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 4, 1998
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)
(828) 874-6341
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _____
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
7, 1998, there were outstanding 2,741,168 shares of the issuer's only
class of common stock.
Page 1 of 20
BURKE MILLS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
Page Number
Item 1 - Financial Statements
Condensed Balance Sheets
July 4, 1998 and January 3, 1998 3
Condensed Statements of Operations and
Retained Earnings
Thirteen Weeks Ended July 4, 1998 and
June 28, 1997
Twenty-six Weeks Ended July 4, 1998 and
June 28, 1997 4
Statements of Cash Flows
Twenty-six Weeks Ended July 4, 1998 and
June 28, 1997 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 4 - Submission of Matters to a Vote of
Security Holders 18
Item 6 - Exhibits and Reports on Form 8-K 18
Item 6(a)- Exhibit 27 - Financial Data Schedule 19
SIGNATURES 20
2
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
July 4, January 3,
1998 1998
(Unaudited) ( Note A)
ASSETS
Current Assets
Cash and cash equivalents $ 3,876,230 $ 4,306,540
Accounts receivable 4,224,229 3,771,301
Inventories 3,574,605 3,006,298
Prepaid expenses and other current
assets 211,293 38,832
Deferred income taxes 510,400 661,700
Total Current Assets 12,396,757 11,784,671
Equity Investment in Affiliate 378,328 177,728
Property, Plant and Equipment - at cost 26,907,412 26,350,679
Less: Accumulated depreciation 14,962,126 14,158,330
Property, Plant and Equipment - Net 11,945,286 12,192,349
Other Assets
Deferred Charges 177,671 193,316
$24,898,042 $24,348,064
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 750,000 $ 687,500
Accounts payable 2,477,659 2,081,237
Accrued salaries, wages and vacation pay 244,921 191,128
Other liabilities and accrued expenses 306,468 417,821
Total Current Liabilities 3,779,048 3,377,686
Long-term Debt 4,937,500 5,312,500
Deferred Income Taxes 2,226,800 2,218,300
Total Liabilities 10,943,348 10,908,486
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 9,034,174 8,519,058
Total Shareholders' Equity 13,954,694 13,439,578
$24,898,042 $24,348,064
Note A: The January 3, 1998 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.
See notes to condensed financial statements
3
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
July 4, June 28 July 4, June 28,
1998 1997 1998 1997
Net Sales $10,022,705 $10,441,772 $20,672,108 $20,501,936
Cost and Expenses
Cost of Sales 9,055,455 9,393,333 18,443,356 18,454,078
Selling, General and
Administrative Expenses 702,261 611,882 1,399,694 1,236,658
Factor's Charges 44,200 45,460 91,571 90,306
Total Costs and Expenses 9,801,916 10,050,675 19,934,621 19,781,042
Operating Earnings 220,789 391,097 737,487 720,894
Other Income
Interest Income 47,554 35,071 95,016 62,720
Other, net -- 442 -- 1,110
Total 47,554 35,513 95,016 63,830
Other Expenses
Interest Expense 118,738 124,737 238,377 247,428
Loss on Disposal of Property -- 4,243 -- 4,243
Other, net 30,433 -- 60,821 --
Total 149,171 128,980 299,198 251,671
Income before Provision for
Income Taxes and Equity in
Net Earnings of Affiliate 119,172 297,630 533,305 533,053
Provision for Income Taxes 57,289 116,419 218,789 208,504
Net Income before Equity in Net
Earnings of Affiliate 61,883 181,211 314,516 324,549
Equity in Net Earnings of
Affiliate 146,400 -- 200,600 --
Net Income 208,283 181,211 515,116 324,549
Retained Earnings at Beginning
of Period 8,825,891 8,036,292 8,519,058 7,892,954
Retained Earnings at End
of Period $ 9,034,174 $ 8,217,503 $ 9,034,174 $ 8,217,503
Earnings Per Share $ .08 $ .07 $ .19 $ .12
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
See notes to condensed financial statements.
4
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-six Weeks Ended
July 4, June 28,
1998 1997
Cash flows from operating activities:
Net income $ 515,116 $ 324,549
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 803,796 778,776
Equity in earnings of affiliate (200,600) --
Loss on disposal of property assets -- 4,243
Provision for deferred income taxes 159,800 208,504
Changes in assets and liabilities:
Accounts receivable (452,928) (981,102)
Inventories (568,307) 180,558
Prepaid expenses, taxes and other
current assets (172,461) (19,082)
Other non-current assets 15,645 (87,792)
Accounts payable 396,422 802,543
Accrued salaries, wages and vacation pay 53,793 126,852
Other liabilities and accrued expenses (111,353) 249,448
Total Adjustments (76,193) 1,262,948
Net cash provided by operating activities 438,923 1,587,497
Cash flows from investing activities:
Acquisition of property, plant and
equipment (556,733) (475,885)
Investment & advances -
affiliated company -- (150,000)
Net cash (used) by investing activities (556,733) (625,885)
Cash flows from financing activities:
Principal payments of long-term debt (312,500) --
Net cash used by financing activities (312,500) --
Net increase (decrease) in cash and
cash equivalents (430,310) 961,612
Cash and cash equivalents at
beginning of year 4,306,540 2,157,428
CASH AND EQUIVALENTS AT END OF
SECOND QUARTER $3,876,230 $3,119,040
See notes to condensed financial statements
5
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with 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 twenty-six week period ended July 4, 1998 are not necessarily
indicative of the results that may be expected for the year ended January
2, 1999. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended January 3, 1998.
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 twenty-six weeks ended July 4, 1998 and June 28, 1997
was $240,000 and $246,000, respectively. Income taxes paid during the
twenty-six week period ended July 4, 1998 were $25,000 and no taxes were
paid during the twenty-six week period ended July 28, 1997.
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.
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.
6
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
July 4, January 3,
1998 1998
Account current - Factor:
Due from Factor on regular
factoring account........ $3,410,000 $3,328,000
Non-factored accounts
receivable............... 814,000 443,000
$4,224,000 $3,771,000
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
July 4, January 3,
1998 1998
Finished and in process.... $1,141,000 $1,813,000
Raw Materials.............. 1,881,000 716,000
Dyes and Chemicals......... 433,000 337,000
Other...................... 120,000 140,000
$3,575,000 $3,006,000
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. The line of credit
loan matures annually on April 30 and may be renewed at the sole discretion
of the bank. There were no outstanding loans under this agreement as of
July 4, 1998 or June 28, 1997.
7
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 was payable
monthly until February, 1998. Thereafter, principal maturities are 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
rate 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.
The annual principal maturities of long-term debt at July 4, 1998
are as follows:
Current portion $ 750,000
1999/2000 750,000
2000/2001 750,000
2001/2002 750,000
2002/2003 750,000
Thereafter 1,937,500 4,937,500
$5,687,500
8
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 9 - INCOME TAXES
The Company uses the liability method as required by FASB statement
109 "Accounting for Income Taxes". Under this method, deferred tax assets
and liabilities are determined based on the differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws.
The items which comprise deferred tax assets and liabilities are as
follows:
July 4, January 3,
1998 1998
Deferred Tax Assets:
Alternative minimum taxes paid $ 476,565 $ 608,825
Net Operating loss carryforward -- 12,190
Inventory capitalization 22,250 18,700
Business Credits 11,585 11,585
Contributions carryforward -- 10,400
$ 510,400 $ 661,700
Deferred Tax Liabilities: Accelerated
depreciation for tax purposes $2,226,800 $2,218,300
Provision for income Twenty-six Weeks Ended
taxes consists of: July 4, June 28,
1998 1997
Deferred Federal and State $ 159,800 $ 208,504
Current Federal 18,300 --
Current State 40,689 --
$ 218,789 $ 208,504
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Company is a participating employer in the Burke Mills, Inc.
Savings and Retirement Plan and Trust that has been qualified under Section
401(k) of the Internal Revenue Code. This plan allows eligible employees
to contribute a salary reduction amount of not less than 1% nor greater than
25% of the employee's salary but not to exceed dollar limits set by law. The
employer may make a discretionary contribution for each employee out of
current net profits or accumulated net profits in an amount the employer may
from time to time deem advisable. No provision was made for a discretionary
contribution for the periods ended July 4, 1998 and June 28, 1997.
9
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of 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 $3,144,000 will be transferred to First Union National Bank
on July 22, 1998. The Company utilizes its matured funds and loans that may
be due to its bank arising from its Line of Credit facility on a continuous
basis to replenish its cash in the bank for the payment of materials, labor,
and overhead.
NOTE 12 - COMMITMENTS
(a) The Company entered into a supply agreement, dated November 23,
1996, with its joint venture company, Fytek, S.A. De C.V. to purchase twisted
yarns. The Company agrees to purchase approximately $1,800,000 of twisted
yarn annually for the five years beginning on the startup date of the
operation.
(b) The Company entered into a supply agreement, dated November 19,
1996, with Fibras Quimicas, S.A. to purchase yarn. The Company agrees to
purchase yarn based on the schedule below, beginning February 1, 1997, for a
five-year period.
Year 1 Approximately $2,600,000
Year 2 Approximately $6,400,000
Year 3 Approximately $7,100,000
Year 4 Approximately $7,700,000
Year 5 Approximately $7,700,000
(c) The Company was committed to an outstanding irrevocable
import letter of credit of $22,015 covering machinery purchases. The
machinery has a latest ship date of May 30, 1998 and the letter of credit
expires July 30, 1998
10
BURKE MILLS, INC. NOTES TO CONDENSED FINANCIAL
STATEMENTS
(Unaudited)
(Continued)
NOTE 13 - RELATED PARTY DISCLOSURES
During the second quarter of 1998, the Company purchased $80,335
of yarns from Nafees Cotton Mills, Ltd. The Company paid for the yarn
purchased by wire transfer 30 days after the bill of lading date.
Humayun N. Shaikh, Chairman and C.E.O. of the Company, is also
director of Nafees Cotton Mills, Ltd.
Ahmed H. Shaikh, Director of the Company, is C.E.O. of Nafees
Cotton Mills, Ltd.
NOTE 14 - ACCOUNTING FOR POSSIBLE IMPAIRMENT OF LONG-LIVED ASSETS
In 1995, the Financial Accounting Standards Board issued Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of", which requires impairment losses on long-
lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. Statement No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of.
The Company adopted Statement 121 in the first quarter of 1996 and such
adoption did not have any effect on the financial statements for 1997 or for
the twenty-six weeks ended July 4, 1998.
NOTE 15 - EARNINGS PER SHARE
Earnings per share are based on the net income divided by the
weighted average number of common shares outstanding during the thirteen and
twenty-six week periods ended July 4, 1998 and June 28, 1997.
11
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1998 Compared to 1997
The following discussion should be read in conjunction with the infor-
mation 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 Twenty-six Weeks
Ended Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 90.4 90.0 89.2 90.0
Gross Profit 9.6 10.0 10.8 10.0
Selling, General, Administrative
and Factoring Costs 7.4 6.3 7.2 6.5
Operating Earnings 2.2 3.7 3.6 3.5
Interest Expense 1.2 1.2 1.2 1.2
Other (Income) - net (1.7) .3 (1.1) (.3)
Income before Income Taxes 2.7 2.8 3.5 2.6
Income Taxes .6 1.1 1.0 1.0
Net Income 2.1% 1.7% 2.5% 1.6%
THIRTEEN WEEKS ENDED JULY 4, 1998
COMPARED TO THIRTEEN WEEKS ENDED JUNE 28, 1997
Net Sales
Net sales for the thirteen weeks ended July 4, 1998 (the second fiscal
quarter), were $10,023,000, representing a 4.0% decrease compared to the
second quarter sales of $10,442,000. Pounds shipped decreased by 5.0%
compared to the second quarter of 1997. While sales dollars decreased, the
full yarn pounds shipped also decreased by 5.4% and the commission pounds
shipped increased by 6.8%. The second quarter of 1998 has one less shipping
and production week as compared to the second quarter of 1997. The Company's
traditional vacation week of the 4th of July occurred in the second quarter
as opposed to the third quarter in 1997.
12
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cost of Sales and Gross Margin
Cost of sales for the thirteen weeks of 1998 decreased by 3.6% with a
sales decrease of 4%. The second quarter of 1998 has one less shipping and
production week as compared to the second quarter of 1997. The Company's
traditional vacation week at the 4th of July occurred in the second quarter
as opposed to the third quarter in 1997. As a result of a decrease in sales
of 4.0% and a decrease in cost of sales of 3.6%, gross margins decreased to
9.6% of sales compared to 10.0% in 1997.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses for the second quarter of
1998 increased by $90,000, or 14.8% compared to 1997. Increases in compen-
sation and travel were the major contributors to the increase.
Factor's Charges
Factor's charges for the second quarter of 1998 and 1997 were 0.4% of
sales.
Interest Expense
Interest expenses for the second quarter of 1998 decreased by $6,000
compared to 1997 due to a lower average long-term debt.
Interest Income
Interest income for the second quarter of 1998 increased due to an
increase in funds invested. The Company's cash flow improved and resulted in
an increase in cash available to invest.
Equity in Net Earnings of Affiliate
The Company recorded $146,400 as equity in net earnings of Fytek, S.A. De
C.V., its joint venture in Mexico. The Company's share of net earnings and
losses is 50%. Fytek began operations in the fourth quarter of 1997.
13
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Income before Provision for Income Taxes
For the thirteen weeks ended July 4, 1998, income before provision for
income taxes decreased primarily as a result of the second quarter of 1998
having one less shipping and production week as compared to the second quarter
of 1997. The Company's traditional vacation week of the 4th of July occurred
in the second quarter as opposed to the third quarter of 1997.
Provision for Income Taxes
The Company recorded provision for income taxes of $57,000 for the second
quarter of 1998 compared to $116,000 for 1997. Provision for taxes on domestic
income was 39% for 1998 and 1997.
TWENTY-SIX WEEKS ENDED JULY 4, 1998 COMPARED
TO TWENTY-SIX WEEKS ENDED JUNE 28, 1997
1998 Compared to 1997
Net Sales
Net sales for the twenty-six weeks ended July 4, 1998 increased by
$170,000, or .8% to an aggregate of $20,672,000, compared to $20,501,000 in
1997. Total pounds shipped for the 1998 period decreased by .5%. The
twenty-six weeks of 1998 has one less shipping and production week as compared
to the twenty-six weeks in 1997. The Company's traditional vacation week at
the 4th of July occurred in the second quarter as opposed to the third quarter
of 1997.
Cost of Sales and Gross Margin
Cost of sales for the twenty-six weeks ended July 4, 1998 decreased by
.1% on a sales increase of.8%. The twenty-six weeks of 1998 has one less
shipping and production week as compared to the twenty-six weeks of 1997.
The Company's traditional vacation week at the 4th of July occurred in the
second quarter as opposed to the third quarter of 1997.
As a result of an increase in sales of .8% and a decrease in cost
of sales by .1%, gross profit improved by 8.8%, as compared to the like period
of 1997.
14
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the twenty-six weeks
increased $164,000, or 12.4%. The increase is primarily due to increases in
compensation and travel expenses.
Interest Expense
Interest expense for the twenty-six weeks of 1998 decreased by $9,000
compared to 1997 due to lower average long-term debt.
Interest Income
Interest income for the twenty-six weeks increased by $32,000 as compared
to 1997. The increase was due to an increase in funds invested.
Equity in Net Earnings of Affiliate
The Company recorded $200,600 as equity in net earnings of Fytek, S.A. De
C.V., its joint venture in Mexico. The Company's share of net earnings and
losses is 50%. Fytek began operations in the fourth quarter of 1997.
Income before Provision for Income Taxes
For the twenty-six weeks ended July 4, 1998, income before provision
for income taxes increased to $734,000, which includes $201,000 in earnings
of affiliate, compared to $533,000 in 1997, primarily as a result of net
earnings of affiliate.
Provision for Income Taxes
For the twenty-six weeks ended July 4, 1998 and June 28, 1997, the
Company made provision for income taxes of $219,000 and $209,000 respectively,
based on pre-tax income for 1998 of $734,000 and 1997 of $533,000. Income
taxes on as percentage of pre-tax income aggregated 41% and 39% for the 1998
and 1997 period, respectively.
Subsequent Matters
Currently, the outlook for the remainder of 1998 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 impact 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 1998. This definitely impacts the Company's efforts
inboth the automotive and home furnishings industries.
15
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 my 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 July 4, 1998, the Company had
$3,410,00 due from the factor with a net of $3,144,000 to mature on July 22,
1998.
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 July 4, 1998 aggregated $8,600,000 representing a working capital ratio of
3.3 to 1 compared with a working capital of $8,400,000 at January 3, 1998 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 July 4, 1998:
Cash, cash equivalents and receivables.............$8,100,000
Current liabilities................................ 3,779,000
Excess of quick assets over current liabilities....$4,321,000
The Company believes that its cash, cash equivalents and receivables, and its
factoring and credit arrangements will be sufficient to finance its operations
for the next 12 months.
The results of operations of the Company for the periods discussed have not
been significantly affected by inflation.
During the twenty-six weeks of 1998, the Company acquired and made
deposits on new machinery and equipment of approximately $557,000 as set forth
in the accompanying statement of cash flows. For the balance of 1998, the
Company anticipates the acquisition of machinery and equipment of approximately
$1,443,000 which, together with the acquisitions and deposits on acquisitions
incurred to July 4, 1998, will aggregate an anticipated acquisition of new
machinery of approximately $2,000,000 in 1998. The Company plans to finance
its capital from cash provided from operations and bank financing.
16
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (Continued)
The Company has initiated discussions with its significant suppliers,
large customers and financial institutions to ensure that those parties have
appropriate plans to remedy Year 2000 issues where their systems interface
with the Company's systems or otherwise impact its operations. The Company
will assess the extent to which its operations are vulnerable should those
organizations fail to remedy properly their computer systems. While the
Company believes its planning efforts are adequate to address its Year 2000
concerns, there can be no guarantee that the systems of other companies on
which the Company's systems and operations rely will be converted on a
timely basis and will not have a material effect on the Company.
17
BURKE MILLS, INC.
PART II - OTHER INFORMATION
Item 4 - Submission of Matter to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 19, 1998. 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 2,316,544
Charles P. McCamy 2,319,144
Ahmed H. Shaikh 2,308,201
Robert P. Huntley 2,319,144
William T. Dunn 2,319,144
(b) There were no other matters presented for
vote of stockholders.
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 July 4, 1998.
18
BURKE MILLS, INC.
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS INCLUDED IN THE QUARTERLY REPORT
ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED JULY 4, 1998
ITEM NUMBER ITEM DESCRIPTION AMOUNT
5-02(1) Cash and cash items $3,876,230
5-02(2) Marketable securities 0
5-02(3)(a)(1) Notes and accounts receivable - trade 4,224,229
5-02(4) Allowances for doubtful accounts 0
5-02(6) Inventory 3,574,605
5-02(9) Total current assets 12,396,757
5-02(13) Property, plant and equipment 26,907,412
5-02(14) Accumulated depreciation 14,962,126
5-02(18) Total assets 24,898,042
5-02(21) Total current liabilities 3,779,048
5-02(22) Bonds, mortgages and similar debt 4,937,500
5-02(28) Preferred stock- mandatory redemption 0
5-02(29) Preferred stock-no mandatory redemption 0
5-02(30) Common stock 1,809,171
5-02(31) Other stockholders' equity 12,145,523
5-02(32) Total liabilities and stockholders'
equity 24,898,042
5-03(b)1(a) Net sales of tangible products 20,672,108
5-03(b)1 Total revenues 20,672,108
5-03(b)2(a) Cost of tangible goods sold 18,443,356
5-03(b)2 Total costs and expenses applicable
to sales and revenues 18,443,356
5-03(b)3 Other costs and expenses 0
5-03(b)5 Provision for doubtful accounts
and notes 0
5-03(b)(8) Interest and amortization of debt
discount 238,377
5-03(b)(10) Income before taxes and other items 733,905
5-03(b)(11) Income tax expense 218,789
5-03(b)(14) Income/loss continuing operations 515,116
5-03(b)(15) Discontinued operations 0
5-03(b)(17) Extraordinary items 0
5-03(b)(18) Cumulative effect - changes in
accounting principles 0
5-03(b)(19) Net income or loss 515,116
5-03(b)(20) Earnings per share - primary $.19
5-03(b)(20) Earnings per share - fully diluted $.19
19
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: ______________________ /s_________________________
Charles P. McCamy
(President)
Date: ______________________ /s_________________________
Thomas I. Nail
(Vice President Finance)
(Principal Accounting Officer)
(Principal Financial Officer)
20
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