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 JUNE 29, 1996
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 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 August 2,
1996, 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
June 29, 1996 and December 30, 1995 3
Condensed Statements of Operations and Retained Earnings
Thirteen Weeks Ended June 29, 1996 and July 1, 1995 and
Twenty-Six Weeks Ended June 29, 1996 and July 1, 1995 4
Statements of Cash Flows
Twenty-Six Weeks Ended June 29, 1996 and July 1, 1995 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 19
Item 6(a) - Exhibit 27 - Financial Data Schedule 20
SIGNATURES 21
PART I - FINANCIAL INFORMATION
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
June 29, December 30,
1996 1995
-------- ------------
(Unaudited) (Note A)
ASSETS
Current Assets
Cash and cash equivalents $ 358 $ 834,833
Accounts receivable 4,255,865 2,974,101
Inventories 3,123,697 2,869,939
Prepaid expenses and other current assets 314,877 92,667
Prepaid and refundable income taxes 386,474 289,846
Deferred income taxes 845,100 579,600
----------- -----------
Total Current Assets 8,926,371 7,640,986
----------- -----------
Property, Plant and Equipment - at cost 26,036,860 25,186,871
Less: Accumulated depreciation 12,798,305 12,059,241
----------- -----------
Property, Plant and Equipment - Net 13,238,555 13,127,630
----------- -----------
$22,164,926 $20,768,616
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ - $ 215,990
Accounts payable 1,692,269 1,508,476
Accrued salaries, wages and vacation pay 177,415 123,637
Other liabilities and accrued expenses 323,189 323,052
----------- -----------
Total Current Liabilities 2,192,873 2,171,155
Long-Term Debt 6,000,000 4,963,688
Deferred Income Taxes 1,758,500 1,405,700
----------- -----------
Total Liabilities 9,951,373 8,540,543
----------- -----------
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 7,293,033 7,307,553
----------- -----------
Total Shareholders' Equity 12,213,553 12,228,073
----------- -----------
$22,164,926 $20,768,616
=========== ===========
Note A: The December 30, 1995 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
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net Sales $10,304,285 $ 8,585,745 $20,208,867 $18,130,716
----------- ----------- ----------- -----------
Costs and Expenses
Cost of sales 9,519,356 7,487,800 18,734,063 15,852,031
Selling, general and administrative
expenses 572,933 427,968 1,163,905 888,224
Factor's charges 47,758 37,356 93,430 93,449
----------- ----------- ----------- -----------
Total Costs and Expenses 10,140,047 7,953,124 19,991,398 16,833,704
----------- ----------- ----------- -----------
Operating Earnings 164,238 632,621 217,469 1,297,012
----------- ----------- ----------- -----------
Other Income
Interest income 4,738 25,101 7,649 51,129
Other, net 1,065 1,006 2,120 4,888
----------- ----------- ----------- -----------
Total 5,803 26,107 9,769 56,017
----------- ----------- ----------- -----------
Other Expenses
Interest expense 127,422 52,382 251,087 96,618
Loss on disposal of property assets - 112 - 112
----------- ----------- ----------- -----------
Total 127,422 52,494 251,087 96,730
----------- ----------- ----------- -----------
Income (loss)Before Provision for
Income Taxes 42,619 606,234 (23,849) 1,256,299
Provision for Income Taxes (credit) 16,660 237,132 (9,329) 491,432
----------- ----------- ----------- -----------
Net Income(loss) 25,959 369,102 (14,520) 764,867
Retained Earnings at Beginning of Period 7,267,074 6,759,077 7,307,553 6,363,312
----------- ----------- ----------- -----------
Retained Earnings at End of Period $ 7,293,033 $ 7,128,179 $ 7,293,033 $ 7,128,179
=========== =========== =========== ===========
Earnings (loss) Per Share $ .01 $ .14 $ (.01) $ .28
=========== =========== =========== ===========
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
June 29, July 1,
1996 1995
----------- -----------
Cash flows from operating activities:
Net income \ Loss $ (14,520) $ 764,867
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 740,531 528,741
Loss on disposal of property assets - 112
Increase in deferred income taxes 87,300 -
Changes in assets and liabilities:
(Increase) in accounts receivable (1,281,764) ( 701,924)
(Increase) decrease in inventories (253,758) 341,430
(Increase) in prepaid expenses and
other current assets (222,210) (38,587)
(Increase) in Prepaid and refundable Income Taxes (96,628) -
Increase in accounts payable 183,793 533,485
(Decrease) in income taxes payable - (581,267)
Increase in accrued salaries, wages and vacation pay 53,778 63,318
Increase in other liabilities and
accrued expenses 137 16,507
----------- -----------
Total Adjustments (788,821) 161,815
----------- -----------
Net cash provided (used) by operating activities (803,341) 926,682
----------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (851,456) (5,437,291)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term bank note 1,670,663 3,930,104
Principal payments of long-term debt (850,341) (396,660)
----------- -----------
Net cash provided (used) by financing activities 820,322 3,533,444
----------- -----------
Net (decrease) in cash and cash equivalents (834,475) (977,165)
Cash and cash equivalents at beginning of year 834,833 1,833,989
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
SECOND QUARTER $ 358 $ 856,824
=========== ===========
[FN]
See notes to condensed financial statements.
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 of the principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the twenty-six week period ended June 29, 1996
are not necessarily indicative of the results that may be expected for
the year ended December 28, 1996. 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, 1995.
NOTE 2 - STATEMENTS OF CASH FLOWS
For the purposes of 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.
NOTE 3 - 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 4 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
June 29, December 30,
1996 1995
---------- ------------
Cash............................................... $ 300 $ 49,259
Commercial money market investment in bank......... - 785,574
Matured funds on deposit with factor............... 58 -
-------- ------------
$ 358 $ 834,833
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
June 29, December 30,
1996 1995
---------- ------------
Account current - factor:
Due from factor on regular factoring account.... $3,666,620 $2,808,790
Non-factored accounts receivable.................. 589,245 165,311
---------- ------------
$4,255,865 $2,974,101
========== ============
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
June 29, December 30,
1996 1995
---------- ------------
Finished and in process......................... $1,736,808 $1,918,400
Raw materials..................................... 793,451 447,691
Dyes and chemicals................................ 471,361 378,528
Other............................................. 122,077 125,320
---------- ------------
$3,123,697 $2,869,939
========== ============
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 7 - LONG-TERM DEBT
In September 1994, and during 1995 and early 1996, the Company received
loan commitments from its bank to consolidate two existing loans and
new borrowings into one new note obligation of up to $ 6,000,000 to
finance the acquisition by the Company of new machinery and equipment
and to fund Letters of Credit issued in connection with such
acquisition . Among other things, 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, a minimum quick
ratio, and a maximum debt to tangible net worth ratio.
Additionally, this new loan will term out and refinance the two
existing term loans, and accordingly, all term obligations are to be
consolidated into this one $6,000,00 obligation. This new loan is to
be 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 new loan agreement, interest only will be payable monthly
until February , 1998. Thereafter, principal maturities will be payable
in the amount of $62,500 per month for ninety-six consecutive months
plus interest at the fixed rate of 8.06%. In order to effect this fixed
interest rate, the bank will convert its interest rate cap into a fixed
rate loan by entering into a fixed rate hedge contract with the Company.
Under this fixed rate hedge contract, the Company will pay the bank
8.06% for the term of the contract. In return, the bank will pay the
Company LIBOR plus 2.0%. This floating rate (LIBOR plus 1.9%) that the
Company will pay the bank will be equal to the floating rate that the
bank's capital markets will pay to the Company. Whether LIBOR RATES
rise or fall over the life of the loan agreement, the Company will
continue to pay the bank a fixed rate of 8.06% for the life of the
contract, thereby creating a fixed rate loan.
The annual principal maturities of the long-term debt at June 29, 1996 are
as follows:
Current portion $ -
1997/1998 $ 312,500
1998/1999 750,000
1999/2000 750,000
2000/2001 750,000
Thereafter 3,437,500 6,000,000
---------- ----------
$6,000,000
----------
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 8- 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 at
June 29, 1996, are as follows:
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Tax loss carry-forward $284,100
Accelerated depreciation - $1,758,500
Alternative minimum taxes paid 554,200 -
Inventory capitalization for tax purposes 6,800 -
------------ ------------
$845,100 $1,758,500
============ ============
Thirteen Weeks Ended Twenty-Six Weeks Ended
-----------------------------------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-----------------------------------------------
Income Taxes (credit)
consist of:
Federal income taxes $ 13,357 $206,120 $ (7,481) $427,142
State income taxes 3,303 31,012 (1,848) 64,290
-----------------------------------------------
Total $ 16,660 $237,132 $ (9,329) $491,432
===============================================
===============================================
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 9 - 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 for the twenty-six weeks ended July 1, 1995. There was no
provision made for matching contributions in the period ended June 29,
1996.
NOTE 10 - 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 $ 58 as of June 29, 1996, the Company had $ 3,666,620 due from
its factor which matured in July 1996 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.
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 June 29, 1996 and July 1,
1995.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
1996 Compared to 1995
- ---------------------
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
-------------------- ----------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- ------- -------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 92.4 87.2 92.7 87.4
-------- ------- -------- -------
Gross profit 7.6 12.8 7.3 12.6
Selling, general, administrative
and factoring charges 6.0 5.4 6.2 5.4
-------- ------- -------- -------
Operating earnings 1.6 7.4 1.1 7.2
Interest expense 1.2 0.6 1.3 0.6
Other (income) - net - (0.3) (0.3) (0.3)
-------- ------- -------- -------
Income (loss) before income taxes 0.4 7.1 (0.1) 6.9
Income taxes 0.2 2.8 (0.1) 2.7
-------- ------- -------- -------
Net income (loss) 0.2% 4.3% (0.1)% 4.2%
THIRTEEN WEEKS ENDED JUNE 29, 1996
COMPARED TO THIRTEEN WEEKS ENDED JULY 1, 1995
Net Sales
- ---------
Net sales for the thirteen weeks ended June 29, 1996, (the second
fiscal quarter), were $ 10,304,285 , representing a 20.0 % increase
compared to the second quarter 1995 sales of $ 8,585,745. Pounds
shipped for the second fiscal quarter of 1996 increased by 24.5 %.
Full yarn pounds shipped increased by 37.7 %, while commission yarn
(the dyeing and processing of customer owned yarns) pounds shipped
decreased by 13.6 %. The increase in revenues resulted from an
increase in pounds of 24.5 % compared to the second quarter 1995,
increased yarn costs, and the continued increase in full yarn sales
versus commission dyeing.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
- ---------------------
1996 Compared to 1995
- ---------------------
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirteen weeks ended June 29, 1996 increased
by 27.1 % with a corresponding sales increase of only 20.0 %. The
resulting impact on gross margins was to decline to 7.6 % compared to
12.8 % for the second quarter of 1995. Key factors contributing to
the lower margins were the changes in the product mix, increased
operating costs, above normal rework costs and increased raw
material costs.
The company has experienced over the past several quarters an
increased demand for dyed set polyester and a decreased demand for
dyed spun products. This shift toward increased set polyester is
primarily due to the continued cost pressures in the automotive and
home upholstery sectors of the weaving industry. Set polyester is a
commodity product and therefore dictates lower selling prices and
lower margins.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, administrative and factoring expenses for the
second quarter of 1996 increased by $ 155,367 compared to the 1995
second quarter. Selling, general and administrative expenses
represented 5.4 % of net sales compared to 5.0% in 1995. 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 1996 increased by
$10,402, or 27.8 %, as compared to the second quarter of 1995.
The increase resulted from the increased sales volume. The ratio
of factored accounts versus nonfactored accounts for the second
quarter of 1996, as compared to the similar quarter of 1995,
remained approximately the same.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
- ---------------------
1996 Compared to 1995
- ---------------------
Interest Expense
- ----------------
Interest expense for the second quarter of 1996 increased by
$ 75,040 , as compared to 1995 primarily as a result of the Company's
increase in long-term debt. Interest expense for 1996 and 1995
resulted primarily from interest on the Company's long-term debt. The
increased long-term debt was a result of the 1995 dyeing expansion.
Interest Income
- ---------------
Interest income for the second quarter of 1996 decreased by
$ 20,363, as compared to the second quarter of 1995. The decrease was
due to a lower average matured funds balance maintained with the
Company's factor.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirteen week period ended June 29, 1996, income before
provision for income taxes decreased by $ 563,615 , or 93.0 %, as
compared to the similar period of 1995.
Key factors contributing to the 1996 decreased operating results are
continued shifts in the product mix , increased raw material costs,
and increased operating expenses.
Provision for Income Taxes
- --------------------------
For the thirteen week period ended June 29, 1996 and July 1, 1995,
the Company made provision for income taxes of $ 16,660 and $ 237,132,
respectively, based on the pre-tax income for the 1996 and 1995 periods
of $ 42,619 and $ 606,234 ,respectively. Income taxes as a percentage
of pre-tax income aggregated 39.1 % for both the 1996 and 1995
periods.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
TWENTY-SIX WEEKS ENDED JUNE 29, 1996
COMPARED TO TWENTY-SIX WEEKS ENDED JULY 1, 1995
Net Sales
- ---------
Net sales for the twenty-six weeks ended June 29,1996, increased by
$ 2,078,151 , or 11.5 %, to an aggregate of $ 20,208,867 compared to
$18,130,716 for the like 1995 period. Total pounds shipped for the 1996
period increased by 13.0%. Full yarn pounds shipped increased by 31.1 %,
while commission yarn (the dyeing and processing of customer owned yarns)
pounds shipped decreased by 41.5%.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the twenty-six weeks of 1996 increased by
$ 2,882,032, or 18.2%, as compared to the similar period of 1995.
Material cost increased by $ 2,646,683 , or 27.7%, as compared to
the like 1995 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 increased by $ 154,852 , representing a
increase of 5.0 % as compared to the like period of 1995.
Manufacturing overhead increased by $ 80,497 , or 2.5%, 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 week period ended June 29,
1996 was $1,474,804 , as compared to $2,278,685 for the similar period
of 1995, a decrease of $ 803,881 , or 35.3%. The decrease was the result
of an increase in sales volume of 11.5%, with a corresponding increase
in cost of sales of 18.2%.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general administrative , and factoring expenses for the
twenty-six weeks ended June 29, 1996 increased by $ 275,662 compared to
the similar period of 1995. These categories of expenses represented
6.2% of net sales compared to 5.4% in the like period of 1995. 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 JUNE 29, 1996
COMPARED TO TWENTY-SIX WEEKS ENDED JULY 1, 1995
Results of Operations (Continued)
- ---------------------
Factor's charges
- ----------------
Factor's charges for the twenty-six weeks of 1996 and 1995
represented 0.5% of net sales.
Interest Expense
- ----------------
Interest expense for the twenty-six weeks ended June 29, 1996
aggregated $ 251,087 compared to $96,618 for the like period of
1995. The increase in interest costs in 1996 has resulted primarily
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 1996 decreased by
$ 43,480 as compared to 1995. The decrease was due to a lower average
matured funds balance maintained with the Company's factor as compared
to the 1995 period.
Income Before Provision for Income Taxes
- ----------------------------------------
For the twenty-six week period ended June 29, 1996, income before
provision for income taxes decreased by $ 1,280,148, as compared to
the similar period of 1995. The decrease was primarily due to an 11.5%
increase in sales volume, a decrease in gross profit percentage to
7.3% in the 1996 period compared to 12.6% in the like period of 1995
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 JUNE 29, 1996
COMPARED TO TWENTY-SIX WEEKS ENDED JULY 1, 1995
(Continued)
Results of Operations (Continued)
- ---------------------
Provision for Income Taxes
- --------------------------
For the twenty-six week periods ended June 29, 1996 and July 1, 1996,
the Company made provision for income taxes of $ (9,329) and 491,432,
respectively, based on the pre-tax income (loss) for the 1996 and 1995
periods of $ (23,849) and $ 1,256,299, respectively. Income taxes or
credits, as a percentage of pre-tax income aggregated 39.1 % for both
the 1996 and 1995 periods.
Subsequent Matters
- ------------------
The operating results for the first six months reflect a continuation
of pressures in the market for lower priced products, increased costs
and delayed shipments out of the new dyeing equipment, and higher raw
material costs.
As the company stated at the end of first quarter, "the majority of
the technical issues relative to the new dyeing facility will be solved
during the second quarter"; The company currently feels that it can now
move forward with its original plans. However, due to the time required
for the complete cycle from initial shipment to final approval by the
customers, the impact of increased shipments and improved operating
results are expected to start in the fourth quarter of 1996.
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. As of June 29, 1996, the
Company had $3,666,678 due from its factor, of which amount $ 58 was in
matured funds held by the factor, and a net amount of $ 3,666,620
consisted of amounts due from the factor on the regular factoring
account with a maturity date in July 1996.
The Company entered into a new loan agreement effective March 29,
1996 providing for a term loan of $6,000,000 and a working capital
facility of $2,000,000. Under the provision on the loan agreement,
the Company may borrow up to $2,000,000 for seasonal working capital
requirements using receivables due from factors as security.
The Company's working capital at June 29, 1996 aggregated $ 6,733,498
representing a working capital ratio of 4.1 to 1 compared with a
working capital of $5,469,831 at December 30, 1995 and a working
capital ratio of 3.5 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 June 29, 1996.
Cash, cash equivalents and receivables.................. $ 4,256,223
Current liabilities..................................... 2,192,873
------------
Excess of quick assets over current liabilities......... $ 2,063,350
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.
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
- --------------------
During the first half of 1996, the Company acquired and made deposits
on new machinery and equipment of approximately $ 851,456 as set forth
in the accompanying statement of cash flows. For the balance of 1996,
the Company anticipates the acquisition of machinery and equipment of
approximately $ 648,000, which together with the acquisitions and
deposits on acquisitions incurred to June 29, 1996 will aggregate an
anticipated acquisition of new machinery of $1,500,000 in 1996.
PART II - OTHER INFORMATION
BURKE MILLS, INC.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - No report on Form 8-K has been filed
during the thirteen weeks ended June 29, 1996.
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 6,1996 /S Richard F. Whisenant
Richard F. Whisenant
(President)
Date: August 6,1996 /S S. Scott Womack
S. Scott Womack
Vice-President-Finance and Treasurer
(Principal Accounting Officer)
(Principal Financial Officer)