UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 1, 1995
Commission File Number 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0506342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
191 Sterling Street, N.W.
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
(704) 874-2261
(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 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 August 11, 1995,
there were outstanding 2,741,168 shares of the issuer's only class of common
stock.
BURKE MILLS, INC.
INDEX
Page Number
Part I - FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Balance Sheets
July 1, 1995 and December 31, 1994 3
Condensed Statements of Operations and Retained Earnings
Thirteen Weeks Ended July 1, 1995 and July 2, 1994 and
Twenty-Six Weeks Ended July 1, 1995 and July 2, 1994 4
Statements of Cash Flows
Twenty-Six Weeks Ended July 1, 1995 and July 2, 1994 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 20
Item 6(a) - Financial Data Schedule 21
SIGNATURES
PART I - FINANCIAL INFORMATION
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
July 1, December 31,
1995 1994
------------- ------------
(Unaudited) (Note A)
ASSETS
Current Assets
Cash and cash equivalents $ 856,824 $ 1,833,989
Accounts receivable 3,994,080 3,292,156
Inventories 2,582,764 2,924,194
Prepaid expenses and other current assets 226,539 187,952
Deferred income taxes 575,700 575,700
------------- ------------
Total Current Assets 8,235,907 8,813,991
------------- ------------
Property, Plant and Equipment - at cost 24,380,583 19,052,402
Less: Accumulated depreciation 11,664,693 11,244,950
------------- ------------
Property, Plant and Equipment - Net 12,715,890 7,807,452
------------- ------------
$20,951,797 $16,621,443
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 848,842 $ 816,121
Accounts payable 1,446,761 913,276
Income taxes payable - 581,267
Accrued salaries, wages and vacation pay 433,991 370,673
Other liabilities and accrued expenses 279,005 262,498
------------- -----------
Total Current Liabilities 8,903,098 5,337,611
------------- -----------
Long-Term Debt 4,495,499 994,776
Deferred Income Taxes 1,399,000 1,399,000
------------- -----------
Total Liabilities 8,903,098 5,337,611
------------- -----------
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 7,128,179 6,363,312
------------ -----------
Total Shareholders' Equity 12,048,699 11,283,832
------------ -----------
$20,951,797 $16,621,443
Note A: The December 31, 1994 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.
[FN]
See notes to condensed financial statements.
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
---------- ---------- ----------- -----------
Net Sales $8,585,745 $9,075,296 $18,130,716 $17,862,532
---------- ---------- ----------- -----------
Costs and Expenses
Cost of sales 7,487,800 7,779,165 15,852,031 15,351,453
Selling, general and administrative
expenses 427,968 342,656 888,224 711,747
Factor's charges 37,356 59,358 93,449 113,434
---------- --------- ---------- -----------
Total Costs and Expenses 7,953,124 8,181,179 16,833,704 16,176,634
---------- --------- ---------- -----------
Operating Earnings 632,621 894,117 1,297,012 1,685,898
---------- --------- ---------- -----------
Other Income
Interest income 25,101 20,361 51,129 35,784
Gain on sale of property assets - 7,680 - 7,680
Other, net 1,006 1,126 4,888 3,074
---------- --------- ---------- -----------
Total 26,107 29,167 56,017 46,538
---------- --------- ---------- -----------
Other Expenses
Interest expense 52,382 40,346 96,618 80,375
Loss on disposal of property assets 112 - 112 -
---------- --------- ---------- -----------
Total 52,494 40,346 96,730 80,375
---------- --------- ---------- -----------
Income Before Provision for Income Taxes 606,234 882,938 1,256,299 1,652,061
Provision for Income Taxes (Credit) (Note 7) 237,132 (6,600) 491,432 297,600
---------- --------- ---------- -----------
Net Income 369,102 889,538 764,867 1,354,461
Retained Earnings at Beginning of Period 6,759,077 4,319,227 6,363,312 3,854,304
---------- --------- ---------- -----------
Retained Earnings at End of Period $7,128,179 $5,208,765 $7,128,179 $5,208,765
========== ========== ========== ===========
Earnings Per Share $ .14 $ .32 $ .28 $ .49
========== ========== ========== ===========
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
========== ========== ========== ===========
<FN>
See notes to condensed financial statements.
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
July 1, July 2,
1995 1994
---------- -----------
Cash flows from operating activities:
Net income $ 764,867 $1,354,461
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 528,741 473,506
(Gain) loss on disposal of property assets 112 (7,680)
(Increase) in deferred income taxes - (62,600)
Changes in assets and liablities:
(Increase) in accounts receivable (701,924) (1,614,519)
(Increase) decrease in inventories 341,430 (479,656)
(Increase) in prepaid expenses and
other current assets (38,587) (73,991)
Increase in accounts payable 533,485 524,265
(Decrease) in income taxes payable (581,267) (31,650)
Increase in accrued salaries, wages and vacation pay 63,318 179,966
Increase (decrease) in other liabilities and
accrued expenses 16,507 (81,296)
---------- ----------
Total Adjustments 161,815 (1,173,655)
---------- ----------
Net cash provided by operating activities 926,682 180,806
---------- ----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (5,437,291) (464,896)
Proceeds from sale of property assets - 7,680
---------- ----------
Net cash (used) by investing activities (5,437,291) (457,216)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term bank note 3,930,104 -
Principal payments of long-term debt (396,660) (436,457)
---------- ----------
Net cash provided (used) by financing activities 3,533,444 (436,457)
---------- ----------
Net(decrease) in cash and cash equivalents (977,165) (712,867)
Cash and cash equivalents at beginning of year 1,833,989 1,903,731
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
SECOND QUARTER $ 856,824 $1,190,864
========== ==========
<FN>
See notes to condensed financial statements.
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL INFORMATION
a. The accompanying unaudited condensed balance sheet as of July 1,
1995, and the related condensed statements of operations and retained
earnings for the thirteen and twenty-six week periods ended July 1, 1995
and July 2, 1994, and cash flows for the twenty-six week periods ended
July 1, 1995 and July 2, 1994, are unaudited; in the opinion of
management, all adjustments necessary for a fair presentation of these
financial statements have been included. Such adjustments consisted
only of normal recurring items. Operating results for the twenty-six
weeks ended July 1, 1995 are not necessarily indicative of results that
may be expected for the year ended December 30, 1995.
The unaudited condensed financial statements and notes are presented
as permitted by the instructions to Form 10-Q and Article 10 of
Regulation SX and do not contain certain information included in the
Company's annual financial statements and notes thereto. The accounting
policies followed by the Company are set forth in Note 1 to the Company's
financial statements in the 1994 Burke Mills, Inc. Annual Report which is
incorporated by reference on Form 10-K.
b. 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. Matured funds on deposit with
the factor earn interest at the prime rate less 1.5%.
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 twenty-six weeks ended July 1, 1995 and July 2,
1994 was $92,572 and $80,641, respectively. Income taxes paid for the
twenty-six weeks ended July 1, 1995 and July 2, 1994 aggregated
$1,080,668 and $391,850, respectively.
NOTE 2 - OPERATIONS OF THE COMPANY
The Company is engaged in the twisting, texturing, winding, dyeing,
processing and selling of filament, novelty and spun yarns and in the
dyeing and processing of these yarns for others on a commission basis.
The Company's fiscal year is the 52 or 53 week period ending on the
Saturday nearest to December 31. Its fiscal quarters also end on the
Saturday nearest to the end of the calendar quarter.
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 3 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
July 1, December 31,
1995 1994
---------- ------------
Cash........................................... $ 207,444 $ 5,162
Commercial money market investment in bank..... 6,803 1,818,064
Matured funds on deposit with factor........... 642,577 10,763
---------- ----------
$ 856,824 $1,833,989
========== ==========
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
July 1, December 31,
1995 1994
---------- ------------
Account current - factor:
Due from factor on regular factoring account.. $3,836,916 $3,063,406
Non-factored accounts receivable................ 157,164 228,750
---------- ----------
$3,994,080 $3,292,156
========== ==========
NOTE 5 - INVENTORIES
Inventories are summarized as follows:
July 1, December 31,
1995 1994
---------- ------------
Finished and in process......................... $1,648,918 $1,940,711
Raw materials................................... 304,236 490,096
Dyes and chemicals.............................. 486,438 318,289
Other........................................... 143,172 175,098
---------- ----------
$2,582,764 $2,924,194
========== ==========
NOTE 6 - LONG-TERM DEBT
Long-term debt is comprised of:
July 1, December 31,
1995 1994
---------- ------------
Note payable to bank (a)........................ $ 754,003 $1,063,868
Note payable to bank (b)........................ 511,854 598,649
Advance on note payable to bank (c)............. 4,078,484 148,380
---------- ------------
Total....................................... 5,344,341 1,810,897
Less: Current maturities................... 848,842 816,121
---------- ------------
Long-Term Debt.................................. $4,495,499 $ 994,776
========== ==========
(a) Pursuant to a promissory note, loan agreement and security agreement
dated June 27, 1990, the loan payable to the bank is secured by a first
lien deed of trust on all real property and a first lien deed of trust
and security interest on all machinery, equipment, and personal property
of the Company, excluding inventory and accounts receivable. Interest on
the note accrues at the bank's prime rate plus one-half percent.
Principal and interest payments aggregate $58,950, per month.
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 6 - LONG-TERM DEBT (Continued)
The loan agreement, as amended, contains various restrictive
covenants, as defined, which include among other things, maintenance of a
minimum tangible net worth, a minimum quick ratio, a maximum debt to tangible
net worth ratio, a restriction on fixed asset additions above a stated amount
annually, and a restriction on the retirement or acquisition of outstanding
capital stock.
(b) On June 26, 1992, the Company received a loan commitment and
agreement from First Union National Bank for a term loan of $900,000 which
was drawn by the Company in March 1993. The loan is secured by a first lien
position on twisting and texturing equipment purchased and a second lien
position on existing machinery and equipment, plus all additions and
accessions now owned by borrower or hereafter acquired and all proceeds of
the foregoing. Interest on this loan accrues and is payable at the bank's
prime rate plus one-half percent, with the rate of interest to be subject to
an absolute interest cap of 10.88% per annum until final maturity of the
note. Principal and interest payments aggregate $18,900, per month.
(c) Effective September 1, 1994, the Company received a loan
commitment from its bank for an additional loan of $5,000,000 to finance the
acquisition by the Company of new machinery and equipment and to fund Letters
of Credit issued in connection with such acquisition. The new loan is to be
collateralized by a first lien position on the new machinery and equipment to
be purchased with the loan and a third lien position on all of the Company's
existing machinery and equipment, plus all additions, accessions and all
proceeds thereof owned or hereafter acquired, and a second Deed of Trust on
the Company's property. Interest on the loan accrues and is payable at the
prime rate of the bank. Pursuant to the loan agreement, promissory note and
security agreement, all covenants contained in loan agreements under
Note 6(a) and 6(b) above remain in effect except as modified in this new loan
agreement. Covenants include a debt service coverage ratio, a limit on
annual property asset acquisitions exclusive of property to be 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. Interest only on this obligation is payable until September
5, 1995. The Company and the bank have agreed that all three loan
obligations are to be consolidated into one new note obligation which will be
payable in level monthly installments based on a seven year repayment
schedule, including interest over a five year period beginning in the fourth
quarter of 1995, and a final balloon payment at the end of the five year
period.
The annual principal maturities of the long-term debt at July 1, 1995
are as follows:
Current portion............................................. $ 848,842
1996/1997....................................... $ 591,828
1997/1998....................................... 647,346
1998/1999....................................... 708,071
1999/2000....................................... 774,493
Balloon payment at end of the five year period 1,773,761 4,495,499
---------- ----------
$5,344,341
==========
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 7 - INCOME TAXES
Effective January 3, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes". Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to the adoption of Statement 109,
income tax expense was determined using the deferred method. Deferred tax
expense was based on items of income and expense that were reported in
different years in the financial statements and tax returns and were measured
at the tax rate in effect in the year the differences originated.
The items which comprise deferred tax assets and liabilities are as
follows:
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Accelerated depreciation $1,399,000
Alternative minimum taxes paid $417,800
Inventory capitalization for tax purposes 10,400
Investment tax and research and
development credits 147,500
-------- ----------
$575,700 $1,399,000
======== ==========
Provision for income taxes for the thirteen and twenty-six week periods ended
July 1, 1995 and July 2, 1994, has been provided based on the following:
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------- ------- ------- -------
Federal income taxes $206,120 $291,900 $427,142 $555,900
State income taxes, net
of Federal income
taxes 31,012 44,300 64,290 84,500
-------- -------- -------- --------
Total 237,132 336,200 491,432 640,400
Overaccrual of prior
period valuation
allowance on deferred
tax assets - (342,800) - (342,800)
-------- -------- -------- --------
Provision for income
taxes (credit) $237,132 ($ 6,600) $491,432 $297,600
======== ======== ======== ========
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 7 - INCOME TAXES (Continued)
At December 31, 1994 and July 1, 1995, the Company had tax credit carry-
forwards available for tax purposes as follows:
Investment Research and
Tax Development
Expiring In Credits Credits
----------- ------------
1995................................... $ 6,943 $ --
1996................................... 18,934 --
1997................................... 19,979 --
1998................................... 22,663 4,020
1999................................... 51,682 6,722
2000................................... 61,682 7,045
2001................................... -- 2,585
2002................................... -- 1,930
2004................................... -- 1,090
2005................................... -- 3,619
-------- --------
Total................................ $181,883 $ 27,011
======== ========
Pursuant to the Tax Reform Act of 1986, the amount of the investment tax
credit carryforward available as a credit against income tax is reduced by
35% of such carryforward tax credits used.
NOTE 8 - EMPLOYEE BENEFIT PLAN
The Company is a participating employer in the Burke Mills, Inc. Savings
and Retirement Plan and Trust which is 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. The salary reduction percentage must equal an increment
of 1%. The employer may make a matching contribution for each employee out
of current net profits or accumulated net profits (as defined), in an amount
the employer may from time to time deem advisable. The Company has made
provision in the accompanying financial statements for matching contributions
of $94,207 and $150,769 for the twenty-six weeks ended July 1, 1995 and July
2, 1994, respectively.
NOTE 9 - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of occasional temporary cash
investments, matured funds on deposit with the Company's factor 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 25th to the 30th of the following month, at which time
the amount due to the Company by the factor is transferred to matured funds
on deposit with factor. From time to time, the Company places its temporary
cash investments with its bank in short-term certificates. In addition to
its matured funds of $642,577 as of July 1, 1995, the Company had $3,836,916
due from its factor which matured in July 1995 and was transferred to matured
funds status. The Company utilizes its matured funds on a continuous basis
to replenish its cash in bank for the payment of materials, labor and
overhead, since the Company does not borrow funds for working capital
purposes.
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 10 - COMMITMENTS
At July 1, 1995, the Company was committed to its bank for $3,176,353
on import letters of credit to vendors covering machinery and equipment
purchased. Inasmuch as title to the machinery and equipment had passed to
the Company, the machinery and equipment has been included in property, plant
and equipmet as at July 1, 1995 and the obligation to the bank has been
included in notes payable. The $3,176,353 obligation is part of the
$5,000,000 commitment from the bank incurred to finance the acquisition of
new machinery and equipment to be purchased in 1995, as more fully set forth
in Note 6 to these Notes to Condensed Financial Statements. Payment to the
vendor on the letters of credit will be made starting on September 6, 1995
and will be completed in March of 1996.
NOTE 11 - 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 and
twenty-six week periods ended July 1, 1995 and July 2, 1994.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
---------------------
1995 Compared to 1994
---------------------
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 Twenty-Six Weeks Ended
-------------------- ----------------------
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.2 85.7 87.4 85.9
------- ------- ------- -------
Gross profit 12.8 14.3 12.6 14.1
Selling, general, administrative
and factoring charges 5.4 4.4 5.4 4.6
------- ------- ------- -------
Operating earnings 7.4 9.9 7.2 9.5
Interest expense 0.6 0.5 0.6 0.5
Other (income) - net (0.3) (0.3) (0.3) (0.3)
------- ------- ------- -------
Income before income taxes 7.1 9.7 6.9 9.3
Income taxes (credit) 2.8 (0.1) 2.7 1.7
------- ------- ------- -------
Net income 4.3% 9.8% 4.2% 7.6%
======= ======= ======= =======
THIRTEEN WEEKS ENDED JULY 1, 1995
COMPARED TO THIRTEEN WEEKS ENDED JULY 2, 1994
Net Sales
---------
Net sales for the thirteen weeks ended July 1, 1995, (the second
fiscal quarter), were $8,585,745, representing a 5.4% decrease compared to
the second quarter 1994 sales of $9,075,296. Pounds shipped for the second
fiscal quarter of 1995 decreased by 15.7%. Full yarn pounds shipped
decreased by 2.7%, while commission yarn (the dyeing and processing of
customer owned yarns) pounds shipped decreased by 43.9%. The decrease in
sales resulted from continued softness in demand in the home and automotive
upholstery segments of the Company's business.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
---------------------
1995 Compared to 1994
---------------------
Cost of Sales and Gross Margin
------------------------------
Cost of sales for the second quarter of 1994 decreased by $291,365, or
3.8%, as compared to the second quarter of 1994.
Material cost decreased by $120,854, or 2.6%, as compared to the second
quarter of 1994. The primary reason for the decrease in material cost was a
decrease in both full yarn and commission yarn pounds shipped as discussed
above.
Manufacturing labor decreased by $216,996, or 12.2%, as compared to the
second quarter of 1994. Although the Company granted an average wage
increase of 2 1/2 to 3% on January 2, 1995, the Company was able to control
its labor costs by increased labor efficiency, reduced reworks and a better
balance of production flow.
Manufacturing overhead increased by $46,485. In spite of increases in
employee benefits of $54,886 and in fixed expenses of $12,881 (primarily
depreciation), the Company was able to reduce controllable manufacturing
overhead so as to keep the increase in manufacturing overhead to 3.4%.
Gross margin for the second fiscal quarter of 1995 aggregated $1,097,945
as compared to $1,296,131, for the comparable quarter of 1994, representing
a decrease of $198,186. This decrease resulted from the reduction in sales
volume of $489,551 for the 1995 second quarter period compared to the like
period of 1994, but with a reduction in cost of sales of only $291,365. As
a result the gross profit percentage for the thirteen week period ended July
1, 1995 was 12.8% compared to 14.3% for the similar period of 1994.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses for the second quarter of
1995 increased by $85,312 compared to the 1994 second quarter. Selling,
general and administrative expenses represented 5.0% of net sales compared to
3.8% in 1994. The increase in these category of expenses were primarily
increases in salaries, fringe benefit costs, shareholders' informational
reports and professional fees.
Factor's Charges
----------------
Factor's charges for the second quarter of 1995 decreased by $22,002, or
37.1%, as compared to the second quarter of 1994. The decrease resulted from
a change in the rate paid to the Company's factor effective with the second
fiscal quarter of 1995 and to the reduction in sales volume. The ratio of
factored accounts versus nonfactored accounts for the second quarter of
1995, as compared to the similar quarter of 1994, remained approximately the
same.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
---------------------
1995 Compared to 1994
---------------------
Interest Expense
----------------
Interest expense for the second quarter of 1995 increased by $12,036, as
compared to 1994 primarily as a result of the Company's increase in long-term
debt. Interest expense for 1995 and 1994 resulted only from interest on the
Company's long-term debt.
Interest Income
---------------
Interest income for the second quarter of 1995 increased by $4,740 or
23.3%, as compared to the second quarter of 1993. The increase was due to a
higher average balance invested with the Company's factor and from the
increases in the prime rate in 1995 compared with the 1994 period.
Income Before Provision for Income Taxes
----------------------------------------
For the thirteen week period ended July 1, 1995, income before provision
for income taxes decreased by $276,704, or 31.3%, as compared to the similar
period of 1994.
The decrease was primarily due to a 5.4% decrease in sales volume, together
with a decreased gross profit percentage to 12.8% in the 1995 period compared
to 14.3% in the like period of 1994, and to increases in net operating
expenses.
Provision for Income Taxes
--------------------------
Provision for income taxes for the period ended July 2, 1994, was
materially impacted by the 1994 reduction in the valuation allowance on
deferred tax assets provided in the prior fiscal year. The following
represents a summary of the provision for taxes for the thirteen weeks ended
July 1, 1995 and July 2, 1994:
Thirteen Weeks Ended
--------------------
July 1, 1995 July 2, 1994
------------ ------------
Provision for Federal income taxes $206,120 $291,900
State income taxes, net of Federal
income tax 31,012 44,300
-------- --------
237,132 336,200
Less: Reduction in valuation allowance
on deferred tax assets
overaccrued in the prior year - 342,800
-------- --------
Tax provision (credit) $237,132 ($ 6,600)
======== ========
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
TWENTY-SIX WEEKS ENDED JULY 1, 1995
COMPARED TO TWENTY-SIX WEEKS ENDED JULY 2, 1994
Net Sales
---------
Net sales for the twenty-six weeks ended July 1, 1995, increased by
$268,184, or 1.5%, to an aggregate of $18,130,716 compared to $17,862,532 for
the like 1994 period. Total pounds shipped for the 1995 period decreased by
7.3%. Full yarn pounds shipped increased by 2.1%, while commission yarn
(the dyeing and processing of customer owned yarns) pounds shipped decreased
by 27.4%.
Cost of Sales and Gross Margin
------------------------------
Cost of sales for the twenty-six weeks of 1995 increased by $500,578, or
3.3%, as compared to the similar period of 1994.
Material cost increased by $342,253, or 3.7%, as compared to the like 1994
period. The primary reasons for the increase in material cost were an
increase in full yarn pounds shipped and to a continuation of increasing
prices for material and packaging supplies.
Manufacturing labor cost decreased by $127,051, representing a decrease of
3.7% as compared to the like period of 1994. This decrease occurred in spite
of a wage increase of approximately 2 1/2% to 3% granted January 2, 1995, as
a result of management's control of labor costs by increased labor
efficiency, reduced reworks and a better balance of production flow.
Manufacturing overhead increased by only $285,376, or 10.4%, primarily as
a result of increases in payroll taxes, workmen's compensation, employee
insurance costs, repairs and maintenance and depreciation.
Gross margin for the twenty-six weeks period ended July 1, 1995 was
$2,278,685, as compared to $2,511,079 for the similar period of 1994, a
decrease of $232,394, or 9.3%. The decrease was the result of an increase in
sales volume of 1.5%, with a corresponding increase in cost of sales of 3.3%.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses for the twenty-six weeks
ended July 1, 1995 increased by $176,477 compared to the similar period of
1994. These categories of expenses represented 4.9% of net sales compared to
4.0% in the like period of 1994. The increases in this category of expenses
were primarily in salaries and fringe benefit costs, shareholders'
informational reports and professional fees.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
TWENTY-SIX WEEKS ENDED JULY 1, 1995
COMPARED TO TWENTY-SIX WEEKS ENDED JULY 2, 1994
(Continued)
Results of Operations (Continued)
---------------------
Factor's charges
----------------
Factor's charges for the twenty-six weeks ended July 1, 1995 decreased by
$19,985, or 17.6%, as compared to the similar period of 1994. The decrease
resulted from a change in the rate paid to Company's factor effective with
the beginning of the second fiscal quarter of 1995.
Interest Expense
----------------
Interest expense for the twenty-six weeks ended July 1, 1995 aggregated
$96,618 compared to $80,375 for the like period of 1994. The increase in
interest costs in 1995 has resulted from the increase in long-term debt
incurred for the purpose of the acquisition of new machinery and equipment.
Interest Income
---------------
Interest income for the twenty-six week period of 1995 increased by
$15,345, or 42.9%, as compared to 1994. The increase was due to a higher
average balance invested with the Company's factor and an increase in the
prime rate as compared to the 1994 period.
Income Before Provision for Income Taxes
----------------------------------------
For the twenty-six week period ended July 1, 1995, income before provision
for income taxes decreased by $395,762, as compared to the similar period of
1994. The decrease was primarily due to a small 1.5% increase in sales
volume, a decrease in gross profit percentage to 12.6% in the 1995 period
compared to 14.1% in the like period of 1994 and to increases in selling,
general and administrative expenses.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
TWENTY-SIX WEEKS ENDED JULY 1, 1995
COMPARED TO TWENTY-SIX WEEKS ENDED JULY 2, 1994
(Continued)
Results of Operations (Continued)
---------------------
Provision for Income Taxes
--------------------------
Provision for income taxes for the six month period ended July 2, 1994,
was impacted by the 1994 reduction in the valuation allowance on deferred
tax assets provided in the prior fiscal year. The following represents an
analysis of the tax provision for the twenty-six week period ended July 1,
1995 and July 2, 1994:
Federal income taxes $427,142 $555,900
State income taxes, net of Federal
income tax 64,290 84,500
-------- --------
491,432 640,400
Less: Overaccrual of prior period
valuation allowance on
deferred tax assets - (342,800)
-------- --------
Tax provision $491,432 $297,600
======== ========
Subsequent Matters
------------------
Currently the outlook through the end of the third quarter remains
relatively weak. The Company anticipates demand in key market segments to
remain below 1994 levels through much of the third quarter. However, the
fourth quarter has the potential for improving demand as the Company's new
dyeing technology comes on stream.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
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. The Company has the
right to borrow from the factor up to 90% of the face amount of each account
sold to the factor, but the Company has not borrowed any funds from its
factor during the three year period ended December 31, 1994, and the fiscal
six month period ended July 1, 1995. As of July 1, 1995, the Company had
$4,479,493 due from its factor, of which amount $642,577 was in matured funds
held by the factor, and a net amount of $3,836,916 consisted of amounts due
from the factor on the regular factoring account with a maturity date in July
1995.
The Company's working capital at July 1, 1995 aggregated $5,227,308
representing a working capital ratio of 2.7 to 1 compared with a working
capital of $5,870,156 at December 31, 1994 and a working capital ratio of
3.0 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 July 1, 1995.
Cash, cash equivalents and receivables...................... $4,850,904
Current liabilities......................................... 3,008,599
----------
Excess of quick assets over current liabilities............. $1,842,305
==========
The Company believes that its cash, cash equivalents and receivables plus
internally generated funds and its credit arrangements will be sufficient to
finance its operations for the next 12 months.
The Company has acquired $5,437,291 of capital property assets during the
fiscal six month period ended July 1, 1995 and has drawn from its bank
$4,078,484 (including $148,380 drawn in 1994) against a $5,000,000 loan
commitment from its bank. The balance between acquisitions of property
assets and the $5,000,000 loan commitment is available to the Company.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (Continued)
-------------------------------
Inflation
---------
The results of operations of the Company for the periods discussed have
not been significantly affected by inflation.
Capital Expenditures
--------------------
The Company expects capital asset expenditures to be approximately
$650,000 over the next two fiscal quarters. These expenditures will be
financed with the Company's working capital. Accordingly, total property,
plant and equipment expenditures for 1995 will aggregate approximately
$6,100,000 against which the Company will have increased its long-term debt
by the new loan of $5,000,000 as more fully discussed in Note 6 of Notes to
Condensed Financial Statements.
PART II - OTHER INFORMATION
BURKE MILLS, INC.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - No report on Form 8-K has been filed
during the thirteen weeks ended July 1, 1995.
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: August 14, 1995 Richard F. Whisenant
Richard F. Whisenant
(President)
Date: August 14, 1995 S. Scott Womack
S. Scott Womack
(Vice-President-Finance and
Principal Accounting Officer)