UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1997
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) 874-6341
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90
days. Yes X No _____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date. As of May 9, 1997, there were outstanding
2,741,168 shares of the issuer's only class of common stock.
BURKE MILLS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
Condensed Balance Sheets
March 29, 1997 and December 28, 1996 3
Condensed Statements of Operations and
Retained Earnings
Thirteen Weeks Ended March 29, 1997
and March 30, 1996 4
Statements of Cash Flows
Thirteen Weeks Ended March 29, 1997
and March 30, 1996 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 NFORMATION
Item 6 - Exhibits and Reports on Form 8-K 16
Item 6 (a)Financial Data Schedule 17
SIGNATURES 18
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
March 29, December 28,
1997 1996
---- ----
(Unaudited) ( Note A)
ASSETS
Current Assets
Cash and cash equivalents $ 2,570,264 $ 2,157,428
Accounts receivable 4,125,827 3,198,211
Inventories 3,027,699 3,450,805
Prepaid expenses and other current
assets 128,746 94,028
Prepaid and refundable income taxes 129,340 129,340
Deferred income taxes 844,610 874,810
---------- ----------
Total Current Assets 10,826,486 9,904,622
---------- ----------
Property, Plant and Equipment - at cost 26,414,748 26,194,241
Less: Accumulated depreciation 13,939,270 13,550,436
---------- ----------
Property, Plant and Equipment - Net 12,475,478 12,643,805
---------- ----------
Other Assets
Investment 5,993 5,993
---------- ----------
$23,307,957 $22,554,420
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 125,000 $ --
Accounts payable 1,730,915 1,436,054
Accrued salaries, wages and vacation pay 256,115 129,952
Other liabilities and accrued expenses 298,929 171,640
---------- ----------
Total Current Liabilities 2,410,959 1,737,646
Long-term Debt 5,875,000 6,000,000
Deferred Income Taxes 2,065,186 2,003,300
---------- ----------
Total Liabilities 10,351,145 9,740,946
---------- ----------
Shareholders' Equity
Common stock, no par value
(stated value, $.66)
Authorized - 5,000,000 shares
Issued and outstanding -
2,741,168 shares 1,809,171 1,809,171
Paid-in capital 3,111,349 3,111,349
Retained earnings 8,036,292 7,892,954
---------- ----------
Total Shareholders' Equity 12,956,812 12,813,474
---------- ----------
$23,307,957 $22,554,420
========== ==========
Note A: The December 28, 1996 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
Weeks Ended Weeks Ended
March 29, March 30,
1997 1996
---- ----
Net Sales $10,060,164 $ 9,904,583
----------- -----------
Cost and Expenses
Cost of sales 9,060,745 9,214,708
Selling, general and
administrative expenses 624,776 590,973
Factor's charges 44,846 45,671
----------- -----------
Total Costs and Expenses 9,730,367 9,851,352
----------- -----------
Operating Earnings 329,797 53,231
----------- -----------
Other Income
Interest income 27,649 2,911
Other, net 668 1,055
----------- -----------
Total 28,317 3,966
----------- -----------
Other Charges
Interest expense 122,691 123,665
----------- -----------
Income (Loss) Before Provision
for Income Taxes (Credit) 235,423 (66,468)
Provision for Incomes Taxes (Credit) 92,085 (25,989)
----------- -----------
Net Income (Loss) 143,338 (40,479)
Retained Earnings at Beginning of
Period 7,892,954 7,307,553
----------- -----------
Retained Earnings at End of
Period $ 8,036,292 $ 7,267,074
----------- -----------
Earnings (Loss) Per Share $ .05 $ (.02)
----------- -----------
Dividends Per Share of
Common Stock None None
---- ----
Weighted Average Common
Shares Outstanding 2,741,168 2,741,168
----------- -----------
[FN]
See notes to condensed financial statements
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
March 29, March 30,
1997 1996
---- ----
Cash flows from operating activities
Net income (loss) $ 143,338 $ (40,479)
---------- ----------
Adjustments to reconcile net income
(loss)to net cash provided by
operating activities:
Depreciation 388,834 362,293
Provision for deferred income taxes 92,086 214,100
Changes in assets and liabilities:
Accounts receivable (927,616) (958,123)
Inventories 423,106 (300,045)
Prepaid expenses and other
current assets (34,718) (117,475)
Prepaid and refundable income
taxes -- (240,089)
Accounts payable 294,861 1,263,097
Accrued salaries, wages and
vacation pay 126,163 42,641
Other liabilities and accrued
expenses 127,289 (56,147)
---------- ----------
Total Adjustments 490,005 210,252
---------- ----------
Net cash provided by operating activities 633,343 169,773
---------- ----------
Cash flows from investing activities:
Acquisition of property, plant
and equipment (220,507) (698,777)
---------- ----------
Cash flows from financing activities:
Increase in long-term bank note -- 220,819
Principal payments of long-term debt -- (215,990)
---------- ----------
Net cash provided by financing
activities -- 4,829
---------- ----------
Net increase (decrease) in cash and
cash equivalents 412,836 (524,175)
Cash and cash equivalents at
beginning of year 2,157,428 834,833
---------- ----------
CASH AND EQUIVALENTS AT END
OF FIRST QUARTER $2,570,264 $ 310,658
---------- ----------
[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 thirteen
week period ended March 29, 1997 are not necessarily
indicative of the results that may be expected for the
year ended January 3, 1998. 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 28, 1996.
NOTE 2 - STATEMENTS OF CASH FLOWS
For the purposes of the statements of cash flows,
the Company considers cash on hand, deposits in banks,
interest bearing demand matured funds on deposit with
factor and all highly liquid debt instruments with a
maturity of three months or less when purchased as cash
and cash equivalents.
FASB No. 95 requires that the following
supplemental disclosures to the statements of cash flows
be provided in related disclosures. Cash paid for
interest for the thirteen weeks ended March 29, 1997 and
March 30, 1996 was $121,383 and $125,988, respectively.
No income taxes were paid during the thirteen weeks
ended March 29, 1997 and March 30, 1996.
NOTE 3 - OPERATIONS OF THE COMPANY
The Company is engaged in 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 - USE OF ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
March 29, December 28,
1997 1996
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $3,440,921 $3,032,655
Non-factored accounts
receivable............... 684,906 165,556
---------- ----------
$4,125,827 $3,198,211
========== ==========
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
March 29, December 28,
1997 1996
---- ----
Finished and in process.... $1,905,781 $2,191,957
Raw Materials.............. 504,416 709,099
Dyes and Chemicals......... 459,252 394,335
Other...................... 158,250 155,414
---------- ----------
$3,027,699 $3,450,805
NOTE 7 - LINE OF CREDIT
Pursuant to a loan agreement dated March 29, 1996,
the Company secured a line of credit facility from its
bank wherein it may borrow, repay and reborrow amounts
from the line of credit facility for short-term working
capital needs. The aggregate principal amount
outstanding at any time under this loan my not exceed
the lesser of $2,000,000 and the borrowing base (as
defined). Interest on this loan facility is at a rate
that varies with the Libor Rate and is payable on the
last day of each month. There were no outstanding
loans under this agreement as of March 29, 1997 or
December 28, 1996.
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 8 - LONG-TERM DEBT
On March 29, 1996, the Company entered into a
new loan agreement with its bank providing for a term
loan of $6,000,000 and, as discussed in Note 7 above, a
line of credit facility of $2,000,000 for ongoing,
short-term working capital needs. The new term loan
refinanced two formerly existing term loans, and
accordingly, all term obligations were consolidated
into the one $6,000,000 obligation. This new loan is
secured by (1) a first Deed of Trust on property and
buildings located at the Company's manufacturing sites
in North Carolina, (2) a first lien position on the new
equipment and machinery installed at these
manufacturing sites and (3) a first lien position on
the existing machinery and equipment located at the
Company's manufacturing sites.
Under the new term 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 hedge, the
bank converted 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. The 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 loan.
Among other things, covenants include a debt
service coverage ratio, a limit on annual property
asset acquisitions exclusive of property acquired with
the loan proceeds under this new loan agreement, the
retirement or acquisition of the Company's capital
stock in excess of a stated amount, the maintenance of
a minimum tangible net worth which shall increase by a
stated amount annually, a minimum quick ratio, and a
maximum debt to tangible net worth ratio.
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 8 - LONG-TERM DEBT (Continued)
The annual principal maturities of long-term debt
at March 29, 1997 are as follows:
Current portion $ 125,000
1998/1999 $ 750,000
1999/2000 750,000
2000/2001 750,000
2001/2002 750,000
Thereafter 2,875,000 5,875,000
--------- ---------
$6,000,000
NOTE 9 - INCOME TAXES
The Company uses the liability method as required
by FASB Statement 109 "Accounting for Income Taxes".
Under this method, deferred tax assets and liabilities
are determined based on the differences between
financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates
and laws.
The items which comprise deferred tax assets and
liabilities are as follows:
March 29, December 28,
1997 1996
---- ----
Deferred Tax Assets:
Alternative minimum taxes paid $ 608,825 $ 608,825
Net Operating loss carryforward 216,900 246,100
Inventory capitalization 7,300 8,300
Business credits 11,585 11,585
---------- ----------
$ 844,610 $ 874,810
========== ==========
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $2,065,186 $2,003,300
========== ==========
Provision (credit) for income
taxes consists of:
Deferred:
Federal $ 73,840 $ (20,838)
State 18,245 (5,151)
---------- ----------
$ 92,085 $ (25,989)
========== ==========
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Company is a participating employer in the Burke
Mills, Inc. Savings and Retirement Plan and Trust which has
been qualified under Section 401(k) of the Internal Revenue
Code. This plan allows eligible employees to contribute a
salary reduction amount of not less than 1% nor greater that
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. Based on the Company's profit sharing formula,
no provision was required for matching contributions for the
period ended March 29, 1997 and March 30, 1996.
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the
Company to concentration of credit risk consist principally
of 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 20th to
the 25th of the following month, at which time the amount
due the Company by the factor is transferred to matured
funds on deposit with First Union National Bank. Matured
funds of $3,023,974 will be transferred to First Union
National Bank on April 21, 1997. The Company utilizes its
matured funds and loans due to its bank arising from its
Letter of Credit facility on a continuous basis to replenish
its cash in the bank for the payment of materials, labor,
and overhead.
NOTE 12 - OTHER COMMITMENTS
(a) The Company was committed to an outstanding irrevocable
import Letter of Credit of $170,300 covering machinery
purchases of approximately $174,000. The machinery is to
have a latest shipment date of May 30, 1997, and the Letter
of Credit expires June 15, 1997. The differential between
the Letter of Credit and the purchase price is to be covered
by a single invoice issued by the vendor to the Company.
(b) In addition to the foregoing, as at March 29, 1997, the
Company had open purchase orders for capital projects
totaling $230,000.
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 13 - EARNINGS PER SHARE
Earnings per share are based on the net income divided by
the weighted average number of common shares outstanding
during the thirteen week period ended March 29, 1997 and
March 30, 1996.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
1997 Compared to 1996
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
March 29, March 30,
1997 1996
---- ----
Net sales 100.0% 100.0%
Cost of sales 90.1 93.0
----- -----
Gross profit 9.9 7.0
Selling, general, administrative
and factoring charges 6.6 6.4
----- -----
Operating earnings 3.3 0.6
Interest expense 1.2 1.3
Other (income) - net (0.2) 0
----- -----
Income before income taxes (loss) 2.3 (0.7)
Income taxes (credit) 0.9 (0.3)
----- -----
Net income (loss) 1.4% (0.4%)
===== =====
THIRTEEN WEEKS ENDED MARCH 29, 1997
COMPARED TO THIRTEEN WEEKS ENDED MARCH 30, 1996
Net Sales
- ---------
Net sales for the thirteen weeks ended March 29, 1997 totaled
$10,060,164 representing a 1.6% increase over the first quarter of
1996. The increase in revenues was due mainly to an increase in
pounds of 3.3% compared to first quarter of 1996.
COST OF SALES AND GROSS MARGIN
- ------------------------------
Cost of sales for the thirteen weeks ended March 29, 1997
decreased 1.7% with a sales increase of 1.6%. The impact on the
gross margin was an increase to 9.9% compared to 7.0% for the first
quarter of 1996. Key factors were continuing improvements in the
new dyeing equipment and reduced yarn cost.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, administrative and factoring expenses for the
first quarter of 1997 increased by $32,978 or 5.2%. The increase is
primarily attributed to professional services and professional
development. Selling, general and administrative expenses before
factor charges for the 1997 quarter represented 6.2% of net sales
compared to 6.0% in 1996.
Factor Charges
- --------------
Factor's charges for the first quarter of 1997 decreased by
$ 825, as compared to the first quarter of 1996. The ratio of
factored accounts versus nonfactored accounts for the first quarter
of 1997, as compared to the similar quarter of 1996,remained
approximately the same.
Interest Expense
- ----------------
Interest expense for the first quarter of 1997 was relatively
constant, as compared to 1996. Interest expense for 1997 and 1996
resulted from interest on the Company's long-term debt incurred to
finance the 1995 dyeing expansion.
Interest Income
- ---------------
Interest income for the 1997 quarter increased by $24,738, as
compared to the first quarter of 1996. The increase was due to an
increase in funds on deposit at the bank.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirteen weeks ended March 29, 1997, income before
provision for income taxes increased by $301,891 as compared to the
similar period of 1996, primarily as a result of the 1997 increase
in sales revenue with a reduced cost of sales.
Provision for Income Taxes
- --------------------------
For the thirteen week periods ended March 29, 1997 and March
30, 1996, the Company made provision (credit) for income taxes of
$92,085 and $(25,989), respectively, based on the pre-tax income for
1997 of $235,423 and 1996 loss of $66,468. Income taxes (credit) as
a percentage of pre-tax income (loss) aggregated 39.1% for both the
1997 and 1996 periods.
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
Subsequent Matters
- ------------------
Currently, the outlook for the remainder of 1997 is driven by a
number of uncertainties that could possibly have an impact on future
operating results. The continuing pressures in the market for lower
prices impacts the Company's efforts to increase market share and
generate targeted profit levels. The current economic forecast
indicates moderate growth in durable goods for the remainder of
1997. This definitely impacts the Company's efforts in both the
automotive and home furnishings industries.
However, the Company is optimistic that the majority of the
technical issues relative to the new dyeing installation have been
solved. This should enable the Company to establish an increased
market presence in the future.
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 may borrow from First Union National Bank
based on a $2,000,000 line of credit from the recent long-term loan
agreement which borrowings are secured by the outstanding credit
balance at the factor. As of March 29, 1997, the Company had
$3,440,921 due from the factor with a net of $3,023,974 to mature on
April 21, 1997.
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 provisions of the loan
agreement, the Company may borrow up to $2,000,000 for seasonal
working capital requirements using the credit balance due from the
factor as security.
The Company's working capital at March 29, 1997 aggregated
$8,415,527, representing a working capital ratio of 4.5 to 1
compared with a working capital of $8,166,976 at December 28, 1996
and a working capital ratio of 5.7 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 March 29, 1997:
Cash, cash equivalents and receivables........... $6,696,091
Current liabilities.............................. 2,410,959
---------
Excess of quick assets over current liabilities.. $4,285,132
=========
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
Liquidity and Capital Resources (Continued)
- -------------------------------------------
The Company believes that its cash, cash equivalents and
receivables, and its factoring and credit arrangements will be
sufficient to finance its operations for the next 12 months.
The results of operations of the Company for the periods
discussed have not been sufficiently affected by inflation.
During the first quarter of 1997, the Company acquired and made
deposits on new machinery and equipment of approximately $220,507 as
set forth in the accompanying statement of cash flows. For the
balance of 1997, the Company anticipates the acquisition of
machinery and equipment of approximately $750,000 which, together
with the acquisitions and deposits on acquisitions incurred to March
29, 1997, will aggregate an anticipated acquisition of new
machinery of $1,000,000 in 1997.
PART 11 - OTHER INFORMATION
BURKE MILLS, INC.
Item 6 - Exhibits and Reports on 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 March 29, 1997
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: May 9, 1997 /s Richard F. Whisenant
Richard F. Whisenant
(President)
Date: May 9, 1997 /s David E. Truscott
David E. Truscott
(Accounting Manager and
Principal Financial Officer)