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 SEPTEMBER 28, 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 November
8, 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
September 28, 1996 and December 30, 1995 3
Condensed Statements of Operations and Retained Earnings
Thirteen Weeks Ended September 28, 1996 and September 30, 1995
Thirty-Three Weeks Ended September 28, 1996 and September 30, 1995 4
Statements of Cash Flows
Thirty-Three Weeks Ended September 28, 1996 and September 30, 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 4 - Submission of Matters to a Vote of Security-Holders
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
September 28, December 31,
1996 1995
----------- --------
(Unaudited) (Note A)
ASSETS
Current Assets
Cash and cash equivalents $ 856,848 $ 834,833
Accounts receivable 4,507,298 2,974,101
Inventories 3,196,518 2,869,939
Prepaid expenses and other current assets 197,287 92,667
Prepaid and refundable income taxes 140,388 289,846
Deferred income taxes 947,825 579,600
----------- -----------
Total Current Assets 9,846,164 7,640,986
----------- -----------
Other Assets 1,542 -
----------- -----------
Property, Plant and Equipment - at cost 26,158,553 25,186,871
Less: Accumulated depreciation 13,151,793 12,059,241
----------- -----------
Property, Plant and Equipment - Net 13,006,760 13,127,630
----------- -----------
$22,854,466 $20,768,616
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ - $ 215,990
Accounts payable 2,103,953 1,508,476
Accrued salaries, wages and vacation pay 209,306 123,637
Other liabilities and accrued expenses 249,910 323,052
----------- -----------
Total Current Liabilities 2,563,169 2,171,155
Long-Term Debt 6,000,000 4,963,688
Deferred Income Taxes 1,792,300 1,405,700
----------- -----------
Total Liabilities 10,355,469 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 7,578,477 7,307,553
----------- -----------
Total Shareholders' Equity 12,498,997 12,228,073
----------- -----------
$22,854,466 $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 Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net Sales $10,255,651 $ 7,385,141 $30,434,518 $25,515,857
----------- ----------- ----------- -----------
Costs and Expenses
Cost of sales 9,122,206 7,126,670 27,856,268 22,978,701
Selling, general and administrative
expenses 568,706 464,702 1,732,611 1,352,926
Factor's charges 48,663 38,347 142,093 131,796
----------- ----------- ----------- -----------
Total Costs and Expenses 9,739,575 7,629,719 29,730,973 24,463,423
----------- ----------- ----------- -----------
Operating Earnings (Loss) 486,076 (244,578) 703,545 1,052,424
----------- ----------- ----------- -----------
Other Income
Interest income 9,557 15,134 17,206 66,263
Gain on disposal or property assets 93,940 -- 93,940 --
Other, net 1,963 6,501 4,083 11,389
----------- ----------- ----------- -----------
Total 105,460 21,635 115,229 77,652
----------- ----------- ----------- -----------
Other Expenses
Interest expense 122,711 61,205 373,798 157,823
Loss on disposal of property assets - - - 112
----------- ----------- ----------- -----------
Total 122,711 61,205 373,798 157,935
----------- ----------- ----------- -----------
Income (loss)Before Provision for
Income Taxes 468,825 (284,148) 444,976 972,151
Provision for Income Taxes (credit) 183,381 (111,175) 174,052 380,257
----------- ----------- ----------- -----------
Net Income(loss) 285,444 (172,973) 270,924 591,894
Retained Earnings at Beginning of Period 7,293,033 7,128,179 7,307,553 6,363,312
----------- ----------- ----------- -----------
Retained Earnings at End of Period $ 7,578,477 $ 6,955,206 $ 7,578,477 $ 6,955,206
=========== =========== =========== ===========
Earnings (loss) Per Share $ .11 $ (.06) $ .10 $ .22
=========== =========== =========== ===========
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)
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
Sept. 28, Sept. 30,
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 270,924 $ 591,894
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,109,780 774,223
(Gain)/Loss on disposal of property assets (93,940) 112
Decrease/(Increase) in deferred income taxes 18,375 (139,100)
Changes in assets and liabilities:
(Increase) in accounts receivable (1,533,197) (932,563)
(Increase) in inventories (326,579) (168,079)
(Increase) in prepaid expenses and
other current assets 44,838 (15,169)
(Increase) in Other Assets (1,542) -
Increase in accounts payable 595,477 1,214,418
(Decrease) in income taxes payable - (561,311)
Increase/(Decrease) in accrued salaries, wages and
vacation pay 85,669 (186,513)
Increase in other liabilities and
accrued expenses 20,798 157,693
----------- -----------
Total Adjustments (80,321) 143,711
----------- -----------
Net cash provided (used) by operating activities 190,603 735,605
----------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (988,910) (6,024,371)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term bank note 1,670,663 4,063,849
Principal payments of long-term debt (850,341) (601,750)
----------- -----------
Net cash provided (used) by financing activities 820,322 3,462,099
----------- -----------
Net (decrease) in cash and cash equivalents 22,015 (1,826,667)
Cash and cash equivalents at beginning of year 834,833 1,833,989
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
THIRD QUARTER $ 856,848 $ 7,322
=========== ===========
[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
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all necessary adjustments ( consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the thirty-nine week period ended September 28, 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.
FASB No. 95 requires that the following supplemental disclosures to
the statements of cash flows be provided in related disclosures. Cash paid
for interest for the thirty-nine weeks ended September 28, 1996 and
September 30, 1995 was $391,272 and $147,039 respectively. Income taxes
paid for the thirty-nine weeks ended September 30, 1995 aggregated
$1,080,668. No income taxes were paid during the thirty-nine weeks ended
September 28, 1996.
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:
September 28, December 30,
1996 1995
---------- ------------
Cash............................................... $ 774 $ 49,259
Commercial money market investment in bank......... 856,074 785,574
---------- ------------
$856,848 $ 834,833
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
September 28, December 30,
1996 1995
---------- ------------
Account current - factor:
Due from factor on regular factoring account.... $4,104,975 $2,808,790
Non-factored accounts receivable.................. 402,323 165,311
---------- ------------
$4,507,298 $2,974,101
========== ============
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
September 28, December 30,
1996 1995
---------- ------------
Finished and in process......................... $1,838,450 $1,918,400
Raw materials..................................... 827,911 447,691
Dyes and chemicals................................ 387,305 378,528
Other............................................. 142,852 125,320
---------- ------------
$3,196,518 $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, 1988. 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 1.99%.
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 September 28, 1996
are as follows:
Current portion $ -
1997/1998 $ 500,000
1998/1999 750,000
1999/2000 750,000
2000/2001 750,000
Thereafter 3,250,500 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 are as
follows:
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Tax loss carry-forward $250,000
Accelerated depreciation - $1,792,300
Alternative minimum taxes paid 691,625 -
Inventory capitalization for tax purposes 6,200 -
------------ ------------
$947,825 $1,792,300
============ ============
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-----------------------------------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
-----------------------------------------------
Income Taxes (credit)
consist of:
Federal income taxes $ 147,047 $ (96,610) $139,567 $330,532
State income taxes 36,334 (14,565) 34,485 49,725
-----------------------------------------------
Total $ 183,381 $(111,175) $174,052 $380,257
===============================================
===============================================
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 $ 94,176 for the thirty-nine weeks ended September 30, 1995.
There was no provision made for matching contributions in the period ended
September 28, 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 ($ 209) as of September 28, 1996, the
Company had $4,104,975 due from its factor which matured in October 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 thirty-nine week periods ended September 28, 1996 and September 30,
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 Thirty-Nine Weeks Ended
-------------------- ----------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
-------- ------- -------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.2 96.5 91.5 90.1
-------- ------- -------- -------
Gross profit 10.8 3.5 8.5 9.9
Selling, general, administrative
and factoring charges 6.0 6.8 6.2 5.8
-------- ------- -------- -------
Operating earnings 4.8 (3.3) 2.3 4.1
Interest expense 1.2 0.8 1.2 0.6
Other (income) - net 1.0 (0.3) 0.4 (0.3)
-------- ------- -------- -------
Income before income taxes 4.6 3.8 1.5 3.8
Income taxes (credit) 1.8 (1.5) 0.6 1.5
-------- ------- -------- -------
Net income 2.8% (2.3)% 0.9% 2.3%
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996
COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 30, 1995
Net Sales
- ---------
Net sales for the thirteen weeks ended September 28, 1996, (the
third fiscal quarter), were $10,225,651, representing a 38,5% increase
compared to the third quarter 1995 sales of $ 7,385,141. Pounds shipped for
the third fiscal quarter of 1996 increased by 51.0%. It should be noted
that the third quarter of 1995 was heavily impacted by delays encountered
during the start-up phase of the new dyeing equipment.
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 September 28, 1996
increased by 28.0% with a corresponding sales increase of only 38.5 %.
The resulting impact on gross margins was an increase to 10.8% compared to
3.5% for the third quarter of 1995. Key factors contributing to the
increased margins were increased shipments, lower manufacturing costs and
lower 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
third quarter of 1996 increased by $114,320 compared to the 1995 third
quarter. Selling, general and administrative expenses represented 5.6% of
net sales compared to 6.3% in 1995. The increase in these categories of
expenses were primarily increases in professional fees and sales commissions.
Factor's Charges
- ----------------
Factor's charges for the third quarter of 1996 increased by
$10,316, or 26.9%, as compared to the third quarter of 1995. The increase
resulted from the increased sales volume. The ratio of factored accounts
versus nonfactored accounts for the third 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 third quarter of 1996 increased by $61,506,
as compared to 1995, primarily as a result of the Company's increase in
long-term debt. Interest expense for 1996 and 1995 resulted 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 third quarter of 1996 decreased by $5,577,
as compared to the third quarter of 1995. The decrease was due to a lower
average balance invested with the Company's factor.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirteen week period ended September 28, 1996, income before
provision for income taxes decreased by $752,973.
Key factors contributing to the operating results are increased
revenues, improved operating costs,and reduced raw material costs.
Provision (Credit) for Income Taxes
- -----------------------------------
For the thirteen week period ended September 28, 1996 and September
30, 1995, the Company made provision for income taxes of $183,381 and
$ (111,175) , respectively, based on the pre-tax income (loss) for the 1996
and 1995 periods of $468,825 and $ (284,148) ,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)
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996
COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995
Net Sales
- ---------
Net sales for the thirty-nine weeks ended September 28,1996,
increased by $4,918,661, or 19.3%, to an aggregate of $30,434,518 compared
to $ 25,515,857 for the like 1995 period. Total pounds shipped for the
1996 period increased by 24%.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirty-nine weeks of 1996 increased by
$4,877,568, or 21.2%, as compared to the similar period of 1995.
Material cost increased by $4,346,326, or 31.7%, as compared to the
like 1995 period. The primary reasons for the increase in material cost
were an increase in shipments and a continuation of increasing full yarn
sales as a percent of the total pounds.
Manufacturing labor cost decreased by $84,698, representing a
decrease of 3.8% as compared to the like period of 1995.
Manufacturing overhead increased by $615,940, or 8.6%, primarily as
a result of increase depreciation and expense from the new dyeing equipment.
Gross margin for the thirty-nine week period ended September 28, 1996
was $2,578,249, as compared to $2,537,156 for the similar period of 1995, an
increase of $41,093, or 1.6%.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general administrative, and factoring expenses for the
thirty-nine weeks ended September 28, 1996 increased by $389,982 compared to
the similar period of 1995. These categories of expenses represented 6.2%
of net sales compared to 5.8% in the like period of 1995. The increases in
this category of expenses were primarily in sales commissions, professional
services, and salaries and fringe benefit costs.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996
COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995
Results of Operations (Continued)
- ---------------------
Factor's charges
- ----------------
Factor's charges for the thirty-nine weeks ended September 28, 1996
decreased by $10,297, as compared to the similar period of 1995.
Interest Expense
- ----------------
Interest expense for the thirty-nine weeks ended September 28, 1996
aggregated $373,798 compared to $157,823 for the like period of 1995. The
increase in interest costs in 1996 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 thirty-nine week period of 1996 decreased by
$49,057 as compared to 1995. The decrease was due to a lower average balance
invested with the Company's factor as compared to the 1995 period.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirty-nine week period ended September 28, 1996, income
before provision for income taxes decreased by $527,175, as compared to the
similar period of 1995. The decrease was primarily due to a small 19.3%
increase in sales volume, a decrease in gross profit percentage to 8.5% in
the 1996 period compared to 9.9 % 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 thirty-nine week periods ended September 28, 1996 and
September 30, 1995, the Company made provision for income taxes of $174,052
and $380,257, respectively, based on the pre-tax income for the 1996 and
1995 periods of $444,976 and $972,151, respectively. Income taxes 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 nine 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 we stated at the end of first quarter, the majority of the
technical issues relative to the new dyeing facility were solved during the
second quarter. The company currently feels that it can now move forward
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 September 28, 1996, the Company had $4,104,975
due from its factor, of which amount $0 was in matured funds held by the
factor, and a net amount of $4,104,975 consisted of amounts due from the
factor on the regular factoring account with a maturity date in October,
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 September 28, 1996 aggregated
$7,282,995 representing a working capital ratio of 3.8 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 September 28, 1996
Cash, cash equivalents and receivables.................. $ 5,364,146
Current liabilities..................................... 2,563,169
------------
Excess of quick assets over current liabilities......... $ 2,800,977
============
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 nine months of 1996, the Company acquired and made
deposits on new machinery and equipment of approximately $ 988,910 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 $ 511,090, which together with the acquisitions and deposits
on acquisitions incurred to September 28, 1996 will aggregate an anticipated
acquisition of new machinery of $1,500,000 in 1996.
PART II - OTHER INFORMATION
BURKE MILLS, INC.
Item 4 - Submission of Matters to a Vote of Security - Holders
The Company's annual meeting of stockholders was held on July 22, 1996. At
the meeting, all five director nominees were elected.
(a) The following directors were elected for a one-year term by the votes
indicated:
Humayun N. Shaikh 2,426,754
Richard F. Whisenant 2,427,554
Ahmed H. Shaikh 2,427,554
S. Scott Womack 2,427,554
Robert P. Huntley 2,427,554
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 September 28, 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: November 11, 1996 Richard F. Whisenant
Richard F. Whisenant
(President)
Date: November 11, 1996 S. Scott Womack
S. Scott Womack
(Vice-President-Finance and Treasurer)
( Principal Accounting Officer)
(Principal Financial Officer)