principles generally accepted
in the United States of America 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 April 3, 2004 are not
necessarily indicative of the results that may be expected for the year ended
January 1, 2005. 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 3, 2004.
NOTE 2 - CASH AND CASH EQUIVALENTS
- ----------------------------------
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 April 3, 2004 and March 29, 2003 was $600 and $32,000 respectively. The
Company had no cash payments for the thirteen weeks ending April 3, 2004 and
March 29, 2003 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. Related shipping and handling costs are included in cost of sales.
NOTE 4 - USE OF ESTIMATES
- -------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates. Significant
estimates are the liability for self-funded health claims, inventory markdowns,
and the investment value of affiliates.
NOTE 5 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable are comprised of the following:
April 3, January 3,
2004 2004
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $2,433,000 $1,520,000
Non-factored accounts receivable... 1,042,000 845,000
--------- ----------
$3,475,000 $2,365,000
========== ==========
Page 6
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 5 - ACCOUNTS RECEIVABLE (continued)
- ----------------------------------------
Pursuant to a factoring agreement, the Company sells substantial portions of its
accounts receivable to a commercial factor without recourse, up to maximum
credit limits established by the factor for individual accounts. The factor
assumes the credit risks for these accounts and effects the collection of the
receivables. Amounts invoiced to customers on accounts receivable factored in
excess of the established maximum credit limits are sold to the factor with
recourse in the event of nonpayment by customers. The Company had accounts
receivables of $20,000 at April 3, 2004 that had been sold to the factor with
recourse. At January 3, 2004 there was $232,000 sold to the factor with
recourse.
The Company pays a service charge to its factor to cover credit checking,
assumption of credit risk, record keeping and similar services. In addition, if
the Company takes advances from its factor prior to the collection of the
receivables sold (as defined), it is required to pay interest to the factor on
these advances. The Company incurred only $552 in interest costs during the
first quarter of 2004.
The Company's factor is collateralized by the accounts receivable sold to the
factor, and the factor has filed a UCC-1 to evidence ownership of the
receivables and to separate the receivables from the Company's creditors.
NOTE 6 - INVENTORIES
- --------------------
Inventories are summarized as follows:
April 3, January 3,
2004 2004
---- ----
Finished & in process $1,186,000 $1,123,000
Raw materials 579,000 473,000
Dyes & chemicals 217,000 194,000
Other 90,000 90,000
---------- ----------
Total $2,072,000 $1,880,000
========== ==========
NOTE 7 - LINE OF CREDIT
- -----------------------
The Company has a revolving credit agreement with its factor. Under the
agreement the Company can borrow up to 90% of the face amount of each account
sold to the factor and up to 40%, or $1,000,000 (whichever is lesser) on
eligible inventory. The borrowing rate is LIBOR plus 2.5%. The average borrowing
rate for the first quarter was 3.61%. The factor holds a first lien position on
the Company's inventory. At the end of the quarter, there was no debt under the
line of credit.
The Company classified the revolving debt as a current liability on its balance
sheet.
NOTE 8 - LONG-TERM DEBT
- -----------------------
In the fourth quarter of 2003, the Company paid off its long-term debt. The
Company used its cash and a revolving loan (see Note 7).
Page 7
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 that comprise deferred tax assets and liabilities are as follows:
April 3, Jan. 3
2004 2004
---- ----
Deferred tax assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating loss carryover 731,000 530,000
Charitable contributions carryover 12,000 12,000
State Tax Credits 41,000 41,000
Other 3,000 3,000
Inventory 47,000 45,000
--------- ---------
Sub-Total 1,183,000 $ 980,000
Valuation Allowance (1,121,000) (920,000)
--------- ---------
Total $ 62,000 $ 60,000
========== =========
Deferred tax liabilities:
Accelerated depreciation for
tax purposes $1,287,000 $1,374,000
Other 1,000 -0-
--------- ---------
$1,288,000 $1,374,000
========== ==========
Thirteen Weeks Ended
-------------------
April 3 March 29,
Income tax benefit 2004 2003
---- ----
consists of:
Deferred $ (88,000) $ -0-
Federal -0- (49,400)
State -0- (3,700)
--------- ---------
$ (88,000) ($53,100)
========= =========
The net operating loss carryforward from a prior year is $889,000 expiring
2019/2022. The tax effect at the maximum tax rate is $302,300. The Company has
paid and has set forth $349,000 for alternative minimum taxes paid, which may
only be used to offset normal income taxes that may be incurred in future years.
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
periods ended April 3, 2004 and March 29, 2003.
Page 8
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 mature over
the next 60 days. At April 3, 2004 the Company had $2,433,000 due from its
factor of which $20,000 are with recourse. Upon maturity, the funds are
automatically transferred by the factor to the Company's bank.
NOTE 12 - COMMITMENTS
- ---------------------
a) 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 yarn prices increase or decrease by 5% or
more.
b) 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 report 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. The Company and its joint venture
partner, Teijin/Akra, voted on March 26, 2004 to close their joint venture,
Fytek. The joint venture will operate on a scaled down basis through June 2004.
The Company estimates that it will receive $255,000 cash distribution after
liquidation. The Company has written down the investment in affiliate by
$298,000 based on its estimate.
During the thirteen weeks, the Company had purchases from Fytek of $367,000
compared to $243,000 in 2003. Burke Mills does not guarantee any debt for its
joint venture, Fytek. Financial information for Fytek is as follows:
Page 9
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 13 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS (continued)
- ----------------------------------------------------------------
STATEMENT OF INCOME
(In thousands of U.S. dollars)
(Unaudited)
1st Quarter
-----------
2004 2003
---- ----
Net Sales $ 560 $ 649
Gross Profit (82) 32
Income from continuing
operations (106) 37
Income before taxes (106) 37
Provision (credit) for income tax 36 12
------- -------
Net Income $ (70) $ 25
======= =======
BALANCE SHEET
(In thousands of U.S. dollars)
March 31, March 31,
2004 2003
------ ------
ASSETS
Current assets $1,840 $2,269
Non-current assets 242 187
------ ------
Total Assets $2,082 $2,456
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 537 $ 607
Non-current liabilities 28 55
------- -------
Total Liabilities $ 565 $ 662
Shareholders equity $1,517 $1,794
------- -------
Total Liabilities & Shareholders' Equity $2,082 $2,456
======= =======
Page 10
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 14 - ACCOUNTING FOR POSSIBLE IMPAIRMENT OF LONG-LIVED ASSETS
- -----------------------------------------------------------------
Long-lived assets are evaluated for impairment when events or changes in
business circumstances indicate that the carrying amount of the assets may not
be fully recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of these assets
and its eventual disposition are less than its carrying amount. Impairment, if
any, is assessed using discounted cash flows.
In 2003 the Company wrote off equipment with a net book value of $268,000. With
the decrease in sales volume and no anticipated business increase in products
that will run on the machinery, the machinery was written off as a
non-performing asset. No salvage value has been assigned to the machinery, as
the Company has no potential buyer. There were no write offs necessary in the
first quarter of 2004.
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 April
3, 2004, and March 29, 2003.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
- -----------------
The Company's major market is packaged dyed yarn for home, contract, automotive
upholstery, and home furnishings. Although the Company continues to experience
imports of finished products that compete with its customers' products and an
excess capacity in the industry for packaged dyed yarns, sales for the first
quarter of 2004 were about the same as first quarter of 2003. In the first
quarter the Company began to dye fibers other than polyester, and believes the
diversification will help maintain and possibly increase sales in the future.
The diversification required only $7,500 in capital expenditures.
Polyester yarn is the Company's major raw material. In January 2004 two major
suppliers announced price increases. The Company has not yet received a price
increase from its suppliers, but believes it is a possibility that prices will
be raised in the second quarter of 2004. The Company will try to pass any price
increase to its customers, but with the competitive nature of the market there
is no assurance that all of the increase can be recovered.
Fytek, the Company's joint venture in Mexico, has experienced a decline in sales
for each of the last three years. On March 26, 2004, the Company and its joint
venture partner, Teijin/Akra, voted to close the Fytek operation. Fytek will
operate on a scaled down basis through June of 2004. Yarns from Fytek sold to
the Company will be produced by the Company and purchased domestically. The
joint venture partners have estimated the cost associated with the run out of
production and the net realizable value of the assets. Employee severance has
been estimated at $489,000 which can be reduced if the joint venture partner can
absorb the Fytek employees into its operation. These estimates have been used to
establish an estimated liquidation value, which the Company has used to write
down its investment in affiliate. Actual liquidation value could vary.
Page 11
BURKE MILLS INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
THIRTEEN WEEKS ENDED April 3, 2004
COMPARED TO THIRTEEN WEEKS ENDED March 29, 2003
Results of Operations
- ---------------------
2004 Compared to 2003
- ---------------------
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.
The following table sets forth operating data of the Company as a percentage of
net sales for the periods indicated below:
Thirteen Weeks Ended
----------------------
April 3 March 29,
2004 2003
------ ------
Net Sales 100.0% 100.0%
Cost of Sales 97.0 92.4
------ ------
Gross Profit 3.0 7.6
Selling, General, and Administrative Costs 9.6 10.1
------ ------
Operating Loss (6.6) (2.5)
Interest Expense (0.0) (0.5)
Other Expense (0.2) 0.4
------ ------
Loss before Income Taxes (6.8) (2.6)
Equity in Net Loss of Affiliate (4.5) -0-
Income Taxes (Credit) (1.2) (0.8)
------ ------
Net Loss (10.1) (1.8)%
====== ======
Net Sales
- ---------
Net sales for the thirteen weeks ended April 3, 2004 decreased by .3% to
$6,601,000 compared to $6,620,000 for the first quarter of 2003. Pounds shipped
decreased by 1.5% compared to 2003, while average sales prices increased by 2.3%
as a result of product mix.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the first quarter increased by $281,000 or 4.6% compared to
the first quarter of 2003. Material cost increased by $326,000 or 6.5% mainly as
a result of sales mix and a 2.2% increase in reworks. Direct labor increased by
$2,000 and overhead cost decreased by $47,000.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses decreased by $6,000 or .9%. The
Company will continue to maintain a strong sales effort.
Interest Expense
- ----------------
Interest expense was $600 for the first quarter of 2004 compared to $33,000 in
2003. The Company paid off its long-term debt in the fourth quarter of 2003 and
used its revolving credit line sparingly in the first quarter of 2004.
Page 12
BURKE MILLS INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Loss Before Provision for Taxes and Equity in Loss of Affiliate
- ---------------------------------------------------------------
For the thirteen weeks ended April 3, 2004 the Company recorded a loss of
($446,000). As discussed above the loss was primarily due to an increase in cost
of materials.
Equity in Net Loss of Affiliate
- -------------------------------
The Company and its joint venture partner, Teijin/Akra voted on March 26, 2004
to close their joint venture, Fytek. The joint venture will operate on a scaled
down basis through June 2004. The Company estimates that it will receive
$255,000 cash distribution after liquidation. The Company has written down the
investment in affiliate by $298,000 based on its estimate. Also see Note 13.
Credit for Income Taxes
- --------------------------
A credit of $289,000 was provided for the loss before taxes of $745,000, but was
partly offset as the Company recorded a valuation allowance of $201,000 for its
tax asset.
Critical Accounting Policies and Estimates
- ------------------------------------------
The preparation of financial statements, in accordance with accounting
principles generally accepted in the United States, requires management to make
assumptions and estimates that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses recognized
and incurred during the reporting period then ended. In addition, estimates
affect the determination of contingent assets and liabilities and their related
disclosure. The Company bases its estimates on a number of factors, including
historical information and other assumptions that it believes are reasonable
under the circumstances. Actual results may differ from these estimates in the
event there are changes in related conditions or assumptions. The development
and selection of the disclosed estimates have been discussed with the Audit
Committee of the Board of Directors. The following accounting policies are
deemed to be critical, as they require accounting estimates to be made based
upon matters that are highly uncertain at the time such estimates are made.
The Company is self-funded for its employee health claims. The health claims are
paid by the Company after review by the Company's third party administrator. The
Company's liability for health claims includes claims that the Company estimates
have been incurred, but not yet presented to the administrator. A historical
basis is used to establish the amount.
The Company reviews its inventory and when necessary establishes a markdown
allowance for obsolete and slow moving items. The markdown allowance is
determined by aging the inventory, reviewing the inventory with the salesmen,
and determining a salvage value.
The Company recorded a charge for impairment for Investment in Affiliate. The
charge for impairment was based on assumptions made by management of the
realizable value of the affiliates assets less the affiliates liabilities
compared to the value on the company's balance sheet.
Liquidity and Capital Resources
- -------------------------------
The Company has a line of credit with its factor for accounts receivable and
inventory. 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 April 3, 2004 the
Company had $2,433,000 due from its factor which should be collected over the
next 60 days. The Company has the right to borrow up to 90% of the face amount
of each account sold to the factor.
Page 13
BURKE MILLS INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
- ------------------------------------------
The inventory line of credit allows the Company to borrow 40% of the value of
the eligible inventory up to $1,000,000.
At April 3, 2004 the Company had no borrowing under the credit line. The unused
line of credit was approximately $2,647,000.
The Company's working capital at April 3, 2004, aggregated $3,256,000
representing a working capital ratio of 2.3 to 1 compared to a working capital
of $1,891,000 at January 3, 2004, and representing a working capital ratio of
1.74 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
April 3, 2004:
Cash, cash equivalents and receivables........... $3,475,000
Current liabilities.............................. 2,427,000
---------
Excess of quick assets over current liabilities.. $1,048,000
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.
During the thirteen weeks of 2004, the Company acquired new machinery and
equipment of approximately $14,000 as set forth in the accompanying Statement of
Cash Flows. For the balance of 2004, the Company anticipates the acquisition of
machinery and equipment of approximately $86,000 which together with the
acquisitions and deposits on acquisitions incurred to April 3, 2004 will
aggregate an anticipated acquisition of new machinery of approximately $100,000
in 2004. The Company plans to finance its capital from cash provided from
operations and bank financing.
The Company's cash and equivalents decreased for the thirteen weeks ended April
3, 2004 to zero from $147,000 at January 3, 2004. 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
Page 14
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Forward Looking Statements (continued)
- -------------------------------------
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.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
The Company has not purchased any instruments or entered into any arrangements
resulting in market risk to the Company for trading purposes or for purposes
other than trading purposes.
Item 4 - Controls and Procedures
- ---------------------------------
As of the end of the fiscal quarter covered by this report, the Company's
management, with the participation of the Company's chief executive officer and
chief financial officer, carried out an evaluation of the effectiveness of the
Company's disclosure controls and procedure. The term "disclosure controls and
procedures" means the controls and other procedures of the Company that are
designed to insure that information required to be disclosed by the Company in
its reports to the Securities and Exchange Commission ("SEC") is recorded,
processed, summarized and reported, within the time period specified in the
rules and forms of the SEC. Disclosure controls and procedures include, without
limitation, controls and procedures designed to insure that information required
to be disclosed by the Company in the reports that it files or submits to the
SEC under the Securities Exchange Act of 1934 is accumulated and communicated to
the Company's management, including its chief executive officer and its chief
financial officer as appropriate, to allow timely decisions regarding required
disclosure. Based upon that evaluation, the Company's management, with the
participation of the Company's chief executive officer and chief financial
officer, concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
reports filed with the SEC by the Company. There has been no significant change
in the Company's internal controls over financial reporting during the fiscal
quarter covered by this report that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Page 15
BURKE MILLS, INC.PART II - OTHER INFORMATION
Item 1 - Legal Proceedings. No report required.
Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities. No report required.
Item 3 - Defaults Upon Senior Securities. No report required.
Item 4 - Submission of Matters to a Vote of Security Holders. No matter has been
submitted to a vote of security holders during the period covered by this
report.
Item 5 - Other Information. No report.
Item 6 - Exhibits and Reports on Form 8-K
(a) The exhibits required by Item 601 of Regulation SK are attached to
this report or incorporated by reference from prior filings.
(b) Reports on Form 8-K - No report on Form 8-K has been filed during
the thirteen weeks ended April 3, 2004.
BURKE MILLS, INC.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: May 17, 2004 BURKE MILLS, INC.
By: s/Humayun N. Shaikh
----------------------
Humayun N. Shaikh,
Chairman of the Board
(Principal Executive Officer)
Date: May 17, 2004 By: s/Thomas I. Nail
-----------------------
Thomas I. Nail
President and COO
(Principal Financial Officer)
Page 16
BURKE MILLS, INC.
EXHIBIT INDEX
Exhibit
Number Description
3(i) Articles of Incorporation - incorporated by reference as a part
of a registration statement on Form S-1 filed with the Securities
and Exchange Commission in 1969.
3(ii) By-Laws - incorporated by reference as a part of a registration
statement on Form S-1 filed with the Securities and Exchange
Commission in 1969.
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
Page 17
EXHIBIT 31
RULE 13(a)-14(a) CERTIFICATIONS
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Humayun N. Shaikh, certify that:
I have reviewed this quarterly report on Form 10-Q of Burke Mills,
Inc.;
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
s/Humayun N. Shaikh
Date: May 17, 2004 ---------------------------
Humayun N. Shaikh
Chairman and CEO
(Principal Executive Officer)
Page 18
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Thomas I. Nail, certify that:
I have reviewed this quarterly report on Form 10-Q of Burke Mills,
Inc.;
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
s/Thomas I. Nail
Date: May 17, 2004 ---------------------------
Thomas I. Nail
President and COO
(Principal Financial Officer)
Page 19
EXHIBIT 32
SECTION 1350 CERTIFICATIONS
CERTIFICATION PURSUANT TO 18 U.S. CODE SECTION 1350
The undersigned Chief Executive Officer of Burke Mills, Inc., (the "Issuer")
hereby certifies that the foregoing periodic report containing financial
statements of the Issuer fully complies with the requirements of sections 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 USC 78m or 78o(d)) and that
the information contained in the foregoing report fairly presents, in all
material respects, the financial condition and results of operations of the
Issuer.
s/Humayun N. Shaikh
Date: May 17, 2004 ---------------------------
Humayun N. Shaikh
Chairman and CEO
CERTIFICATION PURSUANT TO 18 U.S. CODE SECTION 1350
The undersigned Chief Financial Officer of Burke Mills, Inc., (the "Issuer")
hereby certifies that the foregoing periodic report containing financial
statements of the Issuer fully complies with the requirements of sections 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 USC 78m or 78o(d)) and that
the information contained in the foregoing report fairly presents, in all
material respects, the financial condition and results of operations of the
Issuer.
s/Thomas I. Nail
Date: May 17, 2004 ---------------------------
Thomas I. Nail
President and COO
(Chief Financial Officer)
Page 20