UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 April 3, 1999
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 May 4, 1999, 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
April 3, 1999 and January 2, 1999 3
Condensed Statements of Operations and
Retained Earnings
Thirteen Weeks Ended April 3, 1999
and April 4, 1998 5
Statements of Cash Flows
Thirteen Weeks Ended April 3, 1999
and April 4, 1998 6
Notes to Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 18
Item 6 (a)- Exhibit 27 - Financial Data Schedule 19
SIGNATURES 20
Page 2
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
April 3, January 2,
1999 1999
(Unaudited) (Note A)
----------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 2,349,233 $ 3,384,439
Accounts receivable 4,401,170 3,460,307
Inventories 3,958,637 3,705,849
Prepaid expenses, taxes and other
current assets 405,455 313,872
Deferred income taxes 288,300 349,000
--------- ----------
Total Current Assets $11,402,795 $11,213,467
----------- -----------
Equity Investment in Affiliate 346,623 405,623
------- -------
Property, Plant and Equipment - at cost 28,869,443 28,478,700
Less: Accumulated depreciation 16,246,847 15,869,275
----------- ----------
Property, Plant and Equipment - Net 12,622,596 12,609,425
----------- ----------
Other Assets
Deferred charges 150,967 167,077
------- -------
Total Assets $24,522,981 $24,395,592
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 750,000 $ 750,000
Accounts payable 2,193,633 2,303,876
Accrued salaries, wages and vacation pay 325,007 160,862
Other liabilities and accrued expenses 315,420 137,096
Income taxes payable 11,502 31,600
---------- ----------
Total Current Liabilities $ 3,595,562 $ 3,383,434
Long-term Debt 4,375,000 4,562,500
Deferred Income Taxes 2,217,836 2,220,836
---------- ----------
Total Liabilities $10,188,398 $10,166,770
----------- -----------
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 9,414,063 9,308,302
--------- ---------
Total Shareholders' Equity 14,334,583 14,228,822
---------- ----------
Total Liabilities & Shareholders' Equity $24,522,981 $24,395,592
=========== ===========
Page 3
Note A: The January 2, 1999 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
Page 4
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended
--------------------
April 3, April 4,
1999 1998
---- ----
Net Sales $9,995,969 $10,649,403
---------- ----------
Costs and Expenses
Cost of Sales 8,719,169 9,387,901
Selling, General and
Administrative Expenses 875,701 697,433
Factor's Charges 37,577 47,371
------- ------
Total Costs and Expenses 9,632,447 10,132,705
Operating Earnings 363,522 516,698
---------- ----------
Other Income
Interest Income 29,642 47,462
Gain on Disposal 10,471
Other, net 710 ---
---------- -----------
Total 40,823 47,462
---------- -----------
Other Expenses
Interest Expense 107,108 119,639
Other, net 31,476 30,388
---------- ----------
Total 138,584 150,027
------- -------
Income before Income Taxes and Equity
in Net Earnings of Affiliate 265,761 414,133
Equity in Net Earnings (Loss) of Affiliate (59,000) 54,200
---------- ----------
206,761 468,333
---------- ----------
Provision for Income Taxes 101,000 161,500
---------- ----------
Net Income 105,761 306,833
Retained Earnings at Beginning of Period $9,308,302 $8,519,058
---------- ----------
Retained Earnings at End of Period $9,414,063 $8,825,891
=========== ===========
Earnings Per Share $ .04 $ .11
=========== ===========
Dividends Per Share of Common Stock None None
============ ===========
Weighted Average Common Shares Outstanding 2,741,168 2,741,168
============ ===========
See notes to condensed financial statements.
Page 5
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
--------------------
April 3, April 4,
1999 1998
--------- ---------
Cash flows from operating activities
Net income $ 105,761 $ 306,833
--------- ----------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 454,581 400,093
(Gain) Loss on Sale of plant and
equipment, including loss on disposal (10,471) ---
Equity in earnings of affiliate 59,000 (54,200)
Deferred income taxes 57,700 123,090
Changes in assets and liabilities:
Accounts receivable (940,863) (730,147)
Inventories (252,788) (292,397)
Prepaid expenses, taxes & other
current assets (91,583) (176,714)
Other non-current assets 16,110 (465)
Accounts payable (110,243) 583,046
Accrued salaries, wages & vacation pay 164,146 88,535
Other liabilities and accrued expenses 158,226 (39,837)
------- -------
Total Adjustments (496,185) (98,996)
------- -------
Net cash provided (used) by operating activities (390,424) 207,837
------- -------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (486,327) (314,357)
Proceeds from sale of plant & equipment 29,045 ---
------- -------
Net cash used by investing activities (457,282) (314,357)
--------- ---------
Cash flows from financing activities:
Principal payments of long-term debt (187,500) (187,500)
--------- ---------
Net cash used by financing activities (187,500) (187,500)
--------- ---------
Decrease in cash and cash equivalents (1,035,206) (294,020)
Cash and cash equivalents at beginning of year 3,384,439 4,306,540
--------- ---------
CASH AND EQUIVALENTS AT END OF FIRST QUARTER $2,349,233 $4,012,520
========= ===========
See notes to condensed financial statements
Page 6
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 April 3,
1999 are not necessarily indicative of the results that may be expected for the
year ended January 1, 2000. 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 2, 1999.
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 April 3, 1999 and April 4, 1998 was
$104,000 and $119,000, respectively. Cash paid for income taxes during
the thirteen weeks ended April 3, 1999 was $40,698. No income taxes were
paid during the thirteen weeks ended April 4, 1998.
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.
Page 7
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
April 3, January 2,
1999 1999
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $3,309,000 $2,864,000
Non-factored accounts
receivable............... 1,092,000 596,000
--------- ----------
$4,401,000 $3,460,000
========== ==========
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
April 3, January 2,
1999 1999
---- ----
Finished and in process.... $2,358,000 $2,409,000
Raw materials.............. 1,077,000 728,000
Dyes and chemicals......... 376,000 413,000
Other...................... 148,000 156,000
--------- ---------
$3,959,000 $3,706,000
========== ==========
NOTE 7 - LINE OF CREDIT
Pursuant to a loan agreement dated March 29, 1996, and amended October 12, 1998,
the Company secured an Equipment Loan facility of $2,000,000 and a $1,250,000
Letter of Credit facility. The Equipment Loan shall be evidenced by the
Equipment Note, and shall bear interest at a rate that varies with the LIBOR
rate. The Equipment Note would be payable in 84 installments. At April 3,1999,
the Company had no borrowings under this line of credit.
Also under the Company's factoring arrangement, the Company may borrow from the
factor up to 90% of the face amount of each account sold to the factor. As of
April 3, 1999, the Company had no borrowings from its factor.
Page 8
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 8 - LONG-TERM DEBT
On March 29, 1996, the Company entered into a loan agreement with its bank
providing for a term loan of $6,000,000. The new term loan refinanced the 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 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 (96) consecutive months plus interest at the fixed rate of
8.06%. In order to effect this fixed interest rate, 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 April 3, 1999 are
as follows:
Current portion $ 750,000
2000/2001 750,000
2001/2002 750,000
2002/2003 750,000
2003/2004 750,000
Thereafter 1,375,000 4,375,000
--------- ---------
$5,125,000
Page 9
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 reportin
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:
April 3, January 2,
1999 1999
---- ----
Deferred Tax Assets:
Alternative minimum taxes paid $ 288,300 $ 349,000
========== ===========
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $2,202,300 $2,202,300
Undistributed earnings of foreign
affiliate, net of tax credit 9,700 12,700
Other 5,836 5,836
--------- ---------
$2,217,836 $2,220,836
========== ==========
Thirteen Weeks Ended
--------------------
April 3, April 4
Provision for income taxes 1999 1998
---- ----
consists of:
Deferred $ 57,700 $ 123,090
Federal 22,700 11,430
State 20,600 26,980
--------- ----------
$ 101,000 $ 161,500
========= ==========
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
period ended April 3, 1999 and April 4, 1998.
Page 10
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 occasional temporary cash investments
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 21st to the 30th of the following month. At April 3,
1999, the Company had $3,309,000 due from its factor of which $2,567,000
matured on April 23, 1999. Upon maturity, the funds are automatically
transferred by the factor to the Company's bank.
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 November 1997.
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 three outstanding irrevocable import Letters of
Credit for machinery purchases on April 3, 1999.
1) Latest ship date May 15, 1999, expiring June 15, 1999, in
the amount of $194,000 payable 90% against Bill of Lading
and 10% at 60 days of Bill of Lading date.
2) Latest ship date March 31, 1999, expiring on September 30,
1999, in the amount of approximately $447,000 payable
6 months from Bill of Lading date.
3) Latest ship date April 30, 1999, expiring on May 21, 1999, in
the amount of $500,000 payable 50% against Bill of Lading and
50% upon presentation by Burke Mills of Commissioning Certificate.
d) The Company entered into an agreement to purchase $1,582,000 of dyeing
equipment to be delivered in 1999. The Company made a deposit of $176,000 in
1998, with the remainder to be paid by Letter of Credit to be established one
month before shipment.
e) During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on
its property. The assessment indicated the presence of a contaminant in the
Page 11
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 12 - COMMITMENTS (continued)
groundwater under the Company's property. The contaminant was a solvent used
by the Company in the past but no longer used. The contamination was reported
to the North Carolina Department of Environment and Natural Resources (DENR).
DENR required a Comprehensive Site Assessment that has been completed. The
Company's outside engineering firm conducted testing and prepared a Corrective
Action Plan that was submitted to DENR. The Company has identified remediation
issues and is moving toward a solution of natural attenuation. The Company
believes it has made an adequate provision to earnings in 1997 to cover any
future cost. No provision was made in 1998. This situation will have no
material impact on the capital expenditures, earnings or competitive position
of the Company.
NOTE 13 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS
The company owns 49.8% of Fytek, S.A. de C.V. (Fytek), a Mexican corporation.
The company accounts for the ownership using the equity method. During the first
quarter, the Company had purchases from Fytek of $342,000 compared to $404,000
in 1998.
At April 3, 1999, Fytek owed the Company $130,000 for leased equipment which
was paid for in April 1999.
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 to be recorded 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 No. 121 in the first quarter of 1996 and such adoption did not have
any effect on the financial statements for 1998 or for the thirteen weeks ended
April 3, 1999.
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 week periods
ended April 3, 1999, and April 4, 1998.
Page 12
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
1999 Compared to 1998
- ---------------------
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
April 3, April 4,
1999 1998
---- ----
Net Sales 100.0% 100.0%
Cost of Sales 87.2 88.2
----- -----
Gross Profit 12.8 11.8
Selling, General, Administrative
and Factoring Costs 9.2 7.0
----- -----
Operating Earnings 3.6 4.8
Interest Expense 1.1 1.1
Other (Income) - net (0.1) (0.2)
----- -----
Income before Income Taxes 2.6 3.9
Equity in Net Earnings (Loss) of Affiliate (0.6) .5
Income Taxes 1.0 1.6
----- -----
Net Income 1.0% 2.8%
===== =====
THIRTEEN WEEKS ENDED April 3 ,1999
COMPARED TO THIRTEEN WEEKS ENDED April 4, 1999
Net Sales
- ---------
Net sales for the thirteen weeks ended April 3, 1999 declined by 6.1% to
$9,996,000 compared to $10,649,000 for the first quarter 1998. Pounds shipped
decreased by 5.8% compared to 1997. The decline in sales is primarily due to
weak market conditions that began in the fourth quarter of 1998.
Page 13
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirteen week period of 1999 decreased by 7.1% on a sales
decrease of 6.1%. The Company was able to obtain lower material prices from
its major raw material suppliers.
As a result of a decrease in sales of 6.1% and a decrease in cost of sales of
7.1%, gross margins improved to 12.8% compared to 11.8% in 1998.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses for the first quarter of 1999
increased by $178,000, or 25.6%, primarily due to professional services
required to implement the Company's new ERP software.
Factor's Charges
- ----------------
Factor's charges for the first quarter of 1999 were .4% of net sales as
compared to .5% of net sales in 1998. The percentage of sales factored
decreased during the quarter.
Interest Expense
- ----------------
Interest expense for the first quarter decreased by $13,000, or 10.5%. The
Company's average long-term debt was lower during the period as a result of
principal payments.
Interest Income
- ---------------
Interest income for the first quarter of 1999 decreased due to a decrease in
funds invested.
Equity in Net Earnings (Loss) of Affiliate
- ------------------------------------------
The Company recorded $59,000 as a loss for Fytek, S.A. de C.V., its joint
venture in Mexico. The Company's share of net earnings and losses is 50%.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirteen weeks ended April 3, 1999, income before provision for
income taxes decreased primarily as a result of lower sales, cost to
implement the Company's new ERP software and a loss recorded for its
Mexican joint venture.
Page 14
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Provision for Income Taxes
- --------------------------
The Company recorded provision for income taxes of 101,000 for the first
quarter of 1999 compared to $161,500 for 1998.
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. As of April 3, 1999, the
Company had $3,309,000 due from its factor of which $2,567,000 matured on
April 23, 1999. The Company has the right to borrow up to 90% of the face
amount of each account sold to the factor.
The Company has an equipment line of credit from its bank and under which
the Company may borrow up to $2,000,000 for the acquisition of production
machinery. The amounts borrowed under the credit line would be converted
to a note payable in eighty-four (84) equal monthly installments plus
accrued interest.
The Company's working capital at April 3, 1999, aggregated $7,807,000
representing a working capital ratio of 3.2 to 1 compared with a working
capital of $7,830,000 at January 2, 1999, and a working capital ratio of
3.3 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 April 3, 1999:
Cash, cash equivalents and receivables........... $6,750,000
Current liabilities.............................. 3,596,000
---------
Excess of quick assets over current liabilities.. $3,154,000
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.
Page 15
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
During the thirteen weeks of 1999, the Company acquired and made deposits on new
machinery and equipment of approximately $486,000 as set forth in the
accompanying statement of cash flows. For the balance of 1999, the Company
anticipates the acquisition of machinery and equipment of approximately
$3,114,000 which, together with the acquisitions and deposits on acquisitions
incurred to April 3, 1999, will aggregate an anticipated acquisition of new
machinery of approximately $3,600,000 in 1999. The Company plans to finance its
capital from cash provided from operations and bank financing.
The Company's cash and equivalents decreased for the thirteen weeks ended
April 3, 1999, to $2,349,000 from $3,384,000 at January 2, 1999, primarily
from increases in accounts receivable and inventory aggregating $1,194,000,
acquisitions of equipment and deposits of $486,000 and payments of long-term
debt of $187,500, offset partially by increased salaries and wages payable
and accrued expenses.
Year 2000 Compliance
- --------------------
The Company has assessed its systems and determined the areas that are
non-compliant. The company is replacing its manufacturing software and
accounting software with a fully integrated system. It is estimated that the
software will be installed and running by July 1999, and will solve any
non-compliant problems. The installation is coincidental to the year 2000
problem as the Company already had plans to upgrade its existing software to
improve information efficiencies.
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. The Company has alternate or
substitute sources for major raw material, gas, and fuel oil.
The Company entered into a contract on November 5, 1998 with Osprey Systems,
Inc., to purchase and install Enterprise Resource Planning software. The
software will replace various custom manufacturing applications and the
accounting software, giving the Company a full integrated software operational
system. Currently, the Company's manufacturing applications are not fully
integrated, and there is no integration between manufacturing and accounting.
It is believed that the new software will better handle growing demands from
customers for information, improve the order to cash cycle, and solve any Year
2000 problems.
The cost of the project to include software, hardware, implementation and
training will be approximately $900,000 paid over seven months that began in
Page 16
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Year 2000 Compliance (contd.)
- -----------------------------
November 1998. The Company will expense approximately $600,000 of the project
in 1999 which is expected to be completed in July 1999.
The cost to bring the existing software into compliance for Year 2000 is not
known as the Company planned to replace the software.
The Company believes the worst case scenario would occur if the Company's
electrical utilities were interrupted. The Company has no alternate source or
substitute for electricity, and any interruption would materially affect the
Company.
Forward Looking Statements
- --------------------------
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, and other sections of this report, contain
forward-looking statements within the meaning of federal securities laws about
the Company's financial condition and results of operations that are based on
management's current expectations, beliefs, assumptions, estimates and
projections about the markets in which the Company operates. Words such as
"expects", "anticipates", "believes", "estimates", variations of such words and
other similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's judgement only as of the date hereof. The
Company undertakes no obligations to update publicly any of these forward-
looking statements to reflect new information, future events or otherwise.
Factors that may cause actual outcome and results to differ materially from
those expressed in, or implied by, these forward-looking statements include,
but are not necessarily limited to, availability, sourcing and pricing of raw
materials, pressures on sales prices due to competition and economic
conditions, reliance on and financial viability of significant customers,
technological advancements, employee relations, changes in construction
spending and capital equipment expenditures (including those related to
unforeseen acquisition opportunities), the timely completion of construction
and expansion projects planned or in process, continued availability of
financial resources through financing arrangements and operations, negotiations
of new or modifications of existing contracts for asset management and for
property and equipment construction and acquisition, regulations governing tax
laws, other governmental and authoritative bodies, policies and legislation,
and proceeds received from the sale of assets held for disposal. In addition to
these representative factors, forward-looking statements could be impacted by
general domestic and international economic and industry conditions in the
markets where the Company competes; such as, changes in currency exchange
rates, interest and inflation rates, recession and other economic and political
factors over which the Company has no control.
Page 17
BURKE MILLS, INC.
PART II - OTHER INFORMATION
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 April 3, 1999.
Page 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 THIRTEEN WEEKS ENDED
April 3, 1999
ITEM NUMBER ITEM DESCRIPTION AMOUNT
5-02(1) Cash and cash items $2,349,233
5-02(2) Marketable securities 0
5-02(3)(a)(1) Notes and accounts receivable - trade 4,401,170
5-02(4) Allowances for doubtful accounts 0
5-02(6) Inventory 3,958,637
5-02(9) Total current assets 11,402,795
5-02(13) Property, plant and equipment 28,869,443
5-02(14) Accumulated depreciation 16,246,847
5-02(18) Total assets 24,522,981
5-02(21) Total current liabilities 3,595,562
5-02(22) Bonds, mortgages and similar debt 4,375,000
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 12,525,412
5-02(32) Total liabilities and stockholders'
equity 24,522,981
5-03(b)1(a) Net sales of tangible products 9,995,969
5-03(b)1 Total revenues 9,995,969
5-03(b)2(a) Cost of tangible goods sold 8,719,169
5-03(b)2 Total costs and expenses applicable
to sales and revenues 8,719,169
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 107,108
5-03(b)(10) Income before taxes and other items 206,761
5-03(b)(11) Income tax expense 101,000
5-03(b)(14) Income/loss continuing operations 105,761
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 105,761
5-03(b)(20) Earnings per share - primary $.04
5-03(b)(20) Earnings per share - fully diluted $.04
Page 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: May 14, 1999 By: Charles P. McCamy /s
------------------ -----------------------------
Charles P. McCamy
(President)
Date: May 14, 1999 By: Thomas I. Nail /s
------------------ ----------------------------
Thomas I. Nail
(Vice President Finance)
(Principal Accounting Officer)
(Principal Financial Officer)
Page 20
End